Registration Nos.: 2-99356
811-04367
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. 46 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 47 [X]
COLUMBIA FUNDS SERIES TRUST I
(FORMERLY NAMED COLUMBIA FUNDS TRUST IX)
(Exact Name of Registrant as Specified in Charter)
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One Financial Center, Boston, Massachusetts 02lll
(Address of Principal Executive Offices)
617-426-3750
(Registrant's Telephone Number, including Area Code)
Name and Address
of Agent for Service Copy to
-------------------- -------
James R. Bordewick, Jr., Esq. John M. Loder, Esq.
Columbia Management Advisors, LLC Ropes & Gray LLP
One Financial Center One International Place
Boston, Massachusetts 02111 Boston, Massachusetts 02110-2624
Cameron S. Avery, Esq.
Bell, Boyd & Lloyd LLC
70 West Madison Street, Suite 3300
Chicago, Illinois 60602-4207
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It is proposed that the filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b)
[X] on March 27, 2006 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) 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.
This Post-Effective Amendment relates solely to the Registrant's Columbia Asset Allocation Fund, Columbia Balanced Fund, Columbia Common Stock Fund, Columbia Connecticut Intermediate Municipal Bond Fund, Columbia Connecticut Tax-Exempt Fund, Columbia Core Bond Fund, Columbia Disciplined Value Fund, Columbia Dividend Income Fund, Columbia Greater China Fund, Columbia Growth Stock Fund, Columbia High Yield Opportunity Fund,
Columbia Income Fund, Columbia Intermediate Bond Fund, Columbia International Stock Fund, Columbia Large Cap Growth Fund, Columbia Liberty Fund, Columbia Massachusetts Intermediate Municipal Bond Fund, Columbia Massachusetts Tax-Exempt Fund, Columbia Mid Cap Growth Fund, Columbia New Jersey Intermediate Municipal Bond Fund, Columbia New York Intermediate Municipal Bond Fund, Columbia New York Tax-Exempt Fund, Columbia Oregon Intermediate Municipal Bond Fund, Columbia Real Estate Equity Fund, Columbia Rhode Island Intermediate Municipal Bond Fund, Columbia Small Cap Core Fund, Columbia Small Cap Growth Fund I, Columbia Small Cap Value Fund I, Columbia Small Company Equity Fund, Columbia Strategic Investor Fund, Columbia Tax-Exempt Fund, Columbia Tax-Exempt Insured Fund, Columbia Technology Fund, Columbia U.S. Treasury Index Fund, Columbia Utilities Fund, Columbia World Equity Fund and Columbia Young Investor Fund series. No information contained in the registration statement relating to the other series of the Registrant is amended or superceded herby.
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED JANUARY 1, 2006
COLUMBIA BALANCED FUND (THE "FUND")
CLASS A, B, C AND D SHARES
The Prospectus is hereby supplemented with the following information:
1. The back cover of the Prospectus in the section titled "For More Information" is revised to include the name of the Trust, "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The "Calendar Year Total Returns" and "Average Annual Total Returns" tables for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS (CLASS A)(1)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ----- ----- ----- ----- ---- ----- ------ ----- ---- ---- 11.78% 18.74% 20.07% 12.70% 0.82% -7.40% -12.99% 18.08% 6.37% 5.54% |
For the periods shown above:
Best quarter: 4th quarter 1998, +12.86%
Worst quarter: 3rd quarter 2002, -9.21%
(1) Class A is a newer class of shares. Its performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer class of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been lower. Class A shares were initially offered on November 1, 2002, and Class Z shares were initially offered on October 1, 1991.
AVERAGE ANNUAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 2005(1)
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Class A (%)
Return Before Taxes (0.53) 0.14 6.19
Return After Taxes on Distributions (1.05) (0.52) 4.35
Return After Taxes on Distributions
and Sale of Fund Shares (0.24) (0.26) 4.31
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Class B (%)
Return Before Taxes (0.29) 0.47 6.56
Return After Taxes on Distributions (0.61) (0.09) 4.78
Return After Taxes on Distributions
and Sale of Fund Shares (0.12) 0.07 4.68
Class C (%)
Return Before Taxes 3.71 0.85 6.57
Return After Taxes on Distributions 3.39 0.29 4.78
Return After Taxes on Distributions
and Sale of Fund Shares 2.48 0.39 4.68
Class D (%)
Return Before Taxes 3.76 0.67 6.47
Return After Taxes on Distributions 3.43 0.11 4.69
Return After Taxes on Distributions
and Sale of Fund Shares 2.51 0.24 4.60
S&P 500 Index (%) 4.91 0.54 9.07
Lehman Brothers Aggregate Bond Index (%) 2.43 5.87 6.16
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(1) Class A, Class B, Class C and Class D are newer classes of shares. Their performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to their inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class C shares were initially offered on October 13, 2003, Class A, B and D shares were initially offered on November 1, 2002, and Class Z shares were initially offered on October 1, 1991.
4. The section entitled "Legal Proceedings" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws;
maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain
Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107628-0306 March 27, 2006
COLUMBIA BALANCED FUND, INC.
COLUMBIA CONSERVATIVE HIGH YIELD FUND
COLUMBIA OREGON INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA REAL ESTATE EQUITY FUND, INC.
COLUMBIA SMALL CAP GROWTH FUND I
COLUMBIA MID CAP GROWTH FUND, INC.
COLUMBIA STRATEGIC INVESTOR FUND, INC.
COLUMBIA TECHNOLOGY FUND, INC.
(EACH A "FUND" AND COLLECTIVELY, THE "FUNDS")
SUPPLEMENT TO THE PROSPECTUSES DATED JANUARY 1, 2006 (THE "PROSPECTUSES")
The Prospectuses are hereby supplemented with the following revised information relating to hypothetical investment and expense information:
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The charts also assume that all dividends and distributions are reinvested and that Class B shares and Class G shares convert to Class A shares and Class T shares after eight years, respectively. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the ""Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the ""Annual Fees and Expenses" amounts shown would be higher.
COLUMBIA BALANCED FUND, INC. -- CLASS A SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
5.75% $10,000.00 5%
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HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 0.94% -1.92%(2) $ 9,807.66 $ 665.39
2 10.25% 0.94% 2.06% $10,205.85 $ 94.06
3 15.76% 0.94% 6.20% $10,620.20 $ 97.88
4 21.55% 0.94% 10.51% $11,051.38 $ 101.86
5 27.63% 0.94% 15.00% $11,500.07 $ 105.99
6 34.01% 0.94% 19.67% $11,966.97 $ 110.30
7 40.71% 0.94% 24.53% $12,452.83 $ 114.77
8 47.75% 0.94% 29.58% $12,958.42 $ 119.43
9 55.13% 0.94% 34.85% $13,484.53 $ 124.28
10 62.89% 0.94% 40.32% $14,032.00 $ 129.33
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,032.00
TOTAL ANNUAL FEES AND EXPENSES $1,663.30
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(2) Reflects deduction of the maximum initial sales charge.
COLUMBIA BALANCED FUND, INC. -- CLASS B SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
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HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.69% 3.31% $10,331.00 $ 171.80
2 10.25% 1.69% 6.73% $10,672.96 $ 177.48
3 15.76% 1.69% 10.26% $11,026.23 $ 183.36
4 21.55% 1.69% 13.91% $11,391.20 $ 189.43
5 27.63% 1.69% 17.68% $11,768.25 $ 195.70
6 34.01% 1.69% 21.58% $12,157.78 $ 202.17
7 40.71% 1.69% 25.60% $12,560.20 $ 208.87
8 47.75% 1.69% 29.76% $12,975.94 $ 215.78
9 55.13% 0.94% 35.03% $13,502.77 $ 124.45
10 62.89% 0.94% 40.51% $14,050.98 $ 129.50
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,050.98
TOTAL ANNUAL FEES AND EXPENSES $1,798.54
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COLUMBIA BALANCED FUND, INC. -- CLASS C SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
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HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.69% 3.31% $10,331.00 $ 171.80
2 10.25% 1.69% 6.73% $10,672.96 $ 177.48
3 15.76% 1.69% 10.26% $11,026.23 $ 183.36
4 21.55% 1.69% 13.91% $11,391.20 $ 189.43
5 27.63% 1.69% 17.68% $11,768.25 $ 195.70
6 34.01% 1.69% 21.58% $12,157.78 $ 202.17
7 40.71% 1.69% 25.60% $12,560.20 $ 208.87
8 47.75% 1.69% 29.76% $12,975.94 $ 215.78
9 55.13% 1.69% 34.05% $13,405.45 $ 222.92
10 62.89% 1.69% 38.49% $13,849.17 $ 230.30
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,849.17
TOTAL ANNUAL FEES AND EXPENSES $1,997.81
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COLUMBIA BALANCED FUND, INC. -- CLASS D SHARES
MAXIMUM SALES INITIAL HYPOTHETICAL ASSUMED RATE
CHARGE INVESTMENT AMOUNT OF RETURN
------------- -------------------- ------------
0.00% $10,000.00 5%
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HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.69% 3.31% $10,331.00 $ 171.80
2 10.25% 1.69% 6.73% $10,672.96 $ 177.48
3 15.76% 1.69% 10.26% $11,026.23 $ 183.36
4 21.55% 1.69% 13.91% $11,391.20 $ 189.43
5 27.63% 1.69% 17.68% $11,768.25 $ 195.70
6 34.01% 1.69% 21.58% $12,157.78 $ 202.17
7 40.71% 1.69% 25.60% $12,560.20 $ 208.87
8 47.75% 1.69% 29.76% $12,975.94 $ 215.78
9 55.13% 1.69% 34.05% $13,405.45 $ 222.92
10 62.89% 1.69% 38.49% $13,849.17 $ 230.30
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,849.17
TOTAL ANNUAL FEES AND EXPENSES $1,997.81
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COLUMBIA BALANCED FUND, INC. -- CLASS Z SHARES
MAXIMUM SALES INITIAL HYPOTHETICAL ASSUMED RATE
CHARGE INVESTMENT AMOUNT OF RETURN
------------- -------------------- ------------
0.00% $10,000.00 5%
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HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 0.69% 4.31% $10,431.00 $ 70.49
2 10.25% 0.69% 8.81% $10,880.58 $ 73.52
3 15.76% 0.69% 13.50% $11,349.53 $ 76.69
4 21.55% 0.69% 18.39% $11,838.69 $ 80.00
5 27.63% 0.69% 23.49% $12,348.94 $ 83.45
6 34.01% 0.69% 28.81% $12,881.18 $ 87.04
7 40.71% 0.69% 34.36% $13,436.36 $ 90.80
8 47.75% 0.69% 40.15% $14,015.47 $ 94.71
9 55.13% 0.69% 46.20% $14,619.53 $ 98.79
10 62.89% 0.69% 52.50% $15,249.64 $103.05
TOTAL GAIN AFTER FEES AND EXPENSES $ 5,249.64
TOTAL ANNUAL FEES AND EXPENSES $858.54
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COLUMBIA CONSERVATIVE HIGH YIELD FUND -- CLASS A SHARES
MAXIMUM SALES INITIAL HYPOTHETICAL ASSUMED RATE
CHARGE INVESTMENT AMOUNT OF RETURN
------------- -------------------- ------------
4.75% $10,000.00 5%
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HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 0.93% -0.87%(2) $ 9,912.67 $ 565.39
2 10.25% 0.93% 3.16% $10,316.11 $ 94.06
3 15.76% 0.93% 7.36% $10,735.98 $ 97.89
4 21.55% 0.93% 11.73% $11,172.93 $ 101.88
5 27.63% 0.93% 16.28% $11,627.67 $ 106.02
6 34.01% 0.93% 21.01% $12,100.92 $ 110.34
7 40.71% 0.93% 25.93% $12,593.43 $ 114.83
8 47.75% 0.93% 31.06% $13,105.98 $ 119.50
9 55.13% 0.93% 36.39% $13,639.39 $ 124.37
10 62.89% 0.93% 41.95% $14,194.51 $ 129.43
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,194.51
TOTAL ANNUAL FEES AND EXPENSES $1,563.70
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(2) Reflects deduction of the maximum initial sales charge.
COLUMBIA CONSERVATIVE HIGH YIELD FUND -- CLASS B SHARES
MAXIMUM SALES INITIAL HYPOTHETICAL ASSUMED RATE
CHARGE INVESTMENT AMOUNT OF RETURN
------------- -------------------- ------------
0.00% $10,000.00 5%
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HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.68% 3.32% $10,332.00 $ 170.79
2 10.25% 1.68% 6.75% $10,675.02 $ 176.46
3 15.76% 1.68% 10.29% $11,029.43 $ 182.32
4 21.55% 1.68% 13.96% $11,395.61 $ 188.37
5 27.63% 1.68% 17.74% $11,773.94 $ 194.62
6 34.01% 1.68% 21.65% $12,164.84 $ 201.09
7 40.71% 1.68% 25.69% $12,568.71 $ 207.76
8 47.75% 1.68% 29.86% $12,985.99 $ 214.66
9 55.13% 0.93% 35.15% $13,514.52 $ 123.23
10 62.89% 0.93% 40.65% $14,064.56 $ 128.24
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,064.56
TOTAL ANNUAL FEES AND EXPENSES $1,787.54
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COLUMBIA CONSERVATIVE HIGH YIELD FUND -- CLASS C SHARES
MAXIMUM SALES INITIAL HYPOTHETICAL ASSUMED RATE
CHARGE INVESTMENT AMOUNT OF RETURN
------------- -------------------- ------------
0.00% $10,000.00 5%
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HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.68% 3.32% $10,332.00 $ 170.79
2 10.25% 1.68% 6.75% $10,675.02 $ 176.46
3 15.76% 1.68% 10.29% $11,029.43 $ 182.32
4 21.55% 1.68% 13.96% $11,395.61 $ 188.37
5 27.63% 1.68% 17.74% $11,773.94 $ 194.62
6 34.01% 1.68% 21.65% $12,164.84 $ 201.09
7 40.71% 1.68% 25.69% $12,568.71 $ 207.76
8 47.75% 1.68% 29.86% $12,985.99 $ 214.66
9 55.13% 1.68% 34.17% $13,417.13 $ 221.79
10 62.89% 1.68% 38.63% $13,862.58 $ 229.15
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,862.58
TOTAL ANNUAL FEES AND EXPENSES $1,987.00
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COLUMBIA CONSERVATIVE HIGH YIELD FUND -- CLASS D SHARES
MAXIMUM SALES INITIAL HYPOTHETICAL ASSUMED RATE
CHARGE INVESTMENT AMOUNT OF RETURN
------------- -------------------- ------------
0.00% $10,000.00 5%
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HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.68% 3.32% $10,332.00 $ 170.79
2 10.25% 1.68% 6.75% $10,675.02 $ 176.46
3 15.76% 1.68% 10.29% $11,029.43 $ 182.32
4 21.55% 1.68% 13.96% $11,395.61 $ 188.37
5 27.63% 1.68% 17.74% $11,773.94 $ 194.62
6 34.01% 1.68% 21.65% $12,164.84 $ 201.09
7 40.71% 1.68% 25.69% $12,568.71 $ 207.76
8 47.75% 1.68% 29.86% $12,985.99 $ 214.66
9 55.13% 1.68% 34.17% $13,417.13 $ 221.79
10 62.89% 1.68% 38.63% $13,862.58 $ 229.15
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,862.58
TOTAL ANNUAL FEES AND EXPENSES $1,987.00
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COLUMBIA CONSERVATIVE HIGH YIELD FUND -- CLASS Z SHARES
MAXIMUM SALES INITIAL HYPOTHETICAL ASSUMED RATE
CHARGE INVESTMENT AMOUNT OF RETURN
------------- -------------------- ------------
0.00% $10,000.00 5%
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HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 0.68% 4.32% $10,432.00 $ 69.47
2 10.25% 0.68% 8.83% $10,882.66 $ 72.47
3 15.76% 0.68% 13.53% $11,352.79 $ 75.60
4 21.55% 0.68% 18.43% $11,843.23 $ 78.87
5 27.63% 0.68% 23.55% $12,354.86 $ 82.27
6 34.01% 0.68% 28.89% $12,888.59 $ 85.83
7 40.71% 0.68% 34.45% $13,445.38 $ 89.54
8 47.75% 0.68% 40.26% $14,026.22 $ 93.40
9 55.13% 0.68% 46.32% $14,632.15 $ 97.44
10 62.89% 0.68% 52.64% $15,264.26 $101.65
TOTAL GAIN AFTER FEES AND EXPENSES $ 5,264.26
TOTAL ANNUAL FEES AND EXPENSES $846.53
|
COLUMBIA OREGON INTERMEDIATE MUNICIPAL BOND FUND -- CLASS A SHARES
MAXIMUM SALES INITIAL HYPOTHETICAL ASSUMED RATE
CHARGE INVESTMENT AMOUNT OF RETURN
------------- -------------------- ------------
4.75% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 0.87% -0.82%(2) $ 9,918.38 $ 559.58
2 10.25% 0.87% 3.28% $10,328.01 $ 88.07
3 15.76% 0.87% 7.55% $10,754.56 $ 91.71
4 21.55% 0.87% 11.99% $11,198.72 $ 95.50
5 27.63% 0.87% 16.61% $11,661.23 $ 99.44
6 34.01% 0.87% 21.43% $12,142.84 $ 103.55
7 40.71% 0.87% 26.44% $12,644.34 $ 107.82
8 47.75% 0.87% 31.67% $13,166.55 $ 112.28
9 55.13% 0.87% 37.10% $13,710.33 $ 116.91
10 62.89% 0.87% 42.77% $14,276.56 $ 121.74
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,276.56
TOTAL ANNUAL FEES AND EXPENSES $1,496.60
|
(2) Reflects deduction of the maximum initial sales charge.
COLUMBIA OREGON INTERMEDIATE MUNICIPAL BOND FUND -- CLASS B SHARES
MAXIMUM SALES INITIAL HYPOTHETICAL ASSUMED RATE
CHARGE INVESTMENT AMOUNT OF RETURN
------------- -------------------- ------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.62% 3.38% $10,338.00 $ 164.74
2 10.25% 1.62% 6.87% $10,687.42 $ 170.31
3 15.76% 1.62% 10.49% $11,048.66 $ 176.06
4 21.55% 1.62% 14.22% $11,422.10 $ 182.01
5 27.63% 1.62% 18.08% $11,808.17 $ 188.17
6 34.01% 1.62% 22.07% $12,207.29 $ 194.53
7 40.71% 1.62% 26.20% $12,619.89 $ 201.10
8 47.75% 1.62% 30.46% $13,046.45 $ 207.90
9 55.13% 0.87% 35.85% $13,585.26 $ 115.85
10 62.89% 0.87% 41.46% $14,146.34 $ 120.63
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,146.34
TOTAL ANNUAL FEES AND EXPENSES $1,721.29
|
COLUMBIA OREGON INTERMEDIATE MUNICIPAL BOND FUND -- CLASS C SHARES
MAXIMUM SALES INITIAL HYPOTHETICAL ASSUMED RATE
CHARGE INVESTMENT AMOUNT OF RETURN
------------- -------------------- ------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.62% 3.38% $10,338.00 $ 164.74
2 10.25% 1.62% 6.87% $10,687.42 $ 170.31
3 15.76% 1.62% 10.49% $11,048.66 $ 176.06
4 21.55% 1.62% 14.22% $11,422.10 $ 182.01
5 27.63% 1.62% 18.08% $11,808.17 $ 188.17
6 34.01% 1.62% 22.07% $12,207.29 $ 194.53
7 40.71% 1.62% 26.20% $12,619.89 $ 201.10
8 47.75% 1.62% 30.46% $13,046.45 $ 207.90
9 55.13% 1.62% 34.87% $13,487.42 $ 214.92
10 62.89% 1.62% 39.43% $13,943.29 $ 222.19
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,943.29
TOTAL ANNUAL FEES AND EXPENSES $1,921.92
|
COLUMBIA OREGON INTERMEDIATE MUNICIPAL BOND FUND -- CLASS D SHARES
MAXIMUM SALES INITIAL HYPOTHETICAL ASSUMED RATE
CHARGE INVESTMENT AMOUNT OF RETURN
------------- -------------------- ------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.62% 3.38% $10,338.00 $ 164.74
2 10.25% 1.62% 6.87% $10,687.42 $ 170.31
3 15.76% 1.62% 10.49% $11,048.66 $ 176.06
4 21.55% 1.62% 14.22% $11,422.10 $ 182.01
5 27.63% 1.62% 18.08% $11,808.17 $ 188.17
6 34.01% 1.62% 22.07% $12,207.29 $ 194.53
7 40.71% 1.62% 26.20% $12,619.89 $ 201.10
8 47.75% 1.62% 30.46% $13,046.45 $ 207.90
9 55.13% 1.62% 34.87% $13,487.42 $ 214.92
10 62.89% 1.62% 39.43% $13,943.29 $ 222.19
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,943.29
TOTAL ANNUAL FEES AND EXPENSES $1,921.92
|
COLUMBIA OREGON INTERMEDIATE MUNICIPAL BOND FUND -- CLASS Z SHARES
MAXIMUM SALES INITIAL HYPOTHETICAL ASSUMED RATE
CHARGE INVESTMENT AMOUNT OF RETURN
------------- -------------------- ------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 0.62% 4.38% $10,438.00 $ 63.36
2 10.25% 0.62% 8.95% $10,895.18 $ 66.13
3 15.76% 0.62% 13.72% $11,372.39 $ 69.03
4 21.55% 0.62% 18.71% $11,870.50 $ 72.05
5 27.63% 0.62% 23.90% $12,390.43 $ 75.21
6 34.01% 0.62% 29.33% $12,933.13 $ 78.50
7 40.71% 0.62% 35.00% $13,499.60 $ 81.94
8 47.75% 0.62% 40.91% $14,090.89 $ 85.53
9 55.13% 0.62% 47.08% $14,708.07 $ 89.28
10 62.89% 0.62% 53.52% $15,352.28 $ 93.19
TOTAL GAIN AFTER FEES AND EXPENSES $ 5,352.28
TOTAL ANNUAL FEES AND EXPENSES $774.22
|
COLUMBIA REAL ESTATE EQUITY FUND, INC. -- CLASS A SHARES
MAXIMUM SALES INITIAL HYPOTHETICAL ASSUMED RATE
CHARGE INVESTMENT AMOUNT OF RETURN
------------- -------------------- ------------
5.75% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.17% -2.14%(2) $ 9,785.98 $ 687.38
2 10.25% 1.17% 1.61% $10,160.78 $ 116.69
3 15.76% 1.17% 5.50% $10,549.94 $ 121.16
4 21.55% 1.17% 9.54% $10,954.00 $ 125.80
5 27.63% 1.17% 13.74% $11,373.54 $ 130.62
6 34.01% 1.17% 18.09% $11,809.15 $ 135.62
7 40.71% 1.17% 22.61% $12,261.44 $ 140.81
8 47.75% 1.17% 27.31% $12,731.05 $ 146.21
9 55.13% 1.17% 32.19% $13,218.65 $ 151.81
10 62.89% 1.17% 37.25% $13,724.92 $ 157.62
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,724.92
TOTAL ANNUAL FEES AND EXPENSES $1,913.71
|
(2) Reflects deduction of the maximum initial sales charge.
COLUMBIA REAL ESTATE EQUITY FUND, INC. -- CLASS B SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.92% 3.08% $10,308.00 $ 194.96
2 10.25% 1.92% 6.25% $10,625.49 $ 200.96
3 15.76% 1.92% 9.53% $10,952.75 $ 207.15
4 21.55% 1.92% 12.90% $11,290.10 $ 213.53
5 27.63% 1.92% 16.38% $11,637.83 $ 220.11
6 34.01% 1.92% 19.96% $11,996.28 $ 226.89
7 40.71% 1.92% 23.66% $12,365.76 $ 233.88
8 47.75% 1.92% 27.47% $12,746.63 $ 241.08
9 55.13% 1.17% 32.35% $13,234.82 $ 151.99
10 62.89% 1.17% 37.42% $13,741.72 $ 157.81
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,741.72
TOTAL ANNUAL FEES AND EXPENSES $2,048.35
|
COLUMBIA REAL ESTATE EQUITY FUND, INC. -- CLASS C SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.92% 3.08% $10,308.00 $ 194.96
2 10.25% 1.92% 6.25% $10,625.49 $ 200.96
3 15.76% 1.92% 9.53% $10,952.75 $ 207.15
4 21.55% 1.92% 12.90% $11,290.10 $ 213.53
5 27.63% 1.92% 16.38% $11,637.83 $ 220.11
6 34.01% 1.92% 19.96% $11,996.28 $ 226.89
7 40.71% 1.92% 23.66% $12,365.76 $ 233.88
8 47.75% 1.92% 27.47% $12,746.63 $ 241.08
9 55.13% 1.92% 31.39% $13,139.22 $ 248.50
10 62.89% 1.92% 35.44% $13,543.91 $ 256.16
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,543.91
TOTAL ANNUAL FEES AND EXPENSES $2,243.21
|
COLUMBIA REAL ESTATE EQUITY FUND, INC. -- CLASS D SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.92% 3.08% $10,308.00 $ 194.96
2 10.25% 1.92% 6.25% $10,625.49 $ 200.96
3 15.76% 1.92% 9.53% $10,952.75 $ 207.15
4 21.55% 1.92% 12.90% $11,290.10 $ 213.53
5 27.63% 1.92% 16.38% $11,637.83 $ 220.11
6 34.01% 1.92% 19.96% $11,996.28 $ 226.89
7 40.71% 1.92% 23.66% $12,365.76 $ 233.88
8 47.75% 1.92% 27.47% $12,746.63 $ 241.08
9 55.13% 1.92% 31.39% $13,139.22 $ 248.50
10 62.89% 1.92% 35.44% $13,543.91 $ 256.16
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,543.91
TOTAL ANNUAL FEES AND EXPENSES $2,243.21
|
COLUMBIA REAL ESTATE EQUITY FUND, INC. -- CLASS Z SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 0.92% 4.08% $10,408.00 $ 93.88
2 10.25% 0.92% 8.33% $10,832.65 $ 97.71
3 15.76% 0.92% 12.75% $11,274.62 $ 101.69
4 21.55% 0.92% 17.35% $11,734.62 $ 105.84
5 27.63% 0.92% 22.13% $12,213.40 $ 110.16
6 34.01% 0.92% 27.12% $12,711.70 $ 114.66
7 40.71% 0.92% 32.30% $13,230.34 $ 119.33
8 47.75% 0.92% 37.70% $13,770.14 $ 124.20
9 55.13% 0.92% 43.32% $14,331.96 $ 129.27
10 62.89% 0.92% 49.17% $14,916.70 $ 134.54
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,916.70
TOTAL ANNUAL FEES AND EXPENSES $1,131.29
|
COLUMBIA SMALL CAP GROWTH FUND I -- CLASS A SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
5.75% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.31% -2.27%(2) $ 9,772.78 $ 700.75
2 10.25% 1.31% 1.33% $10,133.40 $ 130.39
3 15.76% 1.31% 5.07% $10,507.32 $ 135.20
4 21.55% 1.31% 8.95% $10,895.04 $ 140.19
5 27.63% 1.31% 12.97% $11,297.07 $ 145.36
6 34.01% 1.31% 17.14% $11,713.93 $ 150.72
7 40.71% 1.31% 21.46% $12,146.17 $ 156.28
8 47.75% 1.31% 25.94% $12,594.37 $ 162.05
9 55.13% 1.31% 30.59% $13,059.10 $ 168.03
10 62.89% 1.31% 35.41% $13,540.98 $ 174.23
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,540.98
TOTAL ANNUAL FEES AND EXPENSES $2,063.19
|
(2) Reflects deduction of the maximum initial sales charge.
COLUMBIA SMALL CAP GROWTH FUND I -- CLASS B SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 2.06% 2.94% $10,294.00 $ 209.03
2 10.25% 2.06% 5.97% $10,596.64 $ 215.17
3 15.76% 2.06% 9.08% $10,908.18 $ 221.50
4 21.55% 2.06% 12.29% $11,228.89 $ 228.01
5 27.63% 2.06% 15.59% $11,559.01 $ 234.72
6 34.01% 2.06% 18.99% $11,898.85 $ 241.62
7 40.71% 2.06% 22.49% $12,248.68 $ 248.72
8 47.75% 2.06% 26.09% $12,608.79 $ 256.03
9 55.13% 1.31% 30.74% $13,074.05 $ 168.22
10 62.89% 1.31% 35.56% $13,556.48 $ 174.43
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,556.48
TOTAL ANNUAL FEES AND EXPENSES $2,197.45
|
COLUMBIA SMALL CAP GROWTH FUND I -- CLASS C SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 2.06% 2.94% $10,294.00 $ 209.03
2 10.25% 2.06% 5.97% $10,596.64 $ 215.17
3 15.76% 2.06% 9.08% $10,908.18 $ 221.50
4 21.55% 2.06% 12.29% $11,228.89 $ 228.01
5 27.63% 2.06% 15.59% $11,559.01 $ 234.72
6 34.01% 2.06% 18.99% $11,898.85 $ 241.62
7 40.71% 2.06% 22.49% $12,248.68 $ 248.72
8 47.75% 2.06% 26.09% $12,608.79 $ 256.03
9 55.13% 2.06% 29.79% $12,979.49 $ 263.56
10 62.89% 2.06% 33.61% $13,361.08 $ 271.31
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,361.08
TOTAL ANNUAL FEES AND EXPENSES $2,389.66
|
COLUMBIA SMALL CAP GROWTH FUND I -- CLASS Z SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.06% 3.94% $10,394.00 $ 108.09
2 10.25% 1.06% 8.04% $10,803.52 $ 112.35
3 15.76% 1.06% 12.29% $11,229.18 $ 116.77
4 21.55% 1.06% 16.72% $11,671.61 $ 121.37
5 27.63% 1.06% 21.31% $12,131.47 $ 126.16
6 34.01% 1.06% 26.09% $12,609.45 $ 131.13
7 40.71% 1.06% 31.06% $13,106.27 $ 136.29
8 47.75% 1.06% 36.23% $13,622.65 $ 141.66
9 55.13% 1.06% 41.59% $14,159.39 $ 147.24
10 62.89% 1.06% 47.17% $14,717.27 $ 153.05
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,717.27
TOTAL ANNUAL FEES AND EXPENSES $1,294.11
|
COLUMBIA MID CAP GROWTH FUND, INC. -- CLASS A SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
5.75% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.21% -2.18%(2) $ 9,782.21 $ 691.20
2 10.25% 1.21% 1.53% $10,152.95 $ 120.61
3 15.76% 1.21% 5.38% $10,537.75 $ 125.18
4 21.55% 1.21% 9.37% $10,937.13 $ 129.92
5 27.63% 1.21% 13.52% $11,351.65 $ 134.85
6 34.01% 1.21% 17.82% $11,781.88 $ 139.96
7 40.71% 1.21% 22.28% $12,228.41 $ 145.26
8 47.75% 1.21% 26.92% $12,691.87 $ 150.77
9 55.13% 1.21% 31.73% $13,172.89 $ 156.48
10 62.89% 1.21% 36.72% $13,672.14 $ 162.41
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,672.14
TOTAL ANNUAL FEES AND EXPENSES $1,956.64
|
(2) Reflects deduction of the maximum initial sales charge.
COLUMBIA MID CAP GROWTH FUND, INC. -- CLASS B SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.96% 3.04% $10,304.00 $ 198.98
2 10.25% 1.96% 6.17% $10,617.24 $ 205.03
3 15.76% 1.96% 9.40% $10,940.01 $ 211.26
4 21.55% 1.96% 12.73% $11,272.58 $ 217.68
5 27.63% 1.96% 16.15% $11,615.27 $ 224.30
6 34.01% 1.96% 19.68% $11,968.37 $ 231.12
7 40.71% 1.96% 23.32% $12,332.21 $ 238.15
8 47.75% 1.96% 27.07% $12,707.11 $ 245.39
9 55.13% 1.21% 31.89% $13,188.71 $ 156.67
10 62.89% 1.21% 36.89% $13,688.56 $ 162.61
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,688.56
TOTAL ANNUAL FEES AND EXPENSES $2,091.18
|
COLUMBIA MID CAP GROWTH FUND, INC. -- CLASS C SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.96% 3.04% $10,304.00 $ 198.98
2 10.25% 1.96% 6.17% $10,617.24 $ 205.03
3 15.76% 1.96% 9.40% $10,940.01 $ 211.26
4 21.55% 1.96% 12.73% $11,272.58 $ 217.68
5 27.63% 1.96% 16.15% $11,615.27 $ 224.30
6 34.01% 1.96% 19.68% $11,968.37 $ 231.12
7 40.71% 1.96% 23.32% $12,332.21 $ 238.15
8 47.75% 1.96% 27.07% $12,707.11 $ 245.39
9 55.13% 1.96% 30.93% $13,093.41 $ 252.85
10 62.89% 1.96% 34.91% $13,491.45 $ 260.53
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,491.45
TOTAL ANNUAL FEES AND EXPENSES $2,285.28
|
COLUMBIA MID CAP GROWTH FUND, INC. -- CLASS D SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.96% 3.04% $10,304.00 $ 198.98
2 10.25% 1.96% 6.17% $10,617.24 $ 205.03
3 15.76% 1.96% 9.40% $10,940.01 $ 211.26
4 21.55% 1.96% 12.73% $11,272.58 $ 217.68
5 27.63% 1.96% 16.15% $11,615.27 $ 224.30
6 34.01% 1.96% 19.68% $11,968.37 $ 231.12
7 40.71% 1.96% 23.32% $12,332.21 $ 238.15
8 47.75% 1.96% 27.07% $12,707.11 $ 245.39
9 55.13% 1.96% 30.93% $13,093.41 $ 252.85
10 62.89% 1.96% 34.91% $13,491.45 $ 260.53
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,491.45
TOTAL ANNUAL FEES AND EXPENSES $2,285.28
|
COLUMBIA MID CAP GROWTH FUND, INC. -- CLASS G SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.91% 3.09% $10,309.00 $ 193.95
2 10.25% 1.91% 6.28% $10,627.55 $ 199.94
3 15.76% 1.91% 9.56% $10,955.94 $ 206.12
4 21.55% 1.91% 12.94% $11,294.48 $ 212.49
5 27.63% 1.91% 16.43% $11,643.48 $ 219.06
6 34.01% 1.91% 20.03% $12,003.26 $ 225.83
7 40.71% 1.91% 23.74% $12,374.16 $ 232.80
8 47.75% 1.91% 27.57% $12,756.52 $ 240.00
9 55.13% 1.26% 32.34% $13,233.62 $ 163.74
10 62.89% 1.26% 37.29% $13,728.55 $ 169.86
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,728.55
TOTAL ANNUAL FEES AND EXPENSES $2,063.79
|
COLUMBIA MID CAP GROWTH FUND, INC. -- CLASS T SHARES
INITIAL HYPOTHETICAL INVESTMENT
MAXIMUM SALES CHARGE AMOUNT ASSUMED RATE OF RETURN
-------------------- ------------------------------- ----------------------
5.75% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.26% -2.23%(2) $ 9,777.50 $ 695.98
2 10.25% 1.26% 1.43% $10,143.17 $ 125.50
3 15.76% 1.26% 5.23% $10,522.53 $ 130.19
4 21.55% 1.26% 9.16% $10,916.07 $ 135.06
5 27.63% 1.26% 13.24% $11,324.33 $ 140.11
6 34.01% 1.26% 17.48% $11,747.86 $ 145.35
7 40.71% 1.26% 21.87% $12,187.23 $ 150.79
8 47.75% 1.26% 26.43% $12,643.03 $ 156.43
9 55.13% 1.26% 31.16% $13,115.88 $ 162.28
10 62.89% 1.26% 36.06% $13,606.42 $ 168.35
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,606.42
TOTAL ANNUAL FEES AND EXPENSES $2,010.06
|
(2) Reflects deduction of the maximum initial sales charge.
COLUMBIA MID CAP GROWTH FUND, INC. -- CLASS Z SHARES
INITIAL HYPOTHETICAL INVESTMENT
MAXIMUM SALES CHARGE AMOUNT ASSUMED RATE OF RETURN
-------------------- ------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 0.96% 4.04% $10,404.00 $ 97.94
2 10.25% 0.96% 8.24% $10,824.32 $ 101.90
3 15.76% 0.96% 12.62% $11,261.62 $ 106.01
4 21.55% 0.96% 17.17% $11,716.59 $ 110.30
5 27.63% 0.96% 21.90% $12,189.94 $ 114.75
6 34.01% 0.96% 26.82% $12,682.42 $ 119.39
7 40.71% 0.96% 31.95% $13,194.79 $ 124.21
8 47.75% 0.96% 37.28% $13,727.86 $ 129.23
9 55.13% 0.96% 42.82% $14,282.46 $ 134.45
10 62.89% 0.96% 48.59% $14,859.47 $ 139.88
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,859.47
TOTAL ANNUAL FEES AND EXPENSES $1,178.05
|
COLUMBIA STRATEGIC INVESTOR FUND, INC. -- CLASS A SHARES
INITIAL HYPOTHETICAL INVESTMENT
MAXIMUM SALES CHARGE AMOUNT ASSUMED RATE OF RETURN
-------------------- ------------------------------- ----------------------
5.75% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.21% -2.18%(2) $ 9,782.21 $ 691.20
2 10.25% 1.21% 1.53% $10,152.95 $ 120.61
3 15.76% 1.21% 5.38% $10,537.75 $ 125.18
4 21.55% 1.21% 9.37% $10,937.13 $ 129.92
5 27.63% 1.21% 13.52% $11,351.65 $ 134.85
6 34.01% 1.21% 17.82% $11,781.88 $ 139.96
7 40.71% 1.21% 22.28% $12,228.41 $ 145.26
8 47.75% 1.21% 26.92% $12,691.87 $ 150.77
9 55.13% 1.21% 31.73% $13,172.89 $ 156.48
10 62.89% 1.21% 36.72% $13,672.14 $ 162.41
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,672.14
TOTAL ANNUAL FEES AND EXPENSES $1,956.64
|
(2) Reflects deduction of the maximum initial sales charge.
COLUMBIA STRATEGIC INVESTOR FUND, INC. -- CLASS B SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- --------------- --------------- --------------- -----------
1 5.00% 1.96% 3.04% $10,304.00 $ 198.98
2 10.25% 1.96% 6.17% $10,617.24 $ 205.03
3 15.76% 1.96% 9.40% $10,940.01 $ 211.26
4 21.55% 1.96% 12.73% $11,272.58 $ 217.68
5 27.63% 1.96% 16.15% $11,615.27 $ 224.30
6 34.01% 1.96% 19.68% $11,968.37 $ 231.12
7 40.71% 1.96% 23.32% $12,332.21 $ 238.15
8 47.75% 1.96% 27.07% $12,707.11 $ 245.39
9 55.13% 1.21% 31.89% $13,188.71 $ 156.67
10 62.89% 1.21% 36.89% $13,688.56 $ 162.61
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,688.56
TOTAL ANNUAL FEES AND EXPENSES $2,091.18
|
COLUMBIA STRATEGIC INVESTOR FUND, INC. -- CLASS C SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.96% 3.04% $10,304.00 $ 198.98
2 10.25% 1.96% 6.17% $10,617.24 $ 205.03
3 15.76% 1.96% 9.40% $10,940.01 $ 211.26
4 21.55% 1.96% 12.73% $11,272.58 $ 217.68
5 27.63% 1.96% 16.15% $11,615.27 $ 224.30
6 34.01% 1.96% 19.68% $11,968.37 $ 231.12
7 40.71% 1.96% 23.32% $12,332.21 $ 238.15
8 47.75% 1.96% 27.07% $12,707.11 $ 245.39
9 55.13% 1.96% 30.93% $13,093.41 $ 252.85
10 62.89% 1.96% 34.91% $13,491.45 $ 260.53
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,491.45
TOTAL ANNUAL FEES AND EXPENSES $2,285.28
|
COLUMBIA STRATEGIC INVESTOR FUND, INC. -- CLASS D SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.96% 3.04% $10,304.00 $ 198.98
2 10.25% 1.96% 6.17% $10,617.24 $ 205.03
3 15.76% 1.96% 9.40% $10,940.01 $ 211.26
4 21.55% 1.96% 12.73% $11,272.58 $ 217.68
5 27.63% 1.96% 16.15% $11,615.27 $ 224.30
6 34.01% 1.96% 19.68% $11,968.37 $ 231.12
7 40.71% 1.96% 23.32% $12,332.21 $ 238.15
8 47.75% 1.96% 27.07% $12,707.11 $ 245.39
9 55.13% 1.96% 30.93% $13,093.41 $ 252.85
10 62.89% 1.96% 34.91% $13,491.45 $ 260.53
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,491.45
TOTAL ANNUAL FEES AND EXPENSES $2,285.28
|
COLUMBIA STRATEGIC INVESTOR FUND, INC. -- CLASS Z SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 0.96% 4.04% $10,404.00 $ 97.94
2 10.25% 0.96% 8.24% $10,824.32 $ 101.90
3 15.76% 0.96% 12.62% $11,261.62 $ 106.01
4 21.55% 0.96% 17.17% $11,716.59 $ 110.30
5 27.63% 0.96% 21.90% $12,189.94 $ 114.75
6 34.01% 0.96% 26.82% $12,682.42 $ 119.39
7 40.71% 0.96% 31.95% $13,194.79 $ 124.21
8 47.75% 0.96% 37.28% $13,727.86 $ 129.23
9 55.13% 0.96% 42.82% $14,282.46 $ 134.45
10 62.89% 0.96% 48.59% $14,859.47 $ 139.88
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,859.47
TOTAL ANNUAL FEES AND EXPENSES $1,178.05
|
COLUMBIA TECHNOLOGY FUND, INC. -- CLASS A SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
5.75% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.73% -2.67%(2) $ 9,733.20 $ 740.72
2 10.25% 1.73% 0.51% $10,051.47 $ 171.14
3 15.76% 1.73% 3.80% $10,380.16 $ 176.73
4 21.55% 1.73% 7.20% $10,719.59 $ 182.51
5 27.63% 1.73% 10.70% $11,070.12 $ 188.48
6 34.01% 1.73% 14.32% $11,432.11 $ 194.64
7 40.71% 1.73% 18.06% $11,805.94 $ 201.01
8 47.75% 1.73% 21.92% $12,191.99 $ 207.58
9 55.13% 1.73% 25.91% $12,590.67 $ 214.37
10 62.89% 1.73% 30.02% $13,002.39 $ 221.38
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,002.39
TOTAL ANNUAL FEES AND EXPENSES $2,498.57
|
(2) Reflects deduction of the maximum initial sales charge.
COLUMBIA TECHNOLOGY FUND, INC. -- CLASS B SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 2.48% 2.52% $10,252.00 $ 251.12
2 10.25% 2.48% 5.10% $10,510.35 $ 257.45
3 15.76% 2.48% 7.75% $10,775.21 $ 263.94
4 21.55% 2.48% 10.47% $11,046.75 $ 270.59
5 27.63% 2.48% 13.25% $11,325.12 $ 277.41
6 34.01% 2.48% 16.11% $11,610.52 $ 284.40
7 40.71% 2.48% 19.03% $11,903.10 $ 291.57
8 47.75% 2.48% 22.03% $12,203.06 $ 298.92
9 55.13% 1.73% 26.02% $12,602.10 $ 214.56
10 62.89% 1.73% 30.14% $13,014.19 $ 221.58
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,014.19
TOTAL ANNUAL FEES AND EXPENSES $2,631.56
|
COLUMBIA TECHNOLOGY FUND, INC. -- CLASS C SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 2.48% 2.52% $10,252.00 $ 251.12
2 10.25% 2.48% 5.10% $10,510.35 $ 257.45
3 15.76% 2.48% 7.75% $10,775.21 $ 263.94
4 21.55% 2.48% 10.47% $11,046.75 $ 270.59
5 27.63% 2.48% 13.25% $11,325.12 $ 277.41
6 34.01% 2.48% 16.11% $11,610.52 $ 284.40
7 40.71% 2.48% 19.03% $11,903.10 $ 291.57
8 47.75% 2.48% 22.03% $12,203.06 $ 298.92
9 55.13% 2.48% 25.11% $12,510.58 $ 306.45
10 62.89% 2.48% 28.26% $12,825.84 $ 314.17
TOTAL GAIN AFTER FEES AND EXPENSES $ 2,825.84
TOTAL ANNUAL FEES AND EXPENSES $2,816.03
|
COLUMBIA TECHNOLOGY FUND, INC. -- CLASS D SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 2.48% 2.52% $10,252.00 $ 251.12
2 10.25% 2.48% 5.10% $10,510.35 $ 257.45
3 15.76% 2.48% 7.75% $10,775.21 $ 263.94
4 21.55% 2.48% 10.47% $11,046.75 $ 270.59
5 27.63% 2.48% 13.25% $11,325.12 $ 277.41
6 34.01% 2.48% 16.11% $11,610.52 $ 284.40
7 40.71% 2.48% 19.03% $11,903.10 $ 291.57
8 47.75% 2.48% 22.03% $12,203.06 $ 298.92
9 55.13% 2.48% 25.11% $12,510.58 $ 306.45
10 62.89% 2.48% 28.26% $12,825.84 $ 314.17
TOTAL GAIN AFTER FEES AND EXPENSES $ 2,825.84
TOTAL ANNUAL FEES AND EXPENSES $2,816.03
|
COLUMBIA TECHNOLOGY FUND, INC. -- CLASS Z SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.48% 3.52% $10,352.00 $ 150.60
2 10.25% 1.48% 7.16% $10,716.39 $ 155.91
3 15.76% 1.48% 10.94% $11,093.61 $ 161.39
4 21.55% 1.48% 14.84% $11,484.10 $ 167.08
5 27.63% 1.48% 18.88% $11,888.34 $ 172.96
6 34.01% 1.48% 23.07% $12,306.81 $ 179.04
7 40.71% 1.48% 27.40% $12,740.01 $ 185.35
8 47.75% 1.48% 31.88% $13,188.46 $ 191.87
9 55.13% 1.48% 36.53% $13,652.69 $ 198.62
10 62.89% 1.48% 41.33% $14,133.27 $ 205.62
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,133.27
TOTAL ANNUAL FEES AND EXPENSES $1,768.44
|
INT-47/106535-0206 February 22, 2006
COLUMBIA BALANCED FUND Prospectus, January 1, 2006
CLASS A, B, C AND D* SHARES
Advised by Columbia Management Advisors, LLC
THE FUND 2 --------------------------------------------------------- Investment Goal...................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 2 Performance History.................................. 4 Your Expenses........................................ 7 YOUR ACCOUNT 9 --------------------------------------------------------- How to Buy Shares.................................... 9 Investment Minimums.................................. 10 Sales Charges........................................ 10 How to Exchange Shares............................... 14 How to Sell Shares................................... 14 Fund Policy on Trading of Fund Shares................ 16 Distribution and Service Fees........................ 17 Other Information About Your Account................. 18 MANAGING THE FUND 20 --------------------------------------------------------- Investment Advisor................................... 20 Portfolio Managers................................... 20 Legal Proceedings.................................... 21 OTHER INVESTMENT STRATEGIES AND RISKS 23 --------------------------------------------------------- Bond Selection....................................... 23 FINANCIAL HIGHLIGHTS 25 --------------------------------------------------------- APPENDIX A 29 --------------------------------------------------------- |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
*Effective October 13, 2003, this Fund's Class D Shares were closed to new investors.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
|
THE FUND
The Fund's debt securities generally will have intermediate- to long-term maturities. They will be primarily investment-grade, or unrated securities determined by the Fund's investment advisor to be of comparable quality, 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 grade securities are those rated at least BBB by Standard & Poor's (S&P) or at least Baa by Moody's Investors Services, Inc. (Moody's). The Fund may also invest up to 10% of its total assets in non-investment grade securities.
The Fund may purchase derivative instruments, such as futures, options, swap contracts, and inverse floaters, to gain or reduce exposure to particular securities or segments of the bond markets. Derivatives are financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use derivatives for both hedging and non-hedging purposes, such as to adjust the Fund's sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an opposite position. The Fund typically uses derivatives in an effort to achieve more efficiently economic exposures similar to those it could have achieved through the purchase and sale of fixed income securities. Investments in derivatives may be applied toward meeting a requirement to invest in a particular kind of investment if the derivatives have economic characteristics similar to investments of that kind.
As part of its investment strategy, the Fund may buy and sell securities frequently. Frequent trading of investments usually increases the chance that the Fund will pay investors short-term capital gains (which are taxable at higher rates than long-term capital gains). Frequent trading may also result in higher brokerage commissions and other transaction costs and additional tax liability, which could reduce the Fund's returns.
Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks."
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
THE FUND
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Credit risk is the possibility that changes in the obligated entity's financial condition, changes in general economic conditions, or changes in economic conditions that affect the obligated entity, may impact the obligated entity's actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and, in some cases, a decrease in income. Bonds that are backed by an issuer's taxing authority, including general obligation bonds, may be vulnerable to legal limits on a government's power to raise revenue or increase taxes. These bonds may depend for payment on legislative appropriation and/or aid from other governments. Other municipal bonds, known as revenue obligations, are payable from revenues earned by a particular project or other revenue source. Some revenue obligations are backed by private companies, some are asset-backed securities, such as bonds backed by mortgage payments, and some are for municipally owned utilities, such as water or sewer systems. Revenue obligations are subject to greater risk of default than general obligation bonds because investors can look only to the revenue generated by the project, assets, or private company backing the project, rather than to the taxing power of the state or local government issuer of the bonds.
Structure risk is the risk that an event will occur (such as a security being prepaid or called) that alters the security's cash flows. Prepayment risk is a particular type of structure risk that is associated with investments in asset-backed and mortgage-backed securities. With respect to investments in mortgage-backed securities, prepayment risk is the possibility that, as prevailing interest rates fall, homeowners are more likely to refinance their home mortgages. When mortgages are refinanced, the principal on mortgage-backed securities is paid earlier than expected. In an environment of declining interest rates, asset-backed and mortgage-backed securities may offer less potential for gain than other debt securities. During periods of rising interest rates, asset-backed and mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the expected life of the security. In addition, the potential impact of prepayment on the price of asset-backed and mortgage-backed securities may be difficult to predict and result in greater volatility.
Mortgage dollar rolls are transactions in which the Fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase similar securities in the future at a predetermined price. These transactions simulate an investment in mortgage-backed securities and have the potential to enhance the Fund's returns and reduce its administrative burdens, compared with holding mortgage-backed securities directly. Mortgage dollar rolls involve the risks that the market value of the securities the Fund is obligated to repurchase may decline below the repurchase price, or that the other party may default on its obligations. These transactions may increase the Fund's portfolio turnover rate.
Reinvestment risk is the risk that income from the Fund's debt securities will decline if and when the Fund invests the proceeds from matured, traded or called securities at market interest rates that are below the current earnings rate of the Fund's portfolio.
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative
THE FUND
positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. The Fund may have limited legal recourse in the event of default with respect to certain debt securities issued by foreign governments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Certain of the U.S. Government securities in which the Fund invests, such as mortgage-backed securities that are issued by government sponsored enterprises and securities issued by the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association and the Federal Home Loan Bank, are neither insured nor guaranteed by the United States Government. Such securities may be supported by the ability to borrow from the U.S. Treasury or only by the credit of the issuing agency or instrumentality, and, as a result, may be subject to greater issuer risk than securities issued or guaranteed by the U.S. Treasury.
Inflation risk is a risk to investors who invest 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.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
THE FUND
reduction arrangements, if any. If these arrangements had not been in place, the performance results would have been lower. Except as noted, any expense reduction arrangements may be discontinued at any time. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance.
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were reflected, these returns would be lower.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
CALENDAR YEAR TOTAL RETURNS (CLASS A)(1)
(BAR CHART)
25.08% 11.78% 18.74% 20.07% 12.70% 0.82% 18.08% 6.37%
-7.40% -12.99%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
|
The Fund's year-to-date total return through For the periods shown in bar chart:
September 30, 2005 (Class A) was +3.08%. Best quarter: 4th quarter 1998, +12.86%
Worst quarter: 3rd quarter 2002, -9.21%
|
(1) Class A is a newer class of shares. Its performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer class of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been lower. Class A shares were initially offered on November 1, 2002, and Class Z shares were initially offered on October 1, 1991.
THE FUND
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004(1)
1 YEAR 5 YEARS 10 YEARS
Class A (%)
Return Before Taxes 0.26 -0.78 8.01
Return After Taxes on Distributions -0.19 -1.81 5.92
Return After Taxes on Distributions and Sale of Fund
Shares 0.33 -1.20 5.78
-------------------------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes 0.53 -0.26 8.48
Return After Taxes on Distributions 0.26 -1.25 6.41
Return After Taxes on Distributions and Sale of Fund
Shares 0.45 -0.75 6.22
-------------------------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 4.53 0.08 8.48
Return After Taxes on Distributions 4.26 -0.89 6.41
Return After Taxes on Distributions and Sale of Fund
Shares 3.05 -0.45 6.22
-------------------------------------------------------------------------------------------------------
Class D (%)
Return Before Taxes 4.54 -0.10 8.38
Return After Taxes on Distributions 4.26 -1.07 6.31
Return After Taxes on Distributions and Sale of Fund
Shares 3.06 -0.61 6.14
-------------------------------------------------------------------------------------------------------
S&P Index (%) 10.88 -2.30 12.07
-------------------------------------------------------------------------------------------------------
Lehman Index (%) 4.34 7.71 7.72
|
(1) Class A, Class B, Class C and Class D are newer classes of shares. Their performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to their inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class C shares were initially offered on October 13, 2003, Class A, B and D shares were initially offered on November 1, 2002, and Class Z shares were initially offered on October 1, 1991.
THE FUND
UNDERSTANDING EXPENSES
SALES CHARGES are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management fees, 12b-1 fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table, but does reflect the waiver of the initial sales charge for Class D shares. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
- Reinvestment of all dividends and distributions
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C CLASS D
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00 0.00 1.00(2)
----------------------------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or
redemption price) 1.00(3) 5.00 1.00 1.00
----------------------------------------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) (4) (4) (4) (4)
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) The Fund's advisor has agreed to waive indefinitely the front-end sales charge for purchases of Class D shares by existing Class D shareholders.
(3) This charge applies only to certain Class A shares bought without an initial sales charge that are sold within 12 months of purchase.
(4) There is a $7.50 charge for wiring sale proceeds to your bank.
THE FUND
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
CLASS A CLASS B CLASS C CLASS D
Management fee (%) 0.50 0.50 0.50 0.50
----------------------------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25(1) 1.00 1.00 1.00
----------------------------------------------------------------------------------------------------------------------
Other expenses(2) (%) 0.19 0.19 0.19 0.19
----------------------------------------------------------------------------------------------------------------------
Total annual fund operating expenses (%) 0.94 1.69 1.69 1.69
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(1) The Fund may pay distribution and service (12b-1) fees up to a maximum of 0.35% of the Fund's average daily net assets attributable to Class A shares (comprised of up to 0.25% for shareholder liaison services and up to 0.10% for distribution services), but will limit such fees to an aggregate fee of not more than 0.25%.
(2) Other expenses have been restated to reflect contractual changes to the fees paid by the Fund for transfer agency and pricing and bookkeeping services effective November 1, 2005.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A: $665 $857 $1,065 $1,663
------------------------------------------------------------------------------------------------------------------------
Class B: did not sell your shares $172 $533 $ 918 $1,799
sold all your shares at
the end of the period $672 $833 $1,118 $1,799
------------------------------------------------------------------------------------------------------------------------
Class C did not sell your shares $172 $533 $ 918 $1,998
sold all your shares at
the end of the period $272 $533 $ 918 $1,998
------------------------------------------------------------------------------------------------------------------------
Class D: did not sell your shares $172 $533 $ 918 $1,998
sold all your shares at
the end of the period $272 $533 $ 918 $1,998
|
See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
Notice to Fund Shareholders: Class D shares are closed to new investors and new accounts. The Fund now offers Class C shares, which are subject to the same service and distribution fees and sales charges as Class D shares except Class C shares are not subject to a front-end sales charge. The Fund's advisor has agreed to waive indefinitely the front-end sales charge for purchases of Class D shares by existing Class D investors. For more information on expenses and sales charges for Class C shares and Class D shares, see "Your Expenses" and "Sales Charges."
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-----------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
-----------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class (and, in some cases, certain
other classes) of the Fund at no additional cost. There may
be an additional sales charge if exchanging from a money
market fund. To exchange by telephone, call 1-800-422-3737.
-----------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-----------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-----------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
-----------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate your
program or change the amount of the exchange (subject to the
$100 minimum) by calling 1-800-345-6611. There may be an
additional sales charge if exchanging from a money market
fund. Be sure to complete the appropriate section of the
account application for this feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
|
YOUR ACCOUNT
Please see the Statement of Additional Information for more details on investment minimums.
CHOOSING A SHARE CLASS
The Fund offers four classes of shares in this prospectus -- CLASS A, B, C and D. Class D shares are closed to new investors and new accounts. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 or more but less than $1 million can be made only in Class A, Class C or Class D shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
CLASS A SHARES Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
YOUR ACCOUNT
CLASS A SALES CHARGES
% OF OFFERING
AS A % OF PRICE
THE PUBLIC AS A % RETAINED BY
OFFERING OF YOUR FINANCIAL
AMOUNT PURCHASED PRICE INVESTMENT ADVISOR
Less than $50,000 5.75 6.10 5.00
-------------------------------------------------------------------------------------------------------------------
$50,000 to less than $100,000 4.50 4.71 3.75
-------------------------------------------------------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 2.75
-------------------------------------------------------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.00
-------------------------------------------------------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
-------------------------------------------------------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
|
Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the shares were purchased. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
PURCHASES OVER $1 MILLION
AMOUNT PURCHASED COMMISSION % Less than $3 million 1.00 ---------------------------------------------------------------------------- $3 million to less than $50 million 0.50 ---------------------------------------------------------------------------- $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES
YOUR ACCOUNT
REDUCED SALES CHARGES FOR LARGER INVESTMENTS
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
RIGHTS OF ACCUMULATION The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
STATEMENT OF INTENT You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e., dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
- Individual accounts
- Joint accounts
- Certain IRA accounts
- Certain trusts
- UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father-in-law and mother-in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for
YOUR ACCOUNT
which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
CLASS B SHARES Your purchases of Class B shares are at Class B's net asset value. Purchases up to $50,000 are allowed in Class B shares assuming the combined value of the customer's total assets in the Columbia funds does not exceed $50,000. Purchases in Class B shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart below.
CLASS B SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 5.00
-------------------------------------------------------------------------------
Through second year 4.00
-------------------------------------------------------------------------------
Through third year 3.00
-------------------------------------------------------------------------------
Through fourth year 3.00
-------------------------------------------------------------------------------
Through fifth year 2.00
-------------------------------------------------------------------------------
Through sixth year 1.00
-------------------------------------------------------------------------------
Longer than six years 0.00
|
Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
CLASS C SHARES Your purchases of Class C shares are at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after
YOUR ACCOUNT
they are purchased. After holding the shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares as described in the chart below.
CLASS C SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 1.00
-------------------------------------------------------------------------------
Longer than one year 0.00
|
CLASS D SHARES Class D shares are closed to new investors. Your purchases of Class D shares are made at the public offering price for these shares. This price includes a sales charge of 1.00% (currently being waived), which is paid as a commission to your financial advisor on the sale of Class D shares as shown in the chart below.
CLASS D SALES CHARGES
% OF OFFERING PRICE
AS A % OF THE PUBLIC AS A % OF RETAINED BY FINANCIAL
OFFERING PRICE YOUR INVESTMENT ADVISOR
1.00 1.01 1.00
|
In addition, the distributor pays your financial advisor an initial commission of 1.00% on sales of Class D shares. The Fund's investment advisor has agreed to waive indefinitely the front-end sales charge for purchases of Class D shares by existing Class D investors.
Class D shares also carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC.
YOUR ACCOUNT
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into the same share class (and, in
some cases, certain other classes) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
-----------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
-----------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or, if
applicable, stock power form along with any share
certificates to be sold to the address below. In your letter
of instruction, note the Fund's name, share class, account
number, and the dollar value or number of shares you wish to
sell. All account owners must sign the letter. Signatures
must be guaranteed by either a bank, a member firm of a
national stock exchange or another eligible guarantor that
participates in the Medallion Signature Guarantee Program
for amounts over $100,000 or for alternate payee or mailing
instructions. Additional documentation is required for sales
by corporations, agents, fiduciaries, surviving joint owners
and individual retirement account owners. For details, call
1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
-----------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
-----------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
-----------------------------------------------------------------------------------
By electronic funds You may sell shares of the Fund and request that the
transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
YOUR ACCOUNT
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
YOUR ACCOUNT
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
ADDITIONAL INTERMEDIARY COMPENSATION In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
YOUR ACCOUNT
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the transfer agent.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
-----------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
YOUR ACCOUNT
UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund distributes any dividends quarterly and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your
current fund
----------------------------------------------------------------
Reinvest all distributions in shares of another fund
----------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest
capital gains
----------------------------------------------------------------
Receive all distributions in cash (with one of the following
options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds
transfer
|
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Advisors and/or Columbia Management by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Advisors and/or Columbia Management by the Fund, amounted to 0.50% of average daily net assets of the Fund.
LEONARD A. APLET, a Managing Director of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since October, 1991. Mr. Aplet has been associated with Columbia Advisors or its predecessors since 1987.
GUY W. POPE, a Senior Vice President of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since 1997. Mr. Pope has been associated with Columbia Advisors or its predecessors since 1993.
STEPHEN PEACHER, a Managing Director of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since September, 2005. Mr. Peacher has been associated with Columbia Advisors since April, 2005. Prior to April, 2005, Mr. Peacher was employed by Putnam Investments, where he served as the Chief Investment Officer of the Credit Team for the previous five years.
RONALD B. STAHL, a Portfolio Manager with Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since March, 2005. Mr. Stahl has been associated with Columbia Advisors or its predecessors since 1998.
JEFFREY D. HUFFMAN, a Portfolio Manager with Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since December, 2005. Mr. Huffman has been associated with Columbia Advisors or its predecessors since April, 2000.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
MANAGING THE FUND
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Columbia Funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated undo the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late
MANAGING THE FUND
trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In Re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed.
OTHER INVESTMENT STRATEGIES AND RISKS
The Fund's principal investment strategies and their associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The advisor may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goal. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or any of its investment strategies.
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 Fund will usually invest some portion of its 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 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. The 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.
OTHER INVESTMENT STRATEGIES AND RISKS
The 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.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's fiscal periods since inception, which run from September 1 to August 31, unless otherwise indicated. Certain information reflects financial results for a single Class A, B, C or D share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
PERIOD ENDED PERIOD ENDED
YEAR ENDED AUGUST 31, AUGUST 31, DECEMBER 31,
2005 2004 2003(A) 2002(B)
Class A Class A Class A Class A
----- ----- ----- -----
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 19.86 19.18 17.52 17.58
-----------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(c) 0.02(d) 0.29 0.16 0.03
Net realized and unrealized gain on investments
and futures contracts 2.28 0.67 1.64 --(e)
-----------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 2.30 0.96 1.80 0.03
-----------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS ($):
From net investment income (0.41) (0.28) (0.14) (0.09)
-----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 21.75 19.86 19.18 17.52
-----------------------------------------------------------------------------------------------------------------------
Total return (%)(f) 11.72 4.99 10.35(g) 0.19(g)
-----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ($) 3,378 2,577 670 146
Ratio of expenses to average net assets (%)(h) 1.02 1.02 1.42(i) 1.17(i)
Ratio of net investment income to average net
assets (%)(h) 1.80 1.45 1.32(i) 2.03(i)
Portfolio turnover rate (%) 63 158 110(g) 98
|
(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) Class A shares were initially offered on November 1, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Net investment income per share reflects a special dividend. The effect of this dividend amounted to $0.06 per share.
(e) Rounds to less than $0.01 per share.
(f) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
FINANCIAL HIGHLIGHTS
THE FUND
PERIOD ENDED PERIOD ENDED
YEAR ENDED AUGUST 31, AUGUST 31, DECEMBER 31,
2005 2004 2003(A) 2002(B)
Class B Class B Class B Class B
----- ----- ----- -----
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 19.83 19.16 17.52 17.58
-------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(c) 0.01(d) 0.14 0.07 0.02
Net realized and unrealized gain (loss) on
investments and futures contracts 2.14 0.66 1.65 (0.01)
-------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 2.15 0.80 1.72 0.01
-------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS ($):
From net investment income (0.26) (0.13) (0.08) (0.07)
NET ASSET VALUE --
END OF PERIOD ($) 21.72 19.83 19.16 17.52
-------------------------------------------------------------------------------------------------------------------------
Total return (%)(e) 10.91 4.17 9.83(f) 0.06(f)
-------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ($) 8,149 7,286 3,349 608
Ratio of expenses to average net assets (%)(g) 1.77 1.77 2.17(h) 1.92(h)
Ratio of net investment income to average net
assets (%)(g) 1.07 0.71 0.59(h) 1.28(h)
Portfolio turnover rate (%) 63 158 110(f) 98
|
(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) Class B shares were initially offered on November 1, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Net investment income per share reflects a special dividend. The effect of this dividend amounted to $0.06 per share.
(e) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
FINANCIAL HIGHLIGHTS
THE FUND
YEAR ENDED PERIOD ENDED
AUGUST 31, AUGUST 31,
2005 2004(A)
Class C Class C
----- -----
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 19.83 19.59
-----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(b) 0.01(c) 0.13
Net realized and unrealized gain on investments and
futures contracts 2.14 0.23
-----------------------------------------------------------------------------------------------
Total from Investment Operations 2.15 0.36
-----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS ($):
From net investment income (0.26) (0.12)
-----------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 21.72 19.83
-----------------------------------------------------------------------------------------------
Total return (%)(d) 10.91 1.82(e)
-----------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ($) 952 730
Ratio of expenses to average net assets (%)(f) 1.77 1.80(g)
Ratio of net investment income to average net assets (%)(f) 1.06 0.72(g)
Portfolio turnover rate (%) 63 158(e)
|
(a) Class C shares were initially offered on October 13, 2003. Per share data and total return reflect activity from that date.
(b) Per share data was calculated using average shares outstanding during the period.
(c) Net investment income per share reflects a special dividend. The effect of this dividend amounted to $0.06 per share.
(d) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(e) Not annualized.
(f) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(g) Annualized.
FINANCIAL HIGHLIGHTS
THE FUND
PERIOD ENDED PERIOD ENDED
YEAR ENDED AUGUST 31, AUGUST 31, DECEMBER 31,
2005 2004 2003(A) 2002(B)
Class D Class D Class D Class D
----- ----- ----- -----
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 19.82 19.17 17.51 17.58
-------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(c) 0.01(d) 0.15 0.11 0.02
Net realized and unrealized gain (loss) on
investments and futures contracts 2.15 0.65 1.64 (0.02)
-------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 2.16 0.80 1.75 --
-------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS ($):
From net investment income (0.26) (0.15) (0.09) (0.07)
-------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 21.72 19.82 19.17 17.51
-------------------------------------------------------------------------------------------------------------------------
Total return (%)(e) 10.97 4.14 10.01(f) 0.01(f)
-------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ($) 320 361 770 446
Ratio of expenses to average net assets (%)(g) 1.77 1.77 1.87(h) 1.92(h)
Ratio of net investment income to average net
assets (%)(g) 1.07 0.74 0.89(h) 1.28(h)
Portfolio turnover rate (%) 63 158 110(f) 98
|
(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) Class D shares were initially offered on November 1, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Net investment income per share reflects a special dividend. The effect of this dividend amounted to $0.06 per share.
(e) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
APPENDIX A
CLASS A SHARES(1)
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.94% $10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $ 9,896.25 4.06% $ 9,807.66 $ 665.39
2 10.25% $10,391.06 8.28% $10,205.85 $ 94.06
3 15.76% $10,910.62 12.68% $10,620.20 $ 97.88
4 21.55% $11,456.15 17.26% $11,051.38 $ 101.86
5 27.63% $12,028.95 22.02% $11,500.07 $ 105.99
6 34.01% $12,630.40 26.97% $11,966.97 $ 110.30
7 40.71% $13,261.92 32.13% $12,452.83 $ 114.77
8 47.75% $13,925.02 37.49% $12,958.42 $ 119.43
9 55.13% $14,621.27 43.07% $13,484.53 $ 124.28
10 62.89% $15,352.33 48.88% $14,032.00 $ 129.33
TOTAL GAIN BEFORE FEES
& EXPENSES $ 5,927.33
TOTAL GAIN AFTER FEES &
EXPENSES $ 4,607.00
TOTAL ANNUAL FEES &
EXPENSES PAID $1,663.30
|
(1) For Class A shares, the year one Annual Fees & Expenses and Hypothetical Year-End Balance Before Fees & Expenses information shown include the dollar amount and effect of any applicable front-end sales charge of the Fund.
APPENDIX A
CLASS B SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.69% $10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 3.31% $10,331.00 $ 171.80
2 10.25% $11,025.00 6.73% $10,672.96 $ 177.48
3 15.76% $11,576.25 10.26% $11,026.23 $ 183.36
4 21.55% $12,155.06 13.91% $11,391.20 $ 189.43
5 27.63% $12,762.82 17.68% $11,768.25 $ 195.70
6 34.01% $13,400.96 21.58% $12,157.78 $ 202.17
7 40.71% $14,071.00 25.60% $12,560.20 $ 208.87
8 47.75% $14,774.55 29.76% $12,975.94 $ 215.78
9 55.13% $15,513.28 35.03% $13,502.77 $ 124.45
10 62.89% $16,288.95 40.51% $14,050.98 $ 129.50
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 4,050.98
TOTAL ANNUAL FEES &
EXPENSES PAID $1,798.54
|
CLASS C SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.69% $10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 3.31% $10,331.00 $ 171.80
2 10.25% $11,025.00 6.73% $10,672.96 $ 177.48
3 15.76% $11,576.25 10.26% $11,026.23 $ 183.36
4 21.55% $12,155.06 13.91% $11,391.20 $ 189.43
5 27.63% $12,762.82 17.68% $11,768.25 $ 195.70
6 34.01% $13,400.96 21.58% $12,157.78 $ 202.17
7 40.71% $14,071.00 25.60% $12,560.20 $ 208.87
8 47.75% $14,774.55 29.76% $12,975.94 $ 215.78
9 55.13% $15,513.28 34.05% $13,405.45 $ 222.92
10 62.89% $16,288.95 38.49% $13,849.17 $ 230.30
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 3,849.17
TOTAL ANNUAL FEES &
EXPENSES PAID $1,997.81
|
APPENDIX A
CLASS D SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.69% $10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 3.31% $10,331.00 $ 171.80
2 10.25% $11,025.00 6.73% $10,672.96 $ 177.48
3 15.76% $11,576.25 10.26% $11,026.23 $ 183.36
4 21.55% $12,155.06 13.91% $11,391.20 $ 189.43
5 27.63% $12,762.82 17.68% $11,768.25 $ 195.70
6 34.01% $13,400.96 21.58% $12,157.78 $ 202.17
7 40.71% $14,071.00 25.60% $12,560.20 $ 208.87
8 47.75% $14,774.55 29.76% $12,975.94 $ 215.78
9 55.13% $15,513.28 34.05% $13,405.45 $ 222.92
10 62.89% $16,288.95 38.49% $13,849.17 $ 230.30
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 3,849.17
TOTAL ANNUAL FEES &
EXPENSES PAID $1,997.81
|
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Balanced Fund, Inc.: 811-06338
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2005 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/91477-1005
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED JANUARY 1, 2006
COLUMBIA BALANCED FUND (THE "FUND")
CLASS Z SHARES
The Prospectus is hereby supplemented with the following information:
1. The back cover of the Prospectus in the section titled "For More Information" is revised to include the name of the Trust, "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The "Calendar Year Total Returns" and "Average Annual Total Returns" tables for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS (CLASS Z)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ----- ----- ----- ----- ---- ----- ------ ----- ---- ---- 11.78% 18.74% 20.07% 12.70% 0.82% -7.40% -12.97% 18.73% 6.64% 5.76% |
For the periods shown above:
Best quarter: 4th quarter 1998, +12.86%
Worst quarter: 3rd quarter 2002, -9.21%
AVERAGE ANNUAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 2005
INCEPTION DATE 1 YEAR 5 YEARS 10 YEARS
-------------- ------ ------- --------
Class Z (%) 10/1/91
Return Before Taxes 5.76 1.54 6.93
Return After Taxes on Distributions 5.13 0.82 5.05
Return After Taxes on Distributions 3.87 0.91 4.96
and Sale of Fund Shares
S&P 500 Index (%) 4.91 0.54 9.07
Lehman Brothers Aggregate Bond Index (%) 2.43 5.87 6.16
|
4. The section entitled "Legal Proceedings" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the
amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107708-0306 March 27, 2006
COLUMBIA BALANCED FUND Prospectus, January 1, 2006
CLASS Z SHARES
Advised by Columbia Management Advisors, LLC
THE FUND 2 --------------------------------------------------------- Investment Goal...................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 2 Performance History.................................. 4 Your Expenses........................................ 6 YOUR ACCOUNT 8 --------------------------------------------------------- How to Buy Shares.................................... 8 Eligible Investors................................... 8 Sales Charges........................................ 10 How to Exchange Shares............................... 10 How to Sell Shares................................... 11 Fund Policy on Trading of Fund Shares................ 12 Intermediary Compensation............................ 13 Other Information About Your Account................. 13 MANAGING THE FUND 16 --------------------------------------------------------- Investment Advisor................................... 16 Portfolio Managers................................... 16 Legal Proceedings.................................... 17 OTHER INVESTMENT STRATEGIES AND RISKS 19 --------------------------------------------------------- Bond Selection....................................... 19 FINANCIAL HIGHLIGHTS 21 --------------------------------------------------------- APPENDIX A 22 --------------------------------------------------------- |
Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
|
THE FUND
The Fund's debt securities will generally have intermediate- to long-term maturities. They will be primarily investment-grade, or unrated securities determined by the Fund's investment advisor to be of comparable quality, 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 grade securities are those rated at least BBB by Standard & Poor's (S&P) or at least Baa by Moody's Investors Services, Inc. (Moody's). The Fund may also invest up to 10% of its total assets, in non-investment grade securities.
The Fund may purchase derivative instruments, such as futures, options, swap contracts, and inverse floaters, to gain or reduce exposure to particular securities or segments of the bond markets. Derivatives are financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use derivatives for both hedging and non-hedging purposes, such as to adjust the Fund's sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an opposite position. The Fund typically uses derivatives in an effort to achieve more efficiently economic exposures similar to those it could have achieved through the purchase and sale of fixed income securities. Investments in derivatives may be applied toward meeting a requirement to invest in a particular kind of investment if the derivatives have economic characteristics similar to investments of that kind.
As part of its investment strategy, the Fund may buy and sell securities frequently. Frequent trading of investments usually increases the chance that the Fund will pay investors short-term capital gains (which are taxable at higher rates than long-term capital gains). Frequent trading may also result in higher brokerage commissions and other transaction costs and additional tax liability, which could reduce the Fund's returns.
Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks."
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the
THE FUND
values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Credit risk is the possibility that changes in the obligated entity's financial condition, changes in general economic conditions, or changes in economic conditions that affect the obligated entity, may impact the obligated entity's actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and, in some cases, a decrease in income. Bonds that are backed by an issuer's taxing authority, including general obligation bonds, may be vulnerable to legal limits on a government's power to raise revenue or increase taxes. These bonds may depend for payment on legislative appropriation and/or aid from other governments. Other municipal bonds, known as revenue obligations, are payable from revenues earned by a particular project or other revenue source. Some revenue obligations are backed by private companies, some are asset-backed securities, such as bonds backed by mortgage payments, and some are for municipally owned utilities, such as water or sewer systems. Revenue obligations are subject to greater risk of default than general obligation bonds because investors can look only to the revenue generated by the project, assets, or private company backing the project, rather than to the taxing power of the state or local government issuer of the bonds.
Structure risk is the risk that an event will occur (such as a security being prepaid or called) that alters the security's cash flows. Prepayment risk is a particular type of structure risk that is associated with investments in asset-backed and mortgage-backed securities. With respect to investments in mortgage-backed securities, prepayment risk is the possibility that, as prevailing interest rates fall, homeowners are more likely to refinance their home mortgages. When mortgages are refinanced, the principal on mortgage-backed securities is paid earlier than expected. In an environment of declining interest rates, asset-backed and mortgage-backed securities may offer less potential for gain than other debt securities. During periods of rising interest rates, asset-backed and mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the expected life of the security. In addition, the potential impact of prepayment on the price of asset-backed and mortgage-backed securities may be difficult to predict and result in greater volatility.
Mortgage dollar rolls are transactions in which the Fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase similar securities in the future at a predetermined price. These transactions simulate an investment in mortgage-backed securities and have the potential to enhance the Fund's returns and reduce its administrative burdens, compared with holding mortgage-backed securities directly. Mortgage dollar rolls involve the risks that the market value of the securities the Fund is obligated to repurchase may decline below the repurchase price, or that the other party may default on its obligations. These transactions may increase the Fund's portfolio turnover rate.
Reinvestment risk is the risk that income from the Fund's debt securities will decline if and when the Fund invests the proceeds from matured, traded or called securities at market interest rates that are below the current earnings rate of the Fund's portfolio.
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the
THE FUND
Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. The Fund may have limited legal recourse in the event of default with respect to certain debt securities issued by foreign governments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Certain of the U.S. Government securities in which the Fund invests, such as mortgage-backed securities that are issued by government sponsored enterprises and securities issued by the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association and the Federal Home Loan Bank, are neither insured nor guaranteed by the United States Government. Such securities may be supported by the ability to borrow from the U.S. Treasury or only by the credit of the issuing agency or instrumentality, and, as a result, may be subject to greater issuer risk than securities issued or guaranteed by the U.S. Treasury.
Inflation risk is a risk to investors who invest 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.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
THE FUND
results include the effect of expense reduction arrangements, if any. If these arrangements had not been in place, the performance results would have been lower. Except as noted, any expense reduction arrangements may be discontinued at any time. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance.
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class Z share performance for each of the last ten complete calendar years. They include the effects of Fund expenses.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's Class Z average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses.
CALENDAR YEAR TOTAL RETURNS (CLASS Z)
(BAR CHART)
25.08% 11.78% 18.74% 20.07% 12.70% 0.82% 18.73% 6.64%
-7.40% -12.97%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
|
The Fund's year-to-date total return through For the periods shown in bar chart:
September 30, 2005 (Class Z) was +3.27%. Best quarter: 4th quarter 1998, +12.86%
Worst quarter: 3rd quarter 2002, -9.21%
|
THE FUND
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004
INCEPTION
DATE 1 YEAR 5 YEARS 10 YEARS
Class Z (%) 10/1/91
Return Before Taxes 6.64 0.57 8.74
Return After Taxes on Distributions 6.10 -0.51 6.61
Return After Taxes on Distributions and Sale of Fund
Shares 4.52 -0.08 6.43
------------------------------------------------------------------------------------------------------------------------
S&P Index (%) 10.88 -2.30 12.07
------------------------------------------------------------------------------------------------------------------------
Lehman Index (%) 4.34 7.71 7.72
|
UNDERSTANDING EXPENSES
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
THE FUND
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 -------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 -------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) (2) |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
Management fee (%) 0.50 -------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.00 -------------------------------------------------------------------- Other expenses(1) (%) 0.19 -------------------------------------------------------------------- Total annual fund operating expenses (%) 0.69 |
(1) Other expenses have been restated to reflect contractual changes to the fees paid by the Fund for transfer agency and pricing and bookkeeping services effective November 1, 2005.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
1 YEAR 3 YEARS 5 YEARS 10 YEARS $70 $221 $384 $859 |
See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-----------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to Columbia Management Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
-----------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class of the Fund at no additional
cost. To exchange by telephone, call 1-800-422-3737. Please
see "How to Exchange Shares" for more information.
-----------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-----------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-----------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
-----------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate your
program or change the amount of the exchange (subject to the
$100 minimum) by calling 1-800-345-6611. Be sure to complete
the appropriate section of the account application for this
feature.
-----------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at no
additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
|
YOUR ACCOUNT
IMPORTANT THINGS TO CONSIDER WHEN DECIDING ON A CLASS OF SHARES:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by an intermediary. Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
NO MINIMUM INITIAL INVESTMENT
- Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
- Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts ("IRAs")), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
- Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
- Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
$1,000 MINIMUM INITIAL INVESTMENT
- Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of a fund distributed by Columbia Management Distributors, Inc. (i) who holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005; (iii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iv) who purchased certain no-load shares of a fund merged with a fund distributed by Columbia Management Distributors, Inc.;
- Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Management Distributors, Inc.;
- Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary;
YOUR ACCOUNT
- Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement);
- Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an accredited investor, as defined under the Securities Act of 1933; or
- Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries.
The Fund reserves the right to change the criteria for Eligible Investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
CHOOSING A SHARE CLASS
The Fund offers one class of shares in this prospectus --
CLASS Z.
YOUR ACCOUNT
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees and (ii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into Class Z shares or Class A
shares (only if Class Z is not offered) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
-----------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
-----------------------------------------------------------------------------------
By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign the
letter. Signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for alternate
payee or mailing instructions. Additional documentation is
required for sales by corporations, agents, fiduciaries,
surviving joint owners and individual retirement account
owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
-----------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
-----------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. All dividend and capital
gains distributions must be reinvested. Be sure to complete
the appropriate section of the account application for this
feature.
-----------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
YOUR ACCOUNT
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
YOUR ACCOUNT
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must
YOUR ACCOUNT
determine the price of each security in its portfolio at the close of each trading day. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for Class Z shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
-----------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund distributes any dividends quarterly and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
YOUR ACCOUNT
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your current fund ---------------------------------------------------------------- Reinvest all distributions in shares of another fund ---------------------------------------------------------------- Receive dividends in cash (see options below) and reinvest capital gains ---------------------------------------------------------------- Receive all distributions in cash (with one of the following options): - send the check to your address of record - send the check to a third party address - transfer the money to your bank via electronic funds transfer |
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Advisors and/or Columbia Management by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Advisors and/or Columbia Management by the Fund, amounted to 0.50% of average daily net assets of the Fund.
LEONARD A. APLET, a Managing Director of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since October, 1991. Mr. Aplet has been associated with Columbia Advisors or its predecessors since 1987.
GUY W. POPE, a Senior Vice President of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since 1997. Mr. Pope has been associated with Columbia Advisors or its predecessors since 1993.
STEPHEN PEACHER, a Managing Director of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since September, 2005. Mr. Peacher has been associated with Columbia Advisors since April, 2005. Prior to April, 2005, Mr. Peacher was employed by Putnam Investments, where he served as the Chief Investment Officer of the Credit Team for the previous five years.
RONALD B. STAHL, a Portfolio Manager with Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since March, 2005. Mr. Stahl has been associated with Columbia Advisors or its predecessors since 1998.
JEFFREY D. HUFFMAN, a Portfolio Manager with Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since December, 2005. Mr. Huffman has been associated with Columbia Advisors or its predecessors since April, 2000.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
MANAGING THE FUND
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Columbia Funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late
MANAGING THE FUND
trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In Re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed.
OTHER INVESTMENT STRATEGIES AND RISKS
The Fund's principal investment strategies and their associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The advisor may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goal. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or any of its investment strategies.
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 Fund will usually invest some portion of its 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 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. The 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.
OTHER INVESTMENT STRATEGIES
The 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.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the last six fiscal periods, which run from September 1 to August 31, unless otherwise indicated. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
YEAR ENDED PERIOD ENDED
AUGUST 31, AUGUST 31, YEAR ENDED DECEMBER 31,
2005 2004 2003(A) 2002(B) 2001 2000
Class Z Class Z Class Z Class Z Class Z Class Z
------- ------- ------- ------- --------- ---------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 19.84 19.19 17.51 20.67 22.96 24.72
--------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS ($):
Net investment income 0.01(c)(d) 0.35(c) 0.24(c) 0.47(c) 0.57(e) 0.67
Net realized and
unrealized gain (loss)
on investments and
futures contracts 2.36 0.66 1.64 (3.13) (2.27)(e) (0.41)
--------------------------------------------------------------------------------------------------------------------------------
Total from Investment
Operations 2.37 1.01 1.88 (2.66) (1.70) 0.26
--------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS ($):
From net investment
income (0.47) (0.36) (0.20) (0.50) (0.59) (0.68)
From net realized gains -- -- -- -- -- (1.34)
--------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.47) (0.36) (0.20) (0.50) (0.59) (2.02)
--------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 21.74 19.84 19.19 17.51 20.67 22.96
--------------------------------------------------------------------------------------------------------------------------------
Total return (%)(f) 12.06 5.27 10.81(g) (12.97) (7.40) 0.82
--------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
($):
Net assets, end of period
(000's) ($) 301,109 483,746 640,402 668,290 983,749 1,126,854
Ratio of expenses to
average net assets (%)(h) 0.77 0.77 0.77(i) 0.70 0.67 0.65
Ratio of net investment
income to average net
assets %(h) 2.11 1.73 2.03(i) 2.50 2.70(e) 2.73
Portfolio turnover rate
(%) 63 158 110(g) 98 111 105
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(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) On November 1, 2002, the existing Fund shares were renamed Class Z shares.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Net investment income per share reflects a special dividend. The effect of this dividend amounted to $0.06 per share.
(e) Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended December 31, 2001, was to decrease net investment income per share by $0.01, decrease net realized and unrealized loss per share by $0.01 and decrease the ratio of net investment income to average net assets from 2.73% to 2.70%. Per share data and ratios for periods prior to December 31, 2001 have not been restated to reflect this change in presentation.
(f) Total return at net asset value assuming all distributions reinvested.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The chart shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class Z shares of the Fund assuming a 5% return each year, the hypothetical year-end balance before expenses and the cumulative return after fees and expenses. The chart also assumes that the annual expense ratio stays the same throughout the 10-year period and that all dividends and distributions are reinvested. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses table, is reflected in the chart and is net of any fee waiver or expense reimbursement.
CLASS Z SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.69% $10,000.00 5%
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CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 4.31% $10,431.00 $ 70.49
2 10.25% $11,025.00 8.81% $10,880.58 $ 73.52
3 15.76% $11,576.25 13.50% $11,349.53 $ 76.69
4 21.55% $12,155.06 18.39% $11,838.69 $ 80.00
5 27.63% $12,762.82 23.49% $12,348.94 $ 83.45
6 34.01% $13,400.96 28.81% $12,881.18 $ 87.04
7 40.71% $14,071.00 34.36% $13,436.36 $ 90.80
8 47.75% $14,774.55 40.15% $14,015.47 $ 94.71
9 55.13% $15,513.28 46.20% $14,619.53 $ 98.79
10 62.89% $16,288.95 52.50% $15,249.64 $103.05
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 5,249.64
TOTAL ANNUAL FEES &
EXPENSES PAID $858.54
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NOTES
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Balanced Fund, Inc.: 811-06338
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2005 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/91548-1005
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED JANUARY 1, 2006 (THE "PROSPECTUS")
COLUMBIA CONSERVATIVE HIGH YIELD FUND
CLASS A, B, C AND D SHARES
The Prospectus is hereby supplemented with the following information:
1. The back cover of the Prospectus in the section titled "For More Information" is revised to include the name of the Trust: "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The "Calendar Year Total Returns" and "Average Annual Total Returns" tables for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS
CLASS A(1)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ---- ----- ---- ---- ---- ---- ---- ----- ---- ---- 9.43% 12.70% 6.26% 2.38% 4.61% 6.63% 1.11 11.16% 7.16% 2.45% |
For the periods shown above:
Best quarter: 3rd quarter 2004, +5.03%
Worst quarter: 2nd quarter 2002, -2.28%
(1) Class A is a newer class of shares. Its performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class A shares and Class Z shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class A shares were initially offered on November 1, 2002, and Class Z shares were initially offered on October 1, 1993.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2005(1)
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Class A (%)
Return Before Taxes (2.43) 4.61 5.81
Return After Taxes on Distributions (4.49) 2.11 2.78
Return After Taxes on Distributions and Sale of Fund Shares (1.60) 2.40 3.04
Class B (%)
Return Before Taxes (3.13) 4.80 6.06
Return After Taxes on Distributions (5.02) 2.44 3.11
Return After Taxes on Distributions and Sale of Fund Shares (2.05) 2.65 3.32
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Class C (%)
Return Before Taxes 0.87 5.17 6.09
Return After Taxes on Distributions (1.07) 2.82 3.13
Return After Taxes on Distributions and Sale of Fund Shares 0.55 2.98 3.34
----- ---- ----
Class D (%)
Return Before Taxes 0.81 5.01 6.01
Return After Taxes on Distributions (1.12) 2.64 3.05
Return After Taxes on Distributions and Sale of Fund Shares 0.51 2.83 3.26(2)
Merrill Lynch High Yield Index (%) 2.83 8.76 6.80
----- ---- ----
J.P. Morgan Developed High Yield BB Index (%) 2.58 9.34 8.24
----- ---- ----
|
(1) Class A, Class B, Class C and Class D are newer classes of shares. Their performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to their inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class C shares were initially offered on October 13, 2003, Class A, B and D shares were initially offered on November 1, 2002, and Class Z shares were initially offered on October 1, 1993.
(2) Performance is from 1/31/95.
4. The section entitled "Legal Proceedings" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the
judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107379-0306 March 27, 2006
COLUMBIA CONSERVATIVE HIGH YIELD FUND Prospectus, January 1, 2006
CLASS A, B, C AND D* SHARES
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------------------- Investment Goal..................................... 2 Principal Investment Strategies..................... 2 Principal Investment Risks.......................... 2 Performance History................................. 4 Your Expenses....................................... 7 YOUR ACCOUNT 9 -------------------------------------------------------- How to Buy Shares................................... 9 Investment Minimums................................. 10 Sales Charges....................................... 10 How to Exchange Shares.............................. 14 How to Sell Shares.................................. 15 Fund Policy on Trading of Fund Shares............... 16 Distribution and Service Fees....................... 17 Other Information About Your Account................ 18 MANAGING THE FUND 20 -------------------------------------------------------- Investment Advisor.................................. 20 Portfolio Managers.................................. 20 Legal Proceedings................................... 20 FINANCIAL HIGHLIGHTS 23 -------------------------------------------------------- APPENDIX A 27 -------------------------------------------------------- |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
*EFFECTIVE OCTOBER 13, 2003, THIS FUND'S CLASS D SHARES WERE CLOSED TO NEW INVESTORS.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
|
THE FUND
At times, the Fund's investment advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
The Fund may purchase derivative instruments, such as futures, options, swap contracts, and inverse floaters to gain or reduce exposure to particular securities or segments of the bond markets. Derivatives are financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use derivatives for both hedging and non-hedging purposes, such as to adjust the Fund's sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an opposite position. The Fund typically uses derivatives in an effort to achieve more efficiently economic exposures similar to those it could have achieved through the purchase and sale of fixed income securities. Investments in derivatives may be applied toward meeting a requirement to invest in a particular kind of investment if the derivatives have economic characteristics similar to investments of that kind.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Except as noted otherwise, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
As part of its investment strategy, the Fund may buy and sell securities frequently. Frequent trading of investments usually increases the chance that the Fund will pay investors short-term capital gains (which are taxable at higher rates than long-term capital gains). Frequent trading may also result in higher brokerage commissions and other transaction costs and additional tax liability, which could reduce the Fund's returns. This may result in higher transaction costs and additional tax liability.
THE FUND
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Credit risk refers to the possibility that the issuer of a bond may fail to make timely payments of interest or principal. The lower-rated bonds held by the Fund, commonly referred to as "junk bonds," are subject to greater credit risk, and are generally less liquid, than higher-rated, lower yielding bonds. These 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 such bonds are generally more sensitive than higher-rated bonds to the financial condition of the issuer and adverse changes in the economy. 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. 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.
Inflation risk is a risk to investors who invest 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.
Reinvestment risk is the risk that income from the Fund's debt securities will decline if and when the Fund invests the proceeds from matured, traded or called securities at market interest rates that are below the current earnings rate of the Fund's portfolio.
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
THE FUND
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were reflected, these returns would be lower.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
THE FUND
CALENDAR YEAR TOTAL RETURNS (CLASS A)(1)
(BAR CHART)
19.12% 9.43% 12.70% 6.26% 2.38% 4.61% 6.63% 1.11% 11.16% 7.16% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 |
The Class's year-to-date total return through For the periods shown in bar chart:
September 30, 2005 was +1.23%. Best quarter: 2nd quarter 1995, +5.56%
Worst quarter: 2nd quarter 2002, -2.28%
|
(1) Class A is a newer class of shares. Its performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class A shares and Class Z shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class A shares were initially offered on November 1, 2002, and Class Z shares were initially offered on October 1, 1993.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
THE FUND
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004(1)
1 YEAR 5 YEARS 10 YEARS
Class A (%)
Return Before Taxes 2.02 5.06 7.42
Return After Taxes on Distributions -0.13 2.32 4.21
Return After Taxes on Distributions and Sale of Fund
Shares 1.26 2.59 4.32
------------------------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes 1.36 5.41 7.75
Return After Taxes on Distributions -0.62 2.74 4.60
Return After Taxes on Distributions and Sale of Fund
Shares 0.84 2.94 4.66
------------------------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 5.53 5.74 7.76
Return After Taxes on Distributions 3.49 3.10 4.61
Return After Taxes on Distributions and Sale of Fund
Shares 3.54 3.24 4.67
------------------------------------------------------------------------------------------------------
Class D (%)
Return Before Taxes 5.43 5.59 7.68
Return After Taxes on Distributions 3.42 2.93 4.52
Return After Taxes on Distributions and Sale of Fund
Shares 3.48 3.10 4.59
------------------------------------------------------------------------------------------------------
Merrill Lynch High Yield Index (%) 10.76 7.32 8.46
------------------------------------------------------------------------------------------------------
JP Morgan Index (%) 8.91 9.59 9.82(2)
|
(1) Class A, Class B, Class C and Class D are newer classes of shares. Their performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to their inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class C shares were initially offered on October 13, 2003, Class A, B and D shares were initially offered on November 1, 2002, and Class Z shares were initially offered on October 1, 1993.
(2) Performance is from 1/31/95.
THE FUND
SALES CHARGES are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management fees, 12b-1 fees and other expenses that generally include, but are not limited to, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. High transaction costs reduce the Fund's returns.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table, but does reflect the waiver of the initial sales charge for Class D shares. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
- Reinvestment of all dividends and distributions
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C CLASS D
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75 0.00 0.00 1.00(2)
----------------------------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or
redemption price) 1.00(3) 5.00 1.00 1.00
----------------------------------------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) (4) (4) (4) (4)
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) The Fund's advisor has agreed to waive indefinitely the front-end sales charge for purchases of Class D shares by existing Class D shareholders.
(3) This charge applies only to certain Class A shares bought without an initial sales charge that are sold within 12 months of purchase.
(4) There is a $7.50 charge for wiring sale proceeds to your bank.
THE FUND
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
CLASS A CLASS B CLASS C CLASS D
Management fee(1) (%) 0.56 0.56 0.56 0.56
----------------------------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25(3) 1.00 1.00(4) 1.00(4)
----------------------------------------------------------------------------------------------------------------------
Other expenses(2) (%) 0.12 0.12 0.12 0.12
----------------------------------------------------------------------------------------------------------------------
Total annual fund operating expenses (%) 0.93 1.68 1.68(4) 1.68(4)
|
(1) Management fee has been restated to reflect contractual changes to the management fee for the Fund effective November 1, 2004.
(2) Other expenses have been restated to reflect contractual changes to the fees paid by the Fund for transfer agency and pricing and bookkeeping services effective November 1, 2005.
(3) The Fund may pay distribution and service (12b-1) fees up to a maximum of 0.35% of the Fund's average daily net assets attributable to Class A shares (comprised of up to 0.25% for shareholder liaison services and up to 0.10% for distribution services), but will limit such fees to an aggregate fee of not more than 0.25%.
(4) The Fund's distributor has voluntarily agreed to waive a portion of the 12b-1 fee for Class C and Class D shares. As a result, the 12b-1 fee for Class C and Class D shares would be 0.85% and 0.85%, respectively, and the total annual fund operating expenses for Class C and Class D shares would be 1.53% and 1.53%, respectively. This arrangement may be modified or terminated at any time.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A $565 $757 $ 965 $1,564
------------------------------------------------------------------------------------------------------------------------
Class B: did not sell your shares $171 $530 $ 913 $1,788
sold all your shares at
the end of the period $671 $830 $1,113 $1,788
------------------------------------------------------------------------------------------------------------------------
Class C: did not sell your shares $171 $530 $ 913 $1,987
sold all your shares at
the end of the period $271 $530 $ 913 $1,987
------------------------------------------------------------------------------------------------------------------------
Class D: did not sell your shares $171 $530 $ 913 $1,987
sold all your shares at
the end of the period $271 $530 $ 913 $1,987
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See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
Notice to Fund Shareholders: Class D shares are closed to new investors and new accounts. The Fund now offers Class C shares, which are subject to the same service and distribution fees and sales charges as Class D shares except Class C shares are not subject to a front-end sales charge. The Fund's advisor has agreed to waive indefinitely the front-end sales charge for purchases of Class D shares by existing Class D investors. For more information on expenses and sales charges for Class C shares and Class D shares, see "Your Expenses" and "Sales Charges".
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-----------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
-----------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class (and, in some cases, certain
other classes) of the Fund at no additional cost. There may
be an additional sales charge if exchanging from a money
market fund. To exchange by telephone, call 1-800-422-3737.
-----------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-----------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-----------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
-----------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
fund shares of the same class of the Fund at no additional
cost. Exchanges will continue so long as your fund balance
is sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. There may be
an additional sales charge if exchanging from a money market
fund. Be sure to complete the appropriate section of the
account application for this feature.
-----------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at no
additional sales charge. There may be an additional sales
charge if exchanging from a money market fund. To invest
your dividends in the Fund, call 1-800-345-6611.
|
YOUR ACCOUNT
Please see the Statement of Additional Information for more details on investment minimums.
CHOOSING A SHARE CLASS
The Fund offers four classes of shares in this prospectus -- CLASS A, B, C and D. Class D shares are closed to new investors and new accounts. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 or more but less than $1 million can be made only in Class A, Class C or Class D shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
CLASS A SHARES Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
YOUR ACCOUNT
CLASS A SALES CHARGES
% OF OFFERING
AS A % OF PRICE
THE PUBLIC AS A % RETAINED BY
OFFERING OF YOUR FINANCIAL
AMOUNT PURCHASED PRICE INVESTMENT ADVISOR
Less than $50,000 4.75 4.99 4.25
-------------------------------------------------------------------------------------------------------------------
$50,000 to less than $100,000 4.50 4.71 4.00
-------------------------------------------------------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 3.00
-------------------------------------------------------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.25
-------------------------------------------------------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
-------------------------------------------------------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
|
Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
PURCHASES OVER $1 MILLION
AMOUNT PURCHASED COMMISSION % Less than $3 million 1.00 ---------------------------------------------------------------------------- $3 million to less than $50 million 0.50 ---------------------------------------------------------------------------- $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES
YOUR ACCOUNT
REDUCED SALES CHARGES FOR LARGER INVESTMENTS.
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
RIGHTS OF ACCUMULATION The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
STATEMENT OF INTENT You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
- Individual accounts
- Joint accounts
- Certain IRA accounts
- Certain trusts
- UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible
YOUR ACCOUNT
discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
CLASS B SHARES Your purchases of Class B shares are at Class B's net asset value. Purchases up to $50,000 are allowed in Class B shares assuming the combined value of the customer's total assets in the Columbia funds does not exceed $50,000. Purchases in Class B shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart below.
CLASS B SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 5.00
-------------------------------------------------------------------------------
Through second year 4.00
-------------------------------------------------------------------------------
Through third year 3.00
-------------------------------------------------------------------------------
Through fourth year 3.00
-------------------------------------------------------------------------------
Through fifth year 2.00
-------------------------------------------------------------------------------
Through sixth year 1.00
-------------------------------------------------------------------------------
Longer than six years 0.00
|
Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
CLASS C SHARES Your purchases of Class C shares are at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after
YOUR ACCOUNT
they are purchased. After holding the shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares.
CLASS C SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 1.00
-------------------------------------------------------------------------------
Longer than one year 0.00
|
CLASS D SHARES Class D shares are closed to new investors. Your purchases of Class D shares are made at the public offering price for these shares. This price includes a sales charge of 1.00% (currently being waived), which is paid as a commission to your financial advisor on the sale of Class D shares as shown in the chart below.
CLASS D SALES CHARGES
% OF OFFERING PRICE
AS A % OF THE PUBLIC AS A % OF RETAINED BY FINANCIAL
OFFERING PRICE YOUR INVESTMENT ADVISOR
1.00 1.01 1.00
|
In addition, the distributor pays your financial advisor an initial commission of 1.00% on sales of Class D shares. The Fund's investment advisor has agreed to waive indefinitely the front-end sales charge for purchases of Class D shares by existing Class D investors.
Class D shares also carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC.
YOUR ACCOUNT
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares by exchanging
from the Fund into the same share class (and, in some cases,
certain other classes) of another fund distributed by
Columbia Management Distributors, Inc. at no additional
cost. To exchange by telephone, call 1-800-422-3737.
-----------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
-----------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or if
applicable, stock power form along with any share
certificates to be sold to the address below. In your letter
of instruction, note the Fund's name, share class, account
number, and the dollar value or number of shares you wish to
sell. All account owners must sign the letter. Signatures
must be guaranteed by either a bank, a member firm of a
national stock exchange or another eligible guarantor that
participates in the Medallion Signature Guarantee Program
for amounts over $100,000 or for alternate payee or mailing
instructions. Additional documentation is required for sales
by corporations, agents, fiduciaries, surviving joint owners
and individual retirement account owners. For details, call
1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
-----------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
-----------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
-----------------------------------------------------------------------------------
By electronic funds You may sell shares of the Fund and request that the
transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
YOUR ACCOUNT
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market Fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
YOUR ACCOUNT
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
RULE 12B-1 PLAN The Fund has adopted a plan under Rule 12b-1 that permits it to pay its distributor marketing and other fees to support the sale and distribution of Class A, B, C and D shares and certain services provided to you by your financial advisor. The annual service fee may equal up to 0.25% for each of Class A, Class B, Class C and Class D shares. The annual distribution fee may equal up to 0.10% for Class A shares and 0.75% for each of Class B, Class C and Class D shares. Distribution and service fees are paid out of the assets of these classes. The Fund's Board of Directors limits total payments under the Rule 12b-1 plan for Class A shares to 0.25%. The Fund's distributor has voluntarily agreed to waive a portion of the Class C and Class D 12b-1 fee so that it does not exceed 0.85% annually. This arrangement may be modified or terminated by the Fund's distributor at any time. Over time, these fees will reduce the return on your investment and may cost you more than paying other types of sales charges. Class B shares automatically convert to Class A shares after eight years, eliminating a portion of the distribution fee upon conversion.
ADDITIONAL INTERMEDIARY COMPENSATION In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
YOUR ACCOUNT
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the transfer agent.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
-----------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
YOUR ACCOUNT
UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund declares any dividends daily and pays them monthly, and declares and pays any capital gains (including short-term capital gains) at least annually. Shares begin to earn dividends on the date on which a purchase order is settled by payment. Shares stop earning dividends at the close of business on the day before the date on which a redemption order is settled. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your current fund ---------------------------------------------------------------- Reinvest all distributions in shares of another fund ---------------------------------------------------------------- Receive dividends in cash (see options below) and reinvest capital gains ---------------------------------------------------------------- Receive all distributions in cash (with one of the following options): - send the check to your address of record - send the check to a third party address - transfer the money to your bank via electronic funds transfer |
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. It is expected that any of the Fund's distributions will constitute qualified dividend income. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Advisors and/or Columbia Management by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Advisors and/or Columbia Management by the Fund, amounted to 0.56% of average daily net assets of the Fund.
KEVIN L. CRONK, a senior vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since September, 2005. Mr. Cronk has been associated with Columbia Advisors or its predecessors since August, 1999.
THOMAS A. LAPOINTE, a senior vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since September, 2005. Mr. LaPointe has been associated with Columbia Advisors or its predecessors since February, 1999.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
MANAGING THE FUND
as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March, 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
MANAGING THE FUND
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's fiscal years since inception, which run from September 1 to August 31, unless otherwise indicated. Certain information reflects financial results for a single Class A, B, C or D share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
YEAR ENDED PERIOD ENDED PERIOD ENDED
AUGUST 31, AUGUST 31, DECEMBER 31,
2005 2004 2003(A) 2002(B)
Class A Class A Class A Class A
------- ------- ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 8.69 8.49 8.37 8.17
---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(c) 0.48 0.50 0.33 0.09
Net realized and unrealized gain (loss) on
investments (0.03) 0.24 0.15 0.20
---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.45 0.74 0.48 0.29
---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.52) (0.54) (0.36) (0.09)
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 8.62 8.69 8.49 8.37
---------------------------------------------------------------------------------------------------------------------------------
Total return (%)(d) 5.31 8.90 5.81(e) 3.50(e)
---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ($) 321,402 335,841 193,267 33,992
Ratio of expenses to average net assets
(%)(f) 0.95 1.01 1.07(g) 1.15(g)
Ratio of net investment income to average net
assets (%)(f) 5.55 5.74 5.82(g) 6.46(g)
Portfolio turnover rate (%) 40 41 38(e) 42
|
(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) Class A shares were initially offered on November 1, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge.
(e) Not annualized.
(f) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(g) Annualized.
FINANCIAL HIGHLIGHTS
THE FUND
YEAR ENDED PERIOD ENDED PERIOD ENDED
AUGUST 31, AUGUST 31, DECEMBER 31,
2005 2004 2003(A) 2002(B)
Class B Class B Class B Class B
------- ------- ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 8.69 8.49 8.37 8.17
------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(c) 0.42 0.43 0.28 0.07
Net realized and unrealized gain (loss) on investments (0.03) 0.24 0.15 0.20
------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.39 0.67 0.43 0.27
------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.46) (0.47) (0.31) (0.07)
------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 8.62 8.69 8.49 8.37
------------------------------------------------------------------------------------------------------------------------
Total return (%)(d) 4.53 8.07 5.20(e) 3.33(e)
------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ($) 89,101 102,038 89,950 16,701
Ratio of expenses to average net assets (%)(f) 1.70 1.77 1.94(g) 1.90(g)
Ratio of net investment income to average net assets
(%)(f) 4.80 4.97 4.93(g) 5.71(g)
Portfolio turnover rate (%) 40 41 38(e) 42
|
(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) Class B shares were initially offered on November 1, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(e) Not annualized.
(f) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(g) Annualized.
FINANCIAL HIGHLIGHTS
THE FUND
YEAR ENDED PERIOD ENDED
AUGUST 31, AUGUST 31,
2005 2004(A)
Class C Class C
------ ------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 8.69 8.64
----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(b) 0.43 0.39
Net realized and unrealized gain (loss) on investments (0.03) 0.09
----------------------------------------------------------------------------------------------------
Total from investment operations 0.40 0.48
----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.47) (0.43)
----------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 8.62 8.69
----------------------------------------------------------------------------------------------------
Total return (%)(c)(d) 4.69 5.65(e)
----------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ($) 18,002 20,126
Ratio of expenses to average net assets (%)(f) 1.55 1.61(g)
Ratio of net investment income to average net assets (%)(f) 4.95 5.03(g)
Waiver (%)(h) 0.15 0.15(g)
Portfolio turnover rate (%) 40 41
|
(a) Class C shares were initially offered on October 13, 2003. Per share data and total return reflect activity from that date.
(b) Per share data was calculated using average shares outstanding during the period.
(c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge.
(d) Had the Distributor not waived a portion of expenses, total return would have been reduced.
(e) Not annualized.
(f) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(g) Annualized.
(h) Amounts represent voluntary waivers of distribution and service fees.
FINANCIAL HIGHLIGHTS
THE FUND
YEAR ENDED PERIOD ENDED PERIOD ENDED
AUGUST 31, AUGUST 31, DECEMBER 31,
2005 2004 2003(A) 2002(B)
Class D Class D Class D Class D
------- ------- ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 8.69 8.49 8.37 8.17
-----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(c) 0.43 0.44 0.29 0.07
Net realized and unrealized gain
(loss) on investments (0.03) 0.24 0.15 0.20
-----------------------------------------------------------------------------------------------------------------
Total from investment operations 0.40 0.68 0.44 0.27
-----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.47) (0.48) (0.32) (0.07)
-----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 8.62 8.69 8.49 8.37
-----------------------------------------------------------------------------------------------------------------
Total return (%)(d)(e) 4.69 8.23 5.35(f) 3.35(f)
-----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ($) 58,739 86,854 103,559 18,035
Ratio of expenses to average net
assets (%)(g) 1.55 1.62 1.73(h) 1.75(h)
Ratio of net investment income to
average net assets (%)(g) 4.95 5.12 5.12(h) 5.86(h)
Waiver (%)(i) 0.15 0.15 0.15(h) 0.15(h)
Portfolio turnover rate (%) 40 41 38(f) 42
|
(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) Class D shares were initially offered on November 1, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge.
(e) Had the Distributor not waived a portion of expenses, total return would have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
(i) Amounts represent voluntary waivers of distribution and service fees.
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides
additional information about the effect of the expenses of the Fund, including
investment advisory fees and other Fund costs, on the Fund's returns over a
10-year period. The charts show the estimated expenses that would be charged on
a hypothetical investment of $10,000 in Class A, B, C and D Shares of the Fund
assuming a 5% return each year, the hypothetical year-end balance before
expenses and the cumulative return after fees and expenses. The charts also
assume that the annual expense ratios stay the same throughout the 10-year
period, that all dividends and distributions are reinvested and that Class B
shares convert to Class A shares after eight years. The annual expense ratio
used for the Fund, which is the same as that stated in the Annual Fund Operating
Expenses tables, is reflected in the charts and is net of any fee waiver or
expense reimbursement.
CLASS A SHARES(1)
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.93% $ 10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- CUMULATIVE RETURN HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE AFTER FEES & END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ ----------------- ------------------ -------------
1 5.00% $10,001.25 4.07% $ 9,912.67 $ 565.39
2 10.25% $10,501.31 8.31% $10,316.11 $ 94.06
3 15.76% $11,026.38 12.71% $10,735.98 $ 97.89
4 21.55% $11,577.70 17.30% $11,172.93 $ 101.88
5 27.63% $12,156.58 22.08% $11,627.67 $ 106.02
6 34.01% $12,764.41 27.04% $12,100.92 $ 110.34
7 40.71% $13,402.63 32.21% $12,593.43 $ 114.83
8 47.75% $14,072.76 37.60% $13,105.98 $ 119.50
9 55.13% $14,776.40 43.20% $13,639.39 $ 124.37
10 62.89% $15,515.22 49.02% $14,194.51 $ 129.43
TOTAL GAIN BEFORE FEES
& EXPENSES $ 5,990.22
TOTAL GAIN AFTER FEES &
EXPENSES $ 4,669.51
TOTAL ANNUAL FEES &
EXPENSES PAID $1,563.70
-----------------------------------------------------------------------------------------------------
|
(1) For Class A shares, the year one Annual Fees & Expenses and Hypothetical Year-End Balance Before Fees & Expenses information shown include the dollar amount and effect of any applicable front-end sales charge of the Fund.
CLASS B SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.68% $ 10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- CUMULATIVE RETURN HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE AFTER FEES & END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ ----------------- ------------------ -------------
1 5.00% $10,500.00 3.32% $10,332.00 $ 170.79
2 10.25% $11,025.00 6.75% $10,675.02 $ 176.46
3 15.76% $11,576.25 10.29% $11,029.43 $ 182.32
4 21.55% $12,155.06 13.96% $11,395.61 $ 188.37
5 27.63% $12,762.82 17.74% $11,773.94 $ 194.62
6 34.01% $13,400.96 21.65% $12,164.84 $ 201.09
7 40.71% $14,071.00 25.69% $12,568.71 $ 207.76
8 47.75% $14,774.55 29.86% $12,985.99 $ 214.66
9 55.13% $15,513.28 35.15% $13,514.52 $ 123.23
10 62.89% $16,288.95 40.65% $14,064.56 $ 128.24
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 4,064.56
TOTAL ANNUAL FEES &
EXPENSES PAID $1,787.54
-----------------------------------------------------------------------------------------------------
|
APPENDIX A
CLASS C SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.68% $ 10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- CUMULATIVE RETURN HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE AFTER FEES & END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ ----------------- ------------------ -------------
1 5.00% $10,500.00 3.32% $10,332.00 $ 170.79
2 10.25% $11,025.00 6.75% $10,675.02 $ 176.46
3 15.76% $11,576.25 10.29% $11,029.43 $ 182.32
4 21.55% $12,155.06 13.96% $11,395.61 $ 188.37
5 27.63% $12,762.82 17.74% $11,773.94 $ 194.62
6 34.01% $13,400.96 21.65% $12,164.84 $ 201.09
7 40.71% $14,071.00 25.69% $12,568.71 $ 207.76
8 47.75% $14,774.55 29.86% $12,985.99 $ 214.66
9 55.13% $15,513.28 34.17% $13,417.13 $ 221.79
10 62.89% $16,288.95 38.63% $13,862.58 $ 229.15
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 3,862.58
TOTAL ANNUAL FEES &
EXPENSES PAID $1,987.00
-----------------------------------------------------------------------------------------------------
|
CLASS D SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.68% $ 10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- CUMULATIVE RETURN HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE AFTER FEES & END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ ----------------- ------------------ -------------
1 5.00% $10,500.00 3.32% $10,332.00 $ 170.79
2 10.25% $11,025.00 6.75% $10,675.02 $ 176.46
3 15.76% $11,576.25 10.29% $11,029.43 $ 182.32
4 21.55% $12,155.06 13.96% $11,395.61 $ 188.37
5 27.63% $12,762.82 17.74% $11,773.94 $ 194.62
6 34.01% $13,400.96 21.65% $12,164.84 $ 201.09
7 40.71% $14,071.00 25.69% $12,568.71 $ 207.76
8 47.75% $14,774.55 29.86% $12,985.99 $ 214.66
9 55.13% $15,513.28 34.17% $13,417.13 $ 221.79
10 62.89% $16,288.95 38.63% $13,862.58 $ 229.15
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 3,862.58
TOTAL ANNUAL FEES &
EXPENSES PAID $1,987.00
-----------------------------------------------------------------------------------------------------
|
NOTES
NOTES
NOTES
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Fund's Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Conservative High Yield Fund, Inc. (formerly named Columbia High Yield Fund, Inc.): 811-07834
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2005 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/91628-1005
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED JANUARY 1, 2006 (THE "PROSPECTUS")
COLUMBIA CONSERVATIVE HIGH YIELD FUND
CLASS Z SHARES
The Prospectus is hereby supplemented with the following information:
1. The back cover of the Prospectus in the section titled "For More Information" is revised to include the name of the Trust: "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The "Calendar Year Total Returns" and "Average Annual Total Returns" tables for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS
CLASS Z
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 9.43% 12.70% 6.26% 2.38% 4.61% 6.63% 1.17% 11.49% 7.42% 2.68% |
For the periods shown above:
Best quarter: 3rd quarter 2004, +5.09%
Worst quarter: 2nd quarter 2002, -2.28%
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2005
INCEPTION
DATE
10/1/93 1 YEAR 5 YEARS 10 YEARS
--------- ------ ------- --------
Class Z (%)
Return Before Taxes 2.68 5.82 6.41
Return After Taxes on Distributions 0.43 3.22 3.34
Return After Taxes on Distributions and Sale of Fund
Shares 1.72 3.38 3.54
Merrill Lynch High Yield Index (%) 2.83 8.76 6.80
J.P. Morgan Developed High Yield BB Index (%) 2.58 9.34 8.24(1)
|
(1) Performance is from January 31, 1995.
4. The section entitled "Legal Proceedings" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC))
("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107380-0306 March 27, 2006
COLUMBIA CONSERVATIVE HIGH YIELD FUND Prospectus, January 1, 2006
CLASS Z SHARES
Advised by Columbia Management Advisors, LLC
THE FUND 2 --------------------------------------------------------- Investment Goal...................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 2 Performance History.................................. 4 Your Expenses........................................ 6 YOUR ACCOUNT 7 --------------------------------------------------------- How to Buy Shares.................................... 7 Eligible Investors................................... 7 Sales Charges........................................ 9 How to Exchange Shares............................... 9 How to Sell Shares................................... 10 Fund Policy on Trading of Fund Shares................ 11 Intermediary Compensation............................ 12 Other Information About Your Account................. 12 MANAGING THE FUND 15 --------------------------------------------------------- Investment Advisor................................... 15 Portfolio Managers................................... 15 Legal Proceedings.................................... 15 FINANCIAL HIGHLIGHTS 18 --------------------------------------------------------- APPENDIX A 19 --------------------------------------------------------- |
Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
|
THE FUND
At times, the Fund's investment advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
The Fund may purchase derivative instruments, such as futures, options, swap contracts, and inverse floaters, to gain or reduce exposure to particular securities or segments of the bond markets. Derivatives are financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use derivatives for both hedging and non-hedging purposes, such as to adjust the Fund's sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an opposite position. The Fund typically uses derivatives in an effort to achieve more efficiently economic exposures similar to those it could have achieved through the purchase and sale of fixed income securities. Investments in derivatives may be applied toward meeting a requirement to invest in a particular kind of investment if the derivatives have economic characteristics similar to investments of that kind.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Except as noted otherwise, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goals. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goals or perform favorably among comparable funds.
THE FUND
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Credit risk refers to the possibility that the issuer of a bond may fail to make timely payments of interest or principal. The lower-rated bonds held by the Fund, commonly referred to as "junk bonds," are subject to greater credit risk, and are generally less liquid, than higher-rated, lower yielding bonds. These 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 such bonds are generally more sensitive than higher-rated bonds to the financial condition of the issuer and adverse changes in the economy. 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. 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.
Inflation risk is a risk to investors who invest 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.
Reinvestment risk is the risk that income from the Fund's debt securities will decline if and when the Fund invests the proceeds from matured, traded or called securities at market interest rates that are below the current earnings rate of the Fund's portfolio.
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
THE FUND
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class Z share performance for each of the last ten complete calendar years. They include the effects of Fund expenses.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's Class Z average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses.
THE FUND
CALENDAR YEAR TOTAL RETURNS (CLASS Z)
(BAR CHART)
19.12% 9.43% 12.70% 6.26% 2.38% 4.61% 6.63% 1.17% 11.49% 7.42% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 |
The Class's year-to-date total return through For the periods shown in bar chart:
September 30, 2005 was +1.40%. Best quarter: 2nd quarter 1995, +5.56%
Worst quarter: 2nd quarter 2002, -2.28%
|
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004
INCEPTION
DATE 1 YEAR 5 YEARS 10 YEARS
Class Z (%) 10/1/93
Return Before Taxes 7.42 6.21 8.00
Return After Taxes on Distributions 5.06 3.39 4.76
Return After Taxes on Distributions and Sale of Fund
Shares 4.76 3.54 4.82
------------------------------------------------------------------------------------------------------------------------
Merrill Lynch High Yield Index (%) 10.76 7.32 8.46
------------------------------------------------------------------------------------------------------------------------
J.P.Morgan Index (%) 8.91 9.59 9.82(1)
|
(1) Performance is from January 31, 1995.
THE FUND
UNDERSTANDING EXPENSES
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management fees and other expenses that generally include, but are not limited to transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 -------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 -------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) (2) |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
Management fee(1) (%) 0.56 -------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.00 -------------------------------------------------------------------- Other expenses(2) (%) 0.12 -------------------------------------------------------------------- Total annual fund operating expenses (%) 0.68 |
(1) Management fee has been restated to reflect contractual changes to the management fee for the Fund effective November 1, 2004.
(2) Other expenses have been restated to reflect contractual changes to the fees paid by the Fund for transfer agency and pricing and bookkeeping services effective November 1, 2005
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
1 YEAR 3 YEARS 5 YEARS 10 YEARS $69 $218 $379 $847 |
See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-----------------------------------------------------------------------------------
By check For new accounts send a completed application and check made
(new account) payable to the Fund to Columbia Management Services, Inc.,
P.O. Box 8081, Boston, MA 02266-8081.
-----------------------------------------------------------------------------------
By check For existing accounts fill out and return the additional
(existing account) investment stub included in your quarterly statement, or
send a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class of the Fund at no additional
cost. To exchange by telephone, call 1-800-422-3737. Please
see "How to Exchange Shares" for more information.
-----------------------------------------------------------------------------------
By wire You may purchase shares by wiring money from your bank
account to your Fund account. To wire funds to your Fund
account, call 1-800-422-3737 for wiring instructions.
-----------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-----------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment from your bank account to your Fund account. You may select
plan a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
-----------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class at no additional cost. Exchanges
will continue so long as your fund balance is sufficient to
complete the transfers. You may terminate your program or
change the amount of the exchange (subject to the $100
minimum) by calling 1-800-345-6611. Be sure to complete the
appropriate section of the account application for this
feature.
-----------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at no
additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
|
YOUR ACCOUNT
IMPORTANT THINGS TO CONSIDER WHEN DECIDING ON A CLASS OF SHARES:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by an intermediary. Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
NO MINIMUM INITIAL INVESTMENT
- Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
- Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts ("IRAs")), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
- Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
- Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
$1,000 MINIMUM INITIAL INVESTMENT
- Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of a fund distributed by Columbia Management Distributors, Inc. (i) who holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005; (iii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iv) who purchased certain no-load shares of a fund merged with a fund distributed by Columbia Management Distributors, Inc.;
- Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Management Distributors, Inc.;
- Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary;
YOUR ACCOUNT
- Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement);
- Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meet the respective qualifications for an accredited investor, as defined under the Securities Act of 1933; or
- Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries.
The Fund reserves the right to change the criteria for Eligible Investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
The Fund offers one class of shares in this prospectus --
CLASS Z.
YOUR ACCOUNT
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, and (ii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into Class Z shares or Class A
shares (only if Class Z is not offered) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
-----------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
-----------------------------------------------------------------------------------
By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign the
letter. Signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for alternate
payee or mailing instructions. Additional documentation is
required for sales by corporations, agents, fiduciaries,
surviving joint owners and individual retirement account
owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
-----------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
-----------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. All dividend and capital
gains distributions must be reinvested. Be sure to complete
the appropriate section of the account application for this
feature.
-----------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
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YOUR ACCOUNT
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
YOUR ACCOUNT
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must
YOUR ACCOUNT
determine the price of each security in its portfolio at the close of each trading day. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for Class Z shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
-----------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund declares dividends daily and pays them monthly, and declares and pays any capital gains (including short-term capital gains) at least annually. Shares begin to earn dividends on the date on which a purchase order is settled. Shares stop earning dividends on the close of business on the day before the date on which a redemption order is settled. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
YOUR ACCOUNT
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your
current fund
----------------------------------------------------------------
Reinvest all distributions in shares of another fund
----------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest
capital gains
----------------------------------------------------------------
Receive all distributions in cash (with one of the following
options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds
transfer
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Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. It is expected that any of the Fund's distributions will constitute qualified dividend income. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
Effective June 15, 2005, CMG converted to a limited liability company. Columbia Advisors, a registered investment advisor, has been an investment advisor since 1995.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Advisors and/or Columbia Management by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Advisors and/or Columbia Management by the Fund, amounted to 0.56% of average daily net assets of the Fund.
KEVIN L. CRONK, a senior vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since September, 2005. Mr. Cronk has been associated with Columbia Advisors or its predecessors since August, 1999.
THOMAS A. LAPOINTE, a senior vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since September, 2005. Mr. LaPointe has been associated with Columbia Advisors or its predecessors since February, 1999.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
MANAGING THE FUND
outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March, 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
MANAGING THE FUND
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the last six fiscal periods, which run from September 1 to August 31, unless otherwise indicated. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
PERIOD ENDED
YEAR ENDED AUGUST 31, AUGUST 31, YEAR ENDED DECEMBER 31,
2005 2004 2003(A) 2002(B) 2001 2000
Class Z Class Z Class Z Class Z Class Z Class Z
------- ------- ------- ------- ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 8.69 8.49 8.37 8.87 8.98 9.32
-------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income 0.50(c) 0.52(c) 0.35(c) 0.57(c) 0.67(d) 0.75
Net realized and unrealized gain (loss) on
investments (0.03) 0.24 0.15 (0.48) (0.09)(d) (0.34)
-------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.47 0.76 0.50 0.09 0.58 0.41
-------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.54) (0.56) (0.38) (0.59) (0.69) (0.75)
-------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 8.62 8.69 8.49 8.37 8.87 8.98
-------------------------------------------------------------------------------------------------------------------------------
Total return %(e) 5.54 9.16 6.04(f) 1.17 6.63 4.61
-------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ($) 1,073,894 1,186,454 1,197,340 702,785 238,994 97,575
Ratio of expenses to average net assets(g) 0.70 0.77 0.82(h) 0.77 0.85 0.93
Ratio of net investment income to average net
assets(g) 5.80 5.97 6.19(h) 6.84 7.47(d) 8.22
Portfolio turnover rate 40 41 38(f) 42 69 50
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(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) On November 1, 2002, the existing Fund shares were redesignated Class Z shares.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount all debt securities. The effect of this change for the year ended December 31, 2001, was to decrease net investment income per share by $0.02, decrease net unrealized and realized loss per share by $0.02, and decrease the ratio of net investment income to average net assets from 7.64% to 7.47%. Per share data and ratios for periods prior to December 31, 2001 have not been restated to reflect this change in presentation.
(e) Total return at net asset value assuming all distributions reinvested.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
APPENDIX A
COLUMBIA CONSERVATIVE HIGH YIELD FUND -- CLASS Z
ANNUAL INITIAL HYPOTHETICAL ASSUMED RATE
EXPENSE RATIO INVESTMENT AMOUNT OF RETURN
0.68% $10,000.00 5%
------------------------------------------------------------------------
HYPOTHETICAL HYPOTHETICAL
CUMULATIVE YEAR-END CUMULATIVE YEAR-END
RETURN BALANCE RETURN BALANCE ANNUAL
BEFORE FEES BEFORE FEES AFTER FEES AFTER FEES FEES &
YEAR & EXPENSES & EXPENSES & EXPENSES & EXPENSES EXPENSES
1 5.00% $10,500.00 4.32% $10,432.00 $ 69.47
2 10.25% $11,025.00 8.83% $10,882.66 $ 72.47
3 15.76% $11,576.25 13.53% $11,352.79 $ 75.60
4 21.55% $12,155.06 18.43% $11,843.23 $ 78.87
5 27.63% $12,762.82 23.55% $12,354.86 $ 82.27
6 34.01% $13,400.96 28.89% $12,888.59 $ 85.83
7 40.71% $14,071.00 34.45% $13,445.38 $ 89.54
8 47.75% $14,774.55 40.26% $14,026.22 $ 93.40
9 55.13% $15,513.28 46.32% $14,632.15 $ 97.44
10 62.89% $16,288.95 52.64% $15,264.26 $101.65
Total Gain Before
Fees & Expenses $ 6,288.95
Total Gain After
Fees & Expenses $ 5,264.26
------------------------------------------------------------------------
Total Annual Fees
& Expenses Paid $846.53
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You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Conservative High Yield Fund, Inc. (formerly named Columbia High Yield Fund, Inc.): 811-07834
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2005 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/91478-1005
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED JANUARY 1, 2006 (THE "PROSPECTUS")
COLUMBIA OREGON INTERMEDIATE MUNICIPAL BOND FUND (THE "FUND")
CLASS A, B, C AND D SHARES
The Fund's Prospectus is hereby supplemented with the following information:
1. The back cover of the Prospectus in the section titled "For More Information" is revised to include the name of the Trust, "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The "Calendar Year Total Returns" and "Average Annual Total Returns" tables for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS (CLASS A)(1)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 3.77% 8.36% 5.58% -2.65% 10.28% 4.55% 9.12% 4.76% 3.78% 2.68% |
For the periods shown above:
Best quarter: 3rd quarter 2002, +4.79%
Worst quarter: 2nd quarter 2004, -2.13%
(1) Class A is a newer class of shares. Its performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class A shares and Class Z shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class A shares were initially offered on November 1, 2002, and Class Z shares were initially offered on July 2, 1984.
AVERAGE ANNUAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 2005(1)
1 YEAR 5 YEARS 10 YEARS
Class A (%)
Return Before Taxes (2.20) 3.95 4.45
Return After Taxes on Distributions (2.20) 3.84 4.35
Return After Taxes on Distributions (0.18) 3.93 4.40
and Sale of Fund Shares
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Class B (%)
Return Before Taxes (1.05) 4.46 4.71
Return After Taxes on Distributions (1.05) 4.35 4.61
Return After Taxes on Distributions 0.36 4.32 4.61
and Sale of Fund Shares
Class C (%)
Return Before Taxes 1.28 4.62 4.80
Return After Taxes on Distributions 1.28 4.52 4.69
Return After Taxes on Distributions 2.00 4.49 4.70
and Sale of Fund Shares
Class D (%)
Return Before Taxes 1.28 4.49 4.73
Return After Taxes on Distributions 1.28 4.39 4.63
Return After Taxes on Distributions 1.99 4.38 4.64
and Sale of Fund Shares
Lehman Brothers General Obligation Bond Index (%) 2.85 5.31 5.58
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(1) Class A, Class B, Class C and Class D are newer classes of shares. Their performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to their inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class C shares were initially offered on October 13, 2003, Class A, B and D shares were initially offered on November 1, 2002, and Class Z shares were initially offered on July 2, 1984.
4. The section entitled "Legal Proceedings" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia
Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including
claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107635-0306 March 27, 2006
COLUMBIA OREGON INTERMEDIATE MUNICIPAL BOND FUND Prospectus, January 1, 2006 CLASS A, B, C AND D* SHARES Advised by Columbia Management Advisors, LLC |
TABLE OF CONTENTS
THE FUND 2 --------------------------------------------------------- Investment Goal...................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 3 Performance History.................................. 4 Your Expenses........................................ 7 YOUR ACCOUNT 9 --------------------------------------------------------- How to Buy Shares.................................... 9 Investment Minimums.................................. 10 Sales Charges........................................ 10 How to Exchange Shares............................... 14 How to Sell Shares................................... 15 Fund Policy on Trading of Fund Shares................ 16 Distribution and Service Fees........................ 17 Other Information About Your Account................. 18 MANAGING THE FUND 21 --------------------------------------------------------- Investment Advisor................................... 21 Portfolio Manager.................................... 21 Legal Proceedings.................................... 21 FINANCIAL HIGHLIGHTS 23 --------------------------------------------------------- APPENDIX A 27 --------------------------------------------------------- |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
*Effective October 13, 2003, this Fund's Class D shares were closed to new investors.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
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THE FUND
While the Fund attempts to invest 100% of its assets in municipal securities that are exempt from federal income tax, it 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.
The Fund may purchase derivative instruments, such as futures, options, swap contracts, and inverse floaters, to gain or reduce exposure to particular securities or segments of the bond markets. Derivatives are financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use derivatives for both hedging and non-hedging purposes, such as to adjust the Fund's sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an opposite position. The Fund typically uses derivatives in an effort to achieve more efficiently economic exposures similar to those it could have achieved through the purchase and sale of fixed income securities. Investments in derivatives may be applied toward meeting a requirement to invest in a particular kind of investment if the derivatives have economic characteristics similar to investments of that kind.
At times, the Fund's investment advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Except as noted otherwise, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
THE FUND
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Tax-exempt bonds are subject to special risks. Changes in tax laws or adverse determinations by the Internal Revenue Service may make the income from some of these bonds taxable. Bonds that are backed by the issuer's taxing authority, known as general obligation bonds, may depend for payment on legislative appropriation and/or aid from other governments. These bonds may be vulnerable to legal limits on a government's power to raise revenue or increase taxes. Other tax-exempt bonds, known as special revenue obligations, are payable from revenues earned by a particular project or other revenue sources. These bonds are subject to greater risk of default than general obligation bonds because investors can look only to the revenue generated by the project or the private company backing the project, rather than to the credit of the state or local government issuer of the bonds. In addition, 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
Credit risk is the possibility that changes in the obligated entity's financial condition, changes in general economic conditions, or changes in economic conditions that affect the obligated entity, may impact the obligated entity's actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and, in some cases, a decrease in income. Bonds that are backed by an issuer's taxing authority, including general obligation bonds, may be vulnerable to legal limits on a government's power to raise revenue or increase taxes. These bonds may depend for payment on legislative appropriation and/or aid from other governments. Other municipal bonds, known as revenue obligations, are payable from revenues earned by a particular project or other revenue source. Some revenue obligations are backed by private companies, some are asset-backed securities, such as bonds backed by mortgage payments, and some are for municipally owned utilities, such as water or sewer systems. Revenue obligations are subject to greater risk of default than general obligation bonds because investors can look only to the revenue generated by the project, assets, or private company backing the project, rather than to the taxing power of the state or local government issuer of the bonds.
Municipal Market Risk and Single-State Focus: A state's municipal market may be volatile and can be significantly affected by adverse tax, legislative, demographic or political changes, as well as changes in the financial or economic condition of the state that issues municipal securities. Municipal issues in the state will be affected by these factors, which will, in turn, affect the value of the Fund's investments. Because the Fund invests primarily in municipal securities of a particular state, the value of the Fund's shares may be more volatile than the value of shares of funds that invest in securities of issuers in a number of different states.
THE FUND
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.
As a non-diversified mutual fund, the Fund is allowed to invest a greater percentage of its total assets in the securities of fewer issuers than a "diversified" fund. The Fund may, therefore, have a greater risk of loss from a few issuers than a similar fund that invests more broadly.
If you are subject to the federal alternative minimum tax, you should be aware that up to 10% of the Fund's net assets may be invested in debt securities, the interest on which is subject to the alternative minimum tax.
Inflation risk is a risk to investors who invest 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.
Reinvestment risk is the risk that income from the Fund's debt securities will decline if and when the Fund invests the proceeds from matured, traded or called securities at market interest rates that are below the current earnings rate of the Fund's portfolio.
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also cause the Fund to receive taxable income, which could increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
THE FUND
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
CALENDAR YEAR TOTAL RETURNS (CLASS A)(1)
(BAR CHART)
14.15% 3.77% 8.36% 5.58% -2.65% 10.28% 4.55% 9.12% 4.76% 3.78% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 |
The Class's year-to-date total return through For the periods shown in bar chart:
September 30, 2005 was +2.07%. Best quarter: 1st quarter 1995, +5.76%
Worst quarter: 2nd quarter 2004, -2.13%
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(1) Class A is a newer class of shares. Its performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class A shares and Class Z shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class A shares were initially offered on November 1, 2002, and Class Z shares were initially offered on July 2, 1984.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The return after taxes on distributions and sale of fund shares at a capital loss may be higher than the return before taxes due to the resulting tax benefit from the capital loss on the after-tax return calculation.
THE FUND
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004(1)
1 YEAR 5 YEARS 10 YEARS
Class A (%)
Return Before Taxes -1.15 5.43 5.57
Return After Taxes on Distributions -1.20 5.32 5.45
Return After Taxes on Distributions and Sale of Fund
Shares 0.54 5.25 5.41
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Class B (%)
Return Before Taxes -2.00 5.80 5.91
Return After Taxes on Distributions -2.06 5.69 5.79
Return After Taxes on Distributions and Sale of Fund
Shares -0.23 5.55 5.70
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Class C (%)
Return Before Taxes 2.37 6.21 5.96
Return After Taxes on Distributions 2.31 6.10 5.83
Return After Taxes on Distributions and Sale of Fund
Shares 2.74 5.91 5.75
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Class D (%)
Return Before Taxes 2.36 6.07 5.88
Return After Taxes on Distributions 2.31 5.96 5.76
Return After Taxes on Distributions and Sale of Fund
Shares 2.74 5.80 5.69
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Lehman Brothers General Obligation Bond Index (%) 4.43 6.92 6.87
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(1) Class A, Class B, Class C and Class D are newer classes of shares. Their performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to their inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class C shares were initially offered on October 13, 2003, Class A, B and D shares were initially offered on November 1, 2002, and Class Z shares were initially offered on July 2, 1984.
THE FUND
SALES CHARGES are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management fees, 12b-1 fees and other expenses that generally include, but are not limited to transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table, but does reflect the waiver of the initial sales charge for Class D shares. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
- Reinvestment of all dividends and distributions
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C CLASS D
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75 0.00 0.00 1.00(2)
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Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or
redemption price) 1.00(3) 5.00 1.00 1.00
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Redemption fee (%)
(as a percentage of amount redeemed, if applicable) (4) (4) (4) (4)
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(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) The Fund's advisor has agreed to waive indefinitely the front end sales charge for purchases of Class D shares by existing Class D shareholders.
(3) This charge applies only to certain Class A shares bought without an initial sales charge that are sold within 12 months of purchase.
(4) There is a $7.50 charge for wiring sale proceeds to your bank.
THE FUND
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
CLASS A CLASS B CLASS C CLASS D
Management fee (%) 0.50 0.50 0.50 0.50
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Distribution and service (12b-1) fees (%) 0.25(2) 1.00 1.00(3) 1.00(3)
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Other expenses(1) (%) 0.12 0.12 0.12 0.12
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Total annual fund operating expenses (%) 0.87 1.62 1.62(3) 1.62(3)
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(1) Other expenses have been restated to reflect contractual changes to the fees paid by the Fund for the transfer agency and pricing and bookkeeping services effective November 1, 2005.
(2) The Fund may pay distribution and service (12b-1) fees up to a maximum of 0.35% of the Fund's average daily net assets attributable to Class A shares (comprised of up to 0.25% for shareholder liaison services and up to 0.10% for distribution services), but will limit such fees to an aggregate fee of not more than 0.25%.
(3) The Fund's distributor has voluntarily agreed to waive a portion of the 12b-1 fee for Class C and Class D shares. If this waiver were reflected in the table, the 12b-1 fee for Class C and Class D shares would be 0.65% and 0.65%, respectively, and the total annual fund operating expenses for Class C and Class D shares would be 1.27% and 1.27%, respectively. This arrangement may be modified or terminated at any time.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A: $560 $739 $ 934 $1,497
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Class B: did not sell your shares $165 $511 $ 881 $1,721
sold all your shares at
the end of the period $665 $811 $1,081 $1,721
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Class C: did not sell your shares $165 $511 $ 881 $1,922
sold all your shares at
the end of the period $265 $511 $ 881 $1,922
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Class D: did not sell your shares $165 $511 $ 881 $1,922
sold all your shares at
the end of the period $265 $511 $ 881 $1,922
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See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
Notice to Fund Shareholders: Class D shares are closed to new investors and new accounts. The Fund now offers Class C shares, which are subject to the same service and distribution fees and sales charges as Class D shares except Class C shares are not subject to a front-end sales charge. The Fund's advisor has agreed to waive indefinitely the front-end sales charge for purchases of Class D shares by existing Class D investors. For more information on expenses and sales charges for Class C shares and Class D shares, see "Your Expenses" and "Sales Charges."
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For new accounts send a completed application and check made
(new account) payable to the Fund to the transfer agent, Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By check For existing accounts fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributor, Inc.
for shares of the same class (and, in some cases, certain
other classes) of the Fund at no additional cost. There may
be an additional sales charge if exchanging from a money
market fund. To exchange by telephone, call 1-800-422-3737.
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By wire You may purchase shares by wiring money from your bank
account to your Fund account. To wire funds to your Fund
account, call 1-800-422-3737 for wiring instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
fund shares of the same class at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate your
program or change the amount of the exchange (subject to the
$100 minimum) by calling 1-800-345-6611. There may be an
additional sales charge if exchanging from a money market
fund. Be sure to complete the appropriate section of the
account application for this feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
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YOUR ACCOUNT
Please see the Statement of Additional Information for more details on investment minimums.
The Fund offers four classes of shares in this prospectus -- CLASS A, B, C and D. Class D shares are now closed to new investors and new accounts. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 or more but less than $1 million can be made only in Class A, Class C or Class D shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
CLASS A SHARES Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
YOUR ACCOUNT
CLASS A SALES CHARGES
% OF OFFERING
AS A % OF PRICE
THE PUBLIC AS A % RETAINED BY
OFFERING OF YOUR FINANCIAL
AMOUNT PURCHASED PRICE INVESTMENT ADVISOR
Less than $100,000 3.25 3.66 3.00
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$100,000 to less than $250,000 2.50 2.56 2.25
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$250,000 to less than $500,000 2.00 2.04 1.75
-------------------------------------------------------------------------------------------------------------------
$500,000 to less than $1,000,000 1.50 1.52 1.25
-------------------------------------------------------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
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Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
PURCHASES OVER $1 MILLION
AMOUNT PURCHASED COMMISSION % Less than $3 million 1.00 ---------------------------------------------------------------------------- $3 million to less than $50 million 0.50 ---------------------------------------------------------------------------- $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES
YOUR ACCOUNT
REDUCED SALES CHARGES FOR LARGER INVESTMENTS
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
RIGHTS OF ACCUMULATION The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
STATEMENT OF INTENT You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e., dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
- Individual accounts
- Joint accounts
- Certain IRA accounts
- Certain trusts
- UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for
YOUR ACCOUNT
which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
CLASS B SHARES Your purchases of Class B shares are at Class B's net asset value. Purchases up to $50,000 are allowed in Class B shares assuming the combined value of the customer's total assets in the Columbia funds does not exceed $50,000. Purchases in Class B shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart below.
CLASS B SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 3.00
-------------------------------------------------------------------------------
Through second year 3.00
-------------------------------------------------------------------------------
Through third year 2.00
-------------------------------------------------------------------------------
Through fourth year 1.00
-------------------------------------------------------------------------------
Through fifth year 0.00
-------------------------------------------------------------------------------
Through sixth year 0.00
-------------------------------------------------------------------------------
Longer than six years 0.00
|
Commission to financial advisors is 2.75%.
Automatic conversion to Class A shares occurs eight years after purchase.
YOUR ACCOUNT
CLASS C SHARES Your purchases of Class C shares are at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares, as described in the chart below.
CLASS C SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 1.00
------------------------------------------------------------------------------------
Longer than one year 0.00
|
CLASS D SHARES Class D shares are closed to new investors. Your purchases of Class D shares are made at the public offering price for these shares. This price includes a sales charge of 1.00% (currently being waived), which is paid as a commission to your financial advisor on the sale of Class D shares as shown in the chart below.
CLASS D SALES CHARGES
% OF OFFERING PRICE
AS A % OF THE PUBLIC AS A % OF RETAINED BY FINANCIAL
OFFERING PRICE YOUR INVESTMENT ADVISOR
1.00 1.01 1.00
|
In addition, the distributor pays your financial advisor an initial commission of 1.00% on sales of Class D shares. The Fund's investment advisor has agreed to waive indefinitely the front-end sales charge for purchases of Class D shares by existing Class D investors.
Class D shares also carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC.
YOUR ACCOUNT
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable, you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into the same share class (and, in
some cases, certain other classes) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
-----------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
-----------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or if
applicable, stock power form along with any share
certificates to be sold to the address below. In your letter
of instruction, note the Fund's name, share class, account
number, and the dollar value or number of shares you wish to
sell. All account owners must sign the letter. Signatures
must be guaranteed by either a bank, a member firm of a
national stock exchange or another eligible guarantor that
participates in the Medallion Signature Guarantee Program
for amounts over $100,000 or for alternate payee or mailing
instructions. Additional documentation is required for sales
by corporations, agents, fiduciaries, surviving joint owners
and individual retirement account owners. For details, call
1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
-----------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
-----------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
-----------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market Fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange
YOUR ACCOUNT
purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
YOUR ACCOUNT
you more than paying other types of sales charges. Class B shares automatically convert to Class A shares after eight years, eliminating the distribution fee upon conversion.
ADDITIONAL INTERMEDIARY COMPENSATION In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts, (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or
YOUR ACCOUNT
when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the transfer agent.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
-----------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund declares any dividends daily and pays them monthly, and declares and pays any capital gains (including short-term capital gains) at least annually. Shares begin to earn dividends on the date on which a purchase order is settled by payment. Shares stop earning dividends at the close of business on the day before the date on which a redemption order is settled. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
YOUR ACCOUNT
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your
current fund
----------------------------------------------------------------
Reinvest all distributions in shares of another fund
----------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest
capital gains
----------------------------------------------------------------
Receive all distributions in cash (with one of the following
options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds
transfer
|
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES For federal income tax purposes, distributions of investment income by the Fund, whether in cash or additional securities, will ordinarily constitute tax-exempt income. Generally, gains realized by the Fund on the sale or exchange of investments, the income from which is tax-exempt, will be taxable to shareholders. In addition, an investment in the Fund may result in liability for federal alternative minimum tax for both individuals and corporate shareholders. The Fund intends to distribute federally tax-exempt income. The Fund may invest a portion of its assets in securities that generate income subject to federal or state income taxes. Income exempt from federal tax may be subject to state and local taxes.
You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Management by the Fund, amounted to 0.50% of average daily net assets of the Fund.
The Statement of Additional Information provides additional information about the manager's compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory,
MANAGING THE FUND
compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's fiscal periods which run from September 1 to August 31, unless otherwise indicated, since the inception of the applicable share class. Certain information reflects financial results for a single Class A, B, C or D share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
PERIOD ENDED PERIOD ENDED
YEAR ENDED AUGUST 31, AUGUST 31, DECEMBER 31,
2005 2004 2003(a) 2002(b)
Class A Class A Class A Class A
------- ------- ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 12.45 12.25 12.50 12.52
---------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(c) 0.46 0.46 0.29 0.08
Net realized and unrealized gain (loss) on
investments 0.03 0.34 (0.22) 0.07
---------------------------------------------------------------------------------------------------------------------
Total from investment operations 0.49 0.80 0.07 0.15
---------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.45) (0.46) (0.31) (0.08)
From net realized gains (0.04) (0.14) (0.01) (0.09)
---------------------------------------------------------------------------------------------------------------------
Total Distributions (0.49) (0.60) (0.32) (0.17)
---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 12.45 12.45 12.25 12.50
---------------------------------------------------------------------------------------------------------------------
Total return (%)(d) 4.05 6.68 0.56(e) 1.19(e)
---------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ($) 4,300 3,680 2,138 477
Ratio of expenses to average net assets (%)(f) 0.89 0.92 1.16(g) 0.92(g)
Ratio of net investment income to average net
assets (%)(f) 3.71 3.73 3.52(g) 4.11(g)
Portfolio turnover rate (%) 9 11 10(e) 21
|
(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) Class A shares were initially offered on November 1, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge.
(e) Not annualized.
(f) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(g) Annualized.
FINANCIAL HIGHLIGHTS
THE FUND
PERIOD ENDED PERIOD ENDED
YEAR ENDED AUGUST 31, AUGUST 31, DECEMBER 31,
2005 2004 2003(a) 2002(b)
Class B Class B Class B Class B
------- ------- ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 12.45 12.25 12.50 12.52
-------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(c) 0.37 0.37 0.24 0.06
Net realized and unrealized gain (loss) on investments 0.03 0.34 (0.23) 0.08
-------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.40 0.71 0.01 0.14
-------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS ($):
From net investment income (0.36) (0.37) (0.25) (0.07)
From net realized gains (0.04) (0.14) (0.01) (0.09)
-------------------------------------------------------------------------------------------------------------------------
Total distributions (0.40) (0.51) (0.26) (0.16)
-------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 12.45 12.45 12.25 12.50
-------------------------------------------------------------------------------------------------------------------------
Total return (%)(d) 3.26 5.87 0.05(e) 1.10(e)
-------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ($) 1,226 1,190 999 373
Ratio of expenses to average net assets (%)(f) 1.64 1.68 1.86(g) 1.67(g)
Ratio of net investment income to average net assets
(%)(f) 2.96 2.97 2.83(g) 3.36(g)
Portfolio turnover rate (%) 9 11 10(e) 21
|
(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) Class B shares were initially offered on November 1, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(e) Not annualized.
(f) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(g) Annualized.
FINANCIAL HIGHLIGHTS
THE FUND
YEAR ENDED PERIOD ENDED
AUGUST 31, AUGUST 31,
2005 2004(a)
Class C Class C
------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 12.45 12.42
-----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS: ($)
Net investment income(b) 0.41 0.36
Net realized and unrealized gain (loss) on investments 0.03 0.18
-----------------------------------------------------------------------------------------------
Total from Investment Operations 0.44 0.54
-----------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS ($):
From net investment income (0.40) (0.37)
From net realized gains (0.04) (0.14)
-----------------------------------------------------------------------------------------------
Total Distributions (0.44) (0.51)
-----------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 12.45 12.45
-----------------------------------------------------------------------------------------------
Total return (%)(c)(d) 3.64 4.41(e)
-----------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ($) 601 278
Ratio of expenses to average net assets (%)(f) 1.29 1.30(g)
Ratio of net investment income to average net assets (%)(f) 3.31 3.28(g)
Waiver(h) 0.35 0.35(g)
Portfolio turnover rate (%) 9 11
|
(a) Class C shares were initially offered on October 13, 2003. Per share data and total return reflect activity from that date.
(b) Per share data was calculated using average shares outstanding during the period.
(c) Total return at net asset value assuming all distributions reinvested and contingent deferred sales charge.
(d) Had the Distributor not waived a portion of expenses, total return would have been reduced.
(e) Not annualized.
(f) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(g) Annualized.
(h) Amounts represent voluntary waivers of distribution and service fees.
FINANCIAL HIGHLIGHTS
THE FUND
PERIOD ENDED PERIOD ENDED
YEAR ENDED AUGUST 31, AUGUST 31, DECEMBER 31,
2005 2004 2003(a) 2002(b)
Class D Class D Class D Class D
------- ------- ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 12.45 12.25 12.50 12.52
-------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS: ($)
Net investment income(c) 0.41 0.41 0.27 0.07
Net realized and unrealized gain (loss) on
investments 0.03 0.34 (0.23) 0.07
-------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.44 0.75 0.04 0.14
-------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS ($):
From net investment income (0.40) (0.41) (0.28) (0.07)
From net realized gains (0.04) (0.14) (0.01) (0.09)
-------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.44) (0.55) (0.29) (0.16)
-------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 12.45 12.45 12.25 12.50
-------------------------------------------------------------------------------------------------------------------------
Total return %(d)(e) 3.62 6.25 0.32(f) 1.14(f)
-------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ($) 764 790 700 488
Ratio of expenses to average net assets (%)(g) 1.29 1.33 1.43(h) 1.32(h)
Ratio of net investment income to average net
assets (%)(g) 3.31 3.34 3.30(h) 3.71(h)
Waiver(i) 0.35 0.35 0.35(h) 0.35(h)
Portfolio turnover rate (%) 9 11 10(f) 21
|
(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) Class D shares were initially offered on November 1, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(e) Had the Distributor not waived a portion of expenses, total return would have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
(i) Amounts represent voluntary waivers of distribution and service fees.
APPENDIX A
CLASS A SHARES(1)
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.87% $10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,001.25 4.13% $ 9,918.38 $ 559.58
2 10.25% $10,501.31 8.43% $10,328.01 $ 88.07
3 15.76% $11,026.38 12.91% $10,754.56 $ 91.71
4 21.55% $11,577.70 17.57% $11,198.72 $ 95.50
5 27.63% $12,156.58 22.43% $11,661.23 $ 99.44
6 34.01% $12,764.41 27.48% $12,142.84 $ 103.55
7 40.71% $13,402.63 32.75% $12,644.34 $ 107.82
8 47.75% $14,072.76 38.23% $13,166.55 $ 112.28
9 55.13% $14,776.40 43.94% $13,710.33 $ 116.91
10 62.89% $15,515.22 49.89% $14,276.56 $ 121.74
TOTAL GAIN BEFORE FEES
& EXPENSES $ 5,990.22
TOTAL GAIN AFTER FEES &
EXPENSES $ 4,751.56
TOTAL ANNUAL FEES &
EXPENSES PAID $1,496.60
|
(1) For Class A shares, the year one Annual Fees & Expenses and Hypothetical Year-End Balance Before Fees & Expenses information shown include the dollar amount and effect of any applicable front-end sales charge of the Fund.
APPENDIX A
CLASS B SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.62% $10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 3.38% $10,338.00 $ 164.74
2 10.25% $11,025.00 6.87% $10,687.42 $ 170.31
3 15.76% $11,576.25 10.49% $11,048.66 $ 176.06
4 21.55% $12,155.06 14.22% $11,422.10 $ 182.01
5 27.63% $12,762.82 18.08% $11,808.17 $ 188.17
6 34.01% $13,400.96 22.07% $12,207.29 $ 194.53
7 40.71% $14,071.00 26.20% $12,619.89 $ 201.10
8 47.75% $14,774.55 30.46% $13,046.45 $ 207.90
9 55.13% $15,513.28 35.85% $13,585.26 $ 115.85
10 62.89% $16,288.95 41.46% $14,146.34 $ 120.63
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 4,146.34
TOTAL ANNUAL FEES &
EXPENSES PAID $1,721.29
|
CLASS C SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.62% $10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 3.38% $10,338.00 $ 164.74
2 10.25% $11,025.00 6.87% $10,687.42 $ 170.31
3 15.76% $11,576.25 10.49% $11,048.66 $ 176.06
4 21.55% $12,155.06 14.22% $11,422.10 $ 182.01
5 27.63% $12,762.82 18.08% $11,808.17 $ 188.17
6 34.01% $13,400.96 22.07% $12,207.29 $ 194.53
7 40.71% $14,071.00 26.20% $12,619.89 $ 201.10
8 47.75% $14,774.55 30.46% $13,046.45 $ 207.90
9 55.13% $15,513.28 34.87% $13,487.42 $ 214.92
10 62.89% $16,288.95 39.43% $13,943.29 $ 222.19
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 3,943.29
TOTAL ANNUAL FEES &
EXPENSES PAID $1,921.92
|
APPENDIX A
CLASS D SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.62% $10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 3.38% $10,338.00 $ 164.74
2 10.25% $11,025.00 6.87% $10,687.42 $ 170.31
3 15.76% $11,576.25 10.49% $11,048.66 $ 176.06
4 21.55% $12,155.06 14.22% $11,422.10 $ 182.01
5 27.63% $12,762.82 18.08% $11,808.17 $ 188.17
6 34.01% $13,400.96 22.07% $12,207.29 $ 194.53
7 40.71% $14,071.00 26.20% $12,619.89 $ 201.10
8 47.75% $14,774.55 30.46% $13,046.45 $ 207.90
9 55.13% $15,513.28 34.87% $13,487.42 $ 214.92
10 62.89% $16,288.95 39.43% $13,943.29 $ 222.19
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 3,943.29
TOTAL ANNUAL FEES &
EXPENSES PAID $1,921.92
|
NOTES
NOTES
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Oregon Intermediate Municipal Bond Fund (formerly named Columbia Oregon Municipal Bond Fund, Inc.): 811-03983
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2005 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/91550-1005
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED JANUARY 1, 2006 (THE "PROSPECTUS")
COLUMBIA OREGON INTERMEDIATE MUNICIPAL BOND FUND (THE "FUND")
CLASS Z SHARES
The Fund's Prospectus is hereby supplemented with the following information:
1. The back cover of the Prospectus in the section titled "For More Information" is revised to include the name of the Trust, "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The "Calendar Year Total Returns" and "Average Annual Total Returns" tables for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS (CLASS Z)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 3.77% 8.36% 5.58% -2.65% 10.28% 4.55% 9.24% 5.16% 4.03% 2.94% |
For the periods shown in bar chart:
Best quarter: 3rd quarter 2002, +4.79%
Worst quarter: 3rd quarter 2004, -2.07%
AVERAGE ANNUAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 2005
INCEPTION
DATE 1 YEAR 5 YEARS 10 YEARS
7/2/84
Class Z (%)
Return Before Taxes 2.94 5.16 5.07
Return After Taxes on Distributions 2.94 5.06 4.96
Return After Taxes on Distributions 3.31 5.03 4.97
and Sale of Fund Shares
Lehman Brothers General Obligation Bong Index (%) 2.85 5.31 5.58
|
4. The section entitled "Legal Proceedings" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107709-0306 March 27, 2006
COLUMBIA OREGON INTERMEDIATE MUNICIPAL BOND FUND Prospectus, January 1, 2006 CLASS Z SHARES Advised by Columbia Management Advisors, LLC |
TABLE OF CONTENTS
THE FUND 2 --------------------------------------------------------- Investment Goal...................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 3 Performance History.................................. 5 Your Expenses........................................ 6 YOUR ACCOUNT 8 --------------------------------------------------------- How to Buy Shares.................................... 8 Eligible Investors................................... 9 Sales Charges........................................ 10 How to Exchange Shares............................... 11 How to Sell Shares................................... 11 Fund Policy on Trading of Fund Shares................ 12 Intermediary Compensation............................ 13 Other Information About Your Account................. 14 MANAGING THE FUND 17 --------------------------------------------------------- Investment Advisor................................... 17 Portfolio Manager.................................... 17 Legal Proceedings.................................... 17 FINANCIAL HIGHLIGHTS 19 --------------------------------------------------------- APPENDIX A 20 --------------------------------------------------------- |
Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
|
THE FUND
While the Fund attempts to invest 100% of its assets in municipal securities that are exempt from federal income tax, it 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.
The Fund may purchase derivative instruments, such as futures, options, swap contracts, and inverse floaters, to gain or reduce exposure to particular securities or segments of the bond markets. Derivatives are financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use derivatives for both hedging and non-hedging purposes, such as to adjust the Fund's sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an opposite position. The Fund typically uses derivatives in an effort to achieve more efficiently economic exposures similar to those it could have achieved through the purchase and sale of fixed income securities. Investments in derivatives may be applied toward meeting a requirement to invest in a particular kind of investment if the derivatives have economic characteristics similar to investments of that kind.
At times, the Fund's investment advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Except as noted otherwise, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
THE FUND
The principal risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its investment goal. You may lose money by investing in the Fund.
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Tax-exempt bonds are subject to special risks. Changes in tax laws or adverse determinations by the Internal Revenue Service may make the income from some of these bonds taxable. Bonds that are backed by the issuer's taxing authority, known as general obligation bonds, may depend for payment on legislative appropriation and/or aid from other governments. These bonds may be vulnerable to legal limits on a government's power to raise revenue or increase taxes. Other tax-exempt bonds, known as special revenue obligations, are payable from revenues earned by a particular project or other revenue sources. These bonds are subject to greater risk of default than general obligation bonds because investors can look only to the revenue generated by the project or the private company backing the project, rather than to the credit of the state or local government issuer of the bonds. In addition, 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
Credit risk is the possibility that changes in the obligated entity's financial condition, changes in general economic conditions, or changes in economic conditions that affect the obligated entity, may impact the obligated entity's actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and, in some cases, a decrease in income. Bonds that are backed by an issuer's taxing authority, including general obligation bonds, may be vulnerable to legal limits on a government's power to raise revenue or increase taxes. These bonds may depend for payment on legislative appropriation and/or aid from other governments. Other municipal bonds, known as revenue obligations, are payable from revenues earned by a particular project or other revenue source. Some revenue obligations are backed by private companies, some are asset-backed securities, such as bonds backed by mortgage payments, and some are for municipally owned utilities, such as water or sewer systems. Revenue obligations are subject to greater risk of default than general obligation bonds because investors can look only to the revenue generated by the project, assets, or private company backing the project, rather than to the taxing power of the state or local government issuer of the bonds.
Municipal Market Risk and Single-State Focus: A state's municipal market may be volatile and can be significantly affected by adverse tax, legislative, demographic or political changes, as well as changes in the financial or economic condition of the state that issues municipal securities. Municipal issues in the state will be affected by these factors, which will, in turn, affect the value of the Fund's investments. Because the Fund invests primarily in municipal securities of a particular state, the value of the Fund's shares may be more volatile than the value of shares of funds that invest in securities of issuers in a number of different states.
THE FUND
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.
As a non-diversified mutual fund, the Fund is allowed to invest a greater percentage of its total assets in the securities of fewer issuers than a "diversified" fund. The Fund may, therefore, have a greater risk of loss from a few issuers than a similar fund that invests more broadly.
If you are subject to the federal alternative minimum tax, you should be aware that up to 10% of the Fund's net assets may be invested in debt securities, the interest on which is subject to the alternative minimum tax.
Inflation risk is a risk to investors who invest 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.
Reinvestment risk is the risk that income from the Fund's debt securities will decline if and when the Fund invests the proceeds from matured, traded or called securities at market interest rates that are below the current earnings rate of the Fund's portfolio.
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also cause the Fund to receive taxable income, which could increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
THE FUND
The bar chart below shows the Fund's calendar year total returns (before taxes) for its Class Z shares. The performance table following the bar chart shows how the Fund's average annual total returns for Class Z shares compare with those of broad measures of market performance for one year, five years and ten years. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing changes in the Fund's performance from year-to-year. All returns include the reinvestment of dividends and distributions. Performance results include the effect of expense reduction arrangements, if any. If these arrangements had not been in place, the performance results would have been lower. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance.
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class Z share performance for each of the last ten complete calendar years. They include the effects of Fund expenses.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's Class Z average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses.
CALENDAR YEAR TOTAL RETURNS (CLASS Z)
(BAR CHART)
14.15% 3.77% 8.36% 5.58% -2.65% 10.28% 4.55% 9.24% 5.16% 4.03% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 |
The Class's year-to-date total return through For the periods shown in bar chart above:
September 30, 2005 was +2.26%. Best quarter: 1st quarter 1995, +5.76%
Worst quarter: 2nd quarter 2004, -2.07%
|
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax deferred arrangements, such as 401(k) plans or individual retirement accounts. The return
THE FUND
after taxes on distributions and sale of fund shares at a capital loss may be higher than the return before taxes due to the resulting tax benefit from the capital loss on the after-tax return calculation.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004
INCEPTION
DATE 1 YEAR 5 YEARS 10 YEARS
Class Z (%) 7/2/84
Return Before Taxes 4.03 6.62 6.16
Return After Taxes on Distributions 3.98 6.51 6.04
Return After Taxes on Distributions and Sale of Fund
Shares 4.06 6.33 5.95
-----------------------------------------------------------------------------------------------------------------------
Lehman Brothers General Obligation Bond Index (%) 4.43 6.92 6.87
|
UNDERSTANDING EXPENSES
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management fees and other expenses that generally include, but are not limited to transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 -------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 -------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) (2) |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
THE FUND
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
Management fee (%) 0.50 -------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.00 -------------------------------------------------------------------- Other expenses(1) (%) 0.12 -------------------------------------------------------------------- Total annual fund operating expenses (%) 0.62 |
(1) Other expenses have been restated to reflect contractual changes to the fees paid by the Fund for the transfer agency and pricing and bookkeeping services effective November 1, 2005.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
1 YEAR 3 YEARS 5 YEARS 10 YEARS $63 $199 $346 $774 |
See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-----------------------------------------------------------------------------------
By check For new accounts send a completed application and check made
(new account) payable to the Fund to Columbia Management Services, Inc.,
P.O. Box 8081, Boston, MA 02266-8081.
-----------------------------------------------------------------------------------
By check For existing accounts fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class of the Fund at no additional
cost. To exchange by telephone, call 1-800-422-3737. Please
see "How to Exchange Shares" for more information.
-----------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares by electronically transferring money
funds transfer from your bank account to your Fund account by calling
1-800-422-3737. An electronic funds transfer may take up to
two business days to settle and be considered in "good
form." You must set up this feature prior to your telephone
request. Be sure to complete the appropriate section of the
application.
-----------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
fund shares of the same class of the Fund at no additional
cost. Exchanges will continue so long as your fund balance
is sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. Be sure to
complete the appropriate section of the account application
for this feature.
-----------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at no
additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
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YOUR ACCOUNT
IMPORTANT THINGS TO CONSIDER WHEN DECIDING ON A CLASS OF SHARES:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by an intermediary. Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
NO MINIMUM INITIAL INVESTMENT
- Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
- Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts ("IRAs")), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
- Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
- Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
$1,000 MINIMUM INITIAL INVESTMENT
- Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of a fund distributed by Columbia Management Distributors, Inc. (i) who
YOUR ACCOUNT
holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005;
(iii) who holds Class A shares that were obtained by exchange of Class Z
shares; or (iv) who purchased certain no-load shares of a fund merged with a
fund distributed by Columbia Management Distributors, Inc.;
- Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Management Distributors, Inc.;
- Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary;
- Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement);
- Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an accredited investor, as defined under the Securities Act of 1933; or
- Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries.
The Fund reserves the right to change the criteria for Eligible Investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
The Fund offers one class of shares in this prospectus --
CLASS Z.
YOUR ACCOUNT
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, and (ii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into Class Z shares or Class A
shares (only if Z is not offered) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
-----------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
-----------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or stock power
form along with any share certificates to be sold to the
address below. In your letter of instruction, note the
Fund's name, share class, account number, and the dollar
value or number of shares you wish to sell. All account
owners must sign the letter. Signatures must be guaranteed
by either a bank, a member firm of a national stock exchange
or another eligible guarantor that participates in the
Medallion Signature Guarantee Program for amounts over
$100,000 or for alternate payee or mailing instructions.
Additional documentation is required for sales by
corporations, agents, fiduciaries, surviving joint owners
and individual retirement account owners. For details, call
1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081
-----------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
-----------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. All dividend and capital
gains distributions must be reinvested. Be sure to complete
the appropriate section of the account application for this
feature.
-----------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
YOUR ACCOUNT
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
YOUR ACCOUNT
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this fee.
SHARE CERTIFICATES Share certificates are not available for Class Z shares.
YOUR ACCOUNT
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
-----------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund declares any dividends daily and pays them monthly, and declares and pays any capital gains (including short-term capital gains) at least annually. Shares begin to earn dividends on the date on which a purchase order is settled by payment. Shares stop earning dividends at the close of business on the day before the date on which a redemption order is settled. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your
current fund
----------------------------------------------------------------
Reinvest all distributions in shares of another fund
----------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest
capital gains
----------------------------------------------------------------
Receive all distributions in cash (with one of the following
options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds
transfer
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Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES For federal income tax purposes, distributions of investment income by the Fund, whether in cash or additional securities, will ordinarily constitute tax-exempt income. Generally, gains realized by the Fund on the sale or exchange of investments, the income from which is tax-exempt, will be taxable to shareholders. In addition, an investment in the Fund may result in liability for federal alternative minimum tax for both individuals and corporate shareholders. The Fund intends to distribute federally tax-exempt income. The Fund may invest a portion of its assets in securities that generate income subject to federal or state income taxes. Income exempt from federal tax may be subject to state and local taxes.
YOUR ACCOUNT
You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund not including pricing and bookkeeping and other fees paid to Columbia Management by the Fund, amounted to 0.50% of average daily net assets of the Fund.
The Statement of Additional Information provides additional information about the manager's compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory,
compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the Fund's last five fiscal years which run from September 1 to August 31, unless otherwise indicated. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from in the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
YEAR ENDED YEAR ENDED PERIOD ENDED
AUGUST 31, AUGUST 31, AUGUST 31, YEAR ENDED DECEMBER 31,
2005 2004 2003(a) 2002(b) 2001 2000
Class Z Class Z Class Z Class Z Class Z Class Z
------- ------- ------- ------- ------ -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 12.45 12.25 12.50 12.08 12.13 11.56
-------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS ($):
Net investment income 0.49(c) 0.50(c) 0.34(c) 0.55(c) 0.57(d) 0.58
Net realized and unrealized
gain (loss) on investments 0.03 0.34 (0.23) 0.54 (0.02)(d) 0.58
-------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.52 0.84 0.11 1.09 0.55 1.16
-------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS ($):
From net investment income (0.48) (0.50) (0.35) (0.55) (0.57) (0.58)
From net realized gains (0.04) (0.14) (0.01) (0.12) (0.03) (0.01)
-------------------------------------------------------------------------------------------------------------------------------
Total distributions (0.52) (0.64) (0.36) (0.67) (0.60) (0.59)
-------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 12.45 12.45 12.25 12.50 12.08 12.13
-------------------------------------------------------------------------------------------------------------------------------
Total return (%)(e) 4.31 6.97 0.83(f) 9.24 4.55 10.28
-------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000's) ($) 410,706 434,509 485,427 508,865 491,638 436,544
Ratio of expenses to average net
assets (%)(g) 0.64 0.65 0.68(h) 0.58 0.57 0.58
Ratio of net investment income
to average net assets (%)(g) 3.96 4.03 4.13(h) 4.45 4.64(d) 4.92
Portfolio turnover rate (%) 9 11 10(f) 21 14 22
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(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) On November 1, 2002, the existing Fund shares were renamed Class Z shares.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended December 31, 2001, was less than $0.01 to net investment income and net realized and unrealized loss per share and less than 0.01% to the ratio of net investment income to average net assets. Per share data and ratios for the periods prior to December 31, 2001 have not been restated to reflect this change in presentation.
(e) Total return at net asset value assuming all distributions reinvested.
(f) Not Annualized.
(g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The chart shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class Z shares of the Fund assuming a 5% return each year, the hypothetical year-end balance before expenses and the cumulative return after fees and expenses. The chart also assumes that the annual expense ratio stays the same throughout the 10-year period and that all dividends and distributions are reinvested. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses table, is reflected in the chart and is net of any fee waiver or expense reimbursement.
CLASS Z SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
0.62% $10,000.00 5%
HYPOTHETICAL CUMULATIVE
CUMULATIVE RETURN YEAR-END BALANCE RETURN AFTER HYPOTHETICAL YEAR- ANNUAL
BEFORE FEES & BEFORE FEES & FEES & END BALANCE AFTER FEES &
YEAR EXPENSES EXPENSES EXPENSES FEES & EXPENSES EXPENSES
1 5.00% $10,500.00 4.38% $10,438.00 $ 63.36
2 10.25% $11,025.00 8.95% $10,895.18 $ 66.13
3 15.76% $11,576.25 13.72% $11,372.39 $ 69.03
4 21.55% $12,155.06 18.71% $11,870.50 $ 72.05
5 27.63% $12,762.82 23.90% $12,390.43 $ 75.21
6 34.01% $13,400.96 29.33% $12,933.13 $ 78.50
7 40.71% $14,071.00 35.00% $13,499.60 $ 81.94
8 47.75% $14,774.55 40.91% $14,090.89 $ 85.53
9 55.13% $15,513.28 47.08% $14,708.07 $ 89.28
10 62.89% $16,288.95 53.52% $15,352.28 $ 93.19
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 5,352.28
TOTAL ANNUAL FEES &
EXPENSES PAID $774.22
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NOTES
NOTES
NOTES
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Oregon Intermediate Municipal Bond Fund (formerly named Columbia Oregon Municipal Bond Fund, Inc.): 811-03983
(ColumbiaFunds Logo)
A Member by Columbia Management Group
(c)2005 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/91479-1005
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED JANUARY 1, 2006 (THE "PROSPECTUS")
COLUMBIA REAL ESTATE EQUITY FUND (THE "FUND")
CLASS A, B, C AND D SHARES
The Prospectus is hereby supplemented with the following information:
1. The back cover of the Prospectus in the section titled "For More Information" is revised to include the name of the Trust, "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The "Calendar Year Total Returns" and "Average Annual Total Returns" tables for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS (CLASS A)(1)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ----- ----- ------ ----- ----- ---- ---- ----- ----- ---- 38.30% 24.74% -12.33% -2.45% 28.84% 5.41% 2.97% 34.93% 30.76% 6.98% |
For the periods shown above:
Best quarter: 4th quarter 1996, +18.34%
Worst quarter: 3rd quarter 2002, -9.86%
(1) Class A is a newer class of shares. Its performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class A shares and Class Z shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been lower. Class A shares were initially offered on November 1, 2002, and Class Z shares were initially offered on April 1, 1994.
AVERAGE ANNUAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 2005(1)
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Class A (%)
Return Before Taxes 0.83 14.07 13.88
Return After Taxes on Distributions (2.03) 11.95 11.67
Return After Taxes on Distributions
and Sale of Fund Shares 2.77 11.34 11.08
|
Class B (%) Return Before Taxes 1.59 14.67 14.30 Return After Taxes on Distributions (1.16) 12.68 12.16 Return After Taxes on Distributions and Sale of Fund Shares 3.40 11.97 11.52 Class C (%) Return Before Taxes 5.27 14.89 14.30 Return After Taxes on Distributions 2.52 12.93 12.16 Return After Taxes on Distributions and Sale of Fund Shares 5.79 12.19 11.52 Class D (%) Return Before Taxes 5.30 14.68 14.19 Return After Taxes on Distributions 2.55 12.72 12.05 Return After Taxes on Distributions and Sale of Fund Shares 5.81 12.00 11.42 NAREIT Index (%) 12.16 19.08 14.50 |
(1) Class A, Class B, Class C and Class D are newer classes of shares. Their performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to their inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class C shares were initially offered on October 13, 2003, Class A, B and D shares were initially offered on November 1, 2002, and Class Z shares were initially offered on April 1, 1994.
4. The section entitled "Legal Proceedings" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees.
The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March
2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107636-0306 March 27, 2006
COLUMBIA REAL ESTATE EQUITY FUND Prospectus, January 1, 2006
CLASS A, B, C AND D* SHARES
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------------------- Investment Goal..................................... 2 Principal Investment Strategies..................... 2 Principal Investment Risks.......................... 2 Performance History................................. 4 Your Expenses....................................... 6 YOUR ACCOUNT 8 -------------------------------------------------------- How to Buy Shares................................... 8 Investment Minimums................................. 9 Sales Charges....................................... 9 How to Exchange Shares.............................. 13 How to Sell Shares.................................. 13 Fund Policy on Trading of Fund Shares............... 14 Distribution and Service Fees....................... 16 Other Information About Your Account................ 17 MANAGING THE FUND 19 -------------------------------------------------------- Investment Advisor.................................. 19 Portfolio Managers.................................. 19 Legal Proceedings................................... 19 FINANCIAL HIGHLIGHTS 22 -------------------------------------------------------- APPENDIX A 26 -------------------------------------------------------- |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
*EFFECTIVE OCTOBER 13, 2003, THIS FUND'S CLASS D SHARES WERE CLOSED TO NEW INVESTORS.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
|
THE FUND
A REIT is an investment vehicle that pools investors' money for investment primarily in income producing real estate or related loans or interest in another 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 90% 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.
At times, the Fund's investment advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Except as noted otherwise, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
THE FUND
Structure risk is the risk that an event will occur (such as a security being prepaid or called) that alters the security's cash flows. Prepayment risk is a particular type of structure risk that is associated with investments in asset-backed and mortgage-backed securities. With respect to investments in mortgage-backed securities, prepayment risk is the possibility that, as prevailing interest rates fall, homeowners are more likely to refinance their home mortgages. When mortgages are refinanced, the principal on mortgage-backed securities is paid earlier than expected. In an environment of declining interest rates, asset-backed and mortgage-backed securities may offer less potential for gain than other debt securities. During periods of rising interest rates, asset-backed and mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the expected life of the security. In addition, the potential impact of prepayment on the price of asset-backed and mortgage-backed securities may be difficult to predict and result in greater volatility.
Reinvestment risk is the risk that income from the Fund's debt securities will decline if and when the Fund invests the proceeds from matured, traded or called securities at market interest rates that are below the current earnings rate of the Fund's portfolio.
The Fund may invest in real estate investment trusts ("REITs"). REITs are entities which either own properties or make construction or mortgage loans. REITs also may include operating or finance companies. Investing in REITs involves certain unique risks in addition to those risks associated with the real estate industry in general. The prices of REITs are affected by changes in the value of the underlying property owned by the REITs. In addition, although the Fund does not invest directly in real estate, a REIT investment by the Fund is subject to certain of the risks associated with the ownership of real estate. These risks include possible declines in the value of real estate, risks related to general and local economic conditions, possible lack of availability of mortgage funds and changes in interest rates.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day-to-day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Inflation risk is a risk to investors who invest 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.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
THE FUND
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were reflected, these returns would be lower.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
CALENDAR YEAR TOTAL RETURNS (CLASS A)(1)
(BAR CHART)
16.86% 38.30% 24.74% 28.84% 5.41% 2.97% 34.93% 30.76%
-12.33% -2.45%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
|
The Class's year-to-date total return For the periods shown in bar chart:
through September 30, 2005 was +4.69%. Best quarter: 4th quarter 1996, +18.34%
Worst quarter: 3rd quarter 2002, -9.86%
|
(1) Class A is a newer class of shares. Its performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as
THE FUND
Rule 12b-1 fees) between Class A shares and Class Z shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class A shares were initially offered on November 1, 2002, and Class Z shares were initially offered on April 1, 1994.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004(1)
1 YEAR 5 YEARS 10 YEARS
Class A (%)
Return Before Taxes 23.24 18.38 14.89
Return After Taxes on Distributions 20.24 16.45 12.74
Return After Taxes on Distributions and Sale of Fund
Shares 16.99 15.07 11.90
--------------------------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes 24.78 19.23 15.40
Return After Taxes on Distributions 21.83 17.38 13.29
Return After Taxes on Distributions and Sale of Fund
Shares 18.02 15.89 12.41
--------------------------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 28.74 19.42 15.40
Return After Taxes on Distributions 25.86 17.59 13.29
Return After Taxes on Distributions and Sale of Fund
Shares 20.67 16.09 12.41
--------------------------------------------------------------------------------------------------------
Class D (%)
Return Before Taxes 28.78 19.19 15.29
Return After Taxes on Distributions 25.87 17.35 13.18
Return After Taxes on Distributions and Sale of Fund
Shares 20.66 15.87 12.31
--------------------------------------------------------------------------------------------------------
NAREIT Index (%) 31.58 21.95 14.81
|
(1) Class A, Class B, Class C and Class D are newer classes of shares. Their performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to their inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class C shares were initially offered on October 13, 2003, Class A, B and D shares were initially offered on November 1, 2002, and Class Z shares were initially offered on April 1, 1994.
THE FUND
SALES CHARGES are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management fees, 12b-1 fees and other expenses that generally include, but are not limited to, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table but does reflect the waiver of the initial sales charge for Class D shares. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
- Reinvestment of all dividends and distributions
THE FUND
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C CLASS D
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00 0.00 1.00(2)
----------------------------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or
redemption price) 1.00(3) 5.00 1.00 1.00
----------------------------------------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) (4) (4) (4) (4)
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) The Fund's advisor has agreed to waive indefinitely the front-end sales charge for purchases of Class D shares by existing Class D shareholders.
(3) This charge applies only to certain Class A shares bought without an initial sales charge that are sold within 12 months of purchase.
(4) There is a $7.50 charge for wiring sale proceeds to your bank.
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
CLASS A CLASS B CLASS C CLASS D
Management fee(%) 0.75 0.75 0.75 0.75
----------------------------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25(2) 1.00 1.00 1.00
----------------------------------------------------------------------------------------------------------------------
Other expenses(1) (%) 0.17 0.17 0.17 0.17
----------------------------------------------------------------------------------------------------------------------
Total annual fund operating expenses (%) 1.17 1.92 1.92 1.92
|
(1) Other expenses have been restated to reflect contractual changes to the fees paid by the Fund for transfer agency and pricing and bookkeeping services effective November 1, 2005.
(2) The Fund may pay distribution and service (12b-1) fees up to a maximum of 0.35% of the Fund's average daily net assets attributable to Class A shares (comprised of up to 0.25% for shareholder liaison services and up to 0.10% for distribution services), but will limit such fees to an aggregate fee of not more than 0.25%.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A $687 $925 $1,182 $1,914
------------------------------------------------------------------------------------------------------------------------
Class B: did not sell your shares $195 $603 $1,037 $2,048
sold all your shares at
the end of the period $695 $903 $1,237 $2,048
------------------------------------------------------------------------------------------------------------------------
Class C: did not sell your shares $195 $603 $1,037 $2,243
sold all your shares at
the end of the period $295 $603 $1,037 $2,243
------------------------------------------------------------------------------------------------------------------------
Class D: did not sell your shares $195 $603 $1,037 $2,243
sold all your shares at
the end of the period $295 $603 $1,037 $2,243
|
See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
Notice to Fund Shareholders: Class D shares are closed to new investors and new accounts. The Fund now offers Class C shares, which are subject to the same service and distribution fees and sales charges as Class D shares except Class C shares are not subject to a front-end sales charge. The Fund's advisor has agreed to waive indefinitely the front-end sales charge for purchases of Class D shares by existing Class D investors. For more information on expenses and sales charges for Class C shares and Class D shares, see "Your Expenses" and "Sales Charges".
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-----------------------------------------------------------------------------------
By check For new accounts send a completed application and check made
(new account) payable to the Fund to the transfer agent Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
-----------------------------------------------------------------------------------
By check For existing accounts fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class (and in some cases, certain
other classes) of the Fund at no additional cost. There may
be an additional sales charge if exchanging from a money
market fund. To exchange by telephone, call 1-800-422-3737.
-----------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-----------------------------------------------------------------------------------
By electronic You may purchase shares by electronically transferring money
funds transfer from your bank account to your Fund account by calling
1-800-422-3737. An electronic funds transfer may take up to
two business days to settle and be considered in "good
form." You must set up this feature prior to your telephone
request. Be sure to complete the appropriate section of the
application.
-----------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
-----------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
fund shares of the same class of the Fund at no additional
cost. Exchanges will continue so long as your fund balance
is sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. There may be
an additional sales charge if exchanging from a money market
fund. Be sure to complete the appropriate section of the
account application for this feature.
-----------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
|
YOUR ACCOUNT
Please see the Statement of Additional Information for more details on investment minimums.
The Fund offers four classes of shares in this prospectus -- CLASS A, B, C and D. Class D shares are closed to new investors and new accounts. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 or more but less than $1 million can be made only in Class A, Class C or Class D shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
CLASS A SHARES Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales change. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
YOUR ACCOUNT
CLASS A SALES CHARGES
% OF OFFERING
AS A % OF PRICE
THE PUBLIC AS A % RETAINED BY
OFFERING OF YOUR FINANCIAL
AMOUNT PURCHASED PRICE INVESTMENT ADVISOR
Less than $50,000 5.75 6.10 5.00
-------------------------------------------------------------------------------------------------------------------
$50,000 to less than $100,000 4.50 4.71 3.75
-------------------------------------------------------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 2.75
-------------------------------------------------------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.00
-------------------------------------------------------------------------------------------------------------------
$500,000 or more to less than $1,000,000 2.00 2.04 1.75
-------------------------------------------------------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
|
Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
PURCHASES OVER $1 MILLION
AMOUNT PURCHASED COMMISSION % Less than $3 million 1.00 ---------------------------------------------------------------------------- $3 million to less than $50 million 0.50 ---------------------------------------------------------------------------- $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES
YOUR ACCOUNT
REDUCED SALES CHARGES FOR LARGER INVESTMENTS.
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
RIGHTS OF ACCUMULATION The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
STATEMENT OF INTENT You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
- Individual accounts
- Joint accounts
- Certain IRA accounts
- Certain trusts
- UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible
YOUR ACCOUNT
discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
CLASS B SHARES Your purchases of Class B shares are at Class B's net asset value. Purchases up to $50,000 are allowed in Class B shares assuming the combined value of the customer's total assets in the Columbia funds does not exceed $50,000. Purchases in Class B shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart below.
CLASS B SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 5.00
-------------------------------------------------------------------------------
Through second year 4.00
-------------------------------------------------------------------------------
Through third year 3.00
-------------------------------------------------------------------------------
Through fourth year 3.00
-------------------------------------------------------------------------------
Through fifth year 2.00
-------------------------------------------------------------------------------
Through sixth year 1.00
-------------------------------------------------------------------------------
Longer than six years 0.00
|
Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
CLASS C SHARES Your purchases of Class C shares are at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding the shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares.
YOUR ACCOUNT
CLASS C SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 1.00
-------------------------------------------------------------------------------
Longer than one year 0.00
|
CLASS D SHARES Class D shares are closed to new investors. Your purchases of Class D shares are made at the public offering price for these shares. This price includes a sales charge of 1.00% (currently being waived) which is paid as a commission to your financial advisor on the sale of Class D shares as shown in the chart below.
CLASS D SALES CHARGES
% OF OFFERING PRICE
AS A % OF THE PUBLIC AS A % OF RETAINED BY FINANCIAL
OFFERING PRICE YOUR INVESTMENT ADVISOR
1.00 1.01 1.00
|
In addition, the distributor pays your financial advisor an initial commission of 1.00% on sales of Class D shares. The Fund's investment advisor has agreed to waive indefinitely the front-end sales charge for purchases of Class D shares by existing Class D investors.
Class D shares also carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC.
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your
YOUR ACCOUNT
letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares by exchanging
from the Fund into the same share class (and, in some cases,
certain other classes) of another fund distributed by
Columbia Management Distributors, Inc. at no additional
cost. To exchange by telephone, call 1-800-422-3737.
-----------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
-----------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or if
applicable, stock power form along with any share
certificates to be sold to the address below. In your letter
of instruction, note the Fund's name, share class, account
number, and the dollar value or number of shares you wish to
sell. All account owners must sign the letter. Signatures
must be guaranteed by either a bank, a member firm of a
national stock exchange or another eligible guarantor that
participates in the Medallion Signature Guarantee Program
for amounts over $100,000 or for alternate payee or mailing
instructions. Additional documentation is required for sales
by corporations, agents, fiduciaries, surviving joint owners
and individual retirement account owners. For details, call
1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
-----------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
-----------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
-----------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
YOUR ACCOUNT
by long-term shareholders and have other adverse effects on the Fund. This type of excessive short-term trading activity is referred to herein as "market timing". The Columbia Funds are not intended as vehicles for market timing. The Board of Directors of the Fund has adopted the policies and procedures set forth below with respect to frequent trading of the Fund's shares.
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
YOUR ACCOUNT
ADDITIONAL INTERMEDIARY COMPENSATION In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
YOUR ACCOUNT
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the transfer agent.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
-----------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
YOUR ACCOUNT
UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund distributes any dividends quarterly and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your
current fund
----------------------------------------------------------------
Reinvest all distributions in shares of another fund
----------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest
capital gains
----------------------------------------------------------------
Receive all distributions in cash (with one of the following
options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds
transfer
|
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
Recent tax legislation creates potential new tax return filing and tax withholding requirements for certain foreign persons who receive distributions from the Fund that are attributable to U.S. real property interests. Prospective investors who are foreign persons should refer to the Statement of Additional Information and consult their tax advisor.
MANAGING THE FUND
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Advisors and/or Columbia Management by the Fund, amounted to 0.75% of average daily net assets of the Fund.
DAVID I. HOFFMAN, a managing director of Columbia Advisors, is a co-manager of the Fund and has co-managed the Fund since November, 2005. Mr. Hoffman has been associated with Columbia Advisors or its affiliates since August, 2001. Prior to August, 2001, Mr. Hoffman was a vice president with Zurich Scudder Investments, Inc. from March, 1999 to July, 2001.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
MANAGING THE FUND
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including
MANAGING THE FUND
claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's fiscal years since inception, which run from September 1 to August 31, unless otherwise indicated. Certain information reflects financial results for a single Class A, B, C or D share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
PERIOD ENDED PERIOD ENDED
YEAR ENDED AUGUST 31, AUGUST 31, DECEMBER 31,
2005 2004 2003(A) 2002(B)
Class A Class A Class A Class A
------- ------- ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 25.59 21.04 17.80 17.01
------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(c) 0.79(d) 0.77 0.36(e) 0.26
Net realized and unrealized gain on
investments 4.73 4.67 3.11(e) 0.78
------------------------------------------------------------------------------------------------------------
Total from investment operations 5.52 5.44 3.47 1.04
------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.75) (0.70) (0.23) (0.25)
From net realized gains (2.52) (0.19) -- --
------------------------------------------------------------------------------------------------------------
Total distributions (3.27) (0.89) (0.23) (0.25)
------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 27.84 25.59 21.04 17.80
------------------------------------------------------------------------------------------------------------
Total return (%)(f) 22.65 26.42 19.62(g) 6.10(g)
------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) ($) 45,756 32,703 12,364 905
Ratio of expenses to average net
assets (%)(h) 1.18 1.20 1.55(i) 1.43(i)
Ratio of net investment income to
average net assets (%)(h) 2.98 3.27 2.70(e)(i) 4.81(i)
Portfolio turnover rate (%) 10 28 33(g) 53
|
(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) Class A shares were initially offered on November 1, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Net investment income per share reflects a special dividend. The effect of this dividend amounted to $0.24 per share.
(e) Effective January 1, 2003, the Fund adopted the policy to reduce cost of investments for financial statement purposes by the distributions received in excess of income from real estate investment trusts. The effect of this change for the eight months ended August 31, 2003 was to decrease the net investment income per share by $0.05, increase net realized and unrealized gain on investments per share by $0.05 and decrease the ratio of net investment income to average net assets from 3.12% to 2.70%. Per share data and ratios for periods prior to August 31, 2003 have not been restated to reflect this change in policy.
(f) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
FINANCIAL HIGHLIGHTS
THE FUND
PERIOD ENDED PERIOD ENDED
YEAR ENDED AUGUST 31, AUGUST 31, DECEMBER 31,
2005 2004 2003(A) 2002(B)
Class B Class B Class B Class B
------ ------ ----- -----
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 25.60 21.03 17.82 17.01
-------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(c) 0.60(d) 0.58 0.24(e) 0.22
Net realized and unrealized gain on
investments 4.73 4.70 3.12(e) 0.81
-------------------------------------------------------------------------------------------------------------------
Total from investment operations 5.33 5.28 3.36 1.03
-------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.56) (0.52) (0.15) (0.22)
From net realized gains (2.52) (0.19) -- --
-------------------------------------------------------------------------------------------------------------------
Total Distributions (3.08) (0.71) (0.15) (0.22)
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 27.85 25.60 21.03 17.82
-------------------------------------------------------------------------------------------------------------------
Total return (%)(f) 21.74 25.53 18.97(g) 6.09(g)
-------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ($) 14,393 11,234 4,776 1,074
Ratio of expenses to average net assets
(%)(h) 1.93 1.98 2.37(i) 2.18(i)
Ratio of net investment income to average
net assets (%)(h) 2.26 2.47 1.86(e)(i) 4.06(i)
Portfolio turnover rate (%) 10 28 33(g) 53
|
(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) Class B shares were initially offered on November 1, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Net investment income per share reflects a special dividend. The effect of this dividend amounted to $0.24 per share.
(e) Effective January 1, 2003, the Fund adopted the policy to reduce cost of investments for financial statement purposes by the distributions received in excess of income from real estate investment trusts. The effect of this change for the eight months ended August 31, 2003 was to decrease the net investment income per share by $0.05, increase net realized and unrealized gain on investments per share by $0.05 and decrease the ratio of net investment income to average net assets from 2.28% to 1.86%. Per share data and ratios for periods prior to August 31, 2003 have not been restated to reflect this change in policy.
(f) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
FINANCIAL HIGHLIGHTS
THE FUND
YEAR ENDED PERIOD ENDED
AUGUST 31, AUGUST 31,
2005 2004(A)
Class C Class C
----- -----
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 25.58 21.99
----------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(b) 0.55(c) 0.41
Net realized and unrealized gain on investments 4.78 3.72
----------------------------------------------------------------------------------------------------
Total from investment operations 5.33 4.13
----------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.56) (0.35)
From net realized gains (2.52) (0.19)
----------------------------------------------------------------------------------------------------
Total Distributions (3.08) (0.54)
----------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 27.83 25.58
----------------------------------------------------------------------------------------------------
Total return (%)(d) 21.75 18.99(e)
----------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ($) 4,821 2,404
Ratio of expenses to average net assets (%)(f) 1.93 1.95(g)
Ratio of net investment income to average net assets (%)(f) 2.08 1.93(g)
Portfolio turnover rate (%) 10 28
|
(a) Class C shares were initially offered on October 13, 2003. Per share data and total return reflect activity from that date.
(b) Per share data was calculated using average shares outstanding during the period.
(c) Net investment income per share reflects a special dividend. The effect of this dividend amounted to $0.24 per share.
(d) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(e) Not annualized.
(f) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(g) Annualized.
FINANCIAL HIGHLIGHTS
THE FUND
PERIOD ENDED PERIOD ENDED
YEAR ENDED AUGUST 31, AUGUST 31, DECEMBER 31,
2005 2004 2003(A) 2002(B)
Class D Class D Class D Class D
----- ----- ----- -----
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 25.59 21.03 17.82 17.01
-------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(c) 0.60(d) 0.65 0.27(e) 0.21
Net realized and unrealized gain on
investments 4.73 4.63 3.10(e) 0.82
-------------------------------------------------------------------------------------------------------------------
Total from investment operations 5.33 5.28 3.37 1.03
-------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.56) (0.53) (0.16) (0.22)
From net realized gains (2.52) (0.19) -- --
-------------------------------------------------------------------------------------------------------------------
Total Distributions (3.08) (0.72) (0.16) (0.22)
-------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 27.84 25.59 21.03 17.82
-------------------------------------------------------------------------------------------------------------------
Total return (%)(f) 21.75 25.55 18.99(g) 6.09(g)
-------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ($) 4,263 4,059 3,466 365
Ratio of expenses to average net assets
(%)(h) 1.93 1.96 2.30(i) 2.18(i)
Ratio of net investment income to average
net assets (%)(h) 2.28 2.81 2.02(e)(i) 4.06(i)
Portfolio turnover rate (%) 10 28 33(g) 53
|
(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) Class D shares were initially offered on November 1, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Net investment income per share reflects a special dividend. The effect of this dividend amounted to $0.24 per share.
(e) Effective January 1, 2003, the Fund adopted the policy to reduce cost of investments for financial statement purposes by the distributions received in excess of income from real estate investment trusts. The effect of this change for the eight months ended August 31, 2003 was to decrease the net investment income per share by $0.05, increase net realized and unrealized gain on investments per share by $0.05 and decrease the ratio of net investment income to average net assets from 2.44% to 2.02%. Per share data and ratios prior to August 31, 2003 have not been restated to reflect this change in policy.
(f) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides
additional information about the effect of the expenses of the Fund, including
investment advisory fees and other Fund costs, on the Fund's returns over a
10-year period. The charts show the estimated expenses that would be charged on
a hypothetical investment of $10,000 in Class A, B, C and D shares of the Fund
assuming a 5% return each year, the hypothetical year-end balance before
expenses and the cumulative return after fees and expenses. The charts also
assume that the annual expense ratios stay the same throughout the 10-year
period, that all dividends and distributions are reinvested and that Class B
shares convert to Class A shares after eight years. The annual expense ratio
used for the Fund, which is the same as that stated in the Annual Fund Operating
Expenses tables, is reflected in the charts and is net of any fee waiver or
expense reimbursement.
CLASS A SHARES(1)
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.17% $ 10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- CUMULATIVE RETURN HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE AFTER FEES & END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ ----------------- ------------------ -------------
1 5.00% $ 9,896.25 3.83% $ 9,785.98 $ 687.38
2 10.25% $10,391.06 7.81% $10,160.78 $ 116.69
3 15.76% $10,910.62 11.94% $10,549.94 $ 121.16
4 21.55% $11,456.15 16.22% $10,954.00 $ 125.80
5 27.63% $12,028.95 20.67% $11,373.54 $ 130.62
6 34.01% $12,630.40 25.30% $11,809.15 $ 135.62
7 40.71% $13,261.92 30.09% $12,261.44 $ 140.81
8 47.75% $13,925.02 35.08% $12,731.05 $ 146.21
9 55.13% $14,621.27 40.25% $13,218.65 $ 151.81
10 62.89% $15,352.33 45.62% $13,724.92 $ 157.62
TOTAL GAIN BEFORE FEES
& EXPENSES $ 5,927.33
TOTAL GAIN AFTER FEES &
EXPENSES $ 4,299.92
TOTAL ANNUAL FEES &
EXPENSES PAID $1,913.71
-----------------------------------------------------------------------------------------------------
|
(1) For Class A shares, the year one Annual Fees & Expenses and Hypothetical Year-End Balance Before Fees & Expenses information shown include the dollar amount and effect of any applicable front-end sales charge of the Fund.
CLASS B SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.92% $ 10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- CUMULATIVE RETURN HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE AFTER FEES & END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ ----------------- ------------------ -------------
1 5.00% $10,500.00 3.08% $10,308.00 $ 194.96
2 10.25% $11,025.00 6.25% $10,625.49 $ 200.96
3 15.76% $11,576.25 9.53% $10,952.75 $ 207.15
4 21.55% $12,155.06 12.90% $11,290.10 $ 213.53
5 27.63% $12,762.82 16.38% $11,637.83 $ 220.11
6 34.01% $13,400.96 19.96% $11,996.28 $ 226.89
7 40.71% $14,071.00 23.66% $12,365.76 $ 233.88
8 47.75% $14,774.55 27.47% $12,746.63 $ 241.08
9 55.13% $15,513.28 32.35% $13,234.82 $ 151.99
10 62.89% $16,288.95 37.42% $13,741.72 $ 157.81
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 3,741.72
TOTAL ANNUAL FEES &
EXPENSES PAID $2,048.35
-----------------------------------------------------------------------------------------------------
|
APPENDIX A
CLASS C SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.92% $ 10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- CUMULATIVE RETURN HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE AFTER FEES & END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ ----------------- ------------------ -------------
1 5.00% $10,500.00 3.08% $10,308.00 $ 194.96
2 10.25% $11,025.00 6.25% $10,625.49 $ 200.96
3 15.76% $11,576.25 9.53% $10,952.75 $ 207.15
4 21.55% $12,155.06 12.90% $11,290.10 $ 213.53
5 27.63% $12,762.82 16.38% $11,637.83 $ 220.11
6 34.01% $13,400.96 19.96% $11,996.28 $ 226.89
7 40.71% $14,071.00 23.66% $12,365.76 $ 233.88
8 47.75% $14,774.55 27.47% $12,746.63 $ 241.08
9 55.13% $15,513.28 31.39% $13,139.22 $ 248.50
10 62.89% $16,288.95 35.44% $13,543.91 $ 256.16
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 3,543.91
TOTAL ANNUAL FEES &
EXPENSES PAID $2,243.21
-----------------------------------------------------------------------------------------------------
|
CLASS D SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.92% $ 10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- CUMULATIVE RETURN HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE AFTER FEES & END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ ----------------- ------------------ -------------
1 5.00% $10,500.00 3.08% $10,308.00 $ 194.96
2 10.25% $11,025.00 6.25% $10,625.49 $ 200.96
3 15.76% $11,576.25 9.53% $10,952.75 $ 207.15
4 21.55% $12,155.06 12.90% $11,290.10 $ 213.53
5 27.63% $12,762.82 16.38% $11,637.83 $ 220.11
6 34.01% $13,400.96 19.96% $11,996.28 $ 226.89
7 40.71% $14,071.00 23.66% $12,365.76 $ 233.88
8 47.75% $14,774.55 27.47% $12,746.63 $ 241.08
9 55.13% $15,513.28 31.39% $13,139.22 $ 248.50
10 62.89% $16,288.95 35.44% $13,543.91 $ 256.16
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 3,543.91
TOTAL ANNUAL FEES &
EXPENSES PAID $2,243.21
-----------------------------------------------------------------------------------------------------
|
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Fund's Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Real Estate Equity Fund, Inc.: 811-08256
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2005 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/91551-1005
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED JANUARY 1, 2006 (THE "PROSPECTUS")
COLUMBIA REAL ESTATE EQUITY FUND (THE "FUND")
CLASS Z SHARES
The Prospectus is hereby supplemented with the following information:
1. The back cover of the Prospectus in the section titled "For More Information" is revised to include the name of the Trust, "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The "Calendar Year Total Returns" and "Average Annual Total Returns" tables for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS (CLASS Z)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ----- ----- ------ ----- ----- ---- ---- ----- ----- ---- 38.30% 24.74% -12.33% -2.45% 28.84% 5.41% 3.12% 35.47% 31.08% 7.25% |
For the periods shown in bar chart:
Best quarter: 4th quarter 1996, +18.34%
Worst quarter: 3rd quarter 2002, -9.86%
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 2005
INCEPTION
DATE 1 YEAR 5 YEARS 10 YEARS
--------- ------ ------- --------
4/1/94
Class Z (%)
Return Before Taxes 7.25 15.66 14.68
Return After Taxes on Distributions 4.11 13.44 12.41
Return After Taxes on Distributions
and Sale of Fund Shares 7.08 12.71 11.79
----- -----
NAREIT Index (%) 12.16 19.08 14.50
|
4. The section entitled "Legal Proceedings" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and
Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107498-0306 March 27, 2006
COLUMBIA REAL ESTATE EQUITY FUND Prospectus, January 1, 2006
CLASS Z SHARES
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------------------- Investment Goal..................................... 2 Principal Investment Strategies..................... 2 Principal Investment Risks.......................... 2 Performance History................................. 4 Your Expenses....................................... 5 YOUR ACCOUNT 7 -------------------------------------------------------- How to Buy Shares................................... 7 Eligible Investors.................................. 7 Sales Charges....................................... 9 How to Exchange Shares.............................. 9 How to Sell Shares.................................. 10 Fund Policy on Trading of Fund Shares............... 11 Intermediary Compensation........................... 12 Other Information About Your Account................ 12 MANAGING THE FUND 15 -------------------------------------------------------- Investment Advisor.................................. 15 Portfolio Managers.................................. 15 Legal Proceedings................................... 15 FINANCIAL HIGHLIGHTS 18 -------------------------------------------------------- APPENDIX A 19 -------------------------------------------------------- |
Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
|
THE FUND
A REIT is an investment vehicle that pools investors' money for investment primarily in income producing real estate or related loans or interest in another 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 90% 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.
At times, the Fund's investment advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Except as noted otherwise, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
THE FUND
Structure risk is the risk that an event will occur (such as a security being prepaid or called) that alters the security's cash flows. Prepayment risk is a particular type of structure risk that is associated with investments in asset-backed and mortgage-backed securities. With respect to investments in mortgage-backed securities, prepayment risk is the possibility that, as prevailing interest rates fall, homeowners are more likely to refinance their home mortgages. When mortgages are refinanced, the principal on mortgage-backed securities is paid earlier than expected. In an environment of declining interest rates, asset-backed and mortgage-backed securities may offer less potential for gain than other debt securities. During periods of rising interest rates, asset-backed and mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the expected life of the security. In addition, the potential impact of prepayment on the price of asset-backed and mortgage-backed securities may be difficult to predict and result in greater volatility.
Reinvestment risk is the risk that income from the Fund's debt securities will decline if and when the Fund invests the proceeds from matured, traded or called securities at market interest rates that are below the current earnings rate of the Fund's portfolio.
The Fund may invest in real estate investment trusts ("REITs"). REITs are entities which either own properties or make construction or mortgage loans. REITs also may include operating or finance companies. Investing in REITs involves certain unique risks in addition to those risks associated with the real estate industry in general. The prices of REITs are affected by changes in the value of the underlying property owned by the REITs. In addition, although the Fund does not invest directly in real estate, a REIT investment by the Fund is subject to certain of the risks associated with the ownership of real estate. These risks include possible declines in the value of real estate, risks related to general and local economic conditions, possible lack of availability of mortgage funds and changes in interest rates.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day-to-day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Inflation risk is a risk to investors who invest 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.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
THE FUND
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class Z share performance for each of the last ten complete calendar years. They include the effects of Fund expenses.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's Class Z average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses.
CALENDAR YEAR TOTAL RETURNS (CLASS Z)
(BAR CHART)
16.86% 38.30% 24.74% 28.84% 5.41% 3.12% 35.47% 31.08%
-12.33% -2.45%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
|
The Class's year-to-date total return For the periods shown in bar chart:
through September 30, 2005 was +4.92%. Best quarter: 4th quarter 1996, +18.34%
Worst quarter: 3rd quarter 2002, -9.86%
|
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
THE FUND
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004
INCEPTION
DATE 1 YEAR 5 YEARS 10 YEARS
Class Z (%) 4/1/94
Return Before Taxes 31.08 19.98 15.67
Return After Taxes on Distributions 27.78 17.96 13.47
Return After Taxes on Distributions and Sale of Fund
Shares 22.19 16.47 12.60
------------------------------------------------------------------------------------------------------------------------
NAREIT Index (%) 31.58 21.95 14.81
|
UNDERSTANDING EXPENSES
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management fees and other expenses that generally include, but are not limited to transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 -------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 -------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) (2) |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
THE FUND
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
Management fee (%) 0.75 -------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.00 -------------------------------------------------------------------- Other expenses(1) (%) 0.17 -------------------------------------------------------------------- Total annual fund operating expenses (%) 0.92 |
(1) Other expenses have been restated to reflect contractual changes to the fees paid by the Fund for transfer agency and pricing and bookkeeping services effective November 1, 2005.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
1 YEAR 3 YEARS 5 YEARS 10 YEARS $94 $293 $509 $1,131 |
See Appendix A for additional hypothetical investment expense information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-----------------------------------------------------------------------------------
By check For new accounts send a completed application and check made
(new account) payable to the Fund to Columbia Management Services, Inc.,
P.O. Box 8081, Boston, MA 02266-8081.
-----------------------------------------------------------------------------------
By check For existing accounts fill out and return the additional
(existing account) investment stub included in your quarterly statement, or
send a letter of instruction including your Fund name and
account number with a check made payable to the Fund and
mailed to Columbia Management Services, Inc., P.O. Box 8081,
Boston, MA 02266-8081.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class of the Fund at no additional
cost. To exchange by telephone, call 1-800-422-3737. Please
see "How to Exchange Shares" for more information.
-----------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-----------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-----------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You can select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
-----------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class at no additional cost. Exchanges
will continue so long as your fund balance is sufficient to
complete the transfers. You may terminate your program or
change the amount of the exchange (subject to the $100
minimum) by calling 1-800-345-6611. Be sure to complete the
appropriate section of the account application for this
feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at no
additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
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YOUR ACCOUNT
IMPORTANT THINGS TO CONSIDER WHEN DECIDING ON A CLASS OF SHARES:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by an intermediary. Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
NO MINIMUM INITIAL INVESTMENT
- Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
- Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts ("IRAs")), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
- Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
- Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
$1,000 MINIMUM INITIAL INVESTMENT
- Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of a fund distributed by Columbia Management Distributors, Inc. (i) who holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005; (iii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iv) who purchased certain no-load shares of a fund merged with a fund distributed by Columbia Management Distributors, Inc.;
- Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Management Distributors, Inc.;
- Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary;
YOUR ACCOUNT
- Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement);
- Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an accredited investor, as defined under the Securities Act of 1933; or
- Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries.
The Fund reserves the right to change the criteria for Eligible Investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
The Fund offers one class of shares in this prospectus -- CLASS Z.
YOUR ACCOUNT
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, and (ii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-345-6611 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares by exchanging
from the Fund into Class Z shares or Class A shares (only if
Class Z is not offered) of another fund distributed by
Columbia Management Distributors, Inc. at no additional
cost. To exchange by telephone, call 1-800-422-3737.
-----------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares by telephone
and request that a check be sent to your address of record
by calling 1-800-422-3737, unless you have notified the Fund
of an address change within the previous 30 days. The dollar
limit for telephone sales is $100,000 in a 30-day period.
You do not need to set up this feature in advance of your
call. Certain restrictions apply to retirement accounts. For
details, call 1-800-799-7526.
-----------------------------------------------------------------------------------
By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign the
letter. Signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for alternate
payee or mailing instructions. Additional documentation is
required for sales by corporations, agents, fiduciaries,
surviving joint owners and individual retirement account
owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
-----------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the account application for this
feature.
-----------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. All dividend and capital
gains distributions must be reinvested. Be sure to complete
the appropriate section of the account application for this
feature.
-----------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
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YOUR ACCOUNT
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain Funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
YOUR ACCOUNT
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must
YOUR ACCOUNT
determine the price of each security in its portfolio at the close of each trading day. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for Class Z shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
-----------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund distributes any dividends quarterly and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
YOUR ACCOUNT
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your
current fund
----------------------------------------------------------------
Reinvest all distributions in shares of another fund
----------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest
capital gains
----------------------------------------------------------------
Receive all distributions in cash (with one of the following
options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds
transfer
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Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
Recent tax legislation creates potential new tax return filing and tax withholding requirements for certain foreign persons who receive distributions from the Fund that are attributable to U.S. real property interests. Prospective investors who are foreign persons should refer to the Statement of Additional Information and consult their tax advisor.
MANAGING THE FUND
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Advisors and/or Columbia Management by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Advisors and/or Columbia Management by the Fund, amounted to 0.75% of average daily net assets of the Fund.
DAVID I. HOFFMAN, a managing director of Columbia Advisors, is a co-manager of the Fund and has co-managed the Fund since November, 2005. Mr. Hoffman has been associated with Columbia Management or its affiliates since August, 2001. Prior to August, 2001, Mr. Hoffman was a vice president with Zurich Scudder Investments, Inc. from March, 1999 to July, 2001.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
MANAGING THE FUND
outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March, 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
MANAGING THE FUND
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the last six fiscal periods, which run from September 1 to August 31, unless otherwise indicated. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
YEAR ENDED PERIOD ENDED
AUGUST 31, AUGUST 31, YEAR ENDED DECEMBER 31,
2005 2004 2003(A) 2002(B) 2001 2000
Class Z Class Z Class Z Class Z Class Z Class Z
------- ------- ------- ------- ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 25.60 21.06 17.81 18.04 17.89 14.57
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INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.90(c)(d) 0.88(c) 0.39(c)(e) 0.82(c) 0.79 0.81
Net realized and unrealized
gain (loss) on investments 4.70 4.62 3.14(e) (0.25) 0.15 3.32
---------------------------------------------------------------------------------------------------------------------------------
Total from investment
operations 5.60 5.50 3.53 0.57 0.94 4.13
---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net investment income (0.82) (0.77) (0.28) (0.71) (0.72) (0.75)
From net realized gains (2.52) (0.19) -- (0.09) (0.07) (0.06)
---------------------------------------------------------------------------------------------------------------------------------
Total Distributions (3.34) (0.96) (0.28) (0.80) (0.79) (0.81)
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 27.86 25.60 21.06 17.81 18.04 17.89
---------------------------------------------------------------------------------------------------------------------------------
Total return (%)(f) 22.99 26.72 20.01(g) 3.12 5.41 28.84
---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) ($) 758,147 872,924 884,747 774,646 621,590 436,764
Ratio of expenses to average
net assets (%)(h) 0.93 0.97 1.08(i) 0.94 0.95 0.96
Ratio of net investment income
to average net assets (%)(h) 3.40 3.78 3.09(e)(i) 5.30 4.65 5.16
Portfolio turnover rate (%) 10 28 33(g) 53 41 25
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(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) On November 1, 2002, the existing Fund shares were redesignated Class Z shares.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Net investment income per share reflects a special dividend. The effect of this dividend amounted to $0.24 per share.
(e) Effective January 1, 2003, the Fund adopted the policy to reduce cost of investments for financial statement purposes by the distributions received in excess of income from Real Estate Investment Trusts. The effect of this change for the eight months ended August 31, 2003 was to decrease the net investment income per share by $0.05, increase net realized and unrealized gain on investments per share by $0.05 and decrease the ratio of net investment income to average net assets from 3.51% to 3.09%. Per share data and ratios for periods prior to August 31, 2003 have not been restated to, reflect this change in policy.
(f) Total return at net asset value assuming all distributions reinvested.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class Z Shares of the Fund assuming a 5% return each year, the hypothetical year-end balance before expenses and the cumulative return after fees and expenses. The chart also assumes that the annual expense ratio stays the same throughout the 10-year period and that all dividends and distributions are reinvested. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses table, is reflected in the chart and is net of any fee waiver or expense reimbursement.
CLASS Z SHARES
INITIAL HYPOTHETICAL INVESTMENT AMOUNT
ANNUAL EXPENSE RATIO $10,000.00 ASSUMED RATE OF RETURN
0.92% HYPOTHETICAL CUMULATIVE 5%
CUMULATIVE RETURN YEAR-END BALANCE RETURN AFTER HYPOTHETICAL YEAR ANNUAL
BEFORE FEES AND BEFORE FEES AND FEES AND END BALANCE AFTER FEES AND
YEAR EXPENSES EXPENSES EXPENSES FEES AND EXPENSES EXPENSES
1 5.00% $10,500.00 4.08% $10,408.00 $ 93.88
2 10.25% $11,025.00 8.33% $10,832.65 $ 97.71
3 15.76% $11,576.25 12.75% $11,274.62 $ 101.69
4 21.55% $12,155.06 17.35% $11,734.62 $ 105.84
5 27.63% $12,762.82 22.13% $12,213.40 $ 110.16
6 34.01% $13,400.96 27.12% $12,711.70 $ 114.66
7 40.71% $14,071.00 32.30% $13,230.34 $ 119.33
8 47.75% $14,774.55 37.70% $13,770.14 $ 124.20
9 55.13% $15,513.28 43.32% $14,331.96 $ 129.27
10 62.89% $16,288.95 49.17% $14,916.70 $ 134.54
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 4,916.70
TOTAL ANNUAL FEES &
EXPENSES PAID $1,131.29
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You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Real Estate Equity Fund, Inc.: 811-08256
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2005 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/91629-1005
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED JANUARY 1, 2006
(THE "PROSPECTUS")
COLUMBIA SMALL CAP GROWTH FUND I
(THE "FUND")
CLASS A, B AND C SHARES
(REPLACING SUPPLEMENTS DATED FEBRUARY 3, 2006 AND FEBRUARY 17, 2006)
The Prospectus is hereby supplemented with the following information:
1. The second paragraph under the heading "THE FUND; PRINCIPAL INVESTMENT STRATEGIES" is revised in its entirety as follows:
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 up to 20% of its total assets in foreign securities, including American Depositary Receipts.
2. The "Calendar Year Total Returns" and "Average Annual Total Returns" tables for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS (CLASS Z)(1)
1997 1998 1999 2000 2001 2002 2003 2004 2005 ---- ---- ---- ---- ---- ---- ---- ---- ---- 34.10% 4.69% 59.15% 5.85% -14.19% -26.58% 44.29% 9.61% 13.14% |
For the periods shown in bar chart:
Best quarter: 4th quarter 1999, +50.27%
Worst quarter: 3rd quarter 2001, -25.64%
(1) Because the Class A shares have not completed a full calendar year, the bar chart shown is for Class Z shares, the oldest existing fund class. Class Z shares are not offered in this prospectus. Class A shares would have substantially similar annual returns because they are invested in the same portfolio of securities and the returns would differ only to the extent that the classes do not have the same expenses.
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 2005(1)
LIFE OF
1 YEAR 5 YEARS THE FUND
Class A (%)
Return Before Taxes 6.65 1.22 11.36
Return After Taxes on Distributions 6.04 1.11 10.57
Return After Taxes on Distributions 4.86 1.02 9.66
and Sale of Fund Shares
----------------------------------------------------------------------------
Class B (%)
Return Before Taxes 8.11 2.06 12.07
Return After Taxes on Distributions 7.46 1.94 11.28
Return After Taxes on Distributions 5.83 1.73 10.32
and Sale of Fund Shares
----------------------------------------------------------------------------
Class C (%)
Return Before Taxes 12.11 2.42 12.07
Return After Taxes on Distributions 11.46 2.31 11.28
Return After Taxes on Distributions 8.43 2.05 10.32
and Sale of Fund Shares
----------------------------------------------------------------------------
Russell 2000 Index (%) 4.15 8.22 8.88
----------------------------------------------------------------------------
Russell 2000 Growth Index (%) 4.55 2.28 3.97
|
(1) Because Class A, Class B and Class C shares have not yet completed a full calendar year of operations, the performance information shown is that of the Fund's Class Z shares (the oldest existing fund class). These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown would have been lower since Class Z shares are not subject to any Rule 12b-1 fees. Class A, Class B and Class C shares were initially offered on November 1, 2005 and Class Z shares were initially offered on October 1, 1996.
3. The section in the prospectus entitled "MANAGING THE FUND; PORTFOLIO MANAGER" is retitled "MANAGING THE FUND; PORTFOLIO MANAGERS" and is revised in its entirety and replaced with the following:
KENNETH A. KORNGIEBEL, a senior vice president of Columbia Advisors, is the lead manager for the Fund and has managed or co-managed the Fund since June, 2004. Mr. Korngiebel has been associated with Columbia Advisors or its predecessors since July, 1996.
WAYNE M. COLLETTE, a vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Collette has been associated with Columbia Advisors or its predecessors since 2001. Prior to 2001, Mr. Collette was an associate portfolio manager with Neuberger Berman from 1999 to 2001.
J. MICHAEL KOSICKI, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Kosicki has been associated with Columbia Advisors or its predecessors since 2004. Prior to 2004, Mr. Kosicki was with Fidelity Investments from 1993 to 2004, most recently as an equity analyst.
GEORGE J. MYERS, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Myers has been associated with Columbia Advisors or its predecessors since 2004. Prior to 2004, Mr. Myers was a portfolio manager with Dresdner RCM Global Investors from 1999 to 2004.
THEODORE R. WENDELL, a vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Wendell has been associated with Columbia Advisors or its predecessors since 2000.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
4. The section "LEGAL PROCEEDINGS" under the heading "MANAGING THE FUND" is revised in its entirety as follows:
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
5. The back cover of the Prospectus in the section titled "For More Information" is revised to include the name of the Trust, "Columbia Funds Series Trust I."
6. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
INT-47/107499-0306 March 27, 2006
COLUMBIA SMALL CAP GROWTH FUND I Prospectus, January 1, 2006
CLASS A, B AND C SHARES
Advised by Columbia Management Advisors, LLC
THE FUND 2 --------------------------------------------------------- Investment Goal...................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 2 Performance History.................................. 4 Your Expenses........................................ 6 YOUR ACCOUNT 8 --------------------------------------------------------- How to Buy Shares.................................... 8 Investment Minimums.................................. 9 Sales Charges........................................ 9 How to Exchange Shares............................... 13 How to Sell Shares................................... 13 Fund Policy on Trading of Fund Shares................ 14 Distribution and Service Fees........................ 15 Other Information About Your Account................. 16 MANAGING THE FUND 19 --------------------------------------------------------- Investment Advisor................................... 19 Portfolio Manager.................................... 19 Legal Proceedings.................................... 19 FINANCIAL HIGHLIGHTS 22 --------------------------------------------------------- APPENDIX A 23 --------------------------------------------------------- |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
|
THE FUND
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 in foreign securities, including American Depositary Receipts.
As part of its investment strategy, the Fund may buy and sell securities frequently. Such trading usually increases portfolio turnover rates, which usually increases the chance that the Fund will pay investors short-term capital gains (which are taxable at higher rates than long-term capital gains). Such trading may also result in higher brokerage commissions and other transaction costs and additional tax liability, which could reduce the Fund's returns.
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
THE FUND
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Growth stocks are stocks of companies believed to have above-average potential for growth in revenue and earnings. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general.
Sector risk is inherent in the Fund's investment strategy. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times the Fund may have a large portion of its assets invested in a particular sector.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Small- or mid-cap companies may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
Convertible securities are securities that can be converted into common stock, such as certain debt securities and preferred stock. Convertible securities are subject to the usual risks associated with fixed income investments, such as interest rate risk and credit risk. In addition, because they react to changes in the value of the equity securities into which they will convert, convertible securities are also subject to market risk.
THE FUND
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class Z share performance for each complete calendar year since the Fund commenced operations. They include the effects of the Fund's Class Z expenses.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's average performance over the past one-year, five-year and for the life of the Fund periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
THE FUND
CALENDAR YEAR TOTAL RETURNS (CLASS Z)(1)
(BAR CHART)
34.10% 4.69% 59.15% 5.85% 44.29% 9.61%
-14.19% -26.58%
1997 1998 1999 2000 2001 2002 2003 2004
|
The Class's year-to-date total return For the periods shown in bar chart:
through September 30, 2005 was +9.66%. Best quarter: 4th quarter 1999, +50.27%
Worst quarter: 3rd quarter 2001, -25.64%
|
(1) Because the Class A shares have not completed a full calendar year, the bar chart shown is for Class Z shares, the oldest existing Fund class. Class Z shares are not offered in this prospectus. Class A shares would have substantially similar annual returns because they are invested in the same portfolio of securities and the returns would differ only to the extent that the classes do not have the same expenses.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004
LIFE OF
1 YEAR 5 YEARS THE FUND
Class A(1) (%)
Return Before Taxes 3.33 -0.11 11.14
Return After Taxes on Distributions 3.33 -0.82 10.34
Return After Taxes on Distributions and Sale of Fund
Shares 2.16 -0.48 9.39
-------------------------------------------------------------------------------------------------------------
Class B(1) (%)
Return Before Taxes 4.61 0.71 11.95
Return After Taxes on Distributions 4.61 -0.01 11.14
Return After Taxes on Distributions and Sale of Fund
Shares 3.00 0.21 10.13
-------------------------------------------------------------------------------------------------------------
Class C(1) (%)
Return Before Taxes 8.61 1.07 11.95
Return After Taxes on Distributions 8.61 0.36 11.14
Return After Taxes on Distributions and Sale of Fund
Shares 5.60 0.53 10.13
-------------------------------------------------------------------------------------------------------------
Russell 2000 Index (%) 18.33 6.61 9.42(2)
-------------------------------------------------------------------------------------------------------------
Russell 2000 Growth Index (%) 14.31 -3.57 3.95(2)
|
(1) Because Class A, Class B and Class C shares have not yet completed a full calendar year of operations, the performance information shown is that of the Fund's Class Z shares (the oldest existing fund class). These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown would have been lower since Class Z shares are not subject to any Rule 12b-1 fees. Class A, Class B and Class C shares were initially offered on November 1, 2005 and Class Z shares were initially offered on October 1, 1996.
(2) Performance information is from October 1, 1996.
THE FUND
SALES CHARGES are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management fees, 12b-1 fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
- Reinvestment of all dividends and distributions
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00 0.00
------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or
redemption price) 1.00(2) 5.00 1.00
------------------------------------------------------------------------------------------
Redemption fee (%) (as a percentage of amount redeemed, if
applicable) (3) (3) (3)
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
THE FUND
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)(1)
CLASS A CLASS B CLASS C
Management fee(2) (%) 0.87 0.87 0.87
------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00
------------------------------------------------------------------------------------------
Other expenses(3) (%) 0.19 0.19 0.19
------------------------------------------------------------------------------------------
Total annual fund operating expenses (%) 1.31 2.06 2.06
|
(1) Expenses shown are estimates for the current fiscal year, which are based on expenses of Class Z shares for the last fiscal year.
(2) Management fee has been restated to reflect contractual changes to the management fee for the Fund effective November 1, 2004.
(3) Other expenses have been restated to reflect contractual changes to the fees paid by the Fund for transfer agency and pricing and bookkeeping services effective November 1, 2005.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A $701 $966 $1,252 $2,063
------------------------------------------------------------------------------------------------------------------------
Class B: did not sell your shares $209 $646 $1,108 $2,197
sold all your shares at the end of the period $709 $946 $1,308 $2,197
------------------------------------------------------------------------------------------------------------------------
Class C: did not sell your shares $209 $646 $1,108 $2,390
sold all your shares at the end of the period $309 $646 $1,108 $2,390
|
See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-----------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
-----------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class (and, in some cases, certain
other classes) of the Fund at no additional cost. There may
be an additional sales charge if exchanging from a money
market fund. To exchange by telephone, call 1-800-422-3737.
-----------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-----------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-----------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
-----------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
fund shares of the same class at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate your
program or change the amount of the exchange (subject to the
$100 minimum) by calling 1-800-345-6611. There may be an
additional sales charge if exchanging from a money market
fund. Be sure to complete the appropriate section of the
account application for this feature.
-----------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
|
YOUR ACCOUNT
Please see the Statement of Additional Information for more details on investment minimums.
The Fund offers three classes of shares in this prospectus -- CLASS A, B and C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 or more but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
CLASS A SHARES Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
YOUR ACCOUNT
CLASS A SALES CHARGES
AS A % OF % OF OFFERING PRICE
THE PUBLIC AS A % OF RETAINED BY
AMOUNT PURCHASED OFFERING PRICE YOUR INVESTMENT FINANCIAL ADVISOR
Less than $50,000 5.75 6.10 5.00
---------------------------------------------------------------------------------------------------------------------------
$50,000 to less than $100,000 4.50 4.71 3.75
---------------------------------------------------------------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 2.75
---------------------------------------------------------------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.00
---------------------------------------------------------------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
---------------------------------------------------------------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
|
Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
PURCHASES OVER $1 MILLION
AMOUNT PURCHASED COMMISSION % Less than $3 million 1.00 ---------------------------------------------------------------------------- $3 million to less than $50 million 0.50 ---------------------------------------------------------------------------- $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES
REDUCED SALES CHARGES FOR LARGER INVESTMENTS
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
YOUR ACCOUNT
RIGHTS OF ACCUMULATION The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
STATEMENT OF INTENT You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
- Individual accounts
- Joint accounts
- Certain IRA accounts
- Certain trusts
- UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
YOUR ACCOUNT
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Fund, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
CLASS B SHARES Your purchases of Class B shares are at Class B's net asset value. Purchases up to $50,000 are allowed in Class B shares assuming the combined value of the customer's total assets in the Columbia funds does not exceed $50,000. Purchases in Class B shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart below.
CLASS B SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 5.00
-------------------------------------------------------------------------------
Through second year 4.00
-------------------------------------------------------------------------------
Through third year 3.00
-------------------------------------------------------------------------------
Through fourth year 3.00
-------------------------------------------------------------------------------
Through fifth year 2.00
-------------------------------------------------------------------------------
Through sixth year 1.00
-------------------------------------------------------------------------------
Longer than six years 0.00
|
Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
CLASS C SHARES Your purchases of Class C shares are at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares, as described in the chart below.
CLASS C SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 1.00
-------------------------------------------------------------------------------
Longer than one year 0.00
|
YOUR ACCOUNT
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable, you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into the same share class (and, in
some cases, certain other classes) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
-----------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
-----------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or, if
applicable, stock power form along with any share
certificates to be sold to the address below. In your letter
of instruction, note the Fund's name, share class, account
number, and the dollar value or number of shares you wish to
sell. All account owners must sign the letter. Signatures
must be guaranteed by either a bank, a member firm of a
national stock exchange or another eligible guarantor that
participates in the Medallion Signature Guarantee Program
for amounts over $100,000 or for alternate payee or mailing
instructions. Additional documentation is required for sales
by corporations, agents, fiduciaries, surviving joint owners
and individual retirement account owners. For details, call
1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081
-----------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
-----------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. All dividend and capital gains distributions must
be reinvested. Be sure to complete the appropriate section
of the account application for this feature.
-----------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market Fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
YOUR ACCOUNT
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
YOUR ACCOUNT
ADDITIONAL INTERMEDIARY COMPENSATION In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by the financial service firm to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
YOUR ACCOUNT
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the transfer agent.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund
-----------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less
|
UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund distributes any dividends and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
YOUR ACCOUNT
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your
current fund
----------------------------------------------------------------
Reinvest all distributions in shares of another fund
----------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest
capital gains
----------------------------------------------------------------
Receive all distributions in cash (with one of the following
options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds
transfer
|
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Management by the Fund, amounted to 0.91% of average daily net assets of the Fund.
The Statement of Additional Information provides additional information about the manager's compensation, other accounts managed and ownership of securities in the Fund.
MANAGING THE FUND
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including
MANAGING THE FUND
claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last six fiscal periods, which run from September 1 to August 31, unless otherwise indicated. Since Class A, B and C shares commenced operations on November 1, 2005, the information shown is for the Fund's Class Z shares. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information is included in the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report by calling 1-800-426-3750.
THE FUND
PERIOD ENDED
YEAR ENDED AUGUST 31, AUGUST 31, YEAR ENDED DECEMBER 31,
2005 2004 2003(A) 2002(B) 2001 2000
Class Z Class Z Class Z Class Z Class Z Class Z
------- ------- ------- ------- ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 21.32 21.62 16.30 22.20 25.87 27.26
------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment loss (0.24)(c) (0.24)(c) (0.13)(c) (0.17)(c) (0.13) (0.10)
Net realized and unrealized gain (loss) on
investments 6.72 (0.06) 5.45 (5.73) (3.54) 1.75
------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 6.48 (0.30) 5.32 (5.90) (3.67) 1.65
------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS ($):
From net realized gains -- -- -- -- -- (3.04)
------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 27.80 21.32 21.62 16.30 22.20 25.87
------------------------------------------------------------------------------------------------------------------------------
Total return (%)(d) 30.39(e) (1.39) 32.64(f) (26.58) (14.19) 5.85
------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ($) 214,659 543,016 637,616 493,031 617,966 518,970
Ratio of operating expenses to average net
assets (%)(g) 1.16 1.18 1.28(h) 1.24 1.23 1.22
Ratio of interest expense to average net assets
(%) --(i) -- -- -- -- --
Ratio of total expenses to average net assets
(%)(g) 1.16 1.18 1.28(h) 1.24 1.23 1.22
Ratio of net investment loss to average net
assets (%)(g) (0.99) (1.01) (1.09)(h) (0.90) (0.71) (0.44)
Portfolio turnover rate (%) 114 118 79(f) 109 129 145
|
(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) On November 1, 2002, the existing Fund shares were renamed Class Z shares.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming all distributions reinvested.
(e) Total return includes a reimbursement of loss experienced by the Fund due to compliance violation. This reimbursement had an impact of less than 0.01% on the Fund's total return.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
(i) Rounds to less than 0.01%.
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class A, B and C shares of the Fund assuming a 5% return each year, the hypothetical year-end balance before expenses and the cumulative return after fees and expenses. The charts also assume that the annual expense ratios stay the same throughout the 10-year period, that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses table, is reflected in the charts and is net of any fee waiver or expense reimbursement.
CLASS A SHARES(1)
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN -------------------- -------------------------------------- ---------------------- 1.31% $10,000.00 5% |
CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $ 9,896.25 3.69% $ 9,772.78 $ 700.75
2 10.25% $10,391.06 7.52% $10,133.40 $ 130.39
3 15.76% $10,910.62 11.48% $10,507.32 $ 135.20
4 21.55% $11,456.15 15.60% $10,895.04 $ 140.19
5 27.63% $12,028.95 19.86% $11,297.07 $ 145.36
6 34.01% $12,630.40 24.29% $11,713.93 $ 150.72
7 40.71% $13,261.92 28.87% $12,146.17 $ 156.28
8 47.75% $13,925.02 33.63% $12,594.37 $ 162.05
9 55.13% $14,621.27 38.56% $13,059.10 $ 168.03
10 62.89% $15,352.33 43.67% $13,540.98 $ 174.23
TOTAL GAIN BEFORE FEES
& EXPENSES $ 5,927.33
TOTAL GAIN AFTER FEES &
EXPENSES $ 4,115.98
TOTAL ANNUAL FEES &
EXPENSES PAID $2,063.19
|
(1) For Class A shares, the year one Annual Fees & Expenses and Hypothetical Year-End Balance Before Fees & Expenses information shown include the dollar amount and effect of any applicable front-end sales charge of the Fund.
APPENDIX A
CLASS B SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN -------------------- -------------------------------------- ---------------------- 2.06% $10,000.00 5% |
CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 2.94% $10,294.00 $ 209.03
2 10.25% $11,025.00 5.97% $10,596.64 $ 215.17
3 15.76% $11,576.25 9.08% $10,908.18 $ 221.50
4 21.55% $12,155.06 12.29% $11,228.89 $ 228.01
5 27.63% $12,762.82 15.59% $11,559.01 $ 234.72
6 34.01% $13,400.96 18.99% $11,898.85 $ 241.62
7 40.71% $14,071.00 22.49% $12,248.68 $ 248.72
8 47.75% $14,774.55 26.09% $12,608.79 $ 256.03
9 55.13% $15,513.28 30.74% $13,074.05 $ 168.22
10 62.89% $16,288.95 35.56% $13,556.48 $ 174.43
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 3,556.48
TOTAL ANNUAL FEES &
EXPENSES PAID $2,197.45
|
CLASS C SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN -------------------- -------------------------------------- ---------------------- 2.06% $10,000.00 5% |
CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 2.94% $10,294.00 $ 209.03
2 10.25% $11,025.00 5.97% $10,596.64 $ 215.17
3 15.76% $11,576.25 9.08% $10,908.18 $ 221.50
4 21.55% $12,155.06 12.29% $11,228.89 $ 228.01
5 27.63% $12,762.82 15.59% $11,559.01 $ 234.72
6 34.01% $13,400.96 18.99% $11,898.85 $ 241.62
7 40.71% $14,071.00 22.49% $12,248.68 $ 248.72
8 47.75% $14,774.55 26.09% $12,608.79 $ 256.03
9 55.13% $15,513.28 29.79% $12,979.49 $ 263.56
10 62.89% $16,288.95 33.61% $13,361.08 $ 271.31
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 3,361.08
TOTAL ANNUAL FEES &
EXPENSES PAID $2,389.66
|
NOTES
NOTES
NOTES
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Small Cap Growth Fund I (formerly named Columbia Small Cap Growth Fund, Inc.): 811-07671
(ColumbiaFunds Logo)
A member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/93213-1205
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED JANUARY 1, 2006
(THE "PROSPECTUS")
COLUMBIA SMALL CAP GROWTH FUND I
(THE "FUND")
CLASS Z SHARES
(REPLACING SUPPLEMENTS DATED FEBRUARY 3, 2006 AND FEBRUARY 17, 2006)
The Prospectus is hereby supplemented with the following information:
1. The second paragraph under the heading "THE FUND; PRINCIPAL INVESTMENT STRATEGIES" is revised in its entirety as follows:
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 up to 20% of its total assets in foreign securities, including American Depositary Receipts.
2. The "Calendar Year Total Returns" and "Average Annual Total Returns" tables for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS (CLASS Z)
1997 1998 1999 2000 2001 2002 2003 2004 2005 ---- ---- ---- ---- ---- ---- ---- ---- ---- 34.10% 4.69% 59.15% 5.85% -14.19% -26.58% 44.29% 9.61% 13.14% |
For the periods shown in bar chart:
Best quarter: 4th quarter 1999, +50.27%
Worst quarter: 3rd quarter 2001, -25.64%
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 2005
INCEPTION LIFE OF
DATE 1 YEAR 5 YEARS THE FUND
10/1/1996
Class Z (%)
Return Before Taxes 13.14 2.43 12.07
Return After Taxes on Distributions 12.50 2.31 11.28
Return After Taxes on Distributions 9.11 2.06 10.32
and Sale of Fund Shares
Russell 2000 Index (%) 4.15 8.22 8.88
Russell 2000 Growth Index (%) 4.55 2.28 3.97
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(1) Performance information is from October 1, 1996.
3. The section in the prospectus entitled "MANAGING THE FUND; PORTFOLIO MANAGER" is retitled "MANAGING THE FUND; PORTFOLIO MANAGERS" and is revised in its entirety and replaced with the following:
KENNETH A. KORNGIEBEL, a senior vice president of Columbia Advisors, is the lead manager for the Fund and has managed or co-managed the Fund since June, 2004. Mr. Korngiebel has been associated with Columbia Advisors or its predecessors since July, 1996.
WAYNE M. COLLETTE, a vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Collette has been associated with Columbia Advisors or its predecessors since 2001. Prior to 2001, Mr. Collette was an associate portfolio manager with Neuberger Berman from 1999 to 2001.
J. MICHAEL KOSICKI, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Kosicki has been associated with Columbia Advisors or its predecessors since 2004. Prior to 2004, Mr. Kosicki was with Fidelity Investments from 1993 to 2004, most recently as an equity analyst.
GEORGE J. MYERS, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Myers has been associated with Columbia Advisors or its predecessors since 2004. Prior to 2004, Mr. Myers was a portfolio manager with Dresdner RCM Global Investors from 1999 to 2004.
THEODORE R. WENDELL, a vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Wendell has been associated with Columbia Advisors or its predecessors since 2000.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
4. The section "LEGAL PROCEEDINGS" under the heading "MANAGING THE FUND" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
5. The back cover of the Prospectus in the section titled "For More Information" is revised to include the name of the Trust, "Columbia Funds Series Trust I."
6. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
March 27, 2006
INT-47/107800-0306
COLUMBIA SMALL CAP GROWTH FUND I Prospectus, January 1, 2006
CLASS Z SHARES
Advised by Columbia Management Advisors, LLC
THE FUND 2 --------------------------------------------------------- Investment Goal...................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 2 Performance History.................................. 4 Your Expenses........................................ 6 YOUR ACCOUNT 7 --------------------------------------------------------- How to Buy Shares.................................... 7 Eligible Investors................................... 8 Sales Charges........................................ 9 How to Exchange Shares............................... 10 How to Sell Shares................................... 10 Fund Policy on Trading of Fund Shares................ 11 Intermediary Compensation............................ 12 Other Information About Your Account................. 13 MANAGING THE FUND 16 --------------------------------------------------------- Investment Advisor................................... 16 Portfolio Manager.................................... 16 Legal Proceedings.................................... 16 FINANCIAL HIGHLIGHTS 19 --------------------------------------------------------- APPENDIX A 20 --------------------------------------------------------- |
Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
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THE FUND
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 in foreign securities, including American Depositary Receipts.
As part of its investment strategy, the Fund may buy and sell securities frequently. Such trading usually increases portfolio turnover rates, which usually increases the chance that the Fund will pay investors short-term capital gains (which are taxable at higher rates than long-term capital gains). Such trading may also result in higher brokerage commissions and other transaction costs and additional tax liability, which could reduce the Fund's returns.
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
THE FUND
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Growth stocks are stocks of companies believed to have above-average potential for growth in revenue and earnings. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general.
Sector risk is inherent in the Fund's investment strategy. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times the Fund may have a large portion of its assets invested in a particular sector.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Small- or mid-cap companies may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
Convertible securities are securities that can be converted into common stock, such as certain debt securities and preferred stock. Convertible securities are subject to the usual risks associated with fixed income investments, such as interest rate risk and credit risk. In addition, because they react to changes in the value of the equity securities into which they will convert, convertible securities are also subject to market risk.
THE FUND
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class Z share performance for each complete calendar year since the Fund commenced operations. They include the effects of Fund expenses.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's Class Z average performance over the past one-year, five-year and for the life of the Fund periods. They include the effects of Fund expenses.
THE FUND
CALENDAR YEAR TOTAL RETURNS (CLASS Z)
(BAR CHART)
34.10% 4.69% 59.15% 5.85% 44.29% 9.61%
-14.19% -26.58%
1997 1998 1999 2000 2001 2002 2003 2004
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The Class's year-to-date total return through For the periods shown in bar chart:
September 30, 2005 was +9.66%. Best quarter: 4th quarter 1999, +50.27%
Worst quarter: 3rd quarter 2001, -25.64%
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After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004
INCEPTION LIFE OF
DATE 1 YEAR 5 YEARS THE FUND
Class Z (%) 10/1/1996
Return Before Taxes 9.61 1.07 11.95
Return After Taxes on Distributions 9.61 0.36 11.14
Return After Taxes on Distributions and Sale of Fund
Shares 6.25 0.53 10.13
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Russell 2000 Index (%) 18.33 6.61 9.42(1)
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Russell 2000 Growth Index (%) 14.31 -3.57 3.95(1)
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(1) Performance information is from October 1, 1996.
THE FUND
Annual Fund Operating Expenses are paid by the Fund. They include management fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 ------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 ------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) (2) |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
Management fee(1) (%) 0.87 ------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.00 ------------------------------------------------------------------------- Other expenses(2) (%) 0.19 ------------------------------------------------------------------------- Total annual fund operating expenses (%) 1.06 |
(1) Management fees have been restated to reflect contractual changes to the management fee for the Fund effective November 1, 2004.
(2) Other expenses have been restated to reflect contractual changes to the fees paid by the Fund for transfer agency and pricing and bookkeeping services effective November 1, 2005.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
1 YEAR 3 YEARS 5 YEARS 10 YEARS $108 $337 $585 $1,294 |
See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For new accounts, send a completed application and check
(new account) made payable to the Fund to Columbia Management Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class of the Fund at no additional
cost. To exchange by telephone, call 1-800-422-3737. Please
see "How to Exchange Shares" for more information.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate your
program or change the amount of the exchange (subject to the
$100 minimum) by calling 1-800-345-6611. Be sure to complete
the appropriate section of the account application for this
feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at no
additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
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YOUR ACCOUNT
IMPORTANT THINGS TO CONSIDER WHEN DECIDING ON A CLASS OF SHARES:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by an intermediary. Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
NO MINIMUM INITIAL INVESTMENT
- Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
- Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts ("IRAs")), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
- Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
- Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
$1,000 MINIMUM INITIAL INVESTMENT
- Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of a fund distributed by Columbia Management Distributors, Inc. (i) who
YOUR ACCOUNT
holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005;
(iii) who holds Class A shares that were obtained by exchange of Class Z
shares; or (iv) who purchased certain no-load shares of a fund merged with a
fund distributed by Columbia Management Distributors, Inc.;
- Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Management Distributors, Inc.;
- Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary;
- Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement);
- Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an accredited investor, as defined under the Securities Act of 1933; or
- Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries.
The Fund reserves the right to change the criteria for Eligible Investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
The Fund offers one class of shares in this prospectus --
CLASS Z.
YOUR ACCOUNT
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, and (ii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
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By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into Class Z shares or Class A
shares (only if Class Z is not offered) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign the
letter. Signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for alternate
payee or mailing instructions. Additional documentation is
required for sales by corporations, agents, fiduciaries,
surviving joint owners and individual retirement account
owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
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By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. All dividend and capital
gains distributions must be reinvested. Be sure to complete
the appropriate section of the account application for this
feature.
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By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
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The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market Fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
YOUR ACCOUNT
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
YOUR ACCOUNT
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
YOUR ACCOUNT
SHARE CERTIFICATES Share certificates are not available for Class Z shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
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Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund distributes any dividends and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your
current fund
----------------------------------------------------------------
Reinvest all distributions in shares of another fund
----------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest
capital gains
----------------------------------------------------------------
Receive all distributions in cash (with one of the following
options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds
transfer
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Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution
YOUR ACCOUNT
which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Management by the Fund, amounted to 0.91% of average daily net assets of the Fund.
The Statement of Additional Information provides additional information about the manager's compensation, other accounts managed and ownership of securities in the Fund.
MANAGING THE FUND
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including
MANAGING THE FUND
claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the last six fiscal periods, which run from September 1 to August 31, unless otherwise indicated. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information is included in the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
YEAR ENDED PERIOD ENDED
AUGUST 31, AUGUST 31, YEAR ENDED DECEMBER 31,
2005 2004 2003(A) 2002(B) 2001 2000
Class Z Class Z Class Z Class Z Class Z Class Z
------- ------- ------- ------- ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 21.32 21.62 16.30 22.20 25.87 27.26
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INCOME FROM INVESTMENT OPERATIONS ($):
Net investment loss (0.24)(c) (0.24)(c) (0.13)(c) (0.17)(c) (0.13) (0.10)
Net realized and unrealized gain (loss) on
investments 6.72 (0.06) 5.45 (5.73) (3.54) 1.75
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Total from Investment Operations 6.48 (0.30) 5.32 (5.90) (3.67) 1.65
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LESS DISTRIBUTIONS ($):
From net realized gains -- -- -- -- -- (3.04)
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 27.80 21.32 21.62 16.30 22.20 25.87
---------------------------------------------------------------------------------------------------------------------------------
Total return (%)(d) 30.39(e) (1.39) 32.64(f) (26.58) (14.19) 5.85
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RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ($) 214,659 543,016 637,616 493,031 617,966 518,970
Ratio of operating expenses to average net assets
(%)(g) 1.16 1.18 1.28(h) 1.24 1.23 1.22
Ratio of interest expense to average net assets (%) --(i) -- -- -- -- --
Ratio of total expenses to average net assets (%)(g) 1.16 1.18 1.28(h) 1.24 1.23 1.22
Ratio of net investment loss to average net assets
(%)(g) (0.99) (1.01) (1.09)(h) (0.90) (0.71) (0.44)
Portfolio turnover rate (%) 114 118 79(f) 109 129 145
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(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) On November 1, 2002, the existing Fund shares were renamed Class Z shares.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming all distributions reinvested.
(e) Total return includes a reimbursement of loss experienced by the Fund due to compliance violation. This reimbursement had an impact of less than 0.01% on the Fund's total return.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
(i) Rounds to less than 0.01%.
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The chart shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class Z shares of the Fund assuming a 5% return each year, the hypothetical year-end balance before expenses and the cumulative return after fees and expenses. The chart also assumes that the annual expense ratio stays the same throughout the 10-year period and that all dividends and distributions are reinvested. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses table, is reflected in the chart and is net of any fee waiver or expense reimbursement.
CLASS Z SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN -------------------- -------------------------------------- ---------------------- 1.06% $10,000.00 5% |
CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 3.94% $10,394.00 $ 108.09
2 10.25% $11,025.00 8.04% $10,803.52 $ 112.35
3 15.76% $11,576.25 12.29% $11,229.18 $ 116.77
4 21.55% $12,155.06 16.72% $11,671.61 $ 121.37
5 27.63% $12,762.82 21.31% $12,131.47 $ 126.16
6 34.01% $13,400.96 26.09% $12,609.45 $ 131.13
7 40.71% $14,071.00 31.06% $13,106.27 $ 136.29
8 47.75% $14,774.55 36.23% $13,622.65 $ 141.66
9 55.13% $15,513.28 41.59% $14,159.39 $ 147.24
10 62.89% $16,288.95 47.17% $14,717.27 $ 153.05
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 4,717.27
TOTAL ANNUAL FEES &
EXPENSES PAID $1,294.11
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NOTES
NOTES
NOTES
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Small Cap Growth Fund I (formerly named Columbia Small Cap Growth Fund, Inc.): 811-07671
(ColumbiaFunds Logo)
A member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/93308-1205
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED JANUARY 1, 2006
(REPLACING THE SUPPLEMENT DATED FEBRUARY 17, 2006)
COLUMBIA MID CAP GROWTH FUND (THE "FUND")
CLASS A, B, C AND D SHARES
The Prospectus is hereby supplemented with the following information:
1. The back cover of the Prospectus in the section titled "For More Information" is revised to include the name of the Trust, "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The third paragraph under the heading "THE FUND - PRINCIPAL INVESTMENT STRATEGIES" is revised in its entirety as follows:
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 Depository Receipts. The Fund may invest up to 20% of its total assets in foreign securities.
4. The "Calendar Year Total Returns" and "Average Annual Total Returns" tables for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS (CLASS A)(1)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 13.07% 12.64% 16.64% 36.33% 13.84% -20.98% -24.64% 29.86% 6.88% 16.08% |
For the periods shown in bar chart:
Best quarter: 4th quarter 1999, +37.43%
Worst quarter: 1st quarter 2001, -20.28%
(1) Class A is a newer class of shares. Its performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer class of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been lower. Class A shares were initially offered on November 1, 2002, and Class Z shares were initially offered on November 20, 1985.
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 2005(1)
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Class A (%)
Return Before Taxes 9.41 (2.00) 7.62
Return After Taxes on Distributions 9.19 (2.21) 5.56
Return After Taxes on Distributions 6.40 (1.75) 5.54
and Sale of Fund Shares
Class B (%)
Return Before Taxes 10.20 (1.67) 8.01
Return After Taxes on Distributions 9.97 (1.90) 5.94
Return After Taxes on Distributions 6.94 (1.48) 5.90
and Sale of Fund Shares
Class C (%)
Return Before Taxes 14.22 (1.25) 8.03
Return After Taxes on Distributions 13.99 (1.47) 5.96
Return After Taxes on Distributions 9.55 (1.12) 5.92
and Sale of Fund Shares
Class D (%)
Return Before Taxes 14.19 (1.48) 7.90
Return After Taxes on Distributions 13.96 (1.70) 5.84
Return After Taxes on Distributions 9.53 (1.31) 5.81
and Sale of Fund Shares
Russell Midcap Index (%) 12.65 8.45 12.49
Russell Midcap Growth Index (%) 12.10 1.38 9.27
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(1) Class A, Class B, Class C and Class D are newer classes of shares. Their performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to their inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class C shares were initially offered on October 13, 2003, Class A, B and D shares were initially offered on November 1, 2002, and Class Z shares were initially offered on November 20, 1985.
5. The section entitled "MANAGING THE FUND - PORTFOLIO MANAGER" is revised in its entirety and replaced with the following:
PORTFOLIO MANAGERS
KENNETH A. KORNGIEBEL, a senior vice president of Columbia Advisors, is the lead manager for the Fund and has managed or co-managed the Fund since June, 2004. Mr. Korngiebel has been associated with Columbia Advisors or its predecessors since July, 1996.
WAYNE M. COLLETTE, a vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Collette has been associated with Columbia Advisors or its predecessors since 2001. Prior to 2001, Mr. Collette was an associate portfolio manager with Neuberger Berman from 1999 to 2001.
J. MICHAEL KOSICKI, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Kosicki has been associated with Columbia Advisors or its predecessors since 2004. Prior to 2004, Mr. Kosicki was with Fidelity Investments from 1993 to 2004, most recently as an equity analyst.
GEORGE J. MYERS, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Myers has been associated with Columbia Advisors or its predecessors since 2004. Prior to 2004, Mr. Myers was a portfolio manager with Dresdner RCM Global Investors from 1999 to 2004.
THEODORE R. WENDELL, a vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Wendell has been associated with Columbia Advisors or its predecessors since 2000.
6. The section entitled "Legal Proceedings" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things,
requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107631-0306 March 27, 2006
COLUMBIA MID CAP GROWTH FUND Prospectus, January 1, 2006
CLASS A, B, C AND D* SHARES
Advised by Columbia Management Advisors, LLC
THE FUND 2 --------------------------------------------------------- Investment Goal...................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 2 Performance History.................................. 4 Your Expenses........................................ 7 YOUR ACCOUNT 9 --------------------------------------------------------- How to Buy Shares.................................... 9 Investment Minimums.................................. 10 Sales Charges........................................ 10 How to Exchange Shares............................... 14 How to Sell Shares................................... 14 Fund Policy on Trading of Fund Shares................ 16 Distribution and Service Fees........................ 17 Other Information About Your Account................. 17 MANAGING THE FUND 20 --------------------------------------------------------- Investment Advisor................................... 20 Portfolio Manager.................................... 20 Legal Proceedings.................................... 21 FINANCIAL HIGHLIGHTS 23 --------------------------------------------------------- APPENDIX A 27 --------------------------------------------------------- |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
*EFFECTIVE OCTOBER 13, 2003, THIS FUND'S CLASS D SHARES WERE CLOSED TO NEW INVESTORS.
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Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
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THE FUND
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.
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 Depository Receipts.
As part of its investment strategy, the Fund may buy and sell securities frequently. Frequent trading of investments usually increases the chance that the Fund will pay investors short-term capital gains (which are taxable at higher rates than long-term capital gains). Frequent trading may also result in higher brokerage commissions and other transaction costs and additional tax liability, which could reduce the Fund's returns.
At times, the Fund's investment advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Except as noted otherwise, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management
THE FUND
and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Growth stocks are stocks of companies believed to have above-average potential for growth in revenue and earnings. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general.
Convertible securities are securities that can be converted into common stock, such as certain debt securities and preferred stock. Convertible securities are subject to the usual risks associated with fixed income investments, such as interest rate risk and credit risk. In addition, because they react to changes in the value of the equity securities into which they will convert, convertible securities are also subject to market risk.
Sector risk is inherent in the Fund's investment strategy. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times the Fund may have a large portion of its assets invested in a particular sector.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
THE FUND
Small- or mid-cap companies may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
Special situations have risk because they often involve major corporate changes and, thus, present a high degree of uncertainty as to the security's market price.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were reflected, these returns would be lower.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
THE FUND
CALENDAR YEAR TOTAL RETURNS (CLASS A)(1)
(BAR CHART)
29.53% 13.07% 12.64% 16.64% 36.33% 13.84% 29.86% 6.88%
-20.98% -24.64%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
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The Fund's year-to-date total return through For period shown in bar chart:
September 30, 2005 (Class A) was +10.98%. Best quarter: 4th quarter 1999, +37.43%
Worst quarter: 1st quarter 2001, -20.28%
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(1) Class A is a newer class of shares. Its performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer class of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been lower. Class A shares were initially offered on November 1, 2002, and Class Z shares were initially offered on November 20, 1985.
THE FUND
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004(1)
1 YEAR 5 YEARS 10 YEARS
Class A (%)
Return Before Taxes 0.74 -2.38 8.81
Return After Taxes on Distributions 0.74 -3.96 6.28
Return After Taxes on Distributions and Sale of Fund
Shares 0.48 -2.60 6.35
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Class B (%)
Return Before Taxes 1.05 -1.82 9.28
Return After Taxes on Distributions 1.05 -3.44 6.73
Return After Taxes on Distributions and Sale of Fund
Shares 0.68 -2.14 6.79
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Class C (%)
Return Before Taxes 5.14 -1.49 9.30
Return After Taxes on Distributions 5.14 -3.09 6.75
Return After Taxes on Distributions and Sale of Fund
Shares 3.34 -1.86 6.81
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Class D (%)
Return Before Taxes 5.15 -1.71 9.18
Return After Taxes on Distributions 5.15 -3.30 6.64
Return After Taxes on Distributions and Sale of Fund
Shares 3.35 -2.04 6.70
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Russell Midcap Index (%) 20.22 7.59 14.50
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Russell Midcap Growth Index (%) 15.48 -3.36 11.23
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(1) Class A, Class B, Class C and Class D are newer classes of shares. Their performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to their inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class C shares were initially offered on October 13, 2003, Class A, B and D shares were initially offered on November 1, 2002, and Class Z shares were initially offered on November 20, 1985.
THE FUND
UNDERSTANDING EXPENSES
SALES CHARGES are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management fees, 12b-1 fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table, but does reflect the waiver of the initial sales charge for Class D shares. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
- Reinvestment of all dividends and distributions
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C CLASS D
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00 0.00 1.00(2)
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Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or
redemption price) 1.00(3) 5.00 1.00 1.00
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Redemption fee (%)
(as a percentage of amount redeemed, if applicable) (4) (4) (4) (4)
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(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) The Fund's advisor has agreed to waive indefinitely the front-end sales charge for purchases of Class D shares by existing Class D shareholders.
(3) This charge applies only to certain Class A shares bought without an initial sales charge that are sold within 12 months of purchase.
(4) There is a $7.50 charge for wiring sale proceeds to your bank.
THE FUND
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
CLASS A CLASS B CLASS C CLASS D
Management fee(1) (%) 0.79 0.79 0.79 0.79
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Distribution and service (12b-1) fees (%) 0.25(2) 1.00 1.00 1.00
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Other expenses(3) (%) 0.17 0.17 0.17 0.17
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Total annual fund operating expenses (%) 1.21 1.96 1.96 1.96
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(1) Management fee has been restated to reflect contractual changes to the management fee for the Fund effective November 1, 2004.
(2) The Fund may pay distribution and service (12b-1) fees up to a maximum of 0.35% of the Fund's average daily net assets attributable to Class A shares (comprised of up to 0.25% for shareholder liaison services and up to 0.10% for distribution services), but will limit such fees to an aggregate fee of not more than 0.25%.
(3) Other expenses have been restated to reflect contractual changes to the fees paid by the Fund for transfer agency and pricing and bookkeeping services effective November 1, 2005.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
EXPENSE EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A $691 $937 $1,202 $1,957
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Class B did not sell your shares $199 $615 $1,057 $2,091
sold your shares at
end of period $699 $915 $1,257 $2,091
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Class C did not sell your shares $199 $615 $1,057 $2,285
sold your shares at
end of period $299 $615 $1,057 $2,285
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Class D did not sell your shares $199 $615 $1,057 $2,285
sold your shares at
end of period $299 $615 $1,057 $2,285
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See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
Notice to Fund Shareholders: Class D shares are closed to new investors and new accounts. The Fund now offers Class C shares, which are subject to the same service and distribution fees and sales charges as Class D shares except Class C shares are not subject to a front-end sales charge. The Fund's advisor has agreed to waive indefinitely the front-end sales charge for purchases of Class D shares by existing Class D investors. For more information on expenses and sales charges for Class C shares and Class D shares, see "Your Expenses" and "Sales Charges."
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For new accounts send a completed application and check made
(new account) payable to the Fund to the transfer agent, Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By check For existing accounts fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class of the Fund (and, in some
cases, certain other classes) at no additional cost. There
may be an additional sales charge if exchanging from a money
market fund. To exchange by telephone, call 1-800-422-3737.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate your
program or change the amount of the exchange (subject to the
$100 minimum) by calling 1-800-345-6611. There may be an
additional sales charge if exchanging from a money market
fund. Be sure to complete the appropriate section of the
account application for this feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund (and,
in some cases, certain other classes) at no additional sales
charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
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YOUR ACCOUNT
Please see the Statement of Additional Information for more details on investment minimums.
CHOOSING A SHARE CLASS
The Fund offers four classes of shares in this prospectus -- CLASS A, B, C and D. Class D shares are closed to new investors and new accounts. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 or more but less than $1 million can be made only in Class A, Class C or Class D shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
CLASS A SHARES Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on
YOUR ACCOUNT
the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
CLASS A SALES CHARGES
% OF OFFERING
AS A % OF PRICE
THE PUBLIC AS A % RETAINED BY
OFFERING OF YOUR FINANCIAL
AMOUNT PURCHASED PRICE INVESTMENT ADVISOR
Less than $50,000 5.75 6.10 5.00
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$50,000 to less than $100,000 4.50 4.71 3.75
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$100,000 to less than $250,000 3.50 3.63 2.75
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$250,000 to less than $500,000 2.50 2.56 2.00
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$500,000 to less than $1,000,000 2.00 2.04 1.75
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$1,000,000 or more 0.00 0.00 0.00
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Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
PURCHASES OVER $1 MILLION
AMOUNT PURCHASED COMMISSION % Less than $3 million 1.00 ---------------------------------------------------------------------------- $3 million to less than $50 million 0.50 ---------------------------------------------------------------------------- $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES
YOUR ACCOUNT
REDUCED SALES CHARGES FOR LARGER INVESTMENTS
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to
as "breakpoint discounts") when purchasing Class A shares of the Fund and other
funds in the Columbia family of funds.
RIGHTS OF ACCUMULATION The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
STATEMENT OF INTENT You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e., dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts? The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
- Individual accounts
- Joint accounts
- Certain IRA accounts
- Certain trusts
- UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father-in-law and mother-in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount? The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or
YOUR ACCOUNT
other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts? Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
CLASS B SHARES Your purchases of Class B shares are at Class B's net asset value. Purchases up to $50,000 are allowed in Class B shares assuming the combined value of the customer's total assets in the Columbia funds does not exceed $50,000. Purchases in Class B shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart below.
CLASS B SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 5.00
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Through second year 4.00
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Through third year 3.00
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Through fourth year 3.00
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Through fifth year 2.00
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Through sixth year 1.00
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Longer than six years 0.00
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Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
CLASS C SHARES Your purchases of Class C shares are at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares as described in the chart below.
YOUR ACCOUNT
CLASS C SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 1.00
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Longer than one year 0.00
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CLASS D SHARES Class D shares are closed to new investors. Your purchases of Class D shares are made at the public offering price for these shares. This price includes a sales charge of 1.00% (currently being waived), which is paid as a commission to your financial advisor on the sale of Class D shares as shown in the chart below.
CLASS D SALES CHARGES
% OF OFFERING PRICE
AS A % OF THE PUBLIC AS A % OF RETAINED BY FINANCIAL
OFFERING PRICE YOUR INVESTMENT ADVISOR
1.00 1.01 1.00
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In addition, the distributor pays your financial advisor an initial commission of 1.00% on sales of Class D shares. The Fund's investment advisor has agreed to waive indefinitely the front-end sales charge for purchases of Class D shares by existing Class D investors.
Class D shares also carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC.
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary
YOUR ACCOUNT
to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable, you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
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By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into the same share class (and, in
some cases, certain other classes) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction or, if
applicable, stock power form along with any share
certificates to be sold to the address below. In your letter
of instruction, note the Fund's name, share class, account
number, and the dollar value or number of shares you wish to
sell. All account owners must sign the letter. Signatures
must be guaranteed by either a bank, a member firm of a
national stock exchange or another eligible guarantor that
participates in the Medallion Signature Guarantee Program
for amounts over $100,000 or for alternate payee or mailing
instructions. Additional documentation is required for sales
by corporations, agents, fiduciaries, surviving joint owners
and individual retirement account owners. For details, call
1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
-----------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
-----------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
-----------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
YOUR ACCOUNT
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
YOUR ACCOUNT
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
ADDITIONAL INTERMEDIARY COMPENSATION In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
YOUR ACCOUNT
time, on each business day that the NYSE is open for trading (typically Monday through Friday). Shares are not priced the days on which the NYSE is closed for trading.
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for any class of shares offered by the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
-----------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
UNDERSTANDING FUND DISTRIBUTIONS
YOUR ACCOUNT
DISTRIBUTION OPTIONS The Fund distributes any dividends and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your
current fund
----------------------------------------------------------------
Reinvest all distributions in shares of another fund
----------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest
capital gains
----------------------------------------------------------------
Receive all distributions in cash (with one of the following
options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds
transfer
|
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Advisors and/or Columbia Management by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Advisors and/or Columbia Management by the Fund, amounted to 0.81% of average daily net assets of the Fund.
The Statement of Additional Information provides additional information about the manager's compensation, other accounts managed and ownership of securities in the Fund.
MANAGING THE FUND
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Columbia Funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late
MANAGING THE FUND
trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In Re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's fiscal periods since inception, which run from September 1 to August 31, unless otherwise indicated. Certain information reflects financial results for a single Class A, B, C or D share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
PERIOD ENDED PERIOD ENDED
YEAR ENDED AUGUST 31, AUGUST 31, DECEMBER 31,
2005 2004 2003(A) 2002(B)
Class A Class A Class A Class A
----- ----- ----- -----
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 16.99 18.09 14.77 15.15
----------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment loss(c) (0.15) (0.23) (0.14) (0.02)
Net realized and unrealized gain (loss) on
investments and foreign currency 5.32 (0.87) 3.46 (0.36)
----------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 5.17 (1.10) 3.32 (0.38)
----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 22.16 16.99 18.09 14.77
----------------------------------------------------------------------------------------------------------------------
Total return (%)(d)(e) 30.43 (6.08) 22.48(f) (2.51)(f)
----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ($) 6,078 4,432 4,525 1,180
Ratio of operating expenses to average net assets
(%)(g) 1.23 1.53 1.60(h) 1.49(h)
Ratio of interest expense to average net assets
(%) --(i) -- -- --
Ratio of total expenses to average net assets
(%)(g) 1.23 1.53 1.60(h) 1.49(h)
Ratio of net investment loss to average net
assets (%)(g) (0.76) (1.21) (1.31)(h) (1.22)(h)
Waiver (%) 0.05 0.02 0.01(h) 0.01(h)
Portfolio turnover rate (%) 104 139 78(f) 88
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(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) Class A shares were initially offered on November 1, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming no initial sales charge or contingent deferred sales charge.
(e) Had the investment advisor not waived a portion of expenses, total return would have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
(i) Rounds to less than 0.01%.
FINANCIAL HIGHLIGHTS
THE FUND
PERIOD ENDED PERIOD ENDED
YEAR ENDED AUGUST 31, AUGUST 31, DECEMBER 31,
2005 2004 2003(A) 2002(B)
Class B Class B Class B Class B
----- ----- ----- -----
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 16.75 17.98 14.76 15.15
----------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment loss(c) (0.30) (0.36) (0.22) (0.04)
Net realized and unrealized gain (loss) on
investments and foreign currency 5.24 (0.87) 3.44 (0.35)
----------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 4.94 (1.23) 3.22 (0.39)
----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 21.69 16.75 17.98 14.76
----------------------------------------------------------------------------------------------------------------------
Total return (%)(d)(e) 29.49 (6.84) 21.82(f) (2.57) (f)
----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ($) 6,377 5,079 4,242 3,383
Ratio of operating expenses to average net assets
(%)(g) 1.98 2.29 2.36(h) 2.32(h)
Ratio of interest expense to average net assets
(%) --(i) -- -- --
Ratio of total expenses to average net assets
(%)(g) 1.98 2.29 2.36(h) 2.32(h)
Ratio of net investment loss to average net
assets (%)(g) (1.51) (1.97) (2.06)(h) (2.05)(h)
Waiver (%) 0.05 0.10 0.12(h) 0.12(h)
Portfolio turnover rate (%) 104 139 78(f) 88
|
(a) >The Fund changed its fiscal year end from December 31 to August 31.
(b) Class B shares were initially offered on November 1, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming no contingent deferred sales charge.
(e) Had the investment advisor not waived a portion of expenses, total return would have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
(i) Rounds to less than 0.01%.
FINANCIAL HIGHLIGHTS
THE FUND
YEAR ENDED PERIOD ENDED
AUGUST 31, AUGUST 31,
2005 2004(A)
Class C Class C
------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 16.79 17.88
-----------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment loss(b) (0.30) (0.30)
Net realized and unrealized gain (loss) on investments and
foreign currency 5.25 (0.79)
-----------------------------------------------------------------------------------------------
Total from investment operations 4.95 (1.09)
-----------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 21.74 16.79
-----------------------------------------------------------------------------------------------
Total return (%)(c)(d) 29.48 (6.10)(e)
-----------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ($) 674 501
Ratio of operating expenses to average net assets (%)(f) 1.98 2.18(g)
Ratio of interest expense to average net assets (%) --(h) --
Ratio of total expenses to average net assets (%)(f) 1.98 2.18(g)
Ratio of net investment loss to average net assets (%)(f) (1.52) (1.83)(g)
Waiver (%) 0.05 0.08(g)
Portfolio turnover rate (%) 104 139
|
(a) Class C shares were initially offered on October 13, 2003. Per share data and total return reflect activity from that date.
(b) Per share data was calculated using average shares outstanding during the period.
(c) Total return at net asset value assuming no contingent deferred sales charge.
(d) Had the Fund's investment advisor not waived a portion of expenses, total return would have been reduced.
(e) Not annualized.
(f) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(g) Annualized.
(h) Rounds to less than 0.01%.
FINANCIAL HIGHLIGHTS
THE FUND
PERIOD ENDED PERIOD ENDED
YEAR ENDED AUGUST 31, AUGUST 31, DECEMBER 31,
2005 2004 2003(A) 2002(B)
Class D Class D Class D Class D
------ ------ ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 16.77 17.98 14.76 15.15
----------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment loss(c) (0.30) (0.34) (0.21) (0.04)
Net realized and unrealized gain (loss) on
investments and foreign currency 5.24 (0.87) 3.43 (0.35)
----------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.94 (1.21) 3.22 (0.39)
----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 21.71 16.77 17.98 14.76
----------------------------------------------------------------------------------------------------------------------
Total return (%)(d)(e) 29.46 (6.73) 21.82(f) (2.57)(f)
----------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ($) 438 599 737 433
Ratio of operating expenses to average net assets
(%)(g) 1.98 2.19 2.27(h) 2.32(h)
Ratio of interest expense to average net assets
(%) --(i) -- -- --
Ratio of total expenses to average net assets
(%)(g) 1.98 2.19 2.27(h) 2.32(h)
Ratio of net investment loss to average net
assets (%)(g) (1.54) (1.87) (1.97)(h) (2.05)(h)
Waiver (%) 0.05 0.08 0.09(h) 0.09(h)
Portfolio turnover rate (%) 104 139 78(f) 88
|
(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) Class D shares were initially offered on November 1, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming no contingent deferred sales charge.
(e) Had the investment advisor not waived a portion of expenses, total return would have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
(i) Rounds to less than 0.01%.
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides
additional information about the effect of the expenses of the Fund, including
investment advisory fees and other Fund costs, on the Fund's returns over a
10-year period. The charts show the estimated expenses that would be charged on
a hypothetical investment of $10,000 in Class A, B, C and D shares of the Fund
assuming a 5% return each year, the hypothetical year-end balance before
expenses and the cumulative return after fees and expenses. The charts also
assume that the annual expense ratios stay the same throughout the 10-year
period, that all dividends and distributions are reinvested and that Class B
shares convert to Class A shares after eight years. The annual expense ratio
used for the Fund, which is the same as that stated in the Annual Fund Operating
Expenses tables, is reflected in the charts and is net of any fee waiver or
expense reimbursement.
CLASS A SHARES(1)
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.21% $ 10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- CUMULATIVE RETURN HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE AFTER FEES & END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ ----------------- ------------------ -------------
1 5.00% $ 9,896.25 3.79% $ 9,782.21 $ 691.20
2 10.25% $10,391.06 7.72% $10,152.95 $ 120.61
3 15.76% $10,910.62 11.81% $10,537.75 $ 125.18
4 21.55% $11,456.15 16.04% $10,937.13 $ 129.92
5 27.63% $12,028.95 20.44% $11,351.65 $ 134.85
6 34.01% $12,630.40 25.01% $11,781.88 $ 139.96
7 40.71% $13,261.92 29.74% $12,228.41 $ 145.26
8 47.75% $13,925.02 34.66% $12,691.87 $ 150.77
9 55.13% $14,621.27 39.77% $13,172.89 $ 156.48
10 62.89% $15,352.33 45.06% $13,672.14 $ 162.41
TOTAL GAIN BEFORE FEES
& EXPENSES $ 5,927.33
TOTAL GAIN AFTER FEES &
EXPENSES $ 4,247.14
TOTAL ANNUAL FEES &
EXPENSES PAID $1,956.64
|
(1) For Class A shares, the year one Annual Fees & Expenses and Hypothetical Year-End Balance Before Fees & Expenses information shown include the dollar amount and effect of any applicable front-end sales charge of the Fund.
APPENDIX A
CLASS B SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.96% $ 10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- CUMULATIVE RETURN HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE AFTER FEES & END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ ----------------- ------------------ -------------
1 5.00% $10,500.00 3.04% $10,304.00 $ 198.98
2 10.25% $11,025.00 6.17% $10,617.24 $ 205.03
3 15.76% $11,576.25 9.40% $10,940.01 $ 211.26
4 21.55% $12,155.06 12.73% $11,272.58 $ 217.68
5 27.63% $12,762.82 16.15% $11,615.27 $ 224.30
6 34.01% $13,400.96 19.68% $11,968.37 $ 231.12
7 40.71% $14,071.00 23.32% $12,332.21 $ 238.15
8 47.75% $14,774.55 27.07% $12,707.11 $ 245.39
9 55.13% $15,513.28 31.89% $13,188.71 $ 156.67
10 62.89% $16,288.95 36.89% $13,688.56 $ 162.61
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 3,688.56
TOTAL ANNUAL FEES &
EXPENSES PAID $2,091.18
|
CLASS C SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.96% $ 10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- CUMULATIVE RETURN HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE AFTER FEES & END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ ----------------- ------------------ -------------
1 5.00% $10,500.00 3.04% $10,304.00 $ 198.98
2 10.25% $11,025.00 6.17% $10,617.24 $ 205.03
3 15.76% $11,576.25 9.40% $10,940.01 $ 211.26
4 21.55% $12,155.06 12.73% $11,272.58 $ 217.68
5 27.63% $12,762.82 16.15% $11,615.27 $ 224.30
6 34.01% $13,400.96 19.68% $11,968.37 $ 231.12
7 40.71% $14,071.00 23.32% $12,332.21 $ 238.15
8 47.75% $14,774.55 27.07% $12,707.11 $ 245.39
9 55.13% $15,513.28 30.93% $13,093.41 $ 252.85
10 62.89% $16,288.95 34.91% $13,491.45 $ 260.53
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 3,491.45
TOTAL ANNUAL FEES &
EXPENSES PAID $2,285.28
|
APPENDIX A
CLASS D SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.96% $ 10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- CUMULATIVE RETURN HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE AFTER FEES & END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ ----------------- ------------------ -------------
1 5.00% $10,500.00 3.04% $10,304.00 $ 198.98
2 10.25% $11,025.00 6.17% $10,617.24 $ 205.03
3 15.76% $11,576.25 9.40% $10,940.01 $ 211.26
4 21.55% $12,155.06 12.73% $11,272.58 $ 217.68
5 27.63% $12,762.82 16.15% $11,615.27 $ 224.30
6 34.01% $13,400.96 19.68% $11,968.37 $ 231.12
7 40.71% $14,071.00 23.32% $12,332.21 $ 238.15
8 47.75% $14,774.55 27.07% $12,707.11 $ 245.39
9 55.13% $15,513.28 30.93% $13,093.41 $ 252.85
10 62.89% $16,288.95 34.91% $13,491.45 $ 260.53
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 3,491.45
TOTAL ANNUAL FEES &
EXPENSES PAID $2,285.28
|
NOTES
NOTES
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Mid Cap Growth Fund, Inc.: 811-04362
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2005 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/91480-1005
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED JANUARY 1, 2006
(REPLACING THE SUPPLEMENT DATED FEBRUARY 17, 2006)
COLUMBIA MID CAP GROWTH FUND (THE "FUND")
CLASS R SHARES
The Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The third paragraph under the heading "THE FUND - PRINCIPAL INVESTMENT STRATEGIES" is revised in its entirety as follows:
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 Depository Receipts. The Fund may invest up to 20% of its total assets in foreign securities.
4. The "Calendar Year Total Returns" and "Average Annual Total Returns" tables for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS (CLASS A)(1)(2)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ----- ----- ----- ----- ----- ------ ------ ----- ---- ----- 13.07% 12.64% 16.64% 36.33% 13.84% -20.98% -24.64% 29.86% 6.88% 16.08% |
For the periods shown in bar chart:
Best quarter: 4th quarter 1999, +37.43%
Worst quarter: 1st quarter 2001, -20.28%
(1) Because the Class R shares have not completed a full calendar year, the bar chart and average annual total returns shown are for Class A shares. Class A shares are not offered in this prospectus. Class R shares would have substantially similar annual returns because they are invested in the same portfolio of securities, and the returns would differ only to the extent that the classes do not have the same expenses and Class R shares do not have a sales charge.
(2) Class A performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and Class A shares. If differences in expenses had been reflected, the returns shown for periods prior to the
inception of Class A shares would have been lower. Class A shares were initially offered on November 1, 2002, and Class Z shares were initially offered on November 20, 1985.
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 2005(1)(2)
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Class A (%)
Return Before Taxes 16.08 (0.83) 8.26
Return After Taxes on Distributions 15.86 (1.05) 6.19
Return After Taxes on Distributions 10.76 (0.76) 6.12
and Sale of Fund Shares
Russell Midcap Index (%) 12.65 8.45 12.49
Russell Midcap Growth Index (%) 12.10 1.38 9.27
|
(1) Because the Class R shares have not completed a full calendar year, the bar chart and average annual total returns shown are for Class A shares. Class A shares are not offered in this prospectus. Class R shares would have substantially similar annual returns because they are invested in the same portfolio of securities, and the returns would differ only to the extent that the classes do not have the same expenses and Class R shares do not have a sales charge.
(2) Class A performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and Class A shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of Class A shares would have been lower. Class A shares were initially offered on November 1, 2002, and Class Z shares were initially offered on November 20, 1985.
5. The section entitled "MANAGING THE FUND - PORTFOLIO MANAGER" is revised in its entirety and replaced with the following:
PORTFOLIO MANAGERS
KENNETH A. KORNGIEBEL, a senior vice president of Columbia Advisors, is the lead manager for the Fund and has managed or co-managed the Fund since June, 2004. Mr. Korngiebel has been associated with Columbia Advisors or its predecessors since July, 1996.
WAYNE M. COLLETTE, a vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Collette has been associated with Columbia Advisors or its predecessors since 2001. Prior to 2001, Mr. Collette was an associate portfolio manager with Neuberger Berman from 1999 to 2001.
J. MICHAEL KOSICKI, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Kosicki has been associated with Columbia Advisors or its predecessors since 2004. Prior to 2004, Mr. Kosicki was with Fidelity Investments from 1993 to 2004, most recently as an equity analyst.
GEORGE J. MYERS, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Myers has been associated with Columbia Advisors or its predecessors since 2004. Prior to 2004, Mr. Myers was a portfolio manager with Dresdner RCM Global Investors from 1999 to 2004.
THEODORE R. WENDELL, a vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Wendell has been associated with Columbia Advisors or its predecessors since 2000.
6. The section entitled "Legal Proceedings" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107632-0306 March 27, 2006
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS COMMUNICATION SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
COLUMBIA MID CAP GROWTH FUND Prospectus, January 23, 2006
CLASS R SHARES
Advised by Columbia Management Advisors, LLC
THE FUND 2 --------------------------------------------------------- Investment Goal...................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 2 Performance History.................................. 4 Your Expenses........................................ 6 YOUR ACCOUNT 8 --------------------------------------------------------- How to Buy Shares.................................... 8 Eligible Investors................................... 8 Sales Charges........................................ 8 How to Exchange Shares............................... 9 How to Sell Shares................................... 9 Fund Policy on Trading of Fund Shares................ 10 Distribution and Service Fees........................ 11 Other Information About Your Account................. 12 MANAGING THE FUND 14 --------------------------------------------------------- Investment Advisor................................... 14 Portfolio Managers................................... 14 Legal Proceedings.................................... 15 APPENDIX A 17 --------------------------------------------------------- |
Only eligible investors may purchase Class R shares. See "Your
Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange
Commission, the Commission has not approved or disapproved any shares offered in
this prospectus or determined whether this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
|
THE FUND
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.
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 Depository Receipts.
As part of its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional tax liability.
At times, the Fund's investment advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Except as noted otherwise, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
THE FUND
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
Growth stocks are stocks of companies believed to have above-average potential for growth in revenue and earnings. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general.
Convertible securities are securities that can be converted into common stock, such as certain debt securities and preferred stock. Convertible securities are subject to the usual risks associated with fixed income investments, such as interest rate risk and credit risk. In addition, because they react to changes in the value of the equity securities into which they will convert, convertible securities are also subject to market risk.
Sector risk is inherent in the Fund's investment strategy. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times the Fund may have a large portion of its assets invested in a particular sector.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Small- or mid-cap companies may be more susceptible to market downturns and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating
THE FUND
histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
Special situations have risk because they often involve major corporate changes and, thus, present a high degree of uncertainty as to the security's market price.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were reflected, these returns would be lower.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's Class A average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses.
THE FUND
CALENDAR YEAR TOTAL RETURNS (CLASS A)(1)(2)
(BAR CHART)
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 29.53% 13.07% 12.64% 16.64% 36.33% 13.84% -20.98% -24.64% 29.86% 6.88% |
The Class's year-to-date total return through For period shown in bar chart:
September 30, 2005 was +10.98%. Best quarter: 4th quarter 1999, +37.43%
Worst quarter: 1st quarter 2001, -20.28%
|
(1) Because the Class R shares have not completed a full calendar year, the bar chart and average annual total returns shown are for Class A shares. Class A shares are not offered in this prospectus. Class R shares would have substantially similar annual returns because they are invested in the same portfolio of securities, and the returns would differ only to the extent that the classes do not have the same expenses and Class R shares do not have a sales charge.
(2) Class A performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and Class A shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of Class A shares would have been lower. Class A shares were initially offered on November 1, 2002, and Class Z shares were initially offered on November 20, 1985.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004(1)(2)
1 YEAR 5 YEARS 10 YEARS
Class A (%)
Return Before Taxes 6.88 -1.21 9.46
Return After Taxes on Distributions 6.88 -2.81 6.94
Return After Taxes on Distributions and Sale of Fund
Shares 4.47 -1.64 6.94
--------------------------------------------------------------------------------------------------------
Russell Midcap Index (%) 20.22 7.59 14.50
--------------------------------------------------------------------------------------------------------
Russell Midcap Growth Index (%) 15.48 -3.36 11.23
|
(1) Because the Class R shares have not completed a full calendar year, the bar chart and average annual total returns shown are for Class A shares. Class A shares are not offered in this prospectus. Class R shares would have substantially similar annual returns because they are invested in the same portfolio of securities, and the returns would differ only to the extent that the classes do not have the same expenses and Class R shares do not have a sales charge.
(2) Class A performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and Class A shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of Class A shares would have been lower. Class A shares were initially offered on November 1, 2002, and Class Z shares were initially offered on November 20, 1985.
THE FUND
SALES CHARGES are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management fees, 12b-1 fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS R
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 0.00
----------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or
redemption price) 0.00
----------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) (2)
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
THE FUND
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
CLASS R
Management fee(1) (%) 0.79
----------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.50
----------------------------------------------------------------------------
Other expenses(2) (%) 0.17
----------------------------------------------------------------------------
Total annual fund operating expenses (%) 1.46
|
(1) Management fee has been restated to reflect contractual changes to the management fee for the Fund effective November 1, 2004.
(2) Other expenses are based on those for the Funds' Class R shares, which have been restated to reflect contractual changes to the transfer agent and bookkeeping fees for the Fund effective November 1, 2005. Other Expenses are based on estimated amounts for the current fiscal year.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
1 YEAR 3 YEARS 5 YEARS 10 YEARS $149 $462 $797 $1,746 |
See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
When the Fund receives your purchase request in "good form," your shares will be bought at the next calculated public offering price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, "good form" may mean that you have properly placed your order with your financial advisor or the Fund's transfer agent has received your completed application, including all necessary signatures. The USA Patriot Act may require us to obtain certain personal information from you which we will use to verify your identity. If you do not provide the information, we may not be able to open your account. If we are unable to verify your customer information, we reserve the right to close your account or take such other steps as we deem reasonable.
- 401(k) plans;
- 457 plans;
- Employer-sponsored 403(b) plans;
- Profit sharing and money purchase pension plans;
- Defined benefit plans; and
- Non-qualified deferred compensation plans ("eligible retirement plans").
Class R shares will not be available to retail nonretirement accounts, traditional and Roth IRAs, Coverdell Education Savings Accounts, SEPs, SAR-SEPs, Simple IRAs, individual 403(b) plans or 529 tuition programs.
The Fund reserves the right to change the criteria for Eligible Investors. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
Your financial advisor/plan sponsor may receive cumulative commissions from Columbia Management Distributors, Inc. for the shares purchased in accordance with the table below:
AMOUNT PURCHASED COMMISSION % First $50 million 0.50 --------------------------------------------------------------------------------- Over $50 million 0.25 |
Additionally, your financial advisor/plan sponsor may receive ongoing 12b-1 fees with respect to Class R shares.
YOUR ACCOUNT
The Fund offers one class of shares in this prospectus -- CLASS R.
When a Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable, you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
YOUR ACCOUNT
with efficient portfolio management, generate transaction and other costs, dilute the value of Fund shares held by long-term shareholders and have other adverse effects on the Fund. This type of excessive short-term trading activity is referred to herein as "market timing." The Columbia Funds are not intended as vehicles for market timing. The Board of Directors of the Fund has adopted the policies and procedures set forth below with respect to frequent trading of the Fund's shares.
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
YOUR ACCOUNT
ADDITIONAL INTERMEDIARY COMPENSATION In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
YOUR ACCOUNT
The Fund determines the net asset value of its Class R shares by dividing total net assets attributable to Class R shares by the number of outstanding Class R shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for Class R shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
-----------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund distributes any dividends and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
YOUR ACCOUNT
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your
current fund
----------------------------------------------------------------
Reinvest all distributions in shares of another fund
----------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest
capital gains
----------------------------------------------------------------
Receive all distributions in cash (with one of the following
options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds
transfer
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Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Advisors by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Advisors by the Fund, amounted to 0.81% of average daily net assets of the Fund.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management and Columbia Management Distributors, Inc. (formerly named Columbia Funds Distributor, Inc.) ("CMD") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the Fund or its shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Columbia Funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL"). The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, removal of the trustees of the funds, removal of Columbia Management and CMD, disgorgement of all management fees and monetary damages. The MDL is ongoing.
On January 11, 2005, a putative class action lawsuit was filed in federal district court in Massachusetts against, among others, the Trustees of the funds and CMG. The lawsuit alleges that defendants violated common law
LEGAL PROCEEDINGS
duties to fund shareholders as well as sections of the Investment Company Act of 1940, by failing to ensure that the funds and other affiliated funds participated in securities class action settlements for which the funds were eligible. Specifically, plaintiffs allege that defendants failed to submit proof of claims in connection with settlements of securities class action lawsuits filed against companies in which the funds held positions.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits seek damages and allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as IN RE COLUMBIA ENTITIES LITIGATION. The plaintiffs filed a consolidated amended complaint on June 9, 2005.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The chart shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class R shares of the Fund assuming a 5% return each year, the hypothetical year-end balance before expenses and the cumulative return after fees and expenses. The chart also assumes that the annual expense ratio stays the same throughout the 10-year period and that all dividends and distributions are reinvested. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses table, is reflected in the chart and is net of any fee waiver or expense reimbursement.
CLASS R SHARES
INITIAL HYPOTHETICAL ASSUMED RATE
ANNUAL INVESTMENT AMOUNT OF RETURN
EXPENSE RATIO $10,000.00 5%
1.46% HYPOTHETICAL HYPOTHETICAL
CUMULATIVE YEAR-END CUMULATIVE YEAR-END
RETURN BALANCE RETURN BALANCE ANNUAL
BEFORE FEES BEFORE FEES AFTER FEES AFTER FEES FEES &
YEAR & EXPENSES & EXPENSES & EXPENSES & EXPENSES EXPENSES
1 5.00% $10,500.00 3.54% $10,354.00 $ 148.58
2 10.25% $11,025.00 7.21% $10,720.53 $ 153.84
3 15.76% $11,576.25 11.00% $11,100.04 $ 159.29
4 21.55% $12,155.06 14.93% $11,492.98 $ 164.93
5 27.63% $12,762.82 19.00% $11,899.83 $ 170.77
6 34.01% $13,400.96 23.21% $12,321.09 $ 176.81
7 40.71% $14,071.00 27.57% $12,757.25 $ 183.07
8 47.75% $14,774.55 32.09% $13,208.86 $ 189.55
9 55.13% $15,513.28 36.76% $13,676.45 $ 196.26
10 62.89% $16,288.95 41.61% $14,160.60 $ 203.21
TOTAL GAIN BEFORE
FEES & EXPENSES $ 6,288.95
TOTAL GAIN AFTER
FEES & EXPENSES $ 4,160.60
TOTAL ANNUAL FEES
& EXPENSES PAID $1,746.33
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(THIS PAGE INTENTIONALLY LEFT BLANK)
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Mid Cap Growth Fund, Inc.: 811-04362
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2005 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com
PRO-36/105424-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED JANUARY 1, 2006
(REPLACING THE SUPPLEMENT DATED FEBRUARY 17, 2006)
COLUMBIA MID CAP GROWTH FUND (THE "FUND")
CLASS T AND G SHARES
The Prospectus is hereby supplemented with the following information:
1. The back cover of the Prospectus in the section titled "For More Information" is revised to include the name of the Trust, "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The third paragraph under the heading "THE FUND - PRINCIPAL INVESTMENT STRATEGIES" is revised in its entirety as follows:
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 Depository Receipts. The Fund may invest up to 20% of its total assets in foreign securities.
4. The "Calendar Year Total Returns" and "Average Annual Total Returns" tables for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS (CLASS T)(1)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ----- ----- ----- ----- ----- ------ ------ ----- ---- ----- 13.07% 12.64% 16.64% 36.33% 13.84% -20.98% -24.54% 29.95% 6.87% 16.05% |
For the periods shown in bar chart:
Best quarter: 4th quarter 1999, +37.43%
Worst quarter: 1st quarter 2001, -20.28%
(1) Class T is a newer class of shares. Its performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer class of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been lower. Class T shares were initially offered on November 1, 2002, and Class Z shares were initially offered on November 20, 1985.
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 2005(1)
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Class T (%)
Return Before Taxes 9.39 (1.96) 7.64
Return After Taxes on Distributions 9.18 (2.18) 5.58
Return After Taxes on Distributions
and Sale of Fund Shares 6.39 (1.72) 5.56
Class G (%)
Return Before Taxes 10.25 (1.91) 7.98
Return After Taxes on Distributions 10.02 (2.14) 5.91
Return After Taxes on Distributions
and Sale of Fund Shares 6.97 (1.68) 5.88
Russell Midcap Index (%) 12.65 8.45 12.49
Russell Midcap Growth Index (%) 12.10 1.38 9.27
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(1) Class T and Class G are newer classes of shares. Their performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to their inception. These returns have not been restated to reflect any differences in expenses (such as shareholder servicing and distribution fees) between Class Z shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class T and G shares were initially offered on November 1, 2002, and Class Z shares were initially offered on November 20, 1985.
5. The section entitled "MANAGING THE FUND - PORTFOLIO MANAGER" is revised in its entirety and replaced with the following:
PORTFOLIO MANAGERS
KENNETH A. KORNGIEBEL, a senior vice president of Columbia Advisors, is the lead manager for the Fund and has managed or co-managed the Fund since June, 2004. Mr. Korngiebel has been associated with Columbia Advisors or its predecessors since July, 1996.
WAYNE M. COLLETTE, a vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Collette has been associated with Columbia Advisors or its predecessors since 2001. Prior to 2001, Mr. Collette was an associate portfolio manager with Neuberger Berman from 1999 to 2001.
J. MICHAEL KOSICKI, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Kosicki has been associated with Columbia Advisors or its predecessors since 2004. Prior to 2004, Mr. Kosicki was with Fidelity Investments from 1993 to 2004, most recently as an equity analyst.
GEORGE J. MYERS, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Myers has been associated with Columbia Advisors or its predecessors since 2004. Prior to 2004, Mr. Myers was a portfolio manager with Dresdner RCM Global Investors from 1999 to 2004.
THEODORE R. WENDELL, a vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Wendell has been associated with Columbia Advisors or its predecessors since 2000.
6. The section entitled "Legal Proceedings" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107633-0306 March 27, 2006
COLUMBIA MID CAP GROWTH FUND Prospectus, January 1, 2006
CLASS T AND G SHARES
Advised by Columbia Management Advisors, LLC
THE FUND 2 --------------------------------------------------------- Investment Goal...................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 2 Performance History.................................. 5 Your Expenses........................................ 7 YOUR ACCOUNT 9 --------------------------------------------------------- How to Buy Shares.................................... 9 Investment Minimums.................................. 9 Sales Charges........................................ 10 How to Exchange Shares............................... 13 How to Sell Shares................................... 13 Fund Policy on Trading of Fund Shares................ 14 Distribution and Service Fees........................ 16 Other Information About Your Account................. 17 MANAGING THE FUND 19 --------------------------------------------------------- Investment Advisor................................... 19 Portfolio Manager.................................... 19 Legal Proceedings.................................... 20 FINANCIAL HIGHLIGHTS 22 APPENDIX A........................................... 24 --------------------------------------------------------- |
Class T and G shares are sold only to investors who received (and who have continuously held) Class T or G shares in connection with the merger of certain Galaxy Funds into various Columbia Funds.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
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THE FUND
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.
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 Depository Receipts.
As part of its investment strategy, the Fund may buy and sell securities frequently. Frequent trading of investments usually increases the chance that the Fund will pay investors short-term capital gains (which are taxable at higher rates than long-term capital gains). Frequent trading may also result in higher brokerage commissions and other transaction costs and additional tax liability, which could reduce the Fund's returns.
At times, the Fund's investment advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Except as noted otherwise, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management
THE FUND
and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Growth stocks are stocks of companies believed to have above-average potential for growth in revenue and earnings. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general.
Convertible securities are securities that can be converted into common stock, such as certain debt securities and preferred stock. Convertible securities are subject to the usual risks associated with fixed income investments, such as interest rate risk and credit risk. In addition, because they react to changes in the value of the equity securities into which they will convert, convertible securities are also subject to market risk.
Sector risk is inherent in the Fund's investment strategy. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times the Fund may have a large portion of its assets invested in a particular sector.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or
THE FUND
diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Small- or mid-cap companies may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
Special situations have risk because they often involve major corporate changes and, thus, present a high degree of uncertainty as to the security's market price.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
THE FUND
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class T share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
CALENDAR YEAR TOTAL RETURNS (CLASS T)(1)
(BAR CHART)
29.53% 13.07% 12.64% 16.64% 36.33% 13.84% 29.95% 6.87%
-20.98% -24.54%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
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The Fund's year-to-date total return through For period shown in bar chart:
September 30, 2005 (Class T) was +10.95%. Best quarter: 4th quarter 1999, +37.43%
Worst quarter: 1st quarter 2001, -20.28%
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(1) Class T is a newer class of shares. Its performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer class of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been lower. Class T shares were initially offered on November 1, 2002, and Class Z shares were initially offered on November 20, 1985.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax
THE FUND
situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004(1)
1 YEAR 5 YEARS 10 YEARS
Class T (%)
Return Before Taxes 0.74 -2.34 8.83
Return After Taxes on Distributions 0.74 -3.92 6.30
Return After Taxes on Distributions and Sale of Fund
Shares 0.48 -2.57 6.37
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Class G (%)
Return Before Taxes 0.84 -2.02 9.25
Return After Taxes on Distributions 0.84 -3.65 6.70
Return After Taxes on Distributions and Sale of Fund
Shares 0.55 -2.31 6.76
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Russell Midcap Index (%) 20.22 7.59 14.50
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Russell Midcap Growth Index (%) 15.48 -3.36 11.23
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(1) Class T and Class G are newer classes of shares. Their performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to their inception. These returns have not been restated to reflect any differences in expenses (such as shareholder servicing and distribution fees) between Class Z shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class T and G shares were initially offered on November 1, 2002, and Class Z shares were initially offered on November 20, 1985.
THE FUND
UNDERSTANDING EXPENSES
SALES CHARGES are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management fees, 12b-1 fees, shareholder service fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
- Reinvestment of all dividends and distributions
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS T CLASS G
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00
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Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or
redemption price) 1.00(2) 5.00
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Redemption fee (%)
(as a percentage of amount redeemed, if applicable) (3) (3)
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(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) This charge applies only to certain Class T shares bought without an initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
THE FUND
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
CLASS T CLASS G
Management fee(1)(%) 0.79 0.79
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Distribution and service (12b-1) fees (%) 0.00 0.95(2)
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Other expenses(3)(%) 0.47(4) 0.17
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Total annual fund operating expenses (%) 1.26 1.91
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(1) Management fee has been restated to reflect contractual changes to the management fee for the Fund effective November 1, 2004.
(2) The Fund may pay distribution and service (12b-1) fees up to a maximum of 1.15% of the Fund's average daily net assets attributable to Class G shares (comprised of up to 0.65% for distribution services, up to 0.25% for shareholder liaison services and up to 0.25% for administrative support services), but will limit such fees to an aggregate fee of not more than 0.95%.
(3) Other expenses have been restated to reflect contractual changes to the fees paid by the Fund for transfer agency and pricing and bookkeeping services effective November 1, 2005.
(4) The Fund may pay shareholder service fees (which are included in other expenses) up to a maximum of 0.50% of Fund's average daily net assets attributable to Class T shares (comprised of up to 0.25% for shareholder liaison services and up to 0.25% for administrative support services), but will not exceed the Fund's net investment income attributable to Class T and will limit such fees to an aggregate fee of not more than 0.30%.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class T $696 $ 952 $1,227 $2,010
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Class G: did not sell your shares $194 $ 600 $1,032 $2,064
sold all your shares at
the end of the period $694 $1,000 $1,332 $2,064
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See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging Class T or Class G shares you
own in a different fund distributed by Columbia Management
Distributors, Inc. for shares of the same class (and, in
some cases, certain other classes) of the Fund at no
additional cost. There may be an additional sales charge if
exchanging from a money market fund. To exchange by
telephone, call 1-800-422-3737.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate your
program or change the amount of the exchange (subject to the
$100 minimum) by calling 1-800-345-6611. There may be an
additional sales charge if exchanging from a money market
fund. Be sure to complete the appropriate section of the
account application for this feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
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CLASS T AND G SHARES ARE SOLD ONLY TO INVESTORS WHO RECEIVED (AND WHO HAVE CONTINUOUSLY HELD) CLASS T OR G SHARES IN CONNECTION WITH THE MERGER OF CERTAIN GALAXY FUNDS INTO VARIOUS COLUMBIA FUNDS (FORMERLY NAMED LIBERTY FUNDS).
YOUR ACCOUNT
Please see the Statement of Additional Information for more details on investment minimums.
CLASS T SHARES Your purchases of Class T shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class T shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
CLASS T SALES CHARGES
% OF OFFERING
AS A % OF PRICE
THE PUBLIC AS A % RETAINED BY
OFFERING OF YOUR FINANCIAL
AMOUNT PURCHASED PRICE INVESTMENT ADVISOR
Less than $50,000 5.75 6.10 5.00
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$50,000 to less than $100,000 4.50 4.71 3.75
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$100,000 to less than $250,000 3.50 3.63 2.75
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$250,000 to less than $500,000 2.50 2.56 2.00
-------------------------------------------------------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
-------------------------------------------------------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
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Class T shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class T share purchases that bring your account value above $1 million are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class T share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
PURCHASES OVER $1 MILLION
AMOUNT PURCHASED COMMISSION % First $3 million 1.00 ---------------------------------------------------------------------------- $3 million to less than $50 million 0.50 ---------------------------------------------------------------------------- $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
YOUR ACCOUNT
REDUCED SALES CHARGES FOR LARGER INVESTMENTS
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class T shares of the Fund and other funds in the Columbia family of funds.
RIGHTS OF ACCUMULATION The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
STATEMENT OF INTENT You also may pay a lower sales charge when purchasing Class T shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
- Individual accounts
- Joint accounts
- Certain IRA accounts
- Certain trusts
- UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts
YOUR ACCOUNT
include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
CLASS G SHARES Your purchases of Class G shares are made at Class G's net asset value. Purchases up to $50,000 are allowed in Class G shares assuming the combined value of the customer's total assets in the Columbia funds does not exceed $50,000. Purchases in Class G shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class G shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class G shares as described in the chart below.
YOUR ACCOUNT
CLASS G SALES CHARGES:
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 5.00
-------------------------------------------------------------------------------
Through second year 4.00
-------------------------------------------------------------------------------
Through third year 4.00
-------------------------------------------------------------------------------
Through fourth year 4.00
-------------------------------------------------------------------------------
Through fifth year 3.00
-------------------------------------------------------------------------------
Through sixth year 2.00
-------------------------------------------------------------------------------
Through the seventh year 1.00
-------------------------------------------------------------------------------
Longer than seven years 0.00
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Commission to financial advisors is 4.00%.
Automatic conversion to Class T shares occurs eight years after purchase.
Please see the Statement of Additional Information for the CDSCs and conversion schedules applicable to Class G shares received in exchange for Retail B shares of the Galaxy Growth Fund II purchased prior to January 1, 2001.
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable, you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For
YOUR ACCOUNT
additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
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By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into the same share class (or,
Class A and B shares, for Class T and G shares,
respectively) of another fund distributed by Columbia
Management Distributors, Inc. at no additional cost. To
exchange by telephone, call 1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction or, if
applicable, stock power form along with any share
certificates to be sold to the address below. In your letter
of instruction, note the Fund's name, share class, account
number, and the dollar value or number of shares you wish to
sell. All account owners must sign the letter. Signatures
must be guaranteed by either a bank, a member firm of a
national stock exchange or another eligible guarantor that
participates in the Medallion Signature Guarantee Program
for amounts over $100,000 or for alternate payee or mailing
instructions. Additional documentation is required for sales
by corporations, agents, fiduciaries, surviving joint owners
and individual retirement account owners. For details, call
1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
-----------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance has been waived for wrap accounts. This
feature is not available if you hold your shares in
certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
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By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
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YOUR ACCOUNT
by long-term shareholders and have other adverse effects on the Fund. This type of excessive short-term trading activity is referred to herein as "market timing." The Columbia Funds are not intended as vehicles for market timing. The Board of Directors of the Fund has adopted the policies and procedures set forth below with respect to frequent trading of the Fund's shares.
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
YOUR ACCOUNT
ADDITIONAL INTERMEDIARY COMPENSATION In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
YOUR ACCOUNT
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for any class of shares offered by the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
-----------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
YOUR ACCOUNT
UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund distributes any dividends and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your
current fund
----------------------------------------------------------------
Reinvest all distributions in shares of another fund
----------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest
capital gains
----------------------------------------------------------------
Receive all distributions in cash (with one of the following
options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds
transfer
|
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Advisors and/or Columbia Management by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Advisors and/or Columbia Management by the Fund, amounted to 0.81% of average daily net assets of the Fund.
The Statement of Additional Information provides additional information about the manager's compensation, other accounts managed and ownership of securities in the Fund.
MANAGING THE FUND
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Columbia Funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late
MANAGING THE FUND
trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In Re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's fiscal periods since inception, which run from September 1 to August 31, unless otherwise indicated. Certain information reflects financial results for a single Class T or G share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
YEAR ENDED PERIOD ENDED PERIOD ENDED
AUGUST 31, AUGUST 31, DECEMBER 31,
2005 2004 2003(A) 2002(B)
Class T Class T Class T Class T
------------ ------------ ------------ ------------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 17.03 18.12 14.79 15.15
---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment loss(c) (0.16) (0.22) (0.12) (0.02)
Net realized and unrealized gain (loss) on investments
and foreign currency 5.33 (0.87) 3.45 (0.34)
---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 5.17 (1.09) 3.33 (0.36)
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 22.20 17.03 18.12 14.79
---------------------------------------------------------------------------------------------------------------------------------
Total return (%)(d) 30.36(e) 6.02(e) 22.52(f) (2.38)(f)
---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ($) 27,969 25,236 29,920 25,966
Ratio of operating expenses to average net assets (%)(g) 1.28 1.50 1.46(h) 1.45(h)
Ratio of interest expense to average net assets (%) --(i) -- -- --
Ratio of total expenses to average net assets (%)(g) 1.28 1.50 1.46(h) 1.45(h)
Ratio of net investment loss to average net assets (%)(g) (0.82) (1.19) (1.16)(h) (1.18)(h)
Waiver (%) 0.05 0.01 -- --
Portfolio turnover rate (%) 104 139 78(f) 88
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(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) Class T shares were initially offered on November 1, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming no initial sales charge or contingent deferred sales charge.
(e) Had the investment advisor not waived a portion of expenses, total return would have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
(i) Rounds to less than 0.01%.
FINANCIAL HIGHLIGHTS
THE FUND
YEAR ENDED PERIOD ENDED PERIOD ENDED
AUGUST 31, AUGUST 31, DECEMBER 31,
2005 2004 2003(A) 2002(B)
Class G Class G Class G Class G
------------ ------------ ------------ ------------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 16.70 17.98 14.77 15.15
---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS: ($)
Net investment loss(c) (0.29) (0.41) (0.23) (0.04)
Net realized and unrealized gain (loss) on investments
and foreign currency 5.22 (0.87) 3.44 (0.34)
---------------------------------------------------------------------------------------------------------------------------------
Total from investment operations 4.93 (1.28) 3.21 (0.38)
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 21.63 16.70 17.98 14.77
---------------------------------------------------------------------------------------------------------------------------------
Total return (%)(d) 29.52(e) 7.12(e) 21.73(f) (2.51)(f)
---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ($) 724 647 806 753
Ratio of operating expenses to average net assets (%)(g) 1.93 2.57 2.47(h) 2.35(h)
Ratio of interest expense to average net assets (%) --(i) -- -- --
Ratio of total expenses to average net assets (%)(g) 1.93 2.57 2.47(h) 2.35(h)
Ratio of net investment loss to average net assets
(%)(g) (1.47) (2.25) (2.17)(h) (2.08)(h)
Waiver (%) 0.05 0.01 -- --
Portfolio turnover rate (%) 104 139 78(f) 88
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(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) Class G shares were initially offered on November 1, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming no contingent deferred sales charge.
(e) Had the investment advisor not waived a portion of expenses, total return would have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
(i) Rounds to less than 0.01%
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides
additional information about the effect of the expenses of the Fund, including
investment advisory fees and other Fund costs, on the Fund's returns over a
10-year period. The charts show the estimated expenses that would be charged on
a hypothetical investment of $10,000 in Class T and G shares of the Fund
assuming a 5% return each year, the hypothetical year-end balance before
expenses and the cumulative return after fees and expenses. The charts also
assume that the annual expense ratios stay the same throughout the 10-year
period, that all dividends and distributions are reinvested and that Class G
shares convert to Class T shares after eight years. The annual expense ratio
used for the Fund, which is the same as that stated in the Annual Fund Operating
Expenses tables, is reflected in the charts and is net of any fee waiver or
expense reimbursement.
CLASS T SHARES(1)
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.26% $10,000.00 5%
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CUMULATIVE RETURN HYPOTHETICAL YEAR- CUMULATIVE RETURN HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE AFTER FEES & END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ ----------------- ------------------ -------------
1 5.00% $ 9,896.25 3.74% $ 9,777.50 $ 695.98
2 10.25% $10,391.06 7.62% $10,143.17 $ 125.50
3 15.76% $10,910.62 11.64% $10,522.53 $ 130.19
4 21.55% $11,456.15 15.82% $10,916.07 $ 135.06
5 27.63% $12,028.95 20.15% $11,324.33 $ 140.11
6 34.01% $12,630.40 24.65% $11,747.86 $ 145.35
7 40.71% $13,261.92 29.31% $12,187.23 $ 150.79
8 47.75% $13,925.02 34.14% $12,643.03 $ 156.43
9 55.13% $14,621.27 39.16% $13,115.88 $ 162.28
10 62.89% $15,352.33 44.37% $13,606.42 $ 168.35
TOTAL GAIN BEFORE FEES
& EXPENSES $ 5,927.33
TOTAL GAIN AFTER FEES &
EXPENSES $ 4,181.42
TOTAL ANNUAL FEES &
EXPENSES PAID $2,010.06
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(1) For Class T shares, the year one Annual Fees & Expenses and Hypothetical Year-End Balance Before Fees & Expenses information shown include the dollar amount and effect of any applicable front-end sales charge of the Fund.
APPENDIX A
CLASS G SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.91% $ 10,000.00 5%
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CUMULATIVE RETURN HYPOTHETICAL YEAR- CUMULATIVE RETURN
BEFORE FEES & END BALANCE BEFORE AFTER FEES & HYPOTHETICAL YEAR- ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES EXPENSES END BALANCE AFTER EXPENSES
---- ----------------- ------------------ ----------------- FEES & EXPENSES -------------
1 5.00% $10,500.00 3.09% $10,309.00 $ 193.95
2 10.25% $11,025.00 6.28% $10,627.55 $ 199.94
3 15.76% $11,576.25 9.56% $10,955.94 $ 206.12
4 21.55% $12,155.06 12.94% $11,294.48 $ 212.49
5 27.63% $12,762.82 16.43% $11,643.48 $ 219.06
6 34.01% $13,400.96 20.03% $12,003.26 $ 225.83
7 40.71% $14,071.00 23.74% $12,374.16 $ 232.80
8 47.75% $14,774.55 27.57% $12,756.52 $ 240.00
9 55.13% $15,513.28 32.34% $13,233.62 $ 163.74
10 62.89% $16,288.95 37.29% $13,728.55 $ 169.86
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 3,728.55
TOTAL ANNUAL FEES &
EXPENSES PAID $2,063.79
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NOTES
NOTES
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Mid Cap Growth Fund, Inc.: 811-04362
(COLUMBIAFUNDS LOGO)
A Member of Columbia Management Group
(C)2005 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/91481-1005
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED JANUARY 1, 2006
(REPLACING THE SUPPLEMENT DATED FEBRUARY 17, 2006)
COLUMBIA MID CAP GROWTH FUND (THE "FUND")
CLASS Z SHARES
The Prospectus is hereby supplemented with the following information:
1. The back cover of the Prospectus in the section titled "For More Information" is revised to include the name of the Trust, "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The third paragraph under the heading "THE FUND - PRINCIPAL INVESTMENT STRATEGIES" is revised in its entirety as follows:
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 Depository Receipts. The Fund may invest up to 20% of its total assets in foreign securities.
4. The "Calendar Year Total Returns" and "Average Annual Total Returns" tables for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS (CLASS Z)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ----- ----- ----- ----- ----- ------ ------ ----- ---- ----- 13.07% 12.64% 16.64% 36.33% 13.84% -20.98% -24.54% 30.43% 7.31% 16.36% |
For the periods shown in bar chart:
Best quarter: 4th quarter 1999, +37.43%
Worst quarter: 1st quarter 2001, -20.28%
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 2005
INCEPTION 1 YEAR 5 YEARS 10 YEARS
DATE
---------- ------ ------- --------
11/20/1985
Class Z (%)
Return Before Taxes 16.36 (0.59) 8.39
Return After Taxes on Distributions 16.14 (0.81) 6.32
Return After Taxes on Distributions 10.94 (0.56) 6.23
and Sale of Fund Shares
Russell Midcap Index (%) 12.65 8.45 12.49
Russell Midcap Growth Index (%) 12.10 1.38 9.27
|
5. The section entitled "MANAGING THE FUND - PORTFOLIO MANAGER" is revised in its entirety and replaced with the following:
PORTFOLIO MANAGERS
KENNETH A. KORNGIEBEL, a senior vice president of Columbia Advisors, is the lead manager for the Fund and has managed or co-managed the Fund since June, 2004. Mr. Korngiebel has been associated with Columbia Advisors or its predecessors since July, 1996.
WAYNE M. COLLETTE, a vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Collette has been associated with Columbia Advisors or its predecessors since 2001. Prior to 2001, Mr. Collette was an associate portfolio manager with Neuberger Berman from 1999 to 2001.
J. MICHAEL KOSICKI, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Kosicki has been associated with Columbia Advisors or its predecessors since 2004. Prior to 2004, Mr. Kosicki was with Fidelity Investments from 1993 to 2004, most recently as an equity analyst.
GEORGE J. MYERS, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Myers has been associated with Columbia Advisors or its predecessors since 2004. Prior to 2004, Mr. Myers was a portfolio manager with Dresdner RCM Global Investors from 1999 to 2004.
THEODORE R. WENDELL, a vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Wendell has been associated with Columbia Advisors or its predecessors since 2000.
6. The section entitled "Legal Proceedings" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia
Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November
3, 2005, the U.S. District Court for the District of Maryland granted in part
and denied in part the defendants' motions to dismiss. The court dismissed all
of the class action claims pending against the Columbia Funds. As to Columbia,
the Distributor and the Trustees of the Columbia Funds, the claims under the
Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the
Investment Company Act of 1940 (ICA) and the state law claims were dismissed.
The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934
and claims under Section 36(b) of the ICA along with related claims under
Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107634-0306 March 27, 2006
COLUMBIA MID CAP GROWTH FUND Prospectus, January 1, 2006
CLASS Z SHARES
Advised by Columbia Management Advisors, LLC
THE FUND 2 --------------------------------------------------------- Investment Goal...................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 2 Performance History.................................. 5 Your Expenses........................................ 6 YOUR ACCOUNT 8 --------------------------------------------------------- How to Buy Shares.................................... 8 Eligible Investors................................... 8 Sales Charges........................................ 10 How to Exchange Shares............................... 10 How to Sell Shares................................... 11 Fund Policy on Trading of Fund Shares................ 12 Intermediary Compensation............................ 13 Other Information About Your Account................. 14 MANAGING THE FUND 17 --------------------------------------------------------- Investment Advisor................................... 17 Portfolio Manager.................................... 17 Legal Proceedings.................................... 18 FINANCIAL HIGHLIGHTS 20 --------------------------------------------------------- APPENDIX A........................................... 21 --------------------------------------------------------- |
Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
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Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
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THE FUND
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.
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 Depository Receipts.
As part of its investment strategy, the Fund may buy and sell securities frequently. Frequent trading of investments usually increases the chance that the Fund will pay investors short-term capital gains (which are taxable at higher rates than long-term capital gains). Frequent trading may also result in higher brokerage commissions and other transaction costs and additional tax liability, which could reduce the Fund's returns.
At times, the Fund's investment advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Except as noted otherwise, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management
THE FUND
and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Growth stocks are stocks of companies believed to have above-average potential for growth in revenue and earnings. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general.
Convertible securities are securities that can be converted into common stock, such as certain debt securities and preferred stock. Convertible securities are subject to the usual risks associated with fixed income investments, such as interest rate risk and credit risk. In addition, because they react to changes in the value of the equity securities into which they will convert, convertible securities are also subject to market risk.
Sector risk is inherent in the Fund's investment strategy. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times the Fund may have a large portion of its assets invested in a particular sector.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or
THE FUND
diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Small or mid-cap companies may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
Special situations have risk because they often involve major corporate changes and, thus, present a high degree of uncertainty as to the security's market price.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
THE FUND
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class Z share performance for each of the last ten complete calendar years. They include the effects of Fund expenses.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's Class Z average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses.
CALENDAR YEAR TOTAL RETURNS (CLASS Z)
(BAR CHART)
29.53% 13.07% 12.64% 16.64% 36.33% 13.84% 30.43% 7.31%
-20.98% -24.54%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
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The Fund's year-to-date total return through For period shown in bar chart:
September 30, 2005 was (Class Z) +11.16%. Best quarter: 4th quarter 1999, +37.43%
Worst quarter: 1st quarter 2001, -20.28%
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THE FUND
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004
INCEPTION
DATE 1 YEAR 5 YEARS 10 YEARS
Class Z (%) 11/20/1985
Return Before Taxes 7.31 -1.02 9.56
Return After Taxes on Distributions 7.31 -2.62 7.01
Return After Taxes on Distributions and Sale of Fund
Shares 4.75 -1.48 7.02
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Russell Midcap Index (%) 20.22 7.59 14.50
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Russell Midcap Growth Index (%) 15.48 -3.36 11.23
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UNDERSTANDING EXPENSES
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
THE FUND
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 -------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 -------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) (2) |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
Management fee(1) (%) 0.79 ------------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.00 ------------------------------------------------------------------------- Other expenses(2) (%) 0.17 ------------------------------------------------------------------------- Total annual fund operating expenses (%) 0.96 |
(1) Management fee has been restated to reflect contractual changes to the management fee for the Fund effective November 1, 2004.
(2) Other expenses have been restated to reflect contractual changes to the fees paid by the Fund for transfer agency and pricing and bookkeeping services effective November 1, 2005.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
1 YEAR 3 YEARS 5 YEARS 10 YEARS $98 $306 $531 $1,178 |
See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For new accounts, send a completed application and check
(new account) made payable to the Fund to Columbia Management Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class of the Fund at no additional
cost. To exchange by telephone, call 1-800-422-3737. Please
see "How to Exchange Shares" for more information.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate your
program or change the amount of the exchange (subject to the
$100 minimum) by calling 1-800-345-6611. Be sure to complete
the appropriate section of the account application for this
feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at no
additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
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YOUR ACCOUNT
for a more detailed description of the eligibility requirements. The Eligible Investors described below are subject to different minimum initial investment requirements.
IMPORTANT THINGS TO CONSIDER WHEN DECIDING ON A CLASS OF SHARES:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by an intermediary. Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
NO MINIMUM INITIAL INVESTMENT
- Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
- Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts ("IRAs")), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
- Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
- Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
$1,000 MINIMUM INITIAL INVESTMENT
- Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of a fund distributed by Columbia Management Distributors, Inc. (i) who holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005; (iii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iv) who purchased certain no-load shares of a fund merged with a fund distributed by Columbia Management Distributors, Inc.;
YOUR ACCOUNT
- Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Management Distributors, Inc.;
- Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary;
- Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement);
- Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an accredited investor, as defined under the Securities Act of 1933; or
- Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries.
The Fund reserves the right to change the criteria for Eligible Investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
CHOOSING A SHARE CLASS
The Fund offers one class of shares in this prospectus --
CLASS Z.
YOUR ACCOUNT
The Fund may terminate your exchange privilege if the advisor determines that your exchange activity is likely to adversely impact its ability to manage the Fund. See "Fund Policy on Trading of Fund Shares" for the Fund's policy. To exchange by telephone, call 1-800-422-3737. Please have your account and taxpayer identification numbers available when calling.
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, and (ii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
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By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into Class Z shares or Class A
shares (only if Class Z is not offered) of another fund
distributed by Columbia Management Distributors Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign the
letter. Signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for alternate
payee or mailing instructions. Additional documentation is
required for sales by corporations, agents, fiduciaries,
surviving joint owners and individual retirement account
owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
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By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. All dividend and capital
gains distributions must be reinvested. Be sure to complete
the appropriate section of the account application for this
feature.
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By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
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The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
YOUR ACCOUNT
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
YOUR ACCOUNT
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
YOUR ACCOUNT
SHARE CERTIFICATES Share certificates are not available for Class Z shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
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Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund distributes any dividends and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your current fund ---------------------------------------------------------------- Reinvest all distributions in shares of another fund ---------------------------------------------------------------- Receive dividends in cash (see options below) and reinvest capital gains ---------------------------------------------------------------- Receive all distributions in cash (with one of the following options): - send the check to your address of record - send the check to a third party address - transfer the money to your bank via electronic funds transfer |
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution
YOUR ACCOUNT
which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Advisors and/or Columbia Management by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Advisors and/or Columbia Management by the Fund, amounted to 0.81% of average daily net assets of the Fund.
The Statement of Additional Information provides additional information about the manager's compensation, other accounts managed and ownership of securities in the Fund.
MANAGING THE FUND
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Columbia Funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late
MANAGING THE FUND
trading activity and seek, among other things, removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In Re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the Fund's last six fiscal periods, which run from September 1 to August 31, unless otherwise indicated. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
PERIOD ENDED
YEAR ENDED AUGUST 31, AUGUST 31,
2005 2004 2003(A)
Class Z Class Z Class Z
------------ ------------ ------------
NET ASSET VALUE, BEGINNING OF
PERIOD ($) 17.14 18.17 14.79
-------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
($):
Net investment loss (0.10)(c) (0.14)(c) (0.08)(c)
Net realized and unrealized gain
(loss) on investments and
foreign currency 5.37 (0.89) 3.46
-------------------------------------------------------------------------------------------
Total from investment operations 5.27 (1.03) 3.38
-------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS ($):
From net realized gains -- -- --
-------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD ($) 22.41 17.14 18.17
-------------------------------------------------------------------------------------------
Total return (%)(d) 30.75(e) (5.67)(e) 22.85(e)(f)
-------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) ($) 799,505 825,988 998,943
Ratio of operating expenses to
average net assets (%)(g) 0.98 1.07 1.09(h)
Ratio of interest expense to
average net assets (%) --(i) -- --
Ratio of total expenses to average
net assets (%)(g) 0.98 1.07 1.09(h)
Ratio of net investment loss to
average net assets (%)(g) (0.52) (0.75) (0.80)(h)
Waiver (%) 0.05 0.05 0.05(h)
Portfolio turnover rate (%) 104 139 78(f)
YEAR ENDED DECEMBER 31,
2002(B) 2001 2000
Class Z Class Z Class Z
------------ ------------ ------------
NET ASSET VALUE, BEGINNING OF
PERIOD ($) 19.60 25.99 29.93
----------------------------------
INCOME FROM INVESTMENT OPERATIONS
($):
Net investment loss (0.13)(c) (0.11) (0.10)
Net realized and unrealized gain
(loss) on investments and
foreign currency (4.68) (5.35) 4.45
----------------------------------
Total from investment operations (4.81) (5.46) 4.35
----------------------------------
LESS DISTRIBUTIONS ($):
From net realized gains -- (0.93) (8.29)
----------------------------------
NET ASSET VALUE, END OF PERIOD ($) 14.79 19.60 25.99
----------------------------------
Total return (%)(d) (24.54)(e) (20.98) 13.84
----------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) ($) 807,342 786,071 1,095,525
Ratio of operating expenses to
average net assets (%)(g) 1.12 1.08 0.99
Ratio of interest expense to
average net assets (%) -- -- --
Ratio of total expenses to average
net assets (%)(g) 1.12 1.08 0.99
Ratio of net investment loss to
average net assets (%)(g) (0.85) (0.49) (0.38)
Waiver (%) 0.05 -- --
Portfolio turnover rate (%) 88 186 169
|
(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) On November 1, 2002, the existing Fund shares were redesignated Class Z shares.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming all distributions reinvested.
(e) Had the investment advisor not waived a portion of expenses, total return would have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
(i) Rounds to less than 0.01%
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides
additional information about the effect of the expenses of the Fund, including
investment advisory fees and other Fund costs, on the Fund's returns over a
10-year period. The chart shows the estimated expenses that would be charged on
a hypothetical investment of $10,000 in Class Z shares of the Fund assuming a 5%
return each year, the hypothetical year-end balance before expenses and the
cumulative return after fees and expenses. The chart also assumes that the
annual expense ratio stays the same throughout the 10-year period and that all
dividends and distributions are reinvested. The annual expense ratio used for
the Fund, which is the same as that stated in the Annual Fund Operating Expenses
table, is reflected in the chart and is net of any fee waiver or expense
reimbursement.
CLASS Z SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.96% $ 10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- CUMULATIVE RETURN HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE AFTER FEES & END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ ----------------- ------------------ -------------
1 5.00% $10,500.00 4.04% $10,404.00 $ 97.94
2 10.25% $11,025.00 8.24% $10,824.32 $ 101.90
3 15.76% $11,576.25 12.62% $11,261.62 $ 106.01
4 21.55% $12,155.06 17.17% $11,716.59 $ 110.30
5 27.63% $12,762.82 21.90% $12,189.94 $ 114.75
6 34.01% $13,400.96 26.82% $12,682.42 $ 119.39
7 40.71% $14,071.00 31.95% $13,194.79 $ 124.21
8 47.75% $14,774.55 37.28% $13,727.86 $ 129.23
9 55.13% $15,513.28 42.82% $14,282.46 $ 134.45
10 62.89% $16,288.95 48.59% $14,859.47 $ 139.88
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 4,859.47
TOTAL ANNUAL FEES &
EXPENSES PAID $1,178.05
|
NOTES
NOTES
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Mid Cap Growth Fund, Inc.: 811-04362
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2005 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/91630-1005
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED JANUARY 1, 2006 (THE "PROSPECTUS")
(REPLACING THE SUPPLEMENT DATED FEBRUARY 17, 2006)
COLUMBIA STRATEGIC INVESTOR FUND (THE "FUND")
CLASS A, B, C AND D SHARES
The Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The "CALENDAR YEAR TOTAL RETURNS" and "AVERAGE ANNUAL TOTAL RETURNS" tables for the Fund in the section entitled "PERFORMANCE HISTORY" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS (CLASS A)(1)
2001 2002 2003 2004 2005 ----- ----- ----- ----- ---- 29.76% -8.63% 36.12% 15.45% 7.87% |
For the periods shown above:
Best quarter: [2nd quarter 2003, +19.84%]
Worst quarter: [3rd quarter 2002, -17.37%]
(1) Class A is a newer class of shares. Its performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class A shares and Class Z shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been lower. Class A shares were initially offered on November 1, 2002, and Class Z shares were initially offered on November 9, 2000.
AVERAGE ANNUAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 2005
LIFE OF
1 YEAR 5 YEARS THE FUND
------ ------- --------
Class A (%)
Return Before Taxes 0.93 13.45 15.64
Return After Taxes on Distributions (0.52) 12.95 15.13
Return After Taxes on Distributions
and Sale of Fund Shares 1.85 11.65 13.63
|
Class B (%) Return Before Taxes 1.34 14.00 16.30 Return After Taxes on Distributions (0.02) 13.54 15.83 Return After Taxes on Distributions and Sale of Fund Shares 2.15 12.16 14.25 Class C (%) Return Before Taxes 5.29 14.25 16.41 Return After Taxes on Distributions 3.92 13.79 15.95 Return After Taxes on Distributions and Sale of Fund Shares 4.72 12.38 14.35 Class D (%) Return Before Taxes 5.35 14.01 16.18 Return After Taxes on Distributions 3.98 13.56 15.72 Return After Taxes on Distributions and Sale of Fund Shares 4.76 12.17 14.14 Russell 3000 Value Index (%) 6.85 5.86 6.21 S&P 500 Index (%) 4.91 0.54 (0.58) |
(1) Class A, Class B, Class C and Class D are newer classes of shares. Their performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to their inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class C shares were initially offered on October 13, 2003, Class A, B and D shares were initially offered on November 1, 2002, and Class Z shares were initially offered on November 9, 2000.
4. The section under the heading "MANAGING THE FUND; PORTFOLIO MANAGER" is revised and replaced in its entirety with the following:
PORTFOLIO MANAGERS
EMIL GJESTER, a vice president of Columbia Advisors, is the lead manager for the Fund and has managed or co-managed the Fund since May, 2005. Mr. Gjester has been associated with Columbia Advisors or its predecessors since 1996.
JONAS PATRIKSON, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Patrikson has been associated with Columbia Advisors or its predecessors since September, 2004. Prior to September, 2004, Mr. Patrikson was a senior analyst at Nordberg Capital, Inc from 2000 to September, 2004.
DARA WHITE, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. White has been associated with Columbia Advisors since January, 2006. Prior to January, 2006, Mr. White was a portfolio manager and analyst with RCM Global Investors from February, 1998 to July, 2005.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
5. The section entitled "LEGAL PROCEEDINGS" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107710-0306 March 27, 2006
COLUMBIA STRATEGIC INVESTOR FUND Prospectus, January 1, 2006
CLASS A, B, C AND D* SHARES
Advised by Columbia Management Advisors, LLC
THE FUND 2 --------------------------------------------------------- Investment Goal...................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 2 Performance History.................................. 5 Your Expenses........................................ 7 YOUR ACCOUNT 9 --------------------------------------------------------- How to Buy Shares.................................... 9 Investment Minimums.................................. 10 Sales Charges........................................ 10 How to Exchange Shares............................... 14 How to Sell Shares................................... 15 Fund Policy on Trading of Fund Shares................ 16 Distribution and Service Fees........................ 17 Other Information About Your Account................. 18 MANAGING THE FUND 20 --------------------------------------------------------- Investment Advisor................................... 20 Portfolio Manager.................................... 20 Legal Proceedings.................................... 20 OTHER INVESTMENT STRATEGIES AND RISKS 22 --------------------------------------------------------- FINANCIAL HIGHLIGHTS 23 --------------------------------------------------------- APPENDIX A 27 --------------------------------------------------------- |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
*EFFECTIVE OCTOBER 13, 2003, THIS FUND'S CLASS D SHARES WERE CLOSED TO NEW INVESTORS.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
|
THE FUND
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 may have a history of below-average earnings growth. 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 earnings growth, improving cash flow and improving 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, and may also 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 33% of its assets in foreign securities, including American Depositary Receipts.
As part of its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional tax liability.
Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies."
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate
THE FUND
drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the advisor's opinion, undervalued. If the advisor's assessment of a company's prospects is wrong, the price of the company's stock may fall, or may not approach the value the advisor has placed on it.
Small- or mid-cap companies may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
Special Situations Companies have risks because they often involve major corporate changes and, thus, present a high degree of uncertainty as to the security's market price.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies or U.S. dollars without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Investments in emerging markets are subject to additional risk. The risks of foreign investments are typically increased in less developed countries, which are sometimes referred to as emerging markets. For example, political and economic structures in these countries may be new and developing rapidly, which may cause instability. These countries are also more likely to experience high levels of inflation, deflation or currency devaluations, which could hurt their economies and securities markets.
The Fund 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, commodities, or indexes, have been trading on regulated exchanges for more than two decades. These types of derivatives are standardized contracts that generally 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
THE FUND
speculation or as leveraged investments, derivatives can carry considerable risk. The Fund will not use derivatives for speculative purposes or as leveraged investment that may magnify gains or losses.
Convertible securities are bonds, debentures, notes, preferred stocks or other securities that may be converted or exchanged (by the holder or by the issuer) into shares of the underlying common stock (or cash or securities of equivalent value) at a stated exchange ratio or predetermined price (the conversion prices). A convertible security may be called for redemption or conversion by the issuer after a particular date and under certain circumstances (including a specified price) established upon issue. Convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar quality. The market values of convertible securities tend to decline as interest rates increase and, conversely, to increase as interest rates decline. However, a convertible security's market value tends to reflect the market price of the common stock of the issuing company when that stock price approaches or is greater than its conversion price. As the market price of the underlying common stock declines, the price of the convertible security tends to be influenced more by the yield of the convertible security. Thus, it may not decline in price to the same extent as the underlying common stock. In the event of a liquidation of the issuing company, holders of convertible securities would be paid before the company's common stockholders but after holders of any senior debt obligations of the company. Consequently, the issuer's convertible securities generally entail less risk than its common stock but more risk than its debt obligations.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
THE FUND
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class A share performance for each complete calendar year since the Fund commenced operations. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's performance over the past one-year and life of the Fund periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
THE FUND
CALENDAR YEAR TOTAL RETURNS (CLASS A)(1)
(BAR CHART)
29.76% 36.12% 15.45%
-8.63%
2001 2002 2003 2004
|
The Class's year-to-date total return For the periods shown in bar chart:
through September 30, 2005 was +5.81%. Best quarter: 2nd quarter 2003, +19.84%
Worst quarter: 3rd quarter 2002, -17.37%
|
(1) Class A is a newer class of shares. Its performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class A shares and Class Z shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been lower. Class A shares were initially offered on November 1, 2002, and Class Z shares were initially offered on November 9, 2000.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004(1)
LIFE OF
1 YEAR THE FUND
Class A (%)
Return Before Taxes 8.81 17.80
Return After Taxes on Distributions 8.61 17.56
Return After Taxes on Distributions and Sale of Fund
Shares 5.98 15.51
----------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes 9.53 18.71
Return After Taxes on Distributions 9.35 18.49
Return After Taxes on Distributions and Sale of Fund
Shares 6.44 16.33
----------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 13.59 19.00
Return After Taxes on Distributions 13.40 18.78
Return After Taxes on Distributions and Sale of Fund
Shares 9.08 16.59
----------------------------------------------------------------------------------------
Class D (%)
Return Before Taxes 13.61 18.69
Return After Taxes on Distributions 13.42 18.47
Return After Taxes on Distributions and Sale of Fund
Shares 9.09 16.31
----------------------------------------------------------------------------------------
Russell 3000 Value Index (%) 16.94 6.06(2)
----------------------------------------------------------------------------------------
S&P 500 Index (%) 10.88 -1.86(2)
|
(1) Class A, Class B, Class C and Class D are newer classes of shares. Their performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to their inception. These returns have not been restated to reflect
THE FUND
any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class C shares were initially offered on October 13, 2003, Class A, B and D shares were initially offered on November 1, 2002, and Class Z shares were initially offered on November 9, 2000.
(2) Performance information is from November 9, 2000.
SALES CHARGES are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management fees, 12b-1 fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table, but does reflect the waiver of the initial sales charge for Class D shares. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
- Reinvestment of all dividends and distributions
THE FUND
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C CLASS D
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00 0.00 1.00(2)
----------------------------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or
redemption price) 1.00(3) 5.00 1.00 1.00
----------------------------------------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) (4) (4) (4) (4)
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) The Fund's advisor has agreed to waive indefinitely the front-end sales charge for purchases of Class D shares by existing Class D shareholders.
(3) This charge applies only to certain Class A shares bought without an initial sales charge that are sold within 12 months of purchase.
(4) There is a $7.50 charge for wiring sale proceeds to your bank.
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
CLASS A CLASS B CLASS C CLASS D
Management fee (%) 0.75 0.75 0.75 0.75
----------------------------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00 1.00
----------------------------------------------------------------------------------------------------------------------
Other expenses(1) (%) 0.21 0.21 0.21 0.21
----------------------------------------------------------------------------------------------------------------------
Total annual fund operating expenses (%) 1.21 1.96 1.96 1.96
|
(1) Other expenses have been restated to reflect contractual changes to the fees paid by the Fund for transfer agency and pricing and bookkeeping services effective November 1, 2005.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A $691 $937 $1,202 $1,957
------------------------------------------------------------------------------------------------------------------------
Class B: did not sell your shares $199 $615 $1,057 $2,091
sold all your shares at
the end of the period $699 $915 $1,257 $2,091
------------------------------------------------------------------------------------------------------------------------
Class C: did not sell your shares $199 $615 $1,057 $2,285
sold all your shares at
the end of the period $299 $615 $1,057 $2,285
------------------------------------------------------------------------------------------------------------------------
Class D: did not sell your shares $199 $615 $1,057 $2,285
sold all your shares at
the end of the period $299 $615 $1,057 $2,285
|
See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
Notice to Fund Shareholders: Class D shares are closed to new investors and new accounts. The Fund now offers Class C shares, which are subject to the same service and distribution fees and sales charges as Class D shares except Class C shares are not subject to a front-end sales charge. The Fund's advisor has agreed to waive indefinitely the front-end sales charge for purchases of Class D shares by existing Class D investors. For more information on expenses and sales charges for Class C shares and Class D shares, See "The Fund -- Your Expenses" and "Your Account -- Sales Charges" in this Prospectus.
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-----------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
-----------------------------------------------------------------------------------
By check For existing accounts fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class (and, in some cases, certain
other classes) of the Fund at no additional cost. There may
be an additional sales charge if exchanging from a money
market fund. To exchange by telephone, call 1-800-422-3737.
-----------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-----------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-----------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
-----------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate your
program or change the amount of the exchange (subject to the
$100 minimum) by calling 1-800-345-6611. There may be an
additional sales charge if exchanging from a money market
fund. Be sure to complete the appropriate section of the
account application for this feature.
-----------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
|
YOUR ACCOUNT
Please see the Statement of Additional Information for more details on investment minimums.
The Fund offers four classes of shares in this prospectus -- CLASS A, B, C and D. Class D shares are closed to new investors and new accounts. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 or more but less than $1 million can be made only in Class A, Class C or Class D shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
CLASS A SHARES Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on
YOUR ACCOUNT
the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
CLASS A SALES CHARGES
% OF OFFERING
AS A % OF PRICE
THE PUBLIC AS A % RETAINED BY
OFFERING OF YOUR FINANCIAL
AMOUNT PURCHASED PRICE INVESTMENT ADVISOR
Less than $50,000 5.75 6.10 5.00
-------------------------------------------------------------------------------------------------------------------
$50,000 to less than $100,000 4.50 4.71 3.75
-------------------------------------------------------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 2.75
-------------------------------------------------------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.00
-------------------------------------------------------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
-------------------------------------------------------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
|
Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
PURCHASES OVER $1 MILLION
AMOUNT PURCHASED COMMISSION % Less than $3 million 1.00 ---------------------------------------------------------------------------- $3 million to less than $50 million 0.50 ---------------------------------------------------------------------------- $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES
YOUR ACCOUNT
REDUCED SALES CHARGES FOR LARGER INVESTMENTS
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
RIGHTS OF ACCUMULATION The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
STATEMENT OF INTENT You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e., dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
- Individual accounts
- Joint accounts
- Certain IRA accounts
- Certain trusts
- UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father-in-law and mother-in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for
YOUR ACCOUNT
which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
CLASS B SHARES Your purchases of Class B shares are at Class B's net asset value. Purchases up to $50,000 are allowed in Class B shares assuming the combined value of the customer's total assets in the Columbia Funds does not exceed $50,000. Purchases in Class B shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group Plan accounts are valued at the plan level. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart below.
CLASS B SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 5.00
-------------------------------------------------------------------------------
Through second year 4.00
-------------------------------------------------------------------------------
Through third year 3.00
-------------------------------------------------------------------------------
Through fourth year 3.00
-------------------------------------------------------------------------------
Through fifth year 2.00
-------------------------------------------------------------------------------
Through sixth year 1.00
-------------------------------------------------------------------------------
Longer than six years 0.00
|
Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
CLASS C SHARES Your purchases of Class C shares are at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after
\YOUR ACCOUNT
they are purchased. After holding the shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares as described in the chart below.
CLASS C SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 1.00
-------------------------------------------------------------------------------
Longer than one year 0.00
|
CLASS D SHARES Class D shares are closed to new investors. Your purchases of Class D shares are made at the public offering price for these shares. This price includes a sales charge of 1.00% (currently being waived), which is paid as a commission to your financial advisor on the sale of Class D shares as shown in the chart below.
CLASS D SALES CHARGES
% OF OFFERING PRICE
AS A % OF THE PUBLIC AS A % OF RETAINED BY FINANCIAL
OFFERING PRICE YOUR INVESTMENT ADVISOR FIRM
1.00 1.01 1.00
|
In addition, the distributor pays your financial advisor an initial commission of 1.00% on sales of Class D shares. The Fund's investment advisor has agreed to waive indefinitely the front-end sales charge for purchases of Class D shares by existing Class D investors.
Class D shares also carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC.
YOUR ACCOUNT
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable, you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into the same share class (and, in
some cases, certain other classes) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
-----------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
-----------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or, if
applicable, stock power form along with any share
certificates to be sold to the address below. In your letter
of instruction, note the Fund's name, share class, account
number, and the dollar value or number of shares you wish to
sell. All account owners must sign the letter. Signatures
must be guaranteed by either a bank, a member firm of a
national stock exchange or another eligible guarantor that
participates in the Medallion Signature Guarantee Program
for amounts over $100,000 or for alternate payee or mailing
instructions. Additional documentation is required for sales
by corporations, agents, fiduciaries, surviving joint owners
and individual retirement account owners. For details, call
1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
-----------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
-----------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
-----------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
YOUR ACCOUNT
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market Fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain Funds impose a redemption fee on the proceeds of Fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
YOUR ACCOUNT
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
ADDITIONAL INTERMEDIARY COMPENSATION In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
YOUR ACCOUNT
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value) your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the transfer agent.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
-----------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
YOUR ACCOUNT
UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund distributes any dividends annually and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your current fund ---------------------------------------------------------------- Reinvest all distributions in shares of another fund ---------------------------------------------------------------- Receive dividends in cash (see options below) and reinvest capital gains ---------------------------------------------------------------- Receive all distributions in cash (with one of the following options): - send the check to your address of record - send the check to a third party address - transfer the money to your bank via electronic funds transfer |
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions may also be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Advisors and/or Columbia Management by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Advisors and/or Columbia Management by the Fund, amounted to 0.75% of average daily net assets of the Fund.
The Statement of Additional Information provides additional information about the manager's compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures
MANAGING THE FUND
designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed.
OTHER INVESTMENT STRATEGIES AND RISKS
The Fund's principal investment strategies and their associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goals, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The advisor may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goals. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goals or any of its investment strategies.
Before selecting individual securities for the Fund, the Fund's investment advisor 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, but are not limited to:
- 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.
- Management with demonstrated ability and commitment to the company.
- Low market valuations relative to earnings forecasts, book value, cash flow and sales.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's fiscal years since inception, which run from September 1 to August 31, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information is included in the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing these financial statements by calling 1-800-426-3750.
THE FUND
YEAR ENDED PERIOD ENDED PERIOD ENDED
AUGUST 31, AUGUST 31, DECEMBER 31,
2005 2004 2003(A) 2002(B)
Class A Class A Class A Class A
------- ------- ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 18.37 15.95 13.13 12.72
-------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(c) 0.01 0.03 0.06 0.01
Net realized and unrealized gain on investments
and foreign currency 3.08 2.46 2.76 0.40
-------------------------------------------------------------------------------------------------------------------------
Total from investment operations 3.09 2.49 2.82 0.41
-------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS ($):
From net investment income (0.03) (0.07) -- --
From net realized gains (0.22) -- -- --
-------------------------------------------------------------------------------------------------------------------------
Total distributions (0.25) (0.07) -- --
-------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 21.21 18.37 15.95 13.13
-------------------------------------------------------------------------------------------------------------------------
Total return (%)(d) 16.88(e) 15.64(e) 21.48(f) 3.22(f)
-------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ($) 169,340 99,608 60,112 53,526
Ratio of expenses to average net assets (%)(g) 1.24 1.27 1.30(h) 1.21(h)
Ratio of net investment income to average net
assets (%)(g) 0.64 0.19 0.60(h) 0.64(h)
Waiver (%) 0.03 0.01 -- --
Portfolio turnover rate (%) 80 106 68(f) 188
|
(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) Class A shares were initially offered on November 1, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge.
(e) Had the investment advisor not waived a portion of expenses, total return would have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
FINANCIAL HIGHLIGHTS
THE FUND
YEAR ENDED PERIOD ENDED PERIOD ENDED
AUGUST 31, AUGUST 31, DECEMBER 31,
2005 2004 2003(A) 2002(B)
Class B Class B Class B Class B
------ ------ ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 18.17 15.82 13.10 12.72
------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment loss(c) --(d) (0.10) (0.03) (0.01)
Net realized and unrealized gain on investments
and foreign currency 2.89 2.45 2.75 0.39
------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.89 2.35 2.72 0.38
------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS ($):
From net realized gains (0.22) -- -- --
------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 20.84 18.17 15.82 13.10
------------------------------------------------------------------------------------------------------------------------
Total return (%)(e)(f) 15.97 14.85 20.76(g) 2.99(g)
------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ($) 49,318 22,071 3,398 2,350
Ratio of expenses to average net assets (%)(h) 1.99 2.02 2.22(i) 2.36(i)
Ratio of net investment loss to average net
assets (%)(h) (0.09) (0.57) (0.33)(i) (0.51)(i)
Waiver (%) 0.03 0.14 0.23(i) 0.23(i)
Portfolio turnover rate (%) 80 106 68(g) 188
|
(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) Class B shares were initially offered on November 1, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Rounds to less than $0.01 per share.
(e) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(f) Had the investment advisor not waived a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
FINANCIAL HIGHLIGHTS
THE FUND
YEAR ENDED PERIOD ENDED
AUGUST 31, AUGUST 31,
2005 2004(A)
Class C Class C
------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 18.18 16.42
-----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment loss(b) --(c) (0.09)
Net realized and unrealized gain on investments and
foreign currency 2.89 1.85
-----------------------------------------------------------------------------------------
Total from investment operations 2.89 1.76
-----------------------------------------------------------------------------------------
LESS DISTRIBUTIONS:
From net realized gains (0.22) --
-----------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 20.85 18.18
-----------------------------------------------------------------------------------------
Total return (%)(d)(e) 15.96 10.72(f)
-----------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ($) 39,253 14,821
Ratio of expenses to average net assets (%)(g) 1.99 2.05(h)
Ratio of net investment loss to average net assets (%)(g) (0.09) (0.57)(h)
Waiver (%) 0.03 0.07(h)
Portfolio turnover rate (%) 80 106
|
(a) Class C shares were initially offered on October 13, 2003. Per share data and total return reflect activity from that date.
(b) Per share data was calculated using average shares outstanding during the period.
(c) Rounds to less than $0.01 per share.
(d) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(e) Had the investment advisor not waived a portion of expenses, total return would have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
FINANCIAL HIGHLIGHTS
THE FUND
YEAR ENDED PERIOD ENDED PERIOD ENDED
AUGUST 31, AUGUST 31, DECEMBER 31,
2005 2004 2003(A) 2002(B)
Class D Class D Class D Class D
------ ------ ------ ------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 18.17 15.81 13.11 12.72
------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment loss(c) --(d) (0.08) (0.05) (0.01)
Net realized and unrealized gain on investments
and foreign currency 2.89 2.44 2.75 0.40
------------------------------------------------------------------------------------------------------------------------
Total from investment operations 2.89 2.36 2.70 0.39
------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS ($):
From net realized gains (0.22) -- -- --
------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 20.84 18.17 15.81 13.11
------------------------------------------------------------------------------------------------------------------------
Total return (%)(e)(f) 15.97 14.93 20.59(g) 3.07(g)
------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) ($) 525 693 704 355
Ratio of expenses to average net assets (%)(h) 1.99 1.94 2.34(i) 2.28(i)
Ratio of net investment loss to average net
assets (%)(h) (0.14) (0.48) (0.48)(i) (0.43)(i)
Waiver (%) 0.03 0.12 0.15(i) 0.15(i)
Portfolio turnover rate (%) 80 106 68(g) 188
|
(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) Class D shares were initially offered on November 1, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Rounds to less than $0.01 per share.
(e) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(f) Had the investment advisor not waived a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class A, B, C and D shares of the Fund assuming a 5% return each year, the hypothetical year-end balance before expenses and the cumulative return after fees and expenses. The charts also assume that the annual expense ratios stay the same throughout the 10-year period, that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses tables, is reflected in the charts and is net of any fee waiver or expense reimbursement.
CLASS A SHARES(1)
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.21% $10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $ 9,896.25 3.79% $ 9,782.21 $ 691.20
2 10.25% $10,391.06 7.72% $10,152.95 $ 120.61
3 15.76% $10,910.62 11.81% $10,537.75 $ 125.18
4 21.55% $11,456.15 16.04% $10,937.13 $ 129.92
5 27.63% $12,028.95 20.44% $11,351.65 $ 134.85
6 34.01% $12,630.40 25.01% $11,781.88 $ 139.96
7 40.71% $13,261.92 29.74% $12,228.41 $ 145.26
8 47.75% $13,925.02 34.66% $12,691.87 $ 150.77
9 55.13% $14,621.27 39.77% $13,172.89 $ 156.48
10 62.89% $15,352.33 45.06% $13,672.14 $ 162.41
TOTAL GAIN BEFORE FEES
& EXPENSES $ 5,927.33
TOTAL GAIN AFTER FEES &
EXPENSES $ 4,247.14
TOTAL ANNUAL FEES &
EXPENSES PAID $ 1,956.64
|
(1) For Class A shares, the year one Annual Fees & Expenses and Hypothetical Year-End Balance Before Fees & Expenses information shown include the dollar amount and effect of any applicable front-end sales charge of the Fund.
APPENDIX A
CLASS B SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.96% $10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 3.04% $10,304.00 $ 198.98
2 10.25% $11,025.00 6.17% $10,617.24 $ 205.03
3 15.76% $11,576.25 9.40% $10,940.01 $ 211.26
4 21.55% $12,155.06 12.73% $11,272.58 $ 217.68
5 27.63% $12,762.82 16.15% $11,615.27 $ 224.30
6 34.01% $13,400.96 19.68% $11,968.37 $ 231.12
7 40.71% $14,071.00 23.32% $12,332.21 $ 238.15
8 47.75% $14,774.55 27.07% $12,707.11 $ 245.39
9 55.13% $15,513.28 31.89% $13,188.71 $ 156.67
10 62.89% $16,288.95 36.89% $13,688.56 $ 162.61
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 3,688.56
TOTAL ANNUAL FEES &
EXPENSES PAID $ 2,091.18
|
CLASS C SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.96% $10,000.00 5%
|
HYPOTHETICAL YEAR-
CUMULATIVE RETURN END HYPOTHETICAL YEAR-
BEFORE FEES & BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 3.04% $10,304.00 $ 198.98
2 10.25% $11,025.00 6.17% $10,617.24 $ 205.03
3 15.76% $11,576.25 9.40% $10,940.01 $ 211.26
4 21.55% $12,155.06 12.73% $11,272.58 $ 217.68
5 27.63% $12,762.82 16.15% $11,615.27 $ 224.30
6 34.01% $13,400.96 19.68% $11,968.37 $ 231.12
7 40.71% $14,071.00 23.32% $12,332.21 $ 238.15
8 47.75% $14,774.55 27.07% $12,707.11 $ 245.39
9 55.13% $15,513.28 30.93% $13,093.41 $ 252.85
10 62.89% $16,288.95 34.91% $13,491.45 $ 260.53
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 3,491.45
TOTAL ANNUAL FEES &
EXPENSES PAID $ 2,285.28
|
APPENDIX A
CLASS D SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.96% $10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 3.04% $10,304.00 $ 198.98
2 10.25% $11,025.00 6.17% $10,617.24 $ 205.03
3 15.76% $11,576.25 9.40% $10,940.01 $ 211.26
4 21.55% $12,155.06 12.73% $11,272.58 $ 217.68
5 27.63% $12,762.82 16.15% $11,615.27 $ 224.30
6 34.01% $13,400.96 19.68% $11,968.37 $ 231.12
7 40.71% $14,071.00 23.32% $12,332.21 $ 238.15
8 47.75% $14,774.55 27.07% $12,707.11 $ 245.39
9 55.13% $15,513.28 30.93% $13,093.41 $ 252.85
10 62.89% $16,288.95 34.91% $13,491.45 $ 260.53
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 3,491.45
TOTAL ANNUAL FEES &
EXPENSES PAID $ 2,285.28
|
NOTES
NOTES
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Strategic Investor Fund, Inc.: 811-10161
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/91552-1005
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED JANUARY 1, 2006 (THE "PROSPECTUS")
(REPLACING THE SUPPLEMENT DATED FEBRUARY 17, 2006)
COLUMBIA STRATEGIC INVESTOR FUND (THE "FUND")
CLASS Z SHARES
The Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The "CALENDAR YEAR TOTAL RETURNS" and "AVERAGE ANNUAL TOTAL RETURNS" tables for the Fund in the section entitled "PERFORMANCE HISTORY" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS (CLASS Z)
2001 2002 2003 2004 2005 ----- ----- ----- ----- ---- 29.76% -8.56% 36.45% 15.70% 7.38% |
For the periods shown in bar chart:
Best quarter: 2nd quarter 2003, +19.81%
Worst quarter: 3rd quarter 2002, -17.37%
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 2005
INCEPTION LIFE OF
DATE 1 YEAR 5 YEAR THE FUND
--------- ------ ------ --------
11/9/00
Class Z (%)
Return Before Taxes 7.38 15.00 17.16
Return After Taxes on Distributions 5.78 14.46 16.61
Return After Taxes on Distributions 6.14 13.03 15.00
and Sale of Fund Shares
Russell 3000 Value Index (%) 6.85 5.86 6.21
S&P 500 Index (%) 4.91 0.54 (0.58)
|
4. The section under the heading "MANAGING THE FUND; PORTFOLIO MANAGER" is revised and replaced in its entirety with the following:
PORTFOLIO MANAGERS
EMIL GJESTER, a vice president of Columbia Advisors, is the lead manager for the Fund and has managed or co-managed the Fund since May, 2005. Mr. Gjester has been associated with Columbia Advisors or its predecessors since 1996.
JONAS PATRIKSON, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Patrikson has been associated with Columbia Advisors or its predecessors since September, 2004. Prior to September, 2004, Mr. Patrikson was a senior analyst at Nordberg Capital, Inc from 2000 to September, 2004.
DARA WHITE, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. White has been associated with Columbia Advisors since January, 2006. Prior to January, 2006, Mr. White was a portfolio manager and analyst with RCM Global Investors from February, 1998 to July, 2005.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
5. The section entitled "LEGAL PROCEEDINGS" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions
making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107637-0306 March 27, 2006
COLUMBIA STRATEGIC INVESTOR FUND Prospectus, January 1, 2006
CLASS Z SHARES
Advised by Columbia Management Advisors, LLC
THE FUND 2 --------------------------------------------------------- Investment Goal...................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 2 Performance History.................................. 4 Your Expenses........................................ 6 YOUR ACCOUNT 8 --------------------------------------------------------- How to Buy Shares.................................... 8 Eligible Investors................................... 8 Sales Charges........................................ 10 How to Exchange Shares............................... 10 How to Sell Shares................................... 11 Fund Policy on Trading of Fund Shares................ 12 Intermediary Compensation............................ 13 Other Information About Your Account................. 13 MANAGING THE FUND 16 --------------------------------------------------------- Investment Advisor................................... 16 Portfolio Manager.................................... 16 Legal Proceedings.................................... 16 OTHER INVESTMENT STRATEGIES AND RISKS 19 --------------------------------------------------------- FINANCIAL HIGHLIGHTS 20 --------------------------------------------------------- APPENDIX A 21 --------------------------------------------------------- |
Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
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Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
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THE FUND
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 may have a history of below-average earnings growth. 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 earnings growth, improving cash flow and improving 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, one may also 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 33% of its assets in foreign securities, including American Depositary Receipts.
As part of its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional tax liability.
Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies."
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset
THE FUND
classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the advisor's opinion, undervalued. If the advisor's assessment of a company's prospectus is wrong, the price of the company's stock may fall, or may not approach the value the advisor has placed on it.
Small- or mid-cap companies may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
Special situations companies have risks because they often involve major corporate changes and, thus, present a high degree of uncertainty as to the security's market price.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies or U.S. dollars without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Investments in emerging markets are subject to additional risk. The risks of foreign investments are typically increased in less developed countries, which are sometimes referred to as emerging markets. For example, political and economic structures in these countries may be new and developing rapidly, which may cause instability. These countries are also more likely to experience high levels of inflation, deflation or currency devaluations, which could hurt their economies and securities markets.
The Fund 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, commodities, or indexes, have been trading on regulated exchanges for more than two decades. These types of derivatives are standardized contracts that generally 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
THE FUND
speculation or as leveraged investments, derivatives can carry considerable risk. The Fund will not use derivatives for speculative purposes or as leveraged investment that may magnify gains or losses.
Convertible securities are bonds, debentures, notes, preferred stocks or other securities that may be converted or exchanged (by the holder or by the issuer) into shares of the underlying common stock (or cash or securities of equivalent value) at a stated exchange ratio or predetermined price (the conversion price). A convertible security may be called for redemption or conversion by the issuer after a particular date and under certain circumstances (including a specified price) established upon issue. Convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar quality. The market values of convertible securities tend to decline as interest rates increase and, conversely, to increase as interest rates decline. However, a convertible security's market value tends to reflect the market price of the common stock of the issuing company when that stock price approaches or is greater than its conversion price. As the market price of the underlying common stock declines, the price of the convertible security tends to be influenced more by the yield of the convertible security. Thus, it may not decline in price to the same extent as the underlying common stock. In the event of a liquidation of the issuing company, holders of convertible securities would be paid before the company's common stockholders but after holders of any senior debt obligations of the company. Consequently, the issuer's convertible securities generally entail less risk than its common stock but more risk than its debt obligations.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The bar chart below shows the Fund's calendar year total returns (before taxes) for its Class Z shares. The performance table following the bar chart shows how the Fund's average annual returns for Class Z shares compare with those of broad measures of market performance for one year and for the life of the Fund. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing changes in the Fund's performance from year to year. All returns include the reinvestment of dividends and distributions. Performance results include the effect of expense reduction arrangements, if any. If these arrangements had not been in place, the performance results would have been lower. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance.
THE FUND
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class Z share performance for each complete calendar year since the Fund commenced operations. They include the effects of Fund expenses.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's Class Z average performance over the past one-year and life of the Fund periods. They include the effects of Fund expenses.
CALENDAR YEAR TOTAL RETURNS (CLASS Z)
(BAR CHART)
29.76% 36.45% 15.70%
-8.56%
2001 2002 2003 2004
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The Class's year-to-date total return For the periods shown in bar chart:
through September 30, 2005 was +6.05%. Best quarter: 2nd quarter 2003, +19.81%
Worst quarter: 3rd quarter 2002, -17.37%
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After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
THE FUND
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004
INCEPTION LIFE OF
DATE 1 YEAR THE FUND
Class Z (%) 11/9/00
Return Before Taxes 15.70 19.65
Return After Taxes on Distributions 15.45 19.39
Return After Taxes on Distributions and Sale of Fund
Shares 10.53 17.17
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Russell 3000 Value Index 16.94 6.06(1)
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S&P 500 Index (%) 10.88 -1.86(1)
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(1) Performance information is from November 9, 2000.
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
THE FUND
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 -------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 -------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) (2) |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
Management fee (%) 0.75 -------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.00 -------------------------------------------------------------------- Other expenses(1) (%) 0.21 -------------------------------------------------------------------- Total annual fund operating expenses (%) 0.96 |
(1) Other expenses have been restated to reflect contractual changes to the fees paid by the Fund for the transfer agency and pricing and bookkeeping services effective November 1, 2005.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
1 YEAR 3 YEARS 5 YEARS 10 YEARS $98 $306 $531 $1,178 |
See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For new accounts, send a completed application and check
(new account) made payable to the Fund to Columbia Management Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class of the Fund at no additional
cost. To exchange by telephone, call 1-800-422-3737. Please
see "How to Exchange Shares" for more information.
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By wire You may purchase shares in the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
fund shares of the same class of the Fund at no additional
cost. Exchanges will continue so long as your fund balance
is sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. Be sure to
complete the appropriate section of the account application
for this feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at no
additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
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YOUR ACCOUNT
IMPORTANT THINGS TO CONSIDER WHEN DECIDING ON A CLASS OF SHARES:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by an intermediary. Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
NO MINIMUM INITIAL INVESTMENT
- Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
- Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts ("IRAs")), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
- Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
- Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
$1,000 MINIMUM INITIAL INVESTMENT
- Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of a fund distributed by Columbia Management Distributors, Inc. (i) who holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005; (iii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iv) who purchased certain no-load shares of a fund merged with a fund distributed by Columbia Management Distributors, Inc.;
- Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Management Distributors, Inc.;
- Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary;
YOUR ACCOUNT
- Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement);
- Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an accredited investor, as defined under the Securities Act of 1933; or
- Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries.
The Fund reserves the right to change the criteria for Eligible Investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
CHOOSING A SHARE CLASS
The Fund offers one class of shares in this prospectus --
CLASS Z.
The Fund also offers four additional classes of shares -- CLASS A, B, C and D shares are available through a separate prospectus. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
YOUR ACCOUNT
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, and (ii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
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By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into Class Z shares or Class A
shares (only if Class Z is not offered) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign the
letter. Signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for alternate
payee or mailing instructions. Additional documentation is
required for sales by corporations, agents, fiduciaries,
surviving joint owners and individual retirement account
owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
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By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. All dividend and capital
gains distributions must be reinvested. Be sure to complete
the appropriate section of the account application for this
feature.
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By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
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YOUR ACCOUNT
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market Fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain Funds impose a redemption fee on the proceeds of Fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
YOUR ACCOUNT
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must
YOUR ACCOUNT
determine the price of each security in its portfolio at the close of each trading day. Because the Fund may hold securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for Class Z shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund
-----------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less
|
UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund distributes any dividends annually and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
YOUR ACCOUNT
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your
current fund
----------------------------------------------------------------
Reinvest all distributions in shares of another fund
----------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest
capital gains
----------------------------------------------------------------
Receive all distributions in cash (with one of the following
options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds
transfer
|
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions may also be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Advisors and/or Columbia Management by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Advisors and/or Columbia Management by the Fund, amounted to 0.75% of average daily net assets of the Fund.
The Statement of Additional Information provides additional information about the manager's compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory,
MANAGING THE FUND
compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including
MANAGING THE FUND
claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed.
OTHER INVESTMENT STRATEGIES
The Fund's principal investment strategies and their associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goals, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The advisor may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goals. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goals or any of its investment strategies.
Before selecting individual securities for the Fund, the Fund's investment advisor 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, but are not limited to:
- 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.
- Management with demonstrated ability and commitment to the company.
- Low market valuations relative to earnings forecasts, book value, cash flow and sales.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the fiscal years since the inception of Class Z shares, which run from September 1 to August 31, unless otherwise indicated. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information is included in the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
YEAR ENDED PERIOD ENDED YEAR ENDED
AUGUST 31, AUGUST 31, DECEMBER 31, PERIOD ENDED
2005 2004 2003(a) 2002(b) 2001 DECEMBER 31,
Class Z Class Z Class Z Class Z Class Z 2000(c)Class Z
------- ------- ------- ------- ------- --------------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 18.42 15.98 13.14 14.52 11.23 10.00
----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income 0.01(d) 0.08(d) 0.08(d) 0.10(d) 0.05 0.02
Net realized and unrealized gain
(loss) on investments
and foreign currency 3.13 2.47 2.76 (1.35) 3.29 1.23
----------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 3.14 2.55 2.84 (1.25) 3.34 1.25
----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS ($):
From net investment income (0.07) (0.11) -- (0.11) (0.05) (0.02)
From net realized gains (0.22) -- -- (0.02) -- --
----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.29) (0.11) -- (0.13) (0.05) (0.02)
----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 21.27 18.42 15.98 13.14 14.52 11.23
----------------------------------------------------------------------------------------------------------------------------
Total return %(e) 17.16(f) 15.98(f) 21.61(f)(g) (8.56)(f) 29.76 12.25(f)(g)
----------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ($) 267,380 272,178 227,454 209,610 139,504 9,526
Ratio of expenses to average net
assets(h) 0.99 1.02 1.08(i) 1.23 1.13 1.34(i)
Ratio of net investment income to
average net assets(h) 0.86 0.44 0.82(i) 0.62 0.71 1.92(i)
Waiver 0.03 0.03 0.03(i) 0.03 -- 3.97(i)
Portfolio turnover rate 80 106 68(g) 188 278 64(g)
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(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) On November 1, 2002, the existing Fund shares were redesignated Class Z shares.
(c) The Fund commenced investment operations on October 27, 2000. Per share data, total return and portfolio turnover rate reflect activity from that date.
(d) Per share data was calculated using average shares outstanding during the period.
(e) Total return at net asset value assuming all distributions reinvested.
(f) Had the investment advisor not waived or reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
APPENDIX A
CLASS Z SHARES
ANNUAL INITIAL HYPOTHETICAL ASSUMED RATE
EXPENSE RATIO INVESTMENT AMOUNT OF RETURN
0.96% $10,000.00 5%
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HYPOTHETICAL HYPOTHETICAL
CUMULATIVE YEAR-END CUMULATIVE YEAR-END
RETURN BALANCE RETURN BALANCE ANNUAL
BEFORE FEES BEFORE FEES AFTER FEES AFTER FEES FEES &
YEAR & EXPENSES & EXPENSES & EXPENSES & EXPENSES EXPENSES
1 5.00% $10,500.00 4.04% $10,404.00 $ 97.94
2 10.25% $11,025.00 8.24% $10,824.32 $ 101.90
3 15.76% $11,576.25 12.62% $11,261.62 $ 106.01
4 21.55% $12,155.06 17.17% $11,716.59 $ 110.30
5 27.63% $12,762.82 21.90% $12,189.94 $ 114.75
6 34.01% $13,400.96 26.82% $12,682.42 $ 119.39
7 40.71% $14,071.00 31.95% $13,194.79 $ 124.21
8 47.75% $14,774.55 37.28% $13,727.86 $ 129.23
9 55.13% $15,513.28 42.82% $14,282.46 $ 134.45
10 62.89% $16,288.95 48.59% $14,859.47 $ 139.88
TOTAL GAIN BEFORE
FEES & EXPENSES $ 6,288.95
TOTAL GAIN AFTER
FEES & EXPENSES $ 4,859.47
TOTAL ANNUAL FEES
& EXPENSES PAID $1,178.05
|
NOTES
NOTES
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Strategic Investor Fund, Inc.: 811-10161
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/91553-1005
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED JANUARY 1, 2006 (THE "PROSPECTUS")
COLUMBIA TECHNOLOGY FUND (THE "FUND")
CLASS A, B, C AND D SHARES
The Prospectus is hereby supplemented with the following information:
1. The back cover of the Prospectus in the section titled "For More Information" is revised to include the name of the Trust, "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The "CALENDAR YEAR TOTAL RETURNS" and "AVERAGE ANNUAL TOTAL RETURNS" tables for the Fund in the section entitled "PERFORMANCE HISTORY" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS (CLASS A)(1)
2001 2002 2003 2004 2005 ------ ------ ----- ----- ----- -28.97% -38.17% 84.17% 21.20% 16.53% |
For the periods shown above:
Best quarter: 2nd quarter 2003, +35.60%
Worst quarter: 3rd quarter 2001, -37.59%
(1) Class A is a newer class of shares. Its performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class A shares and Class Z shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been lower. Class A shares were initially offered on November 1, 2002, and Class Z shares were initially offered on November 9, 2000.
AVERAGE ANNUAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 2005(1)
LIFE OF
1 YEAR 5 YEARS THE FUND
------ ------- --------
Class A (%)
Return Before Taxes 9.83 1.48 (1.43)
Return After Taxes on Distributions 8.23 1.18 (1.72)
Return After Taxes on Distributions
and Sale of Fund Shares 6.98 1.14 (1.33)
|
Class B (%) Return Before Taxes 10.74 1.80 (0.98) Return After Taxes on Distributions 9.26 1.53 (1.24) Return After Taxes on Distributions and Sale of Fund Shares 7.61 1.43 (0.93) Class C (%) Return Before Taxes 14.71 2.21 (0.76) Return After Taxes on Distributions 13.23 1.95 (1.01) Return After Taxes on Distributions and Sale of Fund Shares 10.18 1.79 (0.74) Class D (%) Return Before Taxes 14.77 2.08 (0.87) Return After Taxes on Distributions 13.30 1.82 (1.12) Return After Taxes on Distributions and Sale of Fund Shares 10.22 1.68 (0.83) Merrill Lynch 100 Technology Index (%) 5.87 (5.46) (10.90) |
(1) Class A, Class B, Class C and Class D are newer classes of shares. Their performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to their inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class C shares were initially offered on October 13, 2003, Class A, B and D shares were initially offered on November 1, 2002, and Class Z shares were initially offered on November 9, 2000.
4. The section entitled "LEGAL PROCEEDINGS" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay
$70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107711-0306 March 27, 2006
COLUMBIA TECHNOLOGY FUND Prospectus, January 1, 2006
CLASS A, B, C AND D* SHARES
Advised by Columbia Management Advisors, LLC
THE FUND 2 --------------------------------------------------------- Investment Goal...................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 2 Performance History.................................. 4 Your Expenses........................................ 7 YOUR ACCOUNT 9 --------------------------------------------------------- How to Buy Shares.................................... 9 Investment Minimums.................................. 10 Sales Charges........................................ 10 How to Exchange Shares............................... 14 How to Sell Shares................................... 15 Fund Policy on Trading of Fund Shares................ 16 Distribution and Service Fees........................ 17 Other Information About Your Account................. 18 MANAGING THE FUND 21 --------------------------------------------------------- Investment Advisor................................... 21 Portfolio Managers................................... 21 Legal Proceedings.................................... 21 FINANCIAL HIGHLIGHTS 24 --------------------------------------------------------- APPENDIX A 28 --------------------------------------------------------- |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
*Effective October 13, 2003, this fund's Class D shares were closed to new investors.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
|
THE FUND
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 in foreign securities, including American Depositary Receipts.
At times, the Fund's investment advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Except as noted otherwise, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
As part of its investment strategy, the Fund may buy and sell securities frequently. Frequent trading of investments usually increases the chance that the Fund will pay investors short-term capital gains (which are taxable at higher rates than long-term capital gains). Frequent trading may also result in higher brokerage commissions and other transaction costs and additional tax liability, which could reduce the Fund's returns.
THE FUND
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day-to-day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Because the Fund concentrates in technology stocks, it is subject to sector risk and 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 prices 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. Many technology companies are currently operating at a loss and may never be profitable. 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.
Small- or mid-cap companies may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
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 the Fund receives from its foreign investments. In addition, to the extent that the securities are denominated in a foreign currency, the value of the 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.
THE FUND
Foreign investments involve other risks, including possible political or economic instability of the country of the issuer, the difficulty of predicting international trade patterns, and the possibility of currency exchange controls. Foreign securities may also be subject to greater fluctuations in price than domestic securities. There may be less publicly available information about a foreign company than about a domestic company. Foreign companies generally are not subject to uniform accounting, auditing and financial reporting standards comparable to those of domestic companies.
Convertible securities are bonds, debentures, notes, preferred stocks or other securities that may be converted or exchanged (by the holder or by the issuer) into shares of the underlying common stock (or cash or securities of equivalent value) at a stated exchange ratio or predetermined price (the conversion price). A convertible security may be called for redemption or conversion by the issuer after a particular date and under certain circumstances (including a specified price) established upon issue. Convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar quality. The market values of convertible securities tend to decline as interest rates increase and, conversely, to increase as interest rates decline. However, a convertible security's market value tends to reflect the market price of the common stock of the issuing company when that stock price approaches or is greater than its conversion price. As the market price of the underlying common stock declines, the price of the convertible security tends to be influenced more by the yield of the convertible security. Thus, it may not decline in price to the same extent as the underlying common stock. In the event of a liquidation of the issuing company, holders of convertible securities would be paid before the company's common stockholders but after holders of any senior debt obligations of the company. Consequently, the issuer's convertible securities generally entail less risk than its common stock but more risk than its debt obligations.
The Fund 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, commodities, or indexes, have been trading on regulated exchanges for more than two decades. These types of derivatives are standardized contracts that generally 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 Fund will not use derivatives for speculative purposes or as leveraged investment that may magnify gains or losses.
As a non-diversified mutual fund, the Fund is allowed to invest a greater percentage of its total assets in the securities of fewer issuers than a "diversified" fund. The Fund may, therefore, have a greater risk of loss from a few issuers than a similar fund that invests more broadly.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
THE FUND
market performance for one year and for the life of the Fund. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing changes in the Fund's performance from year to year. All returns include the reinvestment of dividends and distributions. Performance results include the effect of expense reduction arrangements, if any. If these arrangements had not been in place, the performance results would have been lower. Except as noted below, any expense reduction arrangements may be discontinued at any time. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance.
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class A share performance for each complete calendar year since the Fund commenced operations. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's performance over the past one-year and life of the Fund periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
CALENDAR YEAR TOTAL RETURNS (CLASS A)(1)
(BAR CHART)
84.17% 21.20%
-28.97% -38.17%
2001 2002 2003 2004
|
The Class's year-to-date total return For the periods shown in bar chart:
through September 30, 2005 was +8.51%. Best quarter: 2nd quarter 2003, +35.60%
Worst quarter: 3rd quarter 2001, -37.59%
|
(1) Class A is a newer class of shares. Its performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class A shares and Class Z shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been lower. Class A shares were initially offered on November 1, 2002, and Class Z shares were initially offered on November 9, 2000.
THE FUND
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004(1)
LIFE OF
1 YEAR THE FUND
Class A (%)
Return Before Taxes 14.23 -5.34
Return After Taxes on Distributions 14.23 -5.35
Return After Taxes on Distributions and Sale of Fund
Shares 9.25 -4.48
----------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes 14.94 -4.88
Return After Taxes on Distributions 14.94 -4.89
Return After Taxes on Distributions and Sale of Fund
Shares 9.71 -4.11
----------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 19.23 -4.36
Return After Taxes on Distributions 19.23 -4.37
Return After Taxes on Distributions and Sale of Fund
Shares 12.50 -3.68
----------------------------------------------------------------------------------------
Class D (%)
Return Before Taxes 19.14 -4.51
Return After Taxes on Distributions 19.14 -4.52
Return After Taxes on Distributions and Sale of Fund
Shares 12.44 -3.80
----------------------------------------------------------------------------------------
Merrill Lynch 100 Technology Index (%) 7.14 -14.53(2)
|
(1) Class A, Class B, Class C and Class D are newer classes of shares. Their performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to their inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class C shares were initially offered on October 13, 2003, Class A, B and D shares were initially offered on November 1, 2002, and Class Z shares were initially offered on November 9, 2000.
(2) Performance information is from November 9, 2000.
THE FUND
SALES CHARGES are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management fees, 12b-1 fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table, but does reflect the waiver of the initial sales charge for Class D shares. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
- Reinvestment of all dividends and distributions
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C CLASS D
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00 0.00 1.00(2)
----------------------------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or
redemption price) 1.00(3) 5.00 1.00 1.00
----------------------------------------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) (4) (4) (4) (4)
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) The Fund's investment advisor has agreed to waive indefinitely the front-end sales charge for purchases of Class D shares by existing Class D shareholders.
(3) This charge applies only to certain Class A shares bought without an initial sales charge that are sold within 12 months of purchase.
(4) There is a $7.50 charge for wiring sale proceeds to your bank.
THE FUND
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
CLASS A CLASS B CLASS C CLASS D
Management fee(1) (%) 0.87 0.87 0.87 0.87
----------------------------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25(2) 1.00 1.00 1.00
----------------------------------------------------------------------------------------------------------------------
Other expenses(3) (%) 0.61 0.61 0.61 0.61
----------------------------------------------------------------------------------------------------------------------
Total annual fund operating expenses(4) (%) 1.73 2.48 2.48 2.48
|
(1) Management fee has been restated to reflect contractual changes to the management fee for the Fund effective November 1, 2004.
(2) The Fund may pay distribution and service (12b-1) fees up to a maximum of 0.35% of the Fund's average daily net assets attributable to Class A shares (comprised of up to 0.25% for shareholder liaison services and up to 0.10% for distribution services), but will limit such fees to an aggregate fee of not more than 0.25%.
(3) Other expenses have been restated to reflect contractual changes to the fees paid by the Fund for the transfer agency and pricing and bookkeeping services effective November 1, 2005.
(4) The Fund's advisor has voluntarily agreed to waive advisory fees and reimburse the Fund for certain expenses so that the total annual fund operating expenses (exclusive of distribution and service fees, brokerage commissions, interest, taxes, and extraordinary expenses, if any) will not exceed 1.65% of the Fund's assets. This arrangement may be modified or terminated by the advisor at any time.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A: $741 $1,089 $1,460 $2,499
------------------------------------------------------------------------------------------------------------------------
Class B: did not sell your shares $251 $ 773 $1,321 $2,632
sold all your shares at
the end of the period $751 $1,073 $1,521 $2,632
------------------------------------------------------------------------------------------------------------------------
Class C: did not sell your shares $251 $ 773 $1,321 $2,816
sold all your shares at
the end of the period $351 $ 773 $1,321 $2,816
------------------------------------------------------------------------------------------------------------------------
Class D: did not sell your shares $251 $ 773 $1,321 $2,816
sold all your shares at
the end of the period $351 $ 773 $1,321 $2,816
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See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
Notice to Fund Shareholders: Class D shares are closed to new investors and new accounts. The Fund now offers Class C shares, which are subject to the same service and distribution fees and sales charges as Class D shares except Class C shares are not subject to a front-end sales charge. The Fund's advisor has agreed to waive indefinitely the front-end sales charge for purchases of Class D shares by existing Class D investors. For more information on expenses and sales charges for Class C shares and Class D shares, see "The Fund -- Your Expenses" and "Your Account -- Sales Charges" in this prospectus.
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-----------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
-----------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class (and, in some cases, certain
other classes) of the Fund at no additional cost. There may
be an additional sales charge if exchanging from a money
market fund. To exchange by telephone, call 1-800-422-3737.
-----------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-----------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-----------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
-----------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
fund shares of the same class of the Fund at no additional
cost. Exchanges will continue so long as your fund balance
is sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. There may be
an additional sales charge if exchanging from a money market
fund. Be sure to complete the appropriate section of the
account application for this feature.
-----------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
|
YOUR ACCOUNT
Please see the Statement of Additional Information for more details on investment minimums.
The Fund offers four classes of shares in this prospectus -- CLASS A, B, C and D. Class D shares are closed to new investors and new accounts. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 or more but less than $1 million can be made only in Class A, Class C or Class D shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
CLASS A SHARES Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
YOUR ACCOUNT
CLASS A SALES CHARGES
% OF OFFERING
AS A % OF PRICE
THE PUBLIC AS A % RETAINED BY
OFFERING OF YOUR FINANCIAL
AMOUNT PURCHASED PRICE INVESTMENT ADVISOR
Less than $50,000 5.75 6.10 5.00
-------------------------------------------------------------------------------------------------------------------
$50,000 to less than $100,000 4.50 4.71 3.75
-------------------------------------------------------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 2.75
-------------------------------------------------------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.00
-------------------------------------------------------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
-------------------------------------------------------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
|
Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
PURCHASES OVER $1 MILLION
AMOUNT PURCHASED COMMISSION % Less than $3 million 1.00 ---------------------------------------------------------------------------- $3 million to less than $50 million 0.50 ---------------------------------------------------------------------------- $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES
YOUR ACCOUNT
REDUCED SALES CHARGES FOR LARGER INVESTMENTS
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
RIGHTS OF ACCUMULATION The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
STATEMENT OF INTENT You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e., dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
- Individual accounts
- Joint accounts
- Certain IRA accounts
- Certain trusts
- UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father-in-law and mother-in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for
YOUR ACCOUNT
which you are eligible and the Fund is not responsible for a financial advisors' failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
CLASS B SHARES Your purchases of Class B shares are at Class B's net asset value. Purchases up to $50,000 are allowed in Class B shares assuming the combined value of the customer's total assets in the Columbia Funds does not exceed $50,000. Purchases in Class B shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group Plan accounts are valued at the plan level. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart below.
CLASS B SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 5.00
-------------------------------------------------------------------------------
Through second year 4.00
-------------------------------------------------------------------------------
Through third year 3.00
-------------------------------------------------------------------------------
Through fourth year 3.00
-------------------------------------------------------------------------------
Through fifth year 2.00
-------------------------------------------------------------------------------
Through sixth year 1.00
-------------------------------------------------------------------------------
Longer than six years 0.00
|
Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
CLASS C SHARES Your purchases of Class C shares are at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after
YOUR ACCOUNT
they are purchased. After holding the shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares as described in the chart below.
CLASS C SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 1.00
------------------------------------------------------------------------------------
Longer than one year 0.00
|
CLASS D SHARES Class D shares are closed to new investors. Your purchases of Class D shares are made at the public offering price for these shares. This price includes a sales charge of 1.00% (currently being waived), which is paid as a commission to your financial advisor on the sale of Class D shares as shown in the chart below.
CLASS D SALES CHARGES
% OF OFFERING PRICE
AS A % OF THE PUBLIC AS A % OF RETAINED BY FINANCIAL
OFFERING PRICE YOUR INVESTMENT ADVISOR
1.00 1.01 1.00
|
In addition, the distributor pays your financial advisor an initial commission of 1.00% on sales of Class D shares. The Fund's investment advisor has agreed to waive indefinitely the front-end sales charge for purchases of Class D shares by existing Class D investors.
Class D shares also carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC.
YOUR ACCOUNT
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable, you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into the same share class (and, in
some cases, certain other classes) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
-----------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
-----------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or, if
applicable, stock power form along with any share
certificates to be sold to the address below. In your letter
of instruction, note the Fund's name, share class, account
number, and the dollar value or number of shares you wish to
sell. All account owners must sign the letter. Signatures
must be guaranteed by either a bank, a member firm of a
national stock exchange or another eligible guarantor
participates in the Medallion Signature Guarantee Program
for amounts over $100,000 or for alternate payee or mailing
instructions. Additional documentation is required for sales
by corporations, agents, fiduciaries, surviving joint owners
and individual retirement account owners. For details, call
1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
-----------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
-----------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance has been waived for wrap accounts. This
feature is not available if you hold your shares in
certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
-----------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market Fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange
YOUR ACCOUNT
purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain Funds impose a redemption fee on the proceeds of Fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
YOUR ACCOUNT
ADDITIONAL INTERMEDIARY COMPENSATION In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However,
YOUR ACCOUNT
where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the transfer agent.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
-----------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund distributes any dividends annually and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
YOUR ACCOUNT
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your
current fund
----------------------------------------------------------------
Reinvest all distributions in shares of another fund
----------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest
capital gains
----------------------------------------------------------------
Receive all distributions in cash (with one of the following
options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds
transfer
|
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund, and subsequent distributions will be reinvested.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions may also be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Advisors and/or Columbia Management by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Advisors and/or Columbia Management by the Fund, amounted to 0.89% of average daily net assets of the Fund.
THEODORE R. WENDELL, a vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since June, 2002. Mr. Wendell has been associated with Columbia Advisors or its predecessors since 2000.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud
MANAGING THE FUND
provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
MANAGING THE FUND
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's fiscal years since inception, which run from September 1 to August 31, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information is included in the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
PERIOD
PERIOD ENDED
YEAR ENDED ENDED DECEMBER
AUGUST 31, AUGUST 31, 31,
2005 2004 2003(a) 2002(b)
CLASS A CLASS A CLASS A CLASS A
------ ----- ----- -----
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 6.50 5.91 3.79 3.82
-----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment loss(c) (0.04) (0.11) (0.04) (0.01)
Net realized and unrealized gain (loss) on investments,
futures contracts and written options 2.31 0.70 2.16 (0.02)
-----------------------------------------------------------------------------------------------------------------
Total from Investment Operations 2.27 0.59 2.12 (0.03)
-----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 8.77 6.50 5.91 3.79
-----------------------------------------------------------------------------------------------------------------
Total return (%)(d)(e) 34.92 9.98 55.94(f) (0.79)(f)
-----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ($) 14,696 2,818 376 1
Ratio of expenses to average net assets (%)(g) 1.85 1.90 1.90(h) 1.76(h)
Ratio of net investment loss to average net assets (%)(g) (1.47) (1.51) (1.35)(h) (1.35)(h)
Reimbursement (%) 0.06 0.53 3.06(h) 1.24(h)
Portfolio turnover rate (%) 328 488 523(f) 512
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(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) Class A shares were initially offered on November 1, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming no initial sales charge or contingent deferred sales charge.
(e) Had the investment advisor not reimbursed a portion of expenses, total return would have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
FINANCIAL HIGHLIGHTS
THE FUND
PERIOD
PERIOD ENDED
YEAR ENDED ENDED DECEMBER
AUGUST 31, AUGUST 31, 31,
2005 2004 2003(a) 2002(b)
Class B Class B Class B Class B
----- ----- ----- -----
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 6.40 5.86 3.78 3.82
-----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment loss(c) (0.17) (0.16) (0.07) (0.01)
Net realized and unrealized gain (loss) on investments,
futures contracts and written options 2.34 0.70 2.15 (0.03)
-----------------------------------------------------------------------------------------------------------------
Total from Investment Operations 2.17 0.54 2.08 (0.04)
-----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 8.57 6.40 5.86 3.78
-----------------------------------------------------------------------------------------------------------------
Total return (%)(d)(e) 33.91 9.22 55.03(f) (1.05)(f)
-----------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ($) 3,183 2,200 1,246 7
Ratio of expenses to average net assets (%)(g) 2.60 2.65 2.65(h) 2.51(h)
Ratio of net investment loss to average net assets (%)(g) (2.29) (2.30) (2.11)(h) (2.10)(h)
Reimbursement (%) 0.06 0.48 2.40(h) 1.24(h)
Portfolio turnover rate (%) 328 488 523(f) 512
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(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) Class B shares were initially offered on November 1, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming no contingent deferred sales charge.
(e) Had the investment advisor not reimbursed a portion of expenses, total return would have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
FINANCIAL HIGHLIGHTS
THE FUND
YEAR PERIOD
ENDED ENDED
AUGUST 31, AUGUST 31,
2005 2004(a)
Class C Class C
----- -----
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 6.41 6.48
----------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment loss(b) (0.17) (0.14)
Net realized and unrealized gain (loss) on investments,
futures contracts and written options 2.35 0.07
----------------------------------------------------------------------------------------
Total from Investment Operations 2.18 (0.07)
----------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 8.59 6.41
----------------------------------------------------------------------------------------
Total return (%)(c)(d) 34.01 (1.08)(e)
----------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ($) 1,972 488
Ratio of expenses to average net assets (%)(f) 2.60 2.65(g)
Ratio of net investment loss to average net assets (%)(f) (2.23) (2.18)(g)
Reimbursement (%) 0.06 0.68(g)
Portfolio turnover rate (%) 328 488
|
(a) Class C shares were initially offered on October 13, 2003. Per share data and total return reflect activity from that date.
(b) Per share data was calculated using average shares outstanding during the period.
(c) Total return at net asset value assuming no contingent deferred sales charge.
(d) Had the investment advisor not reimbursed a portion of expenses, total return would have been reduced.
(e) Not annualized.
(f) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(g) Annualized.
FINANCIAL HIGHLIGHTS
THE FUND
PERIOD
PERIOD ENDED
YEAR ENDED ENDED DECEMBER
AUGUST 31, AUGUST 31, 31,
2005 2004 2003(a) 2002(b)
Class Class
D D Class D Class D
----- ----- ----- -----
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 6.43 5.88 3.78 3.82
-------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment loss(c) (0.18) (0.16) (0.07) (0.01)
Net realized and unrealized gain (loss) on investments,
futures contracts and written options 2.37 0.71 2.17 (0.03)
-------------------------------------------------------------------------------------------------------------
Total from Investment Operations 2.19 0.55 2.10 (0.04)
-------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 8.62 6.43 5.88 3.78
-------------------------------------------------------------------------------------------------------------
Total return (%)(d)(e) 34.06 9.35 55.56(f) (1.05)(f)
-------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ($) 22 21 15 1
Ratio of expenses to average net assets (%)(g) 2.60 2.65 2.65(h) 2.51(h)
Ratio of net investment loss to average net assets (%)(g) (2.30) (2.31) (2.13)(h) (2.10)(h)
Reimbursement (%) 0.06 0.77 4.00(h) 1.24(h)
Portfolio turnover rate (%) 328 488 523(f) 512
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(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) Class D shares were initially offered on November 1, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming no initial sales charge or contingent deferred sales charge.
(e) Had the investment advisor not reimbursed a portion of expenses, total return would have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class A, B, C and D shares of the Fund assuming a 5% return each year, the hypothetical year-end balance before expenses and the cumulative return after fees and expenses. The charts also assume that the annual expense ratios stay the same throughout the 10-year period, that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses tables, is reflected in the charts and is net of any fee waiver or expense reimbursement.
CLASS A SHARES(1)
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.73% $10,000.00 5%
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CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $ 9,896.25 3.27% $ 9,733.20 $ 740.72
2 10.25% $10,391.06 6.65% $10,051.47 $ 171.14
3 15.76% $10,910.62 10.13% $10,380.16 $ 176.73
4 21.55% $11,456.15 13.74% $10,719.59 $ 182.51
5 27.63% $12,028.95 17.45% $11,070.12 $ 188.48
6 34.01% $12,630.40 21.30% $11,432.11 $ 194.64
7 40.71% $13,261.92 25.26% $11,805.94 $ 201.01
8 47.75% $13,925.02 29.36% $12,191.99 $ 207.58
9 55.13% $14,621.27 33.59% $12,590.67 $ 214.37
10 62.89% $15,352.33 37.96% $13,002.39 $ 221.38
TOTAL GAIN BEFORE FEES
& EXPENSES $ 5,927.33
TOTAL GAIN AFTER FEES &
EXPENSES $ 3,577.39
TOTAL ANNUAL FEES &
EXPENSES PAID $2,498.57
|
(1) For Class A shares, the year one Annual Fees & Expenses and Hypothetical Year-End Balance Before Fees & Expenses information shown include the dollar amount and effect of any applicable front-end sales charge of the Fund.
APPENDIX A
CLASS B SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
2.48% $10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 2.52% $10,252.00 $ 251.12
2 10.25% $11,025.00 5.10% $10,510.35 $ 257.45
3 15.76% $11,576.25 7.75% $10,775.21 $ 263.94
4 21.55% $12,155.06 10.47% $11,046.75 $ 270.59
5 27.63% $12,762.82 13.25% $11,325.12 $ 277.41
6 34.01% $13,400.96 16.11% $11,610.52 $ 284.40
7 40.71% $14,071.00 19.03% $11,903.10 $ 291.57
8 47.75% $14,774.55 22.03% $12,203.06 $ 298.92
9 55.13% $15,513.28 26.02% $12,602.10 $ 214.56
10 62.89% $16,288.95 30.14% $13,014.19 $ 221.58
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 3,014.19
TOTAL ANNUAL FEES &
EXPENSES PAID $2,631.56
|
CLASS C SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
2.48% $10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 2.52% $10,252.00 $ 251.12
2 10.25% $11,025.00 5.10% $10,510.35 $ 257.45
3 15.76% $11,576.25 7.75% $10,775.21 $ 263.94
4 21.55% $12,155.06 10.47% $11,046.75 $ 270.59
5 27.63% $12,762.82 13.25% $11,325.12 $ 277.41
6 34.01% $13,400.96 16.11% $11,610.52 $ 284.40
7 40.71% $14,071.00 19.03% $11,903.10 $ 291.57
8 47.75% $14,774.55 22.03% $12,203.06 $ 298.92
9 55.13% $15,513.28 25.11% $12,510.58 $ 306.45
10 62.89% $16,288.95 28.26% $12,825.84 $ 314.17
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 2,825.84
TOTAL ANNUAL FEES &
EXPENSES PAID $2,816.03
|
APPENDIX A
CLASS D SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
2.48% $10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 2.52% $10,252.00 $ 251.12
2 10.25% $11,025.00 5.10% $10,510.35 $ 257.45
3 15.76% $11,576.25 7.75% $10,775.21 $ 263.94
4 21.55% $12,155.06 10.47% $11,046.75 $ 270.59
5 27.63% $12,762.82 13.25% $11,325.12 $ 277.41
6 34.01% $13,400.96 16.11% $11,610.52 $ 284.40
7 40.71% $14,071.00 19.03% $11,903.10 $ 291.57
8 47.75% $14,774.55 22.03% $12,203.06 $ 298.92
9 55.13% $15,513.28 25.11% $12,510.58 $ 306.45
10 62.89% $16,288.95 28.26% $12,825.84 $ 314.17
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 2,825.84
TOTAL ANNUAL FEES &
EXPENSES PAID $2,816.03
|
NOTES
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Technology Fund, Inc.: 811-10159
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/91554-1005
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED JANUARY 1, 2006 (THE "PROSPECTUS")
COLUMBIA TECHNOLOGY FUND (THE "FUND")
CLASS Z SHARES
The Prospectus is hereby supplemented with the following information:
1. The back cover of the Prospectus in the section titled "For More Information" is revised to include the name of the Trust, "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The "CALENDAR YEAR TOTAL RETURNS" and "AVERAGE ANNUAL TOTAL RETURNS" tables for the Fund in the section entitled "PERFORMANCE HISTORY" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS (CLASS Z)
2001 2002 2003 2004 2005 ------ ------ ----- ----- ----- -28.97% -38.17% 85.22% 21.51% 16.76% |
For the periods shown above:
Best quarter: 2nd quarter 2003, +35.77%
Worst quarter: 3rd quarter 2001, -37.59%
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 2005
INCEPTION LIFE OF
DATE 1 YEAR 5 YEAR THE FUND
--------- ------ ------ --------
11/9/2000
Class Z (%)
Return Before Taxes 16.76 2.91 (0.10)
Return After Taxes on Distributions 14.99 2.59 (0.40)
Return After Taxes on Distributions
and Sale of Fund Shares 11.51 2.36 (0.21)
Merrill Lynch 100 Technology Index (%) 5.87 (5.46) (10.90)
|
4. The section entitled "LEGAL PROCEEDINGS" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these
amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107712-0306 March 27, 2006
COLUMBIA TECHNOLOGY FUND Prospectus, January 1, 2006
CLASS Z SHARES
Advised by Columbia Management Advisors, LLC
THE FUND 2 --------------------------------------------------------- Investment Goal...................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 2 Performance History.................................. 5 Your Expenses........................................ 6 YOUR ACCOUNT 8 --------------------------------------------------------- How to Buy Shares.................................... 8 Eligible Investors................................... 8 Sales Charges........................................ 10 How to Exchange Shares............................... 10 How to Sell Shares................................... 11 Fund Policy on Trading of Fund Shares................ 12 Intermediary Compensation............................ 13 Other Information About Your Account................. 13 MANAGING THE FUND 16 --------------------------------------------------------- Investment Advisor................................... 16 Portfolio Managers................................... 16 Legal Proceedings.................................... 16 FINANCIAL HIGHLIGHTS 19 --------------------------------------------------------- APPENDIX A 20 --------------------------------------------------------- |
Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
|
THE FUND
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 in foreign securities, including American Depositary Receipts.
At times, the Fund's investment advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques that are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Except as noted otherwise, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
As part of its investment strategy, the Fund may buy and sell securities frequently. Frequent trading of investments usually increases the chance that the Fund will pay investors short-term capital gains (which are taxable at higher rates than long-term capital gains). Frequent trading may also result in higher brokerage commissions and other transaction costs and additional tax liability, which could reduce the Fund's returns.
THE FUND
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day-to-day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Because the Fund concentrates in technology stocks, it is subject to sector risk and 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 prices 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. Many technology companies are currently operating at a loss and may never be profitable. 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.
Small- or mid-cap companies may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
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 the Fund receives from its foreign investments. In addition, to the extent that the securities are denominated in a foreign currency, the value of the Fund invested in foreign
THE FUND
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 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.
Convertible securities are bonds, debentures, notes, preferred stocks or other securities that may be converted or exchanged (by the holder or by the issuer) into shares of the underlying common stock (or cash or securities of equivalent value) at a stated exchange ratio or predetermined price (the conversion price). A convertible security may be called for redemption or conversion by the issuer after a particular date and under certain circumstances (including a specified price) established upon issue. Convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar quality. The market values of convertible securities tend to decline as interest rates increase and, conversely, to increase as interest rates decline. However, a convertible security's market value tends to reflect the market price of the common stock of the issuing company when that stock price approaches or is greater than its conversion price. As the market price of the underlying common stock declines, the price of the convertible security tends to be influenced more by the yield of the convertible security. Thus, it may not decline in price to the same extent as the underlying common stock. In the event of a liquidation of the issuing company, holders of convertible securities would be paid before the company's common stockholders but after holders of any senior debt obligations of the company. Consequently, the issuer's convertible securities generally entail less risk than its common stock but more risk than its debt obligations.
The Fund 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, commodities, or indexes, have been trading on regulated exchanges for more than two decades. These types of derivatives are standardized contracts that generally 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 Fund will not use derivatives for speculative purposes or as leveraged investment that may magnify gains or losses.
As a non-diversified mutual fund, the Fund is allowed to invest a greater percentage of its total assets in the securities of fewer issuers than a "diversified" fund. The Fund may, therefore, have a greater risk of loss from a few issuers than a similar fund that invests more broadly.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
THE FUND
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class Z share performance for each complete calendar year since the Fund commenced operations. They include the effects of Fund expenses.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's Class Z average performance over the past one-year and life of the Fund periods. They include the effects of Fund expenses.
CALENDAR YEAR TOTAL RETURNS (CLASS Z)
(BAR CHART)
85.22% 21.51%
-28.97% -38.17%
2001 2002 2003 2004
|
The Class's year-to-date total return through For the periods shown in bar chart:
September 30, 2005 was +8.68%. Best quarter: 2nd quarter 2003, +35.77%
Worst quarter: 3rd quarter 2001, -37.59%
|
THE FUND
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004
INCEPTION LIFE OF
DATE 1 YEAR THE FUND
Class Z (%) 11/9/2000
Return Before Taxes 21.51 -3.79
Return After Taxes on Distributions 21.51 -3.80
Return After Taxes on Distributions and Sale of Fund
Shares 13.98 -3.20
----------------------------------------------------------------------------------------------------------
Merrill Lynch 100 Technology Index (%) 7.14 -14.53(1)
|
(1) Performance information is from November 9, 2000.
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
THE FUND
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 ------------------------------------------------------------------ Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 ------------------------------------------------------------------ Redemption fee (%) (as a percentage of amount redeemed, if applicable) (2) |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
Management fee (%)(1) 0.87 ------------------------------------------------------------------ Distribution and service (12b-1) fees (%) 0.00 ------------------------------------------------------------------ Other expenses (%)(2) 0.61 ------------------------------------------------------------------ Total annual fund operating expenses (%)(3) 1.48 |
(1) Management fee has been restated to reflect contractual changes to the management fee for the Fund effective November 1, 2005.
(2) Other expenses have been restated to reflect contractual changes to the fees paid by the Fund for the transfer agency and pricing and bookkeeping services effective November 1, 2005.
(3) The Fund's investment advisor has voluntarily agreed to waive advisory fees and reimburse the Fund for certain expenses so that the total annual fund operating expenses (exclusive of distribution and service fees, brokerage commissions, interest, taxes, and extraordinary expenses, if any) will not exceed 1.65% of the Fund's assets. This arrangement may be modified or terminated by the advisor at any time.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
1 YEAR 3 YEARS 5 YEARS 10 YEARS $151 $468 $808 $1,768 |
See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-----------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to Columbia Management Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
-----------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class of the Fund at no additional
cost. To exchange by telephone, call 1-800-422-3737. Please
see "How to Exchange Shares" for more information.
-----------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-----------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-----------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
-----------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
fund shares of the same class of the Fund at no additional
cost. Exchanges will continue so long as your Fund balance
is sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. Be sure to
complete the appropriate section of the account application
for this feature.
-----------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at no
additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
|
YOUR ACCOUNT
IMPORTANT THINGS TO CONSIDER WHEN DECIDING ON A CLASS OF SHARES:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by an intermediary. Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
NO MINIMUM INITIAL INVESTMENT
- Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
- Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts ("IRAs")), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
- Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
- Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
$1,000 MINIMUM INITIAL INVESTMENT
- Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of a fund distributed by Columbia Management Distributors, Inc. (i) who holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005; (iii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iv) who purchased certain no-load shares of a fund merged with a fund distributed by Columbia Management Distributors, Inc.;
- Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Management Distributors, Inc. ;
- Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary;
YOUR ACCOUNT
- Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement);
- Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an accredited investor, as defined under the Securities Act of 1933; or
- Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries.
The Fund reserves the right to change the criteria for Eligible Investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
CHOOSING A SHARE CLASS
The Fund offers one class of shares in this prospectus --
CLASS Z.
The Fund also offers four additional classes of shares -- CLASS A, B, C, and D shares are available through a separate prospectus. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
YOUR ACCOUNT
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, and (ii) any other required documents are attached. For additional documents required for sales by corporations, agents fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into Class Z shares or Class A
shares (only if Class Z is not offered) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
-----------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign the
letter. Signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another eligible
guarantor institution that participates in the Medallion
Signature Guarantee Program for amounts over $100,000 or for
alternate payee or mailing instructions. Additional
documentation is required for sales by corporations, agents,
fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
-----------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
-----------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. All dividend and capital
gains distributions must be reinvested. Be sure to complete
the appropriate section of the account application for this
feature.
-----------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
YOUR ACCOUNT
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market Fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain Funds impose a redemption fee on the proceeds of Fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
YOUR ACCOUNT
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must
YOUR ACCOUNT
determine the price of each security in its portfolio at the close of each trading day. Because the Fund may hold securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for Class Z shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
-----------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund distributes any dividends annually and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
YOUR ACCOUNT
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your
current fund
----------------------------------------------------------------
Reinvest all distributions in shares of another fund
----------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest
capital gains
----------------------------------------------------------------
Receive all distributions in cash (with one of the following
options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds
transfer
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Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund, and subsequent distributions will be reinvested.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions may also be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling and exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Advisors and/or Columbia Management by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Advisors and/or Columbia Management by the Fund, amounted to 0.89% of average daily net assets of the Fund.
THEODORE R. WENDELL, a vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since June, 2002. Mr. Wendell has been associated with Columbia Advisors or its predecessors since 2000.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
MANAGING THE FUND
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including
MANAGING THE FUND
claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the Fund's fiscal years since inception, which run from September 1 to August 31, unless otherwise indicated. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information is included in the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
YEAR ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED
AUGUST 31, AUGUST 31, DECEMBER 31, DECEMBER 31,
2005 2004 2003(a) 2002(b) 2001 2000(c)
Class Z Class Z Class Z Class Z Class Z Class Z
------ ------ ------ ------ ------ ------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 6.55 5.93 3.79 6.13 8.63 10.00
---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income (loss) (0.10)(d) (0.09)(d) (0.04)(d) (0.06)(d) (0.08) 0.01
Net realized and unrealized gain (loss) on
investments, futures contracts and written
options 2.41 0.71 2.18 (2.28) (2.42) (1.37)
---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 2.31 0.62 2.14 (2.34) (2.50) (1.36)
---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS ($):
From net investment income -- -- -- -- -- (0.01)
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 8.86 6.55 5.93 3.79 6.13 8.63
---------------------------------------------------------------------------------------------------------------------------------
Total return (%)(e)(f) 35.27 10.46 56.46(g) (38.17) (28.97) (13.78)(g)
---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (000's) ($) 40,947 30,268 19,663 8,055 10,385 4,327
Ratio of expenses to average net assets (%)(h) 1.60 1.65 1.65(i) 1.65 1.69 1.48(i)
Ratio of net investment income (loss) to average
net assets (%)(h) (1.29) (1.30) (1.19)(i) (1.24) (1.26) 0.99(i)
Reimbursement (%) 0.06 0.53 2.73(i) 1.33 1.13 7.49(i)
Portfolio turnover rate (%) 328 488 523(g) 512 413 63(g)
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(a) The Fund changed its fiscal year end from December 31 to August 31.
(b) On November 1, 2002, the existing shares were redesignated Class Z shares.
(c) The Fund commenced investment operations on October 27, 2000. Per share data, total return and portfolio turnover rate reflect activity from that date.
(d) Per share data was calculated using average shares outstanding during the period.
(e) Total return at net asset value assuming all distributions reinvested.
(f) Had the investment advisor not waived or reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The chart shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class Z shares of the Fund assuming a 5% return each year, the hypothetical year-end balance before expenses and the cumulative return after fees and expenses. The chart also assumes that the annual expense ratio stays the same throughout the 10-year period and that all dividends and distributions are reinvested. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses table, is reflected in the chart and is net of any fee waiver or expense reimbursement.
CLASS Z SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.48% $10,000.00 5%
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CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 3.52% $10,352.00 $ 150.60
2 10.25% $11,025.00 7.16% $10,716.39 $ 155.91
3 15.76% $11,576.25 10.94% $11,093.61 $ 161.39
4 21.55% $12,155.06 14.84% $11,484.10 $ 167.08
5 27.63% $12,762.82 18.88% $11,888.34 $ 172.96
6 34.01% $13,400.96 23.07% $12,306.81 $ 179.04
7 40.71% $14,071.00 27.40% $12,740.01 $ 185.35
8 47.75% $14,774.55 31.88% $13,188.46 $ 191.87
9 55.13% $15,513.28 36.53% $13,652.69 $ 198.62
10 62.89% $16,288.95 41.33% $14,133.27 $ 205.62
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 4,133.27
TOTAL ANNUAL FEES &
EXPENSES PAID $1,768.44
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NOTES
NOTES
NOTES
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Technology Fund, Inc.: 811-10159
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/91482-1005
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED JANUARY 1, 2006
(THE "PROSPECTUS")
COLUMBIA GREATER CHINA FUND
(THE "FUND")
CLASS A, B, AND C SHARES
The Prospectus is hereby supplemented with the following information:
1. The "Calendar Year Total Returns" and "Average Annual Total Returns" tables for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS (CLASS A)
YEARS TOTAL RETURNS(%) ----- ---------------- 1998 -20.17% 1999 67.79% 2000 -0.92% 2001 -10.53% 2002 -12.49% 2003 54.83% 2004 14.43% 2005 9.04% |
For the periods shown in bar chart:
Best quarter: 2nd quarter 1999, +40.11%
Worst quarter: 2nd quarter 1998, -33.77%
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 2005
INCEPTION 1 YEAR 5 YEARS LIFE OF
DATE THE FUND
Class A (%) 5/16/97
Return Before Taxes 2.77 7.35 7.53
Return After Taxes on Distributions 2.41 7.09 7.32
Return After Taxes on Distributions
and Sale of Fund Shares 2.08 6.24 6.50
------- ----- ------- --------
Class B (%) 5/16/97
Return Before Taxes 3.22 7.53 7.54
Return After Taxes on Distributions 3.03 7.48 7.49
Return After Taxes on Distributions
and Sale of Fund Shares 2.32 6.53 6.62
------- ----- ------- --------
Class C (%) 5/16/97
Return Before Taxes 7.24 7.80 7.70
Return After Taxes on Distributions 7.06 7.75 7.65
Return After Taxes on Distributions
and Sale of Fund Shares 4.93 6.76 6.77
------- ----- ------- --------
MSCI China Index (%) N/A 19.77 8.18 3.43
------- ----- ------- --------
Hang Seng Index (%) N/A 8.69 3.37 -8.67
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2. The section "LEGAL PROCEEDINGS" under the heading "MANAGING THE FUND" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation
transferred these cases and cases against several other mutual fund
companies based on similar allegations to the United States District Court
in Maryland for consolidated or coordinated pretrial proceedings (the
"MDL"). Subsequently, additional related cases were transferred to the
MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and
consolidated complaints. One of these amended complaints is a putative
class action that includes claims under the federal securities laws and
state common law, and that names Columbia, the Distributor, the Trustees
of the Columbia Funds, Bank of America Corporation and others as
defendants. Another of the amended complaints is a derivative action
purportedly on behalf of the Columbia Funds that asserts claims under
federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
3. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
4. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
INT-47/107629-0306 March 27, 2006
COLUMBIA GREATER CHINA FUND
COLUMBIA FEDERAL SECURITIES FUND
COLUMBIA INTERNATIONAL STOCK FUND
(EACH A "FUND" AND COLLECTIVELY, THE "FUNDS")
SUPPLEMENT TO THE PROSPECTUSES DATED JANUARY 1, 2006 (THE "PROSPECTUSES")
The Prospectuses are hereby supplemented with the following revised information relating to hypothetical investment and expense information:
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The charts also assume that all dividends and distributions are reinvested and that Class B shares and Class G shares convert to Class A shares after eight years. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher.
COLUMBIA GREATER CHINA FUND -- CLASS A SHARES
INITIAL HYPOTHETICAL
MAXIMUM SALES CHARGE INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------- ----------------------
5.75% $10,000.00 5%
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HYPOTHETICAL
CUMULATIVE ANNUAL CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- ------- --------------- --------------- -----------
1 5.00% 1.70% -2.64%(2) $ 9,736.03 $ 737.87
2 10.25% 1.70% 0.57% $10,057.31 $ 168.24
3 15.76% 1.70% 3.89% $10,389.21 $ 173.80
4 21.55% 1.70% 7.32% $10,732.05 $ 179.53
5 27.63% 1.70% 10.86% $11,086.21 $ 185.46
6 34.01% 1.70% 14.52% $11,452.05 $ 191.58
7 40.71% 1.70% 18.30% $11,829.97 $ 197.90
8 47.75% 1.70% 22.20% $12,220.36 $ 204.43
9 55.13% 1.70% 26.24% $12,623.63 $ 211.17
10 62.89% 1.70% 30.40% $13,040.21 $ 218.14
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,040.21
TOTAL ANNUAL FEES AND EXPENSES $2,468.11
|
(2) Reflects deduction of the maximum initial sales charge.
COLUMBIA GREATER CHINA FUND -- CLASS B SHARES
INITIAL HYPOTHETICAL
MAXIMUM SALES CHARGE INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE ANNUAL CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- ------- --------------- --------------- -----------
1 5.00% 2.45% 2.55% $10,255.00 $ 248.12
2 10.25% 2.45% 5.17% $10,516.50 $ 254.45
3 15.76% 2.45% 7.85% $10,784.67 $ 260.94
4 21.55% 2.45% 10.60% $11,059.68 $ 267.59
5 27.63% 2.45% 13.42% $11,341.70 $ 274.42
6 34.01% 2.45% 16.31% $11,630.92 $ 281.41
7 40.71% 2.45% 19.28% $11,927.51 $ 288.59
8 47.75% 2.45% 22.32% $12,231.66 $ 295.95
9 55.13% 1.70% 26.35% $12,635.30 $ 211.37
10 62.89% 1.70% 30.52% $13,052.27 $ 218.34
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,052.27
TOTAL ANNUAL FEES AND EXPENSES $2,601.19
|
COLUMBIA GREATER CHINA FUND -- CLASS C SHARES
INITIAL HYPOTHETICAL
MAXIMUM SALES CHARGE INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE ANNUAL CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- ------- --------------- --------------- -----------
1 5.00% 2.45% 2.55% $10,255.00 $ 248.12
2 10.25% 2.45% 5.17% $10,516.50 $ 254.45
3 15.76% 2.45% 7.85% $10,784.67 $ 260.94
4 21.55% 2.45% 10.60% $11,059.68 $ 267.59
5 27.63% 2.45% 13.42% $11,341.70 $ 274.42
6 34.01% 2.45% 16.31% $11,630.92 $ 281.41
7 40.71% 2.45% 19.28% $11,927.51 $ 288.59
8 47.75% 2.45% 22.32% $12,231.66 $ 295.95
9 55.13% 2.45% 25.44% $12,543.56 $ 303.50
10 62.89% 2.45% 28.63% $12,863.43 $ 311.24
TOTAL GAIN AFTER FEES AND EXPENSES $ 2,863.43
TOTAL ANNUAL FEES AND EXPENSES $2,786.21
|
COLUMBIA GREATER CHINA FUND -- CLASS Z SHARES
MAXIMUM SALES INITIAL HYPOTHETICAL ASSUMED RATE
CHARGE INVESTMENT AMOUNT OF RETURN
------------- -------------------- ------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.45% 3.55% $10,355.00 $ 147.57
2 10.25% 1.45% 7.23% $10,722.60 $ 152.81
3 15.76% 1.45% 11.03% $11,103.25 $ 158.24
4 21.55% 1.45% 14.97% $11,497.42 $ 163.85
5 27.63% 1.45% 19.06% $11,905.58 $ 169.67
6 34.01% 1.45% 23.28% $12,328.23 $ 175.70
7 40.71% 1.45% 27.66% $12,765.88 $ 181.93
8 47.75% 1.45% 32.19% $13,219.07 $ 188.39
9 55.13% 1.45% 36.88% $13,688.34 $ 195.08
10 62.89% 1.45% 41.74% $14,174.28 $ 202.00
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,174.28
TOTAL ANNUAL FEES AND EXPENSES $1,735.25
|
COLUMBIA FEDERAL SECURITIES FUND -- CLASS A SHARES
MAXIMUM SALES INITIAL HYPOTHETICAL ASSUMED RATE
CHARGE INVESTMENT AMOUNT OF RETURN
------------- -------------------- ------------
4.75% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES Expenses(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 0.99% -0.93%(2) $ 9,906.95 $ 571.19
2 10.25% 0.99% 3.04% $10,304.22 $ 100.05
3 15.76% 0.99% 7.17% $10,717.42 $ 104.06
4 21.55% 0.99% 11.47% $11,147.19 $ 108.23
5 27.63% 0.99% 15.94% $11,594.19 $ 112.57
6 34.01% 0.99% 20.59% $12,059.12 $ 117.08
7 40.71% 0.99% 25.43% $12,542.69 $ 121.78
8 47.75% 0.99% 30.46% $13,045.65 $ 126.66
9 55.13% 0.99% 35.69% $13,568.78 $ 131.74
10 62.89% 0.99% 41.13% $14,112.89 $ 137.02
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,112.89
TOTAL ANNUAL FEES AND EXPENSES $1,630.38
|
(2) Reflects deduction of the maximum initial sales charge.
COLUMBIA FEDERAL SECURITIES FUND -- CLASS B SHARES
MAXIMUM SALES INITIAL HYPOTHETICAL ASSUMED RATE
CHARGE INVESTMENT AMOUNT OF RETURN
------------- -------------------- ------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.74% 3.26% $10,326.00 $ 176.84
2 10.25% 1.74% 6.63% $10,662.63 $ 182.60
3 15.76% 1.74% 10.10% $11,010.23 $ 188.55
4 21.55% 1.74% 13.69% $11,369.16 $ 194.70
5 27.63% 1.74% 17.40% $11,739.80 $ 201.05
6 34.01% 1.74% 21.23% $12,122.51 $ 207.60
7 40.71% 1.74% 25.18% $12,517.71 $ 214.37
8 47.75% 1.74% 29.26% $12,925.79 $ 221.36
9 55.13% 0.99% 34.44% $13,444.11 $ 130.53
10 62.89% 0.99% 39.83% $13,983.22 $ 135.77
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,983.22
TOTAL ANNUAL FEES AND EXPENSES $1,853.37
|
COLUMBIA FEDERAL SECURITIES FUND -- CLASS C SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.74% 3.26% $10,326.00 $ 176.84
2 10.25% 1.74% 6.63% $10,662.63 $ 182.60
3 15.76% 1.74% 10.10% $11,010.23 $ 188.55
4 21.55% 1.74% 13.69% $11,369.16 $ 194.70
5 27.63% 1.74% 17.40% $11,739.80 $ 201.05
6 34.01% 1.74% 21.23% $12,122.51 $ 207.60
7 40.71% 1.74% 25.18% $12,517.71 $ 214.37
8 47.75% 1.74% 29.26% $12,925.79 $ 221.36
9 55.13% 1.74% 33.47% $13,347.17 $ 228.57
10 62.89% 1.74% 37.82% $13,782.28 $ 236.03
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,782.28
TOTAL ANNUAL FEES AND EXPENSES $2,051.67
|
COLUMBIA FEDERAL SECURITIES FUND -- CLASS Z SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 0.74% 4.26% $10,426.00 $ 75.58
2 10.25% 0.74% 8.70% $10,870.15 $ 78.80
3 15.76% 0.74% 13.33% $11,333.22 $ 82.15
4 21.55% 0.74% 18.16% $11,816.01 $ 85.65
5 27.63% 0.74% 23.19% $12,319.37 $ 89.30
6 34.01% 0.74% 28.44% $12,844.18 $ 93.11
7 40.71% 0.74% 33.91% $13,391.34 $ 97.07
8 47.75% 0.74% 39.62% $13,961.81 $101.21
9 55.13% 0.74% 45.57% $14,556.58 $105.52
10 62.89% 0.74% 51.77% $15,176.69 $110.01
TOTAL GAIN AFTER FEES AND EXPENSES $ 5,176.69
TOTAL ANNUAL FEES AND EXPENSES $918.39
|
COLUMBIA INTERNATIONAL STOCK FUND -- CLASS A SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
5.75% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.29% -2.25%(2) $ 9,774.67 $ 698.84
2 10.25% 1.29% 1.37% $10,137.31 $ 128.43
3 15.76% 1.29% 5.13% $10,513.40 $ 133.20
4 21.55% 1.29% 9.03% $10,903.45 $ 138.14
5 27.63% 1.29% 13.08% $11,307.97 $ 143.26
6 34.01% 1.29% 17.27% $11,727.49 $ 148.58
7 40.71% 1.29% 21.63% $12,162.58 $ 154.09
8 47.75% 1.29% 26.14% $12,613.81 $ 159.81
9 55.13% 1.29% 30.82% $13,081.79 $ 165.74
10 62.89% 1.29% 35.67% $13,567.12 $ 171.89
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,567.12
TOTAL ANNUAL FEES AND EXPENSES $2,041.97
|
(2) Reflects deduction of the maximum initial sales charge.
COLUMBIA INTERNATIONAL STOCK FUND -- CLASS B SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 2.04% 2.96% $10,296.00 $ 207.02
2 10.25% 2.04% 6.01% $10,600.76 $ 213.15
3 15.76% 2.04% 9.15% $10,914.54 $ 219.46
4 21.55% 2.04% 12.38% $11,237.61 $ 225.95
5 27.63% 2.04% 15.70% $11,570.25 $ 232.64
6 34.01% 2.04% 19.13% $11,912.73 $ 239.53
7 40.71% 2.04% 22.65% $12,265.34 $ 246.62
8 47.75% 2.04% 26.28% $12,628.40 $ 253.92
9 55.13% 1.29% 30.97% $13,096.91 $ 165.93
10 62.89% 1.29% 35.83% $13,582.81 $ 172.08
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,582.81
TOTAL ANNUAL FEES AND EXPENSES $2,176.29
|
COLUMBIA INTERNATIONAL STOCK FUND -- CLASS C SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 2.04% 2.96% $10,296.00 $ 207.02
2 10.25% 2.04% 6.01% $10,600.76 $ 213.15
3 15.76% 2.04% 9.15% $10,914.54 $ 219.46
4 21.55% 2.04% 12.38% $11,237.61 $ 225.95
5 27.63% 2.04% 15.70% $11,570.25 $ 232.64
6 34.01% 2.04% 19.13% $11,912.73 $ 239.53
7 40.71% 2.04% 22.65% $12,265.34 $ 246.62
8 47.75% 2.04% 26.28% $12,628.40 $ 253.92
9 55.13% 2.04% 30.02% $13,002.20 $ 261.43
10 62.89% 2.04% 33.87% $13,387.06 $ 269.17
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,387.06
TOTAL ANNUAL FEES AND EXPENSES $2,368.88
|
COLUMBIA INTERNATIONAL STOCK FUND -- CLASS D SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 2.04% 2.96% $10,296.00 $ 207.02
2 10.25% 2.04% 6.01% $10,600.76 $ 213.15
3 15.76% 2.04% 9.15% $10,914.54 $ 219.46
4 21.55% 2.04% 12.38% $11,237.61 $ 225.95
5 27.63% 2.04% 15.70% $11,570.25 $ 232.64
6 34.01% 2.04% 19.13% $11,912.73 $ 239.53
7 40.71% 2.04% 22.65% $12,265.34 $ 246.62
8 47.75% 2.04% 26.28% $12,628.40 $ 253.92
9 55.13% 2.04% 30.02% $13,002.20 $ 261.43
10 62.89% 2.04% 33.87% $13,387.06 $ 269.17
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,387.06
TOTAL ANNUAL FEES AND EXPENSES $2,368.88
|
COLUMBIA INTERNATIONAL STOCK FUND -- CLASS G SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.99% 3.01% $10,301.00 $ 201.99
2 10.25% 1.99% 6.11% $10,611.06 $ 208.07
3 15.76% 1.99% 9.30% $10,930.45 $ 214.34
4 21.55% 1.99% 12.59% $11,259.46 $ 220.79
5 27.63% 1.99% 15.98% $11,598.37 $ 227.44
6 34.01% 1.99% 19.47% $11,947.48 $ 234.28
7 40.71% 1.99% 23.07% $12,307.10 $ 241.33
8 47.75% 1.99% 26.78% $12,677.54 $ 248.60
9 55.13% 1.29% 31.48% $13,147.88 $ 166.57
10 62.89% 1.29% 36.36% $13,635.67 $ 172.75
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,635.67
TOTAL ANNUAL FEES AND EXPENSES $2,136.17
|
COLUMBIA INTERNATIONAL STOCK FUND -- CLASS Z SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.04% 3.96% $10,396.00 $ 106.06
2 10.25% 1.04% 8.08% $10,807.68 $ 110.26
3 15.76% 1.04% 12.36% $11,235.67 $ 114.63
4 21.55% 1.04% 16.81% $11,680.60 $ 119.16
5 27.63% 1.04% 21.43% $12,143.15 $ 123.88
6 34.01% 1.04% 26.24% $12,624.02 $ 128.79
7 40.71% 1.04% 31.24% $13,123.93 $ 133.89
8 47.75% 1.04% 36.44% $13,643.64 $ 139.19
9 55.13% 1.04% 41.84% $14,183.93 $ 144.70
10 62.89% 1.04% 47.46% $14,745.61 $ 150.43
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,745.61
TOTAL ANNUAL FEES AND EXPENSES $1,271.00
|
INT-47/106625-0206 February 22, 2006
COLUMBIA GREATER CHINA FUND Prospectus, January 1, 2006
CLASS A, B AND C SHARES
Advised by Columbia Management Advisors, LLC
THE FUND 2 --------------------------------------------------------- Investment Goal...................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 2 Performance History.................................. 4 Your Expenses........................................ 6 YOUR ACCOUNT 8 --------------------------------------------------------- How to Buy Shares.................................... 8 Investment Minimums.................................. 8 Sales Charges........................................ 9 How to Exchange Shares............................... 12 How to Sell Shares................................... 13 Fund Policy on Trading of Fund Shares................ 14 Distribution and Service Fees........................ 17 Other Information About Your Account................. 17 MANAGING THE FUND 20 --------------------------------------------------------- Investment Advisor................................... 20 Portfolio Managers................................... 20 Legal Proceedings.................................... 21 FINANCIAL HIGHLIGHTS 23 --------------------------------------------------------- APPENDIX A 26 --------------------------------------------------------- |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
|
THE FUND
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
THE FUND
Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the advisor's opinion, undervalued. If the advisor's assessment of a company's prospects is wrong, the price of the company's stock may fall, or may not approach the value the advisor has placed on it.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Because the Fund invests predominantly in foreign securities, the Fund may be particularly susceptible to market timers. Market timers generally attempt to take advantage of the way the Fund prices its shares by trading based on market information they expect will lead to a change in the Fund's net asset value on the next pricing day. Market timing activity may be disruptive to Fund management and, since a market timer's profits are effectively paid directly out of the Fund's assets, may negatively impact the investment returns of other shareholders. Although the Fund has adopted certain policies and methods intended to identify and discourage frequent trading based on this strategy, it cannot ensure that all such activity can be identified or terminated.
Investments in emerging markets are subject to additional risk. The risks of foreign investments are typically increased in less developed countries, which are sometimes referred to as emerging markets. For example, political and economic structures in these countries may be new and developing rapidly, which may cause instability. These countries are also more likely to experience high levels of inflation, deflation or currency devaluations, which could hurt their economies and securities markets.
Because the Fund's investments are concentrated in the Greater China Region, the Fund is particularly susceptible to regional risks. Events in any one country within the region may impact the other countries or the Asian region as a whole. As a result, events in the region will generally have a greater effect on the Fund than if the Fund were more geographically diversified, which may result in greater losses and volatility. Markets in the Greater China Region can experience significant volatility due to social, regulatory and political uncertainties.
Small- or mid-cap companies may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
THE FUND
As a non-diversified mutual fund, the Fund is allowed to invest a greater percentage of its total assets in the securities of fewer issuers than a "diversified" fund. The Fund may, therefore, have a greater risk of loss from a few issuers than a similar fund that invests more broadly.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class A share performance for each complete calendar year since the Fund commenced operations. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's average performance over the past one-year, five-year and for the life of the Fund periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
THE FUND
CALENDAR YEAR TOTAL RETURNS (CLASS A)
(BAR CHART)
(BAR CHART)
67.79% 54.83% 14.43%
-20.17% -0.92% -10.53% -12.49%
1998 1999 2000 2001 2002 2003 2004
|
The Class's year-to-date total return through For the periods shown in bar chart:
September 30, 2005 was +11.69%. Best quarter: 2nd quarter 1999, +40.11%
Worst quarter: 2nd quarter 1998, -33.77%
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After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004
INCEPTION LIFE OF
DATE 1 YEAR 5 YEARS THE FUND
Class A (%)
Return Before Taxes 5/16/97 7.85 5.31 7.33
Return After Taxes on Distributions 7.70 5.13 7.14
Return After Taxes on Distributions and Sale of Fund
Shares 5.29 4.48 6.30
------------------------------------------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes 5/16/97 8.62 5.47 7.45
Return After Taxes on Distributions 8.66 5.46 7.42
Return After Taxes on Distributions and Sale of Fund
Shares 5.73 4.72 6.51
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Class C (%)
Return Before Taxes 5/16/97 12.48 5.73 7.63
Return After Taxes on Distributions 12.51 5.71 7.60
Return After Taxes on Distributions and Sale of Fund
Shares 8.24 4.94 6.68
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MSCI China Index (%) N/A 1.89 -2.99 -11.87(1)
------------------------------------------------------------------------------------------------------------------------
Hang Seng Index (%) N/A 16.95 -0.33 2.75(1)
|
(1) Performance information is from May 31, 1997.
THE FUND
SALES CHARGES are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management fees, 12b-1 fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
- Reinvestment of all dividends and distributions
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00 0.00
-------------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or
redemption price) 1.00(2) 5.00 1.00
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Redemption fee (%)
(as a percentage of amount redeemed, if applicable) (3)(4) (3)(4) (3)(4)
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
(4) A redemption fee of 2.00% may be charged on shares that were owned for 60 days or less. For more information, see "Fund Policy on Trading of Fund Shares" below.
THE FUND
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
CLASS A CLASS B CLASS C
Management fee(1) (%) 0.95 0.95 0.95
-------------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00
-------------------------------------------------------------------------------------------------------
Other expenses(2) (%) 0.50 0.50 0.50
-------------------------------------------------------------------------------------------------------
Total annual fund operating expenses (%) 1.70 2.45 2.45
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(1) Management fee has been restated to reflect contractual changes to the management fee for the Fund effective November 1, 2004.
(2) Other expenses have been restated to reflect contractual changes to the fees paid by the Fund for transfer agency and pricing and bookkeeping services effective November 1, 2005.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A $738 $1,080 $1,445 $2,468
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Class B: did not sell your shares $248 $ 764 $1,306 $2,601
sold all your shares at the end of the period $748 $1,064 $1,506 $2,601
------------------------------------------------------------------------------------------------------------------------
Class C: did not sell your shares $248 $ 764 $1,306 $2,786
sold all your shares at
the end of the period $348 $ 764 $1,306 $2,786
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See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-----------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
-----------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class (and, in some cases, certain
other classes) of the Fund at no additional cost. There may
be an additional sales charge if exchanging from a money
market fund. To exchange by telephone, call 1-800-422-3737.
-----------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-----------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-----------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
-----------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate your
program or change the amount of the exchange (subject to the
$100 minimum) by calling 1-800-345-6611. There may be an
additional sales charge if exchanging from a money market
fund. Be sure to complete the appropriate section of the
account application for this feature.
-----------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
|
YOUR ACCOUNT
accounts. The Fund reserves the right to change these investment minimums. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
Please see the Statement of Additional Information for more details on investment minimums.
The Fund offers three classes of shares in this prospectus -- CLASS A, B and C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 or more but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
CLASS A SHARES Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
CLASS A SALES CHARGES
% OF OFFERING
AS A % OF PRICE
THE PUBLIC AS A % RETAINED BY
OFFERING OF YOUR FINANCIAL
AMOUNT PURCHASED PRICE INVESTMENT ADVISOR
Less than $50,000 5.75 6.10 5.00
-------------------------------------------------------------------------------------------------------------------
$50,000 to less than $100,000 4.50 4.71 3.75
-------------------------------------------------------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 2.75
-------------------------------------------------------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.00
-------------------------------------------------------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
-------------------------------------------------------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
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YOUR ACCOUNT
Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
PURCHASES OVER $1 MILLION
AMOUNT PURCHASED COMMISSION % Less than $3 million 1.00 ---------------------------------------------------------------------------- $3 million to less than $50 million 0.50 ---------------------------------------------------------------------------- $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES
REDUCED SALES CHARGES FOR LARGER INVESTMENTS.
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
RIGHTS OF ACCUMULATION The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
STATEMENT OF INTENT You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint
YOUR ACCOUNT
discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
- Individual accounts
- Joint accounts
- Certain IRA accounts
- Certain trusts
- UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions
YOUR ACCOUNT
under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
CLASS B SHARES Your purchases of Class B shares are at Class B's net asset value. Purchases up to $50,000 are allowed in Class B shares assuming the combined value of the customer's total assets in the Columbia funds does not exceed $50,000. Purchases in Class B shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart below.
CLASS B SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 5.00
-------------------------------------------------------------------------------
Through second year 4.00
-------------------------------------------------------------------------------
Through third year 3.00
-------------------------------------------------------------------------------
Through fourth year 3.00
-------------------------------------------------------------------------------
Through fifth year 2.00
-------------------------------------------------------------------------------
Through sixth year 1.00
-------------------------------------------------------------------------------
Longer than six years 0.00
|
Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
CLASS C SHARES Your purchases of Class C shares are at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares, as described in the chart below.
CLASS C SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 1.00
-------------------------------------------------------------------------------
Longer than one year 0.00
|
YOUR ACCOUNT
acquired through the exchange, the shares sold may be subject to a CDSC, depending upon when you originally purchased the shares you are exchanging. For purposes of computing the CDSC, the length of time you have owned your shares will be computed from the date of your original purchase and the applicable CDSC will be the CDSC of the original fund. Unless your account is part of a tax-deferred retirement plan, an exchange is a taxable event, and you may realize a gain or a loss for tax purposes. The Fund may terminate your exchange privilege if the advisor determines that your exchange activity is likely to adversely impact its ability to manage the Fund. See "Fund Policy on Trading of Fund Shares" for the Fund's policy. To exchange by telephone, call 1-800-422-3737. Please have your account and taxpayer identification numbers available when calling.
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable, you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into the same share class (and, in
some cases, certain other classes) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
-----------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
-----------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or if
applicable, stock power form along with any share
certificates to be sold to the address below. In your letter
of instruction, note the Fund's name, share class, account
number, and the dollar value or number of shares you wish to
sell. All account owners must sign the letter. Signatures
must be guaranteed by either a bank, a member firm of a
national stock exchange or another eligible guarantor that
participates in the Medallion Signature Guarantee Program
for amounts over $100,000 or for alternate payee or mailing
instructions. Additional documentation is required for sales
by corporations, agents, fiduciaries, surviving joint owners
and individual retirement account owners. For details, call
1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
-----------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
-----------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
-----------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market Fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange
YOUR ACCOUNT
purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, the Fund imposes a redemption fee on the proceeds of Fund shares that are redeemed or exchanged within 60 days of their purchase, as described below.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
The Fund will assess, subject to limited exceptions, a 2.00% redemption fee on the proceeds of Fund shares that are redeemed (either by selling shares or exchanging into another Columbia Fund) within 60 days of their purchase. The redemption fee is paid to the Fund.
The redemption fee is imposed on Fund shares redeemed (including redemptions by exchange) within 60 days of purchase. In determining which shares are being redeemed, we generally apply a first-in, first-out approach. For Fund shares acquired by exchange, the holding period prior to the exchange will not be considered in determining whether to assess the redemption fee.
The redemption fee will not be imposed if you qualify for a waiver and the Fund has received proper notification, unless the waiver is automatic as noted below. We'll redeem any shares that are eligible for a waiver first.
YOUR ACCOUNT
A Fund shareholder won't pay an otherwise applicable redemption fee on any of the following transactions:
- shares sold following the death or disability (as defined in the Internal Revenue Code) of the shareholder, including a registered joint owner
- shares sold by or distributions from participant directed retirement plans, such as 401(k), 403(b), 457, Keogh, profit sharing, and money purchase pension accounts, where the Fund does not have access to information about the individual participant account activity, except where the Fund has received an indication that the plan administrator is able to assess the redemption fee to the appropriate accounts (automatic)
- shares sold by certain investment funds, including those that Columbia Management Advisors, LLC or its affiliates may manage (automatic)
- shares sold as part of an automatic rebalancing within an asset allocation program or by certain wrap programs where the program sponsor has provided assurances reasonably satisfactory to the Fund that the program is not designed to be a vehicle for market timing
- shares sold by accounts maintained by a financial institution or intermediary where the Fund has received information reasonably satisfactory to the Fund indicating that the financial institution or intermediary maintaining the account is unable for administrative reasons to assess the redemption fee to underlying shareholders
- shares sold by an account which has demonstrated a hardship, such as a medical emergency, as determined in the absolute discretion of the Fund
- shares that were purchased by reinvested dividends (automatic)
- shares that are redeemed or exchanged thorough Columbia Funds' Systematic Withdrawal Plan or similar affiliated or unaffiliated automated plans
- the following retirement plan distributions:
- lump-sum or other distributions from a qualified corporate or self-employed retirement plan following retirement (or following attainment of age 59 1/2 in the case of a "key employee" of a "top heavy" plan)
- distributions from an individual retirement account ("IRA") or Custodial Account under Section 403(b)(7) of the Internal Revenue Code, following attainment of age 59 1/2
The Fund also has the discretion to waive the 2.00% redemption fee if the Fund is in jeopardy of failing the 90% income test or losing its registered investment company qualification for tax purposes.
As described above, certain intermediaries do not assess redemption fees to certain categories of redemptions that do not present significant market timing concerns (such as automatic withdrawal plan redemptions). In these situations, the Fund's ability to assess redemption fees is generally limited by the intermediary's policies and, accordingly, no redemption fees will be assessed on such redemptions.
YOUR ACCOUNT
ADDITIONAL INTERMEDIARY COMPENSATION In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
YOUR ACCOUNT
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the transfer agent.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
-----------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
UNDERSTANDING FUND DISTRIBUTIONS
YOUR ACCOUNT
DISTRIBUTION OPTIONS The Fund distributes any dividends annually and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your
current fund
----------------------------------------------------------------
Reinvest all distributions in shares of another fund
----------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest
capital gains
----------------------------------------------------------------
Receive all distributions in cash (with one of the following
options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds
transfer
|
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. The Fund's investments in foreign securities may be subject to foreign withholding taxes. You may be entitled to claim a credit or deduction with respect to foreign taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Management by the Fund, amounted to 0.95% of average daily net assets of the Fund.
JASMINE (WEILI) HUANG, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since May, 2005. Ms. Huang has been associated with Columbia Advisors or its predecessors since September, 2003. Prior to September, 2003, Ms. Huang held a manager position with Deloitte's management consulting practice from June, 2000 to September, 2003.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
MANAGING THE FUND
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late
MANAGING THE FUND
trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last five fiscal years, which run from September 1 to August 31, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the years ended August 31, 2005 and 2004, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the years ended August 31, 2003, 2002 and 2001, has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
YEAR ENDED AUGUST 31,
2005 2004 2003(A) 2002(A) 2001(A)
Class A Class A Class A Class A Class A
------ ------ ------ ------ ------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 20.64 17.88 14.29 14.91 19.98
---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(b) 0.31 0.17 0.14 0.10 0.12
Net realized and unrealized gain (loss) on
investments and foreign currency 3.94 2.70 3.53 (0.57) (5.19)
---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 4.25 2.87 3.67 (0.47) (5.07)
---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net investment income (0.21) (0.11) (0.08) (0.15) --
---------------------------------------------------------------------------------------------------------------------------------
REDEMPTION FEES ($):
Redemption fees added to paid-in-capital --(b)(c) --(b)(c) -- -- --
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 24.68 20.64 17.88 14.29 14.91
---------------------------------------------------------------------------------------------------------------------------------
Total return (%)(d) 20.66 16.11 25.84(e) (3.22)(e) (25.38)(e)
---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
(%):
Operating expenses(f) 1.76 1.89 2.15 2.15 2.15
Interest expense -- -- --(g) --(g) --
Expenses(f) 1.76 1.89 2.15 2.15 2.15
Net investment income(f) 1.35 0.84 0.97 0.65 0.68
Waiver/reimbursement -- -- 0.37 0.29 0.21
Portfolio turnover rate (%) 24 25 33 16 14
Net assets, end of period (000's) ($) 53,975 47,282 42,685 33,201 37,652
|
(a) For the years ended August 31, 2003, 2002 and 2001, the Fund was audited by another independent registered public accounting firm.
(b) Per share data was calculated using average shares outstanding during the period.
(c) Rounds to less than $0.01 per share.
(d) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge.
(e) Had the investment advisor/administrator not waived or reimbursed a portion of expenses, total return would have been reduced.
(f) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(g) Rounds to less than 0.01%.
FINANCIAL HIGHLIGHTS
THE FUND
YEAR ENDED AUGUST 31,
2005 2004 2003(A) 2002(A) 2001(A)
Class B Class B Class B Class B Class B
------ ----- ----- ------ -----
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 20.18 17.51 14.02 14.63 19.75
--------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income (loss)(b) 0.14 0.05 0.04 (0.02) (0.01)
Net realized and unrealized gain (loss) on
investments and foreign currency 3.85 2.62 3.45 (0.55) (5.11)
--------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 3.99 2.67 3.49 (0.57) (5.12)
--------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net investment income (0.06) -- -- (0.04) --
--------------------------------------------------------------------------------------------------------------------------------
REDEMPTION FEES ($):
Redemption fees added to paid-in-capital --(b)(c) --(b)(c) -- -- --
--------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 24.11 20.18 17.51 14.02 14.63
--------------------------------------------------------------------------------------------------------------------------------
Total return (%)(d) 19.77 15.25 24.89(e) (3.93)(e) (25.92)(e)
--------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA (%):
Operating expenses(f) 2.51 2.64 2.90 2.90 2.90
Interest expense -- -- --(g) --(g) --
Expenses(f) 2.51 2.64 2.90 2.90 2.90
Net investment income (loss)(f) 0.60 0.23 0.30 (0.10) (0.07)
Waiver/reimbursement -- -- 0.37 0.29 0.21
Portfolio turnover rate (%) 24 25 33 16 14
Net assets, end of period (000's) ($) 12,680 10,471 5,121 3,850 4,151
|
(a) For the years ended August 31, 2003, 2002 and 2001, the Fund was audited by another independent registered public accounting firm.
(b) Per share data was calculated using average shares outstanding during the period.
(c) Rounds to less than $0.01 per share.
(d) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(e) Had the investment advisor/administrator not waived or reimbursed a portion of expenses, total return would have been reduced.
(f) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(g) Rounds to less than 0.01%.
FINANCIAL HIGHLIGHTS
THE FUND
YEAR ENDED AUGUST 31,
2005 2004 2003(A) 2002(A) 2001(A)
Class C Class C Class C Class C Class C
------- ------- ------- ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 20.45 17.76 14.22 14.84 20.03
--------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income (loss)(b) 0.14 0.04 0.05 (0.02) (0.01)
Net realized and unrealized gain (loss) on investments
and foreign currency 3.90 2.65 3.49 (0.56) (5.18)
--------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 4.04 2.69 3.54 (0.58) (5.19)
--------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net investment income (0.06) -- -- (0.04) --
--------------------------------------------------------------------------------------------------------------------------------
REDEMPTION FEES ($):
Redemption fees added to paid-in-capital --(b)(c) --(b)(c) -- -- --
--------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 24.43 20.45 17.76 14.22 14.84
--------------------------------------------------------------------------------------------------------------------------------
Total return (%)(d) 19.75 15.15 24.89(e) (3.94)(e) (25.91)(e)
--------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA (%):
Operating expenses(f) 2.51 2.64 2.90 2.90 2.90
Interest expense -- -- --(g) --(g) --
Expenses(f) 2.51 2.64 2.90 2.90 2.90
Net investment income (loss)(f) 0.60 0.20 0.35 (0.10) (0.07)
Waiver/reimbursement -- -- 0.37 0.29 0.21
Portfolio turnover rate (%) 24 25 33 16 14
Net assets, end of period (000's) ($) 13,853 9,436 3,316 1,812 1,352
|
(a) For the years ended August 31, 2003, 2002 and 2001, the Fund was audited by another independent registered public accounting firm.
(b) Per share data was calculated using average shares outstanding during the period.
(c) Rounds to less than $0.01 per share.
(d) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(e) Had the investment advisor/administrator not waived or reimbursed a portion of expenses, total return would have been reduced.
(f) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(g) Rounds to less than 0.01%.
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class A, B and C shares of the Fund assuming a 5% return each year, the hypothetical year-end balance before expenses and the cumulative return after fees and expenses. The charts also assume that the annual expense ratios stay the same throughout the 10-year period, that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses tables, is reflected in the charts and is net of any fee waiver or expense reimbursement.
CLASS A SHARES(1)
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.70% $10,000.00 5%
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CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $ 9,896.25 3.30% $ 9,736.03 $ 737.87
2 10.25% $10,391.06 6.71% $10,057.31 $ 168.24
3 15.76% $10,910.62 10.23% $10,389.21 $ 173.80
4 21.55% $11,456.15 13.87% $10,732.05 $ 179.53
5 27.63% $12,028.95 17.63% $11,086.21 $ 185.46
6 34.01% $12,630.40 21.51% $11,452.05 $ 191.58
7 40.71% $13,261.92 25.52% $11,829.97 $ 197.90
8 47.75% $13,925.02 29.66% $12,220.36 $ 204.43
9 55.13% $14,621.27 33.94% $12,623.63 $ 211.17
10 62.89% $15,352.33 38.36% $13,040.21 $ 218.14
TOTAL GAIN BEFORE FEES
& EXPENSES $ 5,927.33
TOTAL GAIN AFTER FEES &
EXPENSES $ 3,615.21
TOTAL ANNUAL FEES & EXPENSES PAID $2,468.11
|
(1) For Class A shares, the year one Annual Fees & Expenses and Hypothetical Year-End Balance Before Fees & Expenses information shown include the dollar amount and effect of any applicable front-end sales charge of the Fund.
APPENDIX A
CLASS B SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
2.45% $10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 2.55% $10,255.00 $ 248.12
2 10.25% $11,025.00 5.17% $10,516.50 $ 254.45
3 15.76% $11,576.25 7.85% $10,784.67 $ 260.94
4 21.55% $12,155.06 10.60% $11,059.68 $ 267.59
5 27.63% $12,762.82 13.42% $11,341.70 $ 274.42
6 34.01% $13,400.96 16.31% $11,630.92 $ 281.41
7 40.71% $14,071.00 19.28% $11,927.51 $ 288.59
8 47.75% $14,774.55 22.32% $12,231.66 $ 295.95
9 55.13% $15,513.28 26.35% $12,635.30 $ 211.37
10 62.89% $16,288.95 30.52% $13,052.27 $ 218.34
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 3,052.27
TOTAL ANNUAL FEES &
EXPENSES PAID $2,601.19
|
CLASS C SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
2.45% $10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 2.55% $10,255.00 $ 248.12
2 10.25% $11,025.00 5.17% $10,516.50 $ 254.45
3 15.76% $11,576.25 7.85% $10,784.67 $ 260.94
4 21.55% $12,155.06 10.60% $11,059.68 $ 267.59
5 27.63% $12,762.82 13.42% $11,341.70 $ 274.42
6 34.01% $13,400.96 16.31% $11,630.92 $ 281.41
7 40.71% $14,071.00 19.28% $11,927.51 $ 288.59
8 47.75% $14,774.55 22.32% $12,231.66 $ 295.95
9 55.13% $15,513.28 25.44% $12,543.56 $ 303.50
10 62.89% $16,288.95 28.63% $12,863.43 $ 311.24
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 2,863.43
TOTAL ANNUAL FEES &
EXPENSES PAID $2,786.21
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You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Funds Trust II: 811-3009
- Columbia Greater China Fund (formerly named Columbia Newport Greater China Fund)
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/91545-1005
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED JANUARY 1, 2006
(THE "PROSPECTUS")
COLUMBIA GREATER CHINA FUND
(THE "FUND")
CLASS Z SHARES
The Prospectus is hereby supplemented with the following information:
1. The "Calendar Year Total Returns" and "Average Annual Total Returns" tables for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS (CLASS Z)
YEARS TOTAL RETURNS(%) ----- ---------------- 1998 -19.75% 1999 68.10% 2000 -0.74% 2001 -10.30% 2002 -12.44% 2003 59.51% 2004 14.76% 2005 9.31% |
For the periods shown in bar chart:
Best quarter: 2nd quarter 1999, +40.15%
Worst quarter: 2nd quarter 1998, -33.65%
AVERAGE ANNUAL TOTAL RETURNS - FOR PERIODS ENDED DECEMBER 31, 2005
INCEPTION 1 YEAR 5 YEARS LIFE OF
DATE THE FUND
5/16/97
Class Z (%)
Return Before Taxes 9.31 9.47 8.88
Return After Taxes on Distributions 8.88 9.12 8.61
Return After Taxes on Distributions 6.36 8.06 7.69
and Sale of Fund Shares
------- ----- ------- --------
MSCI China Index (%) N/A 19.77 8.18 3.43
------- ----- ------- --------
Hang Seng Index (%) N/A 8.69 3.37 -8.67
|
2. The section "LEGAL PROCEEDINGS" under the heading "MANAGING THE FUND" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations
to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
3. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
4. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
INT-47/107630-0306 March 27, 2006
COLUMBIA GREATER CHINA FUND Prospectus, January 1, 2006
CLASS Z SHARES
Advised by Columbia Management Advisors, LLC
THE FUND 2 --------------------------------------------------------- Investment Goal...................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 2 Performance History.................................. 4 Your Expenses........................................ 6 YOUR ACCOUNT 8 --------------------------------------------------------- How to Buy Shares.................................... 8 Eligible Investors................................... 9 Sales Charges........................................ 10 How to Exchange Shares............................... 11 How to Sell Shares................................... 11 Fund Policy on Trading of Fund Shares................ 12 Intermediary Compensation............................ 15 Other Information About Your Account................. 15 MANAGING THE FUND 18 --------------------------------------------------------- Investment Advisor................................... 18 Portfolio Managers................................... 18 Legal Proceedings.................................... 18 FINANCIAL HIGHLIGHTS 21 --------------------------------------------------------- APPENDIX A 22 --------------------------------------------------------- |
Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
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THE FUND
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
THE FUND
Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the advisor's opinion, undervalued. If the advisor's assessment of a company's prospects is wrong, the price of the company's stock may fall, or may not approach the value the advisor has placed on it.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Because the Fund invests predominantly in foreign securities, the Fund may be particularly susceptible to market timers. Market timers generally attempt to take advantage of the way the Fund prices its shares by trading based on market information they expect will lead to a change in the Fund's net asset value on the next pricing day. Market timing activity may be disruptive to Fund management and, since a market timer's profits are effectively paid directly out of the Fund's assets, may negatively impact the investment returns of other shareholders. Although the Fund has adopted certain policies and methods intended to identify and discourage frequent trading based on this strategy, it cannot ensure that all such activity can be identified or terminated.
Investments in emerging markets are subject to additional risk. The risks of foreign investments are typically increased in less developed countries, which are sometimes referred to as emerging markets. For example, political and economic structures in these countries may be new and developing rapidly, which may cause instability. These countries are also more likely to experience high levels of inflation, deflation or currency devaluations, which could hurt their economies and securities markets.
Because the Fund's investments are concentrated in the Greater China Region, the Fund is particularly susceptible to regional risks. Events in any one country within the region may impact the other countries or the Asian region as a whole. As a result, events in the region will generally have a greater effect on the Fund than if the Fund were more geographically diversified, which may result in greater losses and volatility. Markets in the Greater China Region can experience significant volatility due to social, regulatory and political uncertainties.
Small- or mid-cap companies may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
As a non-diversified mutual fund, the Fund is allowed to invest a greater percentage of its total assets in the securities of fewer issuers than a "diversified" fund. The Fund may, therefore, have a greater risk of loss from a few issuers than a similar fund that invests more broadly.
THE FUND
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class Z share performance for each complete calendar year since the Fund commenced operations. They include the effects of Fund expenses.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's Class Z average performance over the past one-year, five-year and for the life of the Fund periods. They include the effects of Fund expenses.
THE FUND
CALENDAR YEAR TOTAL RETURNS (CLASS Z)
(BAR CHART)
68.10% 59.51% 14.76%
-19.75% -0.74% -10.30% -12.44%
1998 1999 2000 2001 2002 2003 2004
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The Class's year-to-date total return For the periods shown in bar chart:
through September 30, 2005 was +11.87%. Best quarter: 2nd quarter 1999, +40.15%
Worst quarter: 2nd quarter 1998, -33.65%
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After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004
INCEPTION LIFE OF
DATE 1 YEAR 5 YEARS THE FUND
Class Z (%) 5/16/97
Return Before Taxes 14.76 7.38 8.83
Return After Taxes on Distributions 14.55 7.12 8.57
Return After Taxes on Distributions and Sale of Fund
Shares 9.81 6.24 7.61
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MSCI China Index (%) N/A 1.89 -2.99 -11.87(1)
------------------------------------------------------------------------------------------------------------------------
Hang Seng Index (%) N/A 16.95 -0.33 2.75(1)
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(1) Performance information is from May 31, 1997.
THE FUND
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 -------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 -------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) (2)(3) |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
(3) A redemption fee of 2.00% may be charged on shares that were owned for 60 days or less. For more information, see "Fund Policy on Trading of Fund Shares" below.
THE FUND
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
Management fee(1) (%) 0.95 -------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.00 -------------------------------------------------------------------- Other expenses(2) (%) 0.50 -------------------------------------------------------------------- Total annual fund operating expenses (%) 1.45 |
(1) Management fee has been restated to reflect contractual changes to the management fee for the Fund effective November 1, 2004.
(2) Other expenses have been restated to reflect contractual changes to the fees paid by the Fund for transfer agency and pricing and bookkeeping services effective November 1, 2005.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
1 YEAR 3 YEARS 5 YEARS 10 YEARS $148 $459 $792 $1,735 |
See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For new accounts, send a completed application and check
(new account) made payable to the Fund to Columbia Management Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class of the Fund at no additional
cost. To exchange by telephone, call 1-800-422-3737. Please
see "How to Exchange Shares" for more information.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate your
program or change the amount of the exchange (subject to the
$100 minimum) by calling 1-800-345-6611. Be sure to complete
the appropriate section of the account application for this
feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at no
additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
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YOUR ACCOUNT
IMPORTANT THINGS TO CONSIDER WHEN DECIDING ON A CLASS OF SHARES:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by an intermediary. Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
NO MINIMUM INITIAL INVESTMENT
- Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
- Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts ("IRAs")), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
- Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
- Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
$1,000 MINIMUM INITIAL INVESTMENT
- Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of a fund distributed by Columbia Management Distributors, Inc. (i) who
YOUR ACCOUNT
holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005;
(iii) who holds Class A shares that were obtained by exchange of Class Z
shares; or (iv) who purchased certain no-load shares of a fund merged with a
fund distributed by Columbia Management Distributors, Inc.;
- Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Management Distributors, Inc.;
- Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary;
- Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement);
- Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an accredited investor, as defined under the Securities Act of 1933; or
- Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries.
The Fund reserves the right to change the criteria for Eligible Investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
The Fund offers one class of shares in this prospectus --
CLASS Z.
YOUR ACCOUNT
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, and (ii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
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By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into Class Z shares or Class A
shares (only if Class Z is not offered) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign the
letter. Signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for alternate
payee or mailing instructions. Additional documentation is
required for sales by corporations, agents, fiduciaries,
surviving joint owners and individual retirement account
owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
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By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. All dividend and capital
gains distributions must be reinvested. Be sure to complete
the appropriate section of the account application for this
feature.
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By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
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The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market Fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
YOUR ACCOUNT
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, the Fund imposes a redemption fee on the proceeds of Fund shares that are redeemed or exchanged within 60 days of their purchase, as described below.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
The Fund will assess, subject to limited exceptions, a 2.00% redemption fee on the proceeds of Fund shares that are redeemed (either by selling shares or exchanging into another Columbia Fund) within 60 days of their purchase. The redemption fee is paid to the Fund.
The redemption fee is imposed on Fund shares redeemed (including redemptions by exchange) within 60 days of purchase. In determining which shares are being redeemed, we generally apply a first-in, first-out approach. For Fund shares acquired by exchange, the holding period prior to the exchange will not be considered in determining whether to assess the redemption fee.
The redemption fee will not be imposed if you qualify for a waiver and the Fund has received proper notification, unless the waiver is automatic as noted below. We'll redeem any shares that are eligible for a waiver first.
YOUR ACCOUNT
A Fund shareholder won't pay an otherwise applicable redemption fee on any of the following transactions:
- shares sold following the death or disability (as defined in the tax code) of the shareholder, including a registered joint owner
- shares sold by or distributions from participant directed retirement plans, such as 401(k), 403(b), 457, Keogh, profit sharing, and money purchase pension accounts, where the Fund does not have access to information about the individual participant account activity, except where the Fund has received an indication that the plan administrator is able to assess the redemption fee to the appropriate accounts (automatic)
- shares sold by certain investment funds, including those that Columbia Management Advisors, LLC or its affiliates may manage (automatic)
- shares sold as part of an automatic rebalancing within an asset allocation program or by certain wrap programs where the program sponsor has provided assurances reasonably satisfactory to the Fund that the program is not designed to be a vehicle for market timing
- shares sold by accounts maintained by a financial institution or intermediary where the Fund has received information reasonably satisfactory to the Fund indicating that the financial institution or intermediary maintaining the account is unable for administrative reasons to assess the redemption fee to underlying shareholders
- shares sold by an account which has demonstrated a hardship, such as a medical emergency, as determined in the absolute discretion of the Fund
- shares that were purchased by reinvested dividends (automatic)
- shares that are redeemed or exchanged thorough Columbia Funds' Systematic Withdrawal Plan or similar affiliated or unaffiliated automated plans
- the following retirement plan distributions:
- lump-sum or other distributions from a qualified corporate or self-employed retirement plan following retirement (or following attainment of age 59 1/2 in the case of a "key employee" of a "top heavy" plan)
- distributions from an individual retirement account ("IRA") or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2
The Fund also has the discretion to waive the 2.00% redemption fee if the Fund is in jeopardy of failing the 90% income test or losing its RIC qualification for tax purposes.
As described above, certain intermediaries do not assess redemption fees to certain categories of redemptions that do not present significant market timing concerns (such as automatic withdrawal plan redemptions). In these situations, the Fund's ability to assess redemption fees is generally limited by the intermediary's policies and, accordingly, no redemption fees will be assessed on such redemptions.
YOUR ACCOUNT
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current
YOUR ACCOUNT
market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for Class Z shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
-----------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund distributes any dividends annually and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
YOUR ACCOUNT
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your
current fund
----------------------------------------------------------------
Reinvest all distributions in shares of another fund
----------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest
capital gains
----------------------------------------------------------------
Receive all distributions in cash (with one of the following
options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds
transfer
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Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. The Fund's investments in foreign securities may be subject to foreign withholding taxes. You may be entitled to claim a credit or deduction with respect to foreign taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Management by the Fund, amounted to 0.95% of average daily net assets of the Fund.
JASMINE (WEILI) HUANG, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since May, 2005. Ms. Huang has been associated with Columbia Advisors or its predecessors since September, 2003. Prior to September, 2003, Ms. Huang held a manager position with Deloitte's management consulting practice from June, 2000 to September, 2003.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
MANAGING THE FUND
outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March, 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
MANAGING THE FUND
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the last five fiscal years, which run from September 1 to August 31, unless otherwise indicated. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the years ended August 31, 2005, and 2004, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the years ended August 31, 2003, 2002, and 2001, has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
YEAR ENDED AUGUST 31,
2005 2004 2003(A) 2002(A) 2001(A)
Class Z Class Z Class Z Class Z Class Z
----- ----- ----- ----- ------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 21.38 18.51 14.41 15.05 20.11
-----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(b) 0.40 0.22 0.11 0.14 0.16
Net realized and unrealized gain (loss) on
investments and foreign currency 4.07 2.81 4.10 (0.59) (5.22)
-----------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 4.47 3.03 4.21 (0.45) (5.06)
-----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net investment income (0.26) (0.16) (0.12) (0.19) --
-----------------------------------------------------------------------------------------------------------------------------
REDEMPTION FEES ($):
Redemption fees added to paid-in-capital --(b)(c) --(b)(c) 0.01 -- --
-----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 25.59 21.38 18.51 14.41 15.05
-----------------------------------------------------------------------------------------------------------------------------
Total return (%)(d) 21.00 16.44 29.51(e) (3.10)(e) (25.16)(e)
-----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL
DATA (%):
Operating expenses(f) 1.51 1.64 1.90 1.90 1.90
Interest expense -- -- --(g) --(g) --
Expenses(f) 1.51 1.64 1.90 1.90 1.90
Net investment income(f) 1.69 1.06 0.70 0.90 0.93
Waiver/reimbursement -- -- 0.37 0.29 0.21
Portfolio turnover rate (%) 24 25 33 16 14
Net assets, end of period (000's) ($) 9,012 5,182 1,996 138 145
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(a) For the years ended August 31, 2003, 2002 and 2001, the Fund was audited by another independent registered public accounting firm.
(b) Per share data was calculated using average shares outstanding during the period.
(c) Rounds to less than $ 0.01 per share.
(d) Total return at net asset value assuming all distributions reinvested.
(e) Had the investment advisor/administrator not waived or reimbursed a portion of expenses, total return would have been reduced.
(f) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(g) Rounds to less than 0.01%.
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The chart shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class Z shares of the Fund assuming a 5% return each year, the hypothetical year-end balance before expenses and the cumulative return after fees and expenses. The chart also assumes that the annual expense ratio stays the same throughout the 10-year period and that all dividends and distributions are reinvested. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses table, is reflected in the chart and is net of any fee waiver or expense reimbursement.
CLASS Z SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.45% $10,000.00 5%
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CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 3.55% $10,355.00 $ 147.57
2 10.25% $11,025.00 7.23% $10,722.60 $ 152.81
3 15.76% $11,576.25 11.03% $11,103.25 $ 158.24
4 21.55% $12,155.06 14.97% $11,497.42 $ 163.85
5 27.63% $12,762.82 19.06% $11,905.58 $ 169.67
6 34.01% $13,400.96 23.28% $12,328.23 $ 175.70
7 40.71% $14,071.00 27.66% $12,765.88 $ 181.93
8 47.75% $14,774.55 32.19% $13,219.07 $ 188.39
9 55.13% $15,513.28 36.88% $13,688.34 $ 195.08
10 62.89% $16,288.95 41.74% $14,174.28 $ 202.00
TOTAL GAIN BEFORE FEES & EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES & EXPENSES $ 4,174.28
TOTAL ANNUAL FEES & EXPENSES PAID $1,735.25
|
NOTES
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Funds Trust II: 811-3009
- Columbia Greater China Fund (formerly named Columbia Newport Greater China Fund)
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/91547-1005
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 1, 2006 (THE "PROSPECTUS")
COLUMBIA ASSET ALLOCATION FUND
CLASS A, B AND C SHARES
The Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The section entitled "Legal Proceedings" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107770-0306 March 27, 2006
Class A, B and C Shares
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------- Investment Goals........................ 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 3 Performance History..................... 5 Your Expenses........................... 8 YOUR ACCOUNT 10 -------------------------------------------- How to Buy Shares....................... 10 Investment Minimums..................... 11 Sales Charges........................... 11 How to Exchange Shares.................. 14 How to Sell Shares...................... 15 Fund Policy on Trading of Fund Shares... 16 Distribution and Service Fees........... 17 Other Information About Your Account.... 18 |
MANAGING THE FUND 20 -------------------------------------------- Investment Advisor...................... 20 Portfolio Managers...................... 20 Legal Proceedings....................... 23 FINANCIAL HIGHLIGHTS 25 -------------------------------------------- APPENDIX A 29 -------------------------------------------- |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC Insured May Lose Value
No Bank Guarantee
Current income includes both dividends from stocks and interest income from fixed income securities, after deducting Fund expenses.
The Fund's lead portfolio manager will allocate the Fund's assets among the various asset classes. The lead portfolio manager will adjust the number of asset classes, as well as the portion of the Fund's assets allocated to each asset class, from time to time, based on his assessment of such factors as relative attractiveness, valuation, fundamentals, quantitative analyses and economic and market expectations.
In selecting equity securities, the advisor favors stocks with long-term growth potential that are expected to outperform their peers over time. The advisor also forecasts the direction and degree of change in long-term interest rates to help in the selection of debt securities. Investment grade debt securities purchased by the Fund will have one of the top four ratings assigned by Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or will be unrated securities determined by the advisor to be of comparable quality. When deemed appropriate by the advisor, however, the Fund may invest up to 10% of its net assets in non-investment grade debt securities that are rated below BBB by S&P or Baa by Moody's or are unrated securities judged by the advisor to be of comparable quality (also known as "junk bonds"). The Fund keeps at least 25% of its total assets in fixed income investments, including debt securities and preferred stocks, at all times. The Fund may also participate in mortgage dollar rolls.
The Fund may invest up to 25% of its net assets in foreign securities.
The Fund may invest up to 10% of its net assets in exchange-traded funds, such as iShares/SM/. Exchange-traded funds are shares of investment companies which are traded like traditional equity securities on a national securities exchange or the NASDAQ(R) National Market System. iShares, which are traded on the American Stock Exchange, are shares of an investment company that invests substantially all of its assets in securities included in specified indices, including the Morgan Stanley Capital International indices for various countries and regions. The Fund will sell a portfolio security when, as a result of changes in the economy, the advisor determines it is appropriate to revise the allocation of the Fund's assets between stocks and bonds. A security may also be sold as a result of an actual or expected deterioration in the performance of the security or in the financial condition of the issuer of the security.
As part of its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional tax liability.
The Fund
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goals.
In seeking to achieve its investment goals, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goals or investment strategies.
The Fund may purchase derivative instruments, such as futures, options, swap contracts, and inverse floaters, to gain or reduce exposure to particular securities or segments of the bond markets. Derivatives are financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use derivatives for both hedging and nonhedging purposes, such as to adjust to the Fund's sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an opposite position. The Fund typically uses derivatives in an effort to achieve more efficiently economic exposures similar to those it could have achieved through the purchase and sale of fixed income securities. Investments in derivatives may be applied toward meeting a requirement to invest in a particular kind of investment if the derivatives have economic characteristics similar to investments of that kind.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with similar investment goals. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goals or perform favorably among comparable funds.
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Because the Fund may invest in debt securities issued or supported by private entities, including corporate bonds, municipal bonds and mortgage-backed and asset-backed securities, the Fund is subject to issuer risk. Issuer risk is the possibility that changes in the financial condition of the issuer of a security, changes in general economic conditions, or changes in economic conditions that affect the issuer may impact its actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and in some cases a decrease in income. The Fund's investments in securities issued by U.S. government-sponsored enterprises, such as the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, are not funded by Congressional appropriations and are neither guaranteed nor insured by the U.S. government. Furthermore, no assurances can be given that the U.S. government would provide financial support to its agencies or instrumentalities where it is not obligated to do so.
The Fund
Structure risk is the risk that an event will occur (such as a security being prepaid or called) that alters the security's cash flows. Prepayment risk is a particular type of structure risk that is associated with investments in asset-backed and mortgage-backed securities. With respect to investments in mortgage-backed securities, prepayment risk is the possibility that, as prevailing interest rates fall, homeowners are more likely to refinance their home mortgages. When mortgages are refinanced, the principal on mortgage-backed securities is paid earlier than expected. In an environment of declining interest rates, asset-backed and mortgage-backed securities may offer less potential for gain than other debt securities. During periods of rising interest rates, asset-backed and mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the expected life of the security. In addition, the potential impact of prepayment on the price of asset-backed and mortgage-backed securities may be difficult to predict and result in greater volatility.
Mortgage dollar rolls are transactions in which the Fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase similar securities in the future at a predetermined price. These transactions simulate an investment in mortgage-backed securities and have the potential to enhance the Fund's returns and reduce its administrative burdens, compared with holding mortgage-backed securities directly. Mortgage dollar rolls involve the risks that the market value of the securities the Fund is obligated to repurchase may decline below the repurchase price, or that the other party may default on its obligations. These transactions may increase the Fund's portfolio turnover rate.
Lower-rated debt securities, commonly referred to as "junk bonds," involve greater risk of loss due to credit deterioration and are less liquid, especially during periods of economic uncertainty or change, than higher-quality debt securities. Lower-rated debt securities generally have a higher risk that the issuer of the security may default and not make payment of interest or principal.
The Fund may invest in real estate investment trusts (REITs). REITs are entities which either own properties or make construction or mortgage loans. REITs also may include operating or finance companies. Investing in REITs involves certain unique risks in addition to those risks associated with the real estate industry in general. The prices of REITs are affected by changes in the value of the underlying property owned by the REITs. In addition, although the Fund does not invest directly in real estate, a REIT investment by the Fund is subject to certain of the risks associated with the ownership of real estate. These risks include possible declines in the value of real estate, risks related to general and local economic conditions, possible lack of availability of mortgage funds and changes in interest rates.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the advisor's opinion, undervalued. If the advisor's assessment of a company's prospects is wrong, the price of the company's stock may fall, or may not approach the value the advisor has placed on it.
The Fund
Growth stocks are stocks of companies believed to have above-average potential for growth in revenue and earnings. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. The Fund may have limited legal recourse in the event of default with respect to certain debt securities issued by foreign governments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Small- or mid-cap companies may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
The Fund may enter into a number of derivative strategies, including those that employ futures, options and foreign currencies, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use these strategies to adjust the Fund's sensitivity to changes in interest rates, or for other hedging purposes (i.e., attempting to offset a potential loss in one position by establishing an interest in an opposite position). Derivative strategies involve the risk that they may exaggerate a loss, potentially losing more money than the actual cost of the underlying security, or limit a potential gain. Also, with some derivative strategies there is the risk that the other party to the transaction may fail to honor its contract terms, causing a loss to the Fund or that the Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The Fund
lower. Except as noted below, any expense reduction arrangements may be discontinued at any time. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance.
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
The Fund's returns are compared to the Standard & Poor's 500 Index (S&P Index), an unmanaged index that tracks the performance of 500 widely held, large-capitalization U.S. stocks. The Fund's returns are also compared to the Lehman Brothers Aggregate Bond Index (Lehman Index), an unmanaged market value-weighted index that tracks the daily price, coupon, pay-downs, and total return performance of fixed-rate, publicly placed, dollar denominated and non-convertible investment grade debt issues with at least $250 million par amount outstanding and with at least one year to final maturity. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
Calendar Year Total Returns (Class A)/(1)/
[CHART]
For the periods shown in bar chart:
Best quarter: 4th quarter 1998, +11.80%
Worst quarter: 3rd quarter 2002, -9.56%
(1) The calendar year total returns shown for Class A shares include the returns of Prime A shares of the Galaxy Asset Allocation Fund (the Galaxy Fund), the predecessor to the Fund, for periods prior to November 18, 2002, the date on which Class A shares were initially offered by the Fund. The returns shown for Class A shares also include the returns of Retail A shares of the Galaxy Fund for periods prior to the inception of Prime A shares (November 1, 1998). Class A shares generally would have had substantially similar returns to Retail A shares because they would have been invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class A shares exceed expenses paid by Retail A shares.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax
The Fund
situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2005/(1)/
1 Year 5 Years 10 Years
Class A (%)
Return Before Taxes -0.76 -0.01/(1)/ 5.92/(1)/
Return After Taxes on Distributions 2.29 -0.77/(1)/ 4.58/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 1.10 -0.30/(1)/ 4.49/(1)/
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Class B (%)
Return Before Taxes -0.31 0.12/(1)/ 6.01/(1)/
Return After Taxes on Distributions -1.73 -0.44/(1)/ 4.85/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 1.41 -0.08/(1)/ 4.69/(1)/
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Class C (%)
Return Before Taxes 3.52 0.47/(1)/ 6.01/(1)/
Return After Taxes on Distributions 2.10 -0.09/(1)/ 4.84/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 3.90 0.21/(1)/ 4.68/(1)/
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S&P Index (%) 4.91 0.54 9.07
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Lehman Index (%) 2.43 5.87 6.16
|
(1) The returns for Class A and Class B shares include the returns of Prime A shares (for Class A shares) and Prime B shares (for Class B shares) of the Galaxy Fund for periods prior to November 18, 2002. The returns shown for Class A shares and Class B shares also include the returns of Retail A shares of the Galaxy Fund (adjusted, as necessary, to reflect the sales charges applicable to Class A shares and Class B shares, respectively), for periods prior to the inception of Prime A shares (November 1, 1998) and Prime B shares (November 1, 1998). Class A and Class B shares generally would have had substantially similar returns to Retail A shares because they would have been invested in the same portfolio of securities, although returns would have been lower to the extent that expenses for Class A and Class B shares exceed expenses paid by Retail A shares. The returns shown for Class C shares include the returns of Prime B shares of the Galaxy Fund (adjusted to reflect the sales charge applicable to Class C shares) for periods prior to November 18, 2002, the date on which Class C shares were initially offered by the Fund. The returns shown for Class C shares also include the returns of Retail A shares of the Galaxy Fund (adjusted to reflect the sales charges applicable to Class C shares) for periods prior to the date of inception of Prime B shares (November 1, 1998). Class C shares generally would have had substantially similar returns because they would have been invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class C shares exceed expenses paid by Retail A and Prime B shares. Retail A shares of the Galaxy Fund were initially offered on December 30, 1991. Class A, B and C shares were initially offered on November 18, 2002.
The Fund
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees and other expenses that generally include, but are not limited to, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds. It
uses the following hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class B shares convert to Class A shares after eight
years.
Shareholder Fees/(1)/ (paid directly from your investment)
Class A Class B Class C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00 0.00
------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00 1.00
------------------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/ /(3)/
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(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
The Fund
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class A Class B Class C
Management fee/(1)/ (%) 0.72 0.72 0.72
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Distribution and service (12b-1) fees (%) 0.25/(2)/ 1.00 1.00
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Other expenses/(3)/ (%) 0.30 0.30 0.30
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Total annual fund operating expenses (%) 1.27 2.02 2.02
|
(1) The Fund pays a management fee of 0.65% and an administration fee of 0.07%.
Management fees have been restated to reflect contractual changes to the
management fee effective November 1, 2004.
(2) The Fund may pay distribution and service fees of up to a maximum of 0.35%
of the Fund's average daily net assets attributable to Class A shares
(comprised of up to 0.10% for distribution services and up to 0.25% for
shareholder liaison services) but will limit such fees to an aggregate of
not more than 0.25% for Class A shares during the current fiscal year.
(3) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class A $697 $955 $1,232 $2,021
-----------------------------------------------------------------
Class B: did not sell your shares $205 $634 $1,088 $2,155
sold all your shares at
the end of the period $705 $934 $1,288 $2,155
-----------------------------------------------------------------
Class C: did not sell your shares $205 $634 $1,088 $2,348
sold all your shares at
the end of the period $305 $634 $1,088 $2,348
|
See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
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By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging shares you own in a
different fund distributed by Columbia Management
Distributors, Inc. for shares of the same class (and in
some cases, certain other classes) of the Fund at no
additional cost. There may be an additional sales charge if
exchanging from a money market fund. To exchange by
telephone, call 1-800-422-3737.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in ''good form.'' You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. There may
be an additional sales charge if exchanging from a money
market fund. Be sure to complete the appropriate section of
the account application for this feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
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Your Account
Please see the Statement of Additional Information for more details on investment minimums.
CHOOSING A SHARE CLASS
The Fund offers three classes of shares in this prospectus -- Class A, B and C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
The Fund also offers three additional classes of shares -- Class T, G and Z shares, exclusively to certain institutional and other investors. Class T, G and Z shares are made available through separate prospectuses provided to eligible institutional and other investors.
Class A shares Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
Class A Sales Charges
% of offering
As a % of price
the public As a % retained by
offering of your financial
Amount purchased price investment advisor
Less than $50,000 5.75 6.10 5.00
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$50,000 to less than $100,000 4.50 4.71 3.75
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$100,000 to less than $250,000 3.50 3.63 2.75
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$250,000 to less than $500,000 2.50 2.56 2.00
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$500,000 to less than $1,000,000 2.00 2.04 1.75
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$1,000,000 or more 0.00 0.00 0.00
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Your Account
Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
Purchases Over $1 Million
Amount purchased Commission % Less than $3 million 1.00 ------------------------------------------------ $3 million to less than $50 million 0.50 ------------------------------------------------ $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES Certain investments in Class A, B and C shares are subject to a CDSC, a sales charge applied at the time you sell your shares. You will pay the CDSC only on shares you sell within a certain amount of time after purchase. The CDSC generally declines each year until there is no charge for selling shares. The CDSC is applied to the net asset value at the time of purchase or sale, whichever is lower. For purposes of calculating the CDSC, the start of the holding period is the first day of the month in which the purchase was made. Shares you purchase with reinvested dividends or other distributions are not subject to a CDSC. When you place an order to sell shares, the Fund will automatically sell first those shares not subject to a CDSC and then those you have held the longest.
Reduced Sales Charges for Larger Investments.
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
Statement of Intent You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
Your Account
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
. Individual accounts
. Joint accounts
. Certain IRA accounts
. Certain trusts
. UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
Your Account
Class B shares Your purchases of Class B shares are at Class B's net asset value. Purchases up to $50,000 are allowed in Class B shares assuming the combined value of the customer's total assets in the Columbia funds does not exceed $50,000. Purchases in Class B shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the applicable chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart below.
Class B Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 5.00
------------------------------------------------------------------
Through second year 4.00
------------------------------------------------------------------
Through third year 3.00
------------------------------------------------------------------
Through fourth year 3.00
------------------------------------------------------------------
Through fifth year 2.00
------------------------------------------------------------------
Through sixth year 1.00
------------------------------------------------------------------
Longer than six years 0.00
|
Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
Class C shares Your purchases of Class C shares are at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares, as described in the chart below.
Class C Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 1.00
------------------------------------------------------------------
Longer than one year 0.00
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Your Account
advisor determines that your exchange activity is likely to adversely impact its ability to manage the Fund. See "Fund Policy on Trading of Fund Shares" for the Fund's policy. To exchange by telephone, call 1-800-422-3737. Please have your account and taxpayer identification numbers available when calling.
When the Fund receives your sales request in "good form," shares will be sold
at the next calculated price. "Good form" means that the Fund's transfer agent
has all information and documentation it deems necessary to effect your order.
For example, when selling shares by letter of instruction, "good form" means
(i) your letter has complete instructions, the proper signatures and Medallion
Signature Guarantees, (ii) if applicable, you have included any certificates
for shares to be sold, and (iii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries,
surviving joint owners and other legal entities, please call 1-800-345-6611.
Retirement plan accounts have special requirements; please call 1-800-799-7526
for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into the same share class (and,
in some cases, certain other classes) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is
$100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction or, if
applicable, stock power form along with any share
certificates to be sold to the address below. In your
letter of instruction, note the Fund's name, share class,
account number, and the dollar value or number of shares
you wish to sell. All account owners must sign the letter.
Signatures must be guaranteed by either a bank, a member
firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for
alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
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Your Account
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single-round-trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
Your Account
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Additional Intermediary Compensation In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
Your Account
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the transfer agent.
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
----------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
Your Account
UNDERSTANDING FUND DISTRIBUTIONS
The Fund may earn income from the securities it holds. The Fund also may realize capital gains or losses on sales of its securities. The Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of the Fund's income and capital gains based on the number of shares you own at the time these distributions are declared.
Distribution Options The Fund distributes any dividends quarterly and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, all subsequent distributions will be reinvested in additional shares of the Fund.
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.66% of average daily net assets of the Fund.
Karen Wurdack, PhD, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since August, 2005. Dr. Wurdack has been associated with Columbia Advisors or its predecessors since August, 1993.
Drs. Kuriyan and Wurdack are responsible for allocating the Fund's assets among the various asset classes, while investment decisions for the portion of the Fund's assets allocated to each asset class will be made by investment professionals with particular expertise in such asset class.
The asset classes, and the persons responsible for managing the Fund's assets allocated to each particular asset class, are as follows:
Large-cap growth stocks Paul J. Berlinguet, Edward P. Hickey, Roger R. Sullivan,
Mary-Ann Ward and John T. Wilson
Large-cap value stocks Lori J. Ensinger, Diane L. Sobin, David I. Hoffman and
Noah J. Petrucci
Mid-cap value stocks Diane L. Sobin, David I. Hoffman, Lori J. Ensinger and
Noah J. Petrucci
Mid-cap growth stocks Kenneth A. Korngiebel, Wayne M. Collette,
Theodore R. Wendell, George J. Myers and J. Michael Kosicki
Small-cap growth stocks Daniel H. Cole, Paul J. Berlinguet, Daniele M. Donahoe,
Jon Michael Morgan and Clifford D. Siverd
Small-cap value stocks Stephen D. Barbaro and Jeremy Javidi
|
Managing the Fund
Foreign securities Fred Copper Investment grade bonds Leonard A. Aplet Non-investment grade bonds Stephen Peacher |
Paul J. Berlinguet, a senior vice president of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap growth stocks category and has co-managed that portion of the Fund since October, 2003. Mr. Berlinguet is also a co-manager for the portion of the Fund allocated to the small-cap growth stocks category and has co-managed that portion of the Fund since December, 2005. Mr. Berlinguet has been associated with Columbia Advisors since October, 2003. Prior to October, 2003, Mr. Berlinguet was head of the large-mid cap equity group and a portfolio manager at John Hancock Funds from April, 2001 to October, 2003. Prior to joining John Hancock Funds in April, 2001, Mr. Berlinguet was head of the Global Technology Research Team and a large-cap growth portfolio manager at Baring Asset Management. During his 12-year career at Baring Asset Management, he also managed a small cap aggressive growth unit trust and was lead Portfolio Manager for four years.
Edward P. Hickey, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap growth stocks category and has co-managed that portion of the Fund since June, 2005. Mr. Hickey has been associated with Columbia Advisors or its predecessors since November, 1998.
Roger R. Sullivan, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap growth stocks category and has co-managed that portion of the Fund since June, 2005. Mr. Sullivan has been associated with Columbia Advisors or its predecessors since January, 2005. Prior to January, 2005, Mr. Sullivan was a senior vice president with Putnam Investments from December, 1994 to December, 2004.
Mary-Ann Ward, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap growth stocks category and has co-managed that portion of the Fund since June, 2005. Ms. Ward has been associated with Columbia Advisors or its predecessors since July, 1997.
John T. Wilson, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap growth stocks category and has co-managed the Fund since August, 2005. Mr. Wilson has been associated with Columbia Advisors or its predecessors since July, 2005. Prior to July, 2005, Mr. Wilson was a managing director and head of the Large Cap Core Team of State Street Research and Management from May, 1996 to July, 2005.
Lori J. Ensinger, a managing director of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the mid-cap value stocks category and has co-managed the Fund since September, 2004. Ms. Ensinger is also a co-manager for the portion of the Fund allocated to the large-cap value stocks category and has co-managed that portion of the Fund since September, 2005. Ms. Ensinger has been associated with Columbia Advisors or its predecessors since August, 2001. Prior to 2001, Ms. Ensinger directed the investment strategy for all institutional assets managed under the U.S. large-cap value style at Zurich Scudder Investments, Inc. from 1999 to 2001.
Diane L. Sobin, a managing director of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the mid-cap value stocks category and has co-managed the Fund since September, 2004. Ms. Sobin is also a co-manager for the portion of the Fund allocated to the largecap value stocks category and has co-managed that portion of the Fund since September, 2005. Ms. Sobin has been associated with Columbia Advisors or its predecessors since August, 2001. Prior to August, 2001, Ms. Sobin was a senior vice president with Zurich Scudder Investments, Inc. from February, 2000 to June, 2001.
David I. Hoffman, a managing director of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the mid-cap value stocks category and has co-managed the Fund since September, 2004. Mr. Hoffman is also a
Managing the Fund
co-manager for the portion of the Fund allocated to the large-cap value stocks category and has co-managed that portion of the Fund since September, 2005. Mr. Hoffman has been associated with Columbia Advisors or its predecessors since August, 2001. Prior to August, 2001, Mr. Hoffman was a vice president with Zurich Scudder Investments, Inc. from March, 1999 to July, 2001.
Noah J. Petrucci, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the mid-cap value stocks category and has co-managed the Fund since September, 2004. Mr. Petrucci is also a co-manager for the portion of the Fund allocated to the large-cap value stocks category and has co-managed that portion of the Fund since September, 2005. Mr. Petrucci has been associated with Columbia Advisors or its predecessors since February, 2002. Prior to February, 2002, Mr. Petrucci was employed by Zurich Scudder Investments, Inc. from October, 1996, serving most recently as a product specialist/portfolio manager from April, 2001 to February, 2002.
Kenneth A. Korngiebel, a senior vice president of Columbia Advisors, is the lead manager for the portion of the Fund allocated to the mid-cap growth stocks category and has managed or co-managed that portion of the Fund since June, 2004. Mr. Korngiebel has been associated with Columbia Advisors or its predecessors since 1996.
Wayne M. Collette, a vice president of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the mid-cap growth stocks category and has managed or co-managed that portion of the Fund since February, 2006. Mr. Collette has been associated with Columbia Advisors or its predecessors since 2001. Prior to joining, Mr. Collette was an associate portfolio manager with Neuberger Berman from 1999 to 2001.
Theodore R. Wendell, a vice president of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the mid-cap growth stocks category and has managed or co-managed that portion of the Fund since February, 2006. Mr. Wendell has been associated with Columbia Advisors or its predecessors since 2000.
George J. Myers, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the mid-cap growth stocks category and has managed or co-managed that portion of the Fund since February, 2006. Mr. Myers has been associated with Columbia Advisors or its predecessors since 2004. Prior to joining, Mr. Myers spent five years with Dresdner RCM Global Investors, where he was a portfolio manager and equity analyst. Earlier, he held positions with Firstar Investment Research & Management Company and J. Edwards Real Estate.
J. Michael Kosicki, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the mid-cap growth stocks category and has managed or co-managed that portion of the Fund since February, 2006. Mr. Kosicki has been associated with Columbia Advisors or its predecessors since 2004. Prior to joining, Mr. Kosicki had been with Fidelity Investments since 1993, where he worked most recently as an equity analyst specializing in the natural resources sector.
Daniel H. Cole, a portfolio manager of Columbia Advisors, is the lead manager for the portion of the Fund allocated to the small-cap growth stocks category and has co-managed that portion of the Fund since June, 2005. Mr. Cole has been associated with Columbia Advisors or its predecessors since September, 2001. Prior to September, 2001, Mr. Cole was a portfolio manager and analyst with Neuberger Berman, LLC from July, 1999 to September, 2001.
Daniele M. Donahoe, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the small-cap growth stocks category and has co-managed that portion of the Fund since December, 2005. Ms. Donahoe has been associated with Columbia Advisors or its predecessors since July, 2002. Prior to joining, Ms. Donahoe was an associate in the equity research department at Citigroup from 1999 to 2001.
Managing the Fund
Jon Michael Morgan, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the small-cap growth stocks category and has co-managed that portion of the Fund since December, 2005. Mr. Morgan has been associated with Columbia Advisors or its predecessors since July, 2000.
Clifford D. Siverd, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the small-cap growth stocks category and has co-managed that portion of the Fund since December, 2005. Mr. Siverd has been associated with Columbia Advisors or its predecessors since April, 2001. Prior to joining, Mr. Siverd was a vice president of institutional equity sales at Suntrust Robinson-Humphry.
Stephen D. Barbaro, a vice president of Columbia Advisors, is the manager for the portion of the Fund allocated to the small-cap value stocks category and has managed or co-managed that portion of the Fund since December, 2002. Mr. Barbaro has been associated with Columbia Advisors or its predecessors since 1976.
Jeremy Javidi, a vice president of Columbia Advisors, is the co-manager for the portion of the Fund allocated to the small-cap value stocks category and has co-managed the Fund since August, 2005. Mr. Javidi has been associated with Columbia Advisors or its predecessors since January, 2000.
Fred Copper, a portfolio manager of Columbia Advisors, is the manager for the portion of the Fund allocated to the foreign stocks category and has co-managed that portion of the Fund since October, 2005. Mr. Copper has been associated with Columbia Advisors or its predecessors since September, 2005. Prior to October, 2005, Mr. Copper was a senior vice president with Putman Investments from March, 2001 to September, 2005 and an assistant vice president with Wellington Management Company, LLP from July, 1998 to February, 2001.
Leonard A. Aplet, a managing director of Columbia Advisors, is the manager for the portion of the Fund allocated to the investment grade bonds category and has managed that portion of the Fund since March, 2005. Mr. Aplet has been associated with Columbia Advisors or its predecessors since 1987.
Stephen Peacher, a managing director of Columbia Advisors, is the manager for the portion of the Fund allocated to the non-investment grade bonds category and has managed that portion of the Fund since September, 2005. Mr. Peacher has been associated with Columbia Advisors since April, 2005. Prior to April, 2005, Mr. Peacher was employed by Putnam Investments, where he served as the chief investment officer of the Credit Team for the previous five years.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and
Managing the Fund
other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and entered final judgement. The plaintiff's filed a notice of appeal on December 30, 2005.
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last six fiscal periods, which run from October 1 to September 30, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the years ended September 30, 2005 and 2004, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the period ended September 30, 2003 and the fiscal years ended October 31, 2002, 2001 and 2000, has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
Financial Highlights
The Fund
Year ended Period ended
September 30, September 30,
2005 2004/(a)/ 2003/(b)(c)/
Class A Class A Class A
------- -------- -------------
Net asset value --
Beginning of period ($) 15.06 14.01 12.86
------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.27/(d)(e)/ 0.21/(d)/ 0.20/(d)/
Net realized and unrealized gain (loss) on
investments, foreign currency, future contracts
and foreign capital gains tax 1.41 1.11 1.17
------------------------------------------------------------------------------------------------
Total from Investment Operations 1.68 1.32 1.37
------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.27) (0.27) (0.22)
From net realized gains -- -- --
------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.27) (0.27) (0.22)
------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 16.47 15.06 14.01
------------------------------------------------------------------------------------------------
Total return (%)/(g)(h)/ 11.20 9.46 10.80/(i)/
------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data (%):
Expenses/(j)/ 1.35 1.43 1.49/(k)/
Net investment income/(j)/ 1.66 1.43 1.55/(k)/
Waiver/reimbursement 0.01 --/(l)/ 0.01/(k)/
Portfolio turnover rate (%) 86 75 122/(i)/
Net assets, end of period (000's) ($) 4,206 2,901 1,211
|
Year ended October 31,
2002 2001 2000
Class A Class A Class A
------- ------- -------
Net asset value --
Beginning of period ($) 14.95 18.77 17.73
------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.26/(f)/ 0.34/(d)/ 0.39/(d)/
Net realized and unrealized gain (loss) on
investments, foreign currency, future contracts
and foreign capital gains tax (2.12)/(f)/ (3.06) 1.36
------------------------------------------------------------------------------------------
Total from Investment Operations (1.86) (2.72) 1.75
------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.23) (0.36) (0.40)
From net realized gains -- (0.74) (0.31)
------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.23) (1.10) (0.71)
------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 12.86 14.95 18.77
------------------------------------------------------------------------------------------
Total return (%)/(g)(h)/ (12.53) (15.08) 10.15
------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data (%):
Expenses/(j)/ 1.40 1.26 1.15
Net investment income/(j)/ 1.73/(f)/ 2.07 2.15
Waiver/reimbursement 0.13 0.12 0.15
Portfolio turnover rate (%) 40 65 59
Net assets, end of period (000's) ($) 43 60 186
|
(a) On October 13, 2003, the Liberty Asset Allocation Fund was renamed the
Columbia Asset Allocation Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) On November 18, 2002, the Galaxy Asset Allocation Fund, Prime A shares were
redesignated Liberty Asset Allocation Fund, Class A shares.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Net investment income per share reflects a special dividend. The effect of
this dividend amounted to $0.02 per share.
(f) The Fund adopted the provisions of the AICPA Audit Guide for Investment
Companies effective November 1, 2001. The effect of the changes for the
year ended October 31, 2002 on the net investment income per share, net
realized and unrealized gain per share and the ratio of net investment
income to average net assets is $(0.01), $0.01 and (0.05)%, respectively.
(g) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(h) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
(l) Rounds to less than 0.01%.
Financial Highlights
The Fund
Year ended Period ended
September 30, September 30,
2005 2004/(a)/ 2003/(b)(c)/
Class B Class B Class B
------- -------- -------------
Net asset value --
Beginning of period ($) 15.06 14.00 12.85
---------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.15/(d)(e)/ 0.10/(d)/ 0.12/(d)/
Net realized and unrealized gain (loss) on
investments, foreign currency, future contracts
and foreign capital gains tax 1.41 1.11 1.17
---------------------------------------------------------------------------------------------------
Total from Investment Operations 1.56 1.21 1.29
---------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.15) (0.15) (0.14)
From net realized gains -- -- --
---------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.15) (0.15) (0.14)
---------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 16.47 15.06 14.00
---------------------------------------------------------------------------------------------------
Total return (%)/(g)/ 10.37/(h)/ 8.68/(h)/ 10.13/(h)(i)/
---------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data (%):
Expenses/(j)/ 2.10 2.18 2.17/(k)/
Net investment income/(j)/ 0.91 0.68 0.95/(k)/
Waiver/reimbursement 0.01 --/(l)/ 0.01/(k)/
Portfolio turnover rate (%) 86 75 122/(i)/
Net assets, end of period (000's) ($) 7,166 4,926 2,539
|
Year ended October 31,
2002 2001 2000
Class B Class B Class B
------- ------- -------
Net asset value --
Beginning of period ($) 14.93 18.75 17.71
-------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.14/(f)/ 0.22/(d)/ 0.26/(d)/
Net realized and unrealized gain (loss) on
investments, foreign currency, future contracts
and foreign capital gains tax (2.08)/(f)/ (3.06) 1.35
-------------------------------------------------------------------------------------------
Total from Investment Operations (1.94) (2.84) 1.61
-------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.14) (0.24) (0.26)
From net realized gains -- (0.74) (0.31)
-------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.14) (0.98) (0.57)
-------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 12.85 14.93 18.75
-------------------------------------------------------------------------------------------
Total return (%)/(g)/ (13.06) (15.68)/(h)/ 9.29/(h)/
-------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data (%):
Expenses/(j)/ 2.06 1.99 1.89
Net investment income/(j)/ 1.07/(f)/ 1.34 1.41
Waiver/reimbursement -- 0.04 0.17
Portfolio turnover rate (%) 40 65 59
Net assets, end of period (000's) ($) 276 389 526
|
(a) On October 13, 2003, the Liberty Asset Allocation Fund was renamed the
Columbia Asset Allocation Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) On November 18, 2002, the Galaxy Asset Allocation Fund, Prime B shares were
redesignated Liberty Asset Allocation Fund, Class B shares.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Net investment income per share reflects a special dividend. The effect of
this dividend amounted to $0.02 per share.
(f) The Fund adopted the provisions of the AICPA Audit Guide for Investment
Companies effective November 1, 2001. The effect of the changes for the
year ended October 31, 2002 on the net investment income per share, net
realized and unrealized gain per share and the ratio of net investment
income to average net assets in $(0.01), $0.01 and (0.05)%, respectively.
(g) Total returns at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(h) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
(l) Rounds to less than 0.01%.
Financial Highlights
The Fund
Year ended Period ended
September 30, September 30,
2005 2004/(a)/ 2003/(b)(c)/
Class C Class C Class C
------- -------- -------------
Net asset value --
Beginning of period ($) 15.06 14.00 13.08
-------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(d)/ 0.14/(e)/ 0.10 0.10
Net realized and unrealized gain on investments,
foreign currency, future contracts and foreign capital gains tax 1.42 1.11 0.93
-------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.56 1.21 1.03
-------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.15) (0.15) (0.11)
-------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 16.47 15.06 14.00
-------------------------------------------------------------------------------------------------------------
Total return (%)/(f)(g)/ 10.37 8.67 7.93/(h)/
-------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data (%):
Expenses /(i)/ 2.10 2.19 2.28/(j)/
Net investment income /(i)/ 0.91 0.69 0.85/(j)/
Waiver/reimbursement// 0.01 --/(k)/ 0.01/(j)/
Portfolio turnover rate (%)// 86 75 122/(h)/
Net assets, end of period (000's) ($) 704 514 187
|
(a) On October 13, 2003, the Liberty Asset Allocation Fund was renamed the
Columbia Asset Allocation Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) Class C shares were initially offered on November 18, 2002. Per share data
and total return reflect activity from that date.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Net investment income per share reflects a special dividend. The effect of
this dividend amounted to $0.02 per share.
(f) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(g) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
(k) Rounds to less than 0.01%.
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The charts also assume that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher.
Class A Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
5.75% $10,000.00 5%
Year Cumulative Return Annual Expense Cumulative Return Hypothetical Year- Annual Fees
Before Fees & Ratio After Fees & End Balance After & Expenses/1/
Expenses Expenses Fees & Expenses
1 5.00% 1.27% -2.23%/2/ $9,776.55 $696.93
2 10.25% 1.27% 1.41% $10,141.22 $126.48
3 15.76% 1.27% 5.19% $10,519.49 $131.20
4 21.55% 1.27% 9.12% $10,911.86 $136.09
5 27.63% 1.27% 13.19% $11,318.87 $141.17
6 34.01% 1.27% 17.41% $11,741.07 $146.43
7 40.71% 1.27% 21.79% $12,179.01 $151.89
8 47.75% 1.27% 26.33% $12,633.29 $157.56
9 55.13% 1.27% 31.05% $13,104.51 $163.44
10 62.89% 1.27% 35.93% $13,593.31 $169.53
Total Gain After Fees and Expenses $3,593.31
Total Annual Fees and Expenses $2,020.70
|
1 Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated on
an annual compounding basis.
2 Reflects deduction of the maximum initial sales charge.
Appendix A
Class B Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
Year Cumulative Return Annual Cumulative Return Hypothetical Year- Annual Fees
Before Fees & Expense Ratio After Fees & End Balance After & Expenses/1/
Expenses Expenses Fees & Expenses
1 5.00% 2.02% 2.98% $10,298.00 $205.01
2 10.25% 2.02% 6.05% $10,604.88 $211.12
3 15.76% 2.02% 9.21% $10,920.91 $217.41
4 21.55% 2.02% 12.46% $11,246.35 $223.89
5 27.63% 2.02% 15.81% $11,581.49 $230.56
6 34.01% 2.02% 19.27% $11,926.62 $237.43
7 40.71% 2.02% 22.82% $12,282.03 $244.51
8 47.75% 2.02% 26.48% $12,648.04 $251.79
9 55.13% 1.27% 31.20% $13,119.81 $163.63
10 62.89% 1.27% 36.09% $13,609.18 $169.73
Total Gain After Fees and Expenses $3,609.18
Total Annual Fees and Expenses $2,155.08
|
Class C Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
Year Cumulative Return Annual Cumulative Return Hypothetical Year- Annual Fees
Before Fees & Expense Ratio After Fees & End Balance After & Expenses/1/
Expenses Expenses Fees & Expenses
1 5.00% 2.02% 2.98% $10,298.00 $205.01
2 10.25% 2.02% 6.05% $10,604.88 $211.12
3 15.76% 2.02% 9.21% $10,920.91 $217.41
4 21.55% 2.02% 12.46% $11,246.35 $223.89
5 27.63% 2.02% 15.81% $11,581.49 $230.56
6 34.01% 2.02% 19.27% $11,926.62 $237.43
7 40.71% 2.02% 22.82% $12,282.03 $244.51
8 47.75% 2.02% 26.48% $12,648.04 $251.79
9 55.13% 2.02% 30.25% $13,024.95 $259.30
10 62.89% 2.02% 34.13% $13,413.09 $267.02
Total Gain After Fees and Expenses $3,413.09
Total Annual Fees and Expenses $2,348.04
|
1 Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust XI: 811-4978
. Columbia Asset Allocation Fund
[LOGO] ColumbiaFunds
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRD-36/105503-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 1, 2006 (THE "PROSPECTUS")
COLUMBIA ASSET ALLOCATION FUND
CLASS T AND G SHARES
The Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The section entitled "Legal Proceedings" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107689-0306 March 27, 2006
Class T and G Shares
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------- Investment Goals........................ 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 3 Performance History..................... 6 Your Expenses........................... 8 YOUR ACCOUNT 10 -------------------------------------------- How to Buy Shares....................... 10 Investment Minimums..................... 10 Sales Charges........................... 11 How to Exchange Shares.................. 14 How to Sell Shares...................... 15 Fund Policy on Trading of Fund Shares... 16 Distribution and Service Fees........... 17 Other Information About Your Account.... 18 |
MANAGING THE FUND 20 -------------------------------------------- Investment Advisor...................... 20 Portfolio Managers...................... 20 Legal Proceedings....................... 23 FINANCIAL HIGHLIGHTS 25 -------------------------------------------- APPENDIX A 27 -------------------------------------------- |
Class T and G shares are sold only to investors who received (and who have continuously held) Class T or G shares in connection with the merger of certain Galaxy Funds into various Columbia Funds (formerly named Liberty Funds).
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC Insured May Lose Value
No Bank Guarantee
Current income includes both dividends from stocks and interest income from fixed income securities, after deducting Fund expenses.
The Fund's lead portfolio manager will allocate the Fund's assets among the various asset classes. The lead portfolio manager will adjust the number of asset classes, as well as the portion of the Fund's assets allocated to each asset class, from time to time, based on his assessment of such factors as relative attractiveness, valuation, fundamentals, quantitative analyses and economic and market expectations.
In selecting equity securities, the advisor favors stocks with long-term growth potential that are expected to outperform their peers over time. The advisor also forecasts the direction and degree of change in long-term interest rates to help in the selection of debt securities. Investment grade debt securities purchased by the Fund will have one of the top four ratings assigned by Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or will be unrated securities determined by the advisor to be of comparable quality. When deemed appropriate by the advisor, however, the Fund may invest up to 10% of its net assets in non-investment grade debt securities that are rated below BBB by S&P or Baa by Moody's or are unrated securities judged by the advisor to be of comparable quality (also known as "junk bonds"). The Fund keeps at least 25% of its total assets in fixed income investments, including debt securities and preferred stocks, at all times. The Fund may also participate in mortgage dollar rolls.
The Fund may invest up to 25% of its net assets in foreign securities.
The Fund may invest up to 10% of its net assets in exchange-traded funds, such as iShares/SM/. Exchange-traded funds are shares of investment companies which are traded like traditional equity securities on a national securities exchange or the NASDAQ(R) National Market System. iShares, which are traded on the American Stock Exchange, are shares of an investment company that invests substantially all of its assets in securities included in specified indices, including the Morgan Stanley Capital International indices for various countries and regions. The Fund will sell a portfolio security when, as a result of changes in the economy, the advisor determines it is appropriate to revise the allocation of the Fund's assets between stocks and bonds. A security may also be sold as a result of an actual or expected deterioration in the performance of the security or in the financial condition of the issuer of the security.
As part of its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional tax liability.
The Fund
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goals.
In seeking to achieve its investment goals, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goals or investment strategies.
The Fund may purchase derivative instruments, such as futures, options, swap contracts, and inverse floaters, to gain or reduce exposure to particular securities or segments of the bond markets. Derivatives are financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use derivatives for both hedging and nonhedging purposes, such as to adjust to the Fund's sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an opposite position. The Fund typically uses derivatives in an effort to achieve more efficiently economic exposures similar to those it could have achieved through the purchase and sale of fixed income securities. Investments in derivatives may be applied toward meeting a requirement to invest in a particular kind of investment if the derivatives have economic characteristics similar to investments of that kind.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with similar investment goals. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goals or perform favorably among comparable funds.
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Because the Fund may invest in debt securities issued or supported by private entities, including corporate bonds, municipal bonds and mortgage-backed and asset-backed securities, the Fund is subject to issuer risk. Issuer risk is the possibility that changes in the financial condition of the issuer of a security, changes in general economic conditions, or changes in economic conditions that affect the issuer may impact its actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and in some cases a decrease in income. The Fund's investments in securities issued by U. S. government-sponsored enterprises, such as the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, are not funded by Congressional appropriations and are neither guaranteed nor insured by the U. S. government. Furthermore, no assurances can be given that the U. S. government would provide financial support to its agencies or instrumentalities where it is not obligated to do so.
The Fund
Structure risk is the risk that an event will occur (such as a security being prepaid or called) that alters the security's cash flows. Prepayment risk is a particular type of structure risk that is associated with investments in asset-backed and mortgage-backed securities. With respect to investments in mortgage-backed securities, prepayment risk is the possibility that, as prevailing interest rates fall, homeowners are more likely to refinance their home mortgages. When mortgages are refinanced, the principal on mortgage-backed securities is paid earlier than expected. In an environment of declining interest rates, asset-backed and mortgage-backed securities may offer less potential for gain than other debt securities. During periods of rising interest rates, asset-backed and mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the expected life of the security. In addition, the potential impact of prepayment on the price of asset-backed and mortgage-backed securities may be difficult to predict and result in greater volatility.
Mortgage dollar rolls are transactions in which the Fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase similar securities in the future at a predetermined price. These transactions simulate an investment in mortgage-backed securities and have the potential to enhance the Fund's returns and reduce its administrative burdens, compared with holding mortgage-backed securities directly. Mortgage dollar rolls involve the risks that the market value of the securities the Fund is obligated to repurchase may decline below the repurchase price, or that the other party may default on its obligations. These transactions may increase the Fund's portfolio turnover rate.
Lower-rated debt securities, commonly referred to as "junk bonds," involve greater risk of loss due to credit deterioration and are less liquid, especially during periods of economic uncertainty or change, than higher-quality debt securities. Lower-rated debt securities generally have a higher risk that the issuer of the security may default and not make payment of interest or principal.
The Fund may invest in real estate investment trusts (REITs). REITs are entities which either own properties or make construction or mortgage loans. REITs also may include operating or finance companies. Investing in REITs involves certain unique risks in addition to those risks associated with the real estate industry in general. The prices of REITs are affected by changes in the value of the underlying property owned by the REITs. In addition, although the Fund does not invest directly in real estate, a REIT investment by the Fund is subject to certain of the risks associated with the ownership of real estate. These risks include possible declines in the value of real estate, risks related to general and local economic conditions, possible lack of availability of mortgage funds and changes in interest rates.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the advisor's opinion, undervalued. If the advisor's assessment of a company's prospects is wrong, the price of the company's stock may fall, or may not approach the value the advisor has placed on it.
The Fund
Growth stocks are stocks of companies believed to have above-average potential for growth in revenue and earnings. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. The Fund may have limited legal recourse in the event of default with respect to certain debt securities issued by foreign governments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Small- or mid-cap companies may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
The Fund may enter into a number of derivative strategies, including those that employ futures, options and foreign currencies, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use these strategies to adjust the Fund's sensitivity to changes in interest rates, or for other hedging purposes (i.e., attempting to offset a potential loss in one position by establishing an interest in an opposite position). Derivative strategies involve the risk that they may exaggerate a loss, potentially losing more money than the actual cost of the underlying security, or limit a potential gain. Also, with some derivative strategies there is the risk that the other party to the transaction may fail to honor its contract terms, causing a loss to the Fund or that the Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The Fund
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class T share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
The Fund's returns are compared to the Standard & Poor's 500 Index (S&P Index), an unmanaged index that tracks the performance of 500 widely held, large-capitalization U.S. stocks. The Fund's returns are also compared to the Lehman Brothers Aggregate Bond Index (Lehman Index), an unmanaged market value-weighted index that tracks the daily price, coupon, pay-downs, and total return performance of fixed-rate, publicly placed, dollar denominated and non-convertible investment grade debt issues with at least $250 million par amount outstanding and with at least one year to final maturity. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
The Fund
Calendar Year Total Returns (Class T)/(1)/
LOGO
For the periods shown in bar chart:
Best quarter: 4th quarter 1998, +11.74%
Worst quarter: 3rd quarter 2002, -9.55%
(1) The calendar year total returns shown for Class T shares include the returns of Retail A shares of the Galaxy Asset Allocation Fund (the Galaxy Fund), the predecessor to the Fund, for periods prior to November 18, 2002, the date on which Class T shares were initially offered by the Fund.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class T (%)
Return Before Taxes -0.87 -0.03/(/1) 5.87/(1)/
Return After Taxes on Distributions -2.38 -0.78/(1)/ 4.55/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 1.02 -0.32/(1)/ 4.46/(1)/
---------------------------------------------------------------------------------------------
Class G (%)
Return Before Taxes -0.26 -0.06/(1)/ 5.77/(1)/
Return After Taxes on Distributions -1.70 -0.63/(1)/ 4.70/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 1.45 -0.24/(1)/ 4.54/(1)/
---------------------------------------------------------------------------------------------
S&P Index (%) 4.91 0.54 9.07
---------------------------------------------------------------------------------------------
Lehman Index (%) 2.43 5.87 9.16
|
(1) The average annual total returns shown include the returns of Retail A shares (for Class T shares) and Retail B shares (for Class G shares) of the Galaxy Fund for periods prior to November 18, 2002, the date on which Class T and Class G shares were initially offered by the Fund. The returns shown for Class G shares also include the returns of Retail A shares (adjusted to reflect sales charges applicable to Class G shares) for periods prior to the inception of Retail B shares of the Galaxy Fund (March 4, 1996). Retail A shares of the Galaxy Fund were initially offered on December 30, 1991. Class G shares generally would have had substantially similar returns to Retail A shares because they would have been invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class G shares exceed expenses paid by Retail A shares.
The Fund
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees, shareholder service fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds.
Except as noted, the table does not take into account any
expense reduction arrangements discussed in the footnotes
to the Annual Fund Operating Expenses table. It uses the
following hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class G shares convert to Class T shares after eight
years
Shareholder Fees/(1) /(paid directly from your investment)
Class T Class G
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00
----------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00
----------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class T shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
The Fund
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class T Class G
Management fee/(1)/ (%) 0.72 0.72
---------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.00 0.95/(2)/
---------------------------------------------------------------
Other expenses/(3)/ (%) 0.60/(4)/ 0.30
---------------------------------------------------------------
Total annual fund operating expenses (%) 1.32 1.97
|
(1) The Fund pays a management fee of 0.65% and an administration fee of 0.07%.
Management fees have been restated to reflect contractual changes to the
management fee effective November 1, 2004.
(2) The Fund may pay distribution and service (12b-1) fees up to a maximum of
1.15% of the Fund's average daily net assets attributable to Class G shares
(comprised of up to 0.65% for distribution services, up to 0.25% for
shareholder liaison services and up to 0.25% for administrative support
services), but will limit such fees to an aggregate fee of not more than
0.95% during the current fiscal year.
(3) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
(4) The Fund may pay shareholder service fees (which are included in other
expenses) of up to a maximum of 0.50% of the Fund's average daily net
assets attributable to Class T shares (comprised of up to 0.25% for
shareholder liaison services and up to 0.25% for administrative support
services) but will limit such fees to an aggregate fee of not more than
0.30% during the current fiscal year.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class T $702 $969 $1,257 $2,074
-----------------------------------------------------------------
Class G: did not sell your shares $200 $618 $1,062 $2,128
sold all your shares at
the end of the period $700 $1,018 $1,362 $2,128
|
See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
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By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging Class T or Class G
shares you own in a different fund distributed by Columbia
Management Distributors, Inc. for shares of the same class
(and, in some cases, certain other classes) of the Fund at
no additional cost. There may be an additional sales charge
if exchanging from a money market fund. To exchange by
telephone, call 1-800-422-3737.
-------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
-------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. There may
be an additional sales charge if exchanging from a money
market fund. Be sure to complete the appropriate section of
the account application for this feature.
-------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at
no additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
|
10
Your Account
Class T and G shares are sold only to investors who received (and who have continuously held) Class T or G shares in connection with the merger of certain Galaxy Funds into various Columbia Funds (formerly named Liberty Funds).
Please see the Statement of Additional Information for more details on investment minimums.
Class T shares Your purchases of Class T shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class T shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
Class T Sales Charges
% of offering
As a % of price
the public As a % retained by
offering of your financial
Amount purchased price investment advisor
Less than $50,000 5.75 6.10 5.00
--------------------------------------------------------------------
$50,000 to less than $100,000 4.50 4.71 3.75
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$100,000 to less than $250,000 3.50 3.63 2.75
--------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.00
--------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
--------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
|
Class T shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class T share purchases that bring your account value above $1 million are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class T share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
Purchases Over $1 Million
Amount purchased Commission % Less than $3 million 1.00 ------------------------------------------------ $3 million to less than $50 million 0.50 ------------------------------------------------ $50 million or more 0.25 |
Your Account
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES Certain investments in Class T and G shares are subject to a CDSC, a sales charge applied at the time you sell your shares. You will pay the CDSC only on shares you sell within a certain amount of time after purchase. The CDSC generally declines each year until there is no charge for selling shares. The CDSC is applied to the net asset value at the time of purchase or sale, whichever is lower. For purposes of calculating the CDSC, the start of the holding period is the first day of the month in which the purchase was made. Shares you purchase with reinvested dividends or other distributions are not subject to a CDSC. When you place an order to sell shares, the Fund will automatically sell first those shares not subject to a CDSC and then those you have held the longest.
Reduced Sales Charges for Larger Investments
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class T shares of the Fund and other funds in the Columbia family of funds.
Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
Statement of Intent You also may pay a lower sales charge when purchasing Class T shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
. Individual accounts
. Joint accounts
. Certain IRA accounts
. Certain trusts
. UTMA/UGMA accounts
Your Account
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
Your Account
Class G shares Your purchases of Class G shares are at Class G's net asset value. Purchases up to $50,000 are allowed in Class G shares assuming the combined value of the customer's total assets in the Columbia funds does not exceed $50,000. Purchases in Class G shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class G shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class G shares as described in the chart below.
Class G Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 5.00
---------------------------------------------
Through second year 4.00
---------------------------------------------
Through third year 4.00
---------------------------------------------
Through fourth year 4.00
---------------------------------------------
Through fifth year 3.00
---------------------------------------------
Through sixth year 2.00
---------------------------------------------
Through seventh year 1.00
---------------------------------------------
Longer than seven years 0.00
|
Commission to financial advisors is 4.00%.
Automatic conversion to Class T shares occurs eight years after purchase.
Please see the Statement of Additional Information for the CDSCs and conversion schedules applicable to Class G shares received in exchange for Retail B Shares of the Galaxy Fund purchased or acquired prior to January 1, 2001.
Your Account
When the Fund receives your sales request in "good form," shares will be sold
at the next calculated price. "Good form" means that the Fund's transfer agent
has all information and documentation it deems necessary to effect your order.
For example, when selling shares by letter of instruction, "good form" means
(i) your letter has complete instructions, the proper signatures and Medallion
Signature Guarantees, (ii) you have included any certificates for shares to be
sold, and (iii) any other required documents are attached. For additional
documents required for sales by corporations, agents, fiduciaries, surviving
joint owners and other legal entities, please call 1-800-345-6611. Retirement
plan accounts have special requirements; please call 1-800-799-7526 for more
information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into the same share class (or
Class A and Class B shares, for Class T and Class G shares,
respectively), of another fund distributed by Columbia
Management Distributors, Inc. at no additional cost. To
exchange by telephone, call 1-800-422-3737.
------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is
$100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or, if
applicable, to the address below. In your letter of
instruction, note the Fund's name, share class, account
number, and the dollar value or number of shares you wish
to sell. All account owners must sign the letter.
Signatures must be guaranteed by either a bank, a member
firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for
alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
Your Account
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two round trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
Your Account
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Additional Intermediary Compensation In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
Your Account
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia". You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for any class of shares offered by the Fund.
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
----------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
Your Account
Distribution Options The Fund distributes any dividends quarterly and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, all subsequent distributions will be reinvested in additional shares of the Fund.
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.66% of average daily net assets of the Fund.
Vikram J. Kuriyan, PhD, a managing director of Columbia Management Advisors, LLC ("Columbia Advisors"), is the lead manager for the Fund and has managed the Fund since August, 2005. Dr. Kuriyan has been associated with Columbia Advisors or its predecessors since January, 2000.
Karen Wurdack, PhD, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since August, 2005. Dr. Wurdack has been associated with Columbia Advisors or its predecessors since August, 1993.
Drs. Kuriyan and Wurdack are responsible for allocating the Fund's assets among the various asset classes, while investment decisions for the portion of the Fund's assets allocated to each asset class will be made by investment professionals with particular expertise in such asset class.
The asset classes, and the persons responsible for managing the Fund's assets allocated to each particular asset class, are as follows:
Large-cap growth stocks
Paul J. Berlinguet, Edward P. Hickey, Roger R. Sullivan,
Mary-Ann Ward and John T. Wilson
Large-cap value stocks
Lori J. Ensinger, Diane L. Sobin, David I. Hoffman and
Noah J. Petrucci
Mid-cap value stocks
Diane L. Sobin, David I. Hoffman, Lori J. Ensinger and
Noah J. Petrucci
Mid-cap growth stocks
Kenneth A. Korngiebel, Wayne M. Collette, Theodore R.
Wendell, George J. Myers and J. Michael Kosicki
Small-cap growth stocks
Daniel H. Cole, Paul J. Berlinguet, Daniele M. Donahoe,
Jon Michael Morgan and Clifford D. Siverd
Small-cap value stocks
Stephen D. Barbaro and Jeremy Javidi
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Managing the Fund
Foreign securities
Fred Copper
Investment grade bonds
Leonard A. Aplet
Non-investment grade bonds
Stephen Peacher
|
Paul J. Berlinguet, a senior vice president of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap growth stocks category and has co-managed that portion of the Fund since October, 2003. Mr. Berlinguet is also a co-manager for the portion of the Fund allocated to the small-cap growth stocks category and has co-managed that portion of the Fund since December, 2005. Mr. Berlinguet has been associated with Columbia Advisors since October, 2003. Prior to October, 2003, Mr. Berlinguet was head of the large-mid cap equity group and a portfolio manager at John Hancock Funds from April, 2001 to October, 2003. Prior to joining John Hancock Funds in April, 2001, Mr. Berlinguet was head of the Global Technology Research Team and a large-cap growth portfolio manager at Baring Asset Management. During his 12-year career at Baring Asset Management, he also managed a small cap aggressive growth unit trust and was lead Portfolio Manager for four years.
Edward P. Hickey, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap growth stocks category and has co-managed that portion of the Fund since June, 2005. Mr. Hickey has been associated with Columbia Advisors or its predecessors since November, 1998.
Roger R. Sullivan, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap growth stocks category and has co-managed that portion of the Fund since June, 2005. Mr. Sullivan has been associated with Columbia Advisors or its predecessors since January, 2005. Prior to January, 2005, Mr. Sullivan was a senior vice president with Putnam Investments from December, 1994 to December, 2004.
Mary-Ann Ward, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap growth stocks category and has co-managed that portion of the Fund since June, 2005. Ms. Ward has been associated with Columbia Advisors or its predecessors since July, 1997.
John T. Wilson, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap growth stocks category and has co-managed the Fund since August, 2005. Mr. Wilson has been associated with Columbia Advisors or its predecessors since July, 2005. Prior to July, 2005, Mr. Wilson was a managing director and head of the Large Cap Core Team of State Street Research and Management from May, 1996 to July, 2005.
Lori J. Ensinger, a managing director of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the mid-cap value stocks category and has co-managed the Fund since September, 2004. Ms. Ensinger is also a co-manager for the portion of the Fund allocated to the large-cap value stocks category and has co-managed that portion of the Fund since September, 2005. Ms. Ensinger has been associated with Columbia Advisors or its predecessors since August, 2001. Prior to 2001, Ms. Ensinger directed the investment strategy for all institutional assets managed under the U.S. large-cap value style at Zurich Scudder Investments, Inc. from 1999 to 2001.
Diane L. Sobin, a managing director of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the mid-cap value stocks category and has co-managed the Fund since September, 2004. Ms. Sobin is also a co-manager for the portion of the Fund allocated to the largecap value stocks category and has co-managed that portion of the Fund since September, 2005. Ms. Sobin has been associated with Columbia Advisors or its predecessors since August, 2001. Prior to August, 2001, Ms. Sobin was a senior vice president with Zurich Scudder Investments, Inc. from February, 2000 to June, 2001.
David I. Hoffman, a managing director of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the mid-cap value stocks category and has co-managed the Fund since September, 2004. Mr. Hoffman is also a
Managing the Fund
co-manager for the portion of the Fund allocated to the large-cap value stocks category and has co-managed that portion of the Fund since September, 2005. Mr. Hoffman has been associated with Columbia Advisors or its predecessors since August, 2001. Prior to August, 2001, Mr. Hoffman was a vice president with Zurich Scudder Investments, Inc. from March, 1999 to July, 2001.
Noah J. Petrucci, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the mid-cap value stocks category and has co-managed the Fund since September, 2004. Mr. Petrucci is also a co-manager for the portion of the Fund allocated to the large-cap value stocks category and has co-managed that portion of the Fund since September, 2005. Mr. Petrucci has been associated with Columbia Advisors or its predecessors since February, 2002. Prior to February, 2002, Mr. Petrucci was employed by Zurich Scudder Investments, Inc. from October, 1996, serving most recently as a product specialist/portfolio manager from April, 2001 to February, 2002.
Kenneth A. Korngiebel, a senior vice president of Columbia Advisors, is the lead manager for the portion of the Fund allocated to the mid-cap growth stocks category and has managed or co-managed that portion of the Fund since June, 2004. Mr. Korngiebel has been associated with Columbia Advisors or its predecessors since 1996.
Wayne M. Collette, a vice president of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the mid-cap growth stocks category and has managed or co-managed that portion of the Fund since February, 2006. Mr. Collette has been associated with Columbia Advisors or its predecessors since 2001. Prior to joining, Mr. Collette was an associate portfolio manager with Neuberger Berman from 1999 to 2001.
Theodore R. Wendell, a vice president of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the mid-cap growth stocks category and has managed or co-managed that portion of the Fund since February, 2006. Mr. Wendell has been associated with Columbia Advisors or its predecessors since 2000.
George J. Myers, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the mid-cap growth stocks category and has managed or co-managed that portion of the Fund since February, 2006. Mr. Myers has been associated with Columbia Advisors or its predecessors since 2004. Prior to joining, Mr. Myers spent five years with Dresdner RCM Global Investors, where he was a portfolio manager and equity analyst. Earlier, he held positions with Firstar Investment Research & Management Company and J. Edwards Real Estate.
J. Michael Kosicki, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the mid-cap growth stocks category and has managed or co-managed that portion of the Fund since February, 2006. Mr. Kosicki has been associated with Columbia Advisors or its predecessors since 2004. Prior to joining, Mr. Kosicki had been with Fidelity Investments since 1993, where he worked most recently as an equity analyst specializing in the natural resources sector.
Daniel H. Cole, a portfolio manager of Columbia Advisors, is the lead manager for the portion of the Fund allocated to the small-cap growth stocks category and has co-managed that portion of the Fund since June, 2005. Mr. Cole has been associated with Columbia Advisors or its predecessors since September, 2001. Prior to September, 2001, Mr. Cole was a portfolio manager and analyst with Neuberger Berman, LLC from July, 1999 to September, 2001.
Daniele M. Donahoe, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the small-cap growth stocks category and has co-managed that portion of the Fund since December, 2005. Ms. Donahoe has been associated with Columbia Advisors or its predecessors since July, 2002. Prior to joining, Ms. Donahoe was an associate in the equity research department at Citigroup from 1999 to 2001.
Managing the Fund
Jon Michael Morgan, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the small-cap growth stocks category and has co-managed that portion of the Fund since December, 2005. Mr. Morgan has been associated with Columbia Advisors or its predecessors since July, 2000.
Clifford D. Siverd, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the small-cap growth stocks category and has co-managed that portion of the Fund since December, 2005. Mr. Siverd has been associated with Columbia Advisors or its predecessors since April, 2001. Prior to joining, Mr. Siverd was a vice president of institutional equity sales at Suntrust Robinson-Humphry.
Stephen D. Barbaro, a vice president of Columbia Advisors, is the manager for the portion of the Fund allocated to the small-cap value stocks category and has managed or co-managed that portion of the Fund since December, 2002. Mr. Barbaro has been associated with Columbia Advisors or its predecessors since 1976.
Jeremy Javidi, a vice president of Columbia Advisors, is the co-manager for the portion of the Fund allocated to the small-cap value stocks category and has co-managed the Fund since August, 2005. Mr. Javidi has been associated with Columbia Advisors or its predecessors since January, 2000.
Fred Copper, a portfolio manager of Columbia Advisors, is the manager for the portion of the Fund allocated to the foreign stocks category and has co-managed that portion of the Fund since October, 2005. Mr. Copper has been associated with Columbia Advisors or its predecessors since September, 2005. Prior to October, 2005, Mr. Copper was a senior vice president with Putman Investments from March, 2001 to September, 2005 and an assistant vice president with Wellington Management Company, LLP from July, 1998 to February, 2001.
Leonard A. Aplet, a managing director of Columbia Advisors, is the manager for the portion of the Fund allocated to the investment grade bonds category and has managed that portion of the Fund since March, 2005. Mr. Aplet has been associated with Columbia Advisors or its predecessors since 1987.
Stephen Peacher, a managing director of Columbia Advisors, is the manager for the portion of the Fund allocated to the non-investment grade bonds category and has managed that portion of the Fund since September, 2005. Mr. Peacher has been associated with Columbia Advisors since April, 2005. Prior to April, 2005, Mr. Peacher was employed by Putnam Investments, where he served as the chief investment officer of the Credit Team for the previous five years.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory,
Managing the Fund
compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and entered final judgement. The plaintiff's filed a notice of appeal on December 30, 2005.
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last six fiscal periods, which run from October 1 to September 30, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the years ended September 30, 2005 and 2004, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the period ended September 30, 2003 and the fiscal years ended October 31, 2002, 2001 and 2000, has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
The Fund
Year ended Period ended
September 30, September 30,
2005 2004/(a)/ 2003/(b)(c)/
Class T Class T Class T
------- -------- -------------
Net asset value --
Beginning of period ($) 15.07 14.01 12.87
-----------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.26/(d)(e)/ 0.21/(d)/ 0.21/(d)/
Net realized and unrealized gain (loss)
on investments, foreign currency, future
contracts and foreign capital gains tax 1.41 1.11 1.16
-----------------------------------------------------------------------------------------------
Total from Investment Operations 1.67 1.32 1.37
-----------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.26) (0.26) (0.23)
From net realized gains -- -- --
-----------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.26) (0.26) (0.23)
-----------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 16.48 15.07 14.01
-----------------------------------------------------------------------------------------------
Total return (%)/(g)/ 11.14/(h)/ 9.47/(h)/ 10.75/(h)(i)/
-----------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(i)/ 1.40 1.49 1.49/(k)/
Net investment income/(i)/ 1.62 1.37 1.73/(k)/
Waiver/reimbursement 0.01 --/(l)/ 0.01/(k)/
Portfolio turnover rate (%) 86 75 122/(l)/
Net assets, end of period (000's) ($) 184,795 183,438 189,580
|
Year ended October 31,
2002 2001 2000
Class T Class T Class T
------- ------- -------
Net asset value --
Beginning of period ($) 14.95 18.79 17.74
---------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.25/(f)/ 0.33/(d)/ 0.37/(d)/
Net realized and unrealized gain (loss)
on investments, foreign currency, future
contracts and foreign capital gains tax (2.09)/(f)/ (3.08) 1.36
---------------------------------------------------------------------------------------
Total from Investment Operations (1.84) (2.75) 1.73
---------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.24) (0.35) (0.37)
From net realized gains -- (0.74) (0.31)
---------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.24) (1.09) (0.68)
---------------------------------------------------------------------------------------
Net asset value --
End of period ($) 12.87 14.95 18.79
---------------------------------------------------------------------------------------
Total return (%)/(g)/ (12.45)/(h)/ (15.18)/(h)/ 9.98
---------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(i)/ 1.37 1.33 1.29
Net investment income/(i)/ 1.76/(f)/ 2.01 2.01
Waiver/reimbursement 0.01 0.01 --
Portfolio turnover rate (%) 40 65 59
Net assets, end of period (000's) ($) 198,154 289,882 371,590
|
(a) On October 13, 2003, the Liberty Asset Allocation Fund was renamed the
Columbia Asset Allocation Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) On November 18, 2002, the Galaxy Asset Allocation Fund, Retail A shares
were redesignated Liberty Asset Allocation Fund, Class T shares.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Net investment income per share reflects a special dividend. The effect of
this dividend amounted to $0.02 per share.
(f) The Fund adopted the provisions of the AICPA Audit Guide for Investment
Companies effective November 1, 2001. The effect of the changes for the
year ended October 31, 2002 on the net investment income per share, net
realized and unrealized gain per share and the ratio of net investment
income to average net assets is $(0.01), $0.01 and (0.05)%, respectively.
(g) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(h) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
(l) Rounds to less than 0.01%.
Financial Highlights
The Fund
Year ended Period ended
September 30, September 30,
2005 2004/(a)/ 2003/(b)(c)/
Class G Class G Class G
------- -------- -------------
Net asset value --
Beginning of period ($) 15.06 14.00 12.84
-----------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.16/(d)(e)/ 0.11/(d)/ 0.12/(d)/
Net realized and unrealized gain (loss) on investments,
foreign currency, futures contracts and foreign
capital gains tax 1.40 1.11 1.17
-----------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.56 1.22 1.29
-----------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.16) (0.16) (0.13)
From net realized gains -- -- --
-----------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.16) (0.16) (0.13)
-----------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 16.46 15.06 14.00
-----------------------------------------------------------------------------------------------------------
Total return (%)/(g)/ 10.36/(h)/ 8.72/(h)/ 10.12/(h)(i)/
-----------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(j)/ 2.05 2.15 2.19/(k)/
Net investment income/(j)/ 0.98 0.71 1.02/(k)/
Waiver/reimbursement 0.01 --/(l)/ 0.01/(k)/
Portfolio turnover rate (%) 86 75 122/(i)/
Net assets, end of period (000's) ($) 21,982 39,892 56,383
|
Year ended October 31,
2002 2001 2000
Class G Class G Class G
------- ------- -------
Net asset value --
Beginning of period ($) 14.92 18.74 17.70
----------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.14/(f)/ 0.22/(d)/ 0.24/(d)/
Net realized and unrealized gain (loss) on investments,
foreign currency, futures contracts and foreign
capital gains tax (2.08)/(f)/ (3.06) 1.36
----------------------------------------------------------------------------------------------------
Total from Investment Operations (1.94) (2.84) 1.60
----------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.14) (0.24) (0.25)
From net realized gains -- (0.74) (0.31)
----------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.14) (0.98) (0.56)
----------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 12.84 14.92 18.74
----------------------------------------------------------------------------------------------------
Total return (%)/(g)/ (13.08)/(h)/ (15.72)/(h)/ 9.20
----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(j)/ 2.09 2.01 1.99
Net investment income/(j)/ 1.04/(f)/ 1.33 1.31
Waiver/reimbursement 0.03 0.01 --
Portfolio turnover rate (%) 40 65 59
Net assets, end of period (000's) ($) 73,183 106,074 105,980
|
(a) On October 13, 2003, the Liberty Asset Allocation Fund was renamed the
Columbia Asset Allocation Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) On November 18, 2002, the Galaxy Asset Allocation Fund, Retail B shares
were redesignated Liberty Asset Allocation Fund, Class G shares.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Net investment income per share reflects a special dividend. The effect of
this dividend amounted to $0.02 per share.
(f) The Fund adopted the provisions of the AICPA Audit Guide for Investment
Companies effective November 1, 2001. The effect of the changes for the
year ended October 31, 2002 on the net investment income per share, net
realized and unrealized gain per share and the ratio of net investment
income to average net assets is $(0.01), $0.01 and (0.05)%, respectively.
(g) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(h) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
(l) Rounds to less than 0.01%.
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The charts also assume that all dividends and distributions are reinvested and that Class G shares convert to Class T shares after eight years. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher.
Class T Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
5.75% $10,000.00 5%
|
Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
1 5.00% 1.32% -2.28%/(2)/ $9,771.84 $701.70
2 10.25% 1.32% 1.31% $10,131.44 $131.36
3 15.76% 1.32% 5.04% $10,504.28 $136.20
4 21.55% 1.32% 8.91% $10,890.84 $141.21
5 27.63% 1.32% 12.92% $11,291.62 $146.40
6 34.01% 1.32% 17.07% $11,707.15 $151.79
7 40.71% 1.32% 21.38% $12,137.98 $157.38
8 47.75% 1.32% 25.85% $12,584.65 $163.17
9 55.13% 1.32% 30.48% $13,047.77 $169.17
10 62.89% 1.32% 35.28% $13,527.93 $175.40
Total Gain After Fees
and Expenses $3,527.93
Total Annual Fees and
Expenses $2,073.78
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Class G Shares
Maximum Sales Charge Initial Hypothetical Investment Assumed Rate of Return 0.00% Amount $10,000.00 5%
Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
1 5.00% 1.97% 3.03% $10,303.00 $199.98
2 10.25% 1.97% 6.15% $10,615.18 $206.04
3 15.76% 1.97% 9.37% $10,936.82 $212.29
4 21.55% 1.97% 12.68% $11,268.21 $218.72
5 27.63% 1.97% 16.10% $11,609.63 $225.35
6 34.01% 1.97% 19.61% $11,961.41 $232.17
7 40.71% 1.97% 23.24% $12,323.84 $239.21
8 47.75% 1.97% 26.97% $12,697.25 $246.46
9 55.13% 1.32% 31.65% $13,164.51 $170.69
10 62.89% 1.32% 36.49% $13,648.96 $176.97
Total Gain After Fees
and Expenses $3,648.96
Total Annual Fees and
Expenses $2,127.88
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
Notes
Notes
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust XI: 811-4978
. Columbia Asset Allocation Fund
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com
PRO-36/105307-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 1, 2006 (THE "PROSPECTUS")
COLUMBIA ASSET ALLOCATION FUND
CLASS Z SHARES
The Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The section entitled "Legal Proceedings" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107690-0306 March 27, 2006
Class Z Shares
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------- Investment Goals........................ 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 3 Performance History..................... 6 Your Expenses........................... 7 YOUR ACCOUNT 9 -------------------------------------------- How to Buy Shares....................... 9 Eligible Investors...................... 9 Sales Charges........................... 11 How to Exchange Shares.................. 11 How to Sell Shares...................... 12 Fund Policy on Trading of Fund Shares... 13 Intermediary Compensation............... 14 Other Information About Your Account.... 14 |
MANAGING THE FUND 17 -------------------------------------------- Investment Advisor...................... 17 Portfolio Managers...................... 17 Legal Proceedings....................... 20 FINANCIAL HIGHLIGHTS 22 -------------------------------------------- APPENDIX A 23 -------------------------------------------- |
Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC Insured May Lose Value
No Bank Guarantee
The Fund's lead portfolio manager will allocate the Fund's assets among the various asset classes. The lead portfolio manager will adjust the number of asset classes, as well as the portion of the Fund's assets allocated to each asset class, from time to time, based on his assessment of such factors as relative attractiveness, valuation, fundamentals, quantitative analyses and economic and market expectations.
In selecting equity securities, the advisor favors stocks with long-term growth potential that are expected to outperform their peers over time. The advisor also forecasts the direction and degree of change in long-term interest rates to help in the selection of debt securities. Investment grade debt securities purchased by the Fund will have one of the top four ratings assigned by Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or will be unrated securities determined by the advisor to be of comparable quality. When deemed appropriate by the advisor, however, the Fund may invest up to 10% of its net assets in non-investment grade debt securities that are rated below BBB by S&P or Baa by Moody's or are unrated securities judged by the advisor to be of comparable quality (also known as "junk bonds"). The Fund keeps at least 25% of its total assets in fixed income investments, including debt securities and preferred stocks, at all times. The Fund may also participate in mortgage dollar rolls.
The Fund may invest up to 25% of its net assets in foreign securities.
The Fund may invest up to 10% of its net assets in exchange-traded funds, such as iShares/SM/. Exchange-traded funds are shares of investment companies which are traded like traditional equity securities on a national securities exchange or the NASDAQ(R) National Market System. iShares, which are traded on the American Stock Exchange, are shares of an investment company that invests substantially all of its assets in securities included in specified indices, including the Morgan Stanley Capital International indices for various countries and regions.
The Fund will sell a portfolio security when, as a result of changes in the economy, the advisor determines it is appropriate to revise the allocation of the Fund's assets between stocks and bonds. A security may also be sold as a result of an actual or expected deterioration in the performance of the security or in the financial condition of the issuer of the security.
As part of its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional tax liability.
The Fund
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goals.
In seeking to achieve its investment goals, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goals or investment strategies.
The Fund may purchase derivative instruments, such as futures, options, swap contracts, and inverse floaters, to gain or reduce exposure to particular securities or segments of the bond markets. Derivatives are financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use derivatives for both hedging and nonhedging purposes, such as to adjust to the Fund's sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an opposite position. The Fund typically uses derivatives in an effort to achieve more efficiently economic exposures similar to those it could have achieved through the purchase and sale of fixed income securities. Investments in derivatives may be applied toward meeting a requirement to invest in a particular kind of investment if the derivatives have economic characteristics similar to investments of that kind.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with similar investment goals. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goals or perform favorably among comparable funds.
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Because the Fund may invest in debt securities issued or supported by private entities, including corporate bonds, municipal bonds and mortgage-backed and asset-backed securities, the Fund is subject to issuer risk. Issuer risk is the possibility that changes in the financial condition of the issuer of a security, changes in general economic conditions, or changes in economic conditions that affect the issuer may impact its actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and in some cases a decrease in income. The Fund's investments in securities issued by U.S. government-sponsored enterprises, such as the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, are not funded by Congressional appropriations and are neither guaranteed nor insured by the U.S. government. Furthermore, no assurances can be given that the U.S. government would provide financial support to its agencies or instrumentalities where it is not obligated to do so.
The Fund
Structure risk is the risk that an event will occur (such as a security being prepaid or called) that alters the security's cash flows. Prepayment risk is a particular type of structure risk that is associated with investments in asset-backed and mortgage-backed securities. With respect to investments in mortgage-backed securities, prepayment risk is the possibility that, as prevailing interest rates fall, homeowners are more likely to refinance their home mortgages. When mortgages are refinanced, the principal on mortgage-backed securities is paid earlier than expected. In an environment of declining interest rates, asset-backed and mortgage-backed securities may offer less potential for gain than other debt securities. During periods of rising interest rates, asset-backed and mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the expected life of the security. In addition, the potential impact of prepayment on the price of asset-backed and mortgage-backed securities may be difficult to predict and result in greater volatility.
Mortgage dollar rolls are transactions in which the Fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase similar securities in the future at a predetermined price. These transactions simulate an investment in mortgage-backed securities and have the potential to enhance the Fund's returns and reduce its administrative burdens, compared with holding mortgage-backed securities directly. Mortgage dollar rolls involve the risks that the market value of the securities the Fund is obligated to repurchase may decline below the repurchase price, or that the other party may default on its obligations. These transactions may increase the Fund's portfolio turnover rate.
Lower-rated debt securities, commonly referred to as "junk bonds," involve greater risk of loss due to credit deterioration and are less liquid, especially during periods of economic uncertainty or change, than higher-quality debt securities. Lower-rated debt securities generally have a higher risk that the issuer of the security may default and not make payment of interest or principal.
The Fund may invest in real estate investment trusts (REITs). REITs are entities which either own properties or make construction or mortgage loans. REITs may also include operating or finance companies. Investing in REITs involves certain unique risks in addition to those risks associated with the real estate industry in general. The prices of REITs are affected by changes in the value of the underlying property owned by the REITs. In addition, although the Fund does not invest directly in real estate, a REIT investment by the Fund is subject to certain of the risks associated with the ownership of real estate. These risks include possible declines in the value of real estate, risks related to general and local economic conditions, possible lack of availability of mortgage funds and changes in interest rates.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the advisor's opinion, undervalued. If the advisor's assessment of a company's prospects is wrong, the price of the company's stock may fall, or may not approach the value the advisor has placed on it.
The Fund
Growth stocks are stocks of companies believed to have above-average potential for growth in revenue and earnings. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. The Fund may have limited legal recourse in the event of default with respect to certain debt securities issued by foreign governments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Small- or mid-cap companies may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
The Fund may enter into a number of derivative strategies, including those that employ futures, options and foreign currencies, to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use these strategies to adjust the Fund's sensitivity to changes in interest rates, or for other hedging purposes (i.e., attempting to offset a potential loss in one position by establishing an interest in an opposite position). Derivative strategies involve the risk that they may exaggerate a loss, potentially losing more money than the actual cost of the underlying security, or limit a potential gain. Also, with some derivative strategies there is the risk that the other party to the transaction may fail to honor its contract terms, causing a loss to the Fund or that the Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The Fund
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class Z share performance for each of the last ten complete calendar years. They include the effects of Fund expenses.
Average Annual Total Returns are a measure of the Fund's Class Z average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses.
The Fund's returns are compared to the Standard & Poor's 500 Index (S&P Index), an unmanaged index that tracks the performance of 500 widely held, large-capitalization U.S. stocks. The Fund's returns are also compared to the Lehman Brothers Aggregate Bond Index (Lehman Index), an unmanaged market value-weighted index that tracks the daily price, coupon, pay-downs, and total return performance of fixed-rate, publicly placed, dollar denominated and non-convertible investment grade debt issues with at least $250 million par amount outstanding and with at least one year to final maturity. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
Calendar Year Total Returns (Class Z)/(1)/
LOGO
For the periods shown in bar chart:
Best quarter: 4th quarter 1998, +11.74%
Worst quarter: 3rd quarter 2002, -9.50%
(1) The calendar year total returns shown for Class Z shares include the returns of Trust shares of the Galaxy Asset Allocation Fund (the Galaxy Fund), the predecessor to the Fund, for periods prior to November 18, 2002, the date on which Class Z shares were initially offered by the Fund.
The Fund
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class Z (%)
Return Before Taxes 5.59 1.46/(1)/ 6.75/(1)/
Return After Taxes on Distributions 3.90 0.61/(1)/ 5.34/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 5.35 0.90/(1)/ 5.18/(1)/
--------------------------------------------------------------------------------------------
S&P Index (%) 4.91 0.54 9.07
--------------------------------------------------------------------------------------------
Lehman Index (%) 2.43 5.87 6.16
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(1) The average annual returns shown include returns of Trust shares of the Galaxy Fund for periods prior to November 18, 2002, the date on which Class Z shares were initially offered by the Fund.
UNDERSTANDING EXPENSES
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds. It
uses the following hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
The Fund
Shareholder Fees/(1)/ (paid directly from your investment)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 --------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 --------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) /(2)/ |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
Annual Fund Operating Expenses (deducted directly from Fund assets)
Example Expenses (your actual costs may be higher or lower)
1 Year 3 Years 5 Years 10 Years $104 $325 $563 $1,248 |
See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For new accounts, send a completed application and check
(new account) made payable to the Fund to Columbia Management Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
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By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging shares you own in a
different fund distributed by Columbia Management
Distributors, Inc. for shares of the same class of the Fund
at no additional cost. To exchange by telephone, call
1-800-422-3737. Please see "How to Exchange Shares" for
more information.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. Be sure to
complete the appropriate section of the account application
for this feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at
no additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
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Your Account
Important Things to Consider When Deciding on a Class of Shares:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by a broker/dealer, bank, third-party administrator or other financial institution (each commonly referred to as an "intermediary"). Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
No minimum initial investment
. Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
. Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts ("IRAs")), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
. Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
. Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
$1,000 minimum initial investment
. Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of a fund distributed by Columbia Management Distributors, Inc. (i) who holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005; (iii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iv) who purchased certain no-load shares of a fund merged with a fund distributed by Columbia Management Distributors, Inc.;
. Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Management Distributors, Inc. ;
Your Account
. Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary;
. Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement);
. Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an accredited investor, as defined under the Securities Act of 1933; or
. Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries.
The Fund reserves the right to change the criteria for Eligible Investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
CHOOSING A SHARE CLASS
The Fund offers one class of shares in this
prospectus -- Class Z.
The Fund also offers five additional classes of shares -- Class A, B, C, T and G shares are available through separate prospectuses. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you. In general, anyone who is eligible to purchase Class Z shares, which do not incur Rule 12b-1 fees or sales charges, should do so in preference over other classes.
Your Account
When the Fund receives your sales request in "good form," shares will be sold
at the next calculated price. "Good form" means that the Fund's transfer agent
has all information and documentation it deems necessary to effect your order.
For example, when selling shares by letter of instruction, "good form" means
(i) your letter has complete instructions, the proper signatures and Medallion
Signature Guarantees, and (ii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries,
surviving joint owners and other legal entities, please call 1-800-345-6611.
Retirement plan accounts have special requirements; please call 1-800-799-7526
for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
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By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into Class Z shares or Class A
(only if Class Z is not offered) shares of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is $
100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign
the letter. Signatures must be guaranteed by either a bank,
a member firm of a national stock exchange or another
eligible guarantor that participates in the Medallion
Signature Guarantee Program for amounts over $100,000 or
for alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
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By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived. This feature
is not available if you hold your shares in certificate
form. All dividend and capital gains distributions must be
reinvested. Be sure to complete the appropriate section of
the account application for this feature.
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By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
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Your Account
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
Your Account
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to an intermediary. Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will
Your Account
not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for Class Z shares.
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
----------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
UNDERSTANDING FUND DISTRIBUTIONS
The Fund may earn income from the securities it holds. The Fund also may realize capital gains or losses on sales of its securities. The Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of the Fund's income and capital gains based on the number of shares you own at the time these distributions are declared.
Distribution Options The Fund distributes any dividends quarterly and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Your Account
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, all subsequent distributions will be reinvested in additional shares of the Fund.
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.66% of average daily net assets of the Fund.
Karen Wurdack, PhD, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since August, 2005. Dr. Wurdack has been associated with Columbia Advisors or its predecessors since August, 1993.
Drs. Kuriyan and Wurdack are responsible for allocating the Fund's assets among the various asset classes, while investment decisions for the portion of the Fund's assets allocated to each asset class will be made by investment professionals with particular expertise in such asset class.
The asset classes, and the persons responsible for managing the Fund's assets allocated to each particular asset class, are as follows:
Large-cap growth stocks
Paul J. Berlinguet, Edward P. Hickey, Roger R. Sullivan,
Mary-Ann Ward and John T. Wilson
Large-cap value stocks
Lori J. Ensinger, Diane L. Sobin, David I. Hoffman and
Noah J. Petrucci
Mid-cap value stocks
Diane L. Sobin, David I. Hoffman, Lori J. Ensinger and
Noah J. Petrucci
Mid-cap growth stocks
Kenneth A. Korngiebel, Wayne M. Collette, Theodore R.
Wendell, George J. Myers and J. Michael Kosicki
Small-cap growth stocks
Daniel H. Cole, Paul J. Berlinguet, Daniele M. Donahoe,
Jon Michael Morgan and Clifford D. Siverd
Small-cap value stocks
Stephen D. Barbaro and Jeremy Javidi
Foreign securities
Fred Copper
Investment grade bonds
Leonard A. Aplet
Non-investment grade bonds
Stephen Peacher
|
Managing the Fund
Paul J. Berlinguet, a senior vice president of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap growth stocks category and has co-managed that portion of the Fund since October, 2003. Mr. Berlinguet is also a co-manager for the portion of the Fund allocated to the small-cap growth stocks category and has co-managed that portion of the Fund since December, 2005. Mr. Berlinguet has been associated with Columbia Advisors since October, 2003. Prior to October, 2003, Mr. Berlinguet was head of the large-mid cap equity group and a portfolio manager at John Hancock Funds from April, 2001 to October, 2003. Prior to joining John Hancock Funds in April, 2001, Mr. Berlinguet was head of the Global Technology Research Team and a large-cap growth portfolio manager at Baring Asset Management. During his 12-year career at Baring Asset Management, he also managed a small cap aggressive growth unit trust and was lead Portfolio Manager for four years.
Edward P. Hickey, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap growth stocks category and has co-managed that portion of the Fund since June, 2005. Mr. Hickey has been associated with Columbia Advisors or its predecessors since November, 1998.
Roger R. Sullivan, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap growth stocks category and has co-managed that portion of the Fund since June, 2005. Mr. Sullivan has been associated with Columbia Advisors or its predecessors since January, 2005. Prior to January, 2005, Mr. Sullivan was a senior vice president with Putnam Investments from December, 1994 to December, 2004.
Mary-Ann Ward, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap growth stocks category and has co-managed that portion of the Fund since June, 2005. Ms. Ward has been associated with Columbia Advisors or its predecessors since July, 1997.
John T. Wilson, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap growth stocks category and has co-managed the Fund since August, 2005. Mr. Wilson has been associated with Columbia Advisors or its predecessors since July, 2005. Prior to July, 2005, Mr. Wilson was a managing director and head of the Large Cap Core Team of State Street Research and Management from May, 1996 to July, 2005.
Lori J. Ensinger, a managing director of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the mid-cap value stocks category and has co-managed the Fund since September, 2004. Ms. Ensinger is also a co-manager for the portion of the Fund allocated to the large-cap value stocks category and has co-managed that portion of the Fund since September, 2005. Ms. Ensinger has been associated with Columbia Advisors or its predecessors since August, 2001. Prior to 2001, Ms. Ensinger directed the investment strategy for all institutional assets managed under the U.S. large-cap value style at Zurich Scudder Investments, Inc. from 1999 to 2001.
Diane L. Sobin, a managing director of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the mid-cap value stocks category and has co-managed the Fund since September, 2004. Ms. Sobin is also a co-manager for the portion of the Fund allocated to the largecap value stocks category and has co-managed that portion of the Fund since September, 2005. Ms. Sobin has been associated with Columbia Advisors or its predecessors since August, 2001. Prior to August, 2001, Ms. Sobin was a senior vice president with Zurich Scudder Investments, Inc. from February, 2000 to June, 2001.
David I. Hoffman, a managing director of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the mid-cap value stocks category and has co-managed the Fund since September, 2004. Mr. Hoffman is also a co-manager for the portion of the Fund allocated to the large-cap value stocks category and has co-managed that portion of the Fund since September, 2005. Mr. Hoffman has been associated with Columbia Advisors or its predecessors since August, 2001. Prior to August, 2001, Mr. Hoffman was a vice president with Zurich Scudder Investments, Inc. from March, 1999 to July, 2001.
Managing the Fund
Noah J. Petrucci, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the mid-cap value stocks category and has co-managed the Fund since September, 2004. Mr. Petrucci is also a co-manager for the portion of the Fund allocated to the large-cap value stocks category and has co-managed that portion of the Fund since September, 2005. Mr. Petrucci has been associated with Columbia Advisors or its predecessors since February, 2002. Prior to February, 2002, Mr. Petrucci was employed by Zurich Scudder Investments, Inc. from October, 1996, serving most recently as a product specialist/portfolio manager from April, 2001 to February, 2002.
Kenneth A. Korngiebel, a senior vice president of Columbia Advisors, is the lead manager for the portion of the Fund allocated to the mid-cap growth stocks category and has managed or co-managed that portion of the Fund since June, 2004. Mr. Korngiebel has been associated with Columbia Advisors or its predecessors since 1996.
Wayne M. Collette, a vice president of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the mid-cap growth stocks category and has managed or co-managed that portion of the Fund since February, 2006. Mr. Collette has been associated with Columbia Advisors or its predecessors since 2001. Prior to joining, Mr. Collette was an associate portfolio manager with Neuberger Berman from 1999 to 2001.
Theodore R. Wendell, a vice president of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the mid-cap growth stocks category and has managed or co-managed that portion of the Fund since February, 2006. Mr. Wendell has been associated with Columbia Advisors or its predecessors since 2000.
George J. Myers, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the mid-cap growth stocks category and has managed or co-managed that portion of the Fund since February, 2006. Mr. Myers has been associated with Columbia Advisors or its predecessors since 2004. Prior to joining, Mr. Myers spent five years with Dresdner RCM Global Investors, where he was a portfolio manager and equity analyst. Earlier, he held positions with Firstar Investment Research & Management Company and J. Edwards Real Estate.
J. Michael Kosicki, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the mid-cap growth stocks category and has managed or co-managed that portion of the Fund since February, 2006. Mr. Kosicki has been associated with Columbia Advisors or its predecessors since 2004. Prior to joining, Mr. Kosicki had been with Fidelity Investments since 1993, where he worked most recently as an equity analyst specializing in the natural resources sector.
Daniel H. Cole, a portfolio manager of Columbia Advisors, is the lead manager for the portion of the Fund allocated to the small-cap growth stocks category and has co-managed that portion of the Fund since June, 2005. Mr. Cole has been associated with Columbia Advisors or its predecessors since September, 2001. Prior to September, 2001, Mr. Cole was a portfolio manager and analyst with Neuberger Berman, LLC from July, 1999 to September, 2001.
Daniele M. Donahoe, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the small-cap growth stocks category and has co-managed that portion of the Fund since December, 2005. Ms. Donahoe has been associated with Columbia Advisors or its predecessors since July, 2002. Prior to joining, Ms. Donahoe was an associate in the equity research department at Citigroup from 1999 to 2001.
Jon Michael Morgan, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the small-cap growth stocks category and has co-managed that portion of the Fund since December, 2005. Mr. Morgan has been associated with Columbia Advisors or its predecessors since July, 2000.
Clifford D. Siverd, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the small-cap growth stocks category and has co-managed that portion of the Fund since December, 2005.
Managing the Fund
Mr. Siverd has been associated with Columbia Advisors or its predecessors since April, 2001. Prior to joining, Mr. Siverd was a vice president of institutional equity sales at Suntrust Robinson-Humphry.
Stephen D. Barbaro, a vice president of Columbia Advisors, is the manager for the portion of the Fund allocated to the small-cap value stocks category and has managed or co-managed that portion of the Fund since December, 2002. Mr. Barbaro has been associated with Columbia Advisors or its predecessors since 1976.
Jeremy Javidi, a vice president of Columbia Advisors, is the co-manager for the portion of the Fund allocated to the small-cap value stocks category and has co-managed the Fund since August, 2005. Mr. Javidi has been associated with Columbia Advisors or its predecessors since January, 2000.
Fred Copper, a portfolio manager of Columbia Advisors, is the manager for the portion of the Fund allocated to the foreign stocks category and has co-managed that portion of the Fund since October, 2005. Mr. Copper has been associated with Columbia Advisors or its predecessors since September, 2005. Prior to October, 2005, Mr. Copper was a senior vice president with Putman Investments from March, 2001 to September, 2005 and an assistant vice president with Wellington Management Company, LLP from July, 1998 to February, 2001.
Leonard A. Aplet, a managing director of Columbia Advisors, is the manager for the portion of the Fund allocated to the investment grade bonds category and has managed that portion of the Fund since March, 2005. Mr. Aplet has been associated with Columbia Advisors or its predecessors since 1987.
Stephen Peacher, a managing director of Columbia Advisors, is the manager for the portion of the Fund allocated to the non-investment grade bonds category and has managed that portion of the Fund since September, 2005. Mr. Peacher has been associated with Columbia Advisors since April, 2005. Prior to April, 2005, Mr. Peacher was employed by Putnam Investments, where he served as the chief investment officer of the Credit Team for the previous five years.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other
Managing the Fund
things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and entered final judgement. The plaintiff's filed a notice of appeal on December 30, 2005.
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the last six fiscal periods, which run from October 1 to September 30, unless otherwise indicated. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the years ended September 30, 2005 and 2004, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the period ended September 30, 2003 and the fiscal years ended October 31, 2002, 2001 and 2000, has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
The Fund
Year ended Period ended
September 30, September 30,
2005 2004/(a)/ 2003/(b)(c)/
Class Z Class Z Class Z
------- -------- -------------
Net asset value --
Beginning of period ($) 15.06 14.01 12.87
---------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.31/(d)(e)/ 0.25/(d)/ 0.25/(d)/
Net realized and unrealized gain (loss) on investments, foreign
currency, future contracts and foreign capital gains tax 1.42 1.11 1.16
---------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.73 1.36 1.41
---------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.31) (0.31) (0.27)
From net realized gains -- -- --
---------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.31) (0.31) (0.27)
---------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 16.48 15.06 14.01
---------------------------------------------------------------------------------------------------------------------
Total return (%)/(g)/ 11.54/(h)/ 9.75/(h)/ 11.07/(h)(i)/
---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplement Data (%):
Expenses/(j)/ 1.10 1.19 1.16/(k)/
Net investment income/(j)/ 1.92 1.67 2.04/(k)/
Waiver/reimbursement 0.01 --/(l)/ 0.01/(k)/
Portfolio turnover rate (%) 86 75 122/(i)/
Net assets, end of period (000's) ($) 167,278 191,556 217,935
|
Year ended October 31,
2002 2001 2000
Class Z Class Z Class Z
------- ------- -------
Net asset value --
Beginning of period ($) 14.94 18.78 17.73
------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.29/(f)/ 0.37/(d)/ 0.41/(d)/
Net realized and unrealized gain (loss) on investments, foreign
currency, future contracts and foreign capital gains tax (2.09)/(f)/ (3.08) 1.36
------------------------------------------------------------------------------------------------------------
Total from Investment Operations (1.80) (2.71) 1.77
------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.27) (0.39) (0.41)
From net realized gains -- (0.74) (0.31)
------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.27) (1.13) (0.72)
------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 12.87 14.94 18.78
------------------------------------------------------------------------------------------------------------
Total return (%)/(g)/ (12.23)/(h)/ (14.94) 10.21
------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplement Data (%):
Expenses/(j)/ 1.12 1.11 1.09
Net investment income/(j)/ 2.01/(f)/ 2.23 2.21
Waiver/reimbursement 0.03 -- --
Portfolio turnover rate (%) 40 65 59
Net assets, end of period (000's) ($) 163,934 230,562 290,970
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(a) On October 13, 2003, the Liberty Asset Allocation Fund was renamed the
Columbia Asset Allocation Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) On November 18, 2002, the Galaxy Asset Allocation Fund, Trust shares were
redesignated Liberty Asset Allocation Fund Class Z shares.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Net investment income per share reflects a special dividend. The effect of
this dividend amounted to $0.02 per share.
(f) The Fund adopted the provisions of the AICPA Audit Guide for Investment
Companies effective November 1, 2001. The effect of the changes for the
year ended October 31, 2002 on the net investment income per share, net
realized and unrealized gain per share and the ratio of net investment
income to average net assets is $(0.01), $0.01 and (0.05)%, respectively.
(g) Total return at net asset value assuming all distributions reinvested.
(h) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
(l) Rounds to less than 0.01%.
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The charts also assume that all dividends and distributions are reinvested. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower.
Class Z Shares
Initial Hypothetical
Maximum Sales Investment Amount Assumed Rate of Return
Charge 0.00% $10,000.00 5%
|
Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
1 5.00% 1.02% 3.98% $10,398.00 $104.03
2 10.25% 1.02% 8.12% $10,811.84 $108.17
3 15.76% 1.02% 12.42% $11,242.15 $112.48
4 21.55% 1.02% 16.90% $11,689.59 $116.95
5 27.63% 1.02% 21.55% $12,154.83 $121.61
6 34.01% 1.02% 26.39% $12,638.60 $126.45
7 40.71% 1.02% 31.42% $13,141.61 $131.48
8 47.75% 1.02% 36.65% $13,664.65 $136.71
9 55.13% 1.02% 42.09% $14,208.50 $142.15
10 62.89% 1.02% 47.74% $14,774.00 $147.81
Total Gain After Fees
and Expenses $4,774.00
Total Annual Fees and
Expenses $1,247.84
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust XI: 811-4978
. Columbia Asset Allocation Fund
[LOGO] ColumbiaFunds
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/105505-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 1, 2006
COLUMBIA LARGE CAP GROWTH FUND
CLASS A, B AND C SHARES
The Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The section entitled "Legal Proceedings" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107696-0306 March 27, 2006
Class A, B and C Shares
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------- Investment Goal......................... 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 3 Performance History..................... 4 Your Expenses........................... 6 YOUR ACCOUNT 8 -------------------------------------------- How to Buy Shares....................... 8 Investment Minimums..................... 9 Sales Charges........................... 9 How to Exchange Shares.................. 13 How to Sell Shares...................... 13 Fund Policy on Trading of Fund Shares... 14 Distribution and Service Fees........... 15 Other Information About Your Account.... 16 |
MANAGING THE FUND 19 -------------------------------------------- Investment Advisor...................... 19 Portfolio Managers...................... 19 Legal Proceedings....................... 20 FINANCIAL HIGHLIGHTS 22 -------------------------------------------- APPENDIX A 25 -------------------------------------------- |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC May Lose Value
Insured No Bank Guarantee
|
The Fund ------------------------------------------------------------------------------- |
The Fund invests mainly in companies which the Fund's investment advisor believes will have faster earnings growth than the economy in general. The advisor looks for large-capitalization companies (generally over $5 billion) in growing industries, focusing on technological advances, good product development, strong management and other factors which support future growth. The advisor seeks out companies that have a history of strong earnings growth and are projected to continue a similar pattern of growth over the next three to five years.
The Fund may sell a portfolio security if there is an adverse change in the projected earnings growth of the company issuing the security. A security will also be sold when, as a result of changes in the economy or the performance of the security or other circumstances, the advisor believes that holding the security is no longer consistent with the Fund's investment goal.
As part of its investment strategy, the Fund may buy and sell securities frequently. Such trading usually increases portfolio turnover rates, which usually increases the chance that the Fund will pay investors short-term capital gains (which are taxable at higher rates than long-term capital gains). Such trading may also result in higher brokerage commissions and other transaction costs and additional tax liability, which could reduce the Fund's returns.
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
The Fund
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Growth stocks are stocks of companies believed to have above-average potential for growth in revenue and earnings. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general.
Convertible securities are securities that can be converted into common stock, such as certain debt securities and preferred stock. Convertible securities are subject to the usual risks associated with fixed income investments, such as interest rate risk and credit risk. In addition, because they react to changes in the value of the equity securities into which they will convert, convertible securities are also subject to market risk.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The Fund
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class A share performance for each of the last ten complete calendar years./ /They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
Calendar Year Total Returns (Class A)/(1)/
[CHART]
For the periods shown in bar chart:
Best quarter: 4th quarter 1998, +23.93%
Worst quarter: 3rd quarter 2001, -17.16%
(1) The calendar year total returns shown for Class A shares include the returns of Prime A Shares of the Galaxy Equity Growth Fund (the Galaxy Fund), the predecessor to the Fund, for periods prior to November 18, 2002, the date on which Class A shares were initially offered by the Fund. The returns shown for Class A shares also include the returns of Retail A Shares of the Galaxy Fund for periods prior to the date of inception of Prime A Shares (November 1, 1998). Class A shares generally would have had substantially similar returns to Retail A Shares because they would have been invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class A shares exceed expenses paid by Retail A Shares.
The Fund
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class A (%)
Return Before Taxes -1.05 -5.09/(1)/ 6.56/(1)/
Return After Taxes on Distributions -1.08 -5.11/(1)/ 5.41/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -0.65 -4.26/(1)/ 5.33/(1)/
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Class B (%)
Return Before Taxes -0.78 -5.12/(1)/ 6.62/(1)/
Return After Taxes on Distributions -0.78 -5.12/(1)/ 5.47/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -0.51 -4.28/(1)/ 5.42/(1)/
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Class C (%)
Return Before Taxes 3.21 -4.71/(1)/ 6.63/(1)/
Return After Taxes on Distributions 3.21 -4.71/(1)/ 5.49/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 2.09 -3.94/(1)/ 5.43/(1)/
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Russell Index (%) 5.26 -3.58 6.73
|
(1) The average annual total returns shown include the returns of Prime A Shares (for Class A shares) and Prime B Shares (for Class B shares) of the Galaxy Fund for periods prior to November 18, 2002, the date on which Class A and Class B shares were initially offered by the Fund. The returns shown for Class A shares and Class B shares also include the returns of Retail A Shares of the Galaxy Fund (adjusted, as necessary, to reflect the sales charges applicable to Class A shares and Class B shares, respectively) for periods prior to the date of inception of Prime A Shares and Prime B Shares (November 1, 1998). Class A and Class B shares generally would have had substantially similar returns to Retail A Shares because they would have been invested in the same portfolio of securities, although returns would have been lower to the extent that expenses for Class A and Class B shares exceed expenses paid by Retail A Shares. The returns shown for Class C shares include the returns of Retail B Shares of the Galaxy Fund (adjusted to reflect the sales charge applicable to Class C shares) for periods prior to November 18, 2002, the date on which Class C shares were initially offered by the Fund. The returns shown for Class C shares include the returns of Prime B Shares of the Galaxy Fund (adjusted to reflect the sales charge applicable to Class C shares) for periods prior to November 18, 2002, the date on which Class C shares were initially offered by the Fund. The returns shown for Class C shares also include the returns of Retail A Shares of the Galaxy Fund (adjusted to reflect the sales charges applicable to Class C shares) for periods prior to the date of inception of Prime B Shares (November 1, 1998). Class C shares generally would have had substantially similar returns because they would have been invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class C shares exceed expenses paid by Retail A and Prime B Shares.
The Fund
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees and other expenses that generally include, but are not limited to, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds. It
uses the following hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class B shares convert to Class A shares after eight
years
Shareholder Fees/(1)/ (paid directly from your investment)
Class A Class B Class C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00 0.00
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Maximum deferred sales charge (load) on
redemptions (%)
(as a percentage of the lesser of purchase price
or redemption price) 1.00/(2)/ 5.00 1.00
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Redemption fee (%)
(as a percentage of amount redeemed, if
applicable) /(3)/ /(3)/ /(3)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
The Fund
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class A Class B Class C
Management fee/(1)(2)/ (%) 0.57 0.57 0.57
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Distribution and service (12b-1) fees (%) 0.25/(3)/ 1.00 1.00
--------------------------------------------------------------------
Other expenses/(4)/ (%) 0.18 0.18 0.18
--------------------------------------------------------------------
Total annual fund operating expenses (%) 1.00 1.75 1.75
|
(1) The Fund pays a management fee of 0.52% and an administration fee of 0.05%.
(2) Management fee has been restated to reflect contractual changes to the
management and administration fees effective March 19, 2005.
(3) The Fund may pay distribution and service (12b-1) fees up to a maximum of
0.35% of the Fund's average daily net assets attributable to Class A shares
(comprised of up to 0.10% for distribution services and up to 0.25% for
shareholder liaison services) but will limit such fees to an aggregate of
not more than 0.25% for Class A shares during the current fiscal year.
(4) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class A $671 $875 $1,096 $1,729
-----------------------------------------------------------------
Class B: did not sell your shares $178 $551 $ 949 $1,864
sold all your shares at
the end of the period $678 $851 $1,149 $1,864
-----------------------------------------------------------------
Class C: did not sell your shares $178 $551 $ 949 $2,062
sold all your shares at
the end of the period $278 $551 $ 949 $2,062
|
See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
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By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging shares you own in a
different fund distributed by Columbia Management
Distributors, Inc. for shares of the same class (and, in
some cases, certain other classes) of the Fund at no
additional cost. There may be an additional sales charge if
exchanging from a money market fund. To exchange by
telephone, call 1-800-422-3737.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
-------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. There may
be an additional sales charge if exchanging from a money
market fund. Be sure to complete the appropriate section of
the account application for this feature.
-------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
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Your Account
Please see the Statement of Additional Information for more details on investment minimums.
CHOOSING A SHARE CLASS
The Fund offers three classes of shares in this prospectus -- Class A, B and C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 or more but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
The Fund also offers three additional classes of shares -- Class T, G and Z shares, exclusively to certain institutional and other investors through separate prospectuses.
Class A shares Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
Class A Sales Charges
% of offering
As a % of price
the public As a % retained by
offering of your financial
Amount purchased price investment advisor
Less than $50,000 5.75 6.10 5.00
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$50,000 to less than $ 100,000 4.50 4.71 3.75
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$100,000 to less than $ 250,000 3.50 3.63 2.75
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$250,000 to less than $ 500,000 2.50 2.56 2.00
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$500,000 to less than $ 1,000,000 2.00 2.04 1.75
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$1,000,000 or more 0.00 0.00 0.00
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Your Account
Class A shares bought without an initial sales charge in accounts aggregating
up to $50 million at the time of purchase are subject to a 1.00% CDSC if the
shares are sold within 12 months of the time of purchase.
Subsequent Class A share purchases that bring your account value above $1
million (but less than $50 million) are subject to a CDSC if redeemed within 12
months of the date of purchase. The 12-month period begins on the first day of
the month in which the purchase was made. The CDSC does not apply to retirement
plans purchasing through a fee-based program.
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
Purchases Over $1 Million
Amount purchased Commission % Less than $3 million 1.00 ------------------------------------------------ $3 million to less than $50 million 0.50 ------------------------------------------------ $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES
Certain investments in Class A, B and C shares are subject to a CDSC, a sales charge applied at the time you sell your shares. You will pay the CDSC only on shares you sell within a certain amount of time after purchase. The CDSC generally declines each year until there is no charge for selling shares. The CDSC is applied to the net asset value at the time of purchase or sale, whichever is lower. For purposes of calculating the CDSC, the start of the holding period is the first day of the month in which the purchase was made. Shares you purchase with reinvested dividends or other distributions are not subject to a CDSC. When you place an order to sell shares, the Fund will automatically sell first those shares not subject to a CDSC and then those you have held the longest.
Reduced Sales Charges for Larger Investments.
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
Statement of Intent You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to
Your Account
that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
. Individual accounts
. Joint accounts
. Certain IRA accounts
. Certain trusts
. UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder,
Your Account
certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
Class B shares Your purchases of Class B shares are at Class B's net asset value. Purchases up to $50,000 are allowed in Class B shares assuming the combined value of the customer's total assets in the Columbia funds does not exceed $50,000. Purchases in Class B shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart below.
Class B Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 5.00
---------------------------------------------
Through second year 4.00
---------------------------------------------
Through third year 3.00
---------------------------------------------
Through fourth year 3.00
---------------------------------------------
Through fifth year 2.00
---------------------------------------------
Through sixth year 1.00
---------------------------------------------
Longer than six years 0.00
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Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
Class C shares Your purchases of Class C shares are at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares as described in the chart below.
Class C Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 1.00
---------------------------------------------
Longer than one year 0.00
|
Your Account
When the Fund receives your sales request in "good form," shares will be sold
at the next calculated price. "Good form" means that the Fund's transfer agent
has all information and documentation it deems necessary to effect your order.
For example, when selling shares by letter of instruction, "good form" means
(i) your letter has complete instructions, the proper signatures and Medallion
Signature Guarantees, (ii) if applicable, you have included any certificates
for shares to be sold, and (iii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries,
surviving joint owners and other legal entities, please call 1-800-345-6611.
Retirement plan accounts have special requirements; please call 1-800-799-7526
for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Your Account
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into the same share class (and,
in some cases, certain other classes) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is
$100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or, if
applicable, stock power form along with any share
certificates to be sold to the address below. In your
letter of instruction, note the Fund's name, share class,
account number, and the dollar value or number of shares
you wish to sell. All account owners must sign the letter.
Signatures must be guaranteed by either a bank, a member
firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for
alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
Your Account
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Additional Intermediary Compensation In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in
Your Account
determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur
Your Account
between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the transfer agent.
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
----------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
UNDERSTANDING FUND DISTRIBUTIONS
The Fund may earn income from the securities it holds. The Fund also may realize capital gains or losses on sales of its securities. The Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of the Fund's income and capital gains based on the number of shares you own at the time these distributions are declared.
Distribution Options The Fund distributes any dividends and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, all subsequent distributions will be reinvested in additional shares of the Fund.
Your Account
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.57% of average daily net assets of the Fund.
Edward P. Hickey, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since June, 2005. Mr. Hickey has been associated with Columbia Advisors or its predecessors since November, 1998.
Roger R. Sullivan, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since June, 2005. Mr. Sullivan has been associated with Columbia Advisors or its predecessors since January, 2005. Prior to January, 2005, Mr. Sullivan was a senior vice president of Putnam Investments from December, 1994 to December, 2004.
Mary-Ann Ward, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since June, 2005. Ms. Ward has been associated with Columbia Advisors or its predecessors since July, 1997.
John T. Wilson, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since August, 2005. Mr. Wilson has been associated with Columbia Advisors or its predecessors since July, 2005. Prior to July, 2005, Mr. Wilson was a managing director and head of the Large Cap Core Team of State Street Research and Management from May, 1996 to July, 2005.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
Managing the Fund
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
Managing the Fund
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and entered final judgement. The plaintiffs filed a notice of appeal on December 30, 2005.
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last six fiscal periods, which run from October 1 to September 30, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the fiscal years ended September 30, 2004 and 2005, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the period ended September 30, 2003 and the fiscal years ended October 31, 2002, 2001 and 2000 has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
The Fund
Period ended
Year ended September 30, September 30, Year ended October 31,
2005 2004/(a)/ 2003/(b)(c)/ 2002 2001 2000
Class A Class A Class A Class A Class A Class A
------- -------- ------------- ------- ------- -------
Net asset value --
Beginning of period ($) 18.57 17.59 16.06 19.74 32.31 28.95
-------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income (loss) 0.05/(d)(e)/ (0.08)/(d)/ (0.05)/(d)/ 0.03/(d)/ (0.02) (0.05)/(d)/
Net realized and unrealized gain (loss)
on investments 2.51 1.06 1.61 (3.71) (8.92) 5.13
-------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 2.56 0.98 1.56 (3.68) (8.94) 5.08
-------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.02) -- (0.03) -- -- --
From net realized gains -- -- -- -- (3.63) (1.72)
-------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to
Shareholders (0.02) -- (0.03) -- (3.63) (1.72)
-------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 21.11 18.57 17.59 16.06 19.74 32.31
-------------------------------------------------------------------------------------------------------------------------
Total return (%)/(f)(g)/ 13.80 5.57 9.72/(h)/ (18.64) (30.43) 18.36
-------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(i)/ 1.11 1.28 1.30/(j)/ 1.12 1.13 1.12
Net investment income (loss)/(i)/ 0.25 (0.40) (0.30)/(j)/ 0.14 (0.10) (0.17)
Waiver/reimbursement --/(k)/ --/(k)/ 0.02/(j)/ 0.05 0.03 0.11
Portfolio turnover rate (%) 113 126 91/(h)/ 43 48 54
Net assets, end of period (000's) ($) 10,422 3,867 1,887 56 671 142
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(a) On October 13, 2003, the Liberty Equity Growth Fund was renamed the
Columbia Large Cap Growth Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) On November 18, 2002, the Galaxy Equity Growth Fund, Prime A shares were
redesignated Liberty Equity Growth Fund, Class A shares.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Net investment income per share reflects a special dividend. The effect of
this dividend amounted to $0.09 per share.
(f) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(g) Had the investment advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
(k) Rounds to less than 0.01%.
Financial Highlights
The Fund
Period ended
Year ended September 30, September 30, Year ended October 31,
2005 2004/(a)/ 2003/(b)(c)/ 2002 2001 2000
Class B Class B Class B Class B Class B Class B
------- -------- ------------- ------- ------- -------
Net asset value --
Beginning of period ($) 17.76 16.96 15.57 19.32 31.94 28.84
---------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment loss (0.09)/(d)(e)/ (0.21)/(d)/ (0.14)/(d)/ (0.14)/(d)/ (0.19) (0.29)/(d)/
Net realized and unrealized gain (loss)
on investments 2.40 1.01 1.53 (3.61) (8.80) 5.11
---------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 2.31 0.80 1.39 (3.75) (8.99) 4.82
---------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net realized gains -- -- -- -- (3.63) (1.72)
---------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 20.07 17.76 16.96 15.57 19.32 31.94
---------------------------------------------------------------------------------------------------------------------------
Total return (%)/(f)(g)/ 13.01 4.72 8.93/(h)/ (19.41) (31.00) 17.48
---------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(i)/ 1.86 2.03 2.13/(j)/ 1.99 1.95 1.87
Net investment loss/(i)/ (0.48) (1.15) (0.97)/(j)/ (0.73) (0.92) (0.92)
Waiver/reimbursement --/(k)/ --/(k)/ 0.02/(j)/ 0.05 0.03 0.15
Portfolio turnover rate (%) 113 126 91/(h)/ 43 48 54
Net assets, end of period (000's) ($) 7,799 3,195 1,013 207 309 450
|
(a) On October 13, 2003, the Liberty Equity Growth Fund was renamed the
Columbia Large Cap Growth Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) On November 18, 2002, the Galaxy Equity Growth Fund, Prime B shares were
redesignated Liberty Equity Growth Fund, Class B shares.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Net investment income per share reflects a special dividend. The effect of
this dividend amounted to $0.09 per share.
(f) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(g) Had the investment advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
(k) Rounds to less than 0.01%.
Financial Highlights
The Fund
Period ended
Year ended September 30, September 30,
2005 2004/(a)/ 2003/(b)(c)/
Class C Class C Class C
------- -------- -------------
Net asset value --
Beginning of period ($) 17.79 16.98 16.04
-----------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment loss/(d)/ (0.09)/(e)/ (0.21) (0.13)
Net realized and unrealized gain on investments 2.40 1.02 1.07
-----------------------------------------------------------------------------------------------
Total from Investment Operations 2.31 0.81 0.94
-----------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 20.10 17.79 16.98
-----------------------------------------------------------------------------------------------
Total return (%)/(f)(g)/ 12.98 4.77 5.86/(h)/
-----------------------------------------------------------------------------------------------
Ratios to Average Net Assets/ Supplemental Data (%):
Expenses/(i)/ 1.86 2.03 2.00/(j)/
Net investment loss/(i)/ (0.45) (1.15) (0.92)/(j)/
Waiver/reimbursement --/(k)/ --/(k)/ 0.02/(j)/
Portfolio turnover rate (%) 113 126 91/(h)/
Net assets, end of period (000's) ($) 1,419 780 524
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(a) On October 13, 2003, the Liberty Equity Growth Fund was renamed the
Columbia Large Cap Growth Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) Class C shares were initially offered on November 18, 2002. Per share data
and total return reflect activity from that date.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Net investment income per share reflects a special dividend. The effect of
this dividend amounted to $0.09 per share.
(f) Total return at net asset value assuming no contingent deferred sales
charge.
(g) Had the investment advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
(k) Rounds to less than 0.01%.
Class A Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
5.75% $10,000.00 5%
-------------------- -------------------------------------- ----------------------
Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
---- --------------- ------------- --------------- --------------- -------------------
1 5.00% 1.00% -1.98%/(2)/ $9,802.00 $671.14
2 10.25% 1.00% 1.94% $10,194.08 $99.98
3 15.76% 1.00% 6.02% $10,601.84 $103.98
4 21.55% 1.00% 10.26% $11,025.92 $108.14
5 27.63% 1.00% 14.67% $11,466.95 $112.46
6 34.01% 1.00% 19.26% $11,925.63 $116.96
7 40.71% 1.00% 24.03% $12,402.66 $121.64
8 47.75% 1.00% 28.99% $12,898.76 $126.51
9 55.13% 1.00% 34.15% $13,414.71 $131.57
10 62.89% 1.00% 39.51% $13,951.30 $136.83
Total Gain After Fees
and Expenses $3,951.30
Total Annual Fees and
Expenses $1,729.21
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Class B Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
-------------------- -------------------------------------- ----------------------
Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
---- --------------- ------------- --------------- --------------- -------------------
1 5.00% 1.75% 3.25% $10,325.00 $177.84
2 10.25% 1.75% 6.61% $10,660.56 $183.62
3 15.76% 1.75% 10.07% $11,007.03 $189.59
4 21.55% 1.75% 13.65% $11,364.76 $195.75
5 27.63% 1.75% 17.34% $11,734.11 $202.12
6 34.01% 1.75% 21.15% $12,115.47 $208.68
7 40.71% 1.75% 25.09% $12,509.23 $215.47
8 47.75% 1.75% 29.16% $12,915.78 $222.47
9 55.13% 1.00% 34.32% $13,432.41 $131.74
10 62.89% 1.00% 39.70% $13,969.70 $137.01
Total Gain After Fees
and Expenses $3,969.70
Total Annual Fees and
Expenses $1,864.30
|
Class C Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
-------------------- -------------------------------------- ----------------------
Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
---- --------------- ------------- --------------- --------------- -------------------
1 5.00% 1.75% 3.25% $10,325.00 $177.84
2 10.25% 1.75% 6.61% $10,660.56 $183.62
3 15.76% 1.75% 10.07% $11,007.03 $189.59
4 21.55% 1.75% 13.65% $11,364.76 $195.75
5 27.63% 1.75% 17.34% $11,734.11 $202.12
6 34.01% 1.75% 21.15% $12,115.47 $208.68
7 40.71% 1.75% 25.09% $12,509.23 $215.47
8 47.75% 1.75% 29.16% $12,915.78 $222.47
9 55.13% 1.75% 33.36% $13,335.54 $229.70
10 62.89% 1.75% 37.69% $13,768.94 $237.16
Total Gain After Fees
and Expenses $3,768.94
Total Annual Fees and
Expenses $2,062.41
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust XI: 811-4978
. Columbia Large Cap Growth Fund
LOGO
PRO-36/105310-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 1, 2006
COLUMBIA LARGE CAP GROWTH FUND
CLASS T AND G SHARES
The Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The section entitled "Legal Proceedings" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107776-0306 March 27, 2006
Class T and G Shares
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------- Investment Goal......................... 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 3 Performance History..................... 4 Your Expenses........................... 5 YOUR ACCOUNT 7 -------------------------------------------- How to Buy Shares....................... 7 Investment Minimums..................... 7 Sales Charges........................... 8 How to Exchange Shares.................. 11 How to Sell Shares...................... 12 Fund Policy on Trading of Fund Shares... 13 Distribution and Service Fees........... 14 Other Information About Your Account.... 15 |
MANAGING THE FUND 17 -------------------------------------------- Investment Advisor...................... 17 Portfolio Managers...................... 17 Legal Proceedings....................... 18 FINANCIAL HIGHLIGHTS 20 -------------------------------------------- APPENDIX A 22 -------------------------------------------- |
Class T and G shares are sold only to investors who received (and who have continuously held) Class T or G shares in connection with the merger of certain Galaxy Funds into various Columbia Funds (formerly named Liberty Funds).
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC May Lose Value
Insured No Bank Guarantee
|
The Fund ------------------------------------------------------------------------------- |
Growth stocks generally offer the potential for strong revenue and earnings, and accompanying capital growth, with less dividend income than value stocks.
The Fund invests mainly in companies which the Fund's investment advisor believes will have faster earnings growth than the economy in general. The advisor looks for large-capitalization companies (generally over $5 billion) in growing industries, focusing on technological advances, good product development, strong management and other factors which support future growth. The advisor seeks out companies that have a history of strong earnings growth and are projected to continue a similar pattern of growth over the next three to five years.
The Fund may sell a portfolio security if there is an adverse change in the projected earnings growth of the company issuing the security. A security will also be sold when, as a result of changes in the economy or the performance of the security or other circumstances, the advisor believes that holding the security is no longer consistent with the Fund's investment goal.
As part of its investment strategy, the Fund may buy and sell securities frequently. Such trading usually increases portfolio turnover rates, which usually increases the chance that the Fund will pay investors short-term capital gains (which are taxable at higher rates than long-term capital gains). Such trading may also result in higher brokerage commissions and other transaction costs and additional tax liability, which could reduce the Fund's returns.
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
The Fund
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Growth stocks are stocks of companies believed to have above-average potential for growth in revenue and earnings. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general.
Convertible securities are securities that can be converted into common stock, such as certain debt securities and preferred stock. Convertible securities are subject to the usual risks associated with fixed income investments, such as interest rate risk and credit risk. In addition, because they react to changes in the value of the equity securities into which they will convert, convertible securities are also subject to market risk.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The Fund
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class T share performance for each of the last ten complete calendar years./ /They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges./ /
The Fund's returns are compared to the Russell 1000 Growth Index ("Russell Index"), an unmanaged index that tracks the performance of those companies in the Russell Index with higher price-to-book ratios and higher forecasted growth values. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
Calendar Year Total Returns (Class T)/(1)/
[CHART]
For the periods shown in bar chart:
Best quarter: 4th quarter 1998, +24.04%
Worst quarter: 3rd quarter 2001, -17.22%
(1) The calendar year total returns shown for Class T shares include the returns of Retail A shares of the Galaxy Equity Growth Fund (the Galaxy Fund), the predecessor to the Fund, for periods prior to November 18, 2002, the date on which Class T shares were initially offered by the Fund.
The Fund
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class T (%)
Return Before Taxes -1.06 -5.23/(1)/ 6.47/(1)/
Return After Taxes on Distributions -1.08 -5.24/(1)/ 5.33/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -0.66 -4.37/(1)/ 5.27/(1)/
---------------------------------------------------------------------------------------------
Class G (%)
Return Before Taxes -0.70 -5.40/(1)/ 6.29/(1)/
Return After Taxes on Distributions -0.70 -5.40/(1)/ 5.17/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -0.46 -4.51/(1)/ 5.15/(1)/
---------------------------------------------------------------------------------------------
Russell Index (%) 5.26 -3.58 6.73
|
(1) The average annual total returns shown include the returns of Retail A shares (for Class T shares) and Retail B shares (for Class G shares) of the Galaxy Fund for periods prior to November 18, 2002, the date on which Class T and Class G shares were initially offered by the Fund. The returns shown for Class G shares also include the returns of Retail A shares (adjusted to reflect sales charges applicable to Class G shares) for periods prior to the inception of Retail B shares of the Galaxy Fund (March 4, 1996). Retail A shares were initially offered on December 14, 1990. Class G shares generally would have had substantially similar returns to Retail A shares because they would have been invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class G shares exceed expenses paid by Retail A shares.
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees, shareholder service fees and other expenses that generally include, but are not limited to, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
The Fund
Shareholder Fees/(1)/ (paid directly from your investment)
Class T Class G
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00
-----------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00
-----------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class T shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class T Class G
Management fee/(1)(2)/ (%) 0.57 0.57
---------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.00 0.95/(3)/
---------------------------------------------------------------
Other expenses/(5)/ (%) 0.48/(4)/ 0.18
---------------------------------------------------------------
Total annual fund operating expenses (%) 1.05 1.70
|
(1) The Fund pays a management fee of 0.52% and an administration fee of 0.05%.
(2) Management fee has been restated to reflect contractual changes to the
management and administration fees effective March 19, 2005.
(3) The Fund may pay distribution and service (12b-1) fees up to a maximum of
1.15% of the Fund's average daily net assets attributable to Class G shares
(comprised of up to 0.65% for distribution services, up to 0.25% for
shareholder liaison services and up to 0.25% for administrative support
services), but will limit such fees to an aggregate fee of not more than
0.95% during the current fiscal year.
(4) The Fund may pay shareholder service fees (which are included in other
expenses) up to a maximum of 0.50% of the Fund's average daily net assets
attributable to Class T shares (comprised of up to 0.25% for shareholder
liaison services and up to 0.25% for administrative support services), but
will limit such fees to an aggregate fee of not more than 0.30% during the
current fiscal year.
(5) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class T $676 $890 $1,121 $1,784
-----------------------------------------------------------------
Class G: did not sell your shares $173 $536 $923 $1,836
sold all your shares at
the end of the period $673 $936 $1,223 $1,836
|
See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
-------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging Class T or Class G
shares you own in a different fund distributed by Columbia
Management Distributors, Inc. for shares of the same class
(and, in some cases, certain other classes) of the Fund at
no additional cost. There may be an additional sales charge
if exchanging from a money market fund. To exchange by
telephone, call 1-800-422-3737.
-------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in ''good form.'' You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
-------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. There may
be an additional sales charge if exchanging from a money
market fund. Be sure to complete the appropriate section of
the account application for this feature.
-------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
|
Class T and G shares are sold only to investors who received (and who have continuously held) Class T or G shares in connection with the merger of certain Galaxy Funds into various Columbia Funds (formerly named Liberty Funds).
Please see the Statement of Additional Information for more details on investment minimums.
Your Account
Class T shares Your purchases of Class T shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class T shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
Class T Sales Charges
% of offering
As a % of price
the public As a % retained by
offering of your financial
Amount purchased price investment advisor
Less than $50,000 5.75 6.10 5.00
---------------------------------------------------------------------
$50,000 to less than $ 100,000 4.50 4.71 3.75
---------------------------------------------------------------------
$100,000 to less than $ 250,000 3.50 3.63 2.75
---------------------------------------------------------------------
$250,000 to less than $ 500,000 2.50 2.56 2.00
---------------------------------------------------------------------
$500,000 to less than $ 1,000,000 2.00 2.04 1.75
---------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
|
Class T shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class T share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class T share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
Purchases Over $1 Million
Amount purchased Commission % Less than $3 million 1.00 ------------------------------------------------- $3 million to less than $ 50 million 0.50 ------------------------------------------------- $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
Your Account
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES
Certain investments in Class T and G shares are subject to a CDSC, a sales charge applied at the time you sell your shares. You will pay the CDSC only on shares you sell within a certain amount of time after purchase. The CDSC generally declines each year until there is no charge for selling shares. The CDSC is applied to the net asset value at the time of purchase or sale, whichever is lower. For purposes of calculating the CDSC, the start of the holding period is the first day of the month in which the purchase was made. Shares you purchase with reinvested dividends or other distributions are not subject to a CDSC. When you place an order to sell shares, the Fund will automatically sell first those shares not subject to a CDSC and then those you have held the longest.
Reduced Sales Charges for Larger Investments.
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class T shares of the Fund and other funds in the Columbia family of funds.
Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
Statement of Intent You also may pay a lower sales charge when purchasing Class T shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
. Individual accounts
. Joint accounts
. Certain IRA accounts
. Certain trusts
. UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia
Your Account
fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
Your Account
Class G shares Your purchases of Class G shares are at Class G's net asset value. Purchases up to $50,000 are allowed in Class G shares assuming the combined value of the customer's total assets in the Columbia funds does not exceed $50,000. Purchases in Class G shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class G shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class G shares as described in the chart below.
Class G Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 5.00
---------------------------------------------
Through second year 4.00
---------------------------------------------
Through third year 4.00
---------------------------------------------
Through fourth year 4.00
---------------------------------------------
Through fifth year 3.00
---------------------------------------------
Through sixth year 2.00
---------------------------------------------
Through seventh year 1.00
---------------------------------------------
Longer than seven years 0.00
|
Commission to financial advisors is 4.00%.
Automatic conversion to Class T shares occurs eight years after purchase.
Please see the Statement of Additional Information for the CDSCs and conversion schedules applicable to Class G shares received in exchange for Retail B Shares of the Galaxy Fund purchased or acquired prior to January 1, 2001.
Your Account
When the Fund receives your sales request in "good form," shares will be sold
at the next calculated price. "Good form" means that the Fund's transfer agent
has all information and documentation it deems necessary to effect your order.
For example, when selling shares by letter of instruction, "good form" means
(i) your letter has complete instructions, the proper signatures and Medallion
Signature Guarantees, (ii) if applicable, you have included any certificates
for shares to be sold, and (iii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries,
surviving joint owners and other legal entities, please call 1-800-345-6611.
Retirement plan accounts have special requirements; please call 1-800-799-7526
for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into the same share class (or
Class A and B shares, for Class T and Class G shares,
respectively) of another fund distributed by Columbia
Management Distributors, Inc. at no additional cost. To
exchange by telephone, call 1-800-422-3737.
------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is
$100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or, if
applicable, stock power form along with any share
certificates to be sold to the address below. In your
letter of instruction, note the Fund's name, share class,
account number, and the dollar value or number of shares
you wish to sell. All account owners must sign the letter.
Signatures must be guaranteed by either a bank, a member
firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for
alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
Your Account
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
Your Account
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Additional Intermediary Compensation In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
Your Account
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for any class of shares offered by the Fund.
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
----------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
UNDERSTANDING FUND DISTRIBUTIONS
The Fund may earn income from the securities it holds. The Fund also may realize capital gains or losses on sales of its securities. The Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of the Fund's income and capital gains based on the number of shares you own at the time these distributions are declared.
Your Account
Distribution Options The Fund distributes any dividends and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, all subsequent distributions will be reinvested in additional shares of the Fund.
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.57% of average daily net assets of the Fund.
Edward P. Hickey, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since June, 2005. Mr. Hickey has been associated with Columbia Advisors or its predecessors since November, 1998.
Roger R. Sullivan, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since June, 2005. Mr. Sullivan has been associated with Columbia Advisors or its predecessors since January, 2005. Prior to January, 2005, Mr. Sullivan was a senior vice president of Putnam Investments from December, 1994 to December, 2004.
Mary-Ann Ward, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since June, 2005. Ms. Ward has been associated with Columbia Advisors or its predecessors since July, 1997.
John T. Wilson, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since August, 2005. Mr. Wilson has been associated with Columbia Advisors or its predecessors since July, 2005. Prior to July, 2005, Mr. Wilson was a managing director and head of the Large Cap Core Team of State Street Research and Management from May, 1996 to July, 2005.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
Managing the Fund
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan in still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
Managing the Fund
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and entered final judgement. The plaintiffs filed a notice of appeal on December 30, 2005.
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last six fiscal periods, which run from October 1 to September 30, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the fiscal years ended September 30, 2004 and 2005 have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the period ended September 30, 2003 and the fiscal years ended October 31, 2002, 2001 and 2000 has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
The Fund
Year ended Period ended
September 30, September 30,
2005 2004/(a)/ 2003/(b)(c)/
Class T Class T Class T
------- -------- -------------
Net asset value --
Beginning of period ($) 18.46 17.50 15.98
-------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income (loss) 0.07/(d)(e)/ (0.09)/(d)/ (0.02)/(d)/
Net realized and unrealized gain
(loss) on investments 2.47 1.05 1.54
-------------------------------------------------------------------------------------------
Total from Investment Operations 2.54 0.96 1.52
-------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.02) -- --
From net realized gains -- -- --
-------------------------------------------------------------------------------------------
Total Distributions Declared to
Shareholders (0.02) -- --
-------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 20.98 18.46 17.50
-------------------------------------------------------------------------------------------
Total return (%)/(f)/ 13.76/(g)/ 5.49/(g)/ 9.51/(g)(h)/
-------------------------------------------------------------------------------------------
Ratios to Average Net
Assets/ Supplemental Data (%):
Expenses/(i)/ 1.16 1.35 1.45/(j)/
Net investment income (loss)/(i)/ 0.33 (0.47) (0.16)/(j)/
Waiver/reimbursement --/(k)/ --/(k)/ 0.02 /(j)/
Portfolio turnover rate (%) 113 126 91 /(h)/
Net assets, end of period (000's) ($) 218,095 219,129 235,849
|
Year ended October 31,
2002 2001 2000
Class T Class T Class T
------- ------- -------
Net asset value --
Beginning of period ($) 19.70 32.31 28.99
-----------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income (loss) (0.02)/(d)/ (0.07) (0.10)/(d)/
Net realized and unrealized gain
(loss) on investments (3.70) (8.91) 5.14
-----------------------------------------------------------------------------------
Total from Investment Operations (3.72) (8.98) 5.04
-----------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income -- -- --
From net realized gains -- (3.63) (1.72)
-----------------------------------------------------------------------------------
Total Distributions Declared to
Shareholders -- (3.63) (1.72)
-----------------------------------------------------------------------------------
Net asset value --
End of period ($) 15.98 19.70 32.31
-----------------------------------------------------------------------------------
Total return (%)/(f)/ (18.88)/(g)/ (30.57)/(g)/ 18.18
-----------------------------------------------------------------------------------
Ratios to Average Net
Assets/ Supplemental Data (%):
Expenses/(i)/ 1.34 1.31 1.28
Net investment income (loss)/(i)/ (0.08) (0.28) (0.33)
Waiver/reimbursement 0.07 0.02 --
Portfolio turnover rate (%) 43 48 54
Net assets, end of period (000's) ($) 239,279 346,214 580,417
|
(a) On October 13, 2003, the Liberty Equity Growth Fund was renamed the
Columbia Large Cap Growth Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) On November 18, 2002, the Galaxy Equity Growth Fund, Retail A shares were
redesignated Liberty Equity Growth Fund, Class T shares.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Net investment income per share reflects a special dividend. The effect of
this dividend amounted to $0.09 per share.
(f) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(g) Had the investment advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
(k) Rounds to less than 0.01%.
Financial Highlights
The Fund
Year ended
September 30, Period ended
----------------------- September 30,
2005 2004/(a)/ 2003/(b)(c)/
Class G Class G Class G
------- -------- -------------
Net asset value --
Beginning of period ($) 17.21 16.43 15.11
----------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment loss (0.06)/(d)(e)/ (0.20)/(d)/ (0.15)/(d)/
Net realized and unrealized gain (loss)
on investments 2.30 0.98 1.47
----------------------------------------------------------------------------------------------------
Total from Investment Operations 2.24 0.78 1.32
----------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net realized gains -- -- --
----------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 19.45 17.21 16.43
----------------------------------------------------------------------------------------------------
Total return (%)/(f)(g)/ 13.02 4.75 8.66/(h)/
----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(i)/ 1.81 2.02 2.31/(j)/
Net investment loss/(i)/ (0.33) (1.14) (1.02)/(j)/
Waiver/reimbursement --/(k)/ --/(k)/ 0.02/(j)/
Portfolio turnover rate (%) 113 126 91/(h)/
Net assets, end of period (000's) ($) 46,276 46,328 54,850
|
Year ended October 31,
2002 2001 2000
Class G Class G Class G
------- ------- -------
Net asset value --
Beginning of period ($) 18.79 31.22 28.27
-------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment loss (0.17)/(d)/ (0.21) (0.35)/(d)/
Net realized and unrealized gain (loss)
on investments (3.51) (8.59) 5.02
-------------------------------------------------------------------------------
Total from Investment Operations (3.68) (8.80) 4.67
-------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net realized gains -- (3.63) (1.72)
-------------------------------------------------------------------------------
Net asset value --
End of period ($) 15.11 18.79 31.22
-------------------------------------------------------------------------------
Total return (%)/(f)(g)/ (19.49) (31.16) 17.29
-------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(i)/ 2.18 2.11 2.07
Net investment loss/(i)/ (0.92) (1.08) (1.11)
Waiver/reimbursement 0.07 0.02 0.02
Portfolio turnover rate (%) 43 48 54
Net assets, end of period (000's) ($) 64,156 92,292 130,347
|
(a) On October 13, 2003, the Liberty Equity Growth Fund was renamed the
Columbia Large Cap Growth Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) On November 18, 2002, the Galaxy Equity Growth Fund, Retail B shares were
redesignated Liberty Equity Growth Fund, Class G shares.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Net investment income per share reflects a special dividend. The effect of
this dividend amounted to $0.09 per share.
(f) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(g) Had the investment advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
(k) Rounds to less than 0.01%.
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class T and G shares of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The charts also assume that all dividends and distributions are reinvested and that Class G shares convert to Class T shares after eight years. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher.
Class T Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
5.75% $10,000.00 5%
-------------------- -------------------------------------- ----------------------
Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
---- --------------- ------------- --------------- --------------- -------------------
1 5.00% 1.05% -2.03%/(2)/ $9,797.29 $675.92
2 10.25% 1.05% 1.84% $10,184.28 $104.90
3 15.76% 1.05% 5.87% $10,586.56 $109.05
4 21.55% 1.05% 10.05% $11,004.73 $113.35
5 27.63% 1.05% 14.39% $11,439.42 $117.83
6 34.01% 1.05% 18.91% $11,891.27 $122.49
7 40.71% 1.05% 23.61% $12,360.98 $127.32
8 47.75% 1.05% 28.49% $12,849.24 $132.35
9 55.13% 1.05% 33.57% $13,356.78 $137.58
10 62.89% 1.05% 38.84% $13,884.37 $143.02
Total Gain After Fees
and Expenses $3,884.37
Total Annual Fees
and Expenses $1,783.81
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Class G Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
-------------------- -------------------------------------- ----------------------
Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
---- --------------- ------------- --------------- --------------- -------------------
1 5.00% 1.70% 3.30% $10,330.00 $172.81
2 10.25% 1.70% 6.71% $10,670.89 $178.51
3 15.76% 1.70% 10.23% $11,023.03 $184.40
4 21.55% 1.70% 13.87% $11,386.79 $190.48
5 27.63% 1.70% 17.63% $11,762.55 $196.77
6 34.01% 1.70% 21.51% $12,150.72 $203.26
7 40.71% 1.70% 25.52% $12,551.69 $209.97
8 47.75% 1.70% 29.66% $12,965.90 $216.90
9 55.13% 1.05% 34.78% $13,478.05 $138.83
10 62.89% 1.05% 40.10% $14,010.43 $144.31
Total Gain After Fees
and Expenses $4,010.43
Total Annual Fees
and Expenses $1,836.24
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust XI: 811-4978
. Columbia Large Cap Growth Fund
LOGO
PRO-36/105508-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 1, 2006
COLUMBIA LARGE CAP GROWTH FUND
CLASS Z SHARES
The Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The section entitled "Legal Proceedings" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107777-0306 March 27, 2006
Class Z Shares
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------- Investment Goal......................... 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 3 Performance History..................... 4 Your Expenses........................... 5 YOUR ACCOUNT 7 -------------------------------------------- How to Buy Shares....................... 7 Eligible Investors...................... 8 Sales Charges........................... 9 How to Exchange Shares.................. 9 How to Sell Shares...................... 10 Fund Policy on Trading of Fund Shares... 11 Intermediary Compensation............... 12 Other Information About Your Account.... 12 |
MANAGING THE FUND 15 -------------------------------------------- Investment Advisor...................... 15 Portfolio Managers...................... 15 Legal Proceedings....................... 16 FINANCIAL HIGHLIGHTS 18 -------------------------------------------- APPENDIX A 19 -------------------------------------------- |
Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC May Lose Value
Insured No Bank Guarantee
|
The Fund ------------------------------------------------------------------------------- |
The Fund invests mainly in companies which the Fund's investment advisor believes will have faster earnings growth than the economy in general. The advisor looks for large-capitalization companies (generally over $5 billion) in growing industries, focusing on technological advances, good product development, strong management and other factors which support future growth. The advisor seeks out companies that have a history of strong earnings growth and are projected to continue a similar pattern of growth over the next three to five years.
The Fund may sell a portfolio security if there is an adverse change in the projected earnings growth of the company issuing the security. A security will also be sold when, as a result of changes in the economy or the performance of the security or other circumstances, the advisor believes that holding the security is no longer consistent with the Fund's investment goal.
As part of its investment strategy, the Fund may buy and sell securities frequently. Such trading usually increases portfolio turnover rates, which usually increases the chance that the Fund will pay investors short-term capital gains (which are taxable at higher rates than long-term capital gains). Such trading may also result in higher brokerage commissions and other transaction costs and additional tax liability, which could reduce the Fund's returns.
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
The Fund
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Growth stocks are stocks of companies believed to have above-average potential for growth in revenue and earnings. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general.
Convertible securities are securities that can be converted into common stock, such as certain debt securities and preferred stock. Convertible securities are subject to the usual risks associated with fixed income investments, such as interest rate risk and credit risk. In addition, because they react to changes in the value of the equity securities into which they will convert, convertible securities are also subject to market risk.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The Fund
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class Z share performance for each of the last ten complete calendar years. They include the effects of Fund expenses.
Average Annual Total Returns are a measure of the Fund's Class Z average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses.
Calendar Year Total Returns (Class Z)/(1)/
LOGO
For the periods shown in bar chart:
Best quarter: 4th quarter 1998, +24.20%
Worst quarter: 3rd quarter 2001, -17.17%
(1) The calendar year total returns shown for Class Z shares include the returns of Trust Shares of the Galaxy Equity Growth Fund (the Galaxy Fund), the predecessor to the Fund, for periods prior to November 18, 2002, the date on which Class Z shares were initially offered by the Fund.
The Fund
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class Z (%)
Return Before Taxes 5.30 -3.73/(1)/ 7.52/(1)/
Return After Taxes on Distributions 5.23 -3.77/(1)/ 6.30/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 3.53 -3.15/(1)/ 6.15/(1)/
---------------------------------------------------------------------------------------------
Russell Index (%) 5.26 -3.58 6.73
|
(1) The average annual total returns shown include returns of Trust Shares of the Galaxy Fund for periods prior to November 18, 2002, the date on which Class Z shares were initially offered by the Fund. Trust Shares of the Galaxy Fund were initially offered on December 14, 1990.
UNDERSTANDING EXPENSES
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees and other expenses that generally include, but are not limited to, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
The Fund
Shareholder Fees/(1) /(paid directly from your investment)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 --------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 --------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) /(2)/ |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
Annual Fund Operating Expenses (deducted directly from Fund assets)
Example Expenses (your actual costs may be higher or lower)
1 Year 3 Years 5 Years 10 Years $77 $240 $417 $930 |
See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to Columbia Management Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
-------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
-------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging shares you own in a
different fund distributed by Columbia Management
Distributors, Inc. for shares of the same class of the Fund
at no additional cost. To exchange by telephone, call
1-800-422-3737. Please see "How to Exchange Shares" for
more information.
-------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
-------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. Be sure to
complete the appropriate section of the account application
for this feature.
-------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at
no additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
|
Your Account
Important Things to Consider When Deciding on a Class of Shares:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by a broker/dealer, bank, third-party administrator or other financial institution (each commonly referred to as an "intermediary"). Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
No minimum initial investment
. Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
. Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts ("IRAs")), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
. Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
. Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
$1,000 minimum initial investment
. Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of a fund distributed by Columbia Management Distributors, Inc. (i)
Your Account
who holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005; (iii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iv) who purchased certain no-load shares of a fund merged with a fund distributed by Columbia Management Distributors, Inc.;
. Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Management Distributors, Inc.;
. Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary;
. Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement);
. Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an accredited investor, as defined under the Securities Act of 1933; or
. Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries.
The Fund reserves the right to change the criteria for Eligible Investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
CHOOSING A SHARE CLASS
The Fund offers one class of shares in this prospectus -- Class Z.
Your Account
to adversely impact its ability to manage the Fund. See "Fund Policy on Trading of Fund Shares" for the Fund's policy. To exchange by telephone, call 1-800-422-3737. Please have your account and taxpayer identification numbers available when calling.
When the Fund receives your sales request in "good form," shares will be sold
at the next calculated price. "Good form" means that the Fund's transfer agent
has all information and documentation it deems necessary to effect your order.
For example, when selling shares by letter of instruction, "good form" means
(i) your letter has complete instructions, the proper signatures and Medallion
Signature Guarantees, and (ii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries,
surviving joint owners and other legal entities, please call 1-800-345-6611.
Retirement plan accounts have special requirements; please call 1-800-799-7526
for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into Class Z shares or Class A
shares (only if Class Z is not offered) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is
$100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
------------------------------------------------------------------------------
By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign
the letter. Signatures must be guaranteed by either a bank,
a member firm of a national stock exchange or another
eligible guarantor that participates in the Medallion
Signature Guarantee Program for amounts over $100,000 or
for alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. All dividend and capital gains distributions must
be reinvested. Be sure to complete the appropriate section
of the account application for this feature.
------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
Your Account
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
Your Account
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to an intermediary. Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that
Your Account
are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for Class Z shares.
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
----------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
Distribution Options The Fund distributes any dividends and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
Your Account
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, all subsequent distributions will be reinvested in additional shares of the Fund.
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.57% of average daily net assets of the Fund.
Edward P. Hickey, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since June, 2005. Mr. Hickey has been associated with Columbia Advisors or its predecessors since November, 1998.
Roger R. Sullivan, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since June, 2005. Mr Sullivan has been associated with Columbia Advisors or its predecessors since January, 2005. Prior to January, 2005, Mr. Sullivan was a senior vice president of Putnam Investments from December, 1994 to December, 2004.
Mary-Ann Ward, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since June, 2005. Ms. Ward has been associated with Columbia Advisors or its predecessors since July, 1997.
John T. Wilson, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since August, 2005. Mr. Wilson has been associated with Columbia Advisors or its predecessors since July, 2005. Prior to July, 2005, Mr. Wilson was a managing director and head of the Large Cap Core Team of State Street Research and Management from May, 1996 to July, 2005.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
Managing the Fund
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
Managing the Fund
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and entered final judgement. The plaintiffs filed a notice of appeal on December 30, 2005.
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the Fund's last six fiscal periods, which run from October 1 to September 30, unless otherwise indicated. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the fiscal years ended September 30, 2004 and 2005, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the period ended September 30, 2003 and the fiscal years ended October 31, 2002, 2001 and 2000 has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
The Fund
Year ended Period ended
September 30, September 30,
2005 2004/(a)/ 2003/(b)(c)/
Class Z Class Z Class Z
--------- -------- -------------
Net asset value --
Beginning of period ($) 18.87 17.84 16.28
---------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income (loss) 0.11/(d)(e)/ (0.03)/(d)/ 0.05/(d)/
Net realized and unrealized gain (loss)
on investments 2.55 1.07 1.57
---------------------------------------------------------------------------------------------------
Total from Investment Operations 2.66 1.04 1.62
---------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.03) (0.01) (0.06)
From net realized gains -- -- --
---------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.03) (0.01) (0.06)
---------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 21.50 18.87 17.84
---------------------------------------------------------------------------------------------------
Total return (%)/(f)/ 14.12/(g)/ 5.83/(g)/ 9.93/(g)(h)/
---------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(i)/ 0.86 1.03 0.99/(j)/
Net investment income (loss)/(i)/ 0.53 (0.15) 0.30/(j)/
Waiver/reimbursement --/(k)/ --/(k)/ 0.02/(j)/
Portfolio turnover rate (%) 113 126 91/(h)/
Net assets, end of period (000's) ($) 1,242,736 634,710 670,649
|
Year ended October 31,
2002 2001 2000
Class Z Class Z Class Z
------- ------- ---------
Net asset value --
Beginning of period ($) 19.99 32.61 29.15
------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income (loss) 0.07/(d)/ 0.02 0.01/(d)/
Net realized and unrealized gain (loss)
on investments (3.78) (9.01) 5.18
------------------------------------------------------------------------------------------
Total from Investment Operations (3.71) (8.99) 5.19
------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income -- -- (0.01)
From net realized gains -- (3.63) (1.72)
------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders -- (3.63) (1.73)
------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 16.28 19.99 32.61
------------------------------------------------------------------------------------------
Total return (%)/(f)/ (18.51)/(g)/ (30.29)/(g)/ 18.63
------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(i)/ 0.91 0.93 0.91
Net investment income (loss)/(i)/ 0.35 0.10 0.04
Waiver/reimbursement 0.05 0.01 --
Portfolio turnover rate (%) 43 48 54
Net assets, end of period (000's) ($) 699,215 845,887 1,258,399
|
(a) On October 13, 2003, the Liberty Equity Growth Fund was renamed the
Columbia Large Cap Growth Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) On November 18, 2002, the Galaxy Equity Growth Fund, Trust shares were
redesignated Liberty Equity Growth Fund, Class Z shares.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Net investment income per share reflects a special dividend. The effect of
this dividend amounted to $0.09 per share.
(f) Total return at net asset value assuming all distributions reinvested.
(g) Had the investment advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
(k) Rounds to less than 0.01%.
Class Z Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
-------------------- -------------------------------------- ----------------------
Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
---- --------------- ------------- --------------- --------------- -------------------
1 5.00% 0.75% 4.25% $10,425.00 $76.59
2 10.25% 0.75% 8.68% $10,868.06 $79.85
3 15.76% 0.75% 13.30% $11,329.96 $83.24
4 21.55% 0.75% 18.11% $11,811.48 $86.78
5 27.63% 0.75% 23.13% $12,313.47 $90.47
6 34.01% 0.75% 28.37% $12,836.79 $94.31
7 40.71% 0.75% 33.82% $13,382.35 $98.32
8 47.75% 0.75% 39.51% $13,951.10 $102.50
9 55.13% 0.75% 45.44% $14,544.02 $106.86
10 62.89% 0.75% 51.62% $15,162.14 $111.40
Total Gain After Fees
and Expenses $5,162.14
Total Annual Fees and
Expenses $930.32
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust XI: 811-4978
. Columbia Large Cap Growth Fund
LOGO
PRO-36/105412-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 1, 2006 (THE "PROSPECTUS")
COLUMBIA DISCIPLINED VALUE FUND (THE "FUND")
CLASS A, B AND C SHARES
The Fund's Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The section entitled "Legal Proceedings" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107866-0306 March 27, 2006
Class A, B and C Shares
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------- Investment Goals........................ 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 3 Performance History..................... 5 Your Expenses........................... 7 YOUR ACCOUNT 9 -------------------------------------------- How to Buy Shares....................... 9 Investment Minimums..................... 9 Sales Charges........................... 10 How to Exchange Shares.................. 13 How to Sell Shares...................... 14 Fund Policy on Trading of Fund Shares... 15 Distribution and Service Fees........... 16 Other Information About Your Account.... 17 |
MANAGING THE FUND 19 -------------------------------------------- Investment Advisor...................... 19 Portfolio Manager....................... 19 Legal Proceedings....................... 19 FINANCIAL HIGHLIGHTS 21 -------------------------------------------- APPENDIX A 24 -------------------------------------------- |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC Insured May Lose Value
No Bank Guarantee
The Fund will typically hold a selection of common stocks consisting of stocks included in the Russell 1000 Value Index ("Russell Index"). The advisor tries to maintain a portfolio that matches the risk characteristics of the Russell Index. The advisor will, from time to time, vary the number and percentages of the Fund's holdings to try to provide higher returns than the Russell Index and to reduce the risk of underperforming the index over time. The Fund generally holds fewer stocks than the index and may hold securities that are not in the index.
Value stocks are stocks that appear to be underpriced based on measures such as lower price-to-earnings, price-to-book value and price-to-earnings growth ratios.
In selecting investments for the Fund, the advisor uses quantitative analysis to evaluate the attractiveness of each potential investment. The advisor may examine a wide variety of factors classified, for example, as value measures (forward price-to-earnings, trailing price-to-earnings, book value-to-price, price-to-cash flow, etc.), growth measures (earnings growth, revenue growth, etc.), price momentum and/or earnings momentum (earnings change, estimate revision, earnings surprise, etc.), among others.
The Fund seeks to hold a higher percentage of attractive investments than the index and a lesser percentage, or none, of less attractive investments. In all cases, investments are selected with the intention of increasing return relative to the Russell Index and/or reducing portfolio volatility relative to the Russell Index.
In addition, the advisor believes capital market inefficiencies may exist and may sometimes be exploited by using a variety of derivative instruments.
The advisor tries to control costs when it buys and sells securities for the Fund by using computerized systems called crossing networks that allow it to try to make trades at better prices and reduced commission rates.
The advisor may sell a stock when it believes other stocks in the index are more attractive investments, when the stock is removed from the index, or for other reasons.
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goals.
In seeking to achieve its investment goals, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goals or investment strategies.
The Fund
As part of its investment strategy, the Fund may buy and sell securities frequently. Frequent trading of investments usually increases the chance that the Fund will pay investors short-term capital gains (which are taxable at higher rates than long-term capital gains). Frequent trading may also result in higher brokerage commissions and other transaction costs and additional tax liability, which could reduce the Fund's returns.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with similar investment goals. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goals or perform favorably among comparable funds.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the advisor's opinion, undervalued. If the advisor's assessment of a company's prospects is wrong, the price of the company's stock may fall, or may not approach the value the advisor has placed on it.
Small- or mid-cap companies may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
The Fund
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
Frequent trading risk. Frequent trading of investments usually increases the chance that the Fund will pay investors short-term capital gains. These gains are taxable at higher rates than long-term capital gains. Frequent trading could also mean higher transaction costs, which could reduce the Fund's return.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The Fund
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
Calendar Year Total Returns (Class A)/(1)/
LOGO
For the periods shown in bar chart:
Best quarter: 4th quarter 1998, +27.15%.
Worst quarter: 3rd quarter 2002, -21.36%.
(1) The calendar year total returns shown for Class A shares include returns of Retail A Shares of the Galaxy Equity Value Fund (the Galaxy Fund), the predecessor to the Fund, for the periods prior to November 25, 2002, the date on which Class A shares were initially offered by the Fund. Class A shares would have had substantially similar returns because they would have been invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class A shares exceed expenses paid by Retail A Shares.
The Fund
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class A (%)
Return Before Taxes 3.80 2.15/(1)/ 8.19/(1)/
Return After Taxes on Distributions 2.40 1.69/(1)/ 6.11/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 4.05 1.77/(1)/ 6.19/(1)/
--------------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes 4.29 2.16/(1)/ 8.06/(1)/
Return After Taxes on Distributions 2.91 1.76/(1)/ 6.04/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 4.41 1.80/(1)/ 6.14/(1)/
--------------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 8.31 2.50/(1)/ 8.04/(1)/
Return After Taxes on Distributions 6.92 2.10/(1)/ 6.03/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 7.02 2.09/(1)/ 6.12/(1)/
--------------------------------------------------------------------------------------------
Russell Index (%) 7.05 5.28 10.94
--------------------------------------------------------------------------------------------
Lipper Average (%) 6.37 5.42 9.70
|
(1) Class A, Class B and Class C are newer classes of shares. Their performance information includes returns of Retail A Shares (for Class A shares) and Retail B Shares (for Class B and Class C shares) of the Galaxy Fund for periods prior to November 25, 2002, the date on which Class A, B and C shares were initially offered by the Fund. The returns shown for Class B and Class C shares also include the performance of Retail A Shares of the Galaxy Fund for periods prior to the inception of Retail B Shares (March 4, 1996). Class B and Class C shares generally would have had substantially similar returns to Retail A Shares because they would have been invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class B and Class C shares exceed expenses paid by Retail A Shares. The returns have not been restated to reflect any differences in expenses (such as 12b-1 fees) between any of the predecessor shares and the newer classes of shares.
The Fund
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds. It
uses the following hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class B shares convert to Class A shares after eight years
Shareholder Fees/(1) /(paid directly from your investment)
Class A Class B Class C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00 0.00
------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00 1.00
------------------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/ /(3)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
The Fund
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class A Class B Class C
Management fee/(1)/ (%) 0.77 0.77 0.77
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Distribution and service (12b-1) fees (%) 0.25/(2)/ 1.00 1.00
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Other expenses/(3)/ (%) 0.18 0.18 0.18
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Total annual fund operating expenses (%) 1.20 1.95 1.95
|
(1) The Fund pays a management fee of 0.70% and an administration fee of 0.07%.
(2) The Fund may pay distribution and service (12b-1) fees up to a maximum of
0.35% of the Fund's average daily net assets attributable to Class A shares
(comprised of up to 0.10% for distribution services and up to 0.25% for
shareholder liaison services), but will limit such fees to an aggregate fee
of not more than 0.25% for Class A shares during the current fiscal year.
(3) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class A: $690 $934 $1,197 $1,946
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Class B: did not sell your shares $198 $612 $1,052 $2,080
sold all your shares at
the end of the period $698 $912 $1,252 $2,080
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Class C: did not sell your shares $198 $612 $1,052 $2,275
sold all your shares at
the end of the period $298 $612 $1,052 $2,275
|
See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
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By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging shares you own in a
different fund distributed by Columbia Management
Distributors, Inc. for shares of the same class (and, in
some cases, certain other classes) of the Fund at no
additional cost. There may be an additional sales charge if
exchanging from a money market fund. To exchange by
telephone, call 1-800-422-3737.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
-------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. There may
be an additional sales charge if exchanging from a money
market fund. Be sure to complete the appropriate section of
the account application for this feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
|
Please see the Statement of Additional Information for more details on investment minimums.
Your Account
CHOOSING A SHARE CLASS
The Fund offers three classes of shares in this prospectus -- Class A, B and C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 or more but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
The Fund also offers three additional classes of shares -- Class T, G and Z shares, exclusively to certain institutional and other investors through separate prospectuses.
Class A shares Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
Class A Sales Charges
% of offering
As a % of price
the public As a % retained by
offering of your financial
Amount purchased price investment advisor
Less than $50,000 5.75 6.10 5.00
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$50,000 to less than $100,000 4.50 4.71 3.75
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$100,000 to less than $250,000 3.50 3.63 2.75
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$250,000 to less than $500,000 2.50 2.56 2.00
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$500,000 to less than $1,000,000 2.00 2.04 1.75
--------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
|
Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
Your Account
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
Purchases Over $1 Million
Amount purchased Commission % Less than $3 million 1.00 ------------------------------------------------ $3 million to less than $50 million 0.50 ------------------------------------------------ $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
Reduced Sales Charges for Larger Investments.
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
Statement of Intent You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
Your Account
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
. Individual accounts
. Joint accounts
. Certain IRA accounts
. Certain trusts
. UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
Your Account
Class B shares Your purchases of Class B shares are at Class B's net asset value. Purchases up to $50,000 are allowed in Class B shares assuming the combined value of the customer's total assets in the Columbia funds does not exceed $50,000. Purchases in Class B shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the applicable chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart below.
Class B Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 5.00
---------------------------------------------
Through second year 4.00
---------------------------------------------
Through third year 3.00
---------------------------------------------
Through fourth year 3.00
---------------------------------------------
Through fifth year 2.00
---------------------------------------------
Through sixth year 1.00
---------------------------------------------
Longer than six years 0.00
|
Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
Class C shares Your purchases of Class C shares are at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares.
Class C Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 1.00
---------------------------------------------
Longer than one year 0.00
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Your Account
When the Fund receives your sales request in "good form," shares will be sold
at the next calculated price. "Good form" means that the Fund's transfer agent
has all information and documentation it deems necessary to effect your order.
For example, when selling shares by letter of instruction, "good form" means
(i) your letter has complete instructions, the proper signatures and Medallion
Signature Guarantees, (ii) if applicable, you have included any certificates
for shares to be sold, and (iii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries,
surviving joint owners and other legal entities, please call 1-800-345-6611.
Retirement plan accounts have special requirements; please call 1-800-799-7526
for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into the same share class (and,
in some cases, certain other classes) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is
$100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or if
applicable, stock power form along with any share
certificates to be sold to the address below. In your
letter of instruction, note the Fund's name, share class,
account number, and the dollar value or number of shares
you wish to sell. All account owners must sign the letter.
Signatures must be guaranteed by either a bank, a member
firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for
alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
Your Account
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain Funds impose a redemption fee on the proceeds of Fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
Your Account
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Additional Intermediary Compensation In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
Your Account
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the transfer agent.
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
----------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
Your Account
Distribution Options The Fund distributes any dividends quarterly and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable all subsequent distributions will be reinvested in additional shares of the Fund.
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.70% of average daily net assets of the Fund.
The Statement of Additional Information provides additional information about the manager's compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former
Managing the Fund
Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and entered final judgment. The plaintiffs filed a notice of appeal on December 30, 2005.
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's fiscal years since inception, which run from October 1 to September 30, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the years ended September 30, 2005 and September 30, 2004, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the period ended September 30, 2003, has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
The Fund
Year ended Year ended Period ended
September 30, September 30, September 30,
2005 2004/(a)/ 2003/(b)(c)/
Class A Class A Class A
------------- ------------- -------------
Net asset value --
Beginning of period ($) 12.71 11.02 10.06
------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income/(d)/ 0.17/(e)/ 0.17 0.04
Net realized and unrealized gain on investments 1.88 1.75 0.92
------------------------------------------------------------------------------------------------
Total from Investment Operations 2.05 1.92 0.96
------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders:
From net investment income (0.16) (0.23) --
------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 14.60 12.71 11.02
------------------------------------------------------------------------------------------------
Total return (%)/(f)/ 16.21/(g)/ 17.53 9.54/(h)/
------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(i)/ 1.23 1.31 1.31/(j)/
Net investment income/(i)/ 1.21 1.34 0.49/(j)/
Waiver/reimbursement 0.01 -- --
Portfolio turnover rate (%) 94 101 50/(h)/
Net assets, end of period (000's) ($) 4,269 2,511 903
|
(a) On October 13, 2003, the Liberty Equity Value Fund was renamed the Columbia
Disciplined Value Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) Class A shares were initially offered on November 25, 2002. Per share data
and total return reflect activity from that date.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Net investment income per share reflects a special dividend. The effect of
this dividend amounted to $0.02 per share.
(f) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(g) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
Financial Highlights
The Fund
Year ended Year ended Period ended
September 30, September 30, September 30,
2005 2004/(a)/ 2003/(b)(c)/
Class B Class B Class B
------------- ------------- -------------
Net asset value --
Beginning of period ($) 12.16 10.49 9.67
-------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income (loss)/(d)/ 0.06/(e)/ 0.07 (0.02)
Net realized and unrealized gain on investments 1.80 1.67 0.84
-------------------------------------------------------------------------------------------------
Total from investment operations 1.86 1.74 0.82
-------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders:
From net investment income (0.06) (0.07) --
-------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 13.96 12.16 10.49
-------------------------------------------------------------------------------------------------
Total return (%)/(f)/ 15.30/(g)/ 16.64 8.48/(h)/
-------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(i)/ 1.98 2.06 2.26/(j)/
Net investment income (loss)/(i)/ 0.46 0.60 (0.27)/(j)/
Waiver/reimbursement 0.01 -- --
Portfolio turnover rate (%) 94 101 50/(h)/
Net assets, end of period (000's) ($) 3,974 2,370 338
|
(a) On October 13, 2003, the Liberty Equity Value Fund was renamed the Columbia
Disciplined Value Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) Class B shares were initially offered on November 25, 2002. Per share data
and total return reflect activity from that date.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Net investment income per share reflects a special dividend. The effect of
this dividend amounted to $0.02 per share.
(f) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(g) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
Financial Highlights
The Fund
Year ended Year ended Period ended
September 30, September 30, September 30,
2005 2004/(a)/ 2003/(b)(c)/
Class C Class C Class C
------------- ------------- -------------
Net asset value --
Beginning of period ($) 12.14 10.47 9.67
---------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income (loss)/(d)/ 0.06/(e)/ 0.07 (0.05)
Net realized and unrealized gain on investments 1.80 1.67 0.85
---------------------------------------------------------------------------------------------------
Total from Investment Operations 1.86 1.74 0.80
---------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders:
From net investment income (0.06) (0.07) --
---------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 13.94 12.14 10.47
---------------------------------------------------------------------------------------------------
Total return (%)/(f)/ 15.33/(g)/ 16.67 8.27/(g)(h)/
---------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(i)/ 1.98 2.07 2.49/(j)/
Net investment income (loss)/(i)/ 0.49 0.63 (0.60)/(j)/
Waiver/reimbursement 0.01 -- 0.49/(j)/
Portfolio turnover rate (%) 94 101 50/(h)/
Net assets, end of period (000's) ($) 453 291 24
|
(a) On October 13, 2003, the Liberty Equity Value Fund was renamed the Columbia
Disciplined Value Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) Class C shares were initially offered on November 25, 2002. Per share data
and total return reflect activity from that date.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Net investment income per share reflects a special dividend. The effect of
this dividend amounted to $0.02 per share.
(f) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(g) Had the Investment Advisor or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The charts also assume that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher.
Class A Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
5.75% $10,000.00 5%
Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
1 5.00% 1.20% -2.17%/(2)/ $9,783.15 $690.25
2 10.25% 1.20% 1.55% $10,154.91 $119.63
3 15.76% 1.20% 5.41% $10,540.80 $124.17
4 21.55% 1.20% 9.41% $10,941.35 $128.89
5 27.63% 1.20% 13.57% $11,357.12 $133.79
6 34.01% 1.20% 17.89% $11,788.69 $138.87
7 40.71% 1.20% 22.37% $12,236.66 $144.15
8 47.75% 1.20% 27.02% $12,701.65 $149.63
9 55.13% 1.20% 31.84% $13,184.31 $155.32
10 62.89% 1.20% 36.85% $13,685.32 $161.22
Total Gain After Fees
and Expenses $3,685.32
Total Annual Fees and
Expenses $1,945.93
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Class B Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
1 5.00% 1.95% 3.05% $10,305.00 $197.97
2 10.25% 1.95% 6.19% $10,619.30 $204.01
3 15.76% 1.95% 9.43% $10,943.19 $210.23
4 21.55% 1.95% 12.77% $11,276.96 $216.65
5 27.63% 1.95% 16.21% $11,620.91 $223.25
6 34.01% 1.95% 19.75% $11,975.34 $230.06
7 40.71% 1.95% 23.41% $12,340.59 $237.08
8 47.75% 1.95% 27.17% $12,716.98 $244.31
9 55.13% 1.20% 32.00% $13,200.22 $155.50
10 62.89% 1.20% 37.02% $13,701.83 $161.41
Total Gain After Fees
and Expenses $3,701.83
Total Annual Fees and
Expenses $2,080.49
|
Class C Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
1 5.00% 1.95% 3.05% $10,305.00 $197.97
2 10.25% 1.95% 6.19% $10,619.30 $204.01
3 15.76% 1.95% 9.43% $10,943.19 $210.23
4 21.55% 1.95% 12.77% $11,276.96 $216.65
5 27.63% 1.95% 16.21% $11,620.91 $223.25
6 34.01% 1.95% 19.75% $11,975.34 $230.06
7 40.71% 1.95% 23.41% $12,340.59 $237.08
8 47.75% 1.95% 27.17% $12,716.98 $244.31
9 55.13% 1.95% 31.05% $13,104.85 $251.76
10 62.89% 1.95% 35.05% $13,504.55 $259.44
Total Gain After Fees
and Expenses $3,504.55
Total Annual Fees and
Expenses $2,274.78
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
Notes
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust XI: 811-4978
. Columbia Disciplined Value Fund
[LOGO]
ColumbiaFunds
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com
PRO-36/105509-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 1, 2006 (THE "PROSPECTUS")
COLUMBIA DISCIPLINED VALUE FUND (THE "FUND")
CLASS T AND G SHARES
The Fund's Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The section entitled "Legal Proceedings" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107773-0306 March 27, 2006
Class T and G Shares
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------- Investment Goals........................ 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 3 Performance History..................... 4 Your Expenses........................... 6 YOUR ACCOUNT 8 -------------------------------------------- How to Buy Shares....................... 8 Sales Charges........................... 9 How to Exchange Shares.................. 12 How to Sell Shares...................... 12 Fund Policy on Trading of Fund Shares... 13 Distribution and Service Fees........... 14 Other Information About Your Account.... 15 |
MANAGING THE FUND 18 -------------------------------------------- Investment Advisor...................... 18 Portfolio Manager....................... 18 Legal Proceedings....................... 18 FINANCIAL HIGHLIGHTS 20 -------------------------------------------- APPENDIX A 22 -------------------------------------------- |
Class T and G shares are sold only to investors who received (and who have continuously held) Class T or G shares in connection with the merger of certain Galaxy Funds into various Columbia Funds (formerly named Liberty Funds).
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC Insured May Lose Value
No Bank Guarantee
The Fund will typically hold a selection of common stocks consisting of stocks included in the Russell 1000 Value Index ("Russell Index"). The advisor tries to maintain a portfolio that matches the risk characteristics of the Russell Index. The advisor will, from time to time, vary the number and percentages of the Fund's holdings to try to provide higher returns than the Russell Index and to reduce the risk of underperforming the index over time. The Fund generally holds fewer stocks than the index and may hold securities that are not in the index.
In selecting investments for the Fund, the advisor uses quantitative analysis to evaluate the attractiveness of each potential investment. The advisor may examine a wide variety of factors classified, for example, as value measures (forward price-to-earnings, trailing price-to-earnings, book value-to-price, price-to-cash flow, etc.), growth measures (earnings growth, revenue growth, etc.), price momentum and/or earnings momentum (earnings change, estimate revision, earnings surprise, etc.), among others.
The Fund seeks to hold a higher percentage of attractive investments than the index and a lesser percentage, or none, of less attractive investments. In all cases, investments are selected with the intention of increasing return relative to the Russell Index and/or reducing portfolio volatility relative to the Russell Index.
In addition, the advisor believes capital market inefficiencies may exist and may sometimes be exploited by using a variety of derivative instruments.
The advisor tries to control costs when it buys and sells securities for the Fund by using computerized systems called crossing networks that allow it to try to make trades at better prices and reduced commission rates.
The advisor may sell a stock when it believes other stocks in the index are more attractive investments, when the stock is removed from the index, or for other reasons.
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goals.
In seeking to achieve its investment goals, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goals or investment strategies.
The Fund
As part of its investment strategy, the Fund may buy and sell securities frequently. Frequent trading of investments usually increases the chance that the Fund will pay investors short-term capital gains (which are taxable at higher rates than long-term capital gains). Frequent trading may also result in higher brokerage commissions and other transaction costs and additional tax liability, which could reduce the Fund's returns.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with similar investment goals. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goals or perform favorably among comparable funds.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the advisor's opinion, undervalued. If the advisor's assessment of a company's prospects is wrong, the price of the company's stock may fall, or may not approach the value the advisor has placed on it.
Small- or mid-cap companies may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative
The Fund
transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
Frequent trading risk. Frequent trading of investments usually increases the chance that the Fund will pay investors short-term capital gains. These gains are taxable at higher rates than long-term capital gains. Frequent trading could also mean higher transaction costs, which could reduce the Fund's return.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class T share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
The Fund's returns are compared to the Russell 1000 Value Index (Russell Index), an unmanaged index that tracks the performance of those companies in the Russell Index with lower price-to-book ratios and lower forecasted growth values. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed. The Fund's returns are also compared to the average return of the funds included in the Lipper Multi-Cap Value Funds Category (Lipper Average), as calculated by Lipper, Inc. This category is composed of funds with investment objectives similar to those of the Fund. Sales charges are not reflected in the Lipper Average.
The Fund
Calendar Year Total Returns (Class T)/(1)/
[CHART]
For the periods shown in bar chart:
Best quarter: 4th quarter 1998, +27.15%
Worst quarter: 3rd quarter 2002, -21.36%
(1) The calendar year total returns shown for Class T shares include the returns of Retail A shares of the Galaxy Equity Value Fund (the Galaxy Fund), the predecessor to the Fund, for periods prior to November 25, 2002, the date on which Class T shares were initially offered by the Fund.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class T (%)
Return Before Taxes 3.75 2.08/(1)/ 8.16/(1)/
Return After Taxes on Distributions 2.35 1.64/(1)/ 6.08/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 4.01 1.72/(1)/ 6.16/(1)/
--------------------------------------------------------------------------------------------
Class G (%)
Return Before Taxes 4.34 2.02/(1)/ 8.07/(1)/
Return After Taxes on Distributions 2.95 1.61/(1)/ 6.06/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 4.45 1.67/(1)/ 6.15/(1)/
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Russell Index (%) 7.05 5.28 10.94
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Lipper Average (%) 6.37 5.42 9.70
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(1) The average annual total returns shown include the returns of Retail A Shares (for Class T shares) and Retail B Shares (for Class G shares) of the Galaxy Fund for periods prior to November 25, 2002, the date on which Class T and Class G shares were initially offered by the Fund. The returns shown for Class G shares also include the returns of Retail A Shares (adjusted to reflect the sales charges applicable to Class G shares), for periods prior to the inception of Retail B Shares of the Galaxy Fund (March 4, 1996). Retail A Shares were initially offered on September 1, 1988. Class G shares generally would have had substantially similar returns to Retail A Shares because they would have been invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class G shares exceed expenses paid by Retail A Shares.
The Fund
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees, shareholder service fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds. It
uses the following hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class G shares convert to Class T shares after eight
years
Shareholder Fees/(1)/ (paid directly from your investment)
Class T Class G
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00
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Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00
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Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/
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(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class T shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
The Fund
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class T Class G
Management fee/(1)/ (%) 0.77 0.77
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Distribution and service (12b-1) fees (%) 0.00 0.95/(2)/
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Other expenses/(4)/ (%) 0.48/(3)/ 0.18
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Total annual fund operating expenses (%) 1.25 1.90
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(1) The Fund pays a management fee of 0.70% and an administration fee of 0.07%.
(2) The Fund may pay distribution and service (12b-1) fees up to a maximum of
1.15% of the Fund's average daily net assets attributable to Class G shares
(comprised of up to 0.65% for distribution services, up to 0.25% for
shareholder liaison services and up to 0.25% for administrative support
services), but will limit such fees to an aggregate fee of not more than
0.95% during the current fiscal year.
(3) The Fund may pay shareholder service fees (which are included in other
expenses) up to a maximum of 0.50% of the Fund's average daily net assets
attributable to Class T shares (comprised of up to 0.25% for shareholder
liaison services and up to 0.25% for administrative support services), but
will limit such fees to an aggregate fee of not more than 0.30% during the
current fiscal year.
(4) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class T $695 $949 $1,222 $1,999
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Class G: did not sell your shares $193 $597 $1,026 $2,053
sold all your shares
at the end of the period $693 $997 $1,326 $2,053
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See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
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By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging Class T or Class G
shares you own in a different fund distributed by Columbia
Management Distributors, Inc. for shares of the same class
(and, in some cases, certain other classes) of the Fund at
no additional cost. There may be an additional sales charge
if exchanging from a money market fund. To exchange by
telephone, call 1-800-422-3737.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in ''good form.'' You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. There may
be an additional sales charge if exchanging from a money
market fund. Be sure to complete the appropriate section of
the account application for this feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
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Class T and G shares are sold only to investors who received (and who have continuously held) Class T or G shares in connection with the merger of certain Galaxy Funds into various Columbia Funds (formerly named Liberty Funds).
Please see the Statement of Additional Information for more details on investment minimums.
Your Account
Class T shares Your purchases of Class T shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class T shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
Class T Sales Charges
% of offering
As a % of price
the public As a % retained by
offering of your financial
Amount purchased price investment advisor
Less than $50,000 5.75 6.10 5.00
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$50,000 to less than $100,000 4.50 4.71 3.75
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$100,000 to less than $250,000 3.50 3.63 2.75
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$250,000 to less than $500,000 2.50 2.56 2.00
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$500,000 to less than $1,000,000 2.00 2.04 1.75
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$1,000,000 or more 0.00 0.00 0.00
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Class T shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class T share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class T share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
Purchases Over $1 Million
Amount purchased Commission % Less than $3 million 1.00 -------------------------------------------------------------------- $3 million to less than $50 million 0.50 -------------------------------------------------------------------- $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
Your Account
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES Certain investments in Class T and G shares are subject to a CDSC, a sales charge applied at the time you sell your shares. You will pay the CDSC only on shares you sell within a certain amount of time after purchase. The CDSC generally declines each year until there is no charge for selling shares. The CDSC is applied to the net asset value at the time of purchase or sale, whichever is lower. For purposes of calculating the CDSC, the start of the holding period is the first day of the month in which the purchase was made. Shares you purchase with reinvested dividends or other distributions are not subject to a CDSC. When you place an order to sell shares, the Fund will automatically sell first those shares not subject to a CDSC and then those you have held the longest.
Reduced Sales Charges for Larger Investments.
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class T shares of the Fund and other funds in the Columbia family of funds.
Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
Statement of Intent You also may pay a lower sales charge when purchasing Class T shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
. Individual accounts
. Joint accounts
. Certain IRA accounts
. Certain trusts
. UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be
Your Account
aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
Class G shares Your purchases of Class G shares are at Class G's net asset value. Purchases up to $50,000 are allowed in Class G shares assuming the combined value of the customer's total assets in the Columbia Funds does not exceed $50,000. Purchases in Class G shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class G shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class G shares as described in the chart below.
Your Account
Class G Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 5.00
---------------------------------------------
Through second year 4.00
---------------------------------------------
Through third year 4.00
---------------------------------------------
Through fourth year 4.00
---------------------------------------------
Through fifth year 3.00
---------------------------------------------
Through sixth year 2.00
---------------------------------------------
Through seventh year 1.00
---------------------------------------------
Longer than seven years 0.00
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Commission to financial advisors is 4.00%.
Automatic conversion to Class T shares occurs eight years after purchase.
Please see the Statement of Additional Information for the CDSCs and conversion schedules applicable to Class G shares received in exchange for Retail B Shares of the Galaxy Fund purchased or acquired prior to January 1, 2001.
When the Fund receives your sales request in "good form," shares will be sold
at the next calculated price. "Good form" means that the Fund's transfer agent
has all information and documentation it deems necessary to effect your order.
For example, when selling shares by letter of instruction, "good form" means
(i) your letter has complete instructions, the proper signatures and Medallion
Signature Guarantees, (ii) if applicable, you have included any certificates
for shares to be sold, and (iii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries,
surviving joint owners and other legal entities, please call 1-800-345-6611.
Retirement plan accounts have special requirements; please call 1-800-799-7526
for more information.
Your Account
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
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By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into the same share class (or
Class A and Class B shares, for Class T and Class G shares,
respectively) of another fund distributed by Columbia
Management Distributors, Inc. at no additional cost. To
exchange by telephone, call 1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is
$100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction or if
applicable, stock power form along with any share
certificates to be sold to the address below. In your
letter of instruction, note the Fund's name, share class,
account number, and the dollar value or number of shares
you wish to sell. All account owners must sign the letter.
Signatures must be guaranteed by either a bank, a member
firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for
alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
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By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
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By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund
Your Account
will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain Funds impose a redemption fee on the proceeds of Fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Your Account
by their financial advisors. The annual shareholder services fee may equal up to 0.50% for Class T shares. The Fund does not intend to pay more than 0.30% for Class T shares in shareholder service fees during the current fiscal year. The foregoing fees are paid out of the assets of the relevant class. Over time, these fees will reduce the return on your investment and may cost you more than paying other types of sales charges. Class G shares automatically convert to Class T shares after eight years, eliminating a portion of these fees upon conversion.
Additional Intermediary Compensation In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
Your Account
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for any class of shares offered by the Fund.
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
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Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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UNDERSTANDING FUND DISTRIBUTIONS
The Fund may earn income from the securities it holds. The Fund also may realize capital gains or losses on sales of its securities. The Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of the Fund's income and capital gains based on the number of shares you own at the time these distributions are declared.
Your Account
Distribution Options The Fund distributes any dividends quarterly and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable all subsequent distributions will be reinvested in additional shares of the Fund.
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.70% of average daily net assets of the Fund.
The Statement of Additional Information provides additional information about the manager's compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other
Managing the Fund
things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and entered final judgment. The plaintiffs filed a notice of appeal on December 30, 2005.
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last six fiscal periods, which run from October 1 to September 30, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the fiscal years ended September 30, 2005 and September 30, 2004, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the period ended September 30, 2003 and the fiscal years ended October 31, 2002, 2001 and 2000 has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
The Fund
Year ended Period ended
September 30, September 30,
2005 2004/(a)/ 2003/(b)(c)/
Class T Class T Class T
------- -------- -------------
Net asset value --
Beginning of period ($) 12.72 11.00 9.58
---------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income (loss) 0.17/(d)(e)/ 0.16/(d)/ 0.03/(d)/
Net realized and unrealized gain (loss) on investments 1.86 1.76 1.39
---------------------------------------------------------------------------------------------------------
Total from Investment Operations 2.03 1.92 1.42
---------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders:
From net investment income (0.15) (0.20) --
In excess of net investment income -- -- --
From net realized gains -- -- --
---------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.15) (0.20) --
---------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 14.60 12.72 11.00
---------------------------------------------------------------------------------------------------------
Total return (%)/(g)/ 16.06/(h)/ 17.54 14.82/(i)/
---------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(j)/ 1.28 1.38 1.50/(k)/
Net investment income (loss)/(j)/ 1.22 1.31 0.35/(k)/
Waiver/reimbursement 0.01 -- --
Portfolio turnover rate (%) 94 101 50/(i)/
Net assets, end of period (000's) ($) 134,792 133,094 127,993
|
Year ended October 31,
2002 2001 2000
Class T Class T Class T
------- ------- -------
Net asset value --
Beginning of period ($) 12.48 17.05 18.28
-----------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income (loss) (0.05) (0.02) (0.02)
Net realized and unrealized gain (loss) on investments (2.50) (1.66) 1.25
-----------------------------------------------------------------------------------------------
Total from Investment Operations (2.55) (1.68) 1.23
-----------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders:
From net investment income -- -- (0.01)
In excess of net investment income -- -- --/(f)/
From net realized gains (0.35) (2.89) (2.45)
-----------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.35) (2.89) (2.46)
-----------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 9.58 12.48 17.05
-----------------------------------------------------------------------------------------------
Total return (%)/(g)/ (21.31) (10.27)/(h)/ 7.83
-----------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(j)/ 1.41 1.39 1.36
Net investment income (loss)/(j)/ (0.38) (0.17) (0.10)
Waiver/reimbursement -- 0.01 --
Portfolio turnover rate (%) 99 127 72
Net assets, end of period (000's) ($) 123,085 180,435 226,836
|
(a) On October 13, 2003, the Liberty Equity Value Fund was renamed the Columbia
Disciplined Value Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) On November 25, 2002, the Galaxy Equity Value Fund, Retail A shares were
redesignated Liberty Equity Value, Class T shares.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Net investment income per share reflects a special dividend. The effect of
this dividend amounted to $0.02 per share.
(f) Rounds to less than $0.01 per share.
(g) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(h) Had the investment advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
Financial Highlights
The Fund
Year ended Period ended
September 30, September 30, Year ended October 31,
2005 2004/(a)/ 2003/(b)(c)/ 2002 2001 2000
Class G Class G Class G Class G Class G Class G
------- -------- ------------- ------- ------- -------
Net asset value --
Beginning of period ($) 12.17 10.50 9.21 12.10 16.73 18.08
---------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income (loss) 0.08/(d)(e)/ 0.08/(d)/ (0.04)/(d)/ (0.19) (0.10) (0.15)
Net realized and unrealized gain (loss)
on investments 1.78 1.67 1.33 (2.35) (1.64) 1.25
---------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.86 1.75 1.29 (2.54) (1.74) 1.10
---------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders:
From net investment income (0.06) (0.08) -- -- -- --
From net realized gains -- -- -- (0.35) (2.89) (2.45)
---------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.06) (0.08) -- (0.35) (2.89) (2.45)
---------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 13.97 12.17 10.50 9.21 12.10 16.73
---------------------------------------------------------------------------------------------------------------------------
Total return (%)/(f)/ 15.35/(g)/ 16.67 14.01/(h)/ (21.85) (11.00)/(g)/ 7.12/(g)/
---------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(i)/ 1.93 2.06 2.31/(j)/ 2.18 2.13 2.09
Net investment income (loss)/(i)/ 0.64 0.64 (0.47)/(j)/ (1.15) (0.91) (0.83)
Waiver/reimbursement 0.01 -- -- -- 0.02 0.03
Portfolio turnover rate (%) 94 101 50/(h)/ 99 127 72
Net assets, end of period (000's) ($) 4,326 7,502 11,074 16,791 25,776 30,555
|
(a) On October 13, 2003, the Liberty Equity Value Fund was renamed the Columbia
Disciplined Value Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) On November 25, 2002, the Galaxy Equity Value Fund, Retail B shares were
redesignated Liberty Equity Value Fund, Class G shares.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Net investment income per share reflects a special dividend. The effect of
this dividend amounted to $0.02 per share.
(f) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(g) Had the investment advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The charts also assume that all dividends and distributions are reinvested and that Class G shares convert to Class T shares after eight years. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher.
Class T Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
5.75% $10,000.00 5%
Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
1 5.00% 1.25% -2.22%/(2)/ $9,778.44 $695.02
2 10.25% 1.25% 1.45% $10,145.13 $124.52
3 15.76% 1.25% 5.26% $10,525.57 $129.19
4 21.55% 1.25% 9.20% $10,920.28 $134.04
5 27.63% 1.25% 13.30% $11,329.79 $139.06
6 34.01% 1.25% 17.55% $11,754.66 $144.28
7 40.71% 1.25% 21.95% $12,195.46 $149.69
8 47.75% 1.25% 26.53% $12,652.79 $155.30
9 55.13% 1.25% 31.27% $13,127.27 $161.13
10 62.89% 1.25% 36.20% $13,619.54 $167.17
Total Gain After Fees
and Expenses $3,619.54
Total Annual Fees and
Expenses $1,999.40
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Class G Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
1 5.00% 1.90% 3.10% $10,310.00 $192.95
2 10.25% 1.90% 6.30% $10,629.61 $198.93
3 15.76% 1.90% 9.59% $10,959.13 $205.09
4 21.55% 1.90% 12.99% $11,298.86 $211.45
5 27.63% 1.90% 16.49% $11,649.13 $218.01
6 34.01% 1.90% 20.10% $12,010.25 $224.76
7 40.71% 1.90% 23.83% $12,382.57 $231.73
8 47.75% 1.90% 27.66% $12,766.43 $238.92
9 55.13% 1.25% 32.45% $13,245.17 $162.57
10 62.89% 1.25% 37.42% $13,741.86 $168.67
Total Gain After Fees
and Expenses $3,741.86
Total Annual Fees and
Expenses $2,053.07
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust XI: 811-4978
. Columbia Disciplined Value Fund
[LOGO]
ColumbiaFunds
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com
PRO-36/105413-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 1, 2006 (THE "PROSPECTUS")
COLUMBIA DISCIPLINED VALUE FUND (THE "FUND")
CLASS Z SHARES
The Fund's Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The section entitled "Legal Proceedings" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107774-0306 March 27, 2006
Class Z Shares
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------- Investment Goals........................ 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 3 Performance History..................... 5 Your Expenses........................... 6 YOUR ACCOUNT 8 -------------------------------------------- How to Buy Shares....................... 8 Eligible Investors...................... 8 Sales Charges........................... 10 How to Exchange Shares.................. 10 How to Sell Shares...................... 11 Fund Policy on Trading of Fund Shares... 12 Intermediary Compensation............... 13 Other Information About Your Account.... 13 |
MANAGING THE FUND 16 -------------------------------------------- Investment Advisor...................... 16 Portfolio Manager....................... 16 Legal Proceedings....................... 16 FINANCIAL HIGHLIGHTS 18 -------------------------------------------- APPENDIX A 19 -------------------------------------------- |
Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC Insured May Lose Value
No Bank Guarantee
The Fund will typically hold a selection of common stocks consisting of stocks included in the Russell 1000 Value Index ("Russell Index"). The advisor tries to maintain a portfolio that matches the risk characteristics of the Russell Index. The advisor will, from time to time, vary the number and percentages of the Fund's holdings to try to provide higher returns than the Russell Index and to reduce the risk of underperforming the index over time. The Fund generally holds fewer stocks than the index and may hold securities that are not in the index.
In selecting investments for the Fund, the advisor uses quantitative analysis to evaluate the attractiveness of each potential investment. The advisor may examine a wide variety of factors classified, for example, as value measures (forward price-to-earnings, trailing price-to-earnings, book value-to-price, price-to-cash flow, etc.), growth measures (earnings growth, revenue growth, etc.), price momentum and/or earnings momentum (earnings change, estimate revision, earnings surprise, etc.), among others.
The Fund seeks to hold a higher percentage of attractive investments than the index and a lesser percentage, or none, of less attractive investments. In all cases, investments are selected with the intention of increasing return relative to the Russell Index and/or reducing portfolio volatility relative to the Russell Index.
In addition, the advisor believes capital market inefficiencies may exist and may sometimes be exploited by using a variety of derivative instruments.
The advisor tries to control costs when it buys and sells securities for the Fund by using computerized systems called crossing networks that allow it to try to make trades at better prices and reduced commission rates.
The advisor may sell a stock when it believes other stocks in the index are more attractive investments, when the stock is removed from the index, or for other reasons.
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goals.
In seeking to achieve its investment goals, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goals or investment strategies.
The Fund
As part of its investment strategy, the Fund may buy and sell securities frequently. Frequent trading of investments usually increases the chance that the Fund will pay investors short-term capital gains (which are taxable at higher rates than long-term capital gains). Frequent trading may also result in higher brokerage commissions and other transaction costs and additional tax liability, which could reduce the Fund's returns.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with similar investment goals. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goals or perform favorably among comparable funds.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the advisor's opinion, undervalued. If the advisor's assessment of a company's prospects is wrong, the price of the company's stock may fall, or may not approach the value the advisor has placed on it.
Small- or mid-cap companies may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
The Fund
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
Frequent trading risk. Frequent trading of investments usually increases the chance that the Fund will pay investors short-term capital gains. These gains are taxable at higher rates than long-term capital gains. Frequent trading could also mean higher transaction costs, which could reduce the Fund's return.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The Fund
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class Z share performance for each of the last ten complete calendar years. They include the effects of Fund expenses.
Average Annual Total Returns are a measure of the Fund's Class Z average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses.
Calendar Year Total Returns (Class Z)/(1)/
[CHART]
For the periods shown in bar chart:
Best quarter: 4th quarter 1998, +27.21%
Worst quarter: 3rd quarter 2002, -21.27%
(1) The calendar year total returns shown for Class Z shares include the returns of Trust Shares of the Galaxy Equity Value Fund (the Galaxy Fund), the predecessor to the Fund, for periods prior to November 25, 2002, the date on which Class Z shares were initially offered by the Fund.
The Fund
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class Z (%)
Return Before Taxes 10.45 3.69/(1)/ 9.20/(1)/
Return After Taxes on Distributions 8.94 3.21/(1)/ 7.05/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 8.48 3.09/(1)/ 7.05/(1)/
--------------------------------------------------------------------------------------------
Russell Index (%) 7.05 5.28 10.94
--------------------------------------------------------------------------------------------
Lipper Average (%) 6.37 5.42 9.70
|
(1) The average annual total returns shown include returns of Trust Shares of the Galaxy Fund for periods prior to November 25, 2002, the date on which Class Z shares were initially offered by the Fund.
UNDERSTANDING EXPENSES
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
The Fund
Shareholder Fees/(1) /(paid directly from your investment)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 ---------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 ---------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) /(2)/ |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
Annual Fund Operating Expenses (deducted directly from Fund assets)
Example Expenses (your actual costs may be higher or lower)
1 Year 3 Years 5 Years 10 Years $97 $303 $525 $1,166 |
See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For new accounts, send a completed application and check
(new account) made payable to the Fund to Columbia Management Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
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By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging shares you own in a
different fund distributed by Columbia Management
Distributors, Inc. for shares of the same class of the Fund
at no additional cost. To exchange by telephone, call
1-800-422-3737. Please see "How to Exchange Shares" for
more information.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. Be sure to
complete the appropriate section of the account application
for this feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at
no additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
|
Only Eligible Investors may purchase Class Z shares of the Fund, directly or by exchange. Class Z shares of the Fund generally are available only to certain "grandfathered" shareholders and to investors holding accounts with intermediaries that assess account level fees for the services they provide. Please read the following section for a more detailed description of the eligibility requirements. The Eligible Investors described below are subject to different minimum initial investment requirements.
Your Account
Important Things to Consider When Deciding on a Class of Shares:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by a broker/dealer, bank, third-party administrator or other financial institution (each commonly referred to as an "intermediary"). Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
No minimum initial investment
. Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
. Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts ("IRAs")), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
. Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
. Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
1,000 minimum initial investment
. Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of a fund distributed by Columbia Management Distributors, Inc. (i) who holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005; (iii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iv) who purchased certain no-load shares of a fund merged with a fund distributed by Columbia Management Distributors, Inc.;
. Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Management Distributors, Inc.;
Your Account
. Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary;
. Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement);
. Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an accredited investor, as defined under the Securities Act of 1933; or
. Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries.
The Fund reserves the right to change the criteria for Eligible Investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
CHOOSING A SHARE CLASS
The Fund offers one class of shares in this prospectus -- Class Z.
Your Account
When the Fund receives your sales request in "good form," shares will be sold
at the next calculated price. "Good form" means that the Fund's transfer agent
has all information and documentation it deems necessary to effect your order.
For example, when selling shares by letter of instruction, "good form" means
(i) your letter has complete instructions, the proper signatures and Medallion
Signature Guarantees, and (ii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries,
surviving joint owners and other legal entities, please call 1-800-345-6611.
Retirement plan accounts have special requirements; please call 1-800-799-7526
for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
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By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into Class Z shares or Class A
shares (only if Class Z is not offered) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is
$100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign
the letter. Signatures must be guaranteed by either a bank,
a member firm of a national stock exchange or another
eligible guarantor that participates in the Medallion
Signature Guarantee Program for amounts over $100,000 or
for alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
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By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. All dividend and capital gains distributions must
be reinvested. Be sure to complete the appropriate section
of the account application for this feature.
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By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
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Your Account
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain Funds impose a redemption fee on the proceeds of Fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Your Account
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to an intermediary. Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur
Your Account
between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for Class Z shares.
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
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Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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Distribution Options The Fund distributes any dividends quarterly and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable all subsequent distributions will be reinvested in additional shares of the Fund.
Your Account
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.70% of average daily net assets of the Fund.
The Statement of Additional Information provides additional information about the manager's compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former
Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and entered final judgment. The plaintiffs filed a notice of appeal on December 30, 2005.
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the Fund's last six fiscal periods, which run from October 1 to September 30, unless otherwise indicated. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the fiscal years ended September 30, 2005 and September 30, 2004, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the period ended September 30, 2003 and the fiscal years ended October 31, 2002, 2001 and 2000 has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
The Fund
Year ended Year ended Period ended
September 30, September 30, September 30, Year ended October 31,
2005 2004/(a)/ 2003/(b)(c)/ 2002 2001 2000
Class Z Class Z Class Z Class Z Class Z Class Z
------------- ------------- ------------- ------- ------- -------
Net asset value --
Beginning of period ($) 12.95 11.24 9.75 12.65 17.17 18.35
---------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income (loss) 0.21/(d)(e)/ 0.20/(d)/ 0.08/(d)/ (0.02) 0.02 0.04
Net realized and unrealized gain (loss)
on investments 1.91 1.79 1.41 (2.53) (1.65) 1.25
---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 2.12 1.99 1.49 (2.55) (1.63) 1.29
---------------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders:
From net investment income (0.20) (0.28) -- -- -- (0.02)
In excess of net investment income -- -- -- -- -- --/(f)/
From net realized gains -- -- -- (0.35) (2.89) (2.45)
---------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.20) (0.28) -- (0.35) (2.89) (2.47)
---------------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 14.87 12.95 11.24 9.75 12.65 17.17
---------------------------------------------------------------------------------------------------------------------------------
Total return (%)/(g)/ 16.43%/(h)/ 17.86 15.28/(i)/ (20.96) (9.91) 8.22
---------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(j)/ 0.98 1.06 1.04/(k)/ 0.98 1.00 1.00
Net investment income/(j)/ 1.53 1.62 0.82/(k)/ 0.05 0.22 0.26
Waiver/reimbursement 0.01 -- -- -- -- --
Portfolio turnover rate (%) 94 101 50/(i)/ 99 127 72
Net assets, end of period (000's) ($) 283,187 283,469 224,137 167,867 152,002 164,864
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(a) On October 13, 2003, the Liberty Equity Value Fund was renamed the Columbia
Disciplined Value Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) On November 25, 2002, the Galaxy Equity Value Fund, Trust shares were
redesignated Liberty Equity Value Fund, Class Z shares.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Net investment income per share reflects a special dividend. The effect of
this dividend amounted to $0.02 per share.
(f) Rounds to less than $0.01 per share.
(g) Total return at net asset value assuming all distributions reinvested.
(h) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
Class Z Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
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Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 0.95% 4.05% $10,405.00 $96.92
2 10.25% 0.95% 8.26% $10,826.40 $100.85
3 15.76% 0.95% 12.65% $11,264.87 $104.93
4 21.55% 0.95% 17.21% $11,721.10 $109.18
5 27.63% 0.95% 21.96% $12,195.80 $113.61
6 34.01% 0.95% 26.90% $12,689.73 $118.21
7 40.71% 0.95% 32.04% $13,203.67 $122.99
8 47.75% 0.95% 37.38% $13,738.42 $127.97
9 55.13% 0.95% 42.95% $14,294.82 $133.16
10 62.89% 0.95% 48.74% $14,873.76 $138.55
Total Gain After Fees and Expenses $4,873.76
Total Annual Fees and Expenses $1,166.38
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(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust XI: 811-4978
. Columbia Disciplined Value Fund
[LOGO]
ColumbiaFunds
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com
PRO-36/105313-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 1, 2006 (THE "PROSPECTUS")
COLUMBIA COMMON STOCK FUND (THE "FUND")
CLASS A, B AND C SHARES
The Fund's Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The section entitled "Legal Proceedings" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107771-0306 March 27, 2006
Class A, B and C Shares
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------- Investment Goal......................... 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 2 Performance History..................... 3 Your Expenses........................... 6 YOUR ACCOUNT 8 -------------------------------------------- How to Buy Shares....................... 8 Investment Minimums..................... 9 Sales Charges........................... 9 How to Exchange Shares.................. 13 How to Sell Shares...................... 13 Fund Policy on Trading of Fund Shares... 14 Distribution and Service Fees........... 15 Other Information About Your Account.... 16 |
MANAGING THE FUND 19 -------------------------------------------- Investment Advisor...................... 19 Portfolio Managers...................... 19 Legal Proceedings....................... 19 FINANCIAL HIGHLIGHTS 21 -------------------------------------------- APPENDIX A 24 -------------------------------------------- |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC May Lose Value
Insured No Bank Guarantee
The Fund will sell a portfolio security when, as a result of changes in the economy, the advisor believes that holding the security is no longer consistent with the Fund's investment goal. A security may also be sold as a result of an actual or expected deterioration in the performance of the security or in the financial condition of the issuer of the security.
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
As part of its investment strategy, the Fund may buy and sell securities frequently. Such trading usually increases portfolio turnover rates, which usually increases the chance that the Fund will pay investors short-term capital gains (which are taxable at higher rates than long-term capital gains). Such trading may also result in higher brokerage commissions and other transaction costs and additional tax liability, which could reduce the Fund's returns.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management
The Fund
and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Frequent trading risk. Frequent trading of investments usually increases the chance that the Fund will pay investors short-term capital gains. These gains are taxable at higher rates than long-term capital gains. Frequent trading could also mean higher transaction costs, which could reduce the Fund's return.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class A share performance for each of the last ten complete calendar years./ /They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both fund expenses and current sales charges.
The Fund
Calendar Year Total Returns (Class A)/(1)/
LOGO
For the periods shown in bar chart:
Best quarter: 4th quarter 1998, +20.82%
Worst quarter: 3rd quarter 2002, -19.00%
(1) The calendar year total returns shown for Class A shares for periods prior to December 9, 2002, the date on which Class A shares were initially offered by the Fund, include the returns of Prime A Shares of the Galaxy Growth & Income Fund (the Galaxy Fund), the predecessor to the Fund. The returns shown for Class A shares also include the returns of Retail A Shares for periods prior to the inception of Prime A Shares of the Galaxy Fund (November 1, 1998). Class A shares generally would have had substantially similar returns to Retail A Shares because they would have been invested in the same portfolio of securities, although the returns would be lower to the extent that expenses for Class A shares exceed expenses paid by Retail A Shares.
The Fund
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class A (%)
Return Before Taxes 4.70 -0.91/(1)/ 6.66/(1)/
Return After Taxes on Distributions 3.51 -1.41/(1)/ 5.09/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 3.88 -0.91/(1)/ 5.12/(1)/
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Class B (%)
Return Before Taxes 5.23 -0.83/(1)/ 6.71/(1)/
Return After Taxes on Distributions 3.94 -1.30/(1)/ 5.21/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 4.29 -0.82/(1)/ 5.23/(1)/
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Class C (%)
Return Before Taxes 9.22 -0.47/(1)/ 6.71/(1)/
Return After Taxes on Distributions 7.93 -0.93/(1)/ 5.21/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 6.89 -0.50/(1)/ 5.24/(1)/
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Russell 1000 Index (%) 6.27 1.07 9.29
S&P 500 Index (%) 4.91 0.54 9.07
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(1) The returns for Class A and Class B shares include the returns of Prime A Shares (for Class A shares) and Prime B Shares (for Class B shares) of the Galaxy Fund for periods prior to December 9, 2002, the date on which Class A and Class B shares were initially offered by the Fund. The returns shown for Class A shares and Class B shares also include the returns of Retail A Shares of the Galaxy Fund (adjusted, as necessary, to reflect the sales charge applicable to Class A shares and Class B shares, respectively) for periods prior to the date of inception of Prime A and Prime B Shares (November 1, 1998). Class A and Class B shares generally would have had substantially similar returns to Retail A Shares because they would have been invested in the same portfolio of securities, although returns would have been lower to the extent that expenses for Class A and Class B shares exceed expenses paid by Retail A Shares. The returns shown for Class C shares include the returns of Prime B Shares of the Galaxy Fund (adjusted to reflect the sales charge applicable to Class C shares) for periods prior to December 9, 2002, the date on which Class C shares were initially offered. The returns shown for Class C shares also include the returns of Retail A Shares of the Galaxy Fund (adjusted to reflect the sales charges applicable to Class C shares) for periods prior to the inception of Prime B Shares (November 1, 1998). Class C shares generally would have had substantially similar returns to Retail A and Prime B Shares because they would have been invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class C shares exceed expenses paid by Retail A and Prime B Shares. Retail A Shares were initially offered on February 12, 1993.
The Fund
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds.
The table does not take into account any expense reduction
arrangements discussed in the footnotes to the Annual Fund
Operating Expenses table. It uses the following
hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class B shares convert to Class A shares after eight
years
Shareholder Fees/(1) /(paid directly from your investment)
Class A Class B Class C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00 0.00
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Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00 1.00
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Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/ /(3)/
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(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
The Fund
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class A Class B Class C
Management fees/(1)/ (%) 0.77 0.77 0.77
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Distribution and service (12b-1) fees (%) 0.25/(2)/ 1.00 1.00
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Other expenses/(3)/ (%) 0.23 0.23 0.23
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Total annual fund operating expenses/(4) /(%) 1.25 2.00 2.00
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(1) The Fund pays a management fee of 0.70% and an administration fee of 0.07%.
(2) The Fund may pay distribution and service (12b-1) fees up to a maximum of
0.35% of the Fund's average daily net assets attributable to Class A shares
(comprised of up to 0.10% for distribution services and up to 0.25% for
shareholder liaison services), but will limit such fees to an aggregate fee
of not more than 0.25% for Class A shares during the current fiscal year.
(3) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
(4) The Fund's Advisor has contractually agreed to bear a portion of the Fund's
expenses so that the Fund's ordinary operating expenses (excluding any
distribution and service fees, tax and interest expenses) do not exceed
0.89% until March 19, 2006. After this date the Advisor has agreed to
continue this waiver on a voluntary basis. If the waiver were reflected in
the table, Total Annual Fund Operating Expenses would be 1.14% for Class A,
1.89% for Class B and 1.89% for Class C. After March 19, 2006 this
arrangement may be modified or terminated by the Advisor at any time.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class A $695 $949 $1,222 $1,999
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Class B: did not sell your shares $203 $627 $1,078 $2,134
sold all your shares at
the end of the period $703 $927 $1,278 $2,134
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Class C: did not sell your shares $203 $627 $1,078 $2,327
sold all your shares at
the end of the period $303 $627 $1,078 $2,327
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See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
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By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging shares you own in a
different fund distributed by Columbia Management
Distributors, Inc. for shares of the same class (and, in
some cases, certain other classes) of the Fund at no
additional cost. There may be an additional sales charge if
exchanging from a money market fund. To exchange by
telephone, call 1-800-422-3737.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. There may
be an additional sales charge if exchanging from a money
market fund. Be sure to complete the appropriate section of
the account application for this feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
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Your Account
Please see the Statement of Additional Information for more details on investment minimums.
CHOOSING A SHARE CLASS
The Fund offers three classes of shares in this prospectus -- Class A, B and C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 or more but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
The Fund also offers three additional classes of shares -- Class T, G and Z shares exclusively to certain institutional and other investors through separate prospectuses.
Class A shares Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
Class A Sales Charges
% of offering
As a % of price
the public As a % retained by
offering of your financial
Amount purchased price investment advisor
Less than $ 50,000 5.75 6.10 5.00
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$ 50,000 to less than $ 100,000 4.50 4.71 3.75
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$ 100,000 to less than $250,000 3.50 3.63 2.75
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$ 250,000 to less than $500,000 2.50 2.56 2.00
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$ 500,000 to less than $1,000,000 2.00 2.04 1.75
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$1,000,000 or more 0.00 0.00 0.00
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Your Account
Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
Purchases Over $1 Million
Amount purchased Commission % Less than $3 million 1.00 ------------------------------------------------ $3 million to less than $50 million 0.50 ------------------------------------------------ $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES Certain investments in Class A, B and C shares are subject to a CDSC, a sales charge applied at the time you sell your shares. You will pay the CDSC only on shares you sell within a certain amount of time after purchase. The CDSC generally declines each year until there is no charge for selling shares. The CDSC is applied to the net asset value at the time of purchase or sale, whichever is lower. For purposes of calculating the CDSC, the start of the holding period is the first day of the month in which the purchase was made. Shares you purchase with reinvested dividends or other distributions are not subject to a CDSC. When you place an order to sell shares, the Fund will automatically sell first those shares not subject to a CDSC and then those you have held the longest.
Reduced Sales Charges for Larger Investments
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
Statement of Intent You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost
Your Account
(i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
. Individual accounts
. Joint accounts
. Certain IRA accounts
. Certain trusts
. UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
Your Account
Class B shares Your purchases of Class B shares are at Class B's net asset value. Purchases up to $50,000 are allowed in Class B shares assuming the combined value of the customer's total assets in the Columbia funds does not exceed $50,000. Purchases in Class B shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the applicable chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart below.
Class B Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 5.00
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Through second year 4.00
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Through third year 3.00
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Through fourth year 3.00
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Through fifth year 2.00
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Through sixth year 1.00
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Longer than six years 0.00
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Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
Class C shares Your purchases of Class C shares are at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares.
Class C Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 1.00
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Longer than one year 0.00
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Your Account
When the Fund receives your sales request in "good form," shares will be sold
at the next calculated price. "Good form" means that the Fund's transfer agent
has all information and documentation it deems necessary to effect your order.
For example, when selling shares by letter of instruction, "good form" means
(i) your letter has complete instructions, the proper signatures and Medallion
Signature Guarantees, (ii) if applicable, you have included any certificates
for shares to be sold, and (iii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries,
surviving joint owners and other legal entities, please call 1-800-345-6611.
Retirement plan accounts have special requirements; please call 1-800-799-7526
for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Your Account
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into the same share class (and,
in some cases, certain other classes) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is $
100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
------------------------------------------------------------------------------
By mail You may send a signed letter of instruction if applicable,
or stock power form along with any share certificates to be
sold to the address below. In your letter of instruction,
note the Fund's name, share class, account number, and the
dollar value or number of shares you wish to sell. All
account owners must sign the letter. Signatures must be
guaranteed by either a bank, a member firm of a national
stock exchange or another eligible guarantor that
participates in the Medallion Signature Guarantee Program
for amounts over $100,000 or for alternate payee or mailing
instructions. Additional documentation is required for
sales by corporations, agents, fiduciaries, surviving joint
owners and individual retirement account owners. For
details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with regard to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
Your Account
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Additional Intermediary Compensation In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may
Your Account
be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
Your Account
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the transfer agent.
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
----------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
UNDERSTANDING FUND DISTRIBUTIONS
The Fund may earn income from the securities it holds. The Fund also may realize capital gains or losses on sales of its securities. The Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of the Fund's income and capital gains based on the number of shares you own at the time these distributions are declared.
Distribution Options The Fund distributes any dividends annually and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable all subsequent distributions will be reinvested in additional shares of the Fund.
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
Your Account
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.70% of average daily net assets of the Fund.
Guy W. Pope, a senior vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since March, 2005. Mr. Pope has been associated with Columbia Advisors or its predecessors since July, 1993.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see
Managing the Fund
below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and entered final judgment. The plaintiffs filed a notice of appeal on December 30, 2005.
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last six fiscal periods since inception, which run from October 1 to September 30, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the years ended September 30, 2005 and September 30, 2004, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the period ended September 30, 2003 and the years ended October 31, 2002, 2001 and 2000, has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
The Fund
Year ended Period ended
September 30, September 30,
2005/(a)/ 2004/(b)/ 2003/(c)(d)/
Class A Class A Class A
-------- -------- -------------
Net asset value --
Beginning of period ($) 12.01 11.22 10.08
----------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income (loss) 0.07/(e)(f)/ --/(e)(g)/ 0.03/(e)/
Net realized and unrealized gain (loss) on
investments 1.93 0.80 1.16
----------------------------------------------------------------------------------------------------
Total from Investment Operations 2.00 0.80 1.19
----------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders:
From net investment income (0.07) (0.01) (0.05)
In excess of net investment income -- -- --
From net realized gains (0.35) -- --
----------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.42) (0.01) (0.05)
----------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 13.59 12.01 11.22
----------------------------------------------------------------------------------------------------
Total return (%)/(h)/ 16.98/(i)/ 7.09/(i)/ 11.82/(j)/
----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data (%):
Expenses/(k)/ 1.24 1.35 1.48/(l)/
Net investment income (loss)/(k)/ 0.59 (0.02) 0.37/(l)/
Waiver/reimbursement 0.09 --/(m)/ --
Portfolio turnover rate (%) 105 115 55/(j)/
Net assets, end of period (000's) ($) 10,393 9,304 7,570
|
Year ended October 31,
2002 2001 2000
Class A Class A Class A
------- ------- -------
Net asset value --
Beginning of period ($) 12.74 16.41 16.00
-------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income (loss) 0.03/(e)/ 0.02 0.04
Net realized and unrealized gain (loss) on
investments (2.23) (2.38) 1.34
-------------------------------------------------------------------------------------------
Total from Investment Operations (2.20) (2.36) 1.38
-------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders:
From net investment income (0.02) (0.03) (0.06)
In excess of net investment income -- --/(g)/ --
From net realized gains (0.44) (1.28) (0.91)
-------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.46) (1.31) (0.97)
-------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 10.08 12.74 16.41
-------------------------------------------------------------------------------------------
Total return (%)/(h)/ (18.14)/(i)/ (15.34)/(i)/ 9.27/(i)/
-------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data (%):
Expenses/(k)/ 1.28 1.19 1.14
Net investment income (loss)/(k)/ 0.25 0.22 0.30
Waiver/reimbursement 0.24 0.03 0.10
Portfolio turnover rate (%) 13 19 42
Net assets, end of period (000's) ($) 15 60 156
|
(a) On September 23, 2005, the Columbia Large Cap Core Fund was renamed the
Columbia Common Stock Fund.
(b) On October 13, 2003, the Liberty Large Cap Core Fund was renamed the
Columbia Large Cap Core Fund.
(c) The Fund changed its fiscal year end from October 31 to September 30.
(d) On December 9, 2002, the Galaxy Growth & Income Fund, Prime A shares were
redesignated Liberty Large Cap Core Fund, Class A shares.
(e) Per share data was calculated using average shares outstanding during the
period.
(f) Net investment income per share reflects a special dividend. The effect of
this dividend amounted to $0.05 per share.
(g) Rounds to less than $0.01 per share.
(h) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(i) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(j) Not annualized.
(k) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(l) Annualized.
(m) Rounds to less than 0.01%.
Financial Highlights
The Fund
Year ended Period ended
September 30, September 30,
2005/(a)/ 2004/(b)/ 2003/(c)(d)/
Class B Class B Class B
------- ------- -------
Net asset value --
Beginning of period ($) 11.68 10.99 9.90
---------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment loss (0.04)/(e)(f)/ (0.09)/(e)/ (0.04)/(e)/
Net realized and unrealized gain (loss) on
investments 1.88 0.78 1.14
---------------------------------------------------------------------------------------------------
Total from Investment Operations 1.84 0.69 1.10
---------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders:
From net investment income (0.05) -- (0.01)
From net realized capital gains (0.35) -- --
---------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.40) -- (0.01)
---------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 13.12 11.68 10.99
---------------------------------------------------------------------------------------------------
Total return (%)/(g)/ 16.02/(h)/ 6.28/(h)/ 11.12/(i)/
---------------------------------------------------------------------------------------------------
Ratios to average net assets/Supplemental Data (%):
Expenses/(j)/ 1.99 2.09 2.19/(k)/
Net investment loss/(j)/ (0.31) (0.76) (0.38)/(k)/
Waiver/reimbursement 0.09 --/(l)/ --
Portfolio turnover rate (%) 105 115 55/(i)/
Net assets, end of period (000's) ($) 6,628 3,425 1,755
|
Year ended October 31,
2002 2001 2000
Class B Class B Class B
------- ------- -------
Net asset value --
Beginning of period ($) 12.59 16.32 15.97
-------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment loss (0.06)/(e)/ (0.07) (0.07)
Net realized and unrealized gain (loss) on
investments (2.19) (2.38) 1.33
-------------------------------------------------------------------------------------------
Total from Investment Operations (2.25) (2.45) 1.26
-------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders:
From net investment income -- -- --
From net realized capital gains (0.44) (1.28) (0.91)
-------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.44) (1.28) (0.91)
-------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 9.90 12.59 16.32
-------------------------------------------------------------------------------------------
Total return (%)/(g)/ (18.75)/(h)/ (15.95)/(h)/ 8.38/(h)/
-------------------------------------------------------------------------------------------
Ratios to average net assets/Supplemental Data (%):
Expenses/(j)/ 2.02 1.96 1.89
Net investment loss/(j)/ (0.49) (0.55) (0.45)
Waiver/reimbursement 0.02 0.04 0.18
Portfolio turnover rate (%) 13 19 42
Net assets, end of period (000's) ($) 55 109 129
|
(a) On September 23, 2005, the Columbia Large Cap Core Fund was renamed the
Columbia Common Stock Fund.
(b) On October 13, 2003, the Liberty Large Cap Core Fund was renamed the
Columbia Large Cap Core Fund.
(c) The Fund changed its fiscal year end from October 31 to September 30.
(d) On December 9, 2002, the Galaxy Growth & Income Fund, Prime B shares were
redesignated Liberty Large Cap Core Fund, Class A shares.
(e) Per share data was calculated using average shares outstanding during the
period.
(f) Net investment loss per share reflects a special dividend. The effect of
this dividend amounted to $0.05 per share.
(g) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(h) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than $0.01%.
(k) Annualized.
(l) Rounds to less than 0.01%
Financial Highlights
The Fund
Year ended
September 30, Period ended
------------------- September 30,
2005/(a)/ 2004/(b)/ 2003/(c)(d)/
Class C Class C Class C
-------- -------- -------------
Net Asset Value --
Beginning of Period ($) 11.68 10.99 10.21
---------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment loss/(e)/ (0.03)/(f)/ (0.09) (0.04)
Net realized and unrealized gain on investments 1.88 0.78 0.83
---------------------------------------------------------------------------------------------
Total from Investment Operations 1.85 0.69 0.79
---------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders:
From net investment income (0.05) -- --
From net realized gains (0.35) -- (0.01)
---------------------------------------------------------------------------------------------
Total distributions declared to shareholders (0.40) -- (0.01)
---------------------------------------------------------------------------------------------
Net Asset Value --
End of Period ($) 13.13 11.68 10.99
---------------------------------------------------------------------------------------------
Total Return/(g)/ (%) 16.10/(h)/ 6.28/(h)/ 7.74/(i)/
---------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(j)/ 1.99 2.09 2.18/(k)/
Net investment loss/(j)/ (0.25) (0.74) (0.42)/(k)/
Waiver/reimbursement 0.09 --/(l)/ --
Portfolio turnover rate (%) 105 115 55/(i)/
Net assets, end of period (000's) ($) 605 345 223
|
(a) On September 23, 2005, the Columbia Large Cap Core Fund was renamed the
Columbia Common Stock Fund.
(b) On October 13, 2003, the Liberty Large Cap Core Fund was renamed the
Columbia Large Cap Core Fund.
(c) The Fund changed its fiscal year end from October 31 to September 30.
(d) Class C shares were initially offered on December 9, 2002. Per share data
and total return reflect activity from that date.
(e) Per share data was calculated using average shares outstanding during the
period.
(f) Net investment loss per share reflects a special dividend. The effect of
this dividend amounted to $0.05 per share.
(g) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(h) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
(l) Rounds to less than 0.01%.
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The charts also assume that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher.
Class A Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 5.75% $10,000.00 5% |
Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
1 5.00% 1.25% -2.22%/(2)/ $9,778.44 $695.02
2 10.25% 1.25% 1.45% $10,145.13 $124.52
3 15.76% 1.25% 5.26% $10,525.57 $129.19
4 21.55% 1.25% 9.20% $10,920.28 $134.04
5 27.63% 1.25% 13.30% $11,329.79 $139.06
6 34.01% 1.25% 17.55% $11,754.66 $144.28
7 40.71% 1.25% 21.95% $12,195.46 $149.69
8 47.75% 1.25% 26.53% $12,652.79 $155.30
9 55.13% 1.25% 31.27% $13,127.27 $161.13
10 62.89% 1.25% 36.20% $13,619.54 $167.17
Total Gain After Fees
and Expenses $3,619.54
Total Annual Fees and
Expenses $1,999.40
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Class B Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
|
Hypothetical
Cumulative Year-End
Cumulative Return After Balance After Annual
Return Before Annual Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
Year Fees & Expenses Expense Ratio --------------- --------------- -------------------
1 5.00% 2.00% 3.00% $10,300.00 $203.00
2 10.25% 2.00% 6.09% $10,609.00 $209.09
3 15.76% 2.00% 9.27% $10,927.27 $215.36
4 21.55% 2.00% 12.55% $11,255.09 $221.82
5 27.63% 2.00% 15.93% $11,592.74 $228.48
6 34.01% 2.00% 19.41% $11,940.52 $235.33
7 40.71% 2.00% 22.99% $12,298.74 $242.39
8 47.75% 2.00% 26.68% $12,667.70 $249.66
9 55.13% 1.25% 31.43% $13,142.74 $161.32
10 62.89% 1.25% 36.36% $13,635.59 $167.36
Total Gain After Fees
and Expenses $3,635.59
Total Annual Fees and
Expenses $2,133.82
|
Class C Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
|
Hypothetical
Cumulative Year-End
Cumulative Return After Balance After Annual
Return Before Annual Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
Year Fees & Expenses Expense Ratio --------------- --------------- -------------------
1 5.00% 2.00% 3.00% $10,300.00 $203.00
2 10.25% 2.00% 6.09% $10,609.00 $209.09
3 15.76% 2.00% 9.27% $10,927.27 $215.36
4 21.55% 2.00% 12.55% $11,255.09 $221.82
5 27.63% 2.00% 15.93% $11,592.74 $228.48
6 34.01% 2.00% 19.41% $11,940.52 $235.33
7 40.71% 2.00% 22.99% $12,298.74 $242.39
8 47.75% 2.00% 26.68% $12,667.70 $249.66
9 55.13% 2.00% 30.48% $13,047.73 $257.15
10 62.89% 2.00% 34.39% $13,439.16 $264.87
Total Gain After Fees
and Expenses $3,439.16
Total Annual Fees and
Expenses $2,327.17
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
Notes
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust XI:811-4978
. Columbia Common Stock Fund (formerly named Columbia Large Cap Core Fund)
[LOGO] ColumbiaFunds
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/105507-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 1, 2006 (THE "PROSPECTUS")
COLUMBIA COMMON STOCK FUND (THE "FUND")
CLASS T AND G SHARES
The Fund's Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The section entitled "Legal Proceedings" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
March 27, 2006
INT-47/107691-0306
Class T and G Shares
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------- Investment Goal......................... 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 2 Performance History..................... 3 Your Expenses........................... 5 YOUR ACCOUNT 7 -------------------------------------------- How to Buy Shares....................... 7 Sales Charges........................... 8 How to Exchange Shares.................. 11 How to Sell Shares...................... 12 Fund Policy on Trading of Fund Shares... 13 Distribution and Service Fees........... 14 Other Information About Your Account.... 15 |
MANAGING THE FUND 17 -------------------------------------------- Investment Advisor...................... 17 Portfolio Managers...................... 17 Legal Proceedings....................... 17 FINANCIAL HIGHLIGHTS 19 -------------------------------------------- APPENDIX A 21 -------------------------------------------- |
Class T and G shares are sold only to investors who received (and who have continuously held) Class T or G shares in connection with the merger of certain Galaxy Funds into various Columbia Funds (formerly named Liberty Funds).
Although these securities have been registered with the Securities and Exchange
Commission, the Commission has not approved or disapproved any shares offered
in this prospectus or determined whether this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC May Lose Value
Insured No Bank Guarantee
The Fund will sell a portfolio security when, as a result of changes in the economy, the advisor believes that holding the security is no longer consistent with the Fund's investment goal. A security may also be sold as a result of an actual or expected deterioration in the performance of the security or in the financial condition of the issuer of the security.
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
As part of its investment strategy, the Fund may buy and sell securities frequently. Such trading usually increases portfolio turnover rates, which usually increases the chance that the Fund will pay investors short-term capital gains (which are taxable at higher rates than long-term capital gains). Such trading may also result in higher brokerage commissions and other transaction costs and additional tax liability, which could reduce the Fund's returns.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management
The Fund
and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Frequent trading risk. Frequent trading of investments usually increases the chance that the Fund will pay investors short-term capital gains. These gains are taxable at higher rates than long-term capital gains. Frequent trading could also mean higher transaction costs, which could reduce the Fund's return.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class T share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
Beginning in 2005, the Fund's benchmark was changed to the Russell 1000 Index (Russell 1000 Index), an unmanaged index that tracks the performance of 1000 of the largest U.S. companies, based on market capitalization. Previously, the Fund's returns were compared to the Standard & Poor's 500 Index (S&P 500 Index), an unmanaged index that tracks the performance of 500 widely held large-capitalization U.S. stocks listed on the New York Stock Exchange, the American Stock Exchange and NASDAQ. The advisor believes that the Russell 1000 Index, because of its broader market representation, more accurately reflects the type of securities in which the Fund invests. The Fund's average annual returns for the one-year, five-year and ten-year periods are shown compared to the Russell 1000 Index, as well as the Fund's previous benchmark, the S&P 500 Index. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
The Fund
Calendar Year Total Returns (Class T)/(1)/
[CHART]
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ---- ---- ---- ---- ---- ---- ---- ------ ------ ------ 19.85% 29.19% 15.71% 6.86% 3.65% -5.95% -25.11% 22.18% 5.66% 11.04% |
For the periods shown in bar chart:
Best quarter: 4th quarter 1998, +20.66%
Worst quarter: 3rd quarter 2002, -19.07%
(1) The calendar year total returns shown for Class T shares include the returns of Retail A Shares of the Galaxy Growth & Income Fund (the Galaxy Fund), the predecessor to the Fund, for periods prior to December 9, 2002, the date on which Class T shares were initially offered by the Fund.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class T (%)
Return Before Taxes 4.68 -0.99/(1)/ 6.57/(1)/
Return After Taxes on Distributions 3.49 -1.47/(1)/ 5.02/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 3.87 -0.96/(1)/ 5.06/(1)/
---------------------------------------------------------------------------------------------
Class G (%)
Return Before Taxes 5.33 -1.06/(1)/ 6.43/(1)/
Return After Taxes on Distributions 4.03 -1.53/(1)/ 5.01/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 4.37 -1.00/(1)/ 5.05/(1)/
---------------------------------------------------------------------------------------------
Russell 1000 Index (%) 6.27 1.07 9.29
S&P 500 Index (%) 4.91 0.54 9.07
|
(1) The average annual total returns shown include the returns of Retail A Shares (for Class T shares) and Retail B Shares (for Class G shares) of the Galaxy Fund for periods prior to December 9, 2002, the date on which Class T and Class G shares were initially offered by the Fund. The returns shown for Class G shares also include the returns of Retail A Shares for periods prior to the inception of Retail B Shares of the Galaxy Fund (March 4, 1996). Retail A Shares were initially offered on February 12, 1993. Class G shares generally would have had substantially similar returns to Retail A Shares because they would have been invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class G shares exceed expenses paid by Retail A Shares.
The Fund
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees, shareholder service fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds.
Except as noted, the table does not take into account any
expense reduction arrangements discussed in the footnotes
to the Annual Fund Operating Expenses table. It uses the
following hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class G shares convert to Class T shares after eight
years
Shareholder Fees/(1) /(paid directly from your investment)
Class T Class G
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00
--------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or
redemption price) 1.00/(2)/ 5.00
--------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class T shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
The Fund
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class T Class G
Management fees/(1)/ (%) 0.77 0.77
-------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.00 0.95/(3)/
-------------------------------------------------------------------
Other expenses/(4)/ (%) 0.53/(2)/ 0.23
-------------------------------------------------------------------
Total annual fund operating expenses/(5)/ (%) 1.30 1.95
-------------------------------------------------------------------
|
(1) The Fund pays a management fee of 0.70% and an administration fee of 0.07%.
(2) The Fund may pay shareholder service fees (which are included in other
expenses) up to a maximum of 0.50% of the Fund's average daily net assets
attributable to Class T shares (comprised of up to 0.25% for shareholder
liaison services and up to 0.25% for administrative support services), but
will limit such fees to an aggregate fee of not more than 0.30% during the
current fiscal year.
(3) The Fund may pay distribution and service (12b-1) fees up to a maximum of
1.15% of the Fund's average daily net assets attributable to Class G shares
(comprised of up to 0.65% for distribution services, up to 0.25% for
shareholder liaison services and up to 0.25% for administrative support
services), but will limit such fees to an aggregate fee of not more than
0.95% during the current fiscal year.
(4) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
(5) The Fund's Advisor has contractually agreed to bear a portion of the Fund's
expenses so that the Fund's ordinary operating expenses (excluding any
distribution and service fees, tax and interest expenses) do not exceed
0.89% until March 19, 2006. After this date the Advisor has agreed to
continue this waiver on a voluntary basis. If the waiver were reflected in
the table, Total Annual Fund Operating Expenses would be 1.84% for Class G
and 1.19% for Class T. After March 19, 2006 this arrangement may be
modified or terminated by the Advisor at any time.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class T $700 $963 $1,247 $2,053
-----------------------------------------------------------------
Class G: did not sell your shares $198 $ 612 $1,052 $2,107
sold all your shares at
the end of the period $698 $1,012 $1,352 $2,107
|
See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
-------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging Class T or Class G
shares you own in a different fund distributed by Columbia
Management Distributors, Inc. for shares of the same class
(and, in some cases, certain other classes) of the Fund at
no additional cost. There may be an additional sales charge
if exchanging from a money market fund. To exchange by
telephone, call 1-800-422-3737.
-------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
-------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. There may
be an additional sales charge if exchanging from a money
market fund. Be sure to complete the appropriate section of
the account application for this feature.
-------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
|
Your Account
Class T and G shares are sold only to investors who received (and who have continuously held) Class T or G shares in connection with the merger of certain Galaxy Funds into various Columbia Funds (formerly named Liberty Funds).
Please see the Statement of Additional Information for more details on investment minimums.
Class T shares Your purchases of Class T shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class T shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
Class T Sales Charges
% of offering
As a % of price
the public As a % retained by
offering of your financial
Amount purchased price investment advisor
Less than $50,000 5.75 6.10 5.00
--------------------------------------------------------------------
$50,000 to less than $100,000 4.50 4.71 3.75
--------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 2.75
--------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.00
--------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
--------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
|
Class T shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class T share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
Your Account
For Class T share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
Purchases Over $1 Million
Amount purchased Commission % Less than $3 million 1.00 ------------------------------------------------ $3 million to less than $50 million 0.50 ------------------------------------------------ $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES Certain investments in Class T and G shares are subject to a CDSC, a sales charge applied at the time you sell your shares. You will pay the CDSC only on shares you sell within a certain amount of time after purchase. The CDSC generally declines each year until there is no charge for selling shares. The CDSC is applied to the net asset value at the time of purchase or sale, whichever is lower. For purposes of calculating the CDSC, the start of the holding period is the first day of the month in which the purchase was made. Shares you purchase with reinvested dividends or other distributions are not subject to a CDSC. When you place an order to sell shares, the Fund will automatically sell first those shares not subject to a CDSC and then those you have held the longest.
Reduced Sales Charges for Larger Investments
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class T shares of the Fund and other funds in the Columbia family of funds.
Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
Statement of Intent You also may pay a lower sales charge when purchasing Class T shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
Your Account
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
. Individual accounts
. Joint accounts
. Certain IRA accounts
. Certain trusts
. UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
Your Account
Class G shares Your purchases of Class G shares are at Class G's net asset value. Purchases up to $50,000 are allowed in Class G shares assuming the combined value of the customer's total assets in the Columbia Funds does not exceed $50,000. Purchases in Class G shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class G shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class G shares as described in the chart below.
Class G Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 5.00
---------------------------------------------
Through second year 4.00
---------------------------------------------
Through third year 4.00
---------------------------------------------
Through fourth year 4.00
---------------------------------------------
Through fifth year 3.00
---------------------------------------------
Through sixth year 2.00
---------------------------------------------
Through seventh year 1.00
---------------------------------------------
Longer than seven years 0.00
|
Commission to financial advisors is 4.00%.
Automatic conversion to Class T shares occurs eight years after purchase.
Please see the Statement of Additional Information for the CDSCs and conversion schedules applicable to Class G shares received in exchange for Retail B Shares of the Galaxy Fund purchased or acquired prior to January 1, 2001.
Your Account
When the Fund receives your sales request in "good form," shares will be sold
at the next calculated price. "Good form" means that the Fund's transfer agent
has all information and documentation it deems necessary to effect your order.
For example, when selling shares by letter of instruction, "good form" means
(i) your letter has complete instructions, the proper signatures and Medallion
Signature Guarantees, (ii) if applicable, you have included any certificates
for shares to be sold, and (iii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries,
surviving joint owners and other legal entities, please call 1-800-345-6611.
Retirement plan accounts have special requirements; please call 1-800-799-7526
for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into the same share class (or
Class A and Class B shares, for Class T and Class G shares,
respectively) of another fund distributed by Columbia
Management Distributors, Inc. at no additional cost. To
exchange by telephone, call 1-800-422-3737.
------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is
$100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or if
applicable, stock power form along with any share
certificates to be sold to the address below. In your
letter of instruction, note the Fund's name, share class,
account number, and the dollar value or number of shares
you wish to sell. All account owners must sign the letter.
Signatures must be guaranteed by either a bank, a member
firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for
alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
Your Account
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
Your Account
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Additional Intermediary Compensation In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
Your Account
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value) your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for any class of shares offered by the Fund.
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
----------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
UNDERSTANDING FUND DISTRIBUTIONS
The Fund may earn income from the securities it holds. The Fund also may realize capital gains or losses on sales of its securities. The Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of the Fund's income and capital gains based on the number of shares you own at the time these distributions are declared.
Your Account
Distribution Options The Fund distributes any dividends annually and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable all subsequent distributions will be reinvested in additional shares of the Fund.
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.70% of average daily net assets of the Fund.
Guy W. Pope, a senior vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since March, 2005. Mr. Pope has been associated with Columbia Advisors or its predecessors since July, 1993.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory,
Managing the Fund
compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and entered final judgment. The plaintiffs filed a notice of appeal on December 30, 2005.
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last six fiscal periods since inception, which run from October 1 to September 30, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which for the years ended September 30, 2005 and September 30, 2004, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the period ended September 30, 2003 and the years ended October 31, 2002, 2001 and 2000, has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
The Fund
Year ended Period ended
September 30, September 30, Year ended October 31,
2005/(a)/ 2004/(b)/ 2003/(c)(d)/ 2002 2001 2000
Class T Class T Class T// Class T Class T Class T
-------- -------- ------------- ------- ------- -------
Net asset value --
Beginning of period ($) 11.95 11.18 10.05 12.70 16.37 15.98
----------------------------------------------------------------------------------------------------------------------
Income from Investment
Operations:
Net investment income
(loss) 0.07/(e)(f)/ (0.01)/(e)/ 0.04/(e)/ 0.02/(e)/ 0.02 0.02
Net realized and
unrealized gain (loss) on
investments 1.92 0.78 1.14 (2.22) (2.39) 1.33
----------------------------------------------------------------------------------------------------------------------
Total from Investment
Operations 1.99 0.77 1.18 (2.20) (2.37) 1.35
----------------------------------------------------------------------------------------------------------------------
Less Distributions
Declared to Shareholders:
From net investment income (0.07) --/(g)/ (0.05) (0.01) (0.02) (0.05)
In excess of net
investment income -- -- -- -- --/(g)/ --/(g)/
From net realized gains (0.35) -- -- (0.44) (1.28) (0.91)
----------------------------------------------------------------------------------------------------------------------
Total Distributions Declared
to Shareholders (0.42) -- (0.05) (0.45) (1.30) (0.96)
----------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 13.52 11.95 11.18 10.05 12.70 16.37
----------------------------------------------------------------------------------------------------------------------
Total return (%)/(h)/ 16.97/(i)/ 6.92/(i)/ 11.76/(j)/ (18.16)/(i)/ (15.46)/(i)/ 9.06/(i)/
----------------------------------------------------------------------------------------------------------------------
Ratios to Average Net
Assets/Supplemental Data (%):
Expenses/(k)/ 1.29 1.40 1.46/(l)/ 1.35 1.34 1.28
Net investment income
(loss)/(k)/ 0.57 (0.07) 0.45/(l)/ 0.18 0.07 0.16
Waiver/reimbursement 0.09 --/(m)/ -- 0.01 0.02 0.09
Portfolio turnover rate (%) 105 115 55/(j)/ 13 19 42
Net assets, end of period
(000's) ($) 180,345 179,310 185,938 180,269 259,884 217,423
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(a) On September 23, 2005, the Columbia Large Cap Core Fund was renamed the
Columbia Common Stock Fund.
(b) On October 13, 2003, the Liberty Large Cap Core Fund was renamed the
Columbia Large Cap Core Fund.
(c) The Fund changed its fiscal year end from October 31 to September 30.
(d) On December 9, 2002, the Galaxy Growth & Income Fund, Retail A shares were
redesignated Liberty Large Cap Core Fund, Class T shares.
(e) Per share data was calculated using average shares outstanding during the
period.
(f) Net investment income per share reflects a special dividend. The effect of
this dividend amounted to $0.05 per share.
(g) Rounds to less than $0.01 per share.
(h) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(i) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(j) Not annualized.
(k) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(l) Annualized.
(m) Rounds to less than 0.01%.
Financial Highlights
The Fund
Year Ended Period ended
September 30, September 30, Year ended October 31,
2005/(a)/ 2004/(b)/ 2003/(c)(d)/ 2002 2001 2000
Class G Class G Class G Class G Class G Class G
-------- -------- ------------- ------- ------- -------
Net asset value --
Beginning of period ($) 11.57 10.89 9.82 12.50 16.23 15.90
------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income (loss) --/(e)(f)(g)/ (0.09)/(e)/ (0.02)/(e)/ (0.06)/(e)/ (0.09) (0.10)
Net realized and unrealized gain (loss) on
investments 1.83 0.77 1.10 (2.18) (2.36) 1.34
------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.83 0.68 1.08 (2.24) (2.45) 1.24
------------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders:
From net investment income (0.05) -- (0.01) -- -- --
From net realized gains (0.35) -- -- (0.44) (1.28) (0.91)
------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.40) -- (0.01) (0.44) (1.28) (0.91)
------------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 13.00 11.57 10.89 9.82 12.50 16.23
------------------------------------------------------------------------------------------------------------------------------
Total return (%)/(h)/ 16.10/(i)/ 6.24/(i)/ 11.00/(i)(j)/ (18.80)/(i)/ (16.11) 8.35
------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental
Data (%):
Expenses/(k)/ 1.94 2.09 2.19/(l)/ 2.08 2.05 2.04
Net investment income (loss)/(k)/ 0.03 (0.77) (0.28)/(l)/ (0.55) (0.64) (0.60)
Waiver/reimbursement 0.09 0.02 0.05/(l)/ 0.02 -- --
Portfolio turnover rate (%) 105 115 55/(j)/ 13 19 42
Net assets, end of period (000's) ($) 9,218 16,419 28,917 31,407 48,512 61,857
|
(a) On September 23, 2005, the Columbia Large Cap Core Fund was renamed the
Columbia Common Stock Fund.
(b) On October 13, 2003, the Liberty Large Cap Core Fund was renamed the
Columbia Large Cap Core Fund.
(c) The Fund changed its fiscal year end from October 31 to September 30.
(d) On December 9, 2002, the Galaxy Growth & Income Fund, Retail B shares were
redesignated Liberty Large Cap Core Fund, Class G shares.
(e) Per share data was calculated using average shares outstanding during the
period.
(f) Rounds to less than $0.01 per share.
(g) Net investment income per share reflects a special dividend. The effect of
this dividend amounted to $0.05 per share.
(h) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(i) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(j) Not annualized.
(k) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(l) Annualized.
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The charts also assume that all dividends and distributions are reinvested and that Class G shares convert to Class T shares after eight years. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher.
Class T Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
5.75% $10,000.00 5%
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Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
1 5.00% 1.30% - 2.26%/(2)/ $ 9,773.73 $ 699.79
2 10.25% 1.30% 1.35% $10,135.35 $ 129.41
3 15.76% 1.30% 5.10% $10,510.36 $ 134.20
4 21.55% 1.30% 8.99% $10,899.24 $ 139.16
5 27.63% 1.30% 13.03% $11,302.52 $ 144.31
6 34.01% 1.30% 17.21% $11,720.71 $ 149.65
7 40.71% 1.30% 21.54% $12,154.38 $ 155.19
8 47.75% 1.30% 26.04% $12,604.09 $ 160.93
9 55.13% 1.30% 30.70% $13,070.44 $ 166.88
10 62.89% 1.30% 35.54% $13,554.04 $ 173.06
Total Gain After Fees
and Expenses $ 3,554.04
Total Annual Fees and
Expenses $2,052.58
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Class G Shares
Maximum Sales Charges Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
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Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
1 5.00% 1.95% 3.05% $10,305.00 $197.97
2 10.25% 1.95% 6.19% $10,619.30 $204.01
3 15.76% 1.95% 9.43% $10,943.19 $210.23
4 21.55% 1.95% 12.77% $11,276.96 $216.65
5 27.63% 1.95% 16.21% $11,620.91 $223.25
6 34.01% 1.95% 19.75% $11,975.34 $230.06
7 40.71% 1.95% 23.41% $12,340.59 $237.08
8 47.75% 1.95% 27.17% $12,716.98 $244.31
9 55.13% 1.30% 31.88% $13,187.51 $168.38
10 62.89% 1.30% 36.75% $13,675.45 $174.61
Total Gain After Fees
and Expenses $3,675.45
Total Annual Fees and
Expenses $2,106.56
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust XI: 811-4978
. Columbia Common Stock Fund (formerly named Columbia Large Cap Core Fund)
[LOGO] ColumbiaFunds
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/105409-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 1, 2006 (THE "PROSPECTUS")
COLUMBIA COMMON STOCK FUND (THE "FUND")
CLASS Z SHARES
The Fund's Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The section entitled "Legal Proceedings" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107772-0306 March 27, 2006
Class Z Shares
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------- Investment Goal......................... 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 2 Performance History..................... 3 Your Expenses........................... 5 YOUR ACCOUNT 7 -------------------------------------------- How to Buy Shares....................... 7 Eligible Investors...................... 8 Sales Charges........................... 9 How to Exchange Shares.................. 10 How to Sell Shares...................... 10 Fund Policy on Trading of Fund Shares... 11 Intermediary Compensation............... 12 Other Information About Your Account.... 13 |
MANAGING THE FUND 15 ------------------------ Investment Advisor.. 15 Portfolio Managers.. 15 Legal Proceedings... 15 FINANCIAL HIGHLIGHTS 17 ------------------------ APPENDIX A 18 ------------------------ |
Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC May Lose Value
Insured No Bank Guarantee
The Fund will sell a portfolio security when, as a result of changes in the economy, the advisor believes that holding the security is no longer consistent with the Fund's investment goal. A security may also be sold as a result of an actual or expected deterioration in the performance of the security or in the financial condition of the issuer of the security.
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
As part of its investment strategy, the Fund may buy and sell securities frequently. Such trading usually increases portfolio turnover rates, which usually increases the chance that the Fund will pay investors short-term capital gains (which are taxable at higher rates than long-term capital gains). Such trading may also result in higher brokerage commissions and other transaction costs and additional tax liability, which could reduce the Fund's returns.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management
The Fund
and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Frequent trading risk. Frequent trading of investments usually increases the chance that the Fund will pay investors short-term capital gains. These gains are taxable at higher rates than long-term capital gains. Frequent trading could also mean higher transaction costs, which could reduce the Fund's return.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class Z share performance for each of the last ten complete calendar years. They include the effects of Fund expenses.
Average Annual Total Returns are a measure of the Fund's Class Z average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses.
Beginning in 2005, the Fund's benchmark was changed to the Russell 1000 Index (Russell 1000 Index), an unmanaged index that tracks the performance of 1000 of the largest U.S. companies, based on market capitalization. Previously, the Fund's returns were compared to the Standard & Poor's 500 Index (S&P 500 Index), an unmanaged index that tracks the performance of 500 widely held large-capitalization U.S. stocks listed on the New York Stock Exchange, the American Stock Exchange and NASDAQ. The advisor believes that the Russell 1000 Index, because of its broader market representation, more accurately reflects the type of securities in which the Fund invests. The Fund's average annual returns for the one-year, five-year and ten-year periods are shown compared to the Russell 1000 Index, as well as the Fund's previous benchmark, the S&P 500 Index. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
The Fund
Calendar Year Total Returns (Class Z)/(1)/
LOGO
For the periods shown in bar chart:
Best quarter: 4th quarter 1998, +20.76%
Worst quarter: 3rd quarter 2002, -18.91%
(1) The calendar year total returns shown include returns of Trust Shares of the Galaxy Growth & Income Fund (the Galaxy Fund), the predecessor to the Fund, for periods prior to December 9, 2002, the date on which Class Z shares were initially offered by the Fund.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class Z (%)
Return Before Taxes 11.32 0.55/(1)/ 7.54/(1)/
Return After Taxes on Distributions 9.99 -0.01/(1)/ 5.90/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 8.25 0.30/(1)/ 5.86/(1)/
---------------------------------------------------------------------------------------------
Russell 1000 Index (%) 6.27 1.07 9.29
S&P 500 Index (%) 4.91 0.54 9.07
|
(1) The average annual total returns shown include returns of Trust Shares of the Galaxy Fund for periods prior to December 9, 2002, the date on which Class Z shares were initially offered by the Fund.
The Fund
UNDERSTANDING EXPENSES
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds. It
uses the following hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
Shareholder Fees/(1) /(paid directly from your investment)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 --------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 --------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) /(2)/ |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
The Fund
Annual Fund Operating Expenses (deducted directly from Fund assets)
Management fees/(1)/ (%) 0.77 ----------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.00 ----------------------------------------------------------------- Other expenses/(2)/ (%) 0.23 ----------------------------------------------------------------- Total annual fund operating expenses/(3)/ (%) 1.00 |
(1) The Fund pays a management fee of 0.70% and an administration fee of 0.07%.
(2) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
(3) The Fund's Advisor has contractually agreed to bear a portion of the Fund's
expenses so that the Fund's ordinary operating expenses (excluding any
distribution and service fees, tax and interest expenses) do not exceed
0.89% until March 19, 2006. After this date the Advisor has agreed to
continue this waiver on a voluntary basis. If the waiver were reflected in
the table, Total Annual Fund Operating Expenses would be 0.89% for Class Z.
After March 19, 2006 this arrangement may be modified or terminated by the
Advisor at any time.
Example Expenses (your actual costs may be higher or lower)
1 Year 3 Years 5 Years 10 Years $102 $318 $552 $1,225 |
See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to Columbia Management Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
-------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
-------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging shares you own in a
different fund distributed by Columbia Management
Distributors, Inc. for shares of the same class of the Fund
at no additional cost. To exchange by telephone, call
1-800-422-3737. Please see "How to Exchange Shares" for
more information.
-------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
-------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. Be sure to
complete the appropriate section of the account application
for this feature.
-------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at
no additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
|
Your Account
Important Things to Consider When Deciding on a Class of Shares:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by a broker/dealer, bank, third-party administrator or other financial institution (each commonly referred to as an "intermediary"). Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
No minimum initial investment
. Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
. Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts ("IRAs")), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
. Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
. Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
$1,000 minimum initial investment
. Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of a fund distributed by Columbia Management
Your Account
Distributors, Inc. (i) who holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005; (iii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iv) who purchased certain no-load shares of a fund merged with a fund distributed by Columbia Management Distributors, Inc.;
. Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Management Distributors, Inc. ;
. Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary;
. Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement);
. Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an accredited investor, as defined under the Securities Act of 1933; or
. Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries.
The Fund reserves the right to change the criteria for Eligible Investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
CHOOSING A SHARE CLASS
The Fund offers one class of shares in this prospectus -- Class Z.
Your Account
When the Fund receives your sales request in "good form," shares will be sold
at the next calculated price. "Good form" means that the Fund's transfer agent
has all information and documentation it deems necessary to effect your order.
For example, when selling shares by letter of instruction, "good form" means
(i) your letter has complete instructions, the proper signatures and Medallion
Signature Guarantees, and (ii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries,
surviving joint owners and other legal entities, please call 1-800-345-6611.
Retirement plan accounts have special requirements; please call 1-800-799-7526
for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Your Account
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into Class Z shares or Class A
shares (only if Class Z is not offered) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is
$100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
------------------------------------------------------------------------------
By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign
the letter. Signatures must be guaranteed by either a bank,
a member firm of a national stock exchange or another
eligible guarantor that participates in the Medallion
Signature Guarantee Program for amounts over $100,000 or
for alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. All dividend and capital gains distributions must
be reinvested. Be sure to complete the appropriate section
of the account application for this feature.
------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
Your Account
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
Your Account
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to an intermediary. Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for any class of shares offered by the Fund.
Your Account
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
----------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
Distribution Options The Fund distributes any dividends annually and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable all subsequent distributions will be reinvested in additional shares of the Fund.
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.70% of average daily net assets of the Fund.
Guy W. Pope, a senior vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since March, 2005. Mr. Pope has been associated with Columbia Advisors or its predecessors since July, 1993.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see
Managing the Fund
below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and entered final judgment. The plaintiffs filed a notice of appeal on December 30, 2005.
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the last six fiscal periods, which run from October 1 to September 30, unless otherwise indicated. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the years ended September 30, 2005 and September 30, 2004 have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the period ended September 30, 2003 and the years ended October 31, 2002, 2001 and 2000, has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
The Fund
Year ended Year ended Period ended
September 30, September 30, September 30,
2005/(a)/ 2004/(b)/ 2003/(c)(d)/
Class Z Class Z Class Z
------------- ------------- -------------
Net asset value --
Beginning of period ($) 12.05 11.25 10.11
-----------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.09/(e)(f)/ 0.03/(e)/ 0.08/(d)(e)/
Net realized and unrealized gain (loss)
on investments 1.95 0.79 1.15
-----------------------------------------------------------------------------------------------------
Total from Investment Operations 2.04 0.82 1.23
-----------------------------------------------------------------------------------------------------
Less Distributions Declared to Shareholders:
From net investment income (0.08) (0.02) (0.09)
In excess of net investment income -- -- --
From net realized gains (0.35) -- --
-----------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.43) (0.02) (0.09)
-----------------------------------------------------------------------------------------------------
Net asset value -- End of period ($) 13.66 12.05 11.25
-----------------------------------------------------------------------------------------------------
Total return (%)/(h)/ 17.25/(i)/ 7.28/(i)/ 12.20/(j)/
-----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/ Supplemental
Data (%):
Expenses/(k)/ 0.99 1.07 1.03/(l)/
Net investment income/(k)/ 0.67 0.26 0.89/(l)/
Waiver/reimbursement 0.09 --/(m)/ --
Portfolio turnover rate (%) 105 115 55/(j)/
Net assets, end of period (000's) ($) 310,472 175,124 190,195
|
Year ended October 31,
2002 2001 2000
Class Z Class Z Class Z
------- ------- -------
Net asset value --
Beginning of period ($) 12.77 16.43 16.02
--------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.07/(e)/ 0.06 0.08
Net realized and unrealized gain (loss)
on investments (2.23) (2.39) 1.32
--------------------------------------------------------------------------------------
Total from Investment Operations (2.16) (2.33) 1.40
--------------------------------------------------------------------------------------
Less Distributions Declared to Shareholders:
From net investment income (0.06) (0.05) (0.08)
In excess of net investment income -- --/(g)/ --/(g)/
From net realized gains (0.44) (1.28) (0.91)
--------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.50) (1.33) (0.99)
--------------------------------------------------------------------------------------
Net asset value -- End of period ($) 10.11 12.77 16.43
--------------------------------------------------------------------------------------
Total return (%)/(h)/ (17.85)/(i)/ (15.12) 9.38
--------------------------------------------------------------------------------------
Ratios to Average Net Assets/ Supplemental
Data (%):
Expenses/(k)/ 0.97 0.97 1.00
Net investment income/(k)/ 0.56 0.44 0.44
Waiver/reimbursement 0.03 -- --
Portfolio turnover rate (%) 13 19 42
Net assets, end of period (000's) ($) 340,496 460,302 678,398
|
(a) On September 23, 2005, the Columbia Large Cap Core Fund was renamed the
Columbia Common Stock Fund.
(b) On October 13, 2003, the Liberty Large Cap Core Fund was renamed the
Columbia Large Cap Core Fund.
(c) The Fund changed its fiscal year end from October 31 to September 30.
(d) On December 9, 2002, the Galaxy Growth & Income Fund, Trust shares were
redesignated Liberty Large Cap Core Fund, Class Z shares.
(e) Per share data was calculated using average shares outstanding during the
period.
(f) Net investment income per share reflects a special dividend. The effect of
this dividend amounted to $0.05 per share.
(g) Rounds to less than $0.01 per share.
(h) Total return at net asset value assuming all distributions reinvested.
(i) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(j) Not annualized.
(k) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(l) Annualized.
(m) Rounds to less than 0.01%.
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The chart shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class Z shares of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The chart also assumes that all dividends and distributions are reinvested. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses table, is presented in the chart, and is net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower.
Class Z Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
|
Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
1 5.00% 1.00% 4.00% $10,400.00 $102.00
2 10.25% 1.00% 8.16% $10,816.00 $106.08
3 15.76% 1.00% 12.49% $11,248.64 $110.32
4 21.55% 1.00% 16.99% $11,698.59 $114.74
5 27.63% 1.00% 21.67% $12,166.53 $119.33
6 34.01% 1.00% 26.53% $12,653.19 $124.10
7 40.71% 1.00% 31.59% $13,159.32 $129.06
8 47.75% 1.00% 36.86% $13,685.69 $134.23
9 55.13% 1.00% 42.33% $14,233.12 $139.59
10 62.89% 1.00% 48.02% $14,802.44 $145.18
Total Gain After Fees
and Expenses $4,802.44
Total Annual Fees and
Expenses $1,224.62
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust XI: 811-4978
. Columbia Common Stock Fund (formerly named Columbia Large Cap Core Fund)
[LOGO] ColumbiaFunds
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/105410-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 1, 2006 (THE "PROSPECTUS")
COLUMBIA SMALL CAP CORE FUND
CLASS A, B AND C SHARES
The Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The section entitled "LEGAL PROCEEDINGS" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107697-0306 March 27, 2006
Effective March 1, 2004, the Fund is closed to both new investors and new accounts. For more information, see the section entitled "How to Buy Shares."
Class A, B and C Shares
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------- Investment Goal......................... 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 2 Performance History..................... 3 Your Expenses........................... 6 YOUR ACCOUNT 8 -------------------------------------------- How to Buy Shares....................... 8 Investment Minimums..................... 9 Sales Charges........................... 9 How to Exchange Shares.................. 13 How to Sell Shares...................... 13 Fund Policy on Trading of Fund Shares... 14 Distribution and Service Fees........... 15 Other Information About Your Account.... 16 |
MANAGING THE FUND 19 -------------------------------------------- Investment Advisor...................... 19 Portfolio Managers...................... 19 Legal Proceedings....................... 19 FINANCIAL HIGHLIGHTS 22 -------------------------------------------- APPENDIX A 25 -------------------------------------------- |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC May Lose Value
Insured No Bank Guarantee
|
The Fund ------------------------------------------------------------------------------- |
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
The Fund
Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the advisor's opinion, undervalued. If the advisor's assessment of a company's prospects is wrong, the price of the company's stock may fall, or may not approach the value the advisor has placed on it.
Growth stocks are stocks of companies believed to have above-average potential for growth in revenue and earnings. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Small- or mid-cap companies may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The Fund
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
The Fund's returns are compared to the Russell 2000 Index, an unmanaged index that tracks the performance of the 2,000 smallest of the 3,000 largest U.S. companies based on market capitalization. The Fund's returns are also compared to the Standard & Poor's SmallCap 600 Composite Index (S&P SmallCap 600), an unmanaged index that tracks the performance of 600 domestic companies traded on the New York Stock Exchange, the American Stock Exchange and NASDAQ. The S&P SmallCap 600 is heavily weighted with the stocks of companies with small market capitalizations. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
Calendar Year Total Returns (Class A)/(1)/
[CHART]
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
26.74% 31.23% -5.38% 10.71% 16.99% 18.43% -8.65% 38.81% 16.31% 5.99%
|
For the periods shown in bar chart: Best quarter: 2nd quarter 2003, +19.61% Worst quarter: 3rd quarter 2002, -17.80% |
(1) The calendar year total returns shown for Class A shares include the returns of Prime A Shares of the Galaxy Small Cap Value Fund (Galaxy Fund), the predecessor to the Fund, for periods prior to November 18, 2002, the date on which Class A shares were initially offered by the Fund. The returns shown for Class A shares also include the returns of Retail A Shares of the Galaxy Fund for periods prior to the inception of Prime A Shares (November 1, 1998). Class A shares generally would have had substantially similar returns to Retail A Shares because they would have been invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class A shares exceed expenses paid by Retail A Shares.
The Fund
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class A (%)
Return Before Taxes -0.13 11.78/(1)/ 13.53/(1)/
Return After Taxes on Distributions -1.28 10.45/(1)/ 11.01/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 1.34 9.77/(1)/ 10.61/(1)/
---------------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes 0.37 11.71/(1)/ 13.57/(1)/
Return After Taxes on Distributions -0.89 10.68/(1)/ 11.10/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 1.80 9.99/(1)/ 10.71/(1)/
---------------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 4.20 12.23/(1)/ 13.57/(1)/
Return After Taxes on Distributions 2.94 10.96/(1)/ 11.11/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 4.29 10.23/(1)/ 10.72/(1)/
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Russell 2000 Index (%) 4.55 8.22 9.26
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S&P SmallCap 600 (%) 7.68 10.76 12.16
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(1) The average annual total returns shown include the returns of Prime A Shares (for Class A shares) and Prime B Shares (for Class B shares) of the Galaxy Fund for periods prior to November 18, 2002, the date on which Class A and Class B shares were initially offered by the Fund. The returns shown for Class A shares and Class B shares also include the returns of Retail A Shares of the Galaxy Fund (adjusted, as necessary, to reflect the sales charges applicable to Class A shares and Class B shares, respectively) for periods prior to the date of inception of Prime A and Prime B Shares (November 1, 1998). Class A and Class B shares generally would have had substantially similar returns to Retail A Shares because they would have been invested in the same portfolio of securities, although returns would have been lower to the extent that expenses for Class A and Class B shares exceed expenses paid by Retail A Shares. The returns shown for Class C shares include the returns of Retail B Shares of the Galaxy Fund (adjusted to reflect the sales charges applicable to Class C shares) for periods prior to November 18, 2002, the date on which Class C shares were initially offered by the Fund. The returns shown for Class C shares also include the returns of Retail A Shares of the Galaxy Fund (adjusted to reflect the sales charges applicable to Class C shares) for periods prior to the date of inception of Retail B Shares (November 1, 1998). Class C shares generally would have had substantially similar returns because they would have been invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class C shares exceed expenses paid by Retail A and Retail B Shares.
The Fund
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees and other expenses that generally include, but are not limited to, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds.
Except as noted, the table does not take into account any
expense reduction arrangements discussed in the footnotes
to the Annual Fund Operating Expenses table. It uses the
following hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class B shares convert to Class A shares after eight
years
Shareholder Fees/(1) /(paid directly from your investment)
Class A Class B Class C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00 0.00
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Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00 1.00
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Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/ /(3)/
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(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
The Fund
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class A Class B Class C
Management fee/(1)/ (%) 0.76 0.76 0.76
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Distribution and service (12b-1) fees (%) 0.25/(2)/ 1.00 1.00
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Other expenses/(3)/ (%) 0.11 0.11 0.11
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Total annual fund operating expenses (%) 1.12 1.87 1.87
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(1) The Fund pays a management fee of 0.69% and an administration fee of 0.07%.
(2) The Fund may pay distribution and service (12b-1) fees up to a maximum of
0.35% of the Fund's average daily net assets attributable to Class A shares
(comprised of up to 0.10% for distribution services and up to 0.25% for
shareholder liaison services) but will limit such fees to an aggregate of
not more than 0.25% for Class A shares during the current fiscal year.
(3) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class A $683 $911 $1,156 $1,860
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Class B: did not sell your shares $190 $588 $1,011 $1,995
sold all your shares at
the end of the period $690 $888 $1,211 $1,995
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Class C: did not sell your shares $190 $588 $1,011 $2,190
sold all your shares
at the end of the period $290 $588 $1,011 $2,190
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See Appendix A for additional hypothetical investment and expense information.
Effective March 1, 2004, the Fund is closed to both new investors and new accounts. Shareholders who have opened and funded an account with the Fund as of February 27, 2004 (i) may continue to make additional purchases in their accounts, (ii) may continue to reinvest dividends and capital gain distributions, and (iii) are allowed to open new accounts resulting from the transfer of existing assets in the Fund. All retirement plans that are held at the plan level and discretionary wrap programs that invest with the Fund and trade on an omnibus basis which are invested in the Fund prior to March 1, 2004, may continue to make additional investments. Certain retirement plans may require additional time to fund their accounts due to operational constraints. Those retirement plans must have chosen the Fund as an investment option prior to February 1, 2004 and must be funded by April 5, 2004 in order to continue to make additional purchases in their accounts.
Your financial advisor can help you establish an appropriate investment portfolio, buy shares and monitor your investments. When the Fund receives your purchase request in "good form," your shares will be bought at the next calculated public offering price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, "good form" may mean that you have properly placed your order with your financial advisor or the Fund's transfer agent has received your completed application, including all necessary signatures. The USA Patriot Act may require us to obtain certain personal information from you which we will use to verify your identity. If you do not provide the information, we may not be able to open your account. If we are unable to verify your customer information, we reserve the right to close your account or take such other steps as we deem reasonable.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
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By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging shares you own in a
different fund distributed by Columbia Management
Distributors, Inc. for shares of the same class (and, in
some cases, certain other classes) of the Fund at no
additional cost. There may be an additional sales charge if
exchanging from a money market fund. To exchange by
telephone, call 1-800-422-3737.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
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Your Account
Method Instructions
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. There may
be an additional sales charge if exchanging from a money
market fund. Be sure to complete the appropriate section of
the account application for this feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
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Please see the Statement of Additional Information for more details on investment minimums.
CHOOSING A SHARE CLASS
The Fund offers three classes of shares in this prospectus -- Class A, B and C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 or more but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
The Fund also offers three additional classes of shares, Class T, G and Z shares, exclusively to certain institutional and other investors. Class T, G and Z shares are made available through separate prospectuses provided to eligible institutional and other investors.
Class A shares Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
Your Account
Class A Sales Charges
% of offering
As a % of price
the public As a % retained by
offering of your financial
Amount purchased price investment advisor
Less than $50,000 5.75 6.10 5.00
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$50,000 to less than $100,000 4.50 4.71 3.75
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$100,000 to less than $250,000 3.50 3.63 2.75
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$250,000 to less than $500,000 2.50 2.56 2.00
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$500,000 to less than $1,000,000 2.00 2.04 1.75
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$1,000,000 or more 0.00 0.00 0.00
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Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
Purchases Over $1 Million
Amount purchased Commission % Less than $3 million 1.00 ------------------------------------------------ $3 million to less than $50 million 0.50 ------------------------------------------------ $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES Certain investments in Class A, B and C shares are subject to a CDSC, a sales charge applied at the time you sell your shares. You will pay the CDSC only on shares you sell within a certain amount of time after purchase. The CDSC generally declines each year until there is no charge for selling shares. The CDSC is applied to the net asset value at the time of purchase or sale, whichever is lower. For purposes of calculating the CDSC, the start of the holding period is the first day of the month in which the purchase was made. Shares you purchase with reinvested dividends or other distributions are not subject to a CDSC. When you place an order to sell shares, the Fund will automatically sell first those shares not subject to a CDSC and then those you have held the longest.
Your Account
Reduced Sales Charges for Larger Investments.
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
Statement of Intent You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
. Individual accounts
. Joint accounts
. Certain IRA accounts
. Certain trusts
. UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for
Your Account
which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
Class B shares Your purchases of Class B shares are at Class B's net asset value. Purchases up to $50,000 are allowed in Class B shares assuming the combined value of the customer's total assets in the Columbia funds does not exceed $50,000. Purchases in Class B shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart below.
Class B Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 5.00
---------------------------------------------
Through second year 4.00
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Through third year 3.00
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Through fourth year 3.00
---------------------------------------------
Through fifth year 2.00
---------------------------------------------
Through sixth year 1.00
---------------------------------------------
Longer than six years 0.00
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Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
Class C shares Your purchases of Class C shares are at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after they
Your Account
are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares, as described in the chart below.
Class C Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 1.00
---------------------------------------------
Longer than one year 0.00
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When the Fund receives your sales request in "good form," shares will be sold
at the next calculated price. "Good form" means that the Fund's transfer agent
has all information and documentation it deems necessary to effect your order.
For example, when selling shares by letter of instruction, "good form" means
(i) your letter has complete instructions, the proper signatures and Medallion
Signature Guarantees, (ii) if applicable, you have included any certificates
for shares to be sold, and (iii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries,
surviving joint owners and other legal entities please call 1-800-345-6611.
Retirement plan accounts have special requirements; please call 1-800-799-7526
for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Your Account
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
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By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into the same share class (and,
in some cases, certain other classes) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is
$100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction or, if
applicable, stock power form along with any share
certificates to be sold to the address below. In your
letter of instruction, note the Fund's name, share class,
account number, and the dollar value or number of shares
you wish to sell. All account owners must sign the letter.
Signatures must be guaranteed by either a bank, a member
firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for
alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
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By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
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By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
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The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
Your Account
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Additional Intermediary Compensation In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in
Your Account
determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur
Your Account
between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the transfer agent.
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
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Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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UNDERSTANDING FUND DISTRIBUTIONS
The Fund may earn income from the securities it holds. The Fund also may realize capital gains or losses on sales of its securities. The Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of the Fund's income and capital gains based on the number of shares you own at the time these distributions are declared.
Distribution Options The Fund distributes any dividends annually and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, all subsequent distributions will be reinvested in additional shares of the Fund.
Your Account
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.69% of average daily net assets of the Fund.
Richard G. D'Auteuil, a vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since September, 2005. Mr. D'Auteuil has been associated with Columbia Advisors or its predecessors since May, 1993.
Allyn Seymour, a vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since September, 2005. Mr. Seymour has been associated with Columbia Advisors or its predecessors since September, 1993.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
Managing the Fund
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
Managing the Fund
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and entered final judgment. The plaintiffs filed a notice of appeal on December 30, 2005.
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last six fiscal periods, which run from October 1 to September 30, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the years ended September 30, 2005 and September 30, 2004 have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the period ended September 30, 2003 and for the fiscal years ended October 31, 2002, 2001 and 2000 has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
The Fund
Year ended Period ended
September 30, September 30, Year ended October 31,
2005/(a)/ 2004/(b)/ 2003/(c)(d)/ 2002 2001 2000
Class A Class A Class A Class A Class A Class A
-------- -------- ------------- ------- ------- -------
Net asset value --
Beginning of period ($) 17.54 15.30 12.64 14.05 14.33 13.04
--------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income (loss)/(e)/ (0.06) (0.07)// (0.04)// (0.03)// 0.02// 0.05//
Net realized and unrealized gain (loss) on
investments 2.91 2.75 3.35 (0.07) 1.61 2.64
--------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 2.85 2.68 3.31 (0.10) 1.63 2.69
--------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income -- -- -- -- (0.04) (0.04)
From net realized gains (1.07) (0.44) (0.65) (1.31) (1.87) (1.36)
--------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (1.07) (0.44) (0.65) (1.31) (1.91) (1.40)
--------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 19.32 17.54 15.30 12.64 14.05 14.33
--------------------------------------------------------------------------------------------------------------------
Total return (%)/(f)(g)/ 16.69 17.73 27.25/(h)/ (1.73) 12.87 22.26
--------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental
Data (%):
Expenses/(i)/ 1.13 1.15 1.24/(j)/ 1.29 1.23 1.16
Net investment income (loss)/(i)/ (0.31) (0.40) (0.28)/(j)/ (0.19) 0.17 0.36
Waiver/reimbursement --/(k)/ --/(k)/ 0.02/(j)/ 0.01 0.04 0.16
Portfolio turnover rate (%) 16 26 19/(h)/ 23 46 43
Net assets, end of period (000's) ($) 211,527 211,502 57,462 210 168 189
|
(a) On October 7, 2005, the Columbia Small Cap Fund was renamed the Columbia
Small Cap Core Fund.
(b) On October 13, 2003, the Liberty Small Cap Fund was renamed the Columbia
Small Cap Fund.
(c) The Fund changed its fiscal year end from October 31 to September 30.
(d) On November 18, 2002, the Galaxy Small Cap Value Fund, Prime A shares were
redesignated Liberty Small Cap Fund, Class A shares.
(e) Per share data was calculated using average shares outstanding during the
period.
(f) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(g) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of the expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
(k) Rounds to less than 0.01%.
Financial Highlights
The Fund
Year ended Period ended
September 30, September 30, Year ended October 31,
2005/(a)/ 2004/(b)/ 2003/(c)(d)/ 2002 2001 2000
Class B Class B Class B Class B Class B Class B
-------- -------- ------------- ------- ------- -------
Net asset value --
Beginning of period ($) 16.89 14.75 12.31 13.82 14.19 12.98
-----------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment loss/(e)/ (0.19) (0.19) (0.15) (0.14) (0.10) (0.05)
Net realized and unrealized (gain) loss on
investments 2.81 2.67 3.24 (0.06) 1.60 2.62
-----------------------------------------------------------------------------------------------------------------
Total from Investment Operations 2.62 2.48 3.09 (0.20) 1.50 2.57
-----------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net realized gains (0.95) (0.34) (0.65) (1.31) (1.87) (1.36)
-----------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 18.56 16.89 14.75 12.31 13.82 14.19
-----------------------------------------------------------------------------------------------------------------
Total return (%)/(f)(g)/ 15.87 16.96 26.14/(h)/ (2.55) 11.91 21.46
-----------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental
Data (%):
Expenses/(i)/ 1.88 1.90 2.10/(j)/ 2.12 2.08 1.93
Net investment loss/(i)/ (1.06) (1.15) (1.14)/(j)/ (1.02) (0.68) (0.41)
Waiver/reimbursement --/(k)/ --/(k)/ 0.02/(j)/ 0.01 0.07 0.53
Portfolio turnover rate (%) 16 26 19/(h)/ 23 46 43
Net assets, end of period (000's) ($) 42,439 40,170 11,122 282 198 170
|
(a) On October 7, 2005, Columbia Small Cap Fund was renamed Columbia Small Cap
Core Fund.
(b) On October 13, 2003, the Liberty Small Cap Fund was renamed the Columbia
Small Cap Fund.
(c) The Fund changed its fiscal year end from October 31 to September 30.
(d) On November 18, 2002, the Galaxy Small Cap Value Fund, Prime B shares were
redesignated Liberty Small Cap Fund, Class B shares.
(e) Per share data was calculated using average shares outstanding during the
period.
(f) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(g) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of the expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
(k) Rounds to less than 0.01%.
Financial Highlights
The Fund
Period ended
Year ended September 30, September 30,
2005/(a)/ 2004/(b)/ 2003/(c)(d)/
Class C Class C Class C
-------- -------- -------------
Net asset value --
Beginning of period ($) 16.91 14.77 12.55
----------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment loss/(e)/ (0.19) (0.19) (0.14)
Net realized and unrealized gain on investments 2.80 2.67 3.01
----------------------------------------------------------------------------------------------
Total from Investment Operations 2.61 2.48 2.87
----------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders:
From net realized gains (0.95) (0.34) (0.65)
----------------------------------------------------------------------------------------------
Net asset value --
End of period (%) 18.57 16.91 14.77
----------------------------------------------------------------------------------------------
Total return (%)/(f)(g)/ 15.79 16.94 23.90/(h)/
----------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(i)/ 1.88 1.90 2.03/(j)/
Net investment income/(i)/ (1.06) (1.15) (1.10)/(j)/
Waiver/reimbursement --/(k)/ --/(k)/ 0.02/(j)/
Portfolio turnover rate(%) 16 26 19/(h)/
Net assets, end of period (000's) ($) 56,163 64,686 12,670
|
(a) On October 7, 2005, the Columbia Small Cap Fund was renamed the Columbia
Small Cap Core Fund.
(b) On October 13, 2003, the Liberty Small Cap Fund was renamed the Columbia
Small Cap Fund.
(c) The Fund changed its fiscal year end from October 31 to September 30.
(d) Class C shares were initially offered on November 18, 2002. Per share data
and total return reflect activity from that date.
(e) Per share data was calculated using average shares outstanding during the
period.
(f) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(g) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
(k) Rounds to less than 0.01%.
APPENDIX A ------------ |
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The charts also assume that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher.
Class A Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
5.75% $10,000.00 5%
|
Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
1 5.00% 1.12% -2.09%/(2)/ $ 9,790.69 $682.61
---------------------------------------------------------------------------------------------------------
2 10.25% 1.12% 1.71% $10,170.57 $111.78
---------------------------------------------------------------------------------------------------------
3 15.76% 1.12% 5.65% $10,565.19 $116.12
---------------------------------------------------------------------------------------------------------
4 21.55% 1.12% 9.75% $10,975.12 $120.63
---------------------------------------------------------------------------------------------------------
5 27.63% 1.12% 14.01% $11,400.95 $125.31
---------------------------------------------------------------------------------------------------------
6 34.01% 1.12% 18.43% $11,843.31 $130.17
---------------------------------------------------------------------------------------------------------
7 40.71% 1.12% 23.03% $12,302.83 $135.22
---------------------------------------------------------------------------------------------------------
8 47.75% 1.12% 27.80% $12,780.18 $140.46
---------------------------------------------------------------------------------------------------------
9 55.13% 1.12% 32.76% $13,276.05 $145.91
---------------------------------------------------------------------------------------------------------
10 62.89% 1.12% 37.91% $13,791.16 $151.58
---------------------------------------------------------------------------------------------------------
Total Gain After Fees
and Expenses $3,791.16
---------------------------------------------------------------------------------------------------------
Total Annual Fees and
Expenses $1,859.79
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Class B Shares
Maximum Sales Charge Initial Hypothetical Assumed Rate of Return
Investment Amount
0.00% $10,000.00 5%
|
Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
1 5.00% 1.87% 3.13% $10,313.00 $189.93
--------------------------------------------------------------------------------------------------------
2 10.25% 1.87% 6.36% $10,635.80 $195.87
--------------------------------------------------------------------------------------------------------
3 15.76% 1.87% 9.69% $10,968.70 $202.00
--------------------------------------------------------------------------------------------------------
4 21.55% 1.87% 13.12% $11,312.02 $208.32
--------------------------------------------------------------------------------------------------------
5 27.63% 1.87% 16.66% $11,666.08 $214.85
--------------------------------------------------------------------------------------------------------
6 34.01% 1.87% 20.31% $12,031.23 $221.57
--------------------------------------------------------------------------------------------------------
7 40.71% 1.87% 24.08% $12,407.81 $228.51
--------------------------------------------------------------------------------------------------------
8 47.75% 1.87% 27.96% $12,796.17 $235.66
--------------------------------------------------------------------------------------------------------
9 55.13% 1.12% 32.93% $13,292.67 $146.10
--------------------------------------------------------------------------------------------------------
10 62.89% 1.12% 38.08% $13,808.42 $151.77
--------------------------------------------------------------------------------------------------------
Total Gain After Fees
and Expenses $3,808.42
--------------------------------------------------------------------------------------------------------
Total Annual Fees and
Expenses $1,994.57
|
Class C Shares
Maximum Sales Charge Initial Hypothetical Assumed Rate of Return
Investment Amount
0.00% $10,000.00 5%
|
Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
1 5.00% 1.87% 3.13% $10,313.00 $189.93
--------------------------------------------------------------------------------------------------------
2 10.25% 1.87% 6.36% $10,635.80 $195.87
--------------------------------------------------------------------------------------------------------
3 15.76% 1.87% 9.69% $10,968.70 $202.00
--------------------------------------------------------------------------------------------------------
4 21.55% 1.87% 13.12% $11,312.02 $208.32
--------------------------------------------------------------------------------------------------------
5 27.63% 1.87% 16.66% $11,666.08 $214.85
--------------------------------------------------------------------------------------------------------
6 34.01% 1.87% 20.31% $12,031.23 $221.57
--------------------------------------------------------------------------------------------------------
7 40.71% 1.87% 24.08% $12,407.81 $228.51
--------------------------------------------------------------------------------------------------------
8 47.75% 1.87% 27.96% $12,796.17 $235.66
--------------------------------------------------------------------------------------------------------
9 55.13% 1.87% 31.97% $13,196.69 $243.03
--------------------------------------------------------------------------------------------------------
10 62.89% 1.87% 36.10% $13,609.75 $250.64
--------------------------------------------------------------------------------------------------------
Total Gain After Fees
and Expenses $3,609.75
--------------------------------------------------------------------------------------------------------
Total Annual Fees and
Expenses $2,190.38
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust XI: 811-4978
. Columbia Small Cap Core Fund (formerly named Columbia Small Cap Fund)
[LOGO] ColumbiaFunds
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/105414-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 1, 2006 (THE "PROSPECTUS")
COLUMBIA SMALL CAP CORE FUND
CLASS T AND G SHARES
The Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The section entitled "LEGAL PROCEEDINGS" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107869-0306 March 27, 2006
Effective March 1, 2004, the Fund is closed to both new investors and new accounts. For more information, see the section entitled "How to Buy Shares."
Class T and G Shares
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------- Investment Goal......................... 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 2 Performance History..................... 3 Your Expenses........................... 5 YOUR ACCOUNT 7 -------------------------------------------- How to Buy Shares....................... 7 Investment Minimums..................... 8 Sales Charges........................... 8 How to Exchange Shares.................. 11 How to Sell Shares...................... 12 Fund Policy on Trading of Fund Shares... 13 Distribution and Service Fees........... 14 Other Information About Your Account.... 15 |
MANAGING THE FUND 17 -------------------------------------------- Investment Advisor...................... 17 Portfolio Managers...................... 17 Legal Proceedings....................... 17 FINANCIAL HIGHLIGHTS 20 -------------------------------------------- APPENDIX A 22 -------------------------------------------- |
Class T and G shares are sold only to investors who received (and who have continuously held) Class T or G shares in connection with the merger of certain Galaxy Funds into various Columbia Funds (formerly named Liberty Funds).
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC May Lose Value
Insured No Bank Guarantee
|
The Fund ------------------------------------------------------------------------------- |
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and
The Fund
developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the advisor's opinion, undervalued. If the advisor's assessment of a company's prospects is wrong, the price of the company's stock may fall, or may not approach the value the advisor has placed on it.
Growth stocks are stocks of companies believed to have above-average potential for growth in revenue and earnings. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Small- or mid-cap companies may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The Fund
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class T share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance over the past one-year, five-year and ten year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
The Fund's returns are compared to the Russell 2000 Index, an unmanaged index that tracks the performance of the 2,000 smallest of the 3,000 largest U.S. companies based on market capitalization. The Fund's returns are also compared to the Standard & Poor's SmallCap 600 Composite Index (S&P SmallCap 600), an unmanaged index that tracks the performance of 600 domestic companies traded on the New York Stock Exchange, the American Stock Exchange and NASDAQ. The S&P SmallCap 600 is heavily weighted with the stocks of companies with small market capitalizations. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
Calendar Year Total Returns (Class T)/(1)/
LOGO
For the periods shown in bar chart: Best quarter: 2nd quarter 2003, +19.52% Worst quarter: 3rd quarter 2002, -17.80% |
(1) The calendar year total returns shown for Class T shares include the returns of Retail A Shares of the Galaxy Small Cap Value Fund (Galaxy Fund), the predecessor to the Fund, for periods prior to November 18, 2002, the date on which Class T shares were initially offered by the Fund.
The Fund
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class T (%)
Return Before Taxes -0.15 11.69/(1)/ 13.39/(1)/
Return After Taxes on Distributions -1.30 10.37/(1)/ 10.89/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 1.33 9.69/(1)/ 10.50/(1)/
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Class G (%)
Return Before Taxes 0.42 11.83/(1)/ 13.50/(1)/
Return After Taxes on Distributions -0.85 10.53/(1)/ 11.03/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 1.85 9.86/(1)/ 10.65/(1)/
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Russell 2000 Index (%) 4.55 8.22 9.26
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S&P SmallCap 600 (%) 7.68 10.76 12.16
|
(1) The average annual total returns shown include the returns of Retail A Shares (for Class T shares) and Retail B Shares (for Class G shares) of the Galaxy Fund for periods prior to November 18, 2002, the date on which Class T and Class G shares were initially offered by the Fund. The returns shown for Class G shares also include the returns of Retail A Shares (adjusted to reflect the sales charges applicable to Class G shares) for periods prior to the inception of Retail B Shares of the Galaxy Fund (November 1, 1998). Retail A Shares were initially offered on February 12, 1993. Class G shares generally would have had substantially similar returns to Retail A Shares because they would have been invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class G shares exceed expenses paid by Retail A Shares.
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees, shareholder service fees and other expenses that generally include, but are not limited to, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds.
Except as noted, the table does not take into account any
expense reduction arrangements discussed in the footnotes
to the Annual Fund Operating Expenses table. It uses the
following hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class G shares convert to Class T shares after eight
years
The Fund
Shareholder Fees/(1) /(paid directly from your investment)
Class T Class G
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00
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Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00
----------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class T shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class T Class G
Management fee/(1)/ (%) 0.76 0.76
---------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.00 0.95/(2)/
---------------------------------------------------------------
Other expenses/(4)/ (%) 0.41/(3)/ 0.11
---------------------------------------------------------------
Total annual fund operating expenses (%) 1.17 1.82
|
(1) The Fund pays a management fee of 0.69% and an administration fee of 0.07%.
(2) The Fund may pay distribution and service (12b-1) fees up to a maximum of
1.15% of the Fund's average daily net assets attributable to Class G shares
(comprised of up to 0.65% for distribution services, up to 0.25% for
shareholder liaison services and up to 0.25% for administrative support
services), but will limit such fees to an aggregate of not more than 0.95%
during the current fiscal year.
(3) The Fund may pay shareholder service fees (which are included in other
expenses) up to a maximum of 0.50% of the Fund's average daily net assets
attributable to Class T shares (comprised of up to 0.25% for shareholder
liaison services and up to 0.25% for administrative services), but will
limit such fees to an aggregate fee of not more than 0.30% during the
current fiscal year.
(4) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class T $687 $925 $1,182 $1,914
-----------------------------------------------------------------
Class G: did not sell your shares $185 $573 $985 $1,967
sold all your shares at
the end of the period $685 $973 $1,285 $1,967
|
See Appendix A for additional hypothetical investment and expense information.
Your financial advisor can help you establish an appropriate investment portfolio, buy shares and monitor your investments. When the Fund receives your purchase request in "good form," your shares will be bought at the next calculated public offering price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, "good form" may mean that you have properly placed your order with your financial advisor or the Fund's transfer agent has received your completed application, including all necessary signatures. The USA Patriot Act may require us to obtain certain personal information from you which we will use to verify your identity. If you do not provide the information, we may not be able to open your account. If we are unable to verify your customer information, we reserve the right to close your account or take such other steps as we deem reasonable.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
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By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging Class T or Class G
shares you own in a different fund distributed by Columbia
Management Distributors, Inc. for shares of the same class
(and, in some cases, certain other classes) of the Fund at
no additional cost. There may be an additional sales charge
if exchanging from a money market fund. To exchange by
telephone, call 1-800-422-3737.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. There may
be an additional sales charge if exchanging from a money
market fund. Be sure to complete the appropriate section of
the account application for this feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
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Your Account
Class T and G shares are sold only to investors who received (and who have continuously held) Class T or G shares in connection with the merger of certain Galaxy Funds into various Columbia Funds (formerly named Liberty Funds).
Please see the Statement of Additional Information for more details on investment minimums.
Class T shares Your purchases of Class T shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class T shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
Class T Sales Charges
% of offering
As a % of price
the public As a % retained by
offering of your financial
Amount purchased price investment advisor
Less than $50,000 5.75 6.10 5.00
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$50,000 to less than $100,000 4.50 4.71 3.75
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$100,000 to less than $250,000 3.50 3.63 2.75
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$250,000 to less than $500,000 2.50 2.56 2.00
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$500,000 to less than $1,000,000 2.00 2.04 1.75
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$1,000,000 or more 0.00 0.00 0.00
|
Class T shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class T share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
Your Account
For Class T share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
Purchases Over $1 Million
Amount purchased Commission % Less than $3 million 1.00 ------------------------------------------------ $3 million to less than $50 million 0.50 ------------------------------------------------ $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES Certain investments in Class T and G shares are subject to a CDSC, a sales charge applied at the time you sell your shares. You will pay the CDSC only on shares you sell within a certain amount of time after purchase. The CDSC generally declines each year until there is no charge for selling shares. The CDSC is applied to the net asset value at the time of purchase or sale, whichever is lower. For purposes of calculating the CDSC, the start of the holding period is the first day of the month in which the purchase was made. Shares you purchase with reinvested dividends or other distributions are not subject to a CDSC. When you place an order to sell shares, the Fund will automatically sell first those shares not subject to a CDSC and then those you have held the longest.
Reduced Sales Charges for Larger Investments.
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class T shares of the Fund and other funds in the Columbia family of funds.
Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
Statement of Intent You also may pay a lower sales charge when purchasing Class T shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
Your Account
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
. Individual accounts
. Joint accounts
. Certain IRA accounts
. Certain trusts
. UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
Your Account
Class G shares Your purchases of Class G shares are at Class G's net asset value. Purchases up to $50,000 are allowed in Class G shares assuming the combined value of the customer's total assets in the Columbia Funds does not exceed $50,000. Purchases in Class G shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class G shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class G shares as described in the chart below.
Class G Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 5.00
---------------------------------------------
Through second year 4.00
---------------------------------------------
Through third year 4.00
---------------------------------------------
Through fourth year 4.00
---------------------------------------------
Through fifth year 3.00
---------------------------------------------
Through sixth year 2.00
---------------------------------------------
Through seventh year 1.00
---------------------------------------------
Longer than seven years 0.00
|
Commission to financial advisors is 4.00%.
Automatic conversion to Class T shares occurs eight years after purchase.
Please see the Statement of Additional Information for the CDSCs and conversion schedules applicable to Class G shares received in exchange for Retail B Shares of the Galaxy Fund purchased or acquired prior to January 1, 2001.
Your Account
When the Fund receives your sales request in "good form," shares will be sold
at the next calculated price. "Good form" means that the Fund's transfer agent
has all information and documentation it deems necessary to effect your order.
For example, when selling shares by letter of instruction, "good form" means
(i) your letter has complete instructions, the proper signatures and Medallion
Signature Guarantees, (ii) if applicable, you have included any certificates
for shares to be sold, and (iii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries,
surviving joint owners and other legal entities, please call 1-800-345-6611.
Retirement plan accounts have special requirements; please call 1-800-799-7526
for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
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By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into the same share class (or
Class A and Class B shares, for Class T and Class G shares,
respectively) of another fund distributed by Columbia
Management Distributors, Inc. at no additional cost. To
exchange by telephone, call 1-800-422-3737.
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By telephone You or your financial advisor may sell shares by telephone
and request that a check be sent to your address of record
by calling 1-800-422-3737, unless you have notified the
Fund of an address change within the previous 30 days. The
dollar limit for telephone sales is $100,000 in a 30-day
period. You do not need to set up this feature in advance
of your call. Certain restrictions apply to retirement
accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction or, if
applicable, stock power form along with any share
certificates to be sold to the address below. In your
letter of instruction, note the Fund's name, share class,
account number, and the dollar value or number of shares
you wish to sell. All account owners must sign the letter.
Signatures must be guaranteed by either a bank, a member
firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for
alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
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By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
Your Account
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
Your Account
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Additional Intermediary Compensation In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
Your Account
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for any class of shares offered by the Fund.
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
----------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
UNDERSTANDING FUND DISTRIBUTIONS
The Fund may earn income from the securities it holds. The Fund also may realize capital gains or losses on sales of its securities. The Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of the Fund's income and capital gains based on the number of shares you own at the time these distributions are declared.
Your Account
Distribution Options The Fund distributes any dividends annually and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, all subsequent distributions will be reinvested in additional shares of the Fund.
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions may also be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.69% of average daily net assets of the Fund.
Richard G. D'Auteuil, a vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since September, 2005. Mr. D'Auteuil has been associated with Columbia Advisors or its predecessors since May, 1993.
Allyn Seymour, a vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since September, 2005. Mr. Seymour has been associated with Columbia Advisors or its predecessors since September, 1993.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
Managing the Fund
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
Managing the Fund
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and entered final judgment. The plaintiffs filed a notice of appeal on December 30, 2005.
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last six fiscal periods, which run from October 1 to September 30, unless otherwise indicated. Information for Class T shares and Class G shares prior to November 18, 2002, the date of reorganization, is for the former Retail A shares and Retail B shares, respectively, of the Galaxy Small Cap Value Fund. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the years ended September 30, 2005 and September 30, 2004 have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the period ended September 30, 2003 and for the fiscal years ended October 31, 2002, 2001 and 2000 has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
The Fund
Year ended Period ended
September 30, September 30,
2005/(a)/ 2004/(b)/ 2003/(c)(d)/
Class T Class T Class T
-------- -------- -------------
Net asset value --
Beginning of period ($) 17.40 15.16 12.55
---------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income (loss)/(e)/ (0.07) (0.08) (0.03)
Net realized and unrealized gain (loss) on
investments 2.88 2.74 3.29
---------------------------------------------------------------------------------------------------
Total from Investment Operations 2.81 2.66 3.26
---------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income -- -- --
From net realized gains (1.06) (0.42) (0.65)
---------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (1.06) (0.42) (0.65)
---------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 19.15 17.40 15.16
---------------------------------------------------------------------------------------------------
Total return (%)/(g)/ 16.58/(h)/ 17.73/(h)/ 27.03/(h)(i)/
---------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data (%):
Expenses/(i)/ 1.18 1.21 1.34/(k)/
Net investment income (loss)/(j)/ (0.36) (0.45) (0.26)/(k)/
Waiver/reimbursement --/(l)/ --/(l)/ 0.02/(k)/
Portfolio turnover rate (%) 16 26 19/(i)/
Net assets, end of period (000's) ($) 150,042 146,752 134,455
|
Year ended October 31,
2002 2001 2000
Class T Class T Class T
------- ------- -------
Net asset value --
Beginning of period ($) 13.96 14.25 12.98
--------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income (loss)/(e)/ (0.03) --/(f)/ 0.01
Net realized and unrealized gain (loss) on
investments (0.07) 1.59 2.63
--------------------------------------------------------------------------------------------
Total from Investment Operations (0.10) 1.59 2.64
--------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income -- (0.01) (0.01)
From net realized gains (1.31) (1.87) (1.36)
--------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (1.31) (1.88) (1.37)
--------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 12.55 13.96 14.25
--------------------------------------------------------------------------------------------
Total return (%)/(g)/ (1.75)/(h)/ 12.66 21.96/(h)/
--------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data (%):
Expenses/(i)/ 1.33 1.42 1.44
Net investment income (loss)/(j)/ (0.23) (0.02) 0.08
Waiver/reimbursement 0.01 -- 0.11
Portfolio turnover rate (%) 23 46 43
Net assets, end of period (000's) ($) 115,468 100,159 87,457
|
(a) On October 7, 2005, the Columbia Small Cap Fund was renamed the Columbia
Small Cap Core Fund.
(b) On October 13, 2003, the Liberty Small Cap Fund was renamed the Columbia
Small Cap Fund.
(c) The Fund changed its fiscal year end from October 31 to September 30.
(d) On November 18, 2002, the Galaxy Small Cap Value Fund, Retail A shares were
redesignated Liberty Small Cap Fund, Class T shares.
(e) Per share data was calculated using average shares outstanding during the
period.
(f) Rounds to less than $0.01 per share.
(g) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(h) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of the expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
(l) Rounds to less than 0.01%.
Financial Highlights
The Fund
Year ended Period ended
September 30, September 30,
2005/(a)/ 2004/(b)/ 2003/(b)(c)(d)/
Class G Class G Class G
-------- -------- --------------
Net asset value --
Beginning of period ($) 16.75 14.63 12.22
--------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment loss/(e)/ (0.18) (0.18) (0.12)
Net realized and unrealized gain (loss) on
investments 2.78 2.64 3.18
--------------------------------------------------------------------------------------------------
Total from Investment Operations 2.60 2.46 3.06
--------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net realized gains (0.95) (0.34) (0.65)
--------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 18.40 16.75 14.63
--------------------------------------------------------------------------------------------------
Total return (%)/(f)/ 15.91/(g)/ 16.97/(g)/ 26.09/(g)(h)/
--------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data (%):
Expenses/(i)/ 1.83 1.87 2.10/(j)/
Net investment loss/(i)/ (1.01) (1.11) (1.03)/(j)/
Waiver/reimbursement --/(k)/ --/(k)/ 0.02/(j)/
Portfolio turnover rate (%) 16 26 19/(h)/
Net assets, end of period (000's) ($) 8,963 10,952 10,353
|
Year ended October 31,
2002 2001 2000
Class G Class G Class G
------- ------- -------
Net asset value --
Beginning of period ($) 13.72 14.13 12.96
--------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment loss/(e)/ (0.14) (0.11) (0.10)
Net realized and unrealized gain (loss) on
investments (0.05) 1.57 2.63
--------------------------------------------------------------------------------------
Total from Investment Operations (0.19) 1.46 2.53
--------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net realized gains (1.31) (1.87) (1.36)
--------------------------------------------------------------------------------------
Net asset value --
End of period ($) 12.22 13.72 14.13
--------------------------------------------------------------------------------------
Total return (%)/(f)/ (2.49)/(g)/ 11.73 21.06/(g)/
--------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data (%):
Expenses/(i)/ 2.12 2.21 2.23
Net investment loss/(i)/ (1.02) (0.80) (0.71)
Waiver/reimbursement 0.01 -- 0.18
Portfolio turnover rate (%) 23 46 43
Net assets, end of period (000's) ($) 9,046 5,278 2,838
|
(a) On October 7, 2005 the Columbia Small Cap Fund was renamed the Columbia
Small Cap Core Fund.
(b) On October 13, 2003, the Liberty Small Cap Fund was renamed the Columbia
Small Cap Fund.
(c) The Fund changed its fiscal year end from October 31 to September 30.
(d) On November 18, 2002, the Galaxy Small Cap Value Fund, Retail B shares were
redesignated Liberty Small Cap Fund, Class G shares.
(e) Per share data was calculated using average shares outstanding during the
period.
(f) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(g) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of the expenses, total return would have been reduced
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
(k) Rounds to less than 0.01%.
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The charts also assume that all dividends and distributions are reinvested and that Class G shares convert to Class T shares after eight years. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher.
Class T Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
5.75% $10,000.00 5%
Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
1 5.00% 1.17% -2.14%/(2)/ $ 9,785.98 $687.38
2 10.25% 1.17% 1.61% $10,160.78 $116.69
3 15.76% 1.17% 5.50% $10,549.94 $121.16
4 21.55% 1.17% 9.54% $10,954.00 $125.80
5 27.63% 1.17% 13.74% $11,373.54 $130.62
6 34.01% 1.17% 18.09% $11,809.15 $135.62
7 40.71% 1.17% 22.61% $12,261.44 $140.81
8 47.75% 1.17% 27.31% $12,731.05 $146.21
9 55.13% 1.17% 32.19% $13,218.65 $151.81
10 62.89% 1.17% 37.25% $13,724.92 $157.62
Total Gain After Fees
and Expenses $3,724.92
Total Annual Fees and
Expenses $1,913.71
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Class G Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
1 5.00% 1.82% 3.18% $10,318.00 $184.89
2 10.25% 1.82% 6.46% $10,646.11 $190.77
3 15.76% 1.82% 9.85% $10,984.66 $196.84
4 21.55% 1.82% 13.34% $11,333.97 $203.10
5 27.63% 1.82% 16.94% $11,694.39 $209.56
6 34.01% 1.82% 20.66% $12,066.27 $216.22
7 40.71% 1.82% 24.50% $12,449.98 $223.10
8 47.75% 1.82% 28.46% $12,845.89 $230.19
9 55.13% 1.17% 33.38% $13,337.89 $153.18
10 62.89% 1.17% 38.49% $13,848.73 $159.04
Total Gain After Fees
and Expenses $3,848.73
Total Annual Fees and
Expenses $1,966.89
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust XI: 811-4978
. Columbia Small Cap Core Fund (formerly named Columbia Small Cap Fund)
[LOGO] ColumbiaFunds
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/105314-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 1, 2006 (THE "PROSPECTUS")
COLUMBIA SMALL CAP CORE FUND
CLASS Z SHARES
The Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The section entitled "LEGAL PROCEEDINGS" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the
judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107779-0306 March 27, 2006
Effective March 1, 2004, the Fund is closed to both new investors and new accounts. For more information, see the section entitled "How to Buy Shares."
Class Z Shares
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------- Investment Goal......................... 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 2 Performance History..................... 3 Your Expenses........................... 5 YOUR ACCOUNT 7 -------------------------------------------- How to Buy Shares....................... 7 Eligible Investors...................... 8 Sales Charges........................... 9 How to Exchange Shares.................. 9 How to Sell Shares...................... 10 Fund Policy on Trading of Fund Shares... 11 Intermediary Compensation............... 12 Other Information About Your Account.... 12 |
MANAGING THE FUND 15 -------------------------------------------- Investment Advisor...................... 15 Portfolio Managers...................... 15 Legal Proceedings....................... 15 FINANCIAL HIGHLIGHTS 17 -------------------------------------------- APPENDIX A 18 -------------------------------------------- |
Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC May Lose Value
Insured No Bank Guarantee
|
The Fund ------------------------------------------------------------------------------- |
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
The Fund
Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the advisor's opinion, undervalued. If the advisor's assessment of a company's prospects is wrong, the price of the company's stock may fall, or may not approach the value the advisor has placed on it.
Growth stocks are stocks of companies believed to have above-average potential for growth in revenue and earnings. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Small- or mid-cap companies may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The Fund
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class Z share
performance for each of the last ten complete calendar
years. They include the effects of Fund expenses.
Average Annual Total Returns are a measure of the Fund's
Class Z average performance over the past one-year,
five-year and ten-year periods. They include the effects of
Fund expenses.
The Fund's returns are compared to the Russell 2000 Index,
an unmanaged index that tracks the performance of the 2,000
smallest of the 3,000 largest U.S. companies based on
market capitalization. The Fund's returns are also compared
to the Standard & Poor's SmallCap 600 Composite Index (S&P
SmallCap 600), an unmanaged index that tracks the
performance of 600 domestic companies traded on the New
York Stock Exchange, the American Stock Exchange and
NASDAQ. The S&P SmallCap 600 is heavily weighted with the
stocks of companies with small market capitalizations.
Unlike the Fund, indices are not investments, do not incur
fees, expenses or taxes and are not professionally managed.
Calendar Year Total Returns (Class Z)/(1)/
LOGO
For the periods shown in bar chart:
Best quarter: 2nd quarter 2003, +19.60%
Worst quarter: 3rd quarter 2002, -17.74%
(1) The calendar year total returns shown for Class Z shares include the returns of Trust Shares of the Galaxy Small Cap Value Fund (Galaxy Fund), the predecessor to the Fund, for periods prior to November 18, 2002, the date on which Class Z shares were initially offered by the Fund. The returns for Class Z shares also include the returns of Trust shares of the Small Cap portfolio of The Shawmut Funds (Shawmut Fund), the predecessor to the Galaxy Fund, for periods prior to December 4, 1995.
The Fund
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class Z (%)
Return Before Taxes 6.27 13.46/(1)/ 14.51/(1)/
Return After Taxes on Distributions 5.01 12.04/(1)/ 11.90/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 5.60 11.22/(1)/ 11.45/(1)/
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Russell 2000 Index (%) 4.55 8.22 9.26
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S&P SmallCap 600 (%) 7.68 10.76 12.16
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(1) The average annual total returns shown include returns of Trust Shares of the Galaxy Fund for periods prior to November 18, 2002, and returns of Trust shares of the Shawmut Fund for periods prior to December 4, 1995.
UNDERSTANDING EXPENSES
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees and other expenses that generally include, but are not limited to, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds. It
uses the following hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
The Fund
Shareholder Fees/(1) /(paid directly from your investment)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 ---------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 ---------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) /(2)/ |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
Annual Fund Operating Expenses (deducted directly from Fund assets)
Example Expenses (your actual costs may be higher or lower)
1 Year 3 Years 5 Years 10 Years $89 $278 $482 $1,073 |
See Appendix A for additional hypothetical investment and expense information.
When the Fund receives your purchase request in "good form," your shares will be bought at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, "good form" may mean that you have properly placed your order with Columbia Management Services, Inc. or your financial advisor or the Fund's transfer agent has received your completed application, including all necessary signatures. The USA Patriot Act may require us to obtain certain personal information from you which we will use to verify your identity. If you do not provide the information, we may not be able to open your account. If we are unable to verify your customer information, we reserve the right to close your account or take such other steps as we deem reasonable.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For new accounts, send a completed application and check
(new account) made payable to the Fund to Columbia Management Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
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By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging shares you own in a
different fund distributed by Columbia Management
Distributors, Inc. for shares of the same class of the Fund
at no additional cost. To exchange by telephone, call
1-800-422-3737. Please see "How to Exchange Shares" for
more information.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. Be sure to
complete the appropriate section of the account application
for this feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at
no additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
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Your Account
Important Things to Consider When Deciding on a Class of Shares:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by a broker/dealer, bank, third-party administrator or other financial institution (each commonly referred to as an "intermediary"). Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
No minimum initial investment
. Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
. Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts ("IRAs")), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
. Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
. Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
$1,000 minimum initial investment
. Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of a fund distributed by Columbia Management Distributors, Inc. (i) who holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005; (iii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iv) who purchased certain no-load shares of a fund merged with a fund distributed by Columbia Management Distributors, Inc.;
Your Account
. Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Management Distributors, Inc. ;
. Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary;
. Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement);
. Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an accredited investor, as defined under the Securities Act of 1933; or
. Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries.
The Fund reserves the right to change the criteria for Eligible Investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
CHOOSING A SHARE CLASS
The Fund offers one class of shares in this prospectus -- Class Z.
Your Account
When the Fund receives your sales request in "good form," shares will be sold
at the next calculated price. "Good form" means that the Fund's transfer agent
has all information and documentation it deems necessary to effect your order.
For example, when selling shares by letter of instruction, "good form" means
(i) your letter has complete instructions, the proper signatures and Medallion
Signature Guarantees and (ii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries,
surviving joint owners and other legal entities, please call 1-800-345-6611.
Retirement plan accounts have special requirements; please call 1-800-799-7526
for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
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By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into Class Z shares or Class A
shares (only if Class Z is not offered) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is
$100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign
the letter. Signatures must be guaranteed by either a bank,
a member firm of a national stock exchange or another
eligible guarantor that participates in the Medallion
Signature Guarantee Program for amounts over $100,000 or
for alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
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By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. All dividend and capital gains distributions must
be reinvested. Be sure to complete the appropriate section
of the account application for this feature.
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By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
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Your Account
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
Your Account
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to an intermediary. Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will
Your Account
not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for Class Z shares.
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
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Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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Distribution Options The Fund distributes any dividends annually and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Your Account
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, all subsequent distributions will be reinvested in additional shares of the Fund.
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.69% of average daily net assets of the Fund.
Richard G. D'Auteuil, a vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since September, 2005. Mr. D'Auteuil has been associated with Columbia Advisors or its predecessors since May, 1993.
Allyn Seymour, a vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since September, 2005. Mr. Seymour has been associated with Columbia Advisors or its predecessors since September, 1993.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and
Managing the Fund
certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and entered final judgment. The plaintiffs filed a notice of appeal on December 30, 2005.
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the last six fiscal periods, which run from October 1 to September 30, unless otherwise indicated. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the years ended September 30, 2005 and September 30, 2004 have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the period ended September 30, 2003 and for the fiscal years ended October 31, 2002, 2001 and 2000 has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
The Fund
Year ended Period ended
September 30, September 30, Year ended October 31,
2005/(a)/ 2004/(b)/ 2003/(c)(d)/ 2002 2001 2000
Class Z Class Z Class Z Class Z Class Z Class Z
--------- --------- ------------- ------- ------- -------
Net asset value --
Beginning of period ($) 17.73 15.45 12.75 14.11 14.38 13.07
---------------------------------------------------------------------------------------------------------------------
Income from Investment Operations
($):
Net investment income
(loss)/(e)/ (0.01) (0.03) 0.02 0.03 0.07 0.08
Net realized and unrealized
gain (loss) on investments 2.94 2.80 3.34 (0.07) 1.60 2.65
---------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 2.93 2.77 3.36 (0.04) 1.67 2.73
---------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income -- -- (0.01) (0.01) (0.07) (0.06)
From net realized capital gains (1.12) (0.49) (0.65) (1.31) (1.87) (1.36)
---------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to
Shareholders (1.12) (0.49) (0.66) (1.32) (1.94) (1.42)
---------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 19.54 17.73 15.45 12.75 14.11 14.38
---------------------------------------------------------------------------------------------------------------------
Total return (%)/(f)/ 16.96/(g)/ 18.12/(g)/ 27.44/(g)(h)/ (1.26)/(g)/ 13.20 22.62
---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net
Assets/Supplemental Data (%):
Expenses/(i)/ 0.88 0.90 0.92/(j)/ 0.90 0.92 0.94
Net investment income
(loss)/(i)/ (0.06) (0.15) 0.14/(j)/ 0.20 0.48 0.58
Waiver/reimbursement --/(k)/ --/(k)/ 0.02/(j)/ 0.01 -- --
Portfolio turnover rate (%) 16 26 19/(h)/ 23 46 43
Net assets, end of period (000's)
($) 1,058,362 1,101,312 789,666 485,197 425,687 332,703
|
(a) On October 7, 2005, the Columbia Small Cap Fund was renamed the Columbia
Small Cap Core Fund.
(b) On October 13, 2003, the Liberty Small Cap Fund was renamed the Columbia
Small Cap Fund.
(c) The Fund changed its fiscal year end from October 31 to September 30.
(d) On November 18, 2002, the Galaxy Small Cap Value Fund, Trust shares were
redesignated Liberty Small Cap Fund, Class Z shares.
(e) Per share data was calculated using average shares outstanding during the
period.
(f) Total return at net asset value assuming all distributions reinvested.
(g) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of the expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
(k) Rounds to less than 0.01%.
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The chart shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class Z shares the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The chart also assumes that all dividends and distributions are reinvested. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses table, are presented in the chart, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower.
Class Z Shares
Initial Hypothetical
Investment
Maximum Sales Charge 0.00% Amount $10,000.00 Assumed Rate of Return 5%
Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
1 5.00% 0.87% 4.13% $10,413.00 $88.80
2 10.25% 0.87% 8.43% $10,843.06 $92.46
3 15.76% 0.87% 12.91% $11,290.88 $96.28
4 21.55% 0.87% 17.57% $11,757.19 $100.26
5 27.63% 0.87% 22.43% $12,242.76 $104.40
6 34.01% 0.87% 27.48% $12,748.39 $108.71
7 40.71% 0.87% 32.75% $13,274.89 $113.20
8 47.75% 0.87% 38.23% $13,823.15 $117.88
9 55.13% 0.87% 43.94% $14,394.04 $122.74
10 62.89% 0.87% 49.89% $14,988.52 $127.81
Total Gain After Fees
and Expenses $4,988.52
Total Annual Fees and
Expenses $1,072.55
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust XI: 811-4978
. Columbia Small Cap Core Fund (formerly named Columbia Small Cap Fund)
[LOGO] ColumbiaFunds
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/105415-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 1, 2006 (THE "PROSPECTUS")
COLUMBIA SMALL COMPANY EQUITY FUND
CLASS A, B AND C SHARES
The Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The section entitled "LEGAL PROCEEDINGS" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107688-0306 March 27, 2006
Class A, B and C Shares
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------- Investment Goal......................... 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 2 Performance History..................... 3 Your Expenses........................... 6 YOUR ACCOUNT 8 -------------------------------------------- How to Buy Shares....................... 8 Investment Minimums..................... 8 Sales Charges........................... 9 How to Exchange Shares.................. 12 How to Sell Shares...................... 13 Fund Policy on Trading of Fund Shares... 14 Distribution and Service Fees........... 15 Other Information About Your Account.... 16 |
MANAGING THE FUND 19 -------------------------------------------- Investment Advisor...................... 19 Portfolio Managers...................... 19 Legal Proceedings....................... 20 FINANCIAL HIGHLIGHTS 22 -------------------------------------------- APPENDIX A 25 -------------------------------------------- |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC May Lose Value
Insured No Bank Guarantee
In selecting investments for the Fund, the Fund's investment advisor looks for promising industries. It then looks within those industries for what it judges to be reasonably priced companies that have above-average growth potential. The advisor consults a wide range of sources, including management, competitors, other industry sources and regional brokerage analysts.
The Fund will sell a portfolio security when, as a result of changes in the economy, the advisor believes that holding the security is no longer consistent with the Fund's investment goal. A security may also be sold as a result of a deterioration in the performance of the security or in the financial condition of the issuer of the security.
As part of its investment strategy, the Fund may buy and sell securities frequently. Such trading usually increases portfolio turnover rates, which usually increases the chance that the Fund will pay investors short-term capital gains (which are taxable at higher rates than long-term capital gains). Such trading may also result in higher brokerage commissions and other transaction costs and additional tax liability, which could reduce the Fund's returns.
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
The Fund
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Small- or mid-cap companies may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
Frequent trading risk. Frequent trading of investments usually increases the chance that the Fund will pay investors short-term capital gains. These gains are taxable at higher rates than long-term capital gains. Frequent trading could also mean higher transaction costs, which could reduce the Fund's return.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The Fund
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
Beginning in 2003, the Fund's primary benchmark was changed to the Russell 2000 Growth Index, an unmanaged index that tracks the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. The Fund's returns are also compared to the Russell 2000 Index, an unmanaged index that tracks the performance of the 2,000 smallest of the 3,000 largest U.S. companies, based on market capitalization. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
Calendar Year Total Returns (Class A)/(1)/
[CHART]
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ---- ---- ---- ---- ---- ---- ---- ----- ------ ------ 20.84% 14.17% -10.94% 38.93% -5.49% -0.12% -33.76% 42.25% 11.02% 1.45% |
For the periods shown in bar chart: Best quarter: 4th quarter 1999, +44.08% Worst quarter: 3rd quarter 1998, -24.02% |
(1) The calendar year total returns shown for Class A shares include the returns of Retail A Shares of the Galaxy Small Company Equity Fund (Galaxy Fund), the predecessor to the Fund, for periods prior to November 18, 2002, the date on which Class A shares were initially offered by the Fund. Class A shares would have had substantially similar returns to Retail A Shares because they would have been invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class A shares exceed expenses paid by Retail A Shares.
The Fund
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class A (%)
Return Before Taxes -4.40 -0.02/(1)/ 4.89/(1)/
Return After Taxes on Distributions -5.39 -0.23/(1)/ 3.77/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -1.50 -0.01/(1)/ 3.81/(1)/
---------------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes -3.99 -0.01/(1)/ 4.79/(1)/
Return After Taxes on Distributions -5.12 -0.24/(1)/ 3.65/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -1.05 0.00/(1)/ 3.73/(1)/
---------------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes -0.26 0.30/(1)/ 4.76/(1)/
Return After Taxes on Distributions -1.39 0.07/(1)/ 3.62/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 1.38 0.26/(1)/ 3.71/(1)/
---------------------------------------------------------------------------------------------
Russell 2000 Growth Index (%) 4.15 2.28 4.69
---------------------------------------------------------------------------------------------
Russell 2000 Index (%) 4.55 8.22 9.26
|
(1) Class A, Class B and Class C are newer classes of shares. Their performance information includes returns of Retail A Shares (for Class A shares) and Retail B Shares (for Class B and Class C shares) of the Galaxy Fund for periods prior to November 18, 2002, the date on which Class A, B and C shares were initially offered by the Fund. The returns of Class B and Class C shares also include the returns of Retail A Shares for periods prior to the inception of Retail B Shares of the Galaxy Fund (March 4, 1996). Class B and Class C shares generally would have had substantially similar returns to Retail A Shares because they would have been invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class B and Class C shares exceed expenses paid by Retail A Shares. The returns have not been restated to reflect any differences in expenses between the predecessor shares and the newer class of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower.
The Fund
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees and other expenses that generally include, but are not limited to, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds.
Except as noted, the table does not take into account any
expense reduction arrangements discussed in the footnotes to
the Annual Fund Operating Expenses table. It uses the
following hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class B shares convert to Class A shares after eight years
Shareholder Fees/(1) /(paid directly from your investment)
Class A Class B Class C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00 0.00
---------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00 1.00
---------------------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/ /(3)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
The Fund
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class A Class B Class C
Management fee/(1)/ (%) 0.82 0.82 0.82
--------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25/(2)/ 1.00 1.00
--------------------------------------------------------------------
Other expenses/(3)/(%) 0.24 0.24 0.24
--------------------------------------------------------------------
Total annual fund operating expenses (%) 1.31 2.06 2.06
|
(1) The Fund pays a management fee of 0.75% and an administration fee of 0.07%.
(2) The Fund may pay distribution and service (12b-1) fees up to a maximum of
0.35% of the Fund's average daily net assets attributable to Class A shares
(comprised of up to 0.10% for distribution services and up to 0.25% for
shareholder liaison services) but will limit such fees to an aggregate of
not more than 0.25% for Class A shares during the current fiscal year.
(3) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class A $701 $966 $1,252 $2,063
-----------------------------------------------------------------
Class B: did not sell your shares $209 $646 $1,108 $2,197
sold all your shares at
the end of the period $709 $946 $1,308 $2,197
-----------------------------------------------------------------
Class C: did not sell your shares $209 $646 $1,108 $2,390
sold all your shares at
the end of the period $309 $646 $1,108 $2,390
|
See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
-------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
-------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging shares you own in a
different fund distributed by Columbia Management
Distributors, Inc. for shares of the same class (and, in
some cases, certain other classes) of the Fund at no
additional cost. There may be an additional sales charge if
exchanging from a money market fund. To exchange by
telephone, call 1-800-422-3737.
-------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
-------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. There may
be an additional sales charge if exchanging from money
market fund. Be sure to complete the appropriate section of
the account application for this feature.
-------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
|
Please see the Statement of Additional Information for more details on investment minimums.
Your Account
CHOOSING A SHARE CLASS
The Fund offers three classes of shares in this prospectus -- Class A, B and C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 or more but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
The Fund also offers three additional classes of shares, Class T, G and Z shares, exclusively to certain institutional and other investors. Class T, G and Z shares are made available through separate prospectuses provided to eligible institutional and other investors.
Class A shares Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
Class A Sales Charges
% of offering
As a % of price
the public As a % retained by
offering of your financial
Amount purchased price investment advisor
Less than $50,000 5.75 6.10 5.00
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$50,000 to less than $100,000 4.50 4.71 3.75
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$100,000 to less than $250,000 3.50 3.63 2.75
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$250,000 to less than $500,000 2.50 2.56 2.00
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$500,000 to less than $1,000,000 2.00 2.04 1.75
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$1,000,000 or more 0.00 0.00 0.00
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Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
Your Account
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
Purchases Over $1 Million
Amount purchased Commission % Less than $3 million 1.00 ------------------------------------------------ $3 million to less than $50 million 0.50 ------------------------------------------------ $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
Reduced Sales Charges for Larger Investments.
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
Statement of Intent You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
Your Account
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
. Individual accounts
. Joint accounts
. Certain IRA accounts
. Certain trusts
. UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
Your Account
Class B shares Your purchases of Class B shares are at Class B's net asset value. Purchases up to $50,000 are allowed in Class B shares assuming the combined value of the customer's total assets in the Columbia funds does not exceed $50,000. Purchases in Class B shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart below.
Class B Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 5.00
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Through second year 4.00
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Through third year 3.00
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Through fourth year 3.00
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Through fifth year 2.00
---------------------------------------------
Through sixth year 1.00
---------------------------------------------
Longer than six years 0.00
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Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
Class C shares Your purchases of Class C shares are at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares, as described in the chart below.
Class C Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 1.00
---------------------------------------------
Longer than one year 0.00
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Your Account
advisor determines that your exchange activity is likely to adversely impact its ability to manage the Fund. See "Fund Policy on Trading of Fund Shares" for the Fund's policy. To exchange by telephone, call 1-800-422-3737. Please have your account and taxpayer identification numbers available when calling.
When the Fund receives your sales request in "good form," shares will be sold
at the next calculated price. "Good form" means that the Fund's transfer agent
has all information and documentation it deems necessary to effect your order.
For example, when selling shares by letter of instruction, "good form" means
(i) your letter has complete instructions, the proper signatures and Medallion
Signature Guarantees, (ii) if applicable, you have included any certificates
for shares to be sold, and (iii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries,
surviving joint owners and other legal entities, please call 1-800-345-6611.
Retirement plan accounts have special requirements; please call 1-800-799-7526
for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Your Account
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
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By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into the same share class (and,
in some cases, certain other classes) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is
$100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction or, if
applicable, stock power form along with any share
certificates to be sold to the address below. In your
letter of instruction, note the Fund's name, share class,
account number, and the dollar value or number of shares
you wish to sell. All account owners must sign the letter.
Signatures must be guaranteed by either a bank, a member
firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for
alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
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By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
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By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
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The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
Your Account
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Additional Intermediary Compensation In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may
Your Account
be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
Your Account
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the transfer agent.
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
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Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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Distribution Options The Fund distributes any dividends annually and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, all subsequent distributions will be reinvested in additional shares of the Fund.
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund
Your Account
distributions are subject to federal income tax. Depending on where you live, distributions may also be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.75% of average daily net assets of the Fund.
Paul J. Berlinguet, a senior vice president of Columbia Advisors, head of the advisor's Small Cap Growth team and head of the Large Cap Growth team, is a co-manager for the Fund and has co-managed the Fund since December, 2005. Prior to joining Columbia Management in October, 2003, Mr. Berlinguet was head of the large-mid cap equity group and a portfolio manager at John Hancock Funds. Prior to joining John Hancock Funds in April 2001, Mr. Berlinguet was head of the Global Technology Research Team and a large cap growth portfolio manager at Baring Asset Management. During his 12-year career at Baring Asset Management, he also managed a small cap aggressive growth unit trust and was lead portfolio manager for four years.
Daniele M. Donahoe, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since December, 2005. Ms. Donahoe has been associated with Columbia Advisors or its predecessors since July, 2002. Prior to joining, Ms. Donahoe was an associate in the equity research department at Citigroup from 1999 to 2001.
Jon Michael Morgan, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since December, 2005. Mr. Morgan has been associated with Columbia Advisors or its predecessors since July, 2000.
Clifford D. Siverd, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since December, 2005. Mr. Siverd has been associated with Columbia Advisors or its predecessors since April, 2001. Prior to joining, Mr. Siverd was a vice president of institutional equity sales at Suntrust Robinson-Humphry.
Managing the Fund
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
Managing the Fund
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and entered final judgment. The plaintiffs filed a notice of appeal on December 30, 2005.
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's fiscal years since inception, which run from October 1 to September 30, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the years ended September 30, 2005 and September 30, 2004 have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the period ended September 30, 2003 has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
The Fund
Year ended Period ended
September 30, September 30,
2005 2004/(a)/ 2003/(b)(c)/
Class A Class A Class A
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Net asset value -- Beginning of period ($) 15.94 14.10 11.74
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Income from Investment Operations ($):
Net investment loss/(d)/ (0.18) (0.19) (0.17)
Net realized and unrealized gain on investments 2.39 2.03 2.53
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Total from Investment Operations 2.21 1.84 2.36
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Net asset value -- End of period ($) 18.15 15.94 14.10
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Total return (%)/(e)/ 13.86/(f)/ 13.05/(f)/ 20.10/(g)/
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Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 1.34 1.35 1.62/(i)/
Net investment loss/(h)/ (1.07) (1.16) (1.42)/(i)/
Waiver/reimbursement 0.02 0.01 --
Portfolio turnover rate (%) 110 54 123/(g)/
Net assets, end of period (000's) ($) 5,287 4,586 384
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(a) On October 13, 2003, the Liberty Small Company Equity Fund was renamed the
Columbia Small Company Equity Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) Class A shares were initially offered on November 18, 2002. Per share data
and total return reflect activity from that date.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Total return at net asset value assuming no initial sales charge or
contingent deferred sales charge.
(f) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
Financial Highlights
The Fund
Year ended Period ended
September 30, September 30,
2005 2004/(a)/ 2003/(b)(c)/
Class B Class B Class B
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Net asset value --
Beginning of period ($) 14.88 13.26 11.13
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Income from Investment Operations ($):
Net investment loss/(d)/ (0.29) (0.29) (0.25)
Net realized and unrealized gain on investments 2.23 1.91 2.38
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Total from Investment Operations 1.94 1.62 2.13
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Net asset value --
End of period ($) 16.82 14.88 13.26
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Total return (%)/(e)/ 13.04/(f)/ 12.22/(f)/ 19.14/(g)/
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Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 2.09 2.09 2.47/(i)/
Net investment loss/(h)/ (1.82) (1.90) (2.24)/(i)/
Waiver/reinvestment 0.02 0.01 --
Portfolio turnover rate (%) 110 54 123/(g)/
Net assets, end of period (000's) ($) 2,398 1,826 203
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(a) On October 13, 2003, the Liberty Small Company Equity Fund was renamed the
Columbia Small Company Equity Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) Class B shares were initially offered on November 18, 2002. Per share data
and total return reflect activity from that date.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Total return at net asset value assuming no contingent deferred sales
charge.
(f) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
Financial Highlights
The Fund
Year ended Period ended
September 30, September 30,
2005 2004/(a)/ 2003/(b)(c)/
Class C Class C Class C
------- -------- -------------
Net asset value --
Beginning of period ($) 14.84 13.22 11.13
--------------------------------------------------------------------------------------------
Income from Investment Operation ($):
Net investment loss/(d)/ (0.29) (0.29) (0.29)
Net realized and unrealized gain on investments 2.22 1.91 2.38
--------------------------------------------------------------------------------------------
Total from Investment Operations 1.93 1.62 2.09
--------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 16.77 14.84 13.22
--------------------------------------------------------------------------------------------
Total return (%)/(e)/ 13.01/(f)/ 12.25/(f)/ 18.78/(g)/
--------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 2.09 2.09 2.84/(i)/
Net investment loss/(h)/ (1.82) (1.90) (2.59)/(i)/
Waiver/reimbursement 0.02 0.01 --
Portfolio turnover rate (%) 110 54 123/(g)/
Net assets, end of period (000's) ($) 1,074 982 56
|
(a) On October 13, 2003, the Liberty Small Company Equity Fund was renamed the
Columbia Small Company Equity Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) Class C shares were initially offered on November 18, 2002. Per share data
and total return reflect activity from that date.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Total return at net asset value assuming no contingent deferred sales
charge.
(f) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The charts also assume that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher.
Class A Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
5.75% $10,000.00 5%
Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
1 5.00% 1.31% -2.27%/(2)/ $9,772.78 $700.75
2 10.25% 1.31% 1.33% $10,133.40 $130.39
3 15.76% 1.31% 5.07% $10,507.32 $135.20
4 21.55% 1.31% 8.95% $10,895.04 $140.19
5 27.63% 1.31% 12.97% $11,297.07 $145.36
6 34.01% 1.31% 17.14% $11,713.93 $150.72
7 40.71% 1.31% 21.46% $12,146.17 $156.28
8 47.75% 1.31% 25.94% $12,594.37 $162.05
9 55.13% 1.31% 30.59% $13,059.10 $168.03
10 62.89% 1.31% 35.41% $13,540.98 $174.23
Total Gain After Fees
and Expenses $3,540.98
Total Annual Fees
and Expenses $2,063.19
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Class B Shares
Maximum Sales
Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
1 5.00% 2.06% 2.94% $10,294.00 $209.03
2 10.25% 2.06% 5.97% $10,596.64 $215.17
3 15.76% 2.06% 9.08% $10,908.18 $221.50
4 21.55% 2.06% 12.29% $11,228.89 $228.01
5 27.63% 2.06% 15.59% $11,559.01 $234.72
6 34.01% 2.06% 18.99% $11,898.85 $241.62
7 40.71% 2.06% 22.49% $12,248.68 $248.72
8 47.75% 2.06% 26.09% $12,608.79 $256.03
9 55.13% 1.31% 30.74% $13,074.05 $168.22
10 62.89% 1.31% 35.56% $13,556.48 $174.43
Total Gain After Fees
and Expenses $3,556.48
Total Annual Fees
and Expenses $2,197.45
|
Class C Shares
Maximum Sales
Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
1 5.00% 2.06% 2.94% $10,294.00 $209.03
2 10.25% 2.06% 5.97% $10,596.64 $215.17
3 15.76% 2.06% 9.08% $10,908.18 $221.50
4 21.55% 2.06% 12.29% $11,228.89 $228.01
5 27.63% 2.06% 15.59% $11,559.01 $234.72
6 34.01% 2.06% 18.99% $11,898.85 $241.62
7 40.71% 2.06% 22.49% $12,248.68 $248.72
8 47.75% 2.06% 26.09% $12,608.79 $256.03
9 55.13% 2.06% 29.79% $12,979.49 $263.56
10 62.89% 2.06% 33.61% $13,361.08 $271.31
Total Gain After Fees
and Expenses $3,361.08
Total Annual Fees and
Expenses $2,389.66
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust XI: 811-4978
. Columbia Small Company Equity Fund
[LOGO] ColumbiaFunds
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/105416-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 1, 2006 (THE "PROSPECTUS")
COLUMBIA SMALL COMPANY EQUITY FUND
CLASS T AND G SHARES
The Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The section entitled "LEGAL PROCEEDINGS" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the
judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107769-0306 March 27, 2006
Class T and G Shares
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------- Investment Goal......................... 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 2 Performance History..................... 3 Your Expenses........................... 5 YOUR ACCOUNT 7 -------------------------------------------- How to Buy Shares....................... 7 Investment Minimums..................... 7 Sales Charges........................... 8 How to Exchange Shares.................. 11 How to Sell Shares...................... 11 Fund Policy on Trading of Fund Shares... 12 Distribution and Service Fees........... 13 Other Information About Your Account.... 14 |
MANAGING THE FUND 17 -------------------------------------------- Investment Advisor...................... 17 Portfolio Managers...................... 17 Legal Proceedings....................... 18 FINANCIAL HIGHLIGHTS 20 -------------------------------------------- APPENDIX A 22 -------------------------------------------- |
Class T and G shares are sold only to investors who received (and who have continuously held) Class T or G shares in connection with the merger of certain Galaxy Funds into various Columbia Funds (formerly named Liberty Funds).
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC May Lose Value
Insured No Bank Guarantee
In selecting investments for the Fund, the Fund's investment advisor looks for promising industries. It then looks within those industries for what it judges to be reasonably priced companies that have above-average growth potential. The advisor consults a wide range of sources, including management, competitors, other industry sources and regional brokerage analysts.
The Fund will sell a portfolio security when, as a result of changes in the economy, the advisor believes that holding the security is no longer consistent with the Fund's investment goal. A security may also be sold as a result of a deterioration in the performance of the security or in the financial condition of the issuer of the security.
As part of its investment strategy, the Fund may buy and sell securities frequently. Such trading usually increases portfolio turnover rates, which usually increases the chance that the Fund will pay investors short-term capital gains (which are taxable at higher rates than long-term capital gains). Such trading may also result in higher brokerage commissions and other transaction costs and additional tax liability, which could reduce the Fund's returns.
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
The Fund
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Small- or mid-cap companies may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
Frequent trading risk Frequent trading of investments usually increases the chance that the Fund will pay investors short-term capital gains. These gains are taxable at higher rates than long-term capital gains. Frequent trading could also mean higher transaction costs, which could reduce the Fund's return.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The Fund
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class T share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
Beginning in 2003, the Fund's primary benchmark was changed to the Russell 2000 Growth Index, an unmanaged index that tracks the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. The Fund's returns are also compared to the Russell 2000 Index, an unmanaged index that tracks the performance of the 2,000 smallest of the 3,000 largest U.S. companies, based on market capitalization. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
Calendar Year Total Returns/(1) /(Class T)
[CHART]
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ 20.84% 14.17% -10.94% 38.93% -5.49% -0.12% -33.76% 42.16% 10.91% 1.40% |
For the periods shown in bar chart: Best quarter: 4th quarter 1999, +44.08% Worst quarter: 3rd quarter 1998, -24.02% |
(1) The calendar year total returns shown for Class T shares include the returns of Retail A Shares of the Galaxy Small Company Equity Fund (Galaxy Fund), the predecessor to the Fund, for periods prior to November 18, 2002, the date on which Class T shares were initially offered by the Fund.
The Fund
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class T (%)
Return Before Taxes -4.41 -0.06/(1)/ 4.87/(1)/
Return After Taxes on Distributions -5.41 -0.27/(1)/ 3.75/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -1.51 -0.05/(1)/ 3.79/(1)/
---------------------------------------------------------------------------------------------
Class G (%)
Return Before Taxes -3.93 -0.24/(1)/ 4.77/(1)/
Return After Taxes on Distributions -5.06 -0.47/(1)/ 3.63/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -1.00 -0.19/(1)/ 3.72/(1)/
---------------------------------------------------------------------------------------------
Russell 2000 Growth Index (%) 4.15 2.28 4.69
---------------------------------------------------------------------------------------------
Russell 2000 Index (%) 4.55 8.22 9.26
|
(1) The average annual total returns shown include the returns of Retail A Shares (for Class T shares) and Retail B Shares (for Class G shares) of the Galaxy Fund for periods prior to November 18, 2002, the date on which Class T and Class G shares were initially offered by the Fund. The returns shown for Class G shares also include the returns of Retail A Shares (adjusted to reflect the sales charges applicable to Class G shares) for periods prior to the inception of Retail B Shares of the Galaxy Fund (March 4, 1996). Retail A Shares were initially offered on December 30, 1991. Class G shares generally would have had substantially similar returns to Retail A Shares because they would have been invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class G shares exceed expenses paid by Retail A Shares.
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees, shareholder service fees and other expenses that generally include, but are not limited to, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds.
Except as noted, the table does not take into account any
expense reduction arrangements discussed in the footnotes
to the Annual Fund Operating Expenses table. It uses the
following hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class G shares convert to Class T shares after eight
years
The Fund
Shareholder Fees/(1)/ (paid directly from your investment)
Class T Class G
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00
-----------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00
-----------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class T shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class T Class G
Management fee/(1)/ (%) 0.82 0.82
---------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.00 0.95/(2)/
---------------------------------------------------------------
Other expenses/(4)/ (%) 0.54/(3)/ 0.24
---------------------------------------------------------------
Total annual fund operating expenses (%) 1.36 2.01
|
(1) The Fund pays a management fee of 0.75% and an administration fee of 0.07%.
(2) The Fund may pay distribution and service (12b-1) fees up to a maximum of
1.15% of the Fund's average daily net assets attributable to Class G shares
(comprised of up to 0.65% for distribution services, up to 0.25% for
shareholder liaison services and up to 0.25% for administrative support
services), but will limit such fees to an aggregate fee of not more than
0.95% during the current fiscal year.
(3) The Fund may pay shareholder service fees (which are included in other
expenses) up to a maximum of 0.50% of the Fund's average daily net assets
attributable to Class T shares (comprised of up to 0.25% for shareholder
liaison services and up to 0.25% for administrative services), but will
limit such fees to an aggregate fee of not more than 0.30% during the
current fiscal year.
(4) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class T $706 $981 $1,277 $2,116
-----------------------------------------------------------------
Class G: did not sell your shares $204 $630 $1,083 $2,170
sold all your shares at
the end of the period $704 $1,030 $1,383 $2,170
|
See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
-------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging Class T or Class G
shares you own in a different fund distributed by Columbia
Management Distributors, Inc. for shares of the same class
(and, in some cases, certain other classes) of the Fund at
no additional cost. There may be an additional sales charge
if exchanging from a money market fund. To exchange by
telephone, call 1-800-422-3737.
-------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
-------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. There may
be an additional sales charge if exchanging from a money
market fund. Be sure to complete the appropriate section of
the account application for this feature.
-------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
|
Class T and G shares are sold only to investors who received (and who have continuously held) Class T or G shares in connection with the merger of certain Galaxy Funds into various Columbia Funds (formerly named Liberty Funds).
Please see the Statement of Additional Information for more details on investment minimums.
Your Account
Class T shares Your purchases of Class T shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class T shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
Class T Sales Charges
% of offering
As a % of price
the public As a % retained by
offering of your financial
Amount purchased price investment advisor
Less than $50,000 5.75 6.10 5.00
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$50,000 to less than $100,000 4.50 4.71 3.75
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$100,000 to less than $250,000 3.50 3.63 2.75
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$250,000 to less than $500,000 2.50 2.56 2.00
--------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
--------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
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Class T shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class T share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class T share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
Purchases Over $1 Million
Amount purchased Commission % Less than $3 million 1.00 ------------------------------------------------ $3 million to less than $50 million 0.50 ------------------------------------------------ $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
Your Account
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES Certain investments in Class T and G shares are subject to a CDSC, a sales charge applied at the time you sell your shares. You will pay the CDSC only on shares you sell within a certain amount of time after purchase. The CDSC generally declines each year until there is no charge for selling shares. The CDSC is applied to the net asset value at the time of purchase or sale, whichever is lower. For purposes of calculating the CDSC, the start of the holding period is the first day of the month in which the purchase was made. Shares you purchase with reinvested dividends or other distributions are not subject to a CDSC. When you place an order to sell shares, the Fund will automatically sell first those shares not subject to a CDSC and then those you have held the longest.
Reduced Sales Charges for Larger Investments.
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class T shares of the Fund and other funds in the Columbia family of funds.
Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
Statement of Intent You also may pay a lower sales charge when purchasing Class T shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
. Individual accounts
. Joint accounts
. Certain IRA accounts
. Certain trusts
. UTMA/UGMA accounts
Your Account
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
Class G shares Your purchases of Class G shares are at Class G's net asset value. Purchases up to $50,000 are allowed in Class G shares assuming the combined value of the customer's total assets in the Columbia Funds does not exceed $50,000. Purchases in Class G shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class G shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class G shares as described in the chart below.
Your Account
Class G Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 5.00
---------------------------------------------
Through second year 4.00
---------------------------------------------
Through third year 4.00
---------------------------------------------
Through fourth year 4.00
---------------------------------------------
Through fifth year 3.00
---------------------------------------------
Through sixth year 2.00
---------------------------------------------
Through seventh year 1.00
---------------------------------------------
Longer than seven years 0.00
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Commission to financial advisors is 4.00%.
Automatic conversion to Class T shares occurs eight years after purchase.
Please see the Statement of Additional Information for the CDSCs and conversion schedules applicable to Class G shares received in exchange for Retail B Shares of the Galaxy Fund purchased or acquired prior to January 1, 2001.
When the Fund receives your sales request in "good form," shares will be sold
at the next calculated price. "Good form" means that the Fund's transfer agent
has all information and documentation it deems necessary to effect your order.
For example, when selling shares by letter of instruction, "good form" means
(i) your letter has complete instructions, the proper signatures and Medallion
Signature Guarantees, (ii) if applicable, you have included any certificates
for shares to be sold, and (iii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries,
surviving joint owners and other legal entities, please call 1-800-345-6611.
Retirement plan accounts have special requirements; please call 1-800-799-7526
for more information.
Your Account
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into the same share class (or
Class A and Class B shares, for Class T and Class G shares,
respectively) of another fund distributed by Columbia
Management Distributors, Inc. at no additional cost. To
exchange by telephone, call 1-800-422-3737.
------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is
$100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or, if
applicable, stock power form along with any share
certificates to be sold to the address below. In your
letter of instruction, note the Fund's name, share class,
account number, and the dollar value or number of shares
you wish to sell. All account owners must sign the letter.
Signatures must be guaranteed by either a bank, a member
firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for
alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund
Your Account
will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Your Account
by their financial advisors. The annual service fee may equal up to 0.50% for Class T shares. The Fund does not intend to pay more than 0.30% for Class T shares in shareholder service fees during the current fiscal year. The foregoing fees are paid out of the assets of the relevant class. Over time, these fees will reduce the return on your investment and may cost you more than paying other types of sales charges. Class G shares automatically convert to Class T shares after a certain number of years, eliminating a portion of these fees upon conversion.
Additional Intermediary Compensation In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
Your Account
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for any class of shares offered by the Fund.
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
----------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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UNDERSTANDING FUND DISTRIBUTIONS
The Fund may earn income from the securities it holds. The Fund also may realize capital gains or losses on sales of its securities. The Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of the Fund's income and capital gains based on the number of shares you own at the time these distributions are declared.
Distribution Options The Fund distributes any dividends annually and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Your Account
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, all subsequent distributions will be reinvested in additional shares of the Fund.
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions may also be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.75% of average daily net assets of the Fund.
Paul J. Berlinguet, a senior vice president of Columbia Advisors, head of the advisor's Small Cap Growth team and head of the Large Cap Growth team, is a co-manager for the Fund and has co-managed the Fund since December, 2005. Prior to joining Columbia Management in October, 2003, Mr. Berlinguet was head of the large-mid cap equity group and a portfolio manager at John Hancock Funds. Prior to joining John Hancock Funds in April 2001, Mr. Berlinguet was head of the Global Technology Research Team and a large cap growth portfolio manager at Baring Asset Management. During his 12-year career at Baring Asset Management, he also managed a small cap aggressive growth unit trust and was lead portfolio manager for four years.
Daniele M. Donahoe, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since December, 2005. Ms. Donahoe has been associated with Columbia Advisors or its predecessors since July, 2002. Prior to joining, Ms. Donahoe was an associate in the equity research department at Citigroup from 1999 to 2001.
Jon Michael Morgan, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since December, 2005. Mr. Morgan has been associated with Columbia Advisors or its predecessors since July, 2000.
Managing the Fund
Clifford D. Siverd, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since December, 2005. Mr. Siverd has been associated with Columbia Advisors or its predecessors since April, 2001. Prior to joining, Mr. Siverd was a vice president of institutional equity sales at Suntrust Robinson-Humphry.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the
Managing the Fund
funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and entered final judgment. The plaintiffs filed a notice of appeal on December 30, 2005.
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last six fiscal periods, which run from October 1 to September 30, unless otherwise indicated. Information for Class T shares and Class G shares prior to November 18, 2002, the date of reorganization, is for the former Retail A shares and Retail B shares, respectively, of the Galaxy Small Company Equity Fund. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the years ended September 30, 2005 and September 30, 2004 have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the period ended September 30, 2003 and for the fiscal years ended October 31, 2002, 2001 and 2000 has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
The Fund
Period ended
Year ended September 30, September 30, Year ended October 31,
2005 2004/(a)/ 2003/(b)(c)/ 2002 2001 2000
Class T Class T Class T Class T Class T Class T
------- -------- ------------- ------- ------- -------
Net asset value --
Beginning of period ($) 15.92 14.09 11.23 14.95 21.75 15.66
-------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment loss (0.19)/(d)/ (0.20)/(d)/ (0.15)/(d)/ (0.16)/(d)/ (0.17) (0.22)
Net realized and unrealized gain (loss) on
investments 2.38 2.03 3.01 (3.56) (3.23) 6.31
-------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 2.19 1.83 2.86 (3.72) (3.40) 6.09
-------------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net realized gains -- -- -- -- (3.40) --
In excess of net realized gains -- -- -- -- -- /(e)/ --
-------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders -- -- -- -- (3.40) --
-------------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 18.11 15.92 14.09 11.23 14.95 21.75
-------------------------------------------------------------------------------------------------------------------------------
Total return (%)/(f)/ 13.76/(g)/ 12.99/(g)/ 25.47/(g)(h)/ (24.88)/(g)/ (17.03) 38.89
-------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data
(%):
Expenses/(i)/ 1.39 1.41 1.54/(j)/ 1.46 1.42 1.44
Net investment loss/(i)/ (1.12) (1.23) (1.35)/(j)/ (1.14) (0.91) (0.99)
Waiver/reimbursement 0.02 0.02 0.05/(j)/ 0.03 -- --
Portfolio turnover rate (%) 110 54 123/(h)/ 96 75 91
Net assets, end of period (000's) ($) 67,374 68,359 66,780 57,537 84,332 125,427
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(a) On October 13, 2003, the Liberty Small Company Equity Fund was renamed the
Columbia Small Company Equity Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) On November 18, 2002, the Galaxy Small Company Equity Fund, Retail A shares
were redesignated Liberty Small Company Equity Fund, Class T shares.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Rounds to less than $0.01 per share.
(f) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(g) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
Financial Highlights
The Fund
Period ended
Year ended September 30, September 30, Year ended October 31,
2005 2004/(a)/ 2003/(b)(c)/ 2002 2001 2000
Class G Class G Class G Class G Class G Class G
------- -------- ------------- ------- ------- -------
Net asset value --
Beginning of period ($) 14.85 13.24 10.65 14.30 21.10 15.31
------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment loss (0.28)/(d)/ (0.30)/(d)/ (0.25)/(d)/ (0.27)/(d)/ (0.25) (0.37)
Net realized and unrealized gain (loss) on
investments 2.22 1.91 2.84 (3.38) (3.15) 6.16
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Total from Investment Operations 1.94 1.61 2.59 (3.65) (3.40) 5.79
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Less Distributions Declared
to Shareholders ($):
From net realized gains -- -- -- -- (3.40) --
In excess of net realized gains -- -- -- -- -- /(e)/ --
------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders -- -- -- -- (3.40) --
------------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 16.79 14.85 13.24 10.65 14.30 21.10
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Total return (%)/(f)/ 13.06/(g)/ 12.16/(g)/ 24.32/(h)/ (25.52)/(g)/ (17.66) 37.82/(g)/
------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental
Data (%):
Expenses/(i)/ 2.04 2.16 2.53/(j)/ 2.29 2.25 2.24
Net investment loss/(i)/ (1.77) (1.98) (2.34)/(j)/ (1.97) (1.74) (1.79)
Waiver/reimbursement 0.02 0.01 -- 0.03 -- 0.01
Portfolio turnover rate (%) 110 54 123/(h)/ 96 75 91
Net assets, end of period (000's) ($) 3,676 4,565 6,651 9,148 15,190 18,936
|
(a) On October 13, 2003, the Liberty Small Company Equity Fund was renamed
Columbia Small Company Equity Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) On November 18, 2002, the Galaxy Small Company Equity Fund, Retail B shares
were redesignated Liberty Small Company Equity Fund, Class G shares.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Rounds to less than $0.01 per share.
(f) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(g) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The charts also assume that all dividends and distributions are reinvested and that Class G shares convert to Class T shares after eight years. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher.
Class T Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
5.75% $10,000.00 5%
|
Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
1 5.00% 1.36% -2.32%/(2)/ $9,768.07 $705.51
2 10.25% 1.36% 1.24% $10,123.63 $135.26
3 15.76% 1.36% 4.92% $10,492.13 $140.19
4 21.55% 1.36% 8.74% $10,874.04 $145.29
5 27.63% 1.36% 12.70% $11,269.86 $150.58
6 34.01% 1.36% 16.80% $11,680.08 $156.06
7 40.71% 1.36% 21.05% $12,105.23 $161.74
8 47.75% 1.36% 25.46% $12,545.86 $167.63
9 55.13% 1.36% 30.03% $13,002.53 $173.73
10 62.89% 1.36% 34.76% $13,475.83 $180.05
Total Gain After Fees
and Expenses $3,475.83
Total Annual Fees
and Expenses $2,116.04
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Class G Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
|
Hypothetical
Cumulative Cumulative Year-End
Return Before Annual Return After Balance After Annual
Year Fees & Expenses Expense Ratio Fees & Expenses Fees & Expenses Fees & Expenses/(1)/
1 5.00% 2.01% 2.99% $10,299.00 $204.00
2 10.25% 2.01% 6.07% $10,606.94 $210.10
3 15.76% 2.01% 9.24% $10,924.09 $216.39
4 21.55% 2.01% 12.51% $11,250.72 $222.86
5 27.63% 2.01% 15.87% $11,587.11 $229.52
6 34.01% 2.01% 19.34% $11,933.57 $236.38
7 40.71% 2.01% 22.90% $12,290.38 $243.45
8 47.75% 2.01% 26.58% $12,657.87 $250.73
9 55.13% 1.36% 31.19% $13,118.61 $175.28
10 62.89% 1.36% 35.96% $13,596.13 $181.66
Total Gain After Fees
and Expenses $3,596.13
Total Annual Fees
and Expenses $2,170.38
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust XI: 811-4978
. Columbia Small Company Equity Fund
[LOGO] ColumbiaFunds
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/105512-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 1, 2006 (THE "PROSPECTUS")
COLUMBIA SMALL COMPANY EQUITY FUND
CLASS Z SHARES
The Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The section entitled "LEGAL PROCEEDINGS" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the
judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107865-0306 March 27, 2006
Class Z Shares
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------- Investment Goal......................... 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 2 Performance History..................... 4 Your Expenses........................... 5 YOUR ACCOUNT 7 -------------------------------------------- How to Buy Shares....................... 7 Eligible Investors...................... 8 Sales Charges........................... 9 How to Exchange Shares.................. 10 How to Sell Shares...................... 10 Fund Policy on Trading of Fund Shares... 11 Intermediary Compensation............... 12 Other Information About Your Account.... 13 |
MANAGING THE FUND 15 -------------------------------------------- Investment Advisor...................... 15 Portfolio Managers...................... 15 Legal Proceedings....................... 16 FINANCIAL HIGHLIGHTS 18 -------------------------------------------- APPENDIX A 19 -------------------------------------------- |
Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC May Lose Value
Insured No Bank Guarantee
In selecting investments for the Fund, the Fund's investment advisor looks for promising industries. It then looks within those industries for what it judges to be reasonably priced companies that have above-average growth potential. The advisor consults a wide range of sources, including management, competitors, other industry sources and regional brokerage analysts.
The Fund will sell a portfolio security when, as a result of changes in the economy, the advisor believes that holding the security is no longer consistent with the Fund's investment goal. A security may also be sold as a result of a deterioration in the performance of the security or in the financial condition of the issuer of the security.
As part of its investment strategy, the Fund may buy and sell securities frequently. Such trading usually increases portfolio turnover rates, which usually increases the chance that the Fund will pay investors short-term capital gains (which are taxable at higher rates than long-term capital gains). Such trading may also result in higher brokerage commissions and other transaction costs and additional tax liability, which could reduce the Fund's returns.
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management
The Fund
and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Small- or mid-cap companies may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
Frequent trading risk. Frequent trading of investments usually increases the chance that the Fund will pay investors short-term capital gains. These gains are taxable at higher rates than long-term capital gains. Frequent trading could also mean higher transaction costs, which could reduce the Fund's return.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The Fund
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class Z share
performance for each of the last ten complete calendar
years. They include the effects of Fund expenses.
Average Annual Total Returns are a measure of the Fund's
Class Z average performance over the past
one-year, five-year and ten-year periods. They include the
effects of Fund expenses.
Beginning in 2003, the Fund's primary benchmark was changed
to the Russell 2000 Growth Index, an unmanaged index that
tracks the performance of those Russell 2000 companies with
higher price-to-book ratios and higher forecasted growth
values. The Fund's returns are also compared to the Russell
2000 Index, an unmanaged index that tracks the performance
of the 2,000 smallest of the 3,000 largest U.S. companies,
based on market capitalization. Unlike the Fund, indices
are not investments, do not incur fees, expenses or taxes
and are not professionally managed.
Calendar Year Total Returns (Class Z)/(1)/
[CHART]
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
------ ------ ------- ------ ------ ----- ------- ------ ------ ------
21.59% 14.64% -10.66% 39.63% -5.01% 0.22% -33.48% 42.79% 11.27% 1.69%
|
For the periods shown in bar chart: Best quarter: 4th quarter 1999, +44.22% Worst quarter: 3rd quarter 1998, -23.91% |
(1) The calendar year total returns shown for Class Z shares include the returns of Trust Shares of the Galaxy Small Company Equity Fund (Galaxy Fund), the predecessor to the Fund, for periods prior to November 18, 2002, the date on which Class Z shares were initially offered by the Fund.
The Fund
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class Z (%)
Return Before Taxes 1.69 1.49/(1)/ 5.93/(1)/
Return After Taxes on Distributions 0.69 1.30/(1)/ 4.83/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 2.46 1.28/(1)/ 4.73/(1)/
--------------------------------------------------------------------------------------------
Russell 2000 Growth Index (%) 4.15 2.28 4.69
--------------------------------------------------------------------------------------------
Russell 2000 Index (%) 4.55 8.22 9.26
|
(1) The average annual total returns shown include the returns of Trust Shares of the Galaxy Fund for periods prior to November 18, 2002, the date on which Class Z shares were initially offered by the Fund.
UNDERSTANDING EXPENSES
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees and other expenses that generally include, but are not limited to, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
The Fund
Shareholder Fees/(1) /(paid directly from your investment)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 ---------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 ---------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) /(2)/ |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
Annual Fund Operating Expenses (deducted directly from Fund assets)
Example Expenses (your actual costs may be higher or lower)
1 Year 3 Years 5 Years 10 Years $108 $337 $585 $1,294
See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to Columbia Management Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
-------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
-------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging shares you own in a
different fund distributed by Columbia Management
Distributors, Inc. for shares of the same class of the Fund
at no additional cost. To exchange by telephone, call
1-800-422-3737. Please see "How to Exchange Shares" for
more information.
-------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
-------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $ 100 minimum) by calling 1-800-345-6611. Be sure to
complete the appropriate section of the account application
for this feature.
-------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at
no additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
|
Your Account
Important Things to Consider When Deciding on a Class of Shares:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by a broker/dealer, bank, third-party administrator or other financial institution (each commonly referred to as an "intermediary"). Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
No minimum initial investment
. Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
. Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts ("IRAs")), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
. Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
. Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
Your Account
$1,000 minimum initial investment
. Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of a fund distributed by Columbia Management Distributors, Inc. (i) who holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005; (iii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iv) who purchased certain no-load shares of a fund merged with a fund distributed by Columbia Management Distributors, Inc.;
. Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Management Distributors, Inc.;
. Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary;
. Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement);
. Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an accredited investor, as defined under the Securities Act of 1933; or
. Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries.
The Fund reserves the right to change the criteria for Eligible Investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
CHOOSING A SHARE CLASS
The Fund offers one class of shares in this prospectus -- Class Z.
Your Account
When the Fund receives your sales request in "good form," shares will be sold
at the next calculated price. "Good form" means that the Fund's transfer agent
has all information and documentation it deems necessary to effect your order.
For example, when selling shares by letter of instruction, "good form" means
(i) your letter has complete instructions, the proper signatures and Medallion
Signature Guarantees and (ii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries,
surviving joint owners and other legal entities, please call 1-800-345-6611.
Retirement plan accounts have special requirements; please call 1-800-799-7526
for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Your Account
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
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By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into Class Z shares or Class A
shares (only if Class Z is not offered) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is $
100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign
the letter. Signatures must be guaranteed by either a bank,
a member firm of a national stock exchange or another
eligible guarantor that participates in the Medallion
Signature Guarantee Program for amounts over $100,000 or
for alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. All dividend and capital gains distributions must
be reinvested. Be sure to complete the appropriate section
of the account application for this feature.
------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund except as noted below with respect to orders received through omnibus accounts, in any 28-day period, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
Your Account
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to an intermediary. Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
Your Account
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for Class Z shares.
Your Account
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
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Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
Distribution Options The Fund distributes any dividends annually and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, all subsequent distributions will be reinvested in additional shares of the Fund.
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.75% of average daily net assets of the Fund.
Paul J. Berlinguet, a senior vice president of Columbia Advisors, head of the advisor's Small Cap Growth team and head of the Large Cap Growth team, is a co-manager for the Fund and has co-managed the Fund since December, 2005. Prior to joining Columbia Management in October, 2003, Mr. Berlinguet was head of the large-mid cap equity group and a portfolio manager at John Hancock Funds. Prior to joining John Hancock Funds in April 2001, Mr. Berlinguet was head of the Global Technology Research Team and a large cap growth portfolio manager at Baring Asset Management. During his 12-year career at Baring Asset Management, he also managed a small cap aggressive growth unit trust and was lead portfolio manager for four years.
Daniele M. Donahoe, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since December, 2005. Ms. Donahoe has been associated with Columbia Advisors or its predecessors since July, 2002. Prior to joining, Ms. Donahoe was an associate in the equity research department at Citigroup from 1999 to 2001.
Jon Michael Morgan, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since December, 2005. Mr. Morgan has been associated with Columbia Advisors or its predecessors since July, 2000.
Clifford D. Siverd, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since December, 2005. Mr. Siverd has been associated with Columbia Advisors or its predecessors since April, 2001. Prior to joining, Mr. Siverd was a vice president of institutional equity sales at Suntrust Robinson-Humphry.
Managing the Fund
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management (which has since merged into Banc of
America Capital Management, LLC (now named Columbia Management Advisors, LLC))
and Columbia Funds Distributor, Inc. (which has been renamed Columbia
Management Distributors, Inc.) ("CMD") (collectively, the "Columbia Group")
entered into an Assurance of Discontinuance with the New York Attorney General
("NYAG") (the "NYAG Settlement") and consented to the entry of a
cease-and-desist order by the Securities and Exchange Commission ("SEC") (the
"SEC Order"). The SEC Order and the NYAG Settlement are referred to
collectively as the "Settlements". The Settlements contain substantially the
same terms and conditions as outlined in the agreements in principle which
Columbia Group entered into with the SEC and NYAG in March, 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late
Managing the Fund
trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and entered final judgment. The plaintiffs filed a notice of appeal on December 30, 2005.
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the last six fiscal periods, which run from October 1 to September 30, unless otherwise indicated. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the years ended September 30, 2005 and September 30, 2004 have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the period ended September 30, 2003 and for the fiscal years ended October 31, 2002, 2001 and 2000 has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
The Fund
Year ended Period ended
September 30, September 30, Year ended October 31,
2005 2004/(a)/ 2003/(b)(c)/ 2002 2001 2000
Class Z Class Z Class Z Class Z Class Z Class Z
------- -------- ------------- ------- ------- -------
Net asset value --
Beginning of period ($) 16.84 14.85 11.79 15.63 22.48 16.13
-------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment loss (0.15)/(d)/ (0.15)/(d)/ (0.11)/(d)/ (0.11)/(d)/ (0.10) (0.12)
Net realized and unrealized gain (loss)
on investments 2.53 2.14 3.17 (3.73) (3.35) 6.47
-------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 2.38 1.99 3.06 (3.84) (3.45) 6.35
-------------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net realized gains -- -- -- -- (3.40) --
In excess of net realized gains -- -- -- -- --/ (e)/ --
-------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders -- -- -- -- (3.40) --
-------------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 19.22 16.84 14.85 11.79 15.63 22.48
-------------------------------------------------------------------------------------------------------------------------------
Total return (%)/(f)/ 14.13/(g)/ 13.40/(g)/ 25.95/(h)/ (24.62)/(g)/ (16.63) 39.43
-------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(i)/ 1.09 1.08 1.12/(j)/ 1.04 1.03 1.03
Net investment loss/(i)/ (0.82) (0.90) (0.93)/(j)/ (0.72) (0.52) (0.58)
Waiver/reimbursement 0.02 0.01 -- 0.01 -- --
Portfolio turnover rate (%) 110 54 123/(h)/ 96 75 91
Net assets, end of period (000's) ($) 152,785 300,109 293,603 217,377 318,414 422,579
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(a) On October 13, 2003, the Liberty Small Company Equity Fund was renamed the
Columbia Small Company Equity Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) On November 18, 2002, the Galaxy Small Company Equity Fund, Trust shares
were redesignated Liberty Small Company Equity Fund, Class Z shares.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Rounds to less than $0.01 per share.
(f) Total return at net asset value assuming all distributions reinvested.
(g) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The chart shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class Z shares of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The chart also assumes that all dividends and distributions are reinvested. The annual expense ratios used for the Fund, which is the same as those stated in the Annual Fund Operating Expenses table, are presented in the chart, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower.
Class Z Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
|
Year Cumulative Return Annual Cumulative Return Hypothetical Year- Annual Fees &
Before Fees & Expense Ratio After Fees & End Balance After Expenses/(1)/
Expenses Expenses Fees & Expenses
1 5.00% 1.06% 3.94% $10,394.00 $108.09
2 10.25% 1.06% 8.04% $10,803.52 $112.35
3 15.76% 1.06% 12.29% $11,229.18 $116.77
4 21.55% 1.06% 16.72% $11,671.61 $121.37
5 27.63% 1.06% 21.31% $12,131.47 $126.16
6 34.01% 1.06% 26.09% $12,609.45 $131.13
7 40.71% 1.06% 31.06% $13,106.27 $136.29
8 47.75% 1.06% 36.23% $13,622.65 $141.66
9 55.13% 1.06% 41.59% $14,159.39 $147.24
10 62.89% 1.06% 47.17% $14,717.27 $153.05
Total Gain After Fees and Expenses $4,717.27
Total Annual Fees and Expenses $1,294.11
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/1 /Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semiannual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust XI: 811-4978
. Columbia Small Company Equity Fund
[LOGO] ColumbiaFunds
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/105317-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 1, 2006 (THE "PROSPECTUS")
COLUMBIA DIVIDEND INCOME FUND
(THE "FUND")
CLASS A, B AND C SHARES
The Prospectus is hereby supplemented with the following information:
1. The section "LEGAL PROCEEDINGS" under the heading "MANAGING THE FUND" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could
increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose.
On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
2. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
3. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
INT-47/107692-0306 March 27, 2006
Class A, B and C Shares
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------- Investment Goal......................... 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 2 Performance History..................... 4 Your Expenses........................... 7 YOUR ACCOUNT 9 -------------------------------------------- How to Buy Shares....................... 9 Investment Minimums..................... 10 Sales Charges........................... 10 How to Exchange Shares.................. 14 How to Sell Shares...................... 14 Fund Policy on Trading of Fund Shares... 15 Distribution and Service Fees........... 16 Other Information About Your Account.... 17 |
MANAGING THE FUND 20 -------------------------------------------- Investment Advisor...................... 20 Portfolio Managers...................... 20 Legal Proceedings....................... 20 FINANCIAL HIGHLIGHTS 23 -------------------------------------------- APPENDIX A 26 -------------------------------------------- |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC May Lose Value
Insured No Bank Guarantee
The Fund generally will emphasize value stocks, but may purchase growth securities when such securities pay dividends or the advisor believes such securities have particularly good prospects for capital appreciation. In addition to equity securities, the Fund may also invest up to 20% of its net assets in debt securities, including lower-quality debt securities. The Fund may invest up to 20% of its net assets in securities of foreign issuers.
Value stocks are stocks that appear to be underpriced based on measures such as lower price-to-earnings, price-to-book value and price-to-earnings growth ratios.
Growth stocks generally offer the potential for strong revenue and earnings, and accompanying capital growth, with less dividend income than value stocks.
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values
The Fund
of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Because the Fund may invest in debt securities issued or supported by private entities, including corporate bonds, municipal bonds and mortgage-backed and asset-backed securities, the Fund is subject to issuer risk. Issuer risk is the possibility that changes in the financial condition of the issuer of a security, changes in general economic conditions, or changes in economic conditions that affect the issuer may impact its actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and in some cases a decrease in income. The Fund's investments in securities issued by U.S. government-sponsored enterprises, such as the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, are not funded by Congressional appropriations and are neither guaranteed nor insured by the U.S. government. Furthermore, no assurances can be given that the U.S. government would provide financial support to its agencies or instrumentalities where it is not obligated to do so.
Lower-rated debt securities, commonly referred to as "junk bonds," involve greater risk of loss due to credit deterioration and are less liquid, especially during periods of economic uncertainty or change, than higher-quality debt securities. Lower-rated debt securities have a higher risk that the issuer of the security may default and not make payment of interest or principal.
Medium-quality debt securities. Medium-quality debt securities, although considered investment grade, may have some speculative characteristics.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the advisor's opinion, undervalued. If the advisor's assessment of a company's prospects is wrong, the price of the company's stock may fall, or may not approach the value the advisor has placed on it.
Growth stocks are stocks of companies believed to have above-average potential for growth in revenue and earnings. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general.
Convertible securities are securities that can be converted into common stock, such as certain debt securities and preferred stock. Convertible securities are subject to the usual risks associated with fixed income investments, such as interest rate risk and credit risk. In addition, because they react to changes in the value of the equity securities into which they will convert, convertible securities are also subject to market risk.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more
The Fund
limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. The Fund may have limited legal recourse in the event of default with respect to certain debt securities issued by foreign governments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class A share performance for each complete calendar year since the Fund commenced operations. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance, over the past one-year, five-year and life of the Fund periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
The Fund's returns are compared to the Russell 1000 Value Index, an unmanaged index that tracks the performance of those Russell 1000 Index companies with lower price-to-book ratios and lower forecasted growth values. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
The Fund
Calendar Year Total Returns (Class A)/(1)/
LOGO
For the periods shown in bar chart:
Best quarter: 2nd quarter 2003, +18.41%
Worst quarter: 3rd quarter 2002, -19.80%
(1) The bar chart total returns shown are for Class A shares and include the returns of the Fund's Class T shares, which include the returns of Retail A Shares of the Galaxy Strategic Equity Fund (the Galaxy Fund), the predecessor to the Fund, for periods prior to November 25, 2002. Class T shares are not offered in this prospectus. Class A shares would have had substantially similar annual returns because they are invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class A shares exceed expenses paid by Class T shares. On October 27, 2003, the investment policies of the Fund (formerly known as Columbia Strategic Equity Fund) were modified. As a result, the Fund's performance for periods prior to that date may not be representative of the performance it would have achieved had its current investment policies been in place.
The Fund
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2005/(1)/
Life of
1 year 5 years the Fund
Class A (%)
Return Before Taxes 0.26 3.58 5.28
Return After Taxes on Distributions -0.04 3.20 4.23
Return After Taxes on Distributions and Sale Fund Shares 0.55 2.94 3.95
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Class B (%)
Return Before Taxes 0.51 3.66 5.37
Return After Taxes on Distributions 0.32 3.39 4.43
Return After Taxes on Distributions and Sale of Fund Shares 0.59 3.05 4.09
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Class C (%)
Return Before Taxes 4.52 3.99 5.36
Return After Taxes on Distributions 4.32 3.72 4.42
Return After Taxes on Distributions and Sale of Fund Shares 3.19 3.34 4.08
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Russell 1000 Value Index (%) 7.05 5.28 6.40/(2)/
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(1) Class A, Class B and Class C are newer classes of shares. Their performance
information includes returns of the Fund's Class T shares (for Class A) and
Class G shares (for Class B and Class C) for periods prior to November 25,
2002, the date on which Class A, B and C shares were initially offered by
the Fund. The returns shown for Class T and G shares include the returns of
Retail A Shares (for Class T) and Retail B Shares (for Class G) of the
Galaxy Fund for periods prior to November 25, 2002, the date on which Class
T and G shares were initially offered by the Fund. The returns have not
been restated to reflect any differences in expenses between the
predecessor shares and the newer classes of shares. If differences in
expenses had been reflected, the returns shown for periods prior to the
inception of the newer classes of shares would have been lower. On October
27, 2003, the investment policies of the Fund (formerly known as Columbia
Strategic Equity Fund) were modified. As a result, the Fund's performance
for periods prior to that date may not be representative of the performance
it would have achieved had its current investment policies been in place.
(2) Performance information is from March 4, 1998.
The Fund
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees and other expenses that generally include, but are not limited to, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds.
Except as noted, the table does not take into account any
expense reduction arrangements discussed in the footnotes
to the Annual Fund Operating Expense table. It uses the
following hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class B shares convert to Class A shares after eight
years
Shareholder Fees/(1)/ (paid directly from your investment)
Class A Class B Class C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00 0.00
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Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00 1.00
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Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/ /(3)/
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(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
The Fund
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class A Class B Class C
Management fees/(1)/ (%) 0.77 0.77 0.77
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Distribution and service (12b-1) fees (%) 0.25/(2)/ 1.00 1.00
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Other expenses/(3)/ (%) 0.18 0.18 0.18
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Total annual fund operating expenses (%) 1.20 1.95 1.95
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Expense reimbursement/(4)/ (%) -0.15 -0.15 -0.15
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Net expenses/(4)/ (%) 1.05 1.80 1.80
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(1) The Fund pays a management fee of 0.70% and an administrative fee of 0.07%.
(2) The Fund may pay distribution and service (12b-1) fees up to a maximum of
0.35% of the Fund's average daily net assets attributable to Class A shares
(comprised of up to 0.10% for distribution services and up to 0.25% for
shareholder liaison services) but will limit such fees to an aggregate of
not more than 0.25% for Class A shares during the current fiscal year.
(3) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
(4) The Fund's Advisor has contractually agreed to bear a portion of the Fund's
expenses so that the Fund's ordinary operating expenses (exclusive of
distribution and service fees, brokerage commissions, interest, taxes and
extraordinary expenses, if any) do not exceed 0.80% annually through
January 31, 2007.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class A $676 $920 $1,183 $1,933
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Class B: did not sell your shares $183 $598 $1,038 $2,068
sold all your shares at
the end of the period $683 $898 $1,238 $2,068
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Class C: did not sell your shares $183 $598 $1,038 $2,263
sold all your shares at
the end of the period $283 $598 $1,038 $2,263
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See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For new accounts send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By check For existing accounts fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund and
mailed to Columbia Management Services, Inc., P.O. Box
8081, Boston, MA 02266-8081.
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By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging shares you own in a
different fund distributed by Columbia Management
Distributors, Inc. for shares of the same class (and, in
some cases, certain other classes) of the Fund at no
additional cost. There may be an additional sales charge if
exchanging from a money market fund. To exchange by
telephone, call 1-800-422-3737.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. There may
be an additional sales charge if exchanging from a money
market fund. Be sure to complete the appropriate section of
the account application for this feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
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Your Account
Please see the Statement of Additional Information for more details on investment minimums.
CHOOSING A SHARE CLASS
The Fund offers three classes of shares in this prospectus -- Class A, B and C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 or more but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
The Fund also offers three additional classes of shares -- Classes T, G and Z shares, exclusively to certain institutional and other investors. Class T and G and Class Z shares are available through separate prospectuses provided to eligible institutional and other investors.
Class A shares Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
Class A Sales Charges
% of offering
As a % of price
the public As a % retained by
offering of your financial
Amount purchased price investment advisor
Less than $50,000 5.75 6.10 5.00
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$50,000 to less than $100,000 4.50 4.71 3.75
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$100,000 to less than $250,000 3.50 3.63 2.75
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$250,000 to less than $500,000 2.50 2.56 2.00
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$500,000 to less than $1,000,000 2.00 2.04 1.75
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$1,000,000 or more 0.00 0.00 0.00
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Your Account
Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
Purchases Over $ 1 Million
Amount purchased Commission % Less than $3 million 1.00 ------------------------------------------------ $3 million to less than $50 million 0.50 ------------------------------------------------ $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES Certain investments in Class A, B and C shares are subject to a CDSC, a sales charge applied at the time you sell your shares. You will pay the CDSC only on shares you sell within a certain amount of time after purchase. The CDSC generally declines each year until there is no charge for selling shares. The CDSC is applied to the net asset value at the time of purchase or sale, whichever is lower. For purposes of calculating the CDSC, the start of the holding period is the first day of the month in which the purchase was made. Shares you purchase with reinvested dividends or other distributions gains are not subject to a CDSC. When you place an order to sell shares, the Fund will automatically sell first those shares not subject to a CDSC and then those you have held the longest.
Reduced Sales Charges for Larger Investments.
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
Statement of Intent You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost
Your Account
(i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
. Individual accounts
. Joint accounts
. Certain IRA accounts
. Certain trusts
. UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to
Your Account
waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
Class B shares Your purchases of Class B shares are made at Class B's net asset value. Purchases up to $50,000 are allowed in Class B shares assuming the combined value of the customer's total assets in the Columbia funds does not exceed $50,000. Purchases in Class B shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart below.
Class B Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 5.00
---------------------------------------------
Through second year 4.00
---------------------------------------------
Through third year 3.00
---------------------------------------------
Through fourth year 3.00
---------------------------------------------
Through fifth year 2.00
---------------------------------------------
Through sixth year 1.00
---------------------------------------------
Longer than six years 0.00
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Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
Class C shares Your purchases of Class C shares are made at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares, as described in the chart below.
Class C Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 1.00
---------------------------------------------
Longer than one year 0.00
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Your Account
When the Fund receives your sales request in "good form," shares will be sold
at the next calculated price. "Good form" means that the Fund's transfer agent
has all information and documentation it deems necessary to effect your order.
For example, when selling shares by letter of instruction, "good form" means
(i) your letter has complete instructions, the proper signatures and Medallion
Signature Guarantees, (ii) if applicable, you have included any certificates
for shares to be sold, and (iii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries,
surviving joint owners and other legal entities, please call 1-800-345-6611.
Retirement plan accounts have special requirements; please call 1-800-799-7526
for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Your Account
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
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By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into the same share class (and,
in some cases, certain other classes) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares by telephone
and request that a check be sent to your address of record
by calling 1-800-422-3737, unless you have notified the
Fund of an address change within the previous 30 days. The
dollar limit for telephone sales is $100,000 in a 30-day
period. You do not need to set up this feature in advance
of your call. Certain restrictions apply to retirement
accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction or, if
applicable, stock power form along with any share
certificates to be sold to the address below. In your
letter of instruction, note the Fund's name, share class,
account number, and the dollar value or number of shares
you wish to sell. All account owners must sign the letter.
Signatures must be guaranteed by either a bank, a member
firm of a national stock exchange or another eligible
guarantor institution that participates in the Medallion
Signature Guarantee Program for amounts over $100,000 or
for alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call
1-800-345-6611. Mail your letter of instruction to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
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By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
Your Account
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Additional Intermediary Compensation In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to
Your Account
promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
Your Account
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the transfer agent.
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
----------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
UNDERSTANDING FUND DISTRIBUTIONS
The Fund may earn income from the securities it holds. The Fund also may realize capital gains or losses on sales of its securities. The Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of the Fund's income and capital gains based on the number of shares you own at the time these distributions are declared.
Distribution Options The Fund distributes any dividends quarterly and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Your Account
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, all subsequent distributions will be reinvested in additional shares of the Fund.
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
Columbia Management Advisors, LLC ("Columbia Advisors"), located at 100 Federal Street, Boston, Massachusetts 02110, is the Fund's investment advisor. Columbia Advisors is responsible for the Fund's management, subject to oversight by the Fund's Board of Trustees. In its duties as investment advisor, Columbia Advisors runs the Fund's day-to-day business, including placing all orders for the purchase and sale of the Fund's portfolio securities. Columbia Advisors is a direct, wholly owned subsidiary of Columbia Management Group, LLC ("CMG"), which in turn is a direct, wholly owned subsidiary of Bank of America, which in turn is a wholly owned banking subsidiary of Bank of America Corporation, a financial services holding company organized as a Delaware corporation. Prior to June 15, 2005, CMG was a corporation. Effective June 15, 2005, CMG converted to a limited liability company. Columbia Advisors, a registered investment advisor, has been an investment advisor since 1995.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.70% of average daily net assets of the Fund.
Richard Dahlberg, managing director and head of Columbia Advisors' Income Strategies team, is a co-manager of the Fund and has co-managed the Fund since October 2003. Mr. Dahlberg has been associated with Columbia Advisors or its predecessors since September 2003. Prior to joining Columbia Advisors in September, 2003, Mr. Dahlberg was with Grantham, Mayo, Van Otterloo & Co. LLC from November 2001 to December 2002 and with Pioneer Investment Management, Inc. from September 1998 to November 2001.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud
Managing the Fund
provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
Managing the Fund
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and entered final judgment. The plaintiffs filed a notice of appeal on December 30, 2005.
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's fiscal periods since inception, which run from October 1 to September 30, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the years ended September 30, 2005 and 2004, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the period ended September 30, 2003 has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing these financial statements by calling 1-800-426-3750.
The Fund
Year ended Period ended
September 30, September 30,
2005 2004/(a)/ 2003/(b)(c)/
Class A Class A Class A
------- -------- -------------
Net asset value --
Beginning of period ($) 10.80 9.26 9.01
-----------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(d)/ 0.25 0.18 0.11
Net realized and unrealized gain on investments 1.16 1.53 0.25
-----------------------------------------------------------------------------------------
Total from Investment Operations 1.41 1.71 0.36
-----------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.20) (0.17) (0.11)
-----------------------------------------------------------------------------------------
Net asset value --
End of period ($) 12.01 10.80 9.26
-----------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ 13.10 18.60 4.02/(g)/
-----------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data (%):
Expenses/(h)/ 1.05 1.36 1.42/(i)/
Net investment income/(h)/ 2.11 1.71 1.38/(i)/
Waiver/reimbursement 0.18 0.06 --/(i)(j)/
Portfolio turnover rate (%) 18 44 33/(g)/
Net assets, end of period (000's) ($) 27,534 7,319 564
|
(a) On October 13, 2003, the Liberty Strategic Equity Fund was renamed Columbia
Strategic Equity Fund. On October 27, 2003, the Columbia Strategic Equity
Fund was renamed Columbia Dividend Income Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) Class A shares were initially offered on November 25, 2002. Per share data
and total return reflect activity from that date.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(f) Had the Investment Advisor and/or any of its affiliates not waived a
portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
(j) Rounds less than 0.01%.
Financial Highlights
The Fund
Year ended Period ended
September 30, September 30,
2005 2004/(a)/ 2003/(b)(c)/
Class B Class B Class B
------- -------- -------------
Net asset value --
Beginning of period ($) 10.59 9.08 8.82
-----------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(d)/ 0.16 0.10 0.05
Net realized and unrealized gain on investments 1.13 1.50 0.26
-----------------------------------------------------------------------------------------
Total from Investment Operations 1.29 1.60 0.31
-----------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.11) (0.09) (0.05)
-----------------------------------------------------------------------------------------
Net asset value,
End of period ($) 11.77 10.59 9.08
-----------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ 12.23 17.69 3.51/(g)/
-----------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data (%):
Expenses/(h)/ 1.80 2.11 2.34/(i)/
Net investment income/(h)/ 1.36 0.94 0.47/(i)/
Waiver/reimbursement 0.18 0.06 --/(i)(j)/
Portfolio turnover rate (%) 18 44 33/(g)/
Net assets, end of period (000's) ($) 17,359 8,808 1,136
|
(a) On October 13, 2003, the Liberty Strategic Equity Fund was renamed Columbia
Strategic Equity Fund. On October 27, 2003, the Columbia Strategic Equity
Fund was renamed Columbia Dividend Income Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) Class B shares were initially offered on November 25, 2002. Per share data
and total return reflect activity from that date.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(f) Had the Investment Advisor and/or any of its affiliates not waived a
portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
(j) Rounds less than 0.01%.
Financial Highlights
The Fund
Year ended Period ended
September 30, September 30,
2005 2004/(a)/ 2003/(b)(c)/
Class C Class C Class C
------- -------- -------------
Net asset value --
Beginning of period ($) 10.58 9.07 8.82
-----------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(d)/ 0.16 0.10 0.07
Net realized and unrealized gain on investments 1.13 1.50 0.23
-----------------------------------------------------------------------------------------
Total from Investment Operations 1.29 1.60 0.30
-----------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.11) (0.09) (0.05)
-----------------------------------------------------------------------------------------
Net asset value,
End of period ($) 11.76 10.58 9.07
-----------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ 12.24 17.70 3.41/(g)/
-----------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data (%):
Expenses/(h)/ 1.80 2.11 2.18/(i)/
Net investment income/(h)/ 1.36 0.94 0.95/(i)/
Waiver/reimbursement 0.18 0.06 --/(i)(j)/
Portfolio turnover rate (%) 18 44 33/(g)/
Net assets, end of period (000's) ($) 3,959 2,027 152
|
(a) On October 13, 2003, the Liberty Strategic Equity Fund was renamed Columbia
Strategic Equity Fund. On October 27, 2003, the Columbia Strategic Equity
Fund was renamed Columbia Dividend Income Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) Class C shares were initially offered on November 25, 2002. Per share data
and total return reflect activity from that date.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(f) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
(j) Rounds to less than 0.01%.
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The charts also assume that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher.
Class A Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
5.75% $10,000.00 5%
Cumulative
Return Before Cumulative Return Hypothetical Year-
Fees & Annual Expense After Fees & End Balance After Annual Fees
Year Expenses Ratio Expenses Fees & Expenses & Expenses/(1)/
1 5.00% 1.05% -2.03%/(2)/ $ 9,797.29 $ 675.92
--------------------------------------------------------------------------------------------------------
2 10.25% 1.20% 1.70% $10,169.58 $ 119.80
--------------------------------------------------------------------------------------------------------
3 15.76% 1.20% 5.56% $10,556.03 $ 124.35
--------------------------------------------------------------------------------------------------------
4 21.55% 1.20% 9.57% $10,957.16 $ 129.08
--------------------------------------------------------------------------------------------------------
5 27.63% 1.20% 13.74% $11,373.53 $ 133.98
--------------------------------------------------------------------------------------------------------
6 34.01% 1.20% 18.06% $11,805.72 $ 139.08
--------------------------------------------------------------------------------------------------------
7 40.71% 1.20% 22.54% $12,254.34 $ 144.36
--------------------------------------------------------------------------------------------------------
8 47.75% 1.20% 27.20% $12,720.01 $ 149.85
--------------------------------------------------------------------------------------------------------
9 55.13% 1.20% 32.03% $13,203.37 $ 155.54
--------------------------------------------------------------------------------------------------------
10 62.89% 1.20% 37.05% $13,705.09 $ 161.45
--------------------------------------------------------------------------------------------------------
Total Gain After
Fees and
Expenses $ 3,705.09
--------------------------------------------------------------------------------------------------------
Total Annual
Fees and
Expenses $1,933.41
--------------------------------------------------------------------------------------------------------
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Class B Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
Cumulative
Return Before Cumulative Return Hypothetical Year-
Fees & Annual After Fees & End Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.80% 3.20% $10,320.00 $ 182.88
------------------------------------------------------------------------------------------------------
2 10.25% 1.95% 6.35% $10,634.76 $ 204.31
------------------------------------------------------------------------------------------------------
3 15.76% 1.95% 9.59% $10,959.12 $ 210.54
------------------------------------------------------------------------------------------------------
4 21.55% 1.95% 12.93% $11,293.37 $ 216.96
------------------------------------------------------------------------------------------------------
5 27.63% 1.95% 16.38% $11,637.82 $ 223.58
------------------------------------------------------------------------------------------------------
6 34.01% 1.95% 19.93% $11,992.77 $ 230.40
------------------------------------------------------------------------------------------------------
7 40.71% 1.95% 23.59% $12,358.55 $ 237.43
------------------------------------------------------------------------------------------------------
8 47.75% 1.95% 27.35% $12,735.49 $ 244.67
------------------------------------------------------------------------------------------------------
9 55.13% 1.20% 32.19% $13,219.44 $ 155.73
------------------------------------------------------------------------------------------------------
10 62.89% 1.20% 37.22% $13,721.78 $ 161.65
------------------------------------------------------------------------------------------------------
Total Gain After
Fees and
Expenses $ 3,721.78
------------------------------------------------------------------------------------------------------
Total Annual
Fees and
Expenses $2,068.14
------------------------------------------------------------------------------------------------------
|
Class C Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
Cumulative
Return Before Cumulative Return Hypothetical Year-
Fees & Annual After Fees & End Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.80% 3.20% $10,320.00 $ 182.88
------------------------------------------------------------------------------------------------------
2 10.25% 1.95% 6.35% $10,634.76 $ 204.31
------------------------------------------------------------------------------------------------------
3 15.76% 1.95% 9.59% $10,959.12 $ 210.54
------------------------------------------------------------------------------------------------------
4 21.55% 1.95% 12.93% $11,293.37 $ 216.96
------------------------------------------------------------------------------------------------------
5 27.63% 1.95% 16.38% $11,637.82 $ 223.58
------------------------------------------------------------------------------------------------------
6 34.01% 1.95% 19.93% $11,992.77 $ 230.40
------------------------------------------------------------------------------------------------------
7 40.71% 1.95% 23.59% $12,358.55 $ 237.43
------------------------------------------------------------------------------------------------------
8 47.75% 1.95% 27.35% $12,735.49 $ 244.67
------------------------------------------------------------------------------------------------------
9 55.13% 1.95% 31.24% $13,123.92 $ 252.13
------------------------------------------------------------------------------------------------------
10 62.89% 1.95% 35.24% $13,524.20 $ 259.82
------------------------------------------------------------------------------------------------------
Total Gain After
Fees and
Expenses $ 3,524.20
------------------------------------------------------------------------------------------------------
Total Annual
Fees and
Expenses $2,262.71
------------------------------------------------------------------------------------------------------
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust XI: 811-4978
. Columbia Dividend Income Fund
[LOGO] ColumbiaFunds
A Member of Columbia Management Group
(C)2006 Columbia Funds Distributor, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com
PRO-36/105506-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 1, 2006 (THE "PROSPECTUS")
COLUMBIA DIVIDEND INCOME FUND
(THE "FUND")
CLASS T AND G SHARES
The Prospectus is hereby supplemented with the following information:
1. The section "LEGAL PROCEEDINGS" under the heading "MANAGING THE FUND" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could
increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose.
On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
2. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
3. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
INT-47/107775-0306 March 27, 2006
Class T and G Shares
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------- Investment Goal......................... 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 2 Performance History..................... 4 Your Expenses........................... 6 YOUR ACCOUNT 8 -------------------------------------------- How to Buy Shares....................... 8 Investment Minimums..................... 8 Sales Charges........................... 9 How to Exchange Shares.................. 12 How to Sell Shares...................... 12 Fund Policy on Trading of Fund Shares... 13 |
Distribution and Service Fees........... 14 Other Information About Your Account.... 15 MANAGING THE FUND 18 -------------------------------------------- Investment Advisor...................... 18 Portfolio Managers...................... 18 Legal Proceedings....................... 18 FINANCIAL HIGHLIGHTS 20 -------------------------------------------- APPENDIX A 22 -------------------------------------------- |
Class T and G shares are sold only to investors who received (and who have continuously held) Class T or G shares in connection with the merger of certain Galaxy Funds into various Columbia Funds (formerly named Liberty Funds).
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC May Lose Value
Insured No Bank Guarantee
The Fund generally will emphasize value stocks, but may purchase growth securities when such securities pay dividends or the advisor believes such securities have particularly good prospects for capital appreciation. In addition to equity securities, the Fund may also invest up to 20% of its net assets in debt securities, including lower-quality debt securities. The Fund may invest up to 20% of its net assets in securities of foreign issuers.
Value stocks are stocks that appear to be underpriced based on measures such as lower price-to-earnings, price-to-book value and price-to-earnings growth ratios.
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values
The Fund
of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Because the Fund may invest in debt securities issued or supported by private entities, including corporate bonds, municipal bonds and mortgage-backed and asset-backed securities, the Fund is subject to issuer risk. Issuer risk is the possibility that changes in the financial condition of the issuer of a security, changes in general economic conditions, or changes in economic conditions that affect the issuer may impact its actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and in some cases a decrease in income. The Fund's investments in securities issued by U.S. government-sponsored enterprises, such as the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, are not funded by Congressional appropriations and are neither guaranteed nor insured by the U.S. government. Furthermore, no assurances can be given that the U.S. government would provide financial support to its agencies or instrumentalities where it is not obligated to do so.
Lower-rated debt securities, commonly referred to as "junk bonds," involve greater risk of loss due to credit deterioration and are less liquid, especially during periods of economic uncertainty or change, than higher-quality debt securities. Lower-rated debt securities have a higher risk that the issuer of the security may default and not make payment of interest or principal.
Medium-quality debt securities. Medium-quality debt securities, although considered investment grade, may have some speculative characteristics.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day-to-day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the advisor's opinion, undervalued. If the advisor's assessment of a company's prospects is wrong, the price of the company's stock may fall, or may not approach the value the advisor has placed on it.
Growth stocks are stocks of companies believed to have above-average potential for growth in revenue and earnings. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general.
Convertible securities are securities that can be converted into common stock, such as certain debt securities and preferred stock. Convertible securities are subject to the usual risks associated with fixed income investments, such as interest rate risk and credit risk. In addition, because they react to changes in the value of the equity securities into which they will convert, convertible securities are also subject to market risk.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more
The Fund
limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. The Fund may have limited legal recourse in the event of default with respect to certain debt securities issued by foreign governments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class T share performance for each complete calendar year since the Fund commenced operations. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance over the past one-year, five-year and life of the Fund periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
The Fund's returns are compared to the Russell 1000 Value Index, an unmanaged index that tracks the performance of those Russell 1000 Index companies with lower price-to-book ratios and lower forecasted growth values. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
The Fund
Calendar Year Total Returns (Class T)/(1)/
[CHART]
1999 2000 2001 2002 2003 2004 2005
----- ------ ----- ------- ------ ------ ------
0.05% 22.22% 8.00% -20.64% 20.99% 14.51% 6.31%
|
For the periods shown in bar chart:
Best quarter: 2nd quarter 2003, +18.38%
Worst quarter: 3rd quarter 2002, -19.80%
(1) The calendar year total returns shown for Class T shares include the returns of Retail A Shares of the Galaxy Strategic Equity Fund (the Galaxy Fund), the predecessor to the Fund, for periods prior to November 25, 2002, the date on which Class T shares were initially offered by the Fund. On October 27, 2003, the investment policies of the Fund (formerly known as Columbia Strategic Equity Fund) were modified. As a result, the Fund's performance for periods prior to that date may not be representative of the performance it would have achieved had its current investment policies been in place.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2005/(1)/
Life of
1 Year 5 Years the Fund
Class T (%)
Return Before Taxes 0.21 3.54 5.25
Return After Taxes on Distributions -0.08 3.17 4.21
Return After Taxes on Distributions
and Sale of Fund Shares 0.50 2.91 3.93
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Class G (%)
Return Before Taxes 0.57 3.48 5.36
Return After Taxes on Distributions 0.36 3.20 4.43
Return After Taxes on Distributions
and Sale of Fund Shares 0.64 2.90 4.08
-------------------------------------------------------------------
Russell 1000 Value Index (%) 7.05 5.28 6.40/(2)/
|
(1) The average annual total returns shown include the returns of Retail A
Shares (for Class T shares) and Retail B Shares (for Class G shares) of the
Galaxy Fund for periods prior to November 25, 2002, the date on which Class
T and Class G shares were initially offered by the Fund. Retail A Shares
and Retail B Shares of the Galaxy Fund were initially offered on March 4,
1998. On October 27, 2003, the investment policies of the Fund (formerly
known as Columbia Strategic Equity Fund) were modified. As a result, the
Fund's performance for periods prior to that date may not be representative
of the performance it would have achieved had its current investment
policies been in place.
(2) Performance information is from March 4, 1998.
The Fund
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees, shareholder service fees and other expenses that generally include, but are not limited to, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds.
Except as noted, the table does not take into account any
expense reduction arrangements discussed in the footnotes
to the Annual Fund Operating Expenses table. It uses the
following hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class G shares convert to Class T shares after eight
years
Shareholder Fees/(1) /(paid directly from your investment)
Class T Class G
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00
----------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00
----------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class T shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
The Fund
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class T Class G
Management fees/(1)/ (%) 0.77 0.77
-----------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.00 0.95/(3)/
-----------------------------------------------------------------
Other expenses/(4)/ (%) 0.48/(2)/ 0.18
-----------------------------------------------------------------
Total annual fund operating expenses (%) 1.25 1.90
-----------------------------------------------------------------
Expense reimbursement/(5)/ (%) -0.15 -0.15
-----------------------------------------------------------------
Net expenses/(5)/ (%) 1.10 1.75
|
(1) The Fund pays a management fee of 0.70% and an administrative fee of 0.07%.
(2) The Fund may pay shareholder service fees (which are included in other
expenses) up to a maximum of 0.50% of such Fund's daily net assets
attributable to Class T shares (comprised of up to 0.25% for shareholder
liaison services and up to 0.25% for administrative services), but will
limit such fees to an aggregate fee of not more than 0.30% during the
current fiscal year.
(3) The Fund may pay distribution and service (12b-1) fees up to a maximum of
1.15% of the Fund's average daily net assets attributable to Class G shares
(comprised of up to 0.65% for distribution services, up to 0.25% for
shareholder liaison services and up to 0.25% for administrative support
services), but will limit such fees to an aggregate fee not more than 0.95%
during the current fiscal year.
(4) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
(5) The Fund's Advisor has contractually agreed to bear a portion of the Fund's
expenses so that the Fund's ordinary operating expenses (exclusive of
distribution and service fees, brokerage commissions, interest, taxes and
extraordinary expenses, if any) do not exceed 0.80% annually through
January 31, 2007.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class T $681 $935 $1,208 $1,987
-------------------------------------------------------------------------------------
Class G did not sell your shares $178 $582 $1,013 $2,041
sold all your shares at the end of the period $678 $982 $1,313 $2,041
|
See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange (NYSE), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-------------------------------------------------------------------------------
By check For existing accounts fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
-------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging Class T or Class G
shares you own in a different fund distributed by Columbia
Management Distributors, Inc. for shares of the same class
(and, in some cases, certain other classes) of the Fund at
no additional cost. There may be an additional sales charge
if exchanging from a money market fund. To exchange by
telephone, call 1-800-422-3737.
-------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
-------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. There may
be an additional sales charge if exchanging from a money
market fund. Be sure to complete the appropriate section of
the account application for this feature.
-------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
|
Class T and G shares are sold only to investors who received (and who have continuously held) Class T or G shares in connection with the merger of certain Galaxy Funds into various Columbia Funds (formerly named Liberty Funds).
Please see the Statement of Additional Information for more details on investment minimums.
Your Account
Class T shares Your purchases of Class T shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class T shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
Class T Sales Charges
% of offering
As a % of price
the public As a % retained by
offering of your financial
Amount purchased price investment advisor
Less than $50,000 5.75 6.10 5.00
-------------------------------------------------------------------
$50,000 to less than $100,000 4.50 4.71 3.75
-------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 2.75
-------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.00
-------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
-------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
|
Class T shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class T share purchases that bring your account value above $1 million are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class T share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
Purchases Over $1 Million
Amount purchased Commission % Less than $3 million 1.00 ------------------------------------------------ $3 million to less than $50 million 0.50 ------------------------------------------------ $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
Your Account
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES Certain investments in Class T and G shares are subject to a CDSC, a sales charge applied at the time you sell your shares. You will pay the CDSC only on shares you sell within a certain amount of time after purchase. The CDSC generally declines each year until there is no charge for selling shares. The CDSC is applied to the net asset value at the time of purchase or sale, whichever is lower. For purposes of calculating the CDSC, the start of the holding period is the first day of the month in which the purchase was made. Shares you purchase with reinvested dividends or other distributions are not subject to a CDSC. When you place an order to sell shares, the Fund will automatically sell first those shares not subject to a CDSC and then those you have held the longest.
Reduced Sales Charges for Larger Investments.
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class T shares of the Fund and other funds in the Columbia family of funds.
Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
Statement of Intent You also may pay a lower sales charge when purchasing Class T shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
. Individual accounts
. Joint accounts
. Certain IRA accounts
. Certain trusts
. UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
Your Account
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depends on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisors' failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
Class G shares Your purchases of Class G shares are made at Class G's net asset value. Purchases up to $50,000 are allowed in Class G shares assuming the combined value of the customer's total assets in the Columbia Funds does not exceed $50,000. Purchases in Class G shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group Plan accounts are valued at the plan level. Class G shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class G shares as described in the chart below.
Class G Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 5.00
---------------------------------------------
Through second year 4.00
---------------------------------------------
Through third year 4.00
---------------------------------------------
Through fourth year 4.00
---------------------------------------------
Through fifth year 3.00
---------------------------------------------
Through sixth year 2.00
---------------------------------------------
Through seventh year 1.00
---------------------------------------------
Longer than seven years None
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Your Account
Commission to financial advisors is 4.00%.
Automatic conversion to Class T shares occurs eight years after purchase.
Please see the Statement of Additional Information for the CDSCs and conversion schedules applicable to Class G shares received in exchange for Retail B Shares of the Galaxy Fund purchased or acquired prior to January 1, 2001.
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" also means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable, you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Your Account
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into the same share class (or
Class A and Class B shares, for Class T and Class G shares,
respectively) of another fund distributed by Columbia
Management Distributors, Inc. at no additional cost. To
exchange by telephone, call 1-800-422-3737.
------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares by telephone
and request that a check be sent to your address of record
by calling 1-800-422-3737, unless you have notified the
Fund of an address change within the previous 30 days. The
dollar limit for telephone sales is $100,000 in a 30-day
period. You do not need to set up this feature in advance
of your call. Certain restrictions apply to retirement
accounts. For details, call 1-800-799-7526.
------------------------------------------------------------------------------
By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign
the letter. Signatures must be guaranteed by either a bank,
a member firm of a national stock exchange or another
eligible guarantor institution that participates in the
Medallion Signature Guarantee Program for amounts over
$100,000 or for alternate payee or mailing instructions.
Additional documentation is required for sales by
corporations, agents, fiduciaries, surviving joint owners
and individual retirement account owners. For details, call
1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
Your Account
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Your Account
Additional Intermediary Compensation In addition to the commission specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
Your Account
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value) your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for any class of shares offered by the Fund.
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
----------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
UNDERSTANDING FUND DISTRIBUTIONS
The Fund may earn income from the securities it holds. The Fund also may realize capital gains or losses on sales of its securities. The Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of the Fund's income and capital gains based on the number of shares you own at the time these distributions are declared.
Distribution Options The Fund distributes any dividends quarterly and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, all subsequent distributions will be reinvested in additional shares of the Fund.
Your Account
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.70% of average daily net assets of the Fund.
Richard Dahlberg, managing director and head of Columbia Advisors' Income Strategies team, is a co-manager of the Fund and has co-managed the Fund since October 2003. Mr. Dahlberg has been associated with Columbia Advisors or its predecessors since September 2003. Prior to joining Columbia Advisors in September, 2003, Mr. Dahlberg was with Grantham, Mayo, Van Otterloo & Co. LLC from November 2001 to December 2002, and with Pioneer Investment Management, Inc. from September 1998 to November 2001.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory,
compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and entered final judgment. The plaintiffs filed a notice of appeal on December 30, 2005.
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last six fiscal periods, which run from October 1 to September 30, unless otherwise indicated. Information for Class T shares and Class G shares prior to November 25, 2002, the date of reorganization, is for the former Retail A shares and Retail B shares, respectively, of the Galaxy Strategic Equity Fund. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the years ended September 30, 2005 and 2004 have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the period ended September 30, 2003 and the fiscal years ended October 31, 2002, 2001 and 2000, have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
The Fund
Year ended Period ended
September 30, September 30,
2005 2004/(a)/ 2003/(b)(c)/
Class T Class T Class T
------- -------- -------------
Net asset value --
Beginning of period ($) 10.80 9.26 8.54
----------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.24/(d)/ 0.17/(d)/ 0.11/(d)/
Net realized and unrealized gain (loss) on investments 1.16 1.54 0.73
----------------------------------------------------------------------------------------------------
Total from Investment Operations 1.40 1.71 0.84
----------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.19) (0.17) (0.12)
From net realized capital gains -- -- --
----------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.19) (0.17) (0.12)
----------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 12.01 10.80 9.26
----------------------------------------------------------------------------------------------------
Total return (%)/(f)(g)/ 13.04 18.50 9.86/(h)/
----------------------------------------------------------------------------------------------------
Ratios to average net assets/Supplemental Data (%):
Expenses/(i)/ 1.10 1.45 1.49/(j)/
Net investment income/(i)/ 2.04 1.64 1.42/(j)/
Waiver/reimbursement 0.18 0.04 0.01/(j)/
Portfolio turnover rate (%) 18 44 33/(h)/
Net assets, end of period (000's) ($) 99,148 100,803 96,638
|
Year ended October 31,
2002 2001 2000
Class T Class T Class T
------- ------- -------
Net asset value --
Beginning of period ($) 10.02 10.46 9.89
--------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.01/(d)/ 0.03/(d)/ 0.04
Net realized and unrealized gain (loss) on investments (1.08)/(e)/ (0.11) 1.75
--------------------------------------------------------------------------------------------
Total from Investment Operations (1.07) (0.08) 1.79
--------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.02) (0.03) (0.04)
From net realized capital gains (0.39) (0.33) (1.18)
--------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.41) (0.36) (1.22)
--------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 8.54 10.02 10.46
--------------------------------------------------------------------------------------------
Total return (%)/(f)(g)/ (11.50) (0.83) 21.09
--------------------------------------------------------------------------------------------
Ratios to average net assets/Supplemental Data (%):
Expenses/(i)/ 1.40 1.24 1.20
Net investment income/(i)/ 0.05 0.25 0.40
Waiver/reimbursement 0.29 0.26 0.40
Portfolio turnover rate (%) 65/(k)/ 81 81
Net assets, end of period (000's) ($) 6,578 8,400 8,505
|
(a) On October 13, 2003, the Liberty Strategic Equity Fund was renamed Columbia
Strategic Equity Fund. On October 27, 2003, the Columbia Strategic Equity
Fund was renamed Columbia Dividend Income Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) On November 25, 2002, Galaxy Strategic Equity Fund, Retail A shares were
redesignated Liberty Strategic Equity Fund, Class T shares.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) The amount shown for a share outstanding does not correspond with the
aggregate net gain (loss) on investments for the period due to the timing
of repurchases of Fund shares in relation to fluctuating market values of
the investments of the Fund.
(f) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(g) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
(k) Portfolio turnover rate excludes securities delivered from processing
redemptions-in-kind.
Financial Highlights
The Fund
Year ended Period ended
September 30, September 30,
2005 2004/(a)/ 2003/(b)(c)/
Class G Class G Class G
------- -------- -------------
Net asset value --
Beginning of period ($) 10.58 9.07 8.36
------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income (loss)// 0.16/(d)/ 0.10/(d)/ 0.05/(d)/
Net realized and unrealized gain (loss) on
investments 1.14 1.50 0.71
------------------------------------------------------------------------------------------------
Total from Investment Operations 1.30 1.60 0.76
------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.12) (0.09) (0.05)
From net realized capital gains -- -- --
------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.12) (0.09) (0.05)
------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 11.76 10.58 9.07
------------------------------------------------------------------------------------------------
Total return (%)/(g)(h)/ 12.30 17.71 9.08/(i)/
------------------------------------------------------------------------------------------------
Ratios to average net assets/Supplemental Data (%):
Expenses/(j)/ 1.75 2.14 2.21/(k)/
Net investment income (loss)/(j)/ 1.38 0.97 0.71/(k)/
Waiver/reimbursement 0.18 0.03 --/(k)(l)/
Portfolio turnover rate (%) 18 44 33/(i)/
Net assets, end of period (000's) ($) 3,291 5,995 9,650
|
Year ended October 31,
2002 2001 2000
Class G Class G Class G
------- ------- -------
Net asset value --
Beginning of period ($) 9.87 10.37 9.84
-------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income (loss)// (0.07)/(d)/ (0.06)/(d)/ (0.04)
Net realized and unrealized gain (loss) on
investments (1.05)/(e)/ (0.11) 1.75
-------------------------------------------------------------------------------------------
Total from Investment Operations (1.12) (0.17) 1.71
-------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income -- -- --/(f)/
From net realized capital gains (0.39) (0.33) (1.18)
-------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.39) (0.33) (1.18)
-------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 8.36 9.87 10.37
-------------------------------------------------------------------------------------------
Total return (%)/(g)(h)/ (12.16) (1.71) 20.33
-------------------------------------------------------------------------------------------
Ratios to average net assets/Supplemental Data (%):
Expenses/(j)/ 2.17 2.02 1.95
Net investment income (loss)/(j)/ (0.72) (0.53) (0.35)
Waiver/reimbursement 0.25 0.24 0.40
Portfolio turnover rate (%) 65/(m)/ 81 81
Net assets, end of period (000's) ($) 2,093 2,286 1,555
|
(a) On October 13, 2003, the Liberty Strategic Equity Fund was renamed Columbia
Strategic Equity Fund. On October 27, 2003, Columbia Strategic Equity Fund
was renamed Columbia Dividend Income Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) On November 25, 2002, Galaxy Strategic Equity Fund, Retail B shares were
redesignated Liberty Strategic Equity Fund, Class G shares.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) The amount shown for a share outstanding does not correspond with the
aggregate net gain (loss) on investments for the period due to the timing
of repurchases of Fund shares in relation to fluctuating market values of
the investments of the Fund.
(f) Rounds to less than $0.01 per share.
(g) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(h) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
(l) Rounds to less than 0.01%.
(m) Portfolio turnover rate excludes securities delivered from processing
redemptions-in-kind.
Class T Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
5.75% $10,000.00 5%
Cumulative
Return Before Cumulative Return Hypothetical Year-
Fees & Annual Expense After Fees & End Balance After Annual Fees
Year Expenses Ratio Expenses Fees & Expenses & Expenses/(1)/
1 5.00% 1.10% -2.07%/(2)/ $ 9,792.58 $680.70
--------------------------------------------------------------------------------------------------------
2 10.25% 1.25% 1.60% $10,159.80 $124.70
--------------------------------------------------------------------------------------------------------
3 15.76% 1.25% 5.41% $10,540.79 $129.38
--------------------------------------------------------------------------------------------------------
4 21.55% 1.25% 9.36% $10,936.07 $134.23
--------------------------------------------------------------------------------------------------------
5 27.63% 1.25% 13.46% $11,346.17 $139.26
--------------------------------------------------------------------------------------------------------
6 34.01% 1.25% 17.72% $11,771.65 $144.49
--------------------------------------------------------------------------------------------------------
7 40.71% 1.25% 22.13% $12,213.09 $149.90
--------------------------------------------------------------------------------------------------------
8 47.75% 1.25% 26.71% $12,671.08 $155.53
--------------------------------------------------------------------------------------------------------
9 55.13% 1.25% 31.46% $13,146.25 $161.36
--------------------------------------------------------------------------------------------------------
10 62.89% 1.25% 36.39% $13,639.23 $167.41
--------------------------------------------------------------------------------------------------------
Total Gain After
Fees and
ExpenseS $ 3,639.23
--------------------------------------------------------------------------------------------------------
Total Annual
Fees and
Expenses $1,986.96
--------------------------------------------------------------------------------------------------------
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Class G Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
Cumulative
Return Before Cumulative Return Hypothetical Year-
Fees & Annual After Fees & End Balance After Annual Fees
Year Expenses Expense Ratio Expenses Fees & Expenses & Expenses/(1)/
1 5.00% 1.75% 3.25% $10,325.00 $177.84
--------------------------------------------------------------------------------------------------------
2 10.25% 1.90% 6.45% $10,645.08 $199.22
--------------------------------------------------------------------------------------------------------
3 15.76% 1.90% 9.75% $10,975.07 $205.39
--------------------------------------------------------------------------------------------------------
4 21.55% 1.90% 13.15% $11,315.30 $211.76
--------------------------------------------------------------------------------------------------------
5 27.63% 1.90% 16.66% $11,666.07 $218.32
--------------------------------------------------------------------------------------------------------
6 34.01% 1.90% 20.28% $12,027.72 $225.09
--------------------------------------------------------------------------------------------------------
7 40.71% 1.90% 24.01% $12,400.58 $232.07
--------------------------------------------------------------------------------------------------------
8 47.75% 1.90% 27.85% $12,785.00 $239.26
--------------------------------------------------------------------------------------------------------
9 55.13% 1.25% 32.64% $13,264.44 $162.81
--------------------------------------------------------------------------------------------------------
10 62.89% 1.25% 37.62% $13,761.85 $168.91
--------------------------------------------------------------------------------------------------------
Total Gain After
Fees and
Expenses $ 3,761.85
--------------------------------------------------------------------------------------------------------
Total Annual
Fees and
Expenses $2,040.68
--------------------------------------------------------------------------------------------------------
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual basis.
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual or semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust XI: 811-4978
. Columbia Dividend Income Fund
[LOGO] ColumbiaFunds
A Member of Columbia Management Group
(C)2006 Columbia Funds Distributor, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com
PRO-36/105407-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 1, 2006 (THE "PROSPECTUS")
COLUMBIA DIVIDEND INCOME FUND
(THE "FUND")
CLASS Z SHARES
The Prospectus is hereby supplemented with the following information:
1. The section "LEGAL PROCEEDINGS" under the heading "MANAGING THE FUND" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could
increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose.
On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
2. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
3. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
INT-47/107693-0306 March 27, 2006
Class Z Shares
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------- Investment Goal......................... 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 2 Performance History..................... 4 Your Expenses........................... 6 YOUR ACCOUNT 8 -------------------------------------------- How to Buy Shares....................... 8 Eligible Investors...................... 9 Sales Charges........................... 10 How to Exchange Shares.................. 11 How to Sell Shares...................... 11 Fund Policy on Trading of Fund Shares... 12 Intermediary Compensation............... 13 Other Information About Your Account.... 14 |
MANAGING THE FUND 16 -------------------------------------------- Investment Advisor...................... 16 Portfolio Managers...................... 16 Legal Proceedings....................... 16 FINANCIAL HIGHLIGHTS 19 -------------------------------------------- APPENDIX A 20 -------------------------------------------- |
Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC May Lose Value
Insured No Bank Guarantee
The Fund generally will emphasize value stocks, but may purchase growth securities when such securities pay dividends or the advisor believes such securities have particularly good prospects for capital appreciation. In addition to equity securities, the Fund may also invest up to 20% of its net assets in debt securities, including lower-quality debt securities. The Fund may invest up to 20% of its net assets in securities of foreign issuers.
Value stocks are stocks that appear to be underpriced based on measures such as lower price-to-earnings, price-to-book value and price-to-earnings growth ratios.
Growth stocks generally offer the potential for strong revenue and earnings, and accompanying capital growth, with less dividend income than value stocks.
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values
The Fund
of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Because the Fund may invest in debt securities issued or supported by private entities, including corporate bonds, municipal bonds and mortgage-backed and asset-backed securities, the Fund is subject to issuer risk. Issuer risk is the possibility that changes in the financial condition of the issuer of a security, changes in general economic conditions, or changes in economic conditions that affect the issuer may impact its actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and in some cases a decrease in income. The Fund's investments in securities issued by U.S. government-sponsored enterprises, such as the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, are not funded by Congressional appropriations and are neither guaranteed nor insured by the U.S. government. Furthermore, no assurances can be given that the U.S. government would provide financial support to its agencies or instrumentalities where it is not obligated to do so.
Lower-rated debt securities, commonly referred to as "junk bonds," involve greater risk of loss due to credit deterioration and are less liquid, especially during periods of economic uncertainty or change, than higher-quality debt securities. Lower-rated debt securities have a higher risk that the issuer of the security may default and not make payment of interest or principal.
Medium-quality debt securities. Medium-quality debt securities, although considered investment grade, may have some speculative characteristics.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day-to-day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the advisor's opinion, undervalued. If the advisor's assessment of a company's prospects is wrong, the price of the company's stock may fall, or may not approach the value the advisor has placed on it.
Growth stocks are stocks of companies believed to have above-average potential for growth in revenue and earnings. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general.
Convertible securities are securities that can be converted into common stock, such as certain debt securities and preferred stock. Convertible securities are subject to the usual risks associated with fixed income investments, such as interest rate risk and credit risk. In addition, because they react to changes in the value of the equity securities into which they will convert, convertible securities are also subject to market risk.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more
The Fund
limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. The Fund may have limited legal recourse in the event of default with respect to certain debt securities issued by foreign governments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class Z share performance for each complete calendar year since the Fund commenced operations. They include the effects of Fund expenses.
Average Annual Total Returns are a measure of the Fund's Class Z average performance over the past one-year, five-year and life of the Fund periods. They include the effects of Fund expenses./(1)/
(1) The average annual total returns shown include returns of Trust Shares of the Galaxy Fund for periods prior to November 25, 2002, the date on which Class Z shares were initially offered by the Fund. Trust Shares were initially offered by the Galaxy Fund on March 4, 1998. On October 27, 2003, the investment policies of the Fund (formerly known as Columbia Strategic Equity Fund) were modified. As a result, the Fund's performance for periods prior to that date may not be representative of the performance it would have achieved had its current investment policies been in place.
The Fund
Calendar Year Total Returns (Class Z)/(1)/
[CHART]
1999 2000 2001 2002 2003 2004 2005
----- ------ ----- ------- ------ ------ ------
0.05% 22.22% 8.00% -20.64% 20.99% 14.51% 6.31%
|
For the periods shown in bar chart: Best quarter: 2nd quarter 2003, +18.51% Worst quarter: 3rd quarter 2002, -19.78% |
(1) The calendar year total returns shown for Class Z shares include the returns of Trust Shares of the Galaxy Strategic Equity Fund (the Galaxy Fund), the predecessor to the Fund, for periods prior to November 25, 2002, the date on which Class Z shares were initially offered by the Fund. On October 27, 2003, the investment policies of the Fund (formerly known as Columbia Strategic Equity Fund) were modified. As a result, the Fund's performance for periods prior to that date may not be representative of the performance it would have achieved had its current investment policies been in place.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2005/(1)/
Life of
1 Year 5 Years the Fund
Class Z (%)
Return Before Taxes 6.62 5.22 6.51
Return After Taxes on Distributions 6.27 4.72 5.33
Return After Taxes on Distributions and Sale of Fund Shares 4.76 4.30 4.95
-----------------------------------------------------------------------------------------
Russell 1000 Value Index (%) 7.05 5.28 6.40/(2)/
|
(1) The average annual total returns shown include returns of Trust Shares of
the Galaxy Fund for periods prior to November 25, 2002, the date on which
Class Z shares were initially offered by the Fund. Trust Shares were
initially offered by the Galaxy Fund on March 4, 1998. On October 27, 2003,
the investment policies of the Fund (formerly known as Columbia Strategic
Equity Fund) were modified. As a result, the Fund's performance for periods
prior to that date may not be representative of the performance it would
have achieved had its current investment policies been in place.
(2) Performance information is from March 4, 1998.
The Fund
UNDERSTANDING EXPENSES
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees and other expenses that generally include, but are not limited to, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds.
The table does not take into account any expense reduction
arrangements discussed in the footnotes to the Annual Fund
Operating Expenses table. It uses the following
hypothetical conditions.
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
Shareholder Fees/(1)/ (paid directly from your investment)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 --------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 --------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) /(2)/ |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
The Fund
Annual Fund Operating Expenses (deducted directly from Fund assets)
Management fees/(1)/ (%) 0.77 ----------------------------------------------- Distribution and service (12b-1) fees (%) 0.00 ----------------------------------------------- Other expenses/(2)/ (%) 0.18 ----------------------------------------------- Total annual fund operating expenses (%) 0.95 ----------------------------------------------- Expense reimbursement/(3)/ (%) -0.15 ----------------------------------------------- Net expenses/(3)/ (%) 0.80 |
(1) The Fund pays a management fee of 0.70% and an administrative fee of 0.07%.
(2) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
(3) The Fund's Advisor has contractually agreed to bear a portion of the Fund's
expenses so that the Fund's ordinary operating expenses (exclusive of
distribution and service fees, brokerage commissions, interest, taxes and
extraordinary expenses, if any) do not exceed 0.80% annually through
January 31, 2007.
Example Expenses (your actual costs may be higher or lower)
1 Year 3 Years 5 Years 10 Years $82 $288 $511 $1,153 |
See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange (NYSE), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-------------------------------------------------------------------------------
By check For new accounts send a completed application and check
(new account) made payable to the Fund to Columbia Management Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
-------------------------------------------------------------------------------
By check For existing accounts fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
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By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging shares you own in a
different fund distributed by Columbia Management
Distributors Inc. for shares of the same class of the Fund
at no additional cost. To exchange by telephone, call
1-800-422-3737. Please see "How to Exchange Shares" for
more information.
-------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
-------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. Be sure to
complete the appropriate section of the account application
for this feature.
-------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at
no additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
|
Your Account
Important Things to Consider When Deciding on a Class of Shares:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by a broker/dealer, bank, third-party administrator or other financial institution (each commonly referred to as an "intermediary"). Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
No minimum initial investment
. Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
. Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts ("IRAs")), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
. Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
. Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
$1,000 minimum initial investment
. Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of a fund distributed by Columbia Management Distributors, Inc. (i) who
Your Account
holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005;
(iii) who holds Class A shares that were obtained by exchange of Class Z
shares; or (iv) who purchased certain no-load shares of a fund merged with a
fund distributed by Columbia Management Distributors, Inc.;
. Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Management Distributors, Inc. ;
. Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary;
. Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement);
. Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an accredited investor, as defined under the Securities Act of 1933; or
. Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries.
The Fund reserves the right to change the criteria for Eligible Investors and these investment minimums. No minimum investment applies to accounts participating in the automatic investment plan, however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
CHOOSING A SHARE CLASS
The Fund offers one class of shares in this prospectus -- Class Z.
The Fund also offers five additional classes of shares -- Class A, B, C, T and G shares are available through separate prospectuses. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you. In general, anyone who is eligible to purchase Class Z shares, which do not incur Rule 12b-1 fees or sales charges, should do so in preference over other classes.
Your Account
When the Fund receives your sales request in "good form," shares will be sold
at the next calculated price.
"Good form" means that the Fund's transfer agent has all information and
documentation it deems necessary to effect your order. For example, when
selling shares by letter of instruction, "good form" means (i) your letter has
complete instructions, the proper signatures and Medallion Signature
Guarantees, and (ii) any other required documents are attached. For additional
documents required for sales by corporations, agents, fiduciaries, surviving
joint owners and other legal entities, please call 1-800-345-6611. Retirement
plan accounts have special requirements; please call 1-800-799-7526 for more
information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Your Account
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
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By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into Class Z shares or Class A
shares (only if Class Z is not offered) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is
$100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign
the letter. Signatures must be guaranteed by either a bank,
a member firm of a national stock exchange or another
eligible guarantor institution that participates in the
Medallion Signature Guarantee Program for amounts over
$100,000 or for alternate payee or mailing instructions.
Additional documentation is required for sales by
corporations, agents, fiduciaries, surviving joint owners
and individual retirement account owners. For details, call
1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
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By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. All dividend and capital gains distributions must
be reinvested. Be sure to complete the appropriate section
of the account application for this feature.
------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
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The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accents, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
Your Account
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain Funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to an intermediary. Those fees are generally for subaccounting, sub-
Your Account
transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value) your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for any class of shares offered by the Fund.
Your Account
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
----------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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UNDERSTANDING FUND DISTRIBUTIONS
The Fund may earn income from the securities it holds. The Fund also may realize capital gains or losses on sales of its securities. The Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of the Fund's income and capital gains based on the number of shares you own at the time these distributions are declared.
Distribution Options The Fund distributes any dividends quarterly and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, all subsequent distributions will be reinvested in additional shares of the Fund.
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined by the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.70% of average daily net assets of the Fund.
Richard Dahlberg, managing director and head of the Columbia Advisors' Income Strategies team, is a co-manager of the Fund and has co-managed the Fund since October 2003. Mr. Dahlberg has been associated with Columbia Advisors or its predecessors since September 2003. Prior to joining Columbia Advisors in September, 2003, Mr. Dahlberg was with Grantham, Mayo, Van Otterloo & Co. LLC from November 2001 to December 2002, and with Pioneer Investment Management, Inc. from September 1998 to November 2001.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
Managing the Fund
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including
Managing the Fund
claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and entered final judgment. The plaintiffs filed a notice of appeal on December 30, 2005.
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the last six fiscal periods, which run from October 1 to September 30, unless otherwise indicated. Information for Class Z shares prior to November 25, 2002, the date of reorganization, is for the former Trust shares of the Galaxy Strategic Equity Fund. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the years ended September 30, 2005 and 2004 have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the period ended September 30, 2003, and the fiscal years ended October 31, 2002, 2001 and 2000, have been audited by another independent registered public accounting firm, whose report, expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
The Fund
Year ended Period ended
September 30, September 30, Year ended October 31,
2005 2004/(a)/ 2003/(b)(c)/ 2002 2001 2000
Class Z Class Z Class Z Class Z Class Z Class Z
------- -------- ------------- ------- ------- -------
Net asset value --
Beginning of period ($) 10.80 9.26 8.56 10.03 10.48 9.90
----------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.28/(d)/ 0.21/(d)/ 0.15/(d)/ 0.06/(d)/ 0.08/(d)/ 0.08
Net realized and unrealized gain (loss) on
investments 1.16 1.53 0.72 (1.07)/(e)/ (0.12) 1.76
----------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.44 1.74 0.87 (1.01) (0.04) 1.84
----------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.23) (0.20) (0.17) (0.07) (0.08) (0.08)
From net realized capital gains -- -- -- (0.39) (0.33) (1.18)
----------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.23) (0.20) (0.17) (0.46) (0.41) (1.26)
----------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 12.01 10.80 9.26 8.56 10.03 10.48
----------------------------------------------------------------------------------------------------------------------------
Total return (%)/(f)(g)/ 13.38 18.93 10.22/(h)/ (11.07) (0.43) 21.69
----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/ Supplemental Data
(%):
Expenses/(i)/ 0.80 1.10 1.02/(j)/ 0.82 0.75 0.78
Net investment income/(i)/ 2.37 1.98 1.89/(j)/ 0.63 0.74 0.83
Waiver/reimbursement 0.18 0.05 0.02/(j)/ 0.24 0.21 0.20
Portfolio turnover rate (%) 18 44 33/(h)/ 65/(k)/ 81 81
Net assets, end of period (000's) ($) 358,125 90,269 73,276 19,896 102,909 93,558
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(a) On October 13, 2003, the Liberty Strategic Equity Fund was renamed Columbia
Strategic Equity Fund. On October 27, 2003, Columbia Strategic Equity Fund
was renamed Columbia Dividend Income Fund.
(b) The Fund changed its fiscal year end from October 31 to September 30.
(c) On November 25, 2002, Galaxy Strategic Equity Fund, Trust shares were
redesignated Liberty Strategic Equity Fund, Class Z shares.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) The amount shown for a share outstanding does not correspond with the
aggregate net gain (loss) on investments for the period due to the timing
of repurchases of Fund shares in relation to fluctuating market values of
the investments of the Fund.
(f) Total return at net asset value assuming all distributions reinvested.
(g) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
(k) Portfolio turnover rate excludes securities delivered from processing
redemptions-in-kind.
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The chart shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The chart also assumes that all dividends and distributions are reinvested. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower.
Class Z Shares
Maximum Sales Charge 0.00% Initial Hypothetical Investment Amount $10,000.00 Assumed Rate of Return 5% |
Cumulative
Return Before Cumulative Return Hypothetical Year-
Fees & Annual After Fees & End Balance After Annual Fees
Year Expenses Expense Ratio Expenses Fees & Expenses & Expenses/(1)/
1 5.00% 0.80% 4.20% $10,420.00 $ 81.68
-------------------------------------------------------------------------------------------------
2 10.25% 0.95% 8.42% $10,842.01 $100.99
-------------------------------------------------------------------------------------------------
3 15.76% 0.95% 12.81% $11,281.11 $105.08
-------------------------------------------------------------------------------------------------
4 21.55% 0.95% 17.38% $11,738.00 $109.34
-------------------------------------------------------------------------------------------------
5 27.63% 0.95% 22.13% $12,213.39 $113.77
-------------------------------------------------------------------------------------------------
6 34.01% 0.95% 27.08% $12,708.03 $118.38
-------------------------------------------------------------------------------------------------
7 40.71% 0.95% 32.23% $13,222.70 $123.17
-------------------------------------------------------------------------------------------------
8 47.75% 0.95% 37.58% $13,758.22 $128.16
-------------------------------------------------------------------------------------------------
9 55.13% 0.95% 43.15% $14,315.43 $133.35
-------------------------------------------------------------------------------------------------
10 62.89% 0.95% 48.95% $14,895.20 $138.75
-------------------------------------------------------------------------------------------------
Total Gain After
Fees and
Expenses $ 4,895.20
-------------------------------------------------------------------------------------------------
Total Annual
Fees and
Expenses $1,152.68
-------------------------------------------------------------------------------------------------
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(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
Notes
Notes
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust XI: 811-4978
. Columbia Dividend Income Fund
[LOGO] ColumbiaFunds
A Member of Columbia Management Group
(C)2006 Columbia Funds Distributor, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/105408-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 1, 2006
(THE "PROSPECTUS")
COLUMBIA GROWTH STOCK FUND
(THE "FUND")
CLASS A, B AND C SHARES
(REPLACING SUPPLEMENT DATED FEBRUARY 17, 2006)
The Prospectus is hereby supplemented with the following information:
1. The second paragraph in the section "PRINCIPAL INVESTMENT STRATEGIES" under the heading "THE FUND" is revised in its entirety as follows:
The Fund's investments are diversified among industries and market sectors including, but not limited to, technology, financial services, health care, and global consumer franchise sectors. The Fund may invest up to 20% of its total assets in foreign securities. To select investments for the Fund, the Fund's investment advisor considers companies that it believes will generate earnings growth over the long term regardless of the economic environment.
2. The section "LEGAL PROCEEDINGS" under the heading "MANAGING THE FUND" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32
million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
3. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
4. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
TNT-47/107694-0306 March 27, 2006
COLUMBIA GROWTH STOCK FUND Prospectus, February 1, 2006
CLASS A, B AND C SHARES
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------------------- Investment Goal..................................... 2 Principal Investment Strategies..................... 2 Principal Investment Risks.......................... 2 Performance History................................. 3 Your Expenses....................................... 5 YOUR ACCOUNT 7 -------------------------------------------------------- How to Buy Shares................................... 7 Investment Minimums................................. 7 Sales Charges....................................... 8 How to Exchange Shares.............................. 12 How to Sell Shares.................................. 12 Fund Policy on Trading of Fund Shares............... 13 Distribution and Service Fees....................... 15 Other Information About Your Account................ 16 MANAGING THE FUND 18 -------------------------------------------------------- Investment Advisor.................................. 18 Portfolio Managers.................................. 18 Legal Proceedings................................... 19 OTHER INVESTMENT STRATEGIES AND RISKS 21 -------------------------------------------------------- FINANCIAL HIGHLIGHTS 22 -------------------------------------------------------- APPENDIX A 25 -------------------------------------------------------- |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
|
THE FUND
The Fund's investments are diversified among industries and market sectors including, but not limited to, technology, financial services, health care, and global consumer franchise sectors. The Fund may invest up to 25% of its total assets in foreign stocks. To select investments for the Fund, the Fund's investment advisor considers companies that it believes will generate earnings growth over the long term regardless of the economic environment.
The advisor may sell a portfolio holding if, among other reasons, the security reaches the advisor's price target or if the company has a deterioration of fundamentals such as failing to meet key operating benchmarks.
Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks."
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Growth stocks are stocks of companies believed to have above-average potential for growth in revenue and earnings. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general.
THE FUND
Sector risk is inherent in the Fund's investment strategy. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times the Fund may have a large portion of its assets invested in a particular sector.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
THE FUND
CALENDAR YEAR TOTAL RETURNS (CLASS A)(1)
(BAR CHART)
20.94% 31.62% 25.54% 36.61% 24.65% 0.18%
-11.34% -23.94% -29.88% -2.87%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
|
For the periods shown in bar chart: Best quarter: 4th quarter 1999, +25.35% Worst quarter: 3rd quarter 2001, -20.06% |
(1) Class A is a newer class of shares. Its performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer class of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been lower, since Class Z shares are not subject to any Rule 12b-1 fees. Class A shares were initially offered on July 15, 2002, and Class Z shares were initially offered on July 1, 1958.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2005
1 YEAR 5 YEARS 10 YEARS
Class A (%)
Return Before Taxes -5.58 -9.42(1) 3.97(1)
Return After Taxes on Distributions -5.58 -9.42(1) 3.12(1)
Return After Taxes on Distributions and Sale of Fund
Shares -3.63 -7.75(1) 3.31(1)
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Class B (%)
Return Before Taxes -5.45 -9.18(1) 4.32(1)
Return After Taxes on Distributions -5.45 -9.18(1) 3.47(1)
Return After Taxes on Distributions and Sale of Fund
Shares -3.54 -7.55(1) 3.64(1)
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Class C (%)
Return Before Taxes -1.47 -8.79(1) 4.33(1)
Return After Taxes on Distributions -1.47 -8.79(1) 3.48(1)
Return After Taxes on Distributions and Sale of Fund
Shares -0.95 -7.25(1) 3.65(1)
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Russell Index (%) 5.26 -3.58 6.73
|
(1) Class A, Class B and Class C are newer classes of shares. Their performance information includes returns of the Fund's Class Z shares (the oldest existing Fund class) for periods prior to their inception (adjusted to reflect the sales charges applicable to Class A, Class B and Class C, respectively). These returns have not been restated to reflect any differences in expenses (such as 12b-1 fees) between Class Z shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class A, Class B and Class C shares were initially offered on July 15, 2002, and Class Z shares were initially offered on July 1, 1958.
THE FUND
SALES CHARGES are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management and administration fees, 12b-1 fees and other expenses that generally include, but are not limited to, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
- Reinvestment of all dividends and distributions
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00 0.00
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Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or
redemption price) 1.00(2) 5.00 1.00
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Redemption fee (%)
(as a percentage of amount redeemed, if applicable) (3) (3) (3)
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
THE FUND
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
CLASS A CLASS B CLASS C
Management fee(1) (%) 0.73 0.73 0.73
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Distribution and service (12b-1) fees (%) 0.35(3) 1.00 1.00
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Other expenses(2) (%) 0.31 0.31 0.31
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Total annual fund operating expenses (%) 1.39(3) 2.04 2.04
|
(1) The Fund pays a management fee of 0.59% and an administration fee of 0.14%.
(2) Other expenses have been restated to reflect contractual changes to the transfer agency fees and pricing and bookkeeping fees for the Fund effective November 1, 2005.
(3) The Fund's distributor has voluntarily agreed to waive a portion of the 12b-1 fee for Class A shares. If this waiver were reflected in the table the 12b-1 fee for Class A shares would be 0.30% and total annual fund operating expenses for Class A shares would be 1.34%. This arrangement may be modified or terminated by the distributor at any time.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A $708 $990 $1,292 $2,148
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Class B: did not sell your shares $207 $640 $1,098 $2,202
sold all your shares at
the end of the period $707 $940 $1,298 $2,202
------------------------------------------------------------------------------------------------------------------------
Class C: did not sell your shares $207 $640 $1,098 $2,369
sold all your shares at
the end of the period $307 $640 $1,098 $2,369
|
See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class (and, in some cases, certain
other classes) of the Fund at no additional cost. There may
be an additional sales charge if exchanging from a money
market fund. To exchange by telephone, call 1-800-422-3737.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate your
program or change the amount of the exchange (subject to the
$100 minimum) by calling 1-800-345-6611. There may be an
additional sales charge if exchanging from a money market
fund. Be sure to complete the appropriate section of the
account application for this feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund (and,
in some cases, certain other classes) at no additional sales
charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
|
Please see the Statement of Additional Information for more details on investment minimums.
YOUR ACCOUNT
The Fund offers three classes of shares in this prospectus -- CLASS A, B and C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 or more but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
CLASS A SHARES Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
CLASS A SALES CHARGES
% OF OFFERING
AS A % OF PRICE
THE PUBLIC AS A % RETAINED BY
OFFERING OF YOUR FINANCIAL
AMOUNT PURCHASED PRICE INVESTMENT ADVISOR
Less than $50,000 5.75 6.10 5.00
--------------------------------------------------------------------------------------------------------------------------
$50,000 to less than $100,000 4.50 4.71 3.75
--------------------------------------------------------------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 2.75
--------------------------------------------------------------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.00
--------------------------------------------------------------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
--------------------------------------------------------------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
|
Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
YOUR ACCOUNT
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
PURCHASES OVER $1 MILLION
AMOUNT PURCHASED COMMISSION % Less than $3 million 1.00 --------------------------------------------------------------------------------- $3 million to less than $50 million 0.50 --------------------------------------------------------------------------------- $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES
REDUCED SALES CHARGES FOR LARGER INVESTMENTS.
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
RIGHTS OF ACCUMULATION The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
STATEMENT OF INTENT You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
YOUR ACCOUNT
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
- Individual accounts
- Joint accounts
- Certain IRA accounts
- Certain trusts
- UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
YOUR ACCOUNT
CLASS B SHARES Your purchases of Class B shares are at Class B's net asset value. Purchases up to $50,000 are allowed in Class B shares assuming the combined value of the customer's total assets in the Columbia funds does not exceed $50,000. Purchases in Class B shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart below.
CLASS B SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 5.00
-------------------------------------------------------------------------------
Through second year 4.00
-------------------------------------------------------------------------------
Through third year 3.00
-------------------------------------------------------------------------------
Through fourth year 3.00
-------------------------------------------------------------------------------
Through fifth year 2.00
-------------------------------------------------------------------------------
Through sixth year 1.00
-------------------------------------------------------------------------------
Longer than six years 0.00
|
Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
CLASS C SHARES Your purchases of Class C shares are at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares.
CLASS C SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 1.00
-------------------------------------------------------------------------------
Longer than one year 0.00
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YOUR ACCOUNT
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable, you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
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By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into the same share class (and, in
some cases, certain other classes) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction or, if
applicable, stock power form along with any share
certificates to be sold to the address below. In your letter
of instruction, note the Fund's name, share class, account
number, and the dollar value or number of shares you wish to
sell. All account owners must sign the letter. Signatures
must be guaranteed by either a bank, a member firm of a
national stock exchange or another eligible guarantor that
participates in the Medallion Signature Guarantee Program
for amounts over $100,000 or for alternate payee or mailing
instructions. Additional documentation is required for sales
by corporations, agents, fiduciaries, surviving joint owners
and individual retirement account owners. For details, call
1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
-----------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
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By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
YOUR ACCOUNT
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
YOUR ACCOUNT
ADDITIONAL INTERMEDIARY COMPENSATION In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
YOUR ACCOUNT
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the transfer agent.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
-----------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less
|
YOUR ACCOUNT
UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund distributes any dividends and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your
current fund
----------------------------------------------------------------
Reinvest all distributions in shares of another fund
----------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest
capital gains
----------------------------------------------------------------
Receive all distributions in cash (with one of the following
options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds
transfer
|
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable all subsequent distributions will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.59% of average daily net assets of the Fund.
JOHN T. WILSON, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since September, 2005. Mr. Wilson has been associated with Columbia Advisors or its predecessors since July, 2005. Prior to July, 2005, Mr. Wilson was a managing director and head of the Large-Cap Core Team of State Street Research and Management from May, 1996 to July, 2005.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
MANAGING THE FUND
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
MANAGING THE FUND
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and entered final judgement. The plaintiffs filed a notice of appeal on December 30, 2005.
OTHER INVESTMENT STRATEGIES AND RISKS
The Fund's principal investment strategies and their associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The advisor may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goal. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or any of its investment strategies.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's fiscal years since inception, which run from October 1 to September 30, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements, which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
PERIOD ENDED
YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
2005 2004 2003 2002(A)
Class A Class A Class A Class A
------ ------ ------ ------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 10.32 10.36 8.83 9.98
------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment loss(b) --(c)(d) (0.08) (0.05) (0.01)
Net realized and unrealized gain (loss) on
investments 0.59 0.04 1.58 (1.14)
------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.59 (0.04) 1.53 (1.15)
------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 10.91 10.32 10.36 8.83
------------------------------------------------------------------------------------------------------------------------
Total return (%)(e)(f) 5.72 (0.39) 17.33 (11.52)(g)
------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
(%):
Operating expenses(h) 1.64 1.55 1.54 1.63(i)
Interest expense --(j) -- --(j) --
Net expenses(h) 1.64 1.55 1.54 1.63(i)
Net investment loss(h) (0.01) (0.68) (0.53) (0.41)(i)
Waiver/reimbursement 0.07 0.05 0.05 0.05(i)
Portfolio turnover rate (%) 2 51 108 71
Net assets, end of period (000's) ($) 51,510 66,142 81,967 81,442
|
(a) Class A shares were initially offered on July 15, 2002. Per share data and total return reflect activity from that date.
(b) Per share data was calculated using average shares outstanding during the period.
(c) Net investment loss per share reflects a special dividend. The effect of this dividend amounted to $0.06 per share.
(d) Rounds to less than $0.01 per share.
(e) Total return at net asset value assuming no initial sales charge or contingent deferred sales charge.
(f) Had the distributor/investment advisor/transfer agent not waived a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
(j) Rounds to less than 0.01%.
FINANCIAL HIGHLIGHTS
THE FUND
PERIOD ENDED
YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
2005 2004 2003 2002(A)
Class B Class B Class B Class B
------- ------- ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 9.82 9.93 8.52 9.65
------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment loss(b) (0.08)(c) (0.15) (0.11) (0.02)
Net realized and unrealized gain (loss) on
investments 0.56 0.04 1.52 (1.11)
------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.48 (0.11) 1.41 (1.13)
------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 10.30 9.82 9.93 8.52
------------------------------------------------------------------------------------------------------------------------
Total return (%)(d) 4.89(e) (1.11) 16.55 (11.71)(f)
------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
(%):
Operating expenses(g) 2.39 2.30 2.24 2.33(h)
Interest expense --(i) -- --(i) --
Net expenses(g) 2.39 2.30 2.24 2.33(h)
Net investment loss(g) (0.75) (1.43) (1.23) (1.11)(h)
Waiver/reimbursement 0.02 -- -- --
Portfolio turnover rate (%) 2 51 108 71
Net assets, end of period (000's) ($) 181,760 245,137 303,943 306,561
|
(a) Class B shares were initially offered on July 15, 2002. Per share data and total return reflect activity from that date.
(b) Per share data was calculated using average shares outstanding during the period.
(c) Net investment loss per share reflects a special dividend. The effect of this dividend amounted to $0.06 per share.
(d) Total return at net asset value assuming no contingent deferred sales charge.
(e) Had the investment advisor/transfer agent not waived a portion of expenses, total return would have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
(i) Rounds to less than 0.01%.
FINANCIAL HIGHLIGHTS
THE FUND
PERIOD ENDED
YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
2005 2004 2003 2002(A)
Class C Class C Class C Class C
------ ------ ------ -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 9.82 9.92 8.52 9.64
------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment loss(b) (0.07)(c) (0.15) (0.11) (0.02)
Net realized and unrealized gain (loss) on
investments 0.55 0.05 1.51 (1.10)
------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.48 (0.10) 1.40 (1.12)
------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 10.30 9.82 9.92 8.52
------------------------------------------------------------------------------------------------------------------------
Total return (%)(d) 4.89(e) (1.01) 16.43 (11.62)(f)
------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
(%):
Operating expenses(g) 2.33 2.25 2.24 2.33(h)
Interest expense --(i) -- --(i) --
Net expenses(g) 2.33 2.25 2.24 2.33(h)
Net investment loss(g) (0.69) (1.39) (1.23) (1.11)(h)
Waiver/reimbursement 0.02 -- -- --
Portfolio turnover rate (%) 2 51 108 71
Net assets, end of period (000's) ($) 14,726 20,100 27,938 28,093
|
(a) Class C shares were initially offered on July 15, 2002. Per share data and total return reflect activity from that date.
(b) Per share data was calculated using average shares outstanding during the period.
(c) Net investment loss per share reflects a special dividend. The effect of this dividend amounted to $0.06 per share.
(d) Total return at net asset value assuming no contingent deferred sales charge.
(e) Had the investment advisor/transfer agent not waived a portion of expenses, total return would have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
(i) Rounds to less than 0.01%.
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The charts also assume that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher.
CLASS A SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
5.75% $10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- ANNUAL
BEFORE FEES & ANNUAL CUMULATIVE RETURN END BALANCE AFTER FEES &
YEAR EXPENSES EXPENSE RATIO AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- ----------------- ------------- --------------------- ------------------ -----------
1 5.00% 1.39% -2.35%(2) $ 9,765.24 $ 708.37
2 10.25% 1.39% 1.18% $10,117.77 $ 138.19
3 15.76% 1.39% 4.83% $10,483.02 $ 143.18
4 21.55% 1.39% 8.61% $10,861.46 $ 148.34
5 27.63% 1.39% 12.54% $11,253.55 $ 153.70
6 34.01% 1.39% 16.60% $11,659.81 $ 159.25
7 40.71% 1.39% 20.81% $12,080.73 $ 165.00
8 47.75% 1.39% 25.17% $12,516.84 $ 170.95
9 55.13% 1.39% 29.69% $12,968.70 $ 177.12
10 62.89% 1.39% 34.37% $13,436.87 $ 183.52
TOTAL GAIN AFTER FEES
AND EXPENSES $ 3,436.87
TOTAL ANNUAL FEES AND
EXPENSES $2,147.62
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
APPENDIX A
CLASS B SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- ANNUAL
BEFORE FEES & ANNUAL CUMULATIVE RETURN END BALANCE AFTER FEES &
YEAR EXPENSES EXPENSE RATIO AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- ----------------- ------------- --------------------- ------------------ -----------
1 5.00% 2.04% 2.96% $10,296.00 $ 207.02
2 10.25% 2.04% 6.01% $10,600.76 $ 213.15
3 15.76% 2.04% 9.15% $10,914.54 $ 219.46
4 21.55% 2.04% 12.38% $11,237.61 $ 225.95
5 27.63% 2.04% 15.70% $11,570.25 $ 232.64
6 34.01% 2.04% 19.13% $11,912.73 $ 239.53
7 40.71% 2.04% 22.65% $12,265.34 $ 246.62
8 47.75% 2.04% 26.28% $12,628.40 $ 253.92
9 55.13% 1.39% 30.84% $13,084.28 $ 178.70
10 62.89% 1.39% 35.57% $13,556.63 $ 185.15
TOTAL GAIN AFTER FEES
AND EXPENSES $ 3,556.63
TOTAL ANNUAL FEES AND
EXPENSES $2,202.13
|
CLASS C SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- ANNUAL
BEFORE FEES & ANNUAL CUMULATIVE RETURN END BALANCE AFTER FEES &
YEAR EXPENSES EXPENSE RATIO AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- ----------------- ------------- --------------------- ------------------ -----------
1 5.00% 2.04% 2.96% $10,296.00 $ 207.02
2 10.25% 2.04% 6.01% $10,600.76 $ 213.15
3 15.76% 2.04% 9.15% $10,914.54 $ 219.46
4 21.55% 2.04% 12.38% $11,237.61 $ 225.95
5 27.63% 2.04% 15.70% $11,570.25 $ 232.64
6 34.01% 2.04% 19.13% $11,912.73 $ 239.53
7 40.71% 2.04% 22.65% $12,265.34 $ 246.62
8 47.75% 2.04% 26.28% $12,628.40 $ 253.92
9 55.13% 2.04% 30.02% $13,002.20 $ 261.43
10 62.89% 2.04% 33.87% $13,387.06 $ 269.17
TOTAL GAIN AFTER FEES
AND EXPENSES $ 3,387.06
TOTAL ANNUAL FEES AND
EXPENSES $2,368.88
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
NOTES
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Funds Trust XI: 811-4978
- Columbia Growth Stock Fund
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/105502-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 1, 2006
(THE "PROSPECTUS")
COLUMBIA GROWTH STOCK FUND
(THE "FUND")
CLASS Z SHARES
(REPLACING SUPPLEMENT DATED FEBRUARY 17, 2006)
The Prospectus is hereby supplemented with the following information:
1. The second paragraph in the section "PRINCIPAL INVESTMENT STRATEGIES" under the heading "THE FUND" is revised in its entirety as follows:
The Fund's investments are diversified among industries and market sectors including, but not limited to, technology, financial services, health care, and global consumer franchise sectors. The Fund may invest up to 20% of its total assets in foreign securities. To select investments for the Fund, the Fund's investment advisor considers companies that it believes will generate earnings growth over the long term regardless of the economic environment.
2. The section "LEGAL PROCEEDINGS" under the heading "MANAGING THE FUND" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32
million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
3. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
4. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
INT-47/107695-0306 March 27, 2006
COLUMBIA GROWTH STOCK FUND Prospectus, February 1, 2006
CLASS Z SHARES
Advised by Columbia Management Advisors, LLC
THE FUND 2 --------------------------------------------------------- Investment Goal...................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 2 Performance History.................................. 3 Your Expenses........................................ 5 YOUR ACCOUNT 7 --------------------------------------------------------- How to Buy Shares.................................... 7 Eligible Investors................................... 8 Sales Charges........................................ 10 How to Exchange Shares............................... 10 How to Sell Shares................................... 10 Fund Policy on Trading of Fund Shares................ 11 Intermediary Compensation............................ 13 Other Information About Your Account................. 13 MANAGING THE FUND 16 --------------------------------------------------------- Investment Advisor................................... 16 Portfolio Managers................................... 16 Legal Proceedings.................................... 17 OTHER INVESTMENT STRATEGIES AND RISKS 19 --------------------------------------------------------- FINANCIAL HIGHLIGHTS 20 --------------------------------------------------------- APPENDIX A 21 --------------------------------------------------------- |
Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
|
THE FUND
The Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in large capitalization ("large-cap") stocks. Large-cap stocks are stocks of large-size companies that have market capitalizations similar in size to those companies in the Russell 1000 Growth Index. As of December 31, 2005, that index included companies with capitalizations between approximately $702 million and $370.3 billion. All market capitalizations are determined at the time of purchase.
The Fund's investments are diversified among industries and market sectors including, but not limited to, technology, financial services, health care, and global consumer franchise sectors. The Fund may invest up to 25% of its total assets in foreign stocks. To select investments for the Fund, the Fund's investment advisor considers companies that it believes will generate earnings growth over the long term regardless of the economic environment.
The advisor may sell a portfolio holding if, among other reasons, the security reaches the advisor's price target or if the company has a deterioration of fundamentals such as failing to meet key operating benchmarks.
Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks."
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Growth stocks are stocks of companies believed to have above-average potential for growth in revenue and earnings. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general.
THE FUND
Sector risk is inherent in the Fund's investment strategy. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times the Fund may have a large portion of its assets invested in a particular sector.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The bar chart below shows the Fund's calendar year total returns (before taxes) for its Class Z shares. The performance table following the bar chart shows how the Fund's average annual total returns for Class Z shares compare with those of a broad measure of market performance for one year, five years and ten years. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing changes in the Fund's performance from year-to-year. All returns include the reinvestment of dividends and distributions. Performance results include the effect of expense reduction arrangements, if any. If these arrangements had not been in place, the performance results would have been lower. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance.
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class Z share performance for each of the last ten complete calendar years. They include the effects of Fund expenses.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's Class Z average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses.
The Fund's returns are compared to the Russell 1000 Growth Index ("Russell Index"), an unmanaged index that measures the performance of those Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth values. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
THE FUND
CALENDAR YEAR TOTAL RETURNS (CLASS Z)
(BAR CHART)
20.94% 31.62% 25.54% 36.61% 25.24% 0.82%
-11.34% -23.94% -29.56% -2.17%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
|
For the periods shown in bar chart: Best quarter: 4th quarter 1999, +25.35% Worst quarter: 3rd quarter 2001, -20.06% |
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2005
INCEPTION
DATE 1 YEAR 5 YEARS 10 YEARS
Class Z (%) 7/1/58
Return Before Taxes 0.82 -7.92 4.82
Return After Taxes on Distributions 0.78 -7.93 3.97
Return After Taxes on Distributions and Sale of Fund
Shares 0.59 -6.55 4.06
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Russell Index (%) N/A 5.26 -3.58 6.73
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THE FUND
UNDERSTANDING EXPENSES
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management and administration fees and other expenses that generally include, but are not limited to, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 -------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 -------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) (2) |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
THE FUND
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
Management fee(1) (%) 0.73 -------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.00 -------------------------------------------------------------------- Other expenses(2) (%) 0.31 -------------------------------------------------------------------- Total annual fund operating expenses (%) 1.04 |
(1) The Fund pays a management fee of 0.59% and an administration fee of 0.14%.
(2) Other expenses have been restated to reflect contractual changes to the transfer agency fees and pricing and bookkeeping fees for the Fund effective November 1, 2005.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
1 YEAR 3 YEARS 5 YEARS 10 YEARS $106 $331 $574 $1,271 |
See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
When the Fund receives your purchase request in "good form," your shares will be bought at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, "good form" may mean that you have properly placed your order with Columbia Management Services, Inc. or your financial advisor or the Fund's transfer agent has received your completed application, including all necessary signatures. The USA Patriot Act may require us to obtain certain personal information from you which we will use to verify your identity. If you do not provide the information, we may not be able to open your account. If we are unable to verify your customer information, we reserve the right to close your account or take such other steps as we deem reasonable.
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For new accounts, send a completed application and check
(new account) made payable to the Fund to Columbia Management Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund and mailed to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
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By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class of the Fund at no additional
cost. To exchange by telephone, call 1-800-422-3737. Please
see "How to Exchange Shares" for more information.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate your
program or change the amount of the exchange (subject to the
$100 minimum) by calling 1-800-345-6611. Be sure to complete
the appropriate section of the account application for this
feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at no
additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
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YOUR ACCOUNT
Only Eligible Investors may purchase Class Z shares of the Fund, directly or by exchange. Class Z shares of the Fund generally are available only to certain "grandfathered" shareholders and to investors holding accounts with intermediaries that assess account level fees for the services they provide. Please read the following section for a more detailed description of the eligibility requirements. The Eligible Investors described below are subject to different minimum initial investment requirements.
IMPORTANT THINGS TO CONSIDER WHEN DECIDING ON A CLASS OF SHARES:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by a broker/dealer, bank, third-party administrator or other financial institution (each commonly referred to as an "intermediary"). Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
NO MINIMUM INITIAL INVESTMENT
- Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
- Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts ("IRAs")), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
- Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
- Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
YOUR ACCOUNT
$1,000 MINIMUM INITIAL INVESTMENT
- Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of a fund distributed by Columbia Management Distributors, Inc. (i) who holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005; (iii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iv) who purchased certain no-load shares of a fund merged with a fund distributed by Columbia Management Distributors, Inc.;
- Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Management Distributors, Inc.;
- Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary;
- Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement);
- Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an accredited investor, as defined under the Securities Act of 1933; or
- Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries.
The Fund reserves the right to change the criteria for Eligible Investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
YOUR ACCOUNT
The Fund offers one class of shares in this prospectus --
CLASS Z.
You may exchange your shares for Class Z or Class A (only if Class Z is not offered) shares of another fund distributed by Columbia Management Distributors, Inc. at net asset value. Unless your account is part of a tax-deferred retirement plan, an exchange is a taxable event, and you may realize a gain or a loss for tax purposes. The Fund may terminate your exchange privilege if the advisor determines that your exchange activity is likely to adversely impact its ability to manage the Fund. See "Fund Policy on Trading of Fund Shares" for the Fund's policy. To exchange by telephone, call 1-800-422-3737. Please have your account and taxpayer identification numbers available when calling.
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, and (ii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
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By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into Class Z shares or Class A
shares (only if Class Z is not offered) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign the
letter. Signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for alternate
payee or mailing instructions. Additional documentation is
required for sales by corporations, agents, fiduciaries,
surviving joint owners and individual retirement account
owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
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By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. All dividend and capital gains distributions must
be reinvested. Be sure to complete the appropriate section
of the account application for this feature.
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By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
YOUR ACCOUNT
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
YOUR ACCOUNT
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to an intermediary. Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
YOUR ACCOUNT
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for Class Z shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
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Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund distributes any dividends and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your
current fund
----------------------------------------------------------------
Reinvest all distributions in shares of another fund
----------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest
capital gains
----------------------------------------------------------------
Receive all distributions in cash (with one of the following
options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds
transfer
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YOUR ACCOUNT
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable all subsequent distributions will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
INVESTMENT ADVISOR
Columbia Management Advisors, LLC ("Columbia Advisors"), located at 100 Federal Street, Boston, Massachusetts 02110, is the Fund's investment advisor. Columbia Advisors is responsible for the Fund's management, subject to oversight by the Fund's Board of Trustees. In its duties as investment advisor, Columbia Advisors runs the Fund's day-to-day business, including placing all orders for the purchase and sale of the Fund's portfolio securities. Columbia Advisors is a direct, wholly owned subsidiary of Columbia Management Group, LLC ("CMG"), which in turn is a direct, wholly owned subsidiary of Bank of America, which in turn is a wholly owned banking subsidiary of Bank of America Corporation, a financial services holding company organized as a Delaware corporation. Prior to June 15, 2005, CMG was a corporation. Effective June 15, 2005, CMG converted to a limited liability company. Columbia Advisors, a registered investment advisor, has been an investment advisor since 1995.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.59% of average daily net assets of the Fund.
PORTFOLIO MANAGERS
PAUL J. BERLINGUET, a senior vice president of Columbia Advisors and head of Columbia Advisors' Small-Cap Growth Team and Large-Cap Growth Team, is a co-manager for the Fund and has co-managed the Fund since September, 2005. Mr. Berlinguet has been associated with Columbia Advisors or its predecessors since October, 2003. Prior to October, 2003, Mr. Berlinguet was head of the large-mid cap equity group and a portfolio manager at John Hancock Funds from April, 2001 to October, 2003. Prior to April, 2001, Mr. Berlinguet was head of the Global Technology Research Team and a large-cap growth portfolio manager at Baring Asset Management.
JOHN T. WILSON, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since September, 2005. Mr. Wilson has been associated with Columbia Advisors or its predecessors since July, 2005. Prior to July, 2005, Mr. Wilson was a managing director and head of the Large-Cap Core Team of State Street Research and Management from May, 1996 to July, 2005.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
MANAGING THE FUND
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) ("CMD") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March, 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
MANAGING THE FUND
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and entered final judgement. The plaintiffs filed a notice of appeal on December 30, 2005.
OTHER INVESTMENT STRATEGIES AND RISKS
The Fund's principal investment strategies and their associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The advisor may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goal. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or any of its investment strategies.
There are no limits on turnover. Turnover may vary significantly from year-to-year. The advisor does not expect it to exceed 100% under normal conditions. The Fund generally intends to purchase securities for long-term investment, although, to a limited extent, it may purchase securities in anticipation of relatively short-term price gains. The Fund will also sell securities without regard to turnover if it believes that developments within specific issuers, sectors or the market as a whole so warrant. Portfolio turnover typically results in transaction costs and produces capital gains or losses resulting in tax consequences for Fund investors. It also increases transaction expenses, which reduce the Fund's total return.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the last five fiscal years, which run from October 1 to September 30, unless otherwise indicated. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements, which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
YEAR ENDED SEPTEMBER 30,
2005 2004 2003(A) 2002(A)(B) 2001(A)
Class Z Class Z Class Z Class Z Class Z
------- ------- ------- ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 8.35 8.32 7.05 9.45 19.89
------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS ($):
Net investment income (loss)(c) 0.06(d) --(e) --(e) 0.01(f) (0.01)(f)
Net realized and unrealized gain
(loss) on investments 0.47 0.03 1.27 (2.41) (7.77)
------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.53 0.03 1.27 (2.40) (7.78)
------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net realized gains -- -- -- -- (2.66)
------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 8.88 8.35 8.32 7.05 9.45
------------------------------------------------------------------------------------------------------------------------------
Total return (%)(g) 6.35(h) 0.36(h) 17.96(h) (25.34)(h) (43.48)
------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET
ASSETS/SUPPLEMENTAL DATA (%):
Operating expenses(i) 0.93 0.89 1.00 0.88(f) 0.95(f)
Interest expense --(j) -- --(j) -- --
Net expenses(i) 0.93 0.89 1.00 0.88(f) 0.95(f)
Net investment income (loss)(i) 0.71 (0.02) 0.01 0.08(f) (0.05)(f)
Waiver/reimbursement 0.04 0.05 0.06 0.01 --
Portfolio turnover rate (%) 2 51 108 71 73(k)
Net assets, end of period (000's) ($) 267,224 359,891 384,861 360,240 551,474
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(a) Per share data has been restated to reflect a 3-for-1 share split effective July 25, 2003.
(b) On July 15, 2002, the Stein Roe Growth Stock Fund was redesignated Liberty Growth Stock Fund, Class Z shares.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Net investment income per share reflects a special dividend. The effect of this dividend amounted to $0.06 per share.
(e) Rounds to less than $0.01 per share.
(f) Per share amounts and ratios reflect income and expenses inclusive of the Fund's proportionate share of the income and expenses of the SR&F Growth Stock Portfolio prior to the termination of their master/feeder fund structure on July 12, 2002.
(g) Total return at net asset value assuming all distributions reinvested.
(h) Had the investment advisor/transfer agent not waived a portion of expenses, total return would have been reduced.
(i) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(j) Rounds to less than 0.01%.
(k) Portfolio turnover disclosed is for the SR&F Growth Stock Portfolio.
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The chart shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class Z shares of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The chart also assumes that all dividends and distributions are reinvested. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses table, is presented in the chart, and is net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower.
CLASS Z SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
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CUMULATIVE RETURN ANNUAL HYPOTHETICAL YEAR-
BEFORE FEES & EXPENSE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES RATIO AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- ----------------- ------- --------------------- ------------------ -------------
1 5.00% 1.04% 3.96% $10,396.00 $ 106.06
2 10.25% 1.04% 8.08% $10,807.68 $ 110.26
3 15.76% 1.04% 12.36% $11,235.67 $ 114.63
4 21.55% 1.04% 16.81% $11,680.60 $ 119.16
5 27.63% 1.04% 21.43% $12,143.15 $ 123.88
6 34.01% 1.04% 26.24% $12,624.02 $ 128.79
7 40.71% 1.04% 31.24% $13,123.93 $ 133.89
8 47.75% 1.04% 36.44% $13,643.64 $ 139.19
9 55.13% 1.04% 41.84% $14,183.93 $ 144.70
10 62.89% 1.04% 47.46% $14,745.61 $ 150.43
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,745.61
TOTAL ANNUAL FEES AND EXPENSES $1,271.00
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
NOTES
NOTES
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Funds Trust XI: 811-4978
- Columbia Growth Stock Fund
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc.
One Financial Center, Boston, MA 02111-2621
800.426.3750 www.columbiafunds.com PRO-36/105306-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 1, 2006
(THE "PROSPECTUS")
COLUMBIA YOUNG INVESTOR FUND
(THE "FUND")
CLASS A, B AND C SHARES
(REPLACING SUPPLEMENT DATED FEBRUARY 17, 2006)
The Prospectus is hereby supplemented with the following information:
1. The section under the heading "MANAGING THE FUND; PORTFOLIO MANAGER" is revised and replaced in its entirety with the following:
PORTFOLIO MANAGERS
EMIL GJESTER, a vice president of Columbia Advisors, is the lead manager for the Fund and has managed or co-managed the Fund since May, 2005. Mr. Gjester has been associated with Columbia Advisors or its predecessors since 1996.
JONAS PATRIKSON, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Patrikson has been associated with Columbia Advisors or its predecessors since September, 2004. Prior to September, 2004, Mr. Patrikson was a senior analyst at Nordberg Capital, Inc from 2000 to September, 2004.
DARA WHITE, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. White has been associated with Columbia Advisors since January, 2006. Prior to January, 2006, Mr. White was a portfolio manager and analyst with RCM Global Investors from February, 1998 to July, 2005.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
2. The section "LEGAL PROCEEDINGS" under the heading "MANAGING THE FUND" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC
Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
3. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
4. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
INT-47/107780-0306 March 27, 2006
COLUMBIA YOUNG INVESTOR(SM) FUND Prospectus, February 1, 2006
CLASS A, B AND C SHARES
Advised by Columbia Management Advisors, LLC
THE FUND 2 --------------------------------------------------------- Investment Goal...................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 3 Performance History.................................. 5 Your Expenses........................................ 7 YOUR ACCOUNT 9 --------------------------------------------------------- How to Buy Shares.................................... 9 Investment Minimums.................................. 9 Sales Charges........................................ 10 How to Exchange Shares............................... 14 How to Sell Shares................................... 14 Fund Policy on Trading of Fund Shares................ 15 Distribution and Service Fees........................ 17 Other Information About Your Account................. 18 Educational Materials................................ 19 MANAGING THE FUND 20 --------------------------------------------------------- Investment Advisor................................... 20 Portfolio Manager.................................... 20 Legal Proceedings.................................... 20 FINANCIAL HIGHLIGHTS 22 --------------------------------------------------------- APPENDIX A 25 --------------------------------------------------------- |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
|
THE FUND
The Fund may invest up to 33% of its assets in foreign stocks including American Depositary Receipts. 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").
In selecting securities for the Fund, the Fund's investment advisor begins with a top-down industry sector analysis tracking specific sectors or industries of the market and identifying securities within those areas that are expected to reward shareholders. Through this process, the advisor determines the emphasis to be placed on different industries and selects individual stocks in which the Fund invests. In building the Fund's portfolio, the advisor combines this top-down approach with intensive bottom-up research of individual securities issues, evaluating each company on the basis of its financial statements and operations. Factors such as management, financial condition, industry dynamics, earnings growth, profit margins, sales trends, dividend paying history and potential, as well as financial ratios and investment in research and development will be scrutinized as part of the advisor's analysis. The advisor seeks companies that are attractively valued and that have demonstrated or show the potential to demonstrate improved 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. This approach, combined with judgments about valuation and trends in the environment which tend to drive stock price appreciation, is intended to identify investment opportunities that the advisor believes will outperform the market and offer long-term financial reward.
The Fund also has an educational objective. It seeks to teach children and teenagers about mutual funds, basic economic principles and personal finance through a variety of educational materials. The materials are paid for by the Fund and distributed to shareholders on a regular basis.
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
THE FUND
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
The Fund may invest in real estate investment trusts ("REITs"). REITs are entities which either own properties or make construction or mortgage loans. REITs also may include operating or finance companies. Investing in REITs involves certain unique risks in addition to those risks associated with the real estate industry in general. The prices of REITs are affected by changes in the value of the underlying property owned by the REITs. In addition, although the Fund does not invest directly in real estate, a REIT investment by the Fund is subject to certain of the risks associated with the ownership of real estate. These risks include possible declines in the value of real estate, risks related to general and local economic conditions, possible lack of availability of mortgage funds and changes in interest rates.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
THE FUND
Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the advisor's opinion, undervalued. If the advisor's assessment of a company's prospects is wrong, the price of the company's stock may fall, or may not approach the value the advisor has placed on it.
Growth stocks are stocks of companies believed to have above-average potential for growth in revenue and earnings. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Investments in emerging markets are subject to additional risk. The risks of foreign investments are typically increased in less developed countries, which are sometimes referred to as emerging markets. For example, political and economic structures in these countries may be new and developing rapidly, which may cause instability. These countries are also more likely to experience high levels of inflation, deflation or currency devaluations, which could hurt their economies and securities markets.
Small- or mid-cap companies may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
THE FUND
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
CALENDAR YEAR TOTAL RETURNS (CLASS A)(1)
(BAR CHART)
35.10% 26.28% 17.65% 31.69% 27.30% 8.41% 6.15%
-10.05% -21.99% -24.55%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
|
For the periods shown in bar chart: Best quarter: 4th quarter 1999, +28.42% Worst quarter: 3rd quarter 2001, -24.60% |
(1) Class A is a newer class of shares. Its performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer class of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been lower, since Class Z shares are not subject to any Rule 12b-1 fees. Class A shares were initially offered on July 29, 2002, and Class Z shares were initially offered on April 29, 1994.
THE FUND
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2005
1 YEAR 5 YEARS 10 YEARS
Class A (%)
Return Before Taxes 0.08 -4.06(1) 6.81(1)
Return After Taxes on Distributions 0.05 -4.08(1) 6.25(1)
Return After Taxes on Distributions and Sale of Fund
Shares 0.08 -3.41(1) 5.79(1)
-------------------------------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes 0.35 -3.78(1) 7.18(1)
Return After Taxes on Distributions 0.35 -3.78(1) 6.63(1)
Return After Taxes on Distributions and Sale of Fund
Shares 0.23 -3.17(1) 6.14(1)
-------------------------------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 4.34 -3.37(1) 7.19(1)
Return After Taxes on Distributions 4.34 -3.37(1) 6.64(1)
Return After Taxes on Distributions and Sale of Fund
Shares 2.82 -2.84(1) 6.15(1)
-------------------------------------------------------------------------------------------------------------
Russell 3000 Index (%) 6.12 1.58 9.20
|
(1) Class A, Class B and Class C are newer classes of shares. Their performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to their inception (adjusted to reflect the sales charges applicable to Class A, Class B and Class C, respectively). These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class A, Class B and Class C shares were initially offered on July 29, 2002, and Class Z shares were initially offered on April 29, 1994.
THE FUND
UNDERSTANDING EXPENSES
SALES CHARGES are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management and administration fees, 12b-1 fees and other expenses that generally include, but are not limited to, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
- Reinvestment of all dividends and distributions
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00 0.00
-------------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or
redemption price) 1.00(2) 5.00 1.00
-------------------------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) (3) (3) (3)
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
THE FUND
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
CLASS A CLASS B CLASS C
Management fee(1) (%) 0.76 0.76 0.76
-------------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.35(4) 1.00 1.00
-------------------------------------------------------------------------------------------------------
Other expenses (%)(2)(3) 0.53 0.53 0.53
-------------------------------------------------------------------------------------------------------
Total annual fund operating expenses (%)(2)(4) 1.64 2.29 2.29
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(1) The Fund pays a management fee of 0.58% and an administration fee of 0.18%.
(2) The Fund's advisor has voluntarily agreed to reimburse the Fund for certain expenses so that the transfer agency fees for each of Class A, B and C will not exceed 0.10%. If this reimbursement were reflected in the table, other expenses for each share class would be 0.28% and total annual fund operating expenses for Class A, B and C shares would be 1.34%, 2.04% and 2.04%, respectively (taking into account the 12b-1 fee waiver discussed in footnote (4) below). This arrangement may be modified or terminated by the advisor at any time.
(3) Other expenses have been restated to reflect contractual changes to the transfer agency fees and pricing and bookkeeping fees for the Fund effective November 1, 2005.
(4) The Fund's distributor has voluntarily agreed to waive a portion of the 12b-1 fee for Class A shares. If this waiver were reflected in the table the 12b-1 fee for Class A shares would be 0.30% and total annual fund operating expenses for Class A shares would be 1.34% (taking into account the reimbursement discussed in footnote (2) above). This arrangement may be modified or terminated by the distributor at any time.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A $732 $1,063 $1,415 $2,407
------------------------------------------------------------------------------------------------------------------------
Class B: did not sell your shares $232 $ 715 $1,225 $2,463
sold all your shares at
the end of the period $732 $1,015 $1,425 $2,463
------------------------------------------------------------------------------------------------------------------------
Class C: did not sell your shares $232 $ 715 $1,225 $2,626
sold all your shares at
the end of the period $332 $ 715 $1,225 $2,626
|
See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-----------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
-----------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class (and, in some cases, certain
other classes) of the Fund at no additional cost. There may
be an additional sales charge if exchanging from a money
market fund. To exchange by telephone, call 1-800-422-3737.
-----------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-----------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-----------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
-----------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate your
program or change the amount of the exchange (subject to the
$100 minimum) by calling 1-800-345-6611. There may be an
additional sales charge if exchanging from a money market
fund. Be sure to complete the appropriate section of the
account application for this feature.
-----------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
|
Please see the Statement of Additional Information for more details on investment minimums.
YOUR ACCOUNT
CHOOSING A SHARE CLASS
The Fund offers three classes of shares in this prospectus -- CLASS A, B and C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 or more but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
CLASS A SHARES Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the tables below.
CLASS A SALES CHARGES
% OF OFFERING
AS A % OF PRICE
THE PUBLIC AS A % RETAINED BY
OFFERING OF YOUR FINANCIAL
AMOUNT PURCHASED PRICE INVESTMENT ADVISOR
Less than $50,000 5.75 6.10 5.00
-------------------------------------------------------------------------------------------------------------------
$50,000 to less than $100,000 4.50 4.71 3.75
-------------------------------------------------------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 2.75
-------------------------------------------------------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.00
-------------------------------------------------------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
-------------------------------------------------------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
|
Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
YOUR ACCOUNT
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
PURCHASES OVER $1 MILLION
AMOUNT PURCHASED COMMISSION % Less than $3 million 1.00 --------------------------------------------------------------------------------- $3 million to less than $50 million 0.50 --------------------------------------------------------------------------------- $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES
REDUCED SALES CHARGES FOR LARGER INVESTMENTS.
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
RIGHTS OF ACCUMULATION The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
YOUR ACCOUNT
STATEMENT OF INTENT You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
- Individual accounts
- Joint accounts
- Certain IRA accounts
- Certain trusts
- UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
YOUR ACCOUNT
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
CLASS B SHARES Your purchases of Class B shares are at Class B's net asset value. Purchases up to $50,000 are allowed in Class B shares assuming the combined value of the customer's total assets in the Columbia funds does not exceed $50,000. Purchases in Class B shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart below.
CLASS B SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 5.00
-------------------------------------------------------------------------------
Through second year 4.00
-------------------------------------------------------------------------------
Through third year 3.00
-------------------------------------------------------------------------------
Through fourth year 3.00
-------------------------------------------------------------------------------
Through fifth year 2.00
-------------------------------------------------------------------------------
Through sixth year 1.00
-------------------------------------------------------------------------------
Longer than six years 0.00
|
Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
CLASS C SHARES Your purchases of Class C shares are at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares.
CLASS C SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 1.00
------------------------------------------------------------------------------------
Longer than one year 0.00
|
YOUR ACCOUNT
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable, you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into the same share class (and in
some cases, certain other classes) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
-----------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
-----------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or, if
applicable, stock power form along with any share
certificates to be sold to the address below. In your letter
of instruction, note the Fund's name, share class, account
number, and the dollar value or number of shares you wish to
sell. All account owners must sign the letter. Signatures
must be guaranteed by either a bank, a member firm of a
national stock exchange or another eligible guarantor that
participates in the Medallion Signature Guarantee Program
for amounts over $100,000 or for alternate payee or mailing
instructions. Additional documentation is required for sales
by corporations, agents, fiduciaries, surviving joint owners
and individual retirement account owners. For details, call
1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
-----------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
-----------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
-----------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
YOUR ACCOUNT
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
YOUR ACCOUNT
ADDITIONAL INTERMEDIARY COMPENSATION In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
YOUR ACCOUNT
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the transfer agent.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
-----------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
YOUR ACCOUNT
UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund distributes any dividends and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your current fund ---------------------------------------------------------------- Reinvest all distributions in shares of another fund ---------------------------------------------------------------- Receive dividends in cash (see options below) and reinvest capital gains ---------------------------------------------------------------- Receive all distributions in cash (with one of the following options): - send the check to your address of record - send the check to a third party address - transfer the money to your bank via electronic funds transfer |
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable all subsequent distributions will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.58% of average daily net assets of the Fund.
The Statement of Additional Information provides additional information about the manager's compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory,
MANAGING THE FUND
compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL.").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and entered final judgement. The plaintiffs filed a notice of appeal on December 30, 2005.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's fiscal years since inception, which run from October 1 to September 30, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements, which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
PERIOD ENDED
YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
2005 2004 2003 2002(a)
Class A Class A Class A Class A
------- ------ ------ ------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 11.68 10.47 8.52 8.94
--------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income (loss)(b) 0.05(c) 0.03 (0.03) (0.01)
Net realized and unrealized gain (loss)
on investments and foreign currency 1.54 1.18 1.98 (0.41)
--------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.59 1.21 1.95 (0.42)
--------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
($):
From net investment income (0.06) -- -- --
--------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to
Shareholders (0.06) -- -- --
--------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 13.21 11.68 10.47 8.52
--------------------------------------------------------------------------------------------------------------------
Total return (%)(d)(e) 13.62 11.56 22.89 (4.70)(f)
--------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL
DATA (%):
Expenses(g) 1.35 1.33 1.54 1.67(h)
Net investment income (loss)(g) 0.38 0.26 (0.35) (0.49)(h)
Waiver/reimbursement 0.63 1.10 0.56 0.80(h)
Portfolio turnover rate (%) 79 58 128 32
Net assets, end of period (000's) ($) 90,538 94,386 94,617 82,564
|
(a) Class A shares were initially offered on July 29, 2002. Per share data and total return reflect activity from that date.
(b) Per share data was calculated using average shares outstanding during the period.
(c) Net investment income per share reflects a special dividend. The effect of this dividend amounted to $0.02 per share.
(d) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge.
(e) Had the investment advisor/transfer agent and/or distributor not waived or reimbursed a portion of expenses, total return would have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
FINANCIAL HIGHLIGHTS
THE FUND
PERIOD ENDED
YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
2005 2004 2003 2002(a)
Class B Class B Class B Class B
------ ------ ------ ---------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 11.50 10.39 8.51 8.94
--------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment loss(b) (0.03)(c) (0.05) (0.10) (0.02)
Net realized and unrealized gain (loss) on
investments and foreign currency 1.51 1.16 1.98 (0.41)
--------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.48 1.11 1.88 (0.43)
--------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 12.98 11.50 10.39 8.51
--------------------------------------------------------------------------------------------------------------------
Total return (%)(d)(e) 12.87 10.68 22.09 (4.81)(f)
--------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL
DATA (%):
Expenses(g) 2.05 2.03 2.24 2.37(h)
Net investment loss(g) (0.32) (0.44) (1.05) (1.19)(h)
Waiver/reimbursement 0.53 0.46 0.51 0.75(h)
Portfolio turnover rate (%) 79 58 128 32
Net assets, end of period (000's) ($) 5,693 6,082 6,872 6,505
|
(a) Class B shares were initially offered on July 29, 2002. Per share data and total return reflect activity from that date.
(b) Per share data was calculated using average shares outstanding during the period.
(c) Net investment loss per share reflects a special dividend. The effect of this dividend amounted to $0.02 per share.
(d) Total return at net asset value assuming no contingent deferred sales charge.
(e) Had the investment advisor/transfer agent not waived or reimbursed a portion of expenses, total return would have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
FINANCIAL HIGHLIGHTS
THE FUND
PERIOD ENDED
YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
2005 2004 2003 2002(a)
Class C Class C Class C Class C
------ ------ ------ --------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 11.51 10.39 8.51 8.94
---------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment loss(b) (0.03)(c) (0.05) (0.10) (0.02)
Net realized and unrealized gain (loss) on
investments and foreign currency 1.51 1.17 1.98 (0.41)
---------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.48 1.12 1.88 (0.43)
---------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 12.99 11.51 10.39 8.51
---------------------------------------------------------------------------------------------------------------------
Total return (%)(d)(e) 12.86 10.78 22.09 (4.81)(f)
---------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
(%):
Expenses(g) 2.05 2.03 2.24 2.37(h)
Net investment loss(g) (0.32) (0.43) (1.05) (1.19)(h)
Waiver/reimbursement 0.53 0.71 0.50 0.75(h)
Portfolio turnover rate (%) 79 58 128 32
Net assets, end of period (000's) ($) 833 798 660 488
|
(a) Class C shares were initially offered on July 29, 2002. Per share data and total return reflect activity from that date.
(b) Per share data was calculated using average shares outstanding during the period.
(c) Net investment loss per share reflects a special dividend. The effect of this dividend amounted to $0.02 per share.
(d) Total return at net asset value assuming no contingent deferred sales charge.
(e) Had the investment advisor/transfer agent not waived or reimbursed a portion of expenses, total return would have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The charts also assume that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher.
CLASS A SHARES
ASSUMED RATE
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT OF RETURN
-------------------- -------------------------------------- ------------
5.75% $10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- ANNUAL
BEFORE FEES & ANNUAL CUMULATIVE RETURN END BALANCE AFTER FEES &
YEAR EXPENSES EXPENSE RATIO AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- ----------------- ------------- --------------------- ------------------ -----------
1 5.00% 1.64% -2.58%(2) $ 9,741.68 $ 732.17
2 10.25% 1.64% 0.69% $10,069.00 $ 162.45
3 15.76% 1.64% 4.07% $10,407.32 $ 167.91
4 21.55% 1.64% 7.57% $10,757.00 $ 173.55
5 27.63% 1.64% 11.18% $11,118.44 $ 179.38
6 34.01% 1.64% 14.92% $11,492.02 $ 185.41
7 40.71% 1.64% 18.78% $11,878.15 $ 191.64
8 47.75% 1.64% 22.77% $12,277.26 $ 198.07
9 55.13% 1.64% 26.90% $12,689.77 $ 204.73
10 62.89% 1.64% 31.16% $13,116.15 $ 211.61
TOTAL GAIN AFTER FEES
AND EXPENSES $ 3,116.15
TOTAL ANNUAL FEES AND
EXPENSES $2,406.90
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
APPENDIX A
CLASS B SHARES
ASSUMED RATE
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT OF RETURN
-------------------- -------------------------------------- ------------
0.00% $10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- ANNUAL
BEFORE FEES & ANNUAL CUMULATIVE RETURN END BALANCE AFTER FEES &
YEAR EXPENSES EXPENSE RATIO AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- ----------------- ------------- --------------------- ------------------ -----------
1 5.00% 2.29% 2.71% $10,271.00 $ 232.10
2 10.25% 2.29% 5.49% $10,549.34 $ 238.39
3 15.76% 2.29% 8.35% $10,835.23 $ 244.85
4 21.55% 2.29% 11.29% $11,128.87 $ 251.49
5 27.63% 2.29% 14.30% $11,430.46 $ 258.30
6 34.01% 2.29% 17.40% $11,740.22 $ 265.30
7 40.71% 2.29% 20.58% $12,058.38 $ 272.49
8 47.75% 2.29% 23.85% $12,385.17 $ 279.88
9 55.13% 1.64% 28.01% $12,801.31 $ 206.53
10 62.89% 1.64% 32.31% $13,231.43 $ 213.47
TOTAL GAIN AFTER FEES
AND EXPENSES $ 3,231.43
TOTAL ANNUAL FEES AND
EXPENSES $2,462.82
|
CLASS C SHARES
ASSUMED RATE
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT OF RETURN
-------------------- -------------------------------------- ------------
0.00% $10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- ANNUAL
BEFORE FEES & ANNUAL CUMULATIVE RETURN END BALANCE AFTER FEES &
YEAR EXPENSES EXPENSE RATIO AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- ----------------- ------------- --------------------- ------------------ -----------
1 5.00% 2.29% 2.71% $10,271.00 $ 232.10
2 10.25% 2.29% 5.49% $10,549.34 $ 238.39
3 15.76% 2.29% 8.35% $10,835.23 $ 244.85
4 21.55% 2.29% 11.29% $11,128.87 $ 251.49
5 27.63% 2.29% 14.30% $11,430.46 $ 258.30
6 34.01% 2.29% 17.40% $11,740.22 $ 265.30
7 40.71% 2.29% 20.58% $12,058.38 $ 272.49
8 47.75% 2.29% 23.85% $12,385.17 $ 279.88
9 55.13% 2.29% 27.21% $12,720.80 $ 287.46
10 62.89% 2.29% 30.66% $13,065.54 $ 295.25
TOTAL GAIN AFTER FEES
AND EXPENSES $ 3,065.54
TOTAL ANNUAL FEES AND
EXPENSES $2,625.54
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
NOTES
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Funds Trust XI: 811-4978
- Columbia Young Investor Fund
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/105305-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 1, 2006
(THE "PROSPECTUS")
COLUMBIA YOUNG INVESTOR FUND
(THE "FUND")
CLASS Z SHARES
(REPLACING SUPPLEMENT DATED FEBRUARY 17, 2006)
The Prospectus is hereby supplemented with the following information:
1. The section under the heading "MANAGING THE FUND; PORTFOLIO MANAGER" is revised and replaced in its entirety with the following:
PORTFOLIO MANAGERS
EMIL GJESTER, a vice president of Columbia Advisors, is the lead manager for the Fund and has managed or co-managed the Fund since May, 2005. Mr. Gjester has been associated with Columbia Advisors or its predecessors since 1996.
JONAS PATRIKSON, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. Patrikson has been associated with Columbia Advisors or its predecessors since September, 2004. Prior to September, 2004, Mr. Patrikson was a senior analyst at Nordberg Capital, Inc from 2000 to September, 2004.
DARA WHITE, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2006. Mr. White has been associated with Columbia Advisors since January, 2006. Prior to January, 2006, Mr. White was a portfolio manager and analyst with RCM Global Investors from February, 1998 to July, 2005.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
2. The section "LEGAL PROCEEDINGS" under the heading "MANAGING THE FUND" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC
Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
3. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
4. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
INT-47/107871-0306 March 27, 2006
COLUMBIA YOUNG INVESTOR(SM) FUND Prospectus, February 1, 2006 CLASS Z SHARES Advised by Columbia Management Advisors, LLC |
TABLE OF CONTENTS
THE FUND 2 --------------------------------------------------------- Investment Goal...................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 3 Performance History.................................. 5 Your Expenses........................................ 6 YOUR ACCOUNT 8 --------------------------------------------------------- How to Buy Shares.................................... 8 Eligible Investors................................... 9 Sales Charges........................................ 10 How to Exchange Shares............................... 11 How to Sell Shares................................... 11 Fund Policy on Trading of Fund Shares................ 12 Intermediary Compensation............................ 14 Other Information About Your Account................. 14 Educational Materials................................ 16 MANAGING THE FUND 17 --------------------------------------------------------- Investment Advisor................................... 17 Portfolio Manager.................................... 17 Legal Proceedings.................................... 17 FINANCIAL HIGHLIGHTS 19 --------------------------------------------------------- APPENDIX A 20 --------------------------------------------------------- |
Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
|
THE FUND
The Fund may invest up to 33% of its assets in foreign stocks including American Depositary Receipts. 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").
In selecting securities for the Fund, the Fund's investment advisor begins with a top-down industry sector analysis tracking specific sectors or industries of the market and identifying securities within those areas that are expected to reward shareholders. Through this process, the advisor determines the emphasis to be placed on different industries and selects individual stocks in which the Fund invests. In building the Fund's portfolio, the advisor combines this top-down approach with intensive bottom-up research of individual securities issues, evaluating each company on the basis of its financial statements and operations. Factors such as management, financial condition, industry dynamics, earnings growth, profit margins, sales trends, dividend paying history and potential, as well as financial ratios and investment in research and development will be scrutinized as part of the advisor's analysis. The advisor seeks companies that are attractively valued and that have demonstrated or show the potential to demonstrate improved 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. This approach, combined with judgments about valuation and trends in the environment which tend to drive stock price appreciation, is intended to identify investment opportunities that the advisor believes will outperform the market and offer long-term financial reward.
The Fund also has an educational objective. It seeks to teach children and teenagers about mutual funds, basic economic principles and personal finance through a variety of educational materials. The materials are paid for by the Fund and distributed to shareholders on a regular basis.
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
THE FUND
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
The Fund may invest in real estate investment trusts ("REITs"). REITs are entities which either own properties or make construction or mortgage loans. REITs also may include operating or finance companies. Investing in REITs involves certain unique risks in addition to those risks associated with the real estate industry in general. The prices of REITs are affected by changes in the value of the underlying property owned by the REITs. In addition, although the Fund does not invest directly in real estate, a REIT investment by the Fund is subject to certain of the risks associated with the ownership of real estate. These risks include possible declines in the value of real estate, risks related to general and local economic conditions, possible lack of availability of mortgage funds and changes in interest rates.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
THE FUND
Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the advisor's opinion, undervalued. If the advisor's assessment of a company's prospects is wrong, the price of the company's stock may fall, or may not approach the value the advisor has placed on it.
Growth stocks are stocks of companies believed to have above-average potential for growth in revenue and earnings. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Investments in emerging markets are subject to additional risk. The risks of foreign investments are typically increased in less developed countries, which are sometimes referred to as emerging markets. For example, political and economic structures in these countries may be new and developing rapidly, which may cause instability. These countries are also more likely to experience high levels of inflation, deflation or currency devaluations, which could hurt their economies and securities markets.
Small- or mid-cap companies may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
THE FUND
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class Z share performance for each of the last ten complete calendar years. They include the effects of Fund expenses.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's Class Z average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses.
CALENDAR YEAR TOTAL RETURNS (CLASS Z)
(BAR CHART)
35.10% 26.28% 17.65% 31.69% 27.36% 8.35% 6.37%
-10.05% -21.99% -24.58%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
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For the periods shown in bar chart: Best quarter: 4th quarter 1999, +28.42% Worst quarter: 3rd quarter 2001, -24.60% |
THE FUND
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2005
INCEPTION
DATE 1 YEAR 5 YEARS 10 YEARS
Class Z (%) 4/29/94
Return Before Taxes 6.37 -2.89 7.46
Return After Taxes on Distributions 6.30 -2.92 6.89
Return After Taxes on Distributions and Sale of Fund
Shares 4.24 -2.43 6.38
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Russell 3000 Index (%) N/A 6.12 1.58 9.20
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UNDERSTANDING EXPENSES
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management and administration fees and other expenses that generally include, but are not limited to, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
THE FUND
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 -------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 -------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) (2) |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
Management fee(1) (%) 0.76 -------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.00 -------------------------------------------------------------------- Other expenses(2)(3) (%) 0.53 -------------------------------------------------------------------- Total annual fund operating expenses(2) (%) 1.29 |
(1) The Fund pays a management fee of 0.58% and an administration fee of 0.18%.
(2) The Fund's advisor has voluntarily agreed to reimburse the Fund for certain expenses so that the transfer agency fees for Class Z shares will not exceed 0.10%. If this reimbursement were reflected in the table, other expenses for Class Z shares would be 0.28% and total annual fund operating expenses for Class Z shares would be 1.04%. This arrangement may be modified or terminated by the advisor at any time.
(3) Other expenses have been restated to reflect contractual changes to the transfer agency fees and pricing and bookkeeping fees for the Fund effective November 1, 2005.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
1 YEAR 3 YEARS 5 YEARS 10 YEARS $131 $409 $708 $1,556 |
See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For new accounts, send a completed application and check
(new account) made payable to the Fund to Columbia Management Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class of the Fund at no additional
cost. To exchange by telephone, call 1-800-422-3737. Please
see "How to Exchange Shares" for more information.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate your
program or change the amount of the exchange (subject to the
$100 minimum) by calling 1-800-345-6611. Be sure to complete
the appropriate section of the account application for this
feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at no
additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
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YOUR ACCOUNT
IMPORTANT THINGS TO CONSIDER WHEN DECIDING ON A CLASS OF SHARES:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by a broker/dealer, bank, third-party administrator or other financial institution (each commonly referred to as an "intermediary"). Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
NO MINIMUM INITIAL INVESTMENT
- Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
- Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts ("IRAs")), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
- Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
- Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
YOUR ACCOUNT
$1,000 MINIMUM INITIAL INVESTMENT
- Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of a fund distributed by Columbia Management Distributors, Inc. (i) who holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005; (iii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iv) who purchased certain no-load shares of a fund merged with a fund distributed by Columbia Management Distributors, Inc.;
- Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Management Distributors, Inc.;
- Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary;
- Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement);
- Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an accredited investor, as defined under the Securities Act of 1933; or
- Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries.
The Fund reserves the right to change the criteria for Eligible Investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
The Fund offers one class of shares in this prospectus --
CLASS Z.
YOUR ACCOUNT
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, and (ii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into Class Z shares or Class A
shares (only if Class Z is not offered) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign the
letter. Signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for alternate
payee or mailing instructions. Additional documentation is
required for sales by corporations, agents, fiduciaries,
surviving joint owners and individual retirement account
owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
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By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. All dividend and capital gains distributions must
be reinvested. Be sure to complete the appropriate section
of the account application for this feature.
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By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
YOUR ACCOUNT
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
YOUR ACCOUNT
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to an intermediary. Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current
YOUR ACCOUNT
market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for Class Z shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
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Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund distributes any dividends and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your
current fund
----------------------------------------------------------------
Reinvest all distributions in shares of another fund
----------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest
capital gains
----------------------------------------------------------------
Receive all distributions in cash (with one of the following
options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds
transfer
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YOUR ACCOUNT
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable all subsequent distributions will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.58% of average daily net assets of the Fund.
The Statement of Additional Information provides additional information about the manager's compensation, other accounts managed and ownership of securities in the Fund.
MANAGING THE FUND
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and entered final judgement. The plaintiffs filed a notice of appeal on December 30, 2005.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the last five fiscal years, which run from October 1 to September 30, unless otherwise indicated. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements, which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
YEAR ENDED SEPTEMBER 30,
2005 2004 2003(A) 2002(A)(B) 2001(A)
Class Z Class Z Class Z Class Z Class Z
------- ------- ------- ------- ---------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 10.16 9.13 7.42 9.38 17.97
------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income (loss)(c) 0.07(d) 0.01 (0.03) (0.07)(e) (0.06)(e)
Net realized and unrealized gain (loss)
on investments and foreign currency 1.34 1.02 1.74 (1.89) (6.52)
------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.41 1.03 1.71 (1.96) (6.58)
------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net investment income (0.05) -- -- -- --
From net realized gains -- -- -- -- (1.56)
In excess of net realized gains -- -- -- -- (0.45)
------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to
Shareholders (0.05) -- -- -- (2.01)
------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 11.52 10.16 9.13 7.42 9.38
------------------------------------------------------------------------------------------------------------------------------
Total return (%)(f) 13.95(g) 11.28 23.05 (20.90) (40.08)
------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL
DATA (%):
Expenses(h) 1.09 1.46 1.49 1.58(e) 1.26(e)
Net investment income (loss)(h) 0.63 0.13 (0.30) (0.71)(e) (0.41)(e)
Waiver/reimbursement 0.48 -- -- -- --
Portfolio turnover rate (%) 79 58 128 32 23(i)
Net assets, end of period (000's) ($) 671,386 678,146 674,590 573,111 746,698
|
(a) Per share data has been restated to reflect a 2-for-1 share split effective July 25, 2003.
(b) Class S shares were redesignated Class Z shares on July 29, 2002.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Net investment income per share reflects a special dividend. The effect of this dividend amounted to $0.02 per share.
(e) Per share data and ratios reflect income and expenses inclusive of the Fund's proportionate share of the income and expenses of the SR&F Growth Investor Portfolio prior to the termination of the master/feeder fund structure on July 26, 2002.
(f) Total return at net asset value assuming all distributions reinvested.
(g) Had the investment advisor/transfer agent not waived or reimbursed a portion of expenses, total return would have been reduced.
(h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(i) Portfolio turnover disclosed is for the SR&F Growth Investor Portfolio.
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The chart shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class Z shares of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The chart also assumes that all dividends and distributions are reinvested. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses table, is presented in the chart, and is net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower.
CLASS Z SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
CUMULATIVE RETURN CUMULATIVE RETURN HYPOTHETICAL YEAR-
BEFORE FEES & ANNUAL AFTER FEES & END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES EXPENSE RATIO EXPENSES FEES & EXPENSES EXPENSES(1)
---- ----------------- ------------- ----------------- ------------------ -------------
1 5.00% 1.29% 3.71% $10,371.00 $ 131.39
2 10.25% 1.29% 7.56% $10,755.76 $ 136.27
3 15.76% 1.29% 11.55% $11,154.80 $ 141.32
4 21.55% 1.29% 15.69% $11,568.65 $ 146.57
5 27.63% 1.29% 19.98% $11,997.84 $ 152.00
6 34.01% 1.29% 24.43% $12,442.96 $ 157.64
7 40.71% 1.29% 29.05% $12,904.60 $ 163.49
8 47.75% 1.29% 33.83% $13,383.36 $ 169.56
9 55.13% 1.29% 38.80% $13,879.88 $ 175.85
10 62.89% 1.29% 43.95% $14,394.82 $ 182.37
TOTAL GAIN AFTER FEES
AND EXPENSES $ 4,394.82
TOTAL ANNUAL FEES AND
EXPENSES $1,556.47
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
NOTES
NOTES
NOTES
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Funds Trust XI: 811-4978
- Columbia Young Investor Fund
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/105434-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 1, 2006
COLUMBIA LIBERTY FUND
CLASS A, B AND C SHARES
The Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The section entitled "Legal Proceedings" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107778-0306 March 27, 2006
COLUMBIA LIBERTY FUND Prospectus, February 1, 2006 CLASS A, B AND C SHARES Advised by Columbia Management Advisors, LLC |
TABLE OF CONTENTS
THE FUND 2 --------------------------------------------------------- Investment Goals..................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 2 Performance History.................................. 4 Your Expenses........................................ 7 YOUR ACCOUNT 9 --------------------------------------------------------- How to Buy Shares.................................... 9 Investment Minimums.................................. 9 Sales Charges........................................ 10 How to Exchange Shares............................... 13 How to Sell Shares................................... 14 Fund Policy on Trading of Fund Shares................ 15 Distribution and Service Fees........................ 16 Other Information About Your Account................. 17 MANAGING THE FUND 20 --------------------------------------------------------- Investment Advisor................................... 20 Investment Sub-Advisor............................... 20 Portfolio Managers................................... 20 Legal Proceedings.................................... 23 OTHER INVESTMENT STRATEGIES AND RISKS 25 --------------------------------------------------------- FINANCIAL HIGHLIGHTS 26 --------------------------------------------------------- APPENDIX A 29 --------------------------------------------------------- |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
|
THE FUND
The Fund's lead portfolio manager will allocate the Fund's assets among the various asset classes. The lead portfolio manager will adjust the number of asset classes, as well as the portion of the Fund's assets allocated to each class, from time to time, based on his assessment of such factors as relative attractiveness, valuation, fundamentals, quantitative analyses and economic and market expectations.
In selecting equity securities, the Fund's investment advisor favors stocks with long-term growth potential that are expected to outperform their peers over time. Large-cap stocks are stocks of large-size companies that have market capitalizations similar in size to those companies in the Standard & Poor's 500 Index. As of December 31, 2005, that index included companies with capitalizations between approximately $778 million and $370.3 billion. All market capitalizations are determined at the time of purchase.
The Fund may purchase derivative instruments, such as futures, options, swap contracts, and inverse floaters, to gain or reduce exposure to particular securities or segments of the bond markets. Derivatives are financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use derivatives for both hedging and non-hedging purposes, such as to adjust the Fund's sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an opposite position. The Fund typically uses derivatives in an effort to achieve more efficiently economic exposures similar to those it could have achieved through the purchase and sale of fixed-income securities. Investments in derivatives may be applied toward meeting a requirement to invest in a particular kind of investment if the derivatives have economic characteristics similar to investments of that kind.
The advisor also forecasts the direction and degree of change in long-term interest rates to help in the selection of debt securities. Investment grade debt securities purchased by the Fund will have one of the top four ratings assigned by Standard & Poor's Ratings Group or Moody's Investors Service, Inc., or will be unrated securities determined by the advisor to be of comparable quality. The Fund may also participate in mortgage dollar rolls.
At times, the advisor may maintain cash positions for liquidity purposes, temporary defensive purposes, or to implement the Fund's active allocation strategy.
Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks."
THE FUND
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with similar investment goals. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goals or perform favorably among comparable funds.
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Because the Fund may invest in debt securities issued or supported by private entities, including corporate bonds and mortgage-backed and asset-backed securities, the Fund is subject to issuer risk. Issuer risk is the possibility that changes in the financial condition of the issuer of a security, changes in general economic conditions, or changes in economic conditions that affect the issuer may impact its actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and in some cases a decrease in income. The Fund's investments in securities issued by U.S. government-sponsored enterprises, such as the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, are not funded by Congressional appropriations and are neither guaranteed nor insured by the U.S. government. Furthermore, no assurances can be given that the U.S. government would provide financial support to its agencies or instrumentalities when not obligated to do so.
Structure risk is the risk that an event will occur (such as a security being prepaid or called) that alters the security's cash flows. Prepayment risk is a particular type of structure risk that is associated with investments in asset-backed and mortgage-backed securities. With respect to investments in mortgage-backed securities, prepayment risk is the possibility that, as prevailing interest rates fall, homeowners are more likely to refinance their home mortgages. When mortgages are refinanced, the principal on mortgage-backed securities is paid earlier than expected. In an environment of declining interest rates, asset-backed and mortgage-backed securities may offer less potential for gain than other debt securities. During periods of rising interest rates, asset-backed and mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the expected life of the security. In addition, the potential impact of prepayment on the price of asset-backed and mortgage-backed securities may be difficult to predict and result in greater volatility.
Mortgage dollar rolls are transactions in which the Fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase similar securities in the future at a predetermined price. These transactions simulate an investment in mortgage-backed securities and have the potential to enhance the Fund's returns and reduce its administrative burdens, compared with holding mortgage-backed securities directly. Mortgage dollar rolls involve the risks that the market value of the securities the Fund is obligated to repurchase may decline below the repurchase price, or that the other party may default on its obligations. These transactions may increase the Fund's portfolio turnover rate.
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative
THE FUND
positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the advisor's opinion, undervalued. If the advisor's assessment of a company's prospects is wrong, the price of the company's stock may fall, or may not approach the value the advisor has placed on it.
Growth stocks are stocks of companies believed to have above-average potential for growth in revenue and earnings. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. The Fund may have limited legal recourse in the event of default with respect to certain debt securities issued by foreign governments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
THE FUND
include the reinvestment of dividends and distributions. Performance results include the effect of expense reduction arrangements, if any. If these arrangements had not been in place, the performance results would have been lower. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance.
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges. Class B share returns do not reflect Class A share returns after conversion of Class B shares to Class A shares (see the section "Your Account -- Sales Charges").
CALENDAR YEAR TOTAL RETURNS (CLASS A)
(BAR CHART)
16.77% 26.05% 13.13% 8.70% 17.40% 8.81% 5.62%
-1.11% -9.51% -12.09%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
|
For the periods shown in bar chart: Best quarter: 2nd quarter 1997, +15.60% Worst quarter: 3rd quarter 2002, -10.86% |
THE FUND
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2005
1 YEAR 5 YEARS 10 YEARS
Class A (%)
Return Before Taxes -0.45 0.23 6.12
Return After Taxes on Distributions -0.89 -0.42 4.30
Return After Taxes on Distributions and Sale of Fund
Shares -0.02 -0.16 4.43
-------------------------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes -0.16 0.28 5.95
Return After Taxes on Distributions -0.46 -0.16 4.40
Return After Taxes on Distributions and Sale of Fund
Shares 0.08 0.00 4.48
-------------------------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 3.85 0.66 5.94(1)
Return After Taxes on Distributions 3.55 0.22 4.38(1)
Return After Taxes on Distributions and Sale of Fund
Shares 2.69 0.33 4.46(1)
-------------------------------------------------------------------------------------------------------
S&P Index (%) 4.91 0.54 9.07
-------------------------------------------------------------------------------------------------------
Lehman Index (%) 2.43 5.87 6.16
|
(1) Class C is a newer class of shares. Its performance information includes returns of the Fund's Class A shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class A shares and the newer class of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been lower. Class A shares were initially offered on April 30, 1982, and Class C shares were initially offered on August 1, 1997.
THE FUND
SALES CHARGES are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management fees, 12b-1 fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
- Reinvestment of all dividends and distributions
THE FUND
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00 0.00
-------------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or
redemption price) 1.00(2) 5.00 1.00
-------------------------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) (3) (3) (3)
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
CLASS A CLASS B CLASS C
Management fee (%) 0.55 0.55 0.55
-------------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees(1) (%) 0.23 0.98 0.98
-------------------------------------------------------------------------------------------------------
Other expenses(2) (%) 0.25 0.25 0.25
-------------------------------------------------------------------------------------------------------
Total annual fund operating expenses (%) 1.03 1.78 1.78
|
(1) The annual service fee portion of the 12b-1 fee may equal up to 0.15% on net assets attributable to shares issued prior to April 1, 1989 and 0.25% on net assets attributable to shares issued thereafter. This arrangement results in a rate of service fee for all shares that is a blend between the 0.15% and 0.25% rates.
(2) Other expenses have been restated to reflect contractual changes to the fees paid by the Fund for transfer agency and pricing and bookkeeping services effective November 1, 2005.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A $674 $884 $1,111 $1,762
------------------------------------------------------------------------------------------------------------------------
Class
B: did not sell your shares $181 $560 $ 964 $1,897
sold all your shares at
the end of the period $681 $860 $1,164 $1,897
------------------------------------------------------------------------------------------------------------------------
Class
C: did not sell your shares $181 $560 $ 964 $2,095
sold all your shares at
the end of the period $281 $560 $ 964 $2,095
|
See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-----------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
-----------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class (and, in some cases, certain
other classes) of the Fund at no additional cost. There may
be an additional sales charge if exchanging from a money
market fund. To exchange by telephone, call 1-800-422-3737.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate your
program or change the amount of the exchange (subject to the
$100 minimum) by calling 1-800-345-6611. There may be an
additional sales charge if exchanging from a money market
fund. Be sure to complete the appropriate section of the
account application for this feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
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Please see the Statement of Additional Information for more details on investment minimums.
YOUR ACCOUNT
The Fund offers three classes of shares in this prospectus -- CLASS A, B and C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 or more but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
CLASS A SHARES Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
CLASS A SALES CHARGES
% OF OFFERING
AS A % OF PRICE
THE PUBLIC AS A % RETAINED BY
OFFERING OF YOUR FINANCIAL
AMOUNT PURCHASED PRICE INVESTMENT ADVISOR
Less than $50,000 5.75 6.10 5.00
-------------------------------------------------------------------------------------------------------------------
$50,000 to less than $100,000 4.50 4.71 3.75
-------------------------------------------------------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 2.75
-------------------------------------------------------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.00
-------------------------------------------------------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
-------------------------------------------------------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
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Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
YOUR ACCOUNT
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
PURCHASES OVER $1 MILLION
AMOUNT PURCHASED COMMISSION % Less than $3 million 1.00 ---------------------------------------------------------------------------- $3 million to less than $50 million 0.50 ---------------------------------------------------------------------------- $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES
REDUCED SALES CHARGES FOR LARGER INVESTMENTS.
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
RIGHTS OF ACCUMULATION The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
STATEMENT OF INTENT You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
YOUR ACCOUNT
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
- Individual accounts
- Joint accounts
- Certain IRA accounts
- Certain trusts
- UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
YOUR ACCOUNT
CLASS B SHARES Your purchases of Class B shares are at Class B's net asset value. Purchases up to $50,000 are allowed in Class B shares assuming the combined value of the customer's total assets in the Columbia funds does not exceed $50,000. Purchases in Class B shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart below.
CLASS B SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 5.00
-------------------------------------------------------------------------------
Through second year 4.00
-------------------------------------------------------------------------------
Through third year 3.00
-------------------------------------------------------------------------------
Through fourth year 3.00
-------------------------------------------------------------------------------
Through fifth year 2.00
-------------------------------------------------------------------------------
Through sixth year 1.00
-------------------------------------------------------------------------------
Longer than six years 0.00
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Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
CLASS C SHARES Your purchases of Class C shares are at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares as described in the chart below.
CLASS C SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 1.00
-------------------------------------------------------------------------------
Longer than one year 0.00
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YOUR ACCOUNT
privilege if the advisor determines that your exchange activity is likely to adversely impact its ability to manage the Fund. See "Fund Policy on Trading of Fund Shares" for the Fund's policy. To exchange by telephone, call 1-800-422-3737. Please have your account and taxpayer identification numbers available when calling.
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable, you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
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By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into the same share class (and, in
some cases, certain other classes) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction or, if
applicable, stock power form along with any share
certificates to be sold to the address below. In your letter
of instruction, note the Fund's name, share class, account
number, and the dollar value or number of shares you wish to
sell. All account owners must sign the letter. Signatures
must be guaranteed by either a bank, a member firm of a
national stock exchange or another eligible guarantor that
participates in the Medallion Signature Guarantee Program
for amounts over $100,000 or for alternate payee or mailing
instructions. Additional documentation is required for sales
by corporations, agents, fiduciaries, surviving joint owners
and individual retirement account owners. For details, call
1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
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By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
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By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
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The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange
YOUR ACCOUNT
purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
YOUR ACCOUNT
ADDITIONAL INTERMEDIARY COMPENSATION In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However,
YOUR ACCOUNT
where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the transfer agent.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
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Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund distributes any dividends quarterly and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
YOUR ACCOUNT
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your current
fund
----------------------------------------------------------------
Reinvest all distributions in shares of another fund
----------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest
capital gains
----------------------------------------------------------------
Receive all distributions in cash (with one of the following
options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds
transfer
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Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, all subsequent distributions will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Management by the Fund, amounted to 0.55% of average daily net assets of the Fund.
KAREN WURDACK, PHD, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since August, 2005. Dr. Wurdack has been associated with Columbia Advisors or its predecessors since August, 1993.
Dr. Kuriyan and Dr. Wurdack are responsible for allocating the Fund assets among the various asset classes, while investment decisions for the portion of the Fund's assets allocated to each asset class will be made by
MANAGING THE FUND
investment professionals with particular expertise in such asset class. The asset classes, and the persons responsible for managing the Fund's assets allocated to each particular asset class, are as follows:
Large-cap growth stocks: Paul J. Berlinguet, Edward P. Hickey, Roger R. Sullivan,
Mary-Ann Ward and John T. Wilson
Large-cap value stocks: Lori J. Ensinger, Diane L. Sobin, David I. Hoffman and Noah
J. Petrucci
Foreign securities: NIMNAI (Sub-Advisor)
Investment grade bonds: Leonard A. Aplet
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PAUL J. BERLINGUET, a senior vice president of Columbia Advisors and head of Columbia Advisors' Large-Cap Growth Team, is a co-manager for the portion of the Fund allocated to the large-cap growth stocks category and has managed or co-managed that portion of the Fund since October, 2003. Mr. Berlinguet has been associated with Columbia Advisors or its predecessors since October, 2003. Prior to October, 2003, Mr. Berlinguet was head of the large-mid cap equity group and a portfolio manager at John Hancock Funds from April, 2001 to October, 2003. Prior to joining John Hancock Funds in April, 2001, Mr. Berlinguet was head of the Global Technology Research Team and a large cap growth portfolio manager at Baring Asset Management.
EDWARD P. HICKEY, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap growth stocks category and has co-managed that portion of the Fund since June, 2005. Mr. Hickey has been associated with Columbia Advisors or its predecessors since November, 1998.
ROGER R. SULLIVAN, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap growth stocks category and has co-managed that portion of the Fund since June, 2005. Mr. Sullivan has been associated with Columbia Advisors or its predecessors since January, 2005. Prior to January, 2005, Mr. Sullivan was a senior vice president with Putnam Investments from December, 1994 to December, 2004.
MARY-ANN WARD, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap growth stocks category and has co-managed that portion of the Fund since June, 2005. Ms. Ward has been associated with Columbia Advisors or its predecessors since July, 1997.
JOHN T. WILSON, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap growth stocks category and has co-managed the Fund since August, 2005. Mr. Wilson has been associated with Columbia Advisors or its predecessors since July, 2005. Prior to July, 2005, Mr. Wilson was a managing director and head of the Large Cap Core Team of State Street Research & Management from May, 1996 to July, 2005.
DIANE L. SOBIN, a managing director of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap value stocks category and has co-managed that portion of the Fund since September, 2005. Ms. Sobin has been associated with Columbia Advisors or its predecessors since August, 2001. Prior to August, 2001, Ms. Sobin was a senior vice president with Zurich Scudder Investments, Inc. from February, 2000 to June, 2001.
DAVID I. HOFFMAN, a managing director of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap value stocks category and has co-managed that portion of the Fund since September, 2005. Mr. Hoffman has been associated with Columbia Advisors or its predecessors since August, 2001. Prior to August, 2001, Mr. Hoffman was a vice president with Zurich Scudder Investments, Inc. from March, 1999 to July, 2001.
MANAGING THE FUND
LORI J. ENSINGER, a managing director of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap value stocks category and has co-managed that portion of the Fund since September, 2005. Ms. Ensinger has been associated with Columbia Advisors or its predecessors since August, 2001. Prior to 2001, Ms. Ensinger directed the investment strategy for all institutional assets managed under the U.S. large-cap value style at Zurich Scudder Investments, Inc. from 1999 to 2001.
NOAH J. PETRUCCI, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap value stocks category and has co-managed that portion of the Fund since September, 2005. Mr. Petrucci has been associated with Columbia Advisors or its predecessors since February, 2002. Prior to February, 2002, Mr. Petrucci was employed by Zurich Scudder Investments, Inc. from October, 1996, serving most recently as a product specialist/portfolio manager from April, 2001 to February, 2002.
LEONARD A. APLET, a managing director of Columbia Advisors, is the manager for the portion of the Fund allocated to the investment grade bonds category and has managed that portion of the Fund since March, 2005. Mr. Aplet has been associated with Columbia Advisors or its predecessors since 1987.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
MANAGING THE FUND
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late
MANAGING THE FUND
trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and entered final judgement. The plaintiffs filed a notice of appeal on December 30, 2005.
OTHER INVESTMENT STRATEGIES AND RISKS
The Fund's principal investment strategies and their associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goals, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The advisor may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goals. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goals or any of its investment strategies.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last six fiscal periods, which run from October 1 to September 30, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the fiscal years ended September 30, 2004 and 2005, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the period ended September 30, 2003 and the fiscal years ended October 31, 2002, 2001 and 2000, has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED OCTOBER 31,
2005 2004 2003(A)(B) 2002(B) 2001(B) 2000(B)
Class A Class A Class A Class A Class A Class A
------- ------- ------- ------- ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 7.68 7.22 6.68 7.53 10.24 10.81
---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(c) 0.15 0.13 0.12 0.16(d) 0.19 0.19
Net realized and unrealized gain (loss) on
investments, foreign currency and futures
contracts 0.70 0.51 0.55 (0.84)(d) (1.70) 0.63
---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.85 0.64 0.67 (0.68) (1.51) 0.82
---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net investment income (0.17) (0.18) (0.13) (0.17) (0.20) (0.19)
From net realized gains -- -- -- -- (1.00) (1.20)
---------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.17) (0.18) (0.13) (0.17) (1.20) (1.39)
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 8.36 7.68 7.22 6.68 7.53 10.24
---------------------------------------------------------------------------------------------------------------------------------
Total return (%)(e) 11.12(f) 8.92 10.13(g) (9.19) (16.38) 8.16
---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Operating expenses(h) 1.13 1.13 1.23(i) 1.18 1.13 1.06
Interest expense -- -- --(i)(j) --(j) -- --
Net expenses(h) 1.13 1.13 1.23(i) 1.18 1.13 1.06
Net investment income(h) 1.88 1.73 1.86(i) 2.24(d) 2.29 1.88
Waiver/reimbursement 0.01 -- -- -- -- --
Portfolio turnover rate (%) 83 74 109(g) 41 55 78
Net assets, end of period (000's) ($) 545,773 574,954 605,859 624,483 757,467 874,225
|
(a) The Fund has changed its fiscal year end from October 31 to September 30.
(b) For the period ended September 30, 2003 and the years ended October 31,
2002, 2001 and 2000, the Fund was audited by another independent registered
public accounting firm.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Effective November 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
and accreting premium and discount on all debt securities. The effect of
this change, for the year ended October 31, 2002, was to decrease net
investment income per share by $0.01, decrease net realized and unrealized
gain/loss per share by $0.01 and decrease the ratio of net investment
income to average net assets from 2.28% to 2.24%. Per share data and ratios
for periods prior to October 31, 2002 have not been restated to reflect
this change in presentation.
(e) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(f) Had the transfer agent not waived a portion of expenses, total return would
have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
(j) Rounds to less than 0.01%.
FINANCIAL HIGHLIGHTS
THE FUND
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED OCTOBER 31,
2005 2004 2003(A)(B) 2002(B) 2001(B) 2000(B)
Class B Class B Class B Class B Class B Class B
------- ------- ------- ------- ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 7.68 7.21 6.67 7.51 10.22 10.79
---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(c) 0.09 0.07 0.07 0.11(d) 0.13 0.12
Net realized and unrealized gain (loss) on
investments, foreign currency and futures
contracts 0.70 0.52 0.55 (0.83)(d) (1.71) 0.62
---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.79 0.59 0.62 (0.72) (1.58) 0.74
---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net investment income (0.11) (0.12) (0.08) (0.12) (0.13) (0.11)
From net realized gains -- -- -- -- (1.00) (1.20)
---------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.11) (0.12) (0.08) (0.12) (1.13) (1.31)
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 8.36 7.68 7.21 6.67 7.51 10.22
---------------------------------------------------------------------------------------------------------------------------------
Total return (%)(e) 10.30(f) 8.22 9.33(g) (9.77) (17.05) 7.33
---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Operating expenses(h) 1.88 1.88 1.98(i) 1.93 1.88 1.81
Interest expense -- -- --(i)(j) --(i) -- --
Net expenses(h) 1.88 1.88 1.98(i) 1.93 1.88 1.81
Net investment income(h) 1.14 0.97 1.11(i) 1.49(d) 1.54 1.13
Waiver/reimbursement 0.01 -- -- -- -- --
Portfolio turnover rate (%) 83 74 109(g) 41 55 78
Net assets, end of period (000's) ($) 130,724 171,775 218,494 252,598 412,639 604,975
|
(a) The Fund has changed its fiscal year end from October 31 to September 30.
(b) For the period ended September 30, 2003 and the years ended October 31, 2002, 2001 and 2000, the Fund was audited by another independent registered public accounting firm.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Effective November 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
and accreting premium and discount on all debt securities. The effect of
this change, for the year ended October 31, 2002, was to decrease the ratio
of net investment income to average net assets from 1.53% to 1.49%. The
impact to the net investment income and net realized and unrealized gain
(loss) per share was less than $0.01. Per share data and ratios for periods
prior to October 31, 2002 have not been restated to reflect this change in
presentation.
(e) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(f) Had the transfer agent not waived a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
(j) Rounds to less than 0.01%.
FINANCIAL HIGHLIGHTS
THE FUND
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED OCTOBER 31,
2005 2004 2003(A)(B) 2002(B) 2001(B) 2000(B)
Class C Class C Class C Class C Class C Class C
----- ----- ------- ----- ------ -----
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 7.66 7.20 6.66 7.50 10.21 10.78
---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(c) 0.09 0.07 0.07 0.11(d) 0.13 0.12
Net realized and unrealized gain (loss) on
investments, foreign currency and futures
contracts 0.70 0.51 0.55 (0.83)(d) (1.71) 0.62
---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.79 0.58 0.62 (0.72) (1.58) 0.74
---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net investment income (0.11) (0.12) (0.08) (0.12) (0.13) (0.11)
From net realized gains -- -- -- -- (1.00) (1.20)
---------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.11) (0.12) (0.08) (0.12) (1.13) (1.31)
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 8.34 7.66 7.20 6.66 7.50 10.21
---------------------------------------------------------------------------------------------------------------------------------
Total return (%)(e) 10.33(f) 8.09 9.34(g) (9.78) (17.07) 7.34
---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS (%):
Operating expenses(h) 1.88 1.88 1.98(i) 1.93 1.88 1.81
Interest expense -- -- --(i)(j) --(j) -- --
Net expenses(h) 1.88 1.88 1.98(i) 1.93 1.88 1.81
Net investment income(h) 1.13 0.97 1.11(i) 1.49(d) 1.54 1.13
Waiver/reimbursement 0.01 -- -- -- -- --
Portfolio turnover rate (%) 83 74 109(g) 41 55 78
Net assets, end of period (000's) ($) 5,478 6,033 8,457 7,873 10,463 6,519
|
(a) The Fund has changed its fiscal year end from October 31 to September 30.
(b) For the period ended September 30, 2003 and the years ended October 31, 2002, 2001 and 2000, the Fund was audited by another independent registered public accounting firm.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Effective November 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing and accreting premium and discount on all debt securities. The effect of this change, for the year ended October 31, 2002, was to decrease the ratio of net investment income to average net assets from 1.53% to 1.49%. The impact to the net investment income and net realized and unrealized loss per share was less than $0.01. Per share data and ratios for periods prior to October 31, 2002 have not been restated to reflect this change in presentation.
(e) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(f) Had the transfer agent not waived a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
(j) Rounds to less than 0.01%.
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class A, B and C shares of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The charts also assume that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher.
CLASS A SHARES
MAXIMUM SALES
CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
------------- -------------------------------------- ----------------------
5.75% $10,000.00 5%
|
HYPOTHETICAL YEAR-
CUMULATIVE RETURN CUMULATIVE RETURN END BALANCE AFTER
BEFORE FEES & ANNUAL EXPENSE AFTER FEES & FEES & ANNUAL FEES &
YEAR EXPENSES RATIO EXPENSES EXPENSES EXPENSES(1)
---- ----------------- -------------- ----------------- ------------------ -------------
1 5.00% 1.03% -2.01%(2) $ 9,799.17 $ 674.00
2 10.25% 1.03% 1.88% $10,188.20 $ 102.93
3 15.76% 1.03% 5.93% $10,592.67 $ 107.02
4 21.55% 1.03% 10.13% $11,013.20 $ 111.27
5 27.63% 1.03% 14.50% $11,450.42 $ 115.69
6 34.01% 1.03% 19.05% $11,905.01 $ 120.28
7 40.71% 1.03% 23.78% $12,377.63 $ 125.06
8 47.75% 1.03% 28.69% $12,869.03 $ 130.02
9 55.13% 1.03% 33.80% $13,379.93 $ 135.18
10 62.89% 1.03% 39.11% $13,911.11 $ 140.55
TOTAL GAIN AFTER FEES
AND EXPENSES $ 3,911.11
TOTAL ANNUAL FEES AND
EXPENSES $1,762.01
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
APPENDIX A
CLASS B SHARES
MAXIMUM SALES
CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE RETURN CUMULATIVE RETURN YEAR-END BALANCE
BEFORE FEES & ANNUAL EXPENSE AFTER FEES & AFTER FEES & ANNUAL FEES &
YEAR EXPENSES RATIO EXPENSES EXPENSES EXPENSES(1)
---- ----------------- -------------- ----------------- ---------------- -------------
1 5.00% 1.78% 3.22% $10,322.00 $ 180.87
2 10.25% 1.78% 6.54% $10,654.37 $ 186.69
3 15.76% 1.78% 9.97% $10,997.44 $ 192.70
4 21.55% 1.78% 13.52% $11,351.56 $ 198.91
5 27.63% 1.78% 17.17% $11,717.08 $ 205.31
6 34.01% 1.78% 20.94% $12,094.37 $ 211.92
7 40.71% 1.78% 24.84% $12,483.81 $ 218.75
8 47.75% 1.78% 28.86% $12,885.78 $ 225.79
9 55.13% 1.03% 33.97% $13,397.35 $ 135.36
10 62.89% 1.03% 39.29% $13,929.22 $ 140.73
TOTAL GAIN AFTER FEES
AND EXPENSES $ 3,929.22
TOTAL ANNUAL FEES AND
EXPENSES $1,897.02
|
CLASS C SHARES
MAXIMUM SALES
CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE RETURN CUMULATIVE RETURN YEAR-END BALANCE
BEFORE FEES & ANNUAL EXPENSE AFTER FEES & AFTER FEES & ANNUAL FEES &
YEAR EXPENSES RATIO EXPENSES EXPENSES EXPENSES(1)
---- ----------------- -------------- ----------------- ---------------- -------------
1 5.00% 1.78% 3.22% $10,322.00 $ 180.87
2 10.25% 1.78% 6.54% $10,654.37 $ 186.69
3 15.76% 1.78% 9.97% $10,997.44 $ 192.70
4 21.55% 1.78% 13.52% $11,351.56 $ 198.91
5 27.63% 1.78% 17.17% $11,717.08 $ 205.31
6 34.01% 1.78% 20.94% $12,094.37 $ 211.92
7 40.71% 1.78% 24.84% $12,483.81 $ 218.75
8 47.75% 1.78% 28.86% $12,885.78 $ 225.79
9 55.13% 1.78% 33.01% $13,300.71 $ 233.06
10 62.89% 1.78% 37.29% $13,728.99 $ 240.56
TOTAL GAIN AFTER FEES
AND EXPENSES $ 3,728.99
TOTAL ANNUAL FEES AND
EXPENSES $2,094.55
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
NOTES
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Funds Trust III: 811-881
- Columbia Liberty Fund
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/105501-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED FEBRUARY 1, 2006
COLUMBIA LIBERTY FUND
CLASS Z SHARES
The Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The section entitled "Legal Proceedings" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107868-0306 March 27, 2006
COLUMBIA LIBERTY FUND Prospectus, February 1, 2006
CLASS Z SHARES
Advised by Columbia Management Advisors, LLC
THE FUND 2 --------------------------------------------------------- Investment Goals..................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 2 Performance History.................................. 4 Your Expenses........................................ 6 YOUR ACCOUNT 8 --------------------------------------------------------- How to Buy Shares.................................... 8 Eligible Investors................................... 9 Sales Charges........................................ 10 How to Exchange Shares............................... 11 How to Sell Shares................................... 11 Fund Policy on Trading of Fund Shares................ 12 Intermediary Compensation............................ 13 Other Information About Your Account................. 14 MANAGING THE FUND 17 --------------------------------------------------------- Investment Advisor................................... 17 Investment Sub-Advisor............................... 17 Portfolio Managers................................... 17 Legal Proceedings.................................... 20 OTHER INVESTMENT STRATEGIES AND RISKS 22 --------------------------------------------------------- FINANCIAL HIGHLIGHTS 23 --------------------------------------------------------- APPENDIX A 24 --------------------------------------------------------- |
Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
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Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
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THE FUND
The Fund's lead portfolio manager will allocate the Fund's assets among the various asset classes. The lead portfolio manager will adjust the number of asset classes, as well as the portion of the Fund's assets allocated to each class, from time to time, based on his assessment of such factors as relative attractiveness, valuation, fundamentals, quantitative analyses and economic and market expectations.
In selecting equity securities, the Fund's investment advisor favors stocks with long-term growth potential that are expected to outperform their peers over time. Large-cap stocks are stocks of large-size companies that have market capitalizations similar in size to those companies in the Standard & Poor's 500 Index. As of December 31, 2005, that index included companies with capitalizations between approximately $778 million and $370.3 billion. All market capitalizations are determined at the time of purchase.
The Fund may purchase derivative instruments, such as futures, options, swap contracts, and inverse floaters, to gain or reduce exposure to particular securities or segments of the bond markets. Derivatives are financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use derivatives for both hedging and non-hedging purposes, such as to adjust the Fund's sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an opposite position. The Fund typically uses derivatives in an effort to achieve more efficiently economic exposures similar to those it could have achieved through the purchase and sale of fixed-income securities. Investments in derivatives may be applied toward meeting a requirement to invest in a particular kind of investment if the derivatives have economic characteristics similar to investments of that kind.
The advisor also forecasts the direction and degree of change in long-term interest rates to help in the selection of debt securities. Investment grade debt securities purchased by the Fund will have one of the top four ratings assigned by Standard & Poor's Ratings Group or Moody's Investors Service, Inc., or will be unrated securities determined by the advisor to be of comparable quality. The Fund may also participate in mortgage dollar rolls.
At times, the advisor may maintain cash positions for liquidity purposes, temporary defensive purposes, or to implement the Fund's active allocation strategy.
Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks."
THE FUND
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with similar investment goals. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goals or perform favorably among comparable funds.
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Because the Fund may invest in debt securities issued or supported by private entities, including corporate bonds and mortgage-backed and asset-backed securities, the Fund is subject to issuer risk. Issuer risk is the possibility that changes in the financial condition of the issuer of a security, changes in general economic conditions, or changes in economic conditions that affect the issuer may impact its actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and in some cases a decrease in income. The Fund's investments in securities issued by U.S. government-sponsored enterprises, such as the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, are not funded by Congressional appropriations and are neither guaranteed nor insured by the U.S. government. Furthermore, no assurances can be given that the U.S. government would provide financial support to its agencies or instrumentalities when not obligated to do so.
Structure risk is the risk that an event will occur (such as a security being prepaid or called) that alters the security's cash flows. Prepayment risk is a particular type of structure risk that is associated with investments in asset-backed and mortgage-backed securities. With respect to investments in mortgage-backed securities, prepayment risk is the possibility that, as prevailing interest rates fall, homeowners are more likely to refinance their home mortgages. When mortgages are refinanced, the principal on mortgage-backed securities is paid earlier than expected. In an environment of declining interest rates, asset-backed and mortgage-backed securities may offer less potential for gain than other debt securities. During periods of rising interest rates, asset-backed and mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the expected life of the security. In addition, the potential impact of prepayment on the price of asset-backed and mortgage-backed securities may be difficult to predict and result in greater volatility.
Mortgage dollar rolls are transactions in which the Fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase similar securities in the future at a predetermined price. These transactions simulate an investment in mortgage-backed securities and have the potential to enhance the Fund's returns and reduce its administrative burdens, compared with holding mortgage-backed securities directly. Mortgage dollar rolls involve the risks that the market value of the securities the Fund is obligated to repurchase may decline below the repurchase price, or that the other party may default on its obligations. These transactions may increase the Fund's portfolio turnover rate.
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative
THE FUND
positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the advisor's opinion, undervalued. If the advisor's assessment of a company's prospects is wrong, the price of the company's stock may fall, or may not approach the value the advisor has placed on it.
Growth stocks are stocks of companies believed to have above-average potential for growth in revenue and earnings. Prices of growth stocks may be more sensitive to changes in current or expected earnings than the prices of other stocks. Growth stocks may not perform as well as value stocks or the stock market in general.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. The Fund may have limited legal recourse in the event of default with respect to certain debt securities issued by foreign governments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
THE FUND
results include the effect of expense reduction arrangements, if any. If these arrangements had not been in place, the performance results would have been lower. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance.
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class Z share performance for each of the last ten complete calendar years. They include the effects of Fund expenses.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's Class Z average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses.
CALENDAR YEAR TOTAL RETURNS (CLASS Z)
(BAR CHART)
17.16% 26.32% 13.28% 13.72% 17.70% 9.04% 5.87%
-0.88% -9.34% -11.86%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
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For the periods shown in bar chart: Best quarter: 2nd quarter 1997, +15.78% Worst quarter: 3rd quarter 2002, -10.88% |
THE FUND
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2005
1 YEAR 5 YEARS 10 YEARS
Class Z (%)
Return Before Taxes 5.87 1.66 7.45
Return After Taxes on Distributions 5.25 0.94 5.57
Return After Taxes on Distributions and Sale of Fund
Shares 3.99 1.01 5.57
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S&P Index (%) 4.91 0.54 9.07
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Lehman Index (%) 2.43 5.87 6.16
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UNDERSTANDING EXPENSES
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
THE FUND
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 -------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 -------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) (2) |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
Management fee (%) 0.55 -------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.00 -------------------------------------------------------------------- Other expenses(1) (%) 0.25 -------------------------------------------------------------------- Total annual fund operating expenses (%) 0.80 |
(1) Other expenses have been restated to reflect contractual changes to the fees paid by the Fund for transfer agency and pricing and bookkeeping services effective November 1, 2005.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
1 YEAR 3 YEARS 5 YEARS 10 YEARS $82 $255 $444 $990 |
See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For new accounts, send a completed application and check
(new account) made payable to the Fund to Columbia Management Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class of the Fund at no additional
cost. To exchange by telephone, call 1-800-422-3737. Please
see "How to Exchange Shares" for more information.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate your
program or change the amount of the exchange (subject to the
$100 minimum) by calling 1-800-345-6611. Be sure to complete
the appropriate section of the account application for this
feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at no
additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
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YOUR ACCOUNT
IMPORTANT THINGS TO CONSIDER WHEN DECIDING ON A CLASS OF SHARES:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by a broker/dealer, bank, third-party administrator or other financial institution (each commonly referred to as an "intermediary"). Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
NO MINIMUM INITIAL INVESTMENT
- Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
- Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts ("IRAs")), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
- Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
- Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
$1,000 MINIMUM INITIAL INVESTMENT
- Any shareholder (as well as any family member of a shareholder or person
listed on an account registration for any account of the shareholder) of a
fund distributed by Columbia Management Distributors, Inc. (i) who holds
Class Z shares; (ii) who held Primary A shares prior to August 22, 2005;
(iii) who holds
YOUR ACCOUNT
Class A shares that were obtained by exchange of Class Z shares; or (iv) who purchased certain no-load shares of a fund merged with a fund distributed by Columbia Management Distributors, Inc.;
- Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Management Distributors, Inc.;
- Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary;
- Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement);
- Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an accredited investor, as defined under the Securities Act of 1933; or
- Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries.
The Fund reserves the right to change the criteria for Eligible Investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
The Fund offers one class of shares in this prospectus --
CLASS Z.
YOUR ACCOUNT
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, and (ii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
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By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into Class Z shares or Class A
shares (only if Class Z is not offered) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign the
letter. Signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for alternate
payee or mailing instructions. Additional documentation is
required for sales by corporations, agents, fiduciaries,
surviving joint owners and individual retirement account
owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
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By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or semi-
annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. All dividend and capital gains distributions must
be reinvested. Be sure to complete the appropriate section
of the account application for this feature.
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By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
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The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
YOUR ACCOUNT
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals or other entertainment; and/or (iii) support for financial service firm educational or training events.
YOUR ACCOUNT
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to an intermediary. Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for Class Z shares.
YOUR ACCOUNT
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
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Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund distributes any dividends quarterly and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your
current fund
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Reinvest all distributions in shares of another fund
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Receive dividends in cash (see options below) and reinvest
capital gains
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Receive all distributions in cash (with one of the following
options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds
transfer
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Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, all subsequent distributions will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
YOUR ACCOUNT
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Management by the Fund, amounted to 0.55% of average daily net assets of the Fund.
KAREN WURDACK, PHD, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since August, 2005. Dr. Wurdack has been associated with Columbia Advisors or its predecessors since August, 1993.
Dr. Kuriyan and Dr. Wurdack are responsible for allocating the Fund assets among the various asset classes, while investment decisions for the portion of the Fund's assets allocated to each asset class will be made by
MANAGING THE FUND
investment professionals with particular expertise in such asset class. The asset classes, and the persons responsible for managing the Fund's assets allocated to each particular asset class, are as follows:
Large-cap growth stocks: Paul J. Berlinguet, Edward P. Hickey, Roger R. Sullivan,
Mary-Ann Ward and John T. Wilson
Large-cap value stocks: Lori J. Ensinger, Diane L. Sobin, David I. Hoffman and Noah
J. Petrucci
Foreign securities: NIMNAI (Sub-Advisor)
Investment grade bonds: Leonard A. Aplet
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PAUL J. BERLINGUET, a senior vice president of Columbia Advisors and head of Columbia Advisors' Large-Cap Growth Team, is a co-manager for the portion of the Fund allocated to the large-cap growth stocks category and has managed or co-managed that portion of the Fund since October, 2003. Mr. Berlinguet has been associated with Columbia Advisors or its predecessors since October, 2003. Prior to October, 2003, Mr. Berlinguet was head of the large-mid cap equity group and a portfolio manager at John Hancock Funds from April, 2001 to October, 2003. Prior to joining John Hancock Funds in April, 2001, Mr. Berlinguet was head of the Global Technology Research Team and a large cap growth portfolio manager at Baring Asset Management.
EDWARD P. HICKEY, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap growth stocks category and has co-managed that portion of the Fund since June, 2005. Mr. Hickey has been associated with Columbia Advisors or its predecessors since November, 1998.
ROGER R. SULLIVAN, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap growth stocks category and has co-managed that portion of the Fund since June, 2005. Mr. Sullivan has been associated with Columbia Advisors or its predecessors since January, 2005. Prior to January, 2005, Mr. Sullivan was a senior vice president with Putnam Investments from December, 1994 to December, 2004.
MARY-ANN WARD, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap growth stocks category and has co-managed that portion of the Fund since June, 2005. Ms. Ward has been associated with Columbia Advisors or its predecessors since July, 1997.
JOHN T. WILSON, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap growth stocks category and has co-managed the Fund since August, 2005. Mr. Wilson has been associated with Columbia Advisors or its predecessors since July, 2005. Prior to July, 2005, Mr. Wilson was a managing director and head of the Large Cap Core Team of State Street Research & Management from May, 1996 to July, 2005.
DIANE L. SOBIN, a managing director of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap value stocks category and has co-managed that portion of the Fund since September, 2005. Ms. Sobin has been associated with Columbia Advisors or its predecessors since August, 2001. Prior to August, 2001, Ms. Sobin was a senior vice president with Zurich Scudder Investments, Inc. from February, 2000 to June, 2001.
DAVID I. HOFFMAN, a managing director of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap value stocks category and has co-managed that portion of the Fund since September, 2005. Mr. Hoffman has been associated with Columbia Advisors or its predecessors since August, 2001. Prior to August, 2001, Mr. Hoffman was a vice president with Zurich Scudder Investments, Inc. from March, 1999 to July, 2001.
MANAGING THE FUND
LORI J. ENSINGER, a managing director of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap value stocks category and has co-managed that portion of the Fund since September, 2005. Ms. Ensinger has been associated with Columbia Advisors or its predecessors since August, 2001. Prior to 2001, Ms. Ensinger directed the investment strategy for all institutional assets managed under the U.S. large-cap value style at Zurich Scudder Investments, Inc. from 1999 to 2001.
NOAH J. PETRUCCI, a portfolio manager of Columbia Advisors, is a co-manager for the portion of the Fund allocated to the large-cap value stocks category and has co-managed that portion of the Fund since September, 2005. Mr. Petrucci has been associated with Columbia Advisors or its predecessors since February, 2002. Prior to February, 2002, Mr. Petrucci was employed by Zurich Scudder Investments, Inc. from October, 1996, serving most recently as a product specialist/portfolio manager from April, 2001 to February, 2002.
LEONARD A. APLET, a managing director of Columbia Advisors, is the manager for the portion of the Fund allocated to the investment grade bonds category and has managed that portion of the Fund since March, 2005. Mr. Aplet has been associated with Columbia Advisors or its predecessors since 1987.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
MANAGING THE FUND
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late
MANAGING THE FUND
trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of the litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and entered final judgement. The plaintiffs filed a notice of appeal on December 30, 2005.
OTHER INVESTMENT STRATEGIES AND RISKS
The Fund's principal investment strategies and their associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goals, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The advisor may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goals. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goals or any of its investment strategies.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the last six fiscal periods, which run from October 1 to September 30, unless otherwise indicated. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the fiscal years ended September 30, 2004 and 2005, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the period ended September 30, 2003 and the fiscal years ended October 31, 2002, 2001 and 2000 has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
YEAR ENDED PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30, YEAR ENDED OCTOBER 31,
2005 2004 2003(A)(B) 2002(B) 2001(B) 2000(B)
Class Z Class Z Class Z Class Z Class Z Class Z
------- ------ ------- -------- ------ -----
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 8.15 7.65 7.07 7.95 10.75 11.28
---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(c) 0.18 0.16 0.14 0.19(d) 0.21 0.22
Net realized and unrealized gain (loss)
on investments, foreign currency and
futures contracts 0.74 0.54 0.59 (0.88)(d) (1.79) 0.67
---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.92 0.70 0.73 (0.69) (1.58) 0.89
---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net investment income (0.19) (0.20) (0.15) (0.19) (0.22) (0.22)
From net realized gains -- -- -- -- (1.00) (1.20)
---------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to
Shareholders (0.19) (0.20) (0.15) (0.19) (1.22) (1.42)
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 8.88 8.15 7.65 7.07 7.95 10.75
---------------------------------------------------------------------------------------------------------------------------------
Total return (%)(e) 11.33(f) 9.19 10.38(g) (8.88) (16.25) 8.44
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RATIOS TO AVERAGE NET ASSETS (%):
Operating expenses(h) 0.90 0.90 1.00(i) 0.95 0.90 0.82
Interest expense -- -- --(i)(j) --(j) -- --
Net expenses(h) 0.90 0.90 1.00(i) 0.95 0.90 0.82
Net investment income(h) 2.11 1.99 2.00(i) 2.47(d) 2.52 2.12
Waiver/reimbursement 0.01 -- -- -- -- --
Portfolio turnover rate (%) 83 74 109(g) 41 55 78
Net assets, end of period (000's) ($) 700 641 340 137 50 3
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(a) The Fund has changed its fiscal year end from October 31 to September 30.
(b) For the period ended September 30, 2003 and the years ended October 31, 2002, 2001 and 2000, the Fund was audited by another independent registered public accounting firm.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Effective November 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing and accreting premium discount on all debt securities. The effect of this change, for the year ended October 31, 2002, was to decrease the ratio of net investment income to average net assets from 2.51% to 2.47%. The impact to the net investment income and net realized and unrealized loss per share was less than $0.01. Per share data and ratios for periods prior to October 31, 2002 have not been restated to reflect this change in presentation.
(e) Total return at net asset value assuming all distributions reinvested.
(f) Had the transfer agent not waived a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
(j) Rounds to less than 0.01%.
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The chart shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class Z shares of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The chart also assumes that all dividends and distributions are reinvested. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses table, is presented in the chart, and is net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower.
CLASS Z SHARES
MAXIMUM SALES
CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
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CUMULATIVE RETURN HYPOTHETICAL YEAR-
BEFORE FEES & ANNUAL EXPENSE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES RATIO AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- ----------------- -------------- --------------------- ------------------ -------------
1 5.00% 0.80% 4.20% $10,420.00 $ 81.68
2 10.25% 0.80% 8.58% $10,857.64 $ 85.11
3 15.76% 0.80% 13.14% $11,313.66 $ 88.69
4 21.55% 0.80% 17.89% $11,788.83 $ 92.41
5 27.63% 0.80% 22.84% $12,283.97 $ 96.29
6 34.01% 0.80% 28.00% $12,799.89 $100.34
7 40.71% 0.80% 33.37% $13,337.49 $104.55
8 47.75% 0.80% 38.98% $13,897.66 $108.94
9 55.13% 0.80% 44.81% $14,481.36 $113.52
10 62.89% 0.80% 50.90% $15,089.58 $118.28
TOTAL GAIN AFTER FEES
AND EXPENSES $ 5,089.58
TOTAL ANNUAL FEES AND
EXPENSES $989.80
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(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
NOTES
NOTES
NOTES
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Funds Trust III: 811-881
- Columbia Liberty Fund
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/105403-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED MARCH 1, 2006
COLUMBIA CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA NEW JERSEY INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA NEW YORK INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA RHODE ISLAND INTERMEDIATE MUNICIPAL BOND FUND
(THE "FUNDS")
CLASS A, B AND C SHARES
The Funds' Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the prospectus is revised to read "811-4367."
3. The section entitled "LEGAL PROCEEDINGS" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107643-0306 March 27, 2006
COLUMBIA CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA NEW JERSEY INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA NEW YORK INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA RHODE ISLAND INTERMEDIATE MUNICIPAL BOND FUND
Class A, B and C Shares
Advised by Columbia Management Advisors, LLC
TABLE OF CONTENTS
THE FUNDS 2 -------------------------------------------- Investment Goal......................... 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 3 Each of these sections discusses the following topics: Performance History and Your Expenses. Columbia Connecticut Intermediate Municipal Bond Fund.................... 5 Columbia Massachusetts Intermediate Municipal Bond Fund.................... 9 Columbia New Jersey Intermediate Municipal Bond Fund.................... 13 Columbia New York Intermediate Municipal Bond Fund.................... 17 Columbia Rhode Island Intermediate Municipal Bond Fund.................... 21 YOUR ACCOUNT 25 -------------------------------------------- How to Buy Shares....................... 25 Investment Minimums..................... 26 Sales Charges........................... 26 How to Exchange Shares.................. 30 |
How to Sell Shares...................... 31 Fund Policy on Trading of Fund Shares... 32 Distribution and Service Fees........... 33 Other Information About Your Account.... 33 MANAGING THE FUNDS 36 -------------------------------------------- Investment Advisor...................... 36 Portfolio Managers...................... 36 Legal Proceedings....................... 36 FINANCIAL HIGHLIGHTS 39 -------------------------------------------- Columbia Connecticut Intermediate Municipal Bond Fund.................... 39 Columbia Massachusetts Intermediate Municipal Bond Fund.................... 42 Columbia New Jersey Intermediate Municipal Bond Fund.................... 45 Columbia New York Intermediate Municipal Bond Fund.................... 48 Columbia Rhode Island Intermediate Municipal Bond Fund.................... 51 APPENDIX A 54 -------------------------------------------- |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC Insured May Lose Value
No Bank Guarantee
Municipal securities purchased by each Fund may include general obligation securities, revenue securities and private activity bonds. The interest on private activity bonds may be subject to the federal alternative minimum tax. Investments in private activity bonds will not be treated as investments in municipal securities for purposes of the 80% requirement stated above. Each Fund is "non-diversified," which means that it is allowed to invest a greater percentage of its total assets in the securities of fewer issuers than a "diversified" fund.
Each Fund may purchase derivative instruments, such as futures, options, swap contracts, and inverse floaters, to gain or reduce exposure to particular securities or segments of the municipal bond markets. Derivatives are financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Funds may use derivatives for both hedging and non-hedging purposes, such as to adjust a Fund's sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an opposite position. The Funds typically use derivatives in an effort to achieve more efficiently economic exposures similar to those they could have achieved through the purchase and sale of municipal securities.
In selecting portfolio securities for a Fund, each Fund's investment advisor evaluates the suitability of available bonds according to such factors as creditworthiness, maturity, liquidity and interest rates. Each Fund's advisor also determines the appropriate allocation of its Fund's assets among various issuers and industry sectors.
Nearly all of the investments of a Fund will be of investment grade quality. These are securities which have one of the top four ratings assigned by Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are unrated securities determined by the Fund's advisor to be of comparable quality. Under normal market conditions, each Fund will invest at least 65% of its total assets in securities that have one of the top three ratings assigned by S&P or Moody's or unrated securities determined by its advisor to be of comparable quality. Occasionally, the rating of a security held by a Fund may be downgraded to below investment grade. If that happens, a Fund does not have to sell the security, unless its advisor determines that under the circumstances the security is no longer an appropriate investment for the Fund. However, each Fund will sell promptly any rated securities that are not rated investment grade by either S&P or Moody's if the securities exceed 5% of the Fund's net assets.
Under normal circumstances, each Fund's average weighted maturity is expected to be between three and ten years.
Each Fund will sell a security when, as a result of changes in the economy or the performance of the security or other circumstances, its advisor believes that holding the security is no longer consistent with the Fund's investment goal.
The Funds
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily a Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent a Fund from achieving its investment goal.
In seeking to achieve its investment goal, each Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in each Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by a Fund's shareholders is not required to modify or change a Fund's investment goal or investment strategies.
As a non-diversified mutual fund, each Fund is allowed to invest a greater percentage of its total assets in the securities of fewer issuers than a "diversified" fund. Each Fund may, therefore, have a greater risk of loss from a few issuers than a similar fund that invests more broadly.
Management risk means that the advisor's investment decisions might produce losses or cause a Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. The municipal securities market is also subject to uncertainties related to taxation, changes in legislation and the rights of municipal securities holders. Because of management and market risk, there is no guarantee that a Fund will achieve its investment goal or perform favorably among comparable funds.
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income a Fund receives from them but will affect the value of a Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Because the Fund may invest in special revenue obligations, including asset-backed securities and debt securities issued by private entities, the Fund is subject to issuer risk. Issuer risk is the possibility that changes in the financial condition of the issuer of a security or the entity responsible for payment of a special revenue obligation, changes in general economic conditions, or changes in economic conditions that affect the issuer or the entity responsible for payments of a special revenue obligation may impact its actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and in some cases a decrease in income. The Fund's investments in securities issued by U.S. government-sponsored enterprises, such as the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, are not funded by Congressional appropriations and are neither guaranteed nor insured by the U.S. government. Furthermore, no assurances can be given that the U.S. government would provide financial support to its agencies or instrumentalities where it is not obligated to do so.
Reinvestment risk is the risk that income from the Fund's debt securities will decline if and when the Fund invests the proceeds from matured, traded or called securities at market interest rates that are below the current earnings rate of the Fund's portfolio.
The Funds
Tax-exempt bonds are subject to special risks. Changes in tax laws or adverse determinations by the Internal Revenue Service may make the income from some of these bonds taxable. Bonds that are backed by the issuer's taxing authority, known as general obligation bonds, may depend for payment on legislative appropriation and/or aid from other governments. These bonds may be vulnerable to legal limits on a government's power to raise revenue or increase taxes. Other tax-exempt bonds, known as special revenue obligations, are payable from revenues earned by a particular project or other revenue sources. These bonds are subject to greater risk of default than general obligation bonds because investors can look only to the revenue generated by the project or the private company backing the project, rather than to the credit of the state or local government issuer of the bonds.
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing a Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also cause a Fund to receive taxable income, which could increase the amount of taxes payable by shareholders. Other risks arise from a Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for a Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Funds may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
The interest income distributed by a Fund from certain tax-exempt bonds may be subject to the federal alternative minimum tax for individuals and corporations. As a fundamental policy that cannot be changed without shareholder approval, the Fund may not invest more than 20% of its total assets in bonds subject to the alternative minimum tax. Consult your tax advisor for more information.
Municipal Market Risk and Single-State Focus: A state's municipal market may be volatile and can be significantly affected by adverse tax, legislative, demographic or political changes, as well as changes in the financial or economic condition of the state that issues municipal securities. Municipal issues in the state will be affected by these factors, which will, in turn, affect the value of the Fund's investments. Because the Fund invests primarily in municipal securities of a particular state, the value of the Fund's shares may be more volatile than the value of shares of funds that invest in securities of issuers in a number of different states.
Lower-rated debt securities, commonly referred to as "junk bonds," involve greater risk of loss due to credit deterioration and are less liquid, especially during periods of economic uncertainty or change, than higher-quality debt securities. Lower-rated debt securities generally have a higher risk that the issuer of the security may default and not make payment of interest or principal.
An investment in a Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The Funds
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
The Fund's returns are compared to the Lehman Brothers 3-15 Year Blend Municipal Bond Index (Lehman Brothers 3-15 Year Bond Index), an unmanaged index that tracks the performance of municipal bonds issued after December 31, 1990 with remaining maturities between 2 and 17 years and at least $5 million in principal amount outstanding. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
The Funds
Calendar Year Total Returns (Class A)/(1)/
[CHART]
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
----- ----- ----- ------ ----- ----- ----- ----- ------ -----
3.63% 8.53% 6.67% -2.81% 9.94% 4.26% 8.39% 3.27% 2.34% 1.28%
|
For the periods shown in bar chart: Best quarter: 4th quarter 2000, +3.79% Worst quarter: 2nd quarter 2004, -2.44% |
(1) The calendar year total returns shown for Class A shares include the returns of Retail A Shares (the predecessor to the Fund's Class T shares) of the Galaxy Connecticut Intermediate Municipal Bond Fund (the Galaxy Connecticut Fund), the predecessor to the Fund, for periods prior to November 18, 2002, the date on which Class A shares were initially offered by the Fund, returns of Trust Shares of the Galaxy Connecticut Fund for periods prior to June 26, 2001, and returns of shares of the Boston 1784 Connecticut Tax-Exempt Income Fund (the 1784 Connecticut Fund), the predecessor to the Galaxy Connecticut Fund, for periods prior to June 26, 2000. Class A, B and C shares would have substantially similar returns because they are invested in the same portfolio of securities, although the returns would be lower to the extent that expenses for Class A, B and C shares exceed expenses paid by Class T shares.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The return after taxes on distributions and sale of fund shares at a capital loss may be higher than the return before taxes due to the resulting tax benefit from the capital loss on the after tax return calculation.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class A (%)
Return Before Taxes -3.54 2.87/(1)/ 3.97/(1)/
Return After Taxes on Distributions -3.54 2.87/(1)/ 3.94/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -1.17 2.97/(1)/ 3.97/(1)/
--------------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes -2.41 3.14/(1)/ 4.11/(1)/
Return After Taxes on Distributions -2.41 3.14/(1)/ 4.08/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -0.64 3.11/(1)/ 4.05/(1)/
--------------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes -0.10 3.37/(1)/ 4.23/(1)/
Return After Taxes on Distributions -0.10 3.37/(1)/ 4.20/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 0.99 3.34/(1)/ 4.17/(1)/
--------------------------------------------------------------------------------------------
Lehman Brothers 3-15 Year Bond Index (%) 2.25 5.18 5.42
|
(1) Class A, Class B and Class C are newer classes of shares. Their performance information includes returns of Retail A Shares (for Class A) and Retail B Shares (for Class B and Class C (the predecessor to the Fund's Class G Shares) of the Galaxy Connecticut Fund (adjusted to reflect the sales charges applicable to Class A, B and C shares, respectively) for periods prior to November 18, 2002. The returns shown for Class T and G shares also include the returns of Trust Shares of the Galaxy Connecticut Fund for periods prior to June 26, 2001, and the returns of shares of the 1784 Connecticut Fund (whose shares were initially offered on August 1, 1994) for periods prior to June 26, 2000. The returns have not been restated to reflect any differences in expenses (such as 12b-1 fees) between any of the predecessor shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class A, B and C shares were initially offered on November 18, 2002.
The Funds
--------------------------------------------------------------------------------------------------------------------------- UNDERSTANDING EXPENSES Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor. Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees and other expenses that generally include, but are not limited to, other administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns. Example Expenses help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table. It uses the following hypothetical conditions: . $10,000 initial investment . 5% total return for each year . Fund operating expenses remain the same . Reinvestment of all dividends and distributions . Class B shares convert to Class A shares after eight years |
Shareholder Fees/(1) /(paid directly from your investment)
Class A Class B Class C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75 0.00 0.00
------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00 1.00
------------------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/ /(3)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
The Funds
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class A Class B Class C
Management fee/(1)/ (%) 0.55 0.55 0.55
--------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00/(2)/
--------------------------------------------------------------------
Other expenses/(3)/ (%) 0.16 0.16 0.16
--------------------------------------------------------------------
Total annual fund operating expenses (%) 0.96 1.71 1.71/(2)/
|
(1) The Fund pays a management fee of 0.48% and an administration fee of 0.07%.
(2) The Fund's distributor has voluntarily agreed to waive a portion of the
12b-1 fee for Class C shares. If this waiver were reflected in the table,
the 12b-1 fee for Class C shares would be 0.65% and total annual fund
operating expenses for Class C shares would be 1.36%. This arrangement may
be modified or terminated by the distributor at any time.
(3) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class A $568 $766 $ 981 $1,597
--------------------------------------------------------------------------------------
Class B: did not sell your shares $174 $539 $ 928 $1,821
sold all your shares at the end of the period $674 $839 $1,128 $1,821
--------------------------------------------------------------------------------------
Class C: did not sell your shares $174 $539 $ 928 $2,019
sold all your shares at the end of the period $274 $539 $ 928 $2,019
|
See Appendix A for additional hypothetical investment and expense information.
The Funds
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance, over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
The Fund's returns are compared to the Lehman Brothers 3-15 Year Blend Municipal Bond Index (Lehman Brothers 3-15 Year Bond Index), an unmanaged index that tracks the performance of municipal bonds issued after December 31, 1990 with remaining maturities between 2 and 17 years and at least $5 million in principal amount outstanding. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
The Funds
Calendar Year Total Returns (Class A)/(1)/
[CHART]
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ---- ----- ----- ------ ------
3.32% 8.89% 5.91% -2.16% 9.90% 4.49% 8.40% 3.61% 2.42% 1.56%
|
For the periods shown in bar chart:
Best quarter: 2nd quarter 2002, +3.67%
Worst quarter: 2nd quarter 2004, -2.37%
(1) The calendar year total returns shown for Class A shares include the returns of Retail A Shares (the predecessor to the Fund's Class T shares) of the Galaxy Massachusetts Intermediate Municipal Bond Fund (the Galaxy Massachusetts Fund), the predecessor to the Fund, for periods prior to December 9, 2002, the date on which Class A shares were initially offered by the Fund, returns of Trust Shares of the Galaxy Massachusetts Fund for periods prior to June 26, 2001, and returns of shares of the Boston 1784 Massachusetts Tax-Exempt Income Fund (the 1784 Massachusetts Fund), the predecessor to the Galaxy Massachusetts Fund, for periods prior to June 26, 2000. Class A, B and C shares would have substantially similar returns because they are invested in the same portfolio of securities, although the returns would be lower to the extent that expenses for Class A, B and C shares exceed expenses paid by Class T shares.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The return after taxes on distributions and sale of fund shares at a capital loss may be higher than the return before taxes due to the resulting tax benefit from the capital loss on the after tax return calculation.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class A (%)
Return Before Taxes -3.29 3.06/(1)/ 4.06/(1)/
Return After Taxes on Distributions -3.40 3.02/(1)/ 4.05/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -0.84 3.13/(1)/ 4.06/(1)/
-----------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes -2.12 3.34/(1)/ 4.20/(1)/
Return After Taxes on Distributions -2.23 3.30/(1)/ 4.19/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -0.29 3.28/(1)/ 4.15/(1)/
-----------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 0.18 3.56/(1)/ 4.32/(1)/
Return After Taxes on Distributions 0.07 3.53/(1)/ 4.30/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 1.33 3.51/(1)/ 4.26/(1)/
-----------------------------------------------------------------------------------------
Lehman Brothers 3-15 Year Bond Index (%) 2.25 5.18 5.42
|
(1) Class A, Class B and Class C are newer classes of shares. Their performance
information includes returns of the Fund's Class T shares (for Class A) and
Class G shares (for Class B and Class C) for periods prior to their
inception (adjusted to reflect the sales charges applicable to Class A, B
and C shares, respectively). The returns for Class T and G shares include
the returns of Retail A Shares (for Class T) and Retail B Shares (for Class
G) of the Galaxy Massachusetts Fund for periods prior to December 9, 2002.
The returns for Class T and G shares also include the returns of Trust
Shares of the Galaxy Massachusetts Fund for periods prior to June 26, 2001,
and the returns of shares of the 1784 Massachusetts Fund (whose shares were
initially offered on June 14, 1993) for periods prior to June 26, 2000. The
returns have not been restated to reflect any differences in expenses (such
as 12b-1 fees) between any of the predecessor shares and the newer classes
of shares. If differences in expenses had been reflected, the returns shown
for periods prior to the inception of the newer classes of shares would
have been lower. Class A, B and C shares were initially offered on December
9, 2002.
The Funds
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees and other expenses that generally include, but are not limited to, other administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds.
The table does not take into account any expense reduction
arrangements discussed in the footnotes to the Annual Fund
Operating Expenses table. It uses the following
hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class B shares convert to Class A shares after eight
years
Shareholder Fees/(1) /(paid directly from your investment)
Class A Class B Class C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75 0.00 0.00
------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00 1.00
------------------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/ /(3)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
The Funds
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class A Class B Class C
Management fee/(1)/ (%) 0.55 0.55 0.55
--------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00/(2)/
--------------------------------------------------------------------
Other expenses/(3)/ (%) 0.12 0.12 0.12
--------------------------------------------------------------------
Total annual fund operating expenses (%) 0.92 1.67 1.67/(2)/
|
(1) The Fund pays a management fee of 0.48% and an administration fee of 0.07%.
(2) The Fund's distributor has voluntarily agreed to waive a portion of the
12b-1 fee for Class C shares. If this waiver were reflected in the table,
the 12b-1 fee for Class C shares would be 0.65% and total annual fund
operating expenses for Class C shares would be 1.32%. This arrangement may
be modified or terminated by the distributor at any time.
(3) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class A $564 $754 $ 960 $1,553
--------------------------------------------------------------------------------------
Class B: did not sell your shares $170 $526 $ 907 $1,777
sold all your shares at the end of the period $670 $826 $1,107 $1,777
--------------------------------------------------------------------------------------
Class C: did not sell your shares $170 $526 $ 907 $1,976
sold all your shares at the end of the period $270 $526 $ 907 $1,976
|
See Appendix A for additional hypothetical investment and expense information.
The Funds
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class A share performance for each complete calendar year since the Fund commenced operations. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance, over the past one-year, five-year and life of the Fund periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
The Funds
Calendar Year Total Returns (Class A)/(1)/
[CHART]
1999 2000 2001 2002 2003 2004 2005
------ ------ ------ ------ ------ ------ ------
-3.20% 10.59% 3.57% 9.83% 3.89% 2.45% 1.71%
|
For the periods shown in bar chart:
Best quarter: 3rd quarter 2002, +4.75%
Worst quarter: 2nd quarter 2004, -2.41%
(1) The calendar year total returns shown for Class A shares include the returns of Retail A Shares of the Galaxy New Jersey Municipal Bond Fund (the Galaxy New Jersey Fund), the predecessor to the Fund, for periods prior to November 18, 2002, the date on which Class A shares were initially offered by the Fund. Class A, B and C shares would have substantially similar returns because they are invested in the same portfolio of securities, although the returns would be lower to the extent that expenses for Class A, B and C shares exceed expenses paid by Class T shares.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The return after taxes on distributions and sale of fund shares at a capital loss may be higher than the return before taxes due to the resulting tax benefit from the capital loss on the after tax return calculation.
Average Annual Total Returns -- for periods ended December 31, 2005
Life of
1 Year 5 Years the Fund
Class A (%)
Return Before Taxes -3.10 3.25/(1)/ 3.59/(1)/
Return After Taxes on Distributions -3.20 3.15/(1)/ 3.52/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -0.77 3.26/(1)/ 3.57/(1)/
--------------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes -1.98 3.48/(1)/ 3.75/(1)/
Return After Taxes on Distributions -2.08 3.38/(1)/ 3.68/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -0.24 3.36/(1)/ 3.65/(1)/
--------------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 0.33 3.71/(1)/ 3.90/(1)/
Return After Taxes on Distributions 0.22 3.61/(1)/ 3.83/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 1.38 3.59/(1)/ 3.80/(1)/
--------------------------------------------------------------------------------------------
Lehman Brothers 3-15 Year Bond Index (%) 2.25 5.18 5.15/(2)/
|
(1) Class A, Class B and Class C are newer classes of shares. Their performance
information includes returns of the Fund's Class T shares (for Class A) and
Class G shares (for Class B and Class C) for periods prior to their
inception (adjusted to reflect the sales charges applicable to Class A, B
and C shares, respectively). The returns for Class T and G shares include
the returns of Retail A Shares (for Class T) and Retail B Shares (for Class
G) of the Galaxy New Jersey Fund for periods prior to November 18, 2002.
Retail A and B shares were initially offered on April 3, 1998. The returns
have not been restated to reflect any differences in expenses (such as
12b-1 fees) between any of the predecessor shares and the newer classes of
shares. If differences in expenses had been reflected, the returns shown
for periods prior to the inception of the newer classes of shares would
have been lower. Class T and G shares are offered to certain investors
through a separate prospectus. Class A, B and C shares were initially
offered on November 18, 2002.
(2) Performance information is from April 3, 1998.
The Funds
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees and other expenses that generally include, but are not limited to, other administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds.
The table does not take into account any expense reduction
arrangements discussed in the footnotes to the Annual Fund
Operating Expenses table. It uses the following
hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class B shares convert to Class A shares after eight
years
Shareholder Fees/(1) /(paid directly from your investment)
Class A Class B Class C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75 0.00 0.00
------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00 1.00
------------------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/ /(3)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
The Funds
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class A Class B Class C
Management fee/(1)/ (%) 0.55 0.55 0.55
--------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00/(2)/
--------------------------------------------------------------------
Other expenses/(3)/ (%) 0.28 0.28 0.28
--------------------------------------------------------------------
Total annual fund operating expenses (%) 1.08 1.83 1.83/(2)/
|
(1) The Fund pays a management fee of 0.48% and an administration fee of 0.07%.
(2) The Fund's distributor has voluntarily agreed to waive a portion of the
12b-1 fee for Class C shares. If this waiver were reflected in the table,
the 12b-1 fee for Class C shares would be 0.65% and total annual fund
operating expenses for Class C shares would be 1.48%. This arrangement may
be modified or terminated by the distributor at any time.
(3) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class A $580 $802 $1,042 $1,730
--------------------------------------------------------------------------------------
Class B: did not sell your shares $186 $576 $ 990 $1,951
sold all your shares at the end of the period $686 $876 $1,190 $1,951
--------------------------------------------------------------------------------------
Class C: did not sell your shares $186 $576 $ 990 $2,148
sold all your shares at the end of the period $286 $576 $ 990 $2,148
|
See Appendix A for additional hypothetical investment and expense information.
The Funds
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance, over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
The Fund's returns are compared to the Lehman Brothers 3-15 Year Blend Municipal Bond Index (Lehman Brothers 3-15 Year Bond Index), an unmanaged index that tracks the performance of municipal bonds issued after December 31, 1990 with remaining maturities between 2 and 17 years and at least $5 million in principal amount outstanding. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
The Funds
Calendar Year Total Returns (Class A)/(1)/
[CHART]
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
----- ----- ----- ------ ------ ----- ------ ----- ------ -----
3.38% 8.66% 5.96% -3.66% 12.38% 3.10% 10.20% 4.29% 2.44% 1.50%
|
For the periods shown in bar chart:
Best quarter: 3rd quarter 2002, +5.27%
Worst quarter: 2nd quarter 2004, -2.49%
(1) The calendar year total returns shown for Class A shares include the returns of Retail A Shares (the predecessor to the Fund's Class T shares) of the Galaxy New York Municipal Bond Fund (the Galaxy New York Fund), the predecessor to the Fund, for periods prior to November 25, 2002, the date on which Class A shares were initially offered by the Fund. Class A, B and C shares would have substantially similar returns because they are invested in the same portfolio of securities, although the returns would be lower to the extent that expenses for Class A, B and C shares exceed expenses paid by Class T shares.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The return after taxes on distributions and sale of fund shares at a capital loss may be higher than the return before taxes due to the resulting tax benefit from the capital loss on the after tax return calculation.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class A (%)
Return Before Taxes -3.29 3.26/(1)/ 4.22/(1)/
Return After Taxes on Distributions -3.31 3.23/(1)/ 4.20/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -1.03 3.27/(1)/ 4.17/(1)/
--------------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes -2.20 3.53/(1)/ 4.36/(1)/
Return After Taxes on Distributions -2.21 3.49/(1)/ 4.34/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -0.53 3.41/(1)/ 4.26/(1)/
--------------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 0.11 3.76/(1)/ 4.48/(1)/
Return After Taxes on Distributions 0.10 3.73/(1)/ 4.46/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 1.10 3.64/(1)/ 4.38/(1)/
--------------------------------------------------------------------------------------------
Lehman Brothers 3-15 Year Bond Index (%) 2.25 5.18 5.42
|
(1) Class A, Class B and Class C are newer classes of shares. Their performance
information includes returns of the Fund's Class T shares (for Class A) and
Class G shares (for Class B and Class C) for periods prior to their
inception (adjusted to reflect the sales charges applicable to Class A, B
and C shares, respectively). The returns for Class T and G shares include
the returns of Retail A Shares (for Class T) and Retail B Shares (for Class
G) of the Galaxy New York Fund for periods prior to November 25, 2002. The
returns have not been restated to reflect any differences in expenses (such
as 12b-1 fees) between any of the predecessor shares and the newer classes
of shares. If differences in expenses had been reflected, the returns shown
for periods prior to the inception of the newer classes of shares would
have been lower. Class T and G shares are offered to certain investors
through a separate prospectus. Class A, B and C shares were initially
offered on November 25, 2002.
The Funds
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees and other expenses that generally include, but are not limited to, other administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds.
The table does not take into account any expense reduction
arrangements discussed in the footnotes to the Annual Fund
Operating Expenses table. It uses the following
hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class B shares convert to Class A shares after eight
years
Shareholder Fees/(1) /(paid directly from your investment)
Class A Class B Class C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75 0.00 0.00
------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00 1.00
------------------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/ /(3)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
The Funds
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class A Class B Class C
Management fee/(1)/ (%) 0.55 0.55 0.55
--------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00/(2)/
--------------------------------------------------------------------
Other expenses/(3)/ (%) 0.19 0.19 0.19
--------------------------------------------------------------------
Total annual fund operating expenses (%) 0.99 1.74 1.74/(2)/
|
(1) The Fund pays a management fee of 0.48% and an administration fee of 0.07%.
(2) The Fund's distributor has voluntarily agreed to waive a portion of the
12b-1 fee for Class C shares. If this waiver were reflected in the table,
the 12b-1 fee for Class C shares would be 0.65% and total annual fund
operating expenses for Class C shares would be 1.39%. This arrangement may
be modified or terminated by the distributor at any time.
(3) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class A $571 $775 $ 996 $1,630
--------------------------------------------------------------------------------------
Class B: did not sell your shares $177 $548 $ 944 $1,853
sold all your shares at the end of the period $677 $848 $1,144 $1,853
--------------------------------------------------------------------------------------
Class C: did not sell your shares $177 $548 $ 944 $2,052
sold all your shares at the end of the period $277 $548 $ 944 $2,052
|
See Appendix A for additional hypothetical investment and expense information.
The Funds
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance, over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
The Fund's returns are compared to the Lehman Brothers 3-15 Year Blend Municipal Bond Index (Lehman Brothers 3-15 Year Bond Index), an unmanaged index that tracks the performance of municipal bonds issued after December 31, 1990 with remaining maturities between 2 and 17 years and at least $5 million in principal amount outstanding. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
The Funds
Calendar Year Total Returns (Class A)/(1)/
[CHART]
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
----- ----- ----- ------ ------ ----- ------ ----- ------ -----
3.63% 8.54% 5.87% -2.77% 11.58% 4.21% 9.11% 3.80% 2.44% 1.69%
|
For the periods shown in bar chart:
Best quarter: 4th quarter 2000, +4.47%
Worst quarter: 2nd quarter 2004, -2.26%
(1) The calendar year total returns shown for Class A shares include the returns of Retail A Shares (the predecessor to the Fund's Class T shares) of the Galaxy Rhode Island Municipal Bond Fund (the Galaxy Rhode Island Fund), the predecessor to the Fund, for periods prior to November 18, 2002, the date on which Class A shares were initially offered by the Fund. Class A, B and C shares would have substantially similar returns because they are invested in the same portfolio of securities, although the returns would be lower to the extent that expenses for Class A, B and C shares exceed expenses paid by Class T shares.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The return after taxes on distributions and sale of fund shares at a capital loss may be higher than the return before taxes due to the resulting tax benefit from the capital loss on the after tax return calculation.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class A (%)
Return Before Taxes -3.12 3.21/(1)/ 4.23/(1)/
Return After Taxes on Distributions -3.16 3.20/(1)/ 4.19/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -0.80 3.28/(1)/ 4.19/(1)/
--------------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes -2.00 3.42/(1)/ 4.34/(1)/
Return After Taxes on Distributions -2.05 3.41/(1)/ 4.30/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -0.28 3.36/(1)/ 4.25/(1)/
--------------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 0.31 3.65/(1)/ 4.45/(1)/
Return After Taxes on Distributions 0.27 3.64/(1)/ 4.41/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 1.35 3.59/(1)/ 4.37/(1)/
--------------------------------------------------------------------------------------------
Lehman Brothers 3-15 Year Bond Index (%) 2.25 5.18 5.42
|
(1) Class A, Class B and Class C are newer classes of shares. Their performance
information includes returns of the Fund's Class T shares (for Class A) and
Class G shares (for Class B and Class C) for periods prior to their
inception (adjusted to reflect the sales charges applicable to Class A, B
and C shares, respectively). The returns for Class T and G shares include
the returns of Retail A Shares (for Class T) and Retail B Shares (for Class
G) of the Galaxy Rhode Island Fund for periods prior to November 18, 2002.
The returns shown for Class G shares also include the returns of Retail A
Shares for periods prior to the inception of Retail B Shares of the Galaxy
Rhode Island Fund (March 1, 2001). Retail A shares were initially offered
on December 20, 1994. The returns have not been restated to reflect any
differences in expenses (such as 12b-1 fees) between any of the predecessor
shares and the newer classes of shares. If differences in expenses had been
reflected, the returns shown for periods prior to the inception of the
newer classes of shares would have been lower. Class T and G shares are
offered to certain investors through a separate prospectus. Class A, B and
C shares were initially offered on November 18, 2002.
The Funds
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees and other expenses that generally include, but are not limited to, other administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds.
The table does not take into account any expense reduction
arrangements discussed in the footnotes to the Annual Fund
Operating Expenses table. It uses the following
hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class B shares convert to Class A shares after eight
years
Shareholder Fees/(1) /(paid directly from your investment)
Class A Class B Class C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75 0.00 0.00
------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00 1.00
------------------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/ /(3)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
The Funds
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class A Class B Class C
Management fee/(1)/ (%) 0.55 0.55 0.55
--------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00/(2)/
--------------------------------------------------------------------
Other expenses/(3)/ (%) 0.20 0.20 0.20
--------------------------------------------------------------------
Total annual fund operating expenses (%) 1.00 1.75 1.75/(2)/
|
(1) The Fund pays a management fee of 0.48% and an administration fee of 0.07%.
(2) The Fund's distributor has voluntarily agreed to waive a portion of the
12b-1 fee for Class C shares. If this waiver were reflected in the table,
the 12b-1 fee for Class C shares would be 0.65% and total annual fund
operating expenses for Class C shares would be 1.40%. This arrangement may
be modified or terminated by the distributor at any time.
(3) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class A $572 $778 $1,001 $1,641
--------------------------------------------------------------------------------------
Class B: did not sell your shares $178 $551 $ 949 $1,864
sold all your shares at the end of the period $678 $851 $1,149 $1,864
--------------------------------------------------------------------------------------
Class C: did not sell your shares $178 $551 $ 949 $2,062
sold all your shares at the end of the period $278 $551 $ 949 $2,062
|
See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
-------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
-------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares of a Fund
for your account by exchanging shares you own in a
different fund distributed by Columbia Management
Distributors, Inc. for shares of the same class (and, in
some cases, certain other classes) of the Fund at no
additional cost. An exchange may incur a sales charge if
the original purchase was not assessed a sales charge. To
exchange by telephone, call 1-800-422-3737.
-------------------------------------------------------------------------------
By wire You may purchase shares of a Fund by wiring money from your
bank account to your Fund account. To wire funds to your
Fund account, call 1-800-422-3737 for wiring instructions.
-------------------------------------------------------------------------------
By electronic You may purchase shares of a Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
-------------------------------------------------------------------------------
Automated dollar You may purchase shares of a Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. There may
be an additional sales charge if exchanging from a money
market fund. Be sure to complete the appropriate section of
the account application for this feature.
-------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
|
Your Account
Please see the Statement of Additional Information for more details on investment minimums.
------------------------------------------------------------ CHOOSING A SHARE CLASS Each Fund offers three classes of shares in this prospectus -- Class A, B and C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 or more but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you. The Funds also offer additional classes of shares, including Class T, G and Z shares, exclusively to certain institutional and other investors. Class T, G and Class Z shares are made available through separate prospectuses provided to eligible institutional and other investors. |
Your Account
Class A shares Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
Class A Sales Charges
% of offering
As a % of price
the public As a % retained by
offering of your financial
Amount purchased price investment advisor
Less than $100,000 3.25 3.36 3.00
--------------------------------------------------------------------
$100,000 to less than $250,000 2.50 2.56 2.25
--------------------------------------------------------------------
$250,000 to less than $500,000 2.00 2.04 1.75
--------------------------------------------------------------------
$500,000 to less than $1,000,000 1.50 1.52 1.25
--------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
|
Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
Purchases Over $1 Million
Amount purchased Commission % Less than $3 million 1.00 ------------------------------------------------ $3 million to less than $50 million 0.50 ------------------------------------------------ $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
Your Account
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES Certain investments in Class A, B and C shares are subject to a CDSC, a sales charge applied at the time you sell your shares. You will pay the CDSC only on shares you sell within a certain amount of time after purchase. The CDSC generally declines each year until there is no charge for selling shares. The CDSC is applied to the net asset value at the time of purchase or sale, whichever is lower. For purposes of calculating the CDSC, the start of the holding period is the first day of the month in which the purchase was made. Shares you purchase with reinvested dividends or other distributions are not subject to a CDSC. When you place an order to sell shares, the Fund will automatically sell first those shares not subject to a CDSC and then those you have held the longest.
Reduced Sales Charges for Larger Investments.
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Funds and other funds in the Columbia family of funds.
Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Funds will use the shares' current public offering price.
Statement of Intent You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, a Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
. Individual accounts
. Joint accounts
. Certain IRA accounts
. Certain trusts
. UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include
Your Account
those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Funds are not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by a Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Funds' transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Funds as well as investors using the proceeds of redemptions of fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Funds' Statement of Additional Information which can be obtained at www.columbiafunds.com or by calling 1-800-345-6611.
Your Account
Class B shares Your purchases of Class B shares are made at Class B's net asset value. Purchases up to $50,000 are allowed in Class B shares assuming the combined value of the customer's total assets in the Columbia funds does not exceed $50,000. Purchases in Class B shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart below.
Class B Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 3.00
---------------------------------------------
Through second year 3.00
---------------------------------------------
Through third year 2.00
---------------------------------------------
Through fourth year 1.00
---------------------------------------------
Through fifth year 0.00
---------------------------------------------
Through sixth year 0.00
---------------------------------------------
Longer than six years 0.00
|
Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
Class C shares Your purchases of Class C shares are made at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares.
Class C Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 1.00
---------------------------------------------
Longer than one year 0.00
|
Your Account
When a Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Funds' transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable, you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
A Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, a Fund may delay sending the proceeds from the sale of your shares for up to 10 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of a Fund by
exchanging from a Fund into the same share class (and, in
some cases, certain other classes) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of a Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000
in a 30-day period. You do not need to set up this feature
in advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or, if
applicable, stock power form along with any share
certificates to be sold to the address below. In your
letter of instruction, note the Fund's name, share class,
account number, and the dollar value or number of shares
you wish to sell. All account owners must sign the letter.
Signatures must be guaranteed by either a bank, a member
firm of a national stock exchange or another eligible
guarantor institution that participates in the Medallion
Signature Guarantee Program for amounts over $100,000 or
for alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
------------------------------------------------------------------------------
By wire You may sell shares of a Fund and request that the proceeds
be wired to your bank. You must set up this feature prior
to your request. Be sure to complete the appropriate
section of the account application for this feature.
------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By electronic You may sell shares of a Fund and request that the proceeds
funds transfer be electronically transferred to your bank. Proceeds may
take up to two business days to be received by your bank.
You must set up this feature prior to your request. Be sure
to complete the appropriate section of the account
application for this feature.
|
Your Account
Each Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if a Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Funds are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into a Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Funds. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Funds typically are not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Consequently, there is the risk that the Funds may not be able to do anything in response to market timing that occurs in the Funds which may result in certain shareholders being able to market time the Funds while the shareholders in the Funds bear the burden of such activities.
Your Account
Certain financial intermediaries (including certain retirement plan service providers whose clients include, among others, various retirement plans sponsored by Bank of America and its affiliates for the benefit of its employees (the "Bank of America retirement service plan providers") have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above. In particular, the Bank of America retirement service plan provider permits the reinstatement of future purchase orders for shares of the Funds following various suspension periods.
The Funds seek to act in a manner that they believe is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Funds nor their agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Additional Intermediary Compensation In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by the financial service firm to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of a Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Funds' investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Funds. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
Your Account
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
Each Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, each Fund must determine the price of each security in its portfolio at the close of each trading day. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Funds may use other data to determine the fair value of the securities.
The Funds have retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for each Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for any class of shares offered by the Funds. If you currently hold previously issued share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the transfer agent.
Dividends, Distributions and Taxes The Funds have the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by a Fund, net of expenses incurred by the Fund.
----------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
UNDERSTANDING FUND DISTRIBUTIONS
Each Fund may earn income from the securities it holds. Each Fund also may realize capital gains or losses on sales of its securities. Each Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of the Fund's income and capital gains based on the number of shares you own at the time these distributions are declared.
Your Account
Distribution Options The Funds declare any dividends daily and pays them monthly, and declares and pays any capital gains (including short-term capital gains) at least annually. Shares begin to earn dividends on the date on which a purchase order is settled by payment. Shares stop earning dividends at the close of business on the day before the date on which a redemption order is settled. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, a Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable all subsequent distributions will be reinvested in additional shares of the Fund.
Tax Consequences For federal income tax purposes, distributions of investment income by a Fund, whether in cash or additional securities, will ordinarily constitute tax-exempt income. Generally, gains realized by a Fund on the sale or exchange of investments, the income from which is tax-exempt, will be taxable to shareholders. In addition, an investment in a Fund may result in liability for federal alternative minimum tax for both individuals and corporate shareholders. The Funds intend to distribute federally tax-exempt income. The Funds may invest a portion of their assets in securities that generate income subject to federal or state income taxes. Income exempt from federal tax may be subject to state and local taxes.
You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in a Fund may have additional personal tax implications. Please consult your tax advisor about federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by each Fund, you may realize a capital gain or loss when selling or exchanging shares of a Fund. Such transactions also may be subject to federal, state and local income tax.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Funds. As a result of the merger, Columbia Advisors is now the investment advisor to the Funds.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Advisors and/or Columbia Management by the Funds, not including pricing and bookkeeping and other fees paid to Columbia Advisors and/or Columbia Management by each of the Funds, amounted to 0.48% of average daily net assets of each Fund. A discussion of the factors considered by the Funds' Board of Trustees in approving the Funds' investment advisory contracts is included in the Funds' annual report to shareholders for the fiscal year ended October 31, 2005.
Brian McGreevy, a vice president of Columbia Advisors, is the manager for the New Jersey, Rhode Island, Connecticut and New York Funds, and has managed the New Jersey Fund since January, 1998, the Rhode Island Fund since July, 1997, the Connecticut Fund since September, 2002, and the New York Fund since July, 1997. Mr. McGreevy has been associated with Columbia Advisors or its predecessors since December, 1994.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Funds.
Managing the Funds
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and he has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss
the claims in the pending cases. On November 3, 2005, the U.S. District Court
for the District of Maryland dismissed the claims under the Securities Act of
1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act
of 1940 (ICA) and the state law claims against Columbia and others. The claims
under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and
Section 36(b) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from
Managing the Funds
contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
For the year ended November 30, 2005, Columbia has assumed $35,472 of legal, consulting services and Trustees' fees incurred by the fund in connection with these matters.
The financial highlights table is intended to help you understand each Fund's financial performance. Information is shown for the Funds' fiscal years, which run from November 1 to October 31, unless otherwise indicated, since inception of the applicable class of shares. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in a Fund (assuming reinvestment of all dividends and distributions). This information has been derived from each Fund's financial statements which, for the years ended October 31, 2005 and October 31, 2004, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Funds' financial statements, is included in the Funds' annual report. The information for the period ended October 31, 2003 has been derived from the Funds' financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
Columbia Connecticut Intermediate Municipal Bond Fund
Year ended Year ended Period ended
October 31, October 31, October 31,
2005 2004 2003/(a)(b)/
Class A Class A Class A
------- ------- -------
Net asset value --
Beginning of period ($) 11.04 10.99 10.98
------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(c)/ 0.37 0.34 0.36/(d)/
Net realized and unrealized gain on investments and futures contracts (0.35) 0.07 --/(e)/
------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.02 0.41 0.36
------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.37) (0.36) (0.35)
------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 10.69 11.04 10.99
------------------------------------------------------------------------------------------------------------------------
Total return (%)/(f)/ 0.15/(g)/ 3.76 3.32/(g)(h)/
------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(i)/ 0.94 1.05 1.01/(j)/
Net investment income/(i)/ 3.38 3.13 3.29/(j)/
Waiver/reimbursement --/(k)/ --/(k)/ 0.20/(j)/
Portfolio turnover rate (%) 9 16 15
Net assets, end of period (000's) ($) 10,701 13,173 11,186
|
(a) On October 13, 2003, the Liberty Connecticut Intermediate Municipal Bond
Fund was renamed Columbia Connecticut Intermediate Municipal Bond Fund.
(b) Class A shares were initially offered on November 18, 2002. Per share data
and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the period ended
October 31, 2003 was $0.34.
(e) Rounds to less than $0.01 per share.
(f) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(g) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
(k) Rounds to less than 0.01%.
Financial Highlights
Columbia Connecticut Intermediate Municipal Bond Fund
Year ended Year ended Period ended
October 31, October 31, October 31,
2005 2004 2003/(a)(b)/
Class B Class B Class B
------- ------- -------
Net asset value --
Beginning of period ($) 11.04 10.99 10.98
------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(c)/ 0.29 0.26 0.28/(d)/
Net realized and unrealized gain on investments and futures contracts (0.35) 0.06 --/(e)/
------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.06) 0.32 0.28
------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.29) (0.27) (0.27)
------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 10.69 11.04 10.99
------------------------------------------------------------------------------------------------------------------------
Total return (%)/(f)/ (0.60)/(g)/ 2.99 2.57/(g)(h)/
------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(i)/ 1.69 1.80 1.77/(j)/
Net investment income/(i)/ 2.63 2.38 2.54/(j)/
Waiver/reimbursement --/(k)/ --/(k)/ 0.20/(j)/
Portfolio turnover rate (%) 9 16 15
Net assets, end of period (000's) ($) 5,039 6,036 5,368
|
(a) On October 13, 2003, the Liberty Connecticut Intermediate Municipal Bond
Fund was renamed Columbia Connecticut Intermediate Municipal Bond Fund.
(b) Class B shares were initially offered on November 18, 2002. Per share data
and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the period ended
October 31, 2003 was $0.26.
(e) Rounds to less than $0.01 per share.
(f) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(g) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
(k) Rounds to less than 0.01%.
Financial Highlights
Columbia Connecticut Intermediate Municipal Bond Fund
Year ended Year ended Period ended
October 31, October 31, October 31,
2005 2004 2003/(a)(b)/
Class C Class C Class C
------- ------- -------
Net asset value --
Beginning of period ($) 11.04 10.99 10.98
-----------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(c)/ 0.32 0.30 0.32/(d)/
Net realized and unrealized gain on investments and futures contracts (0.35) 0.06 --/(e)/
-----------------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.03) 0.36 0.32
-----------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.32) (0.31) (0.31)
-----------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 10.69 11.04 10.99
-----------------------------------------------------------------------------------------------------------------
Total return (%)/(f)(g)/ (0.25) 3.35 2.93/(h)/
-----------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(i)/ 1.34 1.45 1.41/(j)/
Net investment income/(i)/ 2.98 2.73 2.91/(j)/
Waiver/reimbursement 0.35 0.35 0.55/(j)/
Portfolio turnover rate (%) 9 16 15
Net assets, end of period (000's) ($) 8,780 11,408 13,638
|
(a) On October 13, 2003, the Liberty Connecticut Intermediate Municipal Bond
Fund was renamed Columbia Connecticut Intermediate Municipal Bond Fund.
(b) Class C shares were initially offered on November 18, 2002. Per share data
and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the period ended
October 31, 2003 was $0.26.
(e) Rounds to less than $0.01 per share.
(f) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(g) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
Financial Highlights
Columbia Massachusetts Intermediate Municipal Bond Fund
Year ended Year ended Period ended
October 31, October 31, October 31,
2005 2004 2003/(a)(b)/
Class A Class A Class A
------- ------- ------
Net asset value --
Beginning of period ($) 10.87 10.82 10.72
-------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(c)/ 0.37 0.36 0.33/(d)/
Net realized and unrealized gain on investments (0.35) 0.05 0.10
-------------------------------------------------------------------------------------------------
Total from Investment Operations 0.02 0.41 0.43
-------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.37) (0.36) (0.33)
From net realized gains (0.03) -- --
-------------------------------------------------------------------------------------------------
Total distributions declared to shareholders (0.40) (0.36) (0.33)
-------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 10.49 10.87 10.82
-------------------------------------------------------------------------------------------------
Total return (%)/(e)/ 0.18/(f)/ 3.91 4.02/(f)(g)/
-------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 0.91 0.98 0.99/(i)/
Net investment income/(h)/ 3.43 3.37 3.24/(i)/
Waiver/reimbursement --/(j)/ --/(j)/ 0.20/(i)/
Portfolio turnover rate (%) 15 12 11
Net assets, end of period (000's) ($) 8,332 10,460 6,723
|
(a) On October 13, 2003, the Liberty Massachusetts Intermediate Municipal Bond
Fund was renamed Columbia Massachusetts Intermediate Municipal Bond Fund.
(b) Class A shares were initially offered on December 9, 2002. Per share data
and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the period ended
October 31, 2003, was $0.31.
(e) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(f) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
(j) Rounds to less than 0.01%.
Financial Highlights
Columbia Massachusetts Intermediate Municipal Bond Fund/ /
Year ended Year ended Period ended
October 31, October 31, October 31,
2005 2004 2003/(a)(b)/
Class B Class B Class B
------- ------- ------
Net asset value --
Beginning of period ($) 10.87 10.82 10.72
--------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(c)/ 0.29 0.28 0.25/(d)/
Net realized and unrealized gain on investments (0.35) 0.05 0.10
--------------------------------------------------------------------------------------------------
Total from Investment Operations (0.06) 0.33 0.35
--------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.29) (0.28) (0.25)
From net realized gains (0.03) -- --
--------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.32) (0.28) (0.25)
--------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 10.49 10.87 10.82
--------------------------------------------------------------------------------------------------
Total return (%)/(e)/ (0.57)/(f)/ 3.13 3.32/(f)(g)/
--------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 1.66 1.73 1.75/(i)/
Net investment income/(h)/ 2.67 2.62 2.48/(i)/
Waiver/reimbursement --/(j)/ --/(j)/ 0.20/(i)/
Portfolio turnover rate (%) 15 12 11
Net assets, end of period (000's) ($) 3,220 3,790 3,820
|
(a) On October 13, 2003, the Liberty Massachusetts Intermediate Municipal Bond
Fund was renamed Columbia Massachusetts Intermediate Municipal Bond Fund.
(b) Class B shares were initially offered on December 9, 2002. Per share data
and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the period ended
October 31, 2003, was $0.23.
(e) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(f) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
(j) Rounds to less than 0.01%.
Financial Highlights
Columbia Massachusetts Intermediate Municipal Bond Fund/ /
Year ended Year ended Period ended
October 31, October 31, October 31,
2005 2004 2003/(a)(b)/
Class C Class C Class C
------- ------- ------
Net asset value --
Beginning of period ($) 10.87 10.82 10.72
------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(c)/ 0.32 0.32 0.29/(d)/
Net realized and unrealized gain on investments (0.34) 0.05 0.10
------------------------------------------------------------------------------------------
Total from Investment Operations (0.02) 0.37 0.39
------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.33) (0.32) (0.29)
From net realized gains (0.03) -- --
------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.36) (0.32) (0.29)
------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 10.49 10.87 10.82
------------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ (0.22) 3.49 3.65/(g)/
------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 1.31 1.38 1.39/(i)/
Net investment income/(h)/ 3.02 2.97 2.82/(i)/
Waiver/reimbursement// 0.35 0.35 0.55/(i)/
Portfolio turnover rate (%) 15 12 11
Net assets, end of period (000's) ($) 6,866 7,666 7,621
|
(a) On October 13, 2003, the Liberty Massachusetts Intermediate Municipal Bond
Fund was renamed Columbia Massachusetts Intermediate Municipal Bond Fund.
(b) Class C shares were initially offered on December 9, 2002. Per share data
and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the period ended
October 31, 2003, was $0.23.
(e) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(f) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
Financial Highlights
Columbia New Jersey Intermediate Municipal Bond Fund/ /
Year ended Year ended Period ended
October 31, October 31, October 31,
2005 2004 2003/(a)(b)/
Class A Class A Class A
------- ------- ------
Net asset value --
Beginning of period ($) 10.57 10.50 10.46
--------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(c)/ 0.35 0.33 0.31/(d)/
Net realized and unrealized gain on investments and futures contracts (0.30) 0.10 0.12
--------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.05 0.43 0.43
--------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.35) (0.33) (0.31)
From net realized gains (0.04) (0.03) (0.08)
--------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.39) (0.36) (0.39)
--------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 10.23 10.57 10.50
--------------------------------------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ 0.44 4.20 4.12/(g)/
--------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 1.06 1.13 1.14/(j)/
Net investment income/(h)/ 3.33 3.17 2.90/(j)/
Waiver/reimbursement --/(i)/ --/(i)/ 0.20/(j)/
Portfolio turnover rate (%) 14 12 8
Net assets, end of period (000's) ($) 3,909 3,819 2,568
|
(a) On October 13, 2003, the Liberty New Jersey Intermediate Municipal Bond
Fund was renamed Columbia New Jersey Intermediate Municipal Bond Fund.
(b) Class A shares were initially offered on November 18, 2002. Per share data
and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the period ended
October 31, 2003, was $0.29.
(e) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(f) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Rounds to less than 0.01%.
(j) Annualized.
Financial Highlights
Columbia New Jersey Intermediate Municipal Bond Fund/ /
Year ended Year ended Period ended
October 31, October 31, October 31,
2005 2004 2003/(a)(b)/
Class B Class B Class B
------- ------- ------
Net asset value --
Beginning of period ($) 10.57 10.50 10.46
--------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(c)/ 0.27 0.25 0.23/(d)/
Net realized and unrealized gain on investments and futures contracts (0.30) 0.10 0.12
--------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.03) 0.35 0.35
--------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.27) (0.25) (0.23)
From net realized gains (0.04) (0.03) (0.08)
--------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.31) (0.28) (0.31)
--------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 10.23 10.57 10.50
--------------------------------------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ (0.30) 3.41 3.35/(g)/
--------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 1.81 1.89 1.91/(j)/
Net investment income/(h)/ 2.58 2.41 2.18/(j)/
Waiver/reimbursement --/(i)/ --/(i)/ 0.20/(j)/
Portfolio turnover rate (%) 14 12 8
Net assets, end of period (000's) ($) 1,873 1,998 1,680
|
(a) On October 13, 2003, the Liberty New Jersey Intermediate Municipal Bond
Fund was renamed Columbia New Jersey Intermediate Municipal Bond Fund.
(b) Class B shares were initially offered on November 18, 2002. Per share data
and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the period ended
October 31, 2003, was $0.21.
(e) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(f) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Rounds to less than 0.01%.
(j) Annualized.
Financial Highlights
Columbia New Jersey Intermediate Municipal Bond Fund/ /
Year ended Year ended Period ended
October 31, October 31, October 31,
2005 2004 2003/(a)(b)/
Class C Class C Class C
------- ------- ------
Net asset value --
Beginning of period ($) 10.57 10.50 10.46
----------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(c)/ 0.30 0.29 0.26/(d)/
Net realized and unrealized gain on investments and futures contracts (0.29) 0.10 0.12
----------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.01 0.39 0.38
----------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.31) (0.29) (0.26)
From net realized gains (0.04) (0.03) (0.08)
----------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.35) (0.32) (0.34)
----------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 10.23 10.57 10.50
----------------------------------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ 0.04 3.79 3.70/(g)/
----------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 1.46 1.53 1.54/(i)/
Net investment income/(h)/ 2.92 2.77 2.54/(i)/
Waiver/reimbursement 0.35 0.35 0.55/(i)/
Portfolio turnover rate (%) 14 12 8
Net assets, end of period (000's) ($) 4,590 4,389 4,050
|
(a) On October 13, 2003, the Liberty New Jersey Intermediate Municipal Bond
Fund was renamed Columbia New Jersey Intermediate Municipal Bond Fund.
(b) Class C shares were initially offered on November 18, 2002. Per share data
and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the period ended
October 31, 2003, was $0.20.
(e) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(f) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
Financial Highlights
Columbia New York Intermediate Municipal Bond Fund/ /
Year ended Year ended Period ended
October 31, October 31, October 31,
2005 2004 2003/(a)(b)/
Class A Class A Class A
------- ------- ------
Net asset value --
Beginning of period ($) 11.98 11.87 11.70
--------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(c)/ 0.39 0.37 0.33/(d)/
Net realized and unrealized gain on investments and futures contracts (0.36) 0.13 0.22
--------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.03 0.50 0.55
--------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.39) (0.37) (0.33)
From net realized gains (0.01) (0.02) (0.05)
--------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.40) (0.39) (0.38)
--------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 11.61 11.98 11.87
--------------------------------------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ 0.22 4.24 4.79/(g)/
--------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 0.97 1.11 1.10/(i)/
Net investment income/(h)/ 3.26 3.06 2.89/(i)/
Waiver/reimbursement --/(j)/ --/(j)/ 0.20/(i)/
Portfolio turnover rate (%) 4 11 9
Net assets, end of period (000's) ($) 2,858 5,836 8,928
|
(a) On October 13, 2003, the Liberty New York Intermediate Municipal Bond Fund
was renamed Columbia New York Intermediate Municipal Bond Fund.
(b) Class A shares were initially offered on November 25, 2002. Per share data
and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the period ended
October 31, 2003 was $0.31.
(e) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(f) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
(j) Rounds to less than 0.01%.
Financial Highlights
Columbia New York Intermediate Municipal Bond Fund/ /
Year ended Year ended Period ended
October 31, October 31, October 31,
2005 2004 2003/(a)(b)/
Class B Class B Class B
----------- ----------- ------------
Net asset value --
Beginning of period ($) 11.98 11.87 11.70
--------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(c)/ 0.30 0.28 0.24/(d)/
Net realized and unrealized gain on investments and futures contracts (0.36) 0.13 0.22
--------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.06) 0.41 0.46
--------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.30) (0.28) (0.24)
From net realized gains (0.01) (0.02) (0.05)
--------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.31) (0.30) (0.29)
--------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 11.61 11.98 11.87
--------------------------------------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ (0.53) 3.46 3.98/(g)/
--------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 1.72 1.86 1.89/(i)/
Net investment income/(h)/ 2.52 2.31 2.12/(i)/
Waiver/reimbursement --/(j)/ --/(j)/ 0.20/(i)/
Portfolio turnover rate (%) 4 11 9
Net assets, end of period (000's) ($) 3,586 4,295 2,868
|
(a) On October 13, 2003, the Liberty New York Intermediate Municipal Bond Fund
was renamed Columbia New York Intermediate Municipal Bond Fund.
(b) Class B shares were initially offered on November 25, 2002. Per share data
and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the period ended
October 31, 2003 was $0.22.
(e) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(f) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
(j) Rounds to less than 0.01%.
Financial Highlights
Columbia New York Intermediate Municipal Bond Fund/ /
Year ended Year ended Period ended
October 31, October 31, October 31,
2005 2004 2003/(a)(b)/
Class C Class C Class C
----------- ----------- ------------
Net asset value --
Beginning of period ($) 11.98 11.87 11.70
----------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(c)/ 0.34 0.32 0.29/(d)/
Net realized and unrealized gain on investments and futures contracts (0.36) 0.13 0.22
----------------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.02) 0.45 0.51
----------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.34) (0.32) (0.29)
From net realized gains (0.01) (0.02) (0.05)
----------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.35) (0.34) (0.34)
----------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 11.61 11.98 11.87
----------------------------------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ (0.18) 3.82 4.36/(g)/
----------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 1.37 1.51 1.52/(i)/
Net investment income/(h)/ 2.84 2.66 2.45/(i)/
Waiver/reimbursement// 0.35 0.35 0.55/(i)/
Portfolio turnover rate (%) 4 11 9
Net assets, end of period (000's) ($) 3,360 2,790 2,741
|
(a) On October 13, 2003, the Liberty New York Intermediate Municipal Bond Fund
was renamed Columbia New York Intermediate Municipal Bond Fund.
(b) Class C shares were initially offered on November 25, 2002. Per share data
and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the period ended
October 31, 2003 was $0.23.
(e) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(f) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
Financial Highlights
Columbia Rhode Island Intermediate Municipal Bond Fund/ /
Year ended Year ended Period ended
October 31, October 31, October 31,
2005 2004 2003/(a)(b)/
Class A Class A Class A
----------- ----------- ------------
Net asset value --
Beginning of period ($) 11.54 11.48 11.40
-----------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(c)/ 0.40 0.38 0.35/(d)/
Net realized and unrealized gain on investments and futures contracts (0.33) 0.06 0.08
-----------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.07 0.44 0.43
-----------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.40) (0.38) (0.35)
From net realized gains (0.01) -- --
-----------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.41) (0.38) (0.35)
-----------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 11.20 11.54 11.48
-----------------------------------------------------------------------------------------------------------------------
Total return (%)/(e)/ 0.63 3.90 3.79/(f)(g)/
-----------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 0.97 1.06 1.09/(i)/
Net investment income/(h)/ 3.50 3.33 2.95/(i)/
Waiver/reimbursement// --/(j)/ --/(j)/ 0.20/(i)/
Portfolio turnover rate (%) 12 11 15
Net assets, end of period (000's) ($) 1,544 865 479
|
(a) On October 13, 2003, the Liberty Rhode Island Intermediate Municipal Bond
Fund was renamed Columbia Rhode Island Intermediate Municipal Bond Fund.
(b) Class A shares were initially offered on November 18, 2002. Per share data
and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the period ended
October 31, 2003 was $0.33.
(e) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(f) Not annualized.
(g) Had the Investment Advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
(j) Rounds to less than 0.01%.
Financial Highlights
Columbia Rhode Island Intermediate Municipal Bond Fund/ /
Year ended Year ended Period ended
October 31, October 31, October 31,
2005 2004 2003/(a)(b)/
Class B Class B Class B
------- ------- ------
Net asset value --
Beginning of period ($) 11.54 11.48 11.40
-----------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(c)/ 0.31 0.29 0.26/(d)/
Net realized and unrealized gain on investments and futures contracts (0.32) 0.06 0.08
-----------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.01) (0.35) 0.34
-----------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.32) (0.29) (0.26)
From net realized gain (0.01) -- --
-----------------------------------------------------------------------------------------------------------------------
Total distributions declared to shareholders (0.33) (0.29) (0.26)
-----------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 11.20 11.54 11.48
-----------------------------------------------------------------------------------------------------------------------
Total return (%)/(e)/ (0.12) 3.13 3.02/(f)(g)/
-----------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 1.72 1.81 1.80/(i)/
Net investment income/(h)/ 2.75 2.58 2.24/(i)/
Waiver/reimbursement --/(j)/ --/(j)/ 0.20/(i)/
Portfolio turnover rate (%) 12 11 15
Net assets, end of period (000's) ($) 899 981 780
|
(a) On October 13, 2003, the Liberty Rhode Island Intermediate Municipal Bond
Fund was renamed Columbia Rhode Island Intermediate Municipal Bond Fund.
(b) Class B shares were initially offered on November 18, 2002. Per share data
and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the period ended
October 31, 2003 was $0.24.
(e) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(f) Not annualized.
(g) Had the Investment Advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
(j) Rounds to less than 0.01%.
Financial Highlights
Columbia Rhode Island Intermediate Municipal Bond Fund/ /
Year ended Year ended Period ended
October 31, October 31, October 31,
2005 2004 2003/(a)(b)/
Class C Class C Class C
------- ------- ------
Net asset value --
Beginning of period ($) 11.54 11.48 11.40
----------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(c)/ 0.35 0.33 0.30/(d)/
Net realized and unrealized gain on investments and futures contracts (0.32) 0.06 0.08
----------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.03 0.39 0.38
----------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.36) (0.33) (0.30)
From net realized gains (0.01) -- --
----------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.37) (0.33) (0.30)
----------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 11.20 11.54 11.48
----------------------------------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ 0.23 3.49 3.37/(g)/
----------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 1.37 1.46 1.47/(i)/
Net investment income/(h)/ 3.10 2.92 2.58/(i)/
Waiver/reimbursement// 0.35 0.35 0.55/(i)/
Portfolio turnover rate (%) 12 11 15
Net assets, end of period (000's) ($) 1,487 1,695 2,031
|
(a) On October 13, 2003, the Liberty Rhode Island Intermediate Municipal Bond
Fund was renamed Columbia Rhode Island Intermediate Municipal Bond Fund.
(b) Class C shares were initially offered on November 18, 2002. Per share data
and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the period ended
October 31, 2003 was $0.24.
(e) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(f) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of each Fund, including investment advisory fees and other Fund costs, on each Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class A, B and C shares of each Fund assuming a 5% return each year, the hypothetical year-end balance before expenses and the cumulative return after fees and expenses. The charts also assume that the annual expense ratios stay the same throughout the 10-year period, that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratio used for each Fund, which is the same as that stated in the Annual Fund Operating Expenses tables, is reflected in the charts and is net of any fee waiver or expense reimbursement.
Columbia Connecticut Intermediate Municipal Bond Fund -- Class A Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
4.75% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 0.96% -0.90%/(2)/ $9,909.81 $568.29
2 10.25% 0.96% 3.10% $10,310.17 $97.06
3 15.76% 0.96% 7.27% $10,726.70 $100.98
4 21.55% 0.96% 11.60% $11,160.06 $105.06
5 27.63% 0.96% 16.11% $11,610.92 $109.30
6 34.01% 0.96% 20.80% $12,080.00 $113.72
7 40.71% 0.96% 25.68% $12,568.04 $118.31
8 47.75% 0.96% 30.76% $13,075.78 $123.09
9 55.13% 0.96% 36.04% $13,604.05 $128.06
10 62.89% 0.96% 41.54% $14,153.65 $133.24
Total Gain After Fees and Expenses $4,153.65
Total Annual Fees and Expenses $1,597.09
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Columbia Connecticut Intermediate Municipal Bond Fund -- Class B Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Operating After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.71% 3.29% $10,329.00 $173.81
2 10.25% 1.71% 6.69% $10,668.82 $179.53
3 15.76% 1.71% 10.20% $11,019.83 $185.44
4 21.55% 1.71% 13.82% $11,382.38 $191.54
5 27.63% 1.71% 17.57% $11,756.86 $197.84
6 34.01% 1.71% 21.44% $12,143.66 $204.35
7 40.71% 1.71% 25.43% $12,543.19 $211.07
8 47.75% 1.71% 29.56% $12,955.86 $218.02
9 55.13% 0.96% 34.79% $13,479.28 $126.89
10 62.89% 0.96% 40.24% $14,023.84 $132.01
Total Gain After Fees and Expenses $4,023.84
Total Annual Fees and Expenses $1,820.50
|
Columbia Connecticut Intermediate Municipal Bond Fund -- Class C Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.71% 3.29% $10,329.00 $173.81
2 10.25% 1.71% 6.69% $10,668.82 $179.53
3 15.76% 1.71% 10.20% $11,019.83 $185.44
4 21.55% 1.71% 13.82% $11,382.38 $191.54
5 27.63% 1.71% 17.57% $11,756.86 $197.84
6 34.01% 1.71% 21.44% $12,143.66 $204.35
7 40.71% 1.71% 25.43% $12,543.19 $211.07
8 47.75% 1.71% 29.56% $12,955.86 $218.02
9 55.13% 1.71% 33.82% $13,382.11 $225.19
10 62.89% 1.71% 38.22% $13,822.38 $232.60
Total Gain After Fees and Expenses $3,822.38
Total Annual Fees and Expenses $2,019.39
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
Appendix A
Columbia Massachusetts Intermediate Municipal Bond Fund -- Class A Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
4.75% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Operating After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 0.92% -0.86%/(2)/ $9,913.62 $564.42
2 10.25% 0.92% 3.18% $10,318.10 $93.07
3 15.76% 0.92% 7.39% $10,739.07 $96.86
4 21.55% 0.92% 11.77% $11,177.23 $100.81
5 27.63% 0.92% 16.33% $11,633.26 $104.93
6 34.01% 0.92% 21.08% $12,107.90 $109.21
7 40.71% 0.92% 26.02% $12,601.90 $113.67
8 47.75% 0.92% 31.16% $13,116.06 $118.30
9 55.13% 0.92% 36.51% $13,651.19 $123.13
10 62.89% 0.92% 42.08% $14,208.16 $128.15
Total Gain After Fees and Expenses $4,208.16
Total Annual Fees and Expenses $1,552.55
|
Columbia Massachusetts Intermediate Municipal Bond Fund -- Class B Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.67% 3.33% $10,333.00 $169.78
2 10.25% 1.67% 6.77% $10,677.09 $175.43
3 15.76% 1.67% 10.33% $11,032.64 $181.28
4 21.55% 1.67% 14.00% $11,400.02 $187.31
5 27.63% 1.67% 17.80% $11,779.64 $193.55
6 34.01% 1.67% 21.72% $12,171.91 $200.00
7 40.71% 1.67% 25.77% $12,577.23 $206.66
8 47.75% 1.67% 29.96% $12,996.05 $213.54
9 55.13% 0.92% 35.26% $13,526.29 $122.00
10 62.89% 0.92% 40.78% $14,078.16 $126.98
Total Gain After Fees and Expenses $4,078.16
Total Annual Fees and Expenses $1,776.52
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Columbia Massachusetts Intermediate Municipal Bond Fund -- Class C Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Operating After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.67% 3.33% $10,333.00 $169.78
2 10.25% 1.67% 6.77% $10,677.09 $175.43
3 15.76% 1.67% 10.33% $11,032.64 $181.28
4 21.55% 1.67% 14.00% $11,400.02 $187.31
5 27.63% 1.67% 17.80% $11,779.64 $193.55
6 34.01% 1.67% 21.72% $12,171.91 $200.00
7 40.71% 1.67% 25.77% $12,577.23 $206.66
8 47.75% 1.67% 29.96% $12,996.05 $213.54
9 55.13% 1.67% 34.29% $13,428.82 $220.65
10 62.89% 1.67% 38.76% $13,876.00 $228.00
Total Gain After Fees and Expenses $3,876.00
Total Annual Fees and Expenses $1,976.18
|
Columbia New Jersey Intermediate Municipal Bond Fund -- Class A Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
4.75% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.08% -1.02%/(2)/ $9,898.38 $579.89
2 10.25% 1.08% 2.86% $10,286.40 $109.00
3 15.76% 1.08% 6.90% $10,689.62 $113.27
4 21.55% 1.08% 11.09% $11,108.66 $117.71
5 27.63% 1.08% 15.44% $11,544.12 $122.32
6 34.01% 1.08% 19.97% $11,996.65 $127.12
7 40.71% 1.08% 24.67% $12,466.91 $132.10
8 47.75% 1.08% 29.56% $12,955.62 $137.28
9 55.13% 1.08% 34.63% $13,463.48 $142.66
10 62.89% 1.08% 39.91% $13,991.25 $148.26
Total Gain After Fees and Expenses $3,991.25
Total Annual Fees and Expenses $1,729.61
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Columbia New Jersey Intermediate Municipal Bond Fund -- Class B Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Operating After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.83% 3.17% $10,317.00 $185.90
2 10.25% 1.83% 6.44% $10,644.05 $191.79
3 15.76% 1.83% 9.81% $10,981.47 $197.87
4 21.55% 1.83% 13.30% $11,329.58 $204.15
5 27.63% 1.83% 16.89% $11,688.73 $210.62
6 34.01% 1.83% 20.59% $12,059.26 $217.29
7 40.71% 1.83% 24.42% $12,441.54 $224.18
8 47.75% 1.83% 28.36% $12,835.93 $231.29
9 55.13% 1.08% 33.39% $13,339.10 $141.35
10 62.89% 1.08% 38.62% $13,861.99 $146.89
Total Gain After Fees and Expenses $3,861.99
Total Annual Fees and Expenses $1,951.33
|
Columbia New Jersey Intermediate Municipal Bond Fund -- Class C Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.83% 3.17% $10,317.00 $185.90
2 10.25% 1.83% 6.44% $10,644.05 $191.79
3 15.76% 1.83% 9.81% $10,981.47 $197.87
4 21.55% 1.83% 13.30% $11,329.58 $204.15
5 27.63% 1.83% 16.89% $11,688.73 $210.62
6 34.01% 1.83% 20.59% $12,059.26 $217.29
7 40.71% 1.83% 24.42% $12,441.54 $224.18
8 47.75% 1.83% 28.36% $12,835.93 $231.29
9 55.13% 1.83% 32.43% $13,242.83 $238.62
10 62.89% 1.83% 36.63% $13,662.63 $246.18
Total Gain After Fees and Expenses $3,662.63
Total Annual Fees and Expenses $2,147.90
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
Appendix A
Columbia New York Intermediate Municipal Bond Fund -- Class A Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
4.75% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 0.99% -0.93%/(2)/ $9,906.95 $571.19
2 10.25% 0.99% 3.04% $10,304.22 $100.05
3 15.76% 0.99% 7.17% $10,717.42 $104.06
4 21.55% 0.99% 11.47% $11,147.19 $108.23
5 27.63% 0.99% 15.94% $11,594.19 $112.57
6 34.01% 0.99% 20.59% $12,059.12 $117.08
7 40.71% 0.99% 25.43% $12,542.69 $121.78
8 47.75% 0.99% 30.46% $13,045.65 $126.66
9 55.13% 0.99% 35.69% $13,568.78 $131.74
10 62.89% 0.99% 41.13% $14,112.89 $137.02
Total Gain After Fees and Expenses $4,112.89
Total Annual Fees and Expenses $1,630.38
|
Columbia New York Intermediate Municipal Bond Fund -- Class B Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Operating After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.74% 3.26% $10,326.00 $176.84
2 10.25% 1.74% 6.63% $10,662.63 $182.60
3 15.76% 1.74% 10.10% $11,010.23 $188.55
4 21.55% 1.74% 13.69% $11,369.16 $194.70
5 27.63% 1.74% 17.40% $11,739.80 $201.05
6 34.01% 1.74% 21.23% $12,122.51 $207.60
7 40.71% 1.74% 25.18% $12,517.71 $214.37
8 47.75% 1.74% 29.26% $12,925.79 $221.36
9 55.13% 0.99% 34.44% $13,444.11 $130.53
10 62.89% 0.99% 39.83% $13,983.22 $135.77
Total Gain After Fees and Expenses $3,983.22
Total Annual Fees and Expenses $1,853.37
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Columbia New York Intermediate Municipal Bond Fund -- Class C Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.74% 3.26% $10,326.00 $176.84
2 10.25% 1.74% 6.63% $10,662.63 $182.60
3 15.76% 1.74% 10.10% $11,010.23 $188.55
4 21.55% 1.74% 13.69% $11,369.16 $194.70
5 27.63% 1.74% 17.40% $11,739.80 $201.05
6 34.01% 1.74% 21.23% $12,122.51 $207.60
7 40.71% 1.74% 25.18% $12,517.71 $214.37
8 47.75% 1.74% 29.26% $12,925.79 $221.36
9 55.13% 1.74% 33.47% $13,347.17 $228.57
10 62.89% 1.74% 37.82% $13,782.28 $236.03
Total Gain After Fees and Expenses $3,782.28
Total Annual Fees and Expenses $2,051.67
|
Columbia Rhode Island Intermediate Municipal Bond Fund -- Class A Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
4.75% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Operating After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.00% -0.94%/(2)/ $9,906.00 $572.16
2 10.25% 1.00% 3.02% $10,302.24 $101.04
3 15.76% 1.00% 7.14% $10,714.33 $105.08
4 21.55% 1.00% 11.43% $11,142.90 $109.29
5 27.63% 1.00% 15.89% $11,588.62 $113.66
6 34.01% 1.00% 20.52% $12,052.16 $118.20
7 40.71% 1.00% 25.34% $12,534.25 $122.93
8 47.75% 1.00% 30.36% $13,035.62 $127.85
9 55.13% 1.00% 35.57% $13,557.05 $132.96
10 62.89% 1.00% 40.99% $14,099.33 $138.28
Total Gain After Fees and Expenses $4,099.33
Total Annual Fees and Expenses $1,641.45
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Columbia Rhode Island Intermediate Municipal Bond Fund -- Class B Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.75% 3.25% $10,325.00 $177.84
2 10.25% 1.75% 6.61% $10,660.56 $183.62
3 15.76% 1.75% 10.07% $11,007.03 $189.59
4 21.55% 1.75% 13.65% $11,364.76 $195.75
5 27.63% 1.75% 17.34% $11,734.11 $202.12
6 34.01% 1.75% 21.15% $12,115.47 $208.68
7 40.71% 1.75% 25.09% $12,509.23 $215.47
8 47.75% 1.75% 29.16% $12,915.78 $222.47
9 55.13% 1.00% 34.32% $13,432.41 $131.74
10 62.89% 1.00% 39.70% $13,969.70 $137.01
Total Gain After Fees and Expenses $3,969.70
Total Annual Fees and Expenses $1,864.30
|
Columbia Rhode Island Intermediate Municipal Bond Fund -- Class C Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Operating After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.75% 3.25% $10,325.00 $177.84
2 10.25% 1.75% 6.61% $10,660.56 $183.62
3 15.76% 1.75% 10.07% $11,007.03 $189.59
4 21.55% 1.75% 13.65% $11,364.76 $195.75
5 27.63% 1.75% 17.34% $11,734.11 $202.12
6 34.01% 1.75% 21.15% $12,115.47 $208.68
7 40.71% 1.75% 25.09% $12,509.23 $215.47
8 47.75% 1.75% 29.16% $12,915.78 $222.47
9 55.13% 1.75% 33.36% $13,335.54 $229.70
10 62.89% 1.75% 37.69% $13,768.94 $237.16
Total Gain After Fees and Expenses $3,768.94
Total Annual Fees and Expenses $2,062.41
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
Notes
You may wish to read the Statement of Additional Information for more information on the Funds and the securities in which they invest. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Funds' website (www.columbiafunds.com) include a description of the Funds' policies with respect to the disclosure of their portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Funds by writing or calling the Funds' distributor or visiting the Funds' website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750 www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Funds, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust V: 811-5030
. Columbia Connecticut Intermediate Municipal Bond Fund
. Columbia Massachusetts Intermediate Municipal Bond Fund
. Columbia New Jersey Intermediate Municipal Bond Fund
. Columbia New York Intermediate Municipal Bond Fund
. Columbia Rhode Island Intermediate Municipal Bond Fund
[LOGO]
ColumbiaFunds
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com
PRO-36/105150-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED MARCH 1, 2006
COLUMBIA CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA NEW JERSEY INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA NEW YORK INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA RHODE ISLAND INTERMEDIATE MUNICIPAL BOND FUND
(THE "FUNDS")
CLASS T AND G SHARES
The Funds' Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The section entitled "LEGAL PROCEEDINGS" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in
consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107644-0306 March 27, 2006
COLUMBIA CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA NEW JERSEY INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA NEW YORK INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA RHODE ISLAND INTERMEDIATE MUNICIPAL BOND FUND
Class T and G Shares
Advised by Columbia Management Advisors, LLC
THE FUNDS 2 -------------------------------------------- Investment Goal......................... 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 3 Each of these sections discusses the following topics: Performance History and Your Expenses. Columbia Connecticut Intermediate Municipal Bond Fund.................... 5 Columbia Massachusetts Intermediate Municipal Bond Fund.................... 10 Columbia New Jersey Intermediate Municipal Bond Fund.................... 14 Columbia New York Intermediate Municipal Bond Fund.................... 18 Columbia Rhode Island Intermediate Municipal Bond Fund.................... 22 YOUR ACCOUNT 26 -------------------------------------------- How to Buy Shares....................... 26 Investment Minimums..................... 26 Sales Charges........................... 27 How to Exchange Shares.................. 30 |
How to Sell Shares...................... 30 Fund Policy on Trading of Fund Shares... 31 Distribution and Service Fees........... 32 Other Information About Your Account.... 33 MANAGING THE FUNDS 36 -------------------------------------------- Investment Advisor...................... 36 Portfolio Managers...................... 36 Legal Proceedings....................... 36 FINANCIAL HIGHLIGHTS 39 -------------------------------------------- Columbia Connecticut Intermediate Municipal Bond Fund.................... 40 Columbia Massachusetts Intermediate Municipal Bond Fund.................... 42 Columbia New Jersey Intermediate Municipal Bond Fund.................... 44 Columbia New York Intermediate Municipal Bond Fund.................... 46 Columbia Rhode Island Intermediate Municipal Bond Fund.................... 48 APPENDIX A 50 -------------------------------------------- |
Class T and G shares are sold only to investors who received (and who have continuously held) Class T or G shares in connection with the merger of certain Galaxy Funds into various Columbia Funds (formerly named Liberty Funds).
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC Insured May Lose Value
No Bank Guarantee
Municipal securities purchased by each Fund may include general obligation securities, revenue securities and private activity bonds. The interest on private activity bonds may be subject to the federal alternative minimum tax. Investments in private activity bonds will not be treated as investments in municipal securities for purposes of the 80% requirement stated above. Each Fund is "non-diversified," which means that it is allowed to invest a greater percentage of its total assets in the securities of fewer issuers than a "diversified" fund.
Each Fund may purchase derivative instruments, such as futures, options, swap contracts, and inverse floaters, to gain or reduce exposure to particular securities or segments of the municipal bond markets. Derivatives are financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Funds may use derivatives for both hedging and non-hedging purposes, such as to adjust a Fund's sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an opposite position. The Funds typically use derivatives in an effort to achieve more efficiently economic exposures similar to those they could have achieved through the purchase and sale of municipal securities.
In selecting portfolio securities for a Fund, each Fund's investment advisor evaluates the suitability of available bonds according to such factors as creditworthiness, maturity, liquidity and interest rates. Each Fund's advisor also determines the appropriate allocation of its Fund's assets among various issuers and industry sectors.
Nearly all of the investments of a Fund will be of investment grade quality. These are securities which have one of the top four ratings assigned by Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are unrated securities determined by the Fund's advisor to be of comparable quality. Under normal market conditions, each Fund will invest at least 65% of its total assets in securities that have one of the top three ratings assigned by S&P or Moody's or unrated securities determined by its advisor to be of comparable quality. Occasionally, the rating of a security held by a Fund may be downgraded to below investment grade. If that happens, a Fund does not have to sell the security, unless its advisor determines that under the circumstances the security is no longer an appropriate investment for the Fund. However, each Fund will sell promptly any securities that are not rated investment grade by either S&P or Moody's if the securities exceed 5% of the Fund's net assets.
Under normal circumstances, each Fund's average weighted maturity is expected to be between three and ten years.
Each Fund will sell a security when, as a result of changes in the economy or the performance of the security or other circumstances, its advisor believes that holding the security is no longer consistent with the Fund's investment goal.
The Funds
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily a Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent a Fund from achieving its investment goal.
In seeking to achieve its investment goal, each Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in each Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by a Fund's shareholders is not required to modify or change a Fund's investment goal or investment strategies.
As a non-diversified mutual fund, each Fund is allowed to invest a greater percentage of its total assets in the securities of fewer issuers than a "diversified" fund. Each Fund may, therefore, have a greater risk of loss from a few issuers than a similar fund that invests more broadly.
Management risk means that the advisor's investment decisions might produce losses or cause a Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. The municipal securities market is also subject to uncertainties related to taxation, changes in legislation and the rights of municipal securities holders. Because of management and market risk, there is no guarantee that a Fund will achieve its investment goal or perform favorably among comparable funds.
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income a Fund receives from them but will affect the value of a Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Because the Fund may invest in special revenue obligations, including asset-backed securities and debt securities issued by private entities, the Fund is subject to issuer risk. Issuer risk is the possibility that changes in the financial condition of the issuer of a security or the entity responsible for payment of a special revenue obligation, changes in general economic conditions, or changes in economic conditions that affect the issuer or the entity responsible for payments of a special revenue obligation may impact its actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and in some cases a decrease in income. The Fund's investments in securities issued by U.S. government-sponsored enterprises, such as the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, are not funded by Congressional appropriations and are neither guaranteed nor insured by the U.S. government. Furthermore, no assurances can be given that the U.S. government would provide financial support to its agencies or instrumentalities where it is not obligated to do so.
Reinvestment risk is the risk that income from the Fund's debt securities will decline if and when the Fund invests the proceeds from matured, traded or called securities at market interest rates that are below the current earnings rate of the Fund's portfolio.
The Funds
Tax-exempt bonds are subject to special risks. Changes in tax laws or adverse determinations by the Internal Revenue Service may make the income from some of these bonds taxable. Bonds that are backed by the issuer's taxing authority, known as general obligation bonds, may depend for payment on legislative appropriation and/or aid from other governments. These bonds may be vulnerable to legal limits on a government's power to raise revenue or increase taxes. Other tax-exempt bonds, known as special revenue obligations, are payable from revenues earned by a particular project or other revenue sources. These bonds are subject to greater risk of default than general obligation bonds because investors can look only to the revenue generated by the project or the private company backing the project, rather than to the credit of the state or local government issuer of the bonds.
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing a Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also cause a Fund to receive taxable income, which could increase the amount of taxes payable by shareholders. Other risks arise from a Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for a Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Funds may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
The interest income distributed by a Fund from certain tax-exempt bonds may be subject to the federal alternative minimum tax for individuals and corporations. As a fundamental policy that cannot be changed without shareholder approval, the Fund may not invest more than 20% of its total assets in bonds subject to the alternative minimum tax. Consult your tax advisor for more information.
Municipal Market Risk and Single-State Focus. A state's municipal market may be volatile and can be significantly affected by adverse tax, legislative, demographic or political changes, as well as changes in the financial or economic condition of the state that issues municipal securities. Municipal issues in the state will be affected by these factors, which will, in turn, affect the value of the Fund's investments. Because the Fund invests primarily in municipal securities of a particular state, the value of the Fund's shares may be more volatile than the value of shares of funds that invest in securities of issuers in a number of different states.
Lower-rated debt securities, commonly referred to as "junk bonds," involve greater risk of loss due to credit deterioration and are less liquid, especially during periods of economic uncertainty or change, than higher-quality debt securities. Lower-rated debt securities generally have a higher risk that the issuer of the security may default and not make payment of interest or principal.
An investment in a Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The Funds
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class T share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
The Fund's returns are compared to the Lehman Brothers 3-15 Year Blend Municipal Bond Index (Lehman Brothers 3-15 Year Bond Index), an unmanaged index that tracks the performance of municipal bonds issued after December 31, 1990 with remaining maturities between 2 and 17 years and at least $5 million in principal amount outstanding. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
The Funds
Calendar Year Total Returns (Class T)/(1)/
[CHART]
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
----- ----- ----- ------ ----- ----- ----- ----- ------ ------
3.63% 8.53% 6.67% -2.81% 9.94% 4.26% 8.41% 3.40% 2.44% 1.39%
|
For the periods shown in bar chart:
Best quarter: 4th quarter 2000, +3.79%
Worst quarter: 2nd quarter 2004, -2.41%
(1) The calendar year total returns shown for Class T shares include the returns of Retail A Shares of the Galaxy Connecticut Intermediate Municipal Bond Fund (the Galaxy Connecticut Fund), the predecessor to the Fund, for periods prior to November 18, 2002, the date on which Class T shares were initially offered by the Fund. Retail A share returns include returns for BKB Shares of the Galaxy Connecticut Fund for periods prior to June 26, 2001, the date on which BKB Shares were converted into Retail A Shares. The returns shown for Class T shares also include the returns of Trust Shares of the Galaxy Connecticut Fund for periods prior to the inception of Retail A Shares (June 26, 2000). Class T shares generally would have had substantially similar returns to Trust shares because they would have been invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class T shares exceed expenses paid by Trust Shares.
The Funds
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The return after taxes on distributions and sale of fund shares at a capital loss may be higher than the return before taxes due to the resulting tax benefit from the capital loss on the after tax return calculation.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class T (%)
Return Before Taxes -3.45 2.95/(1)/ 4.01/(1)/
Return After Taxes on Distributions -3.45 2.94/(1)/ 3.98/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -1.07 3.04/(1)/ 4.00/(1)/
--------------------------------------------------------------------------------------------
Class G (%)
Return Before Taxes -4.17 2.74/(1)/ 4.18/(1)/
Return After Taxes on Distributions -4.17 2.74/(1)/ 4.15/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -1.71 2.79/(1)/ 4.12/(1)/
--------------------------------------------------------------------------------------------
Lehman Brothers 3-15 Year Bond Index (%) 2.25 5.18 5.42
|
(1) The average annual total returns shown include the returns of Retail A Shares (for Class T shares) and Retail B Shares (for Class G shares) of the Galaxy Connecticut Fund for periods prior to November 18, 2002. The returns shown for Class T shares also include the returns of Retail A Shares (adjusted to reflect the sales charges applicable to Class T shares) for periods prior to the inception of Retail B Shares of the Galaxy Connecticut Fund (February 28, 2001). Retail A Share returns include returns for BKB Shares of the Galaxy Connecticut Fund for periods prior to June 26, 2001, the date on which BKB Shares were converted into Retail A Shares. Class G shares generally would have had substantially similar returns to Retail A Shares because they would have been invested in the same portfolio of securities, although the returns would be lower to the extent that expenses for Class G shares exceed expenses paid by Retail A Shares. The returns shown for Class T shares and Class G shares also include the returns of Trust Shares of the Galaxy Connecticut Fund (adjusted, as necessary, to reflect the sales charges applicable to Class T shares and Class G shares) for periods prior to the date of inception of Retail A Shares (June 26, 2000). Trust shares of the Galaxy Connecticut Fund were initially offered on August 1, 1994. Class T and Class G shares generally would have had substantially similar returns to Trust Shares because they would have been invested in the same portfolio of securities, although returns would be lower to the extent that expenses for Class T and Class G shares exceed expenses paid by Trust Shares. Class T and G shares were initially offered on November 18, 2002.
The Funds
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees, shareholder service fees and other expenses that generally include, but are not limited to, other administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds.
Except as noted, the table does not take into account any
expense reduction arrangements discussed in the footnotes
to the Annual Fund Operating Expenses table. It uses the
following hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class G shares convert to Class T shares after eight
years
Shareholder Fees/(1) /(paid directly from your investment)
Class T Class G
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75 0.00
---------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00
---------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class T shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
The Funds
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class T Class G
Management fee/(1)/ (%) 0.55 0.55
---------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.00 0.80/(2)/
---------------------------------------------------------------
Other expenses/(4)/ (%) 0.31/(3)/ 0.16
---------------------------------------------------------------
Total annual fund operating expenses (%) 0.86 1.51
|
(1) The Fund pays a management fee of 0.48% and an administration fee of 0.07%.
(2) The Fund may pay distribution and service (12b-1) fees up to a maximum of
1.15% of the Fund's average daily net assets attributable to Class G shares
(comprised of up to 0.65% for distribution services, up to 0.25% for
shareholder liaison services and up to 0.25% for administrative support
services), but will limit such fees to an aggregate fee of not more than
0.80% during the current fiscal year.
(3) The Fund may pay shareholder service fees (which are included in other
expenses) up to a maximum of 0.50% of the Fund's average daily net assets
attributable to Class T shares (comprised of up to 0.25% for shareholder
liaison services and up to 0.25% for administrative support services) but
will limit such fees to an aggregate fee of not more than 0.15% during the
current fiscal year.
(4) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class T $559 $736 $929 $1,485
-----------------------------------------------------------------
Class G: did not sell your shares $154 $477 $824 $1,626
sold all your shares at
the end of the period $654 $877 $1,124 $1,626
|
See Appendix A for additional hypothetical investment and expense information.
The Funds
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class T share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges./ /
The Fund's returns are compared to the Lehman Brothers 3-15 Year Blend Municipal Bond Index (Lehman Brothers 3-15 Year Bond Index), an unmanaged index that tracks the performance of municipal bonds issued after December 31, 1990 with remaining maturities between 2 and 17 years and at least $5 million in principal amount outstanding. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
The Funds
Calendar Year Total Returns (Class T)/(1)/
[CHART]
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
----- ----- ----- ------ ----- ----- ----- ----- ------ ------
3.32% 8.89% 5.91% -2.16% 9.90% 4.49% 8.43% 3.73% 2.53% 1.66%
|
For the periods shown in bar chart:
Best quarter: 2nd quarter 2002, +3.67%
Worst quarter: 2nd quarter 2004, -2.34%
(1) The calendar year total returns shown for Class T shares include the returns of Retail A Shares of the Galaxy Massachusetts Intermediate Municipal Bond Fund (the Galaxy Massachusetts Fund), the predecessor to the Fund, for periods prior to December 9, 2002, the date on which Class T shares were initially offered by the Fund. Retail A share returns include returns for BKB Shares of the Galaxy Massachusetts Fund for periods prior to June 26, 2001, the date on which BKB Shares were converted into Retail A Shares. The returns shown for Class T shares also include the returns of Trust Shares of the Galaxy Massachusetts Fund for periods prior to the inception of Retail A Shares (June 26, 2000). Class T shares generally would have had substantially similar returns as Trust shares because they would have been invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class T shares exceed expenses paid by Trust Shares.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The return after taxes on distributions and sale of fund shares at a capital loss may be higher than the return before taxes due to the resulting tax benefit from the capital loss on the after tax return calculation.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class T (%)
Return Before Taxes -3.19 3.13/(1)/ 4.10/(1)/
Return After Taxes on Distributions -3.30 3.10/(1)/ 4.08/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -0.75 3.20/(1)/ 4.09/(1)/
--------------------------------------------------------------------------------------------
Class G (%)
Return Before Taxes -3.86 2.94/(1)/ 4.27/(1)/
Return After Taxes on Distributions -3.98 2.91/(1)/ 4.26/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -1.35 2.97/(1)/ 4.22/(1)/
--------------------------------------------------------------------------------------------
Lehman Brothers 3-15 Year Bond Index (%) 2.25 5.18 5.42
|
(1) The average annual total returns shown include the returns of Retail A Shares (for Class T shares) and Retail B Shares (for Class G shares) of the Galaxy Massachusetts Fund for periods prior to December 9, 2002, the date on which Class T and Class G shares were initially offered by the Fund. The returns shown for Class G shares also include the returns of Retail A Shares (adjusted to reflect the sales charges applicable to Class G shares) for periods prior to the inception of Retail B Shares of the Galaxy Massachusetts Fund (February 28, 2001). Retail A Share returns include returns for BKB Shares of the Galaxy Massachusetts Fund for periods prior to June 26, 2001, the date on which BKB Shares were converted into Retail A Shares, and returns for Trust Shares of the Galaxy Massachusetts Fund for periods prior to June 26, 2000. The returns shown for Class T shares and Class G shares also include the returns of Trust Shares of the Galaxy Massachusetts Fund (adjusted, as necessary, to reflect the sales charges applicable to Class T shares and Class G shares) for periods prior to the date of inception of Retail A Shares (June 26, 2000). Trust shares were initially offered on June 14, 1993. Class T and Class G shares generally would have had substantially similar returns because they would have been invested in the same portfolio of securities, although returns would be lower to the extent that expenses for Class T and Class G shares exceed expenses paid by Trust Shares.
The Funds
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees, shareholder service fees and other expenses that generally include, but are not limited to, other administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds.
Except as noted, the table does not take into account any
expense reduction arrangements discussed in the footnotes
to the Annual Fund Operating Expenses table. It uses the
following hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class G shares convert to Class T shares after eight
years
Shareholder Fees/(1) /(paid directly from your investment)
Class T Class G
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75 0.00
----------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00
----------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class T shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
The Funds
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class T Class G
Management fee/(1)/ (%) 0.55 0.55
---------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.00 0.80/(2)/
---------------------------------------------------------------
Other expenses/(4)/ (%) 0.27/(3)/ 0.12
---------------------------------------------------------------
Total annual fund operating expenses (%) 0.82 1.47
|
(1) The Fund pays a management fee of 0.48% and an administration fee of 0.07%.
(2) The Fund may pay distribution and service (12b-1) fees up to a maximum of
1.15% of the Fund's average daily net assets attributable to Class G shares
(comprised of up to 0.65% for distribution services, up to 0.25% for
shareholder liaison services and up to 0.25% for administrative support
services), but will limit such fees to an aggregate fee of not more than
0.80% during the current fiscal year.
(3) The Fund may pay shareholder service fees (which are included in other
expenses) up to a maximum of 0.50% of the Fund's average daily net assets
attributable to Class T shares (comprised of up to 0.25% for shareholder
liaison services and up to 0.25% for administrative support services) but
will limit such fees to an aggregate fee of not more than 0.15% during the
current fiscal year.
(4) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class T $555 $724 $908 $1,440
-----------------------------------------------------------------
Class G: did not sell your shares $150 $465 $803 $1,581
sold all your shares at
the end of the period $650 $865 $1,103 $1,581
|
See Appendix A for additional hypothetical investment and expense information.
The Funds
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class T share performance for each complete calendar year since the Fund commenced operations. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance over the past one-year, five-year and life of the Fund periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
The Fund's returns are compared to the Lehman Brothers 3-15 Year Blend Municipal Bond Index (Lehman Brothers 3-15 Year Bond Index), an unmanaged index that tracks the performance of municipal bonds issued after December 31, 1990 with remaining maturities between 2 and 17 years and at least $5 million in principal amount outstanding. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
The Funds
Calendar Year Total Returns (Class T)/(1)/
[CHART]
1999 2000 2001 2002 2003 2004 2005
------ ------ ----- ------ ------ ------ ------
-3.20% 10.59% 3.57% 9.84% 3.98% 2.55% 1.81%
|
For the periods shown in bar chart:: Best quarter: 3rd quarter 2002, +4.75% Worst quarter: 2nd quarter 1999, -2.39% |
(1) The calendar year total returns shown for Class T shares include the returns of Retail A Shares of the Galaxy New Jersey Municipal Bond Fund (the Galaxy New Jersey Fund), the predecessor to the Fund, for periods prior to November 18, 2002, the date on which Class T shares were initially offered by the Fund.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The return after taxes on distributions and sale of fund shares at a capital loss may be higher than the return before taxes due to the resulting tax benefit from the capital loss on the after tax return calculation.
Average Annual Total Returns -- for periods ended December 31, 2005
Life of
1 Year 5 Years the Fund
Class T (%)
Return Before Taxes -3.00 3.31/(1)/ 3.63/(1)/
Return After Taxes on Distributions -3.10 3.21/(1)/ 3.56/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -0.67 3.32/(1)/ 3.61/(1)/
--------------------------------------------------------------------------------------------
Class G (%)
Return Before Taxes -3.73 3.09/(1)/ 3.83/(1)/
Return After Taxes on Distributions -3.84 2.99/(1)/ 3.77/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -1.31 3.05/(1)/ 3.73/(1)/
--------------------------------------------------------------------------------------------
Lehman Brothers 3-15 Year Bond Index (%) 2.25 5.18 5.15(2)
|
(1) The average annual total returns shown include the returns of Retail A
Shares (for Class T shares) and Retail B Shares (for Class G shares) of the
Galaxy New Jersey Fund for periods prior to November 18, 2002, the date on
which Class T and Class G shares were initially offered by the Fund. The
returns shown for Class G shares also include the returns of Retail A
Shares (adjusted to reflect the sales charges applicable to Class G shares)
for periods prior to the inception of Retail B Shares of the Galaxy New
Jersey Fund (March 1, 2001). Class G shares generally would have had
substantially similar returns to Retail A Shares because they would have
been invested in the same portfolio of securities, although the returns
would be lower to the extent that expenses for Class G shares exceed
expenses paid by Retail A Shares. Retail A Shares were initially offered on
April 3, 1998.
(2) Performance information is from April 3, 1998.
The Funds
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees, shareholder service fees and other expenses that generally include, but are not limited to, other administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds.
Except as noted, the table does not take into account any
expense reduction arrangements discussed in the footnotes
to the Annual Fund Operating Expenses table. It uses the
following hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class G shares convert to Class T shares after eight
years
Shareholder Fees/(1) /(paid directly from your investment)
Class T Class G
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75 0.00
----------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00
----------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class T shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
The Funds
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class T Class G
Management fee/(1)/ (%) 0.55 0.55
---------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.00 0.80/(2)/
---------------------------------------------------------------
Other expenses/(4)/ (%) 0.43/(3)/ 0.28
---------------------------------------------------------------
Total annual fund operating expenses (%) 0.98 1.63
|
(1) The Fund pays a management fee of 0.48% and an administration fee of 0.07%.
(2) The Fund may pay distribution and service (12b-1) fees up to a maximum of
1.15% of the Fund's average daily net assets attributable to Class G shares
(comprised of up to 0.65% for distribution services, up to 0.25% for
shareholder liaison services and up to 0.25% for administrative support
services), but will limit such fees to an aggregate fee of not more than
0.80% during the current fiscal year.
(3) The Fund may pay shareholder service fees (which are included in other
expenses) up to a maximum of 0.50% of the Fund's average daily net assets
attributable to Class T shares (comprised of up to 0.25% for shareholder
liaison services and up to 0.25% for administrative support services) but
will limit such fees to an aggregate fee of not more than 0.15% during the
current fiscal year.
(4) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class T $570 $772 $ 991 $1,619
-----------------------------------------------------------------
Class G: did not sell your shares $166 $514 $ 887 $1,759
sold all your shares at
the end of the period $666 $914 $1,187 $1,759
|
See Appendix A for additional hypothetical investment and expense information.
The Funds
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class T share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
The Fund's returns are compared to the Lehman Brothers 3-15 Year Blend Municipal Bond Index (Lehman Brothers 3-15 Year Bond Index), an unmanaged index that tracks the performance of municipal bonds issued after December 31, 1990 with remaining maturities between 2 and 17 years and at least $5 million in principal amount outstanding. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
The Funds
Calendar Year Total Returns (Class T)/(1)/
[CHART]
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
----- ----- ----- ------ ------ ----- ------ ------ ------- ------
3.38% 8.66% 5.96% -3.66% 12.38% 3.10% 10.18% 4.39% 2.54% 1.61%
|
For the periods shown in bar chart: Best quarter: 3rd quarter 2002, +5.27% Worst quarter: 2nd quarter 2004, -2.46% |
(1) The calendar year total returns shown for Class T shares include the returns of Retail A Shares of the Galaxy New York Municipal Bond Fund (the Galaxy New York Fund), the predecessor to the Fund, for periods prior to November 25, 2002, the date on which Class T shares were initially offered by the Fund.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The return after taxes on distributions and sale of fund shares at a capital loss may be higher than the return before taxes due to the resulting tax benefit from the capital loss on the after tax return calculation.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class T (%)
Return Before Taxes -3.19 3.32/(1)/ 4.25(1)
Return After Taxes on Distributions -3.21 3.29/(1)/ 4.23/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -0.93 3.33/(1)/ 4.20/(1)/
--------------------------------------------------------------------------------------------
Class G (%)
Return Before Taxes -3.96 3.13/(1)/ 4.43/(1)/
Return After Taxes on Distributions -3.98 3.10/(1)/ 4.41/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -1.61 3.10/(1)/ 4.43/(1)/
--------------------------------------------------------------------------------------------
Lehman Brothers 3-15 Year Bond Index (%) 2.25 5.18 5.42
|
(1) The average annual total returns shown include the returns of Retail A Shares (for Class T shares) and Retail B Shares (for Class G shares) of the Galaxy New York Fund for periods prior to November 25, 2002, the date on which Class T and Class G shares were initially offered by the Fund. The returns shown for Class G shares also include the returns of Retail A Shares (adjusted to reflect the sales charges applicable to Class G shares) for periods prior to the inception of Retail B Shares of the Galaxy New York Fund (March 1, 2001). Class G shares generally would have had substantially similar returns to Retail A Shares because they would have been invested in the same portfolio of securities, although the returns would be lower to the extent that expenses for Class G shares exceed expenses paid by Retail A Shares. Retail A Shares were initially offered on December 31, 1991.
The Funds
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees, shareholder service fees and other expenses that generally include, but are not limited to, other administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds.
Except as noted, the table does not take into account any
expense reduction arrangements discussed in the footnotes
to the Annual Fund Operating Expenses table. It uses the
following hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class G shares convert to Class T shares after eight
years
Shareholder Fees/(1) /(paid directly from your investment)
Class T Class G
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75 0.00
----------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00
----------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class T shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
The Funds
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class T Class G
Management fee/(1)/ (%) 0.55 0.55
---------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.00 0.80/(2)/
---------------------------------------------------------------
Other expenses/(4)/ (%) 0.34/(3)/ 0.19
---------------------------------------------------------------
Total annual fund operating expenses (%) 0.89 1.54
|
(1) The Fund pays a management fee of 0.48% and an administration fee of 0.07%.
(2) The Fund may pay distribution and service (12b-1) fees up to a maximum of
1.15% of the Fund's average daily net assets attributable to Class G shares
(comprised of up to 0.65% for distribution services, up to 0.25% for
shareholder liaison services and up to 0.25% for administrative support
services), but will limit such fees to an aggregate fee of not more than
0.80% during the current fiscal year.
(3) The Fund may pay shareholder service fees (which are included in other
expenses) up to a maximum of 0.50% of the Fund's average daily net assets
attributable to Class T shares (comprised of up to 0.25% for shareholder
liaison services and up to 0.25% for administrative support services) but
will limit such fees to an aggregate fee of not more than 0.15% during the
current fiscal year.
(4) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class T $562 $745 $945 $1,519
-----------------------------------------------------------------
Class G: did not sell your shares $157 $486 $839 $1,659
sold all your shares at
the end of the period $657 $886 $1,139 $1,659
|
See Appendix A for additional hypothetical investment and expense information.
The Funds
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class T share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
The Fund's returns are compared to the Lehman Brothers 3-15 Year Blend Municipal Bond Index (Lehman Brothers 3-15 Year Bond Index), an unmanaged index that tracks the performance of municipal bonds issued after December 31, 1990 with remaining maturities between 2 and 17 years and at least $5 million in principal amount outstanding. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
The Funds
Calendar Year Total Returns (Class T)/(1)/
[CHART]
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
----- ----- ----- ------ ------ ----- ------ ------ ------- ------
3.63% 8.54% 5.87% -2.77% 11.58% 4.21% 9.12% 4.05% 2.70% 1.95%
|
For the periods shown in bar chart:
Best quarter: 4th quarter 2000, +4.47%
Worst quarter: 2nd quarter 2004, -2.20%
(1) The calendar year total returns shown for Class T shares include the returns of Retail A Shares of the Galaxy Rhode Island Municipal Bond Fund (the Galaxy Rhode Island Fund), the predecessor to the Fund, for periods prior to November 18, 2002, the date on which Class T shares were initially offered by the Fund.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The return after taxes on distributions and sale of fund shares at a capital loss may be higher than the return before taxes due to the resulting tax benefit from the capital loss on the after tax return calculation.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class T (%)
Return Before Taxes -2.88 3.36/(1)/ 4.31/(1)/
Return After Taxes on Distributions -2.92 3.35/(1)/ 4.27/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -0.55 3.43/(1)/ 4.27/(1)/
--------------------------------------------------------------------------------------------
Class G (%)
Return Before Taxes -3.76 3.02/(1)/ 4.40/(1)/
Return After Taxes on Distributions -3.80 3.01/(1)/ 4.36/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -1.35 3.04/(1)/ 4.31/(1)/
--------------------------------------------------------------------------------------------
Lehman Brothers 3-15 Year Bond Index (%) 2.25 5.18 5.42
|
(1) The average annual total returns shown include the returns of Retail A Shares (for Class T shares) and Retail B Shares (for Class G shares) of the Galaxy Rhode Island Fund for periods prior to November 18, 2002, the date on which Class T and Class G shares were initially offered by the Fund. The returns shown for Class G shares also include the returns of Retail A Shares (adjusted to reflect the sales charges applicable to Class G shares) for periods prior to the inception of Retail B Shares of the Galaxy Rhode Island Fund (March 1, 2001). Class T and Class G shares generally would have had substantially similar returns to the predecessor classes because they would have been invested in the same portfolio of securities, although the returns would be lower to the extent that expenses for Class T and Class G shares exceed expenses paid by the predecessor classes. Retail A Shares were initially offered on December 20, 1994.
The Funds
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees, shareholder service fees and other expenses that generally include, but are not limited to, other administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds.
Except as noted, the table does not take into account any
expense reduction arrangements discussed in the footnotes
to the Annual Fund Operating Expenses table. It uses the
following hypothetical conditions:
$10,000 initial investment
5% total return for each year
Fund operating expenses remain the same
Reinvestment of all dividends and distributions
Class G shares convert to Class T shares after eight years
Shareholder Fees/(1) /(paid directly from your investment)
Class T Class G
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75 0.00
----------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00
----------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class T shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
The Funds
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class T Class G
Management fee/(1)/ (%) 0.55 0.55
-------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.00 0.80(2)
-------------------------------------------------------------
Other expenses/(4)/ (%) 0.20/(3)/ 0.20
-------------------------------------------------------------
Total annual fund operating expenses (%) 0.75 1.55
|
(1) The Fund pays a management fee of 0.48% and an administration fee of 0.07%.
(2) The Fund may pay distribution and service (12b-1) fees up to a maximum of
1.15% of the Fund's average daily net assets attributable to Class G shares
(comprised of up to 0.65% for distribution services, up to 0.25% for
shareholder liaison services and up to 0.25% for administrative support
services), but will limit such fees to an aggregate fee of not more than
0.80% during the current fiscal year.
(3) The Fund may pay shareholder service fees (which are included in other
expenses) of up to a maximum of 0.50% of the Fund's average daily net
assets attributable to Class T shares (comprised of up to 0.25% for
shareholder liaison services and up to 0.25% for administrative support
services) but no such fees will be charged during the current fiscal year.
(4) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class T $548 $703 $872 $1,361
-----------------------------------------------------------------
Class G: did not sell your shares $158 $490 $845 $1,630
sold all your shares at
the end of the period $658 $890 $1,145 $1,630
|
See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
-------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares of a Fund
for your account by exchanging Class T or Class G shares
you own in a different fund distributed by Columbia
Management Distributors, Inc. for shares of the same class
(and, in some cases, certain other classes) of the Fund at
no additional cost. An exchange may incur a sales charge if
the original purchase was not assessed a sales charge. To
exchange by telephone, call 1-800-422-3737.
-------------------------------------------------------------------------------
By wire You may purchase shares of a Fund by wiring money from your
bank account to your Fund account. To wire funds to your
Fund account, call 1-800-422-3737 for wiring instructions.
-------------------------------------------------------------------------------
By electronic You may purchase shares of a Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
-------------------------------------------------------------------------------
Automated dollar You may purchase shares of a Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. There may
be an additional sales charge if exchanging from a money
market fund. Be sure to complete the appropriate section of
the account application for this feature.
-------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
|
Class T and G shares are sold only to investors who received (and who have continuously held) Class T or G shares in connection with the merger of certain Galaxy Funds into various Columbia Funds (formerly named Liberty Funds).
Please see the Statement of Additional Information for more details on investment minimums.
Your Account
Class T shares Your purchases of Class T shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class T shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
Class T Sales Charges
% of offering
As a % of price
the public As a % retained by
offering of your financial
Amount purchased price investment advisor
Less than $50,000 4.75 4.99 4.25
--------------------------------------------------------------------
$50,000 to less than $100,000 4.50 4.71 3.75
--------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 2.75
--------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.00
--------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
--------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
|
Class T shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class T share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class T share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
Purchases Over $1 Million
Amount purchased Commission % Less than $3 million 1.00 ------------------------------------------------ $3 million to less than $50 million 0.50 ------------------------------------------------ $50 million or more 0.25 |
Your Account
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES Certain investments in Class T and G shares are subject to a CDSC, a sales charge applied at the time you sell your shares. You will pay the CDSC only on shares you sell within a certain amount of time after purchase. The CDSC generally declines each year until there is no charge for selling shares. The CDSC is applied to the net asset value at the time of purchase or sale, whichever is lower. For purposes of calculating the CDSC for Class G shares, the start of the holding period is the first day of the month in which the purchase was made. Shares you purchase with reinvested dividends or other distributions are not subject to a CDSC. When you place an order to sell shares, the Fund will automatically sell first those shares not subject to a CDSC and then those you have held the longest.
Reduced Sales Charges for Larger Investments.
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class T shares of the Funds and other funds in the Columbia family of funds.
Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Funds will use the shares' current public offering price.
Statement of Intent You also may pay a lower sales charge when purchasing Class T shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, a Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
. Individual accounts
. Joint accounts
. Certain IRA accounts
. Certain trusts
. UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be
Your Account
aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Funds are not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by a Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Funds' transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Funds as well as investors using the proceeds of redemptions of fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Funds' Statement of Additional Information which can be obtained at www.columbiafunds.com or by calling 1-800-345-6611.
Class G shares Your purchases of Class G shares are made at Class G's net asset value. Purchases up to $50,000 are allowed in Class G shares assuming the combined value of the customer's total assets in the Columbia funds does not exceed $50,000. Purchases in Class G shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class G shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class G shares as described in the chart below.
Class G Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 5.00
---------------------------------------------
Through second year 4.00
---------------------------------------------
Through third year 4.00
---------------------------------------------
Through fourth year 4.00
---------------------------------------------
Through fifth year 3.00
---------------------------------------------
Through sixth year 2.00
---------------------------------------------
Through seventh year 1.00
---------------------------------------------
Longer than seven years 0.00
|
Your Account
Commission to financial advisors is 4.00%.
Class G shares will automatically convert to Class T shares eight years after purchase.
Please see the Statement of Additional Information for the CDSCs and conversion schedules applicable to Class G shares received in exchange for Retail B Shares of the Galaxy Fund purchased or acquired prior to January 1, 2001.
When a Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Funds' transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable, you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-338-2550. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
A Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, a Fund may delay sending the proceeds from the sale of your shares for up to 10 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Your Account
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of a Fund by
exchanging from the Fund into the same share class (or
Class A and Class B shares, for Class T and Class G shares,
respectively) of another fund distributed by Columbia
Management Distributors, Inc. at no additional cost. To
exchange by telephone, call 1-800-345-6611.
------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of a Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-345-6611, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000
in a 30-day period. You do not need to set up this feature
in advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-345-6611.
------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or if
applicable, stock power form along with any share
certificates to be sold to the address below. In your
letter of instruction, note the Fund's name, share class,
account number, and the dollar value or number of shares
you wish to sell. All account owners must sign the letter.
Signatures must be guaranteed by either a bank, a member
firm of a national stock exchange or another eligible
guarantor institution that participates in the Medallion
Signature Guarantee Program for amounts over $100,000 or
for alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
------------------------------------------------------------------------------
By wire You may sell shares of a Fund and request that the proceeds
be wired to your bank. You must set up this feature prior
to your request. Be sure to complete the appropriate
section of the account application for this feature.
------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By electronic You may sell shares of a Fund and request that the proceeds
funds transfer be electronically transferred to your bank. Proceeds may
take up to two business days to be received by your bank.
You must set up this feature prior to your request. Be sure
to complete the appropriate section of the account
application for this feature.
|
Each Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if a Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
Your Account
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Funds. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Funds typically are not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Consequently, there is the risk that the Funds may not be able to do anything in response to market timing that occurs in the Funds which may result in certain shareholders being able to market time the Funds while the shareholders in the Funds bear the burden of such activities.
Certain financial intermediaries (including certain retirement plan service providers whose clients include, among others, various retirement plans sponsored by Bank of America and its affiliates for the benefit of its employees (the "Bank of America retirement service plan providers") have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above. In particular, the Bank of America retirement service plan provider permits the reinstatement of future purchase orders for shares of the Funds following various suspension periods.
The Funds seek to act in a manner that they believe is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Funds nor their agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Your Account
year. Each Fund has also adopted a plan that permits it to pay for certain services provided to Class T shareholders by their financial advisors. The annual service fee may equal up to 0.50% for Class T shares. The Rhode Island Fund does not intend to pay shareholder service fees for its Class T shares during the current fiscal year, and each Fund (other than the Rhode Island Fund) does not intend to pay more than 0.15% for Class T shares in shareholder service fees during the current fiscal year. The foregoing fees are paid out of the assets of the relevant class. Over time, these fees will reduce the return on your investment and may cost you more than paying other types of sales charges. Class G shares automatically convert to Class T shares after eight years, eliminating a portion of these fees upon conversion.
Additional Intermediary Compensation In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by the financial service firm to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of a Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Funds' investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Funds. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
Your Account
Each Fund determines its net asset value for its share classes by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, each Fund must determine the price of each security in its portfolio at the close of each trading day. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Funds may use other data to determine the fair value of the securities.
The Funds have retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for each Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value) your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for any class of shares offered by the Funds.
Dividends, Distributions and Taxes The Funds have the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by a Fund, net of expenses incurred by the Fund.
----------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
UNDERSTANDING FUND DISTRIBUTIONS
Each Fund may earn income from the securities it holds. Each Fund also may realize capital gains or losses on sales of its securities. Each Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of the Fund's income and capital gains based on the number of shares you own at the time these distributions are declared.
Distribution Options The Funds declare any dividends daily and pays them monthly, and declares and pays any capital gains (including short-term capital gains) at least annually. Shares begin to earn dividends on the date on which a purchase order is settled by payment. Shares stop earning dividends at the close of business on the day before the date on which a redemption order is settled. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
Your Account
If you do not indicate on your application or at the time your account is established your preference for handling distributions, a Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable all subsequent distributions will be reinvested in additional shares of the Fund.
Tax Consequences For federal income tax purposes, distributions of investment income by a Fund, whether in cash or additional securities, will ordinarily constitute tax-exempt income. Generally, gains realized by a Fund on the sale or exchange of investments, the income from which is tax-exempt, will be taxable to shareholders. In addition, an investment in a Fund may result in liability for federal alternative minimum tax for both individuals and corporate shareholders. The Funds intend to distribute federally tax-exempt income. The Funds may invest a portion of their assets in securities that generate income subject to federal or state income taxes. Income exempt from federal tax may be subject to state and local taxes.
You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in a Fund may have additional personal tax implications. Please consult your tax advisor about federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by each Fund, you may realize a capital gain or loss when selling or exchanging shares of a Fund. Such transactions also may be subject to federal, state and local income tax.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Funds. As a result of the merger, Columbia Advisors is now the investment advisor to the Funds.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Advisors and/or Columbia Management by the Funds, not including pricing and bookkeeping and other fees paid to Columbia Advisors and/or Columbia Management by each of the Funds, amounted to 0.48%, of average daily net assets of each Fund. A discussion of the factors considered by the Funds' Board of Trustees in approving the Funds' investment advisory contract is included in the Funds' annual report to shareholders for the fiscal year ended October 31, 2005.
Brian McGreevy, a vice president of Columbia Advisors, is the manager for the New Jersey, Rhode Island, Connecticut and New York Funds, and has managed the New Jersey Fund since January, 1998, the Rhode Island Fund since July, 1997, the Connecticut Fund since September, 2002, and the New York Fund since July, 1997. Mr. McGreevy has been associated with Columbia Advisors or its predecessors since December, 1994.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Funds.
Managing the Funds
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and he has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss
the claims in the pending cases. On November 3, 2005, the U.S. District Court
for the District of Maryland dismissed the claims under the Securities Act of
1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act
of 1940 (ICA) and the state law claims against Columbia and others. The claims
under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and
Section 36(b) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
Managing the Funds
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
For the year ended November 30, 2005, Columbia has assumed $35,472 of legal, consulting services and Trustees' fees incurred by the fund in connection with these matters.
The financial highlights table is intended to help you understand each Fund's financial performance. Information is shown for each Fund's last five fiscal years or since inception, which run from November 1 to October 31, unless otherwise indicated. Information for Class T shares and Class G shares prior to the date of reorganization, as further described in the footnotes to each Fund's financial highlights, is for the former Retail A shares and Retail B shares, of the respective Galaxy Fund. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in a Fund (assuming reinvestment of all dividends and distributions). This information has been derived from each Fund's financial statements which, for the years ended October 31, 2005 and October 31, 2004, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Funds' financial statements, is included in the Funds' annual report. The information for the years and periods ended October 31, 2003, 2002 and 2001 has been derived from the Funds' financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
Financial Highlights
Columbia Connecticut Intermediate Municipal Bond Fund
Year ended October 31,
2005 2004 2003/(a)(b)/ 2002 2001
Class T Class T Class T Class T Class T
------- ------- ----------- ------- -------
Net asset value --
Beginning of period ($) 11.04 10.99 10.98 10.92 10.41
----------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.38/(c)/ 0.36/(c)/ 0.40/(c)(d)/ 0.42/(d)(e)/ 0.43/(d)/
Net realized and unrealized gain on investments and
futures contracts (0.35) 0.06 --/(f)/ 0.06/(e)/ 0.50
----------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.03 0.42 0.40 0.48 0.93
----------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders:
From net investment income (0.38) (0.37) (0.39) (0.42) (0.42)
----------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 10.69 11.04 10.99 10.98 10.92
----------------------------------------------------------------------------------------------------------------------------
Total return (%)/(g)/ 0.25/(h)/ 3.87 3.64/(h)/ 4.51/(h)/ 9.10/(h)/
----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(i)/ 0.84 0.95 0.92 0.87 0.93
Net investment income/(i)/ 3.48 3.23 3.61 3.90/(e)/ 3.97
Waiver/reimbursement --/(j)/ --/(j)/ 0.20 0.21 0.19
Portfolio turnover rate (%) 9 16 15 3 36
Net assets, end of period (000's) ($) 25,418 32,609 37,766 22,027 27,691
|
(a) On October 13, 2003, the Liberty Connecticut Intermediate Municipal Bond
Fund was renamed Columbia Connecticut Intermediate Municipal Bond Fund.
(b) On November 18, 2002, the Galaxy Connecticut Intermediate Municipal Bond
Fund, Retail A shares were redesignated Liberty Connecticut Intermediate
Bond Fund, Class T shares.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the years ended October
31, 2003, 2002 and 2001 was $ 0.38(c), $0.39 and $0.41, respectively.
(e) The Fund adopted the provisions of the AICPA Audit Guide for Investment
Companies effective November 1, 2001. The effect of the change for the year
ended October 31, 2002 on the net investment income per share, net realized
and unrealized gain per share and the ratio of net investment income to
average net assets is $0.00, $0.00 and 0.02%, respectively.
(f) Rounds to less than $0.01 per share.
(g) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(h) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Rounds to less than 0.01%.
Financial Highlights
Columbia Connecticut Intermediate Municipal Bond Fund
Year ended October 31,
2005 2004 2003/(a)(b)/ 2002
Class G Class G Class G Class G
------- ------- ----------- -------
Net asset value --
Beginning of period ($) 11.04 10.99 10.98 10.92
------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.31/(d)/ 0.28/(d)/ 0.32/(d)(e)/ 0.34/(d)(f)/
Net realized and unrealized gain on investments and
futures contracts (0.35) 0.07 --/(g)/ 0.06/(f)/
------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.04) 0.35 0.32 0.40
------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders:
From net investment income (0.31) (0.30) (0.31) (0.34)
------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 10.69 11.04 10.99 10.98
------------------------------------------------------------------------------------------------------------------
Total return (%)/(h)/ (0.40)/(i)/ 3.20 2.92/(i)/ 3.79/(i)/
------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(k)/ 1.49 1.60 1.63 1.56
Net investment income/(k)/ 2.83 2.58 2.90 3.21/(f)/
Waiver/reimbursement --/(m)/ --/(m)/ 0.20 0.21
Portfolio turnover rate (%) 9 16 15 3
Net assets, end of period (000's) ($) 249 310 345 138
|
Period ended
October 31,
2001/(c)/
Class G
------------
Net asset value --
Beginning of period ($) 10.69
-------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.23/(e)/
Net realized and unrealized gain on investments and
futures contracts 0.23
-------------------------------------------------------------------------
Total from Investment Operations 0.46
-------------------------------------------------------------------------
Less Distributions Declared
to Shareholders:
From net investment income (0.23)
-------------------------------------------------------------------------
Net asset value --
End of period ($) 10.92
-------------------------------------------------------------------------
Total return (%)/(h)/ 4.33/(i)(j)/
-------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(k)/ 1.69/(l)/
Net investment income/(k)/ 3.21/(l)/
Waiver/reimbursement 0.19(l)
Portfolio turnover rate (%) 36/(j)/
Net assets, end of period (000's) ($) 46
|
(a) On October 13, 2003, the Liberty Connecticut Intermediate Municipal Bond
Fund was renamed Columbia Connecticut Intermediate Municipal Bond Fund.
(b) On November 18, 2002, the Galaxy Connecticut Intermediate Municipal Bond
Fund, Retail B shares were redesignated Liberty Connecticut Intermediate
Municipal Bond Fund, Class G shares.
(c) The Galaxy Connecticut Intermediate Municipal Bond Fund began issuing
Retail B shares on March 1, 2001.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the years ended October
31, 2003, 2002 and the period ended October 31, 2001 was $0.30(d), $0.32
and $0.22, respectively.
(f) The Fund adopted the provisions of the AICPA Audit Guide for Investment
Companies effective November 1, 2001. The effect of the change for the year
ended October 31, 2002 on the net investment income per share, net realized
and unrealized gain per share and the ratio of net investment income to
average net assets is $0.00, $0.00 and 0.02%, respectively.
(g) Rounds to less than $0.01 per share.
(h) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(i) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(j) Not annualized.
(k) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(l) Annualized.
(m) Rounds to less than 0.01%.
Financial Highlights
Columbia Massachusetts Intermediate Municipal Bond Fund
Year ended October 31,
2005 2004 2003/(a)(b)/ 2002 2001
Class T Class T Class T Class T Class T
------- ------- ----------- ------- -------
Net asset value --
Beginning of period ($) 10.87 10.82 10.76 10.67 10.18
---------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.38/(c)/ 0.38/(c)/ 0.38/(c)(d)/ 0.40/(c)(d)(e)/ 0.42/(d)/
Net realized and unrealized gain on investments (0.35) 0.05 0.06 0.09/(e)/ 0.49
---------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.03 0.43 0.44 0.49 0.91
---------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders:
From net investment income (0.38) (0.38) (0.38) (0.40) (0.42)
From net realized gains (0.03) -- -- -- --
---------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.41) (0.38) (0.38) (0.40) (0.42)
---------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 10.49 10.87 10.82 10.76 10.67
---------------------------------------------------------------------------------------------------------------------------
Total return (%)/(f)/ 0.28/(g)/ 4.01 4.13/(g)/ 4.67/(g)/ 9.05/(g)/
---------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 0.81 0.88 0.90 0.85 0.91
Net investment income/(h)/ 3.52 3.47 3.51 3.73/(e)/ 3.98
Waiver/reimbursement --/(i)/ --/(i)/ 0.20 0.20 0.18
Portfolio turnover rate (%) 15 12 11 6 54
Net assets, end of period (000's) ($) 54,474 64,229 76,839 72,454 57,071
|
(a) On October 13, 2003, the Liberty Massachusetts Intermediate Municipal Bond
Fund was renamed Columbia Massachusetts Intermediate Municipal Bond Fund.
(b) On December 9, 2002, the Galaxy Massachusetts Intermediate Municipal Bond
Fund, Retail A shares were redesignated Liberty Massachusetts Intermediate
Municipal Bond Fund, Class T shares.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the years ended October
31, 2003, 2002 and 2001 was $0.36(c), $0.36(c) and $0.40, respectively.
(e) The Fund adopted the provisions of the AICPA Audit Guide for Investment
Companies effective November 1, 2001. The effect of the change for the year
ended October 31, 2002 on the net investment income per share, net realized
and unrealized gain per share and the ratio of net investment income to
average net assets is $0.00, $0.00 and 0.00%, respectively.
(f) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(g) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Rounds to less than 0.01%.
Financial Highlights
Columbia Massachusetts Intermediate Municipal Bond Fund
Period ended
Year ended October 31, October 31,
2005 2004 2003/(a)(b)/ 2002 2001/(c)/
Class G Class G Class G Class G Class G
------- ------- ----------- ------- ------------
Net asset value --
Beginning of period ($) 10.87 10.82 10.76 10.67 10.44
---------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.31/(d)/ 0.31/(d)/ 0.31/(d)(e)/ 0.33/(d)(e)(f)/ 0.22/(e)/
Net realized and unrealized gain on investments (0.35) 0.05 0.06 0.09/(f)/ 0.23
---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.04) 0.36 0.37 0.42 0.45
---------------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders:
From net investment income (0.31) (0.31) (0.31) (0.33) (0.22)
From net realized gains (0.03) -- -- -- --
---------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.34) (0.31) (0.31) (0.33) (0.22)
---------------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 10.49 10.87 10.82 10.76 10.67
---------------------------------------------------------------------------------------------------------------------------------
Total return (%)/(g)/ (0.37)/(h)/ 3.34 3.45/(h)/ 3.97/(h)/ 4.41/(h)(i)/
---------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(j)/ 1.46 1.53 1.56 1.52 1.56/(k)/
Net investment income/(j)/ 2.87 2.82 2.84 3.06/(f)/ 3.33/(k)/
Waiver/reimbursement --/(l)/ --/(l)/ 0.20 0.20 0.18/(k)/
Portfolio turnover rate (%) 15 12 11 6 54
Net assets, end of period (000's) ($) 894 1,101 1,610 1,176 653
|
(a) On October 13, 2003, the Liberty Massachusetts Intermediate Municipal Bond
Fund was renamed Columbia Massachusetts Intermediate Municipal Bond Fund.
(b) On December 9, 2002, the Galaxy Massachusetts Intermediate Municipal Bond
Fund, Retail B shares were redesignated Liberty Massachusetts Intermediate
Municipal Bond Fund, Class G shares.
(c) The Galaxy Massachusetts Intermediate Municipal Bond Fund began issuing
Retail B shares on March 1, 2001.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the period ended
October 31, 2003, 2002 and the period ended October 31, 2001 was $0.29(d),
$0.30 and $0.21, respectively.
(f) The Fund adopted the provisions of the AICPA Audit Guide for Investment
Companies effective November 1, 2001. The effect of the change for for the
year ended October 31, 2002 on the net investment income per share, net
realized and unrealized gain per share and the ratio of net investment
income to average net assets is $0.00, $0.00 and 0.00%, respectively.
(g) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(h) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
(l) Rounds to less than 0.01%.
Financial Highlights
Columbia New Jersey Intermediate Municipal Bond Fund
Year ended October 31,
2005 2004 2003/(a)(b)/ 2002 2001
Class T Class T Class T Class T Class T
------- ------- ----------- ------- -------
Net asset value --
Beginning of period ($) 10.57 10.50 10.47 10.41 9.88
------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.36/(c)/ 0.34/(c)/ 0.33/(c)(d)/ 0.39/(d)(e)/ 0.39/(d)/
Net realized and unrealized gain on investments
and futures contracts (0.30) 0.10 0.11 0.12/(e)/ 0.53
------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.06 0.44 0.44 0.51 0.92
------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders:
From net investment income (0.36) (0.34) (0.33) (0.39) (0.39)
From net realized gains (0.04) (0.03) (0.08) (0.06) --
------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.40) (0.37) (0.41) (0.45) (0.39)
------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 10.23 10.57 10.50 10.47 10.41
------------------------------------------------------------------------------------------------------------------------
Total return (%)/(f)(g)/ 0.55 4.30 4.25 5.06 9.52
------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 0.96 1.04 1.04 0.89 0.90
Net investment income/(h)/ 3.43 3.26 3.20 3.79/(e)/ 3.86
Waiver/reimbursement --/(i)/ --/(i)/ 0.20 0.21 0.41
Portfolio turnover rate (%) 14 12 8 23 61
Net assets, end of period (000's) ($) 6,484 7,192 7,749 10,128 11,248
|
(a) On October 13, 2003, the Liberty New Jersey Intermediate Municipal Bond
Fund was renamed Columbia New Jersey Intermediate Municipal Bond Fund.
(b) On November 18, 2002, the Galaxy New Jersey Intermediate Municipal Bond
Fund, Retail A shares were redesignated Liberty New Jersey Intermediate
Municipal Bond Fund, Class T shares.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the years ended October
31, 2003, 2002 and 2001 was $0.31(c), $0.37, and $0.35, respectively.
(e) The Fund adopted the provisions of the AICPA Audit Guide for Investment
Companies effective November 1, 2001. The effect of the change for the year
ended October 31, 2002 on the net investment income per share, net realized
and unrealized gain per share and the ratio of net investment income to
average net assets is $0.00, $0.00 and 0.01%, respectively.
(f) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(g) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Rounds to less than 0.01%.
Financial Highlights
Columbia New Jersey Intermediate Municipal Bond Fund
Period ended
Year ended October 31, October 31,
2005 2004 2003/(a)(b)/ 2002 2001/(c)/
Class G Class G Class G Class G Class G
------- ------- ----------- ------- ------------
Net asset value --
Beginning of period ($) 10.57 10.50 10.47 10.41 10.16
------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.29/(d)/ 0.28/(d)/ 0.26/(d)(e)/ 0.31/(e)(f)/ 0.22/(e)/
Net realized and unrealized gain on investments and
futures contracts (0.30) 0.10 0.11 0.12/(f)/ 0.24
------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.01) 0.38 0.37 0.43 0.46
------------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.29) (0.28) (0.26) (0.31) (0.21)
From net realized gains (0.04) (0.03) (0.08) (0.06) --
------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.33) (0.31) (0.34) (0.37) (0.21)
------------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 10.23 10.57 10.50 10.47 10.41
------------------------------------------------------------------------------------------------------------------------------
Total return (%)/(g)(h)/ (0.10) 3.63 3.57 4.22 4.61/(i)/
------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(j)/ 1.61 1.68 1.69 1.62/(e)/ 1.73/(k)/
Net investment income/(j)/ 2.78 2.64 2.51 3.06 3.03/(k)/
Waiver/reimbursement --/(l)/ 0.01 0.26 0.21 0.33/(k)/
Portfolio turnover rate (%) 14 12 8 23 61
Net assets, end of period (000's) ($) 174 192 200 309 14
|
(a) On October 13, 2003, the Liberty New Jersey Intermediate Municipal Bond
Fund was renamed Columbia New Jersey Intermediate Municipal Bond Fund.
(b) On November 18, 2002, the Galaxy New Jersey Intermediate Municipal Bond
Fund, Retail B shares were redesignated Liberty New Jersey Intermediate
Municipal Bond Fund, Class G shares.
(c) The Galaxy New Jersey Intermediate Municipal Bond Fund began issuing Retail
B shares on March 1, 2001.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the period ended
October 31, 2003, 2002 and the period ended October 31, 2001 was $0.23(d),
$0.28 and $0.20, respectively.
(f) The Fund adopted the provisions of the AICPA Audit Guide for Investment
Companies effective November 1, 2001. The effect of the change for for the
year ended October 31, 2002 on the net investment income per share, net
realized and unrealized gain per share and the ratio of net investment
income to average net assets is $0.00, $0.00 and 0.00%, respectively.
(g) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(h) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
(l) Rounds to less than 0.01%.
Financial Highlights
Columbia New York Intermediate Municipal Bond Fund
Year ended October 31,
2005 2004 2003/(a)(b)/ 2002 2001
Class T Class T Class T Class T Class T
------- ------- ----------- ------- -------
Net asset value --
Beginning of period ($) 11.98 11.87 11.79 11.56 10.99
------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.40/(c)/ 0.38/(c)/ 0.36/(c)(d)/ 0.43/(d)(e)/ 0.47/(d)/
Net realized and unrealized gain on investments
and futures contracts (0.36) 0.13 0.13 0.23/(e)/ 0.57
------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.04 0.51 0.49 0.66 1.04
------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.40) (0.38) (0.36) (0.43) (0.47)
From net realized gains (0.01) (0.02) (0.05) -- --
------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.41) (0.40) (0.41) (0.43) (0.47)
------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 11.61 11.98 11.87 11.79 11.56
------------------------------------------------------------------------------------------------------------------------
Total return (%)/(f)(g)/ 0.32 4.34 4.26 5.86 9.59
------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 0.87 1.01 1.02 0.96 0.97
Net investment income/(h)/ 3.36 3.16 3.07 3.75/(e)/ 4.11
Waiver/reimbursement --/(i)/ --/(i)/ 0.20 0.21 0.21
Portfolio turnover rate (%) 4 11 9 41 48
Net assets, end of period (000's) ($) 17,943 21,584 24,384 29,835 40,410
|
(a) On October 13, 2003, the Liberty New York Intermediate Municipal Bond Fund
was renamed Columbia New York Intermediate Municipal Bond Fund.
(b) On November 25, 2002, the Galaxy New York Municipal Bond Fund, Retail A
shares were redesignated Liberty New York Intermediate Municipal Bond Fund,
Class T shares.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the years ended October
31, 2003, 2002 and 2001 was $0.34(c), $0.41 and $0.44, respectively.
(e) The Fund adopted the provisions of the AICPA Audit Guide for Investment
Companies effective November 1, 2001. The effect of the change for the year
ended October 31, 2002 on the net investment income per share, net realized
and unrealized gain per share and the ratio of net investment income to
average net assets is $0.00, $0.00 and 0.02%, respectively.
(f) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(g) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Rounds to less than 0.01%.
Financial Highlights
Columbia New York Intermediate Municipal Bond Fund
Period ended
Year ended October 31, October 31,
2005 2004 2003/(a)(b)/ 2002 2001/(c)/
Class G Class G Class G Class G Class G
------- ------- ----------- ------- ------------
Net asset value --
Beginning of period ($) 11.98 11.87 11.79 11.56 11.32
------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.32/(d)/ 0.30/(d)/ 0.29/(d)(e)/ 0.35/(e)(f)/ 0.26/(e)/
Net realized and unrealized gain on investments and
futures contracts (0.36) 0.13 0.13 0.23/(f)/ 0.24
------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.04) 0.43 0.42 0.58 0.50
------------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.32) (0.30) (0.29) (0.35) (0.26)
From net realized gains (0.01) (0.02) (0.05) -- --
------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.33) (0.32) (0.34) (0.35) (0.26)
------------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 11.61 11.98 11.87 11.79 11.56
------------------------------------------------------------------------------------------------------------------------------
Total return (%)/(g)(h)/ (0.33) 3.67 3.56 5.15 4.46/(i)/
------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(j)/ 1.52 1.66 1.68 1.63 1.62/(k)/
Net investment income/(j)/ 2.71 2.51 2.39 3.08/(f)/ 3.46/(k)/
Waiver/reimbursement --/(l)/ 0.02 0.28 0.24 0.26/(k)/
Portfolio turnover rate (%) 4 11 9 41 48
Net assets, end of period (000) ($) 77 213 354 342 207
|
(a) On October 13, 2003, the Liberty New York Intermediate Municipal Bond Fund
was renamed Columbia New York Intermediate Municipal Bond Fund.
(b) On November 25, 2002, the Galaxy New York Municipal Bond Fund, Retail B
shares were redesignated Liberty New York Intermediate Municipal Bond Fund,
Class G shares.
(c) The Galaxy New York Municipal Bond Fund began issuing Retail B shares on
March 1, 2001.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the years ended October
31, 2003, 2002 and the period ended October 31, 2001 was $0.26 (d), $0.33,
and $0.24, respectively.
(f) The Fund adopted the provisions of the AICPA Audit Guide for Investment
Companies effective November 1, 2001. The effect of the change for the year
ended October 31, 2002 on the net investment income per share, net realized
and unrealized gain per share and the ratio of net investment income to
average net assets is $0.00, $0.00 and 0.02%, respectively.
(g) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(h) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
(l) Rounds to less than 0.01%.
Financial Highlights
Columbia Rhode Island Intermediate Municipal Bond Fund
Year ended October 31,
2005 2004 2003/(a)(b)/ 2002 2001
Class T Class T Class T Class T Class T
------- ------- ----------- ------- -------
Net asset value --
Beginning of period ($) 11.54 11.48 11.41 11.30 10.75
------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.43/(c)/ 0.41/(c)/ 0.39/(c)(d)/ 0.47/(d)(e)/ 0.49/(d)/
Net realized and unrealized gain on investments
and futures contracts (0.33) 0.06 0.07 0.11/(e)/ 0.55
------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.10 0.47 0.46 0.58 1.04
------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.44) (0.41) (0.39) (0.47) (0.49)
From realized gains (0.01) -- -- -- --
------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.44) (0.41) (0.39) (0.47) (0.49)
------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 11.20 11.54 11.48 11.41 11.30
------------------------------------------------------------------------------------------------------------------------
Total return (%)/(f)/ 0.88 4.17 4.07/(g)/ 5.23/(g)/ 9.88/(g)/
------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 0.72 0.81 0.80 0.73 0.69
Net investment income/(h)/ 3.75 3.58 3.41 4.16/(e)/ 4.44
Waiver/reimbursement --/(i)/ --/(i)/ 0.20 0.21 0.25
Portfolio turnover rate (%) 12 11 15 19 19
Net assets, end of period (000's) ($) 12,284 14,479 41,113 45,683 40,257
|
(a) On October 13, 2003, the Liberty Rhode Island Intermediate Municipal Bond
Fund was renamed Columbia Rhode Island Intermediate Municipal Bond Fund.
(b) On November 18, 2002, the Galaxy Rhode Island Municipal Bond Fund, Retail A
shares were redesignated Liberty Rhode Island Intermediate Municipal Bond
Fund, Class T shares.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the years ended October
31, 2003, 2002 and 2001 was $0.37(c), $0.45 and $0.47, respectively.
(e) The Fund adopted the provisions of the AICPA Audit Guide for Investment
Companies effective November 1, 2001. The effect of the change for the year
ended October 31, 2002 on the net investment income per share, net realized
and unrealized gain per share and the ratio of net investment income to
average net assets is $0.00, $0.00 and 0.02%, respectively.
(f) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(g) Had the Investment Advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Rounds to less than 0.01%.
Financial Highlights
Columbia Rhode Island Intermediate Municipal Bond Fund
Period ended
Year ended October 31, October 31,
2005 2004 2003/(a)(b)/ 2002 2001/(c)/
Class G Class G Class G Class G Class G
------- ------- ----------- ------- ------------
Net asset value --
Beginning of period ($) 11.54 11.48 11.41 11.30 11.06
---------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.34/(d)/ 0.32/(d)/ 0.29/(d)(e)/ 0.37/(e)(f)/ 0.27/(e)/
Net realized and unrealized gain on investments and
futures contracts (0.33) 0.06 0.07 0.11/(f)/ 0.23
---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.01 0.38 0.36 0.48 0.50
---------------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.34) (0.32) (0.29) (0.37) (0.26)
From net realized gains (0.01) -- -- -- --
---------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.35) (0.32) (0.29) (0.37) (0.26)
---------------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 11.20 11.54 11.48 11.41 11.30
---------------------------------------------------------------------------------------------------------------------------------
Total return (%)/(g)/ 0.08 3.34 3.22/(h)/ 4.36/(h)/ 4.60/(h)(i)/
---------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(j)/ 1.52 1.61 1.62 1.55 1.53/(k)/
Net investment income/(j)/ 2.96 2.78 2.60 3.34/(f)/ 3.60/(k)/
Waiver/reimbursement --/(l)/ --/(l)/ 0.20 0.21 0.23/(k)/
Portfolio turnover rate (%) 12 11 15 19 19
Net assets, end of period (000's) ($) 252 379 455 440 169
|
(a) On October 13, 2003, the Liberty Rhode Island Intermediate Municipal Bond
Fund was renamed Columbia Rhode Island Intermediate Municipal Bond Fund.
(b) On November 18, 2002, the Galaxy Rhode Island Municipal Bond Fund, Retail B
shares were redesignated Liberty Rhode Island Intermediate Municipal Bond,
Class G shares.
(c) The Galaxy Rhode Island Municipal Bond Fund began issuing Retail B shares
on March 1, 2001.
(d) Per share data was calculated using average shares outstanding during the
period.
(e) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the years ended October
31, 2003, 2002 and the period ended October 31, 2001 was $0.26(d), $0.35
and $0.25, respectively.
(f) The Fund adopted the provisions of the AICPA Audit Guide for Investment
Companies effective November 1, 2001. The effect of the change for the year
ended October 31, 2002 on the net investment income per share, net realized
and unrealized gain per share and the ratio of net investment income to
average net assets is $0.00, $0.00 and 0.02%, respectively.
(g) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(h) Had the Investment Advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
(l) Rounds to less than 0.01%.
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of each Fund, including investment advisory fees and other Fund costs, on each Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class T and G shares of each Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The charts also assume that all dividends and distributions are reinvested and that Class G shares convert to Class T shares after eight years. The annual expense ratios used for each Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher.
Columbia Connecticut Intermediate Municipal Bond Fund -- Class T Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
4.75% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 0.86% -0.81%/(2)/ $9,919.34 $558.61
2 10.25% 0.86% 3.30% $10,330.00 $87.07
3 15.76% 0.86% 7.58% $10,757.66 $90.68
4 21.55% 0.86% 12.03% $11,203.02 $94.43
5 27.63% 0.86% 16.67% $11,666.83 $98.34
6 34.01% 0.86% 21.50% $12,149.84 $102.41
7 40.71% 0.86% 26.53% $12,652.84 $106.65
8 47.75% 0.86% 31.77% $13,176.67 $111.07
9 55.13% 0.86% 37.22% $13,722.18 $115.67
10 62.89% 0.86% 42.90% $14,290.28 $120.45
Total Gain After Fees and Expenses $4,290.28
Total Annual Fees and Expenses $1,485.38
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Columbia Connecticut Intermediate Municipal Bond Fund -- Class G Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Operating After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.51% 3.49% $10,349.00 $153.63
2 10.25% 1.51% 7.10% $10,710.18 $159.00
3 15.76% 1.51% 10.84% $11,083.97 $164.55
4 21.55% 1.51% 14.71% $11,470.80 $170.29
5 27.63% 1.51% 18.71% $11,871.13 $176.23
6 34.01% 1.51% 22.85% $12,285.43 $182.38
7 40.71% 1.51% 27.14% $12,714.19 $188.75
8 47.75% 1.51% 31.58% $13,157.92 $195.33
9 55.13% 0.86% 37.03% $13,702.65 $115.50
10 62.89% 0.86% 42.70% $14,269.94 $120.28
Total Gain After Fees and Expenses $4,269.94
Total Annual Fees and Expenses $1,625.94
|
Columbia Massachusetts Intermediate Municipal Bond Fund -- Class T Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
4.75% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 0.82% -0.77%/(2)/ $9,923.15 $554.74
2 10.25% 0.82% 3.38% $10,337.93 $83.07
3 15.76% 0.82% 7.70% $10,770.06 $86.54
4 21.55% 0.82% 12.20% $11,220.25 $90.16
5 27.63% 0.82% 16.89% $11,689.25 $93.93
6 34.01% 0.82% 21.78% $12,177.86 $97.86
7 40.71% 0.82% 26.87% $12,686.90 $101.95
8 47.75% 0.82% 32.17% $13,217.21 $106.21
9 55.13% 0.82% 37.70% $13,769.69 $110.65
10 62.89% 0.82% 43.45% $14,345.26 $115.27
Total Gain After Fees and Expenses $4,345.26
Total Annual Fees and Expenses $1,440.36
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Columbia Massachusetts Intermediate Municipal Bond Fund -- Class G Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Operating After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.47% 3.53% $10,353.00 $149.59
2 10.25% 1.47% 7.18% $10,718.46 $154.88
3 15.76% 1.47% 10.97% $11,096.82 $160.34
4 21.55% 1.47% 14.89% $11,488.54 $166.00
5 27.63% 1.47% 18.94% $11,894.09 $171.86
6 34.01% 1.47% 23.14% $12,313.95 $177.93
7 40.71% 1.47% 27.49% $12,748.63 $184.21
8 47.75% 1.47% 31.99% $13,198.66 $190.71
9 55.13% 0.82% 37.50% $13,750.36 $110.49
10 62.89% 0.82% 43.25% $14,325.12 $115.11
Total Gain After Fees and Expenses $4,325.12
Total Annual Fees and Expenses $1,581.13
|
Columbia New Jersey Intermediate Municipal Bond Fund -- Class T Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
4.75% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 0.98% -0.92%/(2)/ $9,907.91 $570.22
2 10.25% 0.98% 3.06% $10,306.20 $99.05
3 15.76% 0.98% 7.21% $10,720.51 $103.03
4 21.55% 0.98% 11.51% $11,151.48 $107.17
5 27.63% 0.98% 16.00% $11,599.77 $111.48
6 34.01% 0.98% 20.66% $12,066.08 $115.96
7 40.71% 0.98% 25.51% $12,551.13 $120.62
8 47.75% 0.98% 30.56% $13,055.69 $125.47
9 55.13% 0.98% 35.81% $13,580.53 $130.52
10 62.89% 0.98% 41.26% $14,126.46 $135.76
Total Gain After Fees and Expenses $4,126.46
Total Annual Fees and Expenses $1,619.30
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Columbia New Jersey Intermediate Municipal Bond Fund -- Class G Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Operating After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.63% 3.37% $10,337.00 $165.75
2 10.25% 1.63% 6.85% $10,685.36 $171.33
3 15.76% 1.63% 10.45% $11,045.45 $177.11
4 21.55% 1.63% 14.18% $11,417.69 $183.07
5 27.63% 1.63% 18.02% $11,802.46 $189.24
6 34.01% 1.63% 22.00% $12,200.20 $195.62
7 40.71% 1.63% 26.11% $12,611.35 $202.21
8 47.75% 1.63% 30.36% $13,036.35 $209.03
9 55.13% 0.98% 35.60% $13,560.41 $130.32
10 62.89% 0.98% 41.06% $14,105.54 $135.56
Total Gain After Fees and Expenses $4,105.54
Total Annual Fees and Expenses $1,759.26
|
Columbia New York Intermediate Municipal Bond Fund -- Class T Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
4.75% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 0.89% -0.84%/(2)/ $9,916.48 $561.51
2 10.25% 0.89% 3.24% $10,324.04 $90.07
3 15.76% 0.89% 7.48% $10,748.36 $93.77
4 21.55% 0.89% 11.90% $11,190.12 $97.63
5 27.63% 0.89% 16.50% $11,650.03 $101.64
6 34.01% 0.89% 21.29% $12,128.85 $105.82
7 40.71% 0.89% 26.27% $12,627.35 $110.17
8 47.75% 0.89% 31.46% $13,146.33 $114.69
9 55.13% 0.89% 36.87% $13,686.64 $119.41
10 62.89% 0.89% 42.49% $14,249.17 $124.31
Total Gain After Fees and Expenses $4,249.17
Total Annual Fees and Expenses $1,519.02
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Columbia New York Intermediate Municipal Bond Fund -- Class G Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Operating After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.54% 3.46% $10,346.00 $156.66
2 10.25% 1.54% 7.04% $10,703.97 $162.08
3 15.76% 1.54% 10.74% $11,074.33 $167.69
4 21.55% 1.54% 14.58% $11,457.50 $173.50
5 27.63% 1.54% 18.54% $11,853.93 $179.50
6 34.01% 1.54% 22.64% $12,264.08 $185.71
7 40.71% 1.54% 26.88% $12,688.41 $192.13
8 47.75% 1.54% 31.27% $13,127.43 $198.78
9 55.13% 0.89% 36.67% $13,666.97 $119.24
10 62.89% 0.89% 42.29% $14,228.68 $124.14
Total Gain After Fees and Expenses $4,228.68
Total Annual Fees and Expenses $1,659.43
|
Columbia Rhode Island Intermediate Municipal Bond Fund -- Class T Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
4.75% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 0.75% -0.70%/(2)/ $9,929.81 $547.96
2 10.25% 0.75% 3.52% $10,351.83 $76.06
3 15.76% 0.75% 7.92% $10,791.78 $79.29
4 21.55% 0.75% 12.50% $11,250.43 $82.66
5 27.63% 0.75% 17.29% $11,728.58 $86.17
6 34.01% 0.75% 22.27% $12,227.04 $89.83
7 40.71% 0.75% 27.47% $12,746.69 $93.65
8 47.75% 0.75% 32.88% $13,288.42 $97.63
9 55.13% 0.75% 38.53% $13,853.18 $101.78
10 62.89% 0.75% 44.42% $14,441.94 $106.11
Total Gain After Fees and Expenses $4,441.94
Total Annual Fees and Expenses $1,361.13
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Columbia Rhode Island Intermediate Municipal Bond Fund -- Class G Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Operating After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.55% 3.45% $10,345.00 $157.67
2 10.25% 1.55% 7.02% $10,701.90 $163.11
3 15.76% 1.55% 10.71% $11,071.12 $168.74
4 21.55% 1.55% 14.53% $11,453.07 $174.56
5 27.63% 1.55% 18.48% $11,848.20 $180.58
6 34.01% 1.55% 22.57% $12,256.97 $186.82
7 40.71% 1.55% 26.80% $12,679.83 $193.26
8 47.75% 1.55% 31.17% $13,117.29 $199.93
9 55.13% 0.75% 36.75% $13,674.77 $100.47
10 62.89% 0.75% 42.56% $14,255.95 $104.74
Total Gain After Fees and Expenses $4,255.95
Total Annual Fees and Expenses $1,629.89
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
You may wish to read the Statement of Additional Information for more information on the Funds and the securities in which they invest. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Funds' website (www.columbiafunds.com) include a description of the Funds' policies with respect to the disclosure of their portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Funds by writing or calling the Funds' distributor or visiting the Funds' website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Funds, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust V: 811-5030
. Columbia Connecticut Intermediate Municipal Bond Fund
. Columbia Massachusetts Intermediate Municipal Bond Fund
. Columbia New Jersey Intermediate Municipal Bond Fund
. Columbia New York Intermediate Municipal Bond Fund
. Columbia Rhode Island Intermediate Municipal Bond Fund
[LOGO]
ColumbiaFunds
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com
PRO-36/105247-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED MARCH 1, 2006
COLUMBIA CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA NEW JERSEY INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA NEW YORK INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA RHODE ISLAND INTERMEDIATE MUNICIPAL BOND FUND
(THE "FUNDS")
CLASS Z SHARES
The Funds' Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The section entitled "LEGAL PROCEEDINGS" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in
consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107645-0306 March 27, 2006
COLUMBIA CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA NEW JERSEY INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA NEW YORK INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA RHODE ISLAND INTERMEDIATE MUNICIPAL BOND FUND
Class Z Shares
Advised by Columbia Management Advisors, LLC
THE FUNDS 2 -------------------------------------------- Investment Goal......................... 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 3 Each of these sections discusses the following topics: Performance History and Your Expenses. Columbia Connecticut Intermediate Municipal Bond Fund.................... 5 Columbia Massachusetts Intermediate Municipal Bond Fund.................... 8 Columbia New Jersey Intermediate Municipal Bond Fund.................... 11 Columbia New York Intermediate Municipal Bond Fund.................... 14 Columbia Rhode Island Intermediate Municipal Bond Fund.................... 17 YOUR ACCOUNT 20 -------------------------------------------- How to Buy Shares....................... 20 Investment Minimums..................... Eligible Investors...................... 21 Sales Charges........................... 22 How to Exchange Shares.................. 22 |
How to Sell Shares...................... 23 Fund Policy on Trading of Fund Shares... 24 Intermediary Compensation............... 25 Other Information About Your Account.... 25 MANAGING THE FUNDS 28 -------------------------------------------- Investment Advisor...................... 28 Portfolio Managers...................... 28 Legal Proceedings....................... 28 FINANCIAL HIGHLIGHTS 31 -------------------------------------------- Columbia Connecticut Intermediate Municipal Bond Fund.................... 32 Columbia Massachusetts Intermediate Municipal Bond Fund.................... 33 Columbia New Jersey Intermediate Municipal Bond Fund.................... 34 Columbia New York Intermediate Municipal Bond Fund.................... 35 Columbia Rhode Island Intermediate Municipal Bond Fund.................... 36 APPENDIX A 37 -------------------------------------------- |
Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC Insured May Lose Value
No Bank Guarantee
Municipal securities purchased by each Fund may include general obligation securities, revenue securities and private activity bonds. The interest on private activity bonds may be subject to the federal alternative minimum tax. Investments in private activity bonds will not be treated as investments in municipal securities for purposes of the 80% requirement stated above. Each Fund is "non-diversified," which means that it is allowed to invest a greater percentage of its total assets in the securities of fewer issuers than a "diversified" fund.
Each Fund may purchase derivative instruments, such as futures, options, swap contracts, and inverse floaters, to gain or reduce exposure to particular securities or segments of the municipal bond markets. Derivatives are financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Funds may use derivatives for both hedging and non-hedging purposes, such as to adjust a Fund's sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an opposite position. The Funds typically use derivatives in an effort to achieve more efficiently economic exposures similar to those they could have achieved through the purchase and sale of municipal securities.
In selecting portfolio securities for a Fund, each Fund's investment advisor evaluates the suitability of available bonds according to such factors as creditworthiness, maturity, liquidity and interest rates. Each Fund's advisor also determines the appropriate allocation of its Fund's assets among various issuers and industry sectors.
Nearly all of the investments of a Fund will be of investment grade quality. These are securities which have one of the top four ratings assigned by Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are unrated securities determined by the Fund's advisor to be of comparable quality. Under normal market conditions, each Fund will invest at least 65% of its total assets in securities that have one of the top three ratings assigned by S&P or Moody's or unrated securities determined by its advisor to be of comparable quality. Occasionally, the rating of a security held by a Fund may be downgraded to below investment grade. If that happens, a Fund does not have to sell the security, unless its advisor determines that under the circumstances the security is no longer an appropriate investment for the Fund. However, each Fund will sell promptly any securities that are not rated investment grade by either S&P or Moody's if the securities exceed 5% of the Fund's net assets.
Under normal circumstances, each Fund's average weighted maturity is expected to be between three and ten years.
Each Fund will sell a security when, as a result of changes in the economy or the performance of the security or other circumstances, its advisor believes that holding the security is no longer consistent with the Fund's investment goal.
The Funds
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily a Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent a Fund from achieving its investment goal.
In seeking to achieve its investment goal, each Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in each Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by a Fund's shareholders is not required to modify or change a Fund's investment goal or investment strategies.
As a non-diversified mutual fund, each Fund is allowed to invest a greater percentage of its total assets in the securities of fewer issuers than a "diversified" fund. Each Fund may, therefore, have a greater risk of loss from a few issuers than a similar fund that invests more broadly.
Management risk means that the advisor's investment decisions might produce losses or cause a Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. The municipal securities market is also subject to uncertainties related to taxation, changes in legislation and the rights of municipal securities holders. Because of management and market risk, there is no guarantee that a Fund will achieve its investment goal or perform favorably among comparable funds.
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income a Fund receives from them but will affect the value of a Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Because the Fund may invest in special revenue obligations, including asset-backed securities and debt securities issued by private entities, the Fund is subject to issuer risk. Issuer risk is the possibility that changes in the financial condition of the issuer of a security or the entity responsible for payment of a special revenue obligation, changes in general economic conditions, or changes in economic conditions that affect the issuer or the entity responsible for payments of a special revenue obligation may impact its actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and in some cases a decrease in income. The Fund's investments in securities issued by U.S. government-sponsored enterprises, such as the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, are not funded by Congressional appropriations and are neither guaranteed nor insured by the U.S. government. Furthermore, no assurances can be given that the U.S. government would provide financial support to its agencies or instrumentalities where it is not obligated to do so.
Reinvestment risk is the risk that income from the Fund's debt securities will decline if and when the Fund invests the proceeds from matured, traded or called securities at market interest rates that are below the current earnings rate of the Fund's portfolio.
The Funds
Tax-exempt bonds are subject to special risks. Changes in tax laws or adverse determinations by the Internal Revenue Service may make the income from some of these bonds taxable. Bonds that are backed by the issuer's taxing authority, known as general obligation bonds, may depend for payment on legislative appropriation and/or aid from other governments. These bonds may be vulnerable to legal limits on a government's power to raise revenue or increase taxes. Other tax-exempt bonds, known as special revenue obligations, are payable from revenues earned by a particular project or other revenue sources. These bonds are subject to greater risk of default than general obligation bonds because investors can look only to the revenue generated by the project or the private company backing the project, rather than to the credit of the state or local government issuer of the bonds.
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing a Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also cause a Fund to receive taxable income, which could increase the amount of taxes payable by shareholders. Other risks arise from a Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for a Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Funds may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
The interest income distributed by a Fund from certain tax-exempt bonds may be subject to the federal alternative minimum tax for individuals and corporations. As a fundamental policy that cannot be changed without shareholder approval, the Fund may not invest more than 20% of its total assets in bonds subject to the alternative minimum tax. Consult your tax advisor for more information.
Municipal Market Risk and Single-State Focus: A state's municipal market may be volatile and can be significantly affected by adverse tax, legislative, demographic or political changes, as well as changes in the financial or economic condition of the state that issues municipal securities. Municipal issues in the state will be affected by these factors, which will, in turn, affect the value of the Fund's investments. Because the Fund invests primarily in municipal securities of a particular state, the value of the Fund's shares may be more volatile than the value of shares of funds that invest in securities of issuers in a number of different states.
Lower-rated debt securities, commonly referred to as "junk bonds," involve greater risk of loss due to credit deterioration and are less liquid, especially during periods of economic uncertainty or change, than higher-quality debt securities. Lower-rated debt securities generally have a higher risk that the issuer of the security may default and not make payment of interest or principal.
An investment in a Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The Funds
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class Z share performance for each of the last ten complete calendar years. They include the effects of Fund expenses.
Average Annual Total Returns are a measure of the Fund's Class Z average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses.
The Funds
Calendar Year Total Returns (Class Z)/(1)/
[CHART]
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
----- ----- ----- ------ ------ ----- ----- ------ ------ ------
3.63% 8.53% 6.67% -2.81% 10.16% 4.47% 8.57% 3.58% 2.60% 1.54%
|
For the periods shown in bar chart:
Best quarter: 4th quarter 2000, +3.83%
Worst quarter: 2nd quarter 2004, -2.37%
(1) The calendar year total returns shown for Class Z shares include the returns of Trust Shares of the Galaxy Connecticut Intermediate Municipal Bond Fund (the Galaxy Connecticut Fund), the predecessor to the Fund, for periods prior to November 18, 2002, the date on which Class Z shares were initially offered by the Fund, and returns of shares of the Boston 1784 Connecticut Tax-Exempt Income Fund (the 1784 Connecticut Fund), the predecessor to the Galaxy Connecticut Fund, for periods prior to June 26, 2000.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The return after taxes on distributions and sale of fund shares at a capital loss may be higher than the return before taxes due to the resulting tax benefit from the capital loss on the after tax return calculation.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class Z (%)
Return Before Taxes 1.54 4.12/(1)/ 4.63/(1)/
Return After Taxes on Distributions 1.54 4.12/(1)/ 4.60/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 2.28 4.09/(1)/ 4.57/(1)/
--------------------------------------------------------------------------------------------
Lehman Brothers 3-15 Year Index (%) 2.25 5.18 5.42
|
(1) The average annual total returns shown include returns of Trust Shares of the Galaxy Connecticut Fund for periods prior to November 18, 2002, and returns of the 1784 Connecticut Fund (whose shares were initially offered on August 1, 1994) for periods prior to June 26, 2000.
The Funds
UNDERSTANDING EXPENSES
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees and other expenses that generally include, but are not limited to, other administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Shareholder Fees/(1) /(paid directly from your investment)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 --------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 --------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) /(2)/ |
(1) A $10 annual fee may be deducted from accounts of less than $ 1,000 and
paid to the transfer agent.
(2) There is a $ 7.50 charge for wiring sale proceeds to your bank.
Annual Fund Operating Expenses (deducted directly from Fund assets)
Example Expenses (your actual costs may be higher or lower)
1 Year 3 Years 5 Years 10 Years $73 $227 $395 $883 |
See Appendix A for additional hypothetical investment and expense information.
The Funds
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class Z share performance for each of the last ten complete calendar years. They include the effects of Fund expenses.
Average Annual Total Returns are a measure of the Fund's Class Z average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses.
The Fund's returns are compared to the Lehman Brothers 3-15 Year Blend Municipal Bond Index (Lehman Brothers 3-15 Year Bond Index), an unmanaged index that tracks the performance of municipal bonds issued after December 31, 1990 with remaining maturities between 2 and 17 years and at least $5 million in principal amount outstanding. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
The Funds
Calendar Year Total Returns (Class Z)/(1)/
[CHART]
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
------ ----- ----- ----- ------ ----- ----- ----- ------ ------
3.32% 8.89% 5.91% -2.16% 9.94% 4.67% 8.60% 3.91% 2.68% 1.82%
|
For the periods shown in bar chart:
Best quarter: 2nd quarter 2002, +3.71%
Worst quarter: 2nd quarter 2004, -2.30%
(1) The calendar year total returns shown for Class Z shares include the returns of Trust Shares of the Galaxy Massachusetts Intermediate Municipal Bond Fund (the Galaxy Massachusetts Fund), the predecessor to the Fund, for periods prior to December 9, 2002, the date on which Class Z shares were initially offered by the Fund, and returns of shares of the Boston 1784 Massachusetts Tax-Exempt Income Fund (the 1784 Massachusetts Fund), the predecessor to the Galaxy Massachusetts Fund, for periods prior to June 26, 2000.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The return after taxes on distributions and sale of fund shares at a capital loss may be higher than the return before taxes due to the resulting tax benefit from the capital loss on the after tax return calculation.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class Z (%)
Return Before Taxes 1.82 4.31/(1)/ 4.70/(1)/
Return After Taxes on Distributions 1.70 4.28/(1)/ 4.68/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 2.63 4.26/(1)/ 4.64/(1)/
--------------------------------------------------------------------------------------------
Lehman Brothers 3-15 Year Bond Index (%) 2.25 5.18 5.42
|
(1) The average annual total returns shown include returns of Trust Shares of the Galaxy Massachusetts Fund for periods prior to December 9, 2002, the date on which Class Z shares were initially offered by the Fund, and returns of the 1784 Massachusetts Fund for periods prior to June 26, 2000.
The Funds
UNDERSTANDING EXPENSES
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees and other expenses that generally include, but are not limited to, other administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Shareholder Fees/(1)/ (paid directly from your investment)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 --------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 --------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) /(2)/ |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
Annual Fund Operating Expenses (deducted directly from Fund assets)
Example Expenses (your actual costs may be higher or lower)
1 Year 3 Years 5 Years 10 Years $68 $214 $373 $835 |
See Appendix A for additional hypothetical investment and expense information.
The Funds
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class Z share performance for each complete calendar year since the Fund commenced operations. They include the effects of Fund expenses.
Average Annual Total Returns are a measure of the Fund's Class Z average performance over the past one-year, five-years and life of the Fund periods. They include the effects of Fund expenses.
The Funds
Calendar Year Total Returns (Class Z)/(1)/
[CHART]
1999 2000 2001 2002 2003 2004 2005
------ ------ ----- ----- ----- ------ ------
-3.02% 10.69% 3.77% 9.98% 4.18% 2.71% 1.96%
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For the periods shown in bar chart:
Best quarter: 3rd quarter 2002, +4.78%
Worst quarter: 2nd quarter 2004, -2.35%
(1) The calendar year total returns shown for Class Z shares include the returns of Trust Shares of the Galaxy New Jersey Municipal Bond Fund (the Galaxy New Jersey Fund), the predecessor to the Fund, for periods prior to November 18, 2002, the date on which Class Z shares were initially offered by the Fund.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The return after taxes on distributions and sale of fund shares at a capital loss may be higher than the return before taxes due to the resulting tax benefit from the capital loss on the after tax return calculation.
Average Annual Total Returns -- for periods ended December 31, 2005
Life of
1 Year 5 Years the Fund//
Class Z (%)
Return Before Taxes 1.96 4.48/(1)/ 4.45/(1)/
Return After Taxes on Distributions 1.86 4.38/(1)/ 4.39/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 2.68 4.36/(1)/ 4.36/(1)/
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Lehman Brothers 3-15 Year Index (%) 2.25 5.18 5.15/(2)/
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(1) The average annual total returns shown include returns of Trust Shares of
the Galaxy New Jersey Fund whose shares were initially offered on April 3,
1998 for periods prior to November 18, 2002, the date on which Class Z
shares were initially offered by the Fund.
(2) Performance information is from April 3, 1998.
The Funds
UNDERSTANDING EXPENSES
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees and other expenses that generally include, but are not limited to, other administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Shareholder Fees/(1)/ (paid directly from your investment)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 --------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 --------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) /(2)/ |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
Annual Fund Operating Expenses (deducted directly from Fund assets)
Example Expenses (your actual costs may be higher or lower)
1 Year 3 Years 5 Years 10 Years $85 $265 $460 $1,025 |
See Appendix A for additional hypothetical investment and expense information.
The Funds
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class Z share performance for each of the last ten complete calendar years. They include the effects of Fund expenses.
Average Annual Total Returns are a measure of the Fund's Class Z average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses.
The Funds
Calendar Year Total Returns (Class Z)/(1)/
[CHART]
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
----- ----- ----- ------ ------ ----- ------ ----- ------ ------
3.62% 8.89% 6.13% -3.48% 12.58% 3.30% 10.40% 4.58% 2.70% 1.76%
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For the periods shown in bar chart:
Best quarter: 3rd quarter 2002, +5.32%
Worst quarter: 2nd quarter 2004,-2.43%
(1) The calendar year total returns shown for Class Z shares include the returns of Trust Shares of the Galaxy New York Municipal Bond Fund (the Galaxy New York Fund), the predecessor to the Fund, for periods prior to November 25, 2002, the date on which Class Z shares were initially offered by the Fund.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The return after taxes on distributions and sale of fund shares at a capital loss may be higher than the return before taxes due to the resulting tax benefit from the capital loss on the after tax return calculation.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class Z (%)
Return Before Taxes 1.76 4.50/(1)/ 4.95/(1)/
Return After Taxes on Distributions 1.74 4.47/(1)/ 4.94/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 2.40 4.39/(1)/ 4.86/(1)/
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Lehman Brothers 3-15 Year Index (%) 2.25 5.18 5.42
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(1) The average annual total returns shown include returns of Trust Shares of the Galaxy New York Fund for periods prior to November 25, 2002, the date on which Class Z shares were initially offered by the Fund.
The Funds
UNDERSTANDING EXPENSES
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees and other expenses that generally include, but are not limited to, other administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Shareholder Fees/(1) /(paid directly from your investment)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 ------------------------------------------------------------------ Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 ------------------------------------------------------------------ Redemption fee (%) (as a percentage of amount redeemed, if applicable) /(2)/ |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
Annual Fund Operating Expenses (deducted directly from Fund assets)
Management fee/(1)/ (%) 0.55 ----------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.00 ----------------------------------------------------------------- Other expenses/(2)/ (%) 0.19 ----------------------------------------------------------------- Total annual fund operating expenses (%) 0.74 |
(1) The Fund pays a management fee of 0.48% and an administration fee of 0.07%.
(2) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
Example Expenses (your actual costs may be higher or lower)
1 Year 3 Years 5 Years 10 Years $76 $237 $411 $918 |
See Appendix A for additional hypothetical investment and expense information.
The Funds
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class Z share performance for each of the last ten complete calendar years. They include the effects of Fund expenses.
Average Annual Total Returns are a measure of the Fund's Class Z average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses.
The Funds
Calendar Year Total Returns (Class Z)/(1)/
[CHART]
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
----- ----- ----- ------ ------ ----- ----- ----- ------ ------
3.63% 8.54% 5.87% -2.77% 11.59% 4.22% 9.13% 4.05% 2.70% 1.95%
|
For the periods shown in bar chart:
Best quarter: 4th quarter 2000, +4.47%
Worst quarter: 2nd quarter 2004, -2.20%
(1) The calendar year total returns shown for Class Z shares include the returns of Trust Shares of the Galaxy Rhode Island Municipal Bond Fund (the Galaxy Rhode Island Fund), the predecessor to the Fund, for periods prior to November 18, 2002, the date on which Class Z shares were initially offered by the Fund. The returns for Class Z shares also include the returns of Retail A Shares of the Galaxy Rhode Island Fund for periods prior to the inception of Trust Shares (June 19, 2000). Class Z shares generally would have had substantially similar returns to Retail A Shares because they would have been invested in the same portfolio of securities, although the returns would have been higher to the extent that expenses for Class Z shares are lower than expenses paid by Retail A Shares.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The return after taxes on distributions and sale of fund shares at a capital loss may be higher than the return before taxes due to the resulting tax benefit from the capital loss on the after tax return calculation.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class Z (%)
Return Before Taxes 1.95 4.38/(1)/ 4.82/(1)/
Return After Taxes on Distributions 1.90 4.37/(1)/ 4.78/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 2.65 4.33/(1)/ 4.74/(1)/
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Lehman Brothers 3-15 Year Index (%) 2.25 5.18 5.42
|
(1) The average annual total returns shown include returns of Trust Shares of the Galaxy Rhode Island Fund for periods prior to November 18, 2002, the date on which Class Z shares were initially offered by the Fund. The returns for Class Z shares also include the returns of Retail A Shares of the Galaxy Rhode Island Fund for periods prior to the inception of Trust Shares (June 19, 2000). Class Z shares generally would have had substantially similar returns to Retail A Shares because they would have been invested in the same portfolio of securities, although the returns would have been higher to the extent that expenses for Class Z shares are lower than expenses paid by Retail A Shares.
The Funds
UNDERSTANDING EXPENSES
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees and other expenses that generally include, but are not limited to, other administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Shareholder Fees/(1) /(paid directly from your investment)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 --------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 --------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) /(2)/ |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
Annual Fund Operating Expenses (deducted directly from Fund assets)
Example Expenses (your actual costs may be higher or lower)
1 Year 3 Years 5 Years 10 Years $77 $240 $417 $930 |
See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For new accounts, send a completed application and check
(new account) made payable to the Fund to Columbia Management Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
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By exchange You or your financial advisor may acquire shares of a Fund
for your account by exchanging shares you own in a
different fund distributed by Columbia Management
Distributors, Inc. for shares of the same class of the Fund
at no additional cost. To exchange by telephone, call
1-800-422-3737. Please see "How to Exchange Shares" for
more information.
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By wire You may purchase shares of a Fund by wiring money from your
bank account to your Fund account. To wire funds to your
Fund account, call 1-800-422-3737 for wiring instructions.
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By electronic You may purchase shares of a Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
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Automated dollar You may purchase shares of a Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. Be sure to
complete the appropriate section of the account application
for this feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at
no additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
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Your Account
Important Things to Consider When Deciding on a Class of Shares:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by a broker/dealer, bank, third-party administrator or other financial institution (each commonly referred to as an "intermediary"). Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
No minimum initial investment
. Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
. Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts ("IRAs")), for which an intermediary or other entity provides services and is not compensated by a Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
. Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
. Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
Your Account
$1,000 minimum initial investment
. Any shareholder (as well as any family member of a shareholder or person
listed on an account registration for any account of the shareholder) of a
fund distributed by Columbia Management Distributors, Inc. (i) who holds
Class Z shares; (ii) who held Primary A shares prior to August 22, 2005;
(iii) who holds Class A shares that were obtained by exchange of Class Z
shares; or (iv) who purchased certain no-load shares of a fund merged with a
fund distributed by Columbia Management Distributors, Inc.;
. Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Management Distributors, Inc.;
. Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary; or
. Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Funds for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Funds' transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement).
The Funds reserve the right to change the criteria for Eligible Investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Funds also reserve the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
CHOOSING A SHARE CLASS
The Funds offer one class of shares in this prospectus -- Class Z.
Your Account
When a Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Funds' transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, and (ii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
A Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, a Fund may delay sending the proceeds from the sale of your shares for up to 10 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
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By exchange You or your financial advisor may sell shares of a Fund by
exchanging from the Fund into Class Z shares or Class A
shares (only if Class Z is not offered) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of a Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000
in a 30-day period. You do not need to set up this feature
in advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign
the letter. Signatures must be guaranteed by either a bank,
a member firm of a national stock exchange or another
eligible guarantor that participates in the Medallion
Signature Guarantee Program for amounts over $100,000 or
for alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of a Fund and request that the proceeds
be wired to your bank. You must set up this feature prior
to your request. Be sure to complete the appropriate
section of the account application for this feature.
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By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. All dividend and capital gains distributions must
be reinvested. Be sure to complete the appropriate section
of the account application for this feature.
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By electronic You may sell shares of a Fund and request that the proceeds
funds transfer be electronically transferred to your bank. Proceeds may
take up to two business days to be received by your bank.
You must set up this feature prior to your request. Be sure
to complete the appropriate section of the account
application for this feature.
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Your Account
Each Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if a Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, a Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Funds are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into a Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Funds. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Funds typically are not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Consequently, there is the risk that the Funds may not be able to do anything in response to market timing that occurs in the Funds which may result in certain shareholders being able to market time the Funds while the shareholders in the Funds bear the burden of such activities.
Your Account
Certain financial intermediaries (including certain retirement plan service providers whose clients include, among others, various retirement plans sponsored by Bank of America and its affiliates for the benefit of its employees (the "Bank of America retirement service plan providers") have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above. In particular, the Bank of America retirement service plan provider permits the reinstatement of future purchase orders for shares of the Funds following various suspension periods.
The Funds seek to act in a manner that they believe is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Funds nor their agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Funds' investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Funds. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
Your Account
Each Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, each Fund must determine the price of each security in its portfolio at the close of each trading day. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Funds may use other data to determine the fair value of the securities.
The Funds have retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for each Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for Class Z shares.
Dividends, Distributions and Taxes The Funds have the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by a Fund, net of expenses incurred by the Fund.
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Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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Distribution Options Each Fund declares any dividends daily and pays them monthly, and declares and pays any capital gains (including short-term capital gains) at least annually. Shares begin to earn dividends on the date on which a purchase order is settled by payment. Shares stop earning dividends at the close of business on the day before the date on which a redemption order is settled. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, a Fund will automatically reinvest all distributions in additional shares of the Fund.
Your Account
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, all subsequent distributions will be reinvested in additional shares of the Fund.
Tax Consequences For federal income tax purposes, distributions of investment income by a Fund, whether in cash or additional securities, will ordinarily constitute tax-exempt income. Generally, gains realized by a Fund on the sale or exchange of investments, the income from which is tax-exempt, will be taxable to shareholders. In addition, an investment in a Fund may result in liability for federal alternative minimum tax for both individuals and corporate shareholders. The Funds intend to distribute federally tax-exempt income. The Funds may invest a portion of their assets in securities that generate income subject to federal or state income taxes. Income exempt from federal tax may be subject to state and local taxes.
You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in a Fund may have additional personal tax implications. Please consult your tax advisor about federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by each Fund, you may realize a capital gain or loss when selling or exchanging shares of a Fund. Such transactions also may be subject to federal, state and local income tax.
Columbia Management Advisors, LLC ("Columbia Advisors"), located at 100 Federal Street, Boston, Massachusetts 02110, is the Funds' investment advisor. Columbia Advisors is responsible for the Funds' management, subject to oversight by the Funds' Board of Trustees. Columbia Advisors is a direct, wholly owned subsidiary of Columbia Management Group, LLC ("CMG"), which in turn is a direct, wholly owned subsidiary of Bank of America, which in turn is a wholly owned banking subsidiary of Bank of America Corporation, a financial services holding company organized as a Delaware corporation. Prior to June 15, 2005, CMG was a corporation. Effective June 15, 2005, CMG converted to a limited liability company. Columbia Advisors, a registered investment advisor, has been an investment advisor since 1995.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Funds. As a result of the merger, Columbia Advisors is now the investment advisor to the Funds.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Advisors and/or Columbia Management by the Funds, not including pricing and bookkeeping and other fees paid to Columbia Advisors and/or Columbia Management by each of the Funds amounted to 0.48% of average daily net assets of each Fund. A discussion of the factors considered by the Funds' Board of Trustees in approving the Funds' investment advisory contract is included in the Funds' annual report to shareholders for the fiscal year ended October 31, 2005.
Brian McGreevy, a vice president of Columbia Advisors, is the manager for the New Jersey, Rhode Island, Connecticut and New York Funds, and has managed the New Jersey Fund since January, 1998, the Rhode Island Fund since July, 1997, the Connecticut Fund since September, 2002, and the New York Fund since July, 1997. Mr. McGreevy has been associated with Columbia Advisors or its predecessors since December, 1994.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Funds.
Managing the Fund
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and he has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss
the claims in the pending cases. On November 3, 2005, the U.S. District Court
for the District of Maryland dismissed the claims under the Securities Act of
1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act
of 1940 (ICA) and the state law claims against Columbia and others. The claims
under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and
Section 36(b) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemptin from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
Managing the Fund
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
For the year ended November 30, 2005, Columbia has assumed $35,472 of legal, consulting services and Trustees' fees incurred by the fund in connection with these matters.
The financial highlights table is intended to help you understand each Fund's Class Z financial performance. Information is shown for the last five fiscal years, which run from November 1 to October 31, unless otherwise indicated. Certain information shown for each Fund is that of Trust Shares of its predecessor Galaxy Fund, as further described in the footnotes to each Fund's financial highlights tables. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in a Fund (assuming reinvestment of all dividends and distributions). This information has been derived from each Fund's financial statements, which, for the years ended October 31, 2005 and October 31, 2004, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Funds' financial statements, is included in the Funds' annual report. The information for the years ended October 31, 2003, 2002 and 2001 has been derived from the Funds' financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights.
Financial Highlights
Columbia Connecticut Intermediate Municipal Bond Fund
Year ended October 31,
2005 2004 2003/(a)(b)/ 2002
Class Z Class Z Class Z Class Z
------- ------- ----------- -------
Net asset value --
Beginning of period ($) 11.04 10.99 10.98 10.92
-----------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.39/(c)/ 0.37/(c)/ 0.41/(c)(d)/ 0.44/(d)(e)/
Net realized and unrealized gain (loss) on investments and
futures contracts (0.35) 0.06 --/(f)/ 0.06/(e)/
-----------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.04 0.43 0.41 0.50
-----------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.39) (0.38) (0.40) (0.44)
-----------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 10.69 11.04 10.99 10.98
-----------------------------------------------------------------------------------------------------------------------------
Total return (%)/(g)/ (0.40)/(h)/ 4.02 3.82/(h)/ 4.67/(h)/
-----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data (%):
Expenses/(i)/ 0.69 0.80 0.75 0.72
Net investment income/(i)/ 3.63 3.38 3.78 4.05/(e)/
Waiver/reimbursement --/(j)/ --/(j)/ 0.20 0.20
Portfolio turnover rate (%) 9 16 15 3
Net assets, end of period (000's) ($) 134,144 132,227 145,145 104,727
|
2001
Class Z
-------
Net asset value --
Beginning of period ($) 10.41
----------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.44/(d)/
Net realized and unrealized gain (loss) on investments and
futures contracts 0.51
----------------------------------------------------------------------------
Total from Investment Operations 0.95
----------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.44)
----------------------------------------------------------------------------
Net asset value --
End of period ($) 10.92
----------------------------------------------------------------------------
Total return (%)/(g)/ 9.32/(h)/
----------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data (%):
Expenses/(i)/ 0.76
Net investment income/(i)/ 4.14
Waiver/reimbursement 0.17
Portfolio turnover rate (%) 36
Net assets, end of period (000's) ($) 113,952
|
(a) On October 13, 2003, the Liberty Connecticut Intermediate Municipal Bond
Fund was renamed Columbia Connecticut Intermediate Municipal Bond Fund.
(b) On November 18, 2002, the Galaxy Connecticut Municipal Bond Fund, Trust
shares were redesignated Liberty Connecticut Intermediate Municipal Bond
Fund, Class Z shares.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the years ended October
31, 2003, 2002 and 2001 was $0.39(c), $0.42 and $ 0.42, respectively.
(e) The Fund adopted the provisions of the AICPA Audit Guide for Investment
Companies effective November 1, 2001. The effect of the change for the year
ended October 31, 2002 on the net investment income per share, net realized
and unrealized gain per share and the ratio of net investment income to
average net assets is $0.00, $0.00 and 0.02%, respectively.
(f) Rounds to less than $0.01 per share.
(g) Total return at net asset value assuming all distributions reinvested.
(h) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Rounds to less than 0.01%.
Financial Highlights
Columbia Massachusetts Intermediate Municipal Bond Fund
Year ended October 31,
2005 2004 2003/(a)(b)/ 2002 2001
Class Z Class Z Class Z Class Z Class Z
------- ------- ----------- ------- -------
Net asset value -- Beginning of period ($) 10.87 10.82 10.76 10.67 10.18
--------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.39/(c)/ 0.39/(c)/ 0.40/(c)(d)/ 0.41/(c)(d)(e)/ 0.43/(d)/
Net realized and unrealized gain (loss)
on investments (0.34) 0.05 0.06 0.09/(e)/ 0.49
--------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.05 0.44 0.46 0.50 0.92
--------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared to
Shareholders ($):
From net investment income (0.40) (0.39) (0.40) (0.41) (0.43)
From net realized gains (0.03) -- -- -- --
--------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.43) (0.39) (0.40) (0.41) (0.43)
--------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 10.49 10.87 10.82 10.76 10.67
--------------------------------------------------------------------------------------------------------------------------
Total return (%)/(f)/ 0.43/(g)/ 4.17 4.31/(g)/ 4.84/(g)/ 9.24/(g)/
--------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/ Supplemental
Data (%):
Expenses/(h)/ 0.66 0.73 0.72 0.68 0.74
Net investment income/(h)/ 3.67 3.62 3.67 3.90/(e)/ 4.15
Waiver/reimbursement --/(i)/ --/(i)/ 0.20 0.21 0.16
Portfolio turnover rate (%) 15 12 11 6 54
Net assets, end of period (000's) ($) 247,122 252,741 296,679 220,042 191,129
|
(a) On October 13, 2003, the Liberty Massachusetts Intermediate Municipal Bond
Fund was renamed Columbia Massachusetts Intermediate Municipal Bond Fund.
(b) On December 9, 2002, the Galaxy Massachusetts Intermediate Municipal Bond
Fund, Trust shares were redesignated Liberty Massachusetts Intermediate
Municipal Bond Fund, Class Z shares.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the years ended October
31, 2003, 2002 and 2001 was $0.38(c), $0.39(c) and $0.42, respectively.
(e) The Fund adopted the provisions of the AICPA Audit Guide for Investment
Companies effective November 1, 2001. The effect of the change for the year
ended October 31, 2002 on the net investment income per share, net realized
and unrealized gain per share and the ratio of net investment income to
average net assets is $0.00, $0.00 and 0.00%, respectively.
(f) Total return at net asset value assuming all distributions reinvested.
(g) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Rounds to less than 0.01%.
Financial Highlights
Columbia New Jersey Intermediate Municipal Bond Fund/ /
Year ended October 31,
2005 2004 2003/(a)(b)/ 2002 2001
Class Z Class Z Class Z Class Z Class Z
------- ------- ----------- ------- -------
Net asset value --
Beginning of period ($) 10.57 10.50 10.47 10.41 9.88
-------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.37/(c)/ 0.36/(c)/ 0.35/(c)(d)/ 0.40/(d)(e)/ 0.41/(d)/
Net realized and unrealized gain on investments
and futures contracts (0.30) 0.10 0.11 0.12/(e)/ 0.53
-------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.07 0.46 0.46 0.52 0.94
-------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.37) (0.36) (0.35) (0.40) (0.41)
From net realized gains (0.04) (0.03) (0.08) (0.06) --
-------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.41) (0.39) (0.43) (0.46) (0.41)
-------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 10.23 10.57 10.50 10.47 10.41
-------------------------------------------------------------------------------------------------------------------------
Total return (%)/(f)(g)/ 0.70 4.47 4.44 5.20 9.73
-------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 0.81 0.88 0.86 0.76 0.70
Net investment income/(h)/ 3.58 3.42 3.38 3.92 4.06
Waiver/reimbursement --/(i)/ --/(i)/ 0.20 0.21/(e)/ 0.38
Portfolio turnover rate (%) 14 12 8 23 61
Net assets, end of period (000's) ($) $58,181 66,764 74,241 77,554 93,564
|
(a) On October 13, 2003, the Liberty New Jersey Intermediate Municipal Bond
Fund was renamed Columbia New Jersey Intermediate Municipal Bond Fund.
(b) On December 9, 2002, the Galaxy New Jersey Intermediate Municipal Bond
Fund, Trust shares were redesignated Liberty New Jersey Intermediate
Municipal Bond Fund, Class Z shares.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the years ended October
31, 2003, 2002 and 2001 was $0.33(c), $0.38, and $0.37, respectively.
(e) The Fund adopted the provisions of the AICPA Audit Guide for Investment
Companies effective November 1, 2001. The effect of the change for the year
ended October 31, 2002 on the net investment income per share, net realized
and unrealized gain per share and the ratio of net investment income to
average net assets is $0.00, $0.00 and 0.01%, respectively.
(f) Total return at net asset value assuming all distributions reinvested.
(g) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Rounds to less than 0.01%.
Financial Highlights
Columbia New York Intermediate Municipal Bond Fund
Year ended October 31,
2005 2004 2003/(a)(b)/ 2002 2001
Class Z Class Z Class Z Class Z Class Z
------- ------- ----------- ------- -------
Net asset value --
Beginning of period ($) 11.98 11.87 11.79 11.56 10.99
-------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.42/(c)/ 0.40/(c)/ 0.39/(c)(d)/ 0.45/(d)(e)/ 0.49/(d)/
Net realized and unrealized gain on investments
and futures contracts (0.36) 0.13 0.13 0.23/(e)/ 0.57
-------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.06 0.53 0.52 0.68 1.06
-------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.42) (0.40) (0.39) (0.45) (0.49)
From net realized gains (0.01) (0.02) (0.05) -- --
-------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.43) (0.42) (0.44) (0.45) (0.49)
-------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 11.61 11.98 11.87 11.79 11.56
-------------------------------------------------------------------------------------------------------------------------
Total return (%)/(f)(g)/ 0.47 4.51 4.45 6.06 9.80
-------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplement Data (%):
Expenses/(h)/ 0.72 0.85 0.83 0.77 0.78
Net investment income/(h)/ 3.51 3.32 3.25 3.94/(e)/ 4.30
Waiver/reimbursement --/(i)/ --/(i)/ 0.20 0.21 0.21
Portfolio turnover rate (%) 4 11 9 41 48
Net assets, end of period (000's) ($) 105,300 91,408 84,894 75,632 60,694
|
(a) On October 13, 2003, the Liberty New York Intermediate Municipal Bond Fund
was renamed Columbia New York Intermediate Municipal Bond Fund.
(b) On November 25, 2002, the Galaxy New York Municipal Bond Fund, Trust shares
were redesignated Liberty New York Intermediate Municipal Bond Fund, Class
Z shares.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the years ended October
31, 2003, 2002 and 2001 was $0.37(c), $0.43 and $0.47, respectively.
(e) The Fund adopted the provisions of the AICPA Audit Guide for Investment
Companies effective November 1, 2001. The effect of the change for the year
ended October 31, 2002 on the net investment income per share, net realized
and unrealized gain per share and the ratio of net investment income to
average net assets is $0.00, $0.00 and 0.02%, respectively.
(f) Total return at net asset value assuming all distributions reinvested.
(g) Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Rounds to less than 0.01%.
Financial Highlights
Columbia Rhode Island Intermediate Municipal Bond Fund
Year ended October 31,
2005 2004 2003/(a)(b)/ 2002 2001
Class Z Class Z Class Z Class Z Class Z
------- ------- ----------- ------- -------
Net asset value --
Beginning of period ($) 11.54 11.48 11.41 11.30 10.75
--------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.43/(c)/ 0.41/(c)/ 0.39/(d)(c)/ 0.47/(e)(d)/ 0.49/(d)/
Net realized and unrealized gain on investments
and futures contracts (0.33) 0.06 0.07 0.11/(e)/ 0.55
--------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.10 0.47 0.46 0.58 1.04
--------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.43) (0.41) (0.39) (0.47) (0.49)
From net realized gains (0.01) -- -- -- --
--------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.44) (0.41) (0.39) (0.47) (0.49)
--------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 11.20 11.54 11.48 11.41 11.30
--------------------------------------------------------------------------------------------------------------------------
Total return (%)/(f)/ 0.88 4.17 4.08/(g)/ 5.26/(g)/ 9.90/(g)/
--------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 0.72 0.81 0.79 0.72 0.67
Net investment income/(h)/ 3.75 3.58 3.41 4.17/(e)/ 4.46
Waiver/reimbursement --/(i)/ --/(i)/ 0.20 0.20 0.26
Portfolio turnover rate (%) 12 11 15 19 19
Net assets, end of period (000's) ($) 104,062 109,050 99,627 93,143 88,307
|
(a) On October 13, 2003, the Liberty Rhode Island Intermediate Municipal Bond
Fund was renamed Columbia Rhode Island Intermediate Municipal Bond Fund.
(b) On November 18, 2002, the Galaxy Rhode Island Municipal Bond Fund, Trust
shares were redesignated Liberty Rhode Island Intermediate Municipal Bond
Fund, Class Z shares.
(c) Per share data was calculated using average shares outstanding during the
period.
(d) Net investment income per share before reimbursement/waiver of fees by the
Investment Advisor and/or any of its affiliates for the years ended October
31, 2003, 2002 and 2001 was $0.37(d), $0.45 and $0.46, respectively.
(e) The Fund adopted the provisions of the AICPA Audit Guide for Investment
Companies effective November 1, 2001. The effect of the change for the year
ended October 31, 2002 on the net investment income per share, net realized
and unrealized gain per share and the ratio of net investment income to
average net assets is $0.00, $0.00 and 0.02%, respectively.
(f) Total return at net asset value assuming all distributions reinvested.
(g) Had the Investment Advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Rounds to less than 0.01%.
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of each Fund, including investment advisory fees and other Fund costs, on each Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class Z shares of each Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The charts also assume that all dividends and distributions are reinvested. The annual expense ratio used for each Fund, which is the same as that stated in the Annual Fund Operating Expenses table, is presented in the chart, and is net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower.
Columbia Connecticut Intermediate Municipal Bond Fund -- Class Z Shares Initial Hypothetical Maximum Sales Charge Investment Amount Assumed Rate of Return 0.00% $10,000.00 5%
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 0.71% 4.29% $10,429.00 $72.52
2 10.25% 0.71% 8.76% $10,876.40 $75.63
3 15.76% 0.71% 13.43% $11,343.00 $78.88
4 21.55% 0.71% 18.30% $11,829.62 $82.26
5 27.63% 0.71% 23.37% $12,337.11 $85.79
6 34.01% 0.71% 28.66% $12,866.37 $89.47
7 40.71% 0.71% 34.18% $13,418.34 $93.31
8 47.75% 0.71% 39.94% $13,993.98 $97.31
9 55.13% 0.71% 45.94% $14,594.32 $101.49
10 62.89% 0.71% 52.20% $15,220.42 $105.84
Total Gain After Fees and Expenses $5,220.42
Total Annual Fees and Expenses $882.52
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
Appendix A
Columbia Massachusetts Intermediate Municipal Bond Fund -- Class Z Shares
Initial Hypothetical
Maximum Sales Charge Investment Amount Assumed Rate of Return 0.00% $10,000.00 5%
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 0.67% 4.33% $10,433.00 $68.45
2 10.25% 0.67% 8.85% $10,884.75 $71.41
3 15.76% 0.67% 13.56% $11,356.06 $74.51
4 21.55% 0.67% 18.48% $11,847.78 $77.73
5 27.63% 0.67% 23.61% $12,360.78 $81.10
6 34.01% 0.67% 28.96% $12,896.01 $84.61
7 40.71% 0.67% 34.54% $13,454.40 $88.27
8 47.75% 0.67% 40.37% $14,036.98 $92.10
9 55.13% 0.67% 46.45% $14,644.78 $96.08
10 62.89% 0.67% 52.79% $15,278.90 $100.24
Total Gain After Fees and Expenses $5,278.90
Total Annual Fees and Expenses $834.51
|
Columbia New Jersey Intermediate Municipal Bond Fund -- Class Z Shares
Initial Hypothetical
Maximum Sales Charge Investment Amount Assumed Rate of Return 0.00% $10,000.00 5%
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 0.83% 4.17%/(2)/ $10,417.00 $84.73
2 10.25% 0.83% 8.51% $10,851.39 $88.26
3 15.76% 0.83% 13.04% $11,303.89 $91.94
4 21.55% 0.83% 17.75% $11,775.26 $95.78
5 27.63% 0.83% 22.66% $12,266.29 $99.77
6 34.01% 0.83% 27.78% $12,777.80 $103.93
7 40.71% 0.83% 33.11% $13,310.63 $108.27
8 47.75% 0.83% 38.66% $13,865.68 $112.78
9 55.13% 0.83% 44.44% $14,443.88 $117.48
10 62.89% 0.83% 50.46% $15,046.19 $122.38
Total Gain After Fees and Expenses $5,046.19
Total Annual Fees and Expenses $1,025.34
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
Appendix A
Columbia New York Intermediate Municipal Bond Fund -- Class Z Shares
Initial Hypothetical
Maximum Sales Charge Investment Amount Assumed Rate of Return 0.00% $10,000.00 5%
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 0.74% 4.26% $10,426.00 $75.58
2 10.25% 0.74% 8.70% $10,870.15 $78.80
3 15.76% 0.74% 13.33% $11,333.22 $82.15
4 21.55% 0.74% 18.16% $11,816.01 $85.65
5 27.63% 0.74% 23.19% $12,319.37 $89.30
6 34.01% 0.74% 28.44% $12,844.18 $93.11
7 40.71% 0.74% 33.91% $13,391.34 $97.07
8 47.75% 0.74% 39.62% $13,961.81 $101.21
9 55.13% 0.74% 45.57% $14,556.58 $105.52
10 62.89% 0.74% 51.77% $15,176.69 $110.01
Total Gain After Fees and Expenses $5,176.69
Total Annual Fees and Expenses $918.39
|
Columbia Rhode Island Intermediate Municipal Bond Fund -- Class Z Shares
Initial Hypothetical
Maximum Sales Charge Investment Amount Assumed Rate of Return 0.00% $10,000.00 5%
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 0.75% 4.25% $10,425.00 $76.59
2 10.25% 0.75% 8.68% $10,868.06 $79.85
3 15.76% 0.75% 13.30% $11,329.96 $83.24
4 21.55% 0.75% 18.11% $11,811.48 $86.78
5 27.63% 0.75% 23.13% $12,313.47 $90.47
6 34.01% 0.75% 28.37% $12,836.79 $94.31
7 40.71% 0.75% 33.82% $13,382.35 $98.32
8 47.75% 0.75% 39.51% $13,951.10 $102.50
9 55.13% 0.75% 45.44% $14,544.02 $106.86
10 62.89% 0.75% 51.62% $15,162.14 $111.40
Total Gain After Fees and Expenses $5,162.14
Total Annual Fees and Expenses $930.32
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
You may wish to read the Statement of Additional Information for more information on the Funds and the securities in which they invest. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Funds' website (www.columbiafunds.com) include a description of the Funds' policies with respect to the disclosure of their portfolio holdings.
You can get free copies of annual or semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Funds by writing or calling the Funds' distributor or visiting the Funds' website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Funds, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust V: 811-5030
. Columbia Connecticut Intermediate Municipal Bond Fund
. Columbia Massachusetts Intermediate Municipal Bond Fund
. Columbia New Jersey Intermediate Municipal Bond Fund
. Columbia New York Intermediate Municipal Bond Fund
. Columbia Rhode Island Intermediate Municipal Bond Fund
[LOGO]
ColumbiaFunds
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com
PRO-36/105152-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED MARCH 1, 2006 (THE "PROSPECTUS")
COLUMBIA CONNECTICUT TAX-EXEMPT FUND
COLUMBIA MASSACHUSETTS TAX-EXEMPT FUND
COLUMBIA NEW YORK TAX-EXEMPT FUND
CLASS A, B AND C SHARES
The Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The section entitled "LEGAL PROCEEDINGS" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent
distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were
consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107716-0306 March 27, 2006
COLUMBIA CALIFORNIA TAX-EXEMPT FUND
COLUMBIA CONNECTICUT TAX-EXEMPT FUND
COLUMBIA MASSACHUSETTS TAX-EXEMPT FUND
COLUMBIA NEW YORK TAX-EXEMPT FUND
Class A, B and C Shares
Advised by Columbia Management Advisors, LLC
TABLE OF CONTENTS
THE FUNDS 2 -------------------------------------------- Investment Goal......................... 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 2 Each of the following sections discusses Performance History and Your Expenses for that Fund: Columbia California Tax-Exempt Fund..... 5 Columbia Connecticut Tax-Exempt Fund.... 9 Columbia Massachusetts Tax-Exempt Fund.. 13 Columbia New York Tax-Exempt Fund....... 17 YOUR ACCOUNT 21 -------------------------------------------- How to Buy Shares....................... 21 Investment Minimums..................... 21 Sales Charges........................... 22 How to Exchange Shares.................. 25 How to Sell Shares...................... 26 Fund Policy on Trading of Fund Shares... 27 Distribution and Service Fees........... 29 Other Information About Your Account.... 29 |
MANAGING THE FUNDS 32 -------------------------------------------- Investment Advisor...................... 32 Portfolio Manager....................... 32 Legal Proceedings....................... 32 OTHER INVESTMENT STRATEGIES AND RISKS 35 -------------------------------------------- FINANCIAL HIGHLIGHTS 37 -------------------------------------------- Columbia California Tax-Exempt Fund..... 37 Columbia Connecticut Tax-Exempt Fund.... 40 Columbia Massachusetts Tax-Exempt Fund.. 43 Columbia New York Tax-Exempt Fund....... 46 APPENDIX A 49 -------------------------------------------- |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[GRAPHIC] Not FDIC Insured May Lose Value No Bank Guarantee
Each Fund may also invest up to 25% of its total assets in lower-rated debt securities, which are rated below investment grade by Moody's, S&P or other nationally recognized rating agencies, or comparable unrated securities. Each Fund is "non-diversified," which means that it is allowed to invest a greater percentage of its total assets in the securities of fewer issuers than a "diversified" fund.
The Funds may purchase derivative instruments, such as futures, options, swap contracts, and inverse floaters, to gain or reduce exposure to particular securities or segments of the municipal bond markets. Derivatives are financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Funds may use derivatives for both hedging and non-hedging purposes, such as to adjust the Funds' sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an opposite position. The Funds typically use derivatives in an effort to achieve more efficiently economic exposures similar to those it could have achieved through the purchase and sale of municipal securities.
Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks."
UNDERSTANDING TAX-EXEMPT BONDS
Tax-exempt bonds are issued by state and local governments for various public purposes. The interest on tax-exempt bonds, typically, is not subject to federal and state income tax. As a result, the yields on tax-exempt securities are generally lower than the yields on taxable bonds with similar maturities. However, a portion or all of such interest may be subject to a shareholder's federal alternative minimum tax liability. Tax-exempt bond funds may be appropriate for investors in high tax brackets who seek current income that is free from state and federal tax.
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values
The Funds
of bonds usually will not affect the amount of income the Funds receive from them but will affect the value of the Funds' shares. Interest rate risk is generally greater for bonds with longer maturities.
Credit risk is the possibility that changes in the obligated entity's financial condition, changes in general economic conditions, or changes in economic conditions that affect the obligated entity, may impact the obligated entity's actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and, in some cases, a decrease in income. Bonds that are backed by an issuer's taxing authority, including general obligation bonds, may be vulnerable to legal limits on a government's power to raise revenue or increase taxes. These bonds may depend for payment on legislative appropriation and/or aid from other governments. Other municipal bonds, known as revenue obligations, are payable from revenues earned by a particular project or other revenue source. Some revenue obligations are backed by private companies, some are asset-backed securities, such as bonds backed by mortgage payments, and some are for municipally owned utilities, such as water or sewer systems. Revenue obligations are subject to greater risk of default than general obligation bonds because investors can look only to the revenue generated by the project, assets, or private company backing the project, rather than to the taxing power of the state or local government issuer of the bonds.
Reinvestment risk is the risk that income from each Fund's debt securities will decline if and when each Fund invests the proceeds from matured, traded or called securities at market interest rates that are below the current earnings rate of each Fund's portfolio.
Lower-rated debt securities, commonly referred to as "junk bonds," involve greater risk of loss due to credit deterioration and are less liquid, especially during periods of economic uncertainty or change, than higher-quality debt securities. Lower-rated debt securities generally have a higher risk that the issuer of the security may default and not make payment of interest or principal.
Tax-exempt bonds are subject to special risks. Changes in tax laws or adverse determinations by the Internal Revenue Service may make the income from some of these bonds taxable. Bonds that are backed by the issuer's taxing authority, known as general obligation bonds, may depend for payment on legislative appropriation and/or aid from other governments. These bonds may be vulnerable to legal limits on a government's power to raise revenue or increase taxes. Other tax-exempt bonds, known as special revenue obligations, are payable from revenues earned by a particular project or other revenue sources. These bonds are subject to greater risk of default than general obligation bonds because investors can look only to the revenue generated by the project or the private company backing the project, rather than to the credit of the state or local government issuer of the bonds.
Municipal Market Risk and Single-State Focus: A state's municipal market may be volatile and can be significantly affected by adverse tax, legislative, demographic or political changes, as well as changes in the financial or economic condition of the state that issues municipal securities. Municipal issues in each state will be affected by these factors, which will, in turn, affect the value of each Fund's investments. Because each of the Funds invests primarily in municipal securities of a particular state, the value of each Fund's shares may be more volatile than the value of shares of funds that invest in securities of issuers in a number of different states.
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Funds to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also cause the Funds to receive
The Funds
taxable income, which could increase the amount of taxes payable by shareholders. Other risks arise from the Funds' potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for the Funds' derivative positions at times when the Funds might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Funds may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
The interest income distributed by the Funds from certain tax-exempt bonds may be subject to the federal alternative minimum tax for individuals and corporations. As a fundamental policy that cannot be changed without shareholder approval, each Fund may not invest more than 20% of its total assets in bonds subject to the alternative minimum tax. Consult your tax advisor for more information.
As a non-diversified mutual fund, each Fund is allowed to invest a greater percentage of its total assets in the securities of fewer issuers than a "diversified" fund. Each Fund may, therefore, have a greater risk of loss from a few issuers than a similar fund that invests more broadly.
An investment in a Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges. Class B share returns do not reflect Class A share returns after conversion of Class B shares to Class A shares (see the section "Your Account -- Sales Charges").
The Fund's returns are compared to the Lehman Brothers Municipal Bond Index ("Lehman Index"), an unmanaged index that tracks the performance of the municipal bond market. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed. The Fund's returns are also compared to the average return of the funds included in the Lipper California Municipal Debt Funds Category ("Lipper Average"), as calculated by Lipper, Inc. This category is composed of funds with investment objectives similar to those of the Fund. Sales charges are not reflected in the Lipper Average.
Columbia California Tax-Exempt Fund
Calendar Year Total Returns (Class A)
[CHART]
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
3.66% 9.63% 5.97% -4.29% 15.39% 3.46% 8.58% 5.10% 4.51% 3.84%
|
For the periods shown in bar chart: Best quarter: 3rd quarter 2002, +5.71% Worst quarter: 2nd quarter 2004, -2.92% |
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The return after taxes on distributions and sale of fund shares at a capital loss may be higher than the return before taxes due to the resulting tax benefit from the capital loss on the after tax return calculation.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class A (%)
Return Before Taxes -1.09 4.07 4.96
Return After Taxes on Distributions -1.16 3.88 4.80
Return After Taxes on Distributions and Sale of Fund Shares 0.73 4.02 4.83
-----------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes -1.90 3.96 4.69
Return After Taxes on Distributions -1.97 3.78 4.53
Return After Taxes on Distributions and Sale of Fund Shares 0.01 3.84 4.51
-----------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 2.38 4.61 4.95/(1)/
Return After Taxes on Distributions 2.31 4.43 4.79/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 2.90 4.44 4.77/(1)/
-----------------------------------------------------------------------------------------
Lehman Index (%) 3.51 5.59 5.71
-----------------------------------------------------------------------------------------
Lipper Average (%) 3.84 4.78 5.03
|
(1) Class C is a newer class of shares. Its performance information includes returns of the Fund's Class B shares for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class B shares and the newer class of shares. Class A shares were initially offered on June 16, 1986, Class B shares were initially offered on August 4, 1992, and Class C shares were initially offered on August 1, 1997.
Columbia California Tax-Exempt Fund
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management fees, 12b-1 fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table. It uses the following hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class B shares convert to Class A shares after eight
years
Shareholder Fees/(1)/ (paid directly from your investment)
Class A Class B Class C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75 0.00 0.00
------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00 1.00
------------------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/ /(3)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
Columbia California Tax-Exempt Fund
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class A Class B Class C
Management fee/(1)/ (%) 0.50 0.50 0.50
-------------------------------------------------------------------------
Distribution and service (12b-1) fees/(2)/ (%) 0.22 0.97 0.97/(3)/
-------------------------------------------------------------------------
Other expenses/(4)/ (%) 0.16 0.16 0.16
-------------------------------------------------------------------------
Total annual fund operating expenses/(1)/ (%) 0.88 1.63 1.63/(3)/
|
(1) The Fund's Advisor has contractually agreed to bear a portion of the Fund's
expenses so that the Fund's ordinary operating expenses (excluding any
distribution and service fees, tax and interest expenses) do not exceed
0.60% until September 16, 2006. If the waiver were reflected in the table,
total annual fund operating expenses would be 0.82% for Class A, 1.57% for
Class B and 1.27% for Class C, (taking into account the 12b-1 fee waiver
discussed in footnote (3) below). After September 16, 2006, this
arrangement may be modified or terminated by the Advisor at any time.
(2) The annual service fee portion of the 12b-1 fee may equal up to 0.10% on
net assets attributable to shares issued prior to December 1, 1994 and
0.25% on net assets attributable to shares issued thereafter. This
arrangement results in a rate of service fee for all shares that is a blend
between the 0.10% and 0.25% rates.
(3) The Fund's distributor has voluntarily agreed to waive a portion of the
12b-1 fee for Class C shares. If this waiver were reflected in the table,
the 12b-1 fee for Class C shares would be 0.67%, and total annual fund
operating expenses for Class C shares would be 1.27% (taking into account
the fee waiver discussed in footnote 1 above). This arrangement may be
modified or terminated by the distributor at any time.
(4) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class A $561 $742 $ 939 $1,508
-----------------------------------------------------------------
Class B: did not sell your shares $166 $514 $ 887 $1,732
sold all your shares at
the end of the period $666 $814 $1,087 $1,732
-----------------------------------------------------------------
Class C: did not sell your shares $166 $514 $ 887 $1,933
sold all your shares at
the end of the period $266 $514 $ 887 $1,933
|
See Appendix A for additional hypothetical investment and expense information.
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges. Class B share returns do not reflect Class A share returns after conversion of Class B shares to Class A shares (see the section "Your Account -- Sales Charges").
The Fund's returns are compared to the Lehman Brothers Municipal Bond Index ("Lehman Index"), an unmanaged index that tracks the performance of the municipal bond market. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed. The Fund's returns are also compared to the average return of the funds included in the Lipper Connecticut Municipal Debt Funds Category ("Lipper Average"), as calculated by Lipper, Inc. This category is composed of funds with investment objectives similar to those of the Fund. Sales charges are not reflected in the Lipper Average.
Columbia Connecticut Tax-Exempt Fund
Calendar Year Total Returns (Class A)
[CHART]
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
3.74% 9.19% 6.44% -2.40% 11.94% 5.47% 9.01% 5.43% 2.98% 2.09%
|
For the periods shown in bar chart: Best quarter: 4th quarter 2000, +4.56% Worst quarter: 2nd quarter 2004, -3.01% |
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The return after taxes on distributions and sale of fund shares at a capital loss may be higher than the return before taxes due to the resulting tax benefit from the capital loss on the after tax return calculation.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class A (%)
Return Before Taxes -2.76 3.95 4.80
Return After Taxes on Distributions -2.98 3.81 4.73
Return After Taxes on Distributions and Sale of Fund Shares -0.35 3.93 4.75
-----------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes -3.53 3.85 4.53
Return After Taxes on Distributions -3.75 3.70 4.46
Return After Taxes on Distributions and Sale of Fund Shares -1.04 3.75 4.42
-----------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 0.66 4.50 4.80/(1)/
Return After Taxes on Distributions 0.44 4.35 4.72/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 1.79 4.36 4.69/(1)/
-----------------------------------------------------------------------------------------
Lehman Index (%) 3.51 5.59 5.71
-----------------------------------------------------------------------------------------
Lipper Average (%) 2.42 4.72 4.82
|
(1) Class C is a newer class of shares. Its performance information includes returns of the Fund's Class B shares for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class B shares and the other share classes. Class A shares were initially offered on November 1, 1991, Class B shares were initially offered on June 8, 1992, and Class C shares were initially offered on August 1, 1997.
Columbia Connecticut Tax-Exempt Fund
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management fees, 12b-1 fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table. It uses the following hypothetical conditions:
. $ 10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class B shares convert to Class A shares after eight years
Shareholder Fees/(1)/ (paid directly from your investment)
Class A Class B Class C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75 0.00 0.00
------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00 1.00
------------------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/ /(3)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
Columbia Connecticut Tax-Exempt Fund
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class A Class B Class C
Management fee/(1)/ (%) 0.50 0.50 0.50
-------------------------------------------------------------------------
Distribution and service (12b-1) fees/(2)/ (%) 0.24 0.99 0.99/(3)/
-------------------------------------------------------------------------
Other expenses/(4)/ (%) 0.19 0.19 0.19
-------------------------------------------------------------------------
Total annual fund operating expenses/(1)/ (%) 0.93 1.68 1.68/(3)/
|
(1) The Fund's advisor has voluntarily agreed to waive advisory fees and
reimburse the Fund for certain expenses so that the total annual fund
operating expenses (exclusive of distribution and service fees, brokerage
commissions, interest, taxes and extraordinary expenses, if any) will not
exceed 0.60%. If this waiver were reflected in the table, the management
fee for each share class would be 0.41% and total annual fund operating
expenses for Class A, B and C shares would be 0.84%, 1.59% and 1.29%,
respectively (taking into account the 12b-1 fee waiver discussed in
footnote 3 below). This arrangement may be modified or terminated by the
advisor at any time.
(2) The annual service fee portion of the 12b-1 fee may equal up to 0.10% on
net assets attributable to shares issued prior to December 1, 1994 and
0.25% on net assets attributable to shares issued thereafter. This
arrangement results in a rate of service fee for all shares that is a blend
between the 0.10% and 0.25% rates.
(3) The Fund's distributor has voluntarily agreed to waive a portion of the
12b-1 fee for Class C shares. If this waiver were reflected in the table,
the 12b-1 fee for Class C shares would be 0.68%, and total annual fund
operating expenses for Class C shares would be 1.29% (taking into account
the fee waiver discussed in footnote 1 above). This arrangement may be
modified or terminated by the distributor at any time.
(4) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class A $565 $757 $ 965 $1,564
-----------------------------------------------------------------
Class B: did not sell your shares $171 $530 $ 913 $1,788
sold all your shares at
the end of the period $671 $830 $1,113 $1,788
-----------------------------------------------------------------
Class C: did not sell your shares $171 $530 $ 913 $1,987
sold all your shares at
the end of the period $271 $530 $ 913 $1,987
|
See Appendix A for additional hypothetical investment and expense information.
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges. Class B share returns do not reflect Class A share returns after conversion of Class B shares to Class A shares (see the section "Your Account -- Sales Charges").
The Fund's returns are compared to the Lehman Brothers Municipal Bond Index ("Lehman Index"), an unmanaged index that tracks the performance of the municipal bond market. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed. The Fund's returns are also compared to the average return of the funds included in the Lipper Massachusetts Municipal Debt Funds Category ("Lipper Average"), as calculated by Lipper, Inc. This category is composed of funds with investment objectives similar to those of the Fund. Sales charges are not reflected in the Lipper Average.
Columbia Massachusetts Tax-Exempt Fund
Calendar Year Total Returns (Class A)
[CHART]
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
2.92% 9.01% 5.99% -4.12% 13.76% 4.67% 9.99% 5.94% 3.70% 3.16%
|
For the periods shown in bar chart: Best quarter: 4th quarter 2000, +6.27% Worst quarter: 2nd quarter 2004, -2.93% |
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The return after taxes on distributions and sale of fund shares at a capital loss may be higher than the return before taxes due to the resulting tax benefit from the capital loss on the after tax return calculation.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class A (%)
Return Before Taxes -1.74 4.44 4.89
Return After Taxes on Distributions -1.87 4.26 4.72
Return After Taxes on Distributions and Sale of Fund Shares 0.35 4.39 4.79
-----------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes -2.53 4.35 4.62
Return After Taxes on Distributions -2.66 4.16 4.45
Return After Taxes on Distributions and Sale of Fund Shares -0.36 4.22 4.47
-----------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 1.71 4.99 4.88/(1)/
Return After Taxes on Distributions 1.58 4.81 4.71/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 2.51 4.82 4.73/(1)/
-----------------------------------------------------------------------------------------
Lehman Index (%) 3.51 5.59 5.71
-----------------------------------------------------------------------------------------
Lipper Average (%) 2.73 4.74 4.78
|
(1) Class C is a newer class of shares. Its performance information includes returns of the Fund's Class B shares for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class B shares and the other share classes. Class A shares were initially offered on April 10, 1987, Class B shares were initially offered on June 8, 1992, and Class C shares were initially offered on August 1, 1997.
Columbia Massachusetts Tax-Exempt Fund
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management fees, 12b-1 fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table. It uses the following hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class B shares convert to Class A shares after eight
years
Shareholder Fees/(1)/ (paid directly from your investment)
Class A Class B Class C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75 0.00 0.00
------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00 1.00
------------------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/ /(3)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
Columbia Massachusetts Tax-Exempt Fund
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class A Class B Class C
Management fee (%) 0.50 0.50 0.50
-------------------------------------------------------------------------
Distribution and service (12b-1) fees/(1)/ (%) 0.22 0.97 0.97/(2)/
-------------------------------------------------------------------------
Other expenses/(3)/ (%) 0.17 0.17 0.17
-------------------------------------------------------------------------
Total annual fund operating expenses (%) 0.89 1.64 1.64/(2)/
|
(1) The annual service fee portion of the 12b-1 fee may equal up to 0.10% on
net assets attributable to shares issued prior to December 1, 1994 and
0.25% on net assets attributable to shares issued thereafter. This
arrangement results in a rate of service fee for all shares that is a blend
between the 0.10% and 0.25% rates.
(2) The Fund's distributor has voluntarily agreed to waive a portion of the
12b-1 fee for Class C shares. If this waiver were reflected in the table,
the 12b-1 fee for Class C shares would be 0.67%, and total annual fund
operating expenses for Class C shares would be 1.34%. This arrangement may
be modified or terminated by the distributor at any time.
(3) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class A $562 $745 $ 945 $1,519
-----------------------------------------------------------------
Class B: did not sell your shares $167 $517 $ 892 $1,743
sold all your shares at
the end of the period $667 $817 $1,092 $1,743
-----------------------------------------------------------------
Class C: did not sell your shares $167 $517 $ 892 $1,944
sold all your shares at
the end of the period $267 $517 $ 892 $1,944
|
See Appendix A for additional hypothetical investment and expense information.
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges. Class B share returns do not reflect Class A share returns after conversion of Class B shares to Class A shares (see the section "Your Account -- Sales Charges").
The Fund's returns are compared to the Lehman Brothers Municipal Bond Index ("Lehman Index"), an unmanaged index that tracks the performance of the municipal bond market. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed. The Fund's returns are also compared to the average return of the funds included in the Lipper New York Municipal Debt Funds Category ("Lipper Average"), as calculated by Lipper, Inc. This category is composed of funds with investment objectives similar to those of the Fund. Sales charges are not reflected in the Lipper Average.
Columbia New York Tax-Exempt Fund
Calendar Year Total Returns (Class A)
[CHART]
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
3.46% 9.53% 6.40% -4.53% 14.28% 4.08% 9.99% 6.31% 3.78% 2.92%
|
For the periods shown in bar chart: Best quarter: 4th quarter 2000, +6.02% Worst quarter: 2nd quarter 2004, -2.84% |
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The return after taxes on distributions and sale of fund shares at a capital loss may be higher than the return before taxes due to the resulting tax benefit from the capital loss on the after tax return calculation.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class A (%)
Return Before Taxes -1.97 4.36 5.00
Return After Taxes on Distributions -2.10 4.31 4.97
Return After Taxes on Distributions and Sale of Fund Shares 0.22 4.34 4.95
-----------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes -2.75 4.27 4.72
Return After Taxes on Distributions -2.89 4.21 4.69
Return After Taxes on Distributions and Sale of Fund Shares -0.48 4.17 4.62
-----------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 1.48 4.91 4.99/(1)/
Return After Taxes on Distributions 1.34 4.86 4.96/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 2.37 4.77 4.89/(1)/
-----------------------------------------------------------------------------------------
Lehman Index (%) 3.51 5.59 5.71
-----------------------------------------------------------------------------------------
Lipper Average (%) 3.06 4.77 4.83
|
(1) Class C is a newer class of shares. Its performance information includes returns of the Fund's Class B shares for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class B shares and the other share classes. Class A shares were initially offered on September 26, 1986, Class B shares were initially offered on August 4, 1992, and Class C shares were initially offered on August 1, 1997.
Columbia New York Tax-Exempt Fund
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management fees, 12b-1 fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table. It uses the following hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class B shares convert to Class A shares after eight
years
Shareholder Fees/(1)/ (paid directly from your investment)
Class A Class B Class C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75 0.00 0.00
------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00 1.00
------------------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/ /(3)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
Columbia New York Tax-Exempt Fund
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class A Class B Class C
Management fee/(1)/ (%) 0.50 0.50 0.50
-------------------------------------------------------------------------
Distribution and service (12b-1) fees/(2)/ (%) 0.24 0.99 0.99/(3)/
-------------------------------------------------------------------------
Other expenses/(4)/ (%) 0.25 0.25 0.25
-------------------------------------------------------------------------
Total annual fund operating expenses/(1)/ (%) 0.99 1.74 1.74/(3)/
|
(1) The Fund's advisor has voluntarily agreed to waive advisory fees and
reimburse the Fund for certain expenses so that the total annual fund
operating expenses (exclusive of distribution and service fees, brokerage
commissions, interest, taxes and extraordinary expenses, if any) will not
exceed 0.60%. If this waiver were reflected in the table, the management
fee for each share class would be 0.35% and total annual fund operating
expenses for Class A, B and C shares would be 0.84%, 1.59% and 1.29%,
respectively (taking into account the 12b-1 fee waiver discussed in
footnote 3 below). This arrangement may be modified or terminated by the
advisor at any time.
(2) The annual service fee portion of the 12b-1 fee may equal up to 0.10% on
net assets attributable to shares issued prior to December 1, 1994 and
0.25% on net assets attributable to shares issued thereafter. This
arrangement results in a rate of service fee for all shares that is a blend
between the 0.10% and 0.25% rates.
(3) The Fund's distributor has voluntarily agreed to waive a portion of the
12b-1 fee for Class C shares. If this waiver were reflected in the table,
the 12b-1 fee for Class C shares would be 0.69%, and total annual fund
operating expenses for Class C shares would be 1.29% (taking into account
the fee waiver discussed in footnote 1 above). This arrangement may be
modified or terminated by the distributor at any time.
(4) Other expenses have been restated to reflect contractual changes to the
fees paid by the Fund for transfer agency and pricing and bookkeeping
services effective November 1, 2005.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class A $571 $775 $ 996 $1,630
-----------------------------------------------------------------
Class B: did not sell your shares $177 $548 $ 944 $1,853
sold all your shares at
the end of the period $677 $848 $1,144 $1,853
-----------------------------------------------------------------
Class C: did not sell your shares $177 $548 $ 944 $2,052
sold all your shares at
the end of the period $277 $548 $ 944 $2,052
|
See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
-------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
-------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging shares you own in a
different fund distributed by Columbia Management
Distributors, Inc. for shares of the same class (and, in
some cases, certain other classes) of the Fund at no
additional cost. There may be an additional sales charge if
exchanging from a money market fund. To exchange by
telephone, call 1-800-422-3737.
-------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
-------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. There may
be an additional sales charge if exchanging from a money
market fund. Be sure to complete the appropriate section of
the account application for this feature.
-------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
|
Your Account
Please see the Statement of Additional Information for more details on investment minimums.
CHOOSING A SHARE CLASS
The Funds offer three classes of shares in this prospectus -- Class A, B and C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 or more but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
Columbia California Tax-Exempt Fund also offers an additional class of shares, Class Z shares, exclusively to certain institutional and other investors. Class Z shares are made available through a separate prospectus provided to eligible institutional and other investors.
Class A shares Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
Class A Sales Charges
% of offering
As a % of price
the public As a % retained by
offering of your financial
Amount purchased price investment advisor
Less than $50,000 4.75 4.99 4.25
--------------------------------------------------------------------
$50,000 to less than $100,000 4.50 4.71 4.00
--------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 3.00
--------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.25
--------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
--------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
|
Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the
Your Account
first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
Purchases Over $1 Million
Amount purchased Commission % Less than $3 million 1.00 ------------------------------------------------ $3 million to less than $50 million 0.50 ------------------------------------------------ $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES Certain investments in Class A, B and C shares are subject to a CDSC, a sales charge applied at the time you sell your shares. You will pay the CDSC only on shares you sell within a certain amount of time after purchase. The CDSC generally declines each year until there is no charge for selling shares. The CDSC is applied to the net asset value at the time of purchase or sale, whichever is lower. For purposes of calculating the CDSC, the start of the holding period is the first day of the month in which the purchase was made. Shares you purchase with reinvested dividends or other distributions are not subject to a CDSC. When you place an order to sell shares, the Fund will automatically sell first those shares not subject to a CDSC and then those you have held the longest.
Reduced Sales Charges for Larger Investments.
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Funds and other funds in the Columbia family of funds.
Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
Statement of Intent You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
Your Account
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
. Individual accounts
. Joint accounts
. Certain IRA accounts
. Certain trusts
. UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisors' failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Funds as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information which can be obtained at www.columbiafunds.com or by calling 1-800-345-6611.
Your Account
Class B shares Your purchases of Class B shares are at Class B's net asset value. Purchases up to $50,000 are allowed in Class B shares assuming the combined value of the customer's total assets in the Columbia funds does not exceed $50,000. Purchases in Class B shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart below.
Class B Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 5.00
---------------------------------------------
Through second year 4.00
---------------------------------------------
Through third year 3.00
---------------------------------------------
Through fourth year 3.00
---------------------------------------------
Through fifth year 2.00
---------------------------------------------
Through sixth year 1.00
---------------------------------------------
Longer than six years 0.00
|
Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
Class C shares Your purchases of Class C shares are at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares.
Class C Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 1.00
---------------------------------------------
Longer than one year 0.00
|
Your Account
a gain or a loss for tax purposes. A Fund may terminate your exchange privilege if the advisor determines that your exchange activity is likely to adversely impact its ability to manage the Fund. See "Fund Policy on Trading of Fund Shares" for the Funds' policy. To exchange by telephone, call 1-800-422-3737. Please have your account and taxpayer identification numbers available when calling.
When a Fund receives your sales request in "good form," shares will be sold at
the next calculated price. "Good form" means that the Funds' transfer agent has
all information and documentation it deems necessary to effect your order. For
example, when selling shares by letter of instruction, "good form" means
(i) your letter has complete instructions, the proper signatures and Medallion
Signature Guarantees, (ii) if applicable, you have included any certificates
for shares to be sold, and (iii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries,
surviving joint owners and other legal entities, please call 1-800-345-6611.
Retirement plan accounts have special requirements; please call 1-800-799-7526
for more information.
A Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, a Fund may delay sending the proceeds from the sale of your shares for up to 10 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Your Account
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund
by exchanging from a Fund into the same share class (and,
in some cases, certain other classes) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is
$100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or, if
applicable, stock power form along with any share
certificates to be sold to the address below. In your
letter of instruction, note the Fund's name, share class,
account number, and the dollar value or number of shares
you wish to sell. All account owners must sign the letter.
Signatures must be guaranteed by either a bank, a member
firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for
alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
------------------------------------------------------------------------------
By check writing You may sell shares of the Funds by check writing. The
check must be at least $500 and no more than $100,000. You
will continue to earn dividends on shares until the check
is presented to the bank for payment. When the check is
presented to the bank a sufficient number of full and
fractional shares will be sold at the next determined net
asset value to cover the amount of the check. Certificate
shares may not be sold by check writing. Check writing is
available only for Class A shares. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
Each Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if a Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if a Fund determines that any person, group or account has
Your Account
engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Funds are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into a Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Funds. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Funds typically are not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Consequently, there is the risk that the Funds may not be able to do anything in response to market timing that occurs in a Fund which may result in certain shareholders being able to market time a Fund while the shareholders in that Fund bear the burden of such activities. Certain financial intermediaries (including certain retirement plan service providers whose clients include, among others, various retirement plans sponsored by Bank of America and its affiliates for the benefit of its employees (the "Bank of America retirement service plan providers")) have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Funds' practices discussed above. In particular, the Bank of America retirement service provider permits the reinstatement of future purchase orders for shares of Columbia Funds following various suspension periods.
The Funds seek to act in a manner that they believe is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Funds nor their agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Your Account
Additional Intermediary Compensation In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Funds on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Funds' investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Funds. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
Your Account
each business day that the NYSE is open for trading (typically Monday through Friday). Shares are not priced the days on which the NYSE is closed for trading.
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
Each Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, each Fund must determine the price of each security in its portfolio at the close of each trading day. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Funds may use other data to determine the fair value of the securities.
The Funds have retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for each Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Funds' transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for any class of shares offered by the Funds. If you currently hold previously issued share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the transfer agent.
Dividends, Distributions, and Taxes The Funds have the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Funds, net of expenses incurred by the Funds.
----------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less
|
UNDERSTANDING FUND DISTRIBUTIONS
Each Fund may earn income from the securities it holds. Each Fund also may realize capital gains or losses on sales of its securities. Each Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of a Fund's income and capital gains based on the number of shares you own at the time these distributions are declared.
Your Account
Distribution Options The Funds declare any dividends daily and pay them monthly, and declare and pay any capital gains (including short-term capital gains) at least annually. Shares begin to earn dividends on the date on which a purchase order is settled by payment. Shares stop earning dividends at the close of business on the day before the date on which a redemption order is settled. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, a Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, all subsequent distributions will be reinvested in additional shares of the Fund.
Tax Consequences For federal income tax purposes, distributions of investment income by a Fund, whether in cash or additional securities, will ordinarily constitute tax-exempt income. Generally, gains realized by a Fund on the sale or exchange of investments, the income from which is tax-exempt, will be taxable to shareholders. In addition, an investment in a Fund may result in liability for federal alternative minimum tax for both individuals and corporate shareholders. The Funds intend to distribute federally tax-exempt income. The Funds may invest a portion of their assets in securities that generate income subject to federal or state income taxes. Income exempt from federal tax may be subject to state and local taxes.
You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in a Fund may have additional personal tax implications. Please consult your tax advisor about federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by each Fund, you may realize a capital gain or loss when selling or exchanging shares of a Fund. Such transactions also may be subject to federal, state and local income tax.
Columbia Advisors is a direct, wholly owned subsidiary of Columbia Management Group, LLC ("CMG"), which in turn is a direct, wholly owned subsidiary of Bank of America, which in turn is a wholly owned banking subsidiary of Bank of America Corporation, a financial services holding company organized as a Delaware corporation. Prior to June 15, 2005, CMG was a corporation. Effective June 15, 2005, CMG converted to a limited liability company. Columbia Advisors, a registered investment advisor, has been an investment advisor since 1995.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Funds. As a result of the merger, Columbia Advisors is now the investment advisor to the Funds.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management and/or Columbia Advisors by Columbia California Tax-Exempt Fund, Columbia Connecticut Tax-Exempt Fund, Columbia Massachusetts Tax-Exempt Fund and Columbia New York Tax-Exempt Fund not including pricing and bookkeeping and other fees paid to Columbia Management and/or Columbia Advisors by the Funds, amounted to 0.50%, 0.50%, 0.50% and 0.50% of average daily net assets of the Funds, respectively. A discussion of the factors considered by the Funds' Boards of Trustees in approving the Funds' investment advisory contracts is included in the Funds' annual reports to shareholders for the period ended October 31, 2005.
The Statement of Additional Information provides additional information about the manager's compensation, other accounts managed and ownership of securities in the Funds.
Managing the Funds
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and he has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss
the claims in the pending cases. On November 3, 2005, the U.S. District Court
for the District of Maryland dismissed the claims under the Securities Act of
1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act
of 1940 (ICA) and the state law claims against Columbia and others. The claims
under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and
Section 36(b) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
Managing the Funds
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
Each Fund's principal investment strategies and their associated risks are described under "The Funds --Principal Investment Strategies" and "The Funds -- Principal Investment Risks." This section describes other investments the Funds may make and the risks associated with them. In seeking to achieve their investment goal, the Funds may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Funds and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Funds' Statement of Additional Information, which you may obtain free of charge (see back cover). The advisor may elect not to buy any of these securities or use any of these techniques. Each Fund may not always achieve its investment goal. Except as otherwise noted, approval by a Fund's shareholders is not required to modify or change a Fund's investment goal or any of its investment strategies.
Most mortgage securities are pooled together and structured as pass-throughs. Monthly payments of principal and interest from the underlying mortgage loans backing the pool are collected by a servicer and "passed
Other Investment Strategies and Risks
through" regularly to the investor. Pass-throughs can have a fixed or an adjustable rate. The majority of pass-through securities are issued by three agencies: Ginnie Mae, Fannie Mae and Freddie Mac. These securities involve prepayment risk, which is the possibility that the underlying debt may be refinanced or prepaid prior to maturity during periods of declining interest rates. A decline in interest rates may lead to a faster rate of repayment on mortgage-backed securities and, therefore, cause a Fund to earn a lower interest rate on reinvestment. In addition, the potential impact of prepayment on the price of a mortgage-backed security may be difficult to predict and result in greater volatility. During periods of rising interest rates, mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the maturity of the securities.
The financial highlights table is intended to help you understand the Funds' financial performance. Information is shown for the Funds' last six fiscal periods, which run from November 1 to October 31, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the applicable Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Funds' financial statements which, for the fiscal years ended October 31, 2005 and 2004, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Funds' financial statements, is included in the Funds' annual report. For the New York Fund, the information for the period ended October 31, 2003 and for the fiscal years ended January 31, 2003, 2002 and 2001 has been derived from the Fund's financial statements, which have also been audited by PricewaterhouseCoopers, whose report expressed an unqualified opinion on those financial statements and highlights. For the California Fund, Connecticut Fund and Massachusetts Fund, the information for the period ended October 31, 2003 and for the fiscal years ended January 31, 2003, 2002 and 2001, has been derived from the Funds' financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free copy of each Fund's annual report containing those financial statements by calling 1-800-426-3750.
Columbia California Tax-Exempt Fund
Year ended Period ended
October 31, October 31,
2005 2004 2003/(a)/
Class A Class A Class A
------- ------- ------------
Net asset value --
Beginning of period ($) 7.74 7.70 7.63
---------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.31/(b)/ 0.31/(b)/ 0.23/(b)/
Net realized and unrealized gain (loss) on investments and
futures contracts (0.15) 0.20 0.07
---------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.16 0.51 0.30
---------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.31) (0.31) (0.23)
From net realized gains -- (0.16) --
In excess of net realized gains -- -- --
---------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.31) (0.47) (0.23)
---------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 7.59 7.74 7.70
---------------------------------------------------------------------------------------------------------
Total return (%)/(e)/ 2.05/(f)/ 6.81 3.96/(g)/
---------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 0.90 0.87 0.98/(i)/
Net investment income/(h)/ 4.00 4.07 4.04/(i)/
Waiver/reimbursement --/(j)/ -- --
Portfolio turnover rate (%) 7 4 9/(g)/
Net assets, end of period (000's) ($) 303,486 199,877 212,086
|
Year ended January 31,
2003 2002 2001
Class A Class A Class A
------- ------- -------
Net asset value --
Beginning of period ($) 7.59 7.68 6.92
---------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.33/(b)/ 0.34/(b)(c)/ 0.35/(d)/
Net realized and unrealized gain (loss) on investments and
futures contracts 0.08 0.01/(c)/ 0.77
---------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.41 0.35 1.12
---------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.33) (0.32) (0.35)
From net realized gains (0.04) (0.12) (0.01)
In excess of net realized gains -- -- --
---------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.37) (0.44) (0.36)
---------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 7.63 7.59 7.68
---------------------------------------------------------------------------------------------------------
Total return (%)/(e)/ 5.46 4.70 16.49
---------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 0.93 0.91 0.89
Net investment income/(h)/ 4.27 4.42/(c)/ 4.79
Waiver/reimbursement -- -- --
Portfolio turnover rate (%) 10 7 9
Net assets, end of period (000's) ($) 220,494 228,430 212,839
|
(a) The Fund changed its fiscal year end from January 31 to October 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective February 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began accreting
market discount on all debt securities. The effect of this change for the
year ended January 31, 2002, was to increase the ratio of net investment
income to average net assets from 4.41% to 4.42%. The impact to the net
investment income and net realized and unrealized gain per share was less
than $0.01. Per share data and ratios for periods prior to January 31, 2002
have not been restated to reflect this change in presentation.
(d) The per share net investment income amount does not reflect the period's
reclassifications of differences between book and tax basis net investment
income.
(e) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(f) Had the transfer agent not waived a portion of expenses, total return would
have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
(j) Rounds to less than 0.01%.
Financial Highlights
Columbia California Tax-Exempt Fund
Year ended Period ended
October 31, October 31,
2005 2004 2003/(a)/
Class B Class B Class B
------- ------- ------------
Net asset value --
Beginning of period ($) 7.74 7.70 7.63
-------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.25/(b)/ 0.25/(b)/ 0.19/(b)/
Net realized and unrealized gain (loss) on investments and
futures contracts (0.15) 0.20 0.07
-------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.10 0.45 0.26
-------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.25) (0.25) (0.19)
From net realized gains -- (0.16) --
-------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.25) (0.41) (0.19)
-------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 7.59 7.74 7.70
-------------------------------------------------------------------------------------------------------
Total return (%)/(e)/ 1.29/(f)/ 6.01 3.38/(g)/
-------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 1.65 1.62 1.73/(i)/
Net investment income/(h)/ 3.25 3.32 3.29/(i)/
Waiver/reimbursement --/(j)/ -- --
Portfolio turnover rate (%) 7 4 9/(g)/
Net assets, end of period (000's) ($) 30,327 28,600 38,760
|
Year ended January 31,
2003 2002 2001
Class B Class B Class B
------- ------- -------
Net asset value --
Beginning of period ($) 7.59 7.68 6.92
------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.27/(b)/ 0.28/(b)(c)/ 0.29/(d)/
Net realized and unrealized gain (loss) on investments and
futures contracts 0.08 0.02/(c)/ 0.77
------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.35 0.30 1.06
------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.27) (0.29) (0.29)
From net realized gains (0.04) (0.10) (0.01)
------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.31) (0.39) (0.30)
------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 7.63 7.59 7.68
------------------------------------------------------------------------------------------------------
Total return (%)/(e)/ 4.68 3.94 15.63
------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 1.68 1.66 1.64
Net investment income/(h)/ 3.52 3.67/(c)/ 4.04
Waiver/reimbursement -- -- --
Portfolio turnover rate (%) 10 7 9
Net assets, end of period (000's) ($) 43,436 47,989 68,414
|
(a) The Fund changed its fiscal year end from January 31 to October 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective February 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began accreting
market discount on all debt securities. The effect of this change for the
year ended January 31, 2002, was to increase the ratio of net investment
income to average net assets from 3.66% to 3.67%. The impact to the net
investment income and net realized and unrealized gain per share was less
than $0.01. Per share data and ratios for periods prior to January 31, 2002
have not been restated to reflect this change in presentation.
(d) The per share net investment income amount does not reflect the period's
reclassifications of differences between book and tax basis net investment
income.
(e) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(f) Had the transfer agent not waived a portion of expenses, total return would
have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
(j) Rounds to less than 0.01%.
Financial Highlights
Columbia California Tax-Exempt Fund
Year ended Period ended
October 31, October 31,
2005 2004 2003/(a)/
Class C Class C Class C
------- ------- ------------
Net asset value --
Beginning of period ($) 7.74 7.70 7.63
-------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.27/(b)/ 0.28/(b)/ 0.21/(b)/
Net realized and unrealized gain (loss) on investments and
futures contracts (0.15) 0.19 0.06
-------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.12 0.47 0.27
-------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.27) (0.27) (0.20)
From net realized gains -- (0.16) --
-------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.27) (0.43) (0.20)
-------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 7.59 7.74 7.70
-------------------------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ 1.59 6.33 3.61/(g)/
-------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 1.35 1.32 1.43/(i)/
Net investment income/(h)/ 3.55 3.62 3.59/(i)/
Waiver/reimbursement 0.30 0.30 0.30/(i)/
Portfolio turnover rate (%) 7 4 9/(g)/
Net assets, end of period (000's) ($) 17,063 14,244 18,244
|
Year ended January 31,
2003 2002 2001
Class C Class C Class C
------- ------- -------
Net asset value --
Beginning of period ($) 7.59 7.68 6.92
------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.29/(b)/ 0.31/(b)(c)/ 0.32/(d)/
Net realized and unrealized gain (loss) on investments and
futures contracts 0.08 0.01/(c)/ 0.77
------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.37 0.32 1.09
------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.29) (0.30) (0.32)
From net realized gains (0.04) (0.11) (0.01)
------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.33) (0.41) (0.33)
------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 7.63 7.59 7.68
------------------------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ 4.99 4.24 15.97
------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 1.38 1.36 1.34
Net investment income/(h)/ 3.82 3.97/(c)/ 4.34
Waiver/reimbursement 0.30 0.30 0.30
Portfolio turnover rate (%) 10 7 9
Net assets, end of period (000's) ($) 23,686 26,354 5,872
|
(a) The Fund changed its fiscal year end from January 31 to October 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective February 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began accreting
market discount on all debt securities. The effect of this change for the
year ended January 31, 2002, was to increase the ratio of net investment
income to average net assets from 3.96% to 3.97%. The impact to the net
investment income and net realized and unrealized gain per share was less
than $0.01. Per share data and ratios for periods prior to January 31, 2002
have not been restated to reflect this change in presentation.
(d) The per share net investment income amount does not reflect the period's
reclassifications of differences between book and tax basis net investment
income.
(e) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(f) Had the distributor not waived a portion of expenses, total return would
have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
Financial Highlights
Columbia Connecticut Tax-Exempt Fund
Year ended Period ended
October 31, October 31,
2005 2004 2003/(a)/
Class A Class A Class A
------- ------- ------------
Net asset value --
Beginning of period ($) 8.19 8.21 8.11
--------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.29/(b)/ 0.29/(b)/ 0.24/(b)/
Net realized and unrealized gain (loss) on investments and
futures contracts (0.23) 0.10 0.10
--------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.06 0.39 0.34
--------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.29) (0.29) (0.24)
From net realized gains (0.05) (0.12) --
--------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.34) (0.41) (0.24)
--------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 7.91 8.19 8.21
--------------------------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ 0.72 4.91 4.21/(g)/
--------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 0.84 0.83 0.83/(i)/
Net investment income/(h)/ 3.63 3.60 3.97/(i)/
Waiver/reimbursement 0.09 0.09 0.20/(i)/
Portfolio turnover rate (%) 9 9 11/(g)/
Net assets, end of period (000's) ($) 98,063 106,661 111,944
|
Year ended January 31,
2003 2002 2001
Class A Class A Class A
------- ------- -------
Net asset value --
Beginning of period ($) 7.96 7.85 7.28
--------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.34/(b)/ 0.37/(b)(c)/ 0.37/(d)/
Net realized and unrealized gain (loss) on investments and
futures contracts 0.17 0.11/(c)/ 0.57
--------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.51 0.48 0.94
--------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.34) (0.35) (0.37)
From net realized gains (0.02) (0.02) --
--------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.36) (0.37) (0.37)
--------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 8.11 7.96 7.85
--------------------------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ 6.54 6.25 13.24
--------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 0.82 0.79 0.78
Net investment income/(h)/ 4.21 4.61/(c)/ 4.95
Waiver/reimbursement 0.16 0.18 0.17
Portfolio turnover rate (%) 16 3 8
Net assets, end of period (000's) ($) 114,482 103,760 81,385
|
(a) The Fund changed its fiscal year end from January 31 to October 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective February 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began accreting
market discount on all debt securities. The effect of this change for the
year ended January 31, 2002, was to increase net investment income per
share by $0.01, decrease net realized and unrealized gain per share by
$0.01 and increase the ratio of net investment income to average net assets
from 4.57% to 4.61%. Per share data and ratios for periods prior to
January 31, 2002 have not been restated to reflect this change in
presentation.
(d) The per share net investment income amount does not reflect the period's
reclassifications of differences between book and tax basis net investment
income.
(e) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(f) Had the investment advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
Financial Highlights
Columbia Connecticut Tax-Exempt Fund
Year ended Period ended
October 31, October 31,
2005 2004 2003/(a)/
Class B Class B Class B
------- ------- ------------
Net asset value --
Beginning of period ($) 8.19 8.21 8.11
-------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.23/(b)/ 0.23/(b)/ 0.20/(b)/
Net realized and unrealized gain (loss) on investments and
futures contracts (0.23) 0.10 0.09
-------------------------------------------------------------------------------------------------------
Total from Investment Operations -- 0.33 0.29
-------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.23) (0.23) (0.19)
From net realized gains (0.05) (0.12) --
-------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.28) (0.35) (0.19)
-------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 7.91 8.19 8.21
-------------------------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ (0.03) 4.13 3.62/(g)/
-------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 1.59 1.58 1.58/(i)/
Net investment income/(h)/ 2.88 2.84 3.22/(i)/
Waiver/reimbursement 0.09 0.09 0.20/(i)/
Portfolio turnover rate (%) 9 9 11/(g)/
Net assets, end of period (000's) ($) 34,784 46,271 55,792
|
Year ended January 31,
2003 2002 2001
Class B Class B Class B
------- ------- -------
Net asset value --
Beginning of period ($) 7.96 7.85 7.28
------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.28/(b)/ 0.31/(b)(c)/ 0.32/(d)/
Net realized and unrealized gain (loss) on investments and
futures contracts 0.17 0.11/(c)/ 0.57
------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.45 0.42 0.89
------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.28) (0.29) (0.32)
From net realized gains (0.02) (0.02) --
------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.30) (0.31) (0.32)
------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 8.11 7.96 7.85
------------------------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ 5.74 5.49 12.42
------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 1.57 1.54 1.53
Net investment income/(h)/ 3.46 3.86/(c)/ 4.20
Waiver/reimbursement 0.16 0.18 0.17
Portfolio turnover rate (%) 16 3 8
Net assets, end of period (000's) ($) 61,865 55,997 64,072
|
(a) The Fund changed its fiscal year end from January 31 to October 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective February 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began accreting
market discount on all debt securities. The effect of this change for the
year ended January 31, 2002, was to increase net investment income per
share by $0.01, decrease net realized and unrealized gain per share by
$0.01 and increase the ratio of net investment income to average net assets
from 3.82% to 3.86%. Per share data and ratios for periods prior to
January 31, 2002 have not been restated to reflect this change in
presentation.
(d) The per share net investment income amount does not reflect the period's
reclassifications of differences between book and tax basis net investment
income.
(e) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(f) Had the investment advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
Financial Highlights
Columbia Connecticut Tax-Exempt Fund
Year ended Period ended
October 31, October 31,
2005 2004 2003/(a)/
Class C Class C Class C
------- ------- ------------
Net asset value --
Beginning of period ($) 8.19 8.21 8.11
-------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.26/(b)/ 0.26/(b)/ 0.22/(b)/
Net realized and unrealized gain (loss) on investments and
futures contracts (0.24) 0.10 0.09
-------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.02 0.36 0.31
-------------------------------------------------------------------------------------------------------
Less Distributions Declared to Shareholders ($):
From net investment income (0.25) (0.26) (0.21)
From net realized gains (0.05) (0.12) --
-------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.30) (0.38) (0.21)
-------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 7.91 8.19 8.21
-------------------------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ 0.27 4.44 3.86/(g)/
-------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/ Supplemental Data (%):
Expenses/(h)/ 1.29 1.28 1.28/(i)/
Net investment income/(h)/ 3.18 3.15 3.52/(i)/
Waiver/reimbursement 0.39 0.39 0.50/(i)/
Portfolio turnover rate (%) 9 9 11/(g)/
Net assets, end of period (000's) ($) 19,585 24,764 30,218
|
Year ended January 31,
2003 2002 2001
Class C Class C Class C
------- ------- -------
Net asset value --
Beginning of period ($) 7.96 7.85 7.28
------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.30/(b)/ 0.33/(b)(c)/ 0.34/(d)/
Net realized and unrealized gain (loss) on investments and
futures contracts 0.17 0.12/(c)/ 0.57
------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.47 0.45 0.91
------------------------------------------------------------------------------------------------------
Less Distributions Declared to Shareholders ($):
From net investment income (0.30) (0.32) (0.34)
From net realized gains (0.02) (0.02) --
------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.32) (0.34) (0.34)
------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 8.11 7.96 7.85
------------------------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ 6.06 5.79 12.76
------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/ Supplemental Data (%):
Expenses/(h)/ 1.27 1.24 1.23
Net investment income/(h)/ 3.76 4.16/(c)/ 4.50
Waiver/reimbursement 0.46 0.48 0.47
Portfolio turnover rate (%) 16 3 8
Net assets, end of period (000's) ($) 30,456 12,108 4,551
|
(a) The Fund changed its fiscal year end from January 31 to October 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective February 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began accreting
market discount on all debt securities. The effect of this change for the
year ended January 31, 2002, was to increase the ratio of net investment
income to average net assets from 4.13% to 4.16%. The impact to the net
investment income and net realized and unrealized gain per share was less
than $0.01. Per share data and ratios for periods prior to January 31, 2002
have not been restated to reflect this change in presentation.
(d) The per share net investment income amount does not reflect the period's
reclassifications of differences between book and tax basis net investment
income.
(e) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(f) Had the investment advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
Financial Highlights
Columbia Massachusetts Tax-Exempt Fund
Year ended Period ended
October 31, October 31,
2005 2004 2003/(a)/
Class A Class A Class A
------- ------- ------------
Net asset value --
Beginning of period ($) 8.17 8.16 8.06
---------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.32/(b)/ 0.33/(b)/ 0.25/(b)/
Net realized and unrealized gain (loss) on investments and
futures contracts (0.23) 0.17 0.10
---------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.09 0.50 0.35
---------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.32) (0.33) (0.25)
From net realized gains (0.11) (0.16) --
---------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.43) (0.49) (0.25)
---------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 7.83 8.17 8.16
---------------------------------------------------------------------------------------------------------
Total return (%)/(e)/ 1.09/(f)/ 6.28 4.40/(g)/
---------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 0.90 0.91 1.00/(i)/
Net investment income/(h)/ 4.03 4.05 4.16/(i)/
Waiver/reimbursement --/(j)/ -- --
Portfolio turnover rate(%) 6 6 9/(g)/
Net assets, end of period (000's) ($) 146,149 157,198 167,692
|
Year ended January 31,
2003 2002 2001
Class A Class A Class A
------- ------- -------
Net asset value --
Beginning of period ($) 7.85 7.83 7.18
---------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.35/(b)/ 0.40/(b)(c)/ 0.37/(d)/
Net realized and unrealized gain (loss) on investments and
futures contracts 0.23 0.03/(c)/ 0.70
---------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.58 0.43 1.07
---------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.35) (0.37) (0.38)
From net realized gains (0.02) (0.04) (0.04)
---------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.37) (0.41) (0.42)
---------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 8.06 7.85 7.83
---------------------------------------------------------------------------------------------------------
Total return (%)/(e)/ 7.59 5.62/(f)/ 15.30/(f)/
---------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 0.94 0.92 0.93
Net investment income/(h)/ 4.39 5.05/(c)/ 4.94
Waiver/reimbursement -- 0.05 0.03
Portfolio turnover rate(%) 13 8 18
Net assets, end of period (000's) ($) 170,512 169,284 152,057
|
(a) The Fund changed its fiscal year end from January 31 to October 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective February 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began accreting
market discount on all debt securities. The effect of this change for the
year ended January 31, 2002, was to increase the ratio of net investment
income to average net assets from 5.02% to 5.05%. The impact to the net
investment income and net realized and unrealized gain per share was less
than $0.01. Per share data and ratios for periods prior to January 31, 2002
have not been restated to reflect this change in presentation.
(d) The per share net investment income amount does not reflect the period's
reclassifications of differences between book and tax basis net investment
income.
(e) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(f) Had the investment advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
(j) Rounds to less than $0.01 per share.
Financial Highlights
Columbia Massachusetts Tax-Exempt Fund
Year ended Period ended
October 31, October 31,
2005 2004 2003/(a)/
Class B Class B Class B
------- ------- ------------
Net asset value --
Beginning of period ($) 8.17 8.16 8.06
---------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.26/(b)/ 0.27/(b)/ 0.21/(b)/
Net realized and unrealized gain (loss) on investments and futures
contracts (0.23) 0.16 0.10
---------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.03 0.43 0.31
---------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.26) (0.26) (0.21)
From net realized gains (0.11) (0.16) --
---------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.37) (0.42) (0.21)
---------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 7.83 8.17 8.16
---------------------------------------------------------------------------------------------------------------
Total return (%)/(e)/ 0.34/(f)/ 5.49 3.82/(g)/
---------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 1.65 1.66 1.75/(i)/
Net investment income/(h)/ 3.28 3.29 3.41/(i)/
Waiver/reimbursement --/(j)/ -- --
Portfolio turnover rate (%) 6 6 9/(g)/
Net assets, end of period (000's) ($) 27,208 34,035 40,739
|
Year ended January 31,
2003 2002 2001
Class B Class B Class B
------- ------- -------
Net asset value --
Beginning of period ($) 7.85 7.83 7.18
--------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.29/(b)/ 0.34/(b)(c)/ 0.31/(d)/
Net realized and unrealized gain (loss) on investments and futures
contracts 0.23 0.03/(c)/ 0.70
--------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.52 0.37 1.01
--------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.29) (0.31) (0.32)
From net realized gains (0.02) (0.04) (0.04)
--------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.31) (0.35) (0.36)
--------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 8.06 7.85 7.83
--------------------------------------------------------------------------------------------------------------
Total return (%)/(e)/ 6.79 4.86/(f)/ 14.45/(f)/
--------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 1.69 1.67 1.68
Net investment income/(h)/ 3.64 4.30/(c)/ 4.19
Waiver/reimbursement -- 0.05 0.03
Portfolio turnover rate (%) 13 8 18
Net assets, end of period (000's) ($) 43,052 39,009 44,038
|
(a) The Fund changed its fiscal year end from January 31 to October 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective February 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began accreting
market discount on all debt securities. The effect of this change for the
year ended January 31, 2002, was to increase the ratio of net investment
income to average net assets from 4.27% to 4.30%. The impact to the net
investment income and net realized and unrealized gain per share was less
than $0.01. Per share data and ratios for periods prior to January 31, 2002
have not been restated to reflect this change in presentation.
(d) The per share net investment income amount does not reflect the period's
reclassifications of differences between book and tax basis net investment
income.
(e) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(f) Had the investment advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
(j) Rounds to less than $0.01 per share.
Financial Highlights
Columbia Massachusetts Tax-Exempt Fund
Year ended Period ended
October 31, October 31,
2005 2004 2003/(a)/
Class C Class C Class C
------- ------- ------------
Net asset value --
Beginning of period ($) 8.17 8.16 8.06
---------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.29/(b)/ 0.29/(b)/ 0.23/(b)/
Net realized and unrealized gain (loss) on investments and futures
contracts (0.24) 0.17 0.09
---------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.05 0.46 0.32
---------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.28) (0.29) (0.22)
From net realized gains (0.11) (0.16) --
---------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.39) (0.45) (0.22)
---------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 7.83 8.17 8.16
---------------------------------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ 0.64 5.81 4.05/(g)/
---------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 1.35 1.36 1.45/(i)/
Net investment income/(h)/ 3.57 3.58 3.71/(i)/
Waiver/reimbursement .30 0.30 0.30/(i)/
Portfolio turnover rate (%) 6 6 9/(g)/
Net assets, end of period (000's) ($) 13,986 13,360 15,335
|
Year ended January 31,
2003 2002 2001
Class C Class C Class C
------- ------- -------
Net asset value --
Beginning of period ($) 7.85 7.83 7.18
--------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.31/(b)/ 0.36/(b)(c)/ 0.34/(d)/
Net realized and unrealized gain (loss) on investments and futures
contracts 0.24 0.04/(c)/ 0.70
--------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.55 0.40 1.04
--------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.32) (0.34) (0.35)
From net realized gains (0.02) (0.04) (0.04)
--------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.34) (0.38) (0.39)
--------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 8.06 7.85 7.83
--------------------------------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ 7.11 5.17 14.79
--------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 1.39 1.37 1.38
Net investment income/(h)/ 3.94 4.60/(c)/ 4.49
Waiver/reimbursement 0.30 0.35 0.33
Portfolio turnover rate (%) 13 8 18
Net assets, end of period (000's) ($) 11,399 4,802 2,586
|
(a) The Fund changed its fiscal year end from January 31 to October 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective February 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began accreting
market discount on all debt securities. The effect of this change for the
year ended January 31, 2002, was to increase the ratio of net investment
income to average net assets from 4.57% to 4.60%. The impact to the net
investment income and net realized and unrealized gain per share was less
than $0.01. Per share data and ratios for periods prior to January 31, 2002
have not been restated to reflect this change in presentation.
(d) The per share net investment income amount does not reflect the period's
reclassifications of differences between book and tax basis net investment
income.
(e) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(f) Had the investment advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
Financial Highlights
Columbia New York Tax-Exempt Fund
Year ended Period ended
October 31, October 31,
2005 2004 2003/(a)/
Class A Class A Class A
------- ------- ------------
Net asset value --
Beginning of period ($) 7.84 7.72 7.60
---------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.31/(b)/ 0.31/(b)/ 0.24/(b)/
Net realized and unrealized gain (loss) on investments and futures
contracts (0.22) 0.16 0.11
---------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.09 0.47 0.35
---------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.30) (0.31) (0.23)
From net realized gains (0.02) (0.04) --
---------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.32) (0.35) (0.23)
---------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 7.61 7.84 7.72
---------------------------------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ 1.19 6.26 4.70/(g)/
---------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 0.84 0.83 0.83/(i)/
Net investment income/(h)/ 4.00 4.04 4.15/(i)/
Waiver/reimbursement 0.14 0.13 0.24/(i)/
Portfolio turnover rate (%) 7 8 8/(g)/
Net assets, end of period (000's) ($) 58,004 65,280 68,271
|
Year ended January 31,
2003 2002 2001
Class A Class A Class A
------- ------- -------
Net asset value --
Beginning of period ($) 7.43 7.34 6.68
--------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.33/(b)/ 0.34/(b)(c)/ 0.35/(d)/
Net realized and unrealized gain (loss) on investments and futures
contracts 0.17 0.07/(c)/ 0.67
--------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.50 0.41 1.02
--------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.33) (0.32) (0.36)
From net realized gains -- -- --
--------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.33) (0.32) (0.36)
--------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 7.60 7.43 7.34
--------------------------------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ 6.81 5.75 15.58
--------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 0.82 0.79 0.79
Net investment income/(h)/ 4.32 4.61/(c)/ 5.02
Waiver/reimbursement 0.18 0.21 0.22
Portfolio turnover rate (%) 11 9 18
Net assets, end of period (000's) ($) 67,779 60,165 47,733
|
(a) The Fund changed its fiscal year end from January 31 to October 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective February 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began accreting
market discount on all debt securities. The effect of this change for the
year ended January 31, 2002, was to increase the ratio of net investment
income to average net assets from 4.55% to 4.61%. The impact to the net
investment income and net realized and unrealized gain per share was less
than $0.01. Per share data and ratios for periods prior to January 31, 2002
have not been restated to reflect this change in presentation.
(d) The per share net investment income amount does not reflect the period's
reclassifications of differences between book and tax basis net investment
income.
(e) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(f) Had the investment advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%
(i) Annualized.
Financial Highlights
Columbia New York Tax-Exempt Fund
Year ended Period ended
October 31, October 31,
2005 2004 2003/(a)/
Class B Class B Class B
------- ------- ------------
Net asset value --
Beginning of period ($) 7.84 7.72 7.60
---------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.25/(b)/ 0.25/(b)/ 0.20/(b)/
Net realized and unrealized gain (loss) on investments and futures
contracts (0.21) 0.16 0.11
---------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.04 0.41 0.31
---------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.25) (0.25) (0.19)
From net realized gains (0.02) (0.04) --
---------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.27) (0.29) (0.19)
---------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 7.61 7.84 7.72
---------------------------------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ 0.44 5.47 4.12/(g)/
---------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 1.59 1.58 1.58/(i)/
Net investment income/(h)/ 3.25 3.29 3.40/(i)/
Waiver/reimbursement 0.14 0.13 0.24/(i)/
Portfolio turnover rate (%) 7 8 8/(g)/
Net assets, end of period (000's) ($) 28,278 34,877 44,293
|
Year ended January 31,
2003 2002 2001
Class B Class B Class B
------- ------- -------
Net asset value --
Beginning of period ($) 7.43 7.34 6.68
--------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.27/(b)/ 0.29/(b)(c)/ 0.30/(d)/
Net realized and unrealized gain (loss) on investments and futures
contracts 0.17 0.07/(c)/ 0.67
--------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.44 0.36 0.97
--------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.27) (0.27) (0.31)
From net realized gains -- -- --
--------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.27) (0.27) (0.31)
--------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 7.60 7.43 7.34
--------------------------------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ 6.02 4.99 14.74
--------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(h)/ 1.57 1.54 1.54
Net investment income/(h)/ 3.57 3.86/(c)/ 4.27
Waiver/reimbursement 0.18 0.21 0.22
Portfolio turnover rate (%) 11 9 18
Net assets, end of period (000's) ($) 43,018 36,409 41,034
|
(a) The Fund changed its fiscal year end from January 31 to October 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective February 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began accreting
market discount on all debt securities. The effect of this change for the
year ended January 31, 2002, was to increase the ratio of net investment
income to average net assets from 3.80% to 3.86%. The impact to the net
investment income and net realized and unrealized gain per share was less
than $0.01. Per share data and ratios for periods prior to January 31, 2002
have not been restated to reflect this change in presentation.
(d) The per share net investment income amount does not reflect the period's
reclassifications of differences between book and tax basis net investment
income.
(e) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(f) Had the investment advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
Financial Highlights
Columbia New York Tax-Exempt Fund
Year ended Period ended
October 31, October 31,
2005 2004 2003/(a)/
Class C Class C Class C
------- ------- ------------
Net asset value --
Beginning of period ($) 7.84 7.72 7.60
---------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.28/(b)/ 0.28/(b)/ 0.21/(b)/
Net realized and unrealized gain (loss) on investments and futures
contracts (0.22) 0.16 0.12
---------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.06 0.44 0.33
---------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.27) (0.28) (0.21)
From net realized gains (0.02) (0.04) --
---------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.29) (0.32) (0.21)
---------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 7.61 7.84 7.72
---------------------------------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ 0.74 5.78 4.35/(g)/
---------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets /
Supplemental Data (%):
Expenses/(h)/ 1.29 1.28 1.28/(i)/
Net investment income/(h)/ 3.55 3.59 3.70/(i)/
Waiver/reimbursement 0.44 0.43 0.54/(i)/
Portfolio turnover rate (%) 7 8 8/(g)/
Net assets, end of period (000's) ($) 9,974 9,774 10,231
|
Year ended January 31,
2003 2002 2001
Class C Class C Class C
------- ------- -------
Net asset value --
Beginning of period ($) 7.43 7.34 6.68
--------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.29/(b)/ 0.31/(b)(c)/ 0.32/(d)/
Net realized and unrealized gain (loss) on investments and futures
contracts 0.17 0.07/(c)/ 0.67
--------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.46 0.38 0.99
--------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.29) (0.29) (0.33)
From net realized gains -- -- --
--------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.29) (0.29) (0.33)
--------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 7.60 7.43 7.34
--------------------------------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ 6.34 5.29 15.07
--------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets /
Supplemental Data (%):
Expenses/(h)/ 1.27 1.24 1.24
Net investment income/(h)/ 3.87 4.16/(c)/ 4.57
Waiver/reimbursement 0.48 0.51 0.52
Portfolio turnover rate (%) 11 9 18
Net assets, end of period (000's) ($) 9,344 4,108 900
|
(a) The Fund changed its fiscal year end from January 31 to October 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective February 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began accreting
market discount on all debt securities. The effect of this change for the
year ended January 31, 2002, was to increase the ratio of net investment
income to average net assets from 4.10% to 4.16%. The impact to the net
investment income and net realized and unrealized gain per share was less
than $0.01. Per share data and ratios for periods prior to January 31, 2002
have not been restated to reflect this change in presentation.
(d) The per share net investment income amount does not reflect the period's
reclassifications of differences between book and tax basis net investment
income.
(e) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(f) Had the investment advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i) Annualized.
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Funds, including investment advisory fees and other Fund costs, on the Funds' returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class A, B, and C shares of the Funds assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The charts also assume that the all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratios used for the Funds, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher.
Columbia California Tax-Exempt Fund -- Class A Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 4.75% $10,000.00 5% |
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 0.88% -0.83%/(2)/ $9,917.43 $560.55
2 10.25% 0.88% 3.26% $10,326.03 $89.07
3 15.76% 0.88% 7.51% $10,751.46 $92.74
4 21.55% 0.88% 11.94% $11,194.42 $96.56
5 27.63% 0.88% 16.56% $11,655.63 $100.54
6 34.01% 0.88% 21.36% $12,135.84 $104.68
7 40.71% 0.88% 26.36% $12,635.84 $109.00
8 47.75% 0.88% 31.56% $13,156.44 $113.49
9 55.13% 0.88% 36.98% $13,698.48 $118.16
10 62.89% 0.88% 42.63% $14,262.86 $123.03
Total Gain After Fees and Expenses $4,262.86
Total Annual Fees and Expenses Paid $1,507.82
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Columbia California Tax-Exempt Fund -- Class B Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 0.00% $10,000.00 5% |
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.63% 3.37% $10,337.00 $165.75
2 10.25% 1.63% 6.85% $10,685.36 $171.33
3 15.76% 1.63% 10.45% $11,045.45 $177.11
4 21.55% 1.63% 14.18% $11,417.69 $183.07
5 27.63% 1.63% 18.02% $11,802.46 $189.24
6 34.01% 1.63% 22.00% $12,200.20 $195.62
7 40.71% 1.63% 26.11% $12,611.25 $202.21
8 47.75% 1.63% 30.36% $13,036.35 $209.03
9 55.13% 0.88% 35.73% $13,573.45 $117.08
10 62.89% 0.88% 41.33% $14,132.68 $121.91
Total Gain After Fees and Expenses $4,132.68
Total Annual Fees and Expenses $1,732.36
|
Columbia California Tax-Exempt Fund -- Class C Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 0.00% $10,000.00 5% |
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.63% 3.37% $10,337.00 $165.75
2 10.25% 1.63% 6.85% $10,685.36 $171.33
3 15.76% 1.63% 10.45% $11,045.45 $177.11
4 21.55% 1.63% 14.18% $11,417.69 $183.07
5 27.63% 1.63% 18.02% $11,802.46 $189.24
6 34.01% 1.63% 22.00% $12,200.20 $195.62
7 40.71% 1.63% 26.11% $12,611.35 $202.21
8 47.75% 1.63% 30.36% $13,036.35 $209.03
9 55.13% 1.63% 34.76% $13,475.68 $216.07
10 62.89% 1.63% 39.30% $13,929.81 $223.35
Total Gain After Fees and Expenses $3,929.81
Total Annual Fees and Expenses Paid $1,932.80
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
Appendix A
Columbia Connecticut Tax-Exempt Fund -- Class A Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 4.75% $10,000.00 5% |
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 0.93% -0.87%/(2)/ $9,912.67 $565.39
2 10.25% 0.93% 3.16% $10,316.11 $94.06
3 15.76% 0.93% 7.36% $10,735.98 $97.89
4 21.55% 0.93% 11.73% $11,172.93 $101.88
5 27.63% 0.93% 16.28% $11,627.67 $106.02
6 34.01% 0.93% 21.01% $12,100.92 $110.34
7 40.71% 0.93% 25.93% $12,593.43 $114.83
8 47.75% 0.93% 31.06% $13,105.98 $119.50
9 55.13% 0.93% 36.39% $13,639.39 $124.37
10 62.89% 0.93% 41.95% $14,194.51 $129.43
Total Gain After Fees and Expenses $4,194.51
Total Annual Fees and Expenses $1,563.70
|
Columbia Connecticut Tax-Exempt Fund -- Class B Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 0.00% $10,000.00 5% |
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.68% 3.32% $10,332.00 $170.79
2 10.25% 1.68% 6.75% $10,675.02 $176.46
3 15.76% 1.68% 10.29% $11,029.43 $182.32
4 21.55% 1.68% 13.96% $11,395.61 $188.37
5 27.63% 1.68% 17.74% $11,773.94 $194.62
6 34.01% 1.68% 21.65% $12,164.84 $201.09
7 40.71% 1.68% 25.69% $12,568.71 $207.76
8 47.75% 1.68% 29.86% $12,985.99 $214.66
9 55.13% 0.93% 35.15% $13,514.52 $123.23
10 62.89% 0.93% 40.65% $14,064.56 $128.24
Total Gain After Fees and Expenses $4,064.56
Total Annual Fees and Expenses $1,787.54
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Columbia Connecticut Tax-Exempt Fund -- Class C Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 0.00% $10,000.00 5% |
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.68% 3.32% $10,332.00 $170.79
2 10.25% 1.68% 6.75% $10,675.02 $176.46
3 15.76% 1.68% 10.29% $11,029.43 $182.32
4 21.55% 1.68% 13.96% $11,395.61 $188.37
5 27.63% 1.68% 17.74% $11,773.94 $194.62
6 34.01% 1.68% 21.65% $12,164.84 $201.09
7 40.71% 1.68% 25.69% $12,568.71 $207.76
8 47.75% 1.68% 29.86% $12,985.99 $214.66
9 55.13% 1.68% 34.17% $13,417.13 $221.79
10 62.89% 1.68% 38.63% $13,862.58 $229.15
Total Gain After Fees and Expenses $3,862.58
Total Annual Fees and Expenses $1,987.00
|
Columbia Massachusetts Tax-Exempt Fund -- Class A Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 4.75% $10,000.00 5% |
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 0.89% -0.84%/(2)/ $9,916.48 $561.51
2 10.25% 0.89% 3.24% $10,324.04 $90.07
3 15.76% 0.89% 7.48% $10,748.36 $93.77
4 21.55% 0.89% 11.90% $11,190.12 $97.63
5 27.63% 0.89% 16.50% $11,650.03 $101.64
6 34.01% 0.89% 21.29% $12,128.85 $105.82
7 40.71% 0.89% 26.27% $12,627.35 $110.17
8 47.75% 0.89% 31.46% $13,146.33 $114.69
9 55.13% 0.89% 36.87% $13,686.64 $119.41
10 62.89% 0.89% 42.49% $14,249.17 $124.31
Total Gain After Fees and Expenses $4,249.17
Total Annual Fees and Expenses $1,519.02
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Columbia Massachusetts Tax-Exempt Fund -- Class B Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 0.00% $10,000.00 5% |
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.64% 3.36% $10,336.00 $166.76
2 10.25% 1.64% 6.83% $10,683.29 $172.36
3 15.76% 1.64% 10.42% $11,042.25 $178.15
4 21.55% 1.64% 14.13% $11,413.27 $184.14
5 27.63% 1.64% 17.97% $11,796.75 $190.32
6 34.01% 1.64% 21.93% $12,193.12 $196.72
7 40.71% 1.64% 26.03% $12,602.81 $203.33
8 47.75% 1.64% 30.26% $13,026.27 $210.16
9 55.13% 0.89% 35.62% $13,561.65 $118.32
10 62.89% 0.89% 41.19% $14,119.03 $123.18
Total Gain After Fees and Expenses 4,119.03
Total Annual Fees and Expenses $1,743.42
|
Columbia Massachusetts Tax-Exempt Fund -- Class C Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 0.00% $10,000.00 5% |
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.64% 3.36% $10,336.00 $166.76
2 10.25% 1.64% 6.83% $10,683.29 $172.36
3 15.76% 1.64% 10.42% $11,042.25 $178.15
4 21.55% 1.64% 14.13% $11,413.27 $184.14
5 27.63% 1.64% 17.97% $11,796.75 $190.32
6 34.01% 1.64% 21.93% $12,193.12 $196.72
7 40.71% 1.64% 26.03% $12,602.81 $203.33
8 47.75% 1.64% 30.26% $13,026.27 $210.16
9 55.13% 1.64% 34.64% $13,463.95 $217.22
10 62.89% 1.64% 39.16% $13,916.34 $224.52
Total Gain After Fees and Expenses $3,916.34
Total Annual Fees and Expenses $1,943.66
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
Appendix A
Columbia New York Tax-Exempt Fund -- Class A Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 4.75% $10,000.00 5% |
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 0.99% -0.93%/(2)/ $9,906.95 $571.19
2 10.25% 0.99% 3.04% $10,304.22 $100.05
3 15.76% 0.99% 7.17% $10,717.42 $104.06
4 21.55% 0.99% 11.47% $11,147.19 $108.23
5 27.63% 0.99% 15.94% $11,594.19 $112.57
6 34.01% 0.99% 20.59% $12,059.12 $117.08
7 40.71% 0.99% 25.43% $12,542.69 $121.78
8 47.75% 0.99% 30.46% $13,045.65 $126.66
9 55.13% 0.99% 35.69% $13,568.78 $131.74
10 62.89% 0.99% 41.13% $14,112.89 $137.02
Total Gain After Fees and Expenses $4,112.89
Total Annual Fees and Expenses $1,630.38
|
Columbia New York Tax-Exempt Fund -- Class B Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 0.00% $10,000.00 5% |
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.74% 3.26% $10,326.00 $176.84
2 10.25% 1.74% 6.63% $10,662.63 $182.60
3 15.76% 1.74% 10.10% $11,010.23 $188.55
4 21.55% 1.74% 13.69% $11,369.16 $194.70
5 27.63% 1.74% 17.40% $11,739.80 $201.05
6 34.01% 1.74% 21.23% $12,122.51 $207.60
7 40.71% 1.74% 25.18% $12,517.71 $214.37
8 47.75% 1.74% 29.26% $12,925.79 $221.36
9 55.13% 0.99% 34.44% $13,444.11 $130.53
10 62.89% 0.99% 39.83% $13,983.22 $135.77
Total Gain After Fees and Expenses $3,983.22
Total Annual Fees and Expenses
$1,853.37
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Columbia New York Tax-Exempt Fund -- Class C Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return 0.00% $10,000.00 5% |
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.74% 3.26% $10,326.00 $176.84
2 10.25% 1.74% 6.63% $10,662.63 $182.60
3 15.76% 1.74% 10.10% $11,010.23 $188.55
4 21.55% 1.74% 13.69% $11,369.16 $194.70
5 27.63% 1.74% 17.40% $11,739.80 $201.05
6 34.01% 1.74% 21.23% $12,122.51 $207.60
7 40.71% 1.74% 25.18% $12,517.71 $214.37
8 47.75% 1.74% 29.26% $12,925.79 $221.36
9 55.13% 1.74% 33.47% $13,347.17 $228.57
10 62.89% 1.74% 37.82% $13,782.28 $236.03
Total Gain After Fees and Expenses $3,782.28
Total Annual Fees and Expenses $2,051.67
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
You may wish to read the Statement of Additional Information for more information on the Funds and the securities in which they invest. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Funds' website (www.columbiafunds.com) include a description of the Funds' policies with respect to the disclosure of their portfolio holdings.
You can get free copies of the Fund's annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Funds by writing or calling the Funds' distributor or visiting the Funds' website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Funds, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Series Trust I (formerly named Columbia Funds Trust IX): 811-4367
. Columbia California Tax-Exempt Fund
Columbia Funds Trust V: 811-5030
. Columbia Connecticut Tax-Exempt Fund
. Columbia Massachusetts Tax-Exempt Fund
. Columbia New York Tax-Exempt Fund
[LOGO] ColumbiaFunds
A Member of Columbia Management Group
(C) 2006 Columbia Management Distributors, Inc.
One Financial Center, Boston, MA 02111-2621
800.426.3750 www.columbiafunds.com
PRO-36/105140-0106
COLUMBIA TAX-EXEMPT FUND
COLUMBIA TAX-EXEMPT INSURED FUND
Class A, B and C Shares
Advised by Columbia Management Advisors, LLC
THE FUNDS 2 -------------------------------------------- Each of these sections discusses the following topics: Investment Goal, Principal Investment Strategies, Principal Investment Risks, Performance History and Your Expenses Columbia Tax-Exempt Fund................ 2 Columbia Tax-Exempt Insured Fund........ 8 YOUR ACCOUNT 15 -------------------------------------------- How to Buy Shares....................... 15 Investment Minimums..................... 16 Sales Charges........................... 16 How to Exchange Shares.................. 21 How to Sell Shares...................... 21 Fund Policy on Trading of Fund Shares... 22 Distribution and Service Fees........... 24 Other Information About Your Account.... 25 |
MANAGING THE FUNDS 27 -------------------------------------------- Investment Advisor...................... 27 Portfolio Managers...................... 27 Legal Proceedings....................... 28 OTHER INVESTMENT STRATEGIES AND RISKS 30 -------------------------------------------- FINANCIAL HIGHLIGHTS 32 -------------------------------------------- Columbia Tax-Exempt Fund................ 32 Columbia Tax-Exempt Insured Fund........ 35 APPENDIX A 38 -------------------------------------------- |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC Insured May Lose Value
No Bank Guarantee
The Funds -- Columbia Tax-Exempt Fund --------------------------------------- |
The Fund may invest up to 35% of its total assets in any combination of the following bonds (not including pre-refunded bonds): (i) bonds rated below investment grade by a nationally recognized rating agency and (ii) bonds that are not rated, provided that the Fund's total investments in unrated bonds may not exceed 25% of its total assets.
The Fund may purchase derivative instruments, such as futures, options, swap contracts, and inverse floaters, to gain or reduce exposure to particular securities or segments of the municipal bond markets. Derivatives are financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use derivatives for both hedging and nonhedging purposes, such as to adjust the Fund's sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an opposite position. The Fund typically uses derivatives in an effort to achieve more efficiently economic exposures similar to those it could have achieved through the purchase and sale of municipal securities.
Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks."
UNDERSTANDING TAX-EXEMPT BONDS
Tax-exempt bonds are issued by state and local governments for various public purposes. The interest on tax-exempt bonds, typically, is not subject to federal income tax. As a result, the yields on tax-exempt securities are generally lower than the yields on taxable bonds with similar maturities. However, a portion or all of such interest may be subject to a shareholder's federal alternative minimum tax liability. Tax-exempt bond funds may be appropriate for investors in high tax brackets who seek current income that is free from federal tax.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. The municipal securities market is also subject to uncertainties related to taxation, changes in legislation and the rights of municipal security holders. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
The Funds -- Columbia Tax-Exempt Fund
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Credit risk is the possibility that changes in the obligated entity's financial condition, changes in general economic conditions, or changes in economic conditions that affect the obligated entity, may impact the obligated entity's actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and, in some cases, a decrease in income. Bonds that are backed by an issuer's taxing authority, including general obligation bonds, may be vulnerable to legal limits on a government's power to raise revenue or increase taxes. These bonds may depend for payment on legislative appropriation and/or aid from other governments. Other municipal bonds, known as revenue obligations, are payable from revenues earned by a particular project or other revenue source. Some revenue obligations are backed by private companies, some are asset-backed securities, such as bonds backed by mortgage payments, and some are for municipally-owned utilities, such as water or sewer systems. Revenue obligations are subject to greater risk of default than general obligation bonds because investors can look only to the revenue generated by the project, assets, or private company backing the project, rather than to the taxing power of the state or local government issuer of the bonds.
Lower-rated debt securities, commonly referred to as "junk bonds," involve greater risk of loss due to credit deterioration and are less liquid, especially during periods of economic uncertainty or change, than higher-quality debt securities. Lower-rated debt securities generally have a higher risk that the issuer of the security may default and not make payment of interest or principal.
Tax-exempt bonds are subject to special risks. Changes in tax laws or adverse determinations by the Internal Revenue Service may make the income from some of these bonds taxable. Bonds that are backed by the issuer's taxing authority, known as general obligation bonds, may depend for payment on legislative appropriation and/or aid from other governments. The bonds may be vulnerable to legal limits on a government's power to raise revenue or increase taxes. Other tax-exempt bonds, known as special revenue obligations, are payable from revenues earned by a particular project or other revenue sources. These bonds are subject to greater risk of default than general obligation bonds because investors can look only to the revenue generated by the project or the private company backing the project, rather than to the credit of the state or local government issuer of the bonds.
Derivatives involve special risks and may result in losses. The Fund may enter into a number of derivative strategies, including those that employ futures and options, swap contracts, and inverse floaters to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use these strategies to adjust for both hedging and non-hedging purposes, such as to adjust the Fund's sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an interest in an opposite position. Derivative strategies involve the risk that they may exaggerate a loss, potentially losing more money than the actual cost of the underlying security, or limit a potential gain. Also, with some derivative strategies there is the risk that the other party to the transaction may fail to honor its contract terms, causing a loss to the Fund or that the Fund may not be able to fund a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether.
The interest income distributed by the Fund from certain tax-exempt bonds may be subject to the federal alternative minimum tax for individuals and corporations. As a fundamental policy that cannot be changed without shareholder approval, the Fund may not invest more than 20% of its total assets in bonds subject to the alternative minimum tax. Consult your tax advisor for more information.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The Funds -- Columbia Tax-Exempt Fund
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges. Class B share returns do not reflect Class A share returns after conversion of Class B shares to Class A shares (see the section "Your Account -- Sales Charges").
The Fund's returns are compared to the Lehman Brothers Municipal Bond Index ("Lehman Index"), an unmanaged index considered representative of the broad market for investment-grade, tax-exempt bonds with a maturity of at least one year. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed. The Fund's returns are also compared to the average return of the funds included in the Lipper General Municipal Debt Funds Category ("Lipper Average"), as calculated by Lipper, Inc. This category is composed of funds with investment objectives similar to those of the Fund. Sales charges are not reflected in the Lipper Average.
The Funds -- Columbia Tax-Exempt Fund
Calendar Year Total Returns (Class A)
[CHART]
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
2.68% 9.60% 6.67% -4.91% 10.81% 3.22% 9.63% 6.15% 4.57% 4.03%
|
For the periods shown in bar chart: Best quarter: 3rd quarter 2002, +5.28% Worst quarter: 2nd quarter 2004, -3.01% |
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The return after taxes on distributions and sale of fund shares at a capital loss may be higher than the return before taxes due to the resulting tax benefit from the capital loss on the after tax return calculation.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class A (%)
Return Before Taxes -0.91 4.47 4.64
Return After Taxes on Distributions -0.91 4.47 4.60
Return After Taxes on Distributions and Sale of Fund Shares 0.93 4.50 4.66
-----------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes -1.72 4.37 4.37
Return After Taxes on Distributions -1.72 4.37 4.33
Return After Taxes on Distributions and Sale of Fund Shares 0.21 4.33 4.34
-----------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 2.42 4.87 4.50/(1)/
Return After Taxes on Distributions 2.42 4.87 4.46/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 2.95 4.77 4.47/(1)/
-----------------------------------------------------------------------------------------
Lehman Index (%) 3.51 5.59 5.71
-----------------------------------------------------------------------------------------
Lipper Average (%) 3.00 4.78 4.74
|
(1) Class C is a newer class of shares. Its performance information includes returns of the Fund's Class B shares for periods prior to its inception. Class B shares would have substantially similar annual returns because Class B and Class C shares generally have similar expense structures. Class A shares were initially offered on November 21, 1978, Class B shares were initially offered on May 5, 1992 and Class C shares were initially offered on August 1, 1997.
The Funds -- Columbia Tax-Exempt Fund
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management fees, 12b-1 fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds.
The table does not take into account any expense reduction
arrangements discussed in the footnotes to the Annual Fund
Operating Expenses table. It uses the following
hypothetical conditions:
. $ 10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class B shares convert to Class A shares after eight
years
Shareholder Fees/(1)/ (paid directly from your investment)
Class A Class B Class C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75 0.00 0.00
------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00 1.00
------------------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/ /(3)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and
paid to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
The Funds -- Columbia Tax-Exempt Fund
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class A Class B Class C
Management fee/(1)/ (%) 0.49 0.49 0.49
--------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.20 0.95 0.95/(2)/
--------------------------------------------------------------------
Other expenses/(3)/ (%) 0.10 0.10 0.10
--------------------------------------------------------------------
Total annual fund operating expenses (%) 0.79 1.54 1.54/(2)/
|
(1) Management fee has been restated to reflect contractual changes to the
management fee for the Fund effective February 9, 2005. Previously, the
advisor had, with respect to the period from November 1, 2004 to February
9, 2005, waived a portion of its fees, so that it retained fees at the new
contractual rate.
(2) The Fund's distributor has voluntarily agreed to waive a portion of the
12b-1 fee for Class C shares. If this waiver were reflected in the table
the 12b-1 fee for Class C shares would be 0.80% and total annual fund
operating expenses for Class C shares would be 1.39%. This arrangement may
be modified or terminated by the distributor at any time.
(3) Other expenses have been restated to reflect contractual changes to the
pricing and bookkeeping fees and transfer agency fees for the Fund
effective November 1, 2005.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class A $552 $715 $893 $1,406
-----------------------------------------------------------------
Class B: did not sell your shares $157 $486 $839 $1,632
sold all your shares at
the end of the period $657 $786 $1,039 $1,632
-----------------------------------------------------------------
Class C: did not sell your shares $157 $486 $839 $1,834
sold all your shares at
the end of the period $257 $486 $839 $1,834
|
See Appendix A for additional hypothetical investment and expense information.
The Funds -- Columbia Tax-Exempt Insured Fund ------------------------------------------------------------------------------------- |
The Fund may purchase derivative instruments, such as futures, options, swap contracts, and inverse floaters, to gain or reduce exposure to particular securities or segments of the municipal bond markets. Derivatives are financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use derivatives for both hedging and nonhedging purposes, such as to adjust the Fund's sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an opposite position. The Fund typically uses derivatives in an effort to achieve more efficiently economic exposures similar to those it could have achieved through the purchase and sale of municipal securities.
Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks."
UNDERSTANDING TAX-EXEMPT BONDS
Tax-exempt bonds are issued by state and local governments for various public purposes. The interest on tax-exempt bonds, typically, is not subject to federal income tax. As a result, the yields on tax-exempt securities are generally lower than the yields on taxable bonds with similar maturities. However, a portion or all of such interest may be subject to a shareholder's federal alternative minimum tax liability. Tax-exempt bond funds may be appropriate for investors in high tax brackets who seek current income that is free from federal tax.
UNDERSTANDING TAX-EXEMPT INSURANCE
The insurance feature of the Fund's tax-exempt bonds helps
to reduce certain financial risks. The insurance may take
any of the following forms: (i) the issuer of the bond
obtains the insurance at the time the bond is issued;
(ii) the Fund buys uninsured tax-exempt bonds and
simultaneously insures these specific bonds until their
maturity date; and (iii) the Fund buys an insurance policy
to cover specific bonds only while the Fund holds the bonds.
The Funds -- Columbia Tax-Exempt Insured Fund
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. The municipal securities market is also subject to uncertainties related to taxation, changes in legislation and the rights of municipal security holders. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Credit risk is the possibility that changes in the obligated entity's financial condition, changes in general economic conditions, or changes in economic conditions that affect the obligated entity, may impact the obligated entity's actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and, in some cases, a decrease in income. Bonds that are backed by an issuer's taxing authority, including general obligation bonds, may be vulnerable to legal limits on a government's power to raise revenue or increase taxes. These bonds may depend for payment on legislative appropriation and/or aid from other governments. Other municipal bonds, known as revenue obligations, are payable from revenues earned by a particular project or other revenue source. Some revenue obligations are backed by private companies, some are asset-backed securities, such as bonds backed by mortgage payments, and some are for municipally-owned utilities, such as water or sewer systems. Revenue obligations are subject to greater risk of default than general obligation bonds because investors can look only to the revenue generated by the project, assets, or private company backing the project, rather than to the taxing power of the state or local government issuer of the bonds.
Lower-rated debt securities, commonly referred to as "junk bonds," involve greater risk of loss due to credit deterioration and are less liquid, especially during periods of economic uncertainty or change, than higher-quality debt securities. Lower-rated debt securities generally have a higher risk that the issuer of the security may default and not make payment of interest or principal.
Tax-exempt bonds are subject to special risks. Changes in tax laws or adverse determinations by the Internal Revenue Service may make the income from some of these bonds taxable. Bonds that are backed by the issuer's taxing authority, known as general obligation bonds, may depend for payment on legislative appropriation and/or aid from other governments. The bonds may be vulnerable to legal limits on a government's power to raise revenue or increase taxes. Other tax-exempt bonds, known as special revenue obligations, are payable from revenues earned by a particular project or other revenue sources. These bonds are subject to greater risk of default than general obligation bonds because investors can look only to the revenue generated by the project or the private company backing the project, rather than to the credit of the state or local government issuer of the bonds.
The Funds -- Columbia Tax-Exempt Insured Fund
Derivatives involve special risks and may result in losses. The Fund may enter into a number of derivative strategies, including those that employ futures and options, swap contracts, and inverse floaters to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use these strategies to adjust for both hedging and non-hedging purposes, such as to adjust the Fund's sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an interest in an opposite position. Derivative strategies involve the risk that they may exaggerate a loss, potentially losing more money than the actual cost of the underlying security, or limit a potential gain. Also, with some derivative strategies there is the risk that the other party to the transaction may fail to honor its contract terms, causing a loss to the Fund or that the Fund may not be able to fund a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether.
The interest income distributed by the Fund from certain tax-exempt bonds may be subject to the federal alternative minimum tax for individuals and corporations. As a fundamental policy that cannot be changed without shareholder approval, the Fund may not invest more than 20% of its total assets in bonds subject to the alternative minimum tax. Consult your tax advisor for more information.
While insurance reduces credit risk by insuring that the Fund will receive payment of principal and interest, it does not protect against fluctuations in the value of the Fund's shares caused by changes in interest rates or other factors. Also, insurance premiums, which are paid from the Fund's assets, reduce the Fund's yield.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The Funds -- Columbia Tax-Exempt Insured Fund
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges. Class B share returns do not reflect Class A share returns after conversion of Class B shares to Class A shares (see the section "Your Account -- Sales Charges").
The Fund's returns are compared to the Lehman Brothers Municipal Bond Index ("Lehman Index"), an unmanaged index considered representative of the broad market for investment-grade, tax-exempt bonds with a maturity of at least one year. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed. The Fund's returns are also compared to the average return of the funds included in the Lipper Insured Municipal Debt Funds Category ("Lipper Average"), as calculated by Lipper, Inc. This category is composed of funds with investment objectives similar to those of the Fund. Sales charges are not reflected in the Lipper Average.
Calendar Year Total Returns (Class A)
[CHART]
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
2.26% 9.45% 5.60% -3.76% 14.13% 3.82% 10.52% 5.07% 3.02% 2.66%
|
For the periods shown in bar chart: Best quarter: 4th quarter 2000, +6.15% Worst quarter: 2nd quarter 2004, -3.11% |
The Funds -- Columbia Tax-Exempt Insured Fund
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The return after taxes on distributions and sale of fund shares at a capital loss may be higher than the return before taxes due to the resulting tax benefit from the capital loss on the after tax return calculation.
Average Annual Total Returns -- for periods ended December 31, 2005
1 Year 5 Years 10 Years
Class A (%)
Return Before Taxes -2.21 3.96 4.66
Return After Taxes on Distributions -2.46 3.74 4.47
Return After Taxes on Distributions and Sale of Fund Shares 0.20 3.91 4.53
-----------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes -2.96 3.86 4.39
Return After Taxes on Distributions -3.21 3.63 4.19
Return After Taxes on Distributions and Sale of Fund Shares -0.47 3.73 4.21
-----------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 1.23 4.51 4.65/(1)/
Return After Taxes on Distributions 0.98 4.28 4.46/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 2.36 4.33 4.48/(1)/
-----------------------------------------------------------------------------------------
Lehman Index (%) 3.51 5.59 5.71
-----------------------------------------------------------------------------------------
Lipper Average (%) 2.56 4.59 4.61
|
(1) Class C is a newer class of shares. Its performance information includes returns of the Fund's Class B shares for periods prior to its inception Class B shares would have substantially similar annual returns because Class B and Class C shares generally have similar expense structures. Class A shares were initially offered on November 20, 1985, Class B shares were initially offered on May 5, 1992 and Class C shares were initially offered on August 1, 1997.
The Funds -- Columbia Tax-Exempt Insured Fund
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management fees, 12b-1 fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds.
The table does not take into account any expense reduction
arrangements discussed in the footnotes to the Annual Fund
Operating Expenses table. It uses the following
hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class B shares convert to Class A shares after eight
years.
Shareholder Fees/(1)/ (paid directly from your investment)
Class A Class B Class C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75 0.00 0.00
------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00 1.00
------------------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/ /(3)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
The Funds -- Columbia Tax-Exempt Insured Fund
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class A Class B Class C
Management fee/(1)/ (%) 0.49 0.49 0.49
--------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.20 0.95 0.95/(2)/
--------------------------------------------------------------------
Other expenses/(3)/ (%) 0.20 0.20 0.20
--------------------------------------------------------------------
Total annual fund operating expenses (%) 0.89 1.64 1.64/(2)/
|
(1) Management fee has been restated to reflect contractual changes to the
management fee for the Fund effective February 9, 2005. Previously, the
advisor had, with respect to the period from November 1, 2004 to February
9, 2005, waived a portion of its fees, so that it retained fees at the new
contractual rate.
(2) The Fund's distributor has voluntarily agreed to waive a portion of the
12b-1 fee for Class C shares. If this waiver were reflected in the table
the 12b-1 fee for Class C shares would be 0.65% and total annual fund
operating expenses would be 1.34%. This arrangement may be modified or
terminated by the distributor at any time.
(3) Other expenses have been restated to reflect contractual changes to the
pricing and bookkeeping fees and transfer agency fees for the Fund
effective November 1, 2005.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class A $562 $745 $945 $1,519
-----------------------------------------------------------------
Class B: did not sell your shares $167 $517 $892 $1,743
sold all your shares at
the end of the period $667 $817 $1,092 $1,743
-----------------------------------------------------------------
Class C: did not sell your shares $167 $517 $892 $1,944
sold all your shares at
the end of the period $267 $517 $892 $1,944
|
See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
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By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging shares you own in a
different fund distributed by Columbia Management
Distributors, Inc. for shares of the same class (and, in
some cases, certain other classes) of the Fund at no
additional cost. An exchange to another fund may incur a
sales charge if the original purchase was not assessed a
sales charge. To exchange by telephone, call 1-800-422-3737.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $ 100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. There may
be an additional sales charge if exchanging from a money
market fund. Be sure to complete the appropriate section of
the account application for this feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
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Your Account
Please see the Statement of Additional Information for more details on investment minimums.
You may be subject to an initial sales charge when you purchase, or a contingent deferred sales charge ("CDSC") when you sell, shares of a Fund. These sales charges are described below. In certain circumstances, the sales charges may be reduced or waived, as described below and in the Statement of Additional Information.
CHOOSING A SHARE CLASS
The Funds offer three classes of shares in this prospectus -- Class A, B and C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 or more but less than $1 million can be made only in Class A or Class C shares. Purchases of $ 1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
Columbia Tax-Exempt Fund also offers an additional class of shares, Class Z shares, exclusively to certain institutional and other investors. Class Z shares are made available through a separate prospectus provided to eligible institutional and other investors.
Your Account
Class A shares Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
Class A Sales Charges
% of offering
As a % of price
the public As a % retained by
offering of your financial
Amount purchased price investment advisor
Less than $50,000 4.75 4.99 4.25
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$50,000 to less than $100,000 4.50 4.71 4.00
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$100,000 to less than $250,000 3.50 3.63 3.00
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$250,000 to less than $500,000 2.50 2.56 2.25
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$500,000 to less than $1,000,000 2.00 2.04 1.75
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$1,000,000 or more 0.00 0.00 0.00
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Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
Purchases Over $1 Million
Amount purchased Commission % Less than $3 million 1.00 ------------------------------------------------ $3 million to less than $50 million 0.50 ------------------------------------------------ $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1.00% commission from the distributor on all purchases less than $3 million.
Your Account
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES Certain investments in Class A, B and C shares are subject to a CDSC, a sales charge applied at the time you sell your shares. You will pay the CDSC only on shares you sell within a certain amount of time after purchase. The CDSC generally declines each year until there is no charge for selling shares. The CDSC is applied to the net asset value at the time of purchase or sale, whichever is lower. For purposes of calculating the CDSC, the start of the holding period is the first day of the month in which the purchase was made. Shares you purchase with reinvested dividends or other distributions are not subject to a CDSC. When you place an order to sell shares, the Fund will automatically sell first those shares not subject to a CDSC and then those you have held the longest.
Reduced Sales Charges for Larger Investments
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Funds and other funds in the Columbia family of funds.
Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
Statement of Intent You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
. Individual accounts
. Joint accounts
. Certain IRA accounts
. Certain trusts
. UTMA/UGMA accounts
Your Account
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisors' failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Funds as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information which can be obtained at www.columbiafunds.com or by calling 1-800-345-6611.
Class B shares Your purchases of Class B shares are at Class B's net asset value. Purchases up to $50,000 are allowed in Class B shares assuming the combined value of a customer's total assets in the Columbia Funds does not exceed $50,000. Purchases in Class B shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart below.
Your Account
Class B Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 5.00
---------------------------------------------
Through second year 4.00
---------------------------------------------
Through third year 3.00
---------------------------------------------
Through fourth year 3.00
---------------------------------------------
Through fifth year 2.00
---------------------------------------------
Through sixth year 1.00
---------------------------------------------
Longer than six years 0.00
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Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
Class C shares Your purchases of Class C shares are at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares.
Class C Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 1.00
---------------------------------------------
Longer than one year 0.00
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Your Account
Your financial advisor can help you determine if and when you should sell your shares. You may sell shares of a Fund on any regular business day that the NYSE is open.
When a Fund receives your sales request in "good form," shares will be sold at
the next calculated price. "Good form" means that the Funds' transfer agent has
all information and documentation it deems necessary to effect your order. For
example, when selling shares by letter of instruction, "good form" means
(i) your letter has complete instructions, the proper signatures and Medallion
Signature Guarantees, (ii) if applicable, you have included any certificates
for shares to be sold, and (iii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries,
surviving joint owners and other legal entities, please call 1-800-345-6611.
Retirement plan accounts have special requirements; please call 1-800-799-7526
for more information.
A Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, a Fund may delay sending the proceeds from the sale of your shares for up to 10 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Your Account
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
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By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into the same share class (and,
in some cases, certain other classes) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is
$100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction or, if
applicable, stock power form along with any certificates to
be sold to the address below. In your letter of
instruction, note the Fund's name, share class, account
number, and the dollar value or number of shares you wish
to sell. All account owners must sign the letter.
Signatures must be guaranteed by either a bank, a member
firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for
alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By check writing You may sell shares of a Fund by check writing. The check
must be at least $500 and no more than $100,000. You will
continue to earn dividends on shares until the check is
presented to the bank for payment. When the check is
presented to the bank a sufficient number of full and
fractional shares will be sold at the next determined net
asset value to cover the amount of the check. Certificate
shares may not be sold by check writing. Check writing is
available only for Class A shares. Be sure to complete the
appropriate section of the account application for this
feature.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
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By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
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By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
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Your Account
Each Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if a Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if a Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Funds are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into a Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Funds. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Funds typically are not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Consequently, there is the risk that the Funds may not be able to do anything in response to market timing that occurs in the Fund which may result in certain shareholders being able to market time the Funds while the shareholders in the Funds bear the burden of such activities.
Certain financial intermediaries (including certain retirement plan service providers whose clients include, among others, various retirement plans sponsored by Bank of America and its affiliates for the benefit of its employees (the "Bank of America retirement service plan providers")) have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Funds' practices discussed above. In particular, the Bank of America retirement service plan provider permits the reinstatement of future purchase orders for shares of the Funds following various suspension periods.
Your Account
The Funds seek to act in a manner that they believe is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Funds nor their agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Rule 12b-1 Plan Each Fund has adopted a plan under Rule 12b-1 that permits it to pay its distributor marketing and other fees to support the sale and distribution of Class A, B and C shares and certain services provided to you by your financial advisor. The annual service fee may equal up to 0.20% for each of Class A, Class B and Class C shares. The annual distribution fee may equal up to 0.75% for each of Class B and Class C shares. Distribution and service fees are paid out of the assets of these classes. The distributor has voluntarily agreed to waive a portion of each Fund's Class C share distribution fee so that it does not exceed 0.60% annually for Columbia Tax-Exempt Fund and 0.45% for Columbia Tax-Exempt Insured Fund. These arrangements may be modified or terminated by the distributor at any time. Over time, these fees will reduce the return on your investment and may cost you more than paying other types of sales charges. Class B shares automatically convert to Class A shares after eight years, eliminating the distribution fee upon conversion.
Additional Intermediary Compensation In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Funds on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Funds' investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Funds. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
Your Account
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
Each Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's shares outstanding. In determining the net asset value, each Fund must determine the price of each security in its portfolio at the close of each trading day. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Funds may use other data to determine the fair value of the securities.
You can find the daily prices of some share classes for each Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Funds' transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for any class of shares offered by the Funds. If you currently hold previously issued share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the transfer agent.
Dividends, Distributions, and Taxes The Funds have the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Funds, net of expenses incurred by each Fund.
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Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains which are gains on sales of securities held
for a 12-month period or less.
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UNDERSTANDING FUND DISTRIBUTIONS
Each Fund may earn income from the securities it holds. Each Fund also may realize capital gains or losses on sales of its securities. Each Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of a Fund's income and capital gains based on the number of shares you own at the time these distributions are declared.
Your Account
Distribution Options The Fund declares any dividends daily and pays them monthly, and declares and pays any capital gains (including short-term capital gains) at least annually. Shares begin to earn dividends on the date on which a purchase order is settled by payment. Shares stop earning dividends at the close of business on the day before the date on which a redemption order is settled. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, each Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable all subsequent distributions will be reinvested in additional shares of the Fund.
Tax Consequences For federal income tax purposes, distributions of investment income by a Fund, whether in cash or additional securities, will ordinarily constitute tax-exempt income. Generally, gains realized by a Fund on the sale or exchange of investments, the income from which is tax-exempt, will be taxable to shareholders. In addition, an investment in a Fund may result in liability for federal alternative minimum tax for both individuals and corporate shareholders. Each Fund intends to distribute federally tax-exempt income. Each Fund may invest a portion of its assets in securities that generate income subject to federal or state income taxes. Income exempt from federal tax may be subject to state and local taxes.
You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in a Fund may have additional personal tax implications. Please consult your tax advisor on federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by each Fund, you may realize a capital gain or loss when selling or exchanging shares of a Fund. Such transactions also may be subject to federal, state and local income tax.
Columbia Management Advisors, LLC ("Columbia Advisors"), located at 100 Federal Street, Boston, Massachusetts 02110, is the Funds' investment advisor. Columbia Advisors is responsible for the Funds' management, subject to oversight by the Funds' Board of Trustees. In its duties as investment advisor, Columbia Advisors runs the Funds' day-to-day business, including placing all orders for the purchase and sale of the Funds' portfolio securities. Columbia Advisors is a direct, wholly owned subsidiary of Columbia Management Group, LLC ("CMG"), which in turn is a direct, wholly owned subsidiary of Bank of America, which in turn is a wholly owned banking subsidiary of Bank of America Corporation, a financial services holding company organized as a Delaware corporation. Prior to June 15, 2005, CMG was a corporation. Effective June 15, 2005, CMG converted to a limited liability company. Columbia Advisors, a registered investment advisor, has been an investment advisor since 1995.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management"), merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Funds. As a result of the merger, Columbia Advisors is now the investment advisor to the Funds.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Advisors and/or Columbia Management by Columbia Tax-Exempt Fund and Columbia Tax-Exempt Insured Fund, not including pricing and bookkeeping and other fees paid to Columbia Advisors and/or Columbia Management by the Funds, amounted to 0.49% and 0.48% of average daily net assets of the Funds, respectively. A discussion of the factors considered by the Funds' Boards of Trustees in approving the Funds' investment advisory contracts is included in the Funds' annual reports to shareholders for the fiscal year ended November 30, 2005.
Gary Swayze, a senior vice president of Columbia Management, is the manager for the Columbia Tax-Exempt Insured Fund and has managed the Columbia Tax-Exempt Insured Fund since September, 1997. Mr. Swayze has been associated with Columbia Advisors or its predecessors since 1997.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Funds.
Managing the Funds
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the ''MDL''). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
Managing the Funds
On February 25, 2005, Columbia and other defendants filed motions to dismiss
the claims in the pending cases. On March 1, 2006, for reasons stated in the
court's memoranda dated November 3, 2005, the U.S. District Court for the
District of Maryland granted in part and denied in part the defendants' motions
to dismiss. The court dismissed all of the class action claims pending against
the Columbia Funds. As to Columbia, the Distributor and the Trustees of the
Columbia Funds, the claims under the Securities Act of 1933, the claims under
Section 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the
state law claims were dismissed. The claims under Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA
along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
Other Investment Strategies and Risks --------------------------------------- |
Each Fund's principal investment strategies and their associated risks are described under "The Funds --Principal Investment Strategies" and "The Funds -- Principal Investment Risks". This section describes other investments the Funds may make and the risks associated with them. In seeking to achieve their investment goal, the Funds may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Funds and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Funds' Statement of Additional Information, which you may obtain free of charge (see back cover). The advisor may elect not to buy any of these securities or use any of these techniques. The Funds may not always achieve their investment goal. Except as otherwise noted, approval by a Fund's shareholders is not required to modify or change a Fund's investment goal or any of its investment strategies.
Other Investment Strategies and Risks
The financial highlights table is intended to help you understand the Funds' financial performance. Information is shown for the Funds' last five fiscal years, which run from December 1 to November 30, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the tables represent the rate that you would have earned (or lost) on an investment in the Funds (assuming reinvestment of all dividends and distributions). This information has been derived from the Funds' financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Funds' financial statements, is included in each Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
Columbia Tax-Exempt Fund
Year ended November 30,
2005 2004 2003 2002 2001
Class A Class A Class A Class A Class A
------- ------- ------- ------- -------
Net asset value --
Beginning of period ($) 13.51 13.60 13.16 13.13 12.80
------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(a)/ 0.62 0.61 0.60 0.66/(b)/ 0.67
Net realized and unrealized gain (loss) on investments and
futures contracts (0.03) (0.11) 0.44 0.02/(b)/ 0.32
------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.59 0.50 1.04 0.68 0.99
------------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.61) (0.59) (0.60) (0.65) (0.66)
------------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 13.49 13.51 13.60 13.16 13.13
------------------------------------------------------------------------------------------------------------------------------
Total return (%)/(c)(d)/ 4.41 3.78 8.05 5.26 7.80
------------------------------------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets/Supplemental Data (%):
Expenses/(e)/ 0.82 0.86 0.94 0.94 0.98
Net investment income/(e)/ 4.50 4.49 4.50 5.01/(b)/ 5.07
Waiver/reimbursement --/(f)/ 0.03 0.03 0.03 0.01
Portfolio turnover rate (%) 4 5 11 19 15
Net assets, end of period (000's) ($) 1,577,102 1,638,527 1,837,693 1,900,366 1,955,802
|
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Effective December 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began accreting
market discount on all debt securities. The effect of this change for the
year ended November 30, 2002 was to increase the ratio of net investment
income to average net assets from 4.98% to 5.01%. The impact to the net
investment income and realized and unrealized gain per share was less than
$0.01. Per share data and ratios for periods prior to November 30, 2002
have not been restated to reflect this change in presentation.
(c) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(d) Had the investment advisor and/or transfer agent not waived a portion of
expenses, total return would have been reduced.
(e) The benefits derived from custody credits had an impact of less than 0.01%.
(f) Rounds to less than 0.01%.
Financial Highlights
Columbia Tax-Exempt Fund
Year ended November 30,
2005 2004 2003 2002 2001
Class B Class B Class B Class B Class B
------- ------- ------- ------- -------
Net asset value --
Beginning of period ($) 13.51 13.60 13.16 13.13 12.80
------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(a)/ 0.51 0.50 0.50 0.56/(b)/ 0.57
Net realized and unrealized gain (loss) on
investments and futures contracts (0.02) (0.10) 0.44 0.02/(b)/ 0.32
------------------------------------------------------------------------------------------------
Total from Investment Operations 0.49 0.40 0.94 0.58 0.89
------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.51) (0.49) (0.50) (0.55) (0.56)
------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 13.49 13.51 13.60 13.16 13.13
------------------------------------------------------------------------------------------------
Total return (%)/(c)(d)/ 3.63 3.01 7.25 4.47 7.02
------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets/ Supplemental Data (%):
Expenses/(e)/ 1.57 1.61 1.69 1.69 1.73
Net investment income/(e)/ 3.75 3.74 3.75 4.26/(b)/ 4.31
Waiver/reimbursement --/(f)/ 0.03 0.03 0.03 0.01
Portfolio turnover rate (%) 4 5 11 19 15
Net assets, end of period (000's) ($) 38,193 45,168 64,990 81,766 128,813
|
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Effective December 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began accreting
market discount on all debt securities. The effect of this change for the
year ended November 30, 2002 was to increase the ratio of net investment
income to average net assets from 4.23% to 4.26%. The impact to the net
investment income and realized and unrealized gain per share was less than
$0.01. Per share data and ratios for periods prior to November 30, 2002
have not been restated to reflect this change in presentation.
(c) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(d) Had the investment advisor and/or transfer agent not waived a portion of
expenses, total return would have been reduced.
(e) The benefits derived from custody credits had an impact of less than 0.01%.
(f) Rounds to less than 0.01%.
Financial Highlights
Columbia Tax-Exempt Fund
Year ended November 30,
2005 2004 2003 2002 2001
Class C Class C Class C Class C Class C
------- ------- ------- ------- -------
Net asset value --
Beginning of period ($) 13.51 13.60 13.16 13.13 12.80
-------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(a)/ 0.53 0.53 0.51 0.58/(b)/ 0.61
Net realized and unrealized gain (loss) on
investments and futures contracts (0.02) (0.11) 0.45 0.02/(b)/ 0.30
-------------------------------------------------------------------------------------------
Total from Investment Operations 0.51 0.42 0.96 0.60 0.91
-------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.53) (0.51) (0.52) (0.57) (0.58)
-------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 13.49 13.51 13.60 13.16 13.13
-------------------------------------------------------------------------------------------
Total return (%)/(c)(d)/ 3.78 3.17 7.41 4.63 7.18
-------------------------------------------------------------------------------------------
Ratios to Average
Net Assets/ Supplemental Data (%):
Expenses/(e)/ 1.42 1.46 1.54 1.54 1.58
Net investment income/(e)/ 3.90 3.89 3.90 4.41/(b)/ 4.47
Waiver/reimbursement 0.15 0.18 0.18 0.18 0.16
Portfolio turnover rate (%) 4 5 11 19 15
Net assets, end of period (000's) ($) 10,396 8,699 12,450 13,165 8,468
|
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Effective December 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began accreting
market discount on all debt securities. The effect of this change for the
year ended November 30, 2002 was to increase the ratio of net investment
income to average net assets from 4.38% to 4.41%. The impact to the net
investment income and realized and unrealized gain per share was less than
$0.01. Per share data and ratios for periods prior to November 30, 2002
have not been restated to reflect this change in presentation.
(c) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(d) Had the investment advisor, distributor and/or transfer agent not waived a
portion of expenses, total return would have been reduced.
(e) The benefits derived from custody credits had an impact of less than 0.01%.
Financial Highlights
Columbia Tax-Exempt Insured Fund
Year ended November 30,
2005 2004 2003 2002 2001
Class A Class A Class A Class A Class A
------- ------- ------- ------- -------
Net asset value --
Beginning of period ($) 8.61 8.81 8.56 8.55 8.24
--------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(a)/ 0.34 0.33 0.34 0.35/(b)/ 0.37
Net realized and unrealized gain (loss) on
investments and futures contracts (0.11) (0.12) 0.28 0.11/(b)/ 0.37
--------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.23 0.21 0.62 0.46 0.74
--------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.33) (0.31) (0.33) (0.34) (0.36)
From net realized gains (0.11) (0.10) (0.04) (0.11) (0.07)
--------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.44) (0.41) (0.37) (0.45) (0.43)
--------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 8.40 8.61 8.81 8.56 8.55
--------------------------------------------------------------------------------------------------------
Total return (%)/(c)/ 2.70/(d)/ 2.46 7.39/(d)/ 5.61 9.15
--------------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets/Supplemental Data (%):
Expenses/(e)/ 0.88 0.98 1.06 1.06 1.09
Net investment income/(e)/ 3.95 3.79 3.88 4.10/(b)/ 4.32
Waiver/reimbursement --/(f)/ -- 0.02 -- --
Portfolio turnover rate (%) 14 14 5 11 9
Net assets, end of period (000's) ($) 114,271 125,147 143,982 147,826 146,965
|
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Effective December 1, 2001, the Fund adopted the provision of the AICPA
Audit and Accounting Guide for Investment Companies and began accreting
market discount on all debt securities. The effect of this change for the
year ended November 30, 2002 was to increase the ratio of net investment
income to average net assets from 4.06% to 4.10%. The impact to the net
investment income and net realized and unrealized gain per share was less
than $0.01. Per share data and ratios for periods prior to November 30,
2002 have not been restated to reflect this change in presentation.
(c) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(d) Had the investment advisor and/or transfer agent not waived or reimbursed a
portion of expenses, total return would have been reduced.
(e) The benefits derived from custody credits had an impact of less than 0.01%.
(f) Rounds to less than 0.01%.
Financial Highlights
Columbia Tax-Exempt Insured Fund
Year ended November 30,
2005 2004 2003 2002 2001
Class B Class B Class B Class B Class B
------- ------- ------- ------- -------
Net asset value --
Beginning of period ($) 8.61 8.81 8.56 8.55 8.24
---------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(a)/ 0.27 0.26 0.27 0.28/(b)/ 0.30
Net realized and unrealized gain (loss) on
investments and futures contracts (0.10) (0.11) 0.28 0.12/(b)/ 0.38
---------------------------------------------------------------------------------------------------
Total from Investment Operations 0.17 0.15 0.55 0.40 0.68
---------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.27) (0.25) (0.26) (0.28) (0.30)
From net realized gains (0.11) (0.10) (0.04) (0.11) (0.07)
---------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.38) (0.35) (0.30) (0.39) (0.37)
---------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 8.40 8.61 8.81 8.56 8.55
---------------------------------------------------------------------------------------------------
Total return (%)/(c)/ 1.94/(d)/ 1.69 6.59/(d)/ 4.83 8.36
---------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets/Supplemental Data (%):
Expenses/(e)/ 1.63 1.73 1.81 1.81 1.84
Net investment income/(e)/ 3.20 3.04 3.13 3.35/(b)/ 3.57
Waiver/reimbursement --/(f)/ -- 0.02 -- --
Portfolio turnover rate (%) 14 14 5 11 9
Net assets, end of period (000's) ($) 15,639 19,793 26,347 27,120 23,954
|
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Effective December 1, 2001, the Fund adopted the provision of the AICPA
Audit and Accounting Guide for Investment Companies and began accreting
market discount on all debt securities. The effect of this change for the
year ended November 30, 2002 was to increase the ratio of net investment
income to average net assets from 3.31% to 3.35%. The impact to the net
investment income and net realized and unrealized gain per share was less
than $0.01. Per share data and ratios for periods prior to November 30,
2002 have not been restated to reflect this change in presentation.
(c) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(d) Had the investment advisor and/or transfer agent not waived or reimbursed a
portion of expenses, total return would have been reduced.
(e) The benefits derived from custody credits had an impact of less than 0.01%.
(f) Rounds to less than 0.01%.
Financial Highlights
Columbia Tax-Exempt Insured Fund
Year ended November 30,
2005 2004 2003 2002 2001
Class C Class C Class C Class C Class C
------- ------- ------- ------- -------
Net asset value --
Beginning of period ($) 8.61 8.81 8.56 8.55 8.24
-------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(a)/ 0.30 0.29 0.30 0.31/(b)/ 0.33
Net realized and unrealized gain (loss) on
investments and futures contracts (0.11) (0.12) 0.28 0.11/(b)/ 0.37
-------------------------------------------------------------------------------------------
Total from Investment Operations 0.19 0.17 0.58 0.42 0.70
-------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.29) (0.27) (0.29) (0.30) (0.32)
From net realized gains (0.11) (0.10) (0.04) (0.11) (0.07)
-------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.40) (0.37) (0.33) (0.41) (0.39)
-------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 8.40 8.61 8.81 8.56 8.55
-------------------------------------------------------------------------------------------
Total return (%)/(c)(d)/ 2.25 2.00 6.91 5.14 8.67
-------------------------------------------------------------------------------------------
Ratios to Average
Net Assets/Supplemental Data (%):
Expenses/(e)/ 1.33 1.43 1.51 1.51 1.54
Net investment income/(e)/ 3.50 3.34 3.42 3.65/(b)/ 3.87
Waiver/reimbursement 0.30 0.30 0.32 0.30 0.30
Portfolio turnover rate (%) 14 14 5 11 9
Net assets, end of period (000's) ($) 8,994 11,023 11,928 10,158 6,364
|
(a) Per share data was calculated using average shares outstanding during the
period.
(b) Effective December 1, 2001, the Fund adopted the provision of the AICPA
Audit and Accounting Guide for Investment Companies and began accreting
market discount on all debt securities. The effect of this change for the
year ended November 30, 2002 was to increase the ratio of net investment
income to average net assets from 3.61% to 3.65%. The impact to the net
investment income and net realized and unrealized gain per share was less
than $0.01. Per share data and ratios for periods prior to November 30,
2002 have not been restated to reflect this change in presentation.
(c) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(d) Had the investment advisor, distributor and/or transfer agent not waived a
portion of expenses, total return would have been reduced.
(e) The benefits derived from custody credits had an impact of less than 0.01%.
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Funds, including investment advisory fees and other Fund costs, on the Funds' returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class A, B and C shares of the Funds assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The charts also assume that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratios used for the Funds, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher.
Columbia Tax-Exempt Fund -- Class A Shares
Initial
Maximum Hypothetical Assumed
Sales Investment Rate of
Charge Amount Return
4.75% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 0.79% -0.74%/(2)/ $9,926.00 $551.83
2 10.25% 0.79% 3.44% $10,343.89 $80.07
3 15.76% 0.79% 7.79% $10,779.36 $83.44
4 21.55% 0.79% 12.33% $11,233.18 $86.95
5 27.63% 0.79% 17.06% $11,706.09 $90.61
6 34.01% 0.79% 21.99% $12,198.92 $94.42
7 40.71% 0.79% 27.12% $12,712.49 $98.40
8 47.75% 0.79% 32.48% $13,247.69 $102.54
9 55.13% 0.79% 38.05% $13,805.42 $106.86
10 62.89% 0.79% 43.87% $14,386.63 $111.36
Total Gain After Fees and Expenses $4,386.63
Total Annual Fees and Expenses $1,406.48
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Appendix A
Columbia Tax-Exempt Fund -- Class B Shares
Maximum Initial Sales Hypothetical Assumed Charge Investment Rate of 0.00% Amount $10,000.00 Return 5% |
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.54% 3.46% $10,346.00 $156.66
2 10.25% 1.54% 7.04% $10,703.97 $162.08
3 15.76% 1.54% 10.74% $11,074.33 $167.69
4 21.55% 1.54% 14.58% $11,457.50 $173.50
5 27.63% 1.54% 18.54% $11,853.93 $179.50
6 34.01% 1.54% 22.64% $12,264.08 $185.71
7 40.71% 1.54% 26.88% $12,688.41 $192.13
8 47.75% 1.54% 31.27% $13,127.43 $198.78
9 55.13% 0.79% 36.80% $13,680.10 $105.89
10 62.89% 0.79% 42.56% $14,256.03 $110.35
Total Gain After Fees and Expenses $4,256.03
Total Annual Fees and Expenses $1,632.30
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
Columbia Tax-Exempt Fund -- Class C Shares
Initial Assumed
Hypothetical Rate
Maximum Investment of
Sales Charge Amount Return
0.00% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.54% 3.46% $10,346.00 $156.66
2 10.25% 1.54% 7.04% $10,703.97 $162.08
3 15.76% 1.54% 10.74% $11,074.33 $167.69
4 21.55% 1.54% 14.58% $11,457.50 $173.50
5 27.63% 1.54% 18.54% $11,853.93 $179.50
6 34.01% 1.54% 22.64% $12,264.08 $185.71
7 40.71% 1.54% 26.88% $12,688.41 $192.13
8 47.75% 1.54% 31.27% $13,127.43 $198.78
9 55.13% 1.54% 35.82% $13,581.64 $205.66
10 62.89% 1.54% 40.52% $14,051.57 $212.78
Total Gain After Fees and Expenses $4,051.57
Total Annual Fees and Expenses $1,834.50
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
Appendix A
Columbia Tax-Exempt Insured Fund -- Class A Shares
Initial
Hypothetical
Maximum Sales Investment Amount Assumed Rate of
Charge 4.75% $10,000.00 Return 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 0.89% -0.84%/(2)/ $9,916.48 $561.51
2 10.25% 0.89% 3.24% $10,324.04 $90.07
3 15.76% 0.89% 7.48% $10,748.36 $93.77
4 21.55% 0.89% 11.90% $11,190.12 $97.63
5 27.63% 0.89% 16.50% $11,650.03 $101.64
6 34.01% 0.89% 21.29% $12,128.85 $105.82
7 40.71% 0.89% 26.27% $12,627.35 $110.17
8 47.75% 0.89% 31.46% $13,146.33 $114.69
9 55.13% 0.89% 36.87% $13,686.64 $119.41
10 62.89% 0.89% 42.49% $14,249.17 $124.31
Total Gain After Fees and Expenses $4,249.17
Total Annual Fees and Expenses $1,519.02
|
(1) Annual Fees and Expenses are calculated based on the average between the
beginning and ending balance for each year. All information is calculated
on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
Columbia Tax-Exempt Insured Fund -- Class B Shares
Initial
Hypothetical
Maximum Sales Investment Amount Assumed Rate of
Charge 0.00% $10,000.00 Return 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.64% 3.36% $10,336.00 $166.76
2 10.25% 1.64% 6.83% $10,683.29 $172.36
3 15.76% 1.64% 10.42% $11,042.25 $178.15
4 21.55% 1.64% 14.13% $11,413.27 $184.14
5 27.63% 1.64% 17.97% $11,796.75 $190.32
6 34.01% 1.64% 21.93% $12,193.12 $196.72
7 40.71% 1.64% 26.03% $12,602.81 $203.33
8 47.75% 1.64% 30.26% $13,026.27 $210.16
9 55.13% 0.89% 35.62% $13,561.65 $118.32
10 62.89% 0.89% 41.19% $14,119.03 $123.18
Total Gain After Fees and Expenses $4,119.03
Total Annual Fees and Expenses $1,743.42
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
Appendix A
Columbia Tax-Exempt Insured Fund -- Class C Shares
Initial
Hypothetical Assumed Rate of
Maximum Sales Charge Investment Amount Return
0.00% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.64% 3.36% $10,336.00 $166.76
2 10.25% 1.64% 6.83% $10,683.29 $172.36
3 15.76% 1.64% 10.42% $11,042.25 $178.15
4 21.55% 1.64% 14.13% $11,413.27 $184.14
5 27.63% 1.64% 17.97% $11,796.75 $190.32
6 34.01% 1.64% 21.93% $12,193.12 $196.72
7 40.71% 1.64% 26.03% $12,602.81 $203.33
8 47.75% 1.64% 30.26% $13,026.27 $210.16
9 55.13% 1.64% 34.64% $13,463.95 $217.22
10 62.89% 1.64% 39.16% $13,916.34 $224.52
Total Gain After Fees and Expenses $3,916.34
Total Annual Fees and Expenses $1,943.66
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
Notes
You may wish to read the Statement of Additional Information for more information on the Funds and the securities in which they invest. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Funds' website (www.columbiafunds.com) include a description of the Funds' policies with respect to the disclosure of their portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Funds by writing or calling the Funds' distributor or visiting the Funds' website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Funds, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Series Trust I (formerly named Columbia Funds Trust IX): 811-4367
. Columbia Tax-Exempt Fund
. Columbia Tax-Exempt Insured Fund
[LOGO] ColumbiaFunds
A Member of Columbia Management Group
(C) 2006 Columbia Management Distributors, Inc.
One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com
INT-36/107904-0306
Class Z Shares
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------- Investment Goal......................... 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 3 Performance History..................... 4 Your Expenses........................... 6 YOUR ACCOUNT 8 -------------------------------------------- How to Buy Shares....................... 8 Eligible Investors...................... 9 Sales Charges........................... 10 How to Exchange Shares.................. 11 How to Sell Shares...................... 11 Fund Policy on Trading of Fund Shares... 12 Intermediary Compensation............... 14 Other Information About Your Account.... 14 |
MANAGING THE FUND 17 -------------------------------------------- Investment Advisor...................... 17 Portfolio Manager....................... 17 Legal Proceedings....................... 17 OTHER INVESTMENT STRATEGIES AND RISKS 20 -------------------------------------------- FINANCIAL HIGHLIGHTS 22 -------------------------------------------- APPENDIX A 23 -------------------------------------------- |
Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC Insured May Lose Value
No Bank Guarantee
The Fund may invest up to 35% of its total assets in any combination of the following bonds (not including pre-refunded bonds): (i) bonds rated below investment grade by a nationally recognized rating agency and (ii) bonds that are not rated, provided that the Fund's total investments in unrated bonds may not exceed 25% of its total assets.
The Fund may purchase derivative instruments, such as futures, options, swap contracts, and inverse floaters, to gain or reduce exposure to particular securities or segments of the municipal bond markets. Derivatives are financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use derivatives for both hedging and non-hedging purposes, such as to adjust the Fund's sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an opposite position. The Fund typically uses derivatives in an effort to achieve more efficiently economic exposures similar to those it could have achieved through the purchase and sale of municipal securities.
Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks."
UNDERSTANDING TAX-EXEMPT BONDS
Tax-exempt bonds are issued by state and local governments for various public purposes. The interest on tax-exempt bonds, typically, is not subject to federal income tax. As a result, the yields on tax-exempt securities are generally lower than the yields on taxable bonds with similar maturities. However, a portion or all of such interest may be subject to a shareholder's federal alternative minimum tax liability. Tax-exempt bond funds may be appropriate for investors in high tax brackets who seek current income that is free from federal tax.
The Fund
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. The municipal securities market is also subject to uncertainties related to taxation, changes in legislation and the rights of municipal security holders. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Credit risk is the possibility that changes in the obligated entity's financial condition, changes in general economic conditions, or changes in economic conditions that affect the obligated entity, may impact the obligated entity's actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and, in some cases, a decrease in income. Bonds that are backed by an issuer's taxing authority, including general obligation bonds, may be vulnerable to legal limits on a government's power to raise revenue or increase taxes. These bonds may depend for payment on legislative appropriation and/or aid from other governments. Other municipal bonds, known as revenue obligations, are payable from revenues earned by a particular project or other revenue source. Some revenue obligations are backed by private companies, some are asset-backed securities, such as bonds backed by mortgage payments, and some are for municipally-owned utilities, such as water or sewer systems. Revenue obligations are subject to greater risk of default than general obligation bonds because investors can look only to the revenue generated by the project, assets, or private company backing the project, rather than to the taxing power of the state or local government issuer of the bonds.
Lower-rated debt securities, commonly referred to as "junk bonds," involve greater risk of loss due to credit deterioration and are less liquid, especially during periods of economic uncertainty or change, than higher-quality debt securities. Lower-rated debt securities generally have a higher risk that the issuer of the security may default and not make payment of interest or principal.
Tax-exempt bonds are subject to special risks. Changes in tax laws or adverse determinations by the Internal Revenue Service may make the income from some of these bonds taxable. Bonds that are backed by the issuer's taxing authority, known as general obligation bonds, may depend for payment on legislative appropriation and/or aid from other governments. The bonds may be vulnerable to legal limits on a government's power to raise revenue or increase taxes. Other tax-exempt bonds, known as special revenue obligations, are payable from revenues earned by a particular project or other revenue sources. These bonds are subject to greater risk of default than general obligation bonds because investors can look only to the revenue generated by the project or the private company backing the project, rather than to the credit of the state or local government issuer of the bonds.
The Fund
Derivatives involve special risks and may result in losses. The Fund may enter into a number of derivative strategies, including those that employ futures and options, swap contracts, and inverse floaters to gain or reduce exposure to particular securities or markets. These strategies, commonly referred to as derivatives, involve the use of financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use these strategies for both hedging and non-hedging purposes, such as to adjust the Fund's sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an interest in an opposite position. Derivative strategies involve the risk that they may exaggerate a loss, potentially losing more money than the actual cost of the underlying security, or limit a potential gain. Also, with some derivative strategies there is the risk that the other party to the transaction may fail to honor its contract terms, causing a loss to the Fund or that the Fund may not be able to fund a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether.
The interest income distributed by the Fund from certain tax-exempt bonds may be subject to the federal alternative minimum tax for individuals and corporations. As a fundamental policy that cannot be changed without shareholder approval, the Fund may not invest more than 20% of its total assets in bonds subject to the alternative minimum tax. Consult your tax advisor for more information.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The bar chart below shows the Fund's calendar year total returns (before taxes) for its Class Z shares. The performance table following the bar chart shows how the Fund's average annual total returns for Class Z shares compare with those of broad measures of market performance for one year, five years and ten years. All information in this prospectus relating to the Fund for periods prior to September 19, 2005, including the performance information shown below, is that of Columbia Tax-Exempt Fund, a series of Columbia Funds Trust IV, the predecessor to the Fund. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing changes in the Fund's performance from year-to-year. All returns include the reinvestment of dividends and distributions. Performance results include the effect of expense reduction arrangements, if any. If these arrangements had not been in place, the performance results would have been lower. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance.
The Fund
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class Z share
performance for each of the last ten complete calendar
years. They include the effects of Fund expenses.
Average Annual Total Returns are a measure of the Fund's
Class Z average performance over the past one-year,
five-year and ten-year periods. They include the effects of
Fund expenses./(1)/
The Fund's returns are compared to the Lehman Brothers
Municipal Bond Index ("Lehman Index"), an unmanaged index
considered representative of the broad market for
investment-grade, tax-exempt bonds with a maturity of at
least one year. Unlike the Fund, indices are not
investments, do not incur fees, expenses or taxes and are
not professionally managed. The Fund's returns are also
compared to the average return of the funds included in the
Lipper General Municipal Debt Funds Category ("Lipper
Average"), as calculated by Lipper, Inc. This category is
composed of funds with investment objectives similar to
those of the Fund. Sales charges are not reflected in the
Lipper Average.
(1) Class Z is a newer class of shares. Its performance information consists of returns of the Fund's Class A shares (the oldest existing fund class). These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class A shares and the newer class of shares. The Class A share returns have been adjusted to take into account the fact that Class Z shares are sold without sales charges. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been higher, since Class Z shares are not subject to any Rule 12b-1 fees.
Calendar Year Total Returns (Class Z)/(1)/
[CHART]
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
---- ----- ----- ----- ----- ----- ----- ----- ----- -----
2.68% 9.60% 6.67% -4.91% 10.81% 3.22% 9.63% 6.15% 4.57% 4.10%
|
For the periods shown in bar chart: Best quarter: 3rd quarter 2002, +5.28%. Worst quarter: 2nd quarter 2004, -3.01%. |
(1) Class Z is a newer class of shares. Its performance information consists of returns of the Fund's Class A shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class A shares and the newer class of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been higher, since Class Z shares are not subject to any Rule 12b-1 fees. Class A shares were initially offered on November 21, 1978, and Class Z shares were initially offered on September 16, 2005.
The Fund
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts. The return after taxes on distributions and sale of fund shares at a capital loss may be higher than the return before taxes due to the resulting tax benefit from capital loss on the after tax return calculation.
Average Annual Total Returns -- for periods ended December 31, 2005/(1)/
1 Year 5 Years 10 Years
Class Z (%)
Return Before Taxes 4.10 5.51 5.16
Return After Taxes on Distributions 4.10 5.51 5.12
Return After Taxes on Distributions and Sale of Fund Shares 4.28 5.41 5.12
--------------------------------------------------------------------------------------
Lehman Index (%) 3.51 5.59 5.71
--------------------------------------------------------------------------------------
Lipper Average (%) 3.00 4.78 4.74
|
(1) Class Z is a newer class of shares. Its performance information includes returns of the Fund's Class A shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class A shares and the newer class of shares. The Class A share returns have been adjusted to take into account the fact that Class Z shares are sold without sales charges. If differences in expenses had been reflected, the returns shown for periods prior to its inception would have been higher, since Class Z shares are not subject to any Rule 12b-1 fees. Class A shares were initially offered on November 21, 1978, and Class Z shares were initially offered on September 16, 2005.
Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the fees and expenses you may pay when you buy, hold and sell shares of the Fund.
UNDERSTANDING EXPENSES
Annual Fund Operating Expenses are paid by the Fund. They include management fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds.
It uses the following hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
The Fund
Shareholder Fees/(1)/ (paid directly from your investment)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 ------------------------------------------------------------------------ Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 ------------------------------------------------------------------------ Redemption fee (%) (as a percentage of amount redeemed, if applicable) /(2)/ |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and
paid to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
Annual Fund Operating Expenses (deducted directly from Fund assets)/(1)/
Management fee/(2) /(%) 0.49 ---------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.00 ---------------------------------------------------------------------- Other expenses/(3)/ (%) 0.10 ---------------------------------------------------------------------- Total annual fund operating expenses (%) 0.59 |
(1) Because Class Z has not been offered for a full calendar year, the expenses provided are estimates based on Class A shares for its last fiscal year.
(2) Management fee has been restated to reflect contractual changes to the
management fee for the Fund effective February 9, 2005. Previously, the
advisor had, with respect to the period from November 1, 2004 to February
9, 2005, waived a portion of its fees, so that it retained fees at the new
contractual rate.
(3) Other expenses have been restated to reflect contractual changes to the
pricing and bookkeeping fees and transfer agency fees for the Fund
effective November 1, 2005.
Example Expenses (your actual costs may be higher or lower)
1 Year 3 Years 5 Years 10 Years $60 $189 $329 $738 |
See Appendix A for additional hypothetical investment and expense information.
When the Fund receives your purchase request in "good form," your shares will be bought at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, "good form" may mean that you have properly placed your order with Columbia Management Services, Inc. or your financial advisor or the Fund's transfer agent has received your completed application, including all necessary signatures. The USA Patriot Act may require us to obtain certain personal information from you which we will use to verify your identity. If you do not provide the information, we may not be able to open your account. If we are unable to verify your customer information, we reserve the right to close your account or take such other steps as we deem reasonable.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to Columbia Management Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
-------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
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By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging shares you own in a
different fund distributed by Columbia Management
Distributors, Inc. for shares of the same class of the Fund
at no additional cost. To exchange by telephone, call
1-800-422-3737. Please see "How to Exchange Shares" for
more information.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $ 100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. Be sure to
complete the appropriate section of the account application
for this feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at
no additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
|
Your Account
Important Things to Consider When Deciding on a Class of Shares:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a Fund with different pricing options. This allows you and your financial adviser to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial adviser offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by a broker/dealer, bank, third party administrator or other financial institution (each commonly referred to as an "intermediary"). Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
No minimum initial investment
. Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
. Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts ("IRAs")), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
. Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
. Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
Your Account
$1,000 minimum initial investment
. Any shareholder (as well as any family member of a shareholder or person
listed on an account registration for any account of the shareholder) of a
fund distributed by Columbia Management Distributors, Inc. (i) who holds
Class Z shares; (ii) who held Primary A shares prior to August 22, 2005;
(iii) who holds Class A shares that were obtained by exchange of Class Z
shares; or (iv) who purchased certain no-load shares of a fund merged with a
fund distributed by Columbia Management Distributors, Inc.;
. Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Management Distributors, Inc.;
. Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary;
. Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement);
. Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an accredited investor, as defined under the Securities Act of 1933; or
. Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations, purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries.
The Fund reserves the right to change the criteria for eligible investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
CHOOSING A SHARE CLASS
The Fund offers one class of shares in this prospectus -- Class Z.
The Fund also offers three additional classes of shares -- Class A, B and C shares are available through a separate prospectus. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you. In general, anyone who is eligible to purchase Class Z shares, which do not incur Rule 12b-1 fees or sales charges, should do so in preference over other classes.
Your Account
When the Fund receives your sales request in "good form," shares will be sold
at the next calculated price. "Good form" means that the Fund's transfer agent
has all information and documentation it deems necessary to effect your order.
For example, when selling shares by letter of instruction, "good form" means
(i) your letter has complete instructions, the proper signatures and Medallion
Signature Guarantees, and (ii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries,
surviving joint owners and other legal entities, please call 1-800-345-6611.
Retirement plan accounts have special requirements; please call 1-800-799-7526
for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 10 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Your Account
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption or you.
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By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into Class Z shares or Class A
shares (only if Class Z is not offered) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is $
100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign
the letter. Signatures must be guaranteed by either a bank,
a member firm of a national stock exchange or another
eligible guarantor that participates in the Medallion
Signature Guarantee Program for amounts over $ 100,000 or
for alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
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By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. All dividend and capital gains distributions must
be reinvested. Be sure to complete the appropriate section
of the account application for this feature.
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By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
Your Account
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Consequently, there is the risk that the Fund may not be able to do anything in response to market timing that occurs in the Fund which may result in certain shareholders being able to market time the Fund while the shareholders in the Fund bear the burden of such activities.
Certain financial intermediaries (including certain retirement service plan providers whose clients include, among others, various retirement plans sponsored by Bank of America and its affiliates for the benefit of its employees (the "Bank of America retirement service plan providers")) have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above. In particular, the Bank of America retirement service plan provider permits the reinstatement of future purchase orders for shares of the Fund following various suspension periods.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Your Account
The distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to an intermediary. Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive the day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
Your Account
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for Class Z shares.
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
----------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
UNDERSTANDING FUND DISTRIBUTIONS
The Fund may earn income from the securities it holds. The Fund also may realize capital gains or losses on sales of its securities. The Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of the Fund's income and capital gains based on the number of shares you own at the time these distributions are declared.
Distribution Options The Fund declares any dividends daily and pays them monthly, and declares and pays any capital gains (including short-term capital gains) at least annually. Shares begin to earn dividends on the date on which a purchase order is settled by payment. Shares stop earning dividends at the close of business on the day before the date on which a redemption order is settled. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Reinvest all distributions in additional shares of your current fund --------------------------------------------------------------------------- Reinvest all distributions in shares of another fund --------------------------------------------------------------------------- Receive dividends in cash (see options below) and reinvest capital gains --------------------------------------------------------------------------- Receive all distributions in cash (with one of the following options): . send the check to your address of record . send the check to a third party address . transfer the money to your bank via electronic funds transfer |
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable all subsequent distributions will be reinvested in additional shares of the Fund.
Your Account
Tax Consequences For federal income tax purposes, distributions of investment income by the Fund, whether in cash or additional securities, will ordinarily constitute tax-exempt income. Generally, gains realized by the Fund on the sale or exchange of investments, the income from which is tax-exempt, will be taxable to shareholders. In addition, an investment in the Fund may result in liability for federal alternative minimum tax for both individuals and corporate shareholders. The Fund intends to distribute federally tax-exempt income. The Fund may invest a portion of its assets in securities that generate income subject to federal or state income taxes. Income exempt from federal tax may be subject to state and local taxes.
You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
Columbia Management Advisors, LLC ("Columbia Advisors"), located at 100 Federal Street, Boston, Massachusetts 02110, is the Fund's investment advisor. Columbia Advisors is responsible for the Fund's management, subject to oversight by the Fund's Board of Trustees. In its duties as investment advisor, Columbia Advisors runs the Fund's day-to-day business, including placing all orders for the purchase and sale of the Fund's portfolio securities. Columbia Advisors is a direct, wholly owned subsidiary of Columbia Management Group, LLC ("CMG"), which in turn is a direct, wholly owned subsidiary of Bank of America, which in turn is a wholly owned banking subsidiary of Bank of America Corporation, a financial services holding company organized as a Delaware corporation. Prior to June 15, 2005, CMG was a corporation. Effective June 15, 2005, CMG converted to a limited liability company. Columbia Advisors, a registered investment advisor, has been an investment advisor since 1995.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Advisors and/or Columbia Management by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Advisors and/or Columbia Management by the Fund, amounted to 0.49% of average daily net assets of the Fund. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the fiscal year ended November 30, 2005.
The Statement of Additional Information provides additional information about the manager's compensation, other accounts managed and ownership of securities in the Fund.
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Managing the Fund
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
Managing the Fund
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
Other Investment Strategies and Risks --------------------------------------- |
The Fund's principal investment strategies and their associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risk." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The advisor may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goal. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or any of its investment strategies.
Other Investment Strategies and Risks
INVERSE FLOATING RATE OBLIGATIONS
At times, the advisor may determine that adverse market conditions make it desirable to temporarily suspend the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the fiscal period since the inception of Class Z shares. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
The Fund
Period ended
November 30,
2005/(a)/
Class Z
-------
Net asset value -- Beginning of period ($) 13.71
-------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(b)/ 0.13
Net realized and unrealized loss on investments and futures contract (0.22)
-------------------------------------------------------------------------------------------
Total from Investment Operations (0.09)
-------------------------------------------------------------------------------------------
Less Distributions Declared to Shareholders ($):
From net investment income (0.13)
-------------------------------------------------------------------------------------------
Net asset value -- End of period ($) 13.49
-------------------------------------------------------------------------------------------
Total return (%)/(c)(d)/ (0.63)/(e)/
-------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data (%):
Expenses/(f)/ 0.57/(g)/
Net investment income/(f)/ 4.91/(g)/
Waiver/reimbursement --/(g)(h)/
Portfolio turnover rate (%) 4/(e)/
Net assets, end of period (000's) ($) 329,637
|
(a) On September 16, 2005, Columbia Tax-Exempt Fund Class Z shares commenced
operations.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(d) Had the investment advisor and/or transfer agent not waived a portion of
expenses, total return would have been reduced.
(e) Not annualized.
(f) The benefits derived from custody credits had an impact of less than 0.01%.
(g) Annualized.
(h) Rounds to less than 0.01%.
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The chart shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class Z shares of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The chart also assumes that all dividends and distributions are reinvested. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses table, is presented in the chart, and is net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower.
Class Z Shares
Initial Hypothetical
Maximum Sales Charge Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
|
Hypothetical
Cumulative Return Cumulative Return Year-End
Before Fees & Annual After Fees & Balance After Annual Fees &
Year Expenses Expense Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 0.59% 4.41% $10,441.00 $60.30
2 10.25% 0.59% 9.01% $10,901.45 $62.96
3 15.76% 0.59% 13.82% $11,382.20 $65.74
4 21.55% 0.59% 18.84% $11,884.16 $68.64
5 27.63% 0.59% 24.08% $12,408.25 $71.66
6 34.01% 0.59% 29.55% $12,955.45 $74.82
7 40.71% 0.59% 35.27% $13,526.79 $78.12
8 47.75% 0.59% 41.23% $14,123.32 $81.57
9 55.13% 0.59% 47.46% $14,746.16 $85.16
10 62.89% 0.59% 53.96% $15,396.46 $88.92
Total Gain After Fees and Expenses $5,396.46
Total Annual Fees and Expenses $737.90
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Series Trust I (formerly named Columbia Funds Trust IX): 811-4367
. Columbia Tax-Exempt Fund
[LOGO] ColumbiaFunds
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc.
One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com
INT-36/107905-0306
COLUMBIA UTILITIES FUND Prospectus, March 27, 2006
CLASS A, B AND C SHARES
Advised by Columbia Management Advisors, LLC
THE FUND 2 --------------------------------------------------------- Investment Goals..................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 2 Performance History.................................. 3 Your Expenses........................................ 5 YOUR ACCOUNT 7 --------------------------------------------------------- How to Buy Shares.................................... 7 Investment Minimums.................................. 7 Sales Charges........................................ 8 How to Exchange Shares............................... 12 How to Sell Shares................................... 12 Fund Policy on Trading of Fund Shares................ 13 Distribution and Service Fees........................ 15 Other Information About Your Account................. 15 MANAGING THE FUND 18 --------------------------------------------------------- Investment Advisor................................... 18 Portfolio Manager.................................... 18 Legal Proceedings.................................... 18 FINANCIAL HIGHLIGHTS 21 --------------------------------------------------------- APPENDIX A 24 --------------------------------------------------------- |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
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THE FUND
UTILITY COMPANY SECURITIES
Utility company securities in which the Fund may invest include securities of companies engaged in the manufacture, production, generation, transmission, sale or distribution of electricity, natural gas or other types of energy, water or other sanitary services. They also include securities of companies engaged in telecommunications, such as telephone, Internet, satellite, television, microwave and other communications media. The Fund may invest in securities of companies engaged in the manufacture and production of equipment utilized in the energy and telecommunications industries.
UNDERSTANDING VALUE INVESTING
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goals.
In seeking to achieve its investment goals, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goals or investment strategies.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with similar investment goals. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management
THE FUND
and market risk, there is no guarantee that the Fund will achieve its investment goals or perform favorably among comparable funds.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the advisor's opinion, undervalued. If the advisor's assessment of a company's prospects is wrong, the price of the company's stock may fall, or may not approach the value the advisor has placed on it.
Utility company securities are subject to special risks. These securities are generally strongly affected by changes in interest rates, as well as by general competitive and market forces in the utilities industries. As interest rates increase, the value of securities of utility companies tends to decrease, and vice versa. In addition, utility companies may be affected by changes in government regulation. In particular, the value of utility company securities may be adversely affected by increased competition resulting from deregulation.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The bar chart below shows the Fund's calendar year total returns (before taxes) for its Class A shares, excluding sales charges. The performance table following the bar chart shows how the Fund's average annual total returns for Class A, B and C shares, including sales charges, compare with those of broad measures of market performance for one year, five years and ten years. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing changes in the Fund's performance from year-to-year. All returns include the reinvestment of dividends and distributions. Performance results include the effect of expense reduction arrangements, if any. If these arrangements had not been in place, the performance results would have
THE FUND
been lower. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance.
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges. Class B share returns do not reflect Class A share returns after conversion of Class B shares to Class A shares (see the section "Your Account -- Sales Charges").
The Fund's returns are compared to the Standard & Poor's Utility Index ("S&P Utility Index"), an unmanaged market-cap weighted index that tracks the performance of natural gas and electric companies, and the Standard & Poor's Telecom Index ("S&P Telecom Index"), an unmanaged market-cap weighted index that tracks the performance of telecommunications companies. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
CALENDAR YEAR TOTAL RETURNS (CLASS A)
(BAR CHART)
6.02% 28.26% 22.22% 13.36% 18.40% 15.92% 21.73% 11.16%
-8.65% -42.63%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
|
For the periods shown in bar chart: Best quarter: 2nd quarter 2003, +18.35% Worst quarter: 3rd quarter 2002, -28.90% |
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
THE FUND
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2005
1 YEAR 5 YEARS 10 YEARS
Class A (%)
Return Before Taxes 5.88 -4.77 5.74
Return After Taxes on Distributions 5.48 -5.78 3.97
Return After Taxes on Distributions and Sale of Fund
Shares 4.33 -4.33 4.30
----------------------------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes 5.34 -4.89 5.46
Return After Taxes on Distributions 5.05 -5.73 3.95
Return After Taxes on Distributions and Sale of Fund
Shares 3.85 -4.34 4.24
----------------------------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 9.24 -4.54 5.47(1)
Return After Taxes on Distributions 8.95 -5.39 3.95(1)
Return After Taxes on Distributions and Sale of Fund
Shares 6.39 -4.07 4.23(1)
----------------------------------------------------------------------------------------------------------
S&P Utility Index (%) 16.79 -2.25 6.78
----------------------------------------------------------------------------------------------------------
S&P Telecom Index (%) -5.33 -6.83 1.08
|
(1) Class C is a newer class of shares. Its performance information includes returns of the Fund's Class B shares for periods prior to the inception of Class C shares. Class B shares would have substantially similar annual returns because Class B and Class C shares generally have similar expense structures. Class B shares were initially offered on May 5, 1992 and Class C shares were initially offered on August 1, 1997.
SALES CHARGES are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management fees, 12b-1 fees and other expenses that generally include, but are not limited to, administration transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
- Reinvestment of all dividends and distributions
THE FUND
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75 0.00 0.00
-------------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or
redemption price) 1.00(2) 5.00 1.00
-------------------------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) (3) (3) (3)
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
CLASS A CLASS B CLASS C
Management fee (%) 0.65 0.65 0.65
-------------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00
-------------------------------------------------------------------------------------------------------
Other expenses(1) (%) 0.25 0.25 0.25
-------------------------------------------------------------------------------------------------------
Total annual fund operating expenses (%) 1.15 1.90 1.90
|
(1) Other expenses have been restated to reflect contractual changes to the transfer agent and bookkeeping fees for the Fund effective November 1, 2005.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A $587 $823 $1,078 $1,806
------------------------------------------------------------------------------------------------------------------------
Class B: did not sell your shares $193 $597 $1,026 $2,027
sold all your shares at
the end of the period $693 $897 $1,226 $2,027
------------------------------------------------------------------------------------------------------------------------
Class C: did not sell your shares $193 $597 $1,026 $2,222
sold all your shares at
the end of the period $293 $597 $1,026 $2,222
|
See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
Your financial advisor can help you establish an appropriate investment portfolio, buy shares and monitor your investments. When the Fund receives your purchase request in "good form," your shares will be bought at the next calculated public offering price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, "good form" may mean that you have properly placed your order with your financial advisor or the Fund's transfer agent has received your completed application, including all necessary signatures. The USA Patriot Act may require us to obtain certain personal information from you which we will use to verify your identity. If you do not provide the information, we may not be able to open your account. If we are unable to verify your customer information, we reserve the right to close your account or take such other steps as we deem reasonable.
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-----------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
-----------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class (and, in some cases, certain
other classes) of the Fund at no additional cost. An
exchange to another fund may incur a sales charge if the
original purchase was not assessed a sales charge. To
exchange by telephone, call 1-800-422-3737.
-----------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-----------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-----------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
-----------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate your
program or change the amount of the exchange (subject to the
$100 minimum) by calling 1-800-345-6611. There may be an
additional sales charge if exchanging from a money market
fund. Be sure to complete the appropriate section of the
account application for this feature.
-----------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
|
INVESTMENT MINIMUMS
The initial investment minimum for the purchase of Class A, B and C shares is $1,000. For investors establishing an automatic investment plan, the initial investment minimum is $50. For participants in certain retirement plans, the initial investment minimum is $25. There is no minimum initial investment for wrap accounts. The Fund reserves the right to change these investment minimums. The Fund also reserves the right
YOUR ACCOUNT
to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
Please see the Statement of Additional Information for more details on investment minimums.
You may be subject to an initial sales charge when you purchase, or a contingent deferred sales charge ("CDSC") when you sell, shares of the Fund. These sales charges are described below. In certain circumstances, the sales charge may be reduced or waived, as described below and in the Statement of Additional Information.
The Fund offers three classes of shares in this prospectus -- CLASS A, B and C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 or more but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
CLASS A SHARES Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
CLASS A SALES CHARGES
% OF OFFERING
AS A % OF PRICE
THE PUBLIC AS A % RETAINED BY
OFFERING OF YOUR FINANCIAL
AMOUNT PURCHASED PRICE INVESTMENT ADVISOR
Less than $50,000 4.75 4.99 4.25
-------------------------------------------------------------------------------------------------------------------
$50,000 to less than $100,000 4.50 4.71 4.00
-------------------------------------------------------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 3.00
-------------------------------------------------------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.00
-------------------------------------------------------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
-------------------------------------------------------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
|
YOUR ACCOUNT
Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
PURCHASES OVER $1 MILLION
AMOUNT PURCHASED COMMISSION % Less than $3 million 1.00 --------------------------------------------------------------------------- $3 million to less than $50 million 0.50 --------------------------------------------------------------------------- $50 million or more 0.25 |
For certain group retirement plans, financial advisors receive a 1.00% commission from the distributor on all purchases less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES
REDUCED SALES CHARGES FOR LARGER INVESTMENTS.
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
RIGHTS OF ACCUMULATION The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
STATEMENT OF INTENT You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint
YOUR ACCOUNT
discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
- Individual accounts
- Joint accounts
- Certain IRA accounts
- Certain trusts
- UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Fund as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions
YOUR ACCOUNT
under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information which can be obtained at www.columbiafunds.com or by calling 1-800-345-6611.
CLASS B SHARES Your purchases of Class B shares are at Class B's net asset value. Purchases up to $50,000 are allowed in Class B shares assuming the combined value of the customer's total assets in the Columbia funds does not exceed $50,000. Purchases in Class B shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group plan accounts are valued at the plan level. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart below.
CLASS B SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 5.00
-------------------------------------------------------------------------------
Through second year 4.00
-------------------------------------------------------------------------------
Through third year 3.00
-------------------------------------------------------------------------------
Through fourth year 3.00
-------------------------------------------------------------------------------
Through fifth year 2.00
-------------------------------------------------------------------------------
Through sixth year 1.00
-------------------------------------------------------------------------------
Longer than six years 0.00
|
Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
CLASS C SHARES Your purchases of Class C shares are at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares.
CLASS C SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 1.00
-------------------------------------------------------------------------------
Longer than one year 0.00
|
YOUR ACCOUNT
You may exchange your shares for shares of the same class (and in some cases, certain other classes) of another fund distributed by Columbia Management Distributors, Inc. at net asset value. If your shares are subject to a CDSC, you will not be charged a CDSC upon the exchange. However, when you sell the shares acquired through the exchange, the shares sold may be subject to a CDSC, depending upon when you originally purchased the shares you are exchanging. For purposes of computing the CDSC, the length of time you have owned your shares will be computed from the date of your original purchase and the applicable CDSC will be the CDSC of the original fund. Unless your account is part of a tax-deferred retirement plan, an exchange is a taxable event, and you may realize a gain or a loss for tax purposes. The Fund may terminate your exchange privilege if the advisor determines that your exchange activity is likely to adversely impact its ability to manage the Fund. See "Fund Policy on Trading of Fund Shares" for the Fund's policy. To exchange by telephone, call 1-800-422-3737. Please have your account and taxpayer identification numbers available when calling.
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable, you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 10 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into the same share class (and, in
some cases, certain other classes) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
-----------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
-----------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or, if
applicable, stock power form along with any share
certificates to be sold to the address below. In your letter
of instruction, note the Fund's name, share class, account
number, and the dollar value or number of shares you wish to
sell. All account owners must sign the letter. Signatures
must be guaranteed by either a bank, a member firm of a
national stock exchange or another eligible guarantor that
participates in the Medallion Signature Guarantee Program
for amounts over $100,000 or for alternate payee or mailing
instructions. Additional documentation is required for sales
by corporations, agents, fiduciaries, surviving joint owners
and individual retirement account owners. For details, call
1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
-----------------------------------------------------------------------------------
By check writing You may sell shares of the Fund by check writing. The check
must be at least $500 and no more than $100,000. You will
continue to earn dividends on shares until the check is
presented to the bank for payment. When the check is
presented to the bank a sufficient number of full and
fractional shares will be sold at the next determined net
asset value to cover the amount of the check. Certificate
shares may not be sold by check writing. Check writing is
available only for Class A shares. Be sure to complete the
appropriate section of the account application for this
feature.
-----------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
-----------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
-----------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
The interests of the Fund's long-term shareholders may be adversely affected by certain short-term trading activity by Fund shareholders. Such short-term trading activity, when excessive, has the potential to interfere with efficient portfolio management, generate transaction and other costs, dilute the value of Fund shares held by long-term shareholders and have other adverse effects on the Fund. This type of excessive short-term trading activity is referred to herein as "market timing". The Columbia Funds are not intended as vehicles for market timing. The Board of Trustees of the Fund has adopted the policies and procedures set forth below with respect to frequent trading of the Fund's shares.
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts,
YOUR ACCOUNT
the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Consequently, there is the risk that the Fund may not be able to do anything in response to market timing that occurs in the Fund which may result in certain shareholders being able to market time the Fund while the shareholders in the Fund bear the burden of such activities.
Certain financial intermediaries (including certain retirement plan service providers whose clients include, among others, various retirement plans sponsored by Bank of America and its affiliates for the benefit of its employees (the "Bank of America retirement service plan providers") have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above. In particular, the Bank of America retirement service plan provider permits the reinstatement of future purchase orders for shares of the Fund following various suspension periods.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
YOUR ACCOUNT
RULE 12B-1 PLAN The Fund has adopted a plan under Rule 12b-l that permits it to pay its distributor marketing and other fees to support the sale and distribution of Class A, B and C shares and certain services provided to you by your financial advisor. The annual service fee may equal up to 0.25% for each of Class A, Class B and Class C shares. The annual distribution fee may equal up to 0.75% for each of Class B and Class C shares. Distribution and service fees are paid out of the assets of these classes. Over time, these fees will reduce the return on your investment and may cost you more than paying other types of sales charges. Class B shares automatically convert to Class A shares after eight years, eliminating the distribution fee upon conversion.
ADDITIONAL INTERMEDIARY COMPENSATION In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If
YOUR ACCOUNT
you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the transfer agent.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
-----------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund distributes any dividends quarterly and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
YOUR ACCOUNT
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your
current fund
----------------------------------------------------------------
Reinvest all distributions in shares of another fund
----------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest
capital gains
----------------------------------------------------------------
Receive all distributions in cash (with one of the following
options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds
transfer
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Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, all subsequent distributions will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
Columbia Management Advisors, LLC ("Columbia Advisors"), located at 100 Federal Street, Boston, Massachusetts 02110, is the Fund's investment advisor. Columbia Advisors is responsible for the Fund's management, subject to oversight by the Fund's Board of Trustees. In its duties as investment advisor, Columbia Advisors runs the Fund's day-to-day business, including placing all orders for the purchase and sale of the Fund's portfolio securities. Columbia Advisors is a direct wholly owned subsidiary of Columbia Management Group, LLC ("CMG"), which in turn is a direct, wholly owned subsidiary of Bank of America, which in turn is a wholly owned banking subsidiary of Bank of America Corporation, a financial services holding company organized as a Delaware corporation. Prior to June 15, 2005, CMG was a corporation. Effective June 15, 2005, CMG converted to a limited liability company. Columbia Advisors, a registered investment advisor, has been an investment advisor since 1995.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Advisors and/or Columbia Management by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Advisors and/or Columbia Management by the Fund, amounted to 0.65% of average daily net assets of the Fund. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the fiscal year ended November 30, 2005.
EDWARD PAIK, an assistant vice president of Columbia Advisors, is the manager for the Fund and has managed or co-managed the Fund since May, 2002. Mr. Paik has been associated with Columbia Advisors or its predecessors since March, 2000.
The Statement of Additional Information provides additional information about the manager's compensation, other accounts managed and ownership of securities in the Fund.
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud
MANAGING THE FUND
provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and he has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from
MANAGING THE FUND
contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last five fiscal years, which run from December 1 to November 30, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
YEAR ENDED NOVEMBER 30,
2005 2004 2003 2002 2001
Class A Class A Class A Class A Class A
------- ------- ------- ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 12.38 9.97 9.46 18.75 25.49
----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(a) 0.33 0.25 0.23 0.26 0.29
Net realized and unrealized gain (loss) on
investments and foreign currency 1.39 2.41 0.48 (7.04) (1.74)
----------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.72 2.66 0.71 (6.78) (1.45)
----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net investment income (0.29) (0.25) (0.20) (0.30) (0.38)
From net realized gains -- -- -- (2.21) (4.91)
----------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.29) (0.25) (0.20) (2.51) (5.29)
----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 13.81 12.38 9.97 9.46 18.75
----------------------------------------------------------------------------------------------------------------------------
Total return (%)(b) 14.00(c) 27.05 7.65 (41.18) (7.25)
----------------------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA (%):
Operating expenses(d) 1.19 1.25 1.41 1.30 1.19
Interest expense -- -- --(e) --(e) --
Expenses(d) 1.19 1.25 1.41 1.30 1.19
Net investment income(d) 2.49 2.29 2.45 2.03 1.44
Waiver/reimbursement 0.01 -- -- -- --
Portfolio turnover rate (%) 16 31 75 61 60
Net assets, end of period (000's) ($) 302,852 316,809 304,413 346,352 680,675
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(a) Per share data was calculated using average shares outstanding during the period.
(b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge.
(c) Had the Transfer Agent not waived or reimbursed a portion of expenses, total return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(e) Rounds to less than 0.01%.
FINANCIAL HIGHLIGHTS
THE FUND
YEAR ENDED NOVEMBER 30,
2005 2004 2003 2002 2001
Class B Class B Class B Class B Class B
------ ------ ------ ------ -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 12.36 9.96 9.46 18.73 25.45
----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(a) 0.23 0.17 0.16 0.17 0.14
Net realized and unrealized gain (loss) on
investments and foreign currency 1.39 2.40 0.48 (7.05) (1.73)
----------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.62 2.57 0.64 (6.88) (1.59)
----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS ($):
From net investment income (0.19) (0.17) (0.14) (0.18) (0.22)
From net realized gains -- -- -- (2.21) (4.91)
----------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.19) (0.17) (0.14) (2.39) (5.13)
----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 13.79 12.36 9.96 9.46 18.73
----------------------------------------------------------------------------------------------------------------------------
Total return (%)(b) 13.18(c) 26.03 6.84 (41.63) (7.90)
----------------------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA (%):
Operating expenses(d) 1.94 2.00 2.16 2.05 1.94
Interest expense -- -- --(e) --(e) --
Expenses(d) 1.94 2.00 2.16 2.05 1.94
Net investment income(d) 1.74 1.54 1.70 1.28 0.69
Waiver/reimbursement 0.01 -- -- -- --
Portfolio turnover rate (%) 16 31 75 61 60
Net assets, end of period (000's) ($) 49,650 57,473 67,530 87,051 265,004
|
(a) Per share data was calculated using average shares outstanding during the period.
(b) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(c) Had the Transfer Agent not waived or reimbursed a portion of expenses, total return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(e) Rounds to less than 0.01%.
FINANCIAL HIGHLIGHTS
THE FUND
YEAR ENDED NOVEMBER 30,
2005 2004 2003 2002 2001
Class C Class C Class C Class C Class C
----- ----- ----- ----- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 12.37 9.96 9.47 18.74 25.44
--------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(a) 0.23 0.17 0.16 0.17 0.14
Net realized and unrealized gain
(loss) on investments and foreign currency 1.39 2.41 0.47 (7.05) (1.71)
--------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.62 2.58 0.63 (6.88) (1.57)
--------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS ($):
From net investment income (0.19) (0.17) (0.14) (0.18) (0.22)
From net realized gains -- -- -- (2.21) (4.91)
--------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.19) (0.17) (0.14) (2.39) (5.13)
--------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 13.80 12.37 9.96 9.47 18.74
--------------------------------------------------------------------------------------------------------------------------------
Total return (%)(b) 13.17(c) 26.13 6.73 (41.61) (7.81)
--------------------------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA (%):
Operating expenses(d) 1.94 2.00 2.16 2.05 1.94
Interest expense -- -- --(e) --(e) --
Expenses(d) 1.94 2.00 2.16 2.05 1.94
Net investment income(d) 1.74 1.54 1.70 1.28 0.69
Waiver/reimbursement 0.01 -- -- -- --
Portfolio turnover rate (%) 16 31 75 61 60
Net assets, end of period (000's) ($) 6,406 6,674 6,712 7,501 11,558
|
(a) Per share data was calculated using average shares outstanding during the period.
(b) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(c) Had the Transfer Agent not waived or reimbursed a portion of expenses, total return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(e) Rounds to less than 0.01%.
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The charts also assume that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher.
CLASS A SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
4.75% $10,000.00 5%
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CUMULATIVE RETURN HYPOTHETICAL YEAR-
BEFORE FEES & ANNUAL EXPENSE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES RATIO AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- ----------------- -------------- --------------------- ------------------ -------------
1 5.00% 1.15% -1.08%(2) $ 9,891.71 $ 586.65
2 10.25% 1.15% 2.73% $10,272.54 $ 115.94
3 15.76% 1.15% 6.68% $10,668.04 $ 120.41
4 21.55% 1.15% 10.79% $11,078.76 $ 125.04
5 27.63% 1.15% 15.05% $11,505.29 $ 129.86
6 34.01% 1.15% 19.48% $11,948.24 $ 134.86
7 40.71% 1.15% 24.08% $12,408.25 $ 140.05
8 47.75% 1.15% 28.86% $12,885.97 $ 145.44
9 55.13% 1.15% 33.82% $13,382.08 $ 151.04
10 62.89% 1.15% 38.97% $13,897.29 $ 156.86
TOTAL GAIN AFTER FEES
AND EXPENSES $ 3,897.29
TOTAL ANNUAL FEES AND
EXPENSES $1,806.15
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
APPENDIX A
CLASS B SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR-
BEFORE FEES & ANNUAL EXPENSE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES RATIO AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- ----------------- -------------- --------------------- ------------------ -------------
1 5.00% 1.90% 3.10% $10,310.00 $ 192.95
2 10.25% 1.90% 6.30% $10,629.61 $ 198.93
3 15.76% 1.90% 9.59% $10,959.13 $ 205.09
4 21.55% 1.90% 12.99% $11,298.86 $ 211.45
5 27.63% 1.90% 16.49% $11,649.13 $ 218.01
6 34.01% 1.90% 20.10% $12,010.25 $ 224.76
7 40.71% 1.90% 23.83% $12,382.57 $ 231.73
8 47.75% 1.90% 27.66% $12,766.43 $ 238.92
9 55.13% 1.15% 32.58% $13,257.93 $ 149.64
10 62.89% 1.15% 37.68% $13,768.36 $ 155.40
TOTAL GAIN AFTER FEES
AND EXPENSES $ 3,768.36
TOTAL ANNUAL FEES AND
EXPENSES $2,026.87
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
CLASS C SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
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CUMULATIVE RETURN HYPOTHETICAL YEAR-
BEFORE FEES & ANNUAL EXPENSE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES RATIO AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- ----------------- -------------- --------------------- ------------------ -------------
1 5.00% 1.90% 3.10% $10,310.00 $ 192.95
2 10.25% 1.90% 6.30% $10,629.61 $ 198.93
3 15.76% 1.90% 9.59% $10,959.13 $ 205.09
4 21.55% 1.90% 12.99% $11,298.86 $ 211.45
5 27.63% 1.90% 16.49% $11,649.13 $ 218.01
6 34.01% 1.90% 20.10% $12,010.25 $ 224.76
7 40.71% 1.90% 23.83% $12,382.57 $ 231.73
8 47.75% 1.90% 27.66% $12,766.43 $ 238.92
9 55.13% 1.90% 31.62% $13,162.18 $ 246.32
10 62.89% 1.90% 35.70% $13,570.21 $ 253.96
TOTAL GAIN AFTER FEES
AND EXPENSES $ 3,570.21
TOTAL ANNUAL FEES AND
EXPENSES $2,222.11
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
NOTES
NOTES
Additional information about the Fund's investments is available in the Fund's semi-annual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected the Fund's performance during its last fiscal year.
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Funds Series Trust I (formerly named Columbia Funds Trust IX): 811-4367
- Columbia Utilities Fund
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2006 COLUMBIA MANAGEMENT DISTRIBUTORS, INC.
ONE FINANCIAL CENTER, BOSTON, MA 02111-2621
800.426.3750 www.columbiafunds.com INT-36/107903-0306
COLUMBIA UTILITIES FUND Prospectus, March 27, 2006
CLASS Z SHARES
Advised by Columbia Management Advisors, LLC
THE FUND 2 --------------------------------------------------------- Investment Goals..................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 2 Performance History.................................. 4 Your Expenses........................................ 6 YOUR ACCOUNT 8 --------------------------------------------------------- How to Buy Shares.................................... 8 Eligible Investors................................... 9 Sales Charges........................................ 11 How to Exchange Shares............................... 11 How to Sell Shares................................... 11 Fund Policy on Trading of Fund Shares................ 12 Intermediary Compensation............................ 13 Other Information About Your Account................. 14 MANAGING THE FUND 17 --------------------------------------------------------- Investment Advisor................................... 17 Portfolio Manager.................................... 17 Legal Proceedings.................................... 17 FINANCIAL HIGHLIGHTS 20 --------------------------------------------------------- APPENDIX A 21 --------------------------------------------------------- |
Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
|
THE FUND
The Fund seeks current income and long-term growth.
Under normal market conditions, the Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in securities of utilities companies. Up to 20% of the Fund's net assets (plus any borrowings for investment purposes) may be invested in equity securities of non-utilities related companies. The Fund may invest up to 20% of its assets in securities of foreign utilities companies.
UTILITY COMPANY SECURITIES
Utility company securities in which the Fund may invest include securities of companies engaged in the manufacture, production, generation, transmission, sale or distribution of electricity, natural gas or other types of energy, water or other sanitary services. They also include securities of companies engaged in telecommunications, such as telephone, Internet, satellite, television, microwave and other communications media. The Fund may invest in securities of companies engaged in the manufacture and production of equipment utilized in the energy and telecommunications industries.
UNDERSTANDING VALUE INVESTING
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goals.
In seeking to achieve its investment goals, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goals or investment strategies.
The principal risks of investing in the Fund are described below. There are many circumstances (including additional risks that are not described here) which could prevent the Fund from achieving its investment goals. You may lose money by investing in the Fund.
THE FUND
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with similar investment goals. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goals or perform favorably among comparable funds.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the advisor's opinion, undervalued. If the advisor's assessment of a company's prospects is wrong, the price of the company's stock may fall, or may not approach the value the advisor has placed on it.
Utility company securities are subject to special risks. These securities are generally strongly affected by changes in interest rates, as well as by general competitive and market forces in the utilities industries. As interest rates increase, the value of securities of utility companies tends to decrease, and vice versa. In addition, utility companies may be affected by changes in government regulation. In particular, the value of utility company securities may be adversely affected by increased competition resulting from deregulation.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
THE FUND
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class Z share performance for each of the last ten complete calendar years. They include the effects of Fund expenses.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's Class Z average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses.
THE FUND
CALENDAR YEAR TOTAL RETURNS (CLASS Z)(1)
(BAR CHART)
6.02% 28.26% 22.22% 13.54% 18.76% 16.12% 22.08% 11.45%
-8.51% -42.48%
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
|
For the periods shown in bar chart: Best quarter: 2nd quarter 2003, +18.33% Worst quarter: 3rd quarter 2002, -28.87% |
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2005(1)
1 YEAR 5 YEARS 10 YEARS
Class Z (%)
Return Before Taxes 11.45 -3.62 6.42
Return After Taxes on Distributions 10.99 -4.70 4.60
Return After Taxes on Distributions and Sale of Fund
Shares 8.04 -3.42 4.88
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S&P Utility Index (%) 16.79 -2.25 6.78
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S&P Telecom Index (%) -5.33 -6.83 1.08
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(1) Class Z is a newer class of shares. Its performance information includes returns of the Fund's Class A shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class A shares and the newer class of shares. The Class A share returns have been adjusted to take into account the fact that Class Z shares are sold without sales charges. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been higher, since Class Z shares are not subject to any Rule 12b-1 fees. Class A shares were initially offered on August 3, 1981, and Class Z shares were initially offered on January 29, 1999.
THE FUND
Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the fees and expenses you may pay when you buy, hold and sell shares of the Fund.
UNDERSTANDING EXPENSES
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 -------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 -------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) (2) |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
Management fee (%) 0.65 -------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.00 -------------------------------------------------------------------- Other expenses(1) (%) 0.25 -------------------------------------------------------------------- Total annual fund operating expenses (%) 0.90 |
(1) Other expenses have been restated to reflect contractual changes to the transfer agent and bookkeeping fees for the Fund effective November 1, 2005.
THE FUND
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
1 YEAR 3 YEARS 5 YEARS 10 YEARS $92 $287 $498 $1,108 |
See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
When the Fund receives your purchase request in "good form," your shares will be bought at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, "good form" may mean that you have properly placed your order with Columbia Management Services, Inc. or your financial advisor or the Fund's transfer agent has received your completed application, including all necessary signatures. The USA Patriot Act may require us to obtain certain personal information from you which we will use to verify your identity. If you do not provide the information, we may not be able to open your account. If we are unable to verify your customer information, we reserve the right to close your account or take such other steps as we deem reasonable.
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For new accounts, send a completed application and check
(new account) made payable to the Fund to Columbia Management Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class of the Fund at no additional
cost. To exchange by telephone, call 1-800-422-3737. Please
see "How to Exchange Shares" for more information.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate your
program or change the amount of the exchange (subject to the
$100 minimum) by calling 1-800-345-6611. Be sure to complete
the appropriate section of the account application for this
feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at no
additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
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YOUR ACCOUNT
Only Eligible Investors may purchase Class Z shares of the Fund, directly or by exchange. Class Z shares of the Fund generally are available only to certain "grandfathered" shareholders and to investors holding accounts with intermediaries that assess account level fees for the services they provide. Please read the following section for a more detailed description of the eligibility requirements. The Eligible Investors described below are subject to different minimum initial investment requirements.
IMPORTANT THINGS TO CONSIDER WHEN DECIDING ON A CLASS OF SHARES:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by a broker/dealer, bank, third-party administrator or other financial institution (each commonly referred to as an "intermediary"). Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
NO MINIMUM INITIAL INVESTMENT
- Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
- Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts ("IRAs")), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
- Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
- Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
YOUR ACCOUNT
$1,000 MINIMUM INITIAL INVESTMENT
- Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of a fund distributed by Columbia Management Distributors, Inc. (i) who holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005; (iii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iv) who purchased certain no-load shares of a fund merged with a fund distributed by Columbia Management Distributors, Inc.;
- Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Management Distributors, Inc.;
- Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary;
- Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement);
- Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an accredited investor, as defined under the Securities Act of 1933; or
- Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries.
THE FUND RESERVES THE RIGHT TO CHANGE THE CRITERIA FOR ELIGIBLE INVESTORS AND THE INVESTMENT MINIMUMS. NO MINIMUM INVESTMENT APPLIES TO ACCOUNTS PARTICIPATING IN THE AUTOMATIC INVESTMENT PLAN; HOWEVER, EACH INVESTMENT REQUIRES A $25 MINIMUM PURCHASE. THE FUND ALSO RESERVES THE RIGHT TO REFUSE A PURCHASE ORDER FOR ANY REASON, INCLUDING IF IT BELIEVES THAT DOING SO WOULD BE IN THE BEST INTEREST OF THE FUND AND ITS SHAREHOLDERS.
YOUR ACCOUNT
CHOOSING A SHARE CLASS
The Fund offers one class of shares in this prospectus --
CLASS Z.
You may exchange your shares for Class Z or Class A (only if Class Z is not offered) shares of another fund distributed by Columbia Management Distributors, Inc. at net asset value. Unless your account is part of a tax-deferred retirement plan, an exchange is a taxable event, and you may realize a gain or a loss for tax purposes. The Fund may terminate your exchange privilege if the advisor determines that your exchange activity is likely to adversely impact its ability to manage the Fund. See "Fund Policy on Trading of Fund Shares" for the Fund's policy. To exchange by telephone, call 1-800-422-3737. Please have your account and taxpayer identification numbers available when calling.
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, and (ii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 10 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into Class Z shares or Class A
shares (only if Class Z is not offered) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign the
letter. Signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for alternate
payee or mailing instructions. Additional documentation is
required for sales by corporations, agents, fiduciaries,
surviving joint owners and individual retirement account
owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
-----------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. All dividend and capital gains distributions must
be reinvested. Be sure to complete the appropriate section
of the account application for this feature.
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By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
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The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange
YOUR ACCOUNT
purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Consequently, there is risk that the Fund may not be able to do anything in response to market timing that occurs in the Fund which may result in certain shareholders being able to market time the Fund while the shareholders in the Fund bear the burden of such activities.
Certain financial intermediaries (including certain retirement plan service providers whose clients include, among others; various retirement plans sponsored by Bank of America and its affiliates for the benefit of its employees (the "Bank of America retirement service plan providers")) have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above. In particular, the Bank of America retirement service plan provider permits the reinstatement of future purchase orders for shares of the Fund following various suspension periods.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
YOUR ACCOUNT
factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to an intermediary. Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur
YOUR ACCOUNT
between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for Class Z shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
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Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund distributes any dividends quarterly and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your
current fund
----------------------------------------------------------------
Reinvest all distributions in shares of another fund
----------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest
capital gains
----------------------------------------------------------------
Receive all distributions in cash (with one of the following
options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds
transfer
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Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable all subsequent distributions will be reinvested in additional shares of the Fund.
YOUR ACCOUNT
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
Columbia Management Advisors, LLC ("Columbia Advisors"), located at 100 Federal Street, Boston, Massachusetts 02110, is the Fund's investment advisor. Columbia Advisors is responsible for the Fund's management, subject to oversight by the Fund's Board of Trustees. In its duties as investment advisor, Columbia Advisors runs the Fund's day-to-day business, including placing all orders for the purchase and sale of the Fund's portfolio securities. Columbia Advisors is a direct wholly owned subsidiary of Columbia Management Group, LLC ("CMG"), which in turn is a direct, wholly owned subsidiary of Bank of America, which in turn is a direct, wholly owned banking subsidiary of Bank of America Corporation, a financial services holding company organized as a Delaware corporation. Prior to June 15, 2005, CMG was a corporation. Effective June 15, 2005, CMG converted to a limited liability company. Columbia Advisors, a registered investment advisor, has been an investment advisor since 1995.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Advisors and/or Columbia Management by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Advisors and/or Columbia Management by the Fund, amounted to 0.65% of average daily net assets of the Fund. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the fiscal year ended November 30, 2005.
EDWARD PAIK, an assistant vice president of Columbia Advisors, is the manager for the Fund and has managed or co-managed the Fund since May, 2002. Mr. Paik has been associated with Columbia Advisors or its predecessors since March, 2000.
The Statement of Additional Information provides additional information about the manager's compensation, other accounts managed and ownership of securities in the Fund.
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud
MANAGING THE FUND
provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and he has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from
MANAGING THE FUND
contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the Fund's last five fiscal years, which run from December 1 to November 30, unless otherwise indicated. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
YEAR ENDED NOVEMBER 30,
2005 2004 2003 2002 2001
Class Z Class Z Class Z Class Z Class Z
------ ------ ------ ------ -----
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 12.36 9.95 9.44 18.74 25.49
---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(a) 0.36 0.28 0.25 0.28 0.36
Net realized and unrealized gain (loss) on
investments and foreign currency 1.39 2.41 0.48 (7.03) (1.77)
---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.75 2.69 0.73 (6.75) (1.41)
---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net investment income (0.32) (0.28) (0.22) (0.34) (0.43)
From net realized gains -- -- -- (2.21) (4.91)
---------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.32) (0.28) (0.22) (2.55) (5.34)
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 13.79 12.36 9.95 9.44 18.74
---------------------------------------------------------------------------------------------------------------------------------
Total return (%)(b) 14.30(c) 27.42 7.90 (41.09) (7.06)
---------------------------------------------------------------------------------------------------------------------------------
RATIO TO AVERAGE NET ASSETS
SUPPLEMENTAL DATA (%):
Operating expenses(d) 0.94 1.00 1.16 1.05 0.94
Interest expense -- -- --(e) --(e) --
Expenses(d) 0.94 1.00 1.16 1.05 0.94
Net investment income(d) 2.74 2.54 2.70 2.28 1.69
Waiver/reimbursement 0.01 -- -- -- --
Portfolio turnover rate (%) 16 31 75 61 60
Net assets, end of period (000's) ($) 32,812 29,981 26,237 28,565 32
|
(a) Per share data was calculated using average shares outstanding during the period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Had the Transfer Agent not waived or reimbursed a portion of expenses, total return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(e) Rounds to less than 0.01%.
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class Z shares of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The chart also assumes that all dividends and distributions are reinvested. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses table, is presented in the chart, and is net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower.
CLASS Z SHARES
INITIAL HYPOTHETICAL INVESTMENT ASSUMED RATE OF RETURN
MAXIMUM SALES CHARGE AMOUNT 5%
0.00% $10,000.00 HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 0.90% 4.10% $10,410.00 $91.85
2 10.25% 0.90% 8.37% $10,836.81 $95.61
3 15.76% 0.90% 12.81% $11,281.12 $99.53
4 21.55% 0.90% 17.44% $11,743.65 $103.61
5 27.63% 0.90% 22.25% $12,225.13 $107.86
6 34.01% 0.90% 27.26% $12,726.37 $112.28
7 40.71% 0.90% 32.48% $13,248.15 $116.89
8 47.75% 0.90% 37.91% $13,791.32 $121.68
9 55.13% 0.90% 43.57% $14,356.76 $126.67
10 62.89% 0.90% 49.45% $14,945.39 $131.86
TOTAL GAIN AFTER FEES AND EXPENSES $4,945.39
TOTAL ANNUAL FEES AND EXPENSES $1107.83
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
NOTES
NOTES
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website www.columbiafunds.com include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Funds Series Trust I (formerly named Columbia Funds Trust IX): 811-4367
- Columbia Utilities Fund
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc.
One Financial Center, Boston, MA 02111-2621
800.426.3750 www.columbiafunds.com INT-36/107886-0306
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED AUGUST 1, 2005
COLUMBIA INCOME FUND (THE "FUND")
CLASS A, B AND C SHARES
(REPLACING SUPPLEMENTS DATED AUGUST 19, 2005 AND FEBRUARY 17, 2006)
The Fund's Prospectus is hereby supplemented with the following information:
1. The fifth paragraph under the heading "PRINCIPAL INVESTMENT STRATEGIES" is revised in its entirety as follows:
The advisor has wide flexibility to vary the allocation among different types of debt securities based on its judgment of which types of securities will outperform the others. In determining whether to buy or sell securities, the advisor evaluates relative values of the various types of securities in which the Fund can invest (e.g., the relative value of corporate debt securities versus mortgage-backed securities under prevailing market conditions), relative values of various rating categories (e.g., relative values of higher-rated securities versus lower-rated securities under prevailing market conditions), and individual issuer characteristics. The Fund may participate in mortgage dollar rolls.
2. The section under the heading "PRINCIPAL INVESTMENT RISKS" is revised to include the following:
Mortgage dollar rolls are transactions in which the Fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase similar securities in the future at a predetermined price. These transactions simulate an investment in mortgage-backed securities and have the potential to enhance the Fund's returns and reduce its administrative burdens, compared with holding mortgage-backed securities directly. Mortgage dollar rolls involve the risks that the market value of the securities the Fund is obligated to repurchase may decline below the repurchase price, or that the other party may default on its obligations. These transactions may increase the Fund's portfolio turnover rate.
3. The "Calendar Year Total Returns" and "Average Annual Total Returns" tables for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS
CLASS A(1)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ---- ---- ---- ---- ---- ---- ---- ----- ---- ---- 4.82% 9.58% 4.00% 1.23% 9.76% 8.36% 7.17% 11.54% 5.66% 1.93% |
For the periods shown above:
Best quarter: 2nd quarter 2003, +5.98%
Worst quarter: 2nd quarter 2004, -2.47%
(1) Class A is a newer class of shares. Its performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer class of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been lower, since
Class A shares are subject to a Rule 12b-1 fee. Class A shares were initially offered on July 31, 2000, and Class Z shares were initially offered on March 5, 1986.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2005
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Class A (%)
Return Before Taxes (2.87) 5.84(1,3) 5.84(2,3)
Return After Taxes on Distributions (4.60) 3.63(1,3) 3.26(2,3)
Return After Taxes on Distributions and Sale of Fund
Shares (1.88) 3.64(1,3) 3.34(2,3)
Class B (%)
Return Before Taxes (3.67) 6.01(1,3) 6.08(2,3)
Return After Taxes on Distributions (5.21) 3.96(1,3) 3.59(2,3)
Return After Taxes on Distributions and Sale of Fund
Shares (2.39) 3.89(1,3) 3.61(2,3)
Class C (%)
Return Before Taxes 0.36 6.44(1,3) 6.13(2,3)
Return After Taxes on Distributions (1.24) 4.37(1,3) 3.62(2,3)
Return After Taxes on Distributions and Sale of Fund
Shares 0.23 4.25(1,3) 3.65(2,3)
Lehman Brothers Intermediate Gov't/Credit Index (%) 1.58 5.50 5.80
Lehman Brothers Intermediate Credit Bond Index (%) 1.42 6.41 6.20
|
(1) Class A, Class B and Class C are newer classes of shares. Class A performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to its inception. Class B and Class C performance information includes returns of the Fund's Class A shares for the period from July 31, 2000 through July 15, 2002.
(2) Class A, Class B and Class C are newer classes of shares. Class A performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to its inception. Class B and Class C performance information includes returns of the Fund's Class A shares for the period from July 31, 2000 through July 15, 2002 and for periods prior thereto, the Fund's Class Z shares (the oldest existing Fund class).
(3) These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower, since the newer classes of shares are subject to a Rule 12b-1 fee. Class A shares were initially offered on July 31, 2000, Class B and Class C shares were initially offered on July 15, 2002, and Class Z shares were initially offered on March 5, 1986.
4. The footnotes to the table entitled "Shareholder Fees" are revised to provide that the contingent deferred sales charge ("CDSC") applicable to Class A shares applies only to certain Class A shares bought without an initial sales charge that are sold within 12 months of purchase.
5. The section entitled "Investment Minimums" is revised in its entirety as follows:
The initial investment minimum for the purchase of Class A, B and C shares is $1,000. For investors establishing an automatic investment plan, the initial investment minimum is $50. For participants in certain retirement plans, the initial investment minimum is $25. There is no minimum initial investment for wrap accounts. The Fund reserves the right to change these investment minimums. The Fund also reserves the right to refuse a purchase order for any reason including if it believes that doing so would be in the best interest of the Fund and its shareholders.
Please see the Statement of Additional Information for more details on investment minimums.
6. The call-out box entitled "Choosing a Share Class" is revised in its entirety as follows:
CHOOSING A SHARE CLASS
The Fund offers three classes of shares in this prospectus -- CLASS A, B AND C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 or more but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
The Fund also offers an additional class of shares, Class Z shares, exclusively to certain institutional and other investors. Class Z shares are made available through a separate prospectus provided to eligible institutional and other investors.
7. The table entitled "Class A Sales Charges" is replaced in its entirety as follows:
CLASS A SALES CHARGES
AS A % OF THE AS A % OF % OF OFFERING PRICE
PUBLIC OFFERING YOUR RETAINED BY
AMOUNT PURCHASED PRICE INVESTMENT FINANCIAL ADVISOR
---------------- --------------- ---------- -------------------
Less than $50,000 4.75 4.99 4.25
$50,000 to less than $100,000 4.50 4.71 4.00
$100,000 to less than $250,000 3.50 3.63 3.00
$250,000 to less than $500,000 2.50 2.56 2.25
$500,000 to less than $1,000,000 2.00 2.04 1.75
$1,000,000 or more 0.00 0.00 0.00
|
8. The paragraph immediately following the table entitled "Class A Sales Charges" is revised in its entirety as follows:
Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
9. The table entitled "Purchases Over $1 Million" for Class A shares is replaced in its entirety as follows:
PURCHASES OVER $ILLION
COMMISSION %
------------
Amount purchased
Less than $3 million 1.00
$3 million to less than $50 million 0.50
$50 million or more 0.25
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For certain group retirement plans, financial advisors will receive a 1% commission from the distributor on all purchases less than $3 million.
10. The section entitled "Reduced Sales Charges for Larger Investments" is revised in its entirety as follows:
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
RIGHTS OF ACCUMULATION The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
STATEMENT OF INTENT You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
- Individual accounts
- Joint accounts
- Certain IRA accounts
- Certain trusts
- UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisors' failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, though fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Funds as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
11. All disclosure related to Class B Sales Charges under the section entitled "Sales Charges" is revised in its entirety as follows:
CLASS B SHARES Your purchases of Class B shares are at Class B's net asset value. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the applicable chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart below.
CLASS B SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.00
Through second year 4.00
Through third year 3.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Longer than six years 0.00
|
Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
12. The instructions with respect to redemptions by systematic withdrawal plan in the table under the section "How to Sell Shares" are revised in their entirety as follows:
You may automatically sell a specified dollar amount or percentage of your account on a monthly, quarterly or semi-annual basis and have the proceeds sent to you if your account balance is at least $5,000. The $5,000 minimum account balance requirement has been waived for wrap accounts. This feature is not available if you hold your shares in certificate form. All dividend and capital gains distributions must be reinvested. Be sure to complete the appropriate section of the account application for this feature.
13. Columbia Funds Distributor, Inc. (the Funds' distributor) and Columbia Funds Services, Inc. (the Funds' transfer agent) changed their names to Columbia Management Distributors, Inc. and Columbia Management Services, Inc., respectively.
14. The section entitled "LEGAL PROCEEDINGS" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-
and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption
from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
15. The section entitled "FINANCIAL HIGHLIGHTS" is updated and restated in its entirety as follows:
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the fiscal year ended March 31, 2005 and the Fund's prior fiscal years, which ran from July 1 to June 30, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). Information for the six-month period ended September 30, 2005 is unaudited. Other information is included in the financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the periods ended June 30, 2003, 2002, and 2001 has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
Selected data for a share outstanding throughout each period is as follows:
(Unaudited)
Six Months Year Period Period
Ended Ended Ended Year Ended Ended
September 30, March 31 March 31 -------------------- June 30,
Class A Shares 2005 2005 2004(a)(b) 2003(c) 2002(c) 2001(c)(d)
-------------- ------------- -------- ---------- ------- ------- ----------
Net Asset Value, Beginning of Period $ 9.89 $ 10.21 $ 10.10 $ 9.44 $ 9.54 $ 9.21
Income from Investment Operations:
Net investment income (e) 0.23 0.47 0.39 0.45 0.60(g) 0.61
Net realized and unrealized gain (loss) on
investments and foreign currency --(f) (0.27) 0.15 0.75 (0.08)(g) 0.32
------- ------- ------- ------- ------ ------
Total from Investment Operations 0.23 0.20 0.54 1.20 0.52 0.93
Less Distributions Declared to Shareholders:
From net investment income (0.25) (0.52) (0.43) (0.54) (0.62) (0.60)
Return of capital -- -- -- -- --(f) --
------- ------- ------- ------- ------ ------
Total Distributions Declared to Shareholders (0.25) (0.52) (0.43) (0.54) (0.62) (0.60)
Net Asset Value, End of Period $ 9.87 $ 9.89 $ 10.21 $ 10.10 $ 9.44 $ 9.54
Total return (h) 2.35%(i) 2.00% 5.50%(i)(j) 13.18%(j) 5.53% 10.41%(i)
Ratios to Average Net Assets/Supplemental Data:
Operating expenses (k) 0.94%(l) 0.97% 1.14%(l) 1.23% 1.10% 1.12%(1)
Interest expense -- -- --%(l)(m) -- -- --
Expenses (k) 0.94%(l) 0.97% 1.14%(l) 1.23% 1.10% 1.12%(1)
Net investment income (k) 4.59%(l) 4.66% 5.20%(l) 5.12% 6.32%(g) 7.08%
Waiver/reimbursement -- -- 0.03%(l) 0.05% -- --
Portfolio turnover rate 65%(i) 36% 93%(i) 96% 136%(n) 128%(n)
Net assets, end of period (000's) $98,901 $96,568 $92,053 $89,740 $ 204 $ 1
|
(a) On October 13, 2003, the Liberty Income Fund was renamed Columbia Income Fund.
(b) The Fund changed its fiscal year end from June 30 to March 31, effective March 31, 2004.
(c) Per share data and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of income and expenses of the SR&F Income Portfolio, prior to the portfolio liquidation.
(d) Class A shares were initially offered on July 31, 2000. Per share data and total return reflect activity from that date.
(e) Per share data was calculated using average shares outstanding during the period.
(f) Rounds to less than $0.01 per share.
(g) Effective July 1, 2001, the SR&F Income Portfolio adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended June 30, 2002, was to decrease net investment income per share by $0.01, decrease net realized and unrealized loss per share by $0.01 and decrease the ratio of net investment income to average net assets from 6.40% to 6.32%. Per share data and ratios for the period prior to June 30, 2002 have not been restated to reflect this change in presentation.
(h) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge.
(i) Not annualized.
(j) Had the Investment Advisor not reimbursed a portion of expenses, total return would have been reduced.
(k) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(l) Annualized.
(m) Rounds to less than 0.01%.
(n) Portfolio turnover disclosed is for the SR&F Income Portfolio.
(Unaudited)
Six Months Ended Year Ended Period Ended Period Ended
September 30, March 31, March 31, June 30,
Class B Shares 2005 2005 2004(a)(b) 2003(c)(d)
-------------- ---------------- ---------- ------------ ------------
Net Asset Value, Beginning of Period $ 9.89 $ 10.21 $ 10.10 $ 9.47
Income from Investment Operations:
Net investment income (e) 0.19 0.39 0.33 0.40
Net realized and unrealized gain (loss) on
investments and foreign currency --(f) (0.27) 0.15 0.68
------- ------- ------- -------
Total from Investment Operations 0.19 0.12 0.48 1.08
Less Distributions Declared to Shareholders:
From net investment income (0.21) (0.44) (0.37) (0.45)
Net Asset Value, End of Period $ 9.87 $ 9.89 $ 10.21 $ 10.10
Total return (g) 1.96%(h) 1.25% 4.91%(h)(i) 11.78%(h)(i)
Ratios to Average Net Assets/Supplemental Data:
Operating expenses (j) 1.69%(k) 1.72% 1.89%(k) 1.99%(k)
Interest expense -- -- --%(k)(l) --
Expenses (j) 1.69%(k) 1.72% 1.89%(k) 1.99%(k)
Net investment income (j) 3.84%(k) 3.91% 4.46%(k) 4.39%(k)
Waiver/reimbursement -- -- 0.03%(k) 0.11%(k)
Portfolio turnover rate 65%(h) 36% 93%(h) 96%
Net assets, end of period (000's) $24,721 $25,375 $29,534 $32,430
|
(a) On October 13, 2003, the Liberty Income Fund was renamed Columbia Income Fund.
(b) The Fund changed its fiscal year end from June 30 to March 31, effective March 31, 2004.
(c) Per share data and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of income and expenses of the SR&F Income Portfolio, prior to the portfolio liquidation.
(d) Class B shares were initially offered on July 15, 2002. Per share data and total return reflect activity from that date.
(e) Per share data was calculated using average shares outstanding during the period.
(f) Rounds to less than $0.01 per share.
(g) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(h) Not annualized.
(i) Had the Investment Advisor not reimbursed a portion of expenses, total return would have been reduced.
(j) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
(l) Rounds to less than 0.01%.
Selected data for a share outstanding throughout each period is as follows:
(Unaudited)
Six Months Ended Year Ended Period Ended Period Ended
September 30, March 31, March 31, June 30,
Class C Shares 2005 2005 2004(a)(b) 2003(c)(d)
-------------- ---------------- ---------- ------------ ------------
Net Asset Value, Beginning of Period $ 9.89 $ 10.21 $10.10 $ 9.47
Income from Investment Operations:
Net investment income (e) 0.20 0.41 0.34 0.42
Net realized and unrealized gain (loss) on
investments and foreign currency --(f) (0.27) 0.15 0.68
------- ------- ------ ------
Total from Investment Operations 0.20 0.14 0.49 1.10
Less Distributions Declared to Shareholders:
From net investment income (0.22) (0.46) (0.38) (0.47)
Net Asset Value, End of Period $ 9.87 $ 9.89 $10.21 $10.10
Total return (g)(h) 2.04%(i) 1.40% 5.03%(i) 11.94%(i)
Ratios to Average Net Assets/Supplemental Data:
Operating expenses (j) 1.54%(k) 1.57% 1.74%(k) 1.84%(k)
Interest expense -- -- --%(k)(l) --
Expenses (j) 1.54%(k) 1.57% 1.74%(k) 1.84%(k)
Net investment income (j) 3.99%(k) 4.06% 4.52%(k) 4.51%(k)
Waiver/reimbursement 0.15%(k) 0.15% 0.18%(k) 0.23%(k)
Portfolio turnover rate 65%(h) 36% 93%(i) 96%
Net assets, end of period (000's) $12,094 $10,895 $9,185 $5,522
|
(a) On October 13, 2003, the Liberty Income Fund was renamed Columbia Income Fund.
(b) The Fund changed its fiscal year end from June 30 to March 31, effective March 31, 2004.
(c) Per share data and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of income and expenses of the SR&F Income Portfolio, prior to the portfolio liquidation.
(d) Class C shares were initially offered on July 15, 2002. Per share data and total return reflect activity from that date.
(e) Per share data was calculated using average shares outstanding during the period.
(f) Rounds to less than $0.01 per share.
(g) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(h) Had the Investment Advisor or Distributor not reimbursed a portion of expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
(l) Rounds to less than 0.01%.
16. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
17. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
INT-47/107393-0306 March 27, 2006
COLUMBIA WORLD EQUITY FUND
COLUMBIA U.S. TREASURY INDEX FUND
COLUMBIA INCOME FUND
COLUMBIA INTERMEDIATE BOND FUND
(EACH A "FUND" AND COLLECTIVELY, THE "FUNDS")
SUPPLEMENT TO THE PROSPECTUSES DATED AUGUST 1, 2005 (THE "PROSPECTUSES")
The Prospectuses are hereby supplemented with the following revised information relating to hypothetical investment and expense information:
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The charts also assume that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the ""Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the ""Annual Fees and Expenses" amounts shown would be higher.
COLUMBIA WORLD EQUITY FUND -- CLASS A SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
5.75% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.56% -2.51%(2) $ 9,749.22 $ 724.56
2 10.25% 1.56% 0.85% $10,084.59 $ 154.70
3 15.76% 1.56% 4.32% $10,431.50 $ 160.03
4 21.55% 1.56% 7.90% $10,790.35 $ 165.53
5 27.63% 1.56% 11.62% $11,161.53 $ 171.22
6 34.01% 1.56% 15.45% $11,545.49 $ 177.11
7 40.71% 1.56% 19.43% $11,942.66 $ 183.21
8 47.75% 1.56% 23.53% $12,353.48 $ 189.51
9 55.13% 1.56% 27.78% $12,778.44 $ 196.03
10 62.89% 1.56% 32.18% $13,218.02 $ 202.77
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,218.02
TOTAL ANNUAL FEES AND EXPENSES $2,324.68
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
COLUMBIA WORLD EQUITY FUND -- CLASS B SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 2.31% 2.69% $10,269.00 $ 234.11
2 10.25% 2.31% 5.45% $10,545.24 $ 240.40
3 15.76% 2.31% 8.29% $10,828.90 $ 246.87
4 21.55% 2.31% 11.20% $11,120.20 $ 253.51
5 27.63% 2.31% 14.19% $11,419.33 $ 260.33
6 34.01% 2.31% 17.27% $11,726.51 $ 267.33
7 40.71% 2.31% 20.42% $12,041.96 $ 274.53
8 47.75% 2.31% 23.66% $12,365.89 $ 281.91
9 55.13% 1.56% 27.91% $12,791.27 $ 196.23
10 62.89% 1.56% 32.31% $13,231.29 $ 202.98
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,218.02
TOTAL ANNUAL FEES AND EXPENSES $2,324.68
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
COLUMBIA WORLD EQUITY FUND -- CLASS C SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 2.31% 2.69% $10,269.00 $ 234.11
2 10.25% 2.31% 5.45% $10,545.24 $ 240.40
3 15.76% 2.31% 8.29% $10,828.90 $ 246.87
4 21.55% 2.31% 11.20% $11,120.20 $ 253.51
5 27.63% 2.31% 14.19% $11,419.33 $ 260.33
6 34.01% 2.31% 17.27% $11,726.51 $ 267.33
7 40.71% 2.31% 20.42% $12,041.96 $ 274.53
8 47.75% 2.31% 23.66% $12,365.89 $ 281.91
9 55.13% 2.31% 26.99% $12,698.53 $ 289.49
10 62.89% 2.31% 30.40% $13,040.12 $ 297.28
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,231.29
TOTAL ANNUAL FEES AND EXPENSES $2,458.20
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
COLUMBIA U.S. TREASURY INDEX FUND -- CLASS A SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
4.75% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 0.66% -0.62%(2) $ 9,938.39 $ 539.23
2 10.25% 0.66% 3.70% $10,369.71 $ 67.02
3 15.76% 0.66% 8.20% $10,819.76 $ 69.93
4 21.55% 0.66% 12.89% $11,289.33 $ 72.96
5 27.63% 0.66% 17.79% $11,779.29 $ 76.13
6 34.01% 0.66% 22.91% $12,290.51 $ 79.43
7 40.71% 0.66% 28.24% $12,823.92 $ 82.88
8 47.75% 0.66% 33.80% $13,380.48 $ 86.47
9 55.13% 0.66% 39.61% $13,961.19 $ 90.23
10 62.89% 0.66% 45.67% $14,567.11 $ 94.14
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,567.11
TOTAL ANNUAL FEES AND EXPENSES $1,258.41
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
COLUMBIA U.S. TREASURY INDEX FUND -- CLASS B SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.41% 3.59% $10,359.00 $ 143.53
2 10.25% 1.41% 7.31% $10,730.89 $ 148.68
3 15.76% 1.41% 11.16% $11,116.13 $ 154.02
4 21.55% 1.41% 15.15% $11,515.20 $ 159.55
5 27.63% 1.41% 19.29% $11,928.59 $ 165.28
6 34.01% 1.41% 23.57% $12,356.83 $ 171.21
7 40.71% 1.41% 28.00% $12,800.44 $ 177.36
8 47.75% 1.41% 32.60% $13,259.97 $ 183.73
9 55.13% 0.66% 38.35% $13,835.46 $ 89.41
10 62.89% 0.66% 44.36% $14,435.92 $ 93.30
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,435.92
TOTAL ANNUAL FEES AND EXPENSES $1,486.07
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
COLUMBIA U.S. TREASURY INDEX FUND -- CLASS C SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.41% 3.59% $10,359.00 $ 143.53
2 10.25% 1.41% 7.31% $10,730.89 $ 148.68
3 15.76% 1.41% 11.16% $11,116.13 $ 154.02
4 21.55% 1.41% 15.15% $11,515.20 $ 159.55
5 27.63% 1.41% 19.29% $11,928.59 $ 165.28
6 34.01% 1.41% 23.57% $12,356.83 $ 171.21
7 40.71% 1.41% 28.00% $12,800.44 $ 177.36
8 47.75% 1.41% 32.60% $13,259.97 $ 183.73
9 55.13% 1.41% 37.36% $13,736.01 $ 190.32
10 62.89% 1.41% 42.29% $14,229.13 $ 197.15
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,229.13
TOTAL ANNUAL FEES AND EXPENSES $1,690.84
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
COLUMBIA U.S. TREASURY INDEX FUND -- CLASS Z SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 0.43% 4.57% $10,457.00 $ 43.98
2 10.25% 0.43% 9.35% $10,934.88 $ 45.99
3 15.76% 0.43% 14.35% $11,434.61 $ 48.09
4 21.55% 0.43% 19.57% $11,957.17 $ 50.29
5 27.63% 0.43% 25.04% $12,503.61 $ 52.59
6 34.01% 0.43% 30.75% $13,075.03 $ 54.99
7 40.71% 0.43% 36.73% $13,672.56 $ 57.51
8 47.75% 0.43% 42.97% $14,297.39 $ 60.14
9 55.13% 0.43% 49.51% $14,950.78 $ 62.88
10 62.89% 0.43% 56.34% $15,634.04 $ 65.76
TOTAL GAIN AFTER FEES AND EXPENSES $ 5,634.04
TOTAL ANNUAL FEES AND EXPENSES $542.23
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
Columbia Income Fund -- Class A Shares
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
4.75% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 0.93% -0.87%(2) $ 9,912.67 $ 565.39
2 10.25% 0.93% 3.16% $10,316.11 $ 94.06
3 15.76% 0.93% 7.36% $10,735.98 $ 97.89
4 21.55% 0.93% 11.73% $11,172.93 $ 101.88
5 27.63% 0.93% 16.28% $11,627.67 $ 106.02
6 34.01% 0.93% 21.01% $12,100.92 $ 110.34
7 40.71% 0.93% 25.93% $12,593.43 $ 114.83
8 47.75% 0.93% 31.06% $13,105.98 $ 119.50
9 55.13% 0.93% 36.39% $13,639.39 $ 124.37
10 62.89% 0.93% 41.95% $14,194.51 $ 129.43
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,194.51
TOTAL ANNUAL FEES AND EXPENSES $1,563.70
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
COLUMBIA INCOME FUND -- CLASS B SHARES
INITIAL HYPOTHETICAL INVESTMENT
MAXIMUM SALES CHARGE AMOUNT ASSUMED RATE OF RETURN
-------------------- ------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.68% 3.32% $10,332.00 $ 170.79
2 10.25% 1.68% 6.75% $10,675.02 $ 176.46
3 15.76% 1.68% 10.29% $11,029.43 $ 182.32
4 21.55% 1.68% 13.96% $11,395.61 $ 188.37
5 27.63% 1.68% 17.74% $11,773.94 $ 194.62
6 34.01% 1.68% 21.65% $12,164.84 $ 201.09
7 40.71% 1.68% 25.69% $12,568.71 $ 207.76
8 47.75% 1.68% 29.86% $12,985.99 $ 214.66
9 55.13% 0.93% 35.15% $13,514.52 $ 123.23
10 62.89% 0.93% 40.65% $14,064.56 $ 128.24
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,064.56
TOTAL ANNUAL FEES AND EXPENSES $1,787.54
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
COLUMBIA INCOME FUND -- CLASS C SHARES
INITIAL HYPOTHETICAL INVESTMENT
MAXIMUM SALES CHARGE AMOUNT ASSUMED RATE OF RETURN
-------------------- ------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.68% 3.32% $10,332.00 $ 170.79
2 10.25% 1.68% 6.75% $10,675.02 $ 176.46
3 15.76% 1.68% 10.29% $11,029.43 $ 182.32
4 21.55% 1.68% 13.96% $11,395.61 $ 188.37
5 27.63% 1.68% 17.74% $11,773.94 $ 194.62
6 34.01% 1.68% 21.65% $12,164.84 $ 201.09
7 40.71% 1.68% 25.69% $12,568.71 $ 207.76
8 47.75% 1.68% 29.86% $12,985.99 $ 214.66
9 55.13% 1.68% 34.17% $13,417.13 $ 221.79
10 62.89% 1.68% 38.63% $13,862.58 $ 229.15
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,862.58
TOTAL ANNUAL FEES AND EXPENSES $1,987.00
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
COLUMBIA INCOME FUND -- CLASS Z SHARES
INITIAL HYPOTHETICAL INVESTMENT
MAXIMUM SALES CHARGE AMOUNT ASSUMED RATE OF RETURN
-------------------- ------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 0.68% 4.32% $10,432.00 $ 69.47
2 10.25% 0.68% 8.83% $10,882.66 $ 72.47
3 15.76% 0.68% 13.53% $11,352.79 $ 75.60
4 21.55% 0.68% 18.43% $11,843.23 $ 78.87
5 27.63% 0.68% 23.55% $12,354.86 $ 82.27
6 34.01% 0.68% 28.89% $12,888.59 $ 85.83
7 40.71% 0.68% 34.45% $13,445.38 $ 89.54
8 47.75% 0.68% 40.26% $14,026.22 $ 93.40
9 55.13% 0.68% 46.32% $14,632.15 $ 97.44
10 62.89% 0.68% 52.64% $15,264.26 $101.65
TOTAL GAIN AFTER FEES AND EXPENSES $ 5,264.26
TOTAL ANNUAL FEES AND EXPENSES $846.53
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
COLUMBIA INTERMEDIATE BOND FUND -- CLASS A SHARES
INITIAL HYPOTHETICAL INVESTMENT
MAXIMUM SALES CHARGE AMOUNT ASSUMED RATE OF RETURN
-------------------- ------------------------------- ----------------------
4.75% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.04% -0.98%(2) $ 9,902.19 $ 576.02
2 10.25% 1.04% 2.94% $10,294.32 $ 105.02
3 15.76% 1.04% 7.02% $10,701.97 $ 109.18
4 21.55% 1.04% 11.26% $11,125.77 $ 113.50
5 27.63% 1.04% 15.66% $11,566.35 $ 118.00
6 34.01% 1.04% 20.24% $12,024.38 $ 122.67
7 40.71% 1.04% 25.01% $12,500.54 $ 127.53
8 47.75% 1.04% 29.96% $12,995.56 $ 132.58
9 55.13% 1.04% 35.10% $13,510.19 $ 137.83
10 62.89% 1.04% 40.45% $14,045.19 $ 143.29
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,045.19
TOTAL ANNUAL FEES AND EXPENSES $1,685.63
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
(2) Reflects deduction of the maximum initial sales charge.
COLUMBIA INTERMEDIATE BOND FUND -- CLASS B SHARES
INITIAL HYPOTHETICAL INVESTMENT
MAXIMUM SALES CHARGE AMOUNT ASSUMED RATE OF RETURN
-------------------- ------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.69% 3.31% $10,331.00 $ 171.80
2 10.25% 1.69% 6.73% $10,672.96 $ 177.48
3 15.76% 1.69% 10.26% $11,026.23 $ 183.36
4 21.55% 1.69% 13.91% $11,391.20 $ 189.43
5 27.63% 1.69% 17.68% $11,768.25 $ 195.70
6 34.01% 1.69% 21.58% $12,157.78 $ 202.17
7 40.71% 1.69% 25.60% $12,560.20 $ 208.87
8 47.75% 1.69% 29.76% $12,975.94 $ 215.78
9 55.13% 1.04% 34.90% $13,489.79 $ 137.62
10 62.89% 1.04% 40.24% $14,023.98 $ 143.07
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,023.98
TOTAL ANNUAL FEES AND EXPENSES $1,825.28
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
COLUMBIA INTERMEDIATE BOND FUND -- CLASS C SHARES
INITIAL HYPOTHETICAL INVESTMENT
MAXIMUM SALES CHARGE AMOUNT ASSUMED RATE OF RETURN
-------------------- ------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.69% 3.31% $10,331.00 $ 171.80
2 10.25% 1.69% 6.73% $10,672.96 $ 177.48
3 15.76% 1.69% 10.26% $11,026.23 $ 183.36
4 21.55% 1.69% 13.91% $11,391.20 $ 189.43
5 27.63% 1.69% 17.68% $11,768.25 $ 195.70
6 34.01% 1.69% 21.58% $12,157.78 $ 202.17
7 40.71% 1.69% 25.60% $12,560.20 $ 208.87
8 47.75% 1.69% 29.76% $12,975.94 $ 215.78
9 55.13% 1.69% 34.05% $13,405.45 $ 222.92
10 62.89% 1.69% 38.49% $13,849.17 $ 230.30
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,849.17
TOTAL ANNUAL FEES AND EXPENSES $1,997.81
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
COLUMBIA INTERMEDIATE BOND FUND -- CLASS Z SHARES
INITIAL HYPOTHETICAL INVESTMENT
MAXIMUM SALES CHARGE AMOUNT ASSUMED RATE OF RETURN
-------------------- ------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 0.69% 4.31% $10,431.00 $ 70.49
2 10.25% 0.69% 8.81% $10,880.58 $ 73.52
3 15.76% 0.69% 13.50% $11,349.53 $ 76.69
4 21.55% 0.69% 18.39% $11,838.69 $ 80.00
5 27.63% 0.69% 23.49% $12,348.94 $ 83.45
6 34.01% 0.69% 28.81% $12,881.18 $ 87.04
7 40.71% 0.69% 34.36% $13,436.36 $ 90.80
8 47.75% 0.69% 40.15% $14,015.47 $ 94.71
9 55.13% 0.69% 46.20% $14,619.53 $ 98.79
10 62.89% 0.69% 52.50% $15,249.64 $103.05
TOTAL GAIN AFTER FEES AND EXPENSES $ 5,249.64
TOTAL ANNUAL FEES AND EXPENSES $858.54
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
INT-47/106542-0206 February 22, 2006
Class A, B and C Shares
Advised by Columbia Management Advisors, Inc.
THE FUND 2 ------------------------------------------------------------------------------ Investment Goals.......................................................... 2 Principal Investment Strategies........................................... 2 Principal Investment Risks................................................ 3 Performance History....................................................... 5 Your Expenses............................................................. 7 YOUR ACCOUNT 9 ------------------------------------------------------------------------------ How to Buy Shares......................................................... 9 Investment Minimums....................................................... 10 Sales Charges............................................................. 10 How to Exchange Shares.................................................... 15 How to Sell Shares........................................................ 15 Fund Policy on Trading of Fund Shares..................................... 16 Distribution and Service Fees............................................. 17 Other Information About Your Account...................................... 18 |
MANAGING THE FUND 21 ------------------------------------------------------------------------------ Investment Advisor........................................................ 21 Portfolio Managers........................................................ 21 Legal Proceedings......................................................... 21 OTHER INVESTMENT STRATEGIES AND RISKS 23 ------------------------------------------------------------------------------ FINANCIAL HIGHLIGHTS 25 ------------------------------------------------------------------------------ APPENDIX A 28 ------------------------------------------------------------------------------ |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC Insured May Lose Value
No Bank Guarantee
. debt securities issued by the U.S. government; these include U.S. treasury securities and agency securities; agency securities include certain mortgage-backed securities, which represent interests in pools of mortgages,
. debt securities of corporations,
. mortgage-backed securities and asset-backed securities issued by private (non-governmental) entities, and
. dollar-denominated debt securities issued by foreign governments and corporations.
At least 60% of total assets are medium- or higher-quality securities that are at the time of purchase:
. rated at least BBB by Standard & Poor's,
. rated at least Baa by Moody's Investors Service, Inc.,
. given a comparable rating by another nationally recognized rating agency, or
. unrated securities that the advisor believes to be of comparable quality.
The Fund may invest up to 40% of its total assets in lower-rated or comparable unrated debt securities. These securities are sometimes referred to as "junk bonds" and are at the time of purchase:
. rated below BBB by Standard & Poor's,
. rated below Baa by Moody's Investors Service, Inc.,
. given a comparable rating by another nationally recognized rating agency, or
. unrated securities that the advisor believes to be of comparable quality.
The Fund seeks to achieve capital appreciation through purchasing bonds that increase in market value. In addition, to a limited extent, the Fund may seek capital appreciation by using hedging techniques such as futures or options.
The advisor has wide flexibility to vary the allocation among different types of debt securities based on its judgment of which types of securities will outperform the others. In determining whether to buy or sell securities, the advisor evaluates relative values of the various types of securities in which the Fund can invest (e.g., the relative value of corporate debt securities versus mortgage-backed securities under prevailing market conditions), relative values of various rating categories (e.g., relative values of higher-rated securities versus lower-rated securities under prevailing market conditions), and individual issuer characteristics.
The Fund
The Fund may purchase derivative instruments, such as futures, options, swap contracts, and inverse floaters, to gain or reduce exposure to particular securities or segments of the bond markets. Derivatives are financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use derivatives for both hedging and non-hedging purposes, such as to adjust the Fund's sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an opposite position. The Fund typically uses derivatives in an effort to achieve more efficiently economic exposures similar to those it could have achieved through the purchase and sale of fixed income securities.
Investments in derivatives may be applied toward meeting a requirement to invest in a particular kind of investment if the derivatives have economic characteristics similar to investments of that kind.
As part of its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional tax liability.
Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks."
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with similar investment goals. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goals or perform favorably among comparable funds.
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Because the Fund may invest in debt securities issued or supported by private entities, including corporate bonds, mortgage-backed and asset-backed securities, the Fund is subject to issuer risk. Issuer risk is the possibility that changes in the financial condition of the issuer of a security or the entity responsible for payment of a special revenue obligation, changes in general economic conditions, or changes in economic conditions that affect the issuer or the entity responsible for payment of a special revenue obligation may impact its actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and in some cases a decrease in income. The Fund's investments in securities issued by U.S. government-sponsored enterprises, such as the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, are not funded by Congressional appropriations and are neither guaranteed nor insured by the U.S. government. Furthermore, no assurances can be given that the U.S. government would provide financial support to its agencies or instrumentalities where it is not obligated to do so.
Structure risk is the risk that an event will occur (such as a security being prepaid or called) that alters the security's cash flows. Prepayment risk is a particular type of structure risk that is associated with investments in asset-backed and mortgage-backed securities. With respect to investments in mortgage-backed securities, prepayment risk is the possibility that, as prevailing interest rates fall, homeowners are more likely to refinance their home mortgages. When mortgages are refinanced, the principal on mortgage-backed securities is paid
The Fund
earlier than expected. In an environment of declining interest rates, asset-backed and mortgage-backed securities may offer less potential for gain than other debt securities. During periods of rising interest rates, asset-backed and mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the expected life of the security. In addition, the potential impact of prepayment on the price of asset-backed and mortgage-backed securities may be difficult to predict and result in greater volatility.
Lower-rated debt securities, commonly referred to as "junk bonds," involve greater risk of loss due to credit deterioration and are less liquid, especially during periods of economic uncertainty or change, than higher-quality debt securities. Lower-rated debt securities generally have a higher risk that the issuer of the security may default and not make payment of interest or principal.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. The Fund may have limited legal recourse in the event of default with respect to certain debt securities issued by foreign governments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The Fund
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges. The Fund's returns are compared to the Lehman Brothers Intermediate Government/Credit Bond Index (Lehman Intermediate Gov't/Credit Index), an unmanaged index that tracks the performance of intermediate term U.S. government and corporate bonds. The Fund's returns are also compared to the Lehman Brothers Intermediate Credit Bond Index (Lehman Index), the intermediate component of the U.S. Credit Index. The U.S. Credit Index includes publicly issued US corporate and foreign debentures and secured notes that meet specified maturity, liquidity, and quality requirements. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
Calendar Year Total Returns (Class A)/(1)/
[CHART]
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 ----- ---- ---- ---- ---- ---- ---- ---- ----- ---- 19.74% 4.82% 9.58% 4.00% 1.23% 9.76% 8.36% 7.17% 11.54% 5.66% |
The Class's year-to-date For the periods shown in bar chart: total return Best quarter: 2nd quarter 1995, +6.52% through June 30, 2005 Worst quarter: 2nd quarter 2004, -2.47% was 1.80%. |
(1) Class A is a newer class of shares. Its performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer class of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been lower, since Class A shares are subject to a Rule 12b-1 fee. Class A shares were initially offered on July 31, 2000, and Class Z shares were initially offered on March 5, 1986.
The Fund
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2004
1 Year 5 Years 10 Years
Class A (%)
Return Before Taxes 0.66% 7.42%/(1)/ 7.56%/(1)/
Return After Taxes on Distributions -1.15% 4.93%/(1)/ 4.82%/(1)/
Return After Taxes on Distributions and Sale
of Fund Shares -0.39% 4.79%/(1)/ 4.73%/(1)/
-------------------------------------------------------------------------------
Class B (%)
Return Before Taxes -0.13% 7.78%/(1)/ 7.88%/(1)/
Return After Taxes on Distributions -1.75% 5.39%/(1)/ 5.20%/(1)/
Return After Taxes on Distributions and Sale
of Fund Shares -0.11% 5.16%/(1)/ 5.07%/(1)/
-------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 4.03% 8.15%/(1)/ 7.92%/(1)/
Return After Taxes on Distributions 2.35% 5.76%/(1)/ 5.23%/(1)/
Return After Taxes on Distributions and Sale
of Fund Shares 2.59% 5.49%/(1)/ 5.09%/(1)/
-------------------------------------------------------------------------------
Lehman Intermediate Gov't/Credit Index (%) 3.04% 7.21% 7.16%
-------------------------------------------------------------------------------
Lehman Index (%) 4.08% 8.05% 7.91%
|
(1) Class A, Class B and Class C are newer classes of shares. Class A performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to its inception. Class B and Class C performance information includes returns of the Fund's Class A shares for the period from July 31, 2000 through July 15, 2002 and for periods prior thereto, the Fund's Class Z shares (the oldest existing Fund class). These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower, since the newer classes of shares are subject to a Rule 12b-1 fee. Class A shares were initially offered on July 31, 2000, Class B and Class C shares were initially offered on July 15, 2002, and Class Z shares were initially offered on March 5, 1986.
The Fund
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Funds Distributor, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees and other expenses that generally include, but are not limited to, other administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds.
The table does not take into account any expense reduction
arrangements discussed in the footnotes to the Annual Fund
Operating Expenses table. It uses the following
hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class B shares convert to Class A shares after eight
years
Shareholder Fees/(1)/ (paid directly from your investment)
Class A Class B Class C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75 0.00 0.00
-------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00 1.00
-------------------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/ /(3)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 18 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class A Class B Class C
Management fee/(1)/ (%) 0.54 0.54 0.54
--------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00/(2)/
--------------------------------------------------------------------
Other expenses (%) 0.14 0.14 0.14
--------------------------------------------------------------------
Total annual fund operating expenses (%) 0.93 1.68 1.68/(2)/
|
(1) The Fund pays a management fee of 0.41% and administration fee of 0.13%.
Management fees have been restated to reflect contractual changes effective
November 1, 2004.
(2) The Fund's distributor has voluntarily agreed to waive a portion of the
12b-1 fee for Class C shares. If this waiver were reflected in the table
the 12b-1 fee for Class C shares would be 0.85% and total annual fund
operating expenses for Class C shares would be 1.53%. This arrangement may
be modified or terminated by the distributor at any time.
The Fund
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class A $565 $757 $965 $1,564
-----------------------------------------------------------------
Class B: did not sell your shares $171 $530 $913 $1,788
sold all your shares at
the end of the period $671 $830 $1,113 $1,788
-----------------------------------------------------------------
Class C: did not sell your shares $171 $530 $913 $1,987
sold all your shares at
the end of the period $271 $530 $913 $1,987
|
See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Funds Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
-------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Funds Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
-------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging shares you own in a
different fund distributed by Columbia Funds Distributor,
Inc. for shares of the same class (and, in some cases,
certain other classes) of the Fund at no additional cost.
There may be an additional sales charge if exchanging from
a money market fund. To exchange by telephone, call
1-800-422-3737.
-------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
-------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. There may
be an additional sales charge if exchanging from a money
market fund. Be sure to complete the appropriate section of
the account application for this feature.
-------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
|
Your Account
Please see the Statement of Additional Information for more details on investment minimums.
CHOOSING A SHARE CLASS
The Fund offers three classes of shares in this prospectus -- Class A, B and C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. If your financial advisor does not participate in the Class B discount program, purchases of $250,000 or more but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
The Fund also offers an additional class of shares, Class Z shares, exclusively to certain institutional and other investors. Class Z shares are made available through a separate prospectus provided to eligible institutional and other investors.
Class A shares Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
Class A Sales Charges
% of offering
As a % of price
the public As a % retained by
offering of your financial
Amount purchased price investment advisor
Less than $50,000 4.75 4.99 4.25
--------------------------------------------------------------------
$50,000 to less than $100,000 4.50 4.71 4.00
--------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 3.00
--------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.00
--------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
--------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
|
Your Account
Class A shares bought without an initial sales charge in accounts aggregating $1 million to $25 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 18 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $25 million) are subject to a CDSC if redeemed within 18 months of the date of purchase. The 18-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
Purchases Over $1 Million
Amount purchased Commission % Less than $3 million 1.00 --------------------------------------------------------------------- $3 million to less than $5 million 0.80 --------------------------------------------------------------------- $5 million to less than $25 million 0.50 --------------------------------------------------------------------- $25 million or more 0.25 |
The commission to financial advisors for Class A share purchases of $25 million or more is paid over 12 months but only to the extent the shares remain outstanding.
For Class A share purchases by participants in certain group retirement plans offered through a fee-based program, financial advisors receive a 1.00% commission from the distributor on all purchases of less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES Certain investments in Class A, B and C shares are subject to a CDSC, a sales charge applied at the time you sell your shares. You will pay the CDSC only on shares you sell within a certain amount of time after purchase. The CDSC generally declines each year until there is no charge for selling shares. The CDSC is applied to the net asset value at the time of purchase or sale, whichever is lower. For purposes of calculating the CDSC, the start of the holding period is the first day of the month in which the purchase was made. Shares you purchase with reinvested dividends or other distributions are not subject to a CDSC. When you place an order to sell shares, the Fund will automatically sell first those shares not subject to a CDSC and then those you have held the longest.
Reduced Sales Charges for Larger Investments.
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
Statement of Intent You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the
Your Account
Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information. Upon request, a Statement of Intent may apply to purchases made 90 days prior to the date the Statement of Intent is received by the Fund.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
. Individual accounts
. Joint accounts
. Certain IRA accounts
. Certain trusts
. UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission. For purposes of obtaining either breakpoint discount, purchases of Galaxy money market funds are not included.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisors' failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Funds Services, Inc., you will need to provide the foregoing information to a Columbia Funds Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
Your Account
Class B shares Your purchases of Class B shares are at Class B's net asset value. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the applicable chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the charts below.
Purchases of less than $250,000:
Class B Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 5.00
---------------------------------------------
Through second year 4.00
---------------------------------------------
Through third year 3.00
---------------------------------------------
Through fourth year 3.00
---------------------------------------------
Through fifth year 2.00
---------------------------------------------
Through sixth year 1.00
---------------------------------------------
Longer than six years 0.00
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Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
You can pay a lower CDSC and reduce the period during which a CDSC would apply when making purchases of Class B shares through a financial advisor that participates in the Class B share discount program for larger purchases as described in the charts below. Some financial advisors are not able to participate because their record keeping or transaction processing systems are not designed to accommodate these reductions. For non-participating financial advisors, purchases of Class B shares must be less than $250,000. Consult your financial advisor to see whether it participates in the discount program for larger purchases. For participating financial advisors, Rights of Accumulation (as described above) apply, so that if the combined value of the eligible Fund accounts in all classes maintained by you and each member of your immediate family (as defined above), together with the value of your current purchase, is at or above a discount level, your current purchase will be subject to a lower CDSC and the applicable reduced holding period, provided that you have notified your financial advisor in writing of the identity of such other accounts and your relationship to the other account holders. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. This Class B share discount program for larger purchases (as further described in the charts below) is not applicable to Class B shares received by former Galaxy Fund Prime B shareholders in connection with the reorganization of the former Galaxy Fund.
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Purchases of $250,000 to less than $500,000:
Class B Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 3.00
---------------------------------------------
Through second year 2.00
---------------------------------------------
Through third year 1.00
---------------------------------------------
Longer than three years 0.00
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Commission to financial advisors is 2.50%.
Automatic conversion to Class A shares occurs four years after purchase.
Purchases of $500,000 to less than $1 million:
Class B Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 3.00
---------------------------------------------
Through second year 2.00
---------------------------------------------
Through third year 1.00
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Commission to financial advisors is 1.75%.
Automatic conversion to Class A shares occurs three years after purchase.
If you exchange into a fund participating in the Class B share discount program or transfer your fund account from a financial advisor that does not participate in the program to one that does, the exchanged or transferred shares will retain the pre-existing CDSC but any additional purchases of Class B shares which, together with the exchanged or transferred account, exceed the applicable discount level will be subject to the lower CDSC and the reduced holding period for amounts in excess of the discount level. Your financial advisor will receive the lower commission for purchases in excess of the applicable discount level. If you exchange from a participating fund or transfer your account from a financial advisor that does participate in the program into a non-participating fund or to a financial advisor that does not participate in the program, the exchanged or transferred shares will retain the pre-existing CDSC schedule and holding period but all additional purchases of Class B shares will be subject to the higher CDSC and longer holding period of the non-participating fund or applicable to the non-participating financial advisor.
Class C shares Your purchases of Class C shares are at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC. The distributor pays the financial advisor an up-front commission of 1.00% on sales of Class C shares.
Class C Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 1.00
---------------------------------------------
Longer than one year 0.00
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Your Account
When the Fund receives your sales request in "good form," shares will be sold
at the next calculated price. "Good form" means that the Fund's transfer agent
has all information and documentation it deems necessary to effect your order.
For example, when selling shares by letter of instruction, "good form" means
(i) your letter has complete instructions, the proper signatures and Medallion
Signature Guarantees, (ii) you have included any certificates for shares to be
sold, and (iii) any other required documents are attached. For additional
documents required for sales by corporations, agents, fiduciaries, surviving
joint owners and other legal entities, please call 1-800-345-6611. Retirement
plan accounts have special requirements; please call 1-800-799-7526 for more
information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into the same share class (and,
in some cases, certain other classes) of another fund
distributed by Columbia Funds Distributor, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is $
100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
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Your Account
Method Instructions
By mail You may send a signed letter of instruction or stock power
form along with any share certificates to be sold to the
address below. In your letter of instruction, note the
Fund's name, share class, account number, and the dollar
value or number of shares you wish to sell. All account
owners must sign the letter. Signatures must be guaranteed
by either a bank, a member firm of a national stock
exchange or another eligible guarantor that participates in
the Medallion Signature Guarantee Program for amounts over
$100,000 or for alternate payee or mailing instructions.
Additional documentation is required for sales by
corporations, agents, fiduciaries, surviving joint owners
and individual retirement account owners. For details, call
1-800-345-6611.
Mail your letter of instruction to Columbia Funds Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
----------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
----------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. This feature is not
available if you hold your shares in certificate form. All
dividend and capital gains distributions must be
reinvested. Be sure to complete the appropriate section of
the account application for this feature.
----------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market Fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-
Your Account
round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Additional Intermediary Compensation In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial
Your Account
institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub- transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which the Fund shares are priced. If a security is valued at a "fair value" that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the transfer agent.
Your Account
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
----------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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UNDERSTANDING FUND DISTRIBUTIONS
The Fund may earn income from the securities it holds. The Fund also may realize capital gains or losses on sales of its securities. The Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of the Fund's income and capital gains based on the number of shares you own at the time these distributions are declared.
Distribution Options The Fund declares any dividends daily and pays them monthly, and declares and pays any capital gains (including short-term capital gains) at least annually. Shares begin to earn dividends on the date on which a purchase order is settled by payment. Shares stop earning dividends at the close of business on the day before the date on which a redemption order is settled. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution
Your Account
which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.45% of average daily net assets of the Fund. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the fiscal year ended March 31, 2005.
Thomas A. LaPointe, a vice president of Columbia Management, is a co-manager for the Fund and has co-managed the Fund since March, 2003. Mr. LaPointe has been associated with Columbia Management or its predecessors since February, 1999.
Carl W. Pappo, a senior vice president of Columbia Management, is a co-manager for the Fund and has co-managed the Fund since March, 2005. Mr. Pappo has been associated with Columbia Management or its predecessors since January, 1993.
Marie M. Schofield, a senior vice president of Columbia Management, is a co-manager for the Fund and has co-managed the Fund since March, 2005. Ms. Schofield has been associated with Columbia Management or its predecessor since 1990.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership, of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight
Managing the Fund
structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC, to reduce certain Columbia Funds, Nations Funds and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant, who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the Funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the fund or its shareholders can not currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Columbia Funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL"). The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, removal of the trustees of the funds, removal of Columbia Management and CFD, disgorgement of all management fees and monetary damages. The MDL is ongoing.
On January 11, 2005, a putative class action lawsuit was filed in federal district court in Massachusetts against, among others, the Trustees of the Funds and Columbia. The lawsuit alleges that defendants violated common law duties to fund shareholders as well as sections of the Investment Company Act of 1940, by failing to ensure that the Funds and other affiliated funds participated in securities class action settlements for which the funds were eligible. Specifically, plaintiffs allege that defendants failed to submit proof of claims in connection with settlements of securities class action lawsuits filed against companies in which the funds held positions.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits seek damages and allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as IN RE COLUMBIA ENTITIES LITIGATION. The plaintiffs filed a consolidated amended complaint on June 9, 2005.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has conditionally ordered its transfer to the MDL.
The Fund's principal investment strategies and their associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goals, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The advisor may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goals. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goals or any of its investment strategies.
Most mortgage securities are pooled together and structured as pass-throughs. Monthly payments of principal and interest from the underlying mortgage loans backing the pool are collected by a servicer and "passed through" regularly to the investor. Pass-throughs can have a fixed or an adjustable rate. The majority of pass-through securities are issued by three agencies: Ginnie Mae, Fannie Mae and Freddie Mac. These securities involve prepayment risk, which is the possibility that the underlying debt may be refinanced or prepaid prior to maturity during periods of declining interest rates. A decline in interest rates may lead to a faster rate of repayment on mortgage-backed securities and, therefore, cause the Fund to earn a lower interest rate on reinvestment. In addition, the potential impact of prepayment on the price of a mortgage-backed security may be difficult to predict and result in greater volatility. During periods of rising interest rates, mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the maturity of the securities.
Other Investment Strategies and Risks
Commercial mortgage-backed securities are secured by loans to commercial properties such as office buildings, multi-family apartment buildings, and shopping centers. These loans usually contain prepayment penalties that provide protection from refinancing in a declining interest rate environment.
Real estate mortgage investment conduits (REMICs) are multi-class securities that qualify for special tax treatment under the Internal Revenue Code. REMICs invest in certain mortgages that are secured principally by interests in real property such as single family homes.
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the fiscal year ended March 31, 2005 and the Fund's prior fiscal years, which ran from July 1 to June 30, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information is included in the financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the periods ended June 30, 2003, 2002, and 2001 has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
The Fund
Year Ended Period Ended Period Ended
March 31, March 31, Year Ended June 30, June 30,
2005 2004/(a)(b)/ 2003/(c)/ 2002/(c)/ 2001/(c)(d)/
Class A Class A Class A Class A Class A
---------- ------------ -------- -------- ------------
Net asset value --
Beginning of period ($) 10.21 10.10 9.44 9.54 9.21
--------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(e)/ 0.47 0.39 0.45 0.60/(f)/ 0.61
Net realized and unrealized gain (loss) on investments
and foreign currency (0.27) 0.15 0.75 (0.08)/(f)/ 0.32
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Total from Investment Operations 0.20 0.54 1.20 0.52 0.93
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Less Distributions Declared
to Shareholders ($):
From net investment income (0.52) (0.43) (0.54) (0.62) (0.60)
Return of capital -- -- -- --/(g)/ --
--------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.52) (0.43) (0.54) (0.62) (0.60)
--------------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 9.89 10.21 10.10 9.44 9.54
--------------------------------------------------------------------------------------------------------------------------------
Total return (%)/(h)/ 2.00 5.50/(i)(j)/ 13.18/(i)/ 5.53 10.41/(j)/
--------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data (%):
Operating expenses/(k)/ 0.97 1.14/(l)/ 1.23 1.10 1.12/(l)/
Interest expense -- --/(l)(m)/ -- -- --
Expenses/(k)/ 0.97 1.14/(l)/ 1.23 1.10 1.12/(l)/
Net investment income/(k)/ 4.66 5.20/(l)/ 5.12 6.32/(f)/ 7.08/(l)/
Waiver/reimbursement -- 0.03/(l)/ 0.05 -- --
Portfolio turnover rate (%) 36 93/(j)/ 96 136/(n)/ 128/(n)/
Net assets, end of period (000's)($) 96,568 92,053 89,740 204 1
|
(a) On October 13, 2003, the Liberty Income Fund was renamed Columbia Income
Fund.
(b) The Fund changed its fiscal year end from June 30 to March 31, effective
March 31, 2004.
(c) Per share data and ratios reflect income and expenses assuming inclusion of
the Fund's proportionate share of income and expenses of the SR&F Income
Portfolio, prior to the portfolio liquidation.
(d) Class A shares were initially offered on July 31, 2000. Per share data and
total return reflect activity from that date.
(e) Per share data was calculated using average shares outstanding during the
period.
(f) Effective July 1, 2001, the SR&F Income Portfolio adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premium and accreting discount on all debt securities. The
effect of this change for the year ended June 30, 2002, was to decrease net
investment income per share by $0.01, decrease net realized and unrealized
loss per share by $0.01 and decrease the ratio of net investment income to
average net assets from 6.40% to 6.32%. Per share data and ratios for
periods prior to June 30, 2002 have not been restated to reflect this
change in presentation.
(g) Rounds to less than $0.01 per share.
(h) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(i) Not annualized.
(j) Had the investment advisor not reimbursed a portion of expenses, total
return would have been reduced.
(k) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(l) Annualized.
(m) Rounds to less than 0.01%.
(n) Portfolio turnover disclosed is for the SR&F Income Portfolio.
Financial Highlights
The Fund
Year Ended Period Ended Period Ended
March 31, March 31, June 30,
2005 2004/(a)(b)/ 2003/(c)(d)/
Class B Class B Class B
---------- ------------ ------------
Net asset value --
Beginning of period ($) 10.21 10.10 9.47
------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(e)/ 0.39 0.33 0.40
Net realized and unrealized gain on investments and foreign currency (0.27) 0.15 0.68
------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.12 0.48 1.08
------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.44) (0.37) (0.45)
------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 9.89 10.21 10.10
------------------------------------------------------------------------------------------------------------------------
Total Return (%)/(f)/ 1.25 4.91/(g)(h)/ 11.78/(g)(h)/
------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data (%):
Operating expenses/(i)/ 1.72 1.89/(j)/ 1.99/(j)/
Interest expense -- --/(j)(k)/ --
Expenses/(i)/ 1.72 1.89/(j)/ 1.99/(j)/
Net investment income/(i)/ 3.91 4.46/(j)/ 4.39/(j)/
Waiver/reimbursement -- 0.03/(j)/ 0.11/(j)/
Portfolio turnover rate (%) 36 93/(g)/ 96
Net assets, end of period (000's) ($) 25,375 29,534 32,430
|
(a) On October 13, 2003, the Liberty Income Fund was renamed Columbia Income
Fund.
(b) The Fund changed its fiscal year end from June 30 to March 31, effective
March 31, 2004.
(c) Per share data and ratios reflect income and expenses assuming inclusion of
the Fund's proportionate share of income and expenses of the SR&F Income
Portfolio, prior to the portfolio liquidation.
(d) Class B shares were initially offered on July 15, 2002. Per share data and
total return reflect activity from that date.
(e) Per share data was calculated using average shares outstanding during the
period.
(f) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(g) Not annualized.
(h) Had the investment advisor not reimbursed a portion of expenses, total
return would have been reduced.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
(k) Rounds to less than 0.01%.
Financial Highlights
The Fund
Year Ended Period Ended Period Ended
March 31, March 31, June 30,
2005 2004/(a)(b)/ 2003/(c)(d)/
Class C Class C Class C
---------- ------------ ------------
Net asset value --
Beginning of period ($) 10.21 10.10 9.47
-------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(e)/ 0.41 0.34 0.42
Net realized and unrealized gain on investments and foreign currency (0.27) 0.15 0.68
-------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.14 0.49 1.10
-------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.46) (0.38) (0.47)
-------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 9.89 10.21 10.10
-------------------------------------------------------------------------------------------------------------------
Total return (%)/(f)(g)/ 1.40 5.03/(h)/ 11.94/(h)/
-------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data (%):
Operating expenses/(i)/ 1.57 1.74/(j)/ 1.84/(j)/
Interest expense -- --/(j)(k)/ --
Expenses/(i)/ 1.57 1.74/(j)/ 1.84/(j)/
Net investment income/(i)/ 4.06 4.52/(j)/ 4.51/(j)/
Waiver/reimbursement 0.15 0.18/(j)/ 0.23/(j)/
Portfolio turnover rate (%) 36 93/(h)/ 96
Net assets, end of period (000's) ($) 10,895 9,185 5,522
|
(a) On October 13, 2003, the Liberty Income Fund was renamed Columbia Income
Fund.
(b) The Fund changed its fiscal year end from June 30 to March 31, effective
March 31, 2004.
(c) Per share data and ratios reflect income and expenses assuming inclusion of
the Fund's proportionate share of income and expenses of the SR&F Income
Portfolio, prior to the portfolio liquidation.
(d) Class C shares were initially offered on July 15, 2002. Per share data and
total return reflect activity from the date.
(e) Per share data was calculated using average shares outstanding during the
period.
(f) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(g) Had the investment advisor/distributor not reimbursed a portion of
expenses, total return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
(k) Rounds to less than 0.01%.
Class A Shares/(1)/
Annual Expense Ratio Initial Hypothetical Investment Amount Assumed Rate of Return
0.93% $10,000.00 5%
|
Hypothetical Year- Hypothetical Year-
Cumulative Return End Balance Before Cumulative Return End Balance After Annual Fees &
Year Before Fees & Expenses Fees & Expenses After Fees & Expenses Fees & Expenses Expenses
1 5.00% $ 9,896.25 4.07% $ 9,808.60 $ 664.44
2 10.25% $10,391.06 8.31% $10,207.81 $ 93.08
3 15.76% $10,910.62 12.71% $10,623.27 $ 96.86
4 21.55% $11,456.15 17.30% $11,055.63 $ 100.81
5 27.63% $12,028.95 22.08% $11,505.60 $ 104.91
6 34.01% $12,630.40 27.04% $11,973.87 $ 109.18
7 40.71% $13,261.92 32.21% $12,461.21 $ 113.62
8 47.75% $13,925.02 37.60% $12,968.38 $ 118.25
9 55.13% $14,621.27 43.20% $13,496.20 $ 123.06
10 62.89% $15,352.33 49.02% $14,045.49 $ 128.07
-----------------------------------------------------------------------------------------------------------
Total Gain Before Fees & Expenses $ 5,927.33
-----------------------------------------------------------------------------------------------------------
Total Gain After Fees & Expenses $ 4,620.49
-----------------------------------------------------------------------------------------------------------
Total Annual Fees & Expenses Paid $1,652.27
-----------------------------------------------------------------------------------------------------------
|
(1) For Class A shares, the year one Annual Fees & Expenses and Hypothetical Year-End Balance Before Fees & Expenses information shown include the dollar amount and effect of any applicable front-end sales charge of the Fund.
Class B Shares
Annual Expense Ratio Initial Hypothetical Investment Amount Assumed Rate of Return
1.68% $10,000.00 5%
|
Hypothetical Year- Hypothetical Year-
Cumulative Return End Balance Before Cumulative Return End Balance After Annual Fees &
Year Before Fees & Expenses Fees & Expenses After Fees & Expenses Fees & Expenses Expenses
1 5.00% $10,500.00 3.32% $10,332.00 $ 170.79
2 10.25% $11,025.00 6.75% $10,675.02 $ 176.46
3 15.76% $11,576.25 10.29% $11,029.43 $ 182.32
4 21.55% $12,155.06 13.96% $11,395.61 $ 188.37
5 27.63% $12,762.82 17.74% $11,773.94 $ 194.62
6 34.01% $13,400.96 21.65% $12,164.84 $ 201.09
7 40.71% $14,071.00 25.69% $12,568.71 $ 207.76
8 47.75% $14,774.55 29.86% $12,985.99 $ 214.66
9 55.13% $15,513.28 35.15% $13,514.52 $ 123.23
10 62.89% $16,288.95 40.65% $14,064.56 $ 128.24
-----------------------------------------------------------------------------------------------------------
Total Gain Before Fees & Expenses $ 6,288.95
-----------------------------------------------------------------------------------------------------------
Total Gain After Fees & Expenses $ 4,064.56
-----------------------------------------------------------------------------------------------------------
Total Annual Fees & Expenses Paid $1,787.54
-----------------------------------------------------------------------------------------------------------
|
Appendix A
Class C Shares
Annual Expense Ratio Initial Hypothetical Investment Amount Assumed Rate of Return
1.68% $10,000.00 5%
|
Hypothetical Year- Hypothetical Year-
Cumulative Return End Balance Before Cumulative Return End Balance After Annual Fees &
Year Before Fees & Expenses Fees & Expenses After Fees & Expenses Fees & Expenses Expenses
1 5.00% $10,500.00 3.32% $10,332.00 $ 170.79
2 10.25% $11,025.00 6.75% $10,675.02 $ 176.46
3 15.76% $11,576.25 10.29% $11,029.43 $ 182.32
4 21.55% $12,155.06 13.96% $11,395.61 $ 188.37
5 27.63% $12,762.82 17.74% $11,773.94 $ 194.62
6 34.01% $13,400.96 21.65% $12,164.84 $ 201.09
7 40.71% $14,071.00 25.69% $12,568.71 $ 207.76
8 47.75% $14,774.55 29.86% $12,985.99 $ 214.66
9 55.13% $15,513.28 34.17% $13,417.13 $ 221.79
10 62.89% $16,288.95 38.63% $13,862.58 $ 229.15
-----------------------------------------------------------------------------------------------------------
Total Gain Before Fees & Expenses $ 6,288.95
-----------------------------------------------------------------------------------------------------------
Total Gain After Fees & Expenses $ 3,862.58
-----------------------------------------------------------------------------------------------------------
Total Annual Fees & Expenses Paid $1,987.00
-----------------------------------------------------------------------------------------------------------
|
Notes
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust VIII: 811-4552
. Columbia Income Fund
[LOGO] ColumbiaFunds
A Member of Columbia Management Group
(C)2005 Columbia Funds Distributor, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com
PRO-36/88316-0705
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED AUGUST 1, 2005
COLUMBIA INCOME FUND (THE "FUND")
CLASS Z SHARES
(REPLACING SUPPLEMENTS DATED AUGUST 19, 2005 AND FEBRUARY 17, 2006)
The Fund's Prospectus is hereby supplemented with the following information:
1. The fifth paragraph under the heading "PRINCIPAL INVESTMENT STRATEGIES" is revised in its entirety as follows:
The advisor has wide flexibility to vary the allocation among different types of debt securities based on its judgment of which types of securities will outperform the others. In determining whether to buy or sell securities, the advisor evaluates relative values of the various types of securities in which the Fund can invest (e.g., the relative value of corporate debt securities versus mortgage-backed securities under prevailing market conditions), relative values of various rating categories (e.g., relative values of higher-rated securities versus lower-rated securities under prevailing market conditions), and individual issuer characteristics. The Fund may participate in mortgage dollar rolls.
2. The section under the heading "PRINCIPAL INVESTMENT RISKS" is revised to include the following:
Mortgage dollar rolls are transactions in which the Fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase similar securities in the future at a predetermined price. These transactions simulate an investment in mortgage-backed securities and have the potential to enhance the Fund's returns and reduce its administrative burdens, compared with holding mortgage-backed securities directly. Mortgage dollar rolls involve the risks that the market value of the securities the Fund is obligated to repurchase may decline below the repurchase price, or that the other party may default on its obligations. These transactions may increase the Fund's portfolio turnover rate.
3. The section entitled "Eligible Investors" was revised in its entirety as follows:
Only Eligible Investors may purchase Class Z shares of the Fund, directly or by exchange. Class Z shares of the Fund generally are available only to certain "grandfathered" shareholders and to investors holding accounts with intermediaries that assess account level fees for the services they provide. Please read the following section for a more detailed description of the eligibility requirements. The Eligible Investors described below are subject to different minimum initial investment requirements.
IMPORTANT THINGS TO CONSIDER WHEN DECIDING ON A CLASS OF SHARES:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by an intermediary. Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
NO MINIMUM INITIAL INVESTMENT
- Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
- Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts (IRAs)), for which an intermediary or other entity provides services and is not compensated by the Funds for those services, other than payments for shareholder servicing or sub-accounting performed in place of a Fund's transfer agent;
- Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
- Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
$1,000 MINIMUM INITIAL INVESTMENT
- Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of a fund distributed by Columbia Management Distributors, Inc. ("CMD") (i) who holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005; (iii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iv) who purchased certain noload shares of a fund merged with a fund distributed by CMD;
- Any trustee or director (or family member of a trustee or director) of any fund distributed by CMD;
- Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary;
- Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Funds for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement);
- Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an accredited investor, as defined under the Securities Act of 1933; or
- Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations, purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries.
The Funds reserve the right to change the criteria for eligible investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Funds also reserve the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
4. Columbia Funds Distributor, Inc. (the Funds' distributor) and Columbia Funds Services, Inc. (the Funds' transfer agent) changed their names to Columbia Management Distributors, Inc. and Columbia Management Services, Inc., respectively.
5. The section entitled "LEGAL PROCEEDINGS" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
6. The "Calendar Year Total Returns" and "Average Annual Total Returns" tables for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS
CLASS Z
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ---- ---- ---- ---- ---- ---- ---- ----- ---- ---- 4.82% 9.58% 4.00% 1.23% 9.82% 8.65% 7.61% 11.97% 6.03% 2.19% |
For the periods shown above:
Best quarter: 2nd quarter 2003, +6.08%
Worst quarter: 2nd quarter 2004, -2.37%
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2005
INCEPTION
DATE 1 YEAR 5 YEARS 10 YEARS
--------- ------ ------- --------
Class Z (%) 3/5/86
Return Before Taxes 2.19 7.24 6.54
Return After Taxes on Distributions 0.28 4.88 3.87
Return After Taxes on Distributions and Sale of Fund
Shares 1.41 4.76 3.90
Lehman Brothers Intermediate Gov't/Credit Index (%) 1.58 5.50 5.80
Lehman Brothers Intermediate Credit Bond Index (%) 1.42 6.41 6.20
|
7. The section entitled "FINANCIAL HIGHLIGHTS" is updated and restated in its entirety as follows:
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the fiscal year ended March 31, 2005 and the Fund's prior fiscal years, which ran from July 1 to June 30, unless otherwise indicated. The Fund did not have separate classes of shares prior to July 31, 2000. On that date, the Fund's outstanding shares were redesignated as Class S shares and on July 15, 2002, Class S shares were redesignated as Class Z shares. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). Information for the six-month period ended September 30, 2005 is unaudited. Other information has been derived from the Fund's financial statements which, for the fiscal year ended March 31, 2005 and for the period ended March 31, 2004, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the years ended June 30, 2003, 2002 and 2001 has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
Selected data for a share outstanding throughout each period is as follows:
(Unaudited)
---------------------------------------------------------------------------------
Six Months Year Period Year
Ended Ended Ended Ended June 30,
September 30, March 31, March 31, -----------------------------------
Class Z Shares 2005 2005 2004(a)(b) 2003(c)(d) 2002 (d) 2001 (d)
-------------- ------------- --------- --------------- ---------- -------- --------
Net Asset Value, Beginning of Period $ 9.89 $ 10.21 $ 10.10 $ 9.44 $ 9.54 $ 9.15
Income from Investment Operations:
Net investment income (e) 0.24 0.49 0.41 0.53 0.63(g) 0.69
Net realized and unrealized gain (loss)
on investments and foreign currency --(f) (0.26) 0.16 0.71 (0.09)(g) 0.39
-------- -------- -------- -------- -------- --------
Total from Investment Operations 0.24 0.23 0.57 1.24 0.54 1.08
Less Distributions Declared to Shareholders:
From net investment income (0.26) (0.55) (0.46) (0.58) (0.64) (0.69)
Return of capital -- -- -- -- --(f) --
-------- -------- -------- -------- -------- --------
Total Distributions Declared to
Shareholders (0.26) (0.55) (0.46) (0.58) (0.64) (0.69)
|
Net Asset Value, End of Period $ 9.87 $ 9.89 $ 10.21 $ 10.10 $ 9.44 $ 9.54 Total return (h) 2.47%(i) 2.33% 5.80%(i)(j) 13.61% 5.80% 12.20% Ratios to Average Net Assets/ Supplemental Data: Operating expenses (k) 0.69%(l) 0.72% 0.82%(l) 0.84% 0.85% 0.86% Interest expense -- -- --%(l)(m) -- -- -- Expenses (k) 0.69%(l) 0.72% 0.82%(l) 0.84% 0.85% 0.86% Net investment income (k) 4.84%(l) 4.91% 5.46%(l) 5.51% 6.57%(g) 7.32% Waiver/reimbursement -- -- 0.02%(l) -- -- -- Portfolio turnover rate 65%(i) 36% 93%(i) 96% 136%(n) 128%(n) Net assets, end of period (000's) $304,610 $533,965 $425,402 $427,959 $327,121 $266,091 |
(a) On October 13, 2003, the Liberty Income Fund was renamed Columbia Income Fund.
(b) The Fund changed its fiscal year end from June 30 to March 31, effective March 31, 2004.
(c) Effective July 15, 2002, the Stein Roe Income Fund's Class S shares were redesignated Liberty Income Fund Class Z shares.
(d) Per share data and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of income and expenses of the SR&F Income Portfolio, prior to the portfolio liquidation.
(e) Per share data was calculated using average shares outstanding during the period.
(f) Rounds to less than $0.01 per share.
(g) Effective July 1, 2001, the SR&F Income Portfolio adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended June 30, 2002, was to decrease net investment income per share by $0.01, decrease net realized and unrealized loss per share by $0.01 and decrease the ratio of net investment income to average net assets from 6.65% to 6.57%. Per share data and ratios for periods prior to June 30, 2002 have not been restated to reflect this change in presentation.
(h) Total return at net asset value assuming all distributions reinvested.
(i) Not annualized.
(j) Had the Investment Advisor not reimbursed a portion of expenses, total return would have been reduced.
(k) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(l) Annualized.
(m) Rounds to less than 0.01%.
(n) Portfolio turnover disclosed is for the SR&F Income Portfolio.
8. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
9. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
INT-47/107394-0306 March 27, 2006
Class Z Shares
Advised by Columbia Management Advisors, Inc.
THE FUND 2 -------------------------------------------- Investment Goals........................ 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 3 Performance History..................... 4 Your Expenses........................... 6 YOUR ACCOUNT 7 -------------------------------------------- How to Buy Shares....................... 7 Eligible Investors...................... 8 Sales Charges........................... 9 How to Exchange Shares.................. 9 How to Sell Shares...................... 10 Fund Policy on Trading of Fund Shares... 11 Intermediary Compensation............... 12 |
Other Information About Your Account.... 12 MANAGING THE FUND 15 -------------------------------------------- Investment Advisor...................... 15 Portfolio Managers...................... 15 Legal Proceedings....................... 15 OTHER INVESTMENT STRATEGIES AND RISKS 17 -------------------------------------------- FINANCIAL HIGHLIGHTS 19 -------------------------------------------- APPENDIX A 21 -------------------------------------------- |
Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC Insured May Lose Value
No Bank Guarantee
. debt securities issued by the U.S. government; these include U.S. treasury securities and agency securities; agency securities include certain mortgage-backed securities, which represent interests in pools of mortgages,
. debt securities of corporations,
. mortgage-backed securities and asset-backed securities issued by private (non-governmental) entities, and
. dollar-denominated debt securities issued by foreign governments and corporations.
At least 60% of total assets are medium- or higher-quality securities that are at the time of purchase:
. rated at least BBB by Standard & Poor's,
. rated at least Baa by Moody's Investors Service, Inc.,
. given a comparable rating by another nationally recognized rating agency, or
. unrated securities that the advisor believes to be of comparable quality.
The Fund may invest up to 40% of its total assets in lower-rated or comparable unrated debt securities. These securities are sometimes referred to as "junk bonds" and are at the time of purchase:
. rated below BBB by Standard & Poor's,
. rated below Baa by Moody's Investors Service, Inc.,
. given a comparable rating by another nationally recognized rating agency, or
. unrated securities that the advisor believes to be of comparable quality.
The Fund seeks to achieve capital appreciation through purchasing bonds that increase in market value. In addition, to a limited extent, the Fund may seek capital appreciation by using hedging techniques such as futures or options.
The advisor has wide flexibility to vary the allocation among different types of debt securities based on its judgment of which types of securities will outperform the others. In determining whether to buy or sell securities, the advisor evaluates relative values of the various types of securities in which the Fund can invest (e.g., the relative value of corporate debt securities versus mortgage-backed securities under prevailing market conditions), relative values of various rating categories (e.g., relative values of higher-rated securities versus lower-rated securities under prevailing market conditions), and individual issuer characteristics.
The Fund may purchase derivative instruments, such as futures, options, swap contracts, and inverse floaters, to gain or reduce exposure to particular securities or segments of the bond markets. Derivatives are financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency.
The Fund
The Fund may use derivatives for both hedging and non-hedging purposes, such as to adjust the Fund's sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an opposite position. The Fund typically uses derivatives in an effort to achieve more efficiently economic exposures similar to those it could have achieved through the purchase and sale of fixed income securities. Investments in derivatives may be applied toward meeting a requirement to invest in a particular kind of investment if the derivatives have economic characteristics similar to investments of that kind.
As part of its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional tax liability.
Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks."
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with similar investment goals. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goals or perform favorably among comparable funds.
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Because the Fund may invest in debt securities issued or supported by private entities, including corporate bonds, mortgage-backed and asset-backed securities, the Fund is subject to issuer risk. Issuer risk is the possibility that changes in the financial condition of the issuer of a security or the entity responsible for payment of a special revenue obligation, changes in general economic conditions, or changes in economic conditions that affect the issuer or the entity responsible for payment of a special revenue obligation may impact its actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and in some cases a decrease in income. The Fund's investments in securities issued by U.S. government-sponsored enterprises, such as the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, are not funded by Congressional appropriations and are neither guaranteed nor insured by the U.S. government. Furthermore, no assurances can be given that the U.S. government would provide financial support to its agencies or instrumentalities where it is not obligated to do so.
Structure risk is the risk that an event will occur (such as a security being prepaid or called) that alters the security's cash flows. Prepayment risk is a particular type of structure risk that is associated with investments in asset-backed and mortgage-backed securities. With respect to investments in mortgage-backed securities, prepayment risk is the possibility that, as prevailing interest rates fall, homeowners are more likely to refinance their home mortgages. When mortgages are refinanced, the principal on mortgage-backed securities is paid earlier than expected. In an environment of declining interest rates, asset-backed and mortgage-backed securities may offer less potential for gain than other debt securities. During periods of rising interest rates, asset-backed and mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the expected life of the security. In addition, the potential impact of prepayment on the price of asset-backed and mortgage-backed securities may be difficult to predict and result in greater volatility.
The Fund
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
Lower-rated debt securities, commonly referred to as "junk bonds," involve greater risk of loss due to credit deterioration and are less liquid, especially during periods of economic uncertainty or change, than higher-quality debt securities. Lower-rated debt securities generally have a higher risk that the issuer of the security may default and not make payment of interest or principal.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. The Fund may have limited legal recourse in the event of default with respect to certain debt securities issued by foreign governments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The Fund
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class Z share performance for each of the last ten complete calendar years. They include the effects of Fund expenses.
Average Annual Total Returns are a measure of the Fund's Class Z average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses.
Calendar Year Total Returns (Class Z)
[CHART]
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 ----- ---- ---- ---- ---- ---- ---- ---- ----- ---- 19.74% 4.82% 9.58% 4.00% 1.23% 9.82% 8.65% 7.61% 11.97% 6.03% |
The Class's year-to-date total return through For the periods shown in bar chart:
June 30, 2005 was 1.92%. Best quarter: 2nd quarter 1995, +6.52%
Worst quarter: 2nd quarter 2004, -2.37%
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After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2004
Inception
Date 1 Year 5 Years 10 Years
Class Z (%) 3/5/86
Return Before Taxes 6.03 8.80 8.24
Return After Taxes on Distributions 3.99 6.16 5.43
Return After Taxes on Distributions and Sale of Fund Shares 3.88 5.89 5.29
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Lehman Intermediate Gov't/Credit Index (%) N/A 3.04 7.21 7.16
------------------------------------------------------------------------------------------------
Lehman Index (%) N/A 4.08 8.05 7.91
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The Fund
UNDERSTANDING EXPENSES
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees and other expenses that generally include, but are not limited to, other administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
Shareholder Fees/(1)/ (paid directly from your investment)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 ---------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 ---------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) /(2)/ |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
Annual Fund Operating Expenses (deducted directly from Fund assets)
Management fee/(1)/ (%) 0.54 ---------------------------------------------- Distribution and service (12b-1) fees (%) 0.00 ---------------------------------------------- Other expenses (%) 0.14 ---------------------------------------------- Total annual fund operating expenses (%) 0.68 |
(1) The Fund pays a management fee of 0.41% and an administration fee of 0.13%. Management fees have been restated to reflect contractual changes effective November 1, 2004.
Example Expenses (your actual costs may be higher or lower)
1 Year 3 Years 5 Years 10 Years $69 $218 $379 $847 |
See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For new accounts, send a completed application and check
(new account) made payable to the Fund to Columbia Funds Services, Inc.,
P.O. Box 8081, Boston, MA 02266-8081.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Funds Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging shares you own in a
different fund distributed by Columbia Funds Distributor,
Inc. for shares of the same class or Class A of the Fund at
no additional cost. To exchange by telephone, call
1-800-422-3737. Please see "How to Exchange Shares" for
more information.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. Be sure to
complete the appropriate section of the account application
for this feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at
no additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
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Your Account
Important things to consider when deciding on a Class of shares:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by an intermediary. Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
No minimum initial investment
. Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
. Any group retirement plan, including defined benefit and defined contribution plans such as 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts (IRAs)), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
. Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
. Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
$1,000 minimum initial investment
. Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of a fund distributed by Columbia Funds Distributor, Inc.
Your Account
(i) who holds Class Z shares; (ii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iii) who purchased certain no-load shares of a fund merged with a fund distributed by Columbia Funds Distributor, Inc.;
. Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Funds Distributor, Inc. ;
. Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary;
. Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement); or
. Any insurance company, trust company, bank, endowment, investment company or foundation purchasing shares for its own account.
The Fund reserves the right to change the criteria for Eligible Investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $50 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
CHOOSING A SHARE CLASS
The Fund offers one class of shares in this prospectus -- Class Z.
The Fund also offers three additional classes of shares -- Class A, B and C shares are available through a separate prospectus. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you. In general, anyone who is eligible to purchase Class Z shares, which do not incur Rule 12b-1 fees or sales charges, should do so in preference over other classes.
Your Account
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all the information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" also means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, and (ii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
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By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into Class Z shares or Class A
shares (only if Class Z is not offered) of another fund
distributed by Columbia Funds Distributor, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is
$100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign
the letter. Signatures must be guaranteed by either a bank,
a member firm of a national stock exchange or another
eligible guarantor that participates in the Medallion
Signature Guarantee Program for amounts over $100,000 or
for alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Funds Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
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By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. All dividend and
capital gains distributions must be reinvested. Be sure to
complete the appropriate section of the account application
for this feature.
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By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
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Your Account
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market Fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
Your Account
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will
Your Account
not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which the Fund shares are priced. If a security is valued at a "fair value" that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for Class Z shares.
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
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Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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Distribution Options The Fund declares any dividends daily and pays them monthly, and declares and pays any capital gains (including short-term capital gains) at least annually. Shares begin to earn dividends on the date on which a purchase order is settled by payment. Shares stop earning dividends at the close of business on the day before the date on which a redemption order is settled. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Your Account
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.45% of average daily net assets of the Fund. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the fiscal year ended March 31, 2005.
Thomas A. LaPointe, a vice president of Columbia Management, is a co-manager for the Fund and has co-managed the Fund since March, 2003. Mr. LaPointe has been associated with Columbia Management or its predecessors since February, 1999.
Carl W. Pappo, a senior vice president of Columbia Management, is a co-manager for the Fund and has co-managed the Fund since March, 2005. Mr. Pappo has been associated with Columbia Management or its predecessors since January, 1993.
Marie M. Schofield, a senior vice president of Columbia Management, is a co-manager for the Fund and has co-managed the Fund since March, 2005. Ms. Schofield has been associated with Columbia Management or its predecessor since 1990.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance,
Managing the Fund
control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC, to reduce certain Columbia Funds, Nations Funds and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant, who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the Funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the fund or its shareholders can not currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Columbia Funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL"). The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, removal of the trustees of the funds, removal of Columbia Management and CFD, disgorgement of all management fees and monetary damages. The MDL is ongoing.
On January 11, 2005, a putative class action lawsuit was filed in federal district court in Massachusetts against, among others, the Trustees of the Funds and Columbia. The lawsuit alleges that defendants violated common law duties to fund shareholders as well as sections of the Investment Company Act of 1940, by failing to ensure that the Funds and other affiliated funds participated in securities class action settlements for which the funds were eligible. Specifically, plaintiffs allege that defendants failed to submit proof of claims in connection with settlements of securities class action lawsuits filed against companies in which the funds held positions.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits seek damages and allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as IN RE COLUMBIA ENTITIES LITIGATION. The plaintiffs filed a consolidated amended complaint on June 9, 2005.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has conditionally ordered its transfer to the MDL.
The Fund's principal investment strategies and their associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goals, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The advisor may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goals. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goals or any of its investment strategies.
Most mortgage securities are pooled together and structured as pass-throughs. Monthly payments of principal and interest from the underlying mortgage loans backing the pool are collected by a servicer and "passed through" regularly to the investor. Pass-throughs can have a fixed or an adjustable rate. The majority of pass-through securities are issued by three agencies: Ginnie Mae, Fannie Mae and Freddie Mac. These securities involve prepayment risk, which is the possibility that the underlying debt may be refinanced or prepaid prior to maturity during periods of declining interest rates. A decline in interest rates may lead to a faster rate of repayment on mortgage-backed securities and, therefore, cause the Fund to earn a lower interest rate on reinvestment. In addition, the potential impact of prepayment on the price of a mortgage-backed security may be difficult to predict and result in greater volatility. During periods of rising interest rates, mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the maturity of the securities.
Other Investment Strategies and Risks
Commercial mortgage-backed securities are secured by loans to commercial properties such as office buildings, multi-family apartment buildings, and shopping centers. These loans usually contain prepayment penalties that provide protection from refinancing in a declining interest rate environment.
Real estate mortgage investment conduits (REMICs) are multi-class securities that qualify for special tax treatment under the Internal Revenue Code. REMICs invest in certain mortgages that are secured principally by interests in real property such as single family homes.
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the fiscal year ended March 31, 2005 and the Fund's prior fiscal years, which ran from July 1 to June 30, unless otherwise indicated. The Fund did not have separate classes of shares prior to July 31, 2000. On that date, the Fund's outstanding shares were redesignated as Class S shares and on July 15, 2002, Class S shares were redesignated as Class Z shares. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the fiscal year ended March 31, 2005 and for the period ended March 31, 2004, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the years ended June 30, 2003, 2002 and 2001 has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
The Fund
Year Ended Period Ended
March 31, March 31,
2005 2004/(a)(b)/
Class Z Class Z
---------- ------------
Net Asset Value --
Beginning of Period ($) 10.21 10.10
---------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(e)/ 0.49 0.41
Net realized and unrealized gain (loss) on investments and
foreign currency (0.26) 0.16
---------------------------------------------------------------------------------------------
Total from Investment Operations 0.23 0.57
---------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.55) (0.46)
Return of capital -- --
---------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.55) (0.46)
---------------------------------------------------------------------------------------------
Net Asset Value --
End of Period ($) 9.89 10.21
---------------------------------------------------------------------------------------------
Total return (%)/(h)/ 2.33 5.80/(i)(j)/
---------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data (%):
Operating expenses/(k)/ 0.72 0.82/(l)/
Interest expense -- --/(l)(m)/
Expenses/(k)/ 0.72 0.82/(l)/
Net investment income/(k)/ 4.91 5.46/(l)/
Waiver/reimbursement -- 0.02/(l)/
Portfolio turnover rate (%) 36 93/(j)/
Net assets, end of period (000's) ($) 533,965 425,402
|
Year Ended June 30,
2003/(c)(d)/ 2002/(d)/ 2001/(d)/
Class Z Class Z Class Z
----------- -------- --------
Net Asset Value --
Beginning of Period ($) 9.44 9.54 9.15
-------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(e)/ 0.53 0.63/(f)/ 0.69
Net realized and unrealized gain (loss) on investments and
foreign currency 0.71 (0.09)/(f)/ 0.39
-------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.24 0.54 1.08
-------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.58) (0.64) (0.69)
Return of capital -- --/(g)/ --
-------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.58) (0.64) (0.69)
-------------------------------------------------------------------------------------------------------
Net Asset Value --
End of Period ($) 10.10 9.44 9.54
-------------------------------------------------------------------------------------------------------
Total return (%)/(h)/ 13.61 5.80 12.20
-------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data (%):
Operating expenses/(k)/ 0.84 0.85 0.86
Interest expense -- -- --
Expenses/(k)/ 0.84 0.85 0.86
Net investment income/(k)/ 5.51 6.57/(f)/ 7.32
Waiver/reimbursement -- -- --
Portfolio turnover rate (%) 96 136/(n)/ 128/(n)/
Net assets, end of period (000's) ($) 427,959 327,121 266,091
|
(a) On October 13, 2003, the Liberty Income Fund was renamed Columbia Income
Fund.
(b) The Fund changed its fiscal year end from June 30 to March 31, effective
March 31, 2004.
(c) Effective July 15, 2002, the Stein Roe Income Fund's Class S shares were
redesignated Liberty Income Fund Class Z shares.
(d) Per share data and ratios reflect income and expenses assuming inclusion of
the Fund's proportionate share of income and expenses of the SR&F Income
Portfolio, prior to the portfolio liquidation.
(e) Per share data was calculated using average shares outstanding during the
period.
Financial Highlights
(f) Effective July 1, 2001, the SR&F Income Portfolio adopted the provisions of
the AICPA Audit and Accounting Guide for Investment Companies and began
amortizing premium and accreting discount on all debt securities. The
effect of this change for the year ended June 30, 2002, was to decrease net
investment income per share by $0.01, decrease net realized and unrealized
loss per share by $0.01 and decrease the ratio of net investment income to
average net assets from 6.65% to 6.57%. Per share data and ratios for
periods prior to June 30, 2002 have not been restated to reflect this
change in presentation.
(g) Rounds to less than $0.01 per share.
(h) Total return at net asset value assuming all distributions reinvested.
(i) Not annualized.
(j) Had the investment advisor not reimbursed a portion of expenses, total
return would have been reduced.
(k) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(l) Annualized.
(m) Rounds to less than 0.01%.
(n) Portfolio turnover disclosed is for the SR&F Income Portfolio.
Class Z Shares
Annual Expense Ratio Initial Hypothetical Investment Amount Assumed Rate of Return 0.68% $10,000.00 5% |
Hypothetical Year- Hypothetical Year-
Cumulative Return End Balance Before Cumulative Return End Balance After Annual Fees &
Year Before Fees & Expenses Fees & Expenses After Fees & Expenses Fees & Expenses Expenses
1 5.00% $10,500.00 4.32% $10,432.00 $ 69.47
2 10.25% $11,025.00 8.83% $10,882.66 $ 72.47
3 15.76% $11,576.25 13.53% $11,352.79 $ 75.60
4 21.55% $12,155.06 18.43% $11,843.23 $ 78.87
5 27.63% $12,762.82 23.55% $12,354.86 $ 82.27
6 34.01% $13,400.96 28.89% $12,888.59 $ 85.83
7 40.71% $14,071.00 34.45% $13,445.38 $ 89.54
8 47.75% $14,774.55 40.26% $14,026.22 $ 93.40
9 55.13% $15,513.28 46.32% $14,632.15 $ 97.44
10 62.89% $16,288.95 52.64% $15,264.26 $101.65
-----------------------------------------------------------------------------------------------------------
Total Gain Before Fees & Expenses $ 6,288.95
-----------------------------------------------------------------------------------------------------------
Total Gain After Fees & Expenses $ 5,264.26
-----------------------------------------------------------------------------------------------------------
Total Annual Fees & Expenses Paid $846.53
-----------------------------------------------------------------------------------------------------------
|
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust VIII: 811-4552
. Columbia Income Fund
[LOGO] ColumbiaFunds
A Member of Columbia Management Group
(C)2005 Columbia Funds Distributor, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com
PRO-36/88219-0705
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED AUGUST 1, 2005 (THE "PROSPECTUS")
(REPLACING SUPPLEMENTS DATED AUGUST 19, 2005)
COLUMBIA INTERMEDIATE BOND FUND
CLASS A, B AND C SHARES
The Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. Columbia Funds Distributor, Inc. (the Funds' distributor) and Columbia Funds Services, Inc. (the Funds' transfer agent) changed their names to Columbia Management Distributors, Inc. and Columbia Management Services, Inc., respectively.
4. The following disclosure is added under the heading "PRINCIPAL INVESTMENT STRATEGIES":
The Fund may participate in mortgage dollar rolls and may roll all, a portion, or none of the Fund's mortgage positions.
5. The following disclosure is added under the heading "PRINCIPAL INVESTMENT RISKS":
Mortgage-backed securities are securities that represent ownership
interests in large, diversified pools of mortgage loans. Sponsors pool
together mortgages of similar rates and terms and offer them as a
security to investors. Most mortgage securities are pooled together
and structured as pass-throughs. Monthly payments of principal and
interest from the underlying mortgage loans backing the pool are
collected by a servicer and "passed through" regularly to the
investor. Pass-throughs can have a fixed or an adjustable rate. The
majority of pass-through securities are issued by three agencies:
Ginnie Mae, Fannie Mae and Freddie Mac. These securities involve
prepayment risk, which is the possibility that the underlying debt may
be refinanced or prepaid prior to maturity during periods of declining
interest rates. A decline in interest rates may lead to a faster rate
of repayment on mortgage-backed securities and, therefore, cause a
Fund to earn a lower interest rate on reinvestment. In addition, the
potential impact of prepayment on the price of a mortgage-backed
security may be difficult to predict and result in greater volatility.
During periods of rising interest rates, mortgage-backed securities
have a high risk of declining in price because the declining
prepayment rates effectively increase the maturity of the securities.
Mortgage dollar rolls are transactions in which the Fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase similar securities in the
future at a predetermined price. These transactions simulate an investment in mortgage-backed securities and have the potential to enhance the Fund's returns and reduce its administrative burdens, compared with holding mortgage-backed securities directly. Mortgage dollar rolls involve the risks that the market value of the securities the Fund is obligated to repurchase may decline below the repurchase price, or that the other party may default on its obligations. These transactions may increase the Fund's portfolio turnover rate.
6. The "CALENDAR YEAR TOTAL RETURNS" and "AVERAGE ANNUAL TOTAL RETURNS" tables for the Fund in the section entitled "PERFORMANCE HISTORY" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS
CLASS A(1)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ---- ---- ---- ---- ----- ---- ---- ---- ---- ---- 4.52% 9.30% 6.42% 1.27% 10.59% 9.03% 5.39% 9.23% 4.62% 2.15% |
For the periods shown above:
Best quarter: 2nd quarter 2003, +4.68%
Worst quarter: 2nd quarter 2004, -2.41%
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2005
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Class A (%)
Return Before Taxes (2.66) 5.03(1,3) 5.69(2,3)
Return After Taxes on Distributions (4.20) 2.97(1,3) 3.26(2,3)
Return After Taxes on Distributions
and Sale of Fund Shares (1.74) 3.04(1,3) 3.31(2,3)
Class B (%)
Return Before Taxes (1.54) 5.43(1,3) 5.90(2,3)
Return After Taxes on Distributions (2.88) 3.58(1,3) 3.57(2,3)
Return After Taxes on Distributions
and Sale of Fund Shares (1.01) 3.52(1,3) 3.57(2,3)
Class C (%)
Return Before Taxes 0.57 5.55(1,3) 5.96(2,3)
Return After Taxes on Distributions (0.84) 3.66(1,3) 3.61(2,3)
Return After Taxes on Distributions
and Sale of Fund Shares 0.36 3.60(1,3) 3.61(2,3)
Lehman Brothers Aggregate Bond Index (%) 2.43 5.87(1,3) 6.16(2,3)
|
(1) Class A, B and C are newer classes of shares. Class A performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to their inception. Class B and Class C performance information includes returns of the Fund's Class A shares for the period from July 31, 2000 through February 1, 2002.
(2) Class A, B and C are newer classes of shares. Class A performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to their inception. Class B and Class C performance information includes returns of the Fund's Class A shares for the period from July 31, 2000 through February 1, 2002 and for the periods prior thereto, the Fund's Class Z shares (the oldest existing Fund class).
(3) These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower, since the newer classes of shares are subject to a Rule 12b-1 fee. Class A shares were initially offered on July 31, 2000, Class B and C shares were initially offered on February 1, 2002 and Class Z shares were initially offered on December 5, 1978. On July 29, 2002, Class S shares were redesignated as Class Z shares. Class Z shares are not offered in this Prospectus.
7. The footnotes to the table entitled "SHAREHOLDER FEES" are revised to provide that the contingent deferred sales charge ("CDSC") applicable to Class A shares applies only to certain Class A shares bought without an initial sales charge that are sold within 12 months of purchase.
8. The section entitled "INVESTMENT MINIMUMS" is revised in its entirety as follows: The initial investment minimum for the purchase of Class A, B and C shares is $1,000. For investors establishing an automatic investment plan, the initial investment minimum is $50. For participants in certain retirement plans, the initial investment minimum is $25. There is no minimum initial investment for wrap accounts. The Fund reserves the right to change these investment minimums. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
Please see the Statement of Additional Information for more details on investment minimums.
9. The call-out box entitled "CHOOSING A SHARE CLASS" is revised in its entirety as follows:
CHOOSING A SHARE CLASS
The Fund offers three classes of shares in this prospectus -- CLASS A, B AND C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 or more but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
The Fund also offers an additional class of shares, Class Z shares, exclusively to certain institutional and other investors. Class Z shares are made available through a separate prospectus provided to eligible institutional and other investors.
10. The table entitled "CLASS A SALES CHARGES" is replaced in its entirety as follows:
CLASS A SALES CHARGES
AS A % OF THE % OF OFFERING PRICE
PUBLIC AS A % OF YOUR RETAINED BY FINANCIAL
AMOUNT PURCHASED OFFERING PRICE INVESTMENT ADVISOR
---------------- -------------- -------------- ---------------------
Less than $100,000 3.25 3.36 3.00
$100,000 to less than $250,000 2.50 2.56 2.25
$250,000 to less than $500,000 2.00 2.04 1.75
$500,000 to less than $1,000,000 1.50 1.52 1.25
$1,000,000 or more 0.00 0.00 0.00
|
11. The paragraph immediately following the table entitled "CLASS A SALES CHARGES" is revised in its entirety as follows:
Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
12. The table entitled "PURCHASES OVER $1 MILLION" for Class A shares is replaced in its entirety as follows:
PURCHASES OVER $1 MILLION
AMOUNT PURCHASED COMMISSION % ---------------- ------------ Less than $3 million 1.00 $3 million to less than $50 million 0.50 $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1% commission from the distributor on all purchases less than $3 million.
13. The section entitled "REDUCED SALES CHARGES FOR LARGER INVESTMENTS" is revised in its entirety as follows:
A. WHAT ARE THE PRINCIPAL WAYS TO OBTAIN A BREAKPOINT DISCOUNT?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
RIGHTS OF ACCUMULATION The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
STATEMENT OF INTENT You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. WHAT ACCOUNTS ARE ELIGIBLE FOR BREAKPOINT DISCOUNTS?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
- Individual accounts
- Joint accounts
- Certain IRA accounts
- Certain trusts
- UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. HOW DO I OBTAIN A BREAKPOINT DISCOUNT?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisors' failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor
and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. HOW CAN I OBTAIN MORE INFORMATION ABOUT BREAKPOINT DISCOUNTS?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, though fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Funds as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
14. All disclosure related to Class B Sales Charges under the section entitled "SALES CHARGES" is revised in its entirety as follows:
CLASS B SHARES Your purchases of Class B shares are at Class B's net asset value. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the applicable chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the charts below.
Purchases of less than $50,000
CLASS B SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 3.00
Through second year 3.00
Through third year 2.00
Through fourth year 1.00
Through fifth year 0.00
Through sixth year 0.00
Longer than six years 0.00
|
Commission to financial advisors is 2.75%.
Automatic conversion to Class A shares occurs eight years after purchase.
15. The instructions with respect to redemptions by systematic withdrawal plan in the table under the section "HOW TO SELL SHARES" are revised in their entirety as follows:
You may automatically sell a specified dollar amount or percentage of your account on a monthly, quarterly or semi-annual basis and have the proceeds sent to you if your account balance is at least $5,000. The $5,000 minimum account balance requirement has been waived for wrap accounts. This feature is not available if you hold your shares in certificate form. All dividend and capital gains distributions must be reinvested. Be sure to complete the appropriate section of the account application for this feature.
16. The section entitled "LEGAL PROCEEDINGS" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
17. The disclosure titled "MORTGAGE-BACKED SECURITIES" under the heading "OTHER INVESTMENT STRATEGIES AND RISKS" is deleted in its entirety.
18. The section entitled "FINANCIAL HIGHLIGHTS" is updated and restated in its entirety as follows:
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's fiscal years since inception, which run from April 1 to March 31, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). Information for the six-month period ended September 30, 2005 is unaudited. Other information has been derived from the Fund's financial statements which for the year ended March 31, 2005 and the period ended March 31, 2004, have been audited by PricewaterhouseCoopers LLP, independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the periods ended June 30, 2003, 2002 and 2001 has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
(UNAUDITED)
SIX MONTHS YEAR PERIOD PERIOD
ENDED ENDED ENDED YEAR ENDED JUNE 30, ENDED
SEPTEMBER 30, MARCH 31, MARCH 31, -------------------- JUNE 30,
CLASS A SHARES 2005 2005 2004 (a)(b) 2003 (c) 2002 (c) 2001 (c)(d)
-------------- ------------- --------- ----------- -------- -------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.96 $ 9.27 $ 9.18 $ 8.73 $ 8.84 $ 8.46
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (e) 0.19 0.39 0.30 0.45 0.53(f) 0.56
Net realized and unrealized gain (loss) on
investments and futures contracts (0.01) (0.25) 0.11 0.48 (0.08)(f) 0.36
-------- -------- -------- ------- ------- -------
Total from Investment Operations 0.18 0.14 0.41 0.93 0.45 0.92
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.20) (0.42) (0.32) (0.48) (0.56) (0.54)
From net realized gains -- (0.03) -- -- -- --
Return of capital -- -- -- -- --(g) --
-------- -------- -------- ------- ------- -------
Total Distributions Declared
to Shareholders (0.20) (0.45) (0.32) (0.48) (0.56) (0.54)
NET ASSET VALUE, END OF PERIOD $ 8.94 $ 8.96 $ 9.27 $ 9.18 $ 8.73 $ 8.84
Total return (h) 2.02%(i)(j) 1.55%(i) 4.59%(i)(j) 11.03%(i) 5.10%(i) 11.19%(j)
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Operating expenses (k) 0.91%(l) 0.94% 0.99%(l) 1.05% 1.04% 0.96%(l)
Interest expense -- -- -- --%(m) -- --
Expenses (k) 0.91%(l) 0.94% 0.99%(l) 1.05% 1.04% 0.96%(l)
Net investment income (k) 4.18%(l) 4.31% 4.31%(l) 5.13% 5.94%(f) 6.90%(l)
Waiver/reimbursement 0.10%(l) 0.10% 0.10%(l) 0.10% 0.10% --
Portfolio turnover rate 71%(j) 40% 96%(j) 114% 179%(n) 254%(n)
Net assets, end of period (000's) $191,825 $168,213 $146,709 $92,993 $32,493 $12,279
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(a) On October 13, 2003, the Liberty Intermediate Bond Fund was renamed Columbia Intermediate Bond Fund.
(b) The Fund changed its fiscal year end from June 30 to March 31, effective March 31, 2004.
(c) Per share data and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of income and expenses of the SR&F Intermediate Bond Portfolio, prior to the portfolio liquidation.
(d) Class A shares were initially offered on July 31, 2000. Per share data and total return reflect activity from that date.
(e) Per share data was calculated using average shares outstanding during the period.
(f) Effective July 1, 2001, the SR&F Intermediate Bond Portfolio adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended June 30, 2002, was to decrease
net investment income per share by $0.01, decrease net realized and unrealized loss per share by $0.01 and decrease the ratio of net investment income to average net assets from 6.10% to 5.94%. Per share data and ratios for the period prior to June 30, 2002 have not been restated to reflect this change in presentation.
(g) Rounds to less than $0.01 per share.
(h) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(i) Had the Distributor not reimbursed a portion of expenses, total return would have been reduced.
(j) Not annualized.
(k) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(l) Annualized.
(m) Rounds to less than 0.01%.
(n) Portfolio turnover disclosed is for the SR&F Intermediate Bond Portfolio.
(UNAUDITED)
SIX MONTHS YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
SEPTEMBER 30, MARCH 31, MARCH 31, JUNE 30, JUNE 30,
CLASS B SHARES 2005 2005 2004 (a)(b) 2003 (c) 2002 (c)(d)
-------------- ------------- --------- ----------- -------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.96 $ 9.27 $ 9.18 $ 8.73 $ 8.89
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (e) 0.16 0.32 0.25 0.39 0.18(f)
Net realized and unrealized gain (loss) on
investments and futures contracts (0.01) (0.25) 0.11 0.47 (0.13)(f)
------- ------- -------- -------- -------
Total from Investment Operations 0.15 0.07 0.36 0.86 0.05
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.17) (0.35) (0.27) (0.41) (0.21)
From net realized gains -- (0.03) -- -- --
Return of capital -- -- -- -- --(g)
------- ------- -------- -------- -------
Total Distributions Declared to Shareholders (0.17) (0.38) (0.27) (0.41) (0.21)
NET ASSET VALUE, END OF PERIOD $ 8.94 $ 8.96 $ 9.27 $ 9.18 $ 8.73
Total return (h) 1.64%(i) 0.80% 4.00%(i) 10.21% 0.51%(i)
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Operating expenses (j) 1.66%(k) 1.69% 1.74%(l) 1.80% 1.83%(k)
Interest expense -- -- -- --%(l) --
Expenses (j) 1.66%(k) 1.69% 1.74%(l) 1.80% 1.83%(k)
Net investment income (j) 3.43%(k) 3.56% 3.58%(l) 4.38% 5.04%(f)(k)
Portfolio turnover rate 71%(i) 40% 96%(i) 114% 179%(m)
Net assets, end of period (000's) $83,052 $89,564 $104,700 $103,880 $28,758
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(a) On October 13, 2003, the Liberty Intermediate Bond Fund was renamed Columbia Intermediate Bond Fund.
(b) The Fund changed its fiscal year end from June 30 to March 31, effective March 31, 2004.
(c) Per share data and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of income and expenses of the SR&F Intermediate Bond Portfolio, prior to the portfolio liquidation.
(d) Class B shares were initially offered on February 1, 2002. Per share data and total return reflect activity from that date.
(e) Per share data was calculated using average shares outstanding during the period.
(f) Effective July 1, 2001, the SR&F Intermediate Bond Portfolio adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended June 30, 2002, was to decrease net investment income per share by $0.01, decrease net realized and unrealized loss per share by $0.01 and decrease the ratio of net investment income to average net assets from 5.19% to 5.04%.
(g) Rounds to less than $0.01 per share.
(h) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
(l) Rounds to less than 0.01%.
(m) Portfolio turnover disclosed is for the SR&F Intermediate Bond Portfolio.
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
(UNAUDITED)
SIX MONTHS YEAR PERIOD YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
SEPTEMBER 30, MARCH 31, MARCH 31, JUNE 30, JUNE 30,
CLASS C SHARES 2005 2005 2004 (a)(b) 2003 (c) 2002 (c)(d)
-------------- ------------- --------- ----------- -------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.96 $ 9.27 $ 9.18 $ 8.73 $ 8.89
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (e) 0.16 0.34 0.26 0.40 0.19(f)
Net realized and unrealized gain (loss) on
investments and futures contracts (0.01) (0.26) 0.11 0.48 (0.14)(f)
------- ------- ------- ------- -------
Total from Investment Operations 0.15 0.08 0.37 0.88 0.05
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.17) (0.36) (0.28) (0.43) (0.21)
From net realized gains -- (0.03) -- -- --
Return of capital -- -- -- -- --(g)
------- ------- ------- ------- -------
Total Distributions Declared to Shareholders (0.17) (0.39) (0.28) (0.43) (0.21)
NET ASSET VALUE, END OF PERIOD $ 8.94 $ 8.96 $ 9.27 $ 9.18 $ 8.73
Total return (h)(i) 1.72%(j) 0.95% 4.12%(j) 10.37% 0.58%(j)
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Operating expenses (k) 1.51%(l) 1.54% 1.59%(l) 1.65% 1.68%(l)
Interest expense -- -- -- --%(m) --
Expenses (k) 1.51%(l) 1.54% 1.59%(l) 1.65% 1.68%(l)
Net investment income (k) 3.58%(l) 3.71% 3.72%(l) 4.50% 5.19%(f)(l)
Waiver/reimbursement 0.15%(l) 0.15% 0.15%(l) 0.15% 0.15%(l)
Portfolio turnover rate 71%(j) 40% 96%(j) 114% 179%(n)
Net assets, end of period (000's) $43,683 $46,693 $59,009 $51,676 $11,651
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(a) On October 13, 2003, the Liberty Intermediate Bond Fund was renamed Columbia Intermediate Bond Fund.
(b) The Fund changed its fiscal year end from June 30 to March 31, effective March 31, 2004.
(c) Per share data and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of income and expenses of the SR&F Intermediate Bond Portfolio, prior to the portfolio liquidation.
(d) Class C shares were initially offered on February 1, 2002. Per share data and total return reflect activity from that date.
(e) Per share data was calculated using average shares outstanding during the period.
(f) Effective July 1, 2001, the SR&F Intermediate Bond Portfolio adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended June 30, 2002, was to decrease net investment income per share by $0.01, decrease net realized and unrealized loss per share by $0.01 and decrease the ratio of net investment income to average net assets from 5.34% to 5.19%.
(g) Rounds to less than $0.01 per share.
(h) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(i) Had the Distributor not reimbursed a portion of expenses, total return would have been reduced.
(j) Not annualized.
(k) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(l) Annualized.
(m) Rounds to less than 0.01%.
(n) Portfolio turnover disclosed is for the SR&F Intermediate Bond Portfolio.
INT-47/107475-0306 March 27, 2006
Class A, B and C Shares
Advised by Columbia Management Advisors, Inc.
THE FUND 2 -------------------------------------------- Investment Goals........................ 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 3 Performance History..................... 5 Your Expenses........................... 7 YOUR ACCOUNT 9 -------------------------------------------- How to Buy Shares....................... 9 Investment Minimums..................... 10 Sales Charges........................... 10 How to Exchange Shares.................. 15 How to Sell Shares...................... 15 Fund Policy on Trading of Fund Shares... 16 Distribution and Service Fees........... 17 Other Information About Your Account.... 18 |
MANAGING THE FUND 21 -------------------------------------------- Investment Advisor...................... 21 Portfolio Managers...................... 21 Legal Proceedings....................... 21 OTHER INVESTMENT STRATEGIES AND RISKS 23 -------------------------------------------- FINANCIAL HIGHLIGHTS 25 -------------------------------------------- APPENDIX A 28 -------------------------------------------- |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC Insured May Lose Value
No Bank Guarantee
. debt securities issued by the U.S. government, including U.S. treasury securities and agency securities (agency securities include certain mortgage-backed securities, which represent interests in pools of mortgages),
. debt securities of corporations, and
. mortgage-backed securities and asset-backed securities issued by private (non-governmental) entities.
The Fund will invest at least 60% of its net assets in high-quality debt securities that are at the time of purchase:
. rated at least A by Standard & Poor's,
. rated at least A by Moody's Investors Service, Inc.,
. given a comparable rating by another nationally recognized rating agency, or
. unrated securities that the investment advisor believes to be of comparable quality.
The Fund may invest up to 20% of its net assets in lower-rated debt securities. These securities are sometimes referred to as "junk bonds" and are at the time of purchase:
. rated below BBB by Standard & Poor's,
. rated below Baa by Moody's Investors Service, Inc.,
. given a comparable rating by another nationally recognized rating agency, or
. unrated securities that the investment advisor believes to be of comparable quality.
Normally, the Fund expects to maintain a dollar-weighted average effective maturity of three to ten years.
The Fund seeks to achieve capital appreciation through purchasing bonds that increase in market value.
The advisor has wide flexibility to vary the allocation among different types of debt securities based on its judgment of which types of securities will outperform the others. In determining whether to buy or sell securities, the advisor evaluates relative values of the various types of securities in which the Fund can invest (e.g., the relative value of corporate debt securities versus mortgage-backed securities under prevailing market conditions), relative values of various rating categories (e.g., relative values of higher-rated securities versus lower-rated securities under prevailing market conditions), and individual issuer characteristics. The advisor may be required to sell portfolio investments to fund redemptions.
The Fund may purchase derivative instruments, such as futures, options, swap contracts, and inverse floaters, to gain or reduce exposure to particular securities or segments of the bond markets. Derivatives are financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use derivatives for both hedging and non-hedging purposes, such as to adjust the Fund's
The Fund
sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an opposite position. The Fund typically uses derivatives in an effort to achieve more efficiently economic exposures similar to those it could have achieved through the purchase and sale of fixed income securities. Investments in derivatives may be applied toward meeting a requirement to invest in a particular kind of investment if the derivatives have economic characteristics similar to investments of that kind.
As part of its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional tax liability.
Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks."
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with similar investment goals. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goals or perform favorably among comparable funds.
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Because the Fund may invest in debt securities issued or supported by private entities, including corporate bonds, mortgage-backed and asset-backed securities, the Fund is subject to issuer risk. Issuer risk is the possibility that changes in the financial condition of the issuer of a security or the entity responsible for payment of a special revenue obligation, changes in general economic conditions, or changes in economic conditions that affect the issuer or the entity responsible for payment of a special revenue obligation may impact its actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and in some cases a decrease in income. The Fund's investments in securities issued by U.S. government-sponsored enterprises, such as the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, are not funded by Congressional appropriations and are neither guaranteed nor insured by the U.S. government. Furthermore, no assurances can be given that the U.S. government would provide financial support to its agencies or instrumentalities where it is not obligated to do so.
Structure risk is the risk that an event will occur (such as a security being prepaid or called) that alters the security's cash flows. Prepayment risk is a particular type of structure risk that is associated with investments in asset-backed and mortgage-backed securities. With respect to investments in mortgage-backed securities, prepayment risk is the possibility that, as prevailing interest rates fall, homeowners are more likely to refinance their home mortgages. When mortgages are refinanced, the principal on mortgage-backed securities is paid
The Fund
earlier than expected. In an environment of declining interest rates, asset-backed and mortgage-backed securities may offer less potential for gain than other debt securities. During periods of rising interest rates, asset-backed and mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the expected life of the security. In addition, the potential impact of prepayment on the price of asset-backed and mortgage-backed securities may be difficult to predict and result in greater volatility.
Lower-rated debt securities, commonly referred to as "junk bonds," involve greater risk of loss due to credit deterioration and are less liquid, especially during periods of economic uncertainty or change, than higher-quality debt securities. Lower-rated debt securities generally have a higher risk that the issuer of the security may default and not make payment of interest or principal.
Reinvestment Risk is the risk that income from the Fund's debt securities will decline if and when the Fund invests the proceeds from matured, traded or called securities at market interest rates that are below the current earnings rate of the Fund's portfolio.
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The Fund
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges. Class B share returns do not reflect Class A share returns after conversion of Class B shares to Class A shares (see "Your Account -- Sales Charges").
The Fund's returns are compared to the Lehman Brothers Aggregate Bond Index (Lehman Aggregate Index), a market value-weighted index that tracks fixed-rate, publicly placed, dollar-dominated, and non-convertible investment grade debt issues. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
Calendar Year Total Returns (Class A)/(1)/
[CHART]
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 16.84% 4.52% 9.30% 6.42% 1.27% 10.59% 9.03% 5.39% 9.23% 4.62% |
The Class's year-to-date total return For the periods shown in bar chart:
through June 30, 2005 was +2.06%. Best quarter: 2nd quarter 1995, +5.24%
Worst quarter: 2nd quarter 2004, -2.41%
|
The Fund
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2004
1 Year 5 Years 10 Years
Class A (%)
Return Before Taxes -0.39 6.70/(1)/ 7.12/(1)/
Return After Taxes on Distributions -2.08 4.37/(1)/ 4.54/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -0.26 4.27/(1)/ 4.47/(1)/
Class B (%)
Return Before Taxes -1.14 6.97/(1)/ 7.41/(1)/
Return After Taxes on Distributions -2.63 4.76/(1)/ 4.91/(1)/
Return After Taxes on Distributions and Sale of Fund Shares -0.74 4.59/(1)/ 4.78/(1)/
Class C (%)
Return Before Taxes 3.00 7.37/(1)/ 7.46/(1)/
Return After Taxes on Distributions 1.45 5.15/(1)/ 4.94/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 1.95 4.94/(1)/ 4.81/(1)/
----------------------------------------------------------------------------------------------
Lehman Aggregate Index (%) 4.34 7.71 7.72
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(1) Class A, B and C are newer classes of shares. Class A performance information includes returns of the Fund's Class Z shares (the oldest existing fund class) for periods prior to their inception. Class B and Class C performance information includes returns of the Fund's Class A shares for the period from July 31, 2000 through February 1, 2002 and for the periods prior thereto, the Fund's Class Z shares (the oldest existing Fund class). These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class Z shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower, since the newer classes of shares are subject to a Rule 12b-1 fee. Class A shares were initially offered on July 31, 2000, Class B and C shares were initially offered on February 1, 2002 and Class Z shares were initially offered on December 5, 1978. On July 29, 2002, Class S shares were redesignated as Class Z shares. Class Z shares are not offered in this Prospectus.
The Fund
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Funds Distributor, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees and other expenses that generally include, but are not limited to, other administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
The Fund
Shareholder Fees/(1) /(paid directly from your investment)
Class A Class B Class C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75 0.00 0.00
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Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00 1.00
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Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/ /(3)/
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(1) A $10 annual fee may be deducted from accounts of less than $ 1,000 and
paid to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 18 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class A Class B Class C
Management fee/(1)/ (%) 0.50 0.50 0.50
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Distribution and service (12b-1) fees (%) 0.35/(2)/ 1.00 1.00/(2)/
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Other expenses (%) 0.19 0.19 0.19
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Total annual fund operating expenses (%) 1.04/(2)/ 1.69 1.69/(2)/
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(1) The Fund pays a management fee of 0.35% and an administration fee of 0.15%.
(2) The Fund's distributor has voluntarily agreed to waive a portion of the
12b-1 fee for Class A and C shares. If this waiver were reflected in the
table, the 12b-1 fee for Class A and C shares would be 0.25% and 0.85%,
respectively, and total annual fund operating expenses for Class A and C
shares would be 0.94% and 1.54%, respectively. This arrangement may be
modified or terminated by the distributor at any time.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class A $576 $790 $1,022 $1,686
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Class B: did not sell your shares $172 $533 $ 918 $1,825
sold all your shares at
the end of the period $672 $833 $1,118 $1,825
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Class C: did not sell your shares $172 $533 $ 918 $1,998
sold all your shares at
the end of the period $272 $533 $ 918 $1,998
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See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Funds Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Funds Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging shares you own in a
different fund distributed by Columbia Funds Distributor,
Inc. for shares of the same class (and, in some cases,
certain other classes) of the Fund at no additional cost.
There may be an additional sales charge if exchanging from
a money market fund. To exchange by telephone, call
1-800-422-3737.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. There may
be an additional sales charge if exchanging from a money
market fund. Be sure to complete the appropriate section of
the account application for this feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
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Your Account
Please see the Statement of Additional Information for more details on investment minimums.
CHOOSING A SHARE CLASS
The Fund offers three classes of shares in this prospectus -- Class A, B and C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. If your financial advisor does not participate in the Class B discount program, purchases of $250,000 or more but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
The Fund also offers an additional class of shares, Class Z shares, exclusively to certain institutional and other investors. Class Z shares are made available through a separate prospectus provided to eligible institutional and other investors.
Class A shares Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
Class A Sales Charges
% of offering price
As a % of the public As a % of your retained by financial
Amount purchased offering price investment advisor
Less than $50,000 4.75 4.99 4.25
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$50,000 to less than $100,000 4.50 4.71 4.00
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$100,000 to less than $250,000 3.50 3.63 3.00
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$250,000 to less than $500,000 2.50 2.56 2.00
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$500,000 to less than $1,000,000 2.00 2.04 1.75
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$1,000,000 or more 0.00 0.00 0.00
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Your Account
Class A shares bought without an initial sales charge in accounts aggregating $1 million to $25 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 18 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $25 million) are subject to a CDSC if redeemed within 18 months of the date of purchase. The 18-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
Purchases Over $1 Million
Amount purchased Commission % Less than $3 million 1.00 ------------------------------------------------ $3 million to less than $5 million 0.80 ------------------------------------------------ $5 million to less than $25 million 0.50 ------------------------------------------------ $25 million or more 0.25 |
The commission to financial advisors for Class A share purchases of $25 million or more is paid over 12 months but only to extent the shares remain outstanding.
For Class A share purchases by participants in certain group retirement plans offered through a fee-based program, financial advisors receive a 1.00% commission from the distributor on all purchases of less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES
Certain investments in Class A, B and C shares are subject to a CDSC, a sales charge applied at the time you sell your shares. You will pay the CDSC only on shares you sell within a certain amount of time after purchase. The CDSC generally declines each year until there is no charge for selling shares. The CDSC is applied to the net asset value at the time of purchase or sale, whichever is lower. For purposes of calculating the CDSC, the start of the holding period is the first day of the month in which the purchase was made. Shares you purchase with reinvested dividends or other distributions are not subject to a CDSC. When you place an order to sell shares, the Fund will automatically sell first those shares not subject to a CDSC and then those you have held the longest.
Reduced Sales Charges for Larger Investments.
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
Your Account
Statement of Intent You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information. Upon request, a Statement of Intent may apply to purchases made 90 days prior to the date the Statement of Intent is received by the Fund.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
. Individual accounts
. Joint accounts
. Certain IRA accounts
. Certain trusts
. UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission. For purposes of obtaining either breakpoint discount, purchases of Galaxy money market funds are not included.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisors' failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Funds Services, Inc., you will need to provide the foregoing information to a Columbia Funds Services, Inc. representative at the time you purchase shares.
Your Account
D. How can I obtain more information about breakpoint discounts?
Certain investors may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
Class B shares Your purchases of Class B shares are at Class B's net asset value. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the applicable chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the charts below.
Purchases of less than $250,000:
Class B Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 5.00
---------------------------------------------
Through second year 4.00
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Through third year 3.00
---------------------------------------------
Through fourth year 3.00
---------------------------------------------
Through fifth year 2.00
---------------------------------------------
Through sixth year 1.00
---------------------------------------------
Longer than six years 0.00
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Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
You can pay a lower CDSC and reduce the period during which a CDSC would apply when making purchases of Class B shares through a financial advisor that participates in the Class B share discount program for larger purchases as described in the charts below. Some financial advisors are not able to participate because their record keeping or transaction processing systems are not designed to accommodate these reductions. For non-participating financial advisors, purchases of Class B shares must be less than $250,000. Consult your financial advisor to see whether it participates in the discount program for larger purchases. For participating financial advisors, Rights of Accumulation (as described above) apply, so that if the combined value of the eligible Fund accounts in all classes maintained by you and each member of your immediate family (as defined above), together with the value of your current purchase, is at or above a discount level, your current purchase will be subject to a lower CDSC and the applicable reduced holding period, provided that you have notified your financial advisor in writing of the identity of such other accounts and your relationship to the other account holders. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. This Class B share discount program for larger purchases (as further described in the charts below) is not applicable to Class B
Your Account
shares received by former Galaxy Fund Prime B shareholders in connection with the reorganization of the former Galaxy Fund.
Purchases of $250,000 to less than $500,000:
Class B Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 3.00
---------------------------------------------
Through second year 2.00
---------------------------------------------
Through third year 1.00
---------------------------------------------
Longer than three years 0.00
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Commission to financial advisors is 2.50%.
Automatic conversion to Class A shares occurs four years after purchase.
Purchases of $500,000 to less than $1 million:
Class B Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 3.00
---------------------------------------------
Through second year 2.00
---------------------------------------------
Through third year 1.00
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Commission to financial advisors is 1.75%.
Automatic conversion to Class A shares occurs three years after purchase.
If you exchange into a fund participating in the Class B share discount program or transfer your fund account from a financial advisor that does not participate in the program to one that does, the exchanged or transferred shares will retain the pre-existing CDSC but any additional purchases of Class B shares which, together with the exchanged or transferred account, exceed the applicable discount level will be subject to the lower CDSC and the reduced holding period for amounts in excess of the discount level. Your financial advisor will receive the lower commission for purchases in excess of the applicable discount level. If you exchange from a participating fund or transfer your account from a financial advisor that does participate in the program into a non-participating fund or to a financial advisor that does not participate in the program, the exchanged or transferred shares will retain the pre-existing CDSC schedule and holding period but all additional purchases of Class B shares will be subject to the higher CDSC and longer holding period of the non-participating fund or applicable to the non-participating financial advisor.
Class C shares Your purchases of Class C shares are at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC. The distributor pays the financial advisor an up-front commission of 1.00% on sales of Class C shares.
Class C Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 1.00
---------------------------------------------
Longer than one year 0.00
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Your Account
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all of the information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" also means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) you have included any certificates for shares to be sold and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Your Account
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
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By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into the same share class (and,
in some cases, certain other classes) of another fund
distributed by Columbia Funds Distributor, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is
$100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction or stock power
form along with any share certificates to be sold to the
address below. In your letter of instruction, note the
Fund's name, share class, account number, and the dollar
value or number of shares you wish to sell. All account
owners must sign the letter. Signatures must be guaranteed
by either a bank, a member firm of a national stock
exchange or another eligible guarantor that participates in
the Medallion Signature Guarantee Program for amounts over
$100,000 or for alternate payee or mailing instructions.
Additional documentation is required for sales by
corporations, agents, fiduciaries, surviving joint owners
and individual retirement account owners. For details, call
1-800-345-6611.
Mail your letter of instruction to Columbia Funds Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
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By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. This feature is not
available if you hold your shares in certificate form. All
dividend and capital gains distributions must be
reinvested. Be sure to complete the appropriate section of
the account application for this feature.
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By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
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The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market Fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
Your Account
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Your Account
Additional Intermediary Compensation In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur
Your Account
between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the transfer agent.
Dividends, Distributions, and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
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Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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UNDERSTANDING FUND DISTRIBUTIONS
The Fund may earn income from the securities it holds. The Fund also may realize capital gains or losses on sales of its securities. The Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of the Fund's income and capital gains, based on the number of shares you own at the time these distributions are declared.
Distribution Options The Fund declares any dividends daily and pays them
monthly, and declares and pays any capital gains (including short-term capital
gains) at least annually. Shares begin to earn dividends on the date on which a
purchase order is settled by payment. Shares stop earning dividends at the
close of business on the day
before the date on which a redemption order is settled. You can choose one of
the options listed in the table below for these distributions when you open
your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Your Account
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping and other fees paid to Columbia Management by the Fund, amounted to 0.35% of average daily net assets of the Fund. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the fiscal year ended March 31, 2005.
Ann T. Peterson, a senior vice president of Columbia Management, is a co-manager for the Fund and has managed or co-managed the Fund since March, 2005. Since 1993, she has served as a manager or co-manager of various other taxable income funds for Columbia Management or its predecessors.
Thomas A. LaPointe, a vice president of Columbia Management, is a co-manager for the Fund and has co-managed the Fund since March, 2003. Mr. LaPointe has been associated with Columbia Management or its predecessors since February, 1999.
Marie M. Schofield, a senior vice president of Columbia Management, is a co-manager for the Fund and has co-managed the Fund since March, 2005. Ms. Schofield has been associated with Columbia Management or its predecessors since 1990.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures
Managing the Fund
designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC, to reduce certain Columbia Funds, Nations Funds and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant, who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the Funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the fund or its shareholders can not currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Columbia Funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL"). The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, removal of the trustees of the funds, removal of Columbia Management and CFD, disgorgement of all management fees and monetary damages. The MDL is ongoing.
On January 11, 2005, a putative class action lawsuit was filed in federal district court in Massachusetts against, among others, the Trustees of the Funds and Columbia. The lawsuit alleges that defendants violated common law duties to fund shareholders as well as sections of the Investment Company Act of 1940, by failing to ensure that the Funds and other affiliated funds participated in securities class action settlements for which the funds were eligible. Specifically, plaintiffs allege that defendants failed to submit proof of claims in connection with settlements of securities class action lawsuits filed against companies in which the funds held positions.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits seek damages and allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as IN RE COLUMBIA ENTITIES LITIGATION. The plaintiffs filed a consolidated amended complaint on June 9, 2005.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has conditionally ordered its transfer to the MDL.
The Fund's principal investment strategies and their associated risks are described above under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goals, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The advisor may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goals. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goals or any of its investment strategies.
Most mortgage securities are pooled together and structured as pass-throughs. Monthly payments of principal and interest from the underlying mortgage loans backing the pool are collected by a servicer and "passed through" regularly to the investor. Pass-throughs can have a fixed or an adjustable rate. The majority of pass-through securities are issued by three agencies: Ginnie Mae, Fannie Mae and Freddie Mac. These securities involve prepayment risk, which is the possibility that the underlying debt may be refinanced or prepaid prior to maturity during periods of declining interest rates. A decline in interest rates may lead to a faster rate of repayment on mortgage-backed securities and, therefore, cause the Fund to earn a lower interest rate on reinvestment. In addition, the potential impact of prepayment on the price of a mortgage-backed security may be difficult to predict and result in greater volatility. During periods of rising interest rates, mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the maturity of the securities.
Other Investment Strategies and Risks
Commercial mortgage-backed securities are secured by loans to commercial properties such as office buildings, multi-family apartment buildings, and shopping centers. These loans usually contain prepayment penalties that provide protection from refinancing in a declining interest rate environment.
Real estate mortgage investment conduits (REMICs) are multi-class securities that qualify for special tax treatment under the Internal Revenue Code. REMICs invest in certain mortgages that are secured principally by interests in real property such as single family homes.
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's fiscal years since inception, which run from April 1 to March 31, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which for the year ended March 31, 2005 and the period ended March 31, 2004, have been audited by PricewaterhouseCoopers LLP, independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the periods ended June 30, 2003, 2002 and 2001 has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
The Fund
Year ended Period ended Year ended June 30,
March 31, 2005 March 31, 2004/(a)(b)/ 2003/(c)/ 2002/(c)/
Class A Class A Class A Class A
-------------- --------------------- -------- --------
Net asset value --
Beginning of period ($) 9.27 9.18 8.73 8.84
---------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(e)/ 0.39 0.30 0.45 0.53/(f)/
Net realized and unrealized gain (loss)
on investments and futures
contracts (0.25) 0.11 0.48 (0.08)/(f)/
---------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.14 0.41 0.93 0.45
---------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.42) (0.32) (0.48) (0.56)
From net realized gains (0.03) -- -- --
Return of capital -- -- -- --/(g)/
---------------------------------------------------------------------------------------------------------------
Total Distributions
Declared to Shareholders (0.45) (0.32) (0.48) (0.56)
---------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 8.96 9.27 9.18 8.73
---------------------------------------------------------------------------------------------------------------
Total return (%)/(h)/ 1.55/(i)/ 4.59/(i)(j)/ 11.03/(i)/ 5.10/(i)/
---------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Operating expenses/(k)/ 0.94 0.99/(l)/ 1.05 1.04
Interest expense -- -- --/(m)/ --
Expenses/(k)/ 0.94 0.99/(l)/ 1.05 1.04
Net investment income/(k)/ 4.31 4.31/(l)/ 5.13 5.94/(f)/
Waiver/reimbursement 0.10 0.10/(l)/ 0.10 0.10
Portfolio turnover rate (%) 40 96/(j)/ 114 179/(n)/
Net assets, end of period (000's) ($) 168,213 146,709 92,993 32,493
|
Period ended
June 30, 2001/(c)(d)/
Class A
--------------------
Net asset value --
Beginning of period ($) 8.46
------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(e)/ 0.56
Net realized and unrealized gain (loss)
on investments and futures
contracts 0.36
------------------------------------------------------------------
Total from Investment Operations 0.92
------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.54)
From net realized gains --
Return of capital --
------------------------------------------------------------------
Total Distributions
Declared to Shareholders (0.54)
------------------------------------------------------------------
Net asset value --
End of period ($) 8.84
------------------------------------------------------------------
Total return (%)/(h)/ 11.19/(j)/
------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Operating expenses/(k)/ 0.96/(l)/
Interest expense --
Expenses/(k)/ 0.96/(l)/
Net investment income/(k)/ 6.90/(l)/
Waiver/reimbursement --
Portfolio turnover rate (%) 254/(n)/
Net assets, end of period (000's) ($) 12,279
|
(a) On October 13, 2003, the Liberty Intermediate Bond Fund was renamed
Columbia Intermediate Bond Fund.
(b) The Fund changed its fiscal year end from June 30 to March 31 effective
March 31, 2004.
(c) Per share data and ratios reflect income and expenses assuming inclusion of
the Fund's proportionate share of income and expenses of the SR&F
Intermediate Bond Portfolio, prior to the portfolio liquidation.
(d) Class A shares were initially offered on July 31, 2000. Per share data and
total return reflect activity from that date.
(e) Per share data was calculated using average shares outstanding during the
period.
(f) Effective July 1, 2001, the SR&F Intermediate Bond Portfolio adopted the
provisions of the AICPA Audit and Accounting Guide for Investment Companies
and began amortizing premium and accreting discount on all debt securities.
The effect of this change for the year ended June 30, 2002, was to decrease
net investment income per share by $0.01, decrease net realized and
unrealized loss per share by $0.01 and decrease the ratio of net investment
income to average net assets from 6.10% to 5.94%. Per share data and ratios
for the period prior to June 30, 2002 have not been restated to reflect
this change in presentation.
(g) Rounds to less than $0.01 per share.
(h) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(i) Had the distributor not waived a portion of expenses, total return would
have been reduced.
(j) Not annualized.
(k) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(l) Annualized.
(m) Rounds to less than 0.01%.
(n) Portfolio turnover disclosed is for the SR&F Intermediate Bond Portfolio.
Financial Highlights
The Fund
Year ended Period ended Year ended Period ended
March 31, 2005 March 31, 2004/(a)(b)/ June 30, 2003/(c)/ June 30, 2002/(c)(d)/
Class B Class B Class B Class B
-------------- --------------------- ----------------- --------------------
Net asset value --
Beginning of period ($) 9.27 9.18 8.73 8.89
------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(e)/ 0.32 0.25 0.39 0.18/(f)/
Net realized and unrealized gain (loss) on
investments and futures contracts (0.25) 0.11 0.47 (0.13)/(f)/
------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.07 0.36 0.86 0.05
------------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.35) (0.27) (0.41) (0.21)
From net realized gains (0.03) -- -- --
Return of capital -- -- -- --/(g)/
------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.38) (0.27) (0.41) (0.21)
------------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 8.96 9.27 9.18 8.73
------------------------------------------------------------------------------------------------------------------------------
Total return (%)/(h)/ 0.80 4.00/(i)/ 10.21 0.51/(i)/
------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Operating expenses/(j)/ 1.69 1.74/(k)/ 1.80 1.83/(k)/
Interest expense -- -- --/(l)/ --
Expenses/(j)/ 1.69 1.74/(k)/ 1.80 1.83/(k)/
Net investment income/(j)/ 3.56 3.58/(k)/ 4.38 5.04/(f)(k)/
Portfolio turnover rate (%) 40 96/(i)/ 114 179/(m)/
Net assets, end of period (000's) ($) 89,564 104,700 103,880 28,758
|
(a) On October 13, 2003, the Liberty Intermediate Bond Fund was renamed
Columbia Intermediate Bond Fund.
(b) The Fund changed its fiscal year end from June 30 to March 31 effective
March 31, 2004.
(c) Per share data and ratios reflect income and expenses assuming inclusion of
the Fund's proportionate share of income and expenses of the SR&F
Intermediate Bond Portfolio, prior to the portfolio liquidation.
(d) Class B shares were initially offered on February 1, 2002. Per share data
and total return reflect activity from that date.
(e) Per share data was calculated using average shares outstanding during the
period.
(f) Effective July 1, 2001, the SR&F Intermediate Bond Portfolio adopted the
provisions of the AICPA Audit and Accounting Guide for Investment Companies
and began amortizing premium and accreting discount on all debt securities.
The effect of this change for the year ended June 30, 2002, was to decrease
net investment income per share by $0.01, decrease net realized and
unrealized loss per share by $0.01 and decrease the ratio of net investment
income to average net assets from 5.19% to 5.04%.
(g) Rounds to less than $0.01 per share.
(h) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
(l) Rounds to less than 0.01%.
(m) Portfolio turnover disclosed is for the SR&F Intermediate Bond Portfolio.
Financial Highlights
The Fund
Year ended Period ended Year ended Period ended
March 31, 2005 March 31, 2004/(a)(b)/ June 30, 2003/(c)/ June 30, 2002/(c)(d)/
Class C Class C Class C Class C
-------------- --------------------- ----------------- --------------------
Net asset value --
Beginning of period ($) 9.27 9.18 8.73 8.89
------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(e)/ 0.34 0.26 0.40 0.19/(f)/
Net realized and unrealized gain (loss) on
investments and futures contracts (0.26) 0.11 0.48 (0.14)/(f)/
------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.08 0.37 0.88 0.05
------------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.36) (0.28) (0.43) (0.21)
From net realized gains (0.03) -- -- --
Return of capital -- -- -- --/(g)/
------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.39) (0.28) (0.43) (0.21)
------------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 8.96 9.27 9.18 8.73
------------------------------------------------------------------------------------------------------------------------------
Total return (%)/(h)(i)/ 0.95 4.12/(j)/ 10.37 0.58/(j)/
------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Operating expenses/(k)/ 1.54 1.59/(l)/ 1.65 1.68/(l)/
Interest expense -- -- --/(m)/ --
Expenses/(k)/ 1.54 1.59/(l)/ 1.65 1.68/(l)/
Net investment income/(k)/ 3.71 3.72/(l)/ 4.50 5.19/(f)(l)/
Waiver/reimbursement 0.15 0.15/(l)/ 0.15 0.15/(l)/
Portfolio turnover rate (%) 40 96/(j)/ 114 179/(n)/
Net assets, end of period (000's) ($) 46,693 59,009 51,676 11,651
|
(a) On October 13, 2003, the Liberty Intermediate Bond Fund was renamed
Columbia Intermediate Bond Fund.
(b) The Fund changed its fiscal year end from June 30 to March 31 effective
March 31, 2004.
(c) Per shares data and ratios reflect income and expenses assuming inclusion
of the Fund's proportionate share of income and expenses of the SR&F
Intermediate Bond Portfolio, prior to the portfolio liquidation.
(d) Class C shares were initially offered on February 1, 2002. Per share data
and total return reflect activity from that date.
(e) Per share data was calculated using average shares outstanding during the
period.
(f) Effective July 1, 2001, the SR&F Intermediate Bond Portfolio adopted the
provisions of the AICPA Audit and Accounting Guide for Investment Companies
and began amortizing premium and accreting discount on all debt securities.
The effect of this change for the year ended June 30, 2002, was to decrease
net investment income per share by $0.01, decrease net realized and
unrealized loss per share by $0.01 and decrease the ratio of net investment
income to average net assets from 5.34% to 5.19%.
(g) Rounds to less than $0.01 per share.
(h) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(i) Had the distributor not reimbursed a portion of expenses, total return
would have been reduced.
(j) Not annualized.
(k) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(l) Annualized.
(m) Rounds to less than 0.01%.
(n) Portfolio turnover disclosed is for the SR&F Intermediate Bond Portfolio.
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the hypothetical year-end balance before expenses and the cumulative return after fees and expenses. The charts also assume that the annual expense ratios stay the same throughout the 10-year period, that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses tables, is reflected in the charts and is net of any fee waiver or expense reimbursement.
Class A Shares/(1)/
Annual Expense Ratio Initial Hypothetical Investment Amount Assumed Rate of Return
1.04% $10,000.00 5%
Cumulative Return Hypothetical Year- Cumulative Return Hypothetical Year-
Before Fees & End Balance Before After Fees & End Balance After Annual Fees &
Year Expenses Fees & Expenses Expenses Fees & Expenses Expenses
1 5.00% $10,001.25 3.96% $9,902.19 $576.02
2 10.25% $10,501.31 8.08% $10,294.32 $105.02
3 15.76% $11,026.38 12.36% $10,701.97 $109.18
4 21.55% $11,577.70 16.81% $11,125.77 $113.50
5 27.63% $12,156.58 21.43% $11,566.35 $118.00
6 34.01% $12,764.41 26.24% $12,024.38 $122.67
7 40.71% $13,402.63 31.24% $12,500.54 $127.53
8 47.75% $14,072.76 36.44% $12,995.56 $132.58
9 55.13% $14,776.40 41.84% $13,510.19 $137.83
10 62.89% $15,515.22 47.46% $14,045.19 $143.29
Total Gain Before Fees & Expenses $5,990.22
Total Gain After Fees & Expenses $4,520.19
Total Annual Fees & Expenses Paid $1,685.63
|
(1) For Class A shares, the year one Annual Fees & Expenses and Hypothetical Year-End Balance Before Fees & Expenses information shown include the dollar amount and effect of any applicable front-end sales charge of the Fund.
Class B Shares
Annual Expense Ratio Initial Hypothetical Investment Amount Assumed Rate of Return
1.69% $10,000.00 5%
Cumulative Return Hypothetical Year- Cumulative Return Hypothetical Year-
Before Fees & End Balance Before After Fees & End Balance After Annual Fees &
Year Expenses Fees & Expenses Expenses Fees & Expenses Expenses
1 5.00% $10,500.00 3.31% $10,331.00 $171.80
2 10.25% $11,025.00 6.73% $10,672.96 $177.48
3 15.76% $11,576.25 10.26% $11,026.23 $183.36
4 21.55% $12,155.06 13.91% $11,391.20 $189.43
5 27.63% $12,762.82 17.68% $11,768.25 $195.70
6 34.01% $13,400.96 21.58% $12,157.78 $202.17
7 40.71% $14,071.00 25.60% $12,560.20 $208.87
8 47.75% $14,774.55 29.76% $12,975.94 $215.78
9 55.13% $15,513.28 34.90% $13,489.79 $137.62
10 62.89% $16,288.95 40.24% $14,023.98 $143.07
Total Gain Before Fees & Expenses $6,288.95
Total Gain After Fees & Expenses $4,023.98
Total Annual Fees & Expenses Paid $1,825.28
|
Appendix A
Class C Shares
Annual Expense Ratio Initial Hypothetical Investment Amount Assumed Rate of Return
1.69% $10,000.00 5%
Cumulative Return Hypothetical Year- Cumulative Return Hypothetical Year-
Before Fees & End Balance Before After Fees & End Balance After Annual Fees &
Year Expenses Fees & Expenses Expenses Fees & Expenses Expenses
1 5.00% $10,500.00 3.31% $10,331.00 $171.80
2 10.25% $11,025.00 6.73% $10,672.96 $177.48
3 15.76% $11,576.25 10.26% $11,026.23 $183.36
4 21.55% $12,155.06 13.91% $11,391.20 $189.43
5 27.63% $12,762.82 17.68% $11,768.25 $195.70
6 34.01% $13,400.96 21.58% $12,157.78 $202.17
7 40.71% $14,071.00 25.60% $12,560.20 $208.87
8 47.75% $14,774.55 29.76% $12,975.94 $215.78
9 55.13% $15,513.28 34.05% $13,405.45 $222.92
10 62.89% $16,288.95 38.49% $13,849.17 $230.30
Total Gain Before Fees & Expenses $6,288.95
Total Gain After Fees & Expenses $3,849.17
Total Annual Fees & Expenses Paid $1,997.81
|
Notes
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual or semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust VIII: 811-4552
. Columbia Intermediate Bond Fund
ColumbiaFunds
A Member of Columbia Management Group
(C)2005 Columbia Funds Distributor, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/88410-0705
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED JANUARY 23, 2006 (THE "PROSPECTUS")
COLUMBIA INTERMEDIATE BOND FUND
CLASS R SHARES
The Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The section entitled "LEGAL PROCEEDINGS" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the
judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107600-0306 March 27, 2006
Class R Shares
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------- Investment Goals........................ 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 3 Performance History..................... 5 Your Expenses........................... 7 YOUR ACCOUNT 9 -------------------------------------------- How to Buy Shares....................... 9 Eligible Investors...................... 9 Sales Charges........................... 9 How to Exchange Shares.................. 10 How to Sell Shares...................... 10 Fund Policy on Trading of Fund Shares... 11 Distribution and Service Fees........... 12 Other Information About Your Account.... 12 |
MANAGING THE FUND 15 -------------------------------------------- Investment Advisor...................... 15 Portfolio Managers...................... 15 Legal Proceedings....................... 15 OTHER INVESTMENT STRATEGIES AND RISKS 18 -------------------------------------------- APPENDIX A 20 -------------------------------------------- |
Only eligible investors may purchase Class R shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC Insured May Lose Value
No Bank Guarantee
. debt securities issued by the U.S. government, including U.S. treasury securities and agency securities (agency securities include certain mortgage-backed securities, which represent interests in pools of mortgages),
. debt securities of corporations, and
. mortgage-backed securities and asset-backed securities issued by private (non-governmental) entities.
The Fund will invest at least 60% of its net assets in high-quality debt securities that are at the time of purchase:
. rated at least A by Standard & Poor's,
. rated at least A by Moody's Investors Service, Inc.,
. given a comparable rating by another nationally recognized rating agency, or
. unrated securities that the investment advisor believes to be of comparable quality.
The Fund may invest up to 20% of its net assets in lower-rated debt securities. These securities are sometimes referred to as "junk bonds" and are at the time of purchase:
. rated below BBB by Standard & Poor's,
. rated below Baa by Moody's Investors Service, Inc.,
. given a comparable rating by another nationally recognized rating agency, or
. unrated securities that the investment advisor believes to be of comparable quality.
Normally, the Fund expects to maintain a dollar-weighted average effective maturity of three to ten years.
The Fund seeks to achieve capital appreciation through purchasing bonds that increase in market value.
The advisor has wide flexibility to vary the allocation among different types of debt securities based on its judgment of which types of securities will outperform the others. In determining whether to buy or sell securities, the advisor evaluates relative values of the various types of securities in which the Fund can invest (e.g., the relative value of corporate debt securities versus mortgage-backed securities under prevailing market conditions), relative values of various rating categories (e.g., relative values of higher-rated securities versus lower-rated securities under prevailing market conditions), and individual issuer characteristics. The advisor may be required to sell portfolio investments to fund redemptions.
The Fund may participate in mortgage dollar rolls and may roll all, a portion, or none of the Fund's mortgage positions.
The Fund may purchase derivative instruments, such as futures, options, swap contracts, and inverse floaters, to gain or reduce exposure to particular securities or segments of the bond markets. Derivatives are financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency.
The Fund
The Fund may use derivatives for both hedging and non-hedging purposes, such as to adjust the Fund's sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an opposite position. The Fund typically uses derivatives in an effort to achieve more efficiently economic exposures similar to those it could have achieved through the purchase and sale of fixed income securities. Investments in derivatives may be applied toward meeting a requirement to invest in a particular kind of investment if the derivatives have economic characteristics similar to investments of that kind.
As part of its investment strategy, the Fund may buy and sell securities frequently. Such trading usually increases portfolio turnover rates, which usually increases the chance that the Fund will pay investors short-term capital gains (which are taxable at higher rates than long-term capital gains). Such trading may also result in higher brokerage commissions and other transaction costs and additional tax liability, which could reduce the Fund's returns.
Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks."
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with similar investment goals. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goals or perform favorably among comparable funds.
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Because the Fund may invest in debt securities issued or supported by private entities, including corporate bonds, mortgage-backed and asset-backed securities, the Fund is subject to issuer risk. Issuer risk is the possibility that changes in the financial condition of the issuer of a security or the entity responsible for payment of a special revenue obligation, changes in general economic conditions, or changes in economic conditions that affect the issuer or the entity responsible for payment of a special revenue obligation may impact its actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and in some cases a decrease in income. The Fund's investments in securities issued by U.S. government-sponsored enterprises, such as the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, are not funded by Congressional appropriations and are neither guaranteed nor insured by the U.S. government. Furthermore, no assurances can be given that the U.S. government would provide financial support to its agencies or instrumentalities where it is not obligated to do so.
Structure risk is the risk that an event will occur (such as a security being prepaid or called) that alters the security's cash flows. Prepayment risk is a particular type of structure risk that is associated with investments in asset-backed and mortgage-backed securities. With respect to investments in mortgage-backed securities, prepayment risk is the possibility that, as prevailing interest rates fall, homeowners are more likely to refinance their home mortgages. When mortgages are refinanced, the principal on mortgage-backed securities is paid
The Fund
earlier than expected. In an environment of declining interest rates, asset-backed and mortgage-backed securities may offer less potential for gain than other debt securities. During periods of rising interest rates, asset-backed and mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the expected life of the security. In addition, the potential impact of prepayment on the price of asset-backed and mortgage-backed securities may be difficult to predict and result in greater volatility.
Lower-rated debt securities, commonly referred to as "junk bonds," involve greater risk of loss due to credit deterioration and are less liquid, especially during periods of economic uncertainty or change, than higher-quality debt securities. Lower-rated debt securities generally have a higher risk that the issuer of the security may default and not make payment of interest or principal.
Reinvestment Risk is the risk that income from the Fund's debt securities will decline if and when the Fund invests the proceeds from matured, traded or called securities at market interest rates that are below the current earnings rate of the Fund's portfolio.
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
Mortgage-backed securities are securities that represent ownership interests in large, diversified pools of mortgage loans. Sponsors pool together mortgages of similar rates and terms and offer them as a security to investors. Most mortgage securities are pooled together and structured as pass-throughs. Monthly payments of principal and interest from the underlying mortgage loans backing the pool are collected by a servicer and "passed through" regularly to the investor. Pass-throughs can have a fixed or an adjustable rate. The majority of pass-through securities are issued by three agencies: Ginnie Mae, Fannie Mae and Freddie Mac. These securities involve prepayment risk, which is the possibility that the underlying debt may be refinanced or prepaid prior to maturity during periods of declining interest rates. A decline in interest rates may lead to a faster rate of repayment on mortgage-backed securities and, therefore, cause a Fund to earn a lower interest rate on reinvestment. In addition, the potential impact of prepayment on the price of a mortgage-backed security may be difficult to predict and result in greater volatility. During periods of rising interest rates, mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the maturity of the securities.
Mortgage dollar rolls are transactions in which the Fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase similar securities in the future at a predetermined price. These transactions simulate an investment in mortgage-backed securities and have the potential to enhance the Fund's returns and reduce its administrative burdens, compared with holding mortgage-backed securities directly. Mortgage dollar rolls involve the risks that the market value of the securities the Fund is obligated to repurchase may decline below the repurchase price, or that the other party may default on its obligations. These transactions may increase the Fund's portfolio turnover rate.
The Fund
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's Class A average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses.
The Fund's returns are compared to the Lehman Brothers Aggregate Bond Index (Lehman Aggregate Index), a market value-weighted index that tracks fixed-rate, publicly placed, dollar-dominated, and non-convertible investment grade debt issues. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
The Fund
Calendar Year Total Returns (Class A)/(1)(2)/
[CHART]
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 4.52% 9.30% 6.42% 1.27% 10.59% 9.03% 5.39% 9.23% 4.62% 2.15% |
For the periods shown in bar chart: Best quarter: 2nd quarter 2003, +4.68% Worst quarter: 2nd quarter 2004, -2.41% |
(1) Because the Class R shares have not completed a full calendar year, the bar
chart and average annual total returns shown are for Class A shares. Class
A shares are not offered in this prospectus. Class R shares would have
substantially similar annual returns because they are invested in the same
portfolio of securities, and the returns would differ only to the extent
that the classes do not have the same expenses and Class R shares do not
have a sales charge.
(2) Class A performance information includes returns of the Fund's Class Z
shares (the oldest existing fund class) for periods prior to their
inception. These returns have not been restated to reflect any differences
in expenses (such as Rule 12b-1 fees) between Class Z shares and Class A
shares. If differences in expenses had been reflected, the returns shown
for periods prior to the inception of Class A shares would have been lower.
Class A shares were initially offered on July 31, 2000. Class Z shares were
initially offered on December 5, 1978. On July 29, 2002, Class S shares
were redesignated as Class Z shares.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2005/(1)(2)/
1 Year 5 Years 10 Years
Class A (%)
Return Before Taxes 2.15 6.05 6.21
Return After Taxes on Distributions 0.53 3.97 3.77
Return After Taxes on Distributions and Sale of Fund Shares 1.39 3.91 3.77
----------------------------------------------------------------------------------------
Lehman Aggregate Index (%) 2.43 5.87 6.16
|
(1) Because the Class R shares have not completed a full calendar year, the bar
chart and average annual total returns shown are for Class A shares. Class
A shares are not offered in this prospectus. Class R shares would have
substantially similar annual returns because they are invested in the same
portfolio of securities, and the returns would differ only to the extent
that the classes do not have the same expenses and Class R shares do not
have a sales charge.
(2) Class A performance information includes returns of the Fund's Class Z
shares (the oldest existing fund class) for periods prior to their
inception. These returns have not been restated to reflect any differences
in expenses (such as Rule 12b-1 fees) between Class Z shares and Class A
shares. If differences in expenses had been reflected, the returns shown
for periods prior to the inception of Class A shares would have been lower.
Class A shares were initially offered on July 31, 2000. Class Z shares were
initially offered on December 5, 1978. On July 29, 2002, Class S shares
were redesignated as Class Z shares.
The Fund
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees and other expenses that generally include, but are not limited to transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not. Higher transaction costs reduce the Fund's returns.
The Fund
Shareholder Fees/(1) /(paid directly from your investment)
Class R
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 0.00
-----------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 0.00
-----------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(2)/
|
(1) A $10 annual fee may be deducted from accounts of less than $ 1,000 and
paid to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class R
Management fee/(1)/ (%) 0.50
-------------------------------------------------
Distribution and service (12b-1) fees (%) 0.50
-------------------------------------------------
Other expenses (%)/(2)/ 0.19
-------------------------------------------------
Total annual fund operating expenses (%) 1.19
|
(1) The Fund pays a management fee of 0.35% and an administration fee of 0.15%.
(2) Other Expenses are based on estimated amounts for the current fiscal year.
Example Expenses (your actual costs may be higher or lower)
1 Year 3 Years 5 Years 10 Years 121 378 654 1,443 |
See Appendix A for additional hypothetical investment and expense information.
When the Fund receives your purchase request in "good form," your shares will be bought at the next calculated public offering price. "Good form" means that the Fund's transfer agent has all the information and documentation it deems necessary to effect your order. For example, "good form" may mean that you have properly placed your order with your financial advisor or the Fund's transfer agent has received your completed application, including all necessary signatures. The USA Patriot Act may require us to obtain certain personal information from you which we will use to verify your identity. If you do not provide the information, we may not be able to open your account. If we are unable to verify your customer information, we reserve the right to close your account or take such other steps as we deem reasonable.
. 401(k) plans;
. 457 plans;
. Employer-Sponsored 403(b) plans;
. Profit sharing and money purchase pension plans;
. Defined benefit plans; and
. Non-qualified deferred compensation plans ("eligible retirement plans")
Class R shares will not be available to retail nonretirement accounts, traditional and Roth IRAs, Coverdell Education Savings Accounts, SEPs, SAR-SEPs, Simple IRAs, individual 403(b) plans or 529 tuition programs.
The Fund reserves the right to change the criteria for Eligible Investors. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
Your financial advisor/plan sponsor may receive cumulative commissions from Columbia Management Distributors, Inc. for the shares purchased in accordance with the table below:
Amount purchased Commission % First $50 million 0.50 ------------------------------ Over $50 million 0.25 |
Your Account
Additionally, your financial advisor/plan sponsor may receive ongoing 12b-1 fees with respect to Class R shares.
CHOOSING A SHARE CLASS
The Fund offers one class of shares in this prospectus -- Class R.
The Fund also offers four additional classes of shares -- Class A, B and C shares are available through a separate prospectus and Class Z shares are available through a separate prospectus. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on, among other factors, the assets of the plan and the amount invested in the Fund and other Funds distributed by Columbia Management Distributors, Inc. Plan sponsors should consider their eligibility for other classes of shares, including, for some plans, Class Z shares, which are not subject to 12b-1 or shareholder services fees.
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all of the information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" also means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable, you have included any certificates for shares to be sold and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Your Account
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a money market fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
Your Account
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Additional Intermediary Compensation In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
Your Account
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines the net asset value of its Class R shares by dividing total net assets attributable to Class R shares by the number of outstanding Class R shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for Class R shares.
Dividends, Distributions, and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
----------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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UNDERSTANDING FUND DISTRIBUTIONS
The Fund may earn income from the securities it holds. The Fund also may realize capital gains or losses on sales of its securities. The Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of the Fund's income and capital gains, based on the number of shares you own at the time these distributions are declared.
Distribution Options The Fund declares any dividends daily and pays them
monthly, and declares and pays any capital gains (including short-term capital
gains) at least annually. Shares begin to earn dividends on the date on which a
purchase order is settled by payment. Shares stop earning dividends at the
close of business on the day
before the date on which a redemption order is settled. You can choose one of
the options listed in the table below for these distributions when you open
your account. To change your distribution option, call 1-800-345-6611.
Your Account
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Advisors and/or Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Advisors and/or Columbia Management by the Fund, amounted to 0.35% of average daily net assets of the Fund.
Ann T. Peterson, a senior vice president of Columbia Advisors, is a co-manager for the Fund and has managed or co-managed the Fund since March, 2005. Since 1993, she has served as a manager or co-manager of various other taxable income funds for Columbia Advisors or its predecessors.
Thomas A. LaPointe, a vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since March, 2003. Mr. LaPointe has been associated with Columbia Advisors or its predecessors since February, 1999.
Marie M. Schofield, a senior vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since March, 2005. Ms. Schofield has been associated with Columbia Advisors or its predecessors since 1990.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
Managing the Fund
"NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March, 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the funds or their shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the MDL have been consolidated under the lead case. The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, the removal of the trustees of the Columbia Funds, removal of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
Managing the Fund
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed.
The Fund's principal investment strategies and their associated risks are described above under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goals, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The advisor may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goals. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goals or any of its investment strategies.
Other Investment Strategies and Risks
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The chart shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class R shares of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The chart also assumes that all dividends and distributions are reinvested. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses table, is presented in the chart, and is net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower.
Class R Shares
Maximum Sales Charge Initial Hypothetical Investment Amount Assumed Rate of Return
0.00% $10,000.00 5%
Cumulative Return Cumulative Return Hypothetical Year-
Before Fees & Annual Expense After Fees & End Balance After Annual Fees &
Year Expenses Ratio Expenses Fees & Expenses Expenses/(1)/
1 5.00% 1.19% 3.81% $10,381.00 $121.27
2 10.25% 1.19% 7.77% $10,776.52 $125.89
3 15.76% 1.19% 11.87% $11,187.10 $130.68
4 21.55% 1.19% 16.13% $11,613.33 $135.66
5 27.63% 1.19% 20.56% $12,055.80 $140.83
6 34.01% 1.19% 25.15% $12,515.12 $146.20
7 40.71% 1.19% 29.92% $12,991.95 $151.77
8 47.75% 1.19% 34.87% $13,486.94 $157.55
9 55.13% 1.19% 40.01% $14,000.80 $163.55
10 62.89% 1.19% 45.34% $14,534.23 $169.78
Total Gain After Fees & Expenses $4,534.23
Total Annual Fees & Expenses $1,443.18
|
(1) Annual Fees and Expenses are calculated based on the average between the beginning and ending balance for each year. All information is calculated on an annual compounding basis.
Notes
Notes
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual or semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust VIII: 811-4552
. Columbia Intermediate Bond Fund
[LOGO] ColumbiaFunds
A Member of Columbia Management Group
(C)2006 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/105516-0106
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED AUGUST 1, 2005 (THE "PROSPECTUS")
(REPLACING SUPPLEMENTS DATED AUGUST 19, 2005)
COLUMBIA INTERMEDIATE BOND FUND
CLASS Z SHARES
The Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367".
3. Columbia Funds Distributor, Inc. (the Funds' distributor) and Columbia Funds Services, Inc. (the Funds' transfer agent) changed their names to Columbia Management Distributors, Inc. and Columbia Management Services, Inc., respectively.
4. The following disclosure is added under the heading "PRINCIPAL INVESTMENT STRATEGIES":
The Fund may participate in mortgage dollar rolls and may roll all, a portion, or none of the Fund's mortgage positions.
5. The following disclosure is added under the heading "PRINCIPAL INVESTMENT RISKS":
Mortgage-backed securities are securities that represent ownership
interests in large, diversified pools of mortgage loans. Sponsors pool
together mortgages of similar rates and terms and offer them as a
security to investors. Most mortgage securities are pooled together
and structured as pass-throughs. Monthly payments of principal and
interest from the underlying mortgage loans backing the pool are
collected by a servicer and "passed through" regularly to the
investor. Pass-throughs can have a fixed or an adjustable rate. The
majority of pass-through securities are issued by three agencies:
Ginnie Mae, Fannie Mae and Freddie Mac. These securities involve
prepayment risk, which is the possibility that the underlying debt may
be refinanced or prepaid prior to maturity during periods of declining
interest rates. A decline in interest rates may lead to a faster rate
of repayment on mortgage-backed securities and, therefore, cause a
Fund to earn a lower interest rate on reinvestment. In addition, the
potential impact of prepayment on the price of a mortgage-backed
security may be difficult to predict and result in greater volatility.
During periods of rising interest rates, mortgage-backed securities
have a high risk of declining in price because the declining
prepayment rates effectively increase the maturity of the securities.
Mortgage dollar rolls are transactions in which the Fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase similar securities in the
future at a predetermined price. These transactions simulate an investment in mortgage-backed securities and have the potential to enhance the Fund's returns and reduce its administrative burdens, compared with holding mortgage-backed securities directly. Mortgage dollar rolls involve the risks that the market value of the securities the Fund is obligated to repurchase may decline below the repurchase price, or that the other party may default on its obligations. These transactions may increase the Fund's portfolio turnover rate.
6. The "CALENDAR YEAR TOTAL RETURNS" and "AVERAGE ANNUAL TOTAL RETURNS" tables for the Fund in the section entitled "PERFORMANCE HISTORY" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS
CLASS Z
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ---- ---- ---- ---- ----- ---- ---- ---- ---- ---- 4.52% 9.30% 6.42% 1.27% 10.77% 9.18% 5.78% 9.50% 4.88% 2.40% |
For the periods shown above:
Best quarter: 2nd quarter 2003, +4.74%
Worst quarter: 2nd quarter 2004, -2.35%
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2005
INCEPTION
DATE 1 YEAR 5 YEARS 10 YEARS
--------- ------ ------- ---------
Class Z (%) 12/5/78
Return Before Taxes 2.40 6.31 6.36
Return After Taxes on Distributions 0.69 4.14 3.86
Return After Taxes on Distributions and Sale of Fund Shares 1.55 4.08 3.86
Lehman Brothers Aggregate Bond Index (%) 2.43 5.87 6.16
|
7. The section entitled "ELIGIBLE INVESTORS" is revised in its entirety as follows:
Only Eligible Investors may purchase Class Z shares of the Fund, directly or by exchange. Class Z shares of the Fund generally are available only to certain "grandfathered" shareholders and to investors holding accounts with intermediaries that assess account level fees for the services they provide. Please read the following section for a more detailed description of the eligibility requirements. The Eligible Investors described below are subject to different minimum initial investment requirements.
IMPORTANT THINGS TO CONSIDER WHEN DECIDING ON A CLASS OF SHARES:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by an intermediary. Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
No minimum initial investment
- Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
- Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts (IRAs)), for which an intermediary or other entity provides services and is not compensated by the Funds for those services, other than payments for shareholder servicing or sub-accounting performed in place of a Fund's transfer agent;
- Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
- Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
$1,000 minimum initial investment
- Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of a fund distributed by Columbia Management Distributors, Inc. (CMD) (i) who holds Class Z shares; (ii) who
held Primary A shares prior to August 22, 2005; (iii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iv) who purchased certain no-load shares of a fund merged with a fund distributed by CMD;
- Any trustee or director (or family member of a trustee or director) of any fund distributed by CMD;
- Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary;
- Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Funds for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement);
- Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an accredited investor, as defined under the Securities Act of 1933; or
- Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations, purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries.
The Funds reserve the right to change the criteria for eligible investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Funds also reserve the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
8. The section entitled "LEGAL PROCEEDINGS" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
9. The disclosure titled "MORTGAGE-BACKED SECURITIES" under the heading "OTHER INVESTMENT STRATEGIES AND RISKS" is deleted in its entirety.
10. The section entitled "FINANCIAL HIGHLIGHTS" is updated and restated in its entirety as follows:
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the last five fiscal years which run from April 1 to March 31, unless otherwise indicated. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). Information for the six-month period ended September 30, 2005 is unaudited. Other information has been derived from the Fund's financial statements which for the year ended March 31, 2005 and the period ended March 31, 2004, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the years ended June 30, 2003, 2002 and 2001 has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
(UNAUDITED)
SIX MONTHS YEAR PERIOD
ENDED ENDED ENDED YEAR ENDED JUNE 30,
SEPTEMBER 30, MARCH 31, MARCH 31, ------------------------------------
CLASS Z SHARES 2005 2005 2004 (a)(b) 2003 (c)(d) 2002 (d) 2001 (d)
-------------- ------------- --------- ----------- ----------- -------- --------
NET ASSET VALUE,
BEGINNING OF PERIOD $ 8.96 $ 9.27 $ 9.18 $ 8.73 $ 8.84 $ 8.41
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (e) 0.20 0.41 0.31 0.49 0.55(f) 0.62
|
Net realized and unrealized gain
(loss) on investments and
futures contracts (0.01) (0.25) 0.12 0.46 (0.08)(f) 0.43
---------- -------- -------- -------- -------- --------
Total from Investment Operations 0.19 0.16 0.43 0.95 0.47 1.05
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.21) (0.44) (0.34) (0.50) (0.58) (0.62)
From net realized gains -- (0.03) -- -- -- --
Return of capital -- -- -- -- --(g) --
---------- -------- -------- -------- -------- --------
Total Distributions Declared
to Shareholders (0.21) (0.47) (0.34) (0.50) (0.58) (0.62)
NET ASSET VALUE, END OF PERIOD $ 8.94 $ 8.96 $ 9.27 $ 9.18 $ 8.73 $ 8.84
Total return (h) 2.15%(i) 1.80% 4.78%(i) 11.30% 5.36% 12.86%
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Operating expenses (j) 0.66%(k) 0.69% 0.74%(l) 0.80% 0.79% 0.72%
Interest expense -- -- -- --%(l) -- --
Expenses (j) 0.66%(k) 0.69% 0.74%(l) 0.80% 0.79% 0.72%
Net investment income (j) 4.43%(k) 4.56% 4.58%(l) 5.51% 6.22%(f) 7.14%
Portfolio turnover rate 71%(i) 40% 96%(i) 114% 179%(m) 254%(m)
Net assets, end of
period (000's) $1,083,294 $877,193 $793,477 $717,923 $729,580 $514,068
|
(a) On October 13, 2003, the Liberty Intermediate Bond Fund was renamed Columbia Intermediate Bond Fund.
(b) The Fund changed its fiscal year end from June 30 to March 31, effective March 31, 2004.
(c) Effective July 29, 2002, the Stein Roe Intermediate Bond Fund's Class S shares were redesignated Liberty Intermediate Bond Fund Class Z shares.
(d) Per share data and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of income and expenses of the SR&F Intermediate Bond Portfolio, prior to the portfolio liquidation.
(e) Per share data was calculated using average shares outstanding during the period.
(f) Effective July 1, 2001, the SR&F Intermediate Bond Portfolio adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended June 30, 2002, was to decrease net investment income per share by $0.02, decrease net realized and unrealized loss per share by $0.02 and decrease the ratio of net investment income to average net assets from 6.38% to 6.22%. Per share data and ratios for periods prior to June 30, 2002 have not been restated to reflect this change in presentation.
(g) Rounds to less than $0.01 per share.
(h) Total return at net asset value assuming all distributions reinvested.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
(l) Rounds to less than 0.01%.
(m) Portfolio turnover disclosed is for the SR&F Intermediate Bond Portfolio.
INT-47/107611-0306 March 27, 2006
Class Z Shares
Advised by Columbia Management Advisors, Inc.
THE FUND 2 -------------------------------------------- Investment Goals........................ 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 3 Performance History..................... 5 Your Expenses........................... 6 YOUR ACCOUNT 8 -------------------------------------------- How to Buy Shares....................... 8 Eligible Investors...................... 9 Sales Charges........................... 10 How to Exchange Shares.................. 10 How to Sell Shares...................... 11 Fund Policy on Trading of Fund Shares... 12 Intermediary Compensation............... 13 Other Information About Your Account.... 13 |
MANAGING THE FUND 16 ------------------------ Investment Advisor.. 16 Portfolio Managers.. 16 Legal Proceedings... 16 OTHER INVESTMENT STRATEGIES AND RISKS 18 ------------------------ FINANCIAL HIGHLIGHTS 20 ------------------------ APPENDIX A 21 ------------------------ |
Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC Insured May Lose Value
No Bank Guarantee
. debt securities issued by the U.S. government, including U.S. treasury securities and agency securities (agency securities include certain mortgage-backed securities, which represent interests in pools of mortgages),
. debt securities of corporations, and
. mortgage-backed securities and asset-backed securities issued by private (non-governmental) entities.
The Fund will invest at least 60% of its net assets in high-quality debt securities that are at the time of purchase:
. rated at least A by Standard & Poor's,
. rated at least A by Moody's Investors Service, Inc.,
. given a comparable rating by another nationally recognized rating agency, or
. unrated securities that the investment advisor believes to be of comparable quality.
The Fund may invest up to 20% of its net assets in lower-rated debt securities. These securities are sometimes referred to as "junk bonds" and are at the time of purchase:
. rated below BBB by Standard & Poor's,
. rated below Baa by Moody's Investors Service, Inc.,
. given a comparable rating by another nationally recognized rating agency, or
. unrated securities that the investment advisor believes to be of comparable quality.
Normally, the Fund expects to maintain a dollar-weighted average effective maturity of three to ten years.
The Fund seeks to achieve capital appreciation through purchasing bonds that increase in market value.
The advisor has wide flexibility to vary the allocation among different types of debt securities based on its judgment of which types of securities will outperform the others. In determining whether to buy or sell securities, the advisor evaluates relative values of the various types of securities in which the Fund can invest (e.g., the relative value of corporate debt securities versus mortgage-backed securities under prevailing market conditions), relative values of various rating categories (e.g., relative values of higher-rated securities versus lower-rated securities under prevailing market conditions), and individual issuer characteristics. The advisor may be required to sell portfolio investments to fund redemptions.
The Fund may purchase derivative instruments, such as futures, options, swap contracts, and inverse floaters, to gain or reduce exposure to particular securities or segments of the bond markets. Derivatives are financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use derivatives for both hedging and non-hedging purposes, such as to adjust the Fund's
The Fund
sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an opposite position. The Fund typically uses derivatives in an effort to achieve more efficiently economic exposures similar to those it could have achieved through the purchase and sale of fixed income securities. Investments in derivatives may be applied toward meeting a requirement to invest in a particular kind of investment if the derivatives have economic characteristics similar to investments of that kind.
As part of its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional tax liability.
Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks."
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with similar investment goals. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goals or perform favorably among comparable funds.
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Because the Fund may invest in debt securities issued or supported by private entities, including corporate bonds, mortgage-backed and asset-backed securities, the Fund is subject to issuer risk. Issuer risk is the possibility that changes in the financial condition of the issuer of a security or the entity responsible for payment of a special revenue obligation, changes in general economic conditions, or changes in economic conditions that affect the issuer or the entity responsible for payment of a special revenue obligation may impact its actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and in some cases a decrease in income. The Fund's investments in securities issued by U.S. government-sponsored enterprises, such as the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, are not funded by Congressional appropriations and are neither guaranteed nor insured by the U.S. government. Furthermore, no assurances can be given that the U.S. government would provide financial support to its agencies or instrumentalities where it is not obligated to do so.
Structure risk is the risk that an event will occur (such as a security being prepaid or called) that alters the security's cash flows. Prepayment risk is a particular type of structure risk that is associated with investments in asset-backed and mortgage-backed securities. With respect to investments in mortgage-backed securities, prepayment risk is the possibility that, as prevailing interest rates fall, homeowners are more likely to refinance their home mortgages. When mortgages are refinanced, the principal on mortgage-backed securities is paid
The Fund
earlier than expected. In an environment of declining interest rates, asset-backed and mortgage-backed securities may offer less potential for gain than other debt securities. During periods of rising interest rates, asset-backed and mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the expected life of the security. In addition, the potential impact of prepayment on the price of asset-backed and mortgage-backed securities may be difficult to predict and result in greater volatility.
Lower-rated debt securities, commonly referred to as "junk bonds," involve greater risk of loss due to credit deterioration and are less liquid, especially during periods of economic uncertainty or change, than higher-quality debt securities. Lower-rated debt securities generally have a higher risk that the issuer of the security may default and not make payment of interest or principal.
Reinvestment Risk is the risk that income from the Fund's debt securities will decline if and when the Fund invests the proceeds from matured, traded or called securities at market interest rates that are below the current earnings rate of the Fund's portfolio.
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The Fund
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class Z share performance for each of the last ten complete calendar years. They include the effects of Fund expenses.
Average Annual Total Returns are a measure of the Fund's Class Z average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses.
The Fund's returns are compared to the Lehman Brothers Aggregate Bond Index (Lehman Aggregate Index), a market value-weighted index that tracks fixed-rate, publicly placed, dollar-dominated, and non-convertible investment grade debt issues. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
Calendar Year Total Returns (Class Z)
[CHART]
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 ---- ---- ---- ---- ---- ---- ---- ---- ----- ----- 16.84% 4.52% 9.30% 6.42% 1.27% 10.77% 9.18% 5.78% 9.50% 4.88% |
The Class's year-to-date total return through For the periods shown in bar chart:
June 30, 2005 was +2.18%. Best quarter: 2nd quarter 1995, +5.24%
Worst quarter: 2nd quarter 2004, -2.35%
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The Fund
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2004
Inception
Date 1 Year 5 Years 10 Years
Class Z (%) 12/5/78
Return Before Taxes 4.88 8.00 7.77
Return After Taxes on Distributions 3.01 5.54 5.13
Return After Taxes on Distributions and Sale of Fund Shares 3.16 5.33 5.01
------------------------------------------------------------------------------------------------
Lehman Aggregate Index (%) N/A 4.34 7.71 7.72
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UNDERSTANDING EXPENSES
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees and other expenses that generally include, but are not limited to, other administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds. It
uses the following hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
The Fund
Shareholder Fees/(1)/ (paid directly from your investment)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 ---------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 ---------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) /(2)/ |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
Annual Fund Operating Expenses (deducted directly from Fund assets)
Management fee/(1)/ (%) 0.50 ---------------------------------------------- Distribution and service (12b-1) fees (%) 0.00 ---------------------------------------------- Other expenses (%) 0.19 ---------------------------------------------- Total annual fund operating expenses (%) 0.69 |
(1) The Fund pays a management fee of 0.35% and an administration fee of 0.15%.
Example Expenses (your actual costs may be higher or lower)
1 Year 3 Years 5 Years 10 Years $70 $221 $384 $859 |
See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For new accounts, send a completed application and check
(new account) made payable to the Fund to Columbia Funds Services, Inc.,
P.O. Box 8081, Boston, MA 02266-8081.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Funds Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging shares you own in a
different fund distributed by Columbia Funds Distributor,
Inc. for shares of the same class of the Fund at no
additional cost. To exchange by telephone, call
1-800-422-3737. Please see "How to Exchange Shares" for
more information.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. Be sure to
complete the appropriate section of the account application
for this feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at
no additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
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Your Account
Important Things to Consider When Deciding on a Class of Shares:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by an intermediary. Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
No minimum initial investment
. Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
. Any group retirement plan, including defined benefit and defined contribution plans such as 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts (IRAs)), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
. Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
. Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
$1,000 minimum initial investment
. Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of a fund distributed by Columbia Funds Distributor, Inc.
Your Account
(i) who holds Class Z shares; (ii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iii) who purchased certain no-load shares of a fund merged with a fund distributed by Columbia Funds Distributor, Inc.;
. Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Funds Distributor, Inc. ;
. Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary.
. Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement); or
. Any insurance company, trust company, bank, endowment, investment company or foundation purchasing shares for its own account.
The Fund reserves the right to change the criteria for Eligible Investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $50 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
CHOOSING A SHARE CLASS
The Fund offers one class of shares in this prospectus -- Class Z.
The Fund also offers three additional classes of shares -- Class A, B and C shares are available through a separate prospectus. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you. In general, anyone who is eligible to purchase Class Z shares, which do not incur Rule 12b-1 fees or sales charges, should do so in preference over other classes.
Your Account
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all the information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" also means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, and (ii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
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By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into Class Z shares or Class A
shares (only if Class Z is not offered) of another fund
distributed by Columbia Funds Distributor, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is
$100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign
the letter. Signatures must be guaranteed by either a bank,
a member firm of a national stock exchange or another
eligible guarantor that participates in the Medallion
Signature Guarantee Program for amounts over $100,000 or
for alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Funds Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
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By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. All dividend and
capital gains distributions must be reinvested. Be sure to
complete the appropriate section of the account application
for this feature.
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By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
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Your Account
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market Fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
Your Account
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Securities for which market quotations
Your Account
are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for Class Z shares.
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
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Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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Distribution Options The Fund declares any dividends daily and pays them monthly, and declares and pays any capital gains (including short-term capital gains) at least annually. Shares begin to earn dividends on the date on which a purchase order is settled by payment. Shares stop earning dividends at the close of business on the day before the date on which a redemption order is settled. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Your Account
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping and other fees paid to Columbia Management by the Fund, amounted to 0.35% of average daily net assets of the Fund. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the fiscal year ended March 31, 2005.
Ann T. Peterson, a senior vice president of Columbia Management, is a co-manager for the Fund and has managed or co-managed the Fund since March, 2005. Since 1993, she has served as a manager or co-manager of various other taxable income funds for Columbia Management or its predecessors.
Thomas A. LaPointe, a vice president of Columbia Management, is a co-manager for the Fund and has co-managed the Fund since March, 2003. Mr. LaPointe has been associated with Columbia Management or its predecessors since February, 1999.
Marie M. Schofield, a senior vice president of Columbia Management, is a co-manager for the Fund and has co-managed the Fund since March, 2005. Ms. Schofield has been associated with Columbia Management or its predecessors since 1990.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see
Managing the Fund
below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC, to reduce certain Columbia Funds, Nations Funds and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant, who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the Funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the fund or its shareholders can not currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Columbia Funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL"). The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, removal of the trustees of the funds, removal of Columbia Management and CFD, disgorgement of all management fees and monetary damages. The MDL is ongoing.
On January 11, 2005, a putative class action lawsuit was filed in federal district court in Massachusetts against, among others, the Trustees of the Funds and Columbia. The lawsuit alleges that defendants violated common law duties to fund shareholders as well as sections of the Investment Company Act of 1940, by failing to ensure that the Funds and other affiliated funds participated in securities class action settlements for which the funds were eligible. Specifically, plaintiffs allege that defendants failed to submit proof of claims in connection with settlements of securities class action lawsuits filed against companies in which the funds held positions.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits seek damages and allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as IN RE COLUMBIA ENTITIES LITIGATION. The plaintiffs filed a consolidated amended complaint on June 9, 2005.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has conditionally ordered its transfer to the MDL.
The Fund's principal investment strategies and their associated risks are described above under "The Fund --Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goals, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The advisor may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goals. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goals or any of its investment strategies.
Most mortgage securities are pooled together and structured as pass-throughs. Monthly payments of principal and interest from the underlying mortgage loans backing the pool are collected by a servicer and "passed through" regularly to the investor. Pass-throughs can have a fixed or an adjustable rate. The majority of pass-through securities are issued by three agencies: Ginnie Mae, Fannie Mae and Freddie Mac. These securities involve prepayment risk, which is the possibility that the underlying debt may be refinanced or prepaid prior to maturity during periods of declining interest rates. A decline in interest rates may lead to a faster rate of repayment on mortgage-backed securities and, therefore, cause the Fund to earn a lower interest rate on reinvestment. In addition, the potential impact of prepayment on the price of a mortgage-backed security may be difficult to predict and result in greater volatility. During periods of rising interest rates, mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the maturity of the securities.
Other Investment Strategies and Risks
Commercial mortgage-backed securities are secured by loans to commercial properties such as office buildings, multi-family apartment buildings, and shopping centers. These loans usually contain prepayment penalties that provide protection from refinancing in a declining interest rate environment.
Real estate mortgage investment conduits (REMICs) are multi-class securities that qualify for special tax treatment under the Internal Revenue Code. REMICs invest in certain mortgages that are secured principally by interests in real property such as single family homes.
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the last five fiscal years which run from April 1 to March 31, unless otherwise indicated. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which for the year ended March 31, 2005 and the period ended March 31, 2004, have been audited by PricewaterhouseCoopers LLP, independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the years ended June 30, 2003, 2002, 2001 and 2000 has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
The Fund
Year ended Period ended
March 31, March 31, Year ended June 30,
2005 2004/(a)(b)/ 2003/(c)(d)/ 2002/(d)/ 2001/(d)/ 2000/(d)/
Class Z Class Z Class Z Class Z Class Z Class Z
---------- ------------ ----------- -------- -------- --------
Net asset value --
Beginning of period ($) 9.27 9.18 8.73 8.84 8.41 8.63
-----------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income/(e)/ 0.41 0.31 0.49 0.55/(f)/ 0.62 0.60
Net realized and unrealized gain (loss)
on investments and futures
contracts (0.25) 0.12 0.46 (0.08)/(f)/ 0.43 (0.22)
-----------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.16 0.43 0.95 0.47 1.05 0.38
-----------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.44) (0.34) (0.50) (0.58) (0.62) (0.60)
From net realized gains (0.03) -- -- -- -- --
Return of capital -- -- -- --/(g)/ -- --
-----------------------------------------------------------------------------------------------------------------------------
Total Distributions
Declared to Shareholders (0.47) (0.34) (0.50) (0.58) (0.62) (0.60)
-----------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 8.96 9.27 9.18 8.73 8.84 8.41
-----------------------------------------------------------------------------------------------------------------------------
Total return (%)/(h)/ 1.80 4.78/(i)/ 11.30 5.36 12.86 4.62
-----------------------------------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets/ Supplemental Data (%):
Operating expenses/(j)/ 0.69 0.74/(k)/ 0.80 0.79 0.72 0.72
Interest expense -- -- --/(l)/ -- -- --
Expenses/(j)/ 0.69 0.74/(k)/ 0.80 0.79 0.72 0.72
Net investment income/(j)/ 4.56 4.58/(k)/ 5.51 6.22/(f)/ 7.14 7.16
Portfolio turnover rate (%) 40 96/(i)/ 114 179/(m)/ 254/(m)/ 356/(m)/
Net assets, end of period (000's) ($) 877,193 793,477 717,923 729,580 514,068 406,216
|
(a) On October 13, 2003, the Liberty Intermediate Bond Fund was renamed
Columbia Intermediate Bond Fund.
(b) The Fund changed its fiscal year end from June 30 to March 31, effective
March 31, 2004.
(c) Effective July 29, 2002, the Stein Roe Intermediate Bond Fund's Class S
shares were redesignated Liberty Intermediate Bond Fund Class Z shares.
(d) Per share data and ratios reflect income and expenses assuming inclusion of
the Fund's proportionate share of income and expenses of the SR&F
Intermediate Bond Portfolio, prior to the portfolio liquidation.
(e) Per share data was calculated using average shares outstanding during the
period.
(f) Effective July 1, 2001, the SR&F Intermediate Bond Portfolio adopted the
provisions of the AICPA Audit and Accounting Guide for Investment Companies
and began amortizing premium and accreting discount on all debt securities.
The effect of this change for the year ended June 30, 2002, was to decrease
net investment income per share by $0.02, decrease net realized and
unrealized loss per share by $0.02 and decrease the ratio of net investment
income to average net assets from 6.38% to 6.22%. Per share data and ratios
for periods prior to June 30, 2002 have not been restated to reflect this
change in presentation.
(g) Rounds to less than $0.01 per share.
(h) Total return at net asset value assuming all distributions reinvested.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
(l) Rounds to less than 0.01%.
(m) Portfolio turnover disclosed is for the SR&F Intermediate Bond Portfolio.
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The chart shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class Z of the Fund assuming a 5% return each year, the hypothetical year-end balance before expenses and the cumulative return after fees and expenses. The chart also assumes that the annual expense ratios stay the same throughout the 10-year period and that all dividends and distributions are reinvested. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses table, is reflected in the chart and is net of any fee waiver or expense reimbursement.
Class Z Shares
Annual Expense Ratio Initial Hypothetical Investment Amount Assumed Rate of Return
0.69% $10,000.00 5%
Year Cumulative Return Hypothetical Year- Cumulative Return Hypothetical Year- Annual Fees &
Before Fees & End Balance Before After Fees & End Balance After Expenses
Expenses Fees & Expenses Expenses Fees & Expenses
1 5.00% $10,500.00 4.31% $10,431.00 $ 70.49
2 10.25% $11,025.00 8.81% $10,880.58 $ 73.52
3 15.76% $11,576.25 13.50% $11,349.53 $ 76.69
4 21.55% $12,155.06 18.39% $11,838.69 $ 80.00
5 27.63% $12,762.82 23.49% $12,348.94 $ 83.45
6 34.01% $13,400.96 28.81% $12,881.18 $ 87.04
7 40.71% $14,071.00 34.36% $13,436.36 $ 90.80
8 47.75% $14,774.55 40.15% $14,015.47 $ 94.71
9 55.13% $15,513.28 46.20% $14,619.53 $ 98.79
10 62.89% $16,288.95 52.50% $15,249.64 $103.05
Total Gain Before Fees & Expenses $ 6,288.95
Total Gain After Fees & Expenses $ 5,249.64
Total Annual Fees & Expenses Paid $858.54
|
Notes
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust VIII: 811-4552
. Columbia Intermediate Bond Fund
ColumbiaFunds
A Member of Columbia Management Group
(C)2005 Columbia Funds Distributor, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/88217-0705
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED AUGUST 1, 2005
(THE "PROSPECTUS")
COLUMBIA WORLD EQUITY FUND
(FORMERLY NAMED COLUMBIA GLOBAL EQUITY FUND)
(THE "FUND")
CLASS A, B AND C SHARES
(REPLACING SUPPLEMENTS DATED AUGUST 19, 2005, NOVEMBER 14, 2005,
JANUARY 9, 2006 AND FEBRUARY 17, 2006)
The Prospectus is hereby supplemented with the following information:
1. Effective October 10, 2005, Columbia Global Equity Fund changed its name to Columbia World Equity Fund; accordingly, all references throughout the Prospectus are changed as appropriate.
2. Effective August 22, 2005, Columbia Funds Distributor, Inc. (the Fund's distributor) and Columbia Funds Services, Inc. (the Fund's transfer agent) changed their names to Columbia Management Distributors, Inc. and Columbia Management Services, Inc., respectively.
3. At a meeting of held on February 17, 2006, shareholders of the Fund approved a proposal to amend the Fund's fundamental investment restriction relating to industry concentration. Accordingly, the Fund is no longer required to invest at least 25% of its total assets in the securities of utility companies and may invest without limit in U.S. and foreign equity securities and investment-grade debt securities not issued by utility companies.
4. The "Calendar Year Total Returns" and "Average Annual Total Returns" table for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS
CLASS A
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 12.69% 22.46% 17.44% 26.87% -13.02% -22.19% -20.57% 29.95% 10.52% 11.18% |
For the periods shown above:
Best quarter: 4th quarter 1999, +25.44%
Worst quarter: 3rd quarter 2002, -14.48%
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2005
1 YEAR 5 YEARS 10 YEARS
Class A (%)
Return Before Taxes 4.78 (1.44) 5.22
Return After Taxes on Distributions 4.81 (1.45) 4.16
Return After Taxes on Distributions and Sale of Fund
Shares 3.30 (1.20) 4.12
----------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes 5.38 (1.40) 5.04(1)
Return After Taxes on Distributions 5.49 (1.39) 4.12(1)
Return After Taxes on Distributions and Sale of Fund
Shares 3.60 (1.17) 4.07(1)
----------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 9.30 (1.05) 5.02(1)
Return After Taxes on Distributions 9.41 (1.03) 4.10(1)
Return After Taxes on Distributions and Sale of Fund
Shares 6.15 (0.87) 4.06(1)
----------------------------------------------------------------------------------------
MSCI World Index (%) 9.49 2.18 7.04
----------------------------------------------------------------------------------------
S&P Utilities Index (%) 16.79 (2.25) 6.78
|
(1) Class B and Class C are newer classes of shares. Their performance information includes returns of the Fund's Class A shares (the oldest existing fund class) for periods prior to their inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class A shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class A shares were initially offered on October 15, 1991, and Class B and Class C shares were initially offered on March 27, 1995.
5. The footnotes to the table entitled "Shareholder Fees" are revised to provide that the contingent deferred sales charge ("CDSC") applicable to Class A shares applies only to certain Class A shares bought without an initial sales charge that are sold within 12 months of purchase.
6. The section entitled "Investment Minimums" is revised in its entirety as follows:
The initial investment minimum for the purchase of Class A, B and C shares is $1,000. For investors establishing an automatic investment plan, the initial investment minimum is $50. For participants in certain retirement plans, the initial investment minimum is $25. There is no minimum initial investment for wrap accounts. The Fund reserves the right to change these investment minimums. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
Please see the Statement of Additional Information for more details on investment minimums.
7. The call-out box entitled "Choosing a Share Class" is revised in its entirety as follows:
CHOOSING A SHARE CLASS
The Fund offers three classes of shares in this prospectus -- CLASS A, B AND C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 or more but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
8. The paragraph immediately following the table entitled "Class A Sales Charges" is revised in its entirety as follows:
Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
9. The table entitled "Purchases Over $1 Million" for Class A shares is replaced in its entirety as follows:
PURCHASES OVER $1 MILLION
AMOUNT PURCHASED COMMISSION % Less than $3 million 1.00 -------------------------------------------------------------------------------- $3 million to less than $50 million 0.50 -------------------------------------------------------------------------------- $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1% commission from the distributor on all purchases less than $3 million.
10. The section entitled "Reduced Sales Charges for Larger Investments" is revised in its entirety as follows:
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
RIGHTS OF ACCUMULATION The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
STATEMENT OF INTENT You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
o Individual accounts
o Joint accounts
o Certain IRA accounts
o Certain trusts
o UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisors' failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, though fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Funds as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
11. All disclosure related to Class B Sales Charges under the section entitled "Sales Charges" is revised in its entirety as follows:
CLASS B SHARES Your purchases of Class B shares are at Class B's net asset value. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the applicable chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the charts below.
CLASS B SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 5.00
-----------------------------------------------------------------------------
Through second year 4.00
-----------------------------------------------------------------------------
Through third year 3.00
-----------------------------------------------------------------------------
Through fourth year 3.00
-----------------------------------------------------------------------------
Through fifth year 2.00
-----------------------------------------------------------------------------
Through sixth year 1.00
-----------------------------------------------------------------------------
Longer than six years 0.00
-----------------------------------------------------------------------------
|
Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
12. The instructions with respect to redemptions by systematic withdrawal plan in the table under the section "How to Sell Shares" are revised in their entirety as follows:
You may automatically sell a specified dollar amount or percentage of your account on a monthly, quarterly or semi-annual basis and have the proceeds sent to you if your account balance is at least $5,000. The $5,000 minimum account balance requirement has been waived for wrap accounts. This feature is not available if you hold your shares in certificate form. All dividend and capital gains distributions must be reinvested. Be sure to complete the appropriate section of the account application for this feature.
13. The information provided by the bullet point list under the section entitled "FUND POLICY ON TRADING OF FUND SHARES" in the Fund's prospectus is revised and replaced with the following:
A Fund shareholder won't pay an otherwise applicable redemption fee on any of the following transactions:
o shares sold following the death or disability (as defined in the tax code) of the shareholder, including a registered joint owner
o shares sold by or distributions from participant directed retirement plans, such as 401(k), 403(b) 457, Keogh, profit sharing, and money purchase pension accounts, where the Fund does not have access to information about the individual participant account activity, except where the Fund has received an indication that the plan administrator is able to assess the redemption fee to the appropriate accounts (automatic)
o shares sold by certain investment funds, including those that Columbia Management Advisors, LLC or its affiliates may manage (automatic)
o shares sold as part of an automatic rebalancing within an asset allocation program or by certain wrap programs where the program sponsor has provided assurances reasonably satisfactory to the Fund that the program is not designed to be a vehicle for market timing
o shares sold by accounts maintained by a financial institution or intermediary where the Fund has received information reasonably satisfactory to the Fund indicating that the financial institution or intermediary maintaining the account is unable for administrative reasons to assess the redemption fee to underlying shareholders
o shares sold by an account which has demonstrated a hardship, such as a medical emergency, as determined in the absolute discretion of the Fund
o shares that were purchased by reinvested dividends (automatic)
o shares that are redeemed or exchanged through Columbia Funds' Systematic Withdrawal Plan or similar affiliated or unaffiliated automated plans
o the following retirement plan distributions:
o lump-sum or other distributions from a qualified corporate or self-employed retirement plan following retirement (or following attainment of age 59 1/2 in the case of a "key employee" of a "top heavy" plan)
o distributions from an individual retirement account ("IRA") or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2
14. Sean P. Wilson no longer co-manages the Fund. The section entitled "MANAGING THE FUND: PORTFOLIO MANAGERS" in the Prospectus is revised in its entirety and replaced with the following:
PORTFOLIO MANAGERS
BRIAN CONDON, a vice president of Columbia Management Advisors, LLC ("Columbia Advisors"), is a co-manager for the Fund and has co-managed the Fund since June, 2005. Mr. Condon has been associated with Columbia Advisors or its predecessors since April, 1999.
FRED COPPER, a portfolio manager of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since October, 2005. Mr. Copper has been associated with Columbia Advisors or its predecessors since September, 2005. Prior to October, 2005, Mr. Copper was a senior vice president with Putman Investments from March, 2001 to September, 2005 and an assistant vice president with Wellington Management Company, LLP from July, 1998 to February, 2001.
COLIN MOORE, a managing director of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since September, 2004. Mr. Moore has been associated with Columbia Advisors or it predecessors since September, 2002. Prior to September, 2002, Mr. Moore was chief investment officer of global/international value equities and associate director of research at Putnam Investments.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
15. The section entitled "Financial Highlights" is updated and restated in its entirety as follows:
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the last five fiscal years, which run from April 1 to March 31, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). Information for the six-month period ended September 30, 2005 is unaudited. Other information is included in the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
Selected data for a share outstanding throughout each period is as follows:
(unaudited)
Six Months Year Period
Ended Ended Ended Year Ended October 31,
September 30, March 31, March 31, ---------------------------------------
Class A Shares 2005 2005 2004(a) 2003 2002 2001
-----------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $ 11.92 $ 11.09 $ 10.19 $ 8.12 $ 10.36 $ 16.51
-----------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income (loss) (b) 0.06 0.07(c) (0.02) 0.01 0.02 0.03
Net realized and unrealized
gain (loss) on investments, foreign
currency and foreign capital gains tax 0.98 0.81 0.92 2.06 (2.26) (4.04)
------- -------- -------- ------- ------- --------
Total from Investment
Operations 1.04 0.88 0.90 2.07 (2.24) (4.01)
-----------------------------------------------------------------------------------------------------------------------------
Less Distributions
Declared to Shareholders:
From net investment income --(d) (0.05) -- -- -- --
From net realized gains -- -- -- -- -- (2.12)
In excess of net realized gains -- -- -- -- -- (0.02)
------- -------- -------- ------- ------- --------
Total Distributions Declared to
Shareholders -- (0.05) -- -- -- (2.14)
-----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 12.96 $ 11.92 $ 11.09 $ 10.19 $ 8.12 $ 10.36
Total return (e) 8.72%(f)(g) 7.99% 8.83%(f) 25.49%(g) (21.62)% (27.50)%
-----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data:
Expenses (h) 1.56%(i) 1.56% 1.64%(i) 1.66% 1.57% 1.39%
Net investment income (loss) (h) 0.98%(i) 0.59% (0.34)%(i) 0.13% 0.17% 0.26%
Waiver/reimbursement 0.02%(i) -- -- 0.03% -- --
Portfolio turnover rate 21%(f) 68% 57%(f) 95% 59% 84%
Net assets, end of period (000's) $79,421 $78,479 $84,393 $82,366 $79,227 $127,953
-----------------------------------------------------------------------------------------------------------------------------
|
(a)The Fund changed its fiscal year end from October 31 to March 31.
(b)Per share data was calculated using average shares outstanding during the
period.
(c)Net investment income per share reflects a special dividend. The effect of
this dividend amounted to $0.03 per share.
(d)Rounds to less than $0.01 per share.
(e)Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(f)Not annualized.
(g)Had the Investment Advisor/Transfer Agent not waived or reimbursed a portion
of expenses, total return would have been reduced.
(h)The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%. (i)Annualized.
(unaudited)
Six Months Year Period
Ended Ended Ended Year Ended October 31,
September 30, March 31, March 31, --------------------------------------
Class B Shares 2005 2005 2004(a) 2003 2002 2001
---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $ 11.48 $ 10.71 $ 9.87 $ 7.93 $ 10.19 $ 16.39
---------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income (loss) (b) 0.01 (0.02)(c) (0.05) (0.05) (0.05) (0.06)
Net realized and unrealized gain (loss)
on investments, foreign currency and
foreign capital gains tax 0.95 0.79 0.89 1.99 (2.21) (4.00)
------- ------- ------- ------- ------- -------
Total from Investment Operations 0.96 0.77 0.84 1.94 (2.26) (4.06)
---------------------------------------------------------------------------------------------------------------------------------
Less Distributions
Declared to Shareholders:
From net investment income -- -- -- -- -- --
From net realized gains -- -- -- -- -- (2.12)
In excess of net realized gains -- -- -- -- -- (0.02)
------- ------- ------- ------- ------- -------
Total Distributions Declared to
|
Shareholders -- -- -- -- -- (2.14) --------------------------------------------------------------------------------------------------------------------------------- Net Asset Value, End of Period $ 12.44 $ 11.48 $ 10.71 $ 9.87 $ 7.93 $ 10.19 Total return (d) 8.36%(e)(f) 7.19% 8.51%(e) 24.46%(f) (22.18)% (28.08)% --------------------------------------------------------------------------------------------------------------------------------- Ratios to Average Net Assets/ Supplemental Data: Expenses (g) 2.31%(h) 2.31% 2.39%(h) 2.41% 2.32% 2.14% Net investment income (loss) (g) 0.23%(h) (0.16)% (1.09)%(h) (0.62)% (0.58)% (0.49)% Waiver/reimbursement 0.02%(h) -- -- 0.03% -- -- Portfolio turnover rate 21%(e) 68% 57%(e) 95% 59% 84% Net assets, end of period (000's) $15,022 $16,129 $19,896 $20,086 $20,311 $38,083 --------------------------------------------------------------------------------------------------------------------------------- |
(a)The Fund changed its fiscal year end from October 31 to March 31.
(b)Per share data was calculated using average shares outstanding during the
period.
(c)Net investment loss per share reflects a special dividend. The effect of this
dividend amounted to $0.03 per share.
(d)Total return at net asset value assuming all distributions reinvested and no
contingent deferred sales charge.
(e)Not annualized.
(f)Had the Investment Advisor/Transfer Agent not waived or reimbursed a portion
of expenses, total return would have been reduced.
(g)The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(h)Annualized.
(unaudited)
Six Months Year Period
Ended Ended Ended Year Ended October 31,
September 30, March 31, March 31, -------------------------------------
Class C Shares 2005 2005 2004(a) 2003 2002 2001
-------------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
Beginning of Period $11.47 $10.70 $ 9.86 $ 7.93 $ 10.20 $ 16.40
-------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income (loss) (b) 0.01 (0.02)(c) (0.05) (0.05) (0.05) (0.06)
Net realized and unrealized gain (loss) on
investments, foreign currency and foreign
capital gains tax 0.94 0.79 0.89 1.98 (2.22) (4.00)
------ ------- ------- ------ ------- -------
Total from Investment
Operations 0.95 0.77 0.84 1.93 (2.27) (4.06)
-------------------------------------------------------------------------------------------------------------------------------
Less Distributions
Declared to Shareholders:
From net investment income -- -- -- -- -- --
From net realized gains -- -- -- -- -- (2.12)
In excess of net realized gains -- -- -- -- -- (0.02)
------ ------- ------- ------ ------- ------
Total Distributions Declared to Shareholders -- -- -- -- -- (2.14)
-------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $12.42 $11.47 $10.70 $ 9.86 $ 7.93 $ 10.20
Total return (d) 8.28%(e)(f) 7.20% 8.52%(e) 24.34%(f) (22.25)% (28.06)%
-------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data:
Expenses (g) 2.31%(h) 2.31% 2.39%(h) 2.41% 2.32% 2.14%
Net investment income (loss) (g) 0.23%(h) (0.16)% (1.09)%(h) (0.62)% (0.58)% (0.49)%
Waiver/reimbursement 0.02%(h) -- -- 0.03% -- --
Portfolio turnover rate 21%(e) 68% 57%(e) 95% 59% 84%
Net assets, end of period (000's) $1,167 $1,076 $1,129 $1,017 $ 1,041 $ 1,696
-------------------------------------------------------------------------------------------------------------------------------
|
(a)The Fund changed its fiscal year end from October 31 to March 31.
(b)Per share data was calculated using average shares outstanding during the
period.
(c)Net investment loss per share reflects a special dividend. The effect of this
dividend amounted to $0.03 per share.
(d)Total return at net asset value assuming all distributions reinvested and no
contingent deferred sales charge.
(e)Not annualized.
(f)Had the Investment Advisor/Transfer Agent not waived or reimbursed a portion
of expenses, total return would have been reduced.
(g)The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(h)Annualized.
16. The section "LEGAL PROCEEDINGS" under the heading "MANAGING THE FUND" is revised in its entirety as follows:
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
17. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
18. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
INT-47/107613-0306 March 27, 2006
Class A, B and C Shares
Advised by Columbia Management Advisors, Inc.
THE FUND 2 -------------------------------------------- Investment Goal......................... 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 2 Performance History..................... 4 Your Expenses........................... 5 YOUR ACCOUNT 7 -------------------------------------------- How to Buy Shares....................... 7 Investment Minimums..................... 8 Sales Charges........................... 8 How to Exchange Shares.................. 13 How to Sell Shares...................... 13 Fund Policy on Trading of Fund Shares... 14 Distribution and Service Fees........... 17 Other Information About Your Account.... 18 |
MANAGING THE FUND 20 -------------------------------------------- Investment Advisor...................... 20 Portfolio Managers...................... 20 Legal Proceedings....................... 20 FINANCIAL HIGHLIGHTS 22 -------------------------------------------- APPENDIX A 25 -------------------------------------------- |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] Not FDIC Insured May Lose Value
No Bank Guarantee
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
UTILITY COMPANIES
Utility companies in which the Fund may invest include companies engaged in the manufacture, production, generation, transmission, sale or distribution of electricity, natural gas or other types of energy, water or other sanitary services. They also include regulated public services such as toll-roads and airports. They also include companies engaged in telecommunications, such as telephone, telegraph, satellite, microwave and other communications media (but excluding companies primarily engaged in public broadcasting, print media, cable television or the Internet). The Fund may invest in companies engaged in the manufacture and production of equipment utilized in the energy and telecommunications industries.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
The Fund
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Utility company securities are subject to special risks. These securities are generally strongly affected by changes in interest rates, as well as by general competitive and market forces in the utilities industries. As interest rates increase, the value of securities of utility companies tends to decrease, and vice versa. In addition, utility companies may be affected by changes in government regulation. In particular, the value of utility company securities may be adversely affected by increased competition resulting from deregulation.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Because the Fund invests predominantly in foreign securities, the Fund may be particularly susceptible to market timers. Market timers generally attempt to take advantage of the way the Fund prices its shares by trading based on market information they expect will lead to a change in the Fund's net asset value on the next pricing day. Market timing activity may be disruptive to Fund management and, since a market timer's profits are effectively paid directly out of the Fund's assets, may negatively impact the investment returns of other shareholders. Although the Fund has adopted certain policies and methods intended to identify and discourage frequent trading based on this strategy, it cannot ensure that all such activity can be identified or terminated.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
The Fund
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
Average Annual Total Returns are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges. Class B share returns do not reflect Class A share returns after conversion of Class B shares to Class A shares (see the section "Your Account -- Sales Charges").
The Fund's returns are compared to the Morgan Stanley Capital International World Index (MSCI Index), an unmanaged index that tracks the performance of global stocks. The Fund's returns are also compared to the Standard & Poor's Utilities Index (S&P Utilities Index), an unmanaged market capitalization weighted index of natural gas and electric companies. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
Calendar Year Total Returns (Class A)
[CHART]
For the periods shown in bar chart:
The Class's year-to-date total return through Best quarter: 4th quarter 1999, +25.44%
June 30, 2005 was +0.67%. Worst quarter: 3rd quarter 2002, -14.48%
|
The Fund
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2004
1 Year 5 Years 10 Years
Class A (%)
Return Before Taxes 4.17 -6.16 5.85
Return After Taxes on Distributions 4.09 -6.69 4.59
Return After Taxes on Distributions and Sale of Fund Shares 2.80 -5.21 4.58
-----------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes 4.68 -6.10 5.69/(1)/
Return After Taxes on Distributions 4.68 -6.63 4.58/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 3.04 -5.15 4.56/(1)/
-----------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 8.79 -5.79 5.68/(1)/
Return After Taxes on Distributions 8.79 -6.31 4.57/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 5.71 -4.90 4.55/(1)/
-----------------------------------------------------------------------------------------
MSCI Index (%) 14.72 -2.45 8.09
-----------------------------------------------------------------------------------------
S&P Utilities Index (%) 24.28 3.73 8.15
|
(1) Class B and Class C are newer classes of shares. Their performance information includes returns of the Fund's Class A shares (the oldest existing fund class) for periods prior to their inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class A shares and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class A shares were initially offered on October 15, 1991, and Class B and Class C shares were initially offered on March 27, 1995.
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Funds Distributor, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management and administration fees, 12b-1 fees and other expenses that generally include, but are not limited to, other administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
Example Expenses help you compare the cost of investing in
the Fund to the cost of investing in other mutual funds. It
uses the following hypothetical conditions:
. $10,000 initial investment
. 5% total return for each year
. Fund operating expenses remain the same
. Reinvestment of all dividends and distributions
. Class B shares convert to Class A shares after eight
years
The Fund
Shareholder Fees/(1)/ (paid directly from your investment)
Class A Class B Class C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00 0.00
--------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00 1.00
--------------------------------------------------------------------------------------------------
Redemption fee (%) (as a percentage of
amount redeemed, if applicable) /(3)(4)/ /(3)(4)/ /(3)(4)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 18 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
(4) A redemption fee of 2.00% may be charged on shares that were owned for 60
days or less. For more information, see "Fund Policy on Trading of Fund
Shares" below.
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class A Class B Class C
Management fee/(1)/ (%) 0.65 0.65 0.65
-----------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00
-----------------------------------------------------------------
Other expenses (%) 0.66 0.66 0.66
-----------------------------------------------------------------
Total annual fund operating expenses (%) 1.56 2.31 2.31
|
(1) The Fund pays a management fee of 0.40% and an administration fee of 0.25%.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class A $725 $1,039 $1,376 $2,325
-----------------------------------------------------------------
Class B: did not sell your shares $234 $ 721 $1,235 $2,458
sold all your shares at
the end of the period $734 $1,021 $1,435 $2,458
-----------------------------------------------------------------
Class C: did not sell your shares $234 $ 721 $1,235 $2,646
sold all your shares at
the end of the period $334 $ 721 $1,235 $2,646
|
See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Funds Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
-------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Funds Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
-------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging shares you own in a
different fund distributed by Columbia Funds Distributor,
Inc. for shares of the same class (and, in some cases,
certain other classes) of the Fund at no additional cost.
There may be an additional sales charge if exchanging from
a money market fund. To exchange by telephone, call
1-800-422-3737.
-------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
-------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. There may
be an additional sales charge if exchanging from a money
market fund. Be sure to complete the appropriate section of
the account application for this feature.
-------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
|
Your Account
Please see the Statement of Additional Information for more details on investment minimums.
CHOOSING A SHARE CLASS
The Fund offers three classes of shares in this prospectus -- Class A, B and C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. If your financial advisor does not participate in the Class B discount program, purchases of $250,000 or more but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
Class A shares Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
Class A Sales Charges
% of offering
As a % price
of the public As a % retained by
offering of your financial
Amount purchased price investment advisor
Less than $50,000 5.75 6.10 5.00
-----------------------------------------------------------------------
$50,000 to less than $100,000 4.50 4.71 3.75
-----------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 2.75
-----------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.00
-----------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
-----------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
|
Your Account
Class A shares bought without an initial sales charge in accounts aggregating $1 million to $25 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 18 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $25 million) are subject to a CDSC if redeemed within 18 months of the date of purchase. The 18-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
Purchases Over $1 Million
Amount purchased Commission % ---------------- ------------ Less than $3 million 1.00 ------------------------------------------------ $3 million to less than $5 million 0.80 ------------------------------------------------ $5 million to less than $25 million 0.50 ------------------------------------------------ $25 million or more 0.25 |
The commission to financial advisors for Class A share purchases of $25 million or more is paid over 12 months but only to the extent the shares remain outstanding.
For Class A share purchases by participants in certain group retirement plans offered through a fee-based program, financial advisors receive a 1.00% commission from the distributor on all purchases of less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES Certain investments in Class A, B and C shares are subject to a CDSC, a sales charge applied at the time you sell your shares. You will pay the CDSC only on shares you sell within a certain amount of time after purchase. The CDSC generally declines each year until there is no charge for selling shares. The CDSC is applied to the net asset value at the time of purchase or sale, whichever is lower. For purposes of calculating the CDSC, the start of the holding period is the first day of the month in which the purchase was made. Shares you purchase with reinvested dividends or other distributions are not subject to a CDSC. When you place an order to sell shares, the Fund will automatically sell first those shares not subject to a CDSC and then those you have held the longest.
Reduced Sales Charges for Larger Investments.
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
Your Account
Statement of Intent You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information. Upon request, a Statement of Intent may apply to purchases made 90 days prior to the date the Statement of Intent is received by the Fund.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
. Individual accounts
. Joint accounts
. Certain IRA accounts
. Certain trusts
. UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission. For purposes of obtaining either breakpoint discount, purchases of Galaxy money market funds are not included.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisors' failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Funds Services, Inc., you will need to provide the foregoing information to a Columbia Funds Services, Inc. representative at the time you purchase shares.
Your Account
D. How can I obtain more information about breakpoint discounts?
Certain investors may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
Class B shares Your purchases of Class B shares are at Class B's net asset value. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the applicable chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the charts below.
Purchases of less than $250,000:
Class B Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 5.00
---------------------------------------------
Through second year 4.00
---------------------------------------------
Through third year 3.00
---------------------------------------------
Through fourth year 3.00
---------------------------------------------
Through fifth year 2.00
---------------------------------------------
Through sixth year 1.00
---------------------------------------------
Longer than six years 0.00
|
Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
You can pay a lower CDSC and reduce the period during which a CDSC would apply when making purchases of Class B shares through a financial advisor that participates in the Class B share discount program for larger purchases as described in the charts below. Some financial advisors are not able to participate because their record keeping or transaction processing systems are not designed to accommodate these reductions. For non-participating financial advisors, purchases of Class B shares must be less than $250,000. Consult your financial advisor to see whether it participates in the discount program for larger purchases. For participating financial advisors, Rights of Accumulation (as described above) apply, so that if the combined value of the eligible Fund accounts in all classes maintained by you and each member of your immediate family (as defined above), together with the value of your current purchase, is at or above a discount level, your current purchase will be subject to a lower CDSC and the applicable reduced holding period, provided that you have notified your financial advisor in writing of the identity of such other accounts and your relationship to the other account holders. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. This Class B share discount program for larger purchases (as further described in the charts below) is not applicable to Class B shares received by former Galaxy Fund Prime B shareholders in connection with the reorganization of the former Galaxy Fund.
Your Account
Purchases of $250,000 to less than $500,000:
Class B Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 3.00
---------------------------------------------
Through second year 2.00
---------------------------------------------
Through third year 1.00
---------------------------------------------
Longer than three years 0.00
|
Commission to financial advisors is 2.50%.
Automatic conversion to Class A shares occurs four years after purchase.
Purchases of $500,000 to less than $1 million:
Class B Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 3.00
---------------------------------------------
Through second year 2.00
---------------------------------------------
Through third year 1.00
|
Commission to financial advisors is 1.75%.
Automatic conversion to Class A shares occurs three years after purchase.
If you exchange into a fund participating in the Class B share discount program or transfer your fund account from a financial advisor that does not participate in the program to one that does, the exchanged or transferred shares will retain the pre-existing CDSC but any additional purchases of Class B shares which, together with the exchanged or transferred account, exceed the applicable discount level will be subject to the lower CDSC and the reduced holding period for amounts in excess of the discount level. Your financial advisor will receive the lower commission for purchases in excess of the applicable discount level. If you exchange from a participating fund or transfer your account from a financial advisor that does participate in the program into a non-participating fund or to a financial advisor that does not participate in the program, the exchanged or transferred shares will retain the pre-existing CDSC schedule and holding period but all additional purchases of Class B shares will be subject to the higher CDSC and longer holding period of the non-participating fund or applicable to the non-participating financial advisor.
Class C shares Your purchases of Class C shares are at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares.
Your Account
Class C Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 1.00
---------------------------------------------
Longer than one year 0.00
|
When the Fund receives your sales request in "good form," shares will be sold
at the next calculated price. "Good form" means that the Fund's transfer agent
has all information and documentation it deems necessary to effect your order.
For example, when selling shares by letter of instruction, "good form" means
(i) your letter has complete instructions, the proper signatures and Medallion
Signature Guarantees, (ii) you have included any certificates for shares to be
sold, and (iii) any other required documents are attached. For additional
documents required for sales by corporations, agents, fiduciaries, surviving
joint owners and other legal entities, please call 1-800-345-6611. Retirement
plan accounts have special requirements; please call 1-800-799-7526 for more
information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Your Account
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into the same share class (and,
in some cases, certain other classes) of another fund
distributed by Columbia Funds Distributor, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is
$100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or stock power
form along with any share certificates to be sold to the
address below. In your letter of instruction, note the
Fund's name, share class, account number, and the dollar
value or number of shares you wish to sell. All account
owners must sign the letter. Signatures must be guaranteed
by either a bank, a member firm of a national stock
exchange or another eligible guarantor that participates in
the Medallion Signature Guarantee Program for amounts over
$100,000 or for alternate payee or mailing instructions.
Additional documentation is required for sales by
corporations, agents, fiduciaries, surviving joint owners
and individual retirement account owners. For details, call
1-800-345-6611.
Mail your letter of instruction to Columbia Funds Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your telephone request. Be sure to
complete the appropriate section of the account application
for this feature.
------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. This feature is not
available if you hold your shares in certificate form. All
dividend and capital gains distributions must be
reinvested. Be sure to complete the appropriate section of
the account application for this feature.
------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market Fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
Your Account
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, the Fund imposes a redemption fee on the proceeds of Fund shares that are redeemed or exchanged within 60 days of their purchase, as described below.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
The Fund will assess, subject to limited exceptions, a 2.00% redemption fee on the proceeds of Fund shares that are redeemed (either by selling shares or exchanging into another Columbia Fund) within 60 days of their purchase. The redemption fee is paid to the Fund.
The redemption fee is imposed on Fund shares redeemed (including redemptions by exchange) within 60 days of purchase. In determining which shares are being redeemed, we generally apply a first-in, first-out approach. For Fund shares acquired by exchange, the holding period prior to the exchange will not be considered in determining whether to assess the redemption fee.
The redemption fee will not be imposed if you qualify for a waiver and the Fund has received proper notification, unless the waiver is automatic as noted below. We'll redeem any shares that are eligible for a waiver first.
Your Account
A Fund shareholder won't pay an otherwise applicable redemption fee on any of the following transactions:
. shares sold following the death or disability (as defined in the tax code) of the shareholder, including a registered joint owner
. shares sold by or distributions from participant directed retirement plans, such as 401(k), 403(b) 457, Keogh, profit sharing, and money purchase pension accounts, where the Fund does not have access to information about the individual participant account activity, except where the Fund has received an indication that the plan administrator is able to assess the redemption fee to the appropriate accounts (automatic)
. shares sold by certain investment funds, including those that Columbia Management Advisors, Inc. or its affiliates may manage (automatic)
. shares sold as part of an automatic rebalancing within an asset allocation program or by certain wrap programs where the program sponsor has provided assurances reasonably satisfactory to the Fund that the program is not designed to be a vehicle for market timing
. shares sold by accounts maintained by a financial institution or intermediary where the Fund has received information reasonably satisfactory to the Fund indicating that the financial institution or intermediary maintaining the account is unable for administrative reasons to assess the redemption fee to underlying shareholders
. shares sold by an account which has demonstrated a hardship, such as a medical emergency, as determined in the absolute discretion of the Fund
. shares that were purchased by reinvested dividends (automatic)
. the following retirement plan distributions:
. lump-sum or other distributions from a qualified corporate or self-employed retirement plan following retirement (or following attainment of age 59 1/2 in the case of a "key employee" of a "top heavy" plan)
. distributions from an individual retirement account ("IRA") or Custodial Account under Section 403(b)(7) of the tax code, following attainment of age 59 1/2
The Fund also has the discretion to waive the 2.00% redemption fee if the Fund is in jeopardy of failing the 90% income test or losing its RIC qualification for tax purposes.
As described above, certain intermediaries do not assess redemption fees to certain categories of redemptions that do not present significant market timing concerns (such as automatic withdrawal plan redemptions). In these situations, the Fund's ability to assess redemption fees is generally limited by the intermediary's policies and, accordingly, no redemption fees will be assessed on such redemptions.
Your Account
Additional Intermediary Compensation In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
Your Account
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the transfer agent.
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
----------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
UNDERSTANDING FUND DISTRIBUTIONS
The Fund may earn income from the securities it holds. The Fund also may realize capital gains or losses on sales of its securities. The Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of the Fund's income and capital gains based on the number of shares you own at the time these distributions are declared.
Your Account
Distribution Options The Fund distributes any dividends and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. The Fund's investments in foreign securities may be subject to foreign withholding taxes. You may be entitled to claim a credit or deduction with respect to foreign taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.40% of average daily net assets of the Fund. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the fiscal year ended March 31, 2005.
Colin Moore, an executive vice president and head of equity of Columbia Management, is a co-manager for the Fund and has co-managed the Fund since September, 2004. Mr. Moore has been associated with Columbia Management or its predecessors since September, 2002. Prior to September, 2002, Mr. Moore was chief investment officer of global/international value equities and associate director of research at Putnam Investments.
Sean P. Wilson, a senior portfolio manager and co-head of the institutional large cap core equity team of Columbia Management, is a co-manager for the Fund and has co-managed the Fund since October, 2003. Mr. Wilson has been associated with Columbia Management or its predecessors since June, 2003. Prior to June, 2003, Mr. Wilson was managing director, director of equity research and senior portfolio manager at Rockefeller & Company.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other
Managing the Fund
things, requires Columbia Management and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the Fund or its shareholders can not currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Columbia Funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL"). The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, removal of the trustees of the funds, removal of Columbia Management and CFD, disgorgement of all management fees and monetary damages. The MDL is ongoing.
On January 11, 2005, a putative class action lawsuit was filed in federal district court in Massachusetts against, among others, the Trustees of the funds and Columbia. The lawsuit alleges that defendants violated common law duties to fund shareholders as well as sections of the Investment Company Act of 1940, by failing to ensure that the funds and other affiliated funds participated in securities class action settlements for which the funds were eligible. Specifically, plaintiffs allege that defendants failed to submit proof of claims in connection with settlements of securities class action lawsuits filed against companies in which the funds held positions.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits seek damages and allege, inter alia that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as IN RE COLUMBIA ENTITIES LITIGATION. The plaintiffs filed a consolidated amended complaint on June 9, 2005.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has conditionally ordered its transfer to the MDL.
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the last five fiscal years, which run from April 1 to March 31, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information is included in the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
The Fund
Year ended Period ended
March 31, March 31, Year ended October 31,
2005 2004/(a)/ 2003 2002 2001 2000
Class A Class A Class A Class A Class A Class A
------- ------- ------- ------- ------- -------
Net asset value --
Beginning of period ($) 11.09 10.19 8.12 10.36 16.51 16.85
-----------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income (loss)/(b)/ 0.07/(c)/ (0.02) 0.01 0.02 0.03 0.04
Net realized and unrealized gain (loss) on
investments, foreign currency and foreign
capital gains tax 0.81 0.92 2.06 (2.26) (4.04) 1.34
-----------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.88 0.90 2.07 (2.24) (4.01) 1.38
-----------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.05) -- -- -- -- (0.01)
From net realized gains -- -- -- -- (2.12) (1.71)
In excess of net realized gains -- -- -- -- (0.02) --
-----------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.05) -- -- -- (2.14) (1.72)
-----------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 11.92 11.09 10.19 8.12 10.36 16.51
-----------------------------------------------------------------------------------------------------------------------
Total return (%)/(d)/ 7.99 8.83/(e)/ 25.49/(f)/ (21.62) (27.50) 7.89
-----------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(g)/ 1.56 1.64/(h)/ 1.66 1.57 1.39 1.23/(i)/
Net investment income (loss)/(g)/ 0.59 (0.34)/(h)/ 0.13 0.17 0.26 0.20/(i)/
Waiver/reimbursement -- -- 0.03 -- -- --
Portfolio turnover rate (%) 68 57/(e)/ 95 59 84 63
Net assets, end of period (000's) ($) 78,479 84,393 82,366 79,227 127,953 169,701
|
(a) The Fund changed its fiscal year end from October 31 to March 31, effective
March 31, 2004.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Net investment income per share reflects a special dividend which amounted
to $0.03 per share.
(d) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(e) Not annualized.
(f) Had the investment advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(g) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
(i) During the year ended October 31, 2000, the Fund experienced a one-time
reduction in its expenses of 0.04% as a result of expenses accrued in a
prior period. The Fund's ratios disclosed above reflect the accrual rate at
which expenses were incurred throughout the year without the reduction.
Financial Highlights
The Fund
Year ended Period ended
March 31, March 31, Year ended October 31,
2005 2004/(a)/ 2003 2002 2001 2000
Class B Class B Class B Class B Class B Class B
------- ------- ------- ------- ------- -------
Net asset value --
Beginning of period ($) 10.71 9.87 7.93 10.19 16.39 16.84
-----------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment loss/(b)/ (0.02)/(c)/ (0.05) (0.05) (0.05) (0.06) (0.09)
Net realized and unrealized gain (loss) on
investments, foreign currency and foreign
capital gains tax 0.79 0.89 1.99 (2.21) (4.00) 1.33
-----------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.77 0.84 1.94 (2.26) (4.06) 1.24
-----------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income -- -- -- -- -- (0.01)
From net realized gains -- -- -- -- (2.12) (1.68)
In excess of net realized gains -- -- -- -- (0.02) --
-----------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders -- -- -- -- (2.14) (1.69)
-----------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 11.48 10.71 9.87 7.93 10.19 16.39
-----------------------------------------------------------------------------------------------------------------------
Total return (%)/(d)/ 7.19 8.51/(e)/ 24.46/(f)/ (22.18) (28.08) 6.97
-----------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(g)/ 2.31 2.39/(h)/ 2.41 2.32 2.14 1.98/(i)/
Net investment loss/(g)/ (0.16) (1.09)/(h)/ (0.62) (0.58) (0.49) (0.55)/(i)/
Waiver/reimbursement -- -- 0.03 -- -- --
Portfolio turnover rate (%) 68 57/(e)/ 95 59 84 63
Net assets, end of period (000's) ($) 16,129 19,896 20,086 20,311 38,083 15,405
|
(a) The Fund changed its fiscal year end from October 31 to March 31, effective
March 31, 2004.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Net investment loss per share reflects a special dividend which amounted to
$0.03 per share.
(d) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(e) Not annualized.
(f) Had the investment advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(g) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
(i) During the year ended October 31, 2000, the Fund experienced a one-time
reduction in its expenses of 0.04% as a result of expenses accrued in a
prior period. The Fund's ratios disclosed above reflect the accrual rate at
which expenses were incurred throughout the year without the reduction.
Financial Highlights
The Fund
Year ended Period ended
March 31, March 31, Year ended October 31,
2005 2004/(a)/ 2003 2002 2001 2000
Class C Class C Class C Class C Class C Class C
------- ------- ------- ------- ------- -------
Net asset value --
Beginning of period ($) 10.70 9.86 7.93 10.20 16.40 16.84
---------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment loss/(b)/ (0.02)/(c)/ (0.05) (0.05) (0.05) (0.06) (0.09)
Net realized and unrealized gain (loss) on
investments, foreign currency and foreign
capital gains tax 0.79 0.89 1.98 (2.22) (4.00) 1.34
---------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.77 0.84 1.93 (2.27) (4.06) 1.25
---------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income -- -- -- -- -- (0.01)
From net realized gains -- -- -- -- (2.12) (1.68)
In excess of net realized gains -- -- -- -- (0.02) --
---------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders -- -- -- -- (2.14) (1.69)
---------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 11.47 10.70 9.86 7.93 10.20 16.40
---------------------------------------------------------------------------------------------------------------------
Total return (%)/(d)/ 7.20 8.52/(e)/ 24.34/(f)/ (22.25) (28.06) 7.03
---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(g)/ 2.31 2.39/(h)/ 2.41 2.32 2.14 1.98/(i)/
Net investment loss/(g)/ (0.16) (1.09)/(h)/ (0.62) (0.58) (0.49) (0.55)/(i)/
Waiver/reimbursement -- -- 0.03 -- -- --
Portfolio turnover rate (%) 68 57/(e)/ 95 59 84 63
Net assets, end of period (000's) ($) 1,076 1,129 1,017 1,041 1,696 1,030
|
(a) The Fund changed its fiscal year end from October 31 to March 31, effective
March 31, 2004.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Net investment loss per share reflects a special dividend which amounted to
$0.03 per share.
(d) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(e) Not annualized.
(f) Had the investment advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(g) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
(i) During the year ended October 31, 2000, the Fund experienced a one-time
reduction in its expenses of 0.04% as a result of expenses accrued in a
prior period. The Fund's ratios disclosed above reflect the accrual rate at
which expenses were incurred throughout the year without the reduction.
Class A Shares/(1)/
Annual Expense Ratio Initial Hypothetical Investment Amount Assumed Rate of Return
1.56% $10,000.00 5%
|
Hypothetical Year- Hypothetical Year-
Cumulative Return End Balance Before Cumulative Return End Balance After Annual Fees &
Year Before Fees & Expenses Fees & Expenses After Fees & Expenses Fees & Expenses Expenses
1 5.00% $ 9,896.25 3.44% $ 9,749.22 $ 724.56
2 10.25% $10,391.06 7.00% $10,084.59 $ 154.70
3 15.76% $10,910.62 10.68% $10,431.50 $ 160.03
4 21.55% $11,456.15 14.49% $10,790.35 $ 165.53
5 27.63% $12,028.95 18.42% $11,161.53 $ 171.22
6 34.01% $12,630.40 22.50% $11,545.49 $ 177.11
7 40.71% $13,261.92 26.71% $11,942.66 $ 183.21
8 47.75% $13,925.02 31.07% $12,353.48 $ 189.51
9 55.13% $14,621.27 35.58% $12,778.44 $ 196.03
10 62.89% $15,352.33 40.24% $13,218.02 $ 202.77
Total Gain Before Fees & Expenses $ 5,927.33
Total Gain After Fees & Expenses $ 3,793.02
Total Annual Fees & Expenses Paid $2,324.68
|
(1) For Class A shares, the year one Annual Fees & Expenses and Hypothetical Year-End Balance Before Fees & Expenses information shown include the dollar amount and effect of any applicable front-end sales charge of the Fund.
Class B Shares
Annual Expense Ratio Initial Hypothetical Investment Amount Assumed Rate of Return
2.31% $10,000.00 5%
|
Hypothetical Year- Hypothetical Year-
Cumulative Return End Balance Before Cumulative Return End Balance After Annual Fees &
Year Before Fees & Expenses Fees & Expenses After Fees & Expenses Fees & Expenses Expenses
1 5.00% $10,500.00 2.69% $10,269.00 $ 234.11
2 10.25% $11,025.00 5.45% $10,545.24 $ 240.40
3 15.76% $11,576.25 8.29% $10,828.90 $ 246.87
4 21.55% $12,155.06 11.20% $11,120.20 $ 253.51
5 27.63% $12,762.82 14.19% $11,419.33 $ 260.33
6 34.01% $13,400.96 17.27% $11,726.51 $ 267.33
7 40.71% $14,071.00 20.42% $12,041.96 $ 274.53
8 47.75% $14,774.55 23.66% $12,365.89 $ 281.91
9 55.13% $15,513.28 27.91% $12,791.27 $ 196.23
10 62.89% $16,288.95 32.31% $13,231.29 $ 202.98
Total Gain Before Fees & Expenses $ 6,288.95
Total Gain After Fees & Expenses $ 3,231.29
Total Annual Fees & Expenses Paid $2,458.20
|
Appendix A
Class C Shares
Annual Expense Ratio Initial Hypothetical Investment Amount Assumed Rate of Return
2.31% $10,000.00 5%
|
Hypothetical Year- Hypothetical Year-
Cumulative Return End Balance Before Cumulative Return End Balance After Annual Fees &
Year Before Fees & Expenses Fees & Expenses After Fees & Expenses Fees & Expenses Expenses
1 5.00% $10,500.00 2.69% $10,269.00 $ 234.11
2 10.25% $11,025.00 5.45% $10,545.24 $ 240.40
3 15.76% $11,576.25 8.29% $10,828.90 $ 246.87
4 21.55% $12,155.06 11.20% $11,120.20 $ 253.51
5 27.63% $12,762.82 14.19% $11,419.33 $ 260.33
6 34.01% $13,400.96 17.27% $11,726.51 $ 267.33
7 40.71% $14,071.00 20.42% $12,041.96 $ 274.53
8 47.75% $14,774.55 23.66% $12,365.89 $ 281.91
9 55.13% $15,513.28 26.99% $12,698.53 $ 289.49
10 62.89% $16,288.95 30.40% $13,040.12 $ 297.28
Total Gain Before Fees & Expenses $ 6,288.95
Total Gain After Fees & Expenses $ 3,040.12
Total Annual Fees & Expenses Paid $2,645.77
|
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust III: 811-881
. Columbia Global Equity Fund
[LOGO] ColumbiaFunds\(R)\
A Member of Columbia Management Group
(C)2005 Columbia Funds Distributor, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/88318-0705
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED AUGUST 1, 2005 (THE "PROSPECTUS")
(REPLACING SUPPLEMENTS DATED AUGUST 19, 2005, SEPTEMBER 26, 2005 AND NOVEMBER 1, 2005)
COLUMBIA U.S. TREASURY INDEX FUND
(THE "FUND")
CLASS A, B AND C SHARES
The Prospectus is hereby supplemented with the following information:
1. At a meeting held on September 16, 2005, shareholders of Columbia Large Company Index Fund and Columbia Small Company Index Fund (the "Funds") approved the reorganization of the Funds into Columbia Large Cap Index Fund (formerly named Nations LargeCap Index Fund) and Columbia Small Cap Index Fund (formerly named Nations SmallCap Index Fund), respectively (the "Reorganization"). The Reorganization took place on September 23, 2005. Accordingly, effective September 26, 2005, all references to the Funds in the Prospectus are removed.
2. Effective August 22, 2005, Columbia Funds Distributor, Inc. (the Fund's distributor) and Columbia Funds Services, Inc. (the Fund's transfer agent) changed their names to Columbia Management Distributors, Inc. and Columbia Management Services, Inc., respectively.
3. The "Calendar Year Total Returns" and "Average Annual Total Returns" tables for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS
CLASS A(1)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 2.21% 9.27% 9.76% -2.85% 13.13% 6.28% 11.09% 1.63% 2.85% 2.24% |
For the periods shown above:
Best quarter: 3rd quarter 2002, +7.25%
Worst quarter: 2nd quarter 2004, -3.27%
(1) The calendar year total returns shown for Class A shares include the returns of the Fund's Class Z shares for periods prior to November 25, 2002, the date on which Class A shares were initially offered by the Fund. Prior to November 25, 2002, the Fund's Class Z shares were designated as Trust Shares of the Galaxy II U.S. Treasury Index Fund, the predecessor to the Fund. Class A shares would have had substantially similar annual returns because they would have been invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class A shares (in particular, 12b-1 fees, which Class Z shares do not pay) exceed expenses paid by Class Z shares.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2005
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Class A (%)
Return Before Taxes (2.60) 3.74(1) 4.94(1)
Return After Taxes on Distributions (3.88) 2.07(1) 2.84(1)
Return After Taxes on Distributions and Sale of Fund
Shares (1.69) 2.18(1) 2.89(1)
----- ---- ----
Class B (%)
Return Before Taxes (3.44) 3.94(1) 5.21(1)
Return After Taxes on Distributions (4.52) 2.40(1) 3.18(1)
Return After Taxes on Distributions and Sale of Fund
Shares (2.24) 2.43(1) 3.18(1)
----- ---- ----
Class C (%)
Return Before Taxes 0.65 4.38(1) 5.26(1)
Return After Taxes on Distributions (0.48) 2.82(1) 3.22(1)
Return After Taxes on Distributions and Sale of Fund
Shares 0.42 2.80(1) 3.21(1)
----- ---- ----
Citigroup Bond U.S. Treasury Index % 2.31 2.95 4.37
----- ---- ----
|
(1) Class A, Class B and Class C are newer classes of shares. Their performance information includes returns of the Fund's Class Z shares for periods prior to November 25, 2002, the date on which Class A, B and C shares were initially offered by the Fund. Prior to November 25, 2002, the Fund's Class Z shares were designated as Trust Shares of the Galaxy II U.S. Treasury Index Fund, the predecessor to the Fund. The returns have not been adjusted to reflect any differences in expenses (such as 12b-1 fees) between Class Z and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class A, B and C shares were initially offered on November 25, 2002, and Trust shares were initially offered on October 1, 1990.
4. The section entitled "Investment Minimums" is revised in its entirety as follows:
The initial investment minimum for the purchase of Class A, B and C shares is $1,000. For investors establishing an automatic investment plan, the initial investment minimum is $50. For participants in certain retirement plans, the initial investment minimum is $25. There is no minimum initial investment for wrap accounts. The Fund reserves the right to change these investment minimums. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
Please see the Statement of Additional Information for more details on investment minimums.
5. The call-out box entitled "Choosing a Share Class" is revised in its entirety as follows:
CHOOSING A SHARE CLASS
The Fund offers three classes of shares in this prospectus -- CLASS A, B AND C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 or more but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
The Fund also offers an additional class of shares, Class Z shares, exclusively to certain institutional and other investors. Class Z shares are made available through a separate prospectus provided to eligible institutional and other investors.
6. The table entitled "Class A Sales Charges" is replaced in its entirety as follows:
CLASS A SALES CHARGES
AS a % OF THE % OF OFFERING PRICE
PUBLIC AS a % OF YOUR RETAINED BY FINANCIAL
AMOUNT PURCHASED OFFERING PRICE INVESTMENT ADVISOR
Less than $50,000 4.75 4.99 4.25
$50,000 to less than $100,000 4.50 4.71 4.00
$100,000 to less than $250,000 3.50 3.63 3.00
$250,000 to less than $500,000 2.50 2.56 2.25
$500,000 to less than $1,000,000 2.00 2.04 1.75
$1,000,000 or more 0.00 0.00 0.00
|
7. The section entitled "Reduced Sales Charges for Larger Investments" is revised in its entirety as follows:
A. WHAT ARE THE PRINCIPAL WAYS TO OBTAIN A BREAKPOINT DISCOUNT?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
RIGHTS OF ACCUMULATION The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
STATEMENT OF INTENT You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all
purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. WHAT ACCOUNTS ARE ELIGIBLE FOR BREAKPOINT DISCOUNTS?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
- Individual accounts
- Joint accounts
- Certain IRA accounts
- Certain trusts
- UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. HOW DO I OBTAIN A BREAKPOINT DISCOUNT?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisors' failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. HOW CAN I OBTAIN MORE INFORMATION ABOUT BREAKPOINT DISCOUNTS?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, though fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Funds as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
8. All disclosure related to Class B Sales Charges under the section entitled "Sales Charges" is revised in its entirety as follows:
CLASS B SHARES Your purchases of Class B shares are at Class B's net asset value. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the applicable chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the charts below.
Purchases of less than $50,000
CLASS B SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 5.00
Through second year 4.00
Through third year 3.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Longer than six years 0.00
|
Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
9. The instructions with respect to redemptions by systematic withdrawal plan in the table under the section "How to Sell Shares" are revised in their entirety as follows:
You may automatically sell a specified dollar amount or percentage of your account on a monthly, quarterly or semi-annual basis and have the proceeds sent to you if your account balance is at least $5,000. The $5,000 minimum account balance requirement has been
waived for wrap accounts. This feature is not available if you hold your shares in certificate form. All dividend and capital gains distributions must be reinvested. Be sure to complete the appropriate section of the account application for this feature.
10. The section "LEGAL PROCEEDINGS" under the heading "MANAGING THE FUND" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the
"MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
11. The section entitled "Financial Highlights" is updated and restated in its entirety as follows:
The financial highlights table is intended to help you understand the Funds' financial performance. Information is shown for the Funds' fiscal years since inception, which run from April 1 to March 31, unless otherwise indicated. Certain information reflects financial results for a single Fund share. Information for the six-month period ended September 30, 2005 is unaudited. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Funds (assuming reinvestment of all dividends and distributions). This information has been derived from the Funds' financial statements which, for the years ended March 31, 2004 and 2005, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Funds' financial statements, is included in the Funds' annual report. The information for the period ended
March 31, 2003 has been derived from the Funds' financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
Selected data for a share outstanding throughout each period is as follows:
(Unaudited)
Six Months Ended Period Ended
September 30, Year Ended March 31, March 31,
-------------------
Class A Shares 2005 2005 2004 (a) 2003 (b)
------------------------------------------------------ ---------------- -------- -------- ------------
Net Asset Value, Beginning of Period $10.72 $11.18 $11.25 $11.05
------ ------ ------
Income from Investment Operations:
Net investment income (c) 0.19 0.35 0.35 0.19
Net realized and unrealized gain (loss) on investments 0.04 (0.41) 0.05 0.15
------ ------ ------
Total from investment operations 0.23 (0.06) 0.40 0.34
------ ------ ------
Less Distributions Declared to Shareholders:
From net investment income (0.20) (0.40) (0.47) (0.14)
------ ------ ------
Net Asset Value, End of Period $10.75 $10.72 $11.18 $11.25
Total return (d) 2.18%(e) (0.48)% 3.70% 3.12%(e)
------ ------ ------
Ratios to Average Net Assets/Supplemental Data:
Expenses 0.66%(f) 0.66% 0.66% 0.65%(f)
Net investment income 3.43%(f) 3.22% 3.14% 4.86%(f)
Portfolio turnover rate 22%(e) 44% 42% 48%
Net assets, end of period (000's) $4,474 $3,314 $2,625 $ 477%
------ ------ ------
|
(b) Class A shares were initially offered on November 25, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge.
(e) Not annualized.
(f) Annualized.
(Unaudited)
Six Months Ended Period Ended
September 30, Year Ended March 31, March 31,
-------------------
Class B Shares 2005 2005 2004 (a) 2003 (b)
------------------------------------------------------ ---------------- -------- --------- ------------
Net Asset Value, Beginning of Period $10.72 $11.18 $11.25 $11.05
------ ------- ------ ------
Income from Investment Operations:
Net investment income (c) 0.15 0.27 0.27 0.17
Net realized and unrealized gain (loss) on investments 0.04 (0.41) 0.05 0.15
------ ------- ------ ------
Total from investment operations 0.19 (0.14) 0.32 0.32
------ ------- ------ ------
Less Distributions Declared to Shareholders:
From net investment income (0.16) (0.32) (0.39) (0.12)
------ ------- ------ ------
Net Asset Value, End of Period $10.75 $10.72 $11.18 $11.25
Total return (d) 1.80%(e) (1.23)% 2.91% 2.87%(e)
------ ------- ------ ------
Ratios to Average Net Assets/Supplemental Data:
Expenses 1.41%(f) 1.41% 1.41% 1.40%(f)
Net investment income 2.68%(f) 2.48% 2.44% 4.25%(f)
Portfolio turnover rate 22%(e) 44% 42% 48%
Net assets, end of period (000's) $1,637 $1,451 $1,574 $678
------ ------- ------ ------
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(b) Class B shares were initially offered on November 25, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(e) Not annualized.
(f) Annualized.
(Unaudited)
Six Months Ended Period Ended
September 30, Year Ended March 31, March 31,
--------------------
Class C Shares 2005 2005 2004 (a) 2003 (b)
------------------------------------------------------ ---------------- -------- ---------- ------------
Net Asset Value, Beginning of Period $10.72 $11.18 $11.25 $11.05
------ ------- ------ ------
Income from Investment Operations:
Net investment income (c) 0.15 0.29 0.28 0.27
Net realized and unrealized gain (loss) on investments 0.05 (0.41) 0.06 0.05
------ ------- ------ ------
Total from investment operations 0.20 (0.12) 0.34 0.32
------ ------- ------ ------
Less Distributions Declared to Shareholders:
From net investment income (0.17) (0.34) (0.41) (0.12)
------ ------- ------ ------
Net Asset Value, End of Period $10.75 $10.72 $11.18 $11.25
Total return (d)(e) 1.88%(f) (1.07)% 3.07% 2.92%(f)
------ ------- ------ ------
Ratios to Average Net Assets/Supplemental Data:
Expenses 1.26%(g) 1.26% 1.26% 1.25%(g)
Net investment income 2.83%(g) 2.67% 2.56% 6.87%(g)
Waiver/reimbursement 0.15%(g) 0.15% 0.15% 0.15%(g)
Portfolio turnover rate 22%(f) 44% 42% 48%
Net assets, end of period (000's) $1,167 $869 $1,843 $414
------ ------- ------ ------
|
(b) Class C shares were initially offered on November 25, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(e) Had the Distributor not waived a portion of expenses, total return would have been reduced.
(f) Not annualized.
(g) Annualized.
12. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
13. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367".
INT-47/107488-0306 March 27, 2006
COLUMBIA INDEX FUNDS Prospectus, August 1, 2005
COLUMBIA LARGE COMPANY INDEX FUND
COLUMBIA SMALL COMPANY INDEX FUND
COLUMBIA U.S. TREASURY INDEX FUND
CLASS A, B AND C SHARES
Advised by Columbia Management Advisors, Inc.
TABLE OF CONTENTS
THE FUNDS 2 Investment Goal................................. 2 Principal Investment Strategies................. 2 Principal Investment Risks...................... 3 Each of these sections discusses the following topics: Performance History and Your Expenses Columbia Large Company Index Fund............... 5 Columbia Small Company Index Fund............... 9 Columbia U.S. Treasury Index Fund............... 13 YOUR ACCOUNT 17 How to Buy Shares............................... 17 Investment Minimums............................. 17 Sales Charges................................... 18 How to Exchange Shares.......................... 23 How to Sell Shares.............................. 23 Fund Policy on Trading of Fund Shares........... 24 Distribution and Service Fees................... 25 Other Information About Your Account............ 26 MANAGING THE FUNDS 29 Investment Advisor.............................. 29 Portfolio Managers.............................. 29 Legal Proceedings............................... 29 FINANCIAL HIGHLIGHTS 32 Columbia Large Company Index Fund............... 32 Columbia Small Company Index Fund............... 35 Columbia U.S. Treasury Index Fund............... 38 APPENDIX A 41 |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Not FDIC May Lose Value
Insured -----------------
No Bank Guarantee
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THE FUNDS
INVESTMENT GOAL
Each Fund seeks to provide investment results that, before deduction of operating expenses, match the price and yield performance of its index.
PRINCIPAL INVESTMENT STRATEGIES
Each Fund pursues an indexing strategy to approximate the investment performance of its index. Each Fund invests substantially all of its assets (under normal circumstances, at least 80% of net assets plus any borrowings for investment purposes) in the securities included in its index.
The Funds follow INDEXING STRATEGIES and are not actively managed. This means that the Funds' investment advisor does not use economic, financial and market analysis in selecting securities for a Fund. Instead, the advisor attempts to approximate the performance of the Fund's target index by investing the Fund's assets in securities included in that index. The advisor relies on sophisticated computerized tools and analysis in managing the Fund's investments.
The STANDARD & POOR'S 500 INDEX (S&P 500) is an unmanaged index that tracks the performance of 500 widely held, large capitalization U.S. stocks.
The STANDARD & POOR'S SMALLCAP 600 INDEX (S&P SMALLCAP 600) is an unmanaged index that tracks the performance of 600 domestic companies traded on the New York Stock Exchange, the American Stock Exchange and NASDAQ. The S&P SmallCap 600 is heavily weighted with the stocks of small companies.
The CITIGROUP BOND U.S. TREASURY INDEX is an unmanaged index composed of all U.S. Treasury notes and bonds with remaining maturities of at least one year and outstanding principal of at least $25 million that are included in the Citigroup Broad Investment-Grade Bond Index. Securities in the Citigroup Bond U.S. Treasury Index are weighted by market value, that is, the price per bond or note multiplied by the number of bonds or notes outstanding.
The Columbia Large Company Index Fund normally holds all 500 stocks in the S&P 500, in approximately the same percentage as each stock is represented in the S&P 500. From time to time, however, when deemed advisable by the Fund's investment advisor, the Fund may not hold all of the stocks in the S&P 500 or hold the stocks in the same percentages as the index.
The Columbia Small Company Index Fund normally holds all 600 stocks in the S&P SmallCap 600, in approximately the same percentage as each stock is represented in the S&P SmallCap 600. From time to time, however, when deemed advisable by the Fund's investment advisor, the Fund may not hold all of the stocks in the S&P SmallCap 600 or hold the stocks in the same percentages as the index.
To the extent that, from time to time, the stocks in a particular market sector, such as technology, comprise a significant proportion of the S&P 500 or the S&P SmallCap 600, those stocks will be represented in substantially the same proportion in their corresponding funds.
The Columbia Large Company Index Fund and the Columbia Small Company Index Fund
may also invest in stock index futures contracts in order to track the S&P 500 and the S&P SmallCap 600, respectively, when the purchase of individual securities may be less efficient.
The Columbia U.S. Treasury Index Fund will not hold all of the issues in the U.S. Treasury Index because of the costs involved. Instead, the Fund's investment advisor will consider whether or not to include each security in the Fund based on that security's contribution to the Fund's total market value, average coupon rate and average weighted maturity of the Fund as compared to the U.S. Treasury Index.
A Fund will only purchase a portfolio security that is included in its index at the time of purchase. A Fund will normally only buy or sell portfolio securities to adjust to changes in the composition of its index or to accommodate cash flows into and out of the Fund.
Under normal market conditions, it is expected that the quarterly performance of a Fund, before expenses, will track the performance of its index within a .95 correlation coefficient.
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily a Fund's normal investment activities. During such times, a Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent a Fund from achieving its investment goal.
In seeking to achieve its investment goal, a Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in each Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by a Fund's shareholders is not required to modify or change a Fund's investment goal or investment strategies.
PRINCIPAL INVESTMENT RISKS
The principal risks of investing in the Funds are described below. There are many circumstances (including additional risks that are not described here) which could prevent a Fund from achieving its investment goal. You may lose money by investing in a Fund.
Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that a Fund will achieve its investment goal or perform favorably among comparable funds.
Index funds are subject to indexing risk. Your investment in a Fund will typically decline in value when its index declines. Since the Fund is designed to track its index, the Fund cannot purchase other securities that may help offset declines in its index. In addition, because a Fund may not hold all issues included in its index, may not always be fully invested, and bears transaction costs and expenses, a Fund's performance may fail to match the performance of its index, after taking expenses into account.
A Fund may not always be able to track the performance of its index by entering into stock index futures contracts because the prices of stock index futures contracts may not always match the movement of the index to which they relate. Also, a liquid secondary market may not be available, which might prevent the advisor from closing out a futures contract when desired.
The U.S. Treasury Index Fund is subject to interest rate risk, which is the risk of a change in the price of a bond when prevailing interest rates increase
or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Although U.S. Government securities, particularly U.S. Treasury securities, have historically involved little credit risk, if an issuer fails to pay interest or repay principal, the value of your investment could decline.
Since the Columbia Large Company Index Fund and the Columbia Small Company Index Fund purchase equity securities, they are subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Sector risk is inherent in the investment strategy of the Columbia Large Company Index Fund and the Columbia Small Company Index Fund. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of different companies in a market sector may be similarly affected by particular economic or market events. Although a Fund does not intend to focus on any particular sector, to the extent that the stocks in a particular market sector comprise a significant portion of one of the Fund's indexes and, correspondingly, of a Fund's holdings, the Fund will be especially susceptible to the risks associated with investments in those market sectors.
Small- or mid-cap companies, such as those whose stocks are purchased by the Columbia Small Company Index Fund, may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
An investment in a Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
PERFORMANCE HISTORY (LARGE COMPANY)
The bar chart below shows the Fund's calendar year total returns (before taxes) for its Class A shares, excluding sales charges. The performance table following the bar chart shows how the Fund's average annual total returns for Class A, B and C shares, including sales charges, compare with those of a broad measure of market performance for one year, five years and ten years. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing changes in the Fund's performance from year-to-year. All returns include the reinvestment of dividends and distributions. Performance results include the effect of expense reduction arrangements, if any. If these arrangements had not been in place, the performance results would have been lower. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance.
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, returns would be lower.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
CALENDAR YEAR TOTAL RETURNS (CLASS A)(1)
(BAR CHART)
37.09% 22.54% 32.81% 28.06% 20.49% 27.67% 10.16%
-9.08% -12.22% -22.05%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
|
The Class's year-to-date total For the periods shown in bar chart: return through June 30, 2005 Best quarter: 4th quarter 1998, +21.24% was -1.01%. Worst quarter: 3rd quarter 2002, -17.03% |
(1) The calendar year total returns shown for Class A shares include the returns of the Fund's Class Z shares for periods prior to December 9, 2002, the date on which Class A shares were initially offered by the Fund. Prior to December 9, 2002, the Fund's Class Z shares were designated as Trust Shares of the Galaxy II Large Company Index Fund, the predecessor to the Fund. Class A shares would have had substantially similar annual returns because they would have been invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class A shares (in particular, 12b-1 fees, which Class Z shares do not pay) exceed expenses paid by Class Z shares.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004
1 YEAR 5 YEARS 10 YEARS
Class A (%)
Return Before Taxes 3.83 -3.79(1) 11.00(1)
Return After Taxes on Distributions 3.03 -4.81(1) 9.78(1)
Return After Taxes on Distributions and Sale of Fund
Shares 3.47 -3.49(1) 9.26(1)
Class B (%)
Return Before Taxes 4.28 -3.28(1) 11.47(1)
Return After Taxes on Distributions 3.55 -4.28(1) 10.27(1)
Return After Taxes on Distributions and Sale of Fund
Shares 3.67 -3.06(1) 9.70(1)
Class C (%)
Return Before Taxes 8.29 -2.92(1) 11.49(1)
Return After Taxes on Distributions 7.57 -3.92(1) 10.29(1)
Return After Taxes on Distributions and Sale of Fund
Shares 6.28 -2.77(1) 9.72(1)
S&P 500 Index (%) 10.88 -2.30 12.07
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YOUR EXPENSES
Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the fees and expenses you may pay when you buy, hold and sell shares of the Fund.
UNDERSTANDING EXPENSES
SALES CHARGES are paid directly by shareholders to Columbia Funds Distributor, Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management and administration fees, 12b-1 fees, and other expenses that generally include, but are not limited to, trustee and commitment fees. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily
identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
- Reinvestment of all dividends and distributions
- Class B shares convert to Class A shares after eight years
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00 0.00
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or
redemption price) 0.00 5.00 1.00
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) (2) (2) (2)
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
CLASS A CLASS B CLASS C
Management fee(1)(2) (%) 0.20 0.20 0.20
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00
Other expenses(3) (%) 0.00 0.00 0.00
Total annual fund operating expenses (%) 0.45 1.20 1.20
|
(1) The Fund pays a management fee of 0.10% and an administration fee of 0.10%.
(2) Management fees have been restated to reflect contractual changes to the administration fee for the Fund effective November 1, 2004.
(3) Rounds to less than 0.005%.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
CLASS
YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A $ 618 $ 711 $ 813 $ 1,109
Class B: did not sell your shares $ 122 $ 381 $ 660 $ 1,246
sold all your shares at
the end of the period $ 622 $ 681 $ 860 $ 1,246
Class C: did not sell your shares $ 122 $ 381 $ 660 $ 1,455
sold all your shares at
the end of the period $ 222 $ 381 $ 660 $ 1,455
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See Appendix A for additional hypothetical investment and expense information.
PERFORMANCE HISTORY (SMALL COMPANY)
The bar chart below shows the Fund's calendar year total returns (before taxes) for its Class A shares, excluding sales charges. The performance table following the bar chart shows how the Fund's average annual total returns for Class A, B and C shares, including sales charges, compare with those of a broad measure of market performance for one year, five years and ten years. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing changes in the Fund's performance from year-to-year. All returns include the reinvestment of dividends and distributions. Performance results include the effect of expense reduction arrangements, if any. If these arrangements had not been in place, the performance results would have been lower. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance.
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
CALENDAR YEAR TOTAL RETURNS (CLASS A)(1)
(BAR CHART)
33.11% 19.68% 23.56% 11.66% 11.00% 6.21% 37.73% 21.75%
-1.75% -15.31%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
|
The Class's year-to-date total For the periods shown in bar chart:
return through June 30, 2005 Best quarter: 4th quarter 2001, +20.50%
was 1.59%. Worst quarter: 3rd quarter 1998, -20.89%
(1) The calendar year total returns shown for Class A shares include the returns of the Fund's Class Z shares, for periods prior to November 25, 2002, the date on which Class A shares were initially offered by the Fund. Prior to November 25, 2002, the Fund's Class Z shares were designated as Trust Shares of the Galaxy II Small Company Index Fund, the predecessor to the Fund. Class A shares would have had substantially similar annual returns because they would have been invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class A shares (in particular, 12b-1 fees, which Class Z shares do not pay) exceed expenses paid by Class Z shares.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004
1 YEAR 5 YEARS 10 YEARS
Class A (%)
Return Before Taxes 14.73 9.55(1) 13.04(1)
Return After Taxes on Distributions 13.73 8.22(1) 10.49(1)
Return After Taxes on Distributions and Sale of Fund
Shares 10.64 7.64(1) 10.18(1)
Class B (%)
Return Before Taxes 15.88 10.23(1) 13.53(1)
Return After Taxes on Distributions 14.96 8.91(1) 10.98(1)
Return After Taxes on Distributions and Sale of Fund
Shares 11.46 8.26(1) 10.65(1)
Class C (%)
Return Before Taxes 19.92 10.53(1) 13.55(1)
Return After Taxes on Distributions 18.99 9.22(1) 11.00(1)
Return After Taxes on Distributions and Sale of Fund
Shares 14.09 8.54(1) 10.66(1)
S&P SmallCap 600 Index (%) 22.65 11.60 14.29
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YOUR EXPENSES
Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the fees and expenses you may pay when you buy, hold and sell shares of the Fund.
UNDERSTANDING EXPENSES
SALES CHARGES are paid directly by shareholders to Columbia Funds Distributor, Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management and administration fees, 12b-1 fees, and other expenses that generally include, but are not limited to, trustee and commitment fees. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
- Reinvestment of all dividends and distributions
- Class B shares convert to Class A shares after eight years
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00 0.00
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or
redemption price) 0.00 5.00 1.00
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) (2) (2) (2)
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
CLASS A CLASS B CLASS C
Management fee(1)(2) (%) 0.20 0.20 0.20
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00
Other expenses (%) 0.01 0.01 0.01
Total annual fund operating expenses (%) 0.46 1.21 1.21
|
(2) Management fees have been restated to reflect contractual changes to the administration fee for the Fund effective November 1, 2004.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
CLASS
YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A $ 619 $ 714 $ 818 $ 1,121
Class B: did not sell your shares $ 123 $ 384 $ 665 $ 1,257
sold all your shares at
the end of the period $ 623 $ 684 $ 865 $ 1,257
Class C: did not sell your shares $ 123 $ 384 $ 665 $ 1,466
sold all your shares at
the end of the period $ 223 $ 384 $ 665 $ 1,466
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See Appendix A for additional hypothetical investment and expense information.
PERFORMANCE HISTORY (TREASURY)
The bar chart below shows the Fund's calendar year total returns (before taxes) for its Class A shares, excluding sales charges. The performance table following the bar chart shows how the Fund's average annual total returns for Class A, B and C shares, including sales charges, compare with those of a broad measure of market performance for one year, five years and ten years. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing changes in the Fund's performance from year-to-year. All returns include the reinvestment of dividends and distributions. Performance results include the effect of expense reduction arrangements, if any. If these arrangements had not been in place, the performance results would have been lower. Any expense reduction arrangements may be discontinued at any time. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance.
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class A share performance for each of the last ten complete calendar years.
They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges.
CALENDAR YEAR TOTAL RETURNS (CLASS A)(1)
(BAR CHART)
18.06% 2.21% 9.27% 9.76% 13.13% 6.28% 11.09% 1.63% 2.85%
-2.85%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
|
The Class's year-to-date total return For the periods shown in bar chart:
through June 30, 2005 was 2.98%. Best quarter: 3rd quarter 2002, +7.25%
Worst quarter: 2nd quarter 2004, -3.27%
(1) The calendar year total returns shown for Class A shares include the returns of the Fund's Class Z shares for periods prior to November 25, 2002, the date on which Class A shares were initially offered by the Fund. Prior to November 25, 2002, the Fund's Class Z shares were designated as Trust Shares of the Galaxy II U.S. Treasury Index Fund, the predecessor to the Fund. Class A shares would have had substantially similar annual returns because they would have been invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class A shares (in particular, 12b-1 fees, which Class Z shares do not pay) exceed expenses paid by Class Z shares.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004
1 YEAR 5 YEARS 10 YEARS
Class A (%)
Return Before Taxes -2.06 5.86(1) 6.46(1)
Return After Taxes on Distributions -3.33 3.93(1) 4.20(1)
Return After Taxes on Distributions and Sale of Fund
Shares -1.35 3.82(1) 4.11(1)
Class B (%)
Return Before Taxes -2.87 6.26(1) 6.81(1)
Return After Taxes on Distributions -3.93 4.41(1) 4.60(1)
Return After Taxes on Distributions and Sale of Fund
Shares -1.87 4.22(1) 4.46(1)
Class C (%)
Return Before Taxes 1.25 6.64(1) 6.85(1)
|
Return After Taxes on Distributions 0.14 4.79(1) 4.62(1)
Return After Taxes on Distributions and Sale of Fund
Shares 0.80 4.55(1) 4.48(1)
Citigroup Bond U.S. Treasury Index (%) 3.53 7.44 7.43
|
(1) Class A, Class B and Class C are newer classes of shares. Their performance information includes returns of the Fund's Class Z shares for periods prior to November 25, 2002, the date on which Class A, B and C shares were initially offered by the Fund. Prior to November 25, 2002, the Fund's Class Z shares were designated as Trust Shares of the Galaxy II U.S. Treasury Index Fund, the predecessor to the Fund. The returns have not been adjusted to reflect any differences in expenses (such as 12b-1 fees) between Class Z and the newer classes of shares. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer classes of shares would have been lower. Class A, B and C shares were initially offered on November 25, 2002, and Trust shares were initially offered on October 1, 1990.
YOUR EXPENSES
Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the fees and expenses you may pay when you buy, hold and sell shares of the Fund.
UNDERSTANDING EXPENSES
SALES CHARGES are paid directly by shareholders to Columbia Funds Distributor, Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management and administration fees, 12b-1 fees, and other expenses that generally include, but are not limited to, trustee and commitment fees. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
- Reinvestment of all dividends and distributions
- Class B shares convert to Class A shares after eight years
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75 0.00 0.00
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or
redemption price) 0.00 5.00 1.00
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) (2) (2) (2)
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(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
CLASS A CLASS B CLASS C
Management fee(1) (%) 0.40 0.40 0.40
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00(2)
Other expenses (%) 0.01 0.01 0.01
Total annual fund operating expenses (%) 0.66 1.41 1.41(2)
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(1) The Fund pays a management fee of 0.10% and an administration fee of 0.30%.
(2) The Fund's distributor has voluntarily agreed to waive a portion of the 12b-1 fee for Class C shares. If this waiver were reflected in the table the 12b-1 fee for Class C shares would be 0.85% and total annual fund operating expenses for Class C shares would be 1.26%. This arrangement may be modified or terminated by the distributor at any time.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
CLASS
YEARS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A: $ 539 $ 676 $ 825 $ 1,258
Class B: did not sell your shares $ 144 $ 446 $ 771 $ 1,486
sold all your shares at
the end of the period $ 644 $ 746 $ 971 $ 1,486
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Class C: did not sell your shares $ 144 $ 446 $ 771 $ 1,691
sold all your shares at
the end of the period $ 244 $ 446 $ 771 $ 1,691
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See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
HOW TO BUY SHARES
Your financial advisor can help you establish an appropriate investment portfolio, buy shares and monitor your investments. When a Fund receives your purchase request in "good form," your shares will be bought at the next calculated public offering price. "Good form" means that the Funds' transfer agent has all information and documentation it deems necessary to effect your order. For example, "good form" may mean that you have properly placed your order with your financial advisor or the Funds' transfer agent has received your completed application, including all necessary signatures. The USA Patriot Act may require us to obtain certain personal information from you which we will use to verify your identity. If you do not provide the information, we may not be able to open your account. If we are unable to verify your customer information, we reserve the right to close your account or take such other steps as we deem reasonable.
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your
financial advisor account and buy Fund shares on your behalf. To receive
the current trading day's price, your financial advisor
must receive your request prior to the close of regular
trading on the New York Stock Exchange ("NYSE"), usually
4:00 p.m. Eastern time. Your financial advisor may charge
you fees for executing the purchase for you.
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Funds Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or
send a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Funds Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
By exchange You or your financial advisor may acquire shares of a
Fund for your account by exchanging shares you own in a
different fund distributed by Columbia Funds Distributor,
Inc. for shares of the same class (and, in come cases,
certain other classes) of the Fund at no additional cost.
There may be an additional sales charge if exchanging
from a money market fund. To exchange by telephone, call
1-800-422-3737.
By wire You may purchase shares of a Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
By electronic You may purchase shares of a Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
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transfer may take up to two business days to settle and
be considered in "good form." You must set up this
feature prior to your telephone request. Be sure to
complete the appropriate section of the application.
Automatic You may make monthly or quarterly investments
investment plan automatically from your bank account to your Fund
account. You may select a pre-authorized amount to be
sent via electronic funds transfer. Be sure to complete
the appropriate section of the application for this
feature.
Automated dollar You may purchase shares of a Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional
cost. Exchanges will continue so long as your fund
balance is sufficient to complete the transfers. You may
terminate your program or change the amount of the
exchange (subject to the $100 minimum) by calling
1-800-345-6611. There may be an additional sales charge
if exchanging from a money market fund. Be sure to
complete the appropriate section of the account
application for this feature.
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of a Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in a Fund, call 1-800-345-6611.
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INVESTMENT MINIMUMS
The initial investment minimum for the purchase of Class A, B and C shares is $1,000. For participants in the Automatic Investment Plan the initial investment minimum is $50. For participants in certain retirement plans the initial investment minimum is $25. The Funds reserve the right to change these investment minimums. Each Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
Please see the Statement of Additional Information for more details on investment minimums.
SALES CHARGES
You may be subject to an initial sales charge when you purchase, or a contingent deferred sales charge ("CDSC") when you sell, shares of a Fund. These sales charges are described below. In certain circumstances, the sales charge may be reduced or waived, as described below and in the Statement of Additional Information.
CHOOSING A SHARE CLASS
The Funds offer three classes of shares in this prospectus -- CLASS A, B AND C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. If your financial advisor does not participate in the Class B discount program, purchases of $250,000 or more but less than $1 million can be made only in Class A or Class C shares.
Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
The Funds also offer an additional class of shares, Class Z shares, exclusively to certain institutional and other investors. Class Z shares are made available through a separate prospectus provided to eligible institutional and other investors.
CLASS A SHARES Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
CLASS A SALES CHARGES -- COLUMBIA LARGE COMPANY INDEX FUND & COLUMBIA SMALL COMPANY INDEX FUND
% OF OFFERING
AS A % OF PRICE
THE PUBLIC AS A % RETAINED BY
OFFERING OF YOUR FINANCIAL
AMOUNT PURCHASED PRICE INVESTMENT ADVISOR
Less than $50,000 5.75 6.10 5.00
$50,000 to less than $100,000 4.50 4.71 3.75
$100,000 to less than $250,000 3.50 3.63 2.75
$250,000 to less than $500,000 2.50 2.56 2.00
$500,000 to less than $1,000,000 2.00 2.04 1.75
$1,000,000 or more 0.00 0.00 0.00
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CLASS A SALES CHARGES -- COLUMBIA U.S. TREASURY INDEX FUND
% OF OFFERING
AS A % OF PRICE
THE PUBLIC AS A % RETAINED BY
OFFERING OF YOUR FINANCIAL
AMOUNT PURCHASED PRICE INVESTMENT ADVISOR
Less than $50,000 4.75 4.99 4.25
$50,000 to less than $100,000 4.50 4.71 4.00
$100,000 to less than $250,000 3.50 3.63 3.00
$250,000 to less than $500,000 2.50 2.56 2.00
$500,000 to less than $1,000,000 2.00 2.04 1.75
$1,000,000 or more 0.00 0.00 0.00
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UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES
Certain investments in Class B and Class C shares are subject to a CDSC, a sales charge applied at the time you sell your
shares. You will pay the CDSC only on shares you sell within a certain amount of time after purchase. The CDSC generally declines each year until there is no charge for selling shares. The CDSC is applied to the net asset value at the time of purchase or sale, whichever is lower. For purposes of calculating the CDSC, the start of the holding period is the first day of the month in which the purchase was made. Shares you purchase with reinvested dividends or other distributions are not subject to a CDSC. When you place an order to sell shares, the Fund will automatically sell first those shares not subject to a CDSC and then those you have held the longest.
REDUCED SALES CHARGES FOR LARGER INVESTMENTS.
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Funds and other funds in the Columbia family of funds.
RIGHTS OF ACCUMULATION The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, a Fund will use the shares' current public offering price.
STATEMENT OF INTENT You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart above, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, a Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Funds and your financial intermediary may not maintain this information. Upon request, a Statement of Intent may apply to purchases made 90 days prior to the date the Statement of Intent is received by a Fund.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
- Individual accounts
- Joint accounts
- Certain IRA accounts
- Certain trusts
- UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, stepparent, legal guardian, child, stepchild, father-in-law and mother-in-law. Eligible accounts include those
registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission. For purposes of obtaining either breakpoint discount, purchases of Galaxy money market funds are not included.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Funds are not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Funds or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Funds' transfer agent, Columbia Funds Services, Inc., you will need to provide the foregoing information to a Columbia Funds Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Funds' Statement of Additional Information and at www.columbiafunds.com.
CLASS B SHARES Your purchases of Class B shares are made at Class B's net asset value. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the applicable chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the charts below.
PURCHASES OF LESS THAN $250,000:
CLASS B SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 5.00
Through second year 4.00
Through third year 3.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Longer than six years 0.00
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Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
You can pay a lower CDSC and reduce the period during which a CDSC would apply when making purchases of Class B shares through a financial advisor that participates in the Class B share discount program for larger purchases as described in the charts below. Some financial advisors are not able to participate because their record keeping or transaction processing systems are not designed to accommodate these reductions. For non-participating financial advisors, purchases of Class B shares must be less than $250,000. Consult your financial advisor to see whether it participates in the discount program for larger purchases. For participating financial advisors, Rights of Accumulation (as described above) apply, so that if the combined value of the eligible Fund accounts in all classes maintained by you and each member of your immediate family (as defined above), together with the value of your current purchase, is at or above a discount level, your current purchase will be subject to a lower CDSC and the applicable reduced holding period, provided that you have notified your financial advisor in writing of the identity of such other accounts and your relationship to the other account holders. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Funds are not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Funds or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. This Class B share discount program for larger purchases (as further described in the charts below) is not applicable to Class B shares received by former Galaxy Fund Prime B shareholders in connection with the reorganization of the former Galaxy Fund.
PURCHASES OF $250,000 TO LESS THAN $500,000:
CLASS B SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 3.00
Through second year 2.00
Through third year 1.00
Longer than three years 0.00
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Commission to financial advisors is 2.50%.
Automatic conversion to Class A shares occurs four years after purchase.
PURCHASES OF $500,000 TO LESS THAN $1 MILLION:
CLASS B SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 3.00
Through second year 2.00
Through third year 1.00
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Commission to financial advisors is 1.75%.
Automatic conversion to Class A shares occurs three years after purchase.
If you exchange into a fund participating in the Class B share discount program or transfer your fund account from a financial advisor that does not participate in the program to one that does, the exchanged or transferred shares will retain the pre-existing CDSC but any additional purchases of Class B shares which, together with the exchanged or transferred account, exceed the applicable discount level will be subject to the lower CDSC and the reduced holding period for amounts in excess of the discount level. Your financial advisor will receive the lower commission for purchases in excess of the applicable discount level. If you exchange from a participating fund or transfer your account from a financial advisor that does participate in the program into a non-participating fund or to a financial advisor that does not participate in the program, the exchanged or transferred shares will retain the pre-existing CDSC schedule and holding period but all additional purchases of Class B shares will be subject to the higher CDSC and longer holding period of the non-participating fund or applicable to the non-participating financial advisor.
CLASS C SHARES Your purchases of Class C shares are made at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares.
CLASS C SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 1.00
Longer than one year 0.00
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HOW TO EXCHANGE SHARES
You may exchange your shares for shares of the same class (and in some cases, certain other classes) of another fund distributed by Columbia Funds Distributor, Inc. at net asset value. If your shares are subject to a CDSC, you will not be charged a CDSC upon the exchange. However, when you sell the shares acquired through the exchange, the shares sold may be subject to a CDSC, depending upon when you originally purchased the shares you are exchanging. For purposes of computing the CDSC, the length of time you have owned your shares will be computed from the date of your original purchase and the applicable CDSC will be the CDSC of the original fund. Unless your account is part of a tax-deferred retirement plan, an exchange is a taxable event, and you may realize a gain or a loss for tax purposes. A Fund may terminate your exchange privilege if the advisor determines that your exchange activity is likely to adversely impact its ability to manage the Fund. See "Fund Policy on Trading of Fund Shares" for the Funds' policy. To exchange by telephone, call 1-800-422-3737. Please have your account and taxpayer identification numbers available when calling.
HOW TO SELL SHARES
Your financial advisor can help you determine if and when you should sell your shares. You may sell shares of a Fund on any regular business day that the NYSE is open.
When a Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
A Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
By exchange You or your financial advisor may sell shares of a Fund
by exchanging from a Fund into the same share class (and,
in some cases, certain other classes) of another fund
distributed by Columbia Funds Distributor, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
By telephone You or your financial advisor may sell shares of a Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is
$100,000 in a 30-day period. You do not need to set up
this feature in advance of your call. Certain
restrictions apply to retirement accounts. For details,
call 1-800-799-7526.
By mail You may send a signed letter of instruction to the
address below. In your letter of instruction, note the
Fund's name, share class, account number, and the dollar
value or number of shares you wish to sell. All account
owners must sign the letter. Signatures must be
guaranteed by either a bank, a member firm of a national
stock exchange or another eligible guarantor that
participates in the Medallion Signature Guarantee Program
for amounts over $100,000 or for alternate
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payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and
individual retirement account owners. For details, call
1-800-345-6611.
Mail your letter of instruction to Columbia Funds
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
By wire You may sell shares of a Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if
your account balance is at least $5,000. All dividend and
capital gains distributions must be reinvested. Be sure
to complete the appropriate section of the account
application for this feature.
By electronic You may sell shares of a Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received
by your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of
the account application for this feature.
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FUND POLICY ON TRADING OF FUND SHARES
The interests of the Funds' long-term shareholders may be adversely affected by certain short-term trading activity by Fund shareholders. Such short-term trading activity, when excessive, has the potential to interfere with efficient portfolio management, generate transaction and other costs, dilute the value of Fund shares held by long-term shareholders and have other adverse effects on the Funds. This type of excessive short-term trading activity is referred to herein as "market timing". The Columbia Funds are not intended as vehicles for market timing. The Board of Trustees of the Funds has adopted the policies and procedures set forth below with respect to frequent trading of the Funds' shares.
Each Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if a Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market Fund). In addition, if a Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Funds are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into a Fund followed by an
exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Funds. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Funds typically are not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Funds' practices discussed above.
The Funds seek to act in a manner that they believe is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither a Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
DISTRIBUTION AND SERVICE FEES
RULE 12B-1 PLAN Each Fund has adopted a plan under Rule 12b-1 that permits it to pay its distributor marketing and other fees to support the sale and distribution of Class A, B, and C shares and certain services provided to you by your financial advisor. The annual service fee may equal up to 0.25% for each of Class A, Class B and Class C shares. The annual distribution fee may equal up to 0.75% for each of Class B and Class C shares. Distribution and service fees are paid out of the assets of these classes. The distributor has voluntarily agreed to waive a portion of the Treasury Fund's Class C share distribution fee so that it does not exceed 0.60% annually. Over time, these fees will reduce the return on your investment and may cost you more than paying other types of sales charges. Class B shares automatically convert to Class A shares after a certain number of years, eliminating the distribution fee upon conversion. Conversion may occur three, four or eight years after purchase, depending on the program under which you purchased your shares. See "Your Account -- Sales Charges" for the conversion schedule applicable to Class B shares.
ADDITIONAL INTERMEDIARY COMPENSATION In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the
services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of a Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Funds' investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Funds. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
OTHER INFORMATION ABOUT YOUR ACCOUNT
HOW THE FUNDS' SHARE PRICE IS DETERMINED The price of each class of a Fund's shares is based on its net asset value. The net asset value is determined at the close of regular trading on the NYSE, usually 4:00 p.m. Eastern time, on each business day that the NYSE is open for trading (typically Monday through Friday). Shares are not priced the days on which the NYSE is closed for trading.
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
Each Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, each Fund must determine the price of each security in its portfolio at the close of each trading day. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Funds may use other data to determine the fair value of the securities.
Each Fund, with the exception of Columbia U.S. Treasury Index Fund, has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for each Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Funds' transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for any class of shares offered by the Funds.
DIVIDENDS, DISTRIBUTIONS AND TAXES Each Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Funds, net of expenses incurred by the Funds.
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net
short-term capital gains, which are gains on sales of
securities held for a 12-month period or less.
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UNDERSTANDING FUND DISTRIBUTIONS
Each Fund may earn income from the securities it holds. Each Fund also may realize capital gains or losses on sales of its securities. Each Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of the Fund's income and capital gains based on the number of shares you own at the time these distributions are declared.
DISTRIBUTION OPTIONS The Large Company and Small Company Funds distribute any dividends annually and any capital gains (including short-term capital gains) at least annually. The Treasury Fund declares any dividends daily and pays them monthly, and declares and pays any capital gains (including short-term capital gains) at least annually. Shares of the Treasury Fund begin to earn dividends on the date on which a purchase order is settled by payment. Shares stop earning dividends at the close of business on the day before the date on which a redemption order is settled. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, each Fund will automatically reinvest all distributions in additional shares of the Fund.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your current fund
Reinvest all distributions in shares of another fund
Receive dividends in cash (see options below) and reinvest
capital gains
Receive all distributions in cash (with one of the following options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds transfer
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in a Fund may have additional personal tax implications. Please consult your tax advisor about federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by each Fund, you may realize a capital gain or loss when selling or exchanging shares of a Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUNDS
INVESTMENT ADVISOR
Columbia Management Advisors, Inc. (Columbia Management), located at 100 Federal Street, Boston, Massachusetts 02110, is the Funds' investment advisor. Columbia Management is responsible for the Funds' management, subject to oversight by the Funds' Board of Trustees. In its duties as investment advisor, Columbia Management runs the Funds' day-to-day business, including placing all orders for the purchase and sale of the Funds' portfolio securities. Columbia Management is a direct wholly owned subsidiary of Columbia Management Group, LLC ("CMG"), which is an indirect wholly owned subsidiary of Bank of America Corporation. Prior to June 15, 2005, CMG was a corporation. Effective June 15, 2005, CMG converted to a limited liability company. Columbia Management, a registered investment advisor, has been an investment advisor since 1969.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by Columbia Large Company Index Fund, Columbia Small Company Index Fund and Columbia U.S. Treasury Index Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by each Fund, amounted to 0.10% of average daily net assets of each Fund.
A discussion of the factors considered by the Funds' Board of Trustees in approving the Funds' investment advisory contract is included in the Funds' annual report to shareholders for the fiscal year ended March 31, 2005.
PORTFOLIO MANAGERS
Vikram J. Kuriyan, PhD, a portfolio manager of Columbia Management, is the manager for the Columbia Large Company Index Fund and the Columbia Small Company Index Fund and has managed the Funds since June, 2005. Dr. Kuriyan has been associated with Columbia Management or its predecessor or affiliate organizations since January, 2000.
David Lindsay, a senior vice president of Columbia Management, is the manager for the Columbia U.S. Treasury Index Fund and has managed the Fund since July, 1994. Mr. Lindsay has been associated with Columbia Management or its predecessors since 1986.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Funds.
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management and Columbia Funds Distributor, Inc. ("CFD") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the Fund or its shareholders can not currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Columbia Funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov.
A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL"). The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, removal of the trustees of the funds, removal of Columbia Management and CFD, disgorgement of all management fees and monetary damages. The MDL is ongoing.
On January 11, 2005, a putative class action lawsuit was filed in federal district court in Massachusetts against, among others, the Trustees of the funds and Columbia. The lawsuit alleges that defendants violated common law duties to fund shareholders as well as sections of the Investment Company Act of 1940, by failing to ensure that the funds and other affiliated funds participated in securities class action settlements for which the funds were eligible. Specifically, plaintiffs allege that defendants failed to submit proof of claims in connection with settlements of securities class action lawsuits filed against companies in which the funds held positions.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits seek damages and allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as IN RE COLUMBIA ENTITIES LITIGATION. The plaintiffs filed a consolidated amended complaint on June 9, 2005.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has conditionally ordered its transfer to the MDL.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Funds' financial performance. Information is shown for the Funds' fiscal years since inception, which run from April 1 to March 31, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Funds (assuming reinvestment of all dividends and distributions). This information has been derived from the Funds' financial statements which, for the years ended March 31, 2004 and 2005, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Funds' financial statements, is included in the Funds' annual report. The information for the period ended March 31, 2003 has been derived from the Funds' financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
COLUMBIA LARGE COMPANY INDEX FUND
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31,
2005 2004(a) 2003(b)
Class A Class A Class A
---------- ---------- ------------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 26.98 20.44 22.19
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(c) 0.43(d) 0.27 0.07
Net realized and unrealized gain (loss) on investments 1.24 6.64 (1.51)
Total from Investment Operations 1.67 6.91 (1.44)
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS ($):
From net investment income (0.38) (0.26) (0.25)
From net realized gains (1.05) (0.11) (0.06)
Total Distributions Declared to Shareholders (1.43) (0.37) (0.31)
NET ASSET VALUE --
END OF PERIOD ($) 27.22 26.98 20.44
Total return (%)(e) 6.11 33.90(f) (6.58)(g)
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA (%):
Expenses 0.57 0.63 0.65(h)
Net investment income 1.59 1.07 1.13(h)
Waiver/reimbursement -- 0.02 --
Portfolio turnover rate (%) 12 10 13
Net assets, end of period (000's) ($) 24,398 12,036 170
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(a) Effective October 13, 2003, the Liberty Large Company Index Fund was renamed Columbia Large Company Index Fund.
(b) Class A shares were initially offered on December 9, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Net investment income per share reflects a special dividend which amounted to $0.08 per share.
(e) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge.
(f) Had the Investment Advisor not waived or reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized. (h) Annualized.
COLUMBIA LARGE COMPANY INDEX FUND
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31,
2005 2004(a) 2003(b)
Class B Class B Class B
---------- ---------- ------------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 26.89 20.35 22.19
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(c) 0.21(d) 0.09 0.03
Net realized and unrealized gain (loss) on investments 1.24 6.63 (1.56)
Total from Investment Operations 1.45 6.72 (1.53)
LESS DISTRIBUTIONS DECLARED
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TO SHAREHOLDERS ($): From net investment income (0.18) (0.07) (0.25) From net realized gains (1.05) (0.11) (0.06) Total Distributions Declared to Shareholders (1.23) (0.18) (0.31) NET ASSET VALUE -- END OF PERIOD ($) 27.11 26.89 20.35 Total return (%)(e) 5.29 33.05(f) (7.00)(g) RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA (%): Expenses() 1.32 1.38 1.40(h) Net investment income 0.79 0.34 0.50(h) Waiver/reimbursement -- 0.02 -- Portfolio turnover rate (%) 12 10 13 Net assets, end of period (000's) ($) 13,027 9,093 521 |
(a) Effective October 13, 2003, the Liberty Large Company Index Fund was renamed Columbia Large Company Index Fund.
(b) Class B shares were initially offered on December 9, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Net investment income per share reflects a special dividend which amounted to $0.08 per share.
(e) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(f) Had the Investment Advisor not waived or reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) Annualized.
COLUMBIA LARGE COMPANY INDEX FUND
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31,
2005 2004(a) 2003(b)
Class C Class C Class C
---------- ---------- ------------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 26.95 20.40 22.19
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(c) 0.22(d) 0.08 0.02
Net realized and unrealized gain (loss) on investments 1.24 6.65 (1.50)
Total from Investment Operations 1.46 6.73 (1.48)
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net investment income (0.18) (0.07) (0.25)
From net realized gains (1.05) (0.11) (0.06)
Total Distributions Declared to Shareholders (1.23) (0.18) (0.31)
NET ASSET VALUE --
END OF PERIOD ($) 27.18 26.95 20.40
Total return (%)(e) 5.32 33.01(f) (6.77)(g)
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA (%):
Expenses 1.32 1.38 1.40(h)
Net investment income 0.80 0.33 0.37(h)
Waiver/reimbursement -- 0.02 --
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Portfolio turnover rate (%) 12 10 13 Net assets, end of period (000's) ($) 3,133 1,965 185 |
(a) Effective October 13, 2003, the Liberty Large Company Index Fund was renamed Columbia Large Company Index Fund.
(b) Class C shares were initially offered on December 9, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Net investment income per share reflects a special dividend which amounted to $0.08 per share.
(e) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(f) Had the Investment Advisor not waived or reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) Annualized.
COLUMBIA SMALL COMPANY INDEX FUND
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31,
2005 2004(a) 2003(b)
Class A Class A Class A
---------- ---------- ------------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 19.58 12.63 14.19
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(c) 0.12 0.04 0.02
Net realized and unrealized gain (loss) on investments 2.32 6.94 (1.26)
Total from Investment Operations 2.44 6.98 (1.24)
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net investment income (0.08) (0.03) (0.09)
From net realized gains (1.08) -- (0.23)
Return of capital -- -- --(d)
Total Distributions Declared to Shareholders (1.16) (0.03) (0.32)
NET ASSET VALUE --
END OF PERIOD ($) 20.86 19.58 12.63
Total return (%)(e) 12.37 55.26 (8.91)(f)
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA (%):
Expenses 0.57 0.66 0.65(g)
Net investment income 0.58 0.24 0.34(g)
Portfolio turnover rate (%) 17 20 27
Net assets, end of period (000's) ($) 8,351 2,299 4
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(a) Effective October 13, 2003, the Liberty Small Company Index Fund was renamed Columbia Small Company Index Fund.
(b) Class A shares were initially offered on November 25, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Rounds to less than $0.01 per share.
(e) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge.
(f) Not annualized.
(g) Annualized.
COLUMBIA SMALL COMPANY INDEX FUND
YEAR ENDED Year ended PERIOD ENDED
MARCH 31, March 31, MARCH 31,
2005 2004(a) 2003(b)
Class B Class B Class B
---------- ---------- ------------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 19.41 12.60 14.19
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment loss(c) (0.04) (0.09) (0.02)
Net realized and unrealized gain (loss) on investments 2.30 6.90 (1.25)
Total from Investment Operations 2.26 6.81 (1.27)
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net investment income -- -- (0.09)
From net realized gains (1.08) -- (0.23)
Return of capital -- -- --(d)
Total Distributions Declared to Shareholders (1.08) -- (0.32)
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NET ASSET VALUE -- END OF PERIOD ($) 20.59 19.41 12.60 Total return (%)(e) 11.57 54.05 (9.15)(f) RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA (%): Expenses 1.32 1.41 1.40(g) Net investment loss (0.19) (0.51) (0.40)(g) Portfolio turnover rate (%) 17 20 27 Net assets, end of period (000's) ($) 3,387 1,340 94 |
(b) Class B shares were initially offered on November 25, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Rounds to less than $0.01 per share.
(e) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(f) Not annualized.
(g) Annualized.
COLUMBIA SMALL COMPANY INDEX FUND
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31,
2005 2004(a) 2003(b)
Class C Class C Class C
---------- ---------- ------------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 19.43 12.62 14.19
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment loss(c) (0.04) (0.09) (0.03)
Net realized and unrealized gain (loss) on investments 2.31 6.90 (1.22)
Total from Investment Operations 2.27 6.81 (1.25)
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net investment income -- -- (0.09)
From net realized gains (1.08) -- (0.23)
Return of capital -- -- --(d)
Total Distributions Declared to Shareholders (1.08) -- (0.32)
NET ASSET VALUE --
END OF PERIOD ($) 20.62 19.43 12.62
Total return (%)(e) 11.61 53.96 (9.01)(f)
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA (%):
Expenses 1.32 1.41 1.40(g)
Net investment loss (0.18) (0.52) (0.70)(g)
Portfolio turnover rate (%) 17 20 27
Net assets, end of period (000's) ($) 3,278 1,225 1
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(b) Class C shares were initially offered on November 25, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Rounds to less than $0.01 per share.
(e) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(f) Not annualized.
(g) Annualized.
COLUMBIA U.S. TREASURY INDEX FUND
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31,
2005 2004(a) 2003(b)
Class A Class A Class A
---------- ---------- ------------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 11.18 11.25 11.05
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(c) 0.35 0.35 0.19
Net realized and unrealized gain on investments (0.41) 0.05 0.15
Total from Investment Operations (0.06) 0.40 0.34
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net investment income (0.40) (0.47) (0.14)
NET ASSET VALUE --
END OF PERIOD ($) 10.72 11.18 11.25
Total return (%)(d) (0.48) 3.70 3.12(e)
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA (%):
Expenses 0.66 0.66 0.65(f)
Net investment income 3.22 3.14 4.86(f)
Portfolio turnover rate (%) 44 42 48
Net assets, end of period (000's) ($) 3,314 2,625 477
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(b) Class A shares were initially offered on November 25, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge.
(e) Not annualized.
(f) Annualized.
COLUMBIA U.S. TREASURY INDEX FUND
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31,
2005 2004(a) 2003(b)
Class B Class B Class B
---------- ---------- ------------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 11.18 11.25 11.05
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(c) 0.27 0.27 0.17
Net realized and unrealized gain on investments (0.41) 0.05 0.15
Total from Investment Operations (0.14) 0.32 0.32
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net investment income (0.32) (0.39) (0.12)
NET ASSET VALUE --
END OF PERIOD ($) 10.72 11.18 11.25
Total return (%)(d) (1.23) 2.91 2.87(e)
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RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA (%): Expenses 1.41 1.41 1.40(f) Net investment income 2.48 2.44 4.25(f) Portfolio turnover rate (%) 44 42 48 Net assets, end of period (000's) ($) 1,451 1,574 678 |
(a) Effective October 13, 2003, the Liberty U.S. Treasury Index Fund was renamed Columbia U.S. Treasury Index Fund.
(b) Class B shares were initially offered on November 25, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(e) Not annualized.
(f) Annualized.
COLUMBIA U.S. TREASURY INDEX FUND
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31,
2005 2004(a) 2003(b)
Class C Class C Class C
---------- ---------- ------------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 11.18 11.25 11.05
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(c) 0.29 0.28 0.27
Net realized and unrealized gain on investments (0.41) 0.06 0.05
Total from Investment Operations (0.12) 0.34 0.32
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net investment income (0.34) (0.41) (0.12)
NET ASSET VALUE --
END OF PERIOD ($) 10.72 11.18 11.25
Total return (%) (d)(e) (1.07) 3.07 2.92(f)
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA (%):
Expenses 1.26 1.26 1.25(g)
Net investment income 2.67 2.56 6.87(g)
Waiver/reimbursement 0.15 0.15 0.15(g)
Portfolio turnover rate (%) 44 42 48
Net assets, end of period (000's) ($) 869 1,843 414
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(a) Effective October 13, 2003, the Liberty U.S. Treasury Index Fund was renamed Columbia U.S. Treasury Index Fund.
(b) Class C shares were initially offered on November 25, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(e) Had the Distributor not waived a portion of expenses, total return would have been reduced.
(f) Not annualized.
(g) Annualized.
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Funds, including investment advisory fees and other Fund costs, on the Funds' returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Funds assuming a 5% return each year, the hypothetical year-end balance before expenses and the cumulative return after fees and expenses. The charts also assume that the annual expense ratios stay the same throughout the 10-year period, that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratio used for the Funds, which is the same as that stated in the Annual Fund Operating Expenses tables, is reflected in the charts and is net of any fee waiver or expense reimbursement.
COLUMBIA LARGE COMPANY INDEX FUND -- CLASS A SHARES(1)
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.45% $10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- --------------------------- ------------------ --------------------- ------------------ -------------
1 5.00% $ 9,896.25 4.55% $ 9,853.84 $ 618.38
2 10.25% $10,391.06 9.31% $10,302.19 $ 45.35
3 15.76% $10,910.62 14.28% $10,770.94 $ 47.41
4 21.55% $11,456.15 19.48% $11,261.01 $ 49.57
5 27.63% $12,028.95 24.92% $11,773.39 $ 51.83
6 34.01% $12,630.40 30.60% $12,309.08 $ 54.19
7 40.71% $13,261.92 36.54% $12,869.14 $ 56.65
8 47.75% $13,925.02 42.76% $13,454.69 $ 59.23
9 55.13% $14,621.27 49.25% $14,066.88 $ 61.92
10 62.89% $15,352.33 56.04% $14,706.92 $ 64.74
TOTAL GAIN BEFORE FEES & EXPENSES $ 5,927.33
TOTAL GAIN AFTER FEES & EXPENSES $ 5,281.92
TOTAL ANNUAL FEES & EXPENSES PAID $1,109.27
|
(1) For Class A shares, the year one Annual Fees & Expenses and Hypothetical Year-End Balance Before Fees & Expenses information shown include the dollar amount and effect of any applicable front-end sales charge of the fund.
COLUMBIA LARGE COMPANY INDEX FUND -- CLASS B SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.20% $10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- --------------------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 3.80% $10,380.00 $ 122.28
2 10.25% $11,025.00 7.74% $10,774.44 $ 126.93
3 15.76% $11,576.25 11.84% $11,183.87 $ 131.75
4 21.55% $12,155.06 16.09% $11,608.86 $ 136.76
5 27.63% $12,762.82 20.50% $12,049.99 $ 141.95
6 34.01% $13,400.96 25.08% $12,507.89 $ 147.35
7 40.71% $14,071.00 29.83% $12,983.19 $ 152.95
8 47.75% $14,774.55 34.77% $13,476.55 $ 158.76
9 55.13% $15,513.28 40.90% $14,089.74 $ 62.02
10 62.89% $16,288.95 47.31% $14,730.82 $ 64.85
TOTAL GAIN BEFORE FEES & EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES & EXPENSES $ 4,730.82
TOTAL ANNUAL FEES & EXPENSES PAID $1,245.59
|
COLUMBIA LARGE COMPANY INDEX FUND -- CLASS C SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.20% $10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES AFTER FEES & EXPENSES FEES & EXPENSES EXPENSES
---- --------------------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 3.80% $10,380.00 $ 122.28
2 10.25% $11,025.00 7.74% $10,774.44 $ 126.93
3 15.76% $11,576.25 11.84% $11,183.87 $ 131.75
4 21.55% $12,155.06 16.09% $11,608.86 $ 136.76
5 27.63% $12,762.82 20.50% $12,049.99 $ 141.95
6 34.01% $13,400.96 25.08% $12,507.89 $ 147.35
7 40.71% $14,071.00 29.83% $12,983.19 $ 152.95
8 47.75% $14,774.55 34.77% $13,476.55 $ 158.76
9 55.13% $15,513.28 39.89% $13,988.66 $ 164.79
10 62.89% $16,288.95 45.20% $14,520.23 $ 171.05
TOTAL GAIN BEFORE FEES & EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES & EXPENSES $ 4,520.23
TOTAL ANNUAL FEES & EXPENSES PAID $1,454.56
|
COLUMBIA SMALL COMPANY INDEX FUND -- CLASS A SHARES(1)
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.46% $10,000.00 5%
|
HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
CUMULATIVE RETURN END BALANCE END BALANCE
BEFORE FEES & BEFORE FEES & CUMULATIVE RETURN AFTER FEES & ANNUAL FEES &
YEAR EXPENSES EXPENSES AFTER FEES & EXPENSES EXPENSES EXPENSES
---- --------------------------- ------------------ --------------------- ------------------ -------------
1 5.00% $ 9,896.25 4.54% $ 9,852.90 $ 619.34
2 10.25% $10,391.06 9.29% $10,300.22 $ 46.35
3 15.76% $10,910.62 14.25% $10,767.85 $ 48.46
4 21.55% $11,456.15 19.43% $11,256.71 $ 50.66
5 27.63% $12,028.95 24.86% $11,767.76 $ 52.96
6 34.01% $12,630.40 30.53% $12,302.02 $ 55.36
7 40.71% $13,261.92 36.45% $12,860.53 $ 57.87
8 47.75% $13,925.02 42.65% $13,444.40 $ 60.50
9 55.13% $14,621.27 49.12% $14,054.77 $ 63.25
10 62.89% $15,352.33 55.89% $14,692.86 $ 66.12
TOTAL GAIN BEFORE FEES & EXPENSES $ 5,927.33
TOTAL GAIN AFTER FEES & EXPENSES $ 5,267.86
TOTAL ANNUAL FEES & EXPENSES PAID $1,120.86
|
COLUMBIA SMALL COMPANY INDEX FUND -- CLASS B SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.21% $10,000.00 5%
|
HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
CUMULATIVE RETURN END BALANCE END BALANCE
BEFORE FEES & BEFORE FEES & CUMULATIVE RETURN AFTER FEES & ANNUAL FEES &
YEAR EXPENSES EXPENSES AFTER FEES & EXPENSES EXPENSES EXPENSES
---- --------------------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 3.79% $10,379.00 $ 123.29
2 10.25% $11,025.00 7.72% $10,772.36 $ 127.97
3 15.76% $11,576.25 11.81% $11,180.64 $ 132.82
4 21.55% $12,155.06 16.04% $11,604.38 $ 137.85
5 27.63% $12,762.82 20.44% $12,044.19 $ 143.07
6 34.01% $13,400.96 25.01% $12,500.66 $ 148.50
7 40.71% $14,071.00 29.74% $12,974.44 $ 154.12
8 47.75% $14,774.55 34.66% $13,466.17 $ 159.97
9 55.13% $15,513.28 40.78% $14,077.53 $ 63.35
10 62.89% $16,288.95 47.17% $14,716.65 $ 66.23
TOTAL GAIN BEFORE FEES & EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES & EXPENSES $ 4,716.65
TOTAL ANNUAL FEES & EXPENSES PAID $1,257.16
|
(1) For Class A shares, the year one Annual Fees & Expenses and Hypothetical Year-End Balance Before Fees & Expenses information shown include the dollar amount and effect of any applicable front-end sales charge of the fund.
COLUMBIA SMALL COMPANY INDEX FUND -- CLASS C SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.21% $10,000.00 5%
|
HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
CUMULATIVE RETURN END BALANCE END BALANCE
BEFORE FEES & BEFORE FEES & CUMULATIVE RETURN AFTER FEES & ANNUAL FEES &
YEAR EXPENSES EXPENSES AFTER FEES & EXPENSES EXPENSES EXPENSES
---- --------------------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 3.79% $10,379.00 $ 123.29
2 10.25% $11,025.00 7.72% $10,772.36 $ 127.97
3 15.76% $11,576.25 11.81% $11,180.64 $ 132.82
4 21.55% $12,155.06 16.04% $11,604.38 $ 137.85
5 27.63% $12,762.82 20.44% $12,044.19 $ 143.07
6 34.01% $13,400.96 25.01% $12,500.66 $ 148.50
7 40.71% $14,071.00 29.74% $12,974.44 $ 154.12
8 47.75% $14,774.55 34.66% $13,466.17 $ 159.97
9 55.13% $15,513.28 39.77% $13,976.54 $ 166.03
10 62.89% $16,288.95 45.06% $14,506.25 $ 172.32
TOTAL GAIN BEFORE FEES & EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES & EXPENSES $ 4,506.25
TOTAL ANNUAL FEES & EXPENSES PAID $1,465.93
|
COLUMBIA U.S. TREASURY INDEX FUND -- CLASS A SHARES(1)
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.66% $10,000.00 5%
|
HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
CUMULATIVE RETURN END BALANCE END BALANCE
BEFORE FEES & BEFORE FEES & CUMULATIVE RETURN AFTER FEES & ANNUAL FEES &
YEAR EXPENSES EXPENSES AFTER FEES & EXPENSES EXPENSES EXPENSES
---- --------------------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,001.25 4.34% $ 9,938.39 $ 539.23
2 10.25% $10,501.31 8.87% $10,369.71 $ 67.02
3 15.76% $11,026.38 13.59% $10,819.76 $ 69.93
4 21.55% $11,577.70 18.52% $11,289.33 $ 72.96
5 27.63% $12,156.58 23.67% $11,779.29 $ 76.13
6 34.01% $12,764.41 29.03% $12,290.51 $ 79.43
7 40.71% $13,402.63 34.63% $12,823.92 $ 82.88
8 47.75% $14,072.76 40.48% $13,380.48 $ 86.47
9 55.13% $14,776.40 46.57% $13,961.19 $ 90.23
10 62.89% $15,515.22 52.94% $14,567.11 $ 94.14
TOTAL GAIN BEFORE FEES & EXPENSES $ 5,990.22
TOTAL GAIN AFTER FEES & EXPENSES $ 5,042.11
TOTAL ANNUAL FEES & EXPENSES PAID $1,258.41
|
(1) For Class A shares, the year one Annual Fees & Expenses and Hypothetical Year-End Balance Before Fees & Expenses information shown include the dollar amount and effect of any applicable front-end sales charge of the fund.
COLUMBIA U.S. TREASURY INDEX FUND -- CLASS B SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.41% $10,000.00 5%
|
HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
CUMULATIVE RETURN END BALANCE END BALANCE
BEFORE FEES & BEFORE FEES & CUMULATIVE RETURN AFTER FEES & ANNUAL FEES &
YEAR EXPENSES EXPENSES AFTER FEES & EXPENSES EXPENSES EXPENSES
---- --------------------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 3.59% $10,359.00 $ 143.53
2 10.25% $11,025.00 7.31% $10,730.89 $ 148.68
3 15.76% $11,576.25 11.16% $11,116.13 $ 154.02
4 21.55% $12,155.06 15.15% $11,515.20 $ 159.55
5 27.63% $12,762.82 19.29% $11,928.59 $ 165.28
6 34.01% $13,400.96 23.57% $12,356.83 $ 171.21
7 40.71% $14,071.00 28.00% $12,800.44 $ 177.36
8 47.75% $14,774.55 32.60% $13,259.97 $ 183.73
9 55.13% $15,513.28 38.35% $13,835.46 $ 89.41
10 62.89% $16,288.95 44.36% $14,435.92 $ 93.30
TOTAL GAIN BEFORE FEES & EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES & EXPENSES $ 4,435.92
TOTAL ANNUAL FEES & EXPENSES PAID $1,486.07
|
COLUMBIA U.S. TREASURY INDEX FUND -- CLASS C SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.41% $10,000.00 5%
|
HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
CUMULATIVE RETURN END BALANCE END BALANCE
BEFORE FEES & BEFORE FEES & CUMULATIVE RETURN AFTER FEES & ANNUAL FEES &
YEAR EXPENSES EXPENSES AFTER FEES & EXPENSES EXPENSES EXPENSES
---- --------------------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 3.59% $10,359.00 $ 143.53
2 10.25% $11,025.00 7.31% $10,730.89 $ 148.68
3 15.76% $11,576.25 11.16% $11,116.13 $ 154.02
4 21.55% $12,155.06 15.15% $11,515.20 $ 159.55
5 27.63% $12,762.82 19.29% $11,928.59 $ 165.28
6 34.01% $13,400.96 23.57% $12,356.83 $ 171.21
7 40.71% $14,071.00 28.00% $12,800.44 $ 177.36
8 47.75% $14,774.55 32.60% $13,259.97 $ 183.73
9 55.13% $15,513.28 37.36% $13,736.01 $ 190.32
10 62.89% $16,288.95 42.29% $14,229.13 $ 197.15
TOTAL GAIN BEFORE FEES & EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES & EXPENSES $ 4,229.13
TOTAL ANNUAL FEES & EXPENSES PAID $1,690.84
|
NOTES
NOTES
FOR MORE INFORMATION
Additional information about each Fund's investments is available in the Funds' semi-annual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected each Fund's performance during its last fiscal year.
You may wish to read the Statement of Additional Information for more information on each Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Funds' website (www.columbiafunds.com) include a description of the Funds' policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about each Fund by writing or calling the Funds' distributor or visiting the Funds' website at:
Columbia Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about each Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Funds Trust V: 811-5030
- Columbia Large Company Index Fund
- Columbia Small Company Index Fund
- Columbia U.S. Treasury Index Fund
(ColumbiaFunds Logo)
A Member of Columbia Management Group (C)2005 Columbia Funds Distributor, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com
PRO-36/88223-0705
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED AUGUST 1, 2005 (THE "PROSPECTUS")
(REPLACING SUPPLEMENTS DATED AUGUST 19, 2005, SEPTEMBER 26, 2005 AND NOVEMBER 1, 2005)
COLUMBIA U.S. TREASURY INDEX FUND
(THE "FUND")
CLASS Z SHARES
The Prospectus is hereby supplemented with the following information:
1. At a meeting held on September 16, 2005, shareholders of Columbia Large Company Index Fund and Columbia Small Company Index Fund (the "Funds") approved the reorganization of the Funds into Columbia Large Cap Index Fund (formerly named Nations LargeCap Index Fund) and Columbia Small Cap Index Fund (formerly named Nations SmallCap Index Fund), respectively (the "Reorganization"). The Reorganization took place on September 23, 2005. Accordingly, effective September 26, 2005, all references to the Funds in the Prospectus are removed.
2. Effective August 22, 2005, Columbia Funds Distributor, Inc. (the Fund's distributor) and Columbia Funds Services, Inc. (the Fund's transfer agent) changed their names to Columbia Management Distributors, Inc. and Columbia Management Services, Inc., respectively.
3. The "Calendar Year Total Returns" and "Average Annual Total Returns" tables for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS
CLASS Z(1)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 2.21% 9.27% 9.76% -2.85% 13.13% 6.28% 11.13% 1.87% 3.11% 2.49% |
For the periods shown above:
Best quarter: 3rd quarter 2002, +7.25%
Worst quarter: 2nd quarter 2004, -3.21%
(1) The calendar year total returns shown for Class Z shares include the returns of Trust Shares of the Galaxy II U.S. Treasury Index Fund (the Galaxy U.S. Treasury Fund), the predecessor to the Fund, for periods prior to November 25, 2002, the date on which Class Z shares were initially offered by the Fund.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2005
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Class Z (%)
Return Before Taxes 2.49 4.92(1) 5.53(1)
Return After Taxes on Distributions 1.05 3.17(1) 3.39(1)
Return After Taxes on Distributions and Sale of Fund Shares 1.61 3.15(1) 3.38(1)
----- ---- ----
Citigroup Bond U.S. Treasury Index % 2.31 2.95(1) 4.37(1)
----- ---- ----
|
(1) The average annual total returns shown include returns of Trust Shares of the Galaxy U.S. Treasury Fund for periods prior to November 25, 2002, the date on which Class Z shares were initially offered by the Fund.
4. The section entitled "Eligible Investors" is revised in its entirety as follows:
Only Eligible Investors may purchase Class Z shares of the Fund, directly or by exchange. Class Z shares of the Fund generally are available only to certain "grandfathered" shareholders and to investors holding accounts with intermediaries that assess account level fees for the services they provide. Please read the following section for a more detailed description of the eligibility requirements. The Eligible Investors described below are subject to different minimum initial investment requirements.
IMPORTANT THINGS TO CONSIDER WHEN DECIDING ON A CLASS OF SHARES:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by an intermediary. Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
No minimum initial investment
- Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
- Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts (IRAs)), for which an intermediary or other entity provides services and is not compensated by the Funds for those services, other than payments for shareholder servicing or sub-accounting performed in place of a Fund's transfer agent;
- Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
- Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
$1,000 minimum initial investment
- Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of a fund distributed by Columbia Management Distributors, Inc. (CMD) (i) who holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005; (iii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iv) who purchased certain no-load shares of a fund merged with a fund distributed by CMD;
- Any trustee or director (or family member of a trustee or director) of any fund distributed by CMD;
- Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary;
- Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Funds for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement);
- Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an accredited investor, as defined under the Securities Act of 1933; or
- Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations, purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries.
The Funds reserve the right to change the criteria for eligible investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Funds also reserve the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
5. The section "LEGAL PROCEEDINGS" under the heading "MANAGING THE FUND" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
6. The section entitled "Financial Highlights" is updated and restated in its entirety as follows:
The financial highlights table is intended to help you understand the Funds' Class Z financial performance. Information is shown for the Funds' last five fiscal years since inception, which run from April 1 to March 31, unless otherwise indicated. Certain information reflects financial results for a single Class Z Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Funds (assuming reinvestment of all dividends and distributions). Information for the six-
month period ended September 30, 2005 is unaudited. Other information has been derived from the Funds' financial statements which, for the years ended March 31, 2004 and 2005, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Funds' financial statements, is included in the Funds' annual report. The information for the period ended March 31, 2003 has been derived from the Funds' financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
Selected data for a share outstanding throughout each period is as follows:
(Unaudited)
Six Months Ended Year Ended March 31,
September 30, -------------------------------------------------------------
2005 2005 2004 (a) 2003(b) 2002 2001
---------------- -------- -------- -------- -------- --------
Class Z Shares
Net Asset Value, Beginning of Period $ 10.72 $ 11.18 $ 11.26 $ 10.40 $ 10.66 $ 10.31
------------ -------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income 0.20(c) 0.38(c) 0.39(c) 0.46(c) 0.51(d) 0.61
Net realized and unrealized gain (loss) on 0.05 (0.41) 0.03 0.90 (0.19)(d) 0.53
investments
------------ -------- -------- -------- -------- --------
Total from investment operations 0.25 (0.03) 0.42 1.36 0.32 1.14
------------ -------- -------- -------- -------- --------
Less Distributions Declared to Shareholders:
From net investment income (0.22) (0.43) (0.50) (0.50) (0.58) (0.61)
------------ -------- -------- -------- -------- --------
Net Asset Value, End of Period $ 10.75 $ 10.72 $ 11.18 $ 11.26 $ 10.40 $ 10.66
Total return (e) 2.30%(f)(g) (0.25)%(f) 3.85%(f) 13.28%(f) 3.03%(f) 11.06%
------------ -------- -------- -------- -------- --------
Ratios to Average Net Assets/Supplemental Data:
Expenses 0.42%(h) 0.42% 0.42% 0.42% 0.42% 0.42%
Net investment income 3.67%(h) 3.47% 3.49% 4.21% 4.84%(d) 5.90%
Waiver/reimbursement 0.01%(h) 0.01% 0.01% --%(i) 0.01% --
Portfolio turnover rate 22%(g) 44% 42% 48% 47% 53%
Net assets, end of period (000's) $ 147,741 $151,969 $177,714 $183,042 $160,180 $163,619
------------ -------- -------- -------- -------- --------
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(a) Effective October 13, 2003, the Liberty U.S. Treasury Index Fund was renamed Columbia U.S. Treasury Index Fund.
(b) On November 25, 2002, the Galaxy II U.S. Treasury Index Fund was renamed Liberty U.S. Treasury Index Fund, Class Z shares.
(c) Per share data was calculated using average shares outstanding during the period.
(d) The Fund adopted the provisions of the AICPA Audit Guide for Investment Companies effective April 1, 2001. The effect of the change for the year ended March 31, 2002 on the net investment income per share, net realized and unrealized gain (loss) per share and the ratio of net investment income to average net assets was $(0.07), $0.07 and (0.63)%, respectively.
(e) Total return at net asset value assuming all distributions reinvested.
(f) Had the Administrator not waived a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) Annualized.
(i) Rounds to less than 0.01%.
7. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
8. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367".
INT-47/107597-0306 March 27, 2006
COLUMBIA INDEX FUNDS Prospectus, August 1, 2005
COLUMBIA LARGE COMPANY INDEX FUND
COLUMBIA SMALL COMPANY INDEX FUND
COLUMBIA U.S. TREASURY INDEX FUND
CLASS Z SHARES
Advised by Columbia Management Advisors, Inc.
TABLE OF CONTENTS
THE FUNDS 2 Investment Goal...................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 3 Each of these sections discusses the following topics: Performance History and Your Expenses. Columbia Large Company Index Fund.................... 5 Columbia Small Company Index Fund.................... 8 Columbia U.S. Treasury Index Fund.................... 11 YOUR ACCOUNT 14 How to Buy Shares.................................... 14 Eligible Investors................................... 15 Sales Charges........................................ 16 How to Exchange Shares............................... 17 How to Sell Shares................................... 17 Fund Policy on Trading of Fund Shares................ 18 Intermediary Compensation............................ 19 Other Information About Your Account................. 20 MANAGING THE FUNDS 23 Investment Advisor................................... 23 Portfolio Managers................................... 23 Legal Proceedings.................................... 23 FINANCIAL HIGHLIGHTS 26 Columbia Large Company Index Fund.................... 26 Columbia Small Company Index Fund.................... 27 Columbia U.S. Treasury Index Fund.................... 28 APPENDIX A 29 |
Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Not FDIC May Lose Value
Insured
No Bank Guarantee
|
THE FUNDS
INVESTMENT GOAL
Each Fund seeks to provide investment results that, before deduction of operating expenses, match the price and yield performance of its index.
PRINCIPAL INVESTMENT STRATEGIES
Each Fund pursues an indexing strategy to approximate the investment performance of its index. Each Fund invests substantially all of its assets (under normal circumstances, at least 80% of net assets plus any borrowings for investment purposes) in the securities included in its index.
The Funds follow INDEXING STRATEGIES and are not actively managed. This means that the Funds' investment advisor does not use economic, financial and market analysis in selecting securities for a Fund. Instead, the advisor attempts to approximate the performance of the Fund's target index by investing the Fund's assets in securities included in that index. The advisor relies on sophisticated computerized tools and analysis in managing the Fund's investments.
The STANDARD & POOR'S 500 INDEX (S&P 500) is an unmanaged index that tracks the performance of 500 widely held, large capitalization U.S. stocks.
The STANDARD & POOR'S SMALLCAP 600 INDEX (S&P SMALLCAP 600) is an unmanaged index that tracks the performance of 600 domestic companies traded on the New York Stock Exchange, the American Stock Exchange and NASDAQ. The S&P SmallCap 600 is heavily weighted with the stocks of small companies.
The CITIGROUP BOND U.S. TREASURY INDEX is an unmanaged index composed of all U.S. Treasury notes and bonds with remaining maturities of at least one year and outstanding principal of at least $25 million that are included in the Citigroup Broad Investment-Grade Bond Index. Securities in the Citigroup Bond U.S. Treasury Index are weighted by market value, that is, the price per bond or note multiplied by the number of bonds or notes outstanding.
The Columbia Large Company Index Fund normally holds all 500 stocks in the S&P 500, in approximately the same percentage as each stock is represented in the S&P 500. From time to time, however, when deemed advisable by the Fund's investment advisor, the Fund may not hold all of the stocks in the S&P 500 or hold the stocks in the same percentages as the index.
The Columbia Small Company Index Fund normally holds all 600 stocks in the S&P SmallCap 600, in approximately the same percentage as each stock is represented in the S&P SmallCap 600. From time to time, however, when deemed advisable by the Fund's investment advisor, the Fund may not hold all of the stocks in the S&P SmallCap 600 or hold the stocks in the same percentages as the index.
To the extent that, from time to time, the stocks in a particular market sector, such as technology, comprise a significant proportion of the S&P 500 or the S&P SmallCap 600, those stocks will be represented in substantially the same proportion in their corresponding funds.
The Columbia Large Company Index Fund and the Columbia Small Company Index Fund
may also invest in stock index futures contracts in order to track the S&P 500 and the S&P SmallCap 600, respectively, when the purchase of individual securities may be less efficient.
The Columbia U.S. Treasury Index Fund will not hold all of the issues in the U.S. Treasury Index because of the costs involved. Instead, the Fund's investment advisor will consider whether or not to include each security in the Fund based on that security's contribution to the Fund's total market value, average coupon rate and average weighted maturity of the Fund as compared to the U.S. Treasury Index.
A Fund will only purchase a portfolio security that is included in its index at the time of purchase. A Fund will normally only buy or sell portfolio securities to adjust to changes in the composition of its index or to accommodate cash flows into and out of the Fund.
Under normal market conditions, it is expected that the quarterly performance of a Fund, before expenses, will track the performance of its index within a .95 correlation coefficient.
At times, the advisor may determine that adverse market conditions make it desirable to suspend temporarily a Fund's normal investment activities. During such times, a Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent a Fund from achieving its investment goal.
In seeking to achieve its investment goal, a Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in each Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by a Fund's shareholders is not required to modify or change a Fund's investment goal or investment strategies.
PRINCIPAL INVESTMENT RISKS
The principal risks of investing in the Funds are described below. There are many circumstances (including additional risks that are not described here) which could prevent a Fund from achieving its investment goal. You may lose money by investing in a Fund.
Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that a Fund will achieve its investment goal or perform favorably among comparable funds.
Index funds are subject to indexing risk. Your investment in a Fund will typically decline in value when its index declines. Since the Fund is designed to track its index, the Fund cannot purchase other securities that may help offset declines in its index. In addition, because a Fund may not hold all issues included in its index, may not always be fully invested, and bears transaction costs and expenses, a Fund's performance may fail to match the performance of its index, after taking expenses into account.
A Fund may not always be able to track the performance of its index by entering into stock index futures contracts because the prices of stock index futures contracts may not always match the movement of the index to which they relate. Also, a liquid secondary market may not be available, which might prevent the advisor from closing out a futures contract when desired.
The U.S. Treasury Index Fund is subject to interest rate risk, which is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Although U.S. Government securities, particularly U.S. Treasury securities, have historically involved little credit risk, if an issuer fails to pay interest or repay principal, the value of your investment could decline.
Since the Columbia Large Company Index Fund and the Columbia Small Company Index Fund purchase equity securities, they are subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Sector risk is inherent in the investment strategy of the Columbia Large Company Index Fund and the Columbia Small Company Index Fund. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of different companies in a market sector may be similarly affected by particular economic or market events. Although a Fund does not intend to focus on any particular sector, to the extent that the stocks in a particular market sector comprise a significant portion of one of the Fund's indexes and, correspondingly, of a Fund's holdings, the Fund will be especially susceptible to the risks associated with investments in those market sectors.
Small- or mid-cap companies, such as those whose stocks are purchased by the Columbia Small Company Index Fund, may be more susceptible to market downturns, and their prices could be more volatile. These companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team and may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, such companies may not be widely followed by the investment community, which can lower the demand for their stocks.
An investment in a Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
PERFORMANCE HISTORY (LARGE COMPANY)
The bar chart below shows the Fund's calendar year total returns (before taxes) for its Class Z shares. The performance table following the bar chart shows how the Fund's average annual total returns for Class Z shares compare with those of a broad measure of market performance for one year, five years and ten years. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing changes in the Fund's performance from year-to-year. All returns include the reinvestment of dividends and distributions. Performance results include the effect of expense reduction arrangements, if any. If these arrangements had not been in place, the performance results would have been lower. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance.
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class Z share performance for each of the last ten complete calendar years. They include the effects of Fund expenses.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's Class Z average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses.(1)
CALENDAR YEAR TOTAL RETURNS (CLASS Z)(1)
(BAR CHART)
37.09% 22.54% 32.81% 28.06% 20.49% 27.98% 10.33%
-9.08% -12.22% -22.05%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
|
The Class's year-to-date total return For the periods shown in bar chart:
through June 30, 2005 was -0.90%. Best quarter: 4th quarter 1998, +21.24%
Worst quarter: 3rd quarter 2002, -17.03%
|
(1) The calendar year total returns shown for Class Z shares include the returns of Trust Shares of the Galaxy II Large Company Index Fund (the Galaxy Large Company Fund), the predecessor to the Fund, for periods prior to December 9, 2002, the date on which Class Z shares were initially offered by the Fund.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004
1 YEAR 5 YEARS 10 YEARS
Class Z (%)
Return Before Taxes 10.33 -2.56(1) 11.70(1)
Return After Taxes on Distributions 9.46 -3.61(1) 10.47(1)
Return After Taxes on Distributions and Sale of Fund
Shares 7.79 -2.48(1) 9.91(1)
------ ----- -----
S&P 500 Index (%) 10.88 -2.30 12.07
|
(1) The average annual total returns shown include returns of Trust Shares of the Galaxy Large Company Fund for periods prior to December 9, 2002, the date on which Class Z shares were initially offered by the Fund.
YOUR EXPENSES
Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the fees and expenses you may pay when you buy, hold and sell shares of the Fund.
UNDERSTANDING EXPENSES
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management and administration fees and other expenses that generally include, but are not limited to, trustee and commitment fees. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
- Reinvestment of all dividends and distributions
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 0.00
----
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or
redemption price) 0.00
----
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) (2)
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
Management fee(1)(2) (%) 0.20
----
Distribution and service (12b-1) fees (%) 0.00
----
Other expenses(3)(4) (%) 0.08
----
Total annual fund operating expense(3) (%) 0.28
|
(1) The Fund pays a management fee of 0.10% and an administration fee of 0.10%.
(2) Management fees have been restated to reflect contractual changes to the administration fee for the Fund effective November 1, 2004.
(3) The advisor and/or its affiliates have agreed to reimburse 0.01% of other expenses for Class Z shares. As a result, other expenses would be 0.07% and total annual fund operating expenses would be 0.27%. This arrangement may be modified or terminated by the advisor and/or its affiliates at any time.
(4) Other expenses include 0.08% of per-account fees for sub-account and administrative functions specific to Class Z.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
1 YEAR 3 YEARS 5 YEARS 10 YEARS $ 29 $ 90 $ 157 $ 356 |
See Appendix A for additional hypothetical investment and expense information.
PERFORMANCE HISTORY (SMALL COMPANY)
The bar chart below shows the Fund's calendar year total returns (before taxes) for its Class Z shares. The performance table following the bar chart shows how the Fund's average annual total returns for Class Z shares compare with those of a broad measure of market performance for one year, five years and ten years. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing changes in the Fund's performance from year-to-year. All returns include the reinvestment of dividends and distributions. Performance results include the effect of expense reduction arrangements, if any. If these arrangements had not been in place, the performance results would have been lower. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance.
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class Z share performance for each of the last ten complete calendar years. They include the effects of Fund expenses.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's Class Z average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses.(1)
CALENDAR YEAR TOTAL RETURNS (CLASS Z)(1)
(BAR CHART)
33.11% 19.68% 23.56% 11.66% 11.00% 6.21% 38.06% 22.06%
-1.75% -15.30%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
|
The Class's year-to-date total return through For the periods shown in bar chart:
June 30, 2005 was 1.69%. Best quarter: 4th quarter 2001, +20.50%
Worst quarter: 3rd quarter 1998, -20.89%
|
(1) The calendar year total returns shown for Class Z shares include the returns of Trust Shares of the Galaxy II Small Company Index Fund (the Galaxy Small Company Fund), the predecessor to the Fund, for periods prior to November 25, 2002, the date on which Class Z shares were initially offered by the Fund.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004
1 YEAR 5 YEARS 10 YEARS
Class Z (%)
Return Before Taxes 22.06 10.97(1) 14.48(1)
Return After Taxes on Distributions 20.90 9.60(1) 11.19(1)
Return After Taxes on Distributions and Sale of Fund
Shares 15.47 8.88(1) 10.84(1)
------ ----- -----
S&P SmallCap 600 Index (%) 22.65 11.60 14.29
|
(1) The average annual total returns shown include returns of Trust Shares of the Galaxy Small Company Fund for periods prior to November 25, 2002, the date on which Class Z shares were initially offered by the Fund.
YOUR EXPENSES
Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the fees and expenses you may pay when you buy, hold and sell shares of the Fund.
UNDERSTANDING EXPENSES
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management and administration fees and other expenses that generally include, but are not limited to, trustee and commitment fees. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may
incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
- Reinvestment of all dividends and distributions
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 0.00
----
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or
redemption price) 0.00
----
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) (2)
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
Management fee(1)(2) (%) 0.20
----
Distribution and service (12b-1) fees (%) 0.00
----
Other expenses(3) (%) 0.01
----
Total annual fund operating expenses (%) 0.21
|
(1) The Fund pays a management fee of 0.10% and an administration fee of 0.10%.
(2) Management fees have been restated to reflect contractual changes to the administration fee for the Fund effective November 1, 2004.
(3) Other expenses include per-account fees for sub-account and administrative functions specific to Class Z.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
1 YEAR 3 YEARS 5 YEARS 10 YEARS $ 22 $ 68 $ 118 $ 268 |
See Appendix A for additional hypothetical investment and expense information.
PERFORMANCE HISTORY (TREASURY)
The bar chart below shows the Fund's calendar year total returns (before taxes) for its Class Z shares. The performance table following the bar chart shows how the Fund's average annual total returns for Class Z shares compare with those of a broad measure of market performance for one year, five years and ten years. The chart and table are intended to illustrate some of the risks of investing in the Fund by showing changes in the Fund's performance from year-to-year. All returns include the reinvestment of dividends and distributions. Performance results include the effect of expense reduction arrangements, if any. If these arrangements had not been in place, the performance results would have been lower. Any expense reduction arrangements may be discontinued at any time. As with all mutual funds, past performance (before and after taxes) does not predict the Fund's future performance.
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class Z share performance for each of the last ten complete calendar years. They include the effects of Fund expenses.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's Class Z average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses.(1)
CALENDAR YEAR TOTAL RETURNS (CLASS Z)(1)
(BAR CHART)
18.06% 2.21% 9.27% 9.76% 13.13% 6.28% 11.13% 1.87% 3.11%
-2.85%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
|
The Class's year-to-date total return through For the periods shown in bar chart:
June 30, 2005 was 3.10%. Best quarter: 3rd quarter 2002, +7.25%
Worst quarter: 2nd quarter 2004, -3.21%
|
(1) The calendar year total returns shown for Class Z shares include the returns of Trust Shares of the Galaxy II U.S. Treasury Index Fund (the Galaxy U.S. Treasury Fund), the predecessor to the Fund, for periods prior to November 25, 2002, the date on which Class Z shares were initially offered by the Fund.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004
1 YEAR 5 YEARS 10 YEARS
Class Z (%)
Return Before Taxes 3.11 7.01(1) 7.03(1)
Return After Taxes on Distributions 1.68 5.03(1) 4.74(1)
Return After Taxes on Distributions and Sale of Fund
Shares 2.01 4.79(1) 4.60(1)
---- ---- ----
Citigroup Bond U.S. Treasury Index (%) 3.53 7.44 7.43
|
(1) The average annual total returns shown include returns of Trust Shares of the Galaxy U.S. Treasury Fund for periods prior to November 25, 2002, the date on which Class Z shares were initially offered by the Fund.
YOUR EXPENSES
Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the fees and expenses you may pay when you buy, hold and sell shares of the Fund.
UNDERSTANDING EXPENSES
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management and administration fees and other expenses that generally include, but are not limited to, trustee and commitment fees. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
- Reinvestment of all dividends and distributions
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 0.00
----
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or
redemption price) 0.00
----
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) (2)
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
Management fee(1) (%) 0.40
----
Distribution and service (12b-1) fees (%) 0.00
----
Other expenses(2)(3) (%) 0.03
----
Total annual fund operating expenses(2) (%) 0.43
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(1) The Fund pays a management fee of 0.10% and an administration fee of 0.30%.
(2) The advisor and/or its affiliates have agreed to reimburse 0.01% of other expenses for Class Z shares. As a result, other expenses would be 0.02% and total annual fund operating expenses would be 0.42%. This arrangement may be modified or terminated by the advisor and/or its affiliates at any time.
(3) Other expenses include 0.02% of per-account fees for sub-account and administrative functions specific to Class Z.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
1 YEAR 3 YEARS 5 YEARS 10 YEARS $ 44 $ 138 $ 241 $ 542 |
See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
HOW TO BUY SHARES
When a Fund receives your purchase request in "good form," your shares will be bought at the next calculated price. "Good form" means that the Funds' transfer agent has all information and documentation it deems necessary to effect your order. For example, "good form" may mean that you have properly placed your order with Columbia Funds Services, Inc. or your financial advisor or the Funds' transfer agent has received your completed application, including all necessary signatures. The USA Patriot Act may require us to obtain certain personal information from you which we will use to verify your identity. If you do not provide the information, we may not be able to open your account. If we are unable to verify your customer information, we reserve the right to close your account or take such other steps as we deem reasonable.
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to Columbia Funds Services, Inc.,
P.O. Box 8081, Boston, MA 02266-8081.
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Funds Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
By exchange You or your financial advisor may acquire shares of a Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Funds Distributor, Inc. for
shares of the same class of the Fund at no additional cost.
To exchange by telephone, call 1-800-422-3737. Please see
"How to Exchange Shares" for more information.
By wire You may purchase shares of a Fund by wiring money from your
bank account to your Fund account. To wire funds to your
Fund account, call 1-800-422-3737 for wiring instructions.
By electronic You may purchase shares of a Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
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Automated dollar You may purchase shares of a Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate your
program or change the amount of the exchange (subject to the
$100 minimum) by calling 1-800-345-6611. Be sure to complete
the appropriate section of the account application for this
feature.
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of a Fund at no
additional sales charge. To invest your dividends in a Fund,
call 1-800-345-6611.
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ELIGIBLE INVESTORS
Only Eligible Investors may purchase Class Z shares of the Funds, directly or by exchange. Class Z shares of the Funds generally are available only to certain "grandfathered" shareholders and to investors holding accounts with intermediaries that assess account level fees for the services they provide. Please read the following section for a more detailed description of the eligibility requirements. The Eligible Investors described below are subject to different minimum initial investment requirements.
IMPORTANT THINGS TO CONSIDER WHEN DECIDING ON A CLASS OF SHARES:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by an intermediary. Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
NO MINIMUM INITIAL INVESTMENT
- Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
- Any group retirement plan, including defined benefit and defined contribution plans such as 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts (IRAs)), for which an intermediary or other entity provides services and is not compensated by a Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
- Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
- Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
$1,000 MINIMUM INITIAL INVESTMENT
- Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of a fund distributed by Columbia Funds Distributor, Inc. (i) who holds Class Z shares; (ii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iii) who purchased certain no-load shares of a fund merged with a fund distributed by Columbia Funds Distributor, Inc.;
- Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Funds Distributor, Inc.;
- Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary.
- Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Funds for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Funds' transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement); or
- Any insurance company, trust company, bank, endowment, investment company or foundation purchasing shares for its own account.
The Funds reserve the right to change the criteria for Eligible Investors and the investment minimums. No minimum Investment applies to accounts participating in the automatic investment plan; however, each investment requires a $50 minimum purchase. The Funds also reserve the right to refuse a purchase order for any reason, including if they believe that doing so would be in the best interest of the Fund and its shareholders.
SALES CHARGES
Your purchases of Class Z shares are at net asset value, which is the value of a Class Z share excluding any sales charge. Class Z shares are not subject to an initial sales charge when purchased or a contingent deferred sales charge when sold.
CHOOSING A SHARE CLASS
The Funds offer one class of shares in this prospectus -- CLASS Z.
The Funds also offer three additional classes of shares -- Class A, B and C shares are available through a separate prospectus. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing
to invest. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you. In general, anyone who is eligible to purchase Class Z shares, which do not incur Rule 12b-1 fees or sales charges, should do so in preference over other classes.
HOW TO EXCHANGE SHARES
You may exchange your shares for Class Z or Class A (only if Class Z is not offered) shares of another fund distributed by Columbia Funds Distributor, Inc. at net asset value. Unless your account is part of a tax-deferred retirement plan, an exchange is a taxable event, and you may realize a gain or a loss for tax purposes. A Fund may terminate your exchange privilege if the advisor determines that your exchange activity is likely to adversely impact its ability to manage the Fund. See "Fund Policy on Trading of Fund Shares" for the Funds' policy. To exchange by telephone, call 1-800-422-3737. Please have your account and taxpayer identification numbers available when calling.
HOW TO SELL SHARES
You may sell shares of a Fund on any regular business day that the NYSE is open.
When a Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Funds' transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, and (ii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
A Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, a Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
By exchange You or your financial advisor may sell shares of a Fund by
exchanging from a Fund into Class Z shares or Class A shares
(only if Class Z is not offered) of another fund distributed
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by Columbia Funds Distributor, Inc. at no additional cost.
To exchange by telephone, call 1-800-422-3737.
By telephone You or your financial advisor may sell shares of a Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign the
letter. Signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for alternate
payee or mailing instructions. Additional documentation is
required for sales by corporations, agents, fiduciaries,
surviving joint owners and individual retirement account
owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Funds Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
By wire You may sell shares of a Fund and request that the proceeds
be wired to your bank. You must set up this feature prior to
your request. Be sure to complete the appropriate section of
the account application for this feature.
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. All dividend and capital
gains distributions must be reinvested. Be sure to complete
the appropriate section of the account application for this
feature.
By electronic You may sell shares of a Fund and request that the proceeds
funds transfer be electronically transferred to your bank. Proceeds may
take up to two business days to be received by your bank.
You must set up this feature prior to your request. Be sure
to complete the appropriate section of the account
application for this feature.
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FUND POLICY ON TRADING OF FUND SHARES
The interests of the Funds' long-term shareholders may be adversely affected by certain short-term trading activity by Fund shareholders. Such short-term trading activity, when excessive, has the potential to interfere with efficient portfolio management, generate transaction and other costs, dilute the value of Fund shares held by long-term shareholders and have other adverse effects on the Funds. This type of excessive short-term trading activity is referred to herein as "market timing". The Columbia Funds are not intended as vehicles for market timing. The Board of Trustees of the Funds has adopted the policies and procedures set forth below with respect to frequent trading of the Fund's shares.
Each Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if a Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future
purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market Fund). In addition, if a Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), each Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Funds are not affected by any of the limits mentioned above. However, certain Funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into a Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Funds. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Funds typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Funds seek to act in a manner that they believe is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither a Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
INTERMEDIARY COMPENSATION
The distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such
factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of a Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Funds' investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Funds. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
OTHER INFORMATION ABOUT YOUR ACCOUNT
HOW THE FUNDS' SHARE PRICE IS DETERMINED The price of a Fund's Class Z shares is based on their net asset value. The net asset value is determined at the close of regular trading on the NYSE, usually 4:00 p.m. Eastern time, on each business day that the NYSE is open for trading (typically Monday through Friday). Shares are not priced the days on which the NYSE is closed for trading.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
Each Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, a Fund must determine the price of each security in its portfolio at the close of each trading day. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, a Fund may use other data to determine the fair value of the securities.
Each Fund, with the exception of the Columbia U.S. Treasury Index Fund, has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for each Fund in most major
daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Funds' transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for any class of shares offered by the Funds.
DIVIDENDS, DISTRIBUTIONS AND TAXES Each Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Funds, net of expenses incurred by the Funds.
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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UNDERSTANDING FUND DISTRIBUTIONS
Each Fund may earn income from the securities it holds. Each Fund also may realize capital gains or losses on sales of its securities. Each Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of a Fund's income and capital gains based on the number of shares you own at the time these distributions are declared.
DISTRIBUTION OPTIONS The Large Company and Small Company Funds distribute any dividends annually and any capital gains (including short-term capital gains) at least annually. The Treasury Fund declares any dividends daily and pays them monthly, and declares and pays any capital gains (including short-term capital gains) at least annually. Shares of the Treasury Fund begin to earn dividends on the date on which a purchase order is settled by payment. Shares stop earning dividends at the close of business on the day before the date on which a redemption order is settled. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, each Fund will automatically reinvest all distributions in additional shares of the Fund.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your current fund
Reinvest all distributions in shares of another fund
Receive dividends in cash (see options below) and reinvest capital gains
Receive all distributions in cash (with one of the following options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds transfer
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in a Fund may have additional personal tax implications. Please consult your tax advisor about federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by each Fund, you may realize a capital gain or loss when selling or exchanging shares of a Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUNDS
INVESTMENT ADVISOR
Columbia Management Advisors, Inc. (Columbia Management), located at 100 Federal Street, Boston, Massachusetts 02110, is the Funds' investment advisor. Columbia Management is responsible for the Funds' management, subject to oversight by the Funds' Board of Trustees. In its duties as investment advisor, Columbia Management runs the Funds' day-to-day business, including placing all orders for the purchase and sale of the Funds' portfolio securities. Columbia Management is a direct wholly owned subsidiary of Columbia Management Group, LLC ("CMG"), which is an indirect wholly owned subsidiary of Bank of America Corporation. Prior to June 15, 2005, CMG was a corporation. Effective June 15, 2005, CMG converted to a limited liability company. Columbia Management, a registered investment advisor, has been an investment advisor since 1969.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by Columbia Large Company Index Fund, Columbia Small Company Index Fund and Columbia U.S. Treasury Index Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by each Fund, amounted to 0.10% of average daily net assets of each Fund.
A discussion of the factors considered by the Funds' Board of Trustees in approving the Funds' investment advisory contract is included in the Funds' annual report to shareholders for the fiscal year ended March 31, 2005.
PORTFOLIO MANAGERS
Vikram J. Kuriyan, PhD, a portfolio manager of Columbia Management, is the manager for the Columbia Large Company Index Fund and the Columbia Small Company Index Fund and has managed the Funds since June, 2005. Dr. Kuriyan has been associated with Columbia Management or its predecessor or affiliate organizations since January, 2000.
David Lindsay, a senior vice president of Columbia Management, is the manager for the Columbia U.S. Treasury Index Fund and has managed the Fund since July, 1994. Mr. Lindsay has been associated with Columbia Management or its predecessors since 1986.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Funds.
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management and Columbia Funds Distributor, Inc. ("CFD") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the Fund or its shareholders can not currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Columbia Funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America
Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL"). The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, removal of the trustees of the funds, removal of Columbia Management and CFD, disgorgement of all management fees and monetary damages. The MDL is ongoing.
On January 11, 2005, a putative class action lawsuit was filed in federal district court in Massachusetts against, among others, the Trustees of the funds and Columbia. The lawsuit alleges that defendants violated common law duties to fund shareholders as well as sections of the Investment Company Act of 1940, by failing to ensure that the funds and other affiliated funds participated in securities class action settlements for which the funds were eligible. Specifically, plaintiffs allege that defendants failed to submit proof of claims in connection with settlements of securities class action lawsuits filed against companies in which the funds held positions.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits seek damages and allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as IN RE COLUMBIA ENTITIES LITIGATION. The plaintiffs filed a consolidated amended complaint on June 9, 2005.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has conditionally ordered its transfer to the MDL.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Funds' Class Z financial performance. Information is shown for the Funds' last five fiscal years, which run from April 1 to March 31, unless otherwise indicated. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Funds (assuming reinvestment of all dividends and distributions). This information has been derived from the Funds' financial statements which, for the years ended March 31, 2005, and 2004, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Funds' financial statements, is included in the Funds' annual report. The information for the years ended March 31, 2003, 2002, and 2001 has been derived from the Funds' financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
COLUMBIA LARGE COMPANY INDEX FUND
YEAR ENDED MARCH 31,
2005 2004(a) 2003(b) 2002 2001
Class Z Class Z Class Z Class Z Class Z
------- ------- ------- ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 27.01 20.45 27.55 29.32 42.14
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income 0.46(c)(d) 0.32(c) 0.28(c) 0.25 0.26
Net realized and unrealized gain (loss) on
investments 1.27 6.66 (7.07) (0.33) (8.85)
------- ------- ------- ------- -------
Total from Investment Operations 1.73 6.98 (6.79) (0.08) (8.59)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net investment income (0.43) (0.31) (0.25) (0.25) (0.26)
From net realized gains (1.05) (0.11) (0.06) (1.44) (3.97)
------- ------- ------- ------- -------
Total Distributions Declared to Shareholders (1.48) (0.42) (0.31) (1.69) (4.23)
------- ------- ------- ------- -------
NET ASSET VALUE --
END OF PERIOD ($) 27.26 27.01 20.45 27.55 29.32
------- ------- ------- ------- -------
Total return (%)(e)(f) 6.31 34.21 (24.72) (0.08) (21.54)
------- ------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA (%):
Expenses 0.39 0.46 0.51 0.49 0.47
Net investment income 1.69 1.28 1.24 0.88 0.74
Waiver/reimbursement 0.01 0.03 --(g) 0.01 0.01
Portfolio turnover rate (%) 12 10 13 8 15
Net assets, end of period (000's) ($) 824,382 861,950 609,202 841,016 821,147
|
(a) Effective October 13, 2003, the Liberty Large Company Index Fund was renamed Columbia Large Company Index Fund.
(b) On December 9, 2002, the Galaxy II Large Company Index Fund was renamed Liberty Large Company Index Fund, Class Z shares.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Net investment income per share reflects a special dividend which amounted to $0.08 per share.
(e) Total return at net asset value assuming all distributions reinvested.
(f) Had the Investment Advisor/Administrator not waived or reimbursed a portion of expenses, total return would have been reduced.
(g) Rounds to less than 0.01%.
COLUMBIA SMALL COMPANY INDEX FUND
YEAR ENDED MARCH 31,
2005 2004(a) 2003(b) 2002 2001
Class Z Class Z Class Z Class Z Class Z
------- ------- ------- ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 19.60 12.64 17.36 15.15 17.92
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income 0.15(c) 0.08(c) 0.07(c) 0.08 0.07
Net realized and unrealized gain (loss) on
investments 2.35 6.94 (4.46) 3.04 (0.47)
------- ------- ------- ------- -------
Total from Investment Operations 2.50 7.02 (4.39) 3.12 (0.40)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS ($):
From net investment income (0.13) (0.06) (0.08) (0.11) (0.04)
From net realized gains (1.08) -- (0.23) (0.80) (2.33)
Return of capital -- -- (0.02) -- --
------- ------- ------- ------- -------
Total Distributions Declared to Shareholders (1.21) (0.06) (0.33) (0.91) (2.37)
------- ------- ------- ------- -------
NET ASSET VALUE --
END OF PERIOD ($) 20.89 19.60 12.64 17.36 15.15
------- ------- ------- ------- -------
Total return (%)(d) 12.66 55.58 (25.47)(e) 21.32 (2.33)
------- ------- ------- ------- -------
|
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA (%): Expenses 0.32 0.41 0.41 0.41 0.41 Net investment income 0.78 0.47 0.47 0.43 0.48 Waiver/reimbursement -- -- --(f) -- -- Portfolio turnover rate (%) 17 20 27 21 41 Net assets, end of period (000's) ($) 328,570 299,171 202,183 291,111 253,860 |
(a) Effective October 13, 2003, the Liberty Small Company Index Fund was renamed Columbia Small Company Index Fund.
(b) On November 25, 2002, the Galaxy II Small Company Index Fund was renamed Liberty Small Company Index Fund, Class Z shares.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming all distributions reinvested.
(e) Had the Administrator not waived a portion of expenses, total return would have been reduced.
(f) Rounds to less than 0.01%.
COLUMBIA U.S. TREASURY INDEX FUND
YEAR ENDED MARCH 31,
2005 2004(a) 2003(b) 2002 2001
Class Z Class Z Class Z Class Z Class Z
------- ------- ------- ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 11.18 11.26 10.40 10.66 10.13
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income 0.38(c) 0.39(c) 0.46(c) 0.51(d) 0.61
Net realized and unrealized gain (loss) on
investments (0.41) 0.03 0.90 (0.19)(d) 0.53
------- ------- ------- ------- -------
Total from Investment Operations (0.03) 0.42 1.36 0.32 1.14
------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net investment income (0.43) (0.50) (0.50) (0.58) (0.61)
------- ------- ------- ------- -------
NET ASSET VALUE --
END OF PERIOD ($) 10.72 11.18 11.26 10.40 10.66
------- ------- ------- ------- -------
Total return (%)(e) (0.25)(f) 3.85(f) 13.28(f) 3.03(f) 11.60
------- ------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL
DATA (%):
Expenses 0.42 0.42 0.42 0.42 0.42
Net investment income 3.47 3.49 4.21 4.84(d) 5.90
Waiver/reimbursement 0.01 0.01 --(g) 0.01 --
Portfolio turnover rate (%) 44 42 48 47 53
Net assets, end of period (000's) ($) 151,969 177,714 183,042 160,180 163,619
|
(a) Effective October 13, 2003, the Liberty U.S. Treasury Index Fund was renamed Columbia U.S. Treasury Index Fund.
(b) On November 25, 2002, the Galaxy II U.S. Treasury Index Fund was renamed Liberty U.S. Index Fund, Class Z shares.
(c) Per share data was calculated using average shares outstanding during the period.
(d) The Fund adopted the provisions of the AICPA Audit Guide for Investment Companies effective April 1, 2001. The effect of the change for the year ended March 31, 2002 on the net investment income per share, net realized and unrealized gain (loss) per share and the ratio of net investment income to average net assets was $(0.07), $0.07 and (0.63)%, respectively.
(e) Total return at net asset value assuming all distributions reinvested.
(f) Had the Administrator not waived a portion of expenses, total return would have been reduced.
(g) Rounds to less than 0.01%.
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Funds, including investment advisory fees and other Fund costs, on the Funds' returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class Z Shares of the Funds assuming a 5% return each year, the hypothetical year-end balance before expenses and the cumulative return after fees and expenses. The charts also assume that the annual expense ratios stay the same throughout the 10-year period and that all dividends and distributions are reinvested. The annual expense ratio used for the Funds, which is the same as that stated in the Annual Fund Operating Expenses tables, is reflected in the charts and is net of any fee waiver or expense reimbursement.
COLUMBIA LARGE COMPANY INDEX FUND -- CLASS Z SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.28% $10,000.00 5%
|
HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
CUMULATIVE RETURN END BALANCE END BALANCE
BEFORE FEES & BEFORE FEES & CUMULATIVE RETURN AFTER FEES & ANNUAL FEES &
YEAR EXPENSES EXPENSES AFTER FEES & EXPENSES EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 4.72% $10,472.00 $ 28.66
2 10.25% $11,025.00 9.66% $10,966.28 $ 30.01
3 15.76% $11,576.25 14.84% $11,483.89 $ 31.43
4 21.55% $12,155.06 20.26% $12,025.93 $ 32.91
5 27.63% $12,762.82 25.94% $12,593.55 $ 34.47
6 34.01% $13,400.96 31.88% $13,187.97 $ 36.09
7 40.71% $14,071.00 38.10% $13,810.44 $ 37.80
8 47.75% $14,774.55 44.62% $14,462.29 $ 39.58
9 55.13% $15,513.28 51.45% $15,144.91 $ 41.45
10 62.89% $16,288.95 58.60% $15,859.75 $ 43.41
TOTAL GAIN BEFORE FEES & EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES & EXPENSES $ 5,859.75
TOTAL ANNUAL FEES & EXPENSES PAID $ 355.82
|
COLUMBIA SMALL COMPANY INDEX FUND -- CLASS Z SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.21% $10,000.00 5%
|
HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
CUMULATIVE RETURN END BALANCE END BALANCE
BEFORE FEES & BEFORE FEES & CUMULATIVE RETURN AFTER FEES & ANNUAL FEES &
YEAR EXPENSES EXPENSES AFTER FEES & EXPENSES EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 4.79% $10,479.00 $ 21.50
2 10.25% $11,025.00 9.81% $10,980.94 $ 22.53
3 15.76% $11,576.25 15.07% $11,506.93 $ 23.61
4 21.55% $12,155.06 20.58% $12,058.11 $ 24.74
5 27.63% $12,762.82 26.36% $12,635.70 $ 25.93
6 34.01% $13,400.96 32.41% $13,240.95 $ 27.17
7 40.71% $14,071.00 38.75% $13,875.19 $ 28.47
8 47.75% $14,774.55 45.40% $14,539.81 $ 29.84
9 55.13% $15,513.28 52.36% $15,236.27 $ 31.26
|
10 62.89% $16,288.95 59.66% $15,966.08 $ 32.76 TOTAL GAIN BEFORE FEES & EXPENSES $ 6,288.95 TOTAL GAIN AFTER FEES & EXPENSES $ 5,966.08 TOTAL ANNUAL FEES & EXPENSES PAID $267.83 |
COLUMBIA U.S. TREASURY INDEX FUND -- CLASS Z SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.43% $10,000.00 5%
|
HYPOTHETICAL YEAR- HYPOTHETICAL YEAR-
CUMULATIVE RETURN END BALANCE END BALANCE
BEFORE FEES & BEFORE FEES & CUMULATIVE RETURN AFTER FEES & ANNUAL FEES &
YEAR EXPENSES EXPENSES AFTER FEES & EXPENSES EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 4.57% $10,457.00 $ 43.98
2 10.25% $11,025.00 9.35% $10,934.88 $ 45.99
3 15.76% $11,576.25 14.35% $11,434.61 $ 48.09
4 21.55% $12,155.06 19.57% $11,957.17 $ 50.29
5 27.63% $12,762.82 25.04% $12,503.61 $ 52.59
6 34.01% $13,400.96 30.75% $13,075.03 $ 54.99
7 40.71% $14,071.00 36.73% $13,672.56 $ 57.51
8 47.75% $14,774.55 42.97% $14,297.39 $ 60.14
9 55.13% $15,513.28 49.51% $14,950.78 $ 62.88
10 62.89% $16,288.95 56.34% $15,634.04 $ 65.76
TOTAL GAIN BEFORE FEES & EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES & EXPENSES $ 5,634.04
TOTAL ANNUAL FEES & EXPENSES PAID $542.23
|
NOTES
FOR MORE INFORMATION
Additional information about each Fund's investments is available in the Funds' semi-annual and annual reports to shareholders. The annual report contains a discussion of the market conditions and investment strategies that significantly affected each Fund's performance during its last fiscal year.
You may wish to read the Statement of Additional Information for more information on each Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Funds' website (www.columbiafunds.com) include a description of the Funds' policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annnual reports and the Statement of Additional Information, request other information and discuss your questions about each Fund by writing or calling the Funds' distributor or visiting the Funds' website at:
Columbia Funds Distributor, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about each Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Funds Trust V: 811-5030
- Columbia Large Company Index Fund
- Columbia Small Company Index Fund
- Columbia U.S. Treasury Index Fund
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2005 Columbia Funds Distributor, Inc.
One Financial Center, Boston, MA 02111-2621
800.426.3750 www.columbiafunds.com PRO-36/88225-0705
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED SEPTEMBER 1, 2005 (THE "PROSPECTUS")
(REPLACING SUPPLEMENTS DATED OCTOBER 5, 2005 AND OCTOBER 21, 2005)
COLUMBIA CORE BOND FUND
(FORMERLY NAMED COLUMBIA QUALITY PLUS BOND FUND)
(THE "FUND")
CLASS A, B AND C SHARES
The Prospectus is hereby supplemented with the following information:
1. Effective October 10, 2005, Columbia Quality Plus Bond Fund changed its name to Columbia Core Bond Fund; accordingly, all references throughout the Prospectus are changed as appropriate.
2. The section under the heading "PRINCIPAL INVESTMENT STRATEGIES" is revised and replaced in its entirety with the following disclosure:
The Fund invests primarily in obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as in U.S. and foreign corporate debt obligations, such as notes and bonds. The Fund also invests in asset-backed and mortgage-backed securities and in money market instruments, such as commercial paper and obligations of U.S. and foreign banks.
The Fund may participate in mortgage dollar rolls and may roll all, a portion, or none of the Fund's mortgage positions.
The Fund may from time to time invest in a limited amount of interest rate futures contracts. The Fund will use interest rate futures contracts, which may be considered derivatives, in an effort to manage the impact to the Fund of changes in interest rates.
In selecting portfolio securities for the Fund, the Fund's investment advisor monitors and evaluates economic trends. It establishes duration targets and ranges of interest rates on bonds of various maturities, and determines the appropriate allocation of the Fund's investments among various market sectors.
Substantially all of the Fund's investments (under normal circumstances, at least 80% of the Fund's net assets plus any borrowings for investment purposes) will be debt obligations of investment grade quality. These are securities which have one of the top four ratings assigned by Standard & Poor's Ratings Group (S&P), Moody's Investors Service, Inc. (Moody's) or Fitch, Inc. (Fitch), or are unrated securities determined by the advisor to be of comparable quality. High quality securities tend to pay less income than lower-rated securities. Occasionally, the rating of a security held by the Fund may be downgraded to below investment grade. If that happens, the Fund does not have to sell the security unless the advisor determines that under the circumstances the security is no longer an appropriate investment for the Fund. However, the Fund will sell promptly any debt securities that are not rated investment grade by S&P, Moody's or Fitch (or unrated
but determined by the advisor to be of comparable quality) to the extent such securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on current market and economic conditions and the advisor's assessment of probable changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the economy or the performance of the security or other circumstances, the advisor believes that holding the security is no longer consistent with the Fund's investment goal.
As part of its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional tax liability.
Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks."
3. The following disclosure is added under the heading "PRINCIPAL INVESTMENT RISKS":
Mortgage dollar rolls are transactions in which the Fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase similar securities in the future at a predetermined price. These transactions simulate an investment in mortgage-backed securities and have the potential to enhance the Fund's returns and reduce its administrative burdens, compared with holding mortgage-backed securities directly. Mortgage dollar rolls involve the risks that the market value of the securities the Fund is obligated to repurchase may decline below the repurchase price, or that the other party may default on its obligations. These transactions may increase the Fund's portfolio turnover rate.
4. The second paragraph under the heading "AVERAGE ANNUAL TOTAL RETURNS" in the call-out box entitled "Understanding Performance" is revised in its entirety as follows:
Beginning in 2005, the Fund's benchmark was changed to the Lehman Brothers Aggregate Bond Index (the Lehman Aggregate Index), an unmanaged market value-weighted index that tracks the daily price, coupon, pay-downs, and total return performance of fixed-rate, publicly placed, dollar-denominated, and non-convertible investment grade debt issues with at least $250 million par amount outstanding and with at least one year to final maturity. Previously, the Fund's returns were compared to the Lehman Brothers Government/Credit Bond Index (the Lehman Index), an unmanaged index that tracks the performance of U.S. Government and corporate bonds rated investment grade or better, with maturities of at least one year. The advisor believes that the Lehman Aggregate Index, because of its greater emphasis on total return performance of fixed-rate, publicly placed, dollar-denominated, and non-convertible investment grade debt issues, more accurately reflects the type of securities in which the Fund invests. The Fund's average annual returns for the one-year, five-year and ten-year periods are shown compared to the Lehman Aggregate Index, as well as the Fund's previous benchmark, the Lehman Index. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
5. The "Calendar Year Total Returns" and "Average Annual Total Returns" tables for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS
CLASS A(1)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 1.37% 9.11% 9.24% -4.11% 12.57% 7.30% 10.28% 3.33% 3.45% 1.74% |
For the periods shown above:
Best quarter: 3rd quarter 2002, +5.93%
Worst quarter: 2nd quarter 2004, -2.90%
(1) The calendar year total returns shown for Class A shares include the returns of Prime A Shares of Galaxy Quality Plus Bond Fund, the predecessor to the Fund, for periods prior to November 25, 2002, the date on which Class A shares were initially offered by the Fund. The returns shown for Class A shares also include the returns of Retail A Shares of Galaxy Quality Plus Bond Fund for periods prior to the inception of Prime A Shares (November 1, 1998). Class A shares generally would have had substantially similar returns because they would have been invested in the same portfolio of securities, although the returns would be lower to the extent that expenses for Class A shares (in particular, 12b-1 fees, which Class T shares do not pay) exceed expenses paid by Retail A Shares.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2005
1 YEAR 5 YEARS 10 YEARS
Class A (%)
Return Before Taxes (3.07) 4.16 4.81(1)
Return After Taxes on Distributions (4.37) 2.35 2.74(1)
Return After Taxes on Distributions and Sale of Fund
Shares (2.00) 2.51 2.82(1)
-----------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes (3.90) 4.05 4.77(1)
Return After Taxes on Distributions (5.00) 2.50 2.90(1)
Return After Taxes on Distributions and Sale of Fund
Shares (2.54) 2.58 2.93(1)
-----------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 0.16 4.48 4.81(1)
Return After Taxes on Distributions (0.99) 2.92 2.93(1)
Return After Taxes on Distributions and Sale of Fund
Shares 0.10 2.94 2.96(1)
-----------------------------------------------------------------------------------------
Lehman Aggregate Index (%) 2.43 5.87 6.16
-----------------------------------------------------------------------------------------
Lehman Index (%) 2.37 6.11 6.17
|
(1) The average annual total returns shown include the returns of Prime A Shares (for Class A shares) and Prime B Shares (for Class B shares) of Galaxy Quality Plus Bond Fund for periods prior to November 25, 2002, the date on which Class A, Class B and Class C shares were initially offered
by the Fund. The returns shown for Class A shares and Class B shares also include the returns of Retail A Shares of Galaxy Quality Plus Bond Fund (adjusted, as necessary, to reflect the sales charges applicable to Class shares and Class B shares, respectively) for periods prior to the inception of Prime A Shares and Prime B Shares (November 1, 1998). Class A and Class B shares would have had substantially similar returns to Retail A Shares because they would have been invested in the same portfolio of securities, although returns would be lower to the extent that expenses for Class A and Class B shares exceed expenses for Retail A Shares. The returns shown for Class C shares for periods prior to November 25, 2002 include the returns of Retail B Shares of Galaxy Quality Plus Bond Fund (adjusted to reflect the sales charge applicable to Class C shares). The returns shown for Class C shares also include the returns of Retail A Shares of Galaxy Quality Plus Bond Fund (adjusted to reflect the sales charges applicable to Class C shares) for periods prior to the date of inception of Retail B Shares (March 4, 1996). Class C shares would have had substantially similar returns because they would have been invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class C shares exceed expenses paid by Retail A and Retail B Shares.
6. The section "LEGAL PROCEEDINGS" under the heading "MANAGING THE FUND" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and
has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
7. The section entitled "Financial Highlights" is updated and restated in its entirety as follows:
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last five fiscal years, which run from May 1 to April 30, unless otherwise indicated. Information for Class A and Class B shares prior to November 25, 2002, the date Class A and Class B shares were initially offered, is for the former Prime A shares and Prime B shares, respectively, of the Galaxy Quality Plus Bond Fund. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). Information for the six-month period ended October 31, 2005 is unaudited. Other information has been derived from the Fund's financial statements which, for the years ended April 30, 2004 and 2005, have been audited by Pricewaterhouse Coopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the six months ended April 30, 2003 and the fiscal years ended October 31, 2002 and 2001 has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
Selected data for a share outstanding throughout each period is as follows:
(Unaudited)
Six Months Period
Ended Year Ended April 30, Ended Year Ended October 31,
October 31, ----------------------- April 30, ----------------------
Class A Shares 2005(a) 2005 2004(b) 2003(c)(d) 2002 2001
------------------------------------ ----------------------- ----------------------
Net Asset Value,
Beginning of Period $ 10.81 $ 10.93 $11.52 $11.29 $11.23 $10.35
---------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.20(e) 0.39(e) 0.38(e) 0.24(e) 0.54(f) 0.57
Net realized and unrealized
gain (loss) on investments and
futures contracts (0.23) 0.09 (0.30) 0.24 0.07(f) 0.89
------- ------- ------ ------ ------ ------
Total from Investment
Operations (0.03) 0.48 0.08 0.48 0.61 1.46
---------------------------------------------------------------------------------------------------------------------
Less Distributions
Declared to Shareholders:
From net investment income (0.21) (0.41) (0.46) (0.25) (0.55) (0.58)
From net realized gains -- (0.19) (0.21) -- -- --
------- ------- ------ ------ ------ ------
Total Distributions Declared to
Shareholders (0.21) (0.60) (0.67) (0.25) (0.55) (0.58)
---------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 10.57 $ 10.81 $10.93 $11.52 $11.29 $11.23
Total return (g)(h) (0.32)%(i) 4.52% 0.65% 4.28%(i) 5.64% 14.48%
---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data:
Expenses (j) 0.89%(k) 0.94% 1.02% 0.92%(k) 0.89% 0.95%
Net investment income (j) 3.71%(k) 3.75% 3.35% 4.20%(k) 4.79%(f) 5.33%
Waiver/reimbursement --%(k)(l) --%(l) 0.12% 0.22%(k) 0.39% 0.38%
Portfolio turnover rate 46%(i) 118% 119% 42%(i) 75% 131%
Net assets, end of
period (000's) $28,440 $32,601 $2,105 $ 522 $ 59 $ 38
---------------------------------------------------------------------------------------------------------------------
|
(a)On October 7, 2005, the Columbia Quality Plus Bond Fund was renamed the
Columbia Core Bond Fund.
(b)On October 13, 2003, the Liberty Quality Plus Bond Fund was renamed the
Columbia Quality Plus Bond Fund.
(c)The Fund changed its fiscal year end from October 31 to April 30.
(d)On November 25, 2002, the Galaxy Quality Plus Bond Fund, Prime A shares were
redesignated Liberty Quality Plus Bond Fund, Class A shares.
(e)Per share data was calculated using average shares outstanding during the
period.
(f)The Fund adopted the provisions of the AICPA Audit Guide for Investment
Companies effective November 1, 2001. The effect of the change for the year
ended October 31, 2002 on the net investment income per share, net realized
and unrealized gain per share and the ratio of net investment income to
average net assets was $0.00, $0.00 and (0.15)%, respectively.
(g)Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(h)Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(i)Not annualized.
(j)The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(k)Annualized.
(l)Rounds to less than 0.01%.
(Unaudited)
Six Months Period
Ended Year Ended April 30, Ended Year Ended October 31,
October 31, ----------------------- April 30, ----------------------
Class B Shares 2005(a) 2005 2004(b) 2003(c)(d) 2002 2001
------------------------------------ ----------------------- ----------------------
Net Asset Value,
Beginning of Period $ 10.81 $ 10.93 $11.52 $11.29 $11.23 $10.35
---------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.16(e) 0.31(e) 0.29(e) 0.20(e) 0.44(f) 0.49
Net realized and unrealized
gain (loss) on investments and
futures contracts (0.23) 0.09 (0.30) 0.24 0.08(f) 0.89
------- ------- ------ ------ ------ ------
Total from Investment
Operations (0.07) 0.40 (0.01) 0.44 0.52 1.38
---------------------------------------------------------------------------------------------------------------------
Less Distributions
Declared to Shareholders:
From net investment income (0.17) (0.33) (0.37) (0.21) (0.46) (0.50)
From net realized gains -- (0.19) (0.21) -- -- --
------- ------- ------ ------ ------ ------
Total Distributions Declared to
Shareholders (0.17) (0.52) (0.58) (0.21) (0.46) (0.50)
---------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 10.57 $ 10.81 $10.93 $11.52 $11.29 $11.23
Total return (g)(h) (0.70)%(i) 3.74% (0.12)% 3.89%(i) 4.86% 13.65%
---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data:
Expenses (j) 1.64%(k) 1.69% 1.81% 1.68%(k) 1.64% 1.68%
Net investment income (j) 2.96%(k) 2.97% 2.60% 3.45%(k) 4.04%(f) 4.60%
Waiver/reimbursement --%(k)(l) --%(l) 0.11% 0.22%(k) 0.30% 0.28%
Portfolio turnover rate 46%(i) 118% 119% 42%(i) 75% 131%
Net assets, end of
period (000's) $11,059 $12,019 $1,541 $ 900 $ 268 $ 290
---------------------------------------------------------------------------------------------------------------------
|
(a) On October 7, 2005, the Columbia Quality Plus Bond Fund was renamed the Columbia Core Bond Fund.
(b) On October 13, 2003, the Liberty Quality Plus Bond Fund was renamed the Columbia Quality Plus Bond Fund.
(c) The Fund changed its fiscal year end from October 31 to April 30.
(d) On November 25, 2002, the Galaxy Quality Plus Bond Fund, Prime B shares were redesignated Liberty Quality Plus Bond Fund, Class B shares.
(e) Per share data was calculated using average shares outstanding during the period.
(f) The Fund adopted the provisions of the AICPA Audit Guide for Investment Companies effective November 1, 2001. The effect of the change for the year ended October 31, 2002 on the net investment income per share, net realized and unrealized gain per share and the ratio of net investment income to average net assets was $(0.02), $0.02 and (0.15)%, respectively.
(g) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(h) Had the Investment Advisor and/or any of its affiliates not waived or reimbursed a portion of expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
(l) Rounds to less than 0.01%.
(Unaudited)
Six Months Period
Ended Year Ended April 30, Ended
October 31, -------------------- April 30,
Class C Shares 2005(a) 2005 2004(b) 2003(c)
------------------------------------------------------------------------------ --------------------
Net Asset Value, Beginning of Period $10.81 $10.93 $11.52 $11.21
-------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income (d) 0.17(e) 0.33 0.31 0.16(e)
Net realized and unrealized gain (loss) on investments and futures contracts (0.23) 0.09 (0.30) 0.33
-------- ------ ------ ------
Total from Investment Operations (0.06) 0.42 0.01 0.49
-------------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared to Shareholders:
From net investment income (0.18) (0.35) (0.39) (0.18)
From net realized gains -- (0.19) (0.21) --
-------- ------ ------ ------
Total Distributions Declared to Shareholders (0.18) (0.54) (0.60) (0.18)
-------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.57 $10.81 $10.93 $11.52
Total return (f)(g) (0.62)%(h) 3.89% 0.10% 4.38%(h)
-------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/Supplemental Data:
Expenses (i) 1.49%(e) 1.54% 1.59% 1.55%(e)
Net investment income (i) 3.07%(e) 3.12% 2.75% 3.23%(e)
Waiver/reimbursement 0.15%(e) 0.15% 0.26% 0.37%(e)
Portfolio turnover rate 46%(h) 118% 119% 42%(h)
Net assets, end of period (000's) $5,058 $5,140 $ 558 $ 170
-------------------------------------------------------------------------------------------------------------------------------
|
(a)On October 7, 2005, the Columbia Quality Plus Bond Fund was renamed the
Columbia Core Bond Fund.
(b)On October 13, 2003, the Liberty Quality Plus Bond Fund was renamed the
Columbia Quality Plus Bond Fund.
(c)Class C shares were initially offered on November 25, 2002. Per share data
and total return reflect activity from that date.
(d)Per share data was calculated using average shares outstanding during the
period.
(e)Annualized.
(f)Total return at net asset value assuming all distributions reinvested and no
contingent deferred sales charge.
(g)Had the Investment Advisor and/or any of its affiliates not waived or
reimbursed a portion of expenses, total return would have been reduced.
(h)Not annualized.
(i)The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
8. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
9. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
INT-47/107461-0306 March 27, 2006
COLUMBIA CORE BOND FUND
(THE "FUND")
SUPPLEMENT TO THE PROSPECTUSES DATED SEPTEMBER 1, 2005 (THE "PROSPECTUSES")
The Prospectuses are hereby supplemented with the following revised information relating to hypothetical investment and expense information:
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The charts also assume that all dividends and distributions are reinvested and that Class B shares and Class G shares convert to Class A shares and Class T shares after eight years, respectively. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher.
COLUMBIA CORE BOND FUND -- CLASS A SHARES
MAXIMUM SALES INITIAL HYPOTHETICAL ASSUMED
CHARGE INVESTMENT AMOUNT RATE OF RETURN
------------- -------------------- --------------
4.75% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 0.91% -0.85%(2) $ 9,914.57 $ 563.45
2 10.25% 0.91% 3.20% $10,320.08 $ 92.07
3 15.76% 0.91% 7.42% $10,742.17 $ 95.83
4 21.55% 0.91% 11.82% $11,181.52 $ 99.75
5 27.63% 0.91% 16.39% $11,638.85 $ 103.83
6 34.01% 0.91% 21.15% $12,114.88 $ 108.08
7 40.71% 0.91% 26.10% $12,610.38 $ 112.50
8 47.75% 0.91% 31.26% $13,126.14 $ 117.10
9 55.13% 0.91% 36.63% $13,663.00 $ 121.89
10 62.89% 0.91% 42.22% $14,221.82 $ 126.88
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,221.82
TOTAL ANNUAL FEES AND EXPENSES $1,541.38
|
(2) Reflects deduction of the maximum initial sales charge.
COLUMBIA CORE BOND FUND -- CLASS B SHARES
MAXIMUM SALES INITIAL HYPOTHETICAL ASSUMED
CHARGE INVESTMENT AMOUNT RATE OF RETURN
------------- -------------------- --------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.66% 3.34% $10,334.00 $ 168.77
2 10.25% 1.66% 6.79% $10,679.16 $ 174.41
3 15.76% 1.66% 10.36% $11,035.84 $ 180.23
4 21.55% 1.66% 14.04% $11,404.44 $ 186.25
5 27.63% 1.66% 17.85% $11,785.34 $ 192.48
6 34.01% 1.66% 21.79% $12,178.98 $ 198.90
7 40.71% 1.66% 25.86% $12,585.75 $ 205.55
8 47.75% 1.66% 30.06% $13,006.12 $ 212.41
9 55.13% 0.91% 35.38% $13,538.07 $ 120.78
10 62.89% 0.91% 40.92% $14,091.77 $ 125.72
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,091.77
TOTAL ANNUAL FEES AND EXPENSES $1,765.50
|
COLUMBIA CORE BOND FUND -- CLASS C SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.66% 3.34% $10,334.00 $ 168.77
2 10.25% 1.66% 6.79% $10,679.16 $ 174.41
3 15.76% 1.66% 10.36% $11,035.84 $ 180.23
4 21.55% 1.66% 14.04% $11,404.44 $ 186.25
5 27.63% 1.66% 17.85% $11,785.34 $ 192.48
6 34.01% 1.66% 21.79% $12,178.98 $ 198.90
7 40.71% 1.66% 25.86% $12,585.75 $ 205.55
8 47.75% 1.66% 30.06% $13,006.12 $ 212.41
9 55.13% 1.66% 34.41% $13,440.52 $ 219.51
10 62.89% 1.66% 38.89% $13,889.43 $ 226.84
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,889.43
TOTAL ANNUAL FEES AND EXPENSES $1,965.35
|
COLUMBIA CORE BOND FUND -- CLASS G SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.46% 3.54% $10,354.00 $ 148.58
2 10.25% 1.46% 7.21% $10,720.53 $ 153.84
3 15.76% 1.46% 11.00% $11,100.04 $ 159.29
4 21.55% 1.46% 14.93% $11,492.98 $ 164.93
5 27.63% 1.46% 19.00% $11,899.83 $ 170.77
6 34.01% 1.46% 23.21% $12,321.09 $ 176.81
7 40.71% 1.46% 27.57% $12,757.25 $ 183.07
8 47.75% 1.46% 32.09% $13,208.86 $ 189.55
9 55.13% 0.81% 37.62% $13,762.31 $ 109.23
10 62.89% 0.81% 43.39% $14,338.95 $ 113.81
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,338.95
TOTAL ANNUAL FEES AND EXPENSES $1,569.90
|
COLUMBIA CORE BOND FUND -- CLASS T SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
4.75% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 0.81% -0.76%(2) $ 9,924.10 $ 553.77
2 10.25% 0.81% 3.40% $10,339.92 $ 82.07
3 15.76% 0.81% 7.73% $10,773.16 $ 85.51
4 21.55% 0.81% 12.25% $11,224.56 $ 89.09
5 27.63% 0.81% 16.95% $11,694.86 $ 92.82
6 34.01% 0.81% 21.85% $12,184.88 $ 96.71
7 40.71% 0.81% 26.95% $12,695.43 $ 100.77
8 47.75% 0.81% 32.27% $13,227.36 $ 104.99
9 55.13% 0.81% 37.82% $13,781.59 $ 109.39
10 62.89% 0.81% 43.59% $14,359.04 $ 113.97
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,359.04
TOTAL ANNUAL FEES AND EXPENSES $1,429.08
|
(2) Reflects deduction of the maximum initial sales charge.
COLUMBIA CORE BOND FUND -- CLASS Z SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 0.66% 4.34% $10,434.00 $ 67.43
2 10.25% 0.66% 8.87% $10,886.84 $ 70.36
3 15.76% 0.66% 13.59% $11,359.32 $ 73.41
4 21.55% 0.66% 18.52% $11,852.32 $ 76.60
5 27.63% 0.66% 23.67% $12,366.71 $ 79.92
6 34.01% 0.66% 29.03% $12,903.42 $ 83.39
7 40.71% 0.66% 34.63% $13,463.43 $ 87.01
8 47.75% 0.66% 40.48% $14,047.75 $ 90.79
9 55.13% 0.66% 46.57% $14,657.42 $ 94.73
10 62.89% 0.66% 52.94% $15,293.55 $ 98.84
TOTAL GAIN AFTER FEES AND EXPENSES $ 5,293.55
TOTAL ANNUAL FEES AND EXPENSES $822.48
|
INT-47/106541-0206 February 22, 2006
COLUMBIA QUALITY PLUS BOND FUND Prospectus, September 1, 2005
CLASS A, B AND C SHARES
Advised by Columbia Management Advisors, Inc.
THE FUND 2 --------------------------------------------------------- Investment Goal...................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 3 Performance History.................................. 4 Your Expenses........................................ 7 YOUR ACCOUNT 9 --------------------------------------------------------- How to Buy Shares.................................... 9 Investment Minimums.................................. 9 Sales Charges........................................ 10 How to Exchange Shares............................... 14 How to Sell Shares................................... 14 Fund Policy on Trading of Fund Shares................ 15 Distribution and Service Fees........................ 16 Other Information About Your Account................. 17 MANAGING THE FUND 20 --------------------------------------------------------- Investment Advisor................................... 20 Portfolio Manager.................................... 20 Legal Proceedings.................................... 20 OTHER INVESTMENT STRATEGIES AND RISKS 22 --------------------------------------------------------- FINANCIAL HIGHLIGHTS 23 --------------------------------------------------------- APPENDIX A 27 --------------------------------------------------------- |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
|
THE FUND
The Fund may from time to time invest in a limited amount of interest rate futures contracts. The Fund will use interest rate futures contracts, which may be considered derivatives, in an effort to manage the impact to the Fund of changes in interest rates.
In selecting portfolio securities for the Fund, the Fund's investment advisor monitors and evaluates economic trends. It establishes duration targets and ranges of interest rates on bonds of various maturities, and determines the appropriate allocation of the Fund's investments among various market sectors.
Substantially all of the Fund's investments (under normal circumstances, at least 80% of the Fund's net assets plus any borrowings for investment purposes) will be debt obligations of investment grade quality. These are securities which have one of the top four ratings assigned by Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are unrated securities determined by the advisor to be of comparable quality. High quality securities tend to pay less income than lower-rated securities. The Fund expects that under normal circumstances at least 50% of its net assets plus any borrowings for investment purposes will be invested in high quality debt obligations that have one of the top two ratings assigned by S&P or Moody's or unrated securities determined by the advisor to be of comparable quality. Occasionally, the rating of a security held by the Fund may be downgraded to below investment grade. If that happens, the Fund does not have to sell the security unless the advisor determines that under the circumstances the security is no longer an appropriate investment for the Fund. However, the Fund will sell promptly any debt securities that are not rated investment grade by either S&P or Moody's (or unrated but determined by the advisor to be of comparable quality) to the extent such securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on current market and economic conditions and the advisor's assessment of probable changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the economy or the performance of the security or other circumstances, the advisor believes that holding the security is no longer consistent with the Fund's investment goal.
As part of its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional tax liability.
Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks."
THE FUND
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Because the Fund may invest in debt securities issued or supported by private entities, including corporate bonds, municipal bonds and mortgage-backed and asset-backed securities, the Fund is subject to issuer risk. Issuer risk is the possibility that changes in the financial condition of the issuer of a security, changes in general economic conditions, or changes in economic conditions that affect the issuer may impact its actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and in some cases a decrease in income. The Fund's investments in securities issued by U.S. government-sponsored enterprises, such as the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, are not funded by Congressional appropriations and are neither guaranteed nor insured by the U.S. government. Furthermore, no assurances can be given that the U.S. government would provide financial support to its agencies or instrumentalities where it is not obligated to do so.
Structure risk is the risk that an event will occur (such as a security being prepaid or called) that alters the security's cash flows. Prepayment risk is a particular type of structure risk that is associated with investments in asset-backed and mortgage-backed securities. With respect to investments in mortgage-backed securities, prepayment risk is the possibility that, as prevailing interest rates fall, homeowners are more likely to refinance their home mortgages. When mortgages are refinanced, the principal on mortgage-backed securities is paid earlier than expected. In an environment of declining interest rates, asset-backed and mortgage-backed securities may offer less potential for gain than other debt securities. During periods of rising interest rates, asset-backed and mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the expected life of the security. In addition, the potential impact of prepayment on the price of asset-backed and mortgage-backed securities may be difficult to predict and result in greater volatility.
THE FUND
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. The Fund may have limited legal recourse in the event of default with respect to certain debt securities issued by foreign governments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Frequent trading risk. Frequent trading of investments usually increases the chance that the Fund will pay investors short-term capital gains. These gains are taxable at higher rates than long-term capital gains. Frequent trading could also mean higher transaction costs, which could reduce the Fund's return.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
THE FUND
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges. Class B share returns do not reflect Class A share returns after conversion of Class B shares to Class A shares (see the section "Your Account -- Sales Charges").
CALENDAR YEAR TOTAL RETURNS (CLASS A)(1)
(BAR CHART)
21.20% 1.37% 9.11% 9.24% 12.57% 7.30% 10.28% 3.33% 3.45%
-4.11%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
|
The Class's year-to-date total return For the periods shown in bar chart:
through June 30, 2005 was +2.40%. Best quarter: 2nd quarter 1995, +7.54%
Worst quarter: 2nd quarter 2004, -2.90%
|
(1) The calendar year total returns shown for Class A shares include the returns of Prime A Shares of Galaxy Quality Plus Bond Fund, the predecessor to the Fund, for periods prior to November 25, 2002, the date on which Class A shares were initially offered by the Fund. The returns shown for Class A shares also include the returns of Retail A Shares of Galaxy Quality Plus Bond Fund for periods prior to the inception of Prime A Shares (November 1, 1998). Class A shares generally would have had substantially similar returns because they would have been invested in the same portfolio of securities, although the returns would be lower to the extent that expenses for Class A shares (in particular, 12b-1 fees, which Class T shares do not pay) exceed expenses paid by Retail A Shares.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
THE FUND
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004
1 YEAR 5 YEARS 10 YEARS
Class A (%)
Return Before Taxes -1.43 6.29(1) 6.65(1)
Return After Taxes on Distributions -2.98 4.25(1) 4.43(1)
Return After Taxes on Distributions and Sale of Fund
Shares -0.65 4.18(1) 4.34(1)
-------------------------------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes -2.22 6.23(1) 6.69(1)
Return After Taxes on Distributions -3.56 4.46(1) 4.66(1)
Return After Taxes on Distributions and Sale of Fund
Shares -1.14 4.30(1) 4.51(1)
-------------------------------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 1.85 6.61(1) 6.73(1)
Return After Taxes on Distributions 0.46 4.83(1) 4.68(1)
Return After Taxes on Distributions and Sale of Fund
Shares 1.50 4.63(1) 4.53(1)
-------------------------------------------------------------------------------------------------------------
Lehman Index (%) 4.19 8.00 7.80
|
(1) The average annual total returns shown include the returns of Prime A Shares (for Class A shares) and Prime B Shares (for Class B shares) of Galaxy Quality Plus Bond Fund for periods prior to November 25, 2002, the date on which Class A, Class B and Class C shares were initially offered by the Fund. The returns shown for Class A shares and Class B shares also include the returns of Retail A Shares of Galaxy Quality Plus Bond Fund (adjusted, as necessary, to reflect the sales charges applicable to Class A shares and Class B shares, respectively) for periods prior to the inception of Prime A Shares and Prime B Shares (November 1, 1998). Class A and Class B shares would have had substantially similar returns to Retail A Shares because they would have been invested in the same portfolio of securities, although returns would be lower to the extent that expenses for Class A and Class B shares exceed expenses for Retail A Shares. The returns shown for Class C shares for periods prior to November 25, 2002 include the returns of Retail B Shares of Galaxy Quality Plus Bond Fund (adjusted to reflect the sales charge applicable to Class C shares). The returns shown for Class C shares also include the returns of Retail A Shares of Galaxy Quality Plus Bond Fund (adjusted to reflect the sales charges applicable to Class C shares) for periods prior to the date of inception of Retail B Shares (March 4, 1996). Class C shares would have had substantially similar returns because they would have been invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class C shares exceed expenses paid by Retail A and Retail B Shares.
THE FUND
SALES CHARGES are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management and administration fees, 12b-1 fees and other expenses that generally include, but are not limited to, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
- Reinvestment of all dividends and distributions
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75 0.00 0.00
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Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or
redemption price) 1.00(2) 5.00 1.00
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Redemption fee (%)
(as a percentage of amount redeemed, if applicable) (3) (3) (3)
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
THE FUND
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
CLASS A CLASS B CLASS C
Management fee(1)(2) (%) 0.53 0.53 0.53
-------------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00(3)
-------------------------------------------------------------------------------------------------------
Other expenses (%) 0.13 0.13 0.13
-------------------------------------------------------------------------------------------------------
Total annual fund operating expenses (%) 0.91 1.66 1.66(3)
|
(1) The Fund pays a management fee of 0.46% and an administration fee of 0.07%.
(2) Management fees have been restated to reflect contractual changes to the management fee for the Fund effective November 1, 2004.
(3) The Fund's distributor has voluntarily agreed to waive a portion of the 12b-1 fee for Class C shares. If this waiver were reflected in the table, the 12b-1 fees for Class C shares would be 0.85% and the total annual fund operating expenses for Class C shares would be 1.51%. This arrangement may be modified or terminated by the distributor at any time.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A $563 $751 $ 955 $1,541
------------------------------------------------------------------------------------------------------------------------
Class B: did not sell your shares $169 $523 $ 902 $1,766
sold all your shares at the end of the period $669 $823 $1,102 $1,766
------------------------------------------------------------------------------------------------------------------------
Class C: did not sell your shares $169 $523 $ 902 $1,965
sold all your shares at the end of the period $269 $523 $ 902 $1,965
|
See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-----------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
-----------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class (and, in some cases, certain
other classes) of the Fund at no additional cost. There may
be an additional sales charge if exchanging from a money
market fund. To exchange by telephone, call 1-800-422-3737.
-----------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-----------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-----------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
-----------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate your
program or change the amount of the exchange (subject to the
$100 minimum) by calling 1-800-345-6611. There may be an
additional sales charge if exchanging from a money market
fund. Be sure to complete the appropriate section of the
account application for this feature.
-----------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
|
Please see the Statement of Additional Information for more details on investment minimums.
YOUR ACCOUNT
The Fund offers three classes of shares in this prospectus -- CLASS A, B AND C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 or more but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
CLASS A SHARES Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
CLASS A SALES CHARGES
% OF OFFERING
AS A % OF PRICE
THE PUBLIC AS A % RETAINED BY
OFFERING OF YOUR FINANCIAL
AMOUNT PURCHASED PRICE INVESTMENT ADVISOR
Less than $50,000 4.75 4.99 4.25
-------------------------------------------------------------------------------------------------------------------
$50,000 to less than $100,000 4.50 4.71 4.00
-------------------------------------------------------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 3.00
-------------------------------------------------------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.25
-------------------------------------------------------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
-------------------------------------------------------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
|
Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on
YOUR ACCOUNT
the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
PURCHASES OVER $1 MILLION
AMOUNT PURCHASED COMMISSION % Less than $3 million 1.00 ---------------------------------------------------------------------------- $3 million to less than $50 million 0.50 ---------------------------------------------------------------------------- $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1% commission from the distributor on all purchases of less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES
REDUCED SALES CHARGES FOR LARGER INVESTMENTS
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
RIGHTS OF ACCUMULATION The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
STATEMENT OF INTENT You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to
YOUR ACCOUNT
that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
- Individual accounts
- Joint accounts
- Certain IRA accounts
- Certain trusts
- UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Funds as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the
YOUR ACCOUNT
selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
CLASS B SHARES Your purchases of Class B shares are at Class B's net asset value. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the applicable chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the charts below.
PURCHASES OF LESS THAN $50,000:
CLASS B SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 5.00
-------------------------------------------------------------------------------
Through second year 4.00
-------------------------------------------------------------------------------
Through third year 3.00
-------------------------------------------------------------------------------
Through fourth year 3.00
-------------------------------------------------------------------------------
Through fifth year 2.00
-------------------------------------------------------------------------------
Through sixth year 1.00
-------------------------------------------------------------------------------
Longer than six years 0.00
|
Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
CLASS C SHARES Your purchases of Class C shares are at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares.
CLASS C SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 1.00
-------------------------------------------------------------------------------
Longer than one year 0.00
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YOUR ACCOUNT
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable, you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into the same share class (and, in
some cases, certain other classes) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
-----------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
-----------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or if
applicable, stock power form along with any share
certificates to be sold, to the address below. In your
letter of instruction, note the Fund's name, share class,
account number, and the dollar value or number of shares you
wish to sell. All account owners must sign the letter.
Signatures must be guaranteed by either a bank, a member
firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for alternate
payee or mailing instructions. Additional documentation is
required for sales by corporations, agents, fiduciaries,
surviving joint owners and individual retirement account
owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
-----------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
-----------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
-----------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market Fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange
YOUR ACCOUNT
purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
YOUR ACCOUNT
ADDITIONAL INTERMEDIARY COMPENSATION In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not
YOUR ACCOUNT
be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for any class of shares offered by the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
-----------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund declares any dividends daily and pays them monthly, and declares and pays any capital gains (including short-term capital gains) at least annually. Shares begin to earn dividends on the date on which a purchase order is settled by payment. Shares stop earning dividends at the close of business on the day before the date on which a redemption order is settled. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
YOUR ACCOUNT
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your
current fund
----------------------------------------------------------------
Reinvest all distributions in shares of another fund
----------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest
capital gains
----------------------------------------------------------------
Receive all distributions in cash (with one of the following
options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds
transfer
|
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.49% of average daily net assets of the Fund. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the fiscal year ended April 30, 2005.
The Statement of Additional Information provides additional information about the manager's compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other mutual funds'
MANAGING THE FUND
management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the Fund or its shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Columbia Funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL"). The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, removal of the trustees of the funds, removal of Columbia Management and CMD, disgorgement of all management fees and monetary damages. The MDL is ongoing.
On January 11, 2005, a putative class action lawsuit was filed in federal district court in Massachusetts against, among others, the Trustees of the funds and Columbia. The lawsuit alleges that defendants violated common law duties to fund shareholders as well as sections of the Investment Company Act of 1940, by failing to ensure that the funds and other affiliated funds participated in securities class action settlements for which the funds were eligible. Specifically, plaintiffs allege that defendants failed to submit proof of claims in connection with settlements of securities class action lawsuits filed against companies in which the funds held positions.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits seek damages and allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as IN RE COLUMBIA ENTITIES LITIGATION. The plaintiffs filed a consolidated amended complaint on June 9, 2005.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has conditionally ordered its transfer to the MDL.
OTHER INVESTMENT STRATEGIES AND RISKS
The Fund's principal investment strategies and their associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The advisor may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goal. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or any of its investment strategies.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last five fiscal years, which run from May 1 to April 30, unless otherwise indicated. Information for Class A and Class B shares prior to November 25, 2002, the date Class A and Class B shares were initially offered, is for the former Prime A shares and Prime B shares, respectively, of the Galaxy Quality Plus Bond Fund. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the years ended April 30, 2004 and 2005, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the six months ended April 30, 2003 and the fiscal years ended October 31, 2002, 2001 and 2000 has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
SIX MONTHS
YEAR ENDED ENDED
APRIL 30, APRIL 30, YEAR ENDED OCTOBER 31,
2005 2004(a) 2003(b)(c) 2002 2001 2000
Class A Class A Class A Class A Class A Class A
------- ------- ---------- ------- ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 10.93 11.52 11.29 11.23 10.35 10.25
---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income 0.39(d) 0.38(d) 0.24(d) 0.54(f) 0.57 0.57
Net realized and unrealized gain (loss)
on investments and futures contracts 0.09 (0.30) 0.24 0.07(f) 0.89 0.12
---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.48 0.08 0.48 0.61 1.46 0.69
---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net investment income (0.41) (0.46) (0.25) (0.55) (0.58) (0.59)
From net realized gains (0.19) (0.21) -- -- -- --
---------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to
Shareholders (0.60) (0.67) (0.25) (0.55) (0.58) (0.59)
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 10.81 10.93 11.52 11.29 11.23 10.35
---------------------------------------------------------------------------------------------------------------------------------
Total return (%)(g)(h) 4.52 0.65 4.28(i) 5.64 14.48 7.00
---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL
DATA (%):
Expenses(j) 0.94 1.02 0.92(k) 0.89 0.95 1.05
Net investment income(j) 3.75 3.35 4.20(k) 4.79(f) 5.33 5.74
Waiver/reimbursement --(e) 0.12 0.22(k) 0.39 0.38 0.47
Portfolio turnover rate (%) 118 119 42(i) 75 131 104
Net assets, end of period (000's) ($) 32,601 2,105 522 59 38 34
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(a) On October 13, 2003, the Liberty Quality Plus Bond Fund was renamed the Columbia Quality Plus Bond Fund.
(b) The Fund changed its fiscal year end from October 31 to April 30.
(c) On November 25, 2002, the Galaxy Quality Plus Bond Fund, Prime A shares were redesignated Liberty Quality Plus Bond Fund, Class A shares.
(d) Per share data was calculated using average shares outstanding during the period.
(e) Rounds to less than 0.01%.
FINANCIAL HIGHLIGHTS
(f) The Fund adopted the provisions of the AICPA Audit Guide for Investment Companies effective November 1, 2001 and began amortizing premium and accreting discount on all debt securities. The effect of the change for the year ended October 31, 2002 on the net investment income per share, net realized and unrealized gain per share and the ratio of net investment income to average net assets was $0.00, $0.00 and (0.15)%, respectively.
(g) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge.
(h) Had the Investment Advisor and/or any of its affiliates not waived or reimbursed a portion of expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
FINANCIAL HIGHLIGHTS
THE FUND
SIX MONTHS
YEAR ENDED ENDED
APRIL 30, APRIL 30, YEAR ENDED OCTOBER 31,
2005 2004(a) 2003(b)(c) 2002 2001 2000
Class B Class B Class B Class B Class B Class B
------- ------- ----------- ------- ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 10.93 11.52 11.29 11.23 10.35 10.24
---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income 0.31(d) 0.29(d) 0.20(d) 0.44(f) 0.49 0.51
Net realized and unrealized gain (loss)
on investments and futures contracts 0.09 (0.30) 0.24 0.08(f) 0.89 0.12
---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.40 (0.01) 0.44 0.52 1.38 0.63
---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net investment income (0.33) (0.37) (0.21) (0.46) (0.50) (0.52)
From net realized gains (0.19) (0.21) -- -- -- --
---------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to
Shareholders (0.52) (0.58) (0.21) (0.46) (0.50) (0.52)
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 10.81 10.93 11.52 11.29 11.23 10.35
---------------------------------------------------------------------------------------------------------------------------------
Total return (%)(g)(h) 3.74 (0.12) 3.89(i) 4.86 13.65 6.41
---------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL
DATA (%):
Expenses(j) 1.69 1.81 1.68(k) 1.64 1.68 1.71
Net investment income(j) 2.97 2.60 3.45(k) 4.04(f) 4.60 5.07
Waiver/reimbursement --(e) 0.11 0.22(k) 0.30 0.28 0.29
Portfolio turnover rate (%) 118 119 42(i) 75 131 104
Net assets, end of period (000's) ($) 12,019 1,541 900 268 290 262
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(a) On October 13, 2003, the Liberty Quality Plus Bond Fund was renamed the Columbia Quality Plus Bond Fund.
(b) The Fund changed its fiscal year end from October 31 to April 30.
(c) On November 25, 2002, the Galaxy Quality Plus Bond Fund, Prime B shares were redesignated Liberty Quality Plus Bond Fund, Class B shares.
(d) Per share data was calculated using average shares outstanding during the period.
(e) Rounds to less than 0.01%.
(f) The Fund adopted the provisions of the AICPA Audit Guide for Investment Companies effective November 1, 2001 and began amortizing premium and accreting discount on all debt securities. The effect of the change for the year ended October 31, 2002 on the net investment income per share, net realized and unrealized gain per share and the ratio of net investment income to average net assets was $(0.02), $0.02 and (0.15)%, respectively.
(g) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(h) Had the Investment Advisor and/or any of its affiliates not waived or reimbursed a portion of expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
FINANCIAL HIGHLIGHTS
THE FUND
PERIOD ENDED
YEAR ENDED APRIL 30, APRIL 30,
2005 2004(a) 2003(b)
Class C Class C Class C
------- ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 10.93 11.52 11.21
-----------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income(c) 0.33 0.31 0.16
Net realized and unrealized gain (loss) on investments and
futures contracts 0.09 (0.30) 0.33
-----------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.42 0.01 0.49
-----------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net investment income (0.35) (0.39) (0.18)
From net realized gains (0.19) (0.21) --
-----------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.54) (0.60) (0.18)
-----------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 10.81 10.93 11.52
-----------------------------------------------------------------------------------------------------------------
Total return (%)(e)(f) 3.89 0.10 4.38(g)
-----------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA (%):
Expenses(h) 1.54 1.59 1.55(d)
Net investment income(h) 3.12 2.75 3.23(d)
Waiver/reimbursement 0.15 0.26 0.37(d)
Portfolio turnover rate (%) 118 119 42(g)
Net assets, end of period (000's) ($) 5,140 558 170
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(a) On October 13, 2003, the Liberty Quality Plus Bond Fund was renamed the Columbia Quality Plus Bond Fund.
(b) Class C shares were initially offered on November 25, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Annualized.
(e) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(f) Had the Investment Advisor and/or any of its affiliates not waived or reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the hypothetical year-end balance before expenses and the cumulative return after fees and expenses. The charts also assume that the annual expense ratios stay the same throughout the 10-year period, that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses tables, is reflected in the charts and is net of any fee waiver or expense reimbursement.
CLASS A SHARES(1)
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.91% $10,000.00 5%
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CUMULATIVE RETURN HYPOTHETICAL YEAR- CUMULATIVE RETURN HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE AFTER FEES & END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,001.25 4.09% $ 9,914.57 $ 563.45
2 10.25% $10,501.31 8.35% $10,320.08 $ 92.07
3 15.76% $11,026.38 12.78% $10,742.17 $ 95.83
4 21.55% $11,577.70 17.39% $11,181.52 $ 99.75
5 27.63% $12,156.58 22.19% $11,638.85 $ 103.83
6 34.01% $12,764.41 27.19% $12,114.88 $ 108.08
7 40.71% $13,402.63 32.39% $12,610.38 $ 112.50
8 47.75% $14,072.76 37.81% $13,126.14 $ 117.10
9 55.13% $14,776.40 43.44% $13,663.00 $ 121.89
10 62.89% $15,515.22 49.31% $14,221.82 $ 126.88
TOTAL GAIN BEFORE FEES & EXPENSES $ 5,990.22
TOTAL GAIN AFTER FEES & EXPENSES $ 4,696.82
TOTAL ANNUAL FEES & EXPENSES PAID $1,541.38
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(1) For Class A shares, the year one Annual Fees & Expenses and Hypothetical Year-End Balance Before Fees & Expenses information shown include the dollar amount and effect of any applicable front-end sales charge of the fund.
APPENDIX A
CLASS B SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.66% $10,000.00 5%
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CUMULATIVE RETURN HYPOTHETICAL YEAR- CUMULATIVE RETURN HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE AFTER FEES & END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 3.34% $10,334.00 $ 168.77
2 10.25% $11,025.00 6.79% $10,679.16 $ 174.41
3 15.76% $11,576.25 10.36% $11,035.84 $ 180.23
4 21.55% $12,155.06 14.04% $11,404.44 $ 186.25
5 27.63% $12,762.82 17.85% $11,785.34 $ 192.48
6 34.01% $13,400.96 21.79% $12,178.98 $ 198.90
7 40.71% $14,071.00 25.86% $12,585.75 $ 205.55
8 47.75% $14,774.55 30.06% $13,006.12 $ 212.41
9 55.13% $15,513.28 35.38% $13,538.07 $ 120.78
10 62.89% $16,288.95 40.92% $14,091.77 $ 125.72
TOTAL GAIN BEFORE FEES & EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES & EXPENSES $ 4,091.77
TOTAL ANNUAL FEES & EXPENSES PAID $1,765.50
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CLASS C SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
1.66% $10,000.00 5%
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CUMULATIVE RETURN HYPOTHETICAL YEAR- CUMULATIVE RETURN HYPOTHETICAL YEAR-
BEFORE FEES & END BALANCE BEFORE AFTER FEES & END BALANCE AFTER ANNUAL FEES &
YEAR EXPENSES FEES & EXPENSES EXPENSES FEES & EXPENSES EXPENSES
---- ----------------- ------------------ --------------------- ------------------ -------------
1 5.00% $10,500.00 3.34% $10,334.00 $ 168.77
2 10.25% $11,025.00 6.79% $10,679.16 $ 174.41
3 15.76% $11,576.25 10.36% $11,035.84 $ 180.23
4 21.55% $12,155.06 14.04% $11,404.44 $ 186.25
5 27.63% $12,762.82 17.85% $11,785.34 $ 192.48
6 34.01% $13,400.96 21.79% $12,178.98 $ 198.90
7 40.71% $14,071.00 25.86% $12,585.75 $ 205.55
8 47.75% $14,774.55 30.06% $13,006.12 $ 212.41
9 55.13% $15,513.28 34.41% $13,440.52 $ 219.51
10 62.89% $16,288.95 38.89% $13,889.43 $ 226.84
TOTAL GAIN BEFORE FEES & EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES & EXPENSES $ 3,889.43
TOTAL ANNUAL FEES & EXPENSES PAID $1,965.35
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NOTES
NOTES
NOTES
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Funds Trust III: 811-881
- Columbia Quality Plus Bond Fund
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2005 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/89644-0805
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED SEPTEMBER 1, 2005 (THE
"PROSPECTUS") (REPLACING SUPPLEMENTS DATED OCTOBER 5,
2005 AND OCTOBER 21, 2005)
COLUMBIA CORE BOND FUND
(FORMERLY NAMED COLUMBIA QUALITY PLUS BOND FUND)
(THE "FUND")
CLASS T AND G SHARES
The Prospectus is hereby supplemented with the following information:
1. Effective October 10, 2005, Columbia Quality Plus Bond Fund changed its name to Columbia Core Bond Fund; accordingly, all references throughout the Prospectus are changed as appropriate.
2. The section under the heading "PRINCIPAL INVESTMENT STRATEGIES" is revised and replaced in its entirety with the following disclosure:
The Fund invests primarily in obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as in U.S. and foreign corporate debt obligations, such as notes and bonds. The Fund also invests in asset-backed and mortgage-backed securities and in money market instruments, such as commercial paper and obligations of U.S. and foreign banks.
The Fund may participate in mortgage dollar rolls and may roll all, a portion, or none of the Fund's mortgage positions.
The Fund may from time to time invest in a limited amount of interest rate futures contracts. The Fund will use interest rate futures contracts, which may be considered derivatives, in an effort to manage the impact to the Fund of changes in interest rates.
In selecting portfolio securities for the Fund, the Fund's investment advisor monitors and evaluates economic trends. It establishes duration targets and ranges of interest rates on bonds of various maturities, and determines the appropriate allocation of the Fund's investments among various market sectors.
Substantially all of the Fund's investments (under normal circumstances, at least 80% of the Fund's net assets plus any borrowings for investment purposes) will be debt obligations of investment grade quality. These are securities which have one of the top four ratings assigned by Standard & Poor's Ratings Group (S&P), Moody's Investors Service, Inc. (Moody's) or Fitch, Inc. (Fitch), or are unrated securities determined by the advisor to be of comparable quality. High quality securities tend to pay less income than lower-rated securities. Occasionally, the rating of a security held by the Fund may be downgraded to below investment grade. If that happens, the Fund does not have to sell the security unless the advisor determines that under the circumstances the security is no longer an appropriate investment for the Fund. However, the Fund will sell promptly any debt securities that are not rated investment grade by S&P, Moody's or Fitch (or unrated
but determined by the advisor to be of comparable quality) to the extent such securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on current market and economic conditions and the advisor's assessment of probable changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the economy or the performance of the security or other circumstances, the advisor believes that holding the security is no longer consistent with the Fund's investment goal.
As part of its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional tax liability.
Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks."
3. The following disclosure is added under the heading "PRINCIPAL INVESTMENT RISKS":
Mortgage dollar rolls are transactions in which the Fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase similar securities in the future at a predetermined price. These transactions simulate an investment in mortgage-backed securities and have the potential to enhance the Fund's returns and reduce its administrative burdens, compared with holding mortgage-backed securities directly. Mortgage dollar rolls involve the risks that the market value of the securities the Fund is obligated to repurchase may decline below the repurchase price, or that the other party may default on its obligations. These transactions may increase the Fund's portfolio turnover rate.
4. The second paragraph under the heading "AVERAGE ANNUAL TOTAL RETURNS" in the call-out box entitled "Understanding Performance" is revised in its entirety as follows:
Beginning in 2005, the Fund's benchmark was changed to the Lehman Brothers Aggregate Bond Index (the Lehman Aggregate Index), an unmanaged market value-weighted index that tracks the daily price, coupon, pay-downs, and total return performance of fixed-rate, publicly placed, dollar-denominated, and non-convertible investment grade debt issues with at least $250 million par amount outstanding and with at least one year to final maturity. Previously, the Fund's returns were compared to the Lehman Brothers Government/Credit Bond Index (the Lehman Index), an unmanaged index that tracks the performance of U.S. Government and corporate bonds rated investment grade or better, with maturities of at least one year. The advisor believes that the Lehman Aggregate Index, because of its greater emphasis on total return performance of fixed-rate, publicly placed, dollar-denominated, and non-convertible investment grade debt issues, more accurately reflects the type of securities in which the Fund invests. The Fund's average annual returns for the one-year, five-year and ten-year periods are shown compared to the Lehman Aggregate Index, as well as the Fund's previous benchmark, the Lehman Index. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
5. The "Calendar Year Total Returns" and "Average Annual Total Returns" tables for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS
CLASS T(1)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ------------- ------- -------- --------- --------- -------- --------- -------- -------- -------- 1.37% 9.11% 9.24% -4.11% 12.57% 7.30% 10.28% 3.40% 3.56% 1.84% |
For the periods shown above:
Best quarter: 3rd quarter 2002, +5.92%
Worst quarter: 2nd quarter 2004, -2.88%
(1) The calendar year total returns shown for Class T shares include the returns of Retail A Shares of Galaxy Quality Plus Bond Fund, the predecessor to the Fund, for periods prior to November 25, 2002, the date on which Class T shares were initially offered by the Fund.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2005
1 YEAR 5 YEARS 10 YEARS
Class G (%)
Return Before Taxes (3.71) 4.02 4.71(1)
Return After Taxes on Distributions (4.88) 2.41 2.86(1)
Return After Taxes on Distributions and Sale of Fund
Shares (2.41) 2.51 2.90(1)
----------------------------------------------------------------------------------------------------------
Class T (%)
Return Before Taxes (2.98) 4.21 4.84(1)
Return After Taxes on Distributions (4.31) 2.38 2.75(1)
Return After Taxes on Distributions and Sale of Fund
Shares (1.94) 2.54 2.84(1)
----------------------------------------------------------------------------------------------------------
Lehman Aggregate Index (%) 2.43 5.87 6.16
----------------------------------------------------------------------------------------------------------
Lehman Index (%) 2.37 6.11 6.17
|
(1) The average annual total returns shown include the returns of Retail A Shares (for Class T shares) and Retail B Shares (for Class G Shares) of Galaxy Quality Plus Bond Fund for periods prior to November 25, 2002, the date on which Class T and G shares were initially offered by the Fund. The returns shown for Class G shares also include the returns of Retail A Shares (adjusted to reflect the sales charges applicable to Class G shares) for periods prior to the inception of Retail B Shares of Galaxy Quality Plus Bond Fund (March 4, 1996). Retail A Shares of Galaxy Quality Plus Bond Fund were initially offered on December 14, 1990. Class G shares generally would have had substantially similar returns to Retail A Shares because they would have been invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class G shares exceed expenses paid by Retail A Shares.
6. The section "LEGAL PROCEEDINGS" under the heading "MANAGING THE FUND" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the
Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
7. The section entitled "Financial Highlights" is updated and restated in its entirety as follows:
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last five fiscal years, which run from May 1 to April 30, unless otherwise indicated. Information for Class T and Class G shares prior to November 25, 2002, the date Class T and Class G shares were initially offered, is for the former Retail A shares and Retail B shares, respectively, of the Galaxy Quality Plus Bond Fund. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). Information for the six-month period ended October 31, 2005 is unaudited. Other information has been derived from the Fund's financial statements which, for the years ended April 30, 2004 and 2005, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the six months ended April 30, 2003 and the fiscal years ended October 31, 2002 and 2001 has been derived from the Fund's financial statements which have been audited by another
independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
Selected data for a share outstanding throughout each period is as follows:
(Unaudited)
Six Months Period
Ended Year Ended April 30, Ended Year Ended October 31,
October 31, ------------------- April 30, -------------------------------
Class G Shares 2005(a) 2005 2004(b) 2003(c)(d) 2002 2001
------------------------------------ ---------------------------- ---------------------------------
Net asset value,
beginning of period $10.81 $10.93 $11.52 $ 11.29 $ 11.23 $ 10.35
-----------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.17(e) 0.34(e) 0.33(e) 0.20(e) 0.45(f) 0.51
Net realized and unrealized
gain (loss) on investments and
futures contracts (0.23) 0.08 (0.32) 0.24 0.08(f) 0.88
------ ------ ------ ------- ------- ------
Total from Investment
Operations (0.06) 0.42 0.01 0.44 0.53 1.39
-----------------------------------------------------------------------------------------------------------------------------
Less Distributions
Declared to Shareholders:
From net investment income (0.18) (0.35) (0.39) (0.21) (0.47) (0.51)
From net realized gains -- (0.19) (0.21) -- -- --
------ ------ ------ ------- ------- ------
Total Distributions Declared to
Shareholders (0.18) (0.54) (0.60) (0.21) (0.47) (0.51)
-----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.57 $10.81 $10.93 $ 11.52 $ 11.29 $ 11.23
Total return (g)(h) (0.60)%(i) 3.94% 0.10% 3.94%(i) 4.90% 13.70%
-----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data:
Expenses (j) 1.44%(k) 1.49% 1.60% 1.60%(k) 1.60% 1.64%
Net investment income (j) 3.16%(k) 3.07% 2.90% 3.56%(k) 4.08%(f) 4.64%
Waiver/reimbursement --%(k)(l) --%(l) 0.11% 0.22%(k) 0.23% 0.20%
Portfolio turnover rate 46%(i) 118% 119% 42%(i) 75% 131%
Net assets, end of
period (000's) $2,903 $4,374 $8,124 $13,345 $13,981 $14,246
-----------------------------------------------------------------------------------------------------------------------------
|
(a) On October 7, 2005, the Columbia Quality Plus Bond Fund was renamed the Columbia Core Bond Fund.
(b) On October 13, 2003, the Liberty Quality Plus Bond Fund was renamed the Columbia Quality Plus Bond Fund.
(c) The Fund changed its fiscal year end from October 31 to April 30.
(d) On November 25, 2002, the Galaxy Quality Plus Bond Fund, Retail B shares were redesignated Liberty Quality Plus Bond Fund, Class G shares.
(e) Per share data was calculated using average shares outstanding during the period.
(f) The Fund adopted the provisions of the AICPA Audit Guide for Investment Companies effective November 1, 2001. The effect of the change for the year ended October 31, 2002 on the net investment income per share, net realized and unrealized gain per share and the ratio of net investment income to average net assets was $(0.02), $0.02 and (0.15)%, respectively.
(g) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(h) Had the Investment Advisor and/or any of its affiliates not waived or reimbursed a portion of expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
(l) Rounds to less than 0.01%.
(Unaudited)
Six Months Period
Ended Year Ended April 30, Ended Year Ended October 31,
October 31, --------------------- April 30, --------------------------------
Class T Shares 2005(a) 2005 2004(b) 2003(c)(d) 2002 2001
------------------------------------ ----------------------------- -----------------------------------
Net Asset Value,
Beginning of Period $ 10.81 $ 10.93 $ 11.52 $ 11.29 $ 11.23 $ 10.35
---------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.21(e) 0.41(e) 0.40(e) 0.24(e) 0.52(f) 0.57
Net realized and unrealized
gain (loss) on investments and
futures contracts (0.24) 0.09 (0.31) 0.24 0.08(f) 0.89
------- ------- ------- ------- ------- -------
Total from Investment
Operations (0.03) 0.50 0.09 0.48 0.60 1.46
---------------------------------------------------------------------------------------------------------------------------------
Less Distributions
Declared to Shareholders:
From net investment income (0.21) (0.43) (0.47) (0.25) (0.54) (0.58)
From net realized gains -- (0.19) (0.21) -- -- --
------- ------- ------- ------- ------- -------
Total Distributions Declared to
Shareholders (0.21) (0.62) (0.68) (0.25) (0.54) (0.58)
---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 10.57 $ 10.81 $ 10.93 $ 11.52 $ 11.29 $ 11.23
Total return (g)(h) (0.27)%(i) 4.62% 0.75% 4.29%(i) 5.63% 14.45%
---------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data:
Expenses (j) 0.79%(k) 0.84% 0.95% 0.91%(k) 0.91% 0.98%
Net investment income (j) 3.81%(k) 3.72% 3.54% 4.26%(k) 4.77%(f) 5.30%
Waiver/reimbursement --%(k)(l) --%(l) 0.11% 0.22%(k) 0.22% 0.20%
Portfolio turnover rate 46%(i) 118% 119% 42%(i) 75% 131%
Net assets, end of
period (000's) $28,917 $30,832 $35,058 $43,084 $44,409 $48,276
---------------------------------------------------------------------------------------------------------------------------------
|
(a) On October 7, 2005, the Columbia Quality Plus Bond Fund was renamed the Columbia Core Bond Fund.
(b) On October 13, 2003, the Liberty Quality Plus Bond Fund was renamed the Columbia Quality Plus Bond Fund.
(c) The Fund changed its fiscal year end from October 31 to April 30.
(d) On November 25, 2002, the Galaxy Quality Plus Bond Fund, Retail A shares were redesignated Liberty Quality Plus Bond Fund, Class T shares.
(e) Per share data was calculated using average shares outstanding during the period.
(f) The Fund adopted the provisions of the AICPA Audit Guide for Investment Companies effective November 1, 2001. The effect of the change for the year ended October 31, 2002 on the net investment income per share, net realized and unrealized gain per share and the ratio of net investment income to average net assets was $(0.02), $0.02 and (0.15)%, respectively.
(g) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge.
(h) Had the Investment Advisor and/or any of its affiliates not waived or reimbursed a portion of expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
(l) Rounds to less than 0.01%.
8. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
9. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
INT-47/107577-0306 March 27, 2006
COLUMBIA QUALITY PLUS BOND FUND Prospectus, September 1, 2005
CLASS T AND G SHARES
Advised by Columbia Management Advisors, Inc.
THE FUND 2 --------------------------------------------------------- Investment Goal...................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 3 Performance History.................................. 4 Your Expenses........................................ 7 YOUR ACCOUNT 9 --------------------------------------------------------- How to Buy Shares.................................... 9 Investment Minimums.................................. 9 Sales Charges........................................ 10 How to Exchange Shares............................... 13 How to Sell Shares................................... 14 Fund Policy on Trading of Fund Shares................ 15 Distribution and Service Fees........................ 16 Other Information About Your Account................. 17 MANAGING THE FUND 20 --------------------------------------------------------- Investment Advisor................................... 20 Portfolio Manager.................................... 20 Legal Proceedings.................................... 20 OTHER INVESTMENT STRATEGIES AND RISKS 22 --------------------------------------------------------- FINANCIAL HIGHLIGHTS 23 --------------------------------------------------------- APPENDIX A 25 --------------------------------------------------------- |
Class T and G shares are sold only to investors who received (and who have continuously held) Class T or G shares in connection with the merger of certain Galaxy Funds into various Columbia Funds (formerly named Liberty Funds).
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
|
THE FUND
The Fund may from time to time invest in a limited amount of interest rate futures contracts. The Fund will use interest rate futures contracts, which may be considered derivatives, in an effort to manage the impact to the Fund of changes in interest rates.
In selecting portfolio securities for the Fund, the Fund's investment advisor monitors and evaluates economic trends. It establishes duration targets and ranges of interest rates on bonds of various maturities, and determines the appropriate allocation of the Fund's investments among various market sectors.
Substantially all of the Fund's investments (under normal circumstances, at least 80% of the Fund's net assets plus any borrowings for investment purposes) will be debt obligations of investment grade quality. These are securities which have one of the top four ratings assigned by Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are unrated securities determined by the advisor to be of comparable quality. High quality securities tend to pay less income than lower-rated securities. The Fund expects that under normal circumstances at least 50% of its net assets plus any borrowings for investment purposes will be invested in high quality debt obligations that have one of the top two ratings assigned by S&P or Moody's or unrated securities determined by the advisor to be of comparable quality. Occasionally, the rating of a security held by the Fund may be downgraded to below investment grade. If that happens, the Fund does not have to sell the security unless the advisor determines that under the circumstances the security is no longer an appropriate investment for the Fund. However, the Fund will sell promptly any debt securities that are not rated investment grade by either S&P or Moody's (or unrated but determined by the advisor to be of comparable quality) to the extent such securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on current market and economic conditions and the advisor's assessment of probable changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the economy or the performance of the security or other circumstances, the advisor believes that holding the security is no longer consistent with the Fund's investment goal.
As part of its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional tax liability.
Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks."
THE FUND
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Because the Fund may invest in debt securities issued or supported by private entities, including corporate bonds, municipal bonds and mortgage-backed and asset-backed securities, the Fund is subject to issuer risk. Issuer risk is the possibility that changes in the financial condition of the issuer of a security, changes in general economic conditions, or changes in economic conditions that affect the issuer may impact its actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and in some cases a decrease in income. The Fund's investments in securities issued by U.S. government-sponsored enterprises, such as the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, are not funded by Congressional appropriations and are neither guaranteed nor insured by the U.S. government. Furthermore, no assurances can be given that the U.S. government would provide financial support to its agencies or instrumentalities where it is not obligated to do so.
Structure risk is the risk that an event will occur (such as a security being prepaid or called) that alters the security's cash flows. Prepayment risk is a particular type of structure risk that is associated with investments in asset-backed and mortgage-backed securities. With respect to investments in mortgage-backed securities, prepayment risk is the possibility that, as prevailing interest rates fall, homeowners are more likely to refinance their home mortgages. When mortgages are refinanced, the principal on mortgage-backed securities is paid earlier than expected. In an environment of declining interest rates, asset-backed and mortgage-backed securities may offer less potential for gain than other debt securities. During periods of rising interest rates, asset-backed and mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the expected life of the security. In addition, the potential impact of prepayment on the price of asset-backed and mortgage-backed securities may be difficult to predict and result in greater volatility.
THE FUND
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative transaction counterparty and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. The Fund may have limited legal recourse in the event of default with respect to certain debt securities issued by foreign governments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Frequent trading risk. Frequent trading of investments usually increases the chance that the Fund will pay investors short-term capital gains. These gains are taxable at higher rates than long-term capital gains. Frequent trading could also mean higher transaction costs, which could reduce the Fund's return.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
THE FUND
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class T share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges. Class G share returns do not reflect Class T share returns after conversion of Class G shares to Class T shares (see the section "Your Account -- Sales Charges").
CALENDAR YEAR TOTAL RETURNS (CLASS T)(1)
(BAR CHART)
21.20% 1.37% 9.11% 9.27% 12.62% 7.27% 10.28% 3.40% 3.56%
-4.13%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
|
The Class's year-to-date total return For the periods shown in bar chart:
through June 30, 2005 was +2.45%. Best quarter: 2nd quarter 1995, +7.54%
Worst quarter: 2nd quarter 2004, -2.88%
|
(1) The calendar year total returns shown for Class T shares include the returns of Retail A Shares of Galaxy Quality Plus Bond Fund, the predecessor to the Fund, for periods prior to November 25, 2002, the date on which Class T shares were initially offered by the Fund.
THE FUND
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004
1 YEAR 5 YEARS 10 YEARS
Class T (%)
Return Before Taxes -1.34 6.32(1) 6.67(1)
Return After Taxes on Distributions -2.91 4.28(1) 4.45(1)
Return After Taxes on Distributions and Sale of Fund
Shares -0.59 4.20(1) 4.36(1)
-------------------------------------------------------------------------------------------------------------
Class G (%)
Return Before Taxes -2.01 6.19(1) 6.61(1)
Return After Taxes on Distributions -3.43 4.36(1) 4.61(1)
Return After Taxes on Distributions and Sale of Fund
Shares -1.01 4.23(1) 4.46(1)
-------------------------------------------------------------------------------------------------------------
Lehman Index (%) 4.19 8.00 7.80
|
(1) The average annual total returns shown include the returns of Retail A Shares (for Class T shares) and Retail B Shares (for Class G Shares) of Galaxy Quality Plus Bond Fund for periods prior to November 25, 2002, the date on which Class T and G shares were initially offered by the Fund. The returns shown for Class G shares also include the returns of Retail A Shares (adjusted to reflect the sales charges applicable to Class G shares) for periods prior to the inception of Retail B Shares of Galaxy Quality Plus Bond Fund (March 4, 1996). Retail A Shares of Galaxy Quality Plus Bond Fund were initially offered on December 14, 1990. Class G shares generally would have had substantially similar returns to Retail A Shares because they would have been invested in the same portfolio of securities, although the returns would have been lower to the extent that expenses for Class G shares exceed expenses paid by Retail A Shares.
THE FUND
SALES CHARGES are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management and administration fees, 12b-1 fees, shareholder service fees and other expenses that generally include, but are not limited to, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
- Reinvestment of all dividends and distributions
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS T CLASS G
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75 0.00
---------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or
redemption price) 1.00(2) 5.00
---------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) (3) (3)
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) This charge applies only to certain Class T shares bought without an initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
THE FUND
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
CLASS T CLASS G
Management fee(1)(2) (%) 0.53 0.53
---------------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.00 0.80(3)
---------------------------------------------------------------------------------------
Other expenses (%) 0.28(4) 0.13
---------------------------------------------------------------------------------------
Total annual fund operating expenses (%) 0.81 1.46
|
(1) The Fund pays a management fee of 0.46% and an administration fee of 0.07%.
(2) Management fees have been restated to reflect contractual changes to the management fee for the Fund effective November 1, 2004.
(3) The Fund may pay distribution and service (12b-1) fees up to a maximum of 1.15% of the Fund's average daily net assets attributable to Class G shares (comprised of up to 0.65% for distribution services, up to 0.25% for shareholder liaison services and up to 0.25% for administrative support services), but will limit such fees to an aggregate fee of not more than 0.80% during the current fiscal year.
(4) The Fund may pay shareholder service fees (which are included in other expenses) up to a maximum of 0.50% of such Fund's average daily net assets attributable to Class T shares (comprised of up to 0.25% for shareholder liaison services and up to 0.25% for administrative support services) but will limit such fees to an aggregate fee of not more than 0.15% during the current fiscal year.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class T $554 $721 $ 903 $1,429
------------------------------------------------------------------------------------------------------------------------
Class G: did not sell your shares $149 $462 $ 797 $1,570
sold all your shares at the end of the period $649 $862 $1,097 $1,570
|
See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-----------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging Class T or Class G shares you
own in a different fund distributed by Columbia Management
Distributors, Inc. for shares of the same class (and, in
some cases, certain other classes) of the Fund at no
additional cost. There may be an additional sales charge if
exchanging from a money market fund. To exchange by
telephone, call 1-800-422-3737.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in 'good form.' You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate your
program or change the amount of the exchange (subject to the
$100 minimum) by calling 1-800-345-6611. There may be an
additional sales charge if exchanging from a money market
fund. Be sure to complete the appropriate section of the
account application for this feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
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YOUR ACCOUNT
CLASS T AND G SHARES ARE SOLD ONLY TO INVESTORS WHO RECEIVED (AND WHO HAVE CONTINUOUSLY HELD) CLASS T OR G SHARES IN CONNECTION WITH THE MERGER OF CERTAIN GALAXY FUNDS INTO VARIOUS COLUMBIA FUNDS (FORMERLY NAMED LIBERTY FUNDS).
Please see the Statement of Additional Information for more details on investment minimums.
CLASS T SHARES Your purchases of Class T shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class T shares. The amount of the sales charge differs depending on the amount you invest as shown in the tables below.
CLASS T SALES CHARGES
% OF OFFERING
AS A % OF PRICE
THE PUBLIC AS A % RETAINED BY
OFFERING OF YOUR FINANCIAL
AMOUNT PURCHASED PRICE INVESTMENT ADVISOR
Less than $50,000 4.75 4.99 4.25
-------------------------------------------------------------------------------------------------------------------
$50,000 to less than $100,000 4.50 4.71 3.75
-------------------------------------------------------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 2.75
-------------------------------------------------------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.00
-------------------------------------------------------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
-------------------------------------------------------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
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Class T shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class T share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
YOUR ACCOUNT
For Class T share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
PURCHASES OVER $1 MILLION
AMOUNT PURCHASED COMMISSION % Less than $3 million 1.00 ---------------------------------------------------------------------------- $3 million to less than $50 million 0.50 ---------------------------------------------------------------------------- $50 million or more 0.25 |
For certain group retirement plans, financial advisors will receive a 1% commission from the distributor on all purchases less than $3 million.
REDUCED SALES CHARGES FOR LARGER INVESTMENTS
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class T shares of the Fund and other funds in the Columbia family of funds.
RIGHTS OF ACCUMULATION The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
STATEMENT OF INTENT You also may pay a lower sales charge when purchasing Class T shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
YOUR ACCOUNT
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
- Individual accounts
- Joint accounts
- Certain IRA accounts
- Certain trusts
- UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, though fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Funds as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
YOUR ACCOUNT
CLASS G SHARES Your purchases of Class G shares are made at Class G's net asset value. Class G shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class G shares as described in the chart below.
PURCHASES OF LESS THAN $50,000:
CLASS G SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 5.00
-------------------------------------------------------------------------------
Through second year 4.00
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Through third year 4.00
-------------------------------------------------------------------------------
Through fourth year 4.00
-------------------------------------------------------------------------------
Through fifth year 3.00
-------------------------------------------------------------------------------
Through sixth year 2.00
-------------------------------------------------------------------------------
Through seventh year 1.00
-------------------------------------------------------------------------------
Longer than seven years 0.00
|
Commission to financial advisors is 4.00%.
Automatic conversion to Class T shares occurs eight years after purchase.
Please see the Statement of Additional Information for the CDSCs and conversion schedules applicable to Class G shares received in exchange for Retail B Shares of the former Galaxy Fund purchased or acquired prior to January 1, 2001.
YOUR ACCOUNT
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable, you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
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By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into the same share class (or Class
A and Class B shares, for Class T and Class G shares,
respectively) of another fund distributed by Columbia
Management Distributors, Inc. at no additional cost. To
exchange by telephone, call 1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction or if
applicable, stock power form along with any share
certificates to be sold, to the address below. In your
letter of instruction, note the Fund's name, share class,
account number, and the dollar value or number of shares you
wish to sell. All account owners must sign the letter.
Signatures must be guaranteed by either a bank, a member
firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for alternate
payee or mailing instructions. Additional documentation is
required for sales by corporations, agents, fiduciaries,
surviving joint owners and individual retirement account
owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
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By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
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By electronic funds You may sell shares of the Fund and request that the
transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
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The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market Fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange
YOUR ACCOUNT
purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
YOUR ACCOUNT
Class G shares automatically convert to Class T shares after eight years, eliminating a portion of these fees upon conversion.
ADDITIONAL INTERMEDIARY COMPENSATION In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price
YOUR ACCOUNT
of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for any class of shares offered by the Fund.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
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Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund declares any dividends daily and pays them monthly, and declares and pays any capital gains (including short-term capital gains) at least annually. Shares begin to earn dividends on the date on which a purchase order is settled by payment. Shares stop earning dividends at the close of business on the day before the date on which a redemption order is settled. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
YOUR ACCOUNT
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your
current fund
----------------------------------------------------------------
Reinvest all distributions in shares of another fund
----------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest
capital gains
----------------------------------------------------------------
Receive all distributions in cash (with one of the following
options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds
transfer
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Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping and other fees paid to Columbia Management by the Fund, amounted to 0.49% of average daily net assets of the Fund. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the fiscal year ended April 30, 2005.
The Statement of Additional Information provides additional information about the manager's compensation, other accounts and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other mutual funds'
MANAGING THE FUND
management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the Fund or its shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Columbia Funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL"). The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, removal of the trustees of the funds, removal of Columbia Management and CMD, disgorgement of all management fees and monetary damages. The MDL is ongoing.
On January 11, 2005, a putative class action lawsuit was filed in federal district court in Massachusetts against, among others, the Trustees of the funds and Columbia. The lawsuit alleges that defendants violated common law duties to fund shareholders as well as sections of the Investment Company Act of 1940, by failing to ensure that the funds and other affiliated funds participated in securities class action settlements for which the funds were eligible. Specifically, plaintiffs allege that defendants failed to submit proof of claims in connection with settlements of securities class action lawsuits filed against companies in which the funds held positions.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits seek damages and allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as IN RE COLUMBIA ENTITIES LITIGATION. The plaintiffs filed a consolidated amended complaint on June 9, 2005.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has conditionally ordered its transfer to the MDL.
OTHER INVESTMENT STRATEGIES AND RISKS
The Fund's principal investment strategies and their associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The advisor may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goal. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or any of its investment strategies.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last five fiscal years, which run from May 1 to April 30, unless otherwise indicated. Information for Class T and Class G shares prior to November 25, 2002, the date Class T and Class G shares were initially offered, is for the former Retail A shares and Retail B shares, respectively, of the Galaxy Quality Plus Bond Fund. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the years ended April 30, 2004 and 2005, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the six months ended April 30, 2003 and the fiscal years ended October 31, 2002, 2001 and 2000 has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
SIX MONTHS
ENDED
YEAR ENDED APRIL 30, APRIL 30, YEAR ENDED OCTOBER 31,
2005 2004(A) 2003(B)(C) 2002 2001 2000
Class T Class T Class T Class T Class T Class T
------- ------ ------ ------ ------ ------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) $10.93 11.52 11.29 11.23 10.35 10.25
---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income 0.41(d) 0.40(d) 0.24(d) 0.52(f) 0.57 0.59
Net realized and unrealized gain
(loss) on investments and futures
contracts 0.09 (0.31) 0.24 0.08(f) 0.89 0.11
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Total from Investment Operations 0.50 0.09 0.48 0.60 1.46 0.70
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LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net investment income (0.43) (0.47) (0.25) (0.54) (0.58) (0.60)
From net realized gains (0.19) (0.21) -- -- -- --
---------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to
Shareholders (0.62) (0.68) (0.25) (0.54) (0.58) (0.60)
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) $10.81 10.93 11.52 11.29 11.23 10.35
---------------------------------------------------------------------------------------------------------------------------------
Total return (%)(g)(h) 4.62% 0.75 4.29(i) 5.63 14.45 7.04
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RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA (%):
Expenses(j) 0.84% 0.95 0.91(k) 0.91 0.98 1.01
Net investment income(j) 3.72% 3.54 4.26(k) 4.77(f) 5.30 5.76
Waiver/reimbursement --%(e) 0.11 0.22(k) 0.22 0.20 0.22
Portfolio turnover rate (%) 118% 119 42(i) 75 131 104
Net assets, end of period (000's) ($) $30,832 35,058 43,084 44,409 48,276 33,429
|
(a) On October 13, 2003, the Liberty Quality Plus Bond Fund was renamed the Columbia Quality Plus Bond Fund.
(b) The Fund changed its fiscal year end from October 31 to April 30.
(c) On November 25, 2002, the Galaxy Quality Plus Bond Fund, Retail A shares were redesignated Liberty Quality Plus Bond Fund, Class T shares.
(d) Per share data was calculated using average shares outstanding during the period.
(e) Rounds to less than 0.01%
(f) The Fund adopted the provisions of the AICPA Audit Guide for Investment Companies effective November 1, 2001 and began amortizing premium and accreting discount on all debt securities. The effect of the change for the year ended October 31, 2002 on the net investment income per share, net realized and unrealized gain per share and the ratio of net investment income to average net assets was $(0.02), $0.02 and (0.15)%, respectively.
(g) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge.
(h) Had the Investment Advisor and/or any of its affiliates not waived or reimbursed a portion of expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
FINANCIAL HIGHLIGHTS
THE FUND
SIX MONTHS
ENDED
YEAR ENDED APRIL 30, APRIL 30, YEAR ENDED OCTOBER 31,
2005 2004(A) 2003(B)(C) 2002 2001 2000
Class G Class G Class G Class G Class G Class G
------ ----- ------ ------ ------ -----
NET ASSET VALUE --
BEGINNING OF PERIOD ($) $10.93 11.52 11.29 11.23 10.35 10.25
-------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income 0.34(d) 0.33(d) 0.20(d) 0.45(f) 0.51 0.52
Net realized and unrealized gain
(loss) on investments and futures
contracts 0.08 (0.32) 0.24 0.08(f) 0.88 0.11
-------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.42 0.01 0.44 0.53 1.39 0.63
-------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net investment income (0.35) (0.39) (0.21) (0.47) (0.51) (0.53)
From net realized gains (0.19) (0.21) -- -- -- --
-------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to
Shareholders (0.54) (0.60) (0.21) (0.47) (0.51) (0.53)
-------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) $10.81 10.93 11.52 11.29 11.23 10.35
-------------------------------------------------------------------------------------------------------------------------------
Total return (%)(g)(h) 3.94% 0.10 3.94(i) 4.90 13.70 6.37
-------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA (%):
Expenses(j) 1.49% 1.60 1.60(k) 1.60 1.64 1.65
Net investment income(j) 3.07% 2.90 3.56(k) 4.08(f) 4.64 5.13
Waiver/reimbursement --%(e) 0.11 0.22(k) 0.23 0.20 0.26
Portfolio turnover rate (%) 118% 119 42(i) 75 131 104
Net assets, end of period (000's) ($) $4,374 8,124 13,345 13,981 14,246 5,775
|
(a) On October 13, 2003, the Liberty Quality Plus Bond Fund was renamed the Columbia Quality Plus Bond Fund.
(b) The Fund changed its fiscal year end from October 31 to April 30.
(c) On November 25, 2002, the Galaxy Quality Plus Bond Fund, Retail B shares were redesignated Liberty Quality Plus Bond Fund, Class G shares.
(d) Per share data was calculated using average shares outstanding during the period.
(e) Rounds to less than 0.01%.
(f) The Fund adopted the provisions of the AICPA Audit Guide for Investment Companies effective November 1, 2001 and began amortizing premium and accreting discount on all debt securities. The effect of the change for the year ended October 31, 2002 on the net investment income per share, net realized and unrealized gain per share and the ratio of net investment income to average net assets was $(0.02), $0.02 and (0.15)%, respectively.
(g) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(h) Had the Investment Advisor and/or any of its affiliates not waived or reimbursed a portion of expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
FINANCIAL HIGHLIGHTS
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the hypothetical year-end balance before expenses and the cumulative return after fees and expenses. The charts also assume that the annual expense ratios stay the same throughout the 10-year period, that all dividends and distributions are reinvested and that Class G shares convert to Class T shares after eight years. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses tables, is reflected in the charts and is net of any fee waiver or expense reimbursement.
CLASS T SHARES (1)
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
0.81% $10,000.00 5%
|
HYPOTHETICAL CUMULATIVE HYPOTHETICAL
CUMULATIVE RETURN YEAR-END RETURN AFTER YEAR-END ANNUAL
BEFORE FEES & BALANCE BEFORE FEES & BALANCE AFTER FEES &
YEAR EXPENSES FEES & EXPENSES EXPENSES FEES & EXPENSES EXPENSES
1 5.00% $10,001.25 4.19% $ 9,924.10 $ 553.77
2 10.25% $10,501.31 8.56% $10,339.92 $ 82.07
3 15.76% $11,026.38 13.10% $10,773.16 $ 85.51
4 21.55% $11,577.70 17.84% $11,224.56 $ 89.09
5 27.63% $12,156.58 22.78% $11,694.86 $ 92.82
6 34.01% $12,764.41 27.93% $12,184.88 $ 96.71
7 40.71% $13,402.63 33.29% $12,695.43 $ 100.77
8 47.75% $14,072.76 38.87% $13,227.36 $ 104.99
9 55.13% $14,776.40 44.69% $13,781.59 $ 109.39
10 62.89% $15,515.22 50.75% $14,359.04 $ 113.97
TOTAL GAIN BEFORE FEES
& EXPENSES $ 5,990.22
TOTAL GAIN AFTER FEES &
EXPENSES $ 4,834.04
TOTAL ANNUAL FEES &
EXPENSES PAID $1,429.08
|
(1) For Class T shares, the year one Annual Fees & Expenses and Hypothetical Year-End Balance Before Fees & Expenses information shown include the dollar amount and effect of any applicable front-end sales charge of the fund.
APPENDIX A
CLASS G SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
1.46% $10,000.00 5%
|
HYPOTHETICAL CUMULATIVE HYPOTHETICAL
CUMULATIVE RETURN YEAR-END RETURN AFTER YEAR-END ANNUAL
BEFORE FEES & BALANCE BEFORE FEES & BALANCE AFTER FEES &
YEAR EXPENSES FEES & EXPENSES EXPENSES FEES & EXPENSES EXPENSES
1 5.00% $10,500.00 3.54% $10,354.00 $ 148.58
2 10.25% $11,025.00 7.21% $10,720.53 $ 153.84
3 15.76% $11,576.25 11.00% $11,100.04 $ 159.29
4 21.55% $12,155.06 14.93% $11,492.98 $ 164.93
5 27.63% $12,762.82 19.00% $11,899.83 $ 170.77
6 34.01% $13,400.96 23.21% $12,321.09 $ 176.81
7 40.71% $14,071.00 27.57% $12,757.25 $ 183.07
8 47.75% $14,774.55 32.09% $13,208.86 $ 189.55
9 55.13% $15,513.28 37.62% $13,762.31 $ 109.23
10 62.89% $16,288.95 43.39% $14,338.95 $ 113.81
TOTAL GAIN BEFORE FEES
& EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES &
EXPENSES $ 4,338.95
TOTAL ANNUAL FEES &
EXPENSES PAID $1,569.90
|
NOTES
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Funds Trust III: 811-881
- Columbia Quality Plus Bond Fund
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2005 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/89457-0805
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED SEPTEMBER 1, 2005 (THE
"PROSPECTUS") (REPLACING SUPPLEMENTS DATED OCTOBER 5,
2005 AND OCTOBER 21, 2005)
COLUMBIA CORE BOND FUND
(FORMERLY NAMED COLUMBIA QUALITY PLUS BOND FUND)
(THE "FUND")
CLASS Z SHARES
The Prospectus is hereby supplemented with the following information:
1. Effective October 10, 2005, Columbia Quality Plus Bond Fund changed its name to Columbia Core Bond Fund; accordingly, all references throughout the Prospectus are changed as appropriate.
2. The section under the heading "PRINCIPAL INVESTMENT STRATEGIES" is revised and replaced in its entirety with the following disclosure:
The Fund invests primarily in obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as in U.S. and foreign corporate debt obligations, such as notes and bonds. The Fund also invests in asset-backed and mortgage-backed securities and in money market instruments, such as commercial paper and obligations of U.S. and foreign banks.
The Fund may participate in mortgage dollar rolls and may roll all, a portion, or none of the Fund's mortgage positions.
The Fund may from time to time invest in a limited amount of interest rate futures contracts. The Fund will use interest rate futures contracts, which may be considered derivatives, in an effort to manage the impact to the Fund of changes in interest rates.
In selecting portfolio securities for the Fund, the Fund's investment advisor monitors and evaluates economic trends. It establishes duration targets and ranges of interest rates on bonds of various maturities, and determines the appropriate allocation of the Fund's investments among various market sectors.
Substantially all of the Fund's investments (under normal circumstances, at least 80% of the Fund's net assets plus any borrowings for investment purposes) will be debt obligations of investment grade quality. These are securities which have one of the top four ratings assigned by Standard & Poor's Ratings Group (S&P), Moody's Investors Service, Inc. (Moody's) or Fitch, Inc. (Fitch), or are unrated securities determined by the advisor to be of comparable quality. High quality securities tend to pay less income than lower-rated securities. Occasionally, the rating of a security held by the Fund may be downgraded to below investment grade. If that happens, the Fund does not have to sell the security unless the advisor determines that under the circumstances the security is no longer an appropriate investment for the Fund. However, the Fund will sell promptly any debt securities that are not rated investment grade by S&P, Moody's or Fitch (or unrated
but determined by the advisor to be of comparable quality) to the extent such securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on current market and economic conditions and the advisor's assessment of probable changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the economy or the performance of the security or other circumstances, the advisor believes that holding the security is no longer consistent with the Fund's investment goal.
As part of its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional tax liability.
Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks."
3. The following disclosure is added under the heading "PRINCIPAL INVESTMENT RISKS":
Mortgage dollar rolls are transactions in which the Fund sells mortgage-backed securities to a dealer and simultaneously agrees to purchase similar securities in the future at a predetermined price. These transactions simulate an investment in mortgage-backed securities and have the potential to enhance the Fund's returns and reduce its administrative burdens, compared with holding mortgage-backed securities directly. Mortgage dollar rolls involve the risks that the market value of the securities the Fund is obligated to repurchase may decline below the repurchase price, or that the other party may default on its obligations. These transactions may increase the Fund's portfolio turnover rate.
4. The second paragraph under the heading "AVERAGE ANNUAL TOTAL RETURNS" in the call-out box entitled "Understanding Performance" is revised in its entirety as follows:
Beginning in 2005, the Fund's benchmark was changed to the Lehman Brothers Aggregate Bond Index (the Lehman Aggregate Index), an unmanaged market value-weighted index that tracks the daily price, coupon, pay-downs, and total return performance of fixed-rate, publicly placed, dollar-denominated, and non-convertible investment grade debt issues with at least $250 million par amount outstanding and with at least one year to final maturity. Previously, the Fund's returns were compared to the Lehman Brothers Government/Credit Bond Index (the Lehman Index), an unmanaged index that tracks the performance of U.S. Government and corporate bonds rated investment grade or better, with maturities of at least one year. The advisor believes that the Lehman Aggregate Index, because of its greater emphasis on total return performance of fixed-rate, publicly placed, dollar-denominated, and non-convertible investment grade debt issues, more accurately reflects the type of securities in which the Fund invests. The Fund's average annual returns for the one-year, five-year and ten-year periods are shown compared to the Lehman Aggregate Index, as well as the Fund's previous benchmark, the Lehman Index. Unlike the Fund, indices are not investments, do not incur fees, expenses or taxes and are not professionally managed.
5. The "Calendar Year Total Returns" and "Average Annual Total Returns" tables for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS
CLASS Z(1)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 1.59% 9.23% 9.41% -3.99% 12.88% 7.30% 10.51% 3.40% 3.56% 1.99% |
For the periods shown above:
Best quarter: 3rd quarter 2002, +5.98%
Worst quarter: 2nd quarter 2004, -2.84%
(1) The calendar year total returns shown for Class Z shares include the returns of Trust Shares of the former Galaxy Quality Plus Bond Fund, the predecessor to the Fund, for periods prior to November 25, 2002, the date on which Class Z shares were initially offered by the Fund.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2005
--------------------------------
1 YEAR 5 YEARS 10 YEARS
--------------------------------
Class Z (%)
Return Before Taxes 1.99 5.43(1) 5.54(1)
Return After Taxes on Distributions 0.54 3.51(1) 3.37(1)
Return After Taxes on Distributions and Sale of Fund
Shares 1.29 3.54(1) 3.40(1)
-----------------------------------------------------------------------------------------------------------
Lehman Aggregate Index (%) 2.43 5.87 6.16
-----------------------------------------------------------------------------------------------------------
Lehman Index (%) 2.37 6.11 6.17
|
(1) The average annual total returns shown include returns of Trust Shares of Galaxy Quality Plus Bond Fund for periods prior to November 25, 2002, the date on which Class Z shares were initially offered by the Fund.
6. The section "LEGAL PROCEEDINGS" under the heading "MANAGING THE FUND" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as
outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's
memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
7. The section entitled "Financial Highlights" is updated and restated in its entirety as follows:
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the last five fiscal years, which run from May 1 to April 30, unless otherwise indicated. Information for Class Z shares prior to November 25, 2002, the date Class Z shares were initially offered, is for the former Trust shares of the Galaxy Quality Plus Bond Fund. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). Information for the six-month period ended October 31, 2005 is unaudited. Other information has been derived from the Fund's financial statements which, for the fiscal years ended April 30, 2004 and 2005, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the six months ended April 30, 2003 and the fiscal years ended October 31, 2002 and 2001 has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
Selected data for a share outstanding throughout each period is as follows:
(Unaudited)
Six Months Period
Ended Year Ended April 30, Ended Year Ended October 31,
October 31, ----------------------- April 30,
Class Z Shares 2005(a) 2005 2004(b) 2003(c)(d) 2002 2001
------------------------------------ --------------------------- ---------------------------
Net Asset Value,
Beginning of Period $ 10.81 $ 10.93 $ 11.52 $ 11.29 $ 11.23 $ 10.35
----------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.22(e) 0.42(e) 0.42(e) 0.25(e) 0.55(f) 0.60
Net realized and unrealized
gain (loss) on investments and
futures contracts (0.24) 0.09 (0.31) 0.24 0.88(f) 0.88
-------- -------- -------- -------- -------- --------
Total from Investment
Operations (0.02) 0.51 0.11 0.49 0.63 1.48
----------------------------------------------------------------------------------------------------------------------------
Less Distributions
Declared to Shareholders:
From net investment income (0.22) (0.44) (0.49) (0.26) (0.57) (0.60)
From net realized gains -- (0.19) (0.21) -- -- --
-------- -------- -------- -------- -------- --------
Total Distributions Declared to
Shareholders (0.22) (0.63) (0.70) (0.26) (0.57) (0.60)
----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 10.57 $ 10.81 $ 10.93 $ 11.52 $ 11.29 $ 11.23
Total return (g)(h) (0.20)%(i) 4.78% 0.94% 4.41%(i) 5.86% 14.73%
----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data:
Expenses (j) 0.64%(k) 0.69% 0.75% 0.67%(k) 0.69% 0.73%
Net investment income (j) 3.96%(k) 3.87% 3.71% 4.49%(k) 4.99%(f) 0.21%
Waiver/reimbursement --%(k)(l) --%(l) 0.11% 0.22%(k) 0.22% 0.21%
Portfolio turnover rate 46%(i) 118% 119% 42%(i) 75% 131%
Net assets, end of
period (000's) $957,865 $926,434 $817,994 $885,920 $888,792 $831,727
----------------------------------------------------------------------------------------------------------------------------
|
(a) On October 7, 2005, the Columbia Quality Plus Bond Fund was renamed the Columbia Core Bond Fund.
(b) On October 13, 2003, the Liberty Quality Plus Bond Fund was renamed the Columbia Quality Plus Bond Fund.
(c) The Fund changed its fiscal year end from October 31 to April 30.
(d) On November 25, 2002, the Galaxy Quality Plus Bond Fund, Trust shares were redesignated Liberty Quality Plus Bond Fund, Class Z shares.
(e) Per share data was calculated using average shares outstanding during the period.
(f) The Fund adopted the provisions of the AICPA Audit Guide for Investment Companies effective November 1, 2001. The effect of the change for the year ended October 31, 2002 on the net investment income per share, net realized and unrealized gain per share and the ratio of net investment income to average net assets was $(0.02), $0.02 and (0.15)%, respectively.
(g) Total return at net asset value assuming all distributions reinvested.
(h) Had the Investment Advisor and/or any of its affiliates not waived or reimbursed a portion of expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
(l) Rounds to less than 0.01%.
8. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
9. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
INT-47/107578-0306 March 27, 2006
COLUMBIA QUALITY PLUS BOND FUND Prospectus, September 1, 2005
CLASS Z SHARES
Advised by Columbia Management Advisors, Inc.
THE FUND 2 -------------------------------------------------------- Investment Goal..................................... 2 Principal Investment Strategies..................... 2 Principal Investment Risks.......................... 3 Performance History................................. 4 Your Expenses....................................... 6 YOUR ACCOUNT 8 -------------------------------------------------------- How to Buy Shares................................... 8 Eligible Investors.................................. 9 Sales Charges....................................... 11 How to Exchange Shares.............................. 11 How to Sell Shares.................................. 11 Fund Policy on Trading of Fund Shares............... 12 Intermediary Compensation........................... 13 Other Information About Your Account................ 14 MANAGING THE FUND 17 -------------------------------------------------------- Investment Advisor.................................. 17 Portfolio Manager................................... 17 Legal Proceedings................................... 17 OTHER INVESTMENT STRATEGIES AND RISKS 19 -------------------------------------------------------- FINANCIAL HIGHLIGHTS 20 -------------------------------------------------------- APPENDIX A 21 -------------------------------------------------------- |
Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
|
THE FUND
The Fund may from time to time invest in a limited amount of interest rate futures contracts. The Fund will use interest rate futures contracts, which may be considered derivatives, in an effort to manage the impact to the Fund of changes in interest rates.
In selecting portfolio securities for the Fund, the Fund's investment advisor monitors and evaluates economic trends. It establishes duration targets and ranges of interest rates on bonds of various maturities, and determines the appropriate allocation of the Fund's investments among various market sectors.
Substantially all of the Fund's investments (under normal circumstances, at least 80% of the Fund's net assets plus any borrowings for investment purposes) will be debt obligations of investment grade quality. These are securities which have one of the top four ratings assigned by Standard & Poor's Ratings Group (S&P) or Moody's Investors Service, Inc. (Moody's), or are unrated securities determined by the advisor to be of comparable quality. High quality securities tend to pay less income than lower-rated securities. The Fund expects that under normal circumstances at least 50% of its net assets plus any borrowings for investment purposes will be invested in high quality debt obligations that have one of the top two ratings assigned by S&P or Moody's or unrated securities determined by the advisor to be of comparable quality. Occasionally, the rating of a security held by the Fund may be downgraded to below investment grade. If that happens, the Fund does not have to sell the security unless the advisor determines that under the circumstances the security is no longer an appropriate investment for the Fund. However, the Fund will sell promptly any debt securities that are not rated investment grade by either S&P or Moody's (or unrated but determined by the advisor to be of comparable quality) to the extent such securities exceed 5% of the Fund's net assets.
The Fund's average weighted maturity will vary from time to time depending on current market and economic conditions and the advisor's assessment of probable changes in interest rates.
The Fund will sell a portfolio security when, as a result of changes in the economy or the performance of the security or other circumstances, the advisor believes that holding the security is no longer consistent with the Fund's investment goal.
As part of its investment strategy, the Fund may buy and sell securities frequently. This may result in higher transaction costs and additional tax liability.
Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks."
THE FUND
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
Because the Fund may invest in debt securities issued or supported by private entities, including corporate bonds, municipal bonds and mortgage-backed and asset-backed securities, the Fund is subject to issuer risk. Issuer risk is the possibility that changes in the financial condition of the issuer of a security, changes in general economic conditions, or changes in economic conditions that affect the issuer may impact its actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and in some cases a decrease in income. The Fund's investments in securities issued by U.S. government-sponsored enterprises, such as the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, are not funded by Congressional appropriations and are neither guaranteed nor insured by the U.S. government. Furthermore, no assurances can be given that the U.S. government would provide financial support to its agencies or instrumentalities where it is not obligated to do so.
Structure risk is the risk that an event will occur (such as a security being prepaid or called) that alters the security's cash flows. Prepayment risk is a particular type of structure risk that is associated with investments in asset-backed and mortgage-backed securities. With respect to investments in mortgage-backed securities, prepayment risk is the possibility that, as prevailing interest rates fall, homeowners are more likely to refinance their home mortgages. When mortgages are refinanced, the principal on mortgage-backed securities is paid earlier than expected. In an environment of declining interest rates, asset-backed and mortgage-backed securities may offer less potential for gain than other debt securities. During periods of rising interest rates, asset-backed and mortgage-backed securities have a high risk of declining in price because the declining prepayment rates effectively increase the expected life of the security. In addition, the potential impact of prepayment on the price of asset-backed and mortgage-backed securities may be difficult to predict and result in greater volatility.
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an
THE FUND
exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. The Fund may have limited legal recourse in the event of default with respect to certain debt securities issued by foreign governments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Frequent trading risk. Frequent trading of investments usually increases the chance that the Fund will pay investors short-term capital gains. These gains are taxable at higher rates than long-term capital gains. Frequent trading could also mean higher transaction costs, which could reduce the Fund's return.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
THE FUND
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class Z share performance for each of the last ten complete calendar years. They include the effects of Fund expenses.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's Class Z average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses.(1)
CALENDAR YEAR TOTAL RETURNS (CLASS Z)(1)
(BAR CHART)
21.41% 1.59% 9.23% 9.41% 12.88% 7.53% 10.51% 3.62% 3.71%
-3.99%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
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The Class's year-to-date total return For the periods shown in bar chart:
through June 30, 2005 was 2.52%. Best quarter: 2nd quarter 1995, +7.59%
Worst quarter: 2nd quarter 2004, -2.84%
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(1) The calendar year total returns shown for Class Z shares include the returns of Trust Shares of the former Galaxy Quality Plus Bond Fund, the predecessor to the Fund, for periods prior to November 25, 2002, the date on which Class Z shares were initially offered by the Fund.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004
1 YEAR 5 YEARS 10 YEARS
Class Z (%)
Return Before Taxes 3.71 7.59(1) 7.39(1)
Return After Taxes on Distributions 2.00 5.44(1) 5.08(1)
Return After Taxes on Distributions and Sale of Fund
Shares 2.71 5.24(1) 4.94(1)
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Lehman Index (%) 4.19 8.00 7.80
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(1) The average annual total returns shown include returns of Trust Shares of Galaxy Quality Plus Bond Fund for periods prior to November 25, 2002, the date on which Class Z shares were initially offered by the Fund.
THE FUND
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management and administration fees and other expenses that generally include, but are not limited to, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 -------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 -------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) (2) |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
THE FUND
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
Management fee(1)(2) (%) 0.53 -------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.00 -------------------------------------------------------------------- Other expenses (%) 0.13 -------------------------------------------------------------------- Total annual fund operating expenses (%) 0.66 |
(1) The Fund pays a management fee of 0.46% and an administration fee of 0.07%.
(2) Management fees have been restated to reflect contractual changes to the management fee for the Fund effective November 1, 2004.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
1 YEAR 3 YEARS 5 YEARS 10 YEARS $67 $211 $368 $822 |
See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For new accounts, send a completed application and check
(new account) made payable to the Fund to Columbia Management Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund and mailed to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
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By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class of the Fund at no additional
cost. To exchange by telephone, call 1-800-422-3737. Please
see "How to Exchange Shares" for more information.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate your
program or change the amount of the exchange (subject to the
$100 minimum) by calling 1-800-345-6611. Be sure to complete
the appropriate section of the account application for this
feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at no
additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
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YOUR ACCOUNT
IMPORTANT THINGS TO CONSIDER WHEN DECIDING ON A CLASS OF SHARES:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by an intermediary. Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
NO MINIMUM INITIAL INVESTMENT
- Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
- Any group retirement plan, including defined benefit and defined contribution plans such as 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts (IRAs)), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
- Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
- Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
YOUR ACCOUNT
$1,000 MINIMUM INITIAL INVESTMENT
- Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of another fund distributed by Columbia Management Distributors, Inc. (CMD) (i) who holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005; (iii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iv) who purchased certain no-load shares of a fund merged with a fund distributed by CMD;
- Any trustee or director (or family member of a trustee or director) of any fund distributed by CMD;
- Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary.
- Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement);
- Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization which meets the respective qualifications for an accredited investor, as defined under the Securities Act of 1933; or
- Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations, purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries.
The Fund reserves the right to change the criteria for Eligible Investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
YOUR ACCOUNT
The Fund offers one class of shares in this prospectus --
CLASS Z.
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, and (ii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
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By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into Class Z shares or Class A
(only if Class Z is not offered) shares of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign the
letter. Signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for alternate
payee or mailing instructions. Additional documentation is
required for sales by corporations, agents, fiduciaries,
surviving joint owners and individual retirement account
owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
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By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. All dividend and capital
gains distributions must be reinvested. Be sure to complete
the appropriate section of the account application for this
feature.
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By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
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The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market Fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
YOUR ACCOUNT
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
YOUR ACCOUNT
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
YOUR ACCOUNT
SHARE CERTIFICATES Share certificates are not available for Class Z shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
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Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund declares any dividends daily and pays them monthly, and declares and pays any capital gains (including short-term capital gains) at least annually. Shares begin to earn dividends on the date on which a purchase order is settled by payment. Shares stop earning dividends at the close of business on the day before the date on which a redemption order is settled. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your
current fund
----------------------------------------------------------------
Reinvest all distributions in shares of another fund
----------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest
capital gains
----------------------------------------------------------------
Receive all distributions in cash (with one of the following
options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds
transfer
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Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
YOUR ACCOUNT
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including administration, pricing and bookkeeping, and other fees paid to Columbia Management by the Fund, amounted to 0.49% of average daily net assets of the Fund. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the fiscal year ended April 30, 2005.
The Statement of Additional Information provides additional information about the manager's compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other mutual funds
MANAGING THE FUND
management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the Fund or its shareholders can not currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Columbia Funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL"). The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, removal of the trustees of the funds, removal of Columbia Management and CMD, disgorgement of all management fees and monetary damages. The MDL is ongoing.
On January 11, 2005, a putative class action lawsuit was filed in federal district court in Massachusetts against, among others, the Trustees of the funds and Columbia. The lawsuit alleges that defendants violated common law duties to fund shareholders as well as sections of the Investment Company Act of 1940, by failing to ensure that the funds and other affiliated funds participated in securities class action settlements for which the funds were eligible. Specifically, plaintiffs allege that defendants failed to submit proof of claims in connection with settlements of securities class action lawsuits filed against companies in which the funds held positions.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits seek damages and allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as IN RE COLUMBIA ENTITIES LITIGATION. The plaintiffs filed a consolidated amended complaint on June 9, 2005.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has conditionally ordered its transfer to the MDL.
OTHER INVESTMENT STRATEGIES AND RISKS
The Fund's principal investment strategies and their associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The advisor may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goal. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or any of its investment strategies.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the last five fiscal years, which run from May 1 to April 30, unless otherwise indicated. Information for Class Z shares prior to November 25, 2002, the date Class Z shares were initially offered, is for the former Trust shares of the Galaxy Quality Plus Bond Fund. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which, for the fiscal years ended April 30, 2004 and 2005, have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. The information for the six months ended April 30, 2003 and the fiscal years ended October 31, 2002, 2001 and 2000 has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm, whose report expressed an unqualified opinion on those financial statements and highlights. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
SIX MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED OCTOBER 31,
APRIL 30, APRIL 30, APRIL 30, ------------------------------------
2005 2004(A) 2003(B)(C) 2002 2001 2000
Class Z Class Z Class Z Class Z Class Z Class Z
------- ------- ------- ------- ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 10.93 11.52 11.29 11.23 10.35 10.25
-------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income 0.42(d) 0.42(d) 0.25(d) 0.55(f) 0.60 0.61
Net realized and unrealized gain (loss)
on investments 0.09 (0.31) 0.24 0.08(f) 0.88 0.11
-------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.51 0.11 0.49 0.63 1.48 0.72
-------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net investment income (0.44) (0.49) (0.26) (0.57) (0.60) (0.62)
From net realized gains (0.19) (0.21) -- -- -- --
-------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to
Shareholders (0.63) (0.70) (0.26) (0.57) (0.60) (0.62)
-------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 10.81 10.93 11.52 11.29 11.23 10.35
-------------------------------------------------------------------------------------------------------------------------------
Total return (%)(g)(h) 4.78 0.94 4.41(i) 5.86 14.73 7.27
-------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE
NET ASSETS/SUPPLEMENTAL DATA (%):
Expenses(j) 0.69 0.75 0.67(k) 0.69 0.73 0.78
Net investment income(j) 3.87 3.71 4.49(k) 4.99(f) 5.55 5.99
Waiver/reimbursement --(e) 0.11 0.22(k) 0.22 0.21 0.21
Portfolio turnover rate (%) 118 119 42(i) 75 131 104
Net assets, end of period (000's) ($) 926,434 817,994 885,920 888,792 831,727 558,789
|
(a) On October 13, 2003, the Liberty Quality Plus Bond Fund was renamed the Columbia Quality Plus Bond Fund.
(b) The Fund changed its fiscal year end from October 31 to April 30.
(c) On November 25, 2002, the Galaxy Quality Plus Bond Fund, Trust shares were redesignated Liberty Quality Plus Bond Fund, Class Z shares.
(d) Per share data was calculated using average shares outstanding during the period.
(e) Rounds to less than 0.01%.
(f) The Fund adopted the provisions of the AICPA Audit Guide for Investment Companies effective November 1, 2001 and began amortizing premium and accreting discount on all debt securities. The effect of the change for the year ended October 31, 2002 on the net investment income per share, net realized and unrealized gain per share and the ratio of net investment income to average net assets was $(0.02), $0.02 and (0.15)%, respectively.
(g) Total return at net asset value assuming all distributions reinvested.
(h) Had the Investment Advisor and/or any of its affiliates not waived or reimbursed a portion of expenses, total return would have been reduced.
(i) Not annualized.
(j) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(k) Annualized.
APPENDIX A
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The chart shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class Z shares of the Fund assuming a 5% return each year, the hypothetical year-end balance before expenses and the cumulative return after fees and expenses. The chart also assumes that the annual expense ratio stays the same throughout the 10-year period and that all dividends and distributions are reinvested. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses table, is reflected in the chart and is net of any fee waiver or expense reimbursement.
CLASS Z SHARES
ANNUAL EXPENSE RATIO INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.66% $10,000.00 5%
|
CUMULATIVE RETURN HYPOTHETICAL YEAR- HYPOTHETICAL YEAR
BEFORE FEES AND END BALANCE BEFORE CUMULATIVE RETURN END BALANCE AFTER ANNUAL FEES
YEAR EXPENSES FEES AND EXPENSES AFTER FEES AND EXPENSES FEES AND EXPENSES AND EXPENSES
---- ----------------- ------------------ ----------------------- ----------------- ------------
1 5.00% $10,500.00 4.34% $10,434.00 $ 67.43
2 10.25% $11,025.00 8.87% $10,886.84 $ 70.36
3 15.76% $11,576.25 13.59% $11,359.32 $ 73.41
4 21.55% $12,155.06 18.52% $11,852.32 $ 76.60
5 27.63% $12,762.82 23.67% $12,366.71 $ 79.92
6 34.01% $13,400.96 29.03% $12,903.42 $ 83.39
7 40.71% $14,071.00 34.63% $13,463.43 $ 87.01
8 47.75% $14,774.55 40.48% $14,047.75 $ 90.79
9 55.13% $15,513.28 46.57% $14,657.42 $ 94.73
10 62.89% $16,288.95 52.94% $15,293.55 $ 98.84
TOTAL GAIN BEFORE FEES AND EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES AND EXPENSES $ 5,293.55
TOTAL ANNUAL FEES AND EXPENSES $822.48
|
NOTES
NOTES
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Funds Trust III: 811-881
- Columbia Quality Plus Bond Fund
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2005 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/86864-0805
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED OCTOBER 1, 2005
(THE "PROSPECTUS")
COLUMBIA HIGH YIELD OPPORTUNITY FUND
(THE "FUND")
CLASS A, B AND C SHARES
The Prospectus is hereby supplemented with the following information:
1. The "Calendar Year Total Returns" and "Average Annual Total Returns" tables for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS
CLASS A
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 12.20% 13.87% 2.17% 6.17% -10.28% -2.78% -4.27% 25.67% 11.80% 1.40% |
For the periods shown above:
Best quarter: 2nd quarter 2003, +8.44%
Worst quarter: 4th quarter 2000, -7.93%
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2005
1 YEAR 5 YEARS 10 YEARS
Class A (%)
Return Before Taxes (3.41) 4.78 4.61
Return After Taxes on Distributions (6.08) 1.51 1.12
Return After Taxes on Distributions and Sale of Fund
Shares (2.24) 2.03 1.72
----------------------------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes (4.03) 4.74 4.34
Return After Taxes on Distributions (6.56) 1.69 1.13
Return After Taxes on Distributions and Sale of Fund
Shares (2.64) 2.14 1.69
----------------------------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes (0.14) 5.17 4.47(1)
Return After Taxes on Distributions (2.72) 2.10 1.21(1)
Return After Taxes on Distributions and Sale of Fund
Shares (0.11) 2.50 1.77(1)
----------------------------------------------------------------------------------------------------------
JP Morgan Global High Yield Index (%) 3.07 9.57 7.03
----------------------------------------------------------------------------------------------------------
CS First Boston Index (%) 2.26 9.83 7.13
----------------------------------------------------------------------------------------------------------
Lipper High Yield Average (%) 2.45 7.23 5.41
----------------------------------------------------------------------------------------------------------
|
(1) Class C is a newer class of shares. Its performance information includes returns of the Fund's Class B shares for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class B shares and the newer class of shares. Class A shares were initially offered on October 21, 1971, Class B shares were initially offered on June 8, 1992, and Class C shares were initially offered on January 15, 1996.
2. The section "LEGAL PROCEEDINGS" under the heading "MANAGING THE FUND" is revised in its entirety as follows:
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and
ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
3. The section entitled "Financial Highlights" is updated and restated in its entirety as follows:
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last five fiscal years, which run from June 1 to May 31, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). Information for the six-month period ended November 30, 2005 is unaudited. Other information has been derived from the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
Selected data for a share outstanding throughout each period is as follows:
(Unaudited) (Unaudited)
Six Months Period Six Months
Ended Ended Ended Year ended
November 30, Year Ended May 31, May 31, November 30, December 31,
Class A Shares 2005 2005 2004 2003(a) 2002 2001
------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 4.56 $ 4.54 $ 4.30 $ 4.01 $ 4.62 $ 5.30
------------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.17(b) 0.35(b) 0.35(b) 0.14(b) 0.34(b) 0.53(b)(c)
Net realized and unrealized gain
(loss) on investments and foreign
currency (0.02) 0.05 0.21 0.30 (0.53) (0.65)(c)
-------- -------- -------- -------- ------- --------
Total from Investment Operations 0.15 0.40 0.56 0.44 (0.19) (0.13)
------------------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared to
Shareholders:
From net investment income (0.19) (0.38) (0.32) (0.15) (0.30) (0.51)
Return of capital -- -- -- -- (0.03) (0.04)
-------- -------- -------- -------- ------- --------
Total Distributions Declared to
Shareholders (0.19) (0.38) (0.32) (0.15) (0.42) (0.55)
------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 4.52 $ 4.56 $ 4.54 $ 4.30 $ 4.01 $ 4.62
Total return (e) 3.32%(f)(g) 8.93%(h) 13.30%(g) 11.01%(f)(g) (4.27%) (2.78%)
------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data:
Expenses (i) 1.15%(j) 1.15% 1.19% 1.29%(j) 1.31% 1.22%
Net investment income (i) 7.44%(j) 7.55% 7.65% 8.24%(j) 7.92% 10.34%(c)
Waiver/reimbursement 0.03%(j) -- 0.01% --%(j)(k) -- --
Portfolio turnover rate 34%(f) 67% 75% 45%(f) 63% 62%
Net assets, end of period (000's) $272,726 $273,104 $325,658 $376,944 $361,780 $369,043
------------------------------------------------------------------------------------------------------------------------------------
|
(a) The Fund changed its fiscal year end from December 31 to May 31.
(b) Per share data was calculated using average shares outstanding during the period.
(c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended December 31, 2001 was to increase net investment income per share by $0.05, decrease net realized and unrealized loss per share by $0.05 and increase the ratio of net investment income to average net assets from 9.76% to 10.34%. Per share data and ratios for periods prior to December 31, 2001 have not been restated to reflect this change in presentation.
(d) The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment income.
(e) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge.
(f) Not annualized.
(g) Had the Investment Advisor and/or Transfer Agent not waived a portion of expenses, total return would have been reduced.
(h) Total return includes a voluntary reimbursement by the Investment Advisor for a realized investment loss. This reimbursement had an impact of less than 0.01% on the Fund's total return.
(i) The benefits derived from custody credits had an impact of less than 0.01%.
(j) Annualized.
(k) Rounds to less than 0.01%.
(Unaudited) (Unaudited) Year
Six Months Period Six Months Ended
Ended Ended Ended December 31,
November 30, Year Ended May 31, May 31, November 30, 2001
Class B Shares 2005 2005 2004 2003(a) 2002
------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 4.56 $ 4.54 $ 4.30 $ 4.01 $ 4.62 $ 5.30
------------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.16(b) 0.32(b) 0.31(b) 0.13(b) 0.31(b) 0.48(b)(c)
Net realized and unrealized gain
(loss) on investments and foreign
currency (0.03) 0.05 0.22 0.29 (0.54) (0.65)(c)
-------- -------- -------- -------- -------- --------
Total from Investment Operations 0.13 0.37 0.53 0.42 (0.23) (0.17)
------------------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared to
Shareholders:
From net investment income (0.17) (0.35) (0.29) (0.13) (0.35) (0.47)
Return of capital -- -- -- -- (0.03) (0.04)
-------- -------- -------- -------- -------- --------
Total Distributions Declared to
Shareholders (0.17) (0.35) (0.29) (0.13) (0.38) (0.51)
------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 4.52 $ 4.56 $ 4.54 $ 4.30 $ 4.01 $ 4.62
Total return (e) 2.94%(f)(g) 8.13%(h) 12.46%(g) 10.67%(f)(g) (4.99)% (3.51)%
------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data:
Expenses (i) 1.90%(j) 1.90% 1.94% 2.04%(j) 2.06% 1.97%
Net investment income (i) 6.69%(j) 6.80% 6.90% 7.49%(j) 7.17% 9.59%
Waiver/reimbursement 0.03%(j) -- 0.01% --%(j)(k) -- --
Portfolio turnover rate 34%(f) 67% 75% 45%(f) 63% 28%
Net assets, end of period (000's) $166,479 $194,460 $252,415 $305,021 $280,220 $433,949
------------------------------------------------------------------------------------------------------------------------------------
|
(a) The Fund changed its fiscal year end from December 31 to May 31.
(b) Per share data was calculated using average shares outstanding during the period.
(c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended December 31, 2001 was to increase net investment income per share by $0.05, decrease net realized and unrealized loss per share by $0.05 and increase the ratio of net investment income to average net assets from 9.02% to 9.59%. Per share data and ratios for periods prior to December 31, 2001 have not been restated to reflect this change in presentation.
(d) The per share net investment income amount does not reflect the period's reclassification of differences between book and tax basis net investment income.
(e) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(f) Not annualized.
(g) Had the Investment Advisor and/or Transfer Agent not waived a portion of expenses, total return would have been reduced.
(h) Total return includes a voluntary reimbursement by the Investment Advisor
for a realized investment loss. This reimbursement had an impact of less than 0.01% on the Fund's total return.
(i) The benefits derived from custody credits had an impact of less than 0.01%.
(j) Annualized.
(k) Rounds to less than 0.01%.
(Unaudited) (Unaudited) Year
Six Months Period Six Months Ended
Ended Ended Ended December 31,
November 30, Year Ended May 31, May 31, November 30, 2000
Class C Shares 2005 2005 2004 2003(a) 2002
-----------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 4.56 $ 4.54 $ 4.30 $ 4.01 $ 4.62 0.57(d)
-----------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.16(b) 0.33(b) 0.32(b) 0.13(b) 0.31(b) 0.57(d)
Net realized and unrealized gain (loss)
on investments and foreign currency (0.02) 0.04 0.21 0.29 (0.53) (1.24)
------- ------- ------- ------- ------- --------
Total from Investment Operations 0.14 0.37 0.53 0.42 (0.22) (0.16)
-----------------------------------------------------------------------------------------------------------------
Less Distributions Declared to
Shareholders:
From net investment income (0.18) (0.35) (0.29) (0.13) (0.36) (0.48)
Return of capital -- -- -- -- (0.03) (0.04)
------- ------- ----- ------ -------- --------
Total Distributions Declared to
Shareholders (0.18) (0.35) (0.29) (0.13) (0.39) (0.52)
-----------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 4.52 $ 4.56 $ 4.54 $ 4.30 $ 4.01 $ 4.62
Total return (e)(f) 3.01%(g) 8.29%(h) 12.63% 10.74%(g) (4.85)% (3.37)%
-----------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data:
Expenses (i) 1.75%(j) 1.75% 1.79% 1.89%(j) 1.91% 1.82%
Net investment income (i) 6.84%(j) 6.95% 7.05% 7.64%(j) 7.32% 7.32%
Waiver/reimbursement 0.18%(j) 0.15% 0.16% 0.15%(j) 0.15% 0.15%
Portfolio turnover rate 34%(g) 67% 75% 45%(g) 63% 62%
Net assets, end of period (000's) $26,130 $30,366 $46,322 $51,471 $46,568 $52,122
-----------------------------------------------------------------------------------------------------------------
|
(a) The Fund changed its fiscal year end from December 31 to May 31.
(b) Per share data was calculated using average shares outstanding during the period.
(c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began amortizing premium and accreting discount on all debt securities. The effect of this change for the year ended December 31, 2001 was to increase net investment income per share by $0.05, decrease net realized and unrealized loss per share by $0.05 and increase the ratio of net investment income to average net assets from 9.16% to 9.74%. Per share data and ratios for periods prior to December 31, 2001 have not been restated to reflect this change in presentation.
(d) The per share net investment income amount does not reflect the period's reclassification of differences between book and tax basis net investment income.
(e) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(f) Had the Investment Advisor, Transfer Agent and/or Distributor not waived a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) Total return includes a voluntary reimbursement by the Investment Advisor for a realized investment loss. This reimbursement had an impact of less than 0.01% on the Fund's total return.
(i) The benefits derived from custody credits had an impact of less than 0.01%.
(j) Annualized.
4. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
5. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
INT-47/107472-0306 March 27, 2006
COLUMBIA HIGH YIELD OPPORTUNITY FUND
COLUMBIA STRATEGIC INCOME FUND
(EACH A "FUND" AND COLLECTIVELY, THE "FUNDS")
SUPPLEMENT TO THE PROSPECTUSES DATED OCTOBER 1, 2005 (THE "PROSPECTUSES")
The Prospectuses are hereby supplemented with the following revised information relating to hypothetical investment and expense information:
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The charts also assume that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher.
COLUMBIA HIGH YIELD OPPORTUNITY FUND -- CLASS A SHARES
INITIAL HYPOTHETICAL
MAXIMUM SALES CHARGE INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------- ----------------------
4.75% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE ANNUAL CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- ------- --------------- --------------- -----------
1 5.00% 1.14% -1.07%(2) $ 9,892.67 $ 585.68
2 10.25% 1.14% 2.75% $10,274.52 $ 114.95
3 15.76% 1.14% 6.71% $10,671.12 $ 119.39
4 21.55% 1.14% 10.83% $11,083.02 $ 124.00
5 27.63% 1.14% 15.11% $11,510.83 $ 128.78
6 34.01% 1.14% 19.55% $11,955.15 $ 133.76
7 40.71% 1.14% 24.17% $12,416.61 $ 138.92
8 47.75% 1.14% 28.96% $12,895.90 $ 144.28
9 55.13% 1.14% 33.94% $13,393.68 $ 149.85
10 62.89% 1.14% 39.11% $13,910.67 $ 155.63
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,910.67
TOTAL ANNUAL FEES AND EXPENSES $1,795.25
|
(2) Reflects deduction of the maximum initial sales charge.
COLUMBIA HIGH YIELD OPPORTUNITY FUND -- CLASS B SHARES
INITIAL HYPOTHETICAL
MAXIMUM SALES CHARGE INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE ANNUAL CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- ------- --------------- --------------- -----------
1 5.00% 1.89% 3.11% $10,311.00 $ 191.94
2 10.25% 1.89% 6.32% $10,631.67 $ 197.91
3 15.76% 1.89% 9.62% $10,962.32 $ 204.06
4 21.55% 1.89% 13.03% $11,303.25 $ 210.41
5 27.63% 1.89% 16.55% $11,654.78 $ 216.95
6 34.01% 1.89% 20.17% $12,017.24 $ 223.70
7 40.71% 1.89% 23.91% $12,390.98 $ 230.66
8 47.75% 1.89% 27.76% $12,776.34 $ 237.83
9 55.13% 1.14% 32.70% $13,269.50 $ 148.46
10 62.89% 1.14% 37.82% $13,781.70 $ 154.19
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,781.70
TOTAL ANNUAL FEES AND EXPENSES $2,016.12
|
COLUMBIA HIGH YIELD OPPORTUNITY FUND -- CLASS C SHARES
INITIAL HYPOTHETICAL
MAXIMUM SALES CHARGE INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE ANNUAL CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- ------- --------------- --------------- -----------
1 5.00% 1.89% 3.11% $10,311.00 $ 191.94
2 10.25% 1.89% 6.32% $10,631.67 $ 197.91
3 15.76% 1.89% 9.62% $10,962.32 $ 204.06
4 21.55% 1.89% 13.03% $11,303.25 $ 210.41
5 27.63% 1.89% 16.55% $11,654.78 $ 216.95
6 34.01% 1.89% 20.17% $12,017.24 $ 223.70
7 40.71% 1.89% 23.91% $12,390.98 $ 230.66
8 47.75% 1.89% 27.76% $12,776.34 $ 237.83
9 55.13% 1.89% 31.74% $13,173.68 $ 245.23
10 62.89% 1.89% 35.83% $13,583.38 $ 252.85
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,583.38
TOTAL ANNUAL FEES AND EXPENSES $2,211.54
|
COLUMBIA HIGH YIELD OPPORTUNITY FUND - CLASS Z SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & Expenses FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 0.89% 4.11% $10,411.00 $ 90.83
2 10.25% 0.89% 8.39% $10,838.89 $ 94.56
3 15.76% 0.89% 12.84% $11,284.37 $ 98.45
4 21.55% 0.89% 17.48% $11,748.16 $ 102.49
5 27.63% 0.89% 22.31% $12,231.01 $ 106.71
6 34.01% 0.89% 27.34% $12,733.70 $ 111.09
7 40.71% 0.89% 32.57% $13,257.06 $ 115.66
8 47.75% 0.89% 38.02% $13,801.92 $ 120.41
9 55.13% 0.89% 43.69% $14,369.18 $ 125.36
10 62.89% 0.89% 49.60% $14,959.75 $ 130.51
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,959.75
TOTAL ANNUAL FEES AND EXPENSES $1,096.08
|
COLUMBIA STRATEGIC INCOME FUND - CLASS A SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
4.75% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.06% -1.00%(2) $ 9,900.29 $ 577.95
2 10.25% 1.06% 2.90% $10,290.36 $ 107.01
3 15.76% 1.06% 6.96% $10,695.80 $ 111.23
4 21.55% 1.06% 11.17% $11,117.21 $ 115.61
5 27.63% 1.06% 15.55% $11,555.23 $ 120.16
6 34.01% 1.06% 20.11% $12,010.50 $ 124.90
7 40.71% 1.06% 24.84% $12,483.72 $ 129.82
8 47.75% 1.06% 29.76% $12,975.58 $ 134.93
9 55.13% 1.06% 34.87% $13,486.81 $ 140.25
10 62.89% 1.06% 40.18% $14,018.20 $ 145.78
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,018.20
TOTAL ANNUAL FEES AND EXPENSES $1,707.64
|
(2) Reflects deduction of the maximum initial sales charge.
COLUMBIA STRATEGIC INCOME FUND - CLASS B SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.81% 3.19% $10,319.00 $ 183.89
2 10.25% 1.81% 6.48% $10,648.18 $ 189.75
3 15.76% 1.81% 9.88% $10,987.85 $ 195.81
4 21.55% 1.81% 13.38% $11,338.37 $ 202.05
5 27.63% 1.81% 17.00% $11,700.06 $ 208.50
6 34.01% 1.81% 20.73% $12,073.29 $ 215.15
7 40.71% 1.81% 24.58% $12,458.43 $ 222.01
8 47.75% 1.81% 28.56% $12,855.85 $ 229.09
9 55.13% 1.06% 33.62% $13,362.37 $ 138.96
10 62.89% 1.06% 38.89% $13,888.85 $ 144.43
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,888.85
TOTAL ANNUAL FEES AND EXPENSES $1,929.64
|
COLUMBIA STRATEGIC INCOME FUND -- CLASS C SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.81% 3.19% $10,319.00 $ 183.89
2 10.25% 1.81% 6.48% $10,648.18 $ 189.75
3 15.76% 1.81% 9.88% $10,987.85 $ 195.81
4 21.55% 1.81% 13.38% $11,338.37 $ 202.05
5 27.63% 1.81% 17.00% $11,700.06 $ 208.50
6 34.01% 1.81% 20.73% $12,073.29 $ 215.15
7 40.71% 1.81% 24.58% $12,458.43 $ 222.01
8 47.75% 1.81% 28.56% $12,855.85 $ 229.09
9 55.13% 1.81% 32.66% $13,265.95 $ 236.40
10 62.89% 1.81% 36.89% $13,689.14 $ 243.94
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,689.14
TOTAL ANNUAL FEES AND EXPENSES $2,126.60
|
COLUMBIA STRATEGIC INCOME FUND -- CLASS J SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
3.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.41% 0.48%(2) $10,048.23 $ 439.23
2 10.25% 1.41% 4.09% $10,408.96 $ 144.22
3 15.76% 1.41% 7.83% $10,782.64 $ 149.40
4 21.55% 1.41% 11.70% $11,169.74 $ 154.76
5 27.63% 1.41% 15.71% $11,570.73 $ 160.32
6 34.01% 1.41% 19.86% $11,986.12 $ 166.08
7 40.71% 1.41% 24.16% $12,416.42 $ 172.04
8 47.75% 1.41% 28.62% $12,862.17 $ 178.21
9 55.13% 1.41% 33.24% $13,323.93 $ 184.61
10 62.89% 1.41% 38.02% $13,802.26 $ 191.24
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,802.26
TOTAL ANNUAL FEES AND EXPENSES $1,940.11
|
(2) Reflects deduction of the maximum initial sales charge.
COLUMBIA STRATEGIC INCOME FUND -- CLASS Z SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 0.82% 4.18% $10,418.00 $ 83.71
2 10.25% 0.82% 8.53% $10,853.47 $ 87.21
3 15.76% 0.82% 13.07% $11,307.15 $ 90.86
4 21.55% 0.82% 17.80% $11,779.79 $ 94.66
5 27.63% 0.82% 22.72% $12,272.18 $ 98.61
6 34.01% 0.82% 27.85% $12,785.16 $ 102.74
7 40.71% 0.82% 33.20% $13,319.58 $ 107.03
8 47.75% 0.82% 38.76% $13,876.34 $ 111.50
9 55.13% 0.82% 44.56% $14,456.37 $ 116.16
10 62.89% 0.82% 50.61% $15,060.64 $ 121.02
TOTAL GAIN AFTER FEES AND EXPENSES $ 5,060.64
TOTAL ANNUAL FEES AND EXPENSES $1,013.51
|
INT-47/106436-0206 February 22, 2006
Class A, B and C Shares
Advised by Columbia Management Advisors, LLC
TABLE OF CONTENTS
THE FUND 2 -------------------------------------------- Investment Goals........................ 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 2 Performance History..................... 4 Your Expenses........................... 6 YOUR ACCOUNT 8 -------------------------------------------- How to Buy Shares....................... 8 Investment Minimums..................... 8 Sales Charges........................... 9 How to Exchange Shares.................. 12 How to Sell Shares...................... 13 Fund Policy on Trading of Fund Shares... 14 Distribution and Service Fees........... 15 Other Information About Your Account.... 15 |
MANAGING THE FUND 18 -------------------------------------------- Investment Advisor...................... 18 Portfolio Managers...................... 18 Legal Proceedings....................... 18 OTHER INVESTMENT STRATEGIES AND RISKS 21 -------------------------------------------- FINANCIAL HIGHLIGHTS 22 -------------------------------------------- APPENDIX A 25 -------------------------------------------- |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO]
Not FDIC Insured May Lose Value
No Bank Guarantee
. rated BB through D by Standard & Poor's;
. rated Ba through C by Moody's Investors Service, Inc.;
. comparably rated by another nationally recognized rating service; or
. unrated and believed by the Fund's investment advisor to be comparable in quality.
The Fund also seeks to achieve its investment goals by investing in debt securities issued by foreign governments and foreign companies, including securities issued in emerging market countries.
The Fund may purchase derivative instruments, such as futures, options, swap contracts, and inverse floaters, to gain or reduce exposure to particular securities or segments of the bond markets. Derivatives are financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use derivatives for both hedging and non-hedging purposes, such as to adjust the Fund's sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an opposite position. The Fund typically uses derivatives in an effort to achieve more efficiently economic exposures similar to those it could have achieved through the purchase and sale of fixed income securities. Investments in derivatives may be applied toward meeting a requirement to invest in a particular kind of investment if the derivatives have economic characteristics similar to investments of that kind.
The Fund also may invest in equity securities to seek capital appreciation. Equity securities include common stocks, preferred stocks, warrants and debt securities convertible into common stocks.
Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks."
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with similar investment goals. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goals or perform favorably among comparable funds.
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
The Fund
Because the Fund may invest in debt securities issued or supported by private entities, including corporate bonds, the Fund is subject to issuer risk. Issuer risk is the possibility that changes in the financial condition of the issuer of a security, changes in general economic conditions, or changes in economic conditions that affect the issuer may impact its actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and in some cases a decrease in income.
Reinvestment risk is the risk that income from the Fund's debt securities will decline if and when the Fund invests the proceeds from matured, traded or called securities at market interest rates that are below the current earnings rate of the Fund's portfolio.
Lower-rated debt securities, commonly referred to as "junk bonds," involve greater risk of loss due to credit deterioration and are less liquid, especially during periods of economic uncertainty or change, than higher-quality debt securities. Lower-rated debt securities generally have a higher risk that the issuer of the security may default and not make payment of interest or principal.
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
Since it purchases equity securities, the Fund is subject to equity risk. This
is the risk that stock prices will fall over short or extended periods of time.
Although the stock market has historically outperformed other asset classes
over the long term, the stock market tends to move in cycles. Individual stock
prices may fluctuate
drastically from day to day and may underperform other asset classes over an
extended period of time. Individual companies may report poor results or be
negatively affected by industry and/or economic trends and developments. The
prices of securities issued by such companies may suffer a decline in response.
These price movements may result from factors affecting individual companies,
industries or the securities market as a whole.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. The Fund may have limited legal recourse in the event of default with respect to certain debt securities issued by foreign governments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
The Fund
Investments in emerging markets are subject to additional risk. The risks of foreign investments are typically increased in less developed countries, which are sometimes referred to as emerging markets. For example, political and economic structures in these countries may be new and developing rapidly, which may cause instability. These countries are also more likely to experience high levels of inflation, deflation or currency devaluations, which could hurt their economies and securities markets.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns
show the Fund's Class A share
performance for each of the
last ten complete calendar
years. They include the effects
of Fund expenses, but not the
effects of sales charges. If
sales charges were included,
these returns would be lower.
Average Annual Total Returns
are a measure of the Fund's
average performance over the
past one-year, five-year and
ten-year periods. The table
shows the returns of each share
class and includes the effects
of both Fund expenses and
current sales charges. Class B
share returns do not reflect
Class A share returns after
conversion of Class B shares to
Class A shares (see the section
"Your Account -- Sales
Charges").
The Fund
Calendar Year Total Returns (Class A)
[CHART]
The Class's year-to-date total return through For the periods shown in bar chart:
June 30, 2005 was -0.51%. Best quarter: 2nd quarter 2003, +8.44%
Worst quarter: 4th quarter 2000, -7.93%
|
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2004
1 Year 5 Years 10 Years
Class A (%)
Return Before Taxes 6.49 2.24 6.18
Return After Taxes on Distributions 3.71 -1.20 2.54
Return After Taxes on Distributions and Sale of Fund Shares 4.10 -0.30 2.96
-----------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes 5.97 2.20 5.90
Return After Taxes on Distributions 3.36 -1.02 2.56
Return After Taxes on Distributions and Sale of Fund Shares 3.78 -0.18 2.93
-----------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 10.14 2.63 6.02/(1)/
Return After Taxes on Distributions 7.46 -0.62 2.63/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 6.48 0.16 3.00/(1)/
-----------------------------------------------------------------------------------------
JP Morgan Index (%) 11.55 7.61 8.62
-----------------------------------------------------------------------------------------
CS First Boston Index (%) 11.95 8.17 8.62
-----------------------------------------------------------------------------------------
Lipper Average (%) 9.89 4.94 6.45
|
(1) Class C is a newer class of shares. Its performance information includes returns of the Fund's Class B shares for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class B shares and the newer class of shares. Class A shares were initially offered on October 21, 1971, Class B shares were initially offered on June 8, 1992, and Class C shares were initially offered on January 15, 1996.
The Fund
UNDERSTANDING EXPENSES
Sales Charges are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
Annual Fund Operating Expenses are paid by the Fund. They include management fees, 12b-1 fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
Shareholder Fees/(1)/ (paid directly from your investment)
Class A Class B Class C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 4.75 0.00 0.00
------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or redemption price) 1.00/(2)/ 5.00 1.00
------------------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) /(3)/ /(3)/ /(3)/
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an
initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
The Fund
Annual Fund Operating Expenses (deducted directly from Fund assets)
Class A Class B Class C
Management fee /(1)/ (%) 0.59 0.59 0.59
--------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00/(2)/
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Other expenses (%) 0.30 0.30 0.30
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Total annual fund operating expenses (%) 1.14 1.89 1.89/(2)/
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(1) Management fee has been restated to reflect contractual changes to the
management fee for the Fund effective November 1, 2004.
(2) The Fund's distributor has voluntarily agreed to waive a portion of the
12b-1 fee for Class C shares. If this waiver were reflected in the table
the 12b-1 fee for Class C shares would be 0.85% and total annual fund
operating expenses for Class C shares would be 1.74%. This arrangement may
be modified or terminated by the distributor at any time.
Example Expenses (your actual costs may be higher or lower)
Class 1 Year 3 Years 5 Years 10 Years
Class A $586 $820 $1,073 $1,795
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Class B: did not sell your shares $192 $594 $1,021 $2,016
sold all your shares at
the end of the period $692 $894 $1,221 $2,016
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Class C: did not sell your shares $192 $594 $1,021 $2,212
sold all your shares at
the end of the period $292 $594 $1,021 $2,212
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See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
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By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging shares you own in a
different fund distributed by Columbia Management
Distributors, Inc. for shares of the same class (and, in
some cases, certain other classes) of the Fund at no
additional cost. There may be an additional sales charge if
exchanging from a money market fund. To exchange by
telephone, call 1-800-422-3737.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. There may
be an additional sales charge if exchanging from a money
market fund. Be sure to complete the appropriate section of
the account application for this feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
|
Please see the Statement of Additional Information for more details on investment minimums.
Your Account
CHOOSING A SHARE CLASS
The Fund offers three classes
of shares in this prospectus --
Class A, B and C. Each share
class has its own sales charge
and expense structure.
Determining which share class
is best for you depends on the
dollar amount you are investing
and the number of years for
which you are willing to
invest. Purchases of $50,000 or
more but less than $1 million
can be made only in Class A or
Class C shares. Purchases of $1
million or more can be made
only in Class A shares. Based
on your personal situation,
your financial advisor can help
you decide which class of
shares makes the most sense for
you.
Class A shares Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
Class A Sales Charges
As a % of % of offering
the price
public As a % of retained by
offering your financial
Amount purchased price investment advisor
Less than $50,000 4.75 4.99 4.25
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$50,000 to less than $100,000 4.50 4.71 4.00
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$100,000 to less than $250,000 3.50 3.63 3.00
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$250,000 to less than $500,000 2.50 2.56 2.25
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$500,000 to less than $1,000,000 2.00 2.04 1.75
-------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
|
Class A shares bought without an initial sales charge in accounts aggregating up to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase. Subsequent Class A share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
Your Account
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
Purchases Over $1 Million
Amount purchased Commission % Less than $3 million 1.00 ------------------------------------------------ $3 million to less than $50 million 0.50 ------------------------------------------------ $50 million or more 0.25 |
For certain group retirement plans, financial advisors receive a 1.00% commission from the distributor on all purchases less than $3 million.
Reduced Sales Charges for Larger Investments.
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
Rights of Accumulation The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
Statement of Intent You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
Your Account
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
. Individual accounts
. Joint accounts
. Certain IRA accounts
. Certain trusts
. UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Funds as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax-related redemptions, or when the selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
Your Account
Class B shares Your purchases of Class B shares are at Class B's net asset value. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the applicable chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the chart below.
Purchases of less than $50,000:
Class B Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 5.00
---------------------------------------------
Through second year 4.00
---------------------------------------------
Through third year 3.00
---------------------------------------------
Through fourth year 3.00
---------------------------------------------
Through fifth year 2.00
---------------------------------------------
Through sixth year 1.00
---------------------------------------------
Longer than six years 0.00
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Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
Class C shares Your purchases of Class C shares are at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares.
Class C Sales Charges
% deducted when
Holding period after purchase shares are sold
Through first year 1.00
---------------------------------------------
Longer than one year 0.00
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Your Account
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable, you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into the same share class (and,
in some cases, certain other classes) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is
$100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or if
applicable, stock power form along with any share
certificates to be sold to the address below. In your
letter of instruction, note the Fund's name, share class,
account number, and the dollar value or number of shares
you wish to sell. All account owners must sign the letter.
Signatures must be guaranteed by either a bank, a member
firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for
alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
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Your Account
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market Fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
Your Account
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Additional Intermediary Compensation In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
Your Account
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the transfer agent.
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
----------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
Your Account
Distribution Options The Fund declares any dividends daily and pays them monthly, and declares and pays any capital gains (including short-term capital gains) at least annually. Shares begin to earn dividends on the date on which a purchase order is settled by payment. Shares stop earning dividends at the close of business on the day before the date on which a redemption order is settled. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Management by the Fund, amounted to 0.60% of average daily net assets of the Fund. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the fiscal year ended May 31, 2005.
Thomas A. LaPointe, a senior vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2003. Mr. LaPointe has been associated with Columbia Advisors or its predecessors since February, 1999.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
Managing the Fund
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the Fund or its shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Columbia Funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL"). The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, removal of the trustees of the funds, removal of Columbia Management and CMD, disgorgement of all management fees and monetary damages. The MDL is ongoing.
On January 11, 2005, a putative class action lawsuit was filed in federal district court in Massachusetts against, among others, the Trustees of the funds and CMG. The lawsuit alleges that defendants violated common law duties to fund shareholders as well as sections of the Investment Company Act of 1940, by failing to ensure that the funds and other affiliated funds participated in securities class action settlements for which the funds were eligible. Specifically, plaintiffs allege that defendants failed to submit proof of claims in connection with settlements of securities class action lawsuits filed against companies in which the funds held positions.
Managing the Fund
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits seek damages and allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as IN RE COLUMBIA ENTITIES LITIGATION. The plaintiffs filed a consolidated amended complaint on June 9, 2005.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The Fund's principal investment strategies and their associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goals, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The advisor may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goals. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goals or any of its investment strategies.
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last five fiscal years, which run from June 1 to May 31, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
The Fund
Period ended
Year ended May 31, May 31,
2005 2004 2003/(a)/
Class A Class A Class A
------- ------- -------
Net asset value --
Beginning of period ($) 4.54 4.30 4.01
--------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.35/(b)/ 0.35/(b)/ 0.14/(b)/
Net realized and unrealized gain (loss)
on investments and foreign currency 0.05 0.21 0.30
--------------------------------------------------------------------------------------------
Total from Investment Operations 0.40 0.56 0.44
--------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.38) (0.32) (0.15)
Return of capital -- -- --
--------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.38) (0.32) (0.15)
--------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 4.56 4.54 4.30
--------------------------------------------------------------------------------------------
Total return (%)/(e)/ 8.93/(f)/ 13.30/(g)/ 11.01/(g)(h)/
--------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(i)/ 1.15 1.19 1.29/(j)/
Net investment income/(i)/ 7.55 7.65 8.24/(j)/
Waiver/reimbursement -- 0.01 --/(j)(k)/
Portfolio turnover rate (%) 67 75 45/(h)/
Net assets, end of period (000's) ($) 273,104 325,658 376,944
|
Year ended December 31,
2002 2001 2000
Class A Class A Class A
------- ------- -------
Net asset value --
Beginning of period ($) 4.62 5.30 6.55
-----------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.34/(b)/ 0.52/(b)(c)/ 0.61/(d)/
Net realized and unrealized gain (loss)
on investments and foreign currency (0.53) (0.65)/(c)/ (1.24)
-----------------------------------------------------------------------------------------
Total from Investment Operations (0.19) (0.13) (0.63)
-----------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.39) (0.51) (0.62)
Return of capital (0.03) (0.04) --
-----------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.42) (0.55) (0.62)
-----------------------------------------------------------------------------------------
Net asset value --
End of period ($) 4.01 4.62 5.30
-----------------------------------------------------------------------------------------
Total return (%)/(e)/ (4.27) (2.78) (10.28)
-----------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(i)/ 1.31 1.22 1.16
Net investment income/(i)/ 7.92 10.34/(c)/ 10.00
Waiver/reimbursement -- -- --
Portfolio turnover rate (%) 63 62 28
Net assets, end of period (000's) ($) 361,780 369,043 390,917
|
(a) The Fund changed its fiscal year end from December 31 to May 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change for the year ended December 31, 2001 was to increase net investment
income per share by $0.05, decrease net realized and unrealized loss per
share by $0.05 and increase the ratio of net investment income to average
net assets from 9.76% to 10.34%. Per share data and ratios for periods
prior to December 31, 2001 have not been restated to reflect this change in
presentation.
(d) The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(e) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(f) Total return includes a voluntary reimbursement by the investment advisor
for a realized investment loss. This reimbursement had an impact of less
than 0.01% on the Fund's total return.
(g) Had the investment advisor not waived a portion of expenses, total return
would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
(k) Rounds to less than 0.01%.
Financial Highlights
The Fund
Period ended
Year ended May 31, May 31,
2005 2004 2003/(a)/
Class B Class B Class B
------- ------- -------
Net asset value --
Beginning of period ($) 4.54 4.30 4.01
--------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.32/(b)/ 0.31/(b)/ 0.13/(b)/
Net realized and unrealized gain (loss)
on investments and foreign currency 0.05 0.22 0.29
--------------------------------------------------------------------------------------------
Total from Investment Operations 0.37 0.53 0.42
--------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.35) (0.29) (0.13)
Return of capital -- -- --
--------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.35) (0.29) (0.13)
--------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 4.56 4.54 4.30
--------------------------------------------------------------------------------------------
Total return (%)/(e)/ 8.13/(f)/ 12.46/(g)/ 10.67/(g)(h)/
--------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(i)/ 1.90 1.94 2.04/(j)/
Net investment income/(i)/ 6.80 6.90 7.49/(j)/
Waiver/reimbursement -- 0.01 --/(j)(k)/
Portfolio turnover rate (%) 67 75 45/(h)/
Net assets, end of period (000's) ($) 194,460 252,415 305,021
|
Year ended December 31,
2002 2001 2000
Class B Class B Class B
------- ------- -------
Net asset value --
Beginning of period ($) 4.62 5.30 6.55
-----------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.31/(b)/ 0.48/(b)(c)/ 0.56/(d)/
Net realized and unrealized gain (loss)
on investments and foreign currency (0.54) (0.65)/(c)/ (1.24)
-----------------------------------------------------------------------------------------
Total from Investment Operations (0.23) (0.17) (0.68)
-----------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.35) (0.47) (0.57)
Return of capital (0.03) (0.04) --
-----------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.38) (0.51) (0.57)
-----------------------------------------------------------------------------------------
Net asset value --
End of period ($) 4.01 4.62 5.30
-----------------------------------------------------------------------------------------
Total return (%)/(e)/ (4.99) (3.51) (10.96)
-----------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(i)/ 2.06 1.97 1.91
Net investment income/(i)/ 7.17 9.59/(c)/ 9.25
Waiver/reimbursement -- -- --
Portfolio turnover rate (%) 63 62 28
Net assets, end of period (000's) ($) 280,220 350,464 433,949
|
(a) The Fund changed its fiscal year end from December 31 to May 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change for the year ended December 31, 2001 was to increase net investment
income per share by $0.05, decrease net realized and unrealized loss per
share by $0.05 and increase the ratio of net investment income to average
net assets from 9.02% to 9.59%. Per share data and ratios for periods prior
to December 31, 2001 have not been restated to reflect this change in
presentation.
(d) The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(e) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(f) Total return includes a voluntary reimbursement by the investment advisor
for a realized investment loss. This reimbursement had an impact of less
than 0.01% on the Fund's total return.
(g) Had the investment advisor not waived a portion of expenses, total return
would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
(k) Rounds to less than 0.01%.
Financial Highlights
The Fund
Period ended
Year ended May 31, May 31, Year ended December 31,
2005 2004 2003/(a)/ 2002 2001 2000
Class C Class C Class C Class C Class C Class C
------- ------- ------- ------- ------- -------
Net asset value --
Beginning of period ($) 4.54 4.30 4.01 4.62 5.30 6.55
-----------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.33/(b)/ 0.32/(b)/ 0.13/(b)/ 0.31/(b)/ 0.49/(b)(c)/ 0.57/(d)/
Net realized and unrealized gain (loss)
on investments and foreign currency 0.04 0.21 0.29 (0.53) (0.65)/(c)/ (1.24)
-----------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.37 0.53 0.42 (0.22) (0.16) (0.67)
-----------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.35) (0.29) (0.13) (0.36) (0.48) (0.58)
Return of capital -- -- -- (0.03) (0.04) --
-----------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.35) (0.29) (0.13) (0.39) (0.52) (0.58)
-----------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 4.56 4.54 4.30 4.01 4.62 5.30
-----------------------------------------------------------------------------------------------------------------------------
Total return (%)/(e)(f)/ 8.29/(g)/ 12.63 10.74/(h)/ (4.85) (3.37) (10.78)
-----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(i)/ 1.75 1.79 1.89/(j)/ 1.91 1.82 1.76
Net investment income/(i)/ 6.95 7.05 7.64/(j)/ 7.32 9.74/(c)/ 9.40
Waiver/reimbursement 0.15 0.16 0.15/(j)/ 0.15 0.15 0.15
Portfolio turnover rate (%) 67 75 45/(h)/ 63 62 28
Net assets, end of period (000's) ($) 30,366 46,322 51,471 46,568 52,122 48,904
|
(a) The Fund changed its fiscal year end from December 31 to May 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change for the year ended December 31, 2001 was to increase net investment
income per share by $0.05, decrease net realized and unrealized loss per
share by $0.05 and increase the ratio of net investment income to average
net assets from 9.16% to 9.74%. Per share data and ratios for periods prior
to December 31, 2001 have not been restated to reflect this change in
presentation.
(d) The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(e) Total return at net asset value assuming all distributions reinvested and
no contingent deferred sales charge.
(f) Had the investment advisor and/or distributor not waived a portion of
expenses, total return would have been reduced.
(g) Total return includes a voluntary reimbursement by the investment advisor
for a realized investment loss. This reimbursement had an impact of less
than 0.01% on the Fund's total return.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class A, B and C shares of the Fund assuming a 5% return each year, the hypothetical year-end balance before expenses and the cumulative return after fees and expenses. The charts also assume that the annual expense ratios stay the same throughout the 10-year period, that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses tables, is reflected in the charts and is net of any fee waiver or expense reimbursement.
Class A Shares/(1)/
Annual Expense Ratio Initial Hypothetical Investment Amount Assumed Rate of Return
1.14% $10,000.00 5%
Cumulative Return Hypothetical Year- Hypothetical Year-
Before Fees & End Balance Before Cumulative Return End Balance After Annual Fees &
Year Expenses Fees & Expenses After Fees & Expenses Fees & Expenses Expenses
1 5.00% $10,001.25 3.86% $ 9,892.67 $ 585.68
2 10.25% $10,501.31 7.87% $10,274.52 $ 114.95
3 15.76% $11,026.38 12.03% $10,671.12 $ 119.39
4 21.55% $11,577.70 16.36% $11,083.02 $ 124.00
5 27.63% $12,156.58 20.85% $11,510.83 $ 128.78
6 34.01% $12,764.41 25.51% $11,955.15 $ 133.76
7 40.71% $13,402.63 30.36% $12,416.61 $ 138.92
8 47.75% $14,072.76 35.39% $12,895.90 $ 144.28
9 55.13% $14,776.40 40.62% $13,393.68 $ 149.85
10 62.89% $15,515.22 46.04% $13,910.67 $ 155.63
Total Gain Before Fees & Expenses $ 5,990.22
Total Gain After Fees & Expenses $ 4,385.67
Total Annual Fees & Expenses Paid $1,795.25
|
(1) For Class A shares, the year one Annual Fees & Expenses and Hypothetical Year-End Balance Before Fees & Expenses information shown include the dollar amount and effect of any applicable front-end sales charge of the Fund.
Class B Shares
Annual Expense Ratio Initial Hypothetical Investment Amount Assumed Rate of Return
1.89% $10,000.00 5%
Cumulative Return Hypothetical Year- Hypothetical Year-
Before Fees & End Balance Before Cumulative Return End Balance After Annual Fees &
Year Expenses Fees & Expenses After Fees & Expenses Fees & Expenses Expenses
1 5.00% $10,500.00 3.11% $10,311.00 $ 191.94
2 10.25% $11,025.00 6.32% $10,631.67 $ 197.91
3 15.76% $11,576.25 9.62% $10,962.32 $ 204.06
4 21.55% $12,155.06 13.03% $11,303.25 $ 210.41
5 27.63% $12,762.82 16.55% $11,654.78 $ 216.95
6 34.01% $13,400.96 20.17% $12,017.24 $ 223.70
7 40.71% $14,071.00 23.91% $12,390.98 $ 230.66
8 47.75% $14,774.55 27.76% $12,776.34 $ 237.83
9 55.13% $15,513.28 32.70% $13,269.50 $ 148.46
10 62.89% $16,288.95 37.82% $13,781.70 $ 154.19
Total Gain Before Fees & Expenses $ 6,288.95
Total Gain After Fees & Expenses $ 3,781.70
Total Annual Fees & Expenses Paid $2,016.12
|
Appendix A
Class C Shares
Annual Expense Ratio Initial Hypothetical Investment Amount Assumed Rate of Return
1.89% $10,000.00 5%
Cumulative Return Hypothetical Year- Hypothetical Year-
Before Fees & End Balance Before Cumulative Return End Balance After Annual Fees &
Year Expenses Fees & Expenses After Fees & Expenses Fees & Expenses Expenses
1 5.00% $10,500.00 3.11% $10,311.00 $ 191.94
2 10.25% $11,025.00 6.32% $10,631.67 $ 197.91
3 15.76% $11,576.25 9.62% $10,962.32 $ 204.06
4 21.55% $12,155.06 13.03% $11,303.25 $ 210.41
5 27.63% $12,762.82 16.55% $11,654.78 $ 216.95
6 34.01% $13,400.96 20.17% $12,017.24 $ 223.70
7 40.71% $14,071.00 23.91% $12,390.98 $ 230.66
8 47.75% $14,774.55 27.76% $12,776.34 $ 237.83
9 55.13% $15,513.28 31.74% $13,173.68 $ 245.23
10 62.89% $16,288.95 35.83% $13,583.38 $ 252.85
Total Gain Before Fees & Expenses $ 6,288.95
Total Gain After Fees & Expenses $ 3,583.38
Total Annual Fees & Expenses Paid $2,211.54
|
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust I: 811-2214
. Columbia High Yield Opportunity Fund
[LOGO] ColumbiaFunds
A Member of Columbia Management Group
(C)2005 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com PRO-36/90384-0905
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED OCTOBER 1, 2005
(THE "PROSPECTUS")
COLUMBIA HIGH YIELD OPPORTUNITY FUND
(THE "FUND")
CLASS Z SHARES
The Prospectus is hereby supplemented with the following information:
1. The "Calendar Year Total Returns" and "Average Annual Total Returns" tables for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS
CLASS Z(1)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ------------- --------- -------- -------- ---------- -------- --------- --------- ----------- -------- 12.20% 13.87% 2.17% 6.42% -10.06% -2.53% -4.03% 25.98% 12.080% 1.66% |
For the periods shown above:
Best quarter: 2nd quarter 2003, +8.51%
Worst quarter: 4th quarter 2000, -7.88%
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2005
------------------------------------
1 YEAR 5 YEARS 10 YEARS
------------------------------------
Class Z (%)
Return Before Taxes 1.66 6.07 5.31(1)
Return After Taxes on Distributions (1.24) 2.65 1.71(1)
Return After Taxes on Distributions and Sale of Fund
Shares 1.05 3.04 2.26(1)
-------------------------------------------------------------------------------------------------------------
JP Morgan Global High Yield Index (%) 3.07 9.57 7.03
-------------------------------------------------------------------------------------------------------------
CS First Boston Index (%) 2.26 9.83 7.13
-------------------------------------------------------------------------------------------------------------
Lipper High Yield Average (%) 2.45 7.23 5.41
|
(1) Class Z is a newer class of shares. Its performance information includes returns of the Fund's Class A shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class A shares and the newer class of shares. The Class A share returns have been adjusted to take into account the fact that Class Z shares are sold without sales charges. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been higher, since Class Z shares are not subject to any Rule 12b-1 fees. Class A shares were initially offered on October 21, 1971, and Class Z shares were initially offered on January 8, 1999.
2. The section "LEGAL PROCEEDINGS" under the heading "MANAGING THE FUND" is revised in its entirety as follows:
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
3. The section entitled "Financial Highlights" is updated and restated in its entirety as follows:
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the last five fiscal years, which run from June 1 to May 31, unless otherwise indicated. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). Information for the six-months ended November 30, 2005 is audited. Other information has been derived from the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
Selected data for a share outstanding throughout each period is as follows:
(Unaudited) (Unaudited)
Six Months Period Six Months
Ended Ended Ended Year Ended
November 30, Year Ended May 31, May 31, November 30, December 31,
Class Z Shares 2005 2005 2004 2003(a) 2002 2001
---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 4.56 $ 4.54 $ 4.30 $ 4.01 $ 4.62 $ 5.30
---------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net investment income 0.18(b) 0.37(b) 0.36(b) 0.15(b) 0.33(b) 0.53(b)(c)
Net realized and unrealized gain (loss) on
investments and foreign currency (0.02) 0.04 0.21 0.29 (0.51) (0.54)(c)
------- ------- ------- ------- ------- -------
Total from Investment Operations 0.16 0.41 0.57 0.44 (0.18) (0.12)
---------------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared to Shareholders:
From net investment income (0.20) (0.39) (0.33) (0.15) (0.40) (0.52)
Return of capital -- -- -- -- (0.03) (0.04)
------- ------- ------- ------- ------- -------
Total Distributions Declared to Shareholders (0.20) (0.39) (0.33) (0.15) (0.43) (0.56)
---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 4.52 $ 4.56 $ 4.54 $ 4.30 $ 4.01 $ 4.62
Total return (e) 3.45%(f)(g) 9.21%(h) 13.58%(g) 11.12%(f)(g) (4.03) (2.53)%
---------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data:
Expenses (i) 0.90%(j) 0.90% 0.94% 1.04%(j) 1.06% 0.07%
Net investment income (i) 7.68%(j) 7.80% 7.92% 8.49%(j) 8.17% 10.59%
Waiver/reimbursement 0.03%(j) -- 0.01% --%(j)(k) -- --
Portfolio turnover rate 34%(f) 67% 75% 45%(f) 63% 62%
Net assets, end of period (000's) $12,732 $12,829 $14,194 $45,803 $35,541 $1,978
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(a) The Fund changed its fiscal year end from December 31 to May 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change for the year ended December 31, 2001 was to increase net investment
income per share by $0.05, decrease net realized and unrealized loss per
share by $0.05 and increase the ratio of net investment income to average
net assets from 10.01% to 10.59%. Per share data and ratios for periods
prior to December 31, 2001 have not been restated to reflect this change in
presentation.
(d) The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(e) Total return at net asset value assuming all distributions reinvested.
(f) Not annualized.
(g) Had the Investment Advisor and/or Transfer Agent not waived a portion of
expenses, total return would have been reduced.
(h) Total return includes a voluntary reimbursement by the Investment Advisor
for a realized investment loss. This reimbursement had an impact of less
than 0.01% on the Fund's total return.
(i) The benefits derived from custody credits had an impact of less than 0.01%.
(j) Annualized.
(k) Rounds to less than 0.01%.
4. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
5. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
INT-47/107474-0306 March 27, 2006
Class Z Shares
Advised by Columbia Management Advisors, LLC
THE FUND 2 -------------------------------------------- Investment Goals........................ 2 Principal Investment Strategies......... 2 Principal Investment Risks.............. 2 Performance History..................... 4 Your Expenses........................... 5 YOUR ACCOUNT 7 -------------------------------------------- How to Buy Shares....................... 7 Eligible Investors...................... 8 Sales Charges........................... 9 How to Exchange Shares.................. 10 How to Sell Shares...................... 10 Fund Policy on Trading of Fund Shares... 11 Intermediary Compensation............... 12 Other Information About Your Account.... 13 |
MANAGING THE FUND 15 -------------------------------------------- Investment Advisor...................... 15 Portfolio Managers...................... 15 Legal Proceedings....................... 15 OTHER INVESTMENT STRATEGIES AND RISKS 18 -------------------------------------------- FINANCIAL HIGHLIGHTS 19 -------------------------------------------- APPENDIX A 20 -------------------------------------------- |
Only eligible investors may purchase Class Z shares. See "Your Account -- Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO]
Not FDIC Insured May Lose Value
No Bank Guarantee
. rated BB through D by Standard & Poor's;
. rated Ba through C by Moody's Investors Service, Inc.;
. comparably rated by another nationally recognized rating service; or
. unrated and believed by the Fund's investment advisor to be comparable in quality.
The Fund also seeks to achieve its investment goals by investing in debt securities issued by foreign governments and foreign companies, including securities issued in emerging market countries.
The Fund may purchase derivative instruments, such as futures, options, swap contracts, and inverse floaters, to gain or reduce exposure to particular securities or segments of the bond markets. Derivatives are financial instruments whose values depend on, or are derived from, the value of an underlying security, index or currency. The Fund may use derivatives for both hedging and non-hedging purposes, such as to adjust the Fund's sensitivity to changes in interest rates, or to offset a potential loss in one position by establishing an opposite position. The Fund typically uses derivatives in an effort to achieve more efficiently economic exposures similar to those it could have achieved through the purchase and sale of fixed income securities. Investments in derivatives may be applied toward meeting a requirement to invest in a particular kind of investment if the derivatives have economic characteristics similar to investments of that kind.
The Fund also may invest in equity securities to seek capital appreciation. Equity securities include common stocks, preferred stocks, warrants and debt securities convertible into common stocks.
Additional strategies that are not principal investment strategies and the risks associated with them are described later in this prospectus under "Other Investment Strategies and Risks."
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with similar investment goals. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goals or perform favorably among comparable funds.
Interest rate risk is the risk of a change in the price of a bond when prevailing interest rates increase or decline. In general, if interest rates rise, bond prices fall, and if interest rates fall, bond prices rise. Changes in the values of bonds usually will not affect the amount of income the Fund receives from them but will affect the value of the Fund's shares. Interest rate risk is generally greater for bonds with longer maturities.
The Fund
Because the Fund may invest in debt securities issued or supported by private entities, including corporate bonds, the Fund is subject to issuer risk. Issuer risk is the possibility that changes in the financial condition of the issuer of a security, changes in general economic conditions, or changes in economic conditions that affect the issuer may impact its actual or perceived willingness or ability to make timely payments of interest or principal. This could result in a decrease in the price of the security and in some cases a decrease in income.
Reinvestment risk is the risk that income from the Fund's debt securities will decline if and when the Fund invests the proceeds from matured, traded or called securities at market interest rates that are below the current earnings rate of the Fund's portfolio.
Lower-rated debt securities, commonly referred to as "junk bonds," involve greater risk of loss due to credit deterioration and are less liquid, especially during periods of economic uncertainty or change, than higher-quality debt securities. Lower-rated debt securities generally have a higher risk that the issuer of the security may default and not make payment of interest or principal.
Derivatives involve special risks and may result in losses. Derivative strategies often involve leverage, which may exaggerate a loss, potentially causing the Fund to lose more money than it would have had it invested in the underlying security. The values of derivatives may move in unexpected ways, especially in unusual market conditions, and may result in increased volatility. The use of derivatives may also increase the amount of taxes payable by shareholders. Other risks arise from the Fund's potential inability to terminate or sell derivative positions. A liquid secondary market may not always exist for the Fund's derivative positions at times when the Fund might wish to terminate or sell such positions. Over-the-counter instruments (investments not traded on an exchange) may be illiquid, and transactions in derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. The Fund may not be able to find a suitable derivative transaction counterparty, and thus may be unable to invest in derivatives altogether. For more information on the risks of derivative strategies, see the Statement of Additional Information.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities denominated in foreign currencies and U.S. dollars, without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. The Fund may have limited legal recourse in the event of default with respect to certain debt securities issued by foreign governments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available
The Fund
information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Investments in emerging markets are subject to additional risk. The risks of foreign investments are typically increased in less developed countries, which are sometimes referred to as emerging markets. For example, political and economic structures in these countries may be new and developing rapidly, which may cause instability. These countries are also more likely to experience high levels of inflation, deflation or currency devaluations, which could hurt their economies and securities markets.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
UNDERSTANDING PERFORMANCE
Calendar Year Total Returns show the Fund's Class Z share performance for each of the last ten complete calendar years. They include the effects of Fund expenses.
Average Annual Total Returns are a measure of the Fund's Class Z average performance over the past one-year, five-year and ten-year periods. They include the effects of Fund expenses./(1)/
The Fund
Calendar Year Total Returns (Class Z)/(1)/
[CHART]
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
17.63% 12.20% 13.87% 2.17% 6.42% -10.06% -2.53% -4.03% 25.98% 12.08%
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The Class's year-to-date total return through For the periods shown in bar chart:
June 30, 2005 was -0.38%. Best quarter: 2nd quarter 2003, +8.51%
Worst quarter: 4th quarter 2000, -7.88%
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After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
Average Annual Total Returns -- for periods ended December 31, 2004
1 Year 5 Years 10 Years
Class Z (%)
Return Before Taxes 12.08 3.50 6.86/(1)/
Return After Taxes on Distributions 9.06 -0.09 3.13/(1)/
Return After Taxes on Distributions and Sale of Fund Shares 7.73 0.67 3.49/(1)/
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JP Morgan Index (%) 11.55 7.61 8.62
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CS First Boston Index (%) 11.95 8.17 8.62
-----------------------------------------------------------------------------------------
Lipper Average (%) 9.89 4.94 6.45
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(1) Class Z is a newer class of shares. Its performance information includes returns of the Fund's Class A shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class A shares and the newer class of shares. The Class A share returns have been adjusted to take into account the fact that Class Z shares are sold without sales charges. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been higher, since Class Z shares are not subject to any Rule 12b-1 fees. Class A shares were initially offered on October 21, 1971, and Class Z shares were initially offered on January 8, 1999.
The Fund
UNDERSTANDING EXPENSES
Annual Fund Operating Expenses are paid by the Fund. They include management fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
Example Expenses help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. It uses the following hypothetical conditions:
Shareholder Fees/(1)/ (paid directly from your investment)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 ---------------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 ---------------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) /(2)/ |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
Annual Fund Operating Expenses (deducted directly from Fund assets)
Management fee /(1)/ (%) 0.59 ---------------------------------------------- Distribution and service (12b-1) fees (%) 0.00 ---------------------------------------------- Other expenses (%) 0.30 ---------------------------------------------- Total annual fund operating expenses (%) 0.89 |
(1) Management fee has been restated to reflect contractual changes to the management fee for the Fund effective November 1, 2004.
Example Expenses (your actual costs may be higher or lower)
1 Year 3 Years 5 Years 10 Years $91 $284 $493 $1,096 |
See Appendix A for additional hypothetical investment and expense information.
Outlined below are the various options for buying shares:
Method Instructions
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
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By check For new accounts, send a completed application and check
(new account) made payable to the Fund to Columbia Management Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and
account number with a check made payable to the Fund to
Columbia Management Services, Inc., P.O. Box 8081, Boston,
MA 02266-8081.
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By exchange You or your financial advisor may acquire shares of the
Fund for your account by exchanging shares you own in a
different fund distributed by Columbia Management
Distributors, Inc. for shares of the same class of the Fund
at no additional cost. To exchange by telephone, call
1-800-422-3737. Please see "How to Exchange Shares" for
more information.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
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By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of
the application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate
your program or change the amount of the exchange (subject
to the $100 minimum) by calling 1-800-345-6611. Be sure to
complete the appropriate section of the account application
for this feature.
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By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at
no additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
|
Your Account
Important Things to Consider When Deciding on a Class of Shares:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by an intermediary. Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
No minimum initial investment
. Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
. Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts ("IRAs")), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
. Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
. Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
Your Account
$1,000 minimum initial investment
. Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of a fund distributed by Columbia Management Distributors, Inc. (i) who holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005; (iii) who holds Class A shares that were obtained by exchange of Class Z shares; or (iv) who purchased certain no-load shares of a fund merged with a fund distributed by Columbia Management Distributors, Inc.;
. Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Management Distributors, Inc.;
. Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary;
. Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement);
. Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an accredited investor, as defined under the Securities Act of 1933; or
. Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries.
The Fund reserves the right to change the criteria for Eligible Investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
CHOOSING A SHARE CLASS
The Fund offers one class of shares in this prospectus -- Class Z.
The Fund also offers three additional classes of shares -- Class A, B and C shares are available through a separate prospectus. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you. In general, anyone who is eligible to purchase Class Z shares, which do not incur Rule 12b-1 fees or sales charges, should do so in preference over other classes.
Your Account
When the Fund receives your sales request in "good form," shares will be sold
at the next calculated price. "Good form" means that the Fund's transfer agent
has all information and documentation it deems necessary to effect your order.
For example, when selling shares by letter of instruction, "good form" means
(i) your letter has complete instructions, the proper signatures and Medallion
Signature Guarantees, and (ii) any other required documents are attached. For
additional documents required for sales by corporations, agents, fiduciaries,
surviving joint owners and other legal entities, please call 1-800-345-6611.
Retirement plan accounts have special requirements; please call 1-800-799-7526
for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
Your Account
Outlined below are the various options for selling shares:
Method Instructions
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees
for executing a redemption for you.
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By exchange You or your financial advisor may sell shares of the Fund
by exchanging from the Fund into Class Z shares or Class A
shares (only if Class Z is not offered) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
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By telephone You or your financial advisor may sell shares of the Fund
by telephone and request that a check be sent to your
address of record by calling 1-800-422-3737, unless you
have notified the Fund of an address change within the
previous 30 days. The dollar limit for telephone sales is
$100,000 in a 30-day period. You do not need to set up this
feature in advance of your call. Certain restrictions apply
to retirement accounts. For details, call 1-800-799-7526.
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By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign
the letter. Signatures must be guaranteed by either a bank,
a member firm of a national stock exchange or another
eligible guarantor that participates in the Medallion
Signature Guarantee Program for amounts over $100,000 or
for alternate payee or mailing instructions. Additional
documentation is required for sales by corporations,
agents, fiduciaries, surviving joint owners and individual
retirement account owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
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By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this
feature prior to your request. Be sure to complete the
appropriate section of the account application for this
feature.
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By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. All dividend and
capital gains distributions must be reinvested. Be sure to
complete the appropriate section of the account application
for this feature.
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By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
The interests of the Fund's long-term shareholders may be adversely affected by certain short-term trading activity by Fund shareholders. Such short-term trading activity, when excessive, has the potential to interfere with efficient portfolio management, generate transaction and other costs, dilute the value of Fund shares held by long-term shareholders and have other adverse effects on the Fund. This type of excessive short-term trading activity is referred to herein as "market timing". The Columbia Funds are not intended as vehicles for market timing. The Board of Trustees of the Fund has adopted the policies and procedures set forth below with respect to frequent trading of the Fund's shares.
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market Fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
Your Account
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain funds impose a redemption fee on the proceeds of fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
The distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
Your Account
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of the Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. Please also contact your financial service firm or intermediary for details about payments it may receive.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value", that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
Account Fees If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
Share Certificates Share certificates are not available for Class Z shares.
Your Account
Dividends, Distributions and Taxes The Fund has the potential to make the following distributions:
Types of Distributions
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
----------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
UNDERSTANDING FUND DISTRIBUTIONS
The Fund may earn income from the securities it holds. The Fund also may realize capital gains or losses on sales of its securities. The Fund distributes substantially all of its net investment income and capital gains to shareholders. As a shareholder, you are entitled to a portion of the Fund's income and capital gains based on the number of shares you own at the time these distributions are declared.
Distribution Options The Fund declares any dividends daily and pays them monthly, and declares and pays any capital gains (including short-term capital gains) at least annually. Shares begin to earn dividends on the date on which a purchase order is settled by payment. Shares stop earning dividends at the close of business on the day before the date on which a redemption order is settled. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
Distribution Options
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
Tax Consequences Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Management by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Management by the Fund, amounted to 0.60% of average daily net assets of the Fund. A discussion of the factors considered by the Fund's Board of Trustees in approving the Fund's investment advisory contract is included in the Fund's annual report to shareholders for the fiscal year ended May 31, 2005.
Thomas A. LaPointe, a senior vice president of Columbia Advisors, is a co-manager for the Fund and has co-managed the Fund since February, 2003. Mr. LaPointe has been associated with Columbia Advisors or its predecessors since February, 1999.
The Statement of Additional Information provides additional information about the managers' compensation, other accounts managed and ownership of securities in the Fund.
Managing the Fund
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the Fund or its shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Columbia Funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL"). The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, removal of the trustees of the funds, removal of Columbia Management and CMD, disgorgement of all management fees and monetary damages. The MDL is ongoing.
On January 11, 2005, a putative class action lawsuit was filed in federal district court in Massachusetts against, among others, the Trustees of the funds and CMG. The lawsuit alleges that defendants violated common law duties to fund shareholders as well as sections of the Investment Company Act of 1940, by failing to ensure that the funds and other affiliated funds participated in securities class action settlements for which the funds were eligible. Specifically, plaintiffs allege that defendants failed to submit proof of claims in connection with settlements of securities class action lawsuits filed against companies in which the funds held positions.
Managing the Fund
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits seek damages and allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as IN RE COLUMBIA ENTITIES LITIGATION. The plaintiffs filed a consolidated amended complaint on June 9, 2005.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
Other Investment Strategies and Risks ---------------------------------------------------------------------------------------------------------------------- |
The Fund's principal investment strategies and their associated risks are described under "The Fund -- Principal Investment Strategies" and "The Fund -- Principal Investment Risks." This section describes other investments the Fund may make and the risks associated with them. In seeking to achieve its investment goals, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and therefore are not described in this prospectus. These types of securities and investment practices and their associated risks are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). The advisor may elect not to buy any of these securities or use any of these techniques. The Fund may not always achieve its investment goals. Except as otherwise noted, approval by the Fund's shareholders is not required to modify or change the Fund's investment goals or any of its investment strategies.
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the last five fiscal years, which run from June 1 to May 31, unless otherwise indicated. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
The Fund
Period
ended
Year ended May 31, May 31, Year ended December 31,
2005 2004 2003/(a)/ 2002 2001 2000
Class Z Class Z Class Z Class Z Class Z Class Z
------- ------- -------- ------- ------- -------
Net asset value --
Beginning of period ($) 4.54 4.30 4.01 4.62 5.30 6.55
------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations ($):
Net investment income 0.37/(b)/ 0.36/(b)/ 0.15/(b)/ 0.33/(b)/ 0.53/(b)(c)/ 0.62/(d)/
Net realized and unrealized gain (loss) on
investments and foreign currency 0.04 0.21 0.29 (0.51) (0.65)/(c)/ (1.24)
------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 0.41 0.57 0.44 (0.18) (0.12) (0.62)
------------------------------------------------------------------------------------------------------------------------------
Less Distributions Declared
to Shareholders ($):
From net investment income (0.39) (0.33) (0.15) (0.40) (0.52) (0.63)
Return of capital -- -- -- (0.03) (0.04) --
------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (0.39) (0.33) (0.15) (0.43) (0.56) (0.63)
------------------------------------------------------------------------------------------------------------------------------
Net asset value --
End of period ($) 4.56 4.54 4.30 4.01 4.62 5.30
------------------------------------------------------------------------------------------------------------------------------
Total return (%)/(e)/ 9.21/(f)/ 13.58/(g)/ 11.12/(g)(h)/ (4.03) (2.53) (10.06)
------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets/
Supplemental Data (%):
Expenses/(i)/ 0.90 0.94 1.04/(j)/ 1.06 0.97 0.91
Net investment income/(i)/ 7.80 7.92 8.49/(j)/ 8.17 10.59/(c)/ 10.25
Waiver/reimbursement -- 0.01 --/(j)(k)/ -- -- --
Portfolio turnover rate (%) 67 75 45/(h)/ 63 62 28
Net assets, end of period (000's) ($) 12,829 14,194 45,803 35,541 1,978 566
|
(a) The Fund changed its fiscal year end from December 31 to May 31.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective January 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change for the year ended December 31, 2001 was to increase net investment
income per share by $0.05, decrease net realized and unrealized loss per
share by $0.05 and increase the ratio of net investment income to average
net assets from 10.01% to 10.59%. Per share data and ratios for periods
prior to December 31, 2001 have not been restated to reflect this change in
presentation.
(d) The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(e) Total return at net asset value assuming all distributions reinvested.
(f) Total return includes a voluntary reimbursement by the investment advisor
for a realized investment loss. This reimbursement had an impact of less
than 0.01% on the Fund's total return.
(g) Had the investment advisor not waived a portion of expenses, total return
would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j) Annualized.
(k) Rounds to less than 0.01%.
Hypothetical Investment and Expense Information
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The chart shows the estimated expenses that would be charged on a hypothetical investment of $10,000 in Class Z shares of the Fund assuming a 5% return each year, the hypothetical year-end balance before expenses and the cumulative return after fees and expenses. The chart also assumes that the annual expense ratio stays the same throughout the 10-year period and that all dividends and distributions are reinvested. The annual expense ratio used for the Fund, which is the same as that stated in the Annual Fund Operating Expenses table, is reflected in the chart and is net of any fee waiver or expense reimbursement.
Class Z Shares
Annual Expense Ratio Initial Hypothetical Investment Amount Assumed Rate of Return
0.89% $10,000.00 5%
Year Cumulative Return Hypothetical Year- Cumulative Return Hypothetical Year- Annual Fees &
Before Fees & End Balance Before After Fees & End Balance After Expenses
Expenses Fees & Expenses Expenses Fees & Expenses
1 5.00% $10,500.00 4.11% $10,411.00 $ 90.83
2 10.25% $11,025.00 8.39% $10,838.89 $ 94.56
3 15.76% $11,576.25 12.84% $11,284.37 $ 98.45
4 21.55% $12,155.06 17.48% $11,748.16 $102.49
5 27.63% $12,762.82 22.31% $12,231.01 $106.71
6 34.01% $13,400.96 27.34% $12,733.70 $111.09
7 40.71% $14,071.00 32.57% $13,257.06 $115.66
8 47.75% $14,774.55 38.02% $13,801.92 $120.41
9 55.13% $15,513.28 43.69% $14,369.18 $125.36
10 62.89% $16,288.95 49.60% $14,959.75 $130.51
Total Gain Before Fees & Expenses $ 6,288.95
Total Gain After Fees & Expenses $ 4,959.75
Total Annual Fees & Expenses Paid $1,096.08
|
Notes
Notes
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual and semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
Investment Company Act file number:
Columbia Funds Trust I: 811-2214
. Columbia High Yield Opportunity Fund
[LOGO] ColumbiaFunds
A Member of Columbia Management Group
(C)2005 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 800.426.3750 www.columbiafunds.com
PRO-36/90267-0905
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED NOVEMBER 1, 2005 (THE "PROSPECTUS")
COLUMBIA SMALL CAP VALUE FUND I
CLASS A, B AND C SHARES
The Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The "Calendar Year Total Returns" and "Average Annual Total Returns" tables for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS
CLASS A
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ----- ----- ----- ---- ----- ---- ----- ----- ----- ---- 18.35% 23.88% -6.16% 4.13% 18.96% 6.86% -6.95% 39.41% 22.81% 5.27% |
For the periods shown above:
Best quarter: 2nd quarter 2003, +19.22%
Worst quarter: 3rd quarter 1998, -26.10%
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2005
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Class A (%)
Return Before Taxes (0.78) 11.05 11.15
Return After Taxes on Distributions (1.40) 9.45 9.98
Return After Taxes on Distributions and Sale of Fund
Shares 0.36 8.93 9.39
----- ----- -----
Class B (%)
Return Before Taxes (0.47) 11.24 10.97
Return After Taxes on Distributions (1.21) 9.51 9.73
Return After Taxes on Distributions and Sale of Fund
Shares 0.73 9.07 9.20
----- ----- -----
Class C (%)
Return Before Taxes 3.50 11.52 10.79(1)
Return After Taxes on Distributions 2.79 9.86 9.60(1)
|
Return After Taxes on Distributions and Sale of Fund
Shares 3.27 9.34 9.06(1)
----- ----- -----
Russell 2000 Value Index (%) 4.71 13.55 13.08
----- ----- -----
|
(1) Class C is a newer class of shares. Its performance information includes returns of the Fund's Class B shares for periods prior to its inception. Class B shares would have substantially similar annual returns because Class B and Class C shares generally have similar expense structures. Class A shares were initially offered on July 25, 1986, Class B shares were initially offered on November 9, 1992, and Class C shares were initially offered on January 15, 1996.
4. The section entitled "Financial Highlights" is updated and restated in its entirety as follows:
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last five fiscal years, which run from July 1 to June 30, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). Information for the six-month period ended December 31, 2005 is unaudited. Other information has been derived from the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
(Unaudited)
Six Months
Ended Year Ended June 30,
December 31, ------------------------------------------------------------
Class A Shares 2005 2005 2004 2003 2002 2001
-------------- ------------ -------- -------- -------- -------- --------
Net Asset Value, Beginning of Period $ 43.12 $ 42.17 $ 31.39 $ 37.54 $ 37.49 $ 32.56
-------- -------- -------- -------- -------- --------
Income from Investment Operations:
Net investment income (loss) (a) 0.05 0.11 0.08 0.02 (0.20) (0.06)
Net realized and unrealized gain (loss)
on investments and foreign currency 2.82 4.46 11.88 (1.54) 2.42 6.38
-------- -------- -------- -------- -------- --------
Total from Investment Operations 2.87 4.57 11.96 (1.52) 2.22 6.32
-------- -------- -------- -------- -------- --------
Less Distributions Declared to
Shareholders:
From net realized gains (1.97) (3.62) (1.18) (4.51) (2.17) (1.39)
Return of capital -- -- -- (0.12) -- --
-------- -------- -------- -------- -------- --------
Total Distributions Declared to
Shareholders (1.97) (3.62) (1.18) (4.63) (2.17) (1.39)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $ 44.02 $ 43.12 $ 42.17 $ 31.39 $ 37.54 $ 37.49
Total return (b) 6.54%(c)(d)(e) 10.99% 38.58%(d) (2.16)%(d) 6.43% 19.86%
-------- -------- -------- -------- -------- --------
Ratios to Average Net
Assets/Supplemental Data:
Operating expenses (f) 1.26%(g) 1.32% 1.42% 1.54% 1.57% 1.58%
Interest expense -- -- -- --%(h) -- --
Net investment income (loss) (f) 0.23%(g) 0.28% 0.22% 0.07% (0.55)% (0.18)%
Waiver/reimbursement 0.02%(g) -- 0.01% 0.12% -- --
Portfolio turnover rate 15%(c) 31% 46% 118% 77% 29%
Net assets, end of period (000's) $434,671 $396,568 $292,365 $181,377 $142,551 $137,042
-------- -------- -------- -------- -------- --------
|
(a) Per share data was calculated using average shares outstanding during the period.
(b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge.
(c) Not annualized.
(d) Had the Investment Advisor and/or Transfer Agent not waived or reimbursed a
portion of expenses, total return would have been reduced.
(e) Total return includes a voluntary reimbursement by the Investment Advisor for a realized investment loss due to a trading error. This reimbursement had an impact of less than 0.01% on the Fund's total return.
(f) The benefits derived from custody credits had an impact of less than 0.01%.
(g) Annualized.
(h) Rounds to less than 0.01%.
(Unaudited)
Six Months
Ended Year Ended June 30,
December 31, -------------------------------------------------------------
Class B Shares 2005 2005 2004 2003 2002 2001
-------------- ------------ -------- -------- -------- -------- --------
Net Asset Value, Beginning of Period $ 38.00 $ 37.60 $ 28.18 $ 34.50 $ 34.88 $ 30.64
-------- -------- -------- -------- -------- --------
Income from Investment Operations:
Net investment loss (a) (0.11) (0.18) (0.18) (0.19) (0.44) (0.31)
Net realized and unrealized gain (loss)
on investments and foreign currency 2.49 3.96 10.64 (1.50) 2.23 5.94
-------- -------- -------- -------- -------- --------
Total from Investment Operations 2.38 3.78 10.46 (1.69) 1.79 5.63
-------- -------- -------- -------- -------- --------
Less Distributions Declared to
Shareholders:
From net realized gains (1.97) (3.38) (1.04) (4.51) (2.17) (1.39)
Return of capital -- -- -- (0.12) -- --
-------- -------- -------- -------- -------- --------
Total Distributions Declared to
Shareholders (1.97) (3.38) (1.04) (4.63) (2.17) (1.39)
-------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $ 38.41 $ 38.00 $ 37.60 $ 28.18 $ 34.50 $ 34.88
Total return (b) 6.13%(c)(d)(e) 10.18% 37.58%(d) (2.93)%(d) 5.65% 18.83%
-------- -------- -------- -------- -------- --------
Ratios to Average Net
Assets/Supplemental Data:
Operating expenses (f) 2.01%(g) 2.07% 2.17% 2.30% 2.32% 2.33%
Interest expense -- -- -- --%(h) -- --
Net investment loss (f) (0.52)%(g) (0.47)% (0.53)% (0.71)% (1.30)% (0.93)%
Waiver/reimbursement 0.02%(g) -- 0.01% 0.09% -- --
Portfolio turnover rate 15%(c) 31% 46% 118% 77% 29%
Net assets, end of period (000's) $161,146 $182,648 $213,159 $188,270 $231,602 $240,252
-------- -------- -------- -------- -------- --------
|
(a) Per share data was calculated using average shares outstanding during the period.
(b) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(c) Not annualized.
(d) Had the Investment Advisor and/or Transfer Agent not waived or reimbursed a portion of expenses, total return would have been reduced.
(e) Total return includes a voluntary reimbursement by the Investment Advisor for a realized investment loss due to a trading error. This reimbursement had an impact of less than 0.01% on the Fund's total return.
(f) The benefits derived from custody credits had an impact of less than 0.01%.
(g) Annualized.
(h) Rounds to less than 0.01%.
(Unaudited)
Six Months
Ended Year Ended June 30,
December 31, --------------------------------------------------------
Class C Shares 2005 2005 2004 2003 2002 2001
-------------- ------------ ------- ------- ------- ------- -------
Net Asset Value, Beginning of Period $ 39.60 $ 39.05 $ 29.24 $ 35.59 $ 35.91 $ 31.50
------- ------- ------- ------- ------- -------
Income from Investment Operations:
Net investment loss (a) (0.11) (0.18) (0.19) (0.19) (0.45) (0.31)
Net realized and unrealized gain (loss) on
investments and foreign currency 2.59 4.11 11.04 (1.53) 2.30 6.11
------- ------- ------- ------- ------- -------
Total from Investment Operations 2.48 3.93 10.85 (1.72) 1.85 5.80
------- ------- ------- ------- ------- -------
Less Distributions Declared to Shareholders:
From net realized gains (1.97) (3.38) (1.04) (4.51) (2.17) (1.39)
Return of capital -- -- -- (0.12) -- --
------- ------- ------- ------- ------- -------
Total Distributions Declared to Shareholders (1.97) (3.38) (1.04) (4.63) (2.17) (1.39)
------- ------- ------- ------- ------- -------
Net Asset Value, End of Period $ 40.11 $ 39.60 $ 39.05 $ 29.24 $ 35.59 $ 35.91
Total return (b) 6.14%(c)(d)(e) 10.19% 37.56%(d) (2.92)%(d) 5.66% 18.85%
|
Ratios to Average Net Assets/Supplemental Data:
Operating expenses (f) 2.01%(g) 2.07% 2.17% 2.30% 2.32% 2.33%
Interest expenses -- -- -- --%(h) -- --
Net investment loss (f) (0.52)%(g) (0.47)% (0.53)% (0.71)% (1.30)% (0.93)%
Waiver/reimbursement 0.02%(g) -- 0.01% 0.10% -- --
Portfolio turnover rate 15%(c) 31% 46% 118% 77% 29%
Net assets, end of period (000's) $62,881 $57,471 $38,798 $25,186 $26,726 $27,886
------- ------- ------- ------- ------- -------
|
(a) Per share data was calculated using average shares outstanding during the period.
(b) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(c) Not annualized.
(d) Had the Investment Advisor and/or Transfer Agent not waived or reimbursed a portion of expenses, total return would have been reduced.
(e) Total return includes a voluntary reimbursement by the Investment Advisor for a realized investment loss due to a trading error. This reimbursement had an impact of less than 0.01% on the Fund's total return.
(f) The benefits derived from custody credits had an impact of less than 0.01%.
(g) Annualized.
(h) Rounds to less than 0.01%.
5. The section entitled "Legal Proceedings" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107595-0306 March 27, 2006
COLUMBIA SMALL CAP VALUE FUND I
COLUMBIA HIGH YIELD MUNICIPAL FUND
(EACH A "FUND" AND COLLECTIVELY, THE "FUNDS")
SUPPLEMENT TO THE PROSPECTUSES DATED NOVEMBER 1, 2005 (THE "PROSPECTUSES")
The Prospectuses are hereby supplemented with the following revised information relating to hypothetical investment and expense information:
HYPOTHETICAL INVESTMENT AND EXPENSE INFORMATION
The following supplemental hypothetical investment information provides additional information about the effect of the expenses of the Fund, including investment advisory fees and other Fund costs, on the Fund's returns over a 10-year period. The charts show the estimated expenses that would be charged on a hypothetical investment of $10,000 in each class of the Fund assuming a 5% return each year, the cumulative return after fees and expenses, and the hypothetical year-end balance after fees and expenses. The charts also assume that all dividends and distributions are reinvested and that Class B shares convert to Class A shares after eight years. The annual expense ratios used for the Fund, which are the same as those stated in the Annual Fund Operating Expenses tables, are presented in the charts, and are net of any contractual fee waivers or expense reimbursements for the period of the contractual commitment. Your actual costs may be higher or lower. The tables shown below reflect the maximum initial sales charge but do not reflect any contingent deferred sales charges which may be payable on redemption. If contingent deferred sales charges were reflected, the "Hypothetical Year-End Balance After Fees and Expenses" amounts shown would be lower and the "Annual Fees and Expenses" amounts shown would be higher.
COLUMBIA SMALL CAP VALUE FUND I -- CLASS A SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
5.75% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 1.31% -2.27%(2) $ 9,772.78 $ 700.75
2 10.25% 1.31% 1.33% $10,133.40 $ 130.39
3 15.76% 1.31% 5.07% $10,507.32 $ 135.20
4 21.55% 1.31% 8.95% $10,895.04 $ 140.19
5 27.63% 1.31% 12.97% $11,297.07 $ 145.36
6 34.01% 1.31% 17.14% $11,713.93 $ 150.72
7 40.71% 1.31% 21.46% $12,146.17 $ 156.28
8 47.75% 1.31% 25.94% $12,594.37 $ 162.05
9 55.13% 1.31% 30.59% $13,059.10 $ 168.03
10 62.89% 1.31% 35.41% $13,540.98 $ 174.23
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,540.98
TOTAL ANNUAL FEES AND EXPENSES $2,063.19
|
(2) Reflects deduction of the maximum initial sales charge.
COLUMBIA SMALL CAP VALUE FUND I -- CLASS B SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 2.06% 2.94% $10,294.00 $ 209.03
2 10.25% 2.06% 5.97% $10,596.64 $ 215.17
3 15.76% 2.06% 9.08% $10,908.18 $ 221.50
4 21.55% 2.06% 12.29% $11,228.89 $ 228.01
5 27.63% 2.06% 15.59% $11,559.01 $ 234.72
6 34.01% 2.06% 18.99% $11,898.85 $ 241.62
7 40.71% 2.06% 22.49% $12,248.68 $ 248.72
8 47.75% 2.06% 26.09% $12,608.79 $ 256.03
9 55.13% 1.31% 30.74% $13,074.05 $ 168.22
10 62.89% 1.31% 35.56% $13,556.48 $ 174.43
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,556.48
TOTAL ANNUAL FEES AND EXPENSES $2,197.45
|
COLUMBIA SMALL CAP VALUE FUND I -- CLASS C SHARES
MAXIMUM SALES CHARGE INITIAL HYPOTHETICAL INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE ANNUAL EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- -------------- --------------- --------------- -----------
1 5.00% 2.06% 2.94% $10,294.00 $ 209.03
2 10.25% 2.06% 5.97% $10,596.64 $ 215.17
3 15.76% 2.06% 9.08% $10,908.18 $ 221.50
4 21.55% 2.06% 12.29% $11,228.89 $ 228.01
5 27.63% 2.06% 15.59% $11,559.01 $ 234.72
6 34.01% 2.06% 18.99% $11,898.85 $ 241.62
7 40.71% 2.06% 22.49% $12,248.68 $ 248.72
8 47.75% 2.06% 26.09% $12,608.79 $ 256.03
9 55.13% 2.06% 29.79% $12,979.49 $ 263.56
10 62.89% 2.06% 33.61% $13,361.08 $ 271.31
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,361.08
TOTAL ANNUAL FEES AND EXPENSES $2,389.66
|
COLUMBIA SMALL CAP VALUE FUND I -- CLASS Z SHARES
INITIAL HYPOTHETICAL
MAXIMUM SALES CHARGE INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE ANNUAL CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- ------- --------------- --------------- -----------
1 5.00% 1.06% 3.94% $10,394.00 $ 108.09
2 10.25% 1.06% 8.04% $10,803.52 $ 112.35
3 15.76% 1.06% 12.29% $11,229.18 $ 116.77
4 21.55% 1.06% 16.72% $11,671.61 $ 121.37
5 27.63% 1.06% 21.31% $12,131.47 $ 126.16
6 34.01% 1.06% 26.09% $12,609.45 $ 131.13
7 40.71% 1.06% 31.06% $13,106.27 $ 136.29
8 47.75% 1.06% 36.23% $13,622.65 $ 141.66
9 55.13% 1.06% 41.59% $14,159.39 $ 147.24
10 62.89% 1.06% 47.17% $14,717.27 $ 153.05
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,717.27
TOTAL ANNUAL FEES AND EXPENSES $1,294.11
|
COLUMBIA HIGH YIELD MUNICIPAL FUND -- CLASS A SHARES
INITIAL HYPOTHETICAL
MAXIMUM SALES CHARGE INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------- ----------------------
4.75% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE ANNUAL CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- ------- --------------- --------------- -----------
1 5.00% 0.86% -0.81%(2) $ 9,919.34 $ 558.61
2 10.25% 0.86% 3.30% $10,330.00 $ 87.07
3 15.76% 0.86% 7.58% $10,757.66 $ 90.68
4 21.55% 0.86% 12.03% $11,203.02 $ 94.43
5 27.63% 0.86% 16.67% $11,666.83 $ 98.34
6 34.01% 0.86% 21.50% $12,149.84 $ 102.41
7 40.71% 0.86% 26.53% $12,652.84 $ 106.65
8 47.75% 0.86% 31.77% $13,176.67 $ 111.07
9 55.13% 0.86% 37.22% $13,722.18 $ 115.67
10 62.89% 0.86% 42.90% $14,290.28 $ 120.45
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,290.28
TOTAL ANNUAL FEES AND EXPENSES $1,485.38
|
(2) Reflects deduction of the maximum initial sales charge.
COLUMBIA HIGH YIELD MUNICIPAL FUND -- CLASS B SHARES
INITIAL HYPOTHETICAL
MAXIMUM SALES CHARGE INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE ANNUAL CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- ------- --------------- --------------- -----------
1 5.00% 1.61% 3.39% $10,339.00 $ 163.73
2 10.25% 1.61% 6.89% $10,689.49 $ 169.28
3 15.76% 1.61% 10.52% $11,051.87 $ 175.02
4 21.55% 1.61% 14.27% $11,426.52 $ 180.95
5 27.63% 1.61% 18.14% $11,813.88 $ 187.09
6 34.01% 1.61% 22.14% $12,214.37 $ 193.43
7 40.71% 1.61% 26.28% $12,628.44 $ 199.98
8 47.75% 1.61% 30.57% $13,056.55 $ 206.76
9 55.13% 0.86% 35.97% $13,597.09 $ 114.61
10 62.89% 0.86% 41.60% $14,160.01 $ 119.36
TOTAL GAIN AFTER FEES AND EXPENSES $ 4,160.01
TOTAL ANNUAL FEES AND EXPENSES $1,710.20
|
COLUMBIA HIGH YIELD MUNICIPAL FUND -- CLASS C SHARES
INITIAL HYPOTHETICAL
MAXIMUM SALES CHARGE INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE ANNUAL CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- ------- --------------- --------------- -----------
1 5.00% 1.61% 3.39% $10,339.00 $ 163.73
2 10.25% 1.61% 6.89% $10,689.49 $ 169.28
3 15.76% 1.61% 10.52% $11,051.87 $ 175.02
4 21.55% 1.61% 14.27% $11,426.52 $ 180.95
5 27.63% 1.61% 18.14% $11,813.88 $ 187.09
6 34.01% 1.61% 22.14% $12,214.37 $ 193.43
7 40.71% 1.61% 26.28% $12,628.44 $ 199.98
8 47.75% 1.61% 30.57% $13,056.55 $ 206.76
9 55.13% 1.61% 34.99% $13,499.16 $ 213.77
10 62.89% 1.61% 39.57% $13,956.78 $ 221.02
TOTAL GAIN AFTER FEES AND EXPENSES $ 3,956.78
TOTAL ANNUAL FEES AND EXPENSES $1,911.03
|
COLUMBIA HIGH YIELD MUNICIPAL FUND -- CLASS Z SHARES
INITIAL HYPOTHETICAL
MAXIMUM SALES CHARGE INVESTMENT AMOUNT ASSUMED RATE OF RETURN
-------------------- -------------------- ----------------------
0.00% $10,000.00 5%
|
HYPOTHETICAL
CUMULATIVE ANNUAL CUMULATIVE YEAR-END ANNUAL
RETURN BEFORE EXPENSE RETURN AFTER BALANCE AFTER FEES &
YEAR FEES & EXPENSES RATIO FEES & EXPENSES FEES & EXPENSES EXPENSES(1)
---- --------------- ------- --------------- --------------- -----------
1 5.00% 0.66% 4.34% $10,434.00 $ 67.43
2 10.25% 0.66% 8.87% $10,886.84 $ 70.36
3 15.76% 0.66% 13.59% $11,359.32 $ 73.41
4 21.55% 0.66% 18.52% $11,852.32 $ 76.60
5 27.63% 0.66% 23.67% $12,366.71 $ 79.92
6 34.01% 0.66% 29.03% $12,903.42 $ 83.39
7 40.71% 0.66% 34.63% $13,463.43 $ 87.01
8 47.75% 0.66% 40.48% $14,047.75 $ 90.79
9 55.13% 0.66% 46.57% $14,657.42 $ 94.73
10 62.89% 0.66% 52.94% $15,293.55 $ 98.84
TOTAL GAIN AFTER FEES AND EXPENSES $ 5,293.55
TOTAL ANNUAL FEES AND EXPENSES $822.48
|
INT-47/106540-0206 February 22, 2006
COLUMBIA SMALL CAP VALUE FUND I Prospectus, November 1, 2005
CLASS A, B AND C SHARES
Advised by Columbia Management Advisors, LLC
THE FUND 2 --------------------------------------------------------- Investment Goal...................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 2 Performance History.................................. 4 Your Expenses........................................ 6 YOUR ACCOUNT 8 --------------------------------------------------------- How to Buy Shares.................................... 8 Investment Minimums.................................. 8 Sales Charges........................................ 9 How to Exchange Shares............................... 12 How to Sell Shares................................... 13 Fund Policy on Trading of Fund Shares................ 14 Distribution and Service Fees........................ 15 Other Information About Your Account................. 16 MANAGING THE FUND 19 --------------------------------------------------------- Investment Advisor................................... 19 Portfolio Managers................................... 19 Legal Proceedings.................................... 19 FINANCIAL HIGHLIGHTS 22 --------------------------------------------------------- Appendix A........................................... 25 |
Although these securities have been registered with the Securities and Exchange Commission, the Commission has not approved or disapproved any shares offered in this prospectus or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
|
THE FUND
UNDERSTANDING VALUE INVESTING
At times, the Fund's investment advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
The Fund may invest in real estate investment trusts ("REITs"). REITs are entities which either own properties or make construction or mortgage loans. REITs also may include operating or finance companies. Investing in REITs involves certain unique risks in addition to those risks associated with the real estate industry in general. The prices of REITs are affected by changes in the value of the underlying property owned by the REITs. In
THE FUND
addition, although the Fund does not invest directly in real estate, a REIT investment by the Fund is subject to certain of the risks associated with the ownership of real estate. These risks include possible declines in the value of real estate, risks related to general and local economic conditions, possible lack of availability of mortgage funds and changes in interest rates.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the advisor's opinion, undervalued. If the advisor's assessment of a company's prospects is wrong, the price of its stock may fall, or may not approach the value the advisor has placed on it.
Sector risk is inherent in the Fund's investment strategy. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times the Fund may have a large portion of its assets invested in a particular sector.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Smaller companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team. Stocks of smaller companies may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, smaller companies may not be widely followed by the investment community, which can lower the demand for their stocks.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
THE FUND
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class A share performance for each of the last ten complete calendar years. They include the effects of Fund expenses, but not the effects of sales charges. If sales charges were included, these returns would be lower.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's average performance over the past one-year, five-year and ten-year periods. The table shows the returns of each share class and includes the effects of both Fund expenses and current sales charges. Class B share returns do not reflect Class A share returns after conversion of Class B shares to Class A shares (see the section "Your Account -- Sales Charges").
CALENDAR YEAR TOTAL RETURNS (CLASS A)
(BAR CHART)
37.55% 18.35% 23.88% 4.13% 18.96% 6.86% 39.41% 22.81%
-6.16% -6.95%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
|
The Class's year-to-date total return through For the periods shown in bar chart:
September 30, 2005 was +4.26%. Best quarter: 2nd quarter 2003, +19.22%
Worst quarter: 3rd quarter 1998, -26.10%
|
THE FUND
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004
1 YEAR 5 YEARS 10 YEARS
Class A (%)
Return Before Taxes 15.75 13.80 14.16
Return After Taxes on Distributions 13.58 12.12 12.87
Return After Taxes on Distributions and Sale of Fund
Shares 11.19 11.30 12.08
-------------------------------------------------------------------------------------------------------------
Class B (%)
Return Before Taxes 16.87 14.03 13.98
Return After Taxes on Distributions 14.55 12.23 12.63
Return After Taxes on Distributions and Sale of Fund
Shares 12.10 11.46 11.88
-------------------------------------------------------------------------------------------------------------
Class C (%)
Return Before Taxes 20.90 14.27 13.80(1)
Return After Taxes on Distributions 18.66 12.54 12.49(1)
Return After Taxes on Distributions and Sale of Fund
Shares 14.67 11.72 11.73(1)
-------------------------------------------------------------------------------------------------------------
Russell 2000 Value Index (%) 22.25 17.23 15.17
|
(1) Class C is a newer class of shares. Its performance information includes returns of the Fund's Class B shares for periods prior to its inception. Class B shares would have substantially similar annual returns because Class B and Class C shares generally have similar expense structures. Class A shares were initially offered on July 25, 1986, Class B shares were initially offered on November 9, 1992, and Class C shares were initially offered on January 15, 1996.
THE FUND
SALES CHARGES are paid directly by shareholders to Columbia Management Distributors, Inc., the Fund's distributor.
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management fees, 12b-1 fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
- Reinvestment of all dividends and distributions
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
CLASS A CLASS B CLASS C
Maximum sales charge (load) on purchases (%)
(as a percentage of the offering price) 5.75 0.00 0.00
-------------------------------------------------------------------------------------------------------
Maximum deferred sales charge (load) on redemptions (%)
(as a percentage of the lesser of purchase price or
redemption price) 1.00(2) 5.00 1.00
-------------------------------------------------------------------------------------------------------
Redemption fee (%)
(as a percentage of amount redeemed, if applicable) (3) (3) (3)
|
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid to the transfer agent.
(2) This charge applies only to certain Class A shares bought without an initial sales charge that are sold within 12 months of purchase.
(3) There is a $7.50 charge for wiring sale proceeds to your bank.
THE FUND
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
CLASS A CLASS B CLASS C
Management fee (%) 0.79 0.79 0.79
-------------------------------------------------------------------------------------------------------
Distribution and service (12b-1) fees (%) 0.25 1.00 1.00
-------------------------------------------------------------------------------------------------------
Other expenses(1) (%) 0.27 0.27 0.27
-------------------------------------------------------------------------------------------------------
Total annual fund operating expenses (%) 1.31 2.06 2.06
|
(1) Other expenses have been restated to reflect contractual changes to the fees paid by the Fund for transfer agency and pricing and bookkeeping services effective November 1, 2005.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
CLASS 1 YEAR 3 YEARS 5 YEARS 10 YEARS
Class A $701 $966 $1,252 $2,063
------------------------------------------------------------------------------------------------------------------------
Class B: did not sell your shares $209 $646 $1,108 $2,197
sold all your shares at
the end of the period $709 $946 $1,308 $2,197
------------------------------------------------------------------------------------------------------------------------
Class C: did not sell your shares $209 $646 $1,108 $2,390
sold all your shares at
the end of the period $309 $646 $1,108 $2,390
|
See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-----------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to the transfer agent, Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
-----------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class (and, in some cases, certain
other classes) of the Fund at no additional cost. There may
be an additional sales charge if exchanging from a money
market fund. To exchange by telephone, call 1-800-422-3737.
-----------------------------------------------------------------------------------
By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-----------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
-----------------------------------------------------------------------------------
Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
-----------------------------------------------------------------------------------
Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate your
program or change the amount of the exchange (subject to the
$100 minimum) by calling 1-800-345-6611. There may be an
additional sales charge if exchanging from a money market
fund. Be sure to complete the appropriate section of the
account application for this feature.
-----------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares (and, in some
cases, certain other classes) of the Fund at no additional
sales charge. There may be an additional sales charge if
exchanging from a money market fund. To invest your
dividends in the Fund, call 1-800-345-6611.
|
YOUR ACCOUNT
the Fund and its shareholders. Please see the Statement of Additional Information for more details on investment minimums.
The Fund offers three classes of shares in this prospectus -- CLASS A, B and C. Each share class has its own sales charge and expense structure. Determining which share class is best for you depends on the dollar amount you are investing and the number of years for which you are willing to invest. Purchases of $50,000 but less than $1 million can be made only in Class A or Class C shares. Purchases of $1 million or more can be made only in Class A shares. Based on your personal situation, your financial advisor can help you decide which class of shares makes the most sense for you.
CLASS A SHARES Your purchases of Class A shares are made at the public offering price for these shares. This price includes a sales charge that is based on the amount of your initial investment when you open your account. The sales charge you pay on an additional investment is based on the total amount of your purchase and the current value of your account. Shares you purchase with reinvested dividends or other distributions are not subject to a sales charge. A portion of the sales charge is paid as a commission to your financial advisor on the sale of Class A shares. The amount of the sales charge differs depending on the amount you invest as shown in the table below.
CLASS A SALES CHARGES
% OF OFFERING
AS A % OF PRICE
THE PUBLIC AS A % RETAINED BY
OFFERING OF YOUR FINANCIAL
AMOUNT PURCHASED PRICE INVESTMENT ADVISOR
Less than $50,000 5.75 6.10 5.00
-------------------------------------------------------------------------------------------------------------------
$50,000 to less than $100,000 4.50 4.71 3.75
-------------------------------------------------------------------------------------------------------------------
$100,000 to less than $250,000 3.50 3.63 2.75
-------------------------------------------------------------------------------------------------------------------
$250,000 to less than $500,000 2.50 2.56 2.00
-------------------------------------------------------------------------------------------------------------------
$500,000 to less than $1,000,000 2.00 2.04 1.75
-------------------------------------------------------------------------------------------------------------------
$1,000,000 or more 0.00 0.00 0.00
|
Class A shares bought without an initial sales charge in accounts aggregating $1 million to $50 million at the time of purchase are subject to a 1.00% CDSC if the shares are sold within 12 months of the time of purchase.
YOUR ACCOUNT
Subsequent Class A share purchases that bring your account value above $1 million (but less than $50 million) are subject to a CDSC if redeemed within 12 months of the date of purchase. The 12-month period begins on the first day of the month in which the purchase was made. The CDSC does not apply to retirement plans purchasing through a fee-based program.
For Class A share purchases of $1 million or more, financial advisors receive a cumulative commission from the distributor as follows:
PURCHASES OVER $1 MILLION
AMOUNT PURCHASED COMMISSION % Less than $3 million 1.00 ---------------------------------------------------------------------------- $3 million to less than $50 million 0.50 ---------------------------------------------------------------------------- $50 million or more 0.25 |
For certain group retirement plans, financial advisors receive a 1.00% commission from the distributor on all purchases of less than $3 million.
UNDERSTANDING CONTINGENT DEFERRED SALES CHARGES
REDUCED SALES CHARGES FOR LARGER INVESTMENTS.
A. What are the principal ways to obtain a breakpoint discount?
There are two principal ways you may pay a lower sales charge (often referred to as "breakpoint discounts") when purchasing Class A shares of the Fund and other funds in the Columbia family of funds.
RIGHTS OF ACCUMULATION. The value of eligible accounts (regardless of class) maintained by you and each member of your immediate family may be combined with the value of your current purchase to reach a sales charge discount level (according to the chart on the previous page) and to obtain the lower sales charge for your current purchase. To calculate the combined value of the accounts, the Fund will use the shares' current public offering price.
STATEMENT OF INTENT. You also may pay a lower sales charge when purchasing Class A shares by signing a Statement of Intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the Statement of Intent within 13 months. As described in the chart on the previous page, the first breakpoint discount will be applied when total purchases reach $50,000. If your Statement of Intent purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to
YOUR ACCOUNT
that date. To calculate the total value of your Statement of Intent purchases, the Fund will use the historic cost (i.e. dollars invested) of the shares held in each eligible account. You must retain all records necessary to substantiate historic costs because the Fund and your financial intermediary may not maintain this information.
B. What accounts are eligible for breakpoint discounts?
The types of eligible accounts that may be aggregated to obtain one or both of the breakpoint discounts described above include:
- Individual accounts
- Joint accounts
- Certain IRA accounts
- Certain trusts
- UTMA/UGMA accounts
For the purposes of obtaining a breakpoint discount, members of your "immediate family" include your spouse, parent, step parent, legal guardian, child, step child, father in-law and mother in-law. Eligible accounts include those registered in the name of your dealer or other financial intermediary through which you own Columbia fund shares. The value of your investment in a Columbia money market fund held in an eligible account may be aggregated with your investments in other funds in the Columbia family of funds to obtain a breakpoint discount through a Right of Accumulation. Money market funds may also be included in the aggregation for a Statement of Intent for shares that have been charged a commission.
C. How do I obtain a breakpoint discount?
The steps necessary to obtain a breakpoint discount depend on how your account is maintained with the Columbia family of funds. To obtain any of the above breakpoint discounts, you must notify your financial advisor at the time you purchase shares of the existence of each eligible account maintained by you or your immediate family. It is the sole responsibility of your financial advisor to ensure that you receive discounts for which you are eligible and the Fund is not responsible for a financial advisor's failure to apply the eligible discount to your account. You may be asked by the Fund or your financial advisor for account statements or other records to verify your discount eligibility, including, where applicable, records for accounts opened with a different financial advisor and records of accounts established by members of your immediate family. If you own shares exclusively through an account maintained with the Fund's transfer agent, Columbia Management Services, Inc., you will need to provide the foregoing information to a Columbia Management Services, Inc. representative at the time you purchase shares.
D. How can I obtain more information about breakpoint discounts?
Certain investors, including affiliates of the Funds, broker/dealers and their affiliates, investors in wrap-fee programs, through fee-based advisers or certain retirement plans, certain shareholders of funds that were reorganized into the Funds as well as investors using the proceeds of redemptions of Fund shares or of certain Bank of America trust or similar accounts, may purchase shares at a reduced sales charge or net asset value, which is the value of a fund share excluding any sales charges. CDSCs may also be waived for redemptions under a systematic withdrawal program, in connection with the death or post-purchase disability of a shareholder, certain medical expenses, charitable gifts, involuntary and tax related redemptions, or when the
YOUR ACCOUNT
selling broker/dealer has agreed to waive or return its commission. Restrictions may apply to certain accounts and certain transactions. Further information regarding these discounts may be found in the Fund's Statement of Additional Information and at www.columbiafunds.com.
CLASS B SHARES Your purchases of Class B shares are at Class B's net asset value. Purchases of up to $50,000 are allowed in Class B shares assuming the combined value of the customer's total assets in the Columbia Funds does not exceed $50,000. Purchases in Class B shares that bring the combined value of a customer's total assets in excess of $50,000 will be rejected. A customer's total assets may include accounts for immediate family members. Group Plan accounts are valued at the plan level. Class B shares have no front-end sales charge, but they do carry a CDSC that is imposed only on shares sold prior to elimination of the CDSC as shown in the chart below. The CDSC generally declines each year and eventually disappears over time. The distributor pays your financial advisor an up-front commission on sales of Class B shares as described in the charts below.
PURCHASES OF LESS THAN $50,000:
CLASS B SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 5.00
-------------------------------------------------------------------------------
Through second year 4.00
-------------------------------------------------------------------------------
Through third year 3.00
-------------------------------------------------------------------------------
Through fourth year 3.00
-------------------------------------------------------------------------------
Through fifth year 2.00
-------------------------------------------------------------------------------
Through sixth year 1.00
-------------------------------------------------------------------------------
Longer than six years 0.00
|
Commission to financial advisors is 4.00%.
Automatic conversion to Class A shares occurs eight years after purchase.
CLASS C SHARES Your purchases of Class C shares are at Class C's net asset value. Although Class C shares have no front-end sales charge, they carry a CDSC of 1.00% that is applied to shares sold within the first year after they are purchased. After holding shares for one year, you may sell them at any time without paying a CDSC. The distributor pays your financial advisor an up-front commission of 1.00% on sales of Class C shares.
CLASS C SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
Through first year 1.00
-------------------------------------------------------------------------------
Longer than one year 0.00
|
YOUR ACCOUNT
purchased the shares you are exchanging. For purposes of computing the CDSC, the length of time you have owned your shares will be computed from the date of your original purchase and the applicable CDSC will be the CDSC of the original fund. Unless your account is part of a tax-deferred retirement plan, an exchange is a taxable event, and you may realize a gain or a loss for tax purposes. The Fund may terminate your exchange privilege if the advisor determines that your exchange activity is likely to adversely impact its ability to manage the Fund. See "Fund Policy on Trading of Fund Shares" for the Fund's policy. To exchange by telephone, call 1-800-422-3737. Please have your account and taxpayer identification numbers available when calling.
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, (ii) if applicable you have included any certificates for shares to be sold, and (iii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into the same share class (and in
some cases, certain other classes) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
-----------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
-----------------------------------------------------------------------------------
By mail You may send a signed letter of instruction or if
applicable, stock power form along with any share
certificates to be sold to the address below. In your letter
of instruction, note the Fund's name, share class, account
number, and the dollar value or number of shares you wish to
sell. All account owners must sign the letter. Signatures
must be guaranteed by either a bank, a member firm of a
national stock exchange or another eligible guarantor that
participates in the Medallion Signature Guarantee Program
for amounts over $100,000 or for alternate payee or mailing
instructions. Additional documentation is required for sales
by corporations, agents, fiduciaries, surviving joint owners
and individual retirement account owners. For details, call
1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
-----------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
-----------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. The $5,000 minimum
account balance requirement has been waived for wrap
accounts. This feature is not available if you hold your
shares in certificate form. All dividend and capital gains
distributions must be reinvested. Be sure to complete the
appropriate section of the account application for this
feature.
-----------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund in any 28-day period, except as noted below with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market Fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), the Fund may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
YOUR ACCOUNT
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain Funds impose a redemption fee on the proceeds of Fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
ADDITIONAL INTERMEDIARY COMPENSATION In addition to the commissions specified in this prospectus, the distributor, or its advisory affiliates, from their own resources, may make cash payments to financial service firms that agree to promote the sale of shares of funds that the distributor distributes. A number of factors may be considered in determining the amount of those payments, including the financial service firm's sales, client
YOUR ACCOUNT
assets invested in the funds and redemption rates, the quality of the financial service firm's relationship with the distributor and/or its affiliates, and the nature of the services provided by financial service firms to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the financial service firm's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
When you request a transaction, it will be processed at the net asset value (plus any applicable sales charges) next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for each share class by dividing each class's total net assets by the number of that class's outstanding shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur
YOUR ACCOUNT
between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
SHARE CERTIFICATES Share certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you will not be able to sell your shares until you have endorsed your certificates and returned them to the transfer agent.
DIVIDENDS, DISTRIBUTIONS, AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
-----------------------------------------------------------------------------------
Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
|
UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund distributes any dividends and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your current fund ---------------------------------------------------------------- Reinvest all distributions in shares of another fund ---------------------------------------------------------------- Receive dividends in cash (see options below) and reinvest capital gains ---------------------------------------------------------------- Receive all distributions in cash (with one of the following options): - send the check to your address of record - send the check to a third party address - transfer the money to your bank via electronic funds transfer |
YOUR ACCOUNT
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regard-less of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Advisors and/or Columbia Management by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Advisors and/or Columbia Management by the Fund, amounted to 0.79% of average daily net assets of the Fund.
JEREMY JAVIDI, a vice president of Columbia Management, is a co-manager of the Fund and has co-managed the Fund since August, 2005. Mr. Javidi has been associated with Columbia Management or its affiliates since January, 2000.
The Statement of Additional Information provides additional information about the manager's compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics
MANAGING THE FUND
oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the Fund or its shareholders can not currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Columbia Funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL"). The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, removal of the trustees of the funds, removal of Columbia Management and CMD, disgorgement of all management fees and monetary damages. The MDL is ongoing.
On January 11, 2005, a putative class action lawsuit was filed in federal district court in Massachusetts against, among others, the Trustees of the funds and CMG. The lawsuit alleges that defendants violated common law duties to fund shareholders as well as sections of the Investment Company Act of 1940, by failing to ensure that the funds and other affiliated funds participated in securities class action settlements for which the funds were eligible. Specifically, plaintiffs allege that defendants failed to submit proof of claims in connection with settlements of securities class action lawsuits filed against companies in which the funds held positions.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits seek damages and allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as IN RE COLUMBIA ENTITIES LITIGATION. The plaintiffs filed a consolidated amended complaint on June 9, 2005.
MANAGING THE FUND
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's financial performance. Information is shown for the Fund's last five fiscal years, which run from July 1 to June 30, unless otherwise indicated. Certain information reflects financial results for a single Fund share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
YEAR ENDED JUNE 30,
2005 2004 2003 2002 2001
Class A Class A Class A Class A Class A
------- ------- ------- ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 42.17 31.39 37.54 37.49 32.56
----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income (loss)(a) 0.11 0.08 0.02 (0.20) (0.06)
Net realized and unrealized gain (loss) on
investments and foreign currency 4.46 11.88 (1.54) 2.42 6.38
----------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 4.57 11.96 (1.52) 2.22 6.32
----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net realized gains (3.62) (1.18) (4.51) (2.17) (1.39)
Return of capital -- -- (0.12) -- --
----------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (3.62) (1.18) (4.63) (2.17) (1.39)
----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 43.12 42.17 31.39 37.54 37.49
----------------------------------------------------------------------------------------------------------------------------
Total return(b) (%) 10.99 38.58(c) (2.16)(c) 6.43 19.86
----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA (%):
Operating expenses(d) 1.32 1.42 1.54 1.57 1.58
Interest expense -- -- --(e) -- --
Net investment income (loss)(d) 0.28 0.22 0.07 (0.55) (0.18)
Waiver/reimbursement -- 0.01 0.12 -- --
Portfolio turnover rate (%) 31 46 118 77 29
Net assets, end of period (000's) ($) 396,568 292,365 181,377 142,551 137,042
|
(a) Per share data was calculated using average shares outstanding during the period.
(b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge.
(c) Had the Investment Advisor not waived or reimbursed a portion of expenses, total return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(e) Rounds to less than 0.01%.
FINANCIAL HIGHLIGHTS
THE FUND
YEAR ENDED JUNE 30,
2005 2004 2003 2002 2001
Class B Class B Class B Class B Class B
------- ------- ------- ------- -------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 37.60 28.18 34.50 34.88 30.64
-------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment loss(a) (0.18) (0.18) (0.19) (0.44) (0.31)
Net realized and unrealized gain (loss) on
investments and foreign currency 3.96 10.64 (1.50) 2.23 5.94
-------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 3.78 10.46 (1.69) 1.79 5.63
-------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS ($):
From net realized gains (3.38) (1.04) (4.51) (2.17) (1.39)
Return of capital -- -- (0.12) -- --
-------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (3.38) (1.04) (4.63) (2.17) (1.39)
-------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 38.00 37.60 28.18 34.50 34.88
-------------------------------------------------------------------------------------------------------------------------------
Total return(b)(%) 10.18 37.58(c) (2.93)(c) 5.65 18.83
-------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA
(%):
Operating expenses(d) 2.07 2.17 2.30 2.32 2.33
Interest expense -- -- --(e) -- --
Net investment loss(d) (0.47) (0.53) (0.71) (1.30) (0.93)
Waiver/reimbursement -- 0.01 0.09 -- --
Portfolio turnover rate (%) 31 46 118 77 29
Net assets, end of period (000's) ($) 182,648 213,159 118,270 231,602 240,252
|
(a) Per share data was calculated using average shares outstanding during the period.
(b) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(c) Had the Investment Advisor not waived or reimbursed a portion of expenses, total return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(e) Rounds to less than 0.01%.
FINANCIAL HIGHLIGHTS
THE FUND
YEAR ENDED JUNE 30,
2005 2004 2003 2002 2001
Class C Class C Class C Class C Class C
------ ------ ------ ------ ------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 39.05 29.24 35.59 35.91 31.50
-----------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS ($):
Net investment loss(a) (0.18) (0.19) (0.19) (0.45) (0.31)
Net realized and unrealized gain (loss) on
investments and foreign currency 4.11 11.04 (1.53) 2.30 6.11
-----------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 3.93 10.85 (1.72) 1.85 5.80
-----------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net realized gains (3.38) (1.04) (4.51) (2.17) (1.39)
Return of capital -- -- (0.12) -- --
-----------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (3.38) (1.04) (4.63) (2.17) (1.39)
-----------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 39.60 39.05 29.24 35.59 35.91
-----------------------------------------------------------------------------------------------------------------------------
Total return(b) (%) 10.19 37.56(c) (2.92)(c) 5.66 18.85
-----------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA (%):
Operating expenses(d) 2.07 2.17 2.30 2.32 2.33
Interest expense -- -- --(e) -- --
Net investment loss(d) (0.47) (0.53) (0.71) (1.30) (0.93)
Waiver/reimbursement -- 0.01 0.10 -- --
Portfolio turnover rate (%) 31 46 118 77 29
Net assets, end of period (000's) ($) 57,471 38,798 25,186 26,726 27,886
|
(a) Per share data was calculated using average shares outstanding during the period.
(b) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(c) Had the Investment Advisor not waived or reimbursed a portion of expenses, total return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(e) Rounds to less than 0.01%.
APPENDIX A
CLASS A SHARES(1)
ANNUAL INITIAL HYPOTHETICAL ASSUMED RATE
EXPENSE RATIO INVESTMENT AMOUNT OF RETURN
1.31% $10,000.00 5%
-------------------------------------------------------------------------
HYPOTHETICAL HYPOTHETICAL
CUMULATIVE YEAR-END CUMULATIVE YEAR-END
RETURN BALANCE RETURN BALANCE ANNUAL
BEFORE FEES BEFORE FEES AFTER FEES AFTER FEES FEES &
YEAR & EXPENSES & EXPENSES & EXPENSES & EXPENSES EXPENSES
1 5.00% $ 9,896.25 3.69% $ 9,772.78 $ 700.75
2 10.25% $10,391.06 7.52% $10,133.40 $ 130.39
3 15.76% $10,910.62 11.48% $10,507.32 $ 135.20
4 21.55% $11,456.15 15.60% $10,895.04 $ 140.19
5 27.63% $12,028.95 19.86% $11,297.07 $ 145.36
6 34.01% $12,630.40 24.29% $11,713.93 $ 150.72
7 40.71% $13,261.92 28.87% $12,146.17 $ 156.28
8 47.75% $13,925.02 33.63% $12,594.37 $ 162.05
9 55.13% $14,621.27 38.56% $13,059.10 $ 168.03
10 62.89% $15,352.33 43.67% $13,540.98 $ 174.23
Total Gain Before
Fees & Expenses $ 5,927.33
Total Gain After
Fees & Expenses $ 4,115.98
-------------------------------------------------------------------------
Total Annual Fees
& Expenses Paid $2,063.19
|
(1) For Class A shares, the year one Annual Fees & Expenses and Hypothetical Year-End Balance Before Fees & Expenses information shown include the dollar amount and effect of any applicable front-end sales charge of the Fund.
APPENDIX A
CLASS B SHARES
ANNUAL INITIAL HYPOTHETICAL ASSUMED RATE
EXPENSE RATIO INVESTMENT AMOUNT OF RETURN
2.06% $10,000.00 5%
-------------------------------------------------------------------------
HYPOTHETICAL HYPOTHETICAL
CUMULATIVE YEAR-END CUMULATIVE YEAR-END
RETURN BALANCE RETURN BALANCE ANNUAL
BEFORE FEES BEFORE FEES AFTER FEES AFTER FEES FEES &
YEAR & EXPENSES & EXPENSES & EXPENSES & EXPENSES EXPENSES
1 5.00% $10,500.00 2.94% $10,294.00 $ 209.03
2 10.25% $11,025.00 5.97% $10,596.64 $ 215.17
3 15.76% $11,576.25 9.08% $10,908.18 $ 221.50
4 21.55% $12,155.06 12.29% $11,228.89 $ 228.01
5 27.63% $12,762.82 15.59% $11,559.01 $ 234.72
6 34.01% $13,400.96 18.99% $11,898.85 $ 241.62
7 40.71% $14,071.00 22.49% $12,248.68 $ 248.72
8 47.75% $14,774.55 26.09% $12,608.79 $ 256.03
9 55.13% $15,513.28 30.74% $13,074.05 $ 168.22
10 62.89% $16,288.95 35.56% $13,556.48 $ 174.43
Total Gain Before
Fees & Expenses $ 6,288.95
Total Gain After
Fees & Expenses $ 3,556.48
-------------------------------------------------------------------------
Total Annual Fees
& Expenses Paid $2,197.45
|
CLASS C SHARES
ANNUAL INITIAL HYPOTHETICAL ASSUMED RATE
EXPENSE RATIO INVESTMENT AMOUNT OF RETURN
2.06% $10,000.00 5%
-------------------------------------------------------------------------
HYPOTHETICAL HYPOTHETICAL
CUMULATIVE YEAR-END CUMULATIVE YEAR-END
RETURN BALANCE RETURN BALANCE ANNUAL
BEFORE FEES BEFORE FEES AFTER FEES AFTER FEES FEES &
YEAR & EXPENSES & EXPENSES & EXPENSES & EXPENSES EXPENSES
1 5.00% $10,500.00 2.94% $10,294.00 $ 209.03
2 10.25% $11,025.00 5.97% $10,596.64 $ 215.17
3 15.76% $11,576.25 9.08% $10,908.18 $ 221.50
4 21.55% $12,155.06 12.29% $11,228.89 $ 228.01
5 27.63% $12,762.82 15.59% $11,559.01 $ 234.72
6 34.01% $13,400.96 18.99% $11,898.85 $ 241.62
7 40.71% $14,071.00 22.49% $12,248.68 $ 248.72
8 47.75% $14,774.55 26.09% $12,608.79 $ 256.03
9 55.13% $15,513.28 29.79% $12,979.49 $ 263.56
10 62.89% $16,288.95 33.61% $13,361.08 $ 271.31
Total Gain Before
Fees & Expenses $ 6,288.95
Total Gain After
Fees & Expenses $ 3,361.08
-------------------------------------------------------------------------
Total Annual Fees
& Expenses Paid $2,389.66
|
NOTES
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual or semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Funds Trust VI: 811-6529
- Columbia Small Cap Value Fund I (formerly named Columbia Small Cap Value Fund)
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2005 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 PRO-36/90851-1005
COLUMBIA FUNDS SERIES TRUST I
(THE "TRUST")
SUPPLEMENT TO THE PROSPECTUS DATED NOVEMBER 1, 2005 (THE "PROSPECTUS")
COLUMBIA SMALL CAP VALUE FUND I
CLASS Z SHARES
The Prospectus is hereby supplemented with the following information:
1. The name of the Trust on the back cover of the Prospectus in the section titled "For More Information" is revised to read "Columbia Funds Series Trust I."
2. The Investment Company Act file number on the back cover of the Prospectus is revised to read "811-4367."
3. The "Calendar Year Total Returns" and "Average Annual Total Returns" tables for the Fund in the section entitled "Performance History" are updated and restated in their entirety as follows:
CALENDAR YEAR TOTAL RETURNS
CLASS Z(1)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 ----- ----- ----- ---- ----- ---- ----- ----- ----- ---- 18.70% 24.22% -5.96% 4.42% 19.27% 7.08% -6.64% 38.79% 23.18% 5.54% |
For the periods shown above:
Best quarter: 2nd quarter 2003, +19.27% Worst quarter: 3rd quarter 1998, -26.04%
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Class Z (%)
Return Before Taxes 5.54 12.68 12.11(1)
Return After Taxes on Distributions 4.90 11.07 10.94(1)
Return After Taxes on Distributions and Sale of Fund Shares 4.49 10.37 10.27(1)
---- ----- -----
Russell 2000 Value Index (%) 4.71 13.55 13.08
---- ----- -----
|
(1) Class Z is a newer class of shares. Its performance information includes returns of the Fund's Class A shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class A shares and the newer class of shares. The Class A share returns have been adjusted to take into account the fact that Class Z shares are sold without sales charges. If differences in expenses had been reflected,
the returns shown for periods prior to the inception of the newer class of shares would have been higher, since Class Z shares are not subject to any Rule 12b-1 fees. Class A shares were initially offered on July 25, 1986 and Class Z shares were initially offered on July 31, 1995.
4. The section entitled "Financial Highlights" is updated and restated in its entirety as follows:
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the last five fiscal years, which run from July 1 to June 30, unless otherwise indicated. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). Information for the six-month period ended December 31, 2005 is unaudited. Other information has been derived from the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
(Unaudited)
Six Months
Ended Year Ended June 30,
December 31, -----------------------------------------------------
Class Z Shares 2005 2005 2004 2003 2002 2001
-------------- ------------ ------- ------- ------- ------ ------
Net Asset Value, Beginning of Period $ 44.54 $ 43.41 $ 32.24 $ 38.28 $38.09 $33.01
Income from Investment Operations:
Net investment income (loss) (a) 0.11 0.23 0.21 0.24 (0.12) 0.02
Net realized and unrealized gain (loss)
on investments and foreign currency 2.91 4.62 12.19 (1.65) 2.48 6.45
------- ------- ------- ------- ------ ------
Total from Investment Operations 3.02 4.85 12.40 (1.41) 2.36 6.47
Less Distributions Declared to
Shareholders:
From net investment income (0.01) -- -- -- -- --
From net realized gains (1.97) (3.72) (1.23) (4.51) (2.17) (1.39)
Return of capital -- -- -- (0.12) -- --
------- ------- ------- ------- ------ ------
Total Distributions Declared to
Shareholders (1.98) (3.72) (1.23) (4.63) (2.17) (1.39)
------- ------- ------- ------- ------ ------
Net Asset Value, End of Period $ 45.58 $ 44.54 $ 43.41 $ 32.24 $38.28 $38.09
Total return (b) 6.66%(c)(d)(e) 11.34% 38.94%(d) (1.79)%(d) 6.71% 20.05%
Ratios to Average Net
Assets/Supplemental Data:
Operating expenses (f) 1.01%(g) 1.07% 1.17% 1.25% 1.32% 1.33%
Interest expense -- -- -- --%(h) -- --
Net investment income (loss) (f) 0.48%(g) 0.53% 0.52% 0.82% (0.30)% 0.07%
Waiver/reimbursement 0.02%(g) -- 0.01% 0.38% -- --
Portfolio turnover rate 15%(c) 31% 46% 118% 77% 29%
Net assets, end of period (000's) $88,745 $83,508 $65,526 $12,558 $ 278 $ 21
------- ------- ------- ------- ------ ------
|
(a) Per share data was calculated using average shares outstanding during the period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Not annualized.
(d) Had the Investment Advisor and/or Transfer Agent not waived or reimbursed a portion of expenses, total return would have been reduced.
(e) Total return includes a voluntary reimbursement by the Investment Advisor for a realized investment loss due to a trading error. This reimbursement had an impact of less than 0.01% on the Fund's total return.
(f) The benefits derived from custody credits had an impact of less than 0.01%.
(g) Annualized.
(h) Rounds to less than 0.01%.
5. The section entitled "Legal Proceedings" is revised in its entirety as follows:
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce certain Columbia Funds (including the former Nations Funds) and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and agreed to by the staff of the SEC. The independent distribution consultant has been in consultation with the Staff, and has submitted a draft proposed plan of distribution, but has not yet submitted a final proposed plan of distribution.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against several other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities
laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds. As to Columbia, the Distributor and the Trustees of the Columbia Funds, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 (ICA) and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal on December 30, 2005 and this appeal is pending.
INT-47/107596-0306 March 27, 2006
COLUMBIA SMALL CAP VALUE FUND I Prospectus November 1, 2005
CLASS Z SHARES
Advised by Columbia Management Advisors, LLC
THE FUND 2 --------------------------------------------------------- Investment Goal...................................... 2 Principal Investment Strategies...................... 2 Principal Investment Risks........................... 2 Performance History.................................. 4 Your Expenses........................................ 6 YOUR ACCOUNT 8 --------------------------------------------------------- How to Buy Shares.................................... 8 Eligible Investors................................... 9 Sales Charges........................................ 11 How to Exchange Shares............................... 11 How to Sell Shares................................... 11 Fund Policy on Trading of Fund Shares................ 12 Intermediary Compensation............................ 13 Other Information About Your Account................. 14 MANAGING THE FUND 17 --------------------------------------------------------- Investment Advisor................................... 17 Portfolio Manager.................................... 17 Legal Proceedings.................................... 17 FINANCIAL HIGHLIGHTS 20 --------------------------------------------------------- Appendix A........................................... 21 |
Only eligible investors may purchase Class Z shares. See "Your Account --
Eligible Investors" for more information.
Although these securities have been registered with the Securities and Exchange
Commission, the Commission has not approved or disapproved any shares offered in
this prospectus or determined whether this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
-----------------------------
Not FDIC May Lose Value
Insured ------------------
No Bank Guarantee
-----------------------------
|
THE FUND
UNDERSTANDING VALUE INVESTING
At times, the Fund's investment advisor may determine that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities. During such times, the Fund may, but is not required to, invest in cash or high-quality, short-term debt securities, without limit. Taking a temporary defensive position may prevent the Fund from achieving its investment goal.
In seeking to achieve its investment goal, the Fund may invest in various types of securities and engage in various investment techniques which are not the principal focus of the Fund and, therefore, are not described in this prospectus. These types of securities and investment practices are identified and discussed in the Fund's Statement of Additional Information, which you may obtain free of charge (see back cover). Approval by the Fund's shareholders is not required to modify or change the Fund's investment goal or investment strategies.
Management risk means that the advisor's investment decisions might produce losses or cause the Fund to underperform when compared to other funds with a similar investment goal. Market risk means that security prices in a market, sector or industry may fall, reducing the value of your investment. Because of management and market risk, there is no guarantee that the Fund will achieve its investment goal or perform favorably among comparable funds.
The Fund may invest in real estate investment trusts ("REITs"). REITs are entities which either own properties or make construction or mortgage loans. REITs also may include operating or finance companies. Investing in REITs involves certain unique risks in addition to those risks associated with the real estate industry in general. The prices of REITs are affected by changes in the value of the underlying property owned by the REITs. In
THE FUND
addition, although the Fund does not invest directly in real estate, a REIT investment by the Fund is subject to certain of the risks associated with the ownership of real estate. These risks include possible declines in the value of real estate, risks related to general and local economic conditions, possible lack of availability of mortgage funds and changes in interest rates.
Since it purchases equity securities, the Fund is subject to equity risk. This is the risk that stock prices will fall over short or extended periods of time. Although the stock market has historically outperformed other asset classes over the long term, the stock market tends to move in cycles. Individual stock prices may fluctuate drastically from day to day and may underperform other asset classes over an extended period of time. Individual companies may report poor results or be negatively affected by industry and/or economic trends and developments. The prices of securities issued by such companies may suffer a decline in response. These price movements may result from factors affecting individual companies, industries or the securities market as a whole.
Value stocks are stocks of companies that may have experienced adverse business or industry developments or may be subject to special risks that have caused the stocks to be out of favor and, in the advisor's opinion, undervalued. If the advisor's assessment of a company's prospects is wrong, the price of its stock may fall, or may not approach the value the advisor has placed on it.
Sector risk is inherent in the Fund's investment strategy. Companies that are in different but closely related industries are sometimes described as being in the same broad economic sector. The values of stocks of different companies in a market sector may be similarly affected by particular economic or market events. Although the Fund does not intend to focus on any particular sector, at times the Fund may have a large portion of its assets invested in a particular sector.
Foreign securities are subject to special risks. Foreign markets can be extremely volatile. Fluctuations in currency exchange rates may impact the value of foreign securities without a change in the intrinsic value of those securities. The liquidity of foreign securities may be more limited than that of domestic securities, which means that the Fund may, at times, be unable to sell foreign securities at desirable prices. Brokerage commissions, custodial fees and other fees are generally higher for foreign investments. In addition, foreign governments may impose withholding taxes which would reduce the amount of income and capital gains available to distribute to shareholders. Other risks include possible delays in the settlement of transactions or in the notification of income; less publicly available information about companies; the impact of political, social or diplomatic events; possible seizure, expropriation or nationalization of the company or its assets; and possible imposition of currency exchange controls.
Smaller companies are more likely than larger companies to have limited product lines, operating histories, markets or financial resources. They may depend heavily on a small management team. Stocks of smaller companies may trade less frequently, may trade in smaller volumes and may fluctuate more sharply in price than stocks of larger companies. In addition, smaller companies may not be widely followed by the investment community, which can lower the demand for their stocks.
An investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
THE FUND
UNDERSTANDING PERFORMANCE
CALENDAR YEAR TOTAL RETURNS show the Fund's Class Z share performance for each of the last ten complete calendar years. They include the effects of Fund expenses.
AVERAGE ANNUAL TOTAL RETURNS are a measure of the Fund's Class Z average performance over the past one-year, five-year and ten-year periods. They include the effect of Fund expenses.(1)
(1) Class Z is a newer class of shares. Its performance information includes returns of the Fund's Class A shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class A shares and the newer class of shares. The Class A share returns have been adjusted to take into account the fact that Class Z shares are sold without sales charges. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been higher, since Class Z shares are not subject to any Rule 12b-1 fees. Class A shares were initially offered on July 25, 1986 and Class Z shares were initially offered on July 31, 1995.
THE FUND
CALENDAR YEAR TOTAL RETURNS (CLASS Z)(1)
(BAR CHART)
37.71% 18.70% 24.22% 4.42% 19.27% 7.08% 38.79% 23.18%
-5.96% -6.64%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
|
The Class's year-to-date total return through For the periods shown in bar chart:
September 30, 2005 was +4.47%. Best quarter: 2nd quarter 2003, +19.27%
Worst quarter: 3rd quarter 1998, -26.04%
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THE FUND
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on each investor's own tax situation and may differ from those shown. After-tax returns may not be relevant to investors who hold Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.
AVERAGE ANNUAL TOTAL RETURNS -- FOR PERIODS ENDED DECEMBER 31, 2004
1 YEAR 5 YEARS 10 YEARS
Class Z (%)
Return Before Taxes 23.18 15.47 15.13(1)
Return After Taxes on Distributions 20.85 13.78 13.84(1)
Return After Taxes on Distributions and Sale of Fund
Shares 16.04 12.79 12.98(1)
-----------------------------------------------------------------------------------------------------------
Russell 2000 Value Index (%) 22.25 17.23 15.17
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(1) Class Z is a newer class of shares. Its performance information includes returns of the Fund's Class A shares (the oldest existing fund class) for periods prior to its inception. These returns have not been restated to reflect any differences in expenses (such as Rule 12b-1 fees) between Class A shares and the newer class of shares. The Class A share returns have been adjusted to take into account the fact that Class Z shares are sold without sales charges. If differences in expenses had been reflected, the returns shown for periods prior to the inception of the newer class of shares would have been higher, since Class Z shares are not subject to any Rule 12b-1 fees. Class A shares were initially offered on July 25, 1986 and Class Z shares were initially offered on July 31, 1995.
Expenses are one of several factors to consider before you invest in a mutual fund. The tables below describe the fees and expenses you may pay when you buy, hold and sell shares of the Fund.
ANNUAL FUND OPERATING EXPENSES are paid by the Fund. They include management fees and other expenses that generally include, but are not limited to, administration, transfer agency, custody, and legal fees as well as costs related to state registration and printing of Fund documents. The specific fees and expenses that make up the Fund's other expenses will vary from time-to-time and may include fees or expenses not described here. The Fund may incur significant portfolio transaction costs that are in addition to the total annual fund operating expenses disclosed in the fee table. These transaction costs are made up of all costs that are associated with trading securities for the Fund's portfolio and include, but are not limited to, brokerage commissions and market spreads, as well as potential changes to the price of a security due to the Fund's efforts to purchase or sell it. While certain elements of transaction costs are readily identifiable and quantifiable, other elements that can make up a significant amount of the Fund's transaction costs are not.
EXAMPLE EXPENSES help you compare the cost of investing in the Fund to the cost of investing in other mutual funds. The table does not take into account any expense reduction arrangements discussed in the footnotes to the Annual Fund Operating Expenses table. It uses the following hypothetical conditions:
- $10,000 initial investment
- 5% total return for each year
- Fund operating expenses remain the same
THE FUND
SHAREHOLDER FEES(1) (PAID DIRECTLY FROM YOUR INVESTMENT)
Maximum sales charge (load) on purchases (%) (as a percentage of the offering price) 0.00 -------------------------------------------------------------------- Maximum deferred sales charge (load) on redemptions (%) (as a percentage of the lesser of purchase price or redemption price) 0.00 -------------------------------------------------------------------- Redemption fee (%) (as a percentage of amount redeemed, if applicable) (2) |
(1) A $10 annual fee may be deducted from accounts of less than $1,000 and paid
to the transfer agent.
(2) There is a $7.50 charge for wiring sale proceeds to your bank.
ANNUAL FUND OPERATING EXPENSES (DEDUCTED DIRECTLY FROM FUND ASSETS)
Management fee (%) 0.79 -------------------------------------------------------------------- Distribution and service (12b-1) fees (%) 0.00 -------------------------------------------------------------------- Other expenses(1) (%) 0.27 -------------------------------------------------------------------- Total annual fund operating expenses (%) 1.06 |
(1) Other expenses have been restated to reflect contractual changes to the fees paid by the Fund for transfer agency and pricing and bookkeeping services effective November 1, 2005.
EXAMPLE EXPENSES (YOUR ACTUAL COSTS MAY BE HIGHER OR LOWER)
1 YEAR 3 YEARS 5 YEARS 10 YEARS $108 $337 $585 $1,294 |
See Appendix A for additional hypothetical investment and expense information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR BUYING SHARES:
METHOD INSTRUCTIONS
Through your Your financial advisor can help you establish your account
financial advisor and buy Fund shares on your behalf. To receive the current
trading day's price, your financial advisor must receive
your request prior to the close of regular trading on the
New York Stock Exchange ("NYSE"), usually 4:00 p.m. Eastern
time. Your financial advisor may charge you fees for
executing the purchase for you.
-----------------------------------------------------------------------------------
By check For new accounts, send a completed application and check
(new account) made payable to the Fund to Columbia Management Services,
Inc., P.O. Box 8081, Boston, MA 02266-8081.
-----------------------------------------------------------------------------------
By check For existing accounts, fill out and return the additional
(existing account) investment stub included in your account statement, or send
a letter of instruction including your Fund name and account
number with a check made payable to the Fund to Columbia
Management Services, Inc., P.O. Box 8081, Boston, MA
02266-8081.
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By exchange You or your financial advisor may acquire shares of the Fund
for your account by exchanging shares you own in a different
fund distributed by Columbia Management Distributors, Inc.
for shares of the same class of the Fund at no additional
cost. To exchange by telephone, call 1-800-422-3737. Please
see "How to Exchange Shares" for more information.
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By wire You may purchase shares of the Fund by wiring money from
your bank account to your Fund account. To wire funds to
your Fund account, call 1-800-422-3737 for wiring
instructions.
-----------------------------------------------------------------------------------
By electronic You may purchase shares of the Fund by electronically
funds transfer transferring money from your bank account to your Fund
account by calling 1-800-422-3737. An electronic funds
transfer may take up to two business days to settle and be
considered in "good form." You must set up this feature
prior to your telephone request. Be sure to complete the
appropriate section of the application.
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Automatic You may make monthly or quarterly investments automatically
investment plan from your bank account to your Fund account. You may select
a pre-authorized amount to be sent via electronic funds
transfer. Be sure to complete the appropriate section of the
application for this feature.
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Automated dollar You may purchase shares of the Fund for your account by
cost averaging exchanging $100 or more each month from another fund for
shares of the same class of the Fund at no additional cost.
Exchanges will continue so long as your fund balance is
sufficient to complete the transfers. You may terminate your
program or change the amount of the exchange (subject to the
$100 minimum) by calling 1-800-345-6611. Be sure to complete
the appropriate section of the account application for this
feature.
-----------------------------------------------------------------------------------
By dividend You may automatically invest dividends distributed by
diversification another fund into the same class of shares of the Fund at no
additional sales charge. To invest your dividends in the
Fund, call 1-800-345-6611.
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YOUR ACCOUNT
IMPORTANT THINGS TO CONSIDER WHEN DECIDING ON A CLASS OF SHARES:
Broker-dealers, investment advisers or financial planners selling mutual fund shares may offer their clients more than one class of shares in a fund with different pricing options. This allows you and your financial advisor to choose among different types of sales charges and different levels of ongoing operating expenses, depending on the investment programs your financial advisor offers. Investors should consider carefully any separate transactions and other fees charged by these programs in connection with investing in any available share class before selecting a share class.
Eligibility for certain waivers, exemptions or share classes by new or existing investors may not be readily available or accessible through all intermediaries or all types of accounts offered by an intermediary. Accessibility of these waivers through a particular intermediary may also change at any time. If you believe you are eligible to purchase shares under a specific exemption, but are not permitted by your intermediary to do so, please contact your intermediary. You may be asked to provide information, including account statements and other records, regarding your eligibility.
Eligible Investors and their applicable investment minimums are as follows:
NO MINIMUM INITIAL INVESTMENT
- Any client of Bank of America Corporation or a subsidiary purchasing shares through an asset management company, trust, fiduciary, retirement plan administration or similar arrangement with Bank of America Corporation or the subsidiary;
- Any group retirement plan, including defined benefit and defined contribution plans such as: 401(k), 403(b), and 457(b) plans (but excluding individual retirement accounts ("IRAs")), for which an intermediary or other entity provides services and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent;
- Any investor purchasing through a Columbia Management Group state tuition plan organized under Section 529 of the Internal Revenue Code; or
- Any person investing all or part of the proceeds of a distribution, rollover or transfer of assets into a Columbia Management Individual Retirement Account, from any deferred compensation plan which was a shareholder of any of the funds of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000, in which the investor was a participant and through which the investor invested in one or more of the funds of Columbia Acorn Trust immediately prior to the distribution, transfer or rollover.
$1,000 MINIMUM INITIAL INVESTMENT
- Any shareholder (as well as any family member of a shareholder or person listed on an account registration for any account of the shareholder) of a fund distributed by Columbia Management Distributors, Inc. (i) who
YOUR ACCOUNT
holds Class Z shares; (ii) who held Primary A shares prior to August 22, 2005;
(iii) who holds Class A shares that were obtained by exchange of Class Z
shares; or (iv) who purchased certain no-load shares of a fund merged with a
fund distributed by Columbia Management Distributors, Inc.;
- Any trustee or director (or family member of a trustee or director) of any fund distributed by Columbia Management Distributors, Inc.;
- Any employee (or family member of an employee) of Bank of America Corporation or a subsidiary;
- Any investor participating in an account offered by an intermediary or other entity that provides services to such an account, is paid an asset-based fee by the investor and is not compensated by the Fund for those services, other than payments for shareholder servicing or sub-accounting performed in place of the Fund's transfer agent (each investor purchasing through an intermediary must independently satisfy the $1,000 minimum investment requirement);
- Any institutional investor which is a corporation, partnership, trust, foundation, endowment, institution, government entity, or similar organization; which meets the respective qualifications for an accredited investor, as defined under the Securities Act of 1933; or
- Certain financial institutions and intermediaries, such as insurance companies, trust companies, banks, endowments, investment companies or foundations purchasing shares for its own account, including Bank of America Corporation, its affiliates, or subsidiaries.
The Fund reserves the right to change the criteria for Eligible Investors and the investment minimums. No minimum investment applies to accounts participating in the automatic investment plan; however, each investment requires a $25 minimum purchase. The Fund also reserves the right to refuse a purchase order for any reason, including if it believes that doing so would be in the best interest of the Fund and its shareholders.
YOUR ACCOUNT
The Fund offers one class of shares in this prospectus --
CLASS Z.
When the Fund receives your sales request in "good form," shares will be sold at the next calculated price. "Good form" means that the Fund's transfer agent has all information and documentation it deems necessary to effect your order. For example, when selling shares by letter of instruction, "good form" means (i) your letter has complete instructions, the proper signatures and Medallion Signature Guarantees, and (ii) any other required documents are attached. For additional documents required for sales by corporations, agents, fiduciaries, surviving joint owners and other legal entities, please call 1-800-345-6611. Retirement plan accounts have special requirements; please call 1-800-799-7526 for more information.
The Fund will generally send proceeds from the sale to you within seven days (usually on the next business day after your request is received in "good form"). However, if you purchased your shares by check, the Fund may delay sending the proceeds from the sale of your shares for up to 15 days after your purchase to protect against checks that are returned. No interest will be paid on uncashed redemption checks. Redemption proceeds may be paid in securities, rather than in cash, under certain circumstances. For more information, see the paragraph "Non-Cash Redemptions" under the section "How to Sell Shares" in the Statement of Additional Information.
YOUR ACCOUNT
OUTLINED BELOW ARE THE VARIOUS OPTIONS FOR SELLING SHARES:
METHOD INSTRUCTIONS
Through your You may call your financial advisor to place your sell
financial advisor order. To receive the current trading day's price, your
financial advisor must receive your request prior to the
close of regular trading on the NYSE, usually 4:00 p.m.
Eastern time. Your financial advisor may charge you fees for
executing a redemption for you.
-----------------------------------------------------------------------------------
By exchange You or your financial advisor may sell shares of the Fund by
exchanging from the Fund into Class Z shares or Class A
shares (only if Class Z is not offered) of another fund
distributed by Columbia Management Distributors, Inc. at no
additional cost. To exchange by telephone, call
1-800-422-3737.
-----------------------------------------------------------------------------------
By telephone You or your financial advisor may sell shares of the Fund by
telephone and request that a check be sent to your address
of record by calling 1-800-422-3737, unless you have
notified the Fund of an address change within the previous
30 days. The dollar limit for telephone sales is $100,000 in
a 30-day period. You do not need to set up this feature in
advance of your call. Certain restrictions apply to
retirement accounts. For details, call 1-800-799-7526.
-----------------------------------------------------------------------------------
By mail You may send a signed letter of instruction to the address
below. In your letter of instruction, note the Fund's name,
share class, account number, and the dollar value or number
of shares you wish to sell. All account owners must sign the
letter. Signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another eligible
guarantor that participates in the Medallion Signature
Guarantee Program for amounts over $100,000 or for alternate
payee or mailing instructions. Additional documentation is
required for sales by corporations, agents, fiduciaries,
surviving joint owners and individual retirement account
owners. For details, call 1-800-345-6611.
Mail your letter of instruction to Columbia Management
Services, Inc., P.O. Box 8081, Boston, MA 02266-8081.
-----------------------------------------------------------------------------------
By wire You may sell shares of the Fund and request that the
proceeds be wired to your bank. You must set up this feature
prior to your request. Be sure to complete the appropriate
section of the account application for this feature.
-----------------------------------------------------------------------------------
By systematic You may automatically sell a specified dollar amount or
withdrawal plan percentage of your account on a monthly, quarterly or
semi-annual basis and have the proceeds sent to you if your
account balance is at least $5,000. All dividend and capital
gains distributions must be reinvested. Be sure to complete
the appropriate section of the account application for this
feature.
-----------------------------------------------------------------------------------
By electronic You may sell shares of the Fund and request that the
funds transfer proceeds be electronically transferred to your bank.
Proceeds may take up to two business days to be received by
your bank. You must set up this feature prior to your
request. Be sure to complete the appropriate section of the
account application for this feature.
|
The Fund, directly and through its agents, takes various steps designed to deter and curtail market timing. For example, if the Fund detects that any shareholder has conducted two "round trips" (as defined below) in the Fund that are deemed material by the Fund in any 28-day period, except as noted before with respect to orders received through omnibus accounts, the Fund will reject the shareholder's future purchase orders, including exchange purchase orders, involving any Columbia Fund (other than a Money Market Fund). In addition, if the Fund determines that any person, group or account has engaged in any type of market timing activity (independent of the two-round-trip limit), Columbia Funds may, in its discretion, reject future purchase orders by the person, group or account, including exchange purchase orders, involving the same or any other Columbia Fund, and also retains the right to modify these market timing policies at any time without prior notice.
YOUR ACCOUNT
The rights of shareholders to redeem shares of the Fund are not affected by any of the limits mentioned above. However, certain Funds impose a redemption fee on the proceeds of Fund shares that are redeemed or exchanged within 60 days of their purchase.
For these purposes, a "round trip" is a purchase by any means into a Columbia Fund followed by a redemption, of any amount, by any means out of the same Columbia Fund. Under this definition, an exchange into the Fund followed by an exchange out of the Fund is treated as a single round trip. Also for these purposes, where known, accounts under common ownership or control generally will be counted together. Accounts maintained or managed by a common intermediary, such as an adviser, selling agent or trust department, generally will not be considered to be under common ownership or control.
Purchases, redemptions and exchanges made through the Columbia Funds' Automatic Investment Plan, Systematic Withdrawal Plan or similar automated plans are not subject to the two-round-trip limit. The two-round-trip limit may be modified for, or may not be applied to, accounts held by certain retirement plans to conform to plan limits, considerations relating to the Employee Retirement Income Security Act of 1974 or regulations of the Department of Labor, and for certain asset allocation or wrap programs.
The practices and policies described above are intended to deter and curtail market timing in the Fund. However, there can be no assurance that these policies, individually or collectively, will be totally effective in this regard because of various factors. In particular, a substantial portion of purchase, redemption and exchange orders are received through omnibus accounts. Omnibus accounts, in which shares are held in the name of an intermediary on behalf of multiple beneficial owners, are a common form of holding shares among financial intermediaries and retirement plans. The Fund typically is not able to identify trading by a particular beneficial owner through an omnibus account, which may make it difficult or impossible to determine if a particular account is engaged in market timing. Certain financial intermediaries have different policies regarding monitoring and restricting market timing in the underlying beneficial owner accounts that they maintain through an omnibus account that may be more or less restrictive than the Fund practices discussed above.
The Fund seeks to act in a manner that it believes is consistent with the best interests of Fund shareholders in making any judgments regarding market timing. Neither the Fund nor its agents shall be held liable for any loss resulting from rejected purchase orders or exchanges.
Subject to applicable rules, the distributor may also pay non-cash compensation to financial service firms and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for financial service firm educational or training events.
YOUR ACCOUNT
In addition, the distributor, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of the Fund. For further information about payments made by the distributor and its affiliates to financial service firms and intermediaries, please see the Statement of Additional Information. PLEASE ALSO CONTACT YOUR FINANCIAL SERVICE FIRM OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
When you request a transaction, it will be processed at the net asset value next determined after your request is received in "good form" by the distributor. In most cases, in order to receive that day's price, the distributor must receive your order before that day's transactions are processed. If you request a transaction through your financial advisor, your financial advisor must receive your order by the close of trading on the NYSE to receive that day's price.
The Fund determines its net asset value for its Class Z shares by dividing total net assets attributable to Class Z shares by the number of outstanding Class Z shares. In determining the net asset value, the Fund must determine the price of each security in its portfolio at the close of each trading day. Because the Fund holds securities that are traded on foreign exchanges, the value of the Fund's securities may change on days when shareholders will not be able to buy or sell Fund shares. This will affect the Fund's net asset value on the day it is next determined. Securities for which market quotations are available are valued each day at the current market value. However, where market quotations are unavailable, or when the advisor believes that subsequent events have made them unreliable, the Fund may use other data to determine the fair value of the securities.
The Fund has retained an independent fair value pricing service to assist in the fair valuation process for securities principally traded in a foreign market in order to adjust for possible changes in value that may occur between the close of the foreign exchange and the time at which Fund shares are priced. If a security is valued at a "fair value," that value may be different from the last quoted market price for the security.
You can find the daily prices of some share classes for the Fund in most major daily newspapers under the heading of "Columbia." You can find daily prices for all share classes by visiting www.columbiafunds.com.
ACCOUNT FEES If your account value falls below $1,000 (other than as a result of depreciation in share value), your account may be subject to an annual fee of $10. The Fund's transfer agent will send you written notification of any such action and provide details on how you can add money to your account to avoid this penalty.
YOUR ACCOUNT
SHARE CERTIFICATES Share certificates are not available for Class Z shares.
DIVIDENDS, DISTRIBUTIONS, AND TAXES The Fund has the potential to make the following distributions:
TYPES OF DISTRIBUTIONS
Dividends Represents interest and dividends earned from securities
held by the Fund, net of expenses incurred by the Fund.
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Capital gains Represents net long-term capital gains on sales of
securities held for more than 12 months and net short-term
capital gains, which are gains on sales of securities held
for a 12-month period or less.
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UNDERSTANDING FUND DISTRIBUTIONS
DISTRIBUTION OPTIONS The Fund distributes any dividends and any capital gains (including short-term capital gains) at least annually. You can choose one of the options listed in the table below for these distributions when you open your account. To change your distribution option, call 1-800-345-6611.
If you do not indicate on your application or at the time your account is established your preference for handling distributions, the Fund will automatically reinvest all distributions in additional shares of the Fund.
DISTRIBUTION OPTIONS
Reinvest all distributions in additional shares of your
current fund
----------------------------------------------------------------
Reinvest all distributions in shares of another fund
----------------------------------------------------------------
Receive dividends in cash (see options below) and reinvest
capital gains
----------------------------------------------------------------
Receive all distributions in cash (with one of the following
options):
- send the check to your address of record
- send the check to a third party address
- transfer the money to your bank via electronic funds
transfer
|
Distributions of $10 or less will automatically be reinvested in additional Fund shares. If you elect to receive distributions by check and the check is returned as undeliverable, the distribution, and all subsequent distributions, will be reinvested in additional shares of the Fund.
TAX CONSEQUENCES Unless you are an entity exempt from income taxes or invest under a retirement account, regardless of whether you receive your distributions in cash or reinvest them in additional Fund shares, all Fund distributions are subject to federal income tax. Depending on where you live, distributions also may be subject to state and local income taxes.
In general, any distributions of dividends, interest and short-term capital gains are taxable as ordinary income, unless such dividends are "qualified dividend income" (as defined in the Internal Revenue Code) eligible for a reduced rate of tax. Distributions of long-term capital gains are generally taxable as such, regardless of how long you have held your Fund shares. You will be provided with information each year regarding the amount of ordinary income and capital gains distributed to you for the previous year and any portion of your distribution
YOUR ACCOUNT
which is exempt from state and local taxes. Your investment in the Fund may have additional personal tax implications. Please consult your tax advisor about foreign, federal, state, local or other applicable tax laws.
In addition to the dividends and capital gains distributions made by the Fund, you may realize a capital gain or loss when selling or exchanging shares of the Fund. Such transactions also may be subject to federal, state and local income tax.
MANAGING THE FUND
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
For the 2005 fiscal year, aggregate advisory fees paid to Columbia Advisors and/or Columbia Management by the Fund, not including pricing and bookkeeping and other fees paid to Columbia Advisors and/or Columbia Management by the Fund, amounted to 0.79% of average daily net assets of the Fund.
JEREMY JAVIDI, a vice president of Columbia Management, is a co-manager of the Fund and has co-managed the Fund since August, 2005. Mr. Javidi has been associated with Columbia Management or its affiliates since January, 2000.
The Statement of Additional Information provides additional information about the manager's compensation, other accounts managed and ownership of securities in the Fund.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud
MANAGING THE FUND
provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia Management and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC Order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the funds' independent trustees and not unacceptable to the staff of the SEC. At this time, the distribution plan is still under development. As such, any gain to the Fund or its shareholders can not currently be determined.
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of Fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the Columbia Funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL"). The fund derivative plaintiffs allege that the funds were harmed by market timing and late trading activity and seek, among other things, removal of the trustees of the funds, removal of Columbia Management and CMD, disgorgement of all management fees and monetary damages. The MDL is ongoing.
On January 11, 2005, a putative class action lawsuit was filed in federal district court in Massachusetts against, among others, the Trustees of the funds and Columbia. The lawsuit alleges that defendants violated common law duties to fund shareholders as well as sections of the Investment Company Act of 1940, by failing to ensure that the funds and other affiliated funds participated in securities class action settlements for which the funds were eligible. Specifically, plaintiffs allege that defendants failed to submit proof of claims in connection with settlements of securities class action lawsuits filed against companies in which the funds held positions.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits seek damages and allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On
MANAGING THE FUND
March 2, 2005, the actions were consolidated in the Massachusetts federal court as IN RE COLUMBIA ENTITIES LITIGATION. The plaintiffs filed a consolidated amended complaint on June 9, 2005.
On March 21, 2005, purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia Funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has conditionally ordered its transfer to the MDL.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Fund's Class Z financial performance. Information is shown for the last five fiscal years, which run from July 1 to June 30, unless otherwise indicated. Certain information reflects financial results for a single Class Z share. The total returns in the table represent the rate that you would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). This information has been derived from the Fund's financial statements which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, whose report, along with the Fund's financial statements, is included in the Fund's annual report. You can request a free annual report containing those financial statements by calling 1-800-426-3750.
THE FUND
YEAR ENDED JUNE 30,
2005 2004 2003 2002 2001
Class Z Class Z Class Z Class Z Class Z
------ ------ ------ ----- ------
NET ASSET VALUE --
BEGINNING OF PERIOD ($) 43.41 32.24 38.28 38.09 33.01
---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS ($):
Net investment income (loss)(a) 0.23 0.21 0.24 (0.12) 0.02
Net realized and unrealized gain (loss) on investments
and foreign currency 4.62 12.19 (1.65) 2.48 6.45
---------------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 4.85 12.40 (1.41) 2.36 6.47
---------------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS ($):
From net realized gains (3.72) (1.23) (4.51) (2.17) (1.39)
Return of capital -- -- (0.12) -- --
---------------------------------------------------------------------------------------------------------------------------------
Total Distributions Declared to Shareholders (3.72) (1.23) (4.63) (2.17) (1.39)
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE --
END OF PERIOD ($) 44.54 43.41 32.24 38.28 38.09
---------------------------------------------------------------------------------------------------------------------------------
Total return (%)(b) 11.34 38.94(c) 1.79(c) 6.71 20.05
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RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA (%):
Operating expenses(d) 1.07 1.17 1.25 1.32 1.33
Interest expense -- -- --(e) -- --
Net investment income (loss)(d) 0.53 0.52 0.82 (0.30) 0.07
Waiver/reimbursement -- 0.01 0.38 -- --
Portfolio turnover rate (%) 31 46 118 77 29
Net assets, end of period (000's) ($) 83,508 65,526 12,558 278 21
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(a) Per share data was calculated using average shares outstanding during the period.
(b) Total return at net asset value assuming all distributions reinvested.
(c) Had the Investment Advisor not waived or reimbursed a portion of expenses, total return would have been reduced.
(d) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%.
(e) Rounds to less than 0.01%.
APPENDIX A
CLASS Z SHARES
ANNUAL INITIAL HYPOTHETICAL ASSUMED RATE
EXPENSE RATIO INVESTMENT AMOUNT OF RETURN
1.06% $10,000.00 5%
-------------------------------------------------------------------------
HYPOTHETICAL HYPOTHETICAL
CUMULATIVE YEAR-END CUMULATIVE YEAR-END
RETURN BALANCE RETURN BALANCE ANNUAL
BEFORE FEES BEFORE FEES AFTER FEES AFTER FEES FEES &
YEAR & EXPENSES & EXPENSES & EXPENSES & EXPENSES EXPENSES
1 5.00% $10,500.00 3.94% $10,394.00 $ 108.09
2 10.25% $11,025.00 8.04% $10,803.52 $ 112.35
3 15.76% $11,576.25 12.29% $11,229.18 $ 116.77
4 21.55% $12,155.06 16.72% $11,671.61 $ 121.37
5 27.63% $12,762.82 21.31% $12,131.47 $ 126.16
6 34.01% $13,400.96 26.09% $12,609.45 $ 131.13
7 40.71% $14,071.00 31.06% $13,106.27 $ 136.29
8 47.75% $14,774.55 36.23% $13,622.65 $ 141.66
9 55.13% $15,513.28 41.59% $14,159.39 $ 147.24
10 62.89% $16,288.95 47.17% $14,717.27 $ 153.05
TOTAL GAIN BEFORE FEES &
EXPENSES $ 6,288.95
TOTAL GAIN AFTER FEES & EXPENSES $ 4,717.27
TOTAL ANNUAL FEES & EXPENSES PAID $1,294.11
-------------------------------------------------------------------------
|
NOTES
NOTES
You may wish to read the Statement of Additional Information for more information on the Fund and the securities in which it invests. The Statement of Additional Information is incorporated into this prospectus by reference, which means that it is considered to be part of this prospectus.
The Statement of Additional Information and the Fund's website (www.columbiafunds.com) include a description of the Fund's policies with respect to the disclosure of its portfolio holdings.
You can get free copies of annual or semi-annual reports and the Statement of Additional Information, request other information and discuss your questions about the Fund by writing or calling the Fund's distributor or visiting the Fund's website at:
Columbia Management Distributors, Inc.
One Financial Center
Boston, MA 02111-2621
1-800-426-3750
www.columbiafunds.com
Text-only versions of all Fund documents can be viewed online or downloaded from the EDGAR database on the Securities and Exchange Commission Internet site at www.sec.gov.
You can review and copy information about the Fund, including the Statement of Additional Information, by visiting the following location, and you can obtain copies, upon payment of a duplicating fee, by electronic request at the E-mail address publicinfo@sec.gov or by writing the:
Public Reference Room
Securities and Exchange Commission
Washington, DC 20549-0102
Information on the operation of the Public Reference Room may be obtained by calling 1-202-942-8090.
INVESTMENT COMPANY ACT FILE NUMBER:
Columbia Funds Trust VI: 811-6529
- Columbia Small Cap Value Fund I (formerly named Columbia Small Cap Value Fund)
(ColumbiaFunds Logo)
A Member of Columbia Management Group
(C)2005 Columbia Management Distributors, Inc. One Financial Center, Boston, MA 02111-2621 PRO-36/91059-1005
COLUMBIA MID CAP GROWTH FUND, INC.
COLUMBIA SMALL CAP GROWTH FUND I
COLUMBIA REAL ESTATE EQUITY FUND, INC.
COLUMBIA TECHNOLOGY FUND, INC.
COLUMBIA STRATEGIC INVESTOR FUND, INC.
COLUMBIA BALANCED FUND, INC.
COLUMBIA OREGON INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA CONSERVATIVE HIGH YIELD FUND
SERIES OF COLUMBIA FUNDS SERIES TRUST I
SUPPLEMENT TO EACH FUND'S CURRENT STATEMENT OF ADDITIONAL INFORMATION
(REPLACING SUPPLEMENTS DATED FEBRUARY 3, 2006 AND FEBRUARY 17, 2006)
CLASS ABCD, T&G AND Z SHARES
This supplement applies to the "Funds" listed above.
1. The name of the trust is revised to read "Columbia Funds Series Trust I."
2. The following sentence is added to the beginning of the first paragraph under the section "Description of the Funds":
The Trust is a Massachusetts business trust organized in 1987. Each Fund was originally organized as an Oregon corporation prior to its reorganization as a series of the Trust on March 27, 2006.
3. The second paragraph under the section entitled "Description of the Funds" is revised in its entirety to read:
Effective October 13, 2003, the Trust changed its name from
"Liberty-Stein Roe Funds Municipal Trust" to "Columbia Funds Trust
IX." Effective September 19, 2005, the name of the trust was changed
from "Columbia Funds Trust IX" to "Columbia Funds Series Trust I."
4. All references to "Director," "Directors," "Director's" and "Directors'" are hereby replaced with the terms "Trustee," "Trustees," "Trustee's," and "Trustees'," respectively.
5. Under the section "INVESTMENTS HELD AND INVESTMENT PRACTICES USED BY THE FUNDS - CHART OF SECURITIES AND INVESTMENT PRACTICES" the chart is revised in its entirety as follows:
Chart of Securities and Investment Practices
CMCG CSCG CREF CTF CSIF
---- ---- ---- ---- ----
Investment Grade Securities (Baa or
higher by Moody's, BBB or higher by
S&P or believed by the Advisor to be
equivalent), other than U.S. Government
obligations and municipal securities * * * * *
Non-Investment Grade Securities NA NA NA NA NA
Domestic Bank Obligations * * * * *
U.S. Government Securities * * * * *
Mortgage-Backed Securities NA NA NA NA NA
CMOs NA NA NA NA NA
Asset-Backed Securities NA NA NA NA NA
Floating or Variable Rate NA NA NA NA NA
Loan Transactions X O O O O
Options & Financial Futures O O O O O
Foreign Equities(1)
Developed Markets 20%, O 20%, + 20%, O 33%, O 33%, +
Emerging Markets(2) X X X X +
ADRs, GDRs and NASDAQ-listed
foreign securities(1) 20%, O 20%, X O 33%, O 33%, +
Currency Contracts
Hedging O O O O O
Speculation X X X X X
Spot Basis O O O O O
Repurchase Agreements * * * * *
Illiquid (exclude 144A securities from
definition of illiquid with board
supervision) 15%, O 15%, O 15%, O 15%, O 15%, O
Convertible Securities/Warrants + + + + +
Small Companies + + + + +
Dollar Roll Transactions NA NA NA NA NA
Swap Agreements NA NA NA NA NA
When-Issued Securities O O O O O
Foreign Fixed Income Securities NA NA NA NA NA
(including Foreign Bank Obligations)
Zero Coupon/Pay in Kind NA NA NA NA NA
Real Estate (excluding REITs) X X X X X
REITs + O + O +
Borrowing 5%, * 5%, * 5%, * 33.3%, * 33.3%, *
|
+ Permitted - Part of principal investment strategy
X Not permitted either as a non-fundamental or fundamental policy
O Permitted - Not a principal investment strategy
* Temporary Investment or cash management purposes
% Percentage of net assets (unless "total assets" specified) that Fund may invest
NA Not part of investment strategy
(1) Any limitation on foreign investments includes investments in both foreign securities purchased in foreign markets and ADRs, GDRs and NASDAQ-listed foreign securities.
(2) ADRs, GDRs and NASDAQ-listed securities are not subject to this limitation, even if the issuer is headquartered in, has its principal operations in, derives its revenues from, has its principal trading market located in or was legally organized in an emerging market country.
(3) Percentage is based on total assets.
CMBF CHYF CBF
---- ---- ----
Investment Grade Securities (Baa or O O +
higher by Moody's, BBB or higher by
S&P or believed by the Advisor to be
equivalent), other than U.S.
Government obligations and municipal
securities
Non-Investment Grade Securities NA + 10%, O
Domestic Bank Obligations * * *
Commercial Paper * * *
U.S. Government Securities * * +
Mortgage-Backed Securities NA O +
CMOs NA O +
Asset-Backed Securities NA O +
Floating or Variable Rate O O +
Loan Transactions O O X
Options & Financial Futures + O +
Foreign Equities(1)
Developed Markets NA NA 33.3%, O
Emerging Markets(2) NA NA X
ADRs, GDRs and NASDAQ-listed
foreign securities(1) NA NA 33.3%, O
Currency Contracts
Hedging NA NA O
Speculation NA NA X
Spot Basis NA NA O
Repurchase Agreements * * *
Illiquid (excludes 144A securities from 15%, O 15%, O 15%, O
definition of illiquid with board supervision)
Convertible Securities/Warrants NA O O
Small Companies NA + O
Dollar Roll Transactions NA O +
Swap Agreements O O O
When-Issued Securities O O O
Foreign Fixed Income Securities NA 10%, O 20%, O
(including Foreign Bank Obligations)
Zero Coupon/Pay in Kind + O O
Real Estate (excluding REITs) X X X
REITs NA O O
Borrowing 33.3%, * 5%, * 5%, *
Municipal Bonds + NA O
|
+ Permitted - Part of principal investment strategy
X Not permitted either as a non-fundamental or fundamental policy
O Permitted - Not a principal investment strategy
* Temporary Investment or cash management purposes
% Percentage of net assets (unless "total assets" specified) that Fund may invest
NA Not part of investment strategy
(1) Any limitation on foreign investments includes investments in both foreign securities purchased in the foreign markets, together with the purchase of ADRs, GDRs and NASDAQ-listed foreign securities.
(2) ADRs, GDRs, and NASDAQ-listed foreign securities are not subject to this limitation, even if the issuer is headquartered in, has its principal operations in, derives its revenues from, has its principal trading market located in or was legally organized in an emerging market country.
(3) Percentage is based on total assets.
6. Under the section "INVESTMENT RESTRICTIONS" the non-fundamental investment restrictions section for the following Funds are revised in their entirety as follows:
Columbia Mid Cap Growth Fund, Inc.
The following is a list of non-fundamental investment restrictions applicable to the Fund. These restrictions can be changed by the Board, but the change will only be effective after notice is given (60 days notice in the case of non-fundamental restriction #2) to shareholders of the Fund.
The Fund may not:
1. Purchase or otherwise acquire any security if, as a result, more than 15% of its net assets would be invested in securities that are illiquid.
2. Invest less than 80% of its assets in the stocks of mid-cap companies (those stocks with a market capitalization, at the time of initial purchase, equal to or less than the largest stock in the Russell Mid Cap Index), except when the Fund is taking a temporary defensive position due to a determination by the Fund's Advisor that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities.
3. Invest more than 20% of its total assets in foreign securities.
Columbia Small Cap Growth Fund I
The following is a list of non-fundamental investment restrictions applicable to the Fund. These restrictions can be changed by the Board, but the change will only be effective after notice is given (60 days notice in the case of non-fundamental restriction #2) to shareholders of the Fund.
The Fund may not:
1. Purchase or otherwise acquire any security if, as a result, more than 15% of its net assets would be invested in securities that are illiquid.
2. Invest less than 80% of its assets in the stocks of small-cap companies (those stocks with a market capitalization, at the time of initial purchase, equal to or less than the largest stock in the S&P SmallCap 600 Index), except when the Fund is taking a temporary defensive position due to a determination by the Fund's investment Advisor that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities.
3. Invest more than 20% of its total assets in foreign securities.
7. The third sentence of the first paragraph under the section entitled "Management" is revised to read:
Information regarding the trustees and officers of the Funds together with their principal business occupations during the last five years (their titles may have varied during that period) is shown below. Unless otherwise noted, the address for each Trustee and officer is c/o Columbia Funds, Mail Stop MA5-515-11-05, One Financial Center, Boston, MA 02111.
8. The text following the third paragraph under the section entitled "Management" to the beginning of the subsection "Directors and Officers" is revised in its entirety to read:
The "Columbia Fund Complex" includes all of the registered investment companies to which the Advisor and its affiliates provide investment advisory services.
9. The chart under the heading "Directors and Officers" in the section entitled "Management" is revised in its entirety to read:
Trustees and Officers
Number of
Portfolios in
Year First Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------------- ------------ ----------------------- ------------- ---------------------------
DISINTERESTED TRUSTEE
Thomas C. Theobald Trustee and 1996 Partner and Senior 83 Anixter International
(Born 1937) Chairman of the Advisor, Chicago Growth (network support equipment
Board Partners (private distributor); Ventas, Inc.
equity investing) since (real estate investment
September, 2004; trust); Jones Lang LaSalle
Managing Director, (real estate management
William Blair Capital services) and Ambac
Partners (private Financial Group (financial
equity investing) from guaranty insurance)
September, 1994 to
September, 2004.
Douglas A. Hacker Trustee 1996 Executive Vice 83 Nash Finch Company
(Born 1955) President -- Strategy (food distributor)
of United Airlines
(airline) since
December, 2002;
President of UAL
Loyalty Services
(airline) from
September, 2001 to
December, 2002;
Executive Vice
President and Chief
Financial Officer of
United Airlines from
July, 1999 to
September, 2001.
Janet Langford Kelly Trustee 1996 Partner, Zelle, 83 UAL Corporation
(Born 1957) Hofmann, Voelbel, Mason (airline)
& Gette LLP (law firm)
since March, 2005;
Adjunct Professor of
Law, Northwestern
University, since
September, 2004; Chief
Administrative Officer
and Senior Vice
President, Kmart
Holding Corporation
(consumer goods), from
September, 2003 to
March, 2004; Executive
Vice
President-Corporate
Development and
Administration, General
Counsel and Secretary,
Kellogg Company (food
manufacturer), from
September, 1999 to
August, 2003.
|
Number of
Portfolios in
Year First Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------------- ------------ ----------------------- ------------- ---------------------------
DISINTERESTED TRUSTEES
Richard W. Lowry Trustee 1995 Private Investor since 85 None
(Born 1936) August, 1987 (formerly
Chairman and Chief
Executive Officer, U.S.
Plywood Corporation
(building products
manufacturer) until
1987.)
Charles R. Nelson Trustee 1981 Professor of Economics, 83 None
(Born 1943) University of
Washington since
January, 1976; Ford and
Louisa Van Voorhis
Professor of Political
Economy, University of
Washington, since
September, 1993;
Director, Institute for
Economic Research,
University of
Washington from
September, 2001 to
June, 2003; Adjunct
Professor of
Statistics, University
of Washington since
September, 1980;
Associate Editor,
Journal of Money Credit
and Banking since
September, 1993;
consultant on
econometric and
statistical matters.
John J. Neuhauser Trustee 1985 University Professor, 85 None
(Born 1942) Boston College since
November, 2005;
Academic Vice President
and Dean of Faculties,
Boston College from
August, 1999 to
October, 2005.
|
Number of
Portfolios in
Year First Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------------- ------------ ----------------------- ------------- ---------------------------
DISINTERESTED TRUSTEES
Patrick J. Simpson Trustee 2000 Partner, Perkins Coie 83 None
(Born 1944) L.L.P. (law firm).
Thomas E. Stitzel Trustee 1998 Business Consultant 83 None
(Born 1936) since 1999; Chartered
Financial Analyst.
Anne-Lee Verville Trustee 1998 Retired since 1997 83 Chairman of the Board of
(Born 1945) (formerly General Directors, Enesco Group,
Manager, Global Inc. (producer of giftware
Education Industry, IBM and home and garden decor
Corporation (computer products)
and technology) from
1994 to 1997).
Richard L. Woolworth Trustee 1991 Retired since December, 83 Northwest Natural Gas
(Born 1941) 2003 (formerly Chairman (natural gas service
and Chief Executive provider)
Officer, The Regence
Group Co. (regional
health insurer);
Chairman and Chief
Executive Officer,
BlueCross BlueShield of
Oregon; Certified
Public Accountant,
Arthur Young &
Company).
|
Number of
Portfolios in
Year First Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------------- ------------ ----------------------- ------------- ---------------------------
INTERESTED TRUSTEE
William E. Mayer(3) Trustee 1994 Partner, Park Avenue 85 Lee Enterprises (print
(Born 1940) Equity Partners media), WR Hambrecht + Co.
(private equity) since (financial service
February, 1999. provider); Reader's Digest
(publishing); OPENFIELD
Solutions (retail industry
technology provider)
|
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public companies").
(3) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940) of the Columbia Funds by reason of his affiliation with WR Hambrecht + Co., a registered broker-dealer that may execute portfolio transactions for or engage in principal transactions with the Fund or other funds or clients advised by the Advisor or its affiliates.
Year First
Elected or
Appointed Principal Occupation(s) During Past
Name and Year of Birth Position with Funds to Office Five Years
----------------------- ------------------- ---------- -----------------------------------
OFFICERS
Christopher L. Wilson President 2004 Head of Mutual Funds since August,
(Born 1957) 2004 and Managing Director of the
Advisor since September, 2005;
President and Chief Executive Officer,
CDC IXIS Asset Management Services,
Inc. (investment management) from
September, 1998 to August, 2004.
James R. Bordewick, Jr. Senior Vice President, 2006 Associate General Counsel, Bank of
(Born 1959) Secretary and Chief Legal America since April, 2005; Senior Vice
Officer President and Associate General
Counsel, MFS Investment Management
(investment management) prior to
April, 2005.
J. Kevin Connaughton Senior Vice President, Chief 2000 Managing Director of the Advisor since
(Born 1964) Financial Officer and February, 1998.
Treasurer
Mary Joan Hoene Senior Vice President and 2004 Senior Vice President and Chief
(Born 1949) Chief Compliance Officer Compliance Officer of various funds in
100 Federal Street the Fund Complex; Partner, Carter,
Boston, MA 02110 Ledyard & Milburn LLP (law firm) from
January, 2001 to August, 2004.
Michael G. Clarke Chief Accounting Officer and 2004 Managing Director of the Advisor since
(Born 1969) Assistant Treasurer February, 2001.
Stephen T. Welsh Vice President 1996 President, Columbia Management
(Born 1957) Services, Inc. since July, 2004;
Senior Vice President and Controller,
Columbia Management Services, Inc.
prior to July, 2004.
Jeffrey R. Coleman Deputy Treasurer 2004 Group Operations Manager of the
(Born 1969) Advisor since October, 2004; Vice
President of CDC IXIS Asset Management
Services, Inc. (investment management)
from August, 2000 to September, 2004.
Joseph F. DiMaria Deputy Treasurer 2004 Senior Compliance Manager of the
(Born 1968) Advisor since January, 2005; Director
of Trustee Administration of the
Advisor from May, 2003 to January,
2005; Senior Audit Manager,
PricewaterhouseCoopers (independent
registered public accounting firm)
from July, 2000 to April, 2003.
Ty S. Edwards Deputy Treasurer 2004 Vice President of the Advisor since
(Born 1966) 2002; Assistant Vice President and
Director, State Street Corporation
(financial services) prior to 2002.
|
Year First
Elected or
Appointed Principal Occupation(s) During Past
Name and Year of Birth Position with Funds to Office Five Years
----------------------- ------------------- ---------- -----------------------------------
OFFICERS
Barry S. Vallan Controller 2006 Vice President-Fund Treasury of the
(Born 1969) Advisor since October, 2004; Vice
President-Trustee Reporting from
April, 2002 to October, 2004;
Management Consultant,
PricewaterhouseCoopers (independent
registered public accounting firm)
prior to October, 2002.
Peter T. Fariel Assistant Secretary 2006 Associate General Counsel, Bank of
(Born 1957) America since April, 2005; Partner,
Goodwin Procter LLP (law firm) prior
to April, 2005.
Ryan C. Larrenaga Assistant Secretary 2005 Assistant General Counsel, Bank of
(Born 1970) America since March, 2005; Associate,
Ropes & Gray LLP (law firm) from 1998
to February, 2005.
Barry S. Finkle Assistant Treasurer 2003 Senior Manager and Head of Fund
(Born 1965) Performance of the Advisor since
January, 2001.
Julian Quero Assistant Treasurer 2003 Senior Compliance Manager of the
(Born 1967) Advisor since April, 2002; Assistant
Vice President of Taxes and
Distributions of the Advisor from 2001
to April, 2002.
|
Each of the Trust's Trustees and officers hold comparable positions with certain other funds of which the Advisor or its affiliates is the investment advisor or distributor and, in the case of certain of the officers, with certain affiliates of the Advisor.
The Trustees and officers serve terms of indefinite duration. Each Fund held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once every five years thereafter to elect Trustees.
10. The subsections entitled "Disinterested Directors" and "Interested Directors" under the section entitled "Management," are revised in their entirety to read:
The following table sets forth the dollar range of shares owned by each Trustee as of December 31, 2005 of (i) each individual Fund and (ii) all of the funds in the same family of investment companies as the Fund.
Disinterested Trustees
Douglas A. Janet Langford Richard W.
Name of Fund Hacker Kelly Lowry
------------ ------------- ------------------ -------------
Balanced Fund None None None
Mid Cap Growth Fund None $50,001 - $100,000 None
Small Cap Growth Fund I None None None
Real Estate Equity Fund None None None
Strategic Investor Fund None None None
Technology Fund None None None
Conservative High Yield Fund None None None
Oregon Intermediate Municipal
Bond Fund None None None
AGGREGATE DOLLAR RANGE OF FUND
SHARES IN FUNDS OVERSEEN
BY DIRECTOR IN FAMILY OF
INVESTMENT COMPANIES: OVER $100,000 OVER $100,000 OVER $100,000
|
Dr. Charles R. John J.
Name of Fund Nelson Neuhauser
------------ ------------------ -------------
Balanced Fund None None
Mid Cap Growth Fund $50,001 - $100,000 None
Small Cap Growth Fund I None None
Real Estate Equity Fund None None
Strategic Investor Fund None None
Technology Fund None None
Conservative High Yield Fund None None
Oregon Intermediate Municipal
Bond Fund None None
AGGREGATE DOLLAR RANGE OF FUND
SHARES IN FUNDS OVERSEEN
BY DIRECTOR IN FAMILY OF
INVESTMENT COMPANIES: OVER $100,000 OVER $100,000
|
Patrick J. Thomas E.
Name of Fund Simpson Stitzel
------------ ----------------- -----------------
Balanced Fund $10,001 - $50,000 None
Mid Cap Growth Fund $10,001 - $50,000 None
Small Cap Growth Fund I None None
Real Estate Equity Fund $10,001 - $50,000 None
Strategic Investor Fund None $10,001 - $50,000
Technology Fund None None
Conservative High Yield Fund None None
Oregon Intermediate Municipal
Bond Fund None None
AGGREGATE DOLLAR RANGE OF FUND
SHARES IN FUNDS OVERSEEN
BY DIRECTOR IN FAMILY OF
INVESTMENT COMPANIES: OVER $100,000 OVER $100,000
|
Thomas C. Anne-Lee Richard W.
Name of Fund Theobald Verville Woolworth
------------ --------------- -------------- ---------------
Balanced Fund None None None
Mid Cap Growth Fund None None $1-$10,000
Small Cap Growth Fund I $10,001-$50,000 None $1-$10,000
Real Estate Equity Fund None None None
Strategic Investor Fund $10,001-$50,000 None Over $100,000
Technology Fund None None $1-$10,000
Conservative High Yield Fund None None None
Oregon Intermediate Municipal
Bond Fund None None $10,001-$50,000
AGGREGATE DOLLAR RANGE OF FUND
SHARES IN FUNDS OVERSEEN
BY DIRECTOR IN FAMILY OF
INVESTMENT COMPANIES: OVER $100,000 *OVER $100,000 OVER $100,000
|
Interested Trustee
William E.
Name of Fund Mayer
------------ ----------------
Balanced Fund None
Mid Cap Growth Fund None
Small Cap Growth Fund I None
Real Estate Equity Fund None
Strategic Investor Fund None
Technology Fund None
Conservative High Yield Fund None
Oregon Intermediate Municipal
Bond Fund None
AGGREGATE DOLLAR RANGE OF FUND
SHARES IN FUNDS OVERSEEN
BY DIRECTOR IN FAMILY OF
INVESTMENT COMPANIES: $50,001-$100,000
|
As of December 31, 2005, none of the disinterested trustees or nominees or members of their immediate families owned any securities of the Advisor or any other entity directly or indirectly controlling, controlled by, or under common control with the Advisor.
11. The footnotes to the section "Director Compensation," a section under "Management," are revised in their entirety to read:
(1) As of December 31, 2005, the Columbia Funds Complex consisted of 159 open-end and 11 closed-end management investment company portfolios.
(2) During the fiscal year ended August 31, 2005, Mr. Simpson deferred $1320, $2167, $1336, $2166, $1226, $453, $3791, and $1728 of his compensation from the Balanced Fund, Mid Cap Growth Fund, Small Cap Growth Fund I, Real Estate Equity Fund, Strategic Investor Fund, Technology Fund, Conservative High Yield Fund and Oregon Intermediate Municipal Bond Fund, respectively, and during the calendar year ended December 31, 2005, he deferred $107,500 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2005, the value of Mr. Simpson's account under the plan was $269,502.
(3) During the fiscal year ended August 31, 2005, Mr. Theobald deferred $1521, $2570, $1428, $2627, $1524, $550, $4613, and $2363 of his compensation from the Balanced Fund, Mid Cap Growth Fund, Small Cap Growth Fund I, Real Estate Equity Fund, Strategic Investor Fund, Technology Fund, Conservative High Yield Fund and Oregon Intermediate Municipal Bond Fund, respectively, and during the calendar year ended December 31, 2005, he deferred $150,000 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2005, the value of Mr. Theobald's account under the plan was $320,084.
(4) During the fiscal year ended August 31, 2005, Ms. Verville deferred $174, $271, $205, $248, $126, $51, $433, and $144 of her compensation from the Balanced Fund, Mid Cap Growth Fund, Small Cap Growth Fund I, Real Estate Equity Fund, Strategic Investor Fund, Technology Fund, Conservative High Yield Fund and Oregon Intermediate Municipal Bond Fund, respectively. At December 31, 2005, the value of Ms. Verville's account under the plan was $683,935.
12. The following language is added to the chart following the heading "OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS" in the section "MANAGEMENT - PORTFOLIO MANAGERS":
Columbia Mid Cap Growth Fund
OTHER SEC-REGISTERED OPEN- OTHER POOLED INVESTMENT
END AND CLOSED-END FUNDS VEHICLES OTHER ACCOUNTS
-------------------------- ----------------------- ------------------------
Number of Number of Number of
PORTFOLIO MANAGERS accounts Assets accounts Assets accounts Assets
------------------ --------- ------------ --------- ---------- --------- ------------
Wayne M. Collette* 9 $533 million 1 $8 million 23 $465 million
J. Michael Kosicki* 7 $318 million 1 $8 million 27 $465 million
George J. Myers* 7 $318 million 1 $8 million 26 $465 million
Theodore R. Wendell* 9 $533 million 1 $8 million 29 $465 million
|
Columbia Small Cap Growth Fund I
OTHER SEC-REGISTERED OPEN- OTHER POOLED INVESTMENT
END AND CLOSED-END FUNDS VEHICLES OTHER ACCOUNTS
-------------------------- ----------------------- ------------------------
Number of Number of Number of
PORTFOLIO MANAGERS accounts Assets accounts Assets accounts Assets
------------------ --------- ------------ --------- ---------- --------- ------------
Wayne M. Collette* 9 $1.2 billion 1 $8 million 23 $465 million
J. Michael Kosicki* 7 $ 1 billion 1 $8 million 27 $465 million
George J. Myers* 7 $ 1 billion 1 $8 million 26 $465 million
Theodore R. Wendell* 9 $1.2 billion 1 $8 million 29 $465 million
|
Columbia Strategic Investor Fund
OTHER SEC-REGISTERED OPEN- OTHER POOLED INVESTMENT
END AND CLOSED-END FUNDS VEHICLES OTHER ACCOUNTS
-------------------------- ----------------------- -------------------------
Number of Number of Number of
PORTFOLIO MANAGERS accounts Assets accounts Assets accounts Assets
------------------ --------- ------------ --------- ---------- --------- -------------
Jonas Patrikson* 2 $943 million 0 $0 2 $ 40 thousand
Dara White* 2 $943 million 0 $0 2 $300 thousand
|
* Information provided as of December 31, 2005.
13. The following language is added to the chart following the heading "OWNERSHIP OF SECURITIES" in the section "MANAGEMENT - PORTFOLIO MANAGERS":
Columbia Mid Cap Growth Fund
DOLLAR RANGE OF EQUITY SECURITIES
PORTFOLIO MANAGERS IN THE FUND BENEFICIALLY OWNED
------------------ ---------------------------------
Wayne M. Collette* None
J. Michael Kosicki* None
George J. Myers* None
Theodore R. Wendell* None
|
Columbia Small Cap Growth Fund I
DOLLAR RANGE OF EQUITY SECURITIES
PORTFOLIO MANAGERS IN THE FUND BENEFICIALLY OWNED
------------------ ---------------------------------
Wayne M. Collette* $0
J. Michael Kosicki* $0
George J. Myers* $0
Theodore R. Wendell* $0
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Columbia Strategic Investor Fund
DOLLAR RANGE OF EQUITY SECURITIES
PORTFOLIO MANAGERS IN THE FUND BENEFICIALLY OWNED
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Jonas Patrikson * None
Dara White * None
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* Information provided as of December 31, 2005.
14. The following language is added to the chart following the heading "COMPENSATION" in the section "MANAGEMENT - PORTFOLIO MANAGERS":
Columbia Mid Cap Growth Fund
PORTFOLIO MANAGERS PERFORMANCE BENCHMARK PEER GROUP ------------------ --------------------- ---------- Wayne M. Collette Russell Midcap Growth Tr Morningstar Mid Growth Category J. Michael Kosicki Russell Midcap Growth Tr Morningstar Mid Growth Category George J. Myers Russell Midcap Growth Tr Morningstar Mid Growth Category Theodore R. Wendell Russell Midcap Growth Tr Morningstar Mid Growth Category |
Columbia Small Cap Growth Fund I
PORTFOLIO MANAGERS PERFORMANCE BENCHMARK PEER GROUP ------------------ --------------------- ---------- Wayne M. Collette Russell 2000 Growth TR Morningstar Small Growth Category J. Michael Kosick Russell 2000 Growth TR Morningstar Small Growth Category George J. Myers Russell 2000 Growth TR Morningstar Small Growth Category Theodore R. Wendell Russell 2000 Growth TR Morningstar Small Growth Category |
Columbia Strategic Investor Fund
PORTFOLIO MANAGERS PERFORMANCE BENCHMARK PEER GROUP ------------------ --------------------- ---------- Jonas Patrikson Russell 3000 Value TR Morningstar Mid Blend Category Dara White Russell 3000 Value TR Morningstar Mid Blend Category |
15. The section entitled "Share Ownership" is replaced in its entirety to read:
As of record on February 28, 2006, the officers and Trustees of the Trust as a group owned less than 1% of the then outstanding shares of the Mid Cap Growth Fund.
As of record on February 28, 2006, the following shareholders owned 5% or more of the following classes of Mid Cap Growth Fund's outstanding shares:
CLASS A Charles Schwab & Co. Inc. 15.95% 101 Montgomery Street San Francisco, CA 94104-4122 CLASS B Citigroup Global Markets, Inc. 6.53% 333 West 34th Street New York, NY 10001-2402 CLASS C Citigroup Global Markets, Inc. 5.42% 333 West 34th Street New York, NY 10001-2402 |
Merrill Lynch Pierce Fenner & Smith 31.00% 4800 Deer Lake Drive East Floor 2 Jacksonville, FL 32246-6484 CLASS D NFS LLC FEBO 7.31% NFS/FMTC Rollover IRA FBO Jeffrey Pate 624 Salter Place Westfield, NJ 07090 Raymond James & Assoc. Inc. 5.35% FBO Young IRA 880 Carillon Parkway St. Petersburg, FL 33716-1100 Esnet Management Group LLC 10.61% Daniel W Campbell 4304 North Stonecreek Lane Provo, UT 84604-5003 CLASS G Bank of America NA Rollover IRA 6.09% Juan Rosai 551 Amity Road Woodbridge, CT 06525-1201 CLASS R FIM Funding Inc. 100.00% C/O Columbia Funds Group MS MA5 100 11 05 100 Federal Street Boston, MA 02110 CLASS Z Bank of America 25.39% 411 North Akard Street Dallas, TX 75201-3307 Charles Schwab & Co. Inc. 12.52% 101 Montgomery Street San Francisco, CA 94104-4122 |
As of record on February 28, 2006, the officers and Trustees of the Trust as a group owned less than 1% of the then outstanding shares of the Small Cap Growth Fund I.
As of record on February 28, 2006, the following shareholders owned 5% or more of the following classes of Small Cap Growth Fund I's outstanding shares:
CLASS A NFS LLC FEBO 5.04% NFS/FMTC R/O IRA FBO Melvin Ray Muscott 1242 Ridge Road Troy, MO 63379-5659 NFS LLC FEBO 5.17% FBO Joan Dorsey 3501 Ponce De Leon Blvd. #241 St. Augustine, FL 32084-1403 Nancy E. Edin Living Trust 10.91% PO Box 794 Sherwood, OR 97140-0794 Bank of America NA Rollover IRA 6.10% Jimmy L. Yuan 19382 Pilario Street Rowland Heights, CA 97148-3141 CLASS B NFS LLC FEBO 10.52% FBO Glen L. Rhodes Mary J. Rhodes 19051 Lamplight Lane Yorba Linda, CA 92886-2701 NFS LLC FEBO 5.81% NFS/FMTC Roth IRA FBO Andrew Leif Valand 205 Central Ave. Madison, NJ 07940-1627 NFS LLC FEBO 5.81% NFS/FMTC Roth IRA FBO Thomas Valand 205 Central Ave. Madison, NJ 07940-1627 Pershing LLC 19.78% PO Box 2052 Jersey City, NJ 07303-2052 |
Bank of America NA IRA 8.42% Joseph R. Chichurka 4306 W Cordoba Cir. Georgetown, TX 78268-1614 H&R Block Financial Advisors 9.57% Dime Building 719 Griswold Street, Ste. 1700 Detroit, MI 48226-3318 CLASS C NFS LLC FEBO 17.12% Bunker Family Trust Jonathon Wayne Bunker 2120 Shenley Ct. Las Vegas, NV 89117-8924 NFS LLC FEBO 37.21% NFS/FMTC SEP IRA FBO Charles E. Dewey, Jr. 5 Lyons Plains Rd. Westport, CT 06880-1303 FIM Funding 15.38% C/O Columbia Funds Group MS MA5 100 11 05 100 Federal Street Boston, MA 02110-1802 Pershing LLC 25.78% PO Box 2052 Jersey City, NJ 07303-2052 CLASS Z Bank of America NA 6.04% 411 N. Akard Street Dallas, TX 75201-3307 Charles Schwab & Co. Inc. 20.92% 101 Montgomery St. San Francisco, CA 94104-4122 |
As of record on February 28, 2006, the officers and Trustees of the Trust as a group owned less than 1% of the then outstanding shares of the Real Estate Equity Fund.
As of record on February 28, 2006, the following shareholders owned 5% or more of the following classes of Real Estate Equity Fund's outstanding shares:
CLASS A Nationwide Trust Co. FSB 20.98% PO Box 182029 Columbus, OH 43218-2029 Charles Schwab & Co. Inc. 32.78% 101 Montgomery Street San Francisco, CA 94104-4122 CLASS D Patterson & Co. 7.34% 1525 West WT Harris Blvd. Charlotte, NC 28288-0001 LPL Financial Services 5.62% 9785 Towne Center Drive San Diego, CA 92121-1968 CLASS Z Bank of America NA 26.86% 411 N. Akard Street Dallas, TX 75201-3307 Charles Schwab & Co. Inc. 26.53% 101 Montgomery Street San Francisco, CA 94104-4122 |
As of record on February 28, 2006, the officers and Trustees of the Trust as a group owned less than 1% of the then outstanding shares of the Technology Fund.
As of record on February 28, 2006, the following shareholders owned 5% or more of the following classes of Technology Fund's outstanding shares:
CLASS A NFS LLC FEBO 5.53% Carlos A Arredondo Mari V Arredondo 35 Field Point Circle Grenwich, CT 06830-7072 Merrill Lynch Pierce Fenner & Smith 19.24% 4800 Deer Lake Drive E. Fl. 2 Jacksonville, Florida 32246-6484 |
SEI Private Trust Co. 8.70% One Freedom Valley Drive Oaks, PA 19456 CLASS B Merrill Lynch Pierce Fenner & Smith 6.34% 4800 Deer Lake Drive E. Fl. 2 Jacksonville, Florida 32246-6484 CLASS C Merrill Lynch Pierce Fenner & Smith 25.31% 4800 Deer Lake Drive E. Fl. 2 Jacksonville, Florida 32246-6484 CLASS D Citigroup Global Markets, Inc. 8.78% 333 West 34th Street New York, NY 10001-2402 Bank of America NA 11.88% Thomasville Home Furnishings of AZ 1122 E. Irma Lane Phoenix, AZ 85024-4118 USAA Investment Management Corp. 6.71% 9800 Fredericksburg Road San Antonio, TX 78288-0001 Scottrade Inc. 6.12% FBO Sheikh A Qadeer PO Box 31759 St. Louis, MO 63131-0759 LPL Financial Services 63.65% 9785 Towne Center Drive San Diego, CA 92121-1968 CLASS Z Charles Schwab & Co. Inc. 41.81% 101 Montgomery Street San Francisco, CA 94104-4122 |
As of record on February 28, 2006, the officers and Trustees of the Trust as a group owned less than 1% of the then outstanding shares of the Strategic Investor Fund.
As of record on February 28, 2006, the following shareholders owned 5% or more of the following classes of Strategic Investor Fund's outstanding shares:
CLASS A Charles Schwab & Co. Inc. 5.42% 101 Montgomery Street San Francisco, CA 94104-4122 Charles Schwab & Co. Inc. 17.39% Special Custody Account for Benefit of Customer 101 Montgomery Street San Francisco, CA 94104-4122 CLASS C Citigroup Global Markets, Inc. 7.54% 333 West 34th Street New York, NY 10001-2402 Merrill Lynch Pierce Fenner & Smith 6.56% 4800 Deer Lake Drive E. Fl. 2 Jacksonville, Florida 32246-6484 CLASS D NFS LLC FEBO 6.93% FMT Co. Cust. IRA R/O FBO James S. Krueger 389 Redfield Pl. Moraga, CA 94556-2514 Citigroup Global Markets, Inc. 28.50% 333 West 34th Street New York, NY 10001-2402 Robert W. Baird & Co. Inc. 6.46% 777 East Wisconsin Avenue Milwaukee, WI 53202-5300 AG Edwards & Sons Inc. CUST 7.45% FBO Sharon Louise Greer Rollover IRA 4905 Hollycrest Way Fair Oaks, CA 95628-5113 CLASS Z Bank of America NA 12.81% 1122 E. Irma Lane Phoenix, AZ 85024-4118 |
Charles Schwab & Co. Inc. 16.28% Special Custody Account for Exclusive of Customer 101 Montgomery Street San Francisco, CA 94104-4122 |
As of record on February 28, 2006, the officers and Trustees of the Trust as a group owned less than 1% of the then outstanding shares of the Balanced Fund.
As of record on February 28, 2006, the following shareholders owned 5% or more of the following classes of Balanced Fund's outstanding shares:
CLASS C SHARES: Citigroup Global Markets, Inc. 5.46% 333 West 34th Street New York, NY 10001-2402 Merrill Lynch Pierce Fenner & Smith 9.21% 4800 Deer Lake Drive E. Fl. 2 Jacksonville, Florida 32246-6484 Ferris Baker Watts Inc. 19.77% Dwight P. Plowman 79 Young Circle New Florence, PA 15944-8320 CLASS D SHARES: NFS LLC FEBO 13.10% NFS/FMTC R/O IRA FBO John H. Carr, Jr. 5 Bishop Road Apartment 106 West Hartford, CT 06119-1536 Citigroup Global Markets, Inc. 14.76% 333 West 34th Street New York, NY 10001-2402 UBS Financial Services Inc. 23.51% FBO Robert Breidenbaugh Carolyn Breidenbaugh JTWROS 396 E. Church Street Elmhurst, IL 60126-3602 Gladis Wist 16.19% 12111 Faith Lane Bowie, MD 20715-2302 |
RBC Dain Rauscher 7.38% Janis D. Dotson IRA 48 Palm Court Pagosa Springs, CO 81147-9235 CLASS Z SHARES Charles Schwab & Co. Inc. 16.87% 101 Montgomery Street San Francisco, CA 94104-4122 |
As of record on February 28, 2006, the officers and Trustees of the Trust as a group owned less than 1% of the then outstanding shares of the Intermediate Bond Fund.
As of record on February 28, 2006, the following shareholders owned 5% or more of the following classes of Intermediate Bond Fund's outstanding shares:
CLASS A Investors Bank and Trust Ttee 5.10% FBO Various Ret. Plans 4 Manhattanville Rd. Purchase, NY 10577-2139 Charles Schwab & Co. 32.09 101 Montgomery Street San Francisco, CA 94104-4122 Transamerica Life Insurance Company 15.28 Attn: Daisy Lo PO Box 30368 Los Angeles, CA 90030-0368 CLASS B Citigroup Global Markets, Inc. 8.48% 333 W. 34th Street New York, NY 10001-2402 CLASS C Citigroup Global Markets, Inc. 19.74% 333 W. 34th Street New York, NY 10001-2402 Merrill Lynch Pierce Fenner & Smith 13.27 4800 Deer Lake Dr. E, Fl. 2 Jacksonville, FL 32246-6484 |
CLASS R FIM Funding, Inc. 100% C/O Columbia Funds Group MS MA5 100 11 05 100 Federal Street Boston, MA 02110-1802 CLASS Z Bank of America NA 37.93% 411 N. Akard Street Dallas, TX 75201-3307 Citigroup Global Markets, Inc. 11.84 333 W. 34th Street New York, NY 10001 Charles Schwab & Co. 11.44 101 Montgomery Street San Francisco, CA 94104-4122 |
As of record on February 28, 2006, the officers and Trustees of the Trust as a group owned less than 1% of the then outstanding shares of the Conservative High Yield Fund.
As of record on February 28, 2006, the following shareholders owned 5% or more of the following classes of Conservative High Yield Fund's outstanding shares:
CLASS A Charles Schwab & Co. Inc. 53.16% 101 Montgomery Street San Francisco, CA 94104-4122 CLASS B Citigroup Global Markets, Inc. 12.49% 333 West 34th Street New York, NY 10001-2402 CLASS C Citigroup Global Markets, Inc. 12.37% 333 West 34th Street New York, NY 10001-2402 |
Merrill Lynch Pierce Fenner & Smith 16.92% 4800 Deer Lake Drive E. Fl. 2 Jacksonville, Florida 32246-6484 CLASS D Citigroup Global Markets, Inc. 17.90% 333 West 34th Street New York, NY 10001-2402 Merrill Lynch Pierce Fenner & Smith 8.96% 4800 Deer Lake Drive E. Fl. 2 Jacksonville, Florida 32246-6484 CLASS Z Bank of America NA 61.88% 411 N. Akard Street Dallas, TX 75201-3307 Charles Schwab & Co. Inc. 10.53% 101 Montgomery Street San Francisco, CA 94104-4122 |
INT-50/107460-0306 March 27, 2006
COLUMBIA MID CAP GROWTH FUND, INC.
COLUMBIA SMALL CAP GROWTH FUND I
COLUMBIA REAL ESTATE EQUITY FUND, INC.
COLUMBIA TECHNOLOGY FUND, INC.
COLUMBIA STRATEGIC INVESTOR FUND, INC.
COLUMBIA BALANCED FUND, INC.
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COLUMBIA OREGON INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA CONSERVATIVE HIGH YIELD FUND
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information contains information relating to 8 mutual funds: Columbia Mid Cap Growth Fund, Inc. (the "Mid Cap Growth Fund" or "CMCG"), Columbia Small Cap Growth Fund I formerly Columbia Small Cap Growth Fund, Inc. (the "Small Cap Growth Fund" or "CSCG"), Columbia Real Estate Equity Fund, Inc. (the "Real Estate Fund" or "CREF"), Columbia Technology Fund, Inc. (the "Technology Fund" or "CTF"), Columbia Strategic Investor Fund, Inc. formerly Columbia Strategic Value Fund, Inc. (the "Strategic Investor Fund" or "CSIF"), Columbia Balanced Fund, Inc. (the "Balanced Fund" or "CBF"), Columbia Oregon Intermediate Municipal Bond Fund formerly Columbia Oregon Municipal Bond Fund, Inc. (the "Oregon Intermediate Municipal Bond Fund" or "CMBF") and Columbia Conservative High Yield Fund formerly Columbia High Yield Fund, Inc. (the "Conservative High Yield Fund" or "CHYF").
Each Fund offers its shares through one or more prospectuses (each a "Prospectus"). This Statement of Additional Information is not a Prospectus and should be read in conjunction with the applicable Prospectus. Copies of the Prospectus are available without charge upon request by calling 1-800-426-3750.
The Funds' most recent Annual and Semi-Annual Reports to shareholders are separate documents supplied with this Statement of Additional Information. The financial statements, accompanying notes and report of independent registered public accounting firm appearing in the Annual Reports, and the financial statements and accompanying notes appearing in the Semi-Annual Report, are incorporated by reference into this Statement of Additional Information.
SUP-39/93613-1205
TABLE OF CONTENTS
DESCRIPTION OF THE FUNDS ................................................ 3 INVESTMENT RESTRICTIONS ................................................. 17 MANAGEMENT .............................................................. 20 DISCLOSURE OF PORTFOLIO INFORMATION ..................................... 53 INVESTMENT ADVISORY AND OTHER SERVICES PROVIDED BY AFFILIATES ........... 54 PORTFOLIO TRANSACTIONS .................................................. 61 CAPITAL STOCK AND OTHER SECURITIES ...................................... 64 DISTRIBUTION AND SERVICING .............................................. 65 PURCHASE, REDEMPTION AND PRICING OF SHARES .............................. 68 CUSTODIAN ............................................................... 78 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ........................... 78 TAXES ................................................................... 79 SHAREHOLDER MEETINGS .................................................... 86 FINANCIAL STATEMENTS .................................................... 86 APPENDIX I .............................................................. 87 APPENDIX II ............................................................. 101 |
January 1, 2006
DESCRIPTION OF THE FUNDS
Each of the Funds is an open-end, management investment company. Each Fund, other than the Oregon Intermediate Municipal Bond Fund and the 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 advisor for each of the Funds is Columbia Management Advisors, LLC (the "Advisor"). See the section entitled "INVESTMENT ADVISORY AND OTHER SERVICES PROVIDED BY AFFILIATES" for further information about the Advisor.
It is expected that, subject to shareholder approval, each Fund will be reorganized as a series of Columbia Funds Trust IX, a Massachusetts business trust into which all of the retail Columbia funds are expected to be reorganized.
INVESTMENTS HELD AND INVESTMENT PRACTICES USED BY THE FUNDS
The Prospectus describes the fundamental investment objective and the principal investment strategy applicable to each Fund. The investment objective of each Fund, other than the Mid Cap Growth Fund, may not be changed without shareholder approval. The Mid Cap Growth Fund's Board of Directors may change its investment objective, without shareholder approval, upon 30 days written notice to all shareholders. What follows is additional information regarding securities in which a Fund may invest and investment practices in which it may engage. To determine whether a Fund purchases such securities or engages in such practices, see the chart on pages XX and XX 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, a division of the McGraw-Hill Companies ("S&P"). Subsequent to its purchase by a Fund, a security may cease to be rated, or its rating may be reduced below the criteria set forth for the Fund. Neither event would require the elimination of the security from the Fund's portfolio, but the Advisor 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.
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 the Advisor 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 Advisor may not accurately evaluate the security's comparative credit rating. Analysis of the creditworthiness of issuers of lower rated securities may be more complex than for issuers of higher-quality fixed income securities. To the extent that a Fund invests in unrated securities, the Fund's success in achieving its investment objective is determined more heavily by the Advisor's creditworthiness analysis than if the Fund invested exclusively in rated securities.
Non-Investment Grade Securities ("Junk Bonds")
Investments in securities rated below investment grade (i.e., rated Ba or lower by Moody's or BB or lower by S&P), which are eligible for purchase by certain of the Funds and, in particular, by the Conservative High Yield Fund, are described as "speculative" by both Moody's and S&P. Investments in lower rated corporate debt securities ("high yield securities" or "junk bonds") generally provide greater income and increased opportunity for capital appreciation than investments in higher quality securities, but they also typically entail greater price volatility and principal and income risk. These high yield securities are regarded as predominately speculative with respect to the issuer's continuing ability to meet principal and interest payments. Analysis of the creditworthiness of issuers of high yield securities 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 debt 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 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 the Fund could sell a high yield security, and could adversely affect the daily net asset value of the Fund's 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. Since secondary
markets for high yield securities are generally less liquid than the market for higher grade securities, it may be more difficult to value these 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 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 Advisor does not rely solely on credit ratings when selecting securities for the Funds, and develops its own independent analysis of issuer credit quality.
Bank Obligations
Bank obligations in which the Funds may invest include certificates of deposit, bankers' acceptances, and fixed time deposits. Certificates of deposit are negotiable certificates issued against funds deposited in a commercial bank for a definite period of time and earning a specified return. Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn by an importer or exporter to pay for specific merchandise, which are "accepted" by a bank, meaning, in effect, that the bank unconditionally agrees to pay the face value of the instrument on maturity. Fixed time deposits are bank obligations payable at a stated maturity date and bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand by the investor, but may be subject to early withdrawal penalties, which vary depending upon market conditions and on the right to transfer a beneficial interest in a fixed time deposit to a third party, although there is no market for such deposits.
Bank obligations include foreign bank obligations including Eurodollar and Yankee obligations. Eurodollar bank obligations are dollar certificates of deposits and time deposits issued outside the U.S. capital markets by foreign branches of U.S. banks and by foreign banks. Yankee obligations are dollar-denominated obligations issued in the U.S. capital markets by foreign banks. Foreign bank obligations are subject to the same risks that pertain to domestic issues, notably credit risk and interest rate risk. Additionally, foreign bank obligations are subject to many of the same risks as investments in foreign 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 of the foreign bank's country, 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 U.S. banks. Foreign banks are not generally subject to examination by any U.S. Government agency or instrumentality.
Commercial Paper
A1 and Prime 1 are the highest commercial paper ratings issued by S&P and Moody's, respectively.
Commercial paper rated A1 by S&P has the following characteristics: (1) liquidity ratios are adequate to meet cash requirements; (2) long-term senior debt is rated A or better; (3) the issuer has access to at least two additional channels of borrowing; (4) basic earnings and cash flow have an upward trend with an allowance made for unusual circumstances; (5) typically, the issuer's industry is well established and the issuer has a strong position within the industry; and (6) the reliability and quality of management are unquestioned.
Among the factors considered by Moody's in assigning ratings are the following: (1) evaluation of the management of the issuer; (2) economic evaluation of the issuer's industry or industries and an appraisal of speculative-type risks which may be inherent in certain areas; (3) evaluation of the issuer's products in relation to competition and customer acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over a period of 10 years; (7) financial strength of a parent company and the relationships which exist with the issuer; and (8) recognition by the management of obligations that may be present or may arise as a result of public interest questions and preparation to meet such obligations.
Government Securities
Government securities may be either direct obligations of the U.S. Treasury or may be the obligations of an agency or instrumentality of the United States.
TREASURY OBLIGATIONS. The U.S. Treasury issues a variety of marketable securities that are direct obligations of the U.S. Government. These securities fall into three categories - bills, notes, and bonds - distinguished primarily by their maturity at time of issuance. Treasury bills have maturities of one year or less at the time of issuance, while Treasury notes currently have maturities of 1 to 10 years. Treasury bonds can be issued with any maturity of more than 10 years.
OBLIGATIONS OF AGENCIES AND INSTRUMENTALITIES. Agencies and instrumentalities of the U.S. Government are created to fill specific governmental roles. Their activities are primarily financed through securities whose issuance has been authorized by Congress. Agencies and instrumentalities include the Export Import Bank, Federal Housing Administration, Government National Mortgage Association, Tennessee Valley Authority, Banks for Cooperatives, Farmers Home Administration, Federal Home Loan Banks, Federal Intermediate Credit Banks, Federal Land Banks, Federal National Mortgage Association, Federal Home Loan Mortgage Corp., U.S. Postal System, and Federal Finance Bank. Although obligations of "agencies" and "instrumentalities" are not direct obligations of the U.S. Treasury, payment of the interest or principal on these obligations is generally backed directly or indirectly by the U.S. Government. This 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 that 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.
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 publicly owned. 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 payment. 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 Advisor determines that the securities meet the Fund's quality standards. Although the market for such securities is becoming increasingly liquid, securities issued by certain private organizations may not be readily marketable.
Collateralized Mortgage Obligations ("CMOs")
CMOs are hybrids between mortgage-backed bonds and mortgage pass-through securities. Similar to a bond, interest and prepaid principal are paid, in most cases, semiannually. CMOs may be collateralized by whole mortgage loans but are more typically collateralized by portfolios of mortgage pass-through securities, guaranteed by GNMA, FHLMC, or FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different stated maturity. Actual maturity and average life will depend upon the prepayment experience of the collateral. CMOs provide for a modified form of call protection through a de facto breakdown of the underlying pool of mortgages according to how quickly the loans are repaid. Monthly payment of principal received from the pool of underlying mortgages, including prepayments, is first returned to investors holding the shortest maturity class. Investors holding the longer maturity classes receive principal only after the first class has been retired. An investor is partially protected against a sooner than desired return of principal by the sequential payments. The prices of certain CMOs, depending on their structure and the rate of prepayments, can be volatile. Some CMOs may also not be as liquid as other securities.
In a typical CMO transaction, a corporation issues multiple series, (e.g., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering are used to purchase mortgages or mortgage pass-through certificates ("Collateral"). The Collateral is pledged to a trustee as security for the Bonds. Principal and interest payments from the Collateral are used to pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds all pay interest currently. Interest on the Series Z Bond is accrued and added to principal and a like amount is paid as principal on the Series A, B, or C Bond currently being paid off. When the Series A, B, and C Bonds are paid in full, interest and principal on the Series Z Bond begins to be paid currently. With some CMOs, the issuer serves as a conduit to allow loan originators (primarily builders or savings and loan associations) to borrow against their loan portfolios.
A Fund will invest only in those CMOs whose characteristics and terms are consistent with the average maturity and market risk profile of the other fixed income securities held by the Fund.
Other Mortgage-Backed Securities
The Advisor 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 Advisor will, consistent with a Fund's investment objective, policies and quality standards, consider making investments in such new types of mortgage-related securities.
Other Asset-Backed Securities
The securitization techniques used to develop mortgage-backed securities are being applied to a broad range of assets. Through the use of trusts and special purpose corporations, various types of assets, including automobile loans, computer leases and credit card and other types of receivables, are being securitized in pass-through structures similar to mortgage pass-through structures described above or in a structure similar to the CMO structure. Consistent with a Fund's investment objectives and policies, the Fund may invest in these and other types of asset-backed securities that may be developed in the future. In general, the collateral supporting these securities is of shorter maturity than mortgage loans and is less likely to experience substantial prepayments with interest rate fluctuations.
These other asset-backed securities present certain risks that are not presented by mortgage-backed securities. Primarily, these securities may not have the benefit of any security interest in the related assets. Credit card receivables are generally unsecured and the debtors are entitled to the protection of state and federal consumer credit laws, many of which give debtors the right to set off certain amounts owed on the credit cards, thereby reducing the balance due. There is the possibility that recoveries on repossessed collateral may not, in some cases, be available to support payments on these securities.
Asset-backed securities are often backed by a pool of assets representing the obligations of a number of direct parties. To reduce the effect of failures by obligors on underlying assets to make payments, the securities may contain elements of credit support which fall into two categories: (i) liquidity protection and (ii) protection against losses resulting from ultimate default by an obligor or the underlying assets. Liquidity protection refers to the making of advances, generally by the entity administering the pool of assets, to ensure that the receipt of payments on the underlying pool occurs in a timely fashion. Protection against losses results from payment of the insurance obligations on at least a portion of the assets in the pool. This protection may be provided through guarantee policies or letters of credit obtained by the issuer or sponsor from third parties, through various means of structuring the transaction or through a combination of such approaches. The Fund will not pay any additional or separate fees for credit support. The degree of credit support provided for each issue is generally based on historical information respecting the level of credit risk associated with the underlying assets. Delinquency or loss in excess of that anticipated, or failure of the credit support could adversely affect the return on an investment in such a security.
Floating or Variable Rate Securities
Floating or variable rate securities have interest rates that periodically change according to the rise and fall of a specified interest rate index or a specific fixed-income security that is used as a benchmark. The interest rate typically changes every six months, but for some securities the rate may fluctuate weekly, monthly, or quarterly. The index used is often the rate for 90- or 180-day Treasury Bills. Variable-rate and floating-rate securities may have interest rate ceilings or caps that fix the interest rate on such a security if, for example, a specified index exceeds a predetermined interest rate. If an interest rate on a security held by the Fund becomes fixed as a result of a ceiling or cap provision, the interest income received by the Fund will be limited by the rate of the ceiling or cap. In addition, the principal values of these types of securities will be adversely affected if market interest rates continue to exceed the ceiling or cap rate.
Loan Transactions
Loan transactions involve the lending of securities to a broker-dealer or institutional investor for its use in connection with short sales, arbitrage, or other securities transactions. If made, loans of portfolio securities by a Fund will be in conformity with applicable federal and state rules and regulations. The purpose of a qualified loan transaction is to afford a Fund the opportunity to continue to earn income on the securities loaned and at the same time to earn income on the collateral held by it.
It is the view of the Staff of the Securities and Exchange Commission
("SEC") that a Fund is permitted to engage in loan transactions only if the
following conditions are met: (1) the Fund must receive at least 100 percent
collateral in the form of cash or cash equivalents, e.g., U.S. Treasury bills or
notes, or an irrevocable letter of credit; (2) the borrower must increase the
collateral whenever the market value of the securities loaned (determined on a
daily basis) rises above the level of the collateral; (3) the Fund must be able
to terminate the loan, after notice, at any time; (4) the Fund must receive
reasonable interest on the loan or a flat fee from the borrower, as well as
amounts equivalent to any dividends, interest, or other distributions on the
securities loaned and any increase in market value; (5) the Fund may pay only
reasonable custodian fees in connection with the loan; (6) voting rights on the
securities loaned may pass to the borrower; however, if a material event
affecting the investment occurs, the Board of Directors must be able to
terminate the loan and vote proxies or enter into an alternative arrangement
with the borrower to enable the Board to vote proxies. Excluding items (1) and
(2), these practices may be amended from time to time as regulatory provisions
permit.
While there may be delays in recovery of loaned securities or even a loss of rights in collateral supplied if the borrower fails financially, loans will be made only to firms deemed by the Advisor to be of good standing and will not be made unless, in the judgment of the Advisor, 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 Advisor, are expected to be substantially similar to those of the index. A call option may also be covered in any other manner in accordance with the rules of the exchange upon which the option is traded and applicable laws and regulations. Each Fund that is permitted to engage in option transactions may write such options on up to 25 percent of its net assets.
Financial futures contracts, including interest rate futures transactions, are commodity contracts that obligate the long or short holder to take or make delivery of a specified quantity of a financial instrument, such as a security or the cash value of a securities index, during a specified future period at a specified price. The investment restrictions regarding 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 Advisor; 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, as amended (the "Code").
Swap Agreements ("Swaps," "Caps," "Collars" and "Floors")
The Funds may enter into interest rate swaps, currency swaps, and other types of swap agreements such as caps, collars, and floors. In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate times a "notional principal amount," in return for payments equal to a fixed rate times the same amount, for a specified period of time. If a swap agreement provides for payments in different currencies, the parties might agree to exchange notional principal amount as well. Swaps may also depend on other prices or rates, such as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed upon level. An interest rate collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from one type of investment to another. For example, if a Fund agreed to exchange payments in dollars for payments in foreign currency, the swap agreement would tend to decrease the Fund's exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates. Caps and floors have an effect similar to buying or writing options. Depending on how they are used, swap agreements may increase or decrease the overall volatility of a Fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a small investment of cash relative to the magnitude of risks assumed. As a result, swaps can be highly volatile and may have a considerable impact on the Funds' performance. Swap agreements are subject to risks related to the counterparty's ability to perform, and may decline in value if the counterparty's creditworthiness deteriorates. The Funds may also suffer losses if they are unable to terminate outstanding swap agreements or reduce their exposure through offsetting transactions.
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 Advisor 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 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. While ADRs and GDRs
will generally be considered foreign securities for purposes of calculation of any investment limitation placed on a Fund's exposure to foreign securities, these securities, along with the securities of foreign companies traded on NASDAQ will not be subject to any of the restrictions placed on the Funds' ability to invest in emerging market securities.
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 risks 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 instrumentalities) can involve a high degree of risk. The governmental entity that controls the repayment of sovereign debt may not be available or willing to repay the principal and/or interest when due in accordance with the terms of the debt. A governmental entity's willingness or ability to repay principal and interest due in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the governmental entity's policy toward the International Monetary Fund, and the political constraints to which a governmental entity may be subject. Governmental entities may also depend on expected disbursements from foreign governments, multilateral agencies and others to reduce principal and interest arrearages on their debt. The commitment on the part of these governments, agencies and others to make such disbursements may be conditioned on a governmental entity's implementation of economic reforms and/or economic performance and the timely service of such debtor's obligations. Failure to implement such reforms, achieve such levels of economic performance or repay principal or interest when due may result in the cancellation of such third parties' commitments to lend funds to the governmental entity, which may further impair such debtor's ability or willingness to service its debts in a timely manner. Consequently, governmental entities may default on their sovereign debt. Holders of sovereign debt (including the Funds) may be requested to participate in the rescheduling of such debt and to the extend further loans to governmental entities. There is no bankruptcy proceeding by which sovereign debt on which governmental entities have defaulted may be collected in whole or in part.
Currency Contracts
The value of a Fund invested in foreign securities will fluctuate as a result of changes in the exchange rates between the U.S. dollar and the currencies in which the foreign securities or bank deposits held by the Fund are denominated. To reduce or limit exposure to changes in currency exchange rates (referred to as "hedging"), a Fund may enter into forward currency exchange contracts that, in effect, lock in a rate of exchange during the period of the forward contracts. Forward contracts are usually entered into with currency traders, are not traded on securities exchanges, and usually have a term of less than one year, but can be renewed. A default on a contract would deprive a Fund of unrealized profits or force a Fund to cover its commitments for purchase or sale of currency, if any, at the market price. A Fund will enter into forward contracts only for hedging purposes and not for speculation. If required by the Investment Company Act of 1940, as amended (the "1940 Act") or the SEC, a Fund may "cover" its commitment under forward contracts by segregating cash or liquid 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. 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.
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 Advisor. 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 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. Notwithstanding the above, certain of the Funds may not borrow in excess of 5 percent of their assets at any time. 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.
Notwithstanding the restrictions applicable to investments in illiquid securities described in the relevant chart below, the Funds may purchase without limit 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 Advisor determines the liquidity of the Funds' portfolio securities, including Rule 144A securities, and, through reports from the Advisor, the Board of Directors monitors trading activity in these
securities. In reaching liquidity decisions, the Advisor 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 convertible security if 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 Conservative High Yield Fund acquires common stock through exercise of conversion rights or warrants or acceptance of exchange or similar offers, the common stock will not be retained in the portfolio. Orderly disposition of these equity securities will be made consistent with management's judgment as to the best obtainable price.
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 agreed 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 liquid assets 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 forgoes the right to receive all principal and interest payments while the counterparty holds the security. These payments received by the counterparty may exceed the fee received by the Fund, thereby effectively charging the Fund interest on its borrowing. Further, although the Fund can estimate the amount of expected principal prepayment over the term of the dollar roll, a variation in the actual amount of prepayment could increase or decease the cost of the Fund's borrowing.
When-Issued Securities
When-issued, delayed-delivery and forward transactions generally involve the purchase of a security with payment and delivery in the future (i.e., beyond normal settlement). A Fund does not earn interest on such securities until settlement and bears the risk of market value fluctuations in between the purchase and settlement dates. New issues of stocks and bonds, private placements and U.S. Government
securities may be sold in this manner. To the extent a Fund engages in when-issued and delayed-delivery transactions, it will do so to acquire portfolio securities consistent with its investment objectives and policies and not for investment leverage. A Fund may use spot and forward currency exchange transactions to reduce the risk associated with fluctuations in exchange rates when securities are purchased or sold on a when-issued or delayed delivery basis.
Zero-Coupon and Pay-in-Kind Securities
A zero-coupon security has no cash coupon payments. Instead, the issuer sells the security at a substantial discount from its maturity value. The interest equivalent received by the investor from holding this security to maturity is the difference between the maturity value and the purchase price. Pay-in-kind securities are securities that pay interest in either cash or additional securities, at the issuer's option, for a specified period. The price of pay-in-kind securities is expected to reflect the market value of the underlying accrued interest, since the last payment. Zero-coupon and pay-in-kind securities are more volatile than cash pay securities. The Fund accrues income on these securities prior to the receipt of cash payments. The Fund intends to distribute substantially all of its income to its shareholders to qualify for pass-through treatment under the tax laws and may, therefore, need to use its cash reserves to satisfy distribution requirements.
Temporary Investments
When, as a result of market conditions, the Advisor 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. When a Fund assumes a temporary defensive position, it is not invested in securities designed to achieve its investment objective.
Non-Diversified
The Oregon Intermediate 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 Intermediate 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.
Chart of Securities and Investment Practices
CMCG CSCG CREF CTF CSIF
-------- ------ ------ -------- --------
Investment Grade Securities (Baa or * * * * *
higher by Moody's, BBB or higher by
S&P or believed by the Advisor to be
equivalent), other than U.S. Government
obligations and municipal securities
Non-Investment Grade Securities NA NA NA NA NA
Domestic Bank Obligations * * * * *
U.S. Government Securities * * * * *
Mortgage-Backed Securities NA NA NA NA NA
CMOs NA NA NA NA NA
Asset-Backed Securities NA NA NA NA NA
Floating or Variable Rate NA NA NA NA NA
Loan Transactions X O O O O
Options & Financial Futures O O O O O
Foreign Equities(1)
Developed Markets 33.3%,O 25%,O 20%,O 33%,O 33%,+
Emerging Markets(2) X X X X +
ADRs, GDRs and NASDAQ-listed 33.3%,O 25%,O O 33%,O 33%,+
foreign securities(1)
Currency Contracts
Hedging O O O O O
Speculation X X X X X
Spot Basis O O O O O
Repurchase Agreements * * * * *
Illiquid (exclude 144A securities from 15%,O 15%,O 15%,O 15%,O 15%,O
definition of illiquid with board
supervision)
Convertible Securities/Warrants + + + + +
Small Companies + + + + +
Dollar Roll Transactions NA NA NA NA NA
Swap Agreements NA NA NA NA NA
When-Issued Securities O O O O O
Foreign Fixed Income Securities NA NA NA NA NA
(including Foreign Bank Obligations)
Zero Coupon/Pay in Kind NA NA NA NA NA
Real Estate (excluding REITs) X X X X X
REITs + O + O +
Borrowing 5%,* 5%,* 5%,* 33.3%,* 33.3%,*
|
+ Permitted - Part of principal investment strategy
X Not permitted either as a non-fundamental or fundamental policy
O Permitted - Not a principal investment strategy
* Temporary Investment or cash management purposes
% Percentage of net assets (unless "total assets" specified) that Fund may invest
NA Not part of investment strategy
(1) Any limitation on foreign investments includes investments in both foreign securities purchased in foreign markets and ADRs, GDRs and NASDAQ-listed foreign securities.
(2) ADRs, GDRs and NASDAQ-listed securities are not subject to this limitation, even if the issuer is headquartered in, has its principal operations in, derives its revenues from, has its principal trading market located in or was legally organized in an emerging market country.
(3) Percentage is based on total assets.
CMBF CHYF CBF
---- ---- ----
Investment Grade Securities (Baa or higher by O O +
Moody's, BBB or higher by S&P or believed by
the Advisor to be equivalent), other than
U.S.Government obligations and municipal
securities
Non-Investment Grade Securities NA + 10%,O
Domestic Bank Obligations * * *
Commercial Paper * * *
U.S. Government Securities * * +
Mortgage-Backed Securities NA O +
CMOs NA O +
Asset-Backed Securities NA O +
Floating or Variable Rate O O +
Loan Transactions O O X
Options & Financial Futures + O +
Foreign Equities(1)
Developed Markets NA NA 33.3%,O
Emerging Markets(2) NA NA X
ADRs, GDRs and NASDAQ-listed NA NA 33.3%,O
foreign securities(1)
Currency Contracts
Hedging NA NA O
Speculation NA NA X
Spot Basis NA NA O
Repurchase Agreements * * *
Illiquid (excludes 144A securities from 15%,O 15%,O 15%,O
definition of illiquid with board
supervision)
Convertible Securities/Warrants NA O O
Small Companies NA + O
Dollar Roll Transactions NA O +
Swap Agreements O O O
When-Issued Securities O O O
Foreign Fixed Income Securities (including NA 10%,O 20%,O
Foreign Bank Obligations)
Zero Coupon/Pay in Kind + O O
Real Estate (excluding REITs) X X X
REITs NA O O
Borrowing 33.3%,* 5%,* 5%,*
Municipal Bonds + NA O
|
+ Permitted - Part of principal investment strategy
X Not permitted either as a non-fundamental or fundamental policy
O Permitted - Not a principal investment strategy
* Temporary Investment or cash management purposes
% Percentage of net assets (unless "total assets" specified) that Fund may invest
NA Not part of investment strategy
(1) Any limitation on foreign investments includes investments in both foreign securities purchased in the foreign markets, together with the purchase of ADRs, GDRs and NASDAQ-listed foreign securities.
(2) ADRs, GDRs, and NASDAQ-listed foreign securities are not subject to this limitation, even if the issuer is headquartered in, has its principal operations in, derives its revenues from, has its principal trading market located in or was legally organized in an emerging market country.
(3) Percentage is based on total assets.
INVESTMENT RESTRICTIONS
The Prospectus sets forth the investment goals 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. Except as stated otherwise below, 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.
Each Fund may not, as a matter of fundamental policy:
1. Underwrite any issue of securities issued by other persons within the meaning of the Securities Act of 1933, as amended ("1933 Act") except when it might be deemed to be an underwriter either: (a) in connection with the disposition of a portfolio security; or (b) in connection with the purchase of securities directly from the issuer thereof in accordance with its investment objective. This restriction shall not limit the Fund's ability to invest in securities issued by other registered investment companies.
2. Purchase or sell real estate, except a Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate and it may hold and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of securities which are secured by real estate or interests therein.
3. Purchase or sell commodities, except that a Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts.
4. With the exception of the Real Estate Fund, which will invest at least 65% of the value of its total assets in securities of companies principally engaged in the real estate industry, purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions; and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
5. Make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
6. Borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
7. With the exception of the Oregon Intermediate Municipal Bond Fund and the Technology Fund, purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that: (a) up to 25% of its total assets may be invested without regard to these limitations and (b) a Fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder, or any applicable exemptive relief.
COLUMBIA MID CAP GROWTH FUND, INC.
The following is a list of non-fundamental investment restrictions applicable to the Fund. These restrictions can be changed by the Board, but the change will only be effective after notice is given (60 days notice in the case of non-fundamental restriction #2) to shareholders of the Fund.
The Fund may not:
1. Purchase or otherwise acquire any security if, as a result, more than 15% of its net assets would be invested in securities that are illiquid.
2. Invest less than 80% of its assets in the stocks of mid-cap companies (those stocks with a market capitalization, at the time of initial purchase, equal to or less than the largest stock in the Russell Mid Cap Index), except when the Fund is taking a temporary defensive position due to a determination by the Fund's Advisor that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities.
COLUMBIA SMALL CAP GROWTH FUND I
The following is a list of non-fundamental investment restrictions applicable to the Fund. These restrictions can be changed by the Board, but the change will only be effective after notice is given (60 days notice in the case of non-fundamental restriction #2) to shareholders of the Fund.
The Fund may not:
1. Purchase or otherwise acquire any security if, as a result, more than 15% of its net assets would be invested in securities that are illiquid.
2. Invest less than 80% of its assets in the stocks of small-cap companies (those stocks with a market capitalization, at the time of initial purchase, equal to or less than the largest stock in the S&P SmallCap 600 Index), except when the Fund is taking a temporary defensive position due to a determination by the Fund's investment Advisor that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities.
COLUMBIA REAL ESTATE EQUITY FUND, INC.
The following is a list of non-fundamental investment restrictions applicable to the Fund. These restrictions can be changed by the Board, but the change will only be effective after notice is given to shareholders of the Fund.
The Fund may not:
1. Purchase or otherwise acquire any security if, as a result, more than 15% of its net assets would be invested in securities that are illiquid.
COLUMBIA TECHNOLOGY FUND, INC.
The following is a list of non-fundamental investment restrictions applicable to the Fund. These restrictions can be changed by the Board, but the change will only be effective after notice is given to shareholders of the Fund.
The Fund may not:
1. Purchase or otherwise acquire any security if, as a result, more than 15% of its net assets would be invested in securities that are illiquid.
COLUMBIA STRATEGIC INVESTOR FUND, INC.
The following is a list of non-fundamental investment restrictions applicable to the Fund. These restrictions can be changed by the Board, but the change will only be effective after notice is given to shareholders of the Fund.
The Fund may not:
1. Purchase or otherwise acquire any security if, as a result, more than 15% of its net assets would be invested in securities that are illiquid.
COLUMBIA BALANCED FUND, INC.
The following is a list of non-fundamental investment restrictions applicable to the Fund. These restrictions can be changed by the Board, but the change will only be effective after notice is given to shareholders of the Fund.
The Fund may not:
1. Purchase or otherwise acquire any security if, as a result, more than 15% of its net assets would be invested in securities that are illiquid.
COLUMBIA CONSERVATIVE HIGH YIELD FUND
The following is a list of non-fundamental investment restrictions applicable to the Fund. These restrictions can be changed by the Board, but the change will only be effective after notice is given to shareholders of the Fund.
The Fund may not:
1. Purchase or otherwise acquire any security if, as a result, more than 15% of its net assets would be invested in securities that are illiquid.
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 goals 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 names, addresses and ages of the directors and officers of the Funds, the year each was first elected or appointed to office, their principal business occupations during at least the last five years, the number of portfolios overseen by each director and other directorships they hold are shown below. There is no family relationship between any of the directors.
Columbia Management Advisors, LLC, located at 100 Federal Street, Boston, Massachusetts 02110, is the Funds' investment advisor. The Advisor is responsible for the Funds' management, subject to oversight by the Funds' Boards of Directors. The Advisor is a direct, wholly owned subsidiary of Columbia Management Group, LLC ("CMG"), which in turn is a direct, wholly owned subsidiary of Bank of America, which in turn is a direct wholly owned subsidiary of Bank of America Corporation, a financial services holding company organized as a Delaware Corporation. Prior to June 15, 2005, CMG was a corporation. Effective June 15, 2005, CMG converted to a limited liability company. Columbia Management Advisors, a registered investment advisor, has been an investment advisor since 1995.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Management Advisors, LLC (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Funds. As a result of the merger, Columbia Management Advisors, LLC is now the investment advisor to the Funds.
The "Fund Complex" consists of the following funds:
The series of Columbia Funds Trust I, the series of Columbia Funds Trust II, the series of Columbia Funds Trust III, the series of Columbia Funds Trust IV, the series of Columbia Funds Trust V, the series of Columbia Funds Trust VI, the series of Columbia Funds Trust VII, the series of Liberty Variable Investment Trust and 7 closed-end management investment company portfolios (the "Liberty Funds").
The series of Columbia Funds Trust VIII, the series of Columbia Funds Series Trust I, the series of Columbia Funds Trust XI, the series of SteinRoe Variable Investment Trust (the "Stein Roe Funds").
Two closed-end management investment company portfolios named Liberty All-Star Equity Fund and Liberty All-Star Growth Fund, Inc. (the "All-Star Funds").
Columbia Management Multi-Strategy Hedge Fund, LLC.
Columbia Balanced Fund, Inc., Columbia Conservative High Yield Fund, Columbia Oregon Intermediate Municipal Bond Fund, Columbia Real Estate Equity Fund, Inc., Columbia Small Cap Growth Fund I, Columbia Mid Cap Growth Fund, Inc., Columbia Strategic Investor Fund, Inc., Columbia Technology Fund, Inc. and the series of CMG Fund Trust (the "Columbia Funds").
The series of The Galaxy Funds (the "Galaxy Funds").
The series of Columbia Acorn Trust and the series of Wanger Advisors Trust (the "Acorn Funds" and "WAT Funds," respectively).
Directors and Officers
DISINTERESTED DIRECTORS:
NUMBER OF
PORTFOLIOS IN
FUND
POSITION(S) TERM OF OFFICE COMPLEX
NAME, ADDRESS HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
AND AGE WITH FUNDS TIME SERVED* (1) DURING PAST FIVE YEARS BY DIRECTOR HELD BY DIRECTOR
------------- ----------- ---------------- ---------------------------- ------------- --------------------
Douglas A. Hacker Director 1996 Executive Vice President - 83 Nash Finch Company
(Age 49) Strategy of United Airlines (food distributor)
P.O. Box 66100 (airline) since December,
Chicago, IL 60666 2002 (formerly President of
UAL Loyalty Services
(airline) from September,
2001 to December, 2002;
Executive Vice President and
Chief Financial Officer of
United Airlines from July,
1999 to September, 2001;
Senior Vice President-
Finance from March, 1993 to
July, 1999).
Janet Langford Kelly Director 1996 Partner, Zelle, Hoffman, 83 None
(Age 47) Voelbel, Mason & Gette LLP
9534 W. Gull Lake (law firm) since March,
Drive 2005; Adjunct Professor of
Richland, MI 49083- Law, Northwestern
8530 University, since September,
2004 (formerly Chief
Administrative Officer and
Senior Vice President, Kmart
Holding Corporation
(consumer goods), from
September, 2003 to March,
2004; Executive Vice
President-Corporate
Development and
Administration, General
Counsel and Secretary,
Kellogg Company (food
manufacturer), from
September, 1999 to August,
2003; Senior Vice President,
Secretary and General
Counsel, Sara Lee
Corporation (branded,
packaged, consumer-products
manufacturer) from January,
1995 to September, 1999).
|
NUMBER OF
PORTFOLIOS IN
FUND
POSITION(S) TERM OF OFFICE COMPLEX
NAME, ADDRESS HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
AND AGE WITH FUNDS TIME SERVED* (1) DURING PAST FIVE YEARS BY DIRECTOR HELD BY DIRECTOR
------------- ----------- ---------------- ---------------------------- ------------- --------------------
Richard W. Lowry Director 1995 Private Investor since 85(3) None
(Age 69) August, 1987 (formerly
10701 Charleston Chairman and Chief Executive
Drive Officer, U.S. Plywood
Vero Beach, FL 32963 Corporation (building
products manufacturer)).
Charles R. Nelson Director 1981 Professor of Economics, 83 None
(Age 62) University of Washington,
Department of since January, 1976; Ford
Economics and Louisa Van Voorhis
University of Professor of Political
Washington Economy, University of
Seattle, WA 98195 Washington, since September,
1993 (formerly Director,
Institute for Economic
Research, University of
Washington from September,
2001 to June, 2003); Adjunct
Professor of Statistics,
University of Washington,
since September, 1980;
Associate Editor, Journal of
Money Credit and Banking,
since September, 1993;
consultant on econometric
and statistical matters.
John J. Neuhauser Director 1985 Academic Vice President and 85(3,4) Saucony, Inc.
(Age 63) Dean of Faculties since (athletic footwear)
84 College Road August, 1999, Boston College
Chestnut Hill, MA (formerly Dean, Boston
02467-3838 College School of Management
from September, 1977 to
August, 1999).
Patrick J. Simpson Director 2000 Partner, Perkins Coie L.L.P. 83 None
(Age 61) (law firm).
1120 N.W. Couch
Street
Tenth Floor
Portland, OR 97209-
4128
|
NUMBER OF
PORTFOLIOS IN
FUND
POSITION(S) TERM OF OFFICE COMPLEX
NAME, ADDRESS HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
AND AGE WITH FUNDS TIME SERVED* (1) DURING PAST FIVE YEARS BY DIRECTOR HELD BY DIRECTOR
------------- ----------- ---------------- ---------------------------- ------------- --------------------
Thomas E. Stitzel Director 1998 Business Consultant since 83 None
(Age 69) 1999 (formerly Professor of
2208 Tawny Woods Finance from 1975 to 1999,
Place College of Business, Boise
Boise, ID 83706 State University); Chartered
Financial Analyst.
Thomas C. Theobald Director 1996 Partner and Senior Advisor, 83 Anixter
(Age 68)(5) and Chicago Growth Partners International
8 Sound Shore Drive, Chairman (private equity investing) (network support
Suite 285 of the since September, 2004 equipment
Greenwich, CT 06830 Board (formerly Managing Director, distributor);
William Blair Capital Ventas, Inc. (real
Partners (private equity estate investment
investing) from September, trust); Jones Lang
1994 to September, 2004). LaSalle (real estate
management services)
and Ambac Financial
(financial guaranty
insurance)
Anne-Lee Verville Director 1998 Retired since 1997 (formerly 83(4) Chairman of the
(Age 60) General Manager, Global Board of Directors,
359 Stickney Hill Road Education Industry, IBM Enesco Group, Inc.
Hopkinton, NH 03229 Corporation (computer and (designer, importer
technology) from 1994 to and distributor of
1997). giftware and
collectibles)
Richard L. Woolworth Director 1991 Retired since December 2003 83 Northwest Natural
(Age 64) (formerly Chairman and Chief Gas Co. (natural gas
100 S.W. Market Street Executive Officer, The service provider)
#1500 Regence Group (regional
Portland, OR 97207 health insurer); Chairman
and Chief Executive Officer,
BlueCross BlueShield of
Oregon; Certified Public
Accountant, Arthur Young &
Company)
|
INTERESTED DIRECTOR:
NUMBER OF
PORTFOLIOS IN
FUND
POSITION(S) TERM OF OFFICE COMPLEX
NAME, ADDRESS HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
AND AGE WITH FUNDS TIME SERVED* (1) DURING PAST FIVE YEARS BY DIRECTOR HELD BY DIRECTOR
------------- ----------- ---------------- ---------------------------- ------------- --------------------
William E. Mayer(2) Director 1994 Partner, Park Avenue Equity 85(3) Lee Enterprises
(Age 65) Partners (private equity) (print media), WR
399 Park Avenue since February, 1999 Hambrecht + Co.
Suite 3204 (formerly Partner, (financial service
New York, NY 10022 Development Capital provider); Reader's
LLC from November 1996 to Digest (publishing);
February, 1999). OPENFIELD Solutions
(retail industry
technology provider)
|
* Each director serves for an indefinite term until the date the director resigns, retires or is removed in accordance with the Bylaws of each Fund.
(1) As of December 31, 2004, the Columbia Complex consisted of 127 open-end and 11 closed end management investment company portfolios. In October 2003, the trustees of the Liberty Funds and Stein Roe Funds (both as defined above) were elected to the boards of the Columbia Funds; simultaneous with that election, Patrick J. Simpson and Richard L. Woolworth, who had been directors/trustees of the Columbia Funds were appointed to serve as trustees of the Liberty Funds and Stein Roe Funds. The date shown is the earliest date on which a trustee/director was elected or appointed to the board of a Fund in the Fund Complex.
(2) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht + Co.
(3) Messrs. Lowry, Neuhauser and Mayer also serve as directors/trustees of the All-Star Funds.
(4) Mr. Neuhauser and Ms. Verville also serve as disinterested directors of Columbia Management Multi-Strategy Hedge Fund, LLC, which is advised by the Advisor.
(5) Mr. Theobald was appointed as Chairman of the Board effective December 10, 2003.
PRINCIPAL OFFICERS:
TERM OF
OFFICE AND
POSITION (S) LENGTH OF
NAME, ADDRESS HELD TIME PRINCIPAL OCCUPATION(S)
AND AGE WITH FUNDS SERVED DURING PAST FIVE YEARS
------------- ------------- ----------- ----------------------------------------------
Christopher L. Wilson President Since 2004 Head of Mutual Funds since August, 2004 and
(Age 48) Managing Director of the Advisor since
One Financial Center September, 2005; President of the Columbia
Boston, MA 02111 Funds, Liberty Funds and Stein Roe Funds since
October, 2004; President and Chief Executive
Officer of the Nations Funds since January,
2005; President of the Galaxy Funds since
April, 2005; Director of Bank of America
Liquidity Funds, plc since May, 2005; Director
of Bank of America Capital Management
(Ireland), Limited since May, 2005; Director
of FIM Funding, Inc. since January, 2005;
Senior Vice President of Columbia Management
Distributors, Inc. since January, 2005;
Director of Columbia Management Services, Inc.
since January, 2005 (formerly Senior Vice
President of Columbia Management from January,
2005 to August, 2005; Senior Vice President of
BACAP Distributors, LLC from January, 2005 to
July, 2005; President and Chief Executive
Officer, CDC IXIS Asset Management Services,
Inc. from September, 1998 to August, 2004).
J. Kevin Connaughton Treasurer Since 2000 Treasurer of the Columbia Funds since October,
(Age 41) 2003 and of the Liberty Funds, Stein Roe Funds
One Financial Center and All-Star Funds since December, 2000;
Boston, MA 02111 Managing Director of the Advisor since
September, 2005 (formerly Vice President of
Columbia Management from April, 2003 to
August, 2005; President of the Columbia Funds,
Liberty Funds and Stein Roe Funds from
February, 2004 to October, 2004; Chief
Accounting Officer and Controller of the
Liberty Funds and of the All-Star Funds from
February, 1998 to October, 2000); Treasurer of
the Galaxy Funds from September, 2002 to
November, 2005; (formerly Treasurer from
December, 2002 to December 2004 and President
from February, 2004 to December, 2004 of the
Columbia Management Multi-Strategy Hedge Fund,
LLC; Vice President of Colonial Management
Associates, Inc. from February, 1998 to
October, 2000).
Mary Joan Hoene Senior Vice Since 2004 Senior Vice President and Chief Compliance
(Age 56) President and Officer of the Columbia Funds, Liberty Funds,
100 Federal Street Chief Stein Roe Funds and All-Star Funds since
Boston, MA 02110 Compliance August, 2004; Chief Compliance Officer of the
Officer Columbia Management Multi- Strategy Hedge
Fund, LLC since August, 2004; Chief Compliance
Officer of the BACAP Alternative
Multi-Strategy Hedge Fund since October, 2004
(formerly Partner, Carter, Ledyard & Milburn
LLP from January, 2001 to August, 2004;
Counsel, Carter, Ledyard & Milburn LLP from
November, 1999 to December, 2000; Vice
President and Counsel, Equitable Life
Assurance Society of the United States from
April, 1998 to November, 1999).
|
Michael G. Clarke Chief Since 2004 Chief Accounting Officer of the Columbia
(Age 35) Accounting Funds, Liberty Funds, Stein Roe Funds and
One Financial Center Officer All-Star Funds since October, 2004; Managing
Boston, MA 02111 Director of the Advisor since September 2005
(formerly Controller of the Columbia Funds,
Liberty Funds, Stein Roe Funds and All-Star
Funds from May, 2004 to October, 2004;
Assistant Treasurer from June, 2002 to May,
2004; Vice President, Product Strategy &
Development of the Liberty Funds and Stein Roe
Funds from February, 2001 to June, 2002;
Assistant Treasurer of the Liberty Funds,
Stein Roe Funds and the All- Star Funds from
August, 1999 to February, 2001; Audit Manager,
Deloitte & Toche LLP from May, 1997 to August,
1999).
Jeffrey R. Coleman Controller Since 2004 Controller of the Columbia Funds, Liberty
(Age 35) Funds, Stein Roe Funds and All-Star Funds
One Financial Center since October, 2004 (formerly Vice President
Boston, MA 02111 of CDC IXIS Asset Management Services, Inc.
and Deputy Treasurer of the CDC Nvest Funds
and Loomis Sayles Funds from February, 2003 to
September, 2004; Assistant Vice President of
CDC IXIS Asset Management Services, Inc. and
Assistant Treasurer of the CDC Nvest Funds
from August, 2000 to February, 2003; Tax
Manager of PFPC, Inc. from November, 1996 to
August, 2000).
R. Scott Henderson Secretary Since 2004 Secretary of the Columbia Funds, Liberty Funds
(Age 46) and Stein Roe Funds since December, 2004
One Financial Center (formerly Of Counsel, Bingham McCutchen from
Boston, MA 02111 April, 2001 to September, 2004; Executive
Director and General Counsel, Massachusetts
Pension Reserves Investment Management Board
from September, 1997 to March, 2001).
|
Board of Directors
The directors of the Funds are responsible for the overall management and supervision of the Funds' affairs and for protecting the interests of the shareholders. The directors meet periodically throughout the year to oversee the Funds' activities, review contractual arrangements with service providers for the Funds and review the Funds' performance. The directors have created several committees to perform specific functions for the Funds.
AUDIT COMMITTEE
Ms. Verville and Messrs. Hacker, Stitzel and Woolworth are members of the Audit Committee of the Board of Directors of the Funds. The Audit Committee's functions include making recommendations to the Directors regarding the selection and performance of the independent accountants, and reviewing matters relative to accounting and auditing practices and procedures, accounting records, and the internal accounting controls, of the Funds and certain service providers. For the fiscal year ended August 31, 2005, the Audit Committee convened seven times.
GOVERNANCE COMMITTEE
Messrs. Lowry, Mayer, Simpson and Theobald are members of the Governance Committee of the Board of Directors of the Funds. The Governance Committee's functions include recommending to the directors nominees for independent directors positions and for appointments to various committees, performing periodic evaluations of the effectiveness of the Board, reviewing and recommending to the Board policies and practices to be followed in carrying out the directors' duties and responsibilities and reviewing and making recommendations to the Board regarding the compensation of the directors who are not affiliated with the Funds' investment advisor. The Governance Committee will consider candidates for directors recommended by shareholders. Written recommendations with supporting information should be directed to the Committee, in care of the Funds. For the fiscal year ended August 31, 2005, the Governance Committee convened six times.
ADVISORY FEES & EXPENSES COMMITTEE
Ms. Kelly and Messrs. Mayer, Nelson and Neuhauser are members of the Advisory Fees & Expenses Committee of the Board of Directors of the Funds. The Advisory Fees & Expenses Committee's functions include reviewing and making recommendations to the
Board as to contracts requiring approval of a majority of the disinterested directors and as to any other contracts that may be referred to the Committee by the Board. For the fiscal year ended August 31, 2005, the Advisory Fees & Expenses Committee convened nine times.
COMPLIANCE COMMITTEE
Ms. Kelly, Messrs. Nelson, Simpson and Stitzel and Ms. Verville are members of the Compliance Committee of the Board of Directors of the Funds. Mr. Stitzel became a member of the Compliance Committee on May 8, 2005. The Compliance Committee's functions include providing oversight of the monitoring processes and controls regarding the Funds. The Committee uses legal, regulatory and internal rules, policies, procedures and standards other than those relating to accounting matters and oversight of compliance by the Funds' investment adviser, principal underwriter and transfer agent. For the fiscal year ended August 31, 2005, the Compliance Committee convened four times.
INVESTMENT OVERSIGHT COMMITTEES
Each director of the Funds also serves on an Investment Oversight Committee ("IOC"). Each IOC is responsible for monitoring, on an ongoing basis, a select group of funds in the Columbia Funds Complex and give particular consideration to such matters as the Funds' adherence to their investment mandates, historical performance, changes in investment processes and personnel, and proposed changes to investment objectives. Investment personnel who manage the Funds attend IOC meetings from time to time to assist each IOC in its review of the Funds. Each IOC meets four times a year. The following are members of the respective IOCs and the general categories of funds in the Fund Complex which they review:
IOC #1: Messrs. Lowry, Mayer and Neuhauser are responsible for reviewing
funds in the following asset categories: Large Growth
Diversified, Large Growth Concentrated, Small Growth, Outside
Managed (i.e., sub-advised) and Municipal.
IOC #2: Mr. Hacker and Ms. Verville are responsible for reviewing funds
in the following asset categories: Large Blend, Small Blend,
Foreign Stock, Fixed Income - Multi Sector, Fixed Income - Core
and Young Investor.
IOC#3: Messrs. Theobald and Stitzel and Ms. Kelly are responsible for
reviewing funds in the following asset categories: Large Value,
Mid Cap Value, Small Value, Asset Allocation, High Yield and
Money Market.
IOC#4: Messrs. Nelson, Simpson and Woolworth will be responsible for
reviewing funds in the following asset categories: Large/MultiCap
Blend, Mid Cap Growth, Small Growth, Asset Allocation, Specialty
Equity and Taxable Fixed Income.
|
The following table sets forth the dollar range of shares owned by each director as of December 31, 2004 of (i) each individual Fund and (ii) all of the funds in the same family of investment companies as the Funds:
DISINTERESTED DIRECTORS:
DOUGLAS A. JANET LANGFORD RICHARD W.
NAME OF FUND HACKER KELLY LOWRY
------------ ---------- ---------------- -----------
Balanced Fund None None None
Mid Cap Growth Fund None $50,001-$100,000 None
Small Cap Growth Fund I None None None
Real Estate Equity Fund None None None
Strategic Investor Fund None None None
Technology Fund None None None
Conservative High Yield Fund None None None
Oregon Intermediate Municipal Bond None None None
Fund
|
AGGREGATE DOLLAR RANGE OF FUND SHARES IN FUNDS OVERSEEN BY DIRECTOR IN FAMILY OF INVESTMENT COMPANIES: OVER $100,000 OVER $100,000 OVER $100,000 |
DR. CHARLES R. JOHN J.
NAME OF FUND NELSON NEUHAUSER
------------ ---------------- ---------------
Balanced Fund None None
Mid Cap Growth Fund $50,001-$100,000 None
Small Cap Growth Fund I None None
Real Estate Equity Fund None None
Strategic Investor Fund None None
Technology Fund None None
Conservative High Yield Fund None None
Oregon Intermediate Municipal Bond None None
Fund
AGGREGATE DOLLAR RANGE OF FUND
SHARES IN FUNDS OVERSEEN BY
DIRECTOR IN FAMILY OF
INVESTMENT COMPANIES: OVER $100,000 OVER $100,000
|
PATRICK J. THOMAS E.
NAME OF FUND SIMPSON STITZEL
------------ ---------------- ---------------
Balanced Fund $10,001-$50,000 None
Mid Cap Growth Fund $10,001-$50,000 None
Small Cap Growth Fund I None None
Real Estate Equity Fund $10,001-$50,000 None
Strategic Investor Fund None $10,001-$50,000
Technology Fund None None
Conservative High Yield Fund None None
Oregon Intermediate Municipal Bond None None
Fund
AGGREGATE DOLLAR RANGE OF FUND
SHARES IN FUNDS OVERSEEN BY
DIRECTOR IN FAMILY OF
INVESTMENT COMPANIES: OVER $100,000 OVER $100,000
|
THOMAS C. ANNE-LEE RICHARD W.
NAME OF FUND THEOBALD VERVILLE WOOLWORTH
------------ ---------------- --------------- ---------------
Balanced Fund None None None
Mid Cap Growth Fund None None $1-$10,000
Small Cap Growth Fund I $10,001-$50,000 None $1-$10,000
Real Estate Equity Fund None None None
Strategic Investor Fund $10,001-$50,000 None Over $100,000
Technology Fund None None $1-$10,000
Conservative High Yield Fund None None None
Oregon Intermediate Municipal None None $10,001-$50,000
Bond Fund
AGGREGATE DOLLAR RANGE OF
FUND SHARES IN FUNDS
OVERSEEN BY DIRECTOR IN
FAMILY OF INVESTMENT
COMPANIES: OVER $100,000 *OVER $100,000 OVER $100,000
|
INTERESTED DIRECTORS:
WILLIAM E.
NAME OF FUND MAYER
------------ ----------------
Balanced Fund None
Mid Cap Growth Fund None
Small Cap Growth Fund I None
Real Estate Equity Fund None
Strategic Investor Fund None
Technology Fund None
Conservative High Yield Fund None
Oregon Intermediate Municipal None
Bond Fund
AGGREGATE DOLLAR RANGE OF FUND
SHARES IN FUNDS OVERSEEN BY
DIRECTOR IN FAMILY OF $50,001-$100,000
INVESTMENT COMPANIES:
|
As of December 31, 2004, none of the disinterested directors or nominees or members of their immediate families owned any securities of the Advisor or any other entity directly or indirectly controlling, controlled by, or under common control with the Advisor.
Approval of Investment Advisory Contract
Each of the Funds has entered into an investment advisory contract with the Advisor. Each investment advisory contract is subject to annual approval of the Board of Directors, including a majority of disinterested directors. The existing contracts for the Funds were considered and approved at in-person meetings of the Funds' Boards of Directors held on October 12, 2005. In determining the reasonableness of the advisory fees under each of the contracts, 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 Advisor,
- Fall-out benefits realized by the Advisor from services as advisor to the Funds,
- A comparison of fee structures with other mutual funds, and
- The existence of economies of scale with respect to the provision of investment advice to the Funds.
In reviewing the quality of services provided by the Advisor, the directors
reviewed the performance and expense rankings of the Funds as compared to their
peers, based upon information compiled by Lipper, Inc. The directors reviewed
the following information: (1) total expense rankings within each Fund's expense
group, (2) actual management fee rankings of each Fund within its expense group,
(3) contractual management fee rankings of each Fund within its expense group
and (4) performance rankings within each Fund's peer universe for the one-,
three-, five- and ten-year periods. In addition, the directors reviewed data for
each Fund comparing various return rankings of the Fund versus the Fund's actual
management or total expense ranking. From this information, an overall Fund
assessment ranking is made for each Fund. All of the Funds received a
satisfactory ranking by the directors.
The directors also reviewed data related to the profitability of the Advisor with respect to its contract with each of the Funds. The directors considered the additional benefits to the Advisor as a result of its relationship with the Funds. The directors also considered the benefits to affiliates of the Advisor as the result of its management of the Funds.
After considering these and other factors, and each Fund's specific circumstances, the directors concluded that each Fund's advisory contract with the Advisor was reasonable for such Fund and in the best interests of its shareholders. During their deliberations, the directors requested from the Advisor all information reasonably necessary for the directors to evaluate each of the advisory contracts for the Funds. The disinterested directors were also assisted by, and met separately with, their independent counsel.
See the section entitled "INVESTMENT ADVISORY AND OTHER SERVICES PROVIDED BY AFFILIATES" for further information about the Advisor and each Fund's investment advisory contract.
Director Compensation:
The directors serve as directors/trustees of all open-end funds managed by the Advisor for which each director will receive an annual retainer of $45,000, an attendance fee of $9,500 for each regular and special joint board meeting and $1,000 for each special telephonic joint board meeting. Beginning in December 2003, Mr. Theobald began serving as the Chairman of the Board. As the independent chairman of the board, Mr. Theobald receives a supplemental retainer at the annual rate of $100,000; the chair of the Audit Committee receives a supplemental retainer at the annual rate of $10,000; the chair of each other committee receives a supplemental retainer at the annual rate of $5,000. Members of each committee, except the Audit Committee, receive $1,500 for each committee meeting. Each Audit Committee member receives $2,000 for each Audit Committee meeting. Committee members receive $1,500 for each special committee meeting attended on a day other than a regular joint board meeting day. Two-thirds of the director fees are allocated among the Funds based on each Fund's relative net assets and one-third of the fees is divided equally among the Funds.
The following table sets forth compensation earned by the Funds' directors for the fiscal year ended August 31, 2005. No officer of the Funds received any compensation from the Funds in 2005.
DOUGLAS A. JANET LANGFORD RICHARD W.
AGGREGATE COMPENSATION FROM FUND HACKER KELLY LOWRY
-------------------------------- ---------- -------------- ----------
Balanced Fund $ 1,322 $ 1,523 $ 1,253
Mid Cap Growth Fund $ 2,170 $ 2,494 $ 2,054
Small Cap Growth Fund I $ 1,337 $ 1,551 $ 1,271
Real Estate Equity Fund $ 2,174 $ 2,492 $ 2,054
Strategic Investor Fund $ 1,230 $ 1,404 $ 1,160
Technology Fund $ 454 $ 519 $ 429
Conservative High Yield Fund $ 3,805 $ 4,359 $ 3,594
Oregon Intermediate Municipal
Bond Fund $ 1,799 $ 2,030 $ 1,694
TOTAL COMPENSATION FROM
FUND COMPLEX: $135,000 $148,500 $150,700
|
DR. CHARLES R. JOHN J.
AGGREGATE COMPENSATION FROM FUND NELSON NEUHAUSER
-------------------------------- -------------- ---------
Balanced Fund $ 1,403 $ 1,314
Mid Cap Growth Fund $ 2,302 $ 2,152
Small Cap Growth Fund I $ 1,424 $ 1,341
Real Estate Equity Fund $ 2,298 $ 2,146
Strategic Investor Fund $ 1,297 $ 1,208
Technology Fund $ 480 $ 448
Conservative High Yield Fund $ 4,020 $ 3,753
Oregon Intermediate Municipal $ 1,890 $ 1,754
Bond Fund
TOTAL COMPENSATION FROM
FUND COMPLEX: $141,500 $158,254
|
PATRICK J. THOMAS E.
AGGREGATE COMPENSATION FROM FUND SIMPSON(2) STITZEL
-------------------------------- ---------- ---------
Balanced Fund $ 1,320 $ 1,407
Mid Cap Growth Fund $ 2,167 $ 2,306
Small Cap Growth Fund I $ 1,336 $ 1,429
Real Estate Equity Fund $ 2,166 $ 2,308
Strategic Investor Fund $ 1,226 $ 1,303
Technology Fund $ 453 $ 481
Conservative High Yield Fund $ 3,791 $ 4,036
Oregon Intermediate Municipal $ 1,728 $ 1,888
Bond Fund
TOTAL COMPENSATION FROM
FUND COMPLEX: $129,000 $149,000
|
THOMAS C. ANNE-LEE RICHARD W.
AGGREGATE COMPENSATION FROM FUND THEOBALD(3) VERVILLE(4) WOOLWORTH
-------------------------------- ----------- ----------- ----------
Balanced Fund $ 2,260 $ 1,479 $ 1,197
Mid Cap Growth Fund $ 3,781 $ 2,425 $ 1,970
Small Cap Growth Fund I $ 2,183 $ 1,498 $ 1,199
Real Estate Equity Fund $ 3,830 $ 2,430 $ 1,986
Strategic Investor Fund $ 2,210 $ 1,372 $ 1,128
Technology Fund $ 803 $ 507 $ 414
Conservative High Yield Fund $ 6,725 $ 4,249 $ 3,473
Oregon Intermediate Municipal $ 3,310 $ 2,017 $ 1,672
Bond Fund
TOTAL COMPENSATION FROM
FUND COMPLEX: $172,500 $157,000 $131,000
|
INTERESTED DIRECTORS:
WILLIAM E
AGGREGATE COMPENSATION FROM FUND MAYER
-------------------------------- ---------
Balanced Fund $ 1,463
Mid Cap Growth Fund $ 2,398
Small Cap Growth Fund I $ 1,488
Real Estate Equity Fund $ 2,392
Strategic Investor Fund $ 1,349
Technology Fund $ 500
Conservative High Yield Fund $ 4,186
Oregon Intermediate Municipal $ 1,966
Bond Fund
TOTAL COMPENSATION FROM
FUND COMPLEX: $166,700
|
(2) During the fiscal year ended August 31, 2005, and the calendar year ended December 31, 2004, Mr. Simpson deferred $1,320, $2,167, $1,336, $2,166, $1,226, $453, $3,791 and $1,728 of his compensation from the Balanced Fund, Mid Cap Growth Fund, Small Cap Growth Fund I, Real Estate Equity Fund, Strategic Investor Fund, Technology Fund, Conservative High Yield Fund and Oregon
Intermediate Municipal Bond Fund, respectively, and $129,000 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2004, the value of Mr. Simpson's account under the plan was $143,636.
(3) During the fiscal year ended August 31, 2005, and the calendar year ended December 31, 2004, Mr. Theobald deferred $1,521, $2,570, $1,428, $2,627, $1,524, $550, $4,613 and $2,363 of his compensation from the Balanced Fund, Mid Cap Growth Fund, Small Cap Growth Fund I, Real Estate Equity Fund, Strategic Investor Fund Technology Fund, Conservative High Yield Fund and Oregon Intermediate Municipal Bond Fund, respectively, and $90,000 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2004, the value of Mr. Theobald's account under the plan was $157,328.
(4) During the fiscal year ended August 31, 2004, and the calendar year ended December 31, 2004, Ms. Verville deferred $174, $271, $205, $248, $126, $51, $433 and $144 of her compensation from the Balanced Fund, Mid Cap Growth Fund, Small Cap Growth Fund I, Real Estate Equity Fund, Strategic Investor Fund, Technology Fund, Conservative High Yield Fund and Oregon Intermediate Municipal Bond Fund, respectively, and $55,000of her total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2004, the value of Ms. Verville's account under the plan was $653,275.
PORTFOLIO MANAGERS
OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS
THE FOLLOWING TABLE SHOWS THE NUMBER AND ASSETS OF OTHER INVESTMENT ACCOUNTS (OR PORTIONS OF INVESTMENT ACCOUNTS) THAT THE FUNDS' PORTFOLIO MANAGERS MANAGED AS OF THE FUNDS' FISCAL YEAR END.
Columbia Mid Cap Growth Fund
OTHER SEC-REGISTERED
OPEN-END AND CLOSED-END OTHER POOLED INVESTMENT
FUNDS VEHICLES OTHER ACCOUNTS
------------------------ ----------------------- ------------------------
Number of Number of Number of
PORTFOLIO MANAGERS accounts Assets accounts Assets accounts Assets
------------------ --------- ------------ --------- ------ --------- ------------
Kenneth A. Korngiebel 7 $360 million 0 N/A 47 $448 million
|
COLUMBIA SMALL CAP GROWTH FUND I
OTHER SEC-REGISTERED
OPEN-END AND CLOSED-END OTHER POOLED INVESTMENT
FUNDS VEHICLES OTHER ACCOUNTS
------------------------ ----------------------- ------------------------
Number of Number of Number of
PORTFOLIO MANAGERS accounts Assets accounts Assets accounts Assets
------------------ --------- ------------ --------- ------ --------- ------------
Kenneth A. Korngiebel 7 $1.1 billion 0 N/A 47 $448 million
|
COLUMBIA REAL ESTATE EQUITY FUND
OTHER SEC-REGISTERED
OPEN-END AND CLOSED-END OTHER POOLED INVESTMENT
FUNDS VEHICLES OTHER ACCOUNTS
------------------------ -------------------------- ------------------------
Number of Number of Number of
PORTFOLIO MANAGERS accounts Assets accounts Assets accounts Assets
------------------ --------- ------------ --------- -------------- --------- ------------
Robert McConnaughey (1) 1 $1.6 billion 0 N/A 3 $2.4 million
David I. Hoffman (2) 13 $6.9 billion 2 $567.4 million 3,301 $3.1 billion
|
(1) Mr. McConnaughey began managing the Fund as of October, 2005.
(2) Mr. Hoffman began managing the Fund as of November, 2005.
COLUMBIA TECHNOLOGY FUND
OTHER SEC-REGISTERED
OPEN-END AND CLOSED-END OTHER POOLED INVESTMENT
FUNDS VEHICLES OTHER ACCOUNTS
------------------------ ----------------------- --------------------
Number of Number of Number of
PORTFOLIO MANAGERS accounts Assets accounts Assets accounts Assets
------------------ --------- ------------ --------- ------ --------- --------
Theodore R. Wendell 1 $100 million 0 N/A 9 $400,000
Wayne M. Collette 1 $119 million 0 N/A 3 $275,000
|
COLUMBIA STRATEGIC INVESTOR FUND
OTHER SEC-REGISTERED
OPEN-END AND CLOSED-END OTHER POOLED INVESTMENT
FUNDS VEHICLES OTHER ACCOUNTS
------------------------ ------------------------ --------------------
Number of Number of Number of
PORTFOLIO MANAGERS accounts Assets accounts Assets accounts Assets
------------------ --------- ------------ --------- ------ --------- --------
Emil A. Gjester 2 $1.5 billion 0 N/A 5 $122,000
|
COLUMBIA BALANCED FUND
OTHER SEC-REGISTERED
OPEN-END AND CLOSED-END OTHER POOLED INVESTMENT
FUNDS VEHICLES OTHER ACCOUNTS
-------------------------- ------------------------- ------------------------
Number of Number of Number of
PORTFOLIO MANAGERS accounts Assets accounts Assets accounts Assets
------------------ --------- -------------- ---------- ------------ --------- ------------
Leonard A. Aplet 13 $ 3.3 billion 6 $1.8 billion 90 $3.2 billion
Guy W. Pope 1 $ 526 million 0 N/A 11 $117 million
Stephen C. Peacher 0 N/A 0 N/A 6 $3.8 million
Ronald B. Stahl 13 $ 3.3 billion 6 $1.8 billion 90 $3.2 billion
Jeffrey D. Huffman (3) 4 $623.3 million 0 N/A 4 $ 128,000
|
(3) Mr. Huffman began managing the Fund as of December, 2005.
COLUMBIA OREGON INTERMEDIATE MUNICIPAL BOND FUND
OTHER SEC-REGISTERED
OPEN-END AND CLOSED-END OTHER POOLED INVESTMENT
FUNDS VEHICLES OTHER ACCOUNTS
------------------------ ------------------------ ------------------------
Number of Number of Number of
PORTFOLIO MANAGERS accounts Assets accounts Assets accounts Assets
------------------ --------- ------------ --------- ------------ --------- ------------
Brian M. McGreevy 4 $514 million 4 $979 million 13 $772 million
|
COLUMBIA CONSERVATIVE HIGH YIELD FUND
OTHER SEC-REGISTERED
OPEN-END AND CLOSED-END OTHER POOLED INVESTMENT
FUNDS VEHICLES OTHER ACCOUNTS
------------------------ ------------------------ ------------------------
Number of Number of Number of
PORTFOLIO MANAGERS accounts Assets accounts Assets accounts Assets
------------------ --------- ------------ --------- ------------ --------- ------------
Stephen C. Peacher 0 N/A 0 N/A 6 $3.8 million
Kevin L. Cronk 14 $9.1 billion 11 $1.2 billion 4 $407 million
Thomas A. LaPointe 14 $9.1 billion 11 $1.2 billion 5 $407 million
|
See "Potential conflicts of interest in managing multiple accounts" for information on how the Advisor addresses potential conflicts of interest resulting from an individual's management of more than one account.
OWNERSHIP OF SECURITIES
The table below shows the dollar ranges of shares of each Fund beneficially owned (as determined pursuant to Rule 16a-1(a)(2) under the Securities Exchange Act of 1934, as amended) by the portfolio managers listed above at the end of each Fund's most recent fiscal year:
Columbia Mid Cap Growth Fund
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND
PORTFOLIO MANAGER BENEFICIALLY OWNED
----------------- ---------------------------------------------
Kenneth A. Korngiebel $0
|
COLUMBIA SMALL CAP GROWTH FUND I
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND
PORTFOLIO MANAGER BENEFICIALLY OWNED
----------------- ---------------------------------------------
Kenneth A. Korngiebel $0
|
COLUMBIA REAL ESTATE EQUITY FUND
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND
PORTFOLIO MANAGERS BENEFICIALLY OWNED
------------------ ---------------------------------------------
Robert McConnaughey $0
David I. Hoffman $10,001 - $50,000
|
COLUMBIA TECHNOLOGY FUND
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND
PORTFOLIO MANAGERS BENEFICIALLY OWNED
------------------ ---------------------------------------------
Theodore R. Wendell $0
Wayne M. Collette $1 - $10,000
|
COLUMBIA STRATEGIC INVESTOR FUND
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND
PORTFOLIO MANAGER BENEFICIALLY OWNED
----------------- ---------------------------------------------
Emil A. Gjester $100,001 - $500,000
|
COLUMBIA BALANCED FUND
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND
PORTFOLIO MANAGERS BENEFICIALLY OWNED
------------------ ---------------------------------------------
Leonard A. Aplet $10,001 - $50,000
Guy W. Pope $50,000 - $100,000
Stephen C. Peacher $0
Ronald B. Stahl $10,001 - $50,000
Jeffrey D. Huffman $0
|
COLUMBIA OREGON INTERMEDIATE MUNICIPAL BOND FUND
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND
PORTFOLIO MANAGER BENEFICIALLY OWNED
----------------- ---------------------------------------------
Brian M. McGreevy $0
|
COLUMBIA CONSERVATIVE HIGH YIELD FUND
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND
PORTFOLIO MANAGERS BENEFICIALLY OWNED
------------------ ---------------------------------------------
Stephen C. Peacher $0
Kevin L. Cronk $0
Thomas A. LaPointe $0
|
COMPENSATION
As of the Funds' most recent fiscal year end, the portfolio managers received all of their compensation from the Advisor and its parent company, Columbia Management Group, in the form of salary, bonus, stock options and restricted stock. A portfolio manager's bonus is variable and is generally based on (1) an evaluation of the manager's investment performance and (2) the results of a peer and/or management review of such individual, which takes into account skills and attributes such as team participation, investment process, communication and professionalism. In evaluating investment performance, the Advisor generally considers the one-, three- and five-year performance of mutual funds and other accounts under the portfolio manager's oversight relative to the benchmarks and peer groups noted below, emphasizing each manager's three- and five-year performance. The Advisor may also consider a portfolio manager's performance in managing client assets in sectors and industries assigned to the manager as part of his or her investment team responsibilities, where applicable. For portfolio managers who also have group management responsibilities, another factor in their evaluation is an assessment of the group's overall investment performance.
COLUMBIA MID CAP GROWTH FUND
PORTFOLIO MANAGER PERFORMANCE BENCHMARK PEER GROUP ----------------- ------------------------ ------------------------------- Kenneth A. Korngiebel Russell Midcap Growth TR Morningstar Mid Growth Category |
COLUMBIA SMALL CAP GROWTH FUND I
PORTFOLIO MANAGER PERFORMANCE BENCHMARK PEER GROUP
----------------- ---------------------- ------------------------
Kenneth A. Korngiebel Russell 2000 Growth TR Morningstar Small Growth
Category
|
COLUMBIA REAL ESTATE EQUITY FUND
PORTFOLIO MANAGERS PERFORMANCE BENCHMARK PEER GROUP ------------------ --------------------- ------------------------------ Robert McConnaughey NAREIT Morningstar Specialty Category David I. Hoffman NAREIT Morningstar Specialty Category |
COLUMBIA TECHNOLOGY FUND
PORTFOLIO MANAGERS PERFORMANCE BENCHMARK PEER GROUP
------------------ ----------------------- ------------------------------
Theodore R. Wendell AMEX MERRILL LYNCH TECH Morningstar Specialty Category
100 - EQUAL $ WEIGHT
Wayne M. Collette AMEX MERRILL LYNCH TECH Morningstar Specialty Category
100 - EQUAL $ WEIGHT
|
COLUMBIA STRATEGIC INVESTOR FUND
PORTFOLIO MANAGER PERFORMANCE BENCHMARK PEER GROUP ----------------- --------------------- ------------------------------ Emil A. Gjester Russell 3000 Value TR Morningstar Mid Blend Category |
COLUMBIA BALANCED FUND
PORTFOLIO MANAGERS PERFORMANCE BENCHMARK PEER GROUP
------------------ ----------------------------- -------------------------------
Leonard A. Aplet 60-40 SP 500/Lehman Aggregate Morningstar Moderate Allocation
Bond Category
Guy W. Pope 60-40 SP 500/Lehman Aggregate Morningstar Moderate Allocation
Bond Category
Stephen C. Peacher 60-40 SP 500/Lehman Aggregate Morningstar Moderate Allocation
Bond Category
Ronald B. Stahl 60-40 SP 500/Lehman Aggregate Morningstar Moderate Allocation
Bond Category
Jeffrey D. Huffman 60-40 SP 500/Lehman Aggregate Morningstar Moderate Allocation
Bond Category
|
COLUMBIA OREGON INTERMEDIATE MUNICIPAL BOND FUND
PORTFOLIO MANAGER PERFORMANCE BENCHMARK PEER GROUP
----------------- ------------------------------- --------------------------------
Brian M. McGreevy Lehman General Obligation Index Lipper Other States Intermediate
Muni Debt Category
|
COLUMBIA CONSERVATIVE HIGH YIELD FUND
PORTFOLIO MANAGER PERFORMANCE BENCHMARK PEER GROUP
----------------- --------------------------------- -------------------------
Stephen C. Peacher JP Morgan Developed BB High Yield Lipper High Current Yield
Index Category
Kevin L. Cronk JP Morgan Developed BB High Yield Lipper High Current Yield
Index Category
Thomas A. LaPointe JP Morgan Developed BB High Yield Lipper High Current Yield
Index Category
|
The size of the overall bonus pool each year is determined by Columbia Management Group and depends in part on levels of compensation generally in the investment management industry (based on market compensation data) and the Advisor's profitability for the year, which is influenced by assets under management.
POTENTIAL CONFLICTS OF INTEREST IN MANAGING MULTIPLE ACCOUNTS
Like other investment professionals with multiple clients, a portfolio manager for a Fund may face certain potential conflicts of interest in connection with managing both the Fund and other accounts at the same time. The paragraphs below describe some of these potential conflicts, which the Advisor believes are faced by investment professionals at most major financial firms. The Advisor and the Directors of the Columbia Funds have adopted compliance policies and procedures that attempt to address certain of these potential conflicts.
The management of accounts with different advisory fee rates and/or fee structures, including accounts that pay advisory fees based on account performance ("performance fee accounts"), may raise potential conflicts of interest by creating an incentive to favor higher-fee accounts. These potential conflicts may include, among others:
The most attractive investments could be allocated to higher-fee accounts or performance fee accounts.
The trading of higher-fee accounts could be favored as to timing and/or execution price. For example, higher-fee accounts could be permitted to sell securities earlier than other accounts when a prompt sale is desirable or to buy securities at an earlier and more opportune time.
The trading of other accounts could be used to benefit higher-fee accounts (front-running).
The investment management team could focus their time and efforts primarily on higher-fee accounts due to a personal stake in compensation.
Potential conflicts of interest may also arise when the portfolio managers have personal investments in other accounts that may create an incentive to favor those accounts. As a general matter and subject to limited exceptions, the Advisor's investment professionals do not have the opportunity to invest in client accounts, other than the Columbia Funds.
A potential conflict of interest may arise when a Fund and other accounts purchase or sell the same securities. On occasions when a portfolio manager considers the purchase or sale of a security to be in the best interests of a Fund as well as other accounts, the Advisor's trading desk may, to the extent permitted by applicable laws and regulations, aggregate the securities to be sold or purchased in order to obtain the best execution and lower brokerage commissions, if any. Aggregation of trades may create the potential for unfairness to a Fund or another account if one account is favored over another in allocating the securities purchased or sold - for example, by allocating a
disproportionate amount of a security that is likely to increase in value to a favored account.
"Cross trades," in which one Columbia account sells a particular security to another account (potentially saving transaction costs for both accounts), may also pose a potential conflict of interest. Cross trades may be seen to involve a potential conflict of interest if, for example, one account is permitted to sell a security to another account at a higher price than an independent third party would pay. The Advisor and the Funds' Directors have adopted compliance procedures that provide that any transactions between a Fund and another Columbia-advised account are to be made at an independent current market price, as required by law.
Another potential conflict of interest may arise based on the different investment objectives and strategies of a Fund and other accounts. For example, another account may have a shorter-term investment horizon or different investment objectives, policies or restrictions than a Fund. Depending on another account's objectives or other factors, a portfolio manager may give advice and make decisions that may differ from advice given, or the timing or nature of decisions made, with respect to a Fund. In addition, investment decisions are the product of many factors in addition to basic suitability for the particular account involved. Thus, a particular security may be bought or sold for certain accounts even though it could have been bought or sold for other accounts at the same time. More rarely, a particular security may be bought for one or more accounts managed by a portfolio manager when one or more other accounts are selling the security (including short sales). There may be circumstances when purchases or sales of portfolio securities for one or more accounts may have an adverse effect on other accounts.
A Fund's portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. As a result, the portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as might be the case if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies.
A Fund's portfolio managers may be able to select or influence the selection of the brokers and dealers that are used to execute securities transactions for the Fund. In addition to executing trades, some brokers and dealers provide portfolio managers with brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934), which may result in the payment of higher brokerage fees than might have otherwise be available. These services may be more beneficial to certain funds or accounts than to others. Although the payment of brokerage commissions is subject to the requirement that the portfolio manager determine in good faith that the commissions are reasonable in relation to the value of the brokerage and research services provided to the fund, a portfolio manager's decision as to the selection of brokers and dealers could yield disproportionate costs and benefits among the funds and/or accounts that he or she manages.
The Advisor or an affiliate may provide more services (such as distribution or recordkeeping) for some types of funds or accounts than for others. In such cases, a portfolio manager may benefit, either directly or indirectly, by devoting disproportionate attention to the management of fund and/or accounts that provide greater overall returns to the investment manager and its affiliates.
A Fund's portfolio manager(s) may also face other potential conflicts of interest in managing the Fund, and the description above is not a complete description of every conflict that could be deemed to exist in managing both a Fund and other accounts. In addition, a Fund's portfolio manager may also manage other accounts (including their personal assets or the assets of family members) in their personal capacity. The management of these accounts may also involve certain of the potential conflicts described above. Investment personnel at the Advisor, including each Fund's portfolio manager, are subject to restrictions on engaging in personal securities transactions pursuant to Codes of Ethics adopted by the Advisor and each Fund, which contain provisions and requirements designed to identify and address certain conflicts of interest between personal investment activities and the interests of each Fund.
Share Ownership:
AS OF NOVEMBER 30, 2005, EACH DIRECTOR AND ALL OFFICERS AND DIRECTORS, AS A GROUP, OWNED OF RECORD OR BENEFICIALLY LESS THAN 1% OF THE OUTSTANDING SHARES OF EACH FUND.
As of November 30, 2005, 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:
BALANCED FUND-C
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- NFS LLC FEBO 5.52 NFS/FMTC ROLLOVER IRA FBO DELORES ANN DAVIS 2300 AZALEA RD CONCORD, NC 28025-6713 MERRILL LYNCH PIERCE FENNER & 10.72 SMITH FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTN FUND ADMINISTRATOR 4800 DEER LAKE DRIVE E FL 2 JACKSONVILLE, FL 32246-6484 FIRST CLEARING, LLC 5.49 DORIS R KORNEGAY & JOE ISAAC JT WROS 9563 BROKEN OAK BLVD JACKSONVILLE FL 32257 FERRIS BAKER WATTS INC. 22.83 DWIGHT P. PLOWMAN 79 YOUNG CIRCLE NEW FLORENCE, PA 15944-8320 |
BALANCED FUND-D
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- NFS LLC FEBO 13.13 NFS/FMTC R/O IRA FBO JOHN H CARR JR 5 BISHOP RD APT 106 WEST HARTFORD, CT 06119-1536 UBS FINANCIAL SERVICES INC. FBO 23.30 ROBERT BREIDENBAUGH CAROLYN BREIDENBAUGH JTWROS 369 E. CHURCH STREET ELMHURST IL 60126-3602 |
GLADIS WIST 16.23 12111 FAITH LN BOWIE MD 20715-2302 RBC DAIN RAUSCHER CUSTODIAN 7.31 JANIS D DOTSON INDIVIDUAL RETIREMENT ACCOUNT 48 PALM CT PAGOSA SPRINGS, CO 81147-9235 CITIGROUP GLOBAL MARKETS, INC 14.63 ATTN: PETER BOOTH, 7TH FLOOR 333 W 34TH ST NEW YORK NY 10001-2402 |
BALANCED FUND Z
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- CHARLES SCHWAB & CO INC 18.41 SPECIAL CUSTODY ACCT FOR EXCLUSIVE OF CUSTOMERS ATTN: MUTUAL FUNDS 101 MONTGOMERY STREET SAN FRANCISCO, CA 94104-4122 |
CONSERVATIVE HIGH YIELD FUND-A
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- CHARLES SCHWAB & CO INC 52.58 SPECIAL CUSTODY ACCT FOR EXCLUSIVE OF CUSTOMERS ATTN: MUTUAL FUNDS 101 MONTGOMERY ST SAN FRANCISCO CA 94104-4122 |
CONSERVATIVE HIGH YIELD FUND-B
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- CITIGROUP GLOBAL MARKETS, INC. 7.75 ATTN: PETER BOOTH, 7TH FLOOR 333 W 34TH ST NEW YORK NY 10001-2402 |
CONSERVATIVE HIGH YIELD FUND-C
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- MERRILL LYNCH PIERCE FENNER & SMITH 18.57 FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTN: FUND ADMINISTRATION 4800 DEER LAKE DR E FL 3 JACKSONVILLE FL 32246-6484 |
CONSERVATIVE HIGH YIELD FUND-D
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- MERRILL LYNCH PIERCE FENNER & SMITH 9.17 FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTN: FUND ADMINISTRATION 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 32246-6484 CITIGROUP GLOBAL MARKETS, INC. 9.39 ATTN: PETER BOOTH, 7TH FLOOR 333 W 34TH ST NEW YORK NY 10001-2402 |
CONSERVATIVE HIGH YIELD FUND-Z
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- BANK OF AMERICA NA 57.57 ATTN: JOAN WRAY/FUNDS ACCOUNTING 411 N AKARD STREETDALLAS, TX 75201-3307 CHARLES SCHWAB & CO INC 13.25 SPECIAL CUSTODY ACCT FOR EXCLUSIVE OF CUSTOMERS ATTN: MUTUAL FUNDS 101 MONTGOMERY ST SAN FRANCISCO CA 94104-4122 |
MID CAP GROWTH FUND-A
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- CHARLES SCHWAB & CO INC 14.54 SPECIAL CUSTODY ACCT FOR EXCLUSIVE OF CUSTOMERS ATTN: MUTUAL FUNDS 101 MONTGOMERY ST SAN FRANCISCO CA 94104-4122 |
MID CAP GROWTH FUND-C
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- MERRILL LYNCH PIERCE FENNER & 25.27 SMITH FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTN: FUND ADMINISTRATOR 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 32246-6484 A G EDWARDS & SONS CUST 5.47 FBO J GRAHAM RUSSELL ROLLOVER IRA 360 MONROE STREET DENVER, CO 80206-4445 LEGG MASON WOOD WALKER, INC. 5.43 PO BOX 1476 BALTIMORE, MD 21203-1476 |
MID CAP GROWTH FUND-D
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- NFS LLC FEBO 5.68 NFS/FMTC ROLLOVER IRA FBO KAREN WHITNEY 1427 W 86TH STREET, #329 INDIANAPOLIS, IN 46260-2103 NFS LLC FEBO 6.33 NFS/FMTC ROLLOVER IRA FBO JEFFREY H PATE 624 SALTER PL WESTFIELD, NJ 07090-1350 GREG KOYLE 8.94 ESNET MANAGEMENT GROUP LLC DANIEL W CAMPBELL 4303 N STONECREEK LANE PROVO, UT 84604-5003 |
MID CAP GROWTH FUND-G
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- BANK OF AMERICA NA ROLLOVER IRA 5.66 JUAN ROSAI 551 AMITY ROAD WOODBRIDGE CT 06525-1201 |
MID CAP GROWTH FUND-Z
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- CHARLES SCHWAB & CO INC 13.50 SPECIAL CUSTODY ACCT FOR EXCLUSIVE OF CUSTOMERS ATTN: MUTUAL FUNDS 101 MONTGOMERY ST SAN FRANCISCO CA 94104-4122 BANK OF AMERICA NA 23.74 ATTN: JOAN WRAY/FUNDS ACCOUNTING 411 N AKARD ST DALLAS, TX 75201-3307 |
OREGON INTERMEDIATE MUNICIPAL BOND FUND-A
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- WAYNE BARKER 22.41 15646 SEASIDE CT BROOKINGS OR 97415-9531 CHARLES SCHWAB & CO INC CUST 11.87 ATTN: MUTUAL FUNDS DEPT 101 MONTGOMERY ST SAN FRANCISCO CA 94104-4122 AMERICAN ENTERPRISE INVESTMENT 8.44 SVCS PO BOX 9446 MINNEAPOLIS MN 55440-9446 |
OREGON INTERMEDIATE MUNICIPAL BOND FUND-B
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- DAIN RAUSCHER INC FBO 15.99 GILLICI F JACKSON GILLICI F JACKSON REVOC LIV TRUST 611 NW 30TH ST CORVALLIS OR 97330-5144 AMERICAN ENTERPRISE INVEST SVCS 9.25 PO BOX 9446 MINNEAPOLIS MN 55440-9446 |
AMERICAN ENTERPRISE INVEST SVCS 9.22 PO BOX 9446 MINNEAPOLIS MN 55440-9446 DAIN RAUSCHER INC FBO 7.15 RUTH C LEAR GM LEAR IRREV LIV TRUST 440 NW ELKS DR APT 101 CORVALLIS OR 97330-3747 DEAN WITTER FBO 6.45 RELLA PANTENBURG & PO BOX 250 NEW YORK NY 10008-0250 NFSC LLC FEBO 7.30 ROBERT E WILLIAMS TTEE ROBERT WILLIAMS REVOC LIV TRUST 14404 SE WEBSTER RD APT 325 PORTLAND OR 97267-1972 FIRST CLEARING LLC 5.30 DEAN CRAIG 13451 SE 121ST PLACE CLACKAMAS, OR 97015 |
OREGON INTERMEDIATE MUNICIPAL BOND FUND-C
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- PIPER JAFFRAY FOR THE SOLE BENEFIT 18.50 OF ITS CUSTOMERS 1075 BAKER BUILDING ATTN: JAMI PODHRADSKY 706 SECOND AVENUE SOUTH MINNEAPOLIS MN 55402 RAYMOND JAMES & ASSOC INC 10.38 FBO SAUNDERS BARNEY 880 CARILLON PKWY ST PETERSBURG FL 33716-1100 RAYMOND JAMES & ASSOC INC 10.43 FBO WESTENHOUSE H 880 CARILLON PKWY ST PETERSBURG FL 33716-1100 MERRILL LYNCH PIERCE FENNER & SMITH 7.27 FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTN: FUND ADMINISTRATOR 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 32246-6484 |
RAYMOND JAMES & ASSOC INC 6.00 FBO WESTENHOUSE H&J 880 CARILLON PKWY ST PETERSBURG FL 33716-1100 NFS LLC FEBO 5.15 AMOS BRUSVEN TOD PEBBLE BRUSVEN 1032 WILLIAMS AVE WOODBURN, OR 97071-3735 NANCY D FRACKELTON 8.45 4938 SW ORCHARD LN PORTLAND, OR 97219-3362 RAYMOND JAMES & ASSOC INC 8.55 FBO STAVANG CARL 880 CARILLON PKWY ST PETERSBURG FL 33716-1100 RAYMOND JAMES & ASSOC INC 5.15 FBO HALVIN TRUST 880 CARILLON PKWY ST PETERSBURG FL 33716-1100 |
OREGON INTERMEDIATE MUNICIPAL BOND FUND-D
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- DAIN RAUSCHER INC FBO 22.97 LEWIS F ROTH LEWIS F ROTH REVOCLIVTRUST 4798 BECKER CIR SE ALBANY OR 97322-7139 LPL FINANCIAL SERVICES 10.35 9785 TOWNE CENTRE DR SAN DIEGO CA 92121-1968 PERSHING LLC 12.75 PO BOX 2052 JERSEY CITY NJ 07303-2052 DAIN RAUSCHER INC FBO 11.46 RUTH LEAR RUTH C LEAR TRUST 440 NW ELKS DR APT 101 CORVALLIS OR 97330-3747 LPL FINANCIAL SERVICES 14.21 9785 TOWNE CENTRE DR SAN DIEGO CA 92121-1968 |
NFSC LLC FEBO 7.20 FREDERICK A J KINGERY FREDERICK A J KINGERY TRUST 4163 SW GREENLEAF CT PORTLAND OR 97221-3271 AMERICAN ENTERPRISE INVESTMENT SVCS 5.16 PO BOX 9446 MINNEAPOLIS MN 55440-9446 AMERICAN ENTERPRISE INVESTMENT SVCS 6.32 P.O BOX 9446 MINNEAPOLIS MN 55440-9446 |
OREGON INTERMEDIATE MUNICIPAL BOND FUND-Z
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- CHARLES SCHWAB & CO INC 7.93 SPECIAL CUSTODY ACCT FOR EXCLUSIVE OF CUSTOMERS ATTN: MUTUAL FUNDS 101 MONTGOMERY ST SAN FRANCISCO CA 94104-4122 |
REAL ESTATE EQUITY FUND-A
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- CHARLES SCHWAB & CO INC 32.50 SPECIAL CUSTODY ACCT FOR EXCLUSIVE OF CUSTOMERS ATTN: MUTUAL FUNDS 101 MONTGOMERY ST SAN FRANCISCO CA 94104-4122 NATIONWIDE TRUST CO FSB 20.16 C/O IPO PORTFOLIO ACCOUNTING PO BOX 182029 COLUMBUS OH 43218-2029 |
REAL ESTATE EQUITY FUND-D
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- PATTERSON & CO 7.61 1525 W WT HARRIS BLVD CHARLOTTE, NC 28288-0001 LPL FINANCIAL SERVICES 5.14 9785 TOWNE CENTRE DRIVE SAN DIEGO, CA 92121-1968 |
REAL ESTATE EQUITY FUND-Z
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- CHARLES SCHWAB & CO INC 26.25 SPECIAL CUSTODY ACCT FOR EXCLUSIVE OF CUSTOMERS ATTN: MUTUAL FUNDS 101 MONTGOMERY ST SAN FRANCISCO CA 94104-4122 BANK OF AMERICA NA 25.31 ATTN JOAN WRAY/FUNDS ACCOUNTING 411 N AKARD STREET DALLAS, TX 75201-3307 |
SMALL CAP GROWTH FUND I - A
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- FIM FUNDING INC 100.00 C/O COLUMBIA FUNDS GROUP MAIL STOP MA5 100 11 05 100 FEDERAL STREET BOSTON, MA 02110-1802 |
SMALL CAP GROWTH FUND I - B
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- FIM FUNDING INC 66.86 C/O COLUMBIA FUNDS GROUP MAIL STOP MA5 100 11 05 100 FEDERAL STREET BOSTON, MA 02110-1802 JOSEPH R CHICHURKA 7.91 ANNELIE CHICHURKA JTWROS TOD 4306 W CORDOBA CIR GEORGETOWN, TX 78628-1614 CYNTHIA M YAGER 25.23 613 MANUEL DRIVE NOVATO, CA 94945-3338 |
SMALL CAP GROWTH FUND I - C
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- FIM FUNDING INC 100.00 C/O COLUMBIA FUNDS GROUP MAIL STOP MA5 100 11 05 100 FEDERAL STREET BOSTON, MA 02110-1802 |
SMALL CAP GROWTH FUND I -Z
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- CHARLES SCHWAB & CO INC 20.78 SPECIAL CUSTODY ACCT FOR EXCLUSIVE OF CUSTOMERS ATTN: MUTUAL FUNDS 101 MONTGOMERY ST SAN FRANCISCO CA 94104-4122 NEWELL RUBBERMAID EMP SAV 5.32 PLANRETIREMENT PLAN SERV ATTN: REPORTING TEAM - RPS C/O JP MORGAN/AMERICAN CENTURY PO BOX 419784 KANSAS CITY, MO 64141-6784 PO BOX 2600 VM 613 8.31 ATTN: OUTSIDE FUNDS VALLEY FORGE, PA 19482-2600 |
STRATEGIC INVESTOR FUND-A
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- CHARLES SCHWAB & CO INC 5.85 SPECIAL CUSTODY A/C FOR BENFT CUST ATTN: MUTUAL FUNDS 101 MONTGOMERY STREET SAN FRANCISCO CA 94104-4122 CHARLES SCHWAB & CO INC 17.95 SPECIAL CUSTODY A/C FOR BENFT CUST ATTN: MUTUAL FUNDS 101 MONTGOMERY STREET SAN FRANCISCO CA 94104-4122 |
STRATEGIC INVESTOR FUND-C
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- MERRILL LYNCH PIERCE FENNER & SMITH 6.77 FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTN: FUND ADMINISTRATOR 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 32246-6484 |
STRATEGIC INVESTOR FUND-D
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- CITIGROUP GLOBAL MARKETS, INC. 26.13 ATTN: PETER BOOTH, 7TH FLOOR 333 W 34TH ST NEW YORK NY 10001-2402 NFS LLC FEBO 6.67 FMT CO CUST IRA ROLLOVER FBO JAMES S KRUEGER 389 REDFIELD PL MORAGA, CA 94556-2514 PERSHING LLC 5.03 PO BOX 2052 JERSEY CITY, NJ 07303-2052 ROBERT W BAIRD & CO., INC. 5.92 777 EAST WISCONSIN AVENUE MILWAUKEE, WI 53202-5300 |
STRATEGIC INVESTOR FUND-Z
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- CHARLES SCHWAB & CO INC 23.00 SPECIAL CUSTODY ACCT FOR EXCLUSIVE OF CUSTOMERS ATTN: MUTUAL FUNDS 101 MONTGOMERY ST SAN FRANCISCO CA 94104-4122 BANK OF AMERICA NA 12.02 ATTN: JOAN WRAY/FUNDS ACCOUNTING 411 N AKARD STREET DALLAS, TX 75201-3307 |
TECHNOLOGY FUND-A
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- SEI PRIVATE TRUST CO 16.55 C/O WACHOVIA - PREMIER ATTN: MUTUAL FUND ADMIN ONE FREEDOM VALLEY DRIVE OAKS PA 19456 |
FTC & CO 7.85 DATALYNX PO BOX 173736 DENVER, CO 80217-3736 |
TECHNOLOGY FUND-C
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- MERRILL LYNCH PIERCE FENNER 5.42 & SMITH FOR THE SOLE BENEFIT OF ITS CUSTOMERS ATTN: FUND ADMINISTRATOR 4800 DEER LAKE DR E FL 2 JACKSONVILLE, FL 32246-6484 |
TECHNOLOGY FUND-D
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- LPL FINANCIAL SERVICES 62.30 9785 TOWNE CENTRE DR SAN DIEGO CA 92121-1968 BANK OF AMERICA NA 10.51 THOMASVILLE HOME FURNISHINGS OF AZ BRADLEY R CHAVEZ 1122 E IRMA LN PHOENIX, AZ 85024-4118 SCOTTRADE INC FBO 6.00 SHEIKH A QADEER PO BOX 31759 SAINT LOUIS, MO 63131-0759 CITIGROUP GLOBAL MARKETS, INC. 8.59 ATTN: PETER BOOTH, 7TH FLOOR 333 W 34TH ST NEW YORK NY 10001-2402 USAA INVESTMENT MANAGEMENT CO 6.56 9800 FREDERICKSBURG RD SAN ANTONIO TX 78288-0001 |
TECHNOLOGY FUND-Z
NAME AND ADDRESS PERCENT OF SHARES HELD AT NOVEMBER 30, 2005 ---------------- ------------------------------------------- CHARLES SCHWAB & CO INC 40.04 SPECIAL CUSTODY ACCT FOR EXCLUSIVE OF CUSTOMERS ATTN: MUTUAL FUNDS 101 MONTGOMERY ST SAN FRANCISCO CA 94104-4122 |
PROXY VOTING POLICY AND PROCEDURES
Each Fund has delegated to the Advisor the responsibility to vote proxies relating to portfolio securities held by the Fund.
The Advisor's policy is to vote all proxies for each client's securities in a manner considered by the Advisor to be in the best interest of its clients, including the Fund and its shareholders, without regard to any benefit to the Advisor or its affiliates. The Advisor examines each proposal and votes against the proposal, if, in its judgment, approval or adoption of the proposal would be expected to impact adversely the current or potential market value of the issuer's securities. The Advisor also examines each proposal and votes the proxies against the proposal, if, in its judgment, the proposal would be expected to affect adversely the best interest of the Fund. The Advisor determines the best interest of the Fund in light of the potential economic return on the Fund's investment.
The Advisor addresses potential material conflicts of interest by having predetermined voting guidelines. For those proposals that require special consideration or in instances where special circumstances may require varying from the predetermined guideline, the Advisor's Proxy Committee determines the vote in the best interest of the Fund, without consideration of any benefit to the Advisor, its affiliates, or its other clients or certain other persons. A member of the Proxy Committee is prohibited from voting on any proposal with respect to which he or she has a conflict of interest by reason of a direct relationship with the issuer or other party affected by a given proposal. Persons making recommendations to the Proxy Committee or its members are required to disclose to the Committee any relationship with a party making a proposal or other matter known to the person that would create a potential conflict of interest.
The Advisor has three classes of proxy proposals. The first two classes are predetermined guidelines to vote for or against specific proposals, unless otherwise directed by the Proxy Committee. The third class is proposals requiring special consideration by the Proxy Committee. In addition, the Proxy Committee considers requests to vote on proposals in the first two classes other than according to the predetermined guidelines.
The Advisor generally votes in favor of proposals related to the following matters: selection of auditors (unless the auditor receives more than 50% of its revenues from non-audit activities from the company and its affiliates), election of directors (unless the proposal gives management the ability to alter the size of the board without shareholder approval), different persons for chairman of the board /chief executive officer (unless, in light of the size of the company and the nature of its shareholder base, the role of chairman and CEO should not be held by different persons), compensation (if provisions are consistent with standard business practices), debt limits (unless proposed specifically as an anti-takeover action), indemnification (unless for negligence and or breaches of fiduciary duty), meetings, name of company, principal office (unless the purpose is to reduce regulatory or financial supervision), reports and accounts (if the certifications required by the Sarbanes-Oxley Act of 2002 have been provided), par value, shares (unless proposed as an anti-takeover action), share repurchase programs, independent committees, and equal opportunity employment.
The Advisor generally votes against proposals related to the following matters: super majority voting, cumulative voting, preferred stock, warrants, rights, poison pills, reclassification of common stock and meetings held by written consent.
The Advisor gives the following matters special consideration: new proposals, proxies of investment company shares (other than election of directors, selection of accountants), mergers/acquisitions (proposals where a hostile merger/acquisition is apparent or where the Advisor represents ownership in more than one of the companies involved), shareholder proposals (other than those covered by the predetermined guidelines), executive/director compensation (other than those covered by the predetermined guidelines), pre-emptive rights, and proxies of international issuers which block securities sales between submission of a proxy and the meeting (proposals for these securities are voted only on the specific instruction of the Proxy Committee and to the extent practicable in accordance with predetermined guidelines).
In addition, if a portfolio manager or other party involved with an Advisor client or a Fund account concludes that the interest of the client or the Fund requires that a proxy be voted on a proposal other than according to the predetermined guidelines, he or she may request that the Proxy Committee consider voting the proxy differently. If any person (or entity) requests the Proxy Committee (or any of its members) to vote a proxy other than according to a predetermined guideline, that person must furnish to the Proxy Committee a written explanation of the reasons for the request and a description of the person's (or entity's) relationship with the party proposing the matter to shareholders or any other matter known to the person that would create a potential conflict of interest.
The Proxy Committee may vary from the predetermined guideline if it determines that voting on the proposal according to the predetermined guideline would be expected to impact adversely the current or potential market value of the issuer's securities or to affect adversely the best interest of the client. References to the best interest of a client refer to the interest of the client in terms of the potential economic return on the client's investment. In determining the vote on any proposal, the Proxy Committee does not consider any benefit other than benefits to the owner of the securities to be voted.
The Advisor's Proxy Committee is composed of operational and investment representatives of its regional offices as well as senior representatives of equity investments, equity research, compliance and legal. During the first quarter of each year, the Proxy Committee reviews all guidelines and establishes guidelines for expected new proposals. In addition to these reviews and its other responsibilities described above, the Proxy Committee's functions include annual review of it's the Advisor's Proxy Voting Policy and Procedures to ensure consistency with internal policies and regulatory agency policies, and to develop and modify voting guidelines and procedures as it deems appropriate or necessary.
The Advisor uses Institutional Shareholder Services ("ISS"), a third party vendor, to implement its proxy voting process. ISS provides proxy analysis, record keeping services and vote disclosure services.
The actual voting records of the Funds relating to their portfolio securities during the 12-month period ended June 30, 2005 are available without charge, upon request, by calling 1-800-426-3750, or by accessing the SEC's website at http://www.sec.gov.
DISCLOSURE OF PORTFOLIO INFORMATION
The Board of Directors and Trustees of the Columbia funds have adopted policies with respect to the disclosure of the funds' portfolio holdings by the funds, the Advisor, or their affiliates. These policies provide that the Funds' portfolio holdings information generally may not be disclosed to any party prior to (1) the day next following the posting of such information on the Funds' website at www.columbiafunds.com, (2) the day next following the filing of the information with the SEC in a required filing, or (3) for money market funds, such information is publicly available to all shareholders upon request on the fifth business day after each calendar month-end. Certain limited exceptions pursuant to the Funds' policies are described below. The Directors/Trustees shall be updated as needed regarding the Funds' compliance with the policies, including information relating to any potential conflicts of interest between the interests of a Fund's shareholders and those of the Advisor and its affiliates. The Funds' policies prohibit the Advisor and the Funds' other service providers from entering into any agreement to disclose Fund portfolio holdings information in exchange for any form of consideration. These policies apply to disclosures to all categories of persons, including, without limitation, individual investors, institutional investors, intermediaries that distribute the Funds' shares, third-party service providers, rating and ranking organizations and affiliated persons of the Fund.
PUBLIC DISCLOSURES
Each Fund's portfolio holdings are currently disclosed to the public through required filings with the SEC and, for equity and fixed income funds, on the Fund's website at www.columbiafunds.com. Each Fund files its portfolio holdings with the SEC for each fiscal quarter on Form N-CSR (with respect to each annual period and semi-annual period) and Form N-Q (with respect to the first and third quarters of a Fund's fiscal year). Shareholders may obtain a Fund's Forms N-CSR and N-Q filings on the SEC's website at www.sec.gov. In addition, a Fund's Forms N-CSR and N-Q filings may be reviewed and copied at the SEC's public reference room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC's website or the operation of the public reference room.
The equity and fixed income Columbia funds also currently make portfolio information publicly available at www.columbiafunds.com, as disclosed in the following table:
FREQUENCY OF
TYPE OF FUND INFORMATION PROVIDED DISCLOSURE DATE OF WEB POSTING
------------ ----------------------- ------------ ----------------------
Equity Funds Full portfolio holdings Monthly 30 calendar days after
information. month-end.
Fixed Income Funds Full portfolio holdings Quarterly 60 calendar days after
information. the quarter-end
|
The scope of the information provided relating to a Fund's portfolio that is made available on the website may change from time to time without prior notice.
For Columbia's money market funds, a complete list of a Fund's portfolio holdings shall be publicly available on a monthly basis on the fifth business date after month-end. Shareholders may request such information by writing or calling the Funds' distributor, Columbia Management Distributors, at 800-426-3750, One Financial Center, Boston, Massachusetts 02111-2621.
A Fund, the Advisor or their affiliates may include portfolio holdings information that has already been made public through a web posting or SEC filing in marketing literature and other communications to shareholders, advisors or other parties, provided that the information is disclosed no earlier than the day after the date the information is disclosed publicly.
OTHER DISCLOSURES
Each Fund's policies provide that non-public disclosures of a Fund's portfolio holdings may be made if (1) the Fund has a legitimate business purpose for making such disclosure, (2) the Fund's chief executive officer authorizes such non-public disclosure of information, and (3) the party receiving the non-public information enters into a confidentiality agreement, which includes a duty not to trade on the non-public information.
Each Fund periodically discloses its portfolio information on a confidential basis to various service providers that require such information in order to assist the Fund with its day-to-day business affairs. In addition to the Advisor and its affiliates, these service providers include any sub-custodians of the Fund's securities, the Fund's independent registered public accounting firm, legal counsel, and financial printer, currently Bowne, Inc., and the Funds' proxy voting service, currently ISS. These service providers are required to keep such information confidential, and are prohibited from trading based on the information or otherwise using the information except as necessary in providing services to the Funds. A Fund may also disclose portfolio holdings information to broker/dealers and certain other entities related to potential transactions and management of the Fund, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information.
Certain clients of the Funds' investment adviser may follow a strategy similar to that of a Fund, and have access to portfolio holdings information for their account. It is possible that such information could be used to infer portfolio holdings information relating to the Fund.
INVESTMENT ADVISORY AND OTHER SERVICES PROVIDED BY AFFILIATES
Pursuant to the investment contract, the Advisor 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 Advisor 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 the advisory fee payable to the Advisor including any waivers or offsets applicable to such Fund is set forth in the prospectus for each Fund.
Effective November 1, 2004, pursuant to an amendment to the Investment Management Agreement with the Advisor, the advisory fee for the following Funds is calculated as a percentage of net assets that declines as net assets increase and is as follows:
Mid Cap Growth Fund 0.820% of the Fund's first $500 million of net assets;
0.750% of next $500 million of net assets;
0.720% of next $500 million of net assets; and
0.670% of net assets in excess of $1.5 billion.
Small Cap Growth Fund I 0.870% of the Fund's first $500 million of net assets;
0.820% of next $500 million of net assets; and
0.770% of net assets in excess of $1 billion.
Technology Fund 0.870% of the Fund's first $500 million of net assets;
0.820% of next $500 million of net assets; and
0.770% of net assets in excess of $1 billion.
|
Conservative High Yield Fund 0.600% of the Fund's first $500 million of net assets;
0.550% of next $500 million of net assets;
0.520% of next $500 million of net assets; and
0.490% of net assets in excess of $1.5 billion.
|
Prior to November 1, 2004, the advisory fee for the Mid Cap Growth Fund was calculated as a percentage of net assets declined as net assets increased and was as follows:
Mid Cap Growth Fund 1.000% of the Fund's first $500 million of net assets; and
0.750% of net assets in excess of $500 million.
|
Advisory fees paid by each of the Funds for each of the last three fiscal years were as follows:
FUND 2005 2004 2003* ---- ---------- ----------- ---------- Mid Cap Growth Fund $6,887,146 $ 8,813,801 $5,318,563 Small Cap Growth Fund I $2,723,457 $ 7,019,787 $3,458,104 Real Estate Fund $6,719,241 $ 7,214,201 $4,042,456 Technology Fund $ 407,571 $ 361,947 $ 79,533 Strategic Investor Fund $3,612,063 $ 2,576,915 $1,276,121 Balanced Fund $1,963,794 $ 3,002,434 $2,135,099 Oregon Intermediate Municipal Bond Fund $2,132,126 $ 2,338,697 $1,719,382 Conservative High Yield Fund $9,467,680 $10,523,463 $4,977,940 |
Columbia Management Services, Inc. ("CMS") acts as transfer agent, dividend disbursing agent and shareholders' servicing agent for each Fund. Its address is P.O. Box 8081, Boston, Massachusetts 02266-8081. CMS has retained Boston Financial Data Services, Inc. to assist it in performing services for the Funds. Until November 1, 2005, each Fund paid CMS an annual charge per open account as follows:
Equity Funds $28.00 Fixed Income Funds $34.00 Money Market Funds $33.50 |
plus certain reimbursable out-of-pocket expenses as set forth in its agreement with CMS. There is no minimum aggregate fee payable by any Fund to CMS for transfer agent services. For certain classes of certain Funds, CMS has agreed to waive transfer agency fees in amounts and for periods more fully described in the relevant prospectus. Effective November 1, 2005, each Fund has entered into a new agreement with CMS, under which CMS will continue to provide transfer agency, dividend disbursing agency and shareholders' servicing agency services to the Fund (and will continue to retain Boston Financial Data Services, Inc. to assist it) for a reduced fee. The new fee is $15.23 per account per annum, payable monthly. In addition, each Fund may pay CMS the fees and expenses it pays to third- party dealer firms that maintain omnibus accounts with the Fund, subject to a cap equal to 0.11% of the Fund's net assets represented by the account. Each Fund will also pay certain reimbursable out-of-pocket expenses to CMS, and CMS may also retain as additional compensation for its services revenues for fees for wire, telephone and redemption orders, IRA trustee agent fees and account transcripts due CMS from shareholders of the Fund and credits (net of bank charges) earned with respect to balances in accounts CMS maintains in connection with its services to the Fund. The transfer agent fees paid to CMS for the fiscal year ended August 31, 2005 under each transfer agent agreement were $831,320 for the Mid Cap Growth Fund, $434,412 for the Small Cap Growth Fund I, $1,058,396 for the Real Estate Fund, $149,540 for the Technology Fund, $633,868 for the Strategic Investor Fund, $631,898 for the Balanced Fund, $238,988 for the Oregon Intermediate Municipal Bond Fund and $1,593,866 for the Conservative High Yield Fund. The transfer agent fees paid by the Mid Cap Growth Fund and Strategic Investor Fund are net of transfer agent fees waived by CMD.
Until November 1, 2005, the Advisor performed certain pricing, bookkeeping and administrative services for the Funds pursuant to a Pricing, Bookkeeping and Fund Administration Agreement (the "Agreement"). Under the terms of the Agreement, the Advisor (a) provided fund accounting and financial reporting oversight of State Street Bank & Trust Company, who provided the daily fund accounting and financial reporting services; (b) maintained and preserved in a secure manner the accounting records of the Funds; (c) provided fund administration, including daily prospectus, investment restrictions and 1940 Act compliance review, tax and distribution management, expense budgeting, performance reporting and statistical analysis, and board reporting; and (d) provided disaster planning. For the services rendered by the Advisor, each Fund agreed to pay a minimum of $25,000 plus two basis points for fund accounting and
$19,965 for financial reporting, with a maximum combined fee of $150,000. The Advisor was also entitled to be compensated for certain out-of-pocket expenses. The amount paid under this agreement by each of the Funds during the Funds' fiscal year ended August 31, 2005 was $161,452 for the Mid Cap Growth Fund, $113,870 for the Small Cap Growth Fund I, $159,371 for the Real Estate Equity Fund, $62,214 for the Technology Fund, $166,411 for the Strategic Investor Fund, $155,497 for the Balanced Fund, $170,288 for the Oregon Intermediate Municipal Bond Fund and $179,701 for the Conservative High Yield Fund.
Effective November 1, 2005, the Funds entered into a Pricing and Bookkeeping Agreement and an Administrative Agreement. Under these agreements, each Fund will continue to receive substantially the same pricing, bookkeeping and administrative services as it currently receives under the Agreement. The Advisor and State Street Bank & Trust Company will continue to provide these services to the Funds. For services provided under the Pricing and Bookkeeping Agreement, each Fund will pay the Advisor or to such other person(s) as the Advisor may direct an annual fee, payable monthly, consisting of: (i) for fund accounting services, $25,000 plus 0.015% of the Fund's net asset value ("Fund Accounting Fee"); and (ii) for financial reporting services, $13,000 ("Financial Reporting Fee"); provided that during any 12-month period, the aggregate Fund Accounting Fee and Financial Reporting Fee shall not exceed $140,000. For services provided under the Administrative Agreement, each Fund will pay the Advisor an annual fee equal to $0. Each Fund will bear certain reimbursable costs and expenses as provided in the Pricing and Bookkeeping Agreement and the Administrative Agreement.
Columbia Management Distributors, Inc. (formerly known as Columbia Funds Distributor, Inc.) ("CMD"), a registered securities broker and a member of the National Association of Securities Dealers, Inc., whose address is One Financial Center Boston, MA 02111- 2621, is the principal underwriter for the Funds, and is authorized under a distribution agreement with each Fund to sell shares of the Fund. CMDhas no obligation to buy the Funds' shares, and purchases the Funds' shares only upon receipt of orders from authorized financial services firms ("FSFs") or investors.
For the fiscal years ended August 31, 2005 and August 31, 2004, the following sales charges were paid by shareholders in respect to Class A, D and T shares*:
CLASS A CLASS T
--------------------- ---------------
2005 2004 2005 2004
---------- -------- ------ ------
Mid Cap Growth Fund $ 53,881 $ 58,047 $1,207 $1,845
Real Estate Equity Fund $ 179,691 $212,798 -- --
Technology Fund $ 61,122 $ 48,422 -- --
Strategic Investor Fund $1,005,634 $652,526 -- --
Balanced Fund $ 23,727 $ 26,350 -- --
Oregon Intermediate
Municipal Bond Fund $ 17,407 $ 18,602 -- --
Conservative High Yield
Fund $ 248,195 $790,974 -- --
|
* Class D shares closed to new investors effective October 13, 2003, and the front-end sales charge of 1.00% is waived effective October 13, 2003.
For the fiscal years ended August 31, 2004 and August 31, 2005, CMD, as Distributor, retained the following fees:
MID CAP GROWTH FUND*
Class A Shares
Fiscal year ended,
--------------------
2005 2004
------- -------
Aggregate initial sales charges on Fund share sales $53,881 $58,047
Initial sales charges retained by CMD $ 8,640 $ 9,271
Aggregate contingent deferred sales charges (CDSC)
On Fund redemptions retained by CMD $ 0 $ 0
|
Class B Shares
Fiscal year ended,
--------------------
2005 2004
------- -------
Aggregate CDSC on Fund redemptions retained by CMD $12,755 $12,291
|
Class C Shares
Fiscal year ended,
------------------
2005 2004
----- ----
Aggregate CDSC on Fund redemptions retained by CMD $774 $264
|
Class D Shares
Fiscal year ended,
------------------
2005 2004
---- ----
Aggregate CDSC on Fund redemptions retained by CMD $14 $21
|
Class T Shares
Fiscal year ended,
------------------
2005 2004
------ ------
Aggregate initial sales charges on Fund share sales $1,208 $1,845
Initial sales charges retained by CMD $ 185 $ 0
Aggregate contingent deferred sales charges (CDSC)
On Fund redemptions retained by CMD $ 0 $ 0
|
Class G Shares
Fiscal year ended,
------------------
2005 2004
------ ------
Aggregate CDSC on Fund redemptions retained by CMD $1,030 $2,954
|
* Class A, B, D and G shares were initially offered on November 1, 2002 and Class C shares were initially offered in October 13, 2003.
REAL ESTATE EQUITY FUND*
Class A Shares
Fiscal year ended,
-------------------
2005 2004
-------- --------
Aggregate initial sales charges on Fund share sales $179,691 $212,798
Initial sales charges retained by CMD $ 27,593 $ 32,403
Aggregate contingent deferred sales charges (CDSC)
On Fund redemptions retained by CMD $ 1,889 $ 25,000
|
Class B Shares
Fiscal year ended,
-------------------
2005 2004
------- -------
Aggregate CDSC on Fund redemptions retained by CMD $41,433 $23,444
|
Class C Shares
Fiscal year ended,
-------------------
2005 2004
------ ------
Aggregate CDSC on Fund redemptions retained by CMD $1,002 $2,004
|
Class D Shares
Fiscal year ended,
------------------
2005 2004
---- ------
Aggregate CDSC on Fund redemptions retained by CMD $353 $4,273
|
* Class A, B and D shares were initially offered on November 1, 2002 and Class C shares were initially offered on October 13, 2003.
TECHNOLOGY FUND*
Class A Shares
Fiscal year ended,
------------------
2005 2004
------- -------
Aggregate initial sales charges on Fund share sales $61,122 $48,422
Initial sales charges retained by CMD $ 9,699 $ 8,022
Aggregate contingent deferred sales charges (CDSC)
On Fund redemptions retained by CMD $ 0 $ 0
|
Class B Shares
Fiscal year ended,
------------------
2005 2004
------- -------
Aggregate CDSC on Fund redemptions retained by CMD $22,029 $40,538
|
Class C Shares
Fiscal year ended,
------------------
2005 2004
------ ----
Aggregate CDSC on Fund redemptions retained by CMD $1,437 $883
|
Class D Shares
Fiscal year ended,
------------------
2005 2004
---- ----
Aggregate CDSC on Fund redemptions retained by CMD $0 $11
|
* Class A, B and D shares were initially offered on November 1, 2002 and Class C shares were initially offered on October 13, 2003.
STRATEGIC INVESTOR FUND*
Class A Shares
Fiscal year ended,
---------------------
2005 2004
---------- --------
Aggregate initial sales charges on Fund share sales $1,005,634 $652,526
Initial sales charges retained by CMD $ 157,605 $ 93,760
Aggregate contingent deferred sales charges (CDSC)
On Fund redemptions retained by CMD $ 3,199 $ 487
|
Class B Shares
Fiscal year ended,
------------------
2005 2004
------- -------
Aggregate CDSC on Fund redemptions retained by CMD $93,114 $26,530
|
Class C Shares
Fiscal year ended,
------------------
2005 2004
------ ------
Aggregate CDSC on Fund redemptions retained by CMD $3,229 $1,230
|
Class D Shares
Fiscal year ended,
------------------
2005 2004
---- ----
Aggregate CDSC on Fund redemptions retained by CMD $0 $12
|
* Class A, B and D shares were initially offered on November 1, 2002 and Class C shares were initially offered on October 13, 2003.
BALANCED FUND*
Class A Shares
Fiscal year ended,
------------------
2005 2004
------- -------
Aggregate initial sales charges on Fund share sales $23,727 $26,350
Initial sales charges retained by CMD $ 3,854 $ 4,251
Aggregate contingent deferred sales charges (CDSC)
On Fund redemptions retained by CMD $ 0 $ 0
|
Class B Shares
Fiscal year ended,
------------------
2005 2004
------- -------
Aggregate CDSC on Fund redemptions retained by CMD $21,461 $15,155
|
Class C Shares
Fiscal year ended,
------------------
2005 2004
---- ----
Aggregate CDSC on Fund redemptions retained by CMD $157 $282
|
Class D Shares
Fiscal year ended,
------------------
2005 2004
---- ----
Aggregate CDSC on Fund redemptions retained by CMD $0 $9
|
* Class A, B and D shares were initially offered on November 1, 2002 and Class C shares were initially offered on October 13, 2003.
OREGON INTERMEDIATE MUNICIPAL BOND FUND*
Class A Shares
Fiscal year ended,
------------------
2005 2004
------- -------
Aggregate initial sales charges on Fund share sales $17,407 $18,602
Initial sales charges retained by CMD $ 2,191 $ 2,240
Aggregate contingent deferred sales charges (CDSC)
On Fund redemptions retained by CMD $ 0 $ 0
|
Class B Shares
Fiscal year ended,
------------------
2005 2004
------ ------
Aggregate CDSC on Fund redemptions retained by CMD $1,561 $9,564
|
Class C Shares
Fiscal year ended,
------------------
2005 2004
---- ----
Aggregate CDSC on Fund redemptions retained by CMD $222 $685
|
Class D Shares
Fiscal year ended,
------------------
2005 2004
---- ----
Aggregate CDSC on Fund redemptions retained by CMD $0 $119
|
* Class A, B and D shares were initially offered on November 1, 2002 and Class C shares were initially offered on October 13, 2003.
CONSERVATIVE HIGH YIELD FUND*
Class A Shares
Fiscal year ended,
-------------------
2005 2004
-------- --------
Aggregate initial sales charges on Fund share sales $248,195 $790,974
Initial sales charges retained by CMD $ 32,709 $ 96,270
Aggregate contingent deferred sales charges (CDSC)
On Fund redemptions retained by CMD $ 23,132 $ 66,541
|
Class B Shares
Fiscal year ended,
-------------------
2005 2004
-------- --------
Aggregate CDSC on Fund redemptions retained by CMD $325,296 $297,129
|
Class C Shares
Fiscal year ended,
------------------
2005 2004
------ -------
Aggregate CDSC on Fund redemptions retained by CMD $5,183 $32,727
|
Class D Shares
Fiscal year ended,
------------------
2005 2004
------ ---------
Aggregate CDSC on Fund redemptions retained by CMD $1,389 $39,786
|
* Class A, B and D shares were initially offered on November 1, 2002 and Class C shares were initially offered on October 13, 2003.
The Advisor and CMS are wholly owned subsidiaries of Columbia Management Group, LLC. CMD is a wholly owned subsidiary of the Advisor. Bank of America 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 Investor 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 Advisor 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 Advisor on a continuing basis; and (vii) reasonableness of commission. The Funds recently adopted policies prohibiting a Fund from directing commissions to any broker-dealer for sale of the Fund's shares.
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 Advisor 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 Advisor receives a significant amount of proprietary research from a number of brokerage firms, in most cases on an unsolicited basis. The Advisor does not make any commitments to allocate brokerage for proprietary research. The value of that research, however, is considered along with other factors in the selection of brokers. This research is considered supplemental to the Advisor's own internal research and does not, therefore, materially reduce the overall expenses incurred by the Advisor for its research. On a semi-annual basis, the Advisor'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 Advisor'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.
The Advisor 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 Advisor 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 Advisor. Proposed research to be acquired in this manner must be approved by the Advisor's Soft Dollar Committee which is responsible for determining that the research provides appropriate assistance to the Advisor 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 Advisor 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 Advisor and its affiliates might be useful to the Advisor in carrying out its obligations to a Fund.
Total brokerage commissions paid (agency only) by each of the respective Funds for each of the last three fiscal years were:
FUND 2005 2004 2003* ---- ---------- ---------- ---------- Mid Cap Growth Fund $2,899,948 $4,568,079 $2,792,191 Small Cap Growth Fund I $2,830,330 $4,182,561 $2,274,813 Real Estate Equity Fund $ 999,372 $1,006,065 $1,359,961 Balanced Fund $ 747,893 $1,984,251 $1,432,505 Technology Fund $ 923,686 $1,103,735 $ 528,962 Strategic Investor Fund $1,779,252 $1,457,139 $ 950,489 Oregon Intermediate Municipal Bond Fund $ 1,254 $ 0 $ 0 |
* The Funds changed their fiscal year end from December 31 to August 31 in 2003. Information provided is for the eight-month period ended August 31, 2003.
No agency brokerage commissions were paid by the Conservative High Yield Fund, d during the last three years. No agency brokerage commissions were paid by the Oregon Intermediate Municipal Bond Fund during 2003 or 2004. Of the commissions paid in 2005, the Mid Cap Growth Fund paid $160,092, the Small Cap Growth Fund I paid $172,412, the Balanced Fund paid $191,521, the Real Estate Fund paid $42,050, the Strategic Investor Fund paid $105,758, and the Technology Fund paid $28,844 to acquire third-party research or products.
At August 31, 2005, the Funds held securities of their regular brokers or dealers as set forth below:
FUND BROKER/DEALER VALUE
---- ------------- -----
MID CAP GROWTH FUND NONE
SMALL CAP GROWTH FUND I NONE
REAL ESTATE EQUITY FUND NONE
TECHNOLOGY FUND NONE
STRATEGIC INVESTOR FUND MORGAN STANLEY $3,433,725
BALANCED FUND MORGAN STANLEY $1,772,421
MERRILL LYNCH & CO INC $ 992,090
LEHMAN BROTHERS HOLDINGS $ 795,736
OREGON INTERMEDIATE MUNICIPAL
BOND FUND NONE
CONSERVATIVE HIGH YIELD FUND NONE
|
Provided each Fund's Board of Directors is satisfied that the Fund is receiving the most favorable price and execution available, the Advisor 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, Inc. The Advisor 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 Advisor, if the Advisor believes that the quality of the transaction and the commission are comparable to what they would be with other qualified brokerage firms. During the years listed, the Funds periodically used Fleet Institutional Trading, an affiliated broker-dealer of the Advisor that was disbanded in 2004, to execute purchase and sale orders. During 2004 and 2005, the Funds periodically used W.R. Hambrecht, an affiliated broker-dealer of the Advisor, to execute purchase and sale orders. During 2005, the Funds periodically used Bank of America Securities, an affiliated broker dealer of the Advisor, to execute purchase and sale orders.
The aggregate dollar amount of brokerage commissions paid to Fleet Institutional Trading for fiscal year 2004 is as follows:
FUND 2004 ---- ------ Balanced Fund $ 0 Strategic Investor Fund $5,125 |
The aggregate dollar amount of brokerage commissions paid to W.R. Hambrecht for the fiscal year 2004 is as follows:
FUND 2004 ---- ------- Small Cap Growth Fund I $ 1,365 Mid Cap Growth Fund $ 9,785 Growth Fund $25,250 Strategic Investor Fund $ 1,500 |
The Funds paid no brokerage commissions to W.R. Hambrecht or Bank of America Securities in fiscal year 2005.
For all 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 Advisor with other trades made at the regional trading desk at which the trade is completed with those of other Funds or accounts or other investment pools managed by the Advisor or affiliates of the Advisor to achieve best execution, and, on the average, lower brokerage commission costs. Orders are aggregated only if the Advisor, 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 typically 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 Advisor 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 Advisor 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 Advisor 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 accounts managed by the Advisor of investments in initial and secondary public offerings ("IPOs and "SPOs," jointly "POs") are made pursuant to Guidelines (the "Guidelines") established by the Advisor. The Guidelines establish which accounts are eligible to participate in a particular PO and what level of participation is permitted. 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 PO 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 PO opportunity is appropriate will be made on a fair and equitable basis.
The Advisor, CMD 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 Advisor's other clients or take unfair advantage of their relationship with the Advisor. The specific standards in the Ethics Code include, among others, a requirement that trades of all access persons be pre-cleared; a prohibition on investing in initial public offerings; required pre-approval of an investment in private placements; a prohibition on portfolio managers trading in a security five business 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 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. In addition to the trading restrictions, the Ethics Code contains reporting obligations that are designed to ensure compliance and allow the Advisor's Ethics Committee to monitor that compliance.
The Advisor and the Funds have also adopted an Insider Trading Policy. The Insider Trading Policy prohibits any employee from trading, either personally or on behalf of others (including a client account), on the basis of material nonpublic information. All employees are required to certify each year that they have read and complied with the provisions of the Ethics Code and the Insider Trading Policy.
CAPITAL STOCK AND OTHER SECURITIES
Each Fund is an Oregon corporation and was organized in the year set forth below opposite its name.
FUND DATE ---- ---- Mid Cap Growth Fund 1985 Small Cap Growth Fund I 1996 Real Estate Fund 1994 Technology Fund 2000 Strategic Investor Fund 2000 Balanced Fund 1991 Oregon Intermediate Municipal Bond Fund 1984 Conservative High Yield Fund 1993 |
Each Fund offers some or all of the following classes of shares pursuant to
a Rule 18f-3 Plan (the "Plan") adopted by the Directors in accordance with the
1940 Act: Class A, B, C, D, G, T and Z. Shares of each class of a Fund represent
an equal pro rata interest in the Fund and, generally, have identical voting,
dividend, liquidation, and other relative rights, preferences, limitations, and
terms and conditions, except that: (1) each class has a different designation,
(2) each class of shares bears any expenses attributable to a class as set forth
in the Plan and the relevant Prospectus, (3) each class has exclusive voting
rights on any matter submitted to shareholders that relates solely to it or its
distribution and service plan adopted under Rule 12b-1, if any, and (4) each
class has separate voting rights on any matter submitted to shareholders in
which the interests of one class differ from the interests of any other class.
In addition, each class has the particular features described below. The
differences among the classes of the Funds are subject to change by action of
the Board of Directors of each Fund and to the extent permitted by the 1940 Act
and each Fund's articles of incorporation and bylaws. All issued and outstanding
shares of a Fund are fully paid and nonassessable. Shares have no preemptive
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.
Except as indicated in Appendix I, Class G shares of a Fund automatically convert into Class T shares of the same Fund after eight years. Class B shares automatically convert into Class A shares of the same Fund at the time disclosed in the relevant Fund's Prospectus for Class A, B, C and D shares.
Shares of Class A, D and T shares are offered with a front-end sales charge, payable at the time of purchase, unless waived as set forth in the Prospectus for such Fund. Class B, C and G shares are offered without a front-end sales charge, but are subject to a contingent deferred sales charge depending on the length of time the shares are held. Class A, C, D and T shares held for fewer than 12 months after purchase are subject to a 1.00% contingent deferred sales charge. A detailed description of these various sales charges can be found in the Prospectus for the relevant class. Class T shares received in connection with a fund merger are subject to a contingent deferred sales charge if redeemed within 12 months of the original purchase.
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.
DISTRIBUTION AND SERVICING
RULE 12B-1 DISTRIBUTION PLAN
The Directors have approved a plan pursuant to Rule 12b-1 under the 1940 Act (the "12b-1 Plan") for the Funds' Class A, B, C, D and G shares. Under the 12b-1 Plan, each Fund pays CMD a monthly service fee at an annual rate of up to 0.25% of the Fund's net assets attributed to Class A, B, C and D shares. Each Fund (other than Small Cap Growth Fund I) may also pay CMD monthly a distribution fee at an annual rate of 0.10% of the Fund's daily net assets attributed to Class A shares, and each Fund may pay up to 0.75% of the Fund's average daily net assets attributable to Class B, C and D shares. The Funds' Board of Directors currently limits payments under the 12b-1 Plan for Class A shares (for all Funds other than Small Cap Growth Fund I) to 0.25% annually. Also under the 12b-1 Plan, the Mid Cap Growth Fund pays CMD a monthly service fee at an annual rate of up to 0.50% of the Fund's net assets attributed to Class G shares, made up of up to 0.25% for certain shareholder services ("Shareholder Liaison Services") and up to 0.25% for administrative services ("Administrative Support Services"). The Mid Cap Growth Fund also pays CMD monthly a distribution fee at an annual rate of up to 0.65% of the Fund's average daily net assets attributed to Class G shares.
For the Oregon Intermediate Municipal Bond Fund, CMD has voluntarily agreed to waive a portion of its Class C and Class D distribution fees so that these fees do not exceed 0.65% annually of Class C's and Class D's average daily net assets. For the High Yield Fund, the Distributor has voluntarily agreed to waive a portion of its Class C and Class D distribution fees so that these fees do not exceed 0.85% annually of the Class C's and Class D's average daily net assets.
The monthly service and distribution fees shall be used by CMD to cover
expenses and activities primarily intended to result in the sale of Fund shares.
These expenses and activities may include but are not limited to: (a) direct
out-of-pocket promotional expenses incurred by CMD in advertising and marketing
Fund shares; (b) expenses incurred in connection with preparing, printing,
mailing, and distributing or publishing advertisements and sales literature; (c)
expenses incurred in connection with printing and mailing prospectuses and
Statements of Additional Information to other than current shareholders; (d)
periodic payments or commissions to one or more securities dealers, brokers,
financial institutions and other industry professionals ("Service
Organizations") with respect to the Funds' shares beneficially owned by
customers for whom the Service Organization is the shareholder of record; (e)
the direct and indirect cost of financing the payments or expenses included in
(a) and (d) above; or (f) such other services as may be construed by any court
or governmental agency or commission, including the SEC, to constitute
distribution services under the 1940 Act or rules and regulations thereunder.
Shareholder Liaison Services may include the following services provided by FSFs: (a) aggregating and processing purchase and redemption requests and placing net purchase and redemption orders with CMD; (b) processing dividend payments; (c) providing sub-accounting with respect to Class T shares or the information necessary for sub-accounting; and (d) providing periodic mailings to customers. Administrative Support Services may include the following services provided by FSFs: (a) providing customers with information as to their positions in Class G shares; (b) responding to customer inquiries; and (c) providing a service to invest the assets of customers in Class G shares.
CMD may use the entire amount of such fees to defray the cost of commissions and service fees paid to FSFs and for certain other purposes. Since the distribution and service fees are payable regardless of CMD's expenses, CMD may realize a profit from the fees. The 12b-1 Plan authorizes the Advisor to make payments out of its own funds for distribution or services costs.
At this time, the total Class G service and distribution fees have been limited to 0.95% for the Mid Cap Growth Fund. These limitations may be modified or terminated by the Board of Directors at any time.
SHAREHOLDER SERVICES PLAN
The Board of Directors has approved a Shareholder Services Plan (the "Services Plan") for Class T shares of the Mid Cap Growth Fund. Under the Services Plan, the Fund may pay FSFs a monthly service fee up to an annual rate of 0.50% of the Fund's net assets attributed to Class T shares beneficially owned by the customers of the FSFs, made up of 0.25% for Shareholder Liaison Services and 0.25% for Administrative Support Services, to compensate FSFs for providing services to beneficial owners of Class T shares. At this time, the fees payable by the holders of Class T shares pursuant to the Services Plan have been limited to 0.30% for the Mid Cap Growth Fund. The Services Plan provides that the FSFs will waive the fees to the extent that net investment income attributable to Class T shares earned in the applicable period is less than the fees due for such period.
TERMS OF THE 12B-1 AND SERVICES PLAN
CMD has advised the Funds that the 12b-1 Plan and the Services Plan could be significant factors in the growth and retention of the Funds' assets, resulting in a more advantageous expense ratio, increased investment flexibility and a greater ability to attract and retain research and portfolio management talent, which could benefit each class of the Funds' shareholders. The 12b-1 Plan and the Services Plan will continue in effect from year to year so long as their continuance is specifically approved at least annually by a vote of the Directors, including the Directors who are not interested persons of a Fund and have no direct or indirect financial interest in the operation of the 12b-1 Plan or the Services Plan or in any related agreements ("Independent Directors"), and, with respect to the 12b-1 Plan, cast in person at a meeting called for the purpose. All material amendments of the 12b-1 Plan or the Services Plan must be approved by the Directors in the manner provided in the foregoing sentence. The 12b-1 Plan may not be amended to increase the fee materially without approval by vote of a majority of the outstanding voting securities of the relevant class of shares. The 12b-1 Plan and the Services Plan may be terminated at any time by vote of a majority of the Independent Directors or, with respect to the 12b-1 Plan, by vote of a majority of the outstanding voting securities of the relevant class of shares. The continuance of the 12b-1 Plan and the Services Plan will only be effective if the selection and nomination of the Directors who are not interested persons of the Funds is effected by such Independent Directors.
The Funds' 12b-1 Plan monthly service and distribution fees paid to CMD for the period ended August 31, 2005 were:
SERVICE FEE DISTRIBUTION FEE
-------------------------------------------------- --------------------------------------------------
CLASS A CLASS B CLASS C CLASS D CLASS G CLASS T CLASS B CLASS C CLASS D CLASS G
-------- -------- ------- -------- ------- ------- -------- -------- -------- -------
Mid Cap Growth Fund $ 13,048 $ 14,125 $ 1,437 $ 1,352 $2,097 $81,615 $ 42,645 $ 4,311 $ 4,056 $4,544
Real Estate Equity Fund $101,868 $ 33,671 $ 9,501 $ 10,808 -- -- $101,012 $ 28,504 $ 32,425 --
Technology Fund $ 18,799 $ 6,914 $ 2,942 $ 57 -- -- $ 20,743 $ 8,827 $ 170 --
Strategic Investor Fund $343,456 $ 91,846 $72,390 $ 1,581 -- -- $275,539 $217,429 $ 4,742 --
Balanced Fund $ 7,273 $ 19,163 $ 2,117 $ 817 -- -- $ 57,490 $ 6,350 $ 2,452 --
Oregon Intermediate $ 9,969 $ 3,077 $ 1,100 $ 1,958 -- -- $ 9,231 $ 1,760 $ 3,133 --
Municipal Bond Fund
Conservative High Yield
Fund $838,170 $246,059 $52,818 $181,041 -- -- $738,175 $158,454 $543,124 --
|
Sales-related expenses of CMD relating to the Funds were:
MID CAP GROWTH FUND
Fiscal Year Ended August 31, 2005
---------------------------------------------------------
Class A Class B Class C Class D Class G Class T
Shares Shares Shares Shares Shares Shares
------- ------- ------- ------- ------- -------
Fees to FSFs $14,267 $33,196 $4,832 $6,127 $2,590 $81,460
Allocated cost of sales material
relating to the Fund (including
printing, mailing and other
promotion expenses) $ 2,172 $ 1,363 $ 342 $ 39 $ 83 $ 1,111
Allocated travel, entertainment and
other expenses $ 3,976 $ 1,998 $ 502 $ 58 $ 121 $ 1,628
|
REAL ESTATE EQUITY FUND
Fiscal Year Ended August 31, 2005
--------------------------------------
Class A Class B Class C Class D
Shares Shares Shares Shares
-------- ------- ------- -------
Fees to FSFs $114,842 $90,505 $41,937 $39,194
Allocated cost of sales material
relating to the Fund (including
printing, mailing and other
promotion expenses) $ 24,976 $ 3,229 $ 3,106 $ 283
Allocated travel, entertainment
and other expenses $ 36,609 $ 4,733 $ 4,552 $ 414
|
TECHNOLOGY FUND
Fiscal Year Ended August 31, 2005
-------------------------------------
Class A Class B Class C Class D
Shares Shares Shares Shares
------- ------- ------- -------
Fees to FSFs $68,091 $31,041 $19,534 $211
Allocated cost of sales material
relating to the Fund (including
printing, mailing and other
promotion expenses) $13,645 $ 1,321 $ 1,999 $ 4
Allocated travel, entertainment
and other expenses $20,001 $ 1,937 $ 2,931 $ 6
|
STRATEGIC INVESTOR FUND
Fiscal Year Ended August 31, 2005
-----------------------------------------------------------------
Class A Shares Class B Shares Class C Shares Class D Shares
-------------- -------------- -------------- --------------
Fees to FSFs $368,346 $718,320 $321,611 $6,271
Allocated cost of sales material relating
to the Fund (including printing,
mailing and other promotion expenses) $ 76,868 $ 24,532 $ 25,682 $ 27
Allocated travel, entertainment and
other expenses $112,672 $ 35,959 $ 37,644 $ 39
|
BALANCED FUND
Fiscal Year Ended August 31, 2005
-----------------------------------------------------------------
Class A Shares Class B Shares Class C Shares Class D Shares
-------------- -------------- -------------- --------------
Fees to FSFs $7,366 $37,948 $7,899 $3,282
Allocated cost of sales material relating
to the Fund (including printing,
mailing and other promotion expenses) $1,218 $ 1,410 $ 401 $ 9
Allocated travel, entertainment and
other expenses $1,785 $ 2,066 $ 588 $ 13
|
OREGON INTERMEDIATE MUNICIPAL BOND FUND
Fiscal Year Ended August 31, 2005
-----------------------------------------------------------------
Class A Shares Class B Shares Class C Shares Class D Shares
-------------- -------------- -------------- --------------
Fees to FSFs $9,973 $6,479 $4,814 $5,585
Allocated cost of sales material relating
to the Fund (including printing,
mailing and other promotion expenses) $ 991 $ 132 $ 489 $ 12
Allocated travel, entertainment and
other expenses $1,452 $ 193 $ 717 $ 18
|
CONSERVATIVE HIGH YIELD FUND
Fiscal Year Ended August 31, 2005
-----------------------------------------------------------------
Class A Shares Class B Shares Class C Shares Class D Shares
-------------- -------------- -------------- --------------
Fees to FSFs $947,336 $359,250 $142,030 $566,742
Allocated cost of sales material relating
to the Fund (including printing,
mailing and other promotion expenses) $168,060 $ 8,562 $ 7,185 $ 3,426
Allocated travel, entertainment and
other expenses $246,338 $ 12,550 $ 10,532 $ 5,021
|
PURCHASE, REDEMPTION AND PRICING OF SHARES
PURCHASES AND REDEMPTIONS
A detailed discussion of how you may purchase, redeem and exchange each class of shares in a Fund is discussed in the Prospectus applicable to such class. The following information and policies are supplemental to that found in the applicable Prospectus.
Each Fund will generally accept unconditional orders for shares to be executed at the public offering price based on the NAV per share next determined after the order is placed in good order. The public offering price is the NAV plus the applicable sales charge, if any. In the case of orders for purchase of shares placed through FSFs, the public offering price will be determined on the day the order is placed in good order, but only if the FSF receives the order prior to the time at which shares are valued and transmits it to a Fund before the Fund processes that day's transactions. If the FSF fails to transmit before a Fund processes that day's transactions, the customer's entitlement to that day's closing price must be settled between the customer and the FSF. If the FSF receives the order after the time at which the Fund values its shares, the price will be based on the NAV determined as of the close of the New York Stock Exchange ("Exchange") on the next day it is open. If funds for the purchase of shares are sent directly to CMS, they will be invested at the public offering price next determined after receipt in good order. Payment for shares of a Fund must be in U.S. dollars; if made by check, the check must be drawn on a U.S. bank. Investors should understand that, since the offering price of each Fund's shares is calculated to two decimal places using standard rounding methodology, the dollar amount of the sales charge paid as a percentage of the offering price and of the net amount invested for any particular purchase of fund shares may be higher or lower depending on whether downward or upward rounding was required during the calculation process.
Each Fund receives the entire NAV of shares sold. For shares subject to an initial sales charge, CMD's commission is the sales charge shown in the Fund's Prospectus less any applicable FSF discount. The FSF discount is the same for all FSFs, except that CMD retains the entire sales charge on any sales made to a shareholder who does not specify a FSF on the Investment Account Application ("Application"), and except that CMD may from time to time reallow additional amounts to all or certain FSFs. CMD generally retains some or all of any asset-based sales charge (distribution fee) or contingent deferred sales charge. Such charges generally reimburse CMD for any up-front and/or ongoing commissions paid to FSFs.
Checks presented for the purchase of shares of a Fund which are returned by the purchaser's bank or checkwriting privilege checks for which there are insufficient funds in a shareholder's account to cover redemption may subject such purchaser or shareholder to a $15 service fee for each check returned. Checks must be drawn on a U.S. bank and must be payable in U.S. dollars. Travelers checks, gifts checks, credit card convenience checks, credit cards, cash and bank counter (starter checks) are not accepted.
CMS acts as the shareholder's agent whenever it receives instructions to carry out a transaction on the shareholder's account. Upon receipt of instructions that shares are to be purchased for a shareholder's account, the designated FSF will receive the applicable sales commission. Shareholders may change FSFs at any time by written notice to CMS, provided the new FSF has a sales agreement with CMD.
Shares credited to an account are transferable upon written instructions in good order to CMS and may be redeemed as described in the Prospectus. Certificates will not be issued. Shareholders may send any certificates to CMS for deposit to their account.
In addition to the commissions specified in a Fund's prospectus and this Statement of Additional Information, CMD, or its advisory affiliates, from their own resources, may make cash payments to FSFs that agree to promote the sale of shares of funds that CMD distributes. A number of factors may be considered in determining the amount of those payments, including the FSF's sales, client assets invested in the funds and redemption rates, the quality of the FSF's relationship with CMD and/or its affiliates, and the nature of the services provided by FSFs to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the FSF's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, CMD may also pay non-cash compensation to FSFs and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for FSF educational or training events.
In addition, CMD, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of a Fund.
CMD and its affiliates anticipate that the FSFs and intermediaries that will receive the additional compensation described above include:
1st Global Capital Corp
401 Company
ABN AMRO Trust Services
ADP Retirement Services
ADP Clearing
Advest
AEGON/Transamerica
AG Edwards
AIG Companies
American Century Services
American Express
AMG
AON Consulting
AST Trust Company
AXA Advisors
Bank of America
Banc of America Investment Services
BancOne
Bear Stearns
Benefit Plan Administrators
Bidwell & Company
BNY Clearing
Bysis Retirement
C N A Trust
Ceridian Retirement
Charles Schwab
CIBC Oppenheimer
Citigroup Global Markets
CitiStreet Associates LLC
City National Bank
City of Milwaukee
Columbia Trust Company
Commonwealth Financial
Compensation & Capital
CPI Qualified Plan Consultants
Daily Access Concepts
Davenport & Company
Delaware Investments
Digital Retirement Solutions
Discover Brokerage
Dreyfus/Mellon
Edgewood Services
Edward Jones
E-Trade,
ExpertPlan
FAS Liberty Life Spectrum
Ferris Baker Watts
Fidelity
First Union Bank of NC
Financial Data Services
Fleet Boston Financial
Franklin Templeton
Freeman Welwood
Gem Group
Great West Life
Hartford Life
Hewitt Associates LLC
Huntington Bank
ING
Intermountain Health Care
Investmart, Inc.
Investment Manager Services (IMS)
Janney Montgomery Scott
JJB Hilliard Lyons
JP Morgan/American Century
Kenney Investments
Kirkpatrick Pettis Smith Polian Inc
Legg Mason Wood Walker
Liberty Life
Lincoln Financial
Lincoln Life
Linsco Private Ledger
M & T Securities
Marquette Trust Company
Mass Mutual Life
Matrix Settlement & Clearance Services (MSCS)
McDonald Investments
Merrill Lynch
MetLife
MFS
Mfund Trax
MidAtlantic Capital
Milliman USA
Morgan Keegan
Morgan Stanley Dean Witter
PFPC
Nationwide Investment Services
Neuberger Berman Mgmt
NFP Securities
Northeast Retirement Services
NSD -NetStock Sharebuilder
NYLife Distributors
Optimum Investment Advisors
Orbitex
Pershing LLC
Phoenix Home Life
Piper Jaffray
PNC
PPI Employee Benefits
Private Bank & Trust
Prudential
Putnam Investments
Raymond James
RBC Dain Rausher
Robert W Baird
Royal Alliance
RSM McGladrey Inc.
Safeco
Scott & Stringfellow
Scudder Investments
Security Benefit
Segall Bryant Hamill
South Trust Securities
Southwest Securities
Standard Insurance
Stanton Group
State of NY Deferred Compensation Plan
Stephens, Inc.
Stifel Nicolaus & Co
Strong Capital
Sungard T Rowe Price
Trustar Retirement Services
Trustlynx/Datalynx
UBS Financial Services
Unified Trust
USAA Investment Management
Vanguard
Wachovia
TD Waterhouse
Webster Investment Services
Wells Fargo
Wilmington Trust
PLEASE CONTACT YOUR FSF OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or eliminated at any time.
AUTOMATIC INVESTMENT PLAN. As a convenience to investors, shares of the Funds may be purchased through the Automatic Investment Plan. Preauthorized monthly electronic funds transfers for a fixed amount of at least $50 ($25 for Individual Retirement Accounts ("IRAs")) are used to purchase a Fund's shares at the public offering price next determined after CMD receives the proceeds from the transfer. If your Automatic Investment Plan purchase is by electronic funds transfer, you may request the Automatic Investment Plan purchase for any day. Further information and application forms are available from FSFs or from CMD.
AUTOMATED DOLLAR COST AVERAGING. The Automated Dollar Cost Averaging program allows you to exchange $100 or more on a monthly basis from any mutual fund distributed by CMD in which you have a current balance of at least $5,000 into the same class of shares of up to five other funds. Complete the Automated Dollar Cost Averaging section of the Application. There is no charge for exchanges made pursuant to the Automated Dollar Cost Averaging program. Sales charges may apply if exchanging from a money market fund. Exchanges will continue so long as your Fund balance is sufficient to complete the transfers. Your normal rights and privileges as a shareholder remain in full force and effect. Thus you can buy any Fund, exchange between the same class of shares by written instruction or by telephone exchange if you have so elected and withdraw amounts from any Fund, subject to the imposition of any applicable CDSC or sales charges.
Any additional payments or exchanges into your Fund will extend the time of the Automated Dollar Cost Averaging program.
An exchange is generally a capital sale transaction for federal income tax purposes. You may terminate your program, change the amount of the exchange (subject to the $100 minimum), or change your selection of Funds, by telephone or in writing; if in writing by mailing your instructions to Columbia Funds Services, Inc. P.O. Box 8081, Boston, MA 02266-8081.
You should consult your FSF to determine whether or not the Automated Dollar Cost Averaging program is appropriate for you.
TAX-SHELTERED RETIREMENT PLANS. CMD offers prototype tax-qualified plans, including Profit-Sharing Plans for individuals, corporations, employees and the self-employed. The minimum initial Retirement Plan investment is $25. Columbia Trust Company serves as Trustee of CMD prototype plans and charges a $20 annual fee. Detailed information concerning these Retirement Plans and copies of the Retirement Plans are available from CMD.
Participants in non-CMD prototype Retirement Plans (other than IRAs) also are charged a $20 annual fee unless the plan maintains an omnibus account with CMS. Participants in CMD prototype Plans (other than IRAs) who liquidate the total value of their account may also be charged a $20 close-out processing fee payable to CMS. The fee is in addition to any applicable CDSC. The fee will not apply if the participant uses the proceeds to open a CMD IRA Rollover account in any Fund, or if the Plan maintains an omnibus account.
Consultation with a competent financial and tax advisor regarding these Retirement Plans and consideration of the suitability of Fund shares as an investment under the Employee Retirement Income Security Act of 1974 or otherwise is recommended.
TELEPHONE ADDRESS CHANGE SERVICES. By calling CMS, shareholders or their FSF of record may change an address on a recorded telephone line. Confirmations of address change will be sent to both the old and the new addresses. Telephone redemption privileges by check are suspended for 30 days after an address change is effected. Please have your account and taxpayer identification number available when calling.
CASH CONNECTION. Dividends and any other distributions, including Systematic Withdrawal Plan (SWP) payments, may be automatically deposited to a shareholder's bank account via electronic funds transfer. Shareholders wishing to avail themselves of this electronic transfer procedure should complete the appropriate sections of the Application.
AUTOMATIC DIVIDEND DIVERSIFICATION. The automatic dividend diversification reinvestment program (ADD) generally allows shareholders to have all distributions from a Fund automatically invested in the same class of shares of another Fund. An ADD account must be in the same name as the shareholder's existing open account with the particular Fund. Call CMS for more information at 1-800- 345-6611.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
RIGHTS OF ACCUMULATION (Columbia Class A and Class T shares, Nations Class
A shares and Galaxy Retail A shares only) Class T shares can only be purchased
by the shareholders of Columbia Newport Tiger Fund (formerly named Liberty
Newport Tiger Fund) who already own Class T shares. Reduced sales charges on
Class A and T shares can be effected by combining a current purchase of Class A
or Class T shares with prior purchases of other funds and classes distributed by
CMD. The applicable sales charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on the previous day of all shares of funds for which CMD serves as distributor for funds held by the shareholder.
CMD must be promptly notified of each purchase with respect to which a shareholder is entitled to a reduced sales charge. Such reduced sales charge will be applied upon confirmation of the shareholder's holdings by CMS. A Fund may terminate or amend this Right of Accumulation.
STATEMENT OF INTENT (Class A, Class E and Class T shares only). Any person may qualify for reduced sales charges on purchases of Class A, E and T shares made within a thirteen-month period pursuant to a Statement of Intent ("Statement"). A shareholder may include, as an accumulation credit toward the completion of such Statement, the value of all fund shares held by the shareholder on the date of the Statement in Funds (except shares of any money market fund, unless such shares were acquired by exchange from Class A shares of another non-money market fund)). The value is determined at the public offering price on the date of the Statement. Purchases made through reinvestment of distributions do not count toward satisfaction of the Statement.
During the term of a Statement, CMS will hold shares in escrow to secure payment of the higher sales charge applicable to Class A, E or T shares actually purchased. Dividends and capital gains will be paid on all escrowed shares and these shares will be released when the amount indicated has been purchased. A Statement does not obligate the investor to buy or a Fund to sell the amount of the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which would qualify for a further quantity discount, a retroactive price adjustment will be made at the time of expiration of the Statement (provided the FSF returns to CMD the excess commission previously paid during the thirteen-month period). The resulting difference in offering price will purchase additional shares for the shareholder's account at the applicable offering price.
If the amount of the Statement is not purchased, the shareholder shall remit to CMD an amount equal to the difference between the sales charge paid and the sales charge that should have been paid. If the shareholder fails within twenty days after a written request to pay such difference in sales charge, CMS will redeem escrowed Class A, E or T shares with a value equal to such difference. The additional FSF commission will be remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available from your FSF, or from CMS at 1-800-345-6611.
NET ASSET VALUE ELIGIBILITY GUIDELINES (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, LLC IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS).
1. Employees, brokers and various relationships that are allowed to buy at NAV. Class A shares of certain Funds may be sold at NAV to the following individuals, whether currently employed or retired: Employees of Bank of America Corporation (and its predecessors), its affiliates and subsidiaries; Trustees of funds advised or administered by the Advisor; directors, officers and employees of the Advisor, CMD, or its successors and companies affiliated with the Advisor; Registered representatives and employees of FSF's (including their affiliates) that are parties to dealer agreements or other sales arrangements with CMD; Nations Funds' Trustees, Directors and employees of its investment sub-advisers; Broker/Dealers if purchases are in accordance with the internal policies and procedures of the employing broker/dealer and made for their own investment purposes; employees or partners of any contractual service provider to the funds
NAV eligibility for Class A purchase also applies to the families of the
parties listed above and their beneficial accounts. Family members include:
spouse, parent, stepparent, legal guardian, child, stepchild, father-in-law
and mother-in-law.
Individuals receiving a distribution from a Bank of America trust, fiduciary, custodial or other similar account may use the proceeds of that distribution to buy Class A shares without paying a front-end sales charge, as long as the proceeds are invested in the funds within 90 days of the date of distribution.
Registered broker/dealer firms that have entered into a Nations Funds dealer agreement with BACAP Distributors, LLC may buy Class A shares without paying a front-end sales charge for their investment account only.
Banks, trust companies and thrift institutions, acting as fiduciaries.
2. Grandfathered investors. Any shareholder who owned shares of any fund of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000 (when all of the then outstanding shares of Columbia Acorn Trust were re-designated Class Z shares) and who since that time has remained a shareholder of any Fund, may purchase Class A shares of any Fund at NAV in those cases where a Columbia Fund Class Z share is not available.
Shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at (NAV) will continue to be eligible for NAV purchases into those Nations Fund accounts opened through August 19, 2005.
Galaxy Fund shareholders prior to December 1, 1995; and shareholders who
(i) purchased Galaxy Fund Prime A shares at NAV and received Class A shares
in exchange for those shares during the Galaxy/Liberty Fund reorganization;
and (ii) continue to maintain the account in which the Prime A shares were
originally purchased.
(For Class T shares only) Shareholders who (i) purchased Galaxy Fund Retail A shares at net asset value and received Class T shares in exchange for those shares during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Retail A shares were originally purchased; and Boston 1784 Fund shareholders on the date that those funds were reorganized into Galaxy Funds.
3. Reinstatement. Subject to the fund policy on trading of fund shares, an investor who has redeemed class A, B, C, D, G or T shares may, upon request, reinstate within 1 year a portion or all of the proceeds of such sales in shares of class A of any fund at the NAV next determined after CMS received a written reinstatement request and payment.
4. Retirement Plans. Class A, Class E and Class T shares (Class T shares are not currently open to new investors) of certain funds may also be purchased at reduced or no sales charge by clients of dealers, brokers or registered investment advisors that have entered into arrangements with
CMD pursuant to which the funds are included as investments options in wrap fee accounts, other managed agency/asset allocation accounts or programs involving fee-based compensation arrangements, and by participants in certain retirement plans.
5. Non-U.S. Investors. Certain pension, profit-sharing or other employee benefit plans offered to non-US investors may be eligible to purchase Class A shares with no sales charge.
6. Reorganizations. At the Fund's discretion, NAV eligibility may apply to shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which the fund is a party.
7. Rights of Accumulation (ROA). The value of eligible accounts, regardless of class, maintained by you and you and your immediate family may be combined with the value of your current purchase to reach a sales discount level and to obtain the lower sales charge for your current purchase.
8. Letters of Intent (LOI). You may pay a lower sales charge when purchasing class A shares by signing a letter of intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the LOI within 13 months. If your LOI purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES (CDSCS) (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, LLC IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS) (Class A, B, C, D, E, matured F, G and T shares). CDSCs may be waived on redemptions in the following situations with the proper documentation:
1. Death. CDSCs may be waived on redemptions following the death of (i) the sole shareholder on an individual account, (ii) a joint tenant where the surviving joint tenant is the deceased's spouse, or (iii) the beneficiary of a Uniform Gifts to Minors Act (UGMA), Uniform Transfers to Minors Act (UTMA) or other custodial account. If, upon the occurrence of one of the foregoing, the account is transferred to an account registered in the name of the deceased's estate, the CDSC will be waived on any redemption from the estate account If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions occurring pursuant to a monthly, quarterly or semi-annual SWP established with CMS, to the extent the redemptions do not exceed, on an annual basis, 12% of the account's value at the time that the SWP is established. Otherwise, CDSCs will be charged on SWP redemptions until this requirement is met. For redemptions in excess of 12% of the account's value at the time that the SWP is established, a CDSC will be charged on the SWP redemption. The 12% limit does not apply if the SWP is set up at the time the account is established, and distributions are being reinvested. See below under "How to Sell Shares - Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions occurring after the sole shareholder on an individual account or a joint tenant on a spousal joint tenant account becomes disabled (as defined in Section 72(m)(7) of the Internal Revenue Code). To be eligible for such waiver, (i) the disability must arise AFTER the purchase of shares (ii) the disabled shareholder must have been under age 65 at the time of the initial determination of disability, and (iii) a letter from a physician must be signed under penalty of perjury stating the nature of the disability. If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring upon
dissolution of a revocable living or grantor trust following the death of
the sole trustee where (i) the grantor of the trust is the sole trustee and
the sole life beneficiary, (ii) death occurs following the purchase AND
(iii) the trust document provides for dissolution of the trust upon the
trustee's death. If the account is transferred to a new registration
(including that of a successor trustee), the applicable CDSC will be
charged upon any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions required to return excess contributions made to retirement plans or individual retirement accounts, so long as the FSF agrees to return the applicable portion of any commission paid by CMD.
6. Qualified Retirement Plans. CDSCs may be waived on CMD shares sold by employee benefit plans created according to Section 403(b) of the tax code and sponsored by a non-profit organization qualified under Section 501(c)(3) of the tax code. To qualify for the waiver, the plan must be a participant in an alliance program that has signed an agreement with Columbia Funds or CMD.
7. Trust Share Taxes. CDSCs will be waived on redemptions of Class E and F
shares (i) where the proceeds are used to directly pay trust taxes, and
(ii) where the proceeds are used to pay beneficiaries for the payment of
trust taxes.
8. Return of Commission. CDSCs may be waived on shares sold by intermediaries that are part of the Columbia Funds selling group where the intermediary has entered into an agreement with Columbia Funds not to receive (or to return if received) all or any applicable portion of an upfront commission.
9. Non-U.S. Investors. CDSCs may be waived on shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors.
10. IRS Section 401 and 457. CDSCs may be waived on shares sold by certain
pension, profit- sharing or other employee benefit plans established under
Section 401 or 457 of the tax code.
11. Medical Payments. CDSCs may be waived on shares redeemed for medical payments that exceed 7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least twelve weeks.
12. Plans of Reorganization. At the Funds' discretion, CDSCs may be waived for shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which a fund is a party.
13. Charitable Giving Program. CDSCs may be waived on the sale of Class C or Class D shares sold by a non-profit organization qualified under Section 501(c)(3) of the tax code in connection with the Banc of America Capital Management Charitable Giving Program.
14. The CDSC also may be waived where the FSF agrees to return all or an agreed upon portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may also be sold on any day the Exchange is open, either directly to a Fund or through the shareholder's FSF. Sale proceeds generally are sent within seven days (usually on the next business day after your request is received in good form). However, for shares recently purchased by check, a Fund may delay selling or delay sending proceeds from your shares for up to 15 days in order to protect the Fund against financial losses and dilution in net asset value caused by dishonored purchase payment checks.
To sell shares directly to a Fund, send a signed letter of instruction or stock power form to CMS, along with any certificates for shares to be sold. The sale price is the net asset value (less any applicable CDSC) next calculated after a Fund receives the request in proper form. Signatures must be guaranteed by a bank, a member firm of a national stock exchange or another eligible guarantor that participates in the Medallion Signature Guarantee Program. Stock power forms are available from FSFs, CMS and many banks. Additional documentation may required for sales by corporations, agents, fiduciaries, surviving joint owners and individual retirement account holders and other legal entities. Call CMS for more information at 1-800-345-6611.
FSFs must receive requests before the time at which a Fund's shares are valued to receive that day's price. FSFs are responsible for furnishing all necessary documentation to CMS and may charge for this service.
SYSTEMATIC WITHDRAWAL PLAN. The shareholder may establish a SWP. A specified dollar amount or percentage of the then current net asset value of the shareholder's investment in any Fund designated by the shareholder will be paid monthly, quarterly or semi-annually to a designated payee. The amount or percentage the shareholder specifies is run against available shares and generally may not, on an annualized basis, exceed 12% of the value, as of the time the shareholder makes the election, of the shareholder's investment. Withdrawals from Class B, Class C and Class D shares of the Fund under a SWP will be treated as redemptions of shares purchased through the reinvestment of Fund distributions, or, to the extent such shares in the shareholder's account are insufficient to cover Plan payments, as redemptions from the earliest purchased shares of such Fund in the shareholder's account. No CDSCs apply to a redemption pursuant to a SWP of 12% or less, even if, after giving effect to the redemption, the shareholder's account balance is less than the shareholder's base amount. Qualified plan participants who are required by Internal Revenue Service regulation to withdraw more than 12%, on an annual basis, of the value of their Class B, Class C and Class D share account may do so but may be subject to a CDSC ranging from 1% to 5% of the amount withdrawn in excess of 12% annually. If a shareholder wishes to participate in a SWP, the shareholder must elect to have all of the shareholder's income dividends and other Fund distributions payable in shares of the Fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by telephone on a recorded line. However, SWP checks will be payable only to the shareholder and sent to the address of record. SWPs from retirement accounts cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in certificate form. Purchasing additional shares (other than through dividend and distribution reinvestment) while receiving SWP payments is ordinarily disadvantageous because of duplicative sales charges. For this reason, a shareholder may not maintain a plan for the accumulation of shares of a Fund (other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or loss for tax purposes, may involve the use of principal and may eventually use up all of the shares in a shareholder's account.
A Fund may terminate a shareholder's SWP if the shareholder's account balance falls below $5,000 due to any transfer or liquidation of shares other than pursuant to the SWP. SWP payments will be terminated on receiving satisfactory evidence of the death or incapacity of a shareholder. Until this evidence is received, CMS will not be liable for any payment made in accordance with the provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate in them is borne by a Fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not be able to participate in a SWP. If a shareholder's Fund shares are held in "street name," the shareholder should consult his or her FSF to determine whether he or she may participate in a SWP. The SWP on accounts held in street name must be made payable to the back office via the National Securities Clearing Corporation (NSCC).
TELEPHONE REDEMPTIONS. All Fund shareholders and/or their FSFs are automatically eligible to redeem up to $100,000 of the Fund's shares by calling 1-800-345-6611 toll-free any business day between 9:00 a.m. and the close of trading of the Exchange (normally 4:00 p.m. Eastern time). Transactions received after 4:00 p.m. Eastern time will receive the next business day's closing price. Telephone redemptions by check and ACH are limited to a total of $100,000 in a 30-day period. Redemptions that exceed $100,000 may be accomplished by placing a wire order trade through a broker, to a pre-existing bank account, or furnishing a signature guaranteed request. Signatures must be guaranteed by either a bank, a member firm of a national stock exchange or another eligible guarantor that participates in the Medallion Signature Guarantee Program. CMS will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. Telephone redemptions are not available on accounts with an address change in the preceding 30 days and proceeds and confirmations will only be mailed or sent to the address of record unless the redemption proceeds are being sent to a pre-designated bank account. Shareholders and/or their FSFs will be required to provide their name, address and account number. FSFs will also be required to provide their broker number. All telephone transactions are recorded. A loss to a shareholder may result from an unauthorized transaction reasonably believed to have been authorized. Certain restrictions may apply to retirement plan accounts.
NON CASH REDEMPTIONS. For redemptions of any single shareholder within any 90-day period exceeding the lesser of $250,000 or 1% of a Fund's net asset value, the Fund may make the payment or a portion of the payment with portfolio securities held by that Fund instead of cash, in which case the redeeming shareholder may incur brokerage and other costs in selling the securities received.
DISTRIBUTIONS
Distributions are invested in additional shares of the same class of a Fund at net asset value unless the shareholder elects to receive cash. Regardless of the shareholder's election, distributions of $10 or less will not be paid in cash, but will be invested in additional
shares of the same class of the Fund at net asset value. Undelivered distribution checks returned by the post office will be reinvested in your account. If a shareholder has elected to receive dividends and/or capital gain distributions in cash and the postal or other delivery service selected by CMS is unable to deliver checks to the shareholder's address of record, such shareholder's distribution option will automatically be converted to having all dividend and other distributions reinvested in additional shares. No interest will accrue on amounts represented by uncashed distribution or redemption checks. Shareholders may reinvest all or a portion of a recent cash distribution without a sales charge. No charge is currently made for reinvestment.
Shares of Funds that pay daily dividends (Oregon Intermediate Municipal Bond Fund, and Conservative High Yield Fund) will be earned starting the day after the Fund receives payments for the shares.
HOW TO EXCHANGE SHARES
Shares of a Fund may be exchanged for the same class of shares of the other continuously offered funds (with certain exceptions) distributed by CMD on the basis of the NAVs per share at the time of exchange. Class D shares may be exchanged for Class C shares. Class Z shares may be exchanged for Class A shares of the other funds that are not offering Class Z shares. Class G shares can be exchanged for Class B shares, but once exchanged into Class B cannot be reexchanged back into Class G. Class T shares can be exchanged for Class A shares, but once exchanged into Class A cannot be reexchanged back into Class T. The prospectus of each Fund describes its investment objective and policies, and shareholders should obtain a prospectus and consider these objectives and policies carefully before requesting an exchange. Shares of certain of these funds are not available to residents of all states. Consult CMS before requesting an exchange.
By calling CMS, shareholders or their FSF of record may exchange among accounts with identical registrations, provided that the shares are held on deposit. During periods of unusual market changes or shareholder activity, shareholders may experience delays in contacting CMS by telephone to exercise the telephone exchange privilege. Because an exchange involves a redemption and reinvestment in another fund, completion of an exchange may be delayed under unusual circumstances, such as if the fund suspends repurchases or postpones payment for the Fund shares being exchanged in accordance with federal securities law. CMS will also make exchanges upon receipt of a written exchange request and share certificates, if any. If the shareholder is a corporation, partnership, agent, or surviving joint owner, CMS may require customary additional documentation. Prospectuses of the other funds are available from the CMD Literature Department by calling 1-800-426-3750.
A loss to a shareholder may result from an unauthorized transaction reasonably believed to have been authorized. No shareholder is obligated to use the telephone to execute transactions.
Consult your FSF or CMS. In all cases, the shares to be exchanged must be registered on the records of the Fund in the name of the shareholder desiring to exchange.
An exchange is generally a capital sale transaction for federal income tax purposes. The exchange privilege may be revised, suspended or terminated at any time.
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.
PRICING OF SHARES
The net asset value ("NAV") per share of each Fund is determined by the Advisor, 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 securities for which daily market quotations are not readily available, or for which the Advisor believes the quotations do not accurately value the security in question, may be fair valued by the Advisor, pursuant to guidelines established by the Funds' Board of Directors.
Temporary cash investments are carried at values deemed best to reflect their fair values as determined in good faith by the Advisor, 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 generally 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.
CUSTODIAN
State Street Bank & Trust Company (the "Custodian"), 2 Avenue de Lafayette, Boston, Massachusetts 02111-2900 acts as the Funds' general custodian, for both domestic and foreign securities. The Custodian holds securities and cash of the Funds, receives and pays for securities purchased, delivers against payment securities sold, receives and collects income from investments, makes all payments covering expenses of the Funds, and performs other administrative duties, all as directed by authorized officers of the Advisor. The Custodian does 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 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 the Custodian (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, by the Custodian, as a delegate of the Board of Directors, all in accordance with regulations under the 1940 Act.
The Advisor 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 judgments 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.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP, located at 125 High Street, Boston, Massachusetts, 02110-1707 is the Fund's independent registered public accounting firm, providing audit and tax return review services and assistance and consultation, in connection with the review of various Securities and Exchange Commission filings. The annual financial statements incorporated by reference in this Statement of Additional Information have been so incorporated, and the financial highlights included in the Prospectuses have been so included, in reliance upon the report of PricewaterhouseCoopers LLP given on the authority of said firm as experts in accounting and auditing.
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 Code. Each Fund believes it satisfies the tests to qualify as a regulated investment company. If a Fund were to fail to qualify as a "regulated investment company" in any year, it would incur a regular federal corporate income tax on all of its taxable income, whether or not distributed, and distributions would generally be taxable as ordinary dividend income to the shareholders.
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; 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; or net income from an interest in qualified publicly traded
partnerships (the "90 Percent Test"); and
(b) diversify its holdings so that, at the end of each quarter of its taxable year, (i) 50 percent or more of the value of the assets of the Fund consists of cash, government securities, securities of other regulated investment companies 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 either the securities (other than government securities or securities of other regulated investment companies) 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 or the securities of one or more qualified publicly traded partnerships (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 and exempt interest 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 (net of expenses
attributable to such interest), and (b) either (i) have been subject to Part I
of Subchapter M for all taxable years ending on or 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 as a "capital gain dividend" 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 capital gains (i.e. the excess of net long-term capital gains over net short-term capital losses) are retained by a Fund, requiring federal income taxes to be paid thereon by the Fund, the Fund may elect to treat such capital gains as having been distributed to shareholders. In the case of such an election, shareholders will be taxed on such amounts as long-term capital gains, will be able to claim their proportional share of the federal income taxes paid by the Fund on such gains as credits against their own federal income tax liabilities, and generally will be entitled to increase the adjusted tax basis of their shares in the Fund by the differences between their pro rata shares of such gains and their tax credits.
SPECIAL ASPECTS OF 90 PERCENT TEST WITH RESPECT TO FOREIGN CURRENCY. For purposes of the 90 Percent Test, foreign currency gains that are not directly related to a Fund's principal business of investing in stocks or securities (or options and futures with respect to stock or securities) may be excluded from qualifying income by regulation. No such regulations, however, have been issued.
Unless an exception applies, a Fund may be required to recognize some income with respect to foreign currency contracts under the mark-to-market rules of Section 1256 even though that income is not realized. Special rules under Sections 1256 and 988 of the Code determine the character of any income, gain, or loss on foreign currency contracts.
OREGON INTERMEDIATE 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 tax-exempt assets such as 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 Intermediate Municipal Bond Fund intends to have at least 50 percent of the value of its 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 Intermediate 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 Intermediate 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 Intermediate 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 capital loss realized upon the redemption of shares of the Oregon Intermediate 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.
Dividends derived from any investments other than tax-exempt bonds and any distributions of short-term capital gains are taxable to shareholders as ordinary income. Any distributions of long-term capital gains will in general be taxable to shareholders as long- term capital gains (generally subject to a maximum 15 percent tax rate for shareholders who are individuals) regardless of the length of time fund shares are held. As described below, as a result of 2003 legislation, qualified dividend income distributions to individual shareholders generally are taxed at the same rate that applies to long-term capital gains.
A tax-exempt fund may at times purchase tax-exempt securities at a discount and some or all of this discount may be included in the fund's ordinary income which will be taxable when distributed. Any market discount recognized on a tax-exempt bond purchased after April 30, 1993, with a term at time of issue of one year or more is taxable as ordinary income. A market discount bond is a bond acquired in the secondary market at a price below its "stated redemption price" (in the case of a bond with original issue discount, its "revised issue price").
Interest on indebtedness incurred or continued by shareholders to purchase or carry shares of the Oregon Intermediate 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 Intermediate
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 Intermediate 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. "Substantial user" is defined under U.S. Treasury Regulations to include a non- exempt person (i) who regularly uses a part of such facilities in his or her trade or business and whose gross revenues derived with respect to the facilities financed by the issuance of bonds are more than 5 percent of the total revenues derived by all users of such facilities, (ii) who occupies more than 5 percent of the usable area of such facilities or (iii) for whom such facilities or a part thereof were specifically constructed, reconstructed or acquired. "Related persons" include certain related natural persons, affiliated corporations, a partnership and its partners, and an S corporation and its shareholders. No investigation as to the substantial users of the facilities financed by bonds in the Oregon Intermediate Municipal Bond Fund's portfolios will be made by the Oregon Intermediate 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 Intermediate 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 Intermediate 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 Intermediate Municipal Bond Fund will not monitor any issuers or any municipal bonds to attempt to ensure that the interest remains tax-exempt.
If the Oregon Intermediate Municipal Bond Fund declares dividends attributable to taxable interest it has received, it intends to designate as taxable the same percentage of the day's dividend that the actual taxable income earned on that day bears to total income earned on that day. Thus, the percentage of the dividend designated as taxable, if any, may vary from day to day.
Shares of the Oregon Intermediate 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 Intermediate Municipal Bond Fund and the value of portfolio securities held by the the Fund would be affected.
HEDGING TRANSACTIONS. If a Fund engages in hedging transactions, including hedging transactions in options, futures contracts, and straddles, or other similar transactions, it will be subject to special tax rules (including constructive sale, mark-to-market, straddle, wash sale, and short sale rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund's securities, convert long-term capital gains into short-term capital gains or convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. Each Fund will endeavor to make any available elections pertaining to such transactions in a manner believed to be in the best interests of each Fund.
Certain of a Fund's hedging activities (including its transactions, if any, in foreign currencies or foreign currency-denominated instruments) are likely to produce a difference between its book income and its taxable income (or, with respect to a tax-exempt Fund, the sum of its net tax-exempt and taxable income). If a Fund's book income exceeds its taxable income (or, with respect to a tax-exempt Fund, its tax-exempt income), the distribution (if any) of such excess will be treated as (i) a dividend to the extent of the Fund's remaining earnings and profits (including earnings and profits arising from tax-exempt income), (ii) thereafter as a return of capital to the extent of the recipient's basis in the shares, and (iii) thereafter as gain from the sale or exchange of a capital asset. If a Fund's book income is less than its taxable income (or, for a tax-exempt Fund, the sum of its net tax-exempt and taxable income), the Fund could be required to make distributions exceeding book income to qualify as a regulated investment company that is accorded special tax treatment.
OTHER FUNDS. Shareholders of Funds other than the Oregon Intermediate 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 Strategic Investor Fund, the Mid Cap Growth 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, and is subject to a
holding period requirement. In addition, qualifying dividends are includable in adjusted current earnings for purposes of computing the corporate alternative minimum tax. However, distributions from the Conservative High Yield Fund are unlikely to so qualify because the income of this Fund 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 from a Fund (other than exempt-interest dividends) will be taxable to shareholders as ordinary income to the extent derived from the Fund's investment income and net short-term gains. 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; however, as a result of 2003 legislation, for taxable years beginning on or before December 31, 2008 qualified dividend income distributions to individuals generally are taxed at the same rate that applies to long-term capital gains, subject to holding period requirements with respect to shareholders and the Funds as well as other requirements. For this purpose, long-term capital gain rates apply to the extent that the Fund receives dividends from domestic or qualifying foreign corporations and the Fund meets holding period and other requirements. Generally, a dividend received from a foreign corporation will not be treated as qualified dividend income if the foreign corporation is (a) not eligible for the benefits of a comprehensive income tax treaty with the United States (with the exception of dividends paid on stock of such a foreign corporation readily tradable on an established securities market in the United States) or (b) treated as a passive foreign investment company or, for taxable years of foreign corporations beginning on or before December 31, 2004, as a foreign personal holding company or a foreign investment company. If the aggregate qualified dividends received by a Fund during any taxable year are 95 percent or more of its gross income, then 100 percent of the Fund's dividends (other than properly designated capital gain dividends) will be eligible to be treated as qualified dividend income. For this purpose, the only gain included in the term "gross income" is the excess of net short-term capital gain over net long-term capital loss. 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.
Long term capital gains rates have been temporarily reduced, in general, to 15 percent, with lower rates applying to taxpayers in the 10-percent and 15-percent rate brackets for taxable years beginning on or before December 31, 2008.
The sale, exchange or redemption of Fund shares may give rise to a gain or loss. In general, any gain realized upon a taxable disposition of shares will be treated as long-term capital gain if the shares have been held for more than 12 months. Otherwise the gain on the sale, exchange or redemption of shares will be treated as short-term capital gain. In general, any loss realized upon a taxable disposition of shares will be treated as long-term capital loss if the shares have been held more than 12 months, and otherwise as a short-term capital loss. However, any loss realized upon a taxable disposition of shares held for six months or less will be treated as long-term, rather than short-term, capital loss to the extent of any long-term capital gain distributions received by the shareholder with respect to those shares. All or a portion of any loss realized upon a taxable disposition of shares will be disallowed if other shares are purchased within 30 days before or after the disposition. In such a case, the basis of the newly-purchased shares will be adjusted to reflect the disallowed loss.
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. There is no recognition of gain or loss unless the return of capital exceeds the cost basis in the shares.
Dividends and distributions on a Fund's shares are generally subject to federal income tax as described herein to the extent they do not exceed the Fund's realized income and gains, even though such dividends and distributions may economically represent a return of capital. Such distributions are likely to occur in respect of shares purchased at a time when a Fund's net asset value reflects gains that are either unrealized, or realized but not distributed. Such realized gains may be required to be distributed even when a Fund's net asset value also reflects unrealized losses. 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.
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 Intermediate Municipal Bond Fund, as tax-exempt interest, or in the case of the Real Estate Fund, as a tax return of
capital. The ratio of tax-exempt income to total net investment income earned during the year may be substantially different from the ratio of tax-exempt income to total net investment income earned during any particular portion of the year. Thus, a shareholder who holds shares for only a part of the year may be allocated more or less tax-exempt dividends than would be the case if the allocation were based on the ratio of tax-exempt income to total net investment income actually earned while a shareholder.
Distributions derived from interest that is exempt from regular federal income tax may subject corporate shareholders to or increase their liability under the federal corporate alternative minimum tax (AMT). A portion of such distributions may constitute a tax preference item for individual shareholders and may subject them to or increase their liability under the federal AMT.
Distributions will qualify for the corporate dividends received deduction only to the extent that dividends earned by the Fund qualify. Any such dividends may be, however, includable in adjusted current earnings for purposes of computing corporate AMT. The dividends received deduction for eligible dividends is subject to a holding period requirement.
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 amounts paid through 2010, 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 28 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. The backup withholding rate will be 31 percent for amounts paid after December 31, 2010. 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.
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 (or other discounted debt securities) 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 (possibly at a time when it is not advantageous to do so) 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.
A Fund's transactions in foreign currencies, foreign currency-denominated debt securities, certain foreign currency options, futures contracts and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned.
FOREIGN INCOME TAXES
The Mid Cap Growth Fund, the Small Cap Growth Fund I, the Real Estate Fund, the Technology Fund, the Strategic Investor Fund, the Balanced Fund, and the Conservative High Yield Fund may invest in the securities of foreign corporations and issuers. 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 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.
NON-U.S. SHAREHOLDERS. Capital gain dividends will not be subject to withholding of federal income tax. In general, dividends (other than Capital Gain Dividends) paid by the Fund to a shareholder that is not a "U.S. person" within the meaning of the Code (such shareholder, a "foreign person") are subject to withholding of U.S. federal income tax at a rate of 30% (or lower applicable treaty rate) even if they are funded by income or gains (such as portfolio interest, short-term capital gains, or foreign-source dividend and interest income) that, if paid to a foreign person directly, would not be subject to withholding. However, under the recent legislation, effective for taxable years of the Fund beginning after December 31, 2004 and before January 1, 2008, the Fund will not be required to withhold any amounts (i) with respect to distributions (other than distributions to a foreign person (w) that has not provided a satisfactory statement that the beneficial owner is not a U.S. person, (x) to the extent that the dividend is attributable to certain interest on an obligation if the foreign person is the issuer or is a 10% shareholder of the issuer, (y) that is within certain foreign countries that have inadequate information exchange with the United States, or (z) to the extent the dividend is attributable to interest paid by a person that is a related person of the foreign person and the foreign person is a controlled foreign corporation) from U.S.-source interest income that, in general, would not be subject to U.S. federal income tax if earned directly by an individual foreign person, to the extent such distributions are properly designated by the Fund, and (ii) with respect to distributions (other than distributions to an individual foreign person who is present in the United States for a period or periods aggregating 183 days or more during the year of the distribution) of net short-term capital gains in excess of net long-term capital losses, to the extent such distributions are properly designated by the Fund. The Fund has not determined whether it will make such designations.
If a beneficial holder who is a foreign person has a trade or business in the United States, and the dividends are effectively connected with the conduct by the beneficial holder of a trade or business in the United States, the dividend will be subject to U.S. federal net income taxation at regular income tax rates.
Recent legislation modifies the tax treatment of distributions from the Fund that are paid to a foreign person and are attributable to gain from "U.S. real property interests" ("USRPIs"), which the Code defines to include direct holdings of U.S. real property and interests (other than solely as a creditor) in "U.S. real property holding corporations" such as REITs. The Code deems any corporation that holds (or held during the previous five-year period) USRPIs with a fair market value equal to 50% or more of the fair market value of the corporation's U.S. and foreign real property assets and other assets used or held for use in a trade or business to be a U.S. real property holding corporation; however, if any class of stock of a corporation is traded on an established securities market, stock of such class shall be treated as a USRPI only in the case of a person who holds more than 5% of such class of stock at any time during the previous five-year period. Under the legislation, which is generally effective for taxable years of RICs beginning after December 31, 2004 and which applies to dividends paid or deemed paid on or before December 31, 2007, distributions to foreign persons attributable to gains from the sale or exchange of USRPIs will give rise to an obligation for those foreign persons to file a U.S. tax return and pay tax, and may well be subject to withholding under future regulations.
Under U.S. federal tax law, a beneficial holder of shares who is a foreign person is not, in general, subject to U.S. federal income tax on gains (and is not allowed a deduction for losses) realized on the sale of shares of the Fund or on Capital Gain Dividends unless (i) such gain or Capital Gain Dividend is effectively connected with the conduct of a trade or business carried on by such holder within the United States, (ii) in the case of an individual holder, the holder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale or Capital Gain Dividend and certain other conditions are met, or (iii) the shares constitute USRPIs or the Capital Gain Dividends are paid or deemed paid on or before December 31, 2007 and are attributable to gains from the sale or exchange of USRPIs. Effective after December 31, 2004, and before January 1, 2008, if the Fund is a U.S. real property holding corporation (as described above) the Fund's shares will nevertheless not constitute USRPIs if the Fund is a "domestically controlled qualified investment entity," which is defined to include a RIC that, at all times during the shorter of the 5-year period ending on the date of the disposition or the period during which the RIC was in existence, had less than 50 percent in value of its stock held directly or indirectly by foreign persons.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES. Investment by a Fund in certain "passive foreign investment companies" ("PFICs") could subject the Fund to a U.S. federal income tax (including interest charges) on distributions received from the company or on proceeds received from the disposition of shares in the company, which tax cannot be eliminated by making distributions to fund shareholders. However, the Fund may be able to elect to treat a PFIC as a "qualified electing fund," in which case the Fund will be required to include its share of the company's income and net capital gain annually, regardless of whether it receives any distribution from the company. Alternatively, the Fund may make an election to mark the gains (and, to a limited extent, losses) in such holdings "to the
market" as though it had sold and repurchased its holdings in those PFICs on the last day of the Fund's taxable year. Such gains and losses are treated as ordinary income and loss. The qualified electing fund and mark-to-market elections may have the effect of accelerating the recognition of income (without the receipt of cash) and increasing the amount required to be distributed for the Fund to avoid taxation. Making either of these elections therefore may require a Fund to liquidate other investments (including when it is not advantageous to do so) in order to meet its distribution requirement, which also may accelerate the recognition of gain and affect a Fund's total return. It is anticipated that any taxes on a Fund with respect to investments in PFICs would be insignificant.
INVESTMENTS IN REAL ESTATE INVESTMENT TRUSTS
Dividends from the Real Estate Fund will generally not be treated as qualified dividend income.
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
FUNDS THAT INVEST IN U.S. GOVERNMENT SECURITIES. Many states grant tax-free status to dividends paid to shareholders of mutual funds from interest income earned by the fund from direct obligations of the U.S. government. Investments in mortgage-backed securities (including GNMA, FNMA and FHLMC securities) and repurchase agreements collateralized by U.S. government securities do not qualify as direct federal obligations in most states. Shareholders should consult with their own tax advisors about the applicability of state and local intangible property, income or other taxes to their fund shares and distributions and redemption proceeds received from the Fund.
OREGON INTERMEDIATE MUNICIPAL BOND FUND. Individuals, trusts, and estates will not be subject to the Oregon personal income tax on distributions from the Oregon Intermediate 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 generally are also subject to the Oregon personal income tax on distributions from the Oregon Intermediate 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 Intermediate Municipal Bond Fund, including income that is exempt for federal purposes. Shares of the Oregon Intermediate 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 Intermediate 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 Intermediate Municipal Bond Fund expects to distribute its interest income so that it will not be liable for Oregon corporation excise or income taxes.
The Oregon Intermediate 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.
GENERAL INFORMATION
Capital gains distributed to shareholders of the Oregon Intermediate 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.
Recent Tax Shelter Reporting Regulations. Under recently promulgated Treasury regulations, if a shareholder recognizes a loss under Section 165 of the Code with respect to shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the Internal Revenue Service a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all regulated investment companies. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. Shareholders should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances.
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.
SHAREHOLDER MEETINGS
The Funds are not required to hold annual shareholder meetings, but special meetings may be called for certain purposes. The Funds have voluntarily undertaken to hold a shareholder meeting at which the Board of Directors would be elected at least every five years beginning in 2005. Each whole share (or fractional share) outstanding on the record date established in accordance with the Funds' By-Laws shall be entitled to a number of votes on any matter on which it is entitled to vote equal to the net asset value of the shares (or fractional share) in United States dollars determined at the close of business on the record date (for example, a share having a net asset value of $10.50 would be entitled to 10.5 votes).
The Directors may fill any vacancies in the Board of Directors except that the Directors may not fill a vacancy if, immediately after filling such vacancy, less than two-thirds of the Directors then in office would have been elected to such office by the shareholders. In addition, at such times as less than a majority of the Directors then in office have been elected to such office by the shareholders, the Directors must call a meeting of shareholders. Directors may be removed from office by a written consent signed by a majority of the outstanding shares of the Funds or by a vote of the holders of a majority of the outstanding shares at a meeting duly called for the purpose. Except as otherwise disclosed in the Prospectus and this SAI, the Directors shall continue to hold office and may appoint their successors.
At any shareholders' meetings that may be held, shareholders of all series would vote together, irrespective of series, on the election of Directors, but each series would vote separately from the others on other matters, such as changes in the investment policies of that series or the approval of the management agreement for that series. Shares of each Fund and any other Funds in the Fund Complex that may be in existence from time to time generally vote together except when required by law to vote separately by fund or by class.
FINANCIAL STATEMENTS
The Funds' most recent Annual and Semi-Annual Report to shareholders are separate documents supplied with this Statement of Additional Information. The financial statements, accompanying notes and report of independent registered public accounting firm appearing in the Annual Report, and the financial statements and accompanying notes appearing in the Semi-Annual Report are incorporated by reference into this Statement of Additional Information.
APPENDIX I
COLUMBIA MANAGEMENT ADVISORS, LLC ("CMA")
PROXY VOTING POLICIES AND PROCEDURES
ADOPTED JULY 1, 2003 AND REVISED MARCH 4, 2005
POLICY:
ALL PROXIES(1) REGARDING CLIENT SECURITIES FOR WHICH COLUMBIA MANAGEMENT ADVISORS, LLC ("CMA") HAS ASSUMED AUTHORITY TO VOTE SHALL, UNLESS CMA DETERMINES IN ACCORDANCE WITH POLICIES STATED BELOW TO ABSTAIN FROM VOTING, BE VOTED IN A MANNER CONSIDERED BY CMA TO BE IN THE BEST INTEREST OF CMA'S CLIENTS, INCLUDING THE CMG FAMILY FUNDS(2) AND THEIR SHAREHOLDERS, WITHOUT REGARD TO ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES. THE BEST INTEREST OF CLIENTS IS DEFINED FOR THIS PURPOSE AS THE INTEREST OF ENHANCING OR PROTECTING THE ECONOMIC VALUE OF CLIENT ACCOUNTS, CONSIDERED AS A GROUP RATHER THAN INDIVIDUALLY, AS CMA DETERMINES IN ITS SOLE AND ABSOLUTE DISCRETION. IN THE EVENT A CLIENT BELIEVES THAT ITS OTHER INTERESTS REQUIRE A DIFFERENT VOTE, CMA SHALL VOTE AS THE CLIENT CLEARLY INSTRUCTS, PROVIDED CMA RECEIVES SUCH INSTRUCTIONS IN TIME TO ACT ACCORDINGLY.
CMA ENDEAVORS TO VOTE, IN ACCORDANCE WITH THIS POLICY, ALL PROXIES OF WHICH IT BECOMES AWARE, SUBJECT TO THE FOLLOWING EXCEPTIONS (UNLESS OTHERWISE AGREED) WHEN CMA EXPECTS TO ROUTINELY ABSTAIN FROM VOTING:
1. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE THE SECURITY HAS BEEN LOANED FROM THE CLIENT'S ACCOUNT.
2. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE CMA DEEMS THE COSTS TO THE CLIENT AND/OR THE ADMINISTRATIVE INCONVENIENCE OF VOTING THE SECURITY (E.G., SOME FOREIGN SECURITIES) OUTWEIGH THE BENEFIT OF DOING SO.
CMA SEEKS TO AVOID THE OCCURRENCE OF ACTUAL OR APPARENT MATERIAL CONFLICTS OF INTEREST IN THE PROXY VOTING PROCESS BY VOTING IN ACCORDANCE WITH PREDETERMINED VOTING GUIDELINES, AS STATED BELOW. FOR THOSE PROXY PROPOSALS THAT REQUIRE SPECIAL CONSIDERATION OR IN INSTANCES WHERE SPECIAL CIRCUMSTANCES MAY REQUIRE VARYING FROM THE PREDETERMINED GUIDELINES, THE CMG PROXY COMMITTEE WILL DETERMINE THE BEST INTEREST OF CMA'S CLIENTS AND VOTE ACCORDINGLY, WITHOUT CONSIDERATION OF ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES.
OVERVIEW:
CMA's policy is based upon its fiduciary obligation to act in its clients' best interest. Citing this obligation, the SEC has adopted rules pursuant to the Investment Advisers Act of 1940 and Investment Company Act of 1940 with respect to proxy voting.
PROCEDURE:
I. ACCOUNT POLICIES
Except as otherwise directed by the client, CMA shall vote as follows:
SEPARATELY MANAGED ACCOUNTS
CMA shall vote proxies on securities held in its separately managed accounts.
COLUMBIA TRUST COMPANY (CTC) TRUST POOLS
CMA shall vote proxies on securities held in the trust pools.
CMG FAMILY FUNDS/CMA FUND TRUST
(2) A CMG Family Fund or a Fund is a registered investment company or series of a registered investment company managed or advised by Columbia Management Advisors, LLC
CMA shall vote proxies on securities held in the Funds, including multi-managed and subadvised Funds.
COLUMBIA PRIVATE PORTFOLIO
CMA shall vote proxies on securities held in its separately managed accounts.
ALTERNATIVE INVESTMENT GROUP
CMA's clients may invest in securities ("Alternative Investments") issued by alternative investment vehicles (i.e. hedge funds, private equity funds, and other alternative investment pools) that are structured as private limited partnerships ("LPs"), limited liability companies ("LLCs") or offshore corporations. Generally, CMA's Alternative Investment Group ("AIG") is the platform through which CMA provides advisory services relating to Alternative Investments.
The voting rights of Alternative Investments generally are rights of contract set forth in the limited liability company or limited partnership agreement, in the case of LLCs and LPs, or Memorandum and Articles of Association or By-laws, in the case of offshore corporations. Also, as privately placed securities, Alternative Investments generally are not subject to the regulatory scheme applicable to public companies. Consequently, in most cases, proxies are not solicited regarding Alternative Investment vehicles. Instead, consents may be solicited from members, limited partners or shareholders.
Because of the unique characteristics of Alternative Investments, CMA has a tailored process for voting Alternative Investment proxies and consents.
Process
AIG will vote all Alternative Investment proxies and consents in accordance with this Policy. The committee voting AIG proxies consists of AIG senior management, investment and operations professionals. Conflicts of interest are to be monitored and resolved as set forth in this Policy.
II. PROXY COMMITTEE
CMA shall establish a Proxy Committee whose standing members shall include the head of core equity, head of value, head of growth, head of income strategies, head of equity research and head of fixed income research. Each standing member may designate a senior portfolio manager or a senior analyst officer to act as a substitute in a given matter on their behalf.
The Proxy Committee's functions shall include, in part,
(a) direction of the vote on proposals where there has been a recommendation to the Committee, pursuant to Section IV.B, not to vote according to the predetermined Voting Guidelines stated in Section IV.A or on proposals which require special, individual consideration in accordance with Section IV.C;
(b) review at least annually of this Proxy Voting Policy and Procedure to ensure consistency with internal policies, client disclosures and regulatory requirements;
(c) review at least annually of existing Voting Guidelines and need for development of additional Voting Guidelines to assist in the review of proxy proposals; and
(d) development and modification of Voting Procedures, as stated in Section V, as it deems appropriate or necessary.
The Proxy Committee shall establish a charter, which shall set forth the Committee's purpose, membership and operation. The Committee's charter shall be consistent, in all material respects, with this policy and procedure.
III. CONFLICTS OF INTEREST
With Other Bank of America Businesses
Bank of America Corporation ("BAC"), the ultimate corporate parent of CMA, Bank of America, N.A. and all of their numerous affiliates owns, operates and has interests in many lines of business that may create or give rise to the appearance of a conflict of interest between BAC or its affiliates and those of Firm-advised clients. For example, the commercial and investment banking business lines may have
interests with respect to issuers of voting securities that could appear to or even actually conflict with CMA's duty, in the proxy voting process, to act in the best economic interest of its clients.
Within CMA
Conflicts of interest may also arise from the business activities of CMA. For example, CMA might manage (or be seeking to manage) the assets of a benefit plan for an issuer. CMA may also be presented with an actual or apparent conflict of interest where proxies of securities issued by BAC or a CMG Family Fund, for which CMA serves as investment adviser, are to be voted for a client's account.
Management of Conflicts
CMA's policy is to always vote proxies in the best interest of its clients, as a whole, without regard to its own self-interest or that of its affiliates. BAC as well as CMA has various compliance policies and procedures in place in order to address any material conflicts of interest that might arise in this context.
1. BAC's enterprise-wide Code of Ethics specifically prohibits the flow of certain business-related information between associates on the commercial and/or investment banking side of the corporation and associates charged with trust or (as in the case of BACAP associates) non-trust fiduciary responsibilities, including investment decision-making and proxy voting.
2. In addition, BAC has adopted "Global Policies and Procedures Regarding Information Walls and Inside Information." Pursuant to these policies and procedures, "information barriers" have been established between various BAC business lines designed to prohibit the passage of certain information across those barriers.
3. Within CMA, CMA's Code of Ethics affirmatively requires that associates of CMA act in a manner whereby no actual or apparent conflict of interest may be seen as arising between the associate's interests and those of CMA's Clients.
4. By assuming his or her responsibilities pursuant to this Policy, each member of the Proxy Committee and any CMA or BAC associate advising or acting under the supervision or oversight of the Proxy Committee undertakes:
- To disclose to the chairperson of the Proxy Committee and the chairperson to the head of CMG Compliance any actual or apparent personal material conflicts of interest which he or she may have (e.g., by way of substantial ownership of securities, relationships with nominees for directorship, members of an issuer's or dissident's management or otherwise) in determining whether or how CMA shall vote proxies. In the event the chairperson of the Proxy Committee has a conflict of interest regarding a given matter, he or she shall abstain from participating in the Committee's determination of whether and/or how to vote in the matter; and
- To refrain from taking into consideration, in the decision as to whether or how CMA shall vote proxies:
- The existence of any current or prospective material business relationship between CMA, BAC or any of their affiliates, on one hand, and any party (or its affiliates) that is soliciting or is otherwise interested in the proxies to be voted, on the other hand; and/or
- Any direct, indirect or perceived influence or attempt to influence such action which the member or associate views as being inconsistent with the purpose or provisions of this Policy or the Code of Ethics of CMA or BAC.
Where a material conflict of interest is determined to have arisen in the proxy voting process that may not be adequately mitigated by voting in accordance with the predetermined Voting Guidelines, CMA's policy is to invoke one or more of the following conflict management procedures:
1. Convene the Proxy Committee for the purpose of voting the affected proxies in a manner that is free of the conflict.
2. Causing the proxies to be voted in accordance with the recommendations of a qualified, independent third party, which may include CMA's proxy voting agent.
3. In unusual cases, with the Client's consent and upon ample notice, forwarding the proxies to CMA's clients so that they may vote the proxies directly.
IV. VOTING GUIDELINES
A. THE PROXY COMMITTEE HAS ADOPTED THE FOLLOWING GUIDELINES FOR VOTING PROXIES:
1. Matters Relating to the Board of Directors/Corporate Governance
CMA generally will vote FOR:
- Proposals for the election of directors or for an increase or decrease in the number of directors, provided that no more than one-third of the Board of Directors would, presently or at any time during the previous three-year period, be from management.
However, CMA generally will WITHHOLD votes from pertinent director nominees if:
(i) the board as proposed to be constituted would have more than one-third of its members from management;
(ii) the board does not have audit, nominating, and compensation committees composed solely of directors who qualify as being regarded as "independent," i.e. having no material relationship, directly or indirectly, with the Company, as CMA's proxy voting agent may determine (subject to the Proxy Committee's contrary determination of independence or non-independence);
(iii) the nominee, as a member of the audit committee, permitted the company to incur excessive non-audit fees (as defined below regarding other business matters -- ratification of the appointment of auditors);
(iv) a director serves on more than six public company boards;
(v) the CEO serves on more than two public company boards other than the company's board.
On a CASE-BY-CASE basis, CMA may WITHHOLD votes for a director nominee who has failed to observe good corporate governance practices or, through specific corporate action or inaction (e.g. failing to implement policies for which a majority of shareholders has previously cast votes in favor), has demonstrated a disregard for the interests of shareholders.
- Proposals requesting that the board audit, compensation and/or nominating committee be composed solely of independent directors. The Audit Committee must satisfy the independence and experience requirements established by the Securities and Exchange Commission ("SEC") and the New York Stock Exchange, or appropriate local requirements for foreign securities. At least one member of the Audit Committee must qualify as a "financial expert" in accordance with SEC rules.
- Proposals to declassify a board, absent special circumstances that would indicate that shareholder interests are better served by a classified board structure.
CMA generally will vote FOR:
- Proposals to create or eliminate positions or titles for senior management. CMA generally prefers that the role of Chairman of the Board and CEO be held by different persons unless there are compelling reasons to vote AGAINST a proposal to separate these positions, such as the existence of a counter-balancing governance structure that includes at least the following elements in addition to applicable listing standards:
- Established governance standards and guidelines.
- Full board composed of not less than two-thirds "independent" directors, as defined by applicable regulatory and listing standards.
- Compensation, as well as audit and nominating (or corporate governance) committees composed entirely of independent directors.
- A designated or rotating presiding independent director appointed by and from the independent directors with the authority and responsibility to call and preside at regularly and, as necessary, specially scheduled meetings of the independent directors to be conducted, unless the participating independent directors otherwise wish, in executive session with no members of management present.
- Disclosed processes for communicating with any individual director, the presiding independent director (or, alternatively, all of the independent directors, as a group) and the entire board of directors, as a group.
- The pertinent class of the Company's voting securities has out-performed, on a three-year basis, both an appropriate peer group and benchmark index, as indicated in the performance summary table of the Company's proxy materials. This requirement shall not apply if there has been a change in the Chairman/CEO position within the three-year period.
- Proposals that grant or restore shareholder ability to remove directors with or without cause.
- Proposals to permit shareholders to elect directors to fill board vacancies.
- Proposals that encourage directors to own a minimum amount of company stock.
- Proposals to provide or to restore shareholder appraisal rights.
- Proposals to adopt cumulative voting.
- Proposals for the company to adopt confidential voting.
CMA generally will vote AGAINST:
- Proposals to classify boards, absent special circumstances indicating that shareholder interests would be better served by a classified board structure.
- Proposals that give management the ability to alter the size of the board without shareholder approval.
- Proposals that provide directors may be removed only by supermajority vote.
- Proposals to eliminate cumulative voting.
- Proposals which allow more than one vote per share in the election of directors.
- Proposals that provide that only continuing directors may elect replacements to fill board vacancies.
- Proposals that mandate a minimum amount of company stock that directors must own.
- Proposals to limit the tenure of non-management directors.
CMA will vote on a CASE-BY-CASE basis in contested elections of directors.
CMA generally will vote on a CASE-BY-CASE basis on board approved proposals relating to corporate governance. Such proposals include, but are not limited to:
- Director and officer indemnification and liability protection. CMA is opposed to entirely eliminating directors' and officers' liability for monetary damages for violating the duty of care. CMA is also opposed to expanding coverage beyond just legal expenses to acts, such as negligence, that are more serious violations of fiduciary obligation than mere carelessness. CMA supports proposals which provide such expanded coverage in cases when a director's or officer's legal defense was unsuccessful if: (i) the director was found to have acted in good faith and in a manner that he/she reasonably believed was in the best interests of the company, AND (ii) if the director's legal expenses would be covered.
- Reimbursement of proxy solicitation expenses taking into consideration whether or not CMA was in favor of the dissidents.
- Proxy contest advance notice. CMA generally will vote FOR proposals that allow shareholders to submit proposals as close to the meeting date as possible while allowing for sufficient time for Company response, SEC review, and analysis by other shareholders.
2. Compensation
CMA generally will vote FOR management sponsored compensation plans (such as bonus plans, incentive plans, stock option plans, pension and retirement benefits, stock purchase plans or thrift plans) if they are consistent with industry and country standards. However, CMA generally is opposed to compensation plans that substantially dilute ownership interest in a company, provide participants with excessive awards, or have objectionable structural features. Specifically, for equity-based plans, if the proposed number of shares authorized for option programs (excluding authorized shares for expired options) exceeds an average of 10% of the currently outstanding shares over the previous three years or an average of 3% over the previous three years for directors only, the proposal should be referred to the Proxy Committee. The Committee will then consider the circumstances surrounding the issue and vote in the best interest of CMA's clients. CMA requires that management provide substantial justification for the repricing of options.
CMA generally will vote FOR:
- Proposals requiring that executive severance arrangements be submitted for shareholder ratification.
- Proposals asking a company to expense stock options.
- Proposals to put option repricings to a shareholder vote.
- Employee stock purchase plans that have the following features: (i) the shares purchased under the plan are acquired for no less than 85% of their market value, (ii) the offering period under the plan is 27 months or less, and (iii) dilution is 10% or less.
CMA generally will vote AGAINST:
- Stock option plans that permit issuance of options with an exercise price below the stock's current market price, or that permit replacing or repricing of out-of-the money options.
- Proposals to authorize the replacement or repricing of out-of-the money options.
CMA will vote on a CASE-BY-CASE basis proposals regarding approval of specific executive severance arrangements.
3. Capitalization
CMA generally will vote FOR:
- Proposals to increase the authorized shares for stock dividends, stock splits (and reverse stock splits) or general issuance, unless proposed as an anti-takeover measure or a general issuance proposal increases the authorization by more than 30% without a clear need presented by the company. Proposals for reverse stock splits should include an overall reduction in authorization.
For companies recognizing preemptive rights for existing shareholders, CMA generally will vote FOR general issuance proposals that increase the authorized shares by more than 30%. CMA will vote on a CASE-BY-CASE basis all such proposals by companies that do not recognize preemptive rights for existing shareholders.
- Proposals for the elimination of authorized but unissued shares or retirement of those shares purchased for sinking fund or treasury stock.
- Proposals to institute/renew open market share repurchase plans in which all shareholders may participate on equal terms.
- Proposals to reduce or change the par value of common stock, provided the number of shares is also changed in order to keep the capital unchanged.
4. Mergers, Restructurings and Other Transactions
CMA will review, on a CASE-BY-CASE basis, business transactions such as mergers, acquisitions, reorganizations, liquidations, spinoffs, buyouts and sale of all or substantially all of a company's assets.
5. Anti-Takeover Measures
CMA generally will vote AGAINST proposals intended largely to avoid acquisition prior to the occurrence of an actual event or to discourage acquisition by creating a cost constraint. With respect to the following measures, CMA generally will vote as follows:
Poison Pills
- CMA votes FOR shareholder proposals that ask a company to submit its poison pill for shareholder ratification.
- CMA generally votes FOR shareholder proposals to eliminate a poison pill.
- CMA generally votes AGAINST management proposals to ratify a poison pill.
Greenmail
- CMA will vote FOR proposals to adopt anti-greenmail charter or bylaw amendments or to otherwise restrict a company's ability to make greenmail payments.
Supermajority vote
- CMA will vote AGAINST board-approved proposals to adopt anti-takeover measures such as supermajority voting provisions, issuance of blank check preferred stock, the creation of a separate class of stock with disparate voting rights and charter amendments adopting control share acquisition provisions.
Control Share Acquisition Provisions
- CMA will vote FOR proposals to opt out of control share acquisition statutes.
6. Other Business Matters
CMA generally will vote FOR:
- Proposals to approve routine business matters such as changing the company's name and procedural matters relating to the shareholder meeting such as approving the minutes of a prior meeting.
- Proposals to ratify the appointment of auditors, unless any of the following apply in which case CMA will generally vote AGAINST the proposal:
- Credible reason exists to question:
- The auditor's independence, as determined by applicable regulatory requirements.
- The accuracy or reliability of the auditor's opinion as to the company's financial position.
- Fees paid to the auditor or its affiliates for "non-audit" services were excessive, i.e., in excess of the total fees paid for "audit," "audit-related" and "tax compliance" and/or "tax return preparation" services, as disclosed in the company's proxy materials.
- Bylaw or charter changes that are of a housekeeping nature (e.g., updates or corrections).
- Proposals to approve the annual reports and accounts provided the certifications required by the Sarbanes Oxley Act of 2002 have been provided.
CMA generally will vote AGAINST:
- Proposals to eliminate the right of shareholders to act by written consent or call special meetings.
- Proposals providing management with authority to adjourn an annual or special shareholder meeting absent compelling reasons, or to adopt, amend or repeal bylaws without shareholder approval, or to vote unmarked proxies in favor of management.
- Shareholder proposals to change the date, time or location of the company's annual meeting of shareholders.
CMA will vote AGAINST:
- Authorization to transact other unidentified substantive (as opposed to procedural) business at a meeting.
CMA will vote on a CASE-BY-CASE basis:
- Proposals to change the location of the company's state of incorporation. CMA considers whether financial benefits (e.g., reduced fees or taxes) likely to accrue to the company as a result of a reincorporation or other change of domicile outweigh any accompanying material diminution of shareholder rights.
- Proposals on whether and how to vote on "bundled" or otherwise conditioned proposals, depending on the overall economic effects upon shareholders.
CMA generally will ABSTAIN from voting on shareholder proposals predominantly involving social, socio-economic, environmental, political or other similar matters on the basis that their impact on share value can rarely be anticipated with any high degree of confidence.
CMA may, on a CASE-BY-CASE basis, vote:
- FOR proposals seeking inquiry and reporting with respect to, rather than cessation or affirmative implementation of, specific policies where the pertinent issue warrants separate communication to shareholders; and
- FOR or AGAINST the latter sort of proposal in light of the relative benefits and detriments (e.g. distraction, costs, other burdens) to share value which may be expected to flow from passage of the proposal.
7. Other Matters Relating to Foreign Issues
CMA generally will vote FOR:
- Most stock (scrip) dividend proposals. CMA votes AGAINST proposals that do not allow for a cash option unless management demonstrates that the cash option is harmful to shareholder value.
- Proposals to capitalize the company's reserves for bonus issues of shares or to increase the par value of shares.
- Proposals to approve control and profit transfer agreements between a parent and its subsidiaries.
- Management proposals seeking the discharge of management and supervisory board members, unless there is concern about the past actions of the company's auditors/directors and/or legal action is being taken against the board by other shareholders.
- Management proposals concerning allocation of income and the distribution of dividends, unless the dividend payout ratio has been consistently below 30 percent without adequate explanation or the payout is excessive given the company's financial position.
- Proposals for the adoption of financing plans if they are in the best economic interests of shareholders.
8. Investment Company Matters
Election of Directors:
CMA will vote on a CASE-BY-CASE basis proposals for the election of directors, considering the following factors:
- Board structure
- Attendance at board and committee meetings.
CMA will WITHHOLD votes from directors who:
- Attend less than 75 percent of the board and committee meetings without a valid excuse for the absences. Valid reasons include illness or absence due to company business. Participation via telephone is acceptable. In addition, if the director missed only one meeting or one day's meetings, votes should not be withheld even if such absence dropped the director's attendance below 75 percent.
- Ignore a shareholder proposal that is approved by a majority of shares outstanding;
- Ignore a shareholder proposal this is approved by a majority of the votes cast for two consecutive years;
- Are interested directors and sit on the audit or nominating committee; or
- Are interested directors and the full board serves as the audit or nominating committee or the company does not have one of these committees.
Proxy Contests:
CMA will vote on a CASE-BY-CASE basis proposals for proxy contests, considering the following factors:
- Past performance relative to its peers
- Market in which fund invests
- Measures taken by the board to address the pertinent issues (e.g., closed-end fund share market value discount to NAV)
- Past shareholder activism, board activity and votes on related proposals
- Strategy of the incumbents versus the dissidents
- Independence of incumbent directors; director nominees
- Experience and skills of director nominees
- Governance profile of the company
- Evidence of management entrenchment
Converting Closed-end Fund to Open-end Fund:
CMA will vote conversion proposals on a CASE-BY-CASE basis, considering the following factors:
- Past performance as a closed-end fund
- Market in which the fund invests
- Measures taken by the board to address the discount
- Past shareholder activism, board activity, and votes on related proposals.
Investment Advisory Agreements:
CMA will vote investment advisory agreements on a CASE-BY-CASE basis, considering the following factors:
- Proposed and current fee schedules
- Fund category/investment objective
- Performance benchmarks
- Share price performance as compared with peers
- Resulting fees relative to peers
- Assignments (where the adviser undergoes a change of control)
Approving New Classes or Series of Shares:
CMA will vote FOR the establishment of new classes or series of shares.
Preferred Stock Proposals:
CMA will vote on a CASE-BY-CASE basis proposals for the authorization for or increase in the preferred shares, considering the following factors:
- Stated specific financing purpose
- Possible dilution for common shares
- Whether the shares can be used for antitakover purposes
Policies Addressed by the Investment Company Act of 1940 ("1940 Act"):
CMA will vote proposals regarding adoption or changes of policies addressed by the 1940 Act on a CASE-BY-CASE basis, considering the following factors:
- Potential competitiveness
- Regulatory developments
- Current and potential returns
- Current and potential risk
CMA generally will vote FOR these amendments as long as the proposed changes do not fundamentally alter the investment focus of the fund and do comply with current SEC interpretations.
Changing a Fundamental Restriction to a Non-fundamental Restriction:
CMA will vote on a CASE-BY-CASE basis proposals to change a fundamental restriction to a nonfundamental restriction, considering the following factors:
- Fund's target investments
- Reasons given by the fund for the change
- Projected impact of the change on the portfolio
Change Fundamental Investment Objective to Non-fundamental:
CMA will vote AGAINST proposals to change a fund's investment objective from fundamental to non-fundamental unless management acknowledges meaningful limitations upon its future requested ability to change the objective
Name Change Proposals:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's name, considering the following factors:
- Political/economic changes in the target market
- Consolidation in the target market
- Current asset composition
Change in Fund's Subclassification:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's subclassification, considering the following factors:
- Potential competitiveness
- Current and potential returns
- Risk of concentration
- Consolidation in target industry
Disposition of Assets/Termination/Liquidation:
CMA will vote on a CASE-BY-CASE basis these proposals, considering the following factors:
- Strategies employed to salvage the company
- Past performance of the fund
- Terms of the liquidation
Changes to the Charter Document:
CMA will vote on a CASE-BY-CASE basis proposals to change the charter document, considering the following factors:
- The degree of change implied by the proposal
- The efficiencies that could result
- The state of incorporation; net effect on shareholder rights
- Regulatory standards and implications
CMA will vote FOR:
- Proposals allowing the Board to impose, without shareholder approval, fees payable upon redemption of fund shares, provided imposition of such fees is likely to benefit long-term fund investors (e.g., by deterring market timing activity by other fund investors)
- Proposals enabling the Board to amend, without shareholder approval, the fund's management agreement(s) with its investment adviser(s) or sub-advisers, provided the amendment is not required by applicable law (including the Investment Company Act of 1940) or interpretations thereunder to require such approval
CMA will vote AGAINST:
- Proposals enabling the Board to:
- Change, without shareholder approval the domicile of the fund
- Adopt, without shareholder approval, material amendments of the fund's declaration of trust or other organizational document
Changing the Domicile of a Fund:
CMA will vote on a CASE-BY-CASE basis proposals to reincorporate, considering the following factors:
- Regulations of both states
- Required fundamental policies of both states
- The increased flexibility available
Authorizing the Board to Hire and Terminate Subadvisors Without Shareholder Approval:
CMA will vote FOR proposals to enable the Board or Investment Adviser to hire and terminate sub-advisers, without shareholder approval, in accordance with applicable rules or exemptive orders under the Investment Company Act of 1940
Distribution Agreements:
CMA will vote these proposals on a CASE-BY-CASE basis, considering the following factors:
- Fees charged to comparably sized funds with similar objectives
- The proposed distributor's reputation and past performance
- The competitiveness of the fund in the industry
- Terms of the agreement
Master-Feeder Structure:
CMA will vote FOR the establishment of a master-feeder structure.
Mergers:
CMA will vote merger proposals on a CASE-BY-CASE basis, considering the following factors:
- Resulting fee structure
- Performance of both funds
- Continuity of management personnel
- Changes in corporate governance and their impact on shareholder rights
Shareholder Proposals to Establish Director Ownership Requirement:
CMA will generally vote AGAINST shareholder proposals that mandate a specific minimum amount of stock that directors must own in order to qualify as a director or to remain on the board. While CMA favors stockownership on the part of directors, the company should determine the appropriate ownership requirement.
Shareholder Proposals to Reimburse Shareholder for Expenses Incurred:
CMA will vote on a CASE-BY-CASE basis proposals to reimburse proxy solicitation expenses.
Shareholder Proposals to Terminate the Investment Adviser:
CMA will vote on a CASE-BY-CASE basis proposals to terminate the investment adviser, considering the following factors:
- Performance of the fund's NAV
- The fund's history of shareholder relations
- The performance of other funds under the adviser's management
9. Alternative Investment Group ("AIG") Matters
The AIG Proxy Sub-Committee generally will vote in accordance with the guidelines set forth in this policy. With respect to matters that are not addressed by the guidelines, the AIG Proxy Sub-Committee will vote each such matter on a CASE-BY-CASE basis.
B. ABILITY TO VOTE PROXIES OTHER THAN AS PROVIDED IN A ABOVE.
A Portfolio Manager, sub-adviser or other party involved with a client's account may conclude that the best interest of the firm's client, as defined above, requires that a proxy be voted in a manner that differs from the predetermined proxy Voting Guidelines stated in Section IV.A. In this situation, he or she shall request that the Proxy Committee consider voting the proxy other than according such Guidelines. If any person, group, or entity requests the Proxy Committee (or any of its members) vote a proxy other than according to the predetermined Voting Guidelines, that person shall furnish to the Proxy Committee a written explanation of the reasons for the request and a description of the person's, group's, or entity's relationship, if any, with the parties proposing and/or opposing the matter's adoption.
C. PROPOSALS REQUIRING SPECIAL CONSIDERATION
The following proposals require special, individual consideration. The Proxy Committee will determine how proxies related to all such proposals will be voted.
1. NEW PROPOSALS. For each new type of proposal that is expected to be proposed to shareholders of multiple companies, the Proxy Committee will develop a Voting Guideline which will be incorporated into this Policy.
2. ACCOUNTS ADHERING TO TAFT HARTLEY PRINCIPLES. All proposals for these accounts shall be voted according to the Taft Hartley Guidelines developed by Institutional Shareholder Services, Inc. ("ISS").
3. ACCOUNTS ADHERING TO SOCIALLY RESPONSIBLE PRINCIPLES. All proposals for these accounts shall be voted according to the Socially Responsible Guidelines developed by ISS or as specified by the client.
4. PROXIES OF INTERNATIONAL ISSUERS WHICH BLOCK SECURITIES SALES BETWEEN THE TIME A SHAREHOLDER SUBMITS A PROXY AND THE VOTE. Proposals for these securities shall be voted only on the specific instruction of the Proxy Committee and to the extent practicable in accordance with the Voting Guidelines set forth in this Policy.
5. PROXIES OF INVESTMENT COMPANY SHARES. Proposals on issues other than those specified in Section IV.A.
6. EXECUTIVE/DIRECTOR COMPENSATION. Except as provided in Section
IV.A, proposals relating to compensation of any executive or
director will be voted as recommended by ISS or as otherwise
directed by the Proxy Committee.
7. PREEMPTIVE RIGHTS. Proposals to create or eliminate shareholder preemptive rights. In evaluating these proposals the Proxy Committee will consider the size of the company and the nature of its shareholder base.
V. VOTING PROCEDURES
The Proxy Committee has developed the following procedures to aid the voting of proxies according to the Voting Guidelines set forth in Section IV above. The Proxy Committee may revise these procedures from time to time, as it deems necessary or appropriate to effect the purposes of this Policy.
- CMA shall use an independent, third-party vendor (currently Institutional Shareholder Services ("ISS")), to implement its proxy voting process as CMAs proxy voting agent. This retention is subject to CMA continuously assessing the vendor's independence from CMA and its affiliates, and the vendor's ability to perform its responsibilities (and, especially, its responsibility to vote client proxies in accordance with CMA's proxy voting guidelines) free of any actual, potential or apparent material conflicts of interests that may arise between the interests of the vendor, its affiliates, the vendor's other clients and the owners, officers or employees of any such firm, on the one hand, and CMA's clients, on the other hand. As means of performing this assessment, CMA will require various reports and notices from the vendor, as well as periodic audits of the vendor's voting record and other due diligence.
- ISS shall provide proxy analysis and record keeping services in addition to voting proxies on behalf of CMA in accordance with this Policy.
- On a daily basis CMA shall send to ISS a holdings file detailing each equity holding held in all accounts over which CMA has voting authority. Information regarding equity holdings for international portfolio shall be sent weekly.
- ISS shall receive proxy material information from Proxy Edge or the custodian bank for the account. This shall include issues to be voted upon, together with a breakdown of holdings for CMA accounts. ISS shall then reconcile information it receives from CMA with that it has received from Proxy Edge and custodian banks. Any discrepancies shall be promptly noted and resolved by ISS, with notice to CMA.
- Whenever a vote is solicited, ISS shall execute the vote according to CMA's Voting Guidelines previously delivered by CMA to ISS as set forth in Section IV.A.
- If ISS is not sure how to vote a particular proxy, then ISS will issue a request for voting instructions to CMA over a secure website. CMA personnel shall check this website regularly. The request shall be accompanied by a recommended vote. The recommended vote shall be based upon CMA's understanding of the Voting Guidelines previously delivered to ISS. CMA shall promptly provide ISS with any amendments or modifications to the Voting Guidelines if necessary. CMA shall return a final instruction to vote to ISS, which ISS shall record with Proxy Edge or the custodian bank as our agent.
- Each time that ISS shall send CMA a request to vote the request shall be accompanied by the recommended vote determined in accordance with CMA's Voting Guidelines. ISS shall vote as indicated in the request unless the client has reserved discretion, the Proxy Committee determines that the best interest of clients requires another vote or the proposal is a matter as to which the Proxy Committee affords special, individual consideration under Section IV.C. In such situations ISS shall vote based on the direction of the client or the Proxy Committee, as the case may be. The interests of CMA's Taft Hartley or Socially Responsible clients may impact a proposal that normally should be voted in a certain way. ISS shall inform CMA of all proposals having impact on its Taft Hartley and or Socially Responsible clients. The Proxy Voting Committee shall be consulted before a vote is placed in cases where Taft Hartley or Socially Responsible issues are presented.
- ISS shall have procedures in place to ensure that a vote is cast on every security holding maintained by CMA on which a vote is solicited unless otherwise directed by the Proxy Committee. On a yearly basis, or as required by our clients CMA shall receive a report from ISS detailing CMA's voting for the previous period.
VI. AVAILABILITY OF PROXY POLICY AND VOTING RECORD
A summary disclosure regarding the provisions of this Policy is available in CMA's Form ADV. Upon receipt of a Client's request for more information, CMA will provide to the Client a copy of this Policy and/or how CMA voted proxies for the Client pursuant to this Policy for up to a one-year period.
APPENDIX II
INFORMATION APPLICABLE TO CERTAIN CLASS G SHAREHOLDERS
Except as set forth below, Contingent Deferred Sales Charges ("CDSCs") and conversion schedules are described in the Prospectuses.
The following table describes the CDSC schedule applicable to Class G shares received by former Galaxy Growth Fund II and Galaxy Short-Term Bond Fund shareholders in exchange for Retail B Shares purchased prior to January 1, 2001:
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.00
Through second year 4.00
Through third year 3.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Longer than six years None
|
Class G shares received in exchange for Galaxy Short-Term Bond Fund Retail B Shares that were purchased prior to January 1, 2001 will automatically convert to Class T shares six years after purchase.
Class G shares received in exchange for Galaxy Growth Fund II Retail B Shares that were purchased prior to January 1, 2001 will automatically convert to Class A shares six years after purchase.
The following table describes the CDSC schedule applicable to Class G shareholders whose Galaxy Large Cap Growth Fund Retail B Shares were acquired in connection with the reorganization of the Pillar Funds:
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.50
Through second year 5.00
Through third year 4.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Through the seventh year None
Longer than seven years None
|
If you acquired Retail B Shares of the Galaxy Large Cap Growth Fund in connection with the reorganization of the Pillar Funds, your Class G shares will automatically convert to Class B shares eight years after you purchased the Pillar Fund Class B shares you held prior to the reorganization.
COLUMBIA MID CAP GROWTH FUND, INC.
SUPPLEMENT TO THE FUND'S CURRENT STATEMENT OF ADDITIONAL INFORMATION
(REPLACING SUPPLEMENT DATED FEBRUARY 17, 2006)
R CLASS SHARES
This supplement applies to the "Fund" listed above.
1. The name of the trust is revised to read "Columbia Funds Series Trust I."
2. The following sentence is added to the beginning of the first paragraph under the section "Description of the Funds":
The Trust is a Massachusetts business trust organized in 1987. The Fund was originally organized as an Oregon corporation prior to its reorganization as a series of the Trust on March 27, 2006.
3. The second paragraph under the section entitled "Description of the Funds" is revised in its entirety to read:
Effective October 13, 2003, the Trust changed its name from "Liberty-Stein Roe Funds Municipal Trust" to "Columbia Funds Trust IX." Effective September 19, 2005, the name of the trust was changed from "Columbia Funds Trust IX" to "Columbia Funds Series Trust I."
4. All references to "Director," "Directors," "Director's" and "Directors'" are hereby replaced with the terms "Trustee," "Trustees," "Trustee's," and "Trustees'," respectively.
5. Under the section "INVESTMENTS HELD AND INVESTMENT PRACTICES USED BY THE FUNDS - CHART OF SECURITIES AND INVESTMENT PRACTICES" the chart is revised in its entirety as follows:
Chart of Securities and Investment Practices
CMCG
----
Investment Grade Securities (Baa or higher by Moody's, BBB or higher by S&P
or believed by the Advisor to be equivalent), other than U.S. Government
obligations and municipal securities *
Non-Investment Grade Securities NA
Domestic Bank Obligations *
U.S. Government Securities *
Mortgage-Backed Securities NA
CMOs NA
Asset-Backed Securities NA
Floating or Variable Rate NA
Loan Transactions X
Options & Financial Futures O
Foreign Equities(1)
Developed Markets 20%, O
Emerging Markets(2) X
ADRs, GDRs and NASDAQ-listed
foreign securities(1) 20%, O
Currency Contracts
Hedging O
Speculation X
Spot Basis O
Repurchase Agreements *
Illiquid (exclude 144A securities from definition of illiquid with board
supervision) 15%, O
Convertible Securities/Warrants +
Small Companies +
Dollar Roll Transactions NA
Swap Agreements NA
When-Issued Securities O
Foreign Fixed Income Securities NA
(including Foreign Bank Obligations)
Zero Coupon/Pay in Kind NA
Real Estate (excluding REITs) X
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+ Permitted - Part of principal investment strategy
X Not permitted either as a non-fundamental or fundamental policy
O Permitted - Not a principal investment strategy
* Temporary Investment or cash management purposes
% Percentage of net assets (unless "total assets" specified) that Fund may invest
NA Not part of investment strategy
(1) Any limitation on foreign investments includes investments in both foreign securities purchased in foreign markets and ADRs, GDRs and NASDAQ-listed foreign securities.
(2) ADRs, GDRs and NASDAQ-listed securities are not subject to this limitation, even if the issuer is headquartered in, has its principal operations in, derives its revenues from, has its principal trading market located in or was legally organized in an emerging market country.
6. Under the section "INVESTMENT RESTRICTIONS" the non-fundamental investment restrictions section for the Fund is revised in its entirety as follows:
The following is a list of non-fundamental investment restrictions applicable to the Fund. These restrictions can be changed by the Board, but the change will only be effective after notice is given (60 days notice in the case of non-fundamental restriction #2) to shareholders of the Fund.
The Fund may not:
1. Purchase or otherwise acquire any security if, as a result, more than 15% of its net assets would be invested in securities that are illiquid.
2. Invest less than 80% of its assets in the stocks of mid-cap companies (those stocks with a market capitalization, at the time of initial purchase, equal to or less than the largest stock in the Russell Mid Cap Index), except when the Fund is taking a temporary defensive position due to a determination by the Fund's Advisor that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities.
3. Invest more than 20% of its total assets in foreign securities.
7. The third sentence of the first paragraph under the section entitled "Management" is revised to read:
Information regarding the trustees and officers of the Funds together with their principal business occupations during the last five years (their titles may have varied during that period) is shown below. Unless otherwise noted, the address for each Trustee and officer is c/o Columbia Funds, Mail Stop MA5-515-11-05, One Financial Center, Boston, MA 02111.
8. The text following the third paragraph under the section entitled "Management" to the beginning of the subsection "Directors and Officers" is revised in its entirety to read:
The "Columbia Fund Complex" includes all of the registered investment companies to which the Advisor and its affiliates provide investment advisory services.
9. The chart under the heading "Directors and Officers" in the section entitled "Management" is revised in its entirety to read:
Trustees and Officers
Number of
Portfolios in
Year First Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- -------------------- ------------ ---------------------------- ------------- ----------------------
DISINTERESTED TRUSTEE
Thomas C. Theobald Trustee and Chairman 1996 Partner and Senior Advisor, 83 Anixter International
(Born 1937) of the Board Chicago Growth Partners (network support
(private equity investing) equipment
since September, 2004; distributor); Ventas,
Managing Director, William Inc. (real estate
Blair Capital Partners investment trust);
(private equity investing) Jones Lang LaSalle
from September, 1994 to (real estate
September, 2004. management services)
and Ambac Financial
Group (financial
guaranty insurance)
Douglas A. Hacker Trustee 1996 Executive Vice President -- 83 Nash Finch Company
(Born 1955) Strategy of United Airlines (food distributor)
(airline) since December,
2002; President of UAL
Loyalty Services (airline)
from September, 2001 to
December, 2002; Executive
Vice President and Chief
Financial Officer of United
Airlines from July, 1999 to
September, 2001.
Janet Langford Kelly Trustee 1996 Partner, Zelle, Hofmann, 83 UAL Corporation
(Born 1957) Voelbel, Mason & Gette LLP (airline)
(law firm) since March,
2005; Adjunct Professor of
Law, Northwestern
University, since September,
2004; Chief Administrative
Officer and Senior Vice
President, Kmart Holding
Corporation (consumer
goods), from September, 2003
to March, 2004; Executive
Vice President-Corporate
Development and
Administration, General
Counsel and Secretary,
Kellogg Company (food
manufacturer), from
September, 1999 to August,
2003.
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Number of
Portfolios in
Year First Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- -------------------- ------------ ---------------------------- ------------- ----------------------
DISINTERESTED TRUSTEES
Richard W. Lowry Trustee 1995 Private Investor since 85 None
(Born 1936) August, 1987 (formerly
Chairman and Chief
Executive Officer, U.S.
Plywood Corporation
(building products
manufacturer) until 1987.)
Charles R. Nelson Trustee 1981 Professor of Economics, 83 None
(Born 1943) University of Washington
since January, 1976; Ford
and Louisa Van Voorhis
Professor of Political
Economy, University of
Washington, since
September, 1993; Director,
Institute for Economic
Research, University of
Washington from September,
2001 to June, 2003;
Adjunct Professor of
Statistics, University of
Washington since
September, 1980; Associate
Editor, Journal of Money
Credit and Banking since
September, 1993;
consultant on econometric
and statistical matters.
John J. Neuhauser Trustee 1985 University Professor, 85 None
(Born 1942) Boston College since
November, 2005; Academic
Vice President and Dean of
Faculties, Boston College
from August, 1999 to
October, 2005.
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Number of
Portfolios in
Year First Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- -------------------- ------------ ---------------------------- ------------- ----------------------
DISINTERESTED TRUSTEES
Patrick J. Simpson Trustee 2000 Partner, Perkins Coie 83 None
(Born 1944) L.L.P. (law firm).
Thomas E. Stitzel Trustee 1998 Business Consultant since 83 None
(Born 1936) 1999; Chartered Financial
Analyst.
Anne-Lee Verville Trustee 1998 Retired since 1997 83 Chairman of the Board
(Born 1945) (formerly General Manager, of Directors, Enesco
Global Education Industry, Group,Inc. (producer
IBM Corporation (computer of giftware and home
and technology) from 1994 and garden decor
to 1997). products)
Richard L. Woolworth Trustee 1991 Retired since December, 83 Northwest Natural Gas
(Born 1941) 2003 (formerly Chairman (natural gas service
and Chief Executive provider)
Officer, The Regence Group
Co. (regional health
insurer); Chairman and
Chief Executive Officer,
BlueCross BlueShield of
Oregon; Certified Public
Accountant, Arthur Young &
Company).
INTERESTED TRUSTEE
William E. Mayer(3) Trustee 1994 Partner, Park Avenue 85 Lee Enterprises (print
(Born 1940) Equity Partners (private media), WR Hambrecht +
equity) since February, Co. (financial service
1999. provider); Reader's
Digest (publishing);
OPENFIELD Solutions
(retail industry
technology provider)
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(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public companies").
(3) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940) of the Columbia Funds by reason of his affiliation with WR Hambrecht + Co., a registered broker-dealer that may execute portfolio transactions for or engage in principal transactions with the Fund or other funds or clients advised by the Advisor or its affiliates.
Year First
Elected or
Appointed
Name and Year of Birth Position with Funds to Office Principal Occupation(s) During Past Five Years
---------------------- ------------------- ---------- ----------------------------------------------
OFFICERS
Christopher L. Wilson President 2004 Head of Mutual Funds since August, 2004 and
(Born 1957) Managing Director of the Advisor since
September, 2005; President and Chief Executive
Officer, CDC IXIS Asset Management Services,
Inc. (investment management) from September,
1998 to August, 2004.
James R. Bordewick, Jr. Senior Vice 2006 Associate General Counsel, Bank of America
(Born 1959) President, since April, 2005; Senior Vice President and
Secretary and Associate General Counsel, MFS Investment
Chief Legal Officer Management (investment management) prior to
April, 2005.
J. Kevin Connaughton Senior Vice 2000 Managing Director of the Advisor since
(Born 1964) President, Chief February, 1998.
Financial Officer
and Treasurer
Mary Joan Hoene Senior Vice 2004 Senior Vice President and Chief Compliance
(Born 1949) President and Officer of various funds in the Fund Complex;
100 Federal Street Chief Compliance Partner, Carter, Ledyard & Milburn LLP (law
Boston, MA 02110 Officer firm) from January, 2001 to August, 2004.
Michael G. Clarke Chief Accounting 2004 Managing Director of the Advisor since
(Born 1969) Officer and February, 2001.
Assistant
Treasurer
Stephen T. Welsh Vice President 1996 President, Columbia Management Services, Inc.
(Born 1957) since July, 2004; Senior Vice President and
Controller, Columbia Management Services, Inc.
prior to July, 2004.
Jeffrey R. Coleman Deputy Treasurer 2004 Group Operations Manager of the Advisor since
(Born 1969) October, 2004; Vice President of CDC IXIS
Asset Management Services, Inc. (investment
management) from August, 2000 to September,
2004.
Joseph F. DiMaria Deputy Treasurer 2004 Senior Compliance Manager of the Advisor since
(Born 1968) January, 2005; Director of Trustee
Administration of the Advisor from May, 2003
to January, 2005; Senior Audit Manager,
PricewaterhouseCoopers (independent registered
public accounting firm) from July, 2000 to
April, 2003.
Ty S. Edwards Deputy Treasurer 2004 Vice President of the Advisor since 2002;
(Born 1966) Assistant Vice President and Director, State
Street Corporation (financial services) prior
to 2002.
Barry S. Vallan Controller 2006 Vice President-Fund Treasury of the Advisor
(Born 1969) since October, 2004; Vice President-Trustee
Reporting from April, 2002 to October, 2004;
Management Consultant, PricewaterhouseCoopers
(independent registered public accounting
firm) prior to October, 2002.
Peter T. Fariel Assistant Secretary 2006 Associate General Counsel, Bank of America
(Born 1957) since April, 2005; Partner, Goodwin Procter
LLP (law firm) prior to April, 2005.
Ryan C. Larrenaga Assistant Secretary 2005 Assistant General Counsel, Bank of America
(Born 1970) since March, 2005; Associate, Ropes & Gray LLP
(law firm) from 1998 to February, 2005.
Barry S. Finkle Assistant Secretary 2003 Senior Manager and Head of Fund Performance of
(Born 1965) the Advisor since January, 2001.
Julian Quero Assistant Secretary 2003 Senior Compliance Manager of the Advisor since
(Born 1967) April, 2002; Assistant Vice President of Taxes
and Distributions of the Advisor from 2001 to
April, 2002.
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Each of the Trust's Trustees and officers hold comparable positions with certain other funds of which the Advisor or its affiliates is the investment advisor or distributor and, in the case of certain of the officers, with certain affiliates of the Advisor.
The Trustees and officers serve terms of indefinite duration. Each Fund held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once every five years thereafter to elect Trustees.
10. The following language is added to the chart following the heading "OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS" in the section "MANAGEMENT - PORTFOLIO MANAGERS":
OTHER SEC-REGISTERED OTHER POOLED
OPEN-END AND INVESTMENT
CLOSED-END FUNDS VEHICLES OTHER ACCOUNTS
------------------------ ---------------------- ------------------------
Number of Number of Number of
PORTFOLIO MANAGERS accounts Assets accounts Assets accounts Assets
------------------ --------- ------------ --------- ---------- --------- ------------
Wayne M. Collette* 9 $533 million 1 $8 million 23 $465 million
J. Michael Kosicki* 7 $318 million 1 $8 million 27 $465 million
George J. Myers* 7 $318 million 1 $8 million 26 $465 million
Theodore R. Wendell* 9 $533 million 1 $8 million 29 $465 million
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11. The following language is added to the chart following the heading "OWNERSHIP OF SECURITIES" in the section "MANAGEMENT - PORTFOLIO MANAGERS":
DOLLAR RANGE OF EQUITY SECURITIES IN THE
PORTFOLIO MANAGER FUND BENEFICIALLY OWNED
----------------- ----------------------------------------
Wayne M. Collette* None
J. Michael Kosicki* None
George J. Myers* None
Theodore R. Wendell* None
|
* Information provided as of December 31, 2005.
12. The following language is added to the chart following the heading "COMPENSATION" in the section "MANAGEMENT - PORTFOLIO MANAGERS":
PORTFOLIO MANAGER PERFORMANCE BENCHMARK PEER GROUP ----------------- ------------------------ ------------------------------- Wayne M. Collette Russell Midcap Growth Tr Morningstar Mid Growth Category J. Michael Kosicki Russell Midcap Growth Tr Morningstar Mid Growth Category George J. Myers Russell Midcap Growth Tr Morningstar Mid Growth Category Theodore R. Wendell Russell Midcap Growth Tr Morningstar Mid Growth Category |
13. The section entitled "Share Ownership" is replaced in its entirety to read:
As of record on February 28, 2006, the officers and Trustees of the Trust as a group owned less than 1% of the then outstanding shares of the Mid Cap Growth Fund.
As of record on February 28, 2006, the following shareholders owned 5% or more of the following classes of Mid Cap Growth Fund's outstanding shares:
CLASS A Charles Schwab & Co. Inc. 15.95% 101 Montgomery Street San Francisco, CA 94104-4122 CLASS B Citigroup Global Markets, Inc. 6.53% 333 West 34th Street New York, NY 10001-2402 CLASS C Citigroup Global Markets, Inc. 5.42% 333 West 34th Street New York, NY 10001-2402 Merrill Lynch Pierce Fenner & Smith 31.00% 4800 Deer Lake Drive East Floor 2 Jacksonville, FL 32246-6484 CLASS D NFS LLC FEBO 7.31% NFS/FMTC Rollover IRA FBO Jeffrey H Pate 624 Salter Place Westfield, NJ 07090 Raymond James & Assoc. Inc. 5.35% FBO Young IRA 880 Carillon Parkway St. Petersburg, FL 33716-1100 Esnet Management Group LLC 10.61% Daniel W Campbell 4304 North Stonecreek Lane Provo, UT 84604-5003 |
CLASS G Bank of America NA 6.09% Rollover IRA Juan Rosai 551 Amity Road Woodbridge, CT 06525-1201 CLASS R FIM Funding Inc. 100.00% C/O Columbia Funds Group MS MA5 100 11 05 100 Federal Street Boston, MA 02110 CLASS Z Bank of America 25.39% 411 North Akard Street Dallas, TX 75201-3307 Charles Schwab & Co. Inc. 12.52% 101 Montgomery Street San Francisco, CA 94104-4122 |
INT-50/108711-0306 March 27, 2006
COLUMBIA MID CAP GROWTH FUND, INC.
CLASS R SHARES
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information contains information relating to Class R shares of Columbia Mid Cap Growth Fund, Inc. formerly Columbia Special Fund, Inc. (the "Mid Cap Growth Fund," "CMCG", or the "Fund").
The Fund offers its shares through one or more prospectuses (each a "Prospectus"). This Statement of Additional Information is not a Prospectus and should be read in conjunction with the applicable Prospectus. Copies of the Prospectus are available without charge upon request by calling 1-800-426-3750.
The Funds' most recent Annual and Semi-Annual Reports to shareholders are separate documents supplied with this Statement of Additional Information. The financial statements, accompanying notes and report of independent registered public accounting firm appearing in the Annual Reports, and the financial statements and accompanying notes appearing in the Semi-Annual Report, are incorporated by reference into this Statement of Additional Information.
SUP-39/105518-0106
TABLE OF CONTENTS
DESCRIPTION OF THE FUND.................................................... 3 INVESTMENT RESTRICTIONS.................................................... 15 MANAGEMENT................................................................. 16 DISCLOSURE OF PORTFOLIO INFORMATION........................................ 30 INVESTMENT ADVISORY AND OTHER SERVICES PROVIDED BY AFFILIATES.............. 32 PORTFOLIO TRANSACTIONS..................................................... 33 CAPITAL STOCK AND OTHER SECURITIES......................................... 36 DISTRIBUTION AND SERVICING................................................. 37 PURCHASE, REDEMPTION AND PRICING OF SHARES................................. 38 CUSTODIAN.................................................................. 45 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.............................. 45 TAXES...................................................................... 45 FINANCIAL STATEMENTS....................................................... 50 |
January 23, 2005
DESCRIPTION OF THE FUND
The Fund is an open-end, management investment company. The 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 advisor for the Fund is Columbia Management Advisors, LLC (the "Advisor" or "Columbia Advisors"). See the section entitled "INVESTMENT ADVISORY AND OTHER FEES PAID TO AFFILIATES" for further information about the Advisor.
It is expected that the Fund will be reorganized as a series of Columbia Funds Trust IX, a Massachusetts business trust into which all of the retail Columbia funds are expected to be reorganized.
INVESTMENTS HELD AND INVESTMENT PRACTICES USED BY THE FUND
The Prospectus describes the fundamental investment objective and the principal investment strategy applicable to the Fund. The Mid Cap Growth Fund's Board of Directors may change its investment objective, without shareholder approval, upon 30 days written notice to all shareholders. What follows is additional information regarding securities in which the Fund may invest and investment practices in which it may engage. To determine whether the Fund purchases such securities or engages in such practices, see the chart on pages __ and __ 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, a division of the McGraw-Hill Companies ("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 Advisor 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.
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.
The Fund may purchase unrated securities (which are not rated by a rating agency) if the Advisor 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 Advisor 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 the Fund invests in unrated securities, the Fund's success in achieving its investment objective is determined more heavily by the Advisor's creditworthiness analysis than if the Fund invested exclusively in rated securities.
Non-Investment Grade Securities ("Junk Bonds")
Investments in securities rated below investment grade (i.e., rated Ba or lower by Moody's or BB or lower by S&P), which are eligible for purchase by the Fund are described as "speculative" by both Moody's and S&P. Investments in lower rated corporate debt securities ("high yield securities" or "junk bonds") generally provide greater income and increased opportunity for capital appreciation than investments in higher quality securities, but they also typically entail greater price volatility and principal and income risk. These high yield securities are regarded as predominately speculative with respect to the issuer's continuing ability to meet principal and interest payments. Analysis of the creditworthiness of issuers of high yield securities 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 debt securities defaults, in addition to risking payment of all or a portion of interest and principal, the Fund investing in such securities may incur additional expenses to seek recovery.
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 the Fund could sell a high yield security, and could adversely affect the daily net asset value of the Fund's 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. Since secondary markets for high yield securities are generally less liquid than the market for higher grade securities, it may be more difficult to value these 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 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 Advisor does not rely solely on credit ratings when selecting securities for the Fund, and develops its own independent analysis of issuer credit quality.
Bank Obligations
Bank obligations in which the Fund may invest include certificates of deposit, bankers' acceptances, and fixed time deposits. Certificates of deposit are negotiable certificates issued against funds deposited in a commercial bank for a definite period of time and earning a specified return. Bankers' acceptances are negotiable drafts or bills of exchange, normally drawn by an importer or exporter to pay for specific merchandise, which are "accepted" by a bank, meaning, in effect, that the bank unconditionally agrees to pay the face value of the instrument on maturity. Fixed time deposits are bank obligations payable at a stated maturity date and bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand by the investor, but may be subject to early withdrawal penalties, which vary depending upon market conditions and on the right to transfer a beneficial interest in a fixed time deposit to a third party, although there is no market for such deposits.
Bank obligations include foreign bank obligations including Eurodollar and Yankee obligations. Eurodollar bank obligations are dollar certificates of deposits and time deposits issued outside the U.S. capital markets by foreign branches of U.S. banks and by foreign banks. Yankee obligations are dollar-denominated obligations issued in the U.S. capital markets by foreign banks. Foreign bank obligations are subject to the same risks that pertain to domestic issues, notably credit risk and interest rate risk. Additionally, foreign bank obligations are subject to many of the same risks as investments in foreign 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 of the foreign bank's country, 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 U.S. banks. Foreign banks are not generally subject to examination by any U.S. Government agency or instrumentality.
Commercial Paper
A1 and Prime 1 are the highest commercial paper ratings issued by S&P and Moody's, respectively.
Commercial paper rated A1 by S&P has the following characteristics:
(1) liquidity ratios are adequate to meet cash requirements; (2) long-term
senior debt is rated A or better; (3) the issuer has access to at least two
additional channels of borrowing; (4) basic earnings and cash flow have an
upward trend with an allowance made for unusual circumstances; (5) typically,
the issuer's industry is well established and the issuer has a strong position
within the industry; and (6) the reliability and quality of management are
unquestioned.
Among the factors considered by Moody's in assigning ratings are the following: (1) evaluation of the management of the issuer; (2) economic evaluation of the issuer's industry or industries and an appraisal of speculative-type risks which may be inherent in certain areas; (3) evaluation of the issuer's products in relation to competition and customer acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over a period of 10 years; (7) financial strength of a parent company and the relationships which exist with the issuer; and (8) recognition by the management of obligations that may be present or may arise as a result of public interest questions and preparation to meet such obligations.
Government Securities
Government securities may be either direct obligations of the U.S. Treasury or may be the obligations of an agency or instrumentality of the United States.
TREASURY OBLIGATIONS. The U.S. Treasury issues a variety of marketable securities that are direct obligations of the U.S. Government. These securities fall into three categories - bills, notes, and bonds - distinguished primarily by their maturity at time of issuance. Treasury bills have maturities of one year or less at the time of issuance, while Treasury notes currently have maturities of 1 to 10 years. Treasury bonds can be issued with any maturity of more than 10 years.
OBLIGATIONS OF AGENCIES AND INSTRUMENTALITIES. Agencies and instrumentalities of the U.S. Government are created to fill specific governmental roles. Their activities are primarily financed through securities whose issuance has been authorized by Congress. Agencies and instrumentalities include the Export Import Bank, Federal Housing Administration, Government National Mortgage Association, Tennessee Valley Authority, Banks for Cooperatives, Farmers Home Administration, Federal Home Loan Banks, Federal Intermediate Credit Banks, Federal Land Banks, Federal National Mortgage Association, Federal Home Loan Mortgage Corp., U.S. Postal System, and Federal Finance Bank. Although obligations of "agencies" and "instrumentalities" are not direct obligations of the U.S. Treasury, payment of the interest or principal on these obligations is generally backed directly or indirectly by the U.S. Government. This 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. The 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 the 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 the 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 that 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 the 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.
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 payment. 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 the 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. The 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 Advisor 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.
The 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 Advisor 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 Advisor will, consistent with the 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 the Fund's investment objectives and policies, the Fund may invest in these and other types of asset-backed securities that may be developed in the future. In general, the collateral supporting these securities is of shorter maturity than mortgage loans and is less likely to experience substantial prepayments with interest rate fluctuations.
These other asset-backed securities present certain risks that are not presented by mortgage-backed securities. Primarily, these securities may not have the benefit of any security interest in the related assets. Credit card receivables are generally unsecured and the debtors are entitled to the protection of state and federal consumer credit laws, many of which give debtors the right to set off certain amounts owed on the credit cards, thereby reducing the balance due. There is the possibility that recoveries on repossessed collateral may not, in some cases, be available to support payments on these securities.
Asset-backed securities are often backed by a pool of assets representing the obligations of a number of direct parties. To reduce the effect of failures by obligors on underlying assets to make payments, the securities may contain elements of credit support which fall into two categories: (i) liquidity protection and (ii) protection against losses resulting from ultimate default by an obligor or the underlying assets. Liquidity protection refers to the making of advances, generally by the entity administering the pool of assets, to ensure that the receipt of payments on the underlying pool occurs in a timely fashion. Protection against losses results from payment of the insurance obligations on at least a portion of the assets in the pool. This protection may be provided through guarantee policies or letters of credit obtained by the issuer or sponsor from third parties, through various means of structuring the transaction or through a combination of such approaches. The Fund will not pay any additional or separate fees for credit support. The degree of credit support provided for each issue is generally based on historical information respecting the level of credit risk associated with the underlying assets. Delinquency or loss in excess of that anticipated, or failure of the credit support could adversely affect the return on an investment in such a security.
Floating or Variable Rate Securities
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.
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.
The Fund may enter into closing transactions, exercise its options, or permit
the options to expire.
The Fund may also write call options, but only if such options are covered. A call option is covered if written on a security the 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 Advisor, 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. The Fund 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 Fund, however, intends 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. The Fund may engage in futures transactions only on commodities exchanges or boards of trade.
The Fund will not engage in transactions in index options, financial futures contracts, or related options for speculation. The 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 the 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 the 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 the 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, the 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 Advisor; 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, as amended (the "Code").
Swap Agreements ("Swaps," "Caps," "Collars" and "Floors")
The Fund may enter into interest rate swaps, currency swaps, and other types of swap agreements such as caps, collars, and floors. In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate times a "notional principal amount," in return for payments equal to a fixed rate times the same amount, for a specified period of time. If a swap agreement provides for payments in different currencies, the parties might agree to exchange notional principal amount as well. Swaps may also depend on other prices or rates, such as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed upon level. An interest rate collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift the Fund's investment exposure from one type of investment to another. For example, if the Fund agreed to exchange payments in dollars for payments in foreign currency, the swap agreement would tend to decrease the Fund's exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates. Caps and floors have an effect similar to buying or writing options. Depending on how they are used, swap agreements may increase or decrease the overall volatility of the Fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a small investment of cash relative to the magnitude of risks assumed. As a result, swaps can be highly volatile and may have a considerable impact on the Fund's performance. Swap agreements are subject to risks related to the counterparty's ability to perform, and may decline in value if the counterparty's creditworthiness deteriorates. The Fund may also suffer losses if they are unable to terminate outstanding swap agreements or reduce their exposure through offsetting transactions.
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 Advisor 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 the Fund receives from its foreign investments.
Foreign investments involve other risks, including possible political or economic instability of the country of the issuer, the difficulty of predicting international trade patterns, and the possibility of currency exchange controls. Foreign securities may also be subject to greater fluctuations in price than domestic securities. There may be less publicly available information about a foreign company than about a domestic company. Foreign companies generally are not subject to uniform accounting, auditing, and financial reporting standards comparable to those of domestic companies.
There is generally less government regulation of stock exchanges, brokers, and listed companies abroad than in the United States. In addition, with respect to certain foreign countries, there is a possibility of the adoption of a policy to withhold dividends at the source, or of expropriation, nationalization, confiscatory taxation, or diplomatic developments that could affect investments in those countries. Finally, in the event of default on a foreign debt obligation, it may be more difficult for the Fund to obtain or enforce a judgement against the issuers of the obligation. The Fund 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, the 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. While ADRs and GDRs will generally be considered foreign securities for purposes of calculation of any investment limitation placed on the Fund's exposure to foreign securities, these securities, along with the securities of foreign companies traded on NASDAQ will not be subject to any of the restrictions placed on the Fund's ability to invest in emerging market securities.
Additional costs may be incurred in connection with the 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 the 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 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 Fund) 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 the 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"), the 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 the Fund of unrealized profits or force the Fund to cover its commitments for purchase or sale of currency, if any, at the market price. The Fund will enter into forward contracts only for hedging purposes and not for speculation. If required by the Investment Company Act of 1940, as amended (the "1940 Act") or the SEC, the Fund may "cover" its commitment under forward contracts by segregating cash or liquid securities with the 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.
The 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. The 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 the 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 the 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.
Repurchase Agreements
The 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. The Fund will enter into repurchase agreements only with those banks or securities dealers who are deemed creditworthy pursuant to criteria adopted by the Advisor. There is no limit on the portion of the Fund's assets that may be invested in repurchase agreements with maturities of seven days or less.
Borrowing
The Fund may borrow from a bank for temporary administrative purposes. This borrowing may be unsecured. Provisions of the 1940 Act require the 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 the 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, the 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. The 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 the 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 the Fund's portfolio. Money borrowed will be subject to interest costs which may or may not be recovered by appreciation of the securities purchased. The 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 the 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 the Fund may invest that are not readily marketable.
Notwithstanding the restrictions applicable to investments in illiquid securities described in the relevant chart below, the Fund may purchase without limit 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 Fund, the
Advisor determines the liquidity of the Fund's portfolio securities, including
Rule 144A securities, and, through reports from the Advisor, the Board of
Directors monitors trading activity in these securities. In reaching liquidity
decisions, the Advisor 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, the 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 the Fund in convertible debentures or convertible preferred stock would be a substitute for an investment in the convertible security if 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 the 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.
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, the Fund may need to sell them over an
extended period or below the original purchase price. Investments by the Fund in these small or unseasoned companies may be regarded as speculative.
Dollar Roll Transactions
"Dollar roll" transactions consist of the sale by the 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 agreed 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.
The Fund will not use such transactions for leveraging purposes and, accordingly, will segregate liquid assets in an amount sufficient to meet their purchase obligations under the transactions. The Fund 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 the Fund receives a fee as consideration for agreeing to repurchase the security, the Fund forgoes the right to receive all principal and interest payments while the counterparty holds the security. These payments received by the counterparty may exceed the fee received by the Fund, thereby effectively charging the Fund interest on its borrowing. Further, although the Fund can estimate the amount of expected principal prepayment over the term of the dollar roll, a variation in the actual amount of prepayment could increase or decease the cost of the Fund's borrowing.
When-Issued Securities
When-issued, delayed-delivery and forward transactions generally involve the purchase of a security with payment and delivery in the future (i.e., beyond normal settlement). The 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 the 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. The 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
When, as a result of market conditions, the Advisor determines a temporary defensive position is warranted to help preserve capital, the 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. When the Fund assumes a temporary defensive position, it is not invested in securities designed to achieve its investment objective.
CHART OF SECURITIES AND INVESTMENT PRACTICES
CMCG
--------
Investment Grade Securities (Baa or higher by Moody's, BBB or
higher by S&P or believed by the Advisor to be equivalent),
other than U.S. Government obligations and municipal
securities *
Non-Investment Grade Securities NA
Domestic Bank Obligations *
U.S. Government Securities *
Mortgage-Backed Securities NA
CMOs NA
Asset-Backed Securities NA
Floating or Variable Rate NA
Loan Transactions X
Options & Financial Futures O
Foreign Equities(1)
Developed Markets 33.3%, O
Emerging Markets(2) X
ADRs, GDRs and NASDAQ-listed 33.3%, O
foreign securities(1)
Currency Contracts
Hedging O
Speculation X
Spot Basis O
Repurchase Agreements *
Illiquid (exclude 144A securities from definition of illiquid
with board supervision) 15%, O
Convertible Securities/Warrants +
Small Companies +
Dollar Roll Transactions NA
Swap Agreements NA
When-Issued Securities O
Foreign Fixed Income Securities NA
(including Foreign Bank Obligations)
Zero Coupon/Pay in Kind NA
Real Estate (excluding REITs) X
|
+ Permitted - Part of principal investment strategy
X Not permitted either as a non-fundamental or fundamental policy
O Permitted - Not a principal investment strategy
* Temporary Investment or cash management purposes
% Percentage of net assets (unless "total assets" specified) that Fund may invest
NA Not part of investment strategy
(1) Any limitation on foreign investments includes investments in both foreign securities purchased in foreign markets and ADRs, GDRs and NASDAQ-listed foreign securities.
(2) ADRs, GDRs and NASDAQ-listed securities are not subject to this limitation, even if the issuer is headquartered in, has its principal operations in, derives its revenues from, has its principal trading market located in or was legally organized in an emerging market country.
INVESTMENT RESTRICTIONS
The Prospectus sets forth the investment goals and principal investment
strategies applicable to the Fund. The following is a list of investment
restrictions applicable to the Fund. If a percentage limitation is adhered to at
the time of an investment by the 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. Except as stated otherwise below, the 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 the 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 MID CAP GROWTH FUND, INC.
The Mid Cap Growth Fund may not, as a matter of fundamental policy:
1. Underwrite any issue of securities issued by other persons within the
meaning of the 1933 Act except when it might be deemed to be an underwriter
either: (a) in connection with the disposition of a portfolio security; or
(b) in connection with the purchase of securities directly from the issuer
thereof in accordance with its investment objective. This restriction shall
not limit the Fund's ability to invest in securities issued by other
registered investment companies.
2. Purchase or sell real estate, except the Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate and it may hold and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of securities which are secured by real estate or interests therein.
3. Purchase or sell commodities, except that the Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts.
4. Purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions; and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
5. Make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
6. Borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
7. Purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that: (a) up to 25% of its total assets may be invested without regard to these limitations and (b) the Fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder, or any applicable exemptive relief.
The following is a list of non-fundamental investment restrictions applicable to the Fund. These restrictions can be changed by the Board, but the change will only be effective after notice is given (60 days notice in the case of non-fundamental restriction #2) to shareholders of the Fund.
The Fund may not:
1. Purchase or otherwise acquire any security if, as a result, more than 15% of its net assets would be invested in securities that are illiquid.
2. Invest less than 80% of its assets in the stocks of mid-cap companies (those stocks with a market capitalization, at the time of initial purchase, equal to or less than the largest stock in the Russell Mid Cap Index), except when the Fund is taking a temporary defensive position due to a determination by the Fund's Advisor that adverse market conditions make it desirable to suspend temporarily the Fund's normal investment activities.
MANAGEMENT
The Fund is managed under the supervision of its Board of Directors, which has responsibility for overseeing decisions relating to the investment policies and goals of the Fund. The Board of Directors of the Fund meets quarterly to review the Fund's investment policies, performance, expenses, and other business matters. The names, addresses and ages of the directors and officers of the Fund, the year each was first elected or appointed to office, their principal business occupations during at least the last five years, the number of portfolios overseen by each director and other directorships they hold are shown below. There is no family relationship between any of the directors.
Columbia Management Advisors, LLC ("Columbia Advisors"), located at 100 Federal Street, Boston, Massachusetts 02110, is the Fund's investment advisor. Columbia Advisors is responsible for the Fund's management, subject to oversight by the Fund's Board of Directors. In its duties as investment advisor, Columbia Advisors runs the Fund's day-to-day business, including placing all orders for the purchase and sale of the Fund's portfolio securities. Columbia Advisors is a direct, wholly owned subsidiary of Columbia Management Group, LLC ("CMG"), which in turn is a direct, wholly owned subsidiary of Bank of America, which in turn is a wholly owned banking subsidiary of Bank of America Corporation, a financial services holding company organized as a Delaware corporation. Prior to June 15, 2005, CMG was a corporation. Effective June 15, 2005, CMG converted to a limited liability company. Columbia Advisors, a registered investment advisor, has been an investment advisor since 1995.
On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005, Columbia Management was the investment advisor to the Fund. As a result of the merger, Columbia Advisors is now the investment advisor to the Fund.
The "Columbia Funds Complex" (or "Fund Complex") consists of the following funds:
The series of Columbia Funds Trust I, the series of Columbia Funds Trust II, the series of Columbia Funds Trust III, the series of Columbia Funds Trust IV, the series of Columbia Funds Trust V, the series of Columbia Funds Trust VI, the series of Columbia Funds Trust VII, the series of Liberty Variable Investment Trust and 7 closed-end management investment company portfolios (the "Liberty Funds").
The series of Columbia Funds Trust VIII, the series of Columbia Funds Series Trust I, the series of Columbia Funds Trust XI, the series of SteinRoe Variable Investment Trust (the "Stein Roe Funds").
Three closed-end management investment company portfolios named Liberty All-Star Equity Fund, Liberty All-Star Mid-Cap Fund and Liberty All-Star Growth Fund, Inc. (the "All-Star Funds").
Columbia Management Multi-Strategy Hedge Fund, LLC.
Columbia Balanced Fund, Inc., Columbia Conservative High Yield Fund, Columbia Oregon Intermediate Municipal Bond Fund, Inc., Columbia Real Estate Equity Fund, Inc., Columbia Small Cap Growth Fund I, Columbia Mid Cap Growth Fund, Inc., Columbia Strategic Investor Fund, Inc., Columbia Technology Fund, Inc. and the series of CMG Fund Trust (the "Columbia Funds").
The series of The Galaxy Funds (the "Galaxy Funds").
The series of Columbia Acorn Trust and the series of Wanger Advisors Trust (the "Acorn Funds" and "WAT Funds," respectively).
Directors and Officers
DISNTERESTED DIRECTOR:
NUMBER OF
PORTFOLIOS IN
POSITION(S) TERM OF OFFICE AND FUND COMPLEX
NAME, ADDRESS HELD LENGTH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
AND AGE WITH FUNDS SERVED* (1) DURING PAST FIVE YEARS BY DIRECTOR (1) HELD BY DIRECTOR
-------------------------- ----------- ------------------- ----------------------- --------------- -------------------
Douglas A. Hacker Director Since October 2003 Executive Vice 83 Finch Company (food
(Age 50) President - Strategy of distributor)
P.O. Box 66100 United Airlines
Chicago, IL 60666 (airline) since
December, 2002
(formerly President of
UAL Loyalty Services
(airline) from
September, 2001 to
December, 2002;
Executive Vice
President and Chief
Financial Officer of
United Airlines from
March, 1999 to
September, 2001; Senior
Vice President-Finance
from March, 1993 to
July, 1999).
Janet Langford Kelly Director Since October 2003 Partner, Zelle, 83 None
(Age 48) Hoffman, Voelbel, Mason
9534 W. Gull Lake Drive & Gette LLP (law firm)
Richland, MI 49083-8530 since March, 2005;
Adjunct Professor of
Law, Northwestern
University since
September, 2004
(formerly Chief
Administrative Officer
and Senior Vice
President, Kmart
Holding Corporation
(consumer goods), from
September, 2003 to
March, 2004; Executive
Vice
President-Corporate
Development and
Administration, General
Counsel and Secretary,
Kellogg Company (food
manufacturer), from
September, 1999 to
August, 2003; Senior
Vice President,
Secretary and General
Counsel, Sara Lee
Corporation (branded,
packaged,
consumer-products
manufacturer) from
January, 1995 to
September, 1999).
|
NUMBER OF
PORTFOLIOS IN
POSITION(S) TERM OF OFFICE AND FUND COMPLEX
NAME, ADDRESS HELD LENGTH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
AND AGE WITH FUNDS SERVED* (1) DURING PAST FIVE YEARS BY DIRECTOR (1) HELD BY DIRECTOR
-------------------------- ----------- ------------------- ----------------------- --------------- -------------------
Richard W. Lowry Director Since October 2003 Private Investor since 85(3) None
(Age 69) August, 1987 (formerly
10701 Charleston Chairman and Chief
Drive Vero Beach, FL 32963 Executive Officer, U.S.
Plywood Corporation
(building products
manufacturer)).
Charles R. Nelson Director Served for 2 years Professor of Economics, 83 None
(Age 62) University of
Department of Washington, since
Economics January, 1976; Ford and
University of Louisa Van Voorhis
Washington Professor of Political
Seattle, WA 98195 Economy, University of
Washington, since
September, 1993
(formerly Director,
Institute for Economic
Research, University of
Washington from
September, 2001 to
June, 2003) Adjunct
Professor of
Statistics, University
of Washington, since
September, 1980;
Associate Editor,
Journal of Money Credit
and Banking, since
September, 1993;
consultant on
econometric and
statistical matters.
John J. Neuhauser Director Since October 2003 Academic Vice President 85(3) Saucony, Inc.
(Age 63) and Dean of Faculties (athletic footwear)
84 College Road since August, 1999,
Chestnut Hill, MA Boston College
02467-3838 (formerly Dean, Boston
College School of
Management from
September, 1977 to
September, 1999).
Patrick J. Simpson Director Served for 4 years Partner, Perkins Coie 83 None
(Age 61) L.L.P. (law firm).
1120 N.W. Couch
Street
Tenth Floor
Portland, OR 97209-
4128
|
NUMBER OF
PORTFOLIOS IN
POSITION(S) TERM OF OFFICE AND FUND COMPLEX
NAME, ADDRESS HELD LENGTH OF TIME PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
AND AGE WITH FUNDS SERVED* (1) DURING PAST FIVE YEARS BY DIRECTOR (1) HELD BY DIRECTOR
-------------------- ----------- ------------------- ----------------------- --------------- -------------------
Thomas E. Stitzel Director Since October 2003 Business Consultant 83 None
(Age 69) since 1999 (formerly
2208 Tawny Woods Professor of Finance
Place from 1975 to 1999,
Boise, ID 83706 College of Business,
Boise State
University); Chartered
Financial Analyst.
Thomas C. Theobald Director Since October 2003 Partner and Senior 83 Anixter
(Age 68)(4) and Advisor, Chicago Growth International
8 Sound Shore Drive, Chairman of Partners (private (network support
Suite 203 the Board equity investing) since equipment
Greenwich, CT 06830 September, 2004 distributor);
(formerly Managing Ventas,Inc. (real
Director, William Blair estate investment
Capital Partners trust);Jones Lang
(private equity LaSalle (real
investing) from estate management
September, 1994 to services) and
September, 2004). Ambac Financial
(financial
insurance
underwriter)
Anne-Lee Verville Director Since October 2003 Retired since 1997 83 Chairman of the
(Age 60) (formerly General Board of Directors,
359 Stickney Hill Road Manager, Global Enesco Group, Inc.
Hopkinton, NH 03229 Education Industry, IBM (designer, importer
Corporation (computer and distributor of
and technology) from giftware and
1994 to 1997). collectibles)
Richard L. Woolworth Director Served for 12 years Retired since December 83 Northwest Natural
(Age 64) 2003 (formerly Chairman Gas Co. (natural
100 S.W. Market Street and Chief Executive gas service
#1500 Officer, The Regence provider)
Portland, OR 97207 Group (regional health
insurer); Chairman and
Chief Executive
Officer, BlueCross
BlueShield of Oregon;
Certified Public
Accountant, Arthur
Young & Company)
|
INTERESTED DIRECTOR:
NUMBER OF
PORTFOLIOS IN
POSITION TERM OF OFFICE FUND COMPLEX
NAME, ADDRESS (S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN OTHER DIRECTORSHIPS
AND AGE WITH FUNDS TIME SERVED* (1) DURING PAST FIVE YEARS BY DIRECTOR (1) HELD BY DIRECTOR
------------------- ---------- ---------------- ------------------------------ --------------- --------------------
William E. Mayer(2) Director Since October Partner, Park Avenue Equity 85(3) Lee Enterprises
(Age 65) 2003 Partners (private equity) (print media), WR
399 Park Avenue since February, 1999 (formerly Hambrecht + Co.
Suite 3204 Partner, Development Capital (financial service
New York, NY 10022 LLC from November 1996 to provider); First
February, 1999). Health (healthcare);
Reader's Digest
(publishing);
OPENFIELD Solutions
(retail industry
technology provider)
|
* Each director serves for an indefinite term until the date the director resigns, retires or is removed in accordance with the Bylaws of each Fund.
(1) As of December 31, 2005, the Columbia Complex consisted of 76 open-end and 10 closed end management investment company portfolios. In October 2003, the trustees of the Liberty Funds and Stein Roe Funds were elected to the boards of the Columbia Funds; simultaneous with that election, Patrick J. Simpson and Richard L. Woolworth, who had been directors/trustees of the Columbia Funds were appointed to serve as trustees of the Liberty Funds and Stein Roe Funds. The date shown is the earliest date on which a trustee/director was elected or appointed to the board of a Fund in the Fund Complex.
(2) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht + Co.
(3) Messrs. Lowry, Neuhauser and Mayer also serve as directors/trustees of the All-Star Funds.
(4) Mr. Theobald was appointed as Chairman of the Board effective December 10, 2003.
PRINCIPAL OFFICERS:
POSITION TERM OF OFFICE
NAME, ADDRESS (S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S)
AND AGE WITH FUNDS TIME SERVED DURING PAST FIVE YEARS
--------------------- ---------- ---------------- -------------------------
Christopher L. Wilson President Since 2004 Head of Mutual Funds
Age 48) since August, 2004 and
One Financial Center Managing Director of the
Boston, MA 02111 Advisor since September,
2005; President of the
Columbia Funds, Liberty
Funds and Stein Roe Funds
since October, 2004;
President and Chief
Executive Officer of the
Nations Funds since
January, 2005; President
of the Galaxy Funds since
April, 2005; Director of
Bank of America Liquidity
Funds, plc since May,
2005; Director of Bank of
America Capital
Management (Ireland),
Limited since May, 2005;
Director of FIM Funding,
Inc. since January, 2005;
Senior Vice President of
Columbia Management
Distributors, Inc. since
January, 2005; Director
of Columbia Management
Services, Inc. since
January, 2005 (formerly
Senior Vice President of
Columbia Management from
January, 2005 to August,
2005; Senior Vice
President of BACAP
Distributors LLC from
January, 2005 to July,
2005; President and Chief
Executive Officer, CDC
IXIS Asset Management
Services, Inc. from
September, 1998 to
August, 2004).
J. Kevin Connaughton Treasurer Since 2000 Treasurer of the Columbia
(Age 41) Funds since October, 2003
One Financial Center and of the Liberty Funds
Boston, MA 02111 and All-Star Funds since
December, 2000 and of the
Stein Roe Funds since
February, 2001; Managing
Director of the Advisor
since September, 2005
(formerly Vice President
of Columbia Management
from April, 2003 to
August, 2005; President
of the Columbia Funds,
Liberty Funds and Stein
Roe Funds from February,
2004 to October, 2004;
Chief Accounting Officer
and Controller of the
Liberty Funds and of the
All-Star Funds from
February, 1998 to
October, 2000); Treasurer
of the Galaxy Funds since
September, 2002;
Treasurer, Columbia
Management Multi-Strategy
Hedge Fund, LLC since
December, 2002 (formerly
Treasurer from December,
2002 to December, 2004 of
the Columbia Management
Multi-Strategy Hedge
Fund, LLC; Vice President
of Colonial Management
Associates, Inc. from
February, 1998 to
October, 2000).
Mary Joan Hoene Senior Since 2004 Senior Vice President and
(Age 56) Vice Chief Compliance Officer
100 Federal Street President of the Columbia Funds,
Boston, MA 02110 and Chief Liberty Funds, Stein Roe
Compliance Funds and All-Star Funds
Officer since August, 2004; Chief
Compliance Officer of the
Columbia Management
Multi-Strategy Hedge
Fund, LLC since August,
2004; Chief Compliance
Officer of the BACAP
Alternative Strategies
Multi-Strategy Hedge Fund
LLC since October, 2004
(formerly Partner,
Carter, Ledyard & Milburn
LLP from January, 2001 to
August, 2004; Counsel,
Carter, Ledyard & Milburn
LLP from November, 1999
to December, 2000; Vice
President and Counsel,
Equitable Life Assurance
Society of the United
States from April, 1998
to November, 1999,).
|
Michael G. Clarke Chief Since 2004 Chief Accounting Officer
(Age 36) Accounting of the Columbia Funds,
One Financial Center Officer Liberty Funds, Stein Roe
Boston, MA 02111 Funds and All-Star Funds
since October, 2004;
Managing Director of the
Advisor since September,
2005 (formerly Controller
of the Columbia Funds,
Liberty Funds, Stein Roe
Funds and All-Star Funds
from May, 2004 to
October, 2004; Assistant
Treasurer from June, 2002
to May, 2004; Vice
President, Product
Strategy & Development of
the Liberty Funds and
Stein Roe Funds from
February, 2001 to June,
2002; Assistant Treasurer
of the Liberty Funds,
Stein Roe Funds and the
All-Star Funds from
August, 1999 to February,
2001; Audit Manager,
Deloitte & Toche LLP from
May, 1997 to August,
1999).
Jeffrey R. Coleman Controller Since 2004 Controller of the
(Age 36) Columbia Funds, Liberty
One Financial Center Funds, Stein Roe Funds
Boston, MA 02111 and All-Star Funds since
October, 2004 (formerly
Vice President of CDC
IXIS Asset Management
Services, Inc. and Deputy
Treasurer of the CDC
Nvest Funds and Loomis
Sayles Funds from
February, 2003 to
September, 2004;
Assistant Vice President
of CDC IXIS Asset
Management Services, Inc.
and Assistant Treasurer
of the CDC Nvest Funds
from August, 2000 to
February, 2003; Tax
Manager of PFPC, Inc.
from November, 1996 to
August, 2000).
R. Scott Henderson Secretary Since 2004 Secretary of the Columbia
(Age 46) Funds, Liberty Funds and
One Financial Center Stein Roe Funds since
Boston, MA 02111 December, 2004 (formerly
Of Counsel, Bingham
McCutchen from April,
2001 to September, 2004;
Executive Director and
General Counsel,
Massachusetts Pension
Reserves Investment
Management Board from
September, 1997 to March,
2001).
|
Board of Directors
The directors of the Funds are responsible for the overall management and supervision of the Funds' affairs and for protecting the interests of the shareholders. The directors meet periodically throughout the year to oversee the Funds' activities, review contractual arrangements with service providers for the Funds and review the Funds' performance. The directors have created several committees to perform specific functions for the Funds.
AUDIT COMMITTEE
Ms. Verville and Messrs. Hacker, Stitzel and Woolworth are members of the Audit Committee of the Board of Directors of the Funds. The Audit Committee's functions include making recommendations to the Directors regarding the selection and performance of the independent accountants, and reviewing matters relative to accounting and auditing practices and procedures, accounting records, and the internal accounting controls, of the Funds and certain service providers. For the fiscal year ended August 31, 2005, the Audit Committee convened seven times.
GOVERNANCE COMMITTEE
Messrs. Lowry, Mayer, Simpson and Theobald are members of the Governance Committee of the Board of Directors of the Funds. The Governance Committee's functions include recommending to the directors nominees for independent directors positions and for appointments to various committees, performing periodic evaluations of the effectiveness of the Board, reviewing and recommending to the Board policies and practices to be followed in carrying out the directors' duties and responsibilities and reviewing and making recommendations to the Board regarding the compensation of the directors who are not affiliated with the Funds' investment advisor. The Governance Committee will consider candidates for directors recommended by shareholders. Written recommendations with supporting information should be directed to the Committee, in care of the Funds. For the fiscal year ended August 31, 2005, the Governance Committee convened six times.
COMPLIANCE COMMITTEE
Ms. Kelly, Messrs. Nelson, Simpson, Stitzel and Ms. Verville are members of the Compliance Committee of the Board of Directors of the Funds. The Compliance Committee's functions include providing oversight of the monitoring processes and controls
regarding the Funds. The Committee uses legal, regulatory and internal rules, policies, procedures and standards other than those relating to accounting matters and oversight of compliance by the Funds' investment adviser, principal underwriter and transfer agent. For the fiscal year ended August 31, 2005, the Compliance Committee convened four times.
ADVISORY FEES & EXPENSES COMMITTEE
Ms. Kelly and Messrs. Mayer, Nelson and Neuhauser are members of the Advisory Fees & Expenses Committee of the Board of Directors of the Funds. The Advisory Fees & Expenses Committee's functions include reviewing and making recommendations to the Board as to contracts requiring approval of a majority of the disinterested directors and as to any other contracts that may be referred to the Committee by the Board. For the fiscal year ended August 31, 2005, the Advisory Fees & Expenses Committee convened nine times.
INVESTMENT OVERSIGHT COMMITTEES
Beginning in 2004, each director of the Funds also began serving on an Investment Oversight Committee ("IOC"). Each IOC is responsible for monitoring, on an ongoing basis, a select group of funds in the Columbia Funds Complex and give particular consideration to such matters as the Funds' adherence to their investment mandates, historical performance, changes in investment processes and personnel, and proposed changes to investment objectives. Investment personnel who manage the Funds attend IOC meetings from time to time to assist each IOC in its review of the Funds. Each IOC meets four times a year. The following are members of the respective IOCs and the general categories of Funds which they review:
IOC#1: Messrs. Lowry, Mayer and Neuhauser are responsible for reviewing funds in the following asset categories: Large Growth Diversified, Large Growth Concentrated, Small Growth, Outside Managed (i.e., sub-advised) and Municipal.
IOC#2: Mr. Hacker and Ms. Verville are responsible for reviewing funds in the following asset categories: Large Blend, Small Blend, Foreign Stock, Fixed Income - Multi Sector, Fixed Income - Core and Young Investor.
IOC#3: Messrs. Theobald and Stitzel and Ms. Kelly are responsible for reviewing funds in the following asset categories: Large Value, Mid Cap Value, Small Value, Asset Allocation, High Yield and Money Market.
IOC#4: Messrs. Nelson, Simpson and Woolworth will be responsible for reviewing Funds in the following asset categories: Large/MultiCap Blend, Mid Cap Growth, Small Growth, Asset Allocation, Specialty Equity and Taxable Fixed Income.
The following table sets forth the dollar range of shares owned by each director as of December 31, 2005 of (i) each individual Fund and (ii) all of the funds in the same family of investment companies as the Funds:
Aggregate Dollar Range of Equity
Dollar Range of Equity Securities Owned in All Funds Overseen by
Name of Trustee Securities Owned in the Fund Trustee in the Fund Complex
--------------- ---------------------------- -----------------------------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker $0 Over $100,000
Janet Langford Kelly $50,001 - $100,000 Over $100,000
Richard W. Lowry $0 Over $100,000
Charles R. Nelson $50,001 - $100,000 Over $100,000
John J. Neuhauser $0 Over $100,000
Patrick J. Simpson $10,001 - $50,000 Over $100,000
Thomas E. Stitzel $0 Over $100,000
Thomas C. Theobald $0 Over $100,000
Anne-Lee Verville* $0 Over $100,000
$10,001 - $50,000 Over $100,000
Richard L. Woolworth
INTERESTED TRUSTEE
William E. Mayer $0 $50,001 - $100,000
|
* Includes the value of compensation payable under the deferred compensation plan for independent Trustees of the Fund Complex that is determined as if the amounts deferred had been invested, as of the date of deferral, in shares of one or more funds in the Fund Complex as specified by Ms. Verville.
As of December 31, 2005, none of the disinterested directors or nominees or members of their immediate families owned any securities of the Advisor or any other entity directly or indirectly controlling, controlled by, or under common control with the Advisor.
Approval of Investment Advisory Contract
The Fund has entered into an investment advisory contract with the Advisor. The investment advisory contract is subject to annual approval of the Board of Directors, including a majority of disinterested directors. The existing contract for the Fund was considered and approved at in-person meetings of the Fund's Boards of Directors held on October 12, 2005. In determining the reasonableness of the advisory fees under each of the contracts, the directors considered several factors, including:
- The nature and quality of services provided to the Fund's shareholders,
- The profitability of the advisory contract for the Advisor,
- Fall-out benefits realized by the Advisor from services as advisor to the Fund,
- A comparison of fee structures with other mutual funds, and
- The existence of economies of scale with respect to the provision of investment advice to the Fund.
In reviewing the quality of services provided by the Advisor, the directors
reviewed the performance and expense rankings of the Fund as compared to its
peers, based upon information compiled by Lipper, Inc. The directors reviewed
the following information: (1) total expense rankings within the Fund's expense
group, (2) actual management fee rankings of the Fund within its expense group,
(3) contractual management fee rankings of the Fund within its expense group and
(4) performance rankings within the Fund's peer universe for the one-, three-,
five- and ten-year periods. In addition, the directors reviewed data for the
Fund comparing various return rankings of the Fund versus the Fund's actual
management or total expense ranking. From this information, an overall Fund
assessment ranking is made for the Fund. The Funds received a satisfactory
ranking by the directors.
The directors also reviewed data related to the profitability of the Advisor with respect to its contract with the Fund. The directors considered the additional benefits to the Advisor as a result of its relationship with the Fund. The directors also considered the benefits to affiliates of the Advisor as the result of its management of the Fund.
After considering these and other factors, and the Fund's specific circumstances, the directors concluded that the Fund's advisory contract with the Advisor was reasonable for the Fund and in the best interests of its shareholders. During their deliberations, the directors requested from the Advisor all information reasonably necessary for the directors to evaluate the advisory contract for the Fund. The disinterested directors were also assisted by, and met separately with, their independent counsel.
See the section entitled "INVESTMENT ADVISORY AND OTHER FEES PAID TO AFFILIATES" for further information about the Advisor and each Fund's investment advisory contract.
Director Compensation:
The directors serve as directors/trustees of all open-end funds managed by the Advisor for which each director will receive an annual retainer of $75,000, an attendance fee of $10,500 for each regular and special joint board meeting and $1,000 for each special telephonic joint board meeting. Beginning in December 2003, Mr. Theobald began serving as the Chairman of the Board. As the independent chairman of the board, Mr. Theobald receives a supplemental retainer at the annual rate of $100,000; the chair of the Audit Committee receives a supplemental retainer at the annual rate of $20,000; the chair of the Advisory Fees and Expense Committee receives a supplemental retainer at an annual rate of $15,000; and the chair of each other committee receives a supplemental retainer at the annual rate of $10,000. Members of each committee receive $2,500 for each committee meeting held in person and $1,000 for each telephonic meeting. The chair of the Audit Committee receives an additional $500 per meeting supplement. Two-thirds of the director fees are allocated among the Funds based on each Fund's relative net assets and one-third of the fees is divided equally among the Funds.
The following table sets forth compensation earned by the Funds' directors for the fiscal year ended August 31, 2005. No officer of the Funds received any compensation from the Funds in 2005.
Pension or
Retirement Total Compensation from
Benefits Aggregate Compensation the Fund Complex Paid to
Accrued as Part from the Fund for the the Trustees for the
of Fund Fiscal Year Ended Calendar Year Ended
TRUSTEE Expenses (b) August 31, 2005 December 31, 2005
------- --------------- ---------------------- ------------------------
Douglas A. Hacker N/A $2,170 $111,277
Janet Langford Kelly N/A $2,494 116,500
Richard W. Lowry N/A $2,054 142,500
William E. Mayer N/A $2,398 147,750
Charles R. Nelson N/A $2,302 111,500
John J. Neuhauser N/A $2,152 137,833
Patrick J. Simpson(a) N/A $2,167 107,500
Thomas E. Stitzel N/A $2,306 113,000
Thomas C. Theobald(b) N/A $3,781 205,500
Anne-Lee Verville(c) N/A $2,425 120,723
Richard L. Woolworth N/A $1,970 106,500
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(a) During the fiscal year ended August 31, 2005 and the calendar year ended December 31, 2005, Mr. Simpson deferred $2,167 of his compensation from the Mid Cap Growth Fund and $107,500 of his total compensation from the Fund Complex, respectively, pursuant to the deferred compensation plan. At December 31, 2005, the value of Mr. Simpson's account under the plan was $269,502.
(b) During the fiscal year ended August 31, 2005 and the calendar year ended December 31, 2005, Mr. Theobald deferred $2,570 of his compensation from the Mid Cap Growth Fund and $150,000 of his total compensation from the Fund Complex, respectively, pursuant to the deferred compensation plan. At December 31, 2005, the value of Mr. Theobald's account under the plan was $320,083.
(c) During the fiscal year ended August 31, 2005 and the calendar year ended December 31, 2005, Ms. Verville deferred $271 of her compensation from the Mid Cap Growth Fund and $0 of her total compensation from the Fund Complex, respectively, pursuant to the deferred compensation plan. At December 31, 2005, the value of Ms. Verville's account under the plan was $683,935.
Portfolio Managers
OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGER
The following table shows the number and assets of other investment accounts (or portions of investment accounts) that the Fund's portfolio manager managed as of the Fund's fiscal year end.
OTHER SEC-REGISTERED OTHER POOLED INVESTMENT
OPEN-END AND CLOSED-END FUNDS VEHICLES OTHER ACCOUNTS
----------------------------- ----------------------- ------------------------
Number of Number of Number of
PORTFOLIO MANAGERS accounts Assets accounts Assets accounts Assets
------------------ --------- ------------ --------- ------ --------- ------------
Kenneth A. Korngiebel 7 $360 million 0 N/A 20 $446 million
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See "Potential conflicts of interest in managing multiple accounts" for information on how the Advisor addresses potential conflicts of interest resulting from an individual's management of more than one account.
Ownership of Securities
The table below shows the dollar ranges of shares of the Fund beneficially owned (as determined pursuant to Rule 16a-1(a)(2) under the Securities Exchange Act of 1934, as amended) by the portfolio manager listed above at the end of the Fund's most recent fiscal year:
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND
PORTFOLIO MANAGERS BENEFICIALLY OWNED
------------------ ---------------------------------------------
Kenneth A. Korngiebel $0
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Compensation
As of the Fund's most recent fiscal year end, the portfolio manager received all of his compensation from the Advisor and its parent company, Columbia Management Group, in the form of salary, bonus, stock options and restricted stock. A portfolio manager's bonus is variable and is generally based on (1) an evaluation of the manager's investment performance and (2) the results of a peer and/or management review of such individual, which takes into account skills and attributes such as team participation, investment process, communication and professionalism. In evaluating investment performance, the Advisor generally considers the one-, three- and five-year performance of mutual funds and other accounts under the portfolio manager's oversight relative to the benchmarks and peer groups noted below, emphasizing each manager's three- and five-year performance. The Advisor may also consider a portfolio manager's performance in managing client assets in sectors and industries assigned to the manager as part of his or her investment team responsibilities, where applicable. For portfolio managers who also have group management responsibilities, another factor in their evaluation is an assessment of the group's overall investment performance.
PORTFOLIO MANAGERS PERFORMANCE BENCHMARK PEER GROUP ------------------ --------------------- ---------- Kenneth A. Korngiebel Russell Midcap Growth Index Morningstar Mid-Cap Growth Funds Category |
The size of the overall bonus pool each year is determined by Columbia Management Group and depends in part on levels of compensation generally in the investment management industry (based on market compensation data) and the Advisor's profitability for the year, which is influenced by assets under management.
Potential conflicts of interest in managing multiple accounts
Like other investment professionals with multiple clients, a portfolio manager for a Fund may face certain potential conflicts of interest in connection with managing both the Fund and other accounts at the same time. The paragraphs below describe some of these potential conflicts, which the Advisor believes are faced by investment professionals at most major financial firms. The Advisor and the Trustees of the Columbia Funds have adopted compliance policies and procedures that attempt to address certain of these potential conflicts.
- The management of accounts with different advisory fee rates and/or fee structures, including accounts that pay advisory fees based on account performance ("performance fee accounts"), may raise potential conflicts of interest by creating an incentive to favor higher-fee accounts. These potential conflicts may include, among others:
- The most attractive investments could be allocated to higher-fee accounts or performance fee accounts.
- The trading of higher-fee accounts could be favored as to timing and/or execution price. For example, higher-fee accounts could be permitted to sell securities earlier than other accounts when a prompt sale is desirable or to buy securities at an earlier and more opportune time.
- The trading of other accounts could be used to benefit higher-fee accounts (front- running).
- The investment management team could focus their time and efforts primarily on higher-fee accounts due to a personal stake in compensation.
Potential conflicts of interest may also arise when the portfolio managers have personal investments in other accounts that may create an incentive to favor those accounts. As a general matter and subject to limited exceptions, the Advisor's investment professionals do not have the opportunity to invest in client accounts, other than the Columbia Funds.
A potential conflict of interest may arise when a Fund and other accounts purchase or sell the same securities. On occasions when a portfolio manager considers the purchase or sale of a security to be in the best interests of a Fund as well as other accounts, the Advisor's trading desk may, to the extent permitted by applicable laws and regulations, aggregate the securities to be sold or purchased in order to obtain the best execution and lower brokerage commissions, if any. Aggregation of trades may create the potential for unfairness to a Fund or another account if one account is favored over another in allocating the securities purchased or sold - for example, by allocating a disproportionate amount of a security that is likely to increase in value to a favored account.
"Cross trades," in which one Columbia account sells a particular security to another account (potentially saving transaction costs for both accounts), may also pose a potential conflict of interest. Cross trades may be seen to involve a potential conflict of interest if, for example, one account is permitted to sell a security to another account at a higher price than an independent third party would pay. The Advisor and the Funds' Trustees have adopted compliance procedures that provide that any transactions between a Fund and another Columbia-advised account are to be made at an independent current market price, as required by law.
Another potential conflict of interest may arise based on the different investment objectives and strategies of a Fund and other accounts. For example, another account may have a shorter-term investment horizon or different investment objectives, policies or restrictions than a Fund. Depending on another account's objectives or other factors, a portfolio manager may give advice and make decisions that may differ from advice given, or the timing or nature of decisions made, with respect to a Fund. In addition, investment decisions are the product of many factors in addition to basic suitability for the particular account involved. Thus, a particular security may be bought or sold for certain accounts even though it could have been bought or sold for other accounts at the same time. More rarely, a particular security may be bought for one or more accounts managed by a portfolio manager when one or more other accounts are selling the security (including short sales). There may be circumstances when purchases or sales of portfolio securities for one or more accounts may have an adverse effect on other accounts.
A Fund's portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. As a result, the portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as might be the case if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies.
A Fund's portfolio managers may be able to select or influence the selection of the brokers and dealers that are used to execute securities transactions for the Fund. In addition to executing trades, some brokers and dealers provide portfolio managers with brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934), which may result in the payment of higher brokerage fees than might have otherwise be available. These services may be more beneficial to certain funds or accounts than to others. Although the payment of brokerage commissions is subject to the requirement that the portfolio manager determine in good faith that the commissions are reasonable in relation to the value of the brokerage and research services provided to the fund, a portfolio manager's decision as to the selection of brokers and dealers could yield disproportionate costs and benefits among the funds and/or accounts that he or she manages.
The Advisor or an affiliate may provide more services (such as distribution or recordkeeping) for some types of funds or accounts than for others. In such cases, a portfolio manager may benefit, either directly or indirectly, by devoting disproportionate attention to the management of fund and/or accounts that provide greater overall returns to the investment manager and its affiliates.
A Fund's portfolio manager(s) may also face other potential conflicts of interest in managing the Fund, and the description above is not a complete description of every conflict that could be deemed to exist in managing both a Fund and other accounts. In addition, a Fund's portfolio manager may also manage other accounts (including their personal assets or the assets of family members) in their personal capacity. The management of these accounts may also involve certain of the potential conflicts described above. Investment personnel at the Advisor, including each Fund's portfolio manager, are subject to restrictions on engaging in personal securities transactions pursuant to Codes of Ethics adopted by the Advisor and each Fund, which contain provisions and requirements designed to identify and address certain conflicts of interest between personal investment activities and the interests of each Fund.
Share Ownership:
As of December 30, 2006, each director and all officers and directors, as a group, owned of record or beneficially less than 1% of the outstanding shares of the Fund.
As of December 30, 2006, to the knowledge of the Fund, no person owned of record or beneficially more than 5% of the outstanding shares of the Fund except the following record owners:
MID CAP GROWTH FUND-A
NAME AND ADDRESS
CHARLES SCHWAB & CO. INC. 15.17
ATTN: MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
MID CAP GROWTH FUND-C
NAME AND ADDRESS
MERRILL LYNCH PIERCE FENNER & SMITH 32.27
FOR THE SOLE BENEFIT OF
ITS CUSTOMERS
4800 DEER LAKE DR E FL 2
JACKSONVILLE FL 32246-6484
MID CAP GROWTH FUND-D
NAME AND ADDRESS
GREG KOYLE 10.26
ESNET MANAGEMENT GROUP LLC
DANIEL W. CAMPBELL
4304 N STONECREEK LANE
PROVO, UT 84604-5003
NFS LLC FEBO 7.20
FBO JEFFREY H. PATE
624 SALTER PL
WESTFIELD, NJ 07090-1350
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RAYMOND JAMES & ASSOCIATES, INC. 5.27
880 CARILLON PARKWAY
ST. PETERSBURG, FL 33716-1100
MID CAP GROWTH FUND-G
NAME AND ADDRESS
BANK OF AMERICA NA 5.69
JUAN ROSAI
551 AMITY ROAD
WOODBRIDGE, CT 06525-1201
MID CAP GROWTH FUND-Z
NAME AND ADDRESS
BANK OF AMERICA NA 23.91
ATTN JOAN WRAY
411 N AKARD STREET
DALLAS, TX 75201-3307
CHARLES SCHWAB & CO. INC. 13.41
SPECIAL CUSTODY ACCOUNT FOR EXCLUSIVE
OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY STREET
SAN FRANCISCO, CA 94104-4122
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PROXY VOTING POLICY AND PROCEDURES
The Fund has delegated to the Advisor the responsibility to vote proxies relating to portfolio securities held by the Fund.
The Advisor's policy is to vote all proxies for each client's securities in a manner considered by the Advisor to be in the best interest of its clients, including the Fund and its shareholders, without regard to any benefit to the Advisor or its affiliates. The Advisor examines each proposal and votes against the proposal, if, in its judgment, approval or adoption of the proposal would be expected to impact adversely the current or potential market value of the issuer's securities. The Advisor also examines each proposal and votes the proxies against the proposal, if, in its judgment, the proposal would be expected to effect adversely the best interest of the Fund. The Advisor determines the best interest of the Fund in light of the potential economic return on the Fund's investment.
The Advisor addresses potential material conflicts of interest by having predetermined voting guidelines. For those proposals that require special consideration or in instances where special circumstances may require varying from the predetermined guideline, the Advisor's Proxy Committee determines the vote in the best interest of the Fund, without consideration of any benefit to the Advisor, its affiliates, or its other clients or certain other persons. A member of the Proxy Committee is prohibited from voting on any proposal with respect to which he or she has a conflict of interest by reason of a direct relationship with the issuer or other party affected by a given proposal. Persons making recommendations to the Proxy Committee or its members are required to disclose to the Committee any relationship with a party making a proposal or other matter known to the person that would create a potential conflict of interest.
The Advisor has three classes of proxy proposals. The first two classes are predetermined guidelines to vote for or against specific proposals, unless otherwise directed by the Proxy Committee. The third class is proposals requiring special consideration by the Proxy Committee. In addition, the Proxy Committee considers requests to vote on proposals in the first two classes other than according to the predetermined guidelines.
The Advisor generally votes in favor of proposals related to the following matters: selection of auditors (unless the auditor receives more than 50% of its revenues from non-audit activities from the company and its affiliates), election of directors (unless the proposal gives management the ability to alter the size of the board without shareholder approval), different persons for chairman of the board /chief executive officer (unless, in light of the size of the company and the nature of its shareholder base, the role of chairman and
CEO should not be held by different persons), compensation (if provisions are consistent with standard business practices), debt limits (unless proposed specifically as an anti-takeover action), indemnification (unless for negligence and or breaches of fiduciary duty), meetings, name of company, principal office (unless the purpose is to reduce regulatory or financial supervision), reports and accounts (if the certifications required by the Sarbanes-Oxley Act of 2002 have been provided), par value, shares (unless proposed as an anti-takeover action), share repurchase programs, independent committees, and equal opportunity employment.
The Advisor generally votes against proposals related to the following matters: super majority voting, cumulative voting, preferred stock, warrants, rights, poison pills, reclassification of common stock and meetings held by written consent.
The Advisor gives the following matters special consideration: new proposals, proxies of investment company shares (other than election of directors, selection of accountants), mergers/acquisitions (proposals where a hostile merger/acquisition is apparent or where the Advisor represents ownership in more than one of the companies involved), shareholder proposals (other than those covered by the predetermined guidelines), executive/director compensation (other than those covered by the predetermined guidelines), pre-emptive rights, and proxies of international issuers which block securities sales between submission of a proxy and the meeting (proposals for these securities are voted only on the specific instruction of the Proxy Committee and to the extent practicable in accordance with predetermined guidelines).
In addition, if a portfolio manager or other party involved with an Advisor client or a Fund account concludes that the interest of the client or the Fund requires that a proxy be voted on a proposal other than according to the predetermined guidelines, he or she may request that the Proxy Committee consider voting the proxy differently. If any person (or entity) requests the Proxy Committee (or any of its members) to vote a proxy other than according to a predetermined guideline, that person must furnish to the Proxy Committee a written explanation of the reasons for the request and a description of the person's (or entity's) relationship with the party proposing the matter to shareholders or any other matter known to the person that would create a potential conflict of interest.
The Proxy Committee may vary from the predetermined guideline if it determines that voting on the proposal according to the predetermined guideline would be expected to impact adversely the current or potential market value of the issuer's securities or to effect adversely the best interest of the client. References to the best interest of a client refer to the interest of the client in terms of the potential economic return on the client's investment. In determining the vote on any proposal, the Proxy Committee does not consider any benefit other than benefits to the owner of the securities to be voted.
The Advisor's Proxy Committee is composed of operational and investment representatives of its regional offices as well as senior representatives of equity investments, equity research, compliance and legal. During the first quarter of each year, the Proxy Committee reviews all guidelines and establishes guidelines for expected new proposals. In addition to these reviews and its other responsibilities described above, it's the Proxy Committee's functions include annual review of it's the Advisor's Proxy Voting Policy and Procedures to ensure consistency with internal policies and regulatory agency policies, and to develop and modify voting guidelines and procedures as it deems appropriate or necessary.
The Advisor uses Institutional Shareholder Services ("ISS"), a third party vendor, to implement its proxy voting process. ISS provides proxy analysis, record keeping services and vote disclosure services.
The actual voting records of the Fund relating to its portfolio securities during the 12-month period ended June 30, 2005 are available without charge, upon request, by calling 1-800-426-3750, or by accessing the SEC's website at http://www.sec.gov.
DISCLOSURE OF PORTFOLIO INFORMATION
The Board of Directors and Trustees of the Columbia funds have adopted policies with respect to the disclosure of the funds' portfolio holdings by the funds, Columbia Advisors, or their affiliates. These policies provide that the Funds' portfolio holdings information generally may not be disclosed to any party prior to (1) the day next following the posting of such information on the Funds' website at www.columbiafunds.com, (2) the day next following the filing of the information with the SEC in a required filing, or (3) for money market funds, such information is publicly available to all shareholders upon request on the fifth business day after each calendar month-end. Certain limited exceptions pursuant to the Funds' policies are described below. The Directors/Trustees shall be updated as needed regarding the Funds' compliance with the policies, including information relating to any potential conflicts of interest between the interests of a Fund's shareholders and those of Columbia Advisors and its affiliates. The Funds' policies prohibit Columbia Advisors and the Fund's other service providers from entering into any agreement to disclose fund portfolio holdings information in exchange for any form
of consideration. These policies apply to disclosures to all categories of persons, including, without limitation, individual investors, institutional investors, intermediaries that distribute the Funds' shares, third-party service providers, rating and ranking organizations and affiliated persons of the fund.
PUBLIC DISCLOSURES
Each Fund's portfolio holdings are currently disclosed to the public through required filings with the SEC and, for equity and fixed income funds, on the fund's website at www.columbiafunds.com. Each Fund files its portfolio holdings with the SEC for each fiscal quarter on Form N-CSR (with respect to each annual period and semi-annual period) and Form N-Q (with respect to the first and third quarters of a Fund's fiscal year). Shareholders may obtain a Fund's Forms N-CSR and N-Q filings on the SEC's website at www.sec.gov. In addition, a Fund's Forms N-CSR and N-Q filings may be reviewed and copied at the SEC's public reference room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC's website or the operation of the public reference room.
The equity and fixed income Columbia funds also currently make portfolio information publicly available at www.columbiafunds.com, as disclosed in the following table:
FREQUENCY OF
TYPE OF FUND INFORMATION PROVIDED DISCLOSURE DATE OF WEB POSTING
------------ -------------------- ------------ -------------------
Equity Funds Full portfolio holdings Monthly 30 calendar days after
information. month-end.
Fixed Income Funds Full portfolio holdings Quarterly 60 calendar days after the
information. quarter-end
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The scope of the information provided relating to a Fund's portfolio that is made available on the website may change from time to time without prior notice.
For Columbia's money market funds, a complete list of a fund's portfolio holdings shall be publicly available on a monthly basis on the fifth business date after month-end. Shareholders may request such information by writing or calling the Funds' distributor, Columbia Funds Distributor, at 800-426-3750, One Financial Center, Boston, Massachusetts 02111-2621.
A Fund, Columbia Advisors or their affiliates may include portfolio holdings information that has already been made public through a web posting or SEC filing in marketing literature and other communications to shareholders, advisors or other parties, provided that the information is disclosed no earlier than the day after the date the information is disclosed publicly.
OTHER DISCLOSURES
The Fund's policies provide that non-public disclosures of a Fund's portfolio holdings may be made if (1) the Fund has a legitimate business purpose for making such disclosure, (2) the Fund's chief executive officer authorizes such non-public disclosure of information, and (3) the party receiving the non-public information enters into a confidentiality agreement, which includes a duty not to trade on the non-public information.
Each Fund periodically discloses its portfolio information on a confidential basis to various service providers that require such information in order to assist the Fund with its day-to-day business affairs. In addition to Columbia Advisors and its affiliates, these service providers include any sub-custodians of the Fund's securities, the fund's independent registered public accounting firm, legal counsel, and financial printer, currently Bowne, Inc., and the Funds' proxy voting service, currently Institutional Shareholder Services. These service providers are required to keep such information confidential, and are prohibited from trading based on the information or otherwise using the information except as necessary in providing services to the Funds. A Fund may also disclose portfolio holdings information to broker/dealers and certain other entities related to potential transactions and management of the Fund, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information.
Certain clients of the Funds' investment adviser may follow a strategy similar to that of a Fund, and have access to portfolio holdings information for their account. It is possible that such information could be used to infer portfolio holdings information relating to the Fund.
INVESTMENT ADVISORY AND OTHER SERVICES PROVIDED BY AFFILIATES
Pursuant to the investment contract, the Advisor 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 Advisor 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.
Fees paid by the Fund and expenses incurred by the Fund as reported below are Fund-level expenses paid by shares of the Fund outstanding as of the periods being reported.
Information regarding the advisory fee payable to the Advisor including any waivers or offsets applicable to such Fund is set forth in the prospectus for each Fund.
Effective November 1, 2004, pursuant to an amendment to the Investment Management Agreement with the Advisor, the advisory fee for the following Fund is calculated as a percentage of net assets that declines as net assets increase and is as follows:
Mid Cap Growth Fund 0.820% of the Fund's first $500 million of net assets;
0.750% of next $500 million of net assets;
0.720% of next $500 million of net assets; and
0.670% of net assets in excess of $1.5 billion.
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Prior to November 1, 2004, the advisory fee for the Fund was calculated as a percentage of net assets that declined as net assets increased and was as follows:
Mid Cap Growth Fund 1.000% of the Fund's first $500 million of net assets; 0.750% of net assets in excess of $500 million.
Advisory fees paid by the Fund for each of the last three fiscal years were as follows:
FUND 2005 2004 2003* ---- ---- ---- ----- Mid Cap Growth Fund $6,887,146 $8,813,801 $5,318,563 |
The Advisor provides certain administrative services to the Fund. Effective November 1, 2005, the Fund entered into an Administrative Agreement with the Advisor. For services provided under the Administrative Agreement, the Fund will pay the Advisor an annual fee, payable monthly, based on the Fund's net assets. The Advisor has delegated responsibility for certain administrative services to State Street. For periods before November 1, 2005, the Fund paid the Adviser fees under a similar Administrative Agreement at the same rates.
CMS acts as transfer agent, dividend disbursing agent and shareholders' servicing agent for the Fund. Its address is P.O. Box 8081, Boston Massachusetts 02266-8081. Effective November 1, 2005, the Fund entered into a Transfer, Dividend Disbursing and Shareholders' Servicing Agent Agreement with CMS, under which CMS will provide transfer agency, dividend disbursing and shareholders'
servicing agency services to the Fund. For these services, the Fund will pay CMS a specified amount per open account per annum, payable monthly. In addition the Fund may pay CMS the fees and expenses that CMS pays to third-party dealer firms that maintain omnibus accounts with the Fund, subject to a cap equal to a specified percentage of the Fund's net assets represented by the account. The Fund will also reimburse CMS for certain out-of-pocket expenses. CMS may also retain as additional compensation for its services revenues for fees for wire, telephone and redemption orders, IRA trustee agent fees and account transcripts due CMS from shareholders of the Fund and interest (net of bank charges) and balance credits earned with respect to balances in demand deposit accounts CMS maintains in connection with its services to the Fund. CMS has retained Boston Financial Data Services, Inc. and DST Systems, Inc. to provide certain services for the Fund.
The transfer agent fees paid to CMS for the fiscal year ended August 31, 2005 under the transfer agent agreement were $831,320 for the Mid Cap Growth Fund,. The transfer agent fees paid by Mid Cap Growth Fund are net of transfer agent fees waived by CMS.
The Advisor provides certain pricing and bookkeeping services to the Fund. Effective November 1, 2005, the Fund entered into a Pricing and Bookkeeping Agreement and an Administrative Agreement. Under these agreements, the Fund will continue to receive substantially the same pricing, bookkeeping and administrative services as it currently receives under the Agreement. The Advisor and State Street Bank and Trust Company will continue to provide these services to the Fund. For services provided under the Pricing and Bookkeeping Agreement, the Fund will pay the Advisor or to such other person(s) as the Advisor may direct an annual fee, payable monthly, consisting of: (i) for fund accounting services, $25,000 plus 0.015% of the Fund's net asset value ("Fund Accounting Fee"); and (ii) for financial reporting services, $13,000 ("Financial Reporting Fee"); provided that during any 12-month period, the aggregate Fund Accounting Fee and Financial Reporting Fee shall not exceed $140,000. The Fund will bear certain reimbursable costs and expenses as provided in the Pricing and Bookkeeping Agreement.
Columbia Management Distributors, Inc. ("CMD"), a registered securities broker and a member of the National Association of Securities Dealers, Inc., whose address is One Financial Center Boston, MA 02111-2621, is the principal underwriter for the Fund, and is authorized under a distribution agreement with the Fund to sell shares of the Fund. CMD has no obligation to buy the Fund's shares, and purchases the Fund's shares only upon receipt of orders from authorized financial services firms ("FSFs") or investors. Shareholders of the Fund's Class R shares do not pay a sales charge upon purchase or sale of the Fund's shares.
The Advisor and CMS are wholly owned subsidiaries of Columbia Management Group, Inc., which is an indirect wholly owned subsidiary of Bank of America Financial Corporation ("Bank of America"). CMD is a wholly owned subsidiary of the Advisor. Bank of America 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
The 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 the 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 Fund may purchase portfolio securities through a securities broker and pay the broker a commission, or it 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 Fund 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 Fund in transactions where fees or commissions are involved. Additional factors considered by the Advisor 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 Advisor on a continuing basis; and (vii) reasonableness of commission. The Fund recently adopted policies prohibiting the Fund from directing commissions to any broker-dealer for sale of the Fund's shares.
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 Advisor 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 Advisor receives a significant amount of proprietary research from a number of brokerage firms, in most cases on an unsolicited basis. The Advisor does not make any commitments to allocate brokerage for proprietary research. The value of that research, however, is considered along with other factors in the selection of brokers. This research is considered supplemental to the Advisor's own internal research and does not, therefore, materially reduce the overall expenses incurred by the Advisor for its research. On a semi-annual basis, the Advisor'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 Advisor'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.
The Advisor may use the Fund's commissions to acquire third party research or products that are not available through its full-service brokers. In these arrangements, the Advisor 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 Advisor. Proposed research to be acquired in this manner must be approved by the Advisor's Soft Dollar Committee which is responsible for determining that the research provides appropriate assistance to the Advisor in connection with its investment management of the Fund 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 Advisor and its affiliates in rendering investment management services to the Fund or other clients. Conversely, research provided by brokers or dealers who have executed orders on behalf of other clients of the Advisor and its affiliates might be useful to the Advisor in carrying out its obligations to the Fund.
Total brokerage commissions paid (agency only) by the Fund for each of the last three fiscal years were:
FUND 2005 2004 2003* 2002 ---- ---- ---- ----- ---- Mid Cap Growth Fund $2,899,948 $4,568,079 $2,792,191 $2,756,879 |
* The Fund changed its fiscal year end from December 31 to August 31 in 2003. Information provided is for the eight-month period ended August 31, 2003.
Of the commissions paid in 2005, the Mid Cap Growth Fund paid $_____ to acquire third-party research or products.
At August 31, 2005, the Fund held securities of its regular brokers or dealers as set forth below:
FUND BROKER/DEALER VALUE ---- ------------- ----- MID CAP GROWTH FUND None |
Provided the Fund's Board of Directors is satisfied that the Fund is receiving the most favorable price and execution available, the Advisor 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, Inc. The Advisor 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 Advisor, if the Advisor believes that the quality of the transaction and the commission are comparable to what they would be with
other qualified brokerage firms. During 2004, the Fund periodically used W.R. Hambrecht, an affiliated broker-dealer of the Advisor to execute purchase and sale orders.
The aggregate dollar amount of brokerage commissions paid to W.R. Hambrecht for the fiscal year 2004 is as follows:
FUND 2004 ---- ---- Mid Cap Growth Fund $9,785 |
The Fund paid no brokerage commissions to W.R. Hambrecht or Bank of America Securities in fiscal year 2005.
For all years, the aggregate dollar amount of purchase and sale transactions and total broker commissions were less than 1% of the Fund's total purchase and sale transactions and broker commissions. In addition to agency transactions, the Fund 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 Fund.
Buy and sell orders of a Fund may be aggregated by the Advisor with other trades made at the regional trading desk at which the trade is completed with those of other Funds or accounts or other investment pools managed by the Advisor or affiliates of the Advisor to achieve best execution, and, on the average, lower brokerage commission costs. Orders are aggregated only if the Advisor, 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 typically 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 Advisor 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 Advisor 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 Advisor 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 accounts managed by the Advisor of investments in initial and secondary public offerings ("IPOs and "SPOs," jointly "POs") are made pursuant to Guidelines (the "Guidelines") established by the Advisor. The Guidelines establish which accounts are eligible to participate in a particular PO and what level of participation is permitted. 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 PO 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 PO opportunity is appropriate will be made on a fair and equitable basis.
The Advisor, CMD 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 Advisor's other clients or take unfair advantage of their relationship with the Advisor. The specific standards in the Ethics Code include, among others, a requirement that trades of all access persons be pre-cleared; a prohibition on investing in initial public offerings; required pre-approval of an investment in private placements; a prohibition on portfolio managers trading in a security five business 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 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. In addition to the trading restrictions, the Ethics Code contains reporting obligations that are designed to ensure compliance and allow the Advisor's Ethics Committee to monitor that compliance.
The Advisor and the Funds have also adopted an Insider Trading Policy. The Insider Trading Policy prohibits any employee from trading, either personally or on behalf of others (including a client account), on the basis of material nonpublic information. All employees are required to certify each year that they have read and complied with the provisions of the Ethics Code and the Insider Trading Policy.
CAPITAL STOCK AND OTHER SECURITIES
The Fund is an Oregon corporation and was organized in the year set forth below opposite its name.
FUND DATE ---- ---- Mid Cap Growth Fund 1985 |
The Fund offers the following classes of shares pursuant to a Rule 18f-3
Plan (the "Plan") adopted by the Directors in accordance with the 1940 Act:
Class A, B, C, D, G, T, R and Z. A Statement of Additional Information
pertaining to these other classes of shares of the Fund may be obtained from CMD
upon request; the information presented within this Statement of Additional
Information pertains to Class R shares of the Fund. Shares of each class of the
Fund represent an equal pro rata interest in the Fund and, generally, have
identical voting, dividend, liquidation, and other relative rights, preferences,
limitations, and terms and conditions, except that: (1) each class has a
different designation, (2) each class of shares bears any expenses attributable
to a class as set forth in the Plan and the relevant Prospectus, (3) each class
has exclusive voting rights on any matter submitted to shareholders that relates
solely to it or its distribution and service plan adopted under Rule 12b-1, if
any, and (4) each class has separate voting rights on any matter submitted to
shareholders in which the interests of one class differ from the interests of
any other class. In addition, each class has the particular features described
below. The differences among the classes of the Fund are subject to change by
action of the Board of Directors of the Fund and to the extent permitted by the
1940 Act and the Fund's articles of incorporation and bylaws. All issued and
outstanding shares of the Fund are fully paid and nonassessable. Shares have no
preemptive rights. Fractional shares have the same rights proportionately as
full shares. The shares of the 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.
DISTRIBUTION AND SERVICING
DISTRIBUTION PLAN
The Directors have approved a plan pursuant to Rule 12b-1 under the 1940 Act (the "12b-1 Plan") for the Fund's Class A, B, C, D, G and R shares. Under the 12b-1 Plan, the Fund pays CMD a monthly distribution fee at an annual rate of up to 0.50% of the Fund's net assets attributed to Class R shares.
The monthly distribution fees shall be used by CMD to cover expenses and
activities primarily intended to result in the sale of Fund shares. These
expenses and activities may include but are not limited to: (a) direct
out-of-pocket promotional expenses incurred by CMD in advertising and marketing
Fund shares; (b) expenses incurred in connection with preparing, printing,
mailing, and distributing or publishing advertisements and sales literature; (c)
expenses incurred in connection with printing and mailing prospectuses and
Statements of Additional Information to other than current shareholders; (d)
periodic payments or commissions to one or more securities dealers, brokers,
financial institutions and other industry professionals ("Service
Organizations") with respect to the Fund's shares beneficially owned by
customers for whom the Service Organization is the shareholder of record; (e)
the direct and indirect cost of financing the payments or expenses included in
(a) and (d) above; or (f) such other services as may be construed by any court
or governmental agency or commission, including the SEC, to constitute
distribution services under the 1940 Act or rules and regulations thereunder.
Shareholder Liaison Services may include the following services provided by FSFs: (a) aggregating and processing purchase and redemption requests and placing net purchase and redemption orders with CMD; (b) processing dividend payments; and (d) providing periodic mailings to customers.
CMD may use the entire amount of such fees to defray the cost of commissions and service fees paid to FSFs and for certain other purposes. Since the distribution fees are payable regardless of CMD's expenses, CMD may realize a profit from the fees. The 12b-1 Plan authorizes the Advisor to make payments out of its own funds for distribution or services costs.
TERMS OF THE DISTRIBUTION PLAN
CMD has advised the Fund that the Distribution Plan could be significant factors in the growth and retention of the Fund's assets, resulting in a more advantageous expense ratio, increased investment flexibility and a greater ability to attract and retain research and portfolio management talent, which could benefit Class R of the Fund's shareholders. The Distribution Plan will continue in effect from year to year so long as their continuance is specifically approved at least annually by a vote of the Directors, including the Directors who are not interested persons of the Fund and have no direct or indirect financial interest in the operation of the Distribution Plan or in any related agreements ("Independent Directors"), and, with respect to the Distribution Plan, cast in person at a meeting called for the purpose. All material amendments of the Distribution Plan must be approved by the Directors in the manner provided in the foregoing sentence. The Distribution Plan may not be amended to increase the fee materially without approval by vote of a majority of the outstanding voting securities of the relevant class of shares. The Distribution Plan may be terminated at any time by vote of a majority of the Independent Directors or by vote of a majority of the outstanding voting securities of the relevant class of shares. The continuance of the Distribution Plan will only be effective if the selection and nomination of the Directors who are not interested persons of the Funds is effected by such Independent Directors.
Class R shares of the Fund have paid no 12b-1 fees as of the date of this Statement of Additional Information.
PURCHASE, REDEMPTION AND PRICING OF SHARES
PURCHASES AND REDEMPTIONS
A detailed discussion of how you may purchase, redeem and exchange each class of shares in the Fund is discussed in the Prospectus.s. The following information and policies are supplemental to that found in the applicable Prospectus.
The Fund will generally accept unconditional orders for shares to be executed at the public offering price based on the NAV per share next determined after the order is placed in good order. The public offering price is the NAV plus the applicable sales charge, if any. In the case of orders for purchase of shares placed through FSFs, the public offering price will be determined on the day the order is placed in good order, but only if the FSF receives the order prior to the time at which shares are valued and transmits it to a Fund before the Fund processes that day's transactions. If the FSF fails to transmit before a Fund processes that day's transactions, the customer's entitlement to that day's closing price must be settled between the customer and the FSF. If the FSF receives the order after the time at which the Fund values its shares, the price will be based on the NAV determined as of the close regular trading on the New York Stock Exchange ("Exchange") on the next day it is open. If funds for the purchase of shares are sent directly to CMS, they will be invested at the public offering price next determined after receipt in good order. Payment for shares of a Fund must be in U.S. dollars; if made by check, the check must be drawn on a U.S. bank. Investors should understand that, since the offering price of the Fund's shares is calculated to two decimal places using standard rounding methodology, the dollar amount of the sales charge paid as a percentage of the offering price and of the net amount invested for any particular purchase of fund shares may be higher or lower depending on whether downward or upward rounding was required during the calculation process.
The Fund receives the entire NAV of shares sold. For shares subject to an initial sales charge, CMD's commission is the sales charge shown in the Fund's Prospectus less any applicable FSF discount. The FSF discount is the same for all FSFs, except that CMD retains the entire sales charge on any sales made to a shareholder who does not specify a FSF on the Investment Account Application ("Application"), and except that CMD may from time to time reallow additional amounts to all or certain FSFs. CMD generally retains some or all of any asset-based sales charge (distribution fee) or contingent deferred sales charge. Such charges generally reimburse CMD for any up-front and/or ongoing commissions paid to FSFs. Class R shares will be offered without a sales charge.
Checks presented for the purchase of shares of a Fund which are returned by the purchaser's bank or checkwriting privilege checks for which there are insufficient funds in a shareholder's account to cover redemption may subject such purchaser or shareholder to a $15 service fee for each check returned. Checks must be drawn on a U.S. bank and must be payable in U.S. dollars. Travelers checks, gifts checks, credit card convenience checks, credit cards, cash and bank counter (starter checks) are not accepted.
CMS acts as the shareholder's agent whenever it receives instructions to carry out a transaction on the shareholder's account. Upon receipt of instructions that shares are to be purchased for a shareholder's account, the designated FSF will receive the applicable sales commission. Shareholders may change FSFs at any time by written notice to CMS, provided the new FSF has a sales agreement with CMD.
Shares credited to an account are transferable upon written instructions in good order to CMS and may be redeemed as described in the Prospectus. Certificates will not be issued. Shareholders may send any certificates to CMS for deposit to their account.
In addition to the commissions specified in the Fund's prospectus and this SAI, CMD, or its advisory affiliates, from their own resources, may make cash payments to FSFs that agree to promote the sale of shares of funds that CMD distributes. A number of factors may be considered in determining the amount of those payments, including the FSF's sales, client assets invested in the funds and redemption rates, the quality of the FSF's relationship with CMD and/or its affiliates, and the nature of the services provided by FSFs to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the FSF's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, CMD may also pay non-cash compensation to FSFs and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for FSF educational or training events.
In addition, CMD, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with
shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of a Fund.
CMD and its affiliates anticipate that the FSFs and intermediaries that will receive the additional compensation described above include:
1st Global Capital Corp
401 Company
ABN AMRO Trust Services
ADP Retirement Services
ADP Clearing
Advest
AEGON/Transamerica
AG Edwards
AIG Companies
American Century Services
American Express
AMG
AON Consulting
AST Trust Company
AXA Advisors
Bank of America
Banc of America Investment Services
BancOne
Bear Stearns
Benefit Plan Administrators
Bidwell & Company
BNY Clearing
Bysis Retirement
C N A Trust
Ceridian Retirement
Charles Schwab
CIBC Oppenheimer
Citigroup Global Markets
CitiStreet Associates LLC
City National Bank
City of Milwaukee
Columbia Trust Company
Commonwealth Financial
Compensation & Capital
CPI Qualified Plan Consultants
Daily Access Concepts
Davenport & Company
Delaware Investments
Digital Retirement Solutions
Discover Brokerage
Dreyfus/Mellon
Edgewood Services
Edward Jones
E-Trade,
ExpertPlan
FAS Liberty Life Spectrum
Ferris Baker Watts
Fidelity
First Union Bank of NC
Financial Data Services
Fleet Boston Financial
Franklin Templeton
Freeman Welwood
Gem Group
Great West Life
Hartford Life
Hewitt Associates LLC
Huntington Bank
ING
Intermountain Health Care
Investmart, Inc.
Investment Manager Services (IMS)
Janney Montgomery Scott
JJB Hilliard Lyons
JP Morgan/American Century
Kenney Investments
Kirkpatrick Pettis Smith Polian Inc
Legg Mason Wood Walker
Liberty Life
Lincoln Financial
Lincoln Life
Linsco Private Ledger
M & T Securities
Marquette Trust Company
Mass Mutual Life
Matrix Settlement & Clearance Services (MSCS)
McDonald Investments
Merrill Lynch
MetLife
MFS
Mfund Trax
MidAtlantic Capital
Milliman USA
Morgan Keegan
Morgan Stanley Dean Witter
PFPC
Nationwide Investment Services
Neuberger Berman Mgmt
NFP Securities
Northeast Retirement Services
NSD -NetStock Sharebuilder
NYLife Distributors
Optimum Investment Advisors
Orbitex
Pershing LLC
Phoenix Home Life
Piper Jaffray
PNC
PPI Employee Benefits
Private Bank & Trust
Prudential
Putnam Investments
Raymond James
RBC Dain Rausher
Robert W Baird
Royal Alliance
RSM McGladrey Inc.
Safeco
Scott & Stringfellow
Scudder Investments
Security Benefit
Segall Bryant Hamill
South Trust Securities
Southwest Securities
Standard Insurance
Stanton Group
State of NY Deferred Compensation Plan
Stephens, Inc.
Stifel Nicolaus & Co
Strong Capital
Sungard T Rowe Price
Trustar Retirement Services
Trustlynx/Datalynx
UBS Financial Services
Unified Trust
USAA Investment Management
Vanguard
Wachovia
TD Waterhouse
Webster Investment Services
Wells Fargo
Wilmington Trust
PLEASE CONTACT YOUR FSF OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or eliminated at any time.
AUTOMATIC INVESTMENT PLAN. As a convenience to investors, shares of the Fund may be purchased through the Automatic Investment Plan. Preauthorized monthly electronic funds transfers for a fixed amount of at least $50 ($25 for Individual Retirement Accounts ("IRAs")) are used to purchase a Fund's shares at the public offering price next determined after CMD receives the proceeds from the transfer. If your Automatic Investment Plan purchase is by electronic funds transfer, you may request the Automatic Investment Plan purchase for any day. Further information and application forms are available from FSFs or from CMD.
AUTOMATED DOLLAR COST AVERAGING. The Automated Dollar Cost Averaging program allows you to exchange $100 or more on a monthly basis from any mutual fund distributed by CMD in which you have a current balance of at least $5,000 into the same class of shares of up to five other funds. Complete the Automated Dollar Cost Averaging section of the Application. There is no charge for exchanges made pursuant to the Automated Dollar Cost Averaging program. Sales charges may apply if exchanging from a money market fund. Exchanges will continue so long as your Fund balance is sufficient to complete the transfers. Your normal rights and privileges as a shareholder remain in full force and effect. Thus you can buy any Fund, exchange between the same class of shares by written instruction or by telephone exchange if you have so elected and withdraw amounts from any Fund, subject to the imposition of any applicable CDSC or sales charges.
Any additional payments or exchanges into your Fund will extend the time of the Automated Dollar Cost Averaging program.
An exchange is generally a capital sale transaction for federal income tax purposes. You may terminate your program, change the amount of the exchange (subject to the $100 minimum), or change your selection of Funds, by telephone or in writing; if in writing by mailing your instructions to Columbia Management Services, Inc. P.O. Box 8081, Boston, MA 02266-8081.
You should consult your FSF to determine whether or not the Automated Dollar Cost Averaging program is appropriate for you.
TAX-SHELTERED RETIREMENT PLANS. CMD offers prototype tax-qualified plans, including Profit-Sharing Plans for individuals, corporations, employees and the self-employed. The minimum initial Retirement Plan investment is $25. Columbia Trust Company serves as Trustee of CMD prototype plans and charges a $20 annual fee. Detailed information concerning these Retirement Plans and copies of the Retirement Plans are available from CMD.
Participants in non-CMD prototype Retirement Plans (other than IRAs) also are charged a $20 annual fee unless the plan maintains an omnibus account with CMS. Participants in CMD prototype Plans (other than IRAs) who liquidate the total value of their account may also be charged a $20 close-out processing fee payable to CMS. The fee is in addition to any applicable CDSC. The fee will not apply if the participant uses the proceeds to open a CMD IRA Rollover account in any Fund, or if the Plan maintains an omnibus account.
Consultation with a competent financial and tax advisor regarding these Retirement Plans and consideration of the suitability of Fund shares as an investment under the Employee Retirement Income Security Act of 1974 or otherwise is recommended.
TELEPHONE ADDRESS CHANGE SERVICES. By calling CMS, shareholders or their FSF of record may change an address on a recorded telephone line. Confirmations of address change will be sent to both the old and the new addresses. Telephone redemption privileges by check are suspended for 30 days after an address change is effected. Please have your account and taxpayer identification number available when calling.
CASH CONNECTION. Dividends and any other distributions, including Systematic Withdrawal Plan (SWP) payments, may be automatically deposited to a shareholder's bank account via electronic funds transfer. Shareholders wishing to avail themselves of this electronic transfer procedure should complete the appropriate sections of the Application.
AUTOMATIC DIVIDEND DIVERSIFICATION. The automatic dividend diversification reinvestment program (ADD) generally allows shareholders to have all distributions from a Fund automatically invested in the same class of shares of another Fund. An ADD account must be in the same name as the shareholder's existing open account with the particular Fund. Call CMS for more information at 1-800-345-6611.
HOW TO SELL SHARES
Shares may also be sold on any day the Exchange is open, either directly to the Fund or through the shareholder's FSF. Sale proceeds generally are sent within seven days (usually on the next business day after your request is received in good form). However, for shares recently purchased by check, the Fund may delay selling or delay sending proceeds from your shares for up to 15 days in order to protect the Fund against financial losses and dilution in net asset value caused by dishonored purchase payment checks.
To sell shares directly to the Fund, send a signed letter of instruction or stock power form to CMS, along with any certificates for shares to be sold. The sale price is the net asset value (less any applicable CDSC) next calculated after a Fund receives the request in proper form. Signatures must be guaranteed by a bank, a member firm of a national stock exchange or another eligible guarantor that participates in the Medallion Signature Guarantee Program. Stock power forms are available from FSFs, CMS and many banks. Additional documentation may required for sales by corporations, agents, fiduciaries, surviving joint owners and individual retirement account holders and other legal entities. Call CMS for more information at 1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued to receive that day's price. FSFs are responsible for furnishing all necessary documentation to CMS and may charge for this service.
SYSTEMATIC WITHDRAWAL PLAN. The shareholder may establish a SWP. A specified dollar amount or percentage of the then current net asset value of the shareholder's investment in any Fund designated by the shareholder will be paid monthly, quarterly or semi-annually to a designated payee. The amount or percentage the shareholder specifies is run against available shares and generally may not, on an annualized basis, exceed 12% of the value, as of the time the shareholder makes the election, of the shareholder's investment. If a shareholder wishes to participate in a SWP, the shareholder must elect to have all of the shareholder's income dividends and other Fund distributions payable in shares of the Fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by telephone on a recorded line. However, SWP checks will be payable only to the shareholder and sent to the address of record. SWPs from retirement accounts cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in certificate form. Purchasing additional shares (other than through dividend and distribution reinvestment) while receiving SWP payments is ordinarily disadvantageous because of duplicative sales charges. For this reason, a shareholder may not maintain a plan for the accumulation of shares of the Fund (other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or loss for tax purposes, may involve the use of principal and may eventually use up all of the shares in a shareholder's account.
The Fund may terminate a shareholder's SWP if the shareholder's account balance falls below $5,000 due to any transfer or liquidation of shares other than pursuant to the SWP. SWP payments will be terminated on receiving satisfactory evidence of the death or incapacity of a shareholder. Until this evidence is received, CMS will not be liable for any payment made in accordance with the provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate in them is borne by the Fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not be able to participate in a SWP. If a shareholder's Fund shares are held in "street name," the shareholder should consult his or her FSF to determine whether he or she may participate in a SWP. The SWP on accounts held in street name must be made payable to the back office via the NSCC.
TELEPHONE REDEMPTIONS. All Fund shareholders and/or their FSFs are automatically eligible to redeem up to $100,000 of the Fund's shares by calling 1-800-345-6611 toll-free any business day between 9:00 a.m. and the close of trading of the Exchange (normally 4:00 p.m. Eastern time). Transactions received after 4:00 p.m. Eastern time will receive the next business day's closing price. Telephone redemptions by check and ACH are limited to a total of $100,000 in a 30-day period. Redemptions that exceed $100,000 may be accomplished by placing a wire order trade through a broker, to a pre-existing bank account, or furnishing a signature guaranteed request. Signatures must be guaranteed by either a bank, a member firm of a national stock exchange or another eligible guarantor that participates in the Medallion Signature Guarantee Program. CMS will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. Telephone redemptions are not available on accounts with an address change in the preceding 30 days and proceeds and confirmations will only be mailed or sent to the address of record unless the redemption proceeds are being sent to a pre-designated bank account. Shareholders and/or their FSFs will be required to provide their name, address and account number. FSFs will also be required to provide their broker number. All telephone transactions are recorded. A loss to a shareholder may result from an unauthorized transaction reasonably believed to have been authorized. Certain restrictions may apply to retirement plan accounts.
NON CASH REDEMPTIONS. For redemptions of any single shareholder within any 90-day period exceeding the lesser of $250,000 or 1% of the Fund's net asset value, the Fund may make the payment or a portion of the payment with portfolio securities held by that Fund instead of cash, in which case the redeeming shareholder may incur brokerage and other costs in selling the securities received.
DISTRIBUTIONS
Distributions are invested in additional shares of the same class of the Fund at net asset value unless the shareholder elects to receive cash. Regardless of the shareholder's election, distributions of $10 or less will not be paid in cash, but will be invested in additional shares of the same class of the Fund at net asset value. Undelivered distribution checks returned by the post office will be reinvested in your account. If a shareholder has elected to receive dividends and/or capital gain distributions in cash and the postal or other delivery service selected by CMS is unable to deliver checks to the shareholder's address of record, such shareholder's distribution option will automatically be converted to having all dividend and other distributions reinvested in additional shares. No interest will accrue on amounts represented by uncashed distribution or redemption checks. Shareholders may reinvest all or a portion of a recent cash distribution without a sales charge. No charge is currently made for reinvestment.
HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for the same class of shares of the other continuously offered funds (with certain exceptions) distributed by CMD on the basis of the NAVs per share at the time of exchange. The prospectus of each Fund describes its investment objective and policies, and shareholders should obtain a prospectus and consider these objectives and policies carefully before requesting an exchange. Shares of certain of these funds are not available to residents of all states. Consult CMS before requesting an exchange.
By calling CMS, shareholders or their FSF of record may exchange among accounts with identical registrations, provided that the shares are held on deposit. During periods of unusual market changes or shareholder activity, shareholders may experience delays in contacting CMS by telephone to exercise the telephone exchange privilege. Because an exchange involves a redemption and reinvestment in another fund, completion of an exchange may be delayed under unusual circumstances, such as if the fund suspends repurchases or postpones payment for the Fund shares being exchanged in accordance with federal securities law. CMS will also make exchanges upon receipt of a written exchange request and share certificates, if any. If the shareholder is a corporation, partnership, agent, or surviving joint owner, CMS may require customary additional documentation. Prospectuses of the other funds are available from the CMD Literature Department by calling 1-800-426-3750.
A loss to a shareholder may result from an unauthorized transaction reasonably believed to have been authorized. No shareholder is obligated to use the telephone to execute transactions.
Consult your FSF or CMS. In all cases, the shares to be exchanged must be registered on the records of the Fund in the name of the shareholder desiring to exchange.
An exchange is generally a capital sale transaction for federal income tax purposes. The exchange privilege may be revised, suspended or terminated at any time.
The Fund also reserves 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 the 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.
PRICING OF SHARES
The net asset value ("NAV") per share of the Fund is determined by the Advisor, 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.
The 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 the Fund's shares, the following procedures are utilized whenever applicable. The 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 Fund's 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 securities for which daily market quotations are not readily available, or for which the Advisor believes the quotations do not accurately value the security in question, may be fair valued by the Advisor, pursuant to guidelines established by the Fund's Board of Directors.
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 generally 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 Fund's 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.
CUSTODIAN
State Street Bank & Trust Company (the "Custodian"), 2 Avenue de Lafayette, Boston, Massachusetts 02111-2900 acts as the Funds' general custodian, for both domestic and foreign securities. The Custodian holds securities and cash of the Funds, receives and pays for securities purchased, delivers against payment securities sold, receives and collects income from investments, makes all payments covering expenses of the Funds, and performs other administrative duties, all as directed by authorized officers of the Advisor. The Custodian does 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 Custodian. Portfolio securities purchased outside the United States by the Fund are maintained in the custody of foreign banks, trust companies, or depositories that have sub-custodian arrangements with the Custodian (the "foreign sub-custodians"). Each of the domestic and foreign custodial institutions that may hold portfolio securities of the Fund has been approved by the Board of Directors of the Fund or, in the case of foreign securities, by the Custodian, as a delegate of the Board of Directors, all in accordance with regulations under the 1940 Act.
The Advisor determines whether it is in the best interest of the Fund and their shareholders to maintain the 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 Fund, and the value of its shares, will not be adversely affected by acts of foreign governments, financial or operational difficulties of the foreign sub-custodians, difficulties and cost of obtaining jurisdiction over, or enforcing judgments 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.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP ("PwC"), 125 High Street, Boston, Massachusetts, 02110, is the Fund's Independent Registered Public Accounting Firm. In addition to examining the financial statements of the Fund, PwC assists in the review of the tax returns of the Fund and in certain other matters.
TAXES
FEDERAL INCOME TAXES
The Fund intends and expects to meet continuously the tests for qualification as a regulated investment company under Part I of Subchapter M of the Code. The Fund believes it satisfies the tests to qualify as a regulated investment company. If the Fund were to fail to qualify as a "regulated investment company" in any year, it would incur a regular federal corporate income tax on all of its taxable income, whether or not distributed, and distributions would generally be taxable as ordinary dividend income to the shareholders.
To qualify as a regulated investment company for any taxable year, the 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; 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; or net income from an interest in qualified publicly traded
partnerships (the "90 Percent Test"); and
(b) diversify its holdings so that, at the end of each quarter of its taxable year, (i) 50 percent or more of the value of the assets of the Fund consists of cash, government securities, securities of other regulated investment companies 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 either the securities (other than government securities or securities of other regulated investment companies) 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 or the securities of one or more qualified publicly traded partnerships (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 the 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 and exempt interest 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 (net of expenses
attributable to such interest), and (b) either (i) have been subject to Part I
of Subchapter M for all taxable years ending on or 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 as a "capital gain dividend" is taxed to the Fund at corporate capital gain tax rates. The policy of the 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 capital gains (i.e. the excess of net long-term capital gains over net short-term capital losses) are retained by the Fund, requiring federal income taxes to be paid thereon by the Fund, the Fund may elect to treat such capital gains as having been distributed to shareholders. In the case of such an election, shareholders will be taxed on such amounts as long-term capital gains, will be able to claim their proportional share of the federal income taxes paid by the Fund on such gains as credits against their own federal income tax liabilities, and generally will be entitled to increase the adjusted tax basis of their shares in the Fund by the differences between their pro rata shares of such gains and their tax credits.
SPECIAL ASPECTS OF 90 PERCENT TEST WITH RESPECT TO FOREIGN CURRENCY. For purposes of the 90 Percent Test, foreign currency gains that are not directly related to the 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, the 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.
HEDGING TRANSACTIONS. If the Fund engages in hedging transactions, including hedging transactions in options, futures contracts, and straddles, or other similar transactions, it will be subject to special tax rules (including constructive sale, mark-to-market, straddle, wash sale, and short sale rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund's securities, convert long-term capital gains into short-term capital gains or convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. The Fund will endeavor to make any available elections pertaining to such transactions in a manner believed to be in the best interests of the Fund.
Certain of the Fund's hedging activities (including its transactions, if any, in foreign currencies or foreign currency-denominated instruments) are likely to produce a difference between its book income and its taxable income. If the Fund's book income exceeds its taxable income, the distribution (if any) of such excess will be treated as (i) a dividend to the extent of the Fund's remaining earnings and profits (including earnings and profits arising from tax-exempt income), (ii) thereafter as a return of capital to the extent of the recipient's basis in the shares, and (iii) thereafter as gain from the sale or exchange of a capital asset. If the Fund's book income is less than its taxable income, the Fund could be required to make distributions exceeding book income to qualify as a regulated investment company that is accorded special tax treatment.
OTHER FUNDS. Shareholders of the 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 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 the 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 the Fund by a shareholder, and is subject to a holding period requirement. In addition, qualifying dividends are includable in adjusted current earnings for purposes of computing the corporate alternative minimum tax.
GENERAL CONSIDERATIONS. Distributions from the Fund will be taxable to shareholders as ordinary income to the extent derived from the Fund's investment income and net short-term gains. Distributions 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; however, as a result of 2003 legislation, for taxable years beginning on or before December 31, 2008 qualified dividend income distributions to individuals generally are taxed at the same rate that applies to long-term capital gains, subject to holding period requirements with respect to shareholders and the Fund as well as other requirements. For this purpose, long-term capital gain rates apply to the extent that the Fund receives dividends from domestic or qualifying foreign corporations and the Fund meets holding period and other requirements. Generally, a dividend received from a foreign corporation will not be treated as qualified dividend income if the foreign corporation is (a) not eligible for the benefits of a comprehensive income tax treaty with the United States (with the exception of dividends paid on stock of such a foreign corporation readily tradable on an established securities market in the United States) or (b) treated as a passive foreign investment company or, for taxable years of foreign corporations beginning on or before December 31, 2004, as a foreign personal holding company or a foreign investment company. If the aggregate qualified dividends received by the Fund during any taxable year are 95 percent or more of its gross income, then 100 percent of the Fund's dividends (other than properly designated capital gain dividends) will be eligible to be treated as qualified dividend income. For this purpose, the only gain included in the term "gross income" is the excess of net short-term capital gain over net long-term capital loss. 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.
Long term capital gains rates have been temporarily reduced, in general, to 15 percent, with lower rates applying to taxpayers in the 10-percent and 15-percent rate brackets for taxable years beginning on or before December 31, 2008.
The sale, exchange or redemption of Fund shares may give rise to a gain or loss. In general, any gain realized upon a taxable disposition of shares will be treated as long-term capital gain if the shares have been held for more than 12 months. Otherwise the gain on the sale, exchange or redemption of shares will be treated as short-term capital gain. In general, any loss realized upon a taxable disposition of shares will be treated as long-term capital loss if the shares have been held more than 12 months, and otherwise as a short-term capital loss. However, any loss realized upon a taxable disposition of shares held for six months or less will be treated as long-term, rather than short-term, capital loss to the extent of any long-term capital gain distributions received by the shareholder with respect to those shares. All or a portion of any loss realized upon a taxable disposition of shares will be disallowed if other shares are purchased within 30 days before or after the disposition. In such a case, the basis of the newly-purchased shares will be adjusted to reflect the disallowed loss.
Dividends and distributions on a Fund's shares are generally subject to federal income tax as described herein to the extent they do not exceed the Fund's realized income and gains, even though such dividends and distributions may economically represent a return of capital. Such distributions are likely to occur in respect of shares purchased at a time when the Fund's net asset value reflects gains that are either unrealized, or realized but not distributed. Such realized gains may be required to be distributed even when the Fund's net asset value also reflects unrealized losses. 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.
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, the 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.
Distributions derived from interest that is exempt from regular federal income tax may subject corporate shareholders to or increase their liability under the federal corporate alternative minimum tax (AMT). A portion of such distributions may constitute a tax preference item for individual shareholders and may subject them to or increase their liability under the federal AMT.
Distributions will qualify for the corporate dividends received deduction only to the extent that dividends earned by the Fund qualify. Any such dividends may be, however, includable in adjusted current earnings for purposes of computing corporate AMT. The dividends received deduction for eligible dividends is subject to a holding period requirement.
The Fund is generally required to obtain from its shareholders a certification of the shareholder's taxpayer identification number and certain other information. The Fund generally will not accept an investment to establish a new account that does not comply with this requirement. With respect to amounts paid through 2010, 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 28 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. The backup withholding rate will be 31 percent for amounts paid after December 31, 2010. 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 the 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 the 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.
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." The 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 Fund.
The Fund may purchase zero coupon bonds (or other discounted debt securities) and payment-in-kind ("PIK") bonds. With respect to zero coupon bonds, the 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, the Fund recognizes interest income equal to the fair market value of the bonds distributed as interest. Because the Fund must distribute 90 percent of its income to remain qualified as a registered investment company, the Fund may be forced to liquidate a portion of its portfolio (possibly at a time when it is not advantageous to do so) 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.
The Fund's transactions in foreign currencies, foreign currency-denominated debt securities, certain foreign currency options, futures contracts and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned.
FOREIGN INCOME TAXES
The Mid Cap Growth Fund may invest in 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 Fund generally expects 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 Fund intends to take advantage of such treaties where possible. It is impossible to predict with certainty the effective rate of foreign taxes that will be paid by the Fund since the amount invested in particular countries will fluctuate and the amounts of dividends and interest relative to total income will fluctuate.
NON-U.S. SHAREHOLDERS. Capital gain dividends will not be subject to withholding of federal income tax. In general, dividends (other than Capital Gain Dividends) paid by the Fund to a shareholder that is not a "U.S. person" within the meaning of the Code (such
shareholder, a "foreign person") are subject to withholding of U.S. federal
income tax at a rate of 30% (or lower applicable treaty rate) even if they are
funded by income or gains (such as portfolio interest, short-term capital gains,
or foreign-source dividend and interest income) that, if paid to a foreign
person directly, would not be subject to withholding. However, under the recent
legislation, effective for taxable years of the Fund beginning after December
31, 2004 and before January 1, 2008, the Fund will not be required to withhold
any amounts (i) with respect to distributions (other than distributions to a
foreign person (w) that has not provided a satisfactory statement that the
beneficial owner is not a U.S. person, (x) to the extent that the dividend is
attributable to certain interest on an obligation if the foreign person is the
issuer or is a 10% shareholder of the issuer, (y) that is within certain foreign
countries that have inadequate information exchange with the United States, or
(z) to the extent the dividend is attributable to interest paid by a person that
is a related person of the foreign person and the foreign person is a controlled
foreign corporation) from U.S.-source interest income that, in general, would
not be subject to U.S. federal income tax if earned directly by an individual
foreign person, to the extent such distributions are properly designated by the
Fund, and (ii) with respect to distributions (other than distributions to an
individual foreign person who is present in the United States for a period or
periods aggregating 183 days or more during the year of the distribution) of net
short-term capital gains in excess of net long-term capital losses, to the
extent such distributions are properly designated by the Fund. The Fund has not
determined whether it will make such designations.
If a beneficial holder who is a foreign person has a trade or business in the United States, and the dividends are effectively connected with the conduct by the beneficial holder of a trade or business in the United States, the dividend will be subject to U.S. federal net income taxation at regular income tax rates.
Recent legislation modifies the tax treatment of distributions from the Fund that are paid to a foreign person and are attributable to gain from "U.S. real property interests" ("USRPIs"), which the Code defines to include direct holdings of U.S. real property and interests (other than solely as a creditor) in "U.S. real property holding corporations" such as REITs. The Code deems any corporation that holds (or held during the previous five-year period) USRPIs with a fair market value equal to 50% or more of the fair market value of the corporation's U.S. and foreign real property assets and other assets used or held for use in a trade or business to be a U.S. real property holding corporation; however, if any class of stock of a corporation is traded on an established securities market, stock of such class shall be treated as a USRPI only in the case of a person who holds more than 5% of such class of stock at any time during the previous five-year period. Under the legislation, which is generally effective for taxable years of RICs beginning after December 31, 2004 and which applies to dividends paid or deemed paid on or before December 31, 2007, distributions to foreign persons attributable to gains from the sale or exchange of USRPIs will give rise to an obligation for those foreign persons to file a U.S. tax return and pay tax, and may well be subject to withholding under future regulations.
Under U.S. federal tax law, a beneficial holder of shares who is a foreign person is not, in general, subject to U.S. federal income tax on gains (and is not allowed a deduction for losses) realized on the sale of shares of the Fund or on Capital Gain Dividends unless (i) such gain or Capital Gain Dividend is effectively connected with the conduct of a trade or business carried on by such holder within the United States, (ii) in the case of an individual holder, the holder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale or Capital Gain Dividend and certain other conditions are met, or (iii) the shares constitute USRPIs or the Capital Gain Dividends are paid or deemed paid on or before December 31, 2007 and are attributable to gains from the sale or exchange of USRPIs. Effective after December 31, 2004, and before January 1, 2008, if the Fund is a U.S. real property holding corporation (as described above) the Fund's shares will nevertheless not constitute USRPIs if the Fund is a "domestically controlled qualified investment entity," which is defined to include a RIC that, at all times during the shorter of the 5-year period ending on the date of the disposition or the period during which the RIC was in existence, had less than 50 percent in value of its stock held directly or indirectly by foreign persons.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES. Investment by the Fund in certain "passive foreign investment companies" ("PFICs") could subject the Fund to a U.S. federal income tax (including interest charges) on distributions received from the company or on proceeds received from the disposition of shares in the company, which tax cannot be eliminated by making distributions to fund shareholders. However, the Fund may be able to elect to treat a PFIC as a "qualified electing fund," in which case the Fund will be required to include its share of the company's income and net capital gain annually, regardless of whether it receives any distribution from the company. Alternatively, the Fund may make an election to mark the gains (and, to a limited extent, losses) in such holdings "to the market" as though it had sold and repurchased its holdings in those PFICs on the last day of the Fund's taxable year. Such gains and losses are treated as ordinary income and loss. The qualified electing fund and mark-to-market elections may have the effect of accelerating the recognition of income (without the receipt of cash) and increasing the amount required to be distributed for the Fund to avoid taxation. Making either of these elections therefore may require the Fund to liquidate other investments (including when it is not advantageous to do so) in order to meet its distribution requirement, which also may accelerate the recognition of gain and affect the Fund's total return. It is anticipated that any taxes on the Fund with respect to investments in PFICs would be insignificant.
INVESTMENTS IN REAL ESTATE INVESTMENT TRUSTS
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, certain 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 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.
STATE INCOME TAXES
Many states grant tax-free status to dividends paid to shareholders of mutual funds from interest income earned by the fund from direct obligations of the U.S. government. Investments in mortgage-backed securities (including GNMA, FNMA and FHLMC securities) and repurchase agreements collateralized by U.S. government securities do not qualify as direct federal obligations in most states. Shareholders should consult with their own tax advisors about the applicability of state and local intangible property, income or other taxes to their fund shares and distributions and redemption proceeds received from the Fund.
ADDITIONAL INFORMATION
The foregoing summary and the summary included in the Prospectus under "Distributions and Taxes" of tax consequences of investment in the Fund 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 Fund are urged to consult their own tax advisors regarding specific questions as to federal, state, or local taxes.
Recent Tax Shelter Reporting Regulations. Under recently promulgated Treasury regulations, if a shareholder recognizes a loss under Section 165 of the Code with respect to shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the Internal Revenue Service a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all regulated investment companies. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. Shareholders should consult their tax advisors to determine the applicability of these regulations in light of their individual circumstances.
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.
FINANCIAL STATEMENTS
The Fund's most recent Annual and Semi-Annual Reports to shareholders are separate documents that will be supplied with this Statement of Additional Information upon the commencement of operations of the Fund's Class R shares. The financial statements, accompanying notes and report of independent registered public registered accounting firm appearing in the Annual Reports, and the
financial statements and accompanying notes appearing in the Semi-Annual Report are incorporated by reference into this Statement of Additional Information. As Class R shares of the Fund have not yet commenced operations, information for these shares is not included in current shareholder reports.
APPENDIX I
COLUMBIA MANAGEMENT ADVISORS, LLC ("CMA")
PROXY VOTING POLICIES AND PROCEDURES
ADOPTED JULY 1, 2003 AND REVISED MARCH 4, 2005
POLICY:
ALL PROXIES(1) REGARDING CLIENT SECURITIES FOR WHICH COLUMBIA MANAGEMENT ADVISORS, LLC ("CMA") HAS ASSUMED AUTHORITY TO VOTE SHALL, UNLESS CMA DETERMINES IN ACCORDANCE WITH POLICIES STATED BELOW TO ABSTAIN FROM VOTING, BE VOTED IN A MANNER CONSIDERED BY CMA TO BE IN THE BEST INTEREST OF CMA'S CLIENTS, INCLUDING THE CMG FAMILY FUNDS(2) AND THEIR SHAREHOLDERS, WITHOUT REGARD TO ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES. THE BEST INTEREST OF CLIENTS IS DEFINED FOR THIS PURPOSE AS THE INTEREST OF ENHANCING OR PROTECTING THE ECONOMIC VALUE OF CLIENT ACCOUNTS, CONSIDERED AS A GROUP RATHER THAN INDIVIDUALLY, AS CMA DETERMINES IN ITS SOLE AND ABSOLUTE DISCRETION. IN THE EVENT A CLIENT BELIEVES THAT ITS OTHER INTERESTS REQUIRE A DIFFERENT VOTE, CMA SHALL VOTE AS THE CLIENT CLEARLY INSTRUCTS, PROVIDED CMA RECEIVES SUCH INSTRUCTIONS IN TIME TO ACT ACCORDINGLY.
CMA ENDEAVORS TO VOTE, IN ACCORDANCE WITH THIS POLICY, ALL PROXIES OF WHICH IT BECOMES AWARE, SUBJECT TO THE FOLLOWING EXCEPTIONS (UNLESS OTHERWISE AGREED) WHEN CMA EXPECTS TO ROUTINELY ABSTAIN FROM VOTING:
1. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE THE SECURITY HAS BEEN LOANED FROM THE CLIENT'S ACCOUNT.
2. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE CMA DEEMS THE COSTS TO THE CLIENT AND/OR THE ADMINISTRATIVE INCONVENIENCE OF VOTING THE SECURITY (E.G., SOME FOREIGN SECURITIES) OUTWEIGH THE BENEFIT OF DOING SO.
CMA SEEKS TO AVOID THE OCCURRENCE OF ACTUAL OR APPARENT MATERIAL CONFLICTS OF INTEREST IN THE PROXY VOTING PROCESS BY VOTING IN ACCORDANCE WITH PREDETERMINED VOTING GUIDELINES, AS STATED BELOW. FOR THOSE PROXY PROPOSALS THAT REQUIRE SPECIAL CONSIDERATION OR IN INSTANCES WHERE SPECIAL CIRCUMSTANCES MAY REQUIRE VARYING FROM THE PREDETERMINED GUIDELINES, THE CMG PROXY COMMITTEE WILL DETERMINE THE BEST INTEREST OF CMA'S CLIENTS AND VOTE ACCORDINGLY, WITHOUT CONSIDERATION OF ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES.
OVERVIEW:
CMA's policy is based upon its fiduciary obligation to act in its clients' best interest. Citing this obligation, the SEC has adopted rules pursuant to the Investment Advisers Act of 1940 and Investment Company Act of 1940 with respect to proxy voting.
PROCEDURE:
I. ACCOUNT POLICIES
Except as otherwise directed by the client, CMA shall vote as follows:
SEPARATELY MANAGED ACCOUNTS
CMA shall vote proxies on securities held in its separately managed accounts.
COLUMBIA TRUST COMPANY (CTC) TRUST POOLS
CMA shall vote proxies on securities held in the trust pools.
CMG FAMILY FUNDS/CMA FUND TRUST
(2) A CMG Family Fund or a Fund is a registered investment company or series of a registered investment company managed or advised by Columbia Management Advisors, LLC
CMA shall vote proxies on securities held in the Funds, including multi-managed and subadvised Funds.
COLUMBIA PRIVATE PORTFOLIO
CMA shall vote proxies on securities held in its separately managed accounts.
ALTERNATIVE INVESTMENT GROUP
CMA's clients may invest in securities ("Alternative Investments") issued by alternative investment vehicles (i.e. hedge funds, private equity funds, and other alternative investment pools) that are structured as private limited partnerships ("LPs"), limited liability companies ("LLCs") or offshore corporations. Generally, CMA's Alternative Investment Group ("AIG") is the platform through which CMA provides advisory services relating to Alternative Investments.
The voting rights of Alternative Investments generally are rights of contract set forth in the limited liability company or limited partnership agreement, in the case of LLCs and LPs, or Memorandum and Articles of Association or By-laws, in the case of offshore corporations. Also, as privately placed securities, Alternative Investments generally are not subject to the regulatory scheme applicable to public companies. Consequently, in most cases, proxies are not solicited regarding Alternative Investment vehicles. Instead, consents may be solicited from members, limited partners or shareholders.
Because of the unique characteristics of Alternative Investments, CMA has a tailored process for voting Alternative Investment proxies and consents.
Process
AIG will vote all Alternative Investment proxies and consents in accordance with this Policy. The committee voting AIG proxies consists of AIG senior management, investment and operations professionals. Conflicts of interest are to be monitored and resolved as set forth in this Policy.
II. PROXY COMMITTEE
CMA shall establish a Proxy Committee whose standing members shall include the head of core equity, head of value, head of growth, head of income strategies, head of equity research and head of fixed income research. Each standing member may designate a senior portfolio manager or a senior analyst officer to act as a substitute in a given matter on their behalf.
The Proxy Committee's functions shall include, in part,
(a) direction of the vote on proposals where there has been a recommendation to the Committee, pursuant to Section IV.B, not to vote according to the predetermined Voting Guidelines stated in Section IV.A or on proposals which require special, individual consideration in accordance with Section IV.C;
(b) review at least annually of this Proxy Voting Policy and Procedure to ensure consistency with internal policies, client disclosures and regulatory requirements;
(c) review at least annually of existing Voting Guidelines and need for development of additional Voting Guidelines to assist in the review of proxy proposals; and
(d) development and modification of Voting Procedures, as stated in Section V, as it deems appropriate or necessary.
The Proxy Committee shall establish a charter, which shall set forth the Committee's purpose, membership and operation. The Committee's charter shall be consistent, in all material respects, with this policy and procedure.
III. CONFLICTS OF INTEREST
With Other Bank of America Businesses
Bank of America Corporation ("BAC"), the ultimate corporate parent of CMA, Bank of America, N.A. and all of their numerous affiliates owns, operates and has interests in many lines of business that may create or give rise to the appearance of a conflict of interest between BAC or its affiliates and those of Firm-advised clients. For example, the commercial and investment banking business lines may have
interests with respect to issuers of voting securities that could appear to or even actually conflict with CMA's duty, in the proxy voting process, to act in the best economic interest of its clients.
Within CMA
Conflicts of interest may also arise from the business activities of CMA. For example, CMA might manage (or be seeking to manage) the assets of a benefit plan for an issuer. CMA may also be presented with an actual or apparent conflict of interest where proxies of securities issued by BAC or a CMG Family Fund, for which CMA serves as investment adviser, are to be voted for a client's account.
Management of Conflicts
CMA's policy is to always vote proxies in the best interest of its clients, as a whole, without regard to its own self-interest or that of its affiliates. BAC as well as CMA has various compliance policies and procedures in place in order to address any material conflicts of interest that might arise in this context.
1. BAC's enterprise-wide Code of Ethics specifically prohibits the flow of certain business-related information between associates on the commercial and/or investment banking side of the corporation and associates charged with trust or (as in the case of BACAP associates) non-trust fiduciary responsibilities, including investment decision-making and proxy voting.
2. In addition, BAC has adopted "Global Policies and Procedures Regarding Information Walls and Inside Information." Pursuant to these policies and procedures, "information barriers" have been established between various BAC business lines designed to prohibit the passage of certain information across those barriers.
3. Within CMA, CMA's Code of Ethics affirmatively requires that associates of CMA act in a manner whereby no actual or apparent conflict of interest may be seen as arising between the associate's interests and those of CMA's Clients.
4. By assuming his or her responsibilities pursuant to this Policy, each member of the Proxy Committee and any CMA or BAC associate advising or acting under the supervision or oversight of the Proxy Committee undertakes:
- To disclose to the chairperson of the Proxy Committee and the chairperson to the head of CMG Compliance any actual or apparent personal material conflicts of interest which he or she may have (e.g., by way of substantial ownership of securities, relationships with nominees for directorship, members of an issuer's or dissident's management or otherwise) in determining whether or how CMA shall vote proxies. In the event the chairperson of the Proxy Committee has a conflict of interest regarding a given matter, he or she shall abstain from participating in the Committee's determination of whether and/or how to vote in the matter; and
- To refrain from taking into consideration, in the decision as to whether or how CMA shall vote proxies:
- The existence of any current or prospective material business relationship between CMA, BAC or any of their affiliates, on one hand, and any party (or its affiliates) that is soliciting or is otherwise interested in the proxies to be voted, on the other hand; and/or
- Any direct, indirect or perceived influence or attempt to influence such action which the member or associate views as being inconsistent with the purpose or provisions of this Policy or the Code of Ethics of CMA or BAC.
Where a material conflict of interest is determined to have arisen in the proxy voting process that may not be adequately mitigated by voting in accordance with the predetermined Voting Guidelines, CMA's policy is to invoke one or more of the following conflict management procedures:
1. Convene the Proxy Committee for the purpose of voting the affected proxies in a manner that is free of the conflict.
2. Causing the proxies to be voted in accordance with the recommendations of a qualified, independent third party, which may include CMA's proxy voting agent.
3. In unusual cases, with the Client's consent and upon ample notice, forwarding the proxies to CMA's clients so that they may vote the proxies directly.
IV. VOTING GUIDELINES
A. THE PROXY COMMITTEE HAS ADOPTED THE FOLLOWING GUIDELINES FOR VOTING PROXIES:
1. Matters Relating to the Board of Directors/Corporate Governance
CMA generally will vote FOR:
- Proposals for the election of directors or for an increase or decrease in the number of directors, provided that no more than one-third of the Board of Directors would, presently or at any time during the previous three-year period, be from management.
However, CMA generally will WITHHOLD votes from pertinent director nominees if:
(i) the board as proposed to be constituted would have more than one-third of its members from management;
(ii) the board does not have audit, nominating, and compensation committees composed solely of directors who qualify as being regarded as "independent," i.e. having no material relationship, directly or indirectly, with the Company, as CMA's proxy voting agent may determine (subject to the Proxy Committee's contrary determination of independence or non-independence);
(iii) the nominee, as a member of the audit committee, permitted the company to incur excessive non-audit fees (as defined below regarding other business matters -- ratification of the appointment of auditors);
(iv) a director serves on more than six public company boards;
(v) the CEO serves on more than two public company boards other than the company's board.
On a CASE-BY-CASE basis, CMA may WITHHOLD votes for a director nominee who has failed to observe good corporate governance practices or, through specific corporate action or inaction (e.g. failing to implement policies for which a majority of shareholders has previously cast votes in favor), has demonstrated a disregard for the interests of shareholders.
- Proposals requesting that the board audit, compensation and/or nominating committee be composed solely of independent directors. The Audit Committee must satisfy the independence and experience requirements established by the Securities and Exchange Commission ("SEC") and the New York Stock Exchange, or appropriate local requirements for foreign securities. At least one member of the Audit Committee must qualify as a "financial expert" in accordance with SEC rules.
- Proposals to declassify a board, absent special circumstances that would indicate that shareholder interests are better served by a classified board structure.
CMA generally will vote FOR:
- Proposals to create or eliminate positions or titles for senior management. CMA generally prefers that the role of Chairman of the Board and CEO be held by different persons unless there are compelling reasons to vote AGAINST a proposal to separate these positions, such as the existence of a counter-balancing governance structure that includes at least the following elements in addition to applicable listing standards:
- Established governance standards and guidelines.
- Full board composed of not less than two-thirds "independent" directors, as defined by applicable regulatory and listing standards.
- Compensation, as well as audit and nominating (or corporate governance) committees composed entirely of independent directors.
- A designated or rotating presiding independent director appointed by and from the independent directors with the authority and responsibility to call and preside at regularly and, as necessary, specially scheduled meetings of the independent directors to be conducted, unless the participating independent directors otherwise wish, in executive session with no members of management present.
- Disclosed processes for communicating with any individual director, the presiding independent director (or, alternatively, all of the independent directors, as a group) and the entire board of directors, as a group.
- The pertinent class of the Company's voting securities has out-performed, on a three-year basis, both an appropriate peer group and benchmark index, as indicated in the performance summary table of the Company's proxy materials. This requirement shall not apply if there has been a change in the Chairman/CEO position within the three-year period.
- Proposals that grant or restore shareholder ability to remove directors with or without cause.
- Proposals to permit shareholders to elect directors to fill board vacancies.
- Proposals that encourage directors to own a minimum amount of company stock.
- Proposals to provide or to restore shareholder appraisal rights.
- Proposals to adopt cumulative voting.
- Proposals for the company to adopt confidential voting.
CMA generally will vote AGAINST:
- Proposals to classify boards, absent special circumstances indicating that shareholder interests would be better served by a classified board structure.
- Proposals that give management the ability to alter the size of the board without shareholder approval.
- Proposals that provide directors may be removed only by supermajority vote.
- Proposals to eliminate cumulative voting.
- Proposals which allow more than one vote per share in the election of directors.
- Proposals that provide that only continuing directors may elect replacements to fill board vacancies.
- Proposals that mandate a minimum amount of company stock that directors must own.
- Proposals to limit the tenure of non-management directors.
CMA will vote on a CASE-BY-CASE basis in contested elections of directors.
CMA generally will vote on a CASE-BY-CASE basis on board approved proposals relating to corporate governance. Such proposals include, but are not limited to:
- Director and officer indemnification and liability protection. CMA is opposed to entirely eliminating directors' and officers' liability for monetary damages for violating the duty of care. CMA is also opposed to expanding coverage beyond just legal expenses to acts, such as negligence, that are more serious violations of fiduciary obligation than mere carelessness. CMA supports proposals which provide such expanded coverage in cases when a director's or officer's legal defense was unsuccessful if: (i) the director was found to have acted in good faith and in a manner that he/she reasonably believed was in the best interests of the company, AND (ii) if the director's legal expenses would be covered.
- Reimbursement of proxy solicitation expenses taking into consideration whether or not CMA was in favor of the dissidents.
- Proxy contest advance notice. CMA generally will vote FOR proposals that allow shareholders to submit proposals as close to the meeting date as possible while allowing for sufficient time for Company response, SEC review, and analysis by other shareholders.
2. Compensation
CMA generally will vote FOR management sponsored compensation plans (such as bonus plans, incentive plans, stock option plans, pension and retirement benefits, stock purchase plans or thrift plans) if they are consistent with industry and country standards. However, CMA generally is opposed to compensation plans that substantially dilute ownership interest in a company, provide participants with excessive awards, or have objectionable structural features. Specifically, for equity-based plans, if the proposed number of shares authorized for option programs (excluding authorized shares for expired options) exceeds an average of 10% of the currently outstanding shares over the previous three years or an average of 3% over the previous three years for directors only, the proposal should be referred to the Proxy Committee. The Committee will then consider the circumstances surrounding the issue and vote in the best interest of CMA's clients. CMA requires that management provide substantial justification for the repricing of options.
CMA generally will vote FOR:
- Proposals requiring that executive severance arrangements be submitted for shareholder ratification.
- Proposals asking a company to expense stock options.
- Proposals to put option repricings to a shareholder vote.
- Employee stock purchase plans that have the following features: (i) the shares purchased under the plan are acquired for no less than 85% of their market value, (ii) the offering period under the plan is 27 months or less, and (iii) dilution is 10% or less.
CMA generally will vote AGAINST:
- Stock option plans that permit issuance of options with an exercise price below the stock's current market price, or that permit replacing or repricing of out-of-the money options.
- Proposals to authorize the replacement or repricing of out-of-the money options.
CMA will vote on a CASE-BY-CASE basis proposals regarding approval of specific executive severance arrangements.
3. Capitalization
CMA generally will vote FOR:
- Proposals to increase the authorized shares for stock dividends, stock splits (and reverse stock splits) or general issuance, unless proposed as an anti-takeover measure or a general issuance proposal increases the authorization by more than 30% without a clear need presented by the company. Proposals for reverse stock splits should include an overall reduction in authorization.
For companies recognizing preemptive rights for existing shareholders, CMA generally will vote FOR general issuance proposals that increase the authorized shares by more than 30%. CMA will vote on a CASE-BY-CASE basis all such proposals by companies that do not recognize preemptive rights for existing shareholders.
- Proposals for the elimination of authorized but unissued shares or retirement of those shares purchased for sinking fund or treasury stock.
- Proposals to institute/renew open market share repurchase plans in which all shareholders may participate on equal terms.
- Proposals to reduce or change the par value of common stock, provided the number of shares is also changed in order to keep the capital unchanged.
4. Mergers, Restructurings and Other Transactions
CMA will review, on a CASE-BY-CASE basis, business transactions such as mergers, acquisitions, reorganizations, liquidations, spinoffs, buyouts and sale of all or substantially all of a company's assets.
5. Anti-Takeover Measures
CMA generally will vote AGAINST proposals intended largely to avoid acquisition prior to the occurrence of an actual event or to discourage acquisition by creating a cost constraint. With respect to the following measures, CMA generally will vote as follows:
Poison Pills
- CMA votes FOR shareholder proposals that ask a company to submit its poison pill for shareholder ratification.
- CMA generally votes FOR shareholder proposals to eliminate a poison pill.
- CMA generally votes AGAINST management proposals to ratify a poison pill.
Greenmail
- CMA will vote FOR proposals to adopt anti-greenmail charter or bylaw amendments or to otherwise restrict a company's ability to make greenmail payments.
Supermajority vote
- CMA will vote AGAINST board-approved proposals to adopt anti-takeover measures such as supermajority voting provisions, issuance of blank check preferred stock, the creation of a separate class of stock with disparate voting rights and charter amendments adopting control share acquisition provisions.
Control Share Acquisition Provisions
- CMA will vote FOR proposals to opt out of control share acquisition statutes.
6. Other Business Matters
CMA generally will vote FOR:
- Proposals to approve routine business matters such as changing the company's name and procedural matters relating to the shareholder meeting such as approving the minutes of a prior meeting.
- Proposals to ratify the appointment of auditors, unless any of the following apply in which case CMA will generally vote AGAINST the proposal:
- Credible reason exists to question:
- The auditor's independence, as determined by applicable regulatory requirements.
- The accuracy or reliability of the auditor's opinion as to the company's financial position.
- Fees paid to the auditor or its affiliates for "non-audit" services were excessive, i.e., in excess of the total fees paid for "audit," "audit-related" and "tax compliance" and/or "tax return preparation" services, as disclosed in the company's proxy materials.
- Bylaw or charter changes that are of a housekeeping nature (e.g., updates or corrections).
- Proposals to approve the annual reports and accounts provided the certifications required by the Sarbanes Oxley Act of 2002 have been provided.
CMA generally will vote AGAINST:
- Proposals to eliminate the right of shareholders to act by written consent or call special meetings.
- Proposals providing management with authority to adjourn an annual or special shareholder meeting absent compelling reasons, or to adopt, amend or repeal bylaws without shareholder approval, or to vote unmarked proxies in favor of management.
- Shareholder proposals to change the date, time or location of the company's annual meeting of shareholders.
CMA will vote AGAINST:
- Authorization to transact other unidentified substantive (as opposed to procedural) business at a meeting.
CMA will vote on a CASE-BY-CASE basis:
- Proposals to change the location of the company's state of incorporation. CMA considers whether financial benefits (e.g., reduced fees or taxes) likely to accrue to the company as a result of a reincorporation or other change of domicile outweigh any accompanying material diminution of shareholder rights.
- Proposals on whether and how to vote on "bundled" or otherwise conditioned proposals, depending on the overall economic effects upon shareholders.
CMA generally will ABSTAIN from voting on shareholder proposals predominantly involving social, socio-economic, environmental, political or other similar matters on the basis that their impact on share value can rarely be anticipated with any high degree of confidence. CMA may, on a CASE-BY-CASE basis, vote:
- FOR proposals seeking inquiry and reporting with respect to, rather than cessation or affirmative implementation of, specific policies where the pertinent issue warrants separate communication to shareholders; and
- FOR or AGAINST the latter sort of proposal in light of the relative benefits and detriments (e.g. distraction, costs, other burdens) to share value which may be expected to flow from passage of the proposal.
7. Other Matters Relating to Foreign Issues
CMA generally will vote FOR:
- Most stock (scrip) dividend proposals. CMA votes AGAINST proposals that do not allow for a cash option unless management demonstrates that the cash option is harmful to shareholder value.
- Proposals to capitalize the company's reserves for bonus issues of shares or to increase the par value of shares.
- Proposals to approve control and profit transfer agreements between a parent and its subsidiaries.
- Management proposals seeking the discharge of management and supervisory board members, unless there is concern about the past actions of the company's auditors/directors and/or legal action is being taken against the board by other shareholders.
- Management proposals concerning allocation of income and the distribution of dividends, unless the dividend payout ratio has been consistently below 30 percent without adequate explanation or the payout is excessive given the company's financial position.
- Proposals for the adoption of financing plans if they are in the best economic interests of shareholders.
8. Investment Company Matters
Election of Directors:
CMA will vote on a CASE-BY-CASE basis proposals for the election of directors, considering the following factors:
- Board structure
- Attendance at board and committee meetings.
CMA will WITHHOLD votes from directors who:
- Attend less than 75 percent of the board and committee meetings without a valid excuse for the absences. Valid reasons include illness or absence due to company business. Participation via telephone is acceptable. In addition, if the director missed only one meeting or one day's meetings, votes should not be withheld even if such absence dropped the director's attendance below 75 percent.
- Ignore a shareholder proposal that is approved by a majority of shares outstanding;
- Ignore a shareholder proposal this is approved by a majority of the votes cast for two consecutive years;
- Are interested directors and sit on the audit or nominating committee; or
- Are interested directors and the full board serves as the audit or nominating committee or the company does not have one of these committees.
Proxy Contests:
CMA will vote on a CASE-BY-CASE basis proposals for proxy contests, considering the following factors:
- Past performance relative to its peers
- Market in which fund invests
- Measures taken by the board to address the pertinent issues (e.g., closed-end fund share market value discount to NAV)
- Past shareholder activism, board activity and votes on related proposals
- Strategy of the incumbents versus the dissidents
- Independence of incumbent directors; director nominees
- Experience and skills of director nominees
- Governance profile of the company
- Evidence of management entrenchment
Converting Closed-end Fund to Open-end Fund:
CMA will vote conversion proposals on a CASE-BY-CASE basis, considering the following factors:
- Past performance as a closed-end fund
- Market in which the fund invests
- Measures taken by the board to address the discount
- Past shareholder activism, board activity, and votes on related proposals.
Investment Advisory Agreements:
CMA will vote investment advisory agreements on a CASE-BY-CASE basis, considering the following factors:
- Proposed and current fee schedules
- Fund category/investment objective
- Performance benchmarks
- Share price performance as compared with peers
- Resulting fees relative to peers
- Assignments (where the adviser undergoes a change of control)
Approving New Classes or Series of Shares:
CMA will vote FOR the establishment of new classes or series of shares.
Preferred Stock Proposals:
CMA will vote on a CASE-BY-CASE basis proposals for the authorization for or increase in the preferred shares, considering the following factors:
- Stated specific financing purpose
- Possible dilution for common shares
- Whether the shares can be used for antitakover purposes
Policies Addressed by the Investment Company Act of 1940 ("1940 Act"):
CMA will vote proposals regarding adoption or changes of policies addressed by the 1940 Act on a CASE-BY-CASE basis, considering the following factors:
- Potential competitiveness
- Regulatory developments
- Current and potential returns
- Current and potential risk
CMA generally will vote FOR these amendments as long as the proposed changes do not fundamentally alter the investment focus of the fund and do comply with current SEC interpretations.
Changing a Fundamental Restriction to a Non-fundamental Restriction:
CMA will vote on a CASE-BY-CASE basis proposals to change a fundamental restriction to a nonfundamental restriction, considering the following factors:
- Fund's target investments
- Reasons given by the fund for the change
- Projected impact of the change on the portfolio
Change Fundamental Investment Objective to Non-fundamental:
CMA will vote AGAINST proposals to change a fund's investment objective from fundamental to non-fundamental unless management acknowledges meaningful limitations upon its future requested ability to change the objective
Name Change Proposals:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's name, considering the following factors:
- Political/economic changes in the target market
- Consolidation in the target market
- Current asset composition
Change in Fund's Subclassification:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's subclassification, considering the following factors:
- Potential competitiveness
- Current and potential returns
- Risk of concentration
- Consolidation in target industry
Disposition of Assets/Termination/Liquidation:
CMA will vote on a CASE-BY-CASE basis these proposals, considering the following factors:
- Strategies employed to salvage the company
- Past performance of the fund
- Terms of the liquidation
Changes to the Charter Document:
CMA will vote on a CASE-BY-CASE basis proposals to change the charter document, considering the following factors:
- The degree of change implied by the proposal
- The efficiencies that could result
- The state of incorporation; net effect on shareholder rights
- Regulatory standards and implications
CMA will vote FOR:
- Proposals allowing the Board to impose, without shareholder approval, fees payable upon redemption of fund shares, provided imposition of such fees is likely to benefit long-term fund investors (e.g., by deterring market timing activity by other fund investors)
- Proposals enabling the Board to amend, without shareholder approval, the fund's management agreement(s) with its investment adviser(s) or sub-advisers, provided the amendment is not required by applicable law (including the Investment Company Act of 1940) or interpretations thereunder to require such approval
CMA will vote AGAINST:
- Proposals enabling the Board to:
- Change, without shareholder approval the domicile of the fund
- Adopt, without shareholder approval, material amendments of the fund's declaration of trust or other organizational document
Changing the Domicile of a Fund:
CMA will vote on a CASE-BY-CASE basis proposals to reincorporate, considering the following factors:
- Regulations of both states
- Required fundamental policies of both states
- The increased flexibility available
Authorizing the Board to Hire and Terminate Subadvisors Without Shareholder Approval:
CMA will vote FOR proposals to enable the Board or Investment Adviser to hire and terminate sub-advisers, without shareholder approval, in accordance with applicable rules or exemptive orders under the Investment Company Act of 1940
Distribution Agreements:
CMA will vote these proposals on a CASE-BY-CASE basis, considering the following factors:
- Fees charged to comparably sized funds with similar objectives
- The proposed distributor's reputation and past performance
- The competitiveness of the fund in the industry
- Terms of the agreement
Master-Feeder Structure:
CMA will vote FOR the establishment of a master-feeder structure.
Mergers:
CMA will vote merger proposals on a CASE-BY-CASE basis, considering the following factors:
- Resulting fee structure
- Performance of both funds
- Continuity of management personnel
- Changes in corporate governance and their impact on shareholder rights
Shareholder Proposals to Establish Director Ownership Requirement:
CMA will generally vote AGAINST shareholder proposals that mandate a specific minimum amount of stock that directors must own in order to qualify as a director or to remain on the board. While CMA favors stockownership on the part of directors, the company should determine the appropriate ownership requirement.
Shareholder Proposals to Reimburse Shareholder for Expenses Incurred:
CMA will vote on a CASE-BY-CASE basis proposals to reimburse proxy solicitation expenses.
Shareholder Proposals to Terminate the Investment Adviser:
CMA will vote on a CASE-BY-CASE basis proposals to terminate the investment adviser, considering the following factors:
- Performance of the fund's NAV
- The fund's history of shareholder relations
- The performance of other funds under the adviser's management
9. Alternative Investment Group ("AIG") Matters
The AIG Proxy Sub-Committee generally will vote in accordance with the guidelines set forth in this policy. With respect to matters that are not addressed by the guidelines, the AIG Proxy Sub-Committee will vote each such matter on a CASE-BY-CASE basis.
B. ABILITY TO VOTE PROXIES OTHER THAN AS PROVIDED IN A ABOVE.
A Portfolio Manager, sub-adviser or other party involved with a client's account may conclude that the best interest of the firm's client, as defined above, requires that a proxy be voted in a manner that differs from the predetermined proxy Voting Guidelines stated in Section IV.A. In this situation, he or she shall request that the Proxy Committee consider voting the proxy other than according such Guidelines. If any person, group, or entity requests the Proxy Committee (or any of its members) vote a proxy other than according to the predetermined Voting Guidelines, that person shall furnish to the Proxy Committee a written explanation of the reasons for the request and a description of the person's, group's, or entity's relationship, if any, with the parties proposing and/or opposing the matter's adoption.
C. PROPOSALS REQUIRING SPECIAL CONSIDERATION
The following proposals require special, individual consideration. The Proxy Committee will determine how proxies related to all such proposals will be voted.
1. NEW PROPOSALS. For each new type of proposal that is expected to be proposed to shareholders of multiple companies, the Proxy Committee will develop a Voting Guideline which will be incorporated into this Policy.
2. ACCOUNTS ADHERING TO TAFT HARTLEY PRINCIPLES. All proposals for these accounts shall be voted according to the Taft Hartley Guidelines developed by Institutional Shareholder Services, Inc. ("ISS").
3. ACCOUNTS ADHERING TO SOCIALLY RESPONSIBLE PRINCIPLES. All proposals for these accounts shall be voted according to the Socially Responsible Guidelines developed by ISS or as specified by the client.
4. PROXIES OF INTERNATIONAL ISSUERS WHICH BLOCK SECURITIES SALES BETWEEN THE TIME A SHAREHOLDER SUBMITS A PROXY AND THE VOTE. Proposals for these securities shall be voted only on the specific instruction of the Proxy Committee and to the extent practicable in accordance with the Voting Guidelines set forth in this Policy.
5. PROXIES OF INVESTMENT COMPANY SHARES. Proposals on issues other than those specified in Section IV.A.
6. EXECUTIVE/DIRECTOR COMPENSATION. Except as provided in Section
IV.A, proposals relating to compensation of any executive or director
will be voted as recommended by ISS or as otherwise directed by the
Proxy Committee.
7. PREEMPTIVE RIGHTS. Proposals to create or eliminate shareholder preemptive rights. In evaluating these proposals the Proxy Committee will consider the size of the company and the nature of its shareholder base.
V. VOTING PROCEDURES
The Proxy Committee has developed the following procedures to aid the voting of proxies according to the Voting Guidelines set forth in Section IV above. The Proxy Committee may revise these procedures from time to time, as it deems necessary or appropriate to effect the purposes of this Policy.
- CMA shall use an independent, third-party vendor (currently Institutional Shareholder Services ("ISS")), to implement its proxy voting process as CMAs proxy voting agent. This retention is subject to CMA continuously assessing the vendor's independence from CMA and its affiliates, and the vendor's ability to perform its responsibilities (and, especially, its responsibility to vote client proxies in accordance with CMA's proxy voting guidelines) free of any actual, potential or apparent material conflicts of interests that may arise between the interests of the vendor, its affiliates, the vendor's other clients and the owners, officers or employees of any such firm, on the one hand, and CMA's clients, on the other hand. As means of performing this assessment, CMA will require various reports and notices from the vendor, as well as periodic audits of the vendor's voting record and other due diligence.
- ISS shall provide proxy analysis and record keeping services in addition to voting proxies on behalf of CMA in accordance with this Policy.
- On a daily basis CMA shall send to ISS a holdings file detailing each equity holding held in all accounts over which CMA has voting authority. Information regarding equity holdings for international portfolio shall be sent weekly.
- ISS shall receive proxy material information from Proxy Edge or the custodian bank for the account. This shall include issues to be voted upon, together with a breakdown of holdings for CMA accounts. ISS shall then reconcile information it receives from CMA with that it has received from Proxy Edge and custodian banks. Any discrepancies shall be promptly noted and resolved by ISS, with notice to CMA.
- Whenever a vote is solicited, ISS shall execute the vote according to CMA's Voting Guidelines previously delivered by CMA to ISS as set forth in Section IV.A.
- If ISS is not sure how to vote a particular proxy, then ISS will issue a request for voting instructions to CMA over a secure website. CMA personnel shall check this website regularly. The request shall be accompanied by a recommended vote. The recommended vote shall be based upon CMA's understanding of the Voting Guidelines previously delivered to ISS. CMA shall promptly provide ISS with any amendments or modifications to the Voting Guidelines if necessary. CMA shall return a final instruction to vote to ISS, which ISS shall record with Proxy Edge or the custodian bank as our agent.
- Each time that ISS shall send CMA a request to vote the request shall be accompanied by the recommended vote determined in accordance with CMA's Voting Guidelines. ISS shall vote as indicated in the request unless the client has reserved discretion, the Proxy Committee determines that the best interest of clients requires another vote or the proposal is a matter as to which the Proxy Committee affords special, individual consideration under Section IV.C. In such situations ISS shall vote based on the direction of the client or the Proxy Committee, as the case may be. The interests of CMA's Taft Hartley or Socially Responsible clients may impact a proposal that normally should be voted in a certain way. ISS shall inform CMA of all proposals having impact on its Taft Hartley and or Socially Responsible clients. The Proxy Voting Committee shall be consulted before a vote is placed in cases where Taft Hartley or Socially Responsible issues are presented.
- ISS shall have procedures in place to ensure that a vote is cast on every security holding maintained by CMA on which a vote is solicited unless otherwise directed by the Proxy Committee. On a yearly basis, or as required by our clients CMA shall receive a report from ISS detailing CMA's voting for the previous period.
VI. AVAILABILITY OF PROXY POLICY AND VOTING RECORD
A summary disclosure regarding the provisions of this Policy is available in CMA's Form ADV. Upon receipt of a Client's request for more information, CMA will provide to the Client a copy of this Policy and/or how CMA voted proxies for the Client pursuant to this Policy for up to a one-year period.
COLUMBIA GREATER CHINA FUND
SERIES OF COLUMBIA FUNDS SERIES TRUST I
SUPPLEMENT TO THE FUND'S STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY 1, 2006
This supplement applies to the "Fund" listed above.
1. The name of the Trust is revised to read "Columbia Funds Series Trust I."
2. The first sentence in the section entitled "Organization and History" is revised to read:
The Trust is a Massachusetts business trust organized in 1987. The Fund was originally organized as a series of another Massachusetts business trust prior to its reorganization as a series of the Trust on March 27, 2006.
3. The last sentence of the second paragraph of the section entitled "Organization and History" is deleted in its entirety.
4. The last paragraph of the section entitled "Organization and History" is revised in its entirety to read:
Effective October 13, 2003, the Trust changed its name from
"Liberty-Stein Roe Funds Municipal Trust" to "Columbia Funds Trust
IX." Effective September 23, 2005, the name of the trust was changed
from "Columbia Funds Trust IX" to "Columbia Funds Series Trust I."
5. The section entitled "Trustees and Trustees' Fees," a subsection of "Fund Charges and Expenses," is revised in its entirety to read:
TRUSTEES AND TRUSTEES' FEES The "Columbia Fund Complex" includes all of the registered investment companies to which the Advisor and its affiliates provide investment advisory services.
The Advisor or its affiliates pay the compensation of all the officers of the funds in the Columbia Fund Complex (as such term is defined under applicable regulations promulgated under the 1940 Act) advised by the Advisor, including Trustees who are affiliated with the Advisor. For the fiscal year ended August 31, 2005 and the calendar year ended December 31, 2005, the Trustees received the following compensation for serving as Trustees:
Aggregate
Pension or Compensation
Retirement from the Fund for Total Compensation From the
Benefits Accrued the Fiscal Year Columbia Fund Complex Paid to the
as part of Ended Trustees for the Calendar Year Ended
Trustee Fund Expenses (a) August 31, 2005 December 31, 2005(b)
--------------------- ----------------- ----------------- ------------------------------------
Douglas A. Hacker N/A $522 $111,277
Janet Langford Kelly N/A 598 116,500
Richard W. Lowry N/A 494 142,500
William E. Mayer N/A 575 147,750
Charles R. Nelson N/A 553 111,500
John J. Neuhauser N/A 515 137,833
Patrick J. Simpson(c) N/A 522 107,500
Thomas E. Stitzel N/A 554 113,000
Thomas C. Theobald(d) N/A 925 205,500
Anne-Lee Verville(e) N/A 584 120,723
Richard L. Woolworth N/A 477 106,500
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(a) The Fund does not currently provide pension or retirement plan benefits to the Trustees.
(b) As of December 31, 2005, the Columbia Fund Complex consisted of 159 open-end and 11 closed-end management investment company portfolios.
(c) During the fiscal year ended August 31, 2005, Mr. Simpson deferred $522 of his compensation from the Fund and during the calendar year ended December 31, 2005, he deferred $107,500 of his total compensation from the Columbia Fund Complex pursuant to the deferred compensation plan. At December 31, 2005, the value of Mr. Simpson's account under that plan was $269,502.
(d) During the fiscal year ended August 31, 2005, Mr. Theobald deferred $634 of his compensation from the Fund and during the calendar year ended December 31, 2005, he deferred $150,000 of his total compensation from the Columbia Fund Complex pursuant to the deferred compensation plan. At December 31, 2005, the value of Mr. Theobald's account under that plan was $320,084.
(e) During the fiscal year ended August 31, 2005, Ms. Verville deferred $59 of her compensation from the Fund pursuant to the deferred compensation plan. At December 31, 2005, the value of Ms. Verville's account under the deferred compensation plan was $683,935.
6. The section entitled "Share Ownership," a subsection of "Fund Charges and Expenses," is revised in its entirety to read:
SHARE OWNERSHIP
The following table shows the dollar range of equity securities beneficially owned by each Trustee as of December 31, 2005 (i) in the Fund and (ii) in the funds in the Columbia Fund Complex.
Aggregate Dollar Range of Equity
Dollar Range of Equity Securities Owned in All Funds
Securities Owned in the Overseen by Trustee in
Name of Trustee Fund Columbia Fund Complex
---------------------- ----------------------- --------------------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker $0 Over $100,000
Janet Langford Kelly $0 Over $100,000
Richard W. Lowry $0 Over $100,000
Charles R. Nelson $0 Over $100,000
John J. Neuhauser $0 Over $100,000
Patrick J. Simpson $0 Over $100,000
Thomas E. Stitzel $0 $50,001-$100,000
Thomas C. Theobald $0 Over $100,000
Anne-Lee Verville(a) $0 Over $100,000
Richard L. Woolworth $0 Over $100,000
INTERESTED TRUSTEES
William E. Mayer $0 $ 1-$ 10,000
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(a) Includes the value of compensation payable under the deferred compensation plan for independent Trustees of the Columbia Fund Complex that is determined as if the amounts deferred had been invested, as of the date of deferral, in shares or one or more funds in the Columbia Fund Complex as specified by Ms. Verville.
7. The section entitled "Ownership of the Fund" is replaced in its entirety to read:
As of record on February 28, 2006, the officers and Trustees of the Trust as a group owned less than 1% of the then outstanding shares of the Fund.
As of record on February 28, 2006, the following shareholders of record owned 5% or more of the following classes of the Fund's then outstanding shares:
CLASS A
Merrill Lynch Pierce Fenner & Smith 10.17%
4800 Deer Lake Drive E. Fl. 2
Jacksonville, Florida 32246-6484
CLASS B
Merrill Lynch Pierce Fenner & Smith 5.13%
4800 Deer Lake Drive E. Fl. 2
Jacksonville, Florida 32246-6484
3
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CLASS C Merrill Lynch Pierce Fenner & Smith 23.74% 4800 Deer Lake Drive E. Fl. 2 Jacksonville, Florida 32246-6484 CLASS Z Bank of America NA 32.64% 411 N. Akard Street Dallas, TX 75201-3307 |
8. The first paragraph of the front cover of Part 2 of the SAI is revised in its entity to read:
The following information applies generally to most funds advised by the Advisor. "Funds" include the series of Columbia Funds Series Trust I, Columbia Funds Institutional Trust, SteinRoe Variable Investment Trust and Liberty Variable Investment Trust (each a Trust and together, the Trusts). In certain cases, the discussion applies to some, but not all, of the Funds, and you should refer to your Fund's Prospectus and to Part 1 of this Statement of Additional Information (SAI) to determine whether the matter is applicable to your Fund. You will also be referred to Part 1 for certain data applicable to your Fund.
9. The section entitled "Trustees and Officers" in Part 2 of the SAI is revised to read:
Information regarding the Trustees and officers of the Funds together with their principal business occupations during the last five years (their titles may have varied during that period) is shown below. Unless otherwise noted, the address for each Trustee and officer is c/o Columbia Funds, Mail Stop MA5-515-11-05, One Financial Center, Boston, MA 02111.
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Name and Position with Appointed Principal Occupation(s) Overseen Other Directorships
Year of Birth Funds to Office(1) During Past Five Years by Trustee Held(2)
--------------------- ------------- ------------ ------------------------ ------------- -------------------------
DISINTERESTED TRUSTEE
Thomas C. Trustee and 1996 Partner and Senior 83 Anixter International
Theobald Chairman of Advisor, Chicago (network support
(Born 1937) the Board Growth Partners equipment distributor);
(private equity Ventas, Inc. (real estate
investing) since investment trust); Jones
September, 2004; Lang LaSalle (real estate
Managing Director, management services) and
William Blair Capital Ambac Financial Group
Partners (private equity (financial guaranty
investing) from insurance)
September, 1994 to
September, 2004.
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Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Name and Position with Appointed Principal Occupation(s) Overseen Other Directorships
Year of Birth Funds to Office(1) During Past Five Years by Trustee Held(2)
------------- ------------- ------------ ------------------------ ------------- -------------------
DISINTERESTED TRUSTEE
Douglas A. Trustee 1996 Executive Vice President 83 Nash Finch Company
Hacker -- Strategy of United (food distributor)
(Born 1955) Airlines (airline) since
December, 2002;
President of UAL
Loyalty Services
(airline) from
September, 2001 to
December, 2002;
Executive Vice President
and Chief Financial
Officer of United
Airlines from July, 1999
to September, 2001.
Janet Trustee 1996 Partner, Zelle, Hofmann, 83 UAL Corporation
Langford Voelbel, Mason & Gette (airline)
Kelly LLP (law firm) since
(Born 1957) March, 2005; Adjunct
Professor of Law,
Northwestern University,
since September, 2004;
Chief Administrative
Officer and Senior Vice
President, Kmart
Holding Corporation
(consumer goods), from
September, 2003 to
March, 2004; Executive
Vice President-
Corporate Development
and Administration,
General Counsel and
Secretary, Kellogg
Company (food
manufacturer), from
September, 1999 to
August, 2003.
Richard W. Trustee 1995 Private Investor since 85 None
Lowry August, 1987 (formerly
(Born 1936) Chairman and Chief
Executive Officer, U.S.
Plywood Corporation
(building products
manufacturer) until
1987.)
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Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Name and Position with Appointed Principal Occupation(s) Overseen Other Directorships
Year of Birth Funds to Office(1) During Past Five Years by Trustee Held(2)
------------- ------------- ------------ ------------------------- ------------- ------------------------
DISINTERESTED TRUSTEE
Charles R. Trustee 1981 Professor of Economics, 83 None
Nelson University of
(Born 1943) Washington since
January, 1976; Ford and
Louisa Van Voorhis
Professor of Political
Economy, University of
Washington, since
September, 1993;
Director, Institute for
Economic Research,
University of
Washington from
September, 2001 to June,
2003; Adjunct Professor
of Statistics, University
of Washington since
September, 1980;
Associate Editor, Journal
of Money Credit and
Banking since
September, 1993;
consultant on
econometric and
statistical matters.
John J. Trustee 1985 University Professor, 85 None
Neuhauser Boston College since
(Born 1942) November, 2005;
Academic Vice
President and Dean of
Faculties, Boston
College from August,
1999 to October, 2005.
Patrick J. Trustee 2000 Partner, Perkins Coie 83 None
Simpson L.L.P. (law firm).
(Born 1944)
Thomas E. Trustee 1998 Business Consultant 83 None
Stitzel since 1999; Chartered
(Born 1936) Financial Analyst.
Anne-Lee Trustee 1998 Retired since 1997 83 Chairman of the Board of
Verville (formerly General Directors, Enesco
(Born 1945) Manager, Global Group,Inc. (producer of
Education Industry, IBM giftware and home and
Corporation (computer garden decor products)
and technology) from
1994 to 1997).
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Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Name and Position with Appointed Principal Occupation(s) Overseen Other Directorships
Year of Birth Funds to Office(1) During Past Five Years by Trustee Held(2)
--------------------- ------------- ------------ -------------------------- ------------ ---------------------------
DISINTERESTED TRUSTEE
Richard L. Trustee 1991 Retired since December, 83 Northwest Natural Gas
Woolworth 2003 (formerly (natural gas service
(Born 1941) Chairman and Chief provider)
Executive Officer, The
Regence Group Co.
(regional health insurer);
Chairman and Chief
Executive Officer,
BlueCross BlueShield of
Oregon; Certified Public
Accountant, Arthur
Young & Company).
INTERESTED TRUSTEE
William E. Trustee 1994 Partner, Park Avenue 85 Lee Enterprises (print
Mayer(3) Equity Partners (private media), WR Hambrecht +
(Born 1940) equity) since February, Co. (financial service
1999. provider); Reader's Digest
(publishing);
OPENFIELD Solutions
(retail industry technology
provider)
|
(1) The date shown is the earliest date on which a Trustee was elected or appointed to the board of a Fund in the Columbia Fund Complex.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public companies").
(3) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (the "1940 Act")) of the Columbia Funds by reason of his affiliation with WR Hambrecht + Co., a registered broker-dealer that may execute portfolio transactions for or engage in principal transactions with the Fund or other funds or clients advised by the Advisor or its affiliates.
Year First
Elected or
Position with Appointed
Name and Year of Birth Funds to Office Principal Occupation(s) During Past Five Years
---------------------- ------------- ---------- ----------------------------------------------
OFFICERS
Christopher L. Wilson President 2004 Head of Mutual Funds since August, 2004 and
(Born 1957) Managing Director of the Advisor since September,
2005; President and Chief Executive Officer, CDC
IXIS Asset Management Services, Inc. (investment
management) from September, 1998 to August,
2004.
|
Year First
Elected or
Position with Appointed
Name and Year of Birth Funds to Office Principal Occupation(s) During Past Five Years
----------------------- ---------------- ---------- ----------------------------------------------------
OFFICERS
James R. Bordewick, Jr. Senior Vice 2006 Associate General Counsel, Bank of America since
(Born 1959) President, April, 2005; Senior Vice President and Associate
Secretary and General Counsel, MFS Investment Management
Chief Legal (investment management) prior to April, 2005.
Officer
J. Kevin Connaughton Senior Vice 2000 Managing Director of the Advisor since February,
(Born 1964) President, Chief 1998.
Financial
Officer and
Treasurer
Mary Joan Hoene Senior Vice 2004 Senior Vice President and Chief Compliance
(Born 1949) President and Officer of various funds in the Columbia Fund
Chief Complex; Partner, Carter, Ledyard & Milburn LLP
Compliance (law firm) from January, 2001 to August, 2004.
Officer
Michael G. Clarke Chief 2004 Managing Director of the Advisor since February,
(Born 1969) Accounting 2001.
Officer and
Assistant
Treasurer
Stephen T. Welsh Vice President 1996 President, Columbia Management Services, Inc.
(Born 1957) since July, 2004; Senior Vice President and
Controller, Columbia Management Services, Inc.
prior to July, 2004.
Jeffrey R. Coleman Deputy 2004 Group Operations Manager of the Advisor since
(Born 1969) Treasurer October, 2004; Vice President of CDC IXIS Asset
Management Services, Inc. (investment
management) from August, 2000 to September,
2004.
Joseph F. DiMaria Deputy 2004 Senior Compliance Manager of the Advisor since
(Born 1968) Treasurer January, 2005; Director of Trustee Administration
of the Advisor from May, 2003 to January, 2005;
Senior Audit Manager, PricewaterhouseCoopers
(independent registered public accounting firm)
from July, 2000 to April, 2003.
Ty S. Edwards Deputy 2004 Vice President of the Advisor since 2002; Assistant
(Born 1966) Treasurer Vice President and Director, State Street
Corporation (financial services) prior to 2002.
Barry S. Vallan Controller 2006 Vice President-Fund Treasury of the Advisor since
(Born 1969) October, 2004; Vice President-Trustee Reporting
from April, 2002 to October, 2004; Management
Consultant, PricewaterhouseCoopers (independent
registered public accounting firm) prior to October,
2002.
|
Year First
Elected or
Position with Appointed
Name and Year of Birth Funds to Office Principal Occupation(s) During Past Five Years
---------------------- ------------- ---------- --------------------------------------------------
OFFICERS
Peter T. Fariel Assistant 2006 Associate General Counsel, Bank of America since
(Born 1957) Secretary April, 2005; Partner, Goodwin Procter LLP (law
firm) prior to April, 2005.
Ryan C. Larrenaga Assistant 2005 Assistant General Counsel, Bank of America since
(Born 1970) Secretary March, 2005; Associate, Ropes & Gray LLP (law
firm) from 1998 to February, 2005.
Barry S. Finkle Assistant 2003 Senior Manager and Head of Fund Performance of
(Born 1965) Treasurer the Advisor since January, 2001.
Julian Quero Assistant 2003 Senior Compliance Manager of the Advisor since
(Born 1967) Treasurer April, 2002; Assistant Vice President of Taxes and
Distributions of the Advisor from 2001 to April,
2002.
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Each of the Trust's Trustees and officers hold comparable positions with certain other funds of which the Advisor or its affiliates is the investment advisor or distributor and, in the case of certain of the officers, with certain affiliates of the Advisor.
The Trustees and officers serve terms of indefinite duration. Each Fund held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once every five years thereafter to elect Trustees.
10. The section entitled "Trustee Positions," a subsection of "Management of the Funds," is revised to read:
As of December 31, 2005, no disinterested Trustee or any of their immediate family members owned beneficially or of record any class of securities of the Advisor, another investment advisor, sub-advisor or portfolio manager of any of the funds in the Fund Complex or any person controlling, controlled by or under common control with any such entity.
11. The second paragraph of the section entitled "Other Disclosures," a subsection of "Disclosure of Portfolio Information," is revised in its entirety to read:
The Fund periodically discloses its portfolio information on a confidential basis to various service providers that require such information in order to assist the Fund with its day-to-day business affairs. In addition to Columbia Advisors and its affiliates, these service providers include the Fund's custodian and sub-custodians, the Fund's independent registered public accounting firm, legal counsel, financial printers (R.R. Donnelly & Sons and Bowne & Co., Inc.), the Fund's proxy solicitor and proxy voting service provider (Computershare), rating agencies that maintain ratings on certain Columbia Funds (Fitch, Inc.) and service providers that support Columbia Advisors' trading systems (InvestorTool, Inc. and Thomson Financial). These service providers are required to keep such information confidential, and are prohibited from trading based on the information or otherwise using the information except as necessary in providing services to the Fund. The Fund may also disclose portfolio holdings information to broker/dealers and certain other entities related to potential transactions and management of the Fund, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information.
INT-50/107378-0306 March 27, 2006
COLUMBIA GREATER CHINA FUND
A SERIES OF COLUMBIA FUNDS TRUST II
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 1, 2006
This Statement of Additional Information ("SAI") contains information which may be useful to investors but which is not included in the Prospectuses of Columbia Greater China Fund ("the Fund"). This SAI is not a prospectus and is authorized for distribution only when accompanied or preceded by a Prospectus of the Fund dated January 1, 2006. This SAI should be read together with a Prospectus and the Fund's most recent Annual Report dated August 31, 2005. The Fund's most recent Annual Report to shareholders is a separate document supplied with this SAI. Investors may obtain a free copy of a Prospectus and Annual Report from Columbia Management Distributors, Inc. ("CMD"), One Financial Center, Boston, MA 02111-2621 or by calling 1-800-426-3750. The Financial Statements and Report of the Independent Registered Public Accounting Firm appearing in the Fund's August 31, 2005 Annual Report, are incorporated into this SAI by reference.
Part 1 of this SAI contains specific information about the Fund. Part 2 includes information about the funds distributed by CMD generally and additional information about certain securities and investment techniques described in the Fund's Prospectuses.
TABLE OF CONTENTS
PAGE
----
PART 1
Definitions b
Organization and History b
Investment Goals and Policies b
Fundamental Investment Policies b
Other Investment Policies c
Fund Charges and Expenses c
Custodian k
Independent Registered Public Accounting Firm k
PART 2
Miscellaneous Investment Practices 1
Taxes 21
Additional Tax Matters Concerning Trust Shares 26
Management of the Funds 28
Determination of Net Asset Value 42
How to Buy Shares 43
Special Purchase Programs/Investor Services 46
Programs for Reducing or Eliminating Sales Charges 48
How to Sell Shares 51
Distributions 55
How to Exchange Shares 55
Suspension of Redemptions 56
Shareholder Liability 56
Shareholder Meetings 56
Appendix I 57
Appendix II 62
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SUP-39/93223-1205
PART I
COLUMBIA GREATER CHINA FUND
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 1, 2006
DEFINITIONS
"Trust" Columbia Funds Trust II
"Fund" Columbia Greater China Fund
"Advisor" or "Administrator" Columbia Management Advisors, LLC, the Fund's
investment advisor and administrator
"CMD" Columbia Management Distributors, Inc. (formerly
named Columbia Funds Distributor, Inc.), the Fund's
distributor
"CMS" Columbia Management Services, Inc. (formerly named
Columbia Funds Services, Inc.), the Fund's
shareholder services and transfer agent
|
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1980. The Fund is an open-end non-diversified management investment company representing the entire interest in a separate series of the Trust. The Fund commenced investment operations on May 16, 1997..
The Fund changed its name from "Newport Greater China Fund" to "Liberty Newport Greater China Fund" on July 14, 2000, and from "Liberty Newport Greater China Fund" to "Columbia Newport Greater China Fund" on October 13, 2003 and from "Columbia Newport Greater China Fund" to its current name on October 10, 2005. The Trust changed its name from "Colonial Trust II" to "Liberty Funds Trust II" on April 1, 1999 and from "Liberty Funds Trust II" to its current name on October 13, 2003.
The Fund offers four classes of shares - Classes A, B, C and Z shares.
It is expected that the Fund will be reorganized as a series of Columbia Funds Series Trust I, a Massachusetts business trust, into which all of the retail Columbia funds are expected to be reorganized.
INVESTMENT GOALS AND POLICIES
The Prospectuses describe the Fund's investment goals, investment strategies and risks. Part 1 of this SAI contains additional information concerning, among other things, the investment policies of the Fund. Part 2 contains additional information about the following securities and investment techniques that may be utilized by the Fund:
Foreign Securities
Foreign Currency Transactions
Repurchase Agreements
Futures Contracts and Related Options
Small Companies
Money Market Instruments
Options on Securities
Other Investment Companies
Except as indicated below under "Fundamental Investment Policies," the Fund's investment policies are not fundamental and the Trustees may change the policies without shareholder approval.
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940, as amended (the "1940 Act") provides that a
"vote of a majority of the outstanding voting securities" means the affirmative
vote of the lesser of (1) more than 50% of the outstanding shares of a Fund, or
(2) 67% or more of the shares present at a meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy. The
following fundamental investment policies cannot be changed without such a vote.
b
The Fund may not, as a matter of fundamental policy:
1. Underwrite any issue of securities issued by other persons within the meaning of the Securities Act of 1933, as amended (the "1933 Act") except when it might be deemed to be an underwriter either: (a) in connection with the disposition of a portfolio security; or (b) in connection with the purchase of securities directly from the issuer thereof in accordance with its investment objective. This restriction shall not limit the Fund's ability to invest in securities issued by other registered investment companies.
2. Purchase or sell real estate, except the Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate and it may hold and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of securities which are secured by real estate or interests therein.
3. Purchase or sell commodities, except that the Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts.
4. Purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions; and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
5. Make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
6. Borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
7. Purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that: (a) up to 50% of its total assets may be invested without regard to these limitations and (b) a Fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder, or any applicable exemptive relief.
OTHER INVESTMENT POLICIES
As non-fundamental investment policies which may be changed without a shareholder vote, the Fund may not:
1. Invest more than 15% of its net assets in illiquid assets;
2. Have a short sales position, unless the Fund owns, or owns rights (exercisable without payment) to acquire, an equal amount of such securities; and
3. Purchase securities on margin, but the Fund may receive short-term credit to clear securities transactions and may make initial or maintenance margin deposits in connection with futures transactions.
Total assets and net assets are determined at current value for purposes of compliance with investment restrictions and policies. All percentage limitations will apply at the time of investment and are not violated unless an excess or deficiency occurs as a result of such investment. For purposes of the 1940 Act's diversification requirement, an issuer is the entity whose revenues support the security.
FUND CHARGES AND EXPENSES
Effective November 1, 2004, under the Fund's management contracts, the Fund pays the Advisor a monthly fee based on the average daily net assets of the Fund at the annual rate of:
Average Daily Net Assets Rate ------------------------ ----- Net assets under $500 million 0.950% Net assets of $500 million but less than $1 billion 0.950% Net assets of $1 billion but less than $1.5 billion 0.870% Net assets of $1.5 billion but less than $3 billion 0.820% Net assets of $3 billion but less than $6 billion 0.770% Net assets in excess of $6 billion 0.720% |
Additionally, effective November 1, 2005, the Fund entered into an Administrative Agreement with the Advisor pursuant to which the Advisor performs certain administrative services to the Fund. The Advisor has delegated responsibility for certain administrative services to State Street Corporation.
Prior to November 1, 2004, under the Fund's Management Agreement with the Advisor, effective November 1, 2003, the Fund paid the Advisor a monthly fee based on average daily net assets at the following annual rates: 0.95% up to $1 billion, 0.90% of the next $500 million and 0.85% thereafter. Prior to November 1, 2003, the Fund paid the Advisor a monthly fee based on the average daily net assets of the Fund at the annual rate of 1.15%. Effective November 1, 2003, the Board of Trustees eliminated the administration fee for the Fund. Prior to November 1, 2003, the Fund paid the Administrator, under an Administration Agreement with the Administrator, a monthly fee at the annual rate of 0.25% of the average daily net assets of the Fund.
The Advisor provides certain pricing and bookkeeping services to the Fund. Effective November 1, 2005, the Fund entered into a Pricing and Bookkeeping Agreement and an Administrative Agreement. Under these agreements, the Fund will continue to receive substantially the same pricing, bookkeeping and administrative services as it currently receives under the Agreement. The Advisor and State Street Bank and Trust Company will continue to provide these services to the Fund. For services provided under the Pricing and Bookkeeping Agreement, the Fund will pay the Advisor or to such other person(s) as the Advisor may direct an annual fee, payable monthly, consisting of: (i) for fund accounting services, $25,000 plus 0.015% of the Fund's net asset value ("Fund Accounting Fee"); and (ii) for financial reporting services, $13,000 ("Financial Reporting Fee"); provided that during any 12-month period, the aggregate Fund Accounting Fee and Financial Reporting Fee shall not exceed $140,000. For services provided under the Administrative Agreement, the Fund will pay the Advisor an annual fee equal to $0. The Fund will bear certain reimbursable costs and expenses as provided in the Pricing and Bookkeeping Agreement and the Administrative Agreement.
For periods prior to November 1, 2005, the Fund paid the Advisor fees under a similar pricing and bookkeeping agreement a monthly fee consisting of a flat fee plus an asset-based fee, as follows:
- an annual flat fee of $10,000, paid monthly; and
- in any month that the Fund had average net assets of more than $50 million, a monthly fee equal to the average daily net assets of the Fund for that month multiplied by a fee rate that is calculated by taking into account the fees payable to State Street under the Outsourcing Agreement.
The Fund reimbursed the Advisor for all out-of-pocket expenses and charges, including all fees payable to third parties (other than State Street) for providing pricing data.
CMS acts as transfer agent, dividend disbursing agent and shareholders' servicing agent for the Fund. Its address is P.O. Box 8081, Boston, Massachusetts 02266-8081. Effective November 1, 2005, the Fund has entered into a new agreement with CMS, under which CMS will continue to provide transfer agency, dividend disbursing agency and shareholders' servicing agency services to the Fund (and will continue to retain Boston Financial Data Services, Inc. to assist it) for a reduced fee. The new fee is $15.23 per account per annum, payable monthly. In addition, the Fund may pay CMS the fees and expenses it pays to third-party dealer firms that maintain omnibus accounts with the Fund, subject to a cap equal to 0.11% of the Fund's net assets represented by the account. The Fund will also pay certain reimbursable out-of-pocket expenses to CMS, and CMS may also retain as additional compensation for its services revenues for fees for wire, telephone and redemption orders, IRA trustee agent fees and account transcripts due CMS from shareholders of the Fund and credits (net of bank charges) earned with respect to balances in accounts CMS maintains in connection with its services to the Fund.
Prior to November 1, 2005, the Fund paid a shareholders' servicing and transfer agency fee to CMS as follows:
an annual open account fee of $28 per open account in an equity fund, plus the Fund's allocated share of reimbursement for the out-of-pocket expenses of CMS.
Prior to November 1, 2003, the Fund paid a shareholders' servicing and transfer agency fee to CMS as follows:
- An account fee for each open account of $4.00 per annum, payable on a monthly basis, in an amount equal to 1/12 the per annum charge; plus
- An account fee for each closed account of $1.50 per annum, payable on a monthly basis, in an amount equal to 1/12 the per annum charge; plus
- A transaction fee of $1.40 per transaction occurring in Fund accounts during any month; plus
- A monthly fee at the rate of 0.06% per annum of the average daily closing value of the total net assets of the Fund for such month; plus
- The Fund's allocated share of CMS's out-of-pocket expenses, including fees payable to DST under a remote services agreement with DST.
RECENT FEES PAID TO THE ADVISOR, THE ADMINISTRATOR, CMD AND CMS (dollars in
thousands)
Year ended August 31,
---------------------
2005 2004 2003
---- ---- -----
Management fee $768 $686 $ 448
Administration fee -- 24 97
Pricing and bookkeeping fee 34 39 12
Transfer agent fee 206 194 159
12b-1 fees:
Service fee (Class A) 125 120 82
Service fee (Class B) 29 23 9
Service fee (Class C) 29 20 5
Distribution fee (Class B) 88 69 28
Distribution fee (Class C) 86 61 15
Fees and expenses waived or reimbursed by the
Advisor/Administrator -- -- (145)
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BROKERAGE COMMISSIONS (dollars in thousands)
Year ended August 31,
----------------------
2005 2004 2003
---- ------ ------
Total commissions $114 $ 135 $ 78
Directed transactions(a) 0 4,886 2,412
Commissions on directed transactions 0 19 10
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(a) See "Management of the Funds - Portfolio Transactions - Brokerage and Research Services" in Part 2 of this SAI.
The Trust is required to identify any securities of its "regular brokers or dealers" that the Fund has acquired during its most recent fiscal year. At August 31, 2005, the Fund did not hold securities of any of its regular brokers or dealers.
TRUSTEES AND TRUSTEES' FEES
The Fund Complex consists of the following funds:
The series of Columbia Funds Trust I, the series of Columbia Funds Trust II, the series of Columbia Funds Trust III, the series of Columbia Funds Trust IV, the series of Columbia Funds Trust V, the series of Columbia Funds Trust VI, the series of Liberty Variable Investment Trust and 7 closed-end management investment company portfolios. (the "Liberty Funds").
The series of Columbia Funds Trust VIII, the series of Columbia Funds Series Trust I, the series of Columbia Funds Trust XI and the series of SteinRoe Variable Investment Trust (the "Stein Roe Funds").
Two closed-end management investment company portfolios named Liberty All-Star Equity Fund and Liberty All-Star Growth Fund, Inc. (the "All-Star Funds").
Columbia Management Multi-Strategy Hedge Fund, LLC.
Columbia Balanced Fund, Inc., Columbia Conservative High Yield Fund, Columbia Oregon Intermediate Municipal Bond Fund, Columbia Real Estate Equity Fund, Inc., Columbia Small Cap Growth Fund I, Columbia Mid Cap Growth Fund, Inc., Columbia Strategic Investor Fund, Inc., Columbia Technology Fund, Inc. and the series of CMG Fund Trust. (the "Columbia Funds").
The series of Columbia Acorn Trust and the series of Wanger Advisors Trust. (the "Acorn Funds" and "WAT Funds," respectively).
e
The Advisor or its affiliates pay the compensation of all the officers of the funds in the Funds Complex (as such term is defined under applicable regulations promulgated under the 1940 Act) advised by the Advisor, including Trustees who are affiliated with the Advisor. For the fiscal year ended August 31, 2005, and the calendar year ended December 31, 2004, the Trustees received the following compensation for serving as Trustees:
Total Compensation
Aggregate From the Fund
Pension or Compensation from Complex Paid to the
Retirement Benefits the Fund for the Trustees for the
Accrued as part of Fiscal Year Ended Calendar Year Ended
Trustee(a) Fund Expenses (b) August 31, 2005 December 31, 2004(a)
---------- ------------------- ----------------- --------------------
Douglas A. Hacker N/A $522 $135,000
Janet Langford Kelly N/A 598 148,500
Richard W. Lowry N/A 494 150,700
William E. Mayer N/A 575 166,700
Charles R. Nelson N/A 553 141,500
John J. Neuhauser N/A 515 158,284
Patrick J. Simpson(c) N/A 522 129,000
Thomas E. Stitzel N/A 554 149,000
Thomas C. Theobald(d) N/A 925 172,500
Anne-Lee Verville(e) N/A 584 157,000
Richard L. Woolworth N/A 477 131,000
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(a) As of December 31, 2004, the Fund Complex consisted of 127 open-end and 11 closed-end management investment company portfolios.
(b) The Fund does not currently provide pension or retirement plan benefits to the Trustees.
(c) During the fiscal year ended August 31, 2005, and the calendar year ended December 31, 2004, Mr. Simpson deferred $522 of his compensation from the Fund and $129,000 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2004, the value of Mr. Simpson's account under that plan was $143,646.
(d) During the fiscal year ended August 31, 2005, and the calendar year ended December 31, 2004, Mr. Theobald deferred $634 of his compensation from the Fund and $90,000 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2004, the value of Mr. Theobald's account under that plan was $157,328.
(e) During the fiscal year ended August 31, 2005, and the calendar year ended December 31, 2004, Ms. Verville deferred $59 of her compensation from the Fund and $55,000 of her total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2004, the value of Ms. Verville's account under that plan was $653,275.
ROLE OF THE BOARD OF TRUSTEES
The Trustees of the Fund are responsible for the overall management and supervision of the Fund's affairs and for protecting the interests of the shareholders. The Trustees meet periodically throughout the year to oversee the Fund's activities, review contractual arrangements with service providers for the Fund and review the Fund's performance. The Trustees have created several committees to perform specific functions for the Fund.
AUDIT COMMITTEE
Ms. Verville and Messrs. Hacker, Stitzel, and Woolworth are members of the Audit Committee of the Board of Trustees of the Fund. The Audit Committee's functions include making recommendations to the Trustees regarding the selection and performance of the independent registered public accounting firm, and reviewing matters relative to accounting and auditing practices and procedures, accounting records, and the internal accounting controls, of the Fund and certain service providers. For the fiscal year ended August 31, 2005, the Audit Committee convened seven times.
GOVERNANCE COMMITTEE
Messrs. Lowry, Mayer, Simpson and Theobald are members of the Governance Committee of the Board of Trustees of the Fund. The Governance Committee's functions include recommending to the Trustees nominees for independent Trustee positions and for appointments to various committees, performing periodic evaluations of the effectiveness of the Board, reviewing and recommending to the Board policies and practices to be followed in carrying out the Trustees' duties and responsibilities and reviewing and making recommendations to the Board regarding the compensation of the Trustees who are not affiliated with the Fund's investment advisor. The Governance Committee will consider candidates for Trustee recommended by shareholders. Written recommendations with supporting information should be directed to the Committee, in care of the Fund. For the fiscal year ended August 31, 2005, the Governance Committee convened six times.
f
ADVISORY FEES & EXPENSES COMMITTEE
Ms. Kelly and Messrs. Mayer, Nelson and Neuhauser are members of the Advisory Fees & Expenses Committee of the Board of Trustees of the Fund. The Advisory Fees & Expenses Committee's functions include reviewing and making recommendations to the Board as to contracts requiring approval of a majority of the disinterested Trustees and as to any other contracts that may be referred to the Committee by the Board. In the fiscal year ended August 31, 2005, the Advisory Fees & Expenses Committee convened nine times.
COMPLIANCE COMMITTEE
Ms. Kelly, Messrs. Nelson, Simpson and Stitzel and Ms. Verville are members of the Compliance Committee of the Board of Trustees of the Fund. Mr. Stitzel became a member of the Compliance Committee on May 8, 2005. The Compliance Committee's functions include providing oversight of the monitoring processes and controls regarding the Trust. The Committee uses legal, regulatory and internal rules, policies, procedures and standards other than those relating to accounting matters and oversight of compliance by the Trust's investment adviser, principal underwriter and transfer agent. For the fiscal year ended August 31, 2005, the Compliance Committee convened four times.
INVESTMENT OVERSIGHT COMMITTEES
Each Trustee of the Funds also serve on an Investment Oversight Committee ("IOC"). Each IOC is responsible for monitoring, on an ongoing basis, a select group of funds in the Fund Complex and gives particular consideration to such matters as the Funds' adherence to their investment mandates, historical performance, changes in investment processes and personnel, and proposed changes to investment objectives. Investment personnel who manage the Funds attend IOC meetings from time to time to assist each IOC in its review of the Funds. Each IOC meets four times a year. The following are members of the respective IOCs and the general categories of funds in the Fund Complex which they review:
IOC#1: Messrs. Lowry, Mayer and Neuhauser are responsible for reviewing funds in the following asset categories: Large Growth Diversified, Large Growth Concentrated, Small Growth, Outside Managed (i.e., sub-advised), and Municipal.
IOC#2: Mr. Hacker and Ms. Verville are responsible for reviewing funds in the following asset categories: Large Blend, Small Blend, Foreign Stock, Fixed Income - Multi Sector, Fixed Income - Core and Young Investor.
IOC#3: Messrs. Theobald and Stitzel and Ms. Kelly are responsible for reviewing funds in the following asset categories: Large Value, Mid Cap Value, Small Value, Asset Allocation, High Yield and Money Market.
IOC#4: Messrs. Nelson, Simpson and Woolworth are responsible for reviewing funds in the following asset categories: Large/Multi-Cap Blend, Mid Cap Growth, Small Growth, Asset Allocation, Specialty Equity and Taxable Fixed Income.
SHARE OWNERSHIP
The following table shows the dollar range of equity securities beneficially owned by each Trustee as of December 31, 2004 (i) in each Fund and (ii) in the funds in the Fund Complex.
Aggregate Dollar Range of Equity
Dollar Range of Equity Securities Owned in All Funds
Securities Owned in the Overseen by Trustee in
Name of Trustee Fund Fund Complex
--------------- ----------------------- --------------------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker $0 Over $100,000
Janet Langford Kelly $0 Over $100,000
Richard W. Lowry $50,001-$100,000 Over $100,000
Charles R. Nelson $0 Over $100,000
John J. Neuhauser $0 Over $100,000
Patrick J. Simpson $0 Over $100,000
Thomas E. Stitzel $0 Over $100,000
Thomas C. Theobald $0 Over $100,000
Anne-Lee Verville(a) $0 Over $100,000
Richard L. Woolworth $0 Over $100,000
INTERESTED TRUSTEES
William E. Mayer $0 $50,001-$100,000
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g
(a) Includes the value of compensation payable under the deferred compensation plan for independent Trustees of the Fund Complex that is determined as if the amounts deferred had been invested, as of the date of deferral, in shares of one or more funds in the Fund Complex as specified by Ms. Verville.
PORTFOLIO MANAGERS
OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS
The following table shows the number and assets of other investment accounts (or portions of investment accounts) that the Fund's portfolio managers managed as of the Fund's fiscal year end.
OTHER SEC-REGISTERED OPEN- OTHER POOLED INVESTMENT
END AND CLOSED-END FUNDS VEHICLES OTHER ACCOUNTS
-------------------------- ------------------------ -------------------------
Number of Number of Number of
PORTFOLIO MANAGERS accounts Assets accounts Assets accounts Assets
------------------ --------- -------------- --------- ------------ --------- -------------
Fred Copper(3) 6(1) $2.54 billion 2(2) $484 million 3 $100 thousand
Jasmine Huang 0 $ 0 0 $ 0 4 $ 70 thousand
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(1) Five SEC-registered open-end and closed-end funds totaling $1.6 billion in assets have advisory fees based on performance.
(2) Both pooled investment vehicles totaling $484 million in assets have advisory fees based on performance.
(3) Mr. Copper began managing the Fund as of October, 2005.
See "Other Considerations - Portfolio Transactions - Potential conflicts of interest in managing multiple accounts" for information on how the Advisor addresses potential conflicts of interest resulting from an individual's management of more than one account.
OWNERSHIP OF SECURITIES
The table below shows the dollar ranges of shares of the Fund beneficially owned (as determined pursuant to Rule 16a-1(a)(2) under the Securities Exchange Act of 1934, as amended) by the portfolio managers listed above at the end of the Fund's most recent fiscal year:
DOLLAR RANGE OF EQUITY
SECURITIES IN THE FUND
PORTFOLIO MANAGERS BENEFICIALLY OWNED
------------------ ----------------------
Fred Copper None
Jasmine Huang None
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COMPENSATION
As of the Fund's most recent fiscal year end, the portfolio managers received all of their compensation from the Advisor and its parent company, Columbia Management Group, in the form of salary, bonus, stock options and restricted stock. A portfolio manager's bonus is variable and is generally based on (1) an evaluation of the manager's investment performance and (2) the results of a peer and/or management review of such individual, which takes into account skills and attributes such as team participation, investment process, communication and professionalism. In evaluating investment performance, the Advisor generally considers the one-, three- and five-year performance of mutual funds and other accounts under the portfolio manager's oversight relative to the benchmarks and peer groups noted below, emphasizing each manager's three- and five-year performance. The Advisor may also consider a portfolio manager's performance in managing client assets in sectors and industries assigned to the manager as part of his or her investment team responsibilities, where applicable. For portfolio managers who also have group management responsibilities, another factor in their evaluation is an assessment of the group's overall investment performance.
PORTFOLIO MANAGERS PERFORMANCE BENCHMARK PEER GROUP ------------------ --------------------- ---------- Fred Copper MSCI China GD Lipper China Region Category Jasmine Huang MSCI China GD Lipper China Region Category |
The size of the overall bonus pool each year is determined by Columbia Management Group and depends in part on levels of compensation generally in the investment management industry (based on market compensation data) and the Advisor's profitability for the year, which is influenced by assets under management.
h
OWNERSHIP OF THE FUND
As of record on November 30, 2005, the officers and Trustees of the Trust as a group beneficially owned less than 1% of the then outstanding shares of each of Class A, Class B, Class C and Class Z shares of the Fund.
As of record on November 30, 2005, the following shareholders of record owned 5% or more of one or more of each class of the Fund's then outstanding shares:
CLASS A SHARES Merrill Lynch Pierce Fenner & Smith 11.20% For the Sole Benefit of its Customers 4800 Deer Lake Drive East, 2nd Floor Jacksonville, FL 32246-6484 CLASS B SHARES Merrill Lynch Pierce Fenner & Smith 5.12% For the Sole Benefit of its Customers 4800 Deer Lake Drive East, 2nd Floor Jacksonville, FL 32246-6484 CLASS C SHARES Merrill Lynch Pierce Fenner & Smith 20.65% For the Sole Benefit of its Customers 4800 Deer Lake Drive East, 2nd Floor Jacksonville, FL 32246-6484 CLASS Z SHARES Bank of America NA 18.25% 411 N. Akard Street Dallas, TX 75201-3307 NFS LLC FEBO 5.99% Albert Safer 1875 McCarter Hwy. Newark, NJ 07104-4211 |
SALES CHARGES (dollars in thousands)
Class A Shares
Year ended August 31,
---------------------
2005 2004(a) 2003
---- ------- ----
Aggregate initial sales charges on Fund share sales $232 $463 $141
Initial sales charges retained by CMD 35 61 16
Aggregate contingent deferred sales charge ("CDSC") on Fund
redemptions retained by CMD 0 (b) 1
Contingent redemption fees charged on Fund share
redemptions retained by the Fund 2 -- --
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Class B Shares
Year ended August 31,
----------------------
2005 2004(a) 2003
---- ------- ----
Aggregate CDSC on Fund redemptions retained by CMD $21 $44 $13
Contingent redemption fees charged on Fund share
redemptions retained by the Fund (b) -- --
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Class C Shares
Year ended August 31,
---------------------
2005 2004(a) 2003
---- ------- ----
Aggregate CDSC on Fund redemptions retained by CMD $3 $18 $ 2
Contingent redemption fees charged on Fund share
redemptions retained by the Fund (b) -- --
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Class Z Shares
------------------------
Period
Year ended ended
August 31, August 31,
----------- ----------
2005 2004 2003(c)
---- ---- ----------
Contingent redemption fees charged on Fund share
redemptions retained by the Fund (b) $7 $6
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(a) Effective October 9, 2003, the Fund began imposing a 2% redemption fee to shareholders of Class A, B and C shares who redeem shares held for 60 days or less.
(b) Rounds to less than one.
(c) Effective February 10, 2003, the Fund began imposing a 2% redemption fee to shareholders of Class Z shares who redeem shares held for 60 days or less. The amounts shown are for the period February 10, 2003 to August 31, 2003.
12B-1 PLAN, CDSCS AND CONVERSION OF SHARES
The Fund offers four classes of shares--Class A, Class B, Class C and Class Z. The Fund may in the future offer other classes of shares. The Trustees have approved a 12b-1 Plan ("Plan") for the Fund pursuant to Rule 12b-1 under the 1940 Act for each class except for Class Z shares. Under the Fund's Plan, the Fund pays CMD monthly a service fee at an annual rate of 0.25% of the Fund's net assets attributed to Class A, B and C shares. The Fund also pays CMD monthly a distribution fee at an annual rate of 0.75% of the average daily net assets attributed to its Class B and Class C shares. CMD may use the entire amount of such fees to defray the costs of commissions and service fees paid to financial service firms ("FSFs") and for certain other purposes. Since the distribution and service fees are payable regardless of the amount of CMD's expenses, CMD may realize a profit from the fees. The Plan authorizes any other payments by the Fund to CMD and its affiliates (including the Advisor) to the extent that such payments might be construed to be indirectly financing the distribution of the Fund's shares.
The Trustees believe the Plan could be a significant factor in the growth and retention of the Fund's assets, resulting in a more advantageous expense ratio and increased investment flexibility that could benefit each class of the Fund's shareholders. The Plan will continue in effect from year to year so long as continuance is specifically approved at least annually by a vote of the Trustees, including the Trustees who are not interested persons of the Trust and have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan ("Independent Trustees"), cast in person at a meeting called for the purpose of voting on the Plan. The Plan may not be amended to increase the fee materially without approval by vote of a majority of the outstanding voting securities of the relevant class of shares, and all material amendments of the Plan must be approved by the Trustees in the manner provided in the foregoing sentence. The Plan may be terminated at any time by vote of a majority of the independent Trustees or by vote of a majority of the outstanding voting securities of the relevant class of shares. The continuance of the Plan will only be effective if the selection and nomination of the Trustees of the Trust who are not interested persons of the Trust is effected by such disinterested Trustees.
Class A shares are offered at net asset value plus varying sales charges which may include a CDSC. Class B shares are offered at net asset value subject to a CDSC if redeemed within six years after purchase. Class C shares are offered at net asset value and are subject to a 1.00% CDSC on redemptions within one year after purchase. Class Z shares are offered at net asset value and are not subject to a CDSC. The CDSCs and initial sales charges are described in the Prospectuses.
No CDSC will be imposed on shares derived from reinvestment of distributions or on amounts representing capital appreciation. In determining the applicability and rate of any CDSC, it will be assumed that a redemption is made first of shares representing capital appreciation, next of shares representing reinvestment of distributions and finally of other shares held by the shareholder for the longest period of time.
j
Eight years after the end of the month in which a Class B share is purchased, such share and a pro rata portion of any shares issued on the reinvestment of distributions will be automatically converted into Class A shares, having an equal value, which are not subject to a distribution fee.
SALES-RELATED EXPENSES (dollars in thousands) of CMD relating to Class A, B, and C shares of the Fund were:
Year ended August 31, 2005
---------------------------
Class A Class B Class C
Shares Shares Shares
------- ------- -------
Fees to FSFs $129 $94 $112
Cost of sales material relating to the Fund
(including printing and mailing expenses) 12 3 5
Allocated travel, entertainment and other
promotional expenses (including advertising) 18 4 8
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CUSTODIAN
State Street Bank & Trust Company, located at 2 Avenue de Lafayette, Boston, Massachusetts 02111-2900, is the Fund's custodian. The custodian is responsible for safeguarding and controlling the Fund's cash and securities, receiving and delivering securities and collecting the Fund's interest and dividends.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP, located at 125 High Street, Boston, Massachusetts 02110-1707, is the Fund's independent registered public accounting firm, providing audit and tax return review services and assistance and consultation in connection with the review of various Securities and Exchange Commission filings. The financial statements incorporated by reference in this SAI have been so incorporated, and the financial highlights included in the Prospectuses have been so included for the years ended August 31, 2005 and 2004, in reliance upon the report of PricewaterhouseCoopers LLP given on the authority of said firm as experts in accounting and auditing. For the years ended August 31, 2003 and prior, another independent registered public accounting firm served as the Fund's independent registered public accounting firm. The financial statements for the Fund incorporated by reference in this SAI have been so incorporated, and the financial highlights included in the Prospectuses have been so included, in reliance upon the reports of the other independent registered public accounting firm for the fiscal years ended August 31, 2003, 2002 and 2001 given on the authority of said firm as experts in accounting and auditing.
k
STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to most funds advised by the Advisor. "Funds" include the series of Columbia Funds Trust I, Columbia Funds Trust II, Columbia Funds Trust III, Columbia Funds Trust IV, Columbia Funds Trust V, Columbia Funds Trust VI, , Columbia Funds Trust VIII, Columbia Funds Series Trust I (formerly named Columbia Funds Trust IX) and Columbia Funds Trust XI (each a Trust and together, the Trusts, also known as Fund Complex). In certain cases, the discussion applies to some, but not all, of the Funds, and you should refer to your Fund's Prospectus and to Part 1 of this Statement of Additional Information ("SAI") to determine whether the matter is applicable to your Fund. You will also be referred to Part 1 for certain data applicable to your Fund.
MISCELLANEOUS INVESTMENT PRACTICES
PART 1 OF THIS SAI LISTS ON PAGE B WHICH OF THE FOLLOWING INVESTMENT PRACTICES
ARE AVAILABLE TO YOUR FUND. IF AN INVESTMENT PRACTICE IS NOT LISTED IN PART 1 OF THIS SAI, IT IS NOT APPLICABLE TO YOUR FUND.
SHORT-TERM TRADING
In seeking the Fund's investment goal, the Advisor will buy or sell portfolio securities whenever it believes it is appropriate. The Advisor's decision will not generally be influenced by how long the Fund may have owned the security. From time to time, the Fund will buy securities intending to seek short-term trading profits. A change in the securities held by the Fund is known as "portfolio turnover" and generally involves some expense to the Fund. These expenses may include brokerage commissions or dealer mark-ups and other transaction costs on both the sale of securities and the reinvestment of the proceeds in other securities. If sales of portfolio securities cause the Fund to realize net short-term capital gains, such gains will be taxable as ordinary income. As a result of the Fund's investment policies, under certain market conditions the Fund's portfolio turnover rate may be higher than that of other mutual funds. The Fund's portfolio turnover rate for a fiscal year is the ratio of the lesser of purchases or sales of portfolio securities to the monthly average of the value of portfolio securities, excluding securities whose maturities at acquisition were one year or less. The Fund's portfolio turnover rate is not a limiting factor when the Advisor considers a change in the Fund's portfolio.
SHORT SALES
A Fund's short sales are subject to special risks. A short sale involves the sale by the Fund of a security that it does not own with the hope of purchasing the same security at a later date at a lower price. In order to deliver the security to the buyer, the Fund borrows the security from a third party. The Fund is then obligated to return the security to the third party, so the Fund must purchase the security at the market price at a later point in time. If the price of the security has increased during this time, then the Fund will incur a loss equal to the increase in price of the security from the time that the short sale was entered into plus any premiums and interest paid to the third party. Therefore, short sales involve the risk that losses may be exaggerated, potentially losing more money than the actual cost of the security. Also, there is the risk that the third party to the short sale may fail to honor its contract terms, causing a loss to the Fund.
LOWER-RATED DEBT SECURITIES
Lower-rated debt securities are those rated lower than Baa by Moody's or BBB by S&P, or comparable unrated debt securities. Relative to debt securities of higher quality,
1. an economic downturn or increased interest rates may have a more significant effect on the yield, price and potential for default for lower-rated debt securities;
2. the secondary market for lower-rated debt securities may at times become less liquid or respond to adverse publicity or investor perceptions, increasing the difficulty in valuing or disposing of the bonds;
3. the Advisor's credit analysis of lower-rated debt securities may have a greater impact on the Fund's achievement of its investment goal; and
4. lower-rated debt securities may be less sensitive to interest rate changes, but are more sensitive to adverse economic developments.
In addition, certain lower-rated debt securities may not pay interest in cash on a current basis.
SMALL COMPANIES
Smaller, less well established companies may offer greater opportunities for capital appreciation than larger, better established companies, but may also involve certain special risks related to limited product lines, markets, or financial resources and dependence on a small management group. Their securities may trade less frequently, in smaller volumes, and fluctuate more sharply in value than securities of larger companies.
COMMON STOCK, PREFERRED STOCK AND WARRANTS
Common stocks are generally more volatile than other securities. Preferred stocks share some of the characteristics of both debt and equity investments and are generally preferred over common stocks with respect to dividends and in liquidation. A warrant is an instrument issued by a corporation which gives the holder the right to subscribe to a specified amount of the company's capital stock at a set price for a specified period of time.
FOREIGN SECURITIES
The Fund may invest in securities traded in markets outside the United States. Foreign investments can be affected favorably or unfavorably by changes in currency rates and in exchange control regulations. There may be less publicly available information about a foreign company than about a U.S. company, and foreign companies may not be subject to accounting, auditing and financial reporting standards comparable to those applicable to U.S. companies. Securities of some foreign companies are less liquid or more volatile than securities of U.S. companies, and foreign brokerage commissions and custodian fees may be higher than in the United States. Investments in foreign securities can involve other risks different from those affecting U.S. investments, including local political or economic developments, expropriation or nationalization of assets and imposition of withholding taxes on dividend or interest payments. Foreign securities, like other assets of the Fund, will be held by the Fund's custodian or by a sub-custodian or depository. See also "Foreign Currency Transactions" below.
The Fund may invest in certain Passive Foreign Investment Companies (PFICs) which may be subject to U.S. federal income tax on a portion of any "excess distribution" or gain (PFIC tax) related to the investment. This "excess distribution" will be allocated over the Fund's holding period for such investment. The PFIC tax is the highest ordinary income rate in effect for any period multiplied by the portion of the "excess distribution" allocated to such period, and it could be increased by an interest charge on the deemed tax deferral.
The Fund may possibly elect to include in its income its pro rata share of the ordinary earnings and net capital gain of PFICs. This election requires certain annual information from the PFICs which in many cases may be difficult to obtain. An alternative election would permit the Fund to recognize as income any appreciation (and to a limited extent, depreciation) on its holdings of PFICs as of the end of its fiscal year. See "Taxes" below.
The Fund may invest in other investment companies. Such investments will involve the payment of duplicative fees through the indirect payment of a portion of the expenses, including advisory fees, of such other investment companies.
EXCHANGE-TRADED FUNDS ("ETFS"). The Fund may invest in ETFs up to the maximum amount allowable under the 1940 Act. ETFs are shares of publicly-traded unit investment trusts, open-end funds, or depositary receipts that seek to track the performance and dividend yield of specific indexes or companies in related industries. These indexes may be either broad- based, sector or international.
ETF shareholders are generally subject to the same risks as holders of the underlying securities they are designed to track. ETFs are also subject to certain additional risks, including (1) the risk that their prices may not correlate perfectly with changes in the prices of the underlying securities they are designed to track; and (2) the risk of possible trading halts due to market conditions or other reasons, based on the policies of the exchange upon which an ETF trades. In addition, an exchange traded sector fund may be adversely affected by the performance of that specific sector or group of industries on which it is based.
The Fund would bear, along with other shareholders of an ETF, its pro rata portion of the ETF's expenses, including management fees. Accordingly, in addition to bearing their proportionate share of the Fund's expenses (i.e., management fees and operating expenses), shareholders of the Fund may also indirectly bear similar expenses of an ETF.
ZERO COUPON SECURITIES ("ZEROS")
The Fund may invest in Zeros, which are securities issued at a significant discount from face value and do not pay interest at intervals during the life of the security. Zeros include securities issued in certificates representing undivided interests in the interest or principal of mortgage-backed securities (interest only/principal only), which tend to be more volatile than other types of securities. The Fund will accrue and distribute income from stripped securities and certificates on a current basis and may have to sell securities to generate cash for distributions.
STEP COUPON BONDS ("STEPS")
The Fund may invest in debt securities, known as Steps, which pay interest at a series of different rates (including 0%) in accordance with a stated schedule for a series of periods. In addition to the risks associated with the credit rating of the issuers, these securities may be subject to more volatility risk than fixed rate debt securities.
TENDER OPTION BONDS
A tender option bond is a municipal security (generally held pursuant to a custodial arrangement) having a relatively long maturity and bearing interest at a fixed rate substantially higher than prevailing short-term tax-exempt rates, that has been coupled with the agreement of a third party, such as a bank, broker-dealer or other financial institution, pursuant to which such institution grants the security holders the option, at periodic intervals, to tender their securities to the institution and receive the face value thereof. As consideration for providing the option, the financial institution receives periodic fees equal to the difference between the municipal security's fixed coupon rate and the rate, as determined by a remarketing or similar agent at or near the commencement of such period, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term tax-exempt rate. The Advisor will consider on an ongoing basis the creditworthiness of the issuer of the underlying municipal securities, of any custodian, and of the third-party provider of the tender option. In certain instances and for certain tender option bonds, the option may be terminable in the event of a default in payment of principal or interest on the underlying municipal securities and for other reasons.
PAY-IN-KIND ("PIK") SECURITIES
The Fund may invest in securities which pay interest either in cash or additional securities. These securities are generally high yield securities and, in addition to the other risks associated with investing in high yield securities, are subject to the risks that the interest payments which consist of additional securities are also subject to the risks of high yield securities.
MONEY MARKET INSTRUMENTS
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their subdivisions, agencies and instrumentalities. SUPRANATIONAL OBLIGATIONS are issued by supranational entities and are generally designed to promote economic improvements. CERTIFICATES OF DEPOSIT are issued against deposits in a commercial bank with a defined return and maturity. BANKER'S ACCEPTANCES are used to finance the import, export or storage of goods and are "accepted" when guaranteed at maturity by a bank. COMMERCIAL PAPER is a promissory note issued by a business to finance short-term needs (including promissory notes with floating or variable interest rates, or including a frequent interval put feature). SHORT-TERM CORPORATE OBLIGATIONS are bonds and notes (with one year or less to maturity at the time of purchase) issued by businesses to finance long-term needs. PARTICIPATION INTERESTS include the underlying securities and any related guaranty, letter of credit, or collateralization arrangement in which the Fund would be allowed to invest directly.
CERTIFICATES OF DEPOSIT are short-term negotiable instruments issued against deposits in a commercial bank with a defined return and maturity. TIME DEPOSITS are non-negotiable deposits maintained in banking institutions for specified periods of time at stated interest rates.
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their subdivisions, agencies and instrumentalities. Examples of the types of obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities (hereinafter, "U.S. Government obligations") that may be held by the Funds include, without limitation, direct obligations of the U.S. Treasury, and securities issued or guaranteed by the Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association, Federal National Mortgage Association, General Services Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks, Resolution Trust Corporation and Maritime Administration.
U.S. Treasury securities differ only in their interest rates, maturities and time of issuance: Treasury Bills have initial maturities of one year or less; Treasury Notes have initial maturities of one to ten years; and Treasury Bonds generally have initial maturities of more than ten years. Obligations of certain agencies and instrumentalities of the U.S. Government, such as those of the Government National Mortgage Association, are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Federal Home Loan Banks, are supported by the right of the issuer to borrow from the Treasury; others, such as those of the Federal National Mortgage Association, are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; still others, such as those of the Federal Home Loan Mortgage Corporation, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government would provide financial support to U.S. Government-sponsored instrumentalities if it is not obligated to do so by law. Some of these instruments may be variable or floating rate instruments.
Securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities have historically involved relatively little risk of loss of principal. However, due to fluctuations in interest rates, the market value of such securities may vary during the period a shareholder owns shares of the Fund.
BANK OBLIGATIONS include bankers' acceptances, negotiable certificates of deposit, and non-negotiable time deposits issued for a definite period of time and earning a specified return by a U.S. bank which is a member of the Federal Reserve System or is insured by the Federal Deposit Insurance Corporation ("FDIC"), or by a savings and loan association or savings bank which is insured by the FDIC. Bank obligations also include U.S. dollar-denominated obligations of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of the same type as domestic bank obligations. Time deposits with a maturity longer than seven days or that do not provide for payment within seven days after notice will be subject to any limitations on illiquid securities described in Part 1 of this SAI. For purposes of each Fund's investment policies with respect to bank obligations, the assets of a bank or savings institution will be deemed to include the assets of its U.S. and foreign branches.
Domestic and foreign banks are subject to extensive but different government regulation which may limit the amount and types of their loans and the interest rates that may be charged. In addition, the profitability of the banking industry is largely dependent upon the availability and cost of funds to finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S. branches of foreign banks may subject a Fund to additional risks, including future political and economic developments, the possible imposition of withholding taxes on interest income, possible seizure or nationalization of foreign deposits, the possible establishment of exchange controls, or the adoption of other foreign governmental restrictions which might adversely affect the payment of principal and interest on such obligations. In addition, foreign branches of U.S. banks and U.S. branches of foreign banks may be subject to less stringent reserve requirements and to different accounting, auditing, reporting, and recordkeeping standards than those applicable to domestic branches of U.S. banks.
SEPARATELY TRADED INTEREST AND PRINCIPAL SECURITIES ("STRIPS") are component parts of U.S. Treasury Securities traded through the Federal Reserve Book-Entry System. While there is no limitation on the percentage of a Fund's assets that may be invested in STRIPS, the Advisor will monitor the level of such holdings to avoid the risk of impairing shareholders' redemption rights. The interest-only component of STRIPS is extremely sensitive to the rate of principal payments on the underlying obligation. The market value of the principal-only component is usually volatile in response to changes in interest rates.
In U.S. TREASURY ROLLS, a Fund sells outstanding U.S. Treasury securities and buys back on a delayed settlement basis the same U.S. Treasury securities. During the period prior to the delayed settlement date, the assets from the sale of the U.S. Treasury securities are invested in certain cash equivalent instruments. U.S. Treasury rolls entail the risk that the Fund could suffer an opportunity loss if the counterparty to the roll failed to perform its obligations on the settlement date, and if market conditions changed adversely. The Funds intend to enter into U.S. Treasury rolls only with U.S. Government securities dealers recognized by the Federal Reserve Bank or with member banks of the Federal Reserve System. The Funds will hold and maintain in a segregated account until the settlement date cash or other liquid assets in an amount equal to the forward purchase price. For financial reporting and tax purposes, the Funds propose to treat U.S. Treasury rolls as two separate transactions, one involving the purchase of a security and a separate transaction involving a sale.
COMMERCIAL PAPER is an unsecured short-term promissory note issued by businesses to finance short-term needs (including those with floating or variable interest rates, or including a frequent interval put feature). Commercial paper may include variable and floating rate instruments which are unsecured instruments that permit the indebtedness thereunder to vary. Variable rate instruments provide for periodic adjustments in the interest rate. Floating rate instruments provide for automatic adjustment of the interest rate whenever some other specified interest rate changes. Some variable and floating rate obligations are direct lending arrangements between the purchaser and the issuer and there may be no active secondary market. However, in the case of variable and floating rate obligations with a demand feature, a Fund may demand payment of principal and accrued interest at a time specified in the instrument or may resell the instrument to a third party. In the event that an issuer of a variable or floating rate obligation were to default on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and could, for this or other reasons, suffer a loss to the extent of the default.
Commercial paper may include securities issued by corporations without registration under the 1933 Act in reliance on the so-called "private placement" exemption in Section 4(2) ("Section 4(2) Paper"). Section 4(2) Paper is restricted as to disposition under the federal securities laws in that any resale must similarly be made in an exempt transaction. Section 4(2) Paper is normally resold to other institutional investors through or with the assistance of investment dealers who make a market in Section 4(2) Paper, thus providing liquidity. For purposes of each Fund's limitation on purchases of illiquid instruments described below, Section 4(2) Paper will not be considered illiquid if the Advisor has determined, in accordance with guidelines approved by the Board of Trustees, that an adequate trading market exists for such securities.
STRIPPED OBLIGATIONS
To the extent consistent with their investment objective, Funds may purchase U.S. Treasury receipts and other "stripped" securities that evidence ownership in either the future interest payments or the future principal payments on U.S. Government and other obligations. These participations, which may be issued by the U.S. Government or by private issuers, such as banks and other institutions, are issued at their "face value," and may include stripped mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage securities. Stripped securities, particularly SMBS, may exhibit greater price volatility than ordinary debt securities because of the manner in which their principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive different proportions of the interest and principal distributions from a pool of mortgage-backed obligations. A common type of SMBS will have one class receiving all of the interest, while the other class will receive all of the principal. However, in some instances, one class will receive some of the interest and most of the principal while the other class will receive most of the interest and the remainder of the principal. If the underlying obligations experience greater than anticipated prepayments of principal, the Fund may fail to fully recoup its initial investment in these securities. The market value of the class consisting entirely of principal payments generally is extremely volatile in response to changes in interest rates. The yields on a class of SMBS that receives all or most of the interest are generally higher than prevailing market yields on other mortgage-backed obligations because their cash flow patterns are more volatile and there is a greater risk that the initial investment will not be fully recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government agency or instrumentality) are considered illiquid by the Funds. Obligations issued by the U.S. Government may be considered liquid under guidelines established by Funds' Board of Trustees if they can be disposed of promptly in the ordinary course of business at a value reasonably close to that used in the calculation of net asset value per share.
MUNICIPAL SECURITIES
Municipal Securities acquired by the Funds include debt obligations issued by governmental entities to obtain funds for various public purposes, including the construction of a wide range of public facilities, the refunding of outstanding obligations, the payment of general operating expenses, and the extension of loans to public institutions and facilities. Private activity bonds that are issued by or on behalf of public authorities to finance various privately operated facilities are "Municipal Securities" if the interest paid thereon is exempt from regular federal income tax and not treated as a specific tax preference item under the federal alternative minimum tax.
The two principal classifications of Municipal Securities which may be held by the Funds are "general obligation" securities and "revenue" securities. General obligation securities are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue securities are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific revenue source such as the user of the facility being financed.
The Fund's portfolio may also include "moral obligation" securities, which are normally issued by special purpose public authorities. If the issuer of moral obligation securities is unable to meet its debt service obligations from current revenues, it may draw on a reserve fund, the restoration of which is a moral commitment but not a legal obligation of the state or municipality which created the issuer. There is no limitation on the amount of moral obligation securities that may be held by the Funds.
There are, of course, variations in the quality of Municipal Securities, both within a particular category and between categories, and the yields on Municipal Securities depend upon a variety of factors, including general market conditions, the financial condition of the issuer, general conditions of the municipal bond market, the size of a particular offering, the maturity of the obligation, and the rating of the issue. The ratings of a nationally recognized statistical rating organization ("NRSRO"), such as Moody's and S&P, represent such NRSRO's opinion as to the quality of Municipal Securities. It should be emphasized that these ratings are general and are not absolute standards of quality. Municipal Securities with the same maturity, interest rate and rating may have different yields. Municipal Securities of the same maturity and interest rate with different ratings may have the same yield.
Municipal Securities may include rated and unrated variable and floating rate tax-exempt instruments, such as variable rate demand notes. Variable rate demand notes are long-term Municipal Securities that have variable or floating interest rates and provide a Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on an applicable interest index or another published interest rate or interest rate index. Most variable rate demand notes allow a Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit a Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. Variable interest rates generally reduce changes in the market value of Municipal Securities from their original purchase prices. Accordingly, as interest rates decrease, the potential for capital appreciation is less for variable rate Municipal Securities than for fixed income obligations. The terms of these variable rate demand instruments require payment of principal and accrued interest from the issuer of the Municipal Securities, the issuer of the participation interest or a guarantor of either issuer.
Municipal Securities purchased by the Funds in some cases may be insured as to the timely payment of principal and interest. There is no guarantee, however, that the insurer will meet its obligations in the event of a default in payment by the issuer. In other cases, Municipal Securities may be backed by letters of credit or guarantees issued by domestic or foreign banks or other financial institutions which are not subject to federal deposit insurance. Adverse developments affecting the banking industry generally or a particular bank or financial institution that has provided its credit or guarantee with respect to a Municipal Security held by a Fund, including a change in the credit quality of any such bank or financial institution, could result in a loss to the Fund and adversely affect the value of its shares. Letters of credit and guarantees issued by foreign banks and financial institutions involve certain risks in addition to those of similar instruments issued by domestic banks and financial institutions.
The payment of principal and interest on most Municipal Securities purchased by the Funds will depend upon the ability of the issuers to meet their obligations. Each state, the District of Columbia, each of their political subdivisions, agencies, instrumentalities and authorities and each multi-state agency of which a state is a member is a separate "issuer" as that term is used in this SAI and the Prospectuses. The non-governmental user of facilities financed by private activity bonds is also considered to be an "issuer." An issuer's obligations under its Municipal Securities are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Code and laws, if any, which may be enacted by federal or state legislatures extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations or upon the ability of municipalities to levy taxes. The power or ability of an issuer to meet its obligations for the payment of interest on and principal of its Municipal Securities may be materially adversely affected by litigation or other conditions.
From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax exemption for interest on Municipal Securities. For example, under the Tax Reform Act of 1986, interest on certain private activity bonds must be included in an investor's federal alternative minimum taxable income, and corporate investors must include all tax-exempt interest in their federal alternative minimum taxable income. The Funds cannot, of course, predict what legislation may be proposed in the future regarding the income tax status of interest on Municipal Securities, or which proposals, if any, might be enacted. Such proposals, while pending or if enacted, might materially and adversely affect the availability of Municipal Securities for investment by the Funds and the liquidity and value of their respective portfolios. In such an event, each Fund would re-evaluate its investment objective and policies and consider possible changes in its structure or possible dissolution.
Opinions relating to the validity of Municipal Securities and to the exemption of interest thereon from federal income tax are rendered by bond counsel to the respective issuers at the time of issuance. Neither the Funds nor the Advisor will review the proceedings relating to the issuance of Municipal Securities or the bases for such opinions.
PRIVATE ACTIVITY BONDS
The Funds may invest in "private activity bonds," the interest on which, although exempt from regular federal income tax, may constitute an item of tax preference for purposes of the federal alternative minimum tax. Private activity bonds are or have been issued to obtain funds to provide, among other things, privately operated housing facilities, pollution control facilities, convention or trade show facilities, mass transit, airport, port or parking facilities and certain local facilities for water supply, gas, electricity or sewage or solid waste disposal. Private activity bonds are also issued to privately held or publicly owned corporations in the financing of commercial or industrial facilities. State and local governments are authorized in most states to issue private activity bonds for such purposes in order to encourage corporations to locate within their communities. The principal and interest on these obligations may be payable from the general revenues of the users of such facilities.
Private activity bonds held by the Funds are in most cases revenue securities and are not payable from the unrestricted revenues of the issuer. Consequently, the credit quality of such private activity bonds is usually directly related to the credit standing of the corporate user of the facility involved.
MUNICIPAL LEASE OBLIGATIONS
Although a municipal lease obligation does not constitute a general obligation of the municipality for which the municipality's taxing power is pledged, a municipal lease obligation is ordinarily backed by the municipality's covenant to budget for, appropriate and make the payments due under the municipal lease obligation. However, certain lease obligations contain "non- appropriation" clauses which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. Although "non-appropriation" lease obligations are secured by the leased property, disposition of the property in the event of foreclosure might prove difficult. In addition, the tax treatment of such obligations in the event of non-appropriation is unclear.
Determinations concerning the liquidity and appropriate valuation of a municipal lease obligation, as with any other municipal security, are made based on all relevant factors. These factors include, among others: (1) the frequency of trades and quotes for the obligation; (2) the number of dealers willing to purchase or sell the security and the number of other potential buyers; (3) the willingness of dealers to undertake to make a market in the security; and (4) the nature of the marketplace trades, including the time needed to dispose of the security, the method of soliciting offers, and the mechanics of the transfer.
SECURITIES LOANS
The Fund may make secured loans of its portfolio securities amounting to not more than the percentage of its total assets specified in Part 1 of this SAI, thereby realizing additional income. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delay in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. As a matter of policy, securities loans are made to banks and broker-dealers pursuant to agreements requiring that loans be continuously secured by collateral in cash or short-term debt obligations at least equal at all times to the value of the securities on loan. The borrower pays to the Fund an amount equal to any dividends or interest received on securities lent. The Fund retains all or a portion of the interest received on investment of the cash collateral or receives a fee from the borrower. Although voting rights, or rights to consent, with respect to the loaned securities pass to the borrower, the Fund retains the right to call the loans at any time on reasonable notice, and it will do so in order that the securities may be voted by the Fund if the holders of such securities are asked to vote upon or consent to matters materially affecting the investment. The Fund may also call such loans in order to sell the securities involved.
INTERFUND BORROWING AND LENDING
The Fund may lend money to and borrow money from other affiliated registered open-end investment companies. The Fund may borrow through the program when the Advisor believes borrowing is appropriate and the costs are equal to or lower than the costs of bank loans. When borrowing money, the Fund is subject to the risk that the securities the Fund acquires with the borrowed money or would otherwise have sold will decline in value. When lending money, the Fund is subject to the risk that the borrower will be unwilling or unable to make timely payments of interest or principal.
FORWARD COMMITMENTS ("WHEN-ISSUED" AND "DELAYED DELIVERY" SECURITIES)
The Fund may enter into contracts to purchase securities for a fixed price at a future date beyond customary settlement time ("forward commitments" and "when-issued securities") if the Fund holds until the settlement date, in a segregated account, cash or liquid securities in an amount sufficient to meet the purchase price, or if the Fund enters into offsetting contracts for the forward sale of other securities it owns. Forward commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date. Where such purchases are made through dealers, the Fund relies on the dealer to consummate the sale. The dealer's failure to do so may result in the loss to the Fund of an advantageous yield or price. Although the Fund will generally enter into forward commitments with the intention of acquiring securities for its portfolio or for delivery pursuant to options contracts it has entered into, the Fund may dispose of a commitment prior to settlement if the Advisor deems it appropriate to do so. The Fund may realize short-term profits or losses (generally taxed at ordinary income tax rates in the hands of the shareholders) upon the sale of forward commitments.
MORTGAGE DOLLAR ROLLS
In a mortgage dollar roll, the Fund sells a mortgage-backed security and simultaneously enters into a commitment to purchase a similar security at a later date. The Fund either will be paid a fee by the counterparty upon entering into the transaction or will be entitled to purchase the similar security at a discount. As with any forward commitment, mortgage dollar rolls involve the risk that the counterparty will fail to deliver the new security on the settlement date, which may deprive the Fund of obtaining a beneficial investment. In addition, the security to be delivered in the future may turn out to be inferior to the security sold upon entering into the transaction. In addition, the transaction costs may exceed the return earned by the Fund from the transaction.
REITS
The Funds may invest in real estate investment trusts ("REITs"). Equity REITs invest directly in real property while mortgage REITs invest in mortgages on real property. REITs may be subject to certain risks associated with the direct ownership of real estate, including declines in the value of real estate, risks related to general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, and variations in rental income. Generally, increases in interest rates will decrease the value of high yielding securities and increase the costs of obtaining financing, which could decrease the value of a REIT's investments. In addition, equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of credit extended. Equity and mortgage REITs are dependent upon management skill, are not diversified and are subject to the risks of financing projects. REITs are also subject to heavy cash flow dependency, defaults by borrowers, self liquidation and the possibility of failing to qualify for tax-free pass-through of income under the Internal Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from the 1940 Act. REITs pay dividends to their shareholders based upon available funds from operations. It is quite common for these dividends to exceed a REIT's taxable earnings and profits resulting in the excess portion of such dividends being designated as a return of capital. The Funds intend to include the gross dividends from any investments in REITs in their periodic distributions to its shareholders and, accordingly, a portion of the Fund's distributions may also be designated as a return of capital.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities, including "collateralized mortgage obligations" (CMOs) and "real estate mortgage investment conduits" (REMICs), evidence ownership in a pool of mortgage loans made by certain financial institutions that may be insured or guaranteed by the U.S. government or its agencies. CMOs are obligations issued by special-purpose trusts, secured by mortgages. REMICs are entities that own mortgages and elect REMIC status under the Internal Revenue Code. Both CMOs and REMICs issue one or more classes of securities of which one (the Residual) is in the nature of equity. The Funds will not invest in the Residual class. Principal on mortgage-backed securities, CMOs and REMICs may be prepaid if the underlying mortgages are prepaid. Prepayment rates for mortgage-backed securities tend to increase as interest rates decline (effectively shortening the security's life) and decrease as interest rates rise (effectively lengthening the security's life). Because of the prepayment feature, these securities may not increase in value as much as other debt securities when interest rates fall. A Fund may be able to invest prepaid principal only at lower yields. The prepayment of such securities purchased at a premium may result in losses equal to the premium.
NON-AGENCY MORTGAGE-BACKED SECURITIES
The Fund may invest in non-investment grade mortgage-backed securities that are not guaranteed by the U.S. government or an agency. Such securities are subject to the risks described under "Lower Rated Debt Securities" and "Mortgage-Backed Securities." In addition, although the underlying mortgages provide collateral for the security, the Fund may experience losses, costs and delays in enforcing its rights if the issuer defaults or enters bankruptcy.
ASSET-BACKED SECURITIES
Asset-backed securities are interests in pools of debt securities backed by various types of loans such as credit card, auto and home equity loans. These securities involve prepayment risk, which is the possibility that the underlying debt may be refinanced or prepaid prior to maturity during periods of declining interest rates. During periods of rising interest rates, asset-backed securities have a high risk of declining in price because the declining prepayment rates effectively lengthen the expected maturity of the securities. A decline in interest rates may lead to a faster rate of repayment on asset-backed securities and, therefore, cause a Fund to earn a lower interest rate on reinvestment. In addition, the potential impact of prepayment on the price of an asset-backed security may be difficult to predict and result in greater volatility.
CUSTODY RECEIPTS AND TRUST CERTIFICATES. Custody receipts, such as Morgan Stanley TRACERs (Traded Custody Receipts), and trust certificates, such as Lehman Brothers TRAINs (Targeted Return Index Securities Trust), are derivative products which, in the aggregate, evidence direct ownership in a pool of securities. Typically, a sponsor will deposit a pool of securities with a custodian in exchange for custody receipts evidencing those securities or with a trust in exchange for trust certificates evidencing interests in the trust, the principal asset of which is those securities. The sponsor will then generally sell those custody receipts or trust certificates in negotiated transactions at varying prices that are determined at the time of sale. Each custody receipt or trust certificate evidences the individual securities in the pool and the holder of a custody receipt or trust certificate generally will have all the rights and privileges of owners of those securities. Each holder of a custody receipt or trust certificate generally will be treated as directly purchasing its pro rata share of the securities in the pool for an amount equal to the amount that such holder paid for its custody receipt or trust certificate. If a custody receipt or trust certificate is sold, a holder will be treated as having directly "disposed of its pro rata share of the securities evidenced by the custody receipt or trust certificate. Additionally, the holder of a custody receipt or trust certificate may withdraw the securities represented by the custody receipt or trust certificate subject to certain conditions. Custody receipts and trust certificates are generally subject to the same risks as those securities evidenced by the receipts or certificates which, in the case of the Fund, are corporate debt securities. Additionally, custody receipts and trust certificates may also be less liquid than the underlying securities if the sponsor fails to maintain a trading market.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. A repurchase agreement is a contract under which the Fund acquires a security for a relatively short period subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price (representing the Fund's cost plus interest). It is the Fund's present intention to enter into repurchase agreements only with commercial banks and registered broker-dealers and only with respect to obligations of the U.S. government or its agencies or instrumentalities. Repurchase agreements may also be viewed as loans made by the Fund which are collateralized by the securities subject to repurchase. The Advisor will monitor such transactions to determine that the value of the underlying securities is at least equal at all times to the total amount of the repurchase obligation, including the interest factor. If the seller defaults, the Fund could realize a loss on the sale of the underlying security to the extent that the proceeds of sale including accrued interest are less than the resale price provided in the agreement including interest. In addition, if the seller should be involved in bankruptcy or insolvency proceedings, the Fund may incur delay and costs in selling the underlying security or may suffer a loss of principal and interest if the Fund is treated as an unsecured creditor and required to return the underlying collateral to the seller's estate.
REVERSE REPURCHASE AGREEMENTS
In a reverse repurchase agreement, the Fund sells a security and agrees to repurchase the same security at a mutually agreed upon date and price. A reverse repurchase agreement may also be viewed as the borrowing of money by the Fund and, therefore, as a form of leverage. The Fund will invest the proceeds of borrowings under reverse repurchase agreements. In addition, the Fund will enter into a reverse repurchase agreement only when the interest income expected to be earned from the investment of the proceeds is greater than the interest expense of the transaction. The Fund will not invest the proceeds of a reverse repurchase agreement for a period which exceeds the duration of the reverse repurchase agreement. The Fund may not enter into reverse repurchase agreements exceeding in the aggregate one-third of the market value of its total assets, less liabilities other than the obligations created by reverse repurchase agreements. Each Fund will establish and maintain with its custodian a separate account with a segregated portfolio of securities in an amount at least equal to its purchase obligations under its reverse repurchase agreements. If interest rates rise during the term of a reverse repurchase agreement, entering into the reverse repurchase agreement may have a negative impact on a money market fund's ability to maintain a net asset value of $1.00 per share.
LINE OF CREDIT
The Fund may establish and maintain a line of credit with a major bank in order to permit borrowing on a temporary basis to meet share redemption requests in circumstances in which temporary borrowings may be preferable to liquidation of portfolio securities.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The Fund may write covered call options and covered put options on securities held in its portfolio when, in the opinion of the Advisor, such transactions are consistent with the Fund's investment goal and policies. Call options written by the Fund give the purchaser the right to buy the underlying securities from the Fund at a stated exercise price; put options give the purchaser the right to sell the underlying securities to the Fund at a stated price.
The Fund may write only covered options, which means that, so long as the Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option (or comparable securities satisfying the cover requirements of securities exchanges). In the case of put options, the Fund will hold cash and/or high-grade short-term debt obligations equal to the price to be paid if the option is exercised. In addition, the Fund will be considered to have covered a put or call option if and to the extent that it holds an option that offsets some or all of the risk of the option it has written. The Fund may write combinations of covered puts and calls on the same underlying security.
The Fund will receive a premium from writing a put or call option, which increases the Fund's return on the underlying security if the option expires unexercised or is closed out at a profit. The amount of the premium reflects, among other things, the relationship between the exercise price and the current market value of the underlying security, the volatility of the underlying security, the amount of time remaining until expiration, current interest rates, and the effect of supply and demand in the options market and in the market for the underlying security. By writing a call option, the Fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option but continues to bear the risk of a decline in the value of the underlying security. By writing a put option, the Fund assumes the risk that it may be required to purchase the underlying security for an exercise price higher than its then-current market value, resulting in a potential capital loss unless the security subsequently appreciates in value.
The Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an offsetting option. The Fund realizes a profit or loss from a closing transaction if the cost of the transaction (option premium plus transaction costs) is less or more than the premium received from writing the option. Because increases in the market price of a call option generally reflect increases in the market price of the security underlying the option, any loss resulting from a closing purchase transaction may be offset in whole or in part by unrealized appreciation of the underlying security.
If the Fund writes a call option but does not own the underlying security, and when it writes a put option, the Fund may be required to deposit cash or securities with its broker as "margin" or collateral for its obligation to buy or sell the underlying security. As the value of the underlying security varies, the Fund may have to deposit additional margin with the broker. Margin requirements are complex and are fixed by individual brokers, subject to minimum requirements currently imposed by the Federal Reserve Board and by stock exchanges and other self-regulatory organizations.
PURCHASING PUT OPTIONS. The Fund may purchase put options to protect its portfolio holdings in an underlying security against a decline in market value. Such hedge protection is provided during the life of the put option since the Fund, as holder of the put option, is able to sell the underlying security at the put exercise price regardless of any decline in the underlying security's market price. For a put option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs. By using put options in this manner, the Fund will reduce any profit it might otherwise have realized from appreciation of the underlying security by the premium paid for the put option and by transaction costs.
PURCHASING CALL OPTIONS. The Fund may purchase call options to hedge against an increase in the price of securities that the Fund wants ultimately to buy. Such hedge protection is provided during the life of the call option since the Fund, as holder of the call option, is able to buy the underlying security at the exercise price regardless of any increase in the underlying security's market price. In order for a call option to be profitable, the market price of the underlying security must rise sufficiently above the exercise price to cover the premium and transaction costs. These costs will reduce any profit the Fund might have realized had it bought the underlying security at the time it purchased the call option.
OVER-THE-COUNTER ("OTC") OPTIONS. The Staff of the Division of Investment Management of the Securities and Exchange Commission (SEC) has taken the position that OTC options purchased by the Fund and assets held to cover OTC options written by the Fund are illiquid securities. Although the Staff has indicated that it is continuing to evaluate this issue, pending further developments, the Fund intends to enter into OTC options transactions only with primary dealers in U.S. government securities and, in the case of OTC options written by the Fund, only pursuant to agreements that will assure that the Fund will at all times have the right to repurchase the option written by it from the dealer at a specified formula price. The Fund will treat the amount by which such formula price exceeds the amount, if any, by which the option may be "in-the-money" as an illiquid investment. It is the present policy of the Fund not to enter into any OTC option transaction if, as a result, more than 15% (10% in some cases, refer to your Fund's Prospectus) of the Fund's net assets would be invested in (i) illiquid investments (determined under the foregoing formula) relating to OTC options written by the Fund, (ii) OTC options purchased by the Fund, (iii) securities which are not readily marketable, and (iv) repurchase agreements maturing in more than seven days.
RISK FACTORS IN OPTIONS TRANSACTIONS. The successful use of the Fund's options strategies depends on the ability of the Advisor to forecast interest rate and market movements correctly.
When it purchases an option, the Fund runs the risk that it will lose its entire investment in the option in a relatively short period of time, unless the Fund exercises the option or enters into a closing sale transaction with respect to the option during the life of the option. If the price of the underlying security does not rise (in the case of a call) or fall (in the case of a put) to an extent sufficient to cover the option premium and transaction costs, the Fund will lose part or all of its investment in the option. This contrasts with an investment by the Fund in the underlying securities, since the Fund may continue to hold its investment in those securities notwithstanding the lack of a change in price of those securities.
The effective use of options also depends on the Fund's ability to terminate option positions at times when the Advisor deems it desirable to do so. Although the Fund will take an option position only if the Advisor believes there is a liquid secondary market for the option, there is no assurance that the Fund will be able to effect closing transactions at any particular time or at an acceptable price.
If a secondary trading market in options were to become unavailable, the Fund could no longer engage in closing transactions. Lack of investor interest might adversely affect the liquidity of the market for particular options or series of options. A marketplace may discontinue trading of a particular option or options generally. In addition, a market could become temporarily unavailable if unusual events -- such as volume in excess of trading or clearing capability -- were to interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on particular types of option transactions, which may limit the Fund's ability to realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options purchased or sold by the Fund could result in losses on the options. If trading is interrupted in an underlying security, the trading of options on that security is normally halted as well. As a result, the Fund as purchaser or writer of an option will be unable to close out its positions until options trading resumes, and it may be faced with losses if trading in the security reopens at a substantially different price. In addition, the Options Clearing Corporation (OCC) or other options markets may impose exercise restrictions. If a prohibition on exercise is imposed at the time when trading in the option has also been halted, the Fund as purchaser or writer of an option will be locked into its position until one of the two restrictions has been lifted. If a prohibition on exercise remains in effect until an option owned by the Fund has expired, the Fund could lose the entire value of its option.
Special risks are presented by internationally traded options. Because of time differences between the United States and various foreign countries, and because different holidays are observed in different countries, foreign options markets may be open for trading during hours or on days when U.S. markets are closed. As a result, option premiums may not reflect the current prices of the underlying interest in the United States.
FUTURES CONTRACTS AND RELATED OPTIONS
Upon entering into futures contracts, in compliance with the SEC's requirements, cash or liquid securities, equal in value to the amount of the Fund's obligation under the contract (less any applicable margin deposits and any assets that constitute "cover" for such obligation), will be segregated with the Fund's custodian.
A futures contract sale creates an obligation by the seller to deliver the type of instrument called for in the contract in a specified delivery month for a stated price. A futures contract purchase creates an obligation by the purchaser to take delivery of the type of instrument called for in the contract in a specified delivery month at a stated price. The specific instruments delivered or taken at the settlement date are not determined until on or near that date. The determination is made in accordance with the rules of the exchanges on which the futures contract was made. The Fund may enter into futures contracts which are traded on national or foreign futures exchanges and are standardized as to maturity date and underlying financial instrument. Futures exchanges and trading in the United States are regulated under the Commodity Exchange Act by the Commodity Futures Trading Commission (CFTC).
Although futures contracts by their terms call for actual delivery or acceptance of commodities or securities, the contracts usually are closed out before the settlement date without the making or taking of delivery. Closing out a futures contract sale is effected by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument or commodity with the same delivery date. If the price of the initial sale of the futures contract exceeds the price of the offsetting purchase, the seller is paid the difference and realizes a gain. Conversely, if the price of the offsetting purchase exceeds the price of the initial sale, the seller realizes a loss. Similarly, the closing out of a futures contract purchase is effected by the purchaser's entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, the purchaser realizes a gain, and if the purchase price exceeds the offsetting sale price, the purchaser realizes a loss.
Unlike when the Fund purchases or sells a security, no price is paid or received by the Fund upon the purchase or sale of a futures contract, although the Fund is required to deposit with its custodian in a segregated account in the name of the futures broker an amount of cash and/or U.S. government securities. This amount is known as "initial margin." The nature of initial margin in futures transactions is different from that of margin in security transactions in that futures contract margin does not involve the borrowing of funds by the Fund to finance the transactions. Rather, initial margin is in the nature of a performance bond or good faith deposit on the contract that is returned to the Fund upon termination of the futures contract, assuming all contractual obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin," to and from the broker (or the custodian) are made on a daily basis as the price of the underlying security or commodity fluctuates, making the long and short positions in the futures contract more or less valuable, a process known as "marking to market."
The Fund may elect to close some or all of its futures positions at any time prior to their expiration. The purpose of making such a move would be to reduce or eliminate the hedge position then currently held by the Fund. The Fund may close its positions by taking opposite positions which will operate to terminate the Fund's position in the futures contracts. Final determinations of variation margin are then made, additional cash is required to be paid by or released to the Fund, and the Fund realizes a loss or a gain. Such closing transactions involve additional commission costs.
INTEREST RATE FUTURES CONTRACTS. Bond prices are established in both the cash market and the futures market. In the cash market, bonds are purchased and sold with payment for the full purchase price of the bond being made in cash, generally within five business days after the trade. In the futures market, only a contract is made to purchase or sell a bond in the future for a set price on a certain date. Historically, the prices for bonds established in the futures markets have tended to move generally in the aggregate in concert with the cash market prices and have maintained fairly predictable relationships. Accordingly, the Funds may use interest rate futures contracts as a defense, or hedge, against anticipated interest rate changes. The Funds presently could accomplish a similar result to that which they hope to achieve through the use of futures contracts by selling bonds with long maturities and investing in bonds with short maturities when interest rates are expected to increase, or conversely, selling short-term bonds and investing in long-term bonds when interest rates are expected to decline. However, because of the liquidity that is often available in the futures market, the protection is more likely to be achieved, perhaps at a lower cost and without changing the rate of interest being earned by the Funds, through using futures contracts.
Interest rate futures contracts are traded in an auction environment on the floors of several exchanges -- principally, the Chicago Board of Trade, the Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would deal only in standardized contracts on recognized exchanges. Each exchange guarantees performance under contract provisions through a clearing corporation, a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial instruments including long-term United States Treasury Bonds and Notes; Government National Mortgage Association (GNMA) modified pass-through mortgage backed securities; three-month United States Treasury Bills; and ninety-day commercial paper. The Funds may trade in any interest rate futures contracts for which there exists a public market, including, without limitation, the foregoing instruments.
MUNICIPAL BOND INDEX FUTURES CONTRACTS. Municipal bond index futures contracts may act as a hedge against changes in market conditions. A municipal bond index assigns values daily to the municipal bonds included in the index based on the independent assessment of dealer-to-dealer municipal bond brokers. A municipal bond index futures contract represents a firm commitment by which two parties agree to take or make delivery of an amount equal to a specified dollar amount multiplied by the difference between the municipal bond index value on the last trading date of the contract and the price at which the futures contract is originally struck. No physical delivery of the underlying securities in the index is made.
The Chicago Board of Trade has designed a futures contract based on the Bond Buyer Municipal Bond Index. This Index is composed of 40 term revenue and general obligation bonds, and its composition is updated regularly as new bonds meeting the criteria of the Index are issued and existing bonds mature. The Index is intended to provide an accurate indicator of trends and changes in the municipal bond market. Each bond in the Index is independently priced by six dealer-to-dealer municipal bond brokers daily. The 40 prices then are averaged and multiplied by a coefficient. The coefficient is used to maintain the continuity of the Index when its composition changes. The Chicago Board of Trade, on which futures contracts based on this Index are traded, as well as other U.S. commodities exchanges, are regulated by the CFTC. Transactions on such exchange are cleared through a clearing corporation, which guarantees the performance of the parties to each contract.
OPTIONS ON FUTURES CONTRACTS. The Fund will enter into written options on futures contracts only when, in compliance with the SEC's requirements, cash or liquid securities equal in value to the commodity value (less any applicable margin deposits) have been deposited in a segregated account. The Fund may purchase and write call and put options on futures contracts it may buy or sell and enter into closing transactions with respect to such options to terminate existing positions. The Fund may use such options on futures contracts in lieu of writing options directly on the underlying securities or purchasing and selling the underlying futures contracts. Such options generally operate in the same manner as options purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate his position by selling or purchasing an offsetting option. There is no guarantee that such closing transactions can be effected.
The Fund will be required to deposit initial margin and maintenance margin with respect to put and call options on futures contracts written by it pursuant to brokers' requirements similar to those described above.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use of futures contracts by the Fund is subject to the Advisor's ability to predict correctly, movements in the direction of interest rates and other factors affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or put options on futures contracts involves less potential risk to the Fund because the maximum amount at risk is the premium paid for the options (plus transaction costs). However, there may be circumstances when the purchase of a call or put option on a futures contract would result in a loss to the Fund when the purchase or sale of a futures contract would not, such as when there is no movement in the prices of the hedged investments. The writing of an option on a futures contract involves risks similar to those risks relating to the sale of futures contracts.
There is no assurance that higher than anticipated trading activity or other unforeseen events might not, at times, render certain market clearing facilities inadequate, and thereby result in the institution, by exchanges, of special procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the Fund, the Fund may seek to close out a position. The ability to establish and close out positions will be subject to the development and maintenance of a liquid secondary market. It is not certain that this market will develop or continue to exist for a particular futures contract. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain contracts or options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of contracts or options, or underlying securities; (iv)
unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or a clearing corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of contracts or options (or a particular class or series of contracts or options), in which event the secondary market on that exchange (or in the class or series of contracts or options) would cease to exist, although outstanding contracts or options on the exchange that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms.
USE BY TAX-EXEMPT FUNDS OF INTEREST RATE AND U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. The Funds investing in tax-exempt securities may purchase and sell futures contracts and related options on interest rate and U.S. Treasury securities when, in the opinion of the Advisor, price movements in these security futures and related options will correlate closely with price movements in the tax-exempt securities which are the subject of the hedge. Interest rate and U.S. Treasury securities futures contracts require the seller to deliver, or the purchaser to take delivery of, the type of security called for in the contract at a specified date and price. Options on interest rate and U.S. Treasury security futures contracts give the purchaser the right in return for the premium paid to assume a position in a futures contract at the specified option exercise price at any time during the period of the option.
In addition to the risks generally involved in using futures contracts, there is also a risk that price movements in interest rate and U.S. Treasury security futures contracts and related options will not correlate closely with price movements in markets for tax-exempt securities.
INDEX FUTURES CONTRACTS. An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of an index is commonly referred to as buying or purchasing a contract or holding a long position in the index. Entering into a contract to sell units of an index is commonly referred to as selling a contract or holding a short position. A unit is the current value of the index. The Fund may enter into stock index futures contracts, debt index futures contracts, or other index futures contracts appropriate to its objective(s). The Fund may also purchase and sell options on index futures contracts.
There are several risks in connection with the use by the Fund of index futures as a hedging device. One risk arises because of the imperfect correlation between movements in the prices of the index futures and movements in the prices of securities which are the subject of the hedge. The Advisor will attempt to reduce this risk by selling, to the extent possible, futures on indices the movements of which will, in its judgment, have a significant correlation with movements in the prices of the Fund's portfolio securities sought to be hedged.
Successful use of index futures by the Fund for hedging purposes is also subject to the Advisor's ability to predict correctly movements in the direction of the market. It is possible that, where the Fund has sold futures to hedge its portfolio against a decline in the market, the index on which the futures are written may advance and the value of securities held in the Fund's portfolio may decline. If this occurs, the Fund would lose money on the futures and also experience a decline in the value of its portfolio securities. However, while this could occur to a certain degree, the Advisor believes that over time the value of the Fund's portfolio will tend to move in the same direction as the market indices which are intended to correlate to the price movements of the portfolio securities sought to be hedged. It is also possible that, if the Fund has hedged against the possibility of a decline in the market adversely affecting securities held in its portfolio and securities prices increase instead, the Fund will lose part or all of the benefit of the increased values of those securities that it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient cash, it may have to sell securities to meet daily variation margin requirements.
In addition to the possibility that there may be an imperfect correlation, or no correlation at all, between movements in the index futures and the securities of the portfolio being hedged, the prices of index futures may not correlate perfectly with movements in the underlying index due to certain market distortions. First, all participants in the futures markets are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions which would distort the normal relationship between the index and futures markets. Second, margin requirements in the futures market are less onerous than margin requirements in the securities market, and as a result, the futures market may attract more speculators than the securities market. Increased participation by speculators in the futures market may also cause temporary price distortions. Due to the possibility of price distortions in the futures market and also because of the imperfect correlation between movements in the index and movements in the prices of index futures, even a correct forecast of general market trends by the Advisor may still not result in a successful hedging transaction.
OPTIONS ON INDEX FUTURES. Options on index futures are similar to options on securities except that options on index futures give the purchaser the right, in return for the premium paid, to assume a position in an index futures contract (a long position if the option is a call and a short position if the option is a put), at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's futures margin account which represents the amount by which the market price of the index futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the index future. If an option is exercised on the last trading day prior to the expiration date of the option, the settlement will be made entirely in cash equal to the difference between the exercise price of the option and the closing level of the index on which the future is based on the expiration date. Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss of the premium paid.
OPTIONS ON INDICES. As an alternative to purchasing call and put options on index futures, the Fund may purchase call and put options on the underlying indices themselves. Such options could be used in a manner identical to the use of options on index futures. Options involving securities indices provide the holder with the right to make or receive a cash settlement upon exercise of the option based on movements in the relevant index. Such options must be listed on a national securities exchange and issued by the Options Clearing Corporation. Such options may relate to particular securities or to various stock indices, except that a Fund may not write covered options on an index.
OPTIONS ON FOREIGN STOCK INDICES. The Funds may, for the purpose of hedging its portfolio, subject to applicable securities regulations, purchase and write put and call options on foreign stock indices listed on foreign and domestic stock exchanges. A stock index fluctuates with changes in the market values of the stocks included in the index.
SWAP AGREEMENTS (SWAPS, CAPS, COLLARS AND FLOORS)
The Funds may enter into interest rate swaps, currency swaps, and other types of swap agreements such as caps, collars, and floors. In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate times a "notional principal amount," in return for payments equal to a fixed rate times the same amount, for a specified period of time. If a swap agreement provides for payments in different currencies, the parties might agree to exchange notional principal amount as well. Swaps may also depend on other prices or rates, such as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed upon level. An interest rate collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from one type of investment to another. For example, if a Fund agreed to exchange payments in dollars for payments in foreign currency, the swap agreement would tend to decrease the Fund's exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates. Caps and floors have an effect similar to buying or writing options. Depending on how they are used, swap agreements may increase or decrease the overall volatility of a Fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a small investment of cash relative to the magnitude of risks assumed. As a result, swaps can be highly volatile and may have a considerable impact on the Funds' performance. Swap agreements are subject to risks related to the counterparty's ability to perform, and may decline in value if the counterparty's creditworthiness deteriorates. The Funds may also suffer losses if they are unable to terminate outstanding swap agreements or reduce their exposure through offsetting transactions.
EQUITY SWAPS
The Fund may engage in equity swaps. Equity swaps allow the parties to the swap agreement to exchange components of return on one equity investment (e.g., a basket of equity securities or an index) for a component of return on another non-equity or equity investment, including an exchange of differential rates of return. Equity swaps may be used to invest in a market without owning or taking physical custody of securities in circumstances where direct investment may be restricted for legal reasons or is otherwise impractical. Equity swaps also may be used for other purposes, such as hedging or seeking to increase total return.
RISK FACTORS IN EQUITY SWAP TRANSACTIONS. Equity swaps are derivative instruments and their values can be very volatile. To the extent that the portfolio managers do not accurately analyze and predict the potential relative fluctuation on the components swapped with the other party, the Fund may suffer a loss. The value of some components of an equity swap (such as the dividend on a common stock) may also be sensitive to changes in interest rates. Furthermore, during the period a swap is outstanding, the Fund may suffer a loss if the counterparty defaults. See "Taxes" for information on tax risks associated with equity swaps.
FOREIGN CURRENCY TRANSACTIONS
The Fund may engage in currency exchange transactions to protect against uncertainty in the level of future currency exchange rates.
The Fund may engage in both "transaction hedging" and "position hedging." When it engages in transaction hedging, the Fund enters into foreign currency transactions with respect to specific receivables or payables of the Fund generally arising in connection with the purchase or sale of its portfolio securities. The Fund will engage in transaction hedging when it desires to "lock in" the U.S. dollar price of a security it has agreed to purchase or sell, or the U.S. dollar equivalent of a dividend or interest payment in a foreign currency. By transaction hedging the Fund attempts to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and the applicable foreign currency during the period between the date on which the security is purchased or sold, or on which the dividend or interest payment is declared, and the date on which such payments are made or received.
The Fund may purchase or sell a foreign currency on a spot (or cash) basis at the prevailing spot rate in connection with the settlement of transactions in portfolio securities denominated in that foreign currency. The Fund may also enter into contracts to purchase or sell foreign currencies at a future date ("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes the Fund may also purchase exchange-listed and over-the-counter call and put options on foreign currency futures contracts and on foreign currencies. Over-the-counter options are considered to be illiquid by the SEC staff. A put option on a futures contract gives the Fund the right to assume a short position in the futures contract until expiration of the option. A put option on currency gives the Fund the right to sell a currency at an exercise price until the expiration of the option. A call option on a futures contract gives the Fund the right to assume a long position in the futures contract until the expiration of the option. A call option on currency gives the Fund the right to purchase a currency at the exercise price until the expiration of the option.
When it engages in position hedging, the Fund enters into foreign currency exchange transactions to protect against a decline in the values of the foreign currencies in which its portfolio securities are denominated (or an increase in the value of currency for securities which the Fund expects to purchase, when the Fund holds cash or short-term investments). In connection with position hedging, the Fund may purchase put or call options on foreign currency and foreign currency futures contracts and buy or sell forward contracts and foreign currency futures contracts. The Fund may also purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions and the value of the portfolio securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the dates the currency exchange transactions are entered into and the dates they mature.
It is impossible to forecast with precision the market value of portfolio securities at the expiration or maturity of a forward or futures contract. Accordingly, it may be necessary for the Fund to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security or securities being hedged is less than the amount of foreign currency the Fund is obligated to deliver and if a decision is made to sell the security or securities and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security or securities if the market value of such security or securities exceeds the amount of foreign currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying prices of the securities which the Fund owns or intends to purchase or sell. They simply establish a rate of exchange which one can achieve at some future point in time. Additionally, although these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency, they tend to limit any potential gain which might result from the increase in value of such currency.
CURRENCY FORWARD AND FUTURES CONTRACTS. Upon entering into such contracts, in compliance with the SEC's requirements, cash or liquid securities, equal in value to the amount of the Fund's obligation under the contract (less any applicable margin deposits and any assets that constitute "cover" for such obligation), will be segregated.
A forward currency contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract as agreed by the parties, at a price set at the time of the contract. In the case of a cancelable contract, the holder has the unilateral right to cancel the contract at maturity by paying a specified fee. The contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. A contract generally has no deposit requirement, and no commissions are charged at any stage for trades. A currency futures contract is a standardized contract for the future delivery of a specified amount of a foreign currency at a future date at a price set at the time of the contract. Currency futures contracts traded in the United States are designed and traded on exchanges regulated by the CFTC, such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain respects. For example, the maturity date of a forward contract may be any fixed number of days from the date of the contract agreed upon by the parties, rather than a predetermined date in a given month. Forward contracts may be in any amounts agreed upon by the parties rather than predetermined amounts. Also, forward contracts are traded directly between currency traders so that no intermediary is required. A forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Fund may either accept or make delivery of the currency specified in the contract, or at or prior to maturity enter into a closing transaction involving the purchase or sale of an offsetting contract. Closing transactions with respect to forward contracts are usually effected with the currency trader who is a party to the original forward contract. Closing transactions with respect to futures contracts are effected on a commodities exchange; a clearing corporation associated with the exchange assumes responsibility for closing out such contracts.
Positions in currency futures contracts may be closed out only on an exchange or board of trade which provides a secondary market in such contracts. Although the Fund intends to purchase or sell currency futures contracts only on exchanges or boards of trade where there appears to be an active secondary market, there is no assurance that a secondary market on an exchange or board of trade will exist for any particular contract or at any particular time. In such event, it may not be possible to close a futures position and, in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin.
CURRENCY OPTIONS. In general, options on currencies operate similarly to options on securities and are subject to many similar risks. Currency options are traded primarily in the over-the-counter market, although options on currencies have recently been listed on several exchanges. Options are traded not only on the currencies of individual nations, but also on the European Currency Unit (ECU). The ECU is composed of amounts of a number of currencies, and is the official medium of exchange of the European Economic Community's European Monetary System.
The Fund will only purchase or write currency options when the Advisor believes that a liquid secondary market exists for such options. There can be no assurance that a liquid secondary market will exist for a particular option at any specified time. Currency options are affected by all of those factors which influence exchange rates and investments generally. To the extent that these options are traded over the counter, they are considered to be illiquid by the SEC staff.
The value of any currency, including the U.S. dollar, may be affected by complex political and economic factors applicable to the issuing country. In addition, the exchange rates of currencies (and therefore the values of currency options) may be significantly affected, fixed, or supported directly or indirectly by government actions. Government intervention may increase risks involved in purchasing or selling currency options, since exchange rates may not be free to fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in turn reflects relative values of two currencies, the U.S. dollar and the foreign currency in question. Because currency transactions occurring in the interbank market involve substantially larger amounts than those that may be involved in the exercise of currency options, investors may be disadvantaged by having to deal in an odd lot market for the underlying currencies in connection with options at prices that are less favorable than for round lots. Foreign governmental restrictions or taxes could result in adverse changes in the cost of acquiring or disposing of currencies.
There is no systematic reporting of last sale information for currencies and there is no regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Available quotation information is generally representative of very large round-lot transactions in the interbank market and thus may not reflect exchange rates for smaller odd-lot transactions (less than $1 million) where rates may be less favorable. The interbank market in currencies is a global, around-the-clock market. To the extent that options markets are closed while the markets for the underlying currencies remain open, significant price and rate movements may take place in the underlying markets that cannot be reflected in the options markets.
SETTLEMENT PROCEDURES. Settlement procedures relating to the Fund's investments in foreign securities and to the Fund's foreign currency exchange transactions may be more complex than settlements with respect to investments in debt or equity securities of U.S. issuers, and may involve certain risks not present in the Fund's domestic investments, including foreign currency risks and local custom and usage. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not charge a fee for currency conversion, they do realize a profit based on the difference (spread) between prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligation.
PARTICIPATION INTERESTS
The Fund may invest in municipal obligations either by purchasing them directly or by purchasing certificates of accrual or similar instruments evidencing direct ownership of interest payments or principal payments, or both, on municipal obligations, provided that, in the opinion of counsel to the initial seller of each such certificate or instrument, any discount accruing on such certificate or instrument that is purchased at a yield not greater than the coupon rate of interest on the related municipal obligations will be exempt from federal income tax to the same extent as interest on such municipal obligations. The Fund may also invest in tax-exempt obligations by purchasing from banks participation interests in all or part of specific holdings of municipal obligations. Such participations may be backed in whole or part by an irrevocable letter of credit or guarantee of the selling bank. The selling bank may receive a fee from the Fund in connection with the arrangement. The Fund will not purchase such participation interests unless it receives an opinion of counsel or a ruling of the Internal Revenue Service that interest earned by it on municipal obligations in which it holds such participation interests is exempt from federal income tax.
STAND-BY COMMITMENTS
When the Fund purchases municipal obligations, it may also acquire stand-by commitments from banks and broker-dealers with respect to such municipal obligations. A stand-by commitment is the equivalent of a put option acquired by the Fund with respect to a particular municipal obligation held in its portfolio. A stand-by commitment is a security independent of the municipal obligation to which it relates. The amount payable by a bank or dealer during the time a stand-by commitment is exercisable, absent unusual circumstances relating to a change in market value, would be substantially the same as the value of the underlying municipal obligation. A stand-by commitment might not be transferable by the Fund, although it could sell the underlying municipal obligation to a third party at any time.
The Fund expects that stand-by commitments generally will be available without the payment of direct or indirect consideration. However, if necessary and advisable, the Fund may pay for stand-by commitments either separately in cash or by paying a higher price for portfolio securities which are acquired subject to such a commitment (thus reducing the yield to maturity otherwise available for the same securities). The total amount paid in either manner for outstanding stand-by commitments held in the Fund portfolio will not exceed 10% of the value of the Fund's total assets calculated immediately after each stand-by commitment is acquired. The Fund will enter into stand-by commitments only with banks and broker-dealers that, in the judgment of the Trust's Board of Trustees, present minimal credit risks.
VARIABLE AND FLOATING RATE OBLIGATIONS
Variable rate instruments provide for periodic adjustments in the interest rate. Floating rate instruments provide for automatic adjustment of the interest rate whenever some other specified interest rate changes. Some variable and floating rate obligations are direct lending arrangements between the purchaser and the issuer and there may be no active secondary market. However, in the case of variable and floating rate obligations with a demand feature, a Fund may demand payment of principal and accrued interest at a time specified in the instrument or may resell the instrument to a third party. In the event an issuer of a variable or floating rate obligation defaulted on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and could, for this or other reasons, suffer a loss to the extent of the default. Variable or floating rate instruments issued or guaranteed by the U.S. Government or its agencies or instrumentalities are similar in form but may have a more active secondary market. Substantial holdings of variable and floating rate instruments could reduce portfolio liquidity.
If a variable or floating rate instrument is not rated, the Fund's Advisor must determine that such instrument is comparable to rated instruments eligible for purchase by the Funds and will consider the earning power, cash flows and other liquidity ratios of the issuers and guarantors of such instruments and will continuously monitor their financial status in order to meet payment on demand. In determining average weighted portfolio maturity of each of these Funds, a variable or floating rate instrument issued or guaranteed by the U.S. Government or an agency or instrumentality thereof will be deemed to have a maturity equal to the period remaining until the obligation's next interest rate adjustment. Variable and floating rate obligations with a demand feature will be deemed to have a maturity equal to the longer of the period remaining to the next interest rate adjustment or the demand notice period.
INVERSE FLOATERS
Inverse floaters are derivative securities whose interest rates vary inversely to changes in short-term interest rates and whose values fluctuate inversely to changes in long-term interest rates. The value of certain inverse floaters will fluctuate substantially more in response to a given change in long-term rates than would a traditional debt security. These securities have investment characteristics similar to leverage, in that interest rate changes have a magnified effect on the value of inverse floaters.
RULE 144A SECURITIES
The Fund may purchase securities that have been privately placed but that are eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933, as amended ("1933 Act"). That Rule permits certain qualified institutional buyers, such as the Fund, to trade in privately placed securities that have not been registered for sale under the 1933 Act. The Advisor, under the supervision of the Board of Trustees, will consider whether securities purchased under Rule 144A are illiquid and thus subject to the Fund's investment restriction on illiquid securities. A determination of whether a Rule 144A security is liquid or not is a question of fact. In making this determination, the Advisor will consider the trading markets for the specific security, taking into account the unregistered nature of a Rule 144A security. In addition, the Advisor could consider the (1) frequency of trades and quotes, (2) number of dealers and potential purchasers, (3) dealer undertakings to make a market, and (4) nature of the security and of marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A securities will be monitored and, if as a result of changed conditions, it is determined by the Advisor that a Rule 144A security is no longer liquid, the Fund's holdings of illiquid securities would be reviewed to determine what, if any, steps are required to assure that the Fund does not exceed its investment limit on illiquid securities. Investing in Rule 144A securities could have the effect of increasing the amount of the Fund's assets invested in illiquid securities if qualified institutional buyers are unwilling to purchase such securities.
CURRENCY SWAPS. Currency swaps involve the exchange of rights to make or receive payments in specified currencies. Currency swaps usually involve the delivery of the entire principal value of one designated currency. Therefore, the entire principal value of a currency swap is subject to the risk that the other party to the swap will default on its contractual delivery obligations. The use of currency swaps is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. If the Advisor is incorrect in its forecast of market value and currency exchange rates, the investment performance of a Fund would be less favorable than it would have been if this investment technique were not used.
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities which may be exchanged or converted into a predetermined number of shares of the issuer's underlying common stock at the option of the holder during a specified time period. Convertible securities may take the form of convertible preferred stock, convertible bonds or debentures, units consisting of "usable" bonds and warrants or a combination of the features of several of these securities.
Convertible bonds and convertible preferred stocks generally retain the investment characteristics of fixed income securities until they have been converted but also react to movements in the underlying equity securities. The holder is entitled to receive the fixed income of a bond or the dividend preference of a preferred stock until the holder elects to exercise the conversion privilege. Usable bonds are corporate bonds that can be used in whole or in part, customarily at full face value, in lieu of cash to purchase the issuer's common stock. When owned as part of a unit along with warrants, which are options to buy the common stock, they function as convertible bonds, except that the warrants generally will expire before the bond's maturity. Convertible securities are senior to equity securities and therefore have a claim to the assets of the issuer prior to the holders of common stock in the case of liquidation. However, convertible securities are generally subordinated to similar non-convertible securities of the same issuer. The interest income and dividends from convertible bonds and preferred stocks provide a stable stream of income with generally higher yields than common stocks, but lower than non-convertible securities of similar quality. A Fund will exchange or convert the convertible securities held in its portfolio into shares of the underlying common stock in instances in which, in the Advisor's opinion, the investment characteristics of the underlying common stock will assist the Fund in achieving its investment objective. Otherwise, the Fund will hold or trade the convertible securities. In selecting convertible securities for a Fund, the Advisor evaluates the investment characteristics of the convertible security as a fixed income instrument, and the investment potential of the underlying equity security for capital appreciation.
GUARANTEED INVESTMENT CONTRACTS
Pursuant to guaranteed investment contracts ("GICs"), which are issued by U.S. and Canadian insurance companies, a Fund makes cash contributions to a deposit fund of the insurance company's general account. The insurance company then credits to the fund payments at negotiated, floating or fixed interest rates. A GIC is a general obligation of the issuing insurance company and not a separate account. The purchase price paid for a GIC becomes part of the general assets of the insurance company, and the contract is paid from the company's general assets.
The Funds will only purchase GICs that are issued or guaranteed by insurance companies that at the time of purchase are rated at least AA by S&P or receive a similar high quality rating from a nationally recognized service which provides ratings of insurance companies. GICs are considered illiquid securities and will be subject to any limitations on such investments described in Part 1 of this SAI, unless there is an active and substantial secondary market for the particular instrument and market quotations are readily available. No Fund will invest more than 20% of its total assets in GICs.
BANK INVESTMENT CONTRACTS
Bank investment contracts ("BICs") issued by banks that meet certain quality and asset size requirements for banks are available to the Funds. Pursuant to BICs, cash contributions are made to a deposit account at the bank in exchange for payments at negotiated, floating or fixed interest rates. A BIC is a general obligation of the issuing bank. BICs are considered illiquid securities and will be subject to any limitations on such investments described in Part 1 of this SAI, unless there is an active and substantial secondary market for the particular instrument and market quotations are readily available.
LOAN PARTICIPATIONS
Loan participations are interests in loans which are administered by the lending bank or agent for a syndicate of lending banks, and sold by the lending bank or syndicate member. The Funds may only purchase interests in loan participations issued by a bank in the United States with assets exceeding $1 billion and for which the underlying loan is issued by borrowers in whose obligations the Funds may invest. Because the intermediary bank does not guarantee a loan participation in any way, a loan participation is subject to the credit risk generally associated with the underlying corporate borrower. In addition, in the event the underlying corporate borrower defaults, a Fund may be subject to delays, expenses and risks that are greater than those that would have been involved if the Fund had purchased a direct obligation (such as commercial paper) of the borrower. Under the terms of a loan participation, the purchasing Fund may be regarded as a creditor of the intermediary bank so that the Fund may also be subject to the risk that the issuing bank may become insolvent.
STRUCTURED INVESTMENTS
Structured investments are a relatively new innovation and may be designed to have various combinations of equity and fixed-income characteristics. Equity-linked securities are a form of structured investment and generally consist of a conversion privilege to a single company's common stock plus a fixed annual distribution to the holder. Equity-linked securities have some derivative characteristics because the conversion feature is linked to the price of the company's common stock. Equity-linked securities are designed to provide investors with higher quarterly income than the dividend paid per share on the common stock. However, equity-linked securities have decreased potential for capital appreciation because of limitations of the conversion feature.
Equity-linked securities include issues such as "Structured Yield Product Exchangeable for Stock" ("STRYPES"), "Trust Automatic Common Exchange Securities" ("TRACES"), "Trust Issued Mandatory Exchange Securities" ("TIMES"), "Trust Enhanced Dividend Securities" ("TRENDS") and other similar securities, including those which may be developed in the future. The issuers of the above listed examples of equity-linked securities generally purchase and hold a portfolio of stripped U.S. Treasury securities maturing on a quarterly basis through the conversion date, and a forward purchase contract with an existing shareholder of the company relating to the common stock. Quarterly distributions on equity-linked securities generally consist of the cash received from the U.S. Treasury securities and equity-linked securities generally are not entitled to any dividends that may be declared on the common stock.
Equity-linked securities may be issued by closed-end or other forms of investment companies. To the extent that equity-linked securities are issued by investment companies, a Fund's investments in equity-linked securities are subject to the same limitations as investments in more traditional forms of investment companies.
YANKEE OBLIGATIONS
Yankee obligations are U.S. dollar-denominated instruments of foreign issuers that are either registered with the SEC or issued pursuant to Rule 144A under the 1933 Act. These obligations consist of debt securities (including preferred or preference stock of non-governmental issuers), certificates of deposit, fixed time deposits and banker's acceptances issued by foreign banks, and debt obligations of foreign governments or their subdivisions, agencies and instrumentalities, international agencies and supranational entities. Some securities issued by foreign governments or their subdivisions, agencies and instrumentalities may not be backed by the full faith and credit of the foreign government.
AMERICAN, EUROPEAN, CONTINENTAL AND GLOBAL DEPOSITARY RECEIPTS
American Depositary Receipts ("ADRs") are receipts issued in registered form by a U.S. bank or trust company evidencing ownership of underlying securities issued by a foreign issuer. European Depositary Receipts ("EDRs"), which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are receipts issued in Europe typically by non-U.S. banks or trust companies and foreign branches of U.S. banks that evidence ownership of foreign or U.S. securities. Global Depositary Receipts ("GDRs") are receipts structured similarly to EDRs and CDRs and are marketed globally. ADRs may be listed on a national securities exchange or may be traded in the over-the-counter market. EDRs and CDRs are designed for use in European exchange and over-the-counter markets. GDRs are designed for trading in non-U.S. securities markets. ADRs, EDRs, CDRs and GDRs traded in the over-the-counter market which do not have an active or substantial secondary market will be considered illiquid and therefore will be subject to the Funds' respective limitations with respect to such securities, if any. If a Fund invests in an unsponsored ADR, EDR, CDR or GDR, there may be less information available to the Fund concerning the issuer of the securities underlying the unsponsored ADR, EDR, CDR or GDR than is available for an issuer of securities underlying a sponsored ADR, EDR, CDR or GDR. ADR prices are denominated in U.S. dollars although the underlying securities are denominated in a foreign currency. Investments in ADRs, EDRs, CDRs and GDRs involve risks similar to those accompanying direct investments in foreign securities.
TEMPORARY CASH BALANCES
The Funds may hold very small temporary cash balances to efficiently manage transactional expenses. These cash balances are expected, under normal conditions, not to exceed 2% of each Fund's net assets at any time (excluding amounts used as margin and segregated assets with respect to futures transactions and collateral for securities loans and repurchase agreements). The Funds may invest these temporary cash balances in short-term debt obligations issued or guaranteed by the U.S. Government or its agencies and instrumentalities ("U.S. Government Securities"), high quality commercial paper (rated A-1 or better by S&P or P-1 or better by Moody's), certificates of deposit and time deposits of banking institutions having total assets in excess of $1 billion, and repurchase agreements collateralized by U.S. Government Securities. The Funds may also hold these investments in connection with U.S. Treasury rolls, which are not subject to the 2% limitation above.
TAXES
In this section, all discussions of taxation at the shareholder and fund levels relate to U.S. federal taxes only. Consult your tax advisor for state, local and foreign tax considerations and for information about special tax considerations that may apply to shareholders that are not natural persons or not U.S. citizens or resident aliens.
FEDERAL TAXES. Although it may be one of several series in a single trust, the Fund is treated as a separate entity for federal income tax purposes under the Internal Revenue Code of 1986, as amended (the "Code"). The Fund has elected (or in the case of a new fund, intends to elect) to be, and intends to qualify to be treated each year as, a "regulated investment company" under Subchapter M of the Code by meeting all applicable requirements of Subchapter M, including requirements as to the nature of the Fund's gross income, the amount of its distributions (as a percentage of both its overall income and any tax-exempt income), and the composition of its portfolio assets.
To qualify as a "regulated investment company," the Fund must (a) derive at
least 90% of its gross income from dividends, interest, payments with respect to
certain securities loans, gains from the sale or other disposition of stock,
securities or foreign currencies or other income (including, but not limited to,
gains from options, futures or forward contracts) derived with respect to its
business of investing in such stock, securities or currencies; (b) diversify its
holdings so that, at the close of each quarter of its taxable year, (i) at least
50% of the market value of its total assets consists of cash, cash items, U.S.
government securities, securities of other regulated investment companies and
other securities limited generally with respect to any one issuer to not more
than 5% of the total assets of the Fund and not more than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total assets is invested in the securities of any issuer, other than U.S.
government securities or other regulated investment companies; or of two or more
issuers which the Fund controls and which are engaged in the same, similar, or
related trades or businesses; and (c) distribute with respect to each year at
least 90% of its taxable net investment income, its tax-exempt interest income
and the excess, if any, of net short-term capital gains over net long-term
capital losses for such year. In general, for purposes of the 90% gross income
requirement described in (a) above, income derived from a partnership will be
treated as qualifying income only to the extent such income is attributable to
items of income of the partnership which would be qualifying income if realized
by the regulated investment company. However, recent legislation provides that
for taxable years of a regulated investment company beginning after October 22,
2004, 100% of the net income derived from an interest in a "qualified publicly
traded partnership" (defined as a partnership (i) interests in which are traded
on an established securities market or readily tradable on a secondary market or
the substantial equivalent thereof and (ii) that derives less than 90% of its
income from the qualifying income described in (a) above) will be treated as
qualifying income. In addition, although in general the passive loss rules of
the Code do not apply to regulated investment companies, such rules do not apply
to a regulated investment company with respect to items attributable to an
interest in a qualified publicly traded partnership. Finally, for purposes of
(c) above, the term "outstanding voting securities of such issuer" will include
the equity securities of a qualified publicly traded partnership. As a regulated
investment company that is accorded special tax treatment, the Fund will not be
subject to any federal income taxes on its net investment income and net
realized capital gains that it distributes to shareholders in the form of
dividends and in accordance with the timing requirements imposed by the Code.
The Fund's foreign-source income, if any, may be subject to foreign withholding
taxes. If the Fund were to fail to qualify as a "regulated investment company"
accorded special tax treatment in any taxable year, it would incur a regular
federal corporate income tax on all of its taxable income, whether or not
distributed, and Fund distributions (including any distributions of net tax-
exempt income and net long-term capital gains) would generally be taxable as
ordinary income to the shareholders, except to the extent they were treated as
"qualified dividend income," as described below. In addition, the Fund could be
required to recognize unrealized gains, pay substantial taxes and interest and
make substantial distributions before requalifying as a regulated investment
company that is accorded special tax treatment.
If the Fund fails to distribute in a calendar year substantially all of its ordinary income for such year and substantially all of its capital gain net income for the one-year period ending October 31 (or later if the Fund is permitted so to elect and so elects), plus any retained amount from the prior year, the Fund will be subject to a 4% excise tax on the underdistributed amounts. A dividend paid to shareholders by the Fund in January of a year generally is deemed to have been paid by the Fund on December 31 of the preceding year, if the dividend was declared and payable to shareholders of record on a date in October, November or December of that preceding year. The Fund intends generally to make distributions sufficient to avoid imposition of the 4% excise tax.
ALTERNATIVE MINIMUM TAX. Distributions derived from interest that is exempt from regular federal income tax may subject corporate shareholders to or increase their liability under the federal corporate alternative minimum tax (AMT). A portion of such distributions may constitute a tax preference item for individual shareholders and may subject them to or increase their liability under the AMT.
DIVIDENDS RECEIVED DEDUCTIONS. Distributions will qualify for the corporate dividends received deduction only to the extent that dividends earned by the Fund qualify. Any such dividends may be, however, includable in adjusted current earnings for purposes of computing corporate federal AMT. The dividends received deduction for eligible dividends is subject to a holding period requirement.
RETURN OF CAPITAL DISTRIBUTIONS. If the Fund makes a distribution to a shareholder in excess of the Fund's current and accumulated "earning and profits" in any taxable year, the excess distribution will be treated as a return of capital to the extent of the shareholder's tax basis in his or her shares, and thereafter as capital gain. A return of capital is not taxable, but it reduces tax basis in shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition of such shares. Dividends and distributions on a Fund's shares are generally subject to federal income tax as described herein to the extent they do not exceed the Fund's realized income and gains, even though such dividends and distributions may economically represent a return of a particular shareholder's investment. Such distributions are likely to occur in respect of shares purchased at a time when a Fund's net asset value reflects gains that are either unrealized, or realized but not distributed. Such realized gains may be required to be distributed even when a Fund's net asset value also reflects unrealized losses.
FUNDS THAT INVEST IN U.S. GOVERNMENT SECURITIES. Many states grant tax-free status to dividends paid to shareholders of mutual funds from interest income earned by the Fund from direct obligations of the U.S. government. Investments in mortgage-backed securities (including GNMA, FNMA and FHLMC Securities) and repurchase agreements collateralized by U.S. government securities do not qualify as direct federal obligations in most states. Shareholders should consult with their own tax advisors about the applicability of state and local intangible property, income or other taxes to their Fund shares and distributions and redemption proceeds received from the Fund.
FUND DISTRIBUTIONS. Distributions from the Fund (other than qualified dividend income and exempt-interest dividends, as discussed below) will generally be taxable to shareholders as ordinary income to the extent derived from the Fund's investment income and net short-term gains. Distributions of long-term capital gains (that is, the excess of net gains from capital assets held for more than one year over net losses from capital assets held for not more than one year) will be taxable to shareholders as such, regardless of how long a shareholder has held shares in the Fund. In general, any distributions of net capital gains will be taxed to shareholders who are individuals at a maximum rate of 15% for taxable years beginning on or before December 31, 2008.
Distributions are taxable to shareholders even if they are paid from income or gains earned by the Fund before a shareholder's investment (and thus were included in the price of the shareholder paid). Distributions are taxable whether received in cash or in Fund shares.
QUALIFIED DIVIDEND INCOME. For taxable years beginning on or before December 31, 2008, "qualified dividend income" received by an individual will be taxed at the rates applicable to long-term capital gain. In order for some portion of the dividends received by a Fund shareholder to be qualified dividend income, the Fund must meet holding period and other requirements with respect to some portion of the dividend paying stocks in its portfolio and the shareholder must meet holding period and other requirements with respect to the Fund's shares. A dividend will not be treated as qualified dividend income (at either the Fund or shareholder level) (1) if the dividend is received with respect to any share of stock held for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or, in the case of certain preferred stock, 91 days during the 181-day period beginning 90 days before such date), (2) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property, (3) if the recipient elects to have the dividend income treated as investment income for purposes of the limitation on deductibility of investment interest, or (4) if the dividend is received from a foreign corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the United States (with the exception of dividends paid on stock of such a foreign corporation readily tradable on an established securities market in the United States) or (b) treated as a passive foreign investment company. With respect to a Fund investing in bonds, the Fund does not expect a significant portion of Fund distributions to be derived from qualified dividend income.
In general, distributions of investment income properly designated by the Fund as derived from qualified dividend income may be treated as qualified dividend income by a shareholder taxed as an individual provided the shareholder meets the holding period and other requirements described above with respect to his or her shares. If the aggregate qualified dividends received by a fund during any taxable year are 95% or more of its gross income, then 100% of the Fund's dividends (other than properly designated capital gain dividends) will be eligible to be treated as qualified dividend income. For this purpose, the only gain included in the term "gross income" is the excess of net short-term capital gain over net long-term capital loss.
DISTRIBUTIONS FROM TAX-EXEMPT FUNDS. Each tax-exempt Fund will have at least 50% of its total assets invested in tax-exempt bonds at the end of each quarter so that dividends from net interest income on tax-exempt bonds will be exempt from federal income tax when received by a shareholder (but may be taxable for federal alternative minimum tax purposes and for state and local tax purposes). The tax-exempt portion of dividends paid will be designated within 60 days after year-end based upon the ratio of net tax-exempt income to total net investment income earned during the year. That ratio may be substantially different from the ratio of net tax-exempt income to total net investment income earned during any particular portion of the year. Thus, a shareholder who holds shares for only a part of the year may be allocated more or less tax-exempt dividends than would be the case if the allocation were based on the ratio of net tax-exempt income to total net investment income actually earned while a shareholder.
Income from certain "private activity bonds" issued after August 7, 1986, is treated as a tax preference item for the AMT at the maximum rate of 28% for individuals and 20% for corporations. If the Fund invests in private activity bonds, shareholders may be subject to the AMT on that part of the distributions derived from interest income on such bonds. Interest on all tax-exempt bonds is included in corporate adjusted current earnings when computing the AMT applicable to corporations. Seventy-five percent of the excess of adjusted current earnings over the amount of income otherwise subject to the AMT is included in a corporation's alternative minimum taxable income.
Dividends derived from any investments other than tax-exempt bonds and any distributions of short-term capital gains are generally taxable to shareholders as ordinary income. Any distributions of long-term capital gains will in general be taxable to shareholders as long-term capital gains (generally subject to a maximum 15% tax rate for shareholders who are individuals) regardless of the length of time Fund shares are held by the shareholder.
A tax-exempt Fund may at times purchase tax-exempt securities at a discount and some or all of this discount may be included in the Fund's ordinary income which will be taxable when distributed. Any market discount recognized on a tax-exempt bond purchased after April 30, 1993, with a term at time of issue of more than one year is taxable as ordinary income. A market discount bond is a bond acquired in the secondary market at a price below its "stated redemption price" (in the case of a bond with original issue discount, its "revised issue price").
Shareholders receiving social security and certain retirement benefits may be taxed on a portion of those benefits as a result of receiving tax-exempt income, including tax-exempt dividends from the Fund.
SPECIAL TAX RULES APPLICABLE TO TAX-EXEMPT FUNDS. In general, exempt-interest dividends, if any, attributable to interest received on certain private activity obligations and certain industrial development bonds will not be tax-exempt to any shareholders who are "substantial users" of the facilities financed by such obligations or bonds or who are "related persons" of such substantial users, as further defined in the Code. Income derived from the Fund's investments other than tax-exempt instruments may give rise to taxable income. The Fund's shares must be held for more than six months in order to avoid the disallowance of a capital loss on the sale of Fund shares to the extent of tax-exempt dividends paid during that period. Part or all of the interest on indebtedness, if any, incurred or continued by a shareholder to purchase or carry shares of the Fund paying exempt-interest dividends is not deductible. The portion of interest that is not deductible is equal to the total interest paid or accrued on the indebtedness, multiplied by the percentage of the Fund's total distributions (not including distributions from net long-term capital gains) paid to the shareholder that are exempt-interest dividends. Under rules used by the Internal Revenue Service to determine when borrowed funds are considered used for the purpose of purchasing or carrying particular assets, the purchase of shares may be considered to have been made with borrowed funds even though such funds are not directly traceable to the purchase of shares.
SALES OF SHARES. The sale, exchange or redemption of Fund shares may give rise to a gain or loss. In general, any gain realized upon a taxable disposition of shares generally will be treated as long-term capital gain if the shares have been held for more than one year. Otherwise the gain on the sale, exchange or redemption of Fund shares will be treated as short-term capital gain. In general, any loss realized upon a taxable disposition of shares will be treated as long-term loss if the shares have been held more than one year, and otherwise as short-term loss. However, any loss realized upon a taxable disposition of shares held for six months or less will be disallowed for federal income tax purposes to the extent of any exempt-interest dividends received on such shares. In addition, any loss (not already disallowed as provided in the preceding sentence) realized upon a taxable disposition of shares held for six months or less will be treated as long-term, rather than short-term, capital loss to the extent of any long-term capital gain distributions received by the shareholder with respect to those shares. All or a portion of any loss realized upon a taxable disposition of shares will be disallowed if other shares are purchased within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss.
Under Treasury regulations, if on a disposition of Fund shares a shareholder recognizes a loss of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder will likely have to file with the Internal Revenue Service a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all regulated investment companies. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. You are advised to consult with your tax advisor.
BACKUP WITHHOLDING. Certain distributions and redemptions may be subject to backup withholding for taxpayers who fail to furnish a correct taxpayer identification number, who have under-reported dividend or interest income, or who fail to certify to the Fund that the shareholder is a United States person and is not subject to the withholding. This number and certification may be provided by either a Form W-9 or the accompanying application. In certain instances, CMS may be notified by the Internal Revenue Service that a shareholder is subject to backup withholding. The backup withholding rate is 28% for amounts paid through 2010. The backup withholding rate will be 31% for amounts paid after December 31, 2010.
HEDGING TRANSACTIONS. If the Fund engages in hedging transactions, including hedging transactions in options, futures contracts and straddles, or other similar transactions, it will be subject to special tax rules (including constructive sale, mark-to-market, straddle, wash sale and short sale rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund's securities, convert long-term capital gains into short-term capital gains or convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. The Fund will endeavor to make any available elections pertaining to such transactions in a manner believed to be in the best interests of the Fund and its shareholders.
SECURITIES ISSUED AT A DISCOUNT. The Fund's investment in debt securities issued at a discount and certain other obligations will (and investments in securities purchased at a discount may) require the Fund to accrue and distribute income not yet received. In such cases, the Fund may be required to sell assets (possibly at a time when it is not advantageous to do so) to generate the cash necessary to distribute as dividends to its shareholders all of its income and gains and therefore to eliminate any tax liability at the Fund level.
FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING TRANSACTIONS. The Fund's transactions in foreign currencies, foreign currency-denominated debt securities, certain foreign currency options, futures contracts and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned. This may produce a difference between the Fund's book income and its taxable income possibly accelerating distributions or converting distributions of book income and gains to returns of capital for book purposes.
If more than 50% of the Fund's total assets at the end of its fiscal year are invested in stock or securities of foreign corporate issuers, the Fund may make an election permitting its shareholders to take a deduction or credit for federal income tax purposes for their pro rata portion of certain qualified foreign taxes paid by the Fund to foreign countries in respect of foreign securities the Fund has held for at least the minimum period specified in the Code. The Advisor will consider the value of the benefit to a typical shareholder, the cost to the Fund of compliance with the election, and incidental costs to shareholders in deciding whether to make the election. A shareholder's ability to claim such a foreign tax credit or deduction in respect of foreign taxes will be subject to certain limitations imposed by the Code, including a holding period requirement, as a result of which a shareholder may not get a full credit or deduction for the amount of foreign taxes so paid by the Fund. Shareholders who do not itemize on their federal income tax returns may claim a credit (but not a deduction) for such foreign taxes.
Investment by the Fund in "passive foreign investment companies" could subject the Fund to a U.S. federal income tax or other charge on the proceeds from the sale of its investment in such a company; however, this tax can be avoided by making an election to mark such investments to market annually or to treat the passive foreign investment company as a "qualified electing Fund." A "passive foreign investment company" is any foreign corporation: (i) 75 percent or more of the income of which for the taxable year is passive income, or (ii) the average percentage of the assets of which (generally by value, but by adjusted tax basis in certain cases) that produce or are held for the production of passive income is at least 50 percent. Generally, passive income for this purpose means dividends, interest (including income equivalent to interest), royalties, rents, annuities, the excess of gain over losses from certain property transactions and commodities transactions, and foreign currency gains. Passive income for this purpose does not include rents and royalties received by the foreign corporation from active business and certain income received from related persons.
NON-U.S. SHAREHOLDERS. Capital gain dividends will not be subject to withholding
of federal income tax. In general, dividends (other than Capital Gain Dividends)
paid by the Fund to a shareholder that is not a "U.S. person" within the meaning
of the Code (such shareholder, a "foreign person") are subject to withholding of
U.S. federal income tax at a rate of 30% (or lower applicable treaty rate) even
if they are funded by income or gains (such as portfolio interest, short-term
capital gains, or foreign-source dividend and interest income) that, if paid to
a foreign person directly, would not be subject to withholding. However, under
recent legislation, effective for taxable years of the Fund beginning after
December 31, 2004 and before January 1, 2008, the Fund will not be required to
withhold any amounts (i) with respect to distributions (other than distributions
to a foreign person (w) that has not provided a satisfactory statement that the
beneficial owner is not a U.S. person, (x) to the extent that the dividend is
attributable to certain interest on an obligation if the foreign person is the
issuer or is a 10% shareholder of the issuer, (y) that is within certain foreign
countries that have inadequate information exchange with the United States, or
(z) to the extent the dividend is attributable to interest paid by a person that
is a related person of the foreign person and the foreign person is a controlled
foreign corporation) from U.S.-source interest income that, in general, would
not be subject to U.S. federal income tax if earned directly by an individual
foreign person, to the extent such distributions are properly designated by the
Fund, and (ii) with respect to distributions (other than distributions to an
individual foreign person who is present in the United States for a period or
periods aggregating 183 days or more during the year of the distribution) of net
short-term capital gains in excess of net long-term capital losses, to the
extent such distributions are properly designated by the Fund. The Fund has not
determined whether it will make such designations.
If a beneficial holder who is a foreign person has a trade or business in the United States, and the dividends are effectively connected with the conduct by the beneficial holder of a trade or business in the United States, the dividend will be subject to U.S. federal net income taxation at regular income tax rates.
Recent legislation modifies the tax treatment of distributions from the Fund that are paid to a foreign person and are attributable to gain from "U.S. real property interests" ("USRPIs"), which the Code defines to include direct holdings of U.S. real property and interests (other than solely as a creditor) in "U.S. real property holding corporations" such as REITs. The Code deems any corporation that holds (or held during the previous five-year period) USRPIs with a fair market value equal to 50% or more of the fair market value of the corporation's U.S. and foreign real property assets and other assets used or held for use in a trade or business to be a U.S. real property holding corporation; however, if any class of stock of a corporation is traded on an established securities market, stock of such class shall be treated as a USRPI only in the case of a person who holds more than 5% of such class of stock at any time during the previous five-year period. Under the legislation, which is generally effective for taxable years of RICs beginning after December 31, 2004 and which applies to dividends paid or deemed paid on or before December 31, 2007, distributions to foreign persons attributable to gains from the sale or exchange of USRPIs will give rise to an obligation for those foreign persons to file a U.S. tax return and pay tax, and may well be subject to withholding under future regulations.
Under U.S. federal tax law, a beneficial holder of shares who is a foreign person is not, in general, subject to U.S. federal income tax on gains (and is not allowed a deduction for losses) realized on the sale of shares of the Fund or on Capital Gain Dividends unless (i) such gain or Capital Gain Dividend is effectively connected with the conduct of a trade or business carried on by such holder within the United States, (ii) in the case of an individual holder, the holder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale or Capital Gain Dividend and certain other conditions are met, or (iii) the shares constitute USRPIs or the Capital Gain Dividends are paid or deemed paid on or before December 31, 2007 and are attributable to gains from the sale or exchange of USRPIs. Effective after December 31, 2004, and before January 1, 2008, if the Fund is a U.S. real property holding corporation (as described above) the Fund's shares will nevertheless not constitute USRPIs if the Fund is a "domestically controlled qualified investment entity," which is defined to include a RIC that, at all times during the shorter of the 5-year period ending on the date of the disposition or the period during which the RIC was in existence, had less than 50 percent in value of its stock held directly or indirectly by foreign persons.
ADDITIONAL TAX MATTERS CONCERNING TRUST SHARES (THIS SECTION IS APPLICABLE ONLY TO THE COLUMBIA TAX-MANAGED GROWTH FUND)
FEDERAL GIFT TAXES. An investment in Trust Shares may be a taxable gift for federal tax purposes, depending upon the option selected and other gifts that the donor and his or her spouse may make during the year.
Under the Columbia Advantage Plan, the entire amount of the gift will be a "present interest" that qualifies for the federal gift tax annual exclusion. In that case, the donor will be required to file a federal gift tax return on account of this gift only if (i) the aggregate present interest gifts by the donor to the particular beneficiary (including the gift of Trust Shares) exceeds the annual gift-tax exemption, which in 2006 is $12,000 or (ii) the donor wishes to elect gift splitting on gifts with his or her spouse for the year. The trustee will notify the beneficiary of his or her right of withdrawal promptly following any contribution under the Advantage Plan.
Under the Columbia Gift Plan, the entire amount of the gift will be a "future interest" for federal gift tax purposes, so that none of the gift will qualify for the federal gift tax annual exclusion. Consequently, the donor will have to file a federal gift tax return (IRS Form 709) reporting the entire amount of the gift, even if the gift is less than $12,000.
No federal gift tax will be payable by the donor until his or her cumulative taxable gifts (i.e., gifts other than those qualifying for the annual exclusion or otherwise exempt), including taxable gifts of other assets as well as any taxable gifts of trust shares, exceed the federal gift and estate tax exemption equivalent amount, which is $1,000,000 for gifts made after December 31, 2001, and before January 1, 2010.
Any gift of Trust Shares that does not qualify as a present interest or that exceeds the available annual exclusion amount will reduce the amount of the donor's Federal gift and estate tax exemption (if any) that would otherwise be available for future gifts for transfers at death.
The donor and his or her spouse may elect "gift-splitting" for any gift of Trust Shares (other than a gift to such spouse), meaning that the donor and his or her spouse may elect to treat the gift as having been made one-half by each of them, thus allowing a total gift of $24,000.
The donor's gift of Fund shares may also have to be reported for state gift tax purposes, if the state in which the donor resides imposes a gift tax. Many states do not impose such a tax. Some states follow the Federal rules concerning the types of transfers subject to tax and the availability of the annual exclusion.
GENERATION-SKIPPING TRANSFER TAXES
If the beneficiary of a gift of Trust Shares is a relative who is two generations or more younger than the donor, or is not a relative and is more than 37 1/2 years younger than the donor, the gift will be subject in whole or in part to the generation-skipping transfer tax (the "GST tax") unless the gift is made under the Columbia Advantage Plan and does not exceed the available annual exclusion amount. An exemption (the "GST exemption"), equal to $2 million in 2006, is allowed against this tax, and so long as the GST exemption has not been used by other transfers it will automatically be allocated to a gift of Trust Shares that is subject to the GST tax unless the donor elects otherwise. Such an election is made by reporting the gift on a timely filed gift tax return and paying the applicable GST tax. The GST tax is imposed at a flat rate (46% for gifts made in 2006) on the amount of the gift, and payment of the tax by the donor is treated as an additional gift for gift tax purposes.
INCOME TAXES
The Internal Revenue Service takes the position that a trust beneficiary who is given a power of withdrawal over contributions to the trust should be treated, for Federal income tax purposes, as the "owner" of the portion of the trust that was subject to the power. Accordingly, if the donor selects Columbia Advantage Trust Shares, the beneficiary will be treated as the "owner" of all of the Fund shares in the account for Federal income tax purposes, and will be required to report all of the income and capital gains earned in the trust on his or her personal Federal income tax return. The trust will not pay Federal income taxes on any of the trust's income or capital gains. The trustee will prepare and file the Federal income tax information returns that are required each year (and any state income tax returns that may be required), and will send the beneficiary a statement following each year showing the amounts (if any) that the beneficiary must report on his or her income tax returns for that year. If the beneficiary is under fourteen years of age, these amounts may be subject to Federal income taxation at the marginal rate applicable to the beneficiary's parents. The beneficiary may at any time after the creation of the trust irrevocably elect to require the trustee to pay him or her a portion of the trust's income and capital gains annually thereafter to provide funds with which to pay any resulting income taxes, which the trustee will do by redeeming Trust Shares. The amount distributed will be a fraction of the trust's ordinary income and short-term capital gains and the trust's long-term capital gains equal to the highest marginal Federal income tax rate imposed on each type of income (currently, 35% and 15%, respectively). If the beneficiary selects this option, he or she will receive those fractions of his or her trust's income and capital gains annually for the duration of the trust.
Under the Columbia Advantage Plan, the beneficiary will also be able to require the trustee to pay his or her tuition, room and board and other expense of his or her college or post-graduate education, and the trustee will raise the cash necessary to fund these distributions by redeeming Trust Shares. Any such redemption will result in the realization of capital gain or loss on the shares redeemed, which will be reportable by the beneficiary on his or her income tax returns for the year in which the shares are redeemed, as described above. Payments must be made directly to the educational institution.
If the donor selects the Columbia Gift Plan, the trust that he or she creates will be subject to Federal income tax on all income and capital gains realized by it, less a $100 annual exemption (in lieu of the personal exemption allowed to individuals). The amount of the tax will be determined under the tax rate schedule applicable to estates and trusts, which is more sharply graduated than the rate schedule for individuals, reaching the same maximum marginal rate for ordinary income or short-term capital gains (currently, 35%), but at a much lower taxable income level than would apply to an individual. It is anticipated, however, that most of the gains taxable to the trust will be long-term capital gain, on which the Federal income tax rate is currently limited to 15%. The trustee will raise the cash necessary to pay any Federal or state income taxes by redeeming Fund shares. The beneficiary will not pay Federal income taxes on any of the trust's income or capital gains, except those earned in the year when the trust terminates. The trustee will prepare and file all Federal and state income tax returns that are required each year, and will send the beneficiary an information statement for the year in which the trust terminates showing the amounts (if any) that the beneficiary must report on his or her Federal and state income tax returns for that year.
When the trust terminates, the distribution of the remaining shares held in the trust to the beneficiary will not be treated as a taxable disposition of the shares. Any Fund shares received by the beneficiary will have the same cost basis as they had in the trust at the time of termination. Any Fund shares received by the beneficiary's estate will have a basis equal to the value of the shares at the beneficiary's death (or the alternate valuation date for Federal estate tax purposes, if elected).
CONSULTATION WITH QUALIFIED ADVISOR
Due to the complexity of Federal and state gift, GST and income tax laws pertaining to all gifts in trust, prospective donors should consider consulting with their financial or tax advisor before investing in Trust Shares.
MANAGEMENT OF THE FUNDS Columbia Management Advisors, LLC ("Columbia Advisors" or "CMA" or the "Advisor"), located at 100 Federal Street, Boston, Massachusetts 02110 is the Advisor to the Funds. The Advisor provides administrative and management services to the Funds. Columbia Advisors is a direct, wholly owned subsidiary of Columbia Management Group, LLC ("CMG"), which in turn is a direct, wholly owned subsidiary of Bank of America, which in turn is a wholly owned banking subsidiary of Bank of America Corporation, a financial services holding company organized as a Delaware corporation. On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005 Columbia Management was the investment advisor to the Funds. As a result of the merger, Columbia Advisors is now the investment advisor to the Funds. Columbia Advisors, a registered investment advisor, has been an investment advisor since 1995.
TRUSTEES AND OFFICERS (THIS SECTION APPLIES TO ALL OF THE FUNDS)
The Trustees and officers serve terms of indefinite duration. The names, addresses and ages of the Trustees and officers of the Fund Complex, the year each was first elected or appointed to office, their principal business occupations during at least the last five years, the number of portfolios overseen by each Trustee and other directorships they hold are shown below.
Number of
Portfolios
Year First in Fund
Position Elected or Complex Other
Name, Address with Appointed Principal Occupation(s) Overseen Directorships
and Age Funds to Office(1) During Past Five Years by Trustee Held
------------- -------- ------------ ----------------------- ---------- --------------
DISINTERESTED TRUSTEES
Douglas A. Hacker (Age 50) Trustee 1996 Executive Vice President - Strategy of 83 Nash Finch
P.O. Box 66100 United Airlines (airline) since Company (food
Chicago, IL 60666 December, 2002 (formerly President of distributor)
UAL Loyalty Services (airline) from
September, 2001 to December, 2002;
Executive Vice President and Chief
Financial Officer of United Airlines
from July, 1999 to September, 2001;
Senior Vice President- Finance from
March, 1993 to July, 1999).
Janet Langford Kelly (Age 48) Trustee 1996 Partner, Zelle, Hofmann, Voelbel, Mason 83 None
9534 W. Gull Lake Drive & Gette LLP (law firm) since March,
Richland, MI 49083-8530 2005; Adjunct Professor of Law,
Northwestern University, since
September, 2004 (formerly Chief
Administrative Officer and Senior Vice
President, Kmart Holding Corporation
(consumer goods), from September, 2003
to March, 2004; Executive Vice
President-Corporate Development and
Administration, General Counsel and
Secretary, Kellogg Company (food
manufacturer), from September, 1999 to
August, 2003; Senior Vice President,
Secretary and General Counsel, Sara Lee
Corporation (branded, packaged,
consumer-products manufacturer) from
January, 1995 to September, 1999).
Richard W. Lowry (Age 69) Trustee 1995 Private Investor since August, 1987 85(3) None
10701 Charleston Drive (formerly Chairman and Chief Executive
Vero Beach, FL 32963 Officer, U.S. Plywood Corporation
(building products manufacturer)).
|
Number of
Portfolios
Year First in Fund
Position Elected or Complex Other
Name, Address with Appointed Principal Occupation(s) Overseen Directorships
and Age Funds to Office(1) During Past Five Years by Trustee Held
------------- -------- ------------ ----------------------- ---------- --------------
DISINTERESTED TRUSTEES
Charles R. Nelson (Age 62) Trustee 1981 Professor of Economics, University of 83 None
Department of Economics Washington, since January, 1976; Ford
University of Washington and Louisa Van Voorhis Professor of
Seattle, WA 98195 Political Economy, University of
Washington, since September, 1993
(formerly Director, Institute for
Economic Research, University of
Washington from September, 2001 to
June, 2003); Adjunct Professor of
Statistics, University of Washington,
since September, 1980; Associate
Editor, Journal of Money Credit and
Banking, since September, 1993;
consultant on econometric and
statistical matters.
John J. Neuhauser (Age 63) Trustee 1985 Academic Vice President and Dean of 85(3) Saucony, Inc.
84 College Road Faculties since August, 1999, Boston (athletic
Chestnut Hill, MA 02467-3838 College (formerly Dean, Boston College footwear)
School of Management from September,
1977 to August, 1999).
Patrick J. Simpson (Age 61) Trustee 2000 Partner, Perkins Coie L.L.P. (law 83 None
1120 N.W. Couch Street firm).
Tenth Floor
Portland, OR 97209-4128
Thomas E. Stitzel (Age 69) Trustee 1998 Business Consultant since 1999 83 None
2208 Tawny Woods Place (formerly Professor of Finance from
Boise, ID 83706 1975 to 1999, College of Business,
Boise State University); Chartered
Financial Analyst.
|
Number of
Year First Portfolios in
Elected or Fund Complex
Name, Address Position Appointed to Principal Occupation(s) Overseen
and Age with Funds Office(1) During Past Five Years by Trustee Other Directorships Held
------------- ---------- ------------ ----------------------- -------------- ------------------------
DISINTERESTED TRUSTEES
Thomas C. Theobald (Age 68) Trustee and 1996 Partner and Senior 83 Anixter International
8 Sound Shore Drive, Chairman of the Advisor, Chicago Growth (network support
Suite 285 Board Partners (private equipment distributor);
Greenwich, CT 06830 equity investing) since Ventas, Inc. (real
September, 2004 estate investment
(formerly Managing trust); Jones Lang
Director, William Blair LaSalle (real estate
Capital Partners management services) and
(private equity Ambac Financial Group
investing) from (financial guaranty
September, 1994 to insurance)
September, 2004).
Anne-Lee Verville (Age 60) Trustee 1998 Retired since 1997 83 Chairman of the Board of
359 Stickney Hill Road (formerly General Directors, Enesco Group,
Hopkinton, NH 03229 Manager, Global Inc. (designer, importer
Education Industry, IBM and distributor of
Corporation (computer giftware and
and technology) from collectibles)
1994 to 1997).
Richard L. Woolworth (Age 64) Trustee 1991 Retired since December, 83 Northwest Natural Gas
100 S.W. Market Street 2003 (formerly Chairman Co. (natural gas service
#1500 and Chief Executive provider)
Portland, OR 97207 Officer, The Regence
Group (regional health
insurer); Chairman and
Chief Executive
Officer, BlueCross
BlueShield of Oregon;
Certified Public
Accountant, Arthur
Young & Company)
|
Number of
Year First Portfolios in
Elected or Fund Complex
Name, Address Position Appointed to Principal Occupation(s) Overseen
and Age with Funds Office(1) During Past Five Years by Trustee Other Directorships Held
------------- ---------- ------------ ----------------------- -------------- ------------------------
INTERESTED TRUSTEE
William E. Mayer(2) (Age 65) Trustee 1994 Partner, Park Avenue 85(3) Lee Enterprises (print
399 Park Avenue Equity Partners media), WR Hambrecht +
Suite 3204 (private equity) since Co. (financial service
New York, NY 10022 February, 1999 provider); Reader's
(formerly Partner, Digest (publishing);
Development Capital LLC OPENFIELD Solutions
from November, 1996 to (retail industry
February, 1999). technology provider)
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(1) In October 2003, the trustees of the Liberty Funds and Stein Roe Funds (both as defined in Part 1 of this SAI) were elected to the boards of the Columbia Funds; simultaneous with that election, Patrick J. Simpson and Richard L. Woolworth, who had been directors/trustees of the Columbia Funds were appointed to serve as trustees of the Liberty Funds and Stein Roe Funds. The date shown is the earliest date on which a trustee/director was elected or appointed to the board of a Fund in the Fund Complex.
(2) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht + Co.
(3) Messrs. Lowry, Neuhauser and Mayer also serve as directors/trustees of the All-Star Funds (as defined in Part 1 of this SAI).
Year First
Elected or
Name, Address Position Appointed to Principal Occupation(s)
and Age with Funds Office During Past Five Years
------------- ---------- ------------ -----------------------
OFFICERS
Christopher L. Wilson (Age 48) President 2004 Head of Mutual Funds since August, 2004 and
One Financial Center Managing Director of the Advisor since
Boston, MA 02111 September, 2005; President of the Columbia
Funds, Liberty Funds and Stein Roe Funds since
October, 2004; President and Chief Executive
Officer of the Nations Funds since January,
2005; President of the Galaxy Funds since April,
2005; Director of Bank of America Global
Liquidity Funds, plc since May, 2005; Director
of Banc of America Capital Management (Ireland),
Limited since May, 2005; Director of FIM
Funding, Inc. since January, 2005; Senior Vice
President of Columbia Management Distributors,
Inc. since January, 2005; Director of Columbia
Management Services, Inc. since January, 2005
(formerly Senior Vice President of Columbia
Management from January, 2005 to August, 2005;
Senior Vice President of BACAP Distributors LLC
from January, 2005 to July, 2005; President and
Chief Executive Officer, CDC IXIS Asset
Management Services, Inc. from September, 1998
to August, 2004).
|
Year First
Elected or
Position Appointed
Name, Address and Age with Funds to Office Principal Occupation(s) During Past Five Years
--------------------- ----------- ---------- --------------------------------------------------------------------------
OFFICERS
J. Kevin Connaughton (Age 41) Treasurer 2000 Treasurer of the Columbia Funds since October, 2003 and of the Liberty
One Financial Center Funds, Stein Roe Funds and All-Star Funds since December, 2000; Managing
Boston, MA 02111 Director of the Advisor since September, 2005 (formerly Vice President of
Columbia Management from April, 2003 to August, 2005; President of the
Columbia Funds, Liberty Funds and Stein Roe Funds from February, 2004 to
October, 2004; Chief Accounting Officer and Controller of the Liberty
Funds and All-Star Funds from February, 1998 to October, 2000); Treasurer
of the Galaxy Funds from September, 2002 to November, 2005 (formerly
Treasurer from December, 2002 to December, 2004 and President from
February, 2004 to December, 2004 of the Columbia Management Multi-Strategy
Hedge Fund, LLC; Vice President of Colonial Management Associates, Inc.
from February, 1998 to October, 2000).
Mary Joan Hoene (Age 56) Senior Vice 2004 Senior Vice President and Chief Compliance Officer of the Columbia Funds,
100 Federal Street President Liberty Funds, Stein Roe Funds and All-Star Funds since August, 2004;
Boston, MA 02110 and Chief Chief Compliance Officer of the Columbia Management Multi-Strategy Hedge
Compliance Fund, LLC since August, 2004; Chief Compliance Officer of the BACAP
Officer Alternative Multi-Strategy Hedge Fund LLC since October, 2004 (formerly
Partner, Carter, Ledyard & Milburn LLP from January, 2001 to August, 2004;
Counsel, Carter, Ledyard & Milburn LLP from November, 1999 to December,
2000; Vice President and Counsel, Equitable Life Assurance Society of the
United States from April, 1998 to November, 1999).
Michael G. Clarke (Age 36) Chief 2004 Chief Accounting Officer of the Columbia Funds, Liberty Funds, Stein Roe
One Financial Center Accounting Funds and All-Star Funds since October, 2004; Managing Director of the
Boston, MA 02111 Officer Advisor since September, 2005 (formerly Controller of the Columbia Funds,
Liberty Funds, Stein Roe Funds and All-Star Funds from May, 2004 to
October, 2004; Assistant Treasurer from June, 2002 to May, 2004; Vice
President, Product Strategy & Development of the Liberty Funds and Stein
Roe Funds from February, 2001 to June, 2002; Assistant Treasurer of the
Liberty Funds, Stein Roe Funds and the All-Star Funds from August, 1999 to
February, 2001; Audit Manager, Deloitte & Toche LLP from May, 1997 to
August, 1999).
Jeffrey R. Coleman (Age 36) Controller 2004 Controller of the Columbia Funds, Liberty Funds, Stein Roe Funds and
One Financial Center All-Star Funds since October, 2004 (formerly Vice President of CDC IXIS
Boston, MA 02111 Asset Management Services, Inc. and Deputy Treasurer of the CDC Nvest
Funds and Loomis Sayles Funds from February, 2003 to September, 2004;
Assistant Vice President of CDC IXIS Asset Management Services, Inc. and
Assistant Treasurer of the CDC Nvest Funds from August, 2000 to February,
2003; Tax Manager of PFPC, Inc. from November, 1996 to August, 2000).
|
Year First
Elected or
Position Appointed
Name, Address and Age with Funds to Office Principal Occupation(s) During Past Five Years
--------------------- ----------- ---------- --------------------------------------------------------------------------
OFFICERS
R. Scott Henderson (Age 46) Secretary 2004 Secretary of the Columbia Funds, Liberty Funds and Stein Roe Funds since
One Financial Center December, 2004 (formerly Of Counsel, Bingham McCutchen from April, 2001 to
Boston, MA 02111 September, 2004; Executive Director and General Counsel, Massachusetts
Pension Reserves Investment Management Board from September, 1997 to
March, 2001).
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Trustee Positions
As of December 31, 2004, no disinterested Trustee or any of their immediate family members owned beneficially or of record any class of securities of the Advisor, another investment advisor, sub-advisor or portfolio manager of any of the funds in the Fund Complex or any person controlling, controlled by or under common control with any such entity.
Approving the Investment Advisory Contract
In determining to approve the most recent annual extension of a Fund's management agreement, the Trustees met over the course of the year with the relevant investment advisory personnel from the Advisor and considered information provided by the Advisor relating to the education, experience and number of investment professionals and other personnel providing services under that agreement. See "Managing the Fund" in each Fund's Prospectus and "Trustees and Officers" in this SAI. The Trustees also took into account the time and attention devoted by senior management to the Funds and the other funds in the Fund Complex. The Trustees evaluated the level of skill required to manage the Funds and concluded that the human resources devoted by the Advisor to the Funds were appropriate to fulfill effectively the Advisor's duties under the agreement. The Trustees also considered the business reputation of the Advisor and its financial resources, and concluded that the Advisor would be able to meet any reasonably foreseeable obligations under the agreement.
The Trustees received information concerning the investment philosophy and investment process applied by the Advisor in managing the Funds. See "Principal Investment Strategies" and "Principal Investment Risks" in the Funds' Prospectuses. In this connection, the Trustees considered the Advisor's in-house research capabilities as well as other resources available to the Advisor's personnel, including research services available to the Advisor as a result of securities transactions effected for the Funds and other investment advisory clients. The Trustees concluded that the Advisor's investment process, research capabilities and philosophy were well suited to each Fund, given each Fund's investment goal(s) and policies.
The Trustees considered the scope of the services provided by the Advisor to the
Funds under the agreement relative to services provided by third parties to
other mutual funds. See "Fund Charges and Expenses" and "Management of the Funds
- The Management Agreement". The Trustees concluded that the scope of the
Advisor's services to the Funds was consistent with the Funds' operational
requirements, including, in addition to its investment goal, compliance with
each Fund's investment restrictions, tax and reporting requirements and related
shareholder services.
The Trustees considered the quality of the services provided by the Advisor to
the Funds. The Trustees evaluated the Advisor's record with respect to
regulatory compliance and compliance with the investment policies of each Fund.
The Trustees also evaluated the procedures of the Advisor designed to fulfill
the Advisor's fiduciary duty to the Funds with respect to possible conflicts of
interest, including the Advisor's code of ethics (regulating the personal
trading of its officers and employees) (see "Management of the Funds - Code of
Ethics"), the procedures by which the Advisor allocates trades among its various
investment advisory clients and the record of the Advisor in these matters. The
Trustees also received information concerning standards of the Advisor with
respect to the execution of portfolio transactions. See "Management of the Funds
- Portfolio Transactions."
The Trustees considered the Advisor's management of non-advisory services provided by persons other than the Advisor by reference, among other things, to each Fund's total expenses and the reputation of each Fund's other service providers. See "Your Expenses" in each Fund's Prospectus(es). The Trustees also considered information provided by third parties relating to each Fund's investment performance relative to its performance benchmark(s), relative to other similar funds managed by the Advisor and relative to funds managed similarly by other advisors. The Trustees reviewed performance over various periods, including each Fund's one, five and ten year calendar year periods and/or the life of the Fund, as applicable (See "Performance History" in the Fund's Prospectuses), as well as factors identified by the Advisor as contributing to each Fund's performance. See each Fund's most recent annual and semi-annual reports. The Trustees concluded that the scope and quality of the Advisor's services was sufficient to merit reapproval of the agreement for another year.
In reaching that conclusion, the Trustees also gave substantial consideration to the fees payable under the agreement. The Trustees reviewed information concerning fees paid to investment advisors of similarly-managed funds. The Trustees also considered the fees of the Funds as a percentage of assets at different asset levels and possible economies of scale to the Advisor. The Trustees evaluated the Advisor's profitability with respect to the Funds, concluding that such profitability appeared to be generally consistent with levels of profitability that had been determined by courts to be "not excessive." For these purposes, the Trustees took into account not only the actual dollar amount of fees paid by the Funds directly to the Advisor, but also so-called "fallout benefits" to the Advisor such as reputational value derived from serving as investment Advisor to the Funds and the research services available to the Advisor by reason of brokerage commissions generated by each Fund's turnover. In evaluating the Funds' advisory fees, the Trustees also took into account the complexity of investment management for the Funds relative to other types of funds. Based on challenges associated with less readily available market information about foreign issuers and smaller capitalization companies, limited liquidity of certain securities, and the specialization required for focused funds, the Trustees concluded that generally greater research intensity and trading acumen is required for equity funds, and for international or global funds, as compared to funds investing, respectively, in debt obligations or in U.S.
issuers. Similarly, the Trustees concluded that, generally, small capitalization equity funds and focused funds including state specific municipal funds, require greater intensity of research and trading acumen than larger capitalization or more diversified funds. See "The Fund" in each Fund's Prospectus.
Based on the foregoing, the Trustees concluded that the fees to be paid the Advisor under the advisory agreement were fair and reasonable, given the scope and quality of the services rendered by the Advisor.
General
Messrs. Lowry, Mayer and Neuhauser are also trustees/directors of the Liberty All-Star Funds.
The Trustees serve as trustees of 83 registered investment companies managed by the Advisor for which each Trustee receives a retainer at the annual rate of $45,000, an attendance fee of $9,500 for each regular and special joint board meeting and $1,000 for each special telephonic joint board meeting. Beginning in December, 2003, Mr. Theobald began serving as the Chairman of the Board. As the independent chairman of the board, Mr. Theobald receives a supplemental retainer at the annual rate of $100,000; the chair of the Audit Committee receives a supplemental retainer at the annual rate of $10,000; the chair of each other committee receives a supplemental retainer at the annual rate of $5,000. Members of each committee, except the Audit Committee, receive $1,500 for each committee meeting. Each Audit Committee member receives $2,000 for each Audit Committee meeting. Committee members receive $1,500 for each special committee meeting attended on a day other than a regular joint board meeting day. Two-thirds of the Trustee fees are allocated among the Funds based on each Fund's relative net assets and one-third of the fees is divided equally among the Funds.
Trustees and officers of the Trust, who are also officers of the Advisor or its affiliates, will benefit from the advisory fees, sales commissions and agency fees paid or allowed by the Trust.
The Agreement and Declaration of Trust ("Declaration") of the Trust provides that the Trust will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Trust but that such indemnification will not relieve any officer or Trustee of any liability to the Trust or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. The Trust, at its expense, provides liability insurance for the benefit of its Trustees and officers.
The Trustees have the authority to convert the Funds into a master fund/feeder fund structure. Under this structure, a Fund may invest all or a portion of its investable assets in investment companies with substantially the same investment goals, policies and restrictions as the Fund. The primary reason to use the master fund/feeder fund structure is to provide a mechanism to pool, in a single master fund, investments of different investor classes, resulting in a larger portfolio, investment and administrative efficiencies and economies of scale.
MANAGEMENT AGREEMENT
Under a Management Agreement (the "Agreement"), the Advisor has contracted to furnish each Fund with investment research and recommendations or fund management, respectively, and accounting and administrative personnel and services, and with office space, equipment and other facilities. For these services and facilities, each Fund pays a monthly fee based on the average of the daily closing value of the total net assets of each Fund for such month. Under the Agreement, any liability of the Advisor to the Trust, a Fund and/or its shareholders is limited to situations involving the Advisor's own willful misfeasance, bad faith, gross negligence or reckless disregard of its duties.
The Agreement may be terminated with respect to the Fund at any time on 60 days'
written notice by the Advisor or by the Trustees of the Trust or by a vote of a
majority of the outstanding voting securities of the Fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the Fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Advisor or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
The Advisor pays all salaries of officers of the Trust. The Trust pays all expenses not assumed by the Advisor including, but not limited to, auditing, legal, custodial, investor servicing and shareholder reporting expenses. The Trust pays the cost of printing and mailing any Prospectuses sent to shareholders. CMD pays the cost of printing and distributing all other Prospectuses.
ADMINISTRATION AGREEMENT (THIS SECTION APPLIES ONLY TO CERTAIN FUNDS AND THEIR RESPECTIVE TRUSTS. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION REGARDING YOUR FUND).
Under an Administration Agreement, the Advisor, in its capacity as the Administrator to each Fund, has contracted to perform the following administrative services:
(a) providing office space, equipment and clerical personnel;
(b) arranging, if desired by the respective Trust, for its directors, officers and employees to serve as Trustees, officers or agents of each Fund;
(c) preparing and, if applicable, filing all documents required for compliance by each Fund with applicable laws and regulations;
(d) preparation of agendas and supporting documents for and minutes of meetings of Trustees, committees of Trustees and shareholders;
(e) coordinating and overseeing the activities of each Fund's other third-party service providers; and
(f) maintaining certain books and records of each Fund.
The Advisor is paid a monthly fee at the annual rate of average daily net assets set forth in Part 1 of this SAI.
TRUST SERVICES AGREEMENT
Pursuant to a Trust Services Agreement, CMS provides the Columbia Tax-Managed Growth Fund's Trust Shares with trust administration services, including tax return preparation and filing, other tax and beneficiary reporting and recordkeeping. CMS's fee is described in the Prospectuses of the Columbia Tax-Managed Growth Fund.
THE PRICING AND BOOKKEEPING AGREEMENT
The Advisor is responsible for providing accounting and bookkeeping services to each Fund pursuant to a pricing and bookkeeping agreement. Under a separate agreement ("Outsourcing Agreement"), the Advisor has delegated those functions to State Street Bank and Trust Company (State Street). The Advisor pays fees to State Street under the Outsourcing Agreement. SEE "FUND CHARGES AND EXPENSES" IN
PART 1 OF THIS SAI FOR INFORMATION ON THESE FEES.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. The Advisor acts as investment advisor to each of the Funds. Various officers and Trustees of the Trust also serve as officers or Trustees of other funds and the other corporate or fiduciary clients of the Advisor. The Funds and clients advised by the Advisor or the Funds administered by the Advisor sometimes invest in securities in which the Fund also invests and sometimes engage in covered option writing programs and enter into transactions utilizing stock index options and stock index and financial futures and related options ("other instruments"). If the Fund, such other funds and such other clients desire to buy or sell the same portfolio securities, options or other instruments at about the same time, the purchases and sales are normally made as nearly as practicable on a pro rata basis in proportion to the amounts desired to be purchased or sold by each. Although in some cases these practices could have a detrimental effect on the price or volume of the securities, options or other instruments as far as the Fund is concerned, in most cases it is believed that these practices should produce better executions. It is the opinion of the Trustees that the desirability of retaining the Advisor as investment advisor to the Funds outweighs the disadvantages, if any, which might result from these practices.
POTENTIAL CONFLICTS OF INTEREST IN MANAGING MULTIPLE ACCOUNTS
Like other investment professionals with multiple clients, a portfolio manager for a Fund may face certain potential conflicts of interest in connection with managing both the Fund and other accounts at the same time. The paragraphs below describe some of these potential conflicts, which the Advisor believes are faced by investment professionals at most major financial firms. The Advisor and the Trustees of the Columbia Funds have adopted compliance policies and procedures that attempt to address certain of these potential conflicts.
The management of accounts with different advisory fee rates and/or fee structures, including accounts that pay advisory fees based on account performance ("performance fee accounts"), may raise potential conflicts of interest by creating an incentive to favor higher-fee accounts. These potential conflicts may include, among others:
- The most attractive investments could be allocated to higher-fee accounts or performance fee accounts.
- The trading of higher-fee accounts could be favored as to timing and/or execution price. For example, higher-fee accounts could be permitted to sell securities earlier than other accounts when a prompt sale is desirable or to buy securities at an earlier and more opportune time.
- The trading of other accounts could be used to benefit higher-fee accounts (front- running).
- The investment management team could focus their time and efforts primarily on higher-fee accounts due to a personal stake in compensation.
Potential conflicts of interest may also arise when the portfolio managers have personal investments in other accounts that may create an incentive to favor those accounts. As a general matter and subject to limited exceptions, the Advisor's investment professionals do not have the opportunity to invest in client accounts, other than the Columbia Funds.
A potential conflict of interest may arise when a Fund and other accounts purchase or sell the same securities. On occasions when a portfolio manager considers the purchase or sale of a security to be in the best interests of a Fund as well as other accounts, the Advisor's trading desk may, to the extent permitted by applicable laws and regulations, aggregate the securities to be sold or purchased in order to obtain the best execution and lower brokerage commissions, if any. Aggregation of trades may create the potential for unfairness to a Fund or another account if one account is favored over another in allocating the securities purchased or sold - for example, by allocating a disproportionate amount of a security that is likely to increase in value to a favored account.
"Cross trades," in which one Columbia account sells a particular security to another account (potentially saving transaction costs for both accounts), may also pose a potential conflict of interest. Cross trades may be seen to involve a potential conflict of interest if, for example, one account is permitted to sell a security to another account at a higher price than an independent third party would pay. The Advisor and the Funds' Trustees have adopted compliance procedures that provide that any transactions between a Fund and another Columbia-advised account are to be made at an independent current market price, as required by law.
Another potential conflict of interest may arise based on the different investment objectives and strategies of a Fund and other accounts. For example, another account may have a shorter-term investment horizon or different investment objectives, policies or restrictions than a Fund. Depending on another account's objectives or other factors, a portfolio manager may give advice and make decisions that may differ from advice given, or the timing or nature of decisions made, with respect to a Fund. In addition, investment decisions are the product of many factors in addition to basic suitability for the particular account involved. Thus, a particular security may be bought or sold for certain accounts even though it could have been bought or sold for other accounts at the same time. More rarely, a particular security may be bought for one or more accounts managed by a portfolio manager when one or more other accounts are selling the security (including short sales). There may be circumstances when purchases or sales of portfolio securities for one or more accounts may have an adverse effect on other accounts.
A Fund's portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. As a result, the portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as might be the case if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies.
A Fund's portfolio managers may be able to select or influence the selection of the brokers and dealers that are used to execute securities transactions for the Fund. In addition to executing trades, some brokers and dealers provide portfolio managers with brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934), which may result in the payment of higher brokerage fees than might have otherwise be available. These services may be more beneficial to certain funds or accounts than to others. Although the payment of brokerage commissions is subject to the requirement that the portfolio manager determine in good faith that the commissions are reasonable in relation to the value of the brokerage and research services provided to the fund, a portfolio manager's decision as to the selection of brokers and dealers could yield disproportionate costs and benefits among the funds and/or accounts that he or she manages.
The Advisor or an affiliate may provide more services (such as distribution or recordkeeping) for some types of funds or accounts than for others. In such cases, a portfolio manager may benefit, either directly or indirectly, by devoting disproportionate attention to the management of fund and/or accounts that provide greater overall returns to the investment manager and its affiliates.
A Fund's portfolio manager(s) may also face other potential conflicts of interest in managing the Fund, and the description above is not a complete description of every conflict that could be deemed to exist in managing both a Fund and other accounts. In addition, a Fund's portfolio manager may also manage other accounts (including their personal assets or the assets of family members) in their personal capacity. The management of these accounts may also involve certain of the potential conflicts described above. Investment personnel at the Advisor, including each Fund's portfolio manager, are subject to restrictions on engaging in personal securities transactions
pursuant to Codes of Ethics adopted by the Advisor and each Fund, which contain provisions and requirements designed to identify and address certain conflicts of interest between personal investment activities and the interests of each Fund.
BROKERAGE AND RESEARCH SERVICES. Consistent with the Conduct Rules of the National Association of Securities Dealers, Inc., and subject to seeking "best execution" (as defined below) and such other policies as the Trustees may determine, the Advisor may consider sales of shares of the Funds as a factor in the selection of broker-dealers to execute securities transactions for a Fund.
The Advisor places the transactions of the Funds with broker-dealers selected by the Advisor and, if applicable, negotiates commissions. Broker-dealers may receive brokerage commissions on portfolio transactions, including the purchase and writing of options, the effecting of closing purchase and sale transactions, and the purchase and sale of underlying securities upon the exercise of options and the purchase or sale of other instruments. The Funds from time to time also execute portfolio transactions with such broker-dealers acting as principals. The Funds do not intend to deal exclusively with any particular broker-dealer or group of broker-dealers.
It is the Advisor's policy generally to seek best execution, which is to place the Funds' transactions where the Funds can be expected to obtain the most favorable combination of price and execution services in particular transactions or provided on a continuing basis by a broker-dealer, and to deal directly with a principal market maker in connection with over-the-counter transactions, except when it is believed that best execution is obtainable elsewhere. In evaluating the execution services of, including the overall reasonableness of brokerage commissions paid to, a broker-dealer, consideration is given to, among other things, the firm's general execution and operational capabilities, and to its reliability, integrity and financial condition.
Securities transactions of the Funds may be executed by broker-dealers who also provide research services (as defined below) to the Advisor and the Funds. The Advisor may use all, some or none of such research services in providing investment advisory services to each of its investment company and other clients, including the Fund. To the extent that such services are used by the Advisor, they tend to reduce the Advisor's expenses. In the Advisor's opinion, it is impossible to assign an exact dollar value for such services.
The Trustees have authorized the Advisor to cause the Funds to pay a broker-dealer which provides brokerage and research services to the Advisor an amount of commission for effecting a securities transaction, including the sale of an option or a closing purchase transaction, for the funds in excess of the amount of commission which another broker-dealer would have charged for effecting that transaction. As provided in Section 28(e) of the Securities Exchange Act of 1934, "brokerage and research services" include advice as to the value of securities, the advisability of investing in, purchasing or selling securities and the availability of securities or purchasers or sellers of securities; furnishing analyses and reports concerning issues, industries, securities, economic factors and trends and portfolio strategy and performance of accounts; and effecting securities transactions and performing functions incidental thereto (such as clearance and settlement). The Advisor must determine in good faith that such greater commission is reasonable in relation to the value of the brokerage and research services provided by the executing broker-dealer viewed in terms of that particular transaction or the Advisor's overall responsibilities to the Funds and all its other clients.
The Trustees have authorized the Advisor to utilize the services of a clearing agent with respect to all call options written by Funds that write options and to pay such clearing agent commissions of a fixed amount per share (currently 1.25 cents) on the sale of the underlying security upon the exercise of an option written by a Fund.
The Advisor may use the services of affiliated broker-dealers, when buying or selling securities for a Fund's portfolio pursuant to procedures adopted by the Trustees and 1940 Act Rule 17e-1. Under the Rule, the Advisor must ensure that commissions a Fund pays to affiliates of the Advisor on portfolio transactions are reasonable and fair compared to commissions received by other broker-dealers in connection with comparable transactions involving similar securities being bought or sold at about the same time. The Advisor will report quarterly to the Trustees on all securities transactions placed through affiliates of the Advisor so that the Trustees may consider whether such trades complied with these procedures and the Rule.
PRINCIPAL UNDERWRITER
CMD is the principal underwriter of the Trust's shares. CMD has no obligation to buy the Funds' shares, and purchases the Funds' shares only upon receipt of orders from authorized FSFs or investors.
INVESTOR SERVICING AND TRANSFER AGENT
CMS is the Trust's investor servicing agent (transfer, plan and dividend disbursing agent), for which it receives fees which are paid monthly by the Trust. The fee paid to CMS is based on number of accounts plus reimbursement for certain out-of-pocket expenses. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION ON FEES RECEIVED BY CMS. The agreement continues indefinitely but may be terminated by 90 days' notice by the Fund to CMS or generally by 6 months' notice by CMS to the Fund. The agreement limits the liability of CMS to the Fund for loss or damage incurred by the Fund to situations involving a failure of CMS to use reasonable care or to act in good faith and without negligence in performing its duties under the agreement. The Fund will indemnify CMS from, among other things, any and all claims, actions, suits, losses, costs, damages, and expenses incurred by it in connection with its acceptance of this Agreement, provided that: (i) to the extent such claims, actions, suits, losses, costs, damages, or expenses relate
solely to a particular series or group of series of shares, such indemnification shall be only out of the assets of that series or group of series; (ii) this indemnification shall not apply to actions or omissions constituting negligence or misconduct of CMS or its agents or contractors, including but not limited to willful misfeasance, bad faith or gross negligence in the performance of their duties, or reckless disregard of their obligations and duties under this Agreement; and (iii) CMS shall give a Fund prompt notice and reasonable opportunity to defend against any such claim or action in its own name or in the name of CMS.
CODE OF ETHICS
The Funds, the Advisor, and CMD have adopted Codes of Ethics pursuant to the requirements of the 1940 Act. These Codes of Ethics permit personnel subject to the Codes to invest in securities, including securities that may be purchased or held by the Funds. These Codes of Ethics can be reviewed and copied at the SEC's Public Reference Room and may be obtained by calling the SEC at 1-202-942-8090. These Codes are also available on the EDGAR Database on the SEC's internet web site at http://www.sec.gov, and may also be obtained, after paying a duplicating fee, by electronic request to publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102.
ANTI-MONEY LAUNDERING COMPLIANCE
The Funds are required to comply with various anti-money laundering laws and regulations. Consequently, the Funds may request additional information from you to verify your identity. If at any time the Funds believe a shareholder may be involved in suspicious activity or if certain account information matches information on government lists of suspicious persons, the Funds may choose not to establish a new account or may be required to "freeze" a shareholder's account, halting all shareholder activity with respect to such account. The Funds also may be required to provide a governmental agency with information about transactions that have occurred in a shareholder's account or to transfer monies received to establish a new account, transfer an existing account or transfer the proceeds of an existing account to a governmental agency. In some circumstances, the law may not permit a Fund to inform the shareholder that it has taken the actions described above.
PROXY VOTING POLICIES AND FUND PROXY VOTING RECORD
The Fund has delegated to the Advisor the responsibility to vote proxies relating to portfolio securities held by the Fund. In deciding to delegate this responsibility to the Advisor, the Board of Trustees of the Trust reviewed and approved the policies and procedures adopted by the Advisor. These included the procedures that the Advisor follows when a vote presents a conflict between the interests of the Fund and its shareholders and the Advisor, its affiliates, its other clients or other persons.
The Advisor's policy is to vote all proxies for Fund securities in a manner considered by the Advisor to be in the best interest of the Fund and its shareholders without regard to any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor examines each proposal and votes against the proposal, if, in its judgment, approval or adoption of the proposal would be expected to impact adversely the current or potential market value of the issuer's securities. The Advisor also examines each proposal and votes the proxies against the proposal, if, in its judgment, the proposal would be expected to affect adversely the best interest of the Fund. The Advisor determines the best interest of the Fund in light of the potential economic return on the Fund's investment.
The Advisor addresses potential material conflicts of interest by having predetermined voting guidelines. For those proposals that require special consideration or in instances where special circumstances may require varying from the predetermined guideline, the Advisor's Proxy Committee determines the vote in the best interest of the Fund, without consideration of any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor's Proxy Committee is composed of representatives of the Advisor's equity investments, equity research, compliance, legal and fund administration functions. In addition to the responsibilities described above, the Proxy Committee has the responsibility to review, on a semi-annual basis, the Advisor's proxy voting policies to ensure consistency with internal and regulatory agency policies and to develop additional predetermined voting guidelines to assist in the review of proxy proposals.
The Proxy Committee may vary from a predetermined guideline if it determines that voting on the proposal according to the predetermined guideline would be expected to impact adversely the current or potential market value of the issuer's securities or to affect adversely the best interest of the client. References to the best interest of a client refer to the interest of the client in terms of the potential economic return on the client's investment. In determining the vote on any proposal, the Proxy Committee does not consider any benefit other than benefits to the owner of the securities to be voted. A member of the Proxy Committee is prohibited from voting on any proposal for which he or she has a conflict of interest by reason of a direct relationship with the issuer or other party affected by a given proposal. Persons making recommendations to the Proxy Committee or its members are required to disclose to the Committee any relationship with a party making a proposal or other matter known to the person that would create a potential conflict of interest.
The Advisor has retained Institutional Shareholder Services ("ISS"), a third party vendor, to implement its proxy voting process. ISS provides proxy analysis, record keeping services and vote disclosure services.
The Advisor's proxy voting guidelines and procedures are included in this SAI as Appendix II. In accordance with SEC regulations, the fund's proxy voting record for the last twelve-month period ended June 30 has been filed with the SEC. You may obtain a copy of the fund's proxy voting record (i) at www.columbiamanagement.com; (ii) on the Securities and Exchange Commission's website at www.sec.gov and (iii) without charge, upon request, by calling 800-368-0346.
DISCLOSURE OF PORTFOLIO INFORMATION
The Trustees of the Columbia Funds have adopted policies with respect to the disclosure of the Funds' portfolio holdings by the Funds, Columbia Advisors, or their affiliates. These policies provide that Fund portfolio holdings information generally may not be disclosed to any party prior to (1) the day next following the posting of such information on the Funds' website at www.columbiafunds.com, (2) the day next following the filing of the information with the SEC in a required filing, or (3) for money market funds, such information is publicly available to all shareholders upon request on the fifth business day after each calendar month-end. Certain limited exceptions pursuant to the Fund's policies are described below. The Trustees shall be updated as needed regarding the Fund's compliance with the policies, including information relating to any potential conflicts of interest between the interests of Fund shareholders and those of Columbia Advisors and its affiliates. The Fund's policies prohibit Columbia Advisors and the Fund's other service providers from entering into any agreement to disclose Fund portfolio holdings information in exchange for any form of consideration. These policies apply to disclosures to all categories of persons, including, without limitation, individual investors, institutional investors, intermediaries that distribute the Fund's shares, third-party service providers, rating and ranking organizations and affiliated persons of the Fund.
PUBLIC DISCLOSURES. The Fund's portfolio holdings are currently disclosed to the public through required filings with the SEC and, for equity and fixed income funds, on the Fund's website at www.columbiafunds.com. The Fund files its portfolio holdings with the SEC for each fiscal quarter on Form N-CSR (with respect to each annual period and semi-annual period) and Form N-Q (with respect to the first and third quarters of the Fund's fiscal year). Shareholders may obtain the Fund's Forms N-CSR and N-Q filings on the SEC's website at www.sec.gov. In addition, the Fund's Forms N-CSR and N-Q filings may be reviewed and copied at the SEC's public reference room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC's website or the operation of the public reference room.
The equity and fixed income Columbia Funds also currently make portfolio information publicly available at www.columbiafunds.com, as disclosed in the following table:
FREQUENCY OF
TYPE OF FUND INFORMATION PROVIDED DISCLOSURE DATE OF WEB POSTING
------------ -------------------- ------------ -------------------
Equity Funds Full portfolio holdings information. Monthly 30 calendar days after month-end.
Fixed Income Funds Full portfolio holdings information. Quarterly 60 calendar days after quarter-end
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The scope of the information provided relating to the Fund's portfolio that is made available on the website may change from time to time without prior notice.
For Columbia's money market funds, a complete list of a Fund's portfolio holdings shall be publicly available on a monthly basis on the fifth business day after month-end. Shareholders may request such information by writing or calling the Fund's distributor, CMD at the address listed on the cover of this SAI.
A Fund, Columbia Advisors or their affiliates may include portfolio holdings information that has already been made public through a web posting or SEC filing in marketing literature and other communications to shareholders, advisors or other parties, provided that the information is disclosed no earlier than the day after the date the information is disclosed publicly.
OTHER DISCLOSURES. The Fund's policies provide that non-public disclosures of the Fund's portfolio holdings may be made if (1) the Fund has a legitimate business purpose for making such disclosure, (2) the Fund's chief executive officer authorizes such non-public disclosure of information, and (3) the party receiving the non-public information enters into a confidentiality agreement, which includes a duty not to trade on the non-public information.
The Fund periodically discloses its portfolio information on a confidential basis to various service providers that require such information in order to assist the Fund with its day-to-day business affairs. In addition to Columbia Advisors and its affiliates, these service providers include the Fund's custodian and sub-custodians, the Fund's independent registered public accounting firm, legal counsel, financial printers (R.R. Donnelly & Sons and Bowne & Co., Inc.), the Fund's proxy voting service provider (Alamo Direct Mail Services, Inc.), the Fund's proxy solicitor (Georgeson Shareholder Communications Inc.), rating agencies that maintain ratings on certain Columbia Funds (Fitch, Inc.) and service providers that support Columbia Advisors' trading systems (InvestorTool, Inc. and Thomson Financial). These
service providers are required to keep such information confidential, and are prohibited from trading based on the information or otherwise using the information except as necessary in providing services to the Fund. The Fund may also disclose portfolio holdings information to broker/dealers and certain other entities related to potential transactions and management of the Fund, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information.
Certain clients of the Fund's investment adviser(s) may follow a strategy similar to that of the Fund, and have access to portfolio holdings information for their account. It is possible that such information could be used to infer portfolio holdings information relating to the Fund.
DETERMINATION OF NET ASSET VALUE
Each Fund determines net asset value (NAV) per share for each class as of the close of the New York Stock Exchange (Exchange) (generally 4:00 p.m. Eastern time) each day the Exchange is open, except that certain classes of assets, such as index futures, for which the market close occurs shortly after the close of regular trading on the Exchange will be priced at the closing time of the market on which they trade. Currently, the Exchange is closed Saturdays, Sundays and the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. Funds with portfolio securities which are primarily listed on foreign exchanges may experience trading and changes in NAV on days on which such Fund does not determine NAV due to differences in closing policies among exchanges. This may significantly affect the NAV of the Fund's redeemable securities on days when an investor cannot redeem such securities Debt securities generally are valued by a pricing service which determines valuations based upon market transactions for normal, institutional-size trading units of similar securities. However, in circumstances where such prices are not available or where the Advisor deems it appropriate to do so, an over-the-counter or exchange bid quotation is used. Securities listed on an exchange or on NASDAQ are valued at the last sale price (or the official closing price as determined by the NASDAQ system, if different, as applicable). Listed securities for which there were no sales during the day and unlisted securities generally are valued at the last quoted bid price. Options are valued at the last sale price or in the absence of a sale, the mean between the last quoted bid and offering prices. Short-term obligations with a maturity of 60 days or less are valued at amortized cost pursuant to procedures adopted by the Trustees. The values of foreign securities quoted in foreign currencies are translated into U.S. dollars at the exchange rate for that day. Portfolio positions for which market quotations are not readily available and other assets are valued at fair value as determined by the Advisor in good faith under the direction of the Trust's Board of Trustees.
Generally, trading in certain securities (such as foreign securities) is substantially completed each day at various times prior to the close of the Exchange. Trading on certain foreign securities markets may not take place on all business days in New York, and trading on some foreign securities markets takes place on days which are not business days in New York and on which the Fund's NAV is not calculated. The values of these securities used in determining the NAV are computed as of such times. Also, because of the amount of time required to collect and process trading information as to large numbers of securities issues, the values of certain securities (such as convertible bonds, U.S. government securities, and tax-exempt securities) are determined based on market quotations collected earlier in the day at the latest practicable time prior to the close of the Exchange. Occasionally, events affecting the value of such securities may occur between such times and the close of the Exchange which will not be reflected in the computation of each Fund's NAV. If events materially affecting the value of such securities occur during such period, then these securities will be valued at fair value following procedures approved by the Trust's Board of Trustees.
(The following two paragraphs are applicable only to Columbia Newport Tiger Fund and Columbia Newport Greater China Fund).
Trading in securities on stock exchanges and over-the-counter markets in foreign securities markets is normally completed well before the close of the business day in New York. Trading on foreign securities markets may not take place on all business days in New York, and trading on some foreign securities markets does take place on days which are not business days in New York and on which the Fund's NAV is not calculated.
The calculation of the Fund's NAV accordingly may not take place contemporaneously with the determination of the prices of the Fund's portfolio securities used in such calculations. Events affecting the values of portfolio securities that occur between the time their prices are determined and the close of the Exchange (when the Fund's NAV is calculated) will not be reflected in the Fund's calculation of NAV unless the Advisor, acting under procedures established by the Board of Trustees of the Trust, deems that the particular event would materially affect the Fund's NAV, in which case an adjustment will be made. Assets or liabilities initially expressed in terms of foreign currencies are translated prior to the next determination of the NAV of the Fund's shares into U.S. dollars at prevailing market rates.
AMORTIZED COST FOR MONEY MARKET FUNDS (SEE "AMORTIZED COST FOR MONEY MARKET
FUNDS" UNDER "INFORMATION CONCERNING THE FUND" IN PART 1 OF THE SAI OF COLUMBIA
MONEY MARKET FUND (FORMERLY NAMED LIBERTY MONEY MARKET FUND) AND COLUMBIA
MUNICIPAL MONEY MARKET FUND (FORMERLY NAMED LIBERTY MUNICIPAL MONEY MARKET
FUND))
Money market funds generally value their portfolio securities at amortized cost according to Rule 2a-7 under the 1940 Act.
Under the amortized cost method a security is initially valued at cost and
thereafter any discount or premium from maturity value is amortized ratably to
maturity. This method assures a constant NAV but may result in a yield different
from that of the same portfolio under the market value method. The Trust's
Trustees have adopted procedures intended to stabilize a money market fund's NAV
per share at $1.00. If a money market fund's market value deviates from the
amortized cost of $1.00, and results in a material dilution to existing
shareholders, the Trust's Trustees will take corrective action that may include:
realizing gains or losses; shortening the portfolio's maturity; withholding
distributions; redeeming shares in kind; or converting to the market value
method (in which case the NAV per share may differ from $1.00). All investments
will be determined pursuant to procedures approved by the Trust's Trustees to
present minimal credit risk.
See the Statement of Assets and Liabilities in the shareholder report of the Columbia Money Market Fund (formerly named Liberty Money Market Fund) or the Columbia Municipal Money Market Fund (formerly named Liberty Municipal Money Market Fund) for a specimen price sheet showing the computation of maximum offering price per share of Class A shares.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of the Fund and tables of charges. This SAI contains additional information which may be of interest to investors.
The Fund may accept unconditional orders for shares to be executed at the public offering price based on the NAV per share next determined after the order is placed in good order. The public offering price is the NAV plus the applicable sales charge, if any. In the case of orders for purchase of shares placed through FSFs, the public offering price will be determined on the day the order is placed in good order, but only if the FSF receives the order prior to the time at which shares are valued and transmits it to the Fund before the Fund processes that day's transactions. If the FSF fails to transmit before the Fund processes that day's transactions, the customer's entitlement to that day's closing price must be settled between the customer and the FSF. If the FSF receives the order after the time at which the Fund values its shares, the price will be based on the NAV determined as of the close of the Exchange on the next day it is open. If funds for the purchase of shares are sent directly to CMS, they will be invested at the public offering price next determined after receipt in good order. Payment for shares of the fund must be in U.S. dollars; if made by check, the check must be drawn on a U.S. bank.
Investors should understand that, since the offering price of the Fund's shares is calculated to two decimal places using standard rounding methodology, the dollar amount of the sales charge paid as a percentage of the offering price and of the net amount invested for any particular purchase of fund shares may be higher or lower depending on whether downward or upward rounding was required during the calculation process.
The Fund receives the entire NAV of shares sold. For shares subject to an initial sales charge, CMD's commission is the sales charge shown in the Fund's Prospectus less any applicable FSF discount. The FSF discount is the same for all FSFs, except that CMD retains the entire sales charge on any sales made to a shareholder who does not specify a FSF on the Investment Account Application ("Application"), and except that CMD may from time to time reallow additional amounts to all or certain FSFs. CMD generally retains some or all of any asset-based sales charge (distribution fee) or contingent deferred sales charge. Such charges generally reimburse CMD for any up-front and/or ongoing commissions paid to FSFs.
Checks presented for the purchase of shares of the Fund which are returned by the purchaser's bank or checkwriting privilege checks for which there are insufficient funds in a shareholder's account to cover redemption may subject such purchaser or shareholder to a $15 service fee for each check returned. Checks must be drawn on a U.S. bank and must be payable in U.S. dollars. Travelers checks, gift checks, credit card convenience checks, credit cards, cash and ban counter (starter checks) are not accepted.
CMS acts as the shareholder's agent whenever it receives instructions to carry out a transaction on the shareholder's account. Upon receipt of instructions that shares are to be purchased for a shareholder's account, the designated FSF will receive the applicable sales commission. Shareholders may change FSFs at any time by written notice to CMS, provided the new FSF has a sales agreement with CMD.
Shares credited to an account are transferable upon written instructions in good order to CMS and may be redeemed as described under "How to Sell Shares" in the Prospectus. Certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you may send the certificates to CMS for deposit to your account.
In addition to the commissions specified in a Fund's prospectus and this SAI, CMD, or its advisory affiliates, from their own resources, may make cash payments to FSFs that agree to promote the sale of shares of funds that CMD distributes. A number of factors may be considered in determining the amount of those payments, including the FSF's sales, client assets invested in the funds and redemption rates, the quality of the FSF's relationship with CMD and/or its affiliates, and the nature of the services provided by FSFs to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the FSF's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, CMD may also pay non-cash compensation to FSFs and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for FSF educational or training events.
In addition, CMD, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of a Fund.
CMD and its affiliates anticipate that the FSFs and intermediaries that will receive the additional compensation described above include:
1st Global Capital Corp
401 Company
ABN AMRO Trust Services
ADP Retirement Services
Advest
AEGON/Transamerica
AG Edwards
American Century Services
American Express
AMG
AON Consulting
AST Trust Company
Banc of America Investment Services
BancOne
Bear Stearns
Benefit Plan Administrators
Bidwell & Company
BNY Clearing
C N A Trust
Charles Schwab
CIBC Oppenheimer
Citigroup Global Markets
CitiStreet Associates LLC
City National Bank
City of Milwaukee
Columbia Trust Company
Commonwealth Financial
Compensation & Capital
CPI Qualified Plan Consultants
Daily Access Concepts
Davenport & Company
Delaware Investments
Digital Retirement Solutions
Discover Brokerage
Dreyfus/Mellon
Edgewood Services
Edward Jones
E-Trade,
ExpertPlan
FAS Liberty Life Spectrum
Ferris Baker Watts
Fidelity
Financial Data Services
Franklin Templeton
Freeman Welwood
Gem Group
Great West Life
Hewitt Associates LLC
Huntington Bank
ING
Intermountain Health Care
Investmart, Inc.
Investment Manager Services (IMS)
Janney Montgomery Scott
JJB Hilliard Lyons
JP Morgan/American Century
Kenney Investments
Kirkpatrick Pettis Smith Polian Inc
Legg Mason Wood Walker
Liberty Life
Lincoln Financial
Lincoln Life
Linsco Private Ledger
M & T Securities
Marquette Trust Company
Mass Mutual Life
Matrix Settlement & Clearance Services (MSCS)
McDonald Investments
Merrill Lynch
MetLife
MFS
Mfund Trax
MidAtlantic Capital
Milliman USA
Morgan Keegan
Morgan Stanley Dean Witter
PFPC
Nationwide Investment Services
Neuberger Berman Mgmt
NFP Securities
NSD - NetStock Sharebuilder
NYLife Distributors
Optimum Investment Advisors
Orbitex
Pershing LLC
Phoenix Home Life
Piper Jaffray
PNC
PPI Employee Benefits
Private Bank & Trust
Prudential
Putnam Investments
Raymond James
RBC Dain Rausher
Robert W Baird
Royal Alliance
RSM McGladrey Inc.
Safeco
Scott & Stringfellow
Scudder Investments
Security Benefit
Segall Bryant Hamill
South Trust Securities
Southwest Securities
Standard Insurance
Stanton Group
State of NY Deferred Compensation Plan
Stephens, Inc.
Stifel Nicolaus & Co
Strong Capital
Sungard T Rowe Price
Trustar Retirement Services
Trustlynx/Datalynx
UBS Financial Services
USAA Investment Management
Vanguard
Wachovia
TD Waterhouse
Webster Investment Services
Wells Fargo
Wilmington Trust
PLEASE CONTACT YOUR FSF OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or eliminated at any time.
AUTOMATIC INVESTMENT PLAN. As a convenience to investors, shares of most Funds advised by the Advisor may be purchased through the Automatic Investment Plan. Electronic fund transfers for a fixed amount of at least $50 ($25 for IRA) are used to purchase a Fund's shares at the public offering price next determined after CMD receives the proceeds. If your Automatic Investment Plan purchase is by electronic funds transfer, you may request the Automatic Investment Plan purchase for any day. Further information and application forms are available from FSFs or from CMD.
AUTOMATED DOLLAR COST AVERAGING (Classes A, B, C, D, T, G and Z). The Automated Dollar Cost Averaging program allows you to exchange $100 or more on a monthly basis from any fund distributed by CMD in which you have a current balance of at least $5,000 into the same class of shares of up to five other Funds. Complete the Automated Dollar Cost Averaging section of the Application. There is no charge for exchanges made pursuant to the Automated Dollar Cost Averaging program. Sales charges may apply if exchanging from a money market fund. Exchanges will continue so long as your fund balance is sufficient to complete the transfers. Your normal rights and privileges as a shareholder remain in full force and effect. Thus you can buy any Fund, exchange between the same Class of shares of Funds by written instruction or by telephone exchange if you have so elected and withdraw amounts from any Fund, subject to the imposition of any applicable CDSC or sales charges.
Any additional payments or exchanges into your Fund will extend the time of the Automated Dollar Cost Averaging program.
An exchange is generally a capital sale transaction for federal income tax purposes.
You may terminate your program, change the amount of the exchange (subject to the $100 minimum), or change your selection of funds, by telephone or in writing; if in writing by mailing your instructions to Columbia Management Services, Inc. (formerly named Columbia Funds Services, Inc.) (CMS) P.O. Box 8081, Boston, MA 02266-8081.
You should consult your FSF or financial advisor to determine whether or not the Automated Dollar Cost Averaging program is appropriate for you.
CMD offers several plans by which an investor may obtain reduced initial or contingent deferred sales charges. These plans may be altered or discontinued at any time. See "Programs For Reducing or Eliminating Sales Charges" below for more information.
CLASS T SHAREHOLDER SERVICES PLAN. The Trustees have approved a Shareholder Services Plan (the "Services Plan") pursuant to which the Trusts plan to enter into servicing agreements with institutions (including Bank of America Corporation and its affiliates). Pursuant to these servicing agreements, institutions render certain administrative and support services to customers who are the beneficial owners of Class T shares of each Fund other than the Columbia Newport Tiger Fund. Such services are provided to the institution's customers who are the beneficial owners of Class T shares and are intended to supplement the services provided by the Fund's administrator and transfer agent to the shareholders of record of the Class T shares. The Services Plan provides that each Fund will pay fees for such services at an annual rate of up to 0.50% of the average daily net asset value of Class T shares owned beneficially by the institution's customers. Institutions may receive up to one-half of this fee for providing one or more of the following services to such customers: (i) aggregating and processing purchase and redemption requests and placing net purchase and redemption orders with CMD; (ii) processing dividend payments from a Fund; (iii) providing sub-accounting with respect to Class T shares or the information necessary for
sub-accounting; and (iv) providing periodic mailings to customers. Institutions may also receive up to one-half of this fee for providing one or more of these additional services to such customers: (i) providing customers with information as to their positions in Class T shares; (ii) responding to customer inquiries; and (iii) providing a service to invest the assets of customers in Class T shares.
The payments under the servicing agreements entered into as of the date of this SAI are limited to an aggregate fee of not more than 0.30% (on an annualized basis) of the average daily net asset value of the Class T shares of equity funds beneficially owned by customers of institutions and 0.15% (on an annualized basis) of the average daily net asset value of the Class T shares of bond funds beneficially owned by customers of institutions. The Funds understand that institutions may charge fees to their customers who are the beneficial owners of Class T shares in connection with their accounts with such institutions. Any such fees would be in addition to any amounts which may be received by an institution under the Services Plan. Under the terms of each servicing agreement, institutions are required to provide to their customers a schedule of any fees that they may charge in connection with customer investments in Class T shares.
Each servicing agreement with an institution ("Service Organization") relating to the Services Plan requires that, with respect to those Funds which declare dividends on a daily basis, the Service Organization agrees to waive a portion of the servicing fee payable to it under the Services Plan to the extent necessary to ensure that the fees required to be accrued with respect to the Class T shares of such Funds on any day do not exceed the income to be accrued to such Class T shares on that day.
The Class T servicing agreements are governed by the Services Plan approved by the Board of Trustees in connection with the offering of Class T shares of each Fund. Pursuant to the Services Plan, the Board of Trustees reviews, at least quarterly, a written report of the amounts paid under the servicing agreements and the purposes for which the expenditures were made. In addition, the arrangements with Service Organizations must be approved annually by a majority of the Trustees, including a majority of the trustees who are not "interested persons" of the Funds as defined in the 1940 Act and who have no direct or indirect financial interest in such arrangements (the "Disinterested Trustees").
The Board of Trustees has approved the service agreements with Service Organizations based on information provided by the Funds' service contractors that there is a reasonable likelihood that the arrangements will benefit the Funds and their shareholders by affording the Funds greater flexibility in connection with the efficient servicing of the accounts of the beneficial owners of Class T shares of the Funds. Any material amendment to the Funds' arrangements with Service Organizations must be approved by a majority of the Board of Trustees (including a majority of the Disinterested Trustees). So long as the service agreements with Service Organizations are in effect, the selection and nomination of the members of Columbia's Board of Trustees who are not "interested persons" (as defined in the 1940 Act) of the Funds will be committed to the discretion of such Disinterested Trustees.
TAX-SHELTERED RETIREMENT PLANS (Retirement Plans). CMD offers prototype tax-qualified plans, including Pension and Profit-Sharing Plans for individuals, corporations, employees and the self-employed. The minimum initial Retirement Plan investment is $25. Columbia Trust Company (CTC) is the Custodian/Trustee and Plan Sponsor of the Columbia Advisor prototype plans offered through CMD. In general, a $20 annual fee is charged. Detailed information concerning these Retirement Plans and copies of the Retirement Plans are available from CMD.
Participants in Retirement Plans not sponsored by CTC, not including Individual Retirement Accounts (IRAs), may be subject to an annual fee of $20 unless the Retirement Plan maintains an omnibus account with CMS. Participants in CTC sponsored prototype plans (other than IRAs) who liquidate the total value of their account may also be charged a $20 close-out processing fee payable to CMS. The close out fee applies to plans opened after September 1, 1996. The fee is in addition to any applicable CDSC. The fee will not apply if the participant uses the proceeds to open a Columbia Advisor IRA Rollover account in any Fund distributed by CMD, or if the Retirement Plan maintains an omnibus account.
Consultation with a competent financial advisor regarding these Retirement Plans and consideration of the suitability of Fund shares as an investment under the Employee Retirement Income Security Act of 1974 or otherwise is recommended.
TELEPHONE ADDRESS CHANGE SERVICES. By calling CMS, shareholders or their FSF of record may change an address on a recorded telephone line. Confirmations of address change will be sent to both the old and the new addresses. Telephone redemption privileges by check are suspended for 30 days after an address change is effected. Please have your account and taxpayer identification numbers available when calling.
CASH CONNECTION. Dividends and any other distributions, including Systematic Withdrawal Plan (SWP) payments, may be automatically deposited to a shareholder's bank account via electronic funds transfer. Shareholders wishing to avail themselves of this electronic transfer procedure should complete the appropriate sections of the Application.
AUTOMATIC DIVIDEND DIVERSIFICATION. The automatic dividend diversification reinvestment program (ADD) generally allows shareholders to have all distributions from a Fund automatically invested in the same class of shares of another Fund. An ADD account must be in the same name as the shareholder's existing open account with the particular Fund. Call CMS for more information at 1-800-345-6611.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
RIGHTS OF ACCUMULATION (Columbia Class A and Class T shares, Nations Class A shares and Galaxy Retail A shares only) Class T shares can only be purchased by the shareholders of Columbia Newport Tiger Fund (formerly named Liberty Newport Tiger Fund) who already own Class T shares. Reduced sales charges on Class A and T shares can be effected by combining a current purchase of Class A or Class T shares with prior purchases of other funds and classes distributed by CMD. The applicable sales charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on the previous day of all shares of funds for which CMD serves as distributor for funds held by the shareholder.
CMD must be promptly notified of each purchase with respect to which a shareholder is entitled to a reduced sales charge. Such reduced sales charge will be applied upon confirmation of the shareholder's holdings by CMS. A Fund may terminate or amend this Right of Accumulation.
STATEMENT OF INTENT (Class A, Class E and Class T shares only). Any person may qualify for reduced sales charges on purchases of Class A, E and T shares made within a thirteen-month period pursuant to a Statement of Intent ("Statement"). A shareholder may include, as an accumulation credit toward the completion of such Statement, the value of all fund shares held by the shareholder on the date of the Statement in Funds (except shares of any money market fund, unless such shares were acquired by exchange from Class A shares of another non-money market fund)). The value is determined at the public offering price on the date of the Statement. Purchases made through reinvestment of distributions do not count toward satisfaction of the Statement.
During the term of a Statement, CMS will hold shares in escrow to secure payment of the higher sales charge applicable to Class A, E or T shares actually purchased. Dividends and capital gains will be paid on all escrowed shares and these shares will be released when the amount indicated has been purchased. A Statement does not obligate the investor to buy or a Fund to sell the amount of the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which would qualify for a further quantity discount, a retroactive price adjustment will be made at the time of expiration of the Statement (provided the FSF returns to CMD the excess commission previously paid during the thirteen-month period). The resulting difference in offering price will purchase additional shares for the shareholder's account at the applicable offering price.
If the amount of the Statement is not purchased, the shareholder shall remit to CMD an amount equal to the difference between the sales charge paid and the sales charge that should have been paid. If the shareholder fails within twenty days after a written request to pay such difference in sales charge, CMS will redeem escrowed Class A, E or T shares with a value equal to such difference. The additional FSF commission will be remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available from your FSF, or from CMS at 1-800-345-6611.
NET ASSET VALUE ELIGIBILITY GUIDELINES (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, LLC IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS).
1. Employees, brokers and various relationships that are allowed to buy at NAV. Class A shares of certain Funds may be sold at NAV to the following individuals, whether currently employed or retired: Employees of Bank of America Corporation (and its predecessors), its affiliates and subsidiaries; Trustees of funds advised or administered by the Advisor; directors, officers and employees of the Advisor, CMD, or its successors and companies affiliated with the Advisor; Registered representatives and employees of FSFs (including their affiliates) that are parties to dealer agreements or other sales arrangements with CMD; Nations Funds' Trustees, Directors and employees of its investment sub- advisers; Broker/Dealers if purchases are in accordance with the internal policies and procedures of the employing broker/dealer and made for their own investment purposes; employees or partners of any contractual service provider to the funds
NAV eligibility for Class A purchase also applies to the families of the
parties listed above and their beneficial accounts. Family members include:
spouse, parent, stepparent, legal guardian, child, stepchild, father-in-law
and mother-in-law.
Individuals receiving a distribution from a Bank of America trust, fiduciary, custodial or other similar account may use the proceeds of that distribution to buy Class A shares without paying a front-end sales charge, as long as the proceeds are invested in the funds within 90 days of the date of distribution.
Registered broker/dealer firms that have entered into a Nations Funds dealer agreement with BACAP Distributors, LLC may buy Class A shares without paying a front-end sales charge for their investment account only.
Banks, trust companies and thrift institutions, acting as fiduciaries.
2. Grandfathered investors. Any shareholder who owned shares of any fund of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000 (when all of the then outstanding shares of Columbia Acorn Trust were re-designated Class Z shares) and who since that time has remained a shareholder of any Fund, may purchase Class A shares of any Fund at NAV in those cases where a Columbia Fund Class Z share is not available.
Shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at NAV will continue to be eligible for NAV purchases into those Nations Fund accounts opened through August 19, 2005.
Galaxy Fund shareholders prior to December 1, 1995; and shareholders who
(i) purchased Galaxy Fund Prime A shares at NAV and received Class A shares
in exchange for those shares during the Galaxy/Liberty Fund reorganization;
and (ii) continue to maintain the account in which the Prime A shares were
originally purchased.
(For Class T shares only) Shareholders who (i) purchased Galaxy Fund Retail A shares at net asset value and received Class T shares in exchange for those shares during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Retail A shares were originally purchased; and Boston 1784 Fund shareholders on the date that those funds were reorganized into Galaxy Funds.
3. Reinstatement. Subject to the fund policy on trading of fund shares, an investor who has redeemed class A, B, C, D, G or T shares may, upon request, reinstate within 1 year a portion or all of the proceeds of such sales in shares of class A of any fund at the NAV next determined after CMS received a written reinstatement request and payment.
4. Retirement Plans. Class A, Class E and Class T shares (Class T shares are not currently open to new investors) of certain funds may also be purchased at reduced or no sales charge by clients of dealers, brokers or registered investment advisors that have entered into arrangements with CMD pursuant to which the funds are included as investments options in wrap fee accounts, other managed agency/asset allocation accounts or programs involving fee-based compensation arrangements, and by participants in certain retirement plans.
5. Non-U.S. Investors. Certain pension, profit-sharing or other employee benefit plans offered to non-US investors may be eligible to purchase Class A shares with no sales charge.
6. Reorganizations. At the Fund's discretion, NAV eligibility may apply to shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which the fund is a party.
7. Rights of Accumulation (ROA). The value of eligible accounts, regardless of class, maintained by you and you and your immediate family may be combined with the value of your current purchase to reach a sales discount level and to obtain the lower sales charge for your current purchase.
8. Letters of Intent (LOI). You may pay a lower sales charge when purchasing class A shares by signing a letter of intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the LOI within 13 months. If your LOI purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES (CDSCS) (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, LLC IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS) (Class A, B, C, D, E, matured F, G and T shares) CDSCs may be waived on redemptions in the following situations with the proper documentation:
1. Death. CDSCs may be waived on redemptions following the death of (i) the sole shareholder on an individual account, (ii) a joint tenant where the surviving joint tenant is the deceased's spouse, or (iii) the beneficiary of a Uniform Gifts to Minors Act (UGMA), Uniform Transfers to Minors Act (UTMA) or other custodial account. If, upon the occurrence of one of the foregoing, the account is transferred to an account registered in the name of the deceased's estate, the CDSC will be waived on any redemption from the estate account If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions occurring pursuant to a monthly, quarterly or semi-annual SWP established with CMS, to the extent the redemptions do not exceed, on an annual basis, 12% of the account's value at the time that the SWP is established. Otherwise, CDSCs will be charged on SWP redemptions until this requirement is met. For redemptions in excess of 12% of the account's value at the time that the SWP is established, a CDSC will be charged on the SWP redemption. The 12% limit does not apply if the SWP is set up at the time the account is established, and distributions are being reinvested. See below under "How to Sell Shares - Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions occurring after the sole shareholder on an individual account or a joint tenant on a spousal joint tenant account becomes disabled (as defined in Section 72(m)(7) of the Internal Revenue Code). To be eligible for such waiver, (i) the disability must arise AFTER the purchase of shares (ii) the disabled shareholder must have been under age 65 at the time of the initial determination of disability, and (iii) a letter from a physician must be signed under penalty of perjury stating the nature of the disability. If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring upon
dissolution of a revocable living or grantor trust following the death of
the sole trustee where (i) the grantor of the trust is the sole trustee and
the sole life beneficiary, (ii) death occurs following the purchase AND
(iii) the trust document provides for dissolution of the trust upon the
trustee's death. If the account is transferred to a new registration
(including that of a successor trustee), the applicable CDSC will be
charged upon any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions required to return excess contributions made to retirement plans or individual retirement accounts, so long as the FSF agrees to return the applicable portion of any commission paid by CMD.
6. Qualified Retirement Plans. CDSCs may be waived on CMD shares sold by employee benefit plans created according to Section 403(b) of the tax code and sponsored by a non-profit organization qualified under Section 501(c)(3) of the tax code. To qualify for the waiver, the plan must be a participant in an alliance program that has signed an agreement with Columbia Funds or CMD.
7. Trust Share Taxes. CDSCs will be waived on redemptions of Class E and F
shares (i) where the proceeds are used to directly pay trust taxes, and
(ii) where the proceeds are used to pay beneficiaries for the payment of
trust taxes.
8. Return of Commission. CDSCs may be waived on shares sold by intermediaries that are part of the Columbia Funds selling group where the intermediary has entered into an agreement with Columbia Funds not to receive (or to return if received) all or any applicable portion of an upfront commission.
9. Non-U.S. Investors. CDSCs may be waived on shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors.
10. IRS Section 401 and 457. CDSCs may be waived on shares sold by certain
pension, profit-sharing or other employee benefit plans established under
Section 401 or 457 of the tax code.
11. Medical Payments. CDSCs may be waived on shares redeemed for medical payments that exceed 7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least twelve weeks.
12. Plans of Reorganization. At the Funds' discretion, CDSCs may be waived for shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which a fund is a party.
13. Charitable Giving Program. CDSCs may be waived on the sale of Class C or Class D shares sold by a non-profit organization qualified under Section 501(c)(3) of the tax code in connection with the Banc of America Capital Management Charitable Giving Program.
14. The CDSC also may be waived where the FSF agrees to return all or an agreed upon portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may be sold on any day the Exchange is open, either directly to the Fund or through the shareholder's FSF. Sale proceeds generally are sent within seven days (usually on the next business day after your request is received in good form). However, for shares recently purchased by check, the Fund may delay selling or delay sending proceeds from your shares for up to 15 days in order to protect the Fund against financial losses and dilution in net asset value caused by dishonored purchase payment checks.
To sell shares directly to the Fund, send a signed letter of instruction to CMS, along with any certificates for shares to be sold. The sale price is the net asset value (less any applicable contingent deferred sales charge) next calculated after the Fund receives the request in proper form. Signatures must be guaranteed by a bank, a member firm of a national stock exchange or another eligible guarantor that participates in the Medallion Signature Guarantee Program. Stock power forms are available from FSFs, CMS and many banks. Additional documentation may be required for sales by corporations, agents, fiduciaries, surviving joint owners, individual retirement account holders and other legal entities. Call CMS for more information 1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued to receive that day's price, FSF's are responsible for furnishing all necessary documentation to CMS and may charge for this service.
SYSTEMATIC WITHDRAWAL PLAN. The shareholder may establish a SWP. A specified dollar amount, share amount or percentage of the then current net asset value of the shareholder's investment in any Fund designated by the shareholder will be paid monthly, quarterly or semi-annually to a designated payee. The amount or percentage the shareholder specifies is run against available shares and generally may not, on an annualized basis, exceed 12% of the value, as of the time the shareholder makes the election, of the shareholder's investment. Withdrawals of shares of the Fund under a SWP will be treated as redemptions of shares purchased through the reinvestment of Fund distributions, or, to the extent such shares in the shareholder's account are insufficient to cover Plan payments, as redemptions from the earliest purchased shares of such Fund in the shareholder's account. No CDSCs apply to a redemption pursuant to a SWP of 12% or less, even if, after giving effect to the redemption, the shareholder's account balance is less than the shareholder's base amount. Qualified plan participants who are required by Internal Revenue Service regulation to withdraw more than 12%, on an annual basis, of the value of their share account may do so but may be subject to a CDSC ranging from 1% to 5% of the amount withdrawn in excess of 12% annually. If a shareholder wishes to participate in a SWP, the shareholder must elect to have all of the shareholder's income dividends and other Fund distributions payable in shares of the Fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by telephone on a recorded line. However, SWP checks will be payable only to the shareholder and sent to the address of record. SWPs from retirement accounts cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in certificate form. Purchasing additional shares (other than through dividend and distribution reinvestment) while receiving SWP payments is ordinarily disadvantageous because of sales charges. For this reason, a shareholder may not maintain a plan for the accumulation of shares of the Fund (other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or loss for tax purposes, may involve the use of principal and may eventually use up all of the shares in a shareholder's account.
A Fund may terminate a shareholder's SWP if the shareholder's account balance falls below $5,000 due to any transfer or liquidation of shares other than pursuant to the SWP. SWP payments will be terminated on receiving satisfactory evidence of the death or incapacity of a shareholder. Until this evidence is received, CMS will not be liable for any payment made in accordance with the provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate in them is borne by the Fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not be able to participate in a SWP. If a shareholder's Fund shares are held in "street name," the shareholder should consult his or her FSF to determine whether he or she may participate in a SWP. The SWP on accounts held in "street name" must be made payable to the back office via the National Securities Clearing Corporation (NSCC).
TELEPHONE REDEMPTIONS. All Fund shareholders and/or their FSFs are automatically
eligible to redeem up to $100,000 of the Fund's shares by calling 1-800-422-3737
toll-free any business day between 9:00 a.m. and the close of trading of the
Exchange (normally 4:00 p.m. Eastern time). Transactions received after 4:00
p.m. Eastern time will receive the next business day's closing price. Telephone
redemptions by check and ACH are limited to a total of $100,000 in a 30-day
period. Redemptions that exceed $100,000 may be accomplished by placing a wire
order trade through a broker, to a pre-existing bank account or furnishing a
signature guaranteed request. Signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another eligible guarantor that
participates in the Medallion Signature Guarantee Program. CMS will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. Telephone redemptions are not available on accounts with an address
change in the preceding 30 days and proceeds and confirmations will only be
mailed or sent to the address of record unless the redemption proceeds are being
sent to a pre-designated bank account. Shareholders and/or their FSFs will be
required to provide their name, address account and taxpayer identification
numbers. FSFs will also be required to provide their broker number. All
telephone transactions are recorded. A loss to a shareholder may result from an
unauthorized transaction reasonably believed to have been authorized. Certain
restrictions apply to retirement plan accounts.
CHECKWRITING (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT
ADVISORS, LLC ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR OF CERTAIN FUNDS)
(Available only on the Class A and Z shares of certain Funds)
Shares may be redeemed by check if a shareholder has previously completed an Application and Signature Card. CMS will provide checks to be drawn on Mellon Trust of New England, N.A. (the "Bank"). These checks may be made payable to the order of any person in the amount of not less than $500 ($250 for money market funds) nor more than $100,000. The shareholder will continue to earn dividends on shares until a check is presented to the Bank for payment. At such time a sufficient number of full and fractional shares will be redeemed at the next determined net asset value to cover the amount of the check. Certificate shares may not be redeemed in this manner.
Shareholders utilizing checkwriting drafts will be subject to the Bank's rules governing checking accounts. There is currently no charge to the shareholder for the use of checks., However, you may incur customary fees for services such as a stop payment request or a request for copies of a check. The shareholder should make sure that there are sufficient shares in his or her open account to cover the amount of any check drawn since the net asset value of shares will fluctuate. If insufficient shares are in the shareholder's open account, the check will be returned marked "insufficient funds" and no shares will be redeemed; the shareholder will be charged a $15 service fee for each check returned. It is not possible to determine in advance the total value of an open account because prior redemptions and possible changes in net asset value may cause the value of an open account to change. Accordingly, a check redemption should not be used to close an open account. In addition, a check redemption, like any other redemption, may give rise to taxable capital gains.
NON-CASH REDEMPTIONS. For redemptions of any single shareholder within any 90-day period exceeding the lesser of $250,000 or 1% of a Fund's net asset value, a Fund may make the payment or a portion of the payment with portfolio securities held by that Fund instead of cash, in which case the redeeming shareholder may incur brokerage and other costs in selling the securities received.
INFORMATION APPLICABLE TO CLASS G AND CLASS T SHARES
The primary difference between Class G and Class T shares lies in their sales charge structures and shareholder servicing/distribution expenses. Investments in Class T shares of the Funds are subject to a front-end sales charge. Investments in Class G shares of the Funds are subject to a back-end sales charge. This back-end sales charge declines over time and is known as a "contingent deferred sales charge." An investor should understand that the purpose and function of the sales charge structures and shareholder servicing/distribution arrangements for both Class G and Class T shares are the same. Class T shares of a bond fund and an equity fund are currently subject to ongoing shareholder servicing fees at an annual rate of up to 0.15% and 0.30%, respectively, of the Fund's average daily net assets attributable to its Class T shares. Class G shares of a bond fund and an equity fund are currently subject to ongoing shareholder servicing and distribution fees at an annual rate of up to 0.80% and 0.95%, respectively, of the Fund's average daily net assets attributable to its Class G shares. These ongoing fees, which are higher than those charged on Class T shares, will cause
Class G shares to have a higher expense ratio and pay lower dividends than Class T shares. Class G and Class T shares may only be purchased by current shareholders of Class G and Class T, respectively.
CLASS T SHARES. The public offering price for Class T shares of the Funds is the sum of the net asset value of the Class T shares purchased plus any applicable front-end sales charge as described in the applicable Prospectus. A deferred sales charge of up to 1.00% is assessed on certain redemptions of Class T shares that are purchased with no initial sales charge as part of an investment of $1,000,000 to $25,000,000. A portion of the front-end sales charge may be reallowed to broker-dealers as follows:
REALLOWANCE TO
REALLOWANCE TO DEALERS DEALERS AS A % OF
AS A % OF OFFERING PRICE OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE - BOND FUNDS PER SHARE - EQUITY FUNDS
--------------------- ------------------------ ------------------------
Less than $50,000 4.25 5.00
$50,000 but less than $100,000 3.75 3.75
$100,000 but less than $250,000 2.75 2.75
$250,000 but less than $500,000 2.00 2.00
$500,000 but less than $1,000,000 1.75 1.75
$1,000,000 and over 0.00 0.00
|
The appropriate reallowance to dealers will be paid by CMD to broker-dealer organizations which have entered into agreements with CMD. The reallowance to dealers may be changed from time to time.
Certain affiliates of the Advisor may, at their own expense, provide additional compensation to broker-dealer affiliates of Columbia and to unaffiliated broker-dealers whose customers purchase significant amounts of Class T shares of the Funds. Such compensation will not represent an additional expense to the Funds or their shareholders, since it will be paid from the assets of Bank of America Corporation's affiliates.
INFORMATION APPLICABLE TO CERTAIN CLASS G SHARES RECEIVED BY FORMER GALAXY FUND RETAIL B SHAREHOLDERS IN CONNECTION WITH THE GALAXY/LIBERTY REORGANIZATION. The following table describes the CDSC schedule applicable to Class G shares received by former Galaxy Fund Retail B shareholders in exchange for Retail B Shares purchased prior to January 1, 2001:
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.00
Through second year 4.00
Through third year 3.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Longer than six years None
|
Class G shares received in exchange for Galaxy Fund Retail B Shares that were purchased prior to January 1, 2001 will automatically convert to Class T shares seven years after purchase. For purposes of calculating the CDSC, all purchases are considered to be made on the first day of the month in which each purchase was made.
The following table describes the CDSC schedule applicable to Class G shareholders whose Galaxy Asset Allocation Fund and/or International Equity Fund Retail B Shares were acquired in connection with the reorganization of the Pillar Funds:
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.50
Through second year 5.00
Through third year 4.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Through the seventh year None
Longer than seven years None
|
If you acquired Retail B Shares in connection with the reorganization of the Pillar Funds, your Class G shares will automatically convert to Class T shares eight years after you purchased the Pillar Fund Class B shares you held prior to the reorganization. For purposes of calculating the CDSC, all purchases are considered to be made on the first day of the month in which each purchase was made.
CLASS G SHARES PURCHASED AFTER THE GALAXY/LIBERTY REORGANIZATION. The public offering price for Class G shares of the Funds is the net asset value of the Class G shares purchased. Although investors pay no front-end sales charge on purchases of Class G shares, such shares are subject to a contingent deferred sales charge at the rates set forth in the applicable Prospectus if they are redeemed within seven years of purchase. Securities dealers, brokers, financial institutions and other industry professionals will receive commissions from CMD in connection with sales of Class G shares. These commissions may be different than the reallowances or placement fees paid to dealers in connection with sales of Class T shares. Certain affiliates of Columbia may, at their own expense, provide additional compensation to broker-dealer affiliates of Columbia and to unaffiliated broker-dealers, whose customers purchase significant amounts of Class G shares of a Fund. See "Class T Shares." The contingent deferred sales charge on Class G shares is based on the lesser of the net asset value of the shares on the redemption date or the original cost of the shares being redeemed. As a result, no sales charge is imposed on any increase in the principal value of an investor's Class G shares. In addition, a contingent deferred sales charge will not be assessed on Class G shares purchased through reinvestment of dividends or capital gains distributions.
The proceeds from the contingent deferred sales charge that an investor may pay upon redemption go to CMD, which may use such amounts to defray the expenses associated with the distribution-related services involved in selling Class G shares. Class G shares of a Fund will convert automatically to Class T shares eight years after purchase. The purpose of the conversion is to relieve a holder of Class G shares of the higher ongoing expenses charged to those shares, after enough time has passed to allow CMD to recover approximately the amount it would have received if the applicable front-end sales charge had been charged. The conversion from Class G shares to Class T shares takes place at net asset value, as a result of which an investor receives dollar-for-dollar the same value of Class T shares as he or she had of Class G shares. The conversion occurs eight years after the beginning of the calendar month in which the shares are purchased. Upon conversion, the converted shares will be relieved of the distribution and shareholder servicing fees borne by Class G shares, although they will be subject to the shareholder servicing fees borne by Class T shares.
Class G shares acquired through a reinvestment of dividends or distributions are also converted at the earlier of two dates - (i) eight years after the beginning of the calendar month in which the reinvestment occurred or (ii) the date of conversion of the most recently purchased Class G shares that were not acquired through reinvestment of dividends or distributions. For example, if an investor makes a one-time purchase of Class G shares of a Fund, and subsequently acquires additional Class G shares of the Fund only through reinvestment of dividends and/or distributions, all of such investor's Class G shares in the Fund, including those acquired through reinvestment, will convert to Class T shares of the Fund on the same date.
INFORMATION APPLICABLE TO CERTAIN CLASS B SHAREHOLDERS
Except for the following, Class B Share Contingent Deferred Sales Charges ("CDSCs") and conversion schedules are described in the Prospectuses.
The following table describes the CDSC schedule applicable to Class B shares received by Galaxy Quality Plus Bond Fund shareholders in exchange for Prime B Shares in connection with the Galaxy/Liberty reorganization.
SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.00
Through second year 4.00
Through third year 3.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Longer than six years 0.00
|
Automatic conversion to Class A shares occurs eight years after purchase.
The Class B share discount program for purchases of $250,000 or more is not applicable to Class B shares received by Galaxy Fund
Prime B shareholders in connection with the reorganization of the Galaxy Fund.
INFORMATION APPLICABLE TO CERTAIN CLASS A SHAREHOLDERS:
Except as set forth in the following paragraph, Class A share CDSCs are described in the Prospectuses:
Class A shares received by former Galaxy High Quality Bond Fund shareholders in exchange for Prime A Shares in connection with the Galaxy/Liberty reorganization of that Fund are subject to a 1% CDSC upon redemption of such Class A shares if the Prime A Shares were purchased without an initial sales charge in accounts aggregating $1 million or more at the time of purchase and the Class A shares are sold within 12 months of the time of purchase of the Prime A Shares. The 12-month holding period begins on the first day of the month in which each purchase was made.
DISTRIBUTIONS
Distributions are invested in additional shares of the same Class of the Fund at net asset value unless the shareholder elects to receive cash. Regardless of the shareholder's election, distributions of $10 or less will not be paid in cash, but will be invested in additional shares of the same class of the Fund at net asset value. Undelivered distribution checks returned by the post office will be reinvested in your account. If a shareholder has elected to receive dividends and/or capital gain distributions in cash and the postal or other delivery service selected by the Transfer Agent is unable to deliver checks to the shareholder's address of record, such shareholder's distribution option will automatically be converted to having all dividend and other distributions reinvested in additional shares. No interest will accrue on amounts represented by uncashed distribution or redemption checks. Shareholders may reinvest all or a portion of a recent cash distribution without a sales charge. No charge is currently made for reinvestment.
Shares of some Funds that pay daily dividends ("include Funds") will normally earn dividends starting with the date the Fund receives payment for the shares and will continue through the day before the shares are redeemed, transferred or exchanged. Shares of some Funds that pay daily dividends ("exclude Funds") will be earned starting with the day after that Fund receives payments for the shares.
To determine whether a particular Fund is an include or exclude fund, customers can call 1-800-345-6611.
HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for the same class of shares of the other continuously offered funds (with certain exceptions) on the basis of the NAVs per share at the time of exchange. Class T and Z shares may be exchanged for Class A shares of certain other funds. The prospectus of each Fund describes its investment goal and policies, and shareholders should obtain a prospectus and consider these goals and policies carefully before requesting an exchange Consult CMS before requesting an exchange.
If you acquire Class A shares of an international fund by exchange from any other fund, you will not be permitted to exchange those shares into another fund for 30 calendar days, although you may redeem those shares at any time. An exchange order received prior to the expiration of the 30-day period will not be honored.
By calling CMS, shareholders or their FSF of record may exchange among accounts with identical registrations, provided that the shares are held on deposit. During periods of unusual market changes or shareholder activity, shareholders may experience delays in contacting CMS by telephone to exercise the telephone exchange privilege. Because an exchange involves a redemption and reinvestment in another fund, completion of an exchange may be delayed under unusual circumstances, such as if the Fund suspends repurchases or postpones payment for the Fund shares being exchanged in accordance with federal securities law. CMS will also make exchanges upon receipt of a written exchange request and share certificates, if any. If the shareholder is a corporation, partnership, agent, or surviving joint owner, CMS may require customary additional documentation. Prospectuses of the other Funds are available from the CMD Literature Department by calling 1-800-426-3750.
A loss to a shareholder may result from an unauthorized transaction reasonably believed to have been authorized. No shareholder is obligated to use the telephone to execute transactions.
Consult your FSF or CMS. In all cases, the shares to be exchanged must be registered on the records of the Fund in the name of the shareholder desiring to exchange.
Shareholders of the other open-end funds generally may exchange their shares at NAV for the same class of shares of the Fund. Sales charges may apply for exchanges from money market funds.
An exchange is generally a capital sale transaction for federal income tax purposes. The exchange privilege may be revised, suspended or terminated at any time.
SUSPENSION OF REDEMPTIONS
A Fund may not suspend shareholders' right of redemption or postpone payment for more than seven days unless the Exchange is closed for other than customary weekends or holidays, or if permitted by the rules of the SEC during periods when trading on the Exchange is restricted or during any emergency which makes it impracticable for the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by order of the SEC for the protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Declaration disclaims shareholder liability for acts or obligations of the Fund and the Trust and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by the Fund or the Trust's Trustees. The Declaration provides for indemnification out of Fund property for all loss and expense of any shareholder held personally liable for the obligations of the Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances (which are considered remote) in which the Fund would be unable to meet its obligations and the disclaimer was inoperative.
The risk of a particular fund incurring financial loss on account of another fund of the Trust is also believed to be remote, because it would be limited to circumstances in which the disclaimer was inoperative and the other fund was unable to meet its obligations.
SHAREHOLDER MEETINGS
The Trust is not required to hold annual shareholder meetings, but special meetings may be called for certain purposes. The Trust has voluntarily undertaken to hold a shareholder meeting at which the Board of Trustees would be elected at least every five years beginning in 2005. Each whole share (or fractional share) outstanding on the record date established in accordance with the Trust's By-Laws shall be entitled to a number of votes on any matter on which it is entitled to vote equal to the net asset value of the shares (or fractional share) in United States dollars determined at the close of business on the record date (for example, a share having a net asset value of $10.50 would be entitled to 10.5 votes).
The Trustees may fill any vacancies in the Board of Trustees except that the Trustees may not fill a vacancy if, immediately after filling such vacancy, less than two-thirds of the Trustees then in office would have been elected to such office by the shareholders. In addition, at such times as less than a majority of the Trustees then in office have been elected to such office by the shareholders, the Trustees must call a meeting of shareholders. Trustees may be removed from office by a written consent signed by a majority of the outstanding shares of the Trust or by a vote of the holders of a majority of the outstanding shares at a meeting duly called for the purpose. Except as otherwise disclosed in the Prospectus and this SAI, the Trustees shall continue to hold office and may appoint their successors.
At any shareholders' meetings that may be held, shareholders of all series would vote together, irrespective of series, on the election of Trustees, but each series would vote separately from the others on other matters, such as changes in the investment policies of that series or the approval of the management agreement for that series. Shares of each Fund and any other series of the Trust that may be in existence from time to time generally vote together except when required by law to vote separately by fund or by class.
APPENDIX I
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S (S&P)
The following descriptions are applicable to municipal bond funds:
AAA bonds have the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.
AA bonds have a very strong capacity to pay interest and repay principal, and they differ from AAA only in small degree.
A bonds have a strong capacity to pay interest and repay principal, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.
BBB bonds are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than for bonds in the A category.
BB, B, CCC, CC and C bonds are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or large exposures to adverse conditions.
BB bonds have less near-term vulnerability to default than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating.
B bonds have a greater vulnerability to default but currently have the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating.
CCC bonds have a currently identifiable vulnerability to default, and are dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, the bonds are not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating.
CC rating typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating.
C rating typically is applied to debt subordinated to senior debt which assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued.
CI rating is reserved for income bonds on which no interest is being paid.
D bonds are in payment default. The D rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized.
Plus(+) or minus(-) ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
PROVISIONAL RATINGS. The letter "p" indicates that the rating is provisional. A provisional rating assumes the successful completion of the project being financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely completion of the project. This rating, however, although addressing credit quality subsequent to completion of the project, makes no comments on the likelihood of, or the risk of default upon failure of, such completion. The investor should exercise his own judgment with respect to such likelihood and risk.
MUNICIPAL NOTES:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating. Notes maturing beyond three years normally receive a bond rating, although the following criteria are used in making that assessment:
Amortization schedule (the larger the final maturity relative to other maturities, the more likely the issue will be rated as a note).
Source of payment (the more dependent the issue is on the market for its refinancing, the more likely it will be rated as a note).
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a demand feature. The first rating addresses the likelihood of repayment of principal and interest as due, and the second rating addresses only the demand feature. The long-term debt rating symbols are used for bonds to denote the long-term maturity, and the commercial paper rating symbols are usually used to denote the put (demand) option (for example, AAA/A-1+). Normally, demand notes receive note rating symbols combined with commercial paper symbols (for example, SP-1+/A-1+).
COMMERCIAL PAPER:
A. Issues assigned this highest rating are regarded as having the greatest capacity for timely payment. Issues in this category are further refined with the designations 1, 2, and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are designed A-1+.
CORPORATE BONDS:
The description of the applicable rating symbols and their meanings is substantially the same as the Municipal Bond ratings set forth above.
The following descriptions are applicable to equity and taxable bond funds:
AAA bonds have the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.
AA bonds differ from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.
A bonds are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.
BBB bonds exhibit adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
BB, B, CCC and CC bonds are regarded, as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB bonds are less vulnerable to non-payment than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
B bonds are more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.
CCC bonds are currently vulnerable to nonpayment, and are dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC bonds are currently highly vulnerable to nonpayment.
C ratings may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on the obligation are being continued.
D bonds are in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
Plus (+) or minus(-): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
R This symbol is attached to the rating of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk, such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
AAA bonds are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge". Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While various protective elements are likely to change, such changes as can be visualized are most unlikely to impair a fundamentally strong position of such issues.
AA bonds are judged to be of high quality by all standards. Together with Aaa bonds they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.
Those bonds in the Aa through B groups that Moody's believes possess the strongest investment attributes are designated by the symbol Aa1, A1 and Baa1.
A bonds possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment sometime in the future.
BAA bonds are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact, have speculative characteristics as well.
BA bonds are judged to have speculative elements: their future cannot be considered as well secured. Often, the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B bonds generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
CAA bonds are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
CA bonds represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C bonds are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
CONDITIONAL RATINGS. Bonds for which the security depends upon the completion of some act or the fulfillment of some condition are rated conditionally. These are bonds secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in operating experience, (c) rentals which begin when facilities are completed, or (d) payments to which some other limiting conditions attach. Parenthetical rating denotes probable credit stature upon completion of construction or elimination of basis of condition.
MUNICIPAL NOTES:
MIG 1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are accounted for, but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
Moody's may assign a separate rating to the demand feature of a variable rate demand security. Such a rating may include:
VMIG 1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are accounted for, but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
COMMERCIAL PAPER:
Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper obligations are supported by the credit of another entity or entities, Moody's, in assigning ratings to such issuers, evaluates the financial strength of the indicated affiliated corporations, commercial banks, insurance companies, foreign governments, or other entities, but only as one factor in the total rating assessment.
CORPORATE BONDS:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings is identical to that of the Municipal Bond ratings as set forth above, except for the numerical modifiers. Moody's applies numerical modifiers 1, 2, and 3 in the Aa and A classifications of its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a midrange ranking; and the modifier 3 indicates that the issuer ranks in the lower end of its generic rating category.
FITCH INC.
INVESTMENT GRADE BOND RATINGS
AAA bonds are considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and/or dividends and repay principal, which is unlikely to be affected by reasonably foreseeable events.
AA bonds are considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated 'AAA'. Because bonds rated in the 'AAA' and 'AA' categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated 'F-1+'.
A bonds are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than debt securities with higher ratings.
BBB bonds are considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest or dividends and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these securities and, therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for securities with higher ratings.
CONDITIONAL
A conditional rating is premised on the successful completion of a project or the occurrence of a specific event.
SPECULATIVE-GRADE BOND RATINGS
BB bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified, which could assist the obligor in satisfying its debt service requirements.
B bonds are considered highly speculative. While securities in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue.
CCC bonds have certain identifiable characteristics that, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment.
CC bonds are minimally protected. Default in payment of interest and/or principal seems probable over time.
C bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D bonds are in default on interest and/or principal payments. Such securities are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. 'DDD' represents the highest potential for recovery on these securities, and 'D' represents the lowest potential for recovery.
APPENDIX II
COLUMBIA MANAGEMENT ADVISORS, LLC ("CMA")
PROXY VOTING POLICIES AND PROCEDURES
ADOPTED JULY 1, 2003 AND REVISED MARCH 4, 2005
POLICY:
ALL PROXIES(1) REGARDING CLIENT SECURITIES FOR WHICH COLUMBIA MANAGEMENT ADVISORS, LLC ("CMA") HAS ASSUMED AUTHORITY TO VOTE SHALL, UNLESS CMA DETERMINES IN ACCORDANCE WITH POLICIES STATED BELOW TO ABSTAIN FROM VOTING, BE VOTED IN A MANNER CONSIDERED BY CMA TO BE IN THE BEST INTEREST OF CMA'S CLIENTS, INCLUDING THE CMG FAMILY FUNDS(2) AND THEIR SHAREHOLDERS, WITHOUT REGARD TO ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES. THE BEST INTEREST OF CLIENTS IS DEFINED FOR THIS PURPOSE AS THE INTEREST OF ENHANCING OR PROTECTING THE ECONOMIC VALUE OF CLIENT ACCOUNTS, CONSIDERED AS A GROUP RATHER THAN INDIVIDUALLY, AS CMA DETERMINES IN ITS SOLE AND ABSOLUTE DISCRETION. IN THE EVENT A CLIENT BELIEVES THAT ITS OTHER INTERESTS REQUIRE A DIFFERENT VOTE, CMA SHALL VOTE AS THE CLIENT CLEARLY INSTRUCTS, PROVIDED CMA RECEIVES SUCH INSTRUCTIONS IN TIME TO ACT ACCORDINGLY.
CMA ENDEAVORS TO VOTE, IN ACCORDANCE WITH THIS POLICY, ALL PROXIES OF WHICH IT BECOMES AWARE, SUBJECT TO THE FOLLOWING EXCEPTIONS (UNLESS OTHERWISE AGREED) WHEN CMA EXPECTS TO ROUTINELY ABSTAIN FROM VOTING:
1. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE THE SECURITY HAS BEEN LOANED FROM THE CLIENT'S ACCOUNT.
2. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE CMA DEEMS THE COSTS TO THE CLIENT AND/OR THE ADMINISTRATIVE INCONVENIENCE OF VOTING THE SECURITY (E.G., SOME FOREIGN SECURITIES) OUTWEIGH THE BENEFIT OF DOING SO.
CMA SEEKS TO AVOID THE OCCURRENCE OF ACTUAL OR APPARENT MATERIAL CONFLICTS OF INTEREST IN THE PROXY VOTING PROCESS BY VOTING IN ACCORDANCE WITH PREDETERMINED VOTING GUIDELINES, AS STATED BELOW. FOR THOSE PROXY PROPOSALS THAT REQUIRE SPECIAL CONSIDERATION OR IN INSTANCES WHERE SPECIAL CIRCUMSTANCES MAY REQUIRE VARYING FROM THE PREDETERMINED GUIDELINES, THE CMG PROXY COMMITTEE WILL DETERMINE THE BEST INTEREST OF CMA'S CLIENTS AND VOTE ACCORDINGLY, WITHOUT CONSIDERATION OF ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES.
OVERVIEW:
CMA's policy is based upon its fiduciary obligation to act in its clients' best interest. Citing this obligation, the SEC has adopted rules pursuant to the Investment Advisers Act of 1940 and Investment Company Act of 1940 with respect to proxy voting.
PROCEDURE:
I. ACCOUNT POLICIES
Except as otherwise directed by the client, CMA shall vote as follows:
SEPARATELY MANAGED ACCOUNTS
CMA shall vote proxies on securities held in its separately managed accounts.
COLUMBIA TRUST COMPANY (CTC) TRUST POOLS
CMA shall vote proxies on securities held in the trust pools.
CMG FAMILY FUNDS/CMA FUND TRUST
CMA shall vote proxies on securities held in the Funds, including multi-managed and subadvised Funds.
COLUMBIA PRIVATE PORTFOLIO
CMA shall vote proxies on securities held in its separately managed accounts.
(2) A CMG Family Fund or a Fund is a registered investment company or series of a registered investment company managed or advised by Columbia Management Advisors, LLC
ALTERNATIVE INVESTMENT GROUP
CMA's clients may invest in securities ("Alternative Investments") issued by alternative investment vehicles (i.e. hedge funds, private equity funds, and other alternative investment pools) that are structured as private limited partnerships ("LPs"), limited liability companies ("LLCs") or offshore corporations. Generally, CMA's Alternative Investment Group ("AIG") is the platform through which CMA provides advisory services relating to Alternative Investments.
The voting rights of Alternative Investments generally are rights of contract set forth in the limited liability company or limited partnership agreement, in the case of LLCs and LPs, or Memorandum and Articles of Association or By-laws, in the case of offshore corporations. Also, as privately placed securities, Alternative Investments generally are not subject to the regulatory scheme applicable to public companies. Consequently, in most cases, proxies are not solicited regarding Alternative Investment vehicles. Instead, consents may be solicited from members, limited partners or shareholders.
Because of the unique characteristics of Alternative Investments, CMA has a tailored process for voting Alternative Investment proxies and consents.
Process
AIG will vote all Alternative Investment proxies and consents in accordance with this Policy. The committee voting AIG proxies consists of AIG senior management, investment and operations professionals. Conflicts of interest are to be monitored and resolved as set forth in this Policy.
II. PROXY COMMITTEE
CMA shall establish a Proxy Committee whose standing members shall include the head of core equity, head of value, head of growth, head of income strategies, head of equity research and head of fixed income research. Each standing member may designate a senior portfolio manager or a senior analyst officer to act as a substitute in a given matter on their behalf.
The Proxy Committee's functions shall include, in part,
(a) direction of the vote on proposals where there has been a recommendation to the Committee, pursuant to Section IV.B, not to vote according to the predetermined Voting Guidelines stated in Section IV.A or on proposals which require special, individual consideration in accordance with Section IV.C;
(b) review at least annually of this Proxy Voting Policy and Procedure to ensure consistency with internal policies, client disclosures and regulatory requirements;
(c) review at least annually of existing Voting Guidelines and need for development of additional Voting Guidelines to assist in the review of proxy proposals; and
(d) development and modification of Voting Procedures, as stated in Section V, as it deems appropriate or necessary.
The Proxy Committee shall establish a charter, which shall set forth the Committee's purpose, membership and operation. The Committee's charter shall be consistent, in all material respects, with this policy and procedure.
III. CONFLICTS OF INTEREST
With Other Bank of America Businesses
Bank of America Corporation ("BAC"), the ultimate corporate parent of CMA, Bank of America, N.A. and all of their numerous affiliates owns, operates and has interests in many lines of business that may create or give rise to the appearance of a conflict of interest between BAC or its affiliates and those of Firm-advised clients. For example, the commercial and investment banking business lines may have interests with respect to issuers of voting securities that could appear to or even actually conflict with CMA's duty, in the proxy voting process, to act in the best economic interest of its clients.
Within CMA
Conflicts of interest may also arise from the business activities of CMA. For example, CMA might manage (or be seeking to manage) the assets of a benefit plan for an issuer. CMA may also be presented with an actual or apparent conflict of interest where proxies of securities issued by BAC or a CMG Family Fund, for which CMA serves as investment adviser, are to be voted for a client's account.
Management of Conflicts
CMA's policy is to always vote proxies in the best interest of its clients, as a whole, without regard to its own self-interest or that of its affiliates. BAC as well as CMA has various compliance policies and procedures in place in order to address any material conflicts of interest that might arise in this context.
1. BAC's enterprise-wide Code of Ethics specifically prohibits the flow of certain business-related information between associates on the commercial and/or investment banking side of the corporation and associates charged with trust or (as in the case of BACAP associates) non-trust fiduciary responsibilities, including investment decision-making and proxy voting.
2. In addition, BAC has adopted "Global Policies and Procedures Regarding Information Walls and Inside Information." Pursuant to these policies and procedures, "information barriers" have been established between various BAC business lines designed to prohibit the passage of certain information across those barriers.
3. Within CMA, CMA's Code of Ethics affirmatively requires that associates of CMA act in a manner whereby no actual or apparent conflict of interest may be seen as arising between the associate's interests and those of CMA's Clients.
4. By assuming his or her responsibilities pursuant to this Policy, each member of the Proxy Committee and any CMA or BAC associate advising or acting under the supervision or oversight of the Proxy Committee undertakes:
- To disclose to the chairperson of the Proxy Committee and the chairperson to the head of CMG Compliance any actual or apparent personal material conflicts of interest which he or she may have (e.g., by way of substantial ownership of securities, relationships with nominees for directorship, members of an issuer's or dissident's management or otherwise) in determining whether or how CMA shall vote proxies. In the event the chairperson of the Proxy Committee has a conflict of interest regarding a given matter, he or she shall abstain from participating in the Committee's determination of whether and/or how to vote in the matter; and
- To refrain from taking into consideration, in the decision as to whether or how CMA shall vote proxies:
- The existence of any current or prospective material business relationship between CMA, BAC or any of their affiliates, on one hand, and any party (or its affiliates) that is soliciting or is otherwise interested in the proxies to be voted, on the other hand; and/or
- Any direct, indirect or perceived influence or attempt to influence such action which the member or associate views as being inconsistent with the purpose or provisions of this Policy or the Code of Ethics of CMA or BAC.
Where a material conflict of interest is determined to have arisen in the proxy voting process that may not be adequately mitigated by voting in accordance with the predetermined Voting Guidelines, CMA's policy is to invoke one or more of the following conflict management procedures:
1. Convene the Proxy Committee for the purpose of voting the affected proxies in a manner that is free of the conflict.
2. Causing the proxies to be voted in accordance with the recommendations of a qualified, independent third party, which may include CMA's proxy voting agent.
3. In unusual cases, with the Client's consent and upon ample notice, forwarding the proxies to CMA's clients so that they may vote the proxies directly.
IV. VOTING GUIDELINES
A. THE PROXY COMMITTEE HAS ADOPTED THE FOLLOWING GUIDELINES FOR VOTING PROXIES:
1. Matters Relating to the Board of Directors/Corporate Governance
CMA generally will vote FOR:
- Proposals for the election of directors or for an increase or decrease in the number of directors, provided that no more than one-third of the Board of Directors would, presently or at any time during the previous three-year period, be from management.
However, CMA generally will WITHHOLD votes from pertinent director nominees if:
(i) the board as proposed to be constituted would have more than one-third of its members from management;
(ii) the board does not have audit, nominating, and compensation committees composed solely of directors who qualify as being regarded as "independent," i.e. having no material relationship, directly or indirectly, with the Company, as CMA's proxy voting agent may determine (subject to the Proxy Committee's contrary determination of independence or non- independence);
(iii) the nominee, as a member of the audit committee, permitted the company to incur excessive non-audit fees (as defined below regarding other business matters -- ratification of the appointment of auditors);
(iv) a director serves on more than six public company boards;
(v) the CEO serves on more than two public company boards other than the company's board.
On a CASE-BY-CASE basis, CMA may WITHHOLD votes for a director nominee who has failed to observe good corporate governance practices or, through specific corporate action or inaction (e.g. failing to implement policies for which a majority of shareholders has previously cast votes in favor), has demonstrated a disregard for the interests of shareholders.
- Proposals requesting that the board audit, compensation and/or nominating committee be composed solely of independent directors. The Audit Committee must satisfy the independence and experience requirements established by the Securities and Exchange Commission ("SEC") and the New York Stock Exchange, or appropriate local requirements for foreign securities. At least one member of the Audit Committee must qualify as a "financial expert" in accordance with SEC rules.
- Proposals to declassify a board, absent special circumstances that would indicate that shareholder interests are better served by a classified board structure.
CMA generally will vote FOR:
- Proposals to create or eliminate positions or titles for senior management. CMA generally prefers that the role of Chairman of the Board and CEO be held by different persons unless there are compelling reasons to vote AGAINST a proposal to separate these positions, such as the existence of a counter-balancing governance structure that includes at least the following elements in addition to applicable listing standards:
- Established governance standards and guidelines.
- Full board composed of not less than two-thirds "independent" directors, as defined by applicable regulatory and listing standards.
- Compensation, as well as audit and nominating (or corporate governance) committees composed entirely of independent directors.
- A designated or rotating presiding independent director appointed by and from the independent directors with the authority and responsibility to call and preside at regularly and, as necessary, specially scheduled meetings of the independent directors to be conducted, unless the participating independent directors otherwise wish, in executive session with no members of management present.
- Disclosed processes for communicating with any individual director, the presiding independent director (or, alternatively, all of the independent directors, as a group) and the entire board of directors, as a group.
- The pertinent class of the Company's voting securities has out-performed, on a three-year basis, both an appropriate peer group and benchmark index, as indicated in the performance summary table of the Company's proxy materials. This requirement shall not apply if there has been a change in the Chairman/CEO position within the three-year period.
- Proposals that grant or restore shareholder ability to remove directors with or without cause.
- Proposals to permit shareholders to elect directors to fill board vacancies.
- Proposals that encourage directors to own a minimum amount of company stock.
- Proposals to provide or to restore shareholder appraisal rights.
- Proposals to adopt cumulative voting.
- Proposals for the company to adopt confidential voting.
CMA generally will vote AGAINST:
- Proposals to classify boards, absent special circumstances indicating that shareholder interests would be better served by a classified board structure.
- Proposals that give management the ability to alter the size of the board without shareholder approval.
- Proposals that provide directors may be removed only by supermajority vote.
- Proposals to eliminate cumulative voting.
- Proposals which allow more than one vote per share in the election of directors.
- Proposals that provide that only continuing directors may elect replacements to fill board vacancies.
- Proposals that mandate a minimum amount of company stock that directors must own.
- Proposals to limit the tenure of non-management directors.
CMA will vote on a CASE-BY-CASE basis in contested elections of directors.
CMA generally will vote on a CASE-BY-CASE basis on board approved proposals relating to corporate governance. Such proposals include, but are not limited to:
- Director and officer indemnification and liability protection. CMA is opposed to entirely eliminating directors' and officers' liability for monetary damages for violating the duty of care. CMA is also opposed to expanding coverage beyond just legal expenses to acts, such as negligence, that are more serious violations of fiduciary obligation than mere carelessness. CMA supports proposals which provide such expanded coverage in cases when a director's or officer's legal defense was unsuccessful if: (i) the director was found to have acted in good faith and in a manner that he/she reasonably believed was in the best interests of the company, AND (ii) if the director's legal expenses would be covered.
- Reimbursement of proxy solicitation expenses taking into consideration whether or not CMA was in favor of the dissidents.
- Proxy contest advance notice. CMA generally will vote FOR proposals that allow shareholders to submit proposals as close to the meeting date as possible while allowing for sufficient time for Company response, SEC review, and analysis by other shareholders.
2. Compensation
CMA generally will vote FOR management sponsored compensation plans (such as bonus plans, incentive plans, stock option plans, pension and retirement benefits, stock purchase plans or thrift plans) if they are consistent with industry and country standards. However, CMA generally is opposed to compensation plans that substantially dilute ownership interest in a company, provide participants with excessive awards, or have objectionable structural features. Specifically, for equity-based plans, if the proposed number of shares authorized for option programs (excluding authorized shares for expired options) exceeds an average of 10% of the currently outstanding shares over the previous three years or an average of 3% over the previous three years for directors only, the proposal should be referred to the Proxy Committee. The Committee will then consider the circumstances surrounding the issue and vote in the best interest of CMA's clients. CMA requires that management provide substantial justification for the repricing of options.
CMA generally will vote FOR:
- Proposals requiring that executive severance arrangements be submitted for shareholder ratification.
- Proposals asking a company to expense stock options.
- Proposals to put option repricings to a shareholder vote.
- Employee stock purchase plans that have the following features: (i) the shares purchased under the plan are acquired for no less than 85% of their market value, (ii) the offering period under the plan is 27 months or less, and (iii) dilution is 10% or less.
CMA generally will vote AGAINST:
- Stock option plans that permit issuance of options with an exercise price below the stock's current market price, or that permit replacing or repricing of out-of-the money options.
- Proposals to authorize the replacement or repricing of out-of-the money options.
CMA will vote on a CASE-BY-CASE basis proposals regarding approval of specific executive severance arrangements.
3. Capitalization
CMA generally will vote FOR:
- Proposals to increase the authorized shares for stock dividends, stock splits (and reverse stock splits) or general issuance, unless proposed as an anti-takeover measure or a general issuance proposal increases the authorization by more than 30% without a clear need presented by the company. Proposals for reverse stock splits should include an overall reduction in authorization.
For companies recognizing preemptive rights for existing shareholders, CMA generally will vote FOR general issuance proposals that increase the authorized shares by more than 30%. CMA will vote on a CASE-BY-CASE basis all such proposals by companies that do not recognize preemptive rights for existing shareholders.
- Proposals for the elimination of authorized but unissued shares or retirement of those shares purchased for sinking fund or treasury stock.
- Proposals to institute/renew open market share repurchase plans in which all shareholders may participate on equal terms.
- Proposals to reduce or change the par value of common stock, provided the number of shares is also changed in order to keep the capital unchanged.
4. Mergers, Restructurings and Other Transactions
CMA will review, on a CASE-BY-CASE basis, business transactions such as mergers, acquisitions, reorganizations, liquidations, spinoffs, buyouts and sale of all or substantially all of a company's assets.
5. Anti-Takeover Measures
CMA generally will vote AGAINST proposals intended largely to avoid acquisition prior to the occurrence of an actual event or to discourage acquisition by creating a cost constraint. With respect to the following measures, CMA generally will vote as follows: Poison Pills
- CMA votes FOR shareholder proposals that ask a company to submit its poison pill for shareholder ratification.
- CMA generally votes FOR shareholder proposals to eliminate a poison pill.
- CMA generally votes AGAINST management proposals to ratify a poison pill.
Greenmail
- CMA will vote FOR proposals to adopt anti-greenmail charter or bylaw amendments or to otherwise restrict a company's ability to make greenmail payments.
Supermajority vote
- CMA will vote AGAINST board-approved proposals to adopt anti-takeover measures such as supermajority voting provisions, issuance of blank check preferred stock, the creation of a separate class of stock with disparate voting rights and charter amendments adopting control share acquisition provisions.
Control Share Acquisition Provisions
- CMA will vote FOR proposals to opt out of control share acquisition statutes.
6. Other Business Matters
CMA generally will vote FOR:
- Proposals to approve routine business matters such as changing the company's name and procedural matters relating to the shareholder meeting such as approving the minutes of a prior meeting.
- Proposals to ratify the appointment of auditors, unless any of the following apply in which case CMA will generally vote AGAINST the proposal:
- Credible reason exists to question:
- The auditor's independence, as determined by applicable regulatory requirements.
- The accuracy or reliability of the auditor's opinion as to the company's financial position.
- Fees paid to the auditor or its affiliates for "non-audit" services were excessive, i.e., in excess of the total fees paid for "audit," "audit-related" and "tax compliance" and/or "tax return preparation" services, as disclosed in the company's proxy materials.
- Bylaw or charter changes that are of a housekeeping nature (e.g., updates or corrections).
- Proposals to approve the annual reports and accounts provided the certifications required by the Sarbanes Oxley Act of 2002 have been provided.
CMA generally will vote AGAINST:
- Proposals to eliminate the right of shareholders to act by written consent or call special meetings.
- Proposals providing management with authority to adjourn an annual or special shareholder meeting absent compelling reasons, or to adopt, amend or repeal bylaws without shareholder approval, or to vote unmarked proxies in favor of management.
- Shareholder proposals to change the date, time or location of the company's annual meeting of shareholders.
CMA will vote AGAINST:
- Authorization to transact other unidentified substantive (as opposed to procedural) business at a meeting.
CMA will vote on a CASE-BY-CASE basis:
- Proposals to change the location of the company's state of incorporation. CMA considers whether financial benefits (e.g., reduced fees or taxes) likely to accrue to the company as a result of a reincorporation or other change of domicile outweigh any accompanying material diminution of shareholder rights.
- Proposals on whether and how to vote on "bundled" or otherwise conditioned proposals, depending on the overall economic effects upon shareholders.
CMA generally will ABSTAIN from voting on shareholder proposals predominantly involving social, socio-economic, environmental, political or other similar matters on the basis that their impact on share value can rarely be anticipated with any high degree of confidence. CMA may, on a CASE-BY-CASE basis, vote:
- FOR proposals seeking inquiry and reporting with respect to, rather than cessation or affirmative implementation of, specific policies where the pertinent issue warrants separate communication to shareholders; and
- FOR or AGAINST the latter sort of proposal in light of the relative benefits and detriments (e.g. distraction, costs, other burdens) to share value which may be expected to flow from passage of the proposal.
7. Other Matters Relating to Foreign Issues
CMA generally will vote FOR:
- Most stock (scrip) dividend proposals. CMA votes AGAINST proposals that do not allow for a cash option unless management demonstrates that the cash option is harmful to shareholder value.
- Proposals to capitalize the company's reserves for bonus issues of shares or to increase the par value of shares.
- Proposals to approve control and profit transfer agreements between a parent and its subsidiaries.
- Management proposals seeking the discharge of management and supervisory board members, unless there is concern about the past actions of the company's auditors/directors and/or legal action is being taken against the board by other shareholders.
- Management proposals concerning allocation of income and the distribution of dividends, unless the dividend payout ratio has been consistently below 30 percent without adequate explanation or the payout is excessive given the company's financial position.
- Proposals for the adoption of financing plans if they are in the best economic interests of shareholders.
8. Investment Company Matters
Election of Directors:
CMA will vote on a CASE-BY-CASE basis proposals for the election of directors, considering the following factors:
- Board structure
- Attendance at board and committee meetings.
CMA will WITHHOLD votes from directors who:
- Attend less than 75 percent of the board and committee meetings without a valid excuse for the absences. Valid reasons include illness or absence due to company business. Participation via telephone is acceptable. In addition, if the director missed only one meeting or one day's meetings, votes should not be withheld even if such absence dropped the director's attendance below 75 percent.
- Ignore a shareholder proposal that is approved by a majority of shares outstanding;
- Ignore a shareholder proposal this is approved by a majority of the votes cast for two consecutive years;
- Are interested directors and sit on the audit or nominating committee; or
- Are interested directors and the full board serves as the audit or nominating committee or the company does not have one of these committees.
Proxy Contests:
CMA will vote on a CASE-BY-CASE basis proposals for proxy contests, considering the following factors:
- Past performance relative to its peers
- Market in which fund invests
- Measures taken by the board to address the pertinent issues (e.g., closed-end fund share market value discount to NAV)
- Past shareholder activism, board activity and votes on related proposals
- Strategy of the incumbents versus the dissidents
- Independence of incumbent directors; director nominees
- Experience and skills of director nominees
- Governance profile of the company
- Evidence of management entrenchment
Converting Closed-end Fund to Open-end Fund:
CMA will vote conversion proposals on a CASE-BY-CASE basis, considering the following factors:
- Past performance as a closed-end fund
- Market in which the fund invests
- Measures taken by the board to address the discount
- Past shareholder activism, board activity, and votes on related proposals.
Investment Advisory Agreements:
CMA will vote investment advisory agreements on a CASE-BY-CASE basis, considering the following factors:
- Proposed and current fee schedules
- Fund category/investment objective
- Performance benchmarks
- Share price performance as compared with peers
- Resulting fees relative to peers
- Assignments (where the adviser undergoes a change of control)
Approving New Classes or Series of Shares:
CMA will vote FOR the establishment of new classes or series of shares.
Preferred Stock Proposals:
CMA will vote on a CASE-BY-CASE basis proposals for the authorization for or increase in the preferred shares, considering the following factors:
- Stated specific financing purpose
- Possible dilution for common shares
- Whether the shares can be used for antitakover purposes
Policies Addressed by the Investment Company Act of 1940 ("1940 Act"):
CMA will vote proposals regarding adoption or changes of policies addressed by the 1940 Act on a CASE-BY-CASE basis, considering the following factors:
- Potential competitiveness
- Regulatory developments
- Current and potential returns
- Current and potential risk
CMA generally will vote FOR these amendments as long as the proposed changes do not fundamentally alter the investment focus of the fund and do comply with current SEC interpretations.
Changing a Fundamental Restriction to a Non-fundamental Restriction:
CMA will vote on a CASE-BY-CASE basis proposals to change a fundamental restriction to a nonfundamental restriction, considering the following factors:
- Fund's target investments
- Reasons given by the fund for the change
- Projected impact of the change on the portfolio
Change Fundamental Investment Objective to Non-fundamental:
CMA will vote AGAINST proposals to change a fund's investment objective from fundamental to non-fundamental unless management acknowledges meaningful limitations upon its future requested ability to change the objective
Name Change Proposals:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's name, considering the following factors:
- Political/economic changes in the target market
- Consolidation in the target market
- Current asset composition
Change in Fund's Subclassification:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's subclassification, considering the following factors:
- Potential competitiveness
- Current and potential returns
- Risk of concentration
- Consolidation in target industry
Disposition of Assets/Termination/Liquidation:
CMA will vote on a CASE-BY-CASE basis these proposals, considering the following factors:
- Strategies employed to salvage the company
- Past performance of the fund
- Terms of the liquidation
Changes to the Charter Document:
CMA will vote on a CASE-BY-CASE basis proposals to change the charter document, considering the following factors:
- The degree of change implied by the proposal
- The efficiencies that could result
- The state of incorporation; net effect on shareholder rights
- Regulatory standards and implications
CMA will vote FOR:
- Proposals allowing the Board to impose, without shareholder approval, fees payable upon redemption of fund shares, provided imposition of such fees is likely to benefit long-term fund investors (e.g., by deterring market timing activity by other fund investors)
- Proposals enabling the Board to amend, without shareholder approval, the fund's management agreement(s) with its investment adviser(s) or sub-advisers, provided the amendment is not required by applicable law (including the Investment Company Act of 1940) or interpretations thereunder to require such approval
CMA will vote AGAINST:
- Proposals enabling the Board to:
- Change, without shareholder approval the domicile of the fund
- Adopt, without shareholder approval, material amendments of the fund's declaration of trust or other organizational document
Changing the Domicile of a Fund:
CMA will vote on a CASE-BY-CASE basis proposals to reincorporate, considering the following factors:
- Regulations of both states
- Required fundamental policies of both states
- The increased flexibility available
Authorizing the Board to Hire and Terminate Subadvisors Without Shareholder Approval:
CMA will vote FOR proposals to enable the Board or Investment Adviser to hire and terminate sub-advisers, without shareholder approval, in accordance with applicable rules or exemptive orders under the Investment Company Act of 1940
Distribution Agreements:
CMA will vote these proposals on a CASE-BY-CASE basis, considering the following factors:
- Fees charged to comparably sized funds with similar objectives
- The proposed distributor's reputation and past performance
- The competitiveness of the fund in the industry
- Terms of the agreement
Master-Feeder Structure:
CMA will vote FOR the establishment of a master-feeder structure.
Mergers:
CMA will vote merger proposals on a CASE-BY-CASE basis, considering the following factors:
- Resulting fee structure
- Performance of both funds
- Continuity of management personnel
- Changes in corporate governance and their impact on shareholder rights
Shareholder Proposals to Establish Director Ownership Requirement:
CMA will generally vote AGAINST shareholder proposals that mandate a specific minimum amount of stock that directors must own in order to qualify as a director or to remain on the board. While CMA favors stockownership on the part of directors, the company should determine the appropriate ownership requirement.
Shareholder Proposals to Reimburse Shareholder for Expenses Incurred:
CMA will vote on a CASE-BY-CASE basis proposals to reimburse proxy solicitation expenses.
Shareholder Proposals to Terminate the Investment Adviser:
CMA will vote on a CASE-BY-CASE basis proposals to terminate the investment adviser, considering the following factors:
- Performance of the fund's NAV
- The fund's history of shareholder relations
- The performance of other funds under the adviser's management
9. Alternative Investment Group ("AIG") Matters
The AIG Proxy Sub-Committee generally will vote in accordance with the guidelines set forth in this policy. With respect to matters that are not addressed by the guidelines, the AIG Proxy Sub-Committee will vote each such matter on a CASE-BY-CASE basis.
B. ABILITY TO VOTE PROXIES OTHER THAN AS PROVIDED IN A ABOVE.
A Portfolio Manager, sub-adviser or other party involved with a client's account may conclude that the best interest of the firm's client, as defined above, requires that a proxy be voted in a manner that differs from the predetermined proxy Voting Guidelines stated in Section IV.A. In this situation, he or she shall request that the Proxy Committee consider voting the proxy other than according such Guidelines. If any person, group, or entity requests the Proxy Committee (or any of its members) vote a proxy other than according to the predetermined Voting Guidelines, that person shall furnish to the Proxy Committee a written explanation of the reasons for the request and a description of the person's, group's, or entity's relationship, if any, with the parties proposing and/or opposing the matter's adoption.
C. PROPOSALS REQUIRING SPECIAL CONSIDERATION
The following proposals require special, individual consideration. The Proxy Committee will determine how proxies related to all such proposals will be voted.
1. NEW PROPOSALS. For each new type of proposal that is expected to be proposed to shareholders of multiple companies, the Proxy Committee will develop a Voting Guideline which will be incorporated into this Policy.
2. ACCOUNTS ADHERING TO TAFT HARTLEY PRINCIPLES. All proposals for these accounts shall be voted according to the Taft Hartley Guidelines developed by Institutional Shareholder Services, Inc. ("ISS").
3. ACCOUNTS ADHERING TO SOCIALLY RESPONSIBLE PRINCIPLES. All proposals for these accounts shall be voted according to the Socially Responsible Guidelines developed by ISS or as specified by the client.
4. PROXIES OF INTERNATIONAL ISSUERS WHICH BLOCK SECURITIES SALES BETWEEN THE TIME A SHAREHOLDER SUBMITS A PROXY AND THE VOTE. Proposals for these securities shall be voted only on the specific instruction of the Proxy Committee and to the extent practicable in accordance with the Voting Guidelines set forth in this Policy.
5. PROXIES OF INVESTMENT COMPANY SHARES. Proposals on issues other than those specified in Section IV.A.
6. EXECUTIVE/DIRECTOR COMPENSATION. Except as provided in Section
IV.A, proposals relating to compensation of any executive or
director will be voted as recommended by ISS or as otherwise
directed by the Proxy Committee.
7. PREEMPTIVE RIGHTS. Proposals to create or eliminate shareholder preemptive rights. In evaluating these proposals the Proxy Committee will consider the size of the company and the nature of its shareholder base.
V. VOTING PROCEDURES
The Proxy Committee has developed the following procedures to aid the voting of proxies according to the Voting Guidelines set forth in Section IV above. The Proxy Committee may revise these procedures from time to time, as it deems necessary or appropriate to effect the purposes of this Policy.
- CMA shall use an independent, third-party vendor (currently Institutional Shareholder Services ("ISS")), to implement its proxy voting process as CMAs proxy voting agent. This retention is subject to CMA continuously assessing the vendor's independence from CMA and its affiliates, and the vendor's ability to perform its responsibilities (and, especially, its responsibility to vote client proxies in accordance with CMA's proxy voting guidelines) free of any actual, potential or apparent material conflicts of interests that may arise between the interests of the vendor, its affiliates, the vendor's other clients and the owners, officers or employees of any such firm, on the one hand, and CMA's
clients, on the other hand. As means of performing this assessment, CMA will require various reports and notices from the vendor, as well as periodic audits of the vendor's voting record and other due diligence.
- ISS shall provide proxy analysis and record keeping services in addition to voting proxies on behalf of CMA in accordance with this Policy.
- On a daily basis CMA shall send to ISS a holdings file detailing each equity holding held in all accounts over which CMA has voting authority. Information regarding equity holdings for international portfolio shall be sent weekly.
- ISS shall receive proxy material information from Proxy Edge or the custodian bank for the account. This shall include issues to be voted upon, together with a breakdown of holdings for CMA accounts. ISS shall then reconcile information it receives from CMA with that it has received from Proxy Edge and custodian banks. Any discrepancies shall be promptly noted and resolved by ISS, with notice to CMA.
- Whenever a vote is solicited, ISS shall execute the vote according to CMA's Voting Guidelines previously delivered by CMA to ISS as set forth in Section IV.A.
- If ISS is not sure how to vote a particular proxy, then ISS will issue a request for voting instructions to CMA over a secure website. CMA personnel shall check this website regularly. The request shall be accompanied by a recommended vote. The recommended vote shall be based upon CMA's understanding of the Voting Guidelines previously delivered to ISS. CMA shall promptly provide ISS with any amendments or modifications to the Voting Guidelines if necessary. CMA shall return a final instruction to vote to ISS, which ISS shall record with Proxy Edge or the custodian bank as our agent.
- Each time that ISS shall send CMA a request to vote the request shall be accompanied by the recommended vote determined in accordance with CMA's Voting Guidelines. ISS shall vote as indicated in the request unless the client has reserved discretion, the Proxy Committee determines that the best interest of clients requires another vote or the proposal is a matter as to which the Proxy Committee affords special, individual consideration under Section IV.C. In such situations ISS shall vote based on the direction of the client or the Proxy Committee, as the case may be. The interests of CMA's Taft Hartley or Socially Responsible clients may impact a proposal that normally should be voted in a certain way. ISS shall inform CMA of all proposals having impact on its Taft Hartley and or Socially Responsible clients. The Proxy Voting Committee shall be consulted before a vote is placed in cases where Taft Hartley or Socially Responsible issues are presented.
- ISS shall have procedures in place to ensure that a vote is cast on every security holding maintained by CMA on which a vote is solicited unless otherwise directed by the Proxy Committee. On a yearly basis, or as required by our clients CMA shall receive a report from ISS detailing CMA's voting for the previous period.
VI. AVAILABILITY OF PROXY POLICY AND VOTING RECORD
A summary disclosure regarding the provisions of this Policy is available in CMA's Form ADV. Upon receipt of a Client's request for more information, CMA will provide to the Client a copy of this Policy and/or how CMA voted proxies for the Client pursuant to this Policy for up to a one-year period.
COLUMBIA ASSET ALLOCATION FUND
COLUMBIA LARGE CAP GROWTH FUND
COLUMBIA DISCIPLINED VALUE FUND
COLUMBIA COMMON STOCK FUND
COLUMBIA SMALL CAP CORE FUND
COLUMBIA SMALL COMPANY EQUITY FUND
COLUMBIA DIVIDEND INCOME FUND
SERIES OF COLUMBIA FUNDS SERIES TRUST I
SUPPLEMENT TO EACH FUND'S CURRENT
STATEMENT OF ADDITIONAL INFORMATION
This supplement applies to the "Funds" listed above.
1. The name of the Trust is revised to read "Columbia Funds Series Trust I."
2. The first sentence in the section entitled "Organization and History" is revised to read:
The Trust is a Massachusetts business trust organized in 1987. Each Fund was originally organized as a series of another Massachusetts business trust prior to its reorganization as a series of the Trust on March 27, 2006.
3. The fourth sentence in the section entitled "Organization and History" is revised to read:
On November 18, 2002, November 25, 2002 and December 9, 2002, the series of the Galaxy Fund to which the Funds succeeded (the "Predecessor Funds") were reorganized as a separate series of the Liberty-Stein Roe Investment Trust.
4. The fifth and sixth paragraphs of the section entitled "Organization and History" are revised in their entirety to read:
The trust of which the Funds were previously a series changed its name from "Liberty-Stein Roe Investment Trust" to "Columbia Funds Trust XI" on October 13, 2003. The Funds were reorganized as a series of the Trust on March 27, 2006.
5. The section entitled "Ownership of the Funds" is replaced in its entirety to read:
As of record on February 28, 2006, the Trustees and officers of the Trust as a group beneficially owned less than 1% of the outstanding shares of each class of each Fund.
As of record on February 28, 2006, the following shareholders of record owned 5% or more of the shares of the class of the Fund noted below:
COLUMBIA ASSET ALLOCATION FUND
PERCENT OF
CLASS TOTAL
SHAREHOLDER (NAME AND ADDRESS) (%)
--------------------------------------------------------------------------------
CLASS C SHARES
AMERICAN ENTERPRISE INVESTMENT SVCS 6.16
PO BOX 9446
MINNEAPOLIS MN 55440-9446
FIRST CLEARING LLC 6.26
FANNIE P UNGEMACK
12 THREE ELMS RD
BRANFORD CT 06405
RAYMOND JAMES & ASSOC. INC. 6.84
FBO ROYKO TRUST
880 CARILLON PKWY
ST. PETERSBURG FL 33716-1100
CLASS Z SHARES
BANK OF AMERICA 12.58
411 N AKARD ST
DALLAS TX 75101-3307
|
COLUMBIA LARGE CAP GROWTH FUND
PERCENT OF
CLASS TOTAL
SHAREHOLDER (NAME AND ADDRESS) (%)
--------------------------------------------------------------------------------
CLASS C SHARES
CHARLES H VENTURA 11.62
25398 LA LOMA DR
LOS ALTOS CA 94022-4541
CLASS Z SHARES
BANK OF AMERICA NA 42.13
411 N AKARD ST
DALLAS TX 75201-3307
|
COLUMBIA DISCIPLINED VALUE FUND
PERCENT OF
CLASS TOTAL
SHAREHOLDER (NAME AND ADDRESS) (%)
--------------------------------------------------------------------------------
CLASS A SHARES
NFS LLC FEBO 10.76
BARBARA H BRONNER TTEE
BARBARA BRONNER TRUST
793 Highland Pl.
Highland Park, IL 60035-4844
|
CLASS C SHARES AMERICAN ENTERPRISE INVESTMENT SVCS 5.35 1120 AMP FINANCIAL CENTER MINNEAPOLIS MN 55474-001 MERRILL LYNCH PIERCE FENNER & SMITH 13.31 FOR THE SOLE BENEFIT OF ITS CUSTOMERS 4800 DEER LAKE DR E FL 3 JACKSONVILLE FL 332246-6484 FIRST CLEARING LLC 6.63 JOHN J QUINN BENEFICIARY IRA WILLIAM T QUINN DECEASED 3413 PRIMROSE ROAD PHILADELPHIA PA 19114 FIRST CLEARING LLC 6.23 VIRGINIA E TOMLIN IRA FCC AS CUSTODIAN 1 CORKERY LANE MEDFORD NJ 08055 LPL FINANCIAL SERVICES 9.92 9785 TOWNE CENTRE DR SAN DIEGO CA 92121-1968 CLASS Z SHARES BANK OF AMERICA NA 79.98 411 N AKARD ST DALLAS TX 75201-3307 |
COLUMBIA COMMON STOCK FUND
PERCENT OF
CLASS TOTAL
SHAREHOLDER (NAME AND ADDRESS) (%)
--------------------------------------------------------------------------------
CLASS C SHARES
MERRILL LYNCH PIERCE FENNER & SMITH 6.93
FOR THE SOLE BENEFIT OF ITS CUSTOMERS
4800 DEER LAKE DR E FL 3
JACKSONVILLE FL 32246-6484
FIRST CLEARING LLC 15.09
LATONYA LESTER IRREV TRUST
WANDA THOMPSON TTEE
4001 OFFICE COURT DR BLDB 1000
SANTE FE NM 87501
FIRST CLEARING LLC 12.64
|
SHELLY MCCORMICK IRREV TRUST 2200 CHAMPION SPRINGS RANCH ANNAPOLIS MO 63620 CLASS Z SHARES BANK OF AMERICA NA 39.00 411 N AKARD ST DALLAS TX 75201-3307 CHARLES SCHWAB & CO INC 8.80 SPECIAL CUSTODY ACCT FOR EXCLUSIVE OF CUSTOMERS 101 MONTGOMERY ST SAN FRANCISO CA 94104-4122 |
COLUMBIA SMALL CAP CORE FUND
PERCENT OF
CLASS TOTAL
SHAREHOLDER (NAME AND ADDRESS) (%)
--------------------------------------------------------------------------------
CLASS A SHARES
CHARLES SCHWAB & CO INC 29.05
SPECIAL CUSTODY ACCT FOR EXCLUSIVE OF CUSTOMERS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4122
MITRA & CO 6.16
M&I TRUST COMPANY, NA
11270 W PARK PL STE 400
MILWAUKEE WI 53202-6648
CLASS C SHARES
CITIGROUP GLOBAL MARKETS, INC. 9.08
HOUSE ACCOUNT
333 W 34TH ST
NEW YORK NY 10001-2402
MERRILL LYNCH PIERCE FENNER & SMITH 6.84
FOR THE SOLE BENEFIT OF ITS CUSTOMERS
4800 DEER LAKE DR E FL 3
JACKSONVILLE FL 32246-6484
CLASS T SHARES
CHARLES SCHWAB & CO INC 20.93
SPECIAL CUSTODY ACCT FOR EXCLUSIVE OF CUSTOMERS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4122
|
CLASS Z SHARES BANK OF AMERICA NA 69.78 411 N AKARD ST DALLAS TX 75201-3307 |
COLUMBIA SMALL COMPANY EQUITY FUND
PERCENT OF
CLASS TOTAL
SHAREHOLDER (NAME AND ADDRESS) (%)
--------------------------------------------------------------------------------
CLASS A SHARES
BANK OF AMERICA 28.12
FBO BRISTOL HOSPITAL
411 N AKARD ST
DALLAS TX 75201-3307
CLASS C SHARES
NFS LLC FEBO 5.80
NFS/FMTC ROLLOVER IRA
FBO SUSAN BARRON
101 WEST 78TH STREET
NEW YORK NY 10024-6717
CLASS Z SHARES
BANK OF AMERICA NA 78.20
411 N AKARD ST
DALLAS TX 75201-3307
|
COLUMBIA DIVIDEND INCOME FUND
PERCENT OF
CLASS TOTAL
SHAREHOLDER (NAME AND ADDRESS) (%)
--------------------------------------------------------------------------------
CLASS A SHARES
SEI PRIVATE TRUST CO 26.88
C/O WACHOVIA-PREMIER
ONE FREEDOM VALLEY DRIVE
OAKS PA 19456
CLASS C SHARES
CITIGROUP GLOBAL MARKETS, INC. 5.36
HOUSE ACCOUNT
333 W 34TH ST
NEW YORK NY 1001-2402
CLASS Z SHARES
BANK OF AMERICA NA 92.54
411 N AKARD ST
DALLAS TX 75201-3307
|
6. The first paragraph of the first page of Part 2 of the SAI is revised in its entirety to read:
The following information applies generally to most funds advised by the Advisor. "Funds" include the series of Columbia Funds Series Trust I, Columbia Funds Institutional Trust, Liberty Variable Investment Trust and SteinRoe Variable Investment Trust (each a "Trust" and together, the "Trusts"). In certain cases, the discussion applies to some, but not all, of the Funds, and you should refer to your Fund's Prospectus and to Part 1 of this Statement of Additional Information ("SAI") to determine whether the matter is applicable to your Fund. You will also be referred to Part 1 for certain data applicable to your Fund.
7. The section entitled "Trustees and Officers" in Part 2 of the SAI is revised to read:
Information regarding the Trustees and officers of the Funds together with their principal business occupations during the last five years (their titles may have varied during that period) is shown below. Unless otherwise noted, the address for each Trustee and officer is c/o Columbia Funds, Mail Stop MA5-515-11-05, One Financial Center, Boston, MA 02111.
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ----------------------- ------------ ---------------------------- ------------- -----------------------
DISINTERESTED TRUSTEE
Thomas C. Theobald Trustee and Chairman of 1996 Partner and Senior Advisor, 83 Anixter International
(Born 1937) the Board Chicago Growth Partners (network support
(private equity investing) equipment distributor);
since September, 2004; Ventas, Inc. (real
Managing Director, William estate investment
Blair Capital Partners trust); Jones Lang
(private equity investing) LaSalle (real estate
from September, 1994 to management services)
September, 2004. and Ambac Financial
Group (financial
guaranty insurance)
Douglas A. Hacker Trustee 1996 Executive Vice President -- 83 Nash Finch Company
(Born 1955) Strategy of United Airlines (food distributor)
(airline) since December,
2002; President of UAL
Loyalty Services (airline)
from September, 2001 to
December, 2002; Executive
Vice President and Chief
Financial Officer of United
Airlines from July, 1999 to
September, 2001.
Janet Langford Kelly Trustee 1996 Partner, Zelle, Hofmann, 83 UAL Corporation
(Born 1957) Voelbel, Mason & Gette LLP (airline)
(law firm) since March,
2005; Adjunct Professor of
Law, Northwestern
University, since September,
2004; Chief Administrative
Officer and Senior Vice
President, Kmart Holding
Corporation (consumer
goods), from September, 2003
to March, 2004; Executive
Vice President-Corporate
Development and
Administration, General
Counsel and Secretary,
Kellogg Company (food
manufacturer), from
September, 1999 to August,
2003.
|
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ----------------------- ------------- ---------------------------- ------------- -----------------------
DISINTERESTED TRUSTEE
Richard W. Lowry Trustee 1995 Private Investor since 85 None
(Born 1936) August, 1987 (formerly
Chairman and Chief Executive
Officer, U.S. Plywood
Corporation (building
products manufacturer) until
1987).
Charles R. Nelson Trustee 1981 Professor of Economics, 83 None
(Born 1943) University of Washington
since January, 1976; Ford
and Louisa Van Voorhis
Professor of Political
Economy, University of
Washington, since September,
1993; Director, Institute
for Economic Research,
University of Washington
from September, 2001 to
June, 2003; Adjunct
Professor of Statistics,
University of Washington
since September, 1980;
Associate Editor, Journal of
Money Credit and Banking
since September, 1993;
consultant on econometric
and statistical matters.
John J. Neuhauser Trustee 1985 University Professor, Boston 85 None
(Born 1942) College since November,
2005; Academic Vice
President and Dean of
Faculties, Boston College
from August, 1999 to
October, 2005.
Patrick J. Simpson Trustee 2000 Partner, Perkins Coie L.L.P. 83 None
(Born 1944) (law firm).
Thomas E. Stitzel Trustee 1998 Business Consultant since 83 None
(Born 1936) 1999; Chartered Financial
Analyst.
Anne-Lee Verville Trustee 1998 Retired since 1997 (formerly 83 Chairman of the Board
(Born 1945) General Manager, Global of Directors, Enesco
Education Industry, IBM Group,Inc. (producer
Corporation (computer and of giftware and home
technology) from 1994 to and garden decor
1997). products)
Richard L. Woolworth Trustee 1991 Retired since December, 2003 83 Northwest Natural Gas
(Born 1941) (formerly Chairman and Chief (natural gas service
Executive Officer, The provider)
Regence Group Co. (regional
health insurer); Chairman
and Chief Executive Officer,
BlueCross BlueShield of
Oregon; Certified Public
Accountant, Arthur Young &
Company).
|
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ----------------------- ------------ ---------------------------- ------------- -----------------------
INTERESTED TRUSTEE
William E. Mayer(3) Trustee 1994 Partner, Park Avenue Equity 85 Lee Enterprises (print
(Born 1940) Partners (private equity) media), WR Hambrecht +
since February, 1999. Co. (financial service
provider); Reader's
Digest (publishing);
OPENFIELD Solutions
(retail industry
technology provider)
|
(1) The date shown is the earliest date on which a Trustee was elected or appointed to the board of a Fund in the Fund Complex.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public companies").
(3) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (the "1940 Act")) of the Columbia Funds by reason of his affiliation with WR Hambrecht + Co., a registered broker-dealer that may execute portfolio transactions for or engage in principal transactions with the Fund or other funds or clients advised by the Advisor or its affiliates.
Year First
Elected or
Name and Year of Birth Appointed
Position with Funds to Office Principal Occupation(s) During Past Five Years
----------------------- ---------------------- ---------- ---------------------------------------------------------------
OFFICERS
Christopher L. Wilson President 2004 Head of Mutual Funds since August, 2004 and Managing Director
(Born 1957) of the Advisor since September, 2005; President and Chief
Executive Officer, CDC IXIS Asset Management Services, Inc.
(investment management) from September, 1998 to August, 2004.
James R. Bordewick, Jr. Senior Vice President, 2006 Associate General Counsel, Bank of America since April, 2005;
(Born 1959) Secretary and Chief Senior Vice President and Associate General Counsel, MFS
Legal Officer Investment Management (investment management) prior to April,
2005.
J. Kevin Connaughton Senior Vice President, 2000 Managing Director of the Advisor since February, 1998.
(Born 1964) Chief Financial
Officer and Treasurer
Mary Joan Hoene Senior Vice President 2004 Senior Vice President and Chief Compliance Officer of various
(Born 1949) and Chief Compliance funds in the Columbia Fund Complex; Partner, Carter, Ledyard &
Officer Milburn LLP (law firm) from January, 2001 to August, 2004.
Michael G. Clarke Chief Accounting 2004 Managing Director of the Advisor since February, 2001.
(Born 1969) Officer and Assistant
Treasurer
Stephen T. Welsh Vice President 1996 President, Columbia Management Services, Inc. since July, 2004;
(Born 1957) Senior Vice President and Controller, Columbia Management
Services, Inc. prior to July, 2004.
Jeffrey R. Coleman Deputy Treasurer 2004 Group Operations Manager of the Advisor since October, 2004;
(Born 1969) Vice President of CDC IXIS Asset Management Services, Inc.
(investment management) from August, 2000 to September, 2004.
|
Year First
Elected or
Name, Year of Birth and Appointed
Address Position with Funds to Office Principal Occupation(s) During Past Five Years
----------------------- ---------------------- ---------- ---------------------------------------------------------------
OFFICERS
Joseph F. DiMaria Deputy Treasurer 2004 Senior Compliance Manager of the Advisor since January, 2005;
(Born 1968) Director of Trustee Administration of the Advisor from May,
2003 to January, 2005; Senior Audit Manager,
PricewaterhouseCoopers (independent registered public
accounting firm) from July, 2000 to April, 2003.
Ty S. Edwards Deputy Treasurer 2004 Vice President of the Advisor since 2002; Assistant Vice
(Born 1966) President and Director, State Street Corporation (financial
services) prior to 2002.
Barry S. Vallan Controller 2006 Vice President-Fund Treasury of the Advisor since October,
(Born 1969) 2004; Vice President-Trustee Reporting from April, 2002 to
October, 2004; Management Consultant, PricewaterhouseCoopers
(independent registered public accounting firm) prior to
October, 2002.
Peter T. Fariel Assistant Secretary 2006 Associate General Counsel, Bank of America since April, 2005;
(Born 1957) Partner, Goodwin Procter LLP (law firm) prior to April, 2005.
Ryan C. Larrenaga Assistant Secretary 2005 Assistant General Counsel, Bank of America since March, 2005;
(Born 1970) Associate, Ropes & Gray LLP (law firm) from 1998 to February,
2005.
Barry S. Finkle Assistant Treasurer 2003 Senior Manager and Head of Fund Performance of the Advisor
(Born 1965) since January, 2001.
Julian Quero Assistant Treasurer 2003 Senior Compliance Manager of the Advisor since April, 2002;
(Born 1967) Assistant Vice President of Taxes and Distributions of the
Advisor from 2001 to April, 2002.
|
Each of the Trust's Trustees and officers hold comparable positions with certain other funds of which the Advisor or its affiliates is the investment advisor or distributor and, in the case of certain of the officers, with certain affiliates of the Advisor.
The Trustees and officers serve terms of indefinite duration. Each Fund held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once every five years thereafter to elect Trustees.
8. The section entitled "Trustee Positions," a subsection of "Management of the Funds," is revised to read:
As of December 31, 2005, no disinterested Trustee or any of their immediate family members owned beneficially or of record any class of securities of the Advisor, another investment advisor, sub-advisor or portfolio manager of any of the funds in the Columbia Fund Complex or any person controlling, controlled by or under common control with any such entity.
9. The second paragraph of the section entitled "Other Disclosures," a subsection of "Disclosure of Portfolio Information," is revised in its entirety to read:
The Fund periodically discloses its portfolio information on a confidential basis to various service providers that require such information in order to assist the Fund with its day-to-day business affairs. In addition to Columbia Advisors and its affiliates, these service providers include the Fund's custodian and sub-custodians, the Fund's independent registered public accounting firm, legal counsel, financial printers (R.R. Donnelly & Sons and Bowne & Co., Inc.), the Fund's proxy solicitor and proxy voting service provider (Computershare), rating agencies that maintain ratings on certain Columbia Funds (Fitch, Inc.) and service providers that support Columbia Advisors'
trading systems (InvestorTool, Inc. and Thomson Financial). These service providers are required to keep such information confidential, and are prohibited from trading based on the information or otherwise using the information except as necessary in providing services to the Fund. The Fund may also disclose portfolio holdings information to broker/dealers and certain other entities related to potential transactions and management of the Fund, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information.
INT-50/107640-0306 March 27, 2006
COLUMBIA ASSET ALLOCATION FUND
COLUMBIA LARGE CAP GROWTH FUND
COLUMBIA DISCIPLINED VALUE FUND
COLUMBIA COMMON STOCK FUND
COLUMBIA SMALL CAP CORE FUND
COLUMBIA SMALL COMPANY EQUITY FUND
COLUMBIA DIVIDEND INCOME FUND
SERIES OF COLUMBIA FUNDS TRUST XI
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1, 2006
This Statement of Additional Information ("SAI") contains information which may be useful to investors but which is not included in the Prospectuses of Columbia Asset Allocation Fund, Columbia Large Cap Growth Fund, Columbia Disciplined Value Fund, Columbia Common Stock Fund, Columbia Small Cap Core Fund, Columbia Small Company Equity Fund and Columbia Dividend Income Fund (each "a Fund" and collectively, the "Funds"). This SAI is not a prospectus and is authorized for distribution only when accompanied or preceded by a Prospectus of a Fund dated February 1, 2006, as applicable. This SAI should be read together with a Prospectus of the Funds and the most recent Annual Report dated September 30, 2005. The Funds' most recent Annual Reports to shareholders are separate documents supplied with this SAI. Investors may obtain a free copy of a Prospectus and the Annual Report from Columbia Management Distributors, Inc. ("CMD"), One Financial Center, Boston, MA 02111-2621, or by calling 1-800-426-3750. The Financial Statements and Report of the Independent Registered Public Accounting Firm appearing in each Fund's September 30, 2005 Annual Report are incorporated in this SAI by reference.
Part 1 of this SAI contains specific information about the Funds. Part 2 includes information about the funds distributed by CMD generally and additional information about certain securities and investment techniques described in the Funds' Prospectuses.
TABLE OF CONTENTS
Page
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PART1
Definitions ............................................................. b
Organization and History ................................................ b
Investment Goal and Policies ............................................ d
Fundamental and Non-Fundamental Investment Policies ..................... d
Portfolio Turnover ...................................................... k
Fund Charges and Expenses ............................................... l
Custodian of the Funds .................................................. zz
Independent Registered Public Accounting Firm of the Funds .............. zz
PART 2
Miscellaneous Investment Practices ...................................... 1
Taxes ................................................................... 22
Additional Tax Matters Concerning Trust Shares .......................... 27
Management of the Funds ................................................. 29
Determination of Net Asset Value ........................................ 42
How to Buy Shares ....................................................... 43
Special Purchase Programs/Investor Services ............................. 47
Programs for Reducing or Eliminating Sales Charges ...................... 49
How to Sell Shares ...................................................... 52
Distributions ........................................................... 56
How to Exchange Shares .................................................. 56
Suspension of Redemptions ............................................... 57
Shareholder Liability ................................................... 57
Shareholder Meetings .................................................... 57
Appendix I .............................................................. 59
Appendix II ............................................................. 65
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COLUMBIA ASSET ALLOCATION FUND
COLUMBIA LARGE CAP GROWTH FUND
COLUMBIA DISCIPLINED VALUE FUND
COLUMBIA COMMON STOCK FUND
COLUMBIA SMALL CAP CORE FUND
COLUMBIA SMALL COMPANY EQUITY FUND
COLUMBIA DIVIDEND INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1,2006
DEFINITIONS
"Asset Allocation Fund" or "Fund" Columbia Asset Allocation Fund
"Growth Fund" or "Fund" Columbia Large Cap Growth Fund
"Value Fund" or "Fund" Columbia Disciplined Value Fund
"Common Stock Fund" or "Fund" Columbia Common Stock Fund
(formerly named Columbia Large
Cap Core Fund)
"Small Cap Core Fund" or "Fund" Columbia Small Cap Core Fund
(formerly named Columbia Small
Cap Fund)
"Small Company Fund" or "Fund" Columbia Small Company Equity Fund
"Dividend Fund" or "Fund" Columbia Dividend Income Fund
"Predecessor Fund" or "Predecessor Funds" See below under "Organization and
History"
"Trust" Columbia Funds Trust XI
"Advisor" Columbia Management Advisors, LLC,
the Funds' investment advisor
"CMD" Columbia Management Distributors,
Inc. (formerly named Columbia
Funds Distributor, Inc.), the
Funds' distributor
"CMS" Columbia Management Services, Inc.
(formerly named Columbia Funds
Services, Inc.), the Funds'
shareholder services and transfer
agent
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ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1987. Each Fund is an open-end, management investment company representing the entire interest in a separate series of the Trust and is a diversified series of the Trust. Each Fund is the successor to a separate series of the Galaxy Fund, a Massachusetts business trust organized on March 31, 1986. On November 18, 2002, November 25, 2002 and December 9, 2002, the series of the Galaxy Fund to which the Funds succeeded (the "Predecessor Funds") were reorganized as separate series of the Trust. Class A shares of the Funds were issued in exchange for Prime A Shares of the Predecessor Funds, Class B shares of the Funds were issued in exchange for Prime B Shares of the Predecessor Funds, Class T shares of the Funds were issued in exchange for Retail A Shares of the Predecessor Funds, Class G shares of the Funds were issued in exchange for Retail B Shares of the Predecessor Funds and Class Z shares of the Funds were issued in exchange for Trust Shares of the Predecessor Funds. (Prime A and B shares, Retail A and B shares and Trust Shares together are referred to herein as to the "Predecessor Classes"). Information provided with respect to each Fund for periods prior to such Fund's inception relates to the Fund's Predecessor Fund. Further, information provided with respect to each class of each Fund relates to the Predecessor classes of such class.
The Asset Allocation Fund commenced operations on December 30, 1991; the Growth Fund commenced operations on December 14, 1990; the Value Fund commenced operations on September 1, 1988; the Small Company Fund commenced operations on December 30, 1991; and the Dividend Fund commenced operations on March 4, 1998.
The Common Stock Fund and Small Cap Core Fund commenced operations on December 14, 1992, as separate portfolios (the "Predecessor Large Cap Fund" and "Predecessor Small Cap Fund," respectively, and collectively, the "Predecessor Shawmut Funds") of The Shawmut Funds. On December 4, 1995, the Predecessor Shawmut Funds were
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reorganized as new portfolios of the Galaxy Fund. Prior to the reorganization, the Predecessor Shawmut Funds offered and sold shares of beneficial interest that were similar to the Galaxy Fund's Trust Shares and Retail A Shares.
The Trust is not required to hold annual shareholder meetings, but special meetings may be called for certain purposes. Each whole share (or fractional share) outstanding on the record date established in accordance with the Trust's By-Laws shall be entitled to a number of votes on any matter on which it is entitled to vote equal to the net asset value of the share (or fractional share) in United States dollars determined at the close of business on the record date (for example, a share having a net asset value of $10.50 would be entitled to 10.5 votes). Shares of the Funds and any other series of the Trust that may be in existence from time to time generally vote together except when required by law to vote separately by fund or by class. Shareholders owning in the aggregate ten percent of Trust shares may call meetings to consider removal of Trustees. Under certain circumstances, the Trust will provide information to assist shareholders in calling such a meeting. See Part 2 of this SAI for more information.
On February 1, 1996, the name of the Trust was changed to separate "SteinRoe" into two words. The name of the Trust was changed on October 18, 1999, from "Stein Roe Investment Trust" to "Liberty Stein-Roe Investment Trust." On October 13, 2003, the name of the Trust was changed from "Liberty-Stein Roe Investment Trust" to its current name.
It is expected that each Fund will be reorganized as a series of Columbia Funds Series Trust I, a Massachusetts business trust into which all of the retail Columbia funds are expected to be reorganized in 2006.
INVESTMENT GOAL AND POLICIES
Each Prospectus describes the investment goal and investment strategies and risks of each Fund to which it pertains. Part 1 of this SAI contains additional information concerning, among other things, the fundamental investment policies of the Funds. Part 2 contains, among other things, additional information about the following securities and investment techniques that may be utilized by the Funds, unless otherwise noted, subject to any restrictions described in Part 1 of this SAI:
Custody Receipts and Trust Certificates (the Asset Allocation Fund only)
Short-Term Trading
Small Companies (the Small Cap and Small Company Funds only)
Common Stock, Preferred Stock and Warrants
Foreign Securities
Other Investment Companies
Money Market Instruments
Securities Loans
Forward Commitments
"When-Issued" Securities (the Common Stock, Dividend and Small Cap Core
Funds only)
"Delayed Delivery" Securities (the Common Stock, Dividend and Small Cap
Core Funds only)
Mortgage Dollar Rolls (the Asset Allocation Fund only)
REITs
Mortgage-Backed Securities (the Asset Allocation Fund only)
Non-Agency Mortgage-Backed Securities (the Asset Allocation Fund only)
Asset-Backed Securities (the Asset Allocation Fund only)
Repurchase Agreements
Reverse Repurchase Agreements
Options on Securities
Futures Contracts and Related Options
Swap Agreements (Swaps, Caps, Collars and Floors)
Foreign Currency Transactions
Rule 144A Securities
Variable and Floating Rate Obligations
Convertible Securities
Yankee Obligations
American, European, Continental and Global Depositary Receipts (except that
only the Common Stock, Small Cap and Dividend Funds may invest in GDRs)
Except as indicated below under "Fundamental and Non-Fundamental Investment Policies," the Funds' investment policies are not fundamental, and the Board of Trustees may change the policies without shareholder approval.
FUNDAMENTAL AND NON-FUNDAMENTAL INVESTMENT POLICIES
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940, as amended (the "1940 Act") provides that a "vote of a majority of the outstanding voting securities" means the affirmative vote of the lesser of (1) more than 50% of the outstanding shares of a particular Fund, or (2) 67% or more of the shares present at a meeting if more than 50% of the outstanding shares are represented at the meeting in person or by proxy. The following fundamental investment policies cannot be changed without such a vote.
Each Fund may not, as a matter of fundamental policy:
1. Underwrite any issue of securities issued by other persons within the meaning of the Securities Act of 1933, as amended (the "1933 Act") except when it might be deemed to be an underwriter either: (a) in
connection with the disposition of a portfolio security; or (b) in connection with the purchase of securities directly from the issuer thereof in accordance with its investment objective. This restriction shall not limit the Fund's ability to invest in securities issued by other registered investment companies.
2. Purchase or sell real estate, except a Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate and it may hold and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of securities which are secured by real estate or interests therein.
3. Purchase or sell commodities, except that a Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts.
4. Purchase any securities which would cause 25% or more of the value of
its total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that: (a) there is no
limitation with respect to obligations issued or guaranteed by the
U.S. Government, any state or territory of the United States, or any
of their agencies, instrumentalities or political subdivisions; and
(b) notwithstanding this limitation or any other fundamental
investment limitation, assets may be invested in the securities of one
or more management investment companies to the extent permitted by the
1940 Act, the rules and regulations thereunder and any applicable
exemptive relief.
5. Make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
6. Borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
7. Purchase securities (except securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities) of any one issuer
if, as a result, more than 5% of its total assets will be invested in
the securities of such issuer or it would own more than 10% of the
voting securities of such issuer, except that: (a) up to 25% of its
total assets may be invested without regard to these limitations and
(b) a Fund's assets may be invested in the securities of one or more
management investment companies to the extent permitted by the 1940
Act, the rules and regulations thereunder, or any applicable exemptive
relief.
NON-FUNDAMENTAL INVESTMENT POLICIES
The following investment limitation with respect to the Funds may be changed by the Board of Trustees without shareholder approval:
8. A Fund may not sell securities short, maintain a short position, or purchase securities on margin, except for such short-term credits as are necessary for the clearance of transactions.
The following investment limitations with respect to the Asset Allocation Fund, Dividend Fund, Value Fund, Growth Fund and Small Company Fund may be changed by the Board of Trustees without shareholder approval:
9. A Fund may not write or sell put options, call options, straddles, spreads or any combination thereof except that (i) each of the Value Fund, Growth Fund and Small Company Fund may, to the extent consistent with its investment objective and policies, write covered call options and purchase and sell other options, and (ii) the Asset Allocation Fund and the Dividend Fund may buy and sell options, including without limit buying or writing puts and calls, based on any type of security, index or currency, including options on foreign exchanges and options not traded on exchanges to the extent permitted by its investment objective and policies.
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10. A Fund may not purchase securities of companies for the purpose of exercising control.
11. A Fund may not purchase securities of other investment companies except as permitted by the 1940 Act, except that the Dividend Fund may, from time to time, on a temporary basis, invest exclusively in one other investment company similar to the Fund.
The following investment limitation with respect to the Asset Allocation Fund, Dividend Fund, Value Fund, Growth Fund and Small Company Fund may be changed by the Board of Trustees without shareholder approval:
12. A Fund may not invest more than 15% of its net assets in illiquid securities.
The following investment limitations with respect to the Common Stock Fund and Small Cap Core Fund may be changed by the Board of Trustees without shareholder approval:
13. The Funds may not invest more than 15% of their respective net assets in securities subject to restrictions on resale under the Securities Act of 1933 (except for commercial paper issued under Section 4(2) of the Securities Act of 1933 and certain securities which meet the criteria for liquidity as established by the Board of Trustees).
14. Each Fund will limit its investments in other investment companies to not more than 3% of the total outstanding voting stock of any investment company; will invest no more than 5% of its total assets in any one investment company; and will invest no more than 10% of its total assets in investment companies in general. However, these limitations are not applicable if the securities are acquired in a merger, consolidation, reorganization or acquisition of assets.
15. The Funds will purchase the securities of other investment companies only in open market transactions involving only customary broker's commissions. It should be noted that investment companies incur certain expenses such as management fees, and therefore any investment by a Fund in shares of another investment company would be subject to such duplicate expenses.
16. Neither Fund may purchase or retain the securities of any issuer if the officers and Trustees of the Trust or the Advisor, owning individually more than 1/2 of 1% of the issuer's securities, together own more than 5% of the issuer's securities.
17. Neither Fund may purchase or sell interests in oil, gas, or mineral exploration or development programs or leases; except that the Funds may purchase the securities of issuers which invest in or sponsor such programs.
18. Neither Fund may purchase put options on securities, unless the securities are held in the Fund's portfolio and not more than 5% of the value of the Fund's total assets would be invested in premiums on open put option positions.
19. Neither Fund may write call options on securities, unless the securities are held in the Fund's portfolio or unless the Fund is entitled to them in deliverable form without further payment or after segregating cash in the amount of any further payment. Neither Fund may write call options in excess of 5% of the value of its total assets.
20. Neither Fund will invest more than 15% of the value of its respective net assets in illiquid securities, including repurchase agreements providing for settlement in more than seven days after notice, non-negotiable fixed time deposits with maturities over seven days, and certain securities not determined by the Board of Trustees to be liquid.
21. Neither Fund may invest in companies for the purpose of exercising management or control.
22. Neither Fund may invest more than 5% of its net assets in warrants. No more than 2% of this 5% may be warrants which are not listed on the New York Stock Exchange.
With respect to Investment Limitation No. 11 above, the 1940 Act currently prohibits a Fund, subject to certain exceptions, from acquiring the securities of other investment companies if, as a result of such acquisition, (a) the
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Fund owns more than 3% of the total outstanding voting stock of the investment company; (b) securities issued by any one investment company represent more than 5% of the total assets of the Fund; or (c) securities (other than treasury stock) issued by all investment companies represent more than 10% of the total assets of the Fund.
Each Fund may purchase restricted securities, which are any securities in which the Fund may otherwise invest pursuant to its investment objective and policies but which are subject to restrictions on resale under the federal securities laws. Certain restricted securities may be considered liquid pursuant to guidelines established by the Board of Trustees. To the extent restricted securities are deemed illiquid, each Fund will limit its purchase, together with other securities considered to be illiquid, to 15% of its net assets.
Each of the Growth Fund and Small Company Fund may purchase put options and call options on securities and securities indices. Neither of these Funds may purchase options unless immediately after any such transaction the aggregate amount of premiums paid for put or call options does not exceed 5% of its total assets.
Each of the Value Fund, Growth Fund and Small Company Fund may engage in writing covered call options and may enter into closing purchase transactions with respect to such options. Such options must be listed on a national securities exchange and issued by the Options Clearing Corporation. The aggregate value of the securities subject to such options written by these Funds may not exceed 25% of the value of such Fund's net assets.
Each of the Asset Allocation Fund, Common Stock Fund, Dividend Fund and Small Cap Core Fund may buy and sell options and futures contracts to manage their exposure to changing interest rates, security prices and currency exchange rates. These Funds may invest in options and futures based on any type of security, index, or currency, including options and futures based on foreign exchanges and options not traded on exchanges. These Funds will not hedge more than 20% of their respective total assets (10% of net assets with respect to the Asset Allocation Fund) by selling futures, buying puts, and writing calls under normal conditions. These Funds will not buy futures or write puts whose underlying value exceeds 20% of their respective total assets (10% of net assets with respect to the Asset Allocation Fund), and will not buy calls with a value exceeding 5% of their respective total assets. These Funds may utilize stock index futures contracts, options, swap agreements, indexed securities, and options on futures contracts for the purposes of managing cash flows into and out of their respective portfolios and potentially reducing transaction costs, subject to the limitation that the value of these futures contracts, swap agreements, indexed securities, and options will not exceed 20% of the Funds' respective total assets (10% of net assets with respect to the Asset Allocation Fund). These Funds will not purchase put options to the extent that more than 5% of the value of their respective total assets would be invested in premiums on open put option positions. In addition, these Funds do not intend to invest more than 5% of the market value of their respective total assets in each of the following: futures contracts, swap agreements, and indexed securities. When one of these Funds enters into a swap agreement, liquid assets of the Fund equal to the value of the swap agreement will be segregated by that Fund. These Funds may not use stock index futures contracts and options for speculative purposes.
As a means of reducing fluctuations in the net asset value of shares of the Asset Allocation Fund, Common Stock Fund, Dividend Fund and Small Cap Core Fund, the Funds may attempt to hedge all or a portion of their respective portfolios through the purchase of listed put options on stocks, stock indices and stock index futures contracts. These options will be used as a form of forward pricing to protect portfolio securities against decreases in value resulting from market factors, such as an anticipated increase in interest rates.
The Asset Allocation Fund, Common Stock Fund, Dividend Fund and Small Cap Core Fund may only: (1) buy listed put options on stock indices and stock index futures contracts; (2) buy listed put options on securities held in their respective portfolios; and (3) sell listed call options either on securities held in their respective portfolios or on securities which they have the right to obtain without payment of further consideration (or have segregated cash in the amount of any such additional consideration). Each of these Funds will maintain its positions in securities, option rights, and segregated cash subject to puts and calls until the options are exercised, closed or
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expired. Each of these Funds may also enter into stock index futures contracts. A stock index futures contract is a bilateral agreement which obligates the seller to deliver (and the purchaser to take delivery of) an amount of cash equal to a specific dollar amount times the difference between the value of a specific stock index at the close of trading of the contract and the price at which the agreement is originally made. There is no physical delivery of the stocks constituting the index, and no price is paid upon entering into a futures contract.
None of the Asset Allocation Fund, Common Stock Fund, Dividend Fund and Small Cap Core Fund will enter into futures contracts if, immediately thereafter, the sum of its initial margin deposits on open contracts exceeds 5% of the market value of its total assets. Further, these Funds will enter into stock index futures contracts only for bona fide hedging purposes or such other purposes permitted under Part 4 of the regulations promulgated by the Commodity Futures Trading Commission. Also, these Funds may not enter into stock index futures contracts and options to the extent that the value of such contracts would exceed 20% of the Fund's total net assets and may not purchase put options to the extent that more than 5% of the value of (10% of net assets with respect to the Asset Allocation Fund) the Fund's total assets would be invested in premiums on open put option positions.
As one way of managing their exposure to different types of investments, the Asset Allocation Fund, Common Stock Fund, Dividend Fund and Small Cap Core Fund may enter into interest rate swaps, currency swaps, and other types of swap agreements such as caps, collars, and floors.
Each Fund may buy and sell securities denominated in currencies other than the U.S. dollar, and may receive interest, dividends and sale proceeds in currencies other than the U.S. dollar. The Funds from time to time may enter into foreign currency exchange transactions to convert the U.S. dollar to foreign currencies, to convert foreign currencies to the U.S. dollar and to convert foreign currencies to other foreign currencies.
Each of the Asset Allocation Fund, Value Fund, Growth Fund, Small Cap Core Fund and Small Company Fund may invest in securities issued by other investment companies which invest in high quality, short-term debt securities and which determine their net asset value per share based on the amortized cost or penny-rounding method. The Funds may invest in other investment companies primarily for the purpose of investing their short-term cash which has not yet been invested in other portfolio instruments. However, from time to time, on a temporary basis, each of the Common Stock Fund, Dividend Fund and Small Cap Core Fund may invest exclusively in one other investment company similar to the respective Fund.
All debt obligations, including convertible bonds, purchased by the Asset Allocation Fund, Value Fund, Growth Fund and Small Company Equity Fund are rated investment grade by Moody's (Aaa, Aa, A and Baa) or S&P (AAA, AA, A and BBB), or, if not rated, are determined to be of comparable quality by the Advisor. Debt securities rated Baa by Moody's or BBB by S&P are generally considered to be investment grade securities although they have speculative characteristics and changes in economic conditions or circumstances are more likely to lead to a weakened capacity to make principal and interest payments than is the case for higher rated debt obligations.
The Common Stock Fund and Small Cap Core Fund may purchase convertible bonds rated Ba or higher by Moody's or BB or higher by S&P or Fitch at the time of investment. Short-term money market instruments purchased by the Common Stock Fund and Small Cap Core Fund must be rated in one of the top two rating categories by a nationally recognized statistical rating agency, such as Moody's, S&P or Fitch.
Subsequent to its purchase by a Fund, an issue of securities may cease to be rated or its rating may be reduced below the minimum rating required for purchase by the Fund. The Board of Trustees or the Advisor may determine that it is appropriate for a Fund to continue to hold the obligation if retention is in accordance with the interests of the particular Fund and applicable regulations of the Securities and Exchange Commission ("SEC"). However, each Fund will sell promptly any security that is not rated investment grade by either S&P or Moody's if such securities exceed 5% of the Fund's net assets.
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Loans of portfolio securities by the Funds will generally be short-term (except in the case of the Common Stock Fund and Small Cap Core Fund, which may loan their securities on a long-term or short-term basis or both), will be made only to borrowers deemed by the Advisor to be of good standing and only when, in the Advisor's judgment, the income to be earned from the loan justifies the attendant risks. The Funds currently intend to limit the lending of their portfolio securities so that, at any given time, securities loaned by a Fund represent not more than one-third of the value of its total assets.
Each Fund will invest no more than 10% of its net assets in REITs.
Except as stated otherwise, if a percentage limitation is satisfied at the time of investment, a later increase in such percentage resulting from a change in the value of a Fund's portfolio securities generally will not constitute a violation of the limitation. If the value of a Fund's holdings of illiquid securities at any time exceeds the percentage limitation applicable at the time of acquisition due to subsequent fluctuations in value or other reasons, the Board of Trustees will consider what actions, if any, are appropriate to maintain adequate liquidity. With respect to borrowings, if a Fund's asset coverage at any time falls below that required by the 1940 Act, the Fund will reduce the amount of its borrowings in the manner required by the 1940 Act to the extent necessary to satisfy the asset coverage requirement.
Each Fund may follow non-fundamental operating policies that are more restrictive than its fundamental investment limitations, as set forth in the Prospectuses and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the 1940 Act.
ASSET ALLOCATION FUND
The Asset Allocation Fund may invest up to 25% of its net assets in foreign securities. Such foreign investments may be made directly, by purchasing securities issued or guaranteed by foreign corporations, banks or governments (or their political subdivisions or instrumentalities) or by supranational banks or other organizations, or indirectly, by purchasing American Depositary Receipts ("ADRs") and European Depositary Receipts ("EDRs") (EDRs are also known as Continental Depositary Receipts ("CDRs")). Examples of supranational banks include the International Bank for Reconstruction and Development ("World Bank"), the Asian Development Bank and the InterAmerican Development Bank. Obligations of supranational banks may be supported by appropriated but unpaid commitments of their member countries and there is no assurance that those commitments will be undertaken or met in the future. See "Foreign Securities" and "American, European, Continental and Global Depositary Receipts" in Part 2 of this SAI. The Fund may also invest in dollar-denominated high quality debt obligations of U.S. corporations issued outside the United States. The Fund may also buy and sell options and futures contracts, utilize stock index futures contracts, options, swap agreements, indexed securities and options or futures contracts, purchase asset-backed and mortgage-backed securities and enter into foreign currency exchange contracts.
GROWTH FUND
Under normal circumstances, the Growth Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in a broadly diversified portfolio of equity securities, primarily common stocks and securities that can be converted into common stocks. Convertible securities purchased by the Growth Fund may include both debt securities and preferred stock. By investing in convertible securities, the Fund will seek the opportunity, through the conversion feature, to participate in the capital appreciation of the common stock into which the securities are convertible. See "Convertible Securities" in Part 2 of this SAI. The Fund may also invest in common stock warrants.
The Fund may invest up to 20% of its total assets in foreign securities, either directly or indirectly through the purchase of ADRs, EDRs and CDRs. In addition, the Fund may invest in securities issued by foreign branches of U.S. banks and foreign banks. See "Foreign Securities" and "American, European, Continental and Global Depositary Receipts" in Part 2 of this SAI. The Fund may also purchase put options and call options and write covered call options. See "Options on Securities" in Part 2 of this SAI.
VALUE FUND
Under normal circumstances, the Value Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in common stock, preferred stock (including convertible preferred stock) and debt securities convertible into common stock, mainly those that the Advisor believes to be undervalued. Debt securities convertible into common stock are purchased primarily during periods of relative market instability and are acquired principally for income with the potential for appreciation being a secondary consideration. See "Convertible Securities" in Part 2 of this SAI.
The Fund may also invest up to 20% of its total assets in foreign securities, either directly or indirectly through ADRs, EDRs and CDRs. In addition, the Fund may invest in securities issued by foreign branches of U.S. banks and foreign banks. See "Foreign Securities" and "American, European, Continental and Global Depositary Receipts" in Part 2 of this SAI. The Fund may also write covered call options. See "Options on Securities" in Part 2 of this SAI.
COMMON STOCK FUND
Under normal market conditions, the Common Stock Fund will invest at least 80% of its total assets in common stocks, preferred stocks, common stock warrants and securities convertible into common stock. The Fund may purchase convertible securities, including convertible preferred stock, convertible bonds or debentures, units consisting of "usable" bonds and warrants or a combination of the features of several of these securities. See "Convertible Securities" in Part 2 of this SAI. The Fund may also buy and sell options and futures contracts and utilize stock index futures contracts, options, swap agreements, indexed securities, and options on futures contracts. See "Options on Securities" and "Futures Contracts and Related Options" in Part 2 of this SAI.
The Fund may invest up to 20% of its total assets in securities of foreign issuers which are freely traded on United States securities exchanges or in the over-the-counter market in the form of ADRs, EDRs, CDRs and Global Depositary Receipts ("GDRs"). Securities of a foreign issuer may present greater risks in the form of nationalization, confiscation, domestic marketability, or other national or international restrictions. As a matter of practice, the Fund will not invest in the securities of foreign issuers if any such risk appears to the Advisor to be substantial. See "Foreign Securities" and "American, European, Continental and Global Depositary Receipts" in Part 2 of this SAI.
SMALL CAP CORE FUND
Under normal circumstances, the Small Cap Core Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in stocks of companies that have market capitalizations similar in size to those companies in the Russell 2000 Index. In addition to common stocks, the Small Cap Core Fund may purchase convertible securities, including convertible preferred stock, convertible bonds or debentures, units consisting of "usable" bonds and warrants or a combination of the features of several of these securities. See "Convertible Securities" in Part 2 of this SAI. The Fund may also buy and sell options and futures contracts and utilize stock index futures contracts, options, swap agreements, indexed securities, and options on futures contracts. See "Options on Securities" and "Futures Contracts and Related Options" in Part 2 of this SAI.
The Fund may invest up to 20% of its total assets in securities of foreign issuers which are freely traded on U.S. securities exchanges or in the over-the-counter market in the form of ADRs, EDRs, CDRs and GDRs. Securities of a foreign issuer may present greater risks in the form of nationalization, confiscation, domestic marketability, or other national or international restrictions. As a matter of practice, the Fund will not invest in the securities of a foreign issuer if any such risk appears to the Advisor to be substantial. See "Foreign Securities" and "American, European, Continental and Global Depositary Receipts" in Part 2 of this SAI.
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SMALL COMPANY FUND
In addition to common stocks, the Small Company Fund may invest in preferred stock, securities convertible into common stock, rights and warrants. Under normal circumstances, at least 80% of the Fund's net assets (plus any borrowings for investment purposes) will be invested in stocks of companies that have market capitalizations similar in size to those companies in the Russell 2000 Growth Index. The Fund may invest up to 20% of its total assets in foreign securities, either directly or indirectly through ADRs, EDRs and CDRs. See "Foreign Securities" and "American, European, Continental and Global Depositary Receipts" in Part 2 of this SAI.
The Fund may purchase put options and call options and write covered call options as a hedge against changes resulting from market conditions and in the value of the securities held in the Fund or which it intends to purchase and where the transactions are economically appropriate for the reduction of risks inherent in the ongoing management of the Fund. See "Options on Securities" in
Part 2 of this SAI.
DIVIDEND FUND
Under normal circumstances, the Dividend Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in a diversified portfolio of income-producing (dividend-paying) equity securities, which will consist primarily of common stocks but may also include preferred stocks and convertible securities. The Fund may invest up to 20% of its net assets in debt securities, including lower-quality debt securities. The Fund may invest up to 20% of its total assets in foreign securities, either directly or indirectly through ADRs, EDRs, CDRs and GDRs. See "Foreign Securities" and "American, European, Continental and Global Depositary Receipts" in Part 2 of this SAI. The Fund may also buy and sell options and futures contracts and utilize stock index futures contracts, options, swap agreements, indexed securities and options on futures contracts. See "Options on Securities" and "Futures Contracts and Related Options" in Part 2 of this SAI.
PORTFOLIO TURNOVER
Portfolio turnover is included in the Prospectuses under "Financial Highlights." Each Fund may sell a portfolio investment soon after its acquisition if the Advisor believes that such a disposition is consistent with the Fund's investment goal. Portfolio investments may be sold for a variety of reasons, such as a more favorable investment opportunity or other circumstances bearing on the desirability of continuing to hold such investments. A portfolio turnover rate of 100% or more is considered high, although the rate of portfolio turnover will not be a limiting factor in making portfolio decisions. High portfolio turnover may cause the Funds to realize capital gains which, if realized and distributed by the Funds, may be taxable to shareholders as ordinary income. High portfolio turnover may result in correspondingly greater brokerage commissions and other transaction costs, which will be borne directly by the Funds.
For the Asset Allocation Fund, during the fiscal year ending September 30, 2004, the turnover decreased from 122% in the prior year to 75%. Part of the decrease was due to the restructuring of the Fund to a broadly diversified portfolio in the 2002-2003 fiscal year. We expect that prospectively turnover will generally range between 75% and 125%.
For the Growth Fund, during the fiscal year ending September 30, 2004, the Fund experienced a higher rate of portfolio turnover than during the previous fiscal year. This was due largely to volatility in individual stocks and opportunities to take advantage of inefficiently priced stocks.
For the Value Fund, during the fiscal year ending September 30, 2004, the Fund experienced a higher rate of portfolio turnover than during the previous fiscal year. This was due largely to increased opportunities in the equity market in 2004. We expect that prospectively turnover will generally range between 80% and 100%.
For the Common Stock Fund, during the fiscal year ending September 30, 2004, the Fund experienced a higher rate of portfolio turnover than during the previous fiscal year. This was due largely to change in portfolio management. We expect that prospectively turnover will generally range between 50% and 80%.
k
For the Small Company Fund, during the fiscal year ending September 30, 2004, the turnover decreased from 123% in the prior year to 54%. Part of the decrease was due to changes in portfolio managers. We expect that prospectively turnover will generally range between 90% and 120%.
For the Small Company Fund, during the fiscal year ending September 30, 2005, the turnover increased from 54% in the prior year to 110%. This increase was largely due to a change in portfolio managers. We expect that prospectively turnover will generally range between 90% and 120%.
FUND CHARGES AND EXPENSES
Effective November 1, 2004, under the Funds' management contracts, each Fund (excluding the Small Cap Core Fund and the Small Company Fund) pays the Advisor a monthly fee based on the average daily net assets of the Fund at the annual rate of:
FEE ASSET FEE ASSET FEE ASSET FEE ASSET FEE ASSET FEE ASSET
FUND RATE LEVEL RATE LEVEL RATE LEVEL RATE LEVEL RATE LEVEL RATE LEVEL
--------------------- ----- ------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- -------
Columbia Large Cap 0.700% Less 0.650% $500 0.600% $1 billion 0.550% $1.5 0.530% $3 billion 0.510% Greater
Growth Fund than million to to $1.5 billion to to $6 than
$500 $1 billion billion $3 billion billion $6
million billion
Columbia Common Stock 0.700% Less 0.650% $500 0.600% $1 billion 0.550% $1.5 0.530% $3 billion 0.510% Greater
Fund than million to to $1.5 billion to to $6 than
$500 $1 billion billion $3 billion billion $6
million billion
Columbia Disciplined 0.700% Less 0.650% $500 0.600% $1 billion 0.550% $1.5 0.530% $3 billion 0.510% Greater
Value Fund than million to to $1.5 billion to to $6 than
$500 $1 billion billion $3 billion billion $6
million billion
Columbia Dividend 0.700% Less 0.650% $500 0.600% $1 billion 0.550% $1.5 0.530% $3 billion 0.510% Greater
Income Fund than million to to $1.5 billion to to $6 than
$500 $1 billion billion $3 billion billion $6
million billion
Columbia Asset 0.650% Less 0.600% $500 0.550% $1 billion 0.500% $1.5 0.480% $3 billion 0.460% Greater
Allocation Fund than million to to $1.5 billion to to $6 than
$500 $1 billion billion $3 billion billion $6
million billion
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Effective March 19, 2005, the Growth Fund pays the Advisor a monthly fee based on the average daily net assets of the Fund at the annual rate of:
FEE ASSET FEE ASSET FEE ASSET
FUND RATE LEVEL RATE LEVEL RATE LEVEL
------------------ ----- -------------- ----- --------------- ----- -------------
Columbia Large Cap 0.700% Less than $200 0.575% $200 million to 0.450% Net assets in
Growth Fund million $500 million excess of
$500 million
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As of November 1, 2003, the Board of Trustees approved a management fee structure for the Funds, excluding the Small Company Fund, as follows: 0.75% of the first $500 million of average daily net assets, plus 0.70% of the next $500 million of average daily net assets, plus 0.65% of the next $500 million of average daily net assets, plus 0.60% of the next $500 million of average daily net assets, plus 0.55% of average daily net assets in excess of $2 billion. Prior to November 1, 2003, the Advisor was entitled to receive advisory fees, computed daily and paid monthly, at the annual rate of 0.75% of the average daily net assets of each Fund.
As of November 1, 2003, the management fee structure for the Small Company Fund is as follows: 0.75% of the first $500 million of average daily net assets, plus 0.70% of the next $500 million of average daily net assets, plus 0.65% of average daily net assets in excess of $1 billion.
Prior to November 1, 2003, the Funds had been advised by the Advisor that, effective August 1, 2001, it intended to waive advisory fees payable by the Funds so that advisory fees payable by the Funds were as follows: 0.75% of the first $500 million of average daily net assets, plus 0.70% of the next $500 million of average daily net assets, plus 0.65% of the next $500 million of average daily net assets, plus 0.60% of the next $500 million of average daily net assets, plus 0.55% of average daily net assets in excess of $2 billion.
As of November 1, 2003, the Advisor no longer waives its advisory fees payable to it by the Funds.
Under the administration agreement for each Fund (the "Agreement"), the Fund pays the Advisor a monthly fee at the annual rate of 0.067% of the average daily net assets of the Fund. The Large Cap Growth Fund pays the Advisor a monthly fee at the annual rate of 0.05% of the average daily net assets of the Fund. Prior to March 19, 2005, the Large Cap Growth Fund paid the Advisor a monthly fee at the annual rate of 0.067% of the Fund's average daily net assets. Prior to November 26, 2002, the administration agreement was computed daily and paid monthly at the annual rate of 0.09% of the first $2.5 billion of the combined average daily net assets of the Funds and the other funds offered by the Galaxy Fund, 0.085% of the next $2.5 billion of combined average daily net assets, 0.075% of the next $7 billion of combined average daily net assets, 0.065% of the next $3 billion of combined average daily net assets, 0.06% of the next $3 billion of combined average daily net assets, 0.0525% of the next $9 billion of combined average daily net assets and 0.05% of combined average daily net assets in excess of $30 billion.
The Advisor provides certain pricing and bookkeeping services to each Fund. Effective November 1, 2005, each Fund entered into a Pricing and Bookkeeping Agreement and an Administrative Agreement. Under these agreements, the Funds will continue to receive substantially the same pricing, bookkeeping and administrative services as they currently receives under the Agreement. Under a separate agreement ("Outsourcing Agreement"), the Advisor has delegated the pricing and bookkeeping function to State Street Bank and Trust Company ("State Street"). The Advisor pays fees to State Street under the Outsourcing Agreement. The Advisor and State Street Bank and Trust Company will continue to provide these services to the Funds. For services provided under the Pricing and Bookkeeping Agreement, each Fund will pay the Advisor or to such other person(s) as the Advisor may direct an annual fee, payable monthly, consisting of: (i) for fund accounting services, $25,000 plus an additional monthly fee based on each Fund's net asset value ("Fund Accounting Fee"); and (ii) for financial reporting services, $13,000 ("Financial Reporting Fee"); provided that during any 12-month period, the aggregate Fund Accounting Fee and Financial Reporting Fee shall not exceed $140,000. Each Fund will bear certain reimbursable costs and expenses as provided in the Pricing and Bookkeeping Agreement.
Under the prior pricing and bookkeeping agreement with the Funds, the Advisor received from the Funds an annual fee based on the average daily net assets of each Fund as follows: $25,000 under $50 million; $35,000 of $50 million but less than $200 million; $50,000 of $200 million but less than $500 million; $85,000 of $500 million but less than $1 billion and $125,000 in excess of $1 billion. The annual fees for a Fund with more than 25% in non-domestic assets was 150% of the annual fees described above. In addition to the above-referenced fees, each Fund paid an additional $10,000 per annum. Notwithstanding the above, for each of the Funds, the Advisor waived fees payable to it under the agreement by $500 per month.
CMS acts as transfer agent, dividend disbursing agent and shareholders' servicing agent for each Fund. Its address is P.O. Box 8081, Boston, Massachusetts 02266-8081. Effective November 1, 2005, the Funds entered into a new agreement with CMS, under which CMS will continue to provide transfer agency, dividend disbursing agency and shareholders' servicing agency services to each Fund (and will continue to retain Boston Financial Data Services, Inc. to assist it) for a reduced fee. The new fee is $15.23 per open account per annum, payable monthly. In addition, each Fund may pay CMS the fees and expenses it pays to third-party dealer firms that maintain omnibus accounts with the Funds, subject to a cap equal to 0.11% of each Fund's net assets represented by the account. The Fund will also pay certain reimbursable out-of-pocket expenses to CMS, and CMS may also retain as additional compensation for its services revenues for fees for wire, telephone and redemption orders, IRA trustee agent fees and account transcripts due CMS from shareholders of the Funds and credits (net of bank charges) earned with respect to balances in accounts CMS maintains in connection with its services to the Funds.
Prior to November 1, 2005, under the shareholders' servicing and transfer agency fee arrangement between CMS and the Funds, each Fund paid the following fees:
An annual open account fee of $28 per open account plus a Fund's allocated share of reimbursement for the out-of-pocket expenses of CMS.
Prior to November 1, 2003, the Fund paid a shareholders' servicing and transfer agency fee to CMS as follows:
- A new account set up charge of $5.00 per account; plus
- An account maintenance fee for each open non-networked account of $14.00 per annum and for each networked account in the amount of $100,000 or less of $11.00 per annum and each networked account in the amount of over $100,000 of $8.00 per annum, payable on a monthly basis, in an amount equal to 1/12 the per annum charge; plus
- An account fee for each closed account in the amount of $100,000 or less of $14.00 per annum and each closed account in the amount of over $100,000 of $11.00 per annum, payable on a monthly basis, in an amount equal to 1/12 the per annum charge; plus
- The Fund's allocated share of CMS's out-of-pocket expenses reasonably incurred by CMS in performing its duties and responsibilities pursuant to this arrangement.
There was a minimum annual fee per Fund of $5,000.
PFPC Inc. ("PFPC"), located at 4400 Computer Drive, Westborough, Massachusetts 01581-5108, served as the administrator (until July 2002) and transfer and dividend disbursing agent (until July 2002) for the Predecessor Funds. PFPC also provided pricing and bookkeeping services to the Predecessor Funds (until July 2002) and continued to provide certain of these pricing and bookkeeping services until November 2002. PFPC is an indirect majority-owned subsidiary of PNC Bank Corp.
RECENT FEES PAID TO THE ADVISOR, PFPC AND OTHER SERVICE PROVIDERS (DOLLARS IN THOUSANDS)
The following tables present recent fees paid to the Advisor, PFPC and other service providers by the Funds and the relevant Predecessor Funds.
ASSET ALLOCATION FUND(A)
YEARS ENDED ELEVEN MONTHS
SEPTEMBER 30, ENDED YEAR ENDED
--------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(B) 2002
------ ------ ------------- -----------
Advisory fee............................................ $2,686 $3,448 $3,366 $4,135
Administration fee...................................... 273 308 301 362
Pricing and bookkeeping fee............................. 165 149 138 115
Shareholder service and transfer agent fee.............. 887 N/A 1,235 1,111
Transfer Agent fee (A Shares)........................ N/A 5 N/A N/A
Transfer Agent fee (B Shares)........................ N/A 9 N/A N/A
Transfer Agent fee (C Shares)........................ N/A 1 N/A N/A
Transfer Agent fee (G Shares)........................ N/A 127 N/A N/A
Transfer Agent fee (T Shares)........................ N/A 469 N/A N/A
Transfer Agent fee (Z Shares)........................ N/A 509 N/A N/A
Service fee (A Shares)............................... 9 5 1 0
Service fee (B Shares)............................... 15 10 2 1
Service fee (C Shares)............................... 2 1 (c) N/A
Service fee (G Shares)............................... 94 150 180 277
Service fee (T Shares)............................... 558 576 507 723
Distribution fee (A Shares).......................... N/A N/A 0 (c)
Distribution fee (B Shares).......................... 46 29 7 3
Distribution fee (C Shares).......................... 5 3 1 N/A
Distribution fee (G Shares).......................... 204 325 394 613
Fees and expenses waived or reimbursed by the Advisor... 0 (12) (36) (33)
Fees waived by CMD (Class G)............................ N/A 0 0 (23)
Fees waived by CMS...................................... (22) N/A 0 (20)
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(b) The Asset Allocation Fund changed its fiscal year end from October 31 to September 30 in 2003.
(c) Rounds to less than one.
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GROWTH FUND(A)
YEARS ENDED ELEVEN
SEPTEMBER 30, MONTHS ENDED YEAR ENDED
--------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(B) 2002
------ ------ ------------- -----------
Advisory fee............................................ $7,192 $7,132 $6,438 $9,319
Administration fee...................................... 707 657 575 816
Pricing and bookkeeping fee............................. 116 112 87 132
Shareholder service and transfer agent fee.............. 2,391 N/A 1,942 872
Transfer Agent fee (A Shares)........................ N/A 6 N/A N/A
Transfer Agent fee (B Shares)........................ N/A 5 N/A N/A
Transfer Agent fee (C Shares)........................ N/A 1 N/A N/A
Transfer Agent fee (G Shares)........................ N/A 120 N/A N/A
Transfer Agent fee (T Shares)........................ N/A 490 N/A N/A
Transfer Agent fee (Z Shares)........................ N/A 1,302 N/A N/A
Service fee (A Shares)............................... 19 8 1 0
Service fee (B Shares)............................... 14 6 1 684
Service fee (C Shares)............................... 3 2 502 N/A
Service fee (G Shares)............................... 147 160 166 252
Service fee (T Shares)............................... 665 718 622 0
Distribution fee (A Shares).......................... N/A N/A 0 1
Distribution fee (B Shares).......................... 43 18 4 2
Distribution fee (C Shares).......................... 8 5 2 N/A
Distribution fee (G Shares).......................... 319 346 359 558
Fees and expenses waived or reimbursed by the Advisor... 0 (21) (200) (541)
Fees waived by CMD (Class G)............................ N/A N/A 0 (26)
Fees waived by CMS...................................... (57) N/A 0 (90)
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(b) The Growth Fund changed its fiscal year end from October 31 to September 30 in 2003.
(c) Rounds to less than one.
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VALUE FUND
YEARS ENDED ELEVEN MONTHS
SEPTEMBER 30, ENDED YEAR ENDED
--------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(A) 2002
------ ------ ------------- -----------
Advisory fee............................................ $3,085 $3,109 $2,267 $2,892
Administration fee...................................... 294 278 202 253
Pricing and bookkeeping fee............................. 57 57 53 64
Shareholder service and transfer agent fee.............. 659 N/A 675 481
Transfer Agent fee (A Shares)........................ N/A 3 N/A N/A
Transfer Agent fee (B Shares)........................ N/A 2 N/A N/A
Transfer Agent fee (C Shares)........................ N/A (g) N/A N/A
Transfer Agent fee (G Shares)........................ N/A 21 N/A N/A
Transfer Agent fee (T Shares)........................ N/A 252 N/A N/A
Transfer Agent fee (Z Shares)........................ N/A 464 N/A N/A
Service fee (A Shares)............................... 8 4 1 (b)
Service fee (B Shares)............................... 8 4 (g) (c)
Service fee (C Shares)............................... 1 1 (g) (d)
Service fee (G Shares)(e)............................ 19 29 41 71
Service fee (T Shares)(f)............................ 407 409 329 0
Distribution fee (B Shares).......................... 25 11 1 (c)
Distribution fee (C Shares).......................... 3 2 (g) (d)
Distribution fee (G Shares)(e)....................... 40 62 89 160
Fees and expenses waived or reimbursed by the Advisor... 0 0 0 (6)
Fees waived by CMD (Class G)............................ N/A N/A 0 0
Fees waived by CMS...................................... (14) N/A (g) 0
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(b) Class A shares were initially offered on November 25, 2002.
(c) Class B shares were initially offered on November 25, 2002.
(d) Class C shares were initially offered on November 25, 2002.
(e) On November 25, 2002, the Galaxy Equity Value Fund, Retail B shares were redesignated Class G shares.
(f) On November 25, 2002, the Galaxy Equity Value Fund, Retail A shares were redesignated Class T shares.
(g) Rounds to less than one.
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COMMON STOCK FUND(A)
YEARS ENDED ELEVEN
SEPTEMBER 30, MONTHS ENDED YEAR ENDED
--------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(B) 2002
------ ------ ------------- -----------
Advisory fee ................................ $3,267 $3,150 $3,311 $5,470
Advisory fee waiver ......................... (369) N/A N/A (115)
Administration fee .......................... 313 281 297 479
Pricing and bookkeeping fee ................. 75 57 N/A N/A
Shareholder service and transfer agent fee .. 1,007 N/A 13 667
Transfer Agent fee (A Shares) ............ N/A 20 N/A N/A
Transfer Agent fee (B Shares) ............ N/A 7 N/A N/A
Transfer Agent fee (C Shares) ............ N/A 1 N/A N/A
Transfer Agent fee (G Shares) ............ N/A 66 N/A N/A
Transfer Agent fee (T Shares) ............ N/A 424 N/A N/A
Transfer Agent fee (Z Shares) ............ N/A 354 N/A N/A
Distribution fee (Class A) ............... N/A N/A N/A (c)
Distribution fee (Class B) ............... 38 24 4 1
Distribution fee (Class C) ............... 3 3 1 N/A
Distribution fee (Class G) ............... 86 156 208 290
Service fee (Class A) .................... 24 23 N/A N/A
Service fee (Class B) .................... 13 8 1 (c)
Service fee (Class C) .................... 1 1 (c) N/A
Service fee (Class G) .................... 40 71 95 130
Service fee (Class T) .................... 537 575 484 N/A
Fees waived by CMS .......................... (40) N/A (17) 0
(Class A) ................................ N/A (c) N/A N/A
(Class B) ................................ N/A (c) N/A N/A
(Class C) ................................ N/A (c) N/A N/A
(Class T) ................................ N/A (6) N/A N/A
(Class G) ................................ N/A (5) N/A N/A
(Class Z) ................................ N/A (6) N/A N/A
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(b) The Common Stock Fund changed its fiscal year end from October 31 to September 30 in 2003.
(c) Rounds to less than one.
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SMALL CAP CORE FUND
YEARS ENDED ELEVEN
SEPTEMBER 30, MONTHS ENDED YEAR ENDED
----------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(A) 2002
------- ------- ------------- -----------
Advisory fee ........................................... $11,014 $10,191 $5,236 $4,741
Administration fee ..................................... 1,063 970 468 415
Pricing and bookkeeping fee ............................ 135 139 87 105
Shareholder service and transfer agent fee ............. 1,281 N/A 731 316
Transfer Agent fee (A Shares) ....................... N/A 163 N/A N/A
Transfer Agent fee (B Shares) ....................... N/A 32 N/A N/A
Transfer Agent fee (C Shares) ....................... N/A 50 N/A N/A
Transfer Agent fee (G Shares) ....................... N/A 12 N/A N/A
Transfer Agent fee (T Shares) ....................... N/A 148 N/A N/A
Transfer Agent fee (Z Shares) ....................... N/A 937 N/A N/A
Service fee (A shares)(b) ........................... 539 427 38 0
Service fee (B shares)(c) ........................... 105 82 8 (g)
Service fee (C shares) .............................. 159 130 6 (d)
Service fee (G shares)(e) ........................... 32 34 26 24
Service fee (T shares)(f) ........................... 452 453 319
Distribution fee (A Shares)(b) ...................... N/A N/A 0 (g)
Distribution fee (B Shares)(c) ...................... 316 247 23 2
Distribution fee (C shares) ......................... 478 390 19 (d)
Distribution fee (G Shares)(e) ...................... 69 73 57 54
Fees and expenses waived or reimbursed by the Advisor .. 0 (29) (121) (66)
Fees waived by CMS ..................................... (10) 0 0
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(b) On November 18, 2002, the Galaxy Small Cap Value Fund, Prime A shares were redesignated Class A shares.
(c) On November 18, 2002, the Galaxy Small Cap Value Fund, Prime B shares were redesignated Class B shares.
(d) Class C shares were initially offered on November 18, 2002.
(e) On November 18, 2002, the Galaxy Small Cap Value Fund, Retail B shares were redesignated Class G shares.
(f) On November 18, 2002, the Galaxy Small Cap Value Fund, Retail A shares were redesignated Class T shares.
(g) Rounds to less than one.
r
SMALL COMPANY FUND
YEARS ENDED ELEVEN
SEPTEMBER 30, MONTHS ENDED YEAR ENDED
--------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(A) 2002
------ ------ ------------- -----------
Advisory fee ........................................... $2,373 $3,023 $2,185 $2,956
Administration fee ..................................... 212 270 195 257
Pricing and bookkeeping fee ............................ 58 59 54 70
Shareholder service and transfer agent fee ............. 630 N/A 789 201
Transfer Agent fee (A Shares) ....................... N/A 3 N/A N/A
Transfer Agent fee (B Shares) ....................... N/A 2 N/A N/A
Transfer Agent fee (C Shares) ....................... N/A 1 N/A N/A
Transfer Agent fee (G Shares) ....................... N/A 19 N/A N/A
Transfer Agent fee (T Shares) ....................... N/A 174 N/A N/A
Transfer Agent fee (Z Shares) ....................... N/A 616 N/A N/A
Service fee (A shares)(b) ........................... 13 4 (c) (d)
Service fee (B shares)(f) ........................... 5 3 (c) (e)
Service fee (C shares)(g) ........................... 3 1 (c) 0
Service fee (G shares)(h) ........................... 12 18 22 41
Service fee (T shares)(i) ........................... 207 221 156 0
Distribution fee (B shares)(f) ...................... 16 8 (c) (e)
Distribution fee (C shares)(g) ...................... 8 3 (c) 0
Distribution fee (G shares)(h) ...................... 27 39 48 91
Fees and expenses waived or reimbursed by the Advisor .. N/A N/A 0 (58)
Fees waived by CMD (G shares) .......................... N/A N/A 0 (3)
Fees waived by CMS ..................................... (45) N/A (26) (22)
(Class A) ........................................... N/A (c) N/A N/A
(Class B) ........................................... N/A (c) N/A N/A
(Class C) ........................................... N/A (c) N/A N/A
(Class T) ........................................... N/A (14) N/A N/A
(Class G) ........................................... N/A (c) N/A N/A
(Class Z) ........................................... N/A (22) N/A N/A
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(b) On November 18, 2002, the Galaxy Small Company Equity Fund, Prime A shares were redesignated Class A shares.
(c) Rounds to less than one.
(d) Prime A shares were not offered during the period.
(e) Prime B shares were not offered during the period.
(f) On November 18, 2002, the Galaxy Small Company Equity Fund, Prime B shares were redesignated Class B shares.
(g) Class C shares were initially offered on November 18, 2002.
(h) On November 18, 2002, the Galaxy Small Company Equity Fund, Retail B shares were redesignated Class G shares.
(i) On November 18, 2002, the Galaxy Small Company Equity Fund, Retail A shares were redesignated Class T shares.
s
DIVIDEND FUND
YEARS ENDED ELEVEN
SEPTEMBER 30, MONTHS ENDED YEAR ENDED
--------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(A) 2002
------ ------ ------------- -----------
Advisory fee................................. $2,620 $1,489 $1,227 $ 381
Advisory fee waiver.......................... (640) (59) (4) (102)
Pricing and bookkeeping Fee.................. 60 48 41 40
Administration fee........................... 250 133 109 33
Shareholder service and transfer agent fee... 444 N/A N/A 24
Transfer Agent fee (A Shares)............. N/A 8 N/A N/A
Transfer Agent fee (B Shares)............. N/A 10 N/A N/A
Transfer Agent fee (C Shares)............. N/A 2 N/A N/A
Transfer Agent fee (G Shares)............. N/A 21 N/A N/A
Transfer Agent fee (T Shares)............. N/A 237 N/A N/A
Transfer Agent fee (Z Shares)............. N/A 152 N/A N/A
Distribution fee (Class A Shares)......... N/A N/A 0 (d)
Distribution fee (Class B Shares)......... 102 36 2 (d)
Distribution fee (Class C Shares)......... 23 8 (e) (d)
Distribution fee (Class G Shares)(c)...... 33 52 61 16
Service Fee (Class A)..................... 45 10
Service fee (Class B Shares).............. 34 12 (e) (d)
Service fee (Class C Shares).............. 8 3 (e) (d)
Service fee (Class T Shares)(b)........... 305 306 246 N/A
Service fee (Class G Shares) (c).......... 15 24 28 7
Fees waived by CMD (G Shares)................ N/A (e) 0 (e)
Fees waived by CMS........................... (36) N/A (e) (4)
(Class A)................................. N/A (e) N/A N/A
(Class B)................................. N/A (e) N/A N/A
(Class C)................................. N/A (e) N/A N/A
(Class T)................................. N/A (12) N/A N/A
(Class G)................................. N/A (e) N/A N/A
(Class Z)................................. N/A (11) N/A N/A
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(b) On November 25, 2002, the Fund's Retail A shares were redesignated Class T shares.
(c) On November 25, 2002, the Fund's Retail B shares were redesignated Class G shares.
(d) Classes A, B and C shares were initially offered on November 25, 2002.
(e) Rounds to less than one.
Fleet Bank, an affiliate of the former FleetBoston Financial Corporation, was paid a fee for Sub-Account Services performed with respect to Trust Shares of the Predecessor Funds held by defined contribution plans. Pursuant to an agreement between Fleet Bank and PFPC, Fleet Bank was paid $21.00 per year for each defined contribution plan participant account. For the fiscal year ended October 31, 2002, Fleet Bank received $2,555,258 for Sub-Account Services. PFPC bore this expense directly, and shareholders of Trust Shares of the Predecessor Funds bore this expense indirectly through fees paid to PFPC for transfer agency services.
BROKERAGE COMMISSIONS (DOLLARS IN THOUSANDS)
For the fiscal years ended September 30, 2005 and 2004, the eleven months ended September 30, 2003 and the fiscal year ended October 31, 2002, the Funds paid brokerage commissions as shown in the tables below. During the fiscal year ended September 30, 2004, certain Funds effected a portion of their portfolio transactions through
t
Fleet Securities, Inc. and Banc of America Securities. During the eleven months ended September 30, 2003 and the fiscal year ended October 31, 2002, certain Funds effected a portion of their portfolio transactions through Quick & Reilly Institutional Trading ("Quick & Reilly"), a division of the former Fleet Securities, Inc., which was an affiliate of the Advisor and Robertson Stephens Inc. ("Robertson Stephens"), which also was an affiliate of the Advisor.
The table below discloses (1) the aggregate amount of commissions paid to Fleet Securities, Inc., Banc of America Securities and WR Hambrecht & Co. by the Funds during the fiscal years ended September 30, 2005 and 2004, (2) the aggregate amount of commissions paid to Quick & Reilly and Robertson Stephens by the Funds during the eleven months ended September 30, 2003 and the fiscal year ended October 31, 2002, (3) the percentage of each Fund's aggregate brokerage commissions for the fiscal years ended September 30, 2005 and 2004 that was paid to Fleet Securities, Inc. and Banc of America Securities, (4) the percentage of each Fund's aggregate brokerage commissions for the eleven months ended September 30, 2003 and the fiscal year ended October 31, 2002, that was paid to Quick & Reilly and Robertson Stephens, (5) the percentage of each Fund's aggregate dollar amount of transactions that involved payment of commissions that was effected through Fleet Securities, Inc. and Banc of America Securities during the fiscal years ended September 30, 2005 and 2004 and (6) the percentage of each Fund's aggregate dollar amount of transactions that involved payment of commissions that was effected through Quick & Reilly and Robertson Stephens during the eleven months ended September 30, 2003 and the fiscal year ended October 31, 2002.
In addition, the table below discloses the soft dollar commissions paid by the Funds during the fiscal years ended September 30, 2005 and 2004, the eleven months ended September 30, 2003 and the fiscal year ended October 31, 2002.
ASSET ALLOCATION FUND
YEARS ENDED ELEVEN MONTHS
SEPTEMBER 30, ENDED YEAR ENDED
---------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(a) 2002
------ ------- ------------- -----------
Total commissions............................................ $ 108 $ 547 $ 1 013 $438
Directed transactions(b)..................................... 3,585 43,312 26,361
Commissions on directed transactions......................... 4 67 18 100
Aggregate commissions to Banc of America Securities.......... 0 1 (c) (c)
% of aggregate commissions to Banc of America Securities..... 0.00% 0.22% (c) (c)
% of aggregate commissions transactions effected through Banc
of America Securities..................................... 0 00% 0 24% (c) (c)
|
(b) See "Management of the Funds--Portfolio Transactions--Brokerage and Research Services" in Part 2 of this SAI.
(c) SEC rules do not require the reporting of commission information as the entities named were not affiliates of the Funds during that time.
u
GROWTH FUND
YEAR ENDED ELEVEN MONTHS
SEPTEMBER 30, ENDED YEAR ENDED
------------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(A) 2002
-------- -------- -------------- -----------
Total commissions....................................... $ 3,354 $ 3,739 $ 902 $1,925
Directed transactions(b)................................ 921,909 112,253 33,838
Commissions on directed transactions.................... 1,073 615 73 123
Aggregate commissions to Banc of America Securities..... 0 5 (c) (c)
% of aggregate commissions to Banc of America
Securities........................................... 0.00% 0.14% (c) (c)
% of aggregate commissions transactions effected through
Banc of America Securities........................... 0.00% 0.25% (c) (c)
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(b) See "Management of the Funds--Portfolio Transactions--Brokerage and Research Services" in Part 2 of this SAI.
(c) SEC rules do not require the reporting of commission information as the entities named were not affiliates of the Funds during that time.
VALUE FUND
YEAR ENDED ELEVEN MONTHS
SEPTEMBER 30, ENDED YEAR ENDED
--------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(a) 2002
----- ------- -------------- -----------
Total commissions............................................... $ 72 $ 516 $ 264 $1,515
Directed transactions(b)........................................ 0 10,656 19,577
Commissions on directed transactions............................ 0 16 20 405
Aggregate commissions to Fleet Securities, Inc. ................ (c) 9 19 N/A
% of aggregate commissions to Fleet Securities, Inc. ........... (c) 1.83% 7.26% N/A
% of aggregate commission transactions effected through Fleet
Securities, Inc. ............................................ (c) 0.61% 13.67% N/A
Aggregate commissions to Banc of America Securities............. 0 0 19 N/A
% of aggregate commissions to Banc of America Securities........ 0.00% 0.00% (c) (c)
% of aggregate commissions transactions effected through Banc of
America Securities........................................... 0.00% 0.00% (c) (c)
|
(b) See "Management of the Funds--Portfolio Transactions--Brokerage and Research Services" in Part 2 of this SAI.
(c) SEC rules do not require the reporting of commission information as the entities named were not affiliates of the Funds during that time.
COMMON STOCK FUND
YEAR ENDED ELEVEN MONTHS
SEPTEMBER 30, ENDED YEAR ENDED
----------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(A) 2002
------- ------- ------------- -----------
Total commissions ............................................... $ 760 $ 1,057 $ 948 $609
Directed transactions(b) ........................................ 70,758 90,719 60,613
Commissions on directed transactions ............................ 140 127 105 25
Aggregate commissions to Fleet Securities, Inc. ................. (c) 0 281 N/A
% of aggregate commissions to Fleet Securities, Inc. ............ (c) 0.00% 6.38% N/A
% of aggregate commissions transactions effected through Fleet
Securities, Inc. ............................................. (c) 0.00% 0.00% N/A
Aggregate commissions to Banc of America Securities ............. 0 0 (c) (c)
% of aggregate commissions to Banc of America Securities ........ 0.00% 0.00% (c) (c)
% of aggregate commissions transactions effected through Banc
of America Securities ........................................ 0.00% 0.00% (c) (c)
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(b) See "Management of the Funds--Portfolio Transactions--Brokerage and Research Services" in Part 2 of this SAI.
(c) SEC rules do not require the reporting of commission information as the entities named were not affiliates of the Funds during that time.
SMALL CAP CORE FUND
YEAR ENDED ELEVEN
SEPTEMBER 30, MONTHS ENDED YEAR ENDED
--------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(A) 2002
----- ------- ------------- -----------
Total commissions ................................................. $ 632 $ 2,515 $1,247 $1,209
Directed transactions(b) .......................................... 0 24,858 0
Commissions on directed transactions .............................. 0 46 0 0
Aggregate commissions to Banc of America Securities ............... 0 0 (c) (c)
% of aggregate commissions to Banc of America Securities .......... 0.00% 0.00% (c) (c)
% of aggregate commissions transactions effected through Banc of
America Securities ............................................. 0.00% 0.00% (c) (c)
|
(b) See "Management of the Funds--Portfolio Transactions--Brokerage and Research Services" in Part 2 of this SAI.
(c) SEC rules do not require the reporting of commission information as the entities named were not affiliates of the Funds during that time.
w
SMALL COMPANY FUND
YEAR ENDED ELEVEN MONTHS
SEPTEMBER 30, ENDED YEAR ENDED
---------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(A) 2002
------ ------- ------------- -----------
Total commissions .............................................. $1,046 $ 1,058 $2,550 $1,839
Directed transactions(b) ....................................... 6,876 26,056 3,508
Commissions on directed transactions ........................... 13 72 5 12
Aggregate commissions to Banc of America Securities ............ 0 0 (c) (c)
% of aggregate commissions to Banc of America Securities ....... 0.00% 0.00% (c) (c)
% of aggregate commissions transactions effected through Banc
of America Securities ....................................... 0.00% 0.00% (c) (c)
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(b) See "Management of the Funds--Portfolio Transactions--Brokerage and Research Services" in Part 2 of this SAI.
(c) SEC rules do not require the reporting of commission information as the entities named were not affiliates of the Funds during that time.
DIVIDEND FUND
YEAR ENDED ELEVEN MONTHS
SEPTEMBER 30, ENDED YEAR ENDED
----------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(A) 2002
------- ------- ------------- -----------
Total commissions ................................................. $ 212 $ 158 $ 76 $224
Directed transactions(b) .......................................... 12,372 18,746 18,194
Commissions on directed transactions .............................. 27 24 1 2
Aggregate commissions to Fleet Securities Inc. .................... (c) 0 21 N/A
% of aggregate commissions to Fleet Securities, Inc. .............. (c) 0.00% 0.29% N/A
Aggregate commissions to Banc of America Securities ............... 0 0 (c) (c)
% of aggregate commissions to Banc of America Securities .......... 0.00% 0.00% (c) (c)
% of aggregate commissions transactions effected through Banc of
America Securities ............................................. 0.00% 0.00% (c) (c)
|
(b) See "Management of the Funds--Portfolio Transactions--Brokerage and Research Services" in Part 2 of this SAI.
(c) SEC rules do not require the reporting of commission information as the entities named were not affiliates of the Funds during that time.
The Trust is required to identify any securities of its "regular brokers or dealers" that the Funds have acquired during their most recent fiscal year. At September 30, 2005, the Value Fund, the Small Cap Core Fund and the Small Company Equity Fund did not hold securities of any of its regular brokers or dealers. At September 30, 2005, the Asset Allocation Fund, Growth Fund, Common Stock Fund and Dividend Fund held securities of their regular brokers or dealers as set forth below:
ASSET ALLOCATION FUND
BROKER/DEALER VALUE ------------- ---------- MERRILL LYNCH & CO INC ........ $3,369 906 GOLDMAN SACHS GROUP ........... $2,170 942 JP MORGAN CHASE ............... $2,125 203 LEHMAN BROTHERS HOLDINGS INC .. $ 407 680 DEUTSCHE BANK AG .............. $ 326 007 PIPER JAFFRAY COS ............. $ 11,645 |
GROWTH FUND
BROKER/DEALER VALUE ------------- ----------- MERRILL LYNCH & CO INC ... $16,245,980 GOLDMAN SACHS GROUP INC .. $ 9,124,579 |
COMMON STOCK FUND
BROKER/DEALER VALUE ------------- ----------- MERRILL LYNCH & CO INC .. $2,773,020 GOLDMAN SACHS ........... $1,969,596 MORGAN STANLEY .......... $1,649,485 |
DIVIDEND FUND
BROKER/DEALER VALUE ------------- ---------- JP MORGAN CHASE & CO .... $8,618,220 MERRILL LYNCH & CO INC .. $2,812,375 |
y
TRUSTEES AND TRUSTEES' FEES
The "Columbia Fund Complex" includes all of the registered investment companies to which the Advisor and its affiliates provide investment advisory services.
The Advisor or its affiliates pay the compensation of all the officers of the funds in the Columbia Fund Complex (as such term is defined under applicable regulations promulgated under the 1940 Act) advised by the Advisor, including Trustees who are affiliated with the Advisor. For the fiscal year ended September 30, 2005, and the calendar year ended December 31, 2005, the Trustees received the following compensation for serving as Trustees:
AGGREGATE
COMPENSATION AGGREGATE
FROM THE AGGREGATE AGGREGATE COMPENSATION
PENSION OR ASSET COMPENSATION COMPENSATION FROM THE
RETIREMENT ALLOCATION FROM THE FROM THE COMMON STOCK
BENEFITS FUND FOR THE GROWTH FUND VALUE FUND FUND FOR THE
ACCRUED AS FISCAL YEAR FOR THE FISCAL FOR THE FISCAL FISCAL YEAR
PART OF ENDED YEAR ENDED YEAR ENDED ENDED
FUND SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
TRUSTEE(A) EXPENSES(B) 2005(B) 2005(B) 2005(B) 2005(B)
------------------------- ----------- ------------- -------------- -------------- -------------
Douglas A Hacker ........ N/A $1,154 $399 $1,166 $1,137
Janet Langford Kelly .... N/A 1,310 485 1,323 1,292
Richard W Lowry ......... N/A 1,088 402 1,098 1,072
William E Mayer ......... N/A 1,256 465 1,268 1,241
Charles R Nelson ........ N/A 1,202 445 1,215 1,189
John J Neuhauser ........ N/A 1,116 413 1,127 1,103
Patrick J Simpson (c) ... N/A 1,152 426 1,163 1,138
Thomas E Stitzel ........ N/A 1,230 455 1,241 1,213
Thomas C Theobald (d) ... N/A 2,076 773 2,113 2,022
Anne-Lee Verville (e) ... N/A 1,298 480 1,310 1,278
Richard L. Woolworth .... N/A 1,129 418 1,140 1,112
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z
AGGREGATE
AGGREGATE COMPENSATION AGGREGATE
COMPENSATION FROM THE COMPENSATION TOTAL COMPENSATION
FROM THE SMALL FROM THE FROM THE COLUMBIA
SMALL CAP COMPANY DIVIDEND FUND COMPLEX PAID
CORE FUND FUND FOR THE FUND FOR THE TO THE TRUSTEES FOR
FOR THE FISCAL FISCAL YEAR FISCAL YEAR THE CALENDAR YEAR
YEAR ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
TRUSTEE(A) 2005(B) 2005(B) 2005(B) 2005(B)
------------------------- -------------- ------------- ------------- -------------------
Douglas A. Hacker ....... $3,338 $1,051 $ 859 $111,277
Janet Langford Kelly .... 3,788 1,192 974 116,500
Richard W. Lowry ........ 3,143 990 809 142,500
William E. Mayer ........ 3,630 1,142 938 147,750
Charles R. Nelson ....... 3,475 1,091 901 111,500
John J. Neuhauser ....... 3,226 1,014 833 137,833
Patrick J. Simpson (c) .. 3,328 1,047 860 107,500
Thomas E. Stitzel ....... 3,552 1,118 912 113,000
Thomas C. Theobald (d) .. 6,082 1,922 1,598 205,500
Anne-Lee Verville (e) ... 3,751 1,182 962 120,723
Richard L. Woolworth .... 3,263 1,027 837 106,500
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(b) The Fund does not currently provide pension or retirement plan benefits to the Trustees.
(c) During the fiscal year ended September 30, 2005, Mr. Simpson deferred $1,152, $426, $1,163, $1,138, $3,328, $1,047, $860 from the Asset Allocation, Growth, Value, Common Stock, Small Cap Core, Small Company and Dividend Funds, respectively, and in the calendar year ended December 31, 2005 $107,500 of his total compensation from the Columbia Fund Complex, pursuant to the deferred compensation plan. At December 31, 2005, the value of Mr. Simpson's account under that plan was $269,502.
(d) During the fiscal year ended September 30, 2005, Mr. Theobald deferred $1,463, $546, $1,492, $1,401, $4,317, $1,378, $1,127 from the Asset Allocation, Growth, Value, Common Stock, Small Cap Core, Small Company and Dividend Funds, respectively, and in the calendar year ended December 31, 2005 $150,000 of his total compensation from the Columbia Fund Complex, pursuant to the deferred compensation plan. At December 31, 2005, the value of Mr. Theobald's account under that plan was $320,084.
(e) During the fiscal year ended September 30, 2005, Ms. Verville deferred $145, $51, $138, $138, $403, $136, $87 from the Asset Allocation, Growth, Value, Common Stock, Small Cap Core, Small Company and Dividend Funds, respectively, pursuant to the deferred compensation plan. At December 31, 2005, the value of Ms. Verville's account under that plan was $683,935.
ROLE OF THE BOARD OF TRUSTEES
The Trustees of the Funds are responsible for the overall management and supervision of the Funds' affairs and for protecting the interests of the shareholders. The Trustees meet periodically throughout the year to oversee the Funds' activities, review contractual arrangements with service providers for the Fund and review the Funds' performance. The Trustees have created several committees to perform specific functions for the Funds.
AUDIT COMMITTEE
Ms. Verville and Messrs. Hacker, Stitzel and Woolworth are members of the Audit Committee of the Board of Trustees of the Funds. The Audit Committee's functions include making recommendations to the Trustees regarding the selection and performance of the independent accountants, and reviewing matters relative to accounting and auditing practices and procedures, accounting records, and the internal accounting controls, of the Funds and certain service providers. For the fiscal year ended September 30, 2005, the Audit Committee convened seven times.
aa
GOVERNANCE COMMITTEE
Messrs. Lowry, Mayer, Simpson and Theobald are members of the Governance Committee of the Board of Trustees of the Funds. The Governance Committee's functions include recommending to the Trustees nominees for independent Trustee positions and for appointments to various committees, performing periodic evaluations of the effectiveness of the Board, reviewing and recommending to the Board policies and practices to be followed in carrying out the Trustees' duties and responsibilities and reviewing and making recommendations to the Board regarding the compensation of the Trustees who are not affiliated with the Funds' investment advisors. The Governance Committee will consider candidates for Trustee recommended by shareholders. Written recommendations with supporting information should be directed to the Committee, in care of the Funds. For the fiscal year ended September 30, 2005, the Governance Committee convened six times.
ADVISORY FEES & EXPENSES COMMITTEE
Ms. Kelly and Messrs. Mayer, Nelson and Neuhauser are members of the Advisory Fees & Expenses Committee of the Board of Trustees of the Funds. The Advisory Fees & Expenses Committee's functions include reviewing and making recommendations to the Board as to contracts requiring approval of a majority of the disinterested Trustees and as to any other contracts that may be referred to the Committee by the Board. For the fiscal year ended September 30, 2005, the Advisory Fees & Expenses Committee convened seven times.
COMPLIANCE COMMITTEE
Ms. Kelly, Messrs. Nelson, Simpson and Stitzel and Ms. Verville are members of the Compliance Committee of the Board of Trustees of the Funds. Mr. Stitzel became a member of the Compliance Committee on May 8, 2005. The Compliance Committee's functions include providing oversight of the monitoring processes and controls regarding the Trust. The Committee uses legal, regulatory and internal rules, policies, procedures and standards other than those relating to accounting matters and oversight of compliance by the Trust's investment adviser, principal underwriter and transfer agent. For the fiscal year ended September 30, 2005, the Compliance Committee convened four times.
INVESTMENT OVERSIGHT COMMITTEES
Each Trustee of the Funds also serves on an Investment Oversight Committee ("IOC"). Each IOC is responsible for monitoring, on an ongoing basis, a select group of funds in the Columbia Fund Complex and gives particular consideration to such matters as the Funds' adherence to their investment mandates, historical performance, changes in investment processes and personnel, and proposed changes to investment objectives. Investment personnel who manage the Funds attend IOC meetings from time to time to assist each IOC in its review of the Funds. Each IOC meets four times a year. The following are members of the respective IOCs and the general categories of funds in the Columbia Fund Complex which they review:
IOC #1: Messrs. Lowry, Mayer and Neuhauser are responsible for reviewing funds
in the following asset categories: Large Growth Diversified, Large
Growth Concentrated, Small Growth, Outside Managed (i.e., sub-advised)
and Municipal.
IOC #2: Mr. Hacker and Ms. Verville are responsible for reviewing funds in the
following asset categories: Large Blend, Small Blend, Foreign Stock,
Fixed Income - Multi Sector and Fixed Income - Core and Young
Investor.
IOC #3: Messrs. Theobald and Stitzel and Ms. Kelly are responsible for
reviewing funds in the following asset categories: Large Value, Mid
Cap Value, Small Value, Asset Allocation, High Yield and Money Market.
IOC #4: Messrs. Nelson, Simpson and Woolworth are responsible for reviewing
funds in the following asset categories: Large/Multi-Cap Blend, Mid
Cap Growth, Small Growth, Asset Allocation, Specialty Equity, Taxable
Fixed Income.
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bb
SHARE OWNERSHIP
The following table shows the dollar range of equity securities
beneficially owned by each Trustee as of December 31, 2005 (i) in each Fund and
(ii) in the funds in the Columbia Fund Complex.
DOLLAR RANGE OF DOLLAR RANGE OF DOLLAR RANGE OF DOLLAR RANGE OF
EQUITY SECURITIES EQUITY SECURITIES EQUITY SECURITIES EQUITY SECURITIES
OWNED IN THE OWNED IN THE OWNED IN THE OWNED IN THE
NAME OF TRUSTEE ASSET ALLOCATION FUND GROWTH FUND VALUE FUND COMMON STOCK FUND
--------------- --------------------- ----------------- ----------------- -----------------
DISINTERESTED TRUSTEES
Douglas A. Hacker ...... None None None None
Janet Langford Kelly ... None None None None
Richard W. Lowry ....... None None None None
Charles R. Nelson ...... $50,001-$100,000 None None None
John J. Neuhauser ...... None None None None
Patrick J. Simpson ..... None $50,001-$100,000 None None
Thomas E. Stitzel ...... None None None None
Thomas C. Theobald ..... None None $10,001-$50,000 None
Anne-Lee Verville ...... None None None None
Richard L. Woolworth ... None $50,001-$100,000 None Over $100,000
INTERESTED TRUSTEES
William E. Mayer ....... None None None None
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DOLLAR RANGE OF DOLLAR RANGE OF DOLLAR RANGE OF
EQUITY SECURITIES EQUITY SECURITIES EQUITY SECURITIES
OWNED IN THE OWNED IN THE OWNED IN THE
NAME OF TRUSTEE SMALL CAP CORE FUND SMALL COMPANY FUND DIVIDEND FUND
--------------- ------------------- ------------------ -----------------
DISINTERESTED TRUSTEES
Douglas A. Hacker ..... None None None
Janet Langford Kelly .. None None None
Richard W. Lowry ...... None None None
Charles R. Nelson ..... None None None
John J. Neuhauser ..... None None None
Patrick J. Simpson .... None None None
Thomas E. Stitzel ..... None None None
Thomas C. Theobald .... None None None
Anne-Lee Verville ..... None None None
Richard L. Woolworth .. None None None
INTERESTED TRUSTEES
William E. Mayer ...... None None None
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AGGREGATE DOLLAR RANGE
OF EQUITY SECURITIES
OWNED IN ALL FUNDS
OVERSEEN BY TRUSTEE IN
NAME OF TRUSTEE COLUMBIA FUND COMPLEX
--------------- ----------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker ..... Over $100,000
Janet Langford Kelly .. Over $100,000
Richard W. Lowry ...... Over $100,000
Charles R. Nelson ..... Over $100,000
John J. Neuhauser ..... Over $100,000
Patrick J. Simpson .... Over $100,000
Thomas E. Stitzel ..... $50,001-$100,000
Thomas C. Theobald .... Over $100,000
Anne-Lee Verville ..... Over $100,000(1)
Richard L. Woolworth .. Over $100,000
INTERESTED TRUSTEES
William E. Mayer ...... $1-$10,000
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PORTFOLIO MANAGERS
OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS
The following table shows the number and assets of other investment accounts (or portions of investment accounts) that the Funds' portfolio managers managed as of the Funds' fiscal year end.
COLUMBIA ASSET ALLOCATION FUND
OTHER SEC-REGISTERED
OPEN-END AND OTHER POOLED
CLOSED-END FUNDS INVESTMENT VEHICLES OTHER ACCOUNTS
------------------------- ------------------------ ------------------------
NUMBER OF NUMBER OF NUMBER OF
PORTFOLIO MANAGERS ACCOUNTS ASSETS ACCOUNTS ASSETS ACCOUNTS ASSETS
------------------ --------- ------------- --------- ------------ --------- ------------
Leonard A. Aplet ......... 11 $3.11 billion 6 $1.5 billion 98 $8.9 billion
Stephen D. Barbaro ....... 4 $1.18 billion 1 $ 21 million 12 $ 25 million
Paul J. Berlinguet ....... 6 $ 2.3 billion 1 $400 million 16 $216 million
Daniel H. Cole ........... 8 $ 859 million 2 $107 million 8 $381 million
Wayne M. Collette** ...... 9 $ 1.4 billion 1 $ 8 million 23 $465 million
Fred Copper* ............. 5(1) $ 1.7 billion 2(1) $453 million 6(1) $310 million
Daniele M. Donahoe** ..... 5 $ 997 million 4 $321 million 9 $ 36 million
Lori J. Ensinger ......... 10 $ 6.7 billion 2 $559 million 3,089 $ 3 billion
Edward P. Hickey ......... 2 $ 2.2 billion 0 $ 0 29 $ 498,400
David I. Hoffman ......... 10 $ 6.7 billion 2 $559 million 3,094 $ 3 billion
Jeremy Javidi ............ 4 $1.18 billion 1 $ 21 million 10 $ 23 million
Kenneth A. Korngiebel .... 7 $1.33 billion 0 $ 0 45 $468 million
J. Michael Kosicki** ..... 7 $ 1.2 billion 1 $ 8 million 27 $465 million
Vikram J. Kuriyan, PhD ... 14 $ 9.2 billion 38 $3.3 billion 129(2) $9.0 billion
Jon Michael Morgan** ..... 5 $ 997 million 4 $321 million 11 $ 36 million
George J. Myers** ........ 7 $ 1.2 billion 1 $ 8 million 26 $465 million
Stephen Peacher .......... 6 $ 2.3 billion 0 $ 0 7 $ 4 million
Noah J. Petrucci ......... 10 $ 6.7 billion 2 $559 million 3,080 $ 3 billion
Clifford D. Siverd** ..... 5 $ 997 million 4 $321 million 11 $ 36 million
Diane L. Sobin ........... 10 $ 6.7 billion 2 $559 million 3,084 $ 3 billion
Roger R. Sullivan ........ 5 $ 1.9 billion 1 $400 million 20 $200 million
Mary-Ann Ward ............ 6 $ 2.3 billion 0 $ 0 53 $117 million
Theodore R. Wendell** .... 9 $ 1.4 billion 1 $ 8 million 29 $465 million
John T. Wilson ........... 6 $2.45 billion 1 $405 million 30 $240 million
Karen Wurdack, PhD ....... 2(3) $ 940 million 0 $ 0 4 $ 230,000
|
** Information for portfolio manager, who began managing the Fund after its fiscal year end, is as of December 31, 2005.
(1) Includes 6 registered investment companies with assets of $1.7 billion, 2 pooled investment vehicles with assets of $453 million and 3 other accounts with assets of $310 million where there is an advisory fee based on performance.
(2) Includes 2 other accounts with assets of $33.2 million where there is an advisory fee based on performance.
(3) Includes 3 registered investment companies with assets of $1.3 billion where there is an advisory fee based on performance.
ee
COLUMBIA LARGE CAP GROWTH FUND
OTHER SEC-REGISTERED
OPEN-END AND OTHER POOLED
CLOSED-END FUNDS INVESTMENT VEHICLES OTHER ACCOUNTS
------------------------- ------------------------ ------------------------
NUMBER OF NUMBER OF NUMBER OF
PORTFOLIO MANAGERS ACCOUNTS ASSETS ACCOUNTS ASSETS ACCOUNTS ASSETS
---------------------- --------- ------------- --------- ------------ --------- ------------
Paul J. Berlinguet.... 6 $ 1.0 billion 1 $400 million 16 $216 million
Edward P. Hickey...... 2 $1.07 billion 0 $ 0 29 $ 498,400
Roger R. Sullivan..... 5 $ 500 million 1 $400 million 20 $200 million
Mary-Ann Ward......... 6 $ 1.0 billion 0 $ 0 53 $117 million
John T. Wilson........ 6 $ 1.0 billion 1 $405 million 30 $240 million
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COLUMBIA DISCIPLINED VALUE FUND
OTHER SEC-REGISTERED
OPEN-END AND OTHER POOLED
CLOSED-END FUNDS INVESTMENT VEHICLES OTHER ACCOUNTS
------------------------ ------------------------- ------------------------
NUMBER OF NUMBER OF NUMBER OF
PORTFOLIO MANAGERS ACCOUNTS ASSETS ACCOUNTS ASSETS ACCOUNTS ASSETS
------------------------- --------- ------------ --------- ------------- --------- ------------
Vikram J. Kuriyan, PhD... 14 $9.2 billion 38 $3.3 billion 129(2) $9.0 billion
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COLUMBIA COMMON STOCK FUND
OTHER SEC-REGISTERED
OPEN-END AND OTHER POOLED
CLOSED-END FUNDS INVESTMENT VEHICLES OTHER ACCOUNTS
------------------------ ------------------- ------------------------
NUMBER OF NUMBER OF NUMBER OF
PORTFOLIO MANAGERS ACCOUNTS ASSETS ACCOUNTS ASSETS ACCOUNTS ASSETS
------------------------- --------- ------------ --------- ------- --------- ------------
Jeffrey D. Huffman....... 4 $305 million 0 $0 4 $ 128,000
Guy W. Pope.............. 1 $306 million 0 $0 11 $118 million
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COLUMBIA SMALL CAP CORE FUND
OTHER SEC-REGISTERED
OPEN-END AND OTHER POOLED
CLOSED-END FUNDS INVESTMENT VEHICLES OTHER ACCOUNTS
-------------------- ------------------------ --------------------------
NUMBER OF NUMBER OF NUMBER OF
PORTFOLIO MANAGERS ACCOUNTS ASSETS ACCOUNTS ASSETS ACCOUNTS ASSETS
------------------------- --------- -------- --------- ------------ --------- --------------
Richard G. D'Auteuil..... 0 $0 1 $286 million 24 $ 947 million
Peter C. Larson.......... 0 $0 1 $286 million 26 $ 946 million
Allyn Seymour............ 0 $0 1 $286 million 29 $1,001 million
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COLUMBIA SMALL COMPANY EQUITY FUND
OTHER SEC-REGISTERED
OPEN-END AND OTHER POOLED
CLOSED-END FUNDS INVESTMENT VEHICLES OTHER ACCOUNTS
------------------------- ------------------------ ------------------------
NUMBER OF NUMBER OF NUMBER OF
PORTFOLIO MANAGERS ACCOUNTS ASSETS ACCOUNTS ASSETS ACCOUNTS ASSETS
------------------------- --------- ------------- --------- ------------ --------- ------------
Paul J. Berlinguet***.... 7 $ 2.9 billion 1 $400 million 16 $216 million
Daniel H. Cole........... 8 $ 859 million 2 $107 million 8 $381 million
Daniele M. Donahoe**..... 5 $1.16 billion 4 $321 million 9 $ 36 million
Jon Michael Morgan**..... 5 $1.16 billion 4 $321 million 11 $ 36 million
Clifford D. Siverd**..... 5 $1.16 billion 4 $321 million 11 $ 36 million
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*** Mr. Berlinguet began managing the Fund in December, 2005.
ff
COLUMBIA DIVIDEND INCOME FUND
OTHER SEC-REGISTERED
OPEN-END AND OTHER POOLED
CLOSED-END FUNDS INVESTMENT VEHICLES OTHER ACCOUNTS
------------------------ ------------------- ------------------------
NUMBER OF NUMBER OF NUMBER OF
PORTFOLIO MANAGERS ACCOUNTS ASSETS ACCOUNTS ASSETS ACCOUNTS ASSETS
------------------------- --------- ------------ --------- ------- --------- ------------
Richard E Dahlberg....... 3 $2.3 billion 0 $0 73 $600 million
Scott Davis.............. 0 $ 0 0 $0 73 $625 million
|
See "Management--Portfolio Transactions--Potential conflicts of interest in managing multiple accounts" in Part 2 of this SAI for information on how the Advisor addresses potential conflicts of interest resulting from an individual's management of more than one account.
OWNERSHIP OF SECURITIES
The table below shows the dollar ranges of shares of the Funds beneficially owned (as determined pursuant to Rule 16a-1(a)(2) under the Securities Exchange Act of 1934, as amended) by the portfolio managers listed above at the end of the Funds' most recent fiscal year:
COLUMBIA ASSET ALLOCATION FUND
DOLLAR RANGE OF
EQUITY SECURITIES
IN THE FUND
PORTFOLIO MANAGERS BENEFICIALLY OWNED
------------------ ------------------
Leonard A. Aplet........................................... None
Stephen D. Barbaro......................................... None
Paul J. Berlinguet......................................... None
Daniel H. Cole............................................. None
Wayne M. Collette**........................................ None
Fred Copper*............................................... None
Daniele M. Donahoe**....................................... None
Lori J. Ensinger........................................... None
Edward P. Hickey........................................... None
David I. Hoffman........................................... None
Jeremy Javidi.............................................. None
Kenneth A. Korngiebel ..................................... None
J. Michael Kosicki** ...................................... None
Vikram J. Kuriyan. PhD..................................... None
Jon Michael Morgan**....................................... None
George J. Myers**.......................................... None
Stephen Peacher............................................ None
Noah J. Petrucci........................................... None
Clifford D. Siverd**....................................... None
Diane L. Sobin............................................. None
Roger R. Sullivan.......................................... None
Mary-Ann Ward.............................................. None
Theodore R. Wendell**...................................... None
John T. Wilson............................................. None
Karen Wurdack, PhD......................................... None
|
** Information for portfolio manager, who began managing the Fund after its fiscal year end, is as of December 31, 2005.
gg
COLUMBIA LARGE CAP GROWTH FUND
DOLLAR RANGE OF
EQUITY SECURITIES
IN THE FUND
PORTFOLIO MANAGERS BENEFICIALLY OWNED
------------------ ------------------
Paul J. Berlinguet......................................... $ 10,001-$50,000
Edward P. Hickey........................................... $50,001-$100,000
Roger R. Sullivan.......................................... None
Mary-Ann Ward.............................................. None
John T. Wilson............................................. None
|
COLUMBIA DISCIPLINED VALUE FUND
DOLLAR RANGE OF
EQUITY SECURITIES
IN THE FUND
PORTFOLIO MANAGERS BENEFICIALLY OWNED
------------------ ------------------
Vikram J. Kuriyan, PhD..................................... None
|
COLUMBIA COMMON STOCK FUND
DOLLAR RANGE OF
EQUITY SECURITIES
IN THE FUND
PORTFOLIO MANAGERS BENEFICIALLY OWNED
------------------ ------------------
Jeffrey D. Huffman......................................... None
Guy W Pope................................................. $100,001-$500,000
|
COLUMBIA SMALL CAP CORE FUND
DOLLAR RANGE OF
EQUITY SECURITIES
IN THE FUND
PORTFOLIO MANAGERS BENEFICIALLY OWNED
------------------ ------------------
Richard D'Auteuil.......................................... None
Peter Larson............................................... None
Allyn Seymour.............................................. None
|
COLUMBIA SMALL COMPANY EQUITY FUND
DOLLAR RANGE OF
EQUITY SECURITIES
IN THE FUND
PORTFOLIO MANAGERS BENEFICIALLY OWNED
------------------ ------------------
Paul J. Berlinguet***...................................... None
Daniel H. Cole............................................. None
Daniele M. Donahoe**....................................... None
Jon Michael Morgan**....................................... None
Clifford D. Siverd**....................................... None
|
*** Mr. Berlinguet began managing the Fund in December, 2005.
COLUMBIA DIVIDEND INCOME FUND
DOLLAR RANGE OF
EQUITY SECURITIES
IN THE FUND
PORTFOLIO MANAGERS BENEFICIALLY OWNED
------------------ ------------------
Richard E Dahlberg ........................................ $50,001-$100,000
Scott Davis................................................ None
|
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COMPENSATION
As of each Fund's most recent fiscal year end, the portfolio managers received all of their compensation from the Advisor and its parent company, Columbia Management Group, in the form of salary, bonus, stock options and restricted stock. A portfolio manager's bonus is variable and is generally based on (1) an evaluation of the manager's investment performance and (2) the results of a peer and/or management review of such individual, which takes into account skills and attributes such as team participation, investment process, communication and professionalism. In evaluating investment performance, the Advisor generally considers the one-, three- and five-year performance of mutual funds and other accounts under the portfolio manager's oversight relative to the benchmarks and peer groups noted below, emphasizing each manager's three- and five-year performance. The Advisor may also consider a portfolio manager's performance in managing client assets in sectors and industries assigned to the manager as part of his or her investment team responsibilities, where applicable. For portfolio managers who also have group management responsibilities, another factor in their evaluation is an assessment of the group's overall investment performance.
COLUMBIA ASSET ALLOCATION FUND
PORTFOLIO MANAGERS PERFORMANCE BENCHMARK PEER GROUP --------------------------- ---------------------------------- ---------------------------------------- Leonard A. Aplet .......... 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category Stephen D. Barbaro ........ 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category Paul J. Berlinguet ........ 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category Daniel H. Cole ............ 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category Wayne M. Collette ......... 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category Fred Copper ............... 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category Daniele M. Donahoe ........ 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category Lori J. Ensinger .......... 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category Edward P. Hickey .......... 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category David I. Hoffman .......... 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category Jeremy Javidi ............. 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category Kenneth A. Korngiebel ..... 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category J. Michael Kosicki ........ 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category Vikram J. Kuriyan, PhD .... 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category Jon Michael Morgan ........ 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category George J. Myers ........... 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category Stephen Peacher ........... 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category Noah J. Petrucci .......... 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category Clifford D. Siverd ........ 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category Diane L. Sobin ............ 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category Roger R. Sullivan ......... 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category Mary-Ann Ward ............. 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category Theodore R. Wendell ....... 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category John T. Wilson ............ 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category Karen Wurdack, PhD ........ 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category |
COLUMBIA LARGE CAP GROWTH FUND
PORTFOLIO MANAGERS PERFORMANCE BENCHMARK PEER GROUP ---------------------- ---------------------- --------------------------------- Paul J. Berlinguet ... Russell 1000 Growth TR Morningstar Large Growth Category Edward P. Hickey ..... Russell 1000 Growth TR Morningstar Large Growth Category Roger R. Sullivan .... Russell 1000 Growth TR Morningstar Large Growth Category Mary-Ann Ward ........ Russell 1000 Growth TR Morningstar Large Growth Category John T. Wilson ....... Russell 1000 Growth TR Morningstar Large Growth Category |
COLUMBIA DISCIPLINED VALUE FUND
PORTFOLIO MANAGERS PERFORMANCE BENCHMARK PEER GROUP --------------------------- --------------------- -------------------------------- Vikram J. Kuriyan, PhD .... Russell 1000 Value TR Morningstar Large Value Category |
COLUMBIA COMMON STOCK FUND
PORTFOLIO MANAGERS PERFORMANCE BENCHMARK PEER GROUP ---------------------- --------------------- -------------------------------- Jeffrey D. Huffman ... Russell 1000 TR Morningstar Large Blend Category Guy W. Pope .......... Russell 1000 TR Morningstar Large Blend Category |
COLUMBIA SMALL CAP CORE FUND
PORTFOLIO MANAGERS PERFORMANCE BENCHMARK PEER GROUP ---------------------- --------------------- -------------------------------- Richard D'Auteuil .... Russell 2000 TR Morningstar Small Blend Category Peter Larson ......... Russell 2000 TR Morningstar Small Blend Category Allyn Seymour ........ Russell 2000 TR Morningstar Small Blend Category |
COLUMBIA SMALL COMPANY EQUITY FUND
PORTFOLIO MANAGERS PERFORMANCE BENCHMARK PEER GROUP ---------------------- ---------------------- --------------------------------- Paul J. Berlinguet ... Russell 2000 Growth TR Morningstar Small Growth Category Daniel H. Cole ....... Russell 2000 Growth TR Morningstar Small Growth Category Daniele M. Donahoe ... Russell 2000 Growth TR Morningstar Small Growth Category Jon Michael Morgan ... Russell 2000 Growth TR Morningstar Small Growth Category Clifford D. Siverd ... Russell 2000 Growth TR Morningstar Small Growth Category |
COLUMBIA DIVIDEND INCOME FUND
PORTFOLIO MANAGERS PERFORMANCE BENCHMARK PEER GROUP ---------------------- --------------------- ----------------------------- Richard E. Dahlberg .. Russell 1000 Value TR Lipper Equity Income Category Scott Davis .......... Russell 1000 Value TR Lipper Equity Income Category |
The size of the overall bonus pool each year is determined by Columbia Management Group and depends in part on levels of compensation generally in the investment management industry (based on market compensation data) and the Advisor's profitability for the year, which is influenced by assets under management.
jj
OWNERSHIP OF THE FUNDS
As of record on December 31, 2005, the Trustees and officers of the Trust as a group beneficially owned less than 1% of the outstanding shares of each class of each Fund.
As of record on December 31, 2005, the following shareholders of record owned 5% or more of the shares of the classes of the Funds noted below:
COLUMBIA ASSET ALLOCATION FUND
PERCENT OF
SHAREHOLDER (NAME AND ADDRESS) CLASS TOTAL (%)
----------------------------------------- ---------------
CLASS Z SHARES
BANK OF AMERICA NA ...................... 12.57
411 N AKARD STREET
DALLAS TX 75201-3307
CLASS C SHARES
RAYMOND JAMES & ASSOC INC ............... 7.28
FBO ROYKO TRUST
880 CARILLON PKWY
ST PETERSBURG FL 33716-1100
AMERICAN ENTERPRISE INVESTMENT SVCS ..... 6.56
PO BOX 9446
MINNEAPOLIS MN 55440-9446
|
COLUMBIA LARGE CAP GROWTH FUND
PERCENT OF
SHAREHOLDER (NAME AND ADDRESS) CLASS TOTAL (%)
------------------------------------------------ ---------------
CLASS Z SHARES
BANK OF AMERICA NA ............................. 35.70
411 N AKARD STREET
DALLAS TX 75201-3307
AMVESCAP NATIONAL TRUST CO AS AGENT ............ 13.74
FOR FLEET NATIONAL BANK FBO
FLEETBOSTON FINANCIAL SAVINGS PLUS
PO BOX 105779
ATLANTA GA 30348-5779
CLASS C SHARES
CHARLES H VENTURA .............................. 12.37
745 DISTEL DR STE 101
LOS ALTOS CA 94022-1544
|
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COLUMBIA DISCIPLINED VALUE FUND
PERCENT OF
SHAREHOLDER (NAME AND ADDRESS) CLASS TOTAL (%)
------------------------------------------ ---------------
CLASS A SHARES
NFS LLC FEBO ............................. 12.41
BARBARA H BRONNER TTEE
BARBARA BRONNER TRUST
793 HIGHLAND PL
HIGHLAND PARK IL 60035-4844
CLASS C SHARES
MERRILL LYNCH PIERCE FENNER & SMITH ...... 14.76
FOR THE SOLE BENEFIT OF ITS CUSTOMERS
4800 DEER LAKE DR E FL 3
JACKSONVILLE FL 32246-6484
LPL FINANCIAL SERVICES ................... 11.00
9785 TOWNE CENTRE DR
SAN DIEGO CA 92121-1968
FIRST CLEARING LLC ....................... 7.34
JOHN J QUINN BENEFICIARY IRA
3413 PRIMROSE ROAD
PHILADELPHIA PA 19114
FIRST CLEARING LLC ....................... 6.90
VIRGINIA E TOMLIN IRA
FCC AS CUSTODIAN
1 CORKERY LANE
MEDFORD NJ 08055
NFS LLC FEBO ............................. 5.05
NFS/FMTC IRA
FBO JUDITH L DAVY
2808 HURSTVIEW DR
HURST TX 76054-2344
CLASS Z SHARES
BANK OF AMERICA NA ....................... 79.71
411 N AKARD STREET
DALLAS TX 75201-3307
AMVESCAP NATIONAL TRUST CO AS AGENT ...... 5.07
FOR FLEET NATIONAL BANK FBO
LEVITON MANUFACTURING SAVINGS PLAN
PO BOX 105779
ATLANTA GA 30348-5779
|
COLUMBIA COMMON STOCK FUND
PERCENT OF
SHAREHOLDER (NAME AND ADDRESS) CLASS TOTAL (%)
--------------------------------------------------- ---------------
CLASS C SHARES
FIRST CLEARING LLC ................................ 18.11
LATONYA LESTER IRREV TRUST
WANDA THOMPSON TTEE
4001 OFFICE COURT DR BLDG 1000
SANTA FE, NM 87501
MERRILL LYNCH PIERCE FENNER & SMITH ............... 6.37
FOR THE SOLE BENEFIT OF ITS CUSTOMERS
4800 DEER LAKE DR E FL 3
JACKSONVILLE FL 32246-6484
AMERICAN ENTERPRISE INVESTMENT SVCS ............... 5.94
PO BOX 9446
MINNEAPOLIS MN 55440-9446
NFS LLC FEBO ...................................... 5.42
DAVID E SULLIVAN
SUZANNE E SULLIVAN
18 PINE RD
WEST HARTFORD CT 06119-1045
CLASS Z SHARES
BANK OF AMERICA NA ................................ 38.32
411 N AKARD STREET
DALLAS TX 75201-3307
CHARLES SCHWAB & CO INC ........................... 9.72
SPECIAL CUSTODY ACCT FOR EXCLUSIVE OF CUSTOMERS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4122
|
COLUMBIA SMALL CAP CORE FUND
PERCENT OF
SHAREHOLDER (NAME AND ADDRESS) CLASS TOTAL (%)
------------------------------ ---------------
CLASS Z SHARES
BANK OF AMERICA NA............................. 70.15
411 N AKARD ST
DALLAS TX 75201-3307
CLASS C SHARES
CITIGROUP GLOBAL MARKETS, INC.................. 6.87
333 W 34TH ST
NEW YORK NY 10001-2402
MERRILL LYNCH PIERCE FENNER & SMITH............ 6.62
FOR THE SOLE BENEFIT OF ITS CUSTOMERS
4800 DEER LAKE DR E FL 3
JACKSONVILLE FL 32246-6484
CLASS A SHARES
CHARLES SCHWAB & CO INC........................ 29.78
SPECIAL CUSTODY ACCT FOR EXCLUSIVE OF CUSTOMERS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4122
DEFAULT TRUSTEE FOR NON-PROTOTYPE............. 5.95
MITRA & CO
OMNIBUS ACCOUNT
1000 N WATER STREET
MILWAUKEE WI53202-6648
CLASS T SHARES
CHARLES SCHWAB & CO INC........................ 20.51
SPECIAL CUSTODY ACCT FOR EXCLUSIVE OF CUSTOMERS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4122
|
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COLUMBIA SMALL COMPANY EQUITY FUND
PERCENT OF
SHAREHOLDER (NAME AND ADDRESS) CLASS TOTAL (%)
------------------------------ ---------------
CLASS A SHARES
BANK OF AMERICA............... 27.41
FBO BRISTOL HOSPITAL
411 N AKARD STREET
DALLAS TX 75201-3307
CLASS Z SHARES
BANK OF AMERICA NA............ 78.14
411 N AKARD ST
DALLAS TX 75201-3307
CLASS C SHARES
PERSHING LLC.................. 7.99
PO BOX 2052
JERSEY CITY NJ 07303-2052
NFS LLC FEBO.................. 5.16
NFS/FMTC ROLLOVER IRA
FBO SUSAN BARRON
101 WEST 78TH STREET
NEW YORK NY 10024-6717
|
COLUMBIA DIVIDEND INCOME FUND
PERCENT OF
SHAREHOLDER (NAME AND ADDRESS) CLASS TOTAL (%)
------------------------------ ---------------
CLASS Z SHARES
BANK OF AMERICA NA............ 92.04
411 N AKARD STREET
DALLAS TX 75201-3307
CLASS A SHARES
SEI PRIVATE TRUST CO.......... 27.78
C/O WACHOVIA- PREMIER
ONE FREEDOM VALEEY DRIVE
OAKS PA 19456
|
SALES CHARGES (DOLLARS IN THOUSANDS)
PFPC Distributors served as distributor for the Predecessor Funds until July 22, 2002. PFPC Distributors, an indirect wholly owned subsidiary of PNC Financial Services Group, is a registered broker-dealer with principal offices located at 400 Bellevue Parkway, Wilmington, Delaware 19809.
During the fiscal years ended September 30, 2005 and 2004, the eleven months ended September 30, 2003 and the year ended October 2002, CMD and PFPC Distributors received sales charges as follows:
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ASSET ALLOCATION FUND
CLASS A SHARES(A)
-------------------------------------------------
YEARS ENDED
SEPTEMBER 30, ELEVEN MONTHS ENDED YEAR ENDED
------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(B) 2002
----- ----- ------------------- -----------
Aggregate initial sales charges on Fund share sales ......... $39 $56 $7 $0
Initial sales charges retained by CMD ....................... 6 8 1 O
Aggregate contingent deferred sales charges (CDSC) on Fund
redemptions retained by CMD .............................. 0 0 0 0
|
CLASS B SHARES(C)
-------------------------------------------------
YEARS ENDED
SEPTEMBER 30, ELEVEN MONTHS ENDED YEAR ENDED
------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(B) 2002
----- ----- ------------------- -----------
Aggregate CDSC on Fund redemptions retained by CMD
and PFPC Distributors ......................... $11 $10 $2 $2
|
CLASS C SHARES(D)
-----------------------------------
YEARS ENDED
SEPTEMBER 30, ELEVEN MONTHS ENDED
------------- SEPTEMBER 30,
2005 2004 2003(B)
----- ----- -------------------
Aggregate CDSC on Fund redemptions retained by CMD ... (g) (g) $0
|
CLASS G SHARES(E)
-------------------------------------------------
YEARS ENDED
SEPTEMBER 30, ELEVEN MONTHS ENDED YEAR ENDED
------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(B) 2002
----- ----- ------------------- -----------
Aggregate CDSC on Fund redemptions retained by CMD
and PFPC Distributors ......................... $65 $123 $239 $333
|
CLASS T SHARES(F)
-------------------------------------------------
YEARS ENDED
SEPTEMBER 30, ELEVEN MONTHS ENDED YEAR ENDED
------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(B) 2002
----- ----- ------------------- -----------
Aggregate initial sales charges on Fund share sales .. $30 $44 $46 $123
Initial sales charges retained by CMD ................ 4 7 2
Aggregate CDSC on Fund redemptions retained by CMD
and PFPC Distributors ............................. 0 0 24 0
|
(b) The Asset Allocation Fund changed its fiscal year end from October 31 to September 30 in 2003.
(c) On November 18, 2002, the Galaxy Asset Allocation Fund, Prime B shares were redesignated Class B shares.
(d) Class C shares were initially offered on November 18, 2002.
(e) On November 18, 2002, the Galaxy Asset Allocation Fund, Retail B shares were redesignated Class G shares.
(f) On November 18, 2002, the Galaxy Asset Allocation Fund, Retail A shares were redesignated Class T shares.
(g) Rounds to less than one.
PP
GROWTH FUND
CLASS A SHARES(A)
-------------------------------------------------
YEARS ENDED
SEPTEMBER 30, ELEVEN MONTHS ENDED YEAR ENDED
------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(B) 2002
---- ---- ------------------- -----------
Aggregate initial sales charges on Fund share sales ..... $46 $53 $11 $0
Initial sales charges retained by CMD ................... 7 8 2 O
Aggregate contingent deferred sales charges (CDSC) on
Fund redemptions retained by CMD ..................... 0 0 0 0
|
CLASS B SHARES(C)
-------------------------------------------------
YEARS ENDED
SEPTEMBER 30, ELEVEN MONTHS ENDED YEAR ENDED
------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(B) 2002
---- ---- ------------------- -----------
Aggregate CDSC on Fund redemptions retained by CMD
and PFPC Distributors ................................ $18 $5 (g) (g)
|
CLASS C SHARES(D)
-----------------------------------
YEARS ENDED
SEPTEMBER 30, ELEVEN MONTHS ENDED
------------- SEPTEMBER 30,
2005 2004 2003(B)
---- ---- -------------------
Aggregate CDSC on Fund redemptions retained by CMD ...... $1 (g) $0
|
CLASS G SHARES(E)
-------------------------------------------------
YEARS ENDED
SEPTEMBER 30, ELEVEN MONTHS ENDED YEAR ENDED
------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(B) 2002
---- ---- ------------------- -----------
Aggregate CDSC on Fund redemptions retained by CMD
and PFPC Distributors ................................ $115 $126 $166 $205
|
CLASS T SHARES(F)
-------------------------------------------------
YEARS ENDED
SEPTEMBER 30, ELEVEN MONTHS ENDED YEAR ENDED
------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(B) 2002
---- ---- ------------------- -----------
Aggregate initial sales charges on Fund share sales ..... $85 $123 $132 $302
Initial sales charges retained by CMD ................... 11 16 5
Aggregate CDSC on Fund redemptions retained by CMD
and PFPC Distributors ................................ 0 0 23 0
|
(b) The Growth Fund changed its fiscal year end from October 31 to September 30 in 2003.
(c) On November 18, 2002, the Galaxy Equity Growth Fund, Prime B shares were redesignated Class B shares.
(d) Class C shares were initially offered on November 18, 2002.
(e) On November 18, 2002, the Galaxy Equity Growth Fund, Retail B shares were redesignated Class G shares.
(f) On November 18, 2002, the Galaxy Equity Growth Fund, Retail A shares were redesignated Class T shares.
(g) Rounds to less than one.
VALUE FUND
CLASS A SHARES(B)
-----------------------------------
YEARS ENDED
SEPTEMBER 30, ELEVEN MONTHS ENDED
------------- SEPTEMBER 30,
2005 2004 2003(A)
---- ---- -------------------
Aggregate initial sales charges on Fund share sales ..... $30 $23 $ 6
Initial sales charges retained by CMD ................... 5 4 (g)
Aggregate contingent deferred sales charges (CDSC)
on Fund redemptions retained by CMD .................. 0 0 0
|
CLASS B SHARES(C)
-----------------------------------
YEARS ENDED
SEPTEMBER 30, ELEVEN MONTHS ENDED
------------- SEPTEMBER 30,
2005 2004 2003(A)
---- ---- -------------------
Aggregate CDSC on Fund redemptions retained by CMD ...... $5 $1 $0
|
CLASS C SHARES(D)
-----------------------------------
YEARS ENDED
SEPTEMBER 30, ELEVEN MONTHS ENDED
------------- SEPTEMBER 30,
2005 2004 2003(A)
---- ---- -------------------
Aggregate CDSC on Fund redemptions retained by CMD ...... (g) (g) $0
|
CLASS G SHARES(E)
-------------------------------------------------
YEARS ENDED
SEPTEMBER 30, ELEVEN MONTHS ENDED YEAR ENDED
------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(A) 2002
---- ---- ------------------- -----------
Aggregate CDSC on Predecessor Fund redemptions
received by PFPC Distributors ........................ $14 $21 $31 $37
|
CLASS T SHARES(F)
-------------------------------------------------
YEARS ENDED
SEPTEMBER 30, ELEVEN MONTHS ENDED YEAR ENDED
------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(A) 2002
---- ---- ------------------- -----------
Aggregate initial sales charges on Fund share sales ..... $30 $41 $33 $78
Initial sales charges retained by CMD ................... 4 6 1
Aggregate CDSC on Fund redemptions retained by CMD
and PFPC Distributors ................................ 0 0 0 0
|
(b) Class A shares were initially offered on November 25, 2002.
(c) Class B shares were initially offered on November 25, 2002.
(d) Class C shares were initially offered on November 25, 2002.
(e) On November 25, 2002, the Galaxy Equity Value Fund, Retail B shares were redesignated Class G shares.
(f) On November 25, 2002, the Galaxy Equity Value Fund, Retail A shares were redesignated Class T shares.
(g) Rounds to less than one.
rr
COMMON STOCK FUND
CLASS A SHARES(B)
-------------------------------------------------
YEARS ENDED
SEPTEMBER 30, ELEVEN MONTHS ENDED YEAR ENDED
------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(A) 2002
---- ---- ------------------- -----------
Aggregate initial sales charges on Fund share sales ..... $25 $50 $24
Initial sales charges retained by CMD ................... 4 8 4 $7
Aggregate contingent deferred sales charges (CDSC) on
Fund redemptions retained by CMD ..................... 3 0 0 0
|
CLASS B SHARES(C)
-------------------------------------------------
YEARS ENDED
SEPTEMBER 30, ELEVEN MONTHS ENDED YEAR ENDED
------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(A) 2002
---- ---- ------------------- -----------
Aggregate CDSC on Predecessor Fund redemptions
received by CMD ...................................... $14 $6 $1 $794
|
CLASS C SHARES(D)
-----------------------------------
YEARS ENDED
SEPTEMBER 30, ELEVEN MONTHS ENDED
------------- SEPTEMBER 30,
2005 2004 2003(A)
---- ---- -------------------
Aggregate CDSC on Fund redemptions retained by CMD ...... (g) (g) $0
|
CLASS G SHARES(E)
-------------------------------------------------
YEARS ENDED
SEPTEMBER 30, ELEVEN MONTHS ENDED YEAR ENDED
------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(A) 2002
---- ---- ------------------- -----------
Aggregate CDSC on Predecessor Fund redemptions
received by PFPC Distributors ........................ $36 $47 $91 $163
|
CLASS T SHARES(F)
-------------------------------------------------
YEARS ENDED
SEPTEMBER 30, ELEVEN MONTHS ENDED YEAR ENDED
------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(A) 2002
---- ---- ------------------- -----------
Aggregate initial sales charges on Fund share sales ..... $40 $52 $60 $122
Initial sales charges retained by CMD ................... 5 8 2
Aggregate CDSC on Fund redemptions retained by CMD
and PFPC Distributors ................................ 0 0 0 0
|
(b) On December 9, 2002, the Fund's, Prime A shares were redesignated Class A shares.
(c) On December 9, 2002, the Fund's, Prime B shares were redesignated Class B shares.
(d) Class C shares were initially offered on December 9, 2002.
(e) On December 9, 2002, the Fund's, Retail B shares were redesignated Class G shares.
(f) On December 9, 2002, the Fund's, Retail A shares were redesignated Class T shares.
(g) Rounds to less than one.
ss
SMALL CAP CORE FUND
CLASS A SHARES(A)
-------------------------------------------
YEARS ENDED ELEVEN MONTHS
SEPTEMBER 30, ENDED YEAR ENDED
------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(B) 2002
---- ------ ------------- -----------
Aggregate initial sales charges on Fund share
sales ......................................... $67 $1,402 $467 $5
Initial sales charges retained by CMD ............ 10 193 58 0
Aggregate contingent deferred sales charges (CDSC)
on Fund redemptions retained by CMD ........... 1 1 7 0
|
CLASS B SHARES(D)
-------------------------------------------
YEARS ENDED ELEVEN MONTHS
SEPTEMBER 30, ENDED YEAR ENDED
------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(B) 2002
---- ---- ------------- -----------
Aggregate CDSC on Predecessor Fund redemptions
received by PFPC Distributors ................. $83 $57 $5 (c)
|
CLASS C SHARES(E)
-----------------------------
YEARS ENDED ELEVEN MONTHS
SEPTEMBER 30, ENDED
------------- SEPTEMBER 30,
2005 2004 2003(B)
---- ---- -------------
Aggregate CDSC on Fund redemptions retained by CMD ............. $7 $20 (c)
|
CLASS G SHARES(F)
-------------------------------------------
YEARS ENDED ELEVEN MONTHS
SEPTEMBER 30, ENDED YEAR ENDED
------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(B) 2002
---- ---- ------------- -----------
Aggregate CDSC on Predecessor Fund redemptions
received by PFPC Distributors ................. $30 $19 $27 $17
|
CLASS T SHARES(G)
-------------------------------------------
YEARS ENDED ELEVEN MONTHS
SEPTEMBER 30, ENDED YEAR ENDED
------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(B) 2002
---- ---- ------------- -----------
Aggregate initial sales charges on Predecessor
Fund share sales .............................. $43 $62 $96 $423
Initial sales charges retained by CMD ............ 6 10 10
Aggregate CDSC on Fund redemptions retained by CMD
and PFPC Distributors ......................... (c) (c) (c) 0
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(b) The Small Cap Core Fund changed its fiscal year end from October 31 to September 30 in 2003.
(c) Rounds to less than one.
(d) On November 18, 2002, the Galaxy Small Cap Value Fund, Prime B shares were redesignated Class B shares.
(e) Class C shares were initially offered on November 18, 2002.
(f) On November 18, 2002, the Galaxy Small Cap Value Fund, Retail B shares were redesignated Class G shares.
(g) On November 18, 2002, the Galaxy Small Cap Value Fund, Retail A shares were redesignated Class T shares.
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SMALL COMPANY FUND
CLASS A SHARES(A)
-----------------------------
YEARS ENDED ELEVEN MONTHS
SEPTEMBER 30, ENDED
------------- SEPTEMBER 30,
2005 2004 2003(B)
---- ---- -------------
Aggregate initial sales charges on Fund share sales ............ $27 $83 $5
Initial sales charges retained by CMD .......................... 4 12 1
Aggregate contingent deferred sales charges (CDSC) on Fund
redemptions retained by CMD ................................. 1 0 0
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CLASS B SHARES(D)
-----------------------------
YEARS ENDED ELEVEN MONTHS
SEPTEMBER 30, ENDED
------------- SEPTEMBER 30,
2005 2004 2003(B)
---- ---- -------------
Aggregate CDSC on Fund redemptions retained by CMD ............. $7 $2 (c)
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Class B Shares were not offered by the Small Company Fund during the last three fiscal years.
CLASS C SHARES(E)
-----------------------------
YEARS ENDED ELEVEN MONTHS
SEPTEMBER 30, ENDED
------------- SEPTEMBER 30,
2005 2004 2003(B)
---- ---- -------------
Aggregate CDSC on Fund redemptions retained by CMD ............. (c) (c) $0
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CLASS G SHARES(F)
-------------------------------------------
YEARS ENDED ELEVEN MONTHS
SEPTEMBER 30, ENDED YEAR ENDED
------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(B) 2002
---- ---- ------------- -----------
Aggregate CDSC on Predecessor Fund redemptions
received by PFPC Distributors ................. $9 $14 $13 $21
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CLASS T SHARES(G)
-------------------------------------------
YEARS ENDED ELEVEN MONTHS
SEPTEMBER 30, ENDED YEAR ENDED
------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(B) 2002
---- ---- ------------- -----------
Aggregate initial sales charges on Fund share
sales ......................................... $16 $22 $19 $47
Initial sales charges retained by CMD ............ 2 3 (c)
Aggregate CDSC on Fund redemptions retained by CMD
and PFPC Distributors ......................... 0 0 6 0
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(b) The Small Company Fund changed its fiscal year end from October 31 to September 30 in 2003.
(c) Rounds to less than one.
(d) On November 18, 2002, the Galaxy Small Company Equity Fund, Prime B shares were redesignated Class B shares.
(e) Class C shares were initially offered on November 18, 2002.
(f) On November 18, 2002, the Galaxy Small Company Equity Fund, Retail B shares were redesignated Class G shares.
(g) On November 18, 2002, the Galaxy Small Company Equity Fund l Retail A shares were redesignated Class T shares.
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DIVIDEND FUND
Class A Shares(b)
-----------------------------
YEARS ENDED ELEVEN MONTHS
SEPTEMBER 30, ENDED
------------- SEPTEMBER 30,
2005 2004 2003(A)
---- ---- -------------
Aggregate initial sales charges on Fund share sales ............ $255 $111 $7
Initial sales charges retained by CMD .......................... 39 18 1
Aggregate contingent deferred sales charges (CDSC) on Fund
redemptions retained by CMD ................................. 1 0 0
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CLASS B SHARES(B)
-----------------------------
YEARS ENDED ELEVEN MONTHS
SEPTEMBER 30, ENDED
------------- SEPTEMBER 30,
2005 2004 2003(A)
---- ---- -------------
Aggregate CDSC on Fund redemptions retained by CMD ............. $25 $8 (e)
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CLASS C SHARES(B)
-----------------------------
YEARS ENDED ELEVEN MONTHS
SEPTEMBER 30, ENDED
------------- SEPTEMBER 30,
2005 2004 2003(A)
---- ---- -------------
Aggregate CDSC on Fund redemptions retained by CMD ............. $2 (e) $2
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CLASS G SHARES(C)
-------------------------------------------
YEARS ENDED ELEVEN MONTHS
SEPTEMBER 30, ENDED YEAR ENDED
------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(A) 2002
---- ---- ------------- -----------
Aggregate CDSC on Fund redemptions received by
PFPC Distributors ............................. $9 $19 $30 $46
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CLASS T SHARES(D)
-------------------------------------------
YEARS ENDED ELEVEN MONTHS
SEPTEMBER 30, ENDED YEAR ENDED
------------- SEPTEMBER 30, OCTOBER 31,
2005 2004 2003(A) 2002
---- ---- ------------- -----------
Aggregate initial sales charges on Predecessor
Fund share sales .............................. $18 $23 $19 $60
Initial sales charges retained by CMD ............ 3 3 1
Aggregate CDSC on Fund redemptions retained by
CMD and PFPC Distributors ..................... 0 0 0 0
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(b) Classes A, B and C shares were initially offered on November 25, 2002.
(c) On November 25, 2002, the Fund's Retail B shares were redesignated Class G shares.
(d) On November 25, 2002, the Fund's Retail A shares were redesignated Class T shares.
(e) Rounds to less than one.
12B-1 PLAN, SHAREHOLDER SERVICING PLAN, CDSCS AND CONVERSION OF SHARES All of the Funds offer Class A, Class B, Class C, Class G, Class T and Class Z shares. The Funds may in the future offer other classes of shares. The Trustees have approved a 12b-1 Plan ("Plan") pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Funds pay CMD monthly a service fee at an annual rate of 0.25% of each Fund's average daily net assets attributed to Class A, B and C shares. The Funds also pay CMD monthly a distribution fee at an annual rate of 0.10% of each Fund's average daily net assets attributed to Class A shares and 0.75% of each Fund's average daily net assets attributed to Class B and Class C shares.
For the current fiscal year, CMD intends to limit aggregate 12b-1 fees for Class A shares to 0.25%. The Funds also may pay CMD distribution and service fees up to a maximum of 1.15% of such Fund's average daily net assets attributable to Class G shares (comprised of up to 0.65% for distribution services, up to 0.25% shareholder liaison services and up to 0.25% administrative support services).
For the current fiscal year, the Fund's payments under the Plan for each of distribution services, shareholder liaison services and administrative support services will be limited to 0.95% (on an annualized basis) of the average daily net asset value of Class G shares owned of record or beneficially by customers of institutions. Such limitations may be revoked at any time. CMD may use the entire amount of such fees to defray the cost of commissions and service fees paid to financial service firms ("FSFs") and for certain other purposes. Since the distribution and service fees are payable regardless of the amount of CMD's expenses, CMD may realize a profit from the fees. The Plan authorizes any other payments by the Funds to CMD and its affiliates (including the Advisor) to the extent that such payments might be construed to be indirect financing of the distribution of Fund shares.
The Trustees believe the Plan could be a significant factor in the growth and retention of the Funds' assets resulting in more advantageous expense ratios and increased investment flexibility which could benefit each class of Fund shareholders. The Plan will continue in effect from year to year so long as continuance is specifically approved at least annually by a vote of the Trustees, including the Trustees who are not interested persons of the Trust and have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan ("Independent Trustees"), cast in person at a meeting called for the purpose of voting on the Plan. The Plan may not be amended to increase the fee materially without approval by vote of a majority of the outstanding voting securities of the relevant class of shares and all material amendments of the Plan must be approved by the Trustees in the manner provided in the foregoing sentence. The Plan may be terminated at any time by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding voting securities of the relevant class of shares. The continuance of the Plan will only be effective if the selection and nomination of the Trustees who are not interested persons of the Trust is effected by such disinterested Trustees.
Class T shares of the Funds are subject to a shareholder servicing fee pursuant to a Shareholder Servicing Plan. Under the Shareholder Servicing Plan, a Fund may enter into agreements with institutions pursuant to which an institution agrees to provide certain administrative and support services to its customers who are the beneficial owners of Class T shares. Services provided by such institutions to their customers include aggregating and processing purchase and redemption requests and placing net purchase and redemption orders. In return for providing these services, the Fund agrees to pay each institution a fee at an annual rate of up to 0.50%, comprised of up to 0.25% for shareholder liaison services and up to 0.25% for administrative support services of the average daily net assets attributable to Class T shares owned beneficially by the institution's customers. Current service arrangements are limited to payments of 0.30% for the Funds.
Under the Shareholder Servicing Plan, the Trustees must review, at least quarterly, a written report of the amounts paid under the servicing agreements and the purposes for which those expenditures were made. The initial term of the Shareholder Servicing Plan is one year and it will continue in effect from year to year after its initial one-year term provided that its continuance is specifically approved at least annually by a majority of the Trustees, including a majority of the Independent Trustees who have no direct or indirect financial interest in the operation of the Shareholder Servicing Plan or in any agreement related to it. Any material amendment to the
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Shareholder Servicing Plan must be approved in the same manner. The Shareholder Servicing Plan is terminable at any time with respect to any Fund by a vote of a majority of the Independent Trustees. While the Shareholder Servicing Plan is in effect, only the Independent Trustees may select and nominate any future Independent Trustees.
Class A shares are offered at net asset value plus varying sales charges which may include a CDSC. Class B shares are offered at net asset value and are subject to a CDSC if redeemed within a certain number of years after purchase depending on the program you purchased your shares under. Class C shares are offered at net asset value and are subject to a 1.00% CDSC on redemptions within one year after purchase. Class G shares are offered at net asset value and are subject to a CDSC if redeemed within a certain number of years after purchase depending on when you purchased your shares that were exchanged for Class G shares. Class T shares are offered at net asset value plus varying sales charges which may include a CDSC. Class Z shares are offered at net asset value and are not subject to a CDSC. The CDSCs and initial sales charges are described in the Prospectuses.
No CDSC will be imposed on shares derived from reinvestment of distributions or on amounts representing capital appreciation. In determining the applicability and rate of any CDSC, it will be assumed that a redemption is made first of shares representing capital appreciation, next of shares representing reinvestment of distributions and finally of other shares held by the shareholder for the longest period of time.
Eight years after the end of the month in which a Class B share is purchased, such share and a pro rata portion of any shares issued on the reinvestment of distributions will be automatically converted into Class A shares having an equal value, which are not subject to the distribution fee.
Eight years after the end of the month in which you purchased your shares that were exchanged for Class G shares, such Class G shares and a pro rata portion of any shares issued on the reinvestment of distributions will be automatically converted into Class T shares having an equal value, which are not subject to the distribution fee. See Part 2 of this Statement of Additional Information for the CDSCs and conversion schedules applicable to Class G shares received in exchange for Retail B shares purchased or acquired prior to January 1, 2001.
SALES-RELATED EXPENSES (dollars in thousands) of CMD relating to the Funds for the fiscal year ended September 30, 2005, were (a):
ASSET ALLOCATION FUND
-----------------------------------------------
CLASS A CLASS B CLASS C CLASS G CLASS T
SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- -------
Fees to FSFs .................................................. $9 $43 $ 5 $94 $558
Cost of sales material relating to the Fund (including printing
and mailing expenses) ...................................... 2 2 (a) 2 19
Allocated travel, entertainment and other promotional expenses
(including advertising) .................................... 3 3 (a) 3 18
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GROWTH FUND
-----------------------------------------------
CLASS A CLASS B CLASS C CLASS G CLASS T
SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- -------
Fees to FSFs ......................................................... $20 $42 $10 $147 $665
Cost of sales material relating to the Fund (including printing and
mailing expenses) ................................................. 3 2 1 6 12
Allocated travel, entertainment and other promotional expenses
(including advertising) ........................................... 5 3 1 9 17
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VALUE FUND
-----------------------------------------------
CLASS A CLASS B CLASS C CLASS G CLASS T
SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- -------
Fees to FSFs ...................................................... $9 $18 $ 3 $19 $407
Cost of sales material relating to the Fund (including printing and
mailing expenses) .............................................. 1 1 (a) 1 4
Allocated travel, entertainment and other promotional expenses
(including advertising) ........................................ 2 2 (a) 1 6
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COMMON STOCK FUND
-----------------------------------------------
CLASS A CLASS B CLASS C CLASS G CLASS T
SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- -------
Fees to FSFs ...................................................... $24 $67 $ 6 $39 $537
Cost of sales material relating to the Fund (including printing and
mailing expenses) .............................................. 2 1 (a) 1 6
Allocated travel, entertainment and other promotional expenses
(including advertising) ........................................ 3 2 (a) 2 9
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SMALL CAP CORE FUND
-----------------------------------------------
CLASS A CLASS B CLASS C CLASS G CLASS T
SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- -------
Fees to FSFs ...................................................... $717 $143 $435 $32 $452
Cost of sales material relating to the Fund (including printing and
mailing expenses) .............................................. 38 3 4 1 11
Allocated travel, entertainment and other promotional expenses
(including advertising) ........................................ 57 4 7 1 17
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SMALL COMPANY FUND
-----------------------------------------------
CLASS A CLASS B CLASS C CLASS G CLASS T
SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- -------
Fees to FSFs ...................................................... $14 $18 $ 7 $12 $207
Cost of sales material relating to the Fund (including printing and
mailing expenses) .............................................. 2 1 (a) 1 1
Allocated travel, entertainment and other promotional expenses
(including advertising) ........................................ 3 1 1 1 2
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DIVIDEND FUND
-----------------------------------------------
CLASS A CLASS B CLASS C CLASS G CLASS T
SHARES SHARES SHARES SHARES SHARES
------- ------- ------- ------- -------
Fees to FSFs ...................................................... $92 $106 $33 $ 15 $305
Cost of sales material relating to the Fund (including printing and
mailing expenses) .............................................. 18 6 2 (a) 4
Allocated travel, entertainment and other promotional expenses
(including advertising) ........................................ 27 10 3 (a) 6
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CUSTODIAN OF THE FUNDS
State Street Bank & Trust Company, located at 2 Avenue De Lafayette, Boston, MA 02111-2900, is the Funds' custodian. The custodian is responsible for safeguarding and controlling the Funds' cash and securities, receiving and delivering securities and collecting the Funds' interest and dividends.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF THE FUNDS
PricewaterhouseCoopers LLP, located at 125 High Street, Boston, Massachusetts 02110-1707, is the Funds' independent registered public accounting firm, providing audit and tax return review services and assistance and consultation in connection with the review of various Securities and Exchange Commission filings. The financial statements incorporated by reference in this SAI have been so incorporated, and the financial highlights included in the Prospectuses have been so included for the fiscal years ended September 30, 2005 and September 30, 2004, in reliance upon the reports of PricewaterhouseCoopers LLP, given on the authority of said firm as experts in accounting and auditing.
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STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to most funds advised by the Advisor. "Funds" include the series of Columbia Funds Trust I, Columbia Funds Trust II, Columbia Funds Trust III, Columbia Funds Trust IV, Columbia Funds Trust V, Columbia Funds Trust VI, Columbia Funds Trust VIII, Columbia Funds Series Trust I (formerly named Columbia Funds Trust IX) and Columbia Funds Trust XI (each a Trust and together, the Trusts, also known as Fund Complex). In certain cases, the discussion applies to some, but not all, of the Funds, and you should refer to your Fund's Prospectus and to Part 1 of this Statement of Additional Information ("SAI") to determine whether the matter is applicable to your Fund. You will also be referred to Part 1 for certain data applicable to your Fund.
MISCELLANEOUS INVESTMENT PRACTICES
PART 1 OF THIS SAI LISTS ON PAGE B WHICH OF THE FOLLOWING INVESTMENT PRACTICES
ARE AVAILABLE TO YOUR FUND. IF AN INVESTMENT PRACTICE IS NOT LISTED IN PART 1 OF THIS SAI, IT IS NOT APPLICABLE TO YOUR FUND.
SHORT-TERM TRADING
In seeking the Fund's investment goal, the Advisor will buy or sell portfolio securities whenever it believes it is appropriate. The Advisor's decision will not generally be influenced by how long the Fund may have owned the security. From time to time, the Fund will buy securities intending to seek short-term trading profits. A change in the securities held by the Fund is known as "portfolio turnover" and generally involves some expense to the Fund. These expenses may include brokerage commissions or dealer mark-ups and other transaction costs on both the sale of securities and the reinvestment of the proceeds in other securities. If sales of portfolio securities cause the Fund to realize net short-term capital gains, such gains will be taxable as ordinary income. As a result of the Fund's investment policies, under certain market conditions the Fund's portfolio turnover rate may be higher than that of other mutual funds. The Fund's portfolio turnover rate for a fiscal year is the ratio of the lesser of purchases or sales of portfolio securities to the monthly average of the value of portfolio securities, excluding securities whose maturities at acquisition were one year or less. The Fund's portfolio turnover rate is not a limiting factor when the Advisor considers a change in the Fund's portfolio.
SHORT SALES
A Fund's short sales are subject to special risks. A short sale involves the sale by the Fund of a security that it does not own with the hope of purchasing the same security at a later date at a lower price. In order to deliver the security to the buyer, the Fund borrows the security from a third party. The Fund is then obligated to return the security to the third party, so the Fund must purchase the security at the market price at a later point in time. If the price of the security has increased during this time, then the Fund will incur a loss equal to the increase in price of the security from the time that the short sale was entered into plus any premiums and interest paid to the third party. Therefore, short sales involve the risk that losses may be exaggerated, potentially losing more money than the actual cost of the security. Also, there is the risk that the third party to the short sale may fail to honor its contract terms, causing a loss to the Fund.
LOWER-RATED DEBT SECURITIES
Lower-rated debt securities are those rated lower than Baa by Moody's or BBB by S&P, or comparable unrated debt securities. Relative to debt securities of higher quality,
1. an economic downturn or increased interest rates may have a more significant effect on the yield, price and potential for default for lower-rated debt securities;
2. the secondary market for lower-rated debt securities may at times become less liquid or respond to adverse publicity or investor perceptions, increasing the difficulty in valuing or disposing of the bonds;
3. the Advisor's credit analysis of lower-rated debt securities may have a greater impact on the Fund's achievement of its investment goal; and
4. lower-rated debt securities may be less sensitive to interest rate changes, but are more sensitive to adverse economic developments.
In addition, certain lower-rated debt securities may not pay interest in cash on a current basis.
SMALL COMPANIES
Smaller, less well established companies may offer greater opportunities for capital appreciation than larger, better established companies, but may also involve certain special risks related to limited product lines, markets, or financial resources and dependence on a small management group. Their securities may trade less frequently, in smaller volumes, and fluctuate more sharply in value than securities of larger companies.
COMMON STOCK, PREFERRED STOCK AND WARRANTS
Common stocks are generally more volatile than other securities. Preferred stocks share some of the characteristics of both debt and equity investments and are generally preferred over common stocks with respect to dividends and in liquidation. A warrant is an instrument issued by a corporation which gives the holder the right to subscribe to a specified amount of the company's capital stock at a set price for a specified period of time.
FOREIGN SECURITIES
The Fund may invest in securities traded in markets outside the United States. Foreign investments can be affected favorably or unfavorably by changes in currency rates and in exchange control regulations. There may be less publicly available information about a foreign company than about a U.S. company, and foreign companies may not be subject to accounting, auditing and financial reporting standards comparable to those applicable to U.S. companies. Securities of some foreign companies are less liquid or more volatile than securities of U.S. companies, and foreign brokerage commissions and custodian fees may be higher than in the United States. Investments in foreign securities can involve other risks different from those affecting U.S. investments, including local political or economic developments, expropriation or nationalization of assets and imposition of withholding taxes on dividend or interest payments. Foreign securities, like other assets of the Fund, will be held by the Fund's custodian or by a sub-custodian or depository. See also "Foreign Currency Transactions" below.
The Fund may invest in certain Passive Foreign Investment Companies (PFICs) which may be subject to U.S. federal income tax on a portion of any "excess distribution" or gain (PFIC tax) related to the investment. This "excess distribution" will be allocated over the Fund's holding period for such investment. The PFIC tax is the highest ordinary income rate in effect for any period multiplied by the portion of the "excess distribution" allocated to such period, and it could be increased by an interest charge on the deemed tax deferral.
The Fund may possibly elect to include in its income its pro rata share of the ordinary earnings and net capital gain of PFICs. This election requires certain annual information from the PFICs which in many cases may be difficult to obtain. An alternative election would permit the Fund to recognize as income any appreciation (and to a limited extent, depreciation) on its holdings of PFICs as of the end of its fiscal year. See "Taxes" below.
The Fund may invest in other investment companies. Such investments will involve the payment of duplicative fees through the indirect payment of a portion of the expenses, including advisory fees, of such other investment companies.
EXCHANGE-TRADED FUNDS ("ETFS"). The Fund may invest in ETFs up to the maximum amount allowable under the 1940 Act. ETFs are shares of publicly-traded unit investment trusts, open-end funds, or depositary receipts that seek to track the performance and dividend yield of specific indexes or companies in related industries. These indexes may be either broad-based, sector or international.
ETF shareholders are generally subject to the same risks as holders of the underlying securities they are designed to track. ETFs are also subject to certain additional risks, including (1) the risk that their prices may not correlate perfectly with changes in the prices of the underlying securities they are designed to track; and (2) the risk of possible trading halts due to market conditions or other reasons, based on the policies of the exchange upon which an ETF trades. In addition, an exchange traded sector fund may be adversely affected by the performance of that specific sector or group of industries on which it is based.
The Fund would bear, along with other shareholders of an ETF, its pro rata portion of the ETF's expenses, including management fees. Accordingly, in addition to bearing their proportionate share of the Fund's expenses (i.e., management fees and operating expenses), shareholders of the Fund may also indirectly bear similar expenses of an ETF.
ZERO COUPON SECURITIES ("ZEROS")
The Fund may invest in Zeros, which are securities issued at a significant discount from face value and do not pay interest at intervals during the life of the security. Zeros include securities issued in certificates representing undivided interests in the interest or principal of mortgage-backed securities (interest only/principal only), which tend to be more volatile than other types of securities. The Fund will accrue and distribute income from stripped securities and certificates on a current basis and may have to sell securities to generate cash for distributions.
STEP COUPON BONDS ("STEPS")
The Fund may invest in debt securities, known as Steps, which pay interest at a series of different rates (including 0%) in accordance with a stated schedule for a series of periods. In addition to the risks associated with the credit rating of the issuers, these securities may be subject to more volatility risk than fixed rate debt securities.
TENDER OPTION BONDS
A tender option bond is a municipal security (generally held pursuant to a custodial arrangement) having a relatively long maturity and bearing interest at a fixed rate substantially higher than prevailing short-term tax-exempt rates, that has been coupled with the agreement of a third party, such as a bank, broker-dealer or other financial institution, pursuant to which such institution grants the security holders the option, at periodic intervals, to tender their securities to the institution and receive the face value thereof. As consideration for providing the option, the financial institution receives periodic fees equal to the difference between the municipal security's fixed coupon rate and the rate, as determined by a remarketing or similar agent at or near the commencement of such period, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term tax-exempt rate. The Advisor will consider on an ongoing basis the creditworthiness of the issuer of the underlying municipal securities, of any custodian, and of the third-party provider of the tender option. In certain instances and for certain tender option bonds, the option may be terminable in the event of a default in payment of principal or interest on the underlying municipal securities and for other reasons.
PAY-IN-KIND ("PIK") SECURITIES
The Fund may invest in securities which pay interest either in cash or additional securities. These securities are generally high yield securities and, in addition to the other risks associated with investing in high yield securities, are subject to the risks that the interest payments which consist of additional securities are also subject to the risks of high yield securities.
MONEY MARKET INSTRUMENTS
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their subdivisions, agencies and instrumentalities. SUPRANATIONAL OBLIGATIONS are issued by supranational entities and are generally designed to promote economic improvements. CERTIFICATES OF DEPOSIT are issued against deposits in a commercial bank with a defined return and maturity. BANKER'S ACCEPTANCES are used to finance the import, export or storage of goods and are "accepted" when guaranteed at maturity by a bank. COMMERCIAL PAPER is a promissory note issued by a business to finance short-term needs (including promissory notes with floating or variable interest rates, or including a frequent interval put feature). SHORT-TERM CORPORATE OBLIGATIONS are bonds and notes (with one year or less to maturity at the time of purchase) issued by businesses to finance long-term needs. PARTICIPATION INTERESTS include the underlying securities and any related guaranty, letter of credit, or collateralization arrangement in which the Fund would be allowed to invest directly.
CERTIFICATES OF DEPOSIT are short-term negotiable instruments issued against deposits in a commercial bank with a defined return and maturity. TIME DEPOSITS are non-negotiable deposits maintained in banking institutions for specified periods of time at stated interest rates.
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their subdivisions, agencies and instrumentalities. Examples of the types of obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities (hereinafter, "U.S. Government obligations") that may be held by the Funds include, without limitation, direct obligations of the U.S. Treasury, and securities issued or guaranteed by the Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association, Federal National Mortgage Association, General Services Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks, Resolution Trust Corporation and Maritime Administration.
U.S. Treasury securities differ only in their interest rates, maturities and time of issuance: Treasury Bills have initial maturities of one year or less; Treasury Notes have initial maturities of one to ten years; and Treasury Bonds generally have initial maturities of more than ten years. Obligations of certain agencies and instrumentalities of the U.S. Government, such as those of the Government National Mortgage Association, are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Federal Home Loan Banks, are supported by the right of the issuer to borrow from the Treasury; others, such as those of the Federal National Mortgage Association, are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; still others, such as those of the Federal Home Loan Mortgage Corporation, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government would provide financial support to U.S. Government-sponsored instrumentalities if it is not obligated to do so by law. Some of these instruments may be variable or floating rate instruments.
Securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities have historically involved relatively little risk of loss of principal. However, due to fluctuations in interest rates, the market value of such securities may vary during the period a shareholder owns shares of the Fund.
BANK OBLIGATIONS include bankers' acceptances, negotiable certificates of deposit, and non-negotiable time deposits issued for a definite period of time and earning a specified return by a U.S. bank which is a member of the Federal Reserve System or is insured by the Federal Deposit Insurance Corporation ("FDIC"), or by a savings and loan association or savings bank which is insured by the FDIC. Bank obligations also include U.S. dollar-denominated obligations of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of the same type as domestic bank obligations. Time deposits with a maturity longer than seven days or that do not provide for payment within seven days after notice will be subject to any limitations on illiquid securities described in Part 1 of this SAI. For purposes of each Fund's investment policies with respect to bank obligations, the assets of a bank or savings institution will be deemed to include the assets of its U.S. and foreign branches.
Domestic and foreign banks are subject to extensive but different government regulation which may limit the amount and types of their loans and the interest rates that may be charged. In addition, the profitability of the banking industry is largely dependent upon the availability and cost of funds to finance lending operations and the quality of underlying bank assets. Investments in obligations of foreign branches of U.S. banks and of U.S. branches of foreign banks may subject a Fund to additional risks, including future political and economic developments, the possible imposition of withholding taxes on interest income, possible seizure or nationalization of foreign deposits, the possible establishment of exchange controls, or the adoption of other foreign governmental restrictions which might adversely affect the payment of principal and interest on such obligations. In addition, foreign branches of U.S. banks and U.S. branches of foreign banks may be subject to less stringent reserve requirements and to different accounting, auditing, reporting, and recordkeeping standards than those applicable to domestic branches of U.S. banks.
SEPARATELY TRADED INTEREST AND PRINCIPAL SECURITIES ("STRIPS") are component parts of U.S. Treasury Securities traded through the Federal Reserve Book-Entry System. While there is no limitation on the percentage of a Fund's assets that may be invested in STRIPS, the Advisor will monitor the level of such holdings to avoid the risk of impairing shareholders' redemption rights. The interest-only component of STRIPS is extremely sensitive to the rate of principal payments on the underlying obligation. The market value of the principal-only component is usually volatile in response to changes in interest rates.
In U.S. TREASURY ROLLS, a Fund sells outstanding U.S. Treasury securities and buys back on a delayed settlement basis the same U.S. Treasury securities. During the period prior to the delayed settlement date, the assets from the sale of the U.S. Treasury securities are invested in certain cash equivalent instruments. U.S. Treasury rolls entail the risk that the Fund could suffer an opportunity loss if the counterparty to the roll failed to perform its obligations on the settlement date, and if market conditions changed adversely. The Funds intend to enter into U.S. Treasury rolls only with U.S. Government securities dealers recognized by the Federal Reserve Bank or with member banks of the Federal Reserve System. The Funds will hold and maintain in a
segregated account until the settlement date cash or other liquid assets in an amount equal to the forward purchase price. For financial reporting and tax purposes, the Funds propose to treat U.S. Treasury rolls as two separate transactions, one involving the purchase of a security and a separate transaction involving a sale.
COMMERCIAL PAPER is an unsecured short-term promissory note issued by businesses to finance short-term needs (including those with floating or variable interest rates, or including a frequent interval put feature). Commercial paper may include variable and floating rate instruments which are unsecured instruments that permit the indebtedness thereunder to vary. Variable rate instruments provide for periodic adjustments in the interest rate. Floating rate instruments provide for automatic adjustment of the interest rate whenever some other specified interest rate changes. Some variable and floating rate obligations are direct lending arrangements between the purchaser and the issuer and there may be no active secondary market. However, in the case of variable and floating rate obligations with a demand feature, a Fund may demand payment of principal and accrued interest at a time specified in the instrument or may resell the instrument to a third party. In the event that an issuer of a variable or floating rate obligation were to default on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and could, for this or other reasons, suffer a loss to the extent of the default.
Commercial paper may include securities issued by corporations without registration under the 1933 Act in reliance on the so-called "private placement" exemption in Section 4(2) ("Section 4(2) Paper"). Section 4(2) Paper is restricted as to disposition under the federal securities laws in that any resale must similarly be made in an exempt transaction. Section 4(2) Paper is normally resold to other institutional investors through or with the assistance of investment dealers who make a market in Section 4(2) Paper, thus providing liquidity. For purposes of each Fund's limitation on purchases of illiquid instruments described below, Section 4(2) Paper will not be considered illiquid if the Advisor has determined, in accordance with guidelines approved by the Board of Trustees, that an adequate trading market exists for such securities.
STRIPPED OBLIGATIONS
To the extent consistent with their investment objective, Funds may purchase U.S. Treasury receipts and other "stripped" securities that evidence ownership in either the future interest payments or the future principal payments on U.S. Government and other obligations. These participations, which may be issued by the U.S. Government or by private issuers, such as banks and other institutions, are issued at their "face value," and may include stripped mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage securities. Stripped securities, particularly SMBS, may exhibit greater price volatility than ordinary debt securities because of the manner in which their principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive different proportions of the interest and principal distributions from a pool of mortgage-backed obligations. A common type of SMBS will have one class receiving all of the interest, while the other class will receive all of the principal. However, in some instances, one class will receive some of the interest and most of the principal while the other class will receive most of the interest and the remainder of the principal. If the underlying obligations experience greater than anticipated prepayments of principal, the Fund may fail to fully recoup its initial investment in these securities. The market value of the class consisting entirely of principal payments generally is extremely volatile in response to changes in interest rates. The yields on a class of SMBS that receives all or most of the interest are generally higher than prevailing market yields on other mortgage-backed obligations because their cash flow patterns are more volatile and there is a greater risk that the initial investment will not be fully recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government agency or instrumentality) are considered illiquid by the Funds. Obligations issued by the U.S. Government may be considered liquid under guidelines established by Funds' Board of Trustees if they can be disposed of promptly in the ordinary course of business at a value reasonably close to that used in the calculation of net asset value per share.
MUNICIPAL SECURITIES
Municipal Securities acquired by the Funds include debt obligations issued by governmental entities to obtain funds for various public purposes, including the construction of a wide range of public facilities, the refunding of outstanding obligations, the payment of general operating expenses, and the extension of loans to public institutions and facilities. Private activity bonds that are issued by or on behalf of public authorities to finance various privately operated facilities are "Municipal Securities" if the interest paid thereon is exempt from regular federal income tax and not treated as a specific tax preference item under the federal alternative minimum tax.
The two principal classifications of Municipal Securities which may be held by the Funds are "general obligation" securities and "revenue" securities. General obligation securities are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue securities are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific revenue source such as the user of the facility being financed.
The Fund's portfolio may also include "moral obligation" securities, which are normally issued by special purpose public authorities. If the issuer of moral obligation securities is unable to meet its debt service obligations from current revenues, it may draw on a reserve fund, the restoration of which is a moral commitment but not a legal obligation of the state or municipality which created the issuer. There is no limitation on the amount of moral obligation securities that may be held by the Funds.
There are, of course, variations in the quality of Municipal Securities, both within a particular category and between categories, and the yields on Municipal Securities depend upon a variety of factors, including general market conditions, the financial condition of the issuer, general conditions of the municipal bond market, the size of a particular offering, the maturity of the obligation, and the rating of the issue. The ratings of a nationally recognized statistical rating organization ("NRSRO"), such as Moody's and S&P, represent such NRSRO's opinion as to the quality of Municipal Securities. It should be emphasized that these ratings are general and are not absolute standards of quality. Municipal Securities with the same maturity, interest rate and rating may have different yields. Municipal Securities of the same maturity and interest rate with different ratings may have the same yield.
Municipal Securities may include rated and unrated variable and floating rate tax-exempt instruments, such as variable rate demand notes. Variable rate demand notes are long-term Municipal Securities that have variable or floating interest rates and provide a Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on an applicable interest index or another published interest rate or interest rate index. Most variable rate demand notes allow a Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit a Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. Variable interest rates generally reduce changes in the market value of Municipal Securities from their original purchase prices. Accordingly, as interest rates decrease, the potential for capital appreciation is less for variable rate Municipal Securities than for fixed income obligations. The terms of these variable rate demand instruments require payment of principal and accrued interest from the issuer of the Municipal Securities, the issuer of the participation interest or a guarantor of either issuer.
Municipal Securities purchased by the Funds in some cases may be insured as to the timely payment of principal and interest. There is no guarantee, however, that the insurer will meet its obligations in the event of a default in payment by the issuer. In other cases, Municipal Securities may be backed by letters of credit or guarantees issued by domestic or foreign banks or other financial institutions which are not subject to federal deposit insurance. Adverse developments affecting the banking industry generally or a particular bank or financial institution that has provided its credit or guarantee with respect to a Municipal Security held by a Fund, including a change in the credit quality of any such bank or financial institution, could result in a loss to the Fund and adversely affect the value of its shares. Letters of credit and guarantees issued by foreign banks and financial institutions involve certain risks in addition to those of similar instruments issued by domestic banks and financial institutions.
The payment of principal and interest on most Municipal Securities purchased by the Funds will depend upon the ability of the issuers to meet their obligations. Each state, the District of Columbia, each of their political subdivisions, agencies, instrumentalities and authorities and each multi-state agency of which a state is a member is a separate "issuer" as that term is used in this SAI and the Prospectuses. The non-governmental user of facilities financed by private activity bonds is also considered to be an "issuer." An issuer's obligations under its Municipal Securities are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Code and laws, if any, which may be enacted by federal or state legislatures extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations or upon the ability of municipalities to levy taxes. The power or ability of an issuer to meet its obligations for the payment of interest on and principal of its Municipal Securities may be materially adversely affected by litigation or other conditions.
From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax exemption for interest on Municipal Securities. For example, under the Tax Reform Act of 1986, interest on certain
private activity bonds must be included in an investor's federal alternative minimum taxable income, and corporate investors must include all tax-exempt interest in their federal alternative minimum taxable income. The Funds cannot, of course, predict what legislation may be proposed in the future regarding the income tax status of interest on Municipal Securities, or which proposals, if any, might be enacted. Such proposals, while pending or if enacted, might materially and adversely affect the availability of Municipal Securities for investment by the Funds and the liquidity and value of their respective portfolios. In such an event, each Fund would re-evaluate its investment objective and policies and consider possible changes in its structure or possible dissolution.
Opinions relating to the validity of Municipal Securities and to the exemption of interest thereon from federal income tax are rendered by bond counsel to the respective issuers at the time of issuance. Neither the Funds nor the Advisor will review the proceedings relating to the issuance of Municipal Securities or the bases for such opinions.
PRIVATE ACTIVITY BONDS
The Funds may invest in "private activity bonds," the interest on which, although exempt from regular federal income tax, may constitute an item of tax preference for purposes of the federal alternative minimum tax. Private activity bonds are or have been issued to obtain funds to provide, among other things, privately operated housing facilities, pollution control facilities, convention or trade show facilities, mass transit, airport, port or parking facilities and certain local facilities for water supply, gas, electricity or sewage or solid waste disposal. Private activity bonds are also issued to privately held or publicly owned corporations in the financing of commercial or industrial facilities. State and local governments are authorized in most states to issue private activity bonds for such purposes in order to encourage corporations to locate within their communities. The principal and interest on these obligations may be payable from the general revenues of the users of such facilities.
Private activity bonds held by the Funds are in most cases revenue securities and are not payable from the unrestricted revenues of the issuer. Consequently, the credit quality of such private activity bonds is usually directly related to the credit standing of the corporate user of the facility involved.
MUNICIPAL LEASE OBLIGATIONS
Although a municipal lease obligation does not constitute a general obligation of the municipality for which the municipality's taxing power is pledged, a municipal lease obligation is ordinarily backed by the municipality's covenant to budget for, appropriate and make the payments due under the municipal lease obligation. However, certain lease obligations contain "non-appropriation" clauses which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. Although "non-appropriation" lease obligations are secured by the leased property, disposition of the property in the event of foreclosure might prove difficult. In addition, the tax treatment of such obligations in the event of non-appropriation is unclear.
Determinations concerning the liquidity and appropriate valuation of a municipal lease obligation, as with any other municipal security, are made based on all relevant factors. These factors include, among others: (1) the frequency of trades and quotes for the obligation; (2) the number of dealers willing to purchase or sell the security and the number of other potential buyers; (3) the willingness of dealers to undertake to make a market in the security; and (4) the nature of the marketplace trades, including the time needed to dispose of the security, the method of soliciting offers, and the mechanics of the transfer.
SECURITIES LOANS
The Fund may make secured loans of its portfolio securities amounting to not more than the percentage of its total assets specified in Part 1 of this SAI, thereby realizing additional income. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delay in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. As a matter of policy, securities loans are made to banks and broker-dealers pursuant to agreements requiring that loans be continuously secured by collateral in cash or short-term debt obligations at least equal at all times to the value of the securities on loan. The borrower pays to the Fund an amount equal to any dividends or interest received on securities lent. The Fund retains all or a portion of the interest received on investment of the cash collateral or receives a fee from the borrower. Although voting rights, or rights to consent, with respect to the loaned securities pass to the borrower, the Fund retains the right to call the loans at any time on reasonable notice, and it will do so in order that the securities may be voted by
the Fund if the holders of such securities are asked to vote upon or consent to matters materially affecting the investment. The Fund may also call such loans in order to sell the securities involved.
INTERFUND BORROWING AND LENDING
The Fund may lend money to and borrow money from other affiliated registered open-end investment companies. The Fund may borrow through the program when the Advisor believes borrowing is appropriate and the costs are equal to or lower than the costs of bank loans. When borrowing money, the Fund is subject to the risk that the securities the Fund acquires with the borrowed money or would otherwise have sold will decline in value. When lending money, the Fund is subject to the risk that the borrower will be unwilling or unable to make timely payments of interest or principal.
FORWARD COMMITMENTS ("WHEN-ISSUED" AND "DELAYED DELIVERY" SECURITIES)
The Fund may enter into contracts to purchase securities for a fixed price at a future date beyond customary settlement time ("forward commitments" and "when-issued securities") if the Fund holds until the settlement date, in a segregated account, cash or liquid securities in an amount sufficient to meet the purchase price, or if the Fund enters into offsetting contracts for the forward sale of other securities it owns. Forward commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date. Where such purchases are made through dealers, the Fund relies on the dealer to consummate the sale. The dealer's failure to do so may result in the loss to the Fund of an advantageous yield or price. Although the Fund will generally enter into forward commitments with the intention of acquiring securities for its portfolio or for delivery pursuant to options contracts it has entered into, the Fund may dispose of a commitment prior to settlement if the Advisor deems it appropriate to do so. The Fund may realize short-term profits or losses (generally taxed at ordinary income tax rates in the hands of the shareholders) upon the sale of forward commitments.
MORTGAGE DOLLAR ROLLS
In a mortgage dollar roll, the Fund sells a mortgage-backed security and simultaneously enters into a commitment to purchase a similar security at a later date. The Fund either will be paid a fee by the counterparty upon entering into the transaction or will be entitled to purchase the similar security at a discount. As with any forward commitment, mortgage dollar rolls involve the risk that the counterparty will fail to deliver the new security on the settlement date, which may deprive the Fund of obtaining a beneficial investment. In addition, the security to be delivered in the future may turn out to be inferior to the security sold upon entering into the transaction. In addition, the transaction costs may exceed the return earned by the Fund from the transaction.
REITS
The Funds may invest in real estate investment trusts ("REITs"). Equity REITs invest directly in real property while mortgage REITs invest in mortgages on real property. REITs may be subject to certain risks associated with the direct ownership of real estate, including declines in the value of real estate, risks related to general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, and variations in rental income. Generally, increases in interest rates will decrease the value of high yielding securities and increase the costs of obtaining financing, which could decrease the value of a REIT's investments. In addition, equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of credit extended. Equity and mortgage REITs are dependent upon management skill, are not diversified and are subject to the risks of financing projects. REITs are also subject to heavy cash flow dependency, defaults by borrowers, self liquidation and the possibility of failing to qualify for tax-free pass-through of income under the Internal Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from the 1940 Act. REITs pay dividends to their shareholders based upon available funds from operations. It is quite common for these dividends to exceed a REIT's taxable earnings and profits resulting in the excess portion of such dividends being designated as a return of capital. The Funds intend to include the gross dividends from any investments in REITs in their periodic distributions to its shareholders and, accordingly, a portion of the Fund's distributions may also be designated as a return of capital.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities, including "collateralized mortgage obligations" (CMOs) and "real estate mortgage investment conduits" (REMICs), evidence ownership in a pool of mortgage loans made by certain financial institutions that may be insured or guaranteed by the U.S. government or its agencies. CMOs are obligations issued by special-purpose trusts, secured by
mortgages. REMICs are entities that own mortgages and elect REMIC status under the Internal Revenue Code. Both CMOs and REMICs issue one or more classes of securities of which one (the Residual) is in the nature of equity. The Funds will not invest in the Residual class. Principal on mortgage-backed securities, CMOs and REMICs may be prepaid if the underlying mortgages are prepaid. Prepayment rates for mortgage-backed securities tend to increase as interest rates decline (effectively shortening the security's life) and decrease as interest rates rise (effectively lengthening the security's life). Because of the prepayment feature, these securities may not increase in value as much as other debt securities when interest rates fall. A Fund may be able to invest prepaid principal only at lower yields. The prepayment of such securities purchased at a premium may result in losses equal to the premium.
NON-AGENCY MORTGAGE-BACKED SECURITIES
The Fund may invest in non-investment grade mortgage-backed securities that are not guaranteed by the U.S. government or an agency. Such securities are subject to the risks described under "Lower Rated Debt Securities" and "Mortgage-Backed Securities." In addition, although the underlying mortgages provide collateral for the security, the Fund may experience losses, costs and delays in enforcing its rights if the issuer defaults or enters bankruptcy.
ASSET-BACKED SECURITIES
Asset-backed securities are interests in pools of debt securities backed by various types of loans such as credit card, auto and home equity loans. These securities involve prepayment risk, which is the possibility that the underlying debt may be refinanced or prepaid prior to maturity during periods of declining interest rates. During periods of rising interest rates, asset-backed securities have a high risk of declining in price because the declining prepayment rates effectively lengthen the expected maturity of the securities. A decline in interest rates may lead to a faster rate of repayment on asset-backed securities and, therefore, cause a Fund to earn a lower interest rate on reinvestment. In addition, the potential impact of prepayment on the price of an asset-backed security may be difficult to predict and result in greater volatility.
CUSTODY RECEIPTS AND TRUST CERTIFICATES. Custody receipts, such as Morgan Stanley TRACERs (Traded Custody Receipts), and trust certificates, such as Lehman Brothers TRAINs (Targeted Return Index Securities Trust), are derivative products which, in the aggregate, evidence direct ownership in a pool of securities. Typically, a sponsor will deposit a pool of securities with a custodian in exchange for custody receipts evidencing those securities or with a trust in exchange for trust certificates evidencing interests in the trust, the principal asset of which is those securities. The sponsor will then generally sell those custody receipts or trust certificates in negotiated transactions at varying prices that are determined at the time of sale. Each custody receipt or trust certificate evidences the individual securities in the pool and the holder of a custody receipt or trust certificate generally will have all the rights and privileges of owners of those securities. Each holder of a custody receipt or trust certificate generally will be treated as directly purchasing its pro rata share of the securities in the pool for an amount equal to the amount that such holder paid for its custody receipt or trust certificate. If a custody receipt or trust certificate is sold, a holder will be treated as having directly "disposed of its pro rata share of the securities evidenced by the custody receipt or trust certificate. Additionally, the holder of a custody receipt or trust certificate may withdraw the securities represented by the custody receipt or trust certificate subject to certain conditions. Custody receipts and trust certificates are generally subject to the same risks as those securities evidenced by the receipts or certificates which, in the case of the Fund, are corporate debt securities. Additionally, custody receipts and trust certificates may also be less liquid than the underlying securities if the sponsor fails to maintain a trading market.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. A repurchase agreement is a contract under which the Fund acquires a security for a relatively short period subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price (representing the Fund's cost plus interest). It is the Fund's present intention to enter into repurchase agreements only with commercial banks and registered broker-dealers and only with respect to obligations of the U.S. government or its agencies or instrumentalities. Repurchase agreements may also be viewed as loans made by the Fund which are collateralized by the securities subject to repurchase. The Advisor will monitor such transactions to determine that the value of the underlying securities is at least equal at all times to the total amount of the repurchase obligation, including the interest factor. If the seller defaults, the Fund could realize a loss on the sale of the underlying security to the extent that the proceeds of sale including accrued interest are less than the resale price provided in the agreement including interest. In addition, if the seller should be involved in bankruptcy or insolvency proceedings, the Fund may incur delay and costs in selling the
underlying security or may suffer a loss of principal and interest if the Fund is treated as an unsecured creditor and required to return the underlying collateral to the seller's estate.
REVERSE REPURCHASE AGREEMENTS
In a reverse repurchase agreement, the Fund sells a security and agrees to repurchase the same security at a mutually agreed upon date and price. A reverse repurchase agreement may also be viewed as the borrowing of money by the Fund and, therefore, as a form of leverage. The Fund will invest the proceeds of borrowings under reverse repurchase agreements. In addition, the Fund will enter into a reverse repurchase agreement only when the interest income expected to be earned from the investment of the proceeds is greater than the interest expense of the transaction. The Fund will not invest the proceeds of a reverse repurchase agreement for a period which exceeds the duration of the reverse repurchase agreement. The Fund may not enter into reverse repurchase agreements exceeding in the aggregate one-third of the market value of its total assets, less liabilities other than the obligations created by reverse repurchase agreements. Each Fund will establish and maintain with its custodian a separate account with a segregated portfolio of securities in an amount at least equal to its purchase obligations under its reverse repurchase agreements. If interest rates rise during the term of a reverse repurchase agreement, entering into the reverse repurchase agreement may have a negative impact on a money market fund's ability to maintain a net asset value of $1.00 per share.
LINE OF CREDIT
The Fund may establish and maintain a line of credit with a major bank in order to permit borrowing on a temporary basis to meet share redemption requests in circumstances in which temporary borrowings may be preferable to liquidation of portfolio securities.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The Fund may write covered call options and covered put options on securities held in its portfolio when, in the opinion of the Advisor, such transactions are consistent with the Fund's investment goal and policies. Call options written by the Fund give the purchaser the right to buy the underlying securities from the Fund at a stated exercise price; put options give the purchaser the right to sell the underlying securities to the Fund at a stated price.
The Fund may write only covered options, which means that, so long as the Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option (or comparable securities satisfying the cover requirements of securities exchanges). In the case of put options, the Fund will hold cash and/or high-grade short-term debt obligations equal to the price to be paid if the option is exercised. In addition, the Fund will be considered to have covered a put or call option if and to the extent that it holds an option that offsets some or all of the risk of the option it has written. The Fund may write combinations of covered puts and calls on the same underlying security.
The Fund will receive a premium from writing a put or call option, which increases the Fund's return on the underlying security if the option expires unexercised or is closed out at a profit. The amount of the premium reflects, among other things, the relationship between the exercise price and the current market value of the underlying security, the volatility of the underlying security, the amount of time remaining until expiration, current interest rates, and the effect of supply and demand in the options market and in the market for the underlying security. By writing a call option, the Fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option but continues to bear the risk of a decline in the value of the underlying security. By writing a put option, the Fund assumes the risk that it may be required to purchase the underlying security for an exercise price higher than its then-current market value, resulting in a potential capital loss unless the security subsequently appreciates in value.
The Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an offsetting option. The Fund realizes a profit or loss from a closing transaction if the cost of the transaction (option premium plus transaction costs) is less or more than the premium received from writing the option. Because increases in the market price of a call option generally reflect increases in the market price of the security underlying the option, any loss resulting from a closing purchase transaction may be offset in whole or in part by unrealized appreciation of the underlying security.
If the Fund writes a call option but does not own the underlying security, and when it writes a put option, the Fund may be required to deposit cash or securities with its broker as "margin" or collateral for its obligation to buy or sell the underlying security. As the value of the underlying security varies, the Fund may have to deposit additional margin with the broker. Margin requirements are complex and are fixed by individual brokers, subject to minimum requirements currently imposed by the Federal Reserve Board and by stock exchanges and other self-regulatory organizations.
PURCHASING PUT OPTIONS. The Fund may purchase put options to protect its portfolio holdings in an underlying security against a decline in market value. Such hedge protection is provided during the life of the put option since the Fund, as holder of the put option, is able to sell the underlying security at the put exercise price regardless of any decline in the underlying security's market price. For a put option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs. By using put options in this manner, the Fund will reduce any profit it might otherwise have realized from appreciation of the underlying security by the premium paid for the put option and by transaction costs.
PURCHASING CALL OPTIONS. The Fund may purchase call options to hedge against an increase in the price of securities that the Fund wants ultimately to buy. Such hedge protection is provided during the life of the call option since the Fund, as holder of the call option, is able to buy the underlying security at the exercise price regardless of any increase in the underlying security's market price. In order for a call option to be profitable, the market price of the underlying security must rise sufficiently above the exercise price to cover the premium and transaction costs. These costs will reduce any profit the Fund might have realized had it bought the underlying security at the time it purchased the call option.
OVER-THE-COUNTER ("OTC") OPTIONS. The Staff of the Division of Investment Management of the Securities and Exchange Commission (SEC) has taken the position that OTC options purchased by the Fund and assets held to cover OTC options written by the Fund are illiquid securities. Although the Staff has indicated that it is continuing to evaluate this issue, pending further developments, the Fund intends to enter into OTC options transactions only with primary dealers in U.S. government securities and, in the case of OTC options written by the Fund, only pursuant to agreements that will assure that the Fund will at all times have the right to repurchase the option written by it from the dealer at a specified formula price. The Fund will treat the amount by which such formula price exceeds the amount, if any, by which the option may be "in-the-money" as an illiquid investment. It is the present policy of the Fund not to enter into any OTC option transaction if, as a result, more than 15% (10% in some cases, refer to your Fund's Prospectus) of the Fund's net assets would be invested in (i) illiquid investments (determined under the foregoing formula) relating to OTC options written by the Fund, (ii) OTC options purchased by the Fund, (iii) securities which are not readily marketable, and (iv) repurchase agreements maturing in more than seven days.
RISK FACTORS IN OPTIONS TRANSACTIONS. The successful use of the Fund's options strategies depends on the ability of the Advisor to forecast interest rate and market movements correctly.
When it purchases an option, the Fund runs the risk that it will lose its entire investment in the option in a relatively short period of time, unless the Fund exercises the option or enters into a closing sale transaction with respect to the option during the life of the option. If the price of the underlying security does not rise (in the case of a call) or fall (in the case of a put) to an extent sufficient to cover the option premium and transaction costs, the Fund will lose part or all of its investment in the option. This contrasts with an investment by the Fund in the underlying securities, since the Fund may continue to hold its investment in those securities notwithstanding the lack of a change in price of those securities.
The effective use of options also depends on the Fund's ability to terminate option positions at times when the Advisor deems it desirable to do so. Although the Fund will take an option position only if the Advisor believes there is a liquid secondary market for the option, there is no assurance that the Fund will be able to effect closing transactions at any particular time or at an acceptable price.
If a secondary trading market in options were to become unavailable, the Fund could no longer engage in closing transactions. Lack of investor interest might adversely affect the liquidity of the market for particular options or series of options. A marketplace may discontinue trading of a particular option or options generally. In addition, a market could become temporarily unavailable if unusual events--such as volume in excess of trading or clearing capability--were to interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on particular types of option transactions, which may limit the Fund's ability to realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options purchased or sold by the Fund could result in losses on the options. If trading is interrupted in an underlying security, the trading of options on that security is normally halted as well. As a result, the Fund as purchaser or writer of an option will be unable to close out its positions until options trading resumes, and it may be faced with losses if trading in the security reopens at a substantially different price. In addition, the Options Clearing Corporation (OCC) or other options markets may impose exercise restrictions. If a prohibition on exercise is imposed at the time when trading in the option has also been halted, the Fund as purchaser or writer of an option will be locked into its position until one of the two restrictions has been lifted. If a prohibition on exercise remains in effect until an option owned by the Fund has expired, the Fund could lose the entire value of its option.
Special risks are presented by internationally traded options. Because of time differences between the United States and various foreign countries, and because different holidays are observed in different countries, foreign options markets may be open for trading during hours or on days when U.S. markets are closed. As a result, option premiums may not reflect the current prices of the underlying interest in the United States.
FUTURES CONTRACTS AND RELATED OPTIONS
Upon entering into futures contracts, in compliance with the SEC's requirements, cash or liquid securities, equal in value to the amount of the Fund's obligation under the contract (less any applicable margin deposits and any assets that constitute "cover" for such obligation), will be segregated with the Fund's custodian.
A futures contract sale creates an obligation by the seller to deliver the type of instrument called for in the contract in a specified delivery month for a stated price. A futures contract purchase creates an obligation by the purchaser to take delivery of the type of instrument called for in the contract in a specified delivery month at a stated price. The specific instruments delivered or taken at the settlement date are not determined until on or near that date. The determination is made in accordance with the rules of the exchanges on which the futures contract was made. The Fund may enter into futures contracts which are traded on national or foreign futures exchanges and are standardized as to maturity date and underlying financial instrument. Futures exchanges and trading in the United States are regulated under the Commodity Exchange Act by the Commodity Futures Trading Commission (CFTC).
Although futures contracts by their terms call for actual delivery or acceptance of commodities or securities, the contracts usually are closed out before the settlement date without the making or taking of delivery. Closing out a futures contract sale is effected by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument or commodity with the same delivery date. If the price of the initial sale of the futures contract exceeds the price of the offsetting purchase, the seller is paid the difference and realizes a gain. Conversely, if the price of the offsetting purchase exceeds the price of the initial sale, the seller realizes a loss. Similarly, the closing out of a futures contract purchase is effected by the purchaser's entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, the purchaser realizes a gain, and if the purchase price exceeds the offsetting sale price, the purchaser realizes a loss.
Unlike when the Fund purchases or sells a security, no price is paid or received by the Fund upon the purchase or sale of a futures contract, although the Fund is required to deposit with its custodian in a segregated account in the name of the futures broker an amount of cash and/or U.S. government securities. This amount is known as "initial margin." The nature of initial margin in futures transactions is different from that of margin in security transactions in that futures contract margin does not involve the borrowing of funds by the Fund to finance the transactions. Rather, initial margin is in the nature of a performance bond or good faith deposit on the contract that is returned to the Fund upon termination of the futures contract, assuming all contractual obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin," to and from the broker (or the custodian) are made on a daily basis as the price of the underlying security or commodity fluctuates, making the long and short positions in the futures contract more or less valuable, a process known as "marking to market."
The Fund may elect to close some or all of its futures positions at any time prior to their expiration. The purpose of making such a move would be to reduce or eliminate the hedge position then currently held by the Fund. The Fund may close its positions by taking opposite positions which will operate to terminate the Fund's position in the futures contracts. Final determinations of variation margin are then made, additional cash is required to be paid by or released to the Fund, and the Fund realizes a loss or a gain. Such closing transactions involve additional commission costs.
INTEREST RATE FUTURES CONTRACTS. Bond prices are established in both the cash market and the futures market. In the cash market, bonds are purchased and sold with payment for the full purchase price of the bond being made in cash, generally within five business days after the trade. In the futures market, only a contract is made to purchase or sell a bond in the future for a set price on a certain date. Historically, the prices for bonds established in the futures markets have tended to move generally in the aggregate in concert with the cash market prices and have maintained fairly predictable relationships. Accordingly, the Funds may use interest rate futures contracts as a defense, or hedge, against anticipated interest rate changes. The Funds presently could accomplish a similar result to that which they hope to achieve through the use of futures contracts by selling bonds with long maturities and investing in bonds with short maturities when interest rates are expected to increase, or conversely, selling short-term bonds and investing in long-term bonds when interest rates are expected to decline. However, because of the liquidity that is often available in the futures market, the protection is more likely to be achieved, perhaps at a lower cost and without changing the rate of interest being earned by the Funds, through using futures contracts.
Interest rate futures contracts are traded in an auction environment on the floors of several exchanges--principally, the Chicago Board of Trade, the Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would deal only in standardized contracts on recognized exchanges. Each exchange guarantees performance under contract provisions through a clearing corporation, a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial instruments including long-term United States Treasury Bonds and Notes; Government National Mortgage Association (GNMA) modified pass-through mortgage backed securities; three-month United States Treasury Bills; and ninety-day commercial paper. The Funds may trade in any interest rate futures contracts for which there exists a public market, including, without limitation, the foregoing instruments.
MUNICIPAL BOND INDEX FUTURES CONTRACTS. Municipal bond index futures contracts may act as a hedge against changes in market conditions. A municipal bond index assigns values daily to the municipal bonds included in the index based on the independent assessment of dealer-to-dealer municipal bond brokers. A municipal bond index futures contract represents a firm commitment by which two parties agree to take or make delivery of an amount equal to a specified dollar amount multiplied by the difference between the municipal bond index value on the last trading date of the contract and the price at which the futures contract is originally struck. No physical delivery of the underlying securities in the index is made.
The Chicago Board of Trade has designed a futures contract based on the Bond Buyer Municipal Bond Index. This Index is composed of 40 term revenue and general obligation bonds, and its composition is updated regularly as new bonds meeting the criteria of the Index are issued and existing bonds mature. The Index is intended to provide an accurate indicator of trends and changes in the municipal bond market. Each bond in the Index is independently priced by six dealer-to-dealer municipal bond brokers daily. The 40 prices then are averaged and multiplied by a coefficient. The coefficient is used to maintain the continuity of the Index when its composition changes. The Chicago Board of Trade, on which futures contracts based on this Index are traded, as well as other U.S. commodities exchanges, are regulated by the CFTC. Transactions on such exchange are cleared through a clearing corporation, which guarantees the performance of the parties to each contract.
OPTIONS ON FUTURES CONTRACTS. The Fund will enter into written options on futures contracts only when, in compliance with the SEC's requirements, cash or liquid securities equal in value to the commodity value (less any applicable margin deposits) have been deposited in a segregated account. The Fund may purchase and write call and put options on futures contracts it may buy or sell and enter into closing transactions with respect to such options to terminate existing positions. The Fund may use such options on futures contracts in lieu of writing options directly on the underlying securities or purchasing and selling the underlying futures contracts. Such options generally operate in the same manner as options purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate his position by selling or purchasing an offsetting option. There is no guarantee that such closing transactions can be effected.
The Fund will be required to deposit initial margin and maintenance margin with respect to put and call options on futures contracts written by it pursuant to brokers' requirements similar to those described above.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use of futures contracts by the Fund is subject to the Advisor's ability to predict correctly, movements in the direction of interest rates and other factors affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or put options on futures contracts involves less potential risk to the Fund because the maximum amount at risk is the premium paid for the options (plus transaction costs). However, there may be circumstances when the purchase of a call or put option on a futures contract would result in a loss to the Fund when the purchase or sale of a futures contract would not, such as when there is no movement in the prices of the hedged investments. The writing of an option on a futures contract involves risks similar to those risks relating to the sale of futures contracts.
There is no assurance that higher than anticipated trading activity or other unforeseen events might not, at times, render certain market clearing facilities inadequate, and thereby result in the institution, by exchanges, of special procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the Fund, the Fund may seek to close out a position. The ability to establish and close out positions will be subject to the development and maintenance of a liquid secondary market. It is not certain that this market will develop or continue to exist for a particular futures contract. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain contracts or options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of contracts or options, or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or a clearing corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of contracts or options (or a particular class or series of contracts or options), in which event the secondary market on that exchange (or in the class or series of contracts or options) would cease to exist, although outstanding contracts or options on the exchange that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms.
USE BY TAX-EXEMPT FUNDS OF INTEREST RATE AND U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. The Funds investing in tax-exempt securities may purchase and sell futures contracts and related options on interest rate and U.S. Treasury securities when, in the opinion of the Advisor, price movements in these security futures and related options will correlate closely with price movements in the tax-exempt securities which are the subject of the hedge. Interest rate and U.S. Treasury securities futures contracts require the seller to deliver, or the purchaser to take delivery of, the type of security called for in the contract at a specified date and price. Options on interest rate and U.S. Treasury security futures contracts give the purchaser the right in return for the premium paid to assume a position in a futures contract at the specified option exercise price at any time during the period of the option.
In addition to the risks generally involved in using futures contracts, there is also a risk that price movements in interest rate and U.S. Treasury security futures contracts and related options will not correlate closely with price movements in markets for tax-exempt securities.
INDEX FUTURES CONTRACTS. An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of an index is commonly referred to as buying or purchasing a contract or holding a long position in the index. Entering into a contract to sell units of an index is commonly referred to as selling a contract or holding a short position. A unit is the current value of the index. The Fund may enter into stock index futures contracts, debt index futures contracts, or other index futures contracts appropriate to its objective(s). The Fund may also purchase and sell options on index futures contracts.
There are several risks in connection with the use by the Fund of index futures as a hedging device. One risk arises because of the imperfect correlation between movements in the prices of the index futures and movements in the prices of securities which are the subject of the hedge. The Advisor will attempt to reduce this risk by selling, to the extent possible, futures on indices the movements of which will, in its judgment, have a significant correlation with movements in the prices of the Fund's portfolio securities sought to be hedged.
Successful use of index futures by the Fund for hedging purposes is also subject to the Advisor's ability to predict correctly movements in the direction of the market. It is possible that, where the Fund has sold futures to hedge its portfolio against a decline in the market, the index on which the futures are written may advance and the value of securities held in the Fund's portfolio may decline. If this occurs, the Fund would lose money on the futures and also experience a decline in the value of its portfolio securities. However, while this could occur to a certain degree, the Advisor believes that over time the value of the
Fund's portfolio will tend to move in the same direction as the market indices which are intended to correlate to the price movements of the portfolio securities sought to be hedged. It is also possible that, if the Fund has hedged against the possibility of a decline in the market adversely affecting securities held in its portfolio and securities prices increase instead, the Fund will lose part or all of the benefit of the increased values of those securities that it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient cash, it may have to sell securities to meet daily variation margin requirements.
In addition to the possibility that there may be an imperfect correlation, or no correlation at all, between movements in the index futures and the securities of the portfolio being hedged, the prices of index futures may not correlate perfectly with movements in the underlying index due to certain market distortions. First, all participants in the futures markets are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions which would distort the normal relationship between the index and futures markets. Second, margin requirements in the futures market are less onerous than margin requirements in the securities market, and as a result, the futures market may attract more speculators than the securities market. Increased participation by speculators in the futures market may also cause temporary price distortions. Due to the possibility of price distortions in the futures market and also because of the imperfect correlation between movements in the index and movements in the prices of index futures, even a correct forecast of general market trends by the Advisor may still not result in a successful hedging transaction.
OPTIONS ON INDEX FUTURES. Options on index futures are similar to options on securities except that options on index futures give the purchaser the right, in return for the premium paid, to assume a position in an index futures contract (a long position if the option is a call and a short position if the option is a put), at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's futures margin account which represents the amount by which the market price of the index futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the index future. If an option is exercised on the last trading day prior to the expiration date of the option, the settlement will be made entirely in cash equal to the difference between the exercise price of the option and the closing level of the index on which the future is based on the expiration date. Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss of the premium paid.
OPTIONS ON INDICES. As an alternative to purchasing call and put options on index futures, the Fund may purchase call and put options on the underlying indices themselves. Such options could be used in a manner identical to the use of options on index futures. Options involving securities indices provide the holder with the right to make or receive a cash settlement upon exercise of the option based on movements in the relevant index. Such options must be listed on a national securities exchange and issued by the Options Clearing Corporation. Such options may relate to particular securities or to various stock indices, except that a Fund may not write covered options on an index.
OPTIONS ON FOREIGN STOCK INDICES. The Funds may, for the purpose of hedging its portfolio, subject to applicable securities regulations, purchase and write put and call options on foreign stock indices listed on foreign and domestic stock exchanges. A stock index fluctuates with changes in the market values of the stocks included in the index.
SWAP AGREEMENTS (SWAPS, CAPS, COLLARS AND FLOORS)
The Funds may enter into interest rate swaps, currency swaps, and other types of swap agreements such as caps, collars, and floors. In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate times a "notional principal amount," in return for payments equal to a fixed rate times the same amount, for a specified period of time. If a swap agreement provides for payments in different currencies, the parties might agree to exchange notional principal amount as well. Swaps may also depend on other prices or rates, such as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed upon level. An interest rate collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from one type of investment to another. For example, if a Fund agreed to exchange payments in dollars for payments in foreign currency, the swap agreement would tend to decrease the Fund's exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates. Caps and floors have an effect similar to buying or writing options. Depending on how they are used, swap agreements may increase or decrease the overall volatility of a Fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a small investment of cash relative to the magnitude of risks assumed. As a result, swaps can be highly volatile and may have a considerable impact on the Funds' performance. Swap agreements are subject to risks related to the counterparty's ability to perform, and may decline in value if the counterparty's creditworthiness deteriorates. The Funds may also suffer losses if they are unable to terminate outstanding swap agreements or reduce their exposure through offsetting transactions.
EQUITY SWAPS
The Fund may engage in equity swaps. Equity swaps allow the parties to the swap agreement to exchange components of return on one equity investment (e.g., a basket of equity securities or an index) for a component of return on another non-equity or equity investment, including an exchange of differential rates of return. Equity swaps may be used to invest in a market without owning or taking physical custody of securities in circumstances where direct investment may be restricted for legal reasons or is otherwise impractical. Equity swaps also may be used for other purposes, such as hedging or seeking to increase total return.
RISK FACTORS IN EQUITY SWAP TRANSACTIONS. Equity swaps are derivative instruments and their values can be very volatile. To the extent that the portfolio managers do not accurately analyze and predict the potential relative fluctuation on the components swapped with the other party, the Fund may suffer a loss. The value of some components of an equity swap (such as the dividend on a common stock) may also be sensitive to changes in interest rates. Furthermore, during the period a swap is outstanding, the Fund may suffer a loss if the counterparty defaults. See "Taxes" for information on tax risks associated with equity swaps.
FOREIGN CURRENCY TRANSACTIONS
The Fund may engage in currency exchange transactions to protect against uncertainty in the level of future currency exchange rates.
The Fund may engage in both "transaction hedging" and "position hedging." When it engages in transaction hedging, the Fund enters into foreign currency transactions with respect to specific receivables or payables of the Fund generally arising in connection with the purchase or sale of its portfolio securities. The Fund will engage in transaction hedging when it desires to "lock in" the U.S. dollar price of a security it has agreed to purchase or sell, or the U.S. dollar equivalent of a dividend or interest payment in a foreign currency. By transaction hedging the Fund attempts to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and the applicable foreign currency during the period between the date on which the security is purchased or sold, or on which the dividend or interest payment is declared, and the date on which such payments are made or received.
The Fund may purchase or sell a foreign currency on a spot (or cash) basis at the prevailing spot rate in connection with the settlement of transactions in portfolio securities denominated in that foreign currency. The Fund may also enter into contracts to purchase or sell foreign currencies at a future date ("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes the Fund may also purchase exchange-listed and over-the-counter call and put options on foreign currency futures contracts and on foreign currencies. Over-the-counter options are considered to be illiquid by the SEC staff. A put option on a futures contract gives the Fund the right to assume a short position in the futures contract until expiration of the option. A put option on currency gives the Fund the right to sell a currency at an exercise price until the expiration of the option. A call option on a futures contract gives the Fund the right to assume a long position in the futures contract until the expiration of the option. A call option on currency gives the Fund the right to purchase a currency at the exercise price until the expiration of the option.
When it engages in position hedging, the Fund enters into foreign currency exchange transactions to protect against a decline in the values of the foreign currencies in which its portfolio securities are denominated (or an increase in the value of currency for securities which the Fund expects to purchase, when the Fund holds cash or short-term investments). In connection with position hedging, the Fund may purchase put or call options on foreign currency and foreign currency futures contracts and buy or sell forward contracts and foreign currency futures contracts. The Fund may also purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions and the value of the portfolio securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the dates the currency exchange transactions are entered into and the dates they mature.
It is impossible to forecast with precision the market value of portfolio securities at the expiration or maturity of a forward or futures contract. Accordingly, it may be necessary for the Fund to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security or securities being hedged is less than the amount of foreign currency the Fund is obligated to deliver and if a decision is made to sell the security or securities and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security or securities if the market value of such security or securities exceeds the amount of foreign currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying prices of the securities which the Fund owns or intends to purchase or sell. They simply establish a rate of exchange which one can achieve at some future point in time. Additionally, although these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency, they tend to limit any potential gain which might result from the increase in value of such currency.
CURRENCY FORWARD AND FUTURES CONTRACTS. Upon entering into such contracts, in compliance with the SEC's requirements, cash or liquid securities, equal in value to the amount of the Fund's obligation under the contract (less any applicable margin deposits and any assets that constitute "cover" for such obligation), will be segregated.
A forward currency contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract as agreed by the parties, at a price set at the time of the contract. In the case of a cancelable contract, the holder has the unilateral right to cancel the contract at maturity by paying a specified fee. The contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. A contract generally has no deposit requirement, and no commissions are charged at any stage for trades. A currency futures contract is a standardized contract for the future delivery of a specified amount of a foreign currency at a future date at a price set at the time of the contract. Currency futures contracts traded in the United States are designed and traded on exchanges regulated by the CFTC, such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain respects. For example, the maturity date of a forward contract may be any fixed number of days from the date of the contract agreed upon by the parties, rather than a predetermined date in a given month. Forward contracts may be in any amounts agreed upon by the parties rather than predetermined amounts. Also, forward contracts are traded directly between currency traders so that no intermediary is required. A forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Fund may either accept or make delivery of the currency specified in the contract, or at or prior to maturity enter into a closing transaction involving the purchase or sale of an offsetting contract. Closing transactions with respect to forward contracts are usually effected with the currency trader who is a party to the original forward contract. Closing transactions with respect to futures contracts are effected on a commodities exchange; a clearing corporation associated with the exchange assumes responsibility for closing out such contracts.
Positions in currency futures contracts may be closed out only on an exchange or board of trade which provides a secondary market in such contracts. Although the Fund intends to purchase or sell currency futures contracts only on exchanges or boards of trade where there appears to be an active secondary market, there is no assurance that a secondary market on an exchange or board of trade will exist for any particular contract or at any particular time. In such event, it may not be possible to close a futures position and, in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin.
CURRENCY OPTIONS. In general, options on currencies operate similarly to options on securities and are subject to many similar risks. Currency options are traded primarily in the over-the-counter market, although options on currencies have recently been listed on several exchanges. Options are traded not only on the currencies of individual nations, but also on the European Currency Unit (ECU). The ECU is composed of amounts of a number of currencies, and is the official medium of exchange of the European Economic Community's European Monetary System.
The Fund will only purchase or write currency options when the Advisor believes that a liquid secondary market exists for such options. There can be no assurance that a liquid secondary market will exist for a particular option at any specified time. Currency options are affected by all of those factors which influence exchange rates and investments generally. To the extent that these options are traded over the counter, they are considered to be illiquid by the SEC staff.
The value of any currency, including the U.S. dollar, may be affected by complex political and economic factors applicable to the issuing country. In addition, the exchange rates of currencies (and therefore the values of currency options) may be significantly affected, fixed, or supported directly or indirectly by government actions. Government intervention may increase risks involved in purchasing or selling currency options, since exchange rates may not be free to fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in turn reflects relative values of two currencies, the U.S. dollar and the foreign currency in question. Because currency transactions occurring in the interbank market involve substantially larger amounts than those that may be involved in the exercise of currency options, investors may be disadvantaged by having to deal in an odd lot market for the underlying currencies in connection with options at prices that are less favorable than for round lots. Foreign governmental restrictions or taxes could result in adverse changes in the cost of acquiring or disposing of currencies.
There is no systematic reporting of last sale information for currencies and there is no regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Available quotation information is generally representative of very large round-lot transactions in the interbank market and thus may not reflect exchange rates for smaller odd-lot transactions (less than $1 million) where rates may be less favorable. The interbank market in currencies is a global, around-the-clock market. To the extent that options markets are closed while the markets for the underlying currencies remain open, significant price and rate movements may take place in the underlying markets that cannot be reflected in the options markets.
SETTLEMENT PROCEDURES. Settlement procedures relating to the Fund's investments in foreign securities and to the Fund's foreign currency exchange transactions may be more complex than settlements with respect to investments in debt or equity securities of U.S. issuers, and may involve certain risks not present in the Fund's domestic investments, including foreign currency risks and local custom and usage. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not charge a fee for currency conversion, they do realize a profit based on the difference (spread) between prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligation.
PARTICIPATION INTERESTS
The Fund may invest in municipal obligations either by purchasing them directly or by purchasing certificates of accrual or similar instruments evidencing direct ownership of interest payments or principal payments, or both, on municipal obligations, provided that, in the opinion of counsel to the initial seller of each such certificate or instrument, any discount accruing on such certificate or instrument that is purchased at a yield not greater than the coupon rate of interest on the related municipal obligations will be exempt from federal income tax to the same extent as interest on such municipal obligations. The Fund may also invest in tax-exempt obligations by purchasing from banks participation interests in all or part of specific holdings of municipal obligations. Such participations may be backed in whole or part by an irrevocable letter of credit or guarantee of the selling bank. The selling bank may receive a fee from the Fund in connection with the arrangement. The Fund will not purchase such participation interests unless it receives an opinion of counsel or a ruling of the Internal Revenue Service that interest earned by it on municipal obligations in which it holds such participation interests is exempt from federal income tax.
STAND-BY COMMITMENTS
When the Fund purchases municipal obligations, it may also acquire stand-by commitments from banks and broker-dealers with respect to such municipal obligations. A stand-by commitment is the equivalent of a put option acquired by the Fund with respect to a particular municipal obligation held in its portfolio. A stand-by commitment is a security independent of the municipal obligation to which it relates. The amount payable by a bank or dealer during the time a stand-by commitment is exercisable, absent unusual circumstances relating to a change in market value, would be substantially the same as the value of the underlying municipal obligation. A stand-by commitment might not be transferable by the Fund, although it could sell the underlying municipal obligation to a third party at any time.
The Fund expects that stand-by commitments generally will be available without the payment of direct or indirect consideration. However, if necessary and advisable, the Fund may pay for stand-by commitments either separately in cash or by paying a higher price for portfolio securities which are acquired subject to such a commitment (thus reducing the yield to maturity otherwise available for the same securities). The total amount paid in either manner for outstanding stand-by commitments held in the Fund portfolio will not exceed 10% of the value of the Fund's total assets calculated immediately after each stand-by commitment is acquired. The Fund will enter into stand-by commitments only with banks and broker-dealers that, in the judgment of the Trust's Board of Trustees, present minimal credit risks.
VARIABLE AND FLOATING RATE OBLIGATIONS
Variable rate instruments provide for periodic adjustments in the interest rate. Floating rate instruments provide for automatic adjustment of the interest rate whenever some other specified interest rate changes. Some variable and floating rate obligations are direct lending arrangements between the purchaser and the issuer and there may be no active secondary market. However, in the case of variable and floating rate obligations with a demand feature, a Fund may demand payment of principal and accrued interest at a time specified in the instrument or may resell the instrument to a third party. In the event an issuer of a variable or floating rate obligation defaulted on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and could, for this or other reasons, suffer a loss to the extent of the default. Variable or floating rate instruments issued or guaranteed by the U.S. Government or its agencies or instrumentalities are similar in form but may have a more active secondary market. Substantial holdings of variable and floating rate instruments could reduce portfolio liquidity.
If a variable or floating rate instrument is not rated, the Fund's Advisor must determine that such instrument is comparable to rated instruments eligible for purchase by the Funds and will consider the earning power, cash flows and other liquidity ratios of the issuers and guarantors of such instruments and will continuously monitor their financial status in order to meet payment on demand. In determining average weighted portfolio maturity of each of these Funds, a variable or floating rate instrument issued or guaranteed by the U.S. Government or an agency or instrumentality thereof will be deemed to have a maturity equal to the period remaining until the obligation's next interest rate adjustment. Variable and floating rate obligations with a demand feature will be deemed to have a maturity equal to the longer of the period remaining to the next interest rate adjustment or the demand notice period.
INVERSE FLOATERS
Inverse floaters are derivative securities whose interest rates vary inversely to changes in short-term interest rates and whose values fluctuate inversely to changes in long-term interest rates. The value of certain inverse floaters will fluctuate substantially more in response to a given change in long-term rates than would a traditional debt security. These securities have investment characteristics similar to leverage, in that interest rate changes have a magnified effect on the value of inverse floaters.
RULE 144A SECURITIES
The Fund may purchase securities that have been privately placed but that are eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933, as amended ("1933 Act"). That Rule permits certain qualified institutional buyers, such as the Fund, to trade in privately placed securities that have not been registered for sale under the 1933 Act. The Advisor, under the supervision of the Board of Trustees, will consider whether securities purchased under Rule 144A are illiquid and thus subject to the Fund's investment restriction on illiquid securities. A determination of whether a Rule 144A security is liquid or not is a question of fact. In making this determination, the Advisor will consider the trading markets for the specific security, taking
into account the unregistered nature of a Rule 144A security. In addition, the
Advisor could consider the (1) frequency of trades and quotes, (2) number of
dealers and potential purchasers, (3) dealer undertakings to make a market, and
(4) nature of the security and of marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers, and the mechanics of
transfer). The liquidity of Rule 144A securities will be monitored and, if as a
result of changed conditions, it is determined by the Advisor that a Rule 144A
security is no longer liquid, the Fund's holdings of illiquid securities would
be reviewed to determine what, if any, steps are required to assure that the
Fund does not exceed its investment limit on illiquid securities. Investing in
Rule 144A securities could have the effect of increasing the amount of the
Fund's assets invested in illiquid securities if qualified institutional buyers
are unwilling to purchase such securities.
CURRENCY SWAPS. Currency swaps involve the exchange of rights to make or receive payments in specified currencies. Currency swaps usually involve the delivery of the entire principal value of one designated currency. Therefore, the entire principal value of a currency swap is subject to the risk that the other party to the swap will default on its contractual delivery obligations. The use of currency swaps is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. If the Advisor is incorrect in its forecast of market value and currency exchange rates, the investment performance of a Fund would be less favorable than it would have been if this investment technique were not used.
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities which may be exchanged or converted into a predetermined number of shares of the issuer's underlying common stock at the option of the holder during a specified time period. Convertible securities may take the form of convertible preferred stock, convertible bonds or debentures, units consisting of "usable" bonds and warrants or a combination of the features of several of these securities.
Convertible bonds and convertible preferred stocks generally retain the investment characteristics of fixed income securities until they have been converted but also react to movements in the underlying equity securities. The holder is entitled to receive the fixed income of a bond or the dividend preference of a preferred stock until the holder elects to exercise the conversion privilege. Usable bonds are corporate bonds that can be used in whole or in part, customarily at full face value, in lieu of cash to purchase the issuer's common stock. When owned as part of a unit along with warrants, which are options to buy the common stock, they function as convertible bonds, except that the warrants generally will expire before the bond's maturity. Convertible securities are senior to equity securities and therefore have a claim to the assets of the issuer prior to the holders of common stock in the case of liquidation. However, convertible securities are generally subordinated to similar non-convertible securities of the same issuer. The interest income and dividends from convertible bonds and preferred stocks provide a stable stream of income with generally higher yields than common stocks, but lower than non-convertible securities of similar quality. A Fund will exchange or convert the convertible securities held in its portfolio into shares of the underlying common stock in instances in which, in the Advisor's opinion, the investment characteristics of the underlying common stock will assist the Fund in achieving its investment objective. Otherwise, the Fund will hold or trade the convertible securities. In selecting convertible securities for a Fund, the Advisor evaluates the investment characteristics of the convertible security as a fixed income instrument, and the investment potential of the underlying equity security for capital appreciation.
GUARANTEED INVESTMENT CONTRACTS
Pursuant to guaranteed investment contracts ("GICs"), which are issued by U.S. and Canadian insurance companies, a Fund makes cash contributions to a deposit fund of the insurance company's general account. The insurance company then credits to the fund payments at negotiated, floating or fixed interest rates. A GIC is a general obligation of the issuing insurance company and not a separate account. The purchase price paid for a GIC becomes part of the general assets of the insurance company, and the contract is paid from the company's general assets. The Funds will only purchase GICs that are issued or guaranteed by insurance companies that at the time of purchase are rated at least M by S&P or receive a similar high quality rating from a nationally recognized service which provides ratings of insurance companies. GICs are considered illiquid securities and will be subject to any limitations on such investments described in Part 1 of this SAI, unless there is an active and substantial secondary market for the particular instrument and market quotations are readily available. No Fund will invest more than 20% of its total assets in GICs.
BANK INVESTMENT CONTRACTS
Bank investment contracts ("BICs") issued by banks that meet certain quality and asset size requirements for banks are available to the Funds. Pursuant to BICs, cash contributions are made to a deposit account at the bank in exchange for payments at negotiated, floating or fixed interest rates. A BIC is a general obligation of the issuing bank. BICs are considered illiquid securities and will be subject to any limitations on such investments described in Part 1 of this SAI, unless there is an active and substantial secondary market for the particular instrument and market quotations are readily available.
LOAN PARTICIPATIONS
Loan participations are interests in loans which are administered by the lending bank or agent for a syndicate of lending banks, and sold by the lending bank or syndicate member. The Funds may only purchase interests in loan participations issued by a bank in the United States with assets exceeding $1 billion and for which the underlying loan is issued by borrowers in whose obligations the Funds may invest. Because the intermediary bank does not guarantee a loan participation in any way, a loan participation is subject to the credit risk generally associated with the underlying corporate borrower. In addition, in the event the underlying corporate borrower defaults, a Fund may be subject to delays, expenses and risks that are greater than those that would have been involved if the Fund had purchased a direct obligation (such as commercial paper) of the borrower. Under the terms of a loan participation, the purchasing Fund may be regarded as a creditor of the intermediary bank so that the Fund may also be subject to the risk that the issuing bank may become insolvent.
STRUCTURED INVESTMENTS
Structured investments are a relatively new innovation and may be designed to have various combinations of equity and fixed-income characteristics. Equity-linked securities are a form of structured investment and generally consist of a conversion privilege to a single company's common stock plus a fixed annual distribution to the holder. Equity-linked securities have some derivative characteristics because the conversion feature is linked to the price of the company's common stock. Equity-linked securities are designed to provide investors with higher quarterly income than the dividend paid per share on the common stock. However, equity-linked securities have decreased potential for capital appreciation because of limitations of the conversion feature.
Equity-linked securities include issues such as "Structured Yield Product Exchangeable for Stock" ("STRYPES"), "Trust Automatic Common Exchange Securities" ("TRACES"), "Trust Issued Mandatory Exchange Securities" ("TIMES"), "Trust Enhanced Dividend Securities" ("TRENDS") and other similar securities, including those which may be developed in the future. The issuers of the above listed examples of equity-linked securities generally purchase and hold a portfolio of stripped U.S. Treasury securities maturing on a quarterly basis through the conversion date, and a forward purchase contract with an existing shareholder of the company relating to the common stock. Quarterly distributions on equity-linked securities generally consist of the cash received from the U.S. Treasury securities and equity-linked securities generally are not entitled to any dividends that may be declared on the common stock.
Equity-linked securities may be issued by closed-end or other forms of investment companies. To the extent that equity-linked securities are issued by investment companies, a Fund's investments in equity-linked securities are subject to the same limitations as investments in more traditional forms of investment companies.
YANKEE OBLIGATIONS
Yankee obligations are U.S. dollar-denominated instruments of foreign issuers that are either registered with the SEC or issued pursuant to Rule 144A under the 1933 Act. These obligations consist of debt securities (including preferred or preference stock of non-governmental issuers), certificates of deposit, fixed time deposits and banker's acceptances issued by foreign banks, and debt obligations of foreign governments or their subdivisions, agencies and instrumentalities, international agencies and supranational entities. Some securities issued by foreign governments or their subdivisions, agencies and instrumentalities may not be backed by the full faith and credit of the foreign government.
AMERICAN, EUROPEAN, CONTINENTAL AND GLOBAL DEPOSITARY RECEIPTS
American Depositary Receipts ("ADRs") are receipts issued in registered form by a U.S. bank or trust company evidencing ownership of underlying securities issued by a foreign issuer. European Depositary Receipts ("EDRs"), which are sometimes
referred to as Continental Depositary Receipts ("CDRs"), are receipts issued in Europe typically by non-U.S. banks or trust companies and foreign branches of U.S. banks that evidence ownership of foreign or U.S. securities. Global Depositary Receipts ("GDRs") are receipts structured similarly to EDRs and CDRs and are marketed globally. ADRs may be listed on a national securities exchange or may be traded in the over-the-counter market. EDRs and CDRs are designed for use in European exchange and over-the-counter markets. GDRs are designed for trading in non-U.S. securities markets. ADRs, EDRs, CDRs and GDRs traded in the over-the-counter market which do not have an active or substantial secondary market will be considered illiquid and therefore will be subject to the Funds' respective limitations with respect to such securities, if any. If a Fund invests in an unsponsored ADR, EDR, CDR or GDR, there may be less information available to the Fund concerning the issuer of the securities underlying the unsponsored ADR, EDR, CDR or GDR than is available for an issuer of securities underlying a sponsored ADR, EDR, CDR or GDR. ADR prices are denominated in U.S. dollars although the underlying securities are denominated in a foreign currency. Investments in ADRs, EDRs, CDRs and GDRs involve risks similar to those accompanying direct investments in foreign securities.
TEMPORARY CASH BALANCES
The Funds may hold very small temporary cash balances to efficiently manage transactional expenses. These cash balances are expected, under normal conditions, not to exceed 2% of each Fund's net assets at any time (excluding amounts used as margin and segregated assets with respect to futures transactions and collateral for securities loans and repurchase agreements). The Funds may invest these temporary cash balances in short-term debt obligations issued or guaranteed by the U.S. Government or its agencies and instrumentalities ("U.S. Government Securities"), high quality commercial paper (rated A-1 or better by S&P or P-1 or better by Moody's), certificates of deposit and time deposits of banking institutions having total assets in excess of $1 billion, and repurchase agreements collateralized by U.S. Government Securities. The Funds may also hold these investments in connection with U.S. Treasury rolls, which are not subject to the 2% limitation above.
TAXES
In this section, all discussions of taxation at the shareholder and fund levels relate to U.S. federal taxes only. Consult your tax advisor for state, local and foreign tax considerations and for information about special tax considerations that may apply to shareholders that are not natural persons or not U.S. citizens or resident aliens.
FEDERAL TAXES. Although it may be one of several series in a single trust, the Fund is treated as a separate entity for federal income tax purposes under the Internal Revenue Code of 1986, as amended (the "Code"). The Fund has elected (or in the case of a new fund, intends to elect) to be, and intends to qualify to be treated each year as, a "regulated investment company" under Subchapter M of the Code by meeting all applicable requirements of Subchapter M, including requirements as to the nature of the Fund's gross income, the amount of its distributions (as a percentage of both its overall income and any tax-exempt income), and the composition of its portfolio assets.
To qualify as a "regulated investment company," the Fund must (a) derive at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock, securities or foreign currencies or other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies; (b) diversify its holdings so that, at the close of each quarter of its taxable year, (i) at least 50% of the market value of its total assets consists of cash, cash items, U.S. government securities, securities of other regulated investment companies and other securities limited generally with respect to any one issuer to not more than 5% of the total assets of the Fund and not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities of any issuer, other than U.S. government securities or other regulated investment companies; or of two or more issuers which the Fund controls and which are engaged in the same, similar, or related trades or businesses; and (c) distribute with respect to each year at least 90% of its taxable net investment income, its tax-exempt interest income and the excess, if any, of net short-term capital gains over net long-term capital losses for such year. In general, for purposes of the 90% gross income requirement described in (a) above, income derived from a partnership will be treated as qualifying income only to the extent such income is attributable to items of income of the partnership which would be qualifying income if realized by the regulated investment company. However, recent legislation provides that 100% of the net income derived from an interest in a "qualified publicly traded partnership" (defined as a partnership (i) interests in which are traded on an established securities market or readily tradable on a secondary market or the substantial equivalent thereof and (ii) that derives less than 90% of its income from the qualifying income described in (a) above) will be treated as qualifying income. In addition, although in general the passive loss rules of the Code do not apply to regulated
investment companies, such rules do not apply to a regulated investment company with respect to items attributable to an interest in a qualified publicly traded partnership. Finally, for purposes of (c) above, the term "outstanding voting securities of such issuer" will include the equity securities of a qualified publicly traded partnership. As a regulated investment company that is accorded special tax treatment, the Fund will not be subject to any federal income taxes on its net investment income and net realized capital gains that it distributes to shareholders in the form of dividends and in accordance with the timing requirements imposed by the Code. The Fund's foreign-source income, if any, may be subject to foreign withholding taxes. If the Fund were to fail to qualify as a "regulated investment company" accorded special tax treatment in any taxable year, it would incur a regular federal corporate income tax on all of its taxable income, whether or not distributed, and Fund distributions (including any distributions of net tax-exempt income and net long-term capital gains) would generally be taxable as ordinary income to the shareholders, except to the extent they were treated as "qualified dividend income," as described below. In addition, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying as a regulated investment company that is accorded special tax treatment.
If the Fund fails to distribute in a calendar year substantially all of its ordinary income for such year and substantially all of its capital gain net income for the one-year period ending October 31 (or later if the Fund is permitted so to elect and so elects), plus any retained amount from the prior year, the Fund will be subject to a 4% excise tax on the underdistributed amounts. A dividend paid to shareholders by the Fund in January of a year generally is deemed to have been paid by the Fund on December 31 of the preceding year, if the dividend was declared and payable to shareholders of record on a date in October, November or December of that preceding year. The Fund intends generally to make distributions sufficient to avoid imposition of the 4% excise tax.
ALTERNATIVE MINIMUM TAX. Distributions derived from interest that is exempt from regular federal income tax may subject corporate shareholders to or increase their liability under the federal corporate alternative minimum tax (AMT). A portion of such distributions may constitute a tax preference item for individual shareholders and may subject them to or increase their liability under the AMT.
DIVIDENDS RECEIVED DEDUCTIONS. Distributions will qualify for the corporate dividends received deduction only to the extent that dividends earned by the Fund qualify. Any such dividends may be, however, includable in adjusted current earnings for purposes of computing corporate federal AMT. The dividends received deduction for eligible dividends is subject to a holding period requirement.
RETURN OF CAPITAL DISTRIBUTIONS. If the Fund makes a distribution to a shareholder in excess of the Fund's current and accumulated "earning and profits" in any taxable year, the excess distribution will be treated as a return of capital to the extent of the shareholder's tax basis in his or her shares, and thereafter as capital gain. A return of capital is not taxable, but it reduces tax basis in shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition of such shares. Dividends and distributions on a Fund's shares are generally subject to federal income tax as described herein to the extent they do not exceed the Fund's realized income and gains, even though such dividends and distributions may economically represent a return of a particular shareholder's investment. Such distributions are likely to occur in respect of shares purchased at a time when a Fund's net asset value reflects gains that are either unrealized, or realized but not distributed. Such realized gains may be required to be distributed even when a Fund's net asset value also reflects unrealized losses.
FUNDS THAT INVEST IN U.S. GOVERNMENT SECURITIES. Many states grant tax-free status to dividends paid to shareholders of mutual funds from interest income earned by the Fund from direct obligations of the U.S. government. Investments in mortgage-backed securities (including GNMA, FNMA and FHLMC Securities) and repurchase agreements collateralized by U.S. government securities do not qualify as direct federal obligations in most states. Shareholders should consult with their own tax advisors about the applicability of state and local intangible property, income or other taxes to their Fund shares and distributions and redemption proceeds received from the Fund.
FUND DISTRIBUTIONS. Distributions from the Fund (other than qualified dividend income and exempt-interest dividends, as discussed below) will generally be taxable to shareholders as ordinary income to the extent derived from the Fund's investment income and net short-term gains. Distributions of long-term capital gains (that is, the excess of net gains from capital assets held for more than one year over net losses from capital assets held for not more than one year) will be taxable to shareholders as such, regardless of how long a shareholder has held shares in the Fund. In general, any distributions of net capital gains will be taxed to shareholders who are individuals at a maximum rate of 15% for taxable years beginning on or before December 31, 2008.
Distributions are taxable to shareholders even if they are paid from income or gains earned by the Fund before a shareholder's investment (and thus were included in the price of the shareholder paid). Distributions are taxable whether received in cash or in Fund shares.
QUALIFIED DIVIDEND INCOME. For taxable years beginning on or before December 31, 2008, "qualified dividend income" received by an individual will be taxed at the rates applicable to long-term capital gain. In order for some portion of the dividends received by a Fund shareholder to be qualified dividend income, the Fund must meet holding period and other requirements with respect to some portion of the dividend paying stocks in its portfolio and the shareholder must meet holding period and other requirements with respect to the Fund's shares. A dividend will not be treated as qualified dividend income (at either the Fund or shareholder level) (1) if the dividend is received with respect to any share of stock held for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or, in the case of certain preferred stock, 91 days during the 181-day period beginning 90 days before such date), (2) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property, (3) if the recipient elects to have the dividend income treated as investment income for purposes of the limitation on deductibility of investment interest, or (4) if the dividend is received from a foreign corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the United States (with the exception of dividends paid on stock of such a foreign corporation readily tradable on an established securities market in the United States) or (b) treated as a passive foreign investment company. With respect to a Fund investing in bonds, the Fund does not expect a significant portion of Fund distributions to be derived from qualified dividend income.
In general, distributions of investment income properly designated by the Fund as derived from qualified dividend income may be treated as qualified dividend income by a shareholder taxed as an individual provided the shareholder meets the holding period and other requirements described above with respect to his or her shares. If the aggregate qualified dividends received by a fund during any taxable year are 95% or more of its gross income, then 100% of the Fund's dividends (other than properly designated capital gain dividends) will be eligible to be treated as qualified dividend income. For this purpose, the only gain included in the term "gross income" is the excess of net short-term capital gain over net long-term capital loss.
DISTRIBUTIONS FROM TAX-EXEMPT FUNDS. Each tax-exempt Fund will have at least 50% of its total assets invested in tax-exempt bonds at the end of each quarter so that dividends from net interest income on tax-exempt bonds will be exempt from federal income tax when received by a shareholder (but may be taxable for federal alternative minimum tax purposes and for state and local tax purposes). The tax-exempt portion of dividends paid will be designated within 60 days after year-end based upon the ratio of net tax-exempt income to total net investment income earned during the year. That ratio may be substantially different from the ratio of net tax-exempt income to total net investment income earned during any particular portion of the year. Thus, a shareholder who holds shares for only a part of the year may be allocated more or less tax-exempt dividends than would be the case if the allocation were based on the ratio of net tax-exempt income to total net investment income actually earned while a shareholder.
Income from certain "private activity bonds" issued after August 7, 1986, is treated as a tax preference item for the AMT at the maximum rate of 28% for individuals and 20% for corporations. If the Fund invests in private activity bonds, shareholders may be subject to the AMT on that part of the distributions derived from interest income on such bonds. Interest on all tax-exempt bonds is included in corporate adjusted current earnings when computing the AMT applicable to corporations. Seventy-five percent of the excess of adjusted current earnings over the amount of income otherwise subject to the AMT is included in a corporation's alternative minimum taxable income.
Dividends derived from any investments other than tax-exempt bonds and any distributions of short-term capital gains are generally taxable to shareholders as ordinary income. Any distributions of long-term capital gains will in general be taxable to shareholders as long-term capital gains (generally subject to a maximum 15% tax rate for shareholders who are individuals) regardless of the length of time Fund shares are held by the shareholder.
A tax-exempt Fund may at times purchase tax-exempt securities at a discount and some or all of this discount may be included in the Fund's ordinary income which will be taxable when distributed. Any market discount recognized on a tax-exempt bond purchased after April 30, 1993, with a term at time of issue of more than one year is taxable as ordinary income. A market discount bond is a bond acquired in the secondary market at a price below its "stated redemption price" (in the case of a bond with original issue discount, its "revised issue price").
Shareholders receiving social security and certain retirement benefits may be taxed on a portion of those benefits as a result of receiving tax-exempt income, including tax-exempt dividends from the Fund.
SPECIAL TAX RULES APPLICABLE TO TAX-EXEMPT FUNDS. In general, exempt-interest dividends, if any, attributable to interest received on certain private activity obligations and certain industrial development bonds will not be tax-exempt to any shareholders who are "substantial users" of the facilities financed by such obligations or bonds or who are "related persons" of such substantial users, as further defined in the Code. Income derived from the Fund's investments other than tax-exempt instruments may give rise to taxable income. The Fund's shares must be held for more than six months in order to avoid the disallowance of a capital loss on the sale of Fund shares to the extent of tax-exempt dividends paid during that period. Part or all of the interest on indebtedness, if any, incurred or continued by a shareholder to purchase or carry shares of the Fund paying exempt-interest dividends is not deductible. The portion of interest that is not deductible is equal to the total interest paid or accrued on the indebtedness, multiplied by the percentage of the Fund's total distributions (not including distributions from net long-term capital gains) paid to the shareholder that are exempt-interest dividends. Under rules used by the Internal Revenue Service to determine when borrowed funds are considered used for the purpose of purchasing or carrying particular assets, the purchase of shares may be considered to have been made with borrowed funds even though such funds are not directly traceable to the purchase of shares.
SALES OF SHARES. The sale, exchange or redemption of Fund shares may give rise to a gain or loss. In general, any gain realized upon a taxable disposition of shares generally will be treated as long-term capital gain if the shares have been held for more than one year. Otherwise the gain on the sale, exchange or redemption of Fund shares will be treated as short-term capital gain. In general, any loss realized upon a taxable disposition of shares will be treated as long-term loss if the shares have been held more than one year and otherwise as short-term loss. However, any loss realized upon a taxable disposition of shares held for six months or less will be disallowed for federal income tax purposes to the extent of any exempt-interest dividends received on such shares. In addition, any loss (not already disallowed as provided in the preceding sentence) realized upon a taxable disposition of shares held for six months or less will be treated as long-term, rather than short-term, capital loss to the extent of any long-term capital gain distributions received by the shareholder with respect to those shares. All or a portion of any loss realized upon a taxable disposition of shares will be disallowed if other shares are purchased within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss.
Under Treasury regulations, if on a disposition of Fund shares a shareholder recognizes a loss of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder will likely have to file with the Internal Revenue Service a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all regulated investment companies. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. You are advised to consult with your tax advisor.
BACKUP WITHHOLDING. Certain distributions and redemptions may be subject to backup withholding for taxpayers who fail to furnish a correct taxpayer identification number, who have under-reported dividend or interest income, or who fail to certify to the Fund that the shareholder is a United States person and is not subject to the withholding. This number and certification may be provided by either a Form W-9 or the accompanying application. In certain instances, CMS may be notified by the Internal Revenue Service that a shareholder is subject to backup withholding. The backup withholding rate is 28% for amounts paid through 2010. The backup withholding rate will be 31 % for amounts paid after December 31, 2010.
HEDGING TRANSACTIONS. If the Fund engages in hedging transactions, including hedging transactions in options, futures contracts and straddles, or other similar transactions, it will be subject to special tax rules (including constructive sale, mark-to-market, straddle, wash sale and short sale rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund's securities, convert long-term capital gains into short-term capital gains or convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. The Fund will endeavor to make any available elections pertaining to such transactions in a manner believed to be in the best interests of the Fund and its shareholders.
SECURITIES ISSUED AT A DISCOUNT. The Fund's investment in debt securities issued at a discount and certain other obligations will (and investments in securities purchased at a discount may) require the Fund to accrue and distribute income not yet received. In such cases, the Fund may be required to sell assets (possibly at a time when it is not advantageous to do so) to
generate the cash necessary to distribute as dividends to its shareholders all of its income and gains and therefore to eliminate any tax liability at the Fund level.
FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING TRANSACTIONS. The Fund's transactions in foreign currencies, foreign currency-denominated debt securities, certain foreign currency options, futures contracts and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned. This may produce a difference between the Fund's book income and its taxable income, possibly accelerating distributions or converting distributions of book income and gains to returns of capital for book purposes.
If more than 50% of the Fund's total assets at the end of its fiscal year are invested in stock or securities of foreign corporate issuers, the Fund may make an election permitting its shareholders to take a deduction or credit for federal income tax purposes for their pro rata portion of certain qualified foreign taxes paid by the Fund to foreign countries in respect of foreign securities the Fund has held for at least the minimum period specified in the Code. The Advisor will consider the value of the benefit to a typical shareholder, the cost to the Fund of compliance with the election, and incidental costs to shareholders in deciding whether to make the election. A shareholder's ability to claim such a foreign tax credit or deduction in respect of foreign taxes will be subject to certain limitations imposed by the Code, including a holding period requirement, as a result of which a shareholder may not get a full credit or deduction for the amount of foreign taxes so paid by the Fund. Shareholders who do not itemize on their federal income tax returns may claim a credit (but not a deduction) for such foreign taxes.
Investment by the Fund in "passive foreign investment companies" could subject the Fund to a U.S. federal income tax or other charge on the proceeds from the sale of its investment in such a company; however, this tax can be avoided by making an election to mark such investments to market annually or to treat the passive foreign investment company as a "qualified electing Fund." A "passive foreign investment company" is any foreign corporation: (i) 75 percent or more of the income of which for the taxable year is passive income, or (ii) the average percentage of the assets of which (generally by value, but by adjusted tax basis in certain cases) that produce or are held for the production of passive income is at least 50 percent. Generally, passive income for this purpose means dividends, interest (including income equivalent to interest), royalties, rents, annuities, the excess of gain over losses from certain property transactions and commodities transactions, and foreign currency gains. Passive income for this purpose does not include rents and royalties received by the foreign corporation from active business and certain income received from related persons.
NON-U.S. SHAREHOLDERS. Capital gain dividends will not be subject to withholding
of federal income tax. In general, dividends (other than Capital Gain Dividends)
paid by the Fund to a shareholder that is not a "U.S. person" within the meaning
of the Code (such shareholder, a "foreign person") are subject to withholding of
U.S. federal income tax at a rate of 30% (or lower applicable treaty rate) even
if they are funded by income or gains (such as portfolio interest, short-term
capital gains, or foreign-source dividend and interest income) that, if paid to
a foreign person directly, would not be subject to withholding. However, under
recent legislation, effective for taxable years of the Fund beginning after
December 31, 2004 and before January 1, 2008, the Fund will not be required to
withhold any amounts (i) with respect to distributions (other than distributions
to a foreign person (w) that has not provided a satisfactory statement that the
beneficial owner is not a U.S. person, (x) to the extent that the dividend is
attributable to certain interest on an obligation if the foreign person is the
issuer or is a 10% shareholder of the issuer, (y) that is within certain foreign
countries that have inadequate information exchange with the United States, or
(z) to the extent the dividend is attributable to interest paid by a person that
is a related person of the foreign person and the foreign person is a controlled
foreign corporation) from U.S.-source interest income that, in general, would
not be subject to U.S. federal income tax if earned directly by an individual
foreign person, to the extent such distributions are properly designated by the
Fund, and (ii) with respect to distributions (other than distributions to an
individual foreign person who is present in the United States for a period or
periods aggregating 183 days or more during the year of the distribution) of net
short-term capital gains in excess of net long-term capital losses, to the
extent such distributions are properly designated by the Fund. The Fund has not
determined whether it will make such designations.
If a beneficial holder who is a foreign person has a trade or business in the United States, and the dividends are effectively connected with the conduct by the beneficial holder of a trade or business in the United States, the dividend will be subject to U.S. federal net income taxation at regular income tax rates.
Recent legislation modifies the tax treatment of distributions from the Fund that are paid to a foreign person and are attributable to gain from "U.S. real property interests" ("USRPIs"), which the Code defines to include direct holdings of U.S. real property
and interests (other than solely as a creditor) in "U.S. real property holding corporations" such as REITs. The Code deems any corporation that holds (or held during the previous five-year period) USRPIs with a fair market value equal to 50% or more of the fair market value of the corporation's U.S. and foreign real property assets and other assets used or held for use in a trade or business to be a U.S. real property holding corporation; however, if any class of stock of a corporation is traded on an established securities market, stock of such class shall be treated as a USRPI only in the case of a person who holds more than 5% of such class of stock at any time during the previous five-year period. Under the legislation, which is generally effective for taxable years of RICs beginning after December 31, 2004 and which applies to dividends paid or deemed paid on or before December 31, 2007, distributions to foreign persons attributable to gains from the sale or exchange of USRPIs will give rise to an obligation for those foreign persons to file a U.S. tax return and pay tax, and may well be subject to withholding under future regulations.
Under U.S. federal tax law, a beneficial holder of shares who is a foreign person is not, in general, subject to U.S. federal income tax on gains (and is not allowed a deduction for losses) realized on the sale of shares of the Fund or on Capital Gain Dividends unless (i) such gain or Capital Gain Dividend is effectively connected with the conduct of a trade or business carried on by such holder within the United States, (ii) in the case of an individual holder, the holder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale or Capital Gain Dividend and certain other conditions are met, or (iii) the shares constitute USRPIs or the Capital Gain Dividends are paid or deemed paid on or before December 31, 2007 and are attributable to gains from the sale or exchange of USRPIs. Effective after December 31, 2004, and before January 1, 2008, if the Fund is a U.S. real property holding corporation (as described above) the Fund's shares will nevertheless not constitute USRPIs if the Fund is a "domestically controlled qualified investment entity," which is defined to include a RIC that, at all times during the shorter of the 5-year period ending on the date of the disposition or the period during which the RIC was in existence, had less than 50 percent in value of its stock held directly or indirectly by foreign persons.
ADDITIONAL TAX MATTERS CONCERNING TRUST SHARES (THIS SECTION IS APPLICABLE ONLY TO THE COLUMBIA TAX-MANAGED GROWTH FUND)
FEDERAL GIFT TAXES. An investment in Trust Shares may be a taxable gift for federal tax purposes, depending upon the option selected and other gifts that the donor and his or her spouse may make during the year.
Under the Columbia Advantage Plan, the entire amount of the gift will be a "present interest" that qualifies for the federal gift tax annual exclusion. In that case, the donor will be required to file a federal gift tax return on account of this gift only if (i) the aggregate present interest gifts by the donor to the particular beneficiary (including the gift of Trust Shares) exceeds the annual gift-tax exemption, which in 2006 is $12,000 or (ii) the donor wishes to elect gift splitting on gifts with his or her spouse for the year. The trustee will notify the beneficiary of his or her right of withdrawal promptly following any contribution under the Advantage Plan.
Under the Columbia Gift Plan, the entire amount of the gift will be a "future interest" for federal gift tax purposes, so that none of the gift will qualify for the federal gift tax annual exclusion. Consequently, the donor will have to file a federal gift tax return (IRS Form 709) reporting the entire amount of the gift, even if the gift is less than $12,000.
No federal gift tax will be payable by the donor until his or her cumulative taxable gifts (i.e., gifts other than those qualifying for the annual exclusion or otherwise exempt), including taxable gifts of other assets as well as any taxable gifts of trust shares, exceed the federal gift and estate tax exemption equivalent amount, which is $1,000,000 for gifts made after December 31, 2001, and before January 1,2010.
Any gift of Trust Shares that does not qualify as a present interest or that exceeds the available annual exclusion amount will reduce the amount of the donor's Federal gift and estate tax exemption (if any) that would otherwise be available for future gifts for transfers at death.
The donor and his or her spouse may elect "gift-splitting" for any gift of Trust Shares (other than a gift to such spouse), meaning that the donor and his or her spouse may elect to treat the gift as having been made one-half by each of them, thus allowing a total gift of $24,000.
The donor's gift of Fund shares may also have to be reported for state gift tax purposes, if the state in which the donor resides imposes a gift tax. Many states do not impose such a tax. Some states follow the Federal rules concerning the types of transfers subject to tax and the availability of the annual exclusion.
GENERATION-SKIPPING TRANSFER TAXES
If the beneficiary of a gift of Trust Shares is a relative who is two generations or more younger than the donor, or is not a relative and is more than 37 1/2 years younger than the donor, the gift will be subject in whole or in part to the generation-skipping transfer tax (the "GST tax") unless the gift is made under the Columbia Advantage Plan and does not exceed the available annual exclusion amount. An exemption (the "GST exemption"), equal to $2 million in 2006, is allowed against this tax, and so long as the GST exemption has not been used by other transfers it will automatically be allocated to a gift of Trust Shares that is subject to the GST tax unless the donor elects otherwise. Such an election is made by reporting the gift on a timely filed gift tax return and paying the applicable GST tax. The GST tax is imposed at a flat rate (46% for gifts made in 2006) on the amount of the gift, and payment of the tax by the donor is treated as an additional gift for gift tax purposes.
INCOME TAXES
The Internal Revenue Service takes the position that a trust beneficiary who is given a power of withdrawal over contributions to the trust should be treated, for Federal income tax purposes, as the "owner" of the portion of the trust that was subject to the power. Accordingly, if the donor selects Columbia Advantage Trust Shares, the beneficiary will be treated as the "owner" of all of the Fund shares in the account for Federal income tax purposes, and will be required to report all of the income and capital gains earned in the trust on his or her personal Federal income tax return. The trust will not pay Federal income taxes on any of the trust's income or capital gains. The trustee will prepare and file the Federal income tax information returns that are required each year (and any state income tax returns that may be required), and will send the beneficiary a statement following each year showing the amounts (if any) that the beneficiary must report on his or her income tax returns for that year. If the beneficiary is under fourteen years of age, these amounts may be subject to Federal income taxation at the marginal rate applicable to the beneficiary's parents. The beneficiary may at any time after the creation of the trust irrevocably elect to require the trustee to pay him or her a portion of the trust's income and capital gains annually thereafter to provide funds with which to pay any resulting income taxes, which the trustee will do by redeeming Trust Shares. The amount distributed will be a fraction of the trust's ordinary income and short-term capital gains and the trust's long-term capital gains equal to the highest marginal Federal income tax rate imposed on each type of income (currently, 35% and 15%, respectively). If the beneficiary selects this option, he or she will receive those fractions of his or her trust's income and capital gains annually for the duration of the trust.
Under the Columbia Advantage Plan, the beneficiary will also be able to require the trustee to pay his or her tuition, room and board and other expense of his or her college or post-graduate education, and the trustee will raise the cash necessary to fund these distributions by redeeming Trust Shares. Any such redemption will result in the realization of capital gain or loss on the shares redeemed, which will be reportable by the beneficiary on his or her income tax returns for the year in which the shares are redeemed, as described above. Payments must be made directly to the educational institution.
If the donor selects the Columbia Gift Plan, the trust that he or she creates will be subject to Federal income tax on all income and capital gains realized by it, less a $100 annual exemption (in lieu of the personal exemption allowed to individuals). The amount of the tax will be determined under the tax rate schedule applicable to estates and trusts, which is more sharply graduated than the rate schedule for individuals, reaching the same maximum marginal rate for ordinary income or short-term capital gains (currently, 35%), but at a much lower taxable income level than would apply to an individual. It is anticipated, however, that most of the gains taxable to the trust will be long-term capital gain, on which the Federal income tax rate is currently limited to 15%. The trustee will raise the cash necessary to pay any Federal or state income taxes by redeeming Fund shares. The beneficiary will not pay Federal income taxes on any of the trust's income or capital gains, except those earned in the year when the trust terminates. The trustee will prepare and file all Federal and state income tax returns that are required each year, and will send the beneficiary an information statement for the year in which the trust terminates showing the amounts (if any) that the beneficiary must report on his or her Federal and state income tax returns for that year.
When the trust terminates, the distribution of the remaining shares held in the trust to the beneficiary will not be treated as a taxable disposition of the shares. Any Fund shares received by the beneficiary will have the same cost basis as they had in the trust at the time of termination. Any Fund shares received by the beneficiary's estate will have a basis equal to the value of the shares at the beneficiary's death (or the alternate valuation date for Federal estate tax purposes, if elected).
CONSULTATION WITH QUALIFIED ADVISOR
Due to the complexity of Federal and state gift, GST and income tax laws pertaining to all gifts in trust, prospective donors should consider consulting with their financial or tax advisor before investing in Trust Shares.
MANAGEMENT OF THE FUNDS Columbia Management Advisors, LLC ("Columbia Advisors" or "CMA" or the "Advisor"), located at 100 Federal Street, Boston, Massachusetts 02110 is the Advisor to the Funds. The Advisor provides administrative and management services to the Funds. Columbia Advisors is a direct, wholly owned subsidiary of Columbia Management Group, LLC ("CMG"), which in turn is a direct, wholly owned subsidiary of Bank of America, which in turn is a wholly owned banking subsidiary of Bank of America Corporation, a financial services holding company organized as a Delaware corporation. On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005 Columbia Management was the investment advisor to the Funds. As a result of the merger, Columbia Advisors is now the investment advisor to the Funds. Columbia Advisors, a registered investment advisor, has been an investment advisor since 1995.
TRUSTEES AND OFFICERS (THIS SECTION APPLIES TO ALL OF THE FUNDS)
The Trustees and officers serve terms of indefinite duration. Each Fund held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once every five years thereafter, to elect Trustees. The names and ages of the Trustees and officers of the Fund Complex, the year each was first elected or appointed to office, their principal business occupations during at least the last five years, the number of portfolios overseen by each Trustee and other directorships they hold are shown below. The address for each Trustee is c/o Columbia Funds, One Financial Center, Boston, MA 02111.
NUMBER OF
YEAR FIRST PORTFOLIOS IN
ELECTED OR COLUMBIA FUND
APPOINTED COMPLEX
NAME, ADDRESS POSITION TO PRINCIPAL OCCUPATION(S) OVERSEEN
AND AGE WITH FUNDS OFFICE(1) DURING PAST FIVE YEARS BY TRUSTEE OTHER DIRECTORSHIPS HELD
---------------------- ---------- ---------- ----------------------- ------------- ------------------------
DISINTERESTED TRUSTEE
Douglas A. Hacker Trustee 1996 Executive Vice 83 Nash Finch Company (food
(Age 50) President--Strategy of distributor)
United Airlines
(airline) since
December, 2002
(formerly President of
UAL Loyalty Services
(airline) from
September, 2001 to
December, 2002;
Executive Vice
President and Chief
Financial Officer of
United Airlines from
July, 1999 to
September, 2001; Senior
Vice President-Finance
from March, 1993 to
July, 1999).
|
NUMBER OF
YEAR FIRST PORTFOLIOS IN
ELECTED OR COLUMBIA FUND
APPOINTED COMPLEX
NAME, ADDRESS POSITION TO PRINCIPAL OCCUPATION(S) OVERSEEN
AND AGE WITH FUNDS OFFICE(1) DURING PAST FIVE YEARS BY TRUSTEE OTHER DIRECTORSHIPS HELD
---------------------- ---------- ---------- ----------------------- ------------- ------------------------
DISINTERESTED TRUSTEES
Janet Langford Kelly Trustee 1996 Partner, Zelle, 83 None
(Age 48) Hofmann, Voelbel, Mason
& Gette LLP (law firm)
since March, 2005;
Adjunct Professor of
Law, Northwestern
University, since
September, 2004
(formerly Chief
Administrative Officer
and Senior Vice
President, Kmart
Holding Corporation
(consumer goods), from
September, 2003 to
March, 2004; Executive
Vice
President-Corporate
Development and
Administration, General
Counsel and Secretary,
Kellogg Company (food
manufacturer), from
September, 1999 to
August, 2003; Senior
Vice President,
Secretary and General
Counsel, Sara Lee
Corporation (branded,
packaged, consumer-
products manufacturer)
from January, 1995 to
September, 1999).
Richard W. Lowry Trustee 1995 Private Investor since 85 None
(Age 69) August, 1987 (formerly
Chairman and Chief
Executive Officer, U.S.
Plywood Corporation
(building products
manufacturer)).
|
NUMBER OF
YEAR FIRST PORTFOLIOS IN
ELECTED OR COLUMBIA FUND
APPOINTED COMPLEX
NAME, ADDRESS POSITION TO PRINCIPAL OCCUPATION(S) OVERSEEN
AND AGE WITH FUNDS OFFICE(1) DURING PAST FIVE YEARS BY TRUSTEE OTHER DIRECTORSHIPS HELD
------------------ ---------- ---------- --------------------------- ------------- ------------------------
DISINTERESTED
TRUSTEES
Charles R. Nelson Trustee 1981 Professor of Economics, 83 None
(Age 63) University of Washington,
since January, 1976; Ford
and Louisa University of
Washington Van Voorhis
Professor of Political
Economy, University of
Washington, since
September, 1993 (formerly
Director, Institute for
Economic Research,
University of Washington
from September, 2001 to
June, 2003); Adjunct
Professor of Statistics,
University of Washington,
since September, 1980;
Associate Editor, Journal
of Money Credit and
Banking, since September,
1993; consultant on
econometric and statistical
matters.
John J. Neuhauser Trustee 1985 Academic Vice President and 85 Saucony, Inc. (athletic
(Age 63) Dean of Faculties since footwear)
August, 1999, Boston
College (formerly Dean,
Boston College School of
Management from September,
1977 to August, 1999).
Patrick J. Simpson Trustee 2000 Partner, Perkins Coie 83 None
(Age 61) L.L.P. (law firm).
|
NUMBER OF
YEAR FIRST PORTFOLIOS IN
ELECTED OR COLUMBIA FUND
APPOINTED COMPLEX
NAME, ADDRESS POSITION TO PRINCIPAL OCCUPATION(S) OVERSEEN
AND AGE WITH FUNDS OFFICE(1) DURING PAST FIVE YEARS BY TRUSTEE OTHER DIRECTORSHIPS HELD
------------------ ------------ ---------- --------------------------- ------------- ------------------------
Thomas E. Stitzel Trustee 1998 Business Consultant since 83 None
(Age 69) 1999 (formerly Professor of
Finance from 1975 to 1999,
College of Business, Boise
State University);
Chartered Financial
Analyst.
DISINTERESTED
TRUSTEES
Thomas C. Theobald Trustee 1996 Partner and Senior 83 Anixter International
(Age 68) and Chairman Advisor, Chicago Growth
of the Partners (private equity
Board investing) since
September, 2004 (formerly
Managing Director, William
Blair Capital Partners
(private equity investing)
from September, 1994 to
September, 2004). (network
support equipment
distributor); Ventas, Inc.
(real estate investment
trust); Jones Lang LaSalle
(real estate management
services) and Ambac
Financial Group (financial
guaranty insurance)
Anne-Lee Verville Trustee 1998 Retired since 1997 83 Chairman of the Board of
(Age 60) (formerly General Manager, Directors, Enesco
Global Education Industry, Group,Inc. (designer,
IBM Corporation (computer importer and distributor
and technology) from 1994 of giftware and
to 1997). collectibles)
|
NUMBER OF
YEAR FIRST PORTFOLIOS IN
ELECTED OR COLUMBIA FUND
APPOINTED COMPLEX
NAME, ADDRESS POSITION TO PRINCIPAL OCCUPATION(S) OVERSEEN
AND AGE WITH FUNDS OFFICE(1) DURING PAST FIVE YEARS BY TRUSTEE OTHER DIRECTORSHIPS HELD
-------------------- ---------- ---------- --------------------------- ------------- ------------------------
Richard L. Woolworth Trustee 1991 Retired since December, 83 Northwest Natural Gas
(Age 64) 2003 (formerly Chairman and (natural gas service
Chief Executive Officer, provider)
The Regence Group Co.
(regional health insurer);
Chairman and Chief
Executive Officer,
BlueCross BlueShield of
Oregon; Certified Public
Accountant, Arthur Young &
Company)
INTERESTED TRUSTEE
William E. Mayer(2) Trustee 1994 Partner, Park Avenue Equity 85 Lee Enterprises (print
(Age 65) Partners (private equity) media), WR Hambrecht +
since February, 1999 Co. (financial service
(formerly Partner, provider); Reader's
Development Capital LLC Digest (publishing);
from November, 1996 to OPENFIELD Solutions
February, 1999). (retail industry
technology provider)
|
(2) Mr. Mayer is an "interested person" (as defined in the 1940 Act) by reason of his affiliation with WR Hambrecht + Co.
YEAR FIRST
ELECTED OR
POSITION APPOINTED TO PRINCIPAL OCCUPATION(S)
NAME, ADDRESS AND AGE WITH FUNDS OFFICE DURING PAST FIVE YEARS
--------------------- ---------- ------------ -------------------------------
OFFICERS
Christopher L. Wilson President 2004 Head of Mutual Funds since
(Age 48) One August, 2004 and Managing
Financial Center Director of the Advisor since
Boston, MA 02111 September, 2005; President and
Chief Executive Officer, CDC
IXIS Asset Management Services,
Inc. from September, 1998 to
August, 2004).
OFFICERS
J. Kevin Connaughton Treasurer 2000 Managing Director of the
(Age 41) One and Chief Advisor since September, 2005;
Financial Center Financial Vice President of Columbia
Boston, MA 02111 Officer Management Advisors Inc. from
April, 2003 to August, 2005.
|
YEAR FIRST
ELECTED OR
POSITION APPOINTED TO PRINCIPAL OCCUPATION(S)
NAME, ADDRESS AND AGE WITH FUNDS OFFICE DURING PAST FIVE YEARS
--------------------------- ------------- ------------ -----------------------------------------------------------
Mary Joan Hoene (Age 56) Senior Vice 2004 Senior Vice President and Chief Compliance Officer of
100 Federal Street President and various funds in the Columbia Fund Complex; Partner,
Boston, MA 02110 Chief Carter, Ledyard & Milburn LLP from January, 2001 to
Compliance August, 2004; Counsel, Carter, Ledyard & Milburn LLP from
Officer November, 1999 to December, 2000; Vice President and
Counsel, Equitable Life Assurance Society of the United
States from April, 1998 to November, 1999.
Michael G. Clarke (Age 36) Chief 2004 Managing Director of the Advisor since September, 2005;
One Financial Center Accounting Assistant Vice President of the Advisor from August, 1999
Boston, MA 02111 Officer to February, 2001.
OFFICERS
Jeffrey R. Coleman (Age 36) Controller 2004 Group Operations Manager of the Advisor since October,
One Financial Center 2004; Vice President of CDC IXIS Asset Management
Boston, MA 02111 Services, Inc.; Assistant Vice President of CDC IXIS Asset
Management Services, Inc. from August, 2000 to February,
2003.
R. Scott Henderson (Age 46) Secretary 2004 Associate General Counsel, Bank of America since
One Financial Center September, 2004; Of Counsel, Bingham McCutchen LLP
Boston, MA 02111 from April, 2001 to September, 2004; Executive Director and
General Counsel, Massachusetts Pension Reserves
Investment Management Board from September, 1997 to
March, 2001.
|
Each of the Trust's Trustees and officers hold comparable positions with certain other funds the Advisor or its affiliates is the investment advisor or distributor and, in the case of certain of the officers, with certain affiliates of the Advisor.
Trustee Positions
As of December 31, 2004, no disinterested Trustee or any of their immediate family members owned beneficially or of record any class of securities of the Advisor, another investment advisor, sub-advisor or portfolio manager of any of the funds in the Fund Complex or any person controlling, controlled by or under common control with any such entity.
Approving the Investment Advisory Contract
In determining to approve the most recent annual extension of a Fund's management agreement, the Trustees met over the course of the year with the relevant investment advisory personnel from the Advisor and considered information provided by the Advisor relating to the education, experience and number of investment professionals and other personnel providing services under that agreement. See "Managing the Fund" in each Fund's Prospectus and "Trustees and Officers" in this SAI. The Trustees also took into account the time and attention devoted by senior management to the Funds and the other funds in the Fund Complex. The Trustees evaluated the level of skill required to manage the Funds and concluded that the human resources devoted by the Advisor to the Funds were appropriate to fulfill effectively the Advisor's duties under the agreement. The Trustees also considered the business reputation of the Advisor and its financial resources, and concluded that the Advisor would be able to meet any reasonably foreseeable obligations under the agreement.
The Trustees received information concerning the investment philosophy and investment process applied by the Advisor in managing the Funds. See "Principal Investment Strategies" and "Principal Investment Risks" in the Funds' Prospectuses. In this connection, the Trustees considered the Advisor's in-house research capabilities as well as other resources available to the Advisor's personnel, including research services available to the Advisor as a result of securities transactions effected for the
Funds and other investment advisory clients. The Trustees concluded that the Advisor's investment process, research capabilities and philosophy were well suited to each Fund, given each Fund's investment goal(s) and policies.
The Trustees considered the scope of the services provided by the Advisor to the Funds under the agreement relative to services provided by third parties to other mutual funds. See "Fund Charges and Expenses" and "Management of the Funds--The Management Agreement". The Trustees concluded that the scope of the Advisor's services to the Funds was consistent with the Funds' operational requirements, including, in addition to its investment goal, compliance with each Fund's investment restrictions, tax and reporting requirements and related shareholder services.
The Trustees considered the quality of the services provided by the Advisor to the Funds. The Trustees evaluated the Advisor's record with respect to regulatory compliance and compliance with the investment policies of each Fund. The Trustees also evaluated the procedures of the Advisor designed to fulfill the Advisor's fiduciary duty to the Funds with respect to possible conflicts of interest, including the Advisor's code of ethics (regulating the personal trading of its officers and employees) (see "Management of the Funds--Code of Ethics"), the procedures by which the Advisor allocates trades among its various investment advisory clients and the record of the Advisor in these matters. The Trustees also received information concerning standards of the Advisor with respect to the execution of portfolio transactions. See "Management of the Funds--Portfolio Transactions."
The Trustees considered the Advisor's management of non-advisory services provided by persons other than the Advisor by reference, among other things, to each Fund's total expenses and the reputation of each Fund's other service providers. See "Your Expenses" in each Fund's Prospectus(es). The Trustees also considered information provided by third parties relating to each Fund's investment performance relative to its performance benchmark(s), relative to other similar funds managed by the Advisor and relative to funds managed similarly by other advisors. The Trustees reviewed performance over various periods, including each Fund's one, five and ten year calendar year periods and/or the life of the Fund, as applicable (See "Performance History" in the Fund's Prospectuses), as well as factors identified by the Advisor as contributing to each Fund's performance. See each Fund's most recent annual and semi-annual reports. The Trustees concluded that the scope and quality of the Advisor's services was sufficient to merit reapproval of the agreement for another year.
In reaching that conclusion, the Trustees also gave substantial consideration to the fees payable under the agreement. The Trustees reviewed information concerning fees paid to investment advisors of similarly-managed funds. The Trustees also considered the fees of the Funds as a percentage of assets at different asset levels and possible economies of scale to the Advisor. The Trustees evaluated the Advisor's profitability with respect to the Funds, concluding that such profitability appeared to be generally consistent with levels of profitability that had been determined by courts to be "not excessive." For these purposes, the Trustees took into account not only the actual dollar amount of fees paid by the Funds directly to the Advisor, but also so-called "fallout benefits" to the Advisor such as reputational value derived from serving as investment Advisor to the Funds and the research services available to the Advisor by reason of brokerage commissions generated by each Fund's turnover. In evaluating the Funds' advisory fees, the Trustees also took into account the complexity of investment management for the Funds relative to other types of funds. Based on challenges associated with less readily available market information about foreign issuers and smaller capitalization companies, limited liquidity of certain securities, and the specialization required for focused funds, the Trustees concluded that generally greater research intensity and trading acumen is required for equity funds, and for international or global funds, as compared to funds investing, respectively, in debt obligations or in U.S. issuers. Similarly, the Trustees concluded that, generally, small capitalization equity funds and focused funds including state specific municipal funds, require greater intensity of research and trading acumen than larger capitalization or more diversified funds. See "The Fund" in each Fund's Prospectus.
Based on the foregoing, the Trustees concluded that the fees to be paid the Advisor under the advisory agreement were fair and reasonable, given the scope and quality of the services rendered by the Advisor.
General
Messrs. Lowry, Mayer and Neuhauser are also trustees/directors of the Liberty All-Star Funds.
The Trustees serve as trustees of 83 registered investment companies managed by the Advisor for which each Trustee receives a retainer at the annual rate of $75,000, an attendance fee of $10,500 for each regular and special joint board meeting and $1,000 for each special telephonic joint board meeting. Mr. Theobald serves as the Chairman of the Board. As the independent
chairman of the board, Mr. Theobald receives a supplemental retainer at the annual rate of $100,000; the chair of the Audit Committee receives a supplemental retainer at the annual rate of $20,000; the chair of the Advisory Fees and Expenses Committee receives a supplemental retainer at the annual rate of $15,000; the chair of each other committee receives a supplemental retainer at the annual rate of $10,000. Members of each committee, except the Audit Committee, receive $2,500 for each committee meeting and $1,000 for each telephonic committee meeting. Each Audit Committee member receives $3,000 for each Audit Committee meeting. Committee members receive $2,500 for each special committee meeting attended on a day other than a regular joint board meeting day. Two-thirds of the Trustee fees are allocated among the Funds based on each Fund's relative net assets and one-third of the fees is divided equally among the Funds.
Trustees and officers of the Trust, who are also officers of the Advisor or its affiliates, will benefit from the advisory fees, sales commissions and agency fees paid or allowed by the Trust.
The Agreement and Declaration of Trust ("Declaration") of the Trust provides that the Trust will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Trust but that such indemnification will not relieve any officer or Trustee of any liability to the Trust or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. The Trust, at its expense, provides liability insurance for the benefit of its Trustees and officers.
The Trustees have the authority to convert the Funds into a master fund/feeder fund structure. Under this structure, a Fund may invest all or a portion of its investable assets in investment companies with substantially the same investment goals, policies and restrictions as the Fund. The primary reason to use the master fund/feeder fund structure is to provide a mechanism to pool, in a single master fund, investments of different investor classes, resulting in a larger portfolio, investment and administrative efficiencies and economies of scale.
MANAGEMENT AGREEMENT
Under a Management Agreement (the "Agreement"), the Advisor has contracted to furnish each Fund with investment research and recommendations or fund management, respectively, and accounting and administrative personnel and services, and with office space, equipment and other facilities. For these services and facilities, each Fund pays a monthly fee based on the average of the daily closing value of the total net assets of each Fund for such month. Under the Agreement, any liability of the Advisor to the Trust, a Fund and/or its shareholders is limited to situations involving the Advisor's own willful misfeasance, bad faith, gross negligence or reckless disregard of its duties.
The Agreement may be terminated with respect to the Fund at any time on 60 days'
written notice by the Advisor or by the Trustees of the Trust or by a vote of a
majority of the outstanding voting securities of the Fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the Fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Advisor or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
The Advisor pays all salaries of officers of the Trust. The Trust pays all expenses not assumed by the Advisor including, but not limited to, auditing, legal, custodial, investor servicing and shareholder reporting expenses. The Trust pays the cost of printing and mailing any Prospectuses sent to shareholders. CMD pays the cost of printing and distributing all other Prospectuses.
ADMINISTRATION AGREEMENT (THIS SECTION APPLIES ONLY TO CERTAIN FUNDS AND THEIR RESPECTIVE TRUSTS. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION REGARDING YOUR FUND).
Under an Administration Agreement, the Advisor, in its capacity as the Administrator to each Fund, has contracted to perform the following administrative services:
(a) providing office space, equipment and clerical personnel;
(b) arranging, if desired by the respective Trust, for its directors, officers and employees to serve as Trustees, officers or agents of each Fund;
(c) preparing and, if applicable, filing all documents required for compliance by each Fund with applicable laws and regulations;
(d) preparation of agendas and supporting documents for and minutes of meetings of Trustees, committees of Trustees and shareholders;
(e) coordinating and overseeing the activities of each Fund's other third-party service providers; and
(f) maintaining certain books and records of each Fund.
The Advisor is paid a monthly fee at the annual rate of average daily net assets set forth in Part 1 of this SAI.
TRUST SERVICES AGREEMENT
Pursuant to a Trust Services Agreement, CMS provides the Columbia Tax-Managed Growth Fund's Trust Shares with trust administration services, including tax return preparation and filing, other tax and beneficiary reporting and recordkeeping. CMS's fee is described in the Prospectuses of the Columbia Tax-Managed Growth Fund.
THE PRICING AND BOOKKEEPING AGREEMENT
The Advisor is responsible for providing accounting and bookkeeping services to each Fund pursuant to a pricing and bookkeeping agreement. Under a separate agreement ("Outsourcing Agreement"), the Advisor has delegated those functions to State Street Bank and Trust Company (State Street). The Advisor pays fees to State Street under the Outsourcing Agreement. SEE "FUND CHARGES AND EXPENSES" IN
PART 1 OF THIS SAI FOR INFORMATION ON THESE FEES.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. The Advisor acts as investment advisor to each of the Funds. Various officers and Trustees of the Trust also serve as officers or Trustees of other funds and the other corporate or fiduciary clients of the Advisor. The Funds and clients advised by the Advisor or the Funds administered by the Advisor sometimes invest in securities in which the Fund also invests and sometimes engage in covered option writing programs and enter into transactions utilizing stock index options and stock index and financial futures and related options ("other instruments"). If the Fund, such other funds and such other clients desire to buy or sell the same portfolio securities, options or other instruments at about the same time, the purchases and sales are normally made as nearly as practicable on a pro rata basis in proportion to the amounts desired to be purchased or sold by each. Although in some cases these practices could have a detrimental effect on the price or volume of the securities, options or other instruments as far as the Fund is concerned, in most cases it is believed that these practices should produce better executions. It is the opinion of the Trustees that the desirability of retaining the Advisor as investment advisor to the Funds outweighs the disadvantages, if any, which might result from these practices.
POTENTIAL CONFLICTS OF INTEREST IN MANAGING MULTIPLE ACCOUNTS
Like other investment professionals with multiple clients, a portfolio manager for a Fund may face certain potential conflicts of interest in connection with managing both the Fund and other accounts at the same time. The paragraphs below describe some of these potential conflicts, which the Advisor believes are faced by investment professionals at most major financial firms. The Advisor and the Trustees of the Columbia Funds have adopted compliance policies and procedures that attempt to address certain of these potential conflicts.
The management of accounts with different advisory fee rates and/or fee structures, including accounts that pay advisory fees based on account performance ("performance fee accounts"), may raise potential conflicts of interest by creating an incentive to favor higher-fee accounts. These potential conflicts may include, among others:
- The most attractive investments could be allocated to higher-fee accounts or performance fee accounts.
- The trading of higher-fee accounts could be favored as to timing and/or execution price. For example, higher-fee accounts could be permitted to sell securities earlier than other accounts when a prompt sale is desirable or to buy securities at an earlier and more opportune time.
- The trading of other accounts could be used to benefit higher-fee accounts (front- running).
- The investment management team could focus their time and efforts primarily on higher-fee accounts due to a personal stake in compensation.
Potential conflicts of interest may also arise when the portfolio managers have personal investments in other accounts that may create an incentive to favor those accounts. As a general matter and subject to limited exceptions, the Advisor's investment professionals do not have the opportunity to invest in client accounts, other than the Columbia Funds.
A potential conflict of interest may arise when a Fund and other accounts purchase or sell the same securities. On occasions when a portfolio manager considers the purchase or sale of a security to be in the best interests of a Fund as well as other accounts, the Advisor's trading desk may, to the extent permitted by applicable laws and regulations, aggregate the securities to be sold or purchased in order to obtain the best execution and lower brokerage commissions, if any. Aggregation of trades may create the potential for unfairness to a Fund or another account if one account is favored over another in allocating the securities purchased or sold--for example, by allocating a disproportionate amount of a security that is likely to increase in value to a favored account.
"Cross trades," in which one Columbia account sells a particular security to another account (potentially saving transaction costs for both accounts), may also pose a potential conflict of interest. Cross trades may be seen to involve a potential conflict of interest if, for example, one account is permitted to sell a security to another account at a higher price than an independent third party would pay. The Advisor and the Funds' Trustees have adopted compliance procedures that provide that any transactions between a Fund and another Columbia-advised account are to be made at an independent current market price, as required by law.
Another potential conflict of interest may arise based on the different investment objectives and strategies of a Fund and other accounts. For example, another account may have a shorter-term investment horizon or different investment objectives, policies or restrictions than a Fund. Depending on another account's objectives or other factors, a portfolio manager may give advice and make decisions that may differ from advice given, or the timing or nature of decisions made, with respect to a Fund. In addition, investment decisions are the product of many factors in addition to basic suitability for the particular account involved. Thus, a particular security may be bought or sold for certain accounts even though it could have been bought or sold for other accounts at the same time. More rarely, a particular security may be bought for one or more accounts managed by a portfolio manager when one or more other accounts are selling the security (including short sales). There may be circumstances when purchases or sales of portfolio securities for one or more accounts may have an adverse effect on other accounts.
A Fund's portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. As a result, the portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as might be the case if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies.
A Fund's portfolio managers may be able to select or influence the selection of the brokers and dealers that are used to execute securities transactions for the Fund. In addition to executing trades, some brokers and dealers provide portfolio managers with brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934), which may result in the payment of higher brokerage fees than might have otherwise be available. These services may be more beneficial to certain funds or accounts than to others. Although the payment of brokerage commissions is subject to the requirement that the portfolio manager determine in good faith that the commissions are reasonable in relation to the value of the brokerage and research services provided to the fund, a portfolio manager's decision as to the selection of brokers and dealers could yield disproportionate costs and benefits among the funds and/or accounts that he or she manages.
The Advisor or an affiliate may provide more services (such as distribution or recordkeeping) for some types of funds or accounts than for others. In such cases, a portfolio manager may benefit, either directly or indirectly, by devoting disproportionate attention to the management of fund and/or accounts that provide greater overall returns to the investment manager and its affiliates.
A Fund's portfolio manager(s) may also face other potential conflicts of interest in managing the Fund, and the description above is not a complete description of every conflict that could be deemed to exist in managing both a Fund and other accounts. In addition, a Fund's portfolio manager may also manage other accounts (including their personal assets or the assets of family
members) in their personal capacity. The management of these accounts may also involve certain of the potential conflicts described above. Investment personnel at the Advisor, including each Fund's portfolio manager, are subject to restrictions on engaging in personal securities transactions pursuant to Codes of Ethics adopted by the Advisor and each Fund, which contain provisions and requirements designed to identify and address certain conflicts of interest between personal investment activities and the interests of each Fund.
BROKERAGE AND RESEARCH SERVICES. Consistent with the Conduct Rules of the National Association of Securities Dealers, Inc., and subject to seeking "best execution" (as defined below) and such other policies as the Trustees may determine, the Advisor may consider sales of shares of the Funds as a factor in the selection of broker-dealers to execute securities transactions for a Fund.
The Advisor places the transactions of the Funds with broker-dealers selected by the Advisor and, if applicable, negotiates commissions. Broker-dealers may receive brokerage commissions on portfolio transactions, including the purchase and writing of options, the effecting of closing purchase and sale transactions, and the purchase and sale of underlying securities upon the exercise of options and the purchase or sale of other instruments. The Funds from time to time also execute portfolio transactions with such broker-dealers acting as principals. The Funds do not intend to deal exclusively with any particular broker-dealer or group of broker-dealers.
It is the Advisor's policy generally to seek best execution, which is to place the Funds' transactions where the Funds can be expected to obtain the most favorable combination of price and execution services in particular transactions or provided on a continuing basis by a broker-dealer, and to deal directly with a principal market maker in connection with over-the-counter transactions, except when it is believed that best execution is obtainable elsewhere. In evaluating the execution services of, including the overall reasonableness of brokerage commissions paid to, a broker-dealer, consideration is given to, among other things, the firm's general execution and operational capabilities, and to its reliability, integrity and financial condition.
Securities transactions of the Funds may be executed by broker-dealers who also provide research services (as defined below) to the Advisor and the Funds. The Advisor may use all, some or none of such research services in providing investment advisory services to each of its investment company and other clients, including the Fund. To the extent that such services are used by the Advisor, they tend to reduce the Advisor's expenses. In the Advisor's opinion, it is impossible to assign an exact dollar value for such services.
The Trustees have authorized the Advisor to cause the Funds to pay a broker-dealer which provides brokerage and research services to the Advisor an amount of commission for effecting a securities transaction, including the sale of an option or a closing purchase transaction, for the funds in excess of the amount of commission which another broker-dealer would have charged for effecting that transaction. As provided in Section 28(e) of the Securities Exchange Act of 1934, "brokerage and research services" include advice as to the value of securities, the advisability of investing in, purchasing or selling securities and the availability of securities or purchasers or sellers of securities; furnishing analyses and reports concerning issues, industries, securities, economic factors and trends and portfolio strategy and performance of accounts; and effecting securities transactions and performing functions incidental thereto (such as clearance and settlement). The Advisor must determine in good faith that such greater commission is reasonable in relation to the value of the brokerage and research services provided by the executing broker-dealer viewed in terms of that particular transaction or the Advisor's overall responsibilities to the Funds and all its other clients.
The Trustees have authorized the Advisor to utilize the services of a clearing agent with respect to all call options written by Funds that write options and to pay such clearing agent commissions of a fixed amount per share (currently 1.25 cents) on the sale of the underlying security upon the exercise of an option written by a Fund.
The Advisor may use the services of affiliated broker-dealers, when buying or selling securities for a Fund's portfolio pursuant to procedures adopted by the Trustees and 1940 Act Rule 17e-1. Under the Rule, the Advisor must ensure that commissions a Fund pays to affiliates of the Advisor on portfolio transactions are reasonable and fair compared to commissions received by other broker-dealers in connection with comparable transactions involving similar securities being bought or sold at about the same time. The Advisor will report quarterly to the Trustees on all securities transactions placed through affiliates of the Advisor so that the Trustees may consider whether such trades complied with these procedures and the Rule.
PRINCIPAL UNDERWRITER
CMD is the principal underwriter of the Trust's shares. CMD has no obligation to buy the Funds' shares, and purchases the Funds' shares only upon receipt of orders from authorized FSFs or investors.
INVESTOR SERVICING AND TRANSFER AGENT
CMS is the Trust's investor servicing agent (transfer, plan and dividend disbursing agent), for which it receives fees which are paid monthly by the Trust. The fee paid to CMS is based on number of accounts plus reimbursement for certain out-of-pocket expenses. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION ON FEES RECEIVED BY CMS. The agreement continues indefinitely but may be terminated by 90 days' notice by the Fund to CMS or generally by 6 months' notice by CMS to the Fund. The agreement limits the liability of CMS to the Fund for loss or damage incurred by the Fund to situations involving a failure of CMS to use reasonable care or to act in good faith and without negligence in performing its duties under the agreement. The Fund will indemnify CMS from, among other things, any and all claims, actions, suits, losses, costs, damages, and expenses incurred by it in connection with its acceptance of this Agreement, provided that: (i) to the extent such claims, actions, suits, losses, costs, damages, or expenses relate solely to a particular series or group of series of shares, such indemnification shall be only out of the assets of that series or group of series; (ii) this indemnification shall not apply to actions or omissions constituting negligence or misconduct of CMS or its agents or contractors, including but not limited to willful misfeasance, bad faith or gross negligence in the performance of their duties, or reckless disregard of their obligations and duties under this Agreement; and (iii) CMS shall give a Fund prompt notice and reasonable opportunity to defend against any such claim or action in its own name or in the name of CMS.
CODE OF ETHICS
The Funds, the Advisor, and CMD have adopted Codes of Ethics pursuant to the requirements of the 1940 Act. These Codes of Ethics permit personnel subject to the Codes to invest in securities, including securities that may be purchased or held by the Funds. These Codes of Ethics can be reviewed and copied at the SEC's Public Reference Room and may be obtained by calling the SEC at 1-202-942-8090. These Codes are also available on the EDGAR Database on the SEC's internet web site at http:// www.sec.gov, and may also be obtained, after paying a duplicating fee, by electronic request to publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102.
ANTI-MONEY LAUNDERING COMPLIANCE
The Funds are required to comply with various anti-money laundering laws and regulations. Consequently, the Funds may request additional information from you to verify your identity. If at any time the Funds believe a shareholder may be involved in suspicious activity or if certain account information matches information on government lists of suspicious persons, the Funds may choose not to establish a new account or may be required to "freeze" a shareholder's account, halting all shareholder activity with respect to such account. The Funds also may be required to provide a governmental agency with information about transactions that have occurred in a shareholder's account or to transfer monies received to establish a new account, transfer an existing account or transfer the proceeds of an existing account to a governmental agency. In some circumstances, the law may not permit a Fund to inform the shareholder that it has taken the actions described above.
PROXY VOTING POLICIES AND FUND PROXY VOTING RECORD
The Fund has delegated to the Advisor the responsibility to vote proxies relating to portfolio securities held by the Fund. In deciding to delegate this responsibility to the Advisor, the Board of Trustees of the Trust reviewed and approved the policies and procedures adopted by the Advisor. These included the procedures that the Advisor follows when a vote presents a conflict between the interests of the Fund and its shareholders and the Advisor, its affiliates, its other clients or other persons.
The Advisor's policy is to vote all proxies for Fund securities in a manner considered by the Advisor to be in the best interest of the Fund and its shareholders without regard to any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor examines each proposal and votes against the proposal, if, in its judgment, approval or adoption of the proposal would be expected to impact adversely the current or potential market value of the issuer's securities. The Advisor also examines each proposal and votes the proxies against the proposal, if, in its judgment, the proposal would be expected to affect adversely the
best interest of the Fund. The Advisor determines the best interest of the Fund in light of the potential economic return on the Fund's investment.
The Advisor addresses potential material conflicts of interest by having predetermined voting guidelines. For those proposals that require special consideration or in instances where special circumstances may require varying from the predetermined guideline, the Advisor's Proxy Committee determines the vote in the best interest of the Fund, without consideration of any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor's Proxy Committee is composed of representatives of the Advisor's equity investments, equity research, compliance, legal and fund administration functions. In addition to the responsibilities described above, the Proxy Committee has the responsibility to review, on a semi-annual basis, the Advisor's proxy voting policies to ensure consistency with internal and regulatory agency policies and to develop additional predetermined voting guidelines to assist in the review of proxy proposals.
The Proxy Committee may vary from a predetermined guideline if it determines that voting on the proposal according to the predetermined guideline would be expected to impact adversely the current or potential market value of the issuer's securities or to affect adversely the best interest of the client. References to the best interest of a client refer to the interest of the client in terms of the potential economic return on the client's investment. In determining the vote on any proposal, the Proxy Committee does not consider any benefit other than benefits to the owner of the securities to be voted. A member of the Proxy Committee is prohibited from voting on any proposal for which he or she has a conflict of interest by reason of a direct relationship with the issuer or other party affected by a given proposal. Persons making recommendations to the Proxy Committee or its members are required to disclose to the Committee any relationship with a party making a proposal or other matter known to the person that would create a potential conflict of interest.
The Advisor has retained Institutional Shareholder Services ("ISS"), a third party vendor, to implement its proxy voting process. ISS provides proxy analysis, record keeping services and vote disclosure services.
The Advisor's proxy voting guidelines and procedures are included in this SAI as Appendix II. In accordance with SEC regulations, the fund's proxy voting record for the last twelve-month period ended June 30 has been filed with the SEC. You may obtain a copy of the fund's proxy voting record (i) at www.columbiamanagement.com; (ii) on the Securities and Exchange Commission's website at www.sec.gov and (iii) without charge, upon request, by calling 800-368-0346.
DISCLOSURE OF PORTFOLIO INFORMATION
The Trustees of the Columbia Funds have adopted policies with respect to the disclosure of the Funds' portfolio holdings by the Funds, Columbia Advisors, or their affiliates. These policies provide that Fund portfolio holdings information generally may not be disclosed to any party prior to (1) the day next following the posting of such information on the Funds' website at www.columbiafunds.com, (2) the day next following the filing of the information with the SEC in a required filing, or (3) for money market funds, such information is publicly available to all shareholders upon request on the fifth business day after each calendar month-end. Certain limited exceptions pursuant to the Fund's policies are described below. The Trustees shall be updated as needed regarding the Fund's compliance with the policies, including information relating to any potential conflicts of interest between the interests of Fund shareholders and those of Columbia Advisors and its affiliates. The Fund's policies prohibit Columbia Advisors and the Fund's other service providers from entering into any agreement to disclose Fund portfolio holdings information in exchange for any form of consideration. These policies apply to disclosures to all categories of persons, including, without limitation, individual investors, institutional investors, intermediaries that distribute the Fund's shares, third-party service providers, rating and ranking organizations and affiliated persons of the Fund.
PUBLIC DISCLOSURES. The Fund's portfolio holdings are currently disclosed to the public through required filings with the SEC and, for equity and fixed income funds, on the Fund's website at www.columbiafunds.com. The Fund files its portfolio holdings with the SEC for each fiscal quarter on Form N-CSR (with respect to each annual period and semi-annual period) and Form N-Q (with respect to the first and third quarters of the Fund's fiscal year). Shareholders may obtain the Fund's Forms N-CSR and N-Q filings on the SEC's website at www.sec.gov. In addition, the Fund's Forms N-CSR and N-Q filings may be reviewed and copied at the SEC's public reference room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC's website or the operation of the public reference room.
The equity and fixed income Columbia Funds also currently make portfolio information publicly available at www.columbiafunds.com, as disclosed in the following table:
FREQUENCY OF
TYPE OF FUND INFORMATION PROVIDED DISCLOSURE DATE OF WEB POSTING
------------------ ------------------------------------ ------------ ----------------------------------
Equity Funds. Full portfolio holdings information Monthly 30 calendar days after month-end.
Fixed Income Funds Full portfolio holdings information. Quarterly 60 calendar days after quarter-end
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The scope of the information provided relating to the Fund's portfolio that is made available on the website may change from time to time without prior notice.
For Columbia's money market funds, a complete list of a Fund's portfolio holdings shall be publicly available on a monthly basis on the fifth business day after month-end. Shareholders may request such information by writing or calling the Fund's distributor, CMD at the address listed on the cover of this SAI.
A Fund, Columbia Advisors or their affiliates may include portfolio holdings information that has already been made public through a web posting or SEC filing in marketing literature and other communications to shareholders, advisors or other parties, provided that the information is disclosed no earlier than the day after the date the information is disclosed publicly.
OTHER DISCLOSURES. The Fund's policies provide that non-public disclosures of the Fund's portfolio holdings may be made if (1) the Fund has a legitimate business purpose for making such disclosure, (2) the Fund's chief executive officer authorizes such non-public disclosure of information, and (3) the party receiving the non-public information enters into a confidentiality agreement, which includes a duty not to trade on the non-public information.
The Fund periodically discloses its portfolio information on a confidential basis to various service providers that require such information in order to assist the Fund with its day-to-day business affairs. In addition to Columbia Advisors and its affiliates, these service providers include the Fund's custodian and sub-custodians, the Fund's independent registered public accounting firm, legal counsel, financial printers (R.R. Donnelly & Sons and Bowne & Co., Inc.), the Fund's proxy voting service provider (Alamo Direct Mail Services, Inc.), the Fund's proxy solicitor (Georgeson Shareholder Communications Inc.), rating agencies that maintain ratings on certain Columbia Funds (Fitch, Inc.) and service providers that support Columbia Advisors' trading systems (InvestorTool, Inc. and Thomson Financial). These service providers are required to keep such information confidential, and are prohibited from trading based on the information or otherwise using the information except as necessary in providing services to the Fund. The Fund may also disclose portfolio holdings information to broker/dealers and certain other entities related to potential transactions and management of the Fund, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information.
Certain clients of the Fund's investment adviser(s) may follow a strategy similar to that of the Fund, and have access to portfolio holdings information for their account. It is possible that such information could be used to infer portfolio holdings information relating to the Fund.
DETERMINATION OF NET ASSET VALUE
Each Fund determines net asset value (NAV) per share for each class as of the close of the New York Stock Exchange (Exchange) (generally 4:00 p.m. Eastern time) each day the Exchange is open, except that certain classes of assets, such as index futures, for which the market close occurs shortly after the close of regular trading on the Exchange will be priced at the closing time of the market on which they trade. Currently, the Exchange is closed Saturdays, Sundays and the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. Funds with portfolio securities which are primarily listed on foreign exchanges may experience trading and changes in NAV on days on which such Fund does not determine NAV due to differences in closing policies among exchanges. This may significantly affect the NAV of the Fund's redeemable securities on days when an investor cannot redeem such securities. Debt securities generally are valued by a pricing service which determines valuations based upon market transactions for normal, institutional-size trading units of similar securities. However, in circumstances where such prices are not available or where the Advisor deems it appropriate to do so, an over-the-counter or exchange bid quotation is used. Securities listed on an exchange or on NASDAQ are valued at the last sale price (or the official closing price as determined by the NASDAQ
system, if different, as applicable). Listed securities for which there were no sales during the day and unlisted securities generally are valued at the last quoted bid price. Options are valued at the last sale price or in the absence of a sale, the mean between the last quoted bid and offering prices. Short-term obligations with a maturity of 60 days or less are valued at amortized cost pursuant to procedures adopted by the Trustees. The values of foreign securities quoted in foreign currencies are translated into U.S. dollars at the exchange rate for that day. Portfolio positions for which market quotations are not readily available and other assets are valued at fair value as determined by the Advisor in good faith under the direction of the Trust's Board of Trustees.
Generally, trading in certain securities (such as foreign securities) is substantially completed each day at various times prior to the close of the Exchange. Trading on certain foreign securities markets may not take place on all business days in New York, and trading on some foreign securities markets takes place on days which are not business days in New York and on which the Fund's NAV is not calculated. The values of these securities used in determining the NAV are computed as of such times. Also, because of the amount of time required to collect and process trading information as to large numbers of securities issues, the values of certain securities (such as convertible bonds, U.S. government securities, and tax-exempt securities) are determined based on market quotations collected earlier in the day at the latest practicable time prior to the close of the Exchange. Occasionally, events affecting the value of such securities may occur between such times and the close of the Exchange which will not be reflected in the computation of each Fund's NAV. If events materially affecting the value of such securities occur during such period, then these securities will be valued at fair value following procedures approved by the Trust's Board of Trustees.
(The following two paragraphs are applicable only to Columbia Newport Tiger Fund and Columbia Newport Greater China Fund).
Trading in securities on stock exchanges and over-the-counter markets in foreign securities markets is normally completed well before the close of the business day in New York. Trading on foreign securities markets may not take place on all business days in New York, and trading on some foreign securities markets does take place on days which are not business days in New York and on which the Fund's NAV is not calculated.
The calculation of the Fund's NAV accordingly may not take place contemporaneously with the determination of the prices of the Fund's portfolio securities used in such calculations. Events affecting the values of portfolio securities that occur between the time their prices are determined and the close of the Exchange (when the Fund's NAV is calculated) will not be reflected in the Fund's calculation of NAV unless the Advisor, acting under procedures established by the Board of Trustees of the Trust, deems that the particular event would materially affect the Fund's NAV, in which case an adjustment will be made. Assets or liabilities initially expressed in terms of foreign currencies are translated prior to the next determination of the NAV of the Fund's shares into U.S. dollars at prevailing market rates.
AMORTIZED COST FOR MONEY MARKET FUNDS.
Money market funds generally value their portfolio securities at amortized cost according to Rule 2a-7 under the 1940 Act.
Under the amortized cost method a security is initially valued at cost and
thereafter any discount or premium from maturity value is amortized ratably to
maturity. This method assures a constant NAV but may result in a yield different
from that of the same portfolio under the market value method. The Trust's
Trustees have adopted procedures intended to stabilize a money market fund's NAV
per share at $1.00. If a money market fund's market value deviates from the
amortized cost of $1.00, and results in a material dilution to existing
shareholders, the Trust's Trustees will take corrective action that may include:
realizing gains or losses; shortening the portfolio's maturity; withholding
distributions; redeeming shares in kind; or converting to the market value
method (in which case the NAV per share may differ from $1.00). All investments
will be determined pursuant to procedures approved by the Trust's Trustees to
present minimal credit risk.
See the Statement of Assets and Liabilities in the shareholder report of the Columbia Money Market Fund (formerly named Liberty Money Market Fund) or the Columbia Municipal Money Market Fund (formerly named Liberty Municipal Money Market Fund) for a specimen price sheet showing the computation of maximum offering price per share of Class A shares.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of the Fund and tables of charges. This SAI contains additional information which may be of interest to investors.
The Fund may accept unconditional orders for shares to be executed at the public offering price based on the NAV per share next determined after the order is placed in good order. The public offering price is the NAV plus the applicable sales charge, if any. In the case of orders for purchase of shares placed through FSFs, the public offering price will be determined on the day the order is placed in good order, but only if the FSF receives the order prior to the time at which shares are valued and transmits it to the Fund before the Fund processes that day's transactions. If the FSF fails to transmit before the Fund processes that day's transactions, the customer's entitlement to that day's closing price must be settled between the customer and the FSF. If the FSF receives the order after the time at which the Fund values its shares, the price will be based on the NAV determined as of the close of the Exchange on the next day it is open. If funds for the purchase of shares are sent directly to CMS, they will be invested at the public offering price next determined after receipt in good order. Payment for shares of the fund must be in U.S. dollars; if made by check, the check must be drawn on a U.S. bank.
Investors should understand that, since the offering price of the Fund's shares is calculated to two decimal places using standard rounding methodology, the dollar amount of the sales charge paid as a percentage of the offering price and of the net amount invested for any particular purchase of fund shares may be higher or lower depending on whether downward or upward rounding was required during the calculation process.
The Fund receives the entire NAV of shares sold. For shares subject to an initial sales charge, CMD's commission is the sales charge shown in the Fund's Prospectus less any applicable FSF discount. The FSF discount is the same for all FSFs, except that CMD retains the entire sales charge on any sales made to a shareholder who does not specify a FSF on the Investment Account Application ("Application"), and except that CMD may from time to time reallow additional amounts to all or certain FSFs. CMD generally retains some or all of any asset-based sales charge (distribution fee) or contingent deferred sales charge. Such charges generally reimburse CMD for any up-front and/or ongoing commissions paid to FSFs.
Checks presented for the purchase of shares of the Fund which are returned by the purchaser's bank or checkwriting privilege checks for which there are insufficient funds in a shareholder's account to cover redemption may subject such purchaser or shareholder to a $15 service fee for each check returned. Checks must be drawn on a U.S. bank and must be payable in U.S. dollars. Travelers checks, gift checks, credit card convenience checks, credit cards, cash and ban counter (starter checks) are not accepted.
CMS acts as the shareholder's agent whenever it receives instructions to carry out a transaction on the shareholder's account. Upon receipt of instructions that shares are to be purchased for a shareholder's account, the designated FSF will receive the applicable sales commission. Shareholders may change FSFs at any time by written notice to CMS, provided the new FSF has a sales agreement with CMD.
Shares credited to an account are transferable upon written instructions in good order to CMS and may be redeemed as described under "How to Sell Shares" in the Prospectus. Certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you may send the certificates to CMS for deposit to your account.
In addition to the commissions specified in a Fund's prospectus and this SAI, CMD, or its advisory affiliates, from their own resources, may make cash payments to FSFs that agree to promote the sale of shares of funds that CMD distributes. A number of factors may be considered in determining the amount of those payments, including the FSF's sales, client assets invested in the funds and redemption rates, the quality of the FSF's relationship with CMD and/or its affiliates, and the nature of the services provided by FSFs to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the FSF's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, CMD may also pay non-cash compensation to FSFs and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for FSF educational or training events.
In addition, CMD, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of a Fund.
CMD and its affiliates anticipate that the FSFs and intermediaries that will receive the additional compensation described above include:
1st Global Capital Corp
401 Company
ABN AMRO Trust Services
ADP Retirement Services
Advest
AEGON/Transamerica
AG Edwards
American Century Services
American Express
AMG
AON Consulting
AST Trust Company
Banc of America Investment Services
BancOne
Bear Stearns
Benefit Plan Administrators
Bidwell & Company
BNY Clearing
C N A Trust
Charles Schwab
CIBC Oppenheimer
Citigroup Global Markets
CitiStreet Associates LLC
City National Bank
City of Milwaukee
Columbia Trust Company
Commonwealth Financial
Compensation & Capital
CPI Qualified Plan Consultants
Daily Access Concepts
Davenport & Company
Delaware Investments
Digital Retirement Solutions
Discover Brokerage
Dreyfus/Mellon
Edgewood Services
Edward Jones
E-Trade,
ExpertPlan
FAS Liberty Life Spectrum
Ferris Baker Watts
Fidelity
Financial Data Services
Franklin Templeton
Freeman Welwood
Gem Group
Great West Life
Hewitt Associates LLC
Huntington Bank
ING
Intermountain Health Care
Investmart, Inc.
Investment Manager Services (IMS)
Janney Montgomery Scott
JJB Hilliard Lyons
JP Morgan/American Century
Kenney Investments
Kirkpatrick Pettis Smith Polian Inc
Legg Mason Wood Walker
Liberty Life
Lincoln Financial
Lincoln Life
Linsco Private Ledger
M & T Securities
Marquette Trust Company
Mass Mutual Life
Matrix Settlement & Clearance Services (MSCS)
McDonald Investments
Merrill Lynch
MetLife
MFS
Mfund Trax
MidAtlantic Capital
Milliman USA
Morgan Keegan
Morgan Stanley Dean Witter
PFPC
Nationwide Investment Services
Neuberger Berman Mgmt
NFP Securities
NSD-NetStock Sharebuilder
NYLife Distributors
Optimum Investment Advisors
Orbitex
Pershing LLC
Phoenix Home Life
Piper Jaffray
PNC
PPI Employee Benefits
Private Bank & Trust
Prudential
Putnam Investments
Raymond James
RBC Dain Rausher
Robert W Baird
Royal Alliance
RSM McGladrey Inc.
Safeco
Scott & Stringfellow
Scudder Investments
Security Benefit
Segall Bryant Hamill
South Trust Securities
Southwest Securities
Standard Insurance
Stanton Group
State of NY Deferred Compensation Plan
Stephens, Inc.
Stifel Nicolaus & Co
Strong Capital
Sungard T Rowe Price
Trustar Retirement Services
Trustlynx/Datalynx
UBS Financial Services
USAA Investment Management
Vanguard
Wachovia
TD Waterhouse
Webster Investment Services
Wells Fargo
Wilmington Trust
PLEASE CONTACT YOUR FSF OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or eliminated at any time.
AUTOMATIC INVESTMENT PLAN. As a convenience to investors, shares of most Funds advised by the Advisor may be purchased through the Automatic Investment Plan. Electronic fund transfers for a fixed amount of at least $50 ($25 for IRA) are used to purchase a Fund's shares at the public offering price next determined after CMD receives the proceeds. If your Automatic Investment Plan purchase is by electronic funds transfer, you may request the Automatic Investment Plan purchase for any day. Further information and application forms are available from FSFs or from CMD.
AUTOMATED DOLLAR COST AVERAGING (Classes A, B, C, D, T, G and Z). The Automated Dollar Cost Averaging program allows you to exchange $100 or more on a monthly basis from any fund distributed by CMD into the same class of shares of up to five other Funds. Complete the Automated Dollar Cost Averaging section of the Application. There is no charge for exchanges made pursuant to the Automated Dollar Cost Averaging program. Sales charges may apply if exchanging from a money market fund. Exchanges will continue so long as your fund balance is sufficient to complete the transfers. Your normal rights and privileges as a shareholder remain in full force and effect. Thus you can buy any Fund, exchange between the same Class of shares of Funds by written instruction or by telephone exchange if you have so elected and withdraw amounts from any Fund, subject to the imposition of any applicable CDSC or sales charges.
Any additional payments or exchanges into your Fund will extend the time of the Automated Dollar Cost Averaging program.
An exchange is generally a capital sale transaction for federal income tax purposes.
You may terminate your program, change the amount of the exchange (subject to the $100 minimum), or change your selection of funds, by telephone or in writing; if in writing by mailing your instructions to Columbia Management Services, Inc. (formerly named Columbia Funds Services, Inc.) (CMS) P.O. Box 8081, Boston, MA 02266-8081.
You should consult your FSF or financial advisor to determine whether or not the Automated Dollar Cost Averaging program is appropriate for you.
CMD offers several plans by which an investor may obtain reduced initial or contingent deferred sales charges. These plans may be altered or discontinued at any time. See "Programs For Reducing or Eliminating Sales Charges" below for more information.
CLASS T SHAREHOLDER SERVICES PLAN. The Trustees have approved a Shareholder Services Plan (the "Services Plan") pursuant to which the Trusts plan to enter into servicing agreements with institutions (including Bank of America Corporation and
its affiliates). Pursuant to these servicing agreements, institutions render certain administrative and support services to customers who are the beneficial owners of Class T shares of each Fund other than the Columbia Newport Tiger Fund. Such services are provided to the institution's customers who are the beneficial owners of Class T shares and are intended to supplement the services provided by the Fund's administrator and transfer agent to the shareholders of record of the Class T shares. The Services Plan provides that each Fund will pay fees for such services at an annual rate of up to 0.50% of the average daily net asset value of Class T shares owned beneficially by the institution's customers. Institutions may receive up to one-half of this fee for providing one or more of the following services to such customers: (i) aggregating and processing purchase and redemption requests and placing net purchase and redemption orders with CMD; (ii) processing dividend payments from a Fund; (iii) providing sub-accounting with respect to Class T shares or the information necessary for sub-accounting; and (iv) providing periodic mailings to customers. Institutions may also receive up to one-half of this fee for providing one or more of these additional services to such customers: (i) providing customers with information as to their positions in Class T shares; (ii) responding to customer inquiries; and (iii) providing a service to invest the assets of customers in Class T shares.
The payments under the servicing agreements entered into as of the date of this SAI are limited to an aggregate fee of not more than 0.30% (on an annualized basis) of the average daily net asset value of the Class T shares of equity funds beneficially owned by customers of institutions and 0.15% (on an annualized basis) of the average daily net asset value of the Class T shares of bond funds beneficially owned by customers of institutions. The Funds understand that institutions may charge fees to their customers who are the beneficial owners of Class T shares in connection with their accounts with such institutions. Any such fees would be in addition to any amounts which may be received by an institution under the Services Plan. Under the terms of each servicing agreement, institutions are required to provide to their customers a schedule of any fees that they may charge in connection with customer investments in Class T shares.
Each servicing agreement with an institution ("Service Organization") relating to the Services Plan requires that, with respect to those Funds which declare dividends on a daily basis, the Service Organization agrees to waive a portion of the servicing fee payable to it under the Services Plan to the extent necessary to ensure that the fees required to be accrued with respect to the Class T shares of such Funds on any day do not exceed the income to be accrued to such Class T shares on that day.
The Class T servicing agreements are governed by the Services Plan approved by the Board of Trustees in connection with the offering of Class T shares of each Fund. Pursuant to the Services Plan, the Board of Trustees reviews, at least quarterly, a written report of the amounts paid under the servicing agreements and the purposes for which the expenditures were made. In addition, the arrangements with Service Organizations must be approved annually by a majority of the Trustees, including a majority of the trustees who are not "interested persons" of the Funds as defined in the 1940 Act and who have no direct or indirect financial interest in such arrangements (the "Disinterested Trustees").
The Board of Trustees has approved the service agreements with Service Organizations based on information provided by the Funds' service contractors that there is a reasonable likelihood that the arrangements will benefit the Funds and their shareholders by affording the Funds greater flexibility in connection with the efficient servicing of the accounts of the beneficial owners of Class T shares of the Funds. Any material amendment to the Funds' arrangements with Service Organizations must be approved by a majority of the Board of Trustees (including a majority of the Disinterested Trustees). So long as the service agreements with Service Organizations are in effect, the selection and nomination of the members of Columbia's Board of Trustees who are not "interested persons" (as defined in the 1940 Act) of the Funds will be committed to the discretion of such Disinterested Trustees.
TAX-SHELTERED RETIREMENT PLANS (Retirement Plans). CMD offers prototype tax-qualified plans, including Pension and Profit-Sharing Plans for individuals, corporations, employees and the self-employed. The minimum initial Retirement Plan investment is $25. Columbia Trust Company (CTC) is the Custodian/Trustee and Plan Sponsor of the Columbia Advisor prototype plans offered through CMD. In general, a $20 annual fee is charged. Detailed information concerning these Retirement Plans and copies of the Retirement Plans are available from CMD.
Participants in Retirement Plans not sponsored by CTC, not including Individual Retirement Accounts (IRAs), may be subject to an annual fee of $20 unless the Retirement Plan maintains an omnibus account with CMS. Participants in CTC sponsored prototype plans (other than IRAs) who liquidate the total value of their account may also be charged a $20 close-out processing fee payable to CMS. The close out fee applies to plans opened after September 1, 1996. The fee is in addition to any applicable CDSC. The fee will not apply if the participant uses the proceeds to open a Columbia Advisor IRA Rollover account in any Fund distributed by CMD, or if the Retirement Plan maintains an omnibus account.
Consultation with a competent financial advisor regarding these Retirement Plans and consideration of the suitability of Fund shares as an investment under the Employee Retirement Income Security Act of 1974 or otherwise is recommended.
TELEPHONE ADDRESS CHANGE SERVICES. By calling CMS, shareholders or their FSF of record may change an address on a recorded telephone line. Confirmations of address change will be sent to both the old and the new addresses. Telephone redemption privileges by check are suspended for 30 days after an address change is effected. Please have your account and taxpayer identification numbers available when calling.
CASH CONNECTION. Dividends and any other distributions, including Systematic Withdrawal Plan (SWP) payments, may be automatically deposited to a shareholder's bank account via electronic funds transfer. Shareholders wishing to avail themselves of this electronic transfer procedure should complete the appropriate sections of the Application.
AUTOMATIC DIVIDEND DIVERSIFICATION. The automatic dividend diversification reinvestment program (ADD) generally allows shareholders to have all distributions from a Fund automatically invested in the same class of shares of another Fund. An ADD account must be in the same name as the shareholder's existing open account with the particular Fund. Call CMS for more information at 1-800-345-6611.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
RIGHTS OF ACCUMULATION (Columbia Class A and Class T shares, Nations Class A shares and Galaxy Retail A shares only) Class T shares can only be purchased by the shareholders of Columbia Newport Tiger Fund (formerly named Liberty Newport Tiger Fund) who already own Class T shares. Reduced sales charges on Class A and T shares can be effected by combining a current purchase of Class A or Class T shares with prior purchases of other funds and classes distributed by CMD. The applicable sales charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on the previous day of all shares of funds for which CMD serves as distributor for funds held by the shareholder.
CMD must be promptly notified of each purchase with respect to which a shareholder is entitled to a reduced sales charge. Such reduced sales charge will be applied upon confirmation of the shareholder's holdings by CMS. A Fund may terminate or amend this Right of Accumulation.
STATEMENT OF INTENT (Class A, Class E and Class T shares only). Any person may qualify for reduced sales charges on purchases of Class A, E and T shares made within a thirteen-month period pursuant to a Statement of Intent ("Statement"). A shareholder may include, as an accumulation credit toward the completion of such Statement, the value of all fund shares held by the shareholder on the date of the Statement in Funds (except shares of any money market fund, unless such shares were acquired by exchange from Class A shares of another non-money market fund)). The value is determined at the public offering price on the date of the Statement. Purchases made through reinvestment of distributions do not count toward satisfaction of the Statement.
During the term of a Statement, CMS will hold shares in escrow to secure payment of the higher sales charge applicable to Class A, E or T shares actually purchased. Dividends and capital gains will be paid on all escrowed shares and these shares will be released when the amount indicated has been purchased. A Statement does not obligate the investor to buy or a Fund to sell the amount of the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which would qualify for a further quantity discount, a retroactive price adjustment will be made at the time of expiration of the Statement (provided the FSF returns to CMD the excess commission previously paid during the thirteen-month period). The resulting difference in offering price will purchase additional shares for the shareholder's account at the applicable offering price. If the amount of the Statement is not purchased, the shareholder shall remit to CMD an amount equal to the difference between the sales charge paid and the sales charge that should have been paid. If the shareholder fails within twenty days after a written request to pay such difference in sales charge, CMS will redeem escrowed Class A, E or T shares with a value equal to such difference. The additional FSF commission will be remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available from your FSF, or from CMS at 1-800-345-6611.
NET ASSET VALUE ELIGIBILITY GUIDELINES (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, LLC IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS).
1. Employees, brokers and various relationships that are allowed to buy
at NAV. Class A shares of certain Funds may be sold at NAV to the
following individuals, whether currently employed or retired:
Employees of Bank of America Corporation (and its predecessors), its
affiliates and subsidiaries; Trustees of funds advised or administered
by the Advisor; directors, officers and employees of the Advisor, CMD,
or its successors and companies affiliated with the Advisor;
Registered representatives and employees of FSFs (including their
affiliates) that are parties to dealer agreements or other sales
arrangements with CMD; Nations Funds' Trustees, Directors and
employees of its investment sub-advisers; Broker/Dealers if purchases
are in accordance with the internal policies and procedures of the
employing broker/dealer and made for their own investment purposes;
employees or partners of any contractual service provider to the
funds.
NAV eligibility for Class A purchase also applies to the families of the parties listed above and their beneficial accounts. Family members include: spouse, parent, stepparent, legal guardian, child, stepchild, father-in-law and mother-in-law.
Individuals receiving a distribution from a Bank of America trust, fiduciary, custodial or other similar account may use the proceeds of that distribution to buy Class A shares without paying a front-end sales charge, as long as the proceeds are invested in the funds within 90 days of the date of distribution.
Registered broker/dealer firms that have entered into a Nations Funds dealer agreement with BACAP Distributors, LLC may buy Class A shares without paying a front-end sales charge for their investment account only.
Banks, trust companies and thrift institutions, acting as fiduciaries.
2. Grandfathered investors. Any shareholder who owned shares of any fund of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29,2000 (when all of the then outstanding shares of Columbia Acorn Trust were re-designated Class Z shares) and who since that time has remained a shareholder of any Fund, may purchase Class A shares of any Fund at NAV in those cases where a Columbia Fund Class Z share is not available.
Shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at NAV will continue to be eligible for NAV purchases into those Nations Fund accounts opened through August 19, 2005.
Galaxy Fund shareholders prior to December 1,1995; and shareholders who (i) purchased Galaxy Fund Prime A shares at NAV and received Class A shares in exchange for those shares during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Prime A shares were originally purchased.
(For Class T shares only) Shareholders who (i) purchased Galaxy Fund Retail A shares at net asset value and received Class T shares in exchange for those shares during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Retail A shares were originally purchased; and Boston 1784 Fund shareholders on the date that those funds were reorganized into Galaxy Funds.
3. Reinstatement. Subject to the fund policy on trading of fund shares, an investor who has redeemed class A, B, C, D, G or T shares may, upon request, reinstate within 1 year a portion or all of the proceeds of such sales in shares of class A of any fund at the NAV next determined after CMS received a written reinstatement request and payment.
4. Retirement Plans. Class A, Class E and Class T shares (Class T shares are not currently open to new investors) of certain funds may also be purchased at reduced or no sales charge by clients of dealers, brokers or registered investment advisors that have entered into arrangements with CMD pursuant to which the funds are included as investments options in wrap fee accounts, other managed agency/asset allocation accounts or programs involving fee-based compensation arrangements, and by participants in certain retirement plans.
5. Non-U.S. Investors. Certain pension, profit-sharing or other employee benefit plans offered to non-US investors may be eligible to purchase Class A shares with no sales charge.
6. Reorganizations. At the Fund's discretion, NAV eligibility may apply to shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which the fund is a party.
7. Rights of Accumulation (ROA). The value of eligible accounts, regardless of class, maintained by you and you and your immediate family may be combined with the value of your current purchase to reach a sales discount level and to obtain the lower sales charge for your current purchase.
8. Letters of Intent (LOI). You may pay a lower sales charge when purchasing class A shares by signing a letter of intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the LOI within 13 months. If your LOI purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES (CDSCS) (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, LLC IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS) (Class A, B, C, D, E, matured F, G and T shares) CDSCs may be waived on redemptions in the following situations with the proper documentation:
1. Death. CDSCs may be waived on redemptions following the death of (i) the sole shareholder on an individual account, (ii) a joint tenant where the surviving joint tenant is the deceased's spouse, or (iii) the beneficiary of a Uniform Gifts to Minors Act (UGMA), Uniform Transfers to Minors Act (UTMA) or other custodial account. If, upon the occurrence of one of the foregoing, the account is transferred to an account registered in the name of the deceased's estate, the CDSC will be waived on any redemption from the estate account If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions occurring pursuant to a monthly, quarterly or semi-annual SWP established with CMS, to the extent the redemptions do not exceed, on an annual basis, 12% of the account's value at the time that the SWP is established. Otherwise, CDSCs will be charged on SWP redemptions until this requirement is met. For redemptions in excess of 12% of the account's value at the time that the SWP is established, a CDSC will be charged on the SWP redemption. The 12% limit does not apply if the SWP is set up at the time the account is established, and distributions are being reinvested. See below under "How to Sell Shares--Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions occurring after the
sole shareholder on an individual account or a joint tenant on a
spousal joint tenant account becomes disabled (as defined in Section
72(m)(7) of the Internal Revenue Code). To be eligible for such
waiver, (i) the disability must arise after the purchase of shares
(ii) the disabled shareholder must have been under age 65 at the time
of the initial determination of disability, and (iii) a letter from a
physician must be signed under penalty of perjury stating the nature
of the disability. If the account is transferred to a new registration
and then a redemption is requested, the applicable CDSC will be
charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring upon dissolution of a revocable living or grantor trust following the death of the sole trustee where (i) the grantor of the trust is the sole trustee and the sole life beneficiary, (ii) death occurs following the purchase and (iii) the trust document provides for dissolution of the trust upon the trustee's death. If the account is transferred to a new registration (including that of a successor trustee), the applicable CDSC will be charged upon any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions required to return excess contributions made to retirement plans or individual retirement accounts, so long as the FSF agrees to return the applicable portion of any commission paid by CMD.
6. Qualified Retirement Plans. CDSCs may be waived on CMD shares sold by
employee benefit plans created according to Section 403(b) of the tax
code and sponsored by a non-profit organization qualified under
Section 501 (c)(3) of the tax code. To qualify for the waiver, the
plan must be a participant in an alliance program that has signed an
agreement with Columbia Funds or CMD.
7. Trust Share Taxes. CDSCs will be waived on redemptions of Class E and F shares (i) where the proceeds are used to directly pay trust taxes, and (ii) where the proceeds are used to pay beneficiaries for the payment of trust taxes.
8. Return of Commission. CDSCs may be waived on shares sold by intermediaries that are part of the Columbia Funds selling group where the intermediary has entered into an agreement with Columbia Funds not to receive (or to return if received) all or any applicable portion of an upfront commission.
9. Non-U.S. Investors. CDSCs may be waived on shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors.
10. IRS Section 401 and 457. CDSCs may be waived on shares sold by certain pension, profit-sharing or other employee benefit plans established under Section 401 or 457 of the tax code.
11. Medical Payments. CDSCs may be waived on shares redeemed for medical payments that exceed 7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least twelve weeks.
12. Plans of Reorganization. At the Funds' discretion, CDSCs may be waived for shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which a fund is a party.
13. Charitable Giving Program. CDSCs may be waived on the sale of Class C
or Class D shares sold by a non-profit organization qualified under
Section 501 (c)(3) of the tax code in connection with the Banc of
America Capital Management Charitable Giving Program.
14. The CDSC also may be waived where the FSF agrees to return all or an agreed upon portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may be sold on any day the Exchange is open, either directly to the Fund or through the shareholder's FSF. Sale proceeds generally are sent within seven days (usually on the next business day after your request is received in good form). However, for shares recently purchased by check, the Fund may delay selling or delay sending proceeds from your shares for up to 15 days in order to protect the Fund against financial losses and dilution in net asset value caused by dishonored purchase payment checks.
To sell shares directly to the Fund, send a signed letter of instruction to CMS, along with any certificates for shares to be sold. The sale price is the net asset value (less any applicable contingent deferred sales charge) next calculated after the Fund receives the request in proper form. Signatures must be guaranteed by a bank, a member firm of a national stock exchange or another eligible guarantor that participates in the Medallion Signature Guarantee Program. Stock power forms are available from FSFs, CMS and many banks. Additional documentation may be required for sales by corporations, agents, fiduciaries, surviving joint owners, individual retirement account holders and other legal entities. Call CMS for more information 1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued to receive that day's price, FSF's are responsible for furnishing all necessary documentation to CMS and may charge for this service.
SYSTEMATIC WITHDRAWAL PLAN. The shareholder may establish a SWP. A specified dollar amount, share amount or percentage of the then current net asset value of the shareholder's investment in any Fund designated by the shareholder will be paid monthly, quarterly or semi-annually to a designated payee. The amount or percentage the shareholder specifies is run against available shares and generally may not, on an annualized basis, exceed 12% of the value, as of the time the shareholder makes the election, of the shareholder's investment. Withdrawals of shares of the Fund under a SWP will be treated as redemptions of shares purchased through the reinvestment of Fund distributions, or, to the extent such shares in the shareholder's account are insufficient to cover Plan payments, as redemptions from the earliest purchased shares of such Fund in the shareholder's account. No CDSCs apply to a redemption pursuant to a SWP of 12% or less, even if, after giving effect to the redemption, the shareholder's account balance is less than the shareholder's base amount. Qualified plan participants who are required by Internal Revenue Service regulation to withdraw more than 12%, on an annual basis, of the value of their share account may do so but may be subject to a CDSC ranging from 1 % to 5% of the amount withdrawn in excess of 12% annually. If a shareholder wishes to participate in a SWP, the shareholder must elect to have all of the shareholder's income dividends and other Fund distributions payable in shares of the Fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by telephone on a recorded line. However, SWP checks will be payable only to the shareholder and sent to the address of record. SWPs from retirement accounts cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in certificate form. Purchasing additional shares (other than through dividend and distribution reinvestment) while receiving SWP payments is ordinarily disadvantageous because of sales charges. For this reason, a shareholder may not maintain a plan for the accumulation of shares of the Fund (other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or loss for tax purposes, may involve the use of principal and may eventually use up all of the shares in a shareholder's account.
A Fund may terminate a shareholder's SWP if the shareholder's account balance falls below $5,000 due to any transfer or liquidation of shares other than pursuant to the SWP. The $5,000 minimum account balance requirement has been waived for wrap accounts. SWP payments will be terminated on receiving satisfactory evidence of the death or incapacity of a shareholder. Until this evidence is received, CMS will not be liable for any payment made in accordance with the provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate in them is borne by the Fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not be able to participate in a SWP. If a shareholder's Fund shares are held in "street name," the shareholder should consult his or her FSF to determine whether he or she may participate in a SWP. The SWP on accounts held in "street name" must be made payable to the back office via the National Securities Clearing Corporation (NSCC).
TELEPHONE REDEMPTIONS. All Fund shareholders and/or their FSFs are automatically
eligible to redeem up to $100,000 of the Fund's shares by calling 1-800-422-3737
toll-free any business day between 9:00 a.m. and the close of trading of the
Exchange (normally 4:00 p.m. Eastern time). Transactions received after 4:00
p.m. Eastern time will receive the next business day's closing price. Telephone
redemptions by check and ACH are limited to a total of $100,000 in a 30-day
period. Redemptions that exceed $100,000 may be accomplished by placing a wire
order trade through a broker, to a pre-existing bank account or furnishing a
signature guaranteed request. Signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another eligible guarantor that
participates in the Medallion Signature Guarantee Program. CMS will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. Telephone redemptions are not available on accounts with an address
change in the preceding 30 days and proceeds and confirmations will only be
mailed or sent to the address of record unless the redemption proceeds are being
sent to a pre-designated bank account. Shareholders and/or their FSFs will be
required to provide their name, address account and taxpayer identification
numbers. FSFs will also be required to provide their broker number. All
telephone transactions are recorded. A loss to a shareholder may result from an
unauthorized transaction reasonably believed to have been authorized. Certain
restrictions apply to retirement plan accounts.
CHECKWRITING (Available only on the Class A and Z shares of certain Funds) Shares may be redeemed by check if a shareholder has previously completed an Application and Signature Card. CMS will provide checks to be drawn on Mellon Trust of New England, N.A. (the "Bank"). These checks may be made payable to the order of any person in the amount of not less than $500 ($250 for money market funds) nor more than $100,000 for non-money market funds. The shareholder will continue to earn dividends on shares until a check is presented to the Bank for payment. At such time a sufficient number of full and fractional shares will be redeemed at the next determined net asset value to cover the amount of the check. Certificate shares may not be redeemed in this manner.
Shareholders utilizing checkwriting drafts will be subject to the Bank's rules governing checking accounts. There is currently no charge to the shareholder for the use of checks., However, you may incur customary fees for services such as a stop payment request or a request for copies of a check. The shareholder should make sure that there are sufficient shares in his or her open account to cover the amount of any check drawn since the net asset value of shares will fluctuate. If insufficient shares are in the shareholder's open account, the check will be returned marked "insufficient funds" and no shares will be redeemed; the shareholder will be charged a $15 service fee for each check returned. It is not possible to determine in advance the total value of an open account because prior redemptions and possible changes in net asset value may cause the value of an open account to change. Accordingly, a check redemption should not be used to close an open account. In addition, a check redemption, like any other redemption, may give rise to taxable capital gains.
NON-CASH REDEMPTIONS. For redemptions of any single shareholder within any 90-day period exceeding the lesser of $250,000 or 1 % of a Fund's net asset value, a Fund may make the payment or a portion of the payment with portfolio securities held by that Fund instead of cash, in which case the redeeming shareholder may incur brokerage and other costs in selling the securities received.
INFORMATION APPLICABLE TO CLASS G AND CLASS T SHARES
The primary difference between Class G and Class T shares lies in their sales charge structures and shareholder servicing/distribution expenses. Investments in Class T shares of the Funds are subject to a front-end sales charge. Investments in Class G shares of the Funds are subject to a back-end sales charge. This back-end sales charge declines overtime and is known as a "contingent deferred sales charge." An investor should understand that the purpose and function of the sales charge structures and shareholder servicing/distribution arrangements for both Class G and Class T shares are the same. Class T shares of a bond fund and an equity fund are currently subject to ongoing shareholder servicing fees at an annual rate of up to 0.15% and 0.30%, respectively, of the Fund's average daily net assets attributable to its Class T shares. Class G shares of a
bond fund and an equity fund are currently subject to ongoing shareholder servicing and distribution fees at an annual rate of up to 0.80% and 0.95%, respectively, of the Fund's average daily net assets attributable to its Class G shares. These ongoing fees, which are higher than those charged on Class T shares, will cause Class G shares to have a higher expense ratio and pay lower dividends than Class T shares. Class G and Class T shares may only be purchased by current shareholders of Class G and Class T, respectively.
CLASS T SHARES. The public offering price for Class T shares of the Funds is the sum of the net asset value of the Class T shares purchased plus any applicable front-end sales charge as described in the applicable Prospectus. A deferred sales charge of up to 1.00% is assessed on certain redemptions of Class T shares that are purchased with no initial sales charge as part of an investment of $1,000,000 to $25,000,000. A portion of the front-end sales charge may be reallowed to broker-dealers as follows:
REALLOWANCE TO DEALERS AS REALLOWANCE TO DEALERS AS
A % OF OFFERING PRICE PER A % OF OFFERING PRICE PER
AMOUNT OF TRANSACTION SHARE - BOND FUNDS SHARE - EQUITY FUNDS
--------------------- ------------------------- -------------------------
Less than $50,000 4.25 5.00
$50,000 but less than $100,000 ...... 3.75 3.75
$100,000 but less than $250,000 ..... 2.75 2.75
$250,000 but less than $500,000 ..... 2.00 2.00
$500,000 but less than $1,000,000 ... 1.75 1.75
$1,000,000 and over ................. 0.00 0.00
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The appropriate reallowance to dealers will be paid by CMD to broker-dealer organizations which have entered into agreements with CMD. The reallowance to dealers may be changed from time to time.
Certain affiliates of the Advisor may, at their own expense, provide additional compensation to broker-dealer affiliates of Columbia and to unaffiliated broker-dealers whose customers purchase significant amounts of Class T shares of the Funds. Such compensation will not represent an additional expense to the Funds or their shareholders, since it will be paid from the assets of Bank of America Corporation's affiliates.
INFORMATION APPLICABLE TO CERTAIN CLASS G SHARES RECEIVED BY FORMER GALAXY FUND RETAIL B SHAREHOLDERS IN CONNECTION WITH THE GALAXY/LIBERTY REORGANIZATION. The following table describes the CDSC schedule applicable to Class G shares received by former Galaxy Fund Retail B shareholders in exchange for Retail B Shares purchased prior to January 1,2001:
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year .................. 5 00
Through second year ................. 4 00
Through third year .................. 3 00
Through fourth year ................. 3 00
Through fifth year .................. 2 00
Through sixth year .................. 1.00
Longer than six years ............... None
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Class G shares received in exchange for Galaxy Fund Retail B Shares that were purchased prior to January 1,2001 will automatically convert to Class T shares seven years after purchase. For purposes of calculating the CDSC, all purchases are considered to be made on the first day of the month in which each purchase was made.
The following table describes the CDSC schedule applicable to Class G shareholders whose Galaxy Asset Allocation Fund and/ or International Equity Fund Retail B Shares were acquired in connection with the reorganization of the Pillar Funds:
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
--------------------------------- ---------------
Through first year .............. 5.50
Through second year ............. 5.00
Through third year .............. 4.00
Through fourth year ............. 3.00
Through fifth year .............. 2.00
Through sixth year .............. 1.00
Through the seventh year ........ None
Longer than seven years ......... None
|
If you acquired Retail B Shares in connection with the reorganization of the Pillar Funds, your Class G shares will automatically convert to Class T shares eight years after you purchased the Pillar Fund Class B shares you held prior to the reorganization. For purposes of calculating the CDSC, all purchases are considered to be made on the first day of the month in which each purchase was made.
CLASS G SHARES PURCHASED AFTER THE GALAXY/LIBERTY REORGANIZATION. The public offering price for Class G shares of the Funds is the net asset value of the Class G shares purchased. Although investors pay no front-end sales charge on purchases of Class G shares, such shares are subject to a contingent deferred sales charge at the rates set forth in the applicable Prospectus if they are redeemed within seven years of purchase. Securities dealers, brokers, financial institutions and other industry professionals will receive commissions from CMD in connection with sales of Class G shares. These commissions may be different than the reallowances or placement fees paid to dealers in connection with sales of Class T shares. Certain affiliates of Columbia may, at their own expense, provide additional compensation to broker-dealer affiliates of Columbia and to unaffiliated broker-dealers, whose customers purchase significant amounts of Class G shares of a Fund. See "Class T Shares." The contingent deferred sales charge on Class G shares is based on the lesser of the net asset value of the shares on the redemption date or the original cost of the shares being redeemed. As a result, no sales charge is imposed on any increase in the principal value of an investor's Class G shares. In addition, a contingent deferred sales charge will not be assessed on Class G shares purchased through reinvestment of dividends or capital gains distributions.
The proceeds from the contingent deferred sales charge that an investor may pay upon redemption go to CMD, which may use such amounts to defray the expenses associated with the distribution-related services involved in selling Class G shares. Class G shares of a Fund will convert automatically to Class T shares eight years after purchase. The purpose of the conversion is to relieve a holder of Class G shares of the higher ongoing expenses charged to those shares, after enough time has passed to allow CMD to recover approximately the amount it would have received if the applicable front-end sales charge had been charged. The conversion from Class G shares to Class T shares takes place at net asset value, as a result of which an investor receives dollar-for-dollar the same value of Class T shares as he or she had of Class G shares. The conversion occurs eight years after the beginning of the calendar month in which the shares are purchased. Upon conversion, the converted shares will be relieved of the distribution and shareholder servicing fees borne by Class G shares, although they will be subject to the shareholder servicing fees borne by Class T shares.
Class G shares acquired through a reinvestment of dividends or distributions are also converted at the earlier of two dates--(i) eight years after the beginning of the calendar month in which the reinvestment occurred or (ii) the date of conversion of the most recently purchased Class G shares that were not acquired through reinvestment of dividends or distributions. For example, if an investor makes a one-time purchase of Class G shares of a Fund, and subsequently acquires additional Class G shares of the Fund only through reinvestment of dividends and/or distributions, all of such investor's Class G shares in the Fund, including those acquired through reinvestment, will convert to Class T shares of the Fund on the same date.
INFORMATION APPLICABLE TO CERTAIN CLASS B SHAREHOLDERS
Except for the following, Class B Share Contingent Deferred Sales Charges ("CDSCs") and conversion schedules are described in the Prospectuses.
The following table describes the CDSC schedule applicable to Class B shares received by Galaxy Quality Plus Bond Fund shareholders in exchange for Prime B Shares in connection with the Galaxy/Liberty reorganization.
SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
--------------------------------- ---------------
Through first year .............. 5.00
Through second year ............. 4.00
Through third year .............. 3.00
Through fourth year ............. 3.00
Through fifth year .............. 2.00
Through sixth year .............. 1.00
Longer than six years ........... 0.00
|
Automatic conversion to Class A shares occurs eight years after purchase.
The Class B share discount program for purchases of $250,000 or more is not applicable to Class B shares received by Galaxy Fund Prime B shareholders in connection with the reorganization of the Galaxy Fund.
INFORMATION APPLICABLE TO CERTAIN CLASS A SHAREHOLDERS:
Except as set forth in the following paragraph, Class A share CDSCs are described in the Prospectuses:
Class A shares received by former Galaxy High Quality Bond Fund shareholders in exchange for Prime A Shares in connection with the Galaxy/Liberty reorganization of that Fund are subject to a 1 % CDSC upon redemption of such Class A shares if the Prime A Shares were purchased without an initial sales charge in accounts aggregating $1 million or more at the time of purchase and the Class A shares are sold within 12 months of the time of purchase of the Prime A Shares. The 12-month holding period begins on the first day of the month in which each purchase was made.
DISTRIBUTIONS
Distributions are invested in additional shares of the same Class of the Fund at net asset value unless the shareholder elects to receive cash. Regardless of the shareholder's election, distributions of $10 or less will not be paid in cash, but will be invested in additional shares of the same class of the Fund at net asset value. Undelivered distribution checks returned by the post office will be reinvested in your account. If a shareholder has elected to receive dividends and/or capital gain distributions in cash and the postal or other delivery service selected by the Transfer Agent is unable to deliver checks to the shareholder's address of record, such shareholder's distribution option will automatically be converted to having all dividend and other distributions reinvested in additional shares. No interest will accrue on amounts represented by uncashed distribution or redemption checks. Shareholders may reinvest all or a portion of a recent cash distribution without a sales charge. No charge is currently made for reinvestment.
Shares of some Funds that pay daily dividends ("include Funds") will normally earn dividends starting with the date the Fund receives payment for the shares and will continue through the day before the shares are redeemed, transferred or exchanged. Shares of some Funds that pay daily dividends ("exclude Funds") will be earned starting with the day after that Fund receives payments for the shares. To determine whether a particular Fund is an include or exclude fund, customers can call 1-800-345-6611.
HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for the same class of shares of the other continuously offered funds (with certain exceptions) on the basis of the NAVs per share at the time of exchange. Class T and Z shares may be exchanged for Class A
shares of certain other funds. The prospectus of each Fund describes its investment goal and policies, and shareholders should obtain a prospectus and consider these goals and policies carefully before requesting an exchange. Consult CMS before requesting an exchange.
If you acquire Class A shares of an international fund by exchange from any other fund, you will not be permitted to exchange those shares into another fund for 30 calendar days, although you may redeem those shares at any time. An exchange order received prior to the expiration of the 30-day period will not be honored.
By calling CMS, shareholders or their FSF of record may exchange among accounts with identical registrations, provided that the shares are held on deposit. During periods of unusual market changes or shareholder activity, shareholders may experience delays in contacting CMS by telephone to exercise the telephone exchange privilege. Because an exchange involves a redemption and reinvestment in another fund, completion of an exchange may be delayed under unusual circumstances, such as if the Fund suspends repurchases or postpones payment for the Fund shares being exchanged in accordance with federal securities law. CMS will also make exchanges upon receipt of a written exchange request and share certificates, if any. If the shareholder is a corporation, partnership, agent, or surviving joint owner, CMS may require customary additional documentation. Prospectuses of the other Funds are available from the CMD Literature Department by calling 1-800-426-3750.
A loss to a shareholder may result from an unauthorized transaction reasonably believed to have been authorized. No shareholder is obligated to use the telephone to execute transactions.
Consult your FSF or CMS. In all cases, the shares to be exchanged must be registered on the records of the Fund in the name of the shareholder desiring to exchange.
Shareholders of the other open-end funds generally may exchange their shares at NAV for the same class of shares of the Fund. Sales charges may apply for exchanges from money market funds.
An exchange is generally a capital sale transaction for federal income tax purposes. The exchange privilege may be revised, suspended or terminated at any time.
SUSPENSION OF REDEMPTIONS
A Fund may not suspend shareholders' right of redemption or postpone payment for more than seven days unless the Exchange is closed for other than customary weekends or holidays, or if permitted by the rules of the SEC during periods when trading on the Exchange is restricted or during any emergency which makes it impracticable for the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by order of the SEC for the protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Declaration disclaims shareholder liability for acts or obligations of the Fund and the Trust and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by the Fund or the Trust's Trustees. The Declaration provides for indemnification out of Fund property for all loss and expense of any shareholder held personally liable for the obligations of the Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances (which are considered remote) in which the Fund would be unable to meet its obligations and the disclaimer was inoperative.
The risk of a particular fund incurring financial loss on account of another fund of the Trust is also believed to be remote, because it would be limited to circumstances in which the disclaimer was inoperative and the other fund was unable to meet its obligations.
SHAREHOLDER MEETINGS
The Trust is not required to hold annual shareholder meetings, but special meetings may be called for certain purposes. The Trust has voluntarily undertaken to hold a shareholder meeting at which the Board of Trustees would be elected at least every five years beginning in 2005. Each whole share (or fractional share) outstanding on the record date established in accordance with the Trust's By-Laws shall be entitled to a number of votes on any matter on which it is entitled to vote equal to the net asset value of the shares (or fractional share) in United States dollars determined at the close of business on the record date (for example, a share having a net asset value of $10.50 would be entitled to 10.5 votes).
The Trustees may fill any vacancies in the Board of Trustees except that the Trustees may not fill a vacancy if, immediately after filling such vacancy, less than two-thirds of the Trustees then in office would have been elected to such office by the shareholders. In addition, at such times as less than a majority of the Trustees then in office have been elected to such office by the shareholders, the Trustees must call a meeting of shareholders. Trustees may be removed from office by a written consent signed by a majority of the outstanding shares of the Trust or by a vote of the holders of a majority of the outstanding shares at a meeting duly called for the purpose. Except as otherwise disclosed in the Prospectus and this SAI, the Trustees shall continue to hold office and may appoint their successors.
At any shareholders' meetings that may be held, shareholders of all series would vote together, irrespective of series, on the election of Trustees, but each series would vote separately from the others on other matters, such as changes in the investment policies of that series or the approval of the management agreement for that series. Shares of each Fund and any other series of the Trust that may be in existence from time to time generally vote together except when required by law to vote separately by fund or by class.
APPENDIX I
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S (S&P)
The following descriptions are applicable to municipal bond funds:
AAA bonds have the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.
AA bonds have a very strong capacity to pay interest and repay principal, and they differ from AAA only in small degree.
A bonds have a strong capacity to pay interest and repay principal, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.
BBB bonds are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than for bonds in the A category.
BB, B, CCC, CC and C bonds are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or large exposures to adverse conditions.
BB bonds have less near-term vulnerability to default than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating.
B bonds have a greater vulnerability to default but currently have the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB-rating.
CCC bonds have a currently identifiable vulnerability to default, and are dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, the bonds are not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating.
CC rating typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating.
C rating typically is applied to debt subordinated to senior debt which assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued.
CI rating is reserved for income bonds on which no interest is being paid.
D bonds are in payment default. The D rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized.
Plus(+) or minus(-) ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
PROVISIONAL RATINGS. The letter "p" indicates that the rating is provisional. A provisional rating assumes the successful completion of the project being financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely completion of the project. This rating, however, although addressing
credit quality subsequent to completion of the project, makes no comments on the likelihood of, or the risk of default upon failure of, such completion. The investor should exercise his own judgment with respect to such likelihood and risk.
MUNICIPAL NOTES:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating. Notes maturing beyond three years normally receive a bond rating, although the following criteria are used in making that assessment:
Amortization schedule (the larger the final maturity relative to other maturities, the more likely the issue will be rated as a note).
Source of payment (the more dependent the issue is on the market for its refinancing, the more likely it will be rated as a note).
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a demand feature. The first rating addresses the likelihood of repayment of principal and interest as due, and the second rating addresses only the demand feature. The long-term debt rating symbols are used for bonds to denote the long-term maturity, and the commercial paper rating symbols are usually used to denote the put (demand) option (for example, AAA/A-1+). Normally, demand notes receive note rating symbols combined with commercial paper symbols (for example, SP-1+/A-1+).
COMMERCIAL PAPER:
A. Issues assigned this highest rating are regarded as having the greatest capacity for timely payment. Issues in this category are further refined with the designations 1,2, and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are designed A-1+.
CORPORATE BONDS:
The description of the applicable rating symbols and their meanings is substantially the same as the Municipal Bond ratings set forth above.
The following descriptions are applicable to equity and taxable bond funds:
AAA bonds have the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.
AA bonds differ from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.
A bonds are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.
BBB bonds exhibit adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
BB, B, CCC and CC bonds are regarded, as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB bonds are less vulnerable to non-payment than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
B bonds are more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.
CCC bonds are currently vulnerable to nonpayment, and are dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC bonds are currently highly vulnerable to nonpayment.
C ratings may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on the obligation are being continued.
D bonds are in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
Plus (+) or minus(-): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
R This symbol is attached to the rating of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk, such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
AAA bonds are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge". Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While various protective elements are likely to change, such changes as can be visualized are most unlikely to impair a fundamentally strong position of such issues.
AA bonds are judged to be of high quality by all standards. Together with Aaa bonds they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.
Those bonds in the Aa through B groups that Moody's believes possess the strongest investment attributes are designated by the symbol Aa1, A1 and Baa1.
A bonds possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment sometime in the future.
BAA bonds are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact, have speculative characteristics as well.
BA bonds are judged to have speculative elements: their future cannot be considered as well secured. Often, the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B bonds generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
CAA bonds are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
CA bonds represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C bonds are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
CONDITIONAL RATINGS. Bonds for which the security depends upon the completion of some act or the fulfillment of some condition are rated conditionally. These are bonds secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in operating experience, (c) rentals which begin when facilities are completed, or (d) payments to which some other limiting conditions attach. Parenthetical rating denotes probable credit stature upon completion of construction or elimination of basis of condition.
MUNICIPAL NOTES:
MIG 1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are accounted for, but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
Moody's may assign a separate rating to the demand feature of a variable rate demand security. Such a rating may include:
VMIG 1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are accounted for, but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
COMMERCIAL PAPER:
Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper obligations are supported by the credit of another entity or entities, Moody's, in assigning ratings to such issuers, evaluates the financial strength of the indicated affiliated corporations, commercial banks, insurance companies, foreign governments, or other entities, but only as one factor in the total rating assessment.
CORPORATE BONDS:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings is identical to that of the Municipal Bond ratings as set forth above, except for the numerical modifiers. Moody's applies numerical modifiers 1, 2, and 3 in the Aa and A classifications of its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a midrange ranking; and the modifier 3 indicates that the issuer ranks in the lower end of its generic rating category.
FITCH INC.
INVESTMENT GRADE BOND RATINGS
AAA bonds are considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and/or dividends and repay principal, which is unlikely to be affected by reasonably foreseeable events.
AA bonds are considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated 'AAA'. Because bonds rated in the 'AAA' and 'AA' categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F-1+'.
A bonds are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than debt securities with higher ratings.
BBB bonds are considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest or dividends and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these securities and, therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for securities with higher ratings.
CONDITIONAL
A conditional rating is premised on the successful completion of a project or the occurrence of a specific event.
SPECULATIVE-GRADE BOND RATINGS
BB bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected overtime by adverse economic changes. However, business and financial alternatives can be identified, which could assist the obligor in satisfying its debt service requirements.
B bonds are considered highly speculative. While securities in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue.
CCC bonds have certain identifiable characteristics that, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment.
CC bonds are minimally protected. Default in payment of interest and/or principal seems probable over time.
C bonds are in imminent default in payment of interest or principal.
DDD, DD, and D bonds are in default on interest and/or principal payments. Such securities are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. 'DDD' represents the highest potential for recovery on these securities, and 'D' represents the lowest potential for recovery.
APPENDIX II
COLUMBIA MANAGEMENT ADVISORS, LLC ("CMA")
PROXY VOTING POLICIES AND PROCEDURES
ADOPTED JULY 1, 2003 AND REVISED MARCH 4, 2005
POLICY:
ALL PROXIES(1) REGARDING CLIENT SECURITIES FOR WHICH COLUMBIA MANAGEMENT ADVISORS, LLC ("CMA") HAS ASSUMED AUTHORITY TO VOTE SHALL, UNLESS CMA DETERMINES IN ACCORDANCE WITH POLICIES STATED BELOW TO ABSTAIN FROM VOTING, BE VOTED IN A MANNER CONSIDERED BY CMA TO BE IN THE BEST INTEREST OF CMA'S CLIENTS, INCLUDING THE CMG FAMILY FUNDS(2) AND THEIR SHAREHOLDERS, WITHOUT REGARD TO ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES. THE BEST INTEREST OF CLIENTS IS DEFINED FOR THIS PURPOSE AS THE INTEREST OF ENHANCING OR PROTECTING THE ECONOMIC VALUE OF CLIENT ACCOUNTS, CONSIDERED AS A GROUP RATHER THAN INDIVIDUALLY, AS CMA DETERMINES IN ITS SOLE AND ABSOLUTE DISCRETION. IN THE EVENT A CLIENT BELIEVES THAT ITS OTHER INTERESTS REQUIRE A DIFFERENT VOTE, CMA SHALL VOTE AS THE CLIENT CLEARLY INSTRUCTS, PROVIDED CMA RECEIVES SUCH INSTRUCTIONS IN TIME TO ACT ACCORDINGLY.
CMA ENDEAVORS TO VOTE, IN ACCORDANCE WITH THIS POLICY, ALL PROXIES OF WHICH IT BECOMES AWARE, SUBJECT TO THE FOLLOWING EXCEPTIONS (UNLESS OTHERWISE AGREED) WHEN CMA EXPECTS TO ROUTINELY ABSTAIN FROM VOTING:
1. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE THE SECURITY HAS BEEN LOANED FROM THE CLIENT'S ACCOUNT.
2. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE CMA DEEMS THE COSTS TO THE CLIENT AND/OR THE ADMINISTRATIVE INCONVENIENCE OF VOTING THE SECURITY (E.G., SOME FOREIGN SECURITIES) OUTWEIGH THE BENEFIT OF DOING SO.
CMA SEEKS TO AVOID THE OCCURRENCE OF ACTUAL OR APPARENT MATERIAL CONFLICTS OF INTEREST IN THE PROXY VOTING PROCESS BY VOTING IN ACCORDANCE WITH PREDETERMINED VOTING GUIDELINES, AS STATED BELOW. FOR THOSE PROXY PROPOSALS THAT REQUIRE SPECIAL CONSIDERATION OR IN INSTANCES WHERE SPECIAL CIRCUMSTANCES MAY REQUIRE VARYING FROM THE PREDETERMINED GUIDELINES, THE CMG PROXY COMMITTEE WILL DETERMINE THE BEST INTEREST OF CMA'S CLIENTS AND VOTE ACCORDINGLY, WITHOUT CONSIDERATION OF ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES.
OVERVIEW:
CMA's policy is based upon its fiduciary obligation to act in its clients' best interest. Citing this obligation, the SEC has adopted rules pursuant to the Investment Advisers Act of 1940 and Investment Company Act of 1940 with respect to proxy voting.
PROCEDURE:
I. ACCOUNT POLICIES
Except as otherwise directed by the client, CMA shall vote as follows:
SEPARATELY MANAGED ACCOUNTS
CMA shall vote proxies on securities held in its separately managed accounts.
COLUMBIA TRUST COMPANY (CTC) TRUST POOLS
CMA shall vote proxies on securities held in the trust pools.
(2) A CMG Family Fund or a Fund is a registered investment company or series of a registered investment company managed or advised by Columbia Management Advisors, LLC
CMG FAMILY FUNDS/CMA FUND TRUST
CMA shall vote proxies on securities held in the Funds, including multi-managed and subadvised Funds.
COLUMBIA PRIVATE PORTFOLIO
CMA shall vote proxies on securities held in its separately managed accounts.
ALTERNATIVE INVESTMENT GROUP
CMA's clients may invest in securities ("Alternative Investments") issued by alternative investment vehicles (i.e. hedge funds, private equity funds, and other alternative investment pools) that are structured as private limited partnerships ("LPs"), limited liability companies ("LLCs") or offshore corporations. Generally, CMA's Alternative Investment Group ("AIG") is the platform through which CMA provides advisory services relating to Alternative Investments.
The voting rights of Alternative Investments generally are rights of contract set forth in the limited liability company or limited partnership agreement, in the case of LLCs and LPs, or Memorandum and Articles of Association or By-laws, in the case of offshore corporations. Also, as privately placed securities, Alternative Investments generally are not subject to the regulatory scheme applicable to public companies. Consequently, in most cases, proxies are not solicited regarding Alternative Investment vehicles. Instead, consents may be solicited from members, limited partners or shareholders.
Because of the unique characteristics of Alternative Investments, CMA has a tailored process for voting Alternative Investment proxies and consents.
Process
AIG will vote all Alternative Investment proxies and consents in accordance with this Policy. The committee voting AIG proxies consists of AIG senior management, investment and operations professionals. Conflicts of interest are to be monitored and resolved as set forth in this Policy.
II. PROXY COMMITTEE
CMA shall establish a Proxy Committee whose standing members shall include the head of core equity, head of value, head of growth, head of income strategies, head of equity research and head of fixed income research. Each standing member may designate a senior portfolio manager or a senior analyst officer to act as a substitute in a given matter on their behalf.
The Proxy Committee's functions shall include, in part,
(a) direction of the vote on proposals where there has been a
recommendation to the Committee, pursuant to Section IV.B, not to vote
according to the predetermined Voting Guidelines stated in Section
IV.A or on proposals which require special, individual consideration
in accordance with Section IV.C;
(b) review at least annually of this Proxy Voting Policy and Procedure to ensure consistency with internal policies, client disclosures and regulatory requirements;
(c) review at least annually of existing Voting Guidelines and need for development of additional Voting Guidelines to assist in the review of proxy proposals; and
(d) development and modification of Voting Procedures, as stated in
Section V, as it deems appropriate or necessary.
The Proxy Committee shall establish a charter, which shall set forth the Committee's purpose, membership and operation. The Committee's charter shall be consistent, in all material respects, with this policy and procedure.
III. CONFLICTS OF INTEREST
With Other Bank of America Businesses
Bank of America Corporation ("BAC"), the ultimate corporate parent of CMA, Bank of America, N.A. and all of their numerous affiliates owns, operates and has interests in many lines of business that may create or give rise to the appearance of a conflict of interest between BAC or its affiliates and those of Firm-advised clients. For example, the commercial and investment banking business lines may have interests with respect to issuers of voting securities that could appear to or even actually conflict with CMA's duty, in the proxy voting process, to act in the best economic interest of its clients.
Within CMA
Conflicts of interest may also arise from the business activities of CMA. For example, CMA might manage (or be seeking to manage) the assets of a benefit plan for an issuer. CMA may also be presented with an actual or apparent conflict of interest where proxies of securities issued by BAC or a CMG Family Fund, for which CMA serves as investment adviser, are to be voted for a client's account.
Management of Conflicts
CMA's policy is to always vote proxies in the best interest of its clients, as a whole, without regard to its own self-interest or that of its affiliates. BAC as well as CMA has various compliance policies and procedures in place in order to address any material conflicts of interest that might arise in this context.
1. BAC's enterprise-wide Code of Ethics specifically prohibits the flow of certain business-related information between associates on the commercial and/or investment banking side of the corporation and associates charged with trust or (as in the case of BACAP associates) non-trust fiduciary responsibilities, including investment decision-making and proxy voting.
2. In addition, BAC has adopted "Global Policies and Procedures Regarding Information Walls and Inside Information." Pursuant to these policies and procedures, "information barriers" have been established between various BAC business lines designed to prohibit the passage of certain information across those barriers.
3. Within CMA, CMA's Code of Ethics affirmatively requires that associates of CMA act in a manner whereby no actual or apparent conflict of interest may be seen as arising between the associate's interests and those of CMA's Clients.
4. By assuming his or her responsibilities pursuant to this Policy, each member of the Proxy Committee and any CMA or BAC associate advising or acting under the supervision or oversight of the Proxy Committee undertakes:
- To disclose to the chairperson of the Proxy Committee and the chairperson to the head of CMG Compliance any actual or apparent personal material conflicts of interest which he or she may have (e.g., by way of substantial ownership of securities, relationships with nominees for directorship, members of an issuer's or dissident's management or otherwise) in determining whether or how CMA shall vote proxies. In the event the chairperson of the Proxy Committee has a conflict of interest regarding a given matter, he or she shall abstain from participating in the Committee's determination of whether and/or how to vote in the matter; and
- To refrain from taking into consideration, in the decision as to whether or how CMA shall vote proxies:
- The existence of any current or prospective material business relationship between CMA, BAC or any of their affiliates, on one hand, and any party (or its affiliates) that is soliciting or is otherwise interested in the proxies to be voted, on the other hand; and/or
- Any direct, indirect or perceived influence or attempt to influence such action which the member or associate views as being inconsistent with the purpose or provisions of this Policy or the Code of Ethics of CMA or BAC.
Where a material conflict of interest is determined to have arisen in the proxy voting process that may not be adequately mitigated by voting in accordance with the predetermined Voting Guidelines, CMA's policy is to invoke one or more of the following conflict management procedures:
1. Convene the Proxy Committee for the purpose of voting the affected proxies in a manner that is free of the conflict.
2. Causing the proxies to be voted in accordance with the recommendations of a qualified, independent third party, which may include CMA's proxy voting agent.
3. In unusual cases, with the Client's consent and upon ample notice, forwarding the proxies to CMA's clients so that they may vote the proxies directly.
IV. VOTING GUIDELINES
A. THE PROXY COMMITTEE HAS ADOPTED THE FOLLOWING GUIDELINES FOR VOTING PROXIES:
1. Matters Relating to the Board of Directors/Corporate Governance
CMA generally will vote FOR:
- Proposals for the election of directors or for an increase or decrease in the number of directors, provided that no more than one-third of the Board of Directors would, presently or at any time during the previous three-year period, be from management.
However, CMA generally will WITHHOLD votes from pertinent director nominees if:
(i) the board as proposed to be constituted would have more than one-third of its members from management;
(ii) the board does not have audit, nominating, and compensation committees composed solely of directors who qualify as being regarded as "independent," i.e. having no material relationship, directly or indirectly, with the Company, as CMA's proxy voting agent may determine (subject to the Proxy Committee's contrary determination of independence or non-independence);
(iii) the nominee, as a member of the audit committee, permitted the company to incur excessive non-audit fees (as defined below regarding other business matters -- ratification of the appointment of auditors);
(iv) a director serves on more than six public company boards;
(v) the CEO serves on more than two public company boards other than the company's board.
On a CASE-BY-CASE basis, CMA may WITHHOLD votes for a director nominee who has failed to observe good corporate governance practices or, through specific corporate action or inaction (e.g. failing to implement policies for which a majority of shareholders has previously cast votes in favor), has demonstrated a disregard for the interests of shareholders.
- Proposals requesting that the board audit, compensation and/or nominating committee be composed solely of independent directors. The Audit Committee must satisfy the independence and experience requirements established by the Securities and Exchange Commission ("SEC") and the New York Stock Exchange, or appropriate local requirements for foreign securities. At least one member of the Audit Committee must qualify as a "financial expert" in accordance with SEC rules.
- Proposals to declassify a board, absent special circumstances that would indicate that shareholder interests are better served by a classified board structure.
CMA generally will vote FOR:
- Proposals to create or eliminate positions or titles for senior management. CMA generally prefers that the role of Chairman of the Board and CEO be held by different persons unless there are compelling reasons to vote AGAINST a proposal to separate these positions, such as the existence of a counter-balancing governance structure that includes at least the following elements in addition to applicable listing standards:
- Established governance standards and guidelines.
- Full board composed of not less than two-thirds "independent" directors, as defined by applicable regulatory and listing standards.
- Compensation, as well as audit and nominating (or corporate governance) committees composed entirely of independent directors.
- A designated or rotating presiding independent director appointed by and from the independent directors with the authority and responsibility to call and preside at regularly and, as necessary, specially scheduled meetings of the independent directors to be conducted, unless the participating independent directors otherwise wish, in executive session with no members of management present.
- Disclosed processes for communicating with any individual director, the presiding independent director (or, alternatively, all of the independent directors, as a group) and the entire board of directors, as a group.
- The pertinent class of the Company's voting securities has out-performed, on a three-year basis, both an appropriate peer group and benchmark index, as indicated in the performance summary table of the Company's proxy materials. This requirement shall not apply if there has been a change in the Chairman/CEO position within the three-year period.
- Proposals that grant or restore shareholder ability to remove directors with or without cause.
- Proposals to permit shareholders to elect directors to fill board vacancies.
- Proposals that encourage directors to own a minimum amount of company stock.
- Proposals to provide or to restore shareholder appraisal rights.
- Proposals to adopt cumulative voting.
- Proposals for the company to adopt confidential voting.
CMA generally will vote AGAINST:
- Proposals to classify boards, absent special circumstances indicating that shareholder interests would be better served by a classified board structure.
- Proposals that give management the ability to alter the size of the board without shareholder approval.
- Proposals that provide directors may be removed only by supermajority vote.
- Proposals to eliminate cumulative voting.
- Proposals which allow more than one vote per share in the election of directors.
- Proposals that provide that only continuing directors may elect replacements to fill board vacancies.
- Proposals that mandate a minimum amount of company stock that directors must own.
- Proposals to limit the tenure of non-management directors.
CMA will vote on a CASE-BY-CASE basis in contested elections of directors.
CMA generally will vote on a CASE-BY-CASE basis on board approved proposals relating to corporate governance. Such proposals include, but are not limited to:
- Director and officer indemnification and liability protection. CMA is opposed to entirely eliminating directors' and officers' liability for monetary damages for violating the duty of care. CMA is also opposed to expanding coverage beyond just legal expenses to acts, such as negligence, that are more serious violations of fiduciary obligation than mere carelessness. CMA supports proposals which provide such expanded coverage in cases when a director's or officer's legal defense was unsuccessful if: (i) the director was found to have acted in good faith and in a manner that he/she reasonably believed was in the best interests of the company, AND (ii) if the director's legal expenses would be covered.
- Reimbursement of proxy solicitation expenses taking into consideration whether or not CMA was in favor of the dissidents.
- Proxy contest advance notice. CMA generally will vote FOR proposals that allow shareholders to submit proposals as close to the meeting date as possible while allowing for sufficient time for Company response, SEC review, and analysis by other shareholders.
2. Compensation
CMA generally will vote FOR management sponsored compensation plans (such as bonus plans, incentive plans, stock option plans, pension and retirement benefits, stock purchase plans or thrift plans) if they are consistent with industry and country standards. However, CMA generally is opposed to compensation plans that substantially dilute ownership interest in a company, provide participants with excessive awards, or have objectionable structural features. Specifically, for equity-based plans, if the proposed number of shares authorized for option programs (excluding authorized shares for expired options) exceeds an average of 10% of the currently outstanding shares over the previous three years or an average of 3% over the previous three years for directors only, the proposal should be referred to the Proxy Committee. The Committee will then consider the circumstances surrounding the issue and vote in the best interest of CMA's clients. CMA requires that management provide substantial justification for the repricing of options.
CMA generally will vote FOR:
- Proposals requiring that executive severance arrangements be submitted for shareholder ratification.
- Proposals asking a company to expense stock options.
- Proposals to put option repricings to a shareholder vote.
- Employee stock purchase plans that have the following features: (i) the shares purchased under the plan are acquired for no less than 85% of their market value, (ii) the offering period under the plan is 27 months or less, and (iii) dilution is 10% or less.
CMA generally will vote AGAINST:
- Stock option plans that permit issuance of options with an exercise price below the stock's current market price, or that permit replacing or repricing of out-of-the money options.
- Proposals to authorize the replacement or repricing of out-of-the money options.
CMA will vote on a CASE-BY-CASE basis proposals regarding approval of specific executive severance arrangements.
3. Capitalization
CMA generally will vote FOR:
- Proposals to increase the authorized shares for stock dividends, stock splits (and reverse stock splits) or general issuance, unless proposed as an anti-takeover measure or a general issuance proposal increases the authorization by more than 30% without a clear need presented by the company. Proposals for reverse stock splits should include an overall reduction in authorization.
For companies recognizing preemptive rights for existing shareholders, CMA generally will vote FOR general issuance proposals that increase the authorized shares by more than 30%. CMA will vote on a CASE-BY-CASE basis all such proposals by companies that do not recognize preemptive rights for existing shareholders.
- Proposals for the elimination of authorized but unissued shares or retirement of those shares purchased for sinking fund or treasury stock.
- Proposals to institute/renew open market share repurchase plans in which all shareholders may participate on equal terms.
- Proposals to reduce or change the par value of common stock, provided the number of shares is also changed in order to keep the capital unchanged.
4. Mergers, Restructurings and Other Transactions
CMA will review, on a CASE-BY-CASE basis, business transactions such as mergers, acquisitions, reorganizations, liquidations, spinoffs, buyouts and sale of all or substantially all of a company's assets.
5. Anti-Takeover Measures
CMA generally will vote AGAINST proposals intended largely to avoid acquisition prior to the occurrence of an actual event or to discourage acquisition by creating a cost constraint. With respect to the following measures, CMA generally will vote as follows:
Poison Pills
- CMA votes FOR shareholder proposals that ask a company to submit its poison pill for shareholder ratification.
- CMA generally votes FOR shareholder proposals to eliminate a poison pill.
- CMA generally votes AGAINST management proposals to ratify a poison pill.
Greenmail
- CMA will vote FOR proposals to adopt anti-greenmail charter or bylaw amendments or to otherwise restrict a company's ability to make greenmail payments.
Supermajority vote
- CMA will vote AGAINST board-approved proposals to adopt anti-takeover measures such as supermajority voting provisions, issuance of blank check preferred stock, the creation of a separate class of stock with disparate voting rights and charter amendments adopting control share acquisition provisions.
Control Share Acquisition Provisions
- CMA will vote FOR proposals to opt out of control share acquisition statutes.
6. Other Business Matters
CMA generally will vote FOR:
- Proposals to approve routine business matters such as changing the company's name and procedural matters relating to the shareholder meeting such as approving the minutes of a prior meeting.
- Proposals to ratify the appointment of auditors, unless any of the following apply in which case CMA will generally vote AGAINST the proposal:
- Credible reason exists to question:
- The auditor's independence, as determined by applicable regulatory requirements.
- The accuracy or reliability of the auditor's opinion as to the company's financial position.
- Fees paid to the auditor or its affiliates for "non-audit" services were excessive, i.e., in excess of the total fees paid for "audit," "audit-related" and "tax compliance" and/or "tax return preparation" services, as disclosed in the company's proxy materials.
- Bylaw or charter changes that are of a housekeeping nature (e.g., updates or corrections).
- Proposals to approve the annual reports and accounts provided the certifications required by the Sarbanes-Oxley Act of 2002 have been provided.
CMA generally will vote AGAINST:
- Proposals to eliminate the right of shareholders to act by written consent or call special meetings.
- Proposals providing management with authority to adjourn an annual or special shareholder meeting absent compelling reasons, or to adopt, amend or repeal bylaws without shareholder approval, or to vote unmarked proxies in favor of management.
- Shareholder proposals to change the date, time or location of the company's annual meeting of shareholders.
CMA will vote AGAINST:
- Authorization to transact other unidentified substantive (as opposed to procedural) business at a meeting.
CMA will vote on a CASE-BY-CASE basis:
- Proposals to change the location of the company's state of incorporation. CMA considers whether financial benefits (e.g., reduced fees or taxes) likely to accrue to the company as a result of a reincorporation or other change of domicile outweigh any accompanying material diminution of shareholder rights.
- Proposals on whether and how to vote on "bundled" or otherwise conditioned proposals, depending on the overall economic effects upon shareholders.
CMA generally will ABSTAIN from voting on shareholder proposals predominantly involving social, socio-economic, environmental, political or other similar matters on the basis that their impact on share value can rarely be anticipated with any high degree of confidence. CMA may, on a CASE-BY-CASE basis, vote:
- FOR proposals seeking inquiry and reporting with respect to, rather than cessation or affirmative implementation of, specific policies where the pertinent issue warrants separate communication to shareholders; and
- FOR or AGAINST the latter sort of proposal in light of the relative benefits and detriments (e.g. distraction, costs, other burdens) to share value which may be expected to flow from passage of the proposal.
7. Other Matters Relating to Foreign Issues
CMA generally will vote FOR:
- Most stock (scrip) dividend proposals. CMA votes AGAINST proposals that do not allow for a cash option unless management demonstrates that the cash option is harmful to shareholder value.
- Proposals to capitalize the company's reserves for bonus issues of shares or to increase the par value of shares.
- Proposals to approve control and profit transfer agreements between a parent and its subsidiaries.
- Management proposals seeking the discharge of management and supervisory board members, unless there is concern about the past actions of the company's auditors/directors and/or legal action is being taken against the board by other shareholders.
- Management proposals concerning allocation of income and the distribution of dividends, unless the dividend payout ratio has been consistently below 30 percent without adequate explanation or the payout is excessive given the company's financial position.
- Proposals for the adoption of financing plans if they are in the best economic interests of shareholders.
8. Investment Company Matters
Election of Directors:
CMA will vote on a CASE-BY-CASE basis proposals for the election of directors, considering the following factors:
- Board structure
- Attendance at board and committee meetings.
CMA will WITHHOLD votes from directors who:
- Attend less than 75 percent of the board and committee meetings without a valid excuse for the absences. Valid reasons include illness or absence due to company business. Participation via telephone is acceptable. In addition, if the director missed only one meeting or one day's meetings, votes should not be withheld even if such absence dropped the director's attendance below 75 percent.
- Ignore a shareholder proposal that is approved by a majority of shares outstanding;
- Ignore a shareholder proposal this is approved by a majority of the votes cast for two consecutive years;
- Are interested directors and sit on the audit or nominating committee; or
- Are interested directors and the full board serves as the audit or nominating committee or the company does not have one of these committees.
Proxy Contests:
CMA will vote on a CASE-BY-CASE basis proposals for proxy contests, considering the following factors:
- Past performance relative to its peers
- Market in which fund invests
- Measures taken by the board to address the pertinent issues (e.g., closed-end fund share market value discount to NAV)
- Past shareholder activism, board activity and votes on related proposals
- Strategy of the incumbents versus the dissidents
- Independence of incumbent directors; director nominees
- Experience and skills of director nominees
- Governance profile of the company
- Evidence of management entrenchment
Converting Closed-end Fund to Open-end Fund:
CMA will vote conversion proposals on a CASE-BY-CASE basis, considering the following factors:
- Past performance as a closed-end fund
- Market in which the fund invests
- Measures taken by the board to address the discount
- Past shareholder activism, board activity, and votes on related proposals.
Investment Advisory Agreements:
CMA will vote investment advisory agreements on a CASE-BY-CASE basis, considering the following factors:
- Proposed and current fee schedules
- Fund category/investment objective
- Performance benchmarks
- Share price performance as compared with peers
- Resulting fees relative to peers
- Assignments (where the adviser undergoes a change of control)
Approving New Classes or Series of Shares:
CMA will vote FOR the establishment of new classes or series of shares.
Preferred Stock Proposals:
CMA will vote on a CASE-BY-CASE basis proposals for the authorization for or increase in the preferred shares, considering the following factors:
- Stated specific financing purpose
- Possible dilution for common shares
- Whether the shares can be used for antitakover purposes
Policies Addressed by the Investment Company Act of 1940 ("1940 Act"):
CMA will vote proposals regarding adoption or changes of policies addressed by the 1940 Act on a CASE-BY-CASE basis, considering the following factors:
- Potential competitiveness
- Regulatory developments
- Current and potential returns
- Current and potential risk
CMA generally will vote FOR these amendments as long as the proposed changes do not fundamentally alter the investment focus of the fund and do comply with current SEC interpretations.
Changing a Fundamental Restriction to a Non-fundamental Restriction:
CMA will vote on a CASE-BY-CASE basis proposals to change a fundamental restriction to a nonfundamental restriction, considering the following factors:
- Fund's target investments
- Reasons given by the fund for the change
- Projected impact of the change on the portfolio
Change Fundamental Investment Objective to Non-fundamental:
CMA will vote AGAINST proposals to change a fund's investment objective from fundamental to non-fundamental unless management acknowledges meaningful limitations upon its future requested ability to change the objective
Name Change Proposals:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's name, considering the following factors:
- Political/economic changes in the target market
- Consolidation in the target market
- Current asset composition
Change in Fund's Subclassification:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's subclassification, considering the following factors:
- Potential competitiveness
- Current and potential returns
- Risk of concentration
- Consolidation in target industry
Disposition of Assets/Termination/Liquidation:
CMA will vote on a CASE-BY-CASE basis these proposals, considering the following factors:
- Strategies employed to salvage the company
- Past performance of the fund
- Terms of the liquidation
Changes to the Charter Document:
CMA will vote on a CASE-BY-CASE basis proposals to change the charter document, considering the following factors:
- The degree of change implied by the proposal
- The efficiencies that could result
- The state of incorporation; net effect on shareholder rights
- Regulatory standards and implications
CMA will vote FOR:
- Proposals allowing the Board to impose, without shareholder approval, fees payable upon redemption of fund shares, provided imposition of such fees is likely to benefit long-term fund investors (e.g., by deterring market timing activity by other fund investors)
- Proposals enabling the Board to amend, without shareholder approval, the fund's management agreement(s) with its investment adviser(s) or sub-advisers, provided the amendment is not required by applicable law (including the Investment Company Act of 1940) or interpretations thereunder to require such approval
CMA will vote AGAINST:
- Proposals enabling the Board to:
- Change, without shareholder approval the domicile of the fund
- Adopt, without shareholder approval, material amendments of the fund's declaration of trust or other organizational document
Changing the Domicile of a Fund:
CMA will vote on a CASE-BY-CASE basis proposals to reincorporate, considering the following factors:
- Regulations of both states
- Required fundamental policies of both states
- The increased flexibility available
Authorizing the Board to Hire and Terminate Subadvisors Without Shareholder Approval:
CMA will vote FOR proposals to enable the Board or Investment Adviser to hire and terminate sub-advisers, without shareholder approval, in accordance with applicable rules or exemptive orders under the Investment Company Act of 1940
Distribution Agreements:
CMA will vote these proposals on a CASE-BY-CASE basis, considering the following factors:
- Fees charged to comparably sized funds with similar objectives
- The proposed distributor's reputation and past performance
- The competitiveness of the fund in the industry
- Terms of the agreement
Master-Feeder Structure:
CMA will vote FOR the establishment of a master-feeder structure.
Mergers:
CMA will vote merger proposals on a CASE-BY-CASE basis, considering the following factors:
- Resulting fee structure
- Performance of both funds
- Continuity of management personnel
- Changes in corporate governance and their impact on shareholder rights
Shareholder Proposals to Establish Director Ownership Requirement:
CMA will generally vote AGAINST shareholder proposals that mandate a specific minimum amount of stock that directors must own in order to qualify as a director or to remain on the board. While CMA favors stockownership on the part of directors, the company should determine the appropriate ownership requirement.
Shareholder Proposals to Reimburse Shareholder for Expenses Incurred:
CMA will vote on a CASE-BY-CASE basis proposals to reimburse proxy solicitation expenses.
Shareholder Proposals to Terminate the Investment Adviser:
CMA will vote on a CASE-BY-CASE basis proposals to terminate the investment adviser, considering the following factors:
- Performance of the fund's NAV
- The fund's history of shareholder relations
- The performance of other funds under the adviser's management
9. Alternative Investment Group ("AIG") Matters
The AIG Proxy Sub-Committee generally will vote in accordance with the guidelines set forth in this policy. With respect to matters that are not addressed by the guidelines, the AIG Proxy Sub-Committee will vote each such matter on a CASE-BY-CASE basis.
B. ABILITY TO VOTE PROXIES OTHER THAN AS PROVIDED IN A ABOVE.
A Portfolio Manager, sub-adviser or other party involved with a client's account may conclude that the best interest of the firm's client, as defined above, requires that a proxy be voted in a manner that differs from the predetermined proxy Voting Guidelines stated in Section IV.A. In this situation, he or she shall request that the Proxy Committee consider voting the proxy other than according such Guidelines. If any person, group, or entity requests the Proxy Committee (or any of its members) vote a proxy other than according to the predetermined Voting Guidelines, that person shall furnish to the Proxy Committee a written explanation of the reasons for the request and a description of the person's, group's, or entity's relationship, if any, with the parties proposing and/or opposing the matter's adoption.
C. PROPOSALS REQUIRING SPECIAL CONSIDERATION
The following proposals require special, individual consideration. The Proxy Committee will determine how proxies related to all such proposals will be voted.
1. NEW PROPOSALS. For each new type of proposal that is expected to be proposed to shareholders of multiple companies, the Proxy Committee will develop a Voting Guideline which will be incorporated into this Policy.
2. ACCOUNTS ADHERING TO TAFT HARTLEY PRINCIPLES. All proposals for these accounts shall be voted according to the Taft Hartley Guidelines developed by Institutional Shareholder Services, Inc. ("ISS").
3. ACCOUNTS ADHERING TO SOCIALLY RESPONSIBLE PRINCIPLES. All proposals for these accounts shall be voted according to the Socially Responsible Guidelines developed by ISS or as specified by the client.
4. PROXIES OF INTERNATIONAL ISSUERS WHICH BLOCK SECURITIES SALES BETWEEN THE TIME A SHAREHOLDER SUBMITS A PROXY AND THE VOTE. Proposals for these securities shall be voted only on the specific instruction of the Proxy Committee and to the extent practicable in accordance with the Voting Guidelines set forth in this Policy.
5. PROXIES OF INVESTMENT COMPANY SHARES. Proposals on issues other than those specified in Section IV.A.
6. EXECUTIVE/DIRECTOR COMPENSATION. Except as provided in Section
IV.A, proposals relating to compensation of any executive or director
will be voted as recommended by ISS or as otherwise directed by the
Proxy Committee.
7. PREEMPTIVE RIGHTS. Proposals to create or eliminate shareholder preemptive rights. In evaluating these proposals the Proxy Committee will consider the size of the company and the nature of its shareholder base.
V. VOTING PROCEDURES
The Proxy Committee has developed the following procedures to aid the voting of proxies according to the Voting Guidelines set forth in Section IV above. The Proxy Committee may revise these procedures from time to time, as it deems necessary or appropriate to effect the purposes of this Policy.
- CMA shall use an independent, third-party vendor (currently Institutional Shareholder Services ("ISS")), to implement its proxy voting process as CMAs proxy voting agent. This retention is subject to CMA continuously assessing the vendor's independence from CMA and its affiliates, and the vendor's ability to perform its responsibilities (and, especially, its responsibility to vote client proxies in accordance with CMA's proxy voting guidelines) free of any actual, potential or apparent material conflicts of interests that may arise between the interests of the vendor, its affiliates, the vendor's other clients and the owners, officers or employees of any such firm, on the one hand, and CMA's clients, on the other hand. As means of performing this assessment, CMA will require various reports and notices from the vendor, as well as periodic audits of the vendor's voting record and other due diligence.
- ISS shall provide proxy analysis and record keeping services in addition to voting proxies on behalf of CMA in accordance with this Policy.
- On a daily basis CMA shall send to ISS a holdings file detailing each equity holding held in all accounts over which CMA has voting authority. Information regarding equity holdings for international portfolio shall be sent weekly.
- ISS shall receive proxy material information from Proxy Edge or the custodian bank for the account. This shall include issues to be voted upon, together with a breakdown of holdings for CMA accounts. ISS shall then reconcile information it receives from CMA with that it has received from Proxy Edge and custodian banks. Any discrepancies shall be promptly noted and resolved by ISS, with notice to CMA.
- Whenever a vote is solicited, ISS shall execute the vote according to CMA's Voting Guidelines previously delivered by CMA to ISS as set forth in Section IV.A.
- If ISS is not sure how to vote a particular proxy, then ISS will issue a request for voting instructions to CMA over a secure website. CMA personnel shall check this website regularly. The request shall be accompanied by a recommended vote. The recommended vote shall be based upon CMA's understanding of the Voting Guidelines previously delivered to ISS. CMA shall promptly provide ISS with any amendments or modifications to the Voting Guidelines if necessary. CMA shall return a final instruction to vote to ISS, which ISS shall record with Proxy Edge or the custodian bank as our agent.
- Each time that ISS shall send CMA a request to vote the request shall be accompanied by the recommended vote determined in accordance with CMA's Voting Guidelines. ISS shall vote as indicated in the request unless the client has reserved discretion, the Proxy Committee determines that the best interest of clients requires another vote or the proposal is a matter as to which the Proxy Committee affords special, individual consideration under Section IV.C. In such situations ISS shall vote based on the direction of the client or the Proxy Committee, as the case may be. The interests of CMA's Taft Hartley or Socially Responsible clients may impact a proposal that normally should be voted in a certain way. ISS shall inform CMA of all proposals having impact on its Taft Hartley and or Socially Responsible clients. The Proxy Voting Committee shall be consulted before a vote is placed in cases where Taft Hartley or Socially Responsible issues are presented.
- ISS shall have procedures in place to ensure that a vote is cast on every security holding maintained by CMA on which a vote is solicited unless otherwise directed by the Proxy Committee. On a yearly basis, or as required by our clients CMA shall receive a report from ISS detailing CMA's voting for the previous period.
VI. AVAILABILITY OF PROXY POLICY AND VOTING RECORD
A summary disclosure regarding the provisions of this Policy is available in CMA's Form ADV. Upon receipt of a Client's request for more information, CMA will provide to the Client a copy of this Policy and/or how CMA voted proxies for the Client pursuant to this Policy for up to a one-year period.
COLUMBIA GROWTH STOCK FUND
COLUMBIA YOUNG INVESTOR FUND
SERIES OF COLUMBIA FUNDS SERIES TRUST I
SUPPLEMENT TO THE FUNDS' STATEMENT OF ADDITIONAL INFORMATION
DATED FEBRUARY 1, 2006
(REPLACING SUPPLEMENTS DATED FEBRUARY 17, 2006)
This supplement applies to the "Funds" listed above.
1. The name of the Trust is revised to read "Columbia Funds Series Trust I."
2. The first sentence in the section entitled "Organization and History" is revised to read:
The Trust is a Massachusetts business trust organized in 1987. Each Fund was originally organized as a series of another Massachusetts business trust prior to its reorganization as a series of the Trust on March 27, 2006.
3. The third sentence of the second paragraph of the section entitled "Organization and History" is revised in its entirety to read:
The trust of which the Funds were previously a series changed its name from "Liberty-Stein Roe Funds Investment Trust" to "Columbia Funds Trust XI" on October 13, 2003. The Funds were reorganized as a series of the Trust on March 27, 2006.
4. The last paragraph of the section entitled "Organization and History" is removed.
5. Item 6(a) under the heading "Other Investment Policies" is revised in its entirety as follows:
Growth Stock Fund ONLY may not invest more than 20% of its total assets (valued at time of purchase) in securities of foreign issuers (other than securities represented by American Depositary Receipts ("ADRs") or securities guaranteed by a U.S. person).
6. The following language is added to the Columbia Young Investor Fund's chart following the heading "Other Accounts Managed By Portfolio Managers" in the section "Management: Portfolio Managers":
COLUMBIA YOUNG INVESTOR FUND
OTHER SEC-REGISTERED OPEN- OTHER POOLED
END AND CLOSED-END FUNDS INVESTMENT VEHICLES OTHER ACCOUNTS
-------------------------- ------------------- -------------------------
Number Number
Number of of of
PORTFOLIO MANAGERS accounts Assets accounts Assets accounts Assets
------------------ --------- -------------- -------- ------ -------- --------------
Jonas Patrikson* 2 $ 675 million 0 $ 0 2 $ 40 thousand
Dara White* 2 $ 675 million 0 $ 0 2 $ 300 thousand
|
* Information provided is as of December 31, 2005.
7. The following language is added to the Columbia Young Investor Fund's chart following the heading "Ownership of Securities" in the section "Management: Portfolio Managers":
COLUMBIA YOUNG INVESTOR FUND
DOLLAR RANGE OF EQUITY SECURITIES IN THE
PORTFOLIO MANAGERS FUND BENEFICIALLY OWNED
------------------ ----------------------------------------
Jonas Patrikson * None
Dara White * None
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* Information provided is as of December 31, 2005.
8. The following language is added to the Fund's chart following the heading "Compensation" in the section "Management: Portfolio Managers":
COLUMBIA YOUNG INVESTOR FUND
PORTFOLIO MANAGERS PERFORMANCE BENCHMARK PEER GROUP ------------------ --------------------- -------------------------------- Jonas Patrikson Russell 3000 TR Morningstar Large Blend Category Dara White Russell 3000 TR Morningstar Large Blend Category |
9. The section entitled "Ownership of the Funds" is replaced in its entirety to read:
As of record on February 28, 2006, the Trustees and officers of the Trust as a group beneficially owned less than 1% of the then outstanding shares of each of Class A, Class B, Class C and Class Z shares of each Fund.
As of record on February 28, 2006, the following shareholders of record owned 5% or more of each class of the Growth Stock Fund's then outstanding shares:
CLASS C SHARES
Merrill Lynch Pierce Fenner & Smith 7.91% For the Sole Benefit of its Customers 4800 Deer Lake Dr. E, Floor 2 Jacksonville, FL 32446-6484 CLASS Z SHARES Charles Schwab & Co. Inc. 6.61% Special Custody Account for the Exclusive Benefit of Customers 101 Montgomery Street San Franciso, CA 94104-4122 |
As of record on February 28, 2006, the following shareholders of record owned 5% or more of each class of the Young Investor Fund's then outstanding shares:
CLASS C SHARES
Merrill Lynch Pierce Fenner & Smith 11.83%
For the Sole Benefit of its Customers
4800 Deer Lake Dr. E, Floor 2
Jacksonville, FL 32446-6484
CLASS Z SHARES
Charles Schwab & Co. Inc. 6.23%
Special Custody Account for the Exclusive Benefit of
Customers
101 Montgomery Street
San Franciso, CA 94104-4122
10. The first paragraph of the first page of Part 2 of the SAI is
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revised in its entirety to read:
The following information applies generally to most funds advised by the Advisor. "Funds" include the series of Columbia Funds Series Trust I, Columbia Funds Institutional Trust, Liberty Variable Investment Trust and SteinRoe Variable Investment Trust (each a "Trust" and together, the "Trusts"). In certain cases, the discussion applies to some, but not all, of the Funds, and you should refer to your Fund's Prospectus and to Part 1 of this Statement of Additional Information (SAI) to determine whether the matter is applicable to your Fund. You will also be referred to Part 1 for certain data applicable to your Fund.
11. The section entitled "Trustees and Officers" in Part 2 of the SAI is revised to read:
Information regarding the Trustees and officers of the Funds together with their principal business occupations during the last five years (their titles may have varied during that period) is shown below. Unless otherwise noted, the address for each Trustee and officer is c/o Columbia Funds, Mail Stop MA5-515-11-05, One Financial Center, Boston, MA 02111.
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Name and Position with Appointed Principal Occupation(s) Overseen Other Directorships
Year of Birth Funds to Office(1) During Past Five Years by Trustee Held(2)
------------- ------------- ------------ ------------------------ ------------- -------------------------
DISINTERESTED TRUSTEE
Thomas C. Trustee and 1996 Partner and Senior 83 Anixter International
Theobald Chairman of Advisor, Chicago (network support
(Born 1937) the Board Growth Partners equipment distributor);
(private equity Ventas, Inc. (real estate
investing) since investment trust); Jones
September, 2004; Lang LaSalle (real estate
Managing Director, management services) and
William Blair Capital Ambac Financial Group
Partners (private equity (financial guaranty
investing) from insurance)
September, 1994 to
September, 2004.
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Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Name and Position with Appointed Principal Occupation(s) Overseen Other Directorships
Year of Birth Funds to Office(1) During Past Five Years by Trustee Held(2)
------------- ------------- ------------ ------------------------ ------------- -------------------------
DISINTERESTED TRUSTEE
Douglas A. Trustee 1996 Executive Vice President 83 Nash Finch Company
Hacker -- Strategy of United (food distributor)
(Born 1955) Airlines (airline) since
December, 2002;
President of UAL
Loyalty Services
(airline) from
September, 2001 to
December, 2002;
Executive Vice President
and Chief Financial
Officer of United
Airlines from July, 1999
to September, 2001.
Janet Trustee 1996 Partner, Zelle, Hofmann, 83 UAL Corporation
Langford Voelbel, Mason & Gette (airline)
Kelly LLP (law firm) since
(Born 1957) March, 2005; Adjunct
Professor of Law,
Northwestern University,
since September, 2004;
Chief Administrative
Officer and Senior Vice
President, Kmart
Holding Corporation
(consumer goods), from
September, 2003 to
March, 2004; Executive
Vice President-
Corporate Development
and Administration,
General Counsel and
Secretary, Kellogg
Company (food
manufacturer), from
September, 1999 to
August, 2003.
Richard W. Trustee 1995 Private Investor since 85 None
Lowry August, 1987 (formerly
(Born 1936) Chairman and Chief
Executive Officer, U.S.
Plywood Corporation
(building products
manufacturer) until
1987.)
|
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Name and Position with Appointed Principal Occupation(s) Overseen Other Directorships
Year of Birth Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------- ------------ -------------------------------------- ------------- ------------------------
DISINTERESTED TRUSTEE
Charles R. Nelson Trustee 1981 Professor of Economics, University of 83 None
(Born 1943) Washington since January, 1976; Ford
and Louisa Van Voorhis Professor of
Political Economy, University of
Washington, since September, 1993;
Director, Institute for Economic
Research, University of Washington
from September, 2001 to June, 2003;
Adjunct Professor of Statistics,
University of Washington since
September, 1980; Associate Editor,
Journal of Money Credit and Banking
since September, 1993; consultant on
econometric and statistical matters.
John J. Neuhauser Trustee 1985 University Professor, Boston College 85 None
(Born 1942) since November, 2005; Academic Vice
President and Dean of Faculties,
Boston College from August, 1999 to
October, 2005.
Patrick J. Simpson Trustee 2000 Partner, Perkins Coie L.L.P. (law 83 None
(Born 1944) firm).
Thomas E. Stitzel Trustee 1998 Business Consultant since 1999; 83 None
(Born 1936) Chartered Financial Analyst.
Anne-Lee Verville Trustee 1998 Retired since 1997 (formerly General 83 Chairman of the Board
(Born 1945) Manager, Global Education Industry, of Directors, Enesco
IBM Corporation (computer and Group,Inc. (producer of
technology) from 1994 to 1997). giftware and home and
garden decor products)
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Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Name and Position with Appointed Principal Occupation(s) Overseen Other Directorships
Year of Birth Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------- ------------ -------------------------------------- ------------- ------------------------
DISINTERESTED TRUSTEE
Richard L. Woolworth Trustee 1991 Retired since December, 2003 (formerly 83 Northwest Natural Gas
(Born 1941) Chairman and Chief Executive Officer, (natural gas service
The Regence Group Co. (regional health provider)
insurer); Chairman and Chief Executive
Officer, BlueCross BlueShield of
Oregon; Certified Public Accountant,
Arthur Young & Company).
INTERESTED TRUSTEE
William E. Mayer(3) Trustee 1994 Partner, Park Avenue Equity Partners 85 Lee Enterprises (print
(Born 1940) (private equity) since February, 1999. media), WR Hambrecht +
Co. (financial service
provider); Reader's
Digest (publishing);
OPENFIELD Solutions
(retail industry
technology provider)
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(1) The date shown is the earliest date on which a Trustee was elected or appointed to the board of a Fund in the Columbia Fund Complex.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public companies").
(3) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (the "1940 Act")) of the Columbia Funds by reason of his affiliation with WR Hambrecht + Co., a registered broker-dealer that may execute portfolio transactions for or engage in principal transactions with the Fund or other funds or clients advised by the Advisor or its affiliates.
Year First
Elected or
Position with Appointed
Name and Year of Birth Funds to Office Principal Occupation(s) During Past Five Years
---------------------- ------------- ---------- ----------------------------------------------
OFFICERS
Christopher L. Wilson President 2004 Head of Mutual Funds since August, 2004 and
(Born 1957) Managing Director of the Advisor since
September, 2005; President and Chief Executive
Officer, CDC IXIS Asset Management Services,
Inc. (investment management) from September,
1998 to August, 2004.
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Year First
Elected or
Position with Appointed
Name and Year of Birth Funds to Office Principal Occupation(s) During Past Five Years
---------------------- ---------------- ---------- ----------------------------------------------
OFFICERS
James R. Bordewick, Jr. Senior Vice 2006 Associate General Counsel, Bank of America since
(Born 1959) President, April, 2005; Senior Vice President and Associate
Secretary and General Counsel, MFS Investment Management
Chief Legal (investment management) prior to April, 2005.
Officer
J. Kevin Connaughton Senior Vice 2000 Managing Director of the Advisor since February,
(Born 1964) President, Chief 1998.
Financial
Officer and
Treasurer
Mary Joan Hoene Senior Vice 2004 Senior Vice President and Chief Compliance Officer
(Born 1949) President and of various funds in the Columbia Fund Complex;
Chief Compliance Partner, Carter, Ledyard & Milburn LLP (law firm)
Officer from January, 2001 to August, 2004.
Michael G. Clarke Chief Accounting 2004 Managing Director of the Advisor since February,
(Born 1969) Officer and 2001.
Assistant
Treasurer
Stephen T. Welsh Vice President 1996 President, Columbia Management Services, Inc. since
(Born 1957) July, 2004; Senior Vice President and Controller,
Columbia Management Services, Inc. prior to July,
2004.
Jeffrey R. Coleman Deputy Treasurer 2004 Group Operations Manager of the Advisor since
(Born 1969) October, 2004; Vice President of CDC IXIS Asset
Management Services, Inc. (investment management)
from August, 2000 to September, 2004.
Joseph F. DiMaria Deputy Treasurer 2004 Senior Compliance Manager of the Advisor since
(Born 1968) January, 2005; Director of Trustee Administration
of the Advisor from May, 2003 to January, 2005;
Senior Audit Manager, PricewaterhouseCoopers
(independent registered public accounting firm)
from July, 2000 to April, 2003.
Ty S. Edwards Deputy Treasurer 2004 Vice President of the Advisor since 2002; Assistant
(Born 1966) Vice President and Director, State Street
Corporation (financial services) prior to 2002.
Barry S. Vallan Controller 2006 Vice President-Fund Treasury of the Advisor since
(Born 1969) October, 2004; Vice President-Trustee Reporting
from April, 2002 to October, 2004; Management
Consultant, PricewaterhouseCoopers (independent
registered public accounting firm) prior to
October, 2002.
|
Year First
Elected or
Position with Appointed
Name and Year of Birth Funds to Office Principal Occupation(s) During Past Five Years
---------------------- ------------- ---------- ---------------------------------------------------
OFFICERS
Peter T. Fariel Assistant 2006 Associate General Counsel, Bank of America since
(Born 1957) Secretary April, 2005; Partner, Goodwin Procter LLP (law
firm) prior to April, 2005.
Ryan C. Larrenaga Assistant 2005 Assistant General Counsel, Bank of America since
(Born 1970) Secretary March, 2005; Associate, Ropes & Gray LLP (law firm)
from 1998 to February, 2005.
Barry S. Finkle Assistant 2003 Senior Manager and Head of Fund Performance of the
(Born 1965) Treasurer Advisor since January, 2001.
Julian Quero Assistant 2003 Senior Compliance Manager of the Advisor since
(Born 1967) Treasurer April, 2002; Assistant Vice President of Taxes and
Distributions of the Advisor from 2001 to April,
2002.
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Each of the Trust's Trustees and officers hold comparable positions with certain other funds of which the Advisor or its affiliates is the investment advisor or distributor and, in the case of certain of the officers, with certain affiliates of the Advisor.
The Trustees and officers serve terms of indefinite duration. Each Fund held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once every five years thereafter to elect Trustees.
12. The section entitled "Trustee Positions," a subsection of "Management of the Funds," is revised to read:
As of December 31, 2005, no disinterested Trustee or any of their immediate family members owned beneficially or of record any class of securities of the Advisor, another investment advisor, sub-advisor or portfolio manager of any of the funds in the Columbia Fund Complex or any person controlling, controlled by or under common control with any such entity.
13. The second paragraph of the section entitled "Other Disclosures," a subsection of "Disclosure of Portfolio Information," is revised in its entirety to read:
The Fund periodically discloses its portfolio information on a confidential basis to various service providers that require such information in order to assist the Fund with its day-to-day business affairs. In addition to Columbia Advisors and its affiliates, these service providers include the Fund's custodian and sub-custodians, the Fund's independent registered public accounting firm, legal counsel, financial printers (R.R. Donnelly & Sons and Bowne & Co., Inc.), the Fund's proxy solicitor and proxy voting service provider (Computershare), rating agencies that maintain ratings on certain Columbia Funds (Fitch, Inc.) and service providers that support Columbia Advisors' trading systems (InvestorTool, Inc. and Thomson Financial). These service providers are required to keep such information confidential, and are prohibited from trading based on the information or otherwise using the information except as necessary in providing services to the Fund. The Fund may also disclose portfolio holdings information to broker/dealers and certain other entities related to potential transactions and management of the Fund, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information.
INT-50/107715-0306 March 27, 2006
COLUMBIA GROWTH STOCK FUND
COLUMBIA YOUNG INVESTOR FUND
SERIES OF COLUMBIA FUNDS TRUST XI
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1, 2006
This Statement of Additional Information ("SAI") contains information which may be useful to investors but which is not included in the Prospectuses of Columbia Growth Stock Fund and Columbia Young Investor Fund (each a "Fund" and collectively, the "Funds"). This SAI is not a prospectus and is authorized for distribution only when accompanied or preceded by a Prospectus of the relevant Fund dated February 1, 2006. This SAI should be read together with the relevant Prospectus and most recent Annual Report dated September 30, 2005. Each Fund's most recent Annual Report to Shareholders are separate documents supplied with this SAI. Investors may obtain a free copy of the relevant Prospectus and Annual Report from Columbia Management Distributors, Inc. ("CMD"), One Financial Center, Boston, MA 02111-2621 or by calling 1-800-426-3750. The Financial Statements and Report of the Independent Registered Public Accounting Firm appearing in each Fund's September 30, 2005 Annual Report, are incorporated into this SAI by reference.
Part 1 of this SAI contains specific information about the Funds. Part 2 includes information about the funds distributed by CMD generally and additional information about certain securities and investment techniques described in the Funds' Prospectuses.
TABLE OF CONTENTS
PART 1 PAGE Definitions b Organization and History b Investment Goal and Policies c Fundamental Investment Policies c Other Investment Policies d Portfolio Turnover e Fund Charges and Expenses e Custodian o Independent Registered Public Accounting Firm p |
PART 2 PAGE Miscellaneous Investment Practices 1 Taxes 22 Additional Tax Matters Concerning Trust Shares 27 Management of the Funds 29 Determination of Net Asset Value 43 How to Buy Shares 44 Special Purchase Programs/Investor Services 48 Programs for Reducing or Eliminating Sale Charges 50 How to Sell Shares 53 Distributions 57 How to Exchange Shares 57 Suspension of Redemptions 58 Shareholder Liability 58 Shareholder Meetings 58 Appendix I 60 Appendix II 66 |
SUP-39/105513-0106
PART 1
COLUMBIA GROWTH STOCK FUND
COLUMBIA YOUNG INVESTOR FUND
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1, 2006
DEFINITIONS
"Trust" Columbia Funds Trust XI
"Growth Stock Fund" or "Fund" Columbia Growth Stock Fund
"Young Investor Fund" or "Fund" Columbia Young Investor Fund
"Advisor" Columbia Management Advisors, LLC, the Funds' investment
advisor
"CMD" Columbia Management Distributors, Inc. (formerly named
Columbia Funds Distributor, Inc.), the Funds' distributor
"CMS" Columbia Management Services, Inc. (formerly named
Columbia Funds Services, Inc.), the Funds' shareholder
services and transfer agent
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ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1987. Each Fund is an
open-end diversified management investment company representing the entire
interest in a separate series of the Trust.
The Growth Stock Fund changed its name from "SteinRoe Stock Fund" to "SteinRoe Growth Stock Fund" on February 1, 1995, and from "SteinRoe Growth Stock Fund" to "Stein Roe Growth Stock Fund" on February 1, 1996, and from "Stein Roe Growth Stock Fund" to "Liberty Growth Stock Fund" on July 15, 2002, and from "Liberty Growth Stock Fund" to its current name on October 13, 2003. The Young Investor Fund changed its name from "Stein Roe Young Investor Fund" to "Liberty Young Investor Fund" on July 29, 2002, and from "Liberty Young Investor Fund" to its current name on October 13, 2003. The Trust changed its name from "SteinRoe Investment Trust" to "Stein Roe Investment Trust" on February 1, 1996, and from "Stein Roe Investment Trust" to "Liberty-Stein Roe Funds Investment Trust" on October 18, 1999, and from "Liberty-Stein Roe Funds Investment Trust" to its current name on October 13, 2003.
Prior to July 15, 2002, rather than invest in securities directly, the Funds sought to achieve their investment goals by pooling their assets with those of other investment companies for investment in another "master" mutual fund having the identical investment goals and substantially the same investment policies as its "feeder" funds.
Each Fund offers four classes of shares - Class A, B, C and Z shares. Prior to July 15, 2002, the Growth Stock Fund had a single class of shares. On that date the outstanding shares of the Fund were converted into Class Z shares, and the Fund commenced offering Class A, B and C shares. Prior to July 29, 2002, the Young Investor Fund had a single class of shares. On that date, the outstanding shares of the Fund were redesignated as Class Z shares, and the Fund commenced offering Class A, B and C shares.
It is expected that each Fund will be reorganized as a series of Columbia Funds Series Trust I, a Massachusetts business trust, into which all of the retail Columbia funds are expected to be reorganized.
b
INVESTMENT GOAL AND POLICIES
The Prospectuses describe each Fund's investment goal, investment strategies and
risks. Part 1 of this SAI contains additional information concerning, among
other things, the investment policies of the Funds. Part 2 contains additional
information about the following securities and investment techniques that may be
utilized by the Funds (unless otherwise noted):
Debt Securities (Young Investor Fund only)
Derivatives
Structured Notes
Interest Rate Swaps, Caps and Floors
Mortgage-Backed Securities
Floating Rate Instruments (Young Investor Fund only)
Short Sales
Interfund Borrowing and Lending
Forward Commitments ("When Issued" and "Delayed Delivery" Securities)
Reverse Repurchase Agreements
Securities Loans
Repurchase Agreements
Line of Credit
Futures Contracts and Related Options (Limited to interest rate futures,
tax-exempt bond index futures, options on such futures and options on
such indices)
Options on Securities
Foreign Securities
Rule 144A Securities
Except as indicated below under "Fundamental Investment Policies," the Funds' investment policies are not fundamental and the Trustees may change the policies without shareholder approval.
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940, as amended (the "1940 Act") provides that a
"vote of a majority of the outstanding voting securities" means the affirmative
vote of the lesser of (1) more than 50% of the outstanding shares of a
particular Fund, or (2) 67% or more of the shares present at a meeting if more
than 50% of the outstanding shares are represented at the meeting in person or
by proxy. The following fundamental investment policies cannot be changed
without such a vote.
Each Fund may not, as a matter of fundamental policy:
1. Underwrite any issue of securities issued by other persons within the meaning of the Securities Act of 1933, as amended (the "1933 Act") except when it might be deemed to be an underwriter either: (a) in connection with the disposition of a portfolio security; or (b) in connection with the purchase of securities directly from the issuer thereof in accordance with its investment objective. This restriction shall not limit the Fund's ability to invest in securities issued by other registered investment companies.
2. Purchase or sell real estate, except a Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate and it may hold and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of securities which are secured by real estate or interests therein.
3. Purchase or sell commodities, except that a Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts.
4. Purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions; and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
5. Make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
6. Borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
7. Purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that: (a) up to 25% of its total assets may be invested without regard to these limitations and (b) a Fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder, or any applicable exemptive relief.
OTHER INVESTMENT POLICIES
Each Fund is also subject to the following non-fundamental restrictions and
policies, which may be changed by the Board of Trustees. None of the following
restrictions shall prevent the Fund from investing all or substantially all of
its assets in another investment company having the same investment objective
and substantially the same investment policies as the Fund. Each Fund may not:
(1) Invest in any of the following: (i) interests in oil, gas, or other mineral leases or exploration or development programs (except readily marketable securities, including but not limited to master limited partnership interests, that may represent indirect interests in oil, gas, or other mineral exploration or development programs); (ii) puts, calls, straddles, spreads, or any combination thereof (except that it may enter into transactions in options, futures, and options on futures); (iii) shares of other open-end investment companies, except in connection with a merger, consolidation, acquisition, or reorganization; and (iv) limited partnerships in real estate unless they are readily marketable;
(2) Invest in companies for the purpose of exercising control or management;
(3) Purchase more than 3% of the stock of another investment company or purchase stock of other investment companies equal to more than 5% of its total assets (valued at time of purchase) in the case of any one other investment company and 10% of such assets (valued at time of purchase) in the case of all other investment companies in the aggregate; any such purchases are to be made in the open market where no profit to a sponsor or dealer results from the purchase, other than the customary broker's commission, except for securities acquired as part of a merger, consolidation or acquisition of assets;
(4) Invest more than 5% of its net assets (valued at time of purchase) in warrants, nor more than 2% of its net assets in warrants that are not listed on the New York or American Stock Exchange;
(5) Write an option on a security unless the option is issued by the Options Clearing Corporation, an exchange, or similar entity;
(6)(a) Growth Stock Fund ONLY may not invest more than 25% of its total assets (valued at time of purchase) in securities of foreign issuers (other than securities represented by American Depositary Receipts ("ADRs") or securities guaranteed by a U.S. person);
(6)(b) Young Investor Fund ONLY may not invest more than 33% of its total assets (valued at time of purchase) in securities of foreign issuers (other than securities guaranteed by a U.S. person);
(7) Purchase a put or call option if the aggregate premiums paid for all put and call options exceed 20% of its net assets (less the amount by which any such positions are in-the-money), excluding put and call options purchased as closing transactions;
(8) Purchase securities on margin (except for use of short-term credits as are necessary for the clearance of transactions), or sell securities short unless (i) it owns or has the right to obtain securities equivalent in kind and amount to those sold short at no added cost or (ii) the securities sold are "when issued" or "when distributed" securities which it expects to receive in a recapitalization, reorganization, or other exchange for securities it contemporaneously owns or has the right to obtain and provided that transactions in options, futures, and options on futures are not treated as short sales;
(9) Invest more than 5% of its total assets (taken at market value at the time of a particular investment) in restricted securities, other than securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933; or
(10) Invest more than 15% of its net assets (taken at market value at the time of a particular investment) in illiquid securities, including repurchase agreements maturing in more than seven days.
(Growth Stock Fund ONLY may not): acquire securities of other registered open-end investment companies or registered unit investment trusts in reliance on section 12(d)(1)(F) or (G) of the 1940 Act.
PORTFOLIO TURNOVER
Although neither Fund purchases securities with a view to rapid turnover, there
are no limitations on the length of time that portfolio securities must be held.
Portfolio turnover can occur for a number of reasons such as general conditions
in the securities markets, more favorable investment opportunities in other
securities, or other factors relating to the desirability of holding or changing
a portfolio investment. Because of each Fund's flexibility of investment and
emphasis on growth of capital, it may have greater portfolio turnover than that
of mutual funds that have primary objectives of income or maintenance of a
balanced investment position. The future turnover rate may vary greatly from
year to year. A high rate of portfolio turnover in a Fund, if it should occur,
would result in increased transaction expenses, which must be borne by the Fund.
High portfolio turnover may also result in the realization of capital gains or
losses and, to the extent net short-term capital gains are realized, any
distributions resulting from such gains will be considered ordinary income for
federal income tax purposes.
FUND CHARGES AND EXPENSES
Under the Growth Stock Fund's Management Agreement, the Fund pays the Advisor a
monthly fee based on average net assets, determined at the close of each
business day during the month, at the annual rate of 0.600% up to $500 million;
0.550% of the next $500 million; 0.500% of the next $1 billion; and 0.450%
thereafter. The Fund pays the Advisor a monthly Administrative Fee based on
average daily net assets at the close of each business day during the month at
the rate of 0.150% up to $500 million; 0.125% of the next $500 million; 0.100%
on the next $500 million, 0.075% on the next $500 million and 0.050% thereafter.
Under the Young Investor Fund's Management Agreement, the Fund pays the Advisor a monthly fee based on average net assets, determined at the close of each business day during the month, at the annual rate of 0.600% up to $500 million, 0.550% of the next $500 million, and 0.500% over $1 billion. The Fund pays the Advisor a monthly Administrative Fee based on average daily net assets at the close of each business day during the month at the rate of 0.200% up to $500 million, 0.150% of the next $500 million, and 0.125% over $1 billion.
The Advisor provides certain pricing and bookkeeping services to each Fund. Effective November 1, 2005, each Fund entered into a Pricing and Bookkeeping Agreement and an Administrative Agreement. Under these agreements, the Funds will continue to receive substantially the same pricing, bookkeeping and administrative services as they currently receive under the Agreement. Under a separate agreement ("Outsourcing Agreement"), the Advisor has delegated the pricing and bookkeeping function to State Street Bank and Trust Company ("State Street"). The Advisor pays fees to State Street under the Outsourcing Agreement. The Advisor and State Street will continue to provide these services to the Funds. For services provided under the Pricing and Bookkeeping Agreement, each Fund will pay the Advisor or to such other person(s) as the Advisor may direct an annual fee, payable monthly, consisting of: (i) for fund accounting services, $25,000 plus an additional monthly fee based on each Fund's net asset value ("Fund Accounting Fee"); and
e
(ii) for financial reporting services, $13,000 ("Financial Reporting Fee"); provided that during any 12-month period, the aggregate Fund Accounting Fee and Financial Reporting Fee shall not exceed $140,000. Each Fund will bear certain reimbursable costs and expenses as provided in the Pricing and Bookkeeping Agreement.
For periods prior to November 1, 2005, each Fund paid the Advisor fees under a similar pricing and bookkeeping agreement that consisted of a monthly fee consisting of a flat fee plus an asset-based fee, as follows:
- An annual flat fee of $10,000, paid monthly; and
- In any month that a Fund had average net assets of more than $50 million, a
monthly fee equal to the average daily net assets of the Fund for that month
multiplied by a fee rate that is calculated by taking into account the fees
payable to State Street under the Outsourcing Agreement.
The Fund reimbursed the Advisor for all out-of-pocket expenses and charges, including fees payable to third parties (other than State Street) for providing pricing data.
CMS acts as transfer agent, dividend disbursing agent and shareholders' servicing agent for the Funds. Its address is P.O. Box 8081, Boston, Massachusetts 02266-8081. Effective November 1, 2005, the Funds entered into a new agreement with CMS, under which CMS will continue to provide transfer agency, dividend disbursing agency and shareholders' servicing agency services to the Funds (and will continue to retain Boston Financial Data Services, Inc. to assist them) for a reduced fee. The new fee is $15.23 per open account per annum, payable monthly. In addition, the Funds may pay CMS the fees and expenses they pay to third-party dealer firms that maintain omnibus accounts with the Funds, subject to a cap equal to 0.11% of each Fund's net assets represented by the account. The Funds will also pay certain reimbursable out-of-pocket expenses to CMS, and CMS may also retain as additional compensation for its services revenues for fees for wire, telephone and redemption orders, IRA trustee agent fees and account transcripts due CMS from shareholders of the Funds and credits (net of bank charges) earned with respect to balances in accounts CMS maintains in connection with its services to the Funds.
Effective November 1, 2004, the Advisor has voluntarily agreed to reimburse the Young Investor Fund for certain expenses so that the transfer agency fees for each of Class A, B, C and Z shares will not exceed 0.10%. This arrangement may be modified or terminated by the Advisor at any time.
Prior to November 1, 2005, the Funds paid a shareholders' servicing and transfer agency fee to CMS as follows:
An annual open account fee of $28 per open account, plus the Fund's allocated share of reimbursement for the out-of-pocket expenses of CMS.
Prior to November 1, 2003, the Funds paid a shareholders' servicing and transfer agency fee to CMS as follows:
Each Fund's agreement was such that the fees for Classes A, B and C were aggregated, and the fees for Class Z were applied individually as follows:
- An account fee for each open account of $4.00 per annum, payable on a monthly
basis, in an amount equal to 1/12 the per annum charge; plus
- An account fee for each closed account of $1.50 per annum, payable on a
monthly basis, in an amount equal to 1/12 the per annum charge; plus
- A transaction fee of $1.40 per transaction occurring in Fund accounts during
any month; plus
- A monthly fee at the rate of 0.06% per annum of the average daily closing
value of the total net assets of the Fund for such month; plus
- The Fund's allocated share of CMS' out-of-pocket expenses, including fees
payable to DST Systems, Inc. ("DST") under a remote services agreement with
DST.
f
RECENT FEES PAID TO THE ADVISOR, CMD AND CMS (dollars in thousands)
GROWTH STOCK FUND
-----------------
Year ended September 30,
------------------------
2005 2004 2003
---- ---- ----
Management fee $3,757 $4,647 $4,600
Administrative fee 922 1,124 1,114
Pricing and bookkeeping fee 165 175 248
Transfer agent fee (Class A) 319 361 383
Transfer agent fee (Class B) 1,277 1,487 1,376
Transfer agent fee (Class C) 93 117 127
Transfer agent fee (Class Z) 533 529 1,038
12b-1 fees:
Service fee (Class A) 146 200 215
Service fee (Class B) 543 742 768
Service fee (Class C) 44 65 71
Distribution fee (Class A) 59 80 86
Distribution fee (Class B) 1,630 2,225 2,288
Distribution fee (Class C) 132 194 212
Fees waived by the Distributor (Class A) (29) (40) (43)
Fees and expenses waived or reimbursed by the Advisor/CMS
(Class A) (9) -- --
Fees and expenses waived or reimbursed by the Advisor/CMS
(Class B) (38) -- --
Fees and expenses waived or reimbursed by the Advisor/CMS
(Class C) (3) -- --
Fees and expenses waived or reimbursed by the Advisor/CMS
(Class Z) (149) (193) (225)
|
YOUNG INVESTOR FUND
-------------------
Year ended September 30,
------------------------
2005 2004 2003
---- ---- ----
Management fee $ 4,572 $ 4,756 $4,309
Administrative fee 1,429 1,479 1,357
Pricing and bookkeeping fee 210 222 232
Transfer agent fee (Class A) 660 1,208 779
Transfer agent fee (Class B) 42 42 59
Transfer agent fee (Class C) 6 7 5
Transfer agent fee (Class Z) 4,837 4,167 3,822
12b-1 fees:
Service fee (Class A) 234 250 226
Service fee (Class B) 15 17 17
Service fee (Class C) 2 2 1
Distribution fee (Class A) 94 100 91
Distribution fee (Class B) 45 51 51
Distribution fee (Class C) 6 6 4
Fees waived by the Distributor (Class A) (47) (50) (45)
Fees and expenses waived or reimbursed by the
Advisor/CMS (Class A) (538) (1,050) (465)
Fees and expenses waived or reimbursed by the
Advisor/CMS (Class B) (31) (31) (35)
Fees and expenses waived or reimbursed by the
Advisor/CMS (Class C) (4) (5) (3)
Fees and expenses waived or reimbursed by the
Advisor/CMS (Class Z) (3,266) -- --
|
g
BROKERAGE COMMISSIONS (dollars in thousands)
GROWTH STOCK FUND
-----------------
Year ended September 30,
------------------------
2005 2004 2003
---- ---- ----
Total commissions $ 122 $ 163 $ 2,919
Directed transactions(a) 12,372 15,806 181,906
Commissions on directed transactions 27 24 357
Commissions paid to Fleet Securities, Inc. 0 0 20
% of Aggregate Commissions 0.00% 0.00% 0.68%
% of Aggregate Dollar Amount of Brokerage Transactions 0.00% 0.00% 0.00%
|
YOUNG INVESTOR FUND
-------------------
Year ended September 30,
------------------------
2005 2004 2003
---- ---- ----
Total commissions $ 4,071 $ 388 $ 2,204
Directed transactions(a) 62,370 37,991 69,442
Commissions on directed transactions 97 50 139
Commissions paid to Fleet Securities, Inc. 0 0 15
% of Aggregate Commissions 0.00% 0.00% 0.68%
% of Aggregate Dollar Amount of Brokerage Transactions 0.00% 0.00% 0.00%
|
(a) See "Management of the Funds - Portfolio Transactions - Brokerage and Research Services" in Part 2 of this SAI.
The Trust is required to identify any securities of its "regular brokers or dealers" that each Fund has acquired during its most recent fiscal year.
At September 30, 2005, the Growth Stock Fund held securities of its regular brokers or dealers as set forth below:
BROKER/DEALER VALUE
Merrill Lynch & Co., Inc. $9,178
|
At September 30, 2005, the Young Investor Fund held securities of its regular brokers or dealers as set forth below:
BROKER/DEALER VALUE
Morgan Stanley $5,933
Merrill Lynch & Co., Inc. $4,625
Nomura Holdings Inc. ADR $3,419
|
TRUSTEES AND TRUSTEES' FEES
The "Columbia Fund Complex" includes all of the registered investment companies
to which the Advisor and its affiliates provide investment advisory services.
h
The Advisor or its affiliates pay the compensation of all the officers of the funds in the Columbia Fund Complex (as such term is defined under applicable regulations promulgated under the 1940 Act) advised by the Advisor, including Trustees who are affiliated with the Advisor. For the fiscal year ended September 30, 2005 and the calendar year ended December 31, 2005, the Trustees received the following compensation for serving as Trustees:
Aggregate Aggregate Total Compensation
Compensation from Compensation from from the Columbia
Pension or the Growth Stock the Young Investor Fund Complex Paid to
Retirement Benefits Fund for the Fund for the the Trustees for the
Accrued as Part of Fiscal Year Ended Fiscal Year Ended Calendar Year Ended
Trustee(a) Fund Expenses(b) September 30, 2005 September 30, 2005 December 31, 2005(a)
---------- ---------------- ------------------ ------------------ --------------------
Douglas A. Hacker N/A $1,687 $1,854 $111,277
Janet Langford Kelly N/A 1,917 2,105 116,500
Richard W. Lowry N/A 1,591 1,747 142,500
William E. Mayer N/A 1,836 2,018 147,750
Charles R. Nelson N/A 1,756 1,932 111,500
John J. Neuhauser N/A 1,632 1,794 137,833
Patrick J. Simpson(c) N/A 1,684 1,851 107,500
Thomas E. Stitzel N/A 1,800 1,976 113,000
Thomas C. Theobald(d) N/A 3,017 3,341 205,500
Anne-Lee Verville(e) N/A 1,899 2,084 120,723
Richard L. Woolworth N/A 1,652 1,814 106,500
|
(a) As of December 31, 2005, the Columbia Fund Complex consisted of 159 open-end
and 11 closed-end management investment company portfolios.
(b) The Funds do not currently provide pension or retirement plan benefits to
the Trustees.
(c) During the fiscal year ended September 30, 2005, and the calendar year ended
December 31, 2005, Mr. Simpson deferred $1,684 of his compensation from the
Growth Stock Fund and $1,851 of his compensation from the Young Investor
Fund, and $107,500 of his total compensation from the Columbia Fund Complex
pursuant to the deferred compensation plan. At December 31, 2005, the value
of Mr. Simpson's account under that plan was $269,502.
(d) During the fiscal year ended September 30, 2005, and the calendar year ended
December 31, 2005, Mr. Theobald deferred $2,124 of his compensation from the
Growth Stock Fund and $2,352 of his compensation from the Young Investor
Fund, and $150,000 of his total compensation from the Columbia Fund Complex
pursuant to the deferred compensation plan. At December 31, 2005, the value
of Mr. Theobald's account under that plan was $320,084.
(e) During the fiscal year ended September 30, 2005, and the calendar year ended
December 31, 2005, Ms. Verville deferred $224 of her compensation from the
Growth Stock Fund and $229 of her compensation from the Young Investor Fund
pursuant to the deferred compensation plan. At December 31, 2005, the value
of Ms. Verville's account under that plan was $683,935.
ROLE OF THE BOARD OF TRUSTEES
The Trustees of the Funds are responsible for the overall management and
supervision of the Funds' affairs and for protecting the interests of the
shareholders. The Trustees meet periodically throughout the year to oversee the
Funds' activities, review contractual arrangements with service providers for
the Funds and review the Funds' performance. The Trustees have created several
committees to perform specific functions for the Funds.
AUDIT COMMITTEE
Ms. Verville and Messrs. Hacker, Stitzel and Woolworth are members of the Audit
Committee of the Board of Trustees of the Funds. The Audit Committee's functions
include making recommendations to the Trustees regarding the selection and
performance of the independent accountants, and reviewing matters relative to
accounting and auditing practices and procedures, accounting records, and the
internal accounting controls of the Funds and certain service providers. For the
fiscal year ended September 30, 2005, the Audit Committee convened seven times.
GOVERNANCE COMMITTEE
Messrs. Lowry, Mayer, Simpson and Theobald are members of the Governance
Committee of the Board of Trustees of the Funds. The Governance Committee's
functions include recommending to the Trustees nominees for independent Trustee
positions and for appointments to various committees, performing periodic
evaluations of the effectiveness of the Board, reviewing and recommending to the
Board policies and practices to be followed in carrying out the Trustees' duties
and responsibilities and reviewing and making recommendations to the Board
regarding the compensation of the Trustees who are not affiliated with the
Funds' investment advisors. The Governance Committee will consider candidates
for Trustee recommended by shareholders. Written recommendations with supporting
information should be directed to the Committee, in care of the Fund. For the
fiscal year ended September 30, 2005, the Governance Committee convened six
times.
ADVISORY FEES & EXPENSES COMMITTEE
Ms. Kelly and Messrs. Mayer, Nelson and Neuhauser are members of the Advisory
Fees & Expenses Committee of the Board of Trustees of the Funds. The Advisory
Fees & Expenses Committee's functions include reviewing and making
recommendations to the Board as to contracts requiring approval of a majority of
the disinterested Trustees and as to any other contracts that may be referred to
the Committee by the Board. For the fiscal year ended September 30, 2005, the
Advisory Fees & Expenses Committee convened seven times.
COMPLIANCE COMMITTEE
Ms. Kelly, Messrs. Nelson, Simpson and Stitzel and Ms. Verville are members of
the Compliance Committee of the Board of Trustees of the Funds. Mr. Stitzel
became a member of the Compliance Committee on May 8, 2005. The Compliance
Committee's functions include providing oversight of the monitoring processes
and controls regarding the Trust. The Committee uses legal, regulatory and
internal rules, policies, procedures and standards other than those relating to
accounting matters and oversight of compliance by the Trust's investment
adviser, principal underwriter and transfer agent. For the fiscal year ended
September 30, 2005, the Compliance Committee convened four times.
INVESTMENT OVERSIGHT COMMITTEES
Each Trustee of the Funds also serves on an Investment Oversight Committee
("IOC"). Each IOC is responsible for monitoring, on an ongoing basis, a select
group of funds in the Columbia Fund Complex and gives particular consideration
to such matters as the Funds' adherence to their investment mandates, historical
performance, changes in investment processes and personnel, and proposed changes
to investment objectives. Investment personnel who manage the Funds attend IOC
meetings from time to time to assist each IOC in its review of the Funds. Each
IOC meets four times a year. The following are members of the respective IOCs
and the general categories of funds in the Columbia Fund Complex which they
review:
IOC #1: Messrs. Lowry, Mayer and Neuhauser are responsible for
reviewing funds in the following asset categories: Large
Growth Diversified, Large Growth Concentrated, Small Growth,
Outside Managed (i.e., sub-advised), and Municipal.
IOC #2: Mr. Hacker and Ms. Verville are responsible for reviewing
funds in the following asset categories: Large Blend, Small
Blend, Foreign Stock, Fixed Income -- Multi Sector, Fixed
Income -- Core and Young Investor.
IOC #3: Messrs. Theobald and Stitzel and Ms. Kelly are responsible
for reviewing funds in the following asset categories: Large
Value, Mid Cap Value, Small Value, Asset Allocation, High
Yield and Money Market.
IOC #4: Messrs. Nelson, Simpson and Woolworth are responsible for
reviewing funds in the following asset categories:
Large/Multi-Cap Blend, Mid Cap Growth, Small Growth, Asset
Allocation, Specialty Equity and Taxable Fixed Income.
|
j
SHARE OWNERSHIP
The following table shows the dollar range of equity securities beneficially
owned by each Trustee as of December 31, 2005 (i) in each Fund and (ii) in all
funds in the Columbia Fund Complex.
Aggregate Dollar Range of
Dollar Range of Equity Dollar Range of Equity Equity Securities Owned in
Securities Owned in Securities Owned in All Funds Overseen by Trustee
Name of Trustee the Growth Stock Fund the Young Investor Fund in Columbia Fund Complex
--------------- --------------------- ----------------------- ------------------------
DISINTERESTED
TRUSTEES
Douglas A. Hacker None $50,001-$100,000 Over $100,000
Janet Langford Kelly None $10,001-$50,000 Over $100,000
Richard W. Lowry None None Over $100,000
Charles R. Nelson $50,001-$100,000 None Over $100,000
John J. Neuhauser None None Over $100,000
Patrick J. Simpson None None Over $100,000
Thomas E. Stitzel None None $50,001-$100,000
Thomas C. Theobald $10,001-$50,000 None Over $100,000
Anne-Lee Verville(a) None None Over $100,000
Richard L. Woolworth None None Over $100,000
INTERESTED TRUSTEES
William E. Mayer None None $1-$10,000
|
(a) Includes the value of compensation payable under the deferred compensation plan for independent Trustees of the Columbia Fund Complex that is determined as if the amounts deferred had been invested, as of the date of deferral, in shares of one or more funds in the Columbia Fund Complex as specified by Ms. Verville.
PORTFOLIO MANAGERS
OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS
The following tables show the number and assets of other investment accounts (or portions of investment accounts) that the Funds' portfolio managers managed as of the Funds' fiscal year end.
COLUMBIA GROWTH STOCK FUND
-------------------------------------------------------------------------------------------------------
OTHER SEC-REGISTERED
OPEN-END AND CLOSED- OTHER POOLED INVESTMENT
PORTFOLIO MANAGERS END FUNDS VEHICLES OTHER ACCOUNTS
-------------------------------------------------------------------------------------------------------
Number of Number of Number of
accounts Assets accounts Assets accounts Assets
-------------------------------------------------------------------------------------------------------
Paul J. Berlinguet 6 $1.9 billion 1 $404 million 16 $226 million
-------------------------------------------------------------------------------------------------------
John T. Wilson 6 $2.05 billion 1 $405 million 30 $240 million
-------------------------------------------------------------------------------------------------------
|
k
COLUMBIA YOUNG INVESTOR FUND
-------------------------------------------------------------------------------------------------------
OTHER SEC-REGISTERED
OPEN-END AND CLOSED- OTHER POOLED INVESTMENT
PORTFOLIO MANAGER END FUNDS VEHICLES OTHER ACCOUNTS
-------------------------------------------------------------------------------------------------------
Number of Number of Number of
accounts Assets accounts Assets accounts Assets
-------------------------------------------------------------------------------------------------------
Emil A. Gjester 2 $1.3 billion 0 $0 5 $123 thousand
-------------------------------------------------------------------------------------------------------
|
See "Other Considerations -- Portfolio Transactions -- Potential conflicts of interest in managing multiple accounts" for information on how the Advisor addresses potential conflicts of interest resulting from an individual's management of more than one account.
OWNERSHIP OF SECURITIES
The table below shows the dollar ranges of shares of the Funds beneficially owned (as determined pursuant to Rule 16a-1(a)(2) under the Securities Exchange Act of 1934, as amended) by the portfolio managers listed above at the end of the Funds' most recent fiscal year:
COLUMBIA GROWTH STOCK FUND
---------------------------------------------------------------------------------------------
DOLLAR RANGE OF EQUITY SECURITIES IN THE
PORTFOLIO MANAGERS FUND BENEFICIALLY OWNED
---------------------------------------------------------------------------------------------
Paul J. Berlinguet None
---------------------------------------------------------------------------------------------
John T. Wilson None
---------------------------------------------------------------------------------------------
|
COLUMBIA YOUNG INVESTOR FUND
---------------------------------------------------------------------------------------------
DOLLAR RANGE OF EQUITY SECURITIES IN THE
PORTFOLIO MANAGER FUND BENEFICIALLY OWNED
---------------------------------------------------------------------------------------------
Emil A. Gjester None
---------------------------------------------------------------------------------------------
|
COMPENSATION
As of the Funds' most recent fiscal year end, the portfolio managers received all of their compensation from the Advisor and its parent company, Columbia Management Group, in the form of salary, bonus, stock options and restricted stock. A portfolio manager's bonus is variable and is generally based on (1) an evaluation of the manager's investment performance and (2) the results of a peer and/or management review of such individual, which takes into account skills and attributes such as team participation, investment process, communication and professionalism. In evaluating investment performance, the Advisor generally considers the one-, three- and five-year performance of mutual funds and other accounts under the portfolio manager's oversight relative to the benchmarks and peer groups noted below, emphasizing each manager's three- and five-year performance. The Advisor may also consider a portfolio manager's performance in managing client assets in sectors and industries assigned to the manager as part of his or her investment team responsibilities, where applicable. For portfolio managers who also have group management responsibilities, another factor in their evaluation is an assessment of the group's overall investment performance.
COLUMBIA GROWTH STOCK FUND
-----------------------------------------------------------------------------------------------
PORTFOLIO MANAGERS PERFORMANCE BENCHMARK PEER GROUP
-----------------------------------------------------------------------------------------------
Russell 1000 Growth TR Morningstar Large Growth
Paul J. Berlinguet Category
-----------------------------------------------------------------------------------------------
Russell 1000 Growth TR Morningstar Large Growth
John T. Wilson Category
-----------------------------------------------------------------------------------------------
|
COLUMBIA YOUNG INVESTOR FUND
-----------------------------------------------------------------------------------------------
PORTFOLIO MANAGER PERFORMANCE BENCHMARK PEER GROUP
-----------------------------------------------------------------------------------------------
Russell 3000 TR Morningstar Large Blend
Emil A. Gjester Category
-----------------------------------------------------------------------------------------------
|
The size of the overall bonus pool each year is determined by Columbia Management Group and depends in part on levels of compensation generally in the investment management industry (based on market compensation data) and the Advisor's profitability for the year, which is influenced by assets under management.
OWNERSHIP OF THE FUNDS
As of record on December 31, 2005, the officers and Trustees of the Trust as a
group beneficially owned less than 1% of the then outstanding shares of each of
Class A, Class B, Class C and Class Z shares of each Fund.
As of record on December 31, 2005, the following shareholders of record owned 5% or more of one or more of each class of the Growth Stock Fund's then outstanding shares:
CLASS C SHARES Merrill Lynch Pierce Fenner & Smith 7.56% For the Sole Benefit of its Customers 4800 Deer Lake Drive East, 2nd Floor Jacksonville, FL 32246-6484 CLASS Z SHARES Charles Schwab & Co., Inc. 6.83% Special Custody Account for the Exclusive Benefit of Customers 101 Montgomery Street San Francisco, CA 94104-4122 |
As of record on December 31, 2005, the following shareholders of record owned 5% or more of one or more of each class of the Young Investor Fund's then outstanding shares:
CLASS C SHARES Merrill Lynch Pierce Fenner & Smith 12.60% For the Sole Benefit of its Customers 4800 Deer Lake Drive East, 2nd Floor Jacksonville, FL 32246-6484 CLASS Z SHARES Charles Schwab & Co., Inc. 6.40% Special Custody Account for the Exclusive Benefit of Customers 101 Montgomery Street San Francisco, CA 94104-4122 |
SALES CHARGES (dollars in thousands)
GROWTH STOCK FUND
-----------------
Class A Shares
--------------
Year ended September 30,
------------------------
2005 2004 2003
---- ---- ----
Aggregate initial sales charges on Fund share
sales $74 $123 $139
Initial sales charges retained by CMD 12 19 20
Aggregate contingent deferred sales charges
("CDSC")
on Fund redemptions retained by CMD 1 2 9
|
Class B Shares
--------------
Year ended September 30,
------------------------
2005 2004 2003
---- ---- ----
Aggregate CDSC on Fund redemptions retained by
CMD $740 $916 $1,166
|
Class C Shares
--------------
Year ended September 30,
------------------------
2005 2004 2003
---- ---- ----
Aggregate CDSC on Fund redemptions retained by
CMD $3 $3 $3
|
YOUNG INVESTOR FUND
-------------------
Class A Shares
--------------
Year ended September 30,
------------------------
2005 2004 2003
---- ---- ----
Aggregate initial sales charges on Fund share sales $41 $49 $35
Initial sales charges retained by CMD 6 6 5
Aggregate CDSC on Fund redemptions retained by CMD 7 29 44
|
Class B Shares
--------------
Year ended September 30,
------------------------
2005 2004 2003
---- ---- ----
Aggregate CDSC on Fund redemptions retained by CMD $10 $21 $31
|
Class C Shares
--------------
Year ended September 30,
------------------------
2005 2004 2003
---- ---- ----
Aggregate CDSC on Fund redemptions retained by CMD $1 (a) (a)
|
(a) Rounds to less than one.
12B-1 PLAN, CDSCS AND CONVERSION OF SHARES
Each Fund offers four classes of shares -- Class A, Class B, Class C and Class
Z. The Funds may in the future offer other classes of shares. The Trustees have
approved a 12b-1 plan ("Plan") pursuant to Rule 12b-1 under the 1940 Act for the
Funds' Class A, B and C shares. Under the Plan, the Funds pay CMD monthly a
service fee at an annual rate of 0.25% of each Fund's net assets attributed to
Class A, B and C shares. The Funds also pay CMD monthly a distribution fee at an
annual rate of 0.10% of each Fund's average daily net assets attributed to Class
A shares and 0.75% of each Fund's average daily net assets attributed to Class B
and C shares. At this time, CMD has voluntarily agreed to waive a portion of the
Class A share distribution fee so that it does not exceed 0.05% annually. This
arrangement may be modified or terminated by CMD at any time. CMD may use the
entire amount of such fees to defray the cost of commissions and service fees
paid to financial service firms ("FSFs") and for certain other purposes. Since
the distribution and service fees are payable regardless of CMD's expenses, CMD
may realize a profit from the
n
fees. The Plan authorizes any other payments by the Funds to CMD and its affiliates (including the Advisor) to the extent that such payments might be construed to be indirect financing of the distribution of each Fund's shares.
The Trustees believe the Plan could be a significant factor in the growth and retention of each Fund's assets resulting in a more advantageous expense ratio and increased investment flexibility which could benefit each class of each Fund's shareholders. The Plan will continue in effect from year to year so long as continuance is specifically approved at least annually by a vote of the Trustees, including the Trustees who are not interested persons of the Trust and have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan ("Independent Trustees"), cast in person at a meeting called for the purpose of voting on the Plan. The Plan may not be amended to increase the fee materially without approval by vote of a majority of the outstanding voting securities of the relevant class of shares, and all material amendments of the Plan must be approved by the Trustees in the manner provided in the foregoing sentence. The Plan may be terminated at any time by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding voting securities of the relevant class of shares. The continuance of the Plan will only be effective if the selection and nomination of the Trustees who are not interested persons of the Trust is effected by such disinterested Trustees.
Class A shares are offered at net asset value plus varying sales charges which may include a CDSC. Class B shares are offered at net asset value and are subject to a CDSC if redeemed within six years after purchase. Class C shares are offered at net asset value and are subject to a 1.00% CDSC on redemptions within one year after purchase. Class Z shares are offered at net asset value and are not subject to a CDSC. The CDSCs and initial sales charges are described in the Prospectuses relating to Class A, B and C shares.
No CDSC will be imposed on shares derived from reinvestment of distributions or on amounts representing capital appreciation. In determining the applicability and rate of any CDSC, it will be assumed that a redemption is made first of shares representing capital appreciation, next of shares representing reinvestment of distributions, and finally of other shares held by the shareholder for the longest time.
Eight years after the end of the month in which a Class B share is purchased, such shares and a pro rata portion of any shares issued on the reinvestment of distributions will be automatically converted into Class A shares having an equal value.
SALES-RELATED EXPENSES (dollars in thousands) of CMD relating to Class A, B and C shares of the Funds as of September 30, 2005 were:
GROWTH STOCK FUND
-----------------
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
Fees to FSFs $151 $ 729 $168
Cost of sales material relating to the Fund
(including printing and mailing expenses) 11 21 3
Allocated travel, entertainment and other
promotional expenses (including advertising) 16 32 4
|
YOUNG INVESTOR FUND
-------------------
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
Fees to FSFs $261 $27 $7
Cost of sales material relating to the Fund
(including printing and mailing expenses) 18 1 (a)
Allocated travel, entertainment and other
promotional expenses (including advertising) 28 1 (a)
|
(a) Rounds to less than one.
CUSTODIAN
State Street Bank & Trust Company, located at 2 Avenue de Lafayette, Boston,
Massachusetts 02111-2900, is the Funds' custodian. The custodian is responsible
for safeguarding and controlling the Funds' cash and securities, receiving and
delivering securities and collecting the Funds' interest and dividends.
o
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP, located at 125 High Street, Boston, Massachusetts
02110-1707, is the Funds' independent registered public accounting firm,
providing audit and tax return review services and assistance and consultation
in connection with the review of various SEC filings. The financial statements
incorporated by reference in this SAI have been so incorporated, and the
financial highlights included in the Prospectuses have been so included, in
reliance upon the reports of PricewaterhouseCoopers LLP given on the authority
of said firm as experts in accounting and auditing.
p
COLUMBIA LIBERTY FUND
SERIES OF COLUMBIA FUNDS SERIES TRUST I
SUPPLEMENT TO THE FUND'S CURRENT STATEMENT OF ADDITIONAL
INFORMATION
This supplement applies to the "Fund" listed above.
1. The name of the Trust is revised to read "Columbia Funds Series Trust I."
2. The first sentence in the section entitled "Organization and History" is revised to read:
The Trust is a Massachusetts business trust organized in 1987. The Fund was originally organized as a series of another Massachusetts business trust prior to its reorganization as a series of the Trust on March 27, 2006.
3. The third, fourth and fifth paragraphs of the section entitled "Organization and History" are revised in their entirety to read:
Effective October 13, 2003, the trust of which the Fund was previously a series changed its name from "Liberty Funds Trust III" to "Columbia Funds Trust III." Effective March 27, 2006, the Fund was reorganized as a series of the Trust.
4. The section entitled "Ownership of the Fund" is replaced in its entirety to read:
As of record on February 28, 2006, the officers and Trustees of the Trust as a group beneficially owned less than 1% of the then outstanding shares of each of Class A, Class B, Class C and Class Z shares of each Fund.
As of record on February 28, 2006, the following shareholders of record owned 5% or more of each class of the Fund's then outstanding shares:
CLASS Z SHARES WILLIAM R LARSEN & BEATRIZ M DE LARSEN JTWROS 7.86 416 E 11TH SE ROME GA 30161-6222 BANK OF AMERICA NA 42.25 411 N AKARD ST DALLAS TX 75201-3307 STREIMER SHEET METAL WORKS INC 14.86 740 N KNOTT ST PORTLAND OR 97227-2099 |
5. The first paragraph of the first page of Part 2 of the SAI is revised in its entirety to read:
The following information applies generally to most funds advised by the Advisor. "Funds" include the series of Columbia Funds Series Trust I, Columbia Funds Institutional Trust, Liberty Variable Investment Trust and SteinRoe Variable Investment Trust (each a "Trust" and together, the "Trusts"). In certain cases, the discussion applies
to some, but not all, of the Funds, and you should refer to your Fund's Prospectus and to Part 1 of this Statement of Additional Information ("SAI") to determine whether the matter is applicable to your Fund. You will also be referred to Part 1 for certain data applicable to your Fund.
6. The section entitled "Trustees and Officers" in Part 2 of the SAI is revised to read:
Information regarding the Trustees and officers of the Funds together with their principal business occupations during the last five years (their titles may have varied during that period) is shown below. Unless otherwise noted, the address for each Trustee and officer is c/o Columbia Funds, Mail Stop MA5-515-11-05, One Financial Center, Boston, MA 02111.
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------------- ------------ ----------------------- ------------- ---------------------------
DISINTERESTED TRUSTEE
Thomas C. Theobald Trustee and 1996 Partner and Senior 83 Anixter International
(Born 1937) Chairman of the Advisor, Chicago Growth (network support equipment
Board Partners (private distributor); Ventas, Inc.
equity investing) since (real estate investment
September, 2004; trust); Jones Lang LaSalle
Managing Director, (real estate management
William Blair Capital services) and Ambac
Partners (private Financial Group (financial
equity investing) from guaranty insurance)
September, 1994 to
September, 2004.
Douglas A. Hacker Trustee 1996 Executive Vice 83 Nash Finch Company (food
(Born 1955) President -- Strategy distributor)
of United Airlines
(airline) since
December, 2002;
President of UAL
Loyalty Services
(airline) from
September, 2001 to
December, 2002;
Executive Vice
President and Chief
Financial Officer of
United Airlines from
July, 1999 to
September, 2001.
Janet Langford Kelly Trustee 1996 Partner, Zelle, 83 UAL Corporation (airline)
(Born 1957) Hofmann, Voelbel, Mason
& Gette LLP (law firm)
since March, 2005;
Adjunct Professor of
Law, Northwestern
University, since
September, 2004; Chief
Administrative Officer
and Senior Vice
President, Kmart
Holding Corporation
(consumer goods), from
September, 2003 to
March, 2004; Executive
Vice
President-Corporate
Development and
Administration, General
Counsel and Secretary,
Kellogg Company (food
manufacturer), from
September, 1999 to
August, 2003.
|
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------------- ------------ ----------------------- ------------- ---------------------------
DISINTERESTED TRUSTEE
Richard W. Lowry Trustee 1995 Private Investor since 85 None
(Born 1936) August, 1987 (formerly
Chairman and Chief
Executive Officer, U.S.
Plywood Corporation
(building products
manufacturer) until
1987.)
Charles R. Nelson Trustee 1981 Professor of Economics, 83 None
(Born 1943) University of
Washington since
January, 1976; Ford and
Louisa Van Voorhis
Professor of Political
Economy, University of
Washington, since
September, 1993;
Director, Institute for
Economic Research,
University of
Washington from
September, 2001 to
June, 2003; Adjunct
Professor of
Statistics, University
of Washington since
September, 1980;
Associate Editor,
Journal of Money Credit
and Banking since
September, 1993;
consultant on
econometric and
statistical matters.
John J. Neuhauser Trustee 1985 University Professor, 85 None
(Born 1942) Boston College since
November, 2005;
Academic Vice President
and Dean of Faculties,
Boston College from
August, 1999 to
October, 2005.
Patrick J. Simpson Trustee 2000 Partner, Perkins Coie 83 None
(Born 1944) L.L.P. (law firm).
Thomas E. Stitzel Trustee 1998 Business Consultant 83 None
(Born 1936) since 1999; Chartered
Financial Analyst.
Anne-Lee Verville Trustee 1998 Retired since 1997 83 Chairman of the Board
(Born 1945) (formerly General of Directors, Enesco
Manager, Global Group, Inc. (producer of
Education Industry, IBM giftware and home and
Corporation (computer garden decor products)
and technology) from
1994 to 1997).
Richard L. Woolworth Trustee 1991 Retired since December, 83 Northwest Natural Gas
(Born 1941) 2003 (formerly Chairman (natural gas service
and Chief Executive provider)
Officer, The Regence
Group Co. (regional
health insurer);
Chairman and Chief
Executive Officer,
BlueCross BlueShield of
Oregon; Certified
Public Accountant,
Arthur Young &
Company).
|
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------------- ------------ ----------------------- ------------- ---------------------------
INTERESTED TRUSTEE
William E. Mayer(3) Trustee 1994 Partner, Park Avenue 85 Lee Enterprises (print
(Born 1940) Equity Partners media), WR Hambrecht + Co.
(private equity) since (financial service
February, 1999. provider); Reader's Digest
(publishing); OPENFIELD
Solutions (retail industry
technology provider)
|
(1) The date shown is the earliest date on which a Trustee was elected or appointed to the board of a Fund in the Fund Complex.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public companies").
(3) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (the "1940 Act")) of the Columbia Funds by reason of his affiliation with WR Hambrecht + Co., a registered broker-dealer that may execute portfolio transactions for or engage in principal transactions with the Fund or other funds or clients advised by the Advisor or its affiliates.
Year First
Elected or
Appointed
Name and Year of Birth Position with Funds to Office Principal Occupation(s) During Past Five Years
---------------------- ------------------- ---------- -------------------------------------------------
OFFICERS
Christopher L. Wilson President 2004 Head of Mutual Funds since August, 2004 and
(Born 1957) Managing Director of the Advisor since September,
2005; President and Chief Executive Officer, CDC
IXIS Asset Management Services, Inc. (investment
management) from September, 1998 to August, 2004.
James R. Bordewick, Jr. Senior Vice 2006 Associate General Counsel, Bank of America since
(Born 1959) President, April, 2005; Senior Vice President and Associate
Secretary and General Counsel, MFS Investment Management
Chief Legal (investment management) prior to April, 2005.
Officer
J. Kevin Connaughton Senior Vice 2000 Managing Director of the Advisor since February,
(Born 1964) President, Chief 1998.
Financial
Officer and
Treasurer
Mary Joan Hoene Senior Vice 2004 Senior Vice President and Chief Compliance
(Born 1949) President and Officer of various funds in the Columbia Fund
100 Federal Street Chief Compliance Complex; Partner, Carter, Ledyard & Milburn LLP
Boston, MA 02110 Officer (law firm) from January, 2001 to August, 2004.
Michael G. Clarke Chief Accounting 2004 Managing Director of the Advisor since February,
(Born 1969) Officer and 2001.
Assistant
Treasurer
Stephen T. Welsh Vice President 1996 President, Columbia Management Services, Inc.
(Born 1957) since July, 2004; Senior Vice President and
Controller, Columbia Management Services, Inc.
prior to July, 2004.
Jeffrey R. Coleman Deputy Treasurer 2004 Group Operations Manager of the Advisor since
(Born 1969) October, 2004; Vice President of CDC IXIS Asset
Management Services, Inc. (investment management)
from August, 2000 to September, 2004.
|
Year First
Elected or
Appointed
Name and Year of Birth Position with Funds to Office Principal Occupation(s) During Past Five Years
---------------------- ------------------- ---------- -------------------------------------------------
OFFICERS
Joseph F. DiMaria Deputy Treasurer 2004 Senior Compliance Manager of the Advisor since
(Born 1968) January, 2005; Director of Trustee Administration
of the Advisor from May, 2003 to January, 2005;
Senior Audit Manager, PricewaterhouseCoopers
(independent registered public accounting firm)
from July, 2000 to April, 2003.
Ty S. Edwards Deputy Treasurer 2004 Vice President of the Advisor since 2002;
(Born 1966) Assistant Vice President and Director, State
Street Corporation (financial services) prior to
2002.
Barry S. Vallan Controller 2006 Vice President-Fund Treasury of the Advisor since
(Born 1969) October, 2004; Vice President-Trustee Reporting
from April, 2002 to October, 2004; Management
Consultant, PricewaterhouseCoopers (independent
registered public accounting firm) prior to
October, 2002.
Peter T. Fariel Assistant Secretary 2006 Associate General Counsel, Bank of America since
(Born 1957) April, 2005; Partner, Goodwin Procter LLP (law
firm) prior to April, 2005.
Ryan C. Larrenaga Assistant Secretary 2005 Assistant General Counsel, Bank of America since
(Born 1970) March, 2005; Associate, Ropes & Gray LLP (law
firm) from 1998 to February, 2005.
Barry S. Finkle Assistant Treasurer 2003 Senior Manager and Head of Fund Performance of
(Born 1965) the Advisor since January, 2001.
Julian Quero Assistant Treasurer 2003 Senior Compliance Manager of the Advisor since
(Born 1967) April, 2002; Assistant Vice President of Taxes
and Distributions of the Advisor from 2001 to
April, 2002.
|
Each of the Trust's Trustees and officers hold comparable positions with certain other funds of which the Advisor or its affiliates is the investment advisor or distributor and, in the case of certain of the officers, with certain affiliates of the Advisor.
The Trustees and officers serve terms of indefinite duration. Each Fund held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once every five years thereafter to elect Trustees.
7. The section entitled "Trustee Positions," a subsection of "Management of the Funds," is revised to read:
As of December 31, 2005, no disinterested Trustee or any of their immediate family members owned beneficially or of record any class of securities of the Advisor, another investment advisor, sub-advisor or portfolio manager of any of the funds in the Columbia Fund Complex or any person controlling, controlled by or under common control with any such entity.
INT-50/107641-0306 March 27, 2006
COLUMBIA LIBERTY FUND
SERIES OF COLUMBIA FUNDS TRUST III
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1, 2006
This Statement of Additional Information (SAI) contains information which may be useful to investors but which is not included in the Prospectuses of the Columbia Liberty Fund (the "Fund"). This SAI is not a prospectus and is authorized for distribution only when accompanied or preceded by a Prospectus of the Fund dated February 1, 2006. This SAI should be read together with the relevant Prospectus and most recent Annual Report dated September 30, 2005. Investors may obtain a free copy of the relevant Prospectus and Annual Report from Columbia Management Distributors, Inc. (CMD), One Financial Center, Boston, MA 02111-2621 or by calling 1-800-426-3750. The Financial Statements and Report of Independent Registered Public Accounting Firm appearing in the Fund's September 30, 2005 Annual Report are incorporated in this SAI by reference.
Part 1 of this SAI contains specific information about the Fund. Part 2 includes information about the funds distributed by CMD generally and additional information about certain securities and investment techniques described in the Fund's Prospectuses.
TABLE OF CONTENTS
PART 1 PAGE Definitions b Organization and History b Investment Goals and Policies b Fundamental Investment Policies c Other Investment Policies d Portfolio Turnover d Fund Charges and Expenses d Custodian of the Funds o Independent Registered Public Accounting Firm o Management of the Liberty Fund o PART 2 Miscellaneous Investment Practices 1 Taxes 22 Additional Tax Matters Concerning Trust Shares 27 Management of the Funds 29 Determination of Net Asset Value 43 How to Buy Shares 44 Special Purchase Programs/Investor Services 48 Programs for Reducing or Eliminating Sales Charges 50 How to Sell Shares 53 Distributions 57 How to Exchange Shares 57 Suspension of Redemptions 58 Shareholder Liability 58 Shareholder Meetings 58 Appendix I 60 Appendix II 66 |
SUP-39/105304-0106
PART 1
COLUMBIA LIBERTY FUND
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 1, 2006
DEFINITIONS
"Trust" Columbia Funds Trust III
"Fund" or "Liberty Fund" Columbia Liberty Fund
"Advisor" Columbia Management Advisors, LLC, the Fund's investment
advisor
"CMD" Columbia Management Distributors, Inc. (formerly named
Columbia Funds Distributor, Inc.), the Fund's distributor
"CMS" Columbia Management Services, Inc. (formerly named Columbia
Funds Services, Inc.), the Fund's shareholder services and
transfer agent
|
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1986. The Fund is an
open-end diversified management investment company, representing the entire
interest in a separate series of the Trust. The Liberty Fund commenced
investment operations on April 30, 1982, and is a successor to a corporation
organized in 1904.
The Trust is not required to hold annual shareholder meetings, but special meetings may be called for certain purposes. Shareholders receive one vote for each Fund share. Shares of the Fund and any other series of the Trust that may be in existence from time to time generally vote together except when required by law to vote separately by fund or by class. Shareholders owning in the aggregate ten percent of Trust shares may call meetings to consider removal of Trustees. Under certain circumstances, the Trust will provide information to assist shareholders in calling such a meeting. See Part 2 of this SAI for more information.
Effective July 14, 2000, the Liberty Fund changed its name from "The Colonial Fund" to "The Liberty Fund". Effective October 13, 2003, the Liberty Fund changed its name from "The Liberty Fund" to its current name.
Effective April 1, 1999, the Trust changed its name from "Colonial Trust III" to "Liberty Funds Trust III". Effective October 13, 2003, the Trust changed its name from "Liberty Funds Trust III" to its current name.
It is expected that, subject to shareholder approval of the election of all current Trustees, the Fund will be reorganized as a series of Columbia Funds Series Trust I, a Massachusetts business trust into which all of the retail Columbia funds are expected to be reorganized.
INVESTMENT GOALS AND POLICIES
The Prospectuses describe the Fund's investment goals, investment strategies and
risks. Part 1 of this SAI includes additional information concerning, among
other things, the investment policies of the Fund. Part 2 contains additional
information about the following securities and investment techniques that may be
utilized by the Fund (unless otherwise noted):
Foreign Currency Transactions
Foreign Securities
Forward Commitments
Futures Contracts and Related Options
Money Market Instruments
Mortgage-Backed Securities
Mortgage Dollar Rolls
Non-Agency Mortgage-Backed Securities
Options on Securities
Repurchase Agreements
Reverse Repurchase Agreements
Rule 144A Securities
Securities Loans
Short-Term Trading
b
Zero Coupon Securities
Other Investment Companies
Except as indicated below under "Fundamental Investment Policies," the Fund's investment policies are not fundamental and the Trustees may change the policies without shareholder approval.
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940, as amended (the "1940 Act"), provides that a
"vote of a majority of the outstanding voting securities" means the affirmative
vote of the lesser of (1) more than 50% of the outstanding shares of the Fund,
or (2) 67% or more of the shares present at a meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy. The
following fundamental investment policies cannot be changed without such a vote.
FUNDAMENTAL RESTRICTIONS
The Fund may not, as a matter of fundamental policy:
1. Underwrite any issue of securities issued by other persons within
the meaning of the Securities Act of 1933, as amended (the "1933
Act"), except when it might be deemed to be an underwriter either:
(a) in connection with the disposition of a portfolio security; or
(b) in connection with the purchase of securities directly from the
issuer thereof in accordance with its investment objective. This
restriction shall not limit the Fund's ability to invest in
securities issued by other registered investment companies.
2. Purchase or sell real estate, except the Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate and it may hold and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of securities which are secured by real estate or interests therein.
3. Purchase or sell commodities, except that the Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts.
4. Purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions; and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
5. Make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
6. Borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
7. Purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that: (a) up to 25% of its total assets may be invested without regard to these limitations and (b) the Fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder, or any applicable exemptive relief.
OTHER INVESTMENT POLICIES
As non-fundamental investment policies, which may be changed without a
shareholder vote, the Fund may not:
1. Purchase securities on margin, but it may receive short-term credit to clear
securities transactions and may make initial or maintenance margin deposits
in connection with futures transactions;
2. Have a short securities position, unless the Fund owns, or owns rights
(exercisable without payment) to acquire, an equal amount of such
securities; and
3. Invest more than 15% of its net assets in illiquid assets.
Total assets and net assets are determined at current value for purposes of compliance with investment restrictions and policies. All percentage limitations will apply at the time of investment and are not violated unless an excess or deficiency occurs as a result of such investment. For the purpose of the 1940 Act's diversification requirement, an issuer is the entity whose revenues support the security.
PORTFOLIO TURNOVER
Portfolio turnover is included in the Prospectuses under "Financial Highlights."
High portfolio turnover may cause the Fund to realize capital gains which, if
realized and distributed by the Fund, may be taxable to shareholders as ordinary
income. High portfolio turnover may result in correspondingly greater brokerage
commissions and other transaction costs, which will be borne directly by the
Fund.
FUND CHARGES AND EXPENSES
Effective November 1, 2003, under the Liberty Fund's management agreement, the
Fund pays the Advisor a monthly fee at the annual rate of 0.55% of the first $1
billion of the average daily net assets of the Fund, 0.50% of the next $500
million and 0.45% of average daily net assets in excess of $1.5 billion. Prior
to November 1, 2003, under the Liberty Fund's management agreement, the Fund
paid the Advisor a monthly fee at the annual rate of 0.55% of the first $1
billion of the average daily net assets of the Fund and 0.50% of the average
daily net assets in excess of $1 billion.
The Advisor is responsible for providing certain pricing and bookkeeping
services to the Fund. Effective November 1, 2005, the Fund entered into a
Pricing and Bookkeeping Agreement and an Administrative Agreement. Under these
agreements, the Fund will continue to receive substantially the same pricing,
bookkeeping and administrative services as it currently receives under the
Agreement. Under a separate agreement ("Outsourcing Agreement"), the Advisor has
delegated the pricing and bookkeeping function to State Street Bank and Trust
Company ("State Street"). The Advisor pays fees to State Street under the
Outsourcing Agreement. The Advisor and State Street Bank and Trust Company will
continue to provide these services to the Fund. For services provided under the
Pricing and Bookkeeping Agreement, the Fund will pay the Advisor or to such
other person(s) as the Advisor may direct an annual fee, payable monthly,
consisting of: (i) for fund accounting services, $25,000 plus an additional
monthly fee based on the Fund's net asset value ("Fund Accounting Fee"); and
(ii) for financial reporting services, $13,000 ("Financial Reporting Fee");
provided that during any 12-month period, the aggregate Fund Accounting Fee and
Financial Reporting Fee shall not exceed $140,000. For services provided under
the Administrative Agreement, the Fund will pay the Advisor an annual fee equal
to $0. The Fund will bear certain reimbursable costs and expenses as provided in
the Pricing and Bookkeeping Agreement and the Administrative Agreement.
For periods prior to November 1, 2005, the Fund paid the Advisor fees under a similar pricing and bookkeeping agreement that consisted of monthly fees consisting of a flat fee plus an asset-based fee, as follows:
- An annual flat fee of $10,000, paid monthly; and
- In any month that the Fund had average net assets of more than $50 million, a
monthly fee equal to the average daily net assets of the Fund for that month
multiplied by a fee rate that was calculated by taking into account the fees
payable to State Street under the Outsourcing Agreement.
Effective November 1, 2003 the Fund reimbursed the Advisor for all out-of-pocket expenses and charges, including fees payable to third parties (other than State Street) for providing pricing data.
CMS acts as transfer agent, dividend disbursing agent and shareholders' servicing agent for the Fund. Its address is P.O. Box 8081, Boston, Massachusetts 02266-8081. Effective November 1, 2005, the Fund has entered into a new agreement with CMS, under which CMS will continue to provide transfer agency, dividend disbursing agency and
shareholders' servicing agency services to the Fund (and will continue to retain Boston Financial Data Services, Inc. to assist them) for a reduced fee. The new fee is $15.23 per open account per annum, payable monthly. In addition, the Fund may pay CMS the fees and expenses it pays to third-party dealer firms that maintain omnibus accounts with the Fund, subject to a cap equal to 0.11% of the Fund's net assets represented by the account. The Fund will also pay certain reimbursable out-of-pocket expenses to CMS, and CMS may also retain as additional compensation for its services revenues for fees for wire, telephone and redemption orders, IRA trustee agent fees and account transcripts due CMS from shareholders of the Fund and credits (net of bank charges) earned with respect to balances in accounts CMS maintains in connection with its services to the Fund.
Prior to November 1, 2005, the Fund paid a shareholders' servicing and transfer agency fee to CMS as follows:
An annual open account fee of $28 per open account plus the Fund's allocated share of reimbursement for the out-of-pocket expenses of CMS.
Prior to November 1, 2003, the Fund paid a shareholders' servicing and transfer agency fee to CMS as follows:
- An account fee for each open account of $4.00 per annum, payable on a monthly
basis, in an amount equal to 1/12 the per annum charge; plus
- An account fee for each closed account of $1.50 per annum, payable on a
monthly basis, in an amount equal to 1/12 the per annum charge; plus
- A transaction fee of $1.40 per transaction occurring in Fund accounts during
any month; plus
- A monthly fee at the rate of 0.06% per annum of the average daily closing
value of the total net assets of the Fund for such month; plus
- The Fund's allocated share of CMS' out-of-pocket expenses, including fees
payable to DST Systems, Inc. (DST) under a remote services agreement with
DST.
RECENT FEES PAID TO THE ADVISOR, CMD AND CMS (dollars in thousands)
LIBERTY FUND
------------
Year ended Year ended Eleven months ended Year ended
September 30, September 30, September 30, October 31,
------------- ------------- ------------- -----------
2005 2004 2003(a) 2002
---- ---- ------- ----
Management fee $3,999 $4,488 $4,272 $5,870
Pricing and bookkeeping
fee 224 243 252 407
Shareholder service and
transfer agent fee 1,846 2,124 2,830 3,595
12b-1 fees:
Service fee (Class A) 1,324 1,411 1,280 1,659
Service fee (Class B) 357 467 493 773
Service fee (Class C) 13 17 18 22
Distribution fee
(Class B) 1,148 1,506 1,600 2,559
Distribution fee
(Class C) 43 54 57 72
|
(a) The Fund changed its fiscal year end from October 31 to September 30 in 2003.
e
BROKERAGE COMMISSIONS (dollars in thousands)
Year ended Year ended Eleven months ended Year ended
September 30, September 30, September 30, October 31,
------------- ------------- ------------- -----------
2005 2004 2003(a) 2002
---- ---- ------- ----
Total commission $ 670 $ 153 $ 1,947 $ 180
Directed transactions(b) 139,207 12,525 24,093 9,443
Commissions on directed
transactions 164 15 45 12
Commissions paid to AlphaTrade
Inc.(c) N/A(d) N/A(d) N/A(d) 0
% of aggregate commissions N/A(d) N/A(d) N/A(d) 0
% of aggregate dollar amount of
brokerage transactions N/A(d) N/A(d) N/A(d) 0
Commissions paid to Bank of
America Securities(c) 0 0 N/A(e) N/A
% of aggregate to commissions 0 0 N/A(e) N/A
% of aggregate dollar amount of
brokerage transactions 0 0 N/A(e) N/A
|
(a) The Fund changed its fiscal year end from October 31 to September 30 in
2003.
(b) See "Management of the Funds -- Portfolio Transactions -- Brokerage and
Research Services" in Part 2 of this SAI.
(c) An affiliated broker dealer of the Advisor.
(d) As of May, 2002, AlphaTrade Inc. is no longer used for transactions.
(e) SEC rules do not require the reporting of commission information for the
fiscal period ended September 30, 2003 or for the fiscal year ended October
31, 2002, as the entity named was not an affiliate of the Fund during that
time.
The Trust is required to identify any securities of its "regular brokers or dealers" that the Fund has acquired during its most recent fiscal year. At September 30, 2005, the Fund held securities of its regular brokers or dealers as set forth below:
FUND BROKER/DEALER VALUE (IN THOUSANDS)
Liberty Fund Merrill Lynch & Co. Inc. $7,340
Goldman Sachs Group Inc. 4,785
Lehman Brothers Hldg Inc. 897
|
f
TRUSTEES AND TRUSTEES' FEES
The "Columbia Fund Complex" includes all of the registered investment companies
to which the Advisor and its affiliates provide investment advisory services.
The Advisor or its affiliates pay the compensation of all the officers of the funds in the Columbia Fund Complex advised by the Advisor, including the Trustees who are affiliated with the Advisor. For the fiscal year ended September 30, 2005, and the calendar year ended December 31, 2005, the Trustees received the following compensation for serving as Trustees:
Total Compensation
Pension or Aggregate from the Columbia
Retirement Compensation from the Fund Complex Paid to
Benefits Accrued Fund for the the Trustees for the
as part of Fund Fiscal Year Ended Calendar Year Ended
Trustee(a) Expenses(b) September 30, 2005 December 31, 2005(a)
---------- ----------- ------------------ --------------------
Douglas A. Hacker N/A $1,785 $111,277
Janet Langford Kelly N/A 2,026 116,500
Richard W. Lowry N/A 1,681 142,500
William E. Mayer N/A 1,941 147,750
Charles R. Nelson N/A 1,857 111,500
John J. Neuhauser N/A 1,725 137,833
Patrick J. Simpson(c) N/A 1,780 107,500
Thomas E. Stitzel N/A 1,902 113,000
Thomas C. Theobald(d) N/A 3,209 205,500
Anne-Lee Verville(e) N/A 1,766 120,723
Richard L. Woolworth N/A 1,746 106,500
|
(a) As of December 31, 2005, the Columbia Fund Complex consisted of 159 open-end
and 11 closed-end management investment company portfolios.
(b) The Fund does not currently provide pension or retirement plan benefits to
the Trustees.
(c) During the fiscal year ended September 30, 2005, and the calendar year ended
December 31, 2005, Mr. Simpson deferred $1,780 of his compensation from the
Fund, and $107,500 of his total compensation from the Columbia Fund Complex
pursuant to the deferred compensation plan. At December 31, 2005, the value
of Mr. Simpson's account under that plan was $269,502.
(d) During the fiscal year ended September 30, 2005, and the calendar year ended
December 31, 2005, Mr. Theobald deferred $2,262 of his compensation from the
Fund, and $150,000 of his total compensation from the Columbia Fund Complex
pursuant to the deferred compensation plan. At December 31, 2005, the value
of Mr. Theobald's account under that plan was $320,084.
(e) During the fiscal year ended September 30, 2005, Ms. Verville deferred $225
of her compensation from the Fund, and $225 of her total compensation from
the Columbia Fund Complex pursuant to the deferred compensation plan. At
December 31, 2005, the value of Ms. Verville's account under that plan was
$683,935.
ROLE OF THE BOARD OF TRUSTEES
The Trustees of the Funds are responsible for the overall management and
supervision of the Funds' affairs and for protecting the interests of the
shareholders. The Trustees meet periodically throughout the year to oversee the
Funds' activities, review contractual arrangements with service providers for
the Funds and review the Funds' performance. The Trustees have created several
committees to perform specific functions for the Funds. Mr. Theobald was elected
Chairman of the Board of Trustees of the Liberty Funds, Stein Roe Funds and
Columbia Funds effective December, 2003.
AUDIT COMMITTEE
Ms. Verville and Messrs. Hacker, Stitzel and Woolworth are members of the Audit
Committee of the Board of Trustees of the Funds. The Audit Committee's functions
include making recommendations to the Trustees regarding the selection and
performance of the independent accountants, and reviewing matters relative to
accounting and auditing practices
g
and procedures, accounting records, and the internal accounting controls, of the Funds and certain service providers. For the fiscal year ended September 30, 2005, the Audit Committee convened seven times.
GOVERNANCE COMMITTEE
Messrs. Lowry, Mayer, Simpson and Theobald are members of the Governance
Committee of the Board of Trustees of the Funds. The Governance Committee's
functions include recommending to the Trustees nominees for independent Trustee
positions and for appointments to various committees, performing periodic
evaluations of the effectiveness of the Board, reviewing and recommending to the
Board policies and practices to be followed in carrying out the Trustees' duties
and responsibilities and reviewing and making recommendations to the Board
regarding the compensation of the Trustees who are not affiliated with the
Funds' investment advisors. The Governance Committee will consider candidates
for Trustee recommended by shareholders. Written recommendations with supporting
information should be directed to the Committee, in care of the Funds. For the
fiscal year ended September 30, 2005, the Governance Committee convened six
times.
ADVISORY FEES & EXPENSES COMMITTEE
Ms. Kelly and Messrs. Mayer, Nelson and Neuhauser are members of the Advisory
Fees & Expenses Committee of the Board of Trustees of the Funds. The Advisory
Fees & Expenses Committee's functions include reviewing and making
recommendations to the Board as to contracts requiring approval of a majority of
the disinterested Trustees and as to any other contracts that may be referred to
the Committee by the Board. For the fiscal year ended September 30, 2005, the
Advisory Fees & Expenses Committee convened seven times.
COMPLIANCE COMMITTEE
Ms. Kelly, Messrs. Nelson, Simpson and Stitzel and Ms. Verville are members of
the Compliance Committee of the Board of Trustees of the Funds. Mr. Stitzel
became a member of the Compliance Committee on May 8, 2005. The Compliance
Committee's functions include providing oversight of the monitoring processes
and controls regarding the Trust. The Committee uses legal, regulatory and
internal rules, policies, procedures and standards other than those relating to
accounting matters and oversight of compliance by the Trust's investment
adviser, principal underwriter and transfer agent. For the fiscal year ended
September 30, 2005, the Compliance Committee convened four times.
INVESTMENT OVERSIGHT COMMITTEES
Beginning in 2004, each Trustee of the Funds also began serving on an Investment
Oversight Committee ("IOC"). Each IOC is responsible for monitoring, on an
ongoing basis, a select group of funds in the Columbia Fund Complex and gives
particular consideration to such matters as the Funds' adherence to their
investment mandates, historical performance, changes in investment processes and
personnel, and proposed changes to investment objectives. Investment personnel
who manage the Funds attend IOC meetings from time to time to assist each IOC in
its review of the Funds. Each IOC meets four times a year. The following are
members of the respective IOCs and the general categories of funds in the
Columbia Fund Complex which they review:
IOC#1: Messrs. Lowry, Mayer and Neuhauser are responsible for
reviewing funds in the following asset categories: Large
Growth Diversified, Large Growth Concentrated, Small Growth,
Outside Managed (i.e., sub-advised) and Municipal.
IOC#2: Mr. Hacker and Ms. Verville are responsible for reviewing
funds in the following asset categories: Large Blend, Small
Blend, Foreign Stock, Fixed Income -- Multi Sector, Fixed
Income -- Core and Young Investor.
IOC#3: Messrs. Theobald and Stitzel and Ms. Kelly are responsible
for reviewing funds in the following asset categories: Large
Value, Mid Cap Value, Small Value, Asset Allocation, High
Yield and Money Market.
IOC#4: Messrs. Nelson, Simpson and Woolworth are responsible for
reviewing funds in the following asset categories:
Large/Multi-Cap Blend, Mid Cap Growth, Small Growth, Asset
Allocation, Specialty Equity and Taxable Fixed Income.
|
h
SHARE OWNERSHIP
The following table shows the dollar range of equity securities beneficially
owned by each Trustee as of December 31, 2005 (i) in the Fund and (ii) in the
funds in the Columbia Fund Complex.
Aggregate Dollar Range of
Equity Securities Owned in
Dollar Range of Equity All Funds Overseen by Trustee
Securities Owned in the Columbia Fund
Name of Trustee in the Fund Complex
--------------- ----------- -------
DISINTERESTED TRUSTEES
Douglas A. Hacker None Over $100,000
Janet Langford Kelly None Over $100,000
Richard W. Lowry None Over $100,000
Charles R. Nelson None Over $100,000
John J. Neuhauser Over $100,000 Over $100,000
Patrick J. Simpson None Over $100,000
Thomas E. Stitzel None $50,001-$100,000
Thomas C. Theobald None Over $100,000
Anne-Lee Verville None Over $100,000(a)
Richard L. Woolworth None Over $100,000
INTERESTED TRUSTEES
William E. Mayer None $1-$10,000
|
(a) Includes the value of compensation payable under the deferred compensation plan for independent Trustees of the Columbia Fund Complex that is determined as if the amounts deferred had been invested, as of the date of deferral, in shares of one or more funds in the Columbia Fund Complex as specified by Ms. Verville.
PORTFOLIO MANAGERS
OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS
The following table shows the number and assets of other investment accounts (or
portions of investment accounts) that the Fund's portfolio managers managed as
of the Fund's fiscal year end.
Other SEC-registered
Open-end and Closed-end Other Pooled Investment
Portfolio Managers Funds Vehicles Other Accounts
------------------ ----- -------- --------------
Number of Number of Number of
Accounts Assets Accounts Assets Accounts Assets
--------- ------ -------- ------ -------- ------
Vikram J. Kuriyan 14 $8.9 billion 38 $3.3 billion 129(1) $9 billion
Karen Wurdack 2 $650 million 0 N/A 4 $230,000
Paul J. Berlinguet 6 $2.2 billion 1 $400 million 16 $216 million
Edward P. Hickey 2 $1.92 billion 0 N/A 29 $498,400
Roger R. Sullivan 5 $1.8 billion 1 $400 million 20 $200 million
Mary-Ann Ward 6 $2.2 billion 0 N/A 53 $117 million
John T. Wilson 6 $2.4 billion 1 $405 million 30 $240 million
Diane L. Sobin 10 $6.6 billion 2 $559 million 3,084 $3 billion
David I. Hoffman 10 $6.6 billion 2 $559 million 3,094 $3 billion
Lori J. Ensinger 10 $6.6 billion 2 $559 million 3,089 $3 billion
Noah J. Petrucci 10 $6.6 billion 2 $559 million 3,080 $3 billion
Leonard A. Aplet 11 $2.8 billion 6 $1.5 billion 98 $8.9 billion
Robert Madsen(2) 1 $30 million 0 N/A 0 N/A
Klaus Ropke(2) 1 $30 million 0 N/A 0 N/A
|
(1) Two other accounts totaling $33.2 million in assets have advisory fees based on performance.
(2) Given with respect to the Columbia Fund Complex.
See "Potential conflicts of interest in managing multiple accounts" in Part 2 of this SAI for information on how the Advisor addresses potential conflicts of interest resulting from an individual's management of more than one account.
OWNERSHIP OF SECURITIES
The table below shows the dollar ranges of shares of the Fund beneficially owned (as determined pursuant to Rule 16a-1(a)(2) under the Securities Exchange Act of 1934, as amended) by the portfolio managers listed above at the end of the Fund's most recent fiscal year:
Dollar Range of Equity Securities in the Fund
Portfolio Manager Beneficially Owned
----------------- ------------------
Vikram J. Kuriyan None
Karen Wurdack None
Paul J. Berlinguet None
Edward P. Hickey None
Roger R. Sullivan None
Mary-Ann Ward None
John T. Wilson None
Diane L. Sobin None
David I. Hoffman None
Lori J. Ensinger None
Noah J. Petrucci None
Leonard A. Aplet None
Robert Madsen None
Klaus Ropke None
|
COMPENSATION
As of the Fund's most recent fiscal year end, the portfolio managers received
all of their compensation from the Advisor and its parent company, Columbia
Management Group, in the form of salary, bonus, stock options and restricted
stock. A portfolio manager's bonus is variable and is generally based on (1) an
evaluation of the manager's investment performance and (2) the results of a peer
and/or management review of such individual, which takes into account skills and
attributes such as team participation, investment process, communication and
professionalism. In evaluating investment performance, the Advisor generally
considers the one-, three- and five-year performance of mutual funds and other
accounts under the portfolio manager's oversight relative to the benchmarks and
peer groups noted below, emphasizing each manager's three- and five-year
performance. The Advisor may also consider a portfolio manager's performance in
managing client assets in sectors and industries assigned to the manager as part
of his or her investment team responsibilities, where applicable. For portfolio
managers who also have group management responsibilities, another factor in
their evaluation is an assessment of the group's overall investment performance.
Portfolio Manager Performance Benchmark Peer Group
----------------- --------------------- ----------
Vikram J. Kuriyan 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category
Karen Wurdack 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category
Paul J. Berlinguet 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category
Edward P. Hickey 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category
Roger R. Sullivan 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category
Mary-Ann Ward 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category
John T. Wilson 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category
Diane L. Sobin 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category
David I. Hoffman 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category
Lori J. Ensinger 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category
Noah J. Petrucci 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category
|
j
Portfolio Manager Performance Benchmark Peer Group
----------------- --------------------- ----------
Leonard A. Aplet 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category
Robert Madsen 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category
Klaus Ropke 60-40 SP 500/Lehman Aggregate Bond Morningstar Moderate Allocation Category
|
The size of the overall bonus pool each year is determined by Columbia Management Group and depends in part on levels of compensation generally in the investment management industry (based on market compensation data) and the Advisor's profitability for the year, which is influenced by assets under management.
OWNERSHIP OF THE FUND
As of record on December 31, 2005, the officers and Trustees of the Trust as a
group beneficially owned less than 1% of the then outstanding shares of each of
Class A, Class B, Class C and Class Z shares of the Fund.
As of record on December 31, 2005, the following shareholders owned of record 5% or more of one or more of each class of the Fund's then outstanding shares:
Class Z shares Streimer Sheet Metal Works Inc. 25.93%
740 N Knott St
Portland OR 97227-2099
William R Larsen & 13.72%
Beatriz M De Larsen JTWROS
416 E 11th St SE
Rome GA 30161-6222
SE Boo Kang & 7.66%
In Soon Kang JTWROS
1305 King Arthur Dr
Mechanicsburg PA 17050-7672
NFS, LLC FEBO 7.50%
NFS FMTC IRA
FBO Laura G Benedetto MD
7 Nicole Dr
S Glastonbury, CT 06073-3630
|
SALES CHARGES (dollars in thousands)
LIBERTY FUND
------------
Class A Shares
--------------
Year ended Year ended Eleven months ended Years ended
September 30, September 30, September 30, October 31,
------------- ------------- ------------- -----------
2005 2004 2003(a) 2002
---- ---- ------- ----
Aggregate initial sales charges
on Fund share sales $115 $163 $154 $243
Initial sales charges retained by
CFD 18 26 25 36
Aggregate CDSC on Fund
redemptions retained by CFD <1 1 21 17
|
Class B Shares
--------------
Year ended Year ended Eleven months ended Years ended
September 30, September 30, September 30, October 31,
------------- ------------- ------------- -----------
2005 2004 2003(a) 2002
---- ---- ------- ----
Aggregate CDSC on Fund
redemptions retained by CFD $240 $312 $545 $ 0
|
k
Class C Shares
--------------
Year ended Year ended Eleven months ended Years ended
September 30, September 30, September 30, October 31,
------------- ------------- ------------- -----------
2005 2004 2003(a) 2002
---- ---- ------- ----
Aggregate CDSC on Fund
redemptions retained by CFD $85 $1 $1 $5
|
(a) The Fund changed its fiscal year end from October 31 to September 30 in 2003.
12B-1 PLAN, CDSCS AND CONVERSION OF SHARES
The Fund offers four classes of shares -- Class A, Class B, Class C and Class Z.
The Fund may in the future offer other classes of shares. The Trustees have
approved a 12b-1 plan (Plan) pursuant to Rule 12b-1 under the 1940 Act for Class
A, Class B and Class C shares. Under the Plan, the Fund pays CMD monthly a
service fee at an annual rate of 0.15% of the Fund's net assets attributable to
Class A shares outstanding prior to April 1, 1989, and a service fee at an
annual rate of 0.25% of the Fund's net assets attributable to shares of each
Class issued thereafter, except Class Z shares. The Fund also pays CMD monthly a
distribution fee at an annual rate of 0.75% of the average daily net assets
attributable to its Class B and Class C shares. CMD may use the entire amount of
such fees to defray the costs of commissions and service fees paid to financial
service firms (FSFs) and for certain other purposes. Since the distribution and
service fees are payable regardless of CMD's expenses, CMD may realize a profit
from the fees. The Plan authorizes any other payments by the Fund to CMD and its
affiliates (including the Advisor) to the extent that such payments might be
construed to be indirectly financing the distribution of Fund shares.
The Trustees believe the Plan could be a significant factor in the growth and retention of the Fund's assets resulting in more advantageous expense ratios and increased investment flexibility which could benefit each class of Fund shareholders. The Plan will continue in effect from year to year so long as continuance is specifically approved at least annually by a vote of the Trustees, including the Trustees who are not interested persons of the Fund and have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan (Independent Trustees), cast in person at a meeting called for the purpose of voting on the Plan. The Plan may not be amended to increase the fee materially without approval by vote of a majority of the outstanding voting securities of the relevant class of shares and all material amendments of the Plan must be approved by the Trustees in the manner provided in the foregoing sentence. The Plan may be terminated at any time by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding voting securities of the relevant class of shares. The continuance of the Plan will only be effective if the selection and nomination of the Trustees of the Trust who are not interested persons of the Trust is effected by such disinterested Trustees.
Class A shares are offered at net asset value plus varying sales charges which may include a CDSC. Class B shares are offered at net asset value and are subject to a CDSC if redeemed within a certain number of years after purchase depending on the program you purchased your shares under. Class C shares are offered at net asset value and are subject to a 1.00% CDSC on redemptions within one year after purchase. Class Z shares are offered at net asset value and are not subject to a CDSC. The CDSCs are described in the Prospectuses for the Fund's Class A, B and C shares.
No CDSC will be imposed on shares derived from reinvestment of distributions or on amounts representing capital appreciation. In determining the applicability and rate of any CDSC, it will be assumed that a redemption is made first of shares representing capital appreciation, next of shares representing reinvestment of distributions and finally of other shares held by the shareholder for the longest period of time.
Eight years after the end of the month in which a Class B share is purchased, such shares and a pro rata portion of any shares issued on the reinvestment of distributions will be automatically converted into Class A shares having an equal value, which are not subject to the distribution fee.
SALES-RELATED EXPENSES (dollars in thousands) of CMD relating to the Class A, B and C shares of the Fund were:
Year ended September 30, 2005
-----------------------------
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
Fees to FSFs 1,328 481 57
Allocated cost of sales material relating to the
Fund (including printing, mailing and
promotional expenses) 34 12 1
Allocated travel, entertainment and other
promotional expenses 52 17 1
|
CUSTODIAN OF THE FUND
State Street Bank & Trust Company, located at 2 Avenue De Lafayette, Boston, MA
02111-2900, is the Fund's custodian. The custodian is responsible for
safeguarding the Fund's cash and securities, receiving and delivering securities
and collecting the Fund's interest and dividends.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP, located at 125 High Street, Boston, MA 02110-1707,
is the independent registered public accounting firm for the Fund, providing
audit and tax return review services and assistance and consultation in
connection with the review of various Securities and Exchange Commission
filings. The financial statements incorporated by reference in this SAI have
been so incorporated, and the financial highlights included in the Prospectuses
have been so included, in reliance upon the reports of PricewaterhouseCoopers
LLP given on the authority of said firm as experts in accounting and auditing
for the Fund for the years ended September 30, 2004 and 2005. For the period
ended September 30, 2003 and prior, another independent registered public
accounting firm served as the Fund's independent registered public accounting
firm. The financial statements for the Fund incorporated by reference in this
SAI have been so incorporated, and the financial highlights included in the
Prospectuses have been so included, in reliance upon the reports of another
independent registered public accounting firm for the period ended September 30,
2003, and for the years ended October 31, 2002, 2001 and 2000 given on the
authority of said firm as experts in accounting and auditing.
MANAGEMENT OF THE LIBERTY FUND
Nordea Investment Management North America, Inc. (NIMNAI), which is located at
437 Madison Avenue, New York, NY 10022, serves as the investment sub-advisor for
the Fund and manages the portion of the Fund's assets allocated to foreign
equity securities. NIMNAI, an investment advisor since 1994, replaced Nordea
Securities, Inc. (NSI) as the investment sub-advisor for the Fund effective
January 1, 2002. NIMNAI is an indirect, wholly owned subsidiary of Nordea AB
(formerly Nordic Baltic Holding Group), NSI's ultimate parent and one of
Scandinavia's leading financial institutions. As part of an internal
reorganization, Nordea AB created NIMNAI to assume the investment management
business of NSI. NIMNAI manages and operates its investment management business
in substantially the same manner as NSI managed and operated its investment
management business. The same personnel who performed investment management
functions for the Fund at NSI continue to perform those functions on behalf of
NIMNAI. NIMNAI's investment decisions for the Fund are made by an investment
team. NIMNAI offers a range of equity investment products and services to
institutional clients, including private and public retirement funds, unions,
endowments, foundations, and insurance companies, as well as to mutual fund
sponsors on a sub-advisory basis.
Under the sub-advisory agreement with the Advisor and the Trust, on behalf of the Fund, NIMNAI manages a portion of the Fund's foreign securities, as determined by the Advisor, in accordance with the investment objectives, policies and limitations of the Fund. For the services rendered by NIMNAI under the sub-advisory agreement, the Advisor pays NIMNAI a monthly fee at the annual rate of 0.40% of the average daily net asset value of the portion of the Fund's assets managed by NIMNAI. Any liability of NIMNAI to the Trust, the Fund and/or Fund shareholders is limited to situations involving NIMNAI's own willful misfeasance, bad faith or gross negligence in the performance of its duties. In addition to the services provided by NIMNAI to the Fund, NIMNAI also provides sub-advisory and other services and facilities to other investment companies.
COLUMBIA CONNECTICUT INTERMEDIATE MUNCIPAL BOND FUND
COLUMBIA MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA NEW JERSEY INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA NEW YORK INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA RHODE ISLAND INTERMEDIATE MUNICIPAL BOND FUND
(THE "FUNDS")
EACH A SERIES OF COLUMBIA FUNDS SERIES TRUST I
SUPPLEMENT TO EACH FUND'S CURRENT STATEMENT OF ADDITIONAL INFORMATION
This supplement applies to the "Funds" listed above.
1. The name of the Trust is revised to read "Columbia Funds Series Trust I."
2. The first sentence in the section entitled "Organization and History" is revised to read:
The Trust is a Massachusetts business trust organized in 1987. Each Fund was originally organized as a series of another Massachusetts business trust prior to its reorganization as a series of the Trust on March 27, 2006.
3. The sixth paragraph in the section entitled "Organization and History" is removed.
4. The last paragraph of the section entitled "Organization and History" is revised in its entirety to read:
Effective October 13, 2003, the Trust of which the Funds were previously a series changed its name from "Liberty Funds Trust V" to "Columbia Funds Trust V." Effective March 27, 2006, the Funds were reorganized as series of the Trust.
5. The section entitled "Ownership of the Funds" is replaced in its entirety to read:
As of record on February 28, 2006, the Trustees and officers of the Trust as a group beneficially owned less than 1% of the then outstanding Classes A, B, C, T, G or Z of the Funds.
As of record on February 28, 2006, the following shareholders of record owned 5% or more of the shares of classes of the Funds noted below:
COLUMBIA CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND
Class Account Percent (%)
----- ------- -----------
A NFS LLC 5.22
Hubertus Riedel
Ruth Riedel
337 Middlesex Road
Darien, CT 06820-2516
A UBS Financial Services Inc. 7.48
Sharon Hosley
44 Hamre Lane
Branford, CT 06405-3736
A UBS Financial Services Inc. 6.50
Richard Hosley
44 Hamre Lane
Branford, CT 06405-3736
A Citigroup Global Markets, Inc. 40.00
Attn: Peter Booth, 7th Floor
333 W 34th Street
New York, NY 10001-2402
A Merrill Lynch Pierce Fenner & Smith 8.92
For the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive, E. Floor 3
Jacksonville, FL 32246-6484
B Merrill Lynch Pierce Fenner & Smith 25.33
For the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive, E. Floor 3
Jacksonville, FL 32246-6484
B UBS Financial Services Inc. 5.43
Gabriel G Haddad and
Karen K Haddad JTTEN
7550 EADS Ave Unit 203
La Jolla, CA 92037-4809
C Citigroup Global Markets, Inc. 8.18
Attn: Peter Booth, 7th Floor
333 W 34th Street
New York, NY 10001-2402
C Merrill Lynch Pierce Fenner & Smith 15.72
For the Sole Benefit of Its Customers
4800 Deer Lake Drive, E. Floor 3
Jacksonville, FL 32246-6484
G NFS LLC FEBO 12.71
Charles & Jane Hazen Living Trust
Jane W Hazen
|
10 Oxford Drive
West Hartford, CT 06107-1621
G NFS LLC FEBO 6.68
Darlene Kirychuk-Francis
425 N Main Street
Wallingford, CT 06492-3210
G NFS LLC FEBO 38.67
Richard L. Massey
261 Pomperaug Woods
Southbury, CT 06488-3801
G NFS LLC FEBO 13.84
Anthony Fiorello II
L Ruth Fiorello
20 Red Fox Road
Stratford, CT 06614-2239
G NFS LLC FEBO 13.36
Zivko Blude
60 Colonial Drive
Stratford, CT 06614-2226
T Kelly F Shackelford 6.63
PO Box 672
New Canaan, CT 06840-0672
Z Bank of America 94.63
Attn: Joan Wray/Funds Accounting
411 N Akard Street
Dallas, TX 75201-3307
|
COLUMBIA MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
Class Account Percent (%)
----- ------- -----------
A Charles Schwab & Co. 25.48
Attn: Mutual Funds Department
101 Montgomery Street
San Francisco, CA 94104-4122
A Merrill Lynch Pierce Fenner & Smith 8.85
For the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive, E. Floor 3
Jacksonville, FL 32246-6484
B Pershing LLC 5.46
PO Box 2052
Jersey City, NJ 07303-2052
|
C Citigroup Global Markets, Inc. 7.81
Attn: Peter Booth, 7th Floor
333 W 34th Street
New York, NY 10001-2402
C Merrill Lynch Pierce Fenner & Smith 12.51
For the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive, E. Floor 3
Jacksonville, FL 32246-6484
G NFS LLC FEBO 24.36
Margaret A Geraghty Trustee
253 Needham Street
Dedham, MA 02026-7018
G NFS LLC FEBO 9.52
Michael Ashmore
Ann M Evans-Ashmore
108 Keepsake Lane
Chadds Ford, PA 19317-9702
G NFS LLC FEBO 13.12
Kathleen McLaughlin
370 Charles River Road
Watertown, MA 02472-2738
T NFS LLC FEBO 5.83
Karen K Der
8 Lenox Circle
Andover, MA 01810-5429
T NFS LLC FEBO 5.87
Eric R Cosman
872 Concord Avenue
Belmont, MA 02478-1604
Z Bank of America NA 98.28
Attn: Joan Wray/Funds Accounting
411 N Akard Street
Dallas, TX 75201-3307
|
COLUMBIA NEW JERSEY INTERMEDIATE MUNICIPAL BOND FUND
Class Account Percent (%)
----- ------- -----------
A MCB Trust Services Cust FBO 7.01
Meridian Trust & Investment Co.
700 17th Street
Suite 300
Denver, CO 80202-3531
|
A Charles Schwab & Co. 7.61
Special Custody Account
For Benefit of Its Customers
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
A Merrill Lynch Pierce Fenner & Smith 9.42
For the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive, E. Floor 3
Jacksonville, FL 32246-6484
A Bear Stearns Securities Corp 22.98
1 Metrotech Center
Brooklyn, NY 11201-3870
B NFS LLC FEBO 5.98
Tommaso Morin
Maria Morin
1100 Keswick Place
Fort Lee, NJ 07024-1616
C NFS LLC FEBO 7.93
Marie Gattie
62 Ludlow Road
Parsippany, NJ
C NFS LLC FEBO 6.41
Steven Alesio
Luana Burcvl Alesio
87 Westminister Road
Chatham, NJ 07928-1363
C Bear Stearns Securities Corp. 6.50
1 Metrotech Center
Brooklyn, NY 11201-3870
C Merrill Lynch Pierce Fenner & Smith 23.92
For the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive, E. Floor 3
Jacksonville, FL 32246-6484
C First Clearing LLC 5.56
Peter A Staats
PO Box 106
Belle Mead, NJ 08502-0106
|
C First Clearing, LLC 5.17
Frank Gatti
25 Dawson Lane
Monroe TWP, NJ 08831
G NFS LLC FEBO 82.13
James Zouvelekis
Barbara Zouvelekis
68 Lake Shore Drive
Parsippany, NJ 07054-3941
G Cynthia L.Peterson 6.94
68 Davidson Avenue
Ramsey, NJ 07446-1465
T NFS LLC FEBO 7.34
John R Wright
Maria N Wright
706 Princeton Kingston Road
Princeton, NJ 08540-4124
Z State Street Bank & Trust Company 16.32
AAF LifeGoal Balanced Growth
Attn: Jim Botsolis
Two Avenue De Lafayette
Boston, MA 02111-1724
Z Bank of America 69.59
Attn: Joan Wray/Funds Accounting
411 N Akard Street
Dallas, TX 75201-3307
|
COLUMBIA NEW YORK INTERMEDIATE MUNICIPAL BOND FUND
Class Account Percent (%)
----- ------- -----------
A Charles Schwab & Co. 19.96
Attn: Mutual Funds Department
101 Montgomery Street
San Francisco, CA 94104-4122
B NFS LLC FEBO 6.04
Emma Persico
56 Millsburg Road
Middletown, NY 10940-8410
B Merrill Lynch Pierce Fenner & Smith 23.19
For the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive, E. Floor 3
|
Jacksonville, FL 32246-6484
C Citigroup Global Markets, Inc. 11.47
Attn: Peter Booth, 7th Floor
333 34th Street
New York, NY 10001-2402
C Merrill Lynch Pierce Fenner & Smith 42.65
For the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive, E. Floor 3
Jacksonville, FL 32246-6484
G NFS LLC FEBO 29.50
Michael F. Mucia
222 Manitau Road
Cayuga, NY 13034-4117
G NFS LLC FEBO 27.43
Jean B Friss
1005 Paul Ave
Schenectady, NY 12306-2803
G NFS LLC FEBO 14.65
Frank Williams
20535 Linden Blvd
Saint Albans, NY 11412-2925
G Daniel J Balzano Tod 9.46
1 Spaulding Lane
Inwood, NY 11096-1219
G Shelley J. Masters 13.67
60 Morrow Avenue, Apt 6AN
Scarsdale, NY 10583-8153
Z Bank of America 97.72
Attn: Joan Wray/Funds Accounting
411 N Akard Street
Dallas, TX 75201-3307
|
COLUMBIA RHODE ISLAND INTERMEDIATE MUNICIPAL BOND FUND
Class Account Percent (%)
----- ------- -----------
A NFS LLC FEBO 13.49
Stephen Ryan
9 Duck Cove Road
N Kingstown, RI 02852-6240
B NFS LLC FEBO 40.96
|
Sidney I Brody Trustee
Sidney I Brody Trust
9 White Hill Lane
Cumberland, RI 02864-4258
A Citigroup Global Markets, Inc. 10.78
House Account
Attn: Peter Booth, 7th Floor
333 W 34th Street
New York, NY 10001-2402
A Dean Witter FBO 20.41
Management Prop & Inv Ventures Inc.
PO Box 250
New York, NY 10008-0250
A Dean Witter For the Benefit of 5.04
K Mancini Sr Trustee Raymond T
PO Box 250 Church Street Station
New York, NY 1008-0250
A Dean Witter For the Benefit of 5.41
R Mancini Sr Trustee Jacquelyn
PO Box 250 Church Street Station
New York, NY 10008-0250
B First Clearing LLC 6.06
Ruth M Carty
Eloise A Carty
121 Curran Road
Cumberland, RI 02864
B NFS LLC Febo 5.40
John Petrella
Doreen Petrella
39 Cydot Drive
N Kingstown, RI 02852-5611
B NFS LLC FEBO 12.47
Gerald C Meagher
Warwick, RI 02886-3024
C Citigroup Global Markets, Inc. 12.55
Attn: Peter Booth, 7th Floor
333 W 34th Street
New York, NY 10001-2402
C Pershing LLC 15.63
PO Box 2052
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Jersey City, NJ 07303-2052
C Merrill Lynch Pierce Fenner & Smith 43.96
For the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive E. Floor 2
Jacksonville, FL 32246-6484
C First Clearing LLC 7.64
George W Gaulin Germaine D
Gaulin Co Trustees George W
1174 Logee Street
Woonsocket, RI 02895
G NFS LLC FEBO 7.30
Anastasia Tsonos
Tod John C Tsonos
12 Nevada Ave
Rumford, RI 02916-2407
G NFS LLC FEBO 27.93
Phyllis J Silverstein
28 Kennedy Blvd
Lincoln, RI 02865-3602
G NFS LLC FEBO 13.99
Eva M Deconti
Marcy M Smith
93 Park Forest Road
Cranston, RI 02920-3657
G NFS LLC FEBO 8.92
Jose A Severino
22 Set N Sun Drive
Hope, RI 02831-1830
G NFS LLC FEBO 16.08
Anthony Krasuzki
200 Heroux Blvd Unit 1505
Cumberland, RI 02864-2388
G NFS LLC FEBO 12.99
Hermino Severino
27 Atlantic Ave
Providence, RI 02907-1804
G NFS LLC FEBO 12.77
Lorraine D Delisle
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278 Albion Road
Lincoln, RI 02865-4218
T John J Almeida Trust 5.71
John J Almeida Revocable Trust
27 Topmast Court
Jamestown, RI 02835-2227
T Charles Schwab & Co. 9.43
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
Z Bank of America 97.56
Attn: John Wray/Funds Accounting
411 N Akard Street
Dallas, TX 75201-3307
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6. The first paragraph of the first page of Part 2 of the SAI is revised in its entity to read:
The following information applies generally to most funds advised by the Advisor. "Funds" include the series of Columbia Funds Series Trust I, Columbia Funds Institutional Trust, Liberty Variable Investment Trust and SteinRoe Variable Investment Trust (each a "Trust" and together, the "Trusts"). In certain cases, the discussion applies to some, but not all, of the Funds, and you should refer to your Fund's Prospectus and to Part 1 of this Statement of Additional Information ("SAI") to determine whether the matter is applicable to your Fund. You will also be referred to Part 1 for certain data applicable to your Fund.
7. The section entitled "Trustees and Officers" in Part 2 of the SAI is revised to read:
Information regarding the Trustees and officers of the Funds together with their principal business occupations during the last five years (their titles may have varied during that period) is shown below. Unless otherwise noted, the address for each Trustee and officer is c/o Columbia Funds, Mail Stop MA5-515-11-05, One Financial Center, Boston, MA 02111.
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Name and Year Position with Appointed Principal Occupation(s) Overseen Other Directorships
of Birth Funds to Office(1) During Past Five Years by Trustee Held(2)
------------- ------------- ------------ ----------------------- ------------- -------------------
DISINTERESTED TRUSTEE
Thomas C. Trustee and 1996 Partner and Senior 83 Anixter
Theobald Chairman of Advisor, Chicago Growth International
(Born 1937) the Board Partners (private (network support
equity investing) since equipment
September, 2004; distributor);
Managing Director, Ventas, Inc. (real
William Blair Capital estate investment
Partners (private trust); Jones Lang
equity investing) from LaSalle (real
September, 1994 to estate management
September, 2004. services) and Ambac
Financial Group
(financial guaranty
insurance)
|
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Name and Position Appointed Principal Occupation(s) Overseen Other Directorships
Year of Birth with Funds to Office(1) During Past Five Years by Trustee Held(2)
------------- ---------- ------------ ----------------------- ------------- -------------------
DISINTERESTED TRUSTEE
Douglas A. Trustee 1996 Executive Vice President 83 Nash Finch Company
Hacker -- Strategy of United (food distributor)
(Born 1955) Airlines (airline) since
December, 2002; President
of UAL Loyalty Services
(airline) from September,
2001 to December, 2002;
Executive Vice President
and Chief Financial
Officer of United
Airlines from July, 1999
to September, 2001.
Janet Langford Trustee 1996 Partner, Zelle, Hofmann, 83 UAL Corporation
Kelly Voelbel, Mason & Gette (airline)
(Born 1957) LLP (law firm) since
March, 2005; Adjunct
Professor of Law,
Northwestern University,
since September, 2004;
Chief Administrative
Officer and Senior Vice
President, Kmart Holding
Corporation (consumer
goods), from September,
2003 to March, 2004;
Executive Vice
President-Corporate
Development and
Administration, General
Counsel and Secretary,
Kellogg Company (food
manufacturer), from
September, 1999 to
August, 2003.
Richard W. Trustee 1995 Private Investor since 85 None
Lowry August, 1987 (formerly
(Born 1936) Chairman and Chief
Executive Officer, U.S.
Plywood Corporation
(building products
manufacturer) until 1987.)
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Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Name and Position Appointed Principal Occupation(s) Overseen Other Directorships
Year of Birth with Funds to Office(1) During Past Five Years by Trustee Held(2)
------------- ---------- ------------ ----------------------- ------------- -------------------
DISINTERESTED TRUSTEE
Charles R. Trustee 1981 Professor of Economics, 83 None
Nelson University of Washington
(Born 1943) since January, 1976; Ford
and Louisa Van Voorhis
Professor of Political
Economy, University of
Washington, since
September, 1993;
Director, Institute for
Economic Research,
University of Washington
from September, 2001 to
June, 2003; Adjunct
Professor of Statistics,
University of Washington
since September, 1980;
Associate Editor, Journal
of Money Credit and
Banking since September,
1993; consultant on
econometric and
statistical matters.
John J. Trustee 1985 University Professor, 85 None
Neuhauser Boston College since
(Born 1942) November, 2005; Academic
Vice President and Dean
of Faculties, Boston
College from August, 1999
to October, 2005.
Patrick J. Trustee 2000 Partner, Perkins Coie 83 None
Simpson L.L.P. (law firm).
(Born 1944)
Thomas E. Trustee 1998 Business Consultant since 83 None
Stitzel 1999; Chartered Financial
(Born 1936) Analyst.
Anne-Lee Trustee 1998 Retired since 1997 83 Chairman of the
Verville (formerly General Board of Directors,
(Born 1945) Manager, Global Education Enesco Group,Inc.
Industry, IBM Corporation (producer of
(computer and technology) giftware and home
from 1994 to 1997). and garden decor
products)
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Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Name and Position Appointed Principal Occupation(s) Overseen Other Directorships
Year of Birth with Funds to Office(1) During Past Five Years by Trustee Held(2)
------------- ---------- ------------ ----------------------- ------------- -------------------
DISINTERESTED TRUSTEE
Richard L. Trustee 1991 Retired since December, 83 Northwest Natural
Woolworth 2003 (formerly Chairman Gas (natural gas
(Born 1941) and Chief Executive service provider)
Officer, The Regence
Group Co. (regional
health insurer); Chairman
and Chief Executive
Officer, BlueCross
BlueShield of Oregon;
Certified Public
Accountant, Arthur Young
& Company).
INTERESTED TRUSTEE
William E. Trustee 1994 Partner, Park Avenue 85 Lee Enterprises
Mayer(3) Equity Partners (private (print media), WR
(Born 1940) equity) since February, Hambrecht + Co.
1999. (financial service
provider); Reader's
Digest
(publishing);
OPENFIELD
Solutions (retail
industry technology
provider)
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(1) The date shown is the earliest date on which a Trustee was elected or appointed to the board of a Fund in the Columbia Fund Complex.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public companies").
(3) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (the "1940 Act")) of the Columbia Funds by reason of his affiliation with WR Hambrecht + Co., a registered broker-dealer that may execute portfolio transactions for or engage in principal transactions with the Fund or other funds or clients advised by the Advisor or its affiliates.
Year First
Elected or
Position with Appointed
Name and Year of Birth Funds to Office Principal Occupation(s) During Past Five Years
---------------------- ------------- ---------- ----------------------------------------------
OFFICERS
Christopher L. Wilson President 2004 Head of Mutual Funds since August, 2004 and
(Born 1957) Managing Director of the Advisor since September,
2005; President and Chief Executive Officer, CDC
IXIS Asset Management Services, Inc. (investment
management) from September, 1998 to August, 2004.
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Year First
Elected or
Position with Appointed
Name and Year of Birth Funds to Office Principal Occupation(s) During Past Five Years
---------------------- ---------------- ---------- ---------------------------------------------------
OFFICERS
James R. Bordewick, Jr. Senior Vice 2006 Associate General Counsel, Bank of America since
(Born 1959) President, April, 2005; Senior Vice President and Associate
Secretary and General Counsel, MFS Investment Management
Chief Legal (investment management) prior to April, 2005.
Officer
J. Kevin Connaughton Senior Vice 2000 Managing Director of the Advisor since February,
(Born 1964) President, Chief 1998.
Financial
Officer and
Treasurer
Mary Joan Hoene Senior Vice 2004 Senior Vice President and Chief Compliance Officer
(Born 1949) President and of various funds in the Columbia Fund Complex;
Chief Compliance Partner, Carter, Ledyard & Milburn LLP (law firm)
Officer from January, 2001 to August, 2004.
Michael G. Clarke Chief Accounting 2004 Managing Director of the Advisor since February,
(Born 1969) Officer and 2001.
Assistant
Treasurer
Stephen T. Welsh Vice President 1996 President, Columbia Management Services, Inc. since
(Born 1957) July, 2004; Senior Vice President and Controller,
Columbia Management Services, Inc. prior to July,
2004.
Jeffrey R. Coleman Deputy Treasurer 2004 Group Operations Manager of the Advisor since
(Born 1969) October, 2004; Vice President of CDC IXIS Asset
Management Services, Inc. (investment management)
from August, 2000 to September, 2004.
Joseph F. DiMaria Deputy Treasurer 2004 Senior Compliance Manager of the Advisor since
(Born 1968) January, 2005; Director of Trustee Administration
of the Advisor from May, 2003 to January, 2005;
Senior Audit Manager, PricewaterhouseCoopers
(independent registered public accounting firm)
from July, 2000 to April, 2003.
Ty S. Edwards Deputy Treasurer 2004 Vice President of the Advisor since 2002; Assistant
(Born 1966) Vice President and Director, State Street
Corporation (financial services) prior to 2002.
Barry S. Vallan Controller 2006 Vice President-Fund Treasury of the Advisor since
(Born 1969) October, 2004; Vice President-Trustee Reporting
from April, 2002 to October, 2004; Management
Consultant, PricewaterhouseCoopers (independent
registered public accounting firm) prior to
October, 2002.
|
Year First
Elected or
Position with Appointed
Name and Year of Birth Funds to Office Principal Occupation(s) During Past Five Years
---------------------- ---------------- ---------- ---------------------------------------------------
OFFICERS
Peter T. Fariel Assistant 2006 Associate General Counsel, Bank of America since
(Born 1957) Secretary April, 2005; Partner, Goodwin Procter LLP (law
firm) prior to April, 2005.
Ryan C. Larrenaga Assistant 2005 Assistant General Counsel, Bank of America since
(Born 1970) Secretary March, 2005; Associate, Ropes & Gray LLP (law firm)
from 1998 to February, 2005.
Barry S. Finkle Assistant 2003 Senior Manager and Head of Fund Performance of the
(Born 1965) Treasurer Advisor since January, 2001.
Julian Quero Assistant 2003 Senior Compliance Manager of the Advisor since
(Born 1967) Treasurer April, 2002; Assistant Vice President of Taxes and
Distributions of the Advisor from 2001 to April,
2002.
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Each of the Trust's Trustees and officers hold comparable positions with certain other funds of which the Advisor or its affiliates is the investment advisor or distributor and, in the case of certain of the officers, with certain affiliates of the Advisor.
The Trustees and officers serve terms of indefinite duration. Each Fund held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once every five years thereafter to elect Trustees.
8. The second paragraph of the section entitled "Other Disclosures," a subsection of "Disclosure of Portfolio Information," is revised in its entirety to read:
The Fund periodically discloses its portfolio information on a confidential basis to various service providers that require such information in order to assist the Fund with its day-to-day business affairs. In addition to Columbia Advisors and its affiliates, these service providers include the Fund's custodian and sub-custodians, the Fund's independent registered public accounting firm, legal counsel, financial printers (R.R. Donnelly & Sons and Bowne & Co., Inc.), the Fund's proxy solicitor and proxy voting service provider (Computershare), rating agencies that maintain ratings on certain Columbia Funds (Fitch, Inc.) and service providers that support Columbia Advisors' trading systems (InvestorTool, Inc. and Thomson Financial). These service providers are required to keep such information confidential, and are prohibited from trading based on the information or otherwise using the information except as necessary in providing services to the Fund. The Fund may also disclose portfolio holdings information to broker/dealers and certain other entities related to potential transactions and management of the Fund, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information.
INT-50/107642-0306 March 27, 2006
COLUMBIA CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA NEW JERSEY INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA NEW YORK INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA RHODE ISLAND INTERMEDIATE MUNICIPAL BOND FUND
SERIES OF COLUMBIA FUNDS TRUST V
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 2006
This Statement of Additional Information ("SAI") contains information which may be useful to investors but which is not included in the Prospectuses of Columbia Connecticut Intermediate Municipal Bond Fund, Columbia Massachusetts Intermediate Municipal Bond Fund, Columbia New Jersey Intermediate Municipal Bond Fund, Columbia New York Intermediate Municipal Bond Fund and Columbia Rhode Island Intermediate Municipal Bond Fund (each a "Fund" and collectively, the "Funds"). This SAI is not a prospectus and is authorized for distribution only when accompanied or preceded by a Prospectus of the Funds dated March 1, 2006. This SAI should be read together with the relevant Prospectus and the most recent Annual Report of the Funds dated October 31, 2005. The Funds' most recent Annual Report to shareholders is a separate document supplied with this SAI. Investors may obtain a free copy of a Prospectus and Annual Report from Columbia Management Distributors, Inc. ("CMD"), One Financial Center, Boston, MA 02111-2621 or by calling 1-800-426-3750. The Financial Statements and Report of Independent Registered Public Accounting Firm of the Funds appearing in the Funds' Annual Report are incorporated in this SAI by reference.
Part 1 of this SAI contains specific information about the Funds. Part 2 includes information about the funds distributed by CMD generally and additional information about certain securities and investment techniques described in the Funds' Prospectuses.
TABLE OF CONTENTS
PAGE
----
PART 1
Definitions b
Organization and History b
Investment Goal and Policies c
Fundamental and Non-Fundamental Investment Policies d
Connecticut Tax Considerations h
Massachusetts Tax Considerations i
New Jersey Tax Considerations i
New York Tax Considerations i
Rhode Island Tax Considerations i
Portfolio Turnover j
Fund Charges and Expenses j
Custodian ee
Independent Registered Public Accounting Firm ee
PART 2
Miscellaneous Investment Practices 1
Taxes 22
Additional Tax Matters Concerning Trust Shares 27
Management of the Funds 29
Determination of Net Asset Value 42
How to Buy Shares 43
Special Purchase Programs/Investor Services 47
Programs for Reducing or Eliminating Sales Charges 49
How to Sell Shares 52
Distributions 56
How to Exchange Shares 56
Suspension of Redemptions 57
Shareholder Liability 57
Shareholder Meetings 57
Appendix I 59
Appendix II 65
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SUP-39/105245-0106
PART 1
COLUMBIA CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA NEW JERSEY INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA NEW YORK INTERMEDIATE MUNICIPAL BOND FUND
COLUMBIA RHODE ISLAND INTERMEDIATE MUNICIPAL BOND FUND
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 2006
DEFINITIONS
"Connecticut Fund" or "Fund" Columbia Connecticut Intermediate
Municipal Bond Fund
"Massachusetts Fund" or "Fund" Columbia Massachusetts Intermediate
Municipal Bond Fund
"New Jersey Fund" or "Fund" Columbia New Jersey Intermediate
Municipal Bond Fund
"New York Fund" or "Fund" Columbia New York Intermediate
Municipal Bond Fund
"Rhode Island Fund" or "Fund" Columbia Rhode Island Intermediate
Municipal Bond Fund
"Predecessor Fund" or "Predecessor Funds" See below under "Organization and
History"
"Trust" Columbia Funds Trust V
"Advisor" Columbia Management Advisors, LLC,
the Funds' investment advisor and
administrator
"CMD" Columbia Management Distributors,
Inc. (formerly named Columbia Funds
Distributor, Inc.), the Funds'
distributor
"CMS" Columbia Management Services, Inc.
(formerly named Columbia Funds
Services, Inc.), the Funds'
shareholder services and transfer
agent
|
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1986. Each Fund is an open-end, management investment company representing the entire interest in a separate series of the Trust. Each Fund is a non-diversified series of the Trust. Each Fund is the successor to a separate series of The Galaxy Fund, a Massachusetts business trust organized on March 31, 1986. On November 18, 2002, November 25, 2002, and December 9, 2002, the series of The Galaxy Fund to which the Funds succeeded (the "Predecessor Funds") were reorganized as separate series of the Trust. Class T shares of the Funds were issued in exchange for Retail A Shares of the Predecessor Funds, Class G shares of the Funds were issued in exchange for Retail B Shares of the Predecessor Funds and Class Z shares of the Funds were issued in exchange for Trust Shares of the Predecessor Funds.
The New Jersey Fund commenced operations on April 3, 1998; the New York Fund commenced operations on December 31, 1991; and the Rhode Island Fund commenced operations on December 20, 1994.
The Connecticut Fund and Massachusetts Fund commenced operations as separate portfolios (each a "Predecessor Boston 1784 Fund," and collectively, the "Predecessor Boston 1784 Funds") of the Boston 1784 Funds. On June 26, 2000, each Predecessor Boston 1784 Fund was reorganized as a new portfolio of The Galaxy Fund (the "Boston 1784 Reorganization"). Prior to the Boston 1784 Reorganization, the Predecessor Boston 1784 Funds offered and sold one class of shares. In connection with the Boston 1784 Reorganization, shareholders of the Predecessor Boston 1784 Funds exchanged their shares for Shares, Trust Shares and/or BKB Shares of the Predecessor Funds to the Connecticut Fund and Massachusetts Fund, respectively. Shareholders of the Predecessor Boston 1784 Funds who purchased their shares through an investment management, trust, custody, or other agency relationship with BankBoston, N.A. received Shares or Trust Shares of the Funds. BKB Shares were issued to shareholders of the Predecessor Boston 1784 Funds who were not eligible to receive Trust Shares at the time of the Boston 1784 Reorganization. On June 26, 2001, BKB Shares of the Funds converted into Retail A Shares upon a finding by the Board of Trustees of The Galaxy Fund at a meeting held on May 31, 2001, that such conversion was in the best interest of the holders of BKB Shares.
The Trust is not required to hold annual shareholder meetings, but special meetings may be called for certain purposes. Shareholders receive one vote for each Fund share. Shares of the Funds and any other series of the Trust that may be in
b
existence from time to time generally vote together except when required by law to vote separately by fund or by class. Shareholders owning in the aggregate ten percent of Trust shares may call meetings to consider removal of Trustees. Under certain circumstances, the Trust will provide information to assist shareholders in calling such a meeting. See Part 2 of this SAI for more information.
The Funds offer six classes of shares -- A, B, C, G, T and Z shares.
Effective April 1, 1999, the Trust changed its name from Colonial Trust V to Liberty Funds Trust V. Effective October 13, 2003, the Trust changed its name from Liberty Funds Trust V to its current name. On October 13, 2003, each of the Funds changed their names as follows:
Former Name: Current Name: ------------ ------------- LIBERTY CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND COLUMBIA CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND LIBERTY MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND COLUMBIA MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND LIBERTY NEW JERSEY INTERMEDIATE MUNICIPAL BOND FUND COLUMBIA NEW JERSEY INTERMEDIATE MUNICIPAL BOND FUND LIBERTY NEW YORK INTERMEDIATE MUNICIPAL BOND FUND COLUMBIA NEW YORK INTERMEDIATE MUNICIPAL BOND FUND LIBERTY RHODE ISLAND INTERMEDIATE MUNICIPAL BOND FUND COLUMBIA RHODE ISLAND INTERMEDIATE MUNICIPAL BOND FUND |
It is expected that, subject to shareholder approval of the election of all current Trustees, each Fund will be reorganized as a series of Columbia Funds Series Trust I, a Massachusetts business trust into which all of the retail Columbia funds are expected to be reorganized.
INVESTMENT GOALS AND POLICIES
The Prospectuses describe each Fund's investment goal, investment strategies and risks. Part 1 of this SAI contains additional information concerning, among other things, the investment policies of the Funds. Part 2 contains additional information about the following securities and investment techniques that may be utilized by the Funds (unless otherwise noted):
Short-Term Trading
Lower-Rated Debt Securities
Other Investment Companies
Zero Coupon Securities (Zeros) (the Connecticut and Massachusetts Funds
only)
Money Market Instruments
Stripped Obligations (the Connecticut and Massachusetts Funds only)
Municipal Securities
Private Activity Bonds
Municipal Lease Obligations (the Connecticut and Massachusetts Funds only)
Securities Loans
Forward Commitments ("When-Issued" Securities (all Funds) and "Delayed
Delivery" Securities (the New Jersey, New York and Rhode Island Funds
only))
Mortgage-Backed Securities
Non-Agency Mortgage-Backed Securities
Asset-Backed Securities
Repurchase Agreements
Reverse Repurchase Agreements
Options on Securities (Limited to writing covered call options for hedging
purposes only and purchasing put and call options) (the Connecticut and
Massachusetts Funds only)
Futures Contracts and Related Options (Limited to interest rate futures,
tax-exempt bond index futures, options on such futures and options on such
indices)
Foreign Currency Transactions (the Connecticut and Massachusetts Funds
only)
Participation Interests
Stand-by Commitments
Swap Agreements
Variable and Floating Rate Obligations
Convertible Securities (the Connecticut and Massachusetts Funds only)
Guaranteed Investment Contracts
Bank Investment Contracts (the New Jersey, New York and Rhode Island Funds
only)
Loan Participations (the Connecticut and Massachusetts Funds only)
Except as indicated below under "Fundamental and Non-Fundamental Investment Policies," the Funds' investment policies are not fundamental, and the Trustees may change the policies without shareholder approval.
FUNDAMENTAL AND NON-FUNDAMENTAL INVESTMENT POLICIES
In addition to each Fund's investment goal as stated in its Prospectuses, the following investment limitations are matters of fundamental policy and may not be changed with respect to a Fund without the affirmative vote of the holders of a majority of its outstanding shares. A "vote of the holders of a majority of the outstanding shares" of a particular Fund means the affirmative vote of the holders of the lesser of (a) more than 50% of the outstanding shares of such Fund, or (b) 67% or more of the shares of such Fund present at a meeting if more than 50% of the outstanding shares of such Fund are represented at the meeting in person or by proxy.
CONNECTICUT FUND
As a matter of fundamental policy that cannot be changed without the requisite consent of the Fund's shareholders, the Connecticut Fund will invest, except during temporary defensive periods, at least 80% of its net assets (plus any borrowings for investment purposes) in Municipal Securities issued by or on behalf of the State of Connecticut, its political sub-divisions, or any public instrumentality, state or local authority, district or similar public entity created under the laws of Connecticut and certain other governmental issuers (which may include issuers located outside Connecticut such as Puerto Rico), the interest on which is, in the opinion of qualified legal counsel, exempt from regular federal income tax (including the federal alternative minimum tax) and from Connecticut personal income tax by virtue of federal law ("Connecticut Municipal Securities"). The Fund may comply with this 80% policy by investing in a partnership, trust or other entity which invests in such Connecticut Municipal Securities, in which case the Fund's investment in such entity shall be deemed to be an investment in the underlying Connecticut Municipal Securities in the same proportion as such entity's investment in such Connecticut Municipal Securities bears to its net assets. Dividends derived from interest on Municipal Securities other than Connecticut Municipal Securities will generally be exempt from regular federal income tax (including the federal alternative minimum tax) but subject to Connecticut personal income tax. See Part 2 of this SAI under the caption, "Taxes".
MASSACHUSETTS FUND
As a matter of fundamental policy that cannot be changed without the requisite consent of the Fund's shareholders, the Massachusetts Fund will invest, except during temporary defensive periods, at least 80% of its net assets (plus any borrowings for investment purposes) in Municipal Securities, issued by or on behalf of the Commonwealth of Massachusetts, its political sub-divisions, authorities, agencies, instrumentalities and corporations, and certain other governmental issuers (which may include issuers located outside Massachusetts such as Puerto Rico), the interest on which, in the opinion of bond counsel to the issuer, is exempt from regular federal income tax (including the federal alternative minimum tax) and Massachusetts personal income tax ("Massachusetts Municipal Securities"). The Fund may comply with this 80% policy by investing in a partnership, trust, regulated investment company or other entity which invests in such Massachusetts Municipal Securities, in which case the Fund's investment in such entity shall be deemed to be an investment in the underlying Massachusetts Municipal Securities in the same proportion as such entity's investment in such Massachusetts Municipal Securities bears to its net assets. Dividends derived from interest on Municipal Securities other than Massachusetts Municipal Securities will generally be exempt from regular federal income tax (including the federal alternative minimum tax) but may be subject to Massachusetts personal income tax. See Part 2 of this SAI under the caption, "Taxes".
NEW JERSEY FUND
As a matter of fundamental policy that cannot be changed without the requisite consent of the Fund's shareholders, the New Jersey Fund will invest, except during temporary defensive periods, at least 80% of its net assets (plus any borrowings for investment purposes) in Municipal Securities issued by or on behalf of the State of New Jersey, its political sub-divisions, authorities, agencies, instrumentalities and corporations, and certain other governmental issuers (which may include issuers located outside New Jersey such as Puerto Rico), the interest on which, in the opinion of bond counsel to the issuer, is exempt from regular federal income tax (including the federal alternative minimum tax) and New Jersey personal income tax ("New Jersey Municipal Securities"). Dividends derived from interest on Municipal
Securities other than New Jersey Municipal Securities will generally be exempt from regular federal income tax but may be subject to New Jersey personal income tax (including the federal alternative minimum tax). See Part 2 of this SAI under the caption, "Taxes".
NEW YORK FUND
As a matter of fundamental policy that cannot be changed without the requisite consent of the Fund's shareholders, the New York Fund will invest, except during temporary defensive periods, at least 80% of its net assets (plus any borrowings for investment purposes) in Municipal Securities issued by or on behalf of the State of New York, its political sub-divisions, authorities, agencies, instrumentalities and corporations, and certain other governmental issuers (which may include issuers located outside New York such as Puerto Rico), the interest on which, in the opinion of bond counsel to the issuer, is exempt from regular federal income tax (including the federal alternative minimum tax) and New York State and New York City personal income tax ("New York Municipal Securities"). Dividends derived from interest on Municipal Securities other than New York Municipal Securities will generally be exempt from regular federal income tax (including the federal alternative minimum tax) but may be subject to New York State and New York City personal income tax. See Part 2 of this SAI under the caption, "Taxes".
RHODE ISLAND FUND
As a matter of fundamental policy that cannot be changed without the requisite consent of the Fund's shareholders, the Rhode Island Fund will invest, except during temporary defensive periods, at least 80% of its net assets (plus any borrowings for investment purposes) in Municipal Securities issued by or on behalf of the State of Rhode Island, its political sub-divisions, authorities, agencies, instrumentalities and corporations, and certain other governmental issuers (which may include issuers located outside Rhode Island such as Puerto Rico), the interest on which, in the opinion of bond counsel to the issuer, is exempt from regular federal income taxes (including the federal alternative minimum tax) and Rhode Island personal income taxes ("Rhode Island Municipal Securities"). Dividends derived from interest on Municipal Securities other than Rhode Island Municipal Securities will generally be exempt from regular federal income tax (including the federal alternative minimum tax) but may be subject to Rhode Island personal income tax. See Part 2 of this SAI under the caption, "Taxes".
ADDITIONAL FUNDAMENTAL INVESTMENT POLICIES
Each Fund may not, as a matter of fundamental policy:
1. Underwrite any issue of securities issued by other persons within the meaning of the Securities Act of 1933, as amended (the "1933 Act") except when it might be deemed to be an underwriter either: (a) in connection with the disposition of a portfolio security; or (b) in connection with the purchase of securities directly from the issuer thereof in accordance with its investment objective. This restriction shall not limit the Fund's ability to invest in securities issued by other registered investment companies.
2. Purchase or sell real estate, except a Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate and it may hold and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of securities which are secured by real estate or interests therein.
3. Purchase or sell commodities, except that a Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts.
4. Purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions; and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by Investment Company Act of 1940 (the "1940 Act"), the rules and regulations thereunder and any applicable exemptive relief.
e
5. Make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
6. Borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
NON-FUNDAMENTAL INVESTMENT POLICIES
The following investment limitations with respect to the CONNECTICUT FUND, MASSACHUSETTS FUND, NEW JERSEY FUND, NEW YORK FUND and RHODE ISLAND FUND may be changed by the Trust's Board of Trustees without shareholder approval:
1. A Fund may not sell securities short, maintain a short position, or purchase securities on margin, except for such short-term credits as are necessary for the clearance of transactions.
2. A Fund may not write or sell put options, call options, straddles, spreads or any combination thereof, except that a Fund may, to the extent consistent with its investment goal and policies, write covered call options and purchase and sell other options.
3. A Fund may not purchase securities of companies for the purpose of exercising control.
4. A Fund may not purchase the securities of other investment companies except as permitted by the 1940 Act.
The following investment limitations with respect to the NEW JERSEY FUND, NEW YORK FUND and RHODE ISLAND FUND may be changed by the Trust's Board of Trustees without shareholder approval:
1. Each of the New Jersey Fund, New York Fund and Rhode Island Fund may not purchase securities of any one issuer, other than obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities, if immediately after such purchase more than 5% of the value of the Fund's total assets would be invested in the securities of such issuer, except that up to 50% of the value of the Fund's total assets may be invested without regard to this 5% limitation, provided that no more than 25% of the value of the Fund's total assets are invested in the securities of any one issuer. A Fund may not invest more than 15% of its net assets in illiquid securities.
2. Each Fund may invest in foreign securities to the extent consistent with its investment goal and policies.
The following investment limitations with respect to the CONNECTICUT FUND and MASSACHUSETTS FUND may be changed by the Trust's Board of Trustees without shareholder approval:
1. No Fund may invest in warrants.
2. No Fund may invest in illiquid securities in an amount exceeding, in the aggregate, 15% of that Fund's net assets.
3. No Fund may purchase or retain securities of an issuer if, to the knowledge of the Trust, an officer, trustee, member or director of the Trust or any investment adviser of the Trust owns beneficially more than 1/2 of 1% of the shares or securities of such issuer and all such officers, trustees, members and directors owning more than 1/2 of 1% of such shares or securities together own more than 5% of such shares or securities.
4. No Fund may invest in interests in oil, gas or other mineral exploration or development programs. No Fund may invest in oil, gas or mineral leases.
Municipal Securities purchased by the Funds will consist primarily of issues which are rated at the time of purchase within the four highest rating categories assigned by S&P or Moody's or unrated instruments determined by the advisor to be of comparable quality. Municipal Securities rated within the four highest rating categories assigned by S&P (AAA, AA, A and BBB) or Moody's (Aaa, Aa, A and Baa) are considered to be investment grade. Municipal Securities rated in the lowest of the four highest rating categories assigned by S&P or Moody's are considered to have speculative characteristics, even though they are of investment grade quality, and changes in economic conditions or other circumstances are more likely to lead to a weakened capacity to make principal and interest payments than is the case with higher grade Municipal Securities. Such Municipal Securities will be purchased (and retained) only when the Advisor believes the issuers have an adequate capacity to pay interest and repay principal. If the ratings of a particular Municipal Security purchased by a Fund are subsequently downgraded below the four highest ratings categories assigned by S&P or Moody's, such factor will be considered by the Advisor in its evaluation of the overall merits of that
f
Municipal Security, but such ratings will not necessarily result in an automatic sale of the Municipal Security unless the Municipal Security, together with any other securities held by the Fund that are rated below investment grade, exceed 5% of the Fund's net assets. Under normal market and economic conditions, at least 65% of each Fund's total assets will be invested in Municipal Securities rated in the three highest rating categories assigned by S&P or Moody's. See Appendix I to Part 2 of this Statement of Additional Information for a description of S&P's and Moody's rating categories.
Although no Fund presently intends to do so on a regular basis, each Fund may invest more than 25% of its assets in Municipal Securities the interest on which is paid solely from revenues on similar projects if such investment is deemed necessary or appropriate by the Advisor. To the extent that a Fund's assets are concentrated in Municipal Securities payable from revenues on similar projects, the Fund will be subject to the particular risks presented by such projects to a greater extent than it would be if its assets were not so concentrated.
Among other instruments, the Funds may purchase short-term general obligation notes, tax anticipation notes, bond anticipation notes, revenue anticipation notes, commercial paper, construction loan notes and other forms of short-term loans that are rated in the two highest rating categories assigned by a rating agency with respect to such instruments or, if unrated, determined by the advisor to be of comparable quality. Such instruments are issued with a short-term maturity in anticipation of the receipt of tax funds, the proceeds of bond placements or other revenues. In addition, the Funds may invest in long-term tax-exempt instruments, such as municipal bonds and private activity bonds to the extent consistent with the limitations set forth in the Prospectuses.
Investments in private activity bonds will not be treated as investments in Municipal Securities for purposes of the 80% requirement mentioned above and, under normal conditions, will not exceed 20% of a Fund's total assets when added together with any taxable investments held by the Fund.
The Funds currently intend to limit the lending of their portfolio securities so that, at any given time, securities loaned by a Fund represent not more than one-third of the value of its total assets.
Each Fund may purchase restricted securities, which are any securities in which the Fund may otherwise invest pursuant to its investment goal and policies but which are subject to restrictions on resale under the federal securities laws. Certain restricted securities may be considered liquid pursuant to guidelines established by the Board of Trustees. To the extent restricted securities are deemed illiquid, each Fund will limit its purchase, together with other securities considered to be illiquid, to 15% of its net assets.
Each Fund currently expects that forward commitments, when-issued purchases and delayed settlements will not exceed 25% of the value of a Fund's total assets absent unusual market conditions. In the event a Fund's forward commitments, when-issued purchases and delayed settlements ever exceeded 25% of the value of its total assets, the Fund's liquidity and the ability of the Advisor to manage the Fund might be adversely affected. The Funds do not intend to engage in when-issued purchases, forward commitments and delayed settlements for speculative purposes, but only in furtherance of their investment goals.
A Fund will not invest more than 10% of its total assets in asset-backed securities.
Each of the Connecticut Fund and Massachusetts Fund may also invest in mortgage-backed securities not issued by governmental issuers which are rated in one of the top three rating categories by S&P, Moody's or Fitch Ratings, or if unrated, determined by the Advisor to be of comparable quality.
Each Fund will only enter into repurchase agreements with financial institutions such as banks and broker/dealers which are deemed to be creditworthy by the Advisor. None of the Funds will enter into repurchase agreements with the Advisor or any of its affiliates. Investments by the Funds in repurchase agreements will be, under normal market conditions, subject to such Fund's 20% overall limit on taxable obligations.
Each of the Connecticut Fund and Massachusetts Fund may write covered call options provided that the aggregate value of such options does not exceed 10% of such Fund's net assets as of the time such Fund enters into such options. These Funds may write covered call options for hedging purposes only and will not engage in option writing strategies for speculative purposes.
g
Each of the New Jersey Fund, New York Fund and Rhode Island Fund may purchase and sell municipal bond index futures contracts as a hedge against changes in market conditions. Each of these Funds may also enter into contracts for the future delivery of fixed income securities commonly known as interest rate futures contracts. These Funds will not engage in futures transactions for speculation, but only to hedge against changes in the market values of securities which the Funds hold or intend to purchase. Each of these Funds will limit its hedging transactions in futures contracts so that, immediately after any such transaction, the aggregate initial margin that is required to be posted by the Fund under the rules of the exchange on which the futures contract is traded does not exceed 5% of the Fund's total assets after taking into account any unrealized profits and unrealized losses on the Fund's open contracts. In addition, no more than one-third of each of these Fund's total assets may be covered by such contracts.
The New Jersey Fund, New York Fund and Rhode Island Fund may invest in securities issued by other investment companies which invest in high quality, short-term debt securities and which determine their net asset value per share based on the amortized cost or penny-rounding method.
Because the Connecticut Fund and Massachusetts Fund may buy and sell securities denominated in currencies other than the U.S. dollar, these Funds from time to time may enter into foreign currency exchange transactions to convert the U.S. dollar to foreign currencies, to convert foreign currencies to the U.S. dollar and to convert foreign currencies to other foreign currencies. These Funds also may engage in currency swaps.
The Connecticut Fund and Massachusetts Fund may invest in securities issued by other investment companies and foreign investment trusts. Each of these Funds may also invest up to 5% of its total assets in closed-end investment companies that primarily hold securities of non-U.S. issuers.
Except as stated otherwise, if a percentage limitation is satisfied at the time of investment, a later increase in such percentage resulting from a change in the value of a Fund's portfolio securities generally will not constitute a violation of the limitation. If the value of a Fund's holdings of illiquid securities at any time exceeds the percentage limitation applicable at the time of acquisition due to subsequent fluctuations in value or other reasons, the Board of Trustees will consider what actions, if any, are appropriate to maintain adequate liquidity. With respect to borrowings, if a Fund's asset coverage at any time falls below that required by the 1940 Act, the Fund will reduce the amount of its borrowings in the manner required by the 1940 Act to the extent necessary to satisfy the asset coverage requirement.
Each Fund may follow non-fundamental operating policies that are more restrictive than its fundamental investment limitations, as set forth in the Prospectuses and this SAI, in order to comply with applicable laws and regulations, including the provisions of and regulations under the 1940 Act.
CONNECTICUT TAX CONSIDERATIONS
Dividends paid by the Connecticut Fund that qualify as exempt-interest dividends for federal income tax purposes are not subject to the Connecticut personal income tax imposed on resident and non-resident individuals, trusts and estates to the extent that they are derived from Connecticut Municipal Securities (as defined above). Other Fund dividends and distributions, whether received in cash or additional shares, may be subject to this tax, except that, in the case of shareholders who hold their shares of the Fund as capital assets, distributions treated as capital gain dividends for federal income tax purposes are not subject to the tax to the extent that they are derived from obligations issued by or on behalf of the State of Connecticut, its political subdivisions, or any public instrumentality, state or local authority, district or similar public entity created under the laws of Connecticut. Dividends and distributions paid by the Fund that constitute items of tax preference for purposes of the federal alternative minimum tax, other than any derived from Connecticut Municipal Securities, could cause liability for the net Connecticut minimum tax applicable to investors subject to the Connecticut personal income tax who are required to pay the federal alternative minimum tax. Dividends paid by the Fund, including those that qualify as exempt-interest dividends for federal income tax purposes, are taxable for purposes of the Connecticut Corporation Business Tax; however, 70% of amounts that are treated as dividends and not as exempt-interest dividends or capital gain dividends for federal income tax purposes are deductible for purposes of this tax, but no deduction is allowed for expenses related thereto. Shares of the Fund are not subject to property taxation by Connecticut or its political subdivisions.
The foregoing is a general summary of the Connecticut tax consequences of investing in the Fund. You should consult your tax advisor regarding specific questions as to federal, state or local taxes.
h
MASSACHUSETTS TAX CONSIDERATIONS
Distributions by the Massachusetts Fund to its shareholders are exempt from Massachusetts personal income taxation to the extent they are derived from (and designated by the Fund as being derived from) (i) interest on Massachusetts Municipal Securities (as defined above), (ii) capital gains realized by the Fund from the sale of certain Massachusetts Municipal Securities, or (iii) interest on U.S. Government obligations exempt from state income taxation. Distributions from a Fund's other net investment income and short-term capital gains will be taxable as ordinary income. Distributions from a Fund's net long-term capital gains will be taxable as long-term capital gains regardless of how long the shareholder has owned Fund shares. The tax treatment of distributions is the same whether distributions are paid in cash or in additional shares of the Fund. Shareholders should consult their tax advisers with respect to the Massachusetts tax treatment of capital gain distributions from each Fund.
Distributions by the Massachusetts Fund to corporate shareholders, including exempt-interest dividends, may be subject to Massachusetts corporate excise tax. Fund shares are not, however, subject to property taxation by Massachusetts or its political subdivisions.
The foregoing is a general summary of the Massachusetts tax consequences of investing in the Fund. You should consult your tax advisor regarding specific questions as to federal, state or local taxes.
NEW JERSEY TAX CONSIDERATIONS
It is anticipated that substantially all dividends paid by the New Jersey Fund will not be subject to New Jersey personal income tax. In accordance with the provisions of New Jersey law as currently in effect, distributions paid by a "qualified investment fund" will not be subject to the New Jersey personal income tax to the extent that the distributions are attributable to income received as interest or gain from New Jersey Municipal Securities (as defined above), or as interest or gain from direct U.S. Government obligations. Distributions by a "qualified investment fund" that are attributable to most other sources will be subject to the New Jersey personal income tax. Shares of the Fund are not subject to property taxation by New Jersey or its political subdivisions. The New Jersey personal income tax is not applicable to corporations. For all corporations subject to the New Jersey Corporation Business Tax, dividends and distributions from a "qualified investment fund" are included in the net income tax base for purposes of computing the Corporation Business Tax. Furthermore, any gain upon the redemption or sale of shares by a corporate shareholder is also included in the net income tax base for purposes of computing the Corporation Business Tax. The foregoing is a general summary of the New York tax consequences of investing in the Fund. You should consult your tax advisor regarding specific questions as to federal, state or local taxes.
NEW YORK TAX CONSIDERATIONS
With respect to the New York Fund, exempt-interest dividends (as defined for federal income tax purposes), derived from interest on New York Municipal Securities (as defined above) will be exempt from New York State and New York City personal income taxes (but not corporate franchise taxes), provided the interest on such obligations is and continues to be exempt from applicable federal income taxes and New York State and New York City personal income taxes. To the extent that investors are subject to state and local taxes outside of New York State and New York City, dividends paid by the Fund will generally be taxable income for purposes thereof. Dividends and distributions derived from income (including capital gains on all New York Municipal Securities) other than interest on New York Municipal Securities described above are not exempt from New York State and New York City taxes. Interest or indebtedness incurred or continued by a shareholder to purchase or carry shares of the Fund is not deductible for federal income tax purposes or for New York State or New York City personal income tax purposes.
The foregoing is a general summary of the New Jersey tax consequences of investing in the Fund. You should consult your tax advisor regarding specific questions as to federal, state or local taxes.
RHODE ISLAND TAX CONSIDERATIONS
The Rhode Island Fund has received a ruling from the Rhode Island Division of Taxation to the effect that distributions by it to its shareholders are exempt from Rhode Island personal income taxation and the Rhode Island business corporation tax to the extent they are derived from (and designated by the Fund as being derived from) interest earned on Rhode Island Municipal Securities (as defined above) or obligations of the United States. Distributions from the Fund's other net investment income and short-term capital gains will be taxable as ordinary income. Distributions from
the Fund's net long-term capital gains will be taxable as long-term capital gains regardless of how long the shareholder has owned Fund shares. The tax treatment of distributions is the same whether distributions are paid in cash or in additional shares of the Fund.
The Rhode Island Fund will be subject to the Rhode Island business corporation tax on its "gross income" apportioned to the State of Rhode Island. For this purpose, gross income does not include interest income earned by the Fund on Rhode Island Municipal Securities and obligations of the United States, capital gains realized by the Fund on the sale of certain Rhode Island Municipal Securities, and 50 percent of the Fund's other net capital gains.
The foregoing is a general summary of the Rhode Island tax consequences of investing in the Fund. You should consult your tax advisor regarding specific questions as to federal, state or local taxes.
PORTFOLIO TURNOVER
Portfolio turnover is included in the Prospectuses under "Financial Highlights." Each Fund may sell a portfolio investment soon after its acquisition if the Advisor believes that such a disposition is consistent with the Fund's investment goal. Portfolio investments may be sold for a variety of reasons, such as a more favorable investment opportunity or other circumstances bearing on the desirability of continuing to hold such investments. A portfolio turnover rate of 100% or more is considered high, although the rate of portfolio turnover will not be a limiting factor in making portfolio decisions. High portfolio turnover may cause the Funds to realize capital gains which, if realized and distributed by the Funds, may be taxable to shareholders as ordinary income. High portfolio turnover may result in correspondingly greater brokerage commissions and other transaction costs, which will be borne directly by the Funds.
FUND CHARGES AND EXPENSES
Effective February 9, 2005, under the Funds' management agreement with the Advisor, each Fund pays the Advisor a monthly fee based on the average daily net assets of the Fund at the annual rate of:
Average Daily Net Assets Rate ------------------------ ----- Net assets under $500 million 0.480% Net assets of $500 million but less than $1 billion 0.430% Net assets of $1 billion but less than $1.5 billion 0.400% Net assets of $1.5 billion but less than $3 billion 0.370% Net assets of $3 billion but less than $6 billion 0.360% Net assets in excess of $6 billion 0.350% |
Prior to November 1, 2003, the Advisor was entitled to receive advisory fees,
computed daily and paid monthly, at the annual rate of 0.75% of the average
daily net assets of each Fund. In addition, the Advisor waived fees as follows:
0.20% of the first $500 million of average daily net assets, plus 0.25% of the
next $500 million of average daily net assets, plus 0.30% of the next $500
million of average daily net assets, plus 0.35% of the next $500 million of
average daily net assets, plus 0.40% of average daily net assets in excess of $2
billion.
Effective November 1, 2003, the Board of Trustees approved a new management fee structure for the Funds as follows: 0.55% of the first $500 million of average daily net assets, plus 0.50% of the next $500 million of average daily net assets, plus 0.45% of the next $500 million of average daily net assets, plus 0.40% of the next $500 million of average daily net assets, plus 0.35% of average daily net assets in excess of $2 billion.
Under each Fund's administration agreement (the "Agreement"), the Fund pays the Advisor a monthly fee at the annual rate of 0.067% of the average daily net assets of the Fund. Prior to November 15, 2002, the administration agreement was computed daily and paid monthly at the annual rate of 0.09% of the first $2.5 billion of the combined average daily net assets of the Funds and the other funds offered by Galaxy, 0.085% of the next $2.5 billion of combined average daily net assets, 0.075% of the next $7 billion of combined average daily net assets, 0.065% of the next $3 billion of combined average daily net assets, 0.06% of the next $3 billion of combined average daily net assets, 0.0575% of the next $3 billion of combined average daily net assets, 0.0525% of the next $9 billion of combined average daily net assets, and 0.05% of combined average daily net assets in excess of $30 billion.
j
The Advisor provides certain pricing and bookkeeping services to the Funds. Effective November 1, 2005, the Funds entered into a Pricing and Bookkeeping Agreement and an Administrative Agreement. Under these agreements, the Funds will continue to receive substantially the same pricing, bookkeeping and administrative services as they currently receive under the Agreement. The Advisor and State Street Bank and Trust Company ("State Street") will continue to provide these services to the Funds. For services provided under the Pricing and Bookkeeping Agreement, the Funds will pay the Advisor or to such other person(s) as the Advisor may direct an annual fee, payable monthly, consisting of: (i) for fund accounting services, $25,000 plus an additional monthly fee based on the Fund's net asset value ("Fund Accounting Fee"); and (ii) for financial reporting services, $13,000 ("Financial Reporting Fee"); provided that during any 12-month period, the aggregate Fund Accounting Fee and Financial Reporting Fee shall not exceed $140,000. The Funds will bear certain reimbursable costs and expenses as provided in the Pricing and Bookkeeping Agreement and the Administrative Agreement.
RECENT FEES PAID TO THE ADVISOR, CMD, CMS AND OTHER SERVICE PROVIDERS
The following tables present recent fees paid to the Advisor, CMD, CMS and other service providers by the relevant Predecessor Funds.
CONNECTICUT FUND
----------------------------------
Years ended October 31,
----------------------------------
2005 2004 2003
-------- ---------- ----------
Advisory fee $908,942 $1,120,223 $1,487,334
Advisory fee waiver -- N/A 393,332
Pricing and Bookkeeping Fees 57,569 65,585 66,550
Waivers by Distributor (Class C) (35,422) (44,082) (27,133)
Waivers by Transfer Agent (798)
Administration fee (net of fee waivers) 126,871 136,464 133,269
Shareholder service and Transfer Agent fee 56,811 N/A N/A
Transfer Agent fee Class A -- 3,595 --
Transfer Agent fee Class B -- 1,927 --
Transfer Agent fee Class C -- 4,083 --
Transfer Agent fee Class G -- 109 --
Transfer Agent fee Class T -- 11,480 --
Transfer Agent fee Class Z -- 45,522 --
Service fee Class A 30,928 27,219 13,809
Service fee Class B 13,741 14,670 6,709
Service fee Class C 25,301 31,487 19,085
Service fee Class G 437 497 560
Shareholder Service fee Class T 43,614 52,412 56,227
Distribution fee Class B 41,222 44,010 20,197
Distribution fee Class C 75,904 94,461 57,719
Distribution fee Class G 1,890 2,155 2,396
|
k
MASSACHUSETTS FUND
------------------------------------
Years ended October 31,
------------------------------------
2005 2004 2003
---------- ---------- ----------
Advisory fee $1,566,490 $2,022,846 $2,955,813
Advisory fee waiver -- N/A 788,217
Pricing and Bookkeeping Fees 80,322 83,247 86,047
Waivers by Distributor (Class C) (25,091) (27,677) (14,625)
Waivers by Transfer Agent (3,897)
Administration fee (net of fee waivers) 218,650 246,419 264,053
Shareholder service and Transfer Agency fee 91,235 N/A N/A
Transfer Agent fee Class A -- 2,726 --
Transfer Agent fee Class B -- 1,174 --
Transfer Agent fee Class C -- 2,354 --
Transfer Agent fee Class G -- 402 --
Transfer Agent fee Class T -- 21,303 --
Transfer Agent fee Class Z -- 82,217 --
Service fee Class A 24,139 23,197 7,876
Service fee Class B 8,639 9,870 4,748
Service fee Class C 17,922 19,769 10,449
Service fee Class G 1,462 1,984 2,352
Shareholder Service fee Class T 87,505 106,775 123,686
Distribution fee Class B 25,916 29,611 14,283
Distribution fee Class C 53,767 59,307 31,353
Distribution fee Class G 6,335 8,597 10,191
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NEW JERSEY FUND
------------------------------
Years ended October 31,
------------------------------
2005 2004 2003
-------- -------- --------
Advisory fee $388,659 $482,269 $669,167
Advisory fee waiver -- N/A 176,571
Pricing and Bookkeeping Fees 54,953 56,197 54,896
Waivers by Transfer Agent (1,264)
Waivers by Distributor (Class C) (16,245) (15,664) (7,516)
Waivers by Transfer Agent (Class A) -- 4 --
Waivers by Transfer Agent (Class B) -- 2 --
Waivers by Transfer Agent (Class C) -- 6 --
Waivers by Transfer Agent (Class G) -- 19 115
Waivers by Transfer Agent (Class T) -- 9 --
Waivers by Transfer Agent (Class Z) -- 82 --
Administration fee (net of fee waivers) 54,249 58,749 59,960
Shareholder service and Transfer Agent fee 25,721 N/A N/A
Transfer Agent fee Class A -- 1,288 --
Transfer Agent fee Class B -- 956 --
Transfer Agent fee Class C -- 1,689 --
Transfer Agent fee Class G -- 102 --
Transfer Agent fee Class T -- 3,368 --
Transfer Agent fee Class Z -- 23,864 --
Service fee Class A 9,535 8,876 2,511
Service fee Class B 4,926 4,812 2,380
Service fee Class C 11,604 11,189 5,387
Service fee Class G 272 296 306
Shareholder Service fee Class T 10,410 11,186 11,264
Distribution fee Class B 14,778 14,437 7,140
Distribution fee Class C 34,811 33,565 16,135
Distribution fee Class G 1,180 1,282 1,328
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NEW YORK FUND
Years ended October 31,
------------------------------
2005 2004 2003
-------- -------- --------
Advisory fee $621,505 $686,258 $874,882
Advisory fee waiver -- N/A 233,351
Pricing and Bookkeeping Fees 52,423 51,432 50,645
Waivers by Transfer Agent (2,102)
Waivers by Distributor (Class C) (10,047) (11,291) (3,961)
Waivers by Transfer Agent (Class A) -- 15 --
Waivers by Transfer Agent (Class B) -- 7 --
Waivers by Transfer Agent (Class C) -- 6 --
Waivers by Transfer Agent (Class G) -- 47 272
Waivers by Transfer Agent (Class T) -- 45 --
Waivers by Transfer Agent (Class Z) -- 168 --
Administration fee (net of fee waivers) 86,752 83,599 78,149
Shareholder service and Transfer Agent fee 42,427 N/A N/A
Transfer Agent fee Class A -- 3,086 --
Transfer Agent fee Class B -- 1,609 --
Transfer Agent fee Class C -- 1,394 --
Transfer Agent fee Class G -- 183 --
Transfer Agent fee Class T -- 10,787 --
Transfer Agent fee Class Z -- 33,101 --
Service fee Class A 10,687 19,561 12,432
Service fee Class B 10,017 8,978 3,658
Service fee Class C 7,176 8,065 2,835
Service fee Class G 249 450 544
Shareholder Service fee Class T 30,262 34,238 39,780
Distribution fee Class B 30,051 26,935 10,974
Distribution fee Class C 21,529 24,195 8,515
Distribution fee Class G 1,079 1,952 2,357
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RHODE ISLAND FUND
Years ended October 31,
--------------------------------
2005 2004 2003
-------- -------- ----------
Advisory fee $589,352 $722,605 $1,081,869
Advisory fee waiver -- N/A 288,535
Pricing and Bookkeeping Fees 54,214 54,186 55,198
Waivers by Distributor (Class C) (5,718) (6,594) (3,551)
Waivers by Transfer Agent (732)
Administration fee (net of fee waivers) 82,263 88,026 96,642
Shareholder service and Transfer Agency fee 24,425 N/A N/A
Transfer Agent fee Class A -- 170 --
Transfer Agent fee Class B -- 188 --
Transfer Agent fee Class C -- 418 --
Transfer Agent fee Class G -- 94 --
Transfer Agent fee Class T -- 5,468 --
Transfer Agent fee Class Z -- 22,726 --
Service fee Class A 3,074 2,006 513
Service fee Class B 2,315 2,184 752
Service fee Class C 4,084 4,710 2,554
Service fee Class G 536 629 700
Shareholder Service fee Class T -- N/A N/A
Distribution fee Class B 6,944 6,551 2,256
Distribution fee Class C 12,252 14,129 7,638
Distribution fee Class G 2,321 2,723 3,034
|
TRUSTEES AND TRUSTEES' FEES
The Columbia Fund Complex includes all of the registered investment companies to which the Advisor and its affiliates provide investment advisory services.
The Advisor or its affiliates pay the compensation of all the officers of the funds in the Columbia Fund Complex (as such term is defined under applicable regulations promulgated under the 1940 Act) advised by the Advisor, including Trustees who are affiliated with the Advisor. For the fiscal year ended October 31, 2005 and the calendar year ended December 31, 2005, the Trustees received the following compensation for serving as Trustees:
Aggregate Aggregate
Compensation Compensation
Pension or from the from the
Retirement Connecticut Fund Massachusetts Fund
Benefits Accrued for the Fiscal for the Fiscal
as part of Fund Year Ended Year Ended
Trustee(a) Expenses(b) October 31, 2005 October 31, 2005
---------- ---------------- ---------------- ------------------
Douglas A. Hacker N/A $ 778 $1,071
Janet Langford Kelly N/A 856 1,180
Richard W. Lowry N/A 708 976
William E. Mayer N/A 808 1,113
Charles R. Nelson N/A 789 1,086
John J. Neuhauser N/A 733 1,009
Patrick J. Simpson(c) N/A 751 1,034
Thomas E. Stitzel N/A 807 1,112
Thomas C. Theobald(d) N/A 1,474 2,025
Anne-Lee Verville N/A 833 1,147
Richard L. Woolworth N/A 742 1,022
|
Aggregate Aggregate Aggregate
Compensation Compensation Compensation Total Compensation
from the from the from the from the Fund
New Jersey Fund New York Fund Rhode Island Fund Complex Paid to the
for the Fiscal for the Fiscal for the Fiscal Trustees for the
Year Ended Year Ended Year Ended Calendar Year Ended
Trustee(a) October 31, 2005 October 31, 2005 October 31, 2005 December 31, 2005(a)
---------- ---------------- ---------------- ----------------- --------------------
Douglas A. Hacker $ 554 $ 647 $ 641 $111,277
Janet Langford Kelly 610 712 705 116,500
Richard W. Lowry 505 590 584 142,500
William E. Mayer 576 673 666 147,750
Charles R. Nelson 562 656 650 111,500
John J. Neuhauser 522 610 604 137,833
Patrick J. Simpson(c) 535 625 619 107,500
Thomas E. Stitzel 574 671 664 113,000
Thomas C. Theobald(d) 1,052 1,230 1,216 205,500
Anne-Lee Verville 593 693 686 120,723
Richard L. Woolworth 528 617 611 106,500
|
(a) As of December 31, 2005, the Fund Complex consisted of 159 open-end and 11 closed-end management investment company portfolios.
(b) The Funds do not currently provide pension or retirement plan benefits to the Trustees.
(c) During the fiscal year ended October 31, 2005 and the calendar year ended December 31, 2005, Mr. Simpson deferred $751, $1,034, $535, $625 and $619 of his compensation from the Connecticut, Massachusetts, New Jersey, New York and Rhode Island Funds, respectively. At December 31, 2005, the value of Mr. Simpson's account under that plan was $269,502.
(d) During the fiscal year ended October 31, 2005 and the calendar year ended December 31, 2005, Mr. Theobald deferred $854, $1,173, $612, $713 and $707 of his compensation from the Connecticut, Massachusetts, New Jersey, New York and Rhode Island Funds, respectively. At December 31, 2005, the value of Mr. Theobald's account under that plan was $320,084.
n
ROLE OF THE BOARD OF TRUSTEES
The Trustees of the Funds are responsible for the overall management and supervision of the Funds' affairs and for protecting the interests of the shareholders. The Trustees meet periodically throughout the year to oversee the Funds' activities, review contractual arrangements with service providers for the Funds and review the Funds' performance. The Trustees have created several committees to perform specific functions for the Funds.
AUDIT COMMITTEE
Ms. Verville and Messrs. Hacker, Stitzel and Woolworth are members of the Audit Committee of the Board of Trustees of the Funds. The Audit Committee's functions include making recommendations to the Trustees regarding the selection and performance of the independent auditors, and reviewing matters relative to accounting and auditing practices and procedures, accounting records, and the internal accounting controls of the Funds and certain service providers. For the fiscal year ended October 31, 2005, the Audit Committee convened seven times.
GOVERNANCE COMMITTEE
Messrs. Lowry, Mayer, Simpson and Theobald are members of the Governance Committee of the Board of Trustees of the Funds. The Governance Committee's functions include recommending to the Trustees nominees for independent Trustee positions and for appointments to various committees, performing periodic evaluations of the effectiveness of the Board, reviewing and recommending to the Board policies and practices to be followed in carrying out the Trustees' duties and responsibilities and reviewing and making recommendations to the Board regarding the compensation of the Trustees who are not affiliated with the Funds' investment advisors. The Governance Committee will consider candidates for Trustee recommended by shareholders. Written recommendations with supporting information should be directed to the Committee, in care of the Funds. For the fiscal year ended October 31, 2005, the Governance Committee convened five times.
ADVISORY FEES & EXPENSES COMMITTEE
Ms. Kelly and Messrs. Mayer, Nelson and Neuhauser are members of the Advisory Fees & Expenses Committee of the Board of Trustees of the Funds. The Advisory Fees & Expenses Committee's functions include reviewing and making recommendations to the Board as to contracts requiring approval of a majority of the disinterested Trustees and as to any other contracts that may be referred to the Committee by the Board. For the fiscal year ended October 31, 2005, the Advisory Fees & Expenses Committee convened seven times.
COMPLIANCE COMMITTEE
Ms. Kelly, Messrs. Nelson, Simpson and Stitzel and Ms. Verville are members of the Compliance Committee of the Board of Trustees of the Funds. Mr. Stitzel became a member of the Compliance Committee on May 8, 2005. The Compliance Committee's functions include providing oversight of the monitoring processes and controls regarding the Trust. The Committee supervises legal, regulatory and internal rules, policies, procedures and standards other than those relating to accounting matters and oversight of compliance by the Trust's investment adviser, principal underwriter and transfer agent. For the fiscal year ended October 31, 2005, the Compliance Committee convened four times.
INVESTMENT OVERSIGHT COMMITTEES
Each Trustee of the Funds also serves on an Investment Oversight Committee ("IOC"). Each IOC is responsible for monitoring, on an ongoing basis, a select group of funds in the Columbia Fund Complex and gives particular consideration to such matters as the Funds' adherence to their investment mandates, historical performance, changes in investment processes and personnel, and proposed changes to investment objectives. Investment personnel who manage the Funds attend IOC meetings from time to time to assist each IOC in its review of the Funds. Each IOC
o
meets four times a year. The following are members of the respective IOCs and the general categories of funds in the Columbia Fund Complex which they review:
IOC#1: Messrs. Lowry, Mayer and Neuhauser are responsible for reviewing funds in the following asset categories: Large Growth Diversified, Large Growth Concentrated, Small Growth, Outside Managed (i.e., sub-advised) and Municipal.
IOC#2: Mr. Hacker and Ms. Verville are responsible for reviewing funds in the following asset categories: Large Blend, Small Blend, Foreign Stock, Fixed Income -- Multi Sector, Fixed Income -- Core and Young Investor.
IOC#3: Messrs. Theobald and Stitzel and Ms. Kelly are responsible for reviewing funds in the following asset categories: Large Value, Mid Cap Value, Small Value, Asset Allocation, High Yield and Money Market.
IOC#4: Messrs. Nelson, Simpson and Woolworth are responsible for reviewing funds in the following asset categories: Large/Multi-Cap Blend, Mid Cap Growth, Small Growth, Asset Allocation, Specialty Equity and Taxable Fixed Income.
SHARE OWNERSHIP
The following table shows the dollar range of equity securities beneficially owned by each Trustee as of December 31, 2005 (a) in each Fund and (ii) in the Funds in the Columbia Fund Complex.
Dollar Range Dollar Range Dollar Range
of Equity of Equity of Equity
Securities Securities Securities
Owned in the Owned in the Owned in the
Name of Trustee Connecticut Fund Massachusetts Fund New Jersey Fund
--------------- ---------------- ------------------ ---------------
DISINTERESTED TRUSTEES
Douglas A. Hacker None None None
Janet Langford Kelly None None None
Richard W. Lowry None None None
Charles R. Nelson None None None
John J. Neuhauser None None None
Patrick J. Simpson None None None
Thomas E. Stitzel None None None
Thomas C. Theobald None None None
Anne-Lee Verville None None None
Richard L. Woolworth None None None
INTERESTED TRUSTEES
William E. Mayer None None None
|
p
Aggregate
Dollar Range
of Equity
Dollar Range Dollar Range Securities
of Equity of Equity Owned in All
Securities Securities Funds Overseen by
Owned in the Owned in the Trustee in the
Name of Trustee New York Fund Rhode Island Fund Columbia Fund Complex
--------------- ------------- ----------------- ---------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker None None Over $100,000
Janet Langford Kelly None None Over $100,000
Richard W. Lowry None None Over $100,000
Charles R. Nelson None None Over $100,000
John J. Neuhauser None None Over $100,000
Patrick J. Simpson None None Over $100,000
Thomas E. Stitzel None None $50,001-$100,000
Thomas C. Theobald None None Over $100,000
Anne-Lee Verville None None Over $100,000(1)
Richard L. Woolworth None None Over $100,000
INTERESTED TRUSTEES
William E. Mayer None None $1-$10,000
|
(1) Includes the value of compensation payable under the deferred compensation plan for independent Trustees of the Fund Complex that is determined as if the amounts deferred had been invested, as of the date of deferral, in shares of one or more funds in the Fund Complex as specified by Ms. Verville.
PORTFOLIO MANAGERS
OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGERS
The following table shows the number and assets of other investment accounts (or portions of investment accounts) that the Funds' portfolio manager managed as of the Funds' fiscal year-end.
Other SEC-registered
open-end and Other pooled
closed-end funds investment vehicles Other accounts
-------------------------- ------------------------ ------------------------
Number of Number of Number of
Portfolio Manager accounts Assets accounts Assets accounts Assets
----------------- --------- -------------- --------- ------------ --------- ------------
Brian McGreevy 1 $ 400 million 4 $981 million 8 $689 million
Susan A. Sanderson* 2 $2,446 million 2 $719 million None N/A
|
* Information is as of November 30, 2005.
See "Management -- Portfolio Transactions -- Potential conflicts of interest in managing multiple accounts" in Part II of this SAI for information on how the Advisor addresses potential conflicts of interest resulting from an individual's management of more than one account.
q
OWNERSHIP OF SECURITIES
The table below shows the dollar ranges of shares of the Funds beneficially owned (as determined pursuant to Rule 16a-1(a)(2) under the Securities Exchange Act of 1934, as amended) by the portfolio manager listed above at the end of the Funds' most recent fiscal year:
Dollar Range of Equity
Securities in the Fund
Fund Portfolio Manager Beneficially Owned
---- ----------------- ----------------------
Connecticut Fund Brian McGreevy None
Massachusetts Fund Susan Sanderson* None
New York Fund Brian McGreevy None
New Jersey Fund Brian McGreevy None
Rhode Island Fund Brian McGreevy None
|
* Information is as of November 30, 2005.
COMPENSATION
As of the Funds' most recent fiscal year end, the portfolio managers received all of their compensation from the Advisor and its parent company, Columbia Management Group, in the form of salary, bonus, stock options and restricted stock. A portfolio manager's bonus is variable and is generally based on (1) an evaluation of the manager's investment performance and (2) the results of a peer and/or management review of such individual, which takes into account skills and attributes such as team participation, investment process, communication and professionalism. In evaluating investment performance, the Advisor generally considers the one-, three- and five-year performance of mutual funds and other accounts under the portfolio manager's oversight relative to the benchmarks and peer groups noted below, emphasizing the manager's three- and five-year performance. The Advisor may also consider the portfolio manager's performance in managing client assets in sectors and industries assigned to the manager as part of his or her investment team responsibilities, where applicable. For portfolio managers who also have group management responsibilities, another factor in their evaluation is an assessment of the group's overall investment performance.
Portfolio Manager Performance Benchmark Peer Group ----------------- ---------------------- ------------------------------------------------- Brian McGreevy Lehman 3-15 Year Blend Lipper Intermediate Municipal Debt Funds Category Susan Sanderson Lehman 3-15 Year Blend Lipper Intermediate Municipal Debt Funds Category |
r
BROKERAGE COMMISSIONS (dollars in thousands)
Year ended October 31, 2005
------------------------------------------------------
Total Directed Commissions on
Fund Commissions transactions (a) directed transactions
---- ----------- ---------------- ---------------------
Connecticut Fund $3 0 0
Massachusetts Fund $2 0 0
New Jersey Fund $4 0 0
New York Fund $2 0 0
Rhode Island Fund $1 0 0
|
BROKERAGE COMMISSIONS (dollars in thousands)
Year ended October 31, 2004
-----------------------------------------------------
Total Directed Commissions on
Fund Commissions transactions(a) directed transactions
---- ----------- --------------- ---------------------
Connecticut Fund $0 $0 $0
Massachusetts Fund $0 $0 $0
New Jersey Fund $0 $0 $0
New York Fund $0 $0 $0
Rhode Island Fund $0 $0 $0
|
BROKERAGE COMMISSIONS (dollars in thousands)
Year ended October 31, 2003
-----------------------------------------------------
Total Directed Commissions on
Fund Commissions transactions(a) directed transactions
---- ----------- --------------- ---------------------
Connecticut Fund $0 $0 $0
Massachusetts Fund $0 $0 $0
New Jersey Fund $0 $0 $0
New York Fund $0 $0 $0
Rhode Island Fund $0 $0 $0
|
(a) See "Management of the Funds -- Portfolio Transactions -- Brokerage and Research Services" in Part 2 of this SAI.
The Trust is required to identify any securities of its "regular brokers or dealers" that each Fund has acquired during its most recent fiscal year. At October 31, 2005, no Fund held securities of their regular brokers or dealers.
SALES-RELATED EXPENSES (dollars in thousands) of CMD relating to the Fund as of the year ended October 31, 2005 were (in Dollars):
CONNECTICUT FUND
Class A Class B Class C Class T Class G
------- ------- ------- ------- -------
Fees to Financial Service Firms ("FSFs") $44 $18 $57 $44 (a)
Allocated cost of sales material relating to the Fund
(including printing, mailing, and promotion expenses) 3 (a) (a) (a) (a)
Allocated travel, entertainment and other promotional expenses 4 (a) 1 1 (a)
|
(a) Rounds to less than one.
s
MASSACHUSETTS FUND
Class A Class B Class C Class T Class G
------- ------- ------- ------- -------
Fees to FSFs $24 $13 $49 $87 $1
Allocated cost of sales material relating to the Fund
(including printing, mailing, and promotion expenses) 2 (a) (a) 2 (a)
Allocated travel, entertainment and other promotional expenses 3 (a) 1 3 (a)
|
NEW JERSEY FUND
Class A Class B Class C Class T Class G
------- ------- ------- ------- -------
Fees to FSFs $10 $7 $41 $10 (a)
Allocated cost of sales material relating to the Fund
(including printing, mailing, and promotion expenses) (a) (a) 2 (a) (a)
Allocated travel, entertainment and other promotional expenses 1 (a) 2 (a) (a)
|
NEW YORK FUND
Class A Class B Class C Class T Class G
------- ------- ------- ------- -------
Fees to FSFs $11 $13 $27 $30 $1
Allocated cost of sales material relating to the Fund
(including printing, mailing, and promotion expenses) (a) (a) 2 (a) (a)
Allocated travel, entertainment and other promotional expenses (a) (a) 2 1 (a)
|
RHODE ISLAND FUND
Class A Class B Class C Class T Class G
------- ------- ------- ------- -------
Fees to FSFs $3 $6 $11 (a) (a)
Allocated cost of sales material relating to the Fund
(including printing, mailing, and promotion expenses) (a) (a) (a) (a) (a)
Allocated travel, entertainment and other promotional expenses 1 (a) (a) (a) (a)
|
(a) Rounds to less than one.
SALES CHARGES (dollars in thousands)
CONNECTICUT FUND
Year ended October 31, 2005
-----------------------------------------------
Class A Class B Class C Class G Class T
------- ------- ------- ------- -------
Aggregate initial sales charges on Fund share sales $29 N/A N/A N/A $1
Aggregate CDSC retained by CMD Fund share sales 0 20 (a) (a) 0
Initial sales charges retained by CMD 3 N/A N/A N/A 0
|
MASSACHUSETTS FUND
Class A Class B Class C Class G Class T
------- ------- ------- ------- -------
Aggregate initial sales charges on Fund share sales $82 N/A N/A N/A $5
Aggregate CDSC retained by CMD Fund share sales 0 19 (a) (a) 0
Initial sales charges retained by CMD 2 N/A N/A N/A 0
|
NEW JERSEY FUND
Class A Class B Class C Class G Class T
------- ------- ------- ------- -------
Aggregate initial sales charges on Fund share sales $26 N/A N/A N/A $2
Aggregate CDSC retained by CMD Fund share sales 0 5 (a) 0 0
Initial sales charges retained by CMD 2 N/A N/A N/A 0
|
(a) Rounds to less than one.
t
NEW YORK FUND
Class A Class B Class C Class G Class T
------- ------- ------- ------- -------
Aggregate initial sales charges on Fund share sales $10 N/A N/A N/A $ (a)
Aggregate CDSC retained by CMD Fund share sales 3 13 (a) (a) 0
Initial sales charges retained by CMD 1 N/A N/A N/A 0
|
RHODE ISLAND FUND
Class A Class B Class C Class G Class T
------- ------- ------- ------- -------
Aggregate initial sales charges on Fund share sales $4 N/A N/A N/A $ (a)
Aggregate CDSC retained by CMD Fund share sales 0 5 (a) 3 0
Initial sales charges retained by CMD 2 N/A N/A N/A 0
|
CONNECTICUT FUND
Year ended October 31, 2004
-----------------------------------------------
Class A Class B Class C Class G Class T
------- ------- ------- ------- -------
Aggregate initial sales charges on Fund share sales $29 N/A N/A N/A $1
Aggregate CDSC retained by CFD Fund share sales 2 10 5 (a) 0
Initial sales charges retained by CFD 4 N/A N/A N/A (a)
|
MASSACHUSETTS FUND
Class A Class B Class C Class G Class T
------- ------- ------- ------- -------
Aggregate initial sales charges on Fund share sales $82 N/A N/A N/A $5
Aggregate CDSC retained by CFD Fund share sales (a) 10 3 3 0
Initial sales charges retained by CFD 11 N/A N/A N/A 1
|
NEW JERSEY FUND
Class A Class B Class C Class G Class T
------- ------- ------- ------- -------
Aggregate initial sales charges on Fund share sales $26 N/A N/A N/A $2
Aggregate CDSC retained by CFD Fund share sales 6 4 6 (a) 0
Initial sales charges retained by CFD 3 N/A N/A N/A (a)
|
NEW YORK FUND
Class A Class B Class C Class G Class T
------- ------- ------- ------- -------
Aggregate initial sales charges on Fund share sales $10 N/A N/A N/A (a)
Aggregate CDSC retained by CFD Fund share sales 7 25 6 (a) 0
Initial sales charges retained by CFD 1 N/A N/A N/A (a)
|
RHODE ISLAND FUND
Class A Class B Class C Class G Class T
------- ------- ------- ------- -------
Aggregate initial sales charges on Fund share sales $4 N/A N/A N/A $2
Aggregate CDSC retained by CFD Fund share sales 0 5 2 2 0
Initial sales charges retained by CFD (a) N/A N/A N/A (a)
|
(a) Rounds to less than one.
u
CONNECTICUT FUND
Year ended October 31, 2003
-----------------------------------------------
Class A Class B Class C Class G Class T
------- ------- ------- ------- -------
Aggregate CDSC retained by CFD Fund share sales 0 9,992 7,189 242 3,890
Initial sales charges retained by CFD 15,407 N/A N/A N/A 444
|
MASSACHUSETTS FUND
Class A Class B Class C Class G Class T
------- ------- ------- ------- -------
Aggregate CDSC retained by CFD Fund share sales 4,983 1,875 1,276 969 9,980
Initial sales charges retained by CFD 17,305 N/A N/A N/A 0
|
NEW JERSEY FUND
Class A Class B Class C Class G Class T
------- ------- ------- ------- -------
Aggregate CDSC retained by CFD Fund share sales 0 5,423 1,558 312 N/A
Initial sales charges retained by CFD 6,404 N/A N/A N/A 2,723
|
NEW YORK FUND
Class A Class B Class C Class G Class T
------- ------- ------- ------- -------
Aggregate CDSC retained by CFD Fund share sales 4,489 98 229 226 N/A
Initial sales charges retained by CFD 6,274 N/A N/A N/A 40
|
RHODE ISLAND FUND
Class A Class B Class C Class G Class T
------- ------- ------- ------- -------
Aggregate CDSC retained by CFD Fund share sales 0 1,693 4,275 1,554 N/A
Initial sales charges retained by CFD 1,231 N/A N/A N/A 0
|
12B-1 PLAN, CDSCS AND CONVERSION OF SHARES
All of the Funds offer Class A, Class B, Class C, Class T, Class G and Class Z shares. The Funds may in the future offer other classes of shares.
The Trustees have approved a 12b-1 Plan ("Plan") pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, each Fund pays CMD monthly a service fee at an annual rate of 0.25% of each Fund's average daily net assets attributed to Class A, B and C shares.
The Funds also pay CMD monthly a distribution fee at an annual rate of 0.75% of each Fund's average daily net assets attributed to Class B and Class C shares.
Each Fund may pay CMD distribution and service fees up to a maximum of 1.15% of such Fund's average daily net assets attributable to Class G shares (comprised of up to 0.65% for distribution services, up to 0.25% for shareholder liaison services and up to 0.25% for administrative support services). Each Fund does not intend to pay more than a total of 0.80% for Class G distribution and shareholder service fees during the current fiscal year.
CMD may use the entire amount of such fees to defray the cost of commissions and service fees paid to FSFs and for certain other purposes. Since the distribution and service fees are payable regardless of the amount of CMD's expenses, CMD may realize a profit from the fees.
The Plan authorizes any other payments by the Funds to CMD and its affiliates (including the Advisor) to the extent that such payments might be construed to be indirect financing of the distribution of Fund shares. The Trustees believe the Plan could be a significant factor in the growth and retention of the Funds' assets resulting in more advantageous expense ratios and increased investment flexibility which could benefit each class of Fund shareholders. The Plan will continue in effect from year to year so long as continuance is specifically approved at least annually by a vote of the Trustees, including the Trustees who are not interested persons of the Trust and have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan (Independent Trustees), cast in person at
a meeting called for the purpose of voting on the Plan. The Plan may not be amended to increase the fee materially without approval by vote of a majority of the outstanding voting securities of the relevant class of shares and all material amendments of the Plan must be approved by the Trustees in the manner provided in the foregoing sentence. The Plan may be terminated at any time by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding voting securities of the relevant class of shares. The continuance of the Plan will only be effective if the selection and nomination of the Trustees who are not interested persons of the Trust is effected by such disinterested Trustees.
Class T shares of the Funds are subject to a shareholder servicing fee pursuant to a Shareholder Servicing Plan. Under the Shareholder Servicing Plan, a Fund may enter into agreements with institutions pursuant to which an institution agrees to provide certain administrative and support services to its customers who are the beneficial owners of Class T shares. Services provided by such institutions to their customers include aggregating and processing purchase and redemption requests and placing net purchase and redemption orders. In return for providing these services, the Fund agrees to pay each institution a fee at an annual rate of up to 0.50% of the average daily net assets attributable to Class T shares owned beneficially by the institution's customers.
Current service arrangements are limited to payments of 0.15% for all the Funds except the Rhode Island Fund, whose service arrangement payments are limited to 0.00%.
Under the Shareholder Servicing Plan, the Trustees must review, at least quarterly, a written report of the amounts paid under the servicing agreements and the purposes for which those expenditures were made. The initial term of the Shareholder Servicing Plan is one year and it will continue in effect from year to year after its initial one-year term provided that its continuance is specifically approved at least annually by a majority of the Trustees, including a majority of the Independent Trustees who have no direct or indirect financial interest in the operation of the Shareholder Servicing Plan or in any agreement related to it. Any material amendment to the Shareholder Servicing Plan must be approved in the same manner. The Shareholder Servicing Plan is terminable at any time with respect to any Fund by a vote of a majority of the Independent Trustees. While the Shareholder Servicing Plan is in effect, only the Independent Trustees may select and nominate any future Independent Trustees.
Class A shares are offered at net asset value plus varying sales charges which may include a CDSC. Class B shares are offered at net asset value and are subject to a CDSC if redeemed within a certain number of years after purchase depending on the program you purchased your shares under. Class C shares are offered at net asset value and are subject to a 1.00% CDSC on redemptions within one year after purchase. Class G shares are offered at net asset value and are subject to a CDSC if redeemed within a certain number of years after purchase depending on when you purchased your shares that were exchanged for Class G shares. Class T shares are offered at net asset value plus varying sales charges which may include a CDSC. Class Z shares are offered at net asset value and are not subject to a CDSC. The CDSCs are described in the Prospectuses.
No CDSC will be imposed on shares derived from reinvestment of distributions or amounts representing capital appreciation. In determining the applicability and rate of any CDSC, it will be assumed that a redemption is made first of shares representing capital appreciation, next of shares representing reinvestment of distributions and finally of other shares held by the shareholder for the longest period of time.
Eight years, after the end of the month in which a Class B share is purchased, such share and a pro rata portion of any shares issued on the reinvestment of distributions will be automatically converted into Class A shares having an equal value, which are not subject to the distribution fee.
Eight years, depending on when you purchased your shares that were exchanged for Class G shares, after the end of the month in which you purchased your shares that were exchanged for Class G shares, such Class G shares and a pro rata portion of any shares issued on the reinvestment of distributions will be automatically converted into Class T shares having an equal value, which are not subject to the distribution fee.
w
OWNERSHIP OF THE FUNDS
As of record on January 31, 2006, the Trustees and officers of the Trust as a group beneficially owned less than 1% of the then outstanding Classes A, B, C, T, G or Z of the Funds.
As of record on January 31, 2006, the following shareholders of record owned 5% or more of the shares of classes of the Funds noted below:
CONNECTICUT FUND
Class Account Percent (%)
----- ------- -----------
A NFS LLC FEBO 5.19
Hubertus Riedel
Ruth Riedel
337 Middlesex Road
Darien, CT 06820-2516
A UBS Financial Services Inc. 6.48
Richard Hosley
44 Hamre Lane
Branford, CT 06405-3736
A UBS Financial Services, Inc. 7.45
Sharon Hosley
44 Hamre Lane
Branford, CT 06405-3736
A Citigroup Global Markets, Inc. 39.85
House Account
Attn: Peter Booth, 7th Floor
333 W 34th Street
New York, NY 10001-2402
A Merrill Lynch Pierce Fenner & Smith 10.45
For the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive, E. Floor 3
Jacksonville, FL 32246-6484
B Merrill Lynch Pierce Fenner & Smith 25.77
For the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive, E. Floor 3
Jacksonville, FL 32246-6484
B UBS Financial Services Inc. FBO 5.35
Gabriel G Haddad and Karen K Haddad
7550 Eads Ave. Unit 203
La Jolla, CA 92037-4809
C Citigroup Global Markets, Inc. 7.69
House Account
Attn: Peter Booth, 7th Floor
333 W 34th Street
New York, NY 10001-2402
|
Class Account Percent (%)
----- ------- -----------
C Merrill Lynch Pierce Fenner & Smith 14.80
For the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive, E. Floor 3
Jacksonville, FL 32246-6484
C First Clearing, LLC 5.26
Michael P. Budney Rev Trust
Michael P. Budney Trustee
242 Wethersfield Road
Berlin, CT 06037
G NFS LLC FEBO 12.72
Charles & Jane Hazen Living Trust
Jane W. Hazen
10 Oxford Drive
West Hartford, CT 06107-1621
G NFS LLC FEBO 6.67
Darlene Kirychuk-Francis
425 N Main Street
Wallingford, CT 0649-3210
G NFS LLC FEBO 38.70
Richard L. Massey
261 Pomperaug Woods
Southbury, CT 06488-3801
G NFS LLC FEBO 13.85
Anthony Fiorello II
L Ruth Fiorello
20 Red Fox Road
Stratford, CT 06614-2239
G NFS LLC FEBO 13.34
Zivko Blude
60 Colonial Drive
Stratford, CT 06614-2226
T Kelly F Shackelford 6.62
PO Box 672
New Canaan, CT 06840-0672
Z Bank of America 94.68
Attn: Joan Wray/Funds Accounting
411 N Akard Street
Dallas, TX 75201-3307
|
y
MASSACHUSETTS FUND
Class Account Percent (%)
----- ------- -----------
A Merrill Lynch Pierce Fenner & Smith 8.71
For the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive, E. Floor 3
Jacksonville, FL 32246-6484
A Charles Schwab & Co. 24.27
Attn: Mutual Funds Department
101 Montgomery Street
San Francisco, CA 94104-4122
B Pershing LLC 5.13
PO Box 2052
Jersey City, NJ 07303-2052
G NFS LLC FEBO 25.30
Margaret A Geraghty
The Margaret A Geraghty Trust
253 Needham Street
Dedham, MA 02026-7018
G NFS LLC FEBO 9.40
Michael Ashmore
Ann M. Evans-Ashmore
108 Keepsake Lane
Chadds Ford, PA 19317-9702
G NFS LLC FEBO 12.96
Kathleen McLaughlin
370 Charles River Road
Watertown, MA 02472-2738
C Merrill Lynch Pierce Fenner & Smith 12.47
For the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive, E. Floor 3
Jacksonville, FL 32246-6484
T NFS LLC FEBO 5.79
Karen K DER
8 Lenox Circle
Andover, MA 01810-5429
T NFS LLC FEBO 5.84
Eric R Cosman
872 Concord Avenue
Belmont, MA 02478-1604
Z Bank of America NA 98.31
Attn: Joan Wray/Funds Accounting
411 N Akard Street
Dallas, TX 75201-3307
|
z
NEW JERSEY FUND
Class Account Percent (%)
----- ------- -----------
A Bear Stearns Securities Corp. 23.52
1 Metrotech Center N
Brooklyn, NY 11201-3870
A Merrill Lynch Pierce Fenner & Smith 9.64
For the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive, E. Floor 3
Jacksonville, FL 32246-6484
A Dean Witter for the Benefit of Alice B Eaton 6.31
PO Box 250 Church Street Station
New York, NY 10008-0250
A Charles Schwab & Co. Inc. Cust 12.85
Attn: Mutual Funds Department
101 Montgomery Street
San Francisco, CA 94104-4122
B NFS LLC FEBO 6.05
Tommaso Morin
Maria Morin
1100 Keswick Place
Fort Lee, NJ 07024-1616
C NFS LLC FEBO 8.02
Marie Gattie
62 Ludlow Road
Parsippany, NJ 07054-3511
C NFS LLC FEBO 6.47
Steven Alesio
Luana Burcvl Alesio
87 Westminister Road
Chatham, NJ 07928-1363
C Bear Stearns Securities Corp. 6.58
1 Metrotech Center N
Brooklyn, NY 11201-3870
C Merrill Lynch Pierce Fenner & Smith 23.05
For the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive, E. Floor 3
Jacksonville, FL 32246-6484
C First Clearing LLC 5.62
Peter A Staats
PO Box 106
Belle Mead, NJ 08502-0106
C First Clearing LLC 5.24
Frank Gatti
25 Dawson Lane
Monroe TWP, NJ 08831
|
aa
Class Account Percent (%)
----- ------- -----------
C First Clearing LLC 5.24
Amelia Gatti
25 Dawson Lane
Jamesburg, NJ 08831
G Cynthia L. Peterson 6.92
68 Davidson Avenue
Ramsey, NJ 07446-1465
G NFS LLC FEBO 82.16
James Zouvelekis
68 Lake Shore Drive
Parsippany, NJ 07054-3941
T NFS LLC FEBO 7.43
John R Wright
Maria N Wright
706 Princeton Kingston Road
Princeton, NJ 08540-4124
T RU T Lu 5.23
3 W Doris Drive
Cherry Hill, NJ 08003-2955
Z Bank of America 94.54
Attn: Joan Wray/Funds Accounting
411 N Akard Street
Dallas, TX 75201-3307
|
NEW YORK FUND
Class Account Percent (%)
----- ------- -----------
A Charles Schwab & Co Inc Cust 19.91
Attn: Mutual Funds Department
101 Montgomery Street
San Francisco, CA 94104-4122
B Merrill Lynch Pierce Fenner & Smith 23.07
For the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive, E. Floor 3
Jacksonville, FL 32246-6484
B NFS LLC FEBO 6.01
Emma Persico
56 Millsburg Road
Middletown, NY 10940-8410
C Merrill Lynch Pierce Fenner & Smith 41.44
For the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive, E. Floor 3
Jacksonville, FL 32246-6484
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bb
Class Account Percent (%)
----- ------- -----------
C Citigroup Global Markets, Inc. 12.52
House Account
Attn: Peter Booth, 7th Floor
333 W 34th Street
New York, NY 10001-2402
G Shelly J Masters 13.69
60 Morrow Ave Apt 6AN
Scarsdale, NY 10583-8153
G Daniel J Balzano Tod 9.35
1 Spaulding Lane
Inwood, NY 11096-1219
G NFS LLC FEBO 29.54
Michael F Mucia
222 Manitau Road
Cayuga, NY 13034-4117
G NFS LLC FEBO 27.46
Jean B Friss
1005 Paul Avenue
Schenectady, NY 12306-2803
G NFS LLC FEBO 14.67
Frank Williams
20535 Linden Blvd
Saint Albans, NY 11412-2925
Z Bank of America NA 97.68
Attn: Joan Wray/Funds Accounting
411 N Akard Street
Dallas, TX 75201-3307
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RHODE ISLAND FUND
Class Account Percent (%)
----- ------- -----------
A NFS LLC FEBO 13.30
Stephen Ryan
9 Duck Cove Road
N Kingstown, RI 02852-6240
A Citigroup Global Markets, Inc. 9.28
House Account
Attn: Peter Booth, 7th Floor
333 W 34th Street
New York, NY 10001-2402
A Dean Witter for the Benefit of 5.33
K Mancini Sr Trustee Jacquelyn
PO Box 250 Church Street Station
New York, NY 10008-0250
A Dean Witter FBO 20.11
Management Prop & Inv Ventures Inc
PO Box 250
New York, NY 10008-0250
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Class Account Percent (%)
----- ------- -----------
B NFS LLC FEBO 23.92
Constance Dixon
99 Colorado Avenue
Warwick, RI 02888-3043
B NFS LLC FEBO 31.15
Sidney I Brody Trustee
Sidney I Brody Trust
9 White Hill Lane
Cumberland, RI 02864-4258
B NFS LLC FEBO 9.51
Gerald C Meagher
40 Greenwood Ave
Warwick, RI 02886-3024
C Pershing LLC 15.63
PO Box 2052
Jersey City, NJ 07303-2052
C Merrill Lynch Pierce Fenner & Smith 44.00
For the Sole Benefit of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive E. 2nd Floor
Jacksonville, FL 32246-6484
C First Clearing LLC 7.64
George W. Gaulin Germaine
Gaulin Co Trustees George W
1174 Logee Street
Woonsocket, RI 02895
C Legg Mason Wood Walker Inc 6.79
PO Box 1476
Baltimore, MD 21203-1476
G NFS LLC FEBO 7.30
Anastasia Tsonos
Tod John C Tsonos
12 Nevada Ave
Rumford, RI 02916-2407
G NFS LLC FEBO 27.99
Phyllis J Silverstein
28 Kennedy Blvd
Lincoln, RI 02865-3602
G NFS LLC FEBO 13.98
Eva M Deconti
Marcy M Smith
93 Park Forest Road
Cranston, RI 02920-3657
G NFS LLC FEBO 12.76
Lorraine D Delisle
278 Albion Road
Lincoln, RI 02852-6240
|
Class Account Percent (%)
----- ------- -----------
G NFS LLC FEBO 8.91
Jose A Severino
22 Set N Sun Drive
Hope, RI 02831-1830
G NFS LLC FEBO 16.07
Anthony Krasuzki
200 Heroux Blvd Unit 1505
Cumberland, RI 02864-2388
G NFS LLC FEBO 12.98
Hermino Severino
27 Atlantic Ave
Providence, RI 02907-1804
T John J Almeida Trust 5.69
John J Almeida Revocable Trust
U/A Dated May 15, 1997
27 Topmast Court
Jamestown, RI 02835-2227
T Charles Schwab & Co. Inc. 9.41
Attn: Mutual Funds
101 Montgomery Street
San Francisco, CA 94104-4122
Z Bank of America NA 97.64
Attn: Joan Wray/Funds Accounting
411 N Akard Street
Dallas, TX 75201-3307
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CUSTODIAN
State Street Bank & Trust Company, located at 2 Avenue De Lafayette, Boston, MA 02111-2900, is the Funds' custodian. The custodian is responsible for safeguarding the Funds' cash and securities, receiving and delivering securities and collecting the Funds' interest and dividends.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP, located at 125 High Street, Boston, Massachusetts 02110-1707, is the independent registered public accounting firm for the Funds, providing audit and tax return review services and assistance and consultation in connection with the review of various Securities and Exchange Commission filings. For prior periods ended October 31, 2003, 2002 and 2001, another firm served as the Funds' independent registered public accounting firm. The financial statements incorporated by reference in this SAI have been so incorporated, and the financial highlights in the Prospectuses have been so included, in reliance upon the reports of PricewaterhouseCoopers LLP for the years ended October 31, 2005 and October 31, 2004. The financial highlights in the Prospectuses for the fiscal years ended October 31, 2003, 2002 and 2001, have been so included in reliance upon the reports of another independent registered public accounting firm.
ee
STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to most funds advised by the Advisor. "Funds" include the series of Columbia Funds Trust I, Columbia Funds Trust II, Columbia Funds Trust III, Columbia Funds Trust IV, Columbia Funds Trust V, Columbia Funds Trust VI, Columbia Funds Trust VIII, Columbia Funds Series Trust I (formerly named Columbia Funds Trust IX) and Columbia Funds Trust XI (each a Trust and together, the Trusts). In certain cases, the discussion applies to some, but not all, of the Funds, and you should refer to your Fund's Prospectus and to Part 1 of this Statement of Additional Information ("SAI") to determine whether the matter is applicable to your Fund. You will also be referred to Part 1 for certain data applicable to your Fund.
MISCELLANEOUS INVESTMENT PRACTICES
PART 1 OF THIS SAI LISTS ON PAGE B WHICH OF THE FOLLOWING INVESTMENT PRACTICES
ARE AVAILABLE TO YOUR FUND. IF AN INVESTMENT PRACTICE IS NOT LISTED IN PART 1 OF THIS SAI, IT IS NOT APPLICABLE TO YOUR FUND.
SHORT-TERM TRADING
In seeking the Fund's investment goal, the Advisor will buy or sell portfolio securities whenever it believes it is appropriate. The Advisor's decision will not generally be influenced by how long the Fund may have owned the security. From time to time, the Fund will buy securities intending to seek short-term trading profits. A change in the securities held by the Fund is known as "portfolio turnover" and generally involves some expense to the Fund. These expenses may include brokerage commissions or dealer mark-ups and other transaction costs on both the sale of securities and the reinvestment of the proceeds in other securities. If sales of portfolio securities cause the Fund to realize net short-term capital gains, such gains will be taxable as ordinary income. As a result of the Fund's investment policies, under certain market conditions the Fund's portfolio turnover rate may be higher than that of other mutual funds. The Fund's portfolio turnover rate for a fiscal year is the ratio of the lesser of purchases or sales of portfolio securities to the monthly average of the value of portfolio securities, excluding securities whose maturities at acquisition were one year or less. The Fund's portfolio turnover rate is not a limiting factor when the Advisor considers a change in the Fund's portfolio.
SHORT SALES
A Fund's short sales are subject to special risks. A short sale involves the sale by the Fund of a security that it does not own with the hope of purchasing the same security at a later date at a lower price. In order to deliver the security to the buyer, the Fund borrows the security from a third party. The Fund is then obligated to return the security to the third party, so the Fund must purchase the security at the market price at a later point in time. If the price of the security has increased during this time, then the Fund will incur a loss equal to the increase in price of the security from the time that the short sale was entered into plus any premiums and interest paid to the third party. Therefore, short sales involve the risk that losses may be exaggerated, potentially losing more money than the actual cost of the security. Also, there is the risk that the third party to the short sale may fail to honor its contract terms, causing a loss to the Fund.
LOWER-RATED DEBT SECURITIES
Lower-rated debt securities are those rated lower than Baa by Moody's or BBB by S&P, or comparable unrated debt securities. Relative to debt securities of higher quality,
1. an economic downturn or increased interest rates may have a more significant effect on the yield, price and potential for default for lower-rated debt securities;
2. the secondary market for lower-rated debt securities may at times become less liquid or respond to adverse publicity or investor perceptions, increasing the difficulty in valuing or disposing of the bonds;
3. the Advisor's credit analysis of lower-rated debt securities may have a greater impact on the Fund's achievement of its investment goal; and
4. lower-rated debt securities may be less sensitive to interest rate changes, but are more sensitive to adverse economic developments.
In addition, certain lower-rated debt securities may not pay interest in cash on a current basis.
SMALL COMPANIES
Smaller, less well established companies may offer greater opportunities for capital appreciation than larger, better established companies, but may also involve certain special risks related to limited product lines, markets, or financial resources and dependence on a small management group. Their securities may trade less frequently, in smaller volumes, and fluctuate more sharply in value than securities of larger companies.
COMMON STOCK, PREFERRED STOCK AND WARRANTS
Common stocks are generally more volatile than other securities. Preferred stocks share some of the characteristics of both debt and equity investments and are generally preferred over common stocks with respect to dividends and in liquidation. A warrant is an instrument issued by a corporation which gives the holder the right to subscribe to a specified amount of the company's capital stock at a set price for a specified period of time.
FOREIGN SECURITIES
The Fund may invest in securities traded in markets outside the United States. Foreign investments can be affected favorably or unfavorably by changes in currency rates and in exchange control regulations. There may be less publicly available information about a foreign company than about a U.S. company, and foreign companies may not be subject to accounting, auditing and financial reporting standards comparable to those applicable to U.S. companies. Securities of some foreign companies are less liquid or more volatile than securities of U.S. companies, and foreign brokerage commissions and custodian fees may be higher than in the United States. Investments in foreign securities can involve other risks different from those affecting U.S. investments, including local political or economic developments, expropriation or nationalization of assets and imposition of withholding taxes on dividend or interest payments. Foreign securities, like other assets of the Fund, will be held by the Fund's custodian or by a sub-custodian or depository. See also "Foreign Currency Transactions" below.
The Fund may invest in certain Passive Foreign Investment Companies (PFICs) which may be subject to U.S. federal income tax on a portion of any "excess distribution" or gain (PFIC tax) related to the investment. This "excess distribution" will be allocated over the Fund's holding period for such investment. The PFIC tax is the highest ordinary income rate in effect for any period multiplied by the portion of the "excess distribution" allocated to such period, and it could be increased by an interest charge on the deemed tax deferral.
The Fund may possibly elect to include in its income its pro rata share of the ordinary earnings and net capital gain of PFICs. This election requires certain annual information from the PFICs which in many cases may be difficult to obtain. An alternative election would permit the Fund to recognize as income any appreciation (and to a limited extent, depreciation) on its holdings of PFICs as of the end of its fiscal year. See "Taxes" below.
The Fund may invest in other investment companies. Such investments will involve the payment of duplicative fees through the indirect payment of a portion of the expenses, including advisory fees, of such other investment companies.
EXCHANGE-TRADED FUNDS ("ETFS"). The Fund may invest in ETFs up to the maximum amount allowable under the 1940 Act. ETFs are shares of publicly-traded unit investment trusts, open-end funds, or depositary receipts that seek to track the performance and dividend yield of specific indexes or companies in related industries. These indexes may be either broad-based, sector or international.
ETF shareholders are generally subject to the same risks as holders of the underlying securities they are designed to track. ETFs are also subject to certain additional risks, including (1) the risk that their prices may not correlate perfectly with changes in the prices of the underlying securities they are designed to track; and (2) the risk of possible trading halts due to market conditions or other reasons, based on the policies of the exchange upon which an ETF trades. In addition, an exchange traded sector fund may be adversely affected by the performance of that specific sector or group of industries on which it is based.
The Fund would bear, along with other shareholders of an ETF, its pro rata portion of the ETF's expenses, including management fees. Accordingly, in addition to bearing their proportionate share of the Fund's expenses (i.e., management fees and operating expenses), shareholders of the Fund may also indirectly bear similar expenses of an ETF.
ZERO COUPON SECURITIES ("ZEROS")
The Fund may invest in Zeros, which are securities issued at a significant discount from face value and do not pay interest at intervals during the life of the security. Zeros include securities issued in certificates representing undivided interests in the interest or principal of mortgage-backed securities (interest only/principal only), which tend to be more volatile than other types of securities. The Fund will accrue and distribute income from stripped securities and certificates on a current basis and may have to sell securities to generate cash for distributions.
STEP COUPON BONDS ("STEPS")
The Fund may invest in debt securities, known as Steps, which pay interest at a series of different rates (including 0%) in accordance with a stated schedule for a series of periods. In addition to the risks associated with the credit rating of the issuers, these securities may be subject to more volatility risk than fixed rate debt securities.
TENDER OPTION BONDS
A tender option bond is a municipal security (generally held pursuant to a custodial arrangement) having a relatively long maturity and bearing interest at a fixed rate substantially higher than prevailing short-term tax-exempt rates, that has been coupled with the agreement of a third party, such as a bank, broker-dealer or other financial institution, pursuant to which such institution grants the security holders the option, at periodic intervals, to tender their securities to the institution and receive the face value thereof. As consideration for providing the option, the financial institution receives periodic fees equal to the difference between the municipal security's fixed coupon rate and the rate, as determined by a remarketing or similar agent at or near the commencement of such period, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term tax-exempt rate. The Advisor will consider on an ongoing basis the creditworthiness of the issuer of the underlying municipal securities, of any custodian, and of the third-party provider of the tender option. In certain instances and for certain tender option bonds, the option may be terminable in the event of a default in payment of principal or interest on the underlying municipal securities and for other reasons.
PAY-IN-KIND ("PIK") SECURITIES
The Fund may invest in securities which pay interest either in cash or additional securities. These securities are generally high yield securities and, in addition to the other risks associated with investing in high yield securities, are subject to the risks that the interest payments which consist of additional securities are also subject to the risks of high yield securities.
MONEY MARKET INSTRUMENTS
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their subdivisions, agencies and instrumentalities. SUPRANATIONAL OBLIGATIONS are issued by supranational entities and are generally designed to promote economic improvements. CERTIFICATES OF DEPOSIT are issued against deposits in a commercial bank with a defined return and maturity. BANKER'S ACCEPTANCES are used to finance the import, export or storage of goods and are "accepted" when guaranteed at maturity by a bank. COMMERCIAL PAPER is a promissory note issued by a business to finance short-term needs (including promissory notes with floating or variable interest rates, or including a frequent interval put feature). SHORT-TERM CORPORATE OBLIGATIONS are bonds and notes (with one year or less to maturity at the time of purchase) issued by businesses to finance long-term needs. PARTICIPATION INTERESTS include the underlying securities and any related guaranty, letter of credit, or collateralization arrangement in which the Fund would be allowed to invest directly.
CERTIFICATES OF DEPOSIT are short-term negotiable instruments issued against deposits in a commercial bank with a defined return and maturity. TIME DEPOSITS are non-negotiable deposits maintained in banking institutions for specified periods of time at stated interest rates.
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their subdivisions, agencies and instrumentalities. Examples of the types of obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities (hereinafter, "U.S. Government obligations") that may be held by the Funds include, without limitation, direct obligations of the U.S. Treasury, and securities issued or guaranteed by the Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association, Federal National Mortgage Association, General Services Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks, Resolution Trust Corporation and Maritime Administration.
U.S. Treasury securities differ only in their interest rates, maturities and time of issuance: Treasury Bills have initial maturities of one year or less; Treasury Notes have initial maturities of one to ten years; and Treasury Bonds generally have initial maturities of more than ten years. Obligations of certain agencies and instrumentalities of the U.S. Government, such as those of the Government National Mortgage Association, are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Federal Home Loan Banks, are supported by the right of the issuer to borrow from the Treasury; others, such as those of the Federal National Mortgage Association, are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; still others, such as those of the Federal Home Loan Mortgage Corporation, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government would provide financial support to U.S. Government-sponsored instrumentalities if it is not obligated to do so by law. Some of these instruments may be variable or floating rate instruments.
Securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities have historically involved relatively little risk of loss of principal. However, due to fluctuations in interest rates, the market value of such securities may vary during the period a shareholder owns shares of the Fund.
BANK OBLIGATIONS include bankers' acceptances, negotiable certificates of deposit, and non-negotiable time deposits issued for a definite period of time and earning a specified return by a U.S. bank which is a member of the Federal Reserve System or is insured by the Federal Deposit Insurance Corporation ("FDIC"), or by a savings and loan association or savings bank which is insured by the FDIC. Bank obligations also include U.S. dollar-denominated obligations of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of the same type as domestic bank obligations. Time deposits with a maturity longer than seven days or that do not provide for payment within seven days after notice will be subject to any limitations on illiquid securities described in Part 1 of this SAI. For purposes of each Fund's investment policies with respect to bank obligations, the assets of a bank or savings institution will be deemed to include the assets of its U.S. and foreign branches.
Domestic and foreign banks are subject to extensive but different government regulation which may limit the amount and types of their loans and the interest rates that may be charged. In addition, the profitability of the banking industry is largely dependent upon the availability and cost of funds to finance lending operations and the quality of underlying bank assets. Investments in obligations of foreign branches of U.S. banks and of U.S. branches of foreign banks may subject a Fund to additional risks, including future political and economic developments, the possible imposition of withholding taxes on interest income, possible seizure or nationalization of foreign deposits, the possible establishment of exchange controls, or the adoption of other foreign governmental restrictions which might adversely affect the payment of principal and interest on such obligations. In addition, foreign branches of U.S. banks and U.S. branches of foreign banks may be subject to less stringent reserve requirements and to different accounting, auditing, reporting, and recordkeeping standards than those applicable to domestic branches of U.S. banks.
SEPARATELY TRADED INTEREST AND PRINCIPAL SECURITIES ("STRIPS") are component parts of U.S. Treasury Securities traded through the Federal Reserve Book-Entry System. While there is no limitation on the percentage of a Fund's assets that may be invested in STRIPS, the Advisor will monitor the level of such holdings to avoid the risk of impairing shareholders' redemption rights. The interest-only component of STRIPS is extremely sensitive to the rate of principal payments on the underlying obligation. The market value of the principal-only component is usually volatile in response to changes in interest rates.
In U.S. TREASURY ROLLS, a Fund sells outstanding U.S. Treasury securities and buys back on a delayed settlement basis the same U.S. Treasury securities. During the period prior to the delayed settlement date, the assets from the sale of the U.S. Treasury securities are invested in certain cash equivalent instruments. U.S. Treasury rolls entail the risk that the Fund could suffer an opportunity loss if the counterparty to the roll failed to perform its obligations on the settlement date, and if market conditions changed adversely. The Funds intend to enter into U.S. Treasury rolls only with U.S. Government securities dealers recognized by the Federal Reserve Bank or with member banks of the Federal Reserve System. The Funds will hold and maintain in a
segregated account until the settlement date cash or other liquid assets in an amount equal to the forward purchase price. For financial reporting and tax purposes, the Funds propose to treat U.S. Treasury rolls as two separate transactions, one involving the purchase of a security and a separate transaction involving a sale.
COMMERCIAL PAPER is an unsecured short-term promissory note issued by businesses to finance short-term needs (including those with floating or variable interest rates, or including a frequent interval put feature). Commercial paper may include variable and floating rate instruments which are unsecured instruments that permit the indebtedness thereunder to vary. Variable rate instruments provide for periodic adjustments in the interest rate. Floating rate instruments provide for automatic adjustment of the interest rate whenever some other specified interest rate changes. Some variable and floating rate obligations are direct lending arrangements between the purchaser and the issuer and there may be no active secondary market. However, in the case of variable and floating rate obligations with a demand feature, a Fund may demand payment of principal and accrued interest at a time specified in the instrument or may resell the instrument to a third party. In the event that an issuer of a variable or floating rate obligation were to default on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and could, for this or other reasons, suffer a loss to the extent of the default.
Commercial paper may include securities issued by corporations without registration under the 1933 Act in reliance on the so-called "private placement" exemption in Section 4(2) ("Section 4(2) Paper"). Section 4(2) Paper is restricted as to disposition under the federal securities laws in that any resale must similarly be made in an exempt transaction. Section 4(2) Paper is normally resold to other institutional investors through or with the assistance of investment dealers who make a market in Section 4(2) Paper, thus providing liquidity. For purposes of each Fund's limitation on purchases of illiquid instruments described below, Section 4(2) Paper will not be considered illiquid if the Advisor has determined, in accordance with guidelines approved by the Board of Trustees, that an adequate trading market exists for such securities.
STRIPPED OBLIGATIONS
To the extent consistent with their investment objective, Funds may purchase U.S. Treasury receipts and other "stripped" securities that evidence ownership in either the future interest payments or the future principal payments on U.S. Government and other obligations. These participations, which may be issued by the U.S. Government or by private issuers, such as banks and other institutions, are issued at their "face value," and may include stripped mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage securities. Stripped securities, particularly SMBS, may exhibit greater price volatility than ordinary debt securities because of the manner in which their principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive different proportions of the interest and principal distributions from a pool of mortgage-backed obligations. A common type of SMBS will have one class receiving all of the interest, while the other class will receive all of the principal. However, in some instances, one class will receive some of the interest and most of the principal while the other class will receive most of the interest and the remainder of the principal. If the underlying obligations experience greater than anticipated prepayments of principal, the Fund may fail to fully recoup its initial investment in these securities. The market value of the class consisting entirely of principal payments generally is extremely volatile in response to changes in interest rates. The yields on a class of SMBS that receives all or most of the interest are generally higher than prevailing market yields on other mortgage-backed obligations because their cash flow patterns are more volatile and there is a greater risk that the initial investment will not be fully recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government agency or instrumentality) are considered illiquid by the Funds. Obligations issued by the U.S. Government may be considered liquid under guidelines established by Funds' Board of Trustees if they can be disposed of promptly in the ordinary course of business at a value reasonably close to that used in the calculation of net asset value per share.
MUNICIPAL SECURITIES
Municipal Securities acquired by the Funds include debt obligations issued by governmental entities to obtain funds for various public purposes, including the construction of a wide range of public facilities, the refunding of outstanding obligations, the payment of general operating expenses, and the extension of loans to public institutions and facilities. Private activity bonds that are issued by or on behalf of public authorities to finance various privately operated facilities are "Municipal Securities" if the interest paid thereon is exempt from regular federal income tax and not treated as a specific tax preference item under the federal alternative minimum tax.
The two principal classifications of Municipal Securities which may be held by the Funds are "general obligation" securities and "revenue" securities. General obligation securities are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue securities are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific revenue source such as the user of the facility being financed.
The Fund's portfolio may also include "moral obligation" securities, which are normally issued by special purpose public authorities. If the issuer of moral obligation securities is unable to meet its debt service obligations from current revenues, it may draw on a reserve fund, the restoration of which is a moral commitment but not a legal obligation of the state or municipality which created the issuer. There is no limitation on the amount of moral obligation securities that may be held by the Funds.
There are, of course, variations in the quality of Municipal Securities, both within a particular category and between categories, and the yields on Municipal Securities depend upon a variety of factors, including general market conditions, the financial condition of the issuer, general conditions of the municipal bond market, the size of a particular offering, the maturity of the obligation, and the rating of the issue. The ratings of a nationally recognized statistical rating organization ("NRSRO"), such as Moody's and S&P, represent such NRSRO's opinion as to the quality of Municipal Securities. It should be emphasized that these ratings are general and are not absolute standards of quality. Municipal Securities with the same maturity, interest rate and rating may have different yields. Municipal Securities of the same maturity and interest rate with different ratings may have the same yield.
Municipal Securities may include rated and unrated variable and floating rate tax-exempt instruments, such as variable rate demand notes. Variable rate demand notes are long-term Municipal Securities that have variable or floating interest rates and provide a Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on an applicable interest index or another published interest rate or interest rate index. Most variable rate demand notes allow a Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit a Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. Variable interest rates generally reduce changes in the market value of Municipal Securities from their original purchase prices. Accordingly, as interest rates decrease, the potential for capital appreciation is less for variable rate Municipal Securities than for fixed income obligations. The terms of these variable rate demand instruments require payment of principal and accrued interest from the issuer of the Municipal Securities, the issuer of the participation interest or a guarantor of either issuer.
Municipal Securities purchased by the Funds in some cases may be insured as to the timely payment of principal and interest. There is no guarantee, however, that the insurer will meet its obligations in the event of a default in payment by the issuer. In other cases, Municipal Securities may be backed by letters of credit or guarantees issued by domestic or foreign banks or other financial institutions which are not subject to federal deposit insurance. Adverse developments affecting the banking industry generally or a particular bank or financial institution that has provided its credit or guarantee with respect to a Municipal Security held by a Fund, including a change in the credit quality of any such bank or financial institution, could result in a loss to the Fund and adversely affect the value of its shares. Letters of credit and guarantees issued by foreign banks and financial institutions involve certain risks in addition to those of similar instruments issued by domestic banks and financial institutions.
The payment of principal and interest on most Municipal Securities purchased by the Funds will depend upon the ability of the issuers to meet their obligations. Each state, the District of Columbia, each of their political subdivisions, agencies, instrumentalities and authorities and each multi-state agency of which a state is a member is a separate "issuer" as that term is used in this SAI and the Prospectuses. The non-governmental user of facilities financed by private activity bonds is also considered to be an "issuer." An issuer's obligations under its Municipal Securities are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Code and laws, if any, which may be enacted by federal or state legislatures extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations or upon the ability of municipalities to levy taxes. The power or ability of an issuer to meet its obligations for the payment of interest on and principal of its Municipal Securities may be materially adversely affected by litigation or other conditions.
From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax exemption for interest on Municipal Securities. For example, under the Tax Reform Act of 1986, interest on certain
private activity bonds must be included in an investor's federal alternative minimum taxable income, and corporate investors must include all tax-exempt interest in their federal alternative minimum taxable income. The Funds cannot, of course, predict what legislation may be proposed in the future regarding the income tax status of interest on Municipal Securities, or which proposals, if any, might be enacted. Such proposals, while pending or if enacted, might materially and adversely affect the availability of Municipal Securities for investment by the Funds and the liquidity and value of their respective portfolios. In such an event, each Fund would re-evaluate its investment objective and policies and consider possible changes in its structure or possible dissolution.
Opinions relating to the validity of Municipal Securities and to the exemption of interest thereon from federal income tax are rendered by bond counsel to the respective issuers at the time of issuance. Neither the Funds nor the Advisor will review the proceedings relating to the issuance of Municipal Securities or the bases for such opinions.
PRIVATE ACTIVITY BONDS
The Funds may invest in "private activity bonds," the interest on which, although exempt from regular federal income tax, may constitute an item of tax preference for purposes of the federal alternative minimum tax. Private activity bonds are or have been issued to obtain funds to provide, among other things, privately operated housing facilities, pollution control facilities, convention or trade show facilities, mass transit, airport, port or parking facilities and certain local facilities for water supply, gas, electricity or sewage or solid waste disposal. Private activity bonds are also issued to privately held or publicly owned corporations in the financing of commercial or industrial facilities. State and local governments are authorized in most states to issue private activity bonds for such purposes in order to encourage corporations to locate within their communities. The principal and interest on these obligations may be payable from the general revenues of the users of such facilities.
Private activity bonds held by the Funds are in most cases revenue securities and are not payable from the unrestricted revenues of the issuer. Consequently, the credit quality of such private activity bonds is usually directly related to the credit standing of the corporate user of the facility involved.
MUNICIPAL LEASE OBLIGATIONS
Although a municipal lease obligation does not constitute a general obligation of the municipality for which the municipality's taxing power is pledged, a municipal lease obligation is ordinarily backed by the municipality's covenant to budget for, appropriate and make the payments due under the municipal lease obligation. However, certain lease obligations contain "non-appropriation" clauses which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. Although "non-appropriation" lease obligations are secured by the leased property, disposition of the property in the event of foreclosure might prove difficult. In addition, the tax treatment of such obligations in the event of non-appropriation is unclear.
Determinations concerning the liquidity and appropriate valuation of a municipal lease obligation, as with any other municipal security, are made based on all relevant factors. These factors include, among others: (1) the frequency of trades and quotes for the obligation; (2) the number of dealers willing to purchase or sell the security and the number of other potential buyers; (3) the willingness of dealers to undertake to make a market in the security; and (4) the nature of the marketplace trades, including the time needed to dispose of the security, the method of soliciting offers, and the mechanics of the transfer.
SECURITIES LOANS
The Fund may make secured loans of its portfolio securities amounting to not more than the percentage of its total assets specified in Part 1 of this SAI, thereby realizing additional income. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delay in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. As a matter of policy, securities loans are made to banks and broker-dealers pursuant to agreements requiring that loans be continuously secured by collateral in cash or short-term debt obligations at least equal at all times to the value of the securities on loan. The borrower pays to the Fund an amount equal to any dividends or interest received on securities lent. The Fund retains all or a portion of the interest received on investment of the cash collateral or receives a fee from the borrower. Although voting rights, or rights to consent, with respect to the loaned securities pass to the borrower, the Fund retains the right to call the loans at any time on reasonable notice, and it will do so in order that the securities may be voted by
the Fund if the holders of such securities are asked to vote upon or consent to matters materially affecting the investment. The Fund may also call such loans in order to sell the securities involved.
INTERFUND BORROWING AND LENDING
The Fund may lend money to and borrow money from other affiliated registered open-end investment companies. The Fund may borrow through the program when the Advisor believes borrowing is appropriate and the costs are equal to or lower than the costs of bank loans. When borrowing money, the Fund is subject to the risk that the securities the Fund acquires with the borrowed money or would otherwise have sold will decline in value. When lending money, the Fund is subject to the risk that the borrower will be unwilling or unable to make timely payments of interest or principal.
FORWARD COMMITMENTS ("WHEN-ISSUED" AND "DELAYED DELIVERY" SECURITIES)
The Fund may enter into contracts to purchase securities for a fixed price at a future date beyond customary settlement time ("forward commitments" and "when-issued securities") if the Fund holds until the settlement date, in a segregated account, cash or liquid securities in an amount sufficient to meet the purchase price, or if the Fund enters into offsetting contracts for the forward sale of other securities it owns. Forward commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date. Where such purchases are made through dealers, the Fund relies on the dealer to consummate the sale. The dealer's failure to do so may result in the loss to the Fund of an advantageous yield or price. Although the Fund will generally enter into forward commitments with the intention of acquiring securities for its portfolio or for delivery pursuant to options contracts it has entered into, the Fund may dispose of a commitment prior to settlement if the Advisor deems it appropriate to do so. The Fund may realize short-term profits or losses (generally taxed at ordinary income tax rates in the hands of the shareholders) upon the sale of forward commitments.
MORTGAGE DOLLAR ROLLS
In a mortgage dollar roll, the Fund sells a mortgage-backed security and simultaneously enters into a commitment to purchase a similar security at a later date. The Fund either will be paid a fee by the counterparty upon entering into the transaction or will be entitled to purchase the similar security at a discount. As with any forward commitment, mortgage dollar rolls involve the risk that the counterparty will fail to deliver the new security on the settlement date, which may deprive the Fund of obtaining a beneficial investment. In addition, the security to be delivered in the future may turn out to be inferior to the security sold upon entering into the transaction. In addition, the transaction costs may exceed the return earned by the Fund from the transaction.
REITS
The Funds may invest in real estate investment trusts ("REITs"). Equity REITs invest directly in real property while mortgage REITs invest in mortgages on real property. REITs may be subject to certain risks associated with the direct ownership of real estate, including declines in the value of real estate, risks related to general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, and variations in rental income. Generally, increases in interest rates will decrease the value of high yielding securities and increase the costs of obtaining financing, which could decrease the value of a REIT's investments. In addition, equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of credit extended. Equity and mortgage REITs are dependent upon management skill, are not diversified and are subject to the risks of financing projects. REITs are also subject to heavy cash flow dependency, defaults by borrowers, self liquidation and the possibility of failing to qualify for tax-free pass-through of income under the Internal Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from the 1940 Act. REITs pay dividends to their shareholders based upon available funds from operations. It is quite common for these dividends to exceed a REIT's taxable earnings and profits resulting in the excess portion of such dividends being designated as a return of capital. The Funds intend to include the gross dividends from any investments in REITs in their periodic distributions to its shareholders and, accordingly, a portion of the Fund's distributions may also be designated as a return of capital.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities, including "collateralized mortgage obligations" (CMOs) and "real estate mortgage investment conduits" (REMICs), evidence ownership in a pool of mortgage loans made by certain financial institutions that may be insured or guaranteed by the U.S. government or its agencies. CMOs are obligations issued by special-purpose trusts, secured by
mortgages. REMICs are entities that own mortgages and elect REMIC status under the Internal Revenue Code. Both CMOs and REMICs issue one or more classes of securities of which one (the Residual) is in the nature of equity. The Funds will not invest in the Residual class. Principal on mortgage-backed securities, CMOs and REMICs may be prepaid if the underlying mortgages are prepaid. Prepayment rates for mortgage-backed securities tend to increase as interest rates decline (effectively shortening the security's life) and decrease as interest rates rise (effectively lengthening the security's life). Because of the prepayment feature, these securities may not increase in value as much as other debt securities when interest rates fall. A Fund may be able to invest prepaid principal only at lower yields. The prepayment of such securities purchased at a premium may result in losses equal to the premium.
NON-AGENCY MORTGAGE-BACKED SECURITIES
The Fund may invest in non-investment grade mortgage-backed securities that are not guaranteed by the U.S. government or an agency. Such securities are subject to the risks described under "Lower Rated Debt Securities" and "Mortgage-Backed Securities." In addition, although the underlying mortgages provide collateral for the security, the Fund may experience losses, costs and delays in enforcing its rights if the issuer defaults or enters bankruptcy.
ASSET-BACKED SECURITIES
Asset-backed securities are interests in pools of debt securities backed by various types of loans such as credit card, auto and home equity loans. These securities involve prepayment risk, which is the possibility that the underlying debt may be refinanced or prepaid prior to maturity during periods of declining interest rates. During periods of rising interest rates, asset-backed securities have a high risk of declining in price because the declining prepayment rates effectively lengthen the expected maturity of the securities. A decline in interest rates may lead to a faster rate of repayment on asset-backed securities and, therefore, cause a Fund to earn a lower interest rate on reinvestment. In addition, the potential impact of prepayment on the price of an asset-backed security may be difficult to predict and result in greater volatility.
CUSTODY RECEIPTS AND TRUST CERTIFICATES. Custody receipts, such as Morgan Stanley TRACERs (Traded Custody Receipts), and trust certificates, such as Lehman Brothers TRAINs (Targeted Return Index Securities Trust), are derivative products which, in the aggregate, evidence direct ownership in a pool of securities. Typically, a sponsor will deposit a pool of securities with a custodian in exchange for custody receipts evidencing those securities or with a trust in exchange for trust certificates evidencing interests in the trust, the principal asset of which is those securities. The sponsor will then generally sell those custody receipts or trust certificates in negotiated transactions at varying prices that are determined at the time of sale. Each custody receipt or trust certificate evidences the individual securities in the pool and the holder of a custody receipt or trust certificate generally will have all the rights and privileges of owners of those securities. Each holder of a custody receipt or trust certificate generally will be treated as directly purchasing its pro rata share of the securities in the pool for an amount equal to the amount that such holder paid for its custody receipt or trust certificate. If a custody receipt or trust certificate is sold, a holder will be treated as having directly "disposed of its pro rata share of the securities evidenced by the custody receipt or trust certificate. Additionally, the holder of a custody receipt or trust certificate may withdraw the securities represented by the custody receipt or trust certificate subject to certain conditions. Custody receipts and trust certificates are generally subject to the same risks as those securities evidenced by the receipts or certificates which, in the case of the Fund, are corporate debt securities. Additionally, custody receipts and trust certificates may also be less liquid than the underlying securities if the sponsor fails to maintain a trading market.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. A repurchase agreement is a contract under which the Fund acquires a security for a relatively short period subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price (representing the Fund's cost plus interest). It is the Fund's present intention to enter into repurchase agreements only with commercial banks and registered broker-dealers and only with respect to obligations of the U.S. government or its agencies or instrumentalities. Repurchase agreements may also be viewed as loans made by the Fund which are collateralized by the securities subject to repurchase. The Advisor will monitor such transactions to determine that the value of the underlying securities is at least equal at all times to the total amount of the repurchase obligation, including the interest factor. If the seller defaults, the Fund could realize a loss on the sale of the underlying security to the extent that the proceeds of sale including accrued interest are less than the resale price provided in the agreement including interest. In addition, if the seller should be involved in bankruptcy or insolvency proceedings, the Fund may incur delay and costs in selling the
underlying security or may suffer a loss of principal and interest if the Fund is treated as an unsecured creditor and required to return the underlying collateral to the seller's estate.
REVERSE REPURCHASE AGREEMENTS
In a reverse repurchase agreement, the Fund sells a security and agrees to repurchase the same security at a mutually agreed upon date and price. A reverse repurchase agreement may also be viewed as the borrowing of money by the Fund and, therefore, as a form of leverage. The Fund will invest the proceeds of borrowings under reverse repurchase agreements. In addition, the Fund will enter into a reverse repurchase agreement only when the interest income expected to be earned from the investment of the proceeds is greater than the interest expense of the transaction. The Fund will not invest the proceeds of a reverse repurchase agreement for a period which exceeds the duration of the reverse repurchase agreement. The Fund may not enter into reverse repurchase agreements exceeding in the aggregate one-third of the market value of its total assets, less liabilities other than the obligations created by reverse repurchase agreements. Each Fund will establish and maintain with its custodian a separate account with a segregated portfolio of securities in an amount at least equal to its purchase obligations under its reverse repurchase agreements. If interest rates rise during the term of a reverse repurchase agreement, entering into the reverse repurchase agreement may have a negative impact on a money market fund's ability to maintain a net asset value of $1.00 per share.
LINE OF CREDIT
The Fund may establish and maintain a line of credit with a major bank in order to permit borrowing on a temporary basis to meet share redemption requests in circumstances in which temporary borrowings may be preferable to liquidation of portfolio securities.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The Fund may write covered call options and covered put options on securities held in its portfolio when, in the opinion of the Advisor, such transactions are consistent with the Fund's investment goal and policies. Call options written by the Fund give the purchaser the right to buy the underlying securities from the Fund at a stated exercise price; put options give the purchaser the right to sell the underlying securities to the Fund at a stated price.
The Fund may write only covered options, which means that, so long as the Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option (or comparable securities satisfying the cover requirements of securities exchanges). In the case of put options, the Fund will hold cash and/or high-grade short-term debt obligations equal to the price to be paid if the option is exercised. In addition, the Fund will be considered to have covered a put or call option if and to the extent that it holds an option that offsets some or all of the risk of the option it has written. The Fund may write combinations of covered puts and calls on the same underlying security.
The Fund will receive a premium from writing a put or call option, which increases the Fund's return on the underlying security if the option expires unexercised or is closed out at a profit. The amount of the premium reflects, among other things, the relationship between the exercise price and the current market value of the underlying security, the volatility of the underlying security, the amount of time remaining until expiration, current interest rates, and the effect of supply and demand in the options market and in the market for the underlying security. By writing a call option, the Fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option but continues to bear the risk of a decline in the value of the underlying security. By writing a put option, the Fund assumes the risk that it may be required to purchase the underlying security for an exercise price higher than its then-current market value, resulting in a potential capital loss unless the security subsequently appreciates in value.
The Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an offsetting option. The Fund realizes a profit or loss from a closing transaction if the cost of the transaction (option premium plus transaction costs) is less or more than the premium received from writing the option. Because increases in the market price of a call option generally reflect increases in the market price of the security underlying the option, any loss resulting from a closing purchase transaction may be offset in whole or in part by unrealized appreciation of the underlying security.
If the Fund writes a call option but does not own the underlying security, and when it writes a put option, the Fund may be required to deposit cash or securities with its broker as "margin" or collateral for its obligation to buy or sell the underlying security. As the value of the underlying security varies, the Fund may have to deposit additional margin with the broker. Margin requirements are complex and are fixed by individual brokers, subject to minimum requirements currently imposed by the Federal Reserve Board and by stock exchanges and other self-regulatory organizations.
PURCHASING PUT OPTIONS. The Fund may purchase put options to protect its portfolio holdings in an underlying security against a decline in market value. Such hedge protection is provided during the life of the put option since the Fund, as holder of the put option, is able to sell the underlying security at the put exercise price regardless of any decline in the underlying security's market price. For a put option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs. By using put options in this manner, the Fund will reduce any profit it might otherwise have realized from appreciation of the underlying security by the premium paid for the put option and by transaction costs.
PURCHASING CALL OPTIONS. The Fund may purchase call options to hedge against an increase in the price of securities that the Fund wants ultimately to buy. Such hedge protection is provided during the life of the call option since the Fund, as holder of the call option, is able to buy the underlying security at the exercise price regardless of any increase in the underlying security's market price. In order for a call option to be profitable, the market price of the underlying security must rise sufficiently above the exercise price to cover the premium and transaction costs. These costs will reduce any profit the Fund might have realized had it bought the underlying security at the time it purchased the call option.
OVER-THE-COUNTER ("OTC") OPTIONS. The Staff of the Division of Investment Management of the Securities and Exchange Commission (SEC) has taken the position that OTC options purchased by the Fund and assets held to cover OTC options written by the Fund are illiquid securities. Although the Staff has indicated that it is continuing to evaluate this issue, pending further developments, the Fund intends to enter into OTC options transactions only with primary dealers in U.S. government securities and, in the case of OTC options written by the Fund, only pursuant to agreements that will assure that the Fund will at all times have the right to repurchase the option written by it from the dealer at a specified formula price. The Fund will treat the amount by which such formula price exceeds the amount, if any, by which the option may be "in-the-money" as an illiquid investment. It is the present policy of the Fund not to enter into any OTC option transaction if, as a result, more than 15% (10% in some cases, refer to your Fund's Prospectus) of the Fund's net assets would be invested in (i) illiquid investments (determined under the foregoing formula) relating to OTC options written by the Fund, (ii) OTC options purchased by the Fund, (iii) securities which are not readily marketable, and (iv) repurchase agreements maturing in more than seven days.
RISK FACTORS IN OPTIONS TRANSACTIONS. The successful use of the Fund's options strategies depends on the ability of the Advisor to forecast interest ra8te and market movements correctly.
When it purchases an option, the Fund runs the risk that it will lose its entire investment in the option in a relatively short period of time, unless the Fund exercises the option or enters into a closing sale transaction with respect to the option during the life of the option. If the price of the underlying security does not rise (in the case of a call) or fall (in the case of a put) to an extent sufficient to cover the option premium and transaction costs, the Fund will lose part or all of its investment in the option. This contrasts with an investment by the Fund in the underlying securities, since the Fund may continue to hold its investment in those securities notwithstanding the lack of a change in price of those securities.
The effective use of options also depends on the Fund's ability to terminate option positions at times when the Advisor deems it desirable to do so. Although the Fund will take an option position only if the Advisor believes there is a liquid secondary market for the option, there is no assurance that the Fund will be able to effect closing transactions at any particular time or at an acceptable price.
If a secondary trading market in options were to become unavailable, the Fund could no longer engage in closing transactions. Lack of investor interest might adversely affect the liquidity of the market for particular options or series of options. A marketplace may discontinue trading of a particular option or options generally. In addition, a market could become temporarily unavailable if unusual events - such as volume in excess of trading or clearing capability - were to interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on particular types of option transactions, which may limit the Fund's ability to realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options purchased or sold by the Fund could result in losses on the options. If trading is interrupted in an underlying security, the trading of options on that security is normally halted as well. As a result, the Fund as purchaser or writer of an option will be unable to close out its positions until options trading resumes, and it may be faced with losses if trading in the security reopens at a substantially different price. In addition, the Options Clearing Corporation (OCC) or other options markets may impose exercise restrictions. If a prohibition on exercise is imposed at the time when trading in the option has also been halted, the Fund as purchaser or writer of an option will be locked into its position until one of the two restrictions has been lifted. If a prohibition on exercise remains in effect until an option owned by the Fund has expired, the Fund could lose the entire value of its option.
Special risks are presented by internationally traded options. Because of time differences between the United States and various foreign countries, and because different holidays are observed in different countries, foreign options markets may be open for trading during hours or on days when U.S. markets are closed. As a result, option premiums may not reflect the current prices of the underlying interest in the United States.
FUTURES CONTRACTS AND RELATED OPTIONS
Upon entering into futures contracts, in compliance with the SEC's requirements, cash or liquid securities, equal in value to the amount of the Fund's obligation under the contract (less any applicable margin deposits and any assets that constitute "cover" for such obligation), will be segregated with the Fund's custodian.
A futures contract sale creates an obligation by the seller to deliver the type of instrument called for in the contract in a specified delivery month for a stated price. A futures contract purchase creates an obligation by the purchaser to take delivery of the type of instrument called for in the contract in a specified delivery month at a stated price. The specific instruments delivered or taken at the settlement date are not determined until on or near that date. The determination is made in accordance with the rules of the exchanges on which the futures contract was made. The Fund may enter into futures contracts which are traded on national or foreign futures exchanges and are standardized as to maturity date and underlying financial instrument. Futures exchanges and trading in the United States are regulated under the Commodity Exchange Act by the Commodity Futures Trading Commission (CFTC).
Although futures contracts by their terms call for actual delivery or acceptance of commodities or securities, the contracts usually are closed out before the settlement date without the making or taking of delivery. Closing out a futures contract sale is effected by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument or commodity with the same delivery date. If the price of the initial sale of the futures contract exceeds the price of the offsetting purchase, the seller is paid the difference and realizes a gain. Conversely, if the price of the offsetting purchase exceeds the price of the initial sale, the seller realizes a loss. Similarly, the closing out of a futures contract purchase is effected by the purchaser's entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, the purchaser realizes a gain, and if the purchase price exceeds the offsetting sale price, the purchaser realizes a loss.
Unlike when the Fund purchases or sells a security, no price is paid or received by the Fund upon the purchase or sale of a futures contract, although the Fund is required to deposit with its custodian in a segregated account in the name of the futures broker an amount of cash and/or U.S. government securities. This amount is known as "initial margin." The nature of initial margin in futures transactions is different from that of margin in security transactions in that futures contract margin does not involve the borrowing of funds by the Fund to finance the transactions. Rather, initial margin is in the nature of a performance bond or good faith deposit on the contract that is returned to the Fund upon termination of the futures contract, assuming all contractual obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin," to and from the broker (or the custodian) are made on a daily basis as the price of the underlying security or commodity fluctuates, making the long and short positions in the futures contract more or less valuable, a process known as "marking to market."
The Fund may elect to close some or all of its futures positions at any time prior to their expiration. The purpose of making such a move would be to reduce or eliminate the hedge position then currently held by the Fund. The Fund may close its positions by taking opposite positions which will operate to terminate the Fund's position in the futures contracts. Final determinations of variation margin are then made, additional cash is required to be paid by or released to the Fund, and the Fund realizes a loss or a gain. Such closing transactions involve additional commission costs.
INTEREST RATE FUTURES CONTRACTS. Bond prices are established in both the cash market and the futures market. In the cash market, bonds are purchased and sold with payment for the full purchase price of the bond being made in cash, generally within five business days after the trade. In the futures market, only a contract is made to purchase or sell a bond in the future for a set price on a certain date. Historically, the prices for bonds established in the futures markets have tended to move generally in the aggregate in concert with the cash market prices and have maintained fairly predictable relationships. Accordingly, the Funds may use interest rate futures contracts as a defense, or hedge, against anticipated interest rate changes. The Funds presently could accomplish a similar result to that which they hope to achieve through the use of futures contracts by selling bonds with long maturities and investing in bonds with short maturities when interest rates are expected to increase, or conversely, selling short-term bonds and investing in long-term bonds when interest rates are expected to decline. However, because of the liquidity that is often available in the futures market, the protection is more likely to be achieved, perhaps at a lower cost and without changing the rate of interest being earned by the Funds, through using futures contracts.
Interest rate futures contracts are traded in an auction environment on the floors of several exchanges - principally, the Chicago Board of Trade, the Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would deal only in standardized contracts on recognized exchanges. Each exchange guarantees performance under contract provisions through a clearing corporation, a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial instruments including long-term United States Treasury Bonds and Notes; Government National Mortgage Association (GNMA) modified pass-through mortgage backed securities; three-month United States Treasury Bills; and ninety-day commercial paper. The Funds may trade in any interest rate futures contracts for which there exists a public market, including, without limitation, the foregoing instruments.
MUNICIPAL BOND INDEX FUTURES CONTRACTS. Municipal bond index futures contracts may act as a hedge against changes in market conditions. A municipal bond index assigns values daily to the municipal bonds included in the index based on the independent assessment of dealer-to-dealer municipal bond brokers. A municipal bond index futures contract represents a firm commitment by which two parties agree to take or make delivery of an amount equal to a specified dollar amount multiplied by the difference between the municipal bond index value on the last trading date of the contract and the price at which the futures contract is originally struck. No physical delivery of the underlying securities in the index is made.
The Chicago Board of Trade has designed a futures contract based on the Bond Buyer Municipal Bond Index. This Index is composed of 40 term revenue and general obligation bonds, and its composition is updated regularly as new bonds meeting the criteria of the Index are issued and existing bonds mature. The Index is intended to provide an accurate indicator of trends and changes in the municipal bond market. Each bond in the Index is independently priced by six dealer-to-dealer municipal bond brokers daily. The 40 prices then are averaged and multiplied by a coefficient. The coefficient is used to maintain the continuity of the Index when its composition changes. The Chicago Board of Trade, on which futures contracts based on this Index are traded, as well as other U.S. commodities exchanges, are regulated by the CFTC. Transactions on such exchange are cleared through a clearing corporation, which guarantees the performance of the parties to each contract.
OPTIONS ON FUTURES CONTRACTS. The Fund will enter into written options on futures contracts only when, in compliance with the SEC's requirements, cash or liquid securities equal in value to the commodity value (less any applicable margin deposits) have been deposited in a segregated account. The Fund may purchase and write call and put options on futures contracts it may buy or sell and enter into closing transactions with respect to such options to terminate existing positions. The Fund may use such options on futures contracts in lieu of writing options directly on the underlying securities or purchasing and selling the underlying futures contracts. Such options generally operate in the same manner as options purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate his position by selling or purchasing an offsetting option. There is no guarantee that such closing transactions can be effected.
The Fund will be required to deposit initial margin and maintenance margin with respect to put and call options on futures contracts written by it pursuant to brokers' requirements similar to those described above.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use of futures contracts by the Fund is subject to the Advisor's ability to predict correctly, movements in the direction of interest rates and other factors affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or put options on futures contracts involves less potential risk to the Fund because the maximum amount at risk is the premium paid for the options (plus transaction costs). However, there may be circumstances when the purchase of a call or put option on a futures contract would result in a loss to the Fund when the purchase or sale of a futures contract would not, such as when there is no movement in the prices of the hedged investments. The writing of an option on a futures contract involves risks similar to those risks relating to the sale of futures contracts.
There is no assurance that higher than anticipated trading activity or other unforeseen events might not, at times, render certain market clearing facilities inadequate, and thereby result in the institution, by exchanges, of special procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the Fund, the Fund may seek to close out a position. The ability to establish and close out positions will be subject to the development and maintenance of a liquid secondary market. It is not certain that this market will develop or continue to exist for a particular futures contract. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain contracts or options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of contracts or options, or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or a clearing corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of contracts or options (or a particular class or series of contracts or options), in which event the secondary market on that exchange (or in the class or series of contracts or options) would cease to exist, although outstanding contracts or options on the exchange that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms.
USE BY TAX-EXEMPT FUNDS OF INTEREST RATE AND U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. The Funds investing in tax-exempt securities may purchase and sell futures contracts and related options on interest rate and U.S. Treasury securities when, in the opinion of the Advisor, price movements in these security futures and related options will correlate closely with price movements in the tax-exempt securities which are the subject of the hedge. Interest rate and U.S. Treasury securities futures contracts require the seller to deliver, or the purchaser to take delivery of, the type of security called for in the contract at a specified date and price. Options on interest rate and U.S. Treasury security futures contracts give the purchaser the right in return for the premium paid to assume a position in a futures contract at the specified option exercise price at any time during the period of the option.
In addition to the risks generally involved in using futures contracts, there is also a risk that price movements in interest rate and U.S. Treasury security futures contracts and related options will not correlate closely with price movements in markets for tax-exempt securities.
INDEX FUTURES CONTRACTS. An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of an index is commonly referred to as buying or purchasing a contract or holding a long position in the index. Entering into a contract to sell units of an index is commonly referred to as selling a contract or holding a short position. A unit is the current value of the index. The Fund may enter into stock index futures contracts, debt index futures contracts, or other index futures contracts appropriate to its objective(s). The Fund may also purchase and sell options on index futures contracts.
There are several risks in connection with the use by the Fund of index futures as a hedging device. One risk arises because of the imperfect correlation between movements in the prices of the index futures and movements in the prices of securities which are the subject of the hedge. The Advisor will attempt to reduce this risk by selling, to the extent possible, futures on indices the movements of which will, in its judgment, have a significant correlation with movements in the prices of the Fund's portfolio securities sought to be hedged.
Successful use of index futures by the Fund for hedging purposes is also subject to the Advisor's ability to predict correctly movements in the direction of the market. It is possible that, where the Fund has sold futures to hedge its portfolio against a decline in the market, the index on which the futures are written may advance and the value of securities held in the Fund's portfolio may decline. If this occurs, the Fund would lose money on the futures and also experience a decline in the value of its portfolio securities. However, while this could occur to a certain degree, the Advisor believes that over time the value of the
Fund's portfolio will tend to move in the same direction as the market indices which are intended to correlate to the price movements of the portfolio securities sought to be hedged. It is also possible that, if the Fund has hedged against the possibility of a decline in the market adversely affecting securities held in its portfolio and securities prices increase instead, the Fund will lose part or all of the benefit of the increased values of those securities that it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient cash, it may have to sell securities to meet daily variation margin requirements.
In addition to the possibility that there may be an imperfect correlation, or no correlation at all, between movements in the index futures and the securities of the portfolio being hedged, the prices of index futures may not correlate perfectly with movements in the underlying index due to certain market distortions. First, all participants in the futures markets are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions which would distort the normal relationship between the index and futures markets. Second, margin requirements in the futures market are less onerous than margin requirements in the securities market, and as a result, the futures market may attract more speculators than the securities market. Increased participation by speculators in the futures market may also cause temporary price distortions. Due to the possibility of price distortions in the futures market and also because of the imperfect correlation between movements in the index and movements in the prices of index futures, even a correct forecast of general market trends by the Advisor may still not result in a successful hedging transaction.
OPTIONS ON INDEX FUTURES. Options on index futures are similar to options on securities except that options on index futures give the purchaser the right, in return for the premium paid, to assume a position in an index futures contract (a long position if the option is a call and a short position if the option is a put), at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's futures margin account which represents the amount by which the market price of the index futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the index future. If an option is exercised on the last trading day prior to the expiration date of the option, the settlement will be made entirely in cash equal to the difference between the exercise price of the option and the closing level of the index on which the future is based on the expiration date. Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss of the premium paid.
OPTIONS ON INDICES. As an alternative to purchasing call and put options on index futures, the Fund may purchase call and put options on the underlying indices themselves. Such options could be used in a manner identical to the use of options on index futures. Options involving securities indices provide the holder with the right to make or receive a cash settlement upon exercise of the option based on movements in the relevant index. Such options must be listed on a national securities exchange and issued by the Options Clearing Corporation. Such options may relate to particular securities or to various stock indices, except that a Fund may not write covered options on an index.
OPTIONS ON FOREIGN STOCK INDICES. The Funds may, for the purpose of hedging its portfolio, subject to applicable securities regulations, purchase and write put and call options on foreign stock indices listed on foreign and domestic stock exchanges. A stock index fluctuates with changes in the market values of the stocks included in the index.
SWAP AGREEMENTS (SWAPS, CAPS, COLLARS AND FLOORS)
The Funds may enter into interest rate swaps, currency swaps, and other types of swap agreements such as caps, collars, and floors. In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate times a "notional principal amount," in return for payments equal to a fixed rate times the same amount, for a specified period of time. If a swap agreement provides for payments in different currencies, the parties might agree to exchange notional principal amount as well. Swaps may also depend on other prices or rates, such as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed upon level. An interest rate collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from one type of investment to another. For example, if a Fund agreed to exchange payments in dollars for payments in foreign currency, the swap agreement would tend to decrease the Fund's exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates. Caps and floors have an effect similar to buying or writing options. Depending on how they are used, swap agreements may increase or decrease the overall volatility of a Fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a small investment of cash relative to the magnitude of risks assumed. As a result, swaps can be highly volatile and may have a considerable impact on the Funds' performance. Swap agreements are subject to risks related to the counterparty's ability to perform, and may decline in value if the counterparty's creditworthiness deteriorates. The Funds may also suffer losses if they are unable to terminate outstanding swap agreements or reduce their exposure through offsetting transactions.
EQUITY SWAPS
The Fund may engage in equity swaps. Equity swaps allow the parties to the swap agreement to exchange components of return on one equity investment (e.g., a basket of equity securities or an index) for a component of return on another non-equity or equity investment, including an exchange of differential rates of return. Equity swaps may be used to invest in a market without owning or taking physical custody of securities in circumstances where direct investment may be restricted for legal reasons or is otherwise impractical. Equity swaps also may be used for other purposes, such as hedging or seeking to increase total return.
RISK FACTORS IN EQUITY SWAP TRANSACTIONS. Equity swaps are derivative instruments and their values can be very volatile. To the extent that the portfolio managers do not accurately analyze and predict the potential relative fluctuation on the components swapped with the other party, the Fund may suffer a loss. The value of some components of an equity swap (such as the dividend on a common stock) may also be sensitive to changes in interest rates. Furthermore, during the period a swap is outstanding, the Fund may suffer a loss if the counterparty defaults. See "Taxes" for information on tax risks associated with equity swaps.
FOREIGN CURRENCY TRANSACTIONS
The Fund may engage in currency exchange transactions to protect against uncertainty in the level of future currency exchange rates.
The Fund may engage in both "transaction hedging" and "position hedging." When it engages in transaction hedging, the Fund enters into foreign currency transactions with respect to specific receivables or payables of the Fund generally arising in connection with the purchase or sale of its portfolio securities. The Fund will engage in transaction hedging when it desires to "lock in" the U.S. dollar price of a security it has agreed to purchase or sell, or the U.S. dollar equivalent of a dividend or interest payment in a foreign currency. By transaction hedging the Fund attempts to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and the applicable foreign currency during the period between the date on which the security is purchased or sold, or on which the dividend or interest payment is declared, and the date on which such payments are made or received.
The Fund may purchase or sell a foreign currency on a spot (or cash) basis at the prevailing spot rate in connection with the settlement of transactions in portfolio securities denominated in that foreign currency. The Fund may also enter into contracts to purchase or sell foreign currencies at a future date ("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes the Fund may also purchase exchange-listed and over-the-counter call and put options on foreign currency futures contracts and on foreign currencies. Over-the-counter options are considered to be illiquid by the SEC staff. A put option on a futures contract gives the Fund the right to assume a short position in the futures contract until expiration of the option. A put option on currency gives the Fund the right to sell a currency at an exercise price until the expiration of the option. A call option on a futures contract gives the Fund the right to assume a long position in the futures contract until the expiration of the option. A call option on currency gives the Fund the right to purchase a currency at the exercise price until the expiration of the option.
When it engages in position hedging, the Fund enters into foreign currency exchange transactions to protect against a decline in the values of the foreign currencies in which its portfolio securities are denominated (or an increase in the value of currency for securities which the Fund expects to purchase, when the Fund holds cash or short-term investments). In connection with position hedging, the Fund may purchase put or call options on foreign currency and foreign currency futures contracts and buy or sell forward contracts and foreign currency futures contracts. The Fund may also purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions and the value of the portfolio securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the dates the currency exchange transactions are entered into and the dates they mature.
It is impossible to forecast with precision the market value of portfolio securities at the expiration or maturity of a forward or futures contract. Accordingly, it may be necessary for the Fund to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security or securities being hedged is less than the amount of foreign currency the Fund is obligated to deliver and if a decision is made to sell the security or securities and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security or securities if the market value of such security or securities exceeds the amount of foreign currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying prices of the securities which the Fund owns or intends to purchase or sell. They simply establish a rate of exchange which one can achieve at some future point in time. Additionally, although these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency, they tend to limit any potential gain which might result from the increase in value of such currency.
CURRENCY FORWARD AND FUTURES CONTRACTS. Upon entering into such contracts, in compliance with the SEC's requirements, cash or liquid securities, equal in value to the amount of the Fund's obligation under the contract (less any applicable margin deposits and any assets that constitute "cover" for such obligation), will be segregated.
A forward currency contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract as agreed by the parties, at a price set at the time of the contract. In the case of a cancelable contract, the holder has the unilateral right to cancel the contract at maturity by paying a specified fee. The contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. A contract generally has no deposit requirement, and no commissions are charged at any stage for trades. A currency futures contract is a standardized contract for the future delivery of a specified amount of a foreign currency at a future date at a price set at the time of the contract. Currency futures contracts traded in the United States are designed and traded on exchanges regulated by the CFTC, such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain respects. For example, the maturity date of a forward contract may be any fixed number of days from the date of the contract agreed upon by the parties, rather than a predetermined date in a given month. Forward contracts may be in any amounts agreed upon by the parties rather than predetermined amounts. Also, forward contracts are traded directly between currency traders so that no intermediary is required. A forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Fund may either accept or make delivery of the currency specified in the contract, or at or prior to maturity enter into a closing transaction involving the purchase or sale of an offsetting contract. Closing transactions with respect to forward contracts are usually effected with the currency trader who is a party to the original forward contract. Closing transactions with respect to futures contracts are effected on a commodities exchange; a clearing corporation associated with the exchange assumes responsibility for closing out such contracts.
Positions in currency futures contracts may be closed out only on an exchange or board of trade which provides a secondary market in such contracts. Although the Fund intends to purchase or sell currency futures contracts only on exchanges or boards of trade where there appears to be an active secondary market, there is no assurance that a secondary market on an exchange or board of trade will exist for any particular contract or at any particular time. In such event, it may not be possible to close a futures position and, in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin.
CURRENCY OPTIONS. In general, options on currencies operate similarly to options on securities and are subject to many similar risks. Currency options are traded primarily in the over-the-counter market, although options on currencies have recently been listed on several exchanges. Options are traded not only on the currencies of individual nations, but also on the European Currency Unit (ECU). The ECU is composed of amounts of a number of currencies, and is the official medium of exchange of the European Economic Community's European Monetary System.
The Fund will only purchase or write currency options when the Advisor believes that a liquid secondary market exists for such options. There can be no assurance that a liquid secondary market will exist for a particular option at any specified time. Currency options are affected by all of those factors which influence exchange rates and investments generally. To the extent that these options are traded over the counter, they are considered to be illiquid by the SEC staff.
The value of any currency, including the U.S. dollar, may be affected by complex political and economic factors applicable to the issuing country. In addition, the exchange rates of currencies (and therefore the values of currency options) may be significantly affected, fixed, or supported directly or indirectly by government actions. Government intervention may increase risks involved in purchasing or selling currency options, since exchange rates may not be free to fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in turn reflects relative values of two currencies, the U.S. dollar and the foreign currency in question. Because currency transactions occurring in the interbank market involve substantially larger amounts than those that may be involved in the exercise of currency options, investors may be disadvantaged by having to deal in an odd lot market for the underlying currencies in connection with options at prices that are less favorable than for round lots. Foreign governmental restrictions or taxes could result in adverse changes in the cost of acquiring or disposing of currencies.
There is no systematic reporting of last sale information for currencies and there is no regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Available quotation information is generally representative of very large round-lot transactions in the interbank market and thus may not reflect exchange rates for smaller odd-lot transactions (less than $1 million) where rates may be less favorable. The interbank market in currencies is a global, around-the-clock market. To the extent that options markets are closed while the markets for the underlying currencies remain open, significant price and rate movements may take place in the underlying markets that cannot be reflected in the options markets.
SETTLEMENT PROCEDURES. Settlement procedures relating to the Fund's investments in foreign securities and to the Fund's foreign currency exchange transactions may be more complex than settlements with respect to investments in debt or equity securities of U.S. issuers, and may involve certain risks not present in the Fund's domestic investments, including foreign currency risks and local custom and usage. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not charge a fee for currency conversion, they do realize a profit based on the difference (spread) between prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligation.
PARTICIPATION INTERESTS
The Fund may invest in municipal obligations either by purchasing them directly or by purchasing certificates of accrual or similar instruments evidencing direct ownership of interest payments or principal payments, or both, on municipal obligations, provided that, in the opinion of counsel to the initial seller of each such certificate or instrument, any discount accruing on such certificate or instrument that is purchased at a yield not greater than the coupon rate of interest on the related municipal obligations will be exempt from federal income tax to the same extent as interest on such municipal obligations. The Fund may also invest in tax-exempt obligations by purchasing from banks participation interests in all or part of specific holdings of municipal obligations. Such participations may be backed in whole or part by an irrevocable letter of credit or guarantee of the selling bank. The selling bank may receive a fee from the Fund in connection with the arrangement. The Fund will not purchase such participation interests unless it receives an opinion of counsel or a ruling of the Internal Revenue Service that interest earned by it on municipal obligations in which it holds such participation interests is exempt from federal income tax.
STAND-BY COMMITMENTS
When the Fund purchases municipal obligations, it may also acquire stand-by commitments from banks and broker-dealers with respect to such municipal obligations. A stand-by commitment is the equivalent of a put option acquired by the Fund with respect to a particular municipal obligation held in its portfolio. A stand-by commitment is a security independent of the municipal obligation to which it relates. The amount payable by a bank or dealer during the time a stand-by commitment is exercisable, absent unusual circumstances relating to a change in market value, would be substantially the same as the value of the underlying municipal obligation. A stand-by commitment might not be transferable by the Fund, although it could sell the underlying municipal obligation to a third party at any time.
The Fund expects that stand-by commitments generally will be available without the payment of direct or indirect consideration. However, if necessary and advisable, the Fund may pay for stand-by commitments either separately in cash or by paying a higher price for portfolio securities which are acquired subject to such a commitment (thus reducing the yield to maturity otherwise available for the same securities). The total amount paid in either manner for outstanding stand-by commitments held in the Fund portfolio will not exceed 10% of the value of the Fund's total assets calculated immediately after each stand-by commitment is acquired. The Fund will enter into stand-by commitments only with banks and broker-dealers that, in the judgment of the Trust's Board of Trustees, present minimal credit risks.
VARIABLE AND FLOATING RATE OBLIGATIONS
Variable rate instruments provide for periodic adjustments in the interest rate. Floating rate instruments provide for automatic adjustment of the interest rate whenever some other specified interest rate changes. Some variable and floating rate obligations are direct lending arrangements between the purchaser and the issuer and there may be no active secondary market. However, in the case of variable and floating rate obligations with a demand feature, a Fund may demand payment of principal and accrued interest at a time specified in the instrument or may resell the instrument to a third party. In the event an issuer of a variable or floating rate obligation defaulted on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and could, for this or other reasons, suffer a loss to the extent of the default. Variable or floating rate instruments issued or guaranteed by the U.S. Government or its agencies or instrumentalities are similar in form but may have a more active secondary market. Substantial holdings of variable and floating rate instruments could reduce portfolio liquidity.
If a variable or floating rate instrument is not rated, the Fund's Advisor must determine that such instrument is comparable to rated instruments eligible for purchase by the Funds and will consider the earning power, cash flows and other liquidity ratios of the issuers and guarantors of such instruments and will continuously monitor their financial status in order to meet payment on demand. In determining average weighted portfolio maturity of each of these Funds, a variable or floating rate instrument issued or guaranteed by the U.S. Government or an agency or instrumentality thereof will be deemed to have a maturity equal to the period remaining until the obligation's next interest rate adjustment. Variable and floating rate obligations with a demand feature will be deemed to have a maturity equal to the longer of the period remaining to the next interest rate adjustment or the demand notice period.
INVERSE FLOATERS
Inverse floaters are derivative securities whose interest rates vary inversely to changes in short-term interest rates and whose values fluctuate inversely to changes in long-term interest rates. The value of certain inverse floaters will fluctuate substantially more in response to a given change in long-term rates than would a traditional debt security. These securities have investment characteristics similar to leverage, in that interest rate changes have a magnified effect on the value of inverse floaters.
RULE 144A SECURITIES
The Fund may purchase securities that have been privately placed but that are eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933, as amended ("1933 Act"). That Rule permits certain qualified institutional buyers, such as the Fund, to trade in privately placed securities that have not been registered for sale under the 1933 Act. The Advisor, under the supervision of the Board of Trustees, will consider whether securities purchased under Rule 144A are illiquid and thus subject to the Fund's investment restriction on illiquid securities. A determination of whether a Rule 144A security is liquid or not is a question of fact. In making this determination, the Advisor will consider the trading markets for the specific security, taking
into account the unregistered nature of a Rule 144A security. In addition, the
Advisor could consider the (1) frequency of trades and quotes, (2) number of
dealers and potential purchasers, (3) dealer undertakings to make a market, and
(4) nature of the security and of marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers, and the mechanics of
transfer). The liquidity of Rule 144A securities will be monitored and, if as a
result of changed conditions, it is determined by the Advisor that a Rule 144A
security is no longer liquid, the Fund's holdings of illiquid securities would
be reviewed to determine what, if any, steps are required to assure that the
Fund does not exceed its investment limit on illiquid securities. Investing in
Rule 144A securities could have the effect of increasing the amount of the
Fund's assets invested in illiquid securities if qualified institutional buyers
are unwilling to purchase such securities.
CURRENCY SWAPS. Currency swaps involve the exchange of rights to make or receive payments in specified currencies. Currency swaps usually involve the delivery of the entire principal value of one designated currency. Therefore, the entire principal value of a currency swap is subject to the risk that the other party to the swap will default on its contractual delivery obligations. The use of currency swaps is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. If the Advisor is incorrect in its forecast of market value and currency exchange rates, the investment performance of a Fund would be less favorable than it would have been if this investment technique were not used.
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities which may be exchanged or converted into a predetermined number of shares of the issuer's underlying common stock at the option of the holder during a specified time period. Convertible securities may take the form of convertible preferred stock, convertible bonds or debentures, units consisting of "usable" bonds and warrants or a combination of the features of several of these securities.
Convertible bonds and convertible preferred stocks generally retain the investment characteristics of fixed income securities until they have been converted but also react to movements in the underlying equity securities. The holder is entitled to receive the fixed income of a bond or the dividend preference of a preferred stock until the holder elects to exercise the conversion privilege. Usable bonds are corporate bonds that can be used in whole or in part, customarily at full face value, in lieu of cash to purchase the issuer's common stock. When owned as part of a unit along with warrants, which are options to buy the common stock, they function as convertible bonds, except that the warrants generally will expire before the bond's maturity. Convertible securities are senior to equity securities and therefore have a claim to the assets of the issuer prior to the holders of common stock in the case of liquidation. However, convertible securities are generally subordinated to similar non-convertible securities of the same issuer. The interest income and dividends from convertible bonds and preferred stocks provide a stable stream of income with generally higher yields than common stocks, but lower than non-convertible securities of similar quality. A Fund will exchange or convert the convertible securities held in its portfolio into shares of the underlying common stock in instances in which, in the Advisor's opinion, the investment characteristics of the underlying common stock will assist the Fund in achieving its investment objective. Otherwise, the Fund will hold or trade the convertible securities. In selecting convertible securities for a Fund, the Advisor evaluates the investment characteristics of the convertible security as a fixed income instrument, and the investment potential of the underlying equity security for capital appreciation.
GUARANTEED INVESTMENT CONTRACTS
Pursuant to guaranteed investment contracts ("GICs"), which are issued by U.S. and Canadian insurance companies, a Fund makes cash contributions to a deposit fund of the insurance company's general account. The insurance company then credits to the fund payments at negotiated, floating or fixed interest rates. A GIC is a general obligation of the issuing insurance company and not a separate account. The purchase price paid for a GIC becomes part of the general assets of the insurance company, and the contract is paid from the company's general assets. The Funds will only purchase GICs that are issued or guaranteed by insurance companies that at the time of purchase are rated at least AA by S&P or receive a similar high quality rating from a nationally recognized service which provides ratings of insurance companies. GICs are considered illiquid securities and will be subject to any limitations on such investments described in Part 1 of this SAI, unless there is an active and substantial secondary market for the particular instrument and market quotations are readily available. No Fund will invest more than 20% of its total assets in GICs.
BANK INVESTMENT CONTRACTS
Bank investment contracts ("BICs") issued by banks that meet certain quality and asset size requirements for banks are available to the Funds. Pursuant to BICs, cash contributions are made to a deposit account at the bank in exchange for payments at negotiated, floating or fixed interest rates. A BIC is a general obligation of the issuing bank. BICs are considered illiquid securities and will be subject to any limitations on such investments described in Part 1 of this SAI, unless there is an active and substantial secondary market for the particular instrument and market quotations are readily available.
LOAN PARTICIPATIONS
Loan participations are interests in loans which are administered by the lending bank or agent for a syndicate of lending banks, and sold by the lending bank or syndicate member. The Funds may only purchase interests in loan participations issued by a bank in the United States with assets exceeding $1 billion and for which the underlying loan is issued by borrowers in whose obligations the Funds may invest. Because the intermediary bank does not guarantee a loan participation in any way, a loan participation is subject to the credit risk generally associated with the underlying corporate borrower. In addition, in the event the underlying corporate borrower defaults, a Fund may be subject to delays, expenses and risks that are greater than those that would have been involved if the Fund had purchased a direct obligation (such as commercial paper) of the borrower. Under the terms of a loan participation, the purchasing Fund may be regarded as a creditor of the intermediary bank so that the Fund may also be subject to the risk that the issuing bank may become insolvent.
STRUCTURED INVESTMENTS
Structured investments are a relatively new innovation and may be designed to have various combinations of equity and fixed-income characteristics. Equity-linked securities are a form of structured investment and generally consist of a conversion privilege to a single company's common stock plus a fixed annual distribution to the holder. Equity-linked securities have some derivative characteristics because the conversion feature is linked to the price of the company's common stock. Equity-linked securities are designed to provide investors with higher quarterly income than the dividend paid per share on the common stock. However, equity-linked securities have decreased potential for capital appreciation because of limitations of the conversion feature.
Equity-linked securities include issues such as "Structured Yield Product Exchangeable for Stock" ("STRYPES"), "Trust Automatic Common Exchange Securities" ("TRACES"), "Trust Issued Mandatory Exchange Securities" ("TIMES"), "Trust Enhanced Dividend Securities" ("TRENDS") and other similar securities, including those which may be developed in the future. The issuers of the above listed examples of equity-linked securities generally purchase and hold a portfolio of stripped U.S. Treasury securities maturing on a quarterly basis through the conversion date, and a forward purchase contract with an existing shareholder of the company relating to the common stock. Quarterly distributions on equity-linked securities generally consist of the cash received from the U.S. Treasury securities and equity-linked securities generally are not entitled to any dividends that may be declared on the common stock.
Equity-linked securities may be issued by closed-end or other forms of investment companies. To the extent that equity-linked securities are issued by investment companies, a Fund's investments in equity-linked securities are subject to the same limitations as investments in more traditional forms of investment companies.
YANKEE OBLIGATIONS
Yankee obligations are U.S. dollar-denominated instruments of foreign issuers that are either registered with the SEC or issued pursuant to Rule 144A under the 1933 Act. These obligations consist of debt securities (including preferred or preference stock of non-governmental issuers), certificates of deposit, fixed time deposits and banker's acceptances issued by foreign banks, and debt obligations of foreign governments or their subdivisions, agencies and instrumentalities, international agencies and supranational entities. Some securities issued by foreign governments or their subdivisions, agencies and instrumentalities may not be backed by the full faith and credit of the foreign government.
AMERICAN, EUROPEAN, CONTINENTAL AND GLOBAL DEPOSITARY RECEIPTS
American Depositary Receipts ( "ADRs ") are receipts issued in registered form by a U.S. bank or trust company evidencing ownership of underlying securities issued by a foreign issuer. European Depositary Receipts ( "EDRs "), which are sometimes
referred to as Continental Depositary Receipts ("CDRs"), are receipts issued in Europe typically by non-U.S. banks or trust companies and foreign branches of U.S. banks that evidence ownership of foreign or U.S. securities. Global Depositary Receipts ("GDRs") are receipts structured similarly to EDRs and CDRs and are marketed globally. ADRs may be listed on a national securities exchange or may be traded in the over-the-counter market. EDRs and CDRs are designed for use in European exchange and over-the-counter markets. GDRs are designed for trading in non-U.S. securities markets. ADRs, EDRs, CDRs and GDRs traded in the over-the-counter market which do not have an active or substantial secondary market will be considered illiquid and therefore will be subject to the Funds' respective limitations with respect to such securities, if any. If a Fund invests in an unsponsored ADR, EDR, CDR or GDR, there may be less information available to the Fund concerning the issuer of the securities underlying the unsponsored ADR, EDR, CDR or GDR than is available for an issuer of securities underlying a sponsored ADR, EDR, CDR or GDR. ADR prices are denominated in U.S. dollars although the underlying securities are denominated in a foreign currency. Investments in ADRs, EDRs, CDRs and GDRs involve risks similar to those accompanying direct investments in foreign securities.
TEMPORARY CASH BALANCES
The Funds may hold very small temporary cash balances to efficiently manage transactional expenses. These cash balances are expected, under normal conditions, not to exceed 2% of each Fund's net assets at any time (excluding amounts used as margin and segregated assets with respect to futures transactions and collateral for securities loans and repurchase agreements). The Funds may invest these temporary cash balances in short-term debt obligations issued or guaranteed by the U.S. Government or its agencies and instrumentalities ("U.S. Government Securities"), high quality commercial paper (rated A-1 or better by S&P or P-1 or better by Moody's), certificates of deposit and time deposits of banking institutions having total assets in excess of $1 billion, and repurchase agreements collateralized by U.S. Government Securities. The Funds may also hold these investments in connection with U.S. Treasury rolls, which are not subject to the 2% limitation above.
TAXES
In this section, all discussions of taxation at the shareholder and fund levels relate to U.S. federal taxes only. Consult your tax advisor for state, local and foreign tax considerations and for information about special tax considerations that may apply to shareholders that are not natural persons or not U.S. citizens or resident aliens.
FEDERAL TAXES. Although it may be one of several series in a single trust, the Fund is treated as a separate entity for federal income tax purposes under the Internal Revenue Code of 1986, as amended (the "Code"). The Fund has elected (or in the case of a new fund, intends to elect) to be, and intends to qualify to be treated each year as, a "regulated investment company" under Subchapter M of the Code by meeting all applicable requirements of Subchapter M, including requirements as to the nature of the Fund's gross income, the amount of its distributions (as a percentage of both its overall income and any tax-exempt income), and the composition of its portfolio assets.
To qualify as a "regulated investment company," the Fund must (a) derive at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock, securities or foreign currencies or other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies; (b) diversify its holdings so that, at the close of each quarter of its taxable year, (i) at least 50% of the market value of its total assets consists of cash, cash items, U.S. government securities, securities of other regulated investment companies and other securities limited generally with respect to any one issuer to not more than 5% of the total assets of the Fund and not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested (x) in the securities of any issuer, other than U.S. government securities or other regulated investment companies, or (y) in the securities of one or more "qualified publicly traded partnership" (as defined below); or of two or more issuers which the Fund controls and which are engaged in the same, similar, or related trades or businesses; and (c) distribute with respect to each year at least 90% investment company taxable income (as that term is defined in the Code without regard to the deduction for dividends paid -- generally, ordinary income and the excess, if any, of net short-term capital gains over net long-term capital losses) and any net tax-exempt interest, income, for such year. In general, for purposes of the 90% gross income requirement described in (a) above, income derived from a partnership will be treated as qualifying income only to the extent such income is attributable to items of income of the partnership which would be qualifying income if realized by the regulated investment company. However, recent legislation provides that 100% of the net income derived from an interest in a "qualified publicly traded partnership" (defined as a partnership (i) interests in which are traded on an established securities market or readily tradable on a secondary market or the substantial equivalent thereof and (ii) that
derives less than 90% of its income from the qualifying income described in (a) above) will be treated as qualifying income. In addition, although in general the passive loss rules of the Code do not apply to regulated investment companies, such rules do not apply to a regulated investment company with respect to items attributable to an interest in a qualified publicly traded partnership. Finally, for purposes of (c) above, the term "outstanding voting securities of such issuer" will include the equity securities of a qualified publicly traded partnership. As a regulated investment company that is accorded special tax treatment, the Fund will not be subject to any federal income taxes on its net investment income and net realized capital gains that it distributes to shareholders in the form of dividends and in accordance with the timing requirements imposed by the Code. The Fund's foreign-source income, if any, may be subject to foreign withholding taxes. If the Fund were to fail to qualify as a "regulated investment company" accorded special tax treatment in any taxable year, it would incur a regular federal corporate income tax on all of its taxable income, whether or not distributed, and Fund distributions (including any distributions of net tax-exempt income and net long-term capital gains) would generally be taxable as ordinary income to the shareholders, except to the extent they were treated as "qualified dividend income," as described below. In addition, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying as a regulated investment company that is accorded special tax treatment.
If the Fund fails to distribute in a calendar year substantially all of its ordinary income for such year and substantially all of its capital gain net income for the one-year period ending October 31 (or later if the Fund is permitted so to elect and so elects), plus any retained amount from the prior year, the Fund will be subject to a 4% excise tax on the underdistributed amounts. A dividend paid to shareholders by the Fund in January of a year generally is deemed to have been paid by the Fund on December 31 of the preceding year, if the dividend was declared and payable to shareholders of record on a date in October, November or December of that preceding year. The Fund intends generally to make distributions sufficient to avoid imposition of the 4% excise tax.
ALTERNATIVE MINIMUM TAX. Distributions derived from interest that is exempt from regular federal income tax may subject corporate shareholders to or increase their liability under the federal corporate alternative minimum tax (AMT). A portion of such distributions may constitute a tax preference item for individual shareholders and may subject them to or increase their liability under the AMT.
DIVIDENDS RECEIVED DEDUCTIONS. Distributions will qualify for the corporate dividends received deduction only to the extent that dividends earned by the Fund qualify. Any such dividends may be, however, includable in adjusted current earnings for purposes of computing corporate federal AMT. The dividends received deduction for eligible dividends is subject to a holding period requirement.
RETURN OF CAPITAL DISTRIBUTIONS. If the Fund makes a distribution to a shareholder in excess of the Fund's current and accumulated "earning and profits" in any taxable year, the excess distribution will be treated as a return of capital to the extent of the shareholder's tax basis in his or her shares, and thereafter as capital gain. A return of capital is not taxable, but it reduces tax basis in shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition of such shares. Dividends and distributions on a Fund's shares are generally subject to federal income tax as described herein to the extent they do not exceed the Fund's realized income and gains, even though such dividends and distributions may economically represent a return of a particular shareholder's investment. Such distributions are likely to occur in respect of shares purchased at a time when a Fund's net asset value reflects gains that are either unrealized, or realized but not distributed. Such realized gains may be required to be distributed even when a Fund's net asset value also reflects unrealized losses.
FUNDS THAT INVEST IN U.S. GOVERNMENT SECURITIES. Many states grant tax-free status to dividends paid to shareholders of mutual funds from interest income earned by the Fund from direct obligations of the U.S. government. Investments in mortgage-backed securities (including GNMA, FNMA and FHLMC Securities) and repurchase agreements collateralized by U.S. government securities do not qualify as direct federal obligations in most states. Shareholders should consult with their own tax advisors about the applicability of state and local intangible property, income or other taxes to their Fund shares and distributions and redemption proceeds received from the Fund.
FUND DISTRIBUTIONS. Distributions from the Fund (other than qualified dividend income and exempt-interest dividends, as discussed below) will generally be taxable to shareholders as ordinary income to the extent derived from the Fund's investment income and net short-term gains. Distributions of long-term capital gains (that is, the excess of net gains from capital assets held for more than one year over net losses from capital assets held for not more than one year) will be taxable to shareholders as such, regardless of how long a shareholder has held shares in the Fund. In general, any distributions of long-term capital gains
will be taxed to shareholders who are individuals at a maximum rate of 15% for taxable years beginning on or before December 31, 2008.
Distributions are taxable to shareholders even if they are paid from income or gains earned by the Fund before a shareholder's investment (and thus were included in the price of the shareholder paid). Distributions are taxable whether received in cash or in Fund shares.
QUALIFIED DIVIDEND INCOME. For taxable years beginning on or before December 31, 2008, "qualified dividend income" received by an individual will be taxed at the rates applicable to long-term capital gain. In order for some portion of the dividends received by a Fund shareholder to be qualified dividend income, the Fund must meet holding period and other requirements with respect to some portion of the dividend paying stocks in its portfolio and the shareholder must meet holding period and other requirements with respect to the Fund's shares. A dividend will not be treated as qualified dividend income (at either the Fund or shareholder level) (1) if the dividend is received with respect to any share of stock held for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or, in the case of certain preferred stock, 91 days during the 181-day period beginning 90 days before such date), (2) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property, (3) if the recipient elects to have the dividend income treated as investment income for purposes of the limitation on deductibility of investment interest, or (4) if the dividend is received from a foreign corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the United States (with the exception of dividends paid on stock of such a foreign corporation readily tradable on an established securities market in the United States) or (b) treated as a passive foreign investment company. With respect to a Fund investing in bonds, the Fund does not expect a significant portion of Fund distributions to be derived from qualified dividend income.
In general, distributions of investment income properly designated by the Fund as derived from qualified dividend income may be treated as qualified dividend income by a shareholder taxed as an individual provided the shareholder meets the holding period and other requirements described above with respect to his or her shares. If the aggregate qualified dividends received by a fund during any taxable year are 95% or more of its gross income, then 100% of the Fund's dividends (other than properly designated capital gain dividends) will be eligible to be treated as qualified dividend income. For this purpose, the only gain included in the term "gross income" is the excess of net short-term capital gain over net long-term capital loss.
DISTRIBUTIONS FROM TAX-EXEMPT FUNDS. Each tax-exempt Fund will have at least 50% of its total assets invested in tax-exempt bonds at the end of each quarter so that dividends from net interest income on tax-exempt bonds will be exempt from federal income tax when received by a shareholder (but may be taxable for federal alternative minimum tax purposes and for state and local tax purposes). The tax-exempt portion of dividends paid will be designated within 60 days after year-end based upon the ratio of net tax-exempt income to total net investment income earned during the year. That ratio may be substantially different from the ratio of net tax-exempt income to total net investment income earned during any particular portion of the year. Thus, a shareholder who holds shares for only a part of the year may be allocated more or less tax-exempt dividends than would be the case if the allocation were based on the ratio of net tax-exempt income to total net investment income actually earned while a shareholder.
Income from certain "private activity bonds" issued after August 7, 1986, is treated as a tax preference item for the AMT at the maximum rate of 28% for individuals and 20% for corporations. If the Fund invests in private activity bonds, shareholders may be subject to the AMT on that part of the distributions derived from interest income on such bonds. Interest on all tax-exempt bonds is included in corporate adjusted current earnings when computing the AMT applicable to corporations. Seventy-five percent of the excess of adjusted current earnings over the amount of income otherwise subject to the AMT is included in a corporation's alternative minimum taxable income.
Dividends derived from any investments other than tax-exempt bonds and any distributions of short-term capital gains are generally taxable to shareholders as ordinary income. Any distributions of long-term capital gains will in general be taxable to shareholders as long-term capital gains (generally subject to a maximum 15% tax rate for shareholders who are individuals) regardless of the length of time Fund shares are held by the shareholder.
A tax-exempt Fund may at times purchase tax-exempt securities at a discount and some or all of this discount may be included in the Fund's ordinary income which will be taxable when distributed. Any market discount recognized on a tax-exempt bond purchased after April 30, 1993, with a term at time of issue of more than one year is taxable as ordinary income. A market
discount bond is a bond acquired in the secondary market at a price below its "stated redemption price" (in the case of a bond with original issue discount, its "revised issue price").
Shareholders receiving social security and certain retirement benefits may be taxed on a portion of those benefits as a result of receiving tax-exempt income, including tax-exempt dividends from the Fund.
SPECIAL TAX RULES APPLICABLE TO TAX-EXEMPT FUNDS. In general, exempt-interest dividends, if any, attributable to interest received on certain private activity obligations and certain industrial development bonds will not be tax-exempt to any shareholders who are "substantial users" of the facilities financed by such obligations or bonds or who are "related persons" of such substantial users, as further defined in the Code. Income derived from the Fund's investments other than tax-exempt instruments may give rise to taxable income. The Fund's shares must be held for more than six months in order to avoid the disallowance of a capital loss on the sale of Fund shares to the extent of tax-exempt dividends paid during that period. Part or all of the interest on indebtedness, if any, incurred or continued by a shareholder to purchase or carry shares of the Fund paying exempt-interest dividends is not deductible. The portion of interest that is not deductible is equal to the total interest paid or accrued on the indebtedness, multiplied by the percentage of the Fund's total distributions (not including distributions from net long-term capital gains) paid to the shareholder that are exempt-interest dividends. Under rules used by the Internal Revenue Service to determine when borrowed funds are considered used for the purpose of purchasing or carrying particular assets, the purchase of shares may be considered to have been made with borrowed funds even though such funds are not directly traceable to the purchase of shares.
SALES OF SHARES. The sale, exchange or redemption of Fund shares may give rise to a gain or loss. In general, any gain realized upon a taxable disposition of shares generally will be treated as long-term capital gain if the shares have been held for more than one year. Otherwise the gain on the sale, exchange or redemption of Fund shares will be treated as short-term capital gain. In general, any loss realized upon a taxable disposition of shares will be treated as long-term loss if the shares have been held more than one year and otherwise as short-term loss. However, any loss realized upon a taxable disposition of shares held for six months or less will be disallowed for federal income tax purposes to the extent of any exempt-interest dividends received on such shares. In addition, any loss (not already disallowed as provided in the preceding sentence) realized upon a taxable disposition of shares held for six months or less will be treated as long-term, rather than short-term, capital loss to the extent of any long-term capital gain distributions received by the shareholder with respect to those shares. All or a portion of any loss realized upon a taxable disposition of shares will be disallowed if other shares are purchased within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss.
Under Treasury regulations, if on a disposition of Fund shares a shareholder recognizes a loss of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder will likely have to file with the Internal Revenue Service a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all regulated investment companies. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. You are advised to consult with your tax advisor.
BACKUP WITHHOLDING. Certain distributions and redemptions may be subject to backup withholding for taxpayers who fail to furnish a correct taxpayer identification number, who have under-reported dividend or interest income, or who fail to certify to the Fund that the shareholder is a United States person and is not subject to the withholding. This number and certification may be provided by either a Form W-9 or the accompanying application. In certain instances, CMS may be notified by the Internal Revenue Service that a shareholder is subject to backup withholding. The backup withholding rate is 28% for amounts paid through 2010. The backup withholding rate will be 31% for amounts paid after December 31, 2010.
HEDGING TRANSACTIONS. If the Fund engages in hedging transactions, including hedging transactions in options, futures contracts and straddles, or other similar transactions, it will be subject to special tax rules (including constructive sale, mark-to-market, straddle, wash sale and short sale rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund's securities, convert long-term capital gains into short-term capital gains or convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. The Fund will endeavor to make any available elections pertaining to such transactions in a manner believed to be in the best interests of the Fund and its shareholders.
SECURITIES ISSUED AT A DISCOUNT. The Fund's investment in debt securities issued at a discount and certain other obligations will (and investments in securities purchased at a discount may) require the Fund to accrue and distribute income not yet received. In such cases, the Fund may be required to sell assets (possibly at a time when it is not advantageous to do so) to generate the cash necessary to distribute as dividends to its shareholders all of its income and gains and therefore to eliminate any tax liability at the Fund level.
FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING TRANSACTIONS. The Fund's transactions in foreign currencies, foreign currency-denominated debt securities, certain foreign currency options, futures contracts and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned. This may produce a difference between the Fund's book income and its taxable income, possibly accelerating distributions or converting distributions of book income and gains to returns of capital for book purposes.
If more than 50% of the Fund's total assets at the end of its fiscal year are invested in stock or securities of foreign corporate issuers, the Fund may make an election permitting its shareholders to take a deduction or credit for federal income tax purposes for their pro rata portion of certain qualified foreign taxes paid by the Fund to foreign countries in respect of foreign securities the Fund has held for at least the minimum period specified in the Code. The Advisor will consider the value of the benefit to a typical shareholder, the cost to the Fund of compliance with the election, and incidental costs to shareholders in deciding whether to make the election. A shareholder's ability to claim such a foreign tax credit or deduction in respect of foreign taxes will be subject to certain limitations imposed by the Code, including a holding period requirement, as a result of which a shareholder may not get a full credit or deduction for the amount of foreign taxes so paid by the Fund. Shareholders who do not itemize on their federal income tax returns may claim a credit (but not a deduction) for such foreign taxes.
Investment by the Fund in "passive foreign investment companies" could subject the Fund to a U.S. federal income tax or other charge on the proceeds from the sale of its investment in such a company; however, this tax can be avoided by making an election to mark such investments to market annually or to treat the passive foreign investment company as a "qualified electing Fund." A "passive foreign investment company" is any foreign corporation: (i) 75 percent or more of the income of which for the taxable year is passive income, or (ii) the average percentage of the assets of which (generally by value, but by adjusted tax basis in certain cases) that produce or are held for the production of passive income is at least 50 percent. Generally, passive income for this purpose means dividends, interest (including income equivalent to interest), royalties, rents, annuities, the excess of gain over losses from certain property transactions and commodities transactions, and foreign currency gains. Passive income for this purpose does not include rents and royalties received by the foreign corporation from active business and certain income received from related persons.
NON-U.S. SHAREHOLDERS. Capital gain dividends will not be subject to withholding of federal income tax. In general, dividends (other than Capital Gain Dividends) paid by the Fund to a shareholder that is not a "U.S. person" within the meaning of the Code (such shareholder, a "foreign person") are subject to withholding of U.S. federal income tax at a rate of 30% (or lower applicable treaty rate) even if they are funded by income or gains (such as portfolio interest, short-term capital gains, or foreign-source dividend and interest income) that, if paid to a foreign person directly, would not be subject to withholding. However, for taxable years of the Fund before January 1, 2008, the Fund will not be required to withhold any amounts (i) with respect to distributions (other than distributions to a foreign person (w) that has not provided a satisfactory statement that the beneficial owner is not a U.S. person, (x) to the extent that the dividend is attributable to certain interest on an obligation if the foreign person is the issuer or is a 10% shareholder of the issuer, (y) that is within certain foreign countries that have inadequate information exchange with the United States, or (z) to the extent the dividend is attributable to interest paid by a person that is a related person of the foreign person and the foreign person is a controlled foreign corporation) from U.S.-source interest income that, in general, would not be subject to U.S. federal income tax if earned directly by an individual foreign person, to the extent such distributions are properly designated by the Fund, and (ii) with respect to distributions (other than distributions to an individual foreign person who is present in the United States for a period or periods aggregating 183 days or more during the year of the distribution) of net short-term capital gains in excess of net long-term capital losses, to the extent such distributions are properly designated by the Fund. The Fund has not determined whether it will make such designations.
If a beneficial holder who is a foreign person has a trade or business in the United States, and the dividends are effectively connected with the conduct by the beneficial holder of a trade or business in the United States, the dividend will be subject to U.S. federal net income taxation at regular income tax rates.
Recent legislation modifies the tax treatment of distributions from the Fund that are paid to a foreign person and are attributable to gain from "U.S. real property interests" ("USRPIs"), which the Code defines to include direct holdings of U.S. real property and interests (other than solely as a creditor) in "U.S. real property holding corporations" such as REITs. The Code deems any corporation that holds (or held during the previous five-year period) USRPIs with a fair market value equal to 50% or more of the fair market value of the corporation's U.S. and foreign real property assets and other assets used or held for use in a trade or business to be a U.S. real property holding corporation; however, if any class of stock of a corporation is traded on an established securities market, stock of such class shall be treated as a USRPI only in the case of a person who holds more than 5% of such class of stock at any time during the previous five-year period. Under the legislation, which applies to dividends paid or deemed paid on or before December 31, 2007, distributions to foreign persons attributable to gains from the sale or exchange of USRPIs will give rise to an obligation for those foreign persons to file a U.S. tax return and pay tax, and may well be subject to withholding under future regulations.
Under U.S. federal tax law, a beneficial holder of shares who is a foreign person is not, in general, subject to U.S. federal income tax on gains (and is not allowed a deduction for losses) realized on the sale of shares of the Fund or on Capital Gain Dividends unless (i) such gain or Capital Gain Dividend is effectively connected with the conduct of a trade or business carried on by such holder within the United States, (ii) in the case of an individual holder, the holder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale or Capital Gain Dividend and certain other conditions are met, or (iii) the shares constitute USRPIs or the Capital Gain Dividends are paid or deemed paid on or before December 31, 2007 and are attributable to gains from the sale or exchange of USRPIs. Effective before January 1, 2008, if the Fund is a U.S. real property holding corporation (as described above) the Fund's shares will nevertheless not constitute USRPIs if the Fund is a "domestically controlled qualified investment entity," which is defined to include a RIC that, at all times during the shorter of the 5-year period ending on the date of the disposition or the period during which the RIC was in existence, had less than 50 percent in value of its stock held directly or indirectly by foreign persons.
ADDITIONAL TAX MATTERS CONCERNING TRUST SHARES (THIS SECTION IS APPLICABLE ONLY TO THE COLUMBIA TAX-MANAGED GROWTH FUND)
FEDERAL GIFT TAXES. An investment in Trust Shares may be a taxable gift for federal tax purposes, depending upon the option selected and other gifts that the donor and his or her spouse may make during the year.
Under the Columbia Advantage Plan, the entire amount of the gift will be a "present interest" that qualifies for the federal gift tax annual exclusion. In that case, the donor will be required to file a federal gift tax return on account of this gift only if (i) the aggregate present interest gifts by the donor to the particular beneficiary (including the gift of Trust Shares) exceeds the annual gift-tax exemption, which in 2006 is $12,000 or (ii) the donor wishes to elect gift splitting on gifts with his or her spouse for the year. The trustee will notify the beneficiary of his or her right of withdrawal promptly following any contribution under the Advantage Plan.
Under the Columbia Gift Plan, the entire amount of the gift will be a "future interest" for federal gift tax purposes, so that none of the gift will qualify for the federal gift tax annual exclusion. Consequently, the donor will have to file a federal gift tax return (IRS Form 709) reporting the entire amount of the gift, even if the gift is less than $12,000.
No federal gift tax will be payable by the donor until his or her cumulative taxable gifts (i.e., gifts other than those qualifying for the annual exclusion or otherwise exempt), including taxable gifts of other assets as well as any taxable gifts of trust shares, exceed the federal gift and estate tax exemption equivalent amount, which is $1,000,000 for gifts made after December 31, 2001, and before January 1, 2010.
Any gift of Trust Shares that does not qualify as a present interest or that exceeds the available annual exclusion amount will reduce the amount of the donor's Federal gift and estate tax exemption (if any) that would otherwise be available for future gifts for transfers at death.
The donor and his or her spouse may elect "gift-splitting" for any gift of Trust Shares (other than a gift to such spouse), meaning that the donor and his or her spouse may elect to treat the gift as having been made one-half by each of them, thus allowing a total gift of $24,000.
The donor's gift of Fund shares may also have to be reported for state gift tax purposes, if the state in which the donor resides imposes a gift tax. Many states do not impose such a tax. Some states follow the Federal rules concerning the types of transfers subject to tax and the availability of the annual exclusion.
GENERATION-SKIPPING TRANSFER TAXES
If the beneficiary of a gift of Trust Shares is a relative who is two generations or more younger than the donor, or is not a relative and is more than 37(1)/2 years younger than the donor, the gift will be subject in whole or in part to the generation-skipping transfer tax (the "GST tax") unless the gift is made under the Columbia Advantage Plan and does not exceed the available annual exclusion amount. An exemption (the "GST exemption"), equal to $2 million in 2006, is allowed against this tax, and so long as the GST exemption has not been used by other transfers it will automatically be allocated to a gift of Trust Shares that is subject to the GST tax unless the donor elects otherwise. Such an election is made by reporting the gift on a timely filed gift tax return and paying the applicable GST tax. The GST tax is imposed at a flat rate (46% for gifts made in 2006) on the amount of the gift, and payment of the tax by the donor is treated as an additional gift for gift tax purposes.
INCOME TAXES
The Internal Revenue Service takes the position that a trust beneficiary who is given a power of withdrawal over contributions to the trust should be treated, for Federal income tax purposes, as the "owner" of the portion of the trust that was subject to the power. Accordingly, if the donor selects Columbia Advantage Trust Shares, the beneficiary will be treated as the "owner" of all of the Fund shares in the account for Federal income tax purposes, and will be required to report all of the income and capital gains earned in the trust on his or her personal Federal income tax return. The trust will not pay Federal income taxes on any of the trust's income or capital gains. The trustee will prepare and file the Federal income tax information returns that are required each year (and any state income tax returns that may be required), and will send the beneficiary a statement following each year showing the amounts (if any) that the beneficiary must report on his or her income tax returns for that year. If the beneficiary is under fourteen years of age, these amounts may be subject to Federal income taxation at the marginal rate applicable to the beneficiary's parents. The beneficiary may at any time after the creation of the trust irrevocably elect to require the trustee to pay him or her a portion of the trust's income and capital gains annually thereafter to provide funds with which to pay any resulting income taxes, which the trustee will do by redeeming Trust Shares. The amount distributed will be a fraction of the trust's ordinary income and short-term capital gains and the trust's long-term capital gains equal to the highest marginal Federal income tax rate imposed on each type of income (currently, 35% and 15%, respectively). If the beneficiary selects this option, he or she will receive those fractions of his or her trust's income and capital gains annually for the duration of the trust.
Under the Columbia Advantage Plan, the beneficiary will also be able to require the trustee to pay his or her tuition, room and board and other expense of his or her college or post-graduate education, and the trustee will raise the cash necessary to fund these distributions by redeeming Trust Shares. Any such redemption will result in the realization of capital gain or loss on the shares redeemed, which will be reportable by the beneficiary on his or her income tax returns for the year in which the shares are redeemed, as described above. Payments must be made directly to the educational institution.
If the donor selects the Columbia Gift Plan, the trust that he or she creates will be subject to Federal income tax on all income and capital gains realized by it, less a $100 annual exemption (in lieu of the personal exemption allowed to individuals). The amount of the tax will be determined under the tax rate schedule applicable to estates and trusts, which is more sharply graduated than the rate schedule for individuals, reaching the same maximum marginal rate for ordinary income or short-term capital gains (currently, 35%), but at a much lower taxable income level than would apply to an individual. It is anticipated, however, that most of the gains taxable to the trust will be long-term capital gain, on which the Federal income tax rate is currently limited to 15%. The trustee will raise the cash necessary to pay any Federal or state income taxes by redeeming Fund shares. The beneficiary will not pay Federal income taxes on any of the trust's income or capital gains, except those earned in the year when the trust terminates. The trustee will prepare and file all Federal and state income tax returns that are required each year, and will send the beneficiary an information statement for the year in which the trust terminates showing the amounts (if any) that the beneficiary must report on his or her Federal and state income tax returns for that year.
When the trust terminates, the distribution of the remaining shares held in the trust to the beneficiary will not be treated as a taxable disposition of the shares. Any Fund shares received by the beneficiary will have the same cost basis as they had in the trust at the time of termination. Any Fund shares received by the beneficiary's estate will have a basis equal to the value of the shares at the beneficiary's death (or the alternate valuation date for Federal estate tax purposes, if elected).
CONSULTATION WITH QUALIFIED ADVISOR
Due to the complexity of Federal and state gift, GST and income tax laws pertaining to all gifts in trust, prospective donors should consider consulting with their financial or tax advisor before investing in Trust Shares.
MANAGEMENT OF THE FUNDS Columbia Management Advisors, LLC ("Columbia Advisors" or "CMA" or the "Advisor"), located at 100 Federal Street, Boston, Massachusetts 02110 is the Advisor to the Funds. The Advisor provides administrative and management services to the Funds. Columbia Advisors is a direct, wholly owned subsidiary of Columbia Management Group, LLC ("CMG"), which in turn is a direct, wholly owned subsidiary of Bank of America, which in turn is a wholly owned banking subsidiary of Bank of America Corporation, a financial services holding company organized as a Delaware corporation. On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005 Columbia Management was the investment advisor to the Funds. As a result of the merger, Columbia Advisors is now the investment advisor to the Funds. Columbia Advisors, a registered investment advisor, has been an investment advisor since 1995.
TRUSTEES AND OFFICERS (THIS SECTION APPLIES TO ALL OF THE FUNDS)
The Trustees and officers of the Funds together with their principal business occupations during the last five years (their titles may have varied during that period) is shown below. Unless otherwise noted, the address for each Trustee and officer is c/o Columbia Funds, Mail Stop MA5-515-11-05, One Financial Center, Boston, MA 02111.
Number of
Portfolios
Year First in Columbia
Elected or Fund Complex
Appointed Principal Occupation(s) Overseen
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Other Directorships Held(2)
---------------------- ------------------- ------------ ----------------------- ------------ ---------------------------
DISINTERESTED TRUSTEE(3)
Thomas C. Theobald Trustee and 1996 Partner and Senior 83 Anixter International
(Born 1937) Chairman of the Advisor, Chicago Growth (network support equipment
Board Partners (private distributor); Ventas, Inc.
equity investing) since (real estate investment
September, 2004; trust); Jones Lang LaSalle
Managing Director, (real estate management
William Blair Capital services) and Ambac
Partners (private Financial Group (financial
equity investing) from guaranty insurance)
September, 1994 to
September, 2004.
|
Number of
Year First Portfolios in
Elected or Columbia Fund
Appointed Complex
to Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------------- ---------- ----------------------- ------------- ---------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker Trustee 1996 Executive Vice 83 Nash Finch Company
(Born 1955) President -- Strategy (food distributor)
of United Airlines
(airline) since
December, 2002;
President of UAL
Loyalty Services
(airline) from
September, 2001 to
December, 2002;
Executive Vice
President and Chief
Financial Officer of
United Airlines from
July, 1999 to
September, 2001.
Janet Langford Kelly Trustee 1996 Partner, Zelle, 83 UAL Corporation
(Born 1957) Hofmann, Voelbel, (airline)
Mason & Gette LLP
(law firm) since March,
2005; Adjunct
Professor of Law,
Northwestern
University, since
September, 2004;
Chief Administrative
Officer and Senior
Vice President, Kmart
Holding Corporation
(consumer goods),
from September, 2003
to March, 2004;
Executive Vice
President-Corporate
Development and
Administration,
General Counsel and
Secretary, Kellogg
Company (food
manufacturer), from
September, 1999 to
August, 2003.
|
Number of
Year First Portfolios in
Elected or Columbia Fund
Appointed Complex
to Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------------- ---------- ----------------------- ------------- ---------------------
DISINTERESTED TRUSTEES
Richard W. Lowry Trustee 1995 Private Investor since 85 None
(Born 1936) August, 1987 (formerly
Chairman and Chief
Executive Officer,
U.S. Plywood
Corporation (building
products
manufacturer) until
1987.)
Charles R. Nelson Trustee 1981 Professor of 83 None
(Born 1943) Economics, University
of Washington since
January, 1976; Ford
and Louisa University
of Washington Van
Voorhis Professor of
Political Economy,
University of
Washington, since
September, 1993;
Director, Institute for
Economic Research,
University of
Washington from
September, 2001 to
June, 2003; Adjunct
Professor of
Statistics,
University of
Washington since
September, 1980;
Associate Editor,
Journal of Money
Credit and Banking
since September,
1993; consultant on
econometric and
statistical matters.
John J. Neuhauser Trustee 1985 University Professor, 85 Saucony, Inc.
(Born 1942) Boston College since (athletic footwear)
December, 2005;
Academic Vice
President and Dean of
Faculties, Boston
College from August,
1999 to December,
2005.
|
Number of
Year First Portfolios in
Elected or Columbia Fund
Appointed Complex
to Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------------- ---------- ----------------------- ------------- ---------------------
DISINTERESTED TRUSTEES
Patrick J. Simpson Trustee 2000 Partner, Perkins Coie 83 None
(Born 1944) L.L.P. (law firm).
Thomas E. Stitzel Trustee 1998 Business Consultant 83 None
(Born 1936) since 1999; Chartered
Financial Analyst.
Anne-Lee Verville Trustee 1998 Retired since 1997 83 Chairman of the Board
(Born 1945) (formerly General of Directors, Enesco
Manager, Global Group, Inc. (producer
Education Industry, of giftware and home
IBM Corporation and garden decor
(computer and products)
technology) from 1994
to 1997).
Richard L. Woolworth Trustee 1991 Retired since 83 Northwest Natural Gas
(Born 1941) December, 2003 (natural gas service
(formerly Chairman provider)
and Chief Executive
Officer, The Regence
Group Co. (regional
health insurer);
Chairman and Chief
Executive Officer,
BlueCross BlueShield
of Oregon; Certified
Public Accountant,
Arthur Young &
Company).
|
Number of
Portfolios in
Year First Principal Columbia Fund
Elected or Occupation(s) Complex
Appointed During Past Five Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) Years by Trustee Held(2)
---------------------- ------------------- ------------ -------------------- ------------- --------------------
INTERESTED TRUSTEE
William E. Mayer(3) Trustee 1994 Partner, Park Avenue 85 Lee Enterprises
(Born 1940) Equity Partners (print media),
(private equity) WR Hambrecht + Co.
since (financial service
February, 1999. provider);
Reader's Digest
(publishing);
OPENFIELD Solutions
(retail industry
technology provider)
|
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public companies").
(3) Mr. Mayer is an "interested person" (as defined in the 1940 Act) of the Columbia Funds by reason of his affiliation with WR Hambrecht + Co., a registered broker-dealer that may execute portfolio transactions for or engage in principal transactions with the Fund or other funds or clients advised by the Advisor or its affiliates.
Year First
Elected or
Name, Year of Birth and Appointed
Address Position with Funds to Office Principal Occupation(s) During Past Five Years
----------------------- ---------------------- ---------- ----------------------------------------------
OFFICERS
Christopher L. Wilson President 2004 Head of Mutual Funds since August, 2004 and Managing
(Born 1957) Director of the Advisor since September, 2005; President and
Chief Executive Officer, CDC IXIS Asset Management
Services, Inc. (investment management) from September,
1998 to August, 2004.
James R. Bordewick, Jr. Senior Vice President, 2006 Associate General Counsel, Bank of America since April,
(Born 1959) Secretary and 2005; Senior Vice President and Associate General Counsel,
Chief Legal Officer MFS Investment Management (investment management)
prior to April, 2005.
J. Kevin Connaughton Senior Vice President, 2000 Managing Director of the Advisor since February, 1998.
(Born 1964) Chief Financial
Officer
and Treasurer
Mary Joan Hoene Senior Vice President 2004 Senior Vice President and Chief Compliance Officer of various
(Born 1949) and Chief Compliance funds in the Columbia Fund Complex; Partner, Carter,
100 Federal Street Officer Ledyard & Milburn LLP (law firm) from January, 2001 to
Boston, MA 02110 August, 2004.
Michael G. Clarke Chief Accounting 2004 Managing Director of the Advisor since February, 2001.
(Born 1969) Officer and
Assistant Treasurer
Stephen T. Welsh Vice President 1996 President, Columbia Management Services, Inc. since July,
(Born 1957) 2004; Senior Vice President and Controller, Columbia
Management Services, Inc. prior to July, 2004.
Jeffrey R. Coleman Deputy Treasurer 2004 Group Operations Manager of the Advisor since October,
(Born 1969) 2004; Vice President of CDC IXIS Asset Management
Services, Inc. (investment management) from August, 2000 to
September, 2004.
Joseph F. DiMaria Deputy Treasurer 2004 Senior Compliance Manager of the Advisor since January,
(Born 1968) 2005; Director of Trustee Administration of the Advisor from
May, 2003 to January, 2005; Senior Audit Manager,
PricewaterhouseCoopers (independent registered public
accounting firm) from July, 2000 to April, 2003.
Ty S. Edwards Deputy Treasurer 2004 Vice President of the Advisor since 2002; Assistant Vice
(Born 1966) President and Director, State Street Corporation (financial
services) prior to 2002.
Barry S. Vallan Controller 2006 Vice President-Fund Treasury of the Advisor since October,
(Born 1969) 2004; Vice President-Trustee Reporting from April, 2002 to
October, 2004; Management Consultant,
PricewaterhouseCoopers (independent registered public
accounting firm) prior to October, 2002.
Peter T. Fariel Assistant Secretary 2006 Associate General Counsel, Bank of America since April,
(Born 1957) 2005; Partner, Goodwin Procter LLP (law firm) prior to April,
2005.
|
Year First
Elected or
Name, Year of Birth and Appointed
Address Position with Funds to Office Principal Occupation(s) During Past Five Years
----------------------- ---------------------- ---------- ----------------------------------------------
OFFICERS
Ryan C. Larrenaga Assistant Secretary 2005 Assistant General Counsel, Bank of America since March,
(Born 1970) 2005; Associate, Ropes & Gray LLP (law firm) from 1998 to
February, 2005.
Barry S. Finkle Assistant Treasurer 2003 Senior Manager and Head of Fund Performance of the Advisor
(Born 1965) since January, 2001.
Julian Quero Assistant Treasurer 2003 Senior Compliance Manager of the Advisor since April, 2002;
(Born 1967) Assistant Vice President of Taxes and Distributions of the
Advisor from 2001 to April, 2002.
|
Each of the Trust's Trustees and officers hold comparable positions with certain other funds of which the Advisor or its affiliates is the investment advisor or distributor and, in the case of certain of the officers, with certain affiliates of the Advisor.
The Trustees and officers serve terms of indefinite duration. Each Fund held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once every five years thereafter to elect Trustees.
Trustee Positions
As of December 31, 2005, no disinterested Trustee or any of their immediate family members owned beneficially or of record any class of securities of the Advisor, another investment advisor, sub-advisor or portfolio manager of any of the funds in the Fund Complex or any person controlling, controlled by or under common control with any such entity.
General
Messrs. Lowry, Mayer and Neuhauser are also trustees/directors of the Liberty All-Star Funds a group of 2 registered closed-end funds sponsored by an affiliate of the Advisor.
The Trustees serve as trustees of 83 registered investment companies managed by the Advisor for which each Trustee receives a retainer at the annual rate of $75,000, an attendance fee of $10,500 for each regular and special joint board meeting and $1,000 for each special telephonic joint board meeting. Mr. Theobald serves as the Chairman of the Board. As the independent chairman of the board, Mr. Theobald receives a supplemental retainer at the annual rate of $100,000; the chair of the Audit Committee receives a supplemental retainer at the annual rate of $20,000; the chair of the Advisory Fees and Expenses Committee receives a supplemental retainer at the annual rate of $15,000; the chairs of the Compliance Committee and the Governance Committee each receive supplemental retainers at the annual rate of $10,000. Members of each committee, including the Investment Oversight Committee, receive $2,500 for each committee meeting and $1,000 for each telephonic committee meeting. The Audit Committee chair receives a supplement of $500 for each Audit Committee meeting. Committee members receive $2,500 for each special committee meeting attended on a day other than a regular joint board meeting day. Two-thirds of the Trustee fees are allocated among the Funds based on each Fund's relative net assets and one-third of the fees is divided equally among the Funds.
Officers of the Trust, who are also officers of the Advisor or its affiliates, will benefit from the advisory fees, sales commissions and agency fees paid or allowed by the Trust.
The Agreement and Declaration of Trust ("Declaration") of the Trust provides that the Trust will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Trust but that such indemnification will not relieve any officer or Trustee of any liability to the Trust or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. The Trust, at its expense, provides liability insurance for the benefit of its Trustees and officers.
The Trustees have the authority to convert the Funds into a master fund/feeder fund structure. Under this structure, a Fund may invest all or a portion of its investable assets in investment companies with substantially the same investment goals, policies and restrictions as the Fund. The primary reason to use the master fund/feeder fund structure is to provide a mechanism to pool, in a single master fund, investments of different investor classes, resulting in a larger portfolio, investment and administrative efficiencies and economies of scale.
MANAGEMENT AGREEMENT
Under a Management Agreement (the "Agreement"), the Advisor has contracted to furnish each Fund with investment research and recommendations or fund management, respectively, and accounting and administrative personnel and services, and with office space, equipment and other facilities. For these services and facilities, each Fund pays a monthly fee based on the average of the daily closing value of the total net assets of each Fund for such month. Under the Agreement, any liability of the Advisor to the Trust, a Fund and/or its shareholders is limited to situations involving the Advisor's own willful misfeasance, bad faith, gross negligence or reckless disregard of its duties.
The Agreement may be terminated with respect to the Fund at any time on 60 days'
written notice by the Advisor or by the Trustees of the Trust or by a vote of a
majority of the outstanding voting securities of the Fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the Fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Advisor or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
The Advisor pays all salaries of officers of the Trust. The Trust pays all expenses not assumed by the Advisor including, but not limited to, auditing, legal, custodial, investor servicing and shareholder reporting expenses. The Trust pays the cost of printing and mailing any Prospectuses sent to shareholders. CMD pays the cost of printing and distributing all other Prospectuses.
ADMINISTRATION AGREEMENT (THIS SECTION APPLIES ONLY TO CERTAIN FUNDS AND THEIR RESPECTIVE TRUSTS. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION REGARDING YOUR FUND).
Under an Administration Agreement, the Advisor, in its capacity as the Administrator to each Fund, has contracted to perform the following administrative services:
(a) providing office space, equipment and clerical personnel;
(b) arranging, if desired by the respective Trust, for its directors, officers and employees to serve as Trustees, officers or agents of each Fund;
(c) preparing and, if applicable, filing all documents required for compliance by each Fund with applicable laws and regulations;
(d) preparation of agendas and supporting documents for and minutes of meetings of Trustees, committees of Trustees and shareholders;
(e) coordinating and overseeing the activities of each Fund's other third-party service providers; and
(f) maintaining certain books and records of each Fund.
The Advisor is paid a monthly fee at the annual rate of average daily net assets set forth in Part 1 of this SAI.
TRUST SERVICES AGREEMENT
Pursuant to a Trust Services Agreement, CMS provides the Columbia Tax-Managed Growth Fund's Trust Shares with trust administration services, including tax return preparation and filing, other tax and beneficiary reporting and recordkeeping. CMS's fee is described in the Prospectuses of the Columbia Tax-Managed Growth Fund.
THE PRICING AND BOOKKEEPING AGREEMENT
The Advisor is responsible for providing accounting and bookkeeping services to each Fund pursuant to a pricing and bookkeeping agreement. Under a separate agreement ("Outsourcing Agreement"), the Advisor has delegated those functions to State Street Bank and Trust Company (State Street). The Advisor pays fees to State Street under the Outsourcing Agreement. SEE "FUND CHARGES AND EXPENSES" IN
PART 1 OF THIS SAI FOR INFORMATION ON THESE FEES.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. The Advisor acts as investment advisor to each of the Funds. Various officers and Trustees of the Trust also serve as officers or Trustees of other funds and the other corporate or fiduciary clients of the Advisor. The Funds and clients advised by the Advisor or the Funds administered by the Advisor sometimes invest in securities in which the Fund also invests and sometimes engage in covered option writing programs and enter into transactions utilizing stock index options and stock index and financial futures and related options ("other instruments"). If the Fund, such other funds and such other clients desire to buy or sell the same portfolio securities, options or other instruments at about the same time, the purchases and sales are normally made as nearly as practicable on a pro rata basis in proportion to the amounts desired to be purchased or sold by each. Although in some cases these practices could have a detrimental effect on the price or volume of the securities, options or other instruments as far as the Fund is concerned, in most cases it is believed that these practices should produce better executions. It is the opinion of the Trustees that the desirability of retaining the Advisor as investment advisor to the Funds outweighs the disadvantages, if any, which might result from these practices.
POTENTIAL CONFLICTS OF INTEREST IN MANAGING MULTIPLE ACCOUNTS
Like other investment professionals with multiple clients, a portfolio manager for a Fund may face certain potential conflicts of interest in connection with managing both the Fund and other accounts at the same time. The paragraphs below describe some of these potential conflicts, which the Advisor believes are faced by investment professionals at most major financial firms. The Advisor and the Trustees of the Columbia Funds have adopted compliance policies and procedures that attempt to address certain of these potential conflicts.
The management of accounts with different advisory fee rates and/or fee structures, including accounts that pay advisory fees based on account performance ("performance fee accounts"), may raise potential conflicts of interest by creating an incentive to favor higher-fee accounts. These potential conflicts may include, among others:
- The most attractive investments could be allocated to higher-fee accounts or performance fee accounts.
- The trading of higher-fee accounts could be favored as to timing and/or execution price. For example, higher-fee accounts could be permitted to sell securities earlier than other accounts when a prompt sale is desirable or to buy securities at an earlier and more opportune time.
- The trading of other accounts could be used to benefit higher-fee accounts (front- running).
- The investment management team could focus their time and efforts primarily on higher-fee accounts due to a personal stake in compensation.
Potential conflicts of interest may also arise when the portfolio managers have personal investments in other accounts that may create an incentive to favor those accounts. As a general matter and subject to limited exceptions, the Advisor's investment professionals do not have the opportunity to invest in client accounts, other than the Columbia Funds.
A potential conflict of interest may arise when a Fund and other accounts purchase or sell the same securities. On occasions when a portfolio manager considers the purchase or sale of a security to be in the best interests of a Fund as well as other accounts, the Advisor's trading desk may, to the extent permitted by applicable laws and regulations, aggregate the securities to be sold or purchased in order to obtain the best execution and lower brokerage commissions, if any. Aggregation of trades may create the potential for unfairness to a Fund or another account if one account is favored over another in allocating the securities purchased or sold -- for example, by allocating a disproportionate amount of a security that is likely to increase in value to a favored account.
"Cross trades," in which one Columbia account sells a particular security to another account (potentially saving transaction costs for both accounts), may also pose a potential conflict of interest. Cross trades may be seen to involve a potential conflict of interest if, for example, one account is permitted to sell a security to another account at a higher price than an independent third party would pay. The Advisor and the Funds' Trustees have adopted compliance procedures that provide that any transactions between a Fund and another Columbia-advised account are to be made at an independent current market price, as required by law.
Another potential conflict of interest may arise based on the different investment objectives and strategies of a Fund and other accounts. For example, another account may have a shorter-term investment horizon or different investment objectives, policies or restrictions than a Fund. Depending on another account's objectives or other factors, a portfolio manager may give advice and make decisions that may differ from advice given, or the timing or nature of decisions made, with respect to a Fund. In addition, investment decisions are the product of many factors in addition to basic suitability for the particular account involved. Thus, a particular security may be bought or sold for certain accounts even though it could have been bought or sold for other accounts at the same time. More rarely, a particular security may be bought for one or more accounts managed by a portfolio manager when one or more other accounts are selling the security (including short sales). There may be circumstances when purchases or sales of portfolio securities for one or more accounts may have an adverse effect on other accounts.
A Fund's portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. As a result, the portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as might be the case if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies.
A Fund's portfolio managers may be able to select or influence the selection of the brokers and dealers that are used to execute securities transactions for the Fund. In addition to executing trades, some brokers and dealers provide portfolio managers with brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934), which may result in the payment of higher brokerage fees than might have otherwise be available. These services may be more beneficial to certain funds or accounts than to others. Although the payment of brokerage commissions is subject to the requirement that the portfolio manager determine in good faith that the commissions are reasonable in relation to the value of the brokerage and research services provided to the fund, a portfolio manager's decision as to the selection of brokers and dealers could yield disproportionate costs and benefits among the funds and/or accounts that he or she manages.
The Advisor or an affiliate may provide more services (such as distribution or recordkeeping) for some types of funds or accounts than for others. In such cases, a portfolio manager may benefit, either directly or indirectly, by devoting disproportionate attention to the management of fund and/or accounts that provide greater overall returns to the investment manager and its affiliates.
A Fund's portfolio manager(s) may also face other potential conflicts of interest in managing the Fund, and the description above is not a complete description of every conflict that could be deemed to exist in managing both a Fund and other accounts. In addition, a Fund's portfolio manager may also manage other accounts (including their personal assets or the assets of family members) in their personal capacity. The management of these accounts may also involve certain of the potential conflicts described above. Investment personnel at the Advisor, including each Fund's portfolio manager, are subject to restrictions on engaging in personal securities transactions pursuant to Codes of Ethics adopted by the Advisor and each Fund, which contain provisions and requirements designed to identify and address certain conflicts of interest between personal investment activities and the interests of each Fund.
BROKERAGE AND RESEARCH SERVICES. Consistent with the Conduct Rules of the National Association of Securities Dealers, Inc., and subject to seeking "best execution" (as defined below) and such other policies as the Trustees may determine, the Advisor may consider sales of shares of the Funds as a factor in the selection of broker-dealers to execute securities transactions for a Fund.
The Advisor places the transactions of the Funds with broker-dealers selected by the Advisor and, if applicable, negotiates commissions. Broker-dealers may receive brokerage commissions on portfolio transactions, including the purchase and writing of options, the effecting of closing purchase and sale transactions, and the purchase and sale of underlying securities upon the exercise of options and the purchase or sale of other instruments. The Funds from time to time also execute portfolio transactions
with such broker-dealers acting as principals. The Funds do not intend to deal exclusively with any particular broker-dealer or group of broker-dealers.
It is the Advisor's policy generally to seek best execution, which is to place the Funds' transactions where the Funds can be expected to obtain the most favorable combination of price and execution services in particular transactions or provided on a continuing basis by a broker-dealer, and to deal directly with a principal market maker in connection with over-the-counter transactions, except when it is believed that best execution is obtainable elsewhere. In evaluating the execution services of, including the overall reasonableness of brokerage commissions paid to, a broker-dealer, consideration is given to, among other things, the firm's general execution and operational capabilities, and to its reliability, integrity and financial condition.
Securities transactions of the Funds may be executed by broker-dealers who also provide research services (as defined below) to the Advisor and the Funds. The Advisor may use all, some or none of such research services in providing investment advisory services to each of its investment company and other clients, including the Fund. To the extent that such services are used by the Advisor, they tend to reduce the Advisor's expenses. In the Advisor's opinion, it is impossible to assign an exact dollar value for such services.
The Trustees have authorized the Advisor to cause the Funds to pay a broker-dealer which provides brokerage and research services to the Advisor an amount of commission for effecting a securities transaction, including the sale of an option or a closing purchase transaction, for the funds in excess of the amount of commission which another broker-dealer would have charged for effecting that transaction. As provided in Section 28(e) of the Securities Exchange Act of 1934, "brokerage and research services" include advice as to the value of securities, the advisability of investing in, purchasing or selling securities and the availability of securities or purchasers or sellers of securities; furnishing analyses and reports concerning issues, industries, securities, economic factors and trends and portfolio strategy and performance of accounts; and effecting securities transactions and performing functions incidental thereto (such as clearance and settlement). The Advisor must determine in good faith that such greater commission is reasonable in relation to the value of the brokerage and research services provided by the executing broker-dealer viewed in terms of that particular transaction or the Advisor's overall responsibilities to the Funds and all its other clients.
The Trustees have authorized the Advisor to utilize the services of a clearing agent with respect to all call options written by Funds that write options and to pay such clearing agent commissions of a fixed amount per share (currently 1.25 cents) on the sale of the underlying security upon the exercise of an option written by a Fund.
The Advisor may use the services of affiliated broker-dealers, when buying or selling securities for a Fund's portfolio pursuant to procedures adopted by the Trustees and 1940 Act Rule 17e-1. Under the Rule, the Advisor must ensure that commissions a Fund pays to affiliates of the Advisor on portfolio transactions are reasonable and fair compared to commissions received by other broker-dealers in connection with comparable transactions involving similar securities being bought or sold at about the same time. The Advisor will report quarterly to the Trustees on all securities transactions placed through affiliates of the Advisor so that the Trustees may consider whether such trades complied with these procedures and the Rule.
PRINCIPAL UNDERWRITER
CMD is the principal underwriter of the Trust's shares. CMD has no obligation to buy the Funds' shares, and purchases the Funds' shares only upon receipt of orders from authorized FSFs or investors.
INVESTOR SERVICING AND TRANSFER AGENT
CMS is the Trust's investor servicing agent (transfer, plan and dividend disbursing agent), for which it receives fees which are paid monthly by the Trust. The fee paid to CMS is based on number of accounts plus reimbursement for certain out-of-pocket expenses. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION ON FEES RECEIVED BY CMS. The agreement continues indefinitely but may be terminated by 90 days' notice by the Fund to CMS or generally by 6 months' notice by CMS to the Fund. The agreement limits the liability of CMS to the Fund for loss or damage incurred by the Fund to situations involving a failure of CMS to use reasonable care or to act in good faith and without negligence in performing its duties under the agreement. The Fund will indemnify CMS from, among other things, any and all claims, actions, suits, losses, costs, damages, and expenses incurred by it in connection with its acceptance of this Agreement, provided that: (i) to the extent such claims, actions, suits, losses, costs, damages, or expenses relate solely to a particular series or group of series of shares, such
indemnification shall be only out of the assets of that series or group of series; (ii) this indemnification shall not apply to actions or omissions constituting negligence or misconduct of CMS or its agents or contractors, including but not limited to willful misfeasance, bad faith or gross negligence in the performance of their duties, or reckless disregard of their obligations and duties under this Agreement; and (iii) CMS shall give a Fund prompt notice and reasonable opportunity to defend against any such claim or action in its own name or in the name of CMS.
CODE OF ETHICS
The Funds, the Advisor, and CMD have adopted Codes of Ethics pursuant to the requirements of the 1940 Act. These Codes of Ethics permit personnel subject to the Codes to invest in securities, including securities that may be purchased or held by the Funds. These Codes of Ethics can be reviewed and copied at the SEC's Public Reference Room and may be obtained by calling the SEC at 1-202-942-8090. These Codes are also available on the EDGAR Database on the SEC's internet web site at http://www.sec.gov, and may also be obtained, after paying a duplicating fee, by electronic request to publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102.
ANTI-MONEY LAUNDERING COMPLIANCE
The Funds are required to comply with various anti-money laundering laws and regulations. Consequently, the Funds may request additional information from you to verify your identity. If at any time the Funds believe a shareholder may be involved in suspicious activity or if certain account information matches information on government lists of suspicious persons, the Funds may choose not to establish a new account or may be required to "freeze" a shareholder's account, halting all shareholder activity with respect to such account. The Funds also may be required to provide a governmental agency with information about transactions that have occurred in a shareholder's account or to transfer monies received to establish a new account, transfer an existing account or transfer the proceeds of an existing account to a governmental agency. In some circumstances, the law may not permit a Fund to inform the shareholder that it has taken the actions described above.
PROXY VOTING POLICIES AND FUND PROXY VOTING RECORD
The Fund has delegated to the Advisor the responsibility to vote proxies relating to portfolio securities held by the Fund. In deciding to delegate this responsibility to the Advisor, the Board of Trustees of the Trust reviewed and approved the policies and procedures adopted by the Advisor. These included the procedures that the Advisor follows when a vote presents a conflict between the interests of the Fund and its shareholders and the Advisor, its affiliates, its other clients or other persons.
The Advisor's policy is to vote all proxies for Fund securities in a manner considered by the Advisor to be in the best interest of the Fund and its shareholders without regard to any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor examines each proposal and votes against the proposal, if, in its judgment, approval or adoption of the proposal would be expected to impact adversely the current or potential market value of the issuer's securities. The Advisor also examines each proposal and votes the proxies against the proposal, if, in its judgment, the proposal would be expected to affect adversely the best interest of the Fund. The Advisor determines the best interest of the Fund in light of the potential economic return on the Fund's investment.
The Advisor addresses potential material conflicts of interest by having predetermined voting guidelines. For those proposals that require special consideration or in instances where special circumstances may require varying from the predetermined guideline, the Advisor's Proxy Committee determines the vote in the best interest of the Fund, without consideration of any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor's Proxy Committee is composed of representatives of the Advisor's equity investments, equity research, compliance, legal and fund administration functions. In addition to the responsibilities described above, the Proxy Committee has the responsibility to review, on a semi-annual basis, the Advisor's proxy voting policies to ensure consistency with internal and regulatory agency policies and to develop additional predetermined voting guidelines to assist in the review of proxy proposals.
The Proxy Committee may vary from a predetermined guideline if it determines that voting on the proposal according to the predetermined guideline would be expected to impact adversely the current or potential market value of the issuer's securities or to affect adversely the best interest of the client. References to the best interest of a client refer to the interest of the client in terms of the potential economic return on the client's investment. In determining the vote on any proposal, the Proxy Committee does not consider any benefit other than benefits to the owner of the securities to be voted. A member of the Proxy Committee is
prohibited from voting on any proposal for which he or she has a conflict of interest by reason of a direct relationship with the issuer or other party affected by a given proposal. Persons making recommendations to the Proxy Committee or its members are required to disclose to the Committee any relationship with a party making a proposal or other matter known to the person that would create a potential conflict of interest.
The Advisor has retained Institutional Shareholder Services ("ISS"), a third party vendor, to implement its proxy voting process. ISS provides proxy analysis, record keeping services and vote disclosure services.
The Advisor's proxy voting guidelines and procedures are included in this SAI as Appendix II. In accordance with SEC regulations, the fund's proxy voting record for the last twelve-month period ended June 30 has been filed with the SEC. You may obtain a copy of the fund's proxy voting record (i) at www.columbiamanagement.com; (ii) on the Securities and Exchange Commission's website at www.sec.gov; and (iii) without charge, upon request, by calling 800-368-0346.
DISCLOSURE OF PORTFOLIO INFORMATION
The Trustees of the Columbia Funds have adopted policies with respect to the disclosure of the Funds' portfolio holdings by the Funds, Columbia Advisors, or their affiliates. These policies provide that Fund portfolio holdings information generally may not be disclosed to any party prior to (1) the day next following the posting of such information on the Funds' website at www.columbiafunds.com, (2) the day next following the filing of the information with the SEC in a required filing, or (3) for money market funds, such information is publicly available to all shareholders upon request on the fifth business day after each calendar month-end. Certain limited exceptions pursuant to the Fund's policies are described below. The Trustees shall be updated as needed regarding the Fund's compliance with the policies, including information relating to any potential conflicts of interest between the interests of Fund shareholders and those of Columbia Advisors and its affiliates. The Fund's policies prohibit Columbia Advisors and the Fund's other service providers from entering into any agreement to disclose Fund portfolio holdings information in exchange for any form of consideration. These policies apply to disclosures to all categories of persons, including, without limitation, individual investors, institutional investors, intermediaries that distribute the Fund's shares, third-party service providers, rating and ranking organizations and affiliated persons of the Fund.
PUBLIC DISCLOSURES. The Fund's portfolio holdings are currently disclosed to the public through required filings with the SEC and, for equity and fixed income funds, on the Fund's website at www.columbiafunds.com. The Fund files its portfolio holdings with the SEC for each fiscal quarter on Form N-CSR (with respect to each annual period and semi-annual period) and Form N-Q (with respect to the first and third quarters of the Fund's fiscal year). Shareholders may obtain the Fund's Forms N-CSR and N-Q filings on the SEC's website at www.sec.gov. In addition, the Fund's Forms N-CSR and N-Q filings may be reviewed and copied at the SEC's public reference room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC's website or the operation of the public reference room.
The equity and fixed income Columbia Funds also currently make portfolio information publicly available at www.columbiafunds.com, as disclosed in the following table:
Frequency of
Type of Fund Information Provided Disclosure Date of Web Posting
------------ ----------------------------------- ------------ ----------------------------------
Equity Funds Full portfolio holdings information Monthly 30 calendar days after month-end
Fixed Income Funds Full portfolio holdings information Quarterly 60 calendar days after quarter-end
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The scope of the information provided relating to the Fund's portfolio that is made available on the website may change from time to time without prior notice.
For Columbia's money market funds, a complete list of a Fund's portfolio holdings shall be publicly available on a monthly basis on the fifth business day after month-end. Shareholders may request such information by writing or calling the Fund's distributor, CMD at the address listed on the cover of this SAI.
A Fund, Columbia Advisors or their affiliates may include portfolio holdings information that has already been made public through a web posting or SEC filing in marketing literature and other communications to shareholders, advisors or other parties, provided that the information is disclosed no earlier than the day after the date the information is disclosed publicly.
OTHER DISCLOSURES. The Fund's policies provide that non-public disclosures of the Fund's portfolio holdings may be made if (1) the Fund has a legitimate business purpose for making such disclosure, (2) the Fund's chief executive officer authorizes such non-public disclosure of information, and (3) the party receiving the non-public information enters into a confidentiality agreement, which includes a duty not to trade on the non-public information.
The Fund periodically discloses its portfolio information on a confidential basis to various service providers that require such information in order to assist the Fund with its day-to-day business affairs. In addition to Columbia Advisors and its affiliates, these service providers include the Fund's custodian and sub-custodians, the Fund's independent registered public accounting firm, legal counsel, financial printers (R.R. Donnelly & Sons and Bowne & Co., Inc.), the Fund's proxy voting service provider (Alamo Direct Mail Services, Inc.), the Fund's proxy solicitor (Georgeson Shareholder Communications Inc.), rating agencies that maintain ratings on certain Columbia Funds (Fitch, Inc.) and service providers that support Columbia Advisors' trading systems (InvestorTool, Inc. and Thomson Financial). These service providers are required to keep such information confidential, and are prohibited from trading based on the information or otherwise using the information except as necessary in providing services to the Fund. The Fund may also disclose portfolio holdings information to broker/dealers and certain other entities related to potential transactions and management of the Fund, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information.
Certain clients of the Fund's investment adviser(s) may follow a strategy similar to that of the Fund, and have access to portfolio holdings information for their account. It is possible that such information could be used to infer portfolio holdings information relating to the Fund.
DETERMINATION OF NET ASSET VALUE
Each Fund determines net asset value (NAV) per share for each class as of the close of trading on the New York Stock Exchange (Exchange) (generally 4:00 p.m. Eastern time) each day the Exchange is open, except that certain classes of assets, such as index futures, for which the market close occurs shortly after the close of regular trading on the Exchange will be priced at the closing time of the market on which they trade. Currently, the Exchange is closed Saturdays, Sundays and the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. Funds with portfolio securities which are primarily listed on foreign exchanges may experience trading and changes in NAV on days on which such Fund does not determine NAV due to differences in closing policies among exchanges. This may significantly affect the NAV of the Fund's redeemable securities on days when an investor cannot redeem such securities. Debt securities generally are valued by a pricing service which determines valuations based upon market transactions for normal, institutional-size trading units of similar securities. However, in circumstances where such prices are not available or where the Advisor deems it appropriate to do so, an over-the-counter or exchange bid quotation is used. Securities listed on an exchange or on NASDAQ are valued at the last sale price (or the official closing price as determined by the NASDAQ system, if different, as applicable). Listed securities for which there were no sales during the day and unlisted securities generally are valued at the last quoted bid price. Options are valued at the last sale price or in the absence of a sale, the mean between the last quoted bid and offering prices. Short-term obligations with a maturity of 60 days or less are valued at amortized cost pursuant to procedures adopted by the Trustees. The values of foreign securities quoted in foreign currencies are translated into U.S. dollars at the exchange rate for that day. Portfolio positions for which market quotations are not readily available and other assets are valued at fair value as determined by the Advisor in good faith under the direction of the Trust's Board of Trustees.
Generally, trading in certain securities (such as foreign securities) is substantially completed each day at various times prior to the close of the Exchange. Trading on certain foreign securities markets may not take place on all business days in New York, and trading on some foreign securities markets takes place on days which are not business days in New York and on which the Fund's NAV is not calculated. The values of these securities used in determining the NAV are computed as of such times. Also, because of the amount of time required to collect and process trading information as to large numbers of securities issues, the values of certain securities (such as convertible bonds, U.S. government securities, and tax-exempt securities) are determined based on market quotations collected earlier in the day at the latest practicable time prior to the close of the Exchange. Occasionally, events affecting the value of such securities may occur between such times and the close of the Exchange which will not be reflected in the computation of each Fund's NAV. If events materially affecting the value of such securities occur during such period, then these securities will be valued at fair value following procedures approved by the Trust's Board of Trustees.
(The following two paragraphs are applicable only to Columbia Greater China Fund).
Trading in securities on stock exchanges and over-the-counter markets in foreign securities markets is normally completed well before the close of the business day in New York. Trading on foreign securities markets may not take place on all business days in New York, and trading on some foreign securities markets does take place on days which are not business days in New York and on which the Fund's NAV is not calculated.
The calculation of the Fund's NAV accordingly may not take place contemporaneously with the determination of the prices of the Fund's portfolio securities used in such calculations. Events affecting the values of portfolio securities that occur between the time their prices are determined and the close of the Exchange (when the Fund's NAV is calculated) will not be reflected in the Fund's calculation of NAV unless the Advisor, acting under procedures established by the Board of Trustees of the Trust, deems that the particular event would materially affect the Fund's NAV, in which case an adjustment will be made. Assets or liabilities initially expressed in terms of foreign currencies are translated prior to the next determination of the NAV of the Fund's shares into U.S. dollars at prevailing market rates.
AMORTIZED COST FOR MONEY MARKET FUNDS.
Money market funds generally value their portfolio securities at amortized cost according to Rule 2a-7 under the 1940 Act.
Under the amortized cost method a security is initially valued at cost and
thereafter any discount or premium from maturity value is amortized ratably to
maturity. This method assures a constant NAV but may result in a yield different
from that of the same portfolio under the market value method. The Trust's
Trustees have adopted procedures intended to stabilize a money market fund's NAV
per share at $1.00. If a money market fund's market value deviates from the
amortized cost of $1.00, and results in a material dilution to existing
shareholders, the Trust's Trustees will take corrective action that may include:
realizing gains or losses; shortening the portfolio's maturity; withholding
distributions; redeeming shares in kind; or converting to the market value
method (in which case the NAV per share may differ from $1.00). All investments
will be determined pursuant to procedures approved by the Trust's Trustees to
present minimal credit risk.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of the Fund and tables of charges. This SAI contains additional information which may be of interest to investors.
The Fund may accept unconditional orders for shares to be executed at the public offering price based on the NAV per share next determined after the order is placed in good order. The public offering price is the NAV plus the applicable sales charge, if any. In the case of orders for purchase of shares placed through FSFs, the public offering price will be determined on the day the order is placed in good order, but only if the FSF receives the order prior to the time at which shares are valued and transmits it to the Fund before the Fund processes that day's transactions. If the FSF fails to transmit before the Fund processes that day's transactions, the customer's entitlement to that day's closing price must be settled between the customer and the FSF. If the FSF receives the order after the time at which the Fund values its shares, the price will be based on the NAV determined as of the close of the Exchange on the next day it is open. If funds for the purchase of shares are sent directly to CMS, they will be invested at the public offering price next determined after receipt in good order. Payment for shares of the fund must be in U.S. dollars; if made by check, the check must be drawn on a U.S. bank.
Investors should understand that, since the offering price of the Fund's shares is calculated to two decimal places using standard rounding methodology, the dollar amount of the sales charge paid as a percentage of the offering price and of the net amount invested for any particular purchase of fund shares may be higher or lower depending on whether downward or upward rounding was required during the calculation process.
The Fund receives the entire NAV of shares sold. For shares subject to an initial sales charge, CMD's commission is the sales charge shown in the Fund's Prospectus less any applicable FSF discount. The FSF discount is the same for all FSFs, except that CMD retains the entire sales charge on any sales made to a shareholder who does not specify a FSF on the Investment Account Application ("Application"), and except that CMD may from time to time reallow additional amounts to all or certain FSFs. CMD generally retains some or all of any asset-based sales charge (distribution fee) or contingent deferred sales charge. Such charges generally reimburse CMD for any up-front and/or ongoing commissions paid to FSFs.
Checks presented for the purchase of shares of the Fund which are returned by the purchaser's bank or checkwriting privilege checks for which there are insufficient funds in a shareholder's account to cover redemption may subject such purchaser or shareholder to a $15 service fee for each check returned. Checks must be drawn on a U.S. bank and must be payable in U.S. dollars. Travelers checks, gift checks, credit card convenience checks, credit cards, cash and ban counter (starter checks) are not accepted.
CMS acts as the shareholder's agent whenever it receives instructions to carry out a transaction on the shareholder's account. Upon receipt of instructions that shares are to be purchased for a shareholder's account, the designated FSF will receive the applicable sales commission. Shareholders may change FSFs at any time by written notice to CMS, provided the new FSF has a sales agreement with CMD.
Shares credited to an account are transferable upon written instructions in good order to CMS and may be redeemed as described under "How to Sell Shares" in the Prospectus. Certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you may send the certificates to CMS for deposit to your account.
In addition to the commissions specified in a Fund's prospectus and this SAI, CMD, or its advisory affiliates, from their own resources, may make cash payments to FSFs that agree to promote the sale of shares of funds that CMD distributes. A number of factors may be considered in determining the amount of those payments, including the FSF's sales, client assets invested in the funds and redemption rates, the quality of the FSF's relationship with CMD and/or its affiliates, and the nature of the services provided by FSFs to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the FSF's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, CMD may also pay non-cash compensation to FSFs and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for FSF educational or training events.
In addition, CMD, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of a Fund.
CMD and its affiliates anticipate that the FSFs and intermediaries that will receive the additional compensation described above include:
1st Global Capital Corp
401 Company
ABN AMRO Trust Services
ADP Retirement Services
Advest
AEGON/Transamerica
AG Edwards
American Century Services
American Express
AMG
AON Consulting
AST Trust Company
Banc of America Investment Services
BancOne
Bear Stearns
Benefit Plan Administrators
Bidwell & Company
BNY Clearing
C N A Trust
Charles Schwab
CIBC Oppenheimer
Citigroup Global Markets
CitiStreet Associates LLC
City National Bank
City of Milwaukee
Columbia Trust Company
Commonwealth Financial
Compensation & Capital
CPI Qualified Plan Consultants
Daily Access Concepts
Davenport & Company
Delaware Investments
Digital Retirement Solutions
Discover Brokerage
Dreyfus/Mellon
Edgewood Services
Edward Jones
E-Trade,
ExpertPlan
FAS Liberty Life Spectrum
Ferris Baker Watts
Fidelity
Financial Data Services
Franklin Templeton
Freeman Welwood
Gem Group
Great West Life
Hewitt Associates LLC
Huntington Bank
ING
Intermountain Health Care
Investmart, Inc.
Investment Manager Services (IMS)
Janney Montgomery Scott
JJB Hilliard Lyons
JP Morgan/American Century
Kenney Investments
Kirkpatrick Pettis Smith Polian Inc
Legg Mason Wood Walker
Liberty Life
Lincoln Financial
Lincoln Life
Linsco Private Ledger
M & T Securities
Marquette Trust Company
Mass Mutual Life
Matrix Settlement & Clearance Services (MSCS)
McDonald Investments
Merrill Lynch
MetLife
MFS
Mfund Trax
MidAtlantic Capital
Milliman USA
Morgan Keegan
Morgan Stanley Dean Witter
PFPC
Nationwide Investment Services
Neuberger Berman Mgmt
NFP Securities
NSD -NetStock Sharebuilder
NYLife Distributors
Optimum Investment Advisors
Orbitex
Pershing LLC
Phoenix Home Life
Piper Jaffray
PNC
PPI Employee Benefits
Private Bank & Trust
Prudential
Putnam Investments
Raymond James
RBC Dain Rausher
Robert W Baird
Royal Alliance
RSM McGladrey Inc.
Safeco
Scott & Stringfellow
Scudder Investments
Security Benefit
Segall Bryant Hamill
South Trust Securities
Southwest Securities
Standard Insurance
Stanton Group
State of NY Deferred Compensation Plan
Stephens, Inc.
Stifel Nicolaus & Co
Strong Capital
Sungard T Rowe Price
Trustar Retirement Services
Trustlynx/Datalynx
UBS Financial Services
USAA Investment Management
Vanguard
Wachovia
TD Waterhouse
Webster Investment Services
Wells Fargo
Wilmington Trust
PLEASE CONTACT YOUR FSF OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or eliminated at any time.
AUTOMATIC INVESTMENT PLAN. As a convenience to investors, shares of most Funds advised by the Advisor may be purchased through the Automatic Investment Plan. Electronic fund transfers for a fixed amount of at least $50 ($25 for IRA) are used to purchase a Fund's shares at the public offering price next determined after CMD receives the proceeds. If your Automatic Investment Plan purchase is by electronic funds transfer, you may request the Automatic Investment Plan purchase for any day. Further information and application forms are available from FSFs or from CMD.
AUTOMATED DOLLAR COST AVERAGING (Classes A, B, C, D, T, G and Z). The Automated Dollar Cost Averaging program allows you to exchange $100 or more on a monthly basis from any fund distributed by CMD into the same class of shares of up to five other Funds. Complete the Automated Dollar Cost Averaging section of the Application. There is no charge for exchanges made pursuant to the Automated Dollar Cost Averaging program. Sales charges may apply if exchanging from a money market fund. Exchanges will continue so long as your fund balance is sufficient to complete the transfers. Your normal rights and privileges as a shareholder remain in full force and effect. Thus you can buy any Fund, exchange between the same Class of shares of Funds by written instruction or by telephone exchange if you have so elected and withdraw amounts from any Fund, subject to the imposition of any applicable CDSC or sales charges.
Any additional payments or exchanges into your Fund will extend the time of the Automated Dollar Cost Averaging program.
An exchange is generally a capital sale transaction for federal income tax purposes.
You may terminate your program, change the amount of the exchange (subject to the $100 minimum), or change your selection of funds, by telephone or in writing; if in writing by mailing your instructions to Columbia Management Services, Inc. (formerly named Columbia Funds Services, Inc.) (CMS) P.O. Box 8081, Boston, MA 02266-8081.
You should consult your FSF or financial advisor to determine whether or not the Automated Dollar Cost Averaging program is appropriate for you.
CMD offers several plans by which an investor may obtain reduced initial or contingent deferred sales charges. These plans may be altered or discontinued at any time. See "Programs For Reducing or Eliminating Sales Charges" below for more information.
CLASS T SHAREHOLDER SERVICES PLAN. The Trustees have approved a Shareholder
Services Plan (the "Services Plan") pursuant to which the Trusts plan to enter
into servicing agreements with institutions (including Bank of America
Corporation and its affiliates). Pursuant to these servicing agreements,
institutions render certain administrative and support services to customers who
are the beneficial owners of Class T shares of each Fund other than the Columbia
Newport Tiger Fund. Such services are provided to the institution's customers
who are the beneficial owners of Class T shares and are intended to supplement
the services provided by the Fund's administrator and transfer agent to the
shareholders of record of the Class T shares. The Services Plan provides that
each Fund will pay fees for such services at an annual rate of up to 0.50% of
the average daily net asset value of Class T shares owned beneficially by the
institution's customers. Institutions may receive up to one-half of this fee for
providing one or more of the following services to such customers: (i)
aggregating and processing purchase and redemption requests and placing net
purchase and redemption orders with CMD; (ii) processing dividend payments from
a Fund; (iii) providing sub-accounting with respect to Class T shares or the
information necessary for sub-accounting; and (iv) providing periodic mailings
to customers. Institutions may also receive up to one-half of this fee for
providing one or more of these additional services to such customers: (i)
providing customers with information as to their positions in Class T shares;
(ii) responding to customer inquiries; and (iii) providing a service to invest
the assets of customers in Class T shares.
The payments under the servicing agreements entered into as of the date of this SAI are limited to an aggregate fee of not more than 0.30% (on an annualized basis) of the average daily net asset value of the Class T shares of equity funds beneficially owned
by customers of institutions and 0.15% (on an annualized basis) of the average daily net asset value of the Class T shares of bond funds beneficially owned by customers of institutions. The Funds understand that institutions may charge fees to their customers who are the beneficial owners of Class T shares in connection with their accounts with such institutions. Any such fees would be in addition to any amounts which may be received by an institution under the Services Plan. Under the terms of each servicing agreement, institutions are required to provide to their customers a schedule of any fees that they may charge in connection with customer investments in Class T shares.
Each servicing agreement with an institution ("Service Organization") relating to the Services Plan requires that, with respect to those Funds which declare dividends on a daily basis, the Service Organization agrees to waive a portion of the servicing fee payable to it under the Services Plan to the extent necessary to ensure that the fees required to be accrued with respect to the Class T shares of such Funds on any day do not exceed the income to be accrued to such Class T shares on that day.
The Class T servicing agreements are governed by the Services Plan approved by the Board of Trustees in connection with the offering of Class T shares of each Fund. Pursuant to the Services Plan, the Board of Trustees reviews, at least quarterly, a written report of the amounts paid under the servicing agreements and the purposes for which the expenditures were made. In addition, the arrangements with Service Organizations must be approved annually by a majority of the Trustees, including a majority of the trustees who are not "interested persons" of the Funds as defined in the 1940 Act and who have no direct or indirect financial interest in such arrangements (the "Disinterested Trustees").
The Board of Trustees has approved the service agreements with Service Organizations based on information provided by the Funds' service contractors that there is a reasonable likelihood that the arrangements will benefit the Funds and their shareholders by affording the Funds greater flexibility in connection with the efficient servicing of the accounts of the beneficial owners of Class T shares of the Funds. Any material amendment to the Funds' arrangements with Service Organizations must be approved by a majority of the Board of Trustees (including a majority of the Disinterested Trustees). So long as the service agreements with Service Organizations are in effect, the selection and nomination of the members of Columbia's Board of Trustees who are not "interested persons" (as defined in the 1940 Act) of the Funds will be committed to the discretion of such Disinterested Trustees.
TAX-SHELTERED RETIREMENT PLANS (Retirement Plans). CMD offers prototype tax-qualified plans, including Pension and Profit-Sharing Plans for individuals, corporations, employees and the self-employed. The minimum initial Retirement Plan investment is $25. Columbia Trust Company (CTC) is the Custodian/Trustee and Plan Sponsor of the Columbia Advisor prototype plans offered through CMD. In general, a $20 annual fee is charged. Detailed information concerning these Retirement Plans and copies of the Retirement Plans are available from CMD.
Participants in Retirement Plans not sponsored by CTC, not including Individual Retirement Accounts (IRAs), may be subject to an annual fee of $20 unless the Retirement Plan maintains an omnibus account with CMS. Participants in CTC sponsored prototype plans (other than IRAs) who liquidate the total value of their account may also be charged a $20 close-out processing fee payable to CMS. The close out fee applies to plans opened after September 1, 1996. The fee is in addition to any applicable CDSC. The fee will not apply if the participant uses the proceeds to open a Columbia Advisor IRA Rollover account in any Fund distributed by CMD, or if the Retirement Plan maintains an omnibus account.
Consultation with a competent financial advisor regarding these Retirement Plans and consideration of the suitability of Fund shares as an investment under the Employee Retirement Income Security Act of 1974 or otherwise is recommended.
TELEPHONE ADDRESS CHANGE SERVICES. By calling CMS, shareholders or their FSF of record may change an address on a recorded telephone line. Confirmations of address change will be sent to both the old and the new addresses. Telephone redemption privileges by check are suspended for 30 days after an address change is effected. Please have your account and taxpayer identification numbers available when calling.
CASH CONNECTION. Dividends and any other distributions, including Systematic Withdrawal Plan (SWP) payments, may be automatically deposited to a shareholder's bank account via electronic funds transfer. Shareholders wishing to avail themselves of this electronic transfer procedure should complete the appropriate sections of the Application.
AUTOMATIC DIVIDEND DIVERSIFICATION. The automatic dividend diversification reinvestment program (ADD) generally allows shareholders to have all distributions from a Fund automatically invested in the same class of shares of another Fund. An ADD
account must be in the same name as the shareholder's existing open account with the particular Fund. Call CMS for more information at 1-800-345-6611.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
RIGHTS OF ACCUMULATION (Columbia Class A and Class T shares, Nations Class A shares and Galaxy Retail A shares only) Class T shares can only be purchased by the shareholders of Columbia Newport Tiger Fund (formerly named Liberty Newport Tiger Fund) who already own Class T shares. Reduced sales charges on Class A and T shares can be effected by combining a current purchase of Class A or Class T shares with prior purchases of other funds and classes distributed by CMD. The applicable sales charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on the previous day of all shares of funds for which CMD serves as distributor for funds held by the shareholder.
CMD must be promptly notified of each purchase with respect to which a shareholder is entitled to a reduced sales charge. Such reduced sales charge will be applied upon confirmation of the shareholder's holdings by CMS. A Fund may terminate or amend this Right of Accumulation.
STATEMENT OF INTENT (Class A, Class E and Class T shares only). Any person may qualify for reduced sales charges on purchases of Class A, E and T shares made within a thirteen-month period pursuant to a Statement of Intent ("Statement"). A shareholder may include, as an accumulation credit toward the completion of such Statement, the value of all fund shares held by the shareholder on the date of the Statement in Funds (except shares of any money market fund, unless such shares were acquired by exchange from Class A shares of another non-money market fund)). The value is determined at the public offering price on the date of the Statement. Purchases made through reinvestment of distributions do not count toward satisfaction of the Statement.
During the term of a Statement, CMS will hold shares in escrow to secure payment of the higher sales charge applicable to Class A, E or T shares actually purchased. Dividends and capital gains will be paid on all escrowed shares and these shares will be released when the amount indicated has been purchased. A Statement does not obligate the investor to buy or a Fund to sell the amount of the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which would qualify for a further quantity discount, a retroactive price adjustment will be made at the time of expiration of the Statement (provided the FSF returns to CMD the excess commission previously paid during the thirteen-month period). The resulting difference in offering price will purchase additional shares for the shareholder's account at the applicable offering price. If the amount of the Statement is not purchased, the shareholder shall remit to CMD an amount equal to the difference between the sales charge paid and the sales charge that should have been paid. If the shareholder fails within twenty days after a written request to pay such difference in sales charge, CMS will redeem escrowed Class A, E or T shares with a value equal to such difference. The additional FSF commission will be remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available from your FSF, or from CMS at 1-800-345-6611.
NET ASSET VALUE ELIGIBILITY GUIDELINES (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, LLC IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS).
1. Employees, brokers and various relationships that are allowed to buy
at NAV. Class A shares of certain Funds may be sold at NAV to the
following individuals, whether currently employed or retired:
Employees of Bank of America Corporation (and its predecessors), its
affiliates and subsidiaries; Trustees of funds advised or administered
by the Advisor; directors, officers and employees of the Advisor, CMD,
or its successors and companies affiliated with the Advisor;
Registered representatives and employees of FSFs (including their
affiliates) that are parties to dealer agreements or other sales
arrangements with CMD; Nations Funds' Trustees, Directors and
employees of its investment sub-advisers; Broker/Dealers if purchases
are in accordance with the internal policies and procedures of
the employing broker/dealer and made for their own investment purposes; employees or partners of any contractual service provider to the funds.
NAV eligibility for Class A purchase also applies to the families of the parties listed above and their beneficial accounts. Family members include: spouse, parent, stepparent, legal guardian, child, stepchild, father-in-law and mother-in-law.
Individuals receiving a distribution from a Bank of America trust, fiduciary, custodial or other similar account may use the proceeds of that distribution to buy Class A shares without paying a front-end sales charge, as long as the proceeds are invested in the funds within 90 days of the date of distribution.
Registered broker/dealer firms that have entered into a Nations Funds dealer agreement with BACAP Distributors, LLC may buy Class A shares without paying a front-end sales charge for their investment account only.
Banks, trust companies and thrift institutions, acting as fiduciaries.
2. Grandfathered investors. Any shareholder who owned shares of any fund of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000 (when all of the then outstanding shares of Columbia Acorn Trust were re-designated Class Z shares) and who since that time has remained a shareholder of any Fund, may purchase Class A shares of any Fund at NAV in those cases where a Columbia Fund Class Z share is not available.
Shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at NAV will continue to be eligible for NAV purchases into those Nations Fund accounts opened through August 19, 2005.
Galaxy Fund shareholders prior to December 1, 1995; and shareholders who (i) purchased Galaxy Fund Prime A shares at NAV and received Class A shares in exchange for those shares during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Prime A shares were originally purchased.
(For Class T shares only) Shareholders who (i) purchased Galaxy Fund Retail A shares at net asset value and received Class T shares in exchange for those shares during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Retail A shares were originally purchased; and Boston 1784 Fund shareholders on the date that those funds were reorganized into Galaxy Funds.
3. Reinstatement. Subject to the fund policy on trading of fund shares, an investor who has redeemed class A, B, C, D, G or T shares may, upon request, reinstate within 1 year a portion or all of the proceeds of such sales in shares of class A of any fund at the NAV next determined after CMS received a written reinstatement request and payment.
4. Retirement Plans. Class A, Class E and Class T shares (Class T shares are not currently open to new investors) of certain funds may also be purchased at reduced or no sales charge by clients of dealers, brokers or registered investment advisors that have entered into arrangements with CMD pursuant to which the funds are included as investments options in wrap fee accounts, other managed agency/asset allocation accounts or programs involving fee-based compensation arrangements, and by participants in certain retirement plans.
5. Non-U.S. Investors. Certain pension, profit-sharing or other employee benefit plans offered to non-US investors may be eligible to purchase Class A shares with no sales charge.
6. Reorganizations. At the Fund's discretion, NAV eligibility may apply to shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which the fund is a party.
7. Rights of Accumulation (ROA). The value of eligible accounts, regardless of class, maintained by you and you and your immediate family may be combined with the value of your current purchase to reach a sales discount level and to obtain the lower sales charge for your current purchase.
8. Letters of Intent (LOI). You may pay a lower sales charge when purchasing class A shares by signing a letter of intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the LOI within 13 months. If your LOI purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES (CDSCS) (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, LLC IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS) (Class A, B, C, D, E, matured F, G and T shares) CDSCs may be waived on redemptions in the following situations with the proper documentation:
1. Death. CDSCs may be waived on redemptions following the death of (i) the sole shareholder on an individual account, (ii) a joint tenant where the surviving joint tenant is the deceased's spouse, or (iii) the beneficiary of a Uniform Gifts to Minors Act (UGMA), Uniform Transfers to Minors Act (UTMA) or other custodial account. If, upon the occurrence of one of the foregoing, the account is transferred to an account registered in the name of the deceased's estate, the CDSC will be waived on any redemption from the estate account If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions occurring pursuant to a monthly, quarterly or semi-annual SWP established with CMS, to the extent the redemptions do not exceed, on an annual basis, 12% of the account's value at the time that the SWP is established. Otherwise, CDSCs will be charged on SWP redemptions until this requirement is met. For redemptions in excess of 12% of the account's value at the time that the SWP is established, a CDSC will be charged on the SWP redemption. The 12% limit does not apply if the SWP is set up at the time the account is established, and distributions are being reinvested. See below under "How to Sell Shares -- Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions occurring after the
sole shareholder on an individual account or a joint tenant on a
spousal joint tenant account becomes disabled (as defined in Section
72(m)(7) of the Internal Revenue Code). To be eligible for such
waiver, (i) the disability must arise after the purchase of shares
(ii) the disabled shareholder must have been under age 65 at the time
of the initial determination of disability, and (iii) a letter from a
physician must be signed under penalty of perjury stating the nature
of the disability. If the account is transferred to a new registration
and then a redemption is requested, the applicable CDSC will be
charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring upon dissolution of a revocable living or grantor trust following the death of the sole trustee where (i) the grantor of the trust is the sole trustee and the sole life beneficiary, (ii) death occurs following the purchase and (iii) the trust document provides for dissolution of the trust upon the trustee's death. If the account is transferred to a new registration (including that of a successor trustee), the applicable CDSC will be charged upon any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions required to return excess contributions made to retirement plans or individual retirement accounts, so long as the FSF agrees to return the applicable portion of any commission paid by CMD.
6. Qualified Retirement Plans. CDSCs may be waived on CMD shares sold by
employee benefit plans created according to Section 403(b) of the tax
code and sponsored by a non-profit organization qualified under
Section 501(c)(3) of the tax code. To qualify for the waiver, the plan
must be a participant in an alliance program that has signed an
agreement with Columbia Funds or CMD.
7. Trust Share Taxes. CDSCs will be waived on redemptions of Class E and F shares (i) where the proceeds are used to directly pay trust taxes, and (ii) where the proceeds are used to pay beneficiaries for the payment of trust taxes.
8. Return of Commission. CDSCs may be waived on shares sold by intermediaries that are part of the Columbia Funds selling group where the intermediary has entered into an agreement with Columbia Funds not to receive (or to return if received) all or any applicable portion of an upfront commission.
9. Non-U.S. Investors. CDSCs may be waived on shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors.
10. IRS Section 401 and 457. CDSCs may be waived on shares sold by certain pension, profit-sharing or other employee benefit plans established under Section 401 or 457 of the tax code.
11. Medical Payments. CDSCs may be waived on shares redeemed for medical payments that exceed 7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least twelve weeks.
12. Plans of Reorganization. At the Funds' discretion, CDSCs may be waived for shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which a fund is a party.
13. Charitable Giving Program. CDSCs may be waived on the sale of Class C
or Class D shares sold by a non-profit organization qualified under
Section 501(c)(3) of the tax code in connection with the Banc of
America Capital Management Charitable Giving Program.
14. The CDSC also may be waived where the FSF agrees to return all or an agreed upon portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may be sold on any day the Exchange is open, either directly to the Fund or through the shareholder's FSF. Sale proceeds generally are sent within seven days (usually on the next business day after your request is received in good form). However, for shares recently purchased by check, the Fund may delay selling or delay sending proceeds from your shares for up to 15 days in order to protect the Fund against financial losses and dilution in net asset value caused by dishonored purchase payment checks.
To sell shares directly to the Fund, send a signed letter of instruction to CMS, along with any certificates for shares to be sold. The sale price is the net asset value (less any applicable contingent deferred sales charge) next calculated after the Fund receives the request in proper form. Signatures must be guaranteed by a bank, a member firm of a national stock exchange or another eligible guarantor that participates in the Medallion Signature Guarantee Program. Stock power forms are available from FSFs, CMS and many banks. Additional documentation may be required for sales by corporations, agents, fiduciaries, surviving joint owners, individual retirement account holders and other legal entities. Call CMS for more information 1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued to receive that day's price, FSF's are responsible for furnishing all necessary documentation to CMS and may charge for this service.
SYSTEMATIC WITHDRAWAL PLAN. The shareholder may establish a SWP. A specified dollar amount, share amount or percentage of the then current net asset value of the shareholder's investment in any Fund designated by the shareholder will be paid monthly, quarterly or semi-annually to a designated payee. The amount or percentage the shareholder specifies is run against available shares and generally may not, on an annualized basis, exceed 12% of the value, as of the time the shareholder makes the election, of the shareholder's investment. Withdrawals of shares of the Fund under a SWP will be treated as redemptions of shares purchased through the reinvestment of Fund distributions, or, to the extent such shares in the shareholder's account are insufficient to cover Plan payments, as redemptions from the earliest purchased shares of such Fund in the shareholder's account. No CDSCs apply to a redemption pursuant to a SWP of 12% or less, even if, after giving effect to the redemption, the shareholder's account balance is less than the shareholder's base amount. Qualified plan participants who are required by Internal Revenue Service regulation to withdraw more than 12%, on an annual basis, of the value of their share account may do so but may be subject to a CDSC ranging from 1% to 5% of the amount withdrawn in excess of 12% annually. If a shareholder wishes to participate in a SWP, the shareholder must elect to have all of the shareholder's income dividends and other Fund distributions payable in shares of the Fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by telephone on a recorded line. However, SWP checks will be payable only to the shareholder and sent to the address of record. SWPs from retirement accounts cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in certificate form. Purchasing additional shares (other than through dividend and distribution reinvestment) while receiving SWP payments is ordinarily disadvantageous because of sales charges. For this reason, a shareholder may not maintain a plan for the accumulation of shares of the Fund (other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or loss for tax purposes, may involve the use of principal and may eventually use up all of the shares in a shareholder's account.
A Fund may terminate a shareholder's SWP if the shareholder's account balance falls below $5,000 due to any transfer or liquidation of shares other than pursuant to the SWP. The $5,000 minimum account balance requirement has been waived for wrap accounts. SWP payments will be terminated on receiving satisfactory evidence of the death or incapacity of a shareholder. Until this evidence is received, CMS will not be liable for any payment made in accordance with the provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate in them is borne by the Fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not be able to participate in a SWP. If a shareholder's Fund shares are held in "street name," the shareholder should consult his or her FSF to determine whether he or she may participate in a SWP. The SWP on accounts held in "street name" must be made payable to the back office via the National Securities Clearing Corporation (NSCC).
TELEPHONE REDEMPTIONS. All Fund shareholders and/or their FSFs are automatically
eligible to redeem up to $100,000 of the Fund's shares by calling 1-800-422-3737
toll-free any business day between 9:00 a.m. and the close of trading of the
Exchange (normally 4:00 p.m. Eastern time). Transactions received after 4:00
p.m. Eastern time will receive the next business day's closing price. Telephone
redemptions by check and ACH are limited to a total of $100,000 in a 30-day
period. Redemptions that exceed $100,000 may be accomplished by placing a wire
order trade through a broker, to a pre-existing bank account or furnishing a
signature guaranteed request. Signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another eligible guarantor that
participates in the Medallion Signature Guarantee Program. CMS will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. Telephone redemptions are not available on accounts with an address
change in the preceding 30 days and proceeds and confirmations will only be
mailed or sent to the address of record unless the redemption proceeds are being
sent to a pre-designated bank account. Shareholders and/or their FSFs will be
required to provide their name, address account and taxpayer identification
numbers. FSFs will also be required to provide their broker number. All
telephone transactions are recorded. A loss to a shareholder may result from an
unauthorized transaction reasonably believed to have been authorized. Certain
restrictions apply to retirement plan accounts.
CHECKWRITING (Available only on the Class A and Z shares of certain Funds) Shares may be redeemed by check if a shareholder has previously completed an Application and Signature Card. CMS will provide checks to be drawn on Mellon Trust of New England, N.A. (the "Bank"). These checks may be made payable to the order of any person in the amount of not less than $500 ($250 for money market funds) nor more than $100,000 for non-money market funds. The shareholder will continue to earn dividends on shares until a check is presented to the Bank for payment. At such time a sufficient number of full and fractional shares will be redeemed at the next determined net asset value to cover the amount of the check. Certificate shares may not be redeemed in this manner.
Shareholders utilizing checkwriting drafts will be subject to the Bank's rules governing checking accounts. There is currently no charge to the shareholder for the use of checks., However, you may incur customary fees for services such as a stop payment request or a request for copies of a check. The shareholder should make sure that there are sufficient shares in his or her open account to cover the amount of any check drawn since the net asset value of shares will fluctuate. If insufficient shares are in the shareholder's open account, the check will be returned marked "insufficient funds" and no shares will be redeemed; the shareholder will be charged a $15 service fee for each check returned. It is not possible to determine in advance the total value of an open account because prior redemptions and possible changes in net asset value may cause the value of an open account to change. Accordingly, a check redemption should not be used to close an open account. In addition, a check redemption, like any other redemption, may give rise to taxable capital gains.
NON-CASH REDEMPTIONS. For redemptions of any single shareholder within any 90-day period exceeding the lesser of $250,000 or 1% of a Fund's net asset value, a Fund may make the payment or a portion of the payment with portfolio securities held by that Fund instead of cash, in which case the redeeming shareholder may incur brokerage and other costs in selling the securities received.
INFORMATION APPLICABLE TO CLASS G AND CLASS T SHARES
The primary difference between Class G and Class T shares lies in their sales charge structures and shareholder servicing/distribution expenses. Investments in Class T shares of the Funds are subject to a front-end sales charge. Investments in Class G shares of the Funds are subject to a back-end sales charge. This back-end sales charge declines over time and is known as a "contingent deferred sales charge." An investor should understand that the purpose and function of the sales charge structures and shareholder servicing/distribution arrangements for both Class G and Class T shares are the same. Class T shares of a bond fund and an equity fund are currently subject to ongoing shareholder servicing fees at an annual rate of up to 0.15% and 0.30%, respectively, of the Fund's average daily net assets attributable to its Class T shares. Class G shares of a bond fund and an equity fund are currently subject to ongoing shareholder servicing and distribution fees at an annual rate of up to 0.80% and 0.95%, respectively, of the Fund's average daily net assets attributable to its Class G shares. These ongoing fees, which are higher than those charged on Class T shares, will cause Class G shares to have a higher expense ratio and pay lower dividends than Class T shares. Class G and Class T shares may only be purchased by current shareholders of Class G and Class T, respectively.
CLASS T SHARES. The public offering price for Class T shares of the Funds is the sum of the net asset value of the Class T shares purchased plus any applicable front-end sales charge as described in the applicable Prospectus. A deferred sales charge of up to 1.00% is assessed on certain redemptions of Class T shares that are purchased with no initial sales charge as part of an investment of $1,000,000 to $25,000,000. A portion of the front-end sales charge may be reallowed to broker-dealers as follows:
Reallowance to
Reallowance to Dealers Dealers As A % of
As A % of Offering Price Offering Price Per
Amount of Transaction Per Share - Bond Funds Share - Equity Funds
--------------------- ------------------------ --------------------
Less than $50,000 4.25 5.00
$50,000 but less than $100,000 3.75 3.75
$100,000 but less than $250,000 2.75 2.75
$250,000 but less than $500,000 2.00 2.00
$500,000 but less than $1,000,000 1.75 1.75
$1,000,000 and over 0.00 0.00
|
The appropriate reallowance to dealers will be paid by CMD to broker-dealer organizations which have entered into agreements with CMD. The reallowance to dealers may be changed from time to time.
Certain affiliates of the Advisor may, at their own expense, provide additional compensation to broker-dealer affiliates of Columbia and to unaffiliated broker-dealers whose customers purchase significant amounts of Class T shares of the Funds. Such compensation will not represent an additional expense to the Funds or their shareholders, since it will be paid from the assets of Bank of America Corporation's affiliates.
INFORMATION APPLICABLE TO CERTAIN CLASS G SHARES RECEIVED BY FORMER GALAXY FUND RETAIL B SHAREHOLDERS IN CONNECTION WITH THE GALAXY/LIBERTY REORGANIZATION. The following table describes the CDSC schedule applicable to Class G shares received by former Galaxy Fund Retail B shareholders in exchange for Retail B Shares purchased prior to January 1, 2001:
% Deducted When
Holding Period After Purchase Shares Are Sold
----------------------------- ---------------
Through first year 5.00
Through second year 4.00
Through third year 3.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Longer than six years None
|
Class G shares received in exchange for Galaxy Fund Retail B Shares that were purchased prior to January 1, 2001 will automatically convert to Class T shares six years after purchase. For purposes of calculating the CDSC, all purchases are considered to be made on the first day of the month in which each purchase was made.
The following table describes the CDSC schedule applicable to Class G shareholders whose Galaxy Asset Allocation Fund and/or International Equity Fund Retail B Shares were acquired in connection with the reorganization of the Pillar Funds:
% Deducted When
Holding Period After Purchase Shares Are Sold
----------------------------- ---------------
Through first year 5.50
Through second year 5.00
Through third year 4.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Through the seventh year None
Longer than seven years None
|
If you acquired Retail B Shares in connection with the reorganization of the Pillar Funds, your Class G shares will automatically convert to Class T shares eight years after you purchased the Pillar Fund Class B shares you held prior to the reorganization. For purposes of calculating the CDSC, all purchases are considered to be made on the first day of the month in which each purchase was made.
CLASS G SHARES PURCHASED AFTER THE GALAXY/LIBERTY REORGANIZATION. The public offering price for Class G shares of the Funds is the net asset value of the Class G shares purchased. Although investors pay no front-end sales charge on purchases of Class G shares, such shares are subject to a contingent deferred sales charge at the rates set forth in the applicable Prospectus if they are redeemed within seven years of purchase. Securities dealers, brokers, financial institutions and other industry professionals will receive commissions from CMD in connection with sales of Class G shares. These commissions may be different than the reallowances or placement fees paid to dealers in connection with sales of Class T shares. Certain affiliates of Columbia may, at their own expense, provide additional compensation to broker-dealer affiliates of Columbia and to unaffiliated broker-dealers, whose customers purchase significant amounts of Class G shares of a Fund. See "Class T Shares." The contingent deferred sales charge on Class G shares is based on the lesser of the net asset value of the shares on the redemption date or the original cost of the shares being redeemed. As a result, no sales charge is imposed on any increase in the principal value of an investor's Class G shares. In addition, a contingent deferred sales charge will not be assessed on Class G shares purchased through reinvestment of dividends or capital gains distributions.
The proceeds from the contingent deferred sales charge that an investor may pay upon redemption go to CMD, which may use such amounts to defray the expenses associated with the distribution-related services involved in selling Class G shares. Class G shares of a Fund will convert automatically to Class T shares eight years after purchase. The purpose of the conversion is to relieve a holder of Class G shares of the higher ongoing expenses charged to those shares, after enough time has passed to allow CMD to recover approximately the amount it would have received if the applicable front-end sales charge had been charged. The conversion from Class G shares to Class T shares takes place at net asset value, as a result of which an investor receives dollar-for-dollar the same value of Class T shares as he or she had of Class G shares. The conversion occurs eight years after the beginning of the calendar month in which the shares are purchased. Upon conversion, the converted shares will be relieved of the distribution and shareholder servicing fees borne by Class G shares, although they will be subject to the shareholder servicing fees borne by Class T shares.
Class G shares acquired through a reinvestment of dividends or distributions are also converted at the earlier of two dates -- (i) eight years after the beginning of the calendar month in which the reinvestment occurred or (ii) the date of conversion of the most recently purchased Class G shares that were not acquired through reinvestment of dividends or distributions. For example, if an investor makes a one-time purchase of Class G shares of a Fund, and subsequently acquires additional Class G shares of the Fund only through reinvestment of dividends and/or distributions, all of such investor's Class G shares in the Fund, including those acquired through reinvestment, will convert to Class T shares of the Fund on the same date.
INFORMATION APPLICABLE TO CERTAIN CLASS B SHAREHOLDERS
Except for the following, Class B Share Contingent Deferred Sales Charges ("CDSCs") and conversion schedules are described in the Prospectuses.
The following table describes the CDSC schedule applicable to Class B shares received by Galaxy Quality Plus Bond Fund shareholders in exchange for Prime B Shares in connection with the Galaxy/Liberty reorganization.
SALES CHARGES
% Deducted When
Holding Period After Purchase Shares Are Sold
----------------------------- ---------------
Through first year 5.00
Through second year 4.00
Through third year 3.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Longer than six years 0.00
|
Automatic conversion to Class A shares occurs eight years after purchase.
The Class B share discount program for purchases of $250,000 or more is not applicable to Class B shares received by Galaxy Fund Prime B shareholders in connection with the reorganization of the Galaxy Fund.
INFORMATION APPLICABLE TO CERTAIN CLASS A SHAREHOLDERS:
Except as set forth in the following paragraph, Class A share CDSCs are described in the Prospectuses:
Class A shares received by former Galaxy High Quality Bond Fund shareholders in exchange for Prime A Shares in connection with the Galaxy/Liberty reorganization of that Fund are subject to a 1% CDSC upon redemption of such Class A shares if the Prime A Shares were purchased without an initial sales charge in accounts aggregating $1 million or more at the time of purchase and the Class A shares are sold within 12 months of the time of purchase of the Prime A Shares. The 12-month holding period begins on the first day of the month in which each purchase was made.
DISTRIBUTIONS
Distributions are invested in additional shares of the same Class of the Fund at net asset value unless the shareholder elects to receive cash. Regardless of the shareholder's election, distributions of $10 or less will not be paid in cash, but will be invested in additional shares of the same class of the Fund at net asset value. Undelivered distribution checks returned by the post office will be reinvested in your account. If a shareholder has elected to receive dividends and/or capital gain distributions in cash and the postal or other delivery service selected by the Transfer Agent is unable to deliver checks to the shareholder's address of record, such shareholder's distribution option will automatically be converted to having all dividend and other distributions reinvested in additional shares. No interest will accrue on amounts represented by uncashed distribution or redemption checks. Shareholders may reinvest all or a portion of a recent cash distribution without a sales charge. No charge is currently made for reinvestment.
Shares of some Funds that pay daily dividends ("include Funds") will normally earn dividends starting with the date the Fund receives payment for the shares and will continue through the day before the shares are redeemed, transferred or exchanged. Shares of some Funds that pay daily dividends ("exclude Funds") will be earned starting with the day after that Fund receives payments for the shares. To determine whether a particular Fund is an include or exclude fund, customers can call 1-800-345-6611.
HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for the same class of shares of the other continuously offered funds (with certain exceptions) on the basis of the NAVs per share at the time of exchange. Class T and Z shares may be exchanged for Class A
shares of certain other funds. The prospectus of each Fund describes its investment goal and policies, and shareholders should obtain a prospectus and consider these goals and policies carefully before requesting an exchange. Consult CMS before requesting an exchange.
If you acquire Class A shares of an international fund by exchange from any other fund, you will not be permitted to exchange those shares into another fund for 30 calendar days, although you may redeem those shares at any time. An exchange order received prior to the expiration of the 30-day period will not be honored.
By calling CMS, shareholders or their FSF of record may exchange among accounts with identical registrations, provided that the shares are held on deposit. During periods of unusual market changes or shareholder activity, shareholders may experience delays in contacting CMS by telephone to exercise the telephone exchange privilege. Because an exchange involves a redemption and reinvestment in another fund, completion of an exchange may be delayed under unusual circumstances, such as if the Fund suspends repurchases or postpones payment for the Fund shares being exchanged in accordance with federal securities law. CMS will also make exchanges upon receipt of a written exchange request and share certificates, if any. If the shareholder is a corporation, partnership, agent, or surviving joint owner, CMS may require customary additional documentation. Prospectuses of the other Funds are available from the CMD Literature Department by calling 1-800-426-3750.
A loss to a shareholder may result from an unauthorized transaction reasonably believed to have been authorized. No shareholder is obligated to use the telephone to execute transactions.
Consult your FSF or CMS. In all cases, the shares to be exchanged must be registered on the records of the Fund in the name of the shareholder desiring to exchange.
Shareholders of the other open-end funds generally may exchange their shares at NAV for the same class of shares of the Fund. Sales charges may apply for exchanges from money market funds.
An exchange is generally a capital sale transaction for federal income tax purposes. The exchange privilege may be revised, suspended or terminated at any time.
SUSPENSION OF REDEMPTIONS
A Fund may not suspend shareholders' right of redemption or postpone payment for more than seven days unless the Exchange is closed for other than customary weekends or holidays, or if permitted by the rules of the SEC during periods when trading on the Exchange is restricted or during any emergency which makes it impracticable for the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by order of the SEC for the protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Declaration disclaims shareholder liability for acts or obligations of the Fund and the Trust and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by the Fund or the Trust's Trustees. The Declaration provides for indemnification out of Fund property for all loss and expense of any shareholder held personally liable for the obligations of the Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances (which are considered remote) in which the Fund would be unable to meet its obligations and the disclaimer was inoperative.
The risk of a particular fund incurring financial loss on account of another fund of the Trust is also believed to be remote, because it would be limited to circumstances in which the disclaimer was inoperative and the other fund was unable to meet its obligations.
SHAREHOLDER MEETINGS
The Trust is not required to hold annual shareholder meetings, but special meetings may be called for certain purposes. The Trust has voluntarily undertaken to hold a shareholder meeting at which the Board of Trustees would be elected at least every five years beginning in 2005. Each whole share (or fractional share) outstanding on the record date established in accordance with the Trust's By-Laws shall be entitled to a number of votes on any matter on which it is entitled to vote equal to the net asset value of the shares (or fractional share) in United States dollars determined at the close of business on the record date (for example, a share having a net asset value of $10.50 would be entitled to 10.5 votes).
The Trustees may fill any vacancies in the Board of Trustees except that the Trustees may not fill a vacancy if, immediately after filling such vacancy, less than two-thirds of the Trustees then in office would have been elected to such office by the shareholders. In addition, at such times as less than a majority of the Trustees then in office have been elected to such office by the shareholders, the Trustees must call a meeting of shareholders. Trustees may be removed from office by a written consent signed by a majority of the outstanding shares of the Trust or by a vote of the holders of a majority of the outstanding shares at a meeting duly called for the purpose. Except as otherwise disclosed in the Prospectus and this SAI, the Trustees shall continue to hold office and may appoint their successors.
At any shareholders' meetings that may be held, shareholders of all series would vote together, irrespective of series, on the election of Trustees, but each series would vote separately from the others on other matters, such as changes in the investment policies of that series or the approval of the management agreement for that series. Shares of each Fund and any other series of the Trust that may be in existence from time to time generally vote together except when required by law to vote separately by fund or by class.
APPENDIX I
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S (S&P)
The following descriptions are applicable to municipal bond funds:
AAA bonds have the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.
AA bonds have a very strong capacity to pay interest and repay principal, and they differ from AAA only in small degree.
A bonds have a strong capacity to pay interest and repay principal, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.
BBB bonds are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than for bonds in the A category.
BB, B, CCC, CC and C bonds are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or large exposures to adverse conditions.
BB bonds have less near-term vulnerability to default than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating.
B bonds have a greater vulnerability to default but currently have the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB-rating.
CCC bonds have a currently identifiable vulnerability to default, and are dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, the bonds are not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating.
CC rating typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating.
C rating typically is applied to debt subordinated to senior debt which assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued.
CI rating is reserved for income bonds on which no interest is being paid.
D bonds are in payment default. The D rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized.
Plus(+) or minus(-) ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
PROVISIONAL RATINGS. The letter "p" indicates that the rating is provisional. A provisional rating assumes the successful completion of the project being financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely completion of the project. This rating, however, although addressing
credit quality subsequent to completion of the project, makes no comments on the likelihood of, or the risk of default upon failure of, such completion. The investor should exercise his own judgment with respect to such likelihood and risk.
MUNICIPAL NOTES:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating. Notes maturing beyond three years normally receive a bond rating, although the following criteria are used in making that assessment:
Amortization schedule (the larger the final maturity relative to other maturities, the more likely the issue will be rated as a note).
Source of payment (the more dependent the issue is on the market for its refinancing, the more likely it will be rated as a note).
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a demand feature. The first rating addresses the likelihood of repayment of principal and interest as due, and the second rating addresses only the demand feature. The long-term debt rating symbols are used for bonds to denote the long-term maturity, and the commercial paper rating symbols are usually used to denote the put (demand) option (for example, AAA/A-1+). Normally, demand notes receive note rating symbols combined with commercial paper symbols (for example, SP-1+/A-1+).
COMMERCIAL PAPER:
A. Issues assigned this highest rating are regarded as having the greatest capacity for timely payment. Issues in this category are further refined with the designations 1, 2, and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are designed A-1+.
CORPORATE BONDS:
The description of the applicable rating symbols and their meanings is substantially the same as the Municipal Bond ratings set forth above.
The following descriptions are applicable to equity and taxable bond funds:
AAA bonds have the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.
AA bonds differ from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.
A bonds are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.
BBB bonds exhibit adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
BB, B, CCC and CC bonds are regarded, as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB bonds are less vulnerable to non-payment than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
B bonds are more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.
CCC bonds are currently vulnerable to nonpayment, and are dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC bonds are currently highly vulnerable to nonpayment.
C ratings may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on the obligation are being continued.
D bonds are in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
Plus (+) or minus(-): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
R This symbol is attached to the rating of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk, such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
AAA bonds are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge". Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While various protective elements are likely to change, such changes as can be visualized are most unlikely to impair a fundamentally strong position of such issues.
AA bonds are judged to be of high quality by all standards. Together with Aaa bonds they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.
Those bonds in the Aa through B groups that Moody's believes possess the strongest investment attributes are designated by the symbol Aa1, A1 and Baa1.
A bonds possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment sometime in the future.
BAA bonds are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact, have speculative characteristics as well.
BA bonds are judged to have speculative elements: their future cannot be considered as well secured. Often, the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B bonds generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
CAA bonds are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
CA bonds represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C bonds are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
CONDITIONAL RATINGS. Bonds for which the security depends upon the completion of some act or the fulfillment of some condition are rated conditionally. These are bonds secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in operating experience, (c) rentals which begin when facilities are completed, or (d) payments to which some other limiting conditions attach. Parenthetical rating denotes probable credit stature upon completion of construction or elimination of basis of condition.
MUNICIPAL NOTES:
MIG 1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are accounted for, but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
Moody's may assign a separate rating to the demand feature of a variable rate demand security. Such a rating may include:
VMIG 1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are accounted for, but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
COMMERCIAL PAPER:
Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper obligations are supported by the credit of another entity or entities, Moody's, in assigning ratings to such issuers, evaluates the financial strength of the indicated affiliated corporations, commercial banks, insurance companies, foreign governments, or other entities, but only as one factor in the total rating assessment.
CORPORATE BONDS:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings is identical to that of the Municipal Bond ratings as set forth above, except for the numerical modifiers. Moody's applies numerical modifiers 1, 2, and 3 in the Aa and A classifications of its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a midrange ranking; and the modifier 3 indicates that the issuer ranks in the lower end of its generic rating category.
FITCH INC.
INVESTMENT GRADE BOND RATINGS
AAA bonds are considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and/or dividends and repay principal, which is unlikely to be affected by reasonably foreseeable events.
AA bonds are considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated 'AAA'. Because bonds rated in the 'AAA' and 'AA' categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F-1+'.
A bonds are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than debt securities with higher ratings.
BBB bonds are considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest or dividends and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these securities and, therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for securities with higher ratings.
CONDITIONAL
A conditional rating is premised on the successful completion of a project or the occurrence of a specific event.
SPECULATIVE-GRADE BOND RATINGS
BB bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified, which could assist the obligor in satisfying its debt service requirements.
B bonds are considered highly speculative. While securities in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue.
CCC bonds have certain identifiable characteristics that, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment.
CC bonds are minimally protected. Default in payment of interest and/or principal seems probable over time.
C bonds are in imminent default in payment of interest or principal.
DDD, DD, and D bonds are in default on interest and/or principal payments. Such securities are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. 'DDD' represents the highest potential for recovery on these securities, and 'D' represents the lowest potential for recovery.
APPENDIX II
COLUMBIA MANAGEMENT ADVISORS, LLC ("CMA")
PROXY VOTING POLICIES AND PROCEDURES
ADOPTED JULY 1, 2003 AND REVISED MARCH 4, 2005
POLICY:
ALL PROXIES(1) REGARDING CLIENT SECURITIES FOR WHICH COLUMBIA MANAGEMENT ADVISORS, LLC ("CMA") HAS ASSUMED AUTHORITY TO VOTE SHALL, UNLESS CMA DETERMINES IN ACCORDANCE WITH POLICIES STATED BELOW TO ABSTAIN FROM VOTING, BE VOTED IN A MANNER CONSIDERED BY CMA TO BE IN THE BEST INTEREST OF CMA'S CLIENTS, INCLUDING THE CMG FAMILY FUNDS(2) AND THEIR SHAREHOLDERS, WITHOUT REGARD TO ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES. THE BEST INTEREST OF CLIENTS IS DEFINED FOR THIS PURPOSE AS THE INTEREST OF ENHANCING OR PROTECTING THE ECONOMIC VALUE OF CLIENT ACCOUNTS, CONSIDERED AS A GROUP RATHER THAN INDIVIDUALLY, AS CMA DETERMINES IN ITS SOLE AND ABSOLUTE DISCRETION. IN THE EVENT A CLIENT BELIEVES THAT ITS OTHER INTERESTS REQUIRE A DIFFERENT VOTE, CMA SHALL VOTE AS THE CLIENT CLEARLY INSTRUCTS, PROVIDED CMA RECEIVES SUCH INSTRUCTIONS IN TIME TO ACT ACCORDINGLY.
CMA ENDEAVORS TO VOTE, IN ACCORDANCE WITH THIS POLICY, ALL PROXIES OF WHICH IT BECOMES AWARE, SUBJECT TO THE FOLLOWING EXCEPTIONS (UNLESS OTHERWISE AGREED) WHEN CMA EXPECTS TO ROUTINELY ABSTAIN FROM VOTING:
1. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE THE SECURITY HAS BEEN LOANED FROM THE CLIENT'S ACCOUNT.
2. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE CMA DEEMS THE COSTS TO THE CLIENT AND/OR THE ADMINISTRATIVE INCONVENIENCE OF VOTING THE SECURITY (E.G., SOME FOREIGN SECURITIES) OUTWEIGH THE BENEFIT OF DOING SO.
CMA SEEKS TO AVOID THE OCCURRENCE OF ACTUAL OR APPARENT MATERIAL CONFLICTS OF INTEREST IN THE PROXY VOTING PROCESS BY VOTING IN ACCORDANCE WITH PREDETERMINED VOTING GUIDELINES, AS STATED BELOW. FOR THOSE PROXY PROPOSALS THAT REQUIRE SPECIAL CONSIDERATION OR IN INSTANCES WHERE SPECIAL CIRCUMSTANCES MAY REQUIRE VARYING FROM THE PREDETERMINED GUIDELINES, THE CMG PROXY COMMITTEE WILL DETERMINE THE BEST INTEREST OF CMA'S CLIENTS AND VOTE ACCORDINGLY, WITHOUT CONSIDERATION OF ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES.
OVERVIEW:
CMA's policy is based upon its fiduciary obligation to act in its clients' best interest. Citing this obligation, the SEC has adopted rules pursuant to the Investment Advisers Act of 1940 and Investment Company Act of 1940 with respect to proxy voting.
PROCEDURE:
I. ACCOUNT POLICIES
Except as otherwise directed by the client, CMA shall vote as follows:
SEPARATELY MANAGED ACCOUNTS
CMA shall vote proxies on securities held in its separately managed accounts.
COLUMBIA TRUST COMPANY (CTC) TRUST POOLS
CMA shall vote proxies on securities held in the trust pools.
(2) A CMG Family Fund or a Fund is a registered investment company or series of a registered investment company managed or advised by Columbia Management Advisors, LLC.
CMG FAMILY FUNDS/CMA FUND TRUST
CMA shall vote proxies on securities held in the Funds, including multi-managed and subadvised Funds.
COLUMBIA PRIVATE PORTFOLIO
CMA shall vote proxies on securities held in its separately managed accounts.
ALTERNATIVE INVESTMENT GROUP
CMA's clients may invest in securities ("Alternative Investments") issued by alternative investment vehicles (i.e. hedge funds, private equity funds, and other alternative investment pools) that are structured as private limited partnerships ("LPs"), limited liability companies ("LLCs") or offshore corporations. Generally, CMA's Alternative Investment Group ("AIG") is the platform through which CMA provides advisory services relating to Alternative Investments.
The voting rights of Alternative Investments generally are rights of contract set forth in the limited liability company or limited partnership agreement, in the case of LLCs and LPs, or Memorandum and Articles of Association or By-laws, in the case of offshore corporations. Also, as privately placed securities, Alternative Investments generally are not subject to the regulatory scheme applicable to public companies. Consequently, in most cases, proxies are not solicited regarding Alternative Investment vehicles. Instead, consents may be solicited from members, limited partners or shareholders.
Because of the unique characteristics of Alternative Investments, CMA has a tailored process for voting Alternative Investment proxies and consents.
Process
AIG will vote all Alternative Investment proxies and consents in accordance with this Policy. The committee voting AIG proxies consists of AIG senior management, investment and operations professionals. Conflicts of interest are to be monitored and resolved as set forth in this Policy.
II. PROXY COMMITTEE
CMA shall establish a Proxy Committee whose standing members shall include the head of core equity, head of value, head of growth, head of income strategies, head of equity research and head of fixed income research. Each standing member may designate a senior portfolio manager or a senior analyst officer to act as a substitute in a given matter on their behalf.
The Proxy Committee's functions shall include, in part,
(a) direction of the vote on proposals where there has been a
recommendation to the Committee, pursuant to Section IV.B, not to vote
according to the predetermined Voting Guidelines stated in Section
IV.A or on proposals which require special, individual consideration
in accordance with Section IV.C;
(b) review at least annually of this Proxy Voting Policy and Procedure to ensure consistency with internal policies, client disclosures and regulatory requirements;
(c) review at least annually of existing Voting Guidelines and need for development of additional Voting Guidelines to assist in the review of proxy proposals; and
(d) development and modification of Voting Procedures, as stated in
Section V, as it deems appropriate or necessary.
The Proxy Committee shall establish a charter, which shall set forth the Committee's purpose, membership and operation. The Committee's charter shall be consistent, in all material respects, with this policy and procedure.
III. CONFLICTS OF INTEREST
With Other Bank of America Businesses
Bank of America Corporation ("BAC"), the ultimate corporate parent of CMA, Bank of America, N.A. and all of their numerous affiliates owns, operates and has interests in many lines of business that may create or give rise to the appearance of a conflict of interest between BAC or its affiliates and those of Firm-advised clients. For example, the commercial and investment banking business lines may have interests with respect to issuers of voting securities that could appear to or even actually conflict with CMA's duty, in the proxy voting process, to act in the best economic interest of its clients.
Within CMA
Conflicts of interest may also arise from the business activities of CMA. For example, CMA might manage (or be seeking to manage) the assets of a benefit plan for an issuer. CMA may also be presented with an actual or apparent conflict of interest where proxies of securities issued by BAC or a CMG Family Fund, for which CMA serves as investment adviser, are to be voted for a client's account.
Management of Conflicts
CMA's policy is to always vote proxies in the best interest of its clients, as a whole, without regard to its own self-interest or that of its affiliates. BAC as well as CMA has various compliance policies and procedures in place in order to address any material conflicts of interest that might arise in this context.
1. BAC's enterprise-wide Code of Ethics specifically prohibits the flow of certain business-related information between associates on the commercial and/or investment banking side of the corporation and associates charged with trust or (as in the case of BACAP associates) non-trust fiduciary responsibilities, including investment decision-making and proxy voting.
2. In addition, BAC has adopted "Global Policies and Procedures Regarding Information Walls and Inside Information." Pursuant to these policies and procedures, "information barriers" have been established between various BAC business lines designed to prohibit the passage of certain information across those barriers.
3. Within CMA, CMA's Code of Ethics affirmatively requires that associates of CMA act in a manner whereby no actual or apparent conflict of interest may be seen as arising between the associate's interests and those of CMA's Clients.
4. By assuming his or her responsibilities pursuant to this Policy, each member of the Proxy Committee and any CMA or BAC associate advising or acting under the supervision or oversight of the Proxy Committee undertakes:
- To disclose to the chairperson of the Proxy Committee and the chairperson to the head of CMG Compliance any actual or apparent personal material conflicts of interest which he or she may have (e.g., by way of substantial ownership of securities, relationships with nominees for directorship, members of an issuer's or dissident's management or otherwise) in determining whether or how CMA shall vote proxies. In the event the chairperson of the Proxy Committee has a conflict of interest regarding a given matter, he or she shall abstain from participating in the Committee's determination of whether and/or how to vote in the matter; and
- To refrain from taking into consideration, in the decision as to whether or how CMA shall vote proxies:
- The existence of any current or prospective material business relationship between CMA, BAC or any of their affiliates, on one hand, and any party (or its affiliates) that is soliciting or is otherwise interested in the proxies to be voted, on the other hand; and/or
- Any direct, indirect or perceived influence or attempt to influence such action which the member or associate views as being inconsistent with the purpose or provisions of this Policy or the Code of Ethics of CMA or BAC.
Where a material conflict of interest is determined to have arisen in the proxy voting process that may not be adequately mitigated by voting in accordance with the predetermined Voting Guidelines, CMA's policy is to invoke one or more of the following conflict management procedures:
1. Convene the Proxy Committee for the purpose of voting the affected proxies in a manner that is free of the conflict.
2. Causing the proxies to be voted in accordance with the recommendations of a qualified, independent third party, which may include CMA's proxy voting agent.
3. In unusual cases, with the Client's consent and upon ample notice, forwarding the proxies to CMA's clients so that they may vote the proxies directly.
IV. VOTING GUIDELINES
A. THE PROXY COMMITTEE HAS ADOPTED THE FOLLOWING GUIDELINES FOR VOTING PROXIES:
1. Matters Relating to the Board of Directors/Corporate Governance
CMA generally will vote FOR:
- Proposals for the election of directors or for an increase or decrease in the number of directors, provided that no more than one-third of the Board of Directors would, presently or at any time during the previous three-year period, be from management.
However, CMA generally will WITHHOLD votes from pertinent director nominees if:
(i) the board as proposed to be constituted would have more than one-third of its members from management;
(ii) the board does not have audit, nominating, and compensation committees composed solely of directors who qualify as being regarded as "independent," i.e. having no material relationship, directly or indirectly, with the Company, as CMA's proxy voting agent may determine (subject to the Proxy Committee's contrary determination of independence or non-independence);
(iii) the nominee, as a member of the audit committee, permitted the company to incur excessive non-audit fees (as defined below regarding other business matters -- ratification of the appointment of auditors);
(iv) a director serves on more than six public company boards;
(v) the CEO serves on more than two public company boards other than the company's board.
On a CASE-BY-CASE basis, CMA may WITHHOLD votes for a director nominee who has failed to observe good corporate governance practices or, through specific corporate action or inaction (e.g. failing to implement policies for which a majority of shareholders has previously cast votes in favor), has demonstrated a disregard for the interests of shareholders.
- Proposals requesting that the board audit, compensation and/or nominating committee be composed solely of independent directors. The Audit Committee must satisfy the independence and experience requirements established by the Securities and Exchange Commission ("SEC") and the New York Stock Exchange, or appropriate local requirements for foreign securities. At least one member of the Audit Committee must qualify as a "financial expert" in accordance with SEC rules.
- Proposals to declassify a board, absent special circumstances that would indicate that shareholder interests are better served by a classified board structure.
CMA generally will vote FOR:
- Proposals to create or eliminate positions or titles for senior management. CMA generally prefers that the role of Chairman of the Board and CEO be held by different persons unless there are compelling reasons to vote AGAINST a proposal to separate these positions, such as the existence of a counter-balancing governance structure that includes at least the following elements in addition to applicable listing standards:
- Established governance standards and guidelines.
- Full board composed of not less than two-thirds "independent" directors, as defined by applicable regulatory and listing standards.
- Compensation, as well as audit and nominating (or corporate governance) committees composed entirely of independent directors.
- A designated or rotating presiding independent director appointed by and from the independent directors with the authority and responsibility to call and preside at regularly and, as necessary, specially scheduled meetings of the independent directors to be conducted, unless the participating independent directors otherwise wish, in executive session with no members of management present.
- Disclosed processes for communicating with any individual director, the presiding independent director (or, alternatively, all of the independent directors, as a group) and the entire board of directors, as a group.
- The pertinent class of the Company's voting securities has out-performed, on a three-year basis, both an appropriate peer group and benchmark index, as indicated in the performance summary table of the Company's proxy materials. This requirement shall not apply if there has been a change in the Chairman/CEO position within the three-year period.
- Proposals that grant or restore shareholder ability to remove directors with or without cause.
- Proposals to permit shareholders to elect directors to fill board vacancies.
- Proposals that encourage directors to own a minimum amount of company stock.
- Proposals to provide or to restore shareholder appraisal rights.
- Proposals to adopt cumulative voting.
- Proposals for the company to adopt confidential voting.
CMA generally will vote AGAINST:
- Proposals to classify boards, absent special circumstances indicating that shareholder interests would be better served by a classified board structure.
- Proposals that give management the ability to alter the size of the board without shareholder approval.
- Proposals that provide directors may be removed only by supermajority vote.
- Proposals to eliminate cumulative voting.
- Proposals which allow more than one vote per share in the election of directors.
- Proposals that provide that only continuing directors may elect replacements to fill board vacancies.
- Proposals that mandate a minimum amount of company stock that directors must own.
- Proposals to limit the tenure of non-management directors.
CMA will vote on a CASE-BY-CASE basis in contested elections of directors.
CMA generally will vote on a CASE-BY-CASE basis on board approved proposals relating to corporate governance. Such proposals include, but are not limited to:
- Director and officer indemnification and liability protection. CMA is opposed to entirely eliminating directors' and officers' liability for monetary damages for violating the duty of care. CMA is also opposed to expanding coverage beyond just legal expenses to acts, such as negligence, that are more serious violations of fiduciary obligation than mere carelessness. CMA supports proposals which provide such expanded coverage in cases when a director's or officer's legal defense was unsuccessful if: (i) the director was found to have acted in good faith and in a manner that he/she reasonably believed was in the best interests of the company, AND (ii) if the director's legal expenses would be covered.
- Reimbursement of proxy solicitation expenses taking into consideration whether or not CMA was in favor of the dissidents.
- Proxy contest advance notice. CMA generally will vote FOR proposals that allow shareholders to submit proposals as close to the meeting date as possible while allowing for sufficient time for Company response, SEC review, and analysis by other shareholders.
2. Compensation
CMA generally will vote FOR management sponsored compensation plans (such as bonus plans, incentive plans, stock option plans, pension and retirement benefits, stock purchase plans or thrift plans) if they are consistent with industry and country standards. However, CMA generally is opposed to compensation plans that substantially dilute ownership interest in a company, provide participants with excessive awards, or have objectionable structural features. Specifically, for equity-based plans, if the proposed number of shares authorized for option programs (excluding authorized shares for expired options) exceeds an average of 10% of the currently outstanding shares over the previous three years or an average of 3% over the previous three years for directors only, the proposal should be referred to the Proxy Committee. The Committee will then consider the circumstances surrounding the issue and vote in the best interest of CMA's clients. CMA requires that management provide substantial justification for the repricing of options.
CMA generally will vote FOR:
- Proposals requiring that executive severance arrangements be submitted for shareholder ratification.
- Proposals asking a company to expense stock options.
- Proposals to put option repricings to a shareholder vote.
- Employee stock purchase plans that have the following features: (i) the shares purchased under the plan are acquired for no less than 85% of their market value, (ii) the offering period under the plan is 27 months or less, and (iii) dilution is 10% or less.
CMA generally will vote AGAINST:
- Stock option plans that permit issuance of options with an exercise price below the stock's current market price, or that permit replacing or repricing of out-of-the money options.
- Proposals to authorize the replacement or repricing of out-of-the money options.
CMA will vote on a CASE-BY-CASE basis proposals regarding approval of specific executive severance arrangements.
3. Capitalization
CMA generally will vote FOR:
- Proposals to increase the authorized shares for stock dividends, stock splits (and reverse stock splits) or general issuance, unless proposed as an anti-takeover measure or a general issuance proposal increases the authorization by more than 30% without a clear need presented by the company. Proposals for reverse stock splits should include an overall reduction in authorization.
For companies recognizing preemptive rights for existing shareholders, CMA generally will vote FOR general issuance proposals that increase the authorized shares by more than 30%. CMA will vote on a CASE-BY-CASE basis all such proposals by companies that do not recognize preemptive rights for existing shareholders.
- Proposals for the elimination of authorized but unissued shares or retirement of those shares purchased for sinking fund or treasury stock.
- Proposals to institute/renew open market share repurchase plans in which all shareholders may participate on equal terms.
- Proposals to reduce or change the par value of common stock, provided the number of shares is also changed in order to keep the capital unchanged.
4. Mergers, Restructurings and Other Transactions
CMA will review, on a CASE-BY-CASE basis, business transactions such as mergers, acquisitions, reorganizations, liquidations, spinoffs, buyouts and sale of all or substantially all of a company's assets.
5. Anti-Takeover Measures
CMA generally will vote AGAINST proposals intended largely to avoid acquisition prior to the occurrence of an actual event or to discourage acquisition by creating a cost constraint. With respect to the following measures, CMA generally will vote as follows:
Poison Pills
- CMA votes FOR shareholder proposals that ask a company to submit its poison pill for shareholder ratification.
- CMA generally votes FOR shareholder proposals to eliminate a poison pill.
- CMA generally votes AGAINST management proposals to ratify a poison pill.
Greenmail
- CMA will vote FOR proposals to adopt anti-greenmail charter or bylaw amendments or to otherwise restrict a company's ability to make greenmail payments.
Supermajority vote
- CMA will vote AGAINST board-approved proposals to adopt anti-takeover measures such as supermajority voting provisions, issuance of blank check preferred stock, the creation of a separate class of stock with disparate voting rights and charter amendments adopting control share acquisition provisions.
Control Share Acquisition Provisions
- CMA will vote FOR proposals to opt out of control share acquisition statutes.
6. Other Business Matters
CMA generally will vote FOR:
- Proposals to approve routine business matters such as changing the company's name and procedural matters relating to the shareholder meeting such as approving the minutes of a prior meeting.
- Proposals to ratify the appointment of auditors, unless any of the following apply in which case CMA will generally vote AGAINST the proposal:
- Credible reason exists to question:
- The auditor's independence, as determined by applicable regulatory requirements.
- The accuracy or reliability of the auditor's opinion as to the company's financial position.
- Fees paid to the auditor or its affiliates for "non-audit" services were excessive, i.e., in excess of the total fees paid for "audit," "audit-related" and "tax compliance" and/or "tax return preparation" services, as disclosed in the company's proxy materials.
- Bylaw or charter changes that are of a housekeeping nature (e.g., updates or corrections).
- Proposals to approve the annual reports and accounts provided the certifications required by the Sarbanes-Oxley Act of 2002 have been provided.
CMA generally will vote AGAINST:
- Proposals to eliminate the right of shareholders to act by written consent or call special meetings.
- Proposals providing management with authority to adjourn an annual or special shareholder meeting absent compelling reasons, or to adopt, amend or repeal bylaws without shareholder approval, or to vote unmarked proxies in favor of management.
- Shareholder proposals to change the date, time or location of the company's annual meeting of shareholders.
CMA will vote AGAINST:
- Authorization to transact other unidentified substantive (as opposed to procedural) business at a meeting.
CMA will vote on a CASE-BY-CASE basis:
- Proposals to change the location of the company's state of incorporation. CMA considers whether financial benefits (e.g., reduced fees or taxes) likely to accrue to the company as a result of a reincorporation or other change of domicile outweigh any accompanying material diminution of shareholder rights.
- Proposals on whether and how to vote on "bundled" or otherwise conditioned proposals, depending on the overall economic effects upon shareholders.
CMA generally will ABSTAIN from voting on shareholder proposals predominantly involving social, socio-economic, environmental, political or other similar matters on the basis that their impact on share value can rarely be anticipated with any high degree of confidence. CMA may, on a CASE-BY-CASE basis, vote:
- FOR proposals seeking inquiry and reporting with respect to, rather than cessation or affirmative implementation of, specific policies where the pertinent issue warrants separate communication to shareholders; and
- FOR or AGAINST the latter sort of proposal in light of the relative benefits and detriments (e.g. distraction, costs, other burdens) to share value which may be expected to flow from passage of the proposal.
7. Other Matters Relating to Foreign Issues
CMA generally will vote FOR:
- Most stock (scrip) dividend proposals. CMA votes AGAINST proposals that do not allow for a cash option unless management demonstrates that the cash option is harmful to shareholder value.
- Proposals to capitalize the company's reserves for bonus issues of shares or to increase the par value of shares.
- Proposals to approve control and profit transfer agreements between a parent and its subsidiaries.
- Management proposals seeking the discharge of management and supervisory board members, unless there is concern about the past actions of the company's auditors/directors and/or legal action is being taken against the board by other shareholders.
- Management proposals concerning allocation of income and the distribution of dividends, unless the dividend payout ratio has been consistently below 30 percent without adequate explanation or the payout is excessive given the company's financial position.
- Proposals for the adoption of financing plans if they are in the best economic interests of shareholders.
8. Investment Company Matters
Election of Directors:
CMA will vote on a CASE-BY-CASE basis proposals for the election of directors, considering the following factors:
- Board structure
- Attendance at board and committee meetings.
CMA will WITHHOLD votes from directors who:
- Attend less than 75 percent of the board and committee meetings without a valid excuse for the absences. Valid reasons include illness or absence due to company business. Participation via telephone is acceptable. In addition, if the director missed only one meeting or one day's meetings, votes should not be withheld even if such absence dropped the director's attendance below 75 percent.
- Ignore a shareholder proposal that is approved by a majority of shares outstanding;
- Ignore a shareholder proposal this is approved by a majority of the votes cast for two consecutive years;
- Are interested directors and sit on the audit or nominating committee; or
- Are interested directors and the full board serves as the audit or nominating committee or the company does not have one of these committees.
Proxy Contests:
CMA will vote on a CASE-BY-CASE basis proposals for proxy contests, considering the following factors:
- Past performance relative to its peers
- Market in which fund invests
- Measures taken by the board to address the pertinent issues (e.g., closed-end fund share market value discount to NAV)
- Past shareholder activism, board activity and votes on related proposals
- Strategy of the incumbents versus the dissidents
- Independence of incumbent directors; director nominees
- Experience and skills of director nominees
- Governance profile of the company
- Evidence of management entrenchment
Converting Closed-end Fund to Open-end Fund:
CMA will vote conversion proposals on a CASE-BY-CASE basis, considering the following factors:
- Past performance as a closed-end fund
- Market in which the fund invests
- Measures taken by the board to address the discount
- Past shareholder activism, board activity, and votes on related proposals.
Investment Advisory Agreements:
CMA will vote investment advisory agreements on a CASE-BY-CASE basis, considering the following factors:
- Proposed and current fee schedules
- Fund category/investment objective
- Performance benchmarks
- Share price performance as compared with peers
- Resulting fees relative to peers
- Assignments (where the adviser undergoes a change of control)
Approving New Classes or Series of Shares:
CMA will vote FOR the establishment of new classes or series of shares.
Preferred Stock Proposals:
CMA will vote on a CASE-BY-CASE basis proposals for the authorization for or increase in the preferred shares, considering the following factors:
- Stated specific financing purpose
- Possible dilution for common shares
- Whether the shares can be used for antitakover purposes
Policies Addressed by the Investment Company Act of 1940 ("1940 Act"):
CMA will vote proposals regarding adoption or changes of policies addressed by the 1940 Act on a CASE-BY-CASE basis, considering the following factors:
- Potential competitiveness
- Regulatory developments
- Current and potential returns
- Current and potential risk
CMA generally will vote FOR these amendments as long as the proposed changes do not fundamentally alter the investment focus of the fund and do comply with current SEC interpretations.
Changing a Fundamental Restriction to a Non-fundamental Restriction:
CMA will vote on a CASE-BY-CASE basis proposals to change a fundamental restriction to a nonfundamental restriction, considering the following factors:
- Fund's target investments
- Reasons given by the fund for the change
- Projected impact of the change on the portfolio
Change Fundamental Investment Objective to Non-fundamental:
CMA will vote AGAINST proposals to change a fund's investment objective from fundamental to non-fundamental unless management acknowledges meaningful limitations upon its future requested ability to change the objective
Name Change Proposals:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's name, considering the following factors:
- Political/economic changes in the target market
- Consolidation in the target market
- Current asset composition
Change in Fund's Subclassification:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's subclassification, considering the following factors:
- Potential competitiveness
- Current and potential returns
- Risk of concentration
- Consolidation in target industry
Disposition of Assets/Termination/Liquidation:
CMA will vote on a CASE-BY-CASE basis these proposals, considering the following factors:
- Strategies employed to salvage the company
- Past performance of the fund
- Terms of the liquidation
Changes to the Charter Document:
CMA will vote on a CASE-BY-CASE basis proposals to change the charter document, considering the following factors:
- The degree of change implied by the proposal
- The efficiencies that could result
- The state of incorporation; net effect on shareholder rights
- Regulatory standards and implications
CMA will vote FOR:
- Proposals allowing the Board to impose, without shareholder approval, fees payable upon redemption of fund shares, provided imposition of such fees is likely to benefit long-term fund investors (e.g., by deterring market timing activity by other fund investors)
- Proposals enabling the Board to amend, without shareholder approval, the fund's management agreement(s) with its investment adviser(s) or sub-advisers, provided the amendment is not required by applicable law (including the Investment Company Act of 1940) or interpretations thereunder to require such approval
CMA will vote AGAINST:
- Proposals enabling the Board to:
- Change, without shareholder approval the domicile of the fund
- Adopt, without shareholder approval, material amendments of the fund's declaration of trust or other organizational document
Changing the Domicile of a Fund:
CMA will vote on a CASE-BY-CASE basis proposals to reincorporate, considering the following factors:
- Regulations of both states
- Required fundamental policies of both states
- The increased flexibility available
Authorizing the Board to Hire and Terminate Subadvisors Without Shareholder Approval:
CMA will vote FOR proposals to enable the Board or Investment Adviser to hire and terminate sub-advisers, without shareholder approval, in accordance with applicable rules or exemptive orders under the Investment Company Act of 1940
Distribution Agreements:
CMA will vote these proposals on a CASE-BY-CASE basis, considering the following factors:
- Fees charged to comparably sized funds with similar objectives
- The proposed distributor's reputation and past performance
- The competitiveness of the fund in the industry
- Terms of the agreement
Master-Feeder Structure:
CMA will vote FOR the establishment of a master-feeder structure.
Mergers:
CMA will vote merger proposals on a CASE-BY-CASE basis, considering the following factors:
- Resulting fee structure
- Performance of both funds
- Continuity of management personnel
- Changes in corporate governance and their impact on shareholder rights
Shareholder Proposals to Establish Director Ownership Requirement:
CMA will generally vote AGAINST shareholder proposals that mandate a specific minimum amount of stock that directors must own in order to qualify as a director or to remain on the board. While CMA favors stockownership on the part of directors, the company should determine the appropriate ownership requirement.
Shareholder Proposals to Reimburse Shareholder for Expenses Incurred:
CMA will vote on a CASE-BY-CASE basis proposals to reimburse proxy solicitation expenses.
Shareholder Proposals to Terminate the Investment Adviser:
CMA will vote on a CASE-BY-CASE basis proposals to terminate the investment adviser, considering the following factors:
- Performance of the fund's NAV
- The fund's history of shareholder relations
- The performance of other funds under the adviser's management
9. Alternative Investment Group ("AIG") Matters
The AIG Proxy Sub-Committee generally will vote in accordance with the guidelines set forth in this policy. With respect to matters that are not addressed by the guidelines, the AIG Proxy Sub-Committee will vote each such matter on a CASE-BY-CASE basis.
B. ABILITY TO VOTE PROXIES OTHER THAN AS PROVIDED IN A ABOVE.
A Portfolio Manager, sub-adviser or other party involved with a client's account may conclude that the best interest of the firm's client, as defined above, requires that a proxy be voted in a manner that differs from the predetermined proxy Voting Guidelines stated in Section IV.A. In this situation, he or she shall request that the Proxy Committee consider voting the proxy other than according such Guidelines. If any person, group, or entity requests the Proxy Committee (or any of its members) vote a proxy other than according to the predetermined Voting Guidelines, that person shall furnish to the Proxy Committee a written explanation of the reasons for the request and a description of the person's, group's, or entity's relationship, if any, with the parties proposing and/or opposing the matter's adoption.
C. PROPOSALS REQUIRING SPECIAL CONSIDERATION
The following proposals require special, individual consideration. The Proxy Committee will determine how proxies related to all such proposals will be voted.
1. NEW PROPOSALS. For each new type of proposal that is expected to be proposed to shareholders of multiple companies, the Proxy Committee will develop a Voting Guideline which will be incorporated into this Policy.
2. ACCOUNTS ADHERING TO TAFT HARTLEY PRINCIPLES. All proposals for these accounts shall be voted according to the Taft Hartley Guidelines developed by Institutional Shareholder Services, Inc. ("ISS").
3. ACCOUNTS ADHERING TO SOCIALLY RESPONSIBLE PRINCIPLES. All proposals for these accounts shall be voted according to the Socially Responsible Guidelines developed by ISS or as specified by the client.
4. PROXIES OF INTERNATIONAL ISSUERS WHICH BLOCK SECURITIES SALES BETWEEN THE TIME A SHAREHOLDER SUBMITS A PROXY AND THE VOTE. Proposals for these securities shall be voted only on the specific instruction of the Proxy Committee and to the extent practicable in accordance with the Voting Guidelines set forth in this Policy.
5. PROXIES OF INVESTMENT COMPANY SHARES. Proposals on issues other than those specified in Section IV.A.
6. EXECUTIVE/DIRECTOR COMPENSATION. Except as provided in Section IV.A, proposals relating to compensation of any executive or director will be voted as recommended by ISS or as otherwise directed by the Proxy Committee.
7. PREEMPTIVE RIGHTS. Proposals to create or eliminate shareholder preemptive rights. In evaluating these proposals the Proxy Committee will consider the size of the company and the nature of its shareholder base.
V. VOTING PROCEDURES
The Proxy Committee has developed the following procedures to aid the voting of proxies according to the Voting Guidelines set forth in Section IV above. The Proxy Committee may revise these procedures from time to time, as it deems necessary or appropriate to effect the purposes of this Policy.
- CMA shall use an independent, third-party vendor (currently Institutional Shareholder Services ("ISS")), to implement its proxy voting process as CMAs proxy voting agent. This retention is subject to CMA continuously assessing the vendor's independence from CMA and its affiliates, and the vendor's ability to perform its responsibilities (and, especially, its responsibility to vote client proxies in accordance with CMA's proxy voting guidelines) free of any actual, potential or apparent material conflicts of interests that may arise between the interests of the vendor, its affiliates, the vendor's other clients and the owners, officers or employees of any such firm, on the one hand, and CMA's clients, on the other hand. As means of performing this assessment, CMA will require various reports and notices from the vendor, as well as periodic audits of the vendor's voting record and other due diligence.
- ISS shall provide proxy analysis and record keeping services in addition to voting proxies on behalf of CMA in accordance with this Policy.
- On a daily basis CMA shall send to ISS a holdings file detailing each equity holding held in all accounts over which CMA has voting authority. Information regarding equity holdings for international portfolio shall be sent weekly.
- ISS shall receive proxy material information from Proxy Edge or the custodian bank for the account. This shall include issues to be voted upon, together with a breakdown of holdings for CMA accounts. ISS shall then reconcile information it receives from CMA with that it has received from Proxy Edge and custodian banks. Any discrepancies shall be promptly noted and resolved by ISS, with notice to CMA.
- Whenever a vote is solicited, ISS shall execute the vote according to CMA's Voting Guidelines previously delivered by CMA to ISS as set forth in Section IV.A.
- If ISS is not sure how to vote a particular proxy, then ISS will issue a request for voting instructions to CMA over a secure website. CMA personnel shall check this website regularly. The request shall be accompanied by a recommended vote. The recommended vote shall be based upon CMA's understanding of the Voting Guidelines previously delivered to ISS. CMA shall promptly provide ISS with any amendments or modifications to the Voting Guidelines if necessary. CMA shall return a final instruction to vote to ISS, which ISS shall record with Proxy Edge or the custodian bank as our agent.
- Each time that ISS shall send CMA a request to vote the request shall be accompanied by the recommended vote determined in accordance with CMA's Voting Guidelines. ISS shall vote as indicated in the request unless the client has reserved discretion, the Proxy Committee determines that the best interest of clients requires another vote or the proposal is a matter as to which the Proxy Committee affords special, individual consideration under Section IV.C. In such situations ISS shall vote based on the direction of the client or the Proxy Committee, as the case may be. The interests of CMA's Taft Hartley or Socially Responsible clients may impact a proposal that normally should be voted in a certain way. ISS shall inform CMA of all proposals having impact on its Taft Hartley and or Socially Responsible clients. The Proxy Voting Committee shall be consulted before a vote is placed in cases where Taft Hartley or Socially Responsible issues are presented.
- ISS shall have procedures in place to ensure that a vote is cast on every security holding maintained by CMA on which a vote is solicited unless otherwise directed by the Proxy Committee. On a yearly basis, or as required by our clients CMA shall receive a report from ISS detailing CMA's voting for the previous period.
VI. AVAILABILITY OF PROXY POLICY AND VOTING RECORD
A summary disclosure regarding the provisions of this Policy is available in CMA's Form ADV. Upon receipt of a Client's request for more information, CMA will provide to the Client a copy of this Policy and/or how CMA voted proxies for the Client pursuant to this Policy for up to a one-year period.
COLUMBIA CONNECTICUT TAX-EXEMPT FUND
COLUMBIA MASSACHUSETTS TAX-EXEMPT FUND
COLUMBIA NEW YORK TAX-EXEMPT FUND
SERIES OF COLUMBIA FUNDS SERIES TRUST I
SUPPLEMENT TO EACH FUND'S CURRENT STATEMENT OF ADDITIONAL
INFORMATION
This supplement applies to the "Funds" listed above.
1. The name of the Trust of is revised to read "Columbia Funds Series Trust I."
2. The first paragraph in the section entitled "Organization and History" is revised to read:
The Columbia "Fund Complex" includes all of the registered investment companies to which the Advisor and its affiliates provide investment advisory services.
3. The first sentence of the second paragraph in the section entitled "Organization and History" is revised in its entirety to read:
The Connecticut Fund, the Massachusetts Fund, and the New York Fund were originally organized as a series of another Massachusetts business trust, Columbia Funds Trust V ("Trust V"), prior to their reorganization as a series of the Trust on March 27, 2006. The Connecticut Fund, the Massachusetts Fund and the New York Fund are open-end management investment companies and non-diversified series of the Trust, and they represent the entire interests in a separate series of the Trust.
4. The last sentence of the second paragraph in the section entitled "Organization and History" is removed.
5. The first sentence of the sixth paragraph in the section entitled "Organization and History" is revised to read:
The Trust is not required to hold annual shareholder meetings but special meetings may be called for certain purposes.
6. The section entitled "Ownership of the Funds" is replaced in its entirety (to the extent that it relates to the Funds listed above) to read:
At February 28, 2006, the officers and Trustees of the Trusts as a group beneficially owned less than 1% of the then outstanding shares of each class of shares of the Connecticut, Massachusetts and New York Funds.
As of record on February 28, 2006, the following shareholders owned 5% or more of the following Funds' then outstanding Class A, Class B, Class C and Class Z shares:
CONNECTICUT FUND
CLASS A SHARES
SHAREHOLDER (NAME AND ADDRESS) PERCENT OF CLASS TOTAL (%) ------------------------------ -------------------------- CITIGROUP GLOBAL MARKETS, INC. 5.20 HOUSE ACCOUNT 333 W 34 ST NEW YORK NY 10001-2402 MERRILL LYNCH PIERCE FENNER & SMITH 7.21 FOR THE SOLE BENEFIT OF ITS CUSTOMERS 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 32246-6484 |
CLASS B SHARES
SHAREHOLDER (NAME AND ADDRESS) PERCENT OF CLASS TOTAL (%) ------------------------------ -------------------------- MERRILL LYNCH PIERCE FENNER & SMITH 13.65 FOR THE SOLE BENEFIT OF ITS CUSTOMERS 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 32246-6484 |
CLASS C SHARES
SHAREHOLDER (NAME AND ADDRESS) PERCENT OF CLASS TOTAL (%) ------------------------------ -------------------------- MERRILL LYNCH PIERCE FENNER & SMITH 15.58 FOR THE SOLE BENEFIT OF ITS CUSTOMERS 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 32246-6484 |
MASSACHUSETTS FUND
CLASS B SHARES
SHAREHOLDER (NAME AND ADDRESS) PERCENT OF CLASS TOTAL (%) ------------------------------ -------------------------- CITIGROUP GLOBAL MARKETS, INC. 9.51 HOUSE ACCOUNT 333 W 34 ST NEW YORK NY 10001-2402 MERRILL LYNCH PIERCE FENNER & SMITH 6.10 FOR THE SOLE BENEFIT OF ITS CUSTOMERS 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 32246-6484 |
CLASS C SHARES
SHAREHOLDER (NAME AND ADDRESS) PERCENT OF CLASS TOTAL (%) ------------------------------ -------------------------- CITIGROUP GLOBAL MARKETS, INC. 6.63 HOUSE ACCOUNT 333 W 34 ST NEW YORK NY 10001-2402 MERRILL LYNCH PIERCE FENNER & SMITH 30.59 FOR THE SOLE BENEFIT OF ITS CUSTOMERS 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 32246-6484 |
NEW YORK FUND
CLASS A SHARES
SHAREHOLDER (NAME AND ADDRESS) PERCENT OF CLASS TOTAL (%) ------------------------------ -------------------------- CITIGROUP GLOBAL MARKETS, INC. 9.67 HOUSE ACCOUNT 333 W 34 ST NEW YORK NY 10001-2402 MERRILL LYNCH PIERCE FENNER & SMITH 7.76 FOR THE SOLE BENEFIT OF ITS CUSTOMERS 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 32246-6484 |
CLASS B SHARES
SHAREHOLDER (NAME AND ADDRESS) PERCENT OF CLASS TOTAL (%) ------------------------------ -------------------------- CITIGROUP GLOBAL MARKETS, INC. 7.07 HOUSE ACCOUNT 333 W 34 ST NEW YORK NY 10001-2402 MERRILL LYNCH PIERCE FENNER & SMITH 8.66 FOR THE SOLE BENEFIT OF ITS CUSTOMERS 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 32246-6484 |
CLASS C SHARES
SHAREHOLDER (NAME AND ADDRESS) PERCENT OF CLASS TOTAL (%) ------------------------------ -------------------------- CITIGROUP GLOBAL MARKETS, INC. 31.92 HOUSE ACCOUNT 333 W 34 ST NEW YORK NY 10001-2402 MERRILL LYNCH PIERCE FENNER & SMITH 21.57 FOR THE SOLE BENEFIT OF ITS CUSTOMERS 4800 DEER LAKE DR E FL 2 JACKSONVILLE FL 32246-6484 |
7. The first paragraph of the first page of Part 2 of the SAI is revised in its entirety to read:
The following information applies generally to most funds advised by the Advisor. "Funds" include the series of Columbia Funds Series Trust I, Columbia Funds Institutional Trust, Liberty Variable Investment Trust and SteinRoe Variable Investment Trust (each a "Trust" and together, the "Trusts"). In certain cases, the discussion applies to some, but not all, of the Funds, and you should refer to your Fund's Prospectus and to Part 1 of this Statement of Additional Information ("SAI") to determine whether the matter is applicable to your Fund. You will also be referred to Part 1 for certain data applicable to your Fund.
8. The section entitled "Trustees and Officers" in Part 2 of the SAI is revised to read:
Information regarding the Trustees and officers of the Funds together with their principal business occupations during the last five years (their titles may have varied during that period) is shown below. Unless otherwise noted, the address for each Trustee and officer is c/o Columbia Funds, Mail Stop MA5-515-11-05, One Financial Center, Boston, MA 02111.
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Position with Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------- ------------ ----------------------------- ------------- ------------------------
DISINTERESTED TRUSTEE
Thomas C. Theobald Trustee and 1996 Partner and Senior Advisor, 83 Anixter International
(Born 1937) Chairman Chicago Growth Partners (network support
of the Board (private equity investing) equipment distributor);
since September, 2004; Ventas, Inc. (real
Managing Director, William estate investment
Blair Capital Partners trust); Jones Lang
(private equity investing) LaSalle (real estate
from September, 1994 to management services) and
September, 2004. Ambac Financial Group
(financial guaranty
insurance)
Douglas A. Hacker Trustee 1996 Executive Vice President -- 83 Nash Finch Company
(Born 1955) Strategy of United Airlines (food distributor)
(airline) since December,
2002; President of UAL
Loyalty Services (airline)
from September, 2001 to
December, 2002; Executive
Vice President and Chief
Financial Officer of United
Airlines from July, 1999 to
September, 2001.
Janet Langford Kelly Trustee 1996 Partner, Zelle, Hofmann, 83 UAL Corporation
(Born 1957) Voelbel, Mason & Gette LLP (airline)
(law firm) since March, 2005;
Adjunct Professor of Law,
Northwestern University,
since September, 2004; Chief
Administrative Officer and
Senior Vice President, Kmart
Holding Corporation (consumer
goods), from September, 2003
to March, 2004; Executive
Vice President-Corporate
Development and
Administration, General
Counsel and Secretary,
Kellogg Company (food
manufacturer), from
September, 1999 to August,
2003.
|
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Position with Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------- ------------ ----------------------------- ------------- ------------------------
DISINTERESTED TRUSTEE
Richard W. Lowry Trustee 1995 Private Investor since 85 None
(Born 1936) August, 1987 (formerly
Chairman and Chief Executive
Officer, U.S. Plywood
Corporation (building
products manufacturer) until
1987.)
Charles R. Nelson Trustee 1981 Professor of Economics, 83 None
(Born 1943) University of Washington
since January, 1976; Ford and
Louisa Van Voorhis
Professor of Political
Economy, University of
Washington, since September,
1993; Director, Institute for
Economic Research, University
of Washington from September,
2001 to June, 2003; Adjunct
Professor of
Statistics, University of
Washington since September,
1980; Associate Editor,
Journal of Money Credit and
Banking since September,
1993; consultant on
econometric and statistical
matters.
John J. Neuhauser Trustee 1985 University Professor, Boston 85 Saucony, Inc.
(Born 1942) College since December, 2005; (athletic footwear)
Academic Vice President and
Dean of Faculties, Boston
College from August, 1999 to
December, 2005.
Patrick J. Simpson Trustee 2000 Partner, Perkins Coie L.L.P. 83 None
(Born 1944) (law firm).
Thomas E. Stitzel Trustee 1998 Business Consultant since 83 None
(Born 1936) 1999; Chartered Financial
Analyst.
Anne-Lee Verville Trustee 1998 Retired since 1997 (formerly 83 Chairman of the Board of
(Born 1945) General Manager, Global Directors, Enesco
Education Industry, IBM Group, Inc. (producer of
Corporation (computer and giftware and home and
technology) from 1994 to garden decor products)
1997).
Richard L. Woolworth Trustee 1991 Retired since December, 2003 83 Northwest Natural Gas
(Born 1941) (formerly Chairman and Chief (natural gas service
Executive Officer, The provider)
Regence Group Co. (regional
health insurer); Chairman and
Chief Executive Officer,
BlueCross BlueShield of
Oregon; Certified Public
Accountant, Arthur Young &
Company).
|
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------------- ------------ ----------------------- ------------- -------------------
INTERESTED TRUSTEE
William E. Mayer(3) Trustee 1994 Partner, Park Avenue 85 Lee Enterprises
(Born 1940) Equity Partners (print media), WR
(private equity) Hambrecht + Co.
since February, 1999. (financial service
provider); Reader's
Digest
(publishing);
OPENFIELD Solutions
(retail industry
technology
provider)
|
(1) The date shown is the earliest date on which a Trustee was elected or appointed to the board of a Fund in the Fund Complex.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public companies").
(3) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (the "1940 Act")) of the Columbia Funds by reason of his affiliation with WR Hambrecht + Co., a registered broker-dealer that may execute portfolio transactions for or engage in principal transactions with the Fund or other funds or clients advised by the Advisor or its affiliates.
Year First
Elected or
Appointed
Name and Year of Birth Position with Funds to Office Principal Occupation(s) During Past Five Years
---------------------- ------------------- ---------- ----------------------------------------------
OFFICERS
Christopher L. Wilson President 2004 Head of Mutual Funds since August, 2004 and
(Born 1957) Managing Director of the Advisor since
September, 2005; President and Chief Executive
Officer, CDC IXIS Asset Management Services,
Inc. (investment management) from September,
1998 to August, 2004.
James R. Bordewick, Jr. Senior Vice 2006 Associate General Counsel, Bank of America
(Born 1959) President, since April, 2005; Senior Vice President and
Secretary and Associate General Counsel, MFS Investment
Chief Legal Management (investment management) prior to
Officer April, 2005.
J. Kevin Connaughton Senior Vice 2000 Managing Director of the Advisor since
(Born 1964) President, Chief February, 1998.
Financial
Officer and
Treasurer
Mary Joan Hoene Senior Vice 2004 Senior Vice President and Chief Compliance
(Born 1949) President and Officer of various funds in the Columbia Fund
Chief Compliance Complex; Partner, Carter, Ledyard & Milburn LLP
Officer (law firm) from January, 2001 to August, 2004.
Michael G. Clarke Chief Accounting 2004 Managing Director of the Advisor since
(Born 1969) Officer and February, 2001.
Assistant
Treasurer
Stephen T. Welsh Vice President 1996 President, Columbia Management Services, Inc.
(Born 1957) since July, 2004; Senior Vice President and
Controller, Columbia Management Services, Inc.
prior to July, 2004.
Jeffrey R. Coleman Deputy Treasurer 2004 Group Operations Manager of the Advisor since
(Born 1969) October, 2004; Vice President of CDC IXIS Asset
Management Services, Inc. (investment
management) from August, 2000 to September,
2004.
|
Year First
Elected or
Name, Year of Birth and Appointed
Address Position with Funds to Office Principal Occupation(s) During Past Five Years
----------------------- ------------------- ---------- ----------------------------------------------
OFFICERS
Joseph F. DiMaria Deputy Treasurer 2004 Senior Compliance Manager of the Advisor since
(Born 1968) January, 2005; Director of Trustee
Administration of the Advisor from May, 2003 to
January, 2005; Senior Audit Manager,
PricewaterhouseCoopers (independent registered
public accounting firm) from July, 2000 to
April, 2003.
Ty S. Edwards Deputy Treasurer 2004 Vice President of the Advisor since 2002;
(Born 1966) Assistant Vice President and Director, State
Street Corporation (financial services) prior
to 2002.
Barry S. Vallan Controller 2006 Vice President-Fund Treasury of the Advisor
(Born 1969) since October, 2004; Vice President-Trustee
Reporting from April, 2002 to October, 2004;
Management Consultant, PricewaterhouseCoopers
(independent registered public accounting firm)
prior to October, 2002.
Peter T. Fariel Assistant 2006 Associate General Counsel, Bank of America
(Born 1957) Secretary since April, 2005; Partner, Goodwin Procter LLP
(law firm) prior to April, 2005.
Ryan C. Larrenaga Assistant 2005 Assistant General Counsel, Bank of America
(Born 1970) Secretary since March, 2005; Associate, Ropes & Gray LLP
(law firm) from 1998 to February, 2005.
Barry S. Finkle Assistant 2003 Senior Manager and Head of Fund Performance of
(Born 1965) Treasurer the Advisor since January, 2001.
Julian Quero Assistant 2003 Senior Compliance Manager of the Advisor since
(Born 1967) Treasurer April, 2002; Assistant Vice President of Taxes
and Distributions of the Advisor from 2001 to
April, 2002.
|
Each of the Trust's Trustees and officers hold comparable positions with certain other funds of which the Advisor or its affiliates is the investment advisor or distributor and, in the case of certain of the officers, with certain affiliates of the Advisor.
The Trustees and officers serve terms of indefinite duration. Each Fund held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once every five years thereafter to elect Trustees.
9. The second paragraph of the section entitled "Other Disclosures," a subsection of "Disclosure of Portfolio Information," is revised in its entirety to read:
The Fund periodically discloses its portfolio information on a confidential basis to various service providers that require such information in order to assist the Fund with its day-to-day business affairs. In addition to Columbia Advisors and its affiliates, these service providers include the Fund's custodian and sub-custodians, the Fund's independent registered public accounting firm, legal counsel, financial printers (R.R. Donnelly & Sons and Bowne & Co., Inc.), the Fund's proxy solicitor and proxy voting service provider (Computershare), rating agencies that maintain ratings on certain Columbia Funds (Fitch, Inc.) and service providers that support Columbia Advisors' trading systems (InvestorTool, Inc. and Thomson Financial). These service providers are required to keep such information confidential, and are prohibited from trading based on the information or otherwise using the information except as necessary in providing services to the Fund. The Fund may also disclose portfolio holdings information to broker/dealers and certain other entities related to potential transactions and management of the Fund, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information.
INT-50/107802-0306 March 27, 2006
COLUMBIA CALIFORNIA TAX-EXEMPT FUND
SERIES OF COLUMBIA FUNDS SERIES TRUST I
COLUMBIA CONNECTICUT TAX-EXEMPT FUND
COLUMBIA MASSACHUSETTS TAX-EXEMPT FUND
COLUMBIA NEW YORK TAX-EXEMPT FUND
SERIES OF COLUMBIA FUNDS TRUST V
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 2006
This Statement of Additional Information ("SAI") contains information which may be useful to investors but which is not included in the Prospectuses of Columbia California Tax-Exempt Fund, Columbia Connecticut Tax-Exempt Fund, Columbia Massachusetts Tax-Exempt Fund and Columbia New York Tax-Exempt Fund (each a "Fund" and collectively the "Funds"). This SAI is not a prospectus and is authorized for distribution only when accompanied or preceded by a Prospectus of a Fund dated March 1, 2006, as applicable. This SAI should be read together with a Prospectus of a Fund and a Fund's most recent Annual Report dated October 31, 2005, as applicable. The Funds' most recent Annual Reports to shareholders are separate documents supplied with this SAI. Investors may obtain free copies of Prospectuses and Annual Reports from Columbia Management Distributors, Inc. ("CMD"), One Financial Center, Boston, MA 02111-2621, or by calling 1-800-426-3750. The Financial Statements and Report of the Independent Registered Public Accounting Firm appearing in each Fund's October 31, 2005 Annual Report are incorporated in this SAI by reference.
Part 1 of this SAI contains specific information about the Funds. Part 2 includes information about the funds distributed by CMD generally and additional information about certain securities and investment techniques described in the Funds' Prospectuses.
TABLE OF CONTENTS
PAGE
----
PART 1
Definitions b
Organization and History b
Investment Goals and Policies of the Funds c
Fundamental Investment Policies of the Funds c
Other Investment Policies of the Funds d
California Tax Considerations d
Connecticut Tax Considerations e
Massachusetts Tax Considerations e
New York Tax Considerations f
Fund Charges and Expenses f
Custodian of the Funds u
Independent Registered Public Accounting Firm
of the Funds u
PART 2
Miscellaneous Investment Practices 1
Taxes 22
Additional Tax Matters Concerning Trust Shares 27
Management of the Funds 29
Determination of Net Asset Value 42
How to Buy Shares 43
Special Purchase Programs/Investor Services 47
Programs for Reducing or Eliminating
Sales Charges 49
How to Sell Shares 52
Distributions 56
How to Exchange Shares 56
Suspension of Redemptions 57
Shareholder Liability 57
Shareholder Meetings 57
Appendix I 59
Appendix II 65
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PART 1
COLUMBIA CALIFORNIA TAX-EXEMPT FUND
COLUMBIA CONNECTICUT TAX-EXEMPT FUND
COLUMBIA MASSACHUSETTS TAX-EXEMPT FUND
COLUMBIA NEW YORK TAX-EXEMPT FUND
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 2006
DEFINITIONS
"California Fund" or "Fund" Columbia California Tax-Exempt Fund
"Connecticut Fund" or "Fund" Columbia Connecticut Tax-Exempt Fund
"Massachusetts Fund" or Columbia Massachusetts Tax-Exempt Fund
"Fund"
"New York Fund" or "Fund" Columbia New York Tax-Exempt Fund
"Columbia Funds Trust V" or Columbia Funds Trust V (of which the
"Trust V" Connecticut Fund, the Massachusetts Fund
and the New York Fund are series)
"Columbia Funds Series Trust I" (formerly named Columbia Funds Trust IX,
of which the California Fund is a series)
"Advisor" Columbia Management Advisors, LLC, the
Funds' investment advisor (formerly named
Banc of America Capital Management, LLC,
successor to Columbia Management
Advisors, Inc., the Funds' previous
advisor)
"CMD" Columbia Management Distributors, Inc.,
the Funds' distributor (formerly named
Columbia Funds Distributor, Inc.
("CFD"))
"CMS" Columbia Management Services, Inc., the
Funds' shareholder services and transfer
agent. (formerly named Columbia Funds
Services, Inc. ("CFS"))
|
ORGANIZATION AND HISTORY
The "Columbia Fund Complex" includes all of the registered investment companies to which the Advisor and its affiliates provide investment advisory services.
Trust V is a Massachusetts business trust organized in 1986. The Connecticut Fund, the Massachusetts Fund and the New York Fund are open-end, management investment companies and are non-diversified series of Trust V and represent the entire interest in a separate series of Trust V. The Connecticut Fund commenced investment operations on November 1, 1991; the Massachusetts Fund commenced investment operations on April 10, 1987, and the New York Fund commenced investment operations on September 26, 1986. Each of the Connecticut Fund, the Massachusetts Fund and the New York Fund expects to reorganize as series of Columbia Funds Series Trust I in 2006.
Effective April 1, 1999, Trust V changed its name from Colonial Trust V to Liberty Funds Trust V. Trust V changed its name to its current name on October 13, 2003. Effective July 14, 2000, Colonial Connecticut Tax-Exempt Fund, Colonial Massachusetts Tax-Exempt Fund and Colonial New York Tax-Exempt Fund changed their names to Liberty Connecticut Tax-Exempt Fund, Liberty Massachusetts Tax-Exempt Fund and Liberty New York Tax-Exempt Fund, respectively. Each of the aforementioned Funds changed its name to its current name on October 13, 2003.
Columbia Funds Series Trust I is a Massachusetts business trust organized in 1987. The California Fund is an open-end, management investment company and is a non-diversified series of Columbia Funds Series Trust I and represents the entire interest in a separate series of Columbia Funds Series Trust I. The California Fund commenced investment operations as a series of Columbia Funds Series Trust I on September 19, 2005. Prior to September 19, 2005 (the "California Fund Reorganization Date"), the California Fund was organized as a series of Columbia Funds Trust V that commenced investment operations on June 16, 1986. The information provided for the California Fund in this SAI for periods prior to the California Fund Reorganization Date relates to the predecessor fund of the same name. Effective October 13, 2003, Columbia Funds Series Trust I, which had prior to that date been named "Liberty-Stein Roe Funds Municipal Trust" changed its name to "Columbia Funds Trust IX." Effective September 19, 2005, the name of the aforementioned Trust changed from "Columbia Funds Trust IX" to its current name.
b
The Connecticut Fund, the Massachusetts Fund and the Connecticut Fund offer three classes of shares -- Class A, B and C shares. The California Fund offers four classes of shares -- Class A, B, C and Z shares.
Neither Trust V nor Columbia Funds Series Trust I is required to hold annual shareholder meetings, but special meetings may be called for certain purposes. Shareholders receive one vote for each Fund share. Shares of the Funds and any other series of the trust of which it is a series and that may be in existence from time to time generally vote together except when required by law to vote separately by fund or by class. Shareholders owning in the aggregate ten percent of a Fund's shares may call meetings to consider removal of trustees. Under certain circumstances, a trust will provide information to assist shareholders in calling such a meeting. See Part 2 of this SAI for more information.
INVESTMENT GOAL AND POLICIES OF THE FUNDS
The Prospectus describes each Fund's investment goal and investment strategies and risks. Part 1 of this SAI includes additional information concerning, among other things, the investment policies of the Funds. Part 2 contains additional information about the following securities and investment techniques that may be utilized by the Funds:
Short-Term Trading
Lower-Rated Debt Securities
Inverse Floaters
Short Sales
Forward Commitments ("When Issued" and "Delayed Delivery" Securities)
Repurchase Agreements
Futures Contracts and Related Options (Limited to interest rate futures,
tax-exempt bond index futures, options on such futures and options
on such indices)
Options on Securities
Participation Interests
Stand-by Commitments
Zero Coupon Securities (Zeros)
Step Coupon Bonds (Steps)
Mortgage Dollar Rolls
Mortgage-Backed Securities
Asset-Backed Securities
Pay-In-Kind (PIK) Securities
Swap Agreements
Except as indicated below under "Fundamental Investment Policies of the Funds," the Funds' investment policies are not fundamental and the Trustees may change the investment policies without shareholder approval.
FUNDAMENTAL INVESTMENT POLICIES OF THE FUNDS
The Investment Company Act of 1940, as amended (1940 Act), provides that a "vote of a majority of the outstanding voting securities" means the affirmative vote of the lesser of (1) more than 50% of the outstanding shares of a Fund, or (2) 67% or more of the shares present at a meeting if more than 50% of the outstanding shares are represented at the meeting in person or by proxy. The following fundamental investment policies cannot be changed without such a vote.
Each Fund may not, as a matter of fundamental policy:
1. Underwrite any issue of securities issued by other persons within
the meaning of the Securities Act of 1933, as amended (the "1933
Act") except when it might be deemed to be an underwriter either:
(a) in connection with the disposition of a portfolio security;
or (b) in connection with the purchase of securities directly
from the issuer thereof in accordance with its investment
objective. This restriction shall not limit the Fund's ability to
invest in securities issued by other registered investment
companies.
2. Purchase or sell real estate, except a Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate and it may hold and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of securities which are secured by real estate or interests therein.
3. Purchase or sell commodities, except that a Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts.
4. Purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions; and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the Act, the rules and regulations thereunder and any applicable exemptive relief.
5. Make loans, except to the extent permitted by the Act, the rules and regulations thereunder and any applicable exemptive relief.
6. Borrow money or issue senior securities except to the extent permitted by the Act, the rules and regulations thereunder and any applicable exemptive relief.
In addition to the fundamental investment restrictions enumerated above, each Fund will:
7. Under normal circumstances, invest at least 80% of its total assets in State Bonds, subject to applicable State requirements.
OTHER INVESTMENT POLICIES OF THE FUNDS
As non-fundamental investment policies, which may be changed without a shareholder vote, each Fund may not:
1. Purchase securities on margin, but the Fund may receive short-term credit to clear securities transactions and may make initial or maintenance margin deposits in connection with futures transactions;
2. Have a short securities position, unless the Fund owns, or owns rights (exercisable without payment) to acquire, an equal amount of such securities; and
3. Invest more than 15% of its net assets in illiquid assets.
Total assets and net assets are determined at current value for purposes of compliance with investment restrictions and policies. All percentage limitations will apply at the time of investment and are not violated unless an excess or deficiency occurs as a result of such investment. For the purpose of the 1940 Act's diversification requirement, the issuer is the entity whose revenues support the security.
Notwithstanding the investment policies of the Funds, each Fund (other than the California Fund) may invest substantially all of its investable assets in another investment company that has substantially the same investment goal, policies and restrictions as each Fund.
CALIFORNIA TAX CONSIDERATIONS
It is the policy of the Fund to meet all applicable requirements of the Internal Revenue Code of 1986, as amended (the Code) and the California Revenue and Taxation Code for shareholders to be relieved of the obligation to pay regular federal income taxes and California personal income tax on amounts distributed to them which are derived from tax-exempt interest income. That is, the Fund will have at least 50% of its total assets invested in tax-exempt bonds and U.S. government obligations whose interest is excluded from income for California personal income tax purposes ("California Tax-Exempt Bonds") at the end of each quarter.
California law provides that, to the extent distributions by the Fund are derived from interest on California Tax-Exempt Bonds and are designated as such, such distributions shall be exempt from California personal income taxes. For California personal income tax purposes, distributions derived from other investments and distributions from any net realized capital gains will be taxable, whether paid in cash or reinvested in additional shares.
Interest derived from California Tax-Exempt Bonds is not subject to the California alternative minimum tax and California personal income tax does not apply to any portion of Social Security or railroad retirement benefits. Under the Code, any portion of interest on indebtedness (including insurance policy loans) incurred or continued to purchase or carry shares of the Fund which is deemed to relate to tax-exempt dividends will not be deductible. For California personal income tax purposes none of such interest will be deductible. Depending on the circumstances, the Internal Revenue Service or California Franchise Tax Board may consider shares to have been purchased or carried with borrowed funds even though the shares are not directly traceable to the borrowed funds. Shareholders who are, within the meaning of Section 147 of the Code, "substantial users" (or "related persons" of substantial users) of facilities financed by industrial development bonds should consult their tax advisors as to whether the Fund is a desirable investment.
Corporations that are subject to either the California franchise tax or the California corporate income tax and that invest in the Fund will generally be taxed on distributions other than dividends derived from interest paid on California Tax-Exempt Bonds. Corporations that are subject to the California franchise tax will also be taxed on dividends derived from interest paid on California Tax-Exempt Bonds.
The foregoing is a general summary of the California tax consequences of investing in the Fund. You should consult with your tax adviser regarding special questions as to federal, state or local taxes.
CONNECTICUT TAX CONSIDERATIONS
Distributions received by shareholders from the Fund that qualify as exempt-interest dividends for federal income tax purposes are exempt from the Connecticut personal income tax to the extent that they are derived from interest on obligations issued by or on behalf of the State of Connecticut, any political subdivision thereof, or public instrumentality, state or local authority, district or similar public entity created under the laws of Connecticut ("Connecticut Tax-Exempt Bonds") or from obligations the interest on which states are prohibited from taxing by federal law. Other distributions, whether received in cash or additional shares, are subject to the Connecticut personal income tax, except that, in the case of shares of the Fund held by shareholders as capital assets, those distributions that are treated as capital gain dividends for federal income tax purposes are not subject to the tax to the extent that they are derived from the sale or exchange of Connecticut Tax-Exempt Bonds. Distributions that are subject to the federal alternative minimum tax could cause liability for the net Connecticut minimum tax, with the exception of exempt-interest dividends that are exempt from the Connecticut personal income tax.
Distributions from investment income and capital gains, including dividends derived from interest paid on Connecticut Tax-Exempt Bonds, are included in gross income for purposes of the Connecticut corporation business tax. However, seventy percent of such distributions are deductible for purposes of this tax, provided that they are treated for federal income tax purposes as dividends but not as exempt-interest dividends or capital gain dividends, but no deduction is allowed for expenses related thereto.
Shares of the Fund are not subject to property taxation by Connecticut or its political subdivisions.
The foregoing is a general summary of the Connecticut tax consequences of investing in the Fund. You should consult your tax advisor regarding specific questions as to federal, state or local taxes.
MASSACHUSETTS TAX CONSIDERATIONS
Distributions received by shareholders from the Fund are exempt from Massachusetts personal income tax to the extent that they are derived from interest on obligations of the Commonwealth of Massachusetts, its political subdivisions, or agencies or instrumentalities of the foregoing, or obligations of certain U.S. territories and possessions (including the Commonwealth of Puerto Rico, the United States Virgin Islands or Guam), and are designated as such. The Fund believes that gains it realizes on the sale of certain Tax-Exempt Bonds are exempt from Massachusetts's personal income taxation and will designate them as such when those gains are distributed to shareholders.
Distributions from investment income and capital gains, including dividends derived from interest paid on Tax-Exempt Bonds, may be subject to Massachusetts corporate excise tax.
Long-term capital gains that are subject to tax in Massachusetts will be taxed at 5.3%.
The foregoing is a general summary of the Massachusetts tax consequences of investing in the Fund. You should consult your tax advisor regarding specific questions as to federal, state or local taxes.
e
NEW YORK TAX CONSIDERATIONS
New York law provides that, to the extent distributions by a regulated investment company are derived from interest on debt obligations issued by the State of New York or its political subdivisions or certain other governmental entities (for example, the Commonwealth of Puerto Rico, the United States Virgin Islands or Guam), the interest on which was excludable from gross income for purposes of both federal income taxation and New York State and City personal income taxation ("New York Tax-Exempt Bonds") and designated as such, such distributions shall be exempt from New York State and City personal income taxes. For New York State and City personal income tax purposes, distributions derived from investments other than New York Tax-Exempt Bonds and distributions from the excess of net short-term capital gains over net long-term capital losses will be taxable as ordinary income. For New York State and City personal income tax purposes, distributions of net long-term capital gains will be taxable at the same rates as ordinary income. The tax treatment of distributions you receive is the same whether they are paid in cash or reinvested in additional shares. Interest on indebtedness incurred by a shareholder to purchase or carry shares of the Fund is not deductible for New York State and City personal income tax purposes. Distributions by the Fund from investment income and capital gains, including exempt-interest dividends, are included in a corporation's net investment income for purposes of calculating such corporation's New York State franchise taxes and the New York City General Corporation Tax if received by a corporation subject to those taxes, and will be subject to such taxes to the extent that a corporation's net investment income is allocated to New York State and/or New York City. Distributions by the Fund may be subject to state taxes in states other than New York and to local taxes in cities other than New York City, both for individual and corporate shareholders.
The foregoing is a summary of certain New York State and New York City income tax consequences of investing in the Fund. Shareholders should consult their tax advisor to determine the precise effect of an investment in the Fund on their particular tax situation.
FUND CHARGES AND EXPENSES
Effective November 1, 2003, the Board of Trustees approved a new management fee structure for the Funds, as follows: 0.50% of the first $1 billion of the combined average daily net assets of the Funds, plus 0.45% of the next $2 billion of the combined average daily net assets of the Funds, plus 0.40% of the combined average daily net assets of the Funds in excess of $3 billion.
Prior to November 1, 2003, the Funds paid the Advisor a monthly fee based on the Funds' combined average daily net assets, determined at the close of each business day during the month at the following annual rates: 0.50% on the first $2 billion and 0.45% of any excess over $2 billion.
The Advisor provides certain pricing and bookkeeping services to each Fund. Effective November 1, 2005, each Fund entered into a Pricing and Bookkeeping Agreement and an Administrative Agreement. Under these agreements, the Funds will continue to receive substantially the same pricing, bookkeeping and administrative services as they currently receives under the Agreement. Under a separate agreement ("Outsourcing Agreement"), the Advisor has delegated the pricing and bookkeeping function to State Street Bank and Trust Company ("State Street"). The Advisor pays fees to State Street under the Outsourcing Agreement. The Advisor and State Street will continue to provide these services to the Funds. For services provided under the Pricing and Bookkeeping Agreement, each Fund will pay the Advisor or to such other person(s) as the Advisor may direct an annual fee, payable monthly, consisting of: (i) for fund accounting services, $25,000 plus an additional monthly fee based on each Fund's net asset value ("Fund Accounting Fee"); and (ii) for financial reporting services, $13,000 ("Financial Reporting Fee"); provided that during any 12-month period, the aggregate Fund Accounting Fee and Financial Reporting Fee shall not exceed $140,000. Each Fund will bear certain reimbursable costs and expenses as provided in the Pricing and Bookkeeping Agreement.
Prior to November 1, 2005, under a pricing and bookkeeping agreement with the Funds, the Advisor received from each Fund a monthly fee consisting of a flat fee plus an asset-based fee, as follows:
- An annual flat fee of $10,000, paid monthly; and
- In any month that a Fund has average net assets of more than $50 million, a monthly fee equal to the average daily net assets of the Fund for that month multiplied by a fee rate that is calculated by taking into account the fees payable to State Street under the Outsourcing Agreement.
f
Under the agreement in place prior to November 1, 2005, each Fund reimbursed the Advisor for all out-of-pocket expenses and charges, including fees payable to third parties (other than State Street) for providing pricing data.
CMS acts as transfer agent, dividend disbursing agent and shareholders' servicing agent for each Fund. Its address is P.O. Box 8081, Boston, Massachusetts 02266-8081. Effective November 1, 2005, the Funds entered into a new agreement with CMS, under which CMS will continue to provide transfer agency, dividend disbursing agency and shareholders' servicing agency services to each Fund (and will continue to retain Boston Financial Data Services, Inc. to assist it) for a reduced fee. The new fee is $15.23 per open account per annum, payable monthly. In addition, each Fund may pay CMS the fees and expenses it pays to third-party dealer firms that maintain omnibus accounts with the Funds, subject to a cap equal to 0.11% of each Fund's net assets represented by the account. The Fund will also pay certain reimbursable out-of-pocket expenses to CMS, and CMS may also retain as additional compensation for its services revenues for fees for wire, telephone and redemption orders, IRA trustee agent fees and account transcripts due CMS from shareholders of the Funds and credits (net of bank charges) earned with respect to balances in accounts CMS maintains in connection with its services to the Funds.
Prior to November 1, 2005, under the transfer agency fee arrangement between CMS and the Funds, each Fund paid the following Fees:
- An annual open account fee of $34 per open account plus the Fund's allocated share of reimbursement for the out-of-pocket expenses of CFS.
Prior to November 1, 2003, each Fund paid a shareholders' servicing and transfer agency fee to CFS as follows:
- An account fee for each open account of $4.00 per annum, payable on a monthly basis, in an amount equal to 1/12 the per annum charge; plus
- An account fee for each closed account of $1.50 per annum, payable on a monthly basis, in an amount equal to 1/12 the per annum charge; plus
- A transaction fee of $1.40 per transaction occurring in Fund accounts during any month; plus
- A monthly fee at the rate of 0.06% per annum of the average daily closing value of the total net assets of the Fund for such month; plus
- The Fund's allocated share of CFS' out-of-pocket expenses, including fees payable to DST Systems, Inc. ("DST") under a remote services agreement with DST.
RECENT FEES PAID TO THE ADVISOR, CMD AND CMS (dollars in thousands)
CALIFORNIA FUND
-----------------------------------------------------
Years ended Nine months ended Years ended
October 31, October 31, January 31,
--------------- ----------------- ---------------
2005 2004 2003(a) 2003 2002
------ ------ ------- ------ ------
Management fee (before reduction) $1,324 $1,265 $1,058 $1,479 $1,488
Pricing and bookkeeping fee 91 96 78 141 114
Transfer agent fee 162 164 381 431 433
12b-1 fees:
Service fee (Class A) 456 434 341 453 411
Service fee (Class B) 58 69 65 91 104
Service fee (Class C) 32 35 33 49 31
Distribution fee (Class B) 199 244 235 342 425
Distribution fee (Class C) 109 122 118 184 128
Fees waived by CMS (7) N/A N/A N/A N/A
Fees waived by the CMD (Class C) (44) (49) (47) (74) (51)
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g
CONNECTICUT FUND
------------------------------------------------
Years ended Nine months ended Years ended
October 31, October 31, January 31,
------------- ----------------- -------------
2005 2004 2003(a) 2003 2002
----- ----- ------- ----- -----
Management fee (before reduction) $ 830 $ 942 $ 777 $ 953 $ 800
Pricing and bookkeeping fee 66 82 61 95 66
Transfer agent fee 124 155 292 301 266
12b-1 fees:
Service fee (Class A) 241 255 196 235 181
Service fee (Class B) 96 120 103 123 112
Service fee (Class C) 53 63 54 64 16
Distribution fee (Class B) 306 387 336 441 439
Distribution fee (Class C) 170 202 176 172 61
Fees and expenses waived or reimbursed
by the Advisor (142) (169) (306) (302) (294)
Fees waived by CMS (4) N/A N/A N/A N/A
Fees waived by the CMD (Class C) (68) (81) (71) (69) (24)
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MASSACHUSETTS FUND
-----------------------------------------------------
Years ended Nine months ended Years ended
October 31, October 31, January 31,
-------------- ----------------- ---------------
2005 2004 2003(a) 2003 2002
----- ------ ------- ------ ------
Management fee (before reduction) $982 $1,067 $860 $1,106 $1,029
Pricing and bookkeeping fee 73 83 64 109 82
Transfer agent fee 146 173 324 317 374
12b-1 fees:
Service fee (Class A) 336 347 270 337 275
Service fee (Class B) 68 81 67 81 72
Service fee (Class C) 31 32 22 17 6
Distribution fee (Class B) 230 281 242 308 316
Distribution fee (Class C) 105 110 80 65 27
Fees and expenses waived or reimbursed
by the Advisor N/A N/A N/A N/A (103)
Fees waived by CMS (7) N/A N/A N/A N/A
Fees waived by the CMD (Class C) (42) (44) (32) (26) (11)
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h
NEW YORK FUND
-------------------------------------------------
Years ended Nine months ended Years ended
October 31, October 31, January 31,
-------------- ----------------- -------------
2005 2004 2003(a) 2003 2002
----- ------ ------- ----- -----
Management fee (before reduction) $ 518 $ 590 $ 466 $ 549 $ 478
Pricing and bookkeeping fee 47 56 40 61 43
Transfer agent fee 77 97 184 176 146
12b-1 fees:
Service fee (Class A) 145 156 118 140 103
Service fee (Class B) 75 92 77 84 69
Service fee (Class C) 24 25 18 12 4
Distribution fee (Class B) 237 298 253 293 281
Distribution fee (Class C) 77 82 59 43 18
Fees and expenses waived or reimbursed
by the Advisor (143) (156) (220) (201) (201)
Fees waived by CMS (2) N/A N/A N/A N/A
Fees waived or borne by CMD (Class C) (31) (33) (23) (17) (7)
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(a) Each Fund changed its fiscal year end from January 31 to October 31 in 2003.
BROKERAGE COMMISSIONS (dollars in thousands)
CALIFORNIA FUND
---------------------------------------------
Years ended Nine months ended Years ended
October 31, October 31, January 31,
----------- ----------------- -----------
2005 2004 2003(a) 2003 2002
---- ---- ------- ---- ----
Total commission $9 $12 $8 $6 $2
Directed transactions 0 0 0 0 0
Commissions on directed transactions 0 0 0 0 0
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CONNECTICUT FUND
---------------------------------------------
Years ended Nine months ended Years ended
October 31, October 31, January 31,
----------- ----------------- -----------
2005 2004 2003(a) 2003 2002
---- ---- ------- ---- ----
Total commissions $5 $8 $6 (b) $3
Directed transactions 0 0 0 0 0
Commissions on directed transactions 0 0 0 0 0
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MASSACHUSETTS FUND
----------------------------------------------
Years ended Nine months ended Years ended
October 31, October 31, January 31,
----------- ------------------ -----------
2005 2004 2003(a) 2003 2002
---- ---- ------- ---- ----
Total commissions $7 $9 $4 $4 $2
Directed transactions 0 0 0 0 0
Commissions on directed transactions 0 0 0 0 0
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NEW YORK FUND
---------------------------------------------
Years ended Nine months ended Years ended
October 31, October 31, January 31
----------- ----------------- -----------
2005 2004 2003(a) 2003 2002
---- ---- ------- ---- ----
Total commissions $4 $5 $3 $2 $1
Directed transactions 0 0 0 0 0
Commissions on directed transactions 0 0 0 0 0
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(a) Each Fund changed its fiscal year end from January 31 to October 31 in 2003.
(b) Rounds to less than one.
The Trust is required to identify any securities of its "regular brokers or dealers" that each Fund has acquired during its most recent fiscal year. At October 31, 2005, no Fund held securities of its regular brokers or dealers.
TRUSTEES AND TRUSTEES' FEES
The Columbia Fund Complex includes all of the requested investment companies to which the Advisor and its affiliates provide investment advisory services.
The Advisor or its affiliates pay the compensation of all the officers of the funds in the Columbia Fund Complex (as such term is defined under applicable regulations promulgated under the 1940 Act) advised by the Advisor, including Trustees who are affiliated with the Advisor. For the fiscal year ended October 31, 2005, and the calendar year ended December 31, 2005, the Trustees received the following compensation for serving as Trustees:
Total Compensation
Pension or from the Fund
Retirement Complex Paid to the
Benefits Accrued Trustees for the
as Part of Fund Calendar Year Ended
Trustee Expenses(b) December 31, 2005(a)
--------------------- ---------------- --------------------
Douglas A. Hacker N/A $111,277
Janet Langford Kelly N/A 116,500
Richard W. Lowry N/A 142,500
William E. Mayer N/A 147,750
Charles R. Nelson N/A 111,500
John J. Neuhauser N/A 137,833
Patrick J. Simpson(c) N/A 107,500
Thomas E. Stitzel N/A 113,000
Thomas C. Theobald(d) N/A 205,500
Ann-Lee Verville(e) N/A 120,723
Richard L. Woolworth N/A 106,500
|
Aggregate Aggregate Aggregate Aggregate
Compensation Compensation Compensation Compensation
from California Fund from Connecticut from Massachusetts from New York
for the Fiscal Year Fund for the Fiscal Fund for the Fiscal Fund for the Fiscal
Ended Year Ended Year Ended Year Ended
Trustee October 31, 2005 October 31, 2005 October 31, 2005 October 31, 2005
--------------------- -------------------- ------------------- ------------------- -------------------
Douglas A. Hacker $ 795 $ 738 $ 796 $ 604
Janet Langford Kelly 970 813 876 666
Richard W. Lowry 799 673 725 551
William E. Mayer 912 767 827 628
Charles R. Nelson 894 749 807 613
John J. Neuhauser 831 696 750 569
Patrick J. Simpson(c) 847 713 769 584
Thomas E. Stitzel 905 766 826 636
Thomas C. Theobald(d) 1,663 1,399 1,509 1,147
|
j
Aggregate Aggregate Aggregate Aggregate
Compensation Compensation Compensation Compensation
from California Fund from Connecticut from Massachusetts from New York
for the Fiscal Year Fund for the Fiscal Fund for the Fiscal Fund for the Fiscal
Ended Year Ended Year Ended Year Ended
Trustee October 31, 2005 October 31, 2005 October 31, 2005 October 31, 2005
--------------------- -------------------- ------------------- ------------------- -------------------
Anne-Lee Verville(e) 939 791 853 647
Richard L. Woolworth 836 704 759 576
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(a) As of December 31, 2005, the Columbia Fund Complex consisted of 159 open-end and 11 closed-end management investment company portfolios.
(b) The Funds do not currently provide pension or retirement plan benefits to the Trustees.
(c) During the fiscal year ended October 31, 2005, and the calendar year ended December 31, 2005, Mr. Simpson deferred $847 of his compensation from the California Fund, $713 from the Connecticut Fund, $769 from the Massachusetts Fund, $584 from the New York Fund, and $107,500 of his total compensation from the Columbia Fund Complex pursuant to the deferred compensation plan. At December 31, 2005, the value of Mr. Simpson's account under that plan was $269,502.
(d) During the fiscal year ended October 31, 2005, and the calendar year ended December 31, 2005, Mr. Theobald deferred $964 of his compensation from the California Fund, $1,018 from the Connecticut Fund, $875 from the Massachusetts Fund, $835 from the New York Fund, and $150,000 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2005, the value of Mr. Theobald's account under that plan was $320,084.
(e) At December 31, 2005, the value of Ms. Verville's account under the deferred compensation plan was $683,935.
ROLE OF THE BOARD OF TRUSTEES
The Trustees of the Funds are responsible for the overall management and supervision of the Funds' affairs and for protecting the interests of the shareholders. The Trustees meet periodically throughout the year to oversee the Funds' activities, review contractual arrangements with service providers for the Funds and review the Funds' performance. The Trustees have created several committees to perform specific functions for the Funds.
AUDIT COMMITTEE
Ms. Verville and Messrs. Hacker, Stitzel and Woolworth are members of the Audit Committee of the Board of Trustees of the Funds. The Audit Committee's functions include making recommendations to the Trustees regarding the selection and performance of the independent auditors/accountants, and reviewing matters relative to accounting and auditing practices and procedures, accounting records, and the internal accounting controls, of the Funds and certain service providers. For the fiscal year ended October 31, 2005, the Audit Committee convened seven times.
GOVERNANCE COMMITTEE
Messrs. Lowry, Mayer, Simpson and Theobald are members of the Governance Committee of the Board of Trustees of the Funds. The Governance Committee's functions include recommending to the Trustees nominees for independent Trustee positions and for appointments to various committees, performing periodic evaluations of the effectiveness of the Board, reviewing and recommending to the Board policies and practices to be followed in carrying out the Trustees' duties and responsibilities and reviewing and making recommendations to the Board regarding the compensation of the Trustees who are not affiliated with the Funds' investment advisors. The Governance Committee will consider candidates for Trustee recommended by shareholders. Written recommendations with supporting information should be directed to the Committee, in care of the Funds. For the fiscal year ended October 31, 2005, the Governance Committee convened five times.
ADVISORY FEES & EXPENSES COMMITTEE
Ms. Kelly and Messrs. Mayer, Nelson and Neuhauser are members of the Advisory Fees & Expenses Committee of the Board of Trustees of the Funds. The Advisory Fees & Expenses Committee's functions include reviewing and making recommendations to the Board as to contracts requiring approval of a majority of the disinterested Trustees and as to
k
any other contracts that may be referred to the Committee by the Board. For the fiscal year ended October 31, 2005, the Advisory Fees & Expenses Committee convened seven times.
COMPLIANCE COMMITTEE
Ms. Kelly, Messrs. Nelson, Simpson and Stitzel and Ms. Verville are members of the Compliance Committee of the Board of Trustees of the Funds. Mr. Stitzel became a member of the Compliance Committee on May 8, 2005. The Compliance Committee's functions include providing oversight of the monitoring processes and controls regarding the Trust. The Committee supervises legal, regulatory and internal rules, policies, procedures and standards other than those relating to accounting matters and oversight of compliance by the Trust's investment adviser, principal underwriter and transfer agent. For the fiscal year ended October 31, 2005, the Compliance Committee convened four times.
INVESTMENT OVERSIGHT COMMITTEES
Each Trustee of the Funds also serves on an Investment Oversight Committee ("IOC"). Each IOC is responsible for monitoring, on an ongoing basis, a select group of funds in the Columbia Fund Complex and gives particular consideration to such matters as the Funds' adherence to their investment mandates, historical performance, changes in investment processes and personnel, and proposed changes to investment objectives. Investment personnel who manage the Funds attend IOC meetings from time to time to assist each IOC in its review of the Funds. Each IOC meets four times a year. The following are members of the respective IOCs and the general categories of funds in the Columbia Fund Complex which they review:
IOC#1: Messrs. Lowry, Mayer and Neuhauser are responsible for reviewing
funds in the following asset categories: Large Growth Diversified,
Large Growth Concentrated, Small Growth, Outside Managed (i.e.,
sub-advised) and Municipal.
IOC#2: Mr. Hacker and Ms. Verville are responsible for reviewing funds in
the following asset categories: Large Blend, Small Blend, Foreign
Stock, Fixed Income -- Multi Sector and Fixed Income -- Core and Young
Investor.
IOC#3: Messrs. Theobald and Stitzel and Ms. Kelly are responsible for
reviewing funds in the following asset categories: Large Value, Mid
Cap Value, Small Value, Asset Allocation, High Yield and Money Market.
IOC#4: Messrs. Nelson, Simpson and Woolworth are responsible for reviewing
funds in the following asset categories: Large Blend, Mid Cap Growth,
Small Growth, Asset Allocation, Specialty Equity, Taxable Fixed Income
and Money Market.
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SHARE OWNERSHIP
The following table shows the dollar range of equity securities beneficially owned by each Trustee as of December 31, 2005 (i) in each Fund and (ii) in the funds in the Columbia Fund Complex.
Aggregate Dollar
Dollar Range of Range of Equity
Dollar Range of Equity Dollar Range of Securities Owned in
Equity Securities Dollar Range of Equity All Funds Overseen
Securities Owned in the Equity Securities Securities by Trustee in
Owned in the Connecticut Owned in the Owned in the Columbia Fund
Name of Trustee California Fund Fund Massachusetts Fund New York Fund Complex
---------------------- --------------- --------------- ------------------ --------------- -------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker None None None None Over $100,000
Janet Langford Kelly None None None None Over $100,000
Richard W. Lowry None None None None Over $100,000
Charles R. Nelson None None None None Over $100,000
John J. Neuhauser None None Over $100,000 None Over $100,000
Patrick J. Simpson None None None None Over $100,000
Thomas E. Stitzel None None None None $50,001-$100,000
Thomas C. Theobald None None None None Over $100,000
Anne-Lee Verville None None None None Over $100,000(1)
Richard L. Woolworth None None None None Over $100,000
INTERESTED TRUSTEE
William E. Mayer None None None None $1-$10,000
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(1) Includes the value of compensation payable under the deferred compensation plan for independent Trustees of the Columbia Fund Complex that is determined as if the amounts deferred had been invested, as of the date of deferral, in shares of one or more funds in the Columbia Fund Complex as specified by Ms. Verville.
PORTFOLIO MANAGER
OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGER
The following table shows the number and assets of other investment accounts (or portions of investment accounts) that the Funds' portfolio manager managed as of each Fund's fiscal year end.
Other SEC-registered
open-end and closed- Other pooled
end funds investment' vehicles Other accounts
---------------------- -------------------- ------------------------
Number of Number of Number of
Portfolio Managers accounts Assets accounts Assets accounts Assets
------------------------- --------- ---------- --------- ------ --------- ------------
Gary Swayze --
The California Fund 5 $1 billion None None 20 $4.7 million
Gary Swayze --
The Connecticut Fund 5 $1 billion None None 20 $4.7 million
Gary Swayze --
The Massachusetts Fund 5 $1 billion None None 20 $4.7 million
Gary Swayze --
The New York Fund 5 $1 billion None None 20 $4.7 million
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See "Management -- Portfolio Transactions -- Potential conflicts of interest in managing multiple accounts" in Part 2 of this SAI for information on how the Advisor addresses potential conflicts of interest resulting from an individual's management of more than one account.
OWNERSHIP OF SECURITIES
The table below shows the dollar ranges of shares of the Funds beneficially owned (as determined pursuant to Rule 16a-1(a)(2) under the Securities Exchange Act of 1934, as amended) by the portfolio manager listed above at the end of the Funds' most recent fiscal year:
Dollar Range of Equity Securities in the Funds
Portfolio Managers Beneficially Owned
------------------ ----------------------------------------------
Gary Swayze None
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COMPENSATION
As of each Fund's most recent fiscal year end, the portfolio manager received all of his compensation from the Advisor and its parent company, Columbia Management Group, in the form of salary, bonus, stock options and restricted stock. A portfolio manager's bonus is variable and is generally based on (1) an evaluation of the manager's investment performance and (2) the results of a peer and/or management review of such individual, which takes into account skills and attributes such as team participation, investment process, communication and professionalism. In evaluating investment performance, the Advisor generally considers the one-, three- and five-year performance of mutual funds and other accounts under the portfolio manager's oversight relative to the benchmarks and peer groups noted below, emphasizing a manager's three- and five-year performance. The Advisor may also consider a portfolio manager's performance in managing client assets in sectors and industries assigned to the manager as part of his or her investment team responsibilities, where applicable. For portfolio managers who also have group management responsibilities, another factor in their evaluation is an assessment of the group's overall investment performance.
Portfolio Managers Performance Benchmark Peer Group
------------------------------------- --------------------------- --------------------------------------------
Gary Swayze -- The California Fund Lehman Municipal Bond Index Lipper California Municipal Debt Category
Gary Swayze -- The Connecticut Fund Lehman Municipal Bond Index Lipper Connecticut Municipal Debt Category
Gary Swayze -- The Massachusetts Fund Lehman Municipal Bond Index Lipper Massachusetts Municipal Debt Category
Gary Swayze -- The New York Fund Lehman Municipal Bond Index Lipper New York Municipal Debt Category
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The size of the overall bonus pool each year is determined by Columbia Management Group and depends in part on levels of compensation generally in the investment management industry (based on market compensation data) and the Advisor's profitability for the year, which is influenced by assets under management.
OWNERSHIP OF THE FUNDS
At January 31, 2006, the officers and Trustees of the Trusts as a group beneficially owned less than 1% of the then outstanding shares of each class of shares of the California, Connecticut, Massachusetts and New York Funds.
As of record on January 31, 2006, the following shareholders owned 5% or more of the following Funds' then outstanding Class A, Class B, Class C and Class Z shares:
CALIFORNIA FUND
CLASS A SHARES
SHAREHOLDER (NAME AND ADDRESS) PERCENTAGE OF CLASS TOTAL (%) ------------------------------ ----------------------------- Citigroup Global Markets, Inc. 5.14 House Account 333 W. 34th Street, 7th Floor New York, NY 10001-2402 |
n
CALIFORNIA FUND (continued)
CLASS B SHARES
SHAREHOLDER (NAME AND ADDRESS) PERCENTAGE OF CLASS TOTAL (%) ------------------------------ ----------------------------- Citigroup Global Markets, Inc. 6.99 House Account 333 W. 34th Street, 7th Floor New York, NY 10001-2402 Merrill Lynch Pierce Fenner & Smith 6.14 For the Sole Benefit of Its Customers Attn: Fund Administration 4800 Deer Lake Drive East, 2nd Floor Jacksonville, FL 32246-6484 |
CLASS C SHARES
SHAREHOLDER (NAME AND ADDRESS) PERCENTAGE OF CLASS TOTAL (%) ------------------------------ ----------------------------- Merrill Lynch Pierce Fenner & Smith 28.04 For the Sole Benefit of Its Customers Attn: Fund Administration 4800 Deer Lake Drive East, 2nd Floor Jacksonville, FL 32246-6484 |
CLASS Z SHARES
SHAREHOLDER (NAME AND ADDRESS) PERCENTAGE OF CLASS TOTAL (%) ------------------------------ ----------------------------- Bank of America, NA 96.62 Attn: Fund Accounting 411 N. Akard Street Dallas, TX 75201-3307 |
CONNECTICUT FUND
CLASS A SHARES
SHAREHOLDER (NAME AND ADDRESS) PERCENTAGE OF CLASS TOTAL (%) ------------------------------ ----------------------------- Merrill Lynch Pierce Fenner & Smith 7.35 For the Sole Benefit of Its Customers Attn: Fund Administration 4800 Deer Lake Drive East, 2nd Floor Jacksonville, FL 32246-6484 Citigroup Global Markets, Inc. 5.08 House Account 333 W. 34th Street New York, NY 10001-2402 |
o
CONNECTICUT FUND (continued)
CLASS B SHARES
SHAREHOLDER (NAME AND ADDRESS) PERCENTAGE OF CLASS TOTAL (%) ------------------------------ ----------------------------- Merrill Lynch Pierce Fenner & Smith 13.45 For the Sole Benefit of Its Customers Attn: Fund Administration 4800 Deer Lake Drive East, 2nd Floor Jacksonville, FL 32246-6484 |
CLASS C SHARES
SHAREHOLDER (NAME AND ADDRESS) PERCENTAGE OF CLASS TOTAL (%) ------------------------------ ----------------------------- Merrill Lynch Pierce Fenner & Smith 16.65 For the Sole Benefit of Its Customers Attn: Fund Administration 4800 Deer Lake Drive East, 2nd Floor Jacksonville, FL 32246-6484 |
MASSACHUSETTS FUND
CLASS B SHARES
SHAREHOLDER (NAME AND ADDRESS) PERCENTAGE OF CLASS TOTAL (%) ------------------------------ ----------------------------- Citigroup Global Markets, Inc. 8.70 House Account 333 W. 34th Street, 7th Floor New York, NY 10001-2402 |
CLASS C SHARES
SHAREHOLDER (NAME AND ADDRESS) PERCENTAGE OF CLASS TOTAL (%) ------------------------------ ----------------------------- Merrill Lynch Pierce Fenner & Smith 30.20 For the Sole Benefit of Its Customers Attn: Fund Administration 4800 Deer Lake Drive East, 2nd Floor Jacksonville, FL 32246-6484 Merrill Lynch Pierce Fenner & Smith 6.02 For the Sole Benefit of Its Customers Attn: Fund Administration 4800 Deer Lake Drive East, 2nd Floor Jacksonville, FL 32246-6484 |
p
NEW YORK FUND
CLASS A SHARES
SHAREHOLDER (NAME AND ADDRESS) PERCENTAGE OF CLASS TOTAL (%) ------------------------------ ----------------------------- Citigroup Global Markets, Inc. 9.36 House Account 333 W. 34th Street, 7th Floor New York, NY 10001-2402 Merrill Lynch Pierce Fenner & Smith 7.68 For the Sole Benefit of Its Customers Attn: Fund Administration 4800 Deer Lake Drive East, 2nd Floor Jacksonville, FL 32246-6484 |
CLASS B SHARES
SHAREHOLDER (NAME AND ADDRESS) PERCENTAGE OF CLASS TOTAL (%) ------------------------------ ----------------------------- Merrill Lynch Pierce Fenner & Smith 8.53 For the Sole Benefit of Its Customers Attn: Fund Administration 4800 Deer Lake Drive East, 2nd Floor Jacksonville, FL 32246-6484 Citigroup Global Markets, Inc. 6.86 House Account 333 W. 34th Street, 7th Floor New York, NY 10001-2402 |
CLASS C SHARES
SHAREHOLDER (NAME AND ADDRESS) PERCENTAGE OF CLASS TOTAL (%) ------------------------------ ----------------------------- Citigroup Global Markets, Inc. 31.00 House Account 333 W. 34th Street, 7th Floor New York, NY 10001-2402 Merrill Lynch Pierce Fenner & Smith 22.10 For the Sole Benefit of Its Customers Attn: Fund Administration 4800 Deer Lake Drive East, 2nd Floor Jacksonville, FL 32246-6484 |
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SALES CHARGES (dollars in thousands)
CLASS A SHARES
CALIFORNIA FUND
---------------------------------------------
Years ended Nine months ended Years ended
October 31, October 31, January 31,
----------- ----------------- -----------
2005 2004 2003(a) 2003 2002
---- ---- ------- ---- ----
Aggregate initial sales charges on Fund share sales $149 $141 $133 $176 $383
Initial sales charges retained by CMD 20 19 18 24 43
Aggregate contingent deferred sales charges (CDSC) 0 10 (b) 0 (b)
on Fund redemptions retained by CMD
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CONNECTICUT FUND
---------------------------------------------
Years ended Nine months ended Years ended
October 31, October 31, January 31,
----------- ----------------- -----------
2005 2004 2003(a) 2003 2002
---- ---- ------- ---- ----
Aggregate initial sales charges on Fund share sales $78 $102 $212 $372 $285
Initial sales charges retained by CMD 11 12 27 42 28
Aggregate CDSC on Fund redemptions retained by CMD 0 2 (b) (b) 0
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MASSACHUSETTS FUND
---------------------------------------------
Years ended Nine months ended Years ended
October 31, October 31, January 31,
----------- ----------------- -----------
2005 2004 2003(a) 2003 2002
---- ---- ------- ---- ----
Aggregate initial sales charges on Fund share sales $133 $149 $235 $291 $240
Initial sales charges retained by CMD 18 20 29 44 29
Aggregate CDSC on Fund redemptions retained by CMD 0 (b) 5 17 (b)
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NEW YORK FUND
---------------------------------------------
Years ended Nine months ended Years ended
October 31, October 31, January 31,
----------- ----------------- -----------
2005 2004 2003(a) 2003 2002
---- ---- ------- ---- ----
Aggregate initial sales charges on Fund share sales $83 $77 $111 $233 $96
Initial sales charges retained by CMD 10 10 14 28 15
Aggregate CDSC on Fund redemptions retained by CMD 0 (b) 0 0 13
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CLASS B SHARES
CALIFORNIA FUND
---------------------------------------------
Years ended Nine months ended Years ended
October 31, October 31, January 31,
----------- ----------------- -----------
2005 2004 2003(a) 2003 2002
---- ---- ------- ---- ----
Aggregate CDSC on Fund redemptions retained by CMD $73 $105 $67 $118 $91
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CONNECTICUT FUND
---------------------------------------------
Years ended Nine months ended Years ended
October 31, October 31, January 31,
----------- ----------------- -----------
2005 2004 2003(a) 2003 2002
---- ---- ------- ---- ----
Aggregate CDSC on Fund redemptions retained by CMD $81 $105 $128 $85 $95
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MASSACHUSETTS FUND
----------------------------------------------
Years ended Nine months ended Years ended
October 31, October 31, January 31,
----------- ------------------ -----------
2005 2004 2003(a) 2003 2002
---- ---- ------- ---- ----
Aggregate CDSC on Fund redemptions retained by CMD $60 $68 $76 $56 $42
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NEW YORK FUND
---------------------------------------------
Years ended Nine months ended Years ended
October 31, October 31, January 31,
----------- ----------------- -----------
2005 2004 2003(a) 2003 2002
---- ---- ------- ---- ----
Aggregate CDSC on Fund redemptions retained by CMD $85 $103 $75 $84 $94
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CLASS C SHARES
CALIFORNIA FUND
---------------------------------------------
Years ended Nine months ended Years ended
October 31, October 31, January 31,
----------- ----------------- -----------
2005 2004 2003(a) 2003 2002
---- ---- ------- ---- ----
Aggregate CDSC on Fund redemptions retained by CMD $1 $4 (b) $10 $8
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CONNECTICUT FUND
---------------------------------------------
Years ended Nine months ended Years ended
October 31, October 31, January 31,
----------- ----------------- -----------
2005 2004 2003(a) 2003 2002
---- ---- ------- ---- ----
Aggregate CDSC on Fund redemptions retained by CMD $2 $5 $10 $15 $4
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MASSACHUSETTS FUND
----------------------------------------------
Years ended Nine months ended Years ended
October 31, October 31, January 31,
----------- ------------------ -----------
2005 2004 2003(a) 2003 2002
---- ---- ------- ---- ----
Aggregate CDSC on Fund redemptions retained by CMD $5 $4 $3 $7 (b)
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NEW YORK FUND
----------------------------------------------
Years ended Nine months ended Years ended
October 31, October 31, January 31,
----------- ------------------ -----------
2005 2004 2003(a) 2003 2002
---- ---- ------- ---- ----
Aggregate CDSC on Fund redemptions retained by CMD $2 $6 $9 $10 $6
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(a) Each Fund changed its fiscal year end from January 31 to October 31 in 2003.
(b) Rounds to less than one.
12B-1 PLAN, CDSCS AND CONVERSION OF SHARES
Each Fund offers Class A, Class B and Class C shares, and the California Fund offers an additional class of shares, Class Z shares. Each Fund may in the future offer other classes of shares. The Trustees have approved a 12b-1 plan ("Plan") for each Fund pursuant to Rule 12b-1 under the Act. Under the Plan, each Fund pays CMD monthly a service fee at an annual rate of 0.10% of each Fund's net assets attributed to the outstanding shares of each class on December 1, 1994, and a service fee of 0.25% of the average daily net assets attributed to Class A, Class B and Class C shares issued thereafter. The Funds also pay CMD monthly a distribution fee at an annual rate of 0.75% of each Fund's average daily net assets attributed to each Fund's Class B and Class C shares. CMD has voluntarily agreed to waive a portion of each Fund's Class C share distribution fee so that it does not exceed 0.45% annually. CMD may use the entire amount of such fees to defray the costs of commissions and service fees paid to financial
s
service firms ("FSFs") and for certain other purposes. Since the distribution and service fees are payable regardless of the amount of CMD's expenses, CMD may realize a profit from the fees.
The Plan authorizes any other payments by the Funds to CMD and its affiliates (including the Advisor) to the extent that such payments might be construed to be indirect financing of the distribution of each Fund's shares.
The Trustees believe the Plan could be a significant factor in the growth and retention of each Fund's assets resulting in a more advantageous expense ratio and increased investment flexibility which could benefit each class of each Fund's shareholders. The Plan will continue in effect from year to year so long as continuance is specifically approved at least annually by a vote of the Trustees, including the Trustees who are not interested persons of the Trust and have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan (Independent Trustees), cast in person at a meeting called for the purpose of voting on the Plan. The Plan may not be amended to increase the fee materially without approval by vote of a majority of the outstanding voting securities of the relevant class of shares, and all material amendments of the Plan must be approved by the Trustees in the manner provided in the foregoing sentence. The Plan may be terminated at any time by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding voting securities of the relevant class of shares. The continuance of the Plan will only be effective if the selection and nomination of the Trustees who are not interested persons of the Trust is effected by such disinterested Trustees.
Class A shares are offered at net asset value plus varying sales charges which may include a CDSC. Class B shares are offered at net asset value and are subject to a CDSC for periods up to six years after the purchase. Class C shares are offered at net asset value and are subject to a 1.00% CDSC on redemptions within one year after purchase. Class Z shares are offered at net asset value and are not subject to a CDSC. The CDSCs and initial sales charge are described in the Prospectuses for each Fund.
No CDSC will be imposed on shares derived from reinvestment of distributions or on amounts representing capital appreciation. In determining the applicability and rate of any CDSC, it will be assumed that a redemption is made first of shares representing capital appreciation, next of shares representing reinvestment of distributions and finally of other shares held by the shareholder for the longest period of time.
A certain number of years, depending on the program you purchased your shares under, after the end of the month in which a Class B share is purchased, such share and a pro rata portion of any shares issued on the reinvestment of distributions will be automatically converted into Class A shares having an equal value, which are not subject to the distribution fee.
SALES-RELATED EXPENSES (dollars in thousands) of CMD relating to the Funds for the fiscal year ended October 31, 2005 were:
CALIFORNIA FUND CONNECTICUT FUND
--------------------------- ---------------------------
Class A Class B Class C Class A Class B Class C
------- ------- ------- ------- ------- -------
Fees to FSFs $508 $136 $102 $242 $129 $140
Cost of sales material (including printing
and mailing expenses) 14 1 2 9 2 2
Allocated travel, entertainment and other
promotional expenses (including advertising) 20 2 3 13 2 3
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MASSACHUSETTS FUND NEW YORK FUND
--------------------------- ---------------------------
Class A Class B Class C Class A Class B Class C
------- ------- ------- ------- ------- -------
Fees to FSFs $345 $96 $97 $145 $106 $63
Cost of sales material (including printing
and mailing expenses) 12 2 4 6 2 5
Allocated travel, entertainment and other
promotional expenses (including advertising) 18 2 6 9 3 7
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CUSTODIAN OF THE FUNDS
State Street Bank & Trust Company, located at 2 Avenue De Lafayette, Boston, MA 02111-2100, is the Funds' custodian. The Funds' custodian is responsible for safeguarding and controlling each Fund's cash and securities, receiving and delivering securities and collecting the Fund's interest and dividends.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF THE FUNDS
PricewaterhouseCoopers LLP, located at 125 High Street, Boston, MA 02110-1707, is the independent registered public accounting firm for the Funds, providing audit and tax return review services and assistance and consultation in connection with the review of various Securities and Exchange Commission filings. For the New York Fund, the financial statements incorporated by reference in this SAI have been so incorporated, and the financial highlights included in the Prospectuses have been so included, in reliance upon the reports of PricewaterhouseCoopers LLP given on the authority of said firm as experts in accounting and auditing for the Funds. For the California Fund, the Connecticut Fund and the Massachusetts Fund, the financial statements incorporated by reference in this SAI have been so incorporated, and the financial highlights included in the Prospectuses have been so included, in reliance upon the reports of PricewaterhouseCoopers LLP given on the authority of said firm as experts in accounting and auditing for the Funds for the fiscal years ended October 31, 2005 and October 31, 2004. For the period ended October 31, 2003 and for the years ended January 31, 2003, 2002 and 2001, another firm served as the independent registered public accounting firm for each of the California Fund, the Connecticut Fund and the Massachusetts Fund.
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STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to most funds advised by the Advisor. "Funds" include the series of Columbia Funds Trust I, Columbia Funds Trust II, Columbia Funds Trust III, Columbia Funds Trust IV, Columbia Funds Trust V, Columbia Funds Trust VI, Columbia Funds Trust VIII, Columbia Funds Series Trust I (formerly named Columbia Funds Trust IX) and Columbia Funds Trust XI (each a Trust and together, the Trusts). In certain cases, the discussion applies to some, but not all, of the Funds, and you should refer to your Fund's Prospectus and to Part 1 of this Statement of Additional Information ("SAI") to determine whether the matter is applicable to your Fund. You will also be referred to Part 1 for certain data applicable to your Fund.
MISCELLANEOUS INVESTMENT PRACTICES
PART 1 OF THIS SAI LISTS ON PAGE B WHICH OF THE FOLLOWING INVESTMENT PRACTICES
ARE AVAILABLE TO YOUR FUND. IF AN INVESTMENT PRACTICE IS NOT LISTED IN PART 1 OF THIS SAI, IT IS NOT APPLICABLE TO YOUR FUND.
SHORT-TERM TRADING
In seeking the Fund's investment goal, the Advisor will buy or sell portfolio securities whenever it believes it is appropriate. The Advisor's decision will not generally be influenced by how long the Fund may have owned the security. From time to time, the Fund will buy securities intending to seek short-term trading profits. A change in the securities held by the Fund is known as "portfolio turnover" and generally involves some expense to the Fund. These expenses may include brokerage commissions or dealer mark-ups and other transaction costs on both the sale of securities and the reinvestment of the proceeds in other securities. If sales of portfolio securities cause the Fund to realize net short-term capital gains, such gains will be taxable as ordinary income. As a result of the Fund's investment policies, under certain market conditions the Fund's portfolio turnover rate may be higher than that of other mutual funds. The Fund's portfolio turnover rate for a fiscal year is the ratio of the lesser of purchases or sales of portfolio securities to the monthly average of the value of portfolio securities, excluding securities whose maturities at acquisition were one year or less. The Fund's portfolio turnover rate is not a limiting factor when the Advisor considers a change in the Fund's portfolio.
SHORT SALES
A Fund's short sales are subject to special risks. A short sale involves the sale by the Fund of a security that it does not own with the hope of purchasing the same security at a later date at a lower price. In order to deliver the security to the buyer, the Fund borrows the security from a third party. The Fund is then obligated to return the security to the third party, so the Fund must purchase the security at the market price at a later point in time. If the price of the security has increased during this time, then the Fund will incur a loss equal to the increase in price of the security from the time that the short sale was entered into plus any premiums and interest paid to the third party. Therefore, short sales involve the risk that losses may be exaggerated, potentially losing more money than the actual cost of the security. Also, there is the risk that the third party to the short sale may fail to honor its contract terms, causing a loss to the Fund.
LOWER-RATED DEBT SECURITIES
Lower-rated debt securities are those rated lower than Baa by Moody's or BBB by S&P, or comparable unrated debt securities. Relative to debt securities of higher quality,
1. an economic downturn or increased interest rates may have a more significant effect on the yield, price and potential for default for lower-rated debt securities;
2. the secondary market for lower-rated debt securities may at times become less liquid or respond to adverse publicity or investor perceptions, increasing the difficulty in valuing or disposing of the bonds;
3. the Advisor's credit analysis of lower-rated debt securities may have a greater impact on the Fund's achievement of its investment goal; and
4. lower-rated debt securities may be less sensitive to interest rate changes, but are more sensitive to adverse economic developments.
In addition, certain lower-rated debt securities may not pay interest in cash on a current basis.
SMALL COMPANIES
Smaller, less well established companies may offer greater opportunities for capital appreciation than larger, better established companies, but may also involve certain special risks related to limited product lines, markets, or financial resources and dependence on a small management group. Their securities may trade less frequently, in smaller volumes, and fluctuate more sharply in value than securities of larger companies.
COMMON STOCK, PREFERRED STOCK AND WARRANTS
Common stocks are generally more volatile than other securities. Preferred stocks share some of the characteristics of both debt and equity investments and are generally preferred over common stocks with respect to dividends and in liquidation. A warrant is an instrument issued by a corporation which gives the holder the right to subscribe to a specified amount of the company's capital stock at a set price for a specified period of time.
FOREIGN SECURITIES
The Fund may invest in securities traded in markets outside the United States. Foreign investments can be affected favorably or unfavorably by changes in currency rates and in exchange control regulations. There may be less publicly available information about a foreign company than about a U.S. company, and foreign companies may not be subject to accounting, auditing and financial reporting standards comparable to those applicable to U.S. companies. Securities of some foreign companies are less liquid or more volatile than securities of U.S. companies, and foreign brokerage commissions and custodian fees may be higher than in the United States. Investments in foreign securities can involve other risks different from those affecting U.S. investments, including local political or economic developments, expropriation or nationalization of assets and imposition of withholding taxes on dividend or interest payments. Foreign securities, like other assets of the Fund, will be held by the Fund's custodian or by a sub-custodian or depository. See also "Foreign Currency Transactions" below.
The Fund may invest in certain Passive Foreign Investment Companies (PFICs) which may be subject to U.S. federal income tax on a portion of any "excess distribution" or gain (PFIC tax) related to the investment. This "excess distribution" will be allocated over the Fund's holding period for such investment. The PFIC tax is the highest ordinary income rate in effect for any period multiplied by the portion of the "excess distribution" allocated to such period, and it could be increased by an interest charge on the deemed tax deferral.
The Fund may possibly elect to include in its income its pro rata share of the ordinary earnings and net capital gain of PFICs. This election requires certain annual information from the PFICs which in many cases may be difficult to obtain. An alternative election would permit the Fund to recognize as income any appreciation (and to a limited extent, depreciation) on its holdings of PFICs as of the end of its fiscal year. See "Taxes" below.
The Fund may invest in other investment companies. Such investments will involve the payment of duplicative fees through the indirect payment of a portion of the expenses, including advisory fees, of such other investment companies.
EXCHANGE-TRADED FUNDS ("ETFS"). The Fund may invest in ETFs up to the maximum amount allowable under the 1940 Act. ETFs are shares of publicly-traded unit investment trusts, open-end funds, or depositary receipts that seek to track the performance and dividend yield of specific indexes or companies in related industries. These indexes may be either broad-based, sector or international.
ETF shareholders are generally subject to the same risks as holders of the underlying securities they are designed to track. ETFs are also subject to certain additional risks, including (1) the risk that their prices may not correlate perfectly with changes in the prices of the underlying securities they are designed to track; and (2) the risk of possible trading halts due to market conditions or other reasons, based on the policies of the exchange upon which an ETF trades. In addition, an exchange traded sector fund may be adversely affected by the performance of that specific sector or group of industries on which it is based.
The Fund would bear, along with other shareholders of an ETF, its pro rata portion of the ETF's expenses, including management fees. Accordingly, in addition to bearing their proportionate share of the Fund's expenses (i.e., management fees and operating expenses), shareholders of the Fund may also indirectly bear similar expenses of an ETF.
ZERO COUPON SECURITIES ("ZEROS")
The Fund may invest in Zeros, which are securities issued at a significant discount from face value and do not pay interest at intervals during the life of the security. Zeros include securities issued in certificates representing undivided interests in the interest or principal of mortgage-backed securities (interest only/principal only), which tend to be more volatile than other types of securities. The Fund will accrue and distribute income from stripped securities and certificates on a current basis and may have to sell securities to generate cash for distributions.
STEP COUPON BONDS ("STEPS")
The Fund may invest in debt securities, known as Steps, which pay interest at a series of different rates (including 0%) in accordance with a stated schedule for a series of periods. In addition to the risks associated with the credit rating of the issuers, these securities may be subject to more volatility risk than fixed rate debt securities.
TENDER OPTION BONDS
A tender option bond is a municipal security (generally held pursuant to a custodial arrangement) having a relatively long maturity and bearing interest at a fixed rate substantially higher than prevailing short-term tax-exempt rates, that has been coupled with the agreement of a third party, such as a bank, broker-dealer or other financial institution, pursuant to which such institution grants the security holders the option, at periodic intervals, to tender their securities to the institution and receive the face value thereof. As consideration for providing the option, the financial institution receives periodic fees equal to the difference between the municipal security's fixed coupon rate and the rate, as determined by a remarketing or similar agent at or near the commencement of such period, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term tax-exempt rate. The Advisor will consider on an ongoing basis the creditworthiness of the issuer of the underlying municipal securities, of any custodian, and of the third-party provider of the tender option. In certain instances and for certain tender option bonds, the option may be terminable in the event of a default in payment of principal or interest on the underlying municipal securities and for other reasons.
PAY-IN-KIND ("PIK") SECURITIES
The Fund may invest in securities which pay interest either in cash or additional securities. These securities are generally high yield securities and, in addition to the other risks associated with investing in high yield securities, are subject to the risks that the interest payments which consist of additional securities are also subject to the risks of high yield securities.
MONEY MARKET INSTRUMENTS
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their subdivisions, agencies and instrumentalities. SUPRANATIONAL OBLIGATIONS are issued by supranational entities and are generally designed to promote economic improvements. CERTIFICATES OF DEPOSIT are issued against deposits in a commercial bank with a defined return and maturity. BANKER'S ACCEPTANCES are used to finance the import, export or storage of goods and are "accepted" when guaranteed at maturity by a bank. COMMERCIAL PAPER is a promissory note issued by a business to finance short-term needs (including promissory notes with floating or variable interest rates, or including a frequent interval put feature). SHORT-TERM CORPORATE OBLIGATIONS are bonds and notes (with one year or less to maturity at the time of purchase) issued by businesses to finance long-term needs. PARTICIPATION INTERESTS include the underlying securities and any related guaranty, letter of credit, or collateralization arrangement in which the Fund would be allowed to invest directly.
CERTIFICATES OF DEPOSIT are short-term negotiable instruments issued against deposits in a commercial bank with a defined return and maturity. TIME DEPOSITS are non-negotiable deposits maintained in banking institutions for specified periods of time at stated interest rates.
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their subdivisions, agencies and instrumentalities. Examples of the types of obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities (hereinafter, "U.S. Government obligations") that may be held by the Funds include, without limitation, direct obligations of the U.S. Treasury, and securities issued or guaranteed by the Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association, Federal National Mortgage Association, General Services Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks, Resolution Trust Corporation and Maritime Administration.
U.S. Treasury securities differ only in their interest rates, maturities and time of issuance: Treasury Bills have initial maturities of one year or less; Treasury Notes have initial maturities of one to ten years; and Treasury Bonds generally have initial maturities of more than ten years. Obligations of certain agencies and instrumentalities of the U.S. Government, such as those of the Government National Mortgage Association, are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Federal Home Loan Banks, are supported by the right of the issuer to borrow from the Treasury; others, such as those of the Federal National Mortgage Association, are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; still others, such as those of the Federal Home Loan Mortgage Corporation, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government would provide financial support to U.S. Government-sponsored instrumentalities if it is not obligated to do so by law. Some of these instruments may be variable or floating rate instruments.
Securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities have historically involved relatively little risk of loss of principal. However, due to fluctuations in interest rates, the market value of such securities may vary during the period a shareholder owns shares of the Fund.
BANK OBLIGATIONS include bankers' acceptances, negotiable certificates of deposit, and non-negotiable time deposits issued for a definite period of time and earning a specified return by a U.S. bank which is a member of the Federal Reserve System or is insured by the Federal Deposit Insurance Corporation ("FDIC"), or by a savings and loan association or savings bank which is insured by the FDIC. Bank obligations also include U.S. dollar-denominated obligations of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of the same type as domestic bank obligations. Time deposits with a maturity longer than seven days or that do not provide for payment within seven days after notice will be subject to any limitations on illiquid securities described in Part 1 of this SAI. For purposes of each Fund's investment policies with respect to bank obligations, the assets of a bank or savings institution will be deemed to include the assets of its U.S. and foreign branches.
Domestic and foreign banks are subject to extensive but different government regulation which may limit the amount and types of their loans and the interest rates that may be charged. In addition, the profitability of the banking industry is largely dependent upon the availability and cost of funds to finance lending operations and the quality of underlying bank assets. Investments in obligations of foreign branches of U.S. banks and of U.S. branches of foreign banks may subject a Fund to additional risks, including future political and economic developments, the possible imposition of withholding taxes on interest income, possible seizure or nationalization of foreign deposits, the possible establishment of exchange controls, or the adoption of other foreign governmental restrictions which might adversely affect the payment of principal and interest on such obligations. In addition, foreign branches of U.S. banks and U.S. branches of foreign banks may be subject to less stringent reserve requirements and to different accounting, auditing, reporting, and recordkeeping standards than those applicable to domestic branches of U.S. banks.
SEPARATELY TRADED INTEREST AND PRINCIPAL SECURITIES ("STRIPS") are component parts of U.S. Treasury Securities traded through the Federal Reserve Book-Entry System. While there is no limitation on the percentage of a Fund's assets that may be invested in STRIPS, the Advisor will monitor the level of such holdings to avoid the risk of impairing shareholders' redemption rights. The interest-only component of STRIPS is extremely sensitive to the rate of principal payments on the underlying obligation. The market value of the principal-only component is usually volatile in response to changes in interest rates.
In U.S. TREASURY ROLLS, a Fund sells outstanding U.S. Treasury securities and buys back on a delayed settlement basis the same U.S. Treasury securities. During the period prior to the delayed settlement date, the assets from the sale of the U.S. Treasury securities are invested in certain cash equivalent instruments. U.S. Treasury rolls entail the risk that the Fund could suffer an opportunity loss if the counterparty to the roll failed to perform its obligations on the settlement date, and if market conditions changed adversely. The Funds intend to enter into U.S. Treasury rolls only with U.S. Government securities dealers recognized by the Federal Reserve Bank or with member banks of the Federal Reserve System. The Funds will hold and maintain in a
segregated account until the settlement date cash or other liquid assets in an amount equal to the forward purchase price. For financial reporting and tax purposes, the Funds propose to treat U.S. Treasury rolls as two separate transactions, one involving the purchase of a security and a separate transaction involving a sale.
COMMERCIAL PAPER is an unsecured short-term promissory note issued by businesses to finance short-term needs (including those with floating or variable interest rates, or including a frequent interval put feature). Commercial paper may include variable and floating rate instruments which are unsecured instruments that permit the indebtedness thereunder to vary. Variable rate instruments provide for periodic adjustments in the interest rate. Floating rate instruments provide for automatic adjustment of the interest rate whenever some other specified interest rate changes. Some variable and floating rate obligations are direct lending arrangements between the purchaser and the issuer and there may be no active secondary market. However, in the case of variable and floating rate obligations with a demand feature, a Fund may demand payment of principal and accrued interest at a time specified in the instrument or may resell the instrument to a third party. In the event that an issuer of a variable or floating rate obligation were to default on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and could, for this or other reasons, suffer a loss to the extent of the default.
Commercial paper may include securities issued by corporations without registration under the 1933 Act in reliance on the so-called "private placement" exemption in Section 4(2) ("Section 4(2) Paper"). Section 4(2) Paper is restricted as to disposition under the federal securities laws in that any resale must similarly be made in an exempt transaction. Section 4(2) Paper is normally resold to other institutional investors through or with the assistance of investment dealers who make a market in Section 4(2) Paper, thus providing liquidity. For purposes of each Fund's limitation on purchases of illiquid instruments described below, Section 4(2) Paper will not be considered illiquid if the Advisor has determined, in accordance with guidelines approved by the Board of Trustees, that an adequate trading market exists for such securities.
STRIPPED OBLIGATIONS
To the extent consistent with their investment objective, Funds may purchase U.S. Treasury receipts and other "stripped" securities that evidence ownership in either the future interest payments or the future principal payments on U.S. Government and other obligations. These participations, which may be issued by the U.S. Government or by private issuers, such as banks and other institutions, are issued at their "face value," and may include stripped mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage securities. Stripped securities, particularly SMBS, may exhibit greater price volatility than ordinary debt securities because of the manner in which their principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive different proportions of the interest and principal distributions from a pool of mortgage-backed obligations. A common type of SMBS will have one class receiving all of the interest, while the other class will receive all of the principal. However, in some instances, one class will receive some of the interest and most of the principal while the other class will receive most of the interest and the remainder of the principal. If the underlying obligations experience greater than anticipated prepayments of principal, the Fund may fail to fully recoup its initial investment in these securities. The market value of the class consisting entirely of principal payments generally is extremely volatile in response to changes in interest rates. The yields on a class of SMBS that receives all or most of the interest are generally higher than prevailing market yields on other mortgage-backed obligations because their cash flow patterns are more volatile and there is a greater risk that the initial investment will not be fully recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government agency or instrumentality) are considered illiquid by the Funds. Obligations issued by the U.S. Government may be considered liquid under guidelines established by Funds' Board of Trustees if they can be disposed of promptly in the ordinary course of business at a value reasonably close to that used in the calculation of net asset value per share.
MUNICIPAL SECURITIES
Municipal Securities acquired by the Funds include debt obligations issued by governmental entities to obtain funds for various public purposes, including the construction of a wide range of public facilities, the refunding of outstanding obligations, the payment of general operating expenses, and the extension of loans to public institutions and facilities. Private activity bonds that are issued by or on behalf of public authorities to finance various privately operated facilities are "Municipal Securities" if the interest paid thereon is exempt from regular federal income tax and not treated as a specific tax preference item under the federal alternative minimum tax.
The two principal classifications of Municipal Securities which may be held by the Funds are "general obligation" securities and "revenue" securities. General obligation securities are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue securities are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific revenue source such as the user of the facility being financed.
The Fund's portfolio may also include "moral obligation" securities, which are normally issued by special purpose public authorities. If the issuer of moral obligation securities is unable to meet its debt service obligations from current revenues, it may draw on a reserve fund, the restoration of which is a moral commitment but not a legal obligation of the state or municipality which created the issuer. There is no limitation on the amount of moral obligation securities that may be held by the Funds.
There are, of course, variations in the quality of Municipal Securities, both within a particular category and between categories, and the yields on Municipal Securities depend upon a variety of factors, including general market conditions, the financial condition of the issuer, general conditions of the municipal bond market, the size of a particular offering, the maturity of the obligation, and the rating of the issue. The ratings of a nationally recognized statistical rating organization ("NRSRO"), such as Moody's and S&P, represent such NRSRO's opinion as to the quality of Municipal Securities. It should be emphasized that these ratings are general and are not absolute standards of quality. Municipal Securities with the same maturity, interest rate and rating may have different yields. Municipal Securities of the same maturity and interest rate with different ratings may have the same yield.
Municipal Securities may include rated and unrated variable and floating rate tax-exempt instruments, such as variable rate demand notes. Variable rate demand notes are long-term Municipal Securities that have variable or floating interest rates and provide a Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on an applicable interest index or another published interest rate or interest rate index. Most variable rate demand notes allow a Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit a Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. Variable interest rates generally reduce changes in the market value of Municipal Securities from their original purchase prices. Accordingly, as interest rates decrease, the potential for capital appreciation is less for variable rate Municipal Securities than for fixed income obligations. The terms of these variable rate demand instruments require payment of principal and accrued interest from the issuer of the Municipal Securities, the issuer of the participation interest or a guarantor of either issuer.
Municipal Securities purchased by the Funds in some cases may be insured as to the timely payment of principal and interest. There is no guarantee, however, that the insurer will meet its obligations in the event of a default in payment by the issuer. In other cases, Municipal Securities may be backed by letters of credit or guarantees issued by domestic or foreign banks or other financial institutions which are not subject to federal deposit insurance. Adverse developments affecting the banking industry generally or a particular bank or financial institution that has provided its credit or guarantee with respect to a Municipal Security held by a Fund, including a change in the credit quality of any such bank or financial institution, could result in a loss to the Fund and adversely affect the value of its shares. Letters of credit and guarantees issued by foreign banks and financial institutions involve certain risks in addition to those of similar instruments issued by domestic banks and financial institutions.
The payment of principal and interest on most Municipal Securities purchased by the Funds will depend upon the ability of the issuers to meet their obligations. Each state, the District of Columbia, each of their political subdivisions, agencies, instrumentalities and authorities and each multi-state agency of which a state is a member is a separate "issuer" as that term is used in this SAI and the Prospectuses. The non-governmental user of facilities financed by private activity bonds is also considered to be an "issuer." An issuer's obligations under its Municipal Securities are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Code and laws, if any, which may be enacted by federal or state legislatures extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations or upon the ability of municipalities to levy taxes. The power or ability of an issuer to meet its obligations for the payment of interest on and principal of its Municipal Securities may be materially adversely affected by litigation or other conditions.
From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax exemption for interest on Municipal Securities. For example, under the Tax Reform Act of 1986, interest on certain
private activity bonds must be included in an investor's federal alternative minimum taxable income, and corporate investors must include all tax-exempt interest in their federal alternative minimum taxable income. The Funds cannot, of course, predict what legislation may be proposed in the future regarding the income tax status of interest on Municipal Securities, or which proposals, if any, might be enacted. Such proposals, while pending or if enacted, might materially and adversely affect the availability of Municipal Securities for investment by the Funds and the liquidity and value of their respective portfolios. In such an event, each Fund would re-evaluate its investment objective and policies and consider possible changes in its structure or possible dissolution.
Opinions relating to the validity of Municipal Securities and to the exemption of interest thereon from federal income tax are rendered by bond counsel to the respective issuers at the time of issuance. Neither the Funds nor the Advisor will review the proceedings relating to the issuance of Municipal Securities or the bases for such opinions.
PRIVATE ACTIVITY BONDS
The Funds may invest in "private activity bonds," the interest on which, although exempt from regular federal income tax, may constitute an item of tax preference for purposes of the federal alternative minimum tax. Private activity bonds are or have been issued to obtain funds to provide, among other things, privately operated housing facilities, pollution control facilities, convention or trade show facilities, mass transit, airport, port or parking facilities and certain local facilities for water supply, gas, electricity or sewage or solid waste disposal. Private activity bonds are also issued to privately held or publicly owned corporations in the financing of commercial or industrial facilities. State and local governments are authorized in most states to issue private activity bonds for such purposes in order to encourage corporations to locate within their communities. The principal and interest on these obligations may be payable from the general revenues of the users of such facilities.
Private activity bonds held by the Funds are in most cases revenue securities and are not payable from the unrestricted revenues of the issuer. Consequently, the credit quality of such private activity bonds is usually directly related to the credit standing of the corporate user of the facility involved.
MUNICIPAL LEASE OBLIGATIONS
Although a municipal lease obligation does not constitute a general obligation of the municipality for which the municipality's taxing power is pledged, a municipal lease obligation is ordinarily backed by the municipality's covenant to budget for, appropriate and make the payments due under the municipal lease obligation. However, certain lease obligations contain "non-appropriation" clauses which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. Although "non-appropriation" lease obligations are secured by the leased property, disposition of the property in the event of foreclosure might prove difficult. In addition, the tax treatment of such obligations in the event of non-appropriation is unclear.
Determinations concerning the liquidity and appropriate valuation of a municipal lease obligation, as with any other municipal security, are made based on all relevant factors. These factors include, among others: (1) the frequency of trades and quotes for the obligation; (2) the number of dealers willing to purchase or sell the security and the number of other potential buyers; (3) the willingness of dealers to undertake to make a market in the security; and (4) the nature of the marketplace trades, including the time needed to dispose of the security, the method of soliciting offers, and the mechanics of the transfer.
SECURITIES LOANS
The Fund may make secured loans of its portfolio securities amounting to not more than the percentage of its total assets specified in Part 1 of this SAI, thereby realizing additional income. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delay in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. As a matter of policy, securities loans are made to banks and broker-dealers pursuant to agreements requiring that loans be continuously secured by collateral in cash or short-term debt obligations at least equal at all times to the value of the securities on loan. The borrower pays to the Fund an amount equal to any dividends or interest received on securities lent. The Fund retains all or a portion of the interest received on investment of the cash collateral or receives a fee from the borrower. Although voting rights, or rights to consent, with respect to the loaned securities pass to the borrower, the Fund retains the right to call the loans at any time on reasonable notice, and it will do so in order that the securities may be voted by
the Fund if the holders of such securities are asked to vote upon or consent to matters materially affecting the investment. The Fund may also call such loans in order to sell the securities involved.
INTERFUND BORROWING AND LENDING
The Fund may lend money to and borrow money from other affiliated registered open-end investment companies. The Fund may borrow through the program when the Advisor believes borrowing is appropriate and the costs are equal to or lower than the costs of bank loans. When borrowing money, the Fund is subject to the risk that the securities the Fund acquires with the borrowed money or would otherwise have sold will decline in value. When lending money, the Fund is subject to the risk that the borrower will be unwilling or unable to make timely payments of interest or principal.
FORWARD COMMITMENTS ("WHEN-ISSUED" AND "DELAYED DELIVERY" SECURITIES)
The Fund may enter into contracts to purchase securities for a fixed price at a future date beyond customary settlement time ("forward commitments" and "when-issued securities") if the Fund holds until the settlement date, in a segregated account, cash or liquid securities in an amount sufficient to meet the purchase price, or if the Fund enters into offsetting contracts for the forward sale of other securities it owns. Forward commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date. Where such purchases are made through dealers, the Fund relies on the dealer to consummate the sale. The dealer's failure to do so may result in the loss to the Fund of an advantageous yield or price. Although the Fund will generally enter into forward commitments with the intention of acquiring securities for its portfolio or for delivery pursuant to options contracts it has entered into, the Fund may dispose of a commitment prior to settlement if the Advisor deems it appropriate to do so. The Fund may realize short-term profits or losses (generally taxed at ordinary income tax rates in the hands of the shareholders) upon the sale of forward commitments.
MORTGAGE DOLLAR ROLLS
In a mortgage dollar roll, the Fund sells a mortgage-backed security and simultaneously enters into a commitment to purchase a similar security at a later date. The Fund either will be paid a fee by the counterparty upon entering into the transaction or will be entitled to purchase the similar security at a discount. As with any forward commitment, mortgage dollar rolls involve the risk that the counterparty will fail to deliver the new security on the settlement date, which may deprive the Fund of obtaining a beneficial investment. In addition, the security to be delivered in the future may turn out to be inferior to the security sold upon entering into the transaction. In addition, the transaction costs may exceed the return earned by the Fund from the transaction.
REITS
The Funds may invest in real estate investment trusts ("REITs"). Equity REITs invest directly in real property while mortgage REITs invest in mortgages on real property. REITs may be subject to certain risks associated with the direct ownership of real estate, including declines in the value of real estate, risks related to general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, and variations in rental income. Generally, increases in interest rates will decrease the value of high yielding securities and increase the costs of obtaining financing, which could decrease the value of a REIT's investments. In addition, equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of credit extended. Equity and mortgage REITs are dependent upon management skill, are not diversified and are subject to the risks of financing projects. REITs are also subject to heavy cash flow dependency, defaults by borrowers, self liquidation and the possibility of failing to qualify for tax-free pass-through of income under the Internal Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from the 1940 Act. REITs pay dividends to their shareholders based upon available funds from operations. It is quite common for these dividends to exceed a REIT's taxable earnings and profits resulting in the excess portion of such dividends being designated as a return of capital. The Funds intend to include the gross dividends from any investments in REITs in their periodic distributions to its shareholders and, accordingly, a portion of the Fund's distributions may also be designated as a return of capital.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities, including "collateralized mortgage obligations" (CMOs) and "real estate mortgage investment conduits" (REMICs), evidence ownership in a pool of mortgage loans made by certain financial institutions that may be insured or guaranteed by the U.S. government or its agencies. CMOs are obligations issued by special-purpose trusts, secured by
mortgages. REMICs are entities that own mortgages and elect REMIC status under the Internal Revenue Code. Both CMOs and REMICs issue one or more classes of securities of which one (the Residual) is in the nature of equity. The Funds will not invest in the Residual class. Principal on mortgage-backed securities, CMOs and REMICs may be prepaid if the underlying mortgages are prepaid. Prepayment rates for mortgage-backed securities tend to increase as interest rates decline (effectively shortening the security's life) and decrease as interest rates rise (effectively lengthening the security's life). Because of the prepayment feature, these securities may not increase in value as much as other debt securities when interest rates fall. A Fund may be able to invest prepaid principal only at lower yields. The prepayment of such securities purchased at a premium may result in losses equal to the premium.
NON-AGENCY MORTGAGE-BACKED SECURITIES
The Fund may invest in non-investment grade mortgage-backed securities that are not guaranteed by the U.S. government or an agency. Such securities are subject to the risks described under "Lower Rated Debt Securities" and "Mortgage-Backed Securities." In addition, although the underlying mortgages provide collateral for the security, the Fund may experience losses, costs and delays in enforcing its rights if the issuer defaults or enters bankruptcy.
ASSET-BACKED SECURITIES
Asset-backed securities are interests in pools of debt securities backed by various types of loans such as credit card, auto and home equity loans. These securities involve prepayment risk, which is the possibility that the underlying debt may be refinanced or prepaid prior to maturity during periods of declining interest rates. During periods of rising interest rates, asset-backed securities have a high risk of declining in price because the declining prepayment rates effectively lengthen the expected maturity of the securities. A decline in interest rates may lead to a faster rate of repayment on asset-backed securities and, therefore, cause a Fund to earn a lower interest rate on reinvestment. In addition, the potential impact of prepayment on the price of an asset-backed security may be difficult to predict and result in greater volatility.
CUSTODY RECEIPTS AND TRUST CERTIFICATES. Custody receipts, such as Morgan Stanley TRACERs (Traded Custody Receipts), and trust certificates, such as Lehman Brothers TRAINs (Targeted Return Index Securities Trust), are derivative products which, in the aggregate, evidence direct ownership in a pool of securities. Typically, a sponsor will deposit a pool of securities with a custodian in exchange for custody receipts evidencing those securities or with a trust in exchange for trust certificates evidencing interests in the trust, the principal asset of which is those securities. The sponsor will then generally sell those custody receipts or trust certificates in negotiated transactions at varying prices that are determined at the time of sale. Each custody receipt or trust certificate evidences the individual securities in the pool and the holder of a custody receipt or trust certificate generally will have all the rights and privileges of owners of those securities. Each holder of a custody receipt or trust certificate generally will be treated as directly purchasing its pro rata share of the securities in the pool for an amount equal to the amount that such holder paid for its custody receipt or trust certificate. If a custody receipt or trust certificate is sold, a holder will be treated as having directly "disposed of its pro rata share of the securities evidenced by the custody receipt or trust certificate. Additionally, the holder of a custody receipt or trust certificate may withdraw the securities represented by the custody receipt or trust certificate subject to certain conditions. Custody receipts and trust certificates are generally subject to the same risks as those securities evidenced by the receipts or certificates which, in the case of the Fund, are corporate debt securities. Additionally, custody receipts and trust certificates may also be less liquid than the underlying securities if the sponsor fails to maintain a trading market.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. A repurchase agreement is a contract under which the Fund acquires a security for a relatively short period subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price (representing the Fund's cost plus interest). It is the Fund's present intention to enter into repurchase agreements only with commercial banks and registered broker-dealers and only with respect to obligations of the U.S. government or its agencies or instrumentalities. Repurchase agreements may also be viewed as loans made by the Fund which are collateralized by the securities subject to repurchase. The Advisor will monitor such transactions to determine that the value of the underlying securities is at least equal at all times to the total amount of the repurchase obligation, including the interest factor. If the seller defaults, the Fund could realize a loss on the sale of the underlying security to the extent that the proceeds of sale including accrued interest are less than the resale price provided in the agreement including interest. In addition, if the seller should be involved in bankruptcy or insolvency proceedings, the Fund may incur delay and costs in selling the
underlying security or may suffer a loss of principal and interest if the Fund is treated as an unsecured creditor and required to return the underlying collateral to the seller's estate.
REVERSE REPURCHASE AGREEMENTS
In a reverse repurchase agreement, the Fund sells a security and agrees to repurchase the same security at a mutually agreed upon date and price. A reverse repurchase agreement may also be viewed as the borrowing of money by the Fund and, therefore, as a form of leverage. The Fund will invest the proceeds of borrowings under reverse repurchase agreements. In addition, the Fund will enter into a reverse repurchase agreement only when the interest income expected to be earned from the investment of the proceeds is greater than the interest expense of the transaction. The Fund will not invest the proceeds of a reverse repurchase agreement for a period which exceeds the duration of the reverse repurchase agreement. The Fund may not enter into reverse repurchase agreements exceeding in the aggregate one-third of the market value of its total assets, less liabilities other than the obligations created by reverse repurchase agreements. Each Fund will establish and maintain with its custodian a separate account with a segregated portfolio of securities in an amount at least equal to its purchase obligations under its reverse repurchase agreements. If interest rates rise during the term of a reverse repurchase agreement, entering into the reverse repurchase agreement may have a negative impact on a money market fund's ability to maintain a net asset value of $1.00 per share.
LINE OF CREDIT
The Fund may establish and maintain a line of credit with a major bank in order to permit borrowing on a temporary basis to meet share redemption requests in circumstances in which temporary borrowings may be preferable to liquidation of portfolio securities.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The Fund may write covered call options and covered put options on securities held in its portfolio when, in the opinion of the Advisor, such transactions are consistent with the Fund's investment goal and policies. Call options written by the Fund give the purchaser the right to buy the underlying securities from the Fund at a stated exercise price; put options give the purchaser the right to sell the underlying securities to the Fund at a stated price.
The Fund may write only covered options, which means that, so long as the Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option (or comparable securities satisfying the cover requirements of securities exchanges). In the case of put options, the Fund will hold cash and/or high-grade short-term debt obligations equal to the price to be paid if the option is exercised. In addition, the Fund will be considered to have covered a put or call option if and to the extent that it holds an option that offsets some or all of the risk of the option it has written. The Fund may write combinations of covered puts and calls on the same underlying security.
The Fund will receive a premium from writing a put or call option, which increases the Fund's return on the underlying security if the option expires unexercised or is closed out at a profit. The amount of the premium reflects, among other things, the relationship between the exercise price and the current market value of the underlying security, the volatility of the underlying security, the amount of time remaining until expiration, current interest rates, and the effect of supply and demand in the options market and in the market for the underlying security. By writing a call option, the Fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option but continues to bear the risk of a decline in the value of the underlying security. By writing a put option, the Fund assumes the risk that it may be required to purchase the underlying security for an exercise price higher than its then-current market value, resulting in a potential capital loss unless the security subsequently appreciates in value.
The Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an offsetting option. The Fund realizes a profit or loss from a closing transaction if the cost of the transaction (option premium plus transaction costs) is less or more than the premium received from writing the option. Because increases in the market price of a call option generally reflect increases in the market price of the security underlying the option, any loss resulting from a closing purchase transaction may be offset in whole or in part by unrealized appreciation of the underlying security.
If the Fund writes a call option but does not own the underlying security, and when it writes a put option, the Fund may be required to deposit cash or securities with its broker as "margin" or collateral for its obligation to buy or sell the underlying security. As the value of the underlying security varies, the Fund may have to deposit additional margin with the broker. Margin requirements are complex and are fixed by individual brokers, subject to minimum requirements currently imposed by the Federal Reserve Board and by stock exchanges and other self-regulatory organizations.
PURCHASING PUT OPTIONS. The Fund may purchase put options to protect its portfolio holdings in an underlying security against a decline in market value. Such hedge protection is provided during the life of the put option since the Fund, as holder of the put option, is able to sell the underlying security at the put exercise price regardless of any decline in the underlying security's market price. For a put option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs. By using put options in this manner, the Fund will reduce any profit it might otherwise have realized from appreciation of the underlying security by the premium paid for the put option and by transaction costs.
PURCHASING CALL OPTIONS. The Fund may purchase call options to hedge against an increase in the price of securities that the Fund wants ultimately to buy. Such hedge protection is provided during the life of the call option since the Fund, as holder of the call option, is able to buy the underlying security at the exercise price regardless of any increase in the underlying security's market price. In order for a call option to be profitable, the market price of the underlying security must rise sufficiently above the exercise price to cover the premium and transaction costs. These costs will reduce any profit the Fund might have realized had it bought the underlying security at the time it purchased the call option.
OVER-THE-COUNTER ("OTC") OPTIONS. The Staff of the Division of Investment Management of the Securities and Exchange Commission (SEC) has taken the position that OTC options purchased by the Fund and assets held to cover OTC options written by the Fund are illiquid securities. Although the Staff has indicated that it is continuing to evaluate this issue, pending further developments, the Fund intends to enter into OTC options transactions only with primary dealers in U.S. government securities and, in the case of OTC options written by the Fund, only pursuant to agreements that will assure that the Fund will at all times have the right to repurchase the option written by it from the dealer at a specified formula price. The Fund will treat the amount by which such formula price exceeds the amount, if any, by which the option may be "in-the-money" as an illiquid investment. It is the present policy of the Fund not to enter into any OTC option transaction if, as a result, more than 15% (10% in some cases, refer to your Fund's Prospectus) of the Fund's net assets would be invested in (i) illiquid investments (determined under the foregoing formula) relating to OTC options written by the Fund, (ii) OTC options purchased by the Fund, (iii) securities which are not readily marketable, and (iv) repurchase agreements maturing in more than seven days.
RISK FACTORS IN OPTIONS TRANSACTIONS. The successful use of the Fund's options strategies depends on the ability of the Advisor to forecast interest rate and market movements correctly.
When it purchases an option, the Fund runs the risk that it will lose its entire investment in the option in a relatively short period of time, unless the Fund exercises the option or enters into a closing sale transaction with respect to the option during the life of the option. If the price of the underlying security does not rise (in the case of a call) or fall (in the case of a put) to an extent sufficient to cover the option premium and transaction costs, the Fund will lose part or all of its investment in the option. This contrasts with an investment by the Fund in the underlying securities, since the Fund may continue to hold its investment in those securities notwithstanding the lack of a change in price of those securities.
The effective use of options also depends on the Fund's ability to terminate option positions at times when the Advisor deems it desirable to do so. Although the Fund will take an option position only if the Advisor believes there is a liquid secondary market for the option, there is no assurance that the Fund will be able to effect closing transactions at any particular time or at an acceptable price.
If a secondary trading market in options were to become unavailable, the Fund could no longer engage in closing transactions. Lack of investor interest might adversely affect the liquidity of the market for particular options or series of options. A marketplace may discontinue trading of a particular option or options generally. In addition, a market could become temporarily unavailable if unusual events - such as volume in excess of trading or clearing capability - were to interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on particular types of option transactions, which may limit the Fund's ability to realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options purchased or sold by the Fund could result in losses on the options. If trading is interrupted in an underlying security, the trading of options on that security is normally halted as well. As a result, the Fund as purchaser or writer of an option will be unable to close out its positions until options trading resumes, and it may be faced with losses if trading in the security reopens at a substantially different price. In addition, the Options Clearing Corporation (OCC) or other options markets may impose exercise restrictions. If a prohibition on exercise is imposed at the time when trading in the option has also been halted, the Fund as purchaser or writer of an option will be locked into its position until one of the two restrictions has been lifted. If a prohibition on exercise remains in effect until an option owned by the Fund has expired, the Fund could lose the entire value of its option.
Special risks are presented by internationally traded options. Because of time differences between the United States and various foreign countries, and because different holidays are observed in different countries, foreign options markets may be open for trading during hours or on days when U.S. markets are closed. As a result, option premiums may not reflect the current prices of the underlying interest in the United States.
FUTURES CONTRACTS AND RELATED OPTIONS
Upon entering into futures contracts, in compliance with the SEC's requirements, cash or liquid securities, equal in value to the amount of the Fund's obligation under the contract (less any applicable margin deposits and any assets that constitute "cover" for such obligation), will be segregated with the Fund's custodian.
A futures contract sale creates an obligation by the seller to deliver the type of instrument called for in the contract in a specified delivery month for a stated price. A futures contract purchase creates an obligation by the purchaser to take delivery of the type of instrument called for in the contract in a specified delivery month at a stated price. The specific instruments delivered or taken at the settlement date are not determined until on or near that date. The determination is made in accordance with the rules of the exchanges on which the futures contract was made. The Fund may enter into futures contracts which are traded on national or foreign futures exchanges and are standardized as to maturity date and underlying financial instrument. Futures exchanges and trading in the United States are regulated under the Commodity Exchange Act by the Commodity Futures Trading Commission (CFTC).
Although futures contracts by their terms call for actual delivery or acceptance of commodities or securities, the contracts usually are closed out before the settlement date without the making or taking of delivery. Closing out a futures contract sale is effected by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument or commodity with the same delivery date. If the price of the initial sale of the futures contract exceeds the price of the offsetting purchase, the seller is paid the difference and realizes a gain. Conversely, if the price of the offsetting purchase exceeds the price of the initial sale, the seller realizes a loss. Similarly, the closing out of a futures contract purchase is effected by the purchaser's entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, the purchaser realizes a gain, and if the purchase price exceeds the offsetting sale price, the purchaser realizes a loss.
Unlike when the Fund purchases or sells a security, no price is paid or received by the Fund upon the purchase or sale of a futures contract, although the Fund is required to deposit with its custodian in a segregated account in the name of the futures broker an amount of cash and/or U.S. government securities. This amount is known as "initial margin." The nature of initial margin in futures transactions is different from that of margin in security transactions in that futures contract margin does not involve the borrowing of funds by the Fund to finance the transactions. Rather, initial margin is in the nature of a performance bond or good faith deposit on the contract that is returned to the Fund upon termination of the futures contract, assuming all contractual obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin," to and from the broker (or the custodian) are made on a daily basis as the price of the underlying security or commodity fluctuates, making the long and short positions in the futures contract more or less valuable, a process known as "marking to market."
The Fund may elect to close some or all of its futures positions at any time prior to their expiration. The purpose of making such a move would be to reduce or eliminate the hedge position then currently held by the Fund. The Fund may close its positions by taking opposite positions which will operate to terminate the Fund's position in the futures contracts. Final determinations of variation margin are then made, additional cash is required to be paid by or released to the Fund, and the Fund realizes a loss or a gain. Such closing transactions involve additional commission costs.
INTEREST RATE FUTURES CONTRACTS. Bond prices are established in both the cash market and the futures market. In the cash market, bonds are purchased and sold with payment for the full purchase price of the bond being made in cash, generally within five business days after the trade. In the futures market, only a contract is made to purchase or sell a bond in the future for a set price on a certain date. Historically, the prices for bonds established in the futures markets have tended to move generally in the aggregate in concert with the cash market prices and have maintained fairly predictable relationships. Accordingly, the Funds may use interest rate futures contracts as a defense, or hedge, against anticipated interest rate changes. The Funds presently could accomplish a similar result to that which they hope to achieve through the use of futures contracts by selling bonds with long maturities and investing in bonds with short maturities when interest rates are expected to increase, or conversely, selling short-term bonds and investing in long-term bonds when interest rates are expected to decline. However, because of the liquidity that is often available in the futures market, the protection is more likely to be achieved, perhaps at a lower cost and without changing the rate of interest being earned by the Funds, through using futures contracts.
Interest rate futures contracts are traded in an auction environment on the floors of several exchanges - principally, the Chicago Board of Trade, the Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would deal only in standardized contracts on recognized exchanges. Each exchange guarantees performance under contract provisions through a clearing corporation, a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial instruments including long-term United States Treasury Bonds and Notes; Government National Mortgage Association (GNMA) modified pass-through mortgage backed securities; three-month United States Treasury Bills; and ninety-day commercial paper. The Funds may trade in any interest rate futures contracts for which there exists a public market, including, without limitation, the foregoing instruments.
MUNICIPAL BOND INDEX FUTURES CONTRACTS. Municipal bond index futures contracts may act as a hedge against changes in market conditions. A municipal bond index assigns values daily to the municipal bonds included in the index based on the independent assessment of dealer-to-dealer municipal bond brokers. A municipal bond index futures contract represents a firm commitment by which two parties agree to take or make delivery of an amount equal to a specified dollar amount multiplied by the difference between the municipal bond index value on the last trading date of the contract and the price at which the futures contract is originally struck. No physical delivery of the underlying securities in the index is made.
The Chicago Board of Trade has designed a futures contract based on the Bond Buyer Municipal Bond Index. This Index is composed of 40 term revenue and general obligation bonds, and its composition is updated regularly as new bonds meeting the criteria of the Index are issued and existing bonds mature. The Index is intended to provide an accurate indicator of trends and changes in the municipal bond market. Each bond in the Index is independently priced by six dealer-to-dealer municipal bond brokers daily. The 40 prices then are averaged and multiplied by a coefficient. The coefficient is used to maintain the continuity of the Index when its composition changes. The Chicago Board of Trade, on which futures contracts based on this Index are traded, as well as other U.S. commodities exchanges, are regulated by the CFTC. Transactions on such exchange are cleared through a clearing corporation, which guarantees the performance of the parties to each contract.
OPTIONS ON FUTURES CONTRACTS. The Fund will enter into written options on futures contracts only when, in compliance with the SEC's requirements, cash or liquid securities equal in value to the commodity value (less any applicable margin deposits) have been deposited in a segregated account. The Fund may purchase and write call and put options on futures contracts it may buy or sell and enter into closing transactions with respect to such options to terminate existing positions. The Fund may use such options on futures contracts in lieu of writing options directly on the underlying securities or purchasing and selling the underlying futures contracts. Such options generally operate in the same manner as options purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate his position by selling or purchasing an offsetting option. There is no guarantee that such closing transactions can be effected.
The Fund will be required to deposit initial margin and maintenance margin with respect to put and call options on futures contracts written by it pursuant to brokers' requirements similar to those described above.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use of futures contracts by the Fund is subject to the Advisor's ability to predict correctly, movements in the direction of interest rates and other factors affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or put options on futures contracts involves less potential risk to the Fund because the maximum amount at risk is the premium paid for the options (plus transaction costs). However, there may be circumstances when the purchase of a call or put option on a futures contract would result in a loss to the Fund when the purchase or sale of a futures contract would not, such as when there is no movement in the prices of the hedged investments. The writing of an option on a futures contract involves risks similar to those risks relating to the sale of futures contracts.
There is no assurance that higher than anticipated trading activity or other unforeseen events might not, at times, render certain market clearing facilities inadequate, and thereby result in the institution, by exchanges, of special procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the Fund, the Fund may seek to close out a position. The ability to establish and close out positions will be subject to the development and maintenance of a liquid secondary market. It is not certain that this market will develop or continue to exist for a particular futures contract. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain contracts or options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of contracts or options, or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or a clearing corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of contracts or options (or a particular class or series of contracts or options), in which event the secondary market on that exchange (or in the class or series of contracts or options) would cease to exist, although outstanding contracts or options on the exchange that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms.
USE BY TAX-EXEMPT FUNDS OF INTEREST RATE AND U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. The Funds investing in tax-exempt securities may purchase and sell futures contracts and related options on interest rate and U.S. Treasury securities when, in the opinion of the Advisor, price movements in these security futures and related options will correlate closely with price movements in the tax-exempt securities which are the subject of the hedge. Interest rate and U.S. Treasury securities futures contracts require the seller to deliver, or the purchaser to take delivery of, the type of security called for in the contract at a specified date and price. Options on interest rate and U.S. Treasury security futures contracts give the purchaser the right in return for the premium paid to assume a position in a futures contract at the specified option exercise price at any time during the period of the option.
In addition to the risks generally involved in using futures contracts, there is also a risk that price movements in interest rate and U.S. Treasury security futures contracts and related options will not correlate closely with price movements in markets for tax-exempt securities.
INDEX FUTURES CONTRACTS. An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of an index is commonly referred to as buying or purchasing a contract or holding a long position in the index. Entering into a contract to sell units of an index is commonly referred to as selling a contract or holding a short position. A unit is the current value of the index. The Fund may enter into stock index futures contracts, debt index futures contracts, or other index futures contracts appropriate to its objective(s). The Fund may also purchase and sell options on index futures contracts.
There are several risks in connection with the use by the Fund of index futures as a hedging device. One risk arises because of the imperfect correlation between movements in the prices of the index futures and movements in the prices of securities which are the subject of the hedge. The Advisor will attempt to reduce this risk by selling, to the extent possible, futures on indices the movements of which will, in its judgment, have a significant correlation with movements in the prices of the Fund's portfolio securities sought to be hedged.
Successful use of index futures by the Fund for hedging purposes is also subject to the Advisor's ability to predict correctly movements in the direction of the market. It is possible that, where the Fund has sold futures to hedge its portfolio against a decline in the market, the index on which the futures are written may advance and the value of securities held in the Fund's portfolio may decline. If this occurs, the Fund would lose money on the futures and also experience a decline in the value of its portfolio securities. However, while this could occur to a certain degree, the Advisor believes that over time the value of the
Fund's portfolio will tend to move in the same direction as the market indices which are intended to correlate to the price movements of the portfolio securities sought to be hedged. It is also possible that, if the Fund has hedged against the possibility of a decline in the market adversely affecting securities held in its portfolio and securities prices increase instead, the Fund will lose part or all of the benefit of the increased values of those securities that it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient cash, it may have to sell securities to meet daily variation margin requirements.
In addition to the possibility that there may be an imperfect correlation, or no correlation at all, between movements in the index futures and the securities of the portfolio being hedged, the prices of index futures may not correlate perfectly with movements in the underlying index due to certain market distortions. First, all participants in the futures markets are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions which would distort the normal relationship between the index and futures markets. Second, margin requirements in the futures market are less onerous than margin requirements in the securities market, and as a result, the futures market may attract more speculators than the securities market. Increased participation by speculators in the futures market may also cause temporary price distortions. Due to the possibility of price distortions in the futures market and also because of the imperfect correlation between movements in the index and movements in the prices of index futures, even a correct forecast of general market trends by the Advisor may still not result in a successful hedging transaction.
OPTIONS ON INDEX FUTURES. Options on index futures are similar to options on securities except that options on index futures give the purchaser the right, in return for the premium paid, to assume a position in an index futures contract (a long position if the option is a call and a short position if the option is a put), at a specified exercise price at anytime during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's futures margin account which represents the amount by which the market price of the index futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the index future. If an option is exercised on the last trading day prior to the expiration date of the option, the settlement will be made entirely in cash equal to the difference between the exercise price of the option and the closing level of the index on which the future is based on the expiration date. Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss of the premium paid.
OPTIONS ON INDICES. As an alternative to purchasing call and put options on index futures, the Fund may purchase call and put options on the underlying indices themselves. Such options could be used in a manner identical to the use of options on index futures. Options involving securities indices provide the holder with the right to make or receive a cash settlement upon exercise of the option based on movements in the relevant index. Such options must be listed on a national securities exchange and issued by the Options Clearing Corporation. Such options may relate to particular securities or to various stock indices, except that a Fund may not write covered options on an index.
OPTIONS ON FOREIGN STOCK INDICES. The Funds may, for the purpose of hedging its portfolio, subject to applicable securities regulations, purchase and write put and call options on foreign stock indices listed on foreign and domestic stock exchanges. A stock index fluctuates with changes in the market values of the stocks included in the index.
SWAP AGREEMENTS (SWAPS, CAPS, COLLARS AND FLOORS)
The Funds may enter into interest rate swaps, currency swaps, and other types of swap agreements such as caps, collars, and floors. In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate times a "notional principal amount," in return for payments equal to a fixed rate times the same amount, for a specified period of time. If a swap agreement provides for payments in different currencies, the parties might agree to exchange notional principal amount as well. Swaps may also depend on other prices or rates, such as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed upon level. An interest rate collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from one type of investment to another. For example, if a Fund agreed to exchange payments in dollars for payments in foreign currency, the swap agreement would tend to decrease the Fund's exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates. Caps and floors have an effect similar to buying or writing options. Depending on how they are used, swap agreements may increase or decrease the overall volatility of a Fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a small investment of cash relative to the magnitude of risks assumed. As a result, swaps can be highly volatile and may have a considerable impact on the Funds' performance. Swap agreements are subject to risks related to the counterparty's ability to perform, and may decline in value if the counterparty's creditworthiness deteriorates. The Funds may also suffer losses if they are unable to terminate outstanding swap agreements or reduce their exposure through offsetting transactions.
EQUITY SWAPS
The Fund may engage in equity swaps. Equity swaps allow the parties to the swap agreement to exchange components of return on one equity investment (e.g., a basket of equity securities or an index) for a component of return on another non-equity or equity investment, including an exchange of differential rates of return. Equity swaps may be used to invest in a market without owning or taking physical custody of securities in circumstances where direct investment may be restricted for legal reasons or is otherwise impractical. Equity swaps also may be used for other purposes, such as hedging or seeking to increase total return.
RISK FACTORS IN EQUITY SWAP TRANSACTIONS. Equity swaps are derivative instruments and their values can be very volatile. To the extent that the portfolio managers do not accurately analyze and predict the potential relative fluctuation on the components swapped with the other party, the Fund may suffer a loss. The value of some components of an equity swap (such as the dividend on a common stock) may also be sensitive to changes in interest rates. Furthermore, during the period a swap is outstanding, the Fund may suffer a loss if the counterparty defaults. See "Taxes" for information on tax risks associated with equity swaps.
FOREIGN CURRENCY TRANSACTIONS
The Fund may engage in currency exchange transactions to protect against uncertainty in the level of future currency exchange rates.
The Fund may engage in both "transaction hedging" and "position hedging." When it engages in transaction hedging, the Fund enters into foreign currency transactions with respect to specific receivables or payables of the Fund generally arising in connection with the purchase or sale of its portfolio securities. The Fund will engage in transaction hedging when it desires to "lock in" the U.S. dollar price of a security it has agreed to purchase or sell, or the U.S. dollar equivalent of a dividend or interest payment in a foreign currency. By transaction hedging the Fund attempts to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and the applicable foreign currency during the period between the date on which the security is purchased or sold, or on which the dividend or interest payment is declared, and the date on which such payments are made or received.
The Fund may purchase or sell a foreign currency on a spot (or cash) basis at the prevailing spot rate in connection with the settlement of transactions in portfolio securities denominated in that foreign currency. The Fund may also enter into contracts to purchase or sell foreign currencies at a future date ("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes the Fund may also purchase exchange-listed and over-the-counter call and put options on foreign currency futures contracts and on foreign currencies. Over-the-counter options are considered to be illiquid by the SEC staff. A put option on a futures contract gives the Fund the right to assume a short position in the futures contract until expiration of the option. A put option on currency gives the Fund the right to sell a currency at an exercise price until the expiration of the option. A call option on a futures contract gives the Fund the right to assume a long position in the futures contract until the expiration of the option. A call option on currency gives the Fund the right to purchase a currency at the exercise price until the expiration of the option.
When it engages in position hedging, the Fund enters into foreign currency exchange transactions to protect against a decline in the values of the foreign currencies in which its portfolio securities are denominated (or an increase in the value of currency for securities which the Fund expects to purchase, when the Fund holds cash or short-term investments). In connection with position hedging, the Fund may purchase put or call options on foreign currency and foreign currency futures contracts and buy or sell forward contracts and foreign currency futures contracts. The Fund may also purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions and the value of the portfolio securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the dates the currency exchange transactions are entered into and the dates they mature.
It is impossible to forecast with precision the market value of portfolio securities at the expiration or maturity of a forward or futures contract. Accordingly, it may be necessary for the Fund to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security or securities being hedged is less than the amount of foreign currency the Fund is obligated to deliver and if a decision is made to sell the security or securities and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security or securities if the market value of such security or securities exceeds the amount of foreign currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying prices of the securities which the Fund owns or intends to purchase or sell. They simply establish a rate of exchange which one can achieve at some future point in time. Additionally, although these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency, they tend to limit any potential gain which might result from the increase in value of such currency.
CURRENCY FORWARD AND FUTURES CONTRACTS. Upon entering into such contracts, in compliance with the SEC's requirements, cash or liquid securities, equal in value to the amount of the Fund's obligation under the contract (less any applicable margin deposits and any assets that constitute "cover" for such obligation), will be segregated.
A forward currency contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract as agreed by the parties, at a price set at the time of the contract. In the case of a cancelable contract, the holder has the unilateral right to cancel the contract at maturity by paying a specified fee. The contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. A contract generally has no deposit requirement, and no commissions are charged at any stage for trades. A currency futures contract is a standardized contract for the future delivery of a specified amount of a foreign currency at a future date at a price set at the time of the contract. Currency futures contracts traded in the United States are designed and traded on exchanges regulated by the CFTC, such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain respects. For example, the maturity date of a forward contract may be any fixed number of days from the date of the contract agreed upon by the parties, rather than a predetermined date in a given month. Forward contracts may be in any amounts agreed upon by the parties rather than predetermined amounts. Also, forward contracts are traded directly between currency traders so that no intermediary is required. A forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Fund may either accept or make delivery of the currency specified in the contract, or at or prior to maturity enter into a closing transaction involving the purchase or sale of an offsetting contract. Closing transactions with respect to forward contracts are usually effected with the currency trader who is a party to the original forward contract. Closing transactions with respect to futures contracts are effected on a commodities exchange; a clearing corporation associated with the exchange assumes responsibility for closing out such contracts.
Positions in currency futures contracts may be closed out only on an exchange or board of trade which provides a secondary market in such contracts. Although the Fund intends to purchase or sell currency futures contracts only on exchanges or boards of trade where there appears to be an active secondary market, there is no assurance that a secondary market on an exchange or board of trade will exist for any particular contract or at any particular time. In such event, it may not be possible to close a futures position and, in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin.
CURRENCY OPTIONS. In general, options on currencies operate similarly to options on securities and are subject to many similar risks. Currency options are traded primarily in the over-the-counter market, although options on currencies have recently been listed on several exchanges. Options are traded not only on the currencies of individual nations, but also on the European Currency Unit (ECU). The ECU is composed of amounts of a number of currencies, and is the official medium of exchange of the European Economic Community's European Monetary System.
The Fund will only purchase or write currency options when the Advisor believes that a liquid secondary market exists for such options. There can be no assurance that a liquid secondary market will exist for a particular option at any specified time. Currency options are affected by all of those factors which influence exchange rates and investments generally. To the extent that these options are traded over the counter, they are considered to be illiquid by the SEC staff.
The value of any currency, including the U.S. dollar, may be affected by complex political and economic factors applicable to the issuing country. In addition, the exchange rates of currencies (and therefore the values of currency options) may be significantly affected, fixed, or supported directly or indirectly by government actions. Government intervention may increase risks involved in purchasing or selling currency options, since exchange rates may not be free to fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in turn reflects relative values of two currencies, the U.S. dollar and the foreign currency in question. Because currency transactions occurring in the interbank market involve substantially larger amounts than those that may be involved in the exercise of currency options, investors may be disadvantaged by having to deal in an odd lot market for the underlying currencies in connection with options at prices that are less favorable than for round lots. Foreign governmental restrictions or taxes could result in adverse changes in the cost of acquiring or disposing of currencies.
There is no systematic reporting of last sale information for currencies and there is no regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Available quotation information is generally representative of very large round-lot transactions in the interbank market and thus may not reflect exchange rates for smaller odd-lot transactions (less than $1 million) where rates may be less favorable. The interbank market in currencies is a global, around-the-clock market. To the extent that options markets are closed while the markets for the underlying currencies remain open, significant price and rate movements may take place in the underlying markets that cannot be reflected in the options markets.
SETTLEMENT PROCEDURES. Settlement procedures relating to the Fund's investments in foreign securities and to the Fund's foreign currency exchange transactions may be more complex than settlements with respect to investments in debt or equity securities of U.S. issuers, and may involve certain risks not present in the Fund's domestic investments, including foreign currency risks and local custom and usage. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not charge a fee for currency conversion, they do realize a profit based on the difference (spread) between prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligation.
PARTICIPATION INTERESTS
The Fund may invest in municipal obligations either by purchasing them directly or by purchasing certificates of accrual or similar instruments evidencing direct ownership of interest payments or principal payments, or both, on municipal obligations, provided that, in the opinion of counsel to the initial seller of each such certificate or instrument, any discount accruing on such certificate or instrument that is purchased at a yield not greater than the coupon rate of interest on the related municipal obligations will be exempt from federal income tax to the same extent as interest on such municipal obligations. The Fund may also invest in tax-exempt obligations by purchasing from banks participation interests in all or part of specific holdings of municipal obligations. Such participations may be backed in whole or part by an irrevocable letter of credit or guarantee of the selling bank. The selling bank may receive a fee from the Fund in connection with the arrangement. The Fund will not purchase such participation interests unless it receives an opinion of counsel or a ruling of the Internal Revenue Service that interest earned by it on municipal obligations in which it holds such participation interests is exempt from federal income tax.
STAND-BY COMMITMENTS
When the Fund purchases municipal obligations, it may also acquire stand-by commitments from banks and broker-dealers with respect to such municipal obligations. A stand-by commitment is the equivalent of a put option acquired by the Fund with respect to a particular municipal obligation held in its portfolio. A stand-by commitment is a security independent of the municipal obligation to which it relates. The amount payable by a bank or dealer during the time a stand-by commitment is exercisable, absent unusual circumstances relating to a change in market value, would be substantially the same as the value of the underlying municipal obligation. A stand-by commitment might not be transferable by the Fund, although it could sell the underlying municipal obligation to a third party at any time.
The Fund expects that stand-by commitments generally will be available without the payment of direct or indirect consideration. However, if necessary and advisable, the Fund may pay for stand-by commitments either separately in cash or by paying a higher price for portfolio securities which are acquired subject to such a commitment (thus reducing the yield to maturity otherwise available for the same securities). The total amount paid in either manner for outstanding stand-by commitments held in the Fund portfolio will not exceed 10% of the value of the Fund's total assets calculated immediately after each stand-by commitment is acquired. The Fund will enter into stand-by commitments only with banks and broker-dealers that, in the judgment of the Trust's Board of Trustees, present minimal credit risks.
VARIABLE AND FLOATING RATE OBLIGATIONS
Variable rate instruments provide for periodic adjustments in the interest rate. Floating rate instruments provide for automatic adjustment of the interest rate whenever some other specified interest rate changes. Some variable and floating rate obligations are direct lending arrangements between the purchaser and the issuer and there may be no active secondary market. However, in the case of variable and floating rate obligations with a demand feature, a Fund may demand payment of principal and accrued interest at a time specified in the instrument or may resell the instrument to a third party. In the event an issuer of a variable or floating rate obligation defaulted on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and could, for this or other reasons, suffer a loss to the extent of the default. Variable or floating rate instruments issued or guaranteed by the U.S. Government or its agencies or instrumentalities are similar in form but may have a more active secondary market. Substantial holdings of variable and floating rate instruments could reduce portfolio liquidity.
If a variable or floating rate instrument is not rated, the Fund's Advisor must determine that such instrument is comparable to rated instruments eligible for purchase by the Funds and will consider the earning power, cash flows and other liquidity ratios of the issuers and guarantors of such instruments and will continuously monitor their financial status in order to meet payment on demand. In determining average weighted portfolio maturity of each of these Funds, a variable or floating rate instrument issued or guaranteed by the U.S. Government or an agency or instrumentality thereof will be deemed to have a maturity equal to the period remaining until the obligation's next interest rate adjustment. Variable and floating rate obligations with a demand feature will be deemed to have a maturity equal to the longer of the period remaining to the next interest rate adjustment or the demand notice period.
INVERSE FLOATERS
Inverse floaters are derivative securities whose interest rates vary inversely to changes in short-term interest rates and whose values fluctuate inversely to changes in long-term interest rates. The value of certain inverse floaters will fluctuate substantially more in response to a given change in long-term rates than would a traditional debt security. These securities have investment characteristics similar to leverage, in that interest rate changes have a magnified effect on the value of inverse floaters.
RULE 144A SECURITIES
The Fund may purchase securities that have been privately placed but that are eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933, as amended ("1933 Act"). That Rule permits certain qualified institutional buyers, such as the Fund, to trade in privately placed securities that have not been registered for sale under the 1933 Act. The Advisor, under the supervision of the Board of Trustees, will consider whether securities purchased under Rule 144A are illiquid and thus subject to the Fund's investment restriction on illiquid securities. A determination of whether a Rule 144A security is liquid or not is a question of fact. In making this determination, the Advisor will consider the trading markets for the specific security, taking
into account the unregistered nature of a Rule 144A security. In addition, the
Advisor could consider the (1) frequency of trades and quotes, (2) number of
dealers and potential purchasers, (3) dealer undertakings to make a market, and
(4) nature of the security and of marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers, and the mechanics of
transfer). The liquidity of Rule 144A securities will be monitored and, if as a
result of changed conditions, it is determined by the Advisor that a Rule 144A
security is no longer liquid, the Fund's holdings of illiquid securities would
be reviewed to determine what, if any, steps are required to assure that the
Fund does not exceed its investment limit on illiquid securities. Investing in
Rule 144A securities could have the effect of increasing the amount of the
Fund's assets invested in illiquid securities if qualified institutional buyers
are unwilling to purchase such securities.
CURRENCY SWAPS. Currency swaps involve the exchange of rights to make or receive payments in specified currencies. Currency swaps usually involve the delivery of the entire principal value of one designated currency. Therefore, the entire principal value of a currency swap is subject to the risk that the other party to the swap will default on its contractual delivery obligations. The use of currency swaps is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. If the Advisor is incorrect in its forecast of market value and currency exchange rates, the investment performance of a Fund would be less favorable than it would have been if this investment technique were not used.
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities which may be exchanged or converted into a predetermined number of shares of the issuer's underlying common stock at the option of the holder during a specified time period. Convertible securities may take the form of convertible preferred stock, convertible bonds or debentures, units consisting of "usable" bonds and warrants or a combination of the features of several of these securities.
Convertible bonds and convertible preferred stocks generally retain the investment characteristics of fixed income securities until they have been converted but also react to movements in the underlying equity securities. The holder is entitled to receive the fixed income of a bond or the dividend preference of a preferred stock until the holder elects to exercise the conversion privilege. Usable bonds are corporate bonds that can be used in whole or in part, customarily at full face value, in lieu of cash to purchase the issuer's common stock. When owned as part of a unit along with warrants, which are options to buy the common stock, they function as convertible bonds, except that the warrants generally will expire before the bond's maturity. Convertible securities are senior to equity securities and therefore have a claim to the assets of the issuer prior to the holders of common stock in the case of liquidation. However, convertible securities are generally subordinated to similar non-convertible securities of the same issuer. The interest income and dividends from convertible bonds and preferred stocks provide a stable stream of income with generally higher yields than common stocks, but lower than non-convertible securities of similar quality. A Fund will exchange or convert the convertible securities held in its portfolio into shares of the underlying common stock in instances in which, in the Advisor's opinion, the investment characteristics of the underlying common stock will assist the Fund in achieving its investment objective. Otherwise, the Fund will hold or trade the convertible securities. In selecting convertible securities for a Fund, the Advisor evaluates the investment characteristics of the convertible security as a fixed income instrument, and the investment potential of the underlying equity security for capital appreciation.
GUARANTEED INVESTMENT CONTRACTS
Pursuant to guaranteed investment contracts ("GICs"), which are issued by U.S. and Canadian insurance companies, a Fund makes cash contributions to a deposit fund of the insurance company's general account. The insurance company then credits to the fund payments at negotiated, floating or fixed interest rates. A GIC is a general obligation of the issuing insurance company and not a separate account. The purchase price paid for a GIC becomes part of the general assets of the insurance company, and the contract is paid from the company's general assets. The Funds will only purchase GICs that are issued or guaranteed by insurance companies that at the time of purchase are rated at least AA by S&P or receive a similar high quality rating from a nationally recognized service which provides ratings of insurance companies. GICs are considered illiquid securities and will be subject to any limitations on such investments described in Part 1 of this SAI, unless there is an active and substantial secondary market for the particular instrument and market quotations are readily available. No Fund will invest more than 20% of its total assets in GICs.
BANK INVESTMENT CONTRACTS
Bank investment contracts ("BICs") issued by banks that meet certain quality and asset size requirements for banks are available to the Funds. Pursuant to BICs, cash contributions are made to a deposit account at the bank in exchange for payments at negotiated, floating or fixed interest rates. A BIC is a general obligation of the issuing bank. BICs are considered illiquid securities and will be subject to any limitations on such investments described in Part 1 of this SAI, unless there is an active and substantial secondary market for the particular instrument and market quotations are readily available.
LOAN PARTICIPATIONS
Loan participations are interests in loans which are administered by the lending bank or agent for a syndicate of lending banks, and sold by the lending bank or syndicate member. The Funds may only purchase interests in loan participations issued by a bank in the United States with assets exceeding $1 billion and for which the underlying loan is issued by borrowers in whose obligations the Funds may invest. Because the intermediary bank does not guarantee a loan participation in any way, a loan participation is subject to the credit risk generally associated with the underlying corporate borrower. In addition, in the event the underlying corporate borrower defaults, a Fund may be subject to delays, expenses and risks that are greater than those that would have been involved if the Fund had purchased a direct obligation (such as commercial paper) of the borrower. Under the terms of a loan participation, the purchasing Fund may be regarded as a creditor of the intermediary bank so that the Fund may also be subject to the risk that the issuing bank may become insolvent.
STRUCTURED INVESTMENTS
Structured investments are a relatively new innovation and may be designed to have various combinations of equity and fixed-income characteristics. Equity-linked securities are a form of structured investment and generally consist of a conversion privilege to a single company's common stock plus a fixed annual distribution to the holder. Equity-linked securities have some derivative characteristics because the conversion feature is linked to the price of the company's common stock. Equity-linked securities are designed to provide investors with higher quarterly income than the dividend paid per share on the common stock. However, equity-linked securities have decreased potential for capital appreciation because of limitations of the conversion feature.
Equity-linked securities include issues such as "Structured Yield Product Exchangeable for Stock" ("STRYPES"), "Trust Automatic Common Exchange Securities" ("TRACES"), "Trust Issued Mandatory Exchange Securities" ("TIMES"), "Trust Enhanced Dividend Securities" ("TRENDS") and other similar securities, including those which may be developed in the future. The issuers of the above listed examples of equity-linked securities generally purchase and hold a portfolio of stripped U.S. Treasury securities maturing on a quarterly basis through the conversion date, and a forward purchase contract with an existing shareholder of the company relating to the common stock. Quarterly distributions on equity-linked securities generally consist of the cash received from the U.S. Treasury securities and equity-linked securities generally are not entitled to any dividends that may be declared on the common stock.
Equity-linked securities may be issued by closed-end or other forms of investment companies. To the extent that equity-linked securities are issued by investment companies, a Fund's investments in equity-linked securities are subject to the same limitations as investments in more traditional forms of investment companies.
YANKEE OBLIGATIONS
Yankee obligations are U.S. dollar-denominated instruments of foreign issuers that are either registered with the SEC or issued pursuant to Rule 144A under the 1933 Act. These obligations consist of debt securities (including preferred or preference stock of non-governmental issuers), certificates of deposit, fixed time deposits and banker's acceptances issued by foreign banks, and debt obligations of foreign governments or their subdivisions, agencies and instrumentalities, international agencies and supranational entities. Some securities issued by foreign governments or their subdivisions, agencies and instrumentalities may not be backed by the full faith and credit of the foreign government.
AMERICAN, EUROPEAN, CONTINENTAL AND GLOBAL DEPOSITARY RECEIPTS
American Depositary Receipts ("ADRs") are receipts issued in registered form by a U.S. bank or trust company evidencing ownership of underlying securities issued by a foreign issuer. European Depositary Receipts ("EDRs"), which are sometimes
referred to as Continental Depositary Receipts ("CDRs"), are receipts issued in Europe typically by non-U.S. banks or trust companies and foreign branches of U.S. banks that evidence ownership of foreign or U.S. securities. Global Depositary Receipts ("GDRs") are receipts structured similarly to EDRs and CDRs and are marketed globally. ADRs may be listed on a national securities exchange or may be traded in the over-the-counter market. EDRs and CDRs are designed for use in European exchange and over-the-counter markets. GDRs are designed for trading in non-U.S. securities markets. ADRs, EDRs, CDRs and GDRs traded in the over-the-counter market which do not have an active or substantial secondary market will be considered illiquid and therefore will be subject to the Funds' respective limitations with respect to such securities, if any. If a Fund invests in an unsponsored ADR, EDR, CDR or GDR, there may be less information available to the Fund concerning the issuer of the securities underlying the unsponsored ADR, EDR, CDR or GDR than is available for an issuer of securities underlying a sponsored ADR, EDR, CDR or GDR. ADR prices are denominated in U.S. dollars although the underlying securities are denominated in a foreign currency. Investments in ADRs, EDRs, CDRs and GDRs involve risks similar to those accompanying direct investments in foreign securities.
TEMPORARY CASH BALANCES
The Funds may hold very small temporary cash balances to efficiently manage transactional expenses. These cash balances are expected, under normal conditions, not to exceed 2% of each Fund's net assets at any time (excluding amounts used as margin and segregated assets with respect to futures transactions and collateral for securities loans and repurchase agreements). The Funds may invest these temporary cash balances in short-term debt obligations issued or guaranteed by the U.S. Government or its agencies and instrumentalities ("U.S. Government Securities"), high quality commercial paper (rated A-1 or better by S&P or P-1 or better by Moody's), certificates of deposit and time deposits of banking institutions having total assets in excess of $1 billion, and repurchase agreements collateralized by U.S. Government Securities. The Funds may also hold these investments in connection with U.S. Treasury rolls, which are not subject to the 2% limitation above.
TAXES
In this section, all discussions of taxation at the shareholder and fund levels relate to U.S. federal taxes only. Consult your tax advisor for state, local and foreign tax considerations and for information about special tax considerations that may apply to shareholders that are not natural persons or not U.S. citizens or resident aliens.
FEDERAL TAXES. Although it may be one of several series in a single trust, the Fund is treated as a separate entity for federal income tax purposes under the Internal Revenue Code of 1986, as amended (the "Code"). The Fund has elected (or in the case of a new fund, intends to elect) to be, and intends to qualify to be treated each year as, a "regulated investment company" under Subchapter M of the Code by meeting all applicable requirements of Subchapter M, including requirements as to the nature of the Fund's gross income, the amount of its distributions (as a percentage of both its overall income and any tax-exempt income), and the composition of its portfolio assets.
To qualify as a "regulated investment company," the Fund must (a) derive at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock, securities or foreign currencies or other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies; (b) diversify its holdings so that, at the close of each quarter of its taxable year, (i) at least 50% of the market value of its total assets consists of cash, cash items, U.S. government securities, securities of other regulated investment companies and other securities limited generally with respect to any one issuer to not more than 5% of the total assets of the Fund and not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested (x) in the securities of any issuer, other than U.S. government securities or other regulated investment companies, or (y) in the securities of one or more "qualified publicly traded partnership" (as defined below); or of two or more issuers which the Fund controls and which are engaged in the same, similar, or related trades or businesses; and (c) distribute with respect to each year at least 90% investment company taxable income (as that term is defined in the Code without regard to the deduction for dividends paid -- generally, ordinary income and the excess, if any, of net short-term capital gains over net long-term capital losses) and any net tax-exempt interest, income, for such year. In general, for purposes of the 90% gross income requirement described in (a) above, income derived from a partnership will be treated as qualifying income only to the extent such income is attributable to items of income of the partnership which would be qualifying income if realized by the regulated investment company. However, recent legislation provides that 100% of the net income derived from an interest in a "qualified publicly traded partnership" (defined as a partnership (i) interests in which are traded on an established securities market or readily tradable on a secondary market or the substantial equivalent thereof and (ii) that
derives less than 90% of its income from the qualifying income described in (a) above) will be treated as qualifying income. In addition, although in general the passive loss rules of the Code do not apply to regulated investment companies, such rules do not apply to a regulated investment company with respect to items attributable to an interest in a qualified publicly traded partnership. Finally, for purposes of (c) above, the term "outstanding voting securities of such issuer" will include the equity securities of a qualified publicly traded partnership. As a regulated investment company that is accorded special tax treatment, the Fund will not be subject to any federal income taxes on its net investment income and net realized capital gains that it distributes to shareholders in the form of dividends and in accordance with the timing requirements imposed by the Code. The Fund's foreign-source income, if any, may be subject to foreign withholding taxes. If the Fund were to fail to qualify as a "regulated investment company" accorded special tax treatment in any taxable year, it would incur a regular federal corporate income tax on all of its taxable income, whether or not distributed, and Fund distributions (including any distributions of net tax-exempt income and net long-term capital gains) would generally be taxable as ordinary income to the shareholders, except to the extent they were treated as "qualified dividend income," as described below. In addition, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying as a regulated investment company that is accorded special tax treatment.
If the Fund fails to distribute in a calendar year substantially all of its ordinary income for such year and substantially all of its capital gain net income for the one-year period ending October 31 (or later if the Fund is permitted so to elect and so elects), plus any retained amount from the prior year, the Fund will be subject to a 4% excise tax on the underdistributed amounts. A dividend paid to shareholders by the Fund in January of a year generally is deemed to have been paid by the Fund on December 31 of the preceding year, if the dividend was declared and payable to shareholders of record on a date in October, November or December of that preceding year. The Fund intends generally to make distributions sufficient to avoid imposition of the 4% excise tax.
ALTERNATIVE MINIMUM TAX. Distributions derived from interest that is exempt from regular federal income tax may subject corporate shareholders to or increase their liability under the federal corporate alternative minimum tax (AMT). A portion of such distributions may constitute a tax preference item for individual shareholders and may subject them to or increase their liability under the AMT.
DIVIDENDS RECEIVED DEDUCTIONS. Distributions will qualify for the corporate dividends received deduction only to the extent that dividends earned by the Fund qualify. Any such dividends may be, however, includable in adjusted current earnings for purposes of computing corporate federal AMT. The dividends received deduction for eligible dividends is subject to a holding period requirement.
RETURN OF CAPITAL DISTRIBUTIONS. If the Fund makes a distribution to a shareholder in excess of the Fund's current and accumulated "earning and profits" in any taxable year, the excess distribution will be treated as a return of capital to the extent of the shareholder's tax basis in his or her shares, and thereafter as capital gain. A return of capital is not taxable, but it reduces tax basis in shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition of such shares. Dividends and distributions on a Fund's shares are generally subject to federal income tax as described herein to the extent they do not exceed the Fund's realized income and gains, even though such dividends and distributions may economically represent a return of a particular shareholder's investment. Such distributions are likely to occur in respect of shares purchased at a time when a Fund's net asset value reflects gains that are either unrealized, or realized but not distributed. Such realized gains may be required to be distributed even when a Fund's net asset value also reflects unrealized losses.
FUNDS THAT INVEST IN U.S. GOVERNMENT SECURITIES. Many states grant tax-free status to dividends paid to shareholders of mutual funds from interest income earned by the Fund from direct obligations of the U.S. government. Investments in mortgage-backed securities (including GNMA, FNMA and FHLMC Securities) and repurchase agreements collateralized by U.S. government securities do not qualify as direct federal obligations in most states. Shareholders should consult with their own tax advisors about the applicability of state and local intangible property, income or other taxes to their Fund shares and distributions and redemption proceeds received from the Fund.
FUND DISTRIBUTIONS. Distributions from the Fund (other than qualified dividend income and exempt-interest dividends, as discussed below) will generally be taxable to shareholders as ordinary income to the extent derived from the Fund's investment income and net short-term gains. Distributions of long-term capital gains (that is, the excess of net gains from capital assets held for more than one year over net losses from capital assets held for not more than one year) will be taxable to shareholders as such, regardless of how long a shareholder has held shares in the Fund. In general, any distributions of long-term capital gains
will be taxed to shareholders who are individuals at a maximum rate of 15% for taxable years beginning on or before December 31, 2008.
Distributions are taxable to shareholders even if they are paid from income or gains earned by the Fund before a shareholder's investment (and thus were included in the price of the shareholder paid). Distributions are taxable whether received in cash or in Fund shares.
QUALIFIED DIVIDEND INCOME. For taxable years beginning on or before December 31, 2008, "qualified dividend income" received by an individual will be taxed at the rates applicable to long-term capital gain. In order for some portion of the dividends received by a Fund shareholder to be qualified dividend income, the Fund must meet holding period and other requirements with respect to some portion of the dividend paying stocks in its portfolio and the shareholder must meet holding period and other requirements with respect to the Fund's shares. A dividend will not be treated as qualified dividend income (at either the Fund or shareholder level) (1) if the dividend is received with respect to any share of stock held for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or, in the case of certain preferred stock, 91 days during the 181-day period beginning 90 days before such date), (2) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property, (3) if the recipient elects to have the dividend income treated as investment income for purposes of the limitation on deductibility of investment interest, or (4) if the dividend is received from a foreign corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the United States (with the exception of dividends paid on stock of such a foreign corporation readily tradable on an established securities market in the United States) or (b) treated as a passive foreign investment company. With respect to a Fund investing in bonds, the Fund does not expect a significant portion of Fund distributions to be derived from qualified dividend income.
In general, distributions of investment income properly designated by the Fund as derived from qualified dividend income may be treated as qualified dividend income by a shareholder taxed as an individual provided the shareholder meets the holding period and other requirements described above with respect to his or her shares. If the aggregate qualified dividends received by a fund during any taxable year are 95% or more of its gross income, then 100% of the Fund's dividends (other than properly designated capital gain dividends) will be eligible to be treated as qualified dividend income. For this purpose, the only gain included in the term "gross income" is the excess of net short-term capital gain over net long-term capital loss.
DISTRIBUTIONS FROM TAX-EXEMPT FUNDS. Each tax-exempt Fund will have at least 50% of its total assets invested in tax-exempt bonds at the end of each quarter so that dividends from net interest income on tax-exempt bonds will be exempt from federal income tax when received by a shareholder (but may be taxable for federal alternative minimum tax purposes and for state and local tax purposes). The tax-exempt portion of dividends paid will be designated within 60 days after year-end based upon the ratio of net tax-exempt income to total net investment income earned during the year. That ratio may be substantially different from the ratio of net tax-exempt income to total net investment income earned during any particular portion of the year. Thus, a shareholder who holds shares for only a part of the year may be allocated more or less tax-exempt dividends than would be the case if the allocation were based on the ratio of net tax-exempt income to total net investment income actually earned while a shareholder.
Income from certain "private activity bonds" issued after August 7, 1986, is treated as a tax preference item for the AMT at the maximum rate of 28% for individuals and 20% for corporations. If the Fund invests in private activity bonds, shareholders may be subject to the AMT on that part of the distributions derived from interest income on such bonds. Interest on all tax-exempt bonds is included in corporate adjusted current earnings when computing the AMT applicable to corporations. Seventy-five percent of the excess of adjusted current earnings over the amount of income otherwise subject to the AMT is included in a corporation's alternative minimum taxable income.
Dividends derived from any investments other than tax-exempt bonds and any distributions of short-term capital gains are generally taxable to shareholders as ordinary income. Any distributions of long-term capital gains will in general be taxable to shareholders as long-term capital gains (generally subject to a maximum 15% tax rate for shareholders who are individuals) regardless of the length of time Fund shares are held by the shareholder.
A tax-exempt Fund may at times purchase tax-exempt securities at a discount and some or all of this discount may be included in the Fund's ordinary income which will be taxable when distributed. Any market discount recognized on a tax-exempt bond purchased after April 30, 1993, with a term at time of issue of more than one year is taxable as ordinary income. A market
discount bond is a bond acquired in the secondary market at a price below its "stated redemption price" (in the case of a bond with original issue discount, its "revised issue price").
Shareholders receiving social security and certain retirement benefits may be taxed on a portion of those benefits as a result of receiving tax-exempt income, including tax-exempt dividends from the Fund.
SPECIAL TAX RULES APPLICABLE TO TAX-EXEMPT FUNDS. In general, exempt-interest dividends, if any, attributable to interest received on certain private activity obligations and certain industrial development bonds will not be tax-exempt to any shareholders who are "substantial users" of the facilities financed by such obligations or bonds or who are "related persons" of such substantial users, as further defined in the Code. Income derived from the Fund's investments other than tax-exempt instruments may give rise to taxable income. The Fund's shares must be held for more than six months in order to avoid the disallowance of a capital loss on the sale of Fund shares to the extent of tax-exempt dividends paid during that period. Part or all of the interest on indebtedness, if any, incurred or continued by a shareholder to purchase or carry shares of the Fund paying exempt-interest dividends is not deductible. The portion of interest that is not deductible is equal to the total interest paid or accrued on the indebtedness, multiplied by the percentage of the Fund's total distributions (not including distributions from net long-term capital gains) paid to the shareholder that are exempt-interest dividends. Under rules used by the Internal Revenue Service to determine when borrowed funds are considered used for the purpose of purchasing or carrying particular assets, the purchase of shares may be considered to have been made with borrowed funds even though such funds are not directly traceable to the purchase of shares.
SALES OF SHARES. The sale, exchange or redemption of Fund shares may give rise to a gain or loss. In general, any gain realized upon a taxable disposition of shares generally will be treated as long-term capital gain if the shares have been held for more than one year. Otherwise the gain on the sale, exchange or redemption of Fund shares will be treated as short-term capital gain. In general, any loss realized upon a taxable disposition of shares will be treated as long-term loss if the shares have been held more than one year and otherwise as short-term loss. However, any loss realized upon a taxable disposition of shares held for six months or less will be disallowed for federal income tax purposes to the extent of any exempt-interest dividends received on such shares. In addition, any loss (not already disallowed as provided in the preceding sentence) realized upon a taxable disposition of shares held for six months or less will be treated as long-term, rather than short-term, capital loss to the extent of any long-term capital gain distributions received by the shareholder with respect to those shares. All or a portion of any loss realized upon a taxable disposition of shares will be disallowed if other shares are purchased within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss.
Under Treasury regulations, if on a disposition of Fund shares a shareholder recognizes a loss of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder will likely have to file with the Internal Revenue Service a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all regulated investment companies. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. You are advised to consult with your tax advisor.
BACKUP WITHHOLDING. Certain distributions and redemptions may be subject to backup withholding for taxpayers who fail to furnish a correct taxpayer identification number, who have under-reported dividend or interest income, or who fail to certify to the Fund that the shareholder is a United States person and is not subject to the withholding. This number and certification may be provided by either a Form W-9 or the accompanying application. In certain instances, CMS may be notified by the Internal Revenue Service that a shareholder is subject to backup withholding. The backup withholding rate is 28% for amounts paid through 2010. The backup withholding rate will be 31% for amounts paid after December 31, 2010.
HEDGING TRANSACTIONS. If the Fund engages in hedging transactions, including hedging transactions in options, futures contracts and straddles, or other similar transactions, it will be subject to special tax rules (including constructive sale, mark-to-market, straddle, wash sale and short sale rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund's securities, convert long-term capital gains into short-term capital gains or convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. The Fund will endeavor to make any available elections pertaining to such transactions in a manner believed to be in the best interests of the Fund and its shareholders.
SECURITIES ISSUED AT A DISCOUNT. The Fund's investment in debt securities issued at a discount and certain other obligations will (and investments in securities purchased at a discount may) require the Fund to accrue and distribute income not yet received. In such cases, the Fund may be required to sell assets (possibly at a time when it is not advantageous to do so) to generate the cash necessary to distribute as dividends to its shareholders all of its income and gains and therefore to eliminate any tax liability at the Fund level.
FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING TRANSACTIONS. The Fund's transactions in foreign currencies, foreign currency-denominated debt securities, certain foreign currency options, futures contracts and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned. This may produce a difference between the Fund's book income and its taxable income, possibly accelerating distributions or converting distributions of book income and gains to returns of capital for book purposes.
If more than 50% of the Fund's total assets at the end of its fiscal year are invested in stock or securities of foreign corporate issuers, the Fund may make an election permitting its shareholders to take a deduction or credit for federal income tax purposes for their pro rata portion of certain qualified foreign taxes paid by the Fund to foreign countries in respect of foreign securities the Fund has held for at least the minimum period specified in the Code. The Advisor will consider the value of the benefit to a typical shareholder, the cost to the Fund of compliance with the election, and incidental costs to shareholders in deciding whether to make the election. A shareholder's ability to claim such a foreign tax credit or deduction in respect of foreign taxes will be subject to certain limitations imposed by the Code, including a holding period requirement, as a result of which a shareholder may not get a full credit or deduction for the amount of foreign taxes so paid by the Fund. Shareholders who do not itemize on their federal income tax returns may claim a credit (but not a deduction) for such foreign taxes.
Investment by the Fund in "passive foreign investment companies" could subject the Fund to a U.S. federal income tax or other charge on the proceeds from the sale of its investment in such a company; however, this tax can be avoided by making an election to mark such investments to market annually or to treat the passive foreign investment company as a "qualified electing Fund." A "passive foreign investment company" is any foreign corporation: (i) 75 percent or more of the income of which for the taxable year is passive income, or (ii) the average percentage of the assets of which (generally by value, but by adjusted tax basis in certain cases) that produce or are held for the production of passive income is at least 50 percent. Generally, passive income for this purpose means dividends, interest (including income equivalent to interest), royalties, rents, annuities, the excess of gain over losses from certain property transactions and commodities transactions, and foreign currency gains. Passive income for this purpose does not include rents and royalties received by the foreign corporation from active business and certain income received from related persons.
NON-U.S. SHAREHOLDERS. Capital gain dividends will not be subject to withholding of federal income tax. In general, dividends (other than Capital Gain Dividends) paid by the Fund to a shareholder that is not a "U.S. person" within the meaning of the Code (such shareholder, a "foreign person") are subject to withholding of U.S. federal income tax at a rate of 30% (or lower applicable treaty rate) even if they are funded by income or gains (such as portfolio interest, short-term capital gains, or foreign-source dividend and interest income) that, if paid to a foreign person directly, would not be subject to withholding. However, for taxable years of the Fund before January 1, 2008, the Fund will not be required to withhold any amounts (i) with respect to distributions (other than distributions to a foreign person (w) that has not provided a satisfactory statement that the beneficial owner is not a U.S. person, (x) to the extent that the dividend is attributable to certain interest on an obligation if the foreign person is the issuer or is a 10% shareholder of the issuer, (y) that is within certain foreign countries that have inadequate information exchange with the United States, or (z) to the extent the dividend is attributable to interest paid by a person that is a related person of the foreign person and the foreign person is a controlled foreign corporation) from U.S.-source interest income that, in general, would not be subject to U.S. federal income tax if earned directly by an individual foreign person, to the extent such distributions are properly designated by the Fund, and (ii) with respect to distributions (other than distributions to an individual foreign person who is present in the United States for a period or periods aggregating 183 days or more during the year of the distribution) of net short-term capital gains in excess of net long-term capital losses, to the extent such distributions are properly designated by the Fund. The Fund has not determined whether it will make such designations.
If a beneficial holder who is a foreign person has a trade or business in the United States, and the dividends are effectively connected with the conduct by the beneficial holder of a trade or business in the United States, the dividend will be subject to U.S. federal net income taxation at regular income tax rates.
Recent legislation modifies the tax treatment of distributions from the Fund that are paid to a foreign person and are attributable to gain from "U.S. real property interests" ("USRPIs"), which the Code defines to include direct holdings of U.S. real property and interests (other than solely as a creditor) in "U.S. real property holding corporations" such as REITs. The Code deems any corporation that holds (or held during the previous five-year period) USRPIs with a fair market value equal to 50% or more of the fair market value of the corporation's U.S. and foreign real property assets and other assets used or held for use in a trade or business to be a U.S. real property holding corporation; however, if any class of stock of a corporation is traded on an established securities market, stock of such class shall be treated as a USRPI only in the case of a person who holds more than 5% of such class of stock at any time during the previous five-year period. Under the legislation, which applies to dividends paid or deemed paid on or before December 31, 2007, distributions to foreign persons attributable to gains from the sale or exchange of USRPIs will give rise to an obligation for those foreign persons to file a U.S. tax return and pay tax, and may well be subject to withholding under future regulations.
Under U.S. federal tax law, a beneficial holder of shares who is a foreign person is not, in general, subject to U.S. federal income tax on gains (and is not allowed a deduction for losses) realized on the sale of shares of the Fund or on Capital Gain Dividends unless (i) such gain or Capital Gain Dividend is effectively connected with the conduct of a trade or business carried on by such holder within the United States, (ii) in the case of an individual holder, the holder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale or Capital Gain Dividend and certain other conditions are met, or (iii) the shares constitute USRPIs or the Capital Gain Dividends are paid or deemed paid on or before December 31, 2007 and are attributable to gains from the sale or exchange of USRPIs. Effective before January 1, 2008, if the Fund is a U.S. real property holding corporation (as described above) the Fund's shares will nevertheless not constitute USRPIs if the Fund is a "domestically controlled qualified investment entity," which is defined to include a RIC that, at all times during the shorter of the 5-year period ending on the date of the disposition or the period during which the RIC was in existence, had less than 50 percent in value of its stock held directly or indirectly by foreign persons.
ADDITIONAL TAX MATTERS CONCERNING TRUST SHARES (THIS SECTION IS APPLICABLE ONLY TO THE COLUMBIA TAX-MANAGED GROWTH FUND)
FEDERAL GIFT TAXES. An investment in Trust Shares may be a taxable gift for federal tax purposes, depending upon the option selected and other gifts that the donor and his or her spouse may make during the year.
Under the Columbia Advantage Plan, the entire amount of the gift will be a "present interest" that qualifies for the federal gift tax annual exclusion. In that case, the donor will be required to file a federal gift tax return on account of this gift only if (i) the aggregate present interest gifts by the donor to the particular beneficiary (including the gift of Trust Shares) exceeds the annual gift-tax exemption, which in 2006 is $12,000 or (ii) the donor wishes to elect gift splitting on gifts with his or her spouse for the year. The trustee will notify the beneficiary of his or her right of withdrawal promptly following any contribution under the Advantage Plan.
Under the Columbia Gift Plan, the entire amount of the gift will be a "future interest" for federal gift tax purposes, so that none of the gift will qualify for the federal gift tax annual exclusion. Consequently, the donor will have to file a federal gift tax return (IRS Form 709) reporting the entire amount of the gift, even if the gift is less than $12,000.
No federal gift tax will be payable by the donor until his or her cumulative taxable gifts (i.e., gifts other than those qualifying for the annual exclusion or otherwise exempt), including taxable gifts of other assets as well as any taxable gifts of trust shares, exceed the federal gift and estate tax exemption equivalent amount, which is $1,000,000 for gifts made after December 31, 2001, and before January 1, 2010.
Any gift of Trust Shares that does not qualify as a present interest or that exceeds the available annual exclusion amount will reduce the amount of the donor's Federal gift and estate tax exemption (if any) that would otherwise be available for future gifts for transfers at death.
The donor and his or her spouse may elect "gift-splitting" for any gift of Trust Shares (other than a gift to such spouse), meaning that the donor and his or her spouse may elect to treat the gift as having been made one-half by each of them, thus allowing a total gift of $24,000.
The donor's gift of Fund shares may also have to be reported for state gift tax purposes, if the state in which the donor resides imposes a gift tax. Many states do not impose such a tax. Some states follow the Federal rules concerning the types of transfers subject to tax and the availability of the annual exclusion.
GENERATION-SKIPPING TRANSFER TAXES
If the beneficiary of a gift of Trust Shares is a relative who is two generations or more younger than the donor, or is not a relative and is more than 37 1/2 years younger than the donor, the gift will be subject in whole or in part to the generation-skipping transfer tax (the "GST tax") unless the gift is made under the Columbia Advantage Plan and does not exceed the available annual exclusion amount. An exemption (the "GST exemption"), equal to $2 million in 2006, is allowed against this tax, and so long as the GST exemption has not been used by other transfers it will automatically be allocated to a gift of Trust Shares that is subject to the GST tax unless the donor elects otherwise. Such an election is made by reporting the gift on a timely filed gift tax return and paying the applicable GST tax. The GST tax is imposed at a flat rate (46% for gifts made in 2006) on the amount of the gift, and payment of the tax by the donor is treated as an additional gift for gift tax purposes.
INCOME TAXES
The Internal Revenue Service takes the position that a trust beneficiary who is given a power of withdrawal over contributions to the trust should be treated, for Federal income tax purposes, as the "owner" of the portion of the trust that was subject to the power. Accordingly, if the donor selects Columbia Advantage Trust Shares, the beneficiary will be treated as the "owner" of all of the Fund shares in the account for Federal income tax purposes, and will be required to report all of the income and capital gains earned in the trust on his or her personal Federal income tax return. The trust will not pay Federal income taxes on any of the trust's income or capital gains. The trustee will prepare and file the Federal income tax information returns that are required each year (and any state income tax returns that may be required), and will send the beneficiary a statement following each year showing the amounts (if any) that the beneficiary must report on his or her income tax returns for that year. If the beneficiary is under fourteen years of age, these amounts may be subject to Federal income taxation at the marginal rate applicable to the beneficiary's parents. The beneficiary may at any time after the creation of the trust irrevocably elect to require the trustee to pay him or her a portion of the trust's income and capital gains annually thereafter to provide funds with which to pay any resulting income taxes, which the trustee will do by redeeming Trust Shares. The amount distributed will be a fraction of the trust's ordinary income and short-term capital gains and the trust's long-term capital gains equal to the highest marginal Federal income tax rate imposed on each type of income (currently, 35% and 15%, respectively). If the beneficiary selects this option, he or she will receive those fractions of his or her trust's income and capital gains annually for the duration of the trust.
Under the Columbia Advantage Plan, the beneficiary will also be able to require the trustee to pay his or her tuition, room and board and other expense of his or her college or post-graduate education, and the trustee will raise the cash necessary to fund these distributions by redeeming Trust Shares. Any such redemption will result in the realization of capital gain or loss on the shares redeemed, which will be reportable by the beneficiary on his or her income tax returns for the year in which the shares are redeemed, as described above. Payments must be made directly to the educational institution.
If the donor selects the Columbia Gift Plan, the trust that he or she creates will be subject to Federal income tax on all income and capital gains realized by it, less a $100 annual exemption (in lieu of the personal exemption allowed to individuals). The amount of the tax will be determined under the tax rate schedule applicable to estates and trusts, which is more sharply graduated than the rate schedule for individuals, reaching the same maximum marginal rate for ordinary income or short-term capital gains (currently, 35%), but at a much lower taxable income level than would apply to an individual. It is anticipated, however, that most of the gains taxable to the trust will be long-term capital gain, on which the Federal income tax rate is currently limited to 15%. The trustee will raise the cash necessary to pay any Federal or state income taxes by redeeming Fund shares. The beneficiary will not pay Federal income taxes on any of the trust's income or capital gains, except those earned in the year when the trust terminates. The trustee will prepare and file all Federal and state income tax returns that are required each year, and will send the beneficiary an information statement for the year in which the trust terminates showing the amounts (if any) that the beneficiary must report on his or her Federal and state income tax returns for that year.
When the trust terminates, the distribution of the remaining shares held in the trust to the beneficiary will not be treated as a taxable disposition of the shares. Any Fund shares received by the beneficiary will have the same cost basis as they had in the trust at the time of termination. Any Fund shares received by the beneficiary's estate will have a basis equal to the value of the shares at the beneficiary's death (or the alternate valuation date for Federal estate tax purposes, if elected).
CONSULTATION WITH QUALIFIED ADVISOR
Due to the complexity of Federal and state gift, GST and income tax laws pertaining to all gifts in trust, prospective donors should consider consulting with their financial or tax advisor before investing in Trust Shares.
MANAGEMENT OF THE FUNDS Columbia Management Advisors, LLC ("Columbia Advisors" or "CMA" or the "Advisor"), located at 100 Federal Street, Boston, Massachusetts 02110 is the Advisor to the Funds. The Advisor provides administrative and management services to the Funds. Columbia Advisors is a direct, wholly owned subsidiary of Columbia Management Group, LLC ("CMG"), which in turn is a direct, wholly owned subsidiary of Bank of America, which in turn is a wholly owned banking subsidiary of Bank of America Corporation, a financial services holding company organized as a Delaware corporation. On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005 Columbia Management was the investment advisor to the Funds. As a result of the merger, Columbia Advisors is now the investment advisor to the Funds. Columbia Advisors, a registered investment advisor, has been an investment advisor since 1995.
TRUSTEES AND OFFICERS (THIS SECTION APPLIES TO ALL OF THE FUNDS)
The Trustees and officers of the Funds together with their principal business occupations during the last five years (their titles may have varied during that period) is shown below. Unless otherwise noted, the address for each Trustee and officer is c/o Columbia Funds, Mail Stop MA5-515-11-05, One Financial Center, Boston, MA 02111.
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
------------------------ ------------------- ------------ ----------------------- ------------- --------------------------
DISINTERESTED TRUSTEE(3)
Thomas C. Theobald Trustee and 1996 Partner and Senior 83 Anixter International
(Born 1937) Chairman of the Advisor, Chicago Growth (network support equipment
Board Partners (private distributor); Ventas, Inc.
equity investing) since (real estate investment
September, 2004; trust); Jones Lang LaSalle
Managing Director, (real estate management
William Blair Capital services) and Ambac
Partners (private Financial Group (financial
equity investing) from guaranty insurance)
September, 1994 to
September, 2004.
|
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
------------------------ ------------------- ------------ ----------------------- ------------- --------------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker Trustee 1996 Executive Vice 83 Nash Finch Company
(Born 1955) President -- Strategy (food distributor)
of United Airlines
(airline) since
December, 2002;
President of UAL
Loyalty Services
(airline) from
September, 2001 to
December, 2002;
Executive Vice
President and Chief
Financial Officer of
United Airlines from
July, 1999 to
September, 2001.
Janet Langford Kelly Trustee 1996 Partner, Zelle, 83 UAL Corporation
(Born 1957) Hofmann, Voelbel, Mason (airline)
& Gette LLP (law firm)
since March, 2005;
Adjunct Professor of
Law, Northwestern
University, since
September, 2004; Chief
Administrative Officer
and Senior Vice
President, Kmart
Holding Corporation
(consumer goods), from
September, 2003 to
March, 2004; Executive
Vice
President-Corporate
Development and
Administration, General
Counsel and Secretary,
Kellogg Company (food
manufacturer), from
September, 1999 to
August, 2003.
|
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
------------------------ ------------------- ------------ ----------------------- ------------- -------------------
DISINTERESTED TRUSTEES
Richard W. Lowry Trustee 1995 Private Investor since 85 None
(Born 1936) August, 1987 (formerly
Chairman and Chief
Executive Officer, U.S.
Plywood Corporation
(building products
manufacturer) until
1987.)
Charles R. Nelson Trustee 1981 Professor of Economics, 83 None
(Born 1943) University of
Washington since
January, 1976; Ford and
Louisa University of
Washington Van Voorhis
Professor of Political
Economy, University of
Washington, since
September, 1993;
Director, Institute for
Economic Research,
University of
Washington from
September, 2001 to
June, 2003; Adjunct
Professor of
Statistics, University
of Washington since
September, 1980;
Associate Editor,
Journal of Money Credit
and Banking since
September, 1993;
consultant on
econometric and
statistical matters.
John J. Neuhauser Trustee 1985 University Professor, 85 Saucony, Inc.
(Born 1942) Boston College since (athletic footwear)
December, 2005;
Academic Vice President
and Dean of Faculties,
Boston College from
August, 1999 to
December, 2005.
|
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
------------------------ ------------------- ------------ ----------------------- ------------- --------------------------
DISINTERESTED TRUSTEES
Patrick J. Simpson Trustee 2000 Partner, Perkins Coie 83 None
(Born 1944) L.L.P. (law firm).
Thomas E. Stitzel Trustee 1998 Business Consultant 83 None
(Born 1936) since 1999; Chartered
Financial Analyst.
Anne-Lee Verville Trustee 1998 Retired since 1997 83 Chairman of the Board of
(Born 1945) (formerly General Directors, Enesco Group,
Manager, Global Inc. (producer of giftware
Education Industry, IBM and home and garden decor
Corporation (computer products)
and technology) from
1994 to 1997).
Richard L. Woolworth Trustee 1991 Retired since December, 83 Northwest Natural Gas
(Born 1941) 2003 (formerly Chairman (natural gas service
and Chief Executive provider)
Officer, The Regence
Group Co. (regional
health insurer);
Chairman and Chief
Executive Officer,
BlueCross BlueShield of
Oregon; Certified
Public Accountant,
Arthur Young &
Company).
|
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
------------------------ ------------------- ------------ ----------------------- ------------- --------------------------
INTERESTED TRUSTEE
William E. Mayer(3) Trustee 1994 Partner, Park Avenue 85 Lee Enterprises (print
(Born 1940) Equity Partners media), WR Hambrecht + Co.
(private equity) since (financial service
February, 1999. provider); Reader's Digest
(publishing); OPENFIELD
Solutions (retail industry
technology provider)
|
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public companies").
(3) Mr. Mayer is an "interested person" (as defined in the 1940 Act) of the Columbia Funds by reason of his affiliation with WR Hambrecht + Co., a registered broker-dealer that may execute portfolio transactions for or engage in principal transactions with the Fund or other funds or clients advised by the Advisor or its affiliates.
Year First
Elected or
Name, Year of Birth Appointed
and Address Position with Funds to Office Principal Occupation(s) During Past Five Years
----------------------- ----------------------- ---------- ------------------------------------------------------
OFFICERS
Christopher L. Wilson President 2004 Head of Mutual Funds since August, 2004 and Managing
(Born 1957) Director of the Advisor since September, 2005;
President and Chief Executive Officer, CDC IXIS Asset
Management Services, Inc. (investment management)
from September, 1998 to August, 2004.
James R. Bordewick, Jr. Senior Vice President, 2006 Associate General Counsel, Bank of America since
(Born 1959) Secretary and April, 2005; Senior Vice President and Associate
Chief Legal Officer General Counsel, MFS Investment Management (investment
management) prior to April, 2005.
J. Kevin Connaughton Senior Vice President, 2000 Managing Director of the Advisor since February, 1998.
(Born 1964) Chief Financial Officer
and Treasurer
Mary Joan Hoene Senior Vice President 2004 Senior Vice President and Chief Compliance Officer of
(Born 1949) and Chief Compliance various funds in the Columbia Fund Complex; Partner,
100 Federal Street Officer Carter, Ledyard & Milburn LLP (law firm) from January,
Boston, MA 02110 2001 to August, 2004.
Michael G. Clarke Chief Accounting 2004 Managing Director of the Advisor since February, 2001.
(Born 1969) Officer and
Assistant Treasurer
Stephen T. Welsh Vice President 1996 President, Columbia Management Services, Inc. since
(Born 1957) July, 2004; Senior Vice President and Controller,
Columbia Management Services, Inc. prior to July,
2004.
Jeffrey R. Coleman Deputy Treasurer 2004 Group Operations Manager of the Advisor since October,
(Age 36) 2004; Vice President of CDC IXIS Asset Management
Services, Inc. (investment management) from August,
2000 to September, 2004.
Joseph F. DiMaria Deputy Treasurer 2004 Senior Compliance Manager of the Advisor since
(Born 1968) January, 2005; Director of Trustee Administration of
the Advisor from May, 2003 to January, 2005; Senior
Audit Manager, PricewaterhouseCoopers (independent
registered public accounting firm) from July, 2000
to April, 2003.
Ty S. Edwards Deputy Treasurer 2004 Vice President of the Advisor since 2002; Assistant
(Born 1966) Vice President and Director, State Street
Corporation (financial services) prior to 2002.
Barry S. Vallan Controller 2006 Vice President-Fund Treasury of the Advisor since
(Born 1969) October, 2004; Vice President-Trustee Reporting from
April, 2002 to October, 2004; Management Consultant,
PricewaterhouseCoopers (independent registered public
accounting firm) prior to October, 2002.
Peter T. Fariel Assistant Secretary 2006 Associate General Counsel, Bank of America since
(Born 1957) April, 2005; Partner, Goodwin Procter LLP (law firm)
prior to April, 2005.
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Year First
Elected or
Name, Year of Birth Appointed
and Address Position with Funds to Office Principal Occupation(s) During Past Five Years
------------------- ------------------- ---------- ------------------------------------------------------
OFFICERS
Ryan C. Larrenaga Assistant Secretary 2005 Assistant General Counsel, Bank of America since
(Born 1970) March, 2005; Associate, Ropes & Gray LLP (law firm)
from 1998 to February, 2005.
Barry S. Finkle Assistant Treasurer 2003 Senior Manager and Head of Fund Performance of the
(Born 1965) Advisor since January, 2001.
Julian Quero Assistant Treasurer 2003 Senior Compliance Manager of the Advisor since April,
(Born 1967) 2002; Assistant Vice President of Taxes and
Distributions of the Advisor from 2001 to April, 2002.
|
Each of the Trust's Trustees and officers hold comparable positions with certain other funds of which the Advisor or its affiliates is the investment advisor or distributor and, in the case of certain of the officers, with certain affiliates of the Advisor.
The Trustees and officers serve terms of indefinite duration. Each Fund held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once every five years thereafter to elect Trustees.
Trustee Positions
As of December 31, 2005, no disinterested Trustee or any of their immediate family members owned beneficially or of record any class of securities of the Advisor, another investment advisor, sub-advisor or portfolio manager of any of the funds in the Fund Complex or any person controlling, controlled by or under common control with any such entity.
General
Messrs. Lowry, Mayer and Neuhauser are also trustees/directors of the Liberty All-Star Funds a group of 2 registered closed-end funds sponsored by an affiliate of the Advisor.
The Trustees serve as trustees of 83 registered investment companies managed by the Advisor for which each Trustee receives a retainer at the annual rate of $75,000, an attendance fee of $10,500 for each regular and special joint board meeting and $1,000 for each special telephonic joint board meeting. Mr. Theobald serves as the Chairman of the Board. As the independent chairman of the board, Mr. Theobald receives a supplemental retainer at the annual rate of $100,000; the chair of the Audit Committee receives a supplemental retainer at the annual rate of $20,000; the chair of the Advisory Fees and Expenses Committee receives a supplemental retainer at the annual rate of $15,000; the chairs of the Compliance Committee and the Governance Committee each receive supplemental retainers at the annual rate of $10,000. Members of each committee, including the Investment Oversight Committee, receive $2,500 for each committee meeting and $1,000 for each telephonic committee meeting. The Audit Committee chair receives a supplement of $500 for each Audit Committee meeting. Committee members receive $2,500 for each special committee meeting attended on a day other than a regular joint board meeting day. Two-thirds of the Trustee fees are allocated among the Funds based on each Fund's relative net assets and one-third of the fees is divided equally among the Funds.
Officers of the Trust, who are also officers of the Advisor or its affiliates, will benefit from the advisory fees, sales commissions and agency fees paid or allowed by the Trust.
The Agreement and Declaration of Trust ("Declaration") of the Trust provides that the Trust will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Trust but that such indemnification will not relieve any officer or Trustee of any liability to the Trust or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. The Trust, at its expense, provides liability insurance for the benefit of its Trustees and officers.
The Trustees have the authority to convert the Funds into a master fund/feeder fund structure. Under this structure, a Fund may invest all or a portion of its investable assets in investment companies with substantially the same investment goals, policies and restrictions as the Fund. The primary reason to use the master fund/feeder fund structure is to provide a mechanism to pool, in a single master fund, investments of different investor classes, resulting in a larger portfolio, investment and administrative efficiencies and economies of scale.
MANAGEMENT AGREEMENT
Under a Management Agreement (the "Agreement"), the Advisor has contracted to furnish each Fund with investment research and recommendations or fund management, respectively, and accounting and administrative personnel and services, and with office space, equipment and other facilities. For these services and facilities, each Fund pays a monthly fee based on the average of the daily closing value of the total net assets of each Fund for such month. Under the Agreement, any liability of the Advisor to the Trust, a Fund and/or its shareholders is limited to situations involving the Advisor's own willful misfeasance, bad faith, gross negligence or reckless disregard of its duties.
The Agreement may be terminated with respect to the Fund at any time on 60 days'
written notice by the Advisor or by the Trustees of the Trust or by a vote of a
majority of the outstanding voting securities of the Fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the Fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Advisor or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
The Advisor pays all salaries of officers of the Trust. The Trust pays all expenses not assumed by the Advisor including, but not limited to, auditing, legal, custodial, investor servicing and shareholder reporting expenses. The Trust pays the cost of printing and mailing any Prospectuses sent to shareholders. CMD pays the cost of printing and distributing all other Prospectuses.
ADMINISTRATION AGREEMENT (THIS SECTION APPLIES ONLY TO CERTAIN FUNDS AND THEIR RESPECTIVE TRUSTS. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION REGARDING YOUR FUND).
Under an Administration Agreement, the Advisor, in its capacity as the Administrator to each Fund, has contracted to perform the following administrative services:
(a) providing office space, equipment and clerical personnel;
(b) arranging, if desired by the respective Trust, for its directors, officers and employees to serve as Trustees, officers or agents of each Fund;
(c) preparing and, if applicable, filing all documents required for compliance by each Fund with applicable laws and regulations;
(d) preparation of agendas and supporting documents for and minutes of meetings of Trustees, committees of Trustees and shareholders;
(e) coordinating and overseeing the activities of each Fund's other third-party service providers; and
(f) maintaining certain books and records of each Fund.
The Advisor is paid a monthly fee at the annual rate of average daily net assets set forth in Part 1 of this SAI.
TRUST SERVICES AGREEMENT
Pursuant to a Trust Services Agreement, CMS provides the Columbia Tax-Managed Growth Fund's Trust Shares with trust administration services, including tax return preparation and filing, other tax and beneficiary reporting and recordkeeping. CMS's fee is described in the Prospectuses of the Columbia Tax-Managed Growth Fund.
THE PRICING AND BOOKKEEPING AGREEMENT
The Advisor is responsible for providing accounting and bookkeeping services to each Fund pursuant to a pricing and bookkeeping agreement. Under a separate agreement ("Outsourcing Agreement"), the Advisor has delegated those functions to State Street Bank and Trust Company (State Street). The Advisor pays fees to State Street under the Outsourcing Agreement. SEE "FUND CHARGES AND EXPENSES" IN
PART 1 OF THIS SAI FOR INFORMATION ON THESE FEES.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. The Advisor acts as investment advisor to each of the Funds. Various officers and Trustees of the Trust also serve as officers or Trustees of other funds and the other corporate or fiduciary clients of the Advisor. The Funds and clients advised by the Advisor or the Funds administered by the Advisor sometimes invest in securities in which the Fund also invests and sometimes engage in covered option writing programs and enter into transactions utilizing stock index options and stock index and financial futures and related options ("other instruments"). If the Fund, such other funds and such other clients desire to buy or sell the same portfolio securities, options or other instruments at about the same time, the purchases and sales are normally made as nearly as practicable on a pro rata basis in proportion to the amounts desired to be purchased or sold by each. Although in some cases these practices could have a detrimental effect on the price or volume of the securities, options or other instruments as far as the Fund is concerned, in most cases it is believed that these practices should produce better executions. It is the opinion of the Trustees that the desirability of retaining the Advisor as investment advisor to the Funds outweighs the disadvantages, if any, which might result from these practices.
POTENTIAL CONFLICTS OF INTEREST IN MANAGING MULTIPLE ACCOUNTS
Like other investment professionals with multiple clients, a portfolio manager for a Fund may face certain potential conflicts of interest in connection with managing both the Fund and other accounts at the same time. The paragraphs below describe some of these potential conflicts, which the Advisor believes are faced by investment professionals at most major financial firms. The Advisor and the Trustees of the Columbia Funds have adopted compliance policies and procedures that attempt to address certain of these potential conflicts.
The management of accounts with different advisory fee rates and/or fee structures, including accounts that pay advisory fees based on account performance ("performance fee accounts"), may raise potential conflicts of interest by creating an incentive to favor higher-fee accounts. These potential conflicts may include, among others:
- The most attractive investments could be allocated to higher-fee accounts or performance fee accounts.
- The trading of higher-fee accounts could be favored as to timing and/or execution price. For example, higher-fee accounts could be permitted to sell securities earlier than other accounts when a prompt sale is desirable or to buy securities at an earlier and more opportune time.
- The trading of other accounts could be used to benefit higher-fee accounts (front- running).
- The investment management team could focus their time and efforts primarily on higher-fee accounts due to a personal stake in compensation.
Potential conflicts of interest may also arise when the portfolio managers have personal investments in other accounts that may create an incentive to favor those accounts. As a general matter and subject to limited exceptions, the Advisor's investment professionals do not have the opportunity to invest in client accounts, other than the Columbia Funds.
A potential conflict of interest may arise when a Fund and other accounts purchase or sell the same securities. On occasions when a portfolio manager considers the purchase or sale of a security to be in the best interests of a Fund as well as other accounts, the Advisor's trading desk may, to the extent permitted by applicable laws and regulations, aggregate the securities to be sold or purchased in order to obtain the best execution and lower brokerage commissions, if any. Aggregation of trades may create the potential for unfairness to a Fund or another account if one account is favored over another in allocating the securities purchased or sold -- for example, by allocating a disproportionate amount of a security that is likely to increase in value to a favored account.
"Cross trades," in which one Columbia account sells a particular security to another account (potentially saving transaction costs for both accounts), may also pose a potential conflict of interest. Cross trades may be seen to involve a potential conflict of interest if, for example, one account is permitted to sell a security to another account at a higher price than an independent third party would pay. The Advisor and the Funds' Trustees have adopted compliance procedures that provide that any transactions between a Fund and another Columbia-advised account are to be made at an independent current market price, as required by law.
Another potential conflict of interest may arise based on the different investment objectives and strategies of a Fund and other accounts. For example, another account may have a shorter-term investment horizon or different investment objectives, policies or restrictions than a Fund. Depending on another account's objectives or other factors, a portfolio manager may give advice and make decisions that may differ from advice given, or the timing or nature of decisions made, with respect to a Fund. In addition, investment decisions are the product of many factors in addition to basic suitability for the particular account involved. Thus, a particular security may be bought or sold for certain accounts even though it could have been bought or sold for other accounts at the same time. More rarely, a particular security may be bought for one or more accounts managed by a portfolio manager when one or more other accounts are selling the security (including short sales). There may be circumstances when purchases or sales of portfolio securities for one or more accounts may have an adverse effect on other accounts.
A Fund's portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. As a result, the portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as might be the case if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies.
A Fund's portfolio managers may be able to select or influence the selection of the brokers and dealers that are used to execute securities transactions for the Fund. In addition to executing trades, some brokers and dealers provide portfolio managers with brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934), which may result in the payment of higher brokerage fees than might have otherwise be available. These services may be more beneficial to certain funds or accounts than to others. Although the payment of brokerage commissions is subject to the requirement that the portfolio manager determine in good faith that the commissions are reasonable in relation to the value of the brokerage and research services provided to the fund, a portfolio manager's decision as to the selection of brokers and dealers could yield disproportionate costs and benefits among the funds and/or accounts that he or she manages.
The Advisor or an affiliate may provide more services (such as distribution or recordkeeping) for some types of funds or accounts than for others. In such cases, a portfolio manager may benefit, either directly or indirectly, by devoting disproportionate attention to the management of fund and/or accounts that provide greater overall returns to the investment manager and its affiliates.
A Fund's portfolio manager(s) may also face other potential conflicts of interest in managing the Fund, and the description above is not a complete description of every conflict that could be deemed to exist in managing both a Fund and other accounts. In addition, a Fund's portfolio manager may also manage other accounts (including their personal assets or the assets of family members) in their personal capacity. The management of these accounts may also involve certain of the potential conflicts described above. Investment personnel at the Advisor, including each Fund's portfolio manager, are subject to restrictions on engaging in personal securities transactions pursuant to Codes of Ethics adopted by the Advisor and each Fund, which contain provisions and requirements designed to identify and address certain conflicts of interest between personal investment activities and the interests of each Fund.
BROKERAGE AND RESEARCH SERVICES. Consistent with the Conduct Rules of the National Association of Securities Dealers, Inc., and subject to seeking "best execution" (as defined below) and such other policies as the Trustees may determine, the Advisor may consider sales of shares of the Funds as a factor in the selection of broker-dealers to execute securities transactions for a Fund.
The Advisor places the transactions of the Funds with broker-dealers selected by the Advisor and, if applicable, negotiates commissions. Broker-dealers may receive brokerage commissions on portfolio transactions, including the purchase and writing of options, the effecting of closing purchase and sale transactions, and the purchase and sale of underlying securities upon the exercise of options and the purchase or sale of other instruments. The Funds from time to time also execute portfolio transactions
with such broker-dealers acting as principals. The Funds do not intend to deal exclusively with any particular broker-dealer or group of broker-dealers.
It is the Advisor's policy generally to seek best execution, which is to place the Funds' transactions where the Funds can be expected to obtain the most favorable combination of price and execution services in particular transactions or provided on a continuing basis by a broker-dealer, and to deal directly with a principal market maker in connection with over-the-counter transactions, except when it is believed that best execution is obtainable elsewhere. In evaluating the execution services of, including the overall reasonableness of brokerage commissions paid to, a broker-dealer, consideration is given to, among other things, the firm's general execution and operational capabilities, and to its reliability, integrity and financial condition.
Securities transactions of the Funds may be executed by broker-dealers who also provide research services (as defined below) to the Advisor and the Funds. The Advisor may use all, some or none of such research services in providing investment advisory services to each of its investment company and other clients, including the Fund. To the extent that such services are used by the Advisor, they tend to reduce the Advisor's expenses. In the Advisor's opinion, it is impossible to assign an exact dollar value for such services.
The Trustees have authorized the Advisor to cause the Funds to pay a broker-dealer which provides brokerage and research services to the Advisor an amount of commission for effecting a securities transaction, including the sale of an option or a closing purchase transaction, for the funds in excess of the amount of commission which another broker-dealer would have charged for effecting that transaction. As provided in Section 28(e) of the Securities Exchange Act of 1934, "brokerage and research services" include advice as to the value of securities, the advisability of investing in, purchasing or selling securities and the availability of securities or purchasers or sellers of securities; furnishing analyses and reports concerning issues, industries, securities, economic factors and trends and portfolio strategy and performance of accounts; and effecting securities transactions and performing functions incidental thereto (such as clearance and settlement). The Advisor must determine in good faith that such greater commission is reasonable in relation to the value of the brokerage and research services provided by the executing broker-dealer viewed in terms of that particular transaction or the Advisor's overall responsibilities to the Funds and all its other clients.
The Trustees have authorized the Advisor to utilize the services of a clearing agent with respect to all call options written by Funds that write options and to pay such clearing agent commissions of a fixed amount per share (currently 1.25 cents) on the sale of the underlying security upon the exercise of an option written by a Fund.
The Advisor may use the services of affiliated broker-dealers, when buying or selling securities for a Fund's portfolio pursuant to procedures adopted by the Trustees and 1940 Act Rule 17e-1. Under the Rule, the Advisor must ensure that commissions a Fund pays to affiliates of the Advisor on portfolio transactions are reasonable and fair compared to commissions received by other broker-dealers in connection with comparable transactions involving similar securities being bought or sold at about the same time. The Advisor will report quarterly to the Trustees on all securities transactions placed through affiliates of the Advisor so that the Trustees may consider whether such trades complied with these procedures and the Rule.
PRINCIPAL UNDERWRITER
CMD is the principal underwriter of the Trust's shares. CMD has no obligation to buy the Funds' shares, and purchases the Funds' shares only upon receipt of orders from authorized FSFs or investors.
INVESTOR SERVICING AND TRANSFER AGENT
CMS is the Trust's investor servicing agent (transfer, plan and dividend disbursing agent), for which it receives fees which are paid monthly by the Trust. The fee paid to CMS is based on number of accounts plus reimbursement for certain out-of-pocket expenses. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION ON FEES RECEIVED BY CMS. The agreement continues indefinitely but may be terminated by 90 days' notice by the Fund to CMS or generally by 6 months' notice by CMS to the Fund. The agreement limits the liability of CMS to the Fund for loss or damage incurred by the Fund to situations involving a failure of CMS to use reasonable care or to act in good faith and without negligence in performing its duties under the agreement. The Fund will indemnify CMS from, among other things, any and all claims, actions, suits, losses, costs, damages, and expenses incurred by it in connection with its acceptance of this Agreement, provided that: (i) to the extent such claims, actions, suits, losses, costs, damages, or expenses relate solely to a particular series or group of series of shares, such
indemnification shall be only out of the assets of that series or group of series; (ii) this indemnification shall not apply to actions or omissions constituting negligence or misconduct of CMS or its agents or contractors, including but not limited to willful misfeasance, bad faith or gross negligence in the performance of their duties, or reckless disregard of their obligations and duties under this Agreement; and (iii) CMS shall give a Fund prompt notice and reasonable opportunity to defend against any such claim or action in its own name or in the name of CMS.
CODE OF ETHICS
The Funds, the Advisor, and CMD have adopted Codes of Ethics pursuant to the requirements of the 1940 Act. These Codes of Ethics permit personnel subject to the Codes to invest in securities, including securities that may be purchased or held by the Funds. These Codes of Ethics can be reviewed and copied at the SEC's Public Reference Room and may be obtained by calling the SEC at 1-202-942-8090. These Codes are also available on the EDGAR Database on the SEC's internet web site at http://www.sec.gov, and may also be obtained, after paying a duplicating fee, by electronic request to publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102.
ANTI-MONEY LAUNDERING COMPLIANCE
The Funds are required to comply with various anti-money laundering laws and regulations. Consequently, the Funds may request additional information from you to verify your identity. If at any time the Funds believe a shareholder may be involved in suspicious activity or if certain account information matches information on government lists of suspicious persons, the Funds may choose not to establish a new account or may be required to "freeze" a shareholder's account, halting all shareholder activity with respect to such account. The Funds also may be required to provide a governmental agency with information about transactions that have occurred in a shareholder's account or to transfer monies received to establish a new account, transfer an existing account or transfer the proceeds of an existing account to a governmental agency. In some circumstances, the law may not permit a Fund to inform the shareholder that it has taken the actions described above.
PROXY VOTING POLICIES AND FUND PROXY VOTING RECORD
The Fund has delegated to the Advisor the responsibility to vote proxies relating to portfolio securities held by the Fund. In deciding to delegate this responsibility to the Advisor, the Board of Trustees of the Trust reviewed and approved the policies and procedures adopted by the Advisor. These included the procedures that the Advisor follows when a vote presents a conflict between the interests of the Fund and its shareholders and the Advisor, its affiliates, its other clients or other persons.
The Advisor's policy is to vote all proxies for Fund securities in a manner considered by the Advisor to be in the best interest of the Fund and its shareholders without regard to any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor examines each proposal and votes against the proposal, if, in its judgment, approval or adoption of the proposal would be expected to impact adversely the current or potential market value of the issuer's securities. The Advisor also examines each proposal and votes the proxies against the proposal, if, in its judgment, the proposal would be expected to affect adversely the best interest of the Fund. The Advisor determines the best interest of the Fund in light of the potential economic return on the Fund's investment.
The Advisor addresses potential material conflicts of interest by having predetermined voting guidelines. For those proposals that require special consideration or in instances where special circumstances may require varying from the predetermined guideline, the Advisor's Proxy Committee determines the vote in the best interest of the Fund, without consideration of any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor's Proxy Committee is composed of representatives of the Advisor's equity investments, equity research, compliance, legal and fund administration functions. In addition to the responsibilities described above, the Proxy Committee has the responsibility to review, on a semi-annual basis, the Advisor's proxy voting policies to ensure consistency with internal and regulatory agency policies and to develop additional predetermined voting guidelines to assist in the review of proxy proposals.
The Proxy Committee may vary from a predetermined guideline if it determines that voting on the proposal according to the predetermined guideline would be expected to impact adversely the current or potential market value of the issuer's securities or to affect adversely the best interest of the client. References to the best interest of a client refer to the interest of the client in terms of the potential economic return on the client's investment. In determining the vote on any proposal, the Proxy Committee does not consider any benefit other than benefits to the owner of the securities to be voted. A member of the Proxy Committee is
prohibited from voting on any proposal for which he or she has a conflict of interest by reason of a direct relationship with the issuer or other party affected by a given proposal. Persons making recommendations to the Proxy Committee or its members are required to disclose to the Committee any relationship with a party making a proposal or other matter known to the person that would create a potential conflict of interest.
The Advisor has retained Institutional Shareholder Services ("ISS"), a third party vendor, to implement its proxy voting process. ISS provides proxy analysis, record keeping services and vote disclosure services.
The Advisor's proxy voting guidelines and procedures are included in this SAI as Appendix II. In accordance with SEC regulations, the fund's proxy voting record for the last twelve-month period ended June 30 has been filed with the SEC. You may obtain a copy of the fund's proxy voting record (i) at www.columbiamanagement.com; (ii) on the Securities and Exchange Commission's website at www.sec.gov; and (iii) without charge, upon request, by calling 800-368-0346.
DISCLOSURE OF PORTFOLIO INFORMATION
The Trustees of the Columbia Funds have adopted policies with respect to the disclosure of the Funds' portfolio holdings by the Funds, Columbia Advisors, or their affiliates. These policies provide that Fund portfolio holdings information generally may not be disclosed to any party prior to (1) the day next following the posting of such information on the Funds' website at www.columbiafunds.com, (2) the day next following the filing of the information with the SEC in a required filing, or (3) for money market funds, such information is publicly available to all shareholders upon request on the fifth business day after each calendar month-end. Certain limited exceptions pursuant to the Fund's policies are described below. The Trustees shall be updated as needed regarding the Fund's compliance with the policies, including information relating to any potential conflicts of interest between the interests of Fund shareholders and those of Columbia Advisors and its affiliates. The Fund's policies prohibit Columbia Advisors and the Fund's other service providers from entering into any agreement to disclose Fund portfolio holdings information in exchange for any form of consideration. These policies apply to disclosures to all categories of persons, including, without limitation, individual investors, institutional investors, intermediaries that distribute the Fund's shares, third-party service providers, rating and ranking organizations and affiliated persons of the Fund.
PUBLIC DISCLOSURES. The Fund's portfolio holdings are currently disclosed to the public through required filings with the SEC and, for equity and fixed income funds, on the Fund's website at www.columbiafunds.com. The Fund files its portfolio holdings with the SEC for each fiscal quarter on Form N-CSR (with respect to each annual period and semi-annual period) and Form N-Q (with respect to the first and third quarters of the Fund's fiscal year). Shareholders may obtain the Fund's Forms N-CSR and N-Q filings on the SEC's website at www.sec.gov. In addition, the Fund's Forms N-CSR and N-Q filings may be reviewed and copied at the SEC's public reference room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC's website or the operation of the public reference room.
The equity and fixed income Columbia Funds also currently make portfolio information publicly available at www.columbiafunds.com, as disclosed in the following table:
Frequency of
Type of Fund Information Provided Disclosure Date of Web Posting
------------------ ----------------------------------- ------------ ----------------------------------
Equity Funds Full portfolio holdings information Monthly 30 calendar days after month-end
Fixed Income Funds Full portfolio holdings information Quarterly 60 calendar days after quarter-end
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The scope of the information provided relating to the Fund's portfolio that is made available on the website may change from time to time without prior notice.
For Columbia's money market funds, a complete list of a Fund's portfolio holdings shall be publicly available on a monthly basis on the fifth business day after month-end. Shareholders may request such information by writing or calling the Fund's distributor, CMD at the address listed on the cover of this SAI.
A Fund, Columbia Advisors or their affiliates may include portfolio holdings information that has already been made public through a web posting or SEC filing in marketing literature and other communications to shareholders, advisors or other parties, provided that the information is disclosed no earlier than the day after the date the information is disclosed publicly.
OTHER DISCLOSURES. The Fund's policies provide that non-public disclosures of the Fund's portfolio holdings may be made if (1) the Fund has a legitimate business purpose for making such disclosure, (2) the Fund's chief executive officer authorizes such non-public disclosure of information, and (3) the party receiving the non-public information enters into a confidentiality agreement, which includes a duty not to trade on the non-public information.
The Fund periodically discloses its portfolio information on a confidential basis to various service providers that require such information in order to assist the Fund with its day-to-day business affairs. In addition to Columbia Advisors and its affiliates, these service providers include the Fund's custodian and sub-custodians, the Fund's independent registered public accounting firm, legal counsel, financial printers (R.R. Donnelly & Sons and Bowne & Co., Inc.), the Fund's proxy voting service provider (Alamo Direct Mail Services, Inc.), the Fund's proxy solicitor (Georgeson Shareholder Communications Inc.), rating agencies that maintain ratings on certain Columbia Funds (Fitch, Inc.) and service providers that support Columbia Advisors' trading systems (InvestorTool, Inc. and Thomson Financial). These service providers are required to keep such information confidential, and are prohibited from trading based on the information or otherwise using the information except as necessary in providing services to the Fund. The Fund may also disclose portfolio holdings information to broker/dealers and certain other entities related to potential transactions and management of the Fund, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information.
Certain clients of the Fund's investment adviser(s) may follow a strategy similar to that of the Fund, and have access to portfolio holdings information for their account. It is possible that such information could be used to infer portfolio holdings information relating to the Fund.
DETERMINATION OF NET ASSET VALUE
Each Fund determines net asset value (NAV) per share for each class as of the close of trading on the New York Stock Exchange (Exchange) (generally 4:00 p.m. Eastern time) each day the Exchange is open, except that certain classes of assets, such as index futures, for which the market close occurs shortly after the close of regular trading on the Exchange will be priced at the closing time of the market on which they trade. Currently, the Exchange is closed Saturdays, Sundays and the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. Funds with portfolio securities which are primarily listed on foreign exchanges may experience trading and changes in NAV on days on which such Fund does not determine NAV due to differences in closing policies among exchanges. This may significantly affect the NAV of the Fund's redeemable securities on days when an investor cannot redeem such securities. Debt securities generally are valued by a pricing service which determines valuations based upon market transactions for normal, institutional-size trading units of similar securities. However, in circumstances where such prices are not available or where the Advisor deems it appropriate to do so, an over-the-counter or exchange bid quotation is used. Securities listed on an exchange or on NASDAQ are valued at the last sale price (or the official closing price as determined by the NASDAQ system, if different, as applicable). Listed securities for which there were no sales during the day and unlisted securities generally are valued at the last quoted bid price. Options are valued at the last sale price or in the absence of a sale, the mean between the last quoted bid and offering prices. Short-term obligations with a maturity of 60 days or less are valued at amortized cost pursuant to procedures adopted by the Trustees. The values of foreign securities quoted in foreign currencies are translated into U.S. dollars at the exchange rate for that day. Portfolio positions for which market quotations are not readily available and other assets are valued at fair value as determined by the Advisor in good faith under the direction of the Trust's Board of Trustees.
Generally, trading in certain securities (such as foreign securities) is substantially completed each day at various times prior to the close of the Exchange. Trading on certain foreign securities markets may not take place on all business days in New York, and trading on some foreign securities markets takes place on days which are not business days in New York and on which the Fund's NAV is not calculated. The values of these securities used in determining the NAV are computed as of such times. Also, because of the amount of time required to collect and process trading information as to large numbers of securities issues, the values of certain securities (such as convertible bonds, U.S. government securities, and tax-exempt securities) are determined based on market quotations collected earlier in the day at the latest practicable time prior to the close of the Exchange. Occasionally, events affecting the value of such securities may occur between such times and the close of the Exchange which will not be reflected in the computation of each Fund's NAV. If events materially affecting the value of such securities occur during such period, then these securities will be valued at fair value following procedures approved by the Trust's Board of Trustees.
(The following two paragraphs are applicable only to Columbia Greater China Fund).
Trading in securities on stock exchanges and over-the-counter markets in foreign securities markets is normally completed well before the close of the business day in New York. Trading on foreign securities markets may not take place on all business days in New York, and trading on some foreign securities markets does take place on days which are not business days in New York and on which the Fund's NAV is not calculated.
The calculation of the Fund's NAV accordingly may not take place contemporaneously with the determination of the prices of the Fund's portfolio securities used in such calculations. Events affecting the values of portfolio securities that occur between the time their prices are determined and the close of the Exchange (when the Fund's NAV is calculated) will not be reflected in the Fund's calculation of NAV unless the Advisor, acting under procedures established by the Board of Trustees of the Trust, deems that the particular event would materially affect the Fund's NAV, in which case an adjustment will be made. Assets or liabilities initially expressed in terms of foreign currencies are translated prior to the next determination of the NAV of the Fund's shares into U.S. dollars at prevailing market rates.
AMORTIZED COST FOR MONEY MARKET FUNDS.
Money market funds generally value their portfolio securities at amortized cost according to Rule 2a-7 under the 1940 Act.
Under the amortized cost method a security is initially valued at cost and
thereafter any discount or premium from maturity value is amortized ratably to
maturity. This method assures a constant NAV but may result in a yield different
from that of the same portfolio under the market value method. The Trust's
Trustees have adopted procedures intended to stabilize a money market fund's NAV
per share at $1.00. If a money market fund's market value deviates from the
amortized cost of $1.00, and results in a material dilution to existing
shareholders, the Trust's Trustees will take corrective action that may include:
realizing gains or losses; shortening the portfolio's maturity; withholding
distributions; redeeming shares in kind; or converting to the market value
method (in which case the NAV per share may differ from $1.00). All investments
will be determined pursuant to procedures approved by the Trust's Trustees to
present minimal credit risk.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of the Fund and tables of charges. This SAI contains additional information which may be of interest to investors.
The Fund may accept unconditional orders for shares to be executed at the public offering price based on the NAV per share next determined after the order is placed in good order. The public offering price is the NAV plus the applicable sales charge, if any. In the case of orders for purchase of shares placed through FSFs, the public offering price will be determined on the day the order is placed in good order, but only if the FSF receives the order prior to the time at which shares are valued and transmits it to the Fund before the Fund processes that day's transactions. If the FSF fails to transmit before the Fund processes that day's transactions, the customer's entitlement to that day's closing price must be settled between the customer and the FSF. If the FSF receives the order after the time at which the Fund values its shares, the price will be based on the NAV determined as of the close of the Exchange on the next day it is open. If funds for the purchase of shares are sent directly to CMS, they will be invested at the public offering price next determined after receipt in good order. Payment for shares of the fund must be in U.S. dollars; if made by check, the check must be drawn on a U.S. bank.
Investors should understand that, since the offering price of the Fund's shares is calculated to two decimal places using standard rounding methodology, the dollar amount of the sales charge paid as a percentage of the offering price and of the net amount invested for any particular purchase of fund shares may be higher or lower depending on whether downward or upward rounding was required during the calculation process.
The Fund receives the entire NAV of shares sold. For shares subject to an initial sales charge, CMD's commission is the sales charge shown in the Fund's Prospectus less any applicable FSF discount. The FSF discount is the same for all FSFs, except that CMD retains the entire sales charge on any sales made to a shareholder who does not specify a FSF on the Investment Account Application ("Application"), and except that CMD may from time to time reallow additional amounts to all or certain FSFs. CMD generally retains some or all of any asset-based sales charge (distribution fee) or contingent deferred sales charge. Such charges generally reimburse CMD for any up-front and/or ongoing commissions paid to FSFs.
Checks presented for the purchase of shares of the Fund which are returned by the purchaser's bank or checkwriting privilege checks for which there are insufficient funds in a shareholder's account to cover redemption may subject such purchaser or shareholder to a $15 service fee for each check returned. Checks must be drawn on a U.S. bank and must be payable in U.S. dollars. Travelers checks, gift checks, credit card convenience checks, credit cards, cash and ban counter (starter checks) are not accepted.
CMS acts as the shareholder's agent whenever it receives instructions to carry out a transaction on the shareholder's account. Upon receipt of instructions that shares are to be purchased for a shareholder's account, the designated FSF will receive the applicable sales commission. Shareholders may change FSFs at any time by written notice to CMS, provided the new FSF has a sales agreement with CMD.
Shares credited to an account are transferable upon written instructions in good order to CMS and may be redeemed as described under "How to Sell Shares" in the Prospectus. Certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you may send the certificates to CMS for deposit to your account.
In addition to the commissions specified in a Fund's prospectus and this SAI, CMD, or its advisory affiliates, from their own resources, may make cash payments to FSFs that agree to promote the sale of shares of funds that CMD distributes. A number of factors may be considered in determining the amount of those payments, including the FSF's sales, client assets invested in the funds and redemption rates, the quality of the FSF's relationship with CMD and/or its affiliates, and the nature of the services provided by FSFs to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the FSF's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, CMD may also pay non-cash compensation to FSFs and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for FSF educational or training events.
In addition, CMD, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of a Fund.
CMD and its affiliates anticipate that the FSFs and intermediaries that will receive the additional compensation described above include:
1st Global Capital Corp
401 Company
ABN AMRO Trust Services
ADP Retirement Services
Advest
AEGON/Transamerica
AG Edwards
American Century Services
American Express
AMG
AON Consulting
AST Trust Company
Banc of America Investment Services
BancOne
Bear Stearns
Benefit Plan Administrators
Bidwell & Company
BNY Clearing
C N A Trust
Charles Schwab
CIBC Oppenheimer
Citigroup Global Markets
CitiStreet Associates LLC
City National Bank
City of Milwaukee
Columbia Trust Company
Commonwealth Financial
Compensation & Capital
CPI Qualified Plan Consultants
Daily Access Concepts
Davenport & Company
Delaware Investments
Digital Retirement Solutions
Discover Brokerage
Dreyfus/Mellon
Edgewood Services
Edward Jones
E-Trade,
ExpertPlan
FAS Liberty Life Spectrum
Ferris Baker Watts
Fidelity
Financial Data Services
Franklin Templeton
Freeman Welwood
Gem Group
Great West Life
Hewitt Associates LLC
Huntington Bank
ING
Intermountain Health Care
Investmart, Inc.
Investment Manager Services (IMS)
Janney Montgomery Scott
JJB Hilliard Lyons
JP Morgan/American Century
Kenney Investments
Kirkpatrick Pettis Smith Polian Inc
Legg Mason Wood Walker
Liberty Life
Lincoln Financial
Lincoln Life
Linsco Private Ledger
M & T Securities
Marquette Trust Company
Mass Mutual Life
Matrix Settlement & Clearance Services (MSCS)
McDonald Investments
Merrill Lynch
MetLife
MFS
Mfund Trax
MidAtlantic Capital
Milliman USA
Morgan Keegan
Morgan Stanley Dean Witter
PFPC
Nationwide Investment Services
Neuberger Berman Mgmt
NFP Securities
NSD -NetStock Sharebuilder
NYLife Distributors
Optimum Investment Advisors
Orbitex
Pershing LLC
Phoenix Home Life
Piper Jaffray
PNC
PPI Employee Benefits
Private Bank & Trust
Prudential
Putnam Investments
Raymond James
RBC Dain Rausher
Robert W Baird
Royal Alliance
RSM McGladrey Inc.
Safeco
Scott & Stringfellow
Scudder Investments
Security Benefit
Segall Bryant Hamill
South Trust Securities
Southwest Securities
Standard Insurance
Stanton Group
State of NY Deferred Compensation Plan
Stephens, Inc.
Stifel Nicolaus & Co
Strong Capital
Sungard T Rowe Price
Trustar Retirement Services
Trustlynx/Datalynx
UBS Financial Services
USAA Investment Management
Vanguard
Wachovia
TD Waterhouse
Webster Investment Services
Wells Fargo
Wilmington
Trust
PLEASE CONTACT YOUR FSF OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or eliminated at any time.
AUTOMATIC INVESTMENT PLAN. As a convenience to investors, shares of most Funds advised by the Advisor may be purchased through the Automatic Investment Plan. Electronic fund transfers for a fixed amount of at least $50 ($25 for IRA) are used to purchase a Fund's shares at the public offering price next determined after CMD receives the proceeds. If your Automatic Investment Plan purchase is by electronic funds transfer, you may request the Automatic Investment Plan purchase for any day. Further information and application forms are available from FSFs or from CMD.
AUTOMATED DOLLAR COST AVERAGING (Classes A, B, C, D, T, G and Z). The Automated Dollar Cost Averaging program allows you to exchange $100 or more on a monthly basis from any fund distributed by CMD into the same class of shares of up to five other Funds. Complete the Automated Dollar Cost Averaging section of the Application. There is no charge for exchanges made pursuant to the Automated Dollar Cost Averaging program. Sales charges may apply if exchanging from a money market fund. Exchanges will continue so long as your fund balance is sufficient to complete the transfers. Your normal rights and privileges as a shareholder remain in full force and effect. Thus you can buy any Fund, exchange between the same Class of shares of Funds by written instruction or by telephone exchange if you have so elected and withdraw amounts from any Fund, subject to the imposition of any applicable CDSC or sales charges.
Any additional payments or exchanges into your Fund will extend the time of the Automated Dollar Cost Averaging program.
An exchange is generally a capital sale transaction for federal income tax purposes.
You may terminate your program, change the amount of the exchange (subject to the $100 minimum), or change your selection of funds, by telephone or in writing; if in writing by mailing your instructions to Columbia Management Services, Inc. (formerly named Columbia Funds Services, Inc.) (CMS) P.O. Box 8081, Boston, MA 02266-8081.
You should consult your FSF or financial advisor to determine whether or not the Automated Dollar Cost Averaging program is appropriate for you.
CMD offers several plans by which an investor may obtain reduced initial or contingent deferred sales charges. These plans may be altered or discontinued at any time. See "Programs For Reducing or Eliminating Sales Charges" below for more information.
CLASS T SHAREHOLDER SERVICES PLAN. The Trustees have approved a Shareholder
Services Plan (the "Services Plan") pursuant to which the Trusts plan to enter
into servicing agreements with institutions (including Bank of America
Corporation and its affiliates). Pursuant to these servicing agreements,
institutions render certain administrative and support services to customers who
are the beneficial owners of Class T shares of each Fund other than the Columbia
Newport Tiger Fund. Such services are provided to the institution's customers
who are the beneficial owners of Class T shares and are intended to supplement
the services provided by the Fund's administrator and transfer agent to the
shareholders of record of the Class T shares. The Services Plan provides that
each Fund will pay fees for such services at an annual rate of up to 0.50% of
the average daily net asset value of Class T shares owned beneficially by the
institution's customers. Institutions may receive up to one-half of this fee for
providing one or more of the following services to such customers: (i)
aggregating and processing purchase and redemption requests and placing net
purchase and redemption orders with CMD; (ii) processing dividend payments from
a Fund; (iii) providing sub-accounting with respect to Class T shares or the
information necessary for sub-accounting; and (iv) providing periodic mailings
to customers. Institutions may also receive up to one-half of this fee for
providing one or more of these additional services to such customers: (i)
providing customers with information as to their positions in Class T shares;
(ii) responding to customer inquiries; and (iii) providing a service to invest
the assets of customers in Class T shares.
The payments under the servicing agreements entered into as of the date of this SAI are limited to an aggregate fee of not more than 0.30% (on an annualized basis) of the average daily net asset value of the Class T shares of equity funds beneficially owned
by customers of institutions and 0.15% (on an annualized basis) of the average daily net asset value of the Class T shares of bond funds beneficially owned by customers of institutions. The Funds understand that institutions may charge fees to their customers who are the beneficial owners of Class T shares in connection with their accounts with such institutions. Any such fees would be in addition to any amounts which may be received by an institution under the Services Plan. Under the terms of each servicing agreement, institutions are required to provide to their customers a schedule of any fees that they may charge in connection with customer investments in Class T shares.
Each servicing agreement with an institution ("Service Organization") relating to the Services Plan requires that, with respect to those Funds which declare dividends on a daily basis, the Service Organization agrees to waive a portion of the servicing fee payable to it under the Services Plan to the extent necessary to ensure that the fees required to be accrued with respect to the Class T shares of such Funds on any day do not exceed the income to be accrued to such Class T shares on that day.
The Class T servicing agreements are governed by the Services Plan approved by the Board of Trustees in connection with the offering of Class T shares of each Fund. Pursuant to the Services Plan, the Board of Trustees reviews, at least quarterly, a written report of the amounts paid under the servicing agreements and the purposes for which the expenditures were made. In addition, the arrangements with Service Organizations must be approved annually by a majority of the Trustees, including a majority of the trustees who are not "interested persons" of the Funds as defined in the 1940 Act and who have no direct or indirect financial interest in such arrangements (the "Disinterested Trustees").
The Board of Trustees has approved the service agreements with Service Organizations based on information provided by the Funds' service contractors that there is a reasonable likelihood that the arrangements will benefit the Funds and their shareholders by affording the Funds greater flexibility in connection with the efficient servicing of the accounts of the beneficial owners of Class T shares of the Funds. Any material amendment to the Funds' arrangements with Service Organizations must be approved by a majority of the Board of Trustees (including a majority of the Disinterested Trustees). So long as the service agreements with Service Organizations are in effect, the selection and nomination of the members of Columbia's Board of Trustees who are not "interested persons" (as defined in the 1940 Act) of the Funds will be committed to the discretion of such Disinterested Trustees.
TAX-SHELTERED RETIREMENT PLANS (Retirement Plans). CMD offers prototype tax-qualified plans, including Pension and Profit-Sharing Plans for individuals, corporations, employees and the self-employed. The minimum initial Retirement Plan investment is $25. Columbia Trust Company (CTC) is the Custodian/Trustee and Plan Sponsor of the Columbia Advisor prototype plans offered through CMD. In general, a $20 annual fee is charged. Detailed information concerning these Retirement Plans and copies of the Retirement Plans are available from CMD.
Participants in Retirement Plans not sponsored by CTC, not including Individual Retirement Accounts (IRAs), may be subject to an annual fee of $20 unless the Retirement Plan maintains an omnibus account with CMS. Participants in CTC sponsored prototype plans (other than IRAs) who liquidate the total value of their account may also be charged a $20 close-out processing fee payable to CMS. The close out fee applies to plans opened after September 1,1996. The fee is in addition to any applicable CDSC. The fee will not apply if the participant uses the proceeds to open a Columbia Advisor IRA Rollover account in any Fund distributed by CMD, or if the Retirement Plan maintains an omnibus account.
Consultation with a competent financial advisor regarding these Retirement Plans and consideration of the suitability of Fund shares as an investment under the Employee Retirement Income Security Act of 1974 or otherwise is recommended.
TELEPHONE ADDRESS CHANGE SERVICES. By calling CMS, shareholders or their FSF of record may change an address on a recorded telephone line. Confirmations of address change will be sent to both the old and the new addresses. Telephone redemption privileges by check are suspended for 30 days after an address change is effected. Please have your account and taxpayer identification numbers available when calling.
CASH CONNECTION. Dividends and any other distributions, including Systematic Withdrawal Plan (SWP) payments, may be automatically deposited to a shareholder's bank account via electronic funds transfer. Shareholders wishing to avail themselves of this electronic transfer procedure should complete the appropriate sections of the Application.
AUTOMATIC DIVIDEND DIVERSIFICATION. The automatic dividend diversification reinvestment program (ADD) generally allows shareholders to have all distributions from a Fund automatically invested in the same class of shares of another Fund. An ADD
account must be in the same name as the shareholder's existing open account with the particular Fund. Call CMS for more information at 1-800-345-6611.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
RIGHTS OF ACCUMULATION (Columbia Class A and Class T shares, Nations Class A shares and Galaxy Retail A shares only) Class T shares can only be purchased by the shareholders of Columbia Newport Tiger Fund (formerly named Liberty Newport Tiger Fund) who already own Class T shares. Reduced sales charges on Class A and T shares can be effected by combining a current purchase of Class A or Class T shares with prior purchases of other funds and classes distributed by CMD. The applicable sales charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on the previous day of all shares of funds for which CMD serves as distributor for funds held by the shareholder.
CMD must be promptly notified of each purchase with respect to which a shareholder is entitled to a reduced sales charge. Such reduced sales charge will be applied upon confirmation of the shareholder's holdings by CMS. A Fund may terminate or amend this Right of Accumulation.
STATEMENT OF INTENT (Class A, Class E and Class T shares only). Any person may qualify for reduced sales charges on purchases of Class A, E and T shares made within a thirteen-month period pursuant to a Statement of Intent ("Statement"). A shareholder may include, as an accumulation credit toward the completion of such Statement, the value of all fund shares held by the shareholder on the date of the Statement in Funds (except shares of any money market fund, unless such shares were acquired by exchange from Class A shares of another non-money market fund)). The value is determined at the public offering price on the date of the Statement. Purchases made through reinvestment of distributions do not count toward satisfaction of the Statement.
During the term of a Statement, CMS will hold shares in escrow to secure payment of the higher sales charge applicable to Class A, E or T shares actually purchased. Dividends and capital gains will be paid on all escrowed shares and these shares will be released when the amount indicated has been purchased. A Statement does not obligate the investor to buy or a Fund to sell the amount of the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which would qualify for a further quantity discount, a retroactive price adjustment will be made at the time of expiration of the Statement (provided the FSF returns to CMD the excess commission previously paid during the thirteen-month period). The resulting difference in offering price will purchase additional shares for the shareholder's account at the applicable offering price. If the amount of the Statement is not purchased, the shareholder shall remit to CMD an amount equal to the difference between the sales charge paid and the sales charge that should have been paid. If the shareholder fails within twenty days after a written request to pay such difference in sales charge, CMS will redeem escrowed Class A, E or T shares with a value equal to such difference. The additional FSF commission will be remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available from your FSF, or from CMS at 1-800-345-6611.
NET ASSET VALUE ELIGIBILITY GUIDELINES (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, LLC IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS).
1. Employees, brokers and various relationships that are allowed to buy
at NAV. Class A shares of certain Funds may be sold at NAV to the
following individuals, whether currently employed or retired:
Employees of Bank of America Corporation (and its predecessors), its
affiliates and subsidiaries; Trustees of funds advised or administered
by the Advisor; directors, officers and employees of the Advisor, CMD,
or its successors and companies affiliated with the Advisor;
Registered representatives and employees of FSFs (including their
affiliates) that are parties to dealer agreements or other sales
arrangements with CMD; Nations Funds' Trustees, Directors and
employees of its investment sub-advisers; Broker/Dealers if purchases
are in accordance with the internal policies and procedures of
the employing broker/dealer and made for their own investment purposes; employees or partners of any contractual service provider to the funds.
NAV eligibility for Class A purchase also applies to the families of the parties listed above and their beneficial accounts. Family members include: spouse, parent, stepparent, legal guardian, child, stepchild, father-in-law and mother-in-law.
Individuals receiving a distribution from a Bank of America trust, fiduciary, custodial or other similar account may use the proceeds of that distribution to buy Class A shares without paying a front-end sales charge, as long as the proceeds are invested in the funds within 90 days of the date of distribution.
Registered broker/dealer firms that have entered into a Nations Funds dealer agreement with BACAP Distributors, LLC may buy Class A shares without paying a front-end sales charge for their investment account only.
Banks, trust companies and thrift institutions, acting as fiduciaries.
2. Grandfathered investors. Any shareholder who owned shares of any fund of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000 (when all of the then outstanding shares of Columbia Acorn Trust were re-designated Class Z shares) and who since that time has remained a shareholder of any Fund, may purchase Class A shares of any Fund at NAV in those cases where a Columbia Fund Class Z share is not available.
Shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at NAV will continue to be eligible for NAV purchases into those Nations Fund accounts opened through August 19, 2005.
Galaxy Fund shareholders prior to December 1, 1995; and shareholders who (i) purchased Galaxy Fund Prime A shares at NAV and received Class A shares in exchange for those shares during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Prime A shares were originally purchased.
(For Class T shares only) Shareholders who (i) purchased Galaxy Fund Retail A shares at net asset value and received Class T shares in exchange for those shares during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Retail A shares were originally purchased; and Boston 1784 Fund shareholders on the date that those funds were reorganized into Galaxy Funds.
3. Reinstatement. Subject to the fund policy on trading of fund shares, an investor who has redeemed class A, B, C, D, G or T shares may, upon request, reinstate within 1 year a portion or all of the proceeds of such sales in shares of class A of any fund at the NAV next determined after CMS received a written reinstatement request and payment.
4. Retirement Plans. Class A, Class E and Class T shares (Class T shares are not currently open to new investors) of certain funds may also be purchased at reduced or no sales charge by clients of dealers, brokers or registered investment advisors that have entered into arrangements with CMD pursuant to which the funds are included as investments options in wrap fee accounts, other managed agency/asset allocation accounts or programs involving fee-based compensation arrangements, and by participants in certain retirement plans.
5. Non-U.S. Investors. Certain pension, profit-sharing or other employee benefit plans offered to non-US investors may be eligible to purchase Class A shares with no sales charge.
6. Reorganizations. At the Fund's discretion, NAV eligibility may apply to shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which the fund is a party.
7. Rights of Accumulation (ROA). The value of eligible accounts, regardless of class, maintained by you and you and your immediate family may be combined with the value of your current purchase to reach a sales discount level and to obtain the lower sales charge for your current purchase.
8. Letters of Intent (LOI). You may pay a lower sales charge when purchasing class A shares by signing a letter of intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the LOI within 13 months. If your LOI purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES (CDSCS) (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, LLC IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS) (Class A, B, C, D, E, matured F, G and T shares) CDSCs may be waived on redemptions in the following situations with the proper documentation:
1. Death. CDSCs may be waived on redemptions following the death of (i) the sole shareholder on an individual account, (ii) a joint tenant where the surviving joint tenant is the deceased's spouse, or (iii) the beneficiary of a Uniform Gifts to Minors Act (UGMA), Uniform Transfers to Minors Act (UTMA) or other custodial account. If, upon the occurrence of one of the foregoing, the account is transferred to an account registered in the name of the deceased's estate, the CDSC will be waived on any redemption from the estate account If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions occurring pursuant to a monthly, quarterly or semi-annual SWP established with CMS, to the extent the redemptions do not exceed, on an annual basis, 12% of the account's value at the time that the SWP is established. Otherwise, CDSCs will be charged on SWP redemptions until this requirement is met. For redemptions in excess of 12% of the account's value at the time that the SWP is established, a CDSC will be charged on the SWP redemption. The 12% limit does not apply if the SWP is set up at the time the account is established, and distributions are being reinvested. See below under "How to Sell Shares -- Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions occurring after the
sole shareholder on an individual account or a joint tenant on a
spousal joint tenant account becomes disabled (as defined in Section
72(m)(7) of the Internal Revenue Code). To be eligible for such
waiver, (i) the disability must arise AFTER the purchase of shares
(ii) the disabled shareholder must have been under age 65 at the time
of the initial determination of disability, and (iii) a letter from a
physician must be signed under penalty of perjury stating the nature
of the disability. If the account is transferred to a new registration
and then a redemption is requested, the applicable CDSC will be
charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring upon dissolution of a revocable living or grantor trust following the death of the sole trustee where (i) the grantor of the trust is the sole trustee and the sole life beneficiary, (ii) death occurs following the purchase AND (iii) the trust document provides for dissolution of the trust upon the trustee's death. If the account is transferred to a new registration (including that of a successor trustee), the applicable CDSC will be charged upon any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions required to return excess contributions made to retirement plans or individual retirement accounts, so long as the FSF agrees to return the applicable portion of any commission paid by CMD.
6. Qualified Retirement Plans. CDSCs may be waived on CMD shares sold by
employee benefit plans created according to Section 403(b) of the tax
code and sponsored by a non-profit organization qualified under
Section 501 (c)(3) of the tax code. To qualify for the waiver, the
plan must be a participant in an alliance program that has signed an
agreement with Columbia Funds or CMD.
7. Trust Share Taxes. CDSCs will be waived on redemptions of Class E and F shares (i) where the proceeds are used to directly pay trust taxes, and (ii) where the proceeds are used to pay beneficiaries for the payment of trust taxes.
8. Return of Commission. CDSCs may be waived on shares sold by intermediaries that are part of the Columbia Funds selling group where the intermediary has entered into an agreement with Columbia Funds not to receive (or to return if received) all or any applicable portion of an upfront commission.
9. Non-U.S. Investors. CDSCs may be waived on shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors.
10. IRS Section 401 and 457. CDSCs may be waived on shares sold by certain pension, profit-sharing or other employee benefit plans established under Section 401 or 457 of the tax code.
11. Medical Payments. CDSCs may be waived on shares redeemed for medical payments that exceed 7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least twelve weeks.
12. Plans of Reorganization. At the Funds' discretion, CDSCs may be waived for shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which a fund is a party.
13. Charitable Giving Program. CDSCs may be waived on the sale of Class C
or Class D shares sold by a non-profit organization qualified under
Section 501 (c)(3) of the tax code in connection with the Banc of
America Capital Management Charitable Giving Program.
14. The CDSC also may be waived where the FSF agrees to return all or an agreed upon portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may be sold on any day the Exchange is open, either directly to the Fund or through the shareholder's FSF. Sale proceeds generally are sent within seven days (usually on the next business day after your request is received in good form). However, for shares recently purchased by check, the Fund may delay selling or delay sending proceeds from your shares for up to 15 days in order to protect the Fund against financial losses and dilution in net asset value caused by dishonored purchase payment checks.
To sell shares directly to the Fund, send a signed letter of instruction to CMS, along with any certificates for shares to be sold. The sale price is the net asset value (less any applicable contingent deferred sales charge) next calculated after the Fund receives the request in proper form. Signatures must be guaranteed by a bank, a member firm of a national stock exchange or another eligible guarantor that participates in the Medallion Signature Guarantee Program. Stock power forms are available from FSFs, CMS and many banks. Additional documentation may be required for sales by corporations, agents, fiduciaries, surviving joint owners, individual retirement account holders and other legal entities. Call CMS for more information 1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued to receive that day's price, FSF's are responsible for furnishing all necessary documentation to CMS and may charge for this service.
SYSTEMATIC WITHDRAWAL PLAN. The shareholder may establish a SWP. A specified dollar amount, share amount or percentage of the then current net asset value of the shareholder's investment in any Fund designated by the shareholder will be paid monthly, quarterly or semi-annually to a designated payee. The amount or percentage the shareholder specifies is run against available shares and generally may not, on an annualized basis, exceed 12% of the value, as of the time the shareholder makes the election, of the shareholder's investment. Withdrawals of shares of the Fund under a SWP will be treated as redemptions of shares purchased through the reinvestment of Fund distributions, or, to the extent such shares in the shareholder's account are insufficient to cover Plan payments, as redemptions from the earliest purchased shares of such Fund in the shareholder's account. No CDSCs apply to a redemption pursuant to a SWP of 12% or less, even if, after giving effect to the redemption, the shareholder's account balance is less than the shareholder's base amount. Qualified plan participants who are required by Internal Revenue Service regulation to withdraw more than 12%, on an annual basis, of the value of their share account may do so but may be subject to a CDSC ranging from 1% to 5% of the amount withdrawn in excess of 12% annually. If a shareholder wishes to participate in a SWP, the shareholder must elect to have all of the shareholder's income dividends and other Fund distributions payable in shares of the Fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by telephone on a recorded line. However, SWP checks will be payable only to the shareholder and sent to the address of record. SWPs from retirement accounts cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in certificate form. Purchasing additional shares (other than through dividend and distribution reinvestment) while receiving SWP payments is ordinarily disadvantageous because of sales charges. For this reason, a shareholder may not maintain a plan for the accumulation of shares of the Fund (other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or loss for tax purposes, may involve the use of principal and may eventually use up all of the shares in a shareholder's account.
A Fund may terminate a shareholder's SWP if the shareholder's account balance falls below $5,000 due to any transfer or liquidation of shares other than pursuant to the SWP. The $5,000 minimum account balance requirement has been waived for wrap accounts. SWP payments will be terminated on receiving satisfactory evidence of the death or incapacity of a shareholder. Until this evidence is received, CMS will not be liable for any payment made in accordance with the provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate in them is borne by the Fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not be able to participate in a SWP. If a shareholder's Fund shares are held in "street name," the shareholder should consult his or her FSF to determine whether he or she may participate in a SWP. The SWP on accounts held in "street name" must be made payable to the back office via the National Securities Clearing Corporation (NSCC).
TELEPHONE REDEMPTIONS. All Fund shareholders and/or their FSFs are automatically
eligible to redeem up to $100,000 of the Fund's shares by calling 1-800-422-3737
toll-free any business day between 9:00 a.m. and the close of trading of the
Exchange (normally 4:00 p.m. Eastern time). Transactions received after 4:00
p.m. Eastern time will receive the next business day's closing price. Telephone
redemptions by check and ACH are limited to a total of $100,000 in a 30-day
period. Redemptions that exceed $100,000 may be accomplished by placing a wire
order trade through a broker, to a pre-existing bank account or furnishing a
signature guaranteed request. Signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another eligible guarantor that
participates in the Medallion Signature Guarantee Program. CMS will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. Telephone redemptions are not available on accounts with an address
change in the preceding 30 days and proceeds and confirmations will only be
mailed or sent to the address of record unless the redemption proceeds are being
sent to a pre-designated bank account. Shareholders and/or their FSFs will be
required to provide their name, address account and taxpayer identification
numbers. FSFs will also be required to provide their broker number. All
telephone transactions are recorded. A loss to a shareholder may result from an
unauthorized transaction reasonably believed to have been authorized. Certain
restrictions apply to retirement plan accounts.
CHECKWRITING (Available only on the Class A and Z shares of certain Funds) Shares may be redeemed by check if a shareholder has previously completed an Application and Signature Card. CMS will provide checks to be drawn on Mellon Trust of New England, N.A. (the "Bank"). These checks may be made payable to the order of any person in the amount of not less than $500 ($250 for money market funds) nor more than $100,000 for non-money market funds. The shareholder will continue to earn dividends on shares until a check is presented to the Bank for payment. At such time a sufficient number of full and fractional shares will be redeemed at the next determined net asset value to cover the amount of the check. Certificate shares may not be redeemed in this manner.
Shareholders utilizing checkwriting drafts will be subject to the Bank's rules governing checking accounts. There is currently no charge to the shareholder for the use of checks., However, you may incur customary fees for services such as a stop payment request or a request for copies of a check. The shareholder should make sure that there are sufficient shares in his or her open account to cover the amount of any check drawn since the net asset value of shares will fluctuate. If insufficient shares are in the shareholder's open account, the check will be returned marked "insufficient funds" and no shares will be redeemed; the shareholder will be charged a $15 service fee for each check returned. It is not possible to determine in advance the total value of an open account because prior redemptions and possible changes in net asset value may cause the value of an open account to change. Accordingly, a check redemption should not be used to close an open account. In addition, a check redemption, like any other redemption, may give rise to taxable capital gains.
NON-CASH REDEMPTIONS. For redemptions of any single shareholder within any 90-day period exceeding the lesser of $250,000 or 1% of a Fund's net asset value, a Fund may make the payment or a portion of the payment with portfolio securities held by that Fund instead of cash, in which case the redeeming shareholder may incur brokerage and other costs in selling the securities received.
INFORMATION APPLICABLE TO CLASS G AND CLASS T SHARES
The primary difference between Class G and Class T shares lies in their sales charge structures and shareholder servicing/distribution expenses. Investments in Class T shares of the Funds are subject to a front-end sales charge. Investments in Class G shares of the Funds are subject to a back-end sales charge. This back-end sales charge declines over time and is known as a "contingent deferred sales charge." An investor should understand that the purpose and function of the sales charge structures and shareholder servicing/distribution arrangements for both Class G and Class T shares are the same. Class T shares of a bond fund and an equity fund are currently subject to ongoing shareholder servicing fees at an annual rate of up to 0.15% and 0.30%, respectively, of the Fund's average daily net assets attributable to its Class T shares. Class G shares of a bond fund and an equity fund are currently subject to ongoing shareholder servicing and distribution fees at an annual rate of up to 0.80% and 0.95%, respectively, of the Fund's average daily net assets attributable to its Class G shares. These ongoing fees, which are higher than those charged on Class T shares, will cause Class G shares to have a higher expense ratio and pay lower dividends than Class T shares. Class G and Class T shares may only be purchased by current shareholders of Class G and Class T, respectively.
CLASS T SHARES. The public offering price for Class T shares of the Funds is the sum of the net asset value of the Class T shares purchased plus any applicable front-end sales charge as described in the applicable Prospectus. A deferred sales charge of up to 1.00% is assessed on certain redemptions of Class T shares that are purchased with no initial sales charge as part of an investment of $1,000,000 to $25,000,000. A portion of the front-end sales charge may be reallowed to broker-dealers as follows:
Reallowance to
Reallowance to Dealers Dealers As A % of
As A % of Offering Price Offering Price Per
Amount of Transaction Per Share - Bond Funds Share - Equity Funds
--------------------------------- ------------------------ --------------------
Less than $50,000 4.25 5.00
$50,000 but less than $100,000 3.75 3.75
$100,000 but less than $250,000 2.75 2.75
$250,000 but less than $500,000 2.00 2.00
$500,000 but less than $1,000,000 1.75 1.75
$1,000,000 and over 0.00 0.00
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The appropriate reallowance to dealers will be paid by CMD to broker-dealer organizations which have entered into agreements with CMD. The reallowance to dealers may be changed from time to time.
Certain affiliates of the Advisor may, at their own expense, provide additional compensation to broker-dealer affiliates of Columbia and to unaffiliated broker-dealers whose customers purchase significant amounts of Class T shares of the Funds. Such compensation will not represent an additional expense to the Funds or their shareholders, since it will be paid from the assets of Bank of America Corporation's affiliates.
INFORMATION APPLICABLE TO CERTAIN CLASS G SHARES RECEIVED BY FORMER GALAXY FUND RETAIL B SHAREHOLDERS IN CONNECTION WITH THE GALAXY/LIBERTY REORGANIZATION. The following table describes the CDSC schedule applicable to Class G shares received by former Galaxy Fund Retail B shareholders in exchange for Retail B Shares purchased prior to January 1, 2001:
% Deducted When
Holding Period After Purchase Shares Are Sold
----------------------------- ---------------
Through first year 5.00
Through second year 4.00
Through third year 3.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Longer than six years None
|
Class G shares received in exchange for Galaxy Fund Retail B Shares that were purchased prior to January 1, 2001 will automatically convert to Class T shares six years after purchase. For purposes of calculating the CDSC, all purchases are considered to be made on the first day of the month in which each purchase was made.
The following table describes the CDSC schedule applicable to Class G shareholders whose Galaxy Asset Allocation Fund and/or International Equity Fund Retail B Shares were acquired in connection with the reorganization of the Pillar Funds:
% Deducted When
Holding Period After Purchase Shares Are Sold
----------------------------- ---------------
Through first year 5.50
Through second year 5.00
Through third year 4.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Through the seventh year None
Longer than seven years None
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If you acquired Retail B Shares in connection with the reorganization of the Pillar Funds, your Class G shares will automatically convert to Class T shares eight years after you purchased the Pillar Fund Class B shares you held prior to the reorganization. For purposes of calculating the CDSC, all purchases are considered to be made on the first day of the month in which each purchase was made.
CLASS G SHARES PURCHASED AFTER THE GALAXY/LIBERTY REORGANIZATION. The public offering price for Class G shares of the Funds is the net asset value of the Class G shares purchased. Although investors pay no front-end sales charge on purchases of Class G shares, such shares are subject to a contingent deferred sales charge at the rates set forth in the applicable Prospectus if they are redeemed within seven years of purchase. Securities dealers, brokers, financial institutions and other industry professionals will receive commissions from CMD in connection with sales of Class G shares. These commissions may be different than the reallowances or placement fees paid to dealers in connection with sales of Class T shares. Certain affiliates of Columbia may, at their own expense, provide additional compensation to broker-dealer affiliates of Columbia and to unaffiliated broker-dealers, whose customers purchase significant amounts of Class G shares of a Fund. See "Class T Shares." The contingent deferred sales charge on Class G shares is based on the lesser of the net asset value of the shares on the redemption date or the original cost of the shares being redeemed. As a result, no sales charge is imposed on any increase in the principal value of an investor's Class G shares. In addition, a contingent deferred sales charge will not be assessed on Class G shares purchased through reinvestment of dividends or capital gains distributions.
The proceeds from the contingent deferred sales charge that an investor may pay upon redemption go to CMD, which may use such amounts to defray the expenses associated with the distribution-related services involved in selling Class G shares. Class G shares of a Fund will convert automatically to Class T shares eight years after purchase. The purpose of the conversion is to relieve a holder of Class G shares of the higher ongoing expenses charged to those shares, after enough time has passed to allow CMD to recover approximately the amount it would have received if the applicable front-end sales charge had been charged. The conversion from Class G shares to Class T shares takes place at net asset value, as a result of which an investor receives dollar-for-dollar the same value of Class T shares as he or she had of Class G shares. The conversion occurs eight years after the beginning of the calendar month in which the shares are purchased. Upon conversion, the converted shares will be relieved of the distribution and shareholder servicing fees borne by Class G shares, although they will be subject to the shareholder servicing fees borne by Class T shares.
Class G shares acquired through a reinvestment of dividends or distributions are also converted at the earlier of two dates -- (i) eight years after the beginning of the calendar month in which the reinvestment occurred or (ii) the date of conversion of the most recently purchased Class G shares that were not acquired through reinvestment of dividends or distributions. For example, if an investor makes a one-time purchase of Class G shares of a Fund, and subsequently acquires additional Class G shares of the Fund only through reinvestment of dividends and/or distributions, all of such investor's Class G shares in the Fund, including those acquired through reinvestment, will convert to Class T shares of the Fund on the same date.
INFORMATION APPLICABLE TO CERTAIN CLASS B SHAREHOLDERS
Except for the following, Class B Share Contingent Deferred Sales Charges ("CDSCs") and conversion schedules are described in the Prospectuses.
The following table describes the CDSC schedule applicable to Class B shares received by Galaxy Quality Plus Bond Fund shareholders in exchange for Prime B Shares in connection with the Galaxy/Liberty reorganization.
SALES CHARGES
% Deducted When
Holding Period After Purchase Shares Are Sold
----------------------------- ---------------
Through first year 5.00
Through second year 4.00
Through third year 3.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Longer than six years 0.00
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Automatic conversion to Class A shares occurs eight years after purchase.
The Class B share discount program for purchases of $250,000 or more is not applicable to Class B shares received by Galaxy Fund Prime B shareholders in connection with the reorganization of the Galaxy Fund.
INFORMATION APPLICABLE TO CERTAIN CLASS A SHAREHOLDERS:
Except as set forth in the following paragraph, Class A share CDSCs are described in the Prospectuses:
Class A shares received by former Galaxy High Quality Bond Fund shareholders in exchange for Prime A Shares in connection with the Galaxy/Liberty reorganization of that Fund are subject to a 1% CDSC upon redemption of such Class A shares if the Prime A Shares were purchased without an initial sales charge in accounts aggregating $1 million or more at the time of purchase and the Class A shares are sold within 12 months of the time of purchase of the Prime A Shares. The 12-month holding period begins on the first day of the month in which each purchase was made.
DISTRIBUTIONS
Distributions are invested in additional shares of the same Class of the Fund at net asset value unless the shareholder elects to receive cash. Regardless of the shareholder's election, distributions of $10 or less will not be paid in cash, but will be invested in additional shares of the same class of the Fund at net asset value. Undelivered distribution checks returned by the post office will be reinvested in your account. If a shareholder has elected to receive dividends and/or capital gain distributions in cash and the postal or other delivery service selected by the Transfer Agent is unable to deliver checks to the shareholder's address of record, such shareholder's distribution option will automatically be converted to having all dividend and other distributions reinvested in additional shares. No interest will accrue on amounts represented by uncashed distribution or redemption checks. Shareholders may reinvest all or a portion of a recent cash distribution without a sales charge. No charge is currently made for reinvestment.
Shares of some Funds that pay daily dividends ("include Funds") will normally earn dividends starting with the date the Fund receives payment for the shares and will continue through the day before the shares are redeemed, transferred or exchanged. Shares of some Funds that pay daily dividends ("exclude Funds") will be earned starting with the day after that Fund receives payments for the shares. To determine whether a particular Fund is an include or exclude fund, customers can call 1-800-345-6611.
HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for the same class of shares of the other continuously offered funds (with certain exceptions) on the basis of the NAVs per share at the time of exchange. Class T and Z shares may be exchanged for Class A
shares of certain other funds. The prospectus of each Fund describes its investment goal and policies, and shareholders should obtain a prospectus and consider these goals and policies carefully before requesting an exchange. Consult CMS before requesting an exchange.
If you acquire Class A shares of an international fund by exchange from any other fund, you will not be permitted to exchange those shares into another fund for 30 calendar days, although you may redeem those shares at any time. An exchange order received prior to the expiration of the 30-day period will not be honored.
By calling CMS, shareholders or their FSF of record may exchange among accounts with identical registrations, provided that the shares are held on deposit. During periods of unusual market changes or shareholder activity, shareholders may experience delays in contacting CMS by telephone to exercise the telephone exchange privilege. Because an exchange involves a redemption and reinvestment in another fund, completion of an exchange may be delayed under unusual circumstances, such as if the Fund suspends repurchases or postpones payment for the Fund shares being exchanged in accordance with federal securities law. CMS will also make exchanges upon receipt of a written exchange request and share certificates, if any. If the shareholder is a corporation, partnership, agent, or surviving joint owner, CMS may require customary additional documentation. Prospectuses of the other Funds are available from the CMD Literature Department by calling 1-800-426-3750.
A loss to a shareholder may result from an unauthorized transaction reasonably believed to have been authorized. No shareholder is obligated to use the telephone to execute transactions.
Consult your FSF or CMS. In all cases, the shares to be exchanged must be registered on the records of the Fund in the name of the shareholder desiring to exchange.
Shareholders of the other open-end funds generally may exchange their shares at NAV for the same class of shares of the Fund. Sales charges may apply for exchanges from money market funds.
An exchange is generally a capital sale transaction for federal income tax purposes. The exchange privilege may be revised, suspended or terminated at any time.
SUSPENSION OF REDEMPTIONS
A Fund may not suspend shareholders' right of redemption or postpone payment for more than seven days unless the Exchange is closed for other than customary weekends or holidays, or if permitted by the rules of the SEC during periods when trading on the Exchange is restricted or during any emergency which makes it impracticable for the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by order of the SEC for the protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Declaration disclaims shareholder liability for acts or obligations of the Fund and the Trust and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by the Fund or the Trust's Trustees. The Declaration provides for indemnification out of Fund property for all loss and expense of any shareholder held personally liable for the obligations of the Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances (which are considered remote) in which the Fund would be unable to meet its obligations and the disclaimer was inoperative.
The risk of a particular fund incurring financial loss on account of another fund of the Trust is also believed to be remote, because it would be limited to circumstances in which the disclaimer was inoperative and the other fund was unable to meet its obligations.
SHAREHOLDER MEETINGS
The Trust is not required to hold annual shareholder meetings, but special meetings may be called for certain purposes. The Trust has voluntarily undertaken to hold a shareholder meeting at which the Board of Trustees would be elected at least every five years beginning in 2005. Each whole share (or fractional share) outstanding on the record date established in accordance with the Trust's By-Laws shall be entitled to a number of votes on any matter on which it is entitled to vote equal to the net asset value of the shares (or fractional share) in United States dollars determined at the close of business on the record date (for example, a share having a net asset value of $10.50 would be entitled to 10.5 votes).
The Trustees may fill any vacancies in the Board of Trustees except that the Trustees may not fill a vacancy if, immediately after filling such vacancy, less than two-thirds of the Trustees then in office would have been elected to such office by the shareholders. In addition, at such times as less than a majority of the Trustees then in office have been elected to such office by the shareholders, the Trustees must call a meeting of shareholders. Trustees may be removed from office by a written consent signed by a majority of the outstanding shares of the Trust or by a vote of the holders of a majority of the outstanding shares at a meeting duly called for the purpose. Except as otherwise disclosed in the Prospectus and this SAI, the Trustees shall continue to hold office and may appoint their successors.
At any shareholders' meetings that may be held, shareholders of all series would vote together, irrespective of series, on the election of Trustees, but each series would vote separately from the others on other matters, such as changes in the investment policies of that series or the approval of the management agreement for that series. Shares of each Fund and any other series of the Trust that may be in existence from time to time generally vote together except when required by law to vote separately by fund or by class.
APPENDIX I
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S (S&P)
The following descriptions are applicable to municipal bond funds:
AAA bonds have the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.
AA bonds have a very strong capacity to pay interest and repay principal, and they differ from AAA only in small degree.
A bonds have a strong capacity to pay interest and repay principal, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.
BBB bonds are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than for bonds in the A category.
BB, B, CCC, CC and C bonds are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or large exposures to adverse conditions.
BB bonds have less near-term vulnerability to default than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating.
B bonds have a greater vulnerability to default but currently have the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB-rating.
CCC bonds have a currently identifiable vulnerability to default, and are dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, the bonds are not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating.
CC rating typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating.
C rating typically is applied to debt subordinated to senior debt which assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued.
CI rating is reserved for income bonds on which no interest is being paid.
D bonds are in payment default. The D rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized.
Plus(+) or minus(-) ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
PROVISIONAL RATINGS. The letter "p" indicates that the rating is provisional. A provisional rating assumes the successful completion of the project being financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely completion of the project. This rating, however, although addressing
credit quality subsequent to completion of the project, makes no comments on the likelihood of, or the risk of default upon failure of, such completion. The investor should exercise his own judgment with respect to such likelihood and risk.
MUNICIPAL NOTES:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating. Notes maturing beyond three years normally receive a bond rating, although the following criteria are used in making that assessment:
Amortization schedule (the larger the final maturity relative to other maturities, the more likely the issue will be rated as a note).
Source of payment (the more dependent the issue is on the market for its refinancing, the more likely it will be rated as a note).
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a demand feature. The first rating addresses the likelihood of repayment of principal and interest as due, and the second rating addresses only the demand feature. The long-term debt rating symbols are used for bonds to denote the long-term maturity, and the commercial paper rating symbols are usually used to denote the put (demand) option (for example, AAA/A-1+). Normally, demand notes receive note rating symbols combined with commercial paper symbols (for example, SP-1+/A-1+).
COMMERCIAL PAPER:
A. Issues assigned this highest rating are regarded as having the greatest capacity for timely payment. Issues in this category are further refined with the designations 1, 2, and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are designed A-1+.
CORPORATE BONDS:
The description of the applicable rating symbols and their meanings is substantially the same as the Municipal Bond ratings set forth above.
The following descriptions are applicable to equity and taxable bond funds:
AAA bonds have the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.
AA bonds differ from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.
A bonds are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.
BBB bonds exhibit adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
BB, B, CCC and CC bonds are regarded, as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB bonds are less vulnerable to non-payment than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
B bonds are more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.
CCC bonds are currently vulnerable to nonpayment, and are dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC bonds are currently highly vulnerable to nonpayment.
C ratings may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on the obligation are being continued.
D bonds are in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
Plus (+) or minus(-): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
R This symbol is attached to the rating of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk, such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
AAA bonds are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge". Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While various protective elements are likely to change, such changes as can be visualized are most unlikely to impair a fundamentally strong position of such issues.
AA bonds are judged to be of high quality by all standards. Together with Aaa bonds they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.
Those bonds in the Aa through B groups that Moody's believes possess the strongest investment attributes are designated by the symbol Aa1,A1 andBaa1.
A bonds possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment sometime in the future.
BAA bonds are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact, have speculative characteristics as well.
BA bonds are judged to have speculative elements: their future cannot be considered as well secured. Often, the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B bonds generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
CAA bonds are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
CA bonds represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C bonds are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
CONDITIONAL RATINGS. Bonds for which the security depends upon the completion of some act or the fulfillment of some condition are rated conditionally. These are bonds secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in operating experience, (c) rentals which begin when facilities are completed, or (d) payments to which some other limiting conditions attach. Parenthetical rating denotes probable credit stature upon completion of construction or elimination of basis of condition.
MUNICIPAL NOTES:
MIG1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are accounted for, but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
Moody's may assign a separate rating to the demand feature of a variable rate demand security. Such a rating may include:
VMIG 1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are accounted for, but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
COMMERCIAL PAPER:
Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest
Quality Prime-2
Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper obligations are supported by the credit of another entity or entities, Moody's, in assigning ratings to such issuers, evaluates the financial strength of the indicated affiliated corporations, commercial banks, insurance companies, foreign governments, or other entities, but only as one factor in the total rating assessment.
CORPORATE BONDS:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings is identical to that of the Municipal Bond ratings as set forth above, except for the numerical modifiers. Moody's applies numerical modifiers 1,2, and 3 in the Aa and A classifications of its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a midrange ranking; and the modifier 3 indicates that the issuer ranks in the lower end of its generic rating category.
FITCH INC.
INVESTMENT GRADE BOND RATINGS
AAA bonds are considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and/or dividends and repay principal, which is unlikely to be affected by reasonably foreseeable events.
AA bonds are considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated 'AAA'. Because bonds rated in the 'AAA' and 'AA' categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F-1+'.
A bonds are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than debt securities with higher ratings.
BBB bonds are considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest or dividends and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these securities and, therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for securities with higher ratings.
CONDITIONAL
A conditional rating is premised on the successful completion of a project or the occurrence of a specific event.
SPECULATIVE-GRADE BOND RATINGS
BB bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified, which could assist the obligor in satisfying its debt service requirements.
B bonds are considered highly speculative. While securities in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue.
CCC bonds have certain identifiable characteristics that, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment.
CC bonds are minimally protected. Default in payment of interest and/or principal seems probable over time.
C bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D bonds are in default on interest and/or principal payments. Such securities are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. 'DDD' represents the highest potential for recovery on these securities, and 'D' represents the lowest potential for recovery.
APPENDIX II
COLUMBIA MANAGEMENT ADVISORS, LLC ("CMA")
PROXY VOTING POLICIES AND PROCEDURES
ADOPTED JULY 1, 2003 AND REVISED MARCH 4, 2005
POLICY:
ALL PROXIES(1) REGARDING CLIENT SECURITIES FOR WHICH COLUMBIA MANAGEMENT ADVISORS, LLC ("CMA") HAS ASSUMED AUTHORITY TO VOTE SHALL, UNLESS CMA DETERMINES IN ACCORDANCE WITH POLICIES STATED BELOW TO ABSTAIN FROM VOTING, BE VOTED IN A MANNER CONSIDERED BY CMA TO BE IN THE BEST INTEREST OF CMA'S CLIENTS, INCLUDING THE CMG FAMILY FUNDS(2) AND THEIR SHAREHOLDERS, WITHOUT REGARD TO ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES. THE BEST INTEREST OF CLIENTS IS DEFINED FOR THIS PURPOSE AS THE INTEREST OF ENHANCING OR PROTECTING THE ECONOMIC VALUE OF CLIENT ACCOUNTS, CONSIDERED AS A GROUP RATHER THAN INDIVIDUALLY, AS CMA DETERMINES IN ITS SOLE AND ABSOLUTE DISCRETION. IN THE EVENT A CLIENT BELIEVES THAT ITS OTHER INTERESTS REQUIRE A DIFFERENT VOTE, CMA SHALL VOTE AS THE CLIENT CLEARLY INSTRUCTS, PROVIDED CMA RECEIVES SUCH INSTRUCTIONS IN TIME TO ACT ACCORDINGLY.
CMA ENDEAVORS TO VOTE, IN ACCORDANCE WITH THIS POLICY, ALL PROXIES OF WHICH IT BECOMES AWARE, SUBJECT TO THE FOLLOWING EXCEPTIONS (UNLESS OTHERWISE AGREED) WHEN CMA EXPECTS TO ROUTINELY ABSTAIN FROM VOTING:
1. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE THE SECURITY HAS BEEN LOANED FROM THE CLIENT'S ACCOUNT.
2. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE CMA DEEMS THE COSTS TO THE CLIENT AND/OR THE ADMINISTRATIVE INCONVENIENCE OF VOTING THE SECURITY (E.G., SOME FOREIGN SECURITIES) OUTWEIGH THE BENEFIT OF DOING SO.
CMA SEEKS TO AVOID THE OCCURRENCE OF ACTUAL OR APPARENT MATERIAL CONFLICTS OF INTEREST IN THE PROXY VOTING PROCESS BY VOTING IN ACCORDANCE WITH PREDETERMINED VOTING GUIDELINES, AS STATED BELOW. FOR THOSE PROXY PROPOSALS THAT REQUIRE SPECIAL CONSIDERATION OR IN INSTANCES WHERE SPECIAL CIRCUMSTANCES MAY REQUIRE VARYING FROM THE PREDETERMINED GUIDELINES, THE CMG PROXY COMMITTEE WILL DETERMINE THE BEST INTEREST OF CMA'S CLIENTS AND VOTE ACCORDINGLY, WITHOUT CONSIDERATION OF ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES.
OVERVIEW:
CMA's policy is based upon its fiduciary obligation to act in its clients' best interest. Citing this obligation, the SEC has adopted rules pursuant to the investment Advisers Act of 1940 and Investment Company Act of 1940 with respect to proxy voting.
PROCEDURE:
I. ACCOUNT POLICIES
Except as otherwise directed by the client, CMA shall vote as follows:
SEPARATELY MANAGED ACCOUNTS
CMA shall vote proxies on securities held in its separately managed accounts.
COLUMBIA TRUST COMPANY (CTC) TRUST POOLS
CMA shall vote proxies on securities held in the trust pools.
(2) A CMG Family Fund or a Fund is a registered investment company or series of a registered investment company managed or advised by Columbia Management Advisors, LLC.
CMG FAMILY FUNDS/CMA FUND TRUST
CMA shall vote proxies on securities held in the Funds, including multi-managed and subadvised Funds.
COLUMBIA PRIVATE PORTFOLIO
CMA shall vote proxies on securities held in its separately managed accounts.
ALTERNATIVE INVESTMENT GROUP
CMA's clients may invest in securities ("Alternative Investments") issued by alternative investment vehicles (i.e. hedge funds, private equity funds, and other alternative investment pools) that are structured as private limited partnerships ("LPs"), limited liability companies ("LLCs") or offshore corporations. Generally, CMA's Alternative Investment Group ("AIG") is the platform through which CMA provides advisory services relating to Alternative Investments.
The voting rights of Alternative Investments generally are rights of contract set forth in the limited liability company or limited partnership agreement, in the case of LLCs and LPs, or Memorandum and Articles of Association or By-laws, in the case of offshore corporations. Also, as privately placed securities, Alternative Investments generally are not subject to the regulatory scheme applicable to public companies. Consequently, in most cases, proxies are not solicited regarding Alternative Investment vehicles. Instead, consents may be solicited from members, limited partners or shareholders.
Because of the unique characteristics of Alternative Investments, CMA has a tailored process for voting Alternative Investment proxies and consents.
Process
AIG will vote all Alternative Investment proxies and consents in accordance with this Policy. The committee voting AIG proxies consists of AIG senior management, investment and operations professionals. Conflicts of interest are to be monitored and resolved as set forth in this Policy.
II. PROXY COMMITTEE
CMA shall establish a Proxy Committee whose standing members shall include the head of core equity, head of value, head of growth, head of income strategies, head of equity research and head of fixed income research. Each standing member may designate a senior portfolio manager or a senior analyst officer to act as a substitute in a given matter on their behalf.
The Proxy Committee's functions shall include, in part,
(a) direction of the vote on proposals where there has been a
recommendation to the Committee, pursuant to Section IV.B, not to vote
according to the predetermined Voting Guidelines stated in Section
IV.A or on proposals which require special, individual consideration
in accordance with Section IV.C;
(b) review at least annually of this Proxy Voting Policy and Procedure to ensure consistency with internal policies, client disclosures and regulatory requirements;
(c) review at least annually of existing Voting Guidelines and need for development of additional Voting Guidelines to assist in the review of proxy proposals; and
(d) development and modification of Voting Procedures, as stated in
Section V, as it deems appropriate or necessary.
The Proxy Committee shall establish a charter, which shall set forth the Committee's purpose, membership and operation. The Committee's charter shall be consistent, in all material respects, with this policy and procedure.
III. CONFLICTS OF INTEREST
With Other Bank of America Businesses
Bank of America Corporation ("BAC"), the ultimate corporate parent of CMA, Bank of America, N.A. and all of their numerous affiliates owns, operates and has interests in many lines of business that may create or give rise to the appearance of a conflict of interest between BAC or its affiliates and those of Firm-advised clients. For example, the commercial and investment banking business lines may have interests with respect to issuers of voting securities that could appear to or even actually conflict with CMA's duty, in the proxy voting process, to act in the best economic interest of its clients.
Within CMA
Conflicts of interest may also arise from the business activities of CMA. For example, CMA might manage (or be seeking to manage) the assets of a benefit plan for an issuer. CMA may also be presented with an actual or apparent conflict of interest where proxies of securities issued by BAC or a CMG Family Fund, for which CMA serves as investment adviser, are to be voted for a client's account.
Management of Conflicts
CMA's policy is to always vote proxies in the best interest of its clients, as a whole, without regard to its own self-interest or that of its affiliates. BAC as well as CMA has various compliance policies and procedures in place in order to address any material conflicts of interest that might arise in this context.
1. BAC's enterprise-wide Code of Ethics specifically prohibits the flow of certain business-related information between associates on the commercial and/or investment banking side of the corporation and associates charged with trust or (as in the case of BACAP associates) non-trust fiduciary responsibilities, including investment decision-making and proxy voting.
2. In addition, BAC has adopted "Global Policies and Procedures Regarding Information Walls and Inside Information." Pursuant to these policies and procedures, "information barriers" have been established between various BAC business lines designed to prohibit the passage of certain information across those barriers.
3. Within CMA, CMA's Code of Ethics affirmatively requires that associates of CMA act in a manner whereby no actual or apparent conflict of interest may be seen as arising between the associate's interests and those of CMA's Clients.
4. By assuming his or her responsibilities pursuant to this Policy, each member of the Proxy Committee and any CMA or BAC associate advising or acting under the supervision or oversight of the Proxy Committee undertakes:
- To disclose to the chairperson of the Proxy Committee and the chairperson to the head of CMG Compliance any actual or apparent personal material conflicts of interest which he or she may have (e.g., by way of substantial ownership of securities, relationships with nominees for directorship, members of an issuer's or dissident's management or otherwise) in determining whether or how CMA shall vote proxies. In the event the chairperson of the Proxy Committee has a conflict of interest regarding a given matter, he or she shall abstain from participating in the Committee's determination of whether and/or how to vote in the matter; and
- To refrain from taking into consideration, in the decision as to whether or how CMA shall vote proxies:
- The existence of any current or prospective material business relationship between CMA, BAC or any of their affiliates, on one hand, and any party (or its affiliates) that is soliciting or is otherwise interested in the proxies to be voted, on the other hand; and/or
- Any direct, indirect or perceived influence or attempt to influence such action which the member or associate views as being inconsistent with the purpose or provisions of this Policy or the Code of Ethics of CMA or BAC.
Where a material conflict of interest is determined to have arisen in the proxy voting process that may not be adequately mitigated by voting in accordance with the predetermined Voting Guidelines, CMA's policy is to invoke one or more of the following conflict management procedures:
1. Convene the Proxy Committee for the purpose of voting the affected proxies in a manner that is free of the conflict.
2. Causing the proxies to be voted in accordance with the recommendations of a qualified, independent third party, which may include CMA's proxy voting agent.
3. In unusual cases, with the Client's consent and upon ample notice, forwarding the proxies to CMA's clients so that they may vote the proxies directly.
IV. VOTING GUIDELINES
A. THE PROXY COMMITTEE HAS ADOPTED THE FOLLOWING GUIDELINES FOR VOTING PROXIES:
1. Matters Relating to the Board of Directors/Corporate Governance
CMA generally will vote FOR:
- Proposals for the election of directors or for an increase or decrease in the number of directors, provided that no more than one-third of the Board of Directors would, presently or at any time during the previous three-year period, be from management.
However, CMA generally will WITHHOLD votes from pertinent director nominees if:
(i) the board as proposed to be constituted would have more than one-third of its members from management;
(ii) the board does not have audit, nominating, and compensation committees composed solely of directors who qualify as being regarded as "independent," i.e. having no material relationship, directly or indirectly, with the Company, as CMA's proxy voting agent may determine (subject to the Proxy Committee's contrary determination of independence or non-independence);
(iii) the nominee, as a member of the audit committee, permitted the company to incur excessive non-audit fees (as defined below regarding other business matters -- ratification of the appointment of auditors);
(iv) a director serves on more than six public company boards;
(v) the CEO serves on more than two public company boards other than the company's board.
On a CASE-BY-CASE basis, CMA may WITHHOLD votes for a director nominee who has failed to observe good corporate governance practices or, through specific corporate action or inaction (e.g. failing to implement policies for which a majority of shareholders has previously cast votes in favor), has demonstrated a disregard for the interests of shareholders.
- Proposals requesting that the board audit, compensation and/or nominating committee be composed solely of independent directors. The Audit Committee must satisfy the independence and experience requirements established by the Securities and Exchange Commission ("SEC") and the New York Stock Exchange, or appropriate local requirements for foreign securities. At least one member of the Audit Committee must qualify as a "financial expert" in accordance with SEC rules.
- Proposals to declassify a board, absent special circumstances that would indicate that shareholder interests are better served by a classified board structure.
CMA generally will vote FOR:
- Proposals to create or eliminate positions or titles for senior management. CMA generally prefers that the role of Chairman of the Board and CEO be held by different persons unless there are compelling reasons to vote AGAINST a proposal to separate these positions, such as the existence of a counter-balancing governance structure that includes at least the following elements in addition to applicable listing standards:
- Established governance standards and guidelines.
- Full board composed of not less than two-thirds "independent" directors, as defined by applicable regulatory and listing standards.
- Compensation, as well as audit and nominating (or corporate governance) committees composed entirely of independent directors.
- A designated or rotating presiding independent director appointed by and from the independent directors with the authority and responsibility to call and preside at regularly and, as necessary, specially scheduled meetings of the independent directors to be conducted, unless the participating independent directors otherwise wish, in executive session with no members of management present.
- Disclosed processes for communicating with any individual director, the presiding independent director (or, alternatively, all of the independent directors, as a group) and the entire board of directors, as a group.
- The pertinent class of the Company's voting securities has out-performed, on a three-year basis, both an appropriate peer group and benchmark index, as indicated in the performance summary table of the Company's proxy materials. This requirement shall not apply if there has been a change in the Chairman/CEO position within the three-year period.
- Proposals that grant or restore shareholder ability to remove directors with or without cause.
- Proposals to permit shareholders to elect directors to fill board vacancies.
- Proposals that encourage directors to own a minimum amount of company stock.
- Proposals to provide or to restore shareholder appraisal rights.
- Proposals to adopt cumulative voting.
- Proposals for the company to adopt confidential voting.
CMA generally will vote AGAINST:
- Proposals to classify boards, absent special circumstances indicating that shareholder interests would be better served by a classified board structure.
- Proposals that give management the ability to alter the size of the board without shareholder approval.
- Proposals that provide directors may be removed only by supermajority vote.
- Proposals to eliminate cumulative voting.
- Proposals which allow more than one vote per share in the election of directors.
- Proposals that provide that only continuing directors may elect replacements to fill board vacancies.
- Proposals that mandate a minimum amount of company stock that directors must own.
- Proposals to limit the tenure of non-management directors.
CMA will vote on a CASE-BY-CASE basis in contested elections of directors.
CMA generally will vote on a CASE-BY-CASE basis on board approved proposals relating to corporate governance. Such proposals include, but are not limited to:
- Director and officer indemnification and liability protection. CMA is opposed to entirely eliminating directors' and officers' liability for monetary damages for violating the duty of care. CMA is also opposed to expanding coverage beyond just legal expenses to acts, such as negligence, that are more serious violations of fiduciary obligation than mere carelessness. CMA supports proposals which provide such expanded coverage in cases when a director's or officer's legal defense was unsuccessful if: (i) the director was found to have acted in good faith and in a manner that he/she reasonably believed was in the best interests of the company, AND (ii) if the director's legal expenses would be covered.
- Reimbursement of proxy solicitation expenses taking into consideration whether or not CMA was in favor of the dissidents.
- Proxy contest advance notice. CMA generally will vote FOR proposals that allow shareholders to submit proposals as close to the meeting date as possible while allowing for sufficient time for Company response, SEC review, and analysis by other shareholders.
2. Compensation
CMA generally will vote FOR management sponsored compensation plans (such as bonus plans, incentive plans, stock option plans, pension and retirement benefits, stock purchase plans or thrift plans) if they are consistent with industry and country standards. However, CMA generally is opposed to compensation plans that substantially dilute ownership interest in a company, provide participants with excessive awards, or have objectionable structural features. Specifically, for equity-based plans, if the proposed number of shares authorized for option programs (excluding authorized shares for expired options) exceeds an average of 10% of the currently outstanding shares over the previous three years or an average of 3% over the previous three years for directors only, the proposal should be referred to the Proxy Committee. The Committee will then consider the circumstances surrounding the issue and vote in the best interest of CMA's clients. CMA requires that management provide substantial justification for the repricing of options.
CMA generally will vote FOR:
- Proposals requiring that executive severance arrangements be submitted for shareholder ratification.
- Proposals asking a company to expense stock options.
- Proposals to put option repricings to a shareholder vote.
- Employee stock purchase plans that have the following features: (i) the shares purchased under the plan are acquired for no less than 85% of their market value, (ii) the offering period under the plan is 27 months or less, and (iii) dilution is 10% or less.
CMA generally will vote AGAINST:
- Stock option plans that permit issuance of options with an exercise price below the stock's current market price, or that permit replacing or repricing of out-of-the money options.
- Proposals to authorize the replacement or repricing of out-of-the money options.
CMA will vote on a CASE-BY-CASE basis proposals regarding approval of specific executive severance arrangements.
3. Capitalization
CMA generally will vote FOR:
- Proposals to increase the authorized shares for stock dividends, stock splits (and reverse stock splits) or general issuance, unless proposed as an anti-takeover measure or a general issuance proposal increases the authorization by more than 30% without a clear need presented by the company. Proposals for reverse stock splits should include an overall reduction in authorization.
For companies recognizing preemptive rights for existing shareholders, CMA generally will vote FOR general issuance proposals that increase the authorized shares by more than 30%. CMA will vote on a CASE-BY-CASE basis all such proposals by companies that do not recognize preemptive rights for existing shareholders.
- Proposals for the elimination of authorized but unissued shares or retirement of those shares purchased for sinking fund or treasury stock.
- Proposals to institute/renew open market share repurchase plans in which all shareholders may participate on equal terms.
- Proposals to reduce or change the par value of common stock, provided the number of shares is also changed in order to keep the capital unchanged.
4. Mergers, Restructurings and Other Transactions
CMA will review, on a CASE-BY-CASE basis, business transactions such as mergers, acquisitions, reorganizations, liquidations, spinoffs, buyouts and sale of all or substantially all of a company's assets.
5. Anti-Takeover Measures
CMA generally will vote AGAINST proposals intended largely to avoid acquisition prior to the occurrence of an actual event or to discourage acquisition by creating a cost constraint. With respect to the following measures, CMA generally will vote as follows:
Poison Pills
- CMA votes FOR shareholder proposals that ask a company to submit its poison pill for shareholder ratification.
- CMA generally votes FOR shareholder proposals to eliminate a poison pill.
- CMA generally votes AGAINST management proposals to ratify a poison pill.
Greenmail
- CMA will vote FOR proposals to adopt anti-greenmail charter or bylaw amendments or to otherwise restrict a company's ability to make greenmail payments.
Supermajority vote
- CMA will vote AGAINST board-approved proposals to adopt anti-takeover measures such as supermajority voting provisions, issuance of blank check preferred stock, the creation of a separate class of stock with disparate voting rights and charter amendments adopting control share acquisition provisions.
Control Share Acquisition Provisions
- CMA will vote FOR proposals to opt out of control share acquisition statutes.
6. Other Business Matters
CMA generally will vote FOR:
- Proposals to approve routine business matters such as changing the company's name and procedural matters relating to the shareholder meeting such as approving the minutes of a prior meeting.
- Proposals to ratify the appointment of auditors, unless any of the following apply in which case CMA will generally vote AGAINST the proposal:
- Credible reason exists to question:
- The auditor's independence, as determined by applicable regulatory requirements.
- The accuracy or reliability of the auditor's opinion as to the company's financial position.
- Fees paid to the auditor or its affiliates for "non-audit" services were excessive, i.e., in excess of the total fees paid for "audit," "audit-related" and "tax compliance" and/or "tax return preparation" services, as disclosed in the company's proxy materials.
- Bylaw or charter changes that are of a housekeeping nature (e.g., updates or corrections).
- Proposals to approve the annual reports and accounts provided the certifications required by the Sarbanes-Oxley Act of 2002 have been provided.
CMA generally will vote AGAINST:
- Proposals to eliminate the right of shareholders to act by written consent or call special meetings.
- Proposals providing management with authority to adjourn an annual or special shareholder meeting absent compelling reasons, or to adopt, amend or repeal bylaws without shareholder approval, or to vote unmarked proxies in favor of management.
- Shareholder proposals to change the date, time or location of the company's annual meeting of shareholders.
CMA will vote AGAINST:
- Authorization to transact other unidentified substantive (as opposed to procedural) business at a meeting.
CMA will vote on a CASE-BY-CASE basis:
- Proposals to change the location of the company's state of incorporation. CMA considers whether financial benefits (e.g., reduced fees or taxes) likely to accrue to the company as a result of a reincorporation or other change of domicile outweigh any accompanying material diminution of shareholder rights.
- Proposals on whether and how to vote on "bundled" or otherwise conditioned proposals, depending on the overall economic effects upon shareholders.
CMA generally will ABSTAIN from voting on shareholder proposals predominantly involving social, socio-economic, environmental, political or other similar matters on the basis that their impact on share value can rarely be anticipated with any high degree of confidence. CMA may, on a CASE-BY-CASE basis, vote:
- FOR proposals seeking inquiry and reporting with respect to, rather than cessation or affirmative implementation of, specific policies where the pertinent issue warrants separate communication to shareholders; and
- FOR or AGAINST the latter sort of proposal in light of the relative benefits and detriments (e.g. distraction, costs, other burdens) to share value which may be expected to flow from passage of the proposal.
7. Other Matters Relating to Foreign Issues
CMA generally will vote FOR:
- Most stock (scrip) dividend proposals. CMA votes AGAINST proposals that do not allow for a cash option unless management demonstrates that the cash option is harmful to shareholder value.
- Proposals to capitalize the company's reserves for bonus issues of shares or to increase the par value of shares.
- Proposals to approve control and profit transfer agreements between a parent and its subsidiaries. o Management proposals seeking the discharge of management and supervisory board members, unless there is concern about the past actions of the company's auditors/directors and/or legal action is being taken against the board by other shareholders.
- Management proposals concerning allocation of income and the distribution of dividends, unless the dividend payout ratio has been consistently below 30 percent without adequate explanation or the payout is excessive given the company's financial position.
- Proposals for the adoption of financing plans if they are in the best economic interests of shareholders.
8. Investment Company Matters
Election of Directors:
CMA will vote on a CASE-BY-CASE basis proposals for the election of directors, considering the following factors:
- Board structure
- Attendance at board and committee meetings.
CMA will WITHHOLD votes from directors who:
- Attend less than 75 percent of the board and committee meetings without a valid excuse for the absences. Valid reasons include illness or absence due to company business. Participation via telephone is acceptable. In addition, if the director missed only one meeting or one day's meetings, votes should not be withheld even if such absence dropped the director's attendance below 75 percent.
- Ignore a shareholder proposal that is approved by a majority of shares outstanding;
- Ignore a shareholder proposal this is approved by a majority of the votes cast for two consecutive years;
- Are interested directors and sit on the audit or nominating committee; or
- Are interested directors and the full board serves as the audit or nominating committee or the company does not have one of these committees.
Proxy Contests:
CMA will vote on a CASE-BY-CASE basis proposals for proxy contests, considering the following factors:
- Past performance relative to its peers
- Market in which fund invests
- Measures taken by the board to address the pertinent issues (e.g., closed-end fund share market value discount to NAV)
- Past shareholder activism, board activity and votes on related proposals
- Strategy of the incumbents versus the dissidents
- Independence of incumbent directors; director nominees
- Experience and skills of director nominees
- Governance profile of the company
- Evidence of management entrenchment
Converting Closed-end Fund to Open-end Fund:
CMA will vote conversion proposals on a CASE-BY-CASE basis, considering the following factors:
- Past performance as a closed-end fund
- Market in which the fund invests
- Measures taken by the board to address the discount
- Past shareholder activism, board activity, and votes on related proposals.
Investment Advisory Agreements:
CMA will vote investment advisory agreements on a CASE-BY-CASE basis, considering the following factors:
- Proposed and current fee schedules
- Fund category/investment objective
- Performance benchmarks
- Share price performance as compared with peers
- Resulting fees relative to peers
- Assignments (where the adviser undergoes a change of control)
Approving New Classes or Series of Shares:
CMA will vote FOR the establishment of new classes or series of shares. Preferred Stock Proposals:
CMA will vote on a CASE-BY-CASE basis proposals for the authorization for or increase in the preferred shares, considering the following factors:
- Stated specific financing purpose
- Possible dilution for common shares
- Whether the shares can be used for antitakover purposes
Policies Addressed by the Investment Company Act of 1940 ( "1940 Act "):
CMA will vote proposals regarding adoption or changes of policies addressed by the 1940 Act on a CASE-BY-CASE basis, considering the following factors:
- Potential competitiveness
- Regulatory developments
- Current and potential returns
- Current and potential risk
CMA generally will vote FOR these amendments as long as the proposed changes do not fundamentally alter the investment focus of the fund and do comply with current SEC interpretations.
Changing a Fundamental Restriction to a Non-fundamental Restriction:
CMA will vote on a CASE-BY-CASE basis proposals to change a fundamental restriction to a nonfundamental restriction, considering the following factors:
- Fund's target investments
- Reasons given by the fund for the change
- Projected impact of the change on the portfolio
Change Fundamental Investment Objective to Non-fundamental:
CMA will vote AGAINST proposals to change a fund's investment objective from fundamental to non-fundamental unless management acknowledges meaningful limitations upon its future requested ability to change the objective
Name Change Proposals:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's name, considering the following factors:
- Political/economic changes in the target market
- Consolidation in the target market
- Current asset composition
Change in Fund's Subclassification:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's subclassification, considering the following factors:
- Potential competitiveness
- Current and potential returns
- Risk of concentration
- Consolidation in target industry
Disposition of Assets/Termination/Liquidation:
CMA will vote on a CASE-BY-CASE basis these proposals, considering the following factors:
- Strategies employed to salvage the company
- Past performance of the fund
- Terms of the liquidation
Changes to the Charter Document:
CMA will vote on a CASE-BY-CASE basis proposals to change the charter document, considering the following factors:
- The degree of change implied by the proposal
- The efficiencies that could result
- The state of incorporation; net effect on shareholder rights
- Regulatory standards and implications
CMA will vote FOR:
- Proposals allowing the Board to impose, without shareholder approval, fees payable upon redemption of fund shares, provided imposition of such fees is likely to benefit long-term fund investors (e.g., by deterring market timing activity by other fund investors)
- Proposals enabling the Board to amend, without shareholder approval, the fund's management agreement(s) with its investment adviser(s) or sub-advisers, provided the amendment is not required by applicable law (including the Investment Company Act of 1940) or interpretations thereunder to require such approval
CMA will vote AGAINST:
- Proposals enabling the Board to:
- Change, without shareholder approval the domicile of the fund
- Adopt, without shareholder approval, material amendments of the fund's declaration of trust or other organizational document
Changing the Domicile of a Fund:
CMA will vote on a CASE-BY-CASE basis proposals to reincorporate, considering the following factors:
- Regulations of both states
- Required fundamental policies of both states
- The increased flexibility available
Authorizing the Board to Hire and Terminate Subadvisors Without Shareholder Approval:
CMA will vote FOR proposals to enable the Board or Investment Adviser to hire and terminate sub-advisers, without shareholder approval, in accordance with applicable rules or exemptive orders under the Investment Company Act of 1940
Distribution Agreements:
CMA will vote these proposals on a CASE-BY-CASE basis, considering the following factors:
- Fees charged to comparably sized funds with similar objectives
- The proposed distributor's reputation and past performance
- The competitiveness of the fund in the industry
- Terms of the agreement
Master-Feeder Structure:
CMA will vote FOR the establishment of a master-feeder structure.
Mergers:
CMA will vote merger proposals on a CASE-BY-CASE basis, considering the following factors:
- Resulting fee structure
- Performance of both funds
- Continuity of management personnel
- Changes in corporate governance and their impact on shareholder rights
Shareholder Proposals to Establish Director Ownership Requirement:
CMA will generally vote AGAINST shareholder proposals that mandate a specific minimum amount of stock that directors must own in order to qualify as a director or to remain on the board. While CMA favors stockownership on the part of directors, the company should determine the appropriate ownership requirement.
Shareholder Proposals to Reimburse Shareholder for Expenses Incurred:
CMA will vote on a CASE-BY-CASE basis proposals to reimburse proxy solicitation expenses.
Shareholder Proposals to Terminate the Investment Adviser:
CMA will vote on a CASE-BY-CASE basis proposals to terminate the investment adviser, considering the following factors:
- Performance of the fund's NAV
- The fund's history of shareholder relations
- The performance of other funds under the adviser's management
9. Alternative Investment Group ("AIG") Matters
The AIG Proxy Sub-Committee generally will vote in accordance with the guidelines set forth in this policy. With respect to matters that are not addressed by the guidelines, the AIG Proxy Sub-Committee will vote each such matter on a CASE-BY-CASE basis.
B. ABILITY TO VOTE PROXIES OTHER THAN AS PROVIDED IN A ABOVE.
A Portfolio Manager, sub-adviser or other party involved with a client's account may conclude that the best interest of the firm's client, as defined above, requires that a proxy be voted in a manner that differs from the predetermined proxy Voting Guidelines stated in Section IV.A. In this situation, he or she shall request that the Proxy Committee consider voting the proxy other than according such Guidelines. If any person, group, or entity requests the Proxy Committee (or any of its members) vote a proxy other than according to the predetermined Voting Guidelines, that person shall furnish to the Proxy Committee a written explanation of the reasons for the request and a description of the person's, group's, or entity's relationship, if any, with the parties proposing and/or opposing the matter's adoption.
C. PROPOSALS REQUIRING SPECIAL CONSIDERATION
The following proposals require special, individual consideration. The Proxy Committee will determine how proxies related to all such proposals will be voted.
1. NEW PROPOSALS. For each new type of proposal that is expected to be proposed to shareholders of multiple companies, the Proxy Committee will develop a Voting Guideline which will be incorporated into this Policy.
2. ACCOUNTS ADHERING TO TAFT HARTLEY PRINCIPLES. All proposals for these accounts shall be voted according to the Taft Hartley Guidelines developed by Institutional Shareholder Services, Inc. ("ISS").
3. ACCOUNTS ADHERING TO SOCIALLY RESPONSIBLE PRINCIPLES. All proposals for these accounts shall be voted according to the Socially Responsible Guidelines developed by ISS or as specified by the client.
4. PROXIES OF INTERNATIONAL ISSUERS WHICH BLOCK SECURITIES SALES BETWEEN THE TIME A SHAREHOLDER SUBMITS A PROXY AND THE VOTE. Proposals for these securities shall be voted only on the specific instruction of the Proxy Committee and to the extent practicable in accordance with the Voting Guidelines set forth in this Policy.
5. PROXIES OF INVESTMENT COMPANY SHARES. Proposals on issues other than those specified in Section IV.A.
6. EXECUTIVE/DIRECTOR COMPENSATION. Except as provided in Section
IV.A, proposals relating to compensation of any executive or director
will be voted as recommended by ISS or as otherwise directed by the
Proxy Committee.
7. PREEMPTIVE RIGHTS. Proposals to create or eliminate shareholder preemptive rights. In evaluating these proposals the Proxy Committee will consider the size of the company and the nature of its shareholder base.
V. VOTING PROCEDURES
The Proxy Committee has developed the following procedures to aid the voting of proxies according to the Voting Guidelines set forth in Section IV above. The Proxy Committee may revise these procedures from time to time, as it deems necessary or appropriate to effect the purposes of this Policy.
- CMA shall use an independent, third-party vendor (currently Institutional Shareholder Services ("ISS")), to implement its proxy voting process as CMAs proxy voting agent. This retention is subject to CMA continuously assessing the vendor's independence from CMA and its affiliates, and the vendor's ability to perform its responsibilities (and, especially, its responsibility to vote client proxies in accordance with CMA's proxy voting guidelines) free of any actual, potential or apparent material conflicts of interests that may arise between the interests of the vendor, its affiliates, the vendor's other clients and the owners, officers or employees of any such firm, on the one hand, and CMA's clients, on the other hand. As means of performing this assessment, CMA will require various reports and notices from the vendor, as well as periodic audits of the vendor's voting record and other due diligence.
- ISS shall provide proxy analysis and record keeping services in addition to voting proxies on behalf of CMA in accordance with this Policy.
- On a daily basis CMA shall send to ISS a holdings file detailing each equity holding held in all accounts over which CMA has voting authority. Information regarding equity holdings for international portfolio shall be sent weekly.
- ISS shall receive proxy material information from Proxy Edge or the custodian bank for the account. This shall include issues to be voted upon, together with a breakdown of holdings for CMA accounts. ISS shall then reconcile information it receives from CMA with that it has received from Proxy Edge and custodian banks. Any discrepancies shall be promptly noted and resolved by ISS, with notice to CMA.
- Whenever a vote is solicited, ISS shall execute the vote according to CMA's Voting Guidelines previously delivered by CMA to ISS as set forth in Section IV.A.
- If ISS is not sure how to vote a particular proxy, then ISS will issue a request for voting instructions to CMA over a secure website. CMA personnel shall check this website regularly. The request shall be accompanied by a recommended vote. The recommended vote shall be based upon CMA's understanding of the Voting Guidelines previously delivered to ISS. CMA shall promptly provide ISS with any amendments or modifications to the Voting Guidelines if necessary. CMA shall return a final instruction to vote to ISS, which ISS shall record with Proxy Edge or the custodian bank as our agent.
- Each time that ISS shall send CMA a request to vote the request shall be accompanied by the recommended vote determined in accordance with CMA's Voting Guidelines. ISS shall vote as indicated in the request unless the client has reserved discretion, the Proxy Committee determines that the best interest of clients requires another vote or the proposal is a matter as to which the Proxy Committee affords special, individual consideration under Section IV.C. In such situations ISS shall vote based on the direction of the client or the Proxy Committee, as the case may be. The interests of CMA's Taft Hartley or Socially Responsible clients may impact a proposal that normally should be voted in a certain way. ISS shall inform CMA of all proposals having impact on its Taft Hartley and or Socially Responsible clients. The Proxy Voting Committee shall be consulted before a vote is placed in cases where Taft Hartley or Socially Responsible issues are presented.
- ISS shall have procedures in place to ensure that a vote is cast on every security holding maintained by CMA on which a vote is solicited unless otherwise directed by the Proxy Committee. On a yearly basis, or as required by our clients CMA shall receive a report from ISS detailing CMA's voting for the previous period.
VI. AVAILABILITY OF PROXY POLICY AND VOTING RECORD
A summary disclosure regarding the provisions of this Policy is available in CMA's Form ADV. Upon receipt of a Client's request for more information, CMA will provide to the Client a copy of this Policy and/or how CMA voted proxies for the Client pursuant to this Policy for up to a one-year period.
COLUMBIA TAX-EXEMPT FUND
COLUMBIA TAX-EXEMPT INSURED FUND
Series of Columbia Funds Series Trust I
Statement of Additional Information
March 27, 2006
This Statement of Additional Information ("SAI") contains information which may be useful to investors but which is not included in the Prospectuses of Columbia Tax-Exempt Fund and Columbia Tax-Exempt Insured Fund (each a "Fund" and, collectively, the "Funds"). This SAI is not a prospectus and is authorized for distribution only when accompanied or preceded by a Prospectus of the relevant Fund dated March 27, 2006. This SAI should be read together with the relevant Prospectus and each Fund's most recent Annual Report dated November 30, 2005. Each Fund's most recent Annual Report to Shareholders are separate documents supplied with this SAI. Investors may obtain a free copy of the relevant Prospectus and Annual Report from Columbia Management Distributors, Inc. ("CMD"), One Financial Center, Boston, MA 02111-2621 or by calling 1-800-426-3750. The Financial Statements and Report of the Independent Registered Public Accounting Firm appearing in each Fund's November 30, 2005 Annual Report, are incorporated into this SAI by reference.
Part 1 of this SAI contains specific information about the Funds. Part 2 includes information about the funds distributed by CMD generally and additional information about certain securities and investment techniques described in the Funds' Prospectuses.
TABLE OF CONTENTS
Part 1 Page Definitions b Organization and History b Investment Goals and Policies b Fundamental Investment Policies c Other Investment Policies c Fund Charges and Expenses d Custodian n Independent Registered Public Accounting Firm n Part 2 Miscellaneous Investment Practices 1 Taxes 22 Additional Tax Matters Concerning Trust Shares 27 Management of the Funds 29 Determination of Net Asset Value 42 How to Buy Shares 43 Special Purchase Programs/Investor Services 47 Programs for Reducing or Eliminating Sales Charges 49 How to Sell Shares 52 Distributions 56 How to Exchange Shares 56 Suspension of Redemptions 57 Shareholder Liability 57 Shareholder Meetings 57 Appendix I 59 Appendix II 65 |
INT-39/107906-0306
PART 1
COLUMBIA TAX-EXEMPT FUND
COLUMBIA TAX-EXEMPT INSURED FUND
Statement of Additional Information
March 27, 2006
DEFINITIONS
"Trust" Columbia Funds Series Trust I
"Fund" or "Tax-Exempt Fund" Columbia Tax-Exempt Fund
"Fund" or "Insured Fund" Columbia Tax-Exempt Insured Fund
"Advisor" Columbia Management Advisors, LLC, the Funds' investment advisor
"CMD" Columbia Management Distributors, Inc. (formerly named Columbia Funds
Distributor, Inc.), the Funds' distributor
"CMS" Columbia Management Services, Inc. (formerly named Columbia Funds Services,
Inc.), the Funds' shareholder services and transfer agent
|
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1987. Each Fund is an open-end, management investment company which is a diversified series of the Trust, and represents the entire interest in a separate series of the Trust. Prior to September 19, 2005 and March 27, 2006 (the "Fund Reorganization Dates"), the Tax-Exempt Fund and Insured Fund, respectively, were each organized as a series of Columbia Funds Trust IV, a Massachusetts business trust (the "Predecessor Funds"). The Tax-Exempt Fund commenced investment operations on November 21, 1978 and the Insured Fund commenced investment operations on November 20, 1985. The information provided for each Fund in this SAI for periods prior to the Fund Reorganization Dates relates to the Predecessor Funds.
Effective October 13, 2003, the Trust changed its name from "Liberty-Stein Roe Funds Municipal Trust" to "Columbia Funds Trust IX." Effective September 19, 2005, the name of the Trust was changed from "Columbia Funds Trust IX" to its current name.
INVESTMENT GOALS AND POLICIES
The Prospectus describes the Funds' investment goals and investment policies.
Part 1 of this SAI includes additional information concerning, among other
things, the fundamental investment policies of the Funds. Part 2 contains
additional information about the following securities and investment techniques
that may be utilized by each Fund, unless otherwise noted:
Short-Term Trading
Zero Coupon Securities
Lower Rated Bonds (Tax-Exempt Fund only)
Forward Commitments
When Issued Securities
Municipal Leases
Asset Backed Securities
Repurchase Agreements
Options on Securities
Futures Contracts and Related Options
Inverse Floating Obligations
Pay-In-Kind (PIK) Securities
Participation Interests
Stand-by Commitments
Swap Agreements
Except as indicated below under "Fundamental Investment Policies," the Funds' investment policies are not fundamental, and the Trustees may change the policies without shareholder approval.
b
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940 (the "1940 Act") provides that a "vote of a
majority of the outstanding voting securities" means the affirmative vote of
the lesser of (1) more than 50% of the outstanding shares of the Fund, or
(2) 67% or more of the shares present at a meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy. The
following fundamental investment policies cannot be changed without such a vote.
Each Fund may not, as a matter of fundamental policy:
1. Underwrite any issue of securities issued by other persons within the
meaning of the Securities Act of 1933, as amended (the "1933 Act") except
when it might be deemed to be an underwriter either: (a) in connection with
the disposition of a portfolio security; or (b) in connection with the
purchase of securities directly from the issuer thereof in accordance with
its investment objective. This restriction shall not limit the Fund's
ability to invest in securities issued by other registered investment
companies.
2. Purchase or sell real estate, except a Fund may purchase securities of
issuers which deal or invest in real estate and may purchase securities
which are secured by real estate or interests in real estate and it may hold
and dispose of real estate or interests in real estate acquired through the
exercise of its rights as a holder of securities which are secured by real
estate or interests therein.
3. Purchase or sell commodities, except that a Fund may to the extent
consistent with its investment objective, invest in securities of companies
that purchase or sell commodities or which invest in such programs, and
purchase and sell options, forward contracts, futures contracts, and options
on futures contracts and enter into swap contracts and other financial
transactions relating to commodities. This limitation does not apply to
foreign currency transactions including without limitation forward currency
contracts.
4. Purchase any securities which would cause 25% or more of the value of its
total assets at the time of purchase to be invested in the securities of one
or more issuers conducting their principal business activities in the same
industry, provided that: (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government, any state or
territory of the United States, or any of their agencies, instrumentalities
or political subdivisions; and (b) notwithstanding this limitation or any
other fundamental investment limitation, assets may be invested in the
securities of one or more management investment companies to the extent
permitted by the 1940 Act, the rules and regulations thereunder and any
applicable exemptive relief.
5. Make loans, except to the extent permitted by the 1940 Act, the rules and
regulations thereunder and any applicable exemptive relief.
6. Borrow money or issue senior securities except to the extent permitted by
the 1940 Act, the rules and regulations thereunder and any applicable
exemptive relief.
7. Purchase securities (except securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities) of any one issuer if, as a
result, more than 5% of its total assets will be invested in the securities
of such issuer or it would own more than 10% of the voting securities of
such issuer, except that: (a) up to 25% of its total assets may be invested
without regard to these limitations and (b) a Fund's assets may be invested
in the securities of one or more management investment companies to the
extent permitted by the 1940 Act, the rules and regulations thereunder, or
any applicable exemptive relief. For purposes of this restriction,
tax-exempt securities that are supported solely by the revenues of a
particular private entity will be deemed to have been issued by that entity.
In addition to the above listed fundamental investment policies, each Fund:
8. Will, under normal circumstances, invest at least 80% of its total assets in tax-exempt bonds.
OTHER INVESTMENT POLICIES
As non-fundamental investment policies which may be changed without a
shareholder vote, each Fund may not:
1. Purchase securities on margin, but it may receive short-term credit to clear
securities transactions and may make initial or maintenance margin deposits
in connection with futures transactions;
2. Have a short securities position, unless a Fund owns, or owns rights
(exercisable without payment) to acquire, an equal amount of such
securities; and
3. Invest more than 15% of its net assets in illiquid assets.
Notwithstanding the investment policies and restrictions of the Funds, each Fund may invest all or a portion of its investable assets in investment companies with substantially the same investment goals, policies and restrictions as the Funds.
Total assets and net assets are determined at current value for purposes of compliance with investment restrictions and policies. All percentage limitations will apply at the time of investment and are not violated unless an excess or deficiency occurs as a result of such investment.
FUND CHARGES AND EXPENSES
Under the Tax-Exempt and the Insured Fund's Management Agreement, the Trust
pays the Advisor a monthly fee based on the combined average daily net assets,
proportionately allocated among the Tax-Exempt Fund and the Insured Fund at the
following annual rates (subject to any reductions that the Advisor may agree to
periodically):
Average Net Assets Annual Fee Rate ------------------ --------------- Under $500 million 0.55% $500 million but less than $1 billion 0.50% $1 billion but less than $1.5 billion 0.47% $1.5 billion but less than $3 billion 0.44% $3 billion but less than $6 billion 0.43% In excess of $6 billion 0.42% |
Prior to November 1, 2004, the Trust paid the Advisor a monthly fee based on the combined average daily net assets, proportionately allocated among the Tax-Exempt Fund and the Insured Fund at the following annual rates (subject to any reductions that the Advisor may agree to periodically):
Average Net Assets Annual Fee Rate ------------------ --------------- First $1 billion 0.60% Next $2 billion 0.55% Next $1 billion 0.50% Excess over $4 billion 0.45% |
The Advisor is responsible for providing certain pricing and bookkeeping services to the Funds. Effective November 1, 2005, the Funds entered into a Pricing and Bookkeeping Agreement and an Administrative Agreement. Under these agreements, the Funds will continue to receive substantially the same pricing, bookkeeping and administrative services as they currently receive under the Agreement. Under a separate agreement ("Outsourcing Agreement"), the Advisor has delegated the pricing and bookkeeping function to State Street Bank and Trust Company ("State Street"). The Advisor pays fees to State Street under the Outsourcing Agreement. The Advisor and State Street will continue to provide these services to the Funds. For services provided under the Pricing and Bookkeeping Agreement, the Funds will pay the Advisor or to such other person(s) as the Advisor may direct an annual fee, payable monthly, consisting of: (i) for Fund accounting services, $25,000 plus an additional monthly fee based on each Fund's net asset value ("Fund Accounting Fee"); and (ii) for financial reporting services, $13,000 ("Financial Reporting Fee"); provided that during any 12-month period, the aggregate Fund Accounting Fee and Financial Reporting Fee shall not exceed $140,000. The Funds will bear certain reimbursable costs and expenses as provided in the Pricing and Bookkeeping Agreement and the Administrative Agreement.
For periods prior to November 1, 2005, each Fund paid the Advisor fees under a similar pricing and bookkeeping agreement with the Funds, that consisted of a monthly fee consisting of a flat fee plus an asset-based fee, as follows:
. An annual flat fee of $10,000, paid monthly; and
. In any month that a Fund has average net assets of more than $50 million,
a monthly fee equal to the average daily net assets of the Fund for that
month multiplied by a fee rate that is calculated by taking into account
the fees payable to State Street under the Outsourcing Agreement.
Each Fund reimburses the Advisor for all out-of-pocket expenses and charges, including fees payable to third parties (other than State Street) for providing pricing data.
CMS acts as transfer agent, dividend disbursing agent and shareholders' servicing agent for the Funds. Its address is P.O. Box 8081, Boston, Massachusetts 02266-8081. Effective November 1, 2005, the Funds have entered into a new agreement with CMS, under which CMS will continue to provide transfer agency, dividend disbursing agency and shareholders' servicing agency services to the Funds (and will continue to retain Boston Financial Data Services, Inc. to assist them) for a reduced fee. The new fee is $15.23 per account per annum, payable monthly. In addition, the Funds may pay CMS the fees and expenses they pay to third-party dealer firms that maintain omnibus accounts with the Funds, subject to a cap equal to 0.11% of each Fund's net assets represented by the account. The Funds will also pay certain reimbursable out-of-pocket expenses to CMS, and CMS may also retain as additional compensation for its services revenues for fees for wire, telephone and redemption orders, IRA trustee agent fees and account transcripts due CMS from shareholders of the Funds and credits (net of bank charges) earned with respect to balances in accounts CMS maintains in connection with its services to the Funds.
Prior to November 1, 2005, each Fund paid a shareholders' servicing and transfer agency fee to CMS as follows:
An annual open account fee of $34 per open account plus the Fund's allocated share of reimbursement for the out-of-pocket expenses of CMS.
Prior to November 1, 2003, each Fund paid a shareholders' servicing and transfer agency fee to CMS as follows:
. An account fee for each open account of $4.00 per annum, payable on a
monthly basis, in an amount equal to 1/12 the per annum charge; plus
. An account fee for each closed account of $1.50 per annum, payable on a
monthly basis, in an amount equal to 1/12 the per annum charge; plus
. A transaction fee of $1.40 per transaction occurring in Fund accounts
during any month; plus
. A monthly fee at the rate of 0.06% per annum of the average daily closing
value of the total net assets of each Fund for such month; plus
. Each Fund's allocated share of CMS' out-of-pocket expenses, including
fees payable to DST Systems, Inc. (DST) under a remote services agreement
with DST.
e
Recent Fees paid to the Advisor, CMD and CMS (dollars in thousands)
Tax-Exempt Fund
Year ended November 30,
-----------------------
2005 2004 2003
------ ------ -------
Management fee $8,451 $9,516 $10,637
Pricing and bookkeeping fee 456 505 667
Shareholder service and transfer agent fee 1,404 1,756 3,662
12b-1 fees:
Service fee (Class A) 3,227 3,464 3,797
Service fee (Class B) 81 108 150
Service fee (Class C) 18 20 28
Distribution fee (Class B) 305 404 564
Distribution fee (Class C) 68 74 105
Fees waived by CMD (Class C) (14) (15) (21)
Fees and expenses waived or reimbursed by the Advisor/CMS (92) (538) (698)
Insured Fund
Year ended November 30,
-----------------------
2005 2004 2003
------ ------ -------
Management fee $ 717 $ 970 $ 1,052
Pricing and bookkeeping fee 60 65 80
Shareholder service and transfer agent fee 94 166 372
12b-1 fees:
Service fee (Class A) 242 270 294
Service fee (Class B) 35 45 55
Service fee (Class C) 20 25 24
Distribution fee (Class B) 133 170 207
Distribution fee (Class C) 76 92 89
Fees waived by CMD (Class C) (30) (37) (36)
Fees and expenses waived or reimbursed by the Advisor/CMS (7) -- (43)
Brokerage Commissions (dollars in thousands)
Tax-Exempt Fund
Year ended November 30,
-----------------------
2005 2004 2003
------ ------ -------
Total commissions $ 46 $ 70 $ 49
Insured Fund
Year ended November 30,
-----------------------
2005 2004 2003
------ ------ -------
Total commissions $ 5 $ 9 $ 5
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The Trust is required to identify any securities of its "regular brokers or dealers" that each Fund has acquired during its most recent fiscal year. At November 30, 2005, neither Fund held securities of their regular brokers or dealers.
f
Trustees and Trustees' Fees
The "Columbia Fund Complex" includes all of the registered investment companies to which the Advisor and its affiliates provide investment advisory services.
The Advisor or its affiliates pay the compensation of all the officers of the funds in the Columbia Fund Complex (as such term is defined under applicable regulations promulgated under the 1940 Act) advised by the Advisor, including Trustees who are affiliated with the Advisor. For the fiscal year ended November 30, 2005, and the calendar year ended December 31, 2005, the Trustees received the following compensation for serving as Trustees:
Aggregate
Compensation Aggregate Total Compensation
from the Tax- Compensation from the Columbia
Pension or Exempt Fund from the Insured Fund Complex Paid to
Retirement Benefits for the Fiscal Fund for the Fiscal the Trustees for the
Accrued as Part of Year Ended Year Ended Calendar Year Ended
Trustee Fund Expenses(a) November 30, 2005 November 30, 2005 December 31, 2005(b)
------- ------------------- ----------------- ------------------- --------------------
Douglas A. Hacker N/A $3,967 $ 720 $111,277
Janet Langford Kelly N/A 4,230 768 116,500
Richard W. Lowry N/A 3,536 642 142,500
William E. Mayer N/A 4,032 732 147,750
Charles R. Nelson N/A 3,888 706 111,500
John J. Neuhauser N/A 3,610 655 137,833
Patrick J. Simpson(c) N/A 3,748 681 107,500
Thomas E. Stitzel N/A 4,066 738 113,000
Thomas C. Theobald(d) N/A 7,332 1,335 205,500
Anne-Lee Verville(e) N/A 4,243 770 120,723
Richard L. Woolworth N/A 3,788 688 106,500
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(a)The Funds do not currently provide pension or retirement plan benefits to
the Trustees.
(b)As of December 31, 2005, the Columbia Fund Complex consisted of 159 open-end
and 11 closed-end management investment company portfolios.
(c)During the fiscal year ended November 30, 2005, and the calendar year ended
December 31, 2005, Mr. Simpson deferred $3,748 of his compensation from the
Tax-Exempt Fund and $681 of his compensation from the Tax-Exempt Insured
Fund, and $107,500 of his total compensation from the Columbia Fund Complex
pursuant to the deferred compensation plan. At December 31, 2005, the value
of Mr. Simpson's account under that plan was $269,502.
(d)During the fiscal year ended November 30, 2005, and the calendar year ended
December 31, 2005, Mr. Theobald deferred $5,325 of his compensation from the
Tax-Exempt Fund and $972 of his compensation from the Tax-Exempt Insured
Fund, and $150,000 of his total compensation from the Columbia Fund Complex
pursuant to the deferred compensation plan. At December 31, 2005, the value
of Mr. Theobald's account under that plan was $320,084.
(e)At December 31, 2005, the value of Ms. Verville's account under the deferred
compensation plan was $683,935.
g
Role of the Board of Trustees
The Trustees of the Funds are responsible for the overall management and supervision of the Funds' affairs and for protecting the interests of the shareholders. The Trustees meet periodically throughout the year to oversee the Funds' activities, review contractual arrangements with service providers for the Funds and review the Funds' performance. The Trustees have created several committees to perform specific functions for the Funds.
Audit Committee
Ms. Verville and Messrs. Hacker, Stitzel and Woolworth are members of the Audit Committee of the Board of Trustees of the Funds. The Audit Committee's functions include making recommendations to the Trustees regarding the selection and performance of the independent accountants, and reviewing matters relative to accounting and auditing practices and procedures, accounting records, and the internal accounting controls of the Funds and certain service providers. For the fiscal year ended November 30, 2005, the Audit Committee convened seven times.
Governance Committee
Messrs. Lowry, Mayer, Simpson and Theobald are members of the Governance Committee of the Board of Trustees of the Funds. The Governance Committee's functions include recommending to the Trustees nominees for independent Trustee positions and for appointments to various committees, performing periodic evaluations of the effectiveness of the Board, reviewing and recommending to the Board policies and practices to be followed in carrying out the Trustees' duties and responsibilities and reviewing and making recommendations to the Board regarding the compensation of the Trustees who are not affiliated with the Funds' investment advisors. The Governance Committee will consider candidates for Trustee recommended by shareholders. Written recommendations with supporting information should be directed to the Committee, in care of the Funds. For the fiscal year ended November 30, 2005, the Governance Committee convened five times.
Advisory Fees & Expenses Committee
Ms. Kelly and Messrs. Mayer, Nelson and Neuhauser are members of the Advisory Fees & Expenses Committee of the Board of Trustees of the Funds. The Advisory Fees & Expenses Committee's functions include reviewing and making recommendations to the Board as to contracts requiring approval of a majority of the disinterested Trustees and as to any other contracts that may be referred to the Committee by the Board. For the fiscal year ended November 30, 2005, the Advisory Fees & Expenses Committee convened seven times.
Compliance Committee
Ms. Kelly, Messrs. Nelson, Simpson and Stitzel and Ms. Verville are members of the Compliance Committee of the Board of Trustees of the Funds. Mr. Stitzel became a member of the Compliance Committee on May 8, 2005. The Compliance Committee's functions include providing oversight of the monitoring processes and controls regarding the Trust. The Committee supervises legal, regulatory and internal rules, policies, procedures and standards other than those relating to accounting matters and oversight of compliance by the Trust's investment adviser, principal underwriter and transfer agent. For the fiscal year ended November 30, 2005, the Compliance Committee convened four times.
Investment Oversight Committees
Each Trustee of the Funds also serves on an Investment Oversight Committee ("IOC"). Each IOC is responsible for monitoring, on an ongoing basis, a select group of funds in the Columbia Fund Complex and gives particular consideration to such matters as the Funds' adherence to their investment mandates, historical performance, changes in investment processes and personnel, and proposed changes to investment objectives. Investment personnel who manage the Funds attend IOC meetings from time to time to assist each IOC in its review of the
h
Funds. Each IOC meets four times a year. The following are members of the respective IOCs and the general categories of funds in the Columbia Fund Complex which they review:
IOC #1: Messrs. Lowry, Mayer and Neuhauser are responsible for reviewing funds in the following asset categories: Large Growth Diversified, Large Growth Concentrated, Small Growth, Outside Managed (i.e., sub-advised), and Municipal.
IOC #2: Mr. Hacker and Ms. Verville are responsible for reviewing funds in the following asset categories: Large Blend, Small Blend, Foreign Stock, Fixed Income - Multi Sector, Fixed Income - Core and Young Investor.
IOC #3: Messrs. Theobald and Stitzel and Ms. Kelly are responsible for reviewing funds in the following asset categories: Large Value, Mid Cap Value, Small Value, Asset Allocation, High Yield and Money Market.
IOC #4: Messrs. Nelson, Simpson and Woolworth are responsible for
reviewing funds in the following asset categories:
Large/Multi-Cap Blend, Mid Cap Growth, Small Growth, Asset
Allocation, Specialty Equity and Taxable Fixed Income.
Share Ownership
The following table shows the dollar range of equity securities beneficially owned by each Trustee as of December 31, 2005 (i) in each Fund and (ii) in the funds in the Columbia Fund Complex.
Aggregate Dollar Range of
Equity Securities
Dollar Range of Equity Dollar Range of Equity Owned in All Funds
Securities Owned in Securities Owned in Overseen by Trustee in
Name of Trustee the Tax-Exempt Fund the Insured Fund Columbia Fund Complex
--------------- ---------------------- ---------------------- -------------------------
Disinterested Trustees
Douglas A. Hacker None None Over $100,000
Janet Langford Kelly None None Over $100,000
Richard W. Lowry None None Over $100,000
Charles R. Nelson None None Over $100,000
John J. Neuhauser None None Over $100,000
Patrick J. Simpson None None Over $100,000
Thomas E. Stitzel None None $50,001-$100,000
Thomas C. Theobald None None Over $100,000
Anne-Lee Verville(a) None None Over $100,000
Richard L. Woolworth None None Over $100,000
Interested Trustee
William E. Mayer None None $50,001-$100,000
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(a)Includes the value of compensation payable under the deferred compensation plan for independent Trustees of the Columbia Fund Complex that is determined as if the amounts deferred had been invested, as of the date of deferral, in shares of one or more funds in the Columbia Fund Complex as specified by Ms. Verville.
PORTFOLIO MANAGERS
Other Accounts Managed by Portfolio Managers
The following table shows the number and assets of other investment accounts (or portions of investment accounts) that the Funds' portfolio managers managed as of the Funds' fiscal year-end.
Other SEC-registered Other pooled
open-end and investment
Portfolio Managers closed-end funds vehicles Other accounts
----------------------------------------------------------------------------------
Number Number Number
of of of
accounts Assets accounts Assets accounts Assets
----------------------------------------------------------------------------------
Kimberly A. Campbell 3 $650 thousand 0 0 7 $125 thousand
----------------------------------------------------------------------------------
Gary Swayze 4 $1 billion 0 0 20 $4.7 million
|
See "Other Considerations--Portfolio Transactions--Potential conflicts of interest in managing multiple accounts" for information on how the Advisor addresses potential conflicts of interest resulting from an individual's management of more than one account.
Ownership of Securities
The table below shows the dollar ranges of shares of the Funds beneficially owned (as determined pursuant to Rule 16a-1(a)(2) under the Securities Exchange Act of 1934, as amended) by the portfolio managers listed above at the end of the Funds' most recent fiscal year:
Dollar Range of Equity Securities in
Portfolio Managers the Fund Beneficially Owned
-----------------------------------------------------------------------------
Kimberly A. Campbell None
-----------------------------------------------------------------------------
Gary Swayze None
|
Compensation
As of the Funds' most recent fiscal year end, the portfolio managers received all of their compensation from the Advisor and its parent company, Columbia Management Group, in the form of salary, bonus, stock options and restricted stock. A portfolio manager's bonus is variable and is generally based on (1) an evaluation of the manager's investment performance and (2) the results of a peer and/or management review of such individual, which takes into account skills and attributes such as team participation, investment process, communication and professionalism. In evaluating investment performance, the Advisor generally considers the one-, three- and five-year performance of mutual funds and other accounts under the portfolio manager's oversight relative to the benchmarks noted below, emphasizing the manager's three- and five-year performance. The Advisor may also consider the portfolio manager's performance in managing client assets in sectors and industries assigned to the manager as part of his or her investment team responsibilities, where applicable. For portfolio managers who also have group management responsibilities, another factor in their evaluation is an assessment of the group's overall investment performance.
Portfolio Managers Performance Benchmark Peer Group
--------------------------------------------------------------------------------------------------------------------
Kimberly A. Campbell Lipper General Municipal Debt Funds
Lehman Brothers Municipal Bond Index Category
--------------------------------------------------------------------------------------------------------------------
Gary Swayze Lipper Insured Muni Debt Funds
Lehman Brothers Municipal Bond Index Category
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The size of the overall bonus pool each year is determined by Columbia Management Group and depends in part on levels of compensation generally in the investment management industry (based on market compensation data) and the Advisor's profitability for the year, which is influenced by assets under management.
j
Ownership of the Funds
As of record on February 28, 2006, the officers and Trustees of the Trust as a
group beneficially owned less than 1% of the then outstanding shares of each of
the Funds.
As of record on February 28, 2006, the following shareholders of record owned 5% or more of one or more of each class of the Funds' outstanding shares:
Tax-Exempt Fund
Class B Shares Merrill Lynch Pierce Fenner & Smith 11.86% For the Sole Benefit of its Customers Attn: Fund Administration 4800 Deer Lake Drive East, Floor 2 Jacksonville, FL 32246-6484 Class C Shares Citigroup Global Markets, Inc. 6.12% 333 W. 34/th/ Street New York, NY 10001-2402 Merrill Lynch Pierce Fenner & Smith 21.47% For the Sole Benefit of its Customers Attn: Fund Administration 4800 Deer Lake Drive East, Floor 2 Jacksonville, FL 32246-6484 Pershing LLC 6.96% P.O. Box 2052 Jersey City, NJ 07303-2052 Class Z Shares Charles Schwab & Co. Inc. 6.99% 101 Montgomery St. San Francisco, CA 94104-4122 Insured Fund Class B Shares Elsie P. Viles 5.47% P.O. Box 319 Augusta, ME 04332-0319 Merrill Lynch Pierce Fenner & Smith 11.11% For the Sole Benefit of its Customers Attn: Fund Administration 4800 Deer Lake Drive East, Floor 2 Jacksonville, FL 32246-6484 |
k
Class C Shares Merrill Lynch Pierce Fenner & Smith 34.00% For the Sole Benefit of its Customers Attn: Fund Administration 4800 Deer Lake Drive East, Floor 2 Jacksonville, FL 32246-6484 Citigroup Global Markets, Inc. 19.60% 333 W. 34/th/ St New York, NY 10001-2402 |
Sales Charges (dollars in thousands)
Tax-Exempt Fund
-----------------------
Class A Shares
-----------------------
Years ended November 30,
-----------------------
2005 2004 2003
---- ---- ----
Aggregate initial sales charges on Fund share sales $490 $473 $837
Initial sales charges retained by CMD 25 60 109
Aggregate contingent deferred sales charge ("CDSC") on Fund
redemptions retained by CMD 0 0 30
Insured Fund
-----------------------
Class A Shares
-----------------------
Years ended November 30,
-----------------------
2005 2004 2003
---- ---- ----
Aggregate initial sales charges on Fund share sales $ 71 $ 45 $218
Initial sales charges retained by CMD 10 6 28
Aggregate CDSC on Fund redemptions retained by CMD (a) 0 (a)
Tax-Exempt Fund
-----------------------
Class B Shares
-----------------------
Years ended November 30,
-----------------------
2005 2004 2003
---- ---- ----
Aggregate CDSC on Fund redemptions retained by CMD $ 68 $108 $120
Insured Fund
-----------------------
Class B Shares
-----------------------
Years ended November 30,
-----------------------
2005 2004 2003
---- ---- ----
Aggregate CDSC on Fund redemptions retained by CMD $ 55 $ 96 $105
|
Tax-Exempt Fund
------------------------
Class C Shares
------------------------
Years ended November 30,
------------------------
2005 2004 2003
---- ---- ----
Aggregate CDSC on Fund redemptions retained by CMD $ 0 $2 $ 3
Insured Fund
------------------------
Class C Shares
------------------------
Years ended November 30,
------------------------
2005 2004 2003
---- ---- ----
Aggregate CDSC on Fund redemptions retained by CMD $36 $2 $12
|
(a)Rounds to less than one.
12b-1 Plan, CDSCs and Conversion of Shares
Each Fund offers three classes of shares--Class A, Class B and Class C. In addition, the Tax-Exempt Fund offers Class Z shares. The Funds may in the future offer other classes of shares. The Trustees have approved a 12b-1 plan ("Plan") pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, the Tax-Exempt Fund and the Insured Fund each pay CMD monthly a service fee at an annual rate of 0.20% of net assets attributed to each Class of shares. Each Fund also pays CMD monthly a distribution fee at the annual rate of 0.75% of average daily net assets attributed to Class B and Class C shares. CMD has voluntarily agreed to waive a portion of the Class C share distribution fee so that it does not exceed 0.60% (Tax-Exempt Fund) and 0.45% (Insured Fund), annually. CMD may use the entire amount of such fees to defray the costs of commissions and service fees paid to financial service firms ("FSFs") and for certain other purposes. Since the distribution and service fees are payable regardless of the amount of CMD's expenses, CMD may in some cases realize a profit from the fees.
The Plan authorizes any other payments by the Funds to CMD and its affiliates (including the Advisor) to the extent that such payments might be construed to be indirect financing of the distribution of the Funds' shares.
The Trustees believe the Plan could be a significant factor in the growth and retention of each Fund's assets resulting in a more advantageous expense ratio and increased investment flexibility which could benefit each class of the Funds' shareholders. The Plan will continue in effect from year to year so long as continuance is specifically approved at least annually by a vote of the Trustees, including the Trustees who are not interested persons of the Trust and have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan ("Independent Trustees"), cast in person at a meeting called for the purpose of voting on the Plan. The Plan may not be amended to increase the fee materially without approval by vote of a majority of the outstanding voting securities of the relevant class of shares and all material amendments of the Plan must be approved by the Trustees in the manner provided in the foregoing sentence. The Plan may be terminated at any time by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding voting securities of the relevant class of shares. The continuance of the Plan will only be effective if the selection and nomination of the Trustees who are not interested persons of the Trust is effected by such disinterested Trustees.
Class A shares are offered at net asset value plus varying sales charges which may include a CDSC. Class B shares are offered at net asset value and are subject to a CDSC if redeemed within six years after purchase. Class C shares are offered at net asset value and are subject to a 1.00% CDSC on redemptions within one year after purchase. The CDSCs and initial sales charges are described in the Prospectuses.
No CDSC will be imposed on an amount which represents an increase in the value of the shareholder's account resulting from capital appreciation above the amount paid for the shares. In determining the applicability and rate of any CDSC, it will be assumed that a redemption is made first of shares representing capital appreciation, next of shares representing reinvestment of distributions and finally of other shares held by the shareholder for the longest period of time.
Eight years after the end of the month in which a Class B share is purchased, such share and a pro rata portion of any shares issued on the reinvestment of distributions will be automatically converted into Class A shares having an equal value.
Sales-related expenses (dollars in thousands) of CMD relating to each Fund were:
Tax-Exempt Fund
--------------------------------------------
Year ended November 30, 2005
--------------------------------------------
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
Fees to FSFs $3,254 $108 $30
Cost of sales material relating to the Fund
(including printing and mailing expenses) 69 2 1
Allocated travel, entertainment and other
promotional expenses (including
advertising) 102 3 2
Insured Fund
--------------------------------------------
Year ended November 30, 2005
--------------------------------------------
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
Fees to FSFs $ 242 $ 43 $29
Cost of sales material relating to the Fund
(including printing and mailing expenses) 7 1 1
Allocated travel, entertainment and other
promotional expenses (including
advertising) 11 1 2
|
CUSTODIAN
State Street Bank & Trust Company, located at 2 Avenue De Lafayette, Boston, MA
02111-2900, is the Funds' custodian. The custodian is responsible for
safeguarding and controlling the Funds' cash and securities, receiving and
delivering securities and collecting the Funds' interest and dividends.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP, located at 125 High Street, Boston, MA 02110-1707,
is the Funds' independent registered public accounting firm. The independent
registered public accounting firm provides audit and tax return review
services, assistance and consultation in connection with the review of various
Securities and Exchange Commission filings. The financial statements
incorporated by reference in this SAI have been so incorporated, and the
financial highlights included in the Prospectuses have been so included, in
reliance upon the reports of PricewaterhouseCoopers LLP given on the authority
of said firm as experts in accounting and auditing.
n
STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to most funds advised by the Advisor. "Funds" include the series of Columbia Funds Series Trust I, Columbia Funds Institutional Trust, SteinRoe Variable Investment Trust and Liberty Variable Investment Trust (each a Trust and together, the Trusts). In certain cases, the discussion applies to some, but not all, of the Funds, and you should refer to your Fund's Prospectus and to Part 1 of this Statement of Additional Information ("SAI") to determine whether the matter is applicable to your Fund. You will also be referred to Part 1 for certain data applicable to your Fund.
MISCELLANEOUS INVESTMENT PRACTICES
PART 1 OF THIS SAI LISTS ON PAGE B WHICH OF THE FOLLOWING INVESTMENT PRACTICES
ARE AVAILABLE TO YOUR FUND. IF AN INVESTMENT PRACTICE IS NOT LISTED IN PART 1 OF THIS SAI, IT IS NOT APPLICABLE TO YOUR FUND.
SHORT-TERM TRADING
In seeking the Fund's investment goal, the Advisor will buy or sell portfolio securities whenever it believes it is appropriate. The Advisor's decision will not generally be influenced by how long the Fund may have owned the security. From time to time, the Fund will buy securities intending to seek short-term trading profits. A change in the securities held by the Fund is known as "portfolio turnover" and generally involves some expense to the Fund. These expenses may include brokerage commissions or dealer mark-ups and other transaction costs on both the sale of securities and the reinvestment of the proceeds in other securities. If sales of portfolio securities cause the Fund to realize net short-term capital gains, such gains will be taxable as ordinary income. As a result of the Fund's investment policies, under certain market conditions the Fund's portfolio turnover rate may be higher than that of other mutual funds. The Fund's portfolio turnover rate for a fiscal year is the ratio of the lesser of purchases or sales of portfolio securities to the monthly average of the value of portfolio securities, excluding securities whose maturities at acquisition were one year or less. The Fund's portfolio turnover rate is not a limiting factor when the Advisor considers a change in the Fund's portfolio.
SHORT SALES
A Fund's short sales are subject to special risks. A short sale involves the sale by the Fund of a security that it does not own with the hope of purchasing the same security at a later date at a lower price. In order to deliver the security to the buyer, the Fund borrows the security from a third party. The Fund is then obligated to return the security to the third party, so the Fund must purchase the security at the market price at a later point in time. If the price of the security has increased during this time, then the Fund will incur a loss equal to the increase in price of the security from the time that the short sale was entered into plus any premiums and interest paid to the third party. Therefore, short sales involve the risk that losses may be exaggerated, potentially losing more money than the actual cost of the security. Also, there is the risk that the third party to the short sale may fail to honor its contract terms, causing a loss to the Fund.
LOWER-RATED DEBT SECURITIES
Lower-rated debt securities are those rated lower than Baa by Moody's or BBB by S&P, or comparable unrated debt securities. Relative to debt securities of higher quality,
1. an economic downturn or increased interest rates may have a more significant effect on the yield, price and potential for default for lower-rated debt securities;
2. the secondary market for lower-rated debt securities may at times become less liquid or respond to adverse publicity or investor perceptions, increasing the difficulty in valuing or disposing of the bonds;
3. the Advisor's credit analysis of lower-rated debt securities may have a greater impact on the Fund's achievement of its investment goal; and
4. lower-rated debt securities may be less sensitive to interest rate changes, but are more sensitive to adverse economic developments.
In addition, certain lower-rated debt securities may not pay interest in cash on a current basis.
SMALL COMPANIES
Smaller, less well established companies may offer greater opportunities for capital appreciation than larger, better established companies, but may also involve certain special risks related to limited product lines, markets, or financial resources and dependence on a small management group. Their securities may trade less frequently, in smaller volumes, and fluctuate more sharply in value than securities of larger companies.
COMMON STOCK, PREFERRED STOCK AND WARRANTS
Common stocks are generally more volatile than other securities. Preferred stocks share some of the characteristics of both debt and equity investments and are generally preferred over common stocks with respect to dividends and in liquidation. A warrant is an instrument issued by a corporation which gives the holder the right to subscribe to a specified amount of the company's capital stock at a set price for a specified period of time.
FOREIGN SECURITIES
The Fund may invest in securities traded in markets outside the United States. Foreign investments can be affected favorably or unfavorably by changes in currency rates and in exchange control regulations. There may be less publicly available information about a foreign company than about a U.S. company, and foreign companies may not be subject to accounting, auditing and financial reporting standards comparable to those applicable to U.S. companies. Securities of some foreign companies are less liquid or more volatile than securities of U.S. companies, and foreign brokerage commissions and custodian fees may be higher than in the United States. Investments in foreign securities can involve other risks different from those affecting U.S. investments, including local political or economic developments, expropriation or nationalization of assets and imposition of withholding taxes on dividend or interest payments. Foreign securities, like other assets of the Fund, will be held by the Fund's custodian or by a sub-custodian or depository. See also "Foreign Currency Transactions" below.
The Fund may invest in certain Passive Foreign Investment Companies (PFICs) which may be subject to U.S. federal income tax on a portion of any "excess distribution" or gain (PFIC tax) related to the investment. This "excess distribution" will be allocated over the Fund's holding period for such investment. The PFIC tax is the highest ordinary income rate in effect for any period multiplied by the portion of the "excess distribution" allocated to such period, and it could be increased by an interest charge on the deemed tax deferral.
The Fund may possibly elect to include in its income its pro rata share of the ordinary earnings and net capital gain of PFICs. This election requires certain annual information from the PFICs which in many cases may be difficult to obtain. An alternative election would permit the Fund to recognize as income any appreciation (and to a limited extent, depreciation) on its holdings of PFICs as of the end of its fiscal year. See "Taxes" below.
The Fund may invest in other investment companies. Such investments will involve the payment of duplicative fees through the indirect payment of a portion of the expenses, including advisory fees, of such other investment companies.
EXCHANGE-TRADED FUNDS ("ETFS"). The Fund may invest in ETFs up to the maximum amount allowable under the 1940 Act. ETFs are shares of publicly-traded unit investment trusts, open-end funds, or depositary receipts that seek to track the performance and dividend yield of specific indexes or companies in related industries. These indexes may be either broad-based, sector or international.
ETF shareholders are generally subject to the same risks as holders of the underlying securities they are designed to track. ETFs are also subject to certain additional risks, including (1) the risk that their prices may not correlate perfectly with changes in the prices of the underlying securities they are designed to track; and (2) the risk of possible trading halts due to market conditions or other reasons, based on the policies of the exchange upon which an ETF trades. In addition, an exchange traded sector fund may be adversely affected by the performance of that specific sector or group of industries on which it is based.
The Fund would bear, along with other shareholders of an ETF, its pro rata portion of the ETF's expenses, including management fees. Accordingly, in addition to bearing their proportionate share of the Fund's expenses (i.e., management fees and operating expenses), shareholders of the Fund may also indirectly bear similar expenses of an ETF.
ZERO COUPON SECURITIES ("ZEROS")
The Fund may invest in Zeros, which are securities issued at a significant discount from face value and do not pay interest at intervals during the life of the security. Zeros include securities issued in certificates representing undivided interests in the interest or principal of mortgage-backed securities (interest only/principal only), which tend to be more volatile than other types of securities. The Fund will accrue and distribute income from stripped securities and certificates on a current basis and may have to sell securities to generate cash for distributions.
STEP COUPON BONDS ("STEPS")
The Fund may invest in debt securities, known as Steps, which pay interest at a series of different rates (including 0%) in accordance with a stated schedule for a series of periods. In addition to the risks associated with the credit rating of the issuers, these securities may be subject to more volatility risk than fixed rate debt securities.
TENDER OPTION BONDS
A tender option bond is a municipal security (generally held pursuant to a custodial arrangement) having a relatively long maturity and bearing interest at a fixed rate substantially higher than prevailing short-term tax-exempt rates, that has been coupled with the agreement of a third party, such as a bank, broker-dealer or other financial institution, pursuant to which such institution grants the security holders the option, at periodic intervals, to tender their securities to the institution and receive the face value thereof. As consideration for providing the option, the financial institution receives periodic fees equal to the difference between the municipal security's fixed coupon rate and the rate, as determined by a remarketing or similar agent at or near the commencement of such period, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term tax-exempt rate. The Advisor will consider on an ongoing basis the creditworthiness of the issuer of the underlying municipal securities, of any custodian, and of the third-party provider of the tender option. In certain instances and for certain tender option bonds, the option may be terminable in the event of a default in payment of principal or interest on the underlying municipal securities and for other reasons.
PAY-IN-KIND ("PIK") SECURITIES
The Fund may invest in securities which pay interest either in cash or additional securities. These securities are generally high yield securities and, in addition to the other risks associated with investing in high yield securities, are subject to the risks that the interest payments which consist of additional securities are also subject to the risks of high yield securities.
MONEY MARKET INSTRUMENTS
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their subdivisions, agencies and instrumentalities. SUPRANATIONAL OBLIGATIONS are issued by supranational entities and are generally designed to promote economic improvements. CERTIFICATES OF DEPOSIT are issued against deposits in a commercial bank with a defined return and maturity. BANKER'S ACCEPTANCES are used to finance the import, export or storage of goods and are "accepted" when guaranteed at maturity by a bank. COMMERCIAL PAPER is a promissory note issued by a business to finance short-term needs (including promissory notes with floating or variable interest rates, or including a frequent interval put feature). SHORT-TERM CORPORATE OBLIGATIONS are bonds and notes (with one year or less to maturity at the time of purchase) issued by businesses to finance long-term needs. PARTICIPATION INTERESTS include the underlying securities and any related guaranty, letter of credit, or collateralization arrangement in which the Fund would be allowed to invest directly.
CERTIFICATES OF DEPOSIT are short-term negotiable instruments issued against deposits in a commercial bank with a defined return and maturity. TIME DEPOSITS are non-negotiable deposits maintained in banking institutions for specified periods of time at stated interest rates.
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their subdivisions, agencies and instrumentalities. Examples of the types of obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities (hereinafter, "U.S. Government obligations") that may be held by the Funds include, without limitation, direct obligations of the U.S. Treasury, and securities issued or guaranteed by the Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association, Federal National Mortgage Association, General Services Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks, Resolution Trust Corporation and Maritime Administration.
U.S. Treasury securities differ only in their interest rates, maturities and time of issuance: Treasury Bills have initial maturities of one year or less; Treasury Notes have initial maturities of one to ten years; and Treasury Bonds generally have initial maturities of more than ten years. Obligations of certain agencies and instrumentalities of the U.S. Government, such as those of the Government National Mortgage Association, are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Federal Home Loan Banks, are supported by the right of the issuer to borrow from the Treasury; others, such as those of the Federal National Mortgage Association, are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; still others, such as those of the Federal Home Loan Mortgage Corporation, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government would provide financial support to U.S. Government-sponsored instrumentalities if it is not obligated to do so by law. Some of these instruments may be variable or floating rate instruments.
Securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities have historically involved relatively little risk of loss of principal. However, due to fluctuations in interest rates, the market value of such securities may vary during the period a shareholder owns shares of the Fund.
BANK OBLIGATIONS include bankers' acceptances, negotiable certificates of deposit, and non-negotiable time deposits issued for a definite period of time and earning a specified return by a U.S. bank which is a member of the Federal Reserve System or is insured by the Federal Deposit Insurance Corporation ("FDIC"), or by a savings and loan association or savings bank which is insured by the FDIC. Bank obligations also include U.S. dollar-denominated obligations of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of the same type as domestic bank obligations. Time deposits with a maturity longer than seven days or that do not provide for payment within seven days after notice will be subject to any limitations on illiquid securities described in Part 1 of this SAI. For purposes of each Fund's investment policies with respect to bank obligations, the assets of a bank or savings institution will be deemed to include the assets of its U.S. and foreign branches.
Domestic and foreign banks are subject to extensive but different government regulation which may limit the amount and types of their loans and the interest rates that may be charged. In addition, the profitability of the banking industry is largely dependent upon the availability and cost of funds to finance lending operations and the quality of underlying bank assets. Investments in obligations of foreign branches of U.S. banks and of U.S. branches of foreign banks may subject a Fund to additional risks, including future political and economic developments, the possible imposition of withholding taxes on interest income, possible seizure or nationalization of foreign deposits, the possible establishment of exchange controls, or the adoption of other foreign governmental restrictions which might adversely affect the payment of principal and interest on such obligations. In addition, foreign branches of U.S. banks and U.S. branches of foreign banks may be subject to less stringent reserve requirements and to different accounting, auditing, reporting, and recordkeeping standards than those applicable to domestic branches of U.S. banks.
SEPARATELY TRADED INTEREST AND PRINCIPAL SECURITIES ("STRIPS") are component parts of U.S. Treasury Securities traded through the Federal Reserve Book-Entry System. While there is no limitation on the percentage of a Fund's assets that may be invested in STRIPS, the Advisor will monitor the level of such holdings to avoid the risk of impairing shareholders' redemption rights. The interest-only component of STRIPS is extremely sensitive to the rate of principal payments on the underlying obligation. The market value of the principal-only component is usually volatile in response to changes in interest rates.
In U.S. TREASURY ROLLS, a Fund sells outstanding U.S. Treasury securities and buys back on a delayed settlement basis the same U.S. Treasury securities. During the period prior to the delayed settlement date, the assets from the sale of the U.S. Treasury securities are invested in certain cash equivalent instruments. U.S. Treasury rolls entail the risk that the Fund could suffer an opportunity loss if the counterparty to the roll failed to perform its obligations on the settlement date, and if market conditions changed adversely. The Funds intend to enter into U.S. Treasury rolls only with U.S. Government securities dealers recognized by the Federal Reserve Bank or with member banks of the Federal Reserve System. The Funds will hold and maintain in a
segregated account until the settlement date cash or other liquid assets in an amount equal to the forward purchase price. For financial reporting and tax purposes, the Funds propose to treat U.S. Treasury rolls as two separate transactions, one involving the purchase of a security and a separate transaction involving a sale.
COMMERCIAL PAPER is an unsecured short-term promissory note issued by businesses to finance short-term needs (including those with floating or variable interest rates, or including a frequent interval put feature). Commercial paper may include variable and floating rate instruments which are unsecured instruments that permit the indebtedness thereunder to vary. Variable rate instruments provide for periodic adjustments in the interest rate. Floating rate instruments provide for automatic adjustment of the interest rate whenever some other specified interest rate changes. Some variable and floating rate obligations are direct lending arrangements between the purchaser and the issuer and there may be no active secondary market. However, in the case of variable and floating rate obligations with a demand feature, a Fund may demand payment of principal and accrued interest at a time specified in the instrument or may resell the instrument to a third party. In the event that an issuer of a variable or floating rate obligation were to default on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and could, for this or other reasons, suffer a loss to the extent of the default.
Commercial paper may include securities issued by corporations without registration under the 1933 Act in reliance on the so-called "private placement" exemption in Section 4(2) ("Section 4(2) Paper"). Section 4(2) Paper is restricted as to disposition under the federal securities laws in that any resale must similarly be made in an exempt transaction. Section 4(2) Paper is normally resold to other institutional investors through or with the assistance of investment dealers who make a market in Section 4(2) Paper, thus providing liquidity. For purposes of each Fund's limitation on purchases of illiquid instruments described below, Section 4(2) Paper will not be considered illiquid if the Advisor has determined, in accordance with guidelines approved by the Board of Trustees, that an adequate trading market exists for such securities.
STRIPPED OBLIGATIONS
To the extent consistent with their investment objective, Funds may purchase U.S. Treasury receipts and other "stripped" securities that evidence ownership in either the future interest payments or the future principal payments on U.S. Government and other obligations. These participations, which may be issued by the U.S. Government or by private issuers, such as banks and other institutions, are issued at their "face value," and may include stripped mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage securities. Stripped securities, particularly SMBS, may exhibit greater price volatility than ordinary debt securities because of the manner in which their principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive different proportions of the interest and principal distributions from a pool of mortgage-backed obligations. A common type of SMBS will have one class receiving all of the interest, while the other class will receive all of the principal. However, in some instances, one class will receive some of the interest and most of the principal while the other class will receive most of the interest and the remainder of the principal. If the underlying obligations experience greater than anticipated prepayments of principal, the Fund may fail to fully recoup its initial investment in these securities. The market value of the class consisting entirely of principal payments generally is extremely volatile in response to changes in interest rates. The yields on a class of SMBS that receives all or most of the interest are generally higher than prevailing market yields on other mortgage-backed obligations because their cash flow patterns are more volatile and there is a greater risk that the initial investment will not be fully recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government agency or instrumentality) are considered illiquid by the Funds. Obligations issued by the U.S. Government may be considered liquid under guidelines established by Funds' Board of Trustees if they can be disposed of promptly in the ordinary course of business at a value reasonably close to that used in the calculation of net asset value per share.
MUNICIPAL SECURITIES
Municipal Securities acquired by the Funds include debt obligations issued by governmental entities to obtain funds for various public purposes, including the construction of a wide range of public facilities, the refunding of outstanding obligations, the payment of general operating expenses, and the extension of loans to public institutions and facilities. Private activity bonds that are issued by or on behalf of public authorities to finance various privately operated facilities are "Municipal Securities" if the interest paid thereon is exempt from regular federal income tax and not treated as a specific tax preference item under the federal alternative minimum tax.
The two principal classifications of Municipal Securities which may be held by the Funds are "general obligation" securities and "revenue" securities. General obligation securities are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue securities are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific revenue source such as the user of the facility being financed.
The Fund's portfolio may also include "moral obligation" securities, which are normally issued by special purpose public authorities. If the issuer of moral obligation securities is unable to meet its debt service obligations from current revenues, it may draw on a reserve fund, the restoration of which is a moral commitment but not a legal obligation of the state or municipality which created the issuer. There is no limitation on the amount of moral obligation securities that may be held by the Funds.
There are, of course, variations in the quality of Municipal Securities, both within a particular category and between categories, and the yields on Municipal Securities depend upon a variety of factors, including general market conditions, the financial condition of the issuer, general conditions of the municipal bond market, the size of a particular offering, the maturity of the obligation, and the rating of the issue. The ratings of a nationally recognized statistical rating organization ("NRSRO"), such as Moody's and S&P, represent such NRSRO's opinion as to the quality of Municipal Securities. It should be emphasized that these ratings are general and are not absolute standards of quality. Municipal Securities with the same maturity, interest rate and rating may have different yields. Municipal Securities of the same maturity and interest rate with different ratings may have the same yield.
Municipal Securities may include rated and unrated variable and floating rate tax-exempt instruments, such as variable rate demand notes. Variable rate demand notes are long-term Municipal Securities that have variable or floating interest rates and provide a Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on an applicable interest index or another published interest rate or interest rate index. Most variable rate demand notes allow a Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit a Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. Variable interest rates generally reduce changes in the market value of Municipal Securities from their original purchase prices. Accordingly, as interest rates decrease, the potential for capital appreciation is less for variable rate Municipal Securities than for fixed income obligations. The terms of these variable rate demand instruments require payment of principal and accrued interest from the issuer of the Municipal Securities, the issuer of the participation interest or a guarantor of either issuer.
Municipal Securities purchased by the Funds in some cases may be insured as to the timely payment of principal and interest. There is no guarantee, however, that the insurer will meet its obligations in the event of a default in payment by the issuer. In other cases, Municipal Securities may be backed by letters of credit or guarantees issued by domestic or foreign banks or other financial institutions which are not subject to federal deposit insurance. Adverse developments affecting the banking industry generally or a particular bank or financial institution that has provided its credit or guarantee with respect to a Municipal Security held by a Fund, including a change in the credit quality of any such bank or financial institution, could result in a loss to the Fund and adversely affect the value of its shares. Letters of credit and guarantees issued by foreign banks and financial institutions involve certain risks in addition to those of similar instruments issued by domestic banks and financial institutions.
The payment of principal and interest on most Municipal Securities purchased by the Funds will depend upon the ability of the issuers to meet their obligations. Each state, the District of Columbia, each of their political subdivisions, agencies, instrumentalities and authorities and each multi-state agency of which a state is a member is a separate "issuer" as that term is used in this SAI and the Prospectuses. The non-governmental user of facilities financed by private activity bonds is also considered to be an "issuer." An issuer's obligations under its Municipal Securities are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Code and laws, if any, which may be enacted by federal or state legislatures extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations or upon the ability of municipalities to levy taxes. The power or ability of an issuer to meet its obligations for the payment of interest on and principal of its Municipal Securities may be materially adversely affected by litigation or other conditions.
From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax exemption for interest on Municipal Securities. For example, under the Tax Reform Act of 1986, interest on certain
private activity bonds must be included in an investor's federal alternative minimum taxable income, and corporate investors must include all tax-exempt interest in their federal alternative minimum taxable income. The Funds cannot, of course, predict what legislation may be proposed in the future regarding the income tax status of interest on Municipal Securities, or which proposals, if any, might be enacted. Such proposals, while pending or if enacted, might materially and adversely affect the availability of Municipal Securities for investment by the Funds and the liquidity and value of their respective portfolios. In such an event, each Fund would re-evaluate its investment objective and policies and consider possible changes in its structure or possible dissolution.
Opinions relating to the validity of Municipal Securities and to the exemption of interest thereon from federal income tax are rendered by bond counsel to the respective issuers at the time of issuance. Neither the Funds nor the Advisor will review the proceedings relating to the issuance of Municipal Securities or the bases for such opinions.
PRIVATE ACTIVITY BONDS
The Funds may invest in "private activity bonds," the interest on which, although exempt from regular federal income tax, may constitute an item of tax preference for purposes of the federal alternative minimum tax. Private activity bonds are or have been issued to obtain funds to provide, among other things, privately operated housing facilities, pollution control facilities, convention or trade show facilities, mass transit, airport, port or parking facilities and certain local facilities for water supply, gas, electricity or sewage or solid waste disposal. Private activity bonds are also issued to privately held or publicly owned corporations in the financing of commercial or industrial facilities. State and local governments are authorized in most states to issue private activity bonds for such purposes in order to encourage corporations to locate within their communities. The principal and interest on these obligations may be payable from the general revenues of the users of such facilities.
Private activity bonds held by the Funds are in most cases revenue securities and are not payable from the unrestricted revenues of the issuer. Consequently, the credit quality of such private activity bonds is usually directly related to the credit standing of the corporate user of the facility involved.
MUNICIPAL LEASE OBLIGATIONS
Although a municipal lease obligation does not constitute a general obligation of the municipality for which the municipality's taxing power is pledged, a municipal lease obligation is ordinarily backed by the municipality's covenant to budget for, appropriate and make the payments due under the municipal lease obligation. However, certain lease obligations contain "non-appropriation" clauses which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. Although "non-appropriation" lease obligations are secured by the leased property, disposition of the property in the event of foreclosure might prove difficult. In addition, the tax treatment of such obligations in the event of non-appropriation is unclear.
Determinations concerning the liquidity and appropriate valuation of a municipal lease obligation, as with any other municipal security, are made based on all relevant factors. These factors include, among others: (1) the frequency of trades and quotes for the obligation; (2) the number of dealers willing to purchase or sell the security and the number of other potential buyers; (3) the willingness of dealers to undertake to make a market in the security; and (4) the nature of the marketplace trades, including the time needed to dispose of the security, the method of soliciting offers, and the mechanics of the transfer.
SECURITIES LOANS
The Fund may make secured loans of its portfolio securities amounting to not more than the percentage of its total assets specified in Part 1 of this SAI, thereby realizing additional income. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delay in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. As a matter of policy, securities loans are made to banks and broker-dealers pursuant to agreements requiring that loans be continuously secured by collateral in cash or short-term debt obligations at least equal at all times to the value of the securities on loan. The borrower pays to the Fund an amount equal to any dividends or interest received on securities lent. The Fund retains all or a portion of the interest received on investment of the cash collateral or receives a fee from the borrower. Although voting rights, or rights to consent, with respect to the loaned securities pass to the borrower, the Fund retains the right to call the loans at any time on reasonable notice, and it will do so in order that the securities may be voted by
the Fund if the holders of such securities are asked to vote upon or consent to matters materially affecting the investment. The Fund may also call such loans in order to sell the securities involved.
INTERFUND BORROWING AND LENDING
The Fund may lend money to and borrow money from other affiliated registered open-end investment companies. The Fund may borrow through the program when the Advisor believes borrowing is appropriate and the costs are equal to or lower than the costs of bank loans. When borrowing money, the Fund is subject to the risk that the securities the Fund acquires with the borrowed money or would otherwise have sold will decline in value. When lending money, the Fund is subject to the risk that the borrower will be unwilling or unable to make timely payments of interest or principal.
FORWARD COMMITMENTS ("WHEN-ISSUED" AND "DELAYED DELIVERY" SECURITIES)
The Fund may enter into contracts to purchase securities for a fixed price at a future date beyond customary settlement time ("forward commitments" and "when-issued securities") if the Fund holds until the settlement date, in a segregated account, cash or liquid securities in an amount sufficient to meet the purchase price, or if the Fund enters into offsetting contracts for the forward sale of other securities it owns. Forward commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date. Where such purchases are made through dealers, the Fund relies on the dealer to consummate the sale. The dealer's failure to do so may result in the loss to the Fund of an advantageous yield or price. Although the Fund will generally enter into forward commitments with the intention of acquiring securities for its portfolio or for delivery pursuant to options contracts it has entered into, the Fund may dispose of a commitment prior to settlement if the Advisor deems it appropriate to do so. The Fund may realize short-term profits or losses (generally taxed at ordinary income tax rates in the hands of the shareholders) upon the sale of forward commitments.
MORTGAGE DOLLAR ROLLS
In a mortgage dollar roll, the Fund sells a mortgage-backed security and simultaneously enters into a commitment to purchase a similar security at a later date. The Fund either will be paid a fee by the counterparty upon entering into the transaction or will be entitled to purchase the similar security at a discount. As with any forward commitment, mortgage dollar rolls involve the risk that the counterparty will fail to deliver the new security on the settlement date, which may deprive the Fund of obtaining a beneficial investment. In addition, the security to be delivered in the future may turn out to be inferior to the security sold upon entering into the transaction. In addition, the transaction costs may exceed the return earned by the Fund from the transaction.
REITS
The Funds may invest in real estate investment trusts ("REITs"). Equity REITs invest directly in real property while mortgage REITs invest in mortgages on real property. REITs may be subject to certain risks associated with the direct ownership of real estate, including declines in the value of real estate, risks related to general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, and variations in rental income. Generally, increases in interest rates will decrease the value of high yielding securities and increase the costs of obtaining financing, which could decrease the value of a REIT's investments. In addition, equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of credit extended. Equity and mortgage REITs are dependent upon management skill, are not diversified and are subject to the risks of financing projects. REITs are also subject to heavy cash flow dependency, defaults by borrowers, self liquidation and the possibility of failing to qualify for tax-free pass-through of income under the Internal Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from the 1940 Act. REITs pay dividends to their shareholders based upon available funds from operations. It is quite common for these dividends to exceed a REIT's taxable earnings and profits resulting in the excess portion of such dividends being designated as a return of capital. The Funds intend to include the gross dividends from any investments in REITs in their periodic distributions to its shareholders and, accordingly, a portion of the Fund's distributions may also be designated as a return of capital.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities, including "collateralized mortgage obligations" (CMOs) and "real estate mortgage investment conduits" (REMICs), evidence ownership in a pool of mortgage loans made by certain financial institutions that may be insured or guaranteed by the U.S. government or its agencies. CMOs are obligations issued by special-purpose trusts, secured by
mortgages. REMICs are entities that own mortgages and elect REMIC status under the Internal Revenue Code. Both CMOs and REMICs issue one or more classes of securities of which one (the Residual) is in the nature of equity. The Funds will not invest in the Residual class. Principal on mortgage-backed securities, CMOs and REMICs may be prepaid if the underlying mortgages are prepaid. Prepayment rates for mortgage-backed securities tend to increase as interest rates decline (effectively shortening the security's life) and decrease as interest rates rise (effectively lengthening the security's life). Because of the prepayment feature, these securities may not increase in value as much as other debt securities when interest rates fall. A Fund may be able to invest prepaid principal only at lower yields. The prepayment of such securities purchased at a premium may result in losses equal to the premium.
NON-AGENCY MORTGAGE-BACKED SECURITIES
The Fund may invest in non-investment grade mortgage-backed securities that are not guaranteed by the U.S. government or an agency. Such securities are subject to the risks described under "Lower Rated Debt Securities" and "Mortgage-Backed Securities." In addition, although the underlying mortgages provide collateral for the security, the Fund may experience losses, costs and delays in enforcing its rights if the issuer defaults or enters bankruptcy.
ASSET-BACKED SECURITIES
Asset-backed securities are interests in pools of debt securities backed by various types of loans such as credit card, auto and home equity loans. These securities involve prepayment risk, which is the possibility that the underlying debt may be refinanced or prepaid prior to maturity during periods of declining interest rates. During periods of rising interest rates, asset-backed securities have a high risk of declining in price because the declining prepayment rates effectively lengthen the expected maturity of the securities. A decline in interest rates may lead to a faster rate of repayment on asset-backed securities and, therefore, cause a Fund to earn a lower interest rate on reinvestment. In addition, the potential impact of prepayment on the price of an asset-backed security may be difficult to predict and result in greater volatility.
CUSTODY RECEIPTS AND TRUST CERTIFICATES
Custody receipts, such as Morgan Stanley TRACERs (Traded Custody Receipts), and trust certificates, such as Lehman Brothers TRAINs (Targeted Return Index Securities Trust), are derivative products which, in the aggregate, evidence direct ownership in a pool of securities. Typically, a sponsor will deposit a pool of securities with a custodian in exchange for custody receipts evidencing those securities or with a trust in exchange for trust certificates evidencing interests in the trust, the principal asset of which is those securities. The sponsor will then generally sell those custody receipts or trust certificates in negotiated transactions at varying prices that are determined at the time of sale. Each custody receipt or trust certificate evidences the individual securities in the pool and the holder of a custody receipt or trust certificate generally will have all the rights and privileges of owners of those securities. Each holder of a custody receipt or trust certificate generally will be treated as directly purchasing its pro rata share of the securities in the pool for an amount equal to the amount that such holder paid for its custody receipt or trust certificate. If a custody receipt or trust certificate is sold, a holder will be treated as having directly "disposed of its pro rata share of the securities evidenced by the custody receipt or trust certificate. Additionally, the holder of a custody receipt or trust certificate may withdraw the securities represented by the custody receipt or trust certificate subject to certain conditions. Custody receipts and trust certificates are generally subject to the same risks as those securities evidenced by the receipts or certificates which, in the case of the Fund, are corporate debt securities. Additionally, custody receipts and trust certificates may also be less liquid than the underlying securities if the sponsor fails to maintain a trading market.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. A repurchase agreement is a contract under which the Fund acquires a security for a relatively short period subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price (representing the Fund's cost plus interest). It is the Fund's present intention to enter into repurchase agreements only with commercial banks and registered broker-dealers and only with respect to obligations of the U.S. government or its agencies or instrumentalities. Repurchase agreements may also be viewed as loans made by the Fund which are collateralized by the securities subject to repurchase. The Advisor will monitor such transactions to determine that the value of the underlying securities is at least equal at all times to the total amount of the repurchase obligation, including the interest factor. If the seller defaults, the Fund could realize a loss on the sale of the underlying security to the extent that the proceeds of sale including accrued interest are less than the resale price provided in the agreement including interest. In addition,
if the seller should be involved in bankruptcy or insolvency proceedings, the Fund may incur delay and costs in selling the underlying security or may suffer a loss of principal and interest if the Fund is treated as an unsecured creditor and required to return the underlying collateral to the seller's estate.
REVERSE REPURCHASE AGREEMENTS
In a reverse repurchase agreement, the Fund sells a security and agrees to repurchase the same security at a mutually agreed upon date and price. A reverse repurchase agreement may also be viewed as the borrowing of money by the Fund and, therefore, as a form of leverage. The Fund will invest the proceeds of borrowings under reverse repurchase agreements. In addition, the Fund will enter into a reverse repurchase agreement only when the interest income expected to be earned from the investment of the proceeds is greater than the interest expense of the transaction. The Fund will not invest the proceeds of a reverse repurchase agreement for a period which exceeds the duration of the reverse repurchase agreement. The Fund may not enter into reverse repurchase agreements exceeding in the aggregate one-third of the market value of its total assets, less liabilities other than the obligations created by reverse repurchase agreements. Each Fund will establish and maintain with its custodian a separate account with a segregated portfolio of securities in an amount at least equal to its purchase obligations under its reverse repurchase agreements. If interest rates rise during the term of a reverse repurchase agreement, entering into the reverse repurchase agreement may have a negative impact on a money market fund's ability to maintain a net asset value of $1.00 per share.
LINE OF CREDIT
The Fund may establish and maintain a line of credit with a major bank in order to permit borrowing on a temporary basis to meet share redemption requests in circumstances in which temporary borrowings may be preferable to liquidation of portfolio securities.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The Fund may write covered call options and covered put options on securities held in its portfolio when, in the opinion of the Advisor, such transactions are consistent with the Fund's investment goal and policies. Call options written by the Fund give the purchaser the right to buy the underlying securities from the Fund at a stated exercise price; put options give the purchaser the right to sell the underlying securities to the Fund at a stated price.
The Fund may write only covered options, which means that, so long as the Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option (or comparable securities satisfying the cover requirements of securities exchanges). In the case of put options, the Fund will hold cash and/or high-grade short-term debt obligations equal to the price to be paid if the option is exercised. In addition, the Fund will be considered to have covered a put or call option if and to the extent that it holds an option that offsets some or all of the risk of the option it has written. The Fund may write combinations of covered puts and calls on the same underlying security.
The Fund will receive a premium from writing a put or call option, which increases the Fund's return on the underlying security if the option expires unexercised or is closed out at a profit. The amount of the premium reflects, among other things, the relationship between the exercise price and the current market value of the underlying security, the volatility of the underlying security, the amount of time remaining until expiration, current interest rates, and the effect of supply and demand in the options market and in the market for the underlying security. By writing a call option, the Fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option but continues to bear the risk of a decline in the value of the underlying security. By writing a put option, the Fund assumes the risk that it may be required to purchase the underlying security for an exercise price higher than its then-current market value, resulting in a potential capital loss unless the security subsequently appreciates in value.
The Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an offsetting option. The Fund realizes a profit or loss from a closing transaction if the cost of the transaction (option premium plus transaction costs) is less or more than the premium received from writing the option. Because increases in the market price of a call option generally reflect increases in the market price of the security underlying the option, any loss resulting from a closing purchase transaction may be offset in whole or in part by unrealized appreciation of the underlying security.
If the Fund writes a call option but does not own the underlying security, and when it writes a put option, the Fund may be required to deposit cash or securities with its broker as "margin" or collateral for its obligation to buy or sell the underlying security. As the value of the underlying security varies, the Fund may have to deposit additional margin with the broker. Margin requirements are complex and are fixed by individual brokers, subject to minimum requirements currently imposed by the Federal Reserve Board and by stock exchanges and other self-regulatory organizations.
PURCHASING PUT OPTIONS. The Fund may purchase put options to protect its portfolio holdings in an underlying security against a decline in market value. Such hedge protection is provided during the life of the put option since the Fund, as holder of the put option, is able to sell the underlying security at the put exercise price regardless of any decline in the underlying security's market price. For a put option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs. By using put options in this manner, the Fund will reduce any profit it might otherwise have realized from appreciation of the underlying security by the premium paid for the put option and by transaction costs.
PURCHASING CALL OPTIONS. The Fund may purchase call options to hedge against an increase in the price of securities that the Fund wants ultimately to buy. Such hedge protection is provided during the life of the call option since the Fund, as holder of the call option, is able to buy the underlying security at the exercise price regardless of any increase in the underlying security's market price. In order for a call option to be profitable, the market price of the underlying security must rise sufficiently above the exercise price to cover the premium and transaction costs. These costs will reduce any profit the Fund might have realized had it bought the underlying security at the time it purchased the call option.
OVER-THE-COUNTER ("OTC") OPTIONS. The Staff of the Division of Investment Management of the Securities and Exchange Commission (SEC) has taken the position that OTC options purchased by the Fund and assets held to cover OTC options written by the Fund are illiquid securities. Although the Staff has indicated that it is continuing to evaluate this issue, pending further developments, the Fund intends to enter into OTC options transactions only with primary dealers in U.S. government securities and, in the case of OTC options written by the Fund, only pursuant to agreements that will assure that the Fund will at all times have the right to repurchase the option written by it from the dealer at a specified formula price. The Fund will treat the amount by which such formula price exceeds the amount, if any, by which the option may be "in-the-money" as an illiquid investment. It is the present policy of the Fund not to enter into any OTC option transaction if, as a result, more than 15% (10% in some cases, refer to your Fund's Prospectus) of the Fund's net assets would be invested in (i) illiquid investments (determined under the foregoing formula) relating to OTC options written by the Fund, (ii) OTC options purchased by the Fund, (iii) securities which are not readily marketable, and (iv) repurchase agreements maturing in more than seven days.
RISK FACTORS IN OPTIONS TRANSACTIONS. The successful use of the Fund's options strategies depends on the ability of the Advisor to forecast interest rate and market movements correctly.
When it purchases an option, the Fund runs the risk that it will lose its entire investment in the option in a relatively short period of time, unless the Fund exercises the option or enters into a closing sale transaction with respect to the option during the life of the option. If the price of the underlying security does not rise (in the case of a call) or fall (in the case of a put) to an extent sufficient to cover the option premium and transaction costs, the Fund will lose part or all of its investment in the option. This contrasts with an investment by the Fund in the underlying securities, since the Fund may continue to hold its investment in those securities notwithstanding the lack of a change in price of those securities.
The effective use of options also depends on the Fund's ability to terminate option positions at times when the Advisor deems it desirable to do so. Although the Fund will take an option position only if the Advisor believes there is a liquid secondary market for the option, there is no assurance that the Fund will be able to effect closing transactions at any particular time or at an acceptable price.
If a secondary trading market in options were to become unavailable, the Fund could no longer engage in closing transactions. Lack of investor interest might adversely affect the liquidity of the market for particular options or series of options. A marketplace may discontinue trading of a particular option or options generally. In addition, a market could become temporarily unavailable if unusual events - such as volume in excess of trading or clearing capability - were to interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on particular types of option transactions, which may limit the Fund's ability to realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options purchased or sold by the Fund could result in losses on the options. If trading is interrupted in an underlying security, the trading of options on that security is normally halted as well. As a result, the Fund as purchaser or writer of an option will be unable to close out its positions until options trading resumes, and it may be faced with losses if trading in the security reopens at a substantially different price. In addition, the Options Clearing Corporation (OCC) or other options markets may impose exercise restrictions. If a prohibition on exercise is imposed at the time when trading in the option has also been halted, the Fund as purchaser or writer of an option will be locked into its position until one of the two restrictions has been lifted. If a prohibition on exercise remains in effect until an option owned by the Fund has expired, the Fund could lose the entire value of its option.
Special risks are presented by internationally traded options. Because of time differences between the United States and various foreign countries, and because different holidays are observed in different countries, foreign options markets may be open for trading during hours or on days when U.S. markets are closed. As a result, option premiums may not reflect the current prices of the underlying interest in the United States.
FUTURES CONTRACTS AND RELATED OPTIONS
Upon entering into futures contracts, in compliance with the SEC's requirements, cash or liquid securities, equal in value to the amount of the Fund's obligation under the contract (less any applicable margin deposits and any assets that constitute "cover" for such obligation), will be segregated with the Fund's custodian.
A futures contract sale creates an obligation by the seller to deliver the type of instrument called for in the contract in a specified delivery month for a stated price. A futures contract purchase creates an obligation by the purchaser to take delivery of the type of instrument called for in the contract in a specified delivery month at a stated price. The specific instruments delivered or taken at the settlement date are not determined until on or near that date. The determination is made in accordance with the rules of the exchanges on which the futures contract was made. The Fund may enter into futures contracts which are traded on national or foreign futures exchanges and are standardized as to maturity date and underlying financial instrument. Futures exchanges and trading in the United States are regulated under the Commodity Exchange Act by the Commodity Futures Trading Commission (CFTC).
Although futures contracts by their terms call for actual delivery or acceptance of commodities or securities, the contracts usually are closed out before the settlement date without the making or taking of delivery. Closing out a futures contract sale is effected by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument or commodity with the same delivery date. If the price of the initial sale of the futures contract exceeds the price of the offsetting purchase, the seller is paid the difference and realizes a gain. Conversely, if the price of the offsetting purchase exceeds the price of the initial sale, the seller realizes a loss. Similarly, the closing out of a futures contract purchase is effected by the purchaser's entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, the purchaser realizes a gain, and if the purchase price exceeds the offsetting sale price, the purchaser realizes a loss.
Unlike when the Fund purchases or sells a security, no price is paid or received by the Fund upon the purchase or sale of a futures contract, although the Fund is required to deposit with its custodian in a segregated account in the name of the futures broker an amount of cash and/or U.S. government securities. This amount is known as "initial margin." The nature of initial margin in futures transactions is different from that of margin in security transactions in that futures contract margin does not involve the borrowing of funds by the Fund to finance the transactions. Rather, initial margin is in the nature of a performance bond or good faith deposit on the contract that is returned to the Fund upon termination of the futures contract, assuming all contractual obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin," to and from the broker (or the custodian) are made on a daily basis as the price of the underlying security or commodity fluctuates, making the long and short positions in the futures contract more or less valuable, a process known as "marking to market."
The Fund may elect to close some or all of its futures positions at any time prior to their expiration. The purpose of making such a move would be to reduce or eliminate the hedge position then currently held by the Fund. The Fund may close its positions by taking opposite positions which will operate to terminate the Fund's position in the futures contracts. Final determinations of variation margin are then made, additional cash is required to be paid by or released to the Fund, and the Fund realizes a loss or a gain. Such closing transactions involve additional commission costs.
INTEREST RATE FUTURES CONTRACTS. Bond prices are established in both the cash market and the futures market. In the cash market, bonds are purchased and sold with payment for the full purchase price of the bond being made in cash, generally within five business days after the trade. In the futures market, only a contract is made to purchase or sell a bond in the future for a set price on a certain date. Historically, the prices for bonds established in the futures markets have tended to move generally in the aggregate in concert with the cash market prices and have maintained fairly predictable relationships. Accordingly, the Funds may use interest rate futures contracts as a defense, or hedge, against anticipated interest rate changes. The Funds presently could accomplish a similar result to that which they hope to achieve through the use of futures contracts by selling bonds with long maturities and investing in bonds with short maturities when interest rates are expected to increase, or conversely, selling short-term bonds and investing in long-term bonds when interest rates are expected to decline. However, because of the liquidity that is often available in the futures market, the protection is more likely to be achieved, perhaps at a lower cost and without changing the rate of interest being earned by the Funds, through using futures contracts.
Interest rate futures contracts are traded in an auction environment on the floors of several exchanges - principally, the Chicago Board of Trade, the Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would deal only in standardized contracts on recognized exchanges. Each exchange guarantees performance under contract provisions through a clearing corporation, a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial instruments including long-term United States Treasury Bonds and Notes; Government National Mortgage Association (GNMA) modified pass-through mortgage backed securities; three-month United States Treasury Bills; and ninety-day commercial paper. The Funds may trade in any interest rate futures contracts for which there exists a public market, including, without limitation, the foregoing instruments.
MUNICIPAL BOND INDEX FUTURES CONTRACTS. Municipal bond index futures contracts may act as a hedge against changes in market conditions. A municipal bond index assigns values daily to the municipal bonds included in the index based on the independent assessment of dealer-to-dealer municipal bond brokers. A municipal bond index futures contract represents a firm commitment by which two parties agree to take or make delivery of an amount equal to a specified dollar amount multiplied by the difference between the municipal bond index value on the last trading date of the contract and the price at which the futures contract is originally struck. No physical delivery of the underlying securities in the index is made.
The Chicago Board of Trade has designed a futures contract based on the Bond Buyer Municipal Bond Index. This Index is composed of 40 term revenue and general obligation bonds, and its composition is updated regularly as new bonds meeting the criteria of the Index are issued and existing bonds mature. The Index is intended to provide an accurate indicator of trends and changes in the municipal bond market. Each bond in the Index is independently priced by six dealer-to-dealer municipal bond brokers daily. The 40 prices then are averaged and multiplied by a coefficient. The coefficient is used to maintain the continuity of the Index when its composition changes. The Chicago Board of Trade, on which futures contracts based on this Index are traded, as well as other U.S. commodities exchanges, are regulated by the CFTC. Transactions on such exchange are cleared through a clearing corporation, which guarantees the performance of the parties to each contract.
OPTIONS ON FUTURES CONTRACTS. The Fund will enter into written options on futures contracts only when, in compliance with the SEC's requirements, cash or liquid securities equal in value to the commodity value (less any applicable margin deposits) have been deposited in a segregated account. The Fund may purchase and write call and put options on futures contracts it may buy or sell and enter into closing transactions with respect to such options to terminate existing positions. The Fund may use such options on futures contracts in lieu of writing options directly on the underlying securities or purchasing and selling the underlying futures contracts. Such options generally operate in the same manner as options purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate his position by selling or purchasing an offsetting option. There is no guarantee that such closing transactions can be effected.
The Fund will be required to deposit initial margin and maintenance margin with respect to put and call options on futures contracts written by it pursuant to brokers' requirements similar to those described above.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use of futures contracts by the Fund is subject to the Advisor's ability to predict correctly, movements in the direction of interest rates and other factors affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or put options on futures contracts involves less potential risk to the Fund because the maximum amount at risk is the premium paid for the options (plus transaction costs). However, there may be circumstances when the purchase of a call or put option on a futures contract would result in a loss to the Fund when the purchase or sale of a futures contract would not, such as when there is no movement in the prices of the hedged investments. The writing of an option on a futures contract involves risks similar to those risks relating to the sale of futures contracts.
There is no assurance that higher than anticipated trading activity or other unforeseen events might not, at times, render certain market clearing facilities inadequate, and thereby result in the institution, by exchanges, of special procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the Fund, the Fund may seek to close out a position. The ability to establish and close out positions will be subject to the development and maintenance of a liquid secondary market. It is not certain that this market will develop or continue to exist for a particular futures contract. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain contracts or options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of contracts or options, or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or a clearing corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of contracts or options (or a particular class or series of contracts or options), in which event the secondary market on that exchange (or in the class or series of contracts or options) would cease to exist, although outstanding contracts or options on the exchange that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms.
USE BY TAX-EXEMPT FUNDS OF INTEREST RATE AND U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. The Funds investing in tax-exempt securities may purchase and sell futures contracts and related options on interest rate and U.S. Treasury securities when, in the opinion of the Advisor, price movements in these security futures and related options will correlate closely with price movements in the tax-exempt securities which are the subject of the hedge. Interest rate and U.S. Treasury securities futures contracts require the seller to deliver, or the purchaser to take delivery of, the type of security called for in the contract at a specified date and price. Options on interest rate and U.S. Treasury security futures contracts give the purchaser the right in return for the premium paid to assume a position in a futures contract at the specified option exercise price at any time during the period of the option.
In addition to the risks generally involved in using futures contracts, there is also a risk that price movements in interest rate and U.S. Treasury security futures contracts and related options will not correlate closely with price movements in markets for tax-exempt securities.
INDEX FUTURES CONTRACTS. An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of an index is commonly referred to as buying or purchasing a contract or holding a long position in the index. Entering into a contract to sell units of an index is commonly referred to as selling a contract or holding a short position. A unit is the current value of the index. The Fund may enter into stock index futures contracts, debt index futures contracts, or other index futures contracts appropriate to its objective(s). The Fund may also purchase and sell options on index futures contracts.
There are several risks in connection with the use by the Fund of index futures as a hedging device. One risk arises because of the imperfect correlation between movements in the prices of the index futures and movements in the prices of securities which are the subject of the hedge. The Advisor will attempt to reduce this risk by selling, to the extent possible, futures on indices the movements of which will, in its judgment, have a significant correlation with movements in the prices of the Fund's portfolio securities sought to be hedged.
Successful use of index futures by the Fund for hedging purposes is also subject to the Advisor's ability to predict correctly movements in the direction of the market. It is possible that, where the Fund has sold futures to hedge its portfolio against a decline in the market, the index on which the futures are written may advance and the value of securities held in the Fund's portfolio may decline. If this occurs, the Fund would lose money on the futures and also experience a decline in the value of its portfolio securities. However, while this could occur to a certain degree, the Advisor believes that over time the value of the
Fund's portfolio will tend to move in the same direction as the market indices which are intended to correlate to the price movements of the portfolio securities sought to be hedged. It is also possible that, if the Fund has hedged against the possibility of a decline in the market adversely affecting securities held in its portfolio and securities prices increase instead, the Fund will lose part or all of the benefit of the increased values of those securities that it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient cash, it may have to sell securities to meet daily variation margin requirements.
In addition to the possibility that there may be an imperfect correlation, or no correlation at all, between movements in the index futures and the securities of the portfolio being hedged, the prices of index futures may not correlate perfectly with movements in the underlying index due to certain market distortions. First, all participants in the futures markets are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions which would distort the normal relationship between the index and futures markets. Second, margin requirements in the futures market are less onerous than margin requirements in the securities market, and as a result, the futures market may attract more speculators than the securities market. Increased participation by speculators in the futures market may also cause temporary price distortions. Due to the possibility of price distortions in the futures market and also because of the imperfect correlation between movements in the index and movements in the prices of index futures, even a correct forecast of general market trends by the Advisor may still not result in a successful hedging transaction.
OPTIONS ON INDEX FUTURES. Options on index futures are similar to options on securities except that options on index futures give the purchaser the right, in return for the premium paid, to assume a position in an index futures contract (a long position if the option is a call and a short position if the option is a put), at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's futures margin account which represents the amount by which the market price of the index futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the index future. If an option is exercised on the last trading day prior to the expiration date of the option, the settlement will be made entirely in cash equal to the difference between the exercise price of the option and the closing level of the index on which the future is based on the expiration date. Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss of the premium paid.
OPTIONS ON INDICES. As an alternative to purchasing call and put options on index futures, the Fund may purchase call and put options on the underlying indices themselves. Such options could be used in a manner identical to the use of options on index futures. Options involving securities indices provide the holder with the right to make or receive a cash settlement upon exercise of the option based on movements in the relevant index. Such options must be listed on a national securities exchange and issued by the Options Clearing Corporation. Such options may relate to particular securities or to various stock indices, except that a Fund may not write covered options on an index.
OPTIONS ON FOREIGN STOCK INDICES. The Funds may, for the purpose of hedging its portfolio, subject to applicable securities regulations, purchase and write put and call options on foreign stock indices listed on foreign and domestic stock exchanges. A stock index fluctuates with changes in the market values of the stocks included in the index.
SWAP AGREEMENTS (SWAPS, CAPS, COLLARS AND FLOORS)
The Funds may enter into interest rate swaps, currency swaps, and other types of swap agreements such as caps, collars, and floors. In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate times a "notional principal amount," in return for payments equal to a fixed rate times the same amount, for a specified period of time. If a swap agreement provides for payments in different currencies, the parties might agree to exchange notional principal amount as well. Swaps may also depend on other prices or rates, such as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed upon level. An interest rate collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from one type of investment to another. For example, if a Fund agreed to exchange payments in dollars for payments in foreign currency, the swap agreement would tend to decrease the Fund's exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates. Caps and floors have an effect similar to buying or writing options. Depending on how they are used, swap agreements may increase or decrease the overall volatility of a Fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a small investment of cash relative to the magnitude of risks assumed. As a result, swaps can be highly volatile and may have a considerable impact on the Funds' performance. Swap agreements are subject to risks related to the counterparty's ability to perform, and may decline in value if the counterparty's creditworthiness deteriorates. The Funds may also suffer losses if they are unable to terminate outstanding swap agreements or reduce their exposure through offsetting transactions.
EQUITY SWAPS
The Fund may engage in equity swaps. Equity swaps allow the parties to the swap agreement to exchange components of return on one equity investment (e.g., a basket of equity securities or an index) for a component of return on another non-equity or equity investment, including an exchange of differential rates of return. Equity swaps may be used to invest in a market without owning or taking physical custody of securities in circumstances where direct investment may be restricted for legal reasons or is otherwise impractical. Equity swaps also may be used for other purposes, such as hedging or seeking to increase total return.
RISK FACTORS IN EQUITY SWAP TRANSACTIONS. Equity swaps are derivative instruments and their values can be very volatile. To the extent that the portfolio managers do not accurately analyze and predict the potential relative fluctuation on the components swapped with the other party, the Fund may suffer a loss. The value of some components of an equity swap (such as the dividend on a common stock) may also be sensitive to changes in interest rates. Furthermore, during the period a swap is outstanding, the Fund may suffer a loss if the counterparty defaults. See "Taxes" for information on tax risks associated with equity swaps.
FOREIGN CURRENCY TRANSACTIONS
The Fund may engage in currency exchange transactions to protect against uncertainty in the level of future currency exchange rates.
The Fund may engage in both "transaction hedging" and "position hedging." When it engages in transaction hedging, the Fund enters into foreign currency transactions with respect to specific receivables or payables of the Fund generally arising in connection with the purchase or sale of its portfolio securities. The Fund will engage in transaction hedging when it desires to "lock in" the U.S. dollar price of a security it has agreed to purchase or sell, or the U.S. dollar equivalent of a dividend or interest payment in a foreign currency. By transaction hedging the Fund attempts to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and the applicable foreign currency during the period between the date on which the security is purchased or sold, or on which the dividend or interest payment is declared, and the date on which such payments are made or received.
The Fund may purchase or sell a foreign currency on a spot (or cash) basis at the prevailing spot rate in connection with the settlement of transactions in portfolio securities denominated in that foreign currency. The Fund may also enter into contracts to purchase or sell foreign currencies at a future date ("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes the Fund may also purchase exchange-listed and over-the-counter call and put options on foreign currency futures contracts and on foreign currencies. Over-the-counter options are considered to be illiquid by the SEC staff. A put option on a futures contract gives the Fund the right to assume a short position in the futures contract until expiration of the option. A put option on currency gives the Fund the right to sell a currency at an exercise price until the expiration of the option. A call option on a futures contract gives the Fund the right to assume a long position in the futures contract until the expiration of the option. A call option on currency gives the Fund the right to purchase a currency at the exercise price until the expiration of the option.
When it engages in position hedging, the Fund enters into foreign currency exchange transactions to protect against a decline in the values of the foreign currencies in which its portfolio securities are denominated (or an increase in the value of currency for securities which the Fund expects to purchase, when the Fund holds cash or short-term investments). In connection with position hedging, the Fund may purchase put or call options on foreign currency and foreign currency futures contracts and buy or sell forward contracts and foreign currency futures contracts. The Fund may also purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions and the value of the portfolio securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the dates the currency exchange transactions are entered into and the dates they mature.
It is impossible to forecast with precision the market value of portfolio securities at the expiration or maturity of a forward or futures contract. Accordingly, it may be necessary for the Fund to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security or securities being hedged is less than the amount of foreign currency the Fund is obligated to deliver and if a decision is made to sell the security or securities and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security or securities if the market value of such security or securities exceeds the amount of foreign currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying prices of the securities which the Fund owns or intends to purchase or sell. They simply establish a rate of exchange which one can achieve at some future point in time. Additionally, although these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency, they tend to limit any potential gain which might result from the increase in value of such currency.
CURRENCY FORWARD AND FUTURES CONTRACTS. Upon entering into such contracts, in compliance with the SEC's requirements, cash or liquid securities, equal in value to the amount of the Fund's obligation under the contract (less any applicable margin deposits and any assets that constitute "cover" for such obligation), will be segregated.
A forward currency contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract as agreed by the parties, at a price set at the time of the contract. In the case of a cancelable contract, the holder has the unilateral right to cancel the contract at maturity by paying a specified fee. The contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. A contract generally has no deposit requirement, and no commissions are charged at any stage for trades. A currency futures contract is a standardized contract for the future delivery of a specified amount of a foreign currency at a future date at a price set at the time of the contract. Currency futures contracts traded in the United States are designed and traded on exchanges regulated by the CFTC, such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain respects. For example, the maturity date of a forward contract may be any fixed number of days from the date of the contract agreed upon by the parties, rather than a predetermined date in a given month. Forward contracts may be in any amounts agreed upon by the parties rather than predetermined amounts. Also, forward contracts are traded directly between currency traders so that no intermediary is required. A forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Fund may either accept or make delivery of the currency specified in the contract, or at or prior to maturity enter into a closing transaction involving the purchase or sale of an offsetting contract. Closing transactions with respect to forward contracts are usually effected with the currency trader who is a party to the original forward contract. Closing transactions with respect to futures contracts are effected on a commodities exchange; a clearing corporation associated with the exchange assumes responsibility for closing out such contracts.
Positions in currency futures contracts may be closed out only on an exchange or board of trade which provides a secondary market in such contracts. Although the Fund intends to purchase or sell currency futures contracts only on exchanges or boards of trade where there appears to be an active secondary market, there is no assurance that a secondary market on an exchange or board of trade will exist for any particular contract or at any particular time. In such event, it may not be possible to close a futures position and, in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin.
CURRENCY OPTIONS. In general, options on currencies operate similarly to options on securities and are subject to many similar risks. Currency options are traded primarily in the over-the-counter market, although options on currencies have recently been listed on several exchanges. Options are traded not only on the currencies of individual nations, but also on the European Currency Unit (ECU). The ECU is composed of amounts of a number of currencies, and is the official medium of exchange of the European Economic Community's European Monetary System.
The Fund will only purchase or write currency options when the Advisor believes that a liquid secondary market exists for such options. There can be no assurance that a liquid secondary market will exist for a particular option at any specified time. Currency options are affected by all of those factors which influence exchange rates and investments generally. To the extent that these options are traded over the counter, they are considered to be illiquid by the SEC staff.
The value of any currency, including the U.S. dollar, may be affected by complex political and economic factors applicable to the issuing country. In addition, the exchange rates of currencies (and therefore the values of currency options) may be significantly affected, fixed, or supported directly or indirectly by government actions. Government intervention may increase risks involved in purchasing or selling currency options, since exchange rates may not be free to fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in turn reflects relative values of two currencies, the U.S. dollar and the foreign currency in question. Because currency transactions occurring in the interbank market involve substantially larger amounts than those that may be involved in the exercise of currency options, investors may be disadvantaged by having to deal in an odd lot market for the underlying currencies in connection with options at prices that are less favorable than for round lots. Foreign governmental restrictions or taxes could result in adverse changes in the cost of acquiring or disposing of currencies.
There is no systematic reporting of last sale information for currencies and there is no regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Available quotation information is generally representative of very large round-lot transactions in the interbank market and thus may not reflect exchange rates for smaller odd-lot transactions (less than $1 million) where rates may be less favorable. The interbank market in currencies is a global, around-the-clock market. To the extent that options markets are closed while the markets for the underlying currencies remain open, significant price and rate movements may take place in the underlying markets that cannot be reflected in the options markets.
SETTLEMENT PROCEDURES. Settlement procedures relating to the Fund's investments in foreign securities and to the Fund's foreign currency exchange transactions may be more complex than settlements with respect to investments in debt or equity securities of U.S. issuers, and may involve certain risks not present in the Fund's domestic investments, including foreign currency risks and local custom and usage. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not charge a fee for currency conversion, they do realize a profit based on the difference (spread) between prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligation.
PARTICIPATION INTERESTS
The Fund may invest in municipal obligations either by purchasing them directly or by purchasing certificates of accrual or similar instruments evidencing direct ownership of interest payments or principal payments, or both, on municipal obligations, provided that, in the opinion of counsel to the initial seller of each such certificate or instrument, any discount accruing on such certificate or instrument that is purchased at a yield not greater than the coupon rate of interest on the related municipal obligations will be exempt from federal income tax to the same extent as interest on such municipal obligations. The Fund may also invest in tax-exempt obligations by purchasing from banks participation interests in all or part of specific holdings of municipal obligations. Such participations may be backed in whole or part by an irrevocable letter of credit or guarantee of the selling bank. The selling bank may receive a fee from the Fund in connection with the arrangement. The Fund will not purchase such participation interests unless it receives an opinion of counsel or a ruling of the Internal Revenue Service that interest earned by it on municipal obligations in which it holds such participation interests is exempt from federal income tax.
STAND-BY COMMITMENTS
When the Fund purchases municipal obligations, it may also acquire stand-by commitments from banks and broker-dealers with respect to such municipal obligations. A stand-by commitment is the equivalent of a put option acquired by the Fund with respect to a particular municipal obligation held in its portfolio. A stand-by commitment is a security independent of the municipal obligation to which it relates. The amount payable by a bank or dealer during the time a stand-by commitment is exercisable, absent unusual circumstances relating to a change in market value, would be substantially the same as the value of the underlying municipal obligation. A stand-by commitment might not be transferable by the Fund, although it could sell the underlying municipal obligation to a third party at any time.
The Fund expects that stand-by commitments generally will be available without the payment of direct or indirect consideration. However, if necessary and advisable, the Fund may pay for stand-by commitments either separately in cash or by paying a higher price for portfolio securities which are acquired subject to such a commitment (thus reducing the yield to maturity otherwise available for the same securities). The total amount paid in either manner for outstanding stand-by commitments held in the Fund portfolio will not exceed 10% of the value of the Fund's total assets calculated immediately after each stand-by commitment is acquired. The Fund will enter into stand-by commitments only with banks and broker-dealers that, in the judgment of the Trust's Board of Trustees, present minimal credit risks.
VARIABLE AND FLOATING RATE OBLIGATIONS
Variable rate instruments provide for periodic adjustments in the interest rate. Floating rate instruments provide for automatic adjustment of the interest rate whenever some other specified interest rate changes. Some variable and floating rate obligations are direct lending arrangements between the purchaser and the issuer and there may be no active secondary market. However, in the case of variable and floating rate obligations with a demand feature, a Fund may demand payment of principal and accrued interest at a time specified in the instrument or may resell the instrument to a third party. In the event an issuer of a variable or floating rate obligation defaulted on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and could, for this or other reasons, suffer a loss to the extent of the default. Variable or floating rate instruments issued or guaranteed by the U.S. Government or its agencies or instrumentalities are similar in form but may have a more active secondary market. Substantial holdings of variable and floating rate instruments could reduce portfolio liquidity.
If a variable or floating rate instrument is not rated, the Fund's Advisor must determine that such instrument is comparable to rated instruments eligible for purchase by the Funds and will consider the earning power, cash flows and other liquidity ratios of the issuers and guarantors of such instruments and will continuously monitor their financial status in order to meet payment on demand. In determining average weighted portfolio maturity of each of these Funds, a variable or floating rate instrument issued or guaranteed by the U.S. Government or an agency or instrumentality thereof will be deemed to have a maturity equal to the period remaining until the obligation's next interest rate adjustment. Variable and floating rate obligations with a demand feature will be deemed to have a maturity equal to the longer of the period remaining to the next interest rate adjustment or the demand notice period.
INVERSE FLOATERS
Inverse floaters are derivative securities whose interest rates vary inversely to changes in short-term interest rates and whose values fluctuate inversely to changes in long-term interest rates. The value of certain inverse floaters will fluctuate substantially more in response to a given change in long-term rates than would a traditional debt security. These securities have investment characteristics similar to leverage, in that interest rate changes have a magnified effect on the value of inverse floaters.
RULE 144A SECURITIES
The Fund may purchase securities that have been privately placed but that are eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933, as amended ("1933 Act"). That Rule permits certain qualified institutional buyers, such as the Fund, to trade in privately placed securities that have not been registered for sale under the 1933 Act. The Advisor, under the supervision of the Board of Trustees, will consider whether securities purchased under Rule 144A are illiquid and thus subject to the Fund's investment restriction on illiquid securities. A determination of whether a Rule 144A security is liquid or not is a question of fact. In making this determination, the Advisor will consider the trading markets for the specific security, taking
into account the unregistered nature of a Rule 144A security. In addition, the
Advisor could consider the (1) frequency of trades and quotes, (2) number of
dealers and potential purchasers, (3) dealer undertakings to make a market, and
(4) nature of the security and of marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers, and the mechanics of
transfer). The liquidity of Rule 144A securities will be monitored and, if as a
result of changed conditions, it is determined by the Advisor that a Rule 144A
security is no longer liquid, the Fund's holdings of illiquid securities would
be reviewed to determine what, if any, steps are required to assure that the
Fund does not exceed its investment limit on illiquid securities. Investing in
Rule 144A securities could have the effect of increasing the amount of the
Fund's assets invested in illiquid securities if qualified institutional buyers
are unwilling to purchase such securities.
CURRENCY SWAPS. Currency swaps involve the exchange of rights to make or receive payments in specified currencies. Currency swaps usually involve the delivery of the entire principal value of one designated currency. Therefore, the entire principal value of a currency swap is subject to the risk that the other party to the swap will default on its contractual delivery obligations. The use of currency swaps is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. If the Advisor is incorrect in its forecast of market value and currency exchange rates, the investment performance of a Fund would be less favorable than it would have been if this investment technique were not used.
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities which may be exchanged or converted into a predetermined number of shares of the issuer's underlying common stock at the option of the holder during a specified time period. Convertible securities may take the form of convertible preferred stock, convertible bonds or debentures, units consisting of "usable" bonds and warrants or a combination of the features of several of these securities.
Convertible bonds and convertible preferred stocks generally retain the investment characteristics of fixed income securities until they have been converted but also react to movements in the underlying equity securities. The holder is entitled to receive the fixed income of a bond or the dividend preference of a preferred stock until the holder elects to exercise the conversion privilege. Usable bonds are corporate bonds that can be used in whole or in part, customarily at full face value, in lieu of cash to purchase the issuer's common stock. When owned as part of a unit along with warrants, which are options to buy the common stock, they function as convertible bonds, except that the warrants generally will expire before the bond's maturity. Convertible securities are senior to equity securities and therefore have a claim to the assets of the issuer prior to the holders of common stock in the case of liquidation. However, convertible securities are generally subordinated to similar non-convertible securities of the same issuer. The interest income and dividends from convertible bonds and preferred stocks provide a stable stream of income with generally higher yields than common stocks, but lower than non-convertible securities of similar quality. A Fund will exchange or convert the convertible securities held in its portfolio into shares of the underlying common stock in instances in which, in the Advisor's opinion, the investment characteristics of the underlying common stock will assist the Fund in achieving its investment objective. Otherwise, the Fund will hold or trade the convertible securities. In selecting convertible securities for a Fund, the Advisor evaluates the investment characteristics of the convertible security as a fixed income instrument, and the investment potential of the underlying equity security for capital appreciation.
GUARANTEED INVESTMENT CONTRACTS
Pursuant to guaranteed investment contracts ("GICs"), which are issued by U.S. and Canadian insurance companies, a Fund makes cash contributions to a deposit fund of the insurance company's general account. The insurance company then credits to the fund payments at negotiated, floating or fixed interest rates. A GIC is a general obligation of the issuing insurance company and not a separate account. The purchase price paid for a GIC becomes part of the general assets of the insurance company, and the contract is paid from the company's general assets. The Funds will only purchase GICs that are issued or guaranteed by insurance companies that at the time of purchase are rated at least AA by S&P or receive a similar high quality rating from a nationally recognized service which provides ratings of insurance companies. GICs are considered illiquid securities and will be subject to any limitations on such investments described in Part 1 of this SAI, unless there is an active and substantial secondary market for the particular instrument and market quotations are readily available. No Fund will invest more than 20% of its total assets in GICs.
BANK INVESTMENT CONTRACTS
Bank investment contracts ("BICs") issued by banks that meet certain quality and asset size requirements for banks are available to the Funds. Pursuant to BICs, cash contributions are made to a deposit account at the bank in exchange for payments at negotiated, floating or fixed interest rates. A BIC is a general obligation of the issuing bank. BICs are considered illiquid securities and will be subject to any limitations on such investments described in Part 1 of this SAI, unless there is an active and substantial secondary market for the particular instrument and market quotations are readily available.
LOAN PARTICIPATIONS
Loan participations are interests in loans which are administered by the lending bank or agent for a syndicate of lending banks, and sold by the lending bank or syndicate member. The Funds may only purchase interests in loan participations issued by a bank in the United States with assets exceeding $1 billion and for which the underlying loan is issued by borrowers in whose obligations the Funds may invest. Because the intermediary bank does not guarantee a loan participation in any way, a loan participation is subject to the credit risk generally associated with the underlying corporate borrower. In addition, in the event the underlying corporate borrower defaults, a Fund may be subject to delays, expenses and risks that are greater than those that would have been involved if the Fund had purchased a direct obligation (such as commercial paper) of the borrower. Under the terms of a loan participation, the purchasing Fund may be regarded as a creditor of the intermediary bank so that the Fund may also be subject to the risk that the issuing bank may become insolvent.
STRUCTURED INVESTMENTS
Structured investments are a relatively new innovation and may be designed to have various combinations of equity and fixed-income characteristics. Equity-linked securities are a form of structured investment and generally consist of a conversion privilege to a single company's common stock plus a fixed annual distribution to the holder. Equity-linked securities have some derivative characteristics because the conversion feature is linked to the price of the company's common stock. Equity-linked securities are designed to provide investors with higher quarterly income than the dividend paid per share on the common stock. However, equity-linked securities have decreased potential for capital appreciation because of limitations of the conversion feature.
Equity-linked securities include issues such as "Structured Yield Product Exchangeable for Stock" ("STRYPES"), "Trust Automatic Common Exchange Securities" ("TRACES"), "Trust Issued Mandatory Exchange Securities" ("TIMES"), "Trust Enhanced Dividend Securities" ("TRENDS") and other similar securities, including those which may be developed in the future. The issuers of the above listed examples of equity-linked securities generally purchase and hold a portfolio of stripped U.S. Treasury securities maturing on a quarterly basis through the conversion date, and a forward purchase contract with an existing shareholder of the company relating to the common stock. Quarterly distributions on equity-linked securities generally consist of the cash received from the U.S. Treasury securities and equity-linked securities generally are not entitled to any dividends that may be declared on the common stock.
Equity-linked securities may be issued by closed-end or other forms of investment companies. To the extent that equity-linked securities are issued by investment companies, a Fund's investments in equity-linked securities are subject to the same limitations as investments in more traditional forms of investment companies.
YANKEE OBLIGATIONS
Yankee obligations are U.S. dollar-denominated instruments of foreign issuers that are either registered with the SEC or issued pursuant to Rule 144A under the 1933 Act. These obligations consist of debt securities (including preferred or preference stock of non-governmental issuers), certificates of deposit, fixed time deposits and banker's acceptances issued by foreign banks, and debt obligations of foreign governments or their subdivisions, agencies and instrumentalities, international agencies and supranational entities. Some securities issued by foreign governments or their subdivisions, agencies and instrumentalities may not be backed by the full faith and credit of the foreign government.
AMERICAN, EUROPEAN, CONTINENTAL AND GLOBAL DEPOSITARY RECEIPTS
American Depositary Receipts ("ADRs") are receipts issued in registered form by a U.S. bank or trust company evidencing ownership of underlying securities issued by a foreign issuer. European Depositary Receipts ("EDRs"), which are sometimes
referred to as Continental Depositary Receipts ("CDRs"), are receipts issued in Europe typically by non-U.S. banks or trust companies and foreign branches of U.S. banks that evidence ownership of foreign or U.S. securities. Global Depositary Receipts ("GDRs") are receipts structured similarly to EDRs and CDRs and are marketed globally. ADRs may be listed on a national securities exchange or may be traded in the over-the-counter market. EDRs and CDRs are designed for use in European exchange and over-the-counter markets. GDRs are designed for trading in non-U.S. securities markets. ADRs, EDRs, CDRs and GDRs traded in the over-the-counter market which do not have an active or substantial secondary market will be considered illiquid and therefore will be subject to the Funds' respective limitations with respect to such securities, if any. If a Fund invests in an unsponsored ADR, EDR, CDR or GDR, there may be less information available to the Fund concerning the issuer of the securities underlying the unsponsored ADR, EDR, CDR or GDR than is available for an issuer of securities underlying a sponsored ADR, EDR, CDR or GDR. ADR prices are denominated in U.S. dollars although the underlying securities are denominated in a foreign currency. Investments in ADRs, EDRs, CDRs and GDRs involve risks similar to those accompanying direct investments in foreign securities.
TEMPORARY CASH BALANCES
The Funds may hold very small temporary cash balances to efficiently manage transactional expenses. These cash balances are expected, under normal conditions, not to exceed 2% of each Fund's net assets at any time (excluding amounts used as margin and segregated assets with respect to futures transactions and collateral for securities loans and repurchase agreements). The Funds may invest these temporary cash balances in short-term debt obligations issued or guaranteed by the U.S. Government or its agencies and instrumentalities ("U.S. Government Securities"), high quality commercial paper (rated A-1 or better by S&P or P-1 or better by Moody's), certificates of deposit and time deposits of banking institutions having total assets in excess of $1 billion, and repurchase agreements collateralized by U.S. Government Securities. The Funds may also hold these investments in connection with U.S. Treasury rolls, which are not subject to the 2% limitation above.
TAXES
In this section, all discussions of taxation at the shareholder and fund levels relate to U.S. federal taxes only. Consult your tax advisor for state, local and foreign tax considerations and for information about special tax considerations that may apply to shareholders that are not natural persons or not U.S. citizens or resident aliens.
FEDERAL TAXES. Although it may be one of several series in a single trust, the Fund is treated as a separate entity for federal income tax purposes under the Internal Revenue Code of 1986, as amended (the "Code"). The Fund has elected (or in the case of a new fund, intends to elect) to be, and intends to qualify to be treated each year as, a "regulated investment company" under Subchapter M of the Code by meeting all applicable requirements of Subchapter M, including requirements as to the nature of the Fund's gross income, the amount of its distributions (as a percentage of both its overall income and any tax-exempt income), and the composition of its portfolio assets.
To qualify as a "regulated investment company," the Fund must (a) derive at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock, securities or foreign currencies or other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies; (b) diversify its holdings so that, at the close of each quarter of its taxable year, (i) at least 50% of the market value of its total assets consists of cash, cash items, U.S. government securities, securities of other regulated investment companies and other securities limited generally with respect to any one issuer to not more than 5% of the total assets of the Fund and not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested (x) in the securities of any issuer, other than U.S. government securities or other regulated investment companies, or (y) in the securities of one or more "qualified publicly traded partnership" (as defined below); or of two or more issuers which the Fund controls and which are engaged in the same, similar, or related trades or businesses; and (c) distribute with respect to each year at least 90% investment company taxable income (as that term is defined in the Code without regard to the deduction for dividends paid -- generally, ordinary income and the excess, if any, of net short-term capital gains over net long-term capital losses) and any net tax-exempt interest, income, for such year. In general, for purposes of the 90% gross income requirement described in (a) above, income derived from a partnership will be treated as qualifying income only to the extent such income is attributable to items of income of the partnership which would be qualifying income if realized by the regulated investment company. However, recent legislation provides that 100% of the net income derived from an interest in a "qualified publicly traded partnership" (defined as a partnership (i) interests in which are traded on an established securities market or readily tradable on a secondary market or the substantial equivalent thereof and (ii) that
derives less than 90% of its income from the qualifying income described in (a) above) will be treated as qualifying income. In addition, although in general the passive loss rules of the Code do not apply to regulated investment companies, such rules do not apply to a regulated investment company with respect to items attributable to an interest in a qualified publicly traded partnership. Finally, for purposes of (c) above, the term "outstanding voting securities of such issuer" will include the equity securities of a qualified publicly traded partnership. As a regulated investment company that is accorded special tax treatment, the Fund will not be subject to any federal income taxes on its net investment income and net realized capital gains that it distributes to shareholders in the form of dividends and in accordance with the timing requirements imposed by the Code. The Fund's foreign-source income, if any, may be subject to foreign withholding taxes. If the Fund were to fail to qualify as a "regulated investment company" accorded special tax treatment in any taxable year, it would incur a regular federal corporate income tax on all of its taxable income, whether or not distributed, and Fund distributions (including any distributions of net tax-exempt income and net long-term capital gains) would generally be taxable as ordinary income to the shareholders, except to the extent they were treated as "qualified dividend income," as described below. In addition, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying as a regulated investment company that is accorded special tax treatment.
If the Fund fails to distribute in a calendar year substantially all of its ordinary income for such year and substantially all of its capital gain net income for the one-year period ending October 31 (or later if the Fund is permitted so to elect and so elects), plus any retained amount from the prior year, the Fund will be subject to a 4% excise tax on the underdistributed amounts. A dividend paid to shareholders by the Fund in January of a year generally is deemed to have been paid by the Fund on December 31 of the preceding year, if the dividend was declared and payable to shareholders of record on a date in October, November or December of that preceding year. The Fund intends generally to make distributions sufficient to avoid imposition of the 4% excise tax.
ALTERNATIVE MINIMUM TAX. Distributions derived from interest that is exempt from regular federal income tax may subject corporate shareholders to or increase their liability under the federal corporate alternative minimum tax (AMT). A portion of such distributions may constitute a tax preference item for individual shareholders and may subject them to or increase their liability under the AMT.
DIVIDENDS RECEIVED DEDUCTIONS. Distributions will qualify for the corporate dividends received deduction only to the extent that dividends earned by the Fund qualify. Any such dividends may be, however, includable in adjusted current earnings for purposes of computing corporate federal AMT. The dividends received deduction for eligible dividends is subject to a holding period requirement.
RETURN OF CAPITAL DISTRIBUTIONS. If the Fund makes a distribution to a shareholder in excess of the Fund's current and accumulated "earning and profits" in any taxable year, the excess distribution will be treated as a return of capital to the extent of the shareholder's tax basis in his or her shares, and thereafter as capital gain. A return of capital is not taxable, but it reduces tax basis in shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition of such shares. Dividends and distributions on a Fund's shares are generally subject to federal income tax as described herein to the extent they do not exceed the Fund's realized income and gains, even though such dividends and distributions may economically represent a return of a particular shareholder's investment. Such distributions are likely to occur in respect of shares purchased at a time when a Fund's net asset value reflects gains that are either unrealized, or realized but not distributed. Such realized gains may be required to be distributed even when a Fund's net asset value also reflects unrealized losses.
FUNDS THAT INVEST IN U.S. GOVERNMENT SECURITIES. Many states grant tax-free status to dividends paid to shareholders of mutual funds from interest income earned by the Fund from direct obligations of the U.S. government. Investments in mortgage-backed securities (including GNMA, FNMA and FHLMC Securities) and repurchase agreements collateralized by U.S. government securities do not qualify as direct federal obligations in most states. Shareholders should consult with their own tax advisors about the applicability of state and local intangible property, income or other taxes to their Fund shares and distributions and redemption proceeds received from the Fund.
FUND DISTRIBUTIONS. Distributions from the Fund (other than qualified dividend income and exempt-interest dividends, as discussed below) will generally be taxable to shareholders as ordinary income to the extent derived from the Fund's investment income and net short-term gains. Distributions of long-term capital gains (that is, the excess of net gains from capital assets held for more than one year over net losses from capital assets held for not more than one year) will be taxable to shareholders as such, regardless of how long a shareholder has held shares in the Fund. In general, any distributions of long-term capital gains
will be taxed to shareholders who are individuals at a maximum rate of 15% for taxable years beginning on or before December 31, 2008.
Distributions are taxable to shareholders even if they are paid from income or gains earned by the Fund before a shareholder's investment (and thus were included in the price of the shareholder paid). Distributions are taxable whether received in cash or in Fund shares.
QUALIFIED DIVIDEND INCOME. For taxable years beginning on or before December 31, 2008, "qualified dividend income" received by an individual will be taxed at the rates applicable to long-term capital gain. In order for some portion of the dividends received by a Fund shareholder to be qualified dividend income, the Fund must meet holding period and other requirements with respect to some portion of the dividend paying stocks in its portfolio and the shareholder must meet holding period and other requirements with respect to the Fund's shares. A dividend will not be treated as qualified dividend income (at either the Fund or shareholder level) (1) if the dividend is received with respect to any share of stock held for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or, in the case of certain preferred stock, 91 days during the 181-day period beginning 90 days before such date), (2) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property, (3) if the recipient elects to have the dividend income treated as investment income for purposes of the limitation on deductibility of investment interest, or (4) if the dividend is received from a foreign corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the United States (with the exception of dividends paid on stock of such a foreign corporation readily tradable on an established securities market in the United States) or (b) treated as a passive foreign investment company. With respect to a Fund investing in bonds, the Fund does not expect a significant portion of Fund distributions to be derived from qualified dividend income.
In general, distributions of investment income properly designated by the Fund as derived from qualified dividend income may be treated as qualified dividend income by a shareholder taxed as an individual provided the shareholder meets the holding period and other requirements described above with respect to his or her shares. If the aggregate qualified dividends received by a fund during any taxable year are 95% or more of its gross income, then 100% of the Fund's dividends (other than properly designated capital gain dividends) will be eligible to be treated as qualified dividend income. For this purpose, the only gain included in the term "gross income" is the excess of net short-term capital gain over net long-term capital loss.
DISTRIBUTIONS FROM TAX-EXEMPT FUNDS. Each tax-exempt Fund will have at least 50% of its total assets invested in tax-exempt bonds at the end of each quarter so that dividends from net interest income on tax-exempt bonds will be exempt from federal income tax when received by a shareholder (but may be taxable for federal alternative minimum tax purposes and for state and local tax purposes). The tax-exempt portion of dividends paid will be designated within 60 days after year-end based upon the ratio of net tax-exempt income to total net investment income earned during the year. That ratio may be substantially different from the ratio of net tax-exempt income to total net investment income earned during any particular portion of the year. Thus, a shareholder who holds shares for only a part of the year may be allocated more or less tax-exempt dividends than would be the case if the allocation were based on the ratio of net tax-exempt income to total net investment income actually earned while a shareholder.
Income from certain "private activity bonds" issued after August 7, 1986, is treated as a tax preference item for the AMT at the maximum rate of 28% for individuals and 20% for corporations. If the Fund invests in private activity bonds, shareholders may be subject to the AMT on that part of the distributions derived from interest income on such bonds. Interest on all tax-exempt bonds is included in corporate adjusted current earnings when computing the AMT applicable to corporations. Seventy-five percent of the excess of adjusted current earnings over the amount of income otherwise subject to the AMT is included in a corporation's alternative minimum taxable income.
Dividends derived from any investments other than tax-exempt bonds and any distributions of short-term capital gains are generally taxable to shareholders as ordinary income. Any distributions of long-term capital gains will in general be taxable to shareholders as long-term capital gains (generally subject to a maximum 15% tax rate for shareholders who are individuals) regardless of the length of time Fund shares are held by the shareholder.
A tax-exempt Fund may at times purchase tax-exempt securities at a discount and some or all of this discount may be included in the Fund's ordinary income which will be taxable when distributed. Any market discount recognized on a tax-exempt bond purchased after April 30, 1993, with a term at time of issue of more than one year is taxable as ordinary income. A market
discount bond is a bond acquired in the secondary market at a price below its "stated redemption price" (in the case of a bond with original issue discount, its "revised issue price").
Shareholders receiving social security and certain retirement benefits may be taxed on a portion of those benefits as a result of receiving tax-exempt income, including tax-exempt dividends from the Fund.
SPECIAL TAX RULES APPLICABLE TO TAX-EXEMPT FUNDS. In general, exempt-interest dividends, if any, attributable to interest received on certain private activity obligations and certain industrial development bonds will not be tax-exempt to any shareholders who are "substantial users" of the facilities financed by such obligations or bonds or who are "related persons" of such substantial users, as further defined in the Code. Income derived from the Fund's investments other than tax-exempt instruments may give rise to taxable income. The Fund's shares must be held for more than six months in order to avoid the disallowance of a capital loss on the sale of Fund shares to the extent of tax-exempt dividends paid during that period. Part or all of the interest on indebtedness, if any, incurred or continued by a shareholder to purchase or carry shares of the Fund paying exempt-interest dividends is not deductible. The portion of interest that is not deductible is equal to the total interest paid or accrued on the indebtedness, multiplied by the percentage of the Fund's total distributions (not including distributions from net long-term capital gains) paid to the shareholder that are exempt-interest dividends. Under rules used by the Internal Revenue Service to determine when borrowed funds are considered used for the purpose of purchasing or carrying particular assets, the purchase of shares may be considered to have been made with borrowed funds even though such funds are not directly traceable to the purchase of shares.
SALES OF SHARES. The sale, exchange or redemption of Fund shares may give rise to a gain or loss. In general, any gain realized upon a taxable disposition of shares generally will be treated as long-term capital gain if the shares have been held for more than one year. Otherwise the gain on the sale, exchange or redemption of Fund shares will be treated as short-term capital gain. In general, any loss realized upon a taxable disposition of shares will be treated as long-term loss if the shares have been held more than one year and otherwise as short-term loss. However, any loss realized upon a taxable disposition of shares held for six months or less will be disallowed for federal income tax purposes to the extent of any exempt-interest dividends received on such shares. In addition, any loss (not already disallowed as provided in the preceding sentence) realized upon a taxable disposition of shares held for six months or less will be treated as long-term, rather than short-term, capital loss to the extent of any long-term capital gain distributions received by the shareholder with respect to those shares. All or a portion of any loss realized upon a taxable disposition of shares will be disallowed if other shares are purchased within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss.
Under Treasury regulations, if on a disposition of Fund shares a shareholder recognizes a loss of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder will likely have to file with the Internal Revenue Service a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all regulated investment companies. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. You are advised to consult with your tax advisor.
BACKUP WITHHOLDING. Certain distributions and redemptions may be subject to backup withholding for taxpayers who fail to furnish a correct taxpayer identification number, who have under-reported dividend or interest income, or who fail to certify to the Fund that the shareholder is a United States person and is not subject to the withholding. This number and certification may be provided by either a Form W-9 or the accompanying application. In certain instances, CMS may be notified by the Internal Revenue Service that a shareholder is subject to backup withholding. The backup withholding rate is 28% for amounts paid through 2010. The backup withholding rate will be 31% for amounts paid after December 31, 2010.
HEDGING TRANSACTIONS. If the Fund engages in hedging transactions, including hedging transactions in options, futures contracts and straddles, or other similar transactions, it will be subject to special tax rules (including constructive sale, mark-to-market, straddle, wash sale and short sale rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund's securities, convert long-term capital gains into short-term capital gains or convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. The Fund will endeavor to make any available elections pertaining to such transactions in a manner believed to be in the best interests of the Fund and its shareholders.
SECURITIES ISSUED AT A DISCOUNT. The Fund's investment in debt securities issued at a discount and certain other obligations will (and investments in securities purchased at a discount may) require the Fund to accrue and distribute income not yet received. In such cases, the Fund may be required to sell assets (possibly at a time when it is not advantageous to do so) to generate the cash necessary to distribute as dividends to its shareholders all of its income and gains and therefore to eliminate any tax liability at the Fund level.
FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING TRANSACTIONS. The Fund's transactions in foreign currencies, foreign currency-denominated debt securities, certain foreign currency options, futures contracts and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned. This may produce a difference between the Fund's book income and its taxable income, possibly accelerating distributions or converting distributions of book income and gains to returns of capital for book purposes.
If more than 50% of the Fund's total assets at the end of its fiscal year are invested in stock or securities of foreign corporate issuers, the Fund may make an election permitting its shareholders to take a deduction or credit for federal income tax purposes for their pro rata portion of certain qualified foreign taxes paid by the Fund to foreign countries in respect of foreign securities the Fund has held for at least the minimum period specified in the Code. The Advisor will consider the value of the benefit to a typical shareholder, the cost to the Fund of compliance with the election, and incidental costs to shareholders in deciding whether to make the election. A shareholder's ability to claim such a foreign tax credit or deduction in respect of foreign taxes will be subject to certain limitations imposed by the Code, including a holding period requirement, as a result of which a shareholder may not get a full credit or deduction for the amount of foreign taxes so paid by the Fund. Shareholders who do not itemize on their federal income tax returns may claim a credit (but not a deduction) for such foreign taxes.
Investment by the Fund in "passive foreign investment companies" could subject the Fund to a U.S. federal income tax or other charge on the proceeds from the sale of its investment in such a company; however, this tax can be avoided by making an election to mark such investments to market annually or to treat the passive foreign investment company as a "qualified electing Fund." A "passive foreign investment company" is any foreign corporation: (i) 75 percent or more of the income of which for the taxable year is passive income, or (ii) the average percentage of the assets of which (generally by value, but by adjusted tax basis in certain cases) that produce or are held for the production of passive income is at least 50 percent. Generally, passive income for this purpose means dividends, interest (including income equivalent to interest), royalties, rents, annuities, the excess of gain over losses from certain property transactions and commodities transactions, and foreign currency gains. Passive income for this purpose does not include rents and royalties received by the foreign corporation from active business and certain income received from related persons.
NON-U.S. SHAREHOLDERS. Capital gain dividends will not be subject to withholding of federal income tax. In general, dividends (other than Capital Gain Dividends) paid by the Fund to a shareholder that is not a "U.S. person" within the meaning of the Code (such shareholder, a "foreign person") are subject to withholding of U.S. federal income tax at a rate of 30% (or lower applicable treaty rate) even if they are funded by income or gains (such as portfolio interest, short-term capital gains, or foreign-source dividend and interest income) that, if paid to a foreign person directly, would not be subject to withholding. However, for taxable years of the Fund before January 1, 2008, the Fund will not be required to withhold any amounts (i) with respect to distributions (other than distributions to a foreign person (w) that has not provided a satisfactory statement that the beneficial owner is not a U.S. person, (x) to the extent that the dividend is attributable to certain interest on an obligation if the foreign person is the issuer or is a 10% shareholder of the issuer, (y) that is within certain foreign countries that have inadequate information exchange with the United States, or (z) to the extent the dividend is attributable to interest paid by a person that is a related person of the foreign person and the foreign person is a controlled foreign corporation) from U.S.-source interest income that, in general, would not be subject to U.S. federal income tax if earned directly by an individual foreign person, to the extent such distributions are properly designated by the Fund, and (ii) with respect to distributions (other than distributions to an individual foreign person who is present in the United States for a period or periods aggregating 183 days or more during the year of the distribution) of net short-term capital gains in excess of net long-term capital losses, to the extent such distributions are properly designated by the Fund. The Fund has not determined whether it will make such designations.
If a beneficial holder who is a foreign person has a trade or business in the United States, and the dividends are effectively connected with the conduct by the beneficial holder of a trade or business in the United States, the dividend will be subject to U.S. federal net income taxation at regular income tax rates.
Recent legislation modifies the tax treatment of distributions from the Fund that are paid to a foreign person and are attributable to gain from "U.S. real property interests" ("USRPIs"), which the Code defines to include direct holdings of U.S. real property and interests (other than solely as a creditor) in "U.S. real property holding corporations" such as REITs. The Code deems any corporation that holds (or held during the previous five-year period) USRPIs with a fair market value equal to 50% or more of the fair market value of the corporation's U.S. and foreign real property assets and other assets used or held for use in a trade or business to be a U.S. real property holding corporation; however, if any class of stock of a corporation is traded on an established securities market, stock of such class shall be treated as a USRPI only in the case of a person who holds more than 5% of such class of stock at any time during the previous five-year period. Under the legislation, which applies to dividends paid or deemed paid on or before December 31, 2007, distributions to foreign persons attributable to gains from the sale or exchange of USRPIs will give rise to an obligation for those foreign persons to file a U.S. tax return and pay tax, and may well be subject to withholding under future regulations.
Under U.S. federal tax law, a beneficial holder of shares who is a foreign person is not, in general, subject to U.S. federal income tax on gains (and is not allowed a deduction for losses) realized on the sale of shares of the Fund or on Capital Gain Dividends unless (i) such gain or Capital Gain Dividend is effectively connected with the conduct of a trade or business carried on by such holder within the United States, (ii) in the case of an individual holder, the holder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale or Capital Gain Dividend and certain other conditions are met, or (iii) the shares constitute USRPIs or the Capital Gain Dividends are paid or deemed paid on or before December 31, 2007 and are attributable to gains from the sale or exchange of USRPIs. Effective before January 1, 2008, if the Fund is a U.S. real property holding corporation (as described above) the Fund's shares will nevertheless not constitute USRPIs if the Fund is a "domestically controlled qualified investment entity," which is defined to include a RIC that, at all times during the shorter of the 5-year period ending on the date of the disposition or the period during which the RIC was in existence, had less than 50 percent in value of its stock held directly or indirectly by foreign persons.
ADDITIONAL TAX MATTERS CONCERNING TRUST SHARES (THIS SECTION IS APPLICABLE ONLY TO THE COLUMBIA TAX-MANAGED GROWTH FUND)
FEDERAL GIFT TAXES. An investment in Trust Shares may be a taxable gift for federal tax purposes, depending upon the option selected and other gifts that the donor and his or her spouse may make during the year.
Under the Columbia Advantage Plan, the entire amount of the gift will be a "present interest" that qualifies for the federal gift tax annual exclusion. In that case, the donor will be required to file a federal gift tax return on account of this gift only if (i) the aggregate present interest gifts by the donor to the particular beneficiary (including the gift of Trust Shares) exceeds the annual gift-tax exemption, which in 2006 is $12,000 or (ii) the donor wishes to elect gift splitting on gifts with his or her spouse for the year. The trustee will notify the beneficiary of his or her right of withdrawal promptly following any contribution under the Advantage Plan.
Under the Columbia Gift Plan, the entire amount of the gift will be a "future interest" for federal gift tax purposes, so that none of the gift will qualify for the federal gift tax annual exclusion. Consequently, the donor will have to file a federal gift tax return (IRS Form 709) reporting the entire amount of the gift, even if the gift is less than $12,000.
No federal gift tax will be payable by the donor until his or her cumulative taxable gifts (i.e., gifts other than those qualifying for the annual exclusion or otherwise exempt), including taxable gifts of other assets as well as any taxable gifts of trust shares, exceed the federal gift and estate tax exemption equivalent amount, which is $1,000,000 for gifts made after December 31, 2001, and before January 1, 2010.
Any gift of Trust Shares that does not qualify as a present interest or that exceeds the available annual exclusion amount will reduce the amount of the donor's Federal gift and estate tax exemption (if any) that would otherwise be available for future gifts for transfers at death.
The donor and his or her spouse may elect "gift-splitting" for any gift of Trust Shares (other than a gift to such spouse), meaning that the donor and his or her spouse may elect to treat the gift as having been made one-half by each of them, thus allowing a total gift of $24,000.
The donor's gift of Fund shares may also have to be reported for state gift tax purposes, if the state in which the donor resides imposes a gift tax. Many states do not impose such a tax. Some states follow the Federal rules concerning the types of transfers subject to tax and the availability of the annual exclusion.
GENERATION-SKIPPING TRANSFER TAXES
If the beneficiary of a gift of Trust Shares is a relative who is two generations or more younger than the donor, or is not a relative and is more than 37 1/2 years younger than the donor, the gift will be subject in whole or in part to the generation-skipping transfer tax (the "GST tax") unless the gift is made under the Columbia Advantage Plan and does not exceed the available annual exclusion amount. An exemption (the "GST exemption"), equal to $2 million in 2006, is allowed against this tax, and so long as the GST exemption has not been used by other transfers it will automatically be allocated to a gift of Trust Shares that is subject to the GST tax unless the donor elects otherwise. Such an election is made by reporting the gift on a timely filed gift tax return and paying the applicable GST tax. The GST tax is imposed at a flat rate (46% for gifts made in 2006) on the amount of the gift, and payment of the tax by the donor is treated as an additional gift for gift tax purposes.
INCOME TAXES
The Internal Revenue Service takes the position that a trust beneficiary who is given a power of withdrawal over contributions to the trust should be treated, for Federal income tax purposes, as the "owner" of the portion of the trust that was subject to the power. Accordingly, if the donor selects Columbia Advantage Trust Shares, the beneficiary will be treated as the "owner" of all of the Fund shares in the account for Federal income tax purposes, and will be required to report all of the income and capital gains earned in the trust on his or her personal Federal income tax return. The trust will not pay Federal income taxes on any of the trust's income or capital gains. The trustee will prepare and file the Federal income tax information returns that are required each year (and any state income tax returns that may be required), and will send the beneficiary a statement following each year showing the amounts (if any) that the beneficiary must report on his or her income tax returns for that year. If the beneficiary is under fourteen years of age, these amounts may be subject to Federal income taxation at the marginal rate applicable to the beneficiary's parents. The beneficiary may at any time after the creation of the trust irrevocably elect to require the trustee to pay him or her a portion of the trust's income and capital gains annually thereafter to provide funds with which to pay any resulting income taxes, which the trustee will do by redeeming Trust Shares. The amount distributed will be a fraction of the trust's ordinary income and short-term capital gains and the trust's long-term capital gains equal to the highest marginal Federal income tax rate imposed on each type of income (currently, 35% and 15%, respectively). If the beneficiary selects this option, he or she will receive those fractions of his or her trust's income and capital gains annually for the duration of the trust.
Under the Columbia Advantage Plan, the beneficiary will also be able to require the trustee to pay his or her tuition, room and board and other expense of his or her college or post-graduate education, and the trustee will raise the cash necessary to fund these distributions by redeeming Trust Shares. Any such redemption will result in the realization of capital gain or loss on the shares redeemed, which will be reportable by the beneficiary on his or her income tax returns for the year in which the shares are redeemed, as described above. Payments must be made directly to the educational institution.
If the donor selects the Columbia Gift Plan, the trust that he or she creates will be subject to Federal income tax on all income and capital gains realized by it, less a $100 annual exemption (in lieu of the personal exemption allowed to individuals). The amount of the tax will be determined under the tax rate schedule applicable to estates and trusts, which is more sharply graduated than the rate schedule for individuals, reaching the same maximum marginal rate for ordinary income or short-term capital gains (currently, 35%), but at a much lower taxable income level than would apply to an individual. It is anticipated, however, that most of the gains taxable to the trust will be long-term capital gain, on which the Federal income tax rate is currently limited to 15%. The trustee will raise the cash necessary to pay any Federal or state income taxes by redeeming Fund shares. The beneficiary will not pay Federal income taxes on any of the trust's income or capital gains, except those earned in the year when the trust terminates. The trustee will prepare and file all Federal and state income tax returns that are required each year, and will send the beneficiary an information statement for the year in which the trust terminates showing the amounts (if any) that the beneficiary must report on his or her Federal and state income tax returns for that year.
When the trust terminates, the distribution of the remaining shares held in the trust to the beneficiary will not be treated as a taxable disposition of the shares. Any Fund shares received by the beneficiary will have the same cost basis as they had in the trust at the time of termination. Any Fund shares received by the beneficiary's estate will have a basis equal to the value of the shares at the beneficiary's death (or the alternate valuation date for Federal estate tax purposes, if elected).
CONSULTATION WITH QUALIFIED ADVISOR
Due to the complexity of Federal and state gift, GST and income tax laws pertaining to all gifts in trust, prospective donors should consider consulting with their financial or tax advisor before investing in Trust Shares.
MANAGEMENT OF THE FUNDS Columbia Management Advisors, LLC ("Columbia Advisors" or "CMA" or the "Advisor"), located at 100 Federal Street, Boston, Massachusetts 02110 is the Advisor to the Funds. The Advisor provides administrative and management services to the Funds. Columbia Advisors is a direct, wholly owned subsidiary of Columbia Management Group, LLC ("CMG"), which in turn is a direct, wholly owned subsidiary of Bank of America, which in turn is a wholly owned banking subsidiary of Bank of America Corporation, a financial services holding company organized as a Delaware corporation. On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005 Columbia Management was the investment advisor to the Funds. As a result of the merger, Columbia Advisors is now the investment advisor to the Funds. Columbia Advisors, a registered investment advisor, has been an investment advisor since 1995.
TRUSTEES AND OFFICERS (THIS SECTION APPLIES TO ALL OF THE FUNDS)
Information regarding the Trustees and officers of the Funds together with their principal business occupations during the last five years (their titles may have varied during that period) is shown below. Unless otherwise noted, the address for each Trustee and officer is c/o Columbia Funds, Mail Stop MA5-515-11-05, One Financial Center, Boston, MA 02111.
Number of
Portfolios in
Year First Principal Columbia Fund
Elected or Occupation(s) Complex Other
Appointed to During Past Five Overseen by Directorships
Name and Year of Birth Position with Funds Office(1) Years Trustee Held(2)
------------------------ ---------------------- ---- ----------------- -- -----------------
DISINTERESTED TRUSTEE
Thomas C. Theobald Trustee and Chairman 1996 Partner and 83 Anixter
(Born 1937) of the Board Senior Advisor, International
Chicago Growth (network support
Partners (private equipment
equity investing) distributor);
since September, Ventas, Inc.
2004; Managing (real estate
Director, William investment
Blair Capital trust); Jones
Partners (private Lang LaSalle
equity investing) (real estate
from September, management
1994 to services) and
September, 2004. Ambac Financial
Group (financial
guaranty
insurance)
|
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ---------------------- ------------ ----------------------- ------------- -------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker Trustee 1996 Executive Vice 83 Nash Finch Company
(Born 1955) President -- Strategy (food distributor)
of United Airlines
(airline) since
December, 2002;
President of UAL
Loyalty Services
(airline) from
September, 2001 to
December, 2002;
Executive Vice
President and Chief
Financial Officer of
United Airlines from
July, 1999 to
September, 2001.
Janet Langford Kelly Trustee 1996 Partner, Zelle, 83 UAL Corporation
(Born 1957) Hofmann, Voelbel, Mason (airline)
& Gette LLP (law firm)
since March, 2005;
Adjunct Professor of
Law, Northwestern
University, since
September, 2004; Chief
Administrative Officer
and Senior Vice
President, Kmart
Holding Corporation
(consumer goods), from
September, 2003 to
March, 2004; Executive
Vice
President-Corporate
Development and
Administration, General
Counsel and Secretary,
Kellogg Company (food
manufacturer), from
September, 1999 to
August, 2003.
|
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ---------------------- ------------ ----------------------- ------------- -------------------
DISINTERESTED TRUSTEES
Richard W. Lowry Trustee 1995 Private Investor since 85 None
(Born 1936) August, 1987 (formerly
Chairman and Chief
Executive Officer, U.S.
Plywood Corporation
(building products
manufacturer) until
1987).
Charles R. Nelson Trustee 1981 Professor of Economics, 83 None
(Born 1942) University of
Washington since
January, 1976; Ford and
Louisa University of
Washington Van Voorhis
Professor of Political
Economy, University of
Washington, since
September, 1993;
Director, Institute for
Economic Research,
University of
Washington from
September, 2001 to
June, 2003; Adjunct
Professor of
Statistics, University
of Washington since
September, 1980;
Associate Editor,
Journal of Money Credit
and Banking since
September, 1993;
consultant on
econometric and
statistical matters.
John J. Neuhauser Trustee 1985 University Professor, 85 None
(Born 1943) Boston College since
November, 2005;
Academic Vice President
and Dean of Faculties,
Boston College from
August, 1999 to
October, 2005.
|
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ---------------------- ------------ ----------------------- ------------- -------------------
DISINTERESTED TRUSTEES
Patrick J. Simpson Trustee 2000 Partner, Perkins Coie 83 None
(Born 1944) L.L.P. (law firm).
Thomas E. Stitzel Trustee 1998 Business Consultant 83 None
(Born 1936) since 1999; Chartered
Financial Analyst.
Anne-Lee Verville Trustee 1998 Retired since 1997 83 Chairman of the
(Born 1945) (formerly General Board of Directors,
Manager, Global Enesco Group,Inc.
Education Industry, IBM (producer of
Corporation (computer giftware and home
and technology) from and garden decor
1994 to 1997). products)
Richard L. Woolworth Trustee 1991 Retired since December, 83 Northwest Natural
(Born 1941) 2003 (formerly Chairman Gas (natural gas
and Chief Executive service provider)
Officer, The Regence
Group Co. (regional
health insurer);
Chairman and Chief
Executive Officer,
BlueCross BlueShield of
Oregon; Certified
Public Accountant,
Arthur Young &
Company).
|
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ---------------------- ------------ ----------------------- ------------- -------------------
INTERESTED TRUSTEE
William E. Mayer(3) Trustee 1994 Partner, Park Avenue 85 Lee Enterprises
(Born 1940) Equity Partners (print media), WR
(private equity) since Hambrecht + Co.
February, 1999, Dean (financial service
and Professor, College provider);
of Business, University Reader's Digest
of Maryland, 1992 to (publishing).
1997.
|
(1) The date shown is the earliest date on which a trustee/director was elected or appointed to the board of a Fund in the Columbia Fund Complex.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public companies").
(3) Mr. Mayer is an "interested person" (as defined in the 1940 Act) of the Columbia Funds by reason of his affiliation with WR Hambrecht + Co., a registered broker-dealer that may execute portfolio transactions for or engage in principal transactions with the Fund or other funds or clients advised by the Advisor or its affiliates.
Year First
Elected or
Name, Year of Birth and Appointed
Address Position with Funds to Office Principal Occupation(s) During Past Five Years
------------------------ ---------------------- ------------ ----------------------------------------------
OFFICERS
Christopher L. Wilson President 2004 Head of Mutual Funds since August, 2004 and
(Born 1957) Managing Director of the Advisor since
September, 2005; President and Chief Executive
Officer, CDC IXIS Asset Management Services,
Inc. (investment management) from September,
1998 to August, 2004.
James R. Bordewick, Jr. Senior Vice President, 2006 Associate General Counsel, Bank of America
(Born 1959) Secretary and since April, 2005; Senior Vice President and
Chief Legal Officer Associate General Counsel, MFS Investment
Management (investment management)
prior to April, 2005.
J. Kevin Connaughton Senior Vice President, 2000 Managing Director of the Advisor since
(Born 1964) Chief Financial February, 1998.
Officer and Treasurer
Mary Joan Hoene Senior Vice President 2004 Senior Vice President and Chief Compliance
(Born 1949) and Chief Compliance Officer of various funds in the Columbia Fund
100 Federal Street Officer Complex; Partner, Carter, Ledyard & Milburn
Boston, MA 02110 LLP (law firm) from January, 2001 to August,
2004.
Michael G. Clarke Chief Accounting 2004 Managing Director of the Advisor since
(Born 1969) Officer and February, 2001.
Assistant Treasurer
Stephen T. Welsh Vice President 1996 President, Columbia Management Services, Inc.
(Born 1957) since July, 2004; Senior Vice President and
Controller, Columbia Management Services, Inc.
prior to July, 2004.
Jeffrey R. Coleman Deputy Treasurer 2004 Group Operations Manager of the Advisor since
(Born 1969) October, 2004; Vice President of CDC IXIS
Asset Management Services, Inc. (investment
management) from August, 2000 to September,
2004.
Joseph F. DiMaria Deputy Treasurer 2004 Senior Compliance Manager of the Advisor since
(Born 1968) January, 2005; Director of Trustee
Administration of the Advisor from May, 2003
to January, 2005; Senior Audit Manager,
PricewaterhouseCoopers (independent registered
public accounting firm) from July, 2000 to
April, 2003.
Ty S. Edwards Deputy Treasurer 2004 Vice President of the Advisor since 2002;
(Born 1966) Assistant Vice President and Director, State
Street Corporation (financial services) prior
to 2002.
Barry S. Vallan Controller 2006 Vice President-Fund Treasury of the Advisor
(Born 1969) since October, 2004; Vice President-Trustee
Reporting from April, 2002 to October, 2004;
Management Consultant, PricewaterhouseCoopers
(independent registered public accounting
firm) prior to October, 2002.
Peter T. Fariel Assistant Secretary 2006 Associate General Counsel, Bank of America
(Born 1957) since April, 2005; Partner, Goodwin Procter
LLP (law firm) prior to April, 2005.
|
Year First
Elected or
Name, Year of Birth and Appointed
Address Position with Funds to Office Principal Occupation(s) During Past Five Years
----------------------- ---------------------- ------------ ----------------------------------------------
OFFICERS
Ryan C. Larrenaga Assistant Secretary 2005 Assistant General Counsel, Bank of America
(Born 1970) since March, 2005; Associate, Ropes & Gray LLP
(law firm) from 1998 to February, 2005.
Barry S. Finkle Assistant Treasurer 2003 Senior Manager and Head of Fund Performance of
(Born 1965) the Advisor since January, 2001.
Julian Quero Assistant Treasurer 2003 Senior Compliance Manager of the Advisor since
(Born 1967) April, 2002; Assistant Vice President of Taxes
and Distributions of the Advisor from 2001 to
April, 2002.
|
Each of the Trust's Trustees and officers hold comparable positions with certain other funds of which the Advisor or its affiliates is the investment advisor or distributors and, in the case of certain of the officers, with certain affiliates of the Advisor.
The Trustees and officers serve terms of indefinite duration. Each Fund held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once every five years thereafter to elect Trustees.
Trustee Positions
As of December 31, 2005, no disinterested Trustee or any of their immediate family members owned beneficially or of record any class of securities of the Advisor, another investment advisor, sub-advisor or portfolio manager of any of the funds in the Fund Complex or any person controlling, controlled by or under common control with any such entity.
General
Messrs. Lowry, Mayer and Neuhauser are also trustees/directors of the Liberty All-Star Funds, a group of 2 registered closed-end funds sponsored by an affiliate of the Advisor.
The Trustees serve as trustees of 83 registered investment companies managed by the Advisor for which each Trustee receives a retainer at the annual rate of $75,000, an attendance fee of $10,500 for each regular and special joint board meeting and $1,000 for each special telephonic joint board meeting. Mr. Theobald serves as the Chairman of the Board. As the independent chairman of the board, Mr. Theobald receives a supplemental retainer at the annual rate of $100,000; the chair of the Audit Committee receives a supplemental retainer at the annual rate of $20,000; the chair of the Advisory Fees and Expenses Committee receives a supplemental retainer at the annual rate of $15,000; the chairs of the Compliance Committee and the Governance Committee each receive supplemental retainers at the annual rate of $10,000. Members of each committee, including the Investment Oversight Committee, receive $2,500 for each committee meeting and $1,000 for each telephonic committee meeting. The Audit Committee chair receives a supplement of $500 for each Audit Committee meeting. Committee members receive $2,500 for each special committee meeting attended on a day other than a regular joint board meeting day. Two-thirds of the Trustee fees are allocated among the Funds based on each Fund's relative net assets and one-third of the fees is divided equally among the Funds.
Officers of the Trust, who are also officers of the Advisor or its affiliates, will benefit from the advisory fees, sales commissions and agency fees paid or allowed by the Trust.
The Agreement and Declaration of Trust ("Declaration") of the Trust provides that the Trust will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Trust but that such indemnification will not relieve any officer or Trustee of any liability to the Trust or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. The Trust, at its expense, provides liability insurance for the benefit of its Trustees and officers.
The Trustees have the authority to convert the Funds into a master fund/feeder fund structure. Under this structure, a Fund may invest all or a portion of its investable assets in investment companies with substantially the same investment goals, policies and restrictions as the Fund. The primary reason to use the master fund/feeder fund structure is to provide a mechanism to pool, in a single master fund, investments of different investor classes, resulting in a larger portfolio, investment and administrative efficiencies and economies of scale.
MANAGEMENT AGREEMENT
Under a Management Agreement (the "Agreement"), the Advisor has contracted to furnish each Fund with investment research and recommendations or fund management, respectively, and accounting and administrative personnel and services, and with office space, equipment and other facilities. For these services and facilities, each Fund pays a monthly fee based on the average of the daily closing value of the total net assets of each Fund for such month. Under the Agreement, any liability of the Advisor to the Trust, a Fund and/or its shareholders is limited to situations involving the Advisor's own willful misfeasance, bad faith, gross negligence or reckless disregard of its duties.
The Agreement may be terminated with respect to the Fund at any time on 60 days'
written notice by the Advisor or by the Trustees of the Trust or by a vote of a
majority of the outstanding voting securities of the Fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the Fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Advisor or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
The Advisor pays all salaries of officers of the Trust. The Trust pays all expenses not assumed by the Advisor including, but not limited to, auditing, legal, custodial, investor servicing and shareholder reporting expenses. The Trust pays the cost of printing and mailing any Prospectuses sent to shareholders. CMD pays the cost of printing and distributing all other Prospectuses.
ADMINISTRATION AGREEMENT (THIS SECTION APPLIES ONLY TO CERTAIN FUNDS AND THEIR RESPECTIVE TRUSTS. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION REGARDING YOUR FUND).
Under an Administration Agreement, the Advisor, in its capacity as the Administrator to each Fund, has contracted to perform the following administrative services:
(a) providing office space, equipment and clerical personnel;
(b) arranging, if desired by the respective Trust, for its directors, officers and employees to serve as Trustees, officers or agents of each Fund;
(c) preparing and, if applicable, filing all documents required for compliance by each Fund with applicable laws and regulations;
(d) preparation of agendas and supporting documents for and minutes of meetings of Trustees, committees of Trustees and shareholders;
(e) coordinating and overseeing the activities of each Fund's other third-party service providers; and
(f) maintaining certain books and records of each Fund.
The Advisor is paid a monthly fee at the annual rate of average daily net assets set forth in Part 1 of this SAI.
TRUST SERVICES AGREEMENT
Pursuant to a Trust Services Agreement, CMS provides the Columbia Tax-Managed Growth Fund's Trust Shares with trust administration services, including tax return preparation and filing, other tax and beneficiary reporting and recordkeeping. CMS's fee is described in the Prospectuses of the Columbia Tax-Managed Growth Fund.
THE PRICING AND BOOKKEEPING AGREEMENT
The Advisor is responsible for providing accounting and bookkeeping services to each Fund pursuant to a pricing and bookkeeping agreement. Under a separate agreement ("Outsourcing Agreement"), the Advisor has delegated those functions to State Street Bank and Trust Company (State Street). The Advisor pays fees to State Street under the Outsourcing Agreement. SEE "FUND CHARGES AND EXPENSES" IN
PART 1 OF THIS SAI FOR INFORMATION ON THESE FEES.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. The Advisor acts as investment advisor to each of the Funds. Various officers and Trustees of the Trust also serve as officers or Trustees of other funds and the other corporate or fiduciary clients of the Advisor. The Funds and clients advised by the Advisor or the Funds administered by the Advisor sometimes invest in securities in which the Fund also invests and sometimes engage in covered option writing programs and enter into transactions utilizing stock index options and stock index and financial futures and related options ("other instruments"). If the Fund, such other funds and such other clients desire to buy or sell the same portfolio securities, options or other instruments at about the same time, the purchases and sales are normally made as nearly as practicable on a pro rata basis in proportion to the amounts desired to be purchased or sold by each. Although in some cases these practices could have a detrimental effect on the price or volume of the securities, options or other instruments as far as the Fund is concerned, in most cases it is believed that these practices should produce better executions. It is the opinion of the Trustees that the desirability of retaining the Advisor as investment advisor to the Funds outweighs the disadvantages, if any, which might result from these practices.
POTENTIAL CONFLICTS OF INTEREST IN MANAGING MULTIPLE ACCOUNTS
Like other investment professionals with multiple clients, a portfolio manager for a Fund may face certain potential conflicts of interest in connection with managing both the Fund and other accounts at the same time. The paragraphs below describe some of these potential conflicts, which the Advisor believes are faced by investment professionals at most major financial firms. The Advisor and the Trustees of the Columbia Funds have adopted compliance policies and procedures that attempt to address certain of these potential conflicts.
The management of accounts with different advisory fee rates and/or fee structures, including accounts that pay advisory fees based on account performance ("performance fee accounts"), may raise potential conflicts of interest by creating an incentive to favor higher-fee accounts. These potential conflicts may include, among others:
- The most attractive investments could be allocated to higher-fee accounts or performance fee accounts.
- The trading of higher-fee accounts could be favored as to timing and/or execution price. For example, higher-fee accounts could be permitted to sell securities earlier than other accounts when a prompt sale is desirable or to buy securities at an earlier and more opportune time.
- The trading of other accounts could be used to benefit higher-fee accounts (front- running).
- The investment management team could focus their time and efforts primarily on higher-fee accounts due to a personal stake in compensation.
Potential conflicts of interest may also arise when the portfolio managers have personal investments in other accounts that may create an incentive to favor those accounts. As a general matter and subject to limited exceptions, the Advisor's investment professionals do not have the opportunity to invest in client accounts, other than the Columbia Funds.
A potential conflict of interest may arise when a Fund and other accounts purchase or sell the same securities. On occasions when a portfolio manager considers the purchase or sale of a security to be in the best interests of a Fund as well as other accounts, the Advisor's trading desk may, to the extent permitted by applicable laws and regulations, aggregate the securities to be sold or purchased in order to obtain the best execution and lower brokerage commissions, if any. Aggregation of trades may create the potential for unfairness to a Fund or another account if one account is favored over another in allocating the securities purchased or sold -- for example, by allocating a disproportionate amount of a security that is likely to increase in value to a favored account.
"Cross trades," in which one Columbia account sells a particular security to another account (potentially saving transaction costs for both accounts), may also pose a potential conflict of interest. Cross trades may be seen to involve a potential conflict of interest if, for example, one account is permitted to sell a security to another account at a higher price than an independent third party would pay. The Advisor and the Funds' Trustees have adopted compliance procedures that provide that any transactions between a Fund and another Columbia-advised account are to be made at an independent current market price, as required by law.
Another potential conflict of interest may arise based on the different investment objectives and strategies of a Fund and other accounts. For example, another account may have a shorter-term investment horizon or different investment objectives, policies or restrictions than a Fund. Depending on another account's objectives or other factors, a portfolio manager may give advice and make decisions that may differ from advice given, or the timing or nature of decisions made, with respect to a Fund. In addition, investment decisions are the product of many factors in addition to basic suitability for the particular account involved. Thus, a particular security may be bought or sold for certain accounts even though it could have been bought or sold for other accounts at the same time. More rarely, a particular security may be bought for one or more accounts managed by a portfolio manager when one or more other accounts are selling the security (including short sales). There may be circumstances when purchases or sales of portfolio securities for one or more accounts may have an adverse effect on other accounts.
A Fund's portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. As a result, the portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as might be the case if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies.
A Fund's portfolio managers may be able to select or influence the selection of the brokers and dealers that are used to execute securities transactions for the Fund. In addition to executing trades, some brokers and dealers provide portfolio managers with brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934), which may result in the payment of higher brokerage fees than might have otherwise be available. These services may be more beneficial to certain funds or accounts than to others. Although the payment of brokerage commissions is subject to the requirement that the portfolio manager determine in good faith that the commissions are reasonable in relation to the value of the brokerage and research services provided to the fund, a portfolio manager's decision as to the selection of brokers and dealers could yield disproportionate costs and benefits among the funds and/or accounts that he or she manages.
The Advisor or an affiliate may provide more services (such as distribution or recordkeeping) for some types of funds or accounts than for others. In such cases, a portfolio manager may benefit, either directly or indirectly, by devoting disproportionate attention to the management of fund and/or accounts that provide greater overall returns to the investment manager and its affiliates.
A Fund's portfolio manager(s) may also face other potential conflicts of interest in managing the Fund, and the description above is not a complete description of every conflict that could be deemed to exist in managing both a Fund and other accounts. In addition, a Fund's portfolio manager may also manage other accounts (including their personal assets or the assets of family members) in their personal capacity. The management of these accounts may also involve certain of the potential conflicts described above. Investment personnel at the Advisor, including each Fund's portfolio manager, are subject to restrictions on engaging in personal securities transactions pursuant to Codes of Ethics adopted by the Advisor and each Fund, which contain provisions and requirements designed to identify and address certain conflicts of interest between personal investment activities and the interests of each Fund.
BROKERAGE AND RESEARCH SERVICES. Consistent with the Conduct Rules of the National Association of Securities Dealers, Inc., and subject to seeking "best execution" (as defined below) and such other policies as the Trustees may determine, the Advisor may consider sales of shares of the Funds as a factor in the selection of broker-dealers to execute securities transactions for a Fund.
The Advisor places the transactions of the Funds with broker-dealers selected by the Advisor and, if applicable, negotiates commissions. Broker-dealers may receive brokerage commissions on portfolio transactions, including the purchase and writing of options, the effecting of closing purchase and sale transactions, and the purchase and sale of underlying securities upon the exercise of options and the purchase or sale of other instruments. The Funds from time to time also execute portfolio transactions
with such broker-dealers acting as principals. The Funds do not intend to deal exclusively with any particular broker-dealer or group of broker-dealers.
It is the Advisor's policy generally to seek best execution, which is to place the Funds' transactions where the Funds can be expected to obtain the most favorable combination of price and execution services in particular transactions or provided on a continuing basis by a broker-dealer, and to deal directly with a principal market maker in connection with over-the-counter transactions, except when it is believed that best execution is obtainable elsewhere. In evaluating the execution services of, including the overall reasonableness of brokerage commissions paid to, a broker-dealer, consideration is given to, among other things, the firm's general execution and operational capabilities, and to its reliability, integrity and financial condition.
Securities transactions of the Funds may be executed by broker-dealers who also provide research services (as defined below) to the Advisor and the Funds. The Advisor may use all, some or none of such research services in providing investment advisory services to each of its investment company and other clients, including the Fund. To the extent that such services are used by the Advisor, they tend to reduce the Advisor's expenses. In the Advisor's opinion, it is impossible to assign an exact dollar value for such services.
The Trustees have authorized the Advisor to cause the Funds to pay a broker-dealer which provides brokerage and research services to the Advisor an amount of commission for effecting a securities transaction, including the sale of an option or a closing purchase transaction, for the funds in excess of the amount of commission which another broker-dealer would have charged for effecting that transaction. As provided in Section 28(e) of the Securities Exchange Act of 1934, "brokerage and research services" include advice as to the value of securities, the advisability of investing in, purchasing or selling securities and the availability of securities or purchasers or sellers of securities; furnishing analyses and reports concerning issues, industries, securities, economic factors and trends and portfolio strategy and performance of accounts; and effecting securities transactions and performing functions incidental thereto (such as clearance and settlement). The Advisor must determine in good faith that such greater commission is reasonable in relation to the value of the brokerage and research services provided by the executing broker-dealer viewed in terms of that particular transaction or the Advisor's overall responsibilities to the Funds and all its other clients.
The Trustees have authorized the Advisor to utilize the services of a clearing agent with respect to all call options written by Funds that write options and to pay such clearing agent commissions of a fixed amount per share (currently 1.25 cents) on the sale of the underlying security upon the exercise of an option written by a Fund.
The Advisor may use the services of affiliated broker-dealers, when buying or selling securities for a Fund's portfolio pursuant to procedures adopted by the Trustees and 1940 Act Rule 17e-1. Under the Rule, the Advisor must ensure that commissions a Fund pays to affiliates of the Advisor on portfolio transactions are reasonable and fair compared to commissions received by other broker-dealers in connection with comparable transactions involving similar securities being bought or sold at about the same time. The Advisor will report quarterly to the Trustees on all securities transactions placed through affiliates of the Advisor so that the Trustees may consider whether such trades complied with these procedures and the Rule.
PRINCIPAL UNDERWRITER
CMD is the principal underwriter of the Trust's shares. CMD has no obligation to buy the Funds' shares, and purchases the Funds' shares only upon receipt of orders from authorized FSFs or investors.
INVESTOR SERVICING AND TRANSFER AGENT
CMS is the Trust's investor servicing agent (transfer, plan and dividend disbursing agent), for which it receives fees which are paid monthly by the Trust. The fee paid to CMS is based on number of accounts plus reimbursement for certain out-of-pocket expenses. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION ON FEES RECEIVED BY CMS. The agreement continues indefinitely but may be terminated by 90 days' notice by the Fund to CMS or generally by 6 months' notice by CMS to the Fund. The agreement limits the liability of CMS to the Fund for loss or damage incurred by the Fund to situations involving a failure of CMS to use reasonable care or to act in good faith and without negligence in performing its duties under the agreement. The Fund will indemnify CMS from, among other things, any and all claims, actions, suits, losses, costs, damages, and expenses incurred by it in connection with its acceptance of this Agreement, provided that: (i) to the extent such claims, actions, suits, losses, costs, damages, or expenses relate solely to a particular series or group of series of shares, such
indemnification shall be only out of the assets of that series or group of series; (ii) this indemnification shall not apply to actions or omissions constituting negligence or misconduct of CMS or its agents or contractors, including but not limited to willful misfeasance, bad faith or gross negligence in the performance of their duties, or reckless disregard of their obligations and duties under this Agreement; and (iii) CMS shall give a Fund prompt notice and reasonable opportunity to defend against any such claim or action in its own name or in the name of CMS.
CODE OF ETHICS
The Funds, the Advisor, and CMD have adopted Codes of Ethics pursuant to the requirements of the 1940 Act. These Codes of Ethics permit personnel subject to the Codes to invest in securities, including securities that may be purchased or held by the Funds. These Codes of Ethics can be reviewed and copied at the SEC's Public Reference Room and may be obtained by calling the SEC at 1-202-942-8090. These Codes are also available on the EDGAR Database on the SEC's internet web site at http://www.sec.gov, and may also be obtained, after paying a duplicating fee, by electronic request to publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102.
ANTI-MONEY LAUNDERING COMPLIANCE
The Funds are required to comply with various anti-money laundering laws and regulations. Consequently, the Funds may request additional information from you to verify your identity. If at any time the Funds believe a shareholder may be involved in suspicious activity or if certain account information matches information on government lists of suspicious persons, the Funds may choose not to establish a new account or may be required to "freeze" a shareholder's account, halting all shareholder activity with respect to such account. The Funds also may be required to provide a governmental agency with information about transactions that have occurred in a shareholder's account or to transfer monies received to establish a new account, transfer an existing account or transfer the proceeds of an existing account to a governmental agency. In some circumstances, the law may not permit a Fund to inform the shareholder that it has taken the actions described above.
PROXY VOTING POLICIES AND FUND PROXY VOTING RECORD
The Fund has delegated to the Advisor the responsibility to vote proxies relating to portfolio securities held by the Fund. In deciding to delegate this responsibility to the Advisor, the Board of Trustees of the Trust reviewed and approved the policies and procedures adopted by the Advisor. These included the procedures that the Advisor follows when a vote presents a conflict between the interests of the Fund and its shareholders and the Advisor, its affiliates, its other clients or other persons.
The Advisor's policy is to vote all proxies for Fund securities in a manner considered by the Advisor to be in the best interest of the Fund and its shareholders without regard to any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor examines each proposal and votes against the proposal, if, in its judgment, approval or adoption of the proposal would be expected to impact adversely the current or potential market value of the issuer's securities. The Advisor also examines each proposal and votes the proxies against the proposal, if, in its judgment, the proposal would be expected to affect adversely the best interest of the Fund. The Advisor determines the best interest of the Fund in light of the potential economic return on the Fund's investment.
The Advisor addresses potential material conflicts of interest by having predetermined voting guidelines. For those proposals that require special consideration or in instances where special circumstances may require varying from the predetermined guideline, the Advisor's Proxy Committee determines the vote in the best interest of the Fund, without consideration of any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor's Proxy Committee is composed of representatives of the Advisor's equity investments, equity research, compliance, legal and fund administration functions. In addition to the responsibilities described above, the Proxy Committee has the responsibility to review, on a semi-annual basis, the Advisor's proxy voting policies to ensure consistency with internal and regulatory agency policies and to develop additional predetermined voting guidelines to assist in the review of proxy proposals.
The Proxy Committee may vary from a predetermined guideline if it determines that voting on the proposal according to the predetermined guideline would be expected to impact adversely the current or potential market value of the issuer's securities or to affect adversely the best interest of the client. References to the best interest of a client refer to the interest of the client in terms of the potential economic return on the client's investment. In determining the vote on any proposal, the Proxy Committee does not consider any benefit other than benefits to the owner of the securities to be voted. A member of the Proxy Committee is
prohibited from voting on any proposal for which he or she has a conflict of interest by reason of a direct relationship with the issuer or other party affected by a given proposal. Persons making recommendations to the Proxy Committee or its members are required to disclose to the Committee any relationship with a party making a proposal or other matter known to the person that would create a potential conflict of interest.
The Advisor has retained Institutional Shareholder Services ("ISS"), a third party vendor, to implement its proxy voting process. ISS provides proxy analysis, record keeping services and vote disclosure services.
The Advisor's proxy voting guidelines and procedures are included in this SAI as Appendix II. In accordance with SEC regulations, the fund's proxy voting record for the last twelve-month period ended June 30 has been filed with the SEC. You may obtain a copy of the fund's proxy voting record (i) at www.columbiamanagement.com; (ii) on the Securities and Exchange Commission's website at www.sec.gov; and (iii) without charge, upon request, by calling 800-368-0346.
DISCLOSURE OF PORTFOLIO INFORMATION
The Trustees of the Columbia Funds have adopted policies with respect to the disclosure of the Funds' portfolio holdings by the Funds, Columbia Advisors, or their affiliates. These policies provide that Fund portfolio holdings information generally may not be disclosed to any party prior to (1) the day next following the posting of such information on the Funds' website at www.columbiafunds.com, (2) the day next following the filing of the information with the SEC in a required filing, or (3) for money market funds, such information is publicly available to all shareholders upon request on the fifth business day after each calendar month-end. Certain limited exceptions pursuant to the Fund's policies are described below. The Trustees shall be updated as needed regarding the Fund's compliance with the policies, including information relating to any potential conflicts of interest between the interests of Fund shareholders and those of Columbia Advisors and its affiliates. The Fund's policies prohibit Columbia Advisors and the Fund's other service providers from entering into any agreement to disclose Fund portfolio holdings information in exchange for any form of consideration. These policies apply to disclosures to all categories of persons, including, without limitation, individual investors, institutional investors, intermediaries that distribute the Fund's shares, third-party service providers, rating and ranking organizations and affiliated persons of the Fund.
PUBLIC DISCLOSURES. The Fund's portfolio holdings are currently disclosed to the public through required filings with the SEC and, for equity and fixed income funds, on the Fund's website at www.columbiafunds.com. The Fund files its portfolio holdings with the SEC for each fiscal quarter on Form N-CSR (with respect to each annual period and semi-annual period) and Form N-Q (with respect to the first and third quarters of the Fund's fiscal year). Shareholders may obtain the Fund's Forms N-CSR and N-Q filings on the SEC's website at www.sec.gov. In addition, the Fund's Forms N-CSR and N-Q filings may be reviewed and copied at the SEC's public reference room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC's website or the operation of the public reference room.
The equity and fixed income Columbia Funds also currently make portfolio information publicly available at www.columbiafunds.com, as disclosed in the following table:
Frequency of
Type of Fund Information Provided Disclosure Date of Web Posting
------------ ------------------------------------ ------------ ----------------------------------
Equity Funds Full portfolio holdings information Monthly 30 calendar days after month-end
Fixed Income Funds Full portfolio holdings information Quarterly 60 calendar days after quarter-end
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The scope of the information provided relating to the Fund's portfolio that is made available on the website may change from time to time without prior notice.
For Columbia's money market funds, a complete list of a Fund's portfolio holdings shall be publicly available on a monthly basis on the fifth business day after month-end. Shareholders may request such information by writing or calling the Fund's distributor, CMD at the address listed on the cover of this SAI.
A Fund, Columbia Advisors or their affiliates may include portfolio holdings information that has already been made public through a web posting or SEC filing in marketing literature and other communications to shareholders, advisors or other parties, provided that the information is disclosed no earlier than the day after the date the information is disclosed publicly.
OTHER DISCLOSURES. The Fund's policies provide that non-public disclosures of the Fund's portfolio holdings may be made if (1) the Fund has a legitimate business purpose for making such disclosure, (2) the Fund's chief executive officer authorizes such non-public disclosure of information, and (3) the party receiving the non-public information enters into a confidentiality agreement, which includes a duty not to trade on the non-public information.
The Fund periodically discloses its portfolio information on a confidential basis to various service providers that require such information in order to assist the Fund with its day-to-day business affairs. In addition to Columbia Advisors and its affiliates, these service providers include the Fund's custodian and sub-custodians, the Fund's independent registered public accounting firm, legal counsel, financial printers (R.R. Donnelly & Sons and Bowne & Co., Inc.), the Fund's proxy solicitor and proxy voting service provider (Computershare Investor Services, LLC), rating agencies that maintain ratings on certain Columbia Funds (Fitch, Inc.) and service providers that support Columbia Advisors' trading systems (InvestorTool, Inc. and Thomson Financial). These service providers are required to keep such information confidential, and are prohibited from trading based on the information or otherwise using the information except as necessary in providing services to the Fund. The Fund may also disclose portfolio holdings information to broker/dealers and certain other entities related to potential transactions and management of the Fund, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information.
Certain clients of the Fund's investment adviser(s) may follow a strategy similar to that of the Fund, and have access to portfolio holdings information for their account. It is possible that such information could be used to infer portfolio holdings information relating to the Fund.
DETERMINATION OF NET ASSET VALUE
Each Fund determines net asset value (NAV) per share for each class as of the close of trading on the New York Stock Exchange (Exchange) (generally 4:00 p.m. Eastern time) each day the Exchange is open, except that certain classes of assets, such as index futures, for which the market close occurs shortly after the close of regular trading on the Exchange will be priced at the closing time of the market on which they trade. Currently, the Exchange is closed Saturdays, Sundays and the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. Funds with portfolio securities which are primarily listed on foreign exchanges may experience trading and changes in NAV on days on which such Fund does not determine NAV due to differences in closing policies among exchanges. This may significantly affect the NAV of the Fund's redeemable securities on days when an investor cannot redeem such securities. Debt securities generally are valued by a pricing service which determines valuations based upon market transactions for normal, institutional-size trading units of similar securities. However, in circumstances where such prices are not available or where the Advisor deems it appropriate to do so, an over-the-counter or exchange bid quotation is used. Securities listed on an exchange or on NASDAQ are valued at the last sale price (or the official closing price as determined by the NASDAQ system, if different, as applicable). Listed securities for which there were no sales during the day and unlisted securities generally are valued at the last quoted bid price. Options are valued at the last sale price or in the absence of a sale, the mean between the last quoted bid and offering prices. Short-term obligations with a maturity of 60 days or less are valued at amortized cost pursuant to procedures adopted by the Trustees. The values of foreign securities quoted in foreign currencies are translated into U.S. dollars at the exchange rate for that day. Portfolio positions for which market quotations are not readily available and other assets are valued at fair value as determined by the Advisor in good faith under the direction of the Trust's Board of Trustees.
Generally, trading in certain securities (such as foreign securities) is substantially completed each day at various times prior to the close of the Exchange. Trading on certain foreign securities markets may not take place on all business days in New York, and trading on some foreign securities markets takes place on days which are not business days in New York and on which the Fund's NAV is not calculated. The values of these securities used in determining the NAV are computed as of such times. Also, because of the amount of time required to collect and process trading information as to large numbers of securities issues, the values of certain securities (such as convertible bonds, U.S. government securities, and tax-exempt securities) are determined based on market quotations collected earlier in the day at the latest practicable time prior to the close of the Exchange. Occasionally, events affecting the value of such securities may occur between such times and the close of the Exchange which will not be reflected in the computation of each Fund's NAV. If events materially affecting the value of such securities occur during such period, then these securities will be valued at fair value following procedures approved by the Trust's Board of Trustees.
(The following two paragraphs are applicable only to Columbia Greater China Fund).
Trading in securities on stock exchanges and over-the-counter markets in foreign securities markets is normally completed well before the close of the business day in New York. Trading on foreign securities markets may not take place on all business days in New York, and trading on some foreign securities markets does take place on days which are not business days in New York and on which the Fund's NAV is not calculated.
The calculation of the Fund's NAV accordingly may not take place contemporaneously with the determination of the prices of the Fund's portfolio securities used in such calculations. Events affecting the values of portfolio securities that occur between the time their prices are determined and the close of the Exchange (when the Fund's NAV is calculated) will not be reflected in the Fund's calculation of NAV unless the Advisor, acting under procedures established by the Board of Trustees of the Trust, deems that the particular event would materially affect the Fund's NAV, in which case an adjustment will be made. Assets or liabilities initially expressed in terms of foreign currencies are translated prior to the next determination of the NAV of the Fund's shares into U.S. dollars at prevailing market rates.
AMORTIZED COST FOR MONEY MARKET FUNDS.
Money market funds generally value their portfolio securities at amortized cost according to Rule 2a-7 under the 1940 Act.
Under the amortized cost method a security is initially valued at cost and
thereafter any discount or premium from maturity value is amortized ratably to
maturity. This method assures a constant NAV but may result in a yield different
from that of the same portfolio under the market value method. The Trust's
Trustees have adopted procedures intended to stabilize a money market fund's NAV
per share at $1.00. If a money market fund's market value deviates from the
amortized cost of $1.00, and results in a material dilution to existing
shareholders, the Trust's Trustees will take corrective action that may include:
realizing gains or losses; shortening the portfolio's maturity; withholding
distributions; redeeming shares in kind; or converting to the market value
method (in which case the NAV per share may differ from $1.00). All investments
will be determined pursuant to procedures approved by the Trust's Trustees to
present minimal credit risk.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of the Fund and tables of charges. This SAI contains additional information which may be of interest to investors.
The Fund may accept unconditional orders for shares to be executed at the public offering price based on the NAV per share next determined after the order is placed in good order. The public offering price is the NAV plus the applicable sales charge, if any. In the case of orders for purchase of shares placed through FSFs, the public offering price will be determined on the day the order is placed in good order, but only if the FSF receives the order prior to the time at which shares are valued and transmits it to the Fund before the Fund processes that day's transactions. If the FSF fails to transmit before the Fund processes that day's transactions, the customer's entitlement to that day's closing price must be settled between the customer and the FSF. If the FSF receives the order after the time at which the Fund values its shares, the price will be based on the NAV determined as of the close of the Exchange on the next day it is open. If funds for the purchase of shares are sent directly to CMS, they will be invested at the public offering price next determined after receipt in good order. Payment for shares of the fund must be in U.S. dollars; if made by check, the check must be drawn on a U.S. bank.
Investors should understand that, since the offering price of the Fund's shares is calculated to two decimal places using standard rounding methodology, the dollar amount of the sales charge paid as a percentage of the offering price and of the net amount invested for any particular purchase of fund shares may be higher or lower depending on whether downward or upward rounding was required during the calculation process.
The Fund receives the entire NAV of shares sold. For shares subject to an initial sales charge, CMD's commission is the sales charge shown in the Fund's Prospectus less any applicable FSF discount. The FSF discount is the same for all FSFs, except that CMD retains the entire sales charge on any sales made to a shareholder who does not specify a FSF on the Investment Account Application ("Application"), and except that CMD may from time to time reallow additional amounts to all or certain FSFs. CMD generally retains some or all of any asset-based sales charge (distribution fee) or contingent deferred sales charge. Such charges generally reimburse CMD for any up-front and/or ongoing commissions paid to FSFs.
Checks presented for the purchase of shares of the Fund which are returned by the purchaser's bank or checkwriting privilege checks for which there are insufficient funds in a shareholder's account to cover redemption may subject such purchaser or shareholder to a $15 service fee for each check returned. Checks must be drawn on a U.S. bank and must be payable in U.S. dollars. Travelers checks, gift checks, credit card convenience checks, credit cards, cash and ban counter (starter checks) are not accepted.
CMS acts as the shareholder's agent whenever it receives instructions to carry out a transaction on the shareholder's account. Upon receipt of instructions that shares are to be purchased for a shareholder's account, the designated FSF will receive the applicable sales commission. Shareholders may change FSFs at any time by written notice to CMS, provided the new FSF has a sales agreement with CMD.
Shares credited to an account are transferable upon written instructions in good order to CMS and may be redeemed as described under "How to Sell Shares" in the Prospectus. Certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you may send the certificates to CMS for deposit to your account.
In addition to the commissions specified in a Fund's prospectus and this SAI, CMD, or its advisory affiliates, from their own resources, may make cash payments to FSFs that agree to promote the sale of shares of funds that CMD distributes. A number of factors may be considered in determining the amount of those payments, including the FSF's sales, client assets invested in the funds and redemption rates, the quality of the FSF's relationship with CMD and/or its affiliates, and the nature of the services provided by FSFs to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the FSF's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, CMD may also pay non-cash compensation to FSFs and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for FSF educational or training events.
In addition, CMD, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of a Fund.
CMD and its affiliates anticipate that the FSFs and intermediaries that will receive the additional compensation described above include:
1st Global Capital Corp
401 Company
ABN AMRO Trust Services
ADP Retirement Services
Advest
AEGON/Transamerica
AG Edwards
American Century Services
American Express
AMG
AON Consulting
AST Trust Company
Banc of America Investment Services
BancOne
Bear Stearns
Benefit Plan Administrators
Bidwell & Company
BNY Clearing
C N A Trust
Charles Schwab
CIBC Oppenheimer
Citigroup Global Markets
CitiStreet Associates LLC
City National Bank
City of Milwaukee
Columbia Trust Company
Commonwealth Financial
Compensation & Capital
CPI Qualified Plan Consultants
Daily Access Concepts
Davenport & Company
Delaware Investments
Digital Retirement Solutions
Discover Brokerage
Dreyfus/Mellon
Edgewood Services
Edward Jones
E-Trade,
ExpertPlan
FAS Liberty Life Spectrum
Ferris Baker Watts
Fidelity
Financial Data Services
Franklin Templeton
Freeman Welwood
Gem Group
Great West Life
Hewitt Associates LLC
Huntington Bank
ING
Intermountain Health Care
Investmart, Inc.
Investment Manager Services (IMS)
Janney Montgomery Scott
JJB Hilliard Lyons
JP Morgan/American Century
Kenney Investments
Kirkpatrick Pettis Smith Polian Inc
Legg Mason Wood Walker
Liberty Life
Lincoln Financial
Lincoln Life
Linsco Private Ledger
M & T Securities
Marquette Trust Company
Mass Mutual Life
Matrix Settlement & Clearance Services (MSCS)
McDonald Investments
Merrill Lynch
MetLife
MFS
Mfund Trax
MidAtlantic Capital
Milliman USA
Morgan Keegan
Morgan Stanley Dean Witter
PFPC
Nationwide Investment Services
Neuberger Berman Mgmt
NFP Securities
NSD -NetStock Sharebuilder
NYLife Distributors
Optimum Investment Advisors
Orbitex
Pershing LLC
Phoenix Home Life
Piper Jaffray
PNC
PPI Employee Benefits
Private Bank & Trust
Prudential
Putnam Investments
Raymond James
RBC Dain Rausher
Robert W Baird
Royal Alliance
RSM McGladrey Inc.
Safeco
Scott & Stringfellow
Scudder Investments
Security Benefit
Segall Bryant Hamill
South Trust Securities
Southwest Securities
Standard Insurance
Stanton Group
State of NY Deferred Compensation Plan
Stephens, Inc.
Stifel Nicolaus & Co
Strong Capital
Sungard T Rowe Price
Trustar Retirement Services
Trustlynx/Datalynx
UBS Financial Services
USAA Investment Management
Vanguard
Wachovia
TD Waterhouse
Webster Investment Services
Wells Fargo
Wilmington Trust
PLEASE CONTACT YOUR FSF OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or eliminated at any time.
AUTOMATIC INVESTMENT PLAN. As a convenience to investors, shares of most Funds advised by the Advisor may be purchased through the Automatic Investment Plan. Electronic fund transfers for a fixed amount of at least $50 ($25 for IRA) are used to purchase a Fund's shares at the public offering price next determined after CMD receives the proceeds. If your Automatic Investment Plan purchase is by electronic funds transfer, you may request the Automatic Investment Plan purchase for any day. Further information and application forms are available from FSFs or from CMD.
AUTOMATED DOLLAR COST AVERAGING (Classes A, B, C, D, T, G and Z). The Automated Dollar Cost Averaging program allows you to exchange $100 or more on a monthly basis from any fund distributed by CMD into the same class of shares of up to five other Funds. Complete the Automated Dollar Cost Averaging section of the Application. There is no charge for exchanges made pursuant to the Automated Dollar Cost Averaging program. Sales charges may apply if exchanging from a money market fund. Exchanges will continue so long as your fund balance is sufficient to complete the transfers. Your normal rights and privileges as a shareholder remain in full force and effect. Thus you can buy any Fund, exchange between the same Class of shares of Funds by written instruction or by telephone exchange if you have so elected and withdraw amounts from any Fund, subject to the imposition of any applicable CDSC or sales charges.
Any additional payments or exchanges into your Fund will extend the time of the Automated Dollar Cost Averaging program.
An exchange is generally a capital sale transaction for federal income tax purposes.
You may terminate your program, change the amount of the exchange (subject to the $100 minimum), or change your selection of funds, by telephone or in writing; if in writing by mailing your instructions to Columbia Management Services, Inc. (formerly named Columbia Funds Services, Inc.) (CMS) P.O. Box 8081, Boston, MA 02266-8081.
You should consult your FSF or financial advisor to determine whether or not the Automated Dollar Cost Averaging program is appropriate for you.
CMD offers several plans by which an investor may obtain reduced initial or contingent deferred sales charges. These plans may be altered or discontinued at any time. See "Programs For Reducing or Eliminating Sales Charges" below for more information.
CLASS T SHAREHOLDER SERVICES PLAN. The Trustees have approved a Shareholder
Services Plan (the "Services Plan") pursuant to which the Trusts plan to enter
into servicing agreements with institutions (including Bank of America
Corporation and its affiliates). Pursuant to these servicing agreements,
institutions render certain administrative and support services to customers who
are the beneficial owners of Class T shares of each Fund other than the Columbia
Newport Tiger Fund. Such services are provided to the institution's customers
who are the beneficial owners of Class T shares and are intended to supplement
the services provided by the Fund's administrator and transfer agent to the
shareholders of record of the Class T shares. The Services Plan provides that
each Fund will pay fees for such services at an annual rate of up to 0.50% of
the average daily net asset value of Class T shares owned beneficially by the
institution's customers. Institutions may receive up to one-half of this fee for
providing one or more of the following services to such customers: (i)
aggregating and processing purchase and redemption requests and placing net
purchase and redemption orders with CMD; (ii) processing dividend payments from
a Fund; (iii) providing sub-accounting with respect to Class T shares or the
information necessary for sub-accounting; and (iv) providing periodic mailings
to customers. Institutions may also receive up to one-half of this fee for
providing one or more of these additional services to such customers: (i)
providing customers with information as to their positions in Class T shares;
(ii) responding to customer inquiries; and (iii) providing a service to invest
the assets of customers in Class T shares.
The payments under the servicing agreements entered into as of the date of this SAI are limited to an aggregate fee of not more than 0.30% (on an annualized basis) of the average daily net asset value of the Class T shares of equity funds beneficially owned
by customers of institutions and 0.15% (on an annualized basis) of the average daily net asset value of the Class T shares of bond funds beneficially owned by customers of institutions. The Funds understand that institutions may charge fees to their customers who are the beneficial owners of Class T shares in connection with their accounts with such institutions. Any such fees would be in addition to any amounts which may be received by an institution under the Services Plan. Under the terms of each servicing agreement, institutions are required to provide to their customers a schedule of any fees that they may charge in connection with customer investments in Class T shares.
Each servicing agreement with an institution ("Service Organization") relating to the Services Plan requires that, with respect to those Funds which declare dividends on a daily basis, the Service Organization agrees to waive a portion of the servicing fee payable to it under the Services Plan to the extent necessary to ensure that the fees required to be accrued with respect to the Class T shares of such Funds on any day do not exceed the income to be accrued to such Class T shares on that day.
The Class T servicing agreements are governed by the Services Plan approved by the Board of Trustees in connection with the offering of Class T shares of each Fund. Pursuant to the Services Plan, the Board of Trustees reviews, at least quarterly, a written report of the amounts paid under the servicing agreements and the purposes for which the expenditures were made. In addition, the arrangements with Service Organizations must be approved annually by a majority of the Trustees, including a majority of the trustees who are not "interested persons" of the Funds as defined in the 1940 Act and who have no direct or indirect financial interest in such arrangements (the "Disinterested Trustees").
The Board of Trustees has approved the service agreements with Service Organizations based on information provided by the Funds' service contractors that there is a reasonable likelihood that the arrangements will benefit the Funds and their shareholders by affording the Funds greater flexibility in connection with the efficient servicing of the accounts of the beneficial owners of Class T shares of the Funds. Any material amendment to the Funds' arrangements with Service Organizations must be approved by a majority of the Board of Trustees (including a majority of the Disinterested Trustees). So long as the service agreements with Service Organizations are in effect, the selection and nomination of the members of Columbia's Board of Trustees who are not "interested persons" (as defined in the 1940 Act) of the Funds will be committed to the discretion of such Disinterested Trustees.
TAX-SHELTERED RETIREMENT PLANS (Retirement Plans). CMD offers prototype tax-qualified plans, including Pension and Profit-Sharing Plans for individuals, corporations, employees and the self-employed. The minimum initial Retirement Plan investment is $25. Columbia Trust Company (CTC) is the Custodian/Trustee and Plan Sponsor of the Columbia Advisor prototype plans offered through CMD. In general, a $20 annual fee is charged. Detailed information concerning these Retirement Plans and copies of the Retirement Plans are available from CMD.
Participants in Retirement Plans not sponsored by CTC, not including Individual Retirement Accounts (IRAs), may be subject to an annual fee of $20 unless the Retirement Plan maintains an omnibus account with CMS. Participants in CTC sponsored prototype plans (other than IRAs) who liquidate the total value of their account may also be charged a $20 close-out processing fee payable to CMS. The close out fee applies to plans opened after September 1, 1996. The fee is in addition to any applicable CDSC. The fee will not apply if the participant uses the proceeds to open a Columbia Advisor IRA Rollover account in any Fund distributed by CMD, or if the Retirement Plan maintains an omnibus account.
Consultation with a competent financial advisor regarding these Retirement Plans and consideration of the suitability of Fund shares as an investment under the Employee Retirement Income Security Act of 1974 or otherwise is recommended.
TELEPHONE ADDRESS CHANGE SERVICES. By calling CMS, shareholders or their FSF of record may change an address on a recorded telephone line. Confirmations of address change will be sent to both the old and the new addresses. Telephone redemption privileges by check are suspended for 30 days after an address change is effected. Please have your account and taxpayer identification numbers available when calling.
CASH CONNECTION. Dividends and any other distributions, including Systematic Withdrawal Plan (SWP) payments, may be automatically deposited to a shareholder's bank account via electronic funds transfer. Shareholders wishing to avail themselves of this electronic transfer procedure should complete the appropriate sections of the Application.
AUTOMATIC DIVIDEND DIVERSIFICATION. The automatic dividend diversification reinvestment program (ADD) generally allows shareholders to have all distributions from a Fund automatically invested in the same class of shares of another Fund. An ADD
account must be in the same name as the shareholder's existing open account with the particular Fund. Call CMS for more information at 1-800-345-6611.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
RIGHTS OF ACCUMULATION (Columbia Class A and Class T shares, Nations Class A shares and Galaxy Retail A shares only) Class T shares can only be purchased by the shareholders of Columbia Newport Tiger Fund (formerly named Liberty Newport Tiger Fund) who already own Class T shares. Reduced sales charges on Class A and T shares can be effected by combining a current purchase of Class A or Class T shares with prior purchases of other funds and classes distributed by CMD. The applicable sales charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on the previous day of all shares of funds for which CMD serves as distributor for funds held by the shareholder.
CMD must be promptly notified of each purchase with respect to which a shareholder is entitled to a reduced sales charge. Such reduced sales charge will be applied upon confirmation of the shareholder's holdings by CMS. A Fund may terminate or amend this Right of Accumulation.
STATEMENT OF INTENT (Class A, Class E and Class T shares only). Any person may qualify for reduced sales charges on purchases of Class A, E and T shares made within a thirteen-month period pursuant to a Statement of Intent ("Statement"). A shareholder may include, as an accumulation credit toward the completion of such Statement, the value of all fund shares held by the shareholder on the date of the Statement in Funds (except shares of any money market fund, unless such shares were acquired by exchange from Class A shares of another non-money market fund)). The value is determined at the public offering price on the date of the Statement. Purchases made through reinvestment of distributions do not count toward satisfaction of the Statement.
During the term of a Statement, CMS will hold shares in escrow to secure payment of the higher sales charge applicable to Class A, E or T shares actually purchased. Dividends and capital gains will be paid on all escrowed shares and these shares will be released when the amount indicated has been purchased. A Statement does not obligate the investor to buy or a Fund to sell the amount of the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which would qualify for a further quantity discount, a retroactive price adjustment will be made at the time of expiration of the Statement (provided the FSF returns to CMD the excess commission previously paid during the thirteen-month period). The resulting difference in offering price will purchase additional shares for the shareholder's account at the applicable offering price. If the amount of the Statement is not purchased, the shareholder shall remit to CMD an amount equal to the difference between the sales charge paid and the sales charge that should have been paid. If the shareholder fails within twenty days after a written request to pay such difference in sales charge, CMS will redeem escrowed Class A, E or T shares with a value equal to such difference. The additional FSF commission will be remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available from your FSF, or from CMS at 1-800-345-6611.
NET ASSET VALUE ELIGIBILITY GUIDELINES (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, LLC IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS).
1. Employees, brokers and various relationships that are allowed to buy
at NAV. Class A shares of certain Funds may be sold at NAV to the
following individuals, whether currently employed or retired:
Employees of Bank of America Corporation (and its predecessors), its
affiliates and subsidiaries; Trustees of funds advised or administered
by the Advisor; directors, officers and employees of the Advisor, CMD,
or its successors and companies affiliated with the Advisor;
Registered representatives and employees of FSFs (including their
affiliates) that are parties to dealer agreements or other sales
arrangements with CMD; Nations Funds' Trustees, Directors and
employees of its investment sub-advisers; Broker/Dealers if purchases
are in accordance with the internal policies and procedures of
the employing broker/dealer and made for their own investment purposes; employees or partners of any contractual service provider to the funds.
NAV eligibility for Class A purchase also applies to the families of the parties listed above and their beneficial accounts. Family members include: spouse, parent, stepparent, legal guardian, child, stepchild, father-in-law and mother-in-law.
Individuals receiving a distribution from a Bank of America trust, fiduciary, custodial or other similar account may use the proceeds of that distribution to buy Class A shares without paying a front-end sales charge, as long as the proceeds are invested in the funds within 90 days of the date of distribution.
Registered broker/dealer firms that have entered into a Nations Funds dealer agreement with BACAP Distributors, LLC may buy Class A shares without paying a front-end sales charge for their investment account only.
Banks, trust companies and thrift institutions, acting as fiduciaries.
2. Grandfathered investors. Any shareholder who owned shares of any fund of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000 (when all of the then outstanding shares of Columbia Acorn Trust were re-designated Class Z shares) and who since that time has remained a shareholder of any Fund, may purchase Class A shares of any Fund at NAV in those cases where a Columbia Fund Class Z share is not available.
Shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at NAV will continue to be eligible for NAV purchases into those Nations Fund accounts opened through August 19, 2005.
Galaxy Fund shareholders prior to December 1, 1995; and shareholders who (i) purchased Galaxy Fund Prime A shares at NAV and received Class A shares in exchange for those shares during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Prime A shares were originally purchased.
(For Class T shares only) Shareholders who (i) purchased Galaxy Fund Retail A shares at net asset value and received Class T shares in exchange for those shares during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Retail A shares were originally purchased; and Boston 1784 Fund shareholders on the date that those funds were reorganized into Galaxy Funds.
3. Reinstatement. Subject to the fund policy on trading of fund shares, an investor who has redeemed class A, B, C, D, G or T shares may, upon request, reinstate within 1 year a portion or all of the proceeds of such sales in shares of class A of any fund at the NAV next determined after CMS received a written reinstatement request and payment.
4. Retirement Plans. Class A, Class E and Class T shares (Class T shares are not currently open to new investors) of certain funds may also be purchased at reduced or no sales charge by clients of dealers, brokers or registered investment advisors that have entered into arrangements with CMD pursuant to which the funds are included as investments options in wrap fee accounts, other managed agency/asset allocation accounts or programs involving fee-based compensation arrangements, and by participants in certain retirement plans.
5. Non-U.S. Investors. Certain pension, profit-sharing or other employee benefit plans offered to non-US investors may be eligible to purchase Class A shares with no sales charge.
6. Reorganizations. At the Fund's discretion, NAV eligibility may apply to shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which the fund is a party.
7. Rights of Accumulation (ROA). The value of eligible accounts, regardless of class, maintained by you and you and your immediate family may be combined with the value of your current purchase to reach a sales discount level and to obtain the lower sales charge for your current purchase.
8. Letters of Intent (LOI). You may pay a lower sales charge when purchasing class A shares by signing a letter of intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the LOI within 13 months. If your LOI purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES (CDSCS) (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, LLC IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS) (Class A, B, C, D, E, matured F, G and T shares) CDSCs may be waived on redemptions in the following situations with the proper documentation:
1. Death. CDSCs may be waived on redemptions following the death of (i) the sole shareholder on an individual account, (ii) a joint tenant where the surviving joint tenant is the deceased's spouse, or (iii) the beneficiary of a Uniform Gifts to Minors Act (UGMA), Uniform Transfers to Minors Act (UTMA) or other custodial account. If, upon the occurrence of one of the foregoing, the account is transferred to an account registered in the name of the deceased's estate, the CDSC will be waived on any redemption from the estate account If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions occurring pursuant to a monthly, quarterly or semi-annual SWP established with CMS, to the extent the redemptions do not exceed, on an annual basis, 12% of the account's value at the time that the SWP is established. Otherwise, CDSCs will be charged on SWP redemptions until this requirement is met. For redemptions in excess of 12% of the account's value at the time that the SWP is established, a CDSC will be charged on the SWP redemption. The 12% limit does not apply if the SWP is set up at the time the account is established, and distributions are being reinvested. See below under "How to Sell Shares -- Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions occurring after the
sole shareholder on an individual account or a joint tenant on a
spousal joint tenant account becomes disabled (as defined in Section
72(m)(7) of the Internal Revenue Code). To be eligible for such
waiver, (i) the disability must arise AFTER the purchase of shares
(ii) the disabled shareholder must have been under age 65 at the time
of the initial determination of disability, and (iii) a letter from a
physician must be signed under penalty of perjury stating the nature
of the disability. If the account is transferred to a new registration
and then a redemption is requested, the applicable CDSC will be
charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring upon dissolution of a revocable living or grantor trust following the death of the sole trustee where (i) the grantor of the trust is the sole trustee and the sole life beneficiary, (ii) death occurs following the purchase AND (iii) the trust document provides for dissolution of the trust upon the trustee's death. If the account is transferred to a new registration (including that of a successor trustee), the applicable CDSC will be charged upon any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions required to return excess contributions made to retirement plans or individual retirement accounts, so long as the FSF agrees to return the applicable portion of any commission paid by CMD.
6. Qualified Retirement Plans. CDSCs may be waived on CMD shares sold by
employee benefit plans created according to Section 403(b) of the tax
code and sponsored by a non-profit organization qualified under
Section 501(c)(3) of the tax code. To qualify for the waiver, the plan
must be a participant in an alliance program that has signed an
agreement with Columbia Funds or CMD.
7. Trust Share Taxes. CDSCs will be waived on redemptions of Class E and F shares (i) where the proceeds are used to directly pay trust taxes, and (ii) where the proceeds are used to pay beneficiaries for the payment of trust taxes.
8. Return of Commission. CDSCs may be waived on shares sold by intermediaries that are part of the Columbia Funds selling group where the intermediary has entered into an agreement with Columbia Funds not to receive (or to return if received) all or any applicable portion of an upfront commission.
9. Non-U.S. Investors. CDSCs may be waived on shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors.
10. IRS Section 401 and 457. CDSCs may be waived on shares sold by certain pension, profit-sharing or other employee benefit plans established under Section 401 or 457 of the tax code.
11. Medical Payments. CDSCs may be waived on shares redeemed for medical payments that exceed 7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least twelve weeks.
12. Plans of Reorganization. At the Funds' discretion, CDSCs may be waived for shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which a fund is a party.
13. Charitable Giving Program. CDSCs may be waived on the sale of Class C
or Class D shares sold by a non-profit organization qualified under
Section 501(c)(3) of the tax code in connection with the Banc of
America Capital Management Charitable Giving Program.
14. The CDSC also may be waived where the FSF agrees to return all or an agreed upon portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may be sold on any day the Exchange is open, either directly to the Fund or through the shareholder's FSF. Sale proceeds generally are sent within seven days (usually on the next business day after your request is received in good form). However, for shares recently purchased by check, the Fund may delay selling or delay sending proceeds from your shares for up to 15 days in order to protect the Fund against financial losses and dilution in net asset value caused by dishonored purchase payment checks.
To sell shares directly to the Fund, send a signed letter of instruction to CMS, along with any certificates for shares to be sold. The sale price is the net asset value (less any applicable contingent deferred sales charge) next calculated after the Fund receives the request in proper form. Signatures must be guaranteed by a bank, a member firm of a national stock exchange or another eligible guarantor that participates in the Medallion Signature Guarantee Program. Stock power forms are available from FSFs, CMS and many banks. Additional documentation may be required for sales by corporations, agents, fiduciaries, surviving joint owners, individual retirement account holders and other legal entities. Call CMS for more information 1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued to receive that day's price, FSF's are responsible for furnishing all necessary documentation to CMS and may charge for this service.
SYSTEMATIC WITHDRAWAL PLAN. The shareholder may establish a SWP. A specified dollar amount, share amount or percentage of the then current net asset value of the shareholder's investment in any Fund designated by the shareholder will be paid monthly, quarterly or semi-annually to a designated payee. The amount or percentage the shareholder specifies is run against available shares and generally may not, on an annualized basis, exceed 12% of the value, as of the time the shareholder makes the election, of the shareholder's investment. Withdrawals of shares of the Fund under a SWP will be treated as redemptions of shares purchased through the reinvestment of Fund distributions, or, to the extent such shares in the shareholder's account are insufficient to cover Plan payments, as redemptions from the earliest purchased shares of such Fund in the shareholder's account. No CDSCs apply to a redemption pursuant to a SWP of 12% or less, even if, after giving effect to the redemption, the shareholder's account balance is less than the shareholder's base amount. Qualified plan participants who are required by Internal Revenue Service regulation to withdraw more than 12%, on an annual basis, of the value of their share account may do so but may be subject to a CDSC ranging from 1% to 5% of the amount withdrawn in excess of 12% annually. If a shareholder wishes to participate in a SWP, the shareholder must elect to have all of the shareholder's income dividends and other Fund distributions payable in shares of the Fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by telephone on a recorded line. However, SWP checks will be payable only to the shareholder and sent to the address of record. SWPs from retirement accounts cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in certificate form. Purchasing additional shares (other than through dividend and distribution reinvestment) while receiving SWP payments is ordinarily disadvantageous because of sales charges. For this reason, a shareholder may not maintain a plan for the accumulation of shares of the Fund (other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or loss for tax purposes, may involve the use of principal and may eventually use up all of the shares in a shareholder's account.
A Fund may terminate a shareholder's SWP if the shareholder's account balance falls below $5,000 due to any transfer or liquidation of shares other than pursuant to the SWP. The $5,000 minimum account balance requirement has been waived for wrap accounts. SWP payments will be terminated on receiving satisfactory evidence of the death or incapacity of a shareholder. Until this evidence is received, CMS will not be liable for any payment made in accordance with the provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate in them is borne by the Fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not be able to participate in a SWP. If a shareholder's Fund shares are held in "street name," the shareholder should consult his or her FSF to determine whether he or she may participate in a SWP. The SWP on accounts held in "street name" must be made payable to the back office via the National Securities Clearing Corporation (NSCC).
TELEPHONE REDEMPTIONS. All Fund shareholders and/or their FSFs are automatically eligible to redeem up to $100,000 of the Fund's shares by calling 1-800-422-3737 toll-free any business day between 9:00 a.m. and the close of trading of the Exchange (normally 4:00 p.m. Eastern time). Transactions received after 4:00 p.m. Eastern time will receive the next business day's closing price. Telephone redemptions by check and ACH are limited to a total of $100,000 in a 30-day period. Redemptions that exceed $100,000 may be accomplished by placing a wire order trade through a broker, to a pre-existing bank account or furnishing a signature guaranteed request. Signatures must be guaranteed by either a bank, a member firm of a national stock exchange or another eligible guarantor that participates in the Medallion Signature Guarantee Program. CMS will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. Telephone redemptions are not available on accounts with an address change in the preceding 30 days and proceeds and confirmations will only be mailed or sent to the address of record unless the redemption proceeds are being sent to a pre-designated bank account. Shareholders and/or their FSFs will be required to provide their name, address account and taxpayer identification numbers. FSFs will also be required to provide their broker number. All telephone transactions are recorded. A loss to a shareholder may result from an unauthorized transaction reasonably believed to have been authorized. Certain restrictions apply to retirement plan accounts.
CHECKWRITING (Available only on the Class A and Z shares of certain Funds) Shares may be redeemed by check if a shareholder has previously completed an Application and Signature Card. CMS will provide checks to be drawn on Mellon Trust of New England, N.A. (the "Bank"). These checks may be made payable to the order of any person in the amount of not less than $500 ($250 for money market funds) nor more than $100,000 for non-money market funds. The shareholder will continue to earn dividends on shares until a check is presented to the Bank for payment. At such time a sufficient number of full and fractional shares will be redeemed at the next determined net asset value to cover the amount of the check. Certificate shares may not be redeemed in this manner.
Shareholders utilizing checkwriting drafts will be subject to the Bank's rules governing checking accounts. There is currently no charge to the shareholder for the use of checks., However, you may incur customary fees for services such as a stop payment request or a request for copies of a check. The shareholder should make sure that there are sufficient shares in his or her open account to cover the amount of any check drawn since the net asset value of shares will fluctuate. If insufficient shares are in the shareholder's open account, the check will be returned marked "insufficient funds" and no shares will be redeemed; the shareholder will be charged a $15 service fee for each check returned. It is not possible to determine in advance the total value of an open account because prior redemptions and possible changes in net asset value may cause the value of an open account to change. Accordingly, a check redemption should not be used to close an open account. In addition, a check redemption, like any other redemption, may give rise to taxable capital gains.
NON-CASH REDEMPTIONS. For redemptions of any single shareholder within any 90-day period exceeding the lesser of $250,000 or 1% of a Fund's net asset value, a Fund may make the payment or a portion of the payment with portfolio securities held by that Fund instead of cash, in which case the redeeming shareholder may incur brokerage and other costs in selling the securities received.
INFORMATION APPLICABLE TO CLASS G AND CLASS T SHARES
The primary difference between Class G and Class T shares lies in their sales charge structures and shareholder servicing/distribution expenses. Investments in Class T shares of the Funds are subject to a front-end sales charge. Investments in Class G shares of the Funds are subject to a back-end sales charge. This back-end sales charge declines over time and is known as a "contingent deferred sales charge." An investor should understand that the purpose and function of the sales charge structures and shareholder servicing/distribution arrangements for both Class G and Class T shares are the same. Class T shares of a bond fund and an equity fund are currently subject to ongoing shareholder servicing fees at an annual rate of up to 0.15% and 0.30%, respectively, of the Fund's average daily net assets attributable to its Class T shares. Class G shares of a bond fund and an equity fund are currently subject to ongoing shareholder servicing and distribution fees at an annual rate of up to 0.80% and 0.95%, respectively, of the Fund's average daily net assets attributable to its Class G shares. These ongoing fees, which are higher than those charged on Class T shares, will cause Class G shares to have a higher expense ratio and pay lower dividends than Class T shares. Class G and Class T shares may only be purchased by current shareholders of Class G and Class T, respectively.
CLASS T SHARES. The public offering price for Class T shares of the Funds is the sum of the net asset value of the Class T shares purchased plus any applicable front-end sales charge as described in the applicable Prospectus. A deferred sales charge of up to 1.00% is assessed on certain redemptions of Class T shares that are purchased with no initial sales charge as part of an investment of $1,000,000 to $25,000,000. A portion of the front-end sales charge may be reallowed to broker-dealers as follows:
Reallowance to
Reallowance to Dealers Dealers As A % of
As A % of Offering Price Offering Price
Amount of Transaction Per Share - Bond Funds Per Share - Equity Funds
--------------------- ------------------------ ------------------------
Less than $50,000 4.25 5.00
$50,000 but less than $100,000 3.75 3.75
$100,000 but less than $250,000 2.75 2.75
$250,000 but less than $500,000 2.00 2.00
$500,000 but less than $1,000,000 1.75 1.75
$1,000,000 and over 0.00 0.00
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The appropriate reallowance to dealers will be paid by CMD to broker-dealer organizations which have entered into agreements with CMD. The reallowance to dealers may be changed from time to time.
Certain affiliates of the Advisor may, at their own expense, provide additional compensation to broker-dealer affiliates of Columbia and to unaffiliated broker-dealers whose customers purchase significant amounts of Class T shares of the Funds. Such compensation will not represent an additional expense to the Funds or their shareholders, since it will be paid from the assets of Bank of America Corporation's affiliates.
INFORMATION APPLICABLE TO CERTAIN CLASS G SHARES RECEIVED BY FORMER GALAXY FUND RETAIL B SHAREHOLDERS IN CONNECTION WITH THE GALAXY/LIBERTY REORGANIZATION. The following table describes the CDSC schedule applicable to Class G shares received by former Galaxy Fund Retail B shareholders in exchange for Retail B Shares purchased prior to January 1, 2001:
% Deducted When
Holding Period After Purchase Shares Are Sold
----------------------------- ---------------
Through first year 5.00
Through second year 4.00
Through third year 3.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Longer than six years None
|
Class G shares received in exchange for Galaxy Fund Retail B Shares that were purchased prior to January 1, 2001 will automatically convert to Class T shares six years after purchase. For purposes of calculating the CDSC, all purchases are considered to be made on the first day of the month in which each purchase was made.
The following table describes the CDSC schedule applicable to Class G shareholders whose Galaxy Asset Allocation Fund and/or International Equity Fund Retail B Shares were acquired in connection with the reorganization of the Pillar Funds:
% Deducted When
Holding Period After Purchase Shares Are Sold
----------------------------- ---------------
Through first year 5.50
Through second year 5.00
Through third year 4.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Through the seventh year None
Longer than seven years None
|
If you acquired Retail B Shares in connection with the reorganization of the Pillar Funds, your Class G shares will automatically convert to Class T shares eight years after you purchased the Pillar Fund Class B shares you held prior to the reorganization. For purposes of calculating the CDSC, all purchases are considered to be made on the first day of the month in which each purchase was made.
CLASS G SHARES PURCHASED AFTER THE GALAXY/LIBERTY REORGANIZATION. The public offering price for Class G shares of the Funds is the net asset value of the Class G shares purchased. Although investors pay no front-end sales charge on purchases of Class G shares, such shares are subject to a contingent deferred sales charge at the rates set forth in the applicable Prospectus if they are redeemed within seven years of purchase. Securities dealers, brokers, financial institutions and other industry professionals will receive commissions from CMD in connection with sales of Class G shares. These commissions may be different than the reallowances or placement fees paid to dealers in connection with sales of Class T shares. Certain affiliates of Columbia may, at their own expense, provide additional compensation to broker-dealer affiliates of Columbia and to unaffiliated broker-dealers, whose customers purchase significant amounts of Class G shares of a Fund. See "Class T Shares." The contingent deferred sales charge on Class G shares is based on the lesser of the net asset value of the shares on the redemption date or the original cost of the shares being redeemed. As a result, no sales charge is imposed on any increase in the principal value of an investor's Class G shares. In addition, a contingent deferred sales charge will not be assessed on Class G shares purchased through reinvestment of dividends or capital gains distributions.
The proceeds from the contingent deferred sales charge that an investor may pay upon redemption go to CMD, which may use such amounts to defray the expenses associated with the distribution-related services involved in selling Class G shares. Class G shares of a Fund will convert automatically to Class T shares eight years after purchase. The purpose of the conversion is to relieve a holder of Class G shares of the higher ongoing expenses charged to those shares, after enough time has passed to allow CMD to recover approximately the amount it would have received if the applicable front-end sales charge had been charged. The conversion from Class G shares to Class T shares takes place at net asset value, as a result of which an investor receives dollar-for-dollar the same value of Class T shares as he or she had of Class G shares. The conversion occurs eight years after the beginning of the calendar month in which the shares are purchased. Upon conversion, the converted shares will be relieved of the distribution and shareholder servicing fees borne by Class G shares, although they will be subject to the shareholder servicing fees borne by Class T shares.
Class G shares acquired through a reinvestment of dividends or distributions are also converted at the earlier of two dates -- (i) eight years after the beginning of the calendar month in which the reinvestment occurred or (ii) the date of conversion of the most recently purchased Class G shares that were not acquired through reinvestment of dividends or distributions. For example, if an investor makes a one-time purchase of Class G shares of a Fund, and subsequently acquires additional Class G shares of the Fund only through reinvestment of dividends and/or distributions, all of such investor's Class G shares in the Fund, including those acquired through reinvestment, will convert to Class T shares of the Fund on the same date.
INFORMATION APPLICABLE TO CERTAIN CLASS B SHAREHOLDERS
Except for the following, Class B Share Contingent Deferred Sales Charges ("CDSCs") and conversion schedules are described in the Prospectuses.
The following table describes the CDSC schedule applicable to Class B shares received by Galaxy Quality Plus Bond Fund shareholders in exchange for Prime B Shares in connection with the Galaxy/Liberty reorganization.
SALES CHARGES
% Deducted When
Holding Period After Purchase Shares Are Sold
----------------------------- ---------------
Through first year 5.00
Through second year 4.00
Through third year 3.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Longer than six years 0.00
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Automatic conversion to Class A shares occurs eight years after purchase.
The Class B share discount program for purchases of $250,000 or more is not applicable to Class B shares received by Galaxy Fund Prime B shareholders in connection with the reorganization of the Galaxy Fund.
INFORMATION APPLICABLE TO CERTAIN CLASS A SHAREHOLDERS:
Except as set forth in the following paragraph, Class A share CDSCs are described in the Prospectuses:
Class A shares received by former Galaxy High Quality Bond Fund shareholders in exchange for Prime A Shares in connection with the Galaxy/Liberty reorganization of that Fund are subject to a 1% CDSC upon redemption of such Class A shares if the Prime A Shares were purchased without an initial sales charge in accounts aggregating $1 million or more at the time of purchase and the Class A shares are sold within 12 months of the time of purchase of the Prime A Shares. The 12-month holding period begins on the first day of the month in which each purchase was made.
DISTRIBUTIONS
Distributions are invested in additional shares of the same Class of the Fund at net asset value unless the shareholder elects to receive cash. Regardless of the shareholder's election, distributions of $10 or less will not be paid in cash, but will be invested in additional shares of the same class of the Fund at net asset value. Undelivered distribution checks returned by the post office will be reinvested in your account. If a shareholder has elected to receive dividends and/or capital gain distributions in cash and the postal or other delivery service selected by the Transfer Agent is unable to deliver checks to the shareholder's address of record, such shareholder's distribution option will automatically be converted to having all dividend and other distributions reinvested in additional shares. No interest will accrue on amounts represented by uncashed distribution or redemption checks. Shareholders may reinvest all or a portion of a recent cash distribution without a sales charge. No charge is currently made for reinvestment.
Shares of some Funds that pay daily dividends ("include Funds") will normally earn dividends starting with the date the Fund receives payment for the shares and will continue through the day before the shares are redeemed, transferred or exchanged. Shares of some Funds that pay daily dividends ("exclude Funds") will be earned starting with the day after that Fund receives payments for the shares. To determine whether a particular Fund is an include or exclude fund, customers can call 1-800-345-6611.
HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for the same class of shares of the other continuously offered funds (with certain exceptions) on the basis of the NAVs per share at the time of exchange. Class T and Z shares may be exchanged for Class A
shares of certain other funds. The prospectus of each Fund describes its investment goal and policies, and shareholders should obtain a prospectus and consider these goals and policies carefully before requesting an exchange. Consult CMS before requesting an exchange.
By calling CMS, shareholders or their FSF of record may exchange among accounts with identical registrations, provided that the shares are held on deposit. During periods of unusual market changes or shareholder activity, shareholders may experience delays in contacting CMS by telephone to exercise the telephone exchange privilege. Because an exchange involves a redemption and reinvestment in another fund, completion of an exchange may be delayed under unusual circumstances, such as if the Fund suspends repurchases or postpones payment for the Fund shares being exchanged in accordance with federal securities law. CMS will also make exchanges upon receipt of a written exchange request and share certificates, if any. If the shareholder is a corporation, partnership, agent, or surviving joint owner, CMS may require customary additional documentation. Prospectuses of the other Funds are available from the CMD Literature Department by calling 1-800-426-3750.
A loss to a shareholder may result from an unauthorized transaction reasonably believed to have been authorized. No shareholder is obligated to use the telephone to execute transactions.
Consult your FSF or CMS. In all cases, the shares to be exchanged must be registered on the records of the Fund in the name of the shareholder desiring to exchange.
Shareholders of the other open-end funds generally may exchange their shares at NAV for the same class of shares of the Fund. Sales charges may apply for exchanges from money market funds.
An exchange is generally a capital sale transaction for federal income tax purposes. The exchange privilege may be revised, suspended or terminated at any time.
SUSPENSION OF REDEMPTIONS
A Fund may not suspend shareholders' right of redemption or postpone payment for more than seven days unless the Exchange is closed for other than customary weekends or holidays, or if permitted by the rules of the SEC during periods when trading on the Exchange is restricted or during any emergency which makes it impracticable for the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by order of the SEC for the protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Declaration disclaims shareholder liability for acts or obligations of the Fund and the Trust and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by the Fund or the Trust's Trustees. The Declaration provides for indemnification out of Fund property for all loss and expense of any shareholder held personally liable for the obligations of the Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances (which are considered remote) in which the Fund would be unable to meet its obligations and the disclaimer was inoperative.
The risk of a particular fund incurring financial loss on account of another fund of the Trust is also believed to be remote, because it would be limited to circumstances in which the disclaimer was inoperative and the other fund was unable to meet its obligations.
SHAREHOLDER MEETINGS
The Trust is not required to hold annual shareholder meetings, but special meetings may be called for certain purposes. The Trust has voluntarily undertaken to hold a shareholder meeting at which the Board of Trustees would be elected at least every five years beginning in 2005. Each whole share (or fractional share) outstanding on the record date established in accordance with the Trust's By-Laws shall be entitled to a number of votes on any matter on which it is entitled to vote equal to the net asset value of the shares (or fractional share) in United States dollars determined at the close of business on the record date (for example, a share having a net asset value of $10.50 would be entitled to 10.5 votes).
The Trustees may fill any vacancies in the Board of Trustees except that the
Trustees may not fill a vacancy if, immediately after filling such vacancy, less
than two-thirds of the Trustees then in office would have been elected to such
office by the shareholders. In addition, at such times as less than a majority
of the Trustees then in office have been elected to such office by the
shareholders, the Trustees must call a meeting of shareholders. Trustees may be
removed from office by a written consent signed by a majority of the outstanding
shares of the Trust or by a vote of the holders of a majority of the outstanding
shares at a
meeting duly called for the purpose. Except as otherwise disclosed in the Prospectus and this SAI, the Trustees shall continue to hold office and may appoint their successors.
At any shareholders' meetings that may be held, shareholders of all series would vote together, irrespective of series, on the election of Trustees, but each series would vote separately from the others on other matters, such as changes in the investment policies of that series or the approval of the management agreement for that series. Shares of each Fund and any other series of the Trust that may be in existence from time to time generally vote together except when required by law to vote separately by fund or by class.
APPENDIX I
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S (S&P)
The following descriptions are applicable to municipal bond funds:
AAA bonds have the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.
AA bonds have a very strong capacity to pay interest and repay principal, and they differ from AAA only in small degree.
A bonds have a strong capacity to pay interest and repay principal, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.
BBB bonds are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than for bonds in the A category.
BB, B, CCC, CC and C bonds are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or large exposures to adverse conditions.
BB bonds have less near-term vulnerability to default than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating.
B bonds have a greater vulnerability to default but currently have the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating.
CCC bonds have a currently identifiable vulnerability to default, and are dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, the bonds are not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating.
CC rating typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating.
C rating typically is applied to debt subordinated to senior debt which assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued.
CI rating is reserved for income bonds on which no interest is being paid.
D bonds are in payment default. The D rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized.
Plus(+) or minus(-) ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
PROVISIONAL RATINGS. The letter "p" indicates that the rating is provisional. A provisional rating assumes the successful completion of the project being financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely completion of the project. This rating, however, although addressing
credit quality subsequent to completion of the project, makes no comments on the likelihood of, or the risk of default upon failure of, such completion. The investor should exercise his own judgment with respect to such likelihood and risk.
MUNICIPAL NOTES:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating. Notes maturing beyond three years normally receive a bond rating, although the following criteria are used in making that assessment:
Amortization schedule (the larger the final maturity relative to other maturities, the more likely the issue will be rated as a note).
Source of payment (the more dependent the issue is on the market for its refinancing, the more likely it will be rated as a note).
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a demand feature. The first rating addresses the likelihood of repayment of principal and interest as due, and the second rating addresses only the demand feature. The long-term debt rating symbols are used for bonds to denote the long-term maturity, and the commercial paper rating symbols are usually used to denote the put (demand) option (for example, AAA/A-1+). Normally, demand notes receive note rating symbols combined with commercial paper symbols (for example, SP-1+/A-1+).
COMMERCIAL PAPER:
A. Issues assigned this highest rating are regarded as having the greatest capacity for timely payment. Issues in this category are further refined with the designations 1, 2, and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are designed A-1+.
CORPORATE BONDS:
The description of the applicable rating symbols and their meanings is substantially the same as the Municipal Bond ratings set forth above.
The following descriptions are applicable to equity and taxable bond funds:
AAA bonds have the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.
AA bonds differ from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.
A bonds are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.
BBB bonds exhibit adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
BB, B, CCC and CC bonds are regarded, as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB bonds are less vulnerable to non-payment than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
B bonds are more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.
CCC bonds are currently vulnerable to nonpayment, and are dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC bonds are currently highly vulnerable to nonpayment.
C ratings may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on the obligation are being continued.
D bonds are in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
Plus (+) or minus(-): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
R This symbol is attached to the rating of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk, such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
AAA bonds are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge". Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While various protective elements are likely to change, such changes as can be visualized are most unlikely to impair a fundamentally strong position of such issues.
AA bonds are judged to be of high quality by all standards. Together with Aaa bonds they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.
Those bonds in the Aa through B groups that Moody's believes possess the strongest investment attributes are designated by the symbol Aa1, A1 and Baa1.
A bonds possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment sometime in the future.
BAA bonds are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact, have speculative characteristics as well.
BA bonds are judged to have speculative elements: their future cannot be considered as well secured. Often, the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B bonds generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
CAA bonds are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
CA bonds represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C bonds are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
CONDITIONAL RATINGS. Bonds for which the security depends upon the completion of some act or the fulfillment of some condition are rated conditionally. These are bonds secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in operating experience, (c) rentals which begin when facilities are completed, or (d) payments to which some other limiting conditions attach. Parenthetical rating denotes probable credit stature upon completion of construction or elimination of basis of condition.
MUNICIPAL NOTES:
MIG 1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are accounted for, but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
Moody's may assign a separate rating to the demand feature of a variable rate demand security. Such a rating may include:
VMIG 1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are accounted for, but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
COMMERCIAL PAPER:
Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper obligations are supported by the credit of another entity or entities, Moody's, in assigning ratings to such issuers, evaluates the financial strength of the indicated affiliated corporations, commercial banks, insurance companies, foreign governments, or other entities, but only as one factor in the total rating assessment.
CORPORATE BONDS:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings is identical to that of the Municipal Bond ratings as set forth above, except for the numerical modifiers. Moody's applies numerical modifiers 1, 2, and 3 in the Aa and A classifications of its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a midrange ranking; and the modifier 3 indicates that the issuer ranks in the lower end of its generic rating category.
FITCH INC.
INVESTMENT GRADE BOND RATINGS
AAA bonds are considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and/or dividends and repay principal, which is unlikely to be affected by reasonably foreseeable events.
AA bonds are considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated 'AAA'. Because bonds rated in the 'AAA' and 'AA' categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F-1+'.
A bonds are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than debt securities with higher ratings.
BBB bonds are considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest or dividends and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these securities and, therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for securities with higher ratings.
CONDITIONAL
A conditional rating is premised on the successful completion of a project or the occurrence of a specific event.
SPECULATIVE-GRADE BOND RATINGS
BB bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified, which could assist the obligor in satisfying its debt service requirements.
B bonds are considered highly speculative. While securities in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue.
CCC bonds have certain identifiable characteristics that, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment.
CC bonds are minimally protected. Default in payment of interest and/or principal seems probable over time.
C bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D bonds are in default on interest and/or principal payments. Such securities are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. 'DDD' represents the highest potential for recovery on these securities, and 'D' represents the lowest potential for recovery.
APPENDIX II
COLUMBIA MANAGEMENT ADVISORS, LLC ("CMA")
PROXY VOTING POLICIES AND PROCEDURES
ADOPTED JULY 1, 2003 AND REVISED MARCH 4, 2005
POLICY:
ALL PROXIES(1) REGARDING CLIENT SECURITIES FOR WHICH COLUMBIA MANAGEMENT ADVISORS, LLC ("CMA") HAS ASSUMED AUTHORITY TO VOTE SHALL, UNLESS CMA DETERMINES IN ACCORDANCE WITH POLICIES STATED BELOW TO ABSTAIN FROM VOTING, BE VOTED IN A MANNER CONSIDERED BY CMA TO BE IN THE BEST INTEREST OF CMA'S CLIENTS, INCLUDING THE CMG FAMILY FUNDS(2) AND THEIR SHAREHOLDERS, WITHOUT REGARD TO ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES. THE BEST INTEREST OF CLIENTS IS DEFINED FOR THIS PURPOSE AS THE INTEREST OF ENHANCING OR PROTECTING THE ECONOMIC VALUE OF CLIENT ACCOUNTS, CONSIDERED AS A GROUP RATHER THAN INDIVIDUALLY, AS CMA DETERMINES IN ITS SOLE AND ABSOLUTE DISCRETION. IN THE EVENT A CLIENT BELIEVES THAT ITS OTHER INTERESTS REQUIRE A DIFFERENT VOTE, CMA SHALL VOTE AS THE CLIENT CLEARLY INSTRUCTS, PROVIDED CMA RECEIVES SUCH INSTRUCTIONS IN TIME TO ACT ACCORDINGLY.
CMA ENDEAVORS TO VOTE, IN ACCORDANCE WITH THIS POLICY, ALL PROXIES OF WHICH IT BECOMES AWARE, SUBJECT TO THE FOLLOWING EXCEPTIONS (UNLESS OTHERWISE AGREED) WHEN CMA EXPECTS TO ROUTINELY ABSTAIN FROM VOTING:
1. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE THE SECURITY HAS BEEN LOANED FROM THE CLIENT'S ACCOUNT.
2. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE CMA DEEMS THE COSTS TO THE CLIENT AND/OR THE ADMINISTRATIVE INCONVENIENCE OF VOTING THE SECURITY (E.G., SOME FOREIGN SECURITIES) OUTWEIGH THE BENEFIT OF DOING SO.
CMA SEEKS TO AVOID THE OCCURRENCE OF ACTUAL OR APPARENT MATERIAL CONFLICTS OF INTEREST IN THE PROXY VOTING PROCESS BY VOTING IN ACCORDANCE WITH PREDETERMINED VOTING GUIDELINES, AS STATED BELOW. FOR THOSE PROXY PROPOSALS THAT REQUIRE SPECIAL CONSIDERATION OR IN INSTANCES WHERE SPECIAL CIRCUMSTANCES MAY REQUIRE VARYING FROM THE PREDETERMINED GUIDELINES, THE CMG PROXY COMMITTEE WILL DETERMINE THE BEST INTEREST OF CMA'S CLIENTS AND VOTE ACCORDINGLY, WITHOUT CONSIDERATION OF ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES.
OVERVIEW:
CMA's policy is based upon its fiduciary obligation to act in its clients' best interest. Citing this obligation, the SEC has adopted rules pursuant to the Investment Advisers Act of 1940 and Investment Company Act of 1940 with respect to proxy voting.
PROCEDURE:
I. ACCOUNT POLICIES
Except as otherwise directed by the client, CMA shall vote as follows:
SEPARATELY MANAGED ACCOUNTS
CMA shall vote proxies on securities held in its separately managed accounts.
COLUMBIA TRUST COMPANY (CTC) TRUST POOLS
CMA shall vote proxies on securities held in the trust pools.
1 The term "proxy" as used herein refers to consents, elections and authorizations solicited by any party with respect to securities of any sort.
2 A CMG Family Fund or a Fund is a registered investment company or series of a registered investment company managed or advised by Columbia Management Advisors, LLC.
CMG FAMILY FUNDS/CMA FUND TRUST
CMA shall vote proxies on securities held in the Funds, including multi-managed and subadvised Funds.
COLUMBIA PRIVATE PORTFOLIO
CMA shall vote proxies on securities held in its separately managed accounts.
ALTERNATIVE INVESTMENT GROUP
CMA's clients may invest in securities ("Alternative Investments") issued by alternative investment vehicles (i.e. hedge funds, private equity funds, and other alternative investment pools) that are structured as private limited partnerships ("LPs"), limited liability companies ("LLCs") or offshore corporations. Generally, CMA's Alternative Investment Group ("AIG") is the platform through which CMA provides advisory services relating to Alternative Investments.
The voting rights of Alternative Investments generally are rights of contract set forth in the limited liability company or limited partnership agreement, in the case of LLCs and LPs, or Memorandum and Articles of Association or By-laws, in the case of offshore corporations. Also, as privately placed securities, Alternative Investments generally are not subject to the regulatory scheme applicable to public companies. Consequently, in most cases, proxies are not solicited regarding Alternative Investment vehicles. Instead, consents may be solicited from members, limited partners or shareholders.
Because of the unique characteristics of Alternative Investments, CMA has a tailored process for voting Alternative Investment proxies and consents.
Process
AIG will vote all Alternative Investment proxies and consents in accordance with this Policy. The committee voting AIG proxies consists of AIG senior management, investment and operations professionals. Conflicts of interest are to be monitored and resolved as set forth in this Policy.
II. PROXY COMMITTEE
CMA shall establish a Proxy Committee whose standing members shall include the head of core equity, head of value, head of growth, head of income strategies, head of equity research and head of fixed income research. Each standing member may designate a senior portfolio manager or a senior analyst officer to act as a substitute in a given matter on their behalf.
The Proxy Committee's functions shall include, in part,
(a) direction of the vote on proposals where there has been a
recommendation to the Committee, pursuant to Section IV.B, not to
vote according to the predetermined Voting Guidelines stated in
Section IV.A or on proposals which require special, individual
consideration in accordance with Section IV.C;
(b) review at least annually of this Proxy Voting Policy and Procedure to ensure consistency with internal policies, client disclosures and regulatory requirements;
(c) review at least annually of existing Voting Guidelines and need for development of additional Voting Guidelines to assist in the review of proxy proposals; and
(d) development and modification of Voting Procedures, as stated in
Section V, as it deems appropriate or necessary.
The Proxy Committee shall establish a charter, which shall set forth the Committee's purpose, membership and operation. The Committee's charter shall be consistent, in all material respects, with this policy and procedure.
III. CONFLICTS OF INTEREST
With Other Bank of America Businesses
Bank of America Corporation ("BAC"), the ultimate corporate parent of CMA, Bank of America, N.A. and all of their numerous affiliates owns, operates and has interests in many lines of business that may create or give rise to the appearance of a conflict of interest between BAC or its affiliates and those of Firm-advised clients. For example, the commercial and investment banking business lines may have interests with respect to issuers of voting securities that could appear to or even actually conflict with CMA's duty, in the proxy voting process, to act in the best economic interest of its clients.
Within CMA
Conflicts of interest may also arise from the business activities of CMA. For example, CMA might manage (or be seeking to manage) the assets of a benefit plan for an issuer. CMA may also be presented with an actual or apparent conflict of interest where proxies of securities issued by BAC or a CMG Family Fund, for which CMA serves as investment adviser, are to be voted for a client's account.
Management of Conflicts
CMA's policy is to always vote proxies in the best interest of its clients, as a whole, without regard to its own self-interest or that of its affiliates. BAC as well as CMA has various compliance policies and procedures in place in order to address any material conflicts of interest that might arise in this context.
1. BAC's enterprise-wide Code of Ethics specifically prohibits the flow of certain business-related information between associates on the commercial and/or investment banking side of the corporation and associates charged with trust or (as in the case of BACAP associates) non-trust fiduciary responsibilities, including investment decision-making and proxy voting.
2. In addition, BAC has adopted "Global Policies and Procedures Regarding Information Walls and Inside Information." Pursuant to these policies and procedures, "information barriers" have been established between various BAC business lines designed to prohibit the passage of certain information across those barriers.
3. Within CMA, CMA's Code of Ethics affirmatively requires that associates of CMA act in a manner whereby no actual or apparent conflict of interest may be seen as arising between the associate's interests and those of CMA's Clients.
4. By assuming his or her responsibilities pursuant to this Policy, each member of the Proxy Committee and any CMA or BAC associate advising or acting under the supervision or oversight of the Proxy Committee undertakes:
- To disclose to the chairperson of the Proxy Committee and the chairperson to the head of CMG Compliance any actual or apparent personal material conflicts of interest which he or she may have (e.g., by way of substantial ownership of securities, relationships with nominees for directorship, members of an issuer's or dissident's management or otherwise) in determining whether or how CMA shall vote proxies. In the event the chairperson of the Proxy Committee has a conflict of interest regarding a given matter, he or she shall abstain from participating in the Committee's determination of whether and/or how to vote in the matter; and
- To refrain from taking into consideration, in the decision as to whether or how CMA shall vote proxies:
- The existence of any current or prospective material business relationship between CMA, BAC or any of their affiliates, on one hand, and any party (or its affiliates) that is soliciting or is otherwise interested in the proxies to be voted, on the other hand; and/or
- Any direct, indirect or perceived influence or attempt to influence such action which the member or associate views as being inconsistent with the purpose or provisions of this Policy or the Code of Ethics of CMA or BAC.
Where a material conflict of interest is determined to have arisen in the proxy voting process that may not be adequately mitigated by voting in accordance with the predetermined Voting Guidelines, CMA's policy is to invoke one or more of the following conflict management procedures:
1. Convene the Proxy Committee for the purpose of voting the affected proxies in a manner that is free of the conflict.
2. Causing the proxies to be voted in accordance with the recommendations of a qualified, independent third party, which may include CMA's proxy voting agent.
3. In unusual cases, with the Client's consent and upon ample notice, forwarding the proxies to CMA's clients so that they may vote the proxies directly.
IV. VOTING GUIDELINES
A. THE PROXY COMMITTEE HAS ADOPTED THE FOLLOWING GUIDELINES FOR VOTING PROXIES:
1. Matters Relating to the Board of Directors/Corporate Governance
CMA generally will vote FOR:
- Proposals for the election of directors or for an increase or decrease in the number of directors, provided that no more than one-third of the Board of Directors would, presently or at any time during the previous three-year period, be from management.
However, CMA generally will WITHHOLD votes from pertinent director nominees if:
(i) the board as proposed to be constituted would have more than one-third of its members from management;
(ii) the board does not have audit, nominating, and compensation committees composed solely of directors who qualify as being regarded as "independent," i.e. having no material relationship, directly or indirectly, with the Company, as CMA's proxy voting agent may determine (subject to the Proxy Committee's contrary determination of independence or non-independence);
(iii) the nominee, as a member of the audit committee, permitted the company to incur excessive non-audit fees (as defined below regarding other business matters -- ratification of the appointment of auditors);
(iv) a director serves on more than six public company boards;
(v) the CEO serves on more than two public company boards other than the company's board.
On a CASE-BY-CASE basis, CMA may WITHHOLD votes for a director nominee who has failed to observe good corporate governance practices or, through specific corporate action or inaction (e.g. failing to implement policies for which a majority of shareholders has previously cast votes in favor), has demonstrated a disregard for the interests of shareholders.
- Proposals requesting that the board audit, compensation and/or nominating committee be composed solely of independent directors. The Audit Committee must satisfy the independence and experience requirements established by the Securities and Exchange Commission ("SEC") and the New York Stock Exchange, or appropriate local requirements for foreign securities. At least one member of the Audit Committee must qualify as a "financial expert" in accordance with SEC rules.
- Proposals to declassify a board, absent special circumstances that would indicate that shareholder interests are better served by a classified board structure.
CMA generally will vote FOR:
- Proposals to create or eliminate positions or titles for senior management. CMA generally prefers that the role of Chairman of the Board and CEO be held by different persons unless there are compelling reasons to vote AGAINST a proposal to separate these positions, such as the existence of a counter-balancing governance structure that includes at least the following elements in addition to applicable listing standards:
- Established governance standards and guidelines.
- Full board composed of not less than two-thirds "independent" directors, as defined by applicable regulatory and listing standards.
- Compensation, as well as audit and nominating (or corporate governance) committees composed entirely of independent directors.
- A designated or rotating presiding independent director appointed by and from the independent directors with the authority and responsibility to call and preside at regularly and, as necessary, specially scheduled meetings of the independent directors to be conducted, unless the participating independent directors otherwise wish, in executive session with no members of management present.
- Disclosed processes for communicating with any individual director, the presiding independent director (or, alternatively, all of the independent directors, as a group) and the entire board of directors, as a group.
- The pertinent class of the Company's voting securities has out-performed, on a three-year basis, both an appropriate peer group and benchmark index, as indicated in the performance summary table of the Company's proxy materials. This requirement shall not apply if there has been a change in the Chairman/CEO position within the three-year period.
- Proposals that grant or restore shareholder ability to remove directors with or without cause.
- Proposals to permit shareholders to elect directors to fill board vacancies.
- Proposals that encourage directors to own a minimum amount of company stock.
- Proposals to provide or to restore shareholder appraisal rights.
- Proposals to adopt cumulative voting.
- Proposals for the company to adopt confidential voting.
CMA generally will vote AGAINST:
- Proposals to classify boards, absent special circumstances indicating that shareholder interests would be better served by a classified board structure.
- Proposals that give management the ability to alter the size of the board without shareholder approval.
- Proposals that provide directors may be removed only by supermajority vote.
- Proposals to eliminate cumulative voting.
- Proposals which allow more than one vote per share in the election of directors.
- Proposals that provide that only continuing directors may elect replacements to fill board vacancies.
- Proposals that mandate a minimum amount of company stock that directors must own.
- Proposals to limit the tenure of non-management directors.
CMA will vote on a CASE-BY-CASE basis in contested elections of directors.
CMA generally will vote on a CASE-BY-CASE basis on board approved proposals relating to corporate governance. Such proposals include, but are not limited to:
- Director and officer indemnification and liability protection. CMA is opposed to entirely eliminating directors' and officers' liability for monetary damages for violating the duty of care. CMA is also opposed to expanding coverage beyond just legal expenses to acts, such as negligence, that are more serious violations of fiduciary obligation than mere carelessness. CMA supports proposals which provide such expanded coverage in cases when a director's or officer's legal defense was unsuccessful if: (i) the director was found to have acted in good faith and in a manner that he/she reasonably believed was in the best interests of the company, AND (ii) if the director's legal expenses would be covered.
- Reimbursement of proxy solicitation expenses taking into consideration whether or not CMA was in favor of the dissidents.
- Proxy contest advance notice. CMA generally will vote FOR proposals that allow shareholders to submit proposals as close to the meeting date as possible while allowing for sufficient time for Company response, SEC review, and analysis by other shareholders.
2. Compensation
CMA generally will vote FOR management sponsored compensation plans (such as bonus plans, incentive plans, stock option plans, pension and retirement benefits, stock purchase plans or thrift plans) if they are consistent with industry and country standards. However, CMA generally is opposed to compensation plans that substantially dilute ownership interest in a company, provide participants with excessive awards, or have objectionable structural features. Specifically, for equity-based plans, if the proposed number of shares authorized for option programs (excluding authorized shares for expired options) exceeds an average of 10% of the currently outstanding shares over the previous three years or an average of 3% over the previous three years for directors only, the proposal should be referred to the Proxy Committee. The Committee will then consider the circumstances surrounding the issue and vote in the best interest of CMA's clients. CMA requires that management provide substantial justification for the repricing of options.
CMA generally will vote FOR:
- Proposals requiring that executive severance arrangements be submitted for shareholder ratification.
- Proposals asking a company to expense stock options.
- Proposals to put option repricings to a shareholder vote.
- Employee stock purchase plans that have the following features: (i) the shares purchased under the plan are acquired for no less than 85% of their market value, (ii) the offering period under the plan is 27 months or less, and (iii) dilution is 10% or less.
CMA generally will vote AGAINST:
- Stock option plans that permit issuance of options with an exercise price below the stock's current market price, or that permit replacing or repricing of out-of-the money options.
- Proposals to authorize the replacement or repricing of out-of-the money options.
CMA will vote on a CASE-BY-CASE basis proposals regarding approval of specific executive severance arrangements.
3. Capitalization
CMA generally will vote FOR:
- Proposals to increase the authorized shares for stock dividends, stock splits (and reverse stock splits) or general issuance, unless proposed as an anti-takeover measure or a general issuance proposal increases the authorization by more than 30% without a clear need presented by the company. Proposals for reverse stock splits should include an overall reduction in authorization.
For companies recognizing preemptive rights for existing shareholders, CMA generally will vote FOR general issuance proposals that increase the authorized shares by more than 30%. CMA will vote on a CASE-BY-CASE basis all such proposals by companies that do not recognize preemptive rights for existing shareholders.
- Proposals for the elimination of authorized but unissued shares or retirement of those shares purchased for sinking fund or treasury stock.
- Proposals to institute/renew open market share repurchase plans in which all shareholders may participate on equal terms.
- Proposals to reduce or change the par value of common stock, provided the number of shares is also changed in order to keep the capital unchanged.
4. Mergers, Restructurings and Other Transactions
CMA will review, on a CASE-BY-CASE basis, business transactions such as mergers, acquisitions, reorganizations, liquidations, spinoffs, buyouts and sale of all or substantially all of a company's assets.
5. Anti-Takeover Measures
CMA generally will vote AGAINST proposals intended largely to avoid acquisition prior to the occurrence of an actual event or to discourage acquisition by creating a cost constraint. With respect to the following measures, CMA generally will vote as follows:
Poison Pills
- CMA votes FOR shareholder proposals that ask a company to submit its poison pill for shareholder ratification.
- CMA generally votes FOR shareholder proposals to eliminate a poison pill.
- CMA generally votes AGAINST management proposals to ratify a poison pill.
Greenmail
- CMA will vote FOR proposals to adopt anti-greenmail charter or bylaw amendments or to otherwise restrict a company's ability to make greenmail payments.
Supermajority vote
- CMA will vote AGAINST board-approved proposals to adopt anti-takeover measures such as supermajority voting provisions, issuance of blank check preferred stock, the creation of a separate class of stock with disparate voting rights and charter amendments adopting control share acquisition provisions.
Control Share Acquisition Provisions
- CMA will vote FOR proposals to opt out of control share acquisition statutes.
6. Other Business Matters
CMA generally will vote FOR:
- Proposals to approve routine business matters such as changing the company's name and procedural matters relating to the shareholder meeting such as approving the minutes of a prior meeting.
- Proposals to ratify the appointment of auditors, unless any of the following apply in which case CMA will generally vote AGAINST the proposal:
- Credible reason exists to question:
- The auditor's independence, as determined by applicable regulatory requirements.
- The accuracy or reliability of the auditor's opinion as to the company's financial position.
- Fees paid to the auditor or its affiliates for "non-audit" services were excessive, i.e., in excess of the total fees paid for "audit," "audit-related" and "tax compliance" and/or "tax return preparation" services, as disclosed in the company's proxy materials.
- Bylaw or charter changes that are of a housekeeping nature (e.g., updates or corrections).
- Proposals to approve the annual reports and accounts provided the certifications required by the Sarbanes-Oxley Act of 2002 have been provided.
CMA generally will vote AGAINST:
- Proposals to eliminate the right of shareholders to act by written consent or call special meetings.
- Proposals providing management with authority to adjourn an annual or special shareholder meeting absent compelling reasons, or to adopt, amend or repeal bylaws without shareholder approval, or to vote unmarked proxies in favor of management.
- Shareholder proposals to change the date, time or location of the company's annual meeting of shareholders.
CMA will vote AGAINST:
- Authorization to transact other unidentified substantive (as opposed to procedural) business at a meeting.
CMA will vote on a CASE-BY-CASE basis:
- Proposals to change the location of the company's state of incorporation. CMA considers whether financial benefits (e.g., reduced fees or taxes) likely to accrue to the company as a result of a reincorporation or other change of domicile outweigh any accompanying material diminution of shareholder rights.
- Proposals on whether and how to vote on "bundled" or otherwise conditioned proposals, depending on the overall economic effects upon shareholders.
CMA generally will ABSTAIN from voting on shareholder proposals predominantly involving social, socio-economic, environmental, political or other similar matters on the basis that their impact on share value can rarely be anticipated with any high degree of confidence. CMA may, on a CASE-BY-CASE basis, vote:
- FOR proposals seeking inquiry and reporting with respect to, rather than cessation or affirmative implementation of, specific policies where the pertinent issue warrants separate communication to shareholders; and
- FOR or AGAINST the latter sort of proposal in light of the relative benefits and detriments (e.g. distraction, costs, other burdens) to share value which may be expected to flow from passage of the proposal.
7. Other Matters Relating to Foreign Issues
CMA generally will vote FOR:
- Most stock (scrip) dividend proposals. CMA votes AGAINST proposals that do not allow for a cash option unless management demonstrates that the cash option is harmful to shareholder value.
- Proposals to capitalize the company's reserves for bonus issues of shares or to increase the par value of shares.
- Proposals to approve control and profit transfer agreements between a parent and its subsidiaries.
- Management proposals seeking the discharge of management and supervisory board members, unless there is concern about the past actions of the company's auditors/directors and/or legal action is being taken against the board by other shareholders.
- Management proposals concerning allocation of income and the distribution of dividends, unless the dividend payout ratio has been consistently below 30 percent without adequate explanation or the payout is excessive given the company's financial position.
- Proposals for the adoption of financing plans if they are in the best economic interests of shareholders.
8. Investment Company Matters
Election of Directors:
CMA will vote on a CASE-BY-CASE basis proposals for the election of directors, considering the following factors:
- Board structure
- Attendance at board and committee meetings.
CMA will WITHHOLD votes from directors who:
- Attend less than 75 percent of the board and committee meetings without a valid excuse for the absences. Valid reasons include illness or absence due to company business. Participation via telephone is acceptable. In addition, if the director missed only one meeting or one day's meetings, votes should not be withheld even if such absence dropped the director's attendance below 75 percent.
- Ignore a shareholder proposal that is approved by a majority of shares outstanding;
- Ignore a shareholder proposal this is approved by a majority of the votes cast for two consecutive years;
- Are interested directors and sit on the audit or nominating committee; or
- Are interested directors and the full board serves as the audit or nominating committee or the company does not have one of these committees.
Proxy Contests:
CMA will vote on a CASE-BY-CASE basis proposals for proxy contests, considering the following factors:
- Past performance relative to its peers
- Market in which fund invests
- Measures taken by the board to address the pertinent issues (e.g., closed-end fund share market value discount to NAV)
- Past shareholder activism, board activity and votes on related proposals
- Strategy of the incumbents versus the dissidents
- Independence of incumbent directors; director nominees
- Experience and skills of director nominees
- Governance profile of the company
- Evidence of management entrenchment
Converting Closed-end Fund to Open-end Fund:
CMA will vote conversion proposals on a CASE-BY-CASE basis, considering the following factors:
- Past performance as a closed-end fund
- Market in which the fund invests
- Measures taken by the board to address the discount
- Past shareholder activism, board activity, and votes on related proposals.
Investment Advisory Agreements:
CMA will vote investment advisory agreements on a CASE-BY-CASE basis, considering the following factors:
- Proposed and current fee schedules
- Fund category/investment objective
- Performance benchmarks
- Share price performance as compared with peers
- Resulting fees relative to peers
- Assignments (where the adviser undergoes a change of control)
Approving New Classes or Series of Shares:
CMA will vote FOR the establishment of new classes or series of shares.
Preferred Stock Proposals:
CMA will vote on a CASE-BY-CASE basis proposals for the authorization for or increase in the preferred shares, considering the following factors:
- Stated specific financing purpose
- Possible dilution for common shares
- Whether the shares can be used for antitakover purposes
Policies Addressed by the Investment Company Act of 1940 ("1940 Act"):
CMA will vote proposals regarding adoption or changes of policies addressed by the 1940 Act on a CASE-BY-CASE basis, considering the following factors:
- Potential competitiveness
- Regulatory developments
- Current and potential returns
- Current and potential risk
CMA generally will vote FOR these amendments as long as the proposed changes do not fundamentally alter the investment focus of the fund and do comply with current SEC interpretations.
Changing a Fundamental Restriction to a Non-fundamental Restriction:
CMA will vote on a CASE-BY-CASE basis proposals to change a fundamental restriction to a nonfundamental restriction, considering the following factors:
- Fund's target investments
- Reasons given by the fund for the change
- Projected impact of the change on the portfolio
Change Fundamental Investment Objective to Non-fundamental:
CMA will vote AGAINST proposals to change a fund's investment objective from fundamental to non-fundamental unless management acknowledges meaningful limitations upon its future requested ability to change the objective
Name Change Proposals:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's name, considering the following factors:
- Political/economic changes in the target market
- Consolidation in the target market
- Current asset composition
Change in Fund's Subclassification:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's subclassification, considering the following factors:
- Potential competitiveness
- Current and potential returns
- Risk of concentration
- Consolidation in target industry
Disposition of Assets/Termination/Liquidation:
CMA will vote on a CASE-BY-CASE basis these proposals, considering the following factors:
- Strategies employed to salvage the company
- Past performance of the fund
- Terms of the liquidation
Changes to the Charter Document:
CMA will vote on a CASE-BY-CASE basis proposals to change the charter document, considering the following factors:
- The degree of change implied by the proposal
- The efficiencies that could result
- The state of incorporation; net effect on shareholder rights
- Regulatory standards and implications
CMA will vote FOR:
- Proposals allowing the Board to impose, without shareholder approval, fees payable upon redemption of fund shares, provided imposition of such fees is likely to benefit long-term fund investors (e.g., by deterring market timing activity by other fund investors)
- Proposals enabling the Board to amend, without shareholder approval, the fund's management agreement(s) with its investment adviser(s) or sub-advisers, provided the amendment is not required by applicable law (including the Investment Company Act of 1940) or interpretations thereunder to require such approval
CMA will vote AGAINST:
- Proposals enabling the Board to:
- Change, without shareholder approval the domicile of the fund
- Adopt, without shareholder approval, material amendments of the fund's declaration of trust or other organizational document
Changing the Domicile of a Fund:
CMA will vote on a CASE-BY-CASE basis proposals to reincorporate, considering the following factors:
- Regulations of both states
- Required fundamental policies of both states
- The increased flexibility available
Authorizing the Board to Hire and Terminate Subadvisors Without Shareholder Approval:
CMA will vote FOR proposals to enable the Board or Investment Adviser to hire and terminate sub-advisers, without shareholder approval, in accordance with applicable rules or exemptive orders under the Investment Company Act of 1940
Distribution Agreements:
CMA will vote these proposals on a CASE-BY-CASE basis, considering the following factors:
- Fees charged to comparably sized funds with similar objectives
- The proposed distributor's reputation and past performance
- The competitiveness of the fund in the industry
- Terms of the agreement
Master-Feeder Structure:
CMA will vote FOR the establishment of a master-feeder structure.
Mergers:
CMA will vote merger proposals on a CASE-BY-CASE basis, considering the following factors:
- Resulting fee structure
- Performance of both funds
- Continuity of management personnel
- Changes in corporate governance and their impact on shareholder rights
Shareholder Proposals to Establish Director Ownership Requirement:
CMA will generally vote AGAINST shareholder proposals that mandate a specific minimum amount of stock that directors must own in order to qualify as a director or to remain on the board. While CMA favors stockownership on the part of directors, the company should determine the appropriate ownership requirement.
Shareholder Proposals to Reimburse Shareholder for Expenses Incurred:
CMA will vote on a CASE-BY-CASE basis proposals to reimburse proxy solicitation expenses.
Shareholder Proposals to Terminate the Investment Adviser:
CMA will vote on a CASE-BY-CASE basis proposals to terminate the investment adviser, considering the following factors:
- Performance of the fund's NAV
- The fund's history of shareholder relations
- The performance of other funds under the adviser's management
9. Alternative Investment Group ("AIG") Matters
The AIG Proxy Sub-Committee generally will vote in accordance with the guidelines set forth in this policy. With respect to matters that are not addressed by the guidelines, the AIG Proxy Sub-Committee will vote each such matter on a CASE-BY-CASE basis.
B. ABILITY TO VOTE PROXIES OTHER THAN AS PROVIDED IN A ABOVE.
A Portfolio Manager, sub-adviser or other party involved with a client's account may conclude that the best interest of the firm's client, as defined above, requires that a proxy be voted in a manner that differs from the predetermined proxy Voting Guidelines stated in Section IV.A. In this situation, he or she shall request that the Proxy Committee consider voting the proxy other than according such Guidelines. If any person, group, or entity requests the Proxy Committee (or any of its members) vote a proxy other than according to the predetermined Voting Guidelines, that person shall furnish to the Proxy Committee a written explanation of the reasons for the request and a description of the person's, group's, or entity's relationship, if any, with the parties proposing and/or opposing the matter's adoption.
C. PROPOSALS REQUIRING SPECIAL CONSIDERATION
The following proposals require special, individual consideration. The Proxy Committee will determine how proxies related to all such proposals will be voted.
1. NEW PROPOSALS. For each new type of proposal that is expected to be proposed to shareholders of multiple companies, the Proxy Committee will develop a Voting Guideline which will be incorporated into this Policy.
2. ACCOUNTS ADHERING TO TAFT HARTLEY PRINCIPLES. All proposals for these accounts shall be voted according to the Taft Hartley Guidelines developed by Institutional Shareholder Services, Inc. ("ISS").
3. ACCOUNTS ADHERING TO SOCIALLY RESPONSIBLE PRINCIPLES. All proposals for these accounts shall be voted according to the Socially Responsible Guidelines developed by ISS or as specified by the client.
4. PROXIES OF INTERNATIONAL ISSUERS WHICH BLOCK SECURITIES SALES BETWEEN THE TIME A SHAREHOLDER SUBMITS A PROXY AND THE VOTE. Proposals for these securities shall be voted only on the specific instruction of the Proxy Committee and to the extent practicable in accordance with the Voting Guidelines set forth in this Policy.
5. PROXIES OF INVESTMENT COMPANY SHARES. Proposals on issues other than those specified in Section IV.A.
6. EXECUTIVE/DIRECTOR COMPENSATION. Except as provided in Section IV.A, proposals relating to compensation of any executive or director will be voted as recommended by ISS or as otherwise directed by the Proxy Committee.
7. PREEMPTIVE RIGHTS. Proposals to create or eliminate shareholder preemptive rights. In evaluating these proposals the Proxy Committee will consider the size of the company and the nature of its shareholder base.
V. VOTING PROCEDURES
The Proxy Committee has developed the following procedures to aid the voting of proxies according to the Voting Guidelines set forth in Section IV above. The Proxy Committee may revise these procedures from time to time, as it deems necessary or appropriate to effect the purposes of this Policy.
- CMA shall use an independent, third-party vendor (currently Institutional Shareholder Services ("ISS")), to implement its proxy voting process as CMAs proxy voting agent. This retention is subject to CMA continuously assessing the vendor's independence from CMA and its affiliates, and the vendor's ability to perform its responsibilities (and, especially, its responsibility to vote client proxies in accordance with CMA's proxy voting guidelines) free of any actual, potential or apparent material conflicts of interests that may arise between the interests of the vendor, its affiliates, the vendor's other clients and the owners, officers or employees of any such firm, on the one hand, and CMA's clients, on the other hand. As means of performing this assessment, CMA will require various reports and notices from the vendor, as well as periodic audits of the vendor's voting record and other due diligence.
- ISS shall provide proxy analysis and record keeping services in addition to voting proxies on behalf of CMA in accordance with this Policy.
- On a daily basis CMA shall send to ISS a holdings file detailing each equity holding held in all accounts over which CMA has voting authority. Information regarding equity holdings for international portfolio shall be sent weekly.
- ISS shall receive proxy material information from Proxy Edge or the custodian bank for the account. This shall include issues to be voted upon, together with a breakdown of holdings for CMA accounts. ISS shall then reconcile information it receives from CMA with that it has received from Proxy Edge and custodian banks. Any discrepancies shall be promptly noted and resolved by ISS, with notice to CMA.
- Whenever a vote is solicited, ISS shall execute the vote according to CMA's Voting Guidelines previously delivered by CMA to ISS as set forth in Section IV.A.
- If ISS is not sure how to vote a particular proxy, then ISS will issue a request for voting instructions to CMA over a secure website. CMA personnel shall check this website regularly. The request shall be accompanied by a recommended vote. The recommended vote shall be based upon CMA's understanding of the Voting Guidelines previously delivered to ISS. CMA shall promptly provide ISS with any amendments or modifications to the Voting Guidelines if necessary. CMA shall return a final instruction to vote to ISS, which ISS shall record with Proxy Edge or the custodian bank as our agent.
- Each time that ISS shall send CMA a request to vote the request shall be accompanied by the recommended vote determined in accordance with CMA's Voting Guidelines. ISS shall vote as indicated in the request unless the client has reserved discretion, the Proxy Committee determines that the best interest of clients requires another vote or the proposal is a matter as to which the Proxy Committee affords special, individual consideration under Section IV.C. In such situations ISS shall vote based on the direction of the client or the Proxy Committee, as the case may be. The interests of CMA's Taft Hartley or Socially Responsible clients may impact a proposal that normally should be voted in a certain way. ISS shall inform CMA of all proposals having impact on its Taft Hartley and or Socially Responsible clients. The Proxy Voting Committee shall be consulted before a vote is placed in cases where Taft Hartley or Socially Responsible issues are presented.
- ISS shall have procedures in place to ensure that a vote is cast on every security holding maintained by CMA on which a vote is solicited unless otherwise directed by the Proxy Committee. On a yearly basis, or as required by our clients CMA shall receive a report from ISS detailing CMA's voting for the previous period.
VI. AVAILABILITY OF PROXY POLICY AND VOTING RECORD
A summary disclosure regarding the provisions of this Policy is available in CMA's Form ADV. Upon receipt of a Client's request for more information, CMA will provide to the Client a copy of this Policy and/or how CMA voted proxies for the Client pursuant to this Policy for up to a one-year period.
COLUMBIA UTILITIES FUND
A Series of Columbia Funds Series Trust I
Statement of Additional Information
March 27, 2006
This Statement of Additional Information (SAI) contains information which may be useful to investors but which is not included in the Prospectuses of the Columbia Utilities Fund (the Fund). This SAI is not a prospectus and is authorized for distribution only when accompanied or preceded by a Prospectus of the Fund dated March 27, 2006. This SAI should be read together with a Prospectus and the Fund's most recent Annual Report dated November 30, 2005. Investors may obtain a free copy of a Prospectus and Annual Report from Columbia Management Distributors, Inc. (CMD), One Financial Center, Boston, MA 02111-2621 or by calling 1-800-426-3750. The Financial Statements and Report of the Independent Registered Public Accounting Firm appearing in the Fund's November 30, 2005 Annual Report are incorporated into this SAI by reference.
Part 1 of this SAI contains specific information about the Fund. Part 2 includes information about the funds distributed by CMD generally and additional information about certain securities and investment techniques described in the Fund's Prospectuses.
TABLE OF CONTENTS Part 1 PAGE Definitions b Organization and History b Investment Goals and Policies b Fundamental Investment Policies b Other Investment Policies c Special Tax Considerations c Portfolio Turnover d Fund Charges and Expenses d Custodian of the Fund l Independent Registered Public Accounting Firm of the Fund l Part 2 Miscellaneous Investment Practices 1 Taxes 22 Additional Tax Matters Concerning Trust Shares 27 Management of the Funds 29 Determination of Net Asset Value 42 How to Buy Shares 43 Special Purchase Programs/Investor Services 47 Programs for Reducing or Eliminating Sales Charges 49 How to Sell Shares 52 Distributions 56 How to Exchange Shares 56 Suspension of Redemptions 57 Shareholder Liability 57 Shareholder Meetings 57 Appendix I 59 Appendix II 65 |
INT-39/107784-0306
PART 1
COLUMBIA UTILITIES FUND
STATEMENT OF ADDITIONAL INFORMATION
March 27, 2006
DEFINITIONS
"Trust" Columbia Funds Series Trust I
"Fund" Columbia Utilities Fund
"Advisor" Columbia Management Advisors, LLC, the Fund's investment advisor
"CMD" Columbia Management Distributors, Inc. (formerly named Columbia Funds Distributor, Inc.),
the Fund's distributor
"CMS" Columbia Management Services, Inc. (formerly named Columbia Funds Services, Inc.), the
Fund's shareholder services and transfer agent
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ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1987. The Fund was originally organized as a series of another Massachusetts business trust prior to its reorganization as a series of the Trust on March 27, 2006. The Fund is an open-end, diversified management investment company, representing the entire interest in a separate series of the Trust. The Fund commenced investment operations on August 31, 1981.
Effective October 13, 2003, the Trust changed its name from "Liberty-Stein Roe Funds Municipal Trust" to "Columbia Funds Trust IX." Effective September 19, 2005, the name of the Trust was changed from "Columbia Funds Trust IX" to its current name.
INVESTMENT GOALS AND POLICIES
The Prospectuses describe the Fund's investment goals, investment strategies
and risks. Part 1 of this SAI includes additional information concerning, among
other things, the investment policies of the Fund. Part 2 contains additional
information about the following securities and investment techniques that may
be utilized by the Fund:
Options (on Indices and Securities)
Foreign Securities
Foreign Currency Transactions
Repurchase Agreements
Rule 144A Securities
Forward Commitments
Money Market Instruments
Except as indicated below under "Fundamental Investment Policies," the Fund's investment policies are not fundamental and the Trustees may change the policies without shareholder approval.
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940, as amended ("1940 Act"), provides that a
"vote of a majority of the outstanding voting securities" means the affirmative
vote of the lesser of (1) more than 50% of the outstanding shares of the Fund,
or (2) 67% or more of the shares present at a meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy. The
following fundamental investment policies cannot be changed without such a vote.
The Fund may not, as a fundamental investment policy:
1. Underwrite any issue of securities issued by other persons within the meaning of the Securities Act of 1933, as amended (the "1933 Act") except when it might be deemed to be an underwriter either: (a) in connection with the disposition of a portfolio security; or (b) in connection with the purchase of securities directly from the issuer thereof in accordance with its investment objective. This restriction shall not limit the Fund's ability to invest in securities issued by other registered investment companies.
b
2. Purchase or sell real estate, except a Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate and it may hold and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of securities which are secured by real estate or interests therein.
3. Purchase or sell commodities, except that a Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts.
4. Make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
5. Borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
6. Purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that: (a) up to 25% of its total assets may be invested without regard to these limitations and (b) a Fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder, or any applicable exemptive relief.
The Fund may, as a matter of fundamental policy, concentrate more than 25% of its total assets in any single industry.
OTHER INVESTMENT POLICIES
As non-fundamental investment policies, which may be changed without a
shareholder vote, the Fund may not:
1. Purchase securities on margin, but it may receive short-term credit to clear securities transactions and may make initial or maintenance margin deposits in connection with futures transactions;
2. Have a short securities position, unless the Fund owns, or owns rights (exercisable without payment) to acquire, an equal amount of such securities; and
3. Invest more than 15% of its net assets in illiquid assets.
Total assets and net assets are determined at current value for purposes of compliance with investment restrictions and policies. All percentage limitations will apply at the time of investment and are not violated unless an excess or deficiency occurs as a result of such investment. For the purpose of the 1940 Act's diversification requirement, an issuer is the entity whose revenues support the security.
SPECIAL TAX CONSIDERATIONS
The Fund may designate dividends as eligible for the dividends-received
deduction only to the extent that the Fund receives dividends for which the
Fund would be entitled to the dividends-received deduction if the Fund were a
regular corporation and not a regulated investment company. The
dividends-received deduction is available with respect to dividends received
from domestic corporations subject to U.S. federal income tax and is not
available to certain special corporations, such as Subchapter S corporations,
to other entities or to individuals. There can be no assurance that the
dividends-received deduction will not be reduced or eliminated in the future.
For dividends designated by the Fund as eligible for the dividends-received deduction to qualify as such by a particular shareholder, the shareholder must meet certain holding period requirements. The basis of a shareholder's shares may be reduced by an amount equal to the non-taxed portion of "extraordinary dividends" eligible for the dividends-received deduction.
PORTFOLIO TURNOVER
Portfolio turnover is included in the Prospectuses under "Financial
Highlights." High portfolio turnover may cause the Fund to realize capital
gains, which if realized and distributed by the Fund, may be taxable to
shareholders as ordinary income. High portfolio turnover may result in
correspondingly greater brokerage commissions and other transaction costs,
which will be borne directly by the Fund.
FUND CHARGES AND EXPENSES
Effective November 1, 2003, under the Fund's management agreement, the Fund
pays the Advisor a monthly fee based on the average daily net assets at the
annual rate of 0.65% on the first $1 billion and 0.60% of any excess of $1
billion.
Prior to November 1, 2003, under the Fund's management agreement, the Fund paid the Advisor a monthly fee based on the average daily net assets of the Fund at the annual rate of 0.65%. The Advisor had voluntarily agreed to waive its fee so that its actual fee would not exceed 0.60% of average daily net assets on assets in excess of $1 billion.
The Advisor is responsible for providing certain pricing and bookkeeping
services to the Fund. Effective November 1, 2005, the Fund entered into a
Pricing and Bookkeeping Agreement and an Administrative Agreement. Under these
agreements, the Fund will continue to receive substantially the same pricing,
bookkeeping and administrative services as it currently receives under the
Agreement. Under a separate agreement ("Outsourcing Agreement"), the Advisor
has delegated the pricing and bookkeeping function to State Street Bank and
Trust Company ("State Street"). The Advisor pays fees to State Street under the
Outsourcing Agreement. The Advisor and State Street Bank and Trust Company will
continue to provide these services to the Fund. For services provided under the
Pricing and Bookkeeping Agreement, the Fund will pay the Advisor or to such
other person(s) as the Advisor may direct an annual fee, payable monthly,
consisting of: (i) for Fund accounting services, $25,000 plus an additional
monthly fee based on the Fund's net asset value ("Fund Accounting Fee"); and
(ii) for financial reporting services, $13,000 ("Financial Reporting Fee");
provided that during any 12-month period, the aggregate Fund Accounting Fee and
Financial Reporting Fee shall not exceed $140,000. The Fund will bear certain
reimbursable costs and expenses as provided in the Pricing and Bookkeeping
Agreement and the Administrative Agreement.
For periods prior to November 1, 2005, the Fund paid the Advisor fees under a similar pricing and bookkeeping agreement with the Fund, that consisted of a monthly fee consisting of a flat fee plus an asset-based fee, as follows:
. An annual flat fee of $10,000, paid monthly; and
. In any month that the Fund has average net assets of more than $50
million, a monthly fee equal to the average daily net assets of the
Fund for that month multiplied by a fee rate that is calculated by
taking into account the fees payable to State Street under the
Outsourcing Agreement.
The Fund reimburses the Advisor for all out-of-pocket expenses and charges, including fees payable to third parties (other than State Street) for providing pricing data.
CMS acts as transfer agent, dividend disbursing agent and shareholders' servicing agent for the Fund. Its address is P.O. Box 8081, Boston, Massachusetts 02266-8081. Effective November 1, 2005, the Fund has entered into a new agreement with CMS, under which CMS will continue to provide transfer agency, dividend disbursing agency and shareholders' servicing agency services to the Fund (and will continue to retain Boston Financial Data Services, Inc. to assist them) for a reduced fee. The new fee is $15.23 per account per annum, payable monthly. In addition, the Fund may pay CMS the fees and expenses it pays to third-party dealer firms that maintain omnibus accounts with the Fund, subject to a cap equal to 0.11% of the Fund's net assets represented by the account. The Fund will also pay certain reimbursable out-of-pocket expenses to CMS, and CMS may also retain as additional compensation for its services revenues for fees for wire, telephone and redemption orders, IRA trustee agent fees and account transcripts due CMS from shareholders of the Fund and credits (net of bank charges) earned with respect to balances in accounts CMS maintains in connection with its services to the Fund.
Prior to November 1, 2005, the Fund paid a shareholders' servicing and transfer agency fee to CMS as follows:
. An annual open account fee of $28 per open account, plus the Fund's allocated share of reimbursement for the out-of-pocket expenses of CMS.
Prior to November 1, 2003, the Fund paid a shareholders' servicing and transfer agency fee to CMS as follows:
. An account fee for each open account of $4.00 per annum, payable on
a monthly basis, in an amount equal to 1/12 the per annum charge;
plus
. An account fee for each closed account of $1.50 per annum, payable
on a monthly basis, in an amount equal to 1/12 the per annum
charge; plus
. A transaction fee of $1.40 per transaction occurring in Fund
accounts during any month; plus
. A monthly fee at the rate of 0.06% per annum of the average daily
closing value of the total net assets of the Fund for such month;
plus
. The Fund's allocated share of CMS' out-of-pocket expenses, including fees payable to DST Systems, Inc. (DST) under a remote services agreement with DST.
Recent Fees paid to the Advisor, CMD and CFS (dollars in thousands)
Year ended November 30,
-----------------------
2005 2004 2003
---- ---- ----
Management fee 2,648 $2,630 $2,762
Pricing and bookkeeping fee 110 114 132
Shareholder service and transfer agent fee 885 1,005 1,807
12b-1 fees:
Service fee (Class A) 788 772 791
Service fee (Class B) 134 154 187
Service fee (Class C) 17 16 17
Distribution fee (Class B) 403 461 561
Distribution fee (Class C) 50 49 52
Fees and expenses waived or reimbursed by
Advisor/CMS 46 -- --
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Brokerage Commissions (dollars in thousands)
Years ended November 30,
------------------------
2005 2004 2003
---- ---- ----
Total commissions $145 $335 $1,460
Directed transactions(a) 0 2,037 17,103
Commissions on directed transactions 0 4 56
% of Aggregate Commissions 0 0 0
% of Aggregate Dollar Amount of Brokerage
Transactions 0 0 0
Commissions paid to Fleet Securities, Inc. 0 0 0
% of Aggregate Commissions 0 0 0
% of Aggregate Dollar Amount of Brokerage
Transactions 0 0 0
Commissions paid to Bank of America Securities(b) 0 0 (b)
% of Aggregate Commissions 0 0 (b)
% of Aggregate Dollar Amount of Brokerage
Transactions 0 0 (b)
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(a) See "Management of the Funds - Portfolio Transactions - Brokerage and Research Services" in Part 2 of this SAI.
(b) Prior to April, 2004, Bank of America Securities was not an affiliate of the Fund.
The Trust is required to identify any securities of its "regular brokers or dealers" that the Fund has acquired during its most recent fiscal year. At November 30, 2005, the Fund held no securities of its regular brokers or dealers.
e
Trustees and Trustees' Fees
The Columbia Fund Complex includes all of the registered investment companies to which the Advisor and its affiliates provide investment advisory services.
The Advisor or its affiliates pay the compensation of all the officers of the funds in the Columbia Fund Complex (as such term is defined under applicable regulations promulgated under the 1940 Act) advised by the Advisor, including Trustees who are affiliated with the Advisor. For the fiscal year ended November 30, 2005 and the calendar year ended December 31, 2005, the Trustees received the following compensation for serving as Trustees:
Total Compensation from
Pension or Aggregate Compensation the Fund Complex
Retirement Benefits from the Fund for the Fiscal Paid to the Trustees for the
Accrued as Part of Year Ended Calendar Year Ended
Trustee Fund Expenses (b) November 30, 2005 December 31, 2005(a)
Douglas A. Hacker N/A $1,244 $111,277
Janet Langford Kelly N/A 1,325 116,500
Richard W. Lowry N/A 1,109 142,500
William E. Mayer N/A 1,265 147,750
Charles R. Nelson N/A 1,220 111,500
John J. Neuhauser N/A 1,132 137,833
Patrick J. Simpson(c) N/A 1,176 107,500
Thomas E. Stitzel N/A 1,274 113,000
Thomas C. Theobald(d) N/A 2,313 205,500
Anne-Lee Verville(e) N/A 1,330 120,723
Richard L. Woolworth N/A 1,187 106,500
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(a)As of December 31, 2005, the Columbia Fund Complex consisted of 159 open-end and 11 closed-end management investment company portfolios.
(b)The Fund does not currently provide pension or retirement plan benefits to the Trustees.
(c)During the fiscal year ended November 30, 2005, and the calendar year ended
December 31, 2005, Mr. Simpson deferred $1,176 of his compensation from the
Fund, and $107,500 of his total compensation from the Fund Complex pursuant
to the deferred compensation plan. At December 31, 2005, the value of
Mr. Simpson's account under that plan was $269,502.
(d)During the fiscal year ended November 30, 2005, and the calendar year ended
December 31, 2005, Mr. Theobald deferred $1,685 of his compensation from the
Fund, and $150,000 of his total compensation from the Fund Complex pursuant
to the deferred compensation plan. At December 31, 2005, the value of
Mr. Theobald's account under that plan was $320,084.
(e)At December 31, 2005, the value of Ms. Verville's account under the deferred compensation plan was $683,935.
f
Role of the Board of Trustees
The Trustees of the Funds are responsible for the overall management and supervision of the Funds' affairs and for protecting the interests of the shareholders. The Trustees meet periodically throughout the year to oversee the Funds' activities, review contractual arrangements with service providers for the Funds and review the Funds' performance. The Trustees have created several committees to perform specific functions for the Funds.
Audit Committee
Ms. Verville and Messrs. Hacker, Stitzel and Woolworth are members of the Audit Committee of the Board of Trustees of the Funds. The Audit Committee's functions include making recommendations to the Trustees regarding the selection and performance of the independent accountants, and reviewing matters relative to accounting and auditing practices and procedures, accounting records, and the internal accounting controls, of the Funds and certain service providers. For the fiscal year ended November 30, 2005, the Audit Committee convened seven times.
Governance Committee
Messrs. Lowry, Mayer, Simpson and Theobald are members of the Governance Committee of the Board of Trustees of the Funds. The Governance Committee's functions include recommending to the Trustees nominees for independent Trustee positions and for appointments to various committees, performing periodic evaluations of the effectiveness of the Board, reviewing and recommending to the Board policies and practices to be followed in carrying out the Trustees' duties and responsibilities and reviewing and making recommendations to the Board regarding the compensation of the Trustees who are not affiliated with the Funds' investment advisors. The Governance Committee will consider candidates for Trustee recommended by shareholders. Written recommendations with supporting information should be directed to the Committee, in care of the Fund. For the fiscal year ended November 30, 2005, the Governance Committee convened five times.
Advisory Fees & Expenses Committee
Ms. Kelly and Messrs. Mayer, Nelson and Neuhauser are members of the Advisory Fees & Expenses Committee of the Board of Trustees of the Funds. The Advisory Fees & Expenses Committee's functions include reviewing and making recommendations to the Board as to contracts requiring approval of a majority of the disinterested Trustees and as to any other contracts that may be referred to the Committee by the Board. For the fiscal year ended November 30, 2005, the Advisory Fees & Expenses Committee convened seven times.
Compliance Committee
Ms. Kelly, Messrs. Nelson, Simpson and Stitzel and Ms. Verville are members of the Compliance Committee of the Board of Trustees of the Funds. Mr. Stitzel became a member of the Compliance Committee on May 8, 2005. The Compliance Committee's functions include providing oversight of the monitoring processes and controls regarding the Trust. The Committee uses legal, regulatory and internal rules, policies, procedures and standards other than those relating to accounting matters and oversight of compliance by the Trust's investment adviser, principal underwriter and transfer agent. For the fiscal year ended November 30, 2005, the Compliance Committee convened four times.
g
Investment Oversight Committees
Each Trustee of the Funds also serves on an Investment Oversight Committee ("IOC"). Each IOC is responsible for monitoring, on an ongoing basis, a select group of funds in the Columbia Fund Complex and gives particular consideration to such matters as the Funds' adherence to their investment mandates, historical performance, changes in investment processes and personnel, and proposed changes to investment objectives. Investment personnel who manage the Funds attend IOC meetings from time to time to assist each IOC in its review of the Funds. Each IOC meets four times a year. The following are members of the respective IOCs and the general categories of funds in the Columbia Fund Complex which they review:
IOC #1: Messrs. Lowry, Mayer and Neuhauser are responsible for reviewing funds in the following asset
categories: Large Growth Diversified, Large Growth Concentrated, Small Growth, Outside Managed
(i.e., sub-advised) and Municipal.
IOC #2: Mr. Hacker and Ms. Verville are responsible for reviewing funds in the following asset categories:
Large Blend, Small Blend, Foreign Stock, Fixed Income - Multi Sector, Fixed Income - Core and
Young Investor.
IOC#3:. Messrs. Theobald and Stitzel and Ms. Kelly are responsible for reviewing funds in the following
asset categories: Large Value, Mid Cap Value, Small Value, Asset Allocation, High Yield and Money
Market.
IOC#4:. Messrs. Nelson, Simpson and Woolworth are responsible for reviewing funds in the following asset
categories: Large/Multi-Cap Blend, Mid Cap Growth, Small Growth, Asset Allocation, Specialty
Equity and Taxable Fixed Income.
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Share Ownership
The following table shows the dollar range of equity securities beneficially owned by each Trustee as of December 31, 2005 (i) in the Fund and (ii) in the funds in the Columbia Fund Complex.
Aggregate Dollar Range of Equity
Securities Owned in All Funds
Dollar Range of Equity Securities Overseen by Trustee in the Fund
Name of Trustee Owned in the Fund Complex
Disinterested Trustees
Douglas A. Hacker $0 Over $100,000
Janet Langford Kelly $0 Over $100,000
Richard W. Lowry $0 Over $100,000
Charles R. Nelson $0 Over $100,000
John J. Neuhauser $0 Over $100,000
Patrick J. Simpson $0 Over $100,000
Thomas E. Stitzel $0 $50,001-$100,000
Thomas C. Theobald $0 Over $100,000
Anne-Lee Verville(a) $0 Over $100,000
Richard L. Woolworth $0 Over $100,000
Interested Trustee
William E. Mayer $0 $50,001-$100,000
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(a) Includes the value of compensation payable under the deferred compensation plan for independent Trustees of the Columbia Fund Complex that is determined as if the amounts deferred had been invested, as of the date of deferral, in shares of one or more funds in the Columbia Fund Complex as specified by Ms. Verville.
h
PORTFOLIO MANAGERS
Other Accounts Managed by Portfolio Managers
The following table shows the number and assets of other investment accounts (or portions of investment accounts) that the Fund's portfolio managers managed as of the Fund's fiscal year-end.
-----------------------------------------------------------------------------------------
Other SEC-registered
open-end and closed-end Other pooled investment
Portfolio Manager funds vehicles Other accounts
-----------------------------------------------------------------------------------------
Number of Assets Number of Assets Number of Assets
accounts accounts accounts
-----------------------------------------------------------------------------------------
Edward Y. Paik 1 $1.3 billion None N/A 21 $28.1 million
-----------------------------------------------------------------------------------------
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See "Management--Portfolio Transactions--Potential conflicts of interest in managing multiple accounts" in Part II of this SAI for information on how the Advisor addresses potential conflicts of interest resulting from an individual's management of more than one account.
Ownership of Securities
The table below shows the dollar ranges of shares of the Fund beneficially owned (as determined pursuant to Rule 16a-1(a)(2) under the Securities Exchange Act of 1934, as amended) by the portfolio managers listed above at the end of the Fund's most recent fiscal year:
-----------------------------------------------------------------
Portfolio Manager Dollar Range of Equity Securities in the Fund
Beneficially Owned
-----------------------------------------------------------------
Edward Y. Paik $1-$10,000
-----------------------------------------------------------------
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Compensation
As of the Fund's most recent fiscal year end, the portfolio managers received all of their compensation from the Advisor and its parent company, Columbia Management Group, in the form of salary, bonus, stock options and restricted stock. A portfolio manager's bonus is variable and is generally based on (1) an evaluation of the manager's investment performance and (2) the results of a peer and/or management review of such individual, which takes into account skills and attributes such as team participation, investment process, communication and professionalism. In evaluating investment performance, the Advisor generally considers the one-, three- and five-year performance of mutual funds and other accounts under the portfolio manager's oversight relative to the benchmark noted below, emphasizing the manager's three- and five-year performance. The Advisor may also consider the portfolio manager's performance in managing client assets in sectors and industries assigned to the manager as part of his or her investment team responsibilities, where applicable. For portfolio managers who also have group management responsibilities, another factor in their evaluation is an assessment of the group's overall investment performance.
----------------------------------------------- Portfolio Manager Performance Benchmark ----------------------------------------------- Edward Y. Paik S&P Utilities and S&P Telecom ----------------------------------------------- |
The size of the overall bonus pool each year is determined by Columbia Management Group and depends in part on levels of compensation generally in the investment management industry (based on market compensation data) and the Advisor's profitability for the year, which is influenced by assets under management.
Ownership of the Fund
As of record on February 28, 2006, the officers and Trustees of the Trust as a group beneficially owned less than 1% of the then outstanding shares of the Fund.
As of record on February 28, 2006, the following shareholders owned of record 5% or more of one or more of each class of the Fund's then outstanding shares:
Class
A Merrill Lynch Pierce Fenner & Smith 7.45%
For The Sole Benefit Of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2/nd/ Floor
Jacksonville, FL 32246-6484
B Merrill Lynch Pierce Fenner & Smith 8.10%
For The Sole Benefit Of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2/nd/ Floor
Jacksonville, FL 32246-6484
B Citigroup Global Markets, Inc. 6.65%
Attn: Peter Booth
333 West 34/th/ Street, 7/th/ Floor
New York, NY 10001-2402
C Merrill Lynch Pierce Fenner & Smith 13.18%
For The Sole Benefit Of Its Customers
Attn: Fund Administration
4800 Deer Lake Drive East, 2/nd/ Floor
Jacksonville, FL 32246-6484
C Citigroup Global Markets, Inc. 10.38%
Attn: Peter Booth
333 West 34/th/ Street, 7/th/ Floor
New York, NY 10001-2402
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Sales Charges (dollars in thousands)
Class A Shares
Year ended November 30,
-----------------------
2005 2004 2003
---- ---- ----
Aggregate initial sales charges on Fund share sales $66 $76 $79
Initial sales charges retained by CFD 8 8 6
Aggregate contingent deferred sales charges
(CDSC) on Fund redemptions retained by CFD (a) (a) (a)
|
Class B Shares
Year ended November 30,
-----------------------
2005 2004 2003
---- ---- ----
Aggregate CDSC on Fund redemptions retained by
CFD $89 $187 $234
|
Class C Shares
Year ended November 30,
-----------------------
2005 2004 2003
---- ---- ----
Aggregate CDSC on Fund redemptions retained by
CFD (a) $1 $2
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(a) Rounds to less than one.
j
12b-1 Plan, CDSCs and Conversion of Shares
The Fund offers four classes of shares--Class A, Class B, Class C and Class Z. The Fund may in the future offer other classes of shares. The Trustees have approved a 12b-1 plan (Plan) pursuant to Rule 12b-1 under the 1940 Act for each class except Class Z shares. Under the Plan, the Fund pays CMD monthly a service fee at an annual rate of 0.25% of the average daily net assets attributed to Class A, Class B and Class C shares. The Fund also pays CMD monthly a distribution fee at the annual rate of 0.75% of the average daily net assets attributed to Class B and Class C shares. CMD may use the entire amount of such fees to defray the costs of commissions and service fees paid to financial service firms (FSFs) and for certain other purposes. Since the distribution and service fees are payable regardless of CMD's expenses, CMD may realize a profit from the fees. The Plan authorizes any other payments by the Fund to CMD and its affiliates (including the Advisor) to the extent that such payments might be construed to be indirect financing of the distribution of Fund shares.
The Trustees believe the Plan could be a significant factor in the growth and retention of the Fund's assets resulting in more advantageous expense ratios and increased investment flexibility which could benefit each class of Fund shareholders. The Plan will continue in effect from year to year so long as continuance is specifically approved at least annually by a vote of the Trustees, including the Trustees who are not interested persons of the Fund and have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan (Independent Trustees), cast in person at a meeting called for the purpose of voting on the Plan. The Plan may not be amended to increase the fee materially without approval by vote of a majority of the outstanding voting securities of the relevant class of shares and all material amendments of the Plan must be approved by the Trustees in the manner provided in the foregoing sentence. The Plan may be terminated at any time by vote of a majority of the independent Trustees or by vote of a majority of the outstanding voting securities of the relevant class of shares. The continuance of the Plan will only be effective if the selection and nomination of the Trustees of the Trust who are not interested persons of the Trust is effected by such disinterested Trustees.
Class A shares are offered at net asset value plus varying sales charges which may include a CDSC. Class B shares are offered at net asset value subject to a CDSC if redeemed within a certain number of years after purchase depending on the program under which you purchased your shares. Class C shares are offered at net asset value and are subject to a 1.00% CDSC on redemptions within one year after purchase. Class Z shares are offered at net asset value and are not subject to a CDSC. The CDSCs are described in the Prospectus for Class A, Class B and C shares for the Fund.
No CDSC will be imposed on shares derived from reinvestment of distributions or on amounts representing capital appreciation. In determining the applicability and rate of any CDSC, it will be assumed that a redemption is made first of shares representing capital appreciation, next of shares representing reinvestment of distributions and finally of other shares held by the shareholder for the longest period of time.
Eight years after the end of the month in which a Class B share is purchased, such share and a pro rata portion of any shares issued on the reinvestment of distributions will be automatically converted into Class A shares having an equal value, which are not subject to the distribution fee. See the Prospectus for a description of the different programs.
Sales-related expenses (dollars in thousands) of CMD relating to the Class A, B and C shares of the Fund were:
Year ended November 30, 2005
----------------------------
Class A Shares Class B Shares Class C Shares
Fees to FSFs $797 $183 $24
Allocated cost of sales material relating to the Fund (including
printing and mailing expenses) 19 6 1
Allocated travel, entertainment and other promotional expenses
(including advertising) 29 9 1
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k
CUSTODIAN OF THE FUND
State Street Bank and Trust Company, located at 2 Avenue de Lafayette, Boston, Massachusetts 02111-2900, is the Fund's custodian. The custodian is responsible for safeguarding and controlling the Fund's cash and securities, receiving and delivering securities and collecting the Fund's interest and dividends.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF THE FUND
PricewaterhouseCoopers LLP, located at 125 High Street, Boston, Massachusetts 02110-1707, is the independent registered public accounting firm, providing audit and tax return review services and assistance and consultation in connection with the review of various Securities and Exchange Commission filings. The financial statements incorporated by reference in this SAI have been so incorporated, and the financial highlights included in the Prospectuses have been so included, in reliance upon the report of PricewaterhouseCoopers LLP given on the authority of said firm as experts in accounting and auditing.
STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to most funds advised by the Advisor. "Funds" include the series of Columbia Funds Series Trust I, Columbia Funds Institutional Trust, SteinRoe Variable Investment Trust and Liberty Variable Investment Trust (each a Trust and together, the Trusts). In certain cases, the discussion applies to some, but not all, of the Funds, and you should refer to your Fund's Prospectus and to Part 1 of this Statement of Additional Information ("SAI") to determine whether the matter is applicable to your Fund. You will also be referred to Part 1 for certain data applicable to your Fund.
MISCELLANEOUS INVESTMENT PRACTICES
PART 1 OF THIS SAI LISTS ON PAGE B WHICH OF THE FOLLOWING INVESTMENT PRACTICES
ARE AVAILABLE TO YOUR FUND. IF AN INVESTMENT PRACTICE IS NOT LISTED IN PART 1 OF THIS SAI, IT IS NOT APPLICABLE TO YOUR FUND.
SHORT-TERM TRADING
In seeking the Fund's investment goal, the Advisor will buy or sell portfolio securities whenever it believes it is appropriate. The Advisor's decision will not generally be influenced by how long the Fund may have owned the security. From time to time, the Fund will buy securities intending to seek short-term trading profits. A change in the securities held by the Fund is known as "portfolio turnover" and generally involves some expense to the Fund. These expenses may include brokerage commissions or dealer mark-ups and other transaction costs on both the sale of securities and the reinvestment of the proceeds in other securities. If sales of portfolio securities cause the Fund to realize net short-term capital gains, such gains will be taxable as ordinary income. As a result of the Fund's investment policies, under certain market conditions the Fund's portfolio turnover rate may be higher than that of other mutual funds. The Fund's portfolio turnover rate for a fiscal year is the ratio of the lesser of purchases or sales of portfolio securities to the monthly average of the value of portfolio securities, excluding securities whose maturities at acquisition were one year or less. The Fund's portfolio turnover rate is not a limiting factor when the Advisor considers a change in the Fund's portfolio.
SHORT SALES
A Fund's short sales are subject to special risks. A short sale involves the sale by the Fund of a security that it does not own with the hope of purchasing the same security at a later date at a lower price. In order to deliver the security to the buyer, the Fund borrows the security from a third party. The Fund is then obligated to return the security to the third party, so the Fund must purchase the security at the market price at a later point in time. If the price of the security has increased during this time, then the Fund will incur a loss equal to the increase in price of the security from the time that the short sale was entered into plus any premiums and interest paid to the third party. Therefore, short sales involve the risk that losses may be exaggerated, potentially losing more money than the actual cost of the security. Also, there is the risk that the third party to the short sale may fail to honor its contract terms, causing a loss to the Fund.
LOWER-RATED DEBT SECURITIES
Lower-rated debt securities are those rated lower than Baa by Moody's or BBB by S&P, or comparable unrated debt securities. Relative to debt securities of higher quality,
1. an economic downturn or increased interest rates may have a more significant effect on the yield, price and potential for default for lower-rated debt securities;
2. the secondary market for lower-rated debt securities may at times become less liquid or respond to adverse publicity or investor perceptions, increasing the difficulty in valuing or disposing of the bonds;
3. the Advisor's credit analysis of lower-rated debt securities may have a greater impact on the Fund's achievement of its investment goal; and
4. lower-rated debt securities may be less sensitive to interest rate changes, but are more sensitive to adverse economic developments.
In addition, certain lower-rated debt securities may not pay interest in cash on a current basis.
SMALL COMPANIES
Smaller, less well established companies may offer greater opportunities for capital appreciation than larger, better established companies, but may also involve certain special risks related to limited product lines, markets, or financial resources and dependence on a small management group. Their securities may trade less frequently, in smaller volumes, and fluctuate more sharply in value than securities of larger companies.
COMMON STOCK, PREFERRED STOCK AND WARRANTS
Common stocks are generally more volatile than other securities. Preferred stocks share some of the characteristics of both debt and equity investments and are generally preferred over common stocks with respect to dividends and in liquidation. A warrant is an instrument issued by a corporation which gives the holder the right to subscribe to a specified amount of the company's capital stock at a set price for a specified period of time.
FOREIGN SECURITIES
The Fund may invest in securities traded in markets outside the United States. Foreign investments can be affected favorably or unfavorably by changes in currency rates and in exchange control regulations. There may be less publicly available information about a foreign company than about a U.S. company, and foreign companies may not be subject to accounting, auditing and financial reporting standards comparable to those applicable to U.S. companies. Securities of some foreign companies are less liquid or more volatile than securities of U.S. companies, and foreign brokerage commissions and custodian fees may be higher than in the United States. Investments in foreign securities can involve other risks different from those affecting U.S. investments, including local political or economic developments, expropriation or nationalization of assets and imposition of withholding taxes on dividend or interest payments. Foreign securities, like other assets of the Fund, will be held by the Fund's custodian or by a sub-custodian or depository. See also "Foreign Currency Transactions" below.
The Fund may invest in certain Passive Foreign Investment Companies (PFICs) which may be subject to U.S. federal income tax on a portion of any "excess distribution" or gain (PFIC tax) related to the investment. This "excess distribution" will be allocated over the Fund's holding period for such investment. The PFIC tax is the highest ordinary income rate in effect for any period multiplied by the portion of the "excess distribution" allocated to such period, and it could be increased by an interest charge on the deemed tax deferral.
The Fund may possibly elect to include in its income its pro rata share of the ordinary earnings and net capital gain of PFICs. This election requires certain annual information from the PFICs which in many cases may be difficult to obtain. An alternative election would permit the Fund to recognize as income any appreciation (and to a limited extent, depreciation) on its holdings of PFICs as of the end of its fiscal year. See "Taxes" below.
The Fund may invest in other investment companies. Such investments will involve the payment of duplicative fees through the indirect payment of a portion of the expenses, including advisory fees, of such other investment companies.
EXCHANGE-TRADED FUNDS ("ETFS"). The Fund may invest in ETFs up to the maximum amount allowable under the 1940 Act. ETFs are shares of publicly-traded unit investment trusts, open-end funds, or depositary receipts that seek to track the performance and dividend yield of specific indexes or companies in related industries. These indexes may be either broad-based, sector or international.
ETF shareholders are generally subject to the same risks as holders of the underlying securities they are designed to track. ETFs are also subject to certain additional risks, including (1) the risk that their prices may not correlate perfectly with changes in the prices of the underlying securities they are designed to track; and (2) the risk of possible trading halts due to market conditions or other reasons, based on the policies of the exchange upon which an ETF trades. In addition, an exchange traded sector fund may be adversely affected by the performance of that specific sector or group of industries on which it is based.
The Fund would bear, along with other shareholders of an ETF, its pro rata portion of the ETF's expenses, including management fees. Accordingly, in addition to bearing their proportionate share of the Fund's expenses (i.e., management fees and operating expenses), shareholders of the Fund may also indirectly bear similar expenses of an ETF.
ZERO COUPON SECURITIES ("ZEROS")
The Fund may invest in Zeros, which are securities issued at a significant discount from face value and do not pay interest at intervals during the life of the security. Zeros include securities issued in certificates representing undivided interests in the interest or principal of mortgage-backed securities (interest only/principal only), which tend to be more volatile than other types of securities. The Fund will accrue and distribute income from stripped securities and certificates on a current basis and may have to sell securities to generate cash for distributions.
STEP COUPON BONDS ("STEPS")
The Fund may invest in debt securities, known as Steps, which pay interest at a series of different rates (including 0%) in accordance with a stated schedule for a series of periods. In addition to the risks associated with the credit rating of the issuers, these securities may be subject to more volatility risk than fixed rate debt securities.
TENDER OPTION BONDS
A tender option bond is a municipal security (generally held pursuant to a custodial arrangement) having a relatively long maturity and bearing interest at a fixed rate substantially higher than prevailing short-term tax-exempt rates, that has been coupled with the agreement of a third party, such as a bank, broker-dealer or other financial institution, pursuant to which such institution grants the security holders the option, at periodic intervals, to tender their securities to the institution and receive the face value thereof. As consideration for providing the option, the financial institution receives periodic fees equal to the difference between the municipal security's fixed coupon rate and the rate, as determined by a remarketing or similar agent at or near the commencement of such period, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term tax-exempt rate. The Advisor will consider on an ongoing basis the creditworthiness of the issuer of the underlying municipal securities, of any custodian, and of the third-party provider of the tender option. In certain instances and for certain tender option bonds, the option may be terminable in the event of a default in payment of principal or interest on the underlying municipal securities and for other reasons.
PAY-IN-KIND ("PIK") SECURITIES
The Fund may invest in securities which pay interest either in cash or additional securities. These securities are generally high yield securities and, in addition to the other risks associated with investing in high yield securities, are subject to the risks that the interest payments which consist of additional securities are also subject to the risks of high yield securities.
MONEY MARKET INSTRUMENTS
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their subdivisions, agencies and instrumentalities. SUPRANATIONAL OBLIGATIONS are issued by supranational entities and are generally designed to promote economic improvements. CERTIFICATES OF DEPOSIT are issued against deposits in a commercial bank with a defined return and maturity. BANKER'S ACCEPTANCES are used to finance the import, export or storage of goods and are "accepted" when guaranteed at maturity by a bank. COMMERCIAL PAPER is a promissory note issued by a business to finance short-term needs (including promissory notes with floating or variable interest rates, or including a frequent interval put feature). SHORT-TERM CORPORATE OBLIGATIONS are bonds and notes (with one year or less to maturity at the time of purchase) issued by businesses to finance long-term needs. PARTICIPATION INTERESTS include the underlying securities and any related guaranty, letter of credit, or collateralization arrangement in which the Fund would be allowed to invest directly.
CERTIFICATES OF DEPOSIT are short-term negotiable instruments issued against deposits in a commercial bank with a defined return and maturity. TIME DEPOSITS are non-negotiable deposits maintained in banking institutions for specified periods of time at stated interest rates.
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their subdivisions, agencies and instrumentalities. Examples of the types of obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities (hereinafter, "U.S. Government obligations") that may be held by the Funds include, without limitation, direct obligations of the U.S. Treasury, and securities issued or guaranteed by the Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association, Federal National Mortgage Association, General Services Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks, Resolution Trust Corporation and Maritime Administration.
U.S. Treasury securities differ only in their interest rates, maturities and time of issuance: Treasury Bills have initial maturities of one year or less; Treasury Notes have initial maturities of one to ten years; and Treasury Bonds generally have initial maturities of more than ten years. Obligations of certain agencies and instrumentalities of the U.S. Government, such as those of the Government National Mortgage Association, are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Federal Home Loan Banks, are supported by the right of the issuer to borrow from the Treasury; others, such as those of the Federal National Mortgage Association, are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; still others, such as those of the Federal Home Loan Mortgage Corporation, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government would provide financial support to U.S. Government-sponsored instrumentalities if it is not obligated to do so by law. Some of these instruments may be variable or floating rate instruments.
Securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities have historically involved relatively little risk of loss of principal. However, due to fluctuations in interest rates, the market value of such securities may vary during the period a shareholder owns shares of the Fund.
BANK OBLIGATIONS include bankers' acceptances, negotiable certificates of deposit, and non-negotiable time deposits issued for a definite period of time and earning a specified return by a U.S. bank which is a member of the Federal Reserve System or is insured by the Federal Deposit Insurance Corporation ("FDIC"), or by a savings and loan association or savings bank which is insured by the FDIC. Bank obligations also include U.S. dollar-denominated obligations of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of the same type as domestic bank obligations. Time deposits with a maturity longer than seven days or that do not provide for payment within seven days after notice will be subject to any limitations on illiquid securities described in Part 1 of this SAI. For purposes of each Fund's investment policies with respect to bank obligations, the assets of a bank or savings institution will be deemed to include the assets of its U.S. and foreign branches.
Domestic and foreign banks are subject to extensive but different government regulation which may limit the amount and types of their loans and the interest rates that may be charged. In addition, the profitability of the banking industry is largely dependent upon the availability and cost of funds to finance lending operations and the quality of underlying bank assets. Investments in obligations of foreign branches of U.S. banks and of U.S. branches of foreign banks may subject a Fund to additional risks, including future political and economic developments, the possible imposition of withholding taxes on interest income, possible seizure or nationalization of foreign deposits, the possible establishment of exchange controls, or the adoption of other foreign governmental restrictions which might adversely affect the payment of principal and interest on such obligations. In addition, foreign branches of U.S. banks and U.S. branches of foreign banks may be subject to less stringent reserve requirements and to different accounting, auditing, reporting, and recordkeeping standards than those applicable to domestic branches of U.S. banks.
SEPARATELY TRADED INTEREST AND PRINCIPAL SECURITIES ("STRIPS") are component parts of U.S. Treasury Securities traded through the Federal Reserve Book-Entry System. While there is no limitation on the percentage of a Fund's assets that may be invested in STRIPS, the Advisor will monitor the level of such holdings to avoid the risk of impairing shareholders' redemption rights. The interest-only component of STRIPS is extremely sensitive to the rate of principal payments on the underlying obligation. The market value of the principal-only component is usually volatile in response to changes in interest rates.
In U.S. TREASURY ROLLS, a Fund sells outstanding U.S. Treasury securities and buys back on a delayed settlement basis the same U.S. Treasury securities. During the period prior to the delayed settlement date, the assets from the sale of the U.S. Treasury securities are invested in certain cash equivalent instruments. U.S. Treasury rolls entail the risk that the Fund could suffer an opportunity loss if the counterparty to the roll failed to perform its obligations on the settlement date, and if market conditions changed adversely. The Funds intend to enter into U.S. Treasury rolls only with U.S. Government securities dealers recognized by the Federal Reserve Bank or with member banks of the Federal Reserve System. The Funds will hold and maintain in a
segregated account until the settlement date cash or other liquid assets in an amount equal to the forward purchase price. For financial reporting and tax purposes, the Funds propose to treat U.S. Treasury rolls as two separate transactions, one involving the purchase of a security and a separate transaction involving a sale.
COMMERCIAL PAPER is an unsecured short-term promissory note issued by businesses to finance short-term needs (including those with floating or variable interest rates, or including a frequent interval put feature). Commercial paper may include variable and floating rate instruments which are unsecured instruments that permit the indebtedness thereunder to vary. Variable rate instruments provide for periodic adjustments in the interest rate. Floating rate instruments provide for automatic adjustment of the interest rate whenever some other specified interest rate changes. Some variable and floating rate obligations are direct lending arrangements between the purchaser and the issuer and there may be no active secondary market. However, in the case of variable and floating rate obligations with a demand feature, a Fund may demand payment of principal and accrued interest at a time specified in the instrument or may resell the instrument to a third party. In the event that an issuer of a variable or floating rate obligation were to default on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and could, for this or other reasons, suffer a loss to the extent of the default.
Commercial paper may include securities issued by corporations without registration under the 1933 Act in reliance on the so-called "private placement" exemption in Section 4(2) ("Section 4(2) Paper"). Section 4(2) Paper is restricted as to disposition under the federal securities laws in that any resale must similarly be made in an exempt transaction. Section 4(2) Paper is normally resold to other institutional investors through or with the assistance of investment dealers who make a market in Section 4(2) Paper, thus providing liquidity. For purposes of each Fund's limitation on purchases of illiquid instruments described below, Section 4(2) Paper will not be considered illiquid if the Advisor has determined, in accordance with guidelines approved by the Board of Trustees, that an adequate trading market exists for such securities.
STRIPPED OBLIGATIONS
To the extent consistent with their investment objective, Funds may purchase U.S. Treasury receipts and other "stripped" securities that evidence ownership in either the future interest payments or the future principal payments on U.S. Government and other obligations. These participations, which may be issued by the U.S. Government or by private issuers, such as banks and other institutions, are issued at their "face value," and may include stripped mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage securities. Stripped securities, particularly SMBS, may exhibit greater price volatility than ordinary debt securities because of the manner in which their principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive different proportions of the interest and principal distributions from a pool of mortgage-backed obligations. A common type of SMBS will have one class receiving all of the interest, while the other class will receive all of the principal. However, in some instances, one class will receive some of the interest and most of the principal while the other class will receive most of the interest and the remainder of the principal. If the underlying obligations experience greater than anticipated prepayments of principal, the Fund may fail to fully recoup its initial investment in these securities. The market value of the class consisting entirely of principal payments generally is extremely volatile in response to changes in interest rates. The yields on a class of SMBS that receives all or most of the interest are generally higher than prevailing market yields on other mortgage-backed obligations because their cash flow patterns are more volatile and there is a greater risk that the initial investment will not be fully recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government agency or instrumentality) are considered illiquid by the Funds. Obligations issued by the U.S. Government may be considered liquid under guidelines established by Funds' Board of Trustees if they can be disposed of promptly in the ordinary course of business at a value reasonably close to that used in the calculation of net asset value per share.
MUNICIPAL SECURITIES
Municipal Securities acquired by the Funds include debt obligations issued by governmental entities to obtain funds for various public purposes, including the construction of a wide range of public facilities, the refunding of outstanding obligations, the payment of general operating expenses, and the extension of loans to public institutions and facilities. Private activity bonds that are issued by or on behalf of public authorities to finance various privately operated facilities are "Municipal Securities" if the interest paid thereon is exempt from regular federal income tax and not treated as a specific tax preference item under the federal alternative minimum tax.
The two principal classifications of Municipal Securities which may be held by the Funds are "general obligation" securities and "revenue" securities. General obligation securities are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue securities are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific revenue source such as the user of the facility being financed.
The Fund's portfolio may also include "moral obligation" securities, which are normally issued by special purpose public authorities. If the issuer of moral obligation securities is unable to meet its debt service obligations from current revenues, it may draw on a reserve fund, the restoration of which is a moral commitment but not a legal obligation of the state or municipality which created the issuer. There is no limitation on the amount of moral obligation securities that may be held by the Funds.
There are, of course, variations in the quality of Municipal Securities, both within a particular category and between categories, and the yields on Municipal Securities depend upon a variety of factors, including general market conditions, the financial condition of the issuer, general conditions of the municipal bond market, the size of a particular offering, the maturity of the obligation, and the rating of the issue. The ratings of a nationally recognized statistical rating organization ("NRSRO"), such as Moody's and S&P, represent such NRSRO's opinion as to the quality of Municipal Securities. It should be emphasized that these ratings are general and are not absolute standards of quality. Municipal Securities with the same maturity, interest rate and rating may have different yields. Municipal Securities of the same maturity and interest rate with different ratings may have the same yield.
Municipal Securities may include rated and unrated variable and floating rate tax-exempt instruments, such as variable rate demand notes. Variable rate demand notes are long-term Municipal Securities that have variable or floating interest rates and provide a Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on an applicable interest index or another published interest rate or interest rate index. Most variable rate demand notes allow a Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit a Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. Variable interest rates generally reduce changes in the market value of Municipal Securities from their original purchase prices. Accordingly, as interest rates decrease, the potential for capital appreciation is less for variable rate Municipal Securities than for fixed income obligations. The terms of these variable rate demand instruments require payment of principal and accrued interest from the issuer of the Municipal Securities, the issuer of the participation interest or a guarantor of either issuer.
Municipal Securities purchased by the Funds in some cases may be insured as to the timely payment of principal and interest. There is no guarantee, however, that the insurer will meet its obligations in the event of a default in payment by the issuer. In other cases, Municipal Securities may be backed by letters of credit or guarantees issued by domestic or foreign banks or other financial institutions which are not subject to federal deposit insurance. Adverse developments affecting the banking industry generally or a particular bank or financial institution that has provided its credit or guarantee with respect to a Municipal Security held by a Fund, including a change in the credit quality of any such bank or financial institution, could result in a loss to the Fund and adversely affect the value of its shares. Letters of credit and guarantees issued by foreign banks and financial institutions involve certain risks in addition to those of similar instruments issued by domestic banks and financial institutions.
The payment of principal and interest on most Municipal Securities purchased by the Funds will depend upon the ability of the issuers to meet their obligations. Each state, the District of Columbia, each of their political subdivisions, agencies, instrumentalities and authorities and each multi-state agency of which a state is a member is a separate "issuer" as that term is used in this SAI and the Prospectuses. The non-governmental user of facilities financed by private activity bonds is also considered to be an "issuer." An issuer's obligations under its Municipal Securities are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Code and laws, if any, which may be enacted by federal or state legislatures extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations or upon the ability of municipalities to levy taxes. The power or ability of an issuer to meet its obligations for the payment of interest on and principal of its Municipal Securities may be materially adversely affected by litigation or other conditions.
From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax exemption for interest on Municipal Securities. For example, under the Tax Reform Act of 1986, interest on certain
private activity bonds must be included in an investor's federal alternative minimum taxable income, and corporate investors must include all tax-exempt interest in their federal alternative minimum taxable income. The Funds cannot, of course, predict what legislation may be proposed in the future regarding the income tax status of interest on Municipal Securities, or which proposals, if any, might be enacted. Such proposals, while pending or if enacted, might materially and adversely affect the availability of Municipal Securities for investment by the Funds and the liquidity and value of their respective portfolios. In such an event, each Fund would re-evaluate its investment objective and policies and consider possible changes in its structure or possible dissolution.
Opinions relating to the validity of Municipal Securities and to the exemption of interest thereon from federal income tax are rendered by bond counsel to the respective issuers at the time of issuance. Neither the Funds nor the Advisor will review the proceedings relating to the issuance of Municipal Securities or the bases for such opinions.
PRIVATE ACTIVITY BONDS
The Funds may invest in "private activity bonds," the interest on which, although exempt from regular federal income tax, may constitute an item of tax preference for purposes of the federal alternative minimum tax. Private activity bonds are or have been issued to obtain funds to provide, among other things, privately operated housing facilities, pollution control facilities, convention or trade show facilities, mass transit, airport, port or parking facilities and certain local facilities for water supply, gas, electricity or sewage or solid waste disposal. Private activity bonds are also issued to privately held or publicly owned corporations in the financing of commercial or industrial facilities. State and local governments are authorized in most states to issue private activity bonds for such purposes in order to encourage corporations to locate within their communities. The principal and interest on these obligations may be payable from the general revenues of the users of such facilities.
Private activity bonds held by the Funds are in most cases revenue securities and are not payable from the unrestricted revenues of the issuer. Consequently, the credit quality of such private activity bonds is usually directly related to the credit standing of the corporate user of the facility involved.
MUNICIPAL LEASE OBLIGATIONS
Although a municipal lease obligation does not constitute a general obligation of the municipality for which the municipality's taxing power is pledged, a municipal lease obligation is ordinarily backed by the municipality's covenant to budget for, appropriate and make the payments due under the municipal lease obligation. However, certain lease obligations contain "non-appropriation" clauses which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. Although "non-appropriation" lease obligations are secured by the leased property, disposition of the property in the event of foreclosure might prove difficult. In addition, the tax treatment of such obligations in the event of non-appropriation is unclear.
Determinations concerning the liquidity and appropriate valuation of a municipal lease obligation, as with any other municipal security, are made based on all relevant factors. These factors include, among others: (1) the frequency of trades and quotes for the obligation; (2) the number of dealers willing to purchase or sell the security and the number of other potential buyers; (3) the willingness of dealers to undertake to make a market in the security; and (4) the nature of the marketplace trades, including the time needed to dispose of the security, the method of soliciting offers, and the mechanics of the transfer.
SECURITIES LOANS
The Fund may make secured loans of its portfolio securities amounting to not more than the percentage of its total assets specified in Part 1 of this SAI, thereby realizing additional income. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delay in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. As a matter of policy, securities loans are made to banks and broker-dealers pursuant to agreements requiring that loans be continuously secured by collateral in cash or short-term debt obligations at least equal at all times to the value of the securities on loan. The borrower pays to the Fund an amount equal to any dividends or interest received on securities lent. The Fund retains all or a portion of the interest received on investment of the cash collateral or receives a fee from the borrower. Although voting rights, or rights to consent, with respect to the loaned securities pass to the borrower, the Fund retains the right to call the loans at any time on reasonable notice, and it will do so in order that the securities may be voted by
the Fund if the holders of such securities are asked to vote upon or consent to matters materially affecting the investment. The Fund may also call such loans in order to sell the securities involved.
INTERFUND BORROWING AND LENDING
The Fund may lend money to and borrow money from other affiliated registered open-end investment companies. The Fund may borrow through the program when the Advisor believes borrowing is appropriate and the costs are equal to or lower than the costs of bank loans. When borrowing money, the Fund is subject to the risk that the securities the Fund acquires with the borrowed money or would otherwise have sold will decline in value. When lending money, the Fund is subject to the risk that the borrower will be unwilling or unable to make timely payments of interest or principal.
FORWARD COMMITMENTS ("WHEN-ISSUED" AND "DELAYED DELIVERY" SECURITIES)
The Fund may enter into contracts to purchase securities for a fixed price at a future date beyond customary settlement time ("forward commitments" and "when-issued securities") if the Fund holds until the settlement date, in a segregated account, cash or liquid securities in an amount sufficient to meet the purchase price, or if the Fund enters into offsetting contracts for the forward sale of other securities it owns. Forward commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date. Where such purchases are made through dealers, the Fund relies on the dealer to consummate the sale. The dealer's failure to do so may result in the loss to the Fund of an advantageous yield or price. Although the Fund will generally enter into forward commitments with the intention of acquiring securities for its portfolio or for delivery pursuant to options contracts it has entered into, the Fund may dispose of a commitment prior to settlement if the Advisor deems it appropriate to do so. The Fund may realize short-term profits or losses (generally taxed at ordinary income tax rates in the hands of the shareholders) upon the sale of forward commitments.
MORTGAGE DOLLAR ROLLS
In a mortgage dollar roll, the Fund sells a mortgage-backed security and simultaneously enters into a commitment to purchase a similar security at a later date. The Fund either will be paid a fee by the counterparty upon entering into the transaction or will be entitled to purchase the similar security at a discount. As with any forward commitment, mortgage dollar rolls involve the risk that the counterparty will fail to deliver the new security on the settlement date, which may deprive the Fund of obtaining a beneficial investment. In addition, the security to be delivered in the future may turn out to be inferior to the security sold upon entering into the transaction. In addition, the transaction costs may exceed the return earned by the Fund from the transaction.
REITS
The Funds may invest in real estate investment trusts ("REITs"). Equity REITs invest directly in real property while mortgage REITs invest in mortgages on real property. REITs may be subject to certain risks associated with the direct ownership of real estate, including declines in the value of real estate, risks related to general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, and variations in rental income. Generally, increases in interest rates will decrease the value of high yielding securities and increase the costs of obtaining financing, which could decrease the value of a REIT's investments. In addition, equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of credit extended. Equity and mortgage REITs are dependent upon management skill, are not diversified and are subject to the risks of financing projects. REITs are also subject to heavy cash flow dependency, defaults by borrowers, self liquidation and the possibility of failing to qualify for tax-free pass-through of income under the Internal Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from the 1940 Act. REITs pay dividends to their shareholders based upon available funds from operations. It is quite common for these dividends to exceed a REIT's taxable earnings and profits resulting in the excess portion of such dividends being designated as a return of capital. The Funds intend to include the gross dividends from any investments in REITs in their periodic distributions to its shareholders and, accordingly, a portion of the Fund's distributions may also be designated as a return of capital.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities, including "collateralized mortgage obligations" (CMOs) and "real estate mortgage investment conduits" (REMICs), evidence ownership in a pool of mortgage loans made by certain financial institutions that may be insured or guaranteed by the U.S. government or its agencies. CMOs are obligations issued by special-purpose trusts, secured by
mortgages. REMICs are entities that own mortgages and elect REMIC status under the Internal Revenue Code. Both CMOs and REMICs issue one or more classes of securities of which one (the Residual) is in the nature of equity. The Funds will not invest in the Residual class. Principal on mortgage-backed securities, CMOs and REMICs may be prepaid if the underlying mortgages are prepaid. Prepayment rates for mortgage-backed securities tend to increase as interest rates decline (effectively shortening the security's life) and decrease as interest rates rise (effectively lengthening the security's life). Because of the prepayment feature, these securities may not increase in value as much as other debt securities when interest rates fall. A Fund may be able to invest prepaid principal only at lower yields. The prepayment of such securities purchased at a premium may result in losses equal to the premium.
NON-AGENCY MORTGAGE-BACKED SECURITIES
The Fund may invest in non-investment grade mortgage-backed securities that are not guaranteed by the U.S. government or an agency. Such securities are subject to the risks described under "Lower Rated Debt Securities" and "Mortgage-Backed Securities." In addition, although the underlying mortgages provide collateral for the security, the Fund may experience losses, costs and delays in enforcing its rights if the issuer defaults or enters bankruptcy.
ASSET-BACKED SECURITIES
Asset-backed securities are interests in pools of debt securities backed by various types of loans such as credit card, auto and home equity loans. These securities involve prepayment risk, which is the possibility that the underlying debt may be refinanced or prepaid prior to maturity during periods of declining interest rates. During periods of rising interest rates, asset-backed securities have a high risk of declining in price because the declining prepayment rates effectively lengthen the expected maturity of the securities. A decline in interest rates may lead to a faster rate of repayment on asset-backed securities and, therefore, cause a Fund to earn a lower interest rate on reinvestment. In addition, the potential impact of prepayment on the price of an asset-backed security may be difficult to predict and result in greater volatility.
CUSTODY RECEIPTS AND TRUST CERTIFICATES
Custody receipts, such as Morgan Stanley TRACERs (Traded Custody Receipts), and trust certificates, such as Lehman Brothers TRAINs (Targeted Return Index Securities Trust), are derivative products which, in the aggregate, evidence direct ownership in a pool of securities. Typically, a sponsor will deposit a pool of securities with a custodian in exchange for custody receipts evidencing those securities or with a trust in exchange for trust certificates evidencing interests in the trust, the principal asset of which is those securities. The sponsor will then generally sell those custody receipts or trust certificates in negotiated transactions at varying prices that are determined at the time of sale. Each custody receipt or trust certificate evidences the individual securities in the pool and the holder of a custody receipt or trust certificate generally will have all the rights and privileges of owners of those securities. Each holder of a custody receipt or trust certificate generally will be treated as directly purchasing its pro rata share of the securities in the pool for an amount equal to the amount that such holder paid for its custody receipt or trust certificate. If a custody receipt or trust certificate is sold, a holder will be treated as having directly "disposed of its pro rata share of the securities evidenced by the custody receipt or trust certificate. Additionally, the holder of a custody receipt or trust certificate may withdraw the securities represented by the custody receipt or trust certificate subject to certain conditions. Custody receipts and trust certificates are generally subject to the same risks as those securities evidenced by the receipts or certificates which, in the case of the Fund, are corporate debt securities. Additionally, custody receipts and trust certificates may also be less liquid than the underlying securities if the sponsor fails to maintain a trading market.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. A repurchase agreement is a contract under which the Fund acquires a security for a relatively short period subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price (representing the Fund's cost plus interest). It is the Fund's present intention to enter into repurchase agreements only with commercial banks and registered broker-dealers and only with respect to obligations of the U.S. government or its agencies or instrumentalities. Repurchase agreements may also be viewed as loans made by the Fund which are collateralized by the securities subject to repurchase. The Advisor will monitor such transactions to determine that the value of the underlying securities is at least equal at all times to the total amount of the repurchase obligation, including the interest factor. If the seller defaults, the Fund could realize a loss on the sale of the underlying security to the extent that the proceeds of sale including accrued interest are less than the resale price provided in the agreement including interest. In addition,
if the seller should be involved in bankruptcy or insolvency proceedings, the Fund may incur delay and costs in selling the underlying security or may suffer a loss of principal and interest if the Fund is treated as an unsecured creditor and required to return the underlying collateral to the seller's estate.
REVERSE REPURCHASE AGREEMENTS
In a reverse repurchase agreement, the Fund sells a security and agrees to repurchase the same security at a mutually agreed upon date and price. A reverse repurchase agreement may also be viewed as the borrowing of money by the Fund and, therefore, as a form of leverage. The Fund will invest the proceeds of borrowings under reverse repurchase agreements. In addition, the Fund will enter into a reverse repurchase agreement only when the interest income expected to be earned from the investment of the proceeds is greater than the interest expense of the transaction. The Fund will not invest the proceeds of a reverse repurchase agreement for a period which exceeds the duration of the reverse repurchase agreement. The Fund may not enter into reverse repurchase agreements exceeding in the aggregate one-third of the market value of its total assets, less liabilities other than the obligations created by reverse repurchase agreements. Each Fund will establish and maintain with its custodian a separate account with a segregated portfolio of securities in an amount at least equal to its purchase obligations under its reverse repurchase agreements. If interest rates rise during the term of a reverse repurchase agreement, entering into the reverse repurchase agreement may have a negative impact on a money market fund's ability to maintain a net asset value of $1.00 per share.
LINE OF CREDIT
The Fund may establish and maintain a line of credit with a major bank in order to permit borrowing on a temporary basis to meet share redemption requests in circumstances in which temporary borrowings may be preferable to liquidation of portfolio securities.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The Fund may write covered call options and covered put options on securities held in its portfolio when, in the opinion of the Advisor, such transactions are consistent with the Fund's investment goal and policies. Call options written by the Fund give the purchaser the right to buy the underlying securities from the Fund at a stated exercise price; put options give the purchaser the right to sell the underlying securities to the Fund at a stated price.
The Fund may write only covered options, which means that, so long as the Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option (or comparable securities satisfying the cover requirements of securities exchanges). In the case of put options, the Fund will hold cash and/or high-grade short-term debt obligations equal to the price to be paid if the option is exercised. In addition, the Fund will be considered to have covered a put or call option if and to the extent that it holds an option that offsets some or all of the risk of the option it has written. The Fund may write combinations of covered puts and calls on the same underlying security.
The Fund will receive a premium from writing a put or call option, which increases the Fund's return on the underlying security if the option expires unexercised or is closed out at a profit. The amount of the premium reflects, among other things, the relationship between the exercise price and the current market value of the underlying security, the volatility of the underlying security, the amount of time remaining until expiration, current interest rates, and the effect of supply and demand in the options market and in the market for the underlying security. By writing a call option, the Fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option but continues to bear the risk of a decline in the value of the underlying security. By writing a put option, the Fund assumes the risk that it may be required to purchase the underlying security for an exercise price higher than its then-current market value, resulting in a potential capital loss unless the security subsequently appreciates in value.
The Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an offsetting option. The Fund realizes a profit or loss from a closing transaction if the cost of the transaction (option premium plus transaction costs) is less or more than the premium received from writing the option. Because increases in the market price of a call option generally reflect increases in the market price of the security underlying the option, any loss resulting from a closing purchase transaction may be offset in whole or in part by unrealized appreciation of the underlying security.
If the Fund writes a call option but does not own the underlying security, and when it writes a put option, the Fund may be required to deposit cash or securities with its broker as "margin" or collateral for its obligation to buy or sell the underlying security. As the value of the underlying security varies, the Fund may have to deposit additional margin with the broker. Margin requirements are complex and are fixed by individual brokers, subject to minimum requirements currently imposed by the Federal Reserve Board and by stock exchanges and other self-regulatory organizations.
PURCHASING PUT OPTIONS. The Fund may purchase put options to protect its portfolio holdings in an underlying security against a decline in market value. Such hedge protection is provided during the life of the put option since the Fund, as holder of the put option, is able to sell the underlying security at the put exercise price regardless of any decline in the underlying security's market price. For a put option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs. By using put options in this manner, the Fund will reduce any profit it might otherwise have realized from appreciation of the underlying security by the premium paid for the put option and by transaction costs.
PURCHASING CALL OPTIONS. The Fund may purchase call options to hedge against an increase in the price of securities that the Fund wants ultimately to buy. Such hedge protection is provided during the life of the call option since the Fund, as holder of the call option, is able to buy the underlying security at the exercise price regardless of any increase in the underlying security's market price. In order for a call option to be profitable, the market price of the underlying security must rise sufficiently above the exercise price to cover the premium and transaction costs. These costs will reduce any profit the Fund might have realized had it bought the underlying security at the time it purchased the call option.
OVER-THE-COUNTER ("OTC") OPTIONS. The Staff of the Division of Investment Management of the Securities and Exchange Commission (SEC) has taken the position that OTC options purchased by the Fund and assets held to cover OTC options written by the Fund are illiquid securities. Although the Staff has indicated that it is continuing to evaluate this issue, pending further developments, the Fund intends to enter into OTC options transactions only with primary dealers in U.S. government securities and, in the case of OTC options written by the Fund, only pursuant to agreements that will assure that the Fund will at all times have the right to repurchase the option written by it from the dealer at a specified formula price. The Fund will treat the amount by which such formula price exceeds the amount, if any, by which the option may be "in-the-money" as an illiquid investment. It is the present policy of the Fund not to enter into any OTC option transaction if, as a result, more than 15% (10% in some cases, refer to your Fund's Prospectus) of the Fund's net assets would be invested in (i) illiquid investments (determined under the foregoing formula) relating to OTC options written by the Fund, (ii) OTC options purchased by the Fund, (iii) securities which are not readily marketable, and (iv) repurchase agreements maturing in more than seven days.
RISK FACTORS IN OPTIONS TRANSACTIONS. The successful use of the Fund's options strategies depends on the ability of the Advisor to forecast interest rate and market movements correctly.
When it purchases an option, the Fund runs the risk that it will lose its entire investment in the option in a relatively short period of time, unless the Fund exercises the option or enters into a closing sale transaction with respect to the option during the life of the option. If the price of the underlying security does not rise (in the case of a call) or fall (in the case of a put) to an extent sufficient to cover the option premium and transaction costs, the Fund will lose part or all of its investment in the option. This contrasts with an investment by the Fund in the underlying securities, since the Fund may continue to hold its investment in those securities notwithstanding the lack of a change in price of those securities.
The effective use of options also depends on the Fund's ability to terminate option positions at times when the Advisor deems it desirable to do so. Although the Fund will take an option position only if the Advisor believes there is a liquid secondary market for the option, there is no assurance that the Fund will be able to effect closing transactions at any particular time or at an acceptable price.
If a secondary trading market in options were to become unavailable, the Fund could no longer engage in closing transactions. Lack of investor interest might adversely affect the liquidity of the market for particular options or series of options. A marketplace may discontinue trading of a particular option or options generally. In addition, a market could become temporarily unavailable if unusual events - such as volume in excess of trading or clearing capability - were to interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on particular types of option transactions, which may limit the Fund's ability to realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options purchased or sold by the Fund could result in losses on the options. If trading is interrupted in an underlying security, the trading of options on that security is normally halted as well. As a result, the Fund as purchaser or writer of an option will be unable to close out its positions until options trading resumes, and it may be faced with losses if trading in the security reopens at a substantially different price. In addition, the Options Clearing Corporation (OCC) or other options markets may impose exercise restrictions. If a prohibition on exercise is imposed at the time when trading in the option has also been halted, the Fund as purchaser or writer of an option will be locked into its position until one of the two restrictions has been lifted. If a prohibition on exercise remains in effect until an option owned by the Fund has expired, the Fund could lose the entire value of its option.
Special risks are presented by internationally traded options. Because of time differences between the United States and various foreign countries, and because different holidays are observed in different countries, foreign options markets may be open for trading during hours or on days when U.S. markets are closed. As a result, option premiums may not reflect the current prices of the underlying interest in the United States.
FUTURES CONTRACTS AND RELATED OPTIONS
Upon entering into futures contracts, in compliance with the SEC's requirements, cash or liquid securities, equal in value to the amount of the Fund's obligation under the contract (less any applicable margin deposits and any assets that constitute "cover" for such obligation), will be segregated with the Fund's custodian.
A futures contract sale creates an obligation by the seller to deliver the type of instrument called for in the contract in a specified delivery month for a stated price. A futures contract purchase creates an obligation by the purchaser to take delivery of the type of instrument called for in the contract in a specified delivery month at a stated price. The specific instruments delivered or taken at the settlement date are not determined until on or near that date. The determination is made in accordance with the rules of the exchanges on which the futures contract was made. The Fund may enter into futures contracts which are traded on national or foreign futures exchanges and are standardized as to maturity date and underlying financial instrument. Futures exchanges and trading in the United States are regulated under the Commodity Exchange Act by the Commodity Futures Trading Commission (CFTC).
Although futures contracts by their terms call for actual delivery or acceptance of commodities or securities, the contracts usually are closed out before the settlement date without the making or taking of delivery. Closing out a futures contract sale is effected by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument or commodity with the same delivery date. If the price of the initial sale of the futures contract exceeds the price of the offsetting purchase, the seller is paid the difference and realizes a gain. Conversely, if the price of the offsetting purchase exceeds the price of the initial sale, the seller realizes a loss. Similarly, the closing out of a futures contract purchase is effected by the purchaser's entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, the purchaser realizes a gain, and if the purchase price exceeds the offsetting sale price, the purchaser realizes a loss.
Unlike when the Fund purchases or sells a security, no price is paid or received by the Fund upon the purchase or sale of a futures contract, although the Fund is required to deposit with its custodian in a segregated account in the name of the futures broker an amount of cash and/or U.S. government securities. This amount is known as "initial margin." The nature of initial margin in futures transactions is different from that of margin in security transactions in that futures contract margin does not involve the borrowing of funds by the Fund to finance the transactions. Rather, initial margin is in the nature of a performance bond or good faith deposit on the contract that is returned to the Fund upon termination of the futures contract, assuming all contractual obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin," to and from the broker (or the custodian) are made on a daily basis as the price of the underlying security or commodity fluctuates, making the long and short positions in the futures contract more or less valuable, a process known as "marking to market."
The Fund may elect to close some or all of its futures positions at any time prior to their expiration. The purpose of making such a move would be to reduce or eliminate the hedge position then currently held by the Fund. The Fund may close its positions by taking opposite positions which will operate to terminate the Fund's position in the futures contracts. Final determinations of variation margin are then made, additional cash is required to be paid by or released to the Fund, and the Fund realizes a loss or a gain. Such closing transactions involve additional commission costs.
INTEREST RATE FUTURES CONTRACTS. Bond prices are established in both the cash market and the futures market. In the cash market, bonds are purchased and sold with payment for the full purchase price of the bond being made in cash, generally within five business days after the trade. In the futures market, only a contract is made to purchase or sell a bond in the future for a set price on a certain date. Historically, the prices for bonds established in the futures markets have tended to move generally in the aggregate in concert with the cash market prices and have maintained fairly predictable relationships. Accordingly, the Funds may use interest rate futures contracts as a defense, or hedge, against anticipated interest rate changes. The Funds presently could accomplish a similar result to that which they hope to achieve through the use of futures contracts by selling bonds with long maturities and investing in bonds with short maturities when interest rates are expected to increase, or conversely, selling short-term bonds and investing in long-term bonds when interest rates are expected to decline. However, because of the liquidity that is often available in the futures market, the protection is more likely to be achieved, perhaps at a lower cost and without changing the rate of interest being earned by the Funds, through using futures contracts.
Interest rate futures contracts are traded in an auction environment on the floors of several exchanges - principally, the Chicago Board of Trade, the Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would deal only in standardized contracts on recognized exchanges. Each exchange guarantees performance under contract provisions through a clearing corporation, a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial instruments including long-term United States Treasury Bonds and Notes; Government National Mortgage Association (GNMA) modified pass-through mortgage backed securities; three-month United States Treasury Bills; and ninety-day commercial paper. The Funds may trade in any interest rate futures contracts for which there exists a public market, including, without limitation, the foregoing instruments.
MUNICIPAL BOND INDEX FUTURES CONTRACTS. Municipal bond index futures contracts may act as a hedge against changes in market conditions. A municipal bond index assigns values daily to the municipal bonds included in the index based on the independent assessment of dealer-to-dealer municipal bond brokers. A municipal bond index futures contract represents a firm commitment by which two parties agree to take or make delivery of an amount equal to a specified dollar amount multiplied by the difference between the municipal bond index value on the last trading date of the contract and the price at which the futures contract is originally struck. No physical delivery of the underlying securities in the index is made.
The Chicago Board of Trade has designed a futures contract based on the Bond Buyer Municipal Bond Index. This Index is composed of 40 term revenue and general obligation bonds, and its composition is updated regularly as new bonds meeting the criteria of the Index are issued and existing bonds mature. The Index is intended to provide an accurate indicator of trends and changes in the municipal bond market. Each bond in the Index is independently priced by six dealer-to-dealer municipal bond brokers daily. The 40 prices then are averaged and multiplied by a coefficient. The coefficient is used to maintain the continuity of the Index when its composition changes. The Chicago Board of Trade, on which futures contracts based on this Index are traded, as well as other U.S. commodities exchanges, are regulated by the CFTC. Transactions on such exchange are cleared through a clearing corporation, which guarantees the performance of the parties to each contract.
OPTIONS ON FUTURES CONTRACTS. The Fund will enter into written options on futures contracts only when, in compliance with the SEC's requirements, cash or liquid securities equal in value to the commodity value (less any applicable margin deposits) have been deposited in a segregated account. The Fund may purchase and write call and put options on futures contracts it may buy or sell and enter into closing transactions with respect to such options to terminate existing positions. The Fund may use such options on futures contracts in lieu of writing options directly on the underlying securities or purchasing and selling the underlying futures contracts. Such options generally operate in the same manner as options purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate his position by selling or purchasing an offsetting option. There is no guarantee that such closing transactions can be effected.
The Fund will be required to deposit initial margin and maintenance margin with respect to put and call options on futures contracts written by it pursuant to brokers' requirements similar to those described above.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use of futures contracts by the Fund is subject to the Advisor's ability to predict correctly, movements in the direction of interest rates and other factors affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or put options on futures contracts involves less potential risk to the Fund because the maximum amount at risk is the premium paid for the options (plus transaction costs). However, there may be circumstances when the purchase of a call or put option on a futures contract would result in a loss to the Fund when the purchase or sale of a futures contract would not, such as when there is no movement in the prices of the hedged investments. The writing of an option on a futures contract involves risks similar to those risks relating to the sale of futures contracts.
There is no assurance that higher than anticipated trading activity or other unforeseen events might not, at times, render certain market clearing facilities inadequate, and thereby result in the institution, by exchanges, of special procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the Fund, the Fund may seek to close out a position. The ability to establish and close out positions will be subject to the development and maintenance of a liquid secondary market. It is not certain that this market will develop or continue to exist for a particular futures contract. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain contracts or options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of contracts or options, or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or a clearing corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of contracts or options (or a particular class or series of contracts or options), in which event the secondary market on that exchange (or in the class or series of contracts or options) would cease to exist, although outstanding contracts or options on the exchange that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms.
USE BY TAX-EXEMPT FUNDS OF INTEREST RATE AND U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. The Funds investing in tax-exempt securities may purchase and sell futures contracts and related options on interest rate and U.S. Treasury securities when, in the opinion of the Advisor, price movements in these security futures and related options will correlate closely with price movements in the tax-exempt securities which are the subject of the hedge. Interest rate and U.S. Treasury securities futures contracts require the seller to deliver, or the purchaser to take delivery of, the type of security called for in the contract at a specified date and price. Options on interest rate and U.S. Treasury security futures contracts give the purchaser the right in return for the premium paid to assume a position in a futures contract at the specified option exercise price at any time during the period of the option.
In addition to the risks generally involved in using futures contracts, there is also a risk that price movements in interest rate and U.S. Treasury security futures contracts and related options will not correlate closely with price movements in markets for tax-exempt securities.
INDEX FUTURES CONTRACTS. An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of an index is commonly referred to as buying or purchasing a contract or holding a long position in the index. Entering into a contract to sell units of an index is commonly referred to as selling a contract or holding a short position. A unit is the current value of the index. The Fund may enter into stock index futures contracts, debt index futures contracts, or other index futures contracts appropriate to its objective(s). The Fund may also purchase and sell options on index futures contracts.
There are several risks in connection with the use by the Fund of index futures as a hedging device. One risk arises because of the imperfect correlation between movements in the prices of the index futures and movements in the prices of securities which are the subject of the hedge. The Advisor will attempt to reduce this risk by selling, to the extent possible, futures on indices the movements of which will, in its judgment, have a significant correlation with movements in the prices of the Fund's portfolio securities sought to be hedged.
Successful use of index futures by the Fund for hedging purposes is also subject to the Advisor's ability to predict correctly movements in the direction of the market. It is possible that, where the Fund has sold futures to hedge its portfolio against a decline in the market, the index on which the futures are written may advance and the value of securities held in the Fund's portfolio may decline. If this occurs, the Fund would lose money on the futures and also experience a decline in the value of its portfolio securities. However, while this could occur to a certain degree, the Advisor believes that over time the value of the
Fund's portfolio will tend to move in the same direction as the market indices which are intended to correlate to the price movements of the portfolio securities sought to be hedged. It is also possible that, if the Fund has hedged against the possibility of a decline in the market adversely affecting securities held in its portfolio and securities prices increase instead, the Fund will lose part or all of the benefit of the increased values of those securities that it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient cash, it may have to sell securities to meet daily variation margin requirements.
In addition to the possibility that there may be an imperfect correlation, or no correlation at all, between movements in the index futures and the securities of the portfolio being hedged, the prices of index futures may not correlate perfectly with movements in the underlying index due to certain market distortions. First, all participants in the futures markets are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions which would distort the normal relationship between the index and futures markets. Second, margin requirements in the futures market are less onerous than margin requirements in the securities market, and as a result, the futures market may attract more speculators than the securities market. Increased participation by speculators in the futures market may also cause temporary price distortions. Due to the possibility of price distortions in the futures market and also because of the imperfect correlation between movements in the index and movements in the prices of index futures, even a correct forecast of general market trends by the Advisor may still not result in a successful hedging transaction.
OPTIONS ON INDEX FUTURES. Options on index futures are similar to options on securities except that options on index futures give the purchaser the right, in return for the premium paid, to assume a position in an index futures contract (a long position if the option is a call and a short position if the option is a put), at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's futures margin account which represents the amount by which the market price of the index futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the index future. If an option is exercised on the last trading day prior to the expiration date of the option, the settlement will be made entirely in cash equal to the difference between the exercise price of the option and the closing level of the index on which the future is based on the expiration date. Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss of the premium paid.
OPTIONS ON INDICES. As an alternative to purchasing call and put options on index futures, the Fund may purchase call and put options on the underlying indices themselves. Such options could be used in a manner identical to the use of options on index futures. Options involving securities indices provide the holder with the right to make or receive a cash settlement upon exercise of the option based on movements in the relevant index. Such options must be listed on a national securities exchange and issued by the Options Clearing Corporation. Such options may relate to particular securities or to various stock indices, except that a Fund may not write covered options on an index.
OPTIONS ON FOREIGN STOCK INDICES. The Funds may, for the purpose of hedging its portfolio, subject to applicable securities regulations, purchase and write put and call options on foreign stock indices listed on foreign and domestic stock exchanges. A stock index fluctuates with changes in the market values of the stocks included in the index.
SWAP AGREEMENTS (SWAPS, CAPS, COLLARS AND FLOORS)
The Funds may enter into interest rate swaps, currency swaps, and other types of swap agreements such as caps, collars, and floors. In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate times a "notional principal amount," in return for payments equal to a fixed rate times the same amount, for a specified period of time. If a swap agreement provides for payments in different currencies, the parties might agree to exchange notional principal amount as well. Swaps may also depend on other prices or rates, such as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed upon level. An interest rate collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from one type of investment to another. For example, if a Fund agreed to exchange payments in dollars for payments in foreign currency, the swap agreement would tend to decrease the Fund's exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates. Caps and floors have an effect similar to buying or writing options. Depending on how they are used, swap agreements may increase or decrease the overall volatility of a Fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a small investment of cash relative to the magnitude of risks assumed. As a result, swaps can be highly volatile and may have a considerable impact on the Funds' performance. Swap agreements are subject to risks related to the counterparty's ability to perform, and may decline in value if the counterparty's creditworthiness deteriorates. The Funds may also suffer losses if they are unable to terminate outstanding swap agreements or reduce their exposure through offsetting transactions.
EQUITY SWAPS
The Fund may engage in equity swaps. Equity swaps allow the parties to the swap agreement to exchange components of return on one equity investment (e.g., a basket of equity securities or an index) for a component of return on another non-equity or equity investment, including an exchange of differential rates of return. Equity swaps may be used to invest in a market without owning or taking physical custody of securities in circumstances where direct investment may be restricted for legal reasons or is otherwise impractical. Equity swaps also may be used for other purposes, such as hedging or seeking to increase total return.
RISK FACTORS IN EQUITY SWAP TRANSACTIONS. Equity swaps are derivative instruments and their values can be very volatile. To the extent that the portfolio managers do not accurately analyze and predict the potential relative fluctuation on the components swapped with the other party, the Fund may suffer a loss. The value of some components of an equity swap (such as the dividend on a common stock) may also be sensitive to changes in interest rates. Furthermore, during the period a swap is outstanding, the Fund may suffer a loss if the counterparty defaults. See "Taxes" for information on tax risks associated with equity swaps.
FOREIGN CURRENCY TRANSACTIONS
The Fund may engage in currency exchange transactions to protect against uncertainty in the level of future currency exchange rates.
The Fund may engage in both "transaction hedging" and "position hedging." When it engages in transaction hedging, the Fund enters into foreign currency transactions with respect to specific receivables or payables of the Fund generally arising in connection with the purchase or sale of its portfolio securities. The Fund will engage in transaction hedging when it desires to "lock in" the U.S. dollar price of a security it has agreed to purchase or sell, or the U.S. dollar equivalent of a dividend or interest payment in a foreign currency. By transaction hedging the Fund attempts to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and the applicable foreign currency during the period between the date on which the security is purchased or sold, or on which the dividend or interest payment is declared, and the date on which such payments are made or received.
The Fund may purchase or sell a foreign currency on a spot (or cash) basis at the prevailing spot rate in connection with the settlement of transactions in portfolio securities denominated in that foreign currency. The Fund may also enter into contracts to purchase or sell foreign currencies at a future date ("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes the Fund may also purchase exchange-listed and over-the-counter call and put options on foreign currency futures contracts and on foreign currencies. Over-the-counter options are considered to be illiquid by the SEC staff. A put option on a futures contract gives the Fund the right to assume a short position in the futures contract until expiration of the option. A put option on currency gives the Fund the right to sell a currency at an exercise price until the expiration of the option. A call option on a futures contract gives the Fund the right to assume a long position in the futures contract until the expiration of the option. A call option on currency gives the Fund the right to purchase a currency at the exercise price until the expiration of the option.
When it engages in position hedging, the Fund enters into foreign currency exchange transactions to protect against a decline in the values of the foreign currencies in which its portfolio securities are denominated (or an increase in the value of currency for securities which the Fund expects to purchase, when the Fund holds cash or short-term investments). In connection with position hedging, the Fund may purchase put or call options on foreign currency and foreign currency futures contracts and buy or sell forward contracts and foreign currency futures contracts. The Fund may also purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions and the value of the portfolio securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the dates the currency exchange transactions are entered into and the dates they mature.
It is impossible to forecast with precision the market value of portfolio securities at the expiration or maturity of a forward or futures contract. Accordingly, it may be necessary for the Fund to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security or securities being hedged is less than the amount of foreign currency the Fund is obligated to deliver and if a decision is made to sell the security or securities and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security or securities if the market value of such security or securities exceeds the amount of foreign currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying prices of the securities which the Fund owns or intends to purchase or sell. They simply establish a rate of exchange which one can achieve at some future point in time. Additionally, although these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency, they tend to limit any potential gain which might result from the increase in value of such currency.
CURRENCY FORWARD AND FUTURES CONTRACTS. Upon entering into such contracts, in compliance with the SEC's requirements, cash or liquid securities, equal in value to the amount of the Fund's obligation under the contract (less any applicable margin deposits and any assets that constitute "cover" for such obligation), will be segregated.
A forward currency contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract as agreed by the parties, at a price set at the time of the contract. In the case of a cancelable contract, the holder has the unilateral right to cancel the contract at maturity by paying a specified fee. The contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. A contract generally has no deposit requirement, and no commissions are charged at any stage for trades. A currency futures contract is a standardized contract for the future delivery of a specified amount of a foreign currency at a future date at a price set at the time of the contract. Currency futures contracts traded in the United States are designed and traded on exchanges regulated by the CFTC, such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain respects. For example, the maturity date of a forward contract may be any fixed number of days from the date of the contract agreed upon by the parties, rather than a predetermined date in a given month. Forward contracts may be in any amounts agreed upon by the parties rather than predetermined amounts. Also, forward contracts are traded directly between currency traders so that no intermediary is required. A forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Fund may either accept or make delivery of the currency specified in the contract, or at or prior to maturity enter into a closing transaction involving the purchase or sale of an offsetting contract. Closing transactions with respect to forward contracts are usually effected with the currency trader who is a party to the original forward contract. Closing transactions with respect to futures contracts are effected on a commodities exchange; a clearing corporation associated with the exchange assumes responsibility for closing out such contracts.
Positions in currency futures contracts may be closed out only on an exchange or board of trade which provides a secondary market in such contracts. Although the Fund intends to purchase or sell currency futures contracts only on exchanges or boards of trade where there appears to be an active secondary market, there is no assurance that a secondary market on an exchange or board of trade will exist for any particular contract or at any particular time. In such event, it may not be possible to close a futures position and, in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin.
CURRENCY OPTIONS. In general, options on currencies operate similarly to options on securities and are subject to many similar risks. Currency options are traded primarily in the over-the-counter market, although options on currencies have recently been listed on several exchanges. Options are traded not only on the currencies of individual nations, but also on the European Currency Unit (ECU). The ECU is composed of amounts of a number of currencies, and is the official medium of exchange of the European Economic Community's European Monetary System.
The Fund will only purchase or write currency options when the Advisor believes that a liquid secondary market exists for such options. There can be no assurance that a liquid secondary market will exist for a particular option at any specified time. Currency options are affected by all of those factors which influence exchange rates and investments generally. To the extent that these options are traded over the counter, they are considered to be illiquid by the SEC staff.
The value of any currency, including the U.S. dollar, may be affected by complex political and economic factors applicable to the issuing country. In addition, the exchange rates of currencies (and therefore the values of currency options) may be significantly affected, fixed, or supported directly or indirectly by government actions. Government intervention may increase risks involved in purchasing or selling currency options, since exchange rates may not be free to fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in turn reflects relative values of two currencies, the U.S. dollar and the foreign currency in question. Because currency transactions occurring in the interbank market involve substantially larger amounts than those that may be involved in the exercise of currency options, investors may be disadvantaged by having to deal in an odd lot market for the underlying currencies in connection with options at prices that are less favorable than for round lots. Foreign governmental restrictions or taxes could result in adverse changes in the cost of acquiring or disposing of currencies.
There is no systematic reporting of last sale information for currencies and there is no regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Available quotation information is generally representative of very large round-lot transactions in the interbank market and thus may not reflect exchange rates for smaller odd-lot transactions (less than $1 million) where rates may be less favorable. The interbank market in currencies is a global, around-the-clock market. To the extent that options markets are closed while the markets for the underlying currencies remain open, significant price and rate movements may take place in the underlying markets that cannot be reflected in the options markets.
SETTLEMENT PROCEDURES. Settlement procedures relating to the Fund's investments in foreign securities and to the Fund's foreign currency exchange transactions may be more complex than settlements with respect to investments in debt or equity securities of U.S. issuers, and may involve certain risks not present in the Fund's domestic investments, including foreign currency risks and local custom and usage. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not charge a fee for currency conversion, they do realize a profit based on the difference (spread) between prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligation.
PARTICIPATION INTERESTS
The Fund may invest in municipal obligations either by purchasing them directly or by purchasing certificates of accrual or similar instruments evidencing direct ownership of interest payments or principal payments, or both, on municipal obligations, provided that, in the opinion of counsel to the initial seller of each such certificate or instrument, any discount accruing on such certificate or instrument that is purchased at a yield not greater than the coupon rate of interest on the related municipal obligations will be exempt from federal income tax to the same extent as interest on such municipal obligations. The Fund may also invest in tax-exempt obligations by purchasing from banks participation interests in all or part of specific holdings of municipal obligations. Such participations may be backed in whole or part by an irrevocable letter of credit or guarantee of the selling bank. The selling bank may receive a fee from the Fund in connection with the arrangement. The Fund will not purchase such participation interests unless it receives an opinion of counsel or a ruling of the Internal Revenue Service that interest earned by it on municipal obligations in which it holds such participation interests is exempt from federal income tax.
STAND-BY COMMITMENTS
When the Fund purchases municipal obligations, it may also acquire stand-by commitments from banks and broker-dealers with respect to such municipal obligations. A stand-by commitment is the equivalent of a put option acquired by the Fund with respect to a particular municipal obligation held in its portfolio. A stand-by commitment is a security independent of the municipal obligation to which it relates. The amount payable by a bank or dealer during the time a stand-by commitment is exercisable, absent unusual circumstances relating to a change in market value, would be substantially the same as the value of the underlying municipal obligation. A stand-by commitment might not be transferable by the Fund, although it could sell the underlying municipal obligation to a third party at any time.
The Fund expects that stand-by commitments generally will be available without the payment of direct or indirect consideration. However, if necessary and advisable, the Fund may pay for stand-by commitments either separately in cash or by paying a higher price for portfolio securities which are acquired subject to such a commitment (thus reducing the yield to maturity otherwise available for the same securities). The total amount paid in either manner for outstanding stand-by commitments held in the Fund portfolio will not exceed 10% of the value of the Fund's total assets calculated immediately after each stand-by commitment is acquired. The Fund will enter into stand-by commitments only with banks and broker-dealers that, in the judgment of the Trust's Board of Trustees, present minimal credit risks.
VARIABLE AND FLOATING RATE OBLIGATIONS
Variable rate instruments provide for periodic adjustments in the interest rate. Floating rate instruments provide for automatic adjustment of the interest rate whenever some other specified interest rate changes. Some variable and floating rate obligations are direct lending arrangements between the purchaser and the issuer and there may be no active secondary market. However, in the case of variable and floating rate obligations with a demand feature, a Fund may demand payment of principal and accrued interest at a time specified in the instrument or may resell the instrument to a third party. In the event an issuer of a variable or floating rate obligation defaulted on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and could, for this or other reasons, suffer a loss to the extent of the default. Variable or floating rate instruments issued or guaranteed by the U.S. Government or its agencies or instrumentalities are similar in form but may have a more active secondary market. Substantial holdings of variable and floating rate instruments could reduce portfolio liquidity.
If a variable or floating rate instrument is not rated, the Fund's Advisor must determine that such instrument is comparable to rated instruments eligible for purchase by the Funds and will consider the earning power, cash flows and other liquidity ratios of the issuers and guarantors of such instruments and will continuously monitor their financial status in order to meet payment on demand. In determining average weighted portfolio maturity of each of these Funds, a variable or floating rate instrument issued or guaranteed by the U.S. Government or an agency or instrumentality thereof will be deemed to have a maturity equal to the period remaining until the obligation's next interest rate adjustment. Variable and floating rate obligations with a demand feature will be deemed to have a maturity equal to the longer of the period remaining to the next interest rate adjustment or the demand notice period.
INVERSE FLOATERS
Inverse floaters are derivative securities whose interest rates vary inversely to changes in short-term interest rates and whose values fluctuate inversely to changes in long-term interest rates. The value of certain inverse floaters will fluctuate substantially more in response to a given change in long-term rates than would a traditional debt security. These securities have investment characteristics similar to leverage, in that interest rate changes have a magnified effect on the value of inverse floaters.
RULE 144A SECURITIES
The Fund may purchase securities that have been privately placed but that are eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933, as amended ("1933 Act"). That Rule permits certain qualified institutional buyers, such as the Fund, to trade in privately placed securities that have not been registered for sale under the 1933 Act. The Advisor, under the supervision of the Board of Trustees, will consider whether securities purchased under Rule 144A are illiquid and thus subject to the Fund's investment restriction on illiquid securities. A determination of whether a Rule 144A security is liquid or not is a question of fact. In making this determination, the Advisor will consider the trading markets for the specific security, taking
into account the unregistered nature of a Rule 144A security. In addition, the
Advisor could consider the (1) frequency of trades and quotes, (2) number of
dealers and potential purchasers, (3) dealer undertakings to make a market, and
(4) nature of the security and of marketplace trades (e.g., the time needed to
dispose of the security, the method of soliciting offers, and the mechanics of
transfer). The liquidity of Rule 144A securities will be monitored and, if as a
result of changed conditions, it is determined by the Advisor that a Rule 144A
security is no longer liquid, the Fund's holdings of illiquid securities would
be reviewed to determine what, if any, steps are required to assure that the
Fund does not exceed its investment limit on illiquid securities. Investing in
Rule 144A securities could have the effect of increasing the amount of the
Fund's assets invested in illiquid securities if qualified institutional buyers
are unwilling to purchase such securities.
CURRENCY SWAPS. Currency swaps involve the exchange of rights to make or receive payments in specified currencies. Currency swaps usually involve the delivery of the entire principal value of one designated currency. Therefore, the entire principal value of a currency swap is subject to the risk that the other party to the swap will default on its contractual delivery obligations. The use of currency swaps is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. If the Advisor is incorrect in its forecast of market value and currency exchange rates, the investment performance of a Fund would be less favorable than it would have been if this investment technique were not used.
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities which may be exchanged or converted into a predetermined number of shares of the issuer's underlying common stock at the option of the holder during a specified time period. Convertible securities may take the form of convertible preferred stock, convertible bonds or debentures, units consisting of "usable" bonds and warrants or a combination of the features of several of these securities.
Convertible bonds and convertible preferred stocks generally retain the investment characteristics of fixed income securities until they have been converted but also react to movements in the underlying equity securities. The holder is entitled to receive the fixed income of a bond or the dividend preference of a preferred stock until the holder elects to exercise the conversion privilege. Usable bonds are corporate bonds that can be used in whole or in part, customarily at full face value, in lieu of cash to purchase the issuer's common stock. When owned as part of a unit along with warrants, which are options to buy the common stock, they function as convertible bonds, except that the warrants generally will expire before the bond's maturity. Convertible securities are senior to equity securities and therefore have a claim to the assets of the issuer prior to the holders of common stock in the case of liquidation. However, convertible securities are generally subordinated to similar non-convertible securities of the same issuer. The interest income and dividends from convertible bonds and preferred stocks provide a stable stream of income with generally higher yields than common stocks, but lower than non-convertible securities of similar quality. A Fund will exchange or convert the convertible securities held in its portfolio into shares of the underlying common stock in instances in which, in the Advisor's opinion, the investment characteristics of the underlying common stock will assist the Fund in achieving its investment objective. Otherwise, the Fund will hold or trade the convertible securities. In selecting convertible securities for a Fund, the Advisor evaluates the investment characteristics of the convertible security as a fixed income instrument, and the investment potential of the underlying equity security for capital appreciation.
GUARANTEED INVESTMENT CONTRACTS
Pursuant to guaranteed investment contracts ("GICs"), which are issued by U.S. and Canadian insurance companies, a Fund makes cash contributions to a deposit fund of the insurance company's general account. The insurance company then credits to the fund payments at negotiated, floating or fixed interest rates. A GIC is a general obligation of the issuing insurance company and not a separate account. The purchase price paid for a GIC becomes part of the general assets of the insurance company, and the contract is paid from the company's general assets. The Funds will only purchase GICs that are issued or guaranteed by insurance companies that at the time of purchase are rated at least AA by S&P or receive a similar high quality rating from a nationally recognized service which provides ratings of insurance companies. GICs are considered illiquid securities and will be subject to any limitations on such investments described in Part 1 of this SAI, unless there is an active and substantial secondary market for the particular instrument and market quotations are readily available. No Fund will invest more than 20% of its total assets in GICs.
BANK INVESTMENT CONTRACTS
Bank investment contracts ("BICs") issued by banks that meet certain quality and asset size requirements for banks are available to the Funds. Pursuant to BICs, cash contributions are made to a deposit account at the bank in exchange for payments at negotiated, floating or fixed interest rates. A BIC is a general obligation of the issuing bank. BICs are considered illiquid securities and will be subject to any limitations on such investments described in Part 1 of this SAI, unless there is an active and substantial secondary market for the particular instrument and market quotations are readily available.
LOAN PARTICIPATIONS
Loan participations are interests in loans which are administered by the lending bank or agent for a syndicate of lending banks, and sold by the lending bank or syndicate member. The Funds may only purchase interests in loan participations issued by a bank in the United States with assets exceeding $1 billion and for which the underlying loan is issued by borrowers in whose obligations the Funds may invest. Because the intermediary bank does not guarantee a loan participation in any way, a loan participation is subject to the credit risk generally associated with the underlying corporate borrower. In addition, in the event the underlying corporate borrower defaults, a Fund may be subject to delays, expenses and risks that are greater than those that would have been involved if the Fund had purchased a direct obligation (such as commercial paper) of the borrower. Under the terms of a loan participation, the purchasing Fund may be regarded as a creditor of the intermediary bank so that the Fund may also be subject to the risk that the issuing bank may become insolvent.
STRUCTURED INVESTMENTS
Structured investments are a relatively new innovation and may be designed to have various combinations of equity and fixed-income characteristics. Equity-linked securities are a form of structured investment and generally consist of a conversion privilege to a single company's common stock plus a fixed annual distribution to the holder. Equity-linked securities have some derivative characteristics because the conversion feature is linked to the price of the company's common stock. Equity-linked securities are designed to provide investors with higher quarterly income than the dividend paid per share on the common stock. However, equity-linked securities have decreased potential for capital appreciation because of limitations of the conversion feature.
Equity-linked securities include issues such as "Structured Yield Product Exchangeable for Stock" ("STRYPES"), "Trust Automatic Common Exchange Securities" ("TRACES"), "Trust Issued Mandatory Exchange Securities" ("TIMES"), "Trust Enhanced Dividend Securities" ("TRENDS") and other similar securities, including those which may be developed in the future. The issuers of the above listed examples of equity-linked securities generally purchase and hold a portfolio of stripped U.S. Treasury securities maturing on a quarterly basis through the conversion date, and a forward purchase contract with an existing shareholder of the company relating to the common stock. Quarterly distributions on equity-linked securities generally consist of the cash received from the U.S. Treasury securities and equity-linked securities generally are not entitled to any dividends that may be declared on the common stock.
Equity-linked securities may be issued by closed-end or other forms of investment companies. To the extent that equity-linked securities are issued by investment companies, a Fund's investments in equity-linked securities are subject to the same limitations as investments in more traditional forms of investment companies.
YANKEE OBLIGATIONS
Yankee obligations are U.S. dollar-denominated instruments of foreign issuers that are either registered with the SEC or issued pursuant to Rule 144A under the 1933 Act. These obligations consist of debt securities (including preferred or preference stock of non-governmental issuers), certificates of deposit, fixed time deposits and banker's acceptances issued by foreign banks, and debt obligations of foreign governments or their subdivisions, agencies and instrumentalities, international agencies and supranational entities. Some securities issued by foreign governments or their subdivisions, agencies and instrumentalities may not be backed by the full faith and credit of the foreign government.
AMERICAN, EUROPEAN, CONTINENTAL AND GLOBAL DEPOSITARY RECEIPTS
American Depositary Receipts ("ADRs") are receipts issued in registered form by a U.S. bank or trust company evidencing ownership of underlying securities issued by a foreign issuer. European Depositary Receipts ("EDRs"), which are sometimes
referred to as Continental Depositary Receipts ("CDRs"), are receipts issued in Europe typically by non-U.S. banks or trust companies and foreign branches of U.S. banks that evidence ownership of foreign or U.S. securities. Global Depositary Receipts ("GDRs") are receipts structured similarly to EDRs and CDRs and are marketed globally. ADRs may be listed on a national securities exchange or may be traded in the over-the-counter market. EDRs and CDRs are designed for use in European exchange and over-the-counter markets. GDRs are designed for trading in non-U.S. securities markets. ADRs, EDRs, CDRs and GDRs traded in the over-the-counter market which do not have an active or substantial secondary market will be considered illiquid and therefore will be subject to the Funds' respective limitations with respect to such securities, if any. If a Fund invests in an unsponsored ADR, EDR, CDR or GDR, there may be less information available to the Fund concerning the issuer of the securities underlying the unsponsored ADR, EDR, CDR or GDR than is available for an issuer of securities underlying a sponsored ADR, EDR, CDR or GDR. ADR prices are denominated in U.S. dollars although the underlying securities are denominated in a foreign currency. Investments in ADRs, EDRs, CDRs and GDRs involve risks similar to those accompanying direct investments in foreign securities.
TEMPORARY CASH BALANCES
The Funds may hold very small temporary cash balances to efficiently manage transactional expenses. These cash balances are expected, under normal conditions, not to exceed 2% of each Fund's net assets at any time (excluding amounts used as margin and segregated assets with respect to futures transactions and collateral for securities loans and repurchase agreements). The Funds may invest these temporary cash balances in short-term debt obligations issued or guaranteed by the U.S. Government or its agencies and instrumentalities ("U.S. Government Securities"), high quality commercial paper (rated A-1 or better by S&P or P-1 or better by Moody's), certificates of deposit and time deposits of banking institutions having total assets in excess of $1 billion, and repurchase agreements collateralized by U.S. Government Securities. The Funds may also hold these investments in connection with U.S. Treasury rolls, which are not subject to the 2% limitation above.
TAXES
In this section, all discussions of taxation at the shareholder and fund levels relate to U.S. federal taxes only. Consult your tax advisor for state, local and foreign tax considerations and for information about special tax considerations that may apply to shareholders that are not natural persons or not U.S. citizens or resident aliens.
FEDERAL TAXES. Although it may be one of several series in a single trust, the Fund is treated as a separate entity for federal income tax purposes under the Internal Revenue Code of 1986, as amended (the "Code"). The Fund has elected (or in the case of a new fund, intends to elect) to be, and intends to qualify to be treated each year as, a "regulated investment company" under Subchapter M of the Code by meeting all applicable requirements of Subchapter M, including requirements as to the nature of the Fund's gross income, the amount of its distributions (as a percentage of both its overall income and any tax-exempt income), and the composition of its portfolio assets.
To qualify as a "regulated investment company," the Fund must (a) derive at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock, securities or foreign currencies or other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies; (b) diversify its holdings so that, at the close of each quarter of its taxable year, (i) at least 50% of the market value of its total assets consists of cash, cash items, U.S. government securities, securities of other regulated investment companies and other securities limited generally with respect to any one issuer to not more than 5% of the total assets of the Fund and not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested (x) in the securities of any issuer, other than U.S. government securities or other regulated investment companies, or (y) in the securities of one or more "qualified publicly traded partnership" (as defined below); or of two or more issuers which the Fund controls and which are engaged in the same, similar, or related trades or businesses; and (c) distribute with respect to each year at least 90% investment company taxable income (as that term is defined in the Code without regard to the deduction for dividends paid -- generally, ordinary income and the excess, if any, of net short-term capital gains over net long-term capital losses) and any net tax-exempt interest, income, for such year. In general, for purposes of the 90% gross income requirement described in (a) above, income derived from a partnership will be treated as qualifying income only to the extent such income is attributable to items of income of the partnership which would be qualifying income if realized by the regulated investment company. However, recent legislation provides that 100% of the net income derived from an interest in a "qualified publicly traded partnership" (defined as a partnership (i) interests in which are traded on an established securities market or readily tradable on a secondary market or the substantial equivalent thereof and (ii) that
derives less than 90% of its income from the qualifying income described in (a) above) will be treated as qualifying income. In addition, although in general the passive loss rules of the Code do not apply to regulated investment companies, such rules do not apply to a regulated investment company with respect to items attributable to an interest in a qualified publicly traded partnership. Finally, for purposes of (c) above, the term "outstanding voting securities of such issuer" will include the equity securities of a qualified publicly traded partnership. As a regulated investment company that is accorded special tax treatment, the Fund will not be subject to any federal income taxes on its net investment income and net realized capital gains that it distributes to shareholders in the form of dividends and in accordance with the timing requirements imposed by the Code. The Fund's foreign-source income, if any, may be subject to foreign withholding taxes. If the Fund were to fail to qualify as a "regulated investment company" accorded special tax treatment in any taxable year, it would incur a regular federal corporate income tax on all of its taxable income, whether or not distributed, and Fund distributions (including any distributions of net tax-exempt income and net long-term capital gains) would generally be taxable as ordinary income to the shareholders, except to the extent they were treated as "qualified dividend income," as described below. In addition, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying as a regulated investment company that is accorded special tax treatment.
If the Fund fails to distribute in a calendar year substantially all of its ordinary income for such year and substantially all of its capital gain net income for the one-year period ending October 31 (or later if the Fund is permitted so to elect and so elects), plus any retained amount from the prior year, the Fund will be subject to a 4% excise tax on the underdistributed amounts. A dividend paid to shareholders by the Fund in January of a year generally is deemed to have been paid by the Fund on December 31 of the preceding year, if the dividend was declared and payable to shareholders of record on a date in October, November or December of that preceding year. The Fund intends generally to make distributions sufficient to avoid imposition of the 4% excise tax.
ALTERNATIVE MINIMUM TAX. Distributions derived from interest that is exempt from regular federal income tax may subject corporate shareholders to or increase their liability under the federal corporate alternative minimum tax (AMT). A portion of such distributions may constitute a tax preference item for individual shareholders and may subject them to or increase their liability under the AMT.
DIVIDENDS RECEIVED DEDUCTIONS. Distributions will qualify for the corporate dividends received deduction only to the extent that dividends earned by the Fund qualify. Any such dividends may be, however, includable in adjusted current earnings for purposes of computing corporate federal AMT. The dividends received deduction for eligible dividends is subject to a holding period requirement.
RETURN OF CAPITAL DISTRIBUTIONS. If the Fund makes a distribution to a shareholder in excess of the Fund's current and accumulated "earning and profits" in any taxable year, the excess distribution will be treated as a return of capital to the extent of the shareholder's tax basis in his or her shares, and thereafter as capital gain. A return of capital is not taxable, but it reduces tax basis in shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition of such shares. Dividends and distributions on a Fund's shares are generally subject to federal income tax as described herein to the extent they do not exceed the Fund's realized income and gains, even though such dividends and distributions may economically represent a return of a particular shareholder's investment. Such distributions are likely to occur in respect of shares purchased at a time when a Fund's net asset value reflects gains that are either unrealized, or realized but not distributed. Such realized gains may be required to be distributed even when a Fund's net asset value also reflects unrealized losses.
FUNDS THAT INVEST IN U.S. GOVERNMENT SECURITIES. Many states grant tax-free status to dividends paid to shareholders of mutual funds from interest income earned by the Fund from direct obligations of the U.S. government. Investments in mortgage-backed securities (including GNMA, FNMA and FHLMC Securities) and repurchase agreements collateralized by U.S. government securities do not qualify as direct federal obligations in most states. Shareholders should consult with their own tax advisors about the applicability of state and local intangible property, income or other taxes to their Fund shares and distributions and redemption proceeds received from the Fund.
FUND DISTRIBUTIONS. Distributions from the Fund (other than qualified dividend income and exempt-interest dividends, as discussed below) will generally be taxable to shareholders as ordinary income to the extent derived from the Fund's investment income and net short-term gains. Distributions of long-term capital gains (that is, the excess of net gains from capital assets held for more than one year over net losses from capital assets held for not more than one year) will be taxable to shareholders as such, regardless of how long a shareholder has held shares in the Fund. In general, any distributions of long-term capital gains
will be taxed to shareholders who are individuals at a maximum rate of 15% for taxable years beginning on or before December 31, 2008.
Distributions are taxable to shareholders even if they are paid from income or gains earned by the Fund before a shareholder's investment (and thus were included in the price of the shareholder paid). Distributions are taxable whether received in cash or in Fund shares.
QUALIFIED DIVIDEND INCOME. For taxable years beginning on or before December 31, 2008, "qualified dividend income" received by an individual will be taxed at the rates applicable to long-term capital gain. In order for some portion of the dividends received by a Fund shareholder to be qualified dividend income, the Fund must meet holding period and other requirements with respect to some portion of the dividend paying stocks in its portfolio and the shareholder must meet holding period and other requirements with respect to the Fund's shares. A dividend will not be treated as qualified dividend income (at either the Fund or shareholder level) (1) if the dividend is received with respect to any share of stock held for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or, in the case of certain preferred stock, 91 days during the 181-day period beginning 90 days before such date), (2) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property, (3) if the recipient elects to have the dividend income treated as investment income for purposes of the limitation on deductibility of investment interest, or (4) if the dividend is received from a foreign corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the United States (with the exception of dividends paid on stock of such a foreign corporation readily tradable on an established securities market in the United States) or (b) treated as a passive foreign investment company. With respect to a Fund investing in bonds, the Fund does not expect a significant portion of Fund distributions to be derived from qualified dividend income.
In general, distributions of investment income properly designated by the Fund as derived from qualified dividend income may be treated as qualified dividend income by a shareholder taxed as an individual provided the shareholder meets the holding period and other requirements described above with respect to his or her shares. If the aggregate qualified dividends received by a fund during any taxable year are 95% or more of its gross income, then 100% of the Fund's dividends (other than properly designated capital gain dividends) will be eligible to be treated as qualified dividend income. For this purpose, the only gain included in the term "gross income" is the excess of net short-term capital gain over net long-term capital loss.
DISTRIBUTIONS FROM TAX-EXEMPT FUNDS. Each tax-exempt Fund will have at least 50% of its total assets invested in tax-exempt bonds at the end of each quarter so that dividends from net interest income on tax-exempt bonds will be exempt from federal income tax when received by a shareholder (but may be taxable for federal alternative minimum tax purposes and for state and local tax purposes). The tax-exempt portion of dividends paid will be designated within 60 days after year-end based upon the ratio of net tax-exempt income to total net investment income earned during the year. That ratio may be substantially different from the ratio of net tax-exempt income to total net investment income earned during any particular portion of the year. Thus, a shareholder who holds shares for only a part of the year may be allocated more or less tax-exempt dividends than would be the case if the allocation were based on the ratio of net tax-exempt income to total net investment income actually earned while a shareholder.
Income from certain "private activity bonds" issued after August 7, 1986, is treated as a tax preference item for the AMT at the maximum rate of 28% for individuals and 20% for corporations. If the Fund invests in private activity bonds, shareholders may be subject to the AMT on that part of the distributions derived from interest income on such bonds. Interest on all tax-exempt bonds is included in corporate adjusted current earnings when computing the AMT applicable to corporations. Seventy-five percent of the excess of adjusted current earnings over the amount of income otherwise subject to the AMT is included in a corporation's alternative minimum taxable income.
Dividends derived from any investments other than tax-exempt bonds and any distributions of short-term capital gains are generally taxable to shareholders as ordinary income. Any distributions of long-term capital gains will in general be taxable to shareholders as long-term capital gains (generally subject to a maximum 15% tax rate for shareholders who are individuals) regardless of the length of time Fund shares are held by the shareholder.
A tax-exempt Fund may at times purchase tax-exempt securities at a discount and some or all of this discount may be included in the Fund's ordinary income which will be taxable when distributed. Any market discount recognized on a tax-exempt bond purchased after April 30, 1993, with a term at time of issue of more than one year is taxable as ordinary income. A market
discount bond is a bond acquired in the secondary market at a price below its "stated redemption price" (in the case of a bond with original issue discount, its "revised issue price").
Shareholders receiving social security and certain retirement benefits may be taxed on a portion of those benefits as a result of receiving tax-exempt income, including tax-exempt dividends from the Fund.
SPECIAL TAX RULES APPLICABLE TO TAX-EXEMPT FUNDS. In general, exempt-interest dividends, if any, attributable to interest received on certain private activity obligations and certain industrial development bonds will not be tax-exempt to any shareholders who are "substantial users" of the facilities financed by such obligations or bonds or who are "related persons" of such substantial users, as further defined in the Code. Income derived from the Fund's investments other than tax-exempt instruments may give rise to taxable income. The Fund's shares must be held for more than six months in order to avoid the disallowance of a capital loss on the sale of Fund shares to the extent of tax-exempt dividends paid during that period. Part or all of the interest on indebtedness, if any, incurred or continued by a shareholder to purchase or carry shares of the Fund paying exempt-interest dividends is not deductible. The portion of interest that is not deductible is equal to the total interest paid or accrued on the indebtedness, multiplied by the percentage of the Fund's total distributions (not including distributions from net long-term capital gains) paid to the shareholder that are exempt-interest dividends. Under rules used by the Internal Revenue Service to determine when borrowed funds are considered used for the purpose of purchasing or carrying particular assets, the purchase of shares may be considered to have been made with borrowed funds even though such funds are not directly traceable to the purchase of shares.
SALES OF SHARES. The sale, exchange or redemption of Fund shares may give rise to a gain or loss. In general, any gain realized upon a taxable disposition of shares generally will be treated as long-term capital gain if the shares have been held for more than one year. Otherwise the gain on the sale, exchange or redemption of Fund shares will be treated as short-term capital gain. In general, any loss realized upon a taxable disposition of shares will be treated as long-term loss if the shares have been held more than one year and otherwise as short-term loss. However, any loss realized upon a taxable disposition of shares held for six months or less will be disallowed for federal income tax purposes to the extent of any exempt-interest dividends received on such shares. In addition, any loss (not already disallowed as provided in the preceding sentence) realized upon a taxable disposition of shares held for six months or less will be treated as long-term, rather than short-term, capital loss to the extent of any long-term capital gain distributions received by the shareholder with respect to those shares. All or a portion of any loss realized upon a taxable disposition of shares will be disallowed if other shares are purchased within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss.
Under Treasury regulations, if on a disposition of Fund shares a shareholder recognizes a loss of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder will likely have to file with the Internal Revenue Service a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all regulated investment companies. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. You are advised to consult with your tax advisor.
BACKUP WITHHOLDING. Certain distributions and redemptions may be subject to backup withholding for taxpayers who fail to furnish a correct taxpayer identification number, who have under-reported dividend or interest income, or who fail to certify to the Fund that the shareholder is a United States person and is not subject to the withholding. This number and certification may be provided by either a Form W-9 or the accompanying application. In certain instances, CMS may be notified by the Internal Revenue Service that a shareholder is subject to backup withholding. The backup withholding rate is 28% for amounts paid through 2010. The backup withholding rate will be 31% for amounts paid after December 31, 2010.
HEDGING TRANSACTIONS. If the Fund engages in hedging transactions, including hedging transactions in options, futures contracts and straddles, or other similar transactions, it will be subject to special tax rules (including constructive sale, mark-to-market, straddle, wash sale and short sale rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund's securities, convert long-term capital gains into short-term capital gains or convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. The Fund will endeavor to make any available elections pertaining to such transactions in a manner believed to be in the best interests of the Fund and its shareholders.
SECURITIES ISSUED AT A DISCOUNT. The Fund's investment in debt securities issued at a discount and certain other obligations will (and investments in securities purchased at a discount may) require the Fund to accrue and distribute income not yet received. In such cases, the Fund may be required to sell assets (possibly at a time when it is not advantageous to do so) to generate the cash necessary to distribute as dividends to its shareholders all of its income and gains and therefore to eliminate any tax liability at the Fund level.
FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING TRANSACTIONS. The Fund's transactions in foreign currencies, foreign currency-denominated debt securities, certain foreign currency options, futures contracts and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned. This may produce a difference between the Fund's book income and its taxable income, possibly accelerating distributions or converting distributions of book income and gains to returns of capital for book purposes.
If more than 50% of the Fund's total assets at the end of its fiscal year are invested in stock or securities of foreign corporate issuers, the Fund may make an election permitting its shareholders to take a deduction or credit for federal income tax purposes for their pro rata portion of certain qualified foreign taxes paid by the Fund to foreign countries in respect of foreign securities the Fund has held for at least the minimum period specified in the Code. The Advisor will consider the value of the benefit to a typical shareholder, the cost to the Fund of compliance with the election, and incidental costs to shareholders in deciding whether to make the election. A shareholder's ability to claim such a foreign tax credit or deduction in respect of foreign taxes will be subject to certain limitations imposed by the Code, including a holding period requirement, as a result of which a shareholder may not get a full credit or deduction for the amount of foreign taxes so paid by the Fund. Shareholders who do not itemize on their federal income tax returns may claim a credit (but not a deduction) for such foreign taxes.
Investment by the Fund in "passive foreign investment companies" could subject the Fund to a U.S. federal income tax or other charge on the proceeds from the sale of its investment in such a company; however, this tax can be avoided by making an election to mark such investments to market annually or to treat the passive foreign investment company as a "qualified electing Fund." A "passive foreign investment company" is any foreign corporation: (i) 75 percent or more of the income of which for the taxable year is passive income, or (ii) the average percentage of the assets of which (generally by value, but by adjusted tax basis in certain cases) that produce or are held for the production of passive income is at least 50 percent. Generally, passive income for this purpose means dividends, interest (including income equivalent to interest), royalties, rents, annuities, the excess of gain over losses from certain property transactions and commodities transactions, and foreign currency gains. Passive income for this purpose does not include rents and royalties received by the foreign corporation from active business and certain income received from related persons.
NON-U.S. SHAREHOLDERS. Capital gain dividends will not be subject to withholding of federal income tax. In general, dividends (other than Capital Gain Dividends) paid by the Fund to a shareholder that is not a "U.S. person" within the meaning of the Code (such shareholder, a "foreign person") are subject to withholding of U.S. federal income tax at a rate of 30% (or lower applicable treaty rate) even if they are funded by income or gains (such as portfolio interest, short-term capital gains, or foreign-source dividend and interest income) that, if paid to a foreign person directly, would not be subject to withholding. However, for taxable years of the Fund before January 1, 2008, the Fund will not be required to withhold any amounts (i) with respect to distributions (other than distributions to a foreign person (w) that has not provided a satisfactory statement that the beneficial owner is not a U.S. person, (x) to the extent that the dividend is attributable to certain interest on an obligation if the foreign person is the issuer or is a 10% shareholder of the issuer, (y) that is within certain foreign countries that have inadequate information exchange with the United States, or (z) to the extent the dividend is attributable to interest paid by a person that is a related person of the foreign person and the foreign person is a controlled foreign corporation) from U.S.-source interest income that, in general, would not be subject to U.S. federal income tax if earned directly by an individual foreign person, to the extent such distributions are properly designated by the Fund, and (ii) with respect to distributions (other than distributions to an individual foreign person who is present in the United States for a period or periods aggregating 183 days or more during the year of the distribution) of net short-term capital gains in excess of net long-term capital losses, to the extent such distributions are properly designated by the Fund. The Fund has not determined whether it will make such designations.
If a beneficial holder who is a foreign person has a trade or business in the United States, and the dividends are effectively connected with the conduct by the beneficial holder of a trade or business in the United States, the dividend will be subject to U.S. federal net income taxation at regular income tax rates.
Recent legislation modifies the tax treatment of distributions from the Fund that are paid to a foreign person and are attributable to gain from "U.S. real property interests" ("USRPIs"), which the Code defines to include direct holdings of U.S. real property and interests (other than solely as a creditor) in "U.S. real property holding corporations" such as REITs. The Code deems any corporation that holds (or held during the previous five-year period) USRPIs with a fair market value equal to 50% or more of the fair market value of the corporation's U.S. and foreign real property assets and other assets used or held for use in a trade or business to be a U.S. real property holding corporation; however, if any class of stock of a corporation is traded on an established securities market, stock of such class shall be treated as a USRPI only in the case of a person who holds more than 5% of such class of stock at any time during the previous five-year period. Under the legislation, which applies to dividends paid or deemed paid on or before December 31, 2007, distributions to foreign persons attributable to gains from the sale or exchange of USRPIs will give rise to an obligation for those foreign persons to file a U.S. tax return and pay tax, and may well be subject to withholding under future regulations.
Under U.S. federal tax law, a beneficial holder of shares who is a foreign person is not, in general, subject to U.S. federal income tax on gains (and is not allowed a deduction for losses) realized on the sale of shares of the Fund or on Capital Gain Dividends unless (i) such gain or Capital Gain Dividend is effectively connected with the conduct of a trade or business carried on by such holder within the United States, (ii) in the case of an individual holder, the holder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale or Capital Gain Dividend and certain other conditions are met, or (iii) the shares constitute USRPIs or the Capital Gain Dividends are paid or deemed paid on or before December 31, 2007 and are attributable to gains from the sale or exchange of USRPIs. Effective before January 1, 2008, if the Fund is a U.S. real property holding corporation (as described above) the Fund's shares will nevertheless not constitute USRPIs if the Fund is a "domestically controlled qualified investment entity," which is defined to include a RIC that, at all times during the shorter of the 5-year period ending on the date of the disposition or the period during which the RIC was in existence, had less than 50 percent in value of its stock held directly or indirectly by foreign persons.
ADDITIONAL TAX MATTERS CONCERNING TRUST SHARES (THIS SECTION IS APPLICABLE ONLY TO THE COLUMBIA TAX-MANAGED GROWTH FUND)
FEDERAL GIFT TAXES. An investment in Trust Shares may be a taxable gift for federal tax purposes, depending upon the option selected and other gifts that the donor and his or her spouse may make during the year.
Under the Columbia Advantage Plan, the entire amount of the gift will be a "present interest" that qualifies for the federal gift tax annual exclusion. In that case, the donor will be required to file a federal gift tax return on account of this gift only if (i) the aggregate present interest gifts by the donor to the particular beneficiary (including the gift of Trust Shares) exceeds the annual gift-tax exemption, which in 2006 is $12,000 or (ii) the donor wishes to elect gift splitting on gifts with his or her spouse for the year. The trustee will notify the beneficiary of his or her right of withdrawal promptly following any contribution under the Advantage Plan.
Under the Columbia Gift Plan, the entire amount of the gift will be a "future interest" for federal gift tax purposes, so that none of the gift will qualify for the federal gift tax annual exclusion. Consequently, the donor will have to file a federal gift tax return (IRS Form 709) reporting the entire amount of the gift, even if the gift is less than $12,000.
No federal gift tax will be payable by the donor until his or her cumulative taxable gifts (i.e., gifts other than those qualifying for the annual exclusion or otherwise exempt), including taxable gifts of other assets as well as any taxable gifts of trust shares, exceed the federal gift and estate tax exemption equivalent amount, which is $1,000,000 for gifts made after December 31, 2001, and before January 1, 2010.
Any gift of Trust Shares that does not qualify as a present interest or that exceeds the available annual exclusion amount will reduce the amount of the donor's Federal gift and estate tax exemption (if any) that would otherwise be available for future gifts for transfers at death.
The donor and his or her spouse may elect "gift-splitting" for any gift of Trust Shares (other than a gift to such spouse), meaning that the donor and his or her spouse may elect to treat the gift as having been made one-half by each of them, thus allowing a total gift of $24,000.
The donor's gift of Fund shares may also have to be reported for state gift tax purposes, if the state in which the donor resides imposes a gift tax. Many states do not impose such a tax. Some states follow the Federal rules concerning the types of transfers subject to tax and the availability of the annual exclusion.
GENERATION-SKIPPING TRANSFER TAXES
If the beneficiary of a gift of Trust Shares is a relative who is two generations or more younger than the donor, or is not a relative and is more than 37 1/2 years younger than the donor, the gift will be subject in whole or in part to the generation-skipping transfer tax (the "GST tax") unless the gift is made under the Columbia Advantage Plan and does not exceed the available annual exclusion amount. An exemption (the "GST exemption"), equal to $2 million in 2006, is allowed against this tax, and so long as the GST exemption has not been used by other transfers it will automatically be allocated to a gift of Trust Shares that is subject to the GST tax unless the donor elects otherwise. Such an election is made by reporting the gift on a timely filed gift tax return and paying the applicable GST tax. The GST tax is imposed at a flat rate (46% for gifts made in 2006) on the amount of the gift, and payment of the tax by the donor is treated as an additional gift for gift tax purposes.
INCOME TAXES
The Internal Revenue Service takes the position that a trust beneficiary who is given a power of withdrawal over contributions to the trust should be treated, for Federal income tax purposes, as the "owner" of the portion of the trust that was subject to the power. Accordingly, if the donor selects Columbia Advantage Trust Shares, the beneficiary will be treated as the "owner" of all of the Fund shares in the account for Federal income tax purposes, and will be required to report all of the income and capital gains earned in the trust on his or her personal Federal income tax return. The trust will not pay Federal income taxes on any of the trust's income or capital gains. The trustee will prepare and file the Federal income tax information returns that are required each year (and any state income tax returns that may be required), and will send the beneficiary a statement following each year showing the amounts (if any) that the beneficiary must report on his or her income tax returns for that year. If the beneficiary is under fourteen years of age, these amounts may be subject to Federal income taxation at the marginal rate applicable to the beneficiary's parents. The beneficiary may at any time after the creation of the trust irrevocably elect to require the trustee to pay him or her a portion of the trust's income and capital gains annually thereafter to provide funds with which to pay any resulting income taxes, which the trustee will do by redeeming Trust Shares. The amount distributed will be a fraction of the trust's ordinary income and short-term capital gains and the trust's long-term capital gains equal to the highest marginal Federal income tax rate imposed on each type of income (currently, 35% and 15%, respectively). If the beneficiary selects this option, he or she will receive those fractions of his or her trust's income and capital gains annually for the duration of the trust.
Under the Columbia Advantage Plan, the beneficiary will also be able to require the trustee to pay his or her tuition, room and board and other expense of his or her college or post-graduate education, and the trustee will raise the cash necessary to fund these distributions by redeeming Trust Shares. Any such redemption will result in the realization of capital gain or loss on the shares redeemed, which will be reportable by the beneficiary on his or her income tax returns for the year in which the shares are redeemed, as described above. Payments must be made directly to the educational institution.
If the donor selects the Columbia Gift Plan, the trust that he or she creates will be subject to Federal income tax on all income and capital gains realized by it, less a $100 annual exemption (in lieu of the personal exemption allowed to individuals). The amount of the tax will be determined under the tax rate schedule applicable to estates and trusts, which is more sharply graduated than the rate schedule for individuals, reaching the same maximum marginal rate for ordinary income or short-term capital gains (currently, 35%), but at a much lower taxable income level than would apply to an individual. It is anticipated, however, that most of the gains taxable to the trust will be long-term capital gain, on which the Federal income tax rate is currently limited to 15%. The trustee will raise the cash necessary to pay any Federal or state income taxes by redeeming Fund shares. The beneficiary will not pay Federal income taxes on any of the trust's income or capital gains, except those earned in the year when the trust terminates. The trustee will prepare and file all Federal and state income tax returns that are required each year, and will send the beneficiary an information statement for the year in which the trust terminates showing the amounts (if any) that the beneficiary must report on his or her Federal and state income tax returns for that year.
When the trust terminates, the distribution of the remaining shares held in the trust to the beneficiary will not be treated as a taxable disposition of the shares. Any Fund shares received by the beneficiary will have the same cost basis as they had in the trust at the time of termination. Any Fund shares received by the beneficiary's estate will have a basis equal to the value of the shares at the beneficiary's death (or the alternate valuation date for Federal estate tax purposes, if elected).
CONSULTATION WITH QUALIFIED ADVISOR
Due to the complexity of Federal and state gift, GST and income tax laws pertaining to all gifts in trust, prospective donors should consider consulting with their financial or tax advisor before investing in Trust Shares.
MANAGEMENT OF THE FUNDS Columbia Management Advisors, LLC ("Columbia Advisors" or "CMA" or the "Advisor"), located at 100 Federal Street, Boston, Massachusetts 02110 is the Advisor to the Funds. The Advisor provides administrative and management services to the Funds. Columbia Advisors is a direct, wholly owned subsidiary of Columbia Management Group, LLC ("CMG"), which in turn is a direct, wholly owned subsidiary of Bank of America, which in turn is a wholly owned banking subsidiary of Bank of America Corporation, a financial services holding company organized as a Delaware corporation. On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005 Columbia Management was the investment advisor to the Funds. As a result of the merger, Columbia Advisors is now the investment advisor to the Funds. Columbia Advisors, a registered investment advisor, has been an investment advisor since 1995.
TRUSTEES AND OFFICERS (THIS SECTION APPLIES TO ALL OF THE FUNDS)
Information regarding the Trustees and officers of the Funds together with their principal business occupations during the last five years (their titles may have varied during that period) is shown below. Unless otherwise noted, the address for each Trustee and officer is c/o Columbia Funds, Mail Stop MA5-515-11-05, One Financial Center, Boston, MA 02111.
Number of
Portfolios in
Year First Principal Columbia Fund
Elected or Occupation(s) Complex Other
Appointed to During Past Five Overseen by Directorships
Name and Year of Birth Position with Funds Office(1) Years Trustee Held(2)
------------------------ ---------------------- ---- ----------------- -- -----------------
DISINTERESTED TRUSTEE
Thomas C. Theobald Trustee and Chairman 1996 Partner and 83 Anixter
(Born 1937) of the Board Senior Advisor, International
Chicago Growth (network support
Partners (private equipment
equity investing) distributor);
since September, Ventas, Inc.
2004; Managing (real estate
Director, William investment
Blair Capital trust); Jones
Partners (private Lang LaSalle
equity investing) (real estate
from September, management
1994 to services) and
September, 2004. Ambac Financial
Group (financial
guaranty
insurance)
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Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ---------------------- ------------ ----------------------- ------------- -------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker Trustee 1996 Executive Vice 83 Nash Finch Company
(Born 1955) President -- Strategy (food distributor)
of United Airlines
(airline) since
December, 2002;
President of UAL
Loyalty Services
(airline) from
September, 2001 to
December, 2002;
Executive Vice
President and Chief
Financial Officer of
United Airlines from
July, 1999 to
September, 2001.
Janet Langford Kelly Trustee 1996 Partner, Zelle, 83 UAL Corporation
(Born 1957) Hofmann, Voelbel, Mason (airline)
& Gette LLP (law firm)
since March, 2005;
Adjunct Professor of
Law, Northwestern
University, since
September, 2004; Chief
Administrative Officer
and Senior Vice
President, Kmart
Holding Corporation
(consumer goods), from
September, 2003 to
March, 2004; Executive
Vice
President-Corporate
Development and
Administration, General
Counsel and Secretary,
Kellogg Company (food
manufacturer), from
September, 1999 to
August, 2003.
|
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ---------------------- ------------ ----------------------- ------------- -------------------
DISINTERESTED TRUSTEES
Richard W. Lowry Trustee 1995 Private Investor since 85 None
(Born 1936) August, 1987 (formerly
Chairman and Chief
Executive Officer, U.S.
Plywood Corporation
(building products
manufacturer) until
1987).
Charles R. Nelson Trustee 1981 Professor of Economics, 83 None
(Born 1942) University of
Washington since
January, 1976; Ford and
Louisa University of
Washington Van Voorhis
Professor of Political
Economy, University of
Washington, since
September, 1993;
Director, Institute for
Economic Research,
University of
Washington from
September, 2001 to
June, 2003; Adjunct
Professor of
Statistics, University
of Washington since
September, 1980;
Associate Editor,
Journal of Money Credit
and Banking since
September, 1993;
consultant on
econometric and
statistical matters.
John J. Neuhauser Trustee 1985 University Professor, 85 None
(Born 1943) Boston College since
November, 2005;
Academic Vice President
and Dean of Faculties,
Boston College from
August, 1999 to
October, 2005.
|
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ---------------------- ------------ ----------------------- ------------- -------------------
DISINTERESTED TRUSTEES
Patrick J. Simpson Trustee 2000 Partner, Perkins Coie 83 None
(Born 1944) L.L.P. (law firm).
Thomas E. Stitzel Trustee 1998 Business Consultant 83 None
(Born 1936) since 1999; Chartered
Financial Analyst.
Anne-Lee Verville Trustee 1998 Retired since 1997 83 Chairman of the
(Born 1945) (formerly General Board of Directors,
Manager, Global Enesco Group,Inc.
Education Industry, IBM (producer of
Corporation (computer giftware and home
and technology) from and garden decor
1994 to 1997). products)
Richard L. Woolworth Trustee 1991 Retired since December, 83 Northwest Natural
(Born 1941) 2003 (formerly Chairman Gas (natural gas
and Chief Executive service provider)
Officer, The Regence
Group Co. (regional
health insurer);
Chairman and Chief
Executive Officer,
BlueCross BlueShield of
Oregon; Certified
Public Accountant,
Arthur Young &
Company).
|
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ---------------------- ------------ ----------------------- ------------- -------------------
INTERESTED TRUSTEE
William E. Mayer(3) Trustee 1994 Partner, Park Avenue 85 Lee Enterprises
(Born 1940) Equity Partners (print media), WR
(private equity) since Hambrecht + Co.
February, 1999, Dean (financial service
and Professor, College provider);
of Business, University Reader's Digest
of Maryland, 1992 to (publishing).
1997.
|
(1) The date shown is the earliest date on which a trustee/director was elected or appointed to the board of a Fund in the Columbia Fund Complex.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public companies").
(3) Mr. Mayer is an "interested person" (as defined in the 1940 Act) of the Columbia Funds by reason of his affiliation with WR Hambrecht + Co., a registered broker-dealer that may execute portfolio transactions for or engage in principal transactions with the Fund or other funds or clients advised by the Advisor or its affiliates.
Year First
Elected or
Name, Year of Birth and Appointed
Address Position with Funds to Office Principal Occupation(s) During Past Five Years
------------------------ ---------------------- ------------ ----------------------------------------------
OFFICERS
Christopher L. Wilson President 2004 Head of Mutual Funds since August, 2004 and
(Born 1957) Managing Director of the Advisor since
September, 2005; President and Chief Executive
Officer, CDC IXIS Asset Management Services,
Inc. (investment management) from September,
1998 to August, 2004.
James R. Bordewick, Jr. Senior Vice President, 2006 Associate General Counsel, Bank of America
(Born 1959) Secretary and since April, 2005; Senior Vice President and
Chief Legal Officer Associate General Counsel, MFS Investment
Management (investment management)
prior to April, 2005.
J. Kevin Connaughton Senior Vice President, 2000 Managing Director of the Advisor since
(Born 1964) Chief Financial February, 1998.
Officer and Treasurer
Mary Joan Hoene Senior Vice President 2004 Senior Vice President and Chief Compliance
(Born 1949) and Chief Compliance Officer of various funds in the Columbia Fund
100 Federal Street Officer Complex; Partner, Carter, Ledyard & Milburn
Boston, MA 02110 LLP (law firm) from January, 2001 to August,
2004.
Michael G. Clarke Chief Accounting 2004 Managing Director of the Advisor since
(Born 1969) Officer and February, 2001.
Assistant Treasurer
Stephen T. Welsh Vice President 1996 President, Columbia Management Services, Inc.
(Born 1957) since July, 2004; Senior Vice President and
Controller, Columbia Management Services, Inc.
prior to July, 2004.
Jeffrey R. Coleman Deputy Treasurer 2004 Group Operations Manager of the Advisor since
(Born 1969) October, 2004; Vice President of CDC IXIS
Asset Management Services, Inc. (investment
management) from August, 2000 to September,
2004.
Joseph F. DiMaria Deputy Treasurer 2004 Senior Compliance Manager of the Advisor since
(Born 1968) January, 2005; Director of Trustee
Administration of the Advisor from May, 2003
to January, 2005; Senior Audit Manager,
PricewaterhouseCoopers (independent registered
public accounting firm) from July, 2000 to
April, 2003.
Ty S. Edwards Deputy Treasurer 2004 Vice President of the Advisor since 2002;
(Born 1966) Assistant Vice President and Director, State
Street Corporation (financial services) prior
to 2002.
Barry S. Vallan Controller 2006 Vice President-Fund Treasury of the Advisor
(Born 1969) since October, 2004; Vice President-Trustee
Reporting from April, 2002 to October, 2004;
Management Consultant, PricewaterhouseCoopers
(independent registered public accounting
firm) prior to October, 2002.
Peter T. Fariel Assistant Secretary 2006 Associate General Counsel, Bank of America
(Born 1957) since April, 2005; Partner, Goodwin Procter
LLP (law firm) prior to April, 2005.
|
Year First
Elected or
Name, Year of Birth and Appointed
Address Position with Funds to Office Principal Occupation(s) During Past Five Years
----------------------- ---------------------- ------------ ----------------------------------------------
OFFICERS
Ryan C. Larrenaga Assistant Secretary 2005 Assistant General Counsel, Bank of America
(Born 1970) since March, 2005; Associate, Ropes & Gray LLP
(law firm) from 1998 to February, 2005.
Barry S. Finkle Assistant Treasurer 2003 Senior Manager and Head of Fund Performance of
(Born 1965) the Advisor since January, 2001.
Julian Quero Assistant Treasurer 2003 Senior Compliance Manager of the Advisor since
(Born 1967) April, 2002; Assistant Vice President of Taxes
and Distributions of the Advisor from 2001 to
April, 2002.
|
Each of the Trust's Trustees and officers hold comparable positions with certain other funds of which the Advisor or its affiliates is the investment advisor or distributors and, in the case of certain of the officers, with certain affiliates of the Advisor.
The Trustees and officers serve terms of indefinite duration. Each Fund held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once every five years thereafter to elect Trustees.
Trustee Positions
As of December 31, 2005, no disinterested Trustee or any of their immediate family members owned beneficially or of record any class of securities of the Advisor, another investment advisor, sub-advisor or portfolio manager of any of the funds in the Fund Complex or any person controlling, controlled by or under common control with any such entity.
General
Messrs. Lowry, Mayer and Neuhauser are also trustees/directors of the Liberty All-Star Funds, a group of 2 registered closed-end funds sponsored by an affiliate of the Advisor.
The Trustees serve as trustees of 83 registered investment companies managed by the Advisor for which each Trustee receives a retainer at the annual rate of $75,000, an attendance fee of $10,500 for each regular and special joint board meeting and $1,000 for each special telephonic joint board meeting. Mr. Theobald serves as the Chairman of the Board. As the independent chairman of the board, Mr. Theobald receives a supplemental retainer at the annual rate of $100,000; the chair of the Audit Committee receives a supplemental retainer at the annual rate of $20,000; the chair of the Advisory Fees and Expenses Committee receives a supplemental retainer at the annual rate of $15,000; the chairs of the Compliance Committee and the Governance Committee each receive supplemental retainers at the annual rate of $10,000. Members of each committee, including the Investment Oversight Committee, receive $2,500 for each committee meeting and $1,000 for each telephonic committee meeting. The Audit Committee chair receives a supplement of $500 for each Audit Committee meeting. Committee members receive $2,500 for each special committee meeting attended on a day other than a regular joint board meeting day. Two-thirds of the Trustee fees are allocated among the Funds based on each Fund's relative net assets and one-third of the fees is divided equally among the Funds.
Officers of the Trust, who are also officers of the Advisor or its affiliates, will benefit from the advisory fees, sales commissions and agency fees paid or allowed by the Trust.
The Agreement and Declaration of Trust ("Declaration") of the Trust provides that the Trust will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Trust but that such indemnification will not relieve any officer or Trustee of any liability to the Trust or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. The Trust, at its expense, provides liability insurance for the benefit of its Trustees and officers.
The Trustees have the authority to convert the Funds into a master fund/feeder fund structure. Under this structure, a Fund may invest all or a portion of its investable assets in investment companies with substantially the same investment goals, policies and restrictions as the Fund. The primary reason to use the master fund/feeder fund structure is to provide a mechanism to pool, in a single master fund, investments of different investor classes, resulting in a larger portfolio, investment and administrative efficiencies and economies of scale.
MANAGEMENT AGREEMENT
Under a Management Agreement (the "Agreement"), the Advisor has contracted to furnish each Fund with investment research and recommendations or fund management, respectively, and accounting and administrative personnel and services, and with office space, equipment and other facilities. For these services and facilities, each Fund pays a monthly fee based on the average of the daily closing value of the total net assets of each Fund for such month. Under the Agreement, any liability of the Advisor to the Trust, a Fund and/or its shareholders is limited to situations involving the Advisor's own willful misfeasance, bad faith, gross negligence or reckless disregard of its duties.
The Agreement may be terminated with respect to the Fund at any time on 60 days'
written notice by the Advisor or by the Trustees of the Trust or by a vote of a
majority of the outstanding voting securities of the Fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the Fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Advisor or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
The Advisor pays all salaries of officers of the Trust. The Trust pays all expenses not assumed by the Advisor including, but not limited to, auditing, legal, custodial, investor servicing and shareholder reporting expenses. The Trust pays the cost of printing and mailing any Prospectuses sent to shareholders. CMD pays the cost of printing and distributing all other Prospectuses.
ADMINISTRATION AGREEMENT (THIS SECTION APPLIES ONLY TO CERTAIN FUNDS AND THEIR RESPECTIVE TRUSTS. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION REGARDING YOUR FUND).
Under an Administration Agreement, the Advisor, in its capacity as the Administrator to each Fund, has contracted to perform the following administrative services:
(a) providing office space, equipment and clerical personnel;
(b) arranging, if desired by the respective Trust, for its directors, officers and employees to serve as Trustees, officers or agents of each Fund;
(c) preparing and, if applicable, filing all documents required for compliance by each Fund with applicable laws and regulations;
(d) preparation of agendas and supporting documents for and minutes of meetings of Trustees, committees of Trustees and shareholders;
(e) coordinating and overseeing the activities of each Fund's other third-party service providers; and
(f) maintaining certain books and records of each Fund.
The Advisor is paid a monthly fee at the annual rate of average daily net assets set forth in Part 1 of this SAI.
TRUST SERVICES AGREEMENT
Pursuant to a Trust Services Agreement, CMS provides the Columbia Tax-Managed Growth Fund's Trust Shares with trust administration services, including tax return preparation and filing, other tax and beneficiary reporting and recordkeeping. CMS's fee is described in the Prospectuses of the Columbia Tax-Managed Growth Fund.
THE PRICING AND BOOKKEEPING AGREEMENT
The Advisor is responsible for providing accounting and bookkeeping services to each Fund pursuant to a pricing and bookkeeping agreement. Under a separate agreement ("Outsourcing Agreement"), the Advisor has delegated those functions to State Street Bank and Trust Company (State Street). The Advisor pays fees to State Street under the Outsourcing Agreement. SEE "FUND CHARGES AND EXPENSES" IN
PART 1 OF THIS SAI FOR INFORMATION ON THESE FEES.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. The Advisor acts as investment advisor to each of the Funds. Various officers and Trustees of the Trust also serve as officers or Trustees of other funds and the other corporate or fiduciary clients of the Advisor. The Funds and clients advised by the Advisor or the Funds administered by the Advisor sometimes invest in securities in which the Fund also invests and sometimes engage in covered option writing programs and enter into transactions utilizing stock index options and stock index and financial futures and related options ("other instruments"). If the Fund, such other funds and such other clients desire to buy or sell the same portfolio securities, options or other instruments at about the same time, the purchases and sales are normally made as nearly as practicable on a pro rata basis in proportion to the amounts desired to be purchased or sold by each. Although in some cases these practices could have a detrimental effect on the price or volume of the securities, options or other instruments as far as the Fund is concerned, in most cases it is believed that these practices should produce better executions. It is the opinion of the Trustees that the desirability of retaining the Advisor as investment advisor to the Funds outweighs the disadvantages, if any, which might result from these practices.
POTENTIAL CONFLICTS OF INTEREST IN MANAGING MULTIPLE ACCOUNTS
Like other investment professionals with multiple clients, a portfolio manager for a Fund may face certain potential conflicts of interest in connection with managing both the Fund and other accounts at the same time. The paragraphs below describe some of these potential conflicts, which the Advisor believes are faced by investment professionals at most major financial firms. The Advisor and the Trustees of the Columbia Funds have adopted compliance policies and procedures that attempt to address certain of these potential conflicts.
The management of accounts with different advisory fee rates and/or fee structures, including accounts that pay advisory fees based on account performance ("performance fee accounts"), may raise potential conflicts of interest by creating an incentive to favor higher-fee accounts. These potential conflicts may include, among others:
- The most attractive investments could be allocated to higher-fee accounts or performance fee accounts.
- The trading of higher-fee accounts could be favored as to timing and/or execution price. For example, higher-fee accounts could be permitted to sell securities earlier than other accounts when a prompt sale is desirable or to buy securities at an earlier and more opportune time.
- The trading of other accounts could be used to benefit higher-fee accounts (front- running).
- The investment management team could focus their time and efforts primarily on higher-fee accounts due to a personal stake in compensation.
Potential conflicts of interest may also arise when the portfolio managers have personal investments in other accounts that may create an incentive to favor those accounts. As a general matter and subject to limited exceptions, the Advisor's investment professionals do not have the opportunity to invest in client accounts, other than the Columbia Funds.
A potential conflict of interest may arise when a Fund and other accounts purchase or sell the same securities. On occasions when a portfolio manager considers the purchase or sale of a security to be in the best interests of a Fund as well as other accounts, the Advisor's trading desk may, to the extent permitted by applicable laws and regulations, aggregate the securities to be sold or purchased in order to obtain the best execution and lower brokerage commissions, if any. Aggregation of trades may create the potential for unfairness to a Fund or another account if one account is favored over another in allocating the securities purchased or sold -- for example, by allocating a disproportionate amount of a security that is likely to increase in value to a favored account.
"Cross trades," in which one Columbia account sells a particular security to another account (potentially saving transaction costs for both accounts), may also pose a potential conflict of interest. Cross trades may be seen to involve a potential conflict of interest if, for example, one account is permitted to sell a security to another account at a higher price than an independent third party would pay. The Advisor and the Funds' Trustees have adopted compliance procedures that provide that any transactions between a Fund and another Columbia-advised account are to be made at an independent current market price, as required by law.
Another potential conflict of interest may arise based on the different investment objectives and strategies of a Fund and other accounts. For example, another account may have a shorter-term investment horizon or different investment objectives, policies or restrictions than a Fund. Depending on another account's objectives or other factors, a portfolio manager may give advice and make decisions that may differ from advice given, or the timing or nature of decisions made, with respect to a Fund. In addition, investment decisions are the product of many factors in addition to basic suitability for the particular account involved. Thus, a particular security may be bought or sold for certain accounts even though it could have been bought or sold for other accounts at the same time. More rarely, a particular security may be bought for one or more accounts managed by a portfolio manager when one or more other accounts are selling the security (including short sales). There may be circumstances when purchases or sales of portfolio securities for one or more accounts may have an adverse effect on other accounts.
A Fund's portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. As a result, the portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as might be the case if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies.
A Fund's portfolio managers may be able to select or influence the selection of the brokers and dealers that are used to execute securities transactions for the Fund. In addition to executing trades, some brokers and dealers provide portfolio managers with brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934), which may result in the payment of higher brokerage fees than might have otherwise be available. These services may be more beneficial to certain funds or accounts than to others. Although the payment of brokerage commissions is subject to the requirement that the portfolio manager determine in good faith that the commissions are reasonable in relation to the value of the brokerage and research services provided to the fund, a portfolio manager's decision as to the selection of brokers and dealers could yield disproportionate costs and benefits among the funds and/or accounts that he or she manages.
The Advisor or an affiliate may provide more services (such as distribution or recordkeeping) for some types of funds or accounts than for others. In such cases, a portfolio manager may benefit, either directly or indirectly, by devoting disproportionate attention to the management of fund and/or accounts that provide greater overall returns to the investment manager and its affiliates.
A Fund's portfolio manager(s) may also face other potential conflicts of interest in managing the Fund, and the description above is not a complete description of every conflict that could be deemed to exist in managing both a Fund and other accounts. In addition, a Fund's portfolio manager may also manage other accounts (including their personal assets or the assets of family members) in their personal capacity. The management of these accounts may also involve certain of the potential conflicts described above. Investment personnel at the Advisor, including each Fund's portfolio manager, are subject to restrictions on engaging in personal securities transactions pursuant to Codes of Ethics adopted by the Advisor and each Fund, which contain provisions and requirements designed to identify and address certain conflicts of interest between personal investment activities and the interests of each Fund.
BROKERAGE AND RESEARCH SERVICES. Consistent with the Conduct Rules of the National Association of Securities Dealers, Inc., and subject to seeking "best execution" (as defined below) and such other policies as the Trustees may determine, the Advisor may consider sales of shares of the Funds as a factor in the selection of broker-dealers to execute securities transactions for a Fund.
The Advisor places the transactions of the Funds with broker-dealers selected by the Advisor and, if applicable, negotiates commissions. Broker-dealers may receive brokerage commissions on portfolio transactions, including the purchase and writing of options, the effecting of closing purchase and sale transactions, and the purchase and sale of underlying securities upon the exercise of options and the purchase or sale of other instruments. The Funds from time to time also execute portfolio transactions
with such broker-dealers acting as principals. The Funds do not intend to deal exclusively with any particular broker-dealer or group of broker-dealers.
It is the Advisor's policy generally to seek best execution, which is to place the Funds' transactions where the Funds can be expected to obtain the most favorable combination of price and execution services in particular transactions or provided on a continuing basis by a broker-dealer, and to deal directly with a principal market maker in connection with over-the-counter transactions, except when it is believed that best execution is obtainable elsewhere. In evaluating the execution services of, including the overall reasonableness of brokerage commissions paid to, a broker-dealer, consideration is given to, among other things, the firm's general execution and operational capabilities, and to its reliability, integrity and financial condition.
Securities transactions of the Funds may be executed by broker-dealers who also provide research services (as defined below) to the Advisor and the Funds. The Advisor may use all, some or none of such research services in providing investment advisory services to each of its investment company and other clients, including the Fund. To the extent that such services are used by the Advisor, they tend to reduce the Advisor's expenses. In the Advisor's opinion, it is impossible to assign an exact dollar value for such services.
The Trustees have authorized the Advisor to cause the Funds to pay a broker-dealer which provides brokerage and research services to the Advisor an amount of commission for effecting a securities transaction, including the sale of an option or a closing purchase transaction, for the funds in excess of the amount of commission which another broker-dealer would have charged for effecting that transaction. As provided in Section 28(e) of the Securities Exchange Act of 1934, "brokerage and research services" include advice as to the value of securities, the advisability of investing in, purchasing or selling securities and the availability of securities or purchasers or sellers of securities; furnishing analyses and reports concerning issues, industries, securities, economic factors and trends and portfolio strategy and performance of accounts; and effecting securities transactions and performing functions incidental thereto (such as clearance and settlement). The Advisor must determine in good faith that such greater commission is reasonable in relation to the value of the brokerage and research services provided by the executing broker-dealer viewed in terms of that particular transaction or the Advisor's overall responsibilities to the Funds and all its other clients.
The Trustees have authorized the Advisor to utilize the services of a clearing agent with respect to all call options written by Funds that write options and to pay such clearing agent commissions of a fixed amount per share (currently 1.25 cents) on the sale of the underlying security upon the exercise of an option written by a Fund.
The Advisor may use the services of affiliated broker-dealers, when buying or selling securities for a Fund's portfolio pursuant to procedures adopted by the Trustees and 1940 Act Rule 17e-1. Under the Rule, the Advisor must ensure that commissions a Fund pays to affiliates of the Advisor on portfolio transactions are reasonable and fair compared to commissions received by other broker-dealers in connection with comparable transactions involving similar securities being bought or sold at about the same time. The Advisor will report quarterly to the Trustees on all securities transactions placed through affiliates of the Advisor so that the Trustees may consider whether such trades complied with these procedures and the Rule.
PRINCIPAL UNDERWRITER
CMD is the principal underwriter of the Trust's shares. CMD has no obligation to buy the Funds' shares, and purchases the Funds' shares only upon receipt of orders from authorized FSFs or investors.
INVESTOR SERVICING AND TRANSFER AGENT
CMS is the Trust's investor servicing agent (transfer, plan and dividend disbursing agent), for which it receives fees which are paid monthly by the Trust. The fee paid to CMS is based on number of accounts plus reimbursement for certain out-of-pocket expenses. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION ON FEES RECEIVED BY CMS. The agreement continues indefinitely but may be terminated by 90 days' notice by the Fund to CMS or generally by 6 months' notice by CMS to the Fund. The agreement limits the liability of CMS to the Fund for loss or damage incurred by the Fund to situations involving a failure of CMS to use reasonable care or to act in good faith and without negligence in performing its duties under the agreement. The Fund will indemnify CMS from, among other things, any and all claims, actions, suits, losses, costs, damages, and expenses incurred by it in connection with its acceptance of this Agreement, provided that: (i) to the extent such claims, actions, suits, losses, costs, damages, or expenses relate solely to a particular series or group of series of shares, such
indemnification shall be only out of the assets of that series or group of series; (ii) this indemnification shall not apply to actions or omissions constituting negligence or misconduct of CMS or its agents or contractors, including but not limited to willful misfeasance, bad faith or gross negligence in the performance of their duties, or reckless disregard of their obligations and duties under this Agreement; and (iii) CMS shall give a Fund prompt notice and reasonable opportunity to defend against any such claim or action in its own name or in the name of CMS.
CODE OF ETHICS
The Funds, the Advisor, and CMD have adopted Codes of Ethics pursuant to the requirements of the 1940 Act. These Codes of Ethics permit personnel subject to the Codes to invest in securities, including securities that may be purchased or held by the Funds. These Codes of Ethics can be reviewed and copied at the SEC's Public Reference Room and may be obtained by calling the SEC at 1-202-942-8090. These Codes are also available on the EDGAR Database on the SEC's internet web site at http://www.sec.gov, and may also be obtained, after paying a duplicating fee, by electronic request to publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102.
ANTI-MONEY LAUNDERING COMPLIANCE
The Funds are required to comply with various anti-money laundering laws and regulations. Consequently, the Funds may request additional information from you to verify your identity. If at any time the Funds believe a shareholder may be involved in suspicious activity or if certain account information matches information on government lists of suspicious persons, the Funds may choose not to establish a new account or may be required to "freeze" a shareholder's account, halting all shareholder activity with respect to such account. The Funds also may be required to provide a governmental agency with information about transactions that have occurred in a shareholder's account or to transfer monies received to establish a new account, transfer an existing account or transfer the proceeds of an existing account to a governmental agency. In some circumstances, the law may not permit a Fund to inform the shareholder that it has taken the actions described above.
PROXY VOTING POLICIES AND FUND PROXY VOTING RECORD
The Fund has delegated to the Advisor the responsibility to vote proxies relating to portfolio securities held by the Fund. In deciding to delegate this responsibility to the Advisor, the Board of Trustees of the Trust reviewed and approved the policies and procedures adopted by the Advisor. These included the procedures that the Advisor follows when a vote presents a conflict between the interests of the Fund and its shareholders and the Advisor, its affiliates, its other clients or other persons.
The Advisor's policy is to vote all proxies for Fund securities in a manner considered by the Advisor to be in the best interest of the Fund and its shareholders without regard to any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor examines each proposal and votes against the proposal, if, in its judgment, approval or adoption of the proposal would be expected to impact adversely the current or potential market value of the issuer's securities. The Advisor also examines each proposal and votes the proxies against the proposal, if, in its judgment, the proposal would be expected to affect adversely the best interest of the Fund. The Advisor determines the best interest of the Fund in light of the potential economic return on the Fund's investment.
The Advisor addresses potential material conflicts of interest by having predetermined voting guidelines. For those proposals that require special consideration or in instances where special circumstances may require varying from the predetermined guideline, the Advisor's Proxy Committee determines the vote in the best interest of the Fund, without consideration of any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor's Proxy Committee is composed of representatives of the Advisor's equity investments, equity research, compliance, legal and fund administration functions. In addition to the responsibilities described above, the Proxy Committee has the responsibility to review, on a semi-annual basis, the Advisor's proxy voting policies to ensure consistency with internal and regulatory agency policies and to develop additional predetermined voting guidelines to assist in the review of proxy proposals.
The Proxy Committee may vary from a predetermined guideline if it determines that voting on the proposal according to the predetermined guideline would be expected to impact adversely the current or potential market value of the issuer's securities or to affect adversely the best interest of the client. References to the best interest of a client refer to the interest of the client in terms of the potential economic return on the client's investment. In determining the vote on any proposal, the Proxy Committee does not consider any benefit other than benefits to the owner of the securities to be voted. A member of the Proxy Committee is
prohibited from voting on any proposal for which he or she has a conflict of interest by reason of a direct relationship with the issuer or other party affected by a given proposal. Persons making recommendations to the Proxy Committee or its members are required to disclose to the Committee any relationship with a party making a proposal or other matter known to the person that would create a potential conflict of interest.
The Advisor has retained Institutional Shareholder Services ("ISS"), a third party vendor, to implement its proxy voting process. ISS provides proxy analysis, record keeping services and vote disclosure services.
The Advisor's proxy voting guidelines and procedures are included in this SAI as Appendix II. In accordance with SEC regulations, the fund's proxy voting record for the last twelve-month period ended June 30 has been filed with the SEC. You may obtain a copy of the fund's proxy voting record (i) at www.columbiamanagement.com; (ii) on the Securities and Exchange Commission's website at www.sec.gov; and (iii) without charge, upon request, by calling 800-368-0346.
DISCLOSURE OF PORTFOLIO INFORMATION
The Trustees of the Columbia Funds have adopted policies with respect to the disclosure of the Funds' portfolio holdings by the Funds, Columbia Advisors, or their affiliates. These policies provide that Fund portfolio holdings information generally may not be disclosed to any party prior to (1) the day next following the posting of such information on the Funds' website at www.columbiafunds.com, (2) the day next following the filing of the information with the SEC in a required filing, or (3) for money market funds, such information is publicly available to all shareholders upon request on the fifth business day after each calendar month-end. Certain limited exceptions pursuant to the Fund's policies are described below. The Trustees shall be updated as needed regarding the Fund's compliance with the policies, including information relating to any potential conflicts of interest between the interests of Fund shareholders and those of Columbia Advisors and its affiliates. The Fund's policies prohibit Columbia Advisors and the Fund's other service providers from entering into any agreement to disclose Fund portfolio holdings information in exchange for any form of consideration. These policies apply to disclosures to all categories of persons, including, without limitation, individual investors, institutional investors, intermediaries that distribute the Fund's shares, third-party service providers, rating and ranking organizations and affiliated persons of the Fund.
PUBLIC DISCLOSURES. The Fund's portfolio holdings are currently disclosed to the public through required filings with the SEC and, for equity and fixed income funds, on the Fund's website at www.columbiafunds.com. The Fund files its portfolio holdings with the SEC for each fiscal quarter on Form N-CSR (with respect to each annual period and semi-annual period) and Form N-Q (with respect to the first and third quarters of the Fund's fiscal year). Shareholders may obtain the Fund's Forms N-CSR and N-Q filings on the SEC's website at www.sec.gov. In addition, the Fund's Forms N-CSR and N-Q filings may be reviewed and copied at the SEC's public reference room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC's website or the operation of the public reference room.
The equity and fixed income Columbia Funds also currently make portfolio information publicly available at www.columbiafunds.com, as disclosed in the following table:
Frequency of
Type of Fund Information Provided Disclosure Date of Web Posting
------------ ------------------------------------ ------------ ----------------------------------
Equity Funds Full portfolio holdings information Monthly 30 calendar days after month-end
Fixed Income Funds Full portfolio holdings information Quarterly 60 calendar days after quarter-end
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The scope of the information provided relating to the Fund's portfolio that is made available on the website may change from time to time without prior notice.
For Columbia's money market funds, a complete list of a Fund's portfolio holdings shall be publicly available on a monthly basis on the fifth business day after month-end. Shareholders may request such information by writing or calling the Fund's distributor, CMD at the address listed on the cover of this SAI.
A Fund, Columbia Advisors or their affiliates may include portfolio holdings information that has already been made public through a web posting or SEC filing in marketing literature and other communications to shareholders, advisors or other parties, provided that the information is disclosed no earlier than the day after the date the information is disclosed publicly.
OTHER DISCLOSURES. The Fund's policies provide that non-public disclosures of the Fund's portfolio holdings may be made if (1) the Fund has a legitimate business purpose for making such disclosure, (2) the Fund's chief executive officer authorizes such non-public disclosure of information, and (3) the party receiving the non-public information enters into a confidentiality agreement, which includes a duty not to trade on the non-public information.
The Fund periodically discloses its portfolio information on a confidential basis to various service providers that require such information in order to assist the Fund with its day-to-day business affairs. In addition to Columbia Advisors and its affiliates, these service providers include the Fund's custodian and sub-custodians, the Fund's independent registered public accounting firm, legal counsel, financial printers (R.R. Donnelly & Sons and Bowne & Co., Inc.), the Fund's proxy solicitor and proxy voting service provider (Computershare Investor Services, LLC), rating agencies that maintain ratings on certain Columbia Funds (Fitch, Inc.) and service providers that support Columbia Advisors' trading systems (InvestorTool, Inc. and Thomson Financial). These service providers are required to keep such information confidential, and are prohibited from trading based on the information or otherwise using the information except as necessary in providing services to the Fund. The Fund may also disclose portfolio holdings information to broker/dealers and certain other entities related to potential transactions and management of the Fund, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information.
Certain clients of the Fund's investment adviser(s) may follow a strategy similar to that of the Fund, and have access to portfolio holdings information for their account. It is possible that such information could be used to infer portfolio holdings information relating to the Fund.
DETERMINATION OF NET ASSET VALUE
Each Fund determines net asset value (NAV) per share for each class as of the close of trading on the New York Stock Exchange (Exchange) (generally 4:00 p.m. Eastern time) each day the Exchange is open, except that certain classes of assets, such as index futures, for which the market close occurs shortly after the close of regular trading on the Exchange will be priced at the closing time of the market on which they trade. Currently, the Exchange is closed Saturdays, Sundays and the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. Funds with portfolio securities which are primarily listed on foreign exchanges may experience trading and changes in NAV on days on which such Fund does not determine NAV due to differences in closing policies among exchanges. This may significantly affect the NAV of the Fund's redeemable securities on days when an investor cannot redeem such securities. Debt securities generally are valued by a pricing service which determines valuations based upon market transactions for normal, institutional-size trading units of similar securities. However, in circumstances where such prices are not available or where the Advisor deems it appropriate to do so, an over-the-counter or exchange bid quotation is used. Securities listed on an exchange or on NASDAQ are valued at the last sale price (or the official closing price as determined by the NASDAQ system, if different, as applicable). Listed securities for which there were no sales during the day and unlisted securities generally are valued at the last quoted bid price. Options are valued at the last sale price or in the absence of a sale, the mean between the last quoted bid and offering prices. Short-term obligations with a maturity of 60 days or less are valued at amortized cost pursuant to procedures adopted by the Trustees. The values of foreign securities quoted in foreign currencies are translated into U.S. dollars at the exchange rate for that day. Portfolio positions for which market quotations are not readily available and other assets are valued at fair value as determined by the Advisor in good faith under the direction of the Trust's Board of Trustees.
Generally, trading in certain securities (such as foreign securities) is substantially completed each day at various times prior to the close of the Exchange. Trading on certain foreign securities markets may not take place on all business days in New York, and trading on some foreign securities markets takes place on days which are not business days in New York and on which the Fund's NAV is not calculated. The values of these securities used in determining the NAV are computed as of such times. Also, because of the amount of time required to collect and process trading information as to large numbers of securities issues, the values of certain securities (such as convertible bonds, U.S. government securities, and tax-exempt securities) are determined based on market quotations collected earlier in the day at the latest practicable time prior to the close of the Exchange. Occasionally, events affecting the value of such securities may occur between such times and the close of the Exchange which will not be reflected in the computation of each Fund's NAV. If events materially affecting the value of such securities occur during such period, then these securities will be valued at fair value following procedures approved by the Trust's Board of Trustees.
(The following two paragraphs are applicable only to Columbia Greater China Fund).
Trading in securities on stock exchanges and over-the-counter markets in foreign securities markets is normally completed well before the close of the business day in New York. Trading on foreign securities markets may not take place on all business days in New York, and trading on some foreign securities markets does take place on days which are not business days in New York and on which the Fund's NAV is not calculated.
The calculation of the Fund's NAV accordingly may not take place contemporaneously with the determination of the prices of the Fund's portfolio securities used in such calculations. Events affecting the values of portfolio securities that occur between the time their prices are determined and the close of the Exchange (when the Fund's NAV is calculated) will not be reflected in the Fund's calculation of NAV unless the Advisor, acting under procedures established by the Board of Trustees of the Trust, deems that the particular event would materially affect the Fund's NAV, in which case an adjustment will be made. Assets or liabilities initially expressed in terms of foreign currencies are translated prior to the next determination of the NAV of the Fund's shares into U.S. dollars at prevailing market rates.
AMORTIZED COST FOR MONEY MARKET FUNDS.
Money market funds generally value their portfolio securities at amortized cost according to Rule 2a-7 under the 1940 Act.
Under the amortized cost method a security is initially valued at cost and
thereafter any discount or premium from maturity value is amortized ratably to
maturity. This method assures a constant NAV but may result in a yield different
from that of the same portfolio under the market value method. The Trust's
Trustees have adopted procedures intended to stabilize a money market fund's NAV
per share at $1.00. If a money market fund's market value deviates from the
amortized cost of $1.00, and results in a material dilution to existing
shareholders, the Trust's Trustees will take corrective action that may include:
realizing gains or losses; shortening the portfolio's maturity; withholding
distributions; redeeming shares in kind; or converting to the market value
method (in which case the NAV per share may differ from $1.00). All investments
will be determined pursuant to procedures approved by the Trust's Trustees to
present minimal credit risk.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of the Fund and tables of charges. This SAI contains additional information which may be of interest to investors.
The Fund may accept unconditional orders for shares to be executed at the public offering price based on the NAV per share next determined after the order is placed in good order. The public offering price is the NAV plus the applicable sales charge, if any. In the case of orders for purchase of shares placed through FSFs, the public offering price will be determined on the day the order is placed in good order, but only if the FSF receives the order prior to the time at which shares are valued and transmits it to the Fund before the Fund processes that day's transactions. If the FSF fails to transmit before the Fund processes that day's transactions, the customer's entitlement to that day's closing price must be settled between the customer and the FSF. If the FSF receives the order after the time at which the Fund values its shares, the price will be based on the NAV determined as of the close of the Exchange on the next day it is open. If funds for the purchase of shares are sent directly to CMS, they will be invested at the public offering price next determined after receipt in good order. Payment for shares of the fund must be in U.S. dollars; if made by check, the check must be drawn on a U.S. bank.
Investors should understand that, since the offering price of the Fund's shares is calculated to two decimal places using standard rounding methodology, the dollar amount of the sales charge paid as a percentage of the offering price and of the net amount invested for any particular purchase of fund shares may be higher or lower depending on whether downward or upward rounding was required during the calculation process.
The Fund receives the entire NAV of shares sold. For shares subject to an initial sales charge, CMD's commission is the sales charge shown in the Fund's Prospectus less any applicable FSF discount. The FSF discount is the same for all FSFs, except that CMD retains the entire sales charge on any sales made to a shareholder who does not specify a FSF on the Investment Account Application ("Application"), and except that CMD may from time to time reallow additional amounts to all or certain FSFs. CMD generally retains some or all of any asset-based sales charge (distribution fee) or contingent deferred sales charge. Such charges generally reimburse CMD for any up-front and/or ongoing commissions paid to FSFs.
Checks presented for the purchase of shares of the Fund which are returned by the purchaser's bank or checkwriting privilege checks for which there are insufficient funds in a shareholder's account to cover redemption may subject such purchaser or shareholder to a $15 service fee for each check returned. Checks must be drawn on a U.S. bank and must be payable in U.S. dollars. Travelers checks, gift checks, credit card convenience checks, credit cards, cash and ban counter (starter checks) are not accepted.
CMS acts as the shareholder's agent whenever it receives instructions to carry out a transaction on the shareholder's account. Upon receipt of instructions that shares are to be purchased for a shareholder's account, the designated FSF will receive the applicable sales commission. Shareholders may change FSFs at any time by written notice to CMS, provided the new FSF has a sales agreement with CMD.
Shares credited to an account are transferable upon written instructions in good order to CMS and may be redeemed as described under "How to Sell Shares" in the Prospectus. Certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you may send the certificates to CMS for deposit to your account.
In addition to the commissions specified in a Fund's prospectus and this SAI, CMD, or its advisory affiliates, from their own resources, may make cash payments to FSFs that agree to promote the sale of shares of funds that CMD distributes. A number of factors may be considered in determining the amount of those payments, including the FSF's sales, client assets invested in the funds and redemption rates, the quality of the FSF's relationship with CMD and/or its affiliates, and the nature of the services provided by FSFs to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the FSF's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, CMD may also pay non-cash compensation to FSFs and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for FSF educational or training events.
In addition, CMD, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of a Fund.
CMD and its affiliates anticipate that the FSFs and intermediaries that will receive the additional compensation described above include:
1st Global Capital Corp
401 Company
ABN AMRO Trust Services
ADP Retirement Services
Advest
AEGON/Transamerica
AG Edwards
American Century Services
American Express
AMG
AON Consulting
AST Trust Company
Banc of America Investment Services
BancOne
Bear Stearns
Benefit Plan Administrators
Bidwell & Company
BNY Clearing
C N A Trust
Charles Schwab
CIBC Oppenheimer
Citigroup Global Markets
CitiStreet Associates LLC
City National Bank
City of Milwaukee
Columbia Trust Company
Commonwealth Financial
Compensation & Capital
CPI Qualified Plan Consultants
Daily Access Concepts
Davenport & Company
Delaware Investments
Digital Retirement Solutions
Discover Brokerage
Dreyfus/Mellon
Edgewood Services
Edward Jones
E-Trade,
ExpertPlan
FAS Liberty Life Spectrum
Ferris Baker Watts
Fidelity
Financial Data Services
Franklin Templeton
Freeman Welwood
Gem Group
Great West Life
Hewitt Associates LLC
Huntington Bank
ING
Intermountain Health Care
Investmart, Inc.
Investment Manager Services (IMS)
Janney Montgomery Scott
JJB Hilliard Lyons
JP Morgan/American Century
Kenney Investments
Kirkpatrick Pettis Smith Polian Inc
Legg Mason Wood Walker
Liberty Life
Lincoln Financial
Lincoln Life
Linsco Private Ledger
M & T Securities
Marquette Trust Company
Mass Mutual Life
Matrix Settlement & Clearance Services (MSCS)
McDonald Investments
Merrill Lynch
MetLife
MFS
Mfund Trax
MidAtlantic Capital
Milliman USA
Morgan Keegan
Morgan Stanley Dean Witter
PFPC
Nationwide Investment Services
Neuberger Berman Mgmt
NFP Securities
NSD -NetStock Sharebuilder
NYLife Distributors
Optimum Investment Advisors
Orbitex
Pershing LLC
Phoenix Home Life
Piper Jaffray
PNC
PPI Employee Benefits
Private Bank & Trust
Prudential
Putnam Investments
Raymond James
RBC Dain Rausher
Robert W Baird
Royal Alliance
RSM McGladrey Inc.
Safeco
Scott & Stringfellow
Scudder Investments
Security Benefit
Segall Bryant Hamill
South Trust Securities
Southwest Securities
Standard Insurance
Stanton Group
State of NY Deferred Compensation Plan
Stephens, Inc.
Stifel Nicolaus & Co
Strong Capital
Sungard T Rowe Price
Trustar Retirement Services
Trustlynx/Datalynx
UBS Financial Services
USAA Investment Management
Vanguard
Wachovia
TD Waterhouse
Webster Investment Services
Wells Fargo
Wilmington Trust
PLEASE CONTACT YOUR FSF OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or eliminated at any time.
AUTOMATIC INVESTMENT PLAN. As a convenience to investors, shares of most Funds advised by the Advisor may be purchased through the Automatic Investment Plan. Electronic fund transfers for a fixed amount of at least $50 ($25 for IRA) are used to purchase a Fund's shares at the public offering price next determined after CMD receives the proceeds. If your Automatic Investment Plan purchase is by electronic funds transfer, you may request the Automatic Investment Plan purchase for any day. Further information and application forms are available from FSFs or from CMD.
AUTOMATED DOLLAR COST AVERAGING (Classes A, B, C, D, T, G and Z). The Automated Dollar Cost Averaging program allows you to exchange $100 or more on a monthly basis from any fund distributed by CMD into the same class of shares of up to five other Funds. Complete the Automated Dollar Cost Averaging section of the Application. There is no charge for exchanges made pursuant to the Automated Dollar Cost Averaging program. Sales charges may apply if exchanging from a money market fund. Exchanges will continue so long as your fund balance is sufficient to complete the transfers. Your normal rights and privileges as a shareholder remain in full force and effect. Thus you can buy any Fund, exchange between the same Class of shares of Funds by written instruction or by telephone exchange if you have so elected and withdraw amounts from any Fund, subject to the imposition of any applicable CDSC or sales charges.
Any additional payments or exchanges into your Fund will extend the time of the Automated Dollar Cost Averaging program.
An exchange is generally a capital sale transaction for federal income tax purposes.
You may terminate your program, change the amount of the exchange (subject to the $100 minimum), or change your selection of funds, by telephone or in writing; if in writing by mailing your instructions to Columbia Management Services, Inc. (formerly named Columbia Funds Services, Inc.) (CMS) P.O. Box 8081, Boston, MA 02266-8081.
You should consult your FSF or financial advisor to determine whether or not the Automated Dollar Cost Averaging program is appropriate for you.
CMD offers several plans by which an investor may obtain reduced initial or contingent deferred sales charges. These plans may be altered or discontinued at any time. See "Programs For Reducing or Eliminating Sales Charges" below for more information.
CLASS T SHAREHOLDER SERVICES PLAN. The Trustees have approved a Shareholder
Services Plan (the "Services Plan") pursuant to which the Trusts plan to enter
into servicing agreements with institutions (including Bank of America
Corporation and its affiliates). Pursuant to these servicing agreements,
institutions render certain administrative and support services to customers who
are the beneficial owners of Class T shares of each Fund other than the Columbia
Newport Tiger Fund. Such services are provided to the institution's customers
who are the beneficial owners of Class T shares and are intended to supplement
the services provided by the Fund's administrator and transfer agent to the
shareholders of record of the Class T shares. The Services Plan provides that
each Fund will pay fees for such services at an annual rate of up to 0.50% of
the average daily net asset value of Class T shares owned beneficially by the
institution's customers. Institutions may receive up to one-half of this fee for
providing one or more of the following services to such customers: (i)
aggregating and processing purchase and redemption requests and placing net
purchase and redemption orders with CMD; (ii) processing dividend payments from
a Fund; (iii) providing sub-accounting with respect to Class T shares or the
information necessary for sub-accounting; and (iv) providing periodic mailings
to customers. Institutions may also receive up to one-half of this fee for
providing one or more of these additional services to such customers: (i)
providing customers with information as to their positions in Class T shares;
(ii) responding to customer inquiries; and (iii) providing a service to invest
the assets of customers in Class T shares.
The payments under the servicing agreements entered into as of the date of this SAI are limited to an aggregate fee of not more than 0.30% (on an annualized basis) of the average daily net asset value of the Class T shares of equity funds beneficially owned
by customers of institutions and 0.15% (on an annualized basis) of the average daily net asset value of the Class T shares of bond funds beneficially owned by customers of institutions. The Funds understand that institutions may charge fees to their customers who are the beneficial owners of Class T shares in connection with their accounts with such institutions. Any such fees would be in addition to any amounts which may be received by an institution under the Services Plan. Under the terms of each servicing agreement, institutions are required to provide to their customers a schedule of any fees that they may charge in connection with customer investments in Class T shares.
Each servicing agreement with an institution ("Service Organization") relating to the Services Plan requires that, with respect to those Funds which declare dividends on a daily basis, the Service Organization agrees to waive a portion of the servicing fee payable to it under the Services Plan to the extent necessary to ensure that the fees required to be accrued with respect to the Class T shares of such Funds on any day do not exceed the income to be accrued to such Class T shares on that day.
The Class T servicing agreements are governed by the Services Plan approved by the Board of Trustees in connection with the offering of Class T shares of each Fund. Pursuant to the Services Plan, the Board of Trustees reviews, at least quarterly, a written report of the amounts paid under the servicing agreements and the purposes for which the expenditures were made. In addition, the arrangements with Service Organizations must be approved annually by a majority of the Trustees, including a majority of the trustees who are not "interested persons" of the Funds as defined in the 1940 Act and who have no direct or indirect financial interest in such arrangements (the "Disinterested Trustees").
The Board of Trustees has approved the service agreements with Service Organizations based on information provided by the Funds' service contractors that there is a reasonable likelihood that the arrangements will benefit the Funds and their shareholders by affording the Funds greater flexibility in connection with the efficient servicing of the accounts of the beneficial owners of Class T shares of the Funds. Any material amendment to the Funds' arrangements with Service Organizations must be approved by a majority of the Board of Trustees (including a majority of the Disinterested Trustees). So long as the service agreements with Service Organizations are in effect, the selection and nomination of the members of Columbia's Board of Trustees who are not "interested persons" (as defined in the 1940 Act) of the Funds will be committed to the discretion of such Disinterested Trustees.
TAX-SHELTERED RETIREMENT PLANS (Retirement Plans). CMD offers prototype tax-qualified plans, including Pension and Profit-Sharing Plans for individuals, corporations, employees and the self-employed. The minimum initial Retirement Plan investment is $25. Columbia Trust Company (CTC) is the Custodian/Trustee and Plan Sponsor of the Columbia Advisor prototype plans offered through CMD. In general, a $20 annual fee is charged. Detailed information concerning these Retirement Plans and copies of the Retirement Plans are available from CMD.
Participants in Retirement Plans not sponsored by CTC, not including Individual Retirement Accounts (IRAs), may be subject to an annual fee of $20 unless the Retirement Plan maintains an omnibus account with CMS. Participants in CTC sponsored prototype plans (other than IRAs) who liquidate the total value of their account may also be charged a $20 close-out processing fee payable to CMS. The close out fee applies to plans opened after September 1, 1996. The fee is in addition to any applicable CDSC. The fee will not apply if the participant uses the proceeds to open a Columbia Advisor IRA Rollover account in any Fund distributed by CMD, or if the Retirement Plan maintains an omnibus account.
Consultation with a competent financial advisor regarding these Retirement Plans and consideration of the suitability of Fund shares as an investment under the Employee Retirement Income Security Act of 1974 or otherwise is recommended.
TELEPHONE ADDRESS CHANGE SERVICES. By calling CMS, shareholders or their FSF of record may change an address on a recorded telephone line. Confirmations of address change will be sent to both the old and the new addresses. Telephone redemption privileges by check are suspended for 30 days after an address change is effected. Please have your account and taxpayer identification numbers available when calling.
CASH CONNECTION. Dividends and any other distributions, including Systematic Withdrawal Plan (SWP) payments, may be automatically deposited to a shareholder's bank account via electronic funds transfer. Shareholders wishing to avail themselves of this electronic transfer procedure should complete the appropriate sections of the Application.
AUTOMATIC DIVIDEND DIVERSIFICATION. The automatic dividend diversification reinvestment program (ADD) generally allows shareholders to have all distributions from a Fund automatically invested in the same class of shares of another Fund. An ADD
account must be in the same name as the shareholder's existing open account with the particular Fund. Call CMS for more information at 1-800-345-6611.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
RIGHTS OF ACCUMULATION (Columbia Class A and Class T shares, Nations Class A shares and Galaxy Retail A shares only) Class T shares can only be purchased by the shareholders of Columbia Newport Tiger Fund (formerly named Liberty Newport Tiger Fund) who already own Class T shares. Reduced sales charges on Class A and T shares can be effected by combining a current purchase of Class A or Class T shares with prior purchases of other funds and classes distributed by CMD. The applicable sales charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on the previous day of all shares of funds for which CMD serves as distributor for funds held by the shareholder.
CMD must be promptly notified of each purchase with respect to which a shareholder is entitled to a reduced sales charge. Such reduced sales charge will be applied upon confirmation of the shareholder's holdings by CMS. A Fund may terminate or amend this Right of Accumulation.
STATEMENT OF INTENT (Class A, Class E and Class T shares only). Any person may qualify for reduced sales charges on purchases of Class A, E and T shares made within a thirteen-month period pursuant to a Statement of Intent ("Statement"). A shareholder may include, as an accumulation credit toward the completion of such Statement, the value of all fund shares held by the shareholder on the date of the Statement in Funds (except shares of any money market fund, unless such shares were acquired by exchange from Class A shares of another non-money market fund)). The value is determined at the public offering price on the date of the Statement. Purchases made through reinvestment of distributions do not count toward satisfaction of the Statement.
During the term of a Statement, CMS will hold shares in escrow to secure payment of the higher sales charge applicable to Class A, E or T shares actually purchased. Dividends and capital gains will be paid on all escrowed shares and these shares will be released when the amount indicated has been purchased. A Statement does not obligate the investor to buy or a Fund to sell the amount of the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which would qualify for a further quantity discount, a retroactive price adjustment will be made at the time of expiration of the Statement (provided the FSF returns to CMD the excess commission previously paid during the thirteen-month period). The resulting difference in offering price will purchase additional shares for the shareholder's account at the applicable offering price. If the amount of the Statement is not purchased, the shareholder shall remit to CMD an amount equal to the difference between the sales charge paid and the sales charge that should have been paid. If the shareholder fails within twenty days after a written request to pay such difference in sales charge, CMS will redeem escrowed Class A, E or T shares with a value equal to such difference. The additional FSF commission will be remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available from your FSF, or from CMS at 1-800-345-6611.
NET ASSET VALUE ELIGIBILITY GUIDELINES (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, LLC IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS).
1. Employees, brokers and various relationships that are allowed to buy
at NAV. Class A shares of certain Funds may be sold at NAV to the
following individuals, whether currently employed or retired:
Employees of Bank of America Corporation (and its predecessors), its
affiliates and subsidiaries; Trustees of funds advised or administered
by the Advisor; directors, officers and employees of the Advisor, CMD,
or its successors and companies affiliated with the Advisor;
Registered representatives and employees of FSFs (including their
affiliates) that are parties to dealer agreements or other sales
arrangements with CMD; Nations Funds' Trustees, Directors and
employees of its investment sub-advisers; Broker/Dealers if purchases
are in accordance with the internal policies and procedures of
the employing broker/dealer and made for their own investment purposes; employees or partners of any contractual service provider to the funds.
NAV eligibility for Class A purchase also applies to the families of the parties listed above and their beneficial accounts. Family members include: spouse, parent, stepparent, legal guardian, child, stepchild, father-in-law and mother-in-law.
Individuals receiving a distribution from a Bank of America trust, fiduciary, custodial or other similar account may use the proceeds of that distribution to buy Class A shares without paying a front-end sales charge, as long as the proceeds are invested in the funds within 90 days of the date of distribution.
Registered broker/dealer firms that have entered into a Nations Funds dealer agreement with BACAP Distributors, LLC may buy Class A shares without paying a front-end sales charge for their investment account only.
Banks, trust companies and thrift institutions, acting as fiduciaries.
2. Grandfathered investors. Any shareholder who owned shares of any fund of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000 (when all of the then outstanding shares of Columbia Acorn Trust were re-designated Class Z shares) and who since that time has remained a shareholder of any Fund, may purchase Class A shares of any Fund at NAV in those cases where a Columbia Fund Class Z share is not available.
Shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at NAV will continue to be eligible for NAV purchases into those Nations Fund accounts opened through August 19, 2005.
Galaxy Fund shareholders prior to December 1, 1995; and shareholders who (i) purchased Galaxy Fund Prime A shares at NAV and received Class A shares in exchange for those shares during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Prime A shares were originally purchased.
(For Class T shares only) Shareholders who (i) purchased Galaxy Fund Retail A shares at net asset value and received Class T shares in exchange for those shares during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Retail A shares were originally purchased; and Boston 1784 Fund shareholders on the date that those funds were reorganized into Galaxy Funds.
3. Reinstatement. Subject to the fund policy on trading of fund shares, an investor who has redeemed class A, B, C, D, G or T shares may, upon request, reinstate within 1 year a portion or all of the proceeds of such sales in shares of class A of any fund at the NAV next determined after CMS received a written reinstatement request and payment.
4. Retirement Plans. Class A, Class E and Class T shares (Class T shares are not currently open to new investors) of certain funds may also be purchased at reduced or no sales charge by clients of dealers, brokers or registered investment advisors that have entered into arrangements with CMD pursuant to which the funds are included as investments options in wrap fee accounts, other managed agency/asset allocation accounts or programs involving fee-based compensation arrangements, and by participants in certain retirement plans.
5. Non-U.S. Investors. Certain pension, profit-sharing or other employee benefit plans offered to non-US investors may be eligible to purchase Class A shares with no sales charge.
6. Reorganizations. At the Fund's discretion, NAV eligibility may apply to shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which the fund is a party.
7. Rights of Accumulation (ROA). The value of eligible accounts, regardless of class, maintained by you and you and your immediate family may be combined with the value of your current purchase to reach a sales discount level and to obtain the lower sales charge for your current purchase.
8. Letters of Intent (LOI). You may pay a lower sales charge when purchasing class A shares by signing a letter of intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the LOI within 13 months. If your LOI purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES (CDSCS) (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, LLC IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS) (Class A, B, C, D, E, matured F, G and T shares) CDSCs may be waived on redemptions in the following situations with the proper documentation:
1. Death. CDSCs may be waived on redemptions following the death of (i) the sole shareholder on an individual account, (ii) a joint tenant where the surviving joint tenant is the deceased's spouse, or (iii) the beneficiary of a Uniform Gifts to Minors Act (UGMA), Uniform Transfers to Minors Act (UTMA) or other custodial account. If, upon the occurrence of one of the foregoing, the account is transferred to an account registered in the name of the deceased's estate, the CDSC will be waived on any redemption from the estate account If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions occurring pursuant to a monthly, quarterly or semi-annual SWP established with CMS, to the extent the redemptions do not exceed, on an annual basis, 12% of the account's value at the time that the SWP is established. Otherwise, CDSCs will be charged on SWP redemptions until this requirement is met. For redemptions in excess of 12% of the account's value at the time that the SWP is established, a CDSC will be charged on the SWP redemption. The 12% limit does not apply if the SWP is set up at the time the account is established, and distributions are being reinvested. See below under "How to Sell Shares -- Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions occurring after the
sole shareholder on an individual account or a joint tenant on a
spousal joint tenant account becomes disabled (as defined in Section
72(m)(7) of the Internal Revenue Code). To be eligible for such
waiver, (i) the disability must arise AFTER the purchase of shares
(ii) the disabled shareholder must have been under age 65 at the time
of the initial determination of disability, and (iii) a letter from a
physician must be signed under penalty of perjury stating the nature
of the disability. If the account is transferred to a new registration
and then a redemption is requested, the applicable CDSC will be
charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring upon dissolution of a revocable living or grantor trust following the death of the sole trustee where (i) the grantor of the trust is the sole trustee and the sole life beneficiary, (ii) death occurs following the purchase AND (iii) the trust document provides for dissolution of the trust upon the trustee's death. If the account is transferred to a new registration (including that of a successor trustee), the applicable CDSC will be charged upon any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions required to return excess contributions made to retirement plans or individual retirement accounts, so long as the FSF agrees to return the applicable portion of any commission paid by CMD.
6. Qualified Retirement Plans. CDSCs may be waived on CMD shares sold by
employee benefit plans created according to Section 403(b) of the tax
code and sponsored by a non-profit organization qualified under
Section 501(c)(3) of the tax code. To qualify for the waiver, the plan
must be a participant in an alliance program that has signed an
agreement with Columbia Funds or CMD.
7. Trust Share Taxes. CDSCs will be waived on redemptions of Class E and F shares (i) where the proceeds are used to directly pay trust taxes, and (ii) where the proceeds are used to pay beneficiaries for the payment of trust taxes.
8. Return of Commission. CDSCs may be waived on shares sold by intermediaries that are part of the Columbia Funds selling group where the intermediary has entered into an agreement with Columbia Funds not to receive (or to return if received) all or any applicable portion of an upfront commission.
9. Non-U.S. Investors. CDSCs may be waived on shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors.
10. IRS Section 401 and 457. CDSCs may be waived on shares sold by certain pension, profit-sharing or other employee benefit plans established under Section 401 or 457 of the tax code.
11. Medical Payments. CDSCs may be waived on shares redeemed for medical payments that exceed 7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least twelve weeks.
12. Plans of Reorganization. At the Funds' discretion, CDSCs may be waived for shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which a fund is a party.
13. Charitable Giving Program. CDSCs may be waived on the sale of Class C
or Class D shares sold by a non-profit organization qualified under
Section 501(c)(3) of the tax code in connection with the Banc of
America Capital Management Charitable Giving Program.
14. The CDSC also may be waived where the FSF agrees to return all or an agreed upon portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may be sold on any day the Exchange is open, either directly to the Fund or through the shareholder's FSF. Sale proceeds generally are sent within seven days (usually on the next business day after your request is received in good form). However, for shares recently purchased by check, the Fund may delay selling or delay sending proceeds from your shares for up to 15 days in order to protect the Fund against financial losses and dilution in net asset value caused by dishonored purchase payment checks.
To sell shares directly to the Fund, send a signed letter of instruction to CMS, along with any certificates for shares to be sold. The sale price is the net asset value (less any applicable contingent deferred sales charge) next calculated after the Fund receives the request in proper form. Signatures must be guaranteed by a bank, a member firm of a national stock exchange or another eligible guarantor that participates in the Medallion Signature Guarantee Program. Stock power forms are available from FSFs, CMS and many banks. Additional documentation may be required for sales by corporations, agents, fiduciaries, surviving joint owners, individual retirement account holders and other legal entities. Call CMS for more information 1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued to receive that day's price, FSF's are responsible for furnishing all necessary documentation to CMS and may charge for this service.
SYSTEMATIC WITHDRAWAL PLAN. The shareholder may establish a SWP. A specified dollar amount, share amount or percentage of the then current net asset value of the shareholder's investment in any Fund designated by the shareholder will be paid monthly, quarterly or semi-annually to a designated payee. The amount or percentage the shareholder specifies is run against available shares and generally may not, on an annualized basis, exceed 12% of the value, as of the time the shareholder makes the election, of the shareholder's investment. Withdrawals of shares of the Fund under a SWP will be treated as redemptions of shares purchased through the reinvestment of Fund distributions, or, to the extent such shares in the shareholder's account are insufficient to cover Plan payments, as redemptions from the earliest purchased shares of such Fund in the shareholder's account. No CDSCs apply to a redemption pursuant to a SWP of 12% or less, even if, after giving effect to the redemption, the shareholder's account balance is less than the shareholder's base amount. Qualified plan participants who are required by Internal Revenue Service regulation to withdraw more than 12%, on an annual basis, of the value of their share account may do so but may be subject to a CDSC ranging from 1% to 5% of the amount withdrawn in excess of 12% annually. If a shareholder wishes to participate in a SWP, the shareholder must elect to have all of the shareholder's income dividends and other Fund distributions payable in shares of the Fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by telephone on a recorded line. However, SWP checks will be payable only to the shareholder and sent to the address of record. SWPs from retirement accounts cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in certificate form. Purchasing additional shares (other than through dividend and distribution reinvestment) while receiving SWP payments is ordinarily disadvantageous because of sales charges. For this reason, a shareholder may not maintain a plan for the accumulation of shares of the Fund (other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or loss for tax purposes, may involve the use of principal and may eventually use up all of the shares in a shareholder's account.
A Fund may terminate a shareholder's SWP if the shareholder's account balance falls below $5,000 due to any transfer or liquidation of shares other than pursuant to the SWP. The $5,000 minimum account balance requirement has been waived for wrap accounts. SWP payments will be terminated on receiving satisfactory evidence of the death or incapacity of a shareholder. Until this evidence is received, CMS will not be liable for any payment made in accordance with the provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate in them is borne by the Fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not be able to participate in a SWP. If a shareholder's Fund shares are held in "street name," the shareholder should consult his or her FSF to determine whether he or she may participate in a SWP. The SWP on accounts held in "street name" must be made payable to the back office via the National Securities Clearing Corporation (NSCC).
TELEPHONE REDEMPTIONS. All Fund shareholders and/or their FSFs are automatically eligible to redeem up to $100,000 of the Fund's shares by calling 1-800-422-3737 toll-free any business day between 9:00 a.m. and the close of trading of the Exchange (normally 4:00 p.m. Eastern time). Transactions received after 4:00 p.m. Eastern time will receive the next business day's closing price. Telephone redemptions by check and ACH are limited to a total of $100,000 in a 30-day period. Redemptions that exceed $100,000 may be accomplished by placing a wire order trade through a broker, to a pre-existing bank account or furnishing a signature guaranteed request. Signatures must be guaranteed by either a bank, a member firm of a national stock exchange or another eligible guarantor that participates in the Medallion Signature Guarantee Program. CMS will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. Telephone redemptions are not available on accounts with an address change in the preceding 30 days and proceeds and confirmations will only be mailed or sent to the address of record unless the redemption proceeds are being sent to a pre-designated bank account. Shareholders and/or their FSFs will be required to provide their name, address account and taxpayer identification numbers. FSFs will also be required to provide their broker number. All telephone transactions are recorded. A loss to a shareholder may result from an unauthorized transaction reasonably believed to have been authorized. Certain restrictions apply to retirement plan accounts.
CHECKWRITING (Available only on the Class A and Z shares of certain Funds) Shares may be redeemed by check if a shareholder has previously completed an Application and Signature Card. CMS will provide checks to be drawn on Mellon Trust of New England, N.A. (the "Bank"). These checks may be made payable to the order of any person in the amount of not less than $500 ($250 for money market funds) nor more than $100,000 for non-money market funds. The shareholder will continue to earn dividends on shares until a check is presented to the Bank for payment. At such time a sufficient number of full and fractional shares will be redeemed at the next determined net asset value to cover the amount of the check. Certificate shares may not be redeemed in this manner.
Shareholders utilizing checkwriting drafts will be subject to the Bank's rules governing checking accounts. There is currently no charge to the shareholder for the use of checks., However, you may incur customary fees for services such as a stop payment request or a request for copies of a check. The shareholder should make sure that there are sufficient shares in his or her open account to cover the amount of any check drawn since the net asset value of shares will fluctuate. If insufficient shares are in the shareholder's open account, the check will be returned marked "insufficient funds" and no shares will be redeemed; the shareholder will be charged a $15 service fee for each check returned. It is not possible to determine in advance the total value of an open account because prior redemptions and possible changes in net asset value may cause the value of an open account to change. Accordingly, a check redemption should not be used to close an open account. In addition, a check redemption, like any other redemption, may give rise to taxable capital gains.
NON-CASH REDEMPTIONS. For redemptions of any single shareholder within any 90-day period exceeding the lesser of $250,000 or 1% of a Fund's net asset value, a Fund may make the payment or a portion of the payment with portfolio securities held by that Fund instead of cash, in which case the redeeming shareholder may incur brokerage and other costs in selling the securities received.
INFORMATION APPLICABLE TO CLASS G AND CLASS T SHARES
The primary difference between Class G and Class T shares lies in their sales charge structures and shareholder servicing/distribution expenses. Investments in Class T shares of the Funds are subject to a front-end sales charge. Investments in Class G shares of the Funds are subject to a back-end sales charge. This back-end sales charge declines over time and is known as a "contingent deferred sales charge." An investor should understand that the purpose and function of the sales charge structures and shareholder servicing/distribution arrangements for both Class G and Class T shares are the same. Class T shares of a bond fund and an equity fund are currently subject to ongoing shareholder servicing fees at an annual rate of up to 0.15% and 0.30%, respectively, of the Fund's average daily net assets attributable to its Class T shares. Class G shares of a bond fund and an equity fund are currently subject to ongoing shareholder servicing and distribution fees at an annual rate of up to 0.80% and 0.95%, respectively, of the Fund's average daily net assets attributable to its Class G shares. These ongoing fees, which are higher than those charged on Class T shares, will cause Class G shares to have a higher expense ratio and pay lower dividends than Class T shares. Class G and Class T shares may only be purchased by current shareholders of Class G and Class T, respectively.
CLASS T SHARES. The public offering price for Class T shares of the Funds is the sum of the net asset value of the Class T shares purchased plus any applicable front-end sales charge as described in the applicable Prospectus. A deferred sales charge of up to 1.00% is assessed on certain redemptions of Class T shares that are purchased with no initial sales charge as part of an investment of $1,000,000 to $25,000,000. A portion of the front-end sales charge may be reallowed to broker-dealers as follows:
Reallowance to
Reallowance to Dealers Dealers As A % of
As A % of Offering Price Offering Price
Amount of Transaction Per Share - Bond Funds Per Share - Equity Funds
--------------------- ------------------------ ------------------------
Less than $50,000 4.25 5.00
$50,000 but less than $100,000 3.75 3.75
$100,000 but less than $250,000 2.75 2.75
$250,000 but less than $500,000 2.00 2.00
$500,000 but less than $1,000,000 1.75 1.75
$1,000,000 and over 0.00 0.00
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The appropriate reallowance to dealers will be paid by CMD to broker-dealer organizations which have entered into agreements with CMD. The reallowance to dealers may be changed from time to time.
Certain affiliates of the Advisor may, at their own expense, provide additional compensation to broker-dealer affiliates of Columbia and to unaffiliated broker-dealers whose customers purchase significant amounts of Class T shares of the Funds. Such compensation will not represent an additional expense to the Funds or their shareholders, since it will be paid from the assets of Bank of America Corporation's affiliates.
INFORMATION APPLICABLE TO CERTAIN CLASS G SHARES RECEIVED BY FORMER GALAXY FUND RETAIL B SHAREHOLDERS IN CONNECTION WITH THE GALAXY/LIBERTY REORGANIZATION. The following table describes the CDSC schedule applicable to Class G shares received by former Galaxy Fund Retail B shareholders in exchange for Retail B Shares purchased prior to January 1, 2001:
% Deducted When
Holding Period After Purchase Shares Are Sold
----------------------------- ---------------
Through first year 5.00
Through second year 4.00
Through third year 3.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Longer than six years None
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Class G shares received in exchange for Galaxy Fund Retail B Shares that were purchased prior to January 1, 2001 will automatically convert to Class T shares six years after purchase. For purposes of calculating the CDSC, all purchases are considered to be made on the first day of the month in which each purchase was made.
The following table describes the CDSC schedule applicable to Class G shareholders whose Galaxy Asset Allocation Fund and/or International Equity Fund Retail B Shares were acquired in connection with the reorganization of the Pillar Funds:
% Deducted When
Holding Period After Purchase Shares Are Sold
----------------------------- ---------------
Through first year 5.50
Through second year 5.00
Through third year 4.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Through the seventh year None
Longer than seven years None
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If you acquired Retail B Shares in connection with the reorganization of the Pillar Funds, your Class G shares will automatically convert to Class T shares eight years after you purchased the Pillar Fund Class B shares you held prior to the reorganization. For purposes of calculating the CDSC, all purchases are considered to be made on the first day of the month in which each purchase was made.
CLASS G SHARES PURCHASED AFTER THE GALAXY/LIBERTY REORGANIZATION. The public offering price for Class G shares of the Funds is the net asset value of the Class G shares purchased. Although investors pay no front-end sales charge on purchases of Class G shares, such shares are subject to a contingent deferred sales charge at the rates set forth in the applicable Prospectus if they are redeemed within seven years of purchase. Securities dealers, brokers, financial institutions and other industry professionals will receive commissions from CMD in connection with sales of Class G shares. These commissions may be different than the reallowances or placement fees paid to dealers in connection with sales of Class T shares. Certain affiliates of Columbia may, at their own expense, provide additional compensation to broker-dealer affiliates of Columbia and to unaffiliated broker-dealers, whose customers purchase significant amounts of Class G shares of a Fund. See "Class T Shares." The contingent deferred sales charge on Class G shares is based on the lesser of the net asset value of the shares on the redemption date or the original cost of the shares being redeemed. As a result, no sales charge is imposed on any increase in the principal value of an investor's Class G shares. In addition, a contingent deferred sales charge will not be assessed on Class G shares purchased through reinvestment of dividends or capital gains distributions.
The proceeds from the contingent deferred sales charge that an investor may pay upon redemption go to CMD, which may use such amounts to defray the expenses associated with the distribution-related services involved in selling Class G shares. Class G shares of a Fund will convert automatically to Class T shares eight years after purchase. The purpose of the conversion is to relieve a holder of Class G shares of the higher ongoing expenses charged to those shares, after enough time has passed to allow CMD to recover approximately the amount it would have received if the applicable front-end sales charge had been charged. The conversion from Class G shares to Class T shares takes place at net asset value, as a result of which an investor receives dollar-for-dollar the same value of Class T shares as he or she had of Class G shares. The conversion occurs eight years after the beginning of the calendar month in which the shares are purchased. Upon conversion, the converted shares will be relieved of the distribution and shareholder servicing fees borne by Class G shares, although they will be subject to the shareholder servicing fees borne by Class T shares.
Class G shares acquired through a reinvestment of dividends or distributions are also converted at the earlier of two dates -- (i) eight years after the beginning of the calendar month in which the reinvestment occurred or (ii) the date of conversion of the most recently purchased Class G shares that were not acquired through reinvestment of dividends or distributions. For example, if an investor makes a one-time purchase of Class G shares of a Fund, and subsequently acquires additional Class G shares of the Fund only through reinvestment of dividends and/or distributions, all of such investor's Class G shares in the Fund, including those acquired through reinvestment, will convert to Class T shares of the Fund on the same date.
INFORMATION APPLICABLE TO CERTAIN CLASS B SHAREHOLDERS
Except for the following, Class B Share Contingent Deferred Sales Charges ("CDSCs") and conversion schedules are described in the Prospectuses.
The following table describes the CDSC schedule applicable to Class B shares received by Galaxy Quality Plus Bond Fund shareholders in exchange for Prime B Shares in connection with the Galaxy/Liberty reorganization.
SALES CHARGES
% Deducted When
Holding Period After Purchase Shares Are Sold
----------------------------- ---------------
Through first year 5.00
Through second year 4.00
Through third year 3.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Longer than six years 0.00
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Automatic conversion to Class A shares occurs eight years after purchase.
The Class B share discount program for purchases of $250,000 or more is not applicable to Class B shares received by Galaxy Fund Prime B shareholders in connection with the reorganization of the Galaxy Fund.
INFORMATION APPLICABLE TO CERTAIN CLASS A SHAREHOLDERS:
Except as set forth in the following paragraph, Class A share CDSCs are described in the Prospectuses:
Class A shares received by former Galaxy High Quality Bond Fund shareholders in exchange for Prime A Shares in connection with the Galaxy/Liberty reorganization of that Fund are subject to a 1% CDSC upon redemption of such Class A shares if the Prime A Shares were purchased without an initial sales charge in accounts aggregating $1 million or more at the time of purchase and the Class A shares are sold within 12 months of the time of purchase of the Prime A Shares. The 12-month holding period begins on the first day of the month in which each purchase was made.
DISTRIBUTIONS
Distributions are invested in additional shares of the same Class of the Fund at net asset value unless the shareholder elects to receive cash. Regardless of the shareholder's election, distributions of $10 or less will not be paid in cash, but will be invested in additional shares of the same class of the Fund at net asset value. Undelivered distribution checks returned by the post office will be reinvested in your account. If a shareholder has elected to receive dividends and/or capital gain distributions in cash and the postal or other delivery service selected by the Transfer Agent is unable to deliver checks to the shareholder's address of record, such shareholder's distribution option will automatically be converted to having all dividend and other distributions reinvested in additional shares. No interest will accrue on amounts represented by uncashed distribution or redemption checks. Shareholders may reinvest all or a portion of a recent cash distribution without a sales charge. No charge is currently made for reinvestment.
Shares of some Funds that pay daily dividends ("include Funds") will normally earn dividends starting with the date the Fund receives payment for the shares and will continue through the day before the shares are redeemed, transferred or exchanged. Shares of some Funds that pay daily dividends ("exclude Funds") will be earned starting with the day after that Fund receives payments for the shares. To determine whether a particular Fund is an include or exclude fund, customers can call 1-800-345-6611.
HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for the same class of shares of the other continuously offered funds (with certain exceptions) on the basis of the NAVs per share at the time of exchange. Class T and Z shares may be exchanged for Class A
shares of certain other funds. The prospectus of each Fund describes its investment goal and policies, and shareholders should obtain a prospectus and consider these goals and policies carefully before requesting an exchange. Consult CMS before requesting an exchange.
By calling CMS, shareholders or their FSF of record may exchange among accounts with identical registrations, provided that the shares are held on deposit. During periods of unusual market changes or shareholder activity, shareholders may experience delays in contacting CMS by telephone to exercise the telephone exchange privilege. Because an exchange involves a redemption and reinvestment in another fund, completion of an exchange may be delayed under unusual circumstances, such as if the Fund suspends repurchases or postpones payment for the Fund shares being exchanged in accordance with federal securities law. CMS will also make exchanges upon receipt of a written exchange request and share certificates, if any. If the shareholder is a corporation, partnership, agent, or surviving joint owner, CMS may require customary additional documentation. Prospectuses of the other Funds are available from the CMD Literature Department by calling 1-800-426-3750.
A loss to a shareholder may result from an unauthorized transaction reasonably believed to have been authorized. No shareholder is obligated to use the telephone to execute transactions.
Consult your FSF or CMS. In all cases, the shares to be exchanged must be registered on the records of the Fund in the name of the shareholder desiring to exchange.
Shareholders of the other open-end funds generally may exchange their shares at NAV for the same class of shares of the Fund. Sales charges may apply for exchanges from money market funds.
An exchange is generally a capital sale transaction for federal income tax purposes. The exchange privilege may be revised, suspended or terminated at any time.
SUSPENSION OF REDEMPTIONS
A Fund may not suspend shareholders' right of redemption or postpone payment for more than seven days unless the Exchange is closed for other than customary weekends or holidays, or if permitted by the rules of the SEC during periods when trading on the Exchange is restricted or during any emergency which makes it impracticable for the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by order of the SEC for the protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Declaration disclaims shareholder liability for acts or obligations of the Fund and the Trust and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by the Fund or the Trust's Trustees. The Declaration provides for indemnification out of Fund property for all loss and expense of any shareholder held personally liable for the obligations of the Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances (which are considered remote) in which the Fund would be unable to meet its obligations and the disclaimer was inoperative.
The risk of a particular fund incurring financial loss on account of another fund of the Trust is also believed to be remote, because it would be limited to circumstances in which the disclaimer was inoperative and the other fund was unable to meet its obligations.
SHAREHOLDER MEETINGS
The Trust is not required to hold annual shareholder meetings, but special meetings may be called for certain purposes. The Trust has voluntarily undertaken to hold a shareholder meeting at which the Board of Trustees would be elected at least every five years beginning in 2005. Each whole share (or fractional share) outstanding on the record date established in accordance with the Trust's By-Laws shall be entitled to a number of votes on any matter on which it is entitled to vote equal to the net asset value of the shares (or fractional share) in United States dollars determined at the close of business on the record date (for example, a share having a net asset value of $10.50 would be entitled to 10.5 votes).
The Trustees may fill any vacancies in the Board of Trustees except that the
Trustees may not fill a vacancy if, immediately after filling such vacancy, less
than two-thirds of the Trustees then in office would have been elected to such
office by the shareholders. In addition, at such times as less than a majority
of the Trustees then in office have been elected to such office by the
shareholders, the Trustees must call a meeting of shareholders. Trustees may be
removed from office by a written consent signed by a majority of the outstanding
shares of the Trust or by a vote of the holders of a majority of the outstanding
shares at a
meeting duly called for the purpose. Except as otherwise disclosed in the Prospectus and this SAI, the Trustees shall continue to hold office and may appoint their successors.
At any shareholders' meetings that may be held, shareholders of all series would vote together, irrespective of series, on the election of Trustees, but each series would vote separately from the others on other matters, such as changes in the investment policies of that series or the approval of the management agreement for that series. Shares of each Fund and any other series of the Trust that may be in existence from time to time generally vote together except when required by law to vote separately by fund or by class.
APPENDIX I
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S (S&P)
The following descriptions are applicable to municipal bond funds:
AAA bonds have the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.
AA bonds have a very strong capacity to pay interest and repay principal, and they differ from AAA only in small degree.
A bonds have a strong capacity to pay interest and repay principal, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.
BBB bonds are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than for bonds in the A category.
BB, B, CCC, CC and C bonds are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or large exposures to adverse conditions.
BB bonds have less near-term vulnerability to default than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating.
B bonds have a greater vulnerability to default but currently have the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating.
CCC bonds have a currently identifiable vulnerability to default, and are dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, the bonds are not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating.
CC rating typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating.
C rating typically is applied to debt subordinated to senior debt which assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued.
CI rating is reserved for income bonds on which no interest is being paid.
D bonds are in payment default. The D rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized.
Plus(+) or minus(-) ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
PROVISIONAL RATINGS. The letter "p" indicates that the rating is provisional. A provisional rating assumes the successful completion of the project being financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely completion of the project. This rating, however, although addressing
credit quality subsequent to completion of the project, makes no comments on the likelihood of, or the risk of default upon failure of, such completion. The investor should exercise his own judgment with respect to such likelihood and risk.
MUNICIPAL NOTES:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating. Notes maturing beyond three years normally receive a bond rating, although the following criteria are used in making that assessment:
Amortization schedule (the larger the final maturity relative to other maturities, the more likely the issue will be rated as a note).
Source of payment (the more dependent the issue is on the market for its refinancing, the more likely it will be rated as a note).
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a demand feature. The first rating addresses the likelihood of repayment of principal and interest as due, and the second rating addresses only the demand feature. The long-term debt rating symbols are used for bonds to denote the long-term maturity, and the commercial paper rating symbols are usually used to denote the put (demand) option (for example, AAA/A-1+). Normally, demand notes receive note rating symbols combined with commercial paper symbols (for example, SP-1+/A-1+).
COMMERCIAL PAPER:
A. Issues assigned this highest rating are regarded as having the greatest capacity for timely payment. Issues in this category are further refined with the designations 1, 2, and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are designed A-1+.
CORPORATE BONDS:
The description of the applicable rating symbols and their meanings is substantially the same as the Municipal Bond ratings set forth above.
The following descriptions are applicable to equity and taxable bond funds:
AAA bonds have the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.
AA bonds differ from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.
A bonds are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.
BBB bonds exhibit adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
BB, B, CCC and CC bonds are regarded, as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB bonds are less vulnerable to non-payment than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
B bonds are more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.
CCC bonds are currently vulnerable to nonpayment, and are dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC bonds are currently highly vulnerable to nonpayment.
C ratings may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on the obligation are being continued.
D bonds are in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
Plus (+) or minus(-): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
R This symbol is attached to the rating of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk, such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
AAA bonds are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge". Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While various protective elements are likely to change, such changes as can be visualized are most unlikely to impair a fundamentally strong position of such issues.
AA bonds are judged to be of high quality by all standards. Together with Aaa bonds they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.
Those bonds in the Aa through B groups that Moody's believes possess the strongest investment attributes are designated by the symbol Aa1, A1 and Baa1.
A bonds possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment sometime in the future.
BAA bonds are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact, have speculative characteristics as well.
BA bonds are judged to have speculative elements: their future cannot be considered as well secured. Often, the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B bonds generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
CAA bonds are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
CA bonds represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C bonds are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
CONDITIONAL RATINGS. Bonds for which the security depends upon the completion of some act or the fulfillment of some condition are rated conditionally. These are bonds secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in operating experience, (c) rentals which begin when facilities are completed, or (d) payments to which some other limiting conditions attach. Parenthetical rating denotes probable credit stature upon completion of construction or elimination of basis of condition.
MUNICIPAL NOTES:
MIG 1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are accounted for, but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
Moody's may assign a separate rating to the demand feature of a variable rate demand security. Such a rating may include:
VMIG 1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are accounted for, but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
COMMERCIAL PAPER:
Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper obligations are supported by the credit of another entity or entities, Moody's, in assigning ratings to such issuers, evaluates the financial strength of the indicated affiliated corporations, commercial banks, insurance companies, foreign governments, or other entities, but only as one factor in the total rating assessment.
CORPORATE BONDS:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings is identical to that of the Municipal Bond ratings as set forth above, except for the numerical modifiers. Moody's applies numerical modifiers 1, 2, and 3 in the Aa and A classifications of its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a midrange ranking; and the modifier 3 indicates that the issuer ranks in the lower end of its generic rating category.
FITCH INC.
INVESTMENT GRADE BOND RATINGS
AAA bonds are considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and/or dividends and repay principal, which is unlikely to be affected by reasonably foreseeable events.
AA bonds are considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated 'AAA'. Because bonds rated in the 'AAA' and 'AA' categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F-1+'.
A bonds are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than debt securities with higher ratings.
BBB bonds are considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest or dividends and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these securities and, therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for securities with higher ratings.
CONDITIONAL
A conditional rating is premised on the successful completion of a project or the occurrence of a specific event.
SPECULATIVE-GRADE BOND RATINGS
BB bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified, which could assist the obligor in satisfying its debt service requirements.
B bonds are considered highly speculative. While securities in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue.
CCC bonds have certain identifiable characteristics that, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment.
CC bonds are minimally protected. Default in payment of interest and/or principal seems probable over time.
C bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D bonds are in default on interest and/or principal payments. Such securities are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. 'DDD' represents the highest potential for recovery on these securities, and 'D' represents the lowest potential for recovery.
APPENDIX II
COLUMBIA MANAGEMENT ADVISORS, LLC ("CMA")
PROXY VOTING POLICIES AND PROCEDURES
ADOPTED JULY 1, 2003 AND REVISED MARCH 4, 2005
POLICY:
ALL PROXIES(1) REGARDING CLIENT SECURITIES FOR WHICH COLUMBIA MANAGEMENT ADVISORS, LLC ("CMA") HAS ASSUMED AUTHORITY TO VOTE SHALL, UNLESS CMA DETERMINES IN ACCORDANCE WITH POLICIES STATED BELOW TO ABSTAIN FROM VOTING, BE VOTED IN A MANNER CONSIDERED BY CMA TO BE IN THE BEST INTEREST OF CMA'S CLIENTS, INCLUDING THE CMG FAMILY FUNDS(2) AND THEIR SHAREHOLDERS, WITHOUT REGARD TO ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES. THE BEST INTEREST OF CLIENTS IS DEFINED FOR THIS PURPOSE AS THE INTEREST OF ENHANCING OR PROTECTING THE ECONOMIC VALUE OF CLIENT ACCOUNTS, CONSIDERED AS A GROUP RATHER THAN INDIVIDUALLY, AS CMA DETERMINES IN ITS SOLE AND ABSOLUTE DISCRETION. IN THE EVENT A CLIENT BELIEVES THAT ITS OTHER INTERESTS REQUIRE A DIFFERENT VOTE, CMA SHALL VOTE AS THE CLIENT CLEARLY INSTRUCTS, PROVIDED CMA RECEIVES SUCH INSTRUCTIONS IN TIME TO ACT ACCORDINGLY.
CMA ENDEAVORS TO VOTE, IN ACCORDANCE WITH THIS POLICY, ALL PROXIES OF WHICH IT BECOMES AWARE, SUBJECT TO THE FOLLOWING EXCEPTIONS (UNLESS OTHERWISE AGREED) WHEN CMA EXPECTS TO ROUTINELY ABSTAIN FROM VOTING:
1. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE THE SECURITY HAS BEEN LOANED FROM THE CLIENT'S ACCOUNT.
2. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE CMA DEEMS THE COSTS TO THE CLIENT AND/OR THE ADMINISTRATIVE INCONVENIENCE OF VOTING THE SECURITY (E.G., SOME FOREIGN SECURITIES) OUTWEIGH THE BENEFIT OF DOING SO.
CMA SEEKS TO AVOID THE OCCURRENCE OF ACTUAL OR APPARENT MATERIAL CONFLICTS OF INTEREST IN THE PROXY VOTING PROCESS BY VOTING IN ACCORDANCE WITH PREDETERMINED VOTING GUIDELINES, AS STATED BELOW. FOR THOSE PROXY PROPOSALS THAT REQUIRE SPECIAL CONSIDERATION OR IN INSTANCES WHERE SPECIAL CIRCUMSTANCES MAY REQUIRE VARYING FROM THE PREDETERMINED GUIDELINES, THE CMG PROXY COMMITTEE WILL DETERMINE THE BEST INTEREST OF CMA'S CLIENTS AND VOTE ACCORDINGLY, WITHOUT CONSIDERATION OF ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES.
OVERVIEW:
CMA's policy is based upon its fiduciary obligation to act in its clients' best interest. Citing this obligation, the SEC has adopted rules pursuant to the Investment Advisers Act of 1940 and Investment Company Act of 1940 with respect to proxy voting.
PROCEDURE:
I. ACCOUNT POLICIES
Except as otherwise directed by the client, CMA shall vote as follows:
SEPARATELY MANAGED ACCOUNTS
CMA shall vote proxies on securities held in its separately managed accounts.
COLUMBIA TRUST COMPANY (CTC) TRUST POOLS
CMA shall vote proxies on securities held in the trust pools.
1 The term "proxy" as used herein refers to consents, elections and authorizations solicited by any party with respect to securities of any sort.
2 A CMG Family Fund or a Fund is a registered investment company or series of a registered investment company managed or advised by Columbia Management Advisors, LLC.
CMG FAMILY FUNDS/CMA FUND TRUST
CMA shall vote proxies on securities held in the Funds, including multi-managed and subadvised Funds.
COLUMBIA PRIVATE PORTFOLIO
CMA shall vote proxies on securities held in its separately managed accounts.
ALTERNATIVE INVESTMENT GROUP
CMA's clients may invest in securities ("Alternative Investments") issued by alternative investment vehicles (i.e. hedge funds, private equity funds, and other alternative investment pools) that are structured as private limited partnerships ("LPs"), limited liability companies ("LLCs") or offshore corporations. Generally, CMA's Alternative Investment Group ("AIG") is the platform through which CMA provides advisory services relating to Alternative Investments.
The voting rights of Alternative Investments generally are rights of contract set forth in the limited liability company or limited partnership agreement, in the case of LLCs and LPs, or Memorandum and Articles of Association or By-laws, in the case of offshore corporations. Also, as privately placed securities, Alternative Investments generally are not subject to the regulatory scheme applicable to public companies. Consequently, in most cases, proxies are not solicited regarding Alternative Investment vehicles. Instead, consents may be solicited from members, limited partners or shareholders.
Because of the unique characteristics of Alternative Investments, CMA has a tailored process for voting Alternative Investment proxies and consents.
Process
AIG will vote all Alternative Investment proxies and consents in accordance with this Policy. The committee voting AIG proxies consists of AIG senior management, investment and operations professionals. Conflicts of interest are to be monitored and resolved as set forth in this Policy.
II. PROXY COMMITTEE
CMA shall establish a Proxy Committee whose standing members shall include the head of core equity, head of value, head of growth, head of income strategies, head of equity research and head of fixed income research. Each standing member may designate a senior portfolio manager or a senior analyst officer to act as a substitute in a given matter on their behalf.
The Proxy Committee's functions shall include, in part,
(a) direction of the vote on proposals where there has been a
recommendation to the Committee, pursuant to Section IV.B, not to
vote according to the predetermined Voting Guidelines stated in
Section IV.A or on proposals which require special, individual
consideration in accordance with Section IV.C;
(b) review at least annually of this Proxy Voting Policy and Procedure to ensure consistency with internal policies, client disclosures and regulatory requirements;
(c) review at least annually of existing Voting Guidelines and need for development of additional Voting Guidelines to assist in the review of proxy proposals; and
(d) development and modification of Voting Procedures, as stated in
Section V, as it deems appropriate or necessary.
The Proxy Committee shall establish a charter, which shall set forth the Committee's purpose, membership and operation. The Committee's charter shall be consistent, in all material respects, with this policy and procedure.
III. CONFLICTS OF INTEREST
With Other Bank of America Businesses
Bank of America Corporation ("BAC"), the ultimate corporate parent of CMA, Bank of America, N.A. and all of their numerous affiliates owns, operates and has interests in many lines of business that may create or give rise to the appearance of a conflict of interest between BAC or its affiliates and those of Firm-advised clients. For example, the commercial and investment banking business lines may have interests with respect to issuers of voting securities that could appear to or even actually conflict with CMA's duty, in the proxy voting process, to act in the best economic interest of its clients.
Within CMA
Conflicts of interest may also arise from the business activities of CMA. For example, CMA might manage (or be seeking to manage) the assets of a benefit plan for an issuer. CMA may also be presented with an actual or apparent conflict of interest where proxies of securities issued by BAC or a CMG Family Fund, for which CMA serves as investment adviser, are to be voted for a client's account.
Management of Conflicts
CMA's policy is to always vote proxies in the best interest of its clients, as a whole, without regard to its own self-interest or that of its affiliates. BAC as well as CMA has various compliance policies and procedures in place in order to address any material conflicts of interest that might arise in this context.
1. BAC's enterprise-wide Code of Ethics specifically prohibits the flow of certain business-related information between associates on the commercial and/or investment banking side of the corporation and associates charged with trust or (as in the case of BACAP associates) non-trust fiduciary responsibilities, including investment decision-making and proxy voting.
2. In addition, BAC has adopted "Global Policies and Procedures Regarding Information Walls and Inside Information." Pursuant to these policies and procedures, "information barriers" have been established between various BAC business lines designed to prohibit the passage of certain information across those barriers.
3. Within CMA, CMA's Code of Ethics affirmatively requires that associates of CMA act in a manner whereby no actual or apparent conflict of interest may be seen as arising between the associate's interests and those of CMA's Clients.
4. By assuming his or her responsibilities pursuant to this Policy, each member of the Proxy Committee and any CMA or BAC associate advising or acting under the supervision or oversight of the Proxy Committee undertakes:
- To disclose to the chairperson of the Proxy Committee and the chairperson to the head of CMG Compliance any actual or apparent personal material conflicts of interest which he or she may have (e.g., by way of substantial ownership of securities, relationships with nominees for directorship, members of an issuer's or dissident's management or otherwise) in determining whether or how CMA shall vote proxies. In the event the chairperson of the Proxy Committee has a conflict of interest regarding a given matter, he or she shall abstain from participating in the Committee's determination of whether and/or how to vote in the matter; and
- To refrain from taking into consideration, in the decision as to whether or how CMA shall vote proxies:
- The existence of any current or prospective material business relationship between CMA, BAC or any of their affiliates, on one hand, and any party (or its affiliates) that is soliciting or is otherwise interested in the proxies to be voted, on the other hand; and/or
- Any direct, indirect or perceived influence or attempt to influence such action which the member or associate views as being inconsistent with the purpose or provisions of this Policy or the Code of Ethics of CMA or BAC.
Where a material conflict of interest is determined to have arisen in the proxy voting process that may not be adequately mitigated by voting in accordance with the predetermined Voting Guidelines, CMA's policy is to invoke one or more of the following conflict management procedures:
1. Convene the Proxy Committee for the purpose of voting the affected proxies in a manner that is free of the conflict.
2. Causing the proxies to be voted in accordance with the recommendations of a qualified, independent third party, which may include CMA's proxy voting agent.
3. In unusual cases, with the Client's consent and upon ample notice, forwarding the proxies to CMA's clients so that they may vote the proxies directly.
IV. VOTING GUIDELINES
A. THE PROXY COMMITTEE HAS ADOPTED THE FOLLOWING GUIDELINES FOR VOTING PROXIES:
1. Matters Relating to the Board of Directors/Corporate Governance
CMA generally will vote FOR:
- Proposals for the election of directors or for an increase or decrease in the number of directors, provided that no more than one-third of the Board of Directors would, presently or at any time during the previous three-year period, be from management.
However, CMA generally will WITHHOLD votes from pertinent director nominees if:
(i) the board as proposed to be constituted would have more than one-third of its members from management;
(ii) the board does not have audit, nominating, and compensation committees composed solely of directors who qualify as being regarded as "independent," i.e. having no material relationship, directly or indirectly, with the Company, as CMA's proxy voting agent may determine (subject to the Proxy Committee's contrary determination of independence or non-independence);
(iii) the nominee, as a member of the audit committee, permitted the company to incur excessive non-audit fees (as defined below regarding other business matters -- ratification of the appointment of auditors);
(iv) a director serves on more than six public company boards;
(v) the CEO serves on more than two public company boards other than the company's board.
On a CASE-BY-CASE basis, CMA may WITHHOLD votes for a director nominee who has failed to observe good corporate governance practices or, through specific corporate action or inaction (e.g. failing to implement policies for which a majority of shareholders has previously cast votes in favor), has demonstrated a disregard for the interests of shareholders.
- Proposals requesting that the board audit, compensation and/or nominating committee be composed solely of independent directors. The Audit Committee must satisfy the independence and experience requirements established by the Securities and Exchange Commission ("SEC") and the New York Stock Exchange, or appropriate local requirements for foreign securities. At least one member of the Audit Committee must qualify as a "financial expert" in accordance with SEC rules.
- Proposals to declassify a board, absent special circumstances that would indicate that shareholder interests are better served by a classified board structure.
CMA generally will vote FOR:
- Proposals to create or eliminate positions or titles for senior management. CMA generally prefers that the role of Chairman of the Board and CEO be held by different persons unless there are compelling reasons to vote AGAINST a proposal to separate these positions, such as the existence of a counter-balancing governance structure that includes at least the following elements in addition to applicable listing standards:
- Established governance standards and guidelines.
- Full board composed of not less than two-thirds "independent" directors, as defined by applicable regulatory and listing standards.
- Compensation, as well as audit and nominating (or corporate governance) committees composed entirely of independent directors.
- A designated or rotating presiding independent director appointed by and from the independent directors with the authority and responsibility to call and preside at regularly and, as necessary, specially scheduled meetings of the independent directors to be conducted, unless the participating independent directors otherwise wish, in executive session with no members of management present.
- Disclosed processes for communicating with any individual director, the presiding independent director (or, alternatively, all of the independent directors, as a group) and the entire board of directors, as a group.
- The pertinent class of the Company's voting securities has out-performed, on a three-year basis, both an appropriate peer group and benchmark index, as indicated in the performance summary table of the Company's proxy materials. This requirement shall not apply if there has been a change in the Chairman/CEO position within the three-year period.
- Proposals that grant or restore shareholder ability to remove directors with or without cause.
- Proposals to permit shareholders to elect directors to fill board vacancies.
- Proposals that encourage directors to own a minimum amount of company stock.
- Proposals to provide or to restore shareholder appraisal rights.
- Proposals to adopt cumulative voting.
- Proposals for the company to adopt confidential voting.
CMA generally will vote AGAINST:
- Proposals to classify boards, absent special circumstances indicating that shareholder interests would be better served by a classified board structure.
- Proposals that give management the ability to alter the size of the board without shareholder approval.
- Proposals that provide directors may be removed only by supermajority vote.
- Proposals to eliminate cumulative voting.
- Proposals which allow more than one vote per share in the election of directors.
- Proposals that provide that only continuing directors may elect replacements to fill board vacancies.
- Proposals that mandate a minimum amount of company stock that directors must own.
- Proposals to limit the tenure of non-management directors.
CMA will vote on a CASE-BY-CASE basis in contested elections of directors.
CMA generally will vote on a CASE-BY-CASE basis on board approved proposals relating to corporate governance. Such proposals include, but are not limited to:
- Director and officer indemnification and liability protection. CMA is opposed to entirely eliminating directors' and officers' liability for monetary damages for violating the duty of care. CMA is also opposed to expanding coverage beyond just legal expenses to acts, such as negligence, that are more serious violations of fiduciary obligation than mere carelessness. CMA supports proposals which provide such expanded coverage in cases when a director's or officer's legal defense was unsuccessful if: (i) the director was found to have acted in good faith and in a manner that he/she reasonably believed was in the best interests of the company, AND (ii) if the director's legal expenses would be covered.
- Reimbursement of proxy solicitation expenses taking into consideration whether or not CMA was in favor of the dissidents.
- Proxy contest advance notice. CMA generally will vote FOR proposals that allow shareholders to submit proposals as close to the meeting date as possible while allowing for sufficient time for Company response, SEC review, and analysis by other shareholders.
2. Compensation
CMA generally will vote FOR management sponsored compensation plans (such as bonus plans, incentive plans, stock option plans, pension and retirement benefits, stock purchase plans or thrift plans) if they are consistent with industry and country standards. However, CMA generally is opposed to compensation plans that substantially dilute ownership interest in a company, provide participants with excessive awards, or have objectionable structural features. Specifically, for equity-based plans, if the proposed number of shares authorized for option programs (excluding authorized shares for expired options) exceeds an average of 10% of the currently outstanding shares over the previous three years or an average of 3% over the previous three years for directors only, the proposal should be referred to the Proxy Committee. The Committee will then consider the circumstances surrounding the issue and vote in the best interest of CMA's clients. CMA requires that management provide substantial justification for the repricing of options.
CMA generally will vote FOR:
- Proposals requiring that executive severance arrangements be submitted for shareholder ratification.
- Proposals asking a company to expense stock options.
- Proposals to put option repricings to a shareholder vote.
- Employee stock purchase plans that have the following features: (i) the shares purchased under the plan are acquired for no less than 85% of their market value, (ii) the offering period under the plan is 27 months or less, and (iii) dilution is 10% or less.
CMA generally will vote AGAINST:
- Stock option plans that permit issuance of options with an exercise price below the stock's current market price, or that permit replacing or repricing of out-of-the money options.
- Proposals to authorize the replacement or repricing of out-of-the money options.
CMA will vote on a CASE-BY-CASE basis proposals regarding approval of specific executive severance arrangements.
3. Capitalization
CMA generally will vote FOR:
- Proposals to increase the authorized shares for stock dividends, stock splits (and reverse stock splits) or general issuance, unless proposed as an anti-takeover measure or a general issuance proposal increases the authorization by more than 30% without a clear need presented by the company. Proposals for reverse stock splits should include an overall reduction in authorization.
For companies recognizing preemptive rights for existing shareholders, CMA generally will vote FOR general issuance proposals that increase the authorized shares by more than 30%. CMA will vote on a CASE-BY-CASE basis all such proposals by companies that do not recognize preemptive rights for existing shareholders.
- Proposals for the elimination of authorized but unissued shares or retirement of those shares purchased for sinking fund or treasury stock.
- Proposals to institute/renew open market share repurchase plans in which all shareholders may participate on equal terms.
- Proposals to reduce or change the par value of common stock, provided the number of shares is also changed in order to keep the capital unchanged.
4. Mergers, Restructurings and Other Transactions
CMA will review, on a CASE-BY-CASE basis, business transactions such as mergers, acquisitions, reorganizations, liquidations, spinoffs, buyouts and sale of all or substantially all of a company's assets.
5. Anti-Takeover Measures
CMA generally will vote AGAINST proposals intended largely to avoid acquisition prior to the occurrence of an actual event or to discourage acquisition by creating a cost constraint. With respect to the following measures, CMA generally will vote as follows:
Poison Pills
- CMA votes FOR shareholder proposals that ask a company to submit its poison pill for shareholder ratification.
- CMA generally votes FOR shareholder proposals to eliminate a poison pill.
- CMA generally votes AGAINST management proposals to ratify a poison pill.
Greenmail
- CMA will vote FOR proposals to adopt anti-greenmail charter or bylaw amendments or to otherwise restrict a company's ability to make greenmail payments.
Supermajority vote
- CMA will vote AGAINST board-approved proposals to adopt anti-takeover measures such as supermajority voting provisions, issuance of blank check preferred stock, the creation of a separate class of stock with disparate voting rights and charter amendments adopting control share acquisition provisions.
Control Share Acquisition Provisions
- CMA will vote FOR proposals to opt out of control share acquisition statutes.
6. Other Business Matters
CMA generally will vote FOR:
- Proposals to approve routine business matters such as changing the company's name and procedural matters relating to the shareholder meeting such as approving the minutes of a prior meeting.
- Proposals to ratify the appointment of auditors, unless any of the following apply in which case CMA will generally vote AGAINST the proposal:
- Credible reason exists to question:
- The auditor's independence, as determined by applicable regulatory requirements.
- The accuracy or reliability of the auditor's opinion as to the company's financial position.
- Fees paid to the auditor or its affiliates for "non-audit" services were excessive, i.e., in excess of the total fees paid for "audit," "audit-related" and "tax compliance" and/or "tax return preparation" services, as disclosed in the company's proxy materials.
- Bylaw or charter changes that are of a housekeeping nature (e.g., updates or corrections).
- Proposals to approve the annual reports and accounts provided the certifications required by the Sarbanes-Oxley Act of 2002 have been provided.
CMA generally will vote AGAINST:
- Proposals to eliminate the right of shareholders to act by written consent or call special meetings.
- Proposals providing management with authority to adjourn an annual or special shareholder meeting absent compelling reasons, or to adopt, amend or repeal bylaws without shareholder approval, or to vote unmarked proxies in favor of management.
- Shareholder proposals to change the date, time or location of the company's annual meeting of shareholders.
CMA will vote AGAINST:
- Authorization to transact other unidentified substantive (as opposed to procedural) business at a meeting.
CMA will vote on a CASE-BY-CASE basis:
- Proposals to change the location of the company's state of incorporation. CMA considers whether financial benefits (e.g., reduced fees or taxes) likely to accrue to the company as a result of a reincorporation or other change of domicile outweigh any accompanying material diminution of shareholder rights.
- Proposals on whether and how to vote on "bundled" or otherwise conditioned proposals, depending on the overall economic effects upon shareholders.
CMA generally will ABSTAIN from voting on shareholder proposals predominantly involving social, socio-economic, environmental, political or other similar matters on the basis that their impact on share value can rarely be anticipated with any high degree of confidence. CMA may, on a CASE-BY-CASE basis, vote:
- FOR proposals seeking inquiry and reporting with respect to, rather than cessation or affirmative implementation of, specific policies where the pertinent issue warrants separate communication to shareholders; and
- FOR or AGAINST the latter sort of proposal in light of the relative benefits and detriments (e.g. distraction, costs, other burdens) to share value which may be expected to flow from passage of the proposal.
7. Other Matters Relating to Foreign Issues
CMA generally will vote FOR:
- Most stock (scrip) dividend proposals. CMA votes AGAINST proposals that do not allow for a cash option unless management demonstrates that the cash option is harmful to shareholder value.
- Proposals to capitalize the company's reserves for bonus issues of shares or to increase the par value of shares.
- Proposals to approve control and profit transfer agreements between a parent and its subsidiaries.
- Management proposals seeking the discharge of management and supervisory board members, unless there is concern about the past actions of the company's auditors/directors and/or legal action is being taken against the board by other shareholders.
- Management proposals concerning allocation of income and the distribution of dividends, unless the dividend payout ratio has been consistently below 30 percent without adequate explanation or the payout is excessive given the company's financial position.
- Proposals for the adoption of financing plans if they are in the best economic interests of shareholders.
8. Investment Company Matters
Election of Directors:
CMA will vote on a CASE-BY-CASE basis proposals for the election of directors, considering the following factors:
- Board structure
- Attendance at board and committee meetings.
CMA will WITHHOLD votes from directors who:
- Attend less than 75 percent of the board and committee meetings without a valid excuse for the absences. Valid reasons include illness or absence due to company business. Participation via telephone is acceptable. In addition, if the director missed only one meeting or one day's meetings, votes should not be withheld even if such absence dropped the director's attendance below 75 percent.
- Ignore a shareholder proposal that is approved by a majority of shares outstanding;
- Ignore a shareholder proposal this is approved by a majority of the votes cast for two consecutive years;
- Are interested directors and sit on the audit or nominating committee; or
- Are interested directors and the full board serves as the audit or nominating committee or the company does not have one of these committees.
Proxy Contests:
CMA will vote on a CASE-BY-CASE basis proposals for proxy contests, considering the following factors:
- Past performance relative to its peers
- Market in which fund invests
- Measures taken by the board to address the pertinent issues (e.g., closed-end fund share market value discount to NAV)
- Past shareholder activism, board activity and votes on related proposals
- Strategy of the incumbents versus the dissidents
- Independence of incumbent directors; director nominees
- Experience and skills of director nominees
- Governance profile of the company
- Evidence of management entrenchment
Converting Closed-end Fund to Open-end Fund:
CMA will vote conversion proposals on a CASE-BY-CASE basis, considering the following factors:
- Past performance as a closed-end fund
- Market in which the fund invests
- Measures taken by the board to address the discount
- Past shareholder activism, board activity, and votes on related proposals.
Investment Advisory Agreements:
CMA will vote investment advisory agreements on a CASE-BY-CASE basis, considering the following factors:
- Proposed and current fee schedules
- Fund category/investment objective
- Performance benchmarks
- Share price performance as compared with peers
- Resulting fees relative to peers
- Assignments (where the adviser undergoes a change of control)
Approving New Classes or Series of Shares:
CMA will vote FOR the establishment of new classes or series of shares.
Preferred Stock Proposals:
CMA will vote on a CASE-BY-CASE basis proposals for the authorization for or increase in the preferred shares, considering the following factors:
- Stated specific financing purpose
- Possible dilution for common shares
- Whether the shares can be used for antitakover purposes
Policies Addressed by the Investment Company Act of 1940 ("1940 Act"):
CMA will vote proposals regarding adoption or changes of policies addressed by the 1940 Act on a CASE-BY-CASE basis, considering the following factors:
- Potential competitiveness
- Regulatory developments
- Current and potential returns
- Current and potential risk
CMA generally will vote FOR these amendments as long as the proposed changes do not fundamentally alter the investment focus of the fund and do comply with current SEC interpretations.
Changing a Fundamental Restriction to a Non-fundamental Restriction:
CMA will vote on a CASE-BY-CASE basis proposals to change a fundamental restriction to a nonfundamental restriction, considering the following factors:
- Fund's target investments
- Reasons given by the fund for the change
- Projected impact of the change on the portfolio
Change Fundamental Investment Objective to Non-fundamental:
CMA will vote AGAINST proposals to change a fund's investment objective from fundamental to non-fundamental unless management acknowledges meaningful limitations upon its future requested ability to change the objective
Name Change Proposals:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's name, considering the following factors:
- Political/economic changes in the target market
- Consolidation in the target market
- Current asset composition
Change in Fund's Subclassification:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's subclassification, considering the following factors:
- Potential competitiveness
- Current and potential returns
- Risk of concentration
- Consolidation in target industry
Disposition of Assets/Termination/Liquidation:
CMA will vote on a CASE-BY-CASE basis these proposals, considering the following factors:
- Strategies employed to salvage the company
- Past performance of the fund
- Terms of the liquidation
Changes to the Charter Document:
CMA will vote on a CASE-BY-CASE basis proposals to change the charter document, considering the following factors:
- The degree of change implied by the proposal
- The efficiencies that could result
- The state of incorporation; net effect on shareholder rights
- Regulatory standards and implications
CMA will vote FOR:
- Proposals allowing the Board to impose, without shareholder approval, fees payable upon redemption of fund shares, provided imposition of such fees is likely to benefit long-term fund investors (e.g., by deterring market timing activity by other fund investors)
- Proposals enabling the Board to amend, without shareholder approval, the fund's management agreement(s) with its investment adviser(s) or sub-advisers, provided the amendment is not required by applicable law (including the Investment Company Act of 1940) or interpretations thereunder to require such approval
CMA will vote AGAINST:
- Proposals enabling the Board to:
- Change, without shareholder approval the domicile of the fund
- Adopt, without shareholder approval, material amendments of the fund's declaration of trust or other organizational document
Changing the Domicile of a Fund:
CMA will vote on a CASE-BY-CASE basis proposals to reincorporate, considering the following factors:
- Regulations of both states
- Required fundamental policies of both states
- The increased flexibility available
Authorizing the Board to Hire and Terminate Subadvisors Without Shareholder Approval:
CMA will vote FOR proposals to enable the Board or Investment Adviser to hire and terminate sub-advisers, without shareholder approval, in accordance with applicable rules or exemptive orders under the Investment Company Act of 1940
Distribution Agreements:
CMA will vote these proposals on a CASE-BY-CASE basis, considering the following factors:
- Fees charged to comparably sized funds with similar objectives
- The proposed distributor's reputation and past performance
- The competitiveness of the fund in the industry
- Terms of the agreement
Master-Feeder Structure:
CMA will vote FOR the establishment of a master-feeder structure.
Mergers:
CMA will vote merger proposals on a CASE-BY-CASE basis, considering the following factors:
- Resulting fee structure
- Performance of both funds
- Continuity of management personnel
- Changes in corporate governance and their impact on shareholder rights
Shareholder Proposals to Establish Director Ownership Requirement:
CMA will generally vote AGAINST shareholder proposals that mandate a specific minimum amount of stock that directors must own in order to qualify as a director or to remain on the board. While CMA favors stockownership on the part of directors, the company should determine the appropriate ownership requirement.
Shareholder Proposals to Reimburse Shareholder for Expenses Incurred:
CMA will vote on a CASE-BY-CASE basis proposals to reimburse proxy solicitation expenses.
Shareholder Proposals to Terminate the Investment Adviser:
CMA will vote on a CASE-BY-CASE basis proposals to terminate the investment adviser, considering the following factors:
- Performance of the fund's NAV
- The fund's history of shareholder relations
- The performance of other funds under the adviser's management
9. Alternative Investment Group ("AIG") Matters
The AIG Proxy Sub-Committee generally will vote in accordance with the guidelines set forth in this policy. With respect to matters that are not addressed by the guidelines, the AIG Proxy Sub-Committee will vote each such matter on a CASE-BY-CASE basis.
B. ABILITY TO VOTE PROXIES OTHER THAN AS PROVIDED IN A ABOVE.
A Portfolio Manager, sub-adviser or other party involved with a client's account may conclude that the best interest of the firm's client, as defined above, requires that a proxy be voted in a manner that differs from the predetermined proxy Voting Guidelines stated in Section IV.A. In this situation, he or she shall request that the Proxy Committee consider voting the proxy other than according such Guidelines. If any person, group, or entity requests the Proxy Committee (or any of its members) vote a proxy other than according to the predetermined Voting Guidelines, that person shall furnish to the Proxy Committee a written explanation of the reasons for the request and a description of the person's, group's, or entity's relationship, if any, with the parties proposing and/or opposing the matter's adoption.
C. PROPOSALS REQUIRING SPECIAL CONSIDERATION
The following proposals require special, individual consideration. The Proxy Committee will determine how proxies related to all such proposals will be voted.
1. NEW PROPOSALS. For each new type of proposal that is expected to be proposed to shareholders of multiple companies, the Proxy Committee will develop a Voting Guideline which will be incorporated into this Policy.
2. ACCOUNTS ADHERING TO TAFT HARTLEY PRINCIPLES. All proposals for these accounts shall be voted according to the Taft Hartley Guidelines developed by Institutional Shareholder Services, Inc. ("ISS").
3. ACCOUNTS ADHERING TO SOCIALLY RESPONSIBLE PRINCIPLES. All proposals for these accounts shall be voted according to the Socially Responsible Guidelines developed by ISS or as specified by the client.
4. PROXIES OF INTERNATIONAL ISSUERS WHICH BLOCK SECURITIES SALES BETWEEN THE TIME A SHAREHOLDER SUBMITS A PROXY AND THE VOTE. Proposals for these securities shall be voted only on the specific instruction of the Proxy Committee and to the extent practicable in accordance with the Voting Guidelines set forth in this Policy.
5. PROXIES OF INVESTMENT COMPANY SHARES. Proposals on issues other than those specified in Section IV.A.
6. EXECUTIVE/DIRECTOR COMPENSATION. Except as provided in Section IV.A, proposals relating to compensation of any executive or director will be voted as recommended by ISS or as otherwise directed by the Proxy Committee.
7. PREEMPTIVE RIGHTS. Proposals to create or eliminate shareholder preemptive rights. In evaluating these proposals the Proxy Committee will consider the size of the company and the nature of its shareholder base.
V. VOTING PROCEDURES
The Proxy Committee has developed the following procedures to aid the voting of proxies according to the Voting Guidelines set forth in Section IV above. The Proxy Committee may revise these procedures from time to time, as it deems necessary or appropriate to effect the purposes of this Policy.
- CMA shall use an independent, third-party vendor (currently Institutional Shareholder Services ("ISS")), to implement its proxy voting process as CMAs proxy voting agent. This retention is subject to CMA continuously assessing the vendor's independence from CMA and its affiliates, and the vendor's ability to perform its responsibilities (and, especially, its responsibility to vote client proxies in accordance with CMA's proxy voting guidelines) free of any actual, potential or apparent material conflicts of interests that may arise between the interests of the vendor, its affiliates, the vendor's other clients and the owners, officers or employees of any such firm, on the one hand, and CMA's clients, on the other hand. As means of performing this assessment, CMA will require various reports and notices from the vendor, as well as periodic audits of the vendor's voting record and other due diligence.
- ISS shall provide proxy analysis and record keeping services in addition to voting proxies on behalf of CMA in accordance with this Policy.
- On a daily basis CMA shall send to ISS a holdings file detailing each equity holding held in all accounts over which CMA has voting authority. Information regarding equity holdings for international portfolio shall be sent weekly.
- ISS shall receive proxy material information from Proxy Edge or the custodian bank for the account. This shall include issues to be voted upon, together with a breakdown of holdings for CMA accounts. ISS shall then reconcile information it receives from CMA with that it has received from Proxy Edge and custodian banks. Any discrepancies shall be promptly noted and resolved by ISS, with notice to CMA.
- Whenever a vote is solicited, ISS shall execute the vote according to CMA's Voting Guidelines previously delivered by CMA to ISS as set forth in Section IV.A.
- If ISS is not sure how to vote a particular proxy, then ISS will issue a request for voting instructions to CMA over a secure website. CMA personnel shall check this website regularly. The request shall be accompanied by a recommended vote. The recommended vote shall be based upon CMA's understanding of the Voting Guidelines previously delivered to ISS. CMA shall promptly provide ISS with any amendments or modifications to the Voting Guidelines if necessary. CMA shall return a final instruction to vote to ISS, which ISS shall record with Proxy Edge or the custodian bank as our agent.
- Each time that ISS shall send CMA a request to vote the request shall be accompanied by the recommended vote determined in accordance with CMA's Voting Guidelines. ISS shall vote as indicated in the request unless the client has reserved discretion, the Proxy Committee determines that the best interest of clients requires another vote or the proposal is a matter as to which the Proxy Committee affords special, individual consideration under Section IV.C. In such situations ISS shall vote based on the direction of the client or the Proxy Committee, as the case may be. The interests of CMA's Taft Hartley or Socially Responsible clients may impact a proposal that normally should be voted in a certain way. ISS shall inform CMA of all proposals having impact on its Taft Hartley and or Socially Responsible clients. The Proxy Voting Committee shall be consulted before a vote is placed in cases where Taft Hartley or Socially Responsible issues are presented.
- ISS shall have procedures in place to ensure that a vote is cast on every security holding maintained by CMA on which a vote is solicited unless otherwise directed by the Proxy Committee. On a yearly basis, or as required by our clients CMA shall receive a report from ISS detailing CMA's voting for the previous period.
VI. AVAILABILITY OF PROXY POLICY AND VOTING RECORD
A summary disclosure regarding the provisions of this Policy is available in CMA's Form ADV. Upon receipt of a Client's request for more information, CMA will provide to the Client a copy of this Policy and/or how CMA voted proxies for the Client pursuant to this Policy for up to a one-year period.
COLUMBIA INCOME FUND
COLUMBIA INTERMEDIATE BOND FUND
(THE "FUNDS")
EACH A SERIES OF COLUMBIA FUNDS SERIES TRUST I
SUPPLEMENT TO EACH FUND'S CURRENT STATEMENT OF ADDITIONAL INFORMATION
(REPLACING SUPPLEMENTS DATED AUGUST 19, 2005 AND NOVEMBER 1, 2005)
This supplement applies to the "Funds" listed above.
1. The name of the Trust is revised to read "Columbia Funds Series Trust I."
2. Columbia Funds Distributor, Inc. (the Funds' distributor) and Columbia Funds Services, Inc. (the Funds' transfer agent) changed their names to Columbia Management Distributors, Inc. ("CMD") and Columbia Management Services, Inc. ("CMS"), respectively.
3. The following sentence is added to the first paragraph on the front cover of the SAI:
The unaudited Financial Statements appearing in each Fund's September 30, 2005 Semi-Annual Report are also incorporated into this SAI by reference.
4. The first sentence in the section entitled "Organization and History" is revised to read:
The Trust is a Massachusetts business trust organized in 1987. Each Fund was originally organized as a series of another Massachusetts business trust prior to its reorganization as a series of the Trust on March 27, 2006.
5. The last paragraph of the section entitled "Organization and History" is revised in its entirety to read:
Effective October 13, 2003, the Trust changed its name from "Liberty-Stein Roe Funds Income Trust" to "Columbia Funds Trust VIII" Effective September 23, 2005, the name of the Trust was changed from "Columbia Funds Trust VIII" to "Columbia Funds Series Trust I."
6. At meetings of the Funds' shareholders held September 16, 2005, October 7, 2005 and October 14, 2005, shareholders of the Funds elected the Funds' current Trustees to indefinite terms and approved the adoption of new fundamental investment restrictions.
- Douglas A. Hacker, Janet Langford Kelly, Richard W.
Lowry, William E. Mayer, Charles R. Nelson, John J.
Neuhauser, Patrick J. Simpson, Thomas E. Stitzel, Thomas
C. Theobald, Anne-Lee Verville and Richard L. Woolworth
have been elected to serve as Trustees of the Funds.
7. Effective November 1, 2005, the following language replaced the language currently in the section of the Statement of Additional Information entitled FUNDAMENTAL INVESTMENT POLICIES:
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940, as amended (1940 Act), provides that a "vote of a majority of the outstanding voting securities" means the affirmative vote of the lesser of (1) more than 50% of the
outstanding shares of a Fund, or (2) 67% or more of the shares present at a meeting if more than 50% of the outstanding shares are represented at the meeting in person or by proxy. The following fundamental investment policies cannot be changed without such a vote.
Each Fund may not, as a matter of fundamental policy:
1. Underwrite any issue of securities issued by other persons within the meaning of the 1933 Act except when it might be deemed to be an underwriter either: (a) in connection with the disposition of a portfolio security; or (b) in connection with the purchase of securities directly from the issuer thereof in accordance with its investment objective. This restriction shall not limit the Portfolio's ability to invest in securities issued by other registered investment companies.
2. Purchase or sell real estate, except a Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate and it may hold and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of securities which are secured by real estate or interests therein.
3. Purchase or sell commodities, except that a Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts.
4. Purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions; and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
5. Make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
6. Borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
7. Purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that: (a) up to 25% of its total assets may be invested without regard to these limitations and (b) a Fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder, or any applicable exemptive relief.
6. The section entitled "Trustees and Trustees' Fees" is revised in its entirety to read:
TRUSTEES AND TRUSTEES' FEES
The "Columbia Fund Complex" includes all of the registered investment companies to which the Advisor and its affiliates provide investment advisory services.
The Advisor or its affiliates pay the compensation of all the officers of the funds in the Columbia
Fund Complex (as such term is defined under applicable regulations promulgated under the 1940 Act) advised by the Advisor, including Trustees who are affiliated with the Advisor. For the fiscal year ended March 31, 2005 and the calendar year ended December 31, 2005, the Trustees received the following compensation for serving as Trustees:
AGGREGATE
COMPENSATION
PENSION OR AGGREGATE FROM THE
RETIREMENT COMPENSATION COLUMBIA TOTAL COMPENSATION FROM
BENEFITS FROM THE INTERMEDIATE COLUMBIA FUND COMPLEX
ACCRUED AS COLUMBIA INCOME BOND FUND PAID TO THE TRUSTEES
PART OF FUND OR THE YEAR FOR CALENDAR YEAR
TRUSTEE FUND EXPENSES FOR THE YEAR ENDED ENDED ENDED DECEMBER 31,
------- (b) MARCH 31, 2005 MARCH 31, 2005 2003(a)
DISINTERESTED
DouglasA. Hacker N/A $ 1,403 $ 2,291 $ 135,000
Janet Langford Kelly N/A 1,576 2,609 148,500
Richard W. Lowry N/A 1,279 2,096 150,700
William E. Mayer N/A 1,473 2,411 166,700
Charles R. Nelson N/A 1,469 2,418 141,500
John J. Neuhauser N/A 1,348 2,208 158,284
Patrick J. Simpson (c) N/A 1,324 2,166 129,000
Thomas E. Stitzel N/A 1,522 2,487 149,000
Thomas C. Theobald(d) N/A 1,818 3,013 172,500
Anne-Lee Verville (e) N/A 1,607 2,632 157,000
Richard L. Woolworth N/A 1,304 2,110 131,000
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(a) As of December 31, 2005, each Trustee other than Richard W. Lowry, John J. Neuhauser and William E. Mayer oversees 83 funds in the Columbia Fund Complex, and Messrs. Lowery, Neuhauser and Mayer each oversee 85 funds in the Columbia Fund Complex.
(b) The Funds do not currently provide pension or retirement plan benefits to the Trustees.
(c) During the fiscal year ended March 31, 2005, Mr. Simpson deferred $2,166 of his compensation from the Columbia Intermediate Bond Fund and deferred $1, 324 of his compensation from the Columbia Income Fund. During the calendar year ended December 31, 2005, Mr. Simpson deferred $107,500 of his total compensation from the Columbia Fund Complex pursuant to the deferred compensation plan. At December 31, 2005, the value of Mr. Simpson's account under that plan was $269, 502.
(d) During the fiscal year ended March 31, 2005, Mr. The bold deferred $1, 789 of his compensation from the Columbia Intermediate Bond Fund and deferred $1,052 of his compensation from the Columbia Income Fund. During the calendar year ended December 31, 2005, Mr. Theobald deferred $150,000 of his total compensation from the Columbia Fund Complex pursuant to the deferred compensation plan. At December 31, 2005, the value of Mr. Theobald's account under that plan was $320,084.
(e) During the fiscal year ended March 31, 2005, Ms. Verville deferred $797 of her compensation from the Columbia Intermediate Bond Fund and deferred $468 of her compensation from the Columbia Income Fund. At December 31, 2005, the value of Ms. Verville's account under the deferred compensation plan was $683,935.
7. The section entitled "Share Ownership" is revised in its entirety to read:
SHARE OWNERSHIP
The following table shows the dollar range of equity securities beneficially owned by each Trustee as of December 31, 2005 (i) in each Fund and (ii) in the funds in the Columbia Fund Complex.
DOLLAR RANGE OF EQUITY
SECURITIES OWNED IN THE AGGREGATE DOLLAR RANGE OF
DOLLAR RANGE OF COLUMBIA INTERMEDIATE EQUITY SECURITIES OWNED IN
EQUITY SECURITIES BOND FUND ALL FUNDS OVERSEEN BY
NAME OF TRUSTEE OWNED IN THE TRUSTEE IN COLUMBIA FUND
COLUMBIA INCOME COMPLEX
FUND
Douglas A. Hacker $0 $0 Over $100,000
Janet Langford Kelly $0 $0 Over $100,000
Richard W. Lowry $0 $0 Over $100,000
Charles R. Nelson $50,001-$100,000 Over $100,000 Over $100,000
John J. Neuhauser $0 $0 Over $100,000
Patrick J. Simpson $0 $0 Over $100,000
Thomas E. Stitzel $0 $0 $50,001 - $100,000
Thomas C. Theobald $0 $0 Over $100,000
Anne-Lee Verville $0 $0 Over $100,0001
Richard L. Woolworth $0 $0 Over $100,000
INTERESTED TRUSTEE
William E. Mayer $0 $0 $50,001-$100,000
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(1) Includes the value of compensation payable under the deferred compensation plan for independent Trustees of the Columbia Fund Complex that is determined as if the amounts deferred had been invested, as of the date of deferral, in shares of one or more funds in the Columbia Fund Complex as specified by Ms. Verville.
8. The section entitled "Ownership of the Fund" is replaced in its entirety to read:
As of record on February 28, 2006, the officers and Trustees of the Trust as a group beneficially owned less than 1% of the then outstanding shares of the Columbia Income Fund.
As of record on February 28, 2006, the following shareholders of record owned 5% or more of the following classes of Columbia Income Fund's outstanding shares:
CLASS B SHARES: Citigroup Global Markets, Inc. 6.42% 333 W. 34th St. New York, NY 10001-2402 Merrill Lynch Pierce Fenner & Smith 6.68% 4800 Deer Lake Dr. E Fl. 2 Jacksonville, FL 32246-6484 |
CLASS C SHARES: Merrill Lynch Pierce Fenner & Smith 6.65% 4800 Deer Lake Dr. E Fl. 2 Jacksonville, FL 32246-6484 CLASS Z SHARES: Bank of America NA 36.69% 411 N. Akard St. Dallas, TX 75201-3307 Charles Schwab & Co. Inc. 14.40% 101 Montgomery St. San Francisco, CA 94104-4122 |
As of record on February 28, 2006, the officers and Trustees of the Trust as a group owned less than 1% of the then outstanding shares of the Columbia Intermediate Bond Fund.
As of record on February 28, 2006, the following shareholders owned 5% or more of the following classes of Columbia Intermediate Bond Fund's outstanding shares:
CLASS A SHARES: Investors Bank and Trust 5.10% 4 Manhattanville Rd. Purchase, NY 10577-2139 Charles Schwab & Co. Inc. 32.09% 101 Montgomery St. San Francisco, CA 94104-4122 Transamerica Life Insurance 15.28% P.O. Box 30368 Los Angeles, CA 90030-0368 CLASS B SHARES: Citigroup Global Markets, Inc. 8.48% 333 W. 34th St. New York, NY 10001-2402 CLASS C SHARES: Citigroup Global Markets, Inc. 19.74% 333 W. 34th St. New York, NY 10001-2402 Merrill Lynch Pierce Fenner & Smith 13.27% 4800 Deer Lake Dr. E Fl. 2 Jacksonville, FL 32246-6484 CLASS R SHARES: FIM Funding, Inc. 100.00% c/o Columbia Funds Group Mail Stop MA5 100 11 05 100 Federal Street Boston, MA 02110-1802 |
CLASS Z SHARES: Bank of America NA 37.93% 411 N. Akard St. Dallas, TX 75201-3307 Charles Schwab & Co. Inc. 11.44% 101 Montgomery St. San Francisco, CA 94104-4122 Citigroup Global Markets, Inc. 11.84% 333 W. 34th St. New York, NY 10001-2402 |
9. The first paragraph of the front cover of Part 2 of the SAI is revised in its entirety to read:
The following information applies generally to most funds advised by the Advisor. "Funds" include the series of Columbia Funds Series Trust I, Columbia Funds Institutional Trust, SteinRoe Variable Investment Trust and Liberty Variable Investment Trust (each a "Trust" and together, the "Trusts"). In certain cases, the discussion applies to some, but not all, of the Funds, and you should refer to your Fund's Prospectus and to Part 1 of this Statement of Additional Information ("SAI") to determine whether the matter is applicable to your Fund. You will also be referred to Part 1 for certain data applicable to your Fund.
10. The section entitled "Trustees and Officers" in Part 2 of the SAI is revised to read:
Information regarding the Trustees and officers of the Funds together with their principal business occupations during the last five years (their titles may have varied during that period) is shown below. Unless otherwise noted, the address for each Trustee and officer is c/o Columbia Funds, Mail Stop MA5-515-11-05, One Financial Center, Boston, MA 02111.
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Name and Position with Appointed Principal Occupation(s) Overseen Other Directorships
Year of Birth Funds to Office(1) During Past Five Years by Trustee Held(2)
------------------ -------------------- ------------ ------------------------ ------------- -------------------------
DISINTERESTED TRUSTEE
Thomas C. Theobald Trustee and Chairman 1996 Partner and Senior 83 Anixter International
(Born 1937) of the Board Advisor, Chicago (network support
Growth Partners equipment distributor);
(private equity Ventas, Inc. (real estate
investing) since investment trust); Jones
September, 2004; Lang LaSalle (real estate
Managing Director, management services) and
William Blair Capital Ambac Financial Group
Partners (private equity (financial guaranty
investing) from insurance)
September, 1994 to
September, 2004.
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Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Name and Position with Appointed Principal Occupation(s) Overseen Other Directorships
Year of Birth Funds to Office(1) During Past Five Years by Trustee Held(2)
------------------ -------------------- ------------ ------------------------ ------------- -------------------
DISINTERESTED TRUSTEE
Douglas A. Hacker Trustee 1996 Executive Vice President 83 Nash Finch Company
(Born 1955) -- Strategy of United (food distributor)
Airlines (airline) since
December, 2002;
President of UAL Loyalty
Services (airline) from
September, 2001 to
December, 2002; Executive
Vice President and Chief
Financial Officer of
United Airlines from
July,1999 to September,
2001.
Janet Langford Trustee 1996 Partner, Zelle, Hofmann, 83 UAL Corporation
Kelly (Born 1957) Voelbel, Mason & Gette (airline)
LLP (law firm) since
March, 2005; Adjunct
Professor of Law,
Northwestern
University, since
September, 2004; Chief
Administrative Officer
and Senior
Vice President, Kmart
Holding Corporation
(consumer goods), from
September, 2003 to
March, 2004; Executive
Vice President- Corporate
Development and
Administration, General
Counsel and Secretary,
Kellogg Company (food
manufacturer), from
September, 1999 to
August, 2003.
Richard W. Lowry Trustee 1995 Private Investor since 85 None
(Born 1936) August, 1987 (formerly
Chairman and Chief
Executive Officer, U.S.
Plywood Corporation
(building products
manufacturer) until
1987.)
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Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Name and Position with Appointed Principal Occupation(s) Overseen Other Directorships
Year of Birth Funds to Office(1) During Past Five Years by Trustee Held(2)
------------------ -------------------- ------------ ------------------------ ------------- --------------------------
DISINTERESTED TRUSTEE
Charles R. Nelson Trustee 1981 Professor of Economics, 83 None
(Born 1943) University of
Washington since
January, 1976; Ford
and Louisa Van
Voorhis Professor of
Political Economy,
University of
Washington, since
September, 1993;
Director, Institute
for Economic Research,
University of
Washington from
September, 2001 to
June, 2003; Adjunct
Professor of
Statistics, University
of Washington since
September, 1980;
Associate Editor,
Journal of Money
Credit and Banking
since September, 1993;
consultant on
econometric and
statistical matters.
John J. Neuhauser Trustee 1985 University Professor, 85 None
(Born 1942) Boston College since
November, 2005;
Academic Vice President
and Dean of
Faculties, Boston
College from August,
1999 to October, 2005.
Patrick J. Simpson Trustee 2000 Partner, Perkins Coie 83 None
(Born 1944) L.L.P. (law firm).
Thomas E. Stitzel Trustee 1998 Business Consultant 83 None
(Born 1936) since 1999; Chartered
Financial Analyst.
Anne-Lee Verville Trustee 1998 Retired since 1997 83 Chairman of the Board of
(Born 1945) (formerly General Directors, Enesco Group,
Manager, Global Inc. (producer of giftware
Education Industry, IBM and home and garden decor
Corporation (computer products)
and technology) from
1994 to 1997).
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Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Name and Position with Appointed Principal Occupation(s) Overseen Other Directorships
Year of Birth Funds to Office(1) During Past Five Years by Trustee Held(2)
------------------ -------------------- ------------ ------------------------ ------------- ---------------------
DISINTERESTED TRUSTEE
Richard L. Woolworth Trustee 1991 Retired since December, 83 Northwest Natural Gas
(Born 1941) 2003 (formerly (natural gas service
Chairman and Chief provider)
Executive Officer, The
Regence Group Co.
(regional health
insurer); Chairman
and Chief Executive
Officer, BlueCross
BlueShield of Oregon;
Certified Public
Accountant, Arthur
Young & Company).
INTERESTED TRUSTEE
William E. Mayer(3) Trustee 1994 Partner, Park Avenue 85 Lee Enterprises (print
(Born 1940) Equity Partners (private media), WR Hambrecht +
equity) since Co.(financial service
February, 1999. provider);
Reader's Digest
(publishing);
OPENFIELD Solutions
(retail industry
technology provider)
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(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public companies").
(3) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (the "1940 Act")) of the Columbia Funds by reason of his affiliation with WR Hambrecht + Co., a registered broker-dealer that may execute portfolio transactions for or engage in principal transactions with the Fund or other funds or clients advised by the Advisor or its affiliates.
Year First
Elected or
Position with Appointed
Name and Year of Birth Funds Appointed to Office Principal Occupation(s) During Past Five Years
---------------------- --------------- ---------- -------------------------------------------------
OFFICERS
Christopher L. Wilson President 2004 Head of Mutual Funds since August, 2004 and
(Born 1957) Managing Director of the Advisor since September,
2005; President and Chief Executive Officer, CDC
IXIS Asset Management Services, Inc. (investment
management) from September, 1998 to August, 2004.
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Year First
Elected or
Position with Appointed
Name and Year of Birth Funds Appointed to Office Principal Occupation(s) During Past Five Years
---------------------- --------------- ---------- -------------------------------------------------
OFFICERS
James R. Bordewick, Jr. Senior Vice 2006 Associate General Counsel, Bank of America since
(Born 1959) President, April, 2005; Senior Vice President and Associate
Secretary and General Counsel, MFS Investment Management
Chief Legal (investment management) prior to April, 2005.
Officer
J. Kevin Connaughton Senior Vice 2000 Managing Director of the Advisor since February,
(Born 1964) President, 1998.
Chief Financial
Officer and
Treasurer
Mary Joan Hoene Senior Vice 2004 Senior Vice President and Chief Compliance
(Born 1949) President and Officer of various funds in the Columbia Fund
Chief Complex; Partner, Carter, Ledyard & Milburn LLP
Compliance (law firm) from January, 2001 to August, 2004.
Officer
Michael G. Clarke Chief 2004 Managing Director of the Advisor since February,
(Born 1969) Accounting 2001.
Officer and
Assistant
Treasurer
Stephen T. Welsh Vice President 1996 President, Columbia Management Services, Inc.
(Born 1957) since July, 2004; Senior Vice President and
Controller, Columbia Management Services, Inc.
prior to July, 2004.
Jeffrey R. Coleman Deputy 2004 Group Operations Manager of the Advisor since
(Born 1969) Treasurer October, 2004; Vice President of CDC IXIS Asset
Management Services, Inc. (investment
management) from August, 2000 to September, 2004.
Joseph F. DiMaria Deputy 2004 Senior Compliance Manager of the Advisor since
(Born 1968) Treasurer January, 2005; Director of Trustee Administration
of the Advisor from May, 2003 to January,
2005; Senior Audit Manager,
PricewaterhouseCoopers (independent
registered public accounting firm) from
July, 2000 to April, 2003.
Ty S. Edwards Deputy 2004 Vice President of the Advisor since 2002;
(Born 1966) Treasurer Assistant Vice President and Director,
State Street Corporation (financial services)
prior to 2002.
Barry S. Vallan Controller 2006 Vice President-Fund Treasury of the Advisor since
(Born 1969) October, 2004; Vice President-Trustee Reporting
from April, 2002 to October, 2004;
Management Consultant, PricewaterhouseCoopers
(independent registered public accounting
firm) prior to October, 2002.
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Year First
Elected or
Position with Appointed
Name and Year of Birth Funds Appointed to Office Principal Occupation(s) During Past Five Years
---------------------- --------------- ---------- -----------------------------------------------------
OFFICERS
Peter T. Fariel Assistant 2006 Associate General Counsel, Bank of America since
(Born 1957) Secretary April, 2005; Partner, Goodwin Procter LLP (law
firm) prior to April, 2005.
Ryan C. Larrenaga Assistant 2005 Assistant General Counsel, Bank of America since
(Born 1970) Secretary March, 2005; Associate, Ropes & Gray LLP (law
firm) from 1998 to February, 2005.
Barry S. Finkle Assistant 2003 Senior Manager and Head of Fund Performance of
(Born 1965) Treasurer the Advisor since January, 2001.
Julian Quero Assistant 2003 Senior Compliance Manager of the Advisor since
(Born 1967) Treasure April, 2002; Assistant Vice President of Taxes and
Distributions of the Advisor from 2001 to April, 2002.
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Each of the Trust's Trustees and officers hold comparable positions with certain other funds of which the Advisor or its affiliates is the investment advisor or distributor and, in the case of certain of the officers, with certain affiliates of the Advisor.
The Trustees and officers serve terms of indefinite duration. Each Fund held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once every five years thereafter to elect Trustees.
11. The section entitled "Trustee Positions," a subsection of "Management of the Funds," is revised to read:
As of December 31, 2005, no disinterested Trustee or any of their immediate family members owned beneficially or of record any class of securities of the Advisor, another investment advisor, sub-advisor or portfolio manager of any of the funds in the Columbia Fund Complex or any person controlling, controlled by or under common control with any such entity.
12. The section entitled "PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES" is revised in its entirety as follows:
RIGHTS OF ACCUMULATION (Columbia Class A and Class T shares, Nations Class A shares and Galaxy Retail A shares only) (Class T shares can only be purchased by the shareholders of Columbia Newport Tiger Fund (formerly named Liberty Newport Tiger Fund) who already own Class T shares). Reduced sales charges on Class A and T shares can be effected by combining a current purchase of Class A or Class T shares with prior purchases of other funds and classes distributed by CMD. The applicable sales charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on the previous day of all shares of funds for which CMD serves as distributor (Funds) held by the shareholder.
CMD must be promptly notified of each purchase with respect to which a shareholder is entitled to a reduced sales charge. Such reduced sales charge will be applied upon confirmation of the shareholder's holdings by CMS. A Fund may terminate or amend this Right of Accumulation.
STATEMENT OF INTENT (Class A, Class E and Class T shares only). Any person may qualify for reduced sales charges on purchases of Class A, E and T shares made within a thirteen-month period pursuant to a Statement of Intent ("Statement"). A shareholder may include, as an accumulation credit toward the completion of such Statement, the value of all fund shares held by the shareholder on the date of the Statement in Funds (except shares of any money market fund, unless such shares were acquired by exchange from Class A shares of another non-money market fund)). The value is determined at the public offering price on the date of the Statement. Purchases made through reinvestment of distributions do not count toward satisfaction of the Statement.
During the term of a Statement, CMS will hold shares in escrow to secure payment of the higher sales charge applicable to Class A, E or T shares actually purchased. Dividends and capital gains will be paid on all escrowed shares and these shares will be released when the amount indicated has been purchased. A Statement does not obligate the investor to buy or a Fund to sell the amount of the Statement. If a shareholder exceeds the amount of the Statement and reaches an amount which would qualify for a further quantity discount, a retroactive price adjustment will be made at the time of expiration of the Statement (provided the FSF returns to CMD the excess commission previously paid during the thirteen-month period). The resulting difference in offering price will purchase additional shares for the shareholder's account at the applicable offering price.
If the amount of the Statement is not purchased, the shareholder shall remit to CMD an amount equal to the difference between the sales charge paid and the sales charge that should have been paid. If the shareholder fails within twenty days after a written request to pay such difference in sales charge, CMS will redeem escrowed Class A, E or T shares with a value equal to such difference. The additional FSF commission will be remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available from your FSF, or from CMS at 1-800-345-6611.
NET ASSET VALUE ELIGIBILITY GUIDELINES (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, INC. IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS).
1. Employees, brokers and various relationships that are allowed to buy at NAV. Class A shares of certain Funds may be sold at (NAV) to the following individuals, whether currently employed or retired: Employees of Bank of America Corporation (and its predecessors), its affiliates and subsidiaries; Trustees of funds advised or administered by the Advisor; directors, officers and employees of the Advisor, CMD, or its successors and companies affiliated with the Advisor; Registered representatives and employees of Financial Service Firms (including their affiliates) that are parties to dealer agreements or other sales arrangements with CMD; Nations Funds' Trustees, Directors and employees of its investment sub-advisers; Broker/Dealers if purchases are in accordance with the internal policies and procedures of the employing broker/dealer and made for their own investment purposes; employees or partners of any contractual service provider to the funds
NAV eligibility for Class A purchase also applies to the families of the parties listed above and their beneficial accounts. Family members include: spouse, parent, stepparent, legal guardian, child, stepchild, father-in-law and mother-in-law.
Individuals receiving a distribution from a Bank of America trust, fiduciary, custodial or other similar account may use the proceeds of that distribution to buy Class A shares without paying a front-end sales charge, as long as the proceeds are invested in the funds within 90 days of the date of distribution.
Registered broker/dealer firms that have entered into a Nations Funds dealer agreement with BACAP Distributors, LLC may buy Class A shares without paying a front-end sales charge for their investment account only.
Banks, trust companies and thrift institutions, acting as fiduciaries.
2. Grandfathered investors. Any shareholder who owned shares of any fund of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000 (when all of the then outstanding shares of Columbia Acorn Trust were re-designated Class Z shares) and who since that time has remained a shareholder of any Fund, may purchase Class A shares of any Fund at NAV in those cases where a Columbia Fund Class Z share is not available.
Shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at (NAV) will continue to be eligible for NAV purchases into those Nations Fund accounts opened through August 19, 2005.
Galaxy Fund shareholders prior to December 1, 1995; and shareholders who (i) purchased Galaxy Fund Prime A shares at net asset value and received Class A shares in exchange for those shares
during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Prime A shares were originally purchased.
(For Class T shares only) Shareholders who (i) purchased Galaxy Fund Retail A shares at net asset value and received Class T shares in exchange for those shares during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Retail A shares were originally purchased; and Boston 1784 Fund shareholders on the date that those funds were reorganized into Galaxy Funds.
3. Reinstatement. Subject to the fund policy on trading of fund shares, an investor who has redeemed class A, B, C, D, G or T shares may, upon request, reinstate within 1 year a portion or all of the proceeds of such sales in shares of class A of any fund at the NAV next determined after Columbia Management Services, Inc. received a written reinstatement request and payment.
4. Retirement Plans. Class A, Class E and Class T shares (Class T shares are not currently open to new investors) of certain funds may also be purchased at reduced or no sales charge by clients of dealers, brokers or registered investment advisors that have entered into arrangements with CMD pursuant to which the funds are included as investments options in wrap fee accounts, other managed agency/asset allocation accounts or programs involving fee-based compensation arrangements, and by participants in certain retirement plans.
5. Non-U.S. Investors. Certain pension, profit-sharing or other employee benefit plans offered to non-US investors may be eligible to purchase Class A shares with no sales charge.
6. Reorganizations. At the Fund's discretion, NAV eligibility may apply to shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which the fund is a party.
7. Rights of Accumulation ("ROA"). The value of eligible accounts, regardless of class, maintained by you and you and your immediate family may be combined with the value of your current purchase to reach a sales discount level and to obtain the lower sales charge for your current purchase.
8. Letters of Intent ("LOI"). You may pay a lower sales charge when purchasing class A shares by signing a letter of intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the LOI within 13 months. If your LOI purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES (CDSCS) (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, INC. IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS) (Class A, B, C, D, E, matured F, G and T shares) CDSCs may be waived on redemptions in the following situations with the proper documentation:
1. Death. CDSCs may be waived on redemptions following the death of (i) the sole shareholder on an individual account, (ii) a joint tenant where the surviving joint tenant is the deceased's spouse, or (iii) the beneficiary of a Uniform Gifts to Minors Act (UGMA), Uniform Transfers to Minors Act (UTMA) or other custodial account. If, upon the occurrence of one of the foregoing, the account is transferred to an account registered in the name of the deceased's estate, the CDSC will be waived on any redemption from the estate account If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions occurring pursuant to a monthly, quarterly or semi-annual SWP established with CMS, to the extent the redemptions do not exceed, on an annual basis, 12% of the account's value at the time that the SWP is established. Otherwise, CDSCs will be charged on SWP redemptions until this requirement is met. For redemptions in excess of 12% of the account's value at the time that the SWP is established, a CDSC will be charged on the SWP redemption. The 12% limit does not apply if the SWP is set up at the time the account is established, and distributions are being reinvested. See below under "How to Sell Shares - Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions occurring after the sole shareholder on an individual account or a joint tenant on a spousal joint tenant account becomes disabled (as defined in Section 72(m)(7) of the Internal Revenue Code). To be eligible for such waiver, (i) the disability must arise AFTER the purchase of shares (ii) the disabled shareholder must have been under age 65 at the time of the initial determination of disability, and (iii) a letter from a physician must be signed under penalty of perjury stating the nature of the disability. If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
4. Death of a trustee. CDSCs may be waived on redemptions
occurring upon dissolution of a revocable living or grantor
trust following the death of the sole trustee where (i) the
grantor of the trust is the sole trustee and the sole life
beneficiary, (ii) death occurs following the purchase AND
(iii) the trust document provides for dissolution of the trust
upon the trustee's death. If the account is transferred to a
new registration (including that of a successor trustee), the
applicable CDSC will be charged upon any subsequent
redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions required to return excess contributions made to retirement plans or individual retirement accounts, so long as the FSF agrees to return the applicable portion of any commission paid by CMD.
6. Qualified Retirement Plans. CDSCs may be waived on CMD shares sold by employee benefit plans created according to Section 403(b) of the tax code and sponsored by a non-profit organization qualified under Section 501(c)(3) of the tax code. To qualify for the waiver, the plan must be a participant in an alliance program that has signed an agreement with Columbia Funds or CMD.
7. Trust Share Taxes. CDSCs will be waived on redemptions of Class E and F shares (i) where the proceeds are used to directly pay trust taxes, and (ii) where the proceeds are used to pay beneficiaries for the payment of trust taxes.
8. Return of Commission. CDSCs may be waived on shares sold by intermediaries that are part of the Columbia Funds selling group where the intermediary has entered into an agreement with Columbia Funds not to receive (or to return if received) all or any applicable portion of an upfront commission.
9. Non-U.S. Investors. CDSCs may be waived on shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors.
10. IRS Section 401 and 457. CDSCs may be waived on shares sold by certain pension, profit-sharing or other employee benefit plans established under Section 401 or 457 of the tax code.
11. Medical Payments. CDSCs may be waived on shares redeemed for medical payments that exceed 7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least twelve weeks.
12. Plans of Reorganization. At the Funds' discretion, CDSCs may be waived for shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which a fund is a party.
13. Charitable Giving Program. CDSCs may be waived on the sale of Class C or Class D shares sold by a non-profit organization qualified under Section 501(c)(3) of the tax code in connection with the Banc of America Capital Management Charitable Giving Program.
14. The CDSC also may be waived where the FSF agrees to return all or an agreed upon portion of the commission earned on the sale of the shares being redeemed.
9. The second paragraph of the section entitled "Other Disclosures," a subsection of "Disclosure of Portfolio Information," is revised in its entirety to read:
The Fund periodically discloses its portfolio information on a confidential basis to various service providers that require such information in order to assist the Fund with its day-to-day business affairs. In addition to Columbia Advisors and its affiliates, these service providers include the Fund's custodian and sub-custodians, the Fund's independent registered public accounting firm, legal counsel, financial printers (R.R. Donnelly & Sons and Bowne & Co., Inc.), the Fund's proxy solicitor and proxy voting service provider (Computershare), rating agencies that maintain ratings on certain Columbia Funds (Fitch, Inc.) and service providers that support Columbia Advisors' trading systems (InvestorTool, Inc. and Thomson Financial). These service providers are required to keep such information confidential, and are prohibited from trading based on the information or otherwise using the information except as necessary in providing services to the Fund. The Fund may also disclose portfolio holdings information to broker/dealers and certain other entities related to potential transactions and management of the Fund, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information.
INT-50/107376-0306 March 27, 2006
COLUMBIA INCOME FUND
COLUMBIA INTERMEDIATE BOND FUND
SERIES OF COLUMBIA FUNDS TRUST VIII
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 2005
This Statement of Additional Information (SAI) contains information which may be useful to investors but which is not included in the Prospectuses of the Columbia Income Fund and Columbia Intermediate Bond Fund (each, a Fund and, collectively, the Funds). This SAI is not a prospectus and is authorized for distribution only when accompanied or preceded by a Prospectus of the relevant Fund dated August 1, 2005. This SAI should be read together with the relevant Prospectus and most recent Annual Report dated March 31, 2005. Investors may obtain a free copy of the relevant Prospectus and Annual Report from Columbia Funds Distributor, Inc. (CFD), One Financial Center, Boston, MA 02111-2621, or by calling 1-800-426-3750. The Financial Statements and Report of Independent Registered Public Accounting Firm appearing in each Fund's March 31, 2005 Annual Report are incorporated into this SAI by reference.
Part 1 of this SAI contains specific information about the Funds. Part 2 includes information about the funds distributed by CFD generally and additional information about certain securities and investment techniques described in the Funds' Prospectuses.
TABLE OF CONTENTS
PAGE
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PART 1
Definitions b
Organization and History b
Investment Goals and Policies c
Fundamental Investment Policies c
Other Investment Policies e
Fund Charges and Expenses f
Custodian of the Funds q
Independent Registered Public Accounting Firm of the Funds r
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PAGE
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PART 2
Miscellaneous Investment Practices 1
Taxes 21
Management of the Funds 28
Determination of Net Asset Value 41
How to Buy Shares 43
Special Purchase Programs/Investor Services 46
Programs for Reducing or Eliminating Sale Charges 48
How to Sell Shares 50
Distributions 55
How to Exchange Shares 55
Suspension of Redemptions 56
Shareholder Liability 56
Shareholder Meetings 56
Appendix I 57
Appendix II 62
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Part1
COLUMBIA INCOME FUND
COLUMBIA INTERMEDIATE BOND FUND
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 2005
DEFINITIONS
"Trust" Columbia Funds Trust VIII
"Intermediate Bond Fund" or Columbia Intermediate Bond Fund
"Fund"
"Income Fund" or "Fund" Columbia Income Fund
"Advisor" or "Administrator" Columbia Management Advisors, Inc., the Funds'
investment advisor and administrator
"CFD" Columbia Funds Distributor, Inc, the Funds'
distributor
"CFS" Columbia Funds Services, Inc., the Funds'
shareholder services and transfer agent
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ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1986. Each Fund is an open-end, diversified management investment company representing the entire interest in a separate series of the Trust. The Income Fund commenced investment operations on March 5, 1986. The Intermediate Bond Fund commenced investment operations on December 5, 1978. The Trust is not required to hold annual shareholder meetings, but special meetings may be called for certain purposes. Shareholders receive one vote for each Fund share. Shares of each Fund and any other series of the Trust that may be in existence from time to time generally vote together except when required by law to vote separately by fund or by class. Shareholders owning in the aggregate ten percent of Trust shares may call meetings to consider removal of Trustees. Under certain circumstances, the Trust will provide information to assist shareholders in calling such a meeting. See Part 2 of this SAI for more information.
The Intermediate Bond Fund offers four classes of shares - Class A, B, C and Z shares. Prior to July 31, 2000, the Fund had a single class of shares. On July 14, 2000, the outstanding shares of the Fund were converted into Class S shares, and on July 31, 2000, the Fund commenced offering Class A shares. On February 1, 2002, the Fund commenced offering Class B and C shares. On July 29, 2002, the Fund's Class S shares were redesignated as Class Z shares. Prior to September 12, 2002, the Fund invested all of its assets in the SR&F Intermediate Bond Portfolio as part of a master fund/feeder fund structure. Effective February 1, 2002, the Fund changed its name from "Stein Roe Intermediate Bond Fund" to "Liberty Intermediate Bond Fund." Effective October 13, 2003, the Fund changed its name from "Liberty Intermediate Bond Fund" to its current name.
The Income Fund offers four classes of shares - Class A, B, C and Z shares. Prior to August 1, 2000, the Fund had a single class of shares. On that date, the outstanding shares of the Fund were converted into Class S shares, and the Fund commenced offering Class A shares. On July 15, 2002, the Fund added Class B and C shares, redesignated its Class S shares as Class Z shares, and changed its name from "Stein Roe Income Fund" to "Liberty Income Fund" and the word "Bond" was deleted from the name of its Class A shares. Prior to July 15, 2002, the Fund invested all of its assets in the SR&F Income Portfolio as part of a master fund/feeder fund structure. Effective October 13, 2003, the Fund changed its name from "Liberty Income Fund" to its current name.
Effective October 13, 2003, the Trust changed its name from "Liberty-Stein Roe Funds Income Trust" to its current name. It is expected that, subject to shareholder approval of the election of all current Trustees, each Fund will be reorganized as a series of Columbia Funds Trust IX, a Massachusetts business trust into which all of the retail Columbia funds are expeted to be reorganized.
b
INVESTMENT GOALS AND POLICIES
The Prospectuses describe the Funds' investment goals, investment strategies and risks. Part 1 of this SAI includes additional information concerning, among other things, the investment policies of the Funds. Part 2 contains additional information about the following securities and investment techniques that may be utilized by each Fund (unless otherwise noted):
Derivatives
Senior Loans
Structured Notes
Interest Rate Swaps, Caps and Floors
Medium- and Lower-Rated Debt Securities
Mortgage-Backed Securities
Mortgage Dollar Rolls
Floating Rate Instruments
Inverse Floaters
Short Sales
Interfund Borrowing and Lending
Forward Commitments ("When Issued" and "Delayed Delivery" Securities)
Reverse Repurchase Agreements
Securities Loans
Repurchase Agreements
Line of Credit
Futures Contracts and Related Options (Limited to interest rate futures,
tax-exempt bond index futures, options on such futures and options on such
indices)
Swap Agreements (Swaps, Caps, Collars and Floors)
Options on Securities
Foreign Securities
Stand-by Commitments
Zero Coupon Securities (Zeros)
Pay-In-Kind (PIK) Securities
Other Investment Companies
Rule 144A Securities
Except as indicated below under "Fundamental Investment Policies," the Funds' investment policies are not fundamental and the Trustees may change the policies without shareholder approval.
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940, as amended (the "1940 Act"), provides that a
"vote of a majority of the outstanding voting securities" means the affirmative
vote of the lesser of (1) more than 50% of the outstanding shares of a Fund, or
(2) 67% or more of the shares present at a meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy. The
following fundamental investment policies cannot be changed without such a vote.
As fundamental investment policies, each Fund may not:
(1) invest in a security if, as a result of such investment, more than 25% of its total assets (taken at market value at the time of such investment) would be invested in the securities of issuers in any particular industry, except that this restriction does not apply to (i) repurchase agreements, or (ii) securities of issuers in the financial services industry, and except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund;
(2) invest in a security if, with respect to 75% of its assets, as a result of such investment, more than 5% of its total assets (taken at market value at the time of such investment) would be invested in the securities of any one issuer, except that this restriction does not apply to U.S. Government Securities or repurchase agreements for such securities and except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund;
(3) invest in a security if, as a result of such investment, it would hold more than 10% (taken at the time of such investment) of the outstanding voting securities of any one issuer, except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund;
(4) purchase or sell real estate (although it may purchase securities secured by real estate or interests therein, or securities issued by companies which invest in real estate, or interests therein);
(5) purchase or sell commodities or commodities contracts or oil, gas or mineral programs, except that it may enter into (i) futures and options on futures and (ii) forward contracts;
(6) make loans, although it may (a) lend portfolio securities and participate in an interfund lending program with certain other Funds provided that no such loan may be made if, as a result, the aggregate of such loans would exceed 33 1/3% of the value of its total assets (taken at market value at the time of such loans); (b) purchase money market instruments and enter into repurchase agreements; and (c) acquire publicly distributed or privately placed debt securities;
(7) borrow except from banks, other affiliated funds and other entities to the extent permitted by the 1940 Act;
(8) act as an underwriter of securities, except insofar as it may be deemed to be an "underwriter" for purposes of the Securities Act of 1933 on disposition of securities acquired subject to legal or contractual restrictions on resale, except that all or substantially all of the assets of the Fund may be invested in another registered investment company having the same investment objective and substantially similar investment policies as the Fund; or
(9) issue any senior security except to the extent permitted under the 1940 Act.
The Funds' Trustees have approved, subject to shareholder approval at a shareholder meeting expected to be held in 2005, the replacement of the Funds' current fundamental investment restrictions with the following standardized fundamental investment restrictions:
PROPOSED FUNDAMENTAL RESTRICTIONS.
Each Fund may not, as a matter of fundamental policy:
1. Underwrite any issue of securities issued by other persons within the
meaning of the 1933 Act except when it might be deemed to be an underwriter
either: (a) in connection with the disposition of a portfolio security; or
(b) in connection with the purchase of securities directly from the issuer
thereof in accordance with its investment objective. This restriction shall
not limit the Portfolio's ability to invest in securities issued by other
registered investment companies;
2. Purchase or sell real estate, except the Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate and it may hold and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of securities which are secured by real estate or interests therein;
3. Purchase or sell commodities, except that the Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts;
4. Purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions; and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief;
5. Make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief;
6. Borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations
thereunder and any applicable exemptive relief;
7. Purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that: (a) up to 25% of its total assets may be invested without regard to these limitations and (b) the Fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder, or any applicable exemptive relief.
OTHER INVESTMENT POLICIES
As non-fundamental investment policies, which may be changed without a shareholder vote, each Fund may not:
(A) invest for the purpose of exercising control or management;
(B) purchase more than 3% of the stock of another investment company or purchase stock of other investment companies equal to more than 5% of its total assets (valued at time of purchase) in the case of any one other investment company and 10% of such assets (valued at time of purchase) in the case of all other investment companies in the aggregate; any such purchases are to be made in the open market where no profit to a sponsor or dealer results from the purchase, other than the customary broker's commission, except for securities acquired as part of a merger, consolidation or acquisition of assets;(1)
(C) purchase portfolio securities from, or sell portfolio securities to, any of the officers and directors or trustees of the Trust or of its investment adviser;
(D) purchase shares of other open-end investment companies, except in connection with a merger, consolidation, acquisition, or reorganization;
(E) invest more than 5% of its net assets (valued at time of investment) in warrants, nor more than 2% of its net assets in warrants which are not listed on the New York or American Stock Exchange;
(F) purchase a put or call option if the aggregate premiums paid for all put and call options exceed 20% of its net assets (less the amount by which any such positions are in-the-money), excluding put and call options purchased as closing transactions;
(G) write an option on a security unless the option is issued by the Options Clearing Corporation, an exchange, or similar entity;
(H) invest in limited partnerships in real estate unless they are readily marketable;
(I) sell securities short unless (i) it owns or has the right to obtain securities equivalent in kind and amount to those sold short at no added cost or (ii) the securities sold are "when issued" or "when distributed" securities which it expects to receive in a recapitalization, reorganization, or other exchange for securities it contemporaneously owns or has the right to obtain and provided that transactions in options, futures, and options on futures are not treated as short sales;
(J) invest more than 15% of its total assets (taken at market value at the time of a particular investment) in restricted securities, other than securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933;
(K) invest more than 15% of its net assets (taken at market value at the time of a particular investment) in illiquid securities, including repurchase agreements maturing in more than seven days;
(L) purchase securities on margin, except for use of short-term credit necessary for clearance of purchases and sales of portfolio securities, but it may make margin deposits in connection with transactions in options, futures, and options on futures.
e
Total assets and net assets are determined at current value for purposes of compliancde with investment restrictions and policies. All percentage limitations will apply at the time of investment and are not violated unless an excess or deficiency occurs as a result of such investment. For the purpose of the 1940 Act's diversification requirement, an issuer is the entity whose revenues support the security.
FUND CHARGES AND EXPENSES
Effective February 9, 2005, under the Funds' respective management contracts, each Fund pays the Advisor a monthly fee based on the average daily net assets of the Fund at the annual rate of:
Columbia Income Fund
Average Daily Net Assets Rate ------------------------ ----- Net assets under $500 million 0.420% Net assets of $500 million but less than $1 billion 0.375% Net assets of $1 billion but less than $1.5 billion 0.370% Net assets of $1.5 billion but less than $3 billion 0.340% Net assets of $3 billion but less than $6 billion 0.330% Net assets in excess of $6 billion 0.320% |
Columbia Intermediate Bond Fund
Average Daily Net Assets Rate ------------------------ ----- Net assets under $500 million 0.350% Net assets of $500 million but less than $1 billion 0.350% Net assets of $1 billion but less than $1.5 billion 0.300% Net assets of $1.5 billion but less than $3 billion 0.290% Net assets of $3 billion but less than $6 billion 0.280% Net assets in excess of $6 billion 0.270% |
Previously, the Advisor had, with respect to the period from November 1, 2004 to February 9, 2005, waived a portion of its fees, so that it retained fees at the rates shown above.
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Prior to November 1, 2004, under a management agreement effective November 1, 2003, the Income Fund paid the Advisor a monthly fee at the annual rate of 0.500% on the first $100 million of the average daily net assets of the Income Fund, 0.475% on the next $900 million and 0.450% of any excess over $1 billion. Prior to November 1, 2003, under the Income Fund's management agreement, the Income Fund paid the Advisor a monthly fee based on the average daily net assets of the Income Fund at the annual rate of 0.500% on the first $100 million and 0.475% over $100 million. Prior to July 12, 2002, the management fee was paid by the SR&F Income Portfolio at the same rate.
Prior to November 1, 2004, under a management agreement effective November 1, 2003, the Intermediate Bond Fund paid the Advisor a monthly fee at the annual rate of 0.35% on the first $1 billion of the average daily net assets of the Intermediate Bond Fund and 0.30% of any excess over $1 billion. Prior to November 1, 2003, under the Intermediate Fund's management agreement, the Intermediate Bond Fund paid the Advisor a monthly fee based on the average daily net assets of the Intermediate Bond Fund at the annual rate of 0.35%. Prior to September 13, 2002, the management fee was paid by the SR&F Intermediate Bond Portfolio at the same rate.
Effective November 1, 2003, under the Income Fund's administration agreement, the Income Fund pays the Administrator a monthly fee at the annual rate of 0.150% on the first $100 million of the average daily net assets of the Income Fund, 0.125% of the next $900 million and 0.100% of any excess over $1 billion. Prior to November 1, 2003, under the Income Fund's administration agreement, the Income Fund paid the Administrator a monthly fee based on the average daily net assets of the Income Fund at the annual rate of 0.150% on the first $100 million and 0.125% over $100 million.
Under the Intermediate Bond Fund's administration agreement, the Intermediate Bond Fund pays the Administrator a monthly fee at the annual rate of 0.15% of the average daily net assets of the Intermediate Bond Fund.
The Advisor is responsible for providing pricing and bookkeeping services to each Fund pursuant to an amended and restated accounting and bookkeeping agreement. Under a separate agreement (Outsourcing Agreement), the Advisor has delegated those functions to State Street Corporation (State Street). The Advisor pays fees to State Street under the Outsourcing Agreement.
Under its amended and restated accounting and bookkeeping agreement with the Trust, the Advisor receives from each Fund a monthly fee consisting of a flat fee plus an asset-based fee, as follows:
- An annual flat fee of $10,000, paid monthly; and
- In any month that a Fund has average net assets of more than $50 million, a monthly fee equal to the average daily net assets of the Fund for that month multiplied by a fee that is calculated by taking into account fees payable to State Street under the Outsourcing Agreement.
Each Fund reimburses the Advisor for all out-of-pocket expenses and charges, including fees payable to third parties (other than State Street) for providing pricing data.
Effective November 1, 2003, each Fund pays a shareholder's servicing and transfer agency fee to CFS as follows:
An annual open account fee of $34 per open account plus a Fund's allocated share of reimbursement for the out-of-pocket expenses of CFS.
Prior to November 1, 2003, each Fund paid a shareholders' servicing and transfer agency fee to CFS as follows:
- An account fee for each open account of $4.00 per annum, payable on a monthly basis, in an amount equal to 1/12 the per annum charge; plus
- An account fee for each closed account of $1.50 per annum, payable on a monthly basis, in an amount equal to 1/12 the per annum charge; plus
- A transaction fee of $1.40 per transaction occurring in Fund accounts during any month; plus
- A monthly fee at the rate of 0.06% per annum of the average daily closing value of the total net assets of the Fund for such month; plus
The Fund's allocated share of CFS' out-of-pocket expenses, including fees payable to DST Systems, Inc. (DST) under a remote services agreement with DST.
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RECENT FEES PAID TO THE ADVISOR, ADMINISTRATOR, CFD AND CFS (dollars in
thousands)
YEAR ENDED PERIOD ENDED YEAR ENDED JUNE 30,
MARCH 31, MARCH 31, -------------------
INTERMEDIATE BOND FUND 2005 2004(A) 2003 2002
---------------------- ---------- ------------ ------ ------
Management Fees $3,780 $2,626 $2,516 $2,289
Administrative Fees 1,641 1,127 1,331 982
Bookkeeping Fee 311 201 332 234
Shareholder service and transfer agency fees 1,293 1,308 1,997 1,228
12b-1 fees:
Service fee (Class A) 390 217 162 40
Service fee (Class B) 240 194 187 11
Service fee (Class C) 126 103 82 4
Distribution fee (Class A) 156 87 65 16
Distribution fee (Class B) 723 583 562 32
Distribution fee (Class C) 380 308 246 11
Fees and expenses waived by CFD:
(Class A) (156) (87) (65) (16)
(Class C) (77) (62) (50) (2)
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(a) The Fund changed its fiscal year end from June 30 to March 31 in 2004.
YEAR ENDED PERIOD ENDED YEAR ENDED JUNE 30,
MARCH 31, MARCH 31,(A) -------------------
INCOME FUND 2005 2004 2003 2002
----------- ---------- ------------ ------ ------
Management Fee $2,610 $1,874 $2,264 $1,451
Administrative Fees 751 507 631 383
Bookkeeping Fee 183 120 186 104
Shareholder service and transfer agency fees: 375 353
(Class A) (b) 146 280 0
(Class B) (b) 50 123 0
(Class C) (b) 11 16 0
(Class Z) (b) 410 510 0
12b-1 fees:
Service fee (Class A) 234 165 214 18
Service fee (Class B) 67 56 79 0
Service fee (Class C) 25 13 11 0
Distribution fee (Class B) 202 168 234 0
Distribution fee (Class C) 75 38 33 0
Fees and expenses waived by Advisor 0 (86) 0 0
Transfer agent fees reimbursed by Advisor: 0
(Class A) (b) (8) (39) 0
(Class B) (b) (3) (35) 0
(Class C) (b) (1) (4) 0
Fees waived by CFD:
(Class C) (15) (8) (6) 0
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(a) The Fund changed its fiscal year end from June 30 to March 31 in 2004.
(b) The shareholder service and transfer agency fees became a fund-level expense in 2004.
BROKERAGE COMMISSIONS
The following table shows commissions paid on transactions of the Intermediate Bond Fund and/or of the SR&F Intermediate Bond Portfolio during the year ended March 31,2005 and the past three fiscal periods:
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YEAR ENDED PERIOD ENDED YEAR ENDED JUNE 30,
MARCH 31, MARCH 31, -------------------
INTERMEDIATE BOND FUND 2005 2004(A) 2003 2002
---------------------- ---------- ------------ ------- ----
Total commissions $16,513 $32,633 $59,771 $0
Directed transactions (b) 0 2 0 0
Commissions on directed transactions 0 0 0 0
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(a) The Fund changed its fiscal year end from June 30 to March 31 in 2004.
(b) See "Management of the Funds - Portfolio Transactions - Brokerage and research services" in Part 2 of this SAI.
The Income Fund (SR&F/Income Portfolio) did not pay brokerage commissions during the fiscal year ended March 31, 2005, the period ended March 31, 2004, or the fiscal years ended June 30, 2003 and 2002.
The Trust is required to identify any securities of its "regular brokers or dealers" that the Income Fund has acquired during its most recent fiscal year. At March 31, 2005, the Income Fund held no securities of its regular brokers or dealers.
The Trust is required to identify any securities of its "regular brokers or dealers" that the Intermediate Bond Fund has acquired during its most recent fiscal year. At March 31, 2005, the Intermediate Bond Fund held securities of its regular brokers or dealers as set forth below:
BROKER/DEALER VALUE (IN THOUSANDS) ------------- -------------------- Citicorp $14,880 Merrill Lynch & Co., Inc. 11,148 Morgan Stanley Dean Witter 10,222 Bear Stearns Co., Inc. 9,873 CS First Boston 9,802 |
TRUSTEES AND TRUSTEES' FEES
Fund Complex consists of the following funds:
The series of Columbia Funds Trust I, the series of Columbia Funds Trust II, the series of Columbia Funds Trust III, the series of Columbia Funds Trust IV, the series of Columbia Funds Trust V, the series of Columbia Funds Trust VI, the series of Columbia Funds Trust VII, the series of Liberty Variable Investment Trust and 8 closed-end management investment company portfolios (the "Liberty Funds").
The series of Columbia Funds Trust VIII, the series of Columbia Funds Trust IX, the series of Columbia Funds Trust XI and the series of SteinRoe Variable Investment Trust (the "Stein Roe Funds").
Two closed-end management investment company portfolios named Liberty All-Star Equity Fund and Liberty All-Star Growth Fund, Inc. (the "All-Star Funds").
Columbia Management Multi-Strategy Hedge Fund, LLC.
Columbia Balanced Fund, Inc., Columbia Daily Income Company, Columbia Fixed Income Securities Fund, Inc., Columbia High Yield Fund, Inc., Columbia International Stock Fund, Inc., Columbia Oregon Municipal Bond Fund, Inc., Columbia Real Estate Equity Fund, Inc., Columbia Short Term Bond Fund, Inc., Columbia Small Cap Growth Fund, Inc., Columbia Mid Cap Growth Fund, Inc., Columbia Strategic Investor Fund, Inc., Columbia Technology Fund, Inc. and the series of CMG Fund Trust. (the "Columbia Funds").
The series of The Galaxy Fund (the "Galaxy Funds").
The series of Columbia Acorn Trust and the series of Wanger Advisors Trust (the "Acorn Funds" and "WAT Funds," respectively).
The Advisor or its affiliates pay the compensation of all the officers of the funds in the Fund Complex advised by the Advisor, including Trustees who are affiliated with the Advisor. For the fiscal year ended March 31, 2005 and the calendar year ended December 31, 2004, the Trustees received the following compensation for serving as Trustees:
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PENSION OR AGGREGATE AGGREGATE
RETIREMENT COMPENSATION COMPENSATION TOTAL COMPENSATION FROM THE
BENEFITS FROM THE FROM THE FUND COMPLEX
ACCRUED AS PART INCOME FUND INTERMEDIATE BOND FUND PAID TO THE TRUSTEES FOR THE
OF FUND FOR THE YEAR ENDED FOR THE YEAR ENDED CALENDAR YEAR ENDED
Trustee(a) EXPENSES(B) MARCH 31, 2005 MARCH 31, 2005 DECEMBER 31, 2003(A)
---------- --------------- ------------------ ---------------------- ----------------------------
Douglas A. Hacker N/A $1,403 $2,291 $135,000
Janet Langford Kelly N/A 1,576 2,609 148,500
Richard W. Lowry N/A 1,279 2,096 150,700
William E. Mayer N/A 1,473 2,411 166,700
Charles R. Nelson N/A 1,469 2,418 141,500
John J. Neuhauser N/A 1,348 2,208 158,284
Patrick J. Simpson(c) N/A 1,324 2,166 129,000
Thomas E. Stitzel N/A 1,522 2,487 149,000
Thomas C. Theobald(d) N/A 1,818 3,013 172,500
Anne-Lee Verville(e) N/A 1,607 2,632 157,000
Richard L. Woolworth N/A 1,304 2,110 131,000
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(a) As of December 31, 2004, the Fund Complex consisted of 127 open-end and 11 closed-end management investment company portfolios. Effective October 8, 2003, Patrick J. Simpson and Richard L. Woolworth, then directors/trustees of the Columbia Funds, were appointed to the board of trustees of the Liberty Funds and Stein Roe Funds. Also effective October 8, 2003, the trustees of the Liberty Funds and the Stein Roe Funds were elected as directors/trustees of the Columbia Funds. A single combined board of trustees/directors now oversees all of the Liberty Funds, Stein Roe Funds and Columbia Funds. The All-Star Funds, Columbia Management Multi-Strategy Hedge Fund, LLC, the Galaxy Funds, the Acorn Funds and the WAT Funds each have separate boards of trustees/directors.
(b) The Funds do not currently provide pension or retirement plan benefits to the Trustees.
(c) During the fiscal year ended March 31, 2005, Mr. Simpson deferred $1,324 and $2,166 of his compensation from the Income Fund and Intermediate Bond Fund, respectively. During the calendar year ended December 31, 2004, Mr. Simpson deferred $129,000 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2004, the value of Mr. Simpson's account under that plan was $143,646.
(d) During the fiscal year ended March 31, 2005, Mr. Theobald deferred $1,052 and $1,789 of his compensation from the Income Fund and Intermediate Bond Fund, respectively. During the calendar year ended December 31, 2004, Mr. Theobald deferred $90,000 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2004, the value of Mr. Theobald's account under that plan was $157,328.
(e) During the fiscal year ended March 31, 2004, Ms. Verville deferred $468 and $797 of her compensation from the Income Fund and Intermediate Bond Fund, respectively. During the calendar year ended December 31, 2004, Ms. Verville deferred $55,000 of her total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2004, the value of Ms. Verville's account under that plan was $653,275.
ROLE OF THE BOARD OF TRUSTEES
The Trustees of the Funds are responsible for the overall management and supervision of the Funds' affairs and for protecting the interests of the shareholders. The Trustees meet periodically throughout the year to oversee the Funds' activities, review contractual arrangements with service providers for the Funds and review the Funds' performance. The Trustees have created several committees to perform specific functions for the Funds. Mr. Theobald was elected Chairman of the Board of Trustees of the Liberty Funds, Stein Roe Funds and Columbia Funds effective December, 2003.
AUDIT COMMITTEE
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Ms. Verville and Messrs. Hacker, Stitzel and Woolworth are members of the Audit Committee of the Board of Trustees of the Funds. The Audit Committee's functions include making recommendations to the Trustees regarding the selection and performance of the independent registered public accounting firm, and reviewing matters relative to accounting and auditing practices and procedures, accounting records, and the internal accounting controls, of the Funds and certain service providers. For the fiscal year ended March 31, 2005, the Audit Committee convened eleven times.
GOVERNANCE COMMITTEE
Messrs. Lowry, Mayer, Simpson and Theobald are members of the Governance Committee of the Board of Trustees of the Funds. The Governance Committee's functions include recommending to the Trustees nominees for independent Trustee positions and for appointments to various committees, performing periodic evaluations of the effectiveness of the Board, reviewing and recommending to the Board policies and practices to be followed in carrying out the Trustees' duties and responsibilities and reviewing and making recommendations to the Board regarding the compensation of the Trustees who are not affiliated with the Funds' investment advisors. The Governance Committee will consider candidates for Trustee recommended by shareholders. Written recommendations with supporting information should be directed to the Committee, in care of the Funds. For the fiscal year ended March 31, 2005, the Governance Committee convened six times.
ADVISORY FEES & EXPENSES COMMITTEE
Ms. Kelly and Messrs. Mayer, Nelson and Neuhauser are members of the Advisory Fees & Expenses Committee of the Board of Trustees of the Funds. The Advisory Fees and Expenses Committee's functions include reviewing and making recommendations to the Board as to contracts requiring approval of a majority of the disinterested Trustees and as to any other contracts that may be referred to the Committee by the Board. For the fiscal year ended March 31, 2005, the Advisory Fees & Expenses Committee convened eight times.
COMPLIANCE COMMITTEE
Ms. Kelly and Ms. Verville and Messrs. Nelson, Simpson and Stitzel are members of the Compliance Committee of the Board of Trustees of the Funds. Mr. Stitzel became a member of the Compliance Committee on May 8, 2005. The Compliance Committee's functions include providing oversight of the monitoring processes and controls regarding the Trust. The Committee uses legal, regulatory and internal rules, policies, procedures and standards other than those relating to accounting matters and oversight of compliance by the Trust's investment adviser, principal underwriter and transfer agent. For the fiscal year ended March 31, 2005, the Compliance Committee convened six times.
Investment Oversight Committees
Beginning in 2004, each Trustee of the Funds also began serving on an Investment Oversight Committee ("IOC"). Each IOC is responsible for monitoring, on an ongoing basis, a select group of funds in the Fund Complex and gives particular consideration to such matters as the Funds' adherence to their investment mandates, historical performance, changes in investment processes and personnel, and proposed changes to investment objectives. Investment personnel who manage the Funds attend IOC meetings from time to time to assist each IOC in its review of the Funds. Each IOC meets four times a year. The following are members of the respective IOCs and the general categories of funds in the Fund Complex which they review:
IOC #1: Messrs. Lowry, Mayer and Neuhauser are responsible for reviewing funds in the following asset categories: Large Growth Diversified, Large Growth Concentrated, Small Growth, Outside Managed (i.e., sub-advised) and Municipal.
IOC #2: Mr. Hacker and Ms. Verville are responsible for reviewing funds in the following asset categories: Large Blend, Small Blend, Foreign Stock, Fixed Income - Multi Sector, Fixed Income - Core and Young Investor.
IOC #3: Messrs. Theobald and Stitzel and Ms. Kelly are responsible for reviewing funds in the following asset categories: Large Value, Mid Cap Value, Small Value, Asset Allocation, High Yield and Money Market.
IOC #4: Messrs. Nelson, Simpson and Woolworth are responsible for reviewing funds in the following asset categories: Large/Multi-Cap Blend, Mid Cap Growth, Small Growth, Asset Allocation, Specialty Equity and Taxable Fixed Income.
Share Ownership
The following table shows the dollar range of equity securities beneficially owned by each Trustee as of December 31, 2004 (i) in each Fund and (ii) in the funds in the Fund Complex.
DOLLAR RANGE OF AGGREGATE
EQUITY SECURITIES DOLLAR RANGE OF EQUITY
DOLLAR RANGE OF EQUITY OWNED IN THE SECURITIES OWNED IN ALL
SECURITIES OWNED IN INTERMEDIATE FUNDS OVERSEEN BY TRUSTEE IN
THE INCOME FUND BOND FUND FUND COMPLEX
---------------------- ----------------- ----------------------------
NAME OF TRUSTEE
Douglas A. Hacker $0 $0 Over $100,000
Janet Langford Kelly $0 $0 Over $100,000
Richard W. Lowry $0 $0 Over $100,000
Charles R. Nelson $50,001-$100,000 Over $100,000 Over $100,000
John J. Neuhauser $0 $0 Over $100,000
Patrick J. Simpson $0 $0 Over $100,000
Thomas E. Stitzel $0 $0 Over $100,000
Thomas C. Theobald $0 $0 Over $100,000
Anne-Lee Verville $0 $0 Over $100,000
Richard L. Woolworth $0 $0 Over $100,000
INTERESTED TRUSTEE
William E. Mayer $0 $0 $50,001-$100,000
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PORTFOLIO MANAGERS
OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS
The following table shows the number and assets of other investment accounts (or portions of investment accounts) that each Fund's portfolio managers managed as of each Fund's fiscal year-end.
OTHER SEC-REGISTERED
OPEN-END AND CLOSED-END OTHER POOLED INVESTMENT OTHER ACCOUNTS
FUNDS VEHICLES
-------------------------- ------------------------ ------------------------
Number of Number of Number of
PORTFOLIO MANAGER accounts Assets accounts Assets accounts Assets
----------------- --------- -------------- --------- ------------ --------- ------------
Kevin L Cronk
Income Fund 10 $6.1 billion 8* $1.3 billion* 3 $357 million
Thomas A. LaPointe
Income Fund 10 $6.1 billion 8 $1.3 billion 4 $357 million
Intermediate Bond
Fund 10 $5.585 billion 8 $1.3 billion 4 $357 million
Carl W. Pappo
Income Fund 1 $1.2 billion 2 $1.2 billion 68 $2.1 billion
Intermediate Bond
Fund 1 $650 million 2 $1.2 billion 68 $2.1 billion
Ann T. Peterson
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Intermediate Bond
Fund 3 $1.2 billion 0 N/A 2 $14,000
Marie M. Schofield
Income Fund 5 $4.7 billion 1 $44 million 13 $161 million
Intermediate Bond
Fund 5 $4.2 billion 1 $44 million 13 $161 million
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* Included among these accounts are five accounts, totaling $934 million in assets, that include an advisory fee based on performance.
See "Management--Portfolio Transactions--Potential conflicts of interest in managing multiple accounts" in Part II of this SAI for information on how the Advisor addresses potential conflicts of interest resulting from an individual's management of more than one account.
OWNERSHIP OF SECURITIES
The table below shows the dollar ranges of shares of each Fund beneficially owned (as determined pursuant to Rule 16a-1 (a)(2) under the Securities Exchange Act of 1934, as amended) by each portfolio managers listed above at the end of each Fund's most recent fiscal year:
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND(S)
PORTFOLIO MANAGER BENEFICIALLY OWNED
----------------- ------------------------------------------------
Kevin L. Cronk $0
Thomas A. LaPointe $0
Carl W. Pappo $0
Ann T. Peterson $0
Marie M. Schofield $0
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COMPENSATION
As of each Fund's most recent fiscal year end, the portfolio managers received all of their compensation from the Advisor and its parent company, Columbia Management Group, in the form of salary, bonus, stock options and restricted stock. A portfolio manager's bonus is variable and is generally based on (1) an evaluation of the manager's investment performance and (2) the results of a peer and/or management review of such individual, which takes into account skills and attributes such as team participation, investment process, communication and professionalism. In evaluating investment performance, the Advisor generally considers the one-, three- and five-year performance of mutual funds and other accounts under the portfolio manager's oversight relative to the benchmarks and peer groups noted below, emphasizing the manager's three- and five-year performance. The Advisor may also consider the portfolio manager's performance in managing client assets in sectors and industries assigned to the manager as part of his or her investment team responsibilities, where applicable. For portfolio managers who also have group management responsibilities, another factor in their evaluation is an assessment of the group's overall investment performance.
PORTFOLIO MANAGER PERFORMANCE BENCHMARK(S) PEER GROUP(S)
----------------- ------------------------ -------------
Kevin L. Cronk Lehman Brothers Intermediate Lipper Corporate Debt Funds
Government/Credit BBB Rated Category
Thomas A. LaPointe Lehman Brothers Intermediate Lipper Corporate Debt Funds
Government/Credit (Income BBB Rated Category (Income
Fund) Lehman Brothers Fund) Lipper Intermediate
Aggregate Bond (Intermediate Investment Grade Debt Funds
Bond Fund) Category (Intermediate Bond
Fund)
Carl W. Pappo Lehman Brothers Intermediate Lipper Corporate Debt Funds
Government/Credit (Income Fund) BBB Rated Category
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n
Lehman Brothers Aggregate (Income Fund) Lipper
Bond (Intermediate Bond Fund) Intermediate Investment
Grade Debt Funds Category
(Intermediate Bond Fund)
Ann T. Peterson Lehman Brothers Aggregate Bond Lipper Intermediate
Investment Grade Debt Funds
Category (Intermediate Bond
Fund)
Marie M. Schofield Lehman Brothers Intermediate Lipper Corporate Debt Funds
Government/Credit (Income Fund) BBB Rated Category (Income
Lehman Brothers Aggregate Bond Fund) Lipper Intermediate
(Intermediate Bond Fund) Investment Grade Debt Funds
Category (Intermediate Bond
Fund)
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The size of the overall bonus pool each year is determined by Columbia Management Group and depends in part on levels of compensation generally in the investment management industry (based on market compensation data) and the Advisor's profitability for the year, which is influenced by assets under management.
OWNERSHIP OF THE FUND
As of record on June 30, 2005, the officers and Trustees of the Trust as a group owned less than 1% of the then outstanding shares of the Intermediate Bond Fund.
As of record on June 30, 2005, the following shareholders owned 5% or more of the following classes of the Intermediate Bond Fund's outstanding shares:
CLASS A SHARES: Charles Schwab & Co., Inc. 31.31% 101 Montgomery Street San Francisco, CA 94104-4122 Transamerica Life Insurance & Annuity Company 15.41% P.O. Box 30368 Los Angeles, CA 90030-0368 CLASS B SHARES: Citigroup Global Markets, Inc. 10.68% 333 West 34th Street New York, NY 10001-2402 CLASS C SHARES: Merrill Lynch Pierce Fenner & Smith 12.98% 4800 Deer Lake Drive East, 2nd Floor Jacksonville, FL 32246-6484 Citigroup Global Markets, Inc. 10.92% 333 West 34th Street New York, NY 10001-2402 CLASS Z SHARES: Bank of America, NA 23.43% 411 North Akard Street Dallas, TX 75201-3307 Charles Schwab & Co., Inc. 15.81% 101 Montgomery Street San Francisco, CA 94104-4122 Citigroup Global Markets, Inc. 10.68% 333 West 34th Street, 7th Floor |
o
New York, NY 10001-2402 Columbia Thermostat Fund 6.05% 227 West Monroe Street, Ste. 3000 Chicago, IL 60606-5018 |
As of record on June 30, 2005, the officers and Trustees of the Trust as a group owned less than 1% of the then outstanding shares of the Income Fund.
As of record on June 30, 2005, the following shareholders owned 5% or more of the following classes of the Income Fund's outstanding shares:
CLASS B SHARES: Merrill Lynch Pierce Fenner & Smith 5.16% 4800 Deer Lake Drive East, 2nd Floor Jacksonville, FL 32246-6484 CLASS C SHARES: Merrill Lynch Pierce Fenner & Smith 6.39% 4800 Deer Lake Drive East, 2nd Floor Jacksonville, FL 32246-6484 CLASS Z SHARES: Daily Valuation 52.17% The Northern Trust Company Mutual Liberty P.O. Box 92994 Chicago, IL 60675-2994 Bank of America, NA 8.63% 411 North Akard Street Dallas, TX 75201-3307 Charles Schwab & Co., Inc. 8.35% 101 Montgomery Street San Francisco, CA 94104-4122 |
SALES CHARGES (dollars in thousands)
INTERMEDIATE BOND FUND
Class A Shares
---------------------------------------
YEAR ENDED
YEAR ENDED PERIOD ENDED JUNE 30,
MARCH 31, MARCH 31, -----------
2005 2004(A) 2003 2002
---------- ------------ ---- ----
Aggregate initial sales charges on Fund share
sales $316 $281 $745 $405
Initial sales charges retained by CFD 39 61 16 30
Aggregate contingent deferred sales charges
on Fund redemptions retained by CFD 5 (b) 3 0
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Class B Shares
---------------------------------------
YEAR ENDED
YEAR ENDED PERIOD ENDED JUNE 30,
MARCH 31, MARCH 31, -----------
2005 2004(A) 2003 2002
---------- ------------ ---- ----
Aggregate CDSC on Fund redemptions retained
by CFD $362 $272 $227 $7
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p
Class C Shares
---------------------------------------
YEAR ENDED
YEAR ENDED PERIOD ENDED JUNE 30,
MARCH 31, MARCH 31, -----------
2005 2004(A) 2003 2002
---------- ------------ ---- ----
Aggregate CDSC on Fund redemptions retained
by CFD $11 $18 $19 (b)
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(a) The Fund changed its fiscal year end from June 30 to March 31 in 2004.
(b) Rounds to less than one.
INCOME FUND
Class A Shares
---------------------------------------
YEAR ENDED
YEAR ENDED PERIOD ENDED JUNE 30,
MARCH 31, MARCH 31, -----------
2005 2004(A) 2003 2002
---------- ------------ ---- ----
Aggregate initial sales charges on Fund share
sales $126 $130 $48 $0
Initial sales charges retained by CFD 16 16 4 0
Aggregate contingent deferred sales charges
(CDSC) on Fund redemptions retained by CFD (b) 1 29 0
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Class B Shares
---------------------------------------
YEAR ENDED
YEAR ENDED PERIOD ENDED JUNE 30,
MARCH 31, MARCH 31, -----------
2005 2004(A) 2003 2002
---------- ------------ ---- ----
Aggregate CDSC on Fund redemptions retained
by CFD $78 $63 $96 N/A
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Class C Shares
---------------------------------------
YEAR ENDED
YEAR ENDED PERIOD ENDED JUNE 30,
MARCH 31, MARCH 31, -----------
2005 2004(A) 2003 2002
---------- ------------ ---- ----
Aggregate CDSC on Fund redemptions retained
by CFD $6 $2 $(b) N/A
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(a) The Fund changed its fiscal year end from June 30 to March 31 in 2004.
(b) Rounds to less than one.
12B-1 PLAN AND CDSC
Each Fund offers four classes of shares - Class A, Class B, Class C and Class Z. The Funds may in the future offer other classes of shares. The Trustees have approved a 12b-1 plan (Plan) pursuant to Rule 12b-1 under the 1940 Act for each Fund's Class A, B and C shares. Under the Plan, each Fund pays CFD monthly a service fee at an annual rate of 0.25% of the average daily net assets attributed to Class A, B and C shares. The Intermediate Bond Fund also pays CFD monthly a distribution fee at an annual rate of 0.10% of the Fund's average daily net assets attributed to Class A shares and 0.75% of the Fund's average daily net assets attributed to its Class B and C shares. At this time, CFD has voluntarily agreed to waive the Class A share distribution fee and a portion of the Class C share distribution fee so that it does not exceed 0.60% annually. This arrangement may be modified or terminated by CFD at any time. The Income Fund also pays CFD monthly a distribution fee at an annual rate of 0.75% of the Fund's average daily net assets attributed to its Class B and Class C shares. At this time, CFD has voluntarily agreed to waive the Class C share distribution fee so that it does not exceed 0.60% annually. This arrangement may be modified or terminated by CFD at any time. CFD may use the entire amount of such fees to defray the costs of commissions and service fees paid to financial service firms (FSFs) and for certain other purposes. Since the distribution and service fees are payable regardless of CFD's expenses, CFD may realize a profit from the fees. The Plan authorizes any other payments by the Funds to CFD and its affiliates (including the Advisor) to the extent that such payments might be construed to be indirectly financing of distribution of a Fund's shares.
q
The Trustees believe the Plan could be a significant factor in the growth and retention of each Fund's assets resulting in more advantageous expense ratios and increased investment flexibility which could benefit each class of Fund shareholders. The Plan will continue in effect from year to year so long as continuance is specifically approved at least annually by a vote of the Trustees, including the Trustees who are not interested persons of the Funds and have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan (Independent Trustees), cast in person at a meeting called for the purpose of voting on the Plan. The Plan may not be amended to increase the fee materially without approval by vote of a majority of the outstanding voting securities of the relevant class of shares, and all material amendments of the Plan must be approved by the Trustees in the manner provided in the foregoing sentence. The Plan may be terminated at any time by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding voting securities of the relevant class of shares. The continuance of the Plan will only be effective if the selection and nomination of the Trustees of the Trust who are not interested persons of the Trust is effected by such disinterested Trustees.
Class A shares are offered at net asset value plus varying sales charges which may include a CDSC. Class B shares are offered at net asset value and are subject to a CDSC if redeemed within a certain number of years after purchase depending on the program you purchased your shares under. Class C shares are offered at net asset value and are subject to a 1.00% CDSC on redemptions within one year after purchase. Class Z shares are offered at net asset value and are not subject to a CDSC. The CDSCs are described in the Prospectuses for the Funds.
No CDSC will be imposed on shares derived from reinvestment of distributions on amounts representing capital appreciation. In determining the applicability and rate of any CDSC, it will be assumed that a redemption is made first of shares representing capital appreciation, next of shares representing reinvestment of distributions, and finally of other shares held by the shareholder for the longest time.
A certain number of years, depending on the program you purchased your shares under, after the end of the month in which a Class B share is purchased, such shares and a pro rata portion of any shares issued on the reinvestment of distributions will be automatically converted into Class A shares having an equal value, which are either not subject to the distribution fee or subject to a lesser distribution fee. See a Prospectus for a description of the different programs.
SALES-RELATED EXPENSES (dollars in thousands) of CFD relating to the Funds were:
INTERMEDIATE BOND FUND
YEAR ENDED MARCH 31, 2005
---------------------------
Class A Class B Class C
------- ------- -------
Fees to FSFs $472 $429 $392
Cost of sales material relating to the Fund
(including printing and mailing expenses) 166 12 18
Allocated travel, entertainment and other
promotional expenses (including
advertising) 100 7 11
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INCOME FUND
YEAR ENDED MARCH 31, 2005
---------------------------
Class A Class B Class C
------- ------- -------
Fees to FSFs $329 $148 $91
Cost of sales material relating to the Fund
(including printing and mailing expenses) 41 5 8
Allocated travel, entertainment and other
promotional expenses (including
advertising) 24 3 5
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CUSTODIAN OF THE FUNDS
State Street Bank and Trust Company, located at 2 Avenue De Lafayette, Boston, MA 02111-2900, is the custodian for the Funds. The custodian is responsible for safeguarding each Fund's cash and securities, receiving and delivering securities and collecting each Fund's interest and dividends.
r
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF THE FUNDS
PricewaterhouseCoopers LLP, located at 125 High Street, Boston, Massachusetts 02110-1707, are the Funds' independent registered public accounting firm, providing audit and tax return review services and assistance and consultation in connection with the review of various Securities and Exchange Commission filings. The financial statements incorporated by reference in this SAI have been so incorporated, and the financial highlights included in the Prospectuses have been so included, in reliance upon the report of PricewaterhouseCoopers LLP for the fiscal year ended March 31, 2005 and for the period ended March 31, 2004. The information for the periods ended June 30, 2003, 2002, 2001 and 2000, has been derived from the Fund's financial statements which have been audited by another independent registered public accounting firm whose report expressed an unqualified opinion on those financial statements and highlights.
S
STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to most funds advised by the Advisor. "Funds" include the series of Columbia Funds Trust I (formerly named Liberty Funds Trust I), Columbia Funds Trust II (formerly named Liberty Funds Trust II), Columbia Funds Trust III (formerly named Liberty Funds Trust III), Columbia Funds Trust IV (formerly named Liberty Funds Trust IV), Columbia Funds Trust V (formerly named Liberty Funds Trust V), Columbia Funds Trust VI (formerly named Liberty Funds Trust VI), Columbia Funds Trust VII (formerly named Liberty Funds Trust VII), Columbia Funds Trust VIII (formerly named Liberty-Stein Roe Funds Income Trust), Columbia Funds Trust IX (formerly named Liberty-Stein Roe Funds Municipal Trust) and Columbia Funds Trust XI (formerly named Liberty-Stein Roe Funds Investment Trust) (each a Trust and together, the Trusts, also known as Fund Complex). In certain cases, the discussion applies to some, but not all, of the Funds, and you should refer to your Fund's Prospectus and to Part 1 of this Statement of Additional Information (SAI) to determine whether the matter is applicable to your Fund. You will also be referred to Part 1 for certain data applicable to your Fund.
MISCELLANEOUS INVESTMENT PRACTICES
PART 1 OF THIS SAI LISTS ON PAGE B WHICH OF THE FOLLOWING INVESTMENT PRACTICES
ARE AVAILABLE TO YOUR FUND. IF AN INVESTMENT PRACTICE IS NOT LISTED IN PART 1 OF THIS SAI, IT IS NOT APPLICABLE TO YOUR FUND.
SHORT-TERM TRADING
In seeking the Fund's investment goal, the Advisor will buy or sell portfolio securities whenever it believes it is appropriate. The Advisor's decision will not generally be influenced by how long the Fund may have owned the security. From time to time, the Fund will buy securities intending to seek short-term trading profits. A change in the securities held by the Fund is known as "portfolio turnover" and generally involves some expense to the Fund. These expenses may include brokerage commissions or dealer mark-ups and other transaction costs on both the sale of securities and the reinvestment of the proceeds in other securities. If sales of portfolio securities cause the Fund to realize net short-term capital gains, such gains will be taxable as ordinary income. As a result of the Fund's investment policies, under certain market conditions the Fund's portfolio turnover rate may be higher than that of other mutual funds. The Fund's portfolio turnover rate for a fiscal year is the ratio of the lesser of purchases or sales of portfolio securities to the monthly average of the value of portfolio securities, excluding securities whose maturities at acquisition were one year or less. The Fund's portfolio turnover rate is not a limiting factor when the Advisor considers a change in the Fund's portfolio.
SHORT SALES
A Fund's short sales are subject to special risks. A short sale involves the sale by the Fund of a security that it does not own with the hope of purchasing the same security at a later date at a lower price. In order to deliver the security to the buyer, the Fund borrows the security from a third party. The Fund is then obligated to return the security to the third party, so the Fund must purchase the security at the market price at a later point in time. If the price of the security has increased during this time, then the Fund will incur a loss equal to the increase in price of the security from the time that the short sale was entered into plus any premiums and interest paid to the third party. Therefore, short sales involve the risk that losses may be exaggerated, potentially losing more money than the actual cost of the security. Also, there is the risk that the third party to the short sale may fail to honor its contract terms, causing a loss to the Fund.
LOWER-RATED DEBT SECURITIES
Lower-rated debt securities are those rated lower than Baa by Moody's or BBB by S&P, or comparable unrated debt securities. Relative to debt securities of higher quality,
1. an economic downturn or increased interest rates may have a more significant effect on the yield, price and potential for default for lower-rated debt securities;
2. the secondary market for lower-rated debt securities may at times become less liquid or respond to adverse publicity or investor perceptions, increasing the difficulty in valuing or disposing of the bonds;
3. the Advisor's credit analysis of lower-rated debt securities may have a greater impact on the Fund's achievement of its investment goal; and
4. lower-rated debt securities may be less sensitive to interest rate changes, but are more sensitive to adverse economic developments.
In addition, certain lower-rated debt securities may not pay interest in cash on a current basis.
SMALL COMPANIES
Smaller, less well established companies may offer greater opportunities for capital appreciation than larger, better established companies, but may also involve certain special risks related to limited product lines, markets, or financial resources and dependence on a small management group. Their securities may trade less frequently, in smaller volumes, and fluctuate more sharply in value than securities of larger companies.
COMMON STOCK, PREFERRED STOCK AND WARRANTS
Common stocks are generally more volatile than other securities. Preferred stocks share some of the characteristics of both debt and equity investments and are generally preferred over common stocks with respect to dividends and in liquidation. A warrant is an instrument issued by a corporation which gives the holder the right to subscribe to a specified amount of the company's capital stock at a set price for a specified period of time.
FOREIGN SECURITIES
The Fund may invest in securities traded in markets outside the United States. Foreign investments can be affected favorably or unfavorably by changes in currency rates and in exchange control regulations. There may be less publicly available information about a foreign company than about a U.S. company, and foreign companies may not be subject to accounting, auditing and financial reporting standards comparable to those applicable to U.S. companies. Securities of some foreign companies are less liquid or more volatile than securities of U.S. companies, and foreign brokerage commissions and custodian fees may be higher than in the United States. Investments in foreign securities can involve other risks different from those affecting U.S. investments, including local political or economic developments, expropriation or nationalization of assets and imposition of withholding taxes on dividend or interest payments. Foreign securities, like other assets of the Fund, will be held by the Fund's custodian or by a sub-custodian or depository. See also "Foreign Currency Transactions" below.
The Fund may invest in certain Passive Foreign Investment Companies (PFICs) which may be subject to U.S. federal income tax on a portion of any "excess distribution" or gain (PFIC tax) related to the investment. This "excess distribution" will be allocated over the Fund's holding period for such investment. The PFIC tax is the highest ordinary income rate in effect for any period multiplied by the portion of the "excess distribution" allocated to such period, and it could be increased by an interest charge on the deemed tax deferral.
The Fund may possibly elect to include in its income its pro rata share of the ordinary earnings and net capital gain of PFICs. This election requires certain annual information from the PFICs which in many cases may be difficult to obtain. An alternative election would permit the Fund to recognize as income any appreciation (and to a limited extent, depreciation) on its holdings of PFICs as of the end of its fiscal year. See "Taxes" below.
The Fund may invest in other investment companies. Such investments will involve the payment of duplicative fees through the indirect payment of a portion of the expenses, including advisory fees, of such other investment companies.
EXCHANGE-TRADED FUNDS ("ETFS"). The Fund may invest in ETFs up to the maximum amount allowable under the 1940 Act. ETFs are shares of publicly-traded unit investment trusts, open-end funds, or depositary receipts that seek to track the performance and dividend yield of specific indexes or companies in related industries. These indexes may be either broad-based, sector or international.
ETF shareholders are generally subject to the same risks as holders of the underlying securities they are designed to track. ETFs are also subject to certain additional risks, including (1) the risk that their prices may not correlate perfectly with changes in the prices of the underlying securities they are designed to track; and (2) the risk of possible trading halts due to market conditions or other reasons, based on the policies of the exchange upon which an ETF trades. In addition, an exchange traded sector fund may be adversely affected by the performance of that specific sector or group of industries on which it is based.
The Fund would bear, along with other shareholders of an ETF, its pro rata portion of the ETF's expenses, including management fees. Accordingly, in addition to bearing their proportionate share of the Fund's expenses (i.e., management fees and operating expenses), shareholders of the Fund may also indirectly bear similar expenses of an ETF.
ZERO COUPON SECURITIES (ZEROS)
The Fund may invest in zero coupon securities, which are securities issued at a significant discount from face value and do not pay interest at intervals during the life of the security. Zero coupon securities include securities issued in certificates representing undivided interests in the interest or principal of mortgage-backed securities (interest only/principal only), which tend to be more volatile than other types of securities. The Fund will accrue and distribute income from stripped securities and certificates on a current basis and may have to sell securities to generate cash for distributions.
STEP COUPON BONDS (STEPS)
The Fund may invest in debt securities which pay interest at a series of different rates (including 0%) in accordance with a stated schedule for a series of periods. In addition to the risks associated with the credit rating of the issuers, these securities may be subject to more volatility risk than fixed rate debt securities.
TENDER OPTION BONDS
A tender option bond is a municipal security (generally held pursuant to a custodial arrangement) having a relatively long maturity and bearing interest at a fixed rate substantially higher than prevailing short-term tax-exempt rates, that has been coupled with the agreement of a third party, such as a bank, broker-dealer or other financial institution, pursuant to which such institution grants the security holders the option, at periodic intervals, to tender their securities to the institution and receive the face value thereof. As consideration for providing the option, the financial institution receives periodic fees equal to the difference between the municipal security's fixed coupon rate and the rate, as determined by a remarketing or similar agent at or near the commencement of such period, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term tax-exempt rate. The Advisor will consider on an ongoing basis the creditworthiness of the issuer of the underlying municipal securities, of any custodian, and of the third-party provider of the tender option. In certain instances and for certain tender option bonds, the option may be terminable in the event of a default in payment of principal or interest on the underlying municipal securities and for other reasons.
PAY-IN-KIND (PIK) SECURITIES
The Fund may invest in securities which pay interest either in cash or additional securities. These securities are generally high yield securities and, in addition to the other risks associated with investing in high yield securities, are subject to the risks that the interest payments which consist of additional securities are also subject to the risks of high yield securities.
MONEY MARKET INSTRUMENTS
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their subdivisions, agencies and instrumentalities. SUPRANATIONAL OBLIGATIONS are issued by supranational entities and are generally designed to promote economic improvements. CERTIFICATES OF DEPOSIT are issued against deposits in a commercial bank with a defined return and maturity. BANKER'S ACCEPTANCES are used to finance the import, export or storage of goods and are "accepted" when guaranteed at maturity by a bank. COMMERCIAL PAPER is a promissory note issued by a business to finance short-term needs (including promissory notes with floating or variable interest rates, or including a frequent interval put feature). SHORT-TERM CORPORATE OBLIGATIONS are bonds and notes (with one year or less to maturity at the time of purchase) issued by businesses to finance long-term needs. PARTICIPATION INTERESTS include the underlying securities and any related guaranty, letter of credit, or collateralization arrangement in which the Fund would be allowed to invest directly.
CERTIFICATES OF DEPOSIT are short-term negotiable instruments issued against deposits in a commercial bank with a defined return and maturity. TIME DEPOSITS are non-negotiable deposits maintained in banking institutions for specified periods of time at stated interest rates.
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their subdivisions, agencies and instrumentalities. Examples of the types of obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities (hereinafter, "U.S. Government obligations") that may be held by the Funds include, without limitation, direct obligations of the U.S. Treasury, and securities issued or guaranteed by the Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association, Federal National Mortgage Association, General Services Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks, Resolution Trust Corporation and Maritime Administration.
U.S. Treasury securities differ only in their interest rates, maturities and time of issuance: Treasury Bills have initial maturities of one year or less; Treasury Notes have initial maturities of one to ten years; and Treasury Bonds generally have initial maturities
of more than ten years. Obligations of certain agencies and instrumentalities of the U.S. Government, such as those of the Government National Mortgage Association, are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Federal Home Loan Banks, are supported by the right of the issuer to borrow from the Treasury; others, such as those of the Federal National Mortgage Association, are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; still others, such as those of the Federal Home Loan Mortgage Corporation, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government would provide financial support to U.S. Government-sponsored instrumentalities if it is not obligated to do so by law. Some of these instruments may be variable or floating rate instruments.
Securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities have historically involved relatively little risk of loss of principal. However, due to fluctuations in interest rates, the market value of such securities may vary during the period a shareholder owns shares of the Fund.
BANK OBLIGATIONS include bankers' acceptances, negotiable certificates of deposit, and non-negotiable time deposits issued for a definite period of time and earning a specified return by a U.S. bank which is a member of the Federal Reserve System or is insured by the Federal Deposit Insurance Corporation ("FDIC"), or by a savings and loan association or savings bank which is insured by the FDIC. Bank obligations also include U.S. dollar-denominated obligations of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of the same type as domestic bank obligations. Time deposits with a maturity longer than seven days or that do not provide for payment within seven days after notice will be subject to any limitations on illiquid securities described in Part 1 of this SAI. For purposes of each Fund's investment policies with respect to bank obligations, the assets of a bank or savings institution will be deemed to include the assets of its U.S. and foreign branches.
Domestic and foreign banks are subject to extensive but different government regulation which may limit the amount and types of their loans and the interest rates that may be charged. In addition, the profitability of the banking industry is largely dependent upon the availability and cost of funds to finance lending operations and the quality of underlying bank assets. Investments in obligations of foreign branches of U.S. banks and of U.S. branches of foreign banks may subject a Fund to additional risks, including future political and economic developments, the possible imposition of withholding taxes on interest income, possible seizure or nationalization of foreign deposits, the possible establishment of exchange controls, or the adoption of other foreign governmental restrictions which might adversely affect the payment of principal and interest on such obligations. In addition, foreign branches of U.S. banks and U.S. branches of foreign banks may be subject to less stringent reserve requirements and to different accounting, auditing, reporting, and recordkeeping standards than those applicable to domestic branches of U.S. banks.
SEPARATELY TRADED INTEREST AND PRINCIPAL SECURITIES ("STRIPS") are component parts of U.S. Treasury Securities traded through the Federal Reserve Book-Entry System. While there is no limitation on the percentage of a Fund's assets that may be invested in STRIPS, the Advisor will monitor the level of such holdings to avoid the risk of impairing shareholders' redemption rights. The interest-only component of STRIPS is extremely sensitive to the rate of principal payments on the underlying obligation. The market value of the principal-only component is usually volatile in response to changes in interest rates.
In U.S. TREASURY ROLLS, a Fund sells outstanding U.S. Treasury securities and buys back on a delayed settlement basis the same U.S. Treasury securities. During the period prior to the delayed settlement date, the assets from the sale of the U.S. Treasury securities are invested in certain cash equivalent instruments. U.S. Treasury rolls entail the risk that the Fund could suffer an opportunity loss if the counterparty to the roll failed to perform its obligations on the settlement date, and if market conditions changed adversely. The Funds intend to enter into U.S. Treasury rolls only with U.S. Government securities dealers recognized by the Federal Reserve Bank or with member banks of the Federal Reserve System. The Funds will hold and maintain in a segregated account until the settlement date cash or other liquid assets in an amount equal to the forward purchase price. For financial reporting and tax purposes, the Funds propose to treat U.S. Treasury rolls as two separate transactions, one involving the purchase of a security and a separate transaction involving a sale.
COMMERCIAL PAPER is an unsecured short-term promissory note issued by businesses to finance short-term needs (including those with floating or variable interest rates, or including a frequent interval put feature). Commercial paper may include variable and floating rate instruments which are unsecured instruments that permit the indebtedness thereunder to vary. Variable rate instruments provide for periodic adjustments in the interest rate. Floating rate instruments provide for automatic adjustment of the interest rate whenever some other specified interest rate changes. Some variable and floating rate obligations are direct lending arrangements between the purchaser and the issuer and there may be no active secondary market. However, in the case of variable and floating rate obligations with a demand feature, a Fund may demand payment of principal and accrued interest at a time specified in the instrument or may resell the instrument to a third party. In the event that an issuer of a variable or floating rate obligation were to default on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and could, for this or other reasons, suffer a loss to the extent of the default.
Commercial paper may include securities issued by corporations without registration under the 1933 Act in reliance on the so-called "private placement" exemption in Section 4(2) ("Section 4(2) Paper"). Section 4(2) Paper is restricted as to disposition under the federal securities laws in that any resale must similarly be made in an exempt transaction. Section 4(2) Paper is normally resold to other institutional investors through or with the assistance of investment dealers who make a market in Section 4(2) Paper, thus providing liquidity. For purposes of each Fund's limitation on purchases of illiquid instruments described below, Section 4(2) Paper will not be considered illiquid if the Advisor has determined, in accordance with guidelines approved by the Board of Trustees, that an adequate trading market exists for such securities.
STRIPPED OBLIGATIONS
To the extent consistent with their investment objective, Funds may purchase U.S. Treasury receipts and other "stripped" securities that evidence ownership in either the future interest payments or the future principal payments on U.S. Government and other obligations. These participations, which may be issued by the U.S. Government or by private issuers, such as banks and other institutions, are issued at their "face value," and may include stripped mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage securities. Stripped securities, particularly SMBS, may exhibit greater price volatility than ordinary debt securities because of the manner in which their principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive different proportions of the interest and principal distributions from a pool of mortgage-backed obligations. A common type of SMBS will have one class receiving all of the interest, while the other class will receive all of the principal. However, in some instances, one class will receive some of the interest and most of the principal while the other class will receive most of the interest and the remainder of the principal. If the underlying obligations experience greater than anticipated prepayments of principal, the Fund may fail to fully recoup its initial investment in these securities. The market value of the class consisting entirely of principal payments generally is extremely volatile in response to changes in interest rates. The yields on a class of SMBS that receives all or most of the interest are generally higher than prevailing market yields on other mortgage-backed obligations because their cash flow patterns are more volatile and there is a greater risk that the initial investment will not be fully recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government agency or instrumentality) are considered illiquid by the Funds. Obligations issued by the U.S. Government may be considered liquid under guidelines established by Funds' Board of Trustees if they can be disposed of promptly in the ordinary course of business at a value reasonably close to that used in the calculation of net asset value per share.
MUNICIPAL SECURITIES
Municipal Securities acquired by the Funds include debt obligations issued by governmental entities to obtain funds for various public purposes, including the construction of a wide range of public facilities, the refunding of outstanding obligations, the payment of general operating expenses, and the extension of loans to public institutions and facilities. Private activity bonds that are issued by or on behalf of public authorities to finance various privately operated facilities are "Municipal Securities" if the interest paid thereon is exempt from regular federal income tax and not treated as a specific tax preference item under the federal alternative minimum tax.
The two principal classifications of Municipal Securities which may be held by the Funds are "general obligation" securities and "revenue" securities. General obligation securities are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue securities are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific revenue source such as the user of the facility being financed.
The Fund's portfolio may also include "moral obligation" securities, which are normally issued by special purpose public authorities. If the issuer of moral obligation securities is unable to meet its debt service obligations from current revenues, it may draw on a reserve fund, the restoration of which is a moral commitment but not a legal obligation of the state or municipality which created the issuer. There is no limitation on the amount of moral obligation securities that may be held by the Funds.
There are, of course, variations in the quality of Municipal Securities, both within a particular category and between categories, and the yields on Municipal Securities depend upon a variety of factors, including general market conditions, the financial condition of the issuer, general conditions of the municipal bond market, the size of a particular offering, the maturity of the obligation, and the rating of the issue. The ratings of a nationally recognized statistical rating organization ("NRSRO"), such as Moody's and S&P, represent such NRSRO's opinion as to the quality of Municipal Securities. It should be emphasized that these ratings are general and are not absolute standards of quality. Municipal Securities with the same maturity, interest rate and rating may have different yields. Municipal Securities of the same maturity and interest rate with different ratings may have the same yield.
Municipal Securities may include rated and unrated variable and floating rate tax-exempt instruments, such as variable rate demand notes. Variable rate demand notes are long-term Municipal Securities that have variable or floating interest rates and provide a Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on an applicable interest index or another published interest rate or interest rate index. Most variable rate demand notes allow a Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit a Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. Variable interest rates generally reduce changes in the market value of Municipal Securities from their original purchase prices. Accordingly, as interest rates decrease, the potential for capital appreciation is less for variable rate Municipal Securities than for fixed income obligations. The terms of these variable rate demand instruments require payment of principal and accrued interest from the issuer of the Municipal Securities, the issuer of the participation interest or a guarantor of either issuer.
Municipal Securities purchased by the Funds in some cases may be insured as to the timely payment of principal and interest. There is no guarantee, however, that the insurer will meet its obligations in the event of a default in payment by the issuer. In other cases, Municipal Securities may be backed by letters of credit or guarantees issued by domestic or foreign banks or other financial institutions which are not subject to federal deposit insurance. Adverse developments affecting the banking industry generally or a particular bank or financial institution that has provided its credit or guarantee with respect to a Municipal Security held by a Fund, including a change in the credit quality of any such bank or financial institution, could result in a loss to the Fund and adversely affect the value of its shares. Letters of credit and guarantees issued by foreign banks and financial institutions involve certain risks in addition to those of similar instruments issued by domestic banks and financial institutions.
The payment of principal and interest on most Municipal Securities purchased by the Funds will depend upon the ability of the issuers to meet their obligations. Each state, the District of Columbia, each of their political subdivisions, agencies, instrumentalities and authorities and each multi-state agency of which a state is a member is a separate "issuer" as that term is used in this SAI and the Prospectuses. The non-governmental user of facilities financed by private activity bonds is also considered to be an "issuer." An issuer's obligations under its Municipal Securities are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Code and laws, if any, which may be enacted by federal or state legislatures extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations or upon the ability of municipalities to levy taxes. The power or ability of an issuer to meet its obligations for the payment of interest on and principal of its Municipal Securities may be materially adversely affected by litigation or other conditions.
From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax exemption for interest on Municipal Securities. For example, under the Tax Reform Act of 1986, interest on certain private activity bonds must be included in an investor's federal alternative minimum taxable income, and corporate investors must include all tax-exempt interest in their federal alternative minimum taxable income. The Funds cannot, of course, predict what legislation may be proposed in the future regarding the income tax status of interest on Municipal Securities, or which proposals, if any, might be enacted. Such proposals, while pending or if enacted, might materially and adversely affect the availability of Municipal Securities for investment by the Funds and the liquidity and value of their respective portfolios. In such an event, each
Fund would re-evaluate its investment objective and policies and consider possible changes in its structure or possible dissolution.
Opinions relating to the validity of Municipal Securities and to the exemption of interest thereon from federal income tax are rendered by bond counsel to the respective issuers at the time of issuance. Neither the Funds nor the Advisor will review the proceedings relating to the issuance of Municipal Securities or the bases for such opinions.
PRIVATE ACTIVITY BONDS
The Funds may invest in "private activity bonds," the interest on which, although exempt from regular federal income tax, may constitute an item of tax preference for purposes of the federal alternative minimum tax. Private activity bonds are or have been issued to obtain funds to provide, among other things, privately operated housing facilities, pollution control facilities, convention or trade show facilities, mass transit, airport, port or parking facilities and certain local facilities for water supply, gas, electricity or sewage or solid waste disposal. Private activity bonds are also issued to privately held or publicly owned corporations in the financing of commercial or industrial facilities. State and local governments are authorized in most states to issue private activity bonds for such purposes in order to encourage corporations to locate within their communities. The principal and interest on these obligations may be payable from the general revenues of the users of such facilities.
Private activity bonds held by the Funds are in most cases revenue securities and are not payable from the unrestricted revenues of the issuer. Consequently, the credit quality of such private activity bonds is usually directly related to the credit standing of the corporate user of the facility involved.
MUNICIPAL LEASE OBLIGATIONS
Although a municipal lease obligation does not constitute a general obligation of the municipality for which the municipality's taxing power is pledged, a municipal lease obligation is ordinarily backed by the municipality's covenant to budget for, appropriate and make the payments due under the municipal lease obligation. However, certain lease obligations contain "non-appropriation" clauses which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. Although "non-appropriation" lease obligations are secured by the leased property, disposition of the property in the event of foreclosure might prove difficult. In addition, the tax treatment of such obligations in the event of non-appropriation is unclear.
Determinations concerning the liquidity and appropriate valuation of a municipal lease obligation, as with any other municipal security, are made based on all relevant factors. These factors include, among others: (1) the frequency of trades and quotes for the obligation; (2) the number of dealers willing to purchase or sell the security and the number of other potential buyers; (3) the willingness of dealers to undertake to make a market in the security; and (4) the nature of the marketplace trades, including the time needed to dispose of the security, the method of soliciting offers, and the mechanics of the transfer.
SECURITIES LOANS
The Fund may make secured loans of its portfolio securities amounting to not more than the percentage of its total assets specified in Part 1 of this SAI, thereby realizing additional income. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delay in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. As a matter of policy, securities loans are made to banks and broker-dealers pursuant to agreements requiring that loans be continuously secured by collateral in cash or short-term debt obligations at least equal at all times to the value of the securities on loan. The borrower pays to the Fund an amount equal to any dividends or interest received on securities lent. The Fund retains all or a portion of the interest received on investment of the cash collateral or receives a fee from the borrower. Although voting rights, or rights to consent, with respect to the loaned securities pass to the borrower, the Fund retains the right to call the loans at any time on reasonable notice, and it will do so in order that the securities may be voted by the Fund if the holders of such securities are asked to vote upon or consent to matters materially affecting the investment. The Fund may also call such loans in order to sell the securities involved.
INTERFUND BORROWING AND LENDING
The Fund may lend money to and borrow money from other affiliated registered open-end investment companies. The Fund may borrow through the program when the Advisor believes borrowing is appropriate and the costs are equal to or lower than the costs of bank loans. When borrowing money, the Fund is subject to the risk that the securities the Fund acquires with the borrowed money or would otherwise have sold will decline in value. When lending money, the Fund is subject to the risk that the borrower will be unwilling or unable to make timely payments of interest or principal.
FORWARD COMMITMENTS ("WHEN-ISSUED" AND "DELAYED DELIVERY" SECURITIES)
The Fund may enter into contracts to purchase securities for a fixed price at a future date beyond customary settlement time ("forward commitments" and "when-issued securities") if the Fund holds until the settlement date, in a segregated account, cash or liquid securities in an amount sufficient to meet the purchase price, or if the Fund enters into offsetting contracts for the forward sale of other securities it owns. Forward commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date. Where such purchases are made through dealers, the Fund relies on the dealer to consummate the sale. The dealer's failure to do so may result in the loss to the Fund of an advantageous yield or price. Although the Fund will generally enter into forward commitments with the intention of acquiring securities for its portfolio or for delivery pursuant to options contracts it has entered into, the Fund may dispose of a commitment prior to settlement if the Advisor deems it appropriate to do so. The Fund may realize short-term profits or losses (generally taxed at ordinary income tax rates in the hands of the shareholders) upon the sale of forward commitments.
MORTGAGE DOLLAR ROLLS
In a mortgage dollar roll, the Fund sells a mortgage-backed security and simultaneously enters into a commitment to purchase a similar security at a later date. The Fund either will be paid a fee by the counterparty upon entering into the transaction or will be entitled to purchase the similar security at a discount. As with any forward commitment, mortgage dollar rolls involve the risk that the counterparty will fail to deliver the new security on the settlement date, which may deprive the Fund of obtaining a beneficial investment. In addition, the security to be delivered in the future may turn out to be inferior to the security sold upon entering into the transaction. In addition, the transaction costs may exceed the return earned by the Fund from the transaction.
REITS
The Funds may invest in real estate investment trusts ("REITs"). Equity REITs invest directly in real property while mortgage REITs invest in mortgages on real property. REITs may be subject to certain risks associated with the direct ownership of real estate, including declines in the value of real estate, risks related to general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, and variations in rental income. Generally, increases in interest rates will decrease the value of high yielding securities and increase the costs of obtaining financing, which could decrease the value of a REIT's investments. In addition, equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of credit extended. Equity and mortgage REITs are dependent upon management skill, are not diversified and are subject to the risks of financing projects. REITs are also subject to heavy cash flow dependency, defaults by borrowers, self liquidation and the possibility of failing to qualify for tax-free pass-through of income under the Internal Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from the 1940 Act. REITs pay dividends to their shareholders based upon available funds from operations. It is quite common for these dividends to exceed a REIT's taxable earnings and profits resulting in the excess portion of such dividends being designated as a return of capital. The Funds intend to include the gross dividends from any investments in REITs in their periodic distributions to its shareholders and, accordingly, a portion of the Fund's distributions may also be designated as a return of capital.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities, including "collateralized mortgage obligations" (CMOs) and "real estate mortgage investment conduits" (REMICs), evidence ownership in a pool of mortgage loans made by certain financial institutions that may be insured or guaranteed by the U.S. government or its agencies. CMOs are obligations issued by special-purpose trusts, secured by mortgages. REMICs are entities that own mortgages and elect REMIC status under the Internal Revenue Code. Both CMOs and REMICs issue one or more classes of securities of which one (the Residual) is in the nature of equity. The Funds will not invest in the Residual class. Principal on mortgage-backed securities, CMOs and REMICs may be prepaid if the underlying mortgages are prepaid. Prepayment rates for mortgage-backed securities tend to increase as interest rates decline (effectively shortening the security's life) and decrease as interest rates rise (effectively lengthening the security's life). Because of the prepayment feature, these securities may not increase in value as much as other debt securities when interest rates fall. A Fund may be able to invest prepaid principal only at lower yields. The prepayment of such securities purchased at a premium may result in losses equal to the premium.
NON-AGENCY MORTGAGE-BACKED SECURITIES
The Fund may invest in non-investment grade mortgage-backed securities that are not guaranteed by the U.S. government or an agency. Such securities are subject to the risks described under "Lower Rated Debt Securities" and "Mortgage-Backed Securities." In addition, although the underlying mortgages provide collateral for the security, the Fund may experience losses, costs and delays in enforcing its rights if the issuer defaults or enters bankruptcy.
ASSET-BACKED SECURITIES
Asset-backed securities are interests in pools of debt securities backed by various types of loans such as credit card, auto and home equity loans. These securities involve prepayment risk, which is the possibility that the underlying debt may be refinanced or prepaid prior to maturity during periods of declining interest rates. During periods of rising interest rates, asset-backed securities have a high risk of declining in price because the declining prepayment rates effectively lengthen the expected maturity of the securities. A decline in interest rates may lead to a faster rate of repayment on asset-backed securities and, therefore, cause a Fund to earn a lower interest rate on reinvestment. In addition, the potential impact of prepayment on the price of an asset-backed security may be difficult to predict and result in greater volatility.
CUSTODY RECEIPTS AND TRUST CERTIFICATES. Custody receipts, such as Morgan Stanley TRACERs (Traded Custody Receipts), and trust certificates, such as Lehman Brothers TRAINs (Targeted Return Index Securities Trust), are derivative products which, in the aggregate, evidence direct ownership in a pool of securities. Typically, a sponsor will deposit a pool of securities with a custodian in exchange for custody receipts evidencing those securities or with a trust in exchange for trust certificates evidencing interests in the trust, the principal asset of which is those securities. The sponsor will then generally sell those custody receipts or trust certificates in negotiated transactions at varying prices that are determined at the time of sale. Each custody receipt or trust certificate evidences the individual securities in the pool and the holder of a custody receipt or trust certificate generally will have all the rights and privileges of owners of those securities. Each holder of a custody receipt or trust certificate generally will be treated as directly purchasing its pro rata share of the securities in the pool for an amount equal to the amount that such holder paid for its custody receipt or trust certificate. If a custody receipt or trust certificate is sold, a holder will be treated as having directly "disposed of its pro rata share of the securities evidenced by the custody receipt or trust certificate. Additionally, the holder of a custody receipt or trust certificate may withdraw the securities represented by the custody receipt or trust certificate subject to certain conditions. Custody receipts and trust certificates are generally subject to the same risks as those securities evidenced by the receipts or certificates which, in the case of the Fund, are corporate debt securities. Additionally, custody receipts and trust certificates may also be less liquid than the underlying securities if the sponsor fails to maintain a trading market.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. A repurchase agreement is a contract under which the Fund acquires a security for a relatively short period subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price (representing the Fund's cost plus interest). It is the Fund's present intention to enter into repurchase agreements only with commercial banks and registered broker-dealers and only with respect to obligations of the U.S. government or its agencies or instrumentalities. Repurchase agreements may also be viewed as loans made by the Fund which are collateralized by the securities subject to repurchase. The Advisor will monitor such transactions to determine that the value of the underlying securities is at least equal at all times to the total amount of the repurchase obligation, including the interest factor. If the seller defaults, the Fund could realize a loss on the sale of the underlying security to the extent that the proceeds of sale including accrued interest are less than the resale price provided in the agreement including interest. In addition, if the seller should be involved in bankruptcy or insolvency proceedings, the Fund may incur delay and costs in selling the underlying security or may suffer a loss of principal and interest if the Fund is treated as an unsecured creditor and required to return the underlying collateral to the seller's estate.
REVERSE REPURCHASE AGREEMENTS
In a reverse repurchase agreement, the Fund sells a security and agrees to repurchase the same security at a mutually agreed upon date and price. A reverse repurchase agreement may also be viewed as the borrowing of money by the Fund and, therefore, as a form of leverage. The Fund will invest the proceeds of borrowings under reverse repurchase agreements. In addition, the Fund will enter into a reverse repurchase agreement only when the interest income expected to be earned from the investment of the proceeds is greater than the interest expense of the transaction. The Fund will not invest the proceeds of a reverse repurchase agreement for a period which exceeds the duration of the reverse repurchase agreement. The Fund may not enter into reverse repurchase agreements exceeding in the aggregate one-third of the market value of its total assets, less liabilities other than the obligations created by reverse repurchase agreements. Each Fund will establish and maintain with its custodian a separate account with a segregated portfolio of securities in an amount at least equal to its purchase obligations under its reverse repurchase agreements. If interest rates rise during the term of a reverse repurchase agreement, entering into the reverse repurchase agreement may have a negative impact on a money market fund's ability to maintain a net asset value of $1.00 per share.
LINE OF CREDIT
The Fund may establish and maintain a line of credit with a major bank in order to permit borrowing on a temporary basis to meet share redemption requests in circumstances in which temporary borrowings may be preferable to liquidation of portfolio securities.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The Fund may write covered call options and covered put options on securities held in its portfolio when, in the opinion of the Advisor, such transactions are consistent with the Fund's investment goal and policies. Call options written by the Fund give the purchaser the right to buy the underlying securities from the Fund at a stated exercise price; put options give the purchaser the right to sell the underlying securities to the Fund at a stated price.
The Fund may write only covered options, which means that, so long as the Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option (or comparable securities satisfying the cover requirements of securities exchanges). In the case of put options, the Fund will hold cash and/or high-grade short-term debt obligations equal to the price to be paid if the option is exercised. In addition, the Fund will be considered to have covered a put or call option if and to the extent that it holds an option that offsets some or all of the risk of the option it has written. The Fund may write combinations of covered puts and calls on the same underlying security.
The Fund will receive a premium from writing a put or call option, which increases the Fund's return on the underlying security if the option expires unexercised or is closed out at a profit. The amount of the premium reflects, among other things, the relationship between the exercise price and the current market value of the underlying security, the volatility of the underlying security, the amount of time remaining until expiration, current interest rates, and the effect of supply and demand in the options market and in the market for the underlying security. By writing a call option, the Fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option but continues to bear the risk of a decline in the value of the underlying security. By writing a put option, the Fund assumes the risk that it may be required to purchase the underlying security for an exercise price higher than its then-current market value, resulting in a potential capital loss unless the security subsequently appreciates in value.
The Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an offsetting option. The Fund realizes a profit or loss from a closing transaction if the cost of the transaction (option premium plus transaction costs) is less or more than the premium received from writing the option. Because increases in the market price of a call option generally reflect increases in the market price of the security underlying the option, any loss resulting from a closing purchase transaction may be offset in whole or in part by unrealized appreciation of the underlying security.
If the Fund writes a call option but does not own the underlying security, and when it writes a put option, the Fund may be required to deposit cash or securities with its broker as "margin" or collateral for its obligation to buy or sell the underlying security. As the value of the underlying security varies, the Fund may have to deposit additional margin with the broker. Margin requirements are complex and are fixed by individual brokers, subject to minimum requirements currently imposed by the Federal Reserve Board and by stock exchanges and other self-regulatory organizations.
PURCHASING PUT OPTIONS. The Fund may purchase put options to protect its portfolio holdings in an underlying security against a decline in market value. Such hedge protection is provided during the life of the put option since the Fund, as holder of the put option, is able to sell the underlying security at the put exercise price regardless of any decline in the underlying security's market price. For a put option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs. By using put options in this manner, the Fund will reduce any profit it might otherwise have realized from appreciation of the underlying security by the premium paid for the put option and by transaction costs.
PURCHASING CALL OPTIONS. The Fund may purchase call options to hedge against an increase in the price of securities that the Fund wants ultimately to buy. Such hedge protection is provided during the life of the call option since the Fund, as holder of the call option, is able to buy the underlying security at the exercise price regardless of any increase in the underlying security's market price. In order for a call option to be profitable, the market price of the underlying security must rise sufficiently above the exercise price to cover the premium and transaction costs. These costs will reduce any profit the Fund might have realized had it bought the underlying security at the time it purchased the call option.
OVER-THE-COUNTER (OTC) OPTIONS. The Staff of the Division of Investment Management of the Securities and Exchange Commission (SEC) has taken the position that OTC options purchased by the Fund and assets held to cover OTC options
written by the Fund are illiquid securities. Although the Staff has indicated
that it is continuing to evaluate this issue, pending further developments, the
Fund intends to enter into OTC options transactions only with primary dealers in
U.S. government securities and, in the case of OTC options written by the Fund,
only pursuant to agreements that will assure that the Fund will at all times
have the right to repurchase the option written by it from the dealer at a
specified formula price. The Fund will treat the amount by which such formula
price exceeds the amount, if any, by which the option may be "in-the-money" as
an illiquid investment. It is the present policy of the Fund not to enter into
any OTC option transaction if, as a result, more than 15% (10% in some cases,
refer to your Fund's Prospectus) of the Fund's net assets would be invested in
(i) illiquid investments (determined under the foregoing formula) relating to
OTC options written by the Fund, (ii) OTC options purchased by the Fund, (iii)
securities which are not readily marketable, and (iv) repurchase agreements
maturing in more than seven days.
RISK FACTORS IN OPTIONS TRANSACTIONS. The successful use of the Fund's options strategies depends on the ability of the Advisor to forecast interest rate and market movements correctly.
When it purchases an option, the Fund runs the risk that it will lose its entire investment in the option in a relatively short period of time, unless the Fund exercises the option or enters into a closing sale transaction with respect to the option during the life of the option. If the price of the underlying security does not rise (in the case of a call) or fall (in the case of a put) to an extent sufficient to cover the option premium and transaction costs, the Fund will lose part or all of its investment in the option. This contrasts with an investment by the Fund in the underlying securities, since the Fund may continue to hold its investment in those securities notwithstanding the lack of a change in price of those securities.
The effective use of options also depends on the Fund's ability to terminate option positions at times when the Advisor deems it desirable to do so. Although the Fund will take an option position only if the Advisor believes there is a liquid secondary market for the option, there is no assurance that the Fund will be able to effect closing transactions at any particular time or at an acceptable price.
If a secondary trading market in options were to become unavailable, the Fund could no longer engage in closing transactions. Lack of investor interest might adversely affect the liquidity of the market for particular options or series of options. A marketplace may discontinue trading of a particular option or options generally. In addition, a market could become temporarily unavailable if unusual events -- such as volume in excess of trading or clearing capability -- were to interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on particular types of option transactions, which may limit the Fund's ability to realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options purchased or sold by the Fund could result in losses on the options. If trading is interrupted in an underlying security, the trading of options on that security is normally halted as well. As a result, the Fund as purchaser or writer of an option will be unable to close out its positions until options trading resumes, and it may be faced with losses if trading in the security reopens at a substantially different price. In addition, the Options Clearing Corporation (OCC) or other options markets may impose exercise restrictions. If a prohibition on exercise is imposed at the time when trading in the option has also been halted, the Fund as purchaser or writer of an option will be locked into its position until one of the two restrictions has been lifted. If a prohibition on exercise remains in effect until an option owned by the Fund has expired, the Fund could lose the entire value of its option.
Special risks are presented by internationally traded options. Because of time differences between the United States and various foreign countries, and because different holidays are observed in different countries, foreign options markets may be open for trading during hours or on days when U.S. markets are closed. As a result, option premiums may not reflect the current prices of the underlying interest in the United States.
FUTURES CONTRACTS AND RELATED OPTIONS
Upon entering into futures contracts, in compliance with the SEC's requirements, cash or liquid securities, equal in value to the amount of the Fund's obligation under the contract (less any applicable margin deposits and any assets that constitute "cover" for such obligation), will be segregated with the Fund's custodian..
A futures contract sale creates an obligation by the seller to deliver the type of instrument called for in the contract in a specified delivery month for a stated price. A futures contract purchase creates an obligation by the purchaser to take delivery of the type of instrument called for in the contract in a specified delivery month at a stated price. The specific instruments delivered or taken at the settlement date are not determined until on or near that date. The determination is made in accordance with the rules of
the exchanges on which the futures contract was made. The Fund may enter into futures contracts which are traded on national or foreign futures exchanges and are standardized as to maturity date and underlying financial instrument. Futures exchanges and trading in the United States are regulated under the Commodity Exchange Act by the Commodity Futures Trading Commission (CFTC).
Although futures contracts by their terms call for actual delivery or acceptance of commodities or securities, the contracts usually are closed out before the settlement date without the making or taking of delivery. Closing out a futures contract sale is effected by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument or commodity with the same delivery date. If the price of the initial sale of the futures contract exceeds the price of the offsetting purchase, the seller is paid the difference and realizes a gain. Conversely, if the price of the offsetting purchase exceeds the price of the initial sale, the seller realizes a loss. Similarly, the closing out of a futures contract purchase is effected by the purchaser's entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, the purchaser realizes a gain, and if the purchase price exceeds the offsetting sale price, the purchaser realizes a loss.
Unlike when the Fund purchases or sells a security, no price is paid or received by the Fund upon the purchase or sale of a futures contract, although the Fund is required to deposit with its custodian in a segregated account in the name of the futures broker an amount of cash and/or U.S. government securities. This amount is known as "initial margin." The nature of initial margin in futures transactions is different from that of margin in security transactions in that futures contract margin does not involve the borrowing of funds by the Fund to finance the transactions. Rather, initial margin is in the nature of a performance bond or good faith deposit on the contract that is returned to the Fund upon termination of the futures contract, assuming all contractual obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin," to and from the broker (or the custodian) are made on a daily basis as the price of the underlying security or commodity fluctuates, making the long and short positions in the futures contract more or less valuable, a process known as "marking to market."
The Fund may elect to close some or all of its futures positions at any time prior to their expiration. The purpose of making such a move would be to reduce or eliminate the hedge position then currently held by the Fund. The Fund may close its positions by taking opposite positions which will operate to terminate the Fund's position in the futures contracts. Final determinations of variation margin are then made, additional cash is required to be paid by or released to the Fund, and the Fund realizes a loss or a gain. Such closing transactions involve additional commission costs.
INTEREST RATE FUTURES CONTRACTS. Bond prices are established in both the cash market and the futures market. In the cash market, bonds are purchased and sold with payment for the full purchase price of the bond being made in cash, generally within five business days after the trade. In the futures market, only a contract is made to purchase or sell a bond in the future for a set price on a certain date. Historically, the prices for bonds established in the futures markets have tended to move generally in the aggregate in concert with the cash market prices and have maintained fairly predictable relationships. Accordingly, the Funds may use interest rate futures contracts as a defense, or hedge, against anticipated interest rate changes. The Funds presently could accomplish a similar result to that which they hope to achieve through the use of futures contracts by selling bonds with long maturities and investing in bonds with short maturities when interest rates are expected to increase, or conversely, selling short-term bonds and investing in long-term bonds when interest rates are expected to decline. However, because of the liquidity that is often available in the futures market, the protection is more likely to be achieved, perhaps at a lower cost and without changing the rate of interest being earned by the Funds, through using futures contracts.
Interest rate futures contracts are traded in an auction environment on the floors of several exchanges -- principally, the Chicago Board of Trade, the Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would deal only in standardized contracts on recognized exchanges. Each exchange guarantees performance under contract provisions through a clearing corporation, a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial instruments including long-term United States Treasury Bonds and Notes; Government National Mortgage Association (GNMA) modified pass-through mortgage backed securities; three-month United States Treasury Bills; and ninety-day commercial paper. The Funds may trade in any interest rate futures contracts for which there exists a public market, including, without limitation, the foregoing instruments.
MUNICIPAL BOND INDEX FUTURES CONTRACTS. Municipal bond index futures contracts may act as a hedge against changes in market conditions. A municipal bond index assigns values daily to the municipal bonds included in the index based on the
independent assessment of dealer-to-dealer municipal bond brokers. A municipal bond index futures contract represents a firm commitment by which two parties agree to take or make delivery of an amount equal to a specified dollar amount multiplied by the difference between the municipal bond index value on the last trading date of the contract and the price at which the futures contract is originally struck. No physical delivery of the underlying securities in the index is made.
The Chicago Board of Trade has designed a futures contract based on the Bond Buyer Municipal Bond Index. This Index is composed of 40 term revenue and general obligation bonds, and its composition is updated regularly as new bonds meeting the criteria of the Index are issued and existing bonds mature. The Index is intended to provide an accurate indicator of trends and changes in the municipal bond market. Each bond in the Index is independently priced by six dealer-to-dealer municipal bond brokers daily. The 40 prices then are averaged and multiplied by a coefficient. The coefficient is used to maintain the continuity of the Index when its composition changes. The Chicago Board of Trade, on which futures contracts based on this Index are traded, as well as other U.S. commodities exchanges, are regulated by the CFTC. Transactions on such exchange are cleared through a clearing corporation, which guarantees the performance of the parties to each contract.
OPTIONS ON FUTURES CONTRACTS. The Fund will enter into written options on futures contracts only when, in compliance with the SEC's requirements, cash or liquid securities equal in value to the commodity value (less any applicable margin deposits) have been deposited in a segregated account. The Fund may purchase and write call and put options on futures contracts it may buy or sell and enter into closing transactions with respect to such options to terminate existing positions. The Fund may use such options on futures contracts in lieu of writing options directly on the underlying securities or purchasing and selling the underlying futures contracts. Such options generally operate in the same manner as options purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate his position by selling or purchasing an offsetting option. There is no guarantee that such closing transactions can be effected.
The Fund will be required to deposit initial margin and maintenance margin with respect to put and call options on futures contracts written by it pursuant to brokers' requirements similar to those described above.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use of futures contracts by the Fund is subject to the Advisor's ability to predict correctly, movements in the direction of interest rates and other factors affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or put options on futures contracts involves less potential risk to the Fund because the maximum amount at risk is the premium paid for the options (plus transaction costs). However, there may be circumstances when the purchase of a call or put option on a futures contract would result in a loss to the Fund when the purchase or sale of a futures contract would not, such as when there is no movement in the prices of the hedged investments. The writing of an option on a futures contract involves risks similar to those risks relating to the sale of futures contracts.
There is no assurance that higher than anticipated trading activity or other unforeseen events might not, at times, render certain market clearing facilities inadequate, and thereby result in the institution, by exchanges, of special procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the Fund, the Fund may seek to close out a position. The ability to establish and close out positions will be subject to the development and maintenance of a liquid secondary market. It is not certain that this market will develop or continue to exist for a particular futures contract. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain contracts or options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of contracts or options, or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or a clearing corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of contracts or options (or a particular class or series of contracts or options), in which event the secondary market on that exchange (or in the class or series of contracts or options) would cease to exist, although outstanding contracts or options on the exchange that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms.
USE BY TAX-EXEMPT FUNDS OF INTEREST RATE AND U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. The Funds investing in tax-exempt securities may purchase and sell futures contracts and related options on interest rate and U.S. Treasury securities when, in the opinion of the Advisor, price movements in these security futures and related options will correlate closely with price movements in the tax-exempt securities which are the subject of the hedge. Interest rate and U.S. Treasury securities futures contracts require the seller to deliver, or the purchaser to take delivery of, the type of security called for in the contract at a specified date and price. Options on interest rate and U.S. Treasury security futures contracts give the purchaser the right in return for the premium paid to assume a position in a futures contract at the specified option exercise price at any time during the period of the option.
In addition to the risks generally involved in using futures contracts, there is also a risk that price movements in interest rate and U.S. Treasury security futures contracts and related options will not correlate closely with price movements in markets for tax-exempt securities.
INDEX FUTURES CONTRACTS. An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of an index is commonly referred to as buying or purchasing a contract or holding a long position in the index. Entering into a contract to sell units of an index is commonly referred to as selling a contract or holding a short position. A unit is the current value of the index. The Fund may enter into stock index futures contracts, debt index futures contracts, or other index futures contracts appropriate to its objective(s). The Fund may also purchase and sell options on index futures contracts.
There are several risks in connection with the use by the Fund of index futures as a hedging device. One risk arises because of the imperfect correlation between movements in the prices of the index futures and movements in the prices of securities which are the subject of the hedge. The Advisor will attempt to reduce this risk by selling, to the extent possible, futures on indices the movements of which will, in its judgment, have a significant correlation with movements in the prices of the Fund's portfolio securities sought to be hedged.
Successful use of index futures by the Fund for hedging purposes is also subject to the Advisor's ability to predict correctly movements in the direction of the market. It is possible that, where the Fund has sold futures to hedge its portfolio against a decline in the market, the index on which the futures are written may advance and the value of securities held in the Fund's portfolio may decline. If this occurs, the Fund would lose money on the futures and also experience a decline in the value of its portfolio securities. However, while this could occur to a certain degree, the Advisor believes that over time the value of the Fund's portfolio will tend to move in the same direction as the market indices which are intended to correlate to the price movements of the portfolio securities sought to be hedged. It is also possible that, if the Fund has hedged against the possibility of a decline in the market adversely affecting securities held in its portfolio and securities prices increase instead, the Fund will lose part or all of the benefit of the increased values of those securities that it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient cash, it may have to sell securities to meet daily variation margin requirements.
In addition to the possibility that there may be an imperfect correlation, or no correlation at all, between movements in the index futures and the securities of the portfolio being hedged, the prices of index futures may not correlate perfectly with movements in the underlying index due to certain market distortions. First, all participants in the futures markets are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions which would distort the normal relationship between the index and futures markets. Second, margin requirements in the futures market are less onerous than margin requirements in the securities market, and as a result, the futures market may attract more speculators than the securities market. Increased participation by speculators in the futures market may also cause temporary price distortions. Due to the possibility of price distortions in the futures market and also because of the imperfect correlation between movements in the index and movements in the prices of index futures, even a correct forecast of general market trends by the Advisor may still not result in a successful hedging transaction.
OPTIONS ON INDEX FUTURES. Options on index futures are similar to options on securities except that options on index futures give the purchaser the right, in return for the premium paid, to assume a position in an index futures contract (a long position if the option is a call and a short position if the option is a put), at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's futures margin account which represents the amount by which the market price of the index futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the index future. If an option is exercised on the last trading day prior to the expiration date of the option, the settlement will be made entirely in cash equal to the difference between the exercise price of the option
and the closing level of the index on which the future is based on the expiration date. Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss of the premium paid.
OPTIONS ON INDICES. As an alternative to purchasing call and put options on index futures, the Fund may purchase call and put options on the underlying indices themselves. Such options could be used in a manner identical to the use of options on index futures. Options involving securities indices provide the holder with the right to make or receive a cash settlement upon exercise of the option based on movements in the relevant index. Such options must be listed on a national securities exchange and issued by the Options Clearing Corporation. Such options may relate to particular securities or to various stock indices, except that a Fund may not write covered options on an index.
OPTIONS ON FOREIGN STOCK INDICES. The Funds may, for the purpose of hedging its portfolio, subject to applicable securities regulations, purchase and write put and call options on foreign stock indices listed on foreign and domestic stock exchanges. A stock index fluctuates with changes in the market values of the stocks included in the index.
SWAP AGREEMENTS (SWAPS, CAPS, COLLARS AND FLOORS)
The Funds may enter into interest rate swaps, currency swaps, and other types of swap agreements such as caps, collars, and floors. In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate times a "notional principal amount," in return for payments equal to a fixed rate times the same amount, for a specified period of time. If a swap agreement provides for payments in different currencies, the parties might agree to exchange notional principal amount as well. Swaps may also depend on other prices or rates, such as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed upon level. An interest rate collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from one type of investment to another. For example, if a Fund agreed to exchange payments in dollars for payments in foreign currency, the swap agreement would tend to decrease the Fund's exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates. Caps and floors have an effect similar to buying or writing options. Depending on how they are used, swap agreements may increase or decrease the overall volatility of a Fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a small investment of cash relative to the magnitude of risks assumed. As a result, swaps can be highly volatile and may have a considerable impact on the Funds' performance. Swap agreements are subject to risks related to the counterparty's ability to perform, and may decline in value if the counterparty's creditworthiness deteriorates. The Funds may also suffer losses if they are unable to terminate outstanding swap agreements or reduce their exposure through offsetting transactions.
EQUITY SWAPS
The Fund may engage in equity swaps. Equity swaps allow the parties to the swap agreement to exchange components of return on one equity investment (e.g., a basket of equity securities or an index) for a component of return on another non-equity or equity investment, including an exchange of differential rates of return. Equity swaps may be used to invest in a market without owning or taking physical custody of securities in circumstances where direct investment may be restricted for legal reasons or is otherwise impractical. Equity swaps also may be used for other purposes, such as hedging or seeking to increase total return.
RISK FACTORS IN EQUITY SWAP TRANSACTIONS. Equity swaps are derivative instruments and their values can be very volatile. To the extent that the portfolio managers do not accurately analyze and predict the potential relative fluctuation on the components swapped with the other party, the Fund may suffer a loss. The value of some components of an equity swap (such as the dividend on a common stock) may also be sensitive to changes in interest rates. Furthermore, during the period a swap is outstanding, the Fund may suffer a loss if the counterparty defaults. See "Taxes" for information on tax risks associated with equity swaps.
FOREIGN CURRENCY TRANSACTIONS
The Fund may engage in currency exchange transactions to protect against uncertainty in the level of future currency exchange rates.
The Fund may engage in both "transaction hedging" and "position hedging." When it engages in transaction hedging, the Fund enters into foreign currency transactions with respect to specific receivables or payables of the Fund generally arising in connection with the purchase or sale of its portfolio securities. The Fund will engage in transaction hedging when it desires to "lock in" the U.S. dollar price of a security it has agreed to purchase or sell, or the U.S. dollar equivalent of a dividend or interest payment in a foreign currency. By transaction hedging the Fund attempts to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and the applicable foreign currency during the period between the date on which the security is purchased or sold, or on which the dividend or interest payment is declared, and the date on which such payments are made or received.
The Fund may purchase or sell a foreign currency on a spot (or cash) basis at the prevailing spot rate in connection with the settlement of transactions in portfolio securities denominated in that foreign currency. The Fund may also enter into contracts to purchase or sell foreign currencies at a future date ("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes the Fund may also purchase exchange-listed and over-the-counter call and put options on foreign currency futures contracts and on foreign currencies. Over-the-counter options are considered to be illiquid by the SEC staff. A put option on a futures contract gives the Fund the right to assume a short position in the futures contract until expiration of the option. A put option on currency gives the Fund the right to sell a currency at an exercise price until the expiration of the option. A call option on a futures contract gives the Fund the right to assume a long position in the futures contract until the expiration of the option. A call option on currency gives the Fund the right to purchase a currency at the exercise price until the expiration of the option.
When it engages in position hedging, the Fund enters into foreign currency exchange transactions to protect against a decline in the values of the foreign currencies in which its portfolio securities are denominated (or an increase in the value of currency for securities which the Fund expects to purchase, when the Fund holds cash or short-term investments). In connection with position hedging, the Fund may purchase put or call options on foreign currency and foreign currency futures contracts and buy or sell forward contracts and foreign currency futures contracts. The Fund may also purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions and the value of the portfolio securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the dates the currency exchange transactions are entered into and the dates they mature.
It is impossible to forecast with precision the market value of portfolio securities at the expiration or maturity of a forward or futures contract. Accordingly, it may be necessary for the Fund to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security or securities being hedged is less than the amount of foreign currency the Fund is obligated to deliver and if a decision is made to sell the security or securities and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security or securities if the market value of such security or securities exceeds the amount of foreign currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying prices of the securities which the Fund owns or intends to purchase or sell. They simply establish a rate of exchange which one can achieve at some future point in time. Additionally, although these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency, they tend to limit any potential gain which might result from the increase in value of such currency.
CURRENCY FORWARD AND FUTURES CONTRACTS. Upon entering into such contracts, in compliance with the SEC's requirements, cash or liquid securities, equal in value to the amount of the Fund's obligation under the contract (less any applicable margin deposits and any assets that constitute "cover" for such obligation), will be segregated.
A forward currency contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract as agreed by the parties, at a price set at the time of the contract. In the case of a cancelable contract, the holder has the unilateral right to cancel the contract at maturity by paying a specified fee. The contracts
are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. A contract generally has no deposit requirement, and no commissions are charged at any stage for trades. A currency futures contract is a standardized contract for the future delivery of a specified amount of a foreign currency at a future date at a price set at the time of the contract. Currency futures contracts traded in the United States are designed and traded on exchanges regulated by the CFTC, such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain respects. For example, the maturity date of a forward contract may be any fixed number of days from the date of the contract agreed upon by the parties, rather than a predetermined date in a given month. Forward contracts may be in any amounts agreed upon by the parties rather than predetermined amounts. Also, forward contracts are traded directly between currency traders so that no intermediary is required. A forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Fund may either accept or make delivery of the currency specified in the contract, or at or prior to maturity enter into a closing transaction involving the purchase or sale of an offsetting contract. Closing transactions with respect to forward contracts are usually effected with the currency trader who is a party to the original forward contract. Closing transactions with respect to futures contracts are effected on a commodities exchange; a clearing corporation associated with the exchange assumes responsibility for closing out such contracts.
Positions in currency futures contracts may be closed out only on an exchange or board of trade which provides a secondary market in such contracts. Although the Fund intends to purchase or sell currency futures contracts only on exchanges or boards of trade where there appears to be an active secondary market, there is no assurance that a secondary market on an exchange or board of trade will exist for any particular contract or at any particular time. In such event, it may not be possible to close a futures position and, in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin.
CURRENCY OPTIONS. In general, options on currencies operate similarly to options on securities and are subject to many similar risks. Currency options are traded primarily in the over-the-counter market, although options on currencies have recently been listed on several exchanges. Options are traded not only on the currencies of individual nations, but also on the European Currency Unit (ECU). The ECU is composed of amounts of a number of currencies, and is the official medium of exchange of the European Economic Community's European Monetary System.
The Fund will only purchase or write currency options when the Advisor believes that a liquid secondary market exists for such options. There can be no assurance that a liquid secondary market will exist for a particular option at any specified time. Currency options are affected by all of those factors which influence exchange rates and investments generally. To the extent that these options are traded over the counter, they are considered to be illiquid by the SEC staff.
The value of any currency, including the U.S. dollar, may be affected by complex political and economic factors applicable to the issuing country. In addition, the exchange rates of currencies (and therefore the values of currency options) may be significantly affected, fixed, or supported directly or indirectly by government actions. Government intervention may increase risks involved in purchasing or selling currency options, since exchange rates may not be free to fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in turn reflects relative values of two currencies, the U.S. dollar and the foreign currency in question. Because currency transactions occurring in the interbank market involve substantially larger amounts than those that may be involved in the exercise of currency options, investors may be disadvantaged by having to deal in an odd lot market for the underlying currencies in connection with options at prices that are less favorable than for round lots. Foreign governmental restrictions or taxes could result in adverse changes in the cost of acquiring or disposing of currencies.
There is no systematic reporting of last sale information for currencies and there is no regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Available quotation information is generally representative of very large round-lot transactions in the interbank market and thus may not reflect exchange rates for smaller odd-lot transactions (less than $1 million) where rates may be less favorable. The interbank market in currencies is a global, around-the-clock market. To the extent that options markets are closed while the markets for the underlying currencies remain open, significant price and rate movements may take place in the underlying markets that cannot be reflected in the options markets.
SETTLEMENT PROCEDURES. Settlement procedures relating to the Fund's investments in foreign securities and to the Fund's foreign currency exchange transactions may be more complex than settlements with respect to investments in debt or equity securities of U.S. issuers, and may involve certain risks not present in the Fund's domestic investments, including foreign currency risks and local custom and usage. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not charge a fee for currency conversion, they do realize a profit based on the difference (spread) between prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligation.
PARTICIPATION INTERESTS
The Fund may invest in municipal obligations either by purchasing them directly or by purchasing certificates of accrual or similar instruments evidencing direct ownership of interest payments or principal payments, or both, on municipal obligations, provided that, in the opinion of counsel to the initial seller of each such certificate or instrument, any discount accruing on such certificate or instrument that is purchased at a yield not greater than the coupon rate of interest on the related municipal obligations will be exempt from federal income tax to the same extent as interest on such municipal obligations. The Fund may also invest in tax-exempt obligations by purchasing from banks participation interests in all or part of specific holdings of municipal obligations. Such participations may be backed in whole or part by an irrevocable letter of credit or guarantee of the selling bank. The selling bank may receive a fee from the Fund in connection with the arrangement. The Fund will not purchase such participation interests unless it receives an opinion of counsel or a ruling of the Internal Revenue Service that interest earned by it on municipal obligations in which it holds such participation interests is exempt from federal income tax.
STAND-BY COMMITMENTS
When the Fund purchases municipal obligations, it may also acquire stand-by commitments from banks and broker-dealers with respect to such municipal obligations. A stand-by commitment is the equivalent of a put option acquired by the Fund with respect to a particular municipal obligation held in its portfolio. A stand-by commitment is a security independent of the municipal obligation to which it relates. The amount payable by a bank or dealer during the time a stand-by commitment is exercisable, absent unusual circumstances relating to a change in market value, would be substantially the same as the value of the underlying municipal obligation. A stand-by commitment might not be transferable by the Fund, although it could sell the underlying municipal obligation to a third party at any time.
The Fund expects that stand-by commitments generally will be available without the payment of direct or indirect consideration. However, if necessary and advisable, the Fund may pay for stand-by commitments either separately in cash or by paying a higher price for portfolio securities which are acquired subject to such a commitment (thus reducing the yield to maturity otherwise available for the same securities). The total amount paid in either manner for outstanding stand-by commitments held in the Fund portfolio will not exceed 10% of the value of the Fund's total assets calculated immediately after each stand-by commitment is acquired. The Fund will enter into stand-by commitments only with banks and broker-dealers that, in the judgment of the Trust's Board of Trustees, present minimal credit risks.
VARIABLE AND FLOATING RATE OBLIGATIONS
Variable rate instruments provide for periodic adjustments in the interest rate. Floating rate instruments provide for automatic adjustment of the interest rate whenever some other specified interest rate changes. Some variable and floating rate obligations are direct lending arrangements between the purchaser and the issuer and there may be no active secondary market. However, in the case of variable and floating rate obligations with a demand feature, a Fund may demand payment of principal and accrued interest at a time specified in the instrument or may resell the instrument to a third party. In the event an issuer of a variable or floating rate obligation defaulted on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and could, for this or other reasons, suffer a loss to the extent of the default. Variable or floating rate instruments issued or guaranteed by the U.S. Government or its agencies or instrumentalities are similar in form but may have a more active secondary market. Substantial holdings of variable and floating rate instruments could reduce portfolio liquidity.
If a variable or floating rate instrument is not rated, the Fund's Advisor must determine that such instrument is comparable to rated instruments eligible for purchase by the Funds and will consider the earning power, cash flows and other liquidity ratios of the issuers and guarantors of such instruments and will continuously monitor their financial status in order to meet payment on
demand. In determining average weighted portfolio maturity of each of these Funds, a variable or floating rate instrument issued or guaranteed by the U.S. Government or an agency or instrumentality thereof will be deemed to have a maturity equal to the period remaining until the obligation's next interest rate adjustment. Variable and floating rate obligations with a demand feature will be deemed to have a maturity equal to the longer of the period remaining to the next interest rate adjustment or the demand notice period.
INVERSE FLOATERS
Inverse floaters are derivative securities whose interest rates vary inversely to changes in short-term interest rates and whose values fluctuate inversely to changes in long-term interest rates. The value of certain inverse floaters will fluctuate substantially more in response to a given change in long-term rates than would a traditional debt security. These securities have investment characteristics similar to leverage, in that interest rate changes have a magnified effect on the value of inverse floaters.
RULE 144A SECURITIES
The Fund may purchase securities that have been privately placed but that are eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933, as amended (1933 Act). That Rule permits certain qualified institutional buyers, such as the Fund, to trade in privately placed securities that have not been registered for sale under the 1933 Act. The Advisor, under the supervision of the Board of Trustees, will consider whether securities purchased under Rule 144A are illiquid and thus subject to the Fund's investment restriction on illiquid securities. A determination of whether a Rule 144A security is liquid or not is a question of fact. In making this determination, the Advisor will consider the trading markets for the specific security, taking into account the unregistered nature of a Rule 144A security. In addition, the Advisor could consider the (1) frequency of trades and quotes, (2) number of dealers and potential purchasers, (3) dealer undertakings to make a market, and (4) nature of the security and of marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A securities will be monitored and, if as a result of changed conditions, it is determined by the Advisor that a Rule 144A security is no longer liquid, the Fund's holdings of illiquid securities would be reviewed to determine what, if any, steps are required to assure that the Fund does not exceed its investment limit on illiquid securities. Investing in Rule 144A securities could have the effect of increasing the amount of the Fund's assets invested in illiquid securities if qualified institutional buyers are unwilling to purchase such securities.
CURRENCY SWAPS. Currency swaps involve the exchange of rights to make or receive payments in specified currencies. Currency swaps usually involve the delivery of the entire principal value of one designated currency. Therefore, the entire principal value of a currency swap is subject to the risk that the other party to the swap will default on its contractual delivery obligations. The use of currency swaps is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. If the Advisor is incorrect in its forecast of market value and currency exchange rates, the investment performance of a Fund would be less favorable than it would have been if this investment technique were not used.
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities which may be exchanged or converted into a predetermined number of shares of the issuer's underlying common stock at the option of the holder during a specified time period. Convertible securities may take the form of convertible preferred stock, convertible bonds or debentures, units consisting of "usable" bonds and warrants or a combination of the features of several of these securities.
Convertible bonds and convertible preferred stocks generally retain the investment characteristics of fixed income securities until they have been converted but also react to movements in the underlying equity securities. The holder is entitled to receive the fixed income of a bond or the dividend preference of a preferred stock until the holder elects to exercise the conversion privilege. Usable bonds are corporate bonds that can be used in whole or in part, customarily at full face value, in lieu of cash to purchase the issuer's common stock. When owned as part of a unit along with warrants, which are options to buy the common stock, they function as convertible bonds, except that the warrants generally will expire before the bond's maturity. Convertible securities are senior to equity securities and therefore have a claim to the assets of the issuer prior to the holders of common stock in the case of liquidation. However, convertible securities are generally subordinated to similar non-convertible securities of the same issuer. The interest income and dividends from convertible bonds and preferred stocks provide a stable stream of income with generally higher yields than common stocks, but lower than non-convertible securities of similar quality. A Fund will exchange or convert the convertible securities held in its portfolio into shares of the underlying common stock in instances in which, in the Advisor's opinion, the investment characteristics of the underlying common stock will assist the Fund in achieving its investment objective. Otherwise, the Fund will hold or trade the convertible securities. In selecting convertible securities for a Fund, the Advisor
evaluates the investment characteristics of the convertible security as a fixed income instrument, and the investment potential of the underlying equity security for capital appreciation.
GUARANTEED INVESTMENT CONTRACTS
Pursuant to guaranteed investment contracts ("GICs"), which are issued by U.S. and Canadian insurance companies, a Fund makes cash contributions to a deposit fund of the insurance company's general account. The insurance company then credits to the fund payments at negotiated, floating or fixed interest rates. A GIC is a general obligation of the issuing insurance company and not a separate account. The purchase price paid for a GIC becomes part of the general assets of the insurance company, and the contract is paid from the company's general assets.
The Funds will only purchase GICs that are issued or guaranteed by insurance companies that at the time of purchase are rated at least AA by S&P or receive a similar high quality rating from a nationally recognized service which provides ratings of insurance companies. GICs are considered illiquid securities and will be subject to any limitations on such investments described in Part 1 of this SAI, unless there is an active and substantial secondary market for the particular instrument and market quotations are readily available. No Fund will invest more than 20% of its total assets in GICs.
BANK INVESTMENT CONTRACTS
Bank investment contracts ("BICs") issued by banks that meet certain quality and asset size requirements for banks are available to the Funds. Pursuant to BICs, cash contributions are made to a deposit account at the bank in exchange for payments at negotiated, floating or fixed interest rates. A BIC is a general obligation of the issuing bank. BICs are considered illiquid securities and will be subject to any limitations on such investments described in Part 1 of this SAI, unless there is an active and substantial secondary market for the particular instrument and market quotations are readily available.
LOAN PARTICIPATIONS
Loan participations are interests in loans which are administered by the lending bank or agent for a syndicate of lending banks, and sold by the lending bank or syndicate member. The Funds may only purchase interests in loan participations issued by a bank in the United States with assets exceeding $1 billion and for which the underlying loan is issued by borrowers in whose obligations the Funds may invest. Because the intermediary bank does not guarantee a loan participation in any way, a loan participation is subject to the credit risk generally associated with the underlying corporate borrower. In addition, in the event the underlying corporate borrower defaults, a Fund may be subject to delays, expenses and risks that are greater than those that would have been involved if the Fund had purchased a direct obligation (such as commercial paper) of the borrower. Under the terms of a loan participation, the purchasing Fund may be regarded as a creditor of the intermediary bank so that the Fund may also be subject to the risk that the issuing bank may become insolvent.
STRUCTURED INVESTMENTS
Structured investments are a relatively new innovation and may be designed to have various combinations of equity and fixed-income characteristics. Equity-linked securities are a form of structured investment and generally consist of a conversion privilege to a single company's common stock plus a fixed annual distribution to the holder. Equity-linked securities have some derivative characteristics because the conversion feature is linked to the price of the company's common stock. Equity-linked securities are designed to provide investors with higher quarterly income than the dividend paid per share on the common stock. However, equity-linked securities have decreased potential for capital appreciation because of limitations of the conversion feature.
Equity-linked securities include issues such as "Structured Yield Product Exchangeable for Stock" ("STRYPES"), "Trust Automatic Common Exchange Securities" ("TRACES"), "Trust Issued Mandatory Exchange Securities" ("TIMES"), "Trust Enhanced Dividend Securities" ("TRENDS") and other similar securities, including those which may be developed in the future. The issuers of the above listed examples of equity-linked securities generally purchase and hold a portfolio of stripped U.S. Treasury securities maturing on a quarterly basis through the conversion date, and a forward purchase contract with an existing shareholder of the company relating to the common stock. Quarterly distributions on equity-linked securities generally consist of the cash received from the U.S. Treasury securities and equity-linked securities generally are not entitled to any dividends that may be declared on the common stock.
Equity-linked securities may be issued by closed-end or other forms of investment companies. To the extent that equity-linked securities are issued by investment companies, a Fund's investments in equity-linked securities are subject to the same limitations as investments in more traditional forms of investment companies.
YANKEE OBLIGATIONS
Yankee obligations are U.S. dollar-denominated instruments of foreign issuers that are either registered with the SEC or issued pursuant to Rule 144A under the 1933 Act. These obligations consist of debt securities (including preferred or preference stock of non-governmental issuers), certificates of deposit, fixed time deposits and banker's acceptances issued by foreign banks, and debt obligations of foreign governments or their subdivisions, agencies and instrumentalities, international agencies and supranational entities. Some securities issued by foreign governments or their subdivisions, agencies and instrumentalities may not be backed by the full faith and credit of the foreign government.
AMERICAN, EUROPEAN, CONTINENTAL AND GLOBAL DEPOSITARY RECEIPTS
American Depositary Receipts ("ADRs") are receipts issued in registered form by a U.S. bank or trust company evidencing ownership of underlying securities issued by a foreign issuer. European Depositary Receipts ("EDRs"), which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are receipts issued in Europe typically by non-U.S. banks or trust companies and foreign branches of U.S. banks that evidence ownership of foreign or U.S. securities. Global Depositary Receipts ("GDRs") are receipts structured similarly to EDRs and CDRs and are marketed globally. ADRs may be listed on a national securities exchange or may be traded in the over-the-counter market. EDRs and CDRs are designed for use in European exchange and over-the-counter markets. GDRs are designed for trading in non-U.S. securities markets. ADRs, EDRs, CDRs and GDRs traded in the over-the-counter market which do not have an active or substantial secondary market will be considered illiquid and therefore will be subject to the Funds' respective limitations with respect to such securities, if any. If a Fund invests in an unsponsored ADR, EDR, CDR or GDR, there may be less information available to the Fund concerning the issuer of the securities underlying the unsponsored ADR, EDR, CDR or GDR than is available for an issuer of securities underlying a sponsored ADR, EDR, CDR or GDR. ADR prices are denominated in U.S. dollars although the underlying securities are denominated in a foreign currency. Investments in ADRs, EDRs, CDRs and GDRs involve risks similar to those accompanying direct investments in foreign securities.
TEMPORARY CASH BALANCES
The Funds may hold very small temporary cash balances to efficiently manage transactional expenses. These cash balances are expected, under normal conditions, not to exceed 2% of each Fund's net assets at any time (excluding amounts used as margin and segregated assets with respect to futures transactions and collateral for securities loans and repurchase agreements). The Funds may invest these temporary cash balances in short-term debt obligations issued or guaranteed by the U.S. Government or its agencies and instrumentalities ("U.S. Government Securities"), high quality commercial paper (rated A-1 or better by S&P or P-1 or better by Moody's), certificates of deposit and time deposits of banking institutions having total assets in excess of $1 billion, and repurchase agreements collateralized by U.S. Government Securities. The Funds may also hold these investments in connection with U.S. Treasury rolls, which are not subject to the 2% limitation above.
TAXES
In this section, all discussions of taxation at the shareholder and fund levels relate to U.S. federal taxes only. Consult your tax advisor for state, local and foreign tax considerations and for information about special tax considerations that may apply to shareholders that are not natural persons or not U.S. citizens or resident aliens.
FEDERAL TAXES. Although it may be one of several series in a single trust, the Fund is treated as a separate entity for federal income tax purposes under the Internal Revenue Code of 1986, as amended (Code). The Fund has elected (or in the case of a new fund, intends to elect) to be, and intends to qualify to be treated each year as, a "regulated investment company" under Subchapter M of the Code by meeting all applicable requirements of Subchapter M, including requirements as to the nature of the Fund's gross income, the amount of its distributions (as a percentage of both its overall income and any tax-exempt income), and the composition of its portfolio assets.
To qualify as a "regulated investment company," the Fund must (a) derive at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock, securities or foreign currencies or other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies; (b) diversify its holdings so that, at the close of each quarter of its taxable year, (i) at least 50% of the market value of its total assets consists of cash, cash items, U.S. government securities, securities of other regulated investment companies and other securities limited generally with respect to any one issuer to not more than 5% of the total assets of the Fund and not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities of any issuer, other than U.S. government securities or other regulated investment companies; or of two or more issuers which the Fund controls and which are engaged in
the same, similar, or related trades or businesses; and (c) distribute with respect to each year at least 90% of its taxable net investment income, its tax-exempt interest income and the excess, if any, of net short-term capital gains over net long-term capital losses for such year. In general, for purposes of the 90% gross income requirement described in (a) above, income derived from a partnership will be treated as qualifying income only to the extent such income is attributable to items of income of the partnership which would be qualifying income if realized by the regulated investment company. However, the American Jobs Creation Act of 2004 (the "2004 Act"), provides that for taxable years of a regulated investment company beginning after October 22, 2004, 100% of the net income derived from an interest in a "qualified publicly traded partnership" (defined as a partnership (i) interests in which are traded on an established securities market or readily tradable on a secondary market or the substantial equivalent thereof and (ii) that derives less than 90% of its income from the qualifying income described in (a) above) will be treated as qualifying income. In addition, although in general the passive loss rules of the Code do not apply to regulated investment companies, such rules do not apply to a regulated investment company with respect to items attributable to an interest in a qualified publicly traded partnership. Finally, for purposes of (c) above, the term "outstanding voting securities of such issuer" will include the equity securities of a qualified publicly traded partnership. As a regulated investment company that is accorded special tax treatment, the Fund will not be subject to any federal income taxes on its net investment income and net realized capital gains that it distributes to shareholders on the form of dividends and in accordance with the timing requirements imposed by the Code. The Fund's foreign-source income, if any, may be subject to foreign withholding taxes. If the Fund were to fail to qualify as a "regulated investment company" accorded special tax treatment in any taxable year, it would incur a regular federal corporate income tax on all of its taxable income, whether or not distributed, and Fund distributions (including any distributions of net tax-exempt income and net long-term capital gains) would generally be taxable as ordinary income to the shareholders, except to the extent they were treated as "qualified dividend income," as described below. In addition, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying as a regulated investment company that is accorded special tax treatment.
If the Fund fails to distribute in a calendar year substantially all of its ordinary income for such year and substantially all of its capital gain net income for the one-year period ending October 31 (or later if the Fund is permitted so to elect and so elects), plus any retained amount from the prior year, the Fund will be subject to a 4% excise tax on the underdistributed amounts. A dividend paid to shareholders by the Fund in January of a year generally is deemed to have been paid by the Fund on December 31 of the preceding year, if the dividend was declared and payable to shareholders of record on a date in October, November or December of that preceding year. The Fund intends generally to make distributions sufficient to avoid imposition of the 4% excise tax.
ALTERNATIVE MINIMUM TAX. Distributions derived from interest that is exempt from regular federal income tax may subject corporate shareholders to or increase their liability under the corporate alternative minimum tax (AMT). A portion of such distributions may constitute a tax preference item for individual shareholders and may subject them to or increase their liability under the AMT.
DIVIDENDS RECEIVED DEDUCTIONS. Distributions will qualify for the corporate dividends received deduction only to the extent that dividends earned by the Fund qualify. Any such dividends may be, however, includable in adjusted current earnings for purposes of computing corporate AMT. The dividends received deduction for eligible dividends is subject to a holding period requirement.
RETURN OF CAPITAL DISTRIBUTIONS. If the Fund makes a distribution to a shareholder in excess of the Fund's current and accumulated "earning and profits" in any taxable year, the excess distribution will be treated as a return of capital to the extent of the shareholder's tax basis in his or her shares, and thereafter as capital gain. A return of capital is not taxable, but it reduces tax basis in shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition of such shares. Dividends and distributions on a Fund's shares are generally subject to federal income tax as described herein to the extent they do not exceed the Fund's realized income and gains, even though such dividends and distributions may economically represent a return of a particular shareholder's investment. Such distributions are likely to occur in respect of shares purchased at a time when a Fund's net asset value reflects gains that are either unrealized, or realized but not distributed. Such realized gains may be required to be distributed even when a Fund's net asset value also reflects unrealized losses.
FUNDS THAT INVEST IN U.S. GOVERNMENT SECURITIES. Many states grant tax-free status to dividends paid to shareholders of mutual funds from interest income earned by the Fund from direct obligations of the U.S. government. Investments in mortgage-backed securities (including GNMA, FNMA and FHLMC Securities) and repurchase agreements collateralized by U.S. government securities do not qualify as direct federal obligations in most states. Shareholders should consult with their own tax advisors about the applicability of state and local intangible property, income or other taxes to their Fund shares and distributions and redemption proceeds received from the Fund.
FUND DISTRIBUTIONS. Distributions from the Fund (other than qualified dividend income and exempt-interest dividends, as discussed below) will generally be taxable to shareholders as ordinary income to the extent derived from the Fund's investment income and net short-term gains. Distributions of long-term capital gains (that is, the excess of net gains from capital assets held for more than one year over net losses from capital assets held for not more than one year) will be taxable to shareholders as such, regardless of how long a shareholder has held shares in the Fund. In general, any distributions of net capital gains will be taxed to shareholders who are individuals at a maximum rate of 15% for taxable years beginning on or before December 31, 2008.
Distributions are taxable to shareholders even if they are paid from income or gains earned by the Fund before a shareholder's investment (and thus were included in the price of the shareholder paid). Distributions are taxable whether received in cash or in Fund shares.
QUALIFIED DIVIDEND INCOME. For taxable years beginning on or before December 31,2008, "qualified dividend income" received by an individual will be taxed at the rates applicable to long-term capital gain. In order for some portion of the dividends received by a Fund shareholder to be qualified dividend income, the Fund must meet holding period and other requirements with respect to some portion of the dividend paying stocks in its portfolio and the shareholder must meet holding period and other requirements with respect to the Fund's shares. A dividend will not be treated as qualified dividend income (at either the Fund or shareholder level) (1) if the dividend is received with respect to any share of stock held for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or, in the case of certain preferred stock, 91 days during the 181-day period beginning 90 days before such date), (2) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property, (3) if the recipient elects to have the dividend income treated as investment income for purposes of the limitation on deductibility of investment interest, or (4) if the dividend is received from a foreign corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the United States (with the exception of dividends paid on stock of such a foreign corporation readily tradable on an established securities market in the United States) or (b) treated as a passive foreign investment company. With respect to a Fund investing in bonds, the Fund does not expect a significant portion of Fund distributions to be derived from qualified dividend income.
In general, distributions of investment income properly designated by the Fund as derived from qualified dividend income may be treated as qualified dividend income by a shareholder taxed as an individual provided the shareholder meets the holding period and other requirements described above with respect to his or her shares. If the aggregate qualified dividends received by a fund during any taxable year are 95% or more of its gross income, then 100% of the Fund's dividends (other than properly designated capital gain dividends) will be eligible to be treated as qualified dividend income. For this purpose, the only gain included in the term "gross income" is the excess of net short-term capital gain over net long-term capital loss.
DISTRIBUTIONS FROM TAX-EXEMPT FUNDS. Each tax-exempt Fund will have at least 50% of its total assets invested in tax-exempt bonds at the end of each quarter so that dividends from net interest income on tax-exempt bonds will be exempt from federal income tax when received by a shareholder (but may be taxable for federal alternative minimum tax purposes and for state and local tax purposes). The tax-exempt portion of dividends paid will be designated within 60 days after year-end based upon the ratio of net tax-exempt income to total net investment income earned during the year. That ratio may be substantially different from the ratio of net tax-exempt income to total net investment income earned during any particular portion of the year. Thus, a shareholder who holds shares for only a part of the year may be allocated more or less tax-exempt dividends than would be the case if the allocation were based on the ratio of net tax-exempt income to total net investment income actually earned while a shareholder.
Income from certain "private activity bonds" issued after August 7, 1986, is treated as a tax preference item for the AMT at the maximum rate of 28% for individuals and 20% for corporations. If the Fund invests in private activity bonds, shareholders may be subject to the AMT on that part of the distributions derived from interest income on such bonds. Interest on all tax-exempt bonds is included in corporate adjusted current earnings when computing the AMT applicable to corporations. Seventy-five percent of the excess of adjusted current earnings over the amount of income otherwise subject to the AMT is included in a corporation's alternative minimum taxable income.
Dividends derived from any investments other than tax-exempt bonds and any distributions of short-term capital gains are generally taxable to shareholders as ordinary income. Any distributions of long-term capital gains will in general be taxable to shareholders as long-term capital gains (generally subject to a maximum 15% tax rate for shareholders who are individuals) regardless of the length of time Fund shares are held by the shareholder.
A tax-exempt Fund may at times purchase tax-exempt securities at a discount and some or all of this discount may be included in the Fund's ordinary income which will be taxable when distributed. Any market discount recognized on a tax-exempt bond purchased after April 30, 1993, with a term at time of issue of more than one year is taxable as ordinary income. A market discount bond is a bond acquired in the secondary market at a price below its "stated redemption price" (in the case of a bond with original issue discount, its "revised issue price").
Shareholders receiving social security and certain retirement benefits may be taxed on a portion of those benefits as a result of receiving tax-exempt income, including tax-exempt dividends from the Fund.
SPECIAL TAX RULES APPLICABLE TO TAX-EXEMPT FUNDS. In general, exempt-interest dividends, if any, attributable to interest received on certain private activity obligations and certain industrial development bonds will not be tax-exempt to any shareholders who are "substantial users" of the facilities financed by such obligations or bonds or who are "related persons" of such substantial users, as further defined in the Code. Income derived from the Fund's investments other than tax-exempt instruments may give rise to taxable income. The Fund's shares must be held for more than six months in order to avoid the disallowance of a capital loss on the sale of Fund shares to the extent of tax-exempt dividends paid during that period. Part or all of the interest on indebtedness, if any, incurred or continued by a shareholder to purchase or carry shares of the Fund paying exempt-interest dividends is not deductible. The portion of interest that is not deductible is equal to the total interest paid or accrued on the indebtedness, multiplied by the percentage of the Fund's total distributions (not including distributions from net long-term capital gains) paid to the shareholder that are exempt-interest dividends. Under rules used by the Internal Revenue Service to determine when borrowed funds are considered used for the purpose of purchasing or carrying particular assets, the purchase of shares may be considered to have been made with borrowed funds even though such funds are not directly traceable to the purchase of shares.
SALES OF SHARES. The sale, exchange or redemption of Fund shares may give rise to a gain or loss. In general, any gain realized upon a taxable disposition of shares generally will be treated as long-term capital gain if the shares have been held for more than one year. Otherwise the gain on the sale, exchange or redemption of Fund shares will be treated as short-term capital gain. In general, any loss realized upon a taxable disposition of shares will be treated as long-term loss if the shares have been held more than one year, and otherwise as short-term loss. However, any loss realized upon a taxable disposition of shares held for six months or less will be disallowed for federal income tax purposes to the extent of any exempt-interest dividends received on such shares. In addition, any loss (not already disallowed as provided in the preceding sentence) realized upon a taxable disposition of shares held for six months or less will be treated as long-term, rather than short-term, capital loss to the extent of any long-term capital gain distributions received by the shareholder with respect to those shares. All or a portion of any loss realized upon a taxable disposition of shares will be disallowed if other shares are purchased within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss.
Under Treasury regulations, if on a disposition of Fund shares a shareholder recognizes a loss of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder will likely have to file with the Internal Revenue Service a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all regulated investment companies. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. You are advised to consult with your tax advisor.
BACKUP WITHHOLDING. Certain distributions and redemptions may be subject to backup withholding for taxpayers who fail to furnish a correct taxpayer identification number, who have under-reported dividend or interest income, or who fail to certify to the Fund that the shareholder is a United States person and is not subject to the withholding. This number and certification may be provided by either a Form W-9 or the accompanying application. In certain instances, CFS may be notified by the Internal Revenue Service that a shareholder is subject to backup withholding. The backup withholding rate is 28% for amounts paid through 2010. The backup withholding rate will be 31% for amounts paid after December 31, 2010.
HEDGING TRANSACTIONS. If the Fund engages in hedging transactions, including hedging transactions in options, futures contracts and straddles, or other similar transactions, it will be subject to special tax rules (including constructive sale, mark-to-market, straddle, wash sale and short sale rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund's securities, convert long-term capital gains into short-term capital gains or convert short-term capital losses into long-term capital losses. These rules could therefore affect the
amount, timing and character of distributions to shareholders. The Fund will endeavor to make any available elections pertaining to such transactions in a manner believed to be in the best interests of the Fund and its shareholders.
SECURITIES ISSUED AT A DISCOUNT. The Fund's investment in debt securities issued at a discount and certain other obligations will (and investments in securities purchased at a discount may) require the Fund to accrue and distribute income not yet received. In such cases, the Fund may be required to sell assets (possibly at a time when it is not advantageous to do so) to generate the cash necessary to distribute as dividends to its shareholders all of its income and gains and therefore to eliminate any tax liability at the Fund level.
FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING TRANSACTIONS. The Fund's transactions in foreign currencies, foreign currency-denominated debt securities, certain foreign currency options, futures contracts and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned. This may produce a difference between the Fund's book income and its taxable income possibly accelerating distributions or converting distributions of book income and gains to returns of capital for book purposes.
If more than 50% of the Fund's total assets at the end of its fiscal year are invested in stock or securities of foreign corporate issuers, the Fund may make an election permitting its shareholders to take a deduction or credit for federal income tax purposes for their pro rata portion of certain qualified foreign taxes paid by the Fund to foreign countries in respect of foreign securities the Fund has held for at least the minimum period specified in the Code. The Advisor will consider the value of the benefit to a typical shareholder, the cost to the Fund of compliance with the election, and incidental costs to shareholders in deciding whether to make the election. A shareholder's ability to claim such a foreign tax credit or deduction in respect of foreign taxes will be subject to certain limitations imposed by the Code, including a holding period requirement, as a result of which a shareholder may not get a full credit or deduction for the amount of foreign taxes so paid by the Fund. Shareholders who do not itemize on their federal income tax returns may claim a credit (but not a deduction) for such foreign taxes.
Investment by the Fund in "passive foreign investment companies" could subject the Fund to a U.S. federal income tax or other charge on the proceeds from the sale of its investment in such a company; however, this tax can be avoided by making an election to mark such investments to market annually or to treat the passive foreign investment company as a "qualified electing Fund." A "passive foreign investment company" is any foreign corporation: (i) 75 percent or more of the income of which for the taxable year is passive income, or (ii) the average percentage of the assets of which (generally by value, but by adjusted tax basis in certain cases) that produce or are held for the production of passive income is at least 50 percent. Generally, passive income for this purpose means dividends, interest (including income equivalent to interest), royalties, rents, annuities, the excess of gain over losses from certain property transactions and commodities transactions, and foreign currency gains. Passive income for this purpose does not include rents and royalties received by the foreign corporation from active business and certain income received from related persons.
NON-U.S. SHAREHOLDERS. In general, dividends (other than Capital Gain Dividends)
paid by the Fund to a shareholder that is not a "U.S. person" within the meaning
of the Code (such shareholder, a "foreign person") are subject to withholding of
U.S. federal income tax at a rate of 30% (or lower applicable treaty rate) even
if they are funded by income or gains (such as portfolio interest, short-term
capital gains, or foreign-source dividend and interest income) that, if paid to
a foreign person directly, would not be subject to withholding. However, under
the 2004 Act, effective for taxable years of the Fund beginning after December
31, 2004 and before January 1, 2008, the Fund will not be required to withhold
any amounts (i) with respect to distributions (other than distributions to a
foreign person (w) that has not provided a satisfactory statement that the
beneficial owner is not a U.S. person, (x) to the extent that the dividend is
attributable to certain interest on an obligation if the foreign person is the
issuer or is a 10% shareholder of the issuer, (y) that is within certain foreign
countries that have inadequate information exchange with the United States, or
(z) to the extent the dividend is attributable to interest paid by a person that
is a related person of the foreign person and the foreign person is a controlled
foreign corporation) from U.S.-source interest income that would not be subject
to U.S. federal income tax if earned directly by an individual foreign person,
to the extent such distributions are properly designated by the Fund, and (ii)
with respect to distributions (other than distributions to an individual foreign
person who is present in the United States for a period or periods aggregating
183 days or more during the year of the distribution) of net short-term capital
gains in excess of net long-term capital losses, to the extent such
distributions are properly designated by the Fund.
If a beneficial holder who is a foreign person has a trade or business in the United States, and the dividends are effectively connected with the conduct by the beneficial holder of a trade or business in the United States, the dividend will be subject to U.S. federal net income taxation at regular income tax rates.
The 2004 Act modifies the tax treatment of distributions from the Fund that are paid to a foreign person and are attributable to gain from "U.S. real property interests" ("USRPIs"), which the Code defines to include direct holdings of U.S. real property and interests (other than solely as a creditor) in "U.S. real property holding corporations" such as REITs. The Code deems any corporation that holds (or held during the previous five-year period) USRPIs with a fair market value equal to 50% or more of the fair market value of the corporation's U.S. and foreign real property assets and other assets used or held for use in a trade or business to be a U.S. real property holding corporation; however, if any class of stock of a corporation is traded on an established securities market, stock of such class shall be treated as a USRPI only in the case of a person who holds more than 5% of such class of stock at any time during the previous five-year period. Under the 2004 Act, which is generally effective for taxable years of RICs beginning after December 31, 2004 and which applies to dividends paid or deemed paid on or before December 31, 2007, distributions to foreign persons attributable to gains from the sale or exchange of USRPIs will give rise to an obligation for those foreign persons to file a U.S. tax return and pay tax, and may well be subject to withholding under future regulations.
Under U.S. federal tax law, a beneficial holder of shares who is a foreign person is not, in general, subject to U.S. federal income tax on gains (and is not allowed a deduction for losses) realized on the sale of shares of the Fund or on Capital Gain Dividends unless (i) such gain or Capital Gain Dividend is effectively connected with the conduct of a trade or business carried on by such holder within the United States, (ii) in the case of an individual holder, the holder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale or Capital Gain Dividend and certain other conditions are met, or (iii) the shares constitute USRPIs or (effective for taxable years of the Fund beginning on September 1, 2005) the Capital Gain Dividends are paid or deemed paid on or before December 31, 2007 and are attributable to gains from the sale or exchange of USRPIs. Effective after December 31, 2004, and before January 1, 2008, if the Fund is a U.S. real property holding corporation (as described above) the Fund's shares will nevertheless not constitute USRPIs if the Fund is a "domestically controlled qualified investment entity," which is defined to include a RIC that, at all times during the shorter of the 5-year period ending on the date of the disposition or the period during which the RIC was in existence, had less than 50 percent in value of its stock held directly or indirectly by foreign persons.
ADDITIONAL TAX MATTERS CONCERNING TRUST SHARES (THIS SECTION IS APPLICABLE ONLY TO THE COLUMBIA TAX-MANAGED GROWTH FUND)
FEDERAL GIFT TAXES. An investment in Trust Shares may be a taxable gift for federal tax purposes, depending upon the option selected and other gifts that the donor and his or her spouse may make during the year.
Under the Columbia Advantage Plan, the entire amount of the gift will be a "present interest" that qualifies for the federal gift tax annual exclusion. In that case, the donor will be required to file a federal gift tax return on account of this gift only if (i) the aggregate present interest gifts by the donor to the particular beneficiary (including the gift of Trust Shares) exceed $11,000 or (ii) the donor wishes to elect gift splitting on gifts with his or her spouse for the year. The trustee will notify the beneficiary of his or her right of withdrawal promptly following any contribution under the Advantage Plan.
Under the Columbia Gift Plan, the entire amount of the gift will be a "future interest" for federal gift tax purposes, so that none of the gift will qualify for the federal gift tax annual exclusion. Consequently, the donor will have to file a federal gift tax return (IRS Form 709) reporting the entire amount of the gift, even if the gift is less than $11,000.
No federal gift tax will be payable by the donor until his or her cumulative taxable gifts (i.e., gifts other than those qualifying for the annual exclusion or otherwise exempt), including taxable gifts of other assets as well as any taxable gifts of trust shares, exceed the federal gift and estate tax exemption equivalent amount, which is $1,000,000 for gifts made after December 31, 2001, and before January 1, 2010.
Any gift of Trust Shares that does not qualify as a present interest or that exceeds the available annual exclusion amount will reduce the amount of the donor's Federal gift and estate tax exemption (if any) that would otherwise be available for future gifts for transfers at death.
The donor and his or her spouse may elect "gift-splitting" for any gift of Trust Shares (other than a gift to such spouse), meaning that the donor and his or her spouse may elect to treat the gift as having been made one-half by each of them, thus allowing a total gift of $22,000.
The donor's gift of Fund shares may also have to be reported for state gift tax purposes, if the state in which the donor resides imposes a gift tax. Many states do not impose such a tax. Some states follow the Federal rules concerning the types of transfers subject to tax and the availability of the annual exclusion.
GENERATION-SKIPPING TRANSFER TAXES
If the beneficiary of a gift of Trust Shares is a relative who is two generations or more younger than the donor, or is not a relative and is more than 37 1/2 years younger than the donor, the gift will be subject in whole or in part to the generation-skipping transfer tax (the "GST tax") unless the gift is made under the Columbia Advantage Plan and does not exceed the available annual exclusion amount. An exemption (the "GST exemption"), equal to $1.5 million in 2005, is allowed against this tax, and so long as the GST exemption has not been used by other transfers it will automatically be allocated to a gift of Trust Shares that is subject to the GST tax unless the donor elects otherwise. Such an election is made by reporting the gift on a timely filed gift tax return and paying the applicable GST tax. The GST tax is imposed at a flat rate (47% for gifts made in 2005) on the amount of the gift, and payment of the tax by the donor is treated as an additional gift for gift tax purposes.
INCOME TAXES
The Internal Revenue Service takes the position that a trust beneficiary who is given a power of withdrawal over contributions to the trust should be treated, for Federal income tax purposes, as the "owner" of the portion of the trust that was subject to the power. Accordingly, if the donor selects Columbia Advantage Trust Shares, the beneficiary will be treated as the "owner" of all of the Fund shares in the account for Federal income tax purposes, and will be required to report all of the income and capital gains earned in the trust on his or her personal Federal income tax return. The trust will not pay Federal income taxes on any of the trust's income or capital gains. The trustee will prepare and file the Federal income tax information returns that are required each year (and any state income tax returns that may be required), and will send the beneficiary a statement following each year showing the amounts (if any) that the beneficiary must report on his or her income tax returns for that year. If the beneficiary is under fourteen years of age, these amounts may be subject to Federal income taxation at the marginal rate applicable to the beneficiary's parents. The beneficiary may at any time after the creation of the trust irrevocably elect to require the trustee to pay him or her a portion of the trust's income and capital gains annually thereafter to provide funds with which to pay any resulting income taxes, which the trustee will do by redeeming Trust Shares. The amount distributed will be a fraction of the trust's ordinary income and short-term capital gains and the trust's long-term capital gains equal to the highest marginal Federal income tax rate imposed on each type of income (currently, 35% and 15%, respectively). If the beneficiary selects this option, he or she will receive those fractions of his or her trust's income and capital gains annually for the duration of the trust.
Under the Columbia Advantage Plan, the beneficiary will also be able to require the trustee to pay his or her tuition, room and board and other expense of his or her college or post-graduate education, and the trustee will raise the cash necessary to fund these distributions by redeeming Trust Shares. Any such redemption will result in the realization of capital gain or loss on the shares redeemed, which will be reportable by the beneficiary on his or her income tax returns for the year in which the shares are redeemed, as described above. Payments must be made directly to the educational institution.
If the donor selects the Columbia Gift Plan, the trust that he or she creates will be subject to Federal income tax on all income and capital gains realized by it, less a $100 annual exemption (in lieu of the personal exemption allowed to individuals). The amount of the tax will be determined under the tax rate schedule applicable to estates and trusts, which is more sharply graduated than the rate schedule for individuals, reaching the same maximum marginal rate for ordinary income or short-term capital gains (currently, 35%), but at a much lower taxable income level than would apply to an individual. It is anticipated, however, that most of the gains taxable to the trust will be long-term capital gain, on which the Federal income tax rate is currently limited to 15%. The trustee will raise the cash necessary to pay any Federal or state income taxes by redeeming Fund shares. The beneficiary will not pay Federal income taxes on any of the trust's income or capital gains, except those earned in the year when the trust terminates. The trustee will prepare and file all Federal and state income tax returns that are required each year, and will send the beneficiary an information statement for the year in which the trust terminates showing the amounts (if any) that the beneficiary must report on his or her Federal and state income tax returns for that year.
When the trust terminates, the distribution of the remaining shares held in the trust to the beneficiary will not be treated as a taxable disposition of the shares. Any Fund shares received by the beneficiary will have the same cost basis as they had in the trust at the time of termination. Any Fund shares received by the beneficiary's estate will have a basis equal to the value of the shares at the beneficiary's death (or the alternate valuation date for Federal estate tax purposes, if elected).
CONSULTATION WITH QUALIFIED ADVISOR
Due to the complexity of Federal and state gift, GST and income tax laws pertaining to all gifts in trust, prospective donors should consider consulting with their financial or tax advisor before investing in Trust Shares.
MANAGEMENT OF THE FUNDS The Advisor provides administrative and management services to the Funds. On April 1, 2003, Fleet Investment Advisors Inc., Stein Roe & Farnham Incorporated, Colonial Management Associates, Inc. and Newport Pacific Management, Inc. (NPMI), merged into Columbia Management Advisors, Inc. Each of the four merging companies was a registered investment advisor and advised various Funds in the Fund Complex. The Advisor, located at 100 Federal Street, Boston, Massachusetts 02110, is a direct wholly owned subsidiary of Columbia Management Group, Inc. (Columbia), which is an indirect wholly owned subsidiary of Bank of America Corporation. Prior to April 1, 2004, Columbia was an indirect wholly owned subsidiary of FleetBoston Financial Corporation, a U.S. financial holding company. Effective April 1, 2004, FleetBoston Financial Corporation was acquired by Bank of America Corporation. The Advisor has been an investment advisor since 1969.
In addition, immediately prior to the mergers described above and also on April 1, 2003, Newport Fund Management, Inc. (NFMI), a subsidiary of NPMI and a registered investment advisor that advised several Funds in the Fund Complex, merged into NPMI. As a result of NPMI's merger into the Advisor, the Advisor is now the Advisor to the Funds previously advised by NFMI.
TRUSTEES AND OFFICERS (THIS SECTION APPLIES TO ALL OF THE FUNDS)
The Trustees and officers serve terms of indefinite duration. The names, addresses and ages of the Trustees and officers of the Fund Complex, the year each was first elected or appointed to office, their principal business occupations during at least the last five years, the number of portfolios overseen by each Trustee and other directorships they hold are shown below.
Number of
Portfolios
Year First in
Elected or Fund
Position Appointed Complex
Name, Address with to Principal Occupation(s) Overseen Other Directorships
and Age Funds Office(1) During Past Five Years by Trustee Held
----------------------------- -------- ---------- --------------------------------------- ---------- -------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker (Age 49) Trustee 1996 Executive Vice President - Strategy of 101 Nash Finch Company
P.O. Box 66100 United Airlines (airline) since (food distributor)
Chicago, IL 60666 December, 2002 (formerly President of
UAL Loyalty Services (airline) from
September, 2001 to December, 2002;
Executive Vice President and Chief
Financial Officer of United Airlines
from July, 1999 to September, 2001;
Senior Vice President- Finance from
March, 1993 to July, 1999).
Janet Langford Kelly (Age 47) Trustee 1996 Partner, Zele, Hofmann, Voelbel, Mason 101 None
9534 W. Gull Lake Drive & Gette LLP (law firm) since March,
Richland, MI 49083-8530 2005; Adjunct Professor of Law,
Northwestern University, since
September, 2004 (formerly Chief
Administrative Officer and Senior Vice
President, Kmart Holding Corporation
(consumer goods), from September, 2003
to March, 2004; Executive Vice
President-Corporate Development and
Administration, General Counsel and
Secretary, Kellogg Company (food
manufacturer), from September, 1999 to
August, 2003; Senior Vice President,
Secretary and General Counsel, Sara Lee
Corporation (branded, packaged,
consumer-products manufacturer) from
January, 1995 to September, 1999).
|
Number of
Portfolios
Year First in
Elected or Fund
Position Appointed Complex
Name, Address with to Principal Occupation(s) Overseen Other Directorships
and Age Funds Office(1) During Past Five Years by Trustee Held
----------------------------- -------- ---------- --------------------------------------- ---------- -------------------
DISINTERESTED TRUSTEES
Richard W. Lowry (Age 69) Trustee 1995 Private Investor since August, 1987 103(3) None
10701 Charleston Drive (formerly Chairman and Chief Executive
Vero Beach, FL 32963 Officer, U.S. Plywood Corporation
(building products manufacturer)).
Charles R. Nelson (Age 62) Trustee 1981 Professor of Economics, University of 101 None
Department of Economics Washington, since January, 1976; Ford
University of Washington and Louisa Van Voorhis Professor of
Seattle, WA 98195 Political Economy, University of
Washington, since September, 1993
(formerly Director, Institute for
Economic Research, University of
Washington from September, 2001 to
June, 2003); Adjunct Professor of
Statistics, University of Washington,
since September, 1980; Associate
Editor, Journal of Money Credit and
Banking, since September, 1993;
consultant on econometric and
statistical matters.
John J. Neuhauser (Age 62) Trustee 1985 Academic Vice President and Dean of 103(3) Saucony, Inc.
84 College Road Faculties since August, 1999, Boston (athletic
Chestnut Hill, MA College (formerly Dean, Boston College footwear)
02467-3838 School of Management from September,
1977 to August, 1999).
Patrick J. Simpson (Age 61) Trustee 2000 Partner, Perkins Coie L.L.P. (law 101 None
1120 N.W. Couch Street firm).
Tenth Floor
Portland, OR 97209-4128
Thomas E. Stitzel (Age 69) Trustee 1998 Business Consultant since 1999 101 None
2208 Tawny Woods Place (formerly Professor of Finance from
Boise, ID 83706 1975 to 1999, College of Business,
Boise State University); Chartered
Financial Analyst.
|
Number of
Portfolios
Year First in Fund
Elected or Complex
Name, Address Position Appointed to Principal Occupation(s) Overseen
and Age with Funds OFFICE (1) DURING Past Five Years by Trustee Other Directorships Held
------------- ---------- ------------ ----------------------- ----------- ------------------------
DISINTERESTED TRUSTEES
Thomas C. Theobald (Age 68) Trustee and 1996 Partner and Senior Advisor, 101 Anixter International
8 Sound Shore Drive, Chairman of the Chicago Growth Partners (private (network support
Suite 285 Board equity investing) since equipment distributor);
Greenwich, CT 06830 September, 2004 (formerly Ventas, Inc. (real
Managing Director, William Blair estate investmenttrust);
Capital Partners (private equity Jones Lang LaSalle (real
investing) from September, 1994 estate management
to September, 2004). services) and Ambac
Financial Group
(financial guaranty
insurance)
Anne-Lee Verville (Age 59) Trustee 1998 Retired since 1997 (formerly 101 Chairman of the Board of
359 Stickney Hill Road General Manager, Global Directors, Enesco Group,
Hopkinton, NH 03229 Education Industry, IBM Inc. (designer, importer
Corporation (computer and and distributor of
technology) from 1994 to 1997). giftware and
collectibles)
Richard L.Woolworth (Age 64) Trustee 1991 Retired since December 2003 101 Northwest Natural Gas
100 S.W. Market Street (formerly Chairman and Chief Co. (natural gas service
#1500 Executive Officer, The Regence provider)
Portland, OR 97207 Group (regional health insurer);
Chairman and Chief Executive
Officer, BlueCross BlueShield of
Oregon; Certified Public
Accountant, Arthur Young &
Company)
|
Number of
Portfolios
Year First in Fund
Elected or Complex
Name, Address Position Appointed to Principal Occupation(s) Overseen
and Age with Funds OFFICE (1) DURING Past Five Years by Trustee Other Directorships Held
------------- ---------- ------------ ----------------------- ----------- ------------------------
INTERESTED TRUSTEE
William E.Mayer(2) (Age 65) Trustee 1994 Partner, Park Avenue Equity 103(3) Lee Enterprises (print
399 Park Avenue Partners (private equity) since media), WR Hambrecht +
Suite 3204 February, 1999 (formerly Co. (financial service
New York, NY 10022 Partner, Development Capital LLC provider); Reader's
from November, 1996 to February, Digest (publishing);
1999). OPENFIELD Solutions
(retail industry
technology provider)
|
(1) In October 2003, the trustees of the Liberty Funds and Stein Roe Funds (both as defined in Part 1 of this SAI) were elected to the boards of the Columbia Funds; simultaneous with that election, Patrick J. Simpson and Richard L. Woolworth, who had been directors/trustees of the Columbia Funds were appointed to serve as trustees of the Liberty Funds and Stein Roe Funds. The date shown is the earliest date on which a trustee/director was elected or appointed to the board of a Fund in the Fund Complex.
(2) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht + Co.
(3) Messrs. Lowry, Neuhauser and Mayer also serve as directors/trustees of the All-Star Funds (as defined in Part 1 of this SAI).
Year First
Elected or
Name, Address Position Appointed to Principal Occupation(s)
and Age with Funds Office During Past Five Years
----------------------------- ------------ ------------ ----------------------
OFFICERS
Christopher L. Wilson (Age 48) President 2004 Head of Mutual Funds since August, 2004 and Senior Vice President of
One Financial Center the Advisor since January, 2005; President of the Columbia Funds,
Boston, MA 02111 Liberty Funds and Stein Roe Funds since October, 2004; President and
Chief Executive Officer of the Nations Funds since January, 2005;
President of the Galaxy Funds since April 2005; Director of Bank of
America Global Liquidity Funds, plc since May 2005; Director of Banc
of America Capital Management (Ireland), Limited since May 2005;
Senior Vice President of BACAP Distributors LLC since January, 2005;
Director of FIM Funding, Inc. since January, 2005; Senior Vice
President of Columbia Funds Distributor, Inc. since January, 2005;
Director of Columbia Funds Services, Inc. since January, 2005
(formerly President and Chief Executive Officer, CDC IXIS Asset
Management Services, Inc. from September, 1998 to August, 2004).
J. Kevin Connaughton (Age 40) Treasurer 2000 Treasurer of the Columbia Funds since October, 2003 and of the
One Financial Center Liberty Funds, Stein Roe Funds and All-Star Funds since December,
Boston, MA 02111 2000; Vice President of the Advisor since April, 2003 (formerly
President of the Columbia Funds, Liberty Funds and Stein Roe Funds
from February, 2004 to October, 2004; Chief Accounting Officer and
Controller of the Liberty Funds and All-Star Funds from February,
1998 to October, 2000); Treasurer of the Galaxy Funds since
September, 2002 (formerly Treasurer from December, 2002 to December,
2004 and President from February, 2004 to December, 2004 of the
Columbia Management Multi-Strategy Hedge Fund, LLC; Vice President
of Colonial Management Associates, Inc. from February, 1998 to
October, 2000).
Mary Joan Hoene (Age 55) Senior Vice 2004 Senior Vice President and Chief Compliance Officer of the Columbia
100 Federal Street President and Funds, Liberty Funds, Stein Roe Funds and All-Star Funds since
Boston, MA 02110 Chief August, 2004; Chief Compliance Officer of the Columbia Management
Compliance Multi-Strategy Hedge Fund, LLC since August, 2004; Chief Compliance
Officer Officer of the BACAP Alternative Multi-Strategy Hedge Fund LLC since
October, 2004 (formerly Partner, Carter, Ledyard & Milburn LLP from
January, 2001 to August, 2004; Counsel, Carter, Ledyard & Milburn
LLP from November, 1999 to December, 2000; Vice President and
Counsel, Equitable Life Assurance Society of the United States from
April, 1998 to November, 1999).
|
Year First
Elected or
Name, Address Position Appointed to Principal Occupation(s)
and Age with Funds Office During Past Five Years
-------------------------- ----------- ------------ ----------------------
OFFICERS
Michael G. Clarke (Age 35) Chief 2004 Chief Accounting Officer of the Columbia Funds, Liberty Funds, Stein
One Financial Center Accounting Roe Funds and All-Star Funds since October, 2004 (formerly
Boston, MA 02111 Officer Controller of the Columbia Funds, Liberty Funds, Stein Roe Funds and
All-Star Funds from May, 2004 to October, 2004; Assistant Treasurer
from June, 2002 to May, 2004; Vice President, Product Strategy &
Development of the Liberty Funds and Stein Roe Funds from February,
2001 to June, 2002; Assistant Treasurer of the Liberty Funds, Stein
Roe Funds and the All-Star Funds from August, 1999 to February,
2001; Audit Manager, Deloitte & Toche LLP from May, 1997 to August,
1999).
Jeffrey R. Coleman (Age 35) Controller 2004 Controller of the Columbia Funds, Liberty Funds, Stein Roe Funds and
One Financial Center All-Star Funds since October, 2004 (formerly Vice President of CDC
Boston, MA 02111 IXIS Asset Management Services, Inc. and Deputy Treasurer of the CDC
Nvest Funds and Loomis Sayles Funds from February, 2003 to
September, 2004; Assistant Vice President of CDC IXIS Asset
Management Services, Inc. and Assistant Treasurer of the CDC Nvest
Funds from August, 2000 to February, 2003; Tax Manager of PFPC, Inc.
from November, 1996 to August, 2000).
R. Scott Henderson (Age 45) Secretary 2004 Secretary of the Columbia Funds, Liberty Funds and Stein Roe Funds
One Financial Center since December, 2004 (formerly Of Counsel, Bingham McCutchen from
Boston, MA 02111 April, 2001 to September, 2004; Executive Director and General
Counsel, Massachusetts Pension Reserves Investment Management Board
from September, 1997 to March, 2001).
|
Trustee Positions
As of December 31, 2004, no disinterested Trustee or any of their immediate family members owned beneficially or of record any class of securities of the Advisor, another investment advisor, sub-advisor or portfolio manager of any of the funds in the Fund Complex or any person controlling, controlled by or under common control with any such entity.
General
Messrs. Lowry, Mayer and Neuhauser are also trustees/directors of the Liberty All-Star Funds.
The Trustees serve as trustees of 101 registered investment companies managed by the Advisor for which each Trustee receives a retainer at the annual rate of $45,000 and an attendance fee of $9,500 for each regular and special joint board meeting and $1,000 for each special telephonic joint board meeting. Beginning in December, 2003, Mr. Theobald began serving as the Chairman of the Board. As the independent chairman of the board, Mr. Theobald receives a supplemental retainer at the annual rate of $100,000; the chair of the Audit Committee receives a supplemental retainer at the annual rate of $10,000; the chair of each other committee receives a supplemental retainer at the annual rate of $5,000. Members of each committee, except the Audit Committee, receive $1,500 for each committee meeting. Each Audit Committee member receives $2,000 for each Audit Committee meeting. Committee members receive $1,500 for each special committee meeting attended on a day other than a regular joint board meeting day. Two-thirds of the Trustee fees are allocated among the Funds based on each Fund's relative net assets and one-third of the fees is divided equally among the Funds.
The Advisor and/or its affiliate, Colonial Advisory Services, Inc. (CASI), has rendered investment advisory services to investment company, institutional and other clients since 1931. The Advisor currently serves as investment advisor or administrator for 133 open-end and 10 closed-end management investment company portfolios. Trustees and officers of the Trust, who are also officers of the Advisor or its affiliates, will benefit from the advisory fees, sales commissions and agency fees paid or allowed by the Trust.
The Agreement and Declaration of Trust (Declaration) of the Trust provides that the Trust will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Trust but that such indemnification will not relieve any officer or Trustee of any liability to the Trust or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. The Trust, at its expense, provides liability insurance for the benefit of its Trustees and officers.
The Trustees have the authority to convert the Funds into a master fund/feeder fund structure. Under this structure, a Fund may invest all or a portion of its investable assets in investment companies with substantially the same investment goals, policies and restrictions as the Fund. The primary reason to use the master fund/feeder fund structure is to provide a mechanism to pool, in a single master fund, investments of different investor classes, resulting in a larger portfolio, investment and administrative efficiencies and economies of scale.
MANAGEMENT AGREEMENT
Under a Management Agreement (Agreement), the Advisor has contracted to furnish each Fund with investment research and recommendations or fund management, respectively, and accounting and administrative personnel and services, and with office space, equipment and other facilities. For these services and facilities, each Fund pays a monthly fee based on the average of the daily closing value of the total net assets of each Fund for such month. Under the Agreement, any liability of the Advisor to the Trust, a Fund and/or its shareholders is limited to situations involving the Advisor's own willful misfeasance, bad faith, gross negligence or reckless disregard of its duties.
The Agreement may be terminated with respect to the Fund at any time on 60 days'
written notice by the Advisor or by the Trustees of the Trust or by a vote of a
majority of the outstanding voting securities of the Fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the Fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Advisor or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
The Advisor pays all salaries of officers of the Trust. The Trust pays all expenses not assumed by the Advisor including, but not limited to, auditing, legal, custodial, investor servicing and shareholder reporting expenses. The Trust pays the cost of printing
and mailing any Prospectuses sent to shareholders. Columbia Funds Distributor, Inc. (formerly named Liberty Funds Distributor, Inc.) pays the cost of printing and distributing all other Prospectuses.
ADMINISTRATION AGREEMENT (THIS SECTION APPLIES ONLY TO CERTAIN FUNDS AND THEIR RESPECTIVE TRUSTS. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION REGARDING YOUR FUND).
Under an Administration Agreement, the Advisor, in its capacity as the Administrator to each Fund, has contracted to perform the following administrative services:
(a) providing office space, equipment and clerical personnel;
(b) arranging, if desired by the respective Trust, for its directors, officers and employees to serve as Trustees, officers or agents of each Fund;
(c) preparing and, if applicable, filing all documents required for compliance by each Fund with applicable laws and regulations;
(d) preparation of agendas and supporting documents for and minutes of meetings of Trustees, committees of Trustees and shareholders;
(e) coordinating and overseeing the activities of each Fund's other third-party service providers; and
(f) maintaining certain books and records of each Fund.
With respect to Columbia Money Market Fund (formerly named Liberty Money Market Fund) and Columbia Municipal Money Market Fund (formerly named Liberty Municipal Money Market Fund), the Administration Agreement for these Funds provides that the Advisor will monitor compliance by the Fund with Rule 2a-7 under the 1940 Act and report to the Trustees from time to time with respect thereto.
The Advisor is paid a monthly fee at the annual rate of average daily net assets set forth in Part 1 of this SAI.
TRUST SERVICES AGREEMENT
Pursuant to a Trust Services Agreement, CFS provides the Columbia Tax-Managed Growth Fund's Trust Shares with trust administration services, including tax return preparation and filing, other tax and beneficiary reporting and recordkeeping. CFS's fee is described in the Prospectuses of the Columbia Tax-Managed Growth Fund.
THE PRICING AND BOOKKEEPING AGREEMENT
The Advisor is responsible for providing accounting and bookkeeping services to each Fund pursuant to a pricing and bookkeeping agreement. Under a separate agreement (Outsourcing Agreement), the Advisor has delegated those functions to State Street Bank and Trust Company (State Street). The Advisor pays fees to State Street under the Outsourcing Agreement.
SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION ON THESE FEES.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. The Advisor acts as investment advisor to each of the Funds. The Advisor's affiliate, CASI, advises other institutional, corporate, fiduciary and individual clients for which CASI performs various services. Various officers and Trustees of the Trust also serve as officers or Trustees of other funds and the other corporate or fiduciary clients of the Advisor. The Funds and clients advised by the Advisor or the Funds administered by the Advisor sometimes invest in securities in which the Fund also invests and sometimes engage in covered option writing programs and enter into transactions utilizing stock index options and stock index and financial futures and related options ("other instruments"). If the Fund, such other funds and such other clients desire to buy or sell the same portfolio securities, options or other instruments at about the same time, the purchases and sales are normally made as nearly as practicable on a pro rata basis in proportion to the amounts desired to be purchased or sold by each. Although in some cases these practices could have a detrimental effect on the price or volume of the securities, options or other instruments as far as the Fund is concerned, in most cases it is believed that these practices should produce better executions. It is the opinion of the Trustees that the desirability of retaining the Advisor as investment advisor to the Funds outweighs the disadvantages, if any, which might result from these practices.
POTENTIAL CONFLICTS OF INTEREST IN MANAGING MULTIPLE ACCOUNTS
Like other investment professionals with multiple clients, a portfolio manager for a Fund may face certain potential conflicts of interest in connection with managing both the Fund and other accounts at the same time. The paragraphs below describe some of these potential conflicts, which the Advisor believes are faced by investment professionals at most major financial firms. The Advisor and the Trustees of the Columbia Funds have adopted compliance policies and procedures that attempt to address certain of these potential conflicts.
The management of accounts with different advisory fee rates and/or fee structures, including accounts that pay advisory fees based on account performance ("performance fee accounts"), may raise potential conflicts of interest by creating an incentive to favor higher-fee accounts. These potential conflicts may include, among others:
- The most attractive investments could be allocated to higher-fee accounts or performance fee accounts.
- The trading of higher-fee accounts could be favored as to timing and/or execution price. For example, higher-fee accounts could be permitted to sell securities earlier than other accounts when a prompt sale is desirable or to buy securities at an earlier and more opportune time.
- The trading of other accounts could be used to benefit higher-fee accounts (front- running).
- The investment management team could focus their time and efforts primarily on higher-fee accounts due to a personal stake in compensation.
Potential conflicts of interest may also arise when the portfolio managers have personal investments in other accounts that may create an incentive to favor those accounts. As a general matter and subject to limited exceptions, the Advisor's investment professionals do not have the opportunity to invest in client accounts, other than the Columbia Funds.
A potential conflict of interest may arise when a Fund and other accounts purchase or sell the same securities. On occasions when a portfolio manager considers the purchase or sale of a security to be in the best interests of a Fund as well as other accounts, the Advisor's trading desk may, to the extent permitted by applicable laws and regulations, aggregate the securities to be sold or purchased in order to obtain the best execution and lower brokerage commissions, if any. Aggregation of trades may create the potential for unfairness to a Fund or another account if one account is favored over another in allocating the securities purchased or sold - for example, by allocating a disproportionate amount of a security that is likely to increase in value to a favored account.
"Cross trades," in which one Columbia account sells a particular security to another account (potentially saving transaction costs for both accounts), may also pose a potential conflict of interest. Cross trades may be seen to involve a potential conflict of interest if, for example, one account is permitted to sell a security to another account at a higher price than an independent third party would pay. The Advisor and the Funds' Trustees have adopted compliance procedures that provide that any transactions between a Fund and another Columbia-advised account are to be made at an independent current market price, as required by law.
Another potential conflict of interest may arise based on the different investment objectives and strategies of a Fund and other accounts. For example, another account may have a shorter-term investment horizon or different investment objectives, policies or restrictions than a Fund. Depending on another account's objectives or other factors, a portfolio manager may give advice and make decisions that may differ from advice given, or the timing or nature of decisions made, with respect to a Fund. In addition, investment decisions are the product of many factors in addition to basic suitability for the particular account involved. Thus, a particular security may be bought or sold for certain accounts even though it could have been bought or sold for other accounts at the same time. More rarely, a particular security may be bought for one or more accounts managed by a portfolio manager when one or more other accounts are selling the security (including short sales). There may be circumstances when purchases or sales of portfolio securities for one or more accounts may have an adverse effect on other accounts.
A Fund's portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. As a result, the portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as might be the case if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies.
A Fund's portfolio managers may be able to select or influence the selection of the brokers and dealers that are used to execute securities transactions for the Fund. In addition to executing trades, some brokers and dealers provide portfolio managers with brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934), which may result in the payment of higher brokerage fees than might have otherwise be available. These services may be more beneficial to certain funds or accounts than to others. Although the payment of brokerage commissions is subject to the requirement that the portfolio manager determine in good faith that the commissions are reasonable in relation to the value of the brokerage and research services provided to the fund, a portfolio manager's decision as to the selection of brokers and dealers could yield disproportionate costs and benefits among the funds and/or accounts that he or she manages.
The Advisor or an affiliate may provide more services (such as distribution or recordkeeping) for some types of funds or accounts than for others. In such cases, a portfolio manager may benefit, either directly or indirectly, by devoting disproportionate attention to the management of fund and/or accounts that provide greater overall returns to the investment manager and its affiliates.
A Fund's portfolio manager(s) may also face other potential conflicts of interest in managing the Fund, and the description above is not a complete description of every conflict that could be deemed to exist in managing both a Fund and other accounts. In addition, a Fund's portfolio manager may also manage other accounts (including their personal assets or the assets of family members) in their personal capacity. The management of these accounts may also involve certain of the potential conflicts described above. Investment personnel at the Advisor, including each Fund's portfolio manager, are subject to restrictions on engaging in personal securities transactions pursuant to Codes of Ethics adopted by the Advisor and each Fund, which contain provisions and requirements designed to identify and address certain conflicts of interest between personal investment activities and the interests of each Fund.
BROKERAGE AND RESEARCH SERVICES. Consistent with the Conduct Rules of the National Association of Securities Dealers, Inc., and subject to seeking "best execution" (as defined below) and such other policies as the Trustees may determine, the Advisor may consider sales of shares of the Funds as a factor in the selection of broker-dealers to execute securities transactions for a Fund.
The Advisor places the transactions of the Funds with broker-dealers selected by the Advisor and, if applicable, negotiates commissions. Broker-dealers may receive brokerage commissions on portfolio transactions, including the purchase and writing of options, the effecting of closing purchase and sale transactions, and the purchase and sale of underlying securities upon the exercise of options and the purchase or sale of other instruments. The Funds from time to time also execute portfolio transactions with such broker-dealers acting as principals. The Funds do not intend to deal exclusively with any particular broker-dealer or group of broker-dealers.
It is the Advisor's policy generally to seek best execution, which is to place the Funds' transactions where the Funds can be expected to obtain the most favorable combination of price and execution services in particular transactions or provided on a continuing basis by a broker-dealer, and to deal directly with a principal market maker in connection with over-the-counter transactions, except when it is believed that best execution is obtainable elsewhere. In evaluating the execution services of, including the overall reasonableness of brokerage commissions paid to, a broker-dealer, consideration is given to, among other things, the firm's general execution and operational capabilities, and to its reliability, integrity and financial condition.
Securities transactions of the Funds may be executed by broker-dealers who also provide research services (as defined below) to the Advisor and the Funds. The Advisor may use all, some or none of such research services in providing investment advisory services to each of its investment company and other clients, including the Fund. To the extent that such services are used by the Advisor, they tend to reduce the Advisor's expenses. In the Advisor's opinion, it is impossible to assign an exact dollar value for such services.
The Trustees have authorized the Advisor to cause the Funds to pay a broker-dealer which provides brokerage and research services to the Advisor an amount of commission for effecting a securities transaction, including the sale of an option or a closing purchase transaction, for the funds in excess of the amount of commission which another broker-dealer would have charged for effecting that transaction. As provided in Section 28(e) of the Securities Exchange Act of 1934, "brokerage and research services" include advice as to the value of securities, the advisability of investing in, purchasing or selling securities and the availability of securities or purchasers or sellers of securities; furnishing analyses and reports concerning issues, industries, securities, economic factors and trends and portfolio strategy and performance of accounts; and effecting securities transactions and performing functions incidental thereto (such as clearance and settlement). The Advisor must determine in good faith that such greater commission is reasonable in relation to the value of the brokerage and research services provided by the executing
broker-dealer viewed in terms of that particular transaction or the Advisor's overall responsibilities to the Funds and all its other clients.
The Trustees have authorized the Advisor to utilize the services of a clearing agent with respect to all call options written by Funds that write options and to pay such clearing agent commissions of a fixed amount per share (currently 1.25 cents) on the sale of the underlying security upon the exercise of an option written by a Fund.
The Advisor may use the services of affiliated broker-dealers, when buying or selling securities for a Fund's portfolio pursuant to procedures adopted by the Trustees and 1940 Act Rule 17e-1. Under the Rule, the Advisor must ensure that commissions a Fund pays to affiliates of the Advisor on portfolio transactions are reasonable and fair compared to commissions received by other broker-dealers in connection with comparable transactions involving similar securities being bought or sold at about the same time. The Advisor will report quarterly to the Trustees on all securities transactions placed through affiliates of the Advisor so that the Trustees may consider whether such trades complied with these procedures and the Rule.
PRINCIPAL UNDERWRITER
CFD is the principal underwriter of the Trust's shares. CFD has no obligation to buy the Funds' shares, and purchases the Funds' shares only upon receipt of orders from authorized FSFs or investors.
INVESTOR SERVICING AND TRANSFER AGENT
CFS is the Trust's investor servicing agent (transfer, plan and dividend disbursing agent), for which it receives fees which are paid monthly by the Trust. The fee paid to CFS is based on number of accounts plus reimbursement for certain out-of-pocket expenses. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION ON FEES RECEIVED BY CFS. The agreement continues indefinitely but may be terminated by 90 days' notice by the Fund to CFS or generally by 6 months' notice by CFS to the Fund. The agreement limits the liability of CFS to the Fund for loss or damage incurred by the Fund to situations involving a failure of CFS to use reasonable care or to act in good faith and without negligence in performing its duties under the agreement. The Fund will indemnify CFS from, among other things, any and all claims, actions, suits, losses, costs, damages, and expenses incurred by it in connection with its acceptance of this Agreement, provided that: (i) to the extent such claims, actions, suits, losses, costs, damages, or expenses relate solely to a particular series or group of series of shares, such indemnification shall be only out of the assets of that series or group of series; (ii) this indemnification shall not apply to actions or omissions constituting negligence or misconduct of CFS or its agents or contractors, including but not limited to willful misfeasance, bad faith or gross negligence in the performance of their duties, or reckless disregard of their obligations and duties under this Agreement; and (iii) CFS shall give a Fund prompt notice and reasonable opportunity to defend against any such claim or action in its own name or in the name of CFS.
CODE OF ETHICS
The Funds, the Advisor, and CFD have adopted Codes of Ethics pursuant to the requirements of the Act. These Codes of Ethics permit personnel subject to the Codes to invest in securities, including securities that may be purchased or held by the Funds. These Codes of Ethics can be reviewed and copied at the SEC's Public Reference Room and may be obtained by calling the SEC at 1-202-942-8090. These Codes are also available on the EDGAR Database on the SEC's internet web site at http://www.sec.gov, and may also be obtained, after paying a duplicating fee, by electronic request to publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102.
ANTI-MONEY LAUNDERING COMPLIANCE
The Funds are required to comply with various anti-money laundering laws and regulations. Consequently, the Funds may request additional information from you to verify your identity. If at any time the Funds believe a shareholder may be involved in suspicious activity or if certain account information matches information on government lists of suspicious persons, the Funds may choose not to establish a new account or may be required to "freeze" a shareholder's account, halting all shareholder activity with respect to such account. The Funds also may be required to provide a governmental agency with information about transactions that have occurred in a shareholder's account or to transfer monies received to establish a new account, transfer an existing account or transfer the proceeds of an existing account to a governmental agency. In some circumstances, the law may not permit a Fund to inform the shareholder that it has taken the actions described above.
PROXY VOTING POLICIES AND FUND PROXY VOTING RECORD
The Fund has delegated to the Advisor the responsibility to vote proxies relating to portfolio securities held by the Fund. In deciding to delegate this responsibility to the Advisor, the Board of Trustees of the Trust reviewed and approved the policies and procedures adopted by the Advisor. These included the procedures that the Advisor follows when a vote presents a conflict between the interests of the Fund and its shareholders and the Advisor, its affiliates, its other clients or other persons.
The Advisor's policy is to vote all proxies for Fund securities in a manner considered by the Advisor to be in the best interest of the Fund and its shareholders without regard to any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor examines each proposal and votes against the proposal, if, in its judgment, approval or adoption of the proposal would be expected to impact adversely the current or potential market value of the issuer's securities. The Advisor also examines each proposal and votes the proxies against the proposal, if, in its judgment, the proposal would be expected to affect adversely the best interest of the Fund. The Advisor determines the best interest of the Fund in light of the potential economic return on the Fund's investment.
The Advisor addresses potential material conflicts of interest by having predetermined voting guidelines. For those proposals that require special consideration or in instances where special circumstances may require varying from the predetermined guideline, the Advisor's Proxy Committee determines the vote in the best interest of the Fund, without consideration of any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor's Proxy Committee is composed of representatives of the Advisor's equity investments, equity research, compliance, legal and fund administration functions. In addition to the responsibilities described above, the Proxy Committee has the responsibility to review, on a semi-annual basis, the Advisor's proxy voting policies to ensure consistency with internal and regulatory agency policies and to develop additional predetermined voting guidelines to assist in the review of proxy proposals.
The Proxy Committee may vary from a predetermined guideline if it determines that voting on the proposal according to the predetermined guideline would be expected to impact adversely the current or potential market value of the issuer's securities or to affect adversely the best interest of the client. References to the best interest of a client refer to the interest of the client in terms of the potential economic return on the client's investment. In determining the vote on any proposal, the Proxy Committee does not consider any benefit other than benefits to the owner of the securities to be voted. A member of the Proxy Committee is prohibited from voting on any proposal for which he or she has a conflict of interest by reason of a direct relationship with the issuer or other party affected by a given proposal. Persons making recommendations to the Proxy Committee or its members are required to disclose to the Committee any relationship with a party making a proposal or other matter known to the person that would create a potential conflict of interest.
The Advisor has retained Institutional Shareholder Services ("ISS"), a third party vendor, to implement its proxy voting process. ISS provides proxy analysis, record keeping services and vote disclosure services.
The Advisor's proxy voting guidelines and procedures are included in this SAI as Appendix II. In accordance with SEC regulations, the fund's proxy voting record for the last twelve-month period ended June 30 has been filed with the SEC. You may obtain a copy of the fund's proxy voting record (i) at www.columbiamanagement.com; (ii) on the Securities and Exchange Commission's website at www.sec.gov and (iii) without charge, upon request, by calling 800-368-0346.
DISCLOSURE OF PORTFOLIO INFORMATION
The Trustees of the Columbia Funds have adopted policies with respect to the disclosure of the Funds' portfolio holdings by the Funds, Columbia Management, or their affiliates. These policies provide that Fund portfolio holdings information generally may not be disclosed to any party prior to (1) the day next following the posting of such information on the Funds' website at www.columbiafunds.com, (2) the day next following the filing of the information with the SEC in a required filing, or (3) for money market funds, such information is publicly available to all shareholders upon request on the fifth business day after each calendar month-end. Certain limited exceptions pursuant to the Fund's policies are described below. The Trustees shall be updated as needed regarding the Fund's compliance with the policies, including information relating to any potential conflicts of interest between the interests of Fund shareholders and those of Columbia Management and its affiliates. The Fund's policies prohibit Columbia Management and the Fund's other service providers from entering into any agreement to disclose Fund portfolio holdings information in exchange for any form of consideration. These policies apply to disclosures to all categories of persons, including, without limitation, individual investors, institutional investors, intermediaries that distribute the Fund's shares, third-party service providers, rating and ranking organizations and affiliated persons of the Fund.
PUBLIC DISCLOSURES. The Fund's portfolio holdings are currently disclosed to the public through required filings with the SEC and, for equity and fixed income funds, on the Fund's website at www.columbiafunds.com. The Fund files its portfolio holdings
with the SEC for each fiscal quarter on Form N-CSR (with respect to each annual period and semi-annual period) and Form N-Q (with respect to the first and third quarters of the Fund's fiscal year). Shareholders may obtain the Fund's Forms N-CSR and N-Q filings on the SEC's website at www.sec.gov. In addition, the Fund's Forms N-CSR and N-Q filings may be reviewed and copied at the SEC's public reference room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC's website or the operation of the public reference room.
The equity and fixed income Columbia Funds also currently make portfolio information publicly available at www.columbiafunds.com, as disclosed in the following table:
FREQUENCY OF
TYPE OF FUND INFORMATION PROVIDED DISCLOSURE DATE OF WEB POSTING
------------ ----------------------- ------------ ----------------------
Equity Funds Full portfolio holdings Monthly 30 calendar days after
information. month-end.
Fixed Income Funds Full portfolio holdings Quarterly 60 calendar days after
information. quarter-end
|
The scope of the information provided relating to the Fund's portfolio that is made available on the website may change from time to time without prior notice.
For Columbia's money market funds, a complete list of a Fund's portfolio holdings shall be publicly available on a monthly basis on the fifth business date after month-end. Shareholders may request such information by writing or calling the Fund's distributor, Columbia Funds Distributor, Inc. at the address listed on the cover of this SAI.
A Fund, Columbia Management or their affiliates may include portfolio holdings information that has already been made public through a web posting or SEC filing in marketing literature and other communications to shareholders, advisors or other parties, provided that the information is disclosed no earlier than the day after the date the information is disclosed publicly.
OTHER DISCLOSURES. The Fund's policies provide that non-public disclosures of the Fund's portfolio holdings may be made if (1) the Fund has a legitimate business purpose for making such disclosure, (2) the Fund's chief executive officer authorizes such non-public disclosure of information, and (3) the party receiving the non-public information enters into a confidentiality agreement, which includes a duty not to trade on the non-public information.
The Fund periodically discloses its portfolio information on a confidential basis to various service providers that require such information in order to assist the Fund with its day-to-day business affairs. In addition to Columbia Management and its affiliates, these service providers include the Fund's custodian and sub-custodians, the Fund's independent registered public accounting firm, legal counsel, financial printers(R.R. Donnelly & Sons and Bowne & Co., Inc.), the Fund's proxy voting service provider (Alamo Direct Mail Services, Inc.), the Fund's proxy solicitor (Georgeson Shareholder Communications Inc.), rating agencies that maintain ratings on certain Columbia Funds (Fitch, Inc.) and service providers that support Columbia Management's trading systems (InvestorTool, Inc. and Thomson Financial).These service providers are required to keep such information confidential, and are prohibited from trading based on the information or otherwise using the information except as necessary in providing services to the Fund. The Fund may also disclose portfolio holdings information to broker/dealers and certain other entities related to potential transactions and management of the Fund, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information.
Certain clients of the Fund's investment adviser(s) may follow a strategy similar to that of the Fund, and have access to portfolio holdings information for their account. It is possible that such information could be used to infer portfolio holdings information relating to the Fund.
DETERMINATION OF NET ASSET VALUE
Each Fund determines net asset value (NAV) per share for each class as of the close of the New York Stock Exchange (Exchange) (generally 4:00 p.m. Eastern time) each day the Exchange is open, except that certain classes of assets, such as index futures, for which the market close occurs shortly after the close of regular trading on the Exchange will be priced at the closing time of the market on which they trade. Currently, the Exchange is closed Saturdays, Sundays and the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. Funds with portfolio securities which are primarily listed on foreign exchanges may
experience trading and changes in NAV on days on which such Fund does not determine NAV due to differences in closing policies among exchanges. This may significantly affect the NAV of the Fund's redeemable securities on days when an investor cannot redeem such securities Debt securities generally are valued by a pricing service which determines valuations based upon market transactions for normal, institutional-size trading units of similar securities. However, in circumstances where such prices are not available or where the Advisor deems it appropriate to do so, an over-the-counter or exchange bid quotation is used. Securities listed on an exchange or on NASDAQ are valued at the last sale price (or the official closing price as determined by the NASDAQ system, if different, as applicable). Listed securities for which there were no sales during the day and unlisted securities generally are valued at the last quoted bid price. Options are valued at the last sale price or in the absence of a sale, the mean between the last quoted bid and offering prices. Short-term obligations with a maturity of 60 days or less are valued at amortized cost pursuant to procedures adopted by the Trustees. The values of foreign securities quoted in foreign currencies are translated into U.S. dollars at the exchange rate for that day. Portfolio positions for which market quotations are not readily available and other assets are valued at fair value as determined by the Advisor in good faith under the direction of the Trust's Board of Trustees.
Generally, trading in certain securities (such as foreign securities) is substantially completed each day at various times prior to the close of the Exchange. Trading on certain foreign securities markets may not take place on all business days in New York, and trading on some foreign securities markets takes place on days which are not business days in New York and on which the Fund's NAV is not calculated. The values of these securities used in determining the NAV are computed as of such times. Also, because of the amount of time required to collect and process trading information as to large numbers of securities issues, the values of certain securities (such as convertible bonds, U.S. government securities, and tax-exempt securities) are determined based on market quotations collected earlier in the day at the latest practicable time prior to the close of the Exchange. Occasionally, events affecting the value of such securities may occur between such times and the close of the Exchange which will not be reflected in the computation of each Fund's NAV. If events materially affecting the value of such securities occur during such period, then these securities will be valued at fair value following procedures approved by the Trust's Board of Trustees.
(The following two paragraphs are applicable only to Columbia Newport Tiger Fund (formerly named Liberty Newport Tiger Fund), Columbia Newport Greater China Fund (formerly named Liberty Newport Greater China Fund), Columbia Newport Europe Fund (formerly named Liberty Newport Europe Fund) and Columbia Newport Asia Pacific Fund (formerly named Liberty Newport Asia Pacific Fund))
Trading in securities on stock exchanges and over-the-counter markets in foreign securities markets is normally completed well before the close of the business day in New York. Trading on foreign securities markets may not take place on all business days in New York, and trading on some foreign securities markets does take place on days which are not business days in New York and on which the Fund's NAV is not calculated.
The calculation of the Fund's NAV accordingly may not take place contemporaneously with the determination of the prices of the Fund's portfolio securities used in such calculations. Events affecting the values of portfolio securities that occur between the time their prices are determined and the close of the Exchange (when the Fund's NAV is calculated) will not be reflected in the Fund's calculation of NAV unless the Advisor, acting under procedures established by the Board of Trustees of the Trust, deems that the particular event would materially affect the Fund's NAV, in which case an adjustment will be made. Assets or liabilities initially expressed in terms of foreign currencies are translated prior to the next determination of the NAV of the Fund's shares into U.S. dollars at prevailing market rates.
AMORTIZED COST FOR MONEY MARKET FUNDS (SEE "AMORTIZED COST FOR MONEY MARKET
FUNDS" UNDER "INFORMATION CONCERNING THE FUND" IN PART 1 OF THE SAI OF COLUMBIA
MONEY MARKET FUND (FORMERLY NAMED LIBERTY MONEY MARKET FUND) AND COLUMBIA
MUNICIPAL MONEY MARKET FUND (FORMERLY NAMED LIBERTY MUNICIPAL MONEY MARKET
FUND))
Money market funds generally value their portfolio securities at amortized cost according to Rule 2a-7 under the 1940 Act.
Under the amortized cost method a security is initially valued at cost and
thereafter any discount or premium from maturity value is amortized ratably to
maturity. This method assures a constant NAV but may result in a yield different
from that of the same portfolio under the market value method. The Trust's
Trustees have adopted procedures intended to stabilize a money market fund's NAV
per share at $1.00. If a money market fund's market value deviates from the
amortized cost of $1.00, and results in a material dilution to existing
shareholders, the Trust's Trustees will take corrective action that may include:
realizing gains or losses; shortening the portfolio's maturity; withholding
distributions; redeeming shares in kind; or converting to the market value
method (in which case the NAV per share may differ from $1.00). All investments will be determined pursuant to procedures approved by the Trust's Trustees to present minimal credit risk.
See the Statement of Assets and Liabilities in the shareholder report of the Columbia Money Market Fund (formerly named Liberty Money Market Fund) or the Columbia Municipal Money Market Fund (formerly named Liberty Municipal Money Market Fund) for a specimen price sheet showing the computation of maximum offering price per share of Class A shares.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of the Fund and tables of charges. This SAI contains additional information which may be of interest to investors.
The Fund may accept unconditional orders for shares to be executed at the public offering price based on the NAV per share next determined after the order is placed in good order. The public offering price is the NAV plus the applicable sales charge, if any. In the case of orders for purchase of shares placed through FSFs, the public offering price will be determined on the day the order is placed in good order, but only if the FSF receives the order prior to the time at which shares are valued and transmits it to the Fund before the Fund processes that day's transactions. If the FSF fails to transmit before the Fund processes that day's transactions, the customer's entitlement to that day's closing price must be settled between the customer and the FSF. If the FSF receives the order after the time at which the Fund values its shares, the price will be based on the NAV determined as of the close of the Exchange on the next day it is open. If funds for the purchase of shares are sent directly to CFS, they will be invested at the public offering price next determined after receipt in good order. Payment for shares of the fund must be in U.S. dollars; if made by check, the check must be drawn on a U.S. bank.
Investors should understand that, since the offering price of the Fund's shares is calculated to two decimal places using standard rounding methodology, the dollar amount of the sales charge paid as a percentage of the offering price and of the net amount invested for any particular purchase of fund shares may be higher or lower depending on whether downward or upward rounding was required during the calculation process.
The Fund receives the entire NAV of shares sold. For shares subject to an initial sales charge, CFD's commission is the sales charge shown in the Fund's Prospectus less any applicable FSF discount. The FSF discount is the same for all FSFs, except that CFD retains the entire sales charge on any sales made to a shareholder who does not specify a FSF on the Investment Account Application ("Application"), and except that CFD may from time to time reallow additional amounts to all or certain FSFs. CFD generally retains some or all of any asset-based sales charge (distribution fee) or contingent deferred sales charge. Such charges generally reimburse CFD for any up-front and/or ongoing commissions paid to FSFs.
Checks presented for the purchase of shares of the Fund which are returned by the purchaser's bank or checkwriting privilege checks for which there are insufficient funds in a shareholder's account to cover redemption may subject such purchaser or shareholder to a $15 service fee for each check returned. Checks must be drawn on a U.S. bank and must be payable in U.S. dollars. Travelers checks, gift checks, credit card convenience checks, credit cards, cash and ban counter (starter checks) are not accepted.
CFS acts as the shareholder's agent whenever it receives instructions to carry out a transaction on the shareholder's account. Upon receipt of instructions that shares are to be purchased for a shareholder's account, the designated FSF will receive the applicable sales commission. Shareholders may change FSFs at any time by written notice to CFS, provided the new FSF has a sales agreement with CFD.
Shares credited to an account are transferable upon written instructions in good order to CFS and may be redeemed as described under "How to Sell Shares" in the Prospectus. Certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you may send the certificates to CFS for deposit to your account.
In addition to the commissions specified in a Fund's prospectus and this SAI, CFD, or its advisory affiliates, from their own resources, may make cash payments to FSFs that agree to promote the sale of shares of funds that CFD distributes. A number of factors may be considered in determining the amount of those payments, including the FSF's sales, client assets invested in the funds and redemption rates, the quality of the FSF's relationship with CFD and/or its affiliates, and the nature of the services provided by FSFs to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the FSF's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, CFD may also pay non-cash compensation to FSFs and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for FSF educational or training events.
In addition, CFD, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of a Fund.
CFD and its affiliates anticipate that the FSFs and intermediaries that will receive the additional compensation described above include:
1st Global Capital Corp
401 Company
ABN AMRO Trust Services
ADP Retirement Services
Advest
AEGON/Transamerica
AG Edwards
American Century Services
American Express
AMG
AON Consulting
AST Trust Company
Banc of America Investment Services
BancOne
Bear Stearns
Benefit Plan Administrators
Bidwell & Company
BNY Clearing
C N A Trust
Charles Schwab
CIBC Oppenheimer
Citigroup Global Markets
CitiStreet Associates LLC
City National Bank
City of Milwaukee
Columbia Trust Company
Commonwealth Financial
Compensation & Capital
CPI Qualified Plan Consultants
Daily Access Concepts
Davenport & Company
Delaware Investments
Digital Retirement Solutions
Discover Brokerage
Dreyfus/Mellon
Edgewood Services
Edward Jones
E-Trade,
ExpertPlan
FAS Liberty Life Spectrum
Ferris Baker Watts
Fidelity
Financial Data Services
Franklin Templeton
Freeman Welwood
Gem Group
Great West Life
Hewitt Associates LLC
Huntington Bank
ING
Intermountain Health Care
Investmart, Inc.
Investment Manager Services (IMS)
Janney Montgomery Scott
JJB Hilliard Lyons
JP Morgan/American Century
Kenney Investments
Kirkpatrick Pettis Smith Polian Inc
Legg Mason Wood Walker
Liberty Life
Lincoln Financial
Lincoln Life
Linsco Private Ledger
M & T Securities
Marquette Trust Company
Mass Mutual Life
Matrix Settlement & Clearance Services (MSCS)
McDonald Investments
Merrill Lynch
MetLife
MFS
Mfund Trax
MidAtlantic Capital
Milliman USA
Morgan Keegan
Morgan Stanley Dean Witter
PFPC
Nationwide Investment Services
Neuberger Berman Mgmt
NFP Securities
NSD -NetStock Sharebuilder
NYLife Distributors
Optimum Investment Advisors
Orbitex
Pershing LLC
Phoenix Home Life
Piper Jaffray
PNC
PPI Employee Benefits
Private Bank & Trust
Prudential
Putnam Investments
Raymond James
RBC Dain Rausher
Robert W Baird
Royal Alliance
RSM McGladrey Inc.
Safeco
Scott & Stringfellow
Scudder Investments
Security Benefit
Segall Bryant Hamill
South Trust Securities
Southwest Securities
Standard Insurance
Stanton Group
State of NY Deferred Compensation Plan
Stephens, Inc.
Stifel Nicolaus & Co
Strong Capital
Sungard T Rowe Price
Trustar Retirement Services
Trustlynx/Datalynx
UBS Financial Services
USAA Investment Management
Vanguard
Wachovia
TD Waterhouse
Webster Investment Services
Wells Fargo
Wilmington Trust
PLEASE CONTACT YOUR FSF OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or eliminated at any time.
AUTOMATIC INVESTMENT PLAN. As a convenience to investors, shares of most Funds advised by the Advisor may be purchased through the Automatic Investment Plan. Electronic fund transfers for a fixed amount of at least $50 ($25 for IRA) are used to purchase a Fund's shares at the public offering price next determined after CFD receives the proceeds. If your Automatic Investment Plan purchase is by electronic funds transfer, you may request the Automatic Investment Plan purchase for any day. Further information and application forms are available from FSFs or from CFD.
AUTOMATED DOLLAR COST AVERAGING (Classes A, B, C, D, T, G and Z). The Automated Dollar Cost Averaging program allows you to exchange $100 or more on a monthly basis from any fund distributed by CFD in which you have a current balance of at least $5,000 into the same class of shares of up to five other Funds. Complete the Automated Dollar Cost Averaging section of the Application. There is no charge for exchanges made pursuant to the Automated Dollar Cost Averaging program. Sales charges may apply if exchanging from a money market fund. Exchanges will continue so long as your fund balance is sufficient to complete the transfers. Your normal rights and privileges as a shareholder remain in full force and effect. Thus you can buy any Fund, exchange between the same Class of shares of Funds by written instruction or by telephone exchange if you have so elected and withdraw amounts from any Fund, subject to the imposition of any applicable CDSC or sales charges.
Any additional payments or exchanges into your Fund will extend the time of the Automated Dollar Cost Averaging program.
An exchange is generally a capital sale transaction for federal income tax purposes.
You may terminate your program, change the amount of the exchange (subject to the $100 minimum), or change your selection of funds, by telephone or in writing; if in writing by mailing your instructions to Columbia Funds Services, Inc. (formerly named Liberty Funds Services, Inc.) (CFS) P.O. Box 8081, Boston, MA 02266-8081.
You should consult your FSF or financial advisor to determine whether or not the Automated Dollar Cost Averaging program is appropriate for you.
CFD offers several plans by which an investor may obtain reduced initial or contingent deferred sales charges. These plans may be altered or discontinued at any time. See "Programs For Reducing or Eliminating Sales Charges" below for more information.
CLASS T SHAREHOLDER SERVICES PLAN. The Trustees have approved a Shareholder
Services Plan (the "Services Plan") pursuant to which the Trusts plan to enter
into servicing agreements with institutions (including Bank of America
Corporation and its affiliates). Pursuant to these servicing agreements,
institutions render certain administrative and support services to customers who
are the beneficial owners of Class T shares of each Fund other than the Columbia
Newport Tiger Fund. Such services are provided to the institution's customers
who are the beneficial owners of Class T shares and are intended to supplement
the services provided by the Fund's administrator and transfer agent to the
shareholders of record of the Class T shares. The Services Plan provides that
each Fund will pay fees for such services at an annual rate of up to 0.50% of
the average daily net asset value of Class T shares owned beneficially by the
institution's customers. Institutions may receive up to one-half of this fee for
providing one or more of the following services to such customers: (i)
aggregating and processing purchase and redemption requests and placing net
purchase and redemption orders with CFD; (ii) processing dividend payments from
a Fund; (iii) providing sub-accounting with respect to Class T shares or the
information necessary for sub-accounting; and (iv) providing periodic mailings
to customers. Institutions may also receive up to one-half of this fee for
providing one or more of these additional services to such customers: (i)
providing customers with information as to their positions in Class T shares;
(ii) responding to customer inquiries; and (iii) providing a service to invest
the assets of customers in Class T shares.
The payments under the servicing agreements entered into as of the date of this SAI are limited to an aggregate fee of not more than 0.30% (on an annualized basis) of the average daily net asset value of the Class T shares of equity funds beneficially owned by customers of institutions and 0.15% (on an annualized basis) of the average daily net asset value of the Class T shares of bond funds beneficially owned by customers of institutions. The Funds understand that institutions may charge fees to their customers who are the beneficial owners of Class T shares in connection with their accounts with such institutions. Any such fees would be in addition to any amounts which may be received by an institution under the Services Plan. Under the terms of each servicing agreement, institutions are required to provide to their customers a schedule of any fees that they may charge in connection with customer investments in Class T shares.
Each servicing agreement with an institution ("Service Organization") relating to the Services Plan requires that, with respect to those Funds which declare dividends on a daily basis, the Service Organization agrees to waive a portion of the servicing fee payable to it under the Services Plan to the extent necessary to ensure that the fees required to be accrued with respect to the Class T shares of such Funds on any day do not exceed the income to be accrued to such Class T shares on that day.
The Class T servicing agreements are governed by the Services Plan approved by the Board of Trustees in connection with the offering of Class T shares of each Fund. Pursuant to the Services Plan, the Board of Trustees reviews, at least quarterly, a written report of the amounts paid under the servicing agreements and the purposes for which the expenditures were made. In addition, the arrangements with Service Organizations must be approved annually by a majority of the Trustees, including a majority of the trustees who are not "interested persons" of the Funds as defined in the 1940 Act and who have no direct or indirect financial interest in such arrangements (the "Disinterested Trustees").
The Board of Trustees has approved the service agreements with Service Organizations based on information provided by the Funds' service contractors that there is a reasonable likelihood that the arrangements will benefit the Funds and their shareholders by affording the Funds greater flexibility in connection with the efficient servicing of the accounts of the beneficial owners of Class T shares of the Funds. Any material amendment to the Funds' arrangements with Service Organizations must be approved by a majority of the Board of Trustees (including a majority of the Disinterested Trustees). So long as the service agreements with Service Organizations are in effect, the selection and nomination of the members of Columbia's Board of Trustees who are not "interested persons" (as defined in the 1940 Act) of the Funds will be committed to the discretion of such Disinterested Trustees.
TAX-SHELTERED RETIREMENT PLANS (Retirement Plans). CFD offers prototype tax-qualified plans, including Pension and Profit-Sharing Plans for individuals, corporations, employees and the self-employed. The minimum initial Retirement Plan investment is $25. Columbia Trust Company (CTC) is the Custodian/Trustee and Plan Sponsor of the Columbia Management prototype plans offered through CFD. In general, a $20 annual fee is charged. Detailed information concerning these Retirement Plans and copies of the Retirement Plans are available from CFD.
Participants in Retirement Plans not sponsored by CTC, not including Individual Retirement Accounts (IRAs), may be subject to an annual fee of $20 unless the Retirement Plan maintains an omnibus account with CFS. Participants in CTC sponsored prototype plans (other than IRAs) who liquidate the total value of their account may also be charged a $20 close-out processing fee payable to CFS. The close out fee applies to plans opened after September 1,1996. The fee is in addition to any applicable
CDSC. The fee will not apply if the participant uses the proceeds to open a Columbia Management IRA Rollover account in any Fund distributed by CFD, or if the Retirement Plan maintains an omnibus account.
Consultation with a competent financial advisor regarding these Retirement Plans and consideration of the suitability of Fund shares as an investment under the Employee Retirement Income Security Act of 1974 or otherwise is recommended.
TELEPHONE ADDRESS CHANGE SERVICES. By calling CFS, shareholders or their FSF of record may change an address on a recorded telephone line. Confirmations of address change will be sent to both the old and the new addresses. Telephone redemption privileges by check are suspended for 30 days after an address change is effected. Please have your account and taxpayer identification numbers available when calling.
CASH CONNECTION. Dividends and any other distributions, including Systematic Withdrawal Plan (SWP) payments, may be automatically deposited to a shareholder's bank account via electronic funds transfer. Shareholders wishing to avail themselves of this electronic transfer procedure should complete the appropriate sections of the Application.
AUTOMATIC DIVIDEND DIVERSIFICATION. The automatic dividend diversification reinvestment program (ADD) generally allows shareholders to have all distributions from a Fund automatically invested in the same class of shares of another Fund. An ADD account must be in the same name as the shareholder's existing open account with the particular Fund. Call CFS for more information at 1-800-345-6611.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
RIGHTS OF ACCUMULATION (Class A, Class B and Class T shares only) (Class T shares can only be purchased by the shareholders of Columbia Newport Tiger Fund (formerly named Liberty Newport Tiger Fund) who already own Class T shares). Reduced sales charges on Class A, B and T shares can be effected by combining a current purchase of Class A, Class B or Class T shares with prior purchases of other funds distributed by CFD. The applicable sales charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on the previous day of all funds' held by the shareholder.
CFD must be promptly notified of each purchase which entitles a shareholder to a reduced sales charge. Such reduced sales charge will be applied upon confirmation of the shareholder's holdings by CFS. A Fund may terminate or amend this Right of Accumulation.
STATEMENT OF INTENT (Class A, Class E and Class T shares only). Any person may qualify for reduced sales charges on purchases of Class A, E and T shares made within a thirteen-month period pursuant to a Statement of Intent ("Statement"). A shareholder may include, as an accumulation credit toward the completion of such Statement, the value of all fund shares held by the shareholder on the date of the Statement in Funds (except shares of any money market fund, unless such shares were acquired by exchange from Class A shares of another non-money market fund)). The value is determined at the public offering price on the date of the Statement. Purchases made through reinvestment of distributions do not count toward satisfaction of the Statement. Upon request, a Statement of Intent may be backdated to reflect purchases within 90 days.
During the term of a Statement, CFS will hold shares in escrow to secure payment of the higher sales charge applicable to Class A, E or T shares actually purchased. Dividends and capital gains will be paid on all escrowed shares and these shares will be released when the amount indicated has been purchased. A Statement does not obligate the investor to buy or a Fund to sell the amount of the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which would qualify for a further quantity discount, a retroactive price adjustment will be made at the time of expiration of the Statement. The resulting difference in offering price will purchase additional shares for the shareholder's account at the applicable offering price. As a part of this adjustment, the FSF shall return to CFD the excess commission previously paid during the thirteen-month period.
If the amount of the Statement is not purchased, the shareholder shall remit to CFD an amount equal to the difference between the sales charge paid and the sales charge that should have been paid. If the shareholder fails within twenty days after a written request to pay such difference in sales charge, CFS will redeem that number of escrowed Class A, E or T shares to equal such
difference. The additional amount of FSF discount from the applicable offering price shall be remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available from your FSF, or from CFS at 1-800-345-6611.
REINSTATEMENT PRIVILEGE. Subject to the Fund's fund policy on trading of fund shares, an investor who has redeemed Class A, B, C or T shares (other than shares of the Columbia Newport Greater China Fund (formerly named Liberty Newport Greater China Fund), Columbia Global Equity Fund (formerly named Liberty Newport Global Equity Fund) and Columbia Newport Tiger Fund (formerly named Liberty Newport Tiger Fund) that were redeemed within 30 days of their acquisition by exchange from another fund) may, upon request, reinstate within one year a portion or all of the proceeds of such sale in shares of Class A of any Fund at the NAV next determined after CFS receives a written reinstatement request and payment. Investors who desire to exercise this privilege should contact their FSF or CFS. Shareholders may exercise this privilege an unlimited amount of times. Exercise of this privilege does not alter the federal income tax treatment of any capital gains realized on the prior sale of Fund shares, but to the extent any such shares were sold at a loss, some or all of the loss may be disallowed for tax purposes. Consult your tax advisor.
PRIVILEGES OF COLUMBIA EMPLOYEES OR FINANCIAL SERVICE FIRMS (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, INC. IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS). Class A shares of certain Funds may be sold at NAV to the following individuals whether currently employed or retired: Trustees of funds advised or administered by the Advisor; directors, officers and employees of the Advisor, CFD and companies affiliated with the Advisor; registered representatives and employees of FSFs (including their affiliates) that are parties to dealer agreements or other sales arrangements with CFD; and such persons' families and their beneficial accounts.
PRIVILEGES OF COLUMBIA ACORN FUNDS (FORMERLY NAMED LIBERTY ACORN FUNDS) SHAREHOLDERS. Any shareholder who owned shares of any fund of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29,2000 (when all of the then outstanding shares of Columbia Acorn Trust were re-designated Class Z shares) and who since that time has remained a shareholder of any fund distributed by CFD, may purchase Class A shares of any fund distributed by CFD at NAV in those cases where a Columbia Fund Class Z share is not available. Qualifying shareholders will not be subject to any Class A initial sales charge or CDSC; however, they will be subject to the annual Rule 12b-1 service fee.
FEE-BASED COMPENSATION ARRANGEMENTS. Class A, Class E and Class T shares (Class T shares can only be purchased by the shareholders of Liberty Newport Tiger Fund who already own Class T shares) of certain funds may also be purchased at reduced or no sales charge by clients of dealers, brokers or registered investment advisors that have entered into agreements with CFD pursuant to which the Funds are included as investment options in programs involving fee-based compensation arrangements, and by participants in certain retirement plans.
WAIVER OF INITIAL SALES CHARGES (CLASS A AND CLASS T SHARES)
Class A share initial sales charges (but not contingent deferred sales charges) are waived for the following categories of investors:
- Galaxy Fund shareholders prior to December 1, 1995; and
- Shareholders who (i) purchased Galaxy Fund Prime A Shares at net asset value and received Class A shares in exchange for those shares during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Prime A shares were originally purchased.
Class T share sales charges are waived for the following categories of investors:
- Galaxy Fund shareholders prior to December 1, 1995;
- Shareholders who (i) purchased Galaxy Fund Retail A Shares at net asset value and received Class T shares in exchange for those shares during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Retail A shares were originally purchased; and
- Boston 1784 Fund shareholders on the date the Funds were reorganized into Galaxy Funds.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES (CDSCS) (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, INC. IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS) (Class A, B, C, D, E, matured F, G and T shares) CDSCs may be waived on redemptions in the following situations with the proper documentation:
1. Death. CDSCs may be waived on redemptions within one year following the death of (i) the sole shareholder on an individual account, (ii) a joint tenant where the surviving joint tenant is the deceased's spouse, or (iii) the beneficiary of a Uniform Gifts to Minors Act (UGMA), Uniform Transfers to Minors Act (UTMA) or other custodial account. If, upon the
occurrence of one of the foregoing, the account is transferred to an account registered in the name of the deceased's estate, the CDSC will be waived on any redemption from the estate account occurring within one year after the death. If shares are not redeemed within one year of the death, they will remain subject to the applicable CDSC, when redeemed from the transferee's account. If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions occurring pursuant to a monthly, quarterly or semi-annual SWP established with CFS, to the extent the redemptions do not exceed, on an annual basis, 12% of the account's value. Otherwise, CDSCs will be charged on SWP redemptions until this requirement is met; this requirement does not apply if the SWP is set up at the time the account is established, and distributions are being reinvested. See below under "Investor Services - Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions occurring within one year after the sole shareholder on an individual account or a joint tenant on a spousal joint tenant account becomes disabled (as defined in Section 72(m)(7) of the Internal Revenue Code). To be eligible for such waiver, (i) the disability must arise AFTER the purchase of shares (ii) the disabled shareholder must have been under age 65 at the time of the initial determination of disability, and (iii) a letter from a physician must be signed under penalty of perjury stating the nature of the disability. If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring upon
dissolution of a revocable living or grantor trust following the death of
the sole trustee where (i) the grantor of the trust is the sole trustee and
the sole life beneficiary, (ii) death occurs following the purchase AND
(iii) the trust document provides for dissolution of the trust upon the
trustee's death. If the account is transferred to a new registration
(including that of a successor trustee), the applicable CDSC will be
charged upon any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions required to return excess contributions made to retirement plans or individual retirement accounts, so long as the FSF agrees to return the applicable portion of any commission paid by the Advisor.
6. Qualified Retirement Plans. CDSCs may be waived on redemptions required to make distributions from qualified retirement plans following normal retirement (as stated in the Plan document). CDSCs also will be waived on SWP redemptions made to make required minimum distributions from qualified retirement plans that have invested in Funds distributed by CFD for at least two years. CDSC is also waived for participant loans.
7. Trust Share Taxes. CDSCs will be waived on redemptions of Class E and F
shares (i) where the proceeds are used to directly pay trust taxes, and
(ii) where the proceeds are used to pay beneficiaries for the payment of
trust taxes.
The CDSC also may be waived where the FSF agrees to return all or an agreed upon portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may be sold on any day the Exchange is open, either directly to the Fund or through the shareholder's FSF. Sale proceeds generally are sent within seven days (usually on the next business day after your request is received in good form). However, for shares recently purchased by check, the Fund may delay selling or delay sending proceeds from your shares for up to 15 days in order to protect the Fund against financial losses and dilution in net asset value caused by dishonored purchase payment checks.
To sell shares directly to the Fund, send a signed letter of instruction to CFS, along with any certificates for shares to be sold. The sale price is the net asset value (less any applicable contingent deferred sales charge) next calculated after the Fund receives the request in proper form. Signatures must be guaranteed by a bank, a member firm of a national stock exchange or another eligible guarantor that participates in the Medallion Signature Guarantee Program. Stock power forms are available from FSFs, CFS and many banks. Additional documentation may be required for sales by corporations, agents, fiduciaries, surviving joint owners, individual retirement account holders and other legal entities. Call CFS for more information 1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued to receive that day's price, FSF's are responsible for furnishing all necessary documentation to CFS and may charge for this service.
SYSTEMATIC WITHDRAWAL PLAN (SWP). The shareholder may establish a SWP. A specified dollar amount, share amount or percentage of the then current net asset value of the shareholder's investment in any Fund designated by the shareholder will be paid monthly, quarterly or semi-annually to a designated payee. The amount or percentage the shareholder specifies is run against available shares and generally may not, on an annualized basis, exceed 12% of the value, as of the time the shareholder makes the election, of the shareholder's investment. Withdrawals of shares of the Fund under a SWP will be treated as redemptions of shares purchased through the reinvestment of Fund distributions, or, to the extent such shares in the shareholder's account are insufficient to cover Plan payments, as redemptions from the earliest purchased shares of such Fund in the shareholder's account. No CDSCs apply to a redemption pursuant to a SWP of 12% or less, even if, after giving effect to the redemption, the shareholder's account balance is less than the shareholder's base amount. Qualified plan participants who are required by Internal Revenue Service regulation to withdraw more than 12%, on an annual basis, of the value of their share account may do so but may be subject to a CDSC ranging from 1 % to 5% of the amount withdrawn in excess of 12% annually. If a shareholder wishes to participate in a SWP, the shareholder must elect to have all of the shareholder's income dividends and other Fund distributions payable in shares of the Fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by telephone on a recorded line. However, SWP checks will be payable only to the shareholder and sent to the address of record. SWPs from retirement accounts cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in certificate form. Purchasing additional shares (other than through dividend and distribution reinvestment) while receiving SWP payments is ordinarily disadvantageous because of sales charges. For this reason, a shareholder may not maintain a plan for the accumulation of shares of the Fund (other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or loss for tax purposes, may involve the use of principal and may eventually use up all of the shares in a shareholder's account.
A Fund may terminate a shareholder's SWP if the shareholder's account balance falls below $5,000 due to any transfer or liquidation of shares other than pursuant to the SWP. SWP payments will be terminated on receiving satisfactory evidence of the death or incapacity of a shareholder. Until this evidence is received, CFS will not be liable for any payment made in accordance with the provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate in them is borne by the Fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not be able to participate in a SWP. If a shareholder's Fund shares are held in "street name," the shareholder should consult his or her FSF to determine whether he or she may participate in a SWP. The SWP on accounts held in "street name" must be made payable to the back office via the NSCC.
TELEPHONE REDEMPTIONS. All Fund shareholders and/or their FSFs are automatically
eligible to redeem up to $100,000 of the Fund's shares by calling 1-800-422-3737
toll-free any business day between 9:00 a.m. and the close of trading of the
Exchange (normally 4:00 p.m. Eastern time). Transactions received after 4:00
p.m. Eastern time will receive the next business day's closing price. Telephone
redemptions by check and ACH are limited to a total of $100,000 in a 30-day
period. Redemptions that exceed $100,000 may be accomplished by placing a wire
order trade through a broker, to a pre-existing bank account or furnishing a
signature guaranteed request. Signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another eligible guarantor that
participates in the Medallion Signature Guarantee Program. CFS will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. Telephone redemptions are not available on accounts with an address
change in the preceding 30 days and proceeds and confirmations will only be
mailed or sent to the address of record unless the redemption proceeds are being
sent to a pre-designated bank account. Shareholders and/or their FSFs will be
required to provide their name, address account and taxpayer identification
numbers. FSFs will also be required to provide their broker number. All
telephone transactions are recorded. A loss to a shareholder may result from an
unauthorized transaction reasonably believed to have been authorized. Certain
restrictions apply to retirement plan accounts.
CHECKWRITING (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT
ADVISORS, INC. ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR OF CERTAIN FUNDS)
(Available only on the Class A and Z shares of certain Funds)
Shares may be redeemed by check if a shareholder has previously completed an Application and Signature Card. CFS will provide checks to be drawn on Mellon Trust of New England, N.A. (the "Bank"). These checks may be made payable to the
order of any person in the amount of not less than $500 ($250 for money market funds) nor more than $100,000. The shareholder will continue to earn dividends on shares until a check is presented to the Bank for payment. At such time a sufficient number of full and fractional shares will be redeemed at the next determined net asset value to cover the amount of the check. Certificate shares may not be redeemed in this manner.
Shareholders utilizing checkwriting drafts will be subject to the Bank's rules governing checking accounts. There is currently no charge to the shareholder for the use of checks., However, you may incur customary fees for services such as a stop payment request or a request for copies of a check. The shareholder should make sure that there are sufficient shares in his or her open account to cover the amount of any check drawn since the net asset value of shares will fluctuate. If insufficient shares are in the shareholder's open account, the check will be returned marked "insufficient funds" and no shares will be redeemed; the shareholder will be charged a $15 service fee for each check returned. It is not possible to determine in advance the total value of an open account because prior redemptions and possible changes in net asset value may cause the value of an open account to change. Accordingly, a check redemption should not be used to close an open account. In addition, a check redemption, like any other redemption, may give rise to taxable capital gains.
NON-CASH REDEMPTIONS. For redemptions of any single shareholder within any 90-day period exceeding the lesser of $250,000 or 1 % of a Fund's net asset value, a Fund may make the payment or a portion of the payment with portfolio securities held by that Fund instead of cash, in which case the redeeming shareholder may incur brokerage and other costs in selling the securities received.
INFORMATION APPLICABLE TO CLASS G AND CLASS T SHARES
The primary difference between Class G and Class T shares lies in their sales charge structures and shareholder servicing/distribution expenses. Investments in Class T shares of the Funds are subject to a front-end sales charge. Investments in Class G shares of the Funds are subject to a back-end sales charge. This back-end sales charge declines over time and is known as a "contingent deferred sales charge." An investor should understand that the purpose and function of the sales charge structures and shareholder servicing/distribution arrangements for both Class G and Class T shares are the same. Class T shares of a bond fund and an equity fund are currently subject to ongoing shareholder servicing fees at an annual rate of up to 0.15% and 0.30%, respectively, of the Fund's average daily net assets attributable to its Class T shares. Class G shares of a bond fund and an equity fund are currently subject to ongoing shareholder servicing and distribution fees at an annual rate of up to 0.80% and 0.95%, respectively, of the Fund's average daily net assets attributable to its Class G shares. These ongoing fees, which are higher than those charged on Class T shares, will cause Class G shares to have a higher expense ratio and pay lower dividends than Class T shares. Class G and Class T shares may only be purchased by current shareholders of Class G and Class T, respectively.
CLASS T SHARES. The public offering price for Class T shares of the Funds is the sum of the net asset value of the Class T shares purchased plus any applicable front-end sales charge as described in the applicable Prospectus. A deferred sales charge of up to 1.00% is assessed on certain redemptions of Class T shares that are purchased with no initial sales charge as part of an investment of $1,000,000 to $25,000,000. A portion of the front-end sales charge may be reallowed to broker-dealers as follows:
REALLOWANCE TO
REALLOWANCE TO DEALERS DEALERS AS A % OF
AS A % OF OFFERING PRICE OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE-BOND FUNDS PER SHARE - EQUITY FUNDS
--------------------- ------------------------ ------------------------
Less than $50,000 4.25 5.00
$50,000 but less than $100,000 3.75 3.75
$100,000 but less than $250,000 2.75 2.75
$250,000 but less than $500,000 2.00 2.00
$500,000 but less than $1,000,000 1.75 1.75
$1,000,000 and over 0.00 0.00
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The appropriate reallowance to dealers will be paid by CFD to broker-dealer organizations which have entered into agreements with CFD. The reallowance to dealers may be changed from time to time.
Certain affiliates of the Advisor may, at their own expense, provide additional compensation to broker-dealer affiliates of Columbia and to unaffiliated broker-dealers whose customers purchase significant amounts of Class T shares of the Funds.
Such compensation will not represent an additional expense to the Funds or their shareholders, since it will be paid from the assets of Bank of America Corporation's affiliates.
INFORMATION APPLICABLE TO CERTAIN CLASS G SHARES RECEIVED BY FORMER GALAXY FUND RETAIL B SHAREHOLDERS IN CONNECTION WITH THE GALAXY/LIBERTY REORGANIZATION. The following table describes the CDSC schedule applicable to Class G shares received by former Galaxy Fund Retail B shareholders in exchange for Retail B Shares purchased prior to January 1, 2001:
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.00
Through second year 4.00
Through third year 3.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Longer than six years None
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Class G shares received in exchange for Galaxy Fund Retail B Shares that were purchased prior to January 1, 2001 will automatically convert to Class T shares seven years after purchase. For purposes of calculating the CDSC, all purchases are considered to be made on the first day of the month in which each purchase was made.
The following table describes the CDSC schedule applicable to Class G shareholders whose Galaxy Asset Allocation Fund and/or International Equity Fund Retail B Shares were acquired in connection with the reorganization of the Pillar Funds:
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.50
Through second year 5.00
Through third year 4.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Through the seventh year None
Longer than seven years None
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If you acquired Retail B Shares in connection with the reorganization of the Pillar Funds, your Class G shares will automatically convert to Class T shares eight years after you purchased the Pillar Fund Class B shares you held prior to the reorganization. For purposes of calculating the CDSC, all purchases are considered to be made on the first day of the month in which each purchase was made.
CLASS G SHARES PURCHASED AFTER THE GALAXY/LIBERTY REORGANIZATION. The public offering price for Class G shares of the Funds is the net asset value of the Class G shares purchased. Although investors pay no front-end sales charge on purchases of Class G shares, such shares are subject to a contingent deferred sales charge at the rates set forth in the applicable Prospectus if they are redeemed within seven years of purchase. Securities dealers, brokers, financial institutions and other industry professionals will receive commissions from CFD in connection with sales of Class G shares. These commissions may be different than the reallowances or placement fees paid to dealers in connection with sales of Class T shares. Certain affiliates of Columbia may, at their own expense, provide additional compensation to broker-dealer affiliates of Columbia and to unaffiliated broker-dealers, whose customers purchase significant amounts of Class G shares of a Fund. See "Class T Shares." The contingent deferred sales charge on Class G shares is based on the lesser of the net asset value of the shares on the redemption date or the original cost of the shares being redeemed. As a result, no sales charge is imposed on any increase in
the principal value of an investor's Class G shares. In addition, a contingent deferred sales charge will not be assessed on Class G shares purchased through reinvestment of dividends or capital gains distributions.
The proceeds from the contingent deferred sales charge that an investor may pay upon redemption go to CFD, which may use such amounts to defray the expenses associated with the distribution-related services involved in selling Class G shares. Class G shares of a Fund will convert automatically to Class T shares eight years after purchase. The purpose of the conversion is to relieve a holder of Class G shares of the higher ongoing expenses charged to those shares, after enough time has passed to allow CFD to recover approximately the amount it would have received if the applicable front-end sales charge had been charged. The conversion from Class G shares to Class T shares takes place at net asset value, as a result of which an investor receives dollar-for-dollar the same value of Class T shares as he or she had of Class G shares. The conversion occurs eight years after the beginning of the calendar month in which the shares are purchased. Upon conversion, the converted shares will be relieved of the distribution and shareholder servicing fees borne by Class G shares, although they will be subject to the shareholder servicing fees borne by Class T shares.
Class G shares acquired through a reinvestment of dividends or distributions are also converted at the earlier of two dates - (i) eight years after the beginning of the calendar month in which the reinvestment occurred or (ii) the date of conversion of the most recently purchased Class G shares that were not acquired through reinvestment of dividends or distributions. For example, if an investor makes a one-time purchase of Class G shares of a Fund, and subsequently acquires additional Class G shares of the Fund only through reinvestment of dividends and/or distributions, all of such investor's Class G shares in the Fund, including those acquired through reinvestment, will convert to Class T shares of the Fund on the same date.
INFORMATION APPLICABLE TO CERTAIN CLASS B SHAREHOLDERS
Except for the following, Class B Share Contingent Deferred Sales Charges ("CDSCs") and conversion schedules are described in the Prospectuses.
The following table describes the CDSC schedule applicable to Class B shares received by Galaxy Quality Plus Bond Fund shareholders in exchange for Prime B Shares in connection with the Galaxy/Liberty reorganization.
SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.00
Through second year 4.00
Through third year 3.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Longer than six years 0.00
|
Automatic conversion to Class A shares occurs eight years after purchase.
The Class B share discount program for purchases of $250,000 or more is not applicable to Class B shares received by Galaxy Fund Prime B shareholders in connection with the reorganization of the Galaxy Fund.
INFORMATION APPLICABLE TO CERTAIN CLASS A SHAREHOLDERS:
Except as set forth in the following paragraph, Class A share CDSCs are described in the Prospectuses:
Class A shares received by former Galaxy High Quality Bond Fund shareholders in exchange for Prime A Shares in connection with the Galaxy/Liberty reorganization of that Fund are subject to a 1% CDSC upon redemption of such Class A shares if the Prime A Shares were purchased without an initial sales charge in accounts aggregating $1 million or more at the time of purchase and the Class A shares are sold within 12 months of the time of purchase of the Prime A Shares. The 12-month holding period begins on the first day of the month in which each purchase was made.
DISTRIBUTIONS
Distributions are invested in additional shares of the same Class of the Fund at net asset value unless the shareholder elects to receive cash. Regardless of the shareholder's election, distributions of $10 or less will not be paid in cash, but will be invested in additional shares of the same class of the Fund at net asset value. Undelivered distribution checks returned by the post office will be reinvested in your account. If a shareholder has elected to receive dividends and/or capital gain distributions in cash and the postal or other delivery service selected by the Transfer Agent is unable to deliver checks to the shareholder's address of record, such shareholder's distribution option will automatically be converted to having all dividend and other distributions reinvested in additional shares. No interest will accrue on amounts represented by uncashed distribution or redemption checks. Shareholders may reinvest all or a portion of a recent cash distribution without a sales charge. No charge is currently made for reinvestment.
Shares of some Funds that pay daily dividends (include Funds) will normally earn dividends starting with the date the Fund receives payment for the shares and will continue through the day before the shares are redeemed, transferred or exchanged. Shares of some Funds that pay daily dividends (exclude Funds) Columbia will be earned starting with the day after that Fund receives payments for the shares. To determine whether a particular Fund is an include or exclude fund, customers can call 1-800-345-6611.
HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for the same class of shares of the other continuously offered funds (with certain exceptions) on the basis of the NAVs per share at the time of exchange. Class T and Z shares may be exchanged for Class A shares of certain other funds. The prospectus of each Fund describes its investment goal and policies, and shareholders should obtain a prospectus and consider these goals and policies carefully before requesting an exchange Consult CFS before requesting an exchange.
If you acquire Class A shares of an international fund by exchange from any other fund, you will not be permitted to exchange those shares into another fund for 30 calendar days, although you may redeem those shares at any time. An exchange order received prior to the expiration of the 30-day period will not be honored.
By calling CFS, shareholders or their FSF of record may exchange among accounts with identical registrations, provided that the shares are held on deposit. During periods of unusual market changes or shareholder activity, shareholders may experience delays in contacting CFS by telephone to exercise the telephone exchange privilege. Because an exchange involves a redemption and reinvestment in another fund, completion of an exchange may be delayed under unusual circumstances, such as if the Fund suspends repurchases or postpones payment for the Fund shares being exchanged in accordance with federal securities law. CFS will also make exchanges upon receipt of a written exchange request and share certificates, if any. If the shareholder is a corporation, partnership, agent, or surviving joint owner, CFS may require customary additional documentation. Prospectuses of the other Funds are available from the CFD Literature Department by calling 1-800-426-3750.
A loss to a shareholder may result from an unauthorized transaction reasonably believed to have been authorized. No shareholder is obligated to use the telephone to execute transactions.
Consult your FSF or CFS. In all cases, the shares to be exchanged must be registered on the records of the Fund in the name of the shareholder desiring to exchange.
Shareholders of the other open-end funds generally may exchange their shares at NAV for the same class of shares of the Fund. Sales charges may apply for exchanges from money market funds.
An exchange is generally a capital sale transaction for federal income tax purposes. The exchange privilege may be revised, suspended or terminated at any time.
SUSPENSION OF REDEMPTIONS
A Fund may not suspend shareholders' right of redemption or postpone payment for more than seven days unless the Exchange is closed for other than customary weekends or holidays, or if permitted by the rules of the SEC during periods when trading on the Exchange is restricted or during any emergency which makes it impracticable for the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by order of the SEC for the protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Declaration disclaims shareholder liability for acts or obligations of the Fund and the Trust and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by the Fund or the Trust's Trustees. The Declaration provides for indemnification out of Fund property for all loss and expense of any shareholder held personally liable for the obligations of the Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances (which are considered remote) in which the Fund would be unable to meet its obligations and the disclaimer was inoperative.
The risk of a particular fund incurring financial loss on account of another fund of the Trust is also believed to be remote, because it would be limited to circumstances in which the disclaimer was inoperative and the other fund was unable to meet its obligations.
SHAREHOLDER MEETINGS
As described under the caption "Organization and History", the Fund will not hold annual shareholders' meetings. The Trustees may fill any vacancies in the Board of Trustees except that the Trustees may not fill a vacancy if, immediately after filling such vacancy, less than two-thirds of the Trustees then in office would have been elected to such office by the shareholders. In addition, at such times as less than a majority of the Trustees then in office have been elected to such office by the shareholders, the Trustees must call a meeting of shareholders. Trustees may be removed from office by a written consent signed by a majority of the outstanding shares of the Trust or by a vote of the holders of a majority of the outstanding shares at a meeting duly called for the purpose, which meeting shall be held upon written request of the holders of not less than 10% of the outstanding shares of the Trust. Upon written request by the holders of 1% of the outstanding shares of the Trust stating that such shareholders of the Trust, for the purpose of obtaining the signatures necessary to demand a shareholders' meeting to consider removal of a Trustee, request information regarding the Trust's shareholders, the Trust will provide appropriate materials (at the expense of the requesting shareholders). Except as otherwise disclosed in the Prospectus and this SAI, the Trustees shall continue to hold office and may appoint their successors.
At any shareholders' meetings that may be held, shareholders of all series would vote together, irrespective of series, on the election of Trustees, but each series would vote separately from the others on other matters, such as changes in the investment policies of that series or the approval of the management agreement for that series.
APPENDIX I
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S (S&P)
The following descriptions are applicable to municipal bond funds:
AAA bonds have the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.
AA bonds have a very strong capacity to pay interest and repay principal, and they differ from AAA only in small degree.
A bonds have a strong capacity to pay interest and repay principal, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.
BBB bonds are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than for bonds in the A category.
BB, B, CCC, CC and C bonds are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or large exposures to adverse conditions.
BB bonds have less near-term vulnerability to default than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating.
B bonds have a greater vulnerability to default but currently have the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating.
CCC bonds have a currently identifiable vulnerability to default, and are dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, the bonds are not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating.
CC rating typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating.
C rating typically is applied to debt subordinated to senior debt which assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued.
CI rating is reserved for income bonds on which no interest is being paid.
D bonds are in payment default. The D rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized.
Plus(+) or minus(-) ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
PROVISIONAL RATINGS. The letter "p" indicates that the rating is provisional. A provisional rating assumes the successful completion of the project being financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely completion of the project. This rating, however, although
addressing credit quality subsequent to completion of the project, makes no comments on the likelihood of, or the risk of default upon failure of, such completion. The investor should exercise his own judgment with respect to such likelihood and risk.
MUNICIPAL NOTES:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating. Notes maturing beyond three years normally receive a bond rating, although the following criteria are used in making that assessment:
Amortization schedule (the larger the final maturity relative to other maturities, the more likely the issue will be rated as a note).
Source of payment (the more dependent the issue is on the market for its refinancing, the more likely it will be rated as a note).
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a demand feature. The first rating addresses the likelihood of repayment of principal and interest as due, and the second rating addresses only the demand feature. The long-term debt rating symbols are used for bonds to denote the long-term maturity, and the commercial paper rating symbols are usually used to denote the put (demand) option (for example, AAA/A-1+). Normally, demand notes receive note rating symbols combined with commercial paper symbols (for example, SP-1+/A-1+).
COMMERCIAL PAPER:
A. Issues assigned this highest rating are regarded as having the greatest capacity for timely payment. Issues in this category are further refined with the designations 1,2, and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are designed A-1+.
CORPORATE BONDS:
The description of the applicable rating symbols and their meanings is substantially the same as the Municipal Bond ratings set forth above.
The following descriptions are applicable to equity and taxable bond funds:
AAA bonds have the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.
AA bonds differ from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.
A bonds are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.
BBB bonds exhibit adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
BB, B, CCC and CC bonds are regarded, as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB bonds are less vulnerable to non-payment than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
B bonds are more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.
CCC bonds are currently vulnerable to nonpayment, and are dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC bonds are currently highly vulnerable to nonpayment.
C ratings may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on the obligation are being continued.
D bonds are in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
Plus (+) or minus(-): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
R This symbol is attached to the rating of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk, such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
AAA bonds are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge". Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While various protective elements are likely to change, such changes as can be visualized are most unlikely to impair a fundamentally strong position of such issues.
AA bonds are judged to be of high quality by all standards. Together with Aaa bonds they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.
Those bonds in the Aa through B groups that Moody's believes possess the strongest investment attributes are designated by the symbol Aa1, A1 and Baa1.
A bonds possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment sometime in the future.
BAA bonds are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact, have speculative characteristics as well.
BA bonds are judged to have speculative elements: their future cannot be considered as well secured. Often, the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B bonds generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
CAA bonds are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
CA bonds represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C bonds are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
CONDITIONAL RATINGS. Bonds for which the security depends upon the completion of some act or the fulfillment of some condition are rated conditionally. These are bonds secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in operating experience, (c) rentals which begin when facilities are completed, or (d) payments to which some other limiting conditions attach. Parenthetical rating denotes probable credit stature upon completion of construction or elimination of basis of condition.
MUNICIPAL NOTES:
MIG 1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are accounted for, but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
Moody's may assign a separate rating to the demand feature of a variable rate demand security. Such a rating may include:
VMIG 1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are accounted for, but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
COMMERCIAL PAPER:
Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper obligations are supported by the credit of another entity or entities, Moody's, in assigning ratings to such issuers, evaluates the financial strength of the indicated affiliated corporations, commercial banks, insurance companies, foreign governments, or other entities, but only as one factor in the total rating assessment.
CORPORATE BONDS:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings is identical to that of the Municipal Bond ratings as set forth above, except for the numerical modifiers. Moody's applies numerical modifiers 1,2, and 3 in the Aa and A classifications of its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a midrange ranking; and the modifier 3 indicates that the issuer ranks in the lower end of its generic rating category.
FITCH INC.
INVESTMENT GRADE BOND RATINGS
AAA bonds are considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and/or dividends and repay principal, which is unlikely to be affected by reasonably foreseeable events.
AA bonds are considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated 'AAA'. Because bonds rated in the 'AAA' and 'AA' categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated 'F-1+'.
A bonds are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than debt securities with higher ratings.
BBB bonds are considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest or dividends and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these securities and, therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for securities with higher ratings.
CONDITIONAL
A conditional rating is premised on the successful completion of a project or the occurrence of a specific event.
SPECULATIVE-GRADE BOND RATINGS
BB bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified, which could assist the obligor in satisfying its debt service requirements.
B bonds are considered highly speculative. While securities in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue.
CCC bonds have certain identifiable characteristics that, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment.
CC bonds are minimally protected. Default in payment of interest and/or principal seems probable over time.
C bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D bonds are in default on interest and/or principal payments. Such securities are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. 'DDD' represents the highest potential for recovery on these securities, and 'D' represents the lowest potential for recovery.
APPENDIX II
COLUMBIA MANAGEMENT ADVISORS, INC. ("CMA")
PROXY VOTING POLICIES AND PROCEDURES
ADOPTED JULY 1, 2003 AND REVISED MARCH 4, 2005
POLICY:
ALL PROXIES(2) REGARDING CLIENT SECURITIES FOR WHICH COLUMBIA MANAGEMENT ADVISORS, INC. ("CMA") HAS ASSUMED AUTHORITY TO VOTE SHALL, UNLESS CMA DETERMINES IN ACCORDANCE WITH POLICIES STATED BELOW TO ABSTAIN FROM VOTING, BE VOTED IN A MANNER CONSIDERED BY CMA TO BE IN THE BEST INTEREST OF CMA'S CLIENTS, INCLUDING THE CMG FAMILY FUNDS(3) AND THEIR SHAREHOLDERS, WITHOUT REGARD TO ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES. THE BEST INTEREST OF CLIENTS IS DEFINED FOR THIS PURPOSE AS THE INTEREST OF ENHANCING OR PROTECTING THE ECONOMIC VALUE OF CLIENT ACCOUNTS, CONSIDERED AS A GROUP RATHER THAN INDIVIDUALLY, AS CMA DETERMINES IN ITS SOLE AND ABSOLUTE DISCRETION. IN THE EVENT A CLIENT BELIEVES THAT ITS OTHER INTERESTS REQUIRE A DIFFERENT VOTE, CMA SHALL VOTE AS THE CLIENT CLEARLY INSTRUCTS, PROVIDED CMA RECEIVES SUCH INSTRUCTIONS IN TIME TO ACT ACCORDINGLY.
CMA ENDEAVORS TO VOTE, IN ACCORDANCE WITH THIS POLICY, ALL PROXIES OF WHICH IT BECOMES AWARE, SUBJECT TO THE FOLLOWING EXCEPTIONS (UNLESS OTHERWISE AGREED) WHEN CMA EXPECTS TO ROUTINELY ABSTAIN FROM VOTING:
1. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE THE SECURITY HAS BEEN LOANED FROM THE CLIENT'S ACCOUNT.
2. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE CMA DEEMS THE COSTS TO THE CLIENT AND/OR THE ADMINISTRATIVE INCONVENIENCE OF VOTING THE SECURITY (E.G., SOME FOREIGN SECURITIES) OUTWEIGH THE BENEFIT OF DOING SO.
CMA SEEKS TO AVOID THE OCCURRENCE OF ACTUAL OR APPARENT MATERIAL CONFLICTS OF INTEREST IN THE PROXY VOTING PROCESS BY VOTING IN ACCORDANCE WITH PREDETERMINED VOTING GUIDELINES, AS STATED BELOW. FOR THOSE PROXY PROPOSALS THAT REQUIRE SPECIAL CONSIDERATION OR IN INSTANCES WHERE SPECIAL CIRCUMSTANCES MAY REQUIRE VARYING FROM THE PREDETERMINED GUIDELINES, THE CMG PROXY COMMITTEE WILL DETERMINE THE BEST INTEREST OF CMA'S CLIENTS AND VOTE ACCORDINGLY, WITHOUT CONSIDERATION OF ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES.
OVERVIEW:
CMA's policy is based upon its fiduciary obligation to act in its clients' best interest. Citing this obligation, the SEC has adopted rules pursuant to the Investment Advisers Act of 1940 and Investment Company Act of 1940 with respect to proxy voting.
PROCEDURE:
I. ACCOUNT POLICIES
Except as otherwise directed by the client, CMA shall vote as follows:
SEPARATELY MANAGED ACCOUNTS
Cma shall vote proxies on securities held in its separately managed accounts.
COLUMBIA TRUST COMPANY (CTC) TRUST POOLS
CMA shall vote proxies on securities held in the trust pools.
CMG FAMILY FUNDS/CMA FUND TRUST
(3) A CMG Family Fund or a Fund is a registered investment company or series of a registered investment company managed or advised by Columbia Management Advisors, Inc.
CMA shall vote proxies on securities held in the Funds, including multi-managed and subadvised Funds.
COLUMBIA PRIVATE PORTFOLIO
CMA shall vote proxies on securities held in its separately managed accounts.
ALTERNATIVE INVESTMENT GROUP
CMA's clients may invest in securities ("Alternative Investments") issued by alternative investment vehicles (i.e. hedge funds, private equity funds, and other alternative investment pools) that are structured as private limited partnerships ("LPs"), limited liability companies ("LLCs") or offshore corporations. Generally, CMA's Alternative Investment Group ("AIG") is the platform through which CMA provides advisory services relating to Alternative Investments.
The voting rights of Alternative Investments generally are rights of contract set forth in the limited liability company or limited partnership agreement, in the case of LLCs and LPs, or Memorandum and Articles of Association or By-laws, in the case of offshore corporations. Also, as privately placed securities, Alternative Investments generally are not subject to the regulatory scheme applicable to public companies. Consequently, in most cases, proxies are not solicited regarding Alternative Investment vehicles. Instead, consents may be solicited from members, limited partners or shareholders.
Because of the unique characteristics of Alternative Investments, CMA has a tailored process for voting Alternative Investment proxies and consents.
Process
AIG will vote all Alternative Investment proxies and consents in accordance with this Policy. The committee voting AIG proxies consists of AIG senior management, investment and operations professionals. Conflicts of interest are to be monitored and resolved as set forth in this Policy.
II. PROXY COMMITTEE
CMA shall establish a Proxy Committee whose standing members shall include the head of core equity, head of value, head of growth, head of income strategies, head of equity research and head of fixed income research. Each standing member may designate a senior portfolio manager or a senior analyst officer to act as a substitute in a given matter on their behalf.
The Proxy Committee's functions shall include, in part,
(a) direction of the vote on proposals where there has been a recommendation to the Committee, pursuant to Section IV.B, not to vote according to the predetermined Voting Guidelines stated in Section IV.A or on proposals which require special, individual consideration in accordance with Section IV.C;
(b) review at least annually of this Proxy Voting Policy and Procedure to ensure consistency with internal policies, client disclosures and regulatory requirements;
(c) review at least annually of existing Voting Guidelines and need for development of additional Voting Guidelines to assist in the review of proxy proposals; and
(d) development and modification of Voting Procedures, as stated in Section V, as it deems appropriate or necessary.
The Proxy Committee shall establish a charter, which shall set forth the Committee's purpose, membership and operation. The Committee's charter shall be consistent, in all material respects, with this policy and procedure.
III. CONFLICTS OF INTEREST
With Other Bank of America Businesses
Bank of America Corporation ("BAC"), the ultimate corporate parent of CMA, Bank of America, N.A. and all of their numerous affiliates owns, operates and has interests in many lines of business that may create or give rise to the appearance of a conflict of interest between BAC or its affiliates and those of Firm-advised clients. For example, the commercial and investment banking business lines may have interests with respect to issuers of voting securities that could appear to or even actually conflict with CMA's duty, in the proxy voting process, to act in the best economic interest of its clients.
Within CMA
Conflicts of interest may also arise from the business activities of CMA. For example, CMA might manage (or be seeking to manage) the assets of a benefit plan for an issuer. CMA may also be presented with an actual or apparent conflict of interest where proxies of securities issued by BAC or a CMG Family Fund, for which CMA serves as investment adviser, are to be voted for a client's account.
Management of Conflicts
CMA's policy is to always vote proxies in the best interest of its clients, as a whole, without regard to its own self-interest or that of its affiliates. BAC as well as CMA has various compliance policies and procedures in place in order to address any material conflicts of interest that might arise in this context.
1. BAC's enterprise-wide Code of Ethics specifically prohibits the flow of certain business-related information between associates on the commercial and/or investment banking side of the corporation and associates charged with trust or (as in the case of BACAP associates) non-trust fiduciary responsibilities, including investment decision-making and proxy voting.
2. In addition, BAC has adopted "Global Policies and Procedures Regarding Information Walls and Inside Information." Pursuant to these policies and procedures, "information barriers" have been established between various BAC business lines designed to prohibit the passage of certain information across those barriers.
3. Within CMA, CMA's Code of Ethics affirmatively requires that associates of CMA act in a manner whereby no actual or apparent conflict of interest may be seen as arising between the associate's interests and those of CMA's Clients.
4. By assuming his or her responsibilities pursuant to this Policy, each member of the Proxy Committee and any CMA or BAC associate advising or acting under the supervision or oversight of the Proxy Committee undertakes:
- To disclose to the chairperson of the Proxy Committee and the chairperson to the head of CMG Compliance any actual or apparent personal material conflicts of interest which he or she may have (e.g., by way of substantial ownership of securities, relationships with nominees for directorship, members of an issuer's or dissident's management or otherwise) in determining whether or how CMA shall vote proxies. In the event the chairperson of the Proxy Committee has a conflict of interest regarding a given matter, he or she shall abstain from participating in the Committee's determination of whether and/or how to vote in the matter; and
- To refrain from taking into consideration, in the decision as to whether or how CMA shall vote proxies:
- The existence of any current or prospective material business relationship between CMA, BAC or any of their affiliates, on one hand, and any party (or its affiliates) that is soliciting or is otherwise interested in the proxies to be voted, on the other hand; and/or
- Any direct, indirect or perceived influence or attempt to influence such action which the member or associate views as being inconsistent with the purpose or provisions of this Policy or the Code of Ethics of CMA or BAC.
Where a material conflict of interest is determined to have arisen in the proxy voting process that may not be adequately mitigated by voting in accordance with the predetermined Voting Guidelines, CMA's policy is to invoke one or more of the following conflict management procedures:
1. Convene the Proxy Committee for the purpose of voting the affected proxies in a manner that is free of the conflict.
2. Causing the proxies to be voted in accordance with the recommendations of a qualified, independent third party, which may include CMA's proxy voting agent.
3. In unusual cases, with the Client's consent and upon ample notice, forwarding the proxies to CMA's clients so that they may vote the proxies directly.
IV. VOTING GUIDELINES
A. THE PROXY COMMITTEE HAS ADOPTED THE FOLLOWING GUIDELINES FOR VOTING PROXIES:
1. Matters Relating to the Board of Directors/Corporate Governance
CMA generally will vote FOR:
- Proposals for the election of directors or for an increase or decrease in the number of directors, provided that no more than one-third of the Board of Directors would, presently or at any time during the previous three-year period, be from management.
However, CMA generally will WITHHOLD votes from pertinent director nominees if:
(i) the board as proposed to be constituted would have more than one-third of its members from management;
(ii) the board does not have audit, nominating, and compensation committees composed solely of directors who qualify as being regarded as "independent," i.e. having no material relationship, directly or indirectly, with the Company, as CMA's proxy voting agent may determine (subject to the Proxy Committee's contrary determination of independence or non-independence);
(iii) the nominee, as a member of the audit committee, permitted the company to incur excessive non-audit fees (as defined below regarding other business matters-ratification of the appointment of auditors);
(iv) a director serves on more than six public company boards;
(v) the CEO serves on more than two public company boards other than the company's board.
On a CASE-BY-CASE basis, CMA may WITHHOLD votes for a director nominee who has failed to observe good corporate governance practices or, through specific corporate action or inaction (e.g. failing to implement policies for which a majority of shareholders has previously cast votes in favor), has demonstrated a disregard for the interests of shareholders.
- Proposals requesting that the board audit, compensation and/or nominating committee be composed solely of independent directors. The Audit Committee must satisfy the independence and experience requirements established by the Securities and Exchange Commission ("SEC") and the New York Stock Exchange, or appropriate local requirements for foreign securities. At least one member of the Audit Committee must qualify as a "financial expert" in accordance with SEC rules.
- Proposals to declassify a board, absent special circumstances that would indicate that shareholder interests are better served by a classified board structure.
CMA generally will vote FOR:
- Proposals to create or eliminate positions or titles for senior management. CMA generally prefers that the role of Chairman of the Board and CEO be held by different persons unless there are compelling reasons to vote AGAINST a proposal to separate these positions, such as the existence of a counter-balancing governance structure that includes at least the following elements in addition to applicable listing standards:
- Established governance standards and guidelines.
- Full board composed of not less than two-thirds "independent" directors, as defined by applicable regulatory and listing standards.
- Compensation, as well as audit and nominating (or corporate governance) committees composed entirely of independent directors.
- A designated or rotating presiding independent director appointed by and from the independent directors with the authority and responsibility to call and preside at regularly and, as necessary, specially scheduled meetings of the independent directors to be conducted, unless the participating independent directors otherwise wish, in executive session with no members of management present.
- Disclosed processes for communicating with any individual director, the presiding independent director (or, alternatively, all of the independent directors, as a group) and the entire board of directors, as a group.
- The pertinent class of the Company's voting securities has out-performed, on a three-year basis, both an appropriate peer group and benchmark index, as indicated in the performance summary table of the Company's proxy materials. This requirement shall not apply if there has been a change in the Chairman/CEO position within the three-year period.
- Proposals that grant or restore shareholder ability to remove directors with or without cause.
- Proposals to permit shareholders to elect directors to fill board vacancies.
- Proposals that encourage directors to own a minimum amount of company stock.
- Proposals to provide or to restore shareholder appraisal rights.
- Proposals to adopt cumulative voting.
- Proposals for the company to adopt confidential voting.
CMA generally will vote AGAINST:
- Proposals to classify boards, absent special circumstances indicating that shareholder interests would be better served by a classified board structure.
- Proposals that give management the ability to alter the size of the board without shareholder approval.
- Proposals that provide directors may be removed only by supermajority vote.
- Proposals to eliminate cumulative voting.
- Proposals which allow more than one vote per share in the election of directors.
- Proposals that provide that only continuing directors may elect replacements to fill board vacancies.
- Proposals that mandate a minimum amount of company stock that directors must own.
- Proposals to limit the tenure of non-management directors.
CMA will vote on a CASE-BY-CASE basis in contested elections of directors.
CMA generally will vote on a CASE-BY-CASE basis on board approved proposals relating to corporate governance. Such proposals include, but are not limited to:
- Director and officer indemnification and liability protection. CMA is opposed to entirely eliminating directors' and officers' liability for monetary damages for violating the duty of care. CMA is also opposed to expanding coverage beyond just legal expenses to acts, such as negligence, that are more serious violations of fiduciary obligation than mere carelessness. CMA supports proposals which provide such expanded coverage in cases when a director's or officer's legal defense was unsuccessful if: (i) the director was found to have acted in good faith and in a manner that he/she reasonably believed was in the best interests of the company, AND (ii) if the director's legal expenses would be covered.
- Reimbursement of proxy solicitation expenses taking into consideration whether or not CMA was in favor of the dissidents.
- Proxy contest advance notice. CMA generally will vote FOR proposals that allow shareholders to submit proposals as close to the meeting date as possible while allowing for sufficient time for Company response, SEC review, and analysis by other shareholders.
2. Compensation
CMA generally will vote FOR management sponsored compensation plans (such as bonus plans, incentive plans, stock option plans, pension and retirement benefits, stock purchase plans or thrift plans) if they are consistent with industry and country standards. However, CMA generally is opposed to compensation plans that substantially dilute ownership interest in a company, provide participants with excessive awards, or have objectionable structural features. Specifically, for equity-based plans, if the proposed number of shares authorized for option programs (excluding authorized shares for expired options) exceeds an average of 10% of the currently outstanding shares over the previous three years or an average of 3% over the previous three years for directors only, the proposal should be referred to the Proxy Committee. The Committee will then consider the circumstances surrounding the issue and vote in the best interest of CMA's clients. CMA requires that management provide substantial justification for the repricing of options.
CMA generally will vote FOR:
- Proposals requiring that executive severance arrangements be submitted for shareholder ratification.
- Proposals asking a company to expense stock options.
- Proposals to put option repricings to a shareholder vote.
- Employee stock purchase plans that have the following features: (i) the shares purchased under the plan are acquired for no less than 85% of their market value, (ii) the offering period under the plan is 27 months or less, and (iii) dilution is 10% or less.
CMA generally will vote AGAINST:
- Stock option plans that permit issuance of options with an exercise price below the stock's current market price, or that permit replacing or repricing of out-of-the money options.
- Proposals to authorize the replacement or repricing of out-of-the money options.
CMA will vote on a CASE-BY-CASE basis proposals regarding approval of specific executive severance arrangements.
3. Capitalization
CMA generally will vote FOR:
- Proposals to increase the authorized shares for stock dividends, stock splits (and reverse stock splits) or general issuance, unless proposed as an anti-takeover measure or a general issuance proposal increases the authorization by more than 30% without a clear need presented by the company. Proposals for reverse stock splits should include an overall reduction in authorization.
For companies recognizing preemptive rights for existing shareholders, CMA generally will vote FOR general issuance proposals that increase the authorized shares by more than 30%. CMA will vote on a CASE-BY-CASE basis all such proposals by companies that do not recognize preemptive rights for existing shareholders.
- Proposals for the elimination of authorized but unissued shares or retirement of those shares purchased for sinking fund or treasury stock.
- Proposals to institute/renew open market share repurchase plans in which all shareholders may participate on equal terms.
- Proposals to reduce or change the par value of common stock, provided the number of shares is also changed in order to keep the capital unchanged.
4. Mergers, Restructurings and Other Transactions
CMA will review, on a CASE-BY-CASE basis, business transactions such as mergers, acquisitions, reorganizations, liquidations, spinoffs, buyouts and sale of all or substantially all of a company's assets.
5. Anti-Takeover Measures
CMA generally will vote AGAINST proposals intended largely to avoid acquisition prior to the occurrence of an actual event or to discourage acquisition by creating a cost constraint. With respect to the following measures, CMA generally will vote as follows:
Poison Pills
- CMA votes FOR shareholder proposals that ask a company to submit its poison pill for shareholder ratification.
- CMA generally votes FOR shareholder proposals to eliminate a poison pill.
- CMA generally votes AGAINST management proposals to ratify a poison pill.
Greenmail
- CMA will vote FOR proposals to adopt anti-greenmail charter or bylaw amendments or to otherwise restrict a company's ability to make greenmail payments.
Supermajority vote
- CMA will vote AGAINST board-approved proposals to adopt anti-takeover measures such as supermajority voting provisions, issuance of blank check preferred stock, the creation of a separate class of stock with disparate voting rights and charter amendments adopting control share acquisition provisions.
Control Share Acquisition Provisions
- CMA will vote FOR proposals to opt out of control share acquisition statutes.
6. Other Business Matters
CMA generally will vote FOR:
- Proposals to approve routine business matters such as changing the company's name and procedural matters relating to the shareholder meeting such as approving the minutes of a prior meeting.
- Proposals to ratify the appointment of auditors, unless any of the following apply in which case CMA will generally vote AGAINST the proposal:
- Credible reason exists to question:
- The auditor's independence, as determined by applicable regulatory requirements.
- The accuracy or reliability of the auditor's opinion as to the company's financial position.
- Fees paid to the auditor or its affiliates for "non-audit" services were excessive, i.e., in excess of the total fees paid for "audit," "audit-related" and "tax compliance" and/or "tax return preparation" services, as disclosed in the company's proxy materials.
- Bylaw or charter changes that are of a housekeeping nature (e.g., updates or corrections).
- Proposals to approve the annual reports and accounts provided the certifications required by the Sarbanes Oxley Act of 2002 have been provided.
CMA generally will vote AGAINST:
- Proposals to eliminate the right of shareholders to act by written consent or call special meetings.
- Proposals providing management with authority to adjourn an annual or special shareholder meeting absent compelling reasons, or to adopt, amend or repeal bylaws without shareholder approval, or to vote unmarked proxies in favor of management.
- Shareholder proposals to change the date, time or location of the company's annual meeting of shareholders.
CMA will vote AGAINST:
- Authorization to transact other unidentified substantive (as opposed to procedural) business at a meeting.
CMA will vote on a CASE-BY-CASE basis:
- Proposals to change the location of the company's state of incorporation. CMA considers whether financial benefits (e.g., reduced fees or taxes) likely to accrue to the company as a result of a reincorporation or other change of domicile outweigh any accompanying material diminution of shareholder rights.
- Proposals on whether and how to vote on "bundled" or otherwise conditioned proposals, depending on the overall economic effects upon shareholders.
CMA generally will ABSTAIN from voting on shareholder proposals predominantly involving social, socio-economic, environmental, political or other similar matters on the basis that their impact on share value can rarely be anticipated with any high degree of confidence. CMA may, on a CASE-BY-CASE basis, vote:
- FOR proposals seeking inquiry and reporting with respect to, rather than cessation or affirmative implementation of, specific policies where the pertinent issue warrants separate communication to shareholders; and
- FOR or AGAINST the latter sort of proposal in light of the relative benefits and detriments (e.g. distraction, costs, other burdens) to share value which may be expected to flow from passage of the proposal.
7. Other Matters Relating to Foreign Issues
CMA generally will vote FOR:
- Most stock (scrip) dividend proposals. CMA votes AGAINST proposals that do not allow for a cash option unless management demonstrates that the cash option is harmful to shareholder value.
- Proposals to capitalize the company's reserves for bonus issues of shares or to increase the par value of shares.
- Proposals to approve control and profit transfer agreements between a parent and its subsidiaries.
- Management proposals seeking the discharge of management and supervisory board members, unless there is concern about the past actions of the company's auditors/directors and/or legal action is being taken against the board by other shareholders.
- Management proposals concerning allocation of income and the distribution of dividends, unless the dividend payout ratio has been consistently below 30 percent without adequate explanation or the payout is excessive given the company's financial position.
- Proposals for the adoption of financing plans if they are in the best economic interests of shareholders.
8. Investment Company Matters
Election of Directors:
CMA will vote on a CASE-BY-CASE basis proposals for the election of directors, considering the following factors:
- Board structure
- Attendance at board and committee meetings.
CMA will WITHHOLD votes from directors who:
- Attend less than 75 percent of the board and committee meetings without a valid excuse for the absences. Valid reasons include illness or absence due to company business. Participation via telephone is acceptable. In addition, if the director missed only one meeting or one day's meetings, votes should not be withheld even if such absence dropped the director's attendance below 75 percent.
- Ignore a shareholder proposal that is approved by a majority of shares outstanding;
- Ignore a shareholder proposal this is approved by a majority of the votes cast for two consecutive years;
- Are interested directors and sit on the audit or nominating committee; or
- Are interested directors and the full board serves as the audit or nominating committee or the company does not have one of these committees.
Proxy Contests:
CMA will vote on a CASE-BY-CASE basis proposals for proxy contests, considering the following factors:
- Past performance relative to its peers
- Market in which fund invests
- Measures taken by the board to address the pertinent issues (e.g., closed-end fund share market value discount to NAV)
- Past shareholder activism, board activity and votes on related proposals
- Strategy of the incumbents versus the dissidents
- Independence of incumbent directors; director nominees
- Experience and skills of director nominees
- Governance profile of the company
- Evidence of management entrenchment
Converting Closed-end Fund to Open-end Fund:
CMA will vote conversion proposals on a CASE-BY-CASE basis, considering the following factors:
- Past performance as a closed-end fund
- Market in which the fund invests
- Measures taken by the board to address the discount
- Past shareholder activism, board activity, and votes on related proposals.
Investment Advisory Agreements:
CMA will vote investment advisory agreements on a CASE-BY-CASE basis, considering the following factors:
- Proposed and current fee schedules
- Fund category/investment objective
- Performance benchmarks
- Share price performance as compared with peers
- Resulting fees relative to peers
- Assignments (where the adviser undergoes a change of control)
Approving New Classes or Series of Shares:
CMA will vote FOR the establishment of new classes or series of shares.
Preferred Stock Proposals:
CMA will vote on a CASE-BY-CASE basis proposals for the authorization for or increase in the preferred shares, considering the following factors:
- Stated specific financing purpose
- Possible dilution for common shares
- Whether the shares can be used for antitakover purposes
Policies Addressed by the Investment Company Act of 1940 ("1940 Act"):
CMA will vote proposals regarding adoption or changes of policies addressed by the 1940 Act on a CASE-BY-CASE basis, considering the following factors:
- Potential competitiveness
- Regulatory developments
- Current and potential returns
- Current and potential risk
CMA generally will vote FOR these amendments as long as the proposed changes do not fundamentally alter the investment focus of the fund and do comply with current SEC interpretations.
Changing a Fundamental Restriction to a Non-fundamental Restriction:
CMA will vote on a CASE-BY-CASE basis proposals to change a fundamental restriction to a nonfundamental restriction, considering the following factors:
- Fund's target investments
- Reasons given by the fund for the change
- Projected impact of the change on the portfolio
Change Fundamental Investment Objective to Non-fundamental:
CMA will vote AGAINST proposals to change a fund's investment objective from fundamental to non-fundamental unless management acknowledges meaningful limitations upon its future requested ability to change the objective
Name Change Proposals:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's name, considering the following factors:
- Political/economic changes in the target market
- Consolidation in the target market
- Current asset composition
Change in Fund's Subclassification:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's subclassification, considering the following factors:
- Potential competitiveness
- Current and potential returns
- Risk of concentration
- Consolidation in target industry
Disposition of Assets/Termination/Liquidation:
CMA will vote on a CASE-BY-CASE basis these proposals, considering the following factors:
- Strategies employed to salvage the company
- Past performance of the fund
- Terms of the liquidation
Changes to the Charter Document:
CMA will vote on a CASE-BY-CASE basis proposals to change the charter document, considering the following factors:
- The degree of change implied by the proposal
- The efficiencies that could result
- The state of incorporation; net effect on shareholder rights
- Regulatory standards and implications
CMA will vote FOR:
- Proposals allowing the Board to impose, without shareholder approval, fees payable upon redemption of fund shares, provided imposition of such fees is likely to benefit long-term fund investors (e.g., by deterring market timing activity by other fund investors)
- Proposals enabling the Board to amend, without shareholder approval, the fund's management agreement(s) with its investment adviser(s) or sub-advisers, provided the amendment is not required by applicable law (including the Investment Company Act of 1940) or interpretations thereunder to require such approval
CMA will vote AGAINST:
- Proposals enabling the Board to:
- Change, without shareholder approval the domicile of the fund
- Adopt, without shareholder approval, material amendments of the fund's declaration of trust or other organizational document
Changing the Domicile of a Fund:
CMA will vote on a CASE-BY-CASE basis proposals to reincorporate, considering the following factors:
- Regulations of both states
- Required fundamental policies of both states
- The increased flexibility available
Authorizing the Board to Hire and Terminate Subadvisors Without Shareholder Approval:
CMA will vote FOR proposals to enable the Board or Investment Adviser to hire and terminate sub-advisers, without shareholder approval, in accordance with applicable rules or exemptive orders under the Investment Company Act of 1940
Distribution Agreements:
CMA will vote these proposals on a CASE-BY-CASE basis, considering the following factors:
- Fees charged to comparably sized funds with similar objectives
- The proposed distributor's reputation and past performance
- The competitiveness of the fund in the industry
- Terms of the agreement
Master-Feeder Structure:
CMA will vote FOR the establishment of a master-feeder structure. Mergers:
CMA will vote merger proposals on a CASE-BY-CASE basis, considering the following factors:
- Resulting fee structure
- Performance of both funds
- Continuity of management personnel
- Changes in corporate governance and their impact on shareholder rights
Shareholder Proposals to Establish Director Ownership Requirement:
CMA will generally vote AGAINST shareholder proposals that mandate a specific minimum amount of stock that directors must own in order to qualify as a director or to remain on the board. While CMA favors stockownership on the part of directors, the company should determine the appropriate ownership requirement.
Shareholder Proposals to Reimburse Shareholder for Expenses Incurred:
CMA will vote on a CASE-BY-CASE basis proposals to reimburse proxy solicitation expenses.
Shareholder Proposals to Terminate the Investment Adviser:
CMA will vote on a CASE-BY-CASE basis proposals to terminate the investment adviser, considering the following factors:
- Performance of the fund's NAV
- The fund's history of shareholder relations
- The performance of other funds under the adviser's management
9. Alternative Investment Group ("AIG") Matters
The AIG Proxy Sub-Committee generally will vote in accordance with the guidelines set forth in this policy. With respect to matters that are not addressed by the guidelines, the AIG Proxy Sub-Committee will vote each such matter on a CASE-BY-CASE basis.
B. ABILITY TO VOTE PROXIES OTHER THAN AS PROVIDED IN A ABOVE.
A Portfolio Manager, sub-adviser or other party involved with a client's account may conclude that the best interest of the firm's client, as defined above, requires that a proxy be voted in a manner that differs from the predetermined proxy Voting Guidelines stated in Section IV.A. In this situation, he or she shall request that the Proxy Committee consider voting the proxy other than according such Guidelines. If any person, group, or entity requests the Proxy Committee (or any of its members) vote a proxy other than according to the predetermined Voting Guidelines, that person shall furnish to the Proxy Committee a written explanation of the reasons for the request and a description of the person's, group's, or entity's relationship, if any, with the parties proposing and/or opposing the matter's adoption.
C.PROPOSALS REQUIRING SPECIAL CONSIDERATION
The following proposals require special, individual consideration. The Proxy Committee will determine how proxies related to all such proposals will be voted.
1. NEW PROPOSALS. For each new type of proposal that is expected to be proposed to shareholders of multiple companies, the Proxy Committee will develop a Voting Guideline which will be incorporated into this Policy.
2. ACCOUNTS ADHERING TO TAFT HARTLEY PRINCIPLES. All proposals for these accounts shall be voted according to the Taft Hartley Guidelines developed by Institutional Shareholder Services, Inc. ("ISS").
3. ACCOUNTS ADHERING TO SOCIALLY RESPONSIBLE PRINCIPLES. All proposals for these accounts shall be voted according to the Socially Responsible Guidelines developed by ISS or as specified by the client.
4. PROXIES OF INTERNATIONAL ISSUERS WHICH BLOCK SECURITIES SALES BETWEEN THE TIME A SHAREHOLDER SUBMITS A PROXY AND THE VOTE. Proposals for these securities shall be voted only on the specific instruction of the Proxy Committee and to the extent practicable in accordance with the Voting Guidelines set forth in this Policy.
5. PROXIES OF INVESTMENT COMPANY SHARES. Proposals on issues other than those specified in Section IV.A.
6. EXECUTIVE/DIRECTOR COMPENSATION. Except as provided in Section
IV.A, proposals relating to compensation of any executive or director
will be voted as recommended by ISS or as otherwise directed by the
Proxy Committee.
7. PREEMPTIVE RIGHTS. Proposals to create or eliminate shareholder preemptive rights. In evaluating these proposals the Proxy Committee will consider the size of the company and the nature of its shareholder base.
V. VOTING PROCEDURES
The Proxy Committee has developed the following procedures to aid the voting of proxies according to the Voting Guidelines set forth in Section IV above. The Proxy Committee may revise these procedures from time to time, as it deems necessary or appropriate to effect the purposes of this Policy.
- CMA shall use an independent, third-party vendor (currently Institutional Shareholder Services ("ISS")), to implement its proxy voting process as CMAs proxy voting agent. This retention is subject to CMA continuously assessing the vendor's independence from CMA and its affiliates, and the vendor's ability to perform its responsibilities (and, especially, its responsibility to vote client proxies in accordance with CMA's proxy voting guidelines) free of any actual, potential or apparent material conflicts of interests that may arise between the interests of the vendor, its affiliates, the vendor's other clients and the owners, officers or employees of any such firm, on the one hand, and CMA's clients, on the other hand. As means of performing this assessment, CMA will require various reports and notices from the vendor, as well as periodic audits of the vendor's voting record and other due diligence.
- ISS shall provide proxy analysis and record keeping services in addition to voting proxies on behalf of CMA in accordance with this Policy.
- On a daily basis CMA shall send to ISS a holdings file detailing each equity holding held in all accounts over which CMA has voting authority. Information regarding equity holdings for international portfolio shall be sent weekly.
- ISS shall receive proxy material information from Proxy Edge or the custodian bank for the account. This shall include issues to be voted upon, together with a breakdown of holdings for CMA accounts. ISS shall then reconcile information it receives from CMA with that it has received from Proxy Edge and custodian banks. Any discrepancies shall be promptly noted and resolved by ISS, with notice to CMA.
- Whenever a vote is solicited, ISS shall execute the vote according to CMA's Voting Guidelines previously delivered by CMA to ISS as set forth in Section IV.A.
- If ISS is not sure how to vote a particular proxy, then ISS will issue a request for voting instructions to CMA over a secure website. CMA personnel shall check this website regularly. The request shall be accompanied by a recommended vote. The recommended vote shall be based upon CMA's understanding of the Voting Guidelines previously delivered to ISS. CMA shall promptly provide ISS with any amendments or modifications to the Voting Guidelines if necessary. CMA shall return a final instruction to vote to ISS, which ISS shall record with Proxy Edge or the custodian bank as our agent.
- Each time that ISS shall send CMA a request to vote the request shall be accompanied by the recommended vote determined in accordance with CMA's Voting Guidelines. ISS shall vote as indicated in the request unless the client has reserved discretion, the Proxy Committee determines that the best interest of clients requires another vote or the proposal is a matter as to which the Proxy Committee affords special, individual consideration under Section IV.C. In such situations ISS shall vote based on the direction of the client or the Proxy Committee, as the case may be. The interests of CMA's Taft Hartley or Socially Responsible clients may impact a proposal that normally should be voted in a certain way. ISS shall inform CMA of all proposals having impact on its Taft Hartley and or Socially Responsible clients. The Proxy Voting Committee shall be consulted before a vote is placed in cases where Taft Hartley or Socially Responsible issues are presented.
- ISS shall have procedures in place to ensure that a vote is cast on every security holding maintained by CMA on which a vote is solicited unless otherwise directed by the Proxy Committee. On a yearly basis, or as required by our clients CMA shall receive a report from ISS detailing CMA's voting for the previous period.
VI. AVAILABILITY OF PROXY POLICY AND VOTING RECORD
A summary disclosure regarding the provisions of this Policy is available in CMA's Form ADV. Upon receipt of a Client's request for more information, CMA will provide to the Client a copy of this Policy and/or how CMA voted proxies for the Client pursuant to this Policy for up to a one-year period.
COLUMBIA INTERMEDIATE BOND FUND
CLASS R SHARES
SERIES OF COLUMBIA FUNDS SERIES TRUST I
SUPPLEMENT TO THE FUND'S CURRENT STATEMENT OF ADDITIONAL INFORMATION
This supplement applies to the "Fund" listed above.
1. The name of the Trust is revised to read "Columbia Funds Series Trust I."
2. The first sentence in the section entitled "Organization and History" is revised to read:
The Trust is a Massachusetts business trust organized in 1987. The Fund was originally organized as a series of another Massachusetts business trust prior to its reorganization as a series of the Trust on March 27, 2006.
3. The last paragraph of the section entitled "Organization and History" is revised in its entirety to read:
Effective October 13, 2003, the Trust changed its name from "Liberty-Stein Roe Funds Municipal Trust" to "Columbia Funds Trust IX." Effective September 23, 2005, the name of the trust was changed from "Columbia Funds Trust IX" to "Columbia Funds Series Trust I."
4. The section entitled "Trustees and Trustees' Fees" is revised in its entirety to read:
TRUSTEES AND TRUSTEES' FEES
The "Columbia Fund Complex" includes all of the registered investment companies to which the Advisor and its affiliates provide investment advisory services.
The Advisor or its affiliates pay the compensation of all the officers of the funds in the Fund Complex advised by the Advisor, including Trustees who are affiliated with the Advisor. For the fiscal year ended March 31, 2005 and the calendar year ended December 31, 2005, the Trustees received the following compensation for serving as Trustees:
PENSION OR AGGREGATE TOTAL COMPENSATION
RETIREMENT COMPENSATION FROM FROM THE FUND
BENEFITS ACCRUED THE INTERMEDIATE BOND FUND COMPLEX PAID TO
AS PART OF FUND FOR THE FISCAL YEAR THE TRUSTEES FOR
Trustee EXPENSES(b) ENDED MARCH 31, 2005 THE CALENDAR YEAR
ENDED DECEMBER 31, 2005(a)
Douglas A. Hacker N/A $2,291 $111,277
Janet Langford Kelly N/A 2,609 116,500
Richard W. Lowry N/A 2,096 142,500
William E. Mayer N/A 2,411 147,750
Charles R. Nelson N/A 2,418 111,500
John J. Neuhauser N/A 2,208 137,833
Patrick J. Simpson(c) N/A 2,166 107,500
Thomas E. Stitzel N/A 2,487 113,000
Thomas C. Theobald(d) N/A 3,013 205,500
Anne-Lee Verville(e) N/A 2,632 120,723
Richard L. Woolworth N/A 2,110 106,500
|
(a) As of December 31, 2005, each Trustee other than Richard W. Lowry, John J. Neuhauser and William E. Mayer oversees 83 funds in the Fund complex, and Messrs. Lowry, Neuhauser and Mayer each oversee 85 funds in the Fund Complex.
(b) The Funds do not currently provide pension or retirement plan benefits to the Trustees.
(c) During the fiscal year ended March 31, 2005, Mr. Simpson deferred $2,166 of his compensation from the Intermediate Bond Fund. During the calendar year ended December 31, 2005, Mr. Simpson deferred $107,500 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2005, the value of Mr. Simpson's account under that plan was $269,502.
(d) During the fiscal year ended March 31, 2005, Mr. Theobald deferred $1,789 of his compensation from the Intermediate Bond Fund. During the calendar year ended December 31, 2005, Mr. Theobald deferred $150,000 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2005, the value of Mr. Theobald's account under that plan was $320,084.
(e) During the fiscal year ended March 31, 2005, Ms. Verville deferred $797 of her compensation from the Intermediate Bond Fund. At December 31, 2005, the value of Ms. Verville's account under the deferred compensation plan was $683,935.
5. The section entitled "Share Ownership" is revised in its entirety to read:
SHARE OWNERSHIP
The following table shows the dollar range of equity securities beneficially owned by each Trustee as of December 31, 2005 (i) in each Fund and (ii) in the funds in the Fund Complex.
Dollar Range of
Equity Securities Aggregate Dollar Range of
Owned in the Equity Securities Owned in All
Intermediate Funds Overseen by Trustee in
Name of Trustee Bond Fund Fund Complex
-------------------- ------------------ --------------------------------
Douglas A. Hacker $ 0 Over $ 100,000
Janet Langford Kelly $ 0 Over $ 100,000
Richard W. Lowry $ 0 Over $ 100,000
Charles R. Nelson Over $100,000 Over $ 100,000
John J. Neuhauser $ 0 Over $ 100,000
Patrick J. Simpson $ 0 Over $ 100,000
Thomas E. Stitzel $ 0 $50,001 - $100,000
Thomas C. Theobald $ 0 Over $ 100,000
Anne-Lee Verville $ 0 Over $ 100,000(1)
Richard L. Woolworth $ 0 Over $ 100,000
Interested Trustee
William E. Mayer $ 0 $50,001 - $100,000
|
(1) Includes the value of compensation payable under the deferred compensation plan for independent Trustees of the Fund Complex that is determined as if the amounts deferred had been invested, as of the date of deferral, in shares of one or more funds in the Fund Complex as specified by Ms. Verville.
6. The section entitled "Ownership of the Fund" is replaced in its entirety to read:
As of record on February 28, 2006, the officers and Trustees of the Trust as a group owned less than 1% of the then outstanding shares of the Intermediate Bond Fund.
As of record on February 28, 2006, the following shareholders owned 5% or more of the following classes of Intermediate Bond Fund's outstanding shares:
CLASS A SHARES:
Investors Bank and Trust 5.10% 4 Manhattanville Rd. Purchase, NY 10577-2139 Charles Schwab & Co. Inc. 32.09% 101 Montgomery St. San Francisco, CA 94104-4122 Transamerica Life Insurance 15.28% P.O. Box 30368 Los Angeles, CA 90030-0368 CLASS B SHARES: Citigroup Global Markets, Inc. 8.48% 333 W. 34th St. New York, NY 10001-2402 CLASS C SHARES: Citigroup Global Markets, Inc. 19.74% 333 W. 34th St. New York, NY 10001-2402 Merrill Lynch Pierce Fenner & Smith 13.27% 4800 Deer Lake Dr. E Fl. 2 Jacksonville, FL 32246-6484 CLASS R SHARES: FIM Funding, Inc. 100.00% c/o Columbia Funds Group Mail Stop MA5 100 11 05 100 Federal Street Boston, MA 02110-1802 CLASS Z SHARES: Bank of America NA 37.93% |
411 N. Akard St. Dallas, TX 75201-3307 Charles Schwab & Co. Inc. 11.44% 101 Montgomery St. San Francisco, CA 94104-4122 Citigroup Global Markets, Inc. 11.84% 333 W. 34th St. New York, NY 10001-2402 |
7. The first paragraph of the front cover of Part 2 of the SAI is revised in its entirety to read:
The following information applies generally to most funds advised by the Advisor. "Funds" include the series of Columbia Funds Series Trust I, Columbia Funds Institutional Trust, SteinRoe Variable Investment Trust and Liberty Variable Investment Trust (each a Trust and together, the Trusts). In certain cases, the discussion applies to some, but not all, of the Funds, and you should refer to your Fund's Prospectus and to Part 1 of this Statement of Additional Information (SAI) to determine whether the matter is applicable to your Fund. You will also be referred to Part 1 for certain data applicable to your Fund.
8. The section entitled "Trustees and Officers" in Part 2 of the SAI is revised to read:
Information regarding the Trustees and officers of the Funds together with their principal business occupations during the last five years (their titles may have varied during that period) is shown below. Unless otherwise noted, the address for each Trustee and officer is c/o Columbia Funds, Mail Stop MA5-515-11-05, One Financial Center, Boston, MA 02111.
Number of
Portfolios in
Year First Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------------- ------------ ---------------------- -------------- --------------------
DISINTERESTED TRUSTEES
Thomas C. Theobald Trustee and 1996 Partner and Senior Advisor, 83 Anixter International
(Born 1937) Chairman of the Chicago Growth Partners (network support
Board (private equity investing) equipment distributor);
since September, 2004; Ventas, Inc. (real estate
Managing Director, William investment trust); Jones
Blair Capital Partners Lang LaSalle (real
(private equity investing) estate management
from September, 1994 to services) and Ambac
September, 2004. Financial Group
(financial guaranty
insurance)
|
Number of
Portfolios in
Year First Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------------- ------------ ---------------------- -------------- --------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker Trustee 1996 Executive Vice 83 Nash Finch Company
(Born 1955) President -- Strategy (food distributor)
of United Airlines
(airline) since December,
2002; President of UAL
Loyalty Services (airline)
from September, 2001 to
December, 2002; Executive
Vice President and Chief
Financial Officer of United
Airlines from July, 1999 to
September, 2001.
Janet Langford Kelly Trustee 1996 Partner, Zelle, 83 UAL Corporation
(Born 1957) Hofmann, Voelbel, (airline)
Mason & Gette LLP (law
firm) since March, 2005;
Adjunct Professor of Law,
Northwestern University,
since September, 2004;
Chief Administrative
Officer and Senior Vice
President, Kmart Holding
Corporation (consumer
goods), from September,
2003 to March, 2004;
Executive Vice
President-Corporate
Development and
Administration, General
Counsel and Secretary,
Kellogg Company (food
manufacturer), from
September, 1999 to August,
2003.
|
Number of
Portfolios in
Year First Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------------- ------------ ---------------------- -------------- --------------------
DISINTERESTED TRUSTEES
Richard W. Lowry Trustee 1995 Private Investor since 85 None
(Born 1936) August, 1987 (formerly
Chairman and Chief
Executive Officer,
U.S. Plywood
Corporation (building
products manufacturer)
until 1987.)
Charles R. Nelson Trustee 1981 Professor of 83 None
(Born 1943) Economics, University
of Washington since
January, 1976; Ford and
Louisa Voorhis Professor
of Political Economy,
University of Washington,
since September, 1993;
Director, Institute for
Economic Research,
University of Washington
from September, 2001 to
June, 2003; Adjunct
Professor of Statistics,
University of Washington
since September, 1980;
Associate Editor, Journal
of Money Credit and
Banking since September,
1993; consultant on
econometric and
statistical matters.
John J. Neuhauser Trustee 1985 University Professor, 85 Saucony, Inc.
(Born 1942) Boston College since (athletic
December, 2005; footwear) footwear)
Academic Vice President
and Dean of Faculties,
Boston College from
August, 1999 to December,
2005.
|
Number of
Portfolios in
Year First Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------------- ------------ ---------------------- -------------- --------------------
DISINTERESTED TRUSTEES
Patrick J. Simpson Trustee 2000 Partner, Perkins Coie 83 None
(Born 1944) L.L.P. (law firm).
Thomas E. Stitzel Trustee 1998 Business Consultant 83 None
(Born 1936) since 1999; Chartered
Financial Analyst.
Anne-Lee Verville Trustee 1998 Retired since 1997 83 Chairman of the
(Born 1945) (formerly General Board of
Manager, Global Directors, Enesco
Education Industry, Group,Inc.
IBM Corporation (producer of
(computer and giftware and home
technology) from 1994 and garden decor
to 1997). products)
Richard L. Woolworth Trustee 1991 Retired since 83 Northwest Natural
(Born 1941) December, 2003 Gas (natural gas
(formerly Chairman and service provider)
Chief Executive
Officer, The Regence
Group Co. (regional
health insurer);
Chairman and Chief
Executive Officer,
BlueCross BlueShield
of Oregon; Certified
Public Accountant,
Arthur Young &
Company).
|
Number of
Portfolios in
Year First Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------------- ------------ ---------------------- -------------- --------------------
INTERESTED TRUSTEE
William E. Mayer(3) Trustee 1994 Partner, Park Avenue 85 Lee Enterprises
(Born 1940) Equity Partners (print media), WR
(private equity) since Hambrecht + Co.
February, 1999. (financial
service
provider);
Reader's Digest
(publishing);
OPENFIELD
Solutions (retail
industry
technology
provider)
|
(1) The date shown is the earliest date on which a Trustee was elected or appointed to the board of a Fund in the Fund Complex.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public companies").
(3) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (the "1940 Act")) of the Columbia Funds by reason of his affiliation with WR Hambrecht + Co., a registered broker-dealer that may execute portfolio transactions for or engage in principal transactions with the Fund or other funds or clients advised by the Advisor or its affiliates.
Year First
Elected or
Appointed
Name and Year of Birth Position with Funds to Office Principal Occupation(s) During Past Five Years
---------------------- --------------------- ----------- ----------------------------------------------
OFFICERS
Christopher L. Wilson President 2004 Head of Mutual Funds since August,
(Born 1957) 2004 and Managing Director of the
Advisor since September, 2005;
President and Chief Executive
Officer, CDC IXIS Asset Management
Services, Inc. (investment
management) from September, 1998
to August, 2004.
James R. Bordewick, Jr. Senior Vice 2006 Associate General Counsel, Bank of
(Born 1959) President, America since April, 2005; Senior Vice
Secretary and Chief President and Associate General
Legal Officer Counsel, MFS Investment Management
(investment management) prior to
April, 2005.
J. Kevin Connaughton Senior Vice 2000 Managing Director of the Advisor since
(Born 1964) President, Chief February, 1998.
Financial Officer
and Treasurer
Mary Joan Hoene Senior Vice 2004 Senior Vice President and Chief
(Born 1949) President and Chief Compliance Officer of various funds in
Compliance Officer the Columbia Fund Complex;
Partner, Carter, Ledyard & Milburn
LLP (law firm) from January, 2001
to August, 2004.
Michael G. Clarke Chief Accounting 2004 Managing Director of the Advisor since
(Born 1969) Officer and February, 2001.
Assistant Treasurer
Stephen T. Welsh Vice President 1996 President, Columbia Management
(Born 1957) Services, Inc. since July, 2004;
Senior Vice President and Controller,
Columbia Management Services, Inc.
prior to July, 2004.
Jeffrey R. Coleman Deputy Treasurer 2004 Group Operations Manager of the
(Born 1969) Advisor since October, 2004; Vice
President of CDC IXIS Asset Management
Services, Inc. (investment management)
from August, 2000 to September, 2004.
Joseph F. DiMaria Deputy Treasurer 2004 Senior Compliance Manager of the
(Born 1968) Advisor since January, 2005; Director
of Trustee Administration of the
Advisor from May, 2003 to January,
2005; Senior Audit Manager,
PricewaterhouseCoopers
(independent registered public
accounting firm) from July, 2000
to April, 2003.
Ty S. Edwards Deputy Treasurer 2004 Vice President of the Advisor since
(Born 1966) 2002; Assistant Vice President and
Director, State Street Corporation
(financial services) prior to
2002.
|
Year First
Elected or
Appointed
Name and Year of Birth Position with Funds to Office Principal Occupation(s) During Past Five Years
---------------------- --------------------- ----------- ----------------------------------------------
OFFICERS
Barry S. Vallan Controller 2006 Vice President-Fund Treasury of the
(Born 1969) Advisor since October, 2004; Vice
President-Trustee Reporting from
April, 2002 to October, 2004;
Management Consultant,
PricewaterhouseCoopers
(independent registered public
accounting firm) prior to October,
2002.
Peter T. Fariel Assistant Secretary 2006 Associate General Counsel, Bank of
(Born 1957) America since April, 2005; Partner,
Goodwin Procter LLP (law firm)
prior to April, 2005.
Ryan C. Larrenaga Assistant Secretary 2005 Assistant General Counsel, Bank of
(Born 1970) America since March, 2005; Associate,
Ropes & Gray LLP (law firm) from
1998 to February, 2005.
Barry S. Finkle Assistant Treasurer 2003 Senior Manager and Head of Fund
(Born 1965) Performance of the Advisor since
January, 2001.
Julian Quero Assistant Treasurer 2003 Senior Compliance Manager of the
(Born 1967) Advisor since April, 2002; Assistant
Vice President of Taxes and
Distributions of the Advisor from
2001 to April, 2002.
|
Each of the Trust's Trustees and officers hold comparable positions with certain other funds of which the Advisor or its affiliates is the investment advisor or distributor and, in the case of certain of the officers, with certain affiliates of the Advisor.
The Trustees and officers serve terms of indefinite duration. Each Fund held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once every five years thereafter to elect Trustees.
9. The section entitled "Trustee Positions," a subsection of "Management of the Funds," is revised to read:
As of December 31, 2005, no disinterested Trustee or any of their immediate family members owned beneficially or of record any class of securities of the Advisor, another investment advisor, sub-advisor or portfolio manager of any of the funds in the Fund Complex or any person controlling, controlled by or under common control with any such entity.
10. The second paragraph of the section entitled "Other Disclosures," a subsection of "Disclosure of Portfolio Information," is revised in its entirety to read:
The Fund periodically discloses its portfolio information on a confidential basis to various service providers that require such information in order to assist the Fund with its day-to-day business affairs. In addition to Columbia Advisors and its affiliates, these service providers include the Fund's custodian and sub-custodians, the Fund's independent registered public accounting firm, legal counsel, financial printers (R.R. Donnelly & Sons and Bowne & Co., Inc.), the Fund's proxy solicitor and proxy voting service provider (Computershare), rating agencies that maintain ratings on certain Columbia Funds (Fitch, Inc.) and service providers that support Columbia Advisors' trading systems (InvestorTool, Inc. and Thomson Financial). These service providers are required to keep such information confidential, and are prohibited from trading based on the information or otherwise using the information except as necessary in providing services to the Fund. The Fund may also disclose portfolio holdings information to broker/dealers and certain other entities related to potential transactions and management of the Fund, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information.
INT-50/108809-0306 March 27, 2006
COLUMBIA INTERMEDIATE BOND FUND
CLASS R SHARES
SERIES OF COLUMBIA FUNDS TRUST VIII
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 23, 2006
This Statement of Additional Information (SAI) contains information which may be useful to investors but which is not included in the Prospectuses of the Columbia Intermediate Bond Fund (the "Fund"). This Statement of Additional Information contains information relating to the Fund's offering of Class R Shares This SAI is not a prospectus and is authorized for distribution only when accompanied or preceded by a Prospectus of the Fund. This SAI should be read together with the relevant Prospectus and, upon its publication, with the Fund's Annual Report. Investors may obtain a free copy of the relevant Prospectus and Annual Report for other share classes offered by the Fund from Columbia Management Distributors, Inc. (CMD), One Financial Center, Boston, MA 02111-2621, or by calling 1-800-426-3750.
Part 1 of this SAI contains specific information about the Fund. Part 2 includes information about the funds distributed by CMD generally and additional information about certain securities and investment techniques described in the Fund's Prospectuses.
TABLE OF CONTENTS
PART 1 PAGE ------ ---- Definitions b Organization and History b Investment Goals and Policies c Fundamental Investment Policies c Other Investment Policies d Fund Charges and Expenses e Custodian of the Fund m Independent Registered Public Accounting Firm of the Fund m |
PART 2 PAGE ------ ---- Miscellaneous Investment Practices 1 Taxes 21 Management of the Funds 28 Determination of Net Asset Value 43 How to Buy Shares 44 Special Purchase Programs/Investor Services 47 Programs for Reducing or Eliminating Sale Charges 49 How to Sell Shares 52 Distributions 57 How to Exchange Shares 57 Suspension of Redemptions 58 Shareholder Liability 58 Shareholder Meetings 58 Appendix I 59 Appendix II 64 |
PART1
COLUMBIA INTERMEDIATE BOND FUND
CLASS R SHARES
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 23, 2006
DEFINITIONS
"Trust" Columbia Funds Trust VIII
"Intermediate Bond Fund" or "Fund" Columbia Intermediate Bond Fund
"Advisor" or "Administrator" Columbia Management Advisors, LLC,
the Fund's investment advisor and
administrator
"CMD" Columbia Management Distributors, Inc.,
the Fund's distributor
"CMS" Columbia Management Services, Inc., the
Fund's shareholder services and transfer
agent
|
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1986. The Fund is an open-end, diversified management investment company representing the entire interest in a separate series of the Trust. The Intermediate Bond Fund commenced investment operations on December 5, 1978. The Trust is not required to hold annual shareholder meetings, but special meetings may be called for certain purposes. Shareholders receive one vote for each Fund share. Shares of the Fund and any other series of the Trust that may be in existence from time to time generally vote together except when required by law to vote separately by fund or by class. Shareholders owning in the aggregate ten percent of Trust shares may call meetings to consider removal of Trustees. Under certain circumstances, the Trust will provide information to assist shareholders in calling such a meeting. See Part 2 of this SAI for more information.
The Intermediate Bond Fund offers four other classes of shares (in addition to Class R shares) - Class A, B, C and Z shares. Prior to July 31, 2000, the Fund had a single class of shares. On July 14, 2000, the outstanding shares of the Fund were converted into Class S shares, and on July 31, 2000, the Fund commenced offering Class A shares. On February 1, 2002, the Fund commenced offering Class B and C shares. On July 29, 2002, the Fund's Class S shares were redesignated as Class Z shares. Prior to September 12, 2002, the Fund invested all of its assets in the SR&F Intermediate Bond Portfolio as part of a master fund/feeder fund structure. Effective February 1, 2002, the Fund changed its name from "Stein Roe Intermediate Bond Fund" to "Liberty Intermediate Bond Fund." Effective October 13, 2003, the Fund changed its name from "Liberty Intermediate Bond Fund" to its current name. The Prospectuses and Statement of Additional Information relating to Class A, B, C and Z shares of the Fund are available upon request from CMD.
Effective October 13, 2003, the Trust changed its name from "Liberty-Stein Roe Funds Income Trust" to its current name.
It is expected that, subject to shareholder approval of the election of all current Trustees, the Fund will be reorganized as a series of Columbia Funds Trust IX, a Massachusetts business trust into which all of the retail Columbia funds are expected to be reorganized.
b
INVESTMENT GOALS AND POLICIES
The Prospectus describe the Fund's investment goals, investment strategies and risks. Part 1 of this SAI includes additional information concerning, among other things, the investment policies of the Fund. Part 2 contains additional information about the following securities and investment techniques that may be utilized by the Fund (unless otherwise noted):
Derivatives
Senior Loans
Structured Notes
Interest Rate Swaps, Caps and Floors
Medium- and Lower-Rated Debt Securities
Mortgage-Backed Securities
Mortgage Dollar Rolls
Floating Rate Instruments
Inverse Floaters
Short Sales
Interfund Borrowing and Lending
Forward Commitments ("When Issued" and "Delayed Delivery" Securities)
Reverse Repurchase Agreements
Securities Loans
Repurchase Agreements
Line of Credit
Futures Contracts and Related Options (Limited to interest rate futures,
tax-exempt bond index futures, options on such futures and options on
such indices)
Swap Agreements (Swaps, Caps, Collars and Floors)
Options on Securities
Foreign Securities
Stand-by Commitments
Zero Coupon Securities (Zeros)
Pay-In-Kind (PIK) Securities
Other Investment Companies
Rule 144A Securities
Except as indicated below under "Fundamental Investment Policies," the Fund's investment policies are not fundamental and the Trustees may change the policies without shareholder approval.
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940, as amended (the "1940 Act"), provides that a
"vote of a majority of the outstanding voting securities" means the affirmative
vote of the lesser of (1) more than 50% of the outstanding shares of a Fund, or
(2) 67% or more of the shares present at a meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy. The
following fundamental investment policies cannot be changed without such a vote.
The Fund may not, as a matter of fundamental policy:
1. Underwrite any issue of securities issued by other persons within the
meaning of the 1933 Act except when it might be deemed to be an underwriter
either: (a) in connection with the disposition of a portfolio security; or
(b) in connection with the purchase of securities directly from the issuer
thereof in accordance with its investment objective. This restriction shall
not limit the Portfolio's ability to invest in securities issued by other
registered investment companies;
2. Purchase or sell real estate, except the Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate and it may hold and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of securities which are secured by real estate or interests therein;
3. Purchase or sell commodities, except that the Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell
options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts;
4. Purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions; and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief;
5. Make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief;
6. Borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief;
7. Purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that: (a) up to 25% of its total assets may be invested without regard to these limitations and (b) the Fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder, or any applicable exemptive relief.
OTHER INVESTMENT POLICIES
As non-fundamental investment policies, which may be changed without a shareholder vote, the Fund may not:
(A) invest for the purpose of exercising control or management;
(B) purchase more than 3% of the stock of another investment company or purchase stock of other investment companies equal to more than 5% of its total assets (valued at time of purchase) in the case of any one other investment company and 10% of such assets (valued at time of purchase) in the case of all other investment companies in the aggregate; any such purchases are to be made in the open market where no profit to a sponsor or dealer results from the purchase, other than the customary broker's commission, except for securities acquired as part of a merger, consolidation or acquisition of assets;(1)
(C) purchase portfolio securities from, or sell portfolio securities to, any of the officers and directors or trustees of the Trust or of its investment adviser;
(D) purchase shares of other open-end investment companies, except in connection with a merger, consolidation, acquisition, or reorganization;
(E) invest more than 5% of its net assets (valued at time of investment) in warrants, nor more than 2% of its net assets in warrants which are not listed on the New York or American Stock Exchange;
(F) purchase a put or call option if the aggregate premiums paid for all put and call options exceed 20% of its net assets (less the amount by which any such positions are in-the-money), excluding put and call options purchased as closing transactions;
(G) write an option on a security unless the option is issued by the Options Clearing Corporation, an exchange, or similar entity;
(H) invest in limited partnerships in real estate unless they are readily marketable;
(I) sell securities short unless (i) it owns or has the right to obtain securities equivalent in kind and amount to those sold short at no added cost or (ii) the securities sold are "when issued" or "when distributed" securities which it expects to receive in a recapitalization, reorganization, or other exchange for securities it contemporaneously owns or has the right to obtain and provided that transactions in options, futures, and options on futures are not treated as short sales;
(J) invest more than 15% of its total assets (taken at market value at the time of a particular investment) in restricted securities, other than securities eligible for resale pursuant to Rule 144A under the Securities Act of 1933;
(K) invest more than 15% of its net assets (taken at market value at the time of a particular investment) in illiquid securities, including repurchase agreements maturing in more than seven days;
(L) purchase securities on margin, except for use of short-term credit necessary for clearance of purchases and sales of portfolio securities, but it may make margin deposits in connection with transactions in options, futures, and options on futures.
Total assets and net assets are determined at current value for purposes of compliancde with investment restrictions and policies. All percentage limitations will apply at the time of investment and are not violated unless an excess or deficiency occurs as a result of such investment. For the purpose of the 1940 Act's diversification requirement, an issuer is the entity whose revenues support the security.
FUND CHARGES AND EXPENSES
Effective February 9, 2005, under the Fund's management contract, the Fund pays the Advisor a monthly fee based on the average daily net assets of the Fund at the annual rate of:
Average Daily Net Assets Rate ------------------------ ----- Net assets under $500 million 0.350% Net assets of $500 million but less than $1 billion 0.350% Net assets of $1 billion but less than $1.5 billion 0.300% Net assets of $1.5 billion but less than $3 billion 0.290% Net assets of $3 billion but less than $6 billion 0.280% Net assets in excess of $6 billion 0.270% |
Previously, the Advisor had, with respect to the period from November 1, 2004 to February 9, 2005, waived a portion of its fees, so that it retained fees at the rates shown above.
Prior to November 1, 2004, under a management agreement effective November 1, 2003, the Intermediate Bond Fund paid the Advisor a monthly fee at the annual rate of 0.35% on the first $1 billion of the average daily net assets of the Intermediate Bond Fund and 0.30% of any excess over $1 billion. Prior to November 1, 2003, under the Intermediate Fund's management agreement, the Intermediate Bond Fund paid the Advisor a monthly fee based on the average daily net assets of the Intermediate Bond Fund at the annual rate of 0.35%. Prior to September 13, 2002, the management fee was paid by the SR&F Intermediate Bond Portfolio at the same rate.
The Advisor provides certain administrative services to the Fund. Effective November 1, 2005, the Fund entered into an Administrative Agreement with the Advisor. For services provided under the Administrative Agreement, the Fund pays the Advisor an annual fee, payable monthly, based on the Fund's net assets. The Advisor has delegated responsibility for certain administrative services to State Street. Under the Intermediate Bond Fund's administration agreement, the Intermediate Bond Fund pays the Administrator a monthly fee at the annual rate of 0.15% of the average daily net assets of the Intermediate Bond Fund.
The Advisor provides certain pricing and bookkeeping services to the Fund. Effective November 1, 2005, the Fund entered into a Pricing and Bookkeeping Agreement and an Administrative Agreement. Under these agreements, the Fund will continue to receive substantially the same pricing, bookkeeping and administrative services as it currently receives under the Agreement. The Advisor and State Street Bank and Trust Company will continue to provide these services to the Fund. For services provided under the Pricing and Bookkeeping Agreement, the Fund will pay the Advisor or to such other person(s) as the Advisor
e
may direct an annual fee, payable monthly, consisting of: (i) for fund accounting services, $25,000 plus 0.015% of the Fund's net asset value ("Fund Accounting Fee"); and (ii) for financial reporting services, $13,000 ("Financial Reporting Fee"); provided that during any 12-month period, the aggregate Fund Accounting Fee and Financial Reporting Fee shall not exceed $140,000. The Fund will bear certain reimbursable costs and expenses as provided in the Pricing and Bookkeeping Agreement.
CMS acts as transfer agent, dividend disbursing agent and shareholders' servicing agent for the Fund. Its address is P.O. Box 8081, Boston Massachusetts 02266-8081. Effective November 1, 2005, the Fund entered into a Transfer, Dividend Disbursing and Shareholders' Servicing Agent Agreement with CMS, under which CMS will provide transfer agency, dividend disbursing and shareholders' servicing agency services to the Fund. For these services, the Fund will pay CMS a specified amount per open account per annum, payable monthly. In addition the Fund may pay CMS the fees and expenses that CMS pays to third-party dealer firms that maintain omnibus accounts with the Fund, subject to a cap equal to a specified percentage of the Fund's net assets represented by the account. The Fund will also reimburse CMS for certain out-of-pocket expenses. CMS may also retain as additional compensation for its services revenues for fees for wire, telephone and redemption orders, IRA trustee agent fees and account transcripts due CMS from shareholders of the Fund and interest (net of bank charges) and balance credits earned with respect to balances in demand deposit accounts CMS maintains in connection with its services to the Fund. CMS has retained Boston Financial Data Services, Inc. and DST Systems, Inc. to provide certain services for the Fund.
Prior to November 1, 2005, the Fund paid a shareholder's servicing and transfer agency fee to CMS as follows:
An annual open account fee of $34 per open account plus a Fund's allocated share of reimbursement for the out-of-pocket expenses of CMS.
Prior to November 1, 2003, the Fund paid a shareholders' servicing and transfer agency fee to CMS as follows:
- An account fee for each open account of $4.00 per annum, payable on a monthly basis, in an amount equal to 1/12 the per annum charge; plus
- An account fee for each closed account of $1.50 per annum, payable on a monthly basis, in an amount equal to 1/12 the per annum charge; plus
- A transaction fee of $1.40 per transaction occurring in Fund accounts during any month; plus
- A monthly fee at the rate of 0.06% per annum of the average daily closing value of the total net assets of the Fund for such month; plus
The Fund's allocated share of CMS' out-of-pocket expenses, including fees payable to DST Systems, Inc. (DST) under a remote services agreement with DST.
RECENT FEES PAID TO THE ADVISOR, ADMINISTRATOR, CMD AND CMS (dollars in
thousands)
YEAR ENDED PERIOD ENDED YEAR ENDED JUNE 30,
MARCH 31, MARCH 31, -------------------
INTERMEDIATE BOND FUND(A) 2005 2004(B) 2003 2002
------------------------- ---------- ------------ ------ ------
Management Fees $3,780 $2,626 $2,516 $2,289
Administrative Fees 1,641 1,127 1,331 982
Bookkeeping Fee 311 201 332 234
Shareholder service and transfer agency fees 1,293 1,308 1,997 1,228
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(a) The fees cited reflect Fund-level expenses paid by the Fund as of the end of each of the past three fiscal years or periods. Class R shares were not offered during this period; therefore, Class R shares have not incurred any class-level expenses as of the date of this SAI.
(b) The Fund changed its fiscal year end from June 30 to March 31 in 2004.
BROKERAGE COMMISSIONS
f
The following table shows commissions paid on transactions of the Intermediate Bond Fund and/or of the SR&F Intermediate Bond Portfolio during the year ended March 31, 2005 and the past three fiscal periods:
YEAR ENDED PERIOD ENDED YEAR ENDED JUNE 30,
MARCH 31, MARCH 31, --------------------
2005 2004(B) 2003 2002
---------- ------------ ------- ----
Total commissions(a) $16,513 $32,633 $59,771 $0
Directed transactions (c) 0 2 0 0
Commissions on directed transactions 0 0 0 0
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(a) Brokerage commissions are reported herein as a Fund-level expense.
(b) The Fund changed its fiscal year end from June 30 to March 31 in 2004.
(c) See "Management of the Funds - Portfolio Transactions - Brokerage and research services" in Part 2 of this SAI.
The Trust is required to identify any securities of its "regular brokers or dealers" that the Intermediate Bond Fund has acquired during its most recent fiscal year. At March 31, 2005, the Intermediate Bond Fund held securities of its regular brokers or dealers as set forth below:
VALUE (IN
BROKER/DEALER THOUSANDS)
------------- ----------
Citicorp $14,880
Merrill Lynch & Co., Inc. 11,148
Morgan Stanley Dean Witter 10,222
Bear Stearns Co., Inc. 9,873
CS First Boston 9,802
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TRUSTEES AND TRUSTEES' FEES
Fund Complex consists of the following funds:
The series of Columbia Funds Trust I, the series of Columbia Funds Trust II, the series of Columbia Funds Trust III, the series of Columbia Funds Trust IV, the series of Columbia Funds Trust V, the series of Columbia Funds Trust VI, the series of Columbia Funds Trust VII, the series of Liberty Variable Investment Trust and 7 closed-end management investment company portfolios (the "Liberty Funds").
The series of Columbia Funds Trust VIII, the series of Columbia Funds Series Trust I (Formerly named Columbia Funds Trust IX), the series of Columbia Funds Trust XI and the series of SteinRoe Variable Investment Trust (the "Stein Roe Funds").
Two closed-end management investment company portfolios named Liberty All-Star Equity Fund and Liberty All-Star Growth Fund, Inc. (the "All-Star Funds").
Columbia Management Multi-Strategy Hedge Fund,LLC.
Columbia Balanced Fund, Inc., Columbia Conservative High Yield Fund, Inc., Columbia Oregon Intermediate Municipal Bond Fund, Inc., Columbia Real Estate Equity Fund, Inc., Columbia Small Cap Growth Fund I, Columbia Mid Cap Growth Fund, Inc., Columbia Strategic Investor Fund, Inc., Columbia Technology Fund, Inc. and the series of CMG Fund Trust. (the "Columbia Funds").
The series of The Galaxy Fund (the "Galaxy Funds").
The series of Columbia Acorn Trust and the series of Wanger Advisors Trust (the "Acorn Funds" and "WAT Funds," respectively).
The Advisor or its affiliates pay the compensation of all the officers of the funds in the Fund Complex advised by the Advisor, including Trustees who are affiliated with the Advisor. For the fiscal year ended March 31, 2005 and the calendar year ended December 31, 2005, the Trustees received the following compensation for serving as Trustees:
g
PENSION OR AGGREGATE
RETIREMENT COMPENSATION TOTAL COMPENSATION FROM THE
BENEFITS FROM THE FUND COMPLEX
ACCRUED AS PART INTERMEDIATE BOND FUND PAID TO THE TRUSTEES FOR THE
OF FUND FOR THE YEAR ENDED CALENDAR YEAR ENDED
Trustee(a) EXPENSES(B) MARCH 31, 2005 DECEMBER 31, 2005(A)
---------------------- --------------- ---------------------- ----------------------------
Douglas A. Hacker N/A $2,291 $111,277
Janet Langford Kelly N/A 2,609 116,500
Richard W. Lowry N/A 2,096 142,500
William E. Mayer N/A 2,411 147,750
Charles R. Nelson N/A 2,418 111,500
John J. Neuhauser N/A 2,208 137,833
Patrick J. Simpson (c) N/A 2,166 107,500
Thomas E. Stitzel N/A 2,487 113,000
Thomas C. Theobald(d) N/A 3,013 205,500
Anne-Lee Verville (e) N/A 2,632 120,723
Richard L. Woolworth N/A 2,110 106,500
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(a) As of December 31, 2005, the Fund Complex consisted of 76 open-end and 10 closed-end management investment company portfolios. Effective October 8,2003, Patrick J. Simpson and Richard L. Woolworth, then directors/trustees of the Columbia Funds, were appointed to the board of trustees of the Liberty Funds and Stein Roe Funds. Also effective October 8,2003, the trustees of the Liberty Funds and the Stein Roe Funds were elected as directors/trustees of the Columbia Funds. A single combined board of trustees/directors now oversees all of the Liberty Funds, Stein Roe Funds and Columbia Funds. The All-Star Funds, Columbia Management Multi-Strategy Hedge Fund, LLC, the Galaxy Funds, the Acorn Funds and the WAT Funds each have separate boards of trustees/directors.
(b) The Funds do not currently provide pension or retirement plan benefits to the Trustees.
(c) During the fiscal year ended March 31, 2005, Mr. Simpson deferred $2,166 of his compensation from the Intermediate Bond Fund. During the calendar year ended December 31, 2005, Mr. Simpson deferred $107,500 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2005, the value of Mr. Simpson's account under that plan was $269,502.
(d) During the fiscal year ended March 31, 2005, Mr. Theobald deferred $1,789 of his compensation from the Intermediate Bond Fund. During the calendar year ended December 31, 2005, Mr. Theobald deferred $150,000 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2005, the value of Mr. Theobald's account under that plan was $320,083.
(e) During the fiscal year ended March 31, 2005, Ms. Verville deferred $797 of her compensation from the Intermediate Bond Fund. During the calendar year ended December 31, 2005, Ms. Verville deferred $0 of her total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2005, the value of Ms. Verville's account under that plan was $683,935.
ROLE OF THE BOARD OF TRUSTEES
The Trustees of the Funds are responsible for the overall management and supervision of the Funds' affairs and for protecting the interests of the shareholders. The Trustees meet periodically throughout the year to oversee the Funds' activities, review contractual arrangements with service providers for the Funds and review the Funds' performance. The Trustees have created several committees to perform specific functions for the Funds. Mr. Theobald was elected Chairman of the Board of Trustees of the Liberty Funds, Stein Roe Funds and Columbia Funds effective December, 2003.
h
AUDIT COMMITTEE
Ms. Verville and Messrs. Hacker, Stitzel and Woolworth are members of the Audit Committee of the Board of Trustees of the Funds. The Audit Committee's functions include making recommendations to the Trustees regarding the selection and performance of the independent registered public accounting firm, and reviewing matters relative to accounting and auditing practices and procedures, accounting records, and the internal accounting controls, of the Funds and certain service providers. For the fiscal year ended March 31, 2005, the Audit Committee convened eleven times.
GOVERNANCE COMMITTEE
Messrs. Lowry, Mayer, Simpson and Theobald are members of the Governance Committee of the Board of Trustees of the Funds. The Governance Committee's functions include recommending to the Trustees nominees for independent Trustee positions and for appointments to various committees, performing periodic evaluations of the effectiveness of the Board, reviewing and recommending to the Board policies and practices to be followed in carrying out the Trustees' duties and responsibilities and reviewing and making recommendations to the Board regarding the compensation of the Trustees who are not affiliated with the Funds' investment advisors. The Governance Committee will consider candidates for Trustee recommended by shareholders. Written recommendations with supporting information should be directed to the Committee, in care of the Funds. For the fiscal year ended March 31, 2005, the Governance Committee convened six times.
ADVISORY FEES & EXPENSES COMMITTEE
Ms. Kelly and Messrs. Mayer, Nelson and Neuhauser are members of the Advisory Fees & Expenses Committee of the Board of Trustees of the Funds. The Advisory Fees and Expenses Committee's functions include reviewing and making recommendations to the Board as to contracts requiring approval of a majority of the disinterested Trustees and as to any other contracts that may be referred to the Committee by the Board. For the fiscal year ended March 31, 2005, the Advisory Fees & Expenses Committee convened eight times.
COMPLIANCE COMMITTEE
Ms. Kelly and Ms. Verville and Messrs. Nelson, Simpson and Stitzel are members of the Compliance Committee of the Board of Trustees of the Funds. Mr. Stitzel became a member of the Compliance Committee on May 8, 2005. The Compliance Committee's functions include providing oversight of the monitoring processes and controls regarding the Trust. The Committee uses legal, regulatory and internal rules, policies, procedures and standards other than those relating to accounting matters and oversight of compliance by the Trust's investment adviser, principal underwriter and transfer agent. For the fiscal year ended March 31, 2005, the Compliance Committee convened six times.
INVESTMENT OVERSIGHT COMMITTEES
Beginning in 2004, each Trustee of the Funds also began serving on an Investment Oversight Committee ("IOC"). Each IOC is responsible for monitoring, on an ongoing basis, a select group of funds in the Fund Complex and gives particular consideration to such matters as the Funds' adherence to their investment mandates, historical performance, changes in investment processes and personnel, and proposed changes to investment objectives. Investment personnel who manage the Funds attend IOC meetings from time to time to assist each IOC in its review of the Funds. Each IOC meets four times a year. The following are members of the respective IOCs and the general categories of funds in the Fund Complex which they review:
IOC #1: Messrs. Lowry, Mayer and Neuhauser are responsible for reviewing funds
in the following asset categories: Large Growth Diversified, Large
Growth Concentrated, Small Growth, Outside Managed (i.e., sub-advised)
and Municipal.
IOC #2: Mr. Hacker and Ms. Verville are responsible for reviewing funds in the
following asset categories: Large Blend, Small Blend, Foreign Stock,
Fixed Income - Multi Sector, Fixed Income - Core and Young Investor.
IOC#3: Messrs. Theobald and Stitzel and Ms. Kelly are responsible for
reviewing funds in the following asset categories: Large Value, Mid
Cap Value, Small Value, Asset Allocation, High Yield and Money Market.
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IOC#4: Messrs. Nelson, Simpson and Woolworth are responsible for reviewing funds in the following asset categories: Large/Multi-Cap Blend, Mid Cap Growth, Small Growth, Asset Allocation, Specialty Equity and Taxable Fixed Income.
Share Ownership
The following table shows the dollar range of equity securities beneficially owned by each Trustee as of December 31, 2005 (i) in each Fund and (ii) in the funds in the Fund Complex.
DOLLAR RANGE OF
EQUITY SECURITIES AGGREGATE DOLLAR RANGE OF
OWNED IN THE EQUITY SECURITIES OWNED IN ALL
INTERMEDIATE FUNDS OVERSEEN BY TRUSTEE IN
BOND FUND FUND COMPLEX
----------------- ------------------------------
NAME OF TRUSTEE
Douglas A. Hacker $0 Over $100,000
Janet Langford Kelly $0 Over $100,000
Richard W. Lowry $0 Over $100,000
Charles R. Nelson Over $100,000 Over $100,000
John J. Neuhauser $0 Over $100,000
Patrick J. Simpson $0 Over $100,000
Thomas E. Stitzel $0 Over $100,000
Thomas C. Theobald $0 Over $100,000
Anne-Lee Verville $0 Over $100,000
Richard L. Woolworth $0 Over $100,000
INTERESTED TRUSTEE
William E. Mayer $0 $50,001-$100,000
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PORTFOLIO MANAGERS
OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS
The following table shows the number and assets of other investment accounts (or portions of investment accounts) that the Fund's portfolio managers managed as of the Fund's fiscal year-end.
OTHER SEC-REGISTERED
OPEN-END AND CLOSED-END OTHER POOLED INVESTMENT
FUNDS VEHICLES OTHER ACCOUNTS
-------------------------- ------------------------ ---------------------------
Number of Number of Number of
PORTFOLIO MANAGER accounts Assets accounts Assets accounts Assets
----------------- --------- -------------- --------- ------------ --------- ---------------
Thomas A. LaPointe
Intermediate Bond 10 $5.585 billion 8 $1.3 billion 4 $ 357 million
Fund
Carl W. Pappo
Intermediate Bond 1 $ 650 million 2 $1.2 billion 68 $ 2.1 billion
Fund
Ann T. Peterson
Intermediate Bond 3 $ 1.2 billion 0 N/A 2 $14,000
Fund
Marie M. Schofield
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j
Intermediate Bond 5 $ 4.2 billion 1 $ 44 million 13 $ 161 million
Fund
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* Included among these accounts are five accounts, totaling $934 million in assets, that include an advisory fee based on performance.
See "Management--Portfolio Transactions--Potential conflicts of interest in managing multiple accounts" in Part II of this SAI for information on how the Advisor addresses potential conflicts of interest resulting from an individual's management of more than one account.
OWNERSHIP OF SECURITIES
The table below shows the dollar ranges of shares of the Fund beneficially owned (as determined pursuant to Rule 16a-1 (a)(2) under the Securities Exchange Act of 1934, as amended) by each portfolio managers listed above at the end of the Fund's most recent fiscal year:
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND
PORTFOLIO MANAGER BENEFICIALLY OWNED
----------------- ---------------------------------------------
Thomas A. LaPointe $0
Carl W. Pappo $0
Ann T. Peterson $0
Marie M. Schofield $0
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COMPENSATION
As of the Fund's most recent fiscal year end, the portfolio managers received all of their compensation from the Advisor and its parent company, Columbia Management Group, in the form of salary, bonus, stock options and restricted stock. A portfolio manager's bonus is variable and is generally based on (1) an evaluation of the manager's investment performance and (2) the results of a peer and/or management review of such individual, which takes into account skills and attributes such as team participation, investment process, communication and professionalism. In evaluating investment performance, the Advisor generally considers the one-, three- and five-year performance of mutual funds and other accounts under the portfolio manager's oversight relative to the benchmarks and peer groups noted below, emphasizing the manager's three- and five-year performance. The Advisor may also consider the portfolio manager's performance in managing client assets in sectors and industries assigned to the manager as part of his or her investment team responsibilities, where applicable. For portfolio managers who also have group management responsibilities, another factor in their evaluation is an assessment of the group's overall investment performance.
PORTFOLIO MANAGER PERFORMANCE BENCHMARK PEER GROUP
----------------- --------------------- ----------
Thomas A. LaPointe Lehman Brothers Aggregate Bond Lipper Intermediate
Investment Grade Debt Funds
Category
Carl W. Pappo Lehman Brothers Aggregate Bond Lipper Intermediate
Investment Grade Debt Funds
Category
Ann T. Peterson Lehman Brothers Aggregate Bond Lipper Intermediate
Investment Grade Debt Funds
Category
Marie M. Schofield Lehman Brothers Aggregate Bond Lipper Intermediate
Investment Grade Debt Funds
Category
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k
The size of the overall bonus pool each year is determined by Columbia Management Group and depends in part on levels of compensation generally in the investment management industry (based on market compensation data) and the Advisor's profitability for the year, which is influenced by assets under management.
OWNERSHIP OF THE FUND
As of record on December 30, 2005, the officers and Trustees of the Trust as a group owned less than 1% of the then outstanding shares of the Intermediate Bond Fund.
As of record on December 30, 2005, the following shareholders owned 5% or more of the following classes of the Intermediate Bond Fund's outstanding shares:
CLASS A SHARES: Charles Schwab & Co., Inc. 31.84% 101 Montgomery Street San Francisco, CA 94104-4122 Transamerica Life Insurance & Annuity Company 16.30% P.O. Box 30368 Los Angeles, CA 90030-0368 Investors Bank and Trust Company 5.35% 4 Manhattanville Road Purchase, NY 10577-2139 CLASS B SHARES: Citigroup Global Markets, Inc. 6.27% 333 West 34th Street New York, NY 10001-2402 CLASS C SHARES: Merrill Lynch Pierce Fenner & Smith 13.07% 4800 Deer Lake Drive East, 2nd Floor Jacksonville, FL 32246-6484 Citigroup Global Markets, Inc. 13.23% 333 West 34th Street New York, NY 10001-2402 CLASS Z SHARES: Bank of America, NA 35.87% 411 North Akard Street Dallas, TX 75201-3307 Charles Schwab & Co., Inc. 12.88% 101 Montgomery Street San Francisco, CA 94104-4122 Citigroup Global Markets, Inc. 10.32% 333 West 34th Street, 7th Floor New York, NY 10001-2402 |
12B-1 PLAN AND CDSC
The Fund offers four other classes of shares (in addition to Class R shares) - Class A, Class B, Class C and Class Z. The information set forth in this SAI addresses the offering of Class R shares by the Fund. Each share class has its own expense structure. The Fund may in the future offer other classes of shares. The Trustees have approved a Distribution Plan (Plan) pursuant to Rule 12b-1 under the 1940 Act. Under the Plan, Class R shares of the Fund may pay CMD monthly a distribution fee at an annual rate of up to 0.50% of the average daily net assets attributed to Class R shares. CMD may use the entire amount of such fees to defray the costs of commissions and service fees paid to financial service firms (FSFs) and for certain other purposes. Since the distribution fees are payable regardless of CMD's expenses, CMD may realize a profit from the fees. The
Plan will authorize any other payments by the Fund to CMD and its affiliates (including the Advisor) to the extent that such payments might be construed to be indirectly financing of distribution of the Fund's shares.
The Trustees believe the Plan could be a significant factor in the growth and retention of the Fund's assets resulting in more advantageous expense ratios and increased investment flexibility which could benefit each class of Fund shareholders. The Plan will continue in effect from year to year so long as continuance is specifically approved at least annually by a vote of the Trustees, including the Trustees who are not interested persons of the Fund and have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan (Independent Trustees), cast in person at a meeting called for the purpose of voting on the Plan. The Plan may not be amended to increase the fee materially without approval by vote of a majority of the outstanding voting securities of the relevant class of shares, and all material amendments of the Plan must be approved by the Trustees in the manner provided in the foregoing sentence. The Plan may be terminated at any time by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding voting securities of the relevant class of shares. The continuance of the Plan will only be effective if the selection and nomination of the Trustees of the Trust who are not interested persons of the Trust is effected by such disinterested Trustees.
Class R shares will be offered at net asset value.
CUSTODIAN OF THE FUNDS
State Street Bank and Trust Company, located at 2 Avenue De Lafayette, Boston, MA 02111-2900, is the custodian for the Fund. The custodian is responsible for safeguarding the Fund's cash and securities, receiving and delivering securities and collecting the Fund's interest and dividends.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF THE FUND
PricewaterhouseCoopers LLP, located at 125 High Street, Boston, Massachusetts 02110-1707, is the Fund's independent registered public accounting firm, providing audit and tax return review services and assistance and consultation in connection with the review of various Securities and Exchange Commission filings. Contingent upon the commencement of operations of Class R shares of the Fund, future financial statements relating to Class R shares of the Fund may be incorporated by reference into the Fund's SAI, and the financial highlights relating to Class R shares of the Fund may be included in the Fund's Prospectus.
STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to most funds advised by the Advisor. "Funds" include the series of Columbia Funds Trust I, Columbia Funds Trust II, Columbia Funds Trust III, Columbia Funds Trust IV, Columbia Funds Trust V, Columbia Funds Trust VI, Columbia Funds Trust VIII, Columbia Funds Series Trust I (formerly named Columbia Funds Trust IX) and Columbia Funds Trust XI (each a Trust and together, the Trusts, also known as Fund Complex). In certain cases, the discussion applies to some, but not all, of the Funds, and you should refer to your Fund's Prospectus and to Part 1 of this Statement of Additional Information ("SAI") to determine whether the matter is applicable to your Fund. You will also be referred to Part 1 for certain data applicable to your Fund.
MISCELLANEOUS INVESTMENT PRACTICES
PART 1 OF THIS SAI LISTS ON PAGE B WHICH OF THE FOLLOWING INVESTMENT PRACTICES
ARE AVAILABLE TO YOUR FUND. IF AN INVESTMENT PRACTICE IS NOT LISTED IN PART 1 OF THIS SAI, IT IS NOT APPLICABLE TO YOUR FUND.
SHORT-TERM TRADING
In seeking the Fund's investment goal, the Advisor will buy or sell portfolio securities whenever it believes it is appropriate. The Advisor's decision will not generally be influenced by how long the Fund may have owned the security. From time to time, the Fund will buy securities intending to seek short-term trading profits. A change in the securities held by the Fund is known as "portfolio turnover" and generally involves some expense to the Fund. These expenses may include brokerage commissions or dealer mark-ups and other transaction costs on both the sale of securities and the reinvestment of the proceeds in other securities. If sales of portfolio securities cause the Fund to realize net short-term capital gains, such gains will be taxable as ordinary income. As a result of the Fund's investment policies, under certain market conditions the Fund's portfolio turnover rate may be higher than that of other mutual funds. The Fund's portfolio turnover rate for a fiscal year is the ratio of the lesser of purchases or sales of portfolio securities to the monthly average of the value of portfolio securities, excluding securities whose maturities at acquisition were one year or less. The Fund's portfolio turnover rate is not a limiting factor when the Advisor considers a change in the Fund's portfolio.
SHORT SALES
A Fund's short sales are subject to special risks. A short sale involves the sale by the Fund of a security that it does not own with the hope of purchasing the same security at a later date at a lower price. In order to deliver the security to the buyer, the Fund borrows the security from a third party. The Fund is then obligated to return the security to the third party, so the Fund must purchase the security at the market price at a later point in time. If the price of the security has increased during this time, then the Fund will incur a loss equal to the increase in price of the security from the time that the short sale was entered into plus any premiums and interest paid to the third party. Therefore, short sales involve the risk that losses may be exaggerated, potentially losing more money than the actual cost of the security. Also, there is the risk that the third party to the short sale may fail to honor its contract terms, causing a loss to the Fund.
LOWER-RATED DEBT SECURITIES
Lower-rated debt securities are those rated lower than Baa by Moody's or BBB by S&P, or comparable unrated debt securities. Relative to debt securities of higher quality,
1. an economic downturn or increased interest rates may have a more significant effect on the yield, price and potential for default for lower-rated debt securities;
2. the secondary market for lower-rated debt securities may at times become less liquid or respond to adverse publicity or investor perceptions, increasing the difficulty in valuing or disposing of the bonds;
3. the Advisor's credit analysis of lower-rated debt securities may have a greater impact on the Fund's achievement of its investment goal; and
4. lower-rated debt securities may be less sensitive to interest rate changes, but are more sensitive to adverse economic developments.
In addition, certain lower-rated debt securities may not pay interest in cash on a current basis.
SMALL COMPANIES
Smaller, less well established companies may offer greater opportunities for capital appreciation than larger, better established companies, but may also involve certain special risks related to limited product lines, markets, or financial resources and dependence on a small management group. Their securities may trade less frequently, in smaller volumes, and fluctuate more sharply in value than securities of larger companies.
COMMON STOCK, PREFERRED STOCK AND WARRANTS
Common stocks are generally more volatile than other securities. Preferred stocks share some of the characteristics of both debt and equity investments and are generally preferred over common stocks with respect to dividends and in liquidation. A warrant is an instrument issued by a corporation which gives the holder the right to subscribe to a specified amount of the company's capital stock at a set price for a specified period of time.
FOREIGN SECURITIES
The Fund may invest in securities traded in markets outside the United States. Foreign investments can be affected favorably or unfavorably by changes in currency rates and in exchange control regulations. There may be less publicly available information about a foreign company than about a U.S. company, and foreign companies may not be subject to accounting, auditing and financial reporting standards comparable to those applicable to U.S. companies. Securities of some foreign companies are less liquid or more volatile than securities of U.S. companies, and foreign brokerage commissions and custodian fees may be higher than in the United States. Investments in foreign securities can involve other risks different from those affecting U.S. investments, including local political or economic developments, expropriation or nationalization of assets and imposition of withholding taxes on dividend or interest payments. Foreign securities, like other assets of the Fund, will be held by the Fund's custodian or by a sub-custodian or depository. See also "Foreign Currency Transactions" below.
The Fund may invest in certain Passive Foreign Investment Companies (PFICs) which may be subject to U.S. federal income tax on a portion of any "excess distribution" or gain (PFIC tax) related to the investment. This "excess distribution" will be allocated over the Fund's holding period for such investment. The PFIC tax is the highest ordinary income rate in effect for any period multiplied by the portion of the "excess distribution" allocated to such period, and it could be increased by an interest charge on the deemed tax deferral.
The Fund may possibly elect to include in its income its pro rata share of the ordinary earnings and net capital gain of PFICs. This election requires certain annual information from the PFICs which in many cases may be difficult to obtain. An alternative election would permit the Fund to recognize as income any appreciation (and to a limited extent, depreciation) on its holdings of PFICs as of the end of its fiscal year. See "Taxes" below.
The Fund may invest in other investment companies. Such investments will involve the payment of duplicative fees through the indirect payment of a portion of the expenses, including advisory fees, of such other investment companies.
EXCHANGE-TRADED FUNDS ("ETFS"). The Fund may invest in ETFs up to the maximum amount allowable under the 1940 Act. ETFs are shares of publicly-traded unit investment trusts, open-end funds, or depositary receipts that seek to track the performance and dividend yield of specific indexes or companies in related industries. These indexes may be either broad-based, sector or international.
ETF shareholders are generally subject to the same risks as holders of the underlying securities they are designed to track. ETFs are also subject to certain additional risks, including (1) the risk that their prices may not correlate perfectly with changes in the prices of the underlying securities they are designed to track; and (2) the risk of possible trading halts due to market conditions or other reasons, based on the policies of the exchange upon which an ETF trades. In addition, an exchange traded sector fund may be adversely affected by the performance of that specific sector or group of industries on which it is based.
The Fund would bear, along with other shareholders of an ETF, its pro rata portion of the ETF's expenses, including management fees. Accordingly, in addition to bearing their proportionate share of the Fund's expenses (i.e., management fees and operating expenses), shareholders of the Fund may also indirectly bear similar expenses of an ETF.
ZERO COUPON SECURITIES ("ZEROS")
The Fund may invest in Zeros, which are securities issued at a significant discount from face value and do not pay interest at intervals during the life of the security. Zeros include securities issued in certificates representing undivided interests in the interest or principal of mortgage-backed securities (interest only/principal only), which tend to be more volatile than other types of securities. The Fund will accrue and distribute income from stripped securities and certificates on a current basis and may have to sell securities to generate cash for distributions.
STEP COUPON BONDS ("STEPS")
The Fund may invest in debt securities, known as Steps, which pay interest at a series of different rates (including 0%) in accordance with a stated schedule for a series of periods. In addition to the risks associated with the credit rating of the issuers, these securities may be subject to more volatility risk than fixed rate debt securities.
TENDER OPTION BONDS
A tender option bond is a municipal security (generally held pursuant to a custodial arrangement) having a relatively long maturity and bearing interest at a fixed rate substantially higher than prevailing short-term tax-exempt rates, that has been coupled with the agreement of a third party, such as a bank, broker-dealer or other financial institution, pursuant to which such institution grants the security holders the option, at periodic intervals, to tender their securities to the institution and receive the face value thereof. As consideration for providing the option, the financial institution receives periodic fees equal to the difference between the municipal security's fixed coupon rate and the rate, as determined by a remarketing or similar agent at or near the commencement of such period, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term tax-exempt rate. The Advisor will consider on an ongoing basis the creditworthiness of the issuer of the underlying municipal securities, of any custodian, and of the third-party provider of the tender option. In certain instances and for certain tender option bonds, the option may be terminable in the event of a default in payment of principal or interest on the underlying municipal securities and for other reasons.
PAY-IN-KIND ("PIK") SECURITIES
The Fund may invest in securities which pay interest either in cash or additional securities. These securities are generally high yield securities and, in addition to the other risks associated with investing in high yield securities, are subject to the risks that the interest payments which consist of additional securities are also subject to the risks of high yield securities.
MONEY MARKET INSTRUMENTS
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their subdivisions, agencies and instrumentalities. SUPRANATIONAL OBLIGATIONS are issued by supranational entities and are generally designed to promote economic improvements. CERTIFICATES OF DEPOSIT are issued against deposits in a commercial bank with a defined return and maturity. BANKER'S ACCEPTANCES are used to finance the import, export or storage of goods and are "accepted" when guaranteed at maturity by a bank. COMMERCIAL PAPER is a promissory note issued by a business to finance short-term needs (including promissory notes with floating or variable interest rates, or including a frequent interval put feature). SHORT-TERM CORPORATE OBLIGATIONS are bonds and notes (with one year or less to maturity at the time of purchase) issued by businesses to finance long-term needs. PARTICIPATION INTERESTS include the underlying securities and any related guaranty, letter of credit, or collateralization arrangement in which the Fund would be allowed to invest directly.
CERTIFICATES OF DEPOSIT are short-term negotiable instruments issued against deposits in a commercial bank with a defined return and maturity. TIME DEPOSITS are non-negotiable deposits maintained in banking institutions for specified periods of time at stated interest rates.
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their subdivisions, agencies and instrumentalities. Examples of the types of obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities (hereinafter, "U.S. Government obligations") that may be held by the Funds include, without limitation, direct obligations of the U.S. Treasury, and securities issued or guaranteed by the Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association, Federal National Mortgage Association, General Services Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks, Resolution Trust Corporation and Maritime Administration.
U.S. Treasury securities differ only in their interest rates, maturities and time of issuance: Treasury Bills have initial maturities of one year or less; Treasury Notes have initial maturities of one to ten years; and Treasury Bonds generally have initial maturities
of more than ten years. Obligations of certain agencies and instrumentalities of the U.S. Government, such as those of the Government National Mortgage Association, are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Federal Home Loan Banks, are supported by the right of the issuer to borrow from the Treasury; others, such as those of the Federal National Mortgage Association, are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; still others, such as those of the Federal Home Loan Mortgage Corporation, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government would provide financial support to U.S. Government-sponsored instrumentalities if it is not obligated to do so by law. Some of these instruments may be variable or floating rate instruments.
Securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities have historically involved relatively little risk of loss of principal. However, due to fluctuations in interest rates, the market value of such securities may vary during the period a shareholder owns shares of the Fund.
BANK OBLIGATIONS include bankers' acceptances, negotiable certificates of deposit, and non-negotiable time deposits issued for a definite period of time and earning a specified return by a U.S. bank which is a member of the Federal Reserve System or is insured by the Federal Deposit Insurance Corporation ("FDIC"), or by a savings and loan association or savings bank which is insured by the FDIC. Bank obligations also include U.S. dollar-denominated obligations of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of the same type as domestic bank obligations. Time deposits with a maturity longer than seven days or that do not provide for payment within seven days after notice will be subject to any limitations on illiquid securities described in Part 1 of this SAI. For purposes of each Fund's investment policies with respect to bank obligations, the assets of a bank or savings institution will be deemed to include the assets of its U.S. and foreign branches.
Domestic and foreign banks are subject to extensive but different government regulation which may limit the amount and types of their loans and the interest rates that may be charged. In addition, the profitability of the banking industry is largely dependent upon the availability and cost of funds to finance lending operations and the quality of underlying bank assets. Investments in obligations of foreign branches of U.S. banks and of U.S. branches of foreign banks may subject a Fund to additional risks, including future political and economic developments, the possible imposition of withholding taxes on interest income, possible seizure or nationalization of foreign deposits, the possible establishment of exchange controls, or the adoption of other foreign governmental restrictions which might adversely affect the payment of principal and interest on such obligations. In addition, foreign branches of U.S. banks and U.S. branches of foreign banks may be subject to less stringent reserve requirements and to different accounting, auditing, reporting, and recordkeeping standards than those applicable to domestic branches of U.S. banks.
SEPARATELY TRADED INTEREST AND PRINCIPAL SECURITIES ("STRIPS") are component parts of U.S. Treasury Securities traded through the Federal Reserve Book-Entry System. While there is no limitation on the percentage of a Fund's assets that may be invested in STRIPS, the Advisor will monitor the level of such holdings to avoid the risk of impairing shareholders' redemption rights. The interest-only component of STRIPS is extremely sensitive to the rate of principal payments on the underlying obligation. The market value of the principal-only component is usually volatile in response to changes in interest rates.
In U.S. TREASURY ROLLS, a Fund sells outstanding U.S. Treasury securities and buys back on a delayed settlement basis the same U.S. Treasury securities. During the period prior to the delayed settlement date, the assets from the sale of the U.S. Treasury securities are invested in certain cash equivalent instruments. U.S. Treasury rolls entail the risk that the Fund could suffer an opportunity loss if the counterparty to the roll failed to perform its obligations on the settlement date, and if market conditions changed adversely. The Funds intend to enter into U.S. Treasury rolls only with U.S. Government securities dealers recognized by the Federal Reserve Bank or with member banks of the Federal Reserve System. The Funds will hold and maintain in a segregated account until the settlement date cash or other liquid assets in an amount equal to the forward purchase price. For financial reporting and tax purposes, the Funds propose to treat U.S. Treasury rolls as two separate transactions, one involving the purchase of a security and a separate transaction involving a sale.
COMMERCIAL PAPER is an unsecured short-term promissory note issued by businesses to finance short-term needs (including those with floating or variable interest rates, or including a frequent interval put feature). Commercial paper may include variable and floating rate instruments which are unsecured instruments that permit the indebtedness thereunder to vary. Variable rate instruments provide for periodic adjustments in the interest rate. Floating rate instruments provide for automatic adjustment of the interest rate whenever some other specified interest rate changes. Some variable and floating rate obligations are direct lending arrangements between the purchaser and the issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, a Fund may demand payment of principal and accrued interest at a time specified in the instrument or may resell the instrument to a third party. In the event that an issuer of a variable or floating rate obligation were to default on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and could, for this or other reasons, suffer a loss to the extent of the default.
Commercial paper may include securities issued by corporations without registration under the 1933 Act in reliance on the so-called "private placement" exemption in Section 4(2) ("Section 4(2) Paper"). Section 4(2) Paper is restricted as to disposition under the federal securities laws in that any resale must similarly be made in an exempt transaction. Section 4(2) Paper is normally resold to other institutional investors through or with the assistance of investment dealers who make a market in Section 4(2) Paper, thus providing liquidity. For purposes of each Fund's limitation on purchases of illiquid instruments described below, Section 4(2) Paper will not be considered illiquid if the Advisor has determined, in accordance with guidelines approved by the Board of Trustees, that an adequate trading market exists for such securities.
STRIPPED OBLIGATIONS
To the extent consistent with their investment objective, Funds may purchase U.S. Treasury receipts and other "stripped" securities that evidence ownership in either the future interest payments or the future principal payments on U.S. Government and other obligations. These participations, which may be issued by the U.S. Government or by private issuers, such as banks and other institutions, are issued at their "face value," and may include stripped mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage securities. Stripped securities, particularly SMBS, may exhibit greater price volatility than ordinary debt securities because of the manner in which their principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive different proportions of the interest and principal distributions from a pool of mortgage-backed obligations. A common type of SMBS will have one class receiving all of the interest, while the other class will receive all of the principal. However, in some instances, one class will receive some of the interest and most of the principal while the other class will receive most of the interest and the remainder of the principal. If the underlying obligations experience greater than anticipated prepayments of principal, the Fund may fail to fully recoup its initial investment in these securities. The market value of the class consisting entirely of principal payments generally is extremely volatile in response to changes in interest rates. The yields on a class of SMBS that receives all or most of the interest are generally higher than prevailing market yields on other mortgage-backed obligations because their cash flow patterns are more volatile and there is a greater risk that the initial investment will not be fully recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government agency or instrumentality) are considered illiquid by the Funds. Obligations issued by the U.S. Government may be considered liquid under guidelines established by Funds' Board of Trustees if they can be disposed of promptly in the ordinary course of business at a value reasonably close to that used in the calculation of net asset value per share.
MUNICIPAL SECURITIES
Municipal Securities acquired by the Funds include debt obligations issued by governmental entities to obtain funds for various public purposes, including the construction of a wide range of public facilities, the refunding of outstanding obligations, the payment of general operating expenses, and the extension of loans to public institutions and facilities. Private activity bonds that are issued by or on behalf of public authorities to finance various privately operated facilities are "Municipal Securities" if the interest paid thereon is exempt from regular federal income tax and not treated as a specific tax preference item under the federal alternative minimum tax.
The two principal classifications of Municipal Securities which may be held by the Funds are "general obligation" securities and "revenue" securities. General obligation securities are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue securities are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific revenue source such as the user of the facility being financed.
The Fund's portfolio may also include "moral obligation" securities, which are normally issued by special purpose public authorities. If the issuer of moral obligation securities is unable to meet its debt service obligations from current revenues, it may draw on a reserve fund, the restoration of which is a moral commitment but not a legal obligation of the state or municipality which created the issuer. There is no limitation on the amount of moral obligation securities that may be held by the Funds.
There are, of course, variations in the quality of Municipal Securities, both within a particular category and between categories, and the yields on Municipal Securities depend upon a variety of factors, including general market conditions, the financial
condition of the issuer, general conditions of the municipal bond market, the size of a particular offering, the maturity of the obligation, and the rating of the issue. The ratings of a nationally recognized statistical rating organization ("NRSRO"), such as Moody's and S&P, represent such NRSRO's opinion as to the quality of Municipal Securities. It should be emphasized that these ratings are general and are not absolute standards of quality. Municipal Securities with the same maturity, interest rate and rating may have different yields. Municipal Securities of the same maturity and interest rate with different ratings may have the same yield.
Municipal Securities may include rated and unrated variable and floating rate tax-exempt instruments, such as variable rate demand notes. Variable rate demand notes are long-term Municipal Securities that have variable or floating interest rates and provide a Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on an applicable interest index or another published interest rate or interest rate index. Most variable rate demand notes allow a Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit a Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. Variable interest rates generally reduce changes in the market value of Municipal Securities from their original purchase prices. Accordingly, as interest rates decrease, the potential for capital appreciation is less for variable rate Municipal Securities than for fixed income obligations. The terms of these variable rate demand instruments require payment of principal and accrued interest from the issuer of the Municipal Securities, the issuer of the participation interest or a guarantor of either issuer.
Municipal Securities purchased by the Funds in some cases may be insured as to the timely payment of principal and interest. There is no guarantee, however, that the insurer will meet its obligations in the event of a default in payment by the issuer. In other cases, Municipal Securities may be backed by letters of credit or guarantees issued by domestic or foreign banks or other financial institutions which are not subject to federal deposit insurance. Adverse developments affecting the banking industry generally or a particular bank or financial institution that has provided its credit or guarantee with respect to a Municipal Security held by a Fund, including a change in the credit quality of any such bank or financial institution, could result in a loss to the Fund and adversely affect the value of its shares. Letters of credit and guarantees issued by foreign banks and financial institutions involve certain risks in addition to those of similar instruments issued by domestic banks and financial institutions.
The payment of principal and interest on most Municipal Securities purchased by the Funds will depend upon the ability of the issuers to meet their obligations. Each state, the District of Columbia, each of their political subdivisions, agencies, instrumentalities and authorities and each multi-state agency of which a state is a member is a separate "issuer" as that term is used in this SAI and the Prospectuses. The non-governmental user of facilities financed by private activity bonds is also considered to be an "issuer." An issuer's obligations under its Municipal Securities are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Code and laws, if any, which may be enacted by federal or state legislatures extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations or upon the ability of municipalities to levy taxes. The power or ability of an issuer to meet its obligations for the payment of interest on and principal of its Municipal Securities may be materially adversely affected by litigation or other conditions.
From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax exemption for interest on Municipal Securities. For example, under the Tax Reform Act of 1986, interest on certain private activity bonds must be included in an investor's federal alternative minimum taxable income, and corporate investors must include all tax-exempt interest in their federal alternative minimum taxable income. The Funds cannot, of course, predict what legislation may be proposed in the future regarding the income tax status of interest on Municipal Securities, or which proposals, if any, might be enacted. Such proposals, while pending or if enacted, might materially and adversely affect the availability of Municipal Securities for investment by the Funds and the liquidity and value of their respective portfolios. In such an event, each Fund would re-evaluate its investment objective and policies and consider possible changes in its structure or possible dissolution.
Opinions relating to the validity of Municipal Securities and to the exemption of interest thereon from federal income tax are rendered by bond counsel to the respective issuers at the time of issuance. Neither the Funds nor the Advisor will review the proceedings relating to the issuance of Municipal Securities or the bases for such opinions.
PRIVATE ACTIVITY BONDS
The Funds may invest in "private activity bonds," the interest on which, although exempt from regular federal income tax, may constitute an item of tax preference for purposes of the federal alternative minimum tax. Private activity bonds are or have been issued to obtain funds to provide, among other things, privately operated housing facilities, pollution control facilities, convention or trade show facilities, mass transit, airport, port or parking facilities and certain local facilities for water supply, gas, electricity or sewage or solid waste disposal. Private activity bonds are also issued to privately held or publicly owned corporations in the financing of commercial or industrial facilities. State and local governments are authorized in most states to issue private activity bonds for such purposes in order to encourage corporations to locate within their communities. The principal and interest on these obligations may be payable from the general revenues of the users of such facilities.
Private activity bonds held by the Funds are in most cases revenue securities and are not payable from the unrestricted revenues of the issuer. Consequently, the credit quality of such private activity bonds is usually directly related to the credit standing of the corporate user of the facility involved.
MUNICIPAL LEASE OBLIGATIONS
Although a municipal lease obligation does not constitute a general obligation of the municipality for which the municipality's taxing power is pledged, a municipal lease obligation is ordinarily backed by the municipality's covenant to budget for, appropriate and make the payments due under the municipal lease obligation. However, certain lease obligations contain "non-appropriation" clauses which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. Although "non-appropriation" lease obligations are secured by the leased property, disposition of the property in the event of foreclosure might prove difficult. In addition, the tax treatment of such obligations in the event of non-appropriation is unclear.
Determinations concerning the liquidity and appropriate valuation of a municipal lease obligation, as with any other municipal security, are made based on all relevant factors. These factors include, among others: (1) the frequency of trades and quotes for the obligation; (2) the number of dealers willing to purchase or sell the security and the number of other potential buyers; (3) the willingness of dealers to undertake to make a market in the security; and (4) the nature of the marketplace trades, including the time needed to dispose of the security, the method of soliciting offers, and the mechanics of the transfer.
SECURITIES LOANS
The Fund may make secured loans of its portfolio securities amounting to not more than the percentage of its total assets specified in Part 1 of this SAI, thereby realizing additional income. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delay in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. As a matter of policy, securities loans are made to banks and broker-dealers pursuant to agreements requiring that loans be continuously secured by collateral in cash or short-term debt obligations at least equal at all times to the value of the securities on loan. The borrower pays to the Fund an amount equal to any dividends or interest received on securities lent. The Fund retains all or a portion of the interest received on investment of the cash collateral or receives a fee from the borrower. Although voting rights, or rights to consent, with respect to the loaned securities pass to the borrower, the Fund retains the right to call the loans at any time on reasonable notice, and it will do so in order that the securities may be voted by the Fund if the holders of such securities are asked to vote upon or consent to matters materially affecting the investment. The Fund may also call such loans in order to sell the securities involved.
INTERFUND BORROWING AND LENDING
The Fund may lend money to and borrow money from other affiliated registered open-end investment companies. The Fund may borrow through the program when the Advisor believes borrowing is appropriate and the costs are equal to or lower than the costs of bank loans. When borrowing money, the Fund is subject to the risk that the securities the Fund acquires with the borrowed money or would otherwise have sold will decline in value. When lending money, the Fund is subject to the risk that the borrower will be unwilling or unable to make timely payments of interest or principal.
FORWARD COMMITMENTS ("WHEN-ISSUED" AND "DELAYED DELIVERY" SECURITIES)
The Fund may enter into contracts to purchase securities for a fixed price at a future date beyond customary settlement time ("forward commitments" and "when-issued securities") if the Fund holds until the settlement date, in a segregated account, cash or liquid securities in an amount sufficient to meet the purchase price, or if the Fund enters into offsetting contracts for the forward sale of other securities it owns. Forward commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date. Where such purchases are made through
dealers, the Fund relies on the dealer to consummate the sale. The dealer's failure to do so may result in the loss to the Fund of an advantageous yield or price. Although the Fund will generally enter into forward commitments with the intention of acquiring securities for its portfolio or for delivery pursuant to options contracts it has entered into, the Fund may dispose of a commitment prior to settlement if the Advisor deems it appropriate to do so. The Fund may realize short-term profits or losses (generally taxed at ordinary income tax rates in the hands of the shareholders) upon the sale of forward commitments.
MORTGAGE DOLLAR ROLLS
In a mortgage dollar roll, the Fund sells a mortgage-backed security and simultaneously enters into a commitment to purchase a similar security at a later date. The Fund either will be paid a fee by the counterparty upon entering into the transaction or will be entitled to purchase the similar security at a discount. As with any forward commitment, mortgage dollar rolls involve the risk that the counterparty will fail to deliver the new security on the settlement date, which may deprive the Fund of obtaining a beneficial investment. In addition, the security to be delivered in the future may turn out to be inferior to the security sold upon entering into the transaction. In addition, the transaction costs may exceed the return earned by the Fund from the transaction.
REITS
The Funds may invest in real estate investment trusts ("REITs"). Equity REITs invest directly in real property while mortgage REITs invest in mortgages on real property. REITs may be subject to certain risks associated with the direct ownership of real estate, including declines in the value of real estate, risks related to general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, and variations in rental income. Generally, increases in interest rates will decrease the value of high yielding securities and increase the costs of obtaining financing, which could decrease the value of a REIT's investments. In addition, equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of credit extended. Equity and mortgage REITs are dependent upon management skill, are not diversified and are subject to the risks of financing projects. REITs are also subject to heavy cash flow dependency, defaults by borrowers, self liquidation and the possibility of failing to qualify for tax-free pass-through of income under the Internal Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from the 1940 Act. REITs pay dividends to their shareholders based upon available funds from operations. It is quite common for these dividends to exceed a REIT's taxable earnings and profits resulting in the excess portion of such dividends being designated as a return of capital. The Funds intend to include the gross dividends from any investments in REITs in their periodic distributions to its shareholders and, accordingly, a portion of the Fund's distributions may also be designated as a return of capital.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities, including "collateralized mortgage obligations" (CMOs) and "real estate mortgage investment conduits" (REMICs), evidence ownership in a pool of mortgage loans made by certain financial institutions that may be insured or guaranteed by the U.S. government or its agencies. CMOs are obligations issued by special-purpose trusts, secured by mortgages. REMICs are entities that own mortgages and elect REMIC status under the Internal Revenue Code. Both CMOs and REMICs issue one or more classes of securities of which one (the Residual) is in the nature of equity. The Funds will not invest in the Residual class. Principal on mortgage-backed securities, CMOs and REMICs may be prepaid if the underlying mortgages are prepaid. Prepayment rates for mortgage-backed securities tend to increase as interest rates decline (effectively shortening the security's life) and decrease as interest rates rise (effectively lengthening the security's life). Because of the prepayment feature, these securities may not increase in value as much as other debt securities when interest rates fall. A Fund may be able to invest prepaid principal only at lower yields. The prepayment of such securities purchased at a premium may result in losses equal to the premium.
NON-AGENCY MORTGAGE-BACKED SECURITIES
The Fund may invest in non-investment grade mortgage-backed securities that are not guaranteed by the U.S. government or an agency. Such securities are subject to the risks described under "Lower Rated Debt Securities" and "Mortgage-Backed Securities." In addition, although the underlying mortgages provide collateral for the security, the Fund may experience losses, costs and delays in enforcing its rights if the issuer defaults or enters bankruptcy.
ASSET-BACKED SECURITIES
Asset-backed securities are interests in pools of debt securities backed by various types of loans such as credit card, auto and home equity loans. These securities involve prepayment risk, which is the possibility that the underlying debt may be refinanced or prepaid prior to maturity during periods of declining interest rates. During periods of rising interest rates, asset-backed securities have a high risk of declining in price because the declining prepayment rates effectively lengthen the expected maturity of the securities. A decline in interest rates may lead to a faster rate of repayment on asset-backed
securities and, therefore, cause a Fund to earn a lower interest rate on reinvestment. In addition, the potential impact of prepayment on the price of an asset-backed security may be difficult to predict and result in greater volatility.
CUSTODY RECEIPTS AND TRUST CERTIFICATES. Custody receipts, such as Morgan Stanley TRACERs (Traded Custody Receipts), and trust certificates, such as Lehman Brothers TRAINs (Targeted Return Index Securities Trust), are derivative products which, in the aggregate, evidence direct ownership in a pool of securities. Typically, a sponsor will deposit a pool of securities with a custodian in exchange for custody receipts evidencing those securities or with a trust in exchange for trust certificates evidencing interests in the trust, the principal asset of which is those securities. The sponsor will then generally sell those custody receipts or trust certificates in negotiated transactions at varying prices that are determined at the time of sale. Each custody receipt or trust certificate evidences the individual securities in the pool and the holder of a custody receipt or trust certificate generally will have all the rights and privileges of owners of those securities. Each holder of a custody receipt or trust certificate generally will be treated as directly purchasing its pro rata share of the securities in the pool for an amount equal to the amount that such holder paid for its custody receipt or trust certificate. If a custody receipt or trust certificate is sold, a holder will be treated as having directly "disposed of its pro rata share of the securities evidenced by the custody receipt or trust certificate. Additionally, the holder of a custody receipt or trust certificate may withdraw the securities represented by the custody receipt or trust certificate subject to certain conditions. Custody receipts and trust certificates are generally subject to the same risks as those securities evidenced by the receipts or certificates which, in the case of the Fund, are corporate debt securities. Additionally, custody receipts and trust certificates may also be less liquid than the underlying securities if the sponsor fails to maintain a trading market.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. A repurchase agreement is a contract under which the Fund acquires a security for a relatively short period subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price (representing the Fund's cost plus interest). It is the Fund's present intention to enter into repurchase agreements only with commercial banks and registered broker-dealers and only with respect to obligations of the U.S. government or its agencies or instrumentalities. Repurchase agreements may also be viewed as loans made by the Fund which are collateralized by the securities subject to repurchase. The Advisor will monitor such transactions to determine that the value of the underlying securities is at least equal at all times to the total amount of the repurchase obligation, including the interest factor. If the seller defaults, the Fund could realize a loss on the sale of the underlying security to the extent that the proceeds of sale including accrued interest are less than the resale price provided in the agreement including interest. In addition, if the seller should be involved in bankruptcy or insolvency proceedings, the Fund may incur delay and costs in selling the underlying security or may suffer a loss of principal and interest if the Fund is treated as an unsecured creditor and required to return the underlying collateral to the seller's estate.
REVERSE REPURCHASE AGREEMENTS
In a reverse repurchase agreement, the Fund sells a security and agrees to repurchase the same security at a mutually agreed upon date and price. A reverse repurchase agreement may also be viewed as the borrowing of money by the Fund and, therefore, as a form of leverage. The Fund will invest the proceeds of borrowings under reverse repurchase agreements. In addition, the Fund will enter into a reverse repurchase agreement only when the interest income expected to be earned from the investment of the proceeds is greater than the interest expense of the transaction. The Fund will not invest the proceeds of a reverse repurchase agreement for a period which exceeds the duration of the reverse repurchase agreement. The Fund may not enter into reverse repurchase agreements exceeding in the aggregate one-third of the market value of its total assets, less liabilities other than the obligations created by reverse repurchase agreements. Each Fund will establish and maintain with its custodian a separate account with a segregated portfolio of securities in an amount at least equal to its purchase obligations under its reverse repurchase agreements. If interest rates rise during the term of a reverse repurchase agreement, entering into the reverse repurchase agreement may have a negative impact on a money market fund's ability to maintain a net asset value of $1.00 per share.
LINE OF CREDIT
The Fund may establish and maintain a line of credit with a major bank in order to permit borrowing on a temporary basis to meet share redemption requests in circumstances in which temporary borrowings may be preferable to liquidation of portfolio securities.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The Fund may write covered call options and covered put options on securities held in its portfolio when, in the opinion of the Advisor, such transactions are consistent with the Fund's investment goal and policies. Call options
written by the Fund give the purchaser the right to buy the underlying securities from the Fund at a stated exercise price; put options give the purchaser the right to sell the underlying securities to the Fund at a stated price.
The Fund may write only covered options, which means that, so long as the Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option (or comparable securities satisfying the cover requirements of securities exchanges). In the case of put options, the Fund will hold cash and/or high-grade short-term debt obligations equal to the price to be paid if the option is exercised. In addition, the Fund will be considered to have covered a put or call option if and to the extent that it holds an option that offsets some or all of the risk of the option it has written. The Fund may write combinations of covered puts and calls on the same underlying security.
The Fund will receive a premium from writing a put or call option, which increases the Fund's return on the underlying security if the option expires unexercised or is closed out at a profit. The amount of the premium reflects, among other things, the relationship between the exercise price and the current market value of the underlying security, the volatility of the underlying security, the amount of time remaining until expiration, current interest rates, and the effect of supply and demand in the options market and in the market for the underlying security. By writing a call option, the Fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option but continues to bear the risk of a decline in the value of the underlying security. By writing a put option, the Fund assumes the risk that it may be required to purchase the underlying security for an exercise price higher than its then-current market value, resulting in a potential capital loss unless the security subsequently appreciates in value.
The Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an offsetting option. The Fund realizes a profit or loss from a closing transaction if the cost of the transaction (option premium plus transaction costs) is less or more than the premium received from writing the option. Because increases in the market price of a call option generally reflect increases in the market price of the security underlying the option, any loss resulting from a closing purchase transaction may be offset in whole or in part by unrealized appreciation of the underlying security.
If the Fund writes a call option but does not own the underlying security, and when it writes a put option, the Fund may be required to deposit cash or securities with its broker as "margin" or collateral for its obligation to buy or sell the underlying security. As the value of the underlying security varies, the Fund may have to deposit additional margin with the broker. Margin requirements are complex and are fixed by individual brokers, subject to minimum requirements currently imposed by the Federal Reserve Board and by stock exchanges and other self-regulatory organizations.
PURCHASING PUT OPTIONS. The Fund may purchase put options to protect its portfolio holdings in an underlying security against a decline in market value. Such hedge protection is provided during the life of the put option since the Fund, as holder of the put option, is able to sell the underlying security at the put exercise price regardless of any decline in the underlying security's market price. For a put option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs. By using put options in this manner, the Fund will reduce any profit it might otherwise have realized from appreciation of the underlying security by the premium paid for the put option and by transaction costs.
PURCHASING CALL OPTIONS. The Fund may purchase call options to hedge against an increase in the price of securities that the Fund wants ultimately to buy. Such hedge protection is provided during the life of the call option since the Fund, as holder of the call option, is able to buy the underlying security at the exercise price regardless of any increase in the underlying security's market price. In order for a call option to be profitable, the market price of the underlying security must rise sufficiently above the exercise price to cover the premium and transaction costs. These costs will reduce any profit the Fund might have realized had it bought the underlying security at the time it purchased the call option.
OVER-THE-COUNTER ("OTC") OPTIONS. The Staff of the Division of Investment Management of the Securities and Exchange Commission (SEC) has taken the position that OTC options purchased by the Fund and assets held to cover OTC options written by the Fund are illiquid securities. Although the Staff has indicated that it is continuing to evaluate this issue, pending further developments, the Fund intends to enter into OTC options transactions only with primary dealers in U.S. government securities and, in the case of OTC options written by the Fund, only pursuant to agreements that will assure that the Fund will at all times have the right to repurchase the option written by it from the dealer at a specified formula price. The Fund will treat the amount by which such formula price exceeds the amount, if any, by which the option may be "in-the-money" as an illiquid investment. It is the present policy of the Fund not to enter into any OTC option transaction if, as a result, more than 15% (10% in some cases,
refer to your Fund's Prospectus) of the Fund's net assets would be invested in
(i) illiquid investments (determined under the foregoing formula) relating to
OTC options written by the Fund, (ii) OTC options purchased by the Fund, (iii)
securities which are not readily marketable, and (iv) repurchase agreements
maturing in more than seven days.
RISK FACTORS IN OPTIONS TRANSACTIONS. The successful use of the Fund's options strategies depends on the ability of the Advisor to forecast interest rate and market movements correctly.
When it purchases an option, the Fund runs the risk that it will lose its entire investment in the option in a relatively short period of time, unless the Fund exercises the option or enters into a closing sale transaction with respect to the option during the life of the option. If the price of the underlying security does not rise (in the case of a call) or fall (in the case of a put) to an extent sufficient to cover the option premium and transaction costs, the Fund will lose part or all of its investment in the option. This contrasts with an investment by the Fund in the underlying securities, since the Fund may continue to hold its investment in those securities notwithstanding the lack of a change in price of those securities.
The effective use of options also depends on the Fund's ability to terminate option positions at times when the Advisor deems it desirable to do so. Although the Fund will take an option position only if the Advisor believes there is a liquid secondary market for the option, there is no assurance that the Fund will be able to effect closing transactions at any particular time or at an acceptable price.
If a secondary trading market in options were to become unavailable, the Fund could no longer engage in closing transactions. Lack of investor interest might adversely affect the liquidity of the market for particular options or series of options. A marketplace may discontinue trading of a particular option or options generally. In addition, a market could become temporarily unavailable if unusual events - such as volume in excess of trading or clearing capability - were to interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on particular types of option transactions, which may limit the Fund's ability to realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options purchased or sold by the Fund could result in losses on the options. If trading is interrupted in an underlying security, the trading of options on that security is normally halted as well. As a result, the Fund as purchaser or writer of an option will be unable to close out its positions until options trading resumes, and it may be faced with losses if trading in the security reopens at a substantially different price. In addition, the Options Clearing Corporation (OCC) or other options markets may impose exercise restrictions. If a prohibition on exercise is imposed at the time when trading in the option has also been halted, the Fund as purchaser or writer of an option will be locked into its position until one of the two restrictions has been lifted. If a prohibition on exercise remains in effect until an option owned by the Fund has expired, the Fund could lose the entire value of its option.
Special risks are presented by internationally traded options. Because of time differences between the United States and various foreign countries, and because different holidays are observed in different countries, foreign options markets may be open for trading during hours or on days when U.S. markets are closed. As a result, option premiums may not reflect the current prices of the underlying interest in the United States.
FUTURES CONTRACTS AND RELATED OPTIONS
Upon entering into futures contracts, in compliance with the SEC's requirements, cash or liquid securities, equal in value to the amount of the Fund's obligation under the contract (less any applicable margin deposits and any assets that constitute "cover" for such obligation), will be segregated with the Fund's custodian.
A futures contract sale creates an obligation by the seller to deliver the type of instrument called for in the contract in a specified delivery month for a stated price. A futures contract purchase creates an obligation by the purchaser to take delivery of the type of instrument called for in the contract in a specified delivery month at a stated price. The specific instruments delivered or taken at the settlement date are not determined until on or near that date. The determination is made in accordance with the rules of the exchanges on which the futures contract was made. The Fund may enter into futures contracts which are traded on national or foreign futures exchanges and are standardized as to maturity date and underlying financial instrument. Futures exchanges and trading in the United States are regulated under the Commodity Exchange Act by the Commodity Futures Trading Commission (CFTC).
Although futures contracts by their terms call for actual delivery or acceptance of commodities or securities, the contracts usually are closed out before the settlement date without the making or taking of delivery. Closing out a futures contract sale is effected by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument or commodity with the same delivery date. If the price of the initial sale of the futures contract exceeds the price of the offsetting purchase, the seller is paid the difference and realizes a gain. Conversely, if the price of the offsetting purchase exceeds the price of the initial sale, the seller realizes a loss. Similarly, the closing out of a futures contract purchase is effected by the purchaser's entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, the purchaser realizes a gain, and if the purchase price exceeds the offsetting sale price, the purchaser realizes a loss.
Unlike when the Fund purchases or sells a security, no price is paid or received by the Fund upon the purchase or sale of a futures contract, although the Fund is required to deposit with its custodian in a segregated account in the name of the futures broker an amount of cash and/or U.S. government securities. This amount is known as "initial margin." The nature of initial margin in futures transactions is different from that of margin in security transactions in that futures contract margin does not involve the borrowing of funds by the Fund to finance the transactions. Rather, initial margin is in the nature of a performance bond or good faith deposit on the contract that is returned to the Fund upon termination of the futures contract, assuming all contractual obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin," to and from the broker (or the custodian) are made on a daily basis as the price of the underlying security or commodity fluctuates, making the long and short positions in the futures contract more or less valuable, a process known as "marking to market."
The Fund may elect to close some or all of its futures positions at any time prior to their expiration. The purpose of making such a move would be to reduce or eliminate the hedge position then currently held by the Fund. The Fund may close its positions by taking opposite positions which will operate to terminate the Fund's position in the futures contracts. Final determinations of variation margin are then made, additional cash is required to be paid by or released to the Fund, and the Fund realizes a loss or a gain. Such closing transactions involve additional commission costs.
INTEREST RATE FUTURES CONTRACTS. Bond prices are established in both the cash market and the futures market. In the cash market, bonds are purchased and sold with payment for the full purchase price of the bond being made in cash, generally within five business days after the trade. In the futures market, only a contract is made to purchase or sell a bond in the future for a set price on a certain date. Historically, the prices for bonds established in the futures markets have tended to move generally in the aggregate in concert with the cash market prices and have maintained fairly predictable relationships. Accordingly, the Funds may use interest rate futures contracts as a defense, or hedge, against anticipated interest rate changes. The Funds presently could accomplish a similar result to that which they hope to achieve through the use of futures contracts by selling bonds with long maturities and investing in bonds with short maturities when interest rates are expected to increase, or conversely, selling short-term bonds and investing in long-term bonds when interest rates are expected to decline. However, because of the liquidity that is often available in the futures market, the protection is more likely to be achieved, perhaps at a lower cost and without changing the rate of interest being earned by the Funds, through using futures contracts.
Interest rate futures contracts are traded in an auction environment on the floors of several exchanges - principally, the Chicago Board of Trade, the Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would deal only in standardized contracts on recognized exchanges. Each exchange guarantees performance under contract provisions through a clearing corporation, a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial instruments including long-term United States Treasury Bonds and Notes; Government National Mortgage Association (GNMA) modified pass-through mortgage backed securities; three-month United States Treasury Bills; and ninety-day commercial paper. The Funds may trade in any interest rate futures contracts for which there exists a public market, including, without limitation, the foregoing instruments.
MUNICIPAL BOND INDEX FUTURES CONTRACTS. Municipal bond index futures contracts may act as a hedge against changes in market conditions. A municipal bond index assigns values daily to the municipal bonds included in the index based on the independent assessment of dealer-to-dealer municipal bond brokers. A municipal bond index futures contract represents a firm commitment by which two parties agree to take or make delivery of an amount equal to a specified dollar amount multiplied by the difference between the municipal bond index value on the last trading date of the contract and the price at which the futures contract is originally struck. No physical delivery of the underlying securities in the index is made.
The Chicago Board of Trade has designed a futures contract based on the Bond Buyer Municipal Bond Index. This Index is composed of 40 term revenue and general obligation bonds, and its composition is updated regularly as new bonds meeting the criteria of the Index are issued and existing bonds mature. The Index is intended to provide an accurate indicator of trends and changes in the municipal bond market. Each bond in the Index is independently priced by six dealer-to-dealer municipal bond brokers daily. The 40 prices then are averaged and multiplied by a coefficient. The coefficient is used to maintain the continuity of the Index when its composition changes. The Chicago Board of Trade, on which futures contracts based on this Index are traded, as well as other U.S. commodities exchanges, are regulated by the CFTC. Transactions on such exchange are cleared through a clearing corporation, which guarantees the performance of the parties to each contract.
OPTIONS ON FUTURES CONTRACTS. The Fund will enter into written options on futures contracts only when, in compliance with the SEC's requirements, cash or liquid securities equal in value to the commodity value (less any applicable margin deposits) have been deposited in a segregated account. The Fund may purchase and write call and put options on futures contracts it may buy or sell and enter into closing transactions with respect to such options to terminate existing positions. The Fund may use such options on futures contracts in lieu of writing options directly on the underlying securities or purchasing and selling the underlying futures contracts. Such options generally operate in the same manner as options purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate his position by selling or purchasing an offsetting option. There is no guarantee that such closing transactions can be effected.
The Fund will be required to deposit initial margin and maintenance margin with respect to put and call options on futures contracts written by it pursuant to brokers' requirements similar to those described above.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use of futures contracts by the Fund is subject to the Advisor's ability to predict correctly, movements in the direction of interest rates and other factors affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or put options on futures contracts involves less potential risk to the Fund because the maximum amount at risk is the premium paid for the options (plus transaction costs). However, there may be circumstances when the purchase of a call or put option on a futures contract would result in a loss to the Fund when the purchase or sale of a futures contract would not, such as when there is no movement in the prices of the hedged investments. The writing of an option on a futures contract involves risks similar to those risks relating to the sale of futures contracts.
There is no assurance that higher than anticipated trading activity or other unforeseen events might not, at times, render certain market clearing facilities inadequate, and thereby result in the institution, by exchanges, of special procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the Fund, the Fund may seek to close out a position. The ability to establish and close out positions will be subject to the development and maintenance of a liquid secondary market. It is not certain that this market will develop or continue to exist for a particular futures contract. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain contracts or options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of contracts or options, or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or a clearing corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of contracts or options (or a particular class or series of contracts or options), in which event the secondary market on that exchange (or in the class or series of contracts or options) would cease to exist, although outstanding contracts or options on the exchange that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms.
USE BY TAX-EXEMPT FUNDS OF INTEREST RATE AND U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. The Funds investing in tax-exempt securities may purchase and sell futures contracts and related options on interest rate and U.S. Treasury securities when, in the opinion of the Advisor, price movements in these security futures and related options will correlate closely with price movements in the tax-exempt securities which are the subject of the hedge. Interest rate and U.S. Treasury securities futures
contracts require the seller to deliver, or the purchaser to take delivery of, the type of security called for in the contract at a specified date and price. Options on interest rate and U.S. Treasury security futures contracts give the purchaser the right in return for the premium paid to assume a position in a futures contract at the specified option exercise price at any time during the period of the option.
In addition to the risks generally involved in using futures contracts, there is also a risk that price movements in interest rate and U.S. Treasury security futures contracts and related options will not correlate closely with price movements in markets for tax-exempt securities.
INDEX FUTURES CONTRACTS. An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of an index is commonly referred to as buying or purchasing a contract or holding a long position in the index. Entering into a contract to sell units of an index is commonly referred to as selling a contract or holding a short position. A unit is the current value of the index. The Fund may enter into stock index futures contracts, debt index futures contracts, or other index futures contracts appropriate to its objective(s). The Fund may also purchase and sell options on index futures contracts.
There are several risks in connection with the use by the Fund of index futures as a hedging device. One risk arises because of the imperfect correlation between movements in the prices of the index futures and movements in the prices of securities which are the subject of the hedge. The Advisor will attempt to reduce this risk by selling, to the extent possible, futures on indices the movements of which will, in its judgment, have a significant correlation with movements in the prices of the Fund's portfolio securities sought to be hedged.
Successful use of index futures by the Fund for hedging purposes is also subject to the Advisor's ability to predict correctly movements in the direction of the market. It is possible that, where the Fund has sold futures to hedge its portfolio against a decline in the market, the index on which the futures are written may advance and the value of securities held in the Fund's portfolio may decline. If this occurs, the Fund would lose money on the futures and also experience a decline in the value of its portfolio securities. However, while this could occur to a certain degree, the Advisor believes that over time the value of the Fund's portfolio will tend to move in the same direction as the market indices which are intended to correlate to the price movements of the portfolio securities sought to be hedged. It is also possible that, if the Fund has hedged against the possibility of a decline in the market adversely affecting securities held in its portfolio and securities prices increase instead, the Fund will lose part or all of the benefit of the increased values of those securities that it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient cash, it may have to sell securities to meet daily variation margin requirements.
In addition to the possibility that there may be an imperfect correlation, or no correlation at all, between movements in the index futures and the securities of the portfolio being hedged, the prices of index futures may not correlate perfectly with movements in the underlying index due to certain market distortions. First, all participants in the futures markets are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions which would distort the normal relationship between the index and futures markets. Second, margin requirements in the futures market are less onerous than margin requirements in the securities market, and as a result, the futures market may attract more speculators than the securities market. Increased participation by speculators in the futures market may also cause temporary price distortions. Due to the possibility of price distortions in the futures market and also because of the imperfect correlation between movements in the index and movements in the prices of index futures, even a correct forecast of general market trends by the Advisor may still not result in a successful hedging transaction.
OPTIONS ON INDEX FUTURES. Options on index futures are similar to options on securities except that options on index futures give the purchaser the right, in return for the premium paid, to assume a position in an index futures contract (a long position if the option is a call and a short position if the option is a put), at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's futures margin account which represents the amount by which the market price of the index futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the index future. If an option is exercised on the last trading day prior to the expiration date of the option, the settlement will be made entirely in cash equal to the difference between the exercise price of the option and the closing level of the index on which the future is based on the expiration date. Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss of the premium paid.
OPTIONS ON INDICES. As an alternative to purchasing call and put options on index futures, the Fund may purchase call and put options on the underlying indices themselves. Such options could be used in a manner identical to the use of options on index futures. Options involving securities indices provide the holder with the right to make or receive a cash settlement upon exercise of the option based on movements in the relevant index. Such options must be listed on a national securities exchange and issued by the Options Clearing Corporation. Such options may relate to particular securities or to various stock indices, except that a Fund may not write covered options on an index.
OPTIONS ON FOREIGN STOCK INDICES. The Funds may, for the purpose of hedging its portfolio, subject to applicable securities regulations, purchase and write put and call options on foreign stock indices listed on foreign and domestic stock exchanges. A stock index fluctuates with changes in the market values of the stocks included in the index.
SWAP AGREEMENTS (SWAPS, CAPS, COLLARS AND FLOORS)
The Funds may enter into interest rate swaps, currency swaps, and other types of swap agreements such as caps, collars, and floors. In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate times a "notional principal amount," in return for payments equal to a fixed rate times the same amount, for a specified period of time. If a swap agreement provides for payments in different currencies, the parties might agree to exchange notional principal amount as well. Swaps may also depend on other prices or rates, such as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed upon level. An interest rate collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from one type of investment to another. For example, if a Fund agreed to exchange payments in dollars for payments in foreign currency, the swap agreement would tend to decrease the Fund's exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates. Caps and floors have an effect similar to buying or writing options. Depending on how they are used, swap agreements may increase or decrease the overall volatility of a Fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a small investment of cash relative to the magnitude of risks assumed. As a result, swaps can be highly volatile and may have a considerable impact on the Funds' performance. Swap agreements are subject to risks related to the counterparty's ability to perform, and may decline in value if the counterparty's creditworthiness deteriorates. The Funds may also suffer losses if they are unable to terminate outstanding swap agreements or reduce their exposure through offsetting transactions.
EQUITY SWAPS
The Fund may engage in equity swaps. Equity swaps allow the parties to the swap agreement to exchange components of return on one equity investment (e.g., a basket of equity securities or an index) for a component of return on another non-equity or equity investment, including an exchange of differential rates of return. Equity swaps may be used to invest in a market without owning or taking physical custody of securities in circumstances where direct investment may be restricted for legal reasons or is otherwise impractical. Equity swaps also may be used for other purposes, such as hedging or seeking to increase total return.
RISK FACTORS IN EQUITY SWAP TRANSACTIONS. Equity swaps are derivative instruments and their values can be very volatile. To the extent that the portfolio managers do not accurately analyze and predict the potential relative fluctuation on the components swapped with the other party, the Fund may suffer a loss. The value of some components of an equity swap (such as the dividend on a common stock) may also be sensitive to changes in interest rates. Furthermore, during the period a swap is outstanding, the Fund may suffer a loss if the counterparty defaults. See "Taxes" for information on tax risks associated with equity swaps.
FOREIGN CURRENCY TRANSACTIONS
The Fund may engage in currency exchange transactions to protect against uncertainty in the level of future currency exchange rates.
The Fund may engage in both "transaction hedging" and "position hedging." When it engages in transaction hedging, the Fund enters into foreign currency transactions with respect to specific receivables or payables of the Fund generally arising in connection with the purchase or sale of its portfolio securities. The Fund will engage in transaction hedging when it desires to "lock in" the U.S. dollar price of a security it has agreed to purchase or sell, or the U.S. dollar equivalent of a dividend or interest payment in a foreign currency. By transaction hedging the Fund attempts to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and the applicable foreign currency during the period between the date on which the security is purchased or sold, or on which the dividend or interest payment is declared, and the date on which such payments are made or received.
The Fund may purchase or sell a foreign currency on a spot (or cash) basis at the prevailing spot rate in connection with the settlement of transactions in portfolio securities denominated in that foreign currency. The Fund may also enter into contracts to purchase or sell foreign currencies at a future date ("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes the Fund may also purchase exchange-listed and over-the-counter call and put options on foreign currency futures contracts and on foreign currencies. Over-the-counter options are considered to be illiquid by the SEC staff. A put option on a futures contract gives the Fund the right to assume a short position in the futures contract until expiration of the option. A put option on currency gives the Fund the right to sell a currency at an exercise price until the expiration of the option. A call option on a futures contract gives the Fund the right to assume a long position in the futures contract until the expiration of the option. A call option on currency gives the Fund the right to purchase a currency at the exercise price until the expiration of the option.
When it engages in position hedging, the Fund enters into foreign currency exchange transactions to protect against a decline in the values of the foreign currencies in which its portfolio securities are denominated (or an increase in the value of currency for securities which the Fund expects to purchase, when the Fund holds cash or short-term investments). In connection with position hedging, the Fund may purchase put or call options on foreign currency and foreign currency futures contracts and buy or sell forward contracts and foreign currency futures contracts. The Fund may also purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions and the value of the portfolio securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the dates the currency exchange transactions are entered into and the dates they mature.
It is impossible to forecast with precision the market value of portfolio securities at the expiration or maturity of a forward or futures contract. Accordingly, it may be necessary for the Fund to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security or securities being hedged is less than the amount of foreign currency the Fund is obligated to deliver and if a decision is made to sell the security or securities and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security or securities if the market value of such security or securities exceeds the amount of foreign currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying prices of the securities which the Fund owns or intends to purchase or sell. They simply establish a rate of exchange which one can achieve at some future point in time. Additionally, although these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency, they tend to limit any potential gain which might result from the increase in value of such currency.
CURRENCY FORWARD AND FUTURES CONTRACTS. Upon entering into such contracts, in compliance with the SEC's requirements, cash or liquid securities, equal in value to the amount of the Fund's obligation under the contract (less any applicable margin deposits and any assets that constitute "cover" for such obligation), will be segregated.
A forward currency contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract as agreed by the parties, at a price set at the time of the contract. In the case of a cancelable contract, the holder has the unilateral right to cancel the contract at maturity by paying a specified fee. The contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. A contract generally has no deposit requirement, and no commissions are charged at any stage for trades. A currency futures contract is a standardized contract for the future delivery of a specified amount of a foreign currency at a future
date at a price set at the time of the contract. Currency futures contracts traded in the United States are designed and traded on exchanges regulated by the CFTC, such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain respects. For example, the maturity date of a forward contract may be any fixed number of days from the date of the contract agreed upon by the parties, rather than a predetermined date in a given month. Forward contracts may be in any amounts agreed upon by the parties rather than predetermined amounts. Also, forward contracts are traded directly between currency traders so that no intermediary is required. A forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Fund may either accept or make delivery of the currency specified in the contract, or at or prior to maturity enter into a closing transaction involving the purchase or sale of an offsetting contract. Closing transactions with respect to forward contracts are usually effected with the currency trader who is a party to the original forward contract. Closing transactions with respect to futures contracts are effected on a commodities exchange; a clearing corporation associated with the exchange assumes responsibility for closing out such contracts.
Positions in currency futures contracts may be closed out only on an exchange or board of trade which provides a secondary market in such contracts. Although the Fund intends to purchase or sell currency futures contracts only on exchanges or boards of trade where there appears to be an active secondary market, there is no assurance that a secondary market on an exchange or board of trade will exist for any particular contract or at any particular time. In such event, it may not be possible to close a futures position and, in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin.
CURRENCY OPTIONS. In general, options on currencies operate similarly to options on securities and are subject to many similar risks. Currency options are traded primarily in the over-the-counter market, although options on currencies have recently been listed on several exchanges. Options are traded not only on the currencies of individual nations, but also on the European Currency Unit (ECU). The ECU is composed of amounts of a number of currencies, and is the official medium of exchange of the European Economic Community's European Monetary System.
The Fund will only purchase or write currency options when the Advisor believes that a liquid secondary market exists for such options. There can be no assurance that a liquid secondary market will exist for a particular option at any specified time. Currency options are affected by all of those factors which influence exchange rates and investments generally. To the extent that these options are traded over the counter, they are considered to be illiquid by the SEC staff.
The value of any currency, including the U.S. dollar, may be affected by complex political and economic factors applicable to the issuing country. In addition, the exchange rates of currencies (and therefore the values of currency options) may be significantly affected, fixed, or supported directly or indirectly by government actions. Government intervention may increase risks involved in purchasing or selling currency options, since exchange rates may not be free to fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in turn reflects relative values of two currencies, the U.S. dollar and the foreign currency in question. Because currency transactions occurring in the interbank market involve substantially larger amounts than those that may be involved in the exercise of currency options, investors may be disadvantaged by having to deal in an odd lot market for the underlying currencies in connection with options at prices that are less favorable than for round lots. Foreign governmental restrictions or taxes could result in adverse changes in the cost of acquiring or disposing of currencies.
There is no systematic reporting of last sale information for currencies and there is no regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Available quotation information is generally representative of very large round-lot transactions in the interbank market and thus may not reflect exchange rates for smaller odd-lot transactions (less than $1 million) where rates may be less favorable. The interbank market in currencies is a global, around-the-clock market. To the extent that options markets are closed while the markets for the underlying currencies remain open, significant price and rate movements may take place in the underlying markets that cannot be reflected in the options markets.
SETTLEMENT PROCEDURES. Settlement procedures relating to the Fund's investments in foreign securities and to the Fund's foreign currency exchange transactions may be more complex than settlements with respect to investments in debt or equity securities of U.S. issuers, and may involve certain risks not present in the Fund's domestic investments, including foreign
currency risks and local custom and usage. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not charge a fee for currency conversion, they do realize a profit based on the difference (spread) between prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligation.
PARTICIPATION INTERESTS
The Fund may invest in municipal obligations either by purchasing them directly or by purchasing certificates of accrual or similar instruments evidencing direct ownership of interest payments or principal payments, or both, on municipal obligations, provided that, in the opinion of counsel to the initial seller of each such certificate or instrument, any discount accruing on such certificate or instrument that is purchased at a yield not greater than the coupon rate of interest on the related municipal obligations will be exempt from federal income tax to the same extent as interest on such municipal obligations. The Fund may also invest in tax-exempt obligations by purchasing from banks participation interests in all or part of specific holdings of municipal obligations. Such participations may be backed in whole or part by an irrevocable letter of credit or guarantee of the selling bank. The selling bank may receive a fee from the Fund in connection with the arrangement. The Fund will not purchase such participation interests unless it receives an opinion of counsel or a ruling of the Internal Revenue Service that interest earned by it on municipal obligations in which it holds such participation interests is exempt from federal income tax.
STAND-BY COMMITMENTS
When the Fund purchases municipal obligations, it may also acquire stand-by commitments from banks and broker-dealers with respect to such municipal obligations. A stand-by commitment is the equivalent of a put option acquired by the Fund with respect to a particular municipal obligation held in its portfolio. A stand-by commitment is a security independent of the municipal obligation to which it relates. The amount payable by a bank or dealer during the time a stand-by commitment is exercisable, absent unusual circumstances relating to a change in market value, would be substantially the same as the value of the underlying municipal obligation. A stand-by commitment might not be transferable by the Fund, although it could sell the underlying municipal obligation to a third party at any time.
The Fund expects that stand-by commitments generally will be available without the payment of direct or indirect consideration. However, if necessary and advisable, the Fund may pay for stand-by commitments either separately in cash or by paying a higher price for portfolio securities which are acquired subject to such a commitment (thus reducing the yield to maturity otherwise available for the same securities). The total amount paid in either manner for outstanding stand-by commitments held in the Fund portfolio will not exceed 10% of the value of the Fund's total assets calculated immediately after each stand-by commitment is acquired. The Fund will enter into stand-by commitments only with banks and broker-dealers that, in the judgment of the Trust's Board of Trustees, present minimal credit risks.
VARIABLE AND FLOATING RATE OBLIGATIONS
Variable rate instruments provide for periodic adjustments in the interest rate. Floating rate instruments provide for automatic adjustment of the interest rate whenever some other specified interest rate changes. Some variable and floating rate obligations are direct lending arrangements between the purchaser and the issuer and there may be no active secondary market. However, in the case of variable and floating rate obligations with a demand feature, a Fund may demand payment of principal and accrued interest at a time specified in the instrument or may resell the instrument to a third party. In the event an issuer of a variable or floating rate obligation defaulted on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and could, for this or other reasons, suffer a loss to the extent of the default. Variable or floating rate instruments issued or guaranteed by the U.S. Government or its agencies or instrumentalities are similar in form but may have a more active secondary market. Substantial holdings of variable and floating rate instruments could reduce portfolio liquidity.
If a variable or floating rate instrument is not rated, the Fund's Advisor must determine that such instrument is comparable to rated instruments eligible for purchase by the Funds and will consider the earning power, cash flows and other liquidity ratios of the issuers and guarantors of such instruments and will continuously monitor their financial status in order to meet payment on demand. In determining average weighted portfolio maturity of each of these Funds, a variable or floating rate instrument issued or guaranteed by the U.S. Government or an agency or instrumentality thereof will be deemed to have a maturity equal to the period remaining until the obligation's next interest rate adjustment. Variable and floating rate obligations with a demand feature
will be deemed to have a maturity equal to the longer of the period remaining to the next interest rate adjustment or the demand notice period.
INVERSE FLOATERS
Inverse floaters are derivative securities whose interest rates vary inversely to changes in short-term interest rates and whose values fluctuate inversely to changes in long-term interest rates. The value of certain inverse floaters will fluctuate substantially more in response to a given change in long-term rates than would a traditional debt security. These securities have investment characteristics similar to leverage, in that interest rate changes have a magnified effect on the value of inverse floaters.
RULE 144A SECURITIES
The Fund may purchase securities that have been privately placed but that are eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933, as amended ("1933 Act"). That Rule permits certain qualified institutional buyers, such as the Fund, to trade in privately placed securities that have not been registered for sale under the 1933 Act. The Advisor, under the supervision of the Board of Trustees, will consider whether securities purchased under Rule 144A are illiquid and thus subject to the Fund's investment restriction on illiquid securities. A determination of whether a Rule 144A security is liquid or not is a question of fact. In making this determination, the Advisor will consider the trading markets for the specific security, taking into account the unregistered nature of a Rule 144A security. In addition, the Advisor could consider the (1) frequency of trades and quotes, (2) number of dealers and potential purchasers, (3) dealer undertakings to make a market, and (4) nature of the security and of marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A securities will be monitored and, if as a result of changed conditions, it is determined by the Advisor that a Rule 144A security is no longer liquid, the Fund's holdings of illiquid securities would be reviewed to determine what, if any, steps are required to assure that the Fund does not exceed its investment limit on illiquid securities. Investing in Rule 144A securities could have the effect of increasing the amount of the Fund's assets invested in illiquid securities if qualified institutional buyers are unwilling to purchase such securities.
CURRENCY SWAPS. Currency swaps involve the exchange of rights to make or receive payments in specified currencies. Currency swaps usually involve the delivery of the entire principal value of one designated currency. Therefore, the entire principal value of a currency swap is subject to the risk that the other party to the swap will default on its contractual delivery obligations. The use of currency swaps is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. If the Advisor is incorrect in its forecast of market value and currency exchange rates, the investment performance of a Fund would be less favorable than it would have been if this investment technique were not used.
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities which may be exchanged or converted into a predetermined number of shares of the issuer's underlying common stock at the option of the holder during a specified time period. Convertible securities may take the form of convertible preferred stock, convertible bonds or debentures, units consisting of "usable" bonds and warrants or a combination of the features of several of these securities.
Convertible bonds and convertible preferred stocks generally retain the investment characteristics of fixed income securities until they have been converted but also react to movements in the underlying equity securities. The holder is entitled to receive the fixed income of a bond or the dividend preference of a preferred stock until the holder elects to exercise the conversion privilege. Usable bonds are corporate bonds that can be used in whole or in part, customarily at full face value, in lieu of cash to purchase the issuer's common stock. When owned as part of a unit along with warrants, which are options to buy the common stock, they function as convertible bonds, except that the warrants generally will expire before the bond's maturity. Convertible securities are senior to equity securities and therefore have a claim to the assets of the issuer prior to the holders of common stock in the case of liquidation. However, convertible securities are generally subordinated to similar non-convertible securities of the same issuer. The interest income and dividends from convertible bonds and preferred stocks provide a stable stream of income with generally higher yields than common stocks, but lower than non-convertible securities of similar quality. A Fund will exchange or convert the convertible securities held in its portfolio into shares of the underlying common stock in instances in which, in the Advisor's opinion, the investment characteristics of the underlying common stock will assist the Fund in achieving its investment objective. Otherwise, the Fund will hold or trade the convertible securities. In selecting convertible securities for a Fund, the Advisor evaluates the investment characteristics of the convertible security as a fixed income instrument, and the investment potential of the underlying equity security for capital appreciation.
GUARANTEED INVESTMENT CONTRACTS
Pursuant to guaranteed investment contracts ("GICs"), which are issued by U.S. and Canadian insurance companies, a Fund makes cash contributions to a deposit fund of the insurance company's general account. The insurance company then credits to the fund payments at negotiated, floating or fixed interest rates. A GIC is a general obligation of the issuing insurance company and not a separate account. The purchase price paid for a GIC becomes part of the general assets of the insurance company, and the contract is paid from the company's general assets.
The Funds will only purchase GICs that are issued or guaranteed by insurance companies that at the time of purchase are rated at least AA by S&P or receive a similar high quality rating from a nationally recognized service which provides ratings of insurance companies. GICs are considered illiquid securities and will be subject to any limitations on such investments described in Part 1 of this SAI, unless there is an active and substantial secondary market for the particular instrument and market quotations are readily available. No Fund will invest more than 20% of its total assets in GICs.
BANK INVESTMENT CONTRACTS
Bank investment contracts ("BICs") issued by banks that meet certain quality and asset size requirements for banks are available to the Funds. Pursuant to BICs, cash contributions are made to a deposit account at the bank in exchange for payments at negotiated, floating or fixed interest rates. A BIC is a general obligation of the issuing bank. BICs are considered illiquid securities and will be subject to any limitations on such investments described in Part 1 of this SAI, unless there is an active and substantial secondary market for the particular instrument and market quotations are readily available.
LOAN PARTICIPATIONS
Loan participations are interests in loans which are administered by the lending bank or agent for a syndicate of lending banks, and sold by the lending bank or syndicate member. The Funds may only purchase interests in loan participations issued by a bank in the United States with assets exceeding $1 billion and for which the underlying loan is issued by borrowers in whose obligations the Funds may invest. Because the intermediary bank does not guarantee a loan participation in any way, a loan participation is subject to the credit risk generally associated with the underlying corporate borrower. In addition, in the event the underlying corporate borrower defaults, a Fund may be subject to delays, expenses and risks that are greater than those that would have been involved if the Fund had purchased a direct obligation (such as commercial paper) of the borrower. Under the terms of a loan participation, the purchasing Fund may be regarded as a creditor of the intermediary bank so that the Fund may also be subject to the risk that the issuing bank may become insolvent.
STRUCTURED INVESTMENTS
Structured investments are a relatively new innovation and may be designed to have various combinations of equity and fixed-income characteristics. Equity-linked securities are a form of structured investment and generally consist of a conversion privilege to a single company's common stock plus a fixed annual distribution to the holder. Equity-linked securities have some derivative characteristics because the conversion feature is linked to the price of the company's common stock. Equity-linked securities are designed to provide investors with higher quarterly income than the dividend paid per share on the common stock. However, equity-linked securities have decreased potential for capital appreciation because of limitations of the conversion feature.
Equity-linked securities include issues such as "Structured Yield Product Exchangeable for Stock" ("STRYPES"), "Trust Automatic Common Exchange Securities" ("TRACES"), "Trust Issued Mandatory Exchange Securities" ("TIMES"), "Trust Enhanced Dividend Securities" ("TRENDS") and other similar securities, including those which may be developed in the future. The issuers of the above listed examples of equity-linked securities generally purchase and hold a portfolio of stripped U.S. Treasury securities maturing on a quarterly basis through the conversion date, and a forward purchase contract with an existing shareholder of the company relating to the common stock. Quarterly distributions on equity-linked securities generally consist of the cash received from the U.S. Treasury securities and equity-linked securities generally are not entitled to any dividends that may be declared on the common stock.
Equity-linked securities may be issued by closed-end or other forms of investment companies. To the extent that equity-linked securities are issued by investment companies, a Fund's investments in equity-linked securities are subject to the same limitations as investments in more traditional forms of investment companies.
YANKEE OBLIGATIONS
Yankee obligations are U.S. dollar-denominated instruments of foreign issuers that are either registered with the SEC or issued pursuant to Rule 144A under the 1933 Act. These obligations consist of debt securities (including preferred or preference stock of non-governmental issuers), certificates of deposit, fixed time deposits and banker's acceptances issued by foreign banks, and debt obligations of foreign governments or their subdivisions, agencies and instrumentalities, international agencies and supranational entities. Some securities issued by foreign governments or their subdivisions, agencies and instrumentalities may not be backed by the full faith and credit of the foreign government.
AMERICAN, EUROPEAN, CONTINENTAL AND GLOBAL DEPOSITARY RECEIPTS
American Depositary Receipts ("ADRs") are receipts issued in registered form by a U.S. bank or trust company evidencing ownership of underlying securities issued by a foreign issuer. European Depositary Receipts ("EDRs"), which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are receipts issued in Europe typically by non-U.S. banks or trust companies and foreign branches of U.S. banks that evidence ownership of foreign or U.S. securities. Global Depositary Receipts ("GDRs") are receipts structured similarly to EDRs and CDRs and are marketed globally. ADRs may be listed on a national securities exchange or may be traded in the over-the-counter market. EDRs and CDRs are designed for use in European exchange and over-the-counter markets. GDRs are designed for trading in non-U.S. securities markets. ADRs, EDRs, CDRs and GDRs traded in the over-the-counter market which do not have an active or substantial secondary market will be considered illiquid and therefore will be subject to the Funds' respective limitations with respect to such securities, if any. If a Fund invests in an unsponsored ADR, EDR, CDR or GDR, there may be less information available to the Fund concerning the issuer of the securities underlying the unsponsored ADR, EDR, CDR or GDR than is available for an issuer of securities underlying a sponsored ADR, EDR, CDR or GDR. ADR prices are denominated in U.S. dollars although the underlying securities are denominated in a foreign currency. Investments in ADRs, EDRs, CDRs and GDRs involve risks similar to those accompanying direct investments in foreign securities.
TEMPORARY CASH BALANCES
The Funds may hold very small temporary cash balances to efficiently manage transactional expenses. These cash balances are expected, under normal conditions, not to exceed 2% of each Fund's net assets at any time (excluding amounts used as margin and segregated assets with respect to futures transactions and collateral for securities loans and repurchase agreements). The Funds may invest these temporary cash balances in short-term debt obligations issued or guaranteed by the U.S. Government or its agencies and instrumentalities ("U.S. Government Securities"), high quality commercial paper (rated A-1 or better by S&P or P-1 or better by Moody's), certificates of deposit and time deposits of banking institutions having total assets in excess of $1 billion, and repurchase agreements collateralized by U.S. Government Securities. The Funds may also hold these investments in connection with U.S. Treasury rolls, which are not subject to the 2% limitation above.
TAXES
In this section, all discussions of taxation at the shareholder and fund levels relate to U.S. federal taxes only. Consult your tax advisor for state, local and foreign tax considerations and for information about special tax considerations that may apply to shareholders that are not natural persons or not U.S. citizens or resident aliens.
FEDERAL TAXES. Although it may be one of several series in a single trust, the Fund is treated as a separate entity for federal income tax purposes under the Internal Revenue Code of 1986, as amended (the "Code"). The Fund has elected (or in the case of a new fund, intends to elect) to be, and intends to qualify to be treated each year as, a "regulated investment company" under Subchapter M of the Code by meeting all applicable requirements of Subchapter M, including requirements as to the nature of the Fund's gross income, the amount of its distributions (as a percentage of both its overall income and any tax-exempt income), and the composition of its portfolio assets.
To qualify as a "regulated investment company," the Fund must (a) derive at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock, securities or foreign currencies or other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies; (b) diversify its holdings so that, at the close of each quarter of its taxable year, (i) at least 50% of the market value of its total assets consists of cash, cash items, U.S. government securities, securities of other regulated investment companies and other securities limited generally with respect to any one issuer to not more than 5% of the total assets of the Fund and not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities of any issuer, other than U.S. government securities
or other regulated investment companies; or of two or more issuers which the
Fund controls and which are engaged in the same, similar, or related trades or
businesses; and (c) distribute with respect to each year at least 90% of its
taxable net investment income, its tax-exempt interest income and the excess, if
any, of net short-term capital gains over net long-term capital losses for such
year. In general, for purposes of the 90% gross income requirement described in
(a) above, income derived from a partnership will be treated as qualifying
income only to the extent such income is attributable to items of income of the
partnership which would be qualifying income if realized by the regulated
investment company. However, recent legislation provides that for taxable years
of a regulated investment company beginning after October 22, 2004,100% of the
net income derived from an interest in a "qualified publicly traded partnership"
(defined as a partnership (i) interests in which are traded on an established
securities market or readily tradable on a secondary market or the substantial
equivalent thereof and (ii) that derives less than 90% of its income from the
qualifying income described in (a) above) will be treated as qualifying income.
In addition, although in general the passive loss rules of the Code do not apply
to regulated investment companies, such rules do not apply to a regulated
investment company with respect to items attributable to an interest in a
qualified publicly traded partnership. Finally, for purposes of (c) above, the
term "outstanding voting securities of such issuer" will include the equity
securities of a qualified publicly traded partnership. As a regulated investment
company that is accorded special tax treatment, the Fund will not be subject to
any federal income taxes on its net investment income and net realized capital
gains that it distributes to shareholders in the form of dividends and in
accordance with the timing requirements imposed by the Code. The Fund's
foreign-source income, if any, may be subject to foreign withholding taxes. If
the Fund were to fail to qualify as a "regulated investment company" accorded
special tax treatment in any taxable year, it would incur a regular federal
corporate income tax on all of its taxable income, whether or not distributed,
and Fund distributions (including any distributions of net tax-exempt income and
net long-term capital gains) would generally be taxable as ordinary income to
the shareholders, except to the extent they were treated as "qualified dividend
income," as described below. In addition, the Fund could be required to
recognize unrealized gains, pay substantial taxes and interest and make
substantial distributions before requalifying as a regulated investment company
that is accorded special tax treatment.
If the Fund fails to distribute in a calendar year substantially all of its ordinary income for such year and substantially all of its capital gain net income for the one-year period ending October 31 (or later if the Fund is permitted so to elect and so elects), plus any retained amount from the prior year, the Fund will be subject to a 4% excise tax on the underdistributed amounts. A dividend paid to shareholders by the Fund in January of a year generally is deemed to have been paid by the Fund on December 31 of the preceding year, if the dividend was declared and payable to shareholders of record on a date in October, November or December of that preceding year. The Fund intends generally to make distributions sufficient to avoid imposition of the 4% excise tax.
ALTERNATIVE MINIMUM TAX. Distributions derived from interest that is exempt from regular federal income tax may subject corporate shareholders to or increase their liability under the federal corporate alternative minimum tax (AMT). A portion of such distributions may constitute a tax preference item for individual shareholders and may subject them to or increase their liability under the AMT.
DIVIDENDS RECEIVED DEDUCTIONS. Distributions will qualify for the corporate dividends received deduction only to the extent that dividends earned by the Fund qualify. Any such dividends may be, however, includable in adjusted current earnings for purposes of computing corporate federal AMT. The dividends received deduction for eligible dividends is subject to a holding period requirement.
RETURN OF CAPITAL DISTRIBUTIONS. If the Fund makes a distribution to a shareholder in excess of the Fund's current and accumulated "earning and profits" in any taxable year, the excess distribution will be treated as a return of capital to the extent of the shareholder's tax basis in his or her shares, and thereafter as capital gain. A return of capital is not taxable, but it reduces tax basis in shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition of such shares. Dividends and distributions on a Fund's shares are generally subject to federal income tax as described herein to the extent they do not exceed the Fund's realized income and gains, even though such dividends and distributions may economically represent a return of a particular shareholder's investment. Such distributions are likely to occur in respect of shares purchased at a time when a Fund's net asset value reflects gains that are either unrealized, or realized but not distributed. Such realized gains may be required to be distributed even when a Fund's net asset value also reflects unrealized losses.
FUNDS THAT INVEST IN U.S. GOVERNMENT SECURITIES. Many states grant tax-free status to dividends paid to shareholders of mutual funds from interest income earned by the Fund from direct obligations of the U.S. government. Investments in mortgage-backed securities (including GNMA, FNMA and FHLMC Securities) and repurchase agreements collateralized by U.S. government securities do not qualify as direct federal obligations in most states. Shareholders should consult with their own tax
advisors about the applicability of state and local intangible property, income or other taxes to their Fund shares and distributions and redemption proceeds received from the Fund.
FUND DISTRIBUTIONS. Distributions from the Fund (other than qualified dividend income and exempt-interest dividends, as discussed below) will generally be taxable to shareholders as ordinary income to the extent derived from the Fund's investment income and net short-term gains. Distributions of long-term capital gains (that is, the excess of net gains from capital assets held for more than one year over net losses from capital assets held for not more than one year) will be taxable to shareholders as such, regardless of how long a shareholder has held shares in the Fund. In general, any distributions of net capital gains will be taxed to shareholders who are individuals at a maximum rate of 15% for taxable years beginning on or before December 31, 2008.
Distributions are taxable to shareholders even if they are paid from income or gains earned by the Fund before a shareholder's investment (and thus were included in the price of the shareholder paid). Distributions are taxable whether received in cash or in Fund shares.
QUALIFIED DIVIDEND INCOME. For taxable years beginning on or before December 31, 2008, "qualified dividend income" received by an individual will be taxed at the rates applicable to long-term capital gain. In order for some portion of the dividends received by a Fund shareholder to be qualified dividend income, the Fund must meet holding period and other requirements with respect to some portion of the dividend paying stocks in its portfolio and the shareholder must meet holding period and other requirements with respect to the Fund's shares. A dividend will not be treated as qualified dividend income (at either the Fund or shareholder level) (1) if the dividend is received with respect to any share of stock held for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or, in the case of certain preferred stock, 91 days during the 181-day period beginning 90 days before such date), (2) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property, (3) if the recipient elects to have the dividend income treated as investment income for purposes of the limitation on deductibility of investment interest, or (4) if the dividend is received from a foreign corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the United States (with the exception of dividends paid on stock of such a foreign corporation readily tradable on an established securities market in the United States) or (b) treated as a passive foreign investment company. With respect to a Fund investing in bonds, the Fund does not expect a significant portion of Fund distributions to be derived from qualified dividend income.
In general, distributions of investment income properly designated by the Fund as derived from qualified dividend income may be treated as qualified dividend income by a shareholder taxed as an individual provided the shareholder meets the holding period and other requirements described above with respect to his or her shares. If the aggregate qualified dividends received by a fund during any taxable year are 95% or more of its gross income, then 100% of the Fund's dividends (other than properly designated capital gain dividends) will be eligible to be treated as qualified dividend income. For this purpose, the only gain included in the term "gross income" is the excess of net short-term capital gain over net long-term capital loss.
DISTRIBUTIONS FROM TAX-EXEMPT FUNDS. Each tax-exempt Fund will have at least 50% of its total assets invested in tax-exempt bonds at the end of each quarter so that dividends from net interest income on tax-exempt bonds will be exempt from federal income tax when received by a shareholder (but may be taxable for federal alternative minimum tax purposes and for state and local tax purposes). The tax-exempt portion of dividends paid will be designated within 60 days after year-end based upon the ratio of net tax-exempt income to total net investment income earned during the year. That ratio may be substantially different from the ratio of net tax-exempt income to total net investment income earned during any particular portion of the year. Thus, a shareholder who holds shares for only a part of the year may be allocated more or less tax-exempt dividends than would be the case if the allocation were based on the ratio of net tax-exempt income to total net investment income actually earned while a shareholder.
Income from certain "private activity bonds" issued after August 7, 1986, is treated as a tax preference item for the AMT at the maximum rate of 28% for individuals and 20% for corporations. If the Fund invests in private activity bonds, shareholders may be subject to the AMT on that part of the distributions derived from interest income on such bonds. Interest on all tax-exempt bonds is included in corporate adjusted current earnings when computing the AMT applicable to corporations. Seventy-five percent of the excess of adjusted current earnings over the amount of income otherwise subject to the AMT is included in a corporation's alternative minimum taxable income.
Dividends derived from any investments other than tax-exempt bonds and any distributions of short-term capital gains are generally taxable to shareholders as ordinary income. Any distributions of long-term capital gains will in general be taxable to shareholders as long-term capital gains (generally subject to a maximum 15% tax rate for shareholders who are individuals) regardless of the length of time Fund shares are held by the shareholder.
A tax-exempt Fund may at times purchase tax-exempt securities at a discount and some or all of this discount may be included in the Fund's ordinary income which will be taxable when distributed. Any market discount recognized on a tax-exempt bond purchased after April 30, 1993, with a term at time of issue of more than one year is taxable as ordinary income. A market discount bond is a bond acquired in the secondary market at a price below its "stated redemption price" (in the case of a bond with original issue discount, its "revised issue price").
Shareholders receiving social security and certain retirement benefits may be taxed on a portion of those benefits as a result of receiving tax-exempt income, including tax-exempt dividends from the Fund.
SPECIAL TAX RULES APPLICABLE TO TAX-EXEMPT FUNDS. In general, exempt-interest dividends, if any, attributable to interest received on certain private activity obligations and certain industrial development bonds will not be tax-exempt to any shareholders who are "substantial users" of the facilities financed by such obligations or bonds or who are "related persons" of such substantial users, as further defined in the Code. Income derived from the Fund's investments other than tax-exempt instruments may give rise to taxable income. The Fund's shares must be held for more than six months in order to avoid the disallowance of a capital loss on the sale of Fund shares to the extent of tax-exempt dividends paid during that period. Part or all of the interest on indebtedness, if any, incurred or continued by a shareholder to purchase or carry shares of the Fund paying exempt-interest dividends is not deductible. The portion of interest that is not deductible is equal to the total interest paid or accrued on the indebtedness, multiplied by the percentage of the Fund's total distributions (not including distributions from net long-term capital gains) paid to the shareholder that are exempt-interest dividends. Under rules used by the Internal Revenue Service to determine when borrowed funds are considered used for the purpose of purchasing or carrying particular assets, the purchase of shares may be considered to have been made with borrowed funds even though such funds are not directly traceable to the purchase of shares.
SALES OF SHARES. The sale, exchange or redemption of Fund shares may give rise to a gain or loss. In general, any gain realized upon a taxable disposition of shares generally will be treated as long-term capital gain if the shares have been held for more than one year. Otherwise the gain on the sale, exchange or redemption of Fund shares will be treated as short-term capital gain. In general, any loss realized upon a taxable disposition of shares will be treated as long-term loss if the shares have been held more than one year, and otherwise as short-term loss. However, any loss realized upon a taxable disposition of shares held for six months or less will be disallowed for federal income tax purposes to the extent of any exempt-interest dividends received on such shares. In addition, any loss (not already disallowed as provided in the preceding sentence) realized upon a taxable disposition of shares held for six months or less will be treated as long-term, rather than short-term, capital loss to the extent of any long-term capital gain distributions received by the shareholder with respect to those shares. All or a portion of any loss realized upon a taxable disposition of shares will be disallowed if other shares are purchased within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss.
Under Treasury regulations, if on a disposition of Fund shares a shareholder recognizes a loss of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder will likely have to file with the Internal Revenue Service a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all regulated investment companies. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. You are advised to consult with your tax advisor.
BACKUP WITHHOLDING. Certain distributions and redemptions may be subject to backup withholding for taxpayers who fail to furnish a correct taxpayer identification number, who have under-reported dividend or interest income, or who fail to certify to the Fund that the shareholder is a United States person and is not subject to the withholding. This number and certification may be provided by either a Form W-9 or the accompanying application. In certain instances, CMS may be notified by the Internal Revenue Service that a shareholder is subject to backup withholding. The backup withholding rate is 28% for amounts paid through 2010. The backup withholding rate will be 31% for amounts paid after December 31, 2010.
HEDGING TRANSACTIONS. If the Fund engages in hedging transactions, including hedging transactions in options, futures contracts and straddles, or other similar transactions, it will be subject to special tax rules (including constructive sale, mark-to-market, straddle, wash sale and short sale rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund's securities, convert long-term capital gains into short-term capital gains or convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. The Fund will endeavor to make any available elections pertaining to such transactions in a manner believed to be in the best interests of the Fund and its shareholders.
SECURITIES ISSUED AT A DISCOUNT. The Fund's investment in debt securities issued at a discount and certain other obligations will (and investments in securities purchased at a discount may) require the Fund to accrue and distribute income not yet received. In such cases, the Fund may be required to sell assets (possibly at a time when it is not advantageous to do so) to generate the cash necessary to distribute as dividends to its shareholders all of its income and gains and therefore to eliminate any tax liability at the Fund level.
FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING TRANSACTIONS. The Fund's transactions in foreign currencies, foreign currency-denominated debt securities, certain foreign currency options, futures contracts and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned. This may produce a difference between the Fund's book income and its taxable income possibly accelerating distributions or converting distributions of book income and gains to returns of capital for book purposes.
If more than 50% of the Fund's total assets at the end of its fiscal year are invested in stock or securities of foreign corporate issuers, the Fund may make an election permitting its shareholders to take a deduction or credit for federal income tax purposes for their pro rata portion of certain qualified foreign taxes paid by the Fund to foreign countries in respect of foreign securities the Fund has held for at least the minimum period specified in the Code. The Advisor will consider the value of the benefit to a typical shareholder, the cost to the Fund of compliance with the election, and incidental costs to shareholders in deciding whether to make the election. A shareholder's ability to claim such a foreign tax credit or deduction in respect of foreign taxes will be subject to certain limitations imposed by the Code, including a holding period requirement, as a result of which a shareholder may not get a full credit or deduction for the amount of foreign taxes so paid by the Fund. Shareholders who do not itemize on their federal income tax returns may claim a credit (but not a deduction) for such foreign taxes.
Investment by the Fund in "passive foreign investment companies" could subject the Fund to a U.S. federal income tax or other charge on the proceeds from the sale of its investment in such a company; however, this tax can be avoided by making an election to mark such investments to market annually or to treat the passive foreign investment company as a "qualified electing Fund." A "passive foreign investment company" is any foreign corporation: (i) 75 percent or more of the income of which for the taxable year is passive income, or (ii) the average percentage of the assets of which (generally by value, but by adjusted tax basis in certain cases) that produce or are held for the production of passive income is at least 50 percent. Generally, passive income for this purpose means dividends, interest (including income equivalent to interest), royalties, rents, annuities, the excess of gain over losses from certain property transactions and commodities transactions, and foreign currency gains. Passive income for this purpose does not include rents and royalties received by the foreign corporation from active business and certain income received from related persons.
NON-U.S. SHAREHOLDERS. Capital gain dividends will not be subject to withholding
of federal income tax. In general, dividends (other than Capital Gain Dividends)
paid by the Fund to a shareholder that is not a "U.S. person" within the meaning
of the Code (such shareholder, a "foreign person") are subject to withholding of
U.S. federal income tax at a rate of 30% (or lower applicable treaty rate) even
if they are funded by income or gains (such as portfolio interest, short-term
capital gains, or foreign-source dividend and interest income) that, if paid to
a foreign person directly, would not be subject to withholding. However, under
recent legislation, effective for taxable years of the Fund beginning after
December 31, 2004 and before January 1, 2008, the Fund will not be required to
withhold any amounts (i) with respect to distributions (other than distributions
to a foreign person (w) that has not provided a satisfactory statement that the
beneficial owner is not a U.S. person, (x) to the extent that the dividend is
attributable to certain interest on an obligation if the foreign person is the
issuer or is a 10% shareholder of the issuer, (y) that is within certain foreign
countries that have inadequate information exchange with the United States, or
(z) to the extent the dividend is attributable to interest paid by a person that
is a related person of the foreign person and the foreign person is a controlled
foreign corporation) from U.S.-source interest income that, in general, would
not be subject to U.S. federal income tax if earned directly by an individual
foreign person, to the extent such distributions are properly designated by the
Fund, and (ii) with respect to distributions (other than distributions to an
individual foreign person who is present in the United States for a
period or periods aggregating 183 days or more during the year of the distribution) of net short-term capital gains in excess of net long-term capital losses, to the extent such distributions are properly designated by the Fund. The Fund has not determined whether it will make such designations.
If a beneficial holder who is a foreign person has a trade or business in the United States, and the dividends are effectively connected with the conduct by the beneficial holder of a trade or business in the United States, the dividend will be subject to U.S. federal net income taxation at regular income tax rates.
Recent legislation modifies the tax treatment of distributions from the Fund that are paid to a foreign person and are attributable to gain from "U.S. real property interests" ("USRPIs"), which the Code defines to include direct holdings of U.S. real property and interests (other than solely as a creditor) in "U.S. real property holding corporations" such as REITs. The Code deems any corporation that holds (or held during the previous five-year period) USRPIs with a fair market value equal to 50% or more of the fair market value of the corporation's U.S. and foreign real property assets and other assets used or held for use in a trade or business to be a U.S. real property holding corporation; however, if any class of stock of a corporation is traded on an established securities market, stock of such class shall be treated as a USRPI only in the case of a person who holds more than 5% of such class of stock at any time during the previous five-year period. Under the legislation, which is generally effective for taxable years of RICs beginning after December 31, 2004 and which applies to dividends paid or deemed paid on or before December 31, 2007, distributions to foreign persons attributable to gains from the sale or exchange of USRPIs will give rise to an obligation for those foreign persons to file a U.S. tax return and pay tax, and may well be subject to withholding under future regulations.
Under U.S. federal tax law, a beneficial holder of shares who is a foreign person is not, in general, subject to U.S. federal income tax on gains (and is not allowed a deduction for losses) realized on the sale of shares of the Fund or on Capital Gain Dividends unless (i) such gain or Capital Gain Dividend is effectively connected with the conduct of a trade or business carried on by such holder within the United States, (ii) in the case of an individual holder, the holder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale or Capital Gain Dividend and certain other conditions are met, or (iii) the shares constitute USRPIs or the Capital Gain Dividends are paid or deemed paid on or before December 31, 2007 and are attributable to gains from the sale or exchange of USRPIs. Effective after December 31, 2004, and before January 1, 2008, if the Fund is a U.S. real property holding corporation (as described above) the Fund's shares will nevertheless not constitute USRPIs if the Fund is a "domestically controlled qualified investment entity," which is defined to include a RIC that, at all times during the shorter of the 5-year period ending on the date of the disposition or the period during which the RIC was in existence, had less than 50 percent in value of its stock held directly or indirectly by foreign persons.
ADDITIONAL TAX MATTERS CONCERNING TRUST SHARES (THIS SECTION IS APPLICABLE ONLY TO THE COLUMBIA TAX-MANAGED GROWTH FUND)
FEDERAL GIFT TAXES. An investment in Trust Shares may be a taxable gift for federal tax purposes, depending upon the option selected and other gifts that the donor and his or her spouse may make during the year.
Under the Columbia Advantage Plan, the entire amount of the gift will be a "present interest" that qualifies for the federal gift tax annual exclusion. In that case, the donor will be required to file a federal gift tax return on account of this gift only if (i) the aggregate present interest gifts by the donor to the particular beneficiary (including the gift of Trust Shares) exceeds the annual gift-tax exemption, which in 2006 is $12,000 or (ii) the donor wishes to elect gift splitting on gifts with his or her spouse for the year. The trustee will notify the beneficiary of his or her right of withdrawal promptly following any contribution under the Advantage Plan.
Under the Columbia Gift Plan, the entire amount of the gift will be a "future interest" for federal gift tax purposes, so that none of the gift will qualify for the federal gift tax annual exclusion. Consequently, the donor will have to file a federal gift tax return (IRS Form 709) reporting the entire amount of the gift, even if the gift is less than $12,000.
No federal gift tax will be payable by the donor until his or her cumulative taxable gifts (i.e., gifts other than those qualifying for the annual exclusion or otherwise exempt), including taxable gifts of other assets as well as any taxable gifts of trust shares, exceed the federal gift and estate tax exemption equivalent amount, which is $1,000,000 for gifts made after December 31, 2001, and before January 1, 2010.
Any gift of Trust Shares that does not qualify as a present interest or that exceeds the available annual exclusion amount will reduce the amount of the donor's Federal gift and estate tax exemption (if any) that would otherwise be available for future gifts for transfers at death.
The donor and his or her spouse may elect "gift-splitting" for any gift of Trust Shares (other than a gift to such spouse), meaning that the donor and his or her spouse may elect to treat the gift as having been made one-half by each of them, thus allowing a total gift of $24,000.
The donor's gift of Fund shares may also have to be reported for state gift tax purposes, if the state in which the donor resides imposes a gift tax. Many states do not impose such a tax. Some states follow the Federal rules concerning the types of transfers subject to tax and the availability of the annual exclusion.
GENERATION-SKIPPING TRANSFER TAXES
If the beneficiary of a gift of Trust Shares is a relative who is two generations or more younger than the donor, or is not a relative and is more than 37 1/2 years younger than the donor, the gift will be subject in whole or in part to the generation-skipping transfer tax (the "GST tax") unless the gift is made under the Columbia Advantage Plan and does not exceed the available annual exclusion amount. An exemption (the "GST exemption"), equal to $2 million in 2006, is allowed against this tax, and so long as the GST exemption has not been used by other transfers it will automatically be allocated to a gift of Trust Shares that is subject to the GST tax unless the donor elects otherwise. Such an election is made by reporting the gift on a timely filed gift tax return and paying the applicable GST tax. The GST tax is imposed at a flat rate (46% for gifts made in 2006) on the amount of the gift, and payment of the tax by the donor is treated as an additional gift for gift tax purposes.
INCOME TAXES
The Internal Revenue Service takes the position that a trust beneficiary who is given a power of withdrawal over contributions to the trust should be treated, for Federal income tax purposes, as the "owner" of the portion of the trust that was subject to the power. Accordingly, if the donor selects Columbia Advantage Trust Shares, the beneficiary will be treated as the "owner" of all of the Fund shares in the account for Federal income tax purposes, and will be required to report all of the income and capital gains earned in the trust on his or her personal Federal income tax return. The trust will not pay Federal income taxes on any of the trust's income or capital gains. The trustee will prepare and file the Federal income tax information returns that are required each year (and any state income tax returns that may be required), and will send the beneficiary a statement following each year showing the amounts (if any) that the beneficiary must report on his or her income tax returns for that year. If the beneficiary is under fourteen years of age, these amounts may be subject to Federal income taxation at the marginal rate applicable to the beneficiary's parents. The beneficiary may at any time after the creation of the trust irrevocably elect to require the trustee to pay him or her a portion of the trust's income and capital gains annually thereafter to provide funds with which to pay any resulting income taxes, which the trustee will do by redeeming Trust Shares. The amount distributed will be a fraction of the trust's ordinary income and short-term capital gains and the trust's long-term capital gains equal to the highest marginal Federal income tax rate imposed on each type of income (currently, 35% and 15%, respectively). If the beneficiary selects this option, he or she will receive those fractions of his or her trust's income and capital gains annually for the duration of the trust.
Under the Columbia Advantage Plan, the beneficiary will also be able to require the trustee to pay his or her tuition, room and board and other expense of his or her college or post-graduate education, and the trustee will raise the cash necessary to fund these distributions by redeeming Trust Shares. Any such redemption will result in the realization of capital gain or loss on the shares redeemed, which will be reportable by the beneficiary on his or her income tax returns for the year in which the shares are redeemed, as described above. Payments must be made directly to the educational institution.
If the donor selects the Columbia Gift Plan, the trust that he or she creates will be subject to Federal income tax on all income and capital gains realized by it, less a $100 annual exemption (in lieu of the personal exemption allowed to individuals). The amount of the tax will be determined under the tax rate schedule applicable to estates and trusts, which is more sharply graduated than the rate schedule for individuals, reaching the same maximum marginal rate for ordinary income or short-term capital gains (currently, 35%), but at a much lower taxable income level than would apply to an individual. It is anticipated, however, that most of the gains taxable to the trust will be long-term capital gain, on which the Federal income tax rate is currently limited to 15%. The trustee will raise the cash necessary to pay any Federal or state income taxes by redeeming Fund shares. The beneficiary will not pay Federal income taxes on any of the trust's income or capital gains, except those earned in the year when the trust terminates. The trustee will prepare and file all Federal and state income tax returns that are required
each year, and will send the beneficiary an information statement for the year in which the trust terminates showing the amounts (if any) that the beneficiary must report on his or her Federal and state income tax returns for that year.
When the trust terminates, the distribution of the remaining shares held in the trust to the beneficiary will not be treated as a taxable disposition of the shares. Any Fund shares received by the beneficiary will have the same cost basis as they had in the trust at the time of termination. Any Fund shares received by the beneficiary's estate will have a basis equal to the value of the shares at the beneficiary's death (or the alternate valuation date for Federal estate tax purposes, if elected).
CONSULTATION WITH QUALIFIED ADVISOR
Due to the complexity of Federal and state gift, GST and income tax laws pertaining to all gifts in trust, prospective donors should consider consulting with their financial or tax advisor before investing in Trust Shares.
MANAGEMENT OF THE FUNDS Columbia Management Advisors, LLC ("Columbia Advisors" or "CMA" or the "Advisor"), located at 100 Federal Street, Boston, Massachusetts 02110 is the Advisor to the Funds. The Advisor provides administrative and management services to the Funds. Columbia Advisors is a direct, wholly owned subsidiary of Columbia Management Group, LLC ("CMG"), which in turn is a direct, wholly owned subsidiary of Bank of America, which in turn is a wholly owned banking subsidiary of Bank of America Corporation, a financial services holding company organized as a Delaware corporation. On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005 Columbia Management was the investment advisor to the Funds. As a result of the merger, Columbia Advisors is now the investment advisor to the Funds. Columbia Advisors, a registered investment advisor, has been an investment advisor since 1995.
TRUSTEES AND OFFICERS (THIS SECTION APPLIES TO ALL OF THE FUNDS)
The Trustees and officers serve terms of indefinite duration. The names, addresses and ages of the Trustees and officers of the Fund Complex, the year each was first elected or appointed to office, their principal business occupations during at least the last five years, the number of portfolios overseen by each Trustee and other directorships they hold are shown below.
Number of
Portfolios in
Year First Fund
Elected or Complex Other
Name, Address Position Appointed to Principal Occupation(s) Overseen Directorships
and Age with Funds Office(1) During Past Five Years by Trustee Held
----------------------------- ---------- ------------ -------------------------------------------- ------------- -------------
DISINTERESTED TRUSTEES
Douglas A. Hacker (Age 50) Trustee 1996 Executive Vice President - Strategy of 83 Nash Finch
P.O. Box 66100 United Airlines (airline) since December, Company (food
Chicago, IL 60666 2002 (formerly President of UAL Loyalty distributor)
Services (airline) from September, 2001 to
December, 2002; Executive Vice President and
Chief Financial Officer of United Airlines
from July, 1999 to September, 2001; Senior
Vice President-Finance from March, 1993 to
July, 1999).
Janet Langford Kelly (Age 48) Trustee 1996 Partner, Zelle, Hofmann, Voelbel, Mason & 83 None
9534 W. Gull Lake Drive Gette LLP (law firm) since March, 2005;
Richland, Ml 49083-8530 Adjunct Professor of Law, Northwestern
University, since September, 2004 (formerly
Chief Administrative Officer and Senior Vice
President, Kmart Holding Corporation
(consumer goods), from September, 2003 to
March, 2004; Executive Vice
President-Corporate Development and
Administration, General Counsel and
Secretary, Kellogg Company (food
manufacturer), from September, 1999 to
August, 2003; Senior Vice President,
Secretary and General Counsel, Sara Lee
Corporation (branded, packaged,
consumer-products manufacturer) from
January, 1995 to September, 1999).
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Number of
Portfolios in
Year First Fund
Elected or Complex Other
Name, Address Position Appointed to Principal Occupation(s) Overseen Directorships
and Age with Funds Office(1) During Past Five Years by Trustee Held
----------------------------- ---------- ------------ -------------------------------------------- ------------- -------------
DISINTERESTED TRUSTEES
Richard W. Lowry (Age 69) Trustee 1995 Private Investor since August, 1987 85(3) None
10701 Charleston Drive (formerly Chairman and Chief Executive
Vero Beach, FL 32963 Officer, U.S. Plywood Corporation (building
products manufacturer)).
Charles R. Nelson (Age 62) Trustee 1981 Professor of Economics, University of 83 None
Department of Economics Washington, since January, 1976; Ford and
University of Washington Louisa Van Voorhis Professor of Political
Seattle, WA 98195 Economy, University of Washington, since
September, 1993 (formerly Director,
Institute for Economic Research, University
of Washington from September, 2001 to June,
2003); Adjunct Professor of Statistics,
University of Washington, since September,
1980; Associate Editor, Journal of Money
Credit and Banking, since September, 1993;
consultant on econometric and statistical
matters.
John J. Neuhauser (Age 63) Trustee 1985 Academic Vice President and Dean of 85(3) Saucony, Inc.
84 College Road Faculties since August, 1999, Boston College (athletic
Chestnut Hill, MA 02467-3838 (formerly Dean, Boston College School of footwear)
Management from September, 1977 to August,
1999).
Patrick J. Simpson (Age 61) Trustee 2000 Partner, Perkins Coie L.L.P. (law firm). 83 None
1120 N.W. Couch Street
Tenth Floor
Portland, OR 97209-4128
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Number of
Portfolios in
Year First Fund
Elected or Complex Other
Name, Address Position Appointed to Principal Occupation(s) Overseen Directorships
and Age with Funds Office(1) During Past Five Years by Trustee Held
----------------------------- ---------- ------------ -------------------------------------------- ------------- -------------
DISINTERESTED TRUSTEES
Thomas E. Stitzel (Age 69) Trustee 1998 Business Consultant since 1999 (formerly 83 None
2208 Tawny Woods Place Professor of Finance from 1975 to 1999,
Boise, ID 83706 College of Business, Boise State
University); Chartered Financial Analyst.
|
Number of
Portfolios in
Year First Fund
Elected or Complex
Name, Address Position Appointed to Principal Occupation(s) Overseen
and Age with Funds Office(1) During Past Five Years by Trustee Other Directorships Held
------------- ---------- ------------ ----------------------- ------------- ------------------------
DISINTERESTED TRUSTEES
Thomas C. Theobald Trustee and 1996 Partner and Senior Advisor, 83 Anixter International
(Age 68) Chairman of the Chicago Growth Partners (network support
8 Sound Shore Drive, Board (private equity investing) equipment distributor);
Suite 285 since September, 2004 Ventas, Inc. (real
Greenwich, CT 06830 (formerly Managing Director, estate investment
William Blair Capital trust); Jones Lang
Partners (private equity LaSalle (real estate
investing) from September, management services) and
1994 to September, 2004). Ambac Financial Group
(financial guaranty
insurance)
Anne-Lee Verville Trustee 1998 Retired since 1997 (formerly 83 Chairman of the Board of
(Age 60) General Manager, Global Directors, Enesco Group,
359 Stickney Hill Road Education Industry, IBM Inc. (designer, importer
Hopkinton, NH 03229 Corporation (computer and and distributor of
technology) from 1994 to giftware and
1997). collectibles)
Richard L. Woolworth Trustee 1991 Retired since December, 2003 83 Northwest Natural Gas
(Age 64) (formerly Chairman and Chief Co. (natural gas service
100 S.W. Market Street Executive Officer, The provider)
#1500 Regence Group (regional
Portland, OR 97207 health insurer); Chairman
and Chief Executive Officer,
BlueCross BlueShield of
Oregon; Certified Public
Accountant, Arthur Young &
Company)
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Number of
Portfolios in
Year First Fund
Elected or Complex
Name, Address Position Appointed to Principal Occupation(s) Overseen
and Age with Funds Office(1) During Past Five Years by Trustee Other Directorships Held
------------- ---------- ------------ ----------------------- ------------- ------------------------
INTERESTED TRUSTEE
William E.Mayer(2) Trustee 1994 Partner, Park Avenue Equity 85(3) Lee Enterprises (print
(Age 65) Partners (private equity) media), WR Hambrecht +
399 Park Avenue since February, 1999 Co. (financial service
Suite 3204 (formerly Partner, provider); Reader's
New York, NY 10022 Development Capital LLC from Digest (publishing);
November, 1996 to February, OPENFIELD Solutions
1999). (retail industry
technology provider)
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(1) In October 2003, the trustees of the Liberty Funds and Stein Roe Funds (both as defined in Part 1 of this SAI) were elected to the boards of the Columbia Funds; simultaneous with that election, Patrick J. Simpson and Richard L. Woolworth, who had been directors/trustees of the Columbia Funds were appointed to serve as trustees of the Liberty Funds and Stein Roe Funds. The date shown is the earliest date on which a trustee/director was elected or appointed to the board of a Fund in the Fund Complex.
(2) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht + Co.
(3) Messrs. Lowry, Neuhauser and Mayer also serve as directors/trustees of the All-Star Funds (as defined in Part 1 of this SAI).
Year First
Elected or
Name, Address Position Appointed to Principal Occupation(s)
and Age with Funds Office Durina Past Five Years
------------- ---------- ------------ -----------------------
OFFICERS
Christopher L. Wilson (Age 48) President 2004 Head of Mutual Funds since August, 2004 and Managing Director of
One Financial Center the Advisor since September, 2005; President of the Columbia
Boston, MA 02111 Funds, Liberty Funds and Stein Roe Funds since October, 2004;
President and Chief Executive Officer of the Nations Funds since
January, 2005; President of the Galaxy Funds since April, 2005;
Director of Bank of America Global Liquidity Funds, plc since May,
2005; Director of Banc of America Capital Management (Ireland),
Limited since May, 2005; Director of FIM Funding, Inc. since
January, 2005; Senior Vice President of Columbia Management
Distributors, Inc. since January, 2005; Director of Columbia
Management Services, Inc. since January, 2005 (formerly Senior
Vice President of Columbia Management from January, 2005 to
August, 2005; Senior Vice President of BACAP Distributors LLC from
January, 2005 to July, 2005; President and Chief Executive
Officer, CDC IXIS Asset Management Services, Inc. from September,
1998 to August, 2004).
J. Kevin Connaughton (Age 41) Treasurer 2000 Treasurer of the Columbia Funds since October, 2003 and of the
One Financial Center Liberty Funds and All-Star Funds since December, 2000 and of the
Boston, MA 02111 Stein Roe Funds since February, 2001; Managing Director of the
Advisor since September, 2005 (formerly Vice President of Columbia
Management from April, 2003 to August, 2005; President of the
Columbia Funds, Liberty Funds and Stein Roe Funds from February,
2004 to October, 2004; Chief Accounting Officer and Controller of
the Liberty Funds and All-Star Funds from February, 1998 to
October, 2000); Treasurer of the Galaxy Funds from September, 2002
to November, 2005 (formerly Treasurer from December, 2002 to
December, 2004 and President from February, 2004 to December, 2004
of the Columbia Management Multi-Strategy Hedge Fund, LLC; Vice
President of Colonial Management Associates, Inc. from February,
1998 to October, 2000).
Mary Joan Hoene (Age 56) Senior Vice 2004 Senior Vice President and Chief Compliance Officer of the Columbia
100 Federal Street President and Funds, Liberty Funds, Stein Roe Funds and All-Star Funds since
Boston, MA 02110 Chief August, 2004; Chief Compliance Officer of the Columbia Management
Compliance Multi-Strategy Hedge Fund, LLC since August, 2004; Chief
Officer Compliance Officer of the BACAP Alternative Multi-Strategy Hedge
Fund LLC since October, 2004 (formerly Partner, Carter, Ledyard &
Milburn LLP from January, 2001 to August, 2004; Counsel, Carter,
Ledyard & Milburn LLP from November, 1999 to December, 2000; Vice
President and Counsel, Equitable Life Assurance Society of the
United States from April, 1998 to November, 1999).
Michael G. Clarke (Age 36) Chief 2004 Chief Accounting Officer of the Columbia Funds, Liberty Funds,
Stein Roe Funds and All-Star Funds since
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One Financial Center Accounting October, 2004; Managing Director of the Advisor since September,
Boston, MA 02111 Officer 2005 (formerly Controller of the Columbia Funds, Liberty Funds,
Stein Roe Funds and All-Star Funds from May, 2004 to October,
2004; Assistant Treasurer from June, 2002 to May, 2004; Vice
President, Product Strategy & Development of the Liberty Funds and
Stein Roe Funds from February, 2001 to June, 2002; Assistant
Treasurer of the Liberty Funds, Stein Roe Funds and the All-Star
Funds from August, 1999 to February, 2001; Audit Manager, Deloitte
& Toche LLP from May, 1997 to August, 1999).
Jeffrey R. Coleman (Age 36) Controller 2004 Controller of the Columbia Funds, Liberty Funds, Stein Roe Funds
One Financial Center and All-Star Funds since October, 2004 (formerly Vice President of
Boston, MA 02111 CDC IXIS Asset Management Services, Inc. and Deputy Treasurer of
the CDC Nvest Funds and Loomis Sayles Funds from February, 2003 to
September, 2004; Assistant Vice President of CDC IXIS Asset
Management Services, Inc. and Assistant Treasurer of the CDC Nvest
Funds from August, 2000 to February, 2003; Tax Manager of PFPC,
Inc. from November, 1996 to August, 2000).
R. Scott Henderson (Age 46) Secretary 2004 Secretary of the Columbia Funds, Liberty Funds and Stein Roe Funds
One Financial Center since December, 2004 (formerly Of Counsel, Bingham McCutchen from
Boston, MA 02111 April, 2001 to September, 2004; Executive Director and General
Counsel, Massachusetts Pension Reserves Investment Management
Board from September, 1997 to March, 2001).
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Trustee Positions
As of December 31, 2005, no disinterested Trustee or any of their immediate family members owned beneficially or of record any class of securities of the Advisor, another investment advisor, sub-advisor or portfolio manager of any of the funds in the Fund Complex or any person controlling, controlled by or under common control with any such entity.
Approving the Investment Advisory Contract
In determining to approve the most recent annual extension of a Fund's management agreement, the Trustees met over the course of the year with the relevant investment advisory personnel from the Advisor and considered information provided by the Advisor relating to the education, experience and number of investment professionals and other personnel providing services under that agreement. See "Managing the Fund" in each Fund's Prospectus and "Trustees and Officers" in this SAI. The Trustees also took into account the time and attention devoted by senior management to the Funds and the other funds in the Fund Complex. The Trustees evaluated the level of skill required to manage the Funds and concluded that the human resources devoted by the Advisor to the Funds were appropriate to fulfill effectively the Advisor's duties under the agreement. The Trustees also considered the business reputation of the Advisor and its financial resources, and concluded that the Advisor would be able to meet any reasonably foreseeable obligations under the agreement.
The Trustees received information concerning the investment philosophy and investment process applied by the Advisor in managing the Funds. See "Principal Investment Strategies" and "Principal Investment Risks" in the Funds' Prospectuses. In this connection, the Trustees considered the Advisor's in-house research capabilities as well as other resources available to the Advisor's personnel, including research services available to the Advisor as a result of securities transactions effected for the Funds and other investment advisory clients. The Trustees concluded that the Advisor's investment process, research capabilities and philosophy were well suited to each Fund, given each Fund's investment goal(s) and policies.
The Trustees considered the scope of the services provided by the Advisor to the
Funds under the agreement relative to services provided by third parties to
other mutual funds. See "Fund Charges and Expenses" and "Management of the Funds
- The Management Agreement". The Trustees concluded that the scope of the
Advisor's services to the Funds was consistent with the Funds' operational
requirements, including, in addition to its investment goal, compliance with
each Fund's investment restrictions, tax and reporting requirements and related
shareholder services.
The Trustees considered the quality of the services provided by the Advisor to
the Funds. The Trustees evaluated the Advisor's record with respect to
regulatory compliance and compliance with the investment policies of each Fund.
The Trustees also evaluated the procedures of the Advisor designed to fulfill
the Advisor's fiduciary duty to the Funds with respect to possible conflicts of
interest, including the Advisor's code of ethics (regulating the personal
trading of its officers and employees) (see "Management of the Funds -Code of
Ethics"), the procedures by which the Advisor allocates trades among its various
investment advisory clients and the record of the Advisor in these matters. The
Trustees also received information concerning standards of the Advisor with
respect to the execution of portfolio transactions. See "Management of the Funds
- Portfolio Transactions."
The Trustees considered the Advisor's management of non-advisory services provided by persons other than the Advisor by reference, among other things, to each Fund's total expenses and the reputation of each Fund's other service providers. See "Your Expenses" in each Fund's Prospectus(es). The Trustees also considered information provided by third parties relating to each Fund's investment performance relative to its performance benchmark(s), relative to other similar funds managed by the Advisor and relative to funds managed similarly by other advisors. The Trustees reviewed performance over various periods, including each Fund's one, five and ten year calendar year periods and/or the life of the Fund, as applicable (See "Performance History" in the Fund's Prospectuses), as well as factors identified by the Advisor as contributing to each Fund's performance. See each Fund's most recent annual and semi-annual reports. The Trustees concluded that the scope and quality of the Advisor's services was sufficient to merit reapproval of the agreement for another year.
In reaching that conclusion, the Trustees also gave substantial consideration to the fees payable under the agreement. The Trustees reviewed information concerning fees paid to investment advisors of similarly-managed funds. The Trustees also considered the fees of the Funds as a percentage of assets at different asset levels and possible economies of scale to the Advisor. The Trustees evaluated the Advisor's profitability with respect to the Funds, concluding that such profitability appeared to be generally consistent with levels of profitability that had been determined by courts to be "not excessive." For these purposes, the Trustees took into account not only the actual dollar amount of fees paid by the Funds directly to the Advisor, but also so-called "fallout benefits" to the Advisor such as reputational value derived from serving as investment Advisor to the Funds and the research services available to the Advisor by reason of brokerage commissions generated by each Fund's turnover. In evaluating the Funds' advisory fees, the Trustees also took into account the complexity of investment management for the Funds relative to other types of funds. Based on challenges associated with less readily available market information about foreign issuers and smaller capitalization companies, limited liquidity of certain securities, and the specialization required for focused funds, the Trustees concluded that generally greater research intensity and trading acumen is required for equity funds, and for international or global funds, as compared to funds investing, respectively, in debt obligations or in U.S.
issuers. Similarly, the Trustees concluded that, generally, small capitalization equity funds and focused funds including state specific municipal funds, require greater intensity of research and trading acumen than larger capitalization or more diversified funds. See "The Fund" in each Fund's Prospectus.
Based on the foregoing, the Trustees concluded that the fees to be paid the Advisor under the advisory agreement were fair and reasonable, given the scope and quality of the services rendered by the Advisor.
General
Messrs. Lowry, Mayer and Neuhauser are also trustees/directors of the Liberty All-Star Funds.
The Trustees serve as trustees of 83 registered investment companies managed by the Advisor for which each Trustee receives a retainer at the annual rate of $75,000, an attendance fee of $10,500 for each regular and special joint board meeting and $1,000 for each special telephonic joint board meeting. Beginning in December, 2003, Mr. Theobald began serving as the Chairman of the Board. As the independent chairman of the board, Mr. Theobald receives a supplemental retainer at the annual rate of $100,000; the chair of the Audit Committee receives a supplemental retainer at the annual rate of $20,000; the chair of the Advisory Fees and Expenses Committee receives a supplemental retainer at an annual rate of $15,000; and the chair of each other committee receives a supplemental retainer at the annual rate of $10,000. Members of each committee receive $2,500 for each committee meeting held in person and $1,000 for each telephonic meeting. The chair of the Audit Committee receives an additional $500 per meeting supplement. Two-thirds of the Trustee fees are allocated among the Funds based on each Fund's relative net assets and one-third of the fees is divided equally among the Funds.
Trustees and officers of the Trust, who are also officers of the Advisor or its affiliates, will benefit from the advisory fees, sales commissions and agency fees paid or allowed by the Trust.
The Agreement and Declaration of Trust ("Declaration") of the Trust provides that the Trust will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Trust but that such indemnification will not relieve any officer or Trustee of any liability to the Trust or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. The Trust, at its expense, provides liability insurance for the benefit of its Trustees and officers.
The Trustees have the authority to convert the Funds into a master fund/feeder fund structure. Under this structure, a Fund may invest all or a portion of its investable assets in investment companies with substantially the same investment goals, policies and restrictions as the Fund. The primary reason to use the master fund/feeder fund structure is to provide a mechanism to pool, in a single master fund, investments of different investor classes, resulting in a larger portfolio, investment and administrative efficiencies and economies of scale.
MANAGEMENT AGREEMENT
Under a Management Agreement (the "Agreement"), the Advisor has contracted to furnish each Fund with investment research and recommendations or fund management, respectively, and accounting and administrative personnel and services, and with office space, equipment and other facilities. For these services and facilities, each Fund pays a monthly fee based on the average of the daily closing value of the total net assets of each Fund for such month. Under the Agreement, any liability of the Advisor to the Trust, a Fund and/or its shareholders is limited to situations involving the Advisor's own willful misfeasance, bad faith, gross negligence or reckless disregard of its duties.
The Agreement may be terminated with respect to the Fund at any time on 60 days'
written notice by the Advisor or by the Trustees of the Trust or by a vote of a
majority of the outstanding voting securities of the Fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the Fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Advisor or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
The Advisor pays all salaries of officers of the Trust. The Trust pays all expenses not assumed by the Advisor including, but not limited to, auditing, legal, custodial, investor servicing and shareholder reporting expenses. The Trust pays the cost of printing and mailing any Prospectuses sent to shareholders. CMD pays the cost of printing and distributing all other Prospectuses.
ADMINISTRATION AGREEMENT (THIS SECTION APPLIES ONLY TO CERTAIN FUNDS AND THEIR RESPECTIVE TRUSTS. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION REGARDING YOUR FUND).
Under an Administration Agreement, the Advisor, in its capacity as the Administrator to each Fund, has contracted to perform the following administrative services:
(a) providing office space, equipment and clerical personnel;
(b) arranging, if desired by the respective Trust, for its directors, officers and employees to serve as Trustees, officers or agents of each Fund;
(c) preparing and, if applicable, filing all documents required for compliance by each Fund with applicable laws and regulations;
(d) preparation of agendas and supporting documents for and minutes of meetings of Trustees, committees of Trustees and shareholders;
(e) coordinating and overseeing the activities of each Fund's other third-party service providers; and
(f) maintaining certain books and records of each Fund.
The Advisor is paid a monthly fee at the annual rate of average daily net assets set forth in Part 1 of this SAI.
TRUST SERVICES AGREEMENT
Pursuant to a Trust Services Agreement, CMS provides the Columbia Tax-Managed Growth Fund's Trust Shares with trust administration services, including tax return preparation and filing, other tax and beneficiary reporting and recordkeeping. CMS's fee is described in the Prospectuses of the Columbia Tax-Managed Growth Fund.
THE PRICING AND BOOKKEEPING AGREEMENT
The Advisor is responsible for providing accounting and bookkeeping services to each Fund pursuant to a pricing and bookkeeping agreement. Under a separate agreement ("Outsourcing Agreement"), the Advisor has delegated those functions to State Street Bank and Trust Company (State Street). The Advisor pays fees to State Street under the Outsourcing Agreement. SEE "FUND CHARGES AND EXPENSES" IN
PART 1 OF THIS SAI FOR INFORMATION ON THESE FEES.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. The Advisor acts as investment advisor to each of the Funds. Various officers and Trustees of the Trust also serve as officers or Trustees of other funds and the other corporate or fiduciary clients of the Advisor. The Funds and clients advised by the Advisor or the Funds administered by the Advisor sometimes invest in securities in which the Fund also invests and sometimes engage in covered option writing programs and enter into transactions utilizing stock index options and stock index and financial futures and related options ("other instruments"). If the Fund, such other funds and such other clients desire to buy or sell the same portfolio securities, options or other instruments at about the same time, the purchases and sales are normally made as nearly as practicable on a pro rata basis in proportion to the amounts desired to be purchased or sold by each. Although in some cases these practices could have a detrimental effect on the price or volume of the securities, options or other instruments as far as the Fund is concerned, in most cases it is believed that these practices should produce better executions. It is the opinion of the Trustees that the desirability of retaining the Advisor as investment advisor to the Funds outweighs the disadvantages, if any, which might result from these practices.
POTENTIAL CONFLICTS OF INTEREST IN MANAGING MULTIPLE ACCOUNTS
Like other investment professionals with multiple clients, a portfolio manager for a Fund may face certain potential conflicts of interest in connection with managing both the Fund and other accounts at the same time. The paragraphs below describe some of these potential conflicts, which the Advisor believes are faced by investment professionals at most major financial firms. The Advisor and the Trustees of the Columbia Funds have adopted compliance policies and procedures that attempt to address certain of these potential conflicts.
The management of accounts with different advisory fee rates and/or fee structures, including accounts that pay advisory fees based on account performance ("performance fee accounts"), may raise potential conflicts of interest by creating an incentive to favor higher-fee accounts. These potential conflicts may include, among others:
- The most attractive investments could be allocated to higher-fee accounts or performance fee accounts.
- The trading of higher-fee accounts could be favored as to timing and/or execution price. For example, higher-fee accounts could be permitted to sell securities earlier than other accounts when a prompt sale is desirable or to buy securities at an earlier and more opportune time.
- The trading of other accounts could be used to benefit higher-fee accounts (front- running).
- The investment management team could focus their time and efforts primarily on higher-fee accounts due to a personal stake in compensation.
Potential conflicts of interest may also arise when the portfolio managers have personal investments in other accounts that may create an incentive to favor those accounts. As a general matter and subject to limited exceptions, the Advisor's investment professionals do not have the opportunity to invest in client accounts, other than the Columbia Funds.
A potential conflict of interest may arise when a Fund and other accounts purchase or sell the same securities. On occasions when a portfolio manager considers the purchase or sale of a security to be in the best interests of a Fund as well as other accounts, the Advisor's trading desk may, to the extent permitted by applicable laws and regulations, aggregate the securities to be sold or purchased in order to obtain the best execution and lower brokerage commissions, if any. Aggregation of trades may create the potential for unfairness to a Fund or another account if one account is favored over another in allocating the securities purchased or sold - for example, by allocating a disproportionate amount of a security that is likely to increase in value to a favored account.
"Cross trades," in which one Columbia account sells a particular security to another account (potentially saving transaction costs for both accounts), may also pose a potential conflict of interest. Cross trades may be seen to involve a potential conflict of interest if, for example, one account is permitted to sell a security to another account at a higher price than an independent third party would pay. The Advisor and the Funds' Trustees have adopted compliance procedures that provide that any transactions between a Fund and another Columbia-advised account are to be made at an independent current market price, as required by law.
Another potential conflict of interest may arise based on the different investment objectives and strategies of a Fund and other accounts. For example, another account may have a shorter-term investment horizon or different investment objectives, policies or restrictions than a Fund. Depending on another account's objectives or other factors, a portfolio manager may give advice and make decisions that may differ from advice given, or the timing or nature of decisions made, with respect to a Fund. In addition, investment decisions are the product of many factors in addition to basic suitability for the particular account involved. Thus, a particular security may be bought or sold for certain accounts even though it could have been bought or sold for other accounts at the same time. More rarely, a particular security may be bought for one or more accounts managed by a portfolio manager when one or more other accounts are selling the security (including short sales). There may be circumstances when purchases or sales of portfolio securities for one or more accounts may have an adverse effect on other accounts.
A Fund's portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. As a result, the portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as might be the case if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies.
A Fund's portfolio managers may be able to select or influence the selection of the brokers and dealers that are used to execute securities transactions for the Fund. In addition to executing trades, some brokers and dealers provide portfolio managers with brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934), which may result in the payment of higher brokerage fees than might have otherwise be available. These services may be more beneficial to certain funds or accounts than to others. Although the payment of brokerage commissions is subject to the requirement that the portfolio manager determine in good faith that the commissions are reasonable in relation to the value of the brokerage and research services provided to the fund, a portfolio manager's decision as to the selection of brokers and dealers could yield disproportionate costs and benefits among the funds and/or accounts that he or she manages.
The Advisor or an affiliate may provide more services (such as distribution or recordkeeping) for some types of funds or accounts than for others. In such cases, a portfolio manager may benefit, either directly or indirectly, by devoting disproportionate attention to the management of fund and/or accounts that provide greater overall returns to the investment manager and its affiliates.
A Fund's portfolio manager(s) may also face other potential conflicts of interest in managing the Fund, and the description above is not a complete description of every conflict that could be deemed to exist in managing both a Fund and other accounts. In addition, a Fund's portfolio manager may also manage other accounts (including their personal assets or the assets of family members) in their personal capacity. The management of these accounts may also involve certain of the potential conflicts described above. Investment personnel at the Advisor, including each Fund's portfolio manager, are subject to restrictions on engaging in personal securities transactions
pursuant to Codes of Ethics adopted by the Advisor and each Fund, which contain provisions and requirements designed to identify and address certain conflicts of interest between personal investment activities and the interests of each Fund.
BROKERAGE AND RESEARCH SERVICES. Consistent with the Conduct Rules of the National Association of Securities Dealers, Inc., and subject to seeking "best execution" (as defined below) and such other policies as the Trustees may determine, the Advisor may consider sales of shares of the Funds as a factor in the selection of broker-dealers to execute securities transactions for a Fund.
The Advisor places the transactions of the Funds with broker-dealers selected by the Advisor and, if applicable, negotiates commissions. Broker-dealers may receive brokerage commissions on portfolio transactions, including the purchase and writing of options, the effecting of closing purchase and sale transactions, and the purchase and sale of underlying securities upon the exercise of options and the purchase or sale of other instruments. The Funds from time to time also execute portfolio transactions with such broker-dealers acting as principals. The Funds do not intend to deal exclusively with any particular broker-dealer or group of broker-dealers.
It is the Advisor's policy generally to seek best execution, which is to place the Funds' transactions where the Funds can be expected to obtain the most favorable combination of price and execution services in particular transactions or provided on a continuing basis by a broker-dealer, and to deal directly with a principal market maker in connection with over-the-counter transactions, except when it is believed that best execution is obtainable elsewhere. In evaluating the execution services of, including the overall reasonableness of brokerage commissions paid to, a broker-dealer, consideration is given to, among other things, the firm's general execution and operational capabilities, and to its reliability, integrity and financial condition.
Securities transactions of the Funds may be executed by broker-dealers who also provide research services (as defined below) to the Advisor and the Funds. The Advisor may use all, some or none of such research services in providing investment advisory services to each of its investment company and other clients, including the Fund. To the extent that such services are used by the Advisor, they tend to reduce the Advisor's expenses. In the Advisor's opinion, it is impossible to assign an exact dollar value for such services.
The Trustees have authorized the Advisor to cause the Funds to pay a broker-dealer which provides brokerage and research services to the Advisor an amount of commission for effecting a securities transaction, including the sale of an option or a closing purchase transaction, for the funds in excess of the amount of commission which another broker-dealer would have charged for effecting that transaction. As provided in Section 28(e) of the Securities Exchange Act of 1934, "brokerage and research services" include advice as to the value of securities, the advisability of investing in, purchasing or selling securities and the availability of securities or purchasers or sellers of securities; furnishing analyses and reports concerning issues, industries, securities, economic factors and trends and portfolio strategy and performance of accounts; and effecting securities transactions and performing functions incidental thereto (such as clearance and settlement). The Advisor must determine in good faith that such greater commission is reasonable in relation to the value of the brokerage and research services provided by the executing broker-dealer viewed in terms of that particular transaction or the Advisor's overall responsibilities to the Funds and all its other clients.
The Trustees have authorized the Advisor to utilize the services of a clearing agent with respect to all call options written by Funds that write options and to pay such clearing agent commissions of a fixed amount per share (currently 1.25 cents) on the sale of the underlying security upon the exercise of an option written by a Fund.
The Advisor may use the services of affiliated broker-dealers, when buying or selling securities for a Fund's portfolio pursuant to procedures adopted by the Trustees and 1940 Act Rule 17e-1. Under the Rule, the Advisor must ensure that commissions a Fund pays to affiliates of the Advisor on portfolio transactions are reasonable and fair compared to commissions received by other broker-dealers in connection with comparable transactions involving similar securities being bought or sold at about the same time. The Advisor will report quarterly to the Trustees on all securities transactions placed through affiliates of the Advisor so that the Trustees may consider whether such trades complied with these procedures and the Rule.
PRINCIPAL UNDERWRITER
CMD is the principal underwriter of the Trust's shares. CMD has no obligation to buy the Funds' shares, and purchases the Funds' shares only upon receipt of orders from authorized FSFs or investors.
INVESTOR SERVICING AND TRANSFER AGENT
CMS is the Trust's investor servicing agent (transfer, plan and dividend disbursing agent), for which it receives fees which are paid monthly by the Trust. The fee paid to CMS is based on number of accounts plus reimbursement for certain out-of-pocket expenses. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION ON FEES RECEIVED BY CMS. The agreement continues indefinitely but may be terminated by 90 days' notice by the Fund to CMS or generally by 6 months' notice by CMS to the Fund. The agreement limits the liability of CMS to the Fund for loss or damage incurred by the Fund to situations involving a failure of CMS to use reasonable care or to act in good faith and without negligence in performing its duties under the agreement. The Fund will indemnify CMS from, among other things, any and all claims, actions, suits, losses, costs, damages, and expenses incurred by it in connection with its acceptance of this Agreement, provided that: (i) to the extent such claims, actions, suits, losses, costs, damages, or expenses relate
solely to a particular series or group of series of shares, such indemnification shall be only out of the assets of that series or group of series; (ii) this indemnification shall not apply to actions or omissions constituting negligence or misconduct of CMS or its agents or contractors, including but not limited to willful misfeasance, bad faith or gross negligence in the performance of their duties, or reckless disregard of their obligations and duties under this Agreement; and (iii) CMS shall give a Fund prompt notice and reasonable opportunity to defend against any such claim or action in its own name or in the name of CMS.
CODE OF ETHICS
The Funds, the Advisor, and CMD have adopted Codes of Ethics pursuant to the requirements of the 1940 Act. These Codes of Ethics permit personnel subject to the Codes to invest in securities, including securities that may be purchased or held by the Funds. These Codes of Ethics can be reviewed and copied at the SEC's Public Reference Room and may be obtained by calling the SEC at 1-202-942-8090. These Codes are also available on the EDGAR Database on the SEC's internet web site at http://www.sec.gov, and may also be obtained, after paying a duplicating fee, by electronic request to publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102.
ANTI-MONEY LAUNDERING COMPLIANCE
The Funds are required to comply with various anti-money laundering laws and regulations. Consequently, the Funds may request additional information from you to verify your identity. If at any time the Funds believe a shareholder may be involved in suspicious activity or if certain account information matches information on government lists of suspicious persons, the Funds may choose not to establish a new account or may be required to "freeze" a shareholder's account, halting all shareholder activity with respect to such account. The Funds also may be required to provide a governmental agency with information about transactions that have occurred in a shareholder's account or to transfer monies received to establish a new account, transfer an existing account or transfer the proceeds of an existing account to a governmental agency. In some circumstances, the law may not permit a Fund to inform the shareholder that it has taken the actions described above.
PROXY VOTING POLICIES AND FUND PROXY VOTING RECORD
The Fund has delegated to the Advisor the responsibility to vote proxies relating to portfolio securities held by the Fund. In deciding to delegate this responsibility to the Advisor, the Board of Trustees of the Trust reviewed and approved the policies and procedures adopted by the Advisor. These included the procedures that the Advisor follows when a vote presents a conflict between the interests of the Fund and its shareholders and the Advisor, its affiliates, its other clients or other persons.
The Advisor's policy is to vote all proxies for Fund securities in a manner considered by the Advisor to be in the best interest of the Fund and its shareholders without regard to any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor examines each proposal and votes against the proposal, if, in its judgment, approval or adoption of the proposal would be expected to impact adversely the current or potential market value of the issuer's securities. The Advisor also examines each proposal and votes the proxies against the proposal, if, in its judgment, the proposal would be expected to affect adversely the best interest of the Fund. The Advisor determines the best interest of the Fund in light of the potential economic return on the Fund's investment.
The Advisor addresses potential material conflicts of interest by having predetermined voting guidelines. For those proposals that require special consideration or in instances where special circumstances may require varying from the predetermined guideline, the Advisor's Proxy Committee determines the vote in the best interest of the Fund, without consideration of any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor's Proxy Committee is composed of representatives of the Advisor's equity investments, equity research, compliance, legal and fund administration functions. In addition to the responsibilities described above, the Proxy Committee has the responsibility to review, on a semi-annual basis, the Advisor's proxy voting policies to ensure consistency with internal and regulatory agency policies and to develop additional predetermined voting guidelines to assist in the review of proxy proposals.
The Proxy Committee may vary from a predetermined guideline if it determines that voting on the proposal according to the predetermined guideline would be expected to impact adversely the current or potential market value of the issuer's securities or to affect adversely the best interest of the client. References to the best interest of a client refer to the interest of the client in terms of the potential economic return on the client's investment. In determining the vote on any proposal, the Proxy Committee does not consider any benefit other than benefits to the owner of the securities to be voted. A member of the Proxy Committee is prohibited from voting on any proposal for which he or she has a conflict of interest by reason of a direct relationship with the issuer or other party affected by a given proposal. Persons making recommendations to the Proxy Committee or its members are required to disclose to the Committee any relationship with a party making a proposal or other matter known to the person that would create a potential conflict of interest.
The Advisor has retained Institutional Shareholder Services ("ISS"), a third party vendor, to implement its proxy voting process. ISS provides proxy analysis, record keeping services and vote disclosure services.
The Advisor's proxy voting guidelines and procedures are included in this SAI as Appendix II. In accordance with SEC regulations, the fund's proxy voting record for the last twelve-month period ended June 30 has been filed with the SEC. You may obtain a copy of the
fund's proxy voting record (i) at www.columbiamanagement.com; (ii) on the Securities and Exchange Commission's website at www.sec.gov and (iii) without charge, upon request, by calling 800-368-0346.
DISCLOSURE OF PORTFOLIO INFORMATION
The Trustees of the Columbia Funds have adopted policies with respect to the disclosure of the Funds' portfolio holdings by the Funds, Columbia Advisors, or their affiliates. These policies provide that Fund portfolio holdings information generally may not be disclosed to any party prior to (1) the day next following the posting of such information on the Funds' website at www.columbiafunds.com, (2) the day next following the filing of the information with the SEC in a required filing, or (3) for money market funds, such information is publicly available to all shareholders upon request on the fifth business day after each calendar month-end. Certain limited exceptions pursuant to the Fund's policies are described below. The Trustees shall be updated as needed regarding the Fund's compliance with the policies, including information relating to any potential conflicts of interest between the interests of Fund shareholders and those of Columbia Advisors and its affiliates. The Fund's policies prohibit Columbia Advisors and the Fund's other service providers from entering into any agreement to disclose Fund portfolio holdings information in exchange for any form of consideration. These policies apply to disclosures to all categories of persons, including, without limitation, individual investors, institutional investors, intermediaries that distribute the Fund's shares, third-party service providers, rating and ranking organizations and affiliated persons of the Fund.
PUBLIC DISCLOSURES. The Fund's portfolio holdings are currently disclosed to the public through required filings with the SEC and, for equity and fixed income funds, on the Fund's website at www.columbiafunds.com. The Fund files its portfolio holdings with the SEC for each fiscal quarter on Form N-CSR (with respect to each annual period and semi-annual period) and Form N-Q (with respect to the first and third quarters of the Fund's fiscal year). Shareholders may obtain the Fund's Forms N-CSR and N-Q filings on the SEC's website at www.sec.gov. In addition, the Fund's Forms N-CSR and N-Q filings may be reviewed and copied at the SEC's public reference room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC's website or the operation of the public reference room.
The equity and fixed income Columbia Funds also currently make portfolio information publicly available at www.columbiafunds.com, as disclosed in the following table:
FREQUENCY OF
TYPE OF FUND INFORMATION PROVIDED DISCLOSURE DATE OF WEB POSTING
------------ -------------------- ------------ -------------------
Equity Funds Full portfolio holdings Monthly 30 calendar days after
information. month-end.
Fixed Income Funds Full portfolio holdings Quarterly 60 calendar days after
information. quarter-end
|
The scope of the information provided relating to the Fund's portfolio that is made available on the website may change from time to time without prior notice.
For Columbia's money market funds, a complete list of a Fund's portfolio holdings shall be publicly available on a monthly basis on the fifth business day after month-end. Shareholders may request such information by writing or calling the Fund's distributor, CMD at the address listed on the cover of this SAI.
A Fund, Columbia Advisors or their affiliates may include portfolio holdings information that has already been made public through a web posting or SEC filing in marketing literature and other communications to shareholders, advisors or other parties, provided that the information is disclosed no earlier than the day after the date the information is disclosed publicly.
OTHER DISCLOSURES. The Fund's policies provide that non-public disclosures of the Fund's portfolio holdings may be made if (1) the Fund has a legitimate business purpose for making such disclosure, (2) the Fund's chief executive officer authorizes such non-public disclosure of information, and (3) the party receiving the non-public information enters into a confidentiality agreement, which includes a duty not to trade on the non-public information.
The Fund periodically discloses its portfolio information on a confidential basis to various service providers that require such information in order to assist the Fund with its day-to-day business affairs. In addition to Columbia Advisors and its affiliates, these service providers include the Fund's custodian and sub-custodians, the Fund's independent registered public accounting firm, legal counsel, financial printers (R.R. Donnelly & Sons and Bowne & Co., Inc.), the Fund's proxy voting service provider (Alamo Direct Mail Services, Inc.), the Fund's proxy solicitor (Georgeson Shareholder Communications Inc.), rating agencies that maintain ratings on certain Columbia Funds (Fitch, Inc.) and service providers that support Columbia Advisors' trading systems (InvestorTool, Inc. and Thomson Financial). These service providers are required to keep such information confidential, and are prohibited from trading based on the information or otherwise using the information except as necessary in providing services to the Fund. The Fund may also disclose portfolio holdings
information to broker/dealers and certain other entities related to potential transactions and management of the Fund, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information.
Certain clients of the Fund's investment adviser(s) may follow a strategy similar to that of the Fund, and have access to portfolio holdings information for their account. It is possible that such information could be used to infer portfolio holdings information relating to the Fund.
DETERMINATION OF NET ASSET VALUE
Each Fund determines net asset value (NAV) per share for each class as of the close of the New York Stock Exchange (Exchange) (generally 4:00 p.m. Eastern time) each day the Exchange is open, except that certain classes of assets, such as index futures, for which the market close occurs shortly after the close of regular trading on the Exchange will be priced at the closing time of the market on which they trade. Currently, the Exchange is closed Saturdays, Sundays and the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. Funds with portfolio securities which are primarily listed on foreign exchanges may experience trading and changes in NAV on days on which such Fund does not determine NAV due to differences in closing policies among exchanges. This may significantly affect the NAV of the Fund's redeemable securities on days when an investor cannot redeem such securities Debt securities generally are valued by a pricing service which determines valuations based upon market transactions for normal, institutional-size trading units of similar securities. However, in circumstances where such prices are not available or where the Advisor deems it appropriate to do so, an over-the-counter or exchange bid quotation is used. Securities listed on an exchange or on NASDAQ are valued at the last sale price (or the official closing price as determined by the NASDAQ system, if different, as applicable). Listed securities for which there were no sales during the day and unlisted securities generally are valued at the last quoted bid price. Options are valued at the last sale price or in the absence of a sale, the mean between the last quoted bid and offering prices. Short-term obligations with a maturity of 60 days or less are valued at amortized cost pursuant to procedures adopted by the Trustees. The values of foreign securities quoted in foreign currencies are translated into U.S. dollars at the exchange rate for that day. Portfolio positions for which market quotations are not readily available and other assets are valued at fair value as determined by the Advisor in good faith under the direction of the Trust's Board of Trustees.
Generally, trading in certain securities (such as foreign securities) is substantially completed each day at various times prior to the close of the Exchange. Trading on certain foreign securities markets may not take place on all business days in New York, and trading on some foreign securities markets takes place on days which are not business days in New York and on which the Fund's NAV is not calculated. The values of these securities used in determining the NAV are computed as of such times. Also, because of the amount of time required to collect and process trading information as to large numbers of securities issues, the values of certain securities (such as convertible bonds, U.S. government securities, and tax-exempt securities) are determined based on market quotations collected earlier in the day at the latest practicable time prior to the close of the Exchange. Occasionally, events affecting the value of such securities may occur between such times and the close of the Exchange which will not be reflected in the computation of each Fund's NAV. If events materially affecting the value of such securities occur during such period, then these securities will be valued at fair value following procedures approved by the Trust's Board of Trustees.
(The following two paragraphs are applicable only to Columbia Newport Tiger Fund and Columbia Newport Greater China Fund).
Trading in securities on stock exchanges and over-the-counter markets in foreign securities markets is normally completed well before the close of the business day in New York. Trading on foreign securities markets may not take place on all business days in New York, and trading on some foreign securities markets does take place on days which are not business days in New York and on which the Fund's NAV is not calculated.
The calculation of the Fund's NAV accordingly may not take place contemporaneously with the determination of the prices of the Fund's portfolio securities used in such calculations. Events affecting the values of portfolio securities that occur between the time their prices are determined and the close of the Exchange (when the Fund's NAV is calculated) will not be reflected in the Fund's calculation of NAV unless the Advisor, acting under procedures established by the Board of Trustees of the Trust, deems that the particular event would materially affect the Fund's NAV, in which case an adjustment will be made. Assets or liabilities initially expressed in terms of foreign currencies are translated prior to the next determination of the NAV of the Fund's shares into U.S. dollars at prevailing market rates.
AMORTIZED COST FOR MONEY MARKET FUNDS (SEE "AMORTIZED COST FOR MONEY MARKET
FUNDS" UNDER "INFORMATION CONCERNING THE FUND" IN PART 1 OF THE SAI OF COLUMBIA
MONEY MARKET FUND (FORMERLY NAMED LIBERTY MONEY MARKET FUND) AND COLUMBIA
MUNICIPAL MONEY MARKET FUND (FORMERLY NAMED LIBERTY MUNICIPAL MONEY MARKET
FUND))
Money market funds generally value their portfolio securities at amortized cost according to Rule 2a-7 under the 1940 Act.
Under the amortized cost method a security is initially valued at cost and thereafter any discount or premium from maturity value is amortized ratably to maturity. This method assures a constant NAV but may result in a yield different from that of the same portfolio
under the market value method. The Trust's Trustees have adopted procedures intended to stabilize a money market fund's NAV per share at $1.00. If a money market fund's market value deviates from the amortized cost of $1.00, and results in a material dilution to existing shareholders, the Trust's Trustees will take corrective action that may include: realizing gains or losses; shortening the portfolio's maturity; withholding distributions; redeeming shares in kind; or converting to the market value method (in which case the NAV per share may differ from $1.00). All investments will be determined pursuant to procedures approved by the Trust's Trustees to present minimal credit risk.
See the Statement of Assets and Liabilities in the shareholder report of the Columbia Money Market Fund (formerly named Liberty Money Market Fund) or the Columbia Municipal Money Market Fund (formerly named Liberty Municipal Money Market Fund) for a specimen price sheet showing the computation of maximum offering price per share of Class A shares.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of the Fund and tables of charges. This SAI contains additional information which may be of interest to investors.
The Fund may accept unconditional orders for shares to be executed at the public offering price based on the NAV per share next determined after the order is placed in good order. The public offering price is the NAV plus the applicable sales charge, if any. In the case of orders for purchase of shares placed through FSFs, the public offering price will be determined on the day the order is placed in good order, but only if the FSF receives the order prior to the time at which shares are valued and transmits it to the Fund before the Fund processes that day's transactions. If the FSF fails to transmit before the Fund processes that day's transactions, the customer's entitlement to that day's closing price must be settled between the customer and the FSF. If the FSF receives the order after the time at which the Fund values its shares, the price will be based on the NAV determined as of the close of the Exchange on the next day it is open. If funds for the purchase of shares are sent directly to CMS, they will be invested at the public offering price next determined after receipt in good order. Payment for shares of the fund must be in U.S. dollars; if made by check, the check must be drawn on a U.S. bank.
Investors should understand that, since the offering price of the Fund's shares is calculated to two decimal places using standard rounding methodology, the dollar amount of the sales charge paid as a percentage of the offering price and of the net amount invested for any particular purchase of fund shares may be higher or lower depending on whether downward or upward rounding was required during the calculation process.
The Fund receives the entire NAV of shares sold. For shares subject to an initial sales charge, CMD's commission is the sales charge shown in the Fund's Prospectus less any applicable FSF discount. The FSF discount is the same for all FSFs, except that CMD retains the entire sales charge on any sales made to a shareholder who does not specify a FSF on the Investment Account Application ("Application"), and except that CMD may from time to time reallow additional amounts to all or certain FSFs. CMD generally retains some or all of any asset-based sales charge (distribution fee) or contingent deferred sales charge. Such charges generally reimburse CMD for any up-front and/or ongoing commissions paid to FSFs.
Checks presented for the purchase of shares of the Fund which are returned by the purchaser's bank or checkwriting privilege checks for which there are insufficient funds in a shareholder's account to cover redemption may subject such purchaser or shareholder to a $15 service fee for each check returned. Checks must be drawn on a U.S. bank and must be payable in U.S. dollars. Travelers checks, gift checks, credit card convenience checks, credit cards, cash and ban counter (starter checks) are not accepted.
CMS acts as the shareholder's agent whenever it receives instructions to carry out a transaction on the shareholder's account. Upon receipt of instructions that shares are to be purchased for a shareholder's account, the designated FSF will receive the applicable sales commission. Shareholders may change FSFs at any time by written notice to CMS, provided the new FSF has a sales agreement with CMD.
Shares credited to an account are transferable upon written instructions in good order to CMS and may be redeemed as described under "How to Sell Shares" in the Prospectus. Certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you may send the certificates to CMS for deposit to your account.
In addition to the commissions specified in a Fund's prospectus and this SAI, CMD, or its advisory affiliates, from their own resources, may make cash payments to FSFs that agree to promote the sale of shares of funds that CMD distributes. A number of factors may be considered in determining the amount of those payments, including the FSF's sales, client assets invested in the funds and redemption rates, the quality of the FSF's relationship with CMD and/or its affiliates, and the nature of the services provided by FSFs to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the FSF's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, CMD may also pay non-cash compensation to FSFs and their representatives, including: (i) occasional gifts; (ii) occasional meals, or other entertainment; and/or (iii) support for FSF educational or training events.
In addition, CMD, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of a Fund.
CMD and its affiliates anticipate that the FSFs and intermediaries that will receive the additional compensation described above include:
1st Global Capital Corp
401 Company
ABN AMRO Trust Services
ADP Retirement Services
Advest
AEGON/Transamerica
AG Edwards
American Century Services
American Express
AMG
AON Consulting
AST Trust Company
Banc of America Investment Services
BancOne
Bear Stearns
Benefit Plan Administrators
Bidwell & Company
BNY Clearing
C N A Trust
Charles Schwab
CIBC Oppenheimer
Citigroup Global Markets
CitiStreet Associates LLC
City National Bank
City of Milwaukee
Columbia Trust Company
Commonwealth Financial
Compensation & Capital
CPI Qualified Plan Consultants
Daily Access Concepts
Davenport & Company
Delaware Investments
Digital Retirement Solutions
Discover Brokerage
Dreyfus/Mellon
Edgewood Services
Edward Jones
E-Trade,
ExpertPlan
FAS Liberty Life Spectrum
Ferris Baker Watts
Fidelity
Financial Data Services
Franklin Templeton
Freeman Welwood
Gem Group
Great West Life
Hewitt Associates LLC
Huntington Bank
ING
Intermountain Health Care
Investmart, Inc.
Investment Manager Services (IMS)
Janney Montgomery Scott
JJB Hilliard Lyons
JP Morgan/American Century
Kenney Investments
Kirkpatrick Pettis Smith Polian Inc
Legg Mason Wood Walker
Liberty Life
Lincoln Financial
Lincoln Life
Linsco Private Ledger
M & T Securities
Marquette Trust Company
Mass Mutual Life
Matrix Settlement & Clearance Services (MSCS)
McDonald Investments
Merrill Lynch
MetLife
MFS
Mfund Trax
MidAtlantic Capital
Milliman USA
Morgan Keegan
Morgan Stanley Dean Witter
PFPC
Nationwide Investment Services
Neuberger Berman Mgmt
NFP Securities
NSD -NetStock Sharebuilder
NYLife Distributors
Optimum Investment Advisors
Orbitex
Pershing LLC
Phoenix Home Life
Piper Jaffray
PNC
PPI Employee Benefits
Private Bank & Trust
Prudential
Putnam Investments
Raymond James
RBC Dain Rausher
Robert W Baird
Royal Alliance
RSM McGladrey Inc.
Safeco
Scott & Stringfellow
Scudder Investments
Security Benefit
Segall Bryant Hamill
South Trust Securities
Southwest Securities
Standard Insurance
Stanton Group
State of NY Deferred Compensation Plan
Stephens, Inc.
Stifel Nicolaus & Co
Strong Capital
Sungard T Rowe Price
Trustar Retirement Services
Trustlynx/Datalynx
UBS Financial Services
USAA Investment Management
Vanguard
Wachovia
TD Waterhouse
Webster Investment Services
Wells Fargo
Wilmington Trust
PLEASE CONTACT YOUR FSF OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or eliminated at any time.
AUTOMATIC INVESTMENT PLAN. As a convenience to investors, shares of most Funds advised by the Advisor may be purchased through the Automatic Investment Plan. Electronic fund transfers for a fixed amount of at least $50 ($25 for IRA) are used to purchase a Fund's shares at the public offering price next determined after CMD receives the proceeds. If your Automatic Investment Plan purchase is by electronic funds transfer, you may request the Automatic Investment Plan purchase for any day. Further information and application forms are available from FSFs or from CMD.
AUTOMATED DOLLAR COST AVERAGING (Classes A, B, C, D, T, G and Z). The Automated Dollar Cost Averaging program allows you to exchange $100 or more on a monthly basis from any fund distributed by CMD in which you have a current balance of at least $5,000 into the same class of shares of up to five other Funds. Complete the Automated Dollar Cost Averaging section of the Application. There is no charge for exchanges made pursuant to the Automated Dollar Cost Averaging program. Sales charges may apply if exchanging from a money market fund. Exchanges will continue so long as your fund balance is sufficient to complete the transfers. Your normal rights and privileges as a shareholder remain in full force and effect. Thus you can buy any Fund, exchange between the same Class of shares of Funds by written instruction or by telephone exchange if you have so elected and withdraw amounts from any Fund, subject to the imposition of any applicable CDSC or sales charges.
Any additional payments or exchanges into your Fund will extend the time of the Automated Dollar Cost Averaging program.
An exchange is generally a capital sale transaction for federal income tax purposes.
You may terminate your program, change the amount of the exchange (subject to the $100 minimum), or change your selection of funds, by telephone or in writing; if in writing by mailing your instructions to Columbia Management Services, Inc. (formerly named Columbia Funds Services, Inc.) (CMS) P.O. Box 8081, Boston, MA 02266-8081.
You should consult your FSF or financial advisor to determine whether or not the Automated Dollar Cost Averaging program is appropriate for you.
CMD offers several plans by which an investor may obtain reduced initial or contingent deferred sales charges. These plans may be altered or discontinued at any time. See "Programs For Reducing or Eliminating Sales Charges" below for more information.
CLASS T SHAREHOLDER SERVICES PLAN. The Trustees have approved a Shareholder Services Plan (the "Services Plan") pursuant to which the Trusts plan to enter into servicing agreements with institutions (including Bank of America Corporation and its affiliates). Pursuant to these servicing agreements, institutions render certain administrative and support services to customers who are the beneficial owners of Class T shares of each Fund other than the Columbia Newport Tiger Fund. Such services are provided to the institution's customers who are the beneficial owners of Class T shares and are intended to supplement the services provided by the Fund's administrator and transfer agent to the shareholders of record of the Class T shares. The Services Plan provides that each Fund will pay fees for such services at an annual rate of up to 0.50% of the average daily net asset value of Class T shares owned beneficially by the institution's customers. Institutions may receive up to one-half of this fee for providing one or more of the following services to such customers: (i) aggregating and processing purchase and redemption requests and placing net purchase and redemption orders with CMD; (ii) processing dividend payments from a Fund; (iii) providing sub-accounting with respect to Class T shares or the information necessary for
sub-accounting; and (iv) providing periodic mailings to customers. Institutions may also receive up to one-half of this fee for providing one or more of these additional services to such customers: (i) providing customers with information as to their positions in Class T shares; (ii) responding to customer inquiries; and (iii) providing a service to invest the assets of customers in Class T shares.
The payments under the servicing agreements entered into as of the date of this SAI are limited to an aggregate fee of not more than 0.30% (on an annualized basis) of the average daily net asset value of the Class T shares of equity funds beneficially owned by customers of institutions and 0.15% (on an annualized basis) of the average daily net asset value of the Class T shares of bond funds beneficially owned by customers of institutions. The Funds understand that institutions may charge fees to their customers who are the beneficial owners of Class T shares in connection with their accounts with such institutions. Any such fees would be in addition to any amounts which may be received by an institution under the Services Plan. Under the terms of each servicing agreement, institutions are required to provide to their customers a schedule of any fees that they may charge in connection with customer investments in Class T shares.
Each servicing agreement with an institution ("Service Organization") relating to the Services Plan requires that, with respect to those Funds which declare dividends on a daily basis, the Service Organization agrees to waive a portion of the servicing fee payable to it under the Services Plan to the extent necessary to ensure that the fees required to be accrued with respect to the Class T shares of such Funds on any day do not exceed the income to be accrued to such Class T shares on that day.
The Class T servicing agreements are governed by the Services Plan approved by the Board of Trustees in connection with the offering of Class T shares of each Fund. Pursuant to the Services Plan, the Board of Trustees reviews, at least quarterly, a written report of the amounts paid under the servicing agreements and the purposes for which the expenditures were made. In addition, the arrangements with Service Organizations must be approved annually by a majority of the Trustees, including a majority of the trustees who are not "interested persons" of the Funds as defined in the 1940 Act and who have no direct or indirect financial interest in such arrangements (the "Disinterested Trustees").
The Board of Trustees has approved the service agreements with Service Organizations based on information provided by the Funds' service contractors that there is a reasonable likelihood that the arrangements will benefit the Funds and their shareholders by affording the Funds greater flexibility in connection with the efficient servicing of the accounts of the beneficial owners of Class T shares of the Funds. Any material amendment to the Funds' arrangements with Service Organizations must be approved by a majority of the Board of Trustees (including a majority of the Disinterested Trustees). So long as the service agreements with Service Organizations are in effect, the selection and nomination of the members of Columbia's Board of Trustees who are not "interested persons" (as defined in the 1940 Act) of the Funds will be committed to the discretion of such Disinterested Trustees.
TAX-SHELTERED RETIREMENT PLANS (Retirement Plans). CMD offers prototype tax-qualified plans, including Pension and Profit-Sharing Plans for individuals, corporations, employees and the self-employed. The minimum initial Retirement Plan investment is $25. Columbia Trust Company (CTC) is the Custodian/Trustee and Plan Sponsor of the Columbia Advisor prototype plans offered through CMD. In general, a $20 annual fee is charged. Detailed information concerning these Retirement Plans and copies of the Retirement Plans are available from CMD.
Participants in Retirement Plans not sponsored by CTC, not including Individual Retirement Accounts (IRAs), may be subject to an annual fee of $20 unless the Retirement Plan maintains an omnibus account with CMS. Participants in CTC sponsored prototype plans (other than IRAs) who liquidate the total value of their account may also be charged a $20 close-out processing fee payable to CMS. The close out fee applies to plans opened after September 1, 1996. The fee is in addition to any applicable CDSC. The fee will not apply if the participant uses the proceeds to open a Columbia Advisor IRA Rollover account in any Fund distributed by CMD, or if the Retirement Plan maintains an omnibus account.
Consultation with a competent financial advisor regarding these Retirement Plans and consideration of the suitability of Fund shares as an investment under the Employee Retirement Income Security Act of 1974 or otherwise is recommended.
TELEPHONE ADDRESS CHANGE SERVICES. By calling CMS, shareholders or their FSF of record may change an address on a recorded telephone line. Confirmations of address change will be sent to both the old and the new addresses. Telephone redemption privileges by check are suspended for 30 days after an address change is effected. Please have your account and taxpayer identification numbers available when calling.
CASH CONNECTION. Dividends and any other distributions, including Systematic Withdrawal Plan (SWP) payments, may be automatically deposited to a shareholder's bank account via electronic funds transfer. Shareholders wishing to avail themselves of this electronic transfer procedure should complete the appropriate sections of the Application.
AUTOMATIC DIVIDEND DIVERSIFICATION. The automatic dividend diversification reinvestment program (ADD) generally allows shareholders to have all distributions from a Fund automatically invested in the same class of shares of another Fund. An ADD account must be in the same name as the shareholder's existing open account with the particular Fund. Call CMS for more information at 1-800-345-6611.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
RIGHTS OF ACCUMULATION (Columbia Class A and Class T shares, Nations Class A shares and Galaxy Retail A shares only) Class T shares can only be purchased by the shareholders of Columbia Newport Tiger Fund (formerly named Liberty Newport Tiger Fund) who already own Class T shares. Reduced sales charges on Class A and T shares can be effected by combining a current purchase of Class A or Class T shares with prior purchases of other funds and classes distributed by CMD. The applicable sales charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on the previous day of all shares of funds for which CMD serves as distributor for funds held by the shareholder.
CMD must be promptly notified of each purchase with respect to which a shareholder is entitled to a reduced sales charge. Such reduced sales charge will be applied upon confirmation of the shareholder's holdings by CMS. A Fund may terminate or amend this Right of Accumulation.
STATEMENT OF INTENT (Class A, Class E and Class T shares only). Any person may qualify for reduced sales charges on purchases of Class A, E and T shares made within a thirteen-month period pursuant to a Statement of Intent ("Statement"). A shareholder may include, as an accumulation credit toward the completion of such Statement, the value of all fund shares held by the shareholder on the date of the Statement in Funds (except shares of any money market fund, unless such shares were acquired by exchange from Class A shares of another non-money market fund)). The value is determined at the public offering price on the date of the Statement. Purchases made through reinvestment of distributions do not count toward satisfaction of the Statement.
During the term of a Statement, CMS will hold shares in escrow to secure payment of the higher sales charge applicable to Class A, E or T shares actually purchased. Dividends and capital gains will be paid on all escrowed shares and these shares will be released when the amount indicated has been purchased. A Statement does not obligate the investor to buy or a Fund to sell the amount of the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which would qualify for a further quantity discount, a retroactive price adjustment will be made at the time of expiration of the Statement (provided the FSF returns to CMD the excess commission previously paid during the thirteen-month period). The resulting difference in offering price will purchase additional shares for the shareholder's account at the applicable offering price.
If the amount of the Statement is not purchased, the shareholder shall remit to CMD an amount equal to the difference between the sales charge paid and the sales charge that should have been paid. If the shareholder fails within twenty days after a written request to pay such difference in sales charge, CMS will redeem escrowed Class A, E or T shares with a value equal to such difference. The additional FSF commission will be remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available from your FSF, or from CMS at 1-800-345-6611.
NET ASSET VALUE ELIGIBILITY GUIDELINES (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, LLC IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS).
1. Employees, brokers and various relationships that are allowed to buy at NAV. Class A shares of certain Funds may be sold at NAV to the following individuals, whether currently employed or retired: Employees of Bank of America Corporation (and its predecessors), its affiliates and subsidiaries; Trustees of funds advised or administered by the Advisor; directors, officers and employees of the Advisor, CMD, or its successors and companies affiliated with the Advisor; Registered representatives and employees of FSFs (including their affiliates) that are parties to dealer agreements or other sales arrangements with CMD; Nations Funds' Trustees, Directors and employees of its investment sub-advisers; Broker/Dealers if purchases are in accordance with the internal policies and procedures of the employing broker/dealer and made for their own investment purposes; employees or partners of any contractual service provider to the funds
NAV eligibility for Class A purchase also applies to the families of the
parties listed above and their beneficial accounts. Family members include:
spouse, parent, stepparent, legal guardian, child, stepchild, father-in-law
and mother-in-law.
Individuals receiving a distribution from a Bank of America trust, fiduciary, custodial or other similar account may use the proceeds of that distribution to buy Class A shares without paying a front-end sales charge, as long as the proceeds are invested in the funds within 90 days of the date of distribution.
Registered broker/dealer firms that have entered into a Nations Funds dealer agreement with BACAP Distributors, LLC may buy Class A shares without paying a front-end sales charge for their investment account only.
Banks, trust companies and thrift institutions, acting as fiduciaries.
2. Grandfathered investors. Any shareholder who owned shares of any fund of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000 (when all of the then outstanding shares of Columbia Acorn Trust were re-designated Class Z shares) and who since that time has remained a shareholder of any Fund, may purchase Class A shares of any Fund at NAV in those cases where a Columbia Fund Class Z share is not available.
Shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at NAV will continue to be eligible for NAV purchases into those Nations Fund accounts opened through August 19, 2005.
Galaxy Fund shareholders prior to December 1, 1995; and shareholders who
(i) purchased Galaxy Fund Prime A shares at NAV and received Class A shares
in exchange for those shares during the Galaxy/Liberty Fund reorganization;
and (ii) continue to maintain the account in which the Prime A shares were
originally purchased.
(For Class T shares only) Shareholders who (i) purchased Galaxy Fund Retail A shares at net asset value and received Class T shares in exchange for those shares during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Retail A shares were originally purchased; and Boston 1784 Fund shareholders on the date that those funds were reorganized into Galaxy Funds.
3. Reinstatement. Subject to the fund policy on trading of fund shares, an investor who has redeemed class A, B, C, D, G or T shares may, upon request, reinstate within 1 year a portion or all of the proceeds of such sales in shares of class A of any fund at the NAV next determined after CMS received a written reinstatement request and payment.
4. Retirement Plans. Class A, Class E and Class T shares (Class T shares are not currently open to new investors) of certain funds may also be purchased at reduced or no sales charge by clients of dealers, brokers or registered investment advisors that have entered into arrangements with CMD pursuant to which the funds are included as investments options in wrap fee accounts, other managed agency/asset allocation accounts or programs involving fee-based compensation arrangements, and by participants in certain retirement plans.
5. Non-U.S. Investors. Certain pension, profit-sharing or other employee benefit plans offered to non-US investors may be eligible to purchase Class A shares with no sales charge.
6. Reorganizations. At the Fund's discretion, NAV eligibility may apply to shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which the fund is a party.
7. Rights of Accumulation (ROA). The value of eligible accounts, regardless of class, maintained by you and you and your immediate family may be combined with the value of your current purchase to reach a sales discount level and to obtain the lower sales charge for your current purchase.
8. Letters of Intent (LOI). You may pay a lower sales charge when purchasing class A shares by signing a letter of intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the LOI within 13 months. If your LOI purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES (CDSCS) (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, LLC IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS) (Class A, B, C, D, E, matured F, G and T shares) CDSCs may be waived on redemptions in the following situations with the proper documentation:
1. Death. CDSCs may be waived on redemptions following the death of (i) the sole shareholder on an individual account, (ii) a joint tenant where the surviving joint tenant is the deceased's spouse, or (iii) the beneficiary of a Uniform Gifts to Minors Act (UGMA), Uniform Transfers to Minors Act (UTMA) or other custodial account. If, upon the occurrence of one of the foregoing, the account is transferred to an account registered in the name of the deceased's estate, the CDSC will be waived on any redemption from the estate account If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions occurring pursuant to a monthly, quarterly or semi-annual SWP established with CMS, to the extent the redemptions do not exceed, on an annual basis, 12% of the account's value at the time that the SWP is established. Otherwise, CDSCs will be charged on SWP redemptions until this requirement is met. For redemptions in excess of 12% of the account's value at the time that the SWP is established, a CDSC will be charged on the SWP redemption. The 12% limit does not apply if the SWP is set up at the time the account is established, and distributions are being reinvested. See below under "How to Sell Shares - Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions occurring after the sole shareholder on an individual account or a joint tenant on a spousal joint tenant account becomes disabled (as defined in Section 72(m)(7) of the Internal Revenue Code). To be eligible for such waiver, (i) the disability must arise AFTER the purchase of shares (ii) the disabled shareholder must have been under age 65 at the time of the initial determination of disability, and (iii) a letter from a physician must be signed under penalty of perjury stating the nature of the disability. If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring upon
dissolution of a revocable living or grantor trust following the death of
the sole trustee where (i) the grantor of the trust is the sole trustee and
the sole life beneficiary, (ii) death occurs following the purchase AND
(iii) the trust document provides for dissolution of the trust upon the
trustee's death. If the account is transferred to a new registration
(including that of a successor trustee), the applicable CDSC will be
charged upon any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions required to return excess contributions made to retirement plans or individual retirement accounts, so long as the FSF agrees to return the applicable portion of any commission paid by CMD.
6. Qualified Retirement Plans. CDSCs may be waived on CMD shares sold by employee benefit plans created according to Section 403(b) of the tax code and sponsored by a non-profit organization qualified under Section 501(c)(3) of the tax code. To qualify for the waiver, the plan must be a participant in an alliance program that has signed an agreement with Columbia Funds or CMD.
7. Trust Share Taxes. CDSCs will be waived on redemptions of Class E and F
shares (i) where the proceeds are used to directly pay trust taxes, and
(ii) where the proceeds are used to pay beneficiaries for the payment of
trust taxes.
8. Return of Commission. CDSCs may be waived on shares sold by intermediaries that are part of the Columbia Funds selling group where the intermediary has entered into an agreement with Columbia Funds not to receive (or to return if received) all or any applicable portion of an upfront commission.
9. Non-U.S. Investors. CDSCs may be waived on shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors.
10. IRS Section 401 and 457. CDSCs may be waived on shares sold by certain
pension, profit-sharing or other employee benefit plans established under
Section 401 or 457 of the tax code.
11. Medical Payments. CDSCs may be waived on shares redeemed for medical payments that exceed 7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least twelve weeks.
12. Plans of Reorganization. At the Funds' discretion, CDSCs may be waived for shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which a fund is a party.
13. Charitable Giving Program. CDSCs may be waived on the sale of Class C or Class D shares sold by a non-profit organization qualified under Section 501(c)(3) of the tax code in connection with the Banc of America Capital Management Charitable Giving Program.
14. The CDSC also may be waived where the FSF agrees to return all or an agreed upon portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may be sold on any day the Exchange is open, either directly to the Fund or through the shareholder's FSF. Sale proceeds generally are sent within seven days (usually on the next business day after your request is received in good form). However, for shares recently purchased by check, the Fund may delay selling or delay sending proceeds from your shares for up to 15 days in order to protect the Fund against financial losses and dilution in net asset value caused by dishonored purchase payment checks.
To sell shares directly to the Fund, send a signed letter of instruction to CMS, along with any certificates for shares to be sold. The sale price is the net asset value (less any applicable contingent deferred sales charge) next calculated after the Fund receives the request in proper form. Signatures must be guaranteed by a bank, a member firm of a national stock exchange or another eligible guarantor that participates in the Medallion Signature Guarantee Program. Stock power forms are available from FSFs, CMS and many banks. Additional documentation may be required for sales by corporations, agents, fiduciaries, surviving joint owners, individual retirement account holders and other legal entities. Call CMS for more information 1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued to receive that day's price, FSF's are responsible for furnishing all necessary documentation to CMS and may charge for this service.
SYSTEMATIC WITHDRAWAL PLAN. The shareholder may establish a SWP. A specified dollar amount, share amount or percentage of the then current net asset value of the shareholder's investment in any Fund designated by the shareholder will be paid monthly, quarterly or semi-annually to a designated payee. The amount or percentage the shareholder specifies is run against available shares and generally may not, on an annualized basis, exceed 12% of the value, as of the time the shareholder makes the election, of the shareholder's investment. Withdrawals of shares of the Fund under a SWP will be treated as redemptions of shares purchased through the reinvestment of Fund distributions, or, to the extent such shares in the shareholder's account are insufficient to cover Plan payments, as redemptions from the earliest purchased shares of such Fund in the shareholder's account. No CDSCs apply to a redemption pursuant to a SWP of 12% or less, even if, after giving effect to the redemption, the shareholder's account balance is less than the shareholder's base amount. Qualified plan participants who are required by Internal Revenue Service regulation to withdraw more than 12%, on an annual basis, of the value of their share account may do so but may be subject to a CDSC ranging from 1% to 5% of the amount withdrawn in excess of 12% annually. If a shareholder wishes to participate in a SWP, the shareholder must elect to have all of the shareholder's income dividends and other Fund distributions payable in shares of the Fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by telephone on a recorded line. However, SWP checks will be payable only to the shareholder and sent to the address of record. SWPs from retirement accounts cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in certificate form. Purchasing additional shares (other than through dividend and distribution reinvestment) while receiving SWP payments is ordinarily disadvantageous because of sales charges. For this reason, a shareholder may not maintain a plan for the accumulation of shares of the Fund (other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or loss for tax purposes, may involve the use of principal and may eventually use up all of the shares in a shareholder's account.
A Fund may terminate a shareholder's SWP if the shareholder's account balance falls below $5,000 due to any transfer or liquidation of shares other than pursuant to the SWP. SWP payments will be terminated on receiving satisfactory evidence of the death or incapacity of a shareholder. Until this evidence is received, CMS will not be liable for any payment made in accordance with the provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate in them is borne by the Fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not be able to participate in a SWP. If a shareholder's Fund shares are held in "street name," the shareholder should consult his or her FSF to determine whether he or she may participate in a SWP. The SWP on accounts held in "street name" must be made payable to the back office via the National Securities Clearing Corporation (NSCC).
TELEPHONE REDEMPTIONS. All Fund shareholders and/or their FSFs are automatically
eligible to redeem up to $100,000 of the Fund's shares by calling 1-800-422-3737
toll-free any business day between 9:00 a.m. and the close of trading of the
Exchange (normally 4:00 p.m. Eastern time). Transactions received after 4:00
p.m. Eastern time will receive the next business day's closing price. Telephone
redemptions by check and ACH are limited to a total of $100,000 in a 30-day
period. Redemptions that exceed $100,000 may be accomplished by placing a wire
order trade through a broker, to a pre-existing bank account or furnishing a
signature guaranteed request. Signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another eligible guarantor that
participates in the Medallion Signature Guarantee Program. CMS will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. Telephone redemptions are not available on accounts with an address
change in the preceding 30 days and proceeds and confirmations will only be
mailed or sent to the address of record unless the redemption proceeds are being
sent to a pre-designated bank account. Shareholders and/or their FSFs will be
required to provide their name, address account and taxpayer identification
numbers. FSFs will also be required to provide their broker number. All
telephone transactions are recorded. A loss to a shareholder may result from an
unauthorized transaction reasonably believed to have been authorized. Certain
restrictions apply to retirement plan accounts.
CHECKWRITING (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT
ADVISORS, LLC ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR OF CERTAIN FUNDS)
(Available only on the Class A and Z shares of certain Funds)
Shares may be redeemed by check if a shareholder has previously completed an Application and Signature Card. CMS will provide checks to be drawn on Mellon Trust of New England, N.A. (the "Bank"). These checks may be made payable to the order of any person in the amount of not less than $500 ($250 for money market funds) nor more than $100,000. The shareholder will continue to earn dividends on shares until a check is presented to the Bank for payment. At such time a sufficient number of full and fractional shares will be redeemed at the next determined net asset value to cover the amount of the check. Certificate shares may not be redeemed in this manner.
Shareholders utilizing checkwriting drafts will be subject to the Bank's rules governing checking accounts. There is currently no charge to the shareholder for the use of checks., However, you may incur customary fees for services such as a stop payment request or a request for copies of a check. The shareholder should make sure that there are sufficient shares in his or her open account to cover the amount of any check drawn since the net asset value of shares will fluctuate. If insufficient shares are in the shareholder's open account, the check will be returned marked "insufficient funds" and no shares will be redeemed; the shareholder will be charged a $15 service fee for each check returned. It is not possible to determine in advance the total value of an open account because prior redemptions and possible changes in net asset value may cause the value of an open account to change. Accordingly, a check redemption should not be used to close an open account. In addition, a check redemption, like any other redemption, may give rise to taxable capital gains.
NON-CASH REDEMPTIONS. For redemptions of any single shareholder within any 90-day period exceeding the lesser of $250,000 or 1% of a Fund's net asset value, a Fund may make the payment or a portion of the payment with portfolio securities held by that Fund instead of cash, in which case the redeeming shareholder may incur brokerage and other costs in selling the securities received.
INFORMATION APPLICABLE TO CLASS G AND CLASS T SHARES
The primary difference between Class G and Class T shares lies in their sales charge structures and shareholder servicing/distribution expenses. Investments in Class T shares of the Funds are subject to a front-end sales charge. Investments in Class G shares of the Funds are subject to a back-end sales charge. This back-end sales charge declines over time and is known as a "contingent deferred sales charge." An investor should understand that the purpose and function of the sales charge structures and shareholder servicing/distribution arrangements for both Class G and Class T shares are the same. Class T shares of a bond fund and an equity fund are currently subject to ongoing shareholder servicing fees at an annual rate of up to 0.15% and 0.30%, respectively, of the Fund's average daily net assets attributable to its Class T shares. Class G shares of a bond fund and an equity fund are currently subject to
ongoing shareholder servicing and distribution fees at an annual rate of up to 0.80% and 0.95%, respectively, of the Fund's average daily net assets attributable to its Class G shares. These ongoing fees, which are higher than those charged on Class T shares, will cause Class G shares to have a higher expense ratio and pay lower dividends than Class T shares. Class G and Class T shares may only be purchased by current shareholders of Class G and Class T, respectively.
CLASS T SHARES. The public offering price for Class T shares of the Funds is the sum of the net asset value of the Class T shares purchased plus any applicable front-end sales charge as described in the applicable Prospectus. A deferred sales charge of up to 1.00% is assessed on certain redemptions of Class T shares that are purchased with no initial sales charge as part of an investment of $1,000,000 to $25,000,000. A portion of the front-end sales charge may be reallowed to broker-dealers as follows:
REALLOWANCE TO
REALLOWANCE TO DEALERS DEALERS AS A % OF
AS A % OF OFFERING PRICE OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE-BOND FUNDS PER SHARE - EQUITY FUNDS
--------------------- ------------------------ ------------------------
Less than $50,000 4.25 5.00
$50,000 but less than $100,000 3.75 3.75
$100,000 but less than $250,000 2.75 2.75
$250,000 but less than $500,000 2.00 2.00
$500,000 but less than $1,000,000 1.75 1.75
$1,000,000 and over 0.00 0.00
|
The appropriate reallowance to dealers will be paid by CMD to broker-dealer organizations which have entered into agreements with CMD. The reallowance to dealers may be changed from time to time.
Certain affiliates of the Advisor may, at their own expense, provide additional compensation to broker-dealer affiliates of Columbia and to unaffiliated broker-dealers whose customers purchase significant amounts of Class T shares of the Funds. Such compensation will not represent an additional expense to the Funds or their shareholders, since it will be paid from the assets of Bank of America Corporation's affiliates.
INFORMATION APPLICABLE TO CERTAIN CLASS G SHARES RECEIVED BY FORMER GALAXY FUND RETAIL B SHAREHOLDERS IN CONNECTION WITH THE GALAXY/LIBERTY REORGANIZATION. The following table describes the CDSC schedule applicable to Class G shares received by former Galaxy Fund Retail B shareholders in exchange for Retail B Shares purchased prior to January 1, 2001:
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.00
Through second year 4.00
Through third year 3.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Longer than six years None
|
Class G shares received in exchange for Galaxy Fund Retail B Shares that were purchased prior to January 1, 2001 will automatically convert to Class T shares seven years after purchase. For purposes of calculating the CDSC, all purchases are considered to be made on the first day of the month in which each purchase was made.
The following table describes the CDSC schedule applicable to Class G shareholders whose Galaxy Asset Allocation Fund and/or International Equity Fund Retail B Shares were acquired in connection with the reorganization of the Pillar Funds:
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.50
Through second year 5.00
Through third year 4.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Through the seventh year None
Longer than seven years None
|
If you acquired Retail B Shares in connection with the reorganization of the Pillar Funds, your Class G shares will automatically convert to Class T shares eight years after you purchased the Pillar Fund Class B shares you held prior to the reorganization. For purposes of calculating the CDSC, all purchases are considered to be made on the first day of the month in which each purchase was made.
CLASS G SHARES PURCHASED AFTER THE GALAXY/LIBERTY REORGANIZATION. The public offering price for Class G shares of the Funds is the net asset value of the Class G shares purchased. Although investors pay no front-end sales charge on purchases of Class G shares, such shares are subject to a contingent deferred sales charge at the rates set forth in the applicable Prospectus if they are redeemed within seven years of purchase. Securities dealers, brokers, financial institutions and other industry professionals will receive commissions from CMD in connection with sales of Class G shares. These commissions may be different than the reallowances or placement fees paid to dealers in connection with sales of Class T shares. Certain affiliates of Columbia may, at their own expense, provide additional compensation to broker-dealer affiliates of Columbia and to unaffiliated broker-dealers, whose customers purchase significant amounts of Class G shares of a Fund. See "Class T Shares." The contingent deferred sales charge on Class G shares is based on the lesser of the net asset value of the shares on the redemption date or the original cost of the shares being redeemed. As a result, no sales charge is imposed on any increase in the principal value of an investor's Class G shares. In addition, a contingent deferred sales charge will not be assessed on Class G shares purchased through reinvestment of dividends or capital gains distributions.
The proceeds from the contingent deferred sales charge that an investor may pay upon redemption go to CMD, which may use such amounts to defray the expenses associated with the distribution-related services involved in selling Class G shares. Class G shares of a Fund will convert automatically to Class T shares eight years after purchase. The purpose of the conversion is to relieve a holder of Class G shares of the higher ongoing expenses charged to those shares, after enough time has passed to allow CMD to recover approximately the amount it would have received if the applicable front-end sales charge had been charged. The conversion from Class G shares to Class T shares takes place at net asset value, as a result of which an investor receives dollar-for-dollar the same value of Class T shares as he or she had of Class G shares. The conversion occurs eight years after the beginning of the calendar month in which the shares are purchased. Upon conversion, the converted shares will be relieved of the distribution and shareholder servicing fees borne by Class G shares, although they will be subject to the shareholder servicing fees borne by Class T shares.
Class G shares acquired through a reinvestment of dividends or distributions are also converted at the earlier of two dates - (i) eight years after the beginning of the calendar month in which the reinvestment occurred or (ii) the date of conversion of the most recently purchased Class G shares that were not acquired through reinvestment of dividends or distributions. For example, if an investor makes a one-time purchase of Class G shares of a Fund, and subsequently acquires additional Class G shares of the Fund only through reinvestment of dividends and/or distributions, all of such investor's Class G shares in the Fund, including those acquired through reinvestment, will convert to Class T shares of the Fund on the same date.
INFORMATION APPLICABLE TO CERTAIN CLASS B SHAREHOLDERS
Except for the following, Class B Share Contingent Deferred Sales Charges ("CDSCs") and conversion schedules are described in the Prospectuses.
The following table describes the CDSC schedule applicable to Class B shares received by Galaxy Quality Plus Bond Fund shareholders in exchange for Prime B Shares in connection with the Galaxy/Liberty reorganization.
SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.00
|
Through second year 4.00 Through third year 3.00 Through fourth year 3.00 Through fifth year 2.00 Through sixth year 1.00 Longer than six years 0.00 |
Automatic conversion to Class A shares occurs eight years after purchase.
The Class B share discount program for purchases of $250,000 or more is not applicable to Class B shares received by Galaxy Fund Prime B shareholders in connection with the reorganization of the Galaxy Fund.
INFORMATION APPLICABLE TO CERTAIN CLASS A SHAREHOLDERS:
Except as set forth in the following paragraph, Class A share CDSCs are described in the Prospectuses:
Class A shares received by former Galaxy High Quality Bond Fund shareholders in exchange for Prime A Shares in connection with the Galaxy/Liberty reorganization of that Fund are subject to a 1% CDSC upon redemption of such Class A shares if the Prime A Shares were purchased without an initial sales charge in accounts aggregating $1 million or more at the time of purchase and the Class A shares are sold within 12 months of the time of purchase of the Prime A Shares. The 12-month holding period begins on the first day of the month in which each purchase was made.
DISTRIBUTIONS
Distributions are invested in additional shares of the same Class of the Fund at net asset value unless the shareholder elects to receive cash. Regardless of the shareholder's election, distributions of $10 or less will not be paid in cash, but will be invested in additional shares of the same class of the Fund at net asset value. Undelivered distribution checks returned by the post office will be reinvested in your account. If a shareholder has elected to receive dividends and/or capital gain distributions in cash and the postal or other delivery service selected by the Transfer Agent is unable to deliver checks to the shareholder's address of record, such shareholder's distribution option will automatically be converted to having all dividend and other distributions reinvested in additional shares. No interest will accrue on amounts represented by uncashed distribution or redemption checks. Shareholders may reinvest all or a portion of a recent cash distribution without a sales charge. No charge is currently made for reinvestment.
Shares of some Funds that pay daily dividends ("include Funds") will normally earn dividends starting with the date the Fund receives payment for the shares and will continue through the day before the shares are redeemed, transferred or exchanged. Shares of some Funds that pay daily dividends ("exclude Funds") will be earned starting with the day after that Fund receives payments for the shares. To determine whether a particular Fund is an include or exclude fund, customers can call 1-800-345-6611.
HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for the same class of shares of the other continuously offered funds (with certain exceptions) on the basis of the NAVs per share at the time of exchange. Class T and Z shares may be exchanged for Class A shares of certain other funds. The prospectus of each Fund describes its investment goal and policies, and shareholders should obtain a prospectus and consider these goals and policies carefully before requesting an exchange Consult CMS before requesting an exchange.
If you acquire Class A shares of an international fund by exchange from any other fund, you will not be permitted to exchange those shares into another fund for 30 calendar days, although you may redeem those shares at any time. An exchange order received prior to the expiration of the 30-day period will not be honored.
By calling CMS, shareholders or their FSF of record may exchange among accounts with identical registrations, provided that the shares are held on deposit. During periods of unusual market changes or shareholder activity, shareholders may experience delays in contacting CMS by telephone to exercise the telephone exchange privilege. Because an exchange involves a redemption and reinvestment in another fund, completion of an exchange may be delayed under unusual circumstances, such as if the Fund suspends repurchases or postpones payment for the Fund shares being exchanged in accordance with federal securities law. CMS will also make exchanges upon receipt of a written exchange request and share certificates, if any. If the shareholder is a corporation, partnership, agent, or surviving joint owner, CMS may require customary additional documentation. Prospectuses of the other Funds are available from the CMD Literature Department by calling 1-800-426-3750.
A loss to a shareholder may result from an unauthorized transaction reasonably believed to have been authorized. No shareholder is obligated to use the telephone to execute transactions.
Consult your FSF or CMS. In all cases, the shares to be exchanged must be registered on the records of the Fund in the name of the shareholder desiring to exchange.
Shareholders of the other open-end funds generally may exchange their shares at NAV for the same class of shares of the Fund. Sales charges may apply for exchanges from money market funds.
An exchange is generally a capital sale transaction for federal income tax purposes. The exchange privilege may be revised, suspended or terminated at any time.
SUSPENSION OF REDEMPTIONS
A Fund may not suspend shareholders' right of redemption or postpone payment for more than seven days unless the Exchange is closed for other than customary weekends or holidays, or if permitted by the rules of the SEC during periods when trading on the Exchange is restricted or during any emergency which makes it impracticable for the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by order of the SEC for the protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Declaration disclaims shareholder liability for acts or obligations of the Fund and the Trust and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by the Fund or the Trust's Trustees. The Declaration provides for indemnification out of Fund property for all loss and expense of any shareholder held personally liable for the obligations of the Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances (which are considered remote) in which the Fund would be unable to meet its obligations and the disclaimer was inoperative.
The risk of a particular fund incurring financial loss on account of another fund of the Trust is also believed to be remote, because it would be limited to circumstances in which the disclaimer was inoperative and the other fund was unable to meet its obligations.
SHAREHOLDER MEETINGS
The Trust is not required to hold annual shareholder meetings, but special meetings may be called for certain purposes. The Trust has voluntarily undertaken to hold a shareholder meeting at which the Board of Trustees would be elected at least every five years beginning in 2005. Each whole share (or fractional share) outstanding on the record date established in accordance with the Trust's By-Laws shall be entitled to a number of votes on any matter on which it is entitled to vote equal to the net asset value of the shares (or fractional share) in United States dollars determined at the close of business on the record date (for example, a share having a net asset value of $10.50 would be entitled to 10.5 votes).
The Trustees may fill any vacancies in the Board of Trustees except that the Trustees may not fill a vacancy if, immediately after filling such vacancy, less than two-thirds of the Trustees then in office would have been elected to such office by the shareholders. In addition, at such times as less than a majority of the Trustees then in office have been elected to such office by the shareholders, the Trustees must call a meeting of shareholders. Trustees may be removed from office by a written consent signed by a majority of the outstanding shares of the Trust or by a vote of the holders of a majority of the outstanding shares at a meeting duly called for the purpose. Except as otherwise disclosed in the Prospectus and this SAI, the Trustees shall continue to hold office and may appoint their successors.
At any shareholders' meetings that may be held, shareholders of all series would vote together, irrespective of series, on the election of Trustees, but each series would vote separately from the others on other matters, such as changes in the investment policies of that series or the approval of the management agreement for that series. Shares of each Fund and any other series of the Trust that may be in existence from time to time generally vote together except when required by law to vote separately by fund or by class.
APPENDIX I
DESCRIPTION OF BOND
RATINGS STANDARD & POOR'S (S&P)
The following descriptions are applicable to municipal bond funds:
AAA bonds have the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.
AA bonds have a very strong capacity to pay interest and repay principal, and they differ from AAA only in small degree.
A bonds have a strong capacity to pay interest and repay principal, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.
BBB bonds are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than for bonds in the A category.
BB, B, CCC, CC and C bonds are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or large exposures to adverse conditions.
BB bonds have less near-term vulnerability to default than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating.
B bonds have a greater vulnerability to default but currently have the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating.
CCC bonds have a currently identifiable vulnerability to default, and are dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, the bonds are not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating.
CC rating typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating.
C rating typically is applied to debt subordinated to senior debt which assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued.
CI rating is reserved for income bonds on which no interest is being paid.
D bonds are in payment default. The D rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized.
Plus(+) or minus(-) ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
PROVISIONAL RATINGS. The letter "p" indicates that the rating is provisional. A provisional rating assumes the successful completion of the project being financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely completion of the project. This rating, however, although addressing credit quality subsequent to completion of the project, makes no comments on the likelihood of, or the risk of default upon failure of, such completion. The investor should exercise his own judgment with respect to such likelihood and risk.
MUNICIPAL NOTES:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating. Notes maturing beyond three years normally receive a bond rating, although the following criteria are used in making that assessment:
Amortization schedule (the larger the final maturity relative to other maturities, the more likely the issue will be rated as a note).
Source of payment (the more dependent the issue is on the market for its refinancing, the more likely it will be rated as a note).
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a demand feature. The first rating addresses the likelihood of repayment of principal and interest as due, and the second rating addresses only the demand feature. The long-term debt rating symbols are used for bonds to denote the long-term maturity, and the commercial paper rating symbols are usually used to denote the put (demand) option (for example, AAA/A-1+). Normally, demand notes receive note rating symbols combined with commercial paper symbols (for example, SP-1+/A-1+).
COMMERCIAL PAPER:
A. Issues assigned this highest rating are regarded as having the greatest capacity for timely payment. Issues in this category are further refined with the designations 1, 2, and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are designed A-1+.
CORPORATE BONDS:
The description of the applicable rating symbols and their meanings is substantially the same as the Municipal Bond ratings set forth above.
The following descriptions are applicable to equity and taxable bond funds:
AAA bonds have the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.
AA bonds differ from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.
A bonds are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.
BBB bonds exhibit adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
BB, B, CCC and CC bonds are regarded, as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB bonds are less vulnerable to non-payment than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
B bonds are more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.
CCC bonds are currently vulnerable to nonpayment, and are dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC bonds are currently highly vulnerable to nonpayment.
C ratings may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on the obligation are being continued.
D bonds are in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
Plus(+) or minus(-): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
R This symbol is attached to the rating of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk, such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
AAA bonds are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge". Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While various protective elements are likely to change, such changes as can be visualized are most unlikely to impair a fundamentally strong position of such issues.
AA bonds are judged to be of high quality by all standards. Together with Aaa bonds they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.
Those bonds in the Aa through B groups that Moody's believes possess the strongest investment attributes are designated by the symbol Aa1, A1 and Baa1.
A bonds possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment sometime in the future.
BAA bonds are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact, have speculative characteristics as well.
BA bonds are judged to have speculative elements: their future cannot be considered as well secured. Often, the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B bonds generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
CAA bonds are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca bonds represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C bonds are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
CONDITIONAL RATINGS. Bonds for which the security depends upon the completion of some act or the fulfillment of some condition are rated conditionally. These are bonds secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in operating experience, (c) rentals which begin when facilities are completed, or (d) payments to which some other limiting conditions attach. Parenthetical rating denotes probable credit stature upon completion of construction or elimination of basis of condition.
MUNICIPAL NOTES:
MIG 1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are accounted for, but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
Moody's may assign a separate rating to the demand feature of a variable rate demand security. Such a rating may include:
VMIG 1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are accounted for, but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
COMMERCIAL PAPER:
Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper obligations are supported by the credit of another entity or entities, Moody's, in assigning ratings to such issuers, evaluates the financial strength of the indicated affiliated corporations, commercial banks, insurance companies, foreign governments, or other entities, but only as one factor in the total rating assessment.
CORPORATE BONDS:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings is identical to that of the Municipal Bond ratings as set forth above, except for the numerical modifiers. Moody's applies numerical modifiers 1,2, and 3 in the Aa and A classifications of its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a midrange ranking; and the modifier 3 indicates that the issuer ranks in the lower end of its generic rating category.
FITCH INC.
INVESTMENT GRADE BOND RATINGS
AAA bonds are considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and/or dividends and repay principal, which is unlikely to be affected by reasonably foreseeable events.
AA bonds are considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated 'AAA'. Because bonds rated in the 'AAA' and 'AA' categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated 'F-1+'.
A bonds are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than debt securities with higher ratings.
BBB bonds are considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest or dividends and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these securities and, therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for securities with higher ratings.
CONDITIONAL
A conditional rating is premised on the successful completion of a project or the occurrence of a specific event.
SPECULATIVE-GRADE BOND RATINGS
BB bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified, which could assist the obligor in satisfying its debt service requirements.
B bonds are considered highly speculative. While securities in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue.
CCC bonds have certain identifiable characteristics that, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment.
CC bonds are minimally protected. Default in payment of interest and/or principal seems probable over time.
C bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D bonds are in default on interest and/or principal payments. Such securities are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. 'DDD' represents the highest potential for recovery on these securities, and 'D' represents the lowest potential for recovery.
APPENDIX II
COLUMBIA MANAGEMENT ADVISORS, LLC ("CMA")
PROXY VOTING POLICIES AND PROCEDURES
ADOPTED JULY 1, 2003 AND REVISED MARCH 4, 2005
POLICY:
ALL PROXIES(1) REGARDING CLIENT SECURITIES FOR WHICH COLUMBIA MANAGEMENT ADVISORS, LLC ("CMA") HAS ASSUMED AUTHORITY TO VOTE SHALL, UNLESS CMA DETERMINES IN ACCORDANCE WITH POLICIES STATED BELOW TO ABSTAIN FROM VOTING, BE VOTED IN A MANNER CONSIDERED BY CMA TO BE IN THE BEST INTEREST OF CMA'S CLIENTS, INCLUDING THE CMG FAMILY FUNDS(2) AND THEIR SHAREHOLDERS, WITHOUT REGARD TO ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES. THE BEST INTEREST OF CLIENTS IS DEFINED FOR THIS PURPOSE AS THE INTEREST OF ENHANCING OR PROTECTING THE ECONOMIC VALUE OF CLIENT ACCOUNTS, CONSIDERED AS A GROUP RATHER THAN INDIVIDUALLY, AS CMA DETERMINES IN ITS SOLE AND ABSOLUTE DISCRETION. IN THE EVENT A CLIENT BELIEVES THAT ITS OTHER INTERESTS REQUIRE A DIFFERENT VOTE, CMA SHALL VOTE AS THE CLIENT CLEARLY INSTRUCTS, PROVIDED CMA RECEIVES SUCH INSTRUCTIONS IN TIME TO ACT ACCORDINGLY.
CMA ENDEAVORS TO VOTE, IN ACCORDANCE WITH THIS POLICY, ALL PROXIES OF WHICH IT BECOMES AWARE, SUBJECT TO THE FOLLOWING EXCEPTIONS (UNLESS OTHERWISE AGREED) WHEN CMA EXPECTS TO ROUTINELY ABSTAIN FROM VOTING:
1. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE THE SECURITY HAS BEEN LOANED FROM THE CLIENT'S ACCOUNT.
2. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE CMA DEEMS THE COSTS TO THE CLIENT AND/OR THE ADMINISTRATIVE INCONVENIENCE OF VOTING THE SECURITY (E.G., SOME FOREIGN SECURITIES) OUTWEIGH THE BENEFIT OF DOING SO.
CMA SEEKS TO AVOID THE OCCURRENCE OF ACTUAL OR APPARENT MATERIAL CONFLICTS OF INTEREST IN THE PROXY VOTING PROCESS BY VOTING IN ACCORDANCE WITH PREDETERMINED VOTING GUIDELINES, AS STATED BELOW. FOR THOSE PROXY PROPOSALS THAT REQUIRE SPECIAL CONSIDERATION OR IN INSTANCES WHERE SPECIAL CIRCUMSTANCES MAY REQUIRE VARYING FROM THE PREDETERMINED GUIDELINES, THE CMG PROXY COMMITTEE WILL DETERMINE THE BEST INTEREST OF CMA'S CLIENTS AND VOTE ACCORDINGLY, WITHOUT CONSIDERATION OF ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES.
OVERVIEW:
CMA's policy is based upon its fiduciary obligation to act in its clients' best interest. Citing this obligation, the SEC has adopted rules pursuant to the Investment Advisers Act of 1940 and Investment Company Act of 1940 with respect to proxy voting.
PROCEDURE:
I. ACCOUNT POLICIES
Except as otherwise directed by the client, CMA shall vote as follows:
SEPARATELY MANAGED ACCOUNTS
CMA shall vote proxies on securities held in its separately managed accounts.
COLUMBIA TRUST COMPANY (CTC) TRUST POOLS
CMA shall vote proxies on securities held in the trust pools.
CMG FAMILY FUNDS/CMA FUND TRUST
CMA shall vote proxies on securities held in the Funds, including multi-managed and subadvised Funds.
COLUMBIA PRIVATE PORTFOLIO
CMA shall vote proxies on securities held in its separately managed accounts.
ALTERNATIVE INVESTMENT GROUP
(2) A CMG Family Fund or a Fund is a registered investment company or series of a registered investment company managed or advised by Columbia Management Advisors, LLC
CMA's clients may invest in securities ("Alternative Investments") issued by alternative investment vehicles (i.e. hedge funds, private equity funds, and other alternative investment pools) that are structured as private limited partnerships ("LPs"), limited liability companies ("LLCs") or offshore corporations. Generally, CMA's Alternative Investment Group ("AIG") is the platform through which CMA provides advisory services relating to Alternative Investments.
The voting rights of Alternative Investments generally are rights of contract set forth in the limited liability company or limited partnership agreement, in the case of LLCs and LPs, or Memorandum and Articles of Association or By-laws, in the case of offshore corporations. Also, as privately placed securities, Alternative Investments generally are not subject to the regulatory scheme applicable to public companies. Consequently, in most cases, proxies are not solicited regarding Alternative Investment vehicles. Instead, consents may be solicited from members, limited partners or shareholders.
Because of the unique characteristics of Alternative Investments, CMA has a tailored process for voting Alternative Investment proxies and consents.
Process
AIG will vote all Alternative Investment proxies and consents in accordance with this Policy. The committee voting AIG proxies consists of AIG senior management, investment and operations professionals. Conflicts of interest are to be monitored and resolved as set forth in this Policy.
II. PROXY COMMITTEE
CMA shall establish a Proxy Committee whose standing members shall include the head of core equity, head of value, head of growth, head of income strategies, head of equity research and head of fixed income research. Each standing member may designate a senior portfolio manager or a senior analyst officer to act as a substitute in a given matter on their behalf.
The Proxy Committee's functions shall include, in part,
(a) direction of the vote on proposals where there has been a recommendation to the Committee, pursuant to Section IV.B, not to vote according to the predetermined Voting Guidelines stated in Section IV.A or on proposals which require special, individual consideration in accordance with Section IV.C;
(b) review at least annually of this Proxy Voting Policy and Procedure to ensure consistency with internal policies, client disclosures and regulatory requirements;
(c) review at least annually of existing Voting Guidelines and need for development of additional Voting Guidelines to assist in the review of proxy proposals; and
(d) development and modification of Voting Procedures, as stated in Section V, as it deems appropriate or necessary.
The Proxy Committee shall establish a charter, which shall set forth the Committee's purpose, membership and operation. The Committee's charter shall be consistent, in all material respects, with this policy and procedure.
III. CONFLICTS OF INTEREST
With Other Bank of America Businesses
Bank of America Corporation ("BAC"), the ultimate corporate parent of CMA, Bank of America, N.A. and all of their numerous affiliates owns, operates and has interests in many lines of business that may create or give rise to the appearance of a conflict of interest between BAC or its affiliates and those of Firm-advised clients. For example, the commercial and investment banking business lines may have interests with respect to issuers of voting securities that could appear to or even actually conflict with CMA's duty, in the proxy voting process, to act in the best economic interest of its clients.
Within CMA
Conflicts of interest may also arise from the business activities of CMA. For example, CMA might manage (or be seeking to manage) the assets of a benefit plan for an issuer. CMA may also be presented with an actual or apparent conflict of interest where proxies of securities issued by BAC or a CMG Family Fund, for which CMA serves as investment adviser, are to be voted for a client's account.
Management of Conflicts
CMA's policy is to always vote proxies in the best interest of its clients, as a whole, without regard to its own self-interest or that of its affiliates. BAC as well as CMA has various compliance policies and procedures in place in order to address any material conflicts of interest that might arise in this context.
1. BAC's enterprise-wide Code of Ethics specifically prohibits the flow of certain business-related information between associates on the commercial and/or investment banking side of the corporation and associates charged with trust or (as in the case of BACAP associates) non-trust fiduciary responsibilities, including investment decision-making and proxy voting.
2. In addition, BAC has adopted "Global Policies and Procedures Regarding Information Walls and Inside Information." Pursuant to these policies and procedures, "information barriers" have been established between various BAC business lines designed to prohibit the passage of certain information across those barriers.
3. Within CMA, CMA's Code of Ethics affirmatively requires that associates of CMA act in a manner whereby no actual or apparent conflict of interest may be seen as arising between the associate's interests and those of CMA's Clients.
4. By assuming his or her responsibilities pursuant to this Policy, each member of the Proxy Committee and any CMA or BAC associate advising or acting under the supervision or oversight of the Proxy Committee undertakes:
- To disclose to the chairperson of the Proxy Committee and the chairperson to the head of CMG Compliance any actual or apparent personal material conflicts of interest which he or she may have (e.g., by way of substantial ownership of securities, relationships with nominees for directorship, members of an issuer's or dissident's management or otherwise) in determining whether or how CMA shall vote proxies. In the event the chairperson of the Proxy Committee has a conflict of interest regarding a given matter, he or she shall abstain from participating in the Committee's determination of whether and/or how to vote in the matter; and
- To refrain from taking into consideration, in the decision as to whether or how CMA shall vote proxies:
- The existence of any current or prospective material business relationship between CMA, BAC or any of their affiliates, on one hand, and any party (or its affiliates) that is soliciting or is otherwise interested in the proxies to be voted, on the other hand; and/or
- Any direct, indirect or perceived influence or attempt to influence such action which the member or associate views as being inconsistent with the purpose or provisions of this Policy or the Code of Ethics of CMA or BAC.
Where a material conflict of interest is determined to have arisen in the proxy voting process that may not be adequately mitigated by voting in accordance with the predetermined Voting Guidelines, CMA's policy is to invoke one or more of the following conflict management procedures:
1. Convene the Proxy Committee for the purpose of voting the affected proxies in a manner that is free of the conflict.
2. Causing the proxies to be voted in accordance with the recommendations of a qualified, independent third party, which may include CMA's proxy voting agent.
3. In unusual cases, with the Client's consent and upon ample notice, forwarding the proxies to CMA's clients so that they may vote the proxies directly.
IV. VOTING GUIDELINES
A. THE PROXY COMMITTEE HAS ADOPTED THE FOLLOWING GUIDELINES FOR VOTING PROXIES:
1. Matters Relating to the Board of Directors/Corporate Governance
CMA generally will vote FOR:
- Proposals for the election of directors or for an increase or decrease in the number of directors, provided that no more than one-third of the Board of Directors would, presently or at any time during the previous three-year period, be from management.
However, CMA generally will WITHHOLD votes from pertinent director nominees if:
(i) the board as proposed to be constituted would have more than one-third of its members from management;
(ii) the board does not have audit, nominating, and compensation committees composed solely of directors who qualify as being regarded as "independent," i.e. having no material relationship, directly or indirectly, with the Company, as CMA's proxy voting agent may determine (subject to the Proxy Committee's contrary determination of independence or non-independence);
(iii) the nominee, as a member of the audit committee, permitted the company to incur excessive non-audit fees (as defined below regarding other business matters - ratification of the appointment of auditors);
(iv) a director serves on more than six public company boards;
(v) the CEO serves on more than two public company boards other than the company's board.
On a CASE-BY-CASE basis, CMA may WITHHOLD votes for a director nominee who has failed to observe good corporate governance practices or, through specific corporate action or inaction (e.g. failing to implement policies for which a majority of shareholders has previously cast votes in favor), has demonstrated a disregard for the interests of shareholders.
- Proposals requesting that the board audit, compensation and/or nominating committee be composed solely of independent directors. The Audit Committee must satisfy the independence and experience requirements established by the Securities and Exchange Commission ("SEC") and the New York Stock Exchange, or appropriate local requirements for foreign securities. At least one member of the Audit Committee must qualify as a "financial expert" in accordance with SEC rules.
- Proposals to declassify a board, absent special circumstances that would indicate that shareholder interests are better served by a classified board structure.
CMA generally will vote FOR:
- Proposals to create or eliminate positions or titles for senior management. CMA generally prefers that the role of Chairman of the Board and CEO be held by different persons unless there are compelling reasons to vote AGAINST a proposal to separate these positions, such as the existence of a counter-balancing governance structure that includes at least the following elements in addition to applicable listing standards:
- Established governance standards and guidelines.
- Full board composed of not less than two-thirds "independent" directors, as defined by applicable regulatory and listing standards.
- Compensation, as well as audit and nominating (or corporate governance) committees composed entirely of independent directors.
- A designated or rotating presiding independent director appointed by and from the independent directors with the authority and responsibility to call and preside at regularly and, as necessary, specially scheduled meetings of the independent directors to be conducted, unless the participating independent directors otherwise wish, in executive session with no members of management present.
- Disclosed processes for communicating with any individual director, the presiding independent director (or, alternatively, all of the independent directors, as a group) and the entire board of directors, as a group.
- The pertinent class of the Company's voting securities has out-performed, on a three-year basis, both an appropriate peer group and benchmark index, as indicated in the performance summary table of the Company's proxy materials. This requirement shall not apply if there has been a change in the Chairman/CEO position within the three-year period.
- Proposals that grant or restore shareholder ability to remove directors with or without cause.
- Proposals to permit shareholders to elect directors to fill board vacancies.
- Proposals that encourage directors to own a minimum amount of company stock.
- Proposals to provide or to restore shareholder appraisal rights.
- Proposals to adopt cumulative voting.
- Proposals for the company to adopt confidential voting.
CMA generally will vote AGAINST:
- Proposals to classify boards, absent special circumstances indicating that shareholder interests would be better served by a classified board structure.
- Proposals that give management the ability to alter the size of the board without shareholder approval.
- Proposals that provide directors may be removed only by supermajority vote.
- Proposals to eliminate cumulative voting.
- Proposals which allow more than one vote per share in the election of directors.
- Proposals that provide that only continuing directors may elect replacements to fill board vacancies.
- Proposals that mandate a minimum amount of company stock that directors must own.
- Proposals to limit the tenure of non-management directors.
CMA will vote on a CASE-BY-CASE basis in contested elections of directors.
CMA generally will vote on a CASE-BY-CASE basis on board approved proposals relating to corporate governance. Such proposals include, but are not limited to:
- Director and officer indemnification and liability protection. CMA is opposed to entirely eliminating directors' and officers' liability for monetary damages for violating the duty of care. CMA is also opposed to expanding coverage beyond just legal expenses to acts, such as negligence, that are more serious violations of fiduciary obligation than mere carelessness. CMA supports proposals which provide such expanded coverage in cases when a director's or officer's legal defense was unsuccessful if: (i) the director was found to have acted in good faith and in a manner that he/she reasonably believed was in the best interests of the company, AND (ii) if the director's legal expenses would be covered.
- Reimbursement of proxy solicitation expenses taking into consideration whether or not CMA was in favor of the dissidents.
- Proxy contest advance notice. CMA generally will vote FOR proposals that allow shareholders to submit proposals as close to the meeting date as possible while allowing for sufficient time for Company response, SEC review, and analysis by other shareholders.
2. Compensation
CMA generally will vote FOR management sponsored compensation plans (such as bonus plans, incentive plans, stock option plans, pension and retirement benefits, stock purchase plans or thrift plans) if they are consistent with industry and country standards. However, CMA generally is opposed to compensation plans that substantially dilute ownership interest in a company, provide participants with excessive awards, or have objectionable structural features. Specifically, for equity-based plans, if the proposed number of shares authorized for option programs (excluding authorized shares for expired options) exceeds an average of 10% of the currently outstanding shares over the previous three years or an average of 3% over the previous three years for directors only, the proposal should be referred to the Proxy Committee. The Committee will then consider the circumstances surrounding the issue and vote in the best interest of CMA's clients. CMA requires that management provide substantial justification for the repricing of options.
CMA generally will vote FOR:
- Proposals requiring that executive severance arrangements be submitted for shareholder ratification.
- Proposals asking a company to expense stock options.
- Proposals to put option repricings to a shareholder vote.
- Employee stock purchase plans that have the following features: (i) the shares purchased under the plan are acquired for no less than 85% of their market value, (ii) the offering period under the plan is 27 months or less, and (iii) dilution is 10% or less.
CMA generally will vote AGAINST:
- Stock option plans that permit issuance of options with an exercise price below the stock's current market price, or that permit replacing or repricing of out-of-the money options.
- Proposals to authorize the replacement or repricing of out-of-the money options.
CMA will vote on a CASE-BY-CASE basis proposals regarding approval of specific executive severance arrangements.
3. Capitalization
CMA generally will vote FOR:
- Proposals to increase the authorized shares for stock dividends, stock splits (and reverse stock splits) or general issuance, unless proposed as an anti-takeover measure or a general issuance proposal increases the authorization by more than 30% without a clear need presented by the company. Proposals for reverse stock splits should include an overall reduction in authorization.
For companies recognizing preemptive rights for existing shareholders, CMA generally will vote FOR general issuance proposals that increase the authorized shares by more than 30%. CMA will vote on a CASE-BY-CASE basis all such proposals by companies that do not recognize preemptive rights for existing shareholders.
- Proposals for the elimination of authorized but unissued shares or retirement of those shares purchased for sinking fund or treasury stock.
- Proposals to institute/renew open market share repurchase plans in which all shareholders may participate on equal terms.
- Proposals to reduce or change the par value of common stock, provided the number of shares is also changed in order to keep the capital unchanged.
4. Mergers, Restructurings and Other Transactions
CMA will review, on a CASE-BY-CASE basis, business transactions such as mergers, acquisitions, reorganizations, liquidations, spinoffs, buyouts and sale of all or substantially all of a company's assets.
5. Anti-Takeover Measures
CMA generally will vote AGAINST proposals intended largely to avoid acquisition prior to the occurrence of an actual event or to discourage acquisition by creating a cost constraint. With respect to the following measures, CMA generally will vote as follows:
Poison Pills
- CMA votes FOR shareholder proposals that ask a company to submit its poison pill for shareholder ratification.
- CMA generally votes FOR shareholder proposals to eliminate a poison pill.
- CMA generally votes AGAINST management proposals to ratify a poison pill.
Greenmail
- CMA will vote FOR proposals to adopt anti-greenmail charter or bylaw amendments or to otherwise restrict a company's ability to make greenmail payments.
Supermajority vote
- CMA will vote AGAINST board-approved proposals to adopt anti-takeover measures such as supermajority voting provisions, issuance of blank check preferred stock, the creation of a separate class of stock with disparate voting rights and charter amendments adopting control share acquisition provisions.
Control Share Acquisition Provisions
- CMA will vote FOR proposals to opt out of control share acquisition statutes.
6. Other Business Matters
CMA generally will vote FOR:
- Proposals to approve routine business matters such as changing the company's name and procedural matters relating to the shareholder meeting such as approving the minutes of a prior meeting.
- Proposals to ratify the appointment of auditors, unless any of the following apply in which case CMA will generally vote AGAINST the proposal:
- Credible reason exists to question:
- The auditor's independence, as determined by applicable regulatory requirements.
- The accuracy or reliability of the auditor's opinion as to the company's financial position.
- Fees paid to the auditor or its affiliates for "non-audit" services were excessive, i.e., in excess of the total fees paid for "audit," "audit-related" and "tax compliance" and/or "tax return preparation" services, as disclosed in the company's proxy materials.
- Bylaw or charter changes that are of a housekeeping nature (e.g., updates or corrections).
- Proposals to approve the annual reports and accounts provided the certifications required by the Sarbanes Oxley Act of 2002 have been provided.
CMA generally will vote AGAINST:
- Proposals to eliminate the right of shareholders to act by written consent or call special meetings.
- Proposals providing management with authority to adjourn an annual or special shareholder meeting absent compelling reasons, or to adopt, amend or repeal bylaws without shareholder approval, or to vote unmarked proxies in favor of management.
- Shareholder proposals to change the date, time or location of the company's annual meeting of shareholders.
CMA will vote AGAINST:
- Authorization to transact other unidentified substantive (as opposed to procedural) business at a meeting.
CMA will vote on a CASE-BY-CASE basis:
- Proposals to change the location of the company's state of incorporation. CMA considers whether financial benefits (e.g., reduced fees or taxes) likely to accrue to the company as a result of a reincorporation or other change of domicile outweigh any accompanying material diminution of shareholder rights.
- Proposals on whether and how to vote on "bundled" or otherwise conditioned proposals, depending on the overall economic effects upon shareholders.
CMA generally will ABSTAIN from voting on shareholder proposals predominantly involving social, socio-economic, environmental, political or other similar matters on the basis that their impact on share value can rarely be anticipated with any high degree of confidence. CMA may, on a CASE-BY-CASE basis, vote:
- FOR proposals seeking inquiry and reporting with respect to, rather than cessation or affirmative implementation of, specific policies where the pertinent issue warrants separate communication to shareholders; and
- FOR or AGAINST the latter sort of proposal in light of the relative benefits and detriments (e.g. distraction, costs, other burdens) to share value which may be expected to flow from passage of the proposal.
7. Other Matters Relating to Foreign Issues
CMA generally will vote FOR:
- Most stock (scrip) dividend proposals. CMA votes AGAINST proposals that do not allow for a cash option unless management demonstrates that the cash option is harmful to shareholder value.
- Proposals to capitalize the company's reserves for bonus issues of shares or to increase the par value of shares.
- Proposals to approve control and profit transfer agreements between a parent and its subsidiaries.
- Management proposals seeking the discharge of management and supervisory board members, unless there is concern about the past actions of the company's auditors/directors and/or legal action is being taken against the board by other shareholders.
- Management proposals concerning allocation of income and the distribution of dividends, unless the dividend payout ratio has been consistently below 30 percent without adequate explanation or the payout is excessive given the company's financial position.
- Proposals for the adoption of financing plans if they are in the best economic interests of shareholders.
8. Investment Company Matters
Election of Directors:
CMA will vote on a CASE-BY-CASE basis proposals for the election of directors, considering the following factors:
- Board structure
- Attendance at board and committee meetings.
CMA will WITHHOLD votes from directors who:
- Attend less than 75 percent of the board and committee meetings without a valid excuse for the absences. Valid reasons include illness or absence due to company business. Participation via telephone is acceptable. In addition, if the director missed only one meeting or one day's meetings, votes should not be withheld even if such absence dropped the director's attendance below 75 percent.
- Ignore a shareholder proposal that is approved by a majority of shares outstanding;
- Ignore a shareholder proposal this is approved by a majority of the votes cast for two consecutive years;
- Are interested directors and sit on the audit or nominating committee; or
- Are interested directors and the full board serves as the audit or nominating committee or the company does not have one of these committees.
Proxy Contests:
CMA will vote on a CASE-BY-CASE basis proposals for proxy contests, considering the following factors:
- Past performance relative to its peers
- Market in which fund invests
- Measures taken by the board to address the pertinent issues (e.g., closed-end fund share market value discount to NAV)
- Past shareholder activism, board activity and votes on related proposals
- Strategy of the incumbents versus the dissidents
- Independence of incumbent directors; director nominees
- Experience and skills of director nominees
- Governance profile of the company
- Evidence of management entrenchment
Converting Closed-end Fund to Open-end Fund:
CMA will vote conversion proposals on a CASE-BY-CASE basis, considering the following factors:
- Past performance as a closed-end fund
- Market in which the fund invests
- Measures taken by the board to address the discount
- Past shareholder activism, board activity, and votes on related proposals.
Investment Advisory Agreements:
CMA will vote investment advisory agreements on a CASE-BY-CASE basis, considering the following factors:
- Proposed and current fee schedules
- Fund category/investment objective
- Performance benchmarks
- Share price performance as compared with peers
- Resulting fees relative to peers
- Assignments (where the adviser undergoes a change of control)
Approving New Classes or Series of Shares:
CMA will vote FOR the establishment of new classes or series of shares.
Preferred Stock Proposals:
CMA will vote on a CASE-BY-CASE basis proposals for the authorization for or increase in the preferred shares, considering the following factors:
- Stated specific financing purpose
- Possible dilution for common shares
- Whether the shares can be used for antitakover purposes
Policies Addressed by the Investment Company Act of 1940 ("1940 Act"):
CMA will vote proposals regarding adoption or changes of policies addressed by the 1940 Act on a CASE-BY-CASE basis, considering the following factors:
- Potential competitiveness
- Regulatory developments
- Current and potential returns
- Current and potential risk
CMA generally will vote FOR these amendments as long as the proposed changes do not fundamentally alter the investment focus of the fund and do comply with current SEC interpretations.
Changing a Fundamental Restriction to a Non-fundamental Restriction:
CMA will vote on a CASE-BY-CASE basis proposals to change a fundamental restriction to a nonfundamental restriction, considering the following factors:
- Fund's target investments
- Reasons given by the fund for the change
- Projected impact of the change on the portfolio
Change Fundamental Investment Objective to Non-fundamental:
CMA will vote AGAINST proposals to change a fund's investment objective from fundamental to non-fundamental unless management acknowledges meaningful limitations upon its future requested ability to change the objective
Name Change Proposals:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's name, considering the following factors:
- Political/economic changes in the target market
- Consolidation in the target market
- Current asset composition
Change in Fund's Subclassification:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's subclassification, considering the following factors:
- Potential competitiveness
- Current and potential returns
- Risk of concentration
- Consolidation in target industry
Disposition of Assets/Termination/Liquidation:
CMA will vote on a CASE-BY-CASE basis these proposals, considering the following factors:
- Strategies employed to salvage the company
- Past performance of the fund
- Terms of the liquidation
Changes to the Charter Document:
CMA will vote on a CASE-BY-CASE basis proposals to change the charter document, considering the following factors:
- The degree of change implied by the proposal
- The efficiencies that could result
- The state of incorporation; net effect on shareholder rights
- Regulatory standards and implications
CMA will vote FOR:
- Proposals allowing the Board to impose, without shareholder approval, fees payable upon redemption of fund shares, provided imposition of such fees is likely to benefit long-term fund investors (e.g., by deterring market timing activity by other fund investors)
- Proposals enabling the Board to amend, without shareholder approval, the fund's management agreement(s) with its investment adviser(s) or sub-advisers, provided the amendment is not required by applicable law (including the Investment Company Act of 1940) or interpretations thereunder to require such approval
CMA will vote AGAINST:
- Proposals enabling the Board to:
- Change, without shareholder approval the domicile of the fund
- Adopt, without shareholder approval, material amendments of the fund's declaration of trust or other organizational document
Changing the Domicile of a Fund:
CMA will vote on a CASE-BY-CASE basis proposals to reincorporate, considering the following factors:
- Regulations of both states
- Required fundamental policies of both states
- The increased flexibility available
Authorizing the Board to Hire and Terminate Subadvisors Without Shareholder Approval:
CMA will vote FOR proposals to enable the Board or Investment Adviser to hire and terminate sub-advisers, without shareholder approval, in accordance with applicable rules or exemptive orders under the Investment Company Act of 1940
Distribution Agreements:
CMA will vote these proposals on a CASE-BY-CASE basis, considering the following factors:
- Fees charged to comparably sized funds with similar objectives
- The proposed distributor's reputation and past performance
- The competitiveness of the fund in the industry
- Terms of the agreement
Master-Feeder Structure:
CMA will vote FOR the establishment of a master-feeder structure.
Mergers:
CMA will vote merger proposals on a CASE-BY-CASE basis, considering the following factors:
- Resulting fee structure
- Performance of both funds
- Continuity of management personnel
- Changes in corporate governance and their impact on shareholder rights
Shareholder Proposals to Establish Director Ownership Requirement:
CMA will generally vote AGAINST shareholder proposals that mandate a specific minimum amount of stock that directors must own in order to qualify as a director or to remain on the board. While CMA favors stockownership on the part of directors, the company should determine the appropriate ownership requirement.
Shareholder Proposals to Reimburse Shareholder for Expenses Incurred:
CMA will vote on a CASE-BY-CASE basis proposals to reimburse proxy solicitation expenses.
Shareholder Proposals to Terminate the Investment Adviser:
CMA will vote on a CASE-BY-CASE basis proposals to terminate the investment adviser, considering the following factors:
- Performance of the fund's NAV
- The fund's history of shareholder relations
- The performance of other funds under the adviser's management
9. Alternative Investment Group ("AIG") Matters
The AIG Proxy Sub-Committee generally will vote in accordance with the guidelines set forth in this policy. With respect to matters that are not addressed by the guidelines, the AIG Proxy Sub-Committee will vote each such matter on a CASE-BY-CASE basis.
B.ABILITY TO VOTE PROXIES OTHER THAN AS PROVIDED IN A ABOVE.
A Portfolio Manager, sub-adviser or other party involved with a client's account may conclude that the best interest of the firm's client, as defined above, requires that a proxy be voted in a manner that differs from the predetermined proxy Voting Guidelines stated in Section IV.A. In this situation, he or she shall request that the Proxy Committee consider voting the proxy other than according such Guidelines. If any person, group, or entity requests the Proxy Committee (or any of its members) vote a proxy other than according to the predetermined Voting Guidelines, that person shall furnish to the Proxy Committee a written explanation of THE reasons for the request and a description of the person's, group's, or entity's relationship, if any, with the parties proposing and/or opposing the matter's adoption.
C.PROPOSALS REQUIRING SPECIAL CONSIDERATION
The following proposals require special, individual consideration. The Proxy Committee will determine how proxies related to all such proposals will be voted.
1. NEW PROPOSALS. For each new type of proposal that is expected to be proposed to shareholders of multiple companies, the Proxy Committee will develop a Voting Guideline which will be incorporated into this Policy.
2. ACCOUNTS ADHERING TO TAFT HARTLEY PRINCIPLES. All proposals for these accounts shall be voted according to the Taft Hartley Guidelines developed by Institutional Shareholder Services, Inc. ("ISS").
3. ACCOUNTS ADHERING TO SOCIALLY RESPONSIBLE PRINCIPLES. All proposals for these accounts shall be voted according to the Socially Responsible Guidelines developed by ISS or as specified by the client.
4. PROXIES OF INTERNATIONAL ISSUERS WHICH BLOCK SECURITIES SALES BETWEEN THE TIME A SHAREHOLDER SUBMITS A PROXY AND THE VOTE. Proposals for these securities shall be voted only on the specific instruction of the Proxy Committee and to the extent practicable in accordance with the Voting Guidelines set forth in this Policy.
5. PROXIES OF INVESTMENT COMPANY SHARES. Proposals on issues other than those specified in Section IV.A.
6. EXECUTIVE/DIRECTOR COMPENSATION. Except as provided in Section
IV.A, proposals relating to compensation of any executive or
director will be voted as recommended by ISS or as otherwise
directed by the Proxy Committee.
7. PREEMPTIVE RIGHTS. Proposals to create or eliminate shareholder preemptive rights. In evaluating these proposals the Proxy Committee will consider the size of the company and the nature of its shareholder base.
V. VOTING PROCEDURES
The Proxy Committee has developed the following procedures to aid the voting of proxies according to the Voting Guidelines set forth in Section IV above. The Proxy Committee may revise these procedures from time to time, as it deems necessary or appropriate to effect the purposes of this Policy.
- CMA shall use an independent, third-party vendor (currently Institutional Shareholder Services ("ISS")), to implement its proxy voting process as CMAs proxy voting agent. This retention is subject to CMA continuously assessing the vendor's independence from CMA and its affiliates, and the vendor's ability to perform its responsibilities (and, especially, its responsibility to vote client proxies in accordance with CMA's proxy voting guidelines) free of any actual, potential or apparent material conflicts of interests that may arise between the interests of the vendor, its affiliates, the vendor's other clients and the owners, officers or employees of any such firm, on the one hand, and CMA's clients, on the other hand. As means of performing this assessment, CMA will require various reports and notices from the vendor, as well as periodic audits of the vendor's voting record and other due diligence.
- ISS shall provide proxy analysis and record keeping services in addition to voting proxies on behalf of CMA in accordance with this Policy.
- On a daily basis CMA shall send to ISS a holdings file detailing each equity holding held in all accounts over which CMA has voting authority. Information regarding equity holdings for international portfolio shall be sent weekly.
- ISS shall receive proxy material information from Proxy Edge or the custodian bank for the account. This shall include issues to be voted upon, together with a breakdown of holdings for CMA accounts. ISS shall then reconcile information it receives from CMA with that it has received from Proxy Edge and custodian banks. Any discrepancies shall be promptly noted and resolved by ISS, with notice to CMA.
- Whenever a vote is solicited, ISS shall execute the vote according to CMA's Voting Guidelines previously delivered by CMA to ISS as set forth in Section IV.A.
- If ISS is not sure how to vote a particular proxy, then ISS will issue a request for voting instructions to CMA over a secure website. CMA personnel shall check this website regularly. The request shall be accompanied by a recommended vote. The recommended vote shall be based upon CMA's understanding of the Voting Guidelines previously delivered to ISS. CMA shall promptly provide ISS with any amendments or modifications to the Voting Guidelines if necessary. CMA shall return a final instruction to vote to ISS, which ISS shall record with Proxy Edge or the custodian bank as our agent.
- Each time that ISS shall send CMA a request to vote the request shall be accompanied by the recommended vote determined in accordance with CMA's Voting Guidelines. ISS shall vote as indicated in the request unless the client has reserved discretion, the Proxy Committee determines that the best interest of clients requires another vote or the proposal is a matter as to which the Proxy Committee affords special, individual consideration under Section IV.C. In such situations ISS shall vote based on the direction of the client or the Proxy Committee, as the case may be. The interests of CMA's Taft Hartley or Socially Responsible clients may impact a proposal that normally should be voted in a certain way. ISS shall inform CMA of all proposals having impact on its Taft Hartley and or Socially Responsible clients. The Proxy Voting Committee shall be consulted before a vote is placed in cases where Taft Hartley or Socially Responsible issues are presented.
- ISS shall have procedures in place to ensure that a vote is cast on every security holding maintained by CMA on which a vote is solicited unless otherwise directed by the Proxy Committee. On a yearly basis, or as required by our clients CMA shall receive a report from ISS detailing CMA's voting for the previous period.
VI. AVAILABILITY OF PROXY POLICY AND VOTING RECORD
A summary disclosure regarding the provisions of this Policy is available in CMA's Form ADV. Upon receipt of a Client's request for more information, CMA will provide to the Client a copy of this Policy and/or how CMA voted proxies for the Client pursuant to this Policy for up to a one-year period.
COLUMBIA WORLD EQUITY FUND
SERIES OF COLUMBIA FUNDS SERIES TRUST I
SUPPLEMENT TO THE FUND'S STATEMENT OF ADDITIONAL INFORMATION
DATED AUGUST 1, 2005
(REPLACING SUPPLEMENTS DATED AUGUST 19, 2005, NOVEMBER 1, 2005,
NOVEMBER 14, 2005 AND FEBRUARY 17, 2006)
1. Effective October 10, 2005, Columbia Global Equity Fund changed its name to Columbia World Equity Fund; accordingly, all references throughout the Prospectus and Statement of Additional Information are changed as appropriate.
2. Effective August 22, 2005, Columbia Funds Distributor, Inc. (the Fund's distributor) and Columbia Funds Services, Inc. (the Fund's transfer agent) changed their names to Columbia Management Distributors, Inc. (CMD) and Columbia Management Services, Inc. (CMS), respectively.
3. The name of the Trust is revised to read "Columbia Funds Series Trust I."
4. The following sentence is added to the first paragraph on the front cover of the SAI:
The unaudited Financial Statements appearing in the Fund's September 30, 2005 Semi-Annual Report are also incorporated into this SAI by reference.
5. The first sentence in the section entitled "Organization and History" is revised to read:
The Trust is a Massachusetts business trust organized in 1987. The Fund was originally organized as a series of another Massachusetts business trust prior to its reorganization as a series of the Trust on March 27, 2006.
6. The last paragraph of the section entitled "Organization and History" is revised in its entirety to read:
Effective October 13, 2003, the Trust changed its name from "Liberty-Stein Roe Funds Municipal Trust" to "Columbia Funds Trust IX." Effective September 23, 2005, the name of the trust was changed from "Columbia Funds Trust IX" to "Columbia Funds Series Trust I."
7. At meetings of the Fund's shareholders held September 16, 2005 and October 7, 2005, shareholders elected the Fund's current Trustees to indefinite terms.
Douglas A. Hacker, Janet Langford Kelly, Richard W. Lowry, William E. Mayer, Charles R. Nelson, John J. Neuhauser, Patrick J. Simpson, Thomas E. Stitzel, Thomas C. Theobald, Anne-Lee Verville and Richard L. Woolworth have been elected to serve as Trustees of the Fund.
8. At meetings of the Fund's shareholders held September 16, 2005 and October 7, 2005, shareholders approved the adoption of new fundamental investment restrictions.
Effective November 1, 2005, the following language replaced the language currently in the section of the Statement of Additional Information entitled FUNDAMENTAL INVESTMENT POLICIES:
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940, as amended (1940 Act), provides that a "vote of a majority of the outstanding voting securities" means the affirmative vote of the lesser of (1) more than 50% of the outstanding shares of a Fund, or (2) 67% or more of the shares present at a meeting if more than 50% of the outstanding shares are represented at the meeting in person or by proxy. The following fundamental investment policies cannot be changed without such a vote.
The Fund may not, as a matter of fundamental policy:
1. Underwrite any issue of securities issued by other persons within the meaning of the 1933 Act except when it might be deemed to be an underwriter either: (a) in connection with the disposition of a portfolio security; or (b) in connection with the purchase of securities directly from the issuer thereof in accordance with its investment objective. This restriction shall not limit the Portfolio's ability to invest in securities issued by other registered investment companies.
2. Purchase or sell real estate, except a Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate and it may hold and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of securities which are secured by real estate or interests therein.
3. Purchase or sell commodities, except that a Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts.
4. Make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
5. Borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
6. Purchase securities (except securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities) of any
one issuer if, as a result, more than 5% of its total assets will
be invested in the securities of such issuer or it would own more
than 10% of the voting securities of such issuer, except that:
(a) up to 25% of its total assets may be invested without regard
to these limitations and (b) a Fund's assets may be invested in
the securities of one or more management investment companies to
the extent permitted by the 1940 Act, the rules and regulations
thereunder, or any applicable exemptive relief.
7. Invest more than 25% of its total assets in the securities of issuers whose principal business activities are in the same industry (excluding obligations of the U.S. government and repurchase agreements collateralized by obligations of the U.S. government), except that the Fund may invest without limit (but may not invest less than 25% of its total assets) in the securities of companies in the public utilities industry and except that the Fund may invest all or substantially all of its assets in another registered investment company having substantially the same investment objective as the Fund.
9. Effective February 17, 2006, the Fund's fundamental investment restriction relating to industry concentration was amended to provide that:
"The Fund may not . . . purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions; and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief."
10. The section entitled "Trustees and Trustees' Fees" is revised in its entirety to read:
TRUSTEES AND TRUSTEES' FEES
The "Columbia Fund Complex" includes all of the registered investment companies to which the Advisor and its affiliates provide investment advisory services.
The Advisor or its affiliates pay the compensation of all the officers of the funds in the Fund Complex advised by the Advisor, including Trustees who are affiliated with the Advisor. For the fiscal year ended March 31, 2005 and the calendar year ended December 31, 2005, the Trustees received the following compensation for serving as Trustees:
PENSION OR AGGREGATE TOTAL COMPENSATION
RETIREMENT BENEFITS COMPENSATION FROM FROM THE FUND COMPLEX
ACCRUED AS PART WORLD EQUITY FUND PAID TO TRUSTEES FOR
OF FUND FOR THE FISCAL YEAR ENDED THE CALENDAR YEAR ENDED
Trustee EXPENSES(a) MARCH 31, 2005 DECEMBER 31, 2005(b)
Douglas A. Hacker N/A $626 $111,277
Janet Langford Kelly N/A 678 116,500
Richard W. Lowry N/A 563 142,500
William E. Mayer N/A 652 147,750
Charles R. Nelson N/A 644 111,500
John J. Neuhauser N/A 596 137,833
Patrick J. Simpson(c) N/A 586 107,500
Thomas E. Stitzel N/A 678 113,000
Thomas C. Theobald(d) N/A 760 205,500
Anne-Lee Verville(e) N/A 709 120,723
Richard L. Woolworth N/A 893 106,500
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(a) The Fund does not currently provide pension or retirement plan benefits to the Trustees.
(b) As of December 31, 2005, the Columbia Fund Complex consisted of 159 open-end and 11 closed-end management investment company portfolios.
(c) During the fiscal year ended March 31, 2005, and the calendar year ended December 31, 2005, Mr. Simpson deferred $856 of his compensation from the Fund, and $107,500 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2005, the value of Mr. Simpson's account under that plan was $269,502.
(d) During the fiscal year ended March 31, 2005, and the calendar year ended December 31, 2005, Mr. Theobald deferred $385 of his compensation from the Fund, and $150,000 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2005, the value of Mr. Theobald's account under that plan was $320,084.
(e) During the fiscal year ended March 31, 2005, Ms. Verville deferred $169 of her compensation from the Fund pursuant to the deferred compensation plan. At December 31, 2005, the value of Ms. Verville's account under that plan was $683,935.
11. The section entitled "Share Ownership" is revised in its entirety to read:
SHARE OWNERSHIP
The following table shows the dollar range of equity securities beneficially owned by each Trustee as of December 31, 2005 (i) in each Fund and (ii) in the funds in the Columbia Fund Complex.
Aggregate Dollar Range of
Dollar Range of Equity Equity Securities Owned in All
Securities Owned in Funds Overseen by Trustee in
Name of Trustee the Fund Columbia Fund Complex
-------------------- ---------------------- ---------------------------------
Douglas A. Hacker $ 0 Over $ 100,000
Janet Langford Kelly $ 0 Over $ 100,000
Richard W. Lowry $10,001 - $50,000 Over $ 100,000
Charles R. Nelson $ 0 Over $ 100,000
John J. Neuhauser $ 0 Over $ 100,000
Patrick J. Simpson $ 0 Over $ 100,000
Thomas E. Stitzel $ 0 $50,001 - $100,000
Thomas C. Theobald $ 0 Over $ 100,000
Anne-Lee Verville $ 0 Over $ 100,000(1)
Richard L. Woolworth $ 0 Over $ 100,000
Interested Trustee
William E. Mayer $ 0 $ 50,001 - $100,000
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(1) Includes the value of compensation payable under the deferred compensation plan for independent Trustees of the Fund Complex that is determined as if the amounts deferred had been invested, as of the date of deferral, in shares of one or more funds in the Fund Complex as specified by Ms. Verville.
12. Effective immediately, Sean P. Wilson no longer co-manages the Fund. All references to Sean P. Wilson are removed throughout the Statement of Additional Information.
13. The section entitled "Ownership of the Fund" is replaced in its entirety to read:
As of record on February 28, 2006, the officers and Trustees of the Trust as a group beneficially owned less than 1% of the then outstanding shares of the Fund.
As of record on February 28, 2006, the following shareholders of record owned 5% or more of the following classes of the Fund's outstanding shares:
CLASS A Citigroup Global Markets, Inc. 5.89% 333 W. 34th St. New York, NY 10001-2402 CLASS C UBS Financial Services, Inc. 6.82% P.O. Box 3321 1000 Harbor Blvd. Weehawken, NJ 07086-6761 Merrill Lynch Pierce Fenner & Smith 8.31% 4800 Deer Lake Dr. Jacksonville, FL 32246-6484 |
14. The first paragraph of the front cover of Part 2 of the SAI is revised in its entity to read:
The following information applies generally to most funds advised by the Advisor. "Funds" include the series of Columbia Funds Series Trust I, Columbia Funds Institutional Trust, SteinRoe Variable Investment Trust and Liberty Variable Investment Trust (each a Trust and together, the Trusts). In certain cases, the discussion applies to some, but not all, of the Funds, and you should refer to your Fund's Prospectus and to Part 1 of this Statement of Additional Information (SAI) to determine whether the matter is applicable to your Fund. You will also be referred to Part 1 for certain data applicable to your Fund.
15. The section entitled "Trustees and Officers" in Part 2 of the SAI is revised to read:
Information regarding the Trustees and officers of the Funds together with their principal business occupations during the last five years (their titles may have varied during that period) is shown below. Unless otherwise noted, the address for each Trustee and officer is c/o Columbia Funds, Mail Stop MA5-515-11-05, One Financial Center, Boston, MA 02111.
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Name and Year Position with Appointed Principal Occupation(s) Overseen Other Directorships
of Birth Funds to Office(1) During Past Five Years by Trustee Held(2)
-------- -------- ------------ ---------------------- ------------- -------
DISINTERESTED TRUSTEE
Thomas C. Trustee and 1996 Partner and Senior 83 Anixter International
Theobald Chairman of Advisor, Chicago Growth (network support equipment
(Born 1937) the Board Partners (private distributor); Ventas, Inc.
equity investing) since (real estate investment
September, 2004; Managing trust); Jones Lang LaSalle
Director, William Blair (real estate management
Capital Partners (private services) and Ambac
equity investing) from Financial Group
September, 1994 to (financial guaranty
September, 2004. insurance)
Douglas A. Trustee 1996 Executive Vice President 83 Nash Finch Company
Hacker -- Strategy of United (food distributor)
(Born 1955) Airlines (airline) since
December, 2002; President of UAL
Loyalty Services (airline) from
September, 2001 to December,
2002; Executive Vice President
and Chief Financial Officer of
United Airlines from July, 1999
to September, 2001.
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Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Name and Year Position with Appointed Principal Occupation(s) Overseen Other Directorships
of Birth Funds to Office(1) During Past Five Years by Trustee Held(2)
-------- -------- ------------ ---------------------- ------------- -------
DISINTERESTED TRUSTEE
Janet Langford Trustee 1996 Partner, Zelle, Hofmann, 83 UAL Corporation
Kelly Voelbel, Mason & Gette (airline)
(Born 1957) LLP (law firm) since
March, 2005; Adjunct
Professor of Law, Northwestern
University, since September,
2004; Chief Administrative
Officer and Senior Vice
President, Kmart Holding
Corporation (consumer goods),
from September, 2003 to March,
2004; Executive Vice
President-Corporate Development
and Administration, General
Counsel and Secretary, Kellogg
Company (food manufacturer),
from September, 1999 to August,
2003.
Richard W. Trustee 1995 Private Investor since 85 None
Lowry August, 1987 (formerly
(Born 1936) Chairman and Chief
Executive Officer, U.S.
Plywood Corporation
(building products
manufacturer) until 1987.)
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Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Name and Year Position with Appointed Principal Occupation(s) Overseen Other Directorships
of Birth Funds to Office(1) During Past Five Years by Trustee Held(2)
-------- -------- ------------ ---------------------- ------------- -------
DISINTERESTED TRUSTEE
Charles R. Trustee 1981 Professor of Economics, 83 None
Nelson University of Washington
(Born 1943) since January, 1976; Ford
and Louisa Van Voorhis
Professor of Political
Economy, University of
Washington, since
September, 1993; Director,
Institute for Economic Research,
University of Washington from
September, 2001 to June, 2003;
Adjunct Professor of Statistics,
University of Washington since
September, 1980; Associate
Editor, Journal of Money Credit
and Banking since September,
1993; consultant on econometric
and statistical matters.
John J. Trustee 1985 University Professor, 85 None
Neuhauser Boston College since
(Born 1942) November, 2005; Academic
Vice President and Dean
of Faculties, Boston
College from August, 1999 to
October, 2005.
Patrick J. Trustee 2000 Partner, Perkins Coie 83 None
Simpson L.L.P. (law firm).
(Born 1944)
Thomas E. Trustee 1998 Business Consultant since 83 None
Stitzel 1999; Chartered Financial
(Born 1936) Analyst.
Anne-Lee Trustee 1998 Retired since 1997 83 Chairman of the Board of
Verville (formerly General Directors, Enesco
(Born 1945) Manager, Global Education Group,Inc. (producer of
Industry, IBM Corporation giftware and home and
(computer and technology) garden decor products)
from 1994 to 1997).
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Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Name and Year Position with Appointed Principal Occupation(s) Overseen Other Directorships
of Birth Funds to Office(1) During Past Five Years by Trustee Held(2)
-------- -------- ------------ ---------------------- ------------- -------
DISINTERESTED TRUSTEE
Richard L. Trustee 1991 Retired since December, 83 Northwest Natural Gas
Woolworth 2003 (formerly Chairman (natural gas service
(Born 1941) and Chief Executive provider)
Officer, The Regence
Group Co. (regional
health insurer); Chairman
and Chief Executive
Officer, BlueCross
BlueShield of Oregon;
Certified Public
Accountant, Arthur Young
& Company).
INTERESTED TRUSTEE
William E. Trustee 1994 Partner, Park Avenue 85 Lee Enterprises (print
Mayer(3) Equity Partners (private media), WR Hambrecht + Co.
(Born 1940) equity) since February, (financial service
1999. provider); Reader's Digest
(publishing); OPENFIELD
Solutions (retail industry
technology provider)
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(1) The date shown is the earliest date on which a Trustee was elected or appointed to the board of a Fund in the Columbia Fund Complex.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public companies").
(3) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (the "1940 Act")) of the Columbia Funds by reason of his affiliation with WR Hambrecht + Co., a registered broker-dealer that may execute portfolio transactions for or engage in principal transactions with the Fund or other funds or clients advised by the Advisor or its affiliates.
Year First
Elected or
Position with Appointed
Name and Year of Birth Funds to Office Principal Occupation(s) During Past Five Years
---------------------- --------- ---------- -----------------------------------------------
OFFICERS
Christopher L. Wilson President 2004 Head of Mutual Funds since August, 2004 and
(Born 1957) Managing Director of the Advisor since September,
2005; President and Chief Executive Officer, CDC
IXIS Asset Management Services, Inc. (investment
management) from September, 1998 to August, 2004.
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Year First
Elected or
Position with Appointed
Name and Year of Birth Funds to Office Principal Occupation(s) During Past Five Years
---------------------- --------- ---------- -----------------------------------------------
OFFICERS
James R. Bordewick, Jr. Senior Vice 2006 Associate General Counsel, Bank of America since
(Born 1959) President, April, 2005; Senior Vice President and Associate
Secretary and General Counsel, MFS Investment Management
Chief Legal (investment management) prior to April, 2005.
Officer
J. Kevin Connaughton Senior Vice 2000 Managing Director of the Advisor since February,
(Born 1964) President, Chief 1998.
Financial
Officer and
Treasurer
Mary Joan Hoene Senior Vice 2004 Senior Vice President and Chief Compliance Officer
(Born 1949) President and of various funds in the Columbia Fund Complex;
Chief Compliance Partner, Carter, Ledyard & Milburn LLP (law firm)
Officer from January, 2001 to August, 2004.
Michael G. Clarke Chief Accounting 2004 Managing Director of the Advisor since February,
(Born 1969) Officer and 2001.
Assistant
Treasurer
Stephen T. Welsh Vice President 1996 President, Columbia Management Services, Inc. since
(Born 1957) July, 2004; Senior Vice President and Controller,
Columbia Management Services, Inc. prior to July,
2004.
Jeffrey R. Coleman Deputy Treasurer 2004 Group Operations Manager of the Advisor since
(Born 1969) October, 2004; Vice President of CDC IXIS Asset
Management Services, Inc. (investment management)
from August, 2000 to September, 2004.
Joseph F. DiMaria Deputy Treasurer 2004 Senior Compliance Manager of the Advisor since
(Born 1968) January, 2005; Director of Trustee Administration
of the Advisor from May, 2003 to January, 2005; Senior
Audit Manager, PricewaterhouseCoopers (independent
registered public accounting firm) from July, 2000 to
April, 2003.
Ty S. Edwards Deputy Treasurer 2004 Vice President of the Advisor since 2002; Assistant
(Born 1966) Vice President and Director, State Street
Corporation (financial services) prior to 2002.
Barry S. Vallan Controller 2006 Vice President-Fund Treasury of the Advisor since
(Born 1969) October, 2004; Vice President-Trustee Reporting
from April, 2002 to October, 2004; Management
Consultant, PricewaterhouseCoopers (independent
registered public accounting firm) prior
to October, 2002.
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Year First
Elected or
Position with Appointed
Name and Year of Birth Funds to Office Principal Occupation(s) During Past Five Years
---------------------- --------- ---------- -----------------------------------------------
OFFICERS
Peter T. Fariel Assistant 2006 Associate General Counsel, Bank of America since
(Born 1957) Secretary April, 2005; Partner, Goodwin Procter LLP (law
firm) prior to April, 2005.
Ryan C. Larrenaga Assistant 2005 Assistant General Counsel, Bank of America since
(Born 1970) Secretary March, 2005; Associate, Ropes & Gray LLP (law firm)
from 1998 to February, 2005.
Barry S. Finkle Assistant 2003 Senior Manager and Head of Fund Performance of the
(Born 1965) Treasurer Advisor since January, 2001.
Julian Quero Assistant 2003 Senior Compliance Manager of the Advisor since
(Born 1967) Treasurer April, 2002; Assistant Vice President of Taxes and
Distributions of the Advisor from 2001 to April, 2002.
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Each of the Trust's Trustees and officers hold comparable positions with certain other funds of which the Advisor or its affiliates is the investment advisor or distributor and, in the case of certain of the officers, with certain affiliates of the Advisor.
The Trustees and officers serve terms of indefinite duration. Each Fund held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once every five years thereafter to elect Trustees.
16. The section entitled "Trustee Positions," a subsection of "Management of the Funds," is revised to read:
As of December 31, 2005, no disinterested Trustee or any of their immediate family members owned beneficially or of record any class of securities of the Advisor, another investment advisor, sub-advisor or portfolio manager of any of the funds in the Fund Complex or any person controlling, controlled by or under common control with any such entity.
17. The second paragraph of the section entitled "Other Disclosures," a subsection of "Disclosure of Portfolio Information," is revised in its entirety to read:
The Fund periodically discloses its portfolio information on a confidential basis to various service providers that require such information in order to assist the Fund with its day-to-day business affairs. In addition to Columbia Advisors and its affiliates, these service providers include the Fund's custodian and sub-custodians, the Fund's independent registered public accounting firm, legal counsel, financial printers (R.R. Donnelly & Sons and Bowne & Co., Inc.), the Fund's proxy solicitor and proxy voting service provider (Computershare), rating agencies that maintain ratings on certain Columbia Funds (Fitch, Inc.) and service providers that support Columbia Advisors' trading systems (InvestorTool, Inc. and Thomson Financial). These service providers are required to keep such information confidential, and are prohibited from trading based on the information or otherwise using the information except as necessary in providing services to the Fund. The Fund may also disclose portfolio holdings information to broker/dealers and certain other entities related to potential transactions and management of the Fund, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information.
18. The section entitled "PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES" is revised in its entirety as follows:
RIGHTS OF ACCUMULATION (Columbia Class A and Class T shares, Nations Class A shares and Galaxy Retail A shares only) (Class T shares can only be purchased by the shareholders of Columbia Newport Tiger Fund (formerly named Liberty Newport Tiger Fund) who already own Class T shares). Reduced sales charges on Class A and T shares can be effected by combining a current purchase of Class A or Class T shares with prior purchases of other funds and classes distributed by CMD. The applicable sales charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on the previous day of all shares of funds for which CMD serves as distributor (Funds) held by the shareholder.
CMD must be promptly notified of each purchase with respect to which a shareholder is entitled to a reduced sales charge. Such reduced sales charge will be applied upon confirmation of the shareholder's holdings by CMS. A Fund may terminate or amend this Right of Accumulation.
STATEMENT OF INTENT (Class A, Class E and Class T shares only). Any person may qualify for reduced sales charges on purchases of Class A, E and T shares made within a thirteen-month period pursuant to a Statement of Intent ("Statement"). A shareholder may include, as an accumulation credit toward the completion of such Statement, the value of all fund shares held by the shareholder on the date of the Statement in Funds (except shares of any money market fund, unless such shares were acquired by exchange from Class A shares of another non-money market fund)). The value is determined at the public offering price on the date of the Statement. Purchases made through reinvestment of distributions do not count toward satisfaction of the Statement.
During the term of a Statement, CMS will hold shares in escrow to secure payment of the higher sales charge applicable to Class A, E or T shares actually purchased. Dividends and capital gains will be paid on all escrowed shares and these shares will be released when the amount indicated has been purchased. A Statement does not obligate the investor to buy or a Fund to sell the amount of the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which would qualify for a further quantity discount, a retroactive price adjustment will be made at the time of expiration of the Statement (provided the FSF returns to CMD the excess commission previously paid during the thirteen-month period). The resulting difference in offering price will purchase additional shares for the shareholder's account at the applicable offering price.
If the amount of the Statement is not purchased, the shareholder shall remit to CMD an amount equal to the difference between the sales charge paid and the sales charge that should have been paid. If the shareholder fails within twenty days after a written request to pay such difference in sales charge, CMS will redeem escrowed Class A, E or T shares with a value equal to such difference. The additional FSF commission will be remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available from your FSF, or from CMS at 1-800-345-6611.
NET ASSET VALUE ELIGIBILITY GUIDELINES (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, INC. IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS).
1. Employees, brokers and various relationships that are allowed to buy at NAV. Class A shares of certain Funds may be sold at (NAV) to the following individuals, whether currently employed or retired: Employees of Bank of America Corporation (and its predecessors), its affiliates and subsidiaries; Trustees of funds advised or administered by the Advisor; directors, officers and employees of the Advisor, CMD, or its successors and companies affiliated with the Advisor; Registered representatives and employees of Financial Service Firms (including their affiliates) that are parties to dealer agreements or other sales arrangements with CMD; Nations Funds' Trustees, Directors and employees of its investment sub-advisers; Broker/Dealers if purchases are in accordance with the internal policies and procedures of the employing broker/dealer and made for their own investment purposes; employees or partners of any contractual service provider to the funds
NAV eligibility for Class A purchase also applies to the families of the
parties listed above and their beneficial accounts. Family members include:
spouse, parent, stepparent, legal guardian, child, stepchild, father-in-law
and mother-in-law.
Individuals receiving a distribution from a Bank of America trust, fiduciary, custodial or other similar account may use the proceeds of that distribution to buy Class A shares without paying a front-end sales charge, as long as the proceeds are invested in the funds within 90 days of the date of distribution.
Registered broker/dealer firms that have entered into a Nations Funds dealer agreement with BACAP Distributors, LLC may buy Class A shares without paying a front-end sales charge for their investment account only.
Banks, trust companies and thrift institutions, acting as fiduciaries.
2. Grandfathered investors. Any shareholder who owned shares of any fund of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000 (when all of the then outstanding shares of Columbia Acorn Trust were re-designated Class Z shares) and who since that time has remained a shareholder of any Fund, may purchase Class A shares of any Fund at NAV in those cases where a Columbia Fund Class Z share is not available.
Shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at (NAV) will continue to be eligible for NAV purchases into those Nations Fund accounts opened through August 19, 2005.
Galaxy Fund shareholders prior to December 1, 1995; and shareholders who
(i) purchased Galaxy Fund Prime A shares at net asset value and received
Class A shares in exchange for those shares during the Galaxy/Liberty Fund
reorganization; and (ii) continue to maintain the account in which the
Prime A shares were originally purchased.
(For Class T shares only) Shareholders who (i) purchased Galaxy Fund Retail A shares at net asset value and received Class T shares in exchange for those shares during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Retail A shares were originally purchased; and Boston 1784 Fund shareholders on the date that those funds were reorganized into Galaxy Funds.
3. Reinstatement. Subject to the fund policy on trading of fund shares, an investor who has redeemed class A, B, C, D, G or T shares may, upon request, reinstate within 1 year a portion or all of the proceeds of such sales in shares of class A of any fund at the NAV next determined after Columbia Management Services, Inc. received a written reinstatement request and payment.
4. Retirement Plans. Class A, Class E and Class T shares (Class T shares are not currently open to new investors) of certain funds may also be purchased at reduced or no sales charge by clients of dealers, brokers or registered investment advisors that have entered into arrangements with CMD pursuant to which the funds are included as investments options in wrap fee accounts, other managed agency/asset allocation accounts or programs involving fee-based compensation arrangements, and by participants in certain retirement plans.
5. Non-U.S. Investors. Certain pension, profit-sharing or other employee benefit plans offered to non-US investors may be eligible to purchase Class A shares with no sales charge.
6. Reorganizations. At the Fund's discretion, NAV eligibility may apply to shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which the fund is a party.
7. Rights of Accumulation (ROA). The value of eligible accounts, regardless of class, maintained by you and you and your immediate family may be combined with the value of your current purchase to reach a sales discount level and to obtain the lower sales charge for your current purchase.
8. Letters of Intent (LOI). You may pay a lower sales charge when purchasing class A shares by signing a letter of intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the LOI within 13 months. If your LOI purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES (CDSCS) (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, INC. IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS) (Class A, B, C, D, E, matured F, G and T shares) CDSCs may be waived on redemptions in the following situations with the proper documentation:
1. Death. CDSCs may be waived on redemptions following the death of (i) the sole shareholder on an individual account, (ii) a joint tenant where the surviving joint tenant is the deceased's spouse, or (iii) the beneficiary of a Uniform Gifts to Minors Act (UGMA), Uniform Transfers to Minors Act (UTMA) or other custodial account. If, upon the occurrence of one of the foregoing, the account is transferred to an account registered in the name of the deceased's estate, the CDSC will be waived on any redemption from the estate account If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions occurring pursuant to a monthly, quarterly or semi-annual SWP established with CMS, to the extent the redemptions do not exceed, on an annual basis, 12% of the account's value at the time that the SWP is established. Otherwise, CDSCs will be charged on SWP redemptions until this requirement is met. For redemptions in excess of 12% of the account's value at the time that the SWP is established, a CDSC will be charged on the SWP redemption. The 12% limit does not apply if the SWP is set up at the time the account is established, and distributions are being reinvested. See below under "How to Sell Shares - Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions occurring after the sole shareholder on an individual account or a joint tenant on a spousal joint tenant account becomes disabled (as defined in Section 72(m)(7) of the Internal Revenue Code). To be eligible for such waiver, (i) the disability must arise AFTER the purchase of shares (ii) the disabled shareholder must have been under age 65 at the time of the initial determination of disability, and (iii) a letter from a physician must be signed under penalty of perjury stating the nature of the disability. If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring upon
dissolution of a revocable living or grantor trust following the death of
the sole trustee where (i) the grantor of the trust is the sole trustee and
the sole life beneficiary, (ii) death occurs following the purchase AND
(iii) the trust document provides for dissolution of the trust upon the
trustee's death. If the account is transferred to a new registration
(including that of a successor trustee), the applicable CDSC will be
charged upon any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions required to return excess contributions made to retirement plans or individual retirement accounts, so long as the FSF agrees to return the applicable portion of any commission paid by CMD.
6. Qualified Retirement Plans. CDSCs may be waived on CMD shares sold by employee benefit plans created according to Section 403(b) of the tax code and sponsored by a non-profit organization qualified under Section 501(c)(3) of the tax code. To qualify for the waiver, the plan must be a participant in an alliance program th at has signed an agreement with Columbia Funds or CMD.
7. Trust Share Taxes. CDSCs will be waived on redemptions of Class E and F
shares (i) where the proceeds are used to directly pay trust taxes, and
(ii) where the proceeds are used to pay beneficiaries for the payment of
trust taxes.
8. Return of Commission. CDSCs may be waived on shares sold by intermediaries that are part of the Columbia Funds selling group where the intermediary has entered into an agreement with Columbia Funds not to receive (or to return if received) all or any applicable portion of an upfront commission.
9. Non-U.S. Investors. CDSCs may be waived on shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors.
10. IRS Section 401 and 457. CDSCs may be waived on shares sold by certain
pension, profit-sharing or other employee benefit plans established under
Section 401 or 457 of the tax code.
11. Medical Payments. CDSCs may be waived on shares redeemed for medical payments that exceed 7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least twelve weeks.
12. Plans of Reorganization. At the Funds' discretion, CDSCs may be waived for shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which a fund is a party.
13. Charitable Giving Program. CDSCs may be waived on the sale of Class C shares sold by a non-profit organization qualified under Section 501(c)(3) of the tax code in connection with the Banc of America Capital Management Charitable Giving Program.
14. The CDSC also may be waived where the FSF agrees to return all or an agreed upon portion of the commission earned on the sale of the shares being redeemed.
19. The second paragraph of the section entitled "HOW TO EXCHANGE SHARES" is deleted in its entirety.
INT-50/107457-0306 March 27, 2006
COLUMBIA GLOBAL EQUITY FUND
A SERIES OF COLUMBIA FUNDS TRUST III
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 2005
This Statement of Additional Information (SAI) contains information which may be useful to investors but which is not included in the Prospectus of Columbia Global Equity Fund (Fund). This SAI is not a prospectus and is authorized for distribution only when accompanied or preceded by the Prospectus of the Fund dated August 1, 2005. This SAI should be read together with the Prospectus and the Fund's most recent Annual Report dated March 31, 2005. Investors may obtain a free copy of the Prospectus and Annual Report from Columbia Funds Distributor, Inc. (CFD), One Financial Center, Boston, MA 02111-2621 or by calling 1-800-426-3750. The Financial Statements and Report of Independent Registered Public Accounting Firm appearing in the Fund's March 31, 2005 Annual Report are incorporated into this SAI by reference.
Part 1 of this SAI contains specific information about the Fund. Part 2 includes information about the funds distributed by CFD generally and additional information about certain securities and investment techniques described in the Fund's Prospectus.
TABLE OF CONTENTS
PAGE
----
PART 1
Definitions b
Organization and History b
Investment Goal and Policies b
Fundamental Investment Policies c
Other Investment Policies d
Portfolio Turnover e
Fund Charges and Expenses e
Custodian of the Fund l
Independent Registered Public Accounting Firm of the Fund l
PART 2
Miscellaneous Investment Practices 1
Taxes 21
Additional Tax Matters Concerning Trust Shares 26
Management of the Funds 28
Determination of Net Asset Value 41
How to Buy Shares 42
Special Purchase Programs/Investor Services 45
Programs for Reducing or Eliminating Sales Charges 47
How to Sell Shares 49
Distributions 53
How to Exchange Shares 53
Suspension of Redemptions 54
Shareholder Liability 54
Shareholder Meetings 54
Appendix I 55
Appendix II 60
|
PART 1
COLUMBIA GLOBAL EQUITY FUND
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 2005
DEFINITIONS
"Fund" Columbia Global Equity Fund "Trust" Columbia Funds Trust III "Advisor" or "Administrator" Columbia Management Advisors, Inc., the Fund's investment advisor and administrator "CFD" Columbia Funds Distributor, Inc., the Fund's distributor "CFS" Columbia Funds Services, Inc., the Fund's shareholder services and transfer agent |
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1978. The Fund, an open-end, diversified management investment company representing the entire interest in a separate series of the Trust. The Fund commenced investment operations on August 23, 1991. The Fund is the successor by reorganization to the Liberty Financial Utilities Fund. The reorganization occurred on March 27, 1995. All references to the Fund as of a time prior to such date shall be deemed to refer to the Liberty Financial Utilities Fund. On February 26, 1999, the Fund and the Liberty Funds Trust VIII (formerly the LFC Utilities Trust Portfolio) terminated their master/feeder fund structure. Effective April 1, 1999, the Trust changed its name from "Colonial Trust III" to "Liberty Funds Trust III." The Trust changed its name to its current name on October 13, 2003. Effective July 14, 2000, the Fund changed its name from "Colonial Global Utilities Fund" to "Liberty Newport Global Utilities Fund." Effective February 12, 2001, the Fund changed its name to "Liberty Newport Global Equity Fund". Effective October 13, 2003 the Fund changed its name from "Liberty Newport Global Equity Fund" to its current name.
The Trust is not required to hold annual shareholder meetings, but special meetings may be called for certain purposes. Shareholders receive one vote for each Fund share. Shares of the Fund and any other series of the Trust that may be in existence from time to time generally vote together except when required by law to vote separately by fund or by class. Shareholders owning in the aggregate ten percent of Trust shares may call meetings to consider removal of Trustees. Under certain circumstances, the Trust will provide information to assist shareholders in calling such a meeting. See Part 2 of this SAI for more information.
It is expected that, subject to shareholder approval of the election of all current Trustees, the Fund will be reorganized as a series of Columbia Funds Trust IX, a Massachusetts business trust into which all of the retail Columbia funds are expected to be reorganized.
INVESTMENT GOAL AND POLICIES
The Fund's Prospectus describes the Fund's investment goal, investment strategies and risks. Part 1 of this SAI contains additional information concerning, among other things, the investment policies of the Fund. Part 2 contains additional information about the following securities and investment techniques that may be utilized by the Fund:
Lower Rated Bonds
Foreign Securities
Money Market Instruments
Forward Commitments
Repurchase Agreements
Futures Contracts and Related Options
Foreign Currency Transactions
Securities Lending
Zero Coupon Securities
Pay-In-Kind Securities
Options on Securities
Rule 144A Securities
Except as indicated below under "Fundamental Investment Policies," the Fund's investment policies are not fundamental, and the Trustees may change the policies without shareholder approval.
FUNDAMENTAL INVESTMENT POLICIES
b
The Investment Company Act of 1940, as amended (the "1940 Act") provides that a "vote of a majority of the outstanding voting securities" means the affirmative vote of the lesser of (1) more than 50% of the outstanding shares of the Fund, or (2) 67% or more of the shares present at a meeting if more than 50% of the outstanding shares are represented at the meeting in person or by proxy. The following fundamental investment policies cannot be changed without such a vote.
As fundamental investment policies, the Fund may not:
1. Borrow from banks, other affiliated funds and other entities except to the extent permitted by applicable law and, provided that the Fund's borrowings shall not exceed 33 1/3% of the value of its total assets (including the amount borrowed) less liabilities (other than borrowings) or such other percentage permitted by law;
2. Purchase any security on margin, except that the Fund may obtain such short-term credit as may be necessary for the clearance of purchases and sales of securities (this restriction does not apply to securities purchased on a when-issued basis or to margin deposits in connection with futures and options transactions);
3. Issue senior securities except as provided in paragraph 1 above and to the extent permitted by the 1940 Act;
4. Underwrite securities issued by other persons, except insofar as the Fund may technically be deemed an underwriter under the Securities Act of 1933, as amended (the "1933 Act") in selling a security and except that the Fund may invest all or substantially all of its assets in another registered investment company having substantially the same investment objective as the Fund;
5. Make loans except (a) through lending of securities, (b) through the purchase of debt instruments or similar evidences of indebtedness typically sold privately to financial institutions, (c) through an interfund lending program with other affiliated registered open-end investment companies provided that no such loan may be made if, as a result, the aggregate of such loans would exceed 33 1/3% of the value of its total assets (taken at market value at the time of such loans) and (d) through repurchase agreements;
6. Purchase the securities of any one issuer (except securities issued or guaranteed by the U.S. government and its agencies or instrumentalities, as to which there are no percentage limits or restrictions) if immediately after and as a result of such purchase (a) more than 5% of the value of its assets would be invested in that issuer, or (b) the Fund would hold more than 10% of the outstanding voting securities of that issuer and except that the Fund may invest all or substantially all of its assets in another registered investment company having substantially the same investment objective as the Fund;
7. Purchase or sell real estate or interests in real estate limited partnerships (other than securities secured by real estate or interests therein), interests in oil, gas or mineral leases, commodities or commodity contracts in the ordinary course of business (the Fund reserves the freedom of action to hold and to sell real estate acquired as a result of the ownership of securities and to enter into futures and options transactions in accordance with its investment policies); or
8. Invest more than 25% of its total assets in the securities of issuers whose principal business activities are in the same industry (excluding obligations of the U.S. government and repurchase agreements collateralized by obligations of the U.S. government), except that the Fund may invest without limit (but may not invest less than 25% of its total assets) in the securities of companies in the public utilities industry and except that the Fund may invest all or substantially all of its assets in another registered investment company having substantially the same investment objective as the Fund.
The Fund's Trustees have approved, subject to shareholder approval at a shareholder meeting expected to be held in 2005, the replacement of the Fund's current fundamental investment restrictions with the following standardized fundamental investment restrictions:
PROPOSED FUNDAMENTAL RESTRICTIONS.
The Fund may not, as a matter of fundamental policy:
1. Underwrite any issue of securities issued by other persons within the
meaning of the 1933 Act except when it might be deemed to be an underwriter
either: (a) in connection with the disposition of a portfolio security; or
(b) in connection with the purchase of securities directly from the issuer
thereof in accordance with its investment objective. This restriction shall
not limit the Portfolio's ability to invest in securities issued by other
registered investment companies;
2. Purchase or sell real estate, except the Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate and it may hold and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of securities which are secured by real estate or interests therein;
3. Purchase or sell commodities, except that the Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts;
4. Purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions; and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief;
5. Make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief;
6. Borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief;
7. Purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that: (a) up to 25% of its total assets may be invested without regard to these limitations and (b) the Fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder, or any applicable exemptive relief.
OTHER INVESTMENT POLICIES
As non-fundamental investment policies, which may be changed without a shareholder vote, the Fund may not:
1. Invest in illiquid securities, including repurchase agreements maturing in more than seven days but excluding securities which may be resold pursuant to Rule 144A under the Securities Act of 1933, if, as a result thereof, more than 15% of the net assets (taken at market value at the time of each investment of the Fund, as the case may be) would be invested in such securities and except that the Fund may invest all or substantially all of its assets in another registered investment company having substantially the same investment objective as the Fund;
2. Invest in companies for the purpose of exercising control or management except that the Fund may invest all or substantially all its assets in another registered investment company having substantially the same investment restrictions as the Fund;
3. Invest in the voting securities of a public utility company if, as a result, it would own 5% or more of the outstanding voting securities of more than one public utility company;
4. Make investments in the securities of other investment companies except that the Fund may invest all or substantially all its assets in another registered investment company having substantially the same investment restrictions as the Fund;
5. Mortgage, pledge, hypothecate or in any manner transfer, as security for indebtedness, any securities owned by the Fund except (a) as may be necessary in connection with borrowings mentioned in (1) under Fundamental Investment Policies, and (b) the Fund may enter into futures and options transactions; or
6. Invest more than 5% of its total assets in puts, calls, straddles, spreads, or any combination thereof (except that the Fund may enter into transactions in options, futures and options on futures).
Total assets and net assets are determined at current value for purposes of compliance with investment restrictions and policies. All percentage limitations will apply at the time of investment and are not violated unless an excess or deficiency occurs as a result of such investment. For the purpose of the 1940 Act's diversification requirement, an issuer is the entity whose revenues support the security.
PORTFOLIO TURNOVER
Portfolio turnover is included in the Prospectus under "Financial Highlights." The Fund may sell a portfolio investment soon after its acquisition if the Advisor believes that such a disposition is consistent with the Fund's investment goal. Portfolio investments may be sold for a variety of reasons, such as a more favorable investment opportunity or other circumstances bearing on the desirability of continuing to hold such investments. A portfolio turnover rate of 100% or more is considered high, although the rate of portfolio turnover will not be a limiting factor in making portfolio decisions. High portfolio turnover may cause the Fund to realize capital gains which, if realized and distributed by the Fund, may be taxable to shareholders as ordinary income. High portfolio turnover may result in correspondingly greater brokerage commissions and other transaction costs, which will be borne directly by the Fund.
During the twelve month period ended October 31, 2003, the Fund experienced a higher rate of portfolio turnover than during the previous fiscal year. This was due largely to the repositioning of the Fund during the fourth quarter. With an improving investment environment in the second quarter and with improving global economic activity, the manager reduced the Fund's percentage in US holdings and increased its non-US holdings.
During the five month period ended March 31, 2004, the Fund experienced a lower rate of portfolio turnover than during the previous fiscal year. This was due largely to the lower reallocation activity between countries than the previous year which, therefore, required fewer purchases and sales within the portfolio.
FUND CHARGES AND EXPENSES
Under the Fund's management agreement, the Fund pays the Advisor a monthly fee based on the average daily net assets of the Fund at the annual rate of 0.40% for the first billion and 0.35% over $1 billion. The Fund also pays the Advisor a monthly administrative fee of 0.25%.
The Advisor is responsible for providing pricing and bookkeeping services to the Fund pursuant to a pricing and bookkeeping agreement. Under a separate agreement (Outsourcing Agreement), the Advisor has delegated those functions to State Street Corporation (State Street). The Advisor pays fees to State Street under the Outsourcing Agreement.
Under its pricing and bookkeeping agreement with the Fund, the Advisor receives from the Fund a monthly fee consisting of a flat fee plus an asset-based fee, as follows:
- An annual flat fee of $10,000, paid monthly; and
- In any month that the Fund has average net assets of more than $50 million, a monthly fee equal to the average daily net assets of the Fund for that month multiplied by a fee rate that is calculated by taking into account the fees payable to State Street under the Outsourcing Agreement.
The Fund reimburses the Advisor for all out-of-pocket expenses and charges, including fees payable to third parties (other than State Street) for providing pricing data.
Effective November 1, 2003, the Fund pays a shareholders' servicing and transfer agency fee to CFS as follows:
An annual open account fee of $28 per open account, plus the Fund's allocated share of reimbursement for the out-of-pocket expenses of CFS.
Prior to November 1, 2003, the Fund paid a shareholders' servicing and transfer agency fee to CFS as follows:
- An account fee for each open account of $4.00 per annum, payable on a monthly basis, in an amount equal to 1/12 the per annum charge; plus
- An account fee for each closed account of $1.50 per annum, payable on a monthly basis, in an amount equal to 1/12 the per annum charge; plus
- A transaction fee of $1.40 per transaction occurring in Fund accounts during any month; plus
- A monthly fee at the rate of 0.06% per annum of the average daily closing value of the total net assets of the Fund for such month; plus
- The Fund's allocated share of CFS' out-of-pocket expenses, including fees payable to DST Systems, Inc. (DST) under a remote services agreement with DST.
e
RECENT FEES PAID TO THE ADVISOR, ADMINISTRATOR, CFD AND CFS (dollars in
thousands)
Years ended
Period ended October 31,
Year ended March 31, -----------
March 31, 2005 2004(a) 2003 2002
-------------- ------------ ---- ----
Management fee $393 $177 $391 $538
Administration fee 245 110 245 336
Pricing and bookkeeping fee 47 17 35 63
Shareholder service and transfer agent fee 415 214 576 656
12b-1 fees:
Service fee (Class A) 199 88 193 261
Service fee (Class B) 44 21 49 72
Service fee (Class C) 3 1 2 3
Distribution fee (Class B) 133 63 147 215
Distribution fee (Class C) 8 3 7 10
Fees and expenses waived or reimbursed by Advisor -- -- (30) --
|
(a) The Fund changed its fiscal year end from October 31 to March 31 in 2004.
BROKERAGE COMMISSIONS (dollars in thousands)
Years ended
Period ended October 31,
Year ended March 31, -----------------
March 31, 2005 2004(a) 2003 2002
-------------- ------------ ------- -------
Total commissions $ 176 $ 84 $ 411 $ 197
Directed transactions (b) 4,078 19,137 15,708 29,973
Commissions on directed transactions 12 36 48 78
|
(a) The Fund changed its fiscal year end from October 31 to March 31 in 2004.
(b) See "Management of the Funds - Portfolio Transactions - Brokerage and Research Services" in Part 2 of this SAI.
The Trust is required to identify any securities of its "regular brokers or dealers" that the Fund has acquired during its most recent fiscal year. At March 31, 2005, the Fund held securities of its "regular brokers or dealers" as set forth below:
Broker/Dealer Value ------------- -------- Merrill Lynch & Co. $718,820 E*Trade Group, Inc. 402,000 |
TRUSTEES AND TRUSTEES' FEES
Fund Complex consists of the following funds:
The series of Columbia Funds Trust I, the series of Columbia Funds Trust II, the series of Columbia Funds Trust III, the series of Columbia Funds Trust IV, the series of Columbia Funds Trust V, the series of Columbia Funds Trust VI, the series of Columbia Funds Trust VII, the series of Liberty Variable Investment Trust and 8 closed-end management investment company portfolios (the "Liberty Funds").
The series of Columbia Funds Trust VIII, the series of Columbia Funds Trust IX, the series of Columbia Funds Trust XI and the series of SteinRoe Variable Investment Trust (the "Stein Roe Funds").
Two closed-end management investment company portfolios named Liberty All-Star Equity Fund and Liberty All-Star Growth Fund, Inc. (the "All-Star Funds").
Columbia Management Multi-Strategy Hedge Fund, LLC.
f
Columbia Balanced Fund, Inc., Columbia Daily Income Company, Columbia Fixed Income Securities Fund, Inc., Columbia High Yield Fund, Inc., Columbia International Stock Fund, Inc., Columbia Oregon Municipal Bond Fund, Inc., Columbia Real Estate Equity Fund, Inc., Columbia Short Term Bond Fund, Inc., Columbia Small Cap Growth Fund, Inc., Columbia Mid Cap Growth Fund, Inc., Columbia Strategic Investor Fund, Inc., Columbia Technology Fund, Inc. and the series of CMG Fund Trust (the "Columbia Funds").
The series of The Galaxy Funds (the "Galaxy Funds").
The series of Columbia Acorn Trust and the series of Wanger Advisors Trust (the "Acorn Funds" and "WAT Funds," respectively).
The Advisor or its affiliates pay the compensation of all the officers of the funds in the Fund Complex advised by the Advisor, including Trustees who are affiliated with the Advisor. For the year ended March 31, 2005 and the calendar year ended December 31, 2004, the Trustees received the following compensation for serving as Trustees:
Total Compensation From the
Pension or Retirement Aggregate Compensation Fund Complex Paid To the
Benefits Accrued As From the Fund for the Trustees For the
Part of Fund Fiscal Year Ended Calendar Year Ended
Trustee(a) Expenses(b) March 31, 2005 December 31, 2004(a)
---------- --------------------- ---------------------- ---------------------------
Douglas A. Hacker N/A $626 $135,000
Janet Langford Kelly N/A 678 148,500
Richard W. Lowry N/A 563 150,700
William E. Mayer N/A 652 166,700
Charles R. Nelson N/A 644 141,500
John J. Neuhauser N/A 596 158,284
Patrick J. Simpson(c) N/A 586 129,000
Thomas E. Stitzel N/A 678 149,000
Thomas C. Theobald(d) N/A 760 172,500
Anne-Lee Verville(e) N/A 709 157,000
Richard L. Woolworth N/A 593 131,000
|
(a) As of December 31, 2004, the Fund Complex consisted of 127 open-end and 11 closed-end management investment company portfolios.
(b) The Fund does not currently provide pension or retirement plan benefits to the Trustees.
(c) During the fiscal year ended March 31, 2005, and the calendar year ended December 31, 2004, Mr. Simpson deferred $586 of his compensation from the Fund, and $129,000 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2004, the value of Mr. Simpson's account under that plan was $143,646.
(d) During the fiscal year ended March 31, 2005, and the calendar year ended December 31, 2004, Mr. Theobald deferred $385 of his compensation from the Fund, and $90,000 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2004, the value of Mr. Theobald's account under that plan was $157,328.
(e) During the fiscal year ended March 31, 2005, and the calendar year ended December 31, 2004, Ms. Verville deferred $169 of her compensation from the Fund, and $55,000 of her total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2004, the value of Ms. Verville's account under that plan was $653,275.
ROLE OF THE BOARD OF TRUSTEES
The Trustees of the Funds are responsible for the overall management and supervision of the Funds' affairs and for protecting the interests of the shareholders. The Trustees meet periodically throughout the year to oversee the Fund's activities, review contractual arrangements with service providers for the Funds and review the Fund's performance. The Trustees have created several committees to perform specific functions for the Funds. Mr. Theobald was elected Chairman of the Board of Trustees of the Liberty Funds, Stein Roe Funds and Columbia Funds effective December, 2003.
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AUDIT COMMITTEE
Ms. Verville and Messrs. Hacker, Stitzel and Woolworth are members of the Audit Committee of the Board of Trustees of the Funds. The Audit Committee's functions include making recommendations to the Trustees regarding the selection and performance of the independent registered public accounting firm, and reviewing matters relative to accounting and auditing practices and procedures, accounting records, and the internal accounting controls, of the Funds and certain service providers. For the fiscal year ended March 31, 2005, the Audit Committee convened eleven times.
GOVERNANCE COMMITTEE
Messrs. Lowry, Mayer, Simpson and Theobald are members of the Governance Committee of the Board of Trustees of the Funds. The Governance Committee's functions include recommending to the Trustees nominees for independent Trustee positions and for appointments to various committees, performing periodic evaluations of the effectiveness of the Board, reviewing and recommending to the Board policies and practices to be followed in carrying out the Trustees' duties and responsibilities and reviewing and making recommendations to the Board regarding the compensation of the Trustees who are not affiliated with the Funds' investment advisors. The Governance Committee will consider candidates for Trustee recommended by shareholders. Written recommendations with supporting information should be directed to the Committee, in care of the Funds. For the fiscal year ended March 31, 2005, the Governance Committee convened six times.
ADVISORY FEES & EXPENSES COMMITTEE
Ms. Kelly and Messrs. Mayer, Nelson and Neuhauser are members of the Advisory Fees & Expenses Committee of the Board of Trustees of the Funds. The Advisory Fees & Expenses Committee's functions include reviewing and making recommendations to the Board as to contracts requiring approval of a majority of the disinterested Trustees and as to any other contracts that may be referred to the Committee by the Board. For the fiscal year ended March 31, 2005, the Advisory Fees & Expenses Committee convened eight times.
COMPLIANCE COMMITTEE
Ms. Kelly, Messrs. Nelson, Simpson and Stitzel and Ms. Verville are members of the Compliance Committee of the Board of Trustees of the Funds. Mr. Stitzel became a member of the Compliance Committee on May 8, 2005. The Compliance Committee's functions include providing oversight of the monitoring processes and controls regarding the Trust. The Committee uses legal, regulatory and internal rules, policies, procedures and standards other than those relating to accounting matters and oversight of compliance by the Trust's investment adviser, principal underwriter and transfer agent. For the fiscal year ended March 31, 2005, the Compliance Committee convened six times.
INVESTMENT OVERSIGHT COMMITTEES
Beginning in 2004, each Trustee of the Funds also began serving on an Investment Oversight Committee ("IOC"). Each IOC is responsible for monitoring, on an ongoing basis, a select group of funds in the Fund Complex and gives particular consideration to such matters as the Funds' adherence to their investment mandates, historical performance, changes in investment processes and personnel, and proposed changes to investment objectives. Investment personnel who manage the Funds attend IOC meetings from time to time to assist each IOC in its review of the Funds. Each IOC meets four times a year. The following are members of the respective IOCs and the general categories of funds in the Fund Complex which they review:
IOC#1: Messrs. Lowry, Mayer and Neuhauser are responsible for reviewing funds in the following asset categories: Large Growth Diversified, Large Growth Concentrated, Small Growth, Outside Managed (i.e., sub-advised) and Municipal.
IOC#2: Mr. Hacker and Ms. Verville are responsible for reviewing funds in the following asset categories: Large Blend, Small Blend, Foreign Stock, Fixed Income - Multi Sector, Fixed Income - Core and Young Investor.
IOC#3: Messrs. Theobald and Stitzel and Ms. Kelly are responsible for reviewing funds in the following asset categories: Large Value, Mid Cap Value, Small Value, Asset Allocation, High Yield and Money Market.
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IOC#4: Messrs. Nelson, Simpson and Woolworth are responsible for reviewing funds in the following asset categories: Large/Multi-Cap Blend, Mid Cap Growth, Small Growth, Asset Allocation, Specialty Equity and Taxable Fixed Income.
SHARE OWNERSHIP
The following table shows the dollar range of equity securities beneficially owned by each Trustee as of December 31, 2004 (i) in the fund and (ii) in the funds in the fund Complex.
Aggregate Dollar
Range of Equity
Securities Owned
in All Funds
Dollar Range of Overseen by
Equity Securities Trustee in
Name of Trustee Owned in the Fund Fund Complex
--------------- ----------------- ----------------
DISINTERESTED TRUSTEES
Douglas A. Hacker $0 Over $100,000
Janet Langford Kelly $0 Over $100,000
Richard W. Lowry $10,001-$50,000 Over $100,000
Charles R. Nelson $0 Over $100,000
John J. Neuhauser $0 Over $100,000
Patrick J. Simpson $0 Over $100,000
Thomas E. Stitzel $0 Over $100,000
Thomas C. Theobald $0 Over $100,000
Anne-Lee Verville $0 Over $100,000
Richard L. Woolworth $0 Over $100,000
INTERESTED TRUSTEES
William E. Mayer $0 $50,001-$100,000
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PORTFOLIO MANAGERS
OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS
The following table shows the number and assets of other investment accounts (or portions of investment accounts) that the Fund's portfolio managers managed as of the Fund's fiscal year-end.
OTHER SEC-REGISTERED OPEN-END OTHER POOLED INVESTMENT
AND CLOSED-END FUNDS VEHICLES OTHER ACCOUNTS
----------------------------- ------------------------ ------------------------
Number of Number of Number of
PORTFOLIO MANAGER accounts Assets accounts Assets accounts Assets
----------------- --------- -------------- --------- ------------ --------- ------------
Brian Condon 2 $2.022 billion 2 $359 million 59 $918 million
Colin Moore 2 $2.022 billion 2 $359 million 57 $919 million
Sean P. Wilson 2 $2.022 billion 2 $359 million 59 $918 million
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See "Other Considerations - Portfolio Transactions - Potential conflicts of interest in managing multiple accounts" for information on how the Advisor addresses potential conflicts of interest resulting from an individual's management of more than one account.
OWNERSHIP OF SECURITIES
The table below shows the dollar ranges of shares of the Fund beneficially owned (as determined pursuant to Rule 16a-1(a)(2) under the Securities Exchange Act of 1934, as amended) by the portfolio managers listed above at the end of the Fund's most recent fiscal year:
DOLLAR RANGE OF EQUITY SECURITIES IN THE
PORTFOLIO MANAGER FUND BENEFICIALLY OWNED
----------------- ----------------------------------------
Brian Condon $10,001-$50,000
Colin Moore $0
Sean P. Wilson $0
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COMPENSATION
As of the Fund's most recent fiscal year end, the portfolio managers received all of their compensation from the Advisor and its parent company, Columbia Management Group, in the form of salary, bonus, stock options and restricted stock. A portfolio manager's bonus is variable and is generally based on (1) an evaluation of the manager's investment performance and (2) the results of a peer and/or management review of such individual, which takes into account skills and attributes such as team participation, investment process, communication and professionalism. In evaluating investment performance, the Advisor generally considers the one-, three- and five-year performance of mutual funds and other accounts under the portfolio manager's oversight relative to the benchmarks and peer groups noted below, emphasizing each manager's three- and five-year performance. The Advisor may also consider a portfolio manager's performance in managing client assets in sectors and industries assigned to the manager as part of his or her investment team responsibilities, where applicable. For portfolio managers who also have group management responsibilities, another factor in their evaluation is an assessment of the group's overall investment performance.
PORTFOLIO MANAGER PERFORMANCE BENCHMARK PEER GROUP ----------------- ------------------------------ -------------------------------- Brian Condon MSCI The World Index Net (USD) Morningstar World Stock Category Colin Moore MSCI The World Index Net (USD) Morningstar World Stock Category Sean P. Wilson MSCI The World Index Net (USD) Morningstar World Stock Category |
The size of the overall bonus pool each year is determined by Columbia Management Group and depends in part on levels of compensation generally in the investment management industry (based on market compensation data) and the Advisor's profitability for the year, which is influenced by assets under management.
OWNERSHIP OF THE FUND
As of record on June 30, 2005, the officers and Trustees of the Trust as a group beneficially owned less than 1% of the then outstanding shares of the Fund.
As of record on June 30, 2005, the following shareholders of record owned 5% or more of a class of shares of the Fund:
CLASS A SHARES Citigroup Global Markets, Inc. 5.74% 333 W 34th Street New York, NY 10001-2402 CLASS C SHARES Merrill Lynch Pierce Fenner & Smith 6.73% For the Sole Benefit of its Customers 4800 Deer Lake Drive E FL 2 Jacksonville, FL 32246-6484 UBS Financial Services, Inc. FBO 6.28% UBS-Fin Svc CDN FBO James D. Heerwagen P.O. Box 3321 1000 Harbor Blvd. Weehawken, NJ 07086-6761 |
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SALES CHARGES (dollars in thousands)
Class A Shares
---------------------------------------
Year ended Period ended Years ended
March 31, March 31, October 31,
---------- ------------ -----------
2005(a) 2004(b) 2003 2002
---------- ------------ ---- ----
Aggregate initial sales charges on Fund share sales $18 $11 $32 $29
Initial sales charge retained by CFD 3 2 4 4
Aggregate contingent deferred sales charge (CDSC) on
Fund redemptions retained by CFD (c) (c) 7 14
Redemption fees charged on Fund share redemptions
retained by the Fund (c) -- -- --
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Class B Shares
---------------------------------------
Year ended Period ended Years ended
March 31, March 31, October 31,
---------- ------------ -----------
2005(a) 2004(b) 2003 2002
---------- ------------ ---- ----
Aggregate CDSC on Fund redemptions retained by CFD $38 $18 $54 $0
Redemption fees charged on Fund share redemptions
retained by the Fund (c) -- -- --
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Class C Shares
---------------------------------------
Year ended Period ended Years ended
March 31, March 31, October 31,
---------- ------------ -----------
2005(a) 2004(b) 2003 2002
---------- ------------ ---- ----
Aggregate CDSC on Fund redemptions retained by CFD (c) (c) (c) (c)
Redemption fees charged on Fund share redemptions
retained by the Fund (c) -- -- --
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(a) Effective January 3, 2005, the Fund began imposing a 2.00% redemption fee to shareholders of Class A, Class B and Class C shares who redeem shares held for 60 days or less. The amounts shown are for the period January 3, 2005 to March 31, 2005.
(b) The Fund changed its fiscal year end from October 31 to March 31 in 2004.
(c) Rounds to less than one.
12B-1 PLAN, CDSCS AND CONVERSION OF SHARES
The Fund offers three classes of shares - Class A, Class B and Class C. The Fund may in the future offer other classes of shares. The Trustees have approved a 12b-1 Plan (Plan) pursuant to Rule 12b-1 under the 1940 Act for Class A, Class B and Class C shares. Under the Plan, the Fund pays CFD monthly a service fee at an annual rate of 0.25% of the average daily net assets attributed to Class A, Class B and Class C shares. The Fund also pays CFD monthly a distribution fee at an annual rate of 0.75% of the average daily net assets attributed to Class B and Class C shares. CFD may use the entire amount of such fees to defray the costs of commissions and service fees paid to financial service firms (FSFs) and for certain other purposes. Since the distribution and service fees are payable regardless of the amount of CFD's expenses, CFD may realize a profit from the fees. The Plan authorizes any other payments by the Fund to CFD and its affiliates (including the Administrator) to the extent that such payments might be construed to be indirectly financing the distribution of Fund shares.
The Trustees believe the Plan could be a significant factor in the growth and retention of Fund assets resulting in a more advantageous expense ratio and increased investment flexibility which could benefit each class of Fund shareholders. The Plan will continue in effect from year to year so long as continuance is specifically approved at least annually by a vote of the Trustees, including the Trustees who are not interested persons of the Trust and have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan (Independent Trustees), cast in person at a meeting called for the purpose of voting on the Plan. The Plan may not be amended to increase the fee materially without approval by vote of a majority of the outstanding voting securities of the relevant class of shares and all material amendments of the Plan must be approved by the Trustees in the manner provided in the foregoing sentence. The Plan may be terminated at any time by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding voting securities of the relevant class of shares. The continuance of the Plan will only be effective if the selection and nomination of the Trustees of the Trust who are not interested persons of the Trust is effected by such disinterested Trustees.
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Class A shares are offered at net asset value plus varying sales charges which may include a CDSC. Class B shares are offered at net asset value and are subject to a CDSC if redeemed within a certain number of years after purchase depending on the program you purchased your shares under. Class C shares are offered at net asset value and are subject to a 1.00% CDSC on redemptions within one year after purchase. The CDSCs are described in the Prospectus.
No CDSC will be imposed on shares derived from reinvestment of distributions or on amounts representing capital appreciation. In determining the applicability and rate of any CDSC, it will be assumed that a redemption is made first of shares representing capital appreciation, next of shares representing reinvestment of distributions and finally of other shares held by the shareholder for the longest period of time.
After a certain number of years, depending on the program you purchased your shares under, after the end of the month in which a Class B share is purchased, such shares and a pro rata portion of any shares issued on the reinvestment of distributions will be automatically converted into Class A shares having an equal value which are not subject to the distribution fee. See the Prospectus for a description of the different programs.
SALES-RELATED EXPENSES (dollars in thousands) of CFD relating to the Class A, B and C shares of the Fund were:
Year Ended March 31, 2005
------------------------------------------------
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
Fees to FSFs $204 $73 $10
Cost of sales material relating to the Fund (including printing
and mailing instructions) 6 4 (a)
Allocated travel, entertainment and other promotional expenses
(including advertising) 4 2 (a)
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(a) Rounds to less than one.
CUSTODIAN OF THE FUND
State Street Bank and Trust Company, located at 2 Avenue de Lafayette, Boston, Massachusetts 02111-2900, is the Fund's custodian. The custodian is responsible for safeguarding the Fund's cash and securities, receiving and delivering securities and collecting the Fund's interest and dividends.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF THE FUND
PricewaterhouseCoopers LLP, located at 125 High Street, Boston, Massachusetts 02110-1707, is the Fund's independent registered public accounting firm, providing audit and tax return review services and assistance and consultation in connection with the review of various Securities and Exchange Commission filings. The financial statements incorporated by reference in this SAI have been so incorporated, and the financial highlights in the Prospectus have been so included, in reliance upon the report of PricewaterhouseCoopers LLP given on the authority of said firm as experts in accounting and auditing.
STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to most funds advised by the Advisor. "Funds" include the series of Columbia Funds Trust I (formerly named Liberty Funds Trust I), Columbia Funds Trust II (formerly named Liberty Funds Trust II), Columbia Funds Trust III (formerly named Liberty Funds Trust III), Columbia Funds Trust IV (formerly named Liberty Funds Trust IV), Columbia Funds Trust V (formerly named Liberty Funds Trust V), Columbia Funds Trust VI (formerly named Liberty Funds Trust VI), Columbia Funds Trust VII (formerly named Liberty Funds Trust VII), Columbia Funds Trust VIII (formerly named Liberty-Stein Roe Funds Income Trust), Columbia Funds Trust IX (formerly named Liberty-Stein Roe Funds Municipal Trust) and Columbia Funds Trust XI (formerly named Liberty-Stein Roe Funds Investment Trust) (each a Trust and together, the Trusts, also known as Fund Complex). In certain cases, the discussion applies to some, but not all, of the Funds, and you should refer to your Fund's Prospectus and to Part 1 of this Statement of Additional Information (SAI) to determine whether the matter is applicable to your Fund. You will also be referred to Part 1 for certain data applicable to your Fund.
MISCELLANEOUS INVESTMENT PRACTICES
PART 1 OF THIS SAI LISTS ON PAGE B WHICH OF THE FOLLOWING INVESTMENT PRACTICES
ARE AVAILABLE TO YOUR FUND. IF AN INVESTMENT PRACTICE IS NOT LISTED IN PART 1 OF THIS SAI, IT IS NOT APPLICABLE TO YOUR FUND.
SHORT-TERM TRADING
In seeking the Fund's investment goal, the Advisor will buy or sell portfolio securities whenever it believes it is appropriate. The Advisor's decision will not generally be influenced by how long the Fund may have owned the security. From time to time, the Fund will buy securities intending to seek short-term trading profits. A change in the securities held by the Fund is known as "portfolio turnover" and generally involves some expense to the Fund. These expenses may include brokerage commissions or dealer mark-ups and other transaction costs on both the sale of securities and the reinvestment of the proceeds in other securities. If sales of portfolio securities cause the Fund to realize net short-term capital gains, such gains will be taxable as ordinary income. As a result of the Fund's investment policies, under certain market conditions the Fund's portfolio turnover rate may be higher than that of other mutual funds. The Fund's portfolio turnover rate for a fiscal year is the ratio of the lesser of purchases or sales of portfolio securities to the monthly average of the value of portfolio securities, excluding securities whose maturities at acquisition were one year or less. The Fund's portfolio turnover rate is not a limiting factor when the Advisor considers a change in the Fund's portfolio.
SHORT SALES
A Fund's short sales are subject to special risks. A short sale involves the sale by the Fund of a security that it does not own with the hope of purchasing the same security at a later date at a lower price. In order to deliver the security to the buyer, the Fund borrows the security from a third party. The Fund is then obligated to return the security to the third party, so the Fund must purchase the security at the market price at a later point in time. If the price of the security has increased during this time, then the Fund will incur a loss equal to the increase in price of the security from the time that the short sale was entered into plus any premiums and interest paid to the third party. Therefore, short sales involve the risk that losses may be exaggerated, potentially losing more money than the actual cost of the security. Also, there is the risk that the third party to the short sale may fail to honor its contract terms, causing a loss to the Fund.
LOWER-RATED DEBT SECURITIES
Lower-rated debt securities are those rated lower than Baa by Moody's or BBB by S&P, or comparable unrated debt securities. Relative to debt securities of higher quality,
1. an economic downturn or increased interest rates may have a more significant effect on the yield, price and potential for default for lower-rated debt securities;
2. the secondary market for lower-rated debt securities may at times become less liquid or respond to adverse publicity or investor perceptions, increasing the difficulty in valuing or disposing of the bonds;
3. the Advisor's credit analysis of lower-rated debt securities may have a greater impact on the Fund's achievement of its investment goal; and
4. lower-rated debt securities may be less sensitive to interest rate changes, but are more sensitive to adverse economic
developments.
In addition, certain lower-rated debt securities may not pay interest in cash on a current basis.
SMALL COMPANIES
Smaller, less well established companies may offer greater opportunities for capital appreciation than larger, better established companies, but may also involve certain special risks related to limited product lines, markets, or financial resources and dependence on a small management group. Their securities may trade less frequently, in smaller volumes, and fluctuate more sharply in value than securities of larger companies.
COMMON STOCK, PREFERRED STOCK AND WARRANTS
Common stocks are generally more volatile than other securities. Preferred stocks share some of the characteristics of both debt and equity investments and are generally preferred over common stocks with respect to dividends and in liquidation. A warrant is an instrument issued by a corporation which gives the holder the right to subscribe to a specified amount of the company's capital stock at a set price for a specified period of time.
FOREIGN SECURITIES
The Fund may invest in securities traded in markets outside the United States. Foreign investments can be affected favorably or unfavorably by changes in currency rates and in exchange control regulations. There may be less publicly available information about a foreign company than about a U.S. company, and foreign companies may not be subject to accounting, auditing and financial reporting standards comparable to those applicable to U.S. companies. Securities of some foreign companies are less liquid or more volatile than securities of U.S. companies, and foreign brokerage commissions and custodian fees may be higher than in the United States. Investments in foreign securities can involve other risks different from those affecting U.S. investments, including local political or economic developments, expropriation or nationalization of assets and imposition of withholding taxes on dividend or interest payments. Foreign securities, like other assets of the Fund, will be held by the Fund's custodian or by a sub-custodian or depository. See also "Foreign Currency Transactions" below.
The Fund may invest in certain Passive Foreign Investment Companies (PFICs) which may be subject to U.S. federal income tax on a portion of any "excess distribution" or gain (PFIC tax) related to the investment. This "excess distribution" will be allocated over the Fund's holding period for such investment. The PFIC tax is the highest ordinary income rate in effect for any period multiplied by the portion of the "excess distribution" allocated to such period, and it could be increased by an interest charge on the deemed tax deferral.
The Fund may possibly elect to include in its income its pro rata share of the ordinary earnings and net capital gain of PFICs. This election requires certain annual information from the PFICs which in many cases may be difficult to obtain. An alternative election would permit the Fund to recognize as income any appreciation (and to a limited extent, depreciation) on its holdings of PFICs as of the end of its fiscal year. See "Taxes" below.
The Fund may invest in other investment companies. Such investments will involve the payment of duplicative fees through the indirect payment of a portion of the expenses, including advisory fees, of such other investment companies.
EXCHANGE-TRADED FUNDS ("ETFS"). The Fund may invest in ETFs up to the maximum amount allowable under the 1940 Act. ETFs are shares of publicly-traded unit investment trusts, open-end funds, or depositary receipts that seek to track the performance and dividend yield of specific indexes or companies in related industries. These indexes may be either broad-based, sector or international.
ETF shareholders are generally subject to the same risks as holders of the underlying securities they are designed to track. ETFs are also subject to certain additional risks, including (1) the risk that their prices may not correlate perfectly with changes in the prices of the underlying securities they are designed to track; and (2) the risk of possible trading halts due to market conditions or other reasons, based on the policies of the exchange upon which an ETF trades. In addition, an exchange traded sector fund may be adversely affected by the performance of that specific sector or group of industries on which it is based.
The Fund would bear, along with other shareholders of an ETF, its pro rata portion of the ETF's expenses, including management fees. Accordingly, in addition to bearing their proportionate share of the Fund's expenses (i.e., management fees and operating expenses), shareholders of the Fund may also indirectly bear similar expenses of an ETF.
ZERO COUPON SECURITIES (ZEROS)
The Fund may invest in zero coupon securities, which are securities issued at a significant discount from face value and do not pay interest at intervals during the life of the security. Zero coupon securities include securities issued in certificates representing undivided interests in the interest or principal of mortgage-backed securities (interest only/principal only), which tend to be more volatile than other types of securities. The Fund will accrue and distribute income from stripped securities and certificates on a current basis and may have to sell securities to generate cash for distributions.
STEP COUPON BONDS (STEPS)
The Fund may invest in debt securities which pay interest at a series of different rates (including 0%) in accordance with a stated schedule for a series of periods. In addition to the risks associated with the credit rating of the issuers, these securities may be subject to more volatility risk than fixed rate debt securities.
TENDER OPTION BONDS
A tender option bond is a municipal security (generally held pursuant to a custodial arrangement) having a relatively long maturity and bearing interest at a fixed rate substantially higher than prevailing short-term tax-exempt rates, that has been coupled with the agreement of a third party, such as a bank, broker-dealer or other financial institution, pursuant to which such institution grants the security holders the option, at periodic intervals, to tender their securities to the institution and receive the face value thereof. As consideration for providing the option, the financial institution receives periodic fees equal to the difference between the municipal security's fixed coupon rate and the rate, as determined by a remarketing or similar agent at or near the commencement of such period, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term tax-exempt rate. The Advisor will consider on an ongoing basis the creditworthiness of the issuer of the underlying municipal securities, of any custodian, and of the third-party provider of the tender option. In certain instances and for certain tender option bonds, the option may be terminable in the event of a default in payment of principal or interest on the underlying municipal securities and for other reasons.
PAY-IN-KIND (PIK) SECURITIES
The Fund may invest in securities which pay interest either in cash or additional securities. These securities are generally high yield securities and, in addition to the other risks associated with investing in high yield securities, are subject to the risks that the interest payments which consist of additional securities are also subject to the risks of high yield securities.
MONEY MARKET INSTRUMENTS
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their subdivisions, agencies and instrumentalities. SUPRANATIONAL OBLIGATIONS are issued by supranational entities and are generally designed to promote economic improvements. CERTIFICATES OF DEPOSIT are issued against deposits in a commercial bank with a defined return and maturity. BANKER'S ACCEPTANCES are used to finance the import, export or storage of goods and are "accepted" when guaranteed at maturity by a bank. COMMERCIAL PAPER is a promissory note issued by a business to finance short-term needs (including promissory notes with floating or variable interest rates, or including a frequent interval put feature). SHORT-TERM CORPORATE OBLIGATIONS are bonds and notes (with one year or less to maturity at the time of purchase) issued by businesses to finance long-term needs. PARTICIPATION INTERESTS include the underlying securities and any related guaranty, letter of credit, or collateralization arrangement in which the Fund would be allowed to invest directly.
CERTIFICATES OF DEPOSIT are short-term negotiable instruments issued against deposits in a commercial bank with a defined return and maturity. TIME DEPOSITS are non-negotiable deposits maintained in banking institutions for specified periods of time at stated interest rates.
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their subdivisions, agencies and instrumentalities. Examples of the types of obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities (hereinafter, "U.S. Government obligations") that may be held by the Funds include, without limitation, direct obligations of the U.S. Treasury, and securities issued or guaranteed by the Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association, Federal National Mortgage Association, General Services Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks, Resolution Trust Corporation and Maritime Administration.
U.S. Treasury securities differ only in their interest rates, maturities and time of issuance: Treasury Bills have initial maturities of one year or less; Treasury Notes have initial maturities of one to ten years; and Treasury Bonds generally have initial maturities
of more than ten years. Obligations of certain agencies and instrumentalities of the U.S. Government, such as those of the Government National Mortgage Association, are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Federal Home Loan Banks, are supported by the right of the issuer to borrow from the Treasury; others, such as those of the Federal National Mortgage Association, are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; still others, such as those of the Federal Home Loan Mortgage Corporation, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government would provide financial support to U.S. Government-sponsored instrumentalities if it is not obligated to do so by law. Some of these instruments may be variable or floating rate instruments.
Securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities have historically involved relatively little risk of loss of principal. However, due to fluctuations in interest rates, the market value of such securities may vary during the period a shareholder owns shares of the Fund.
BANK OBLIGATIONS include bankers' acceptances, negotiable certificates of deposit, and non-negotiable time deposits issued for a definite period of time and earning a specified return by a U.S. bank which is a member of the Federal Reserve System or is insured by the Federal Deposit Insurance Corporation ("FDIC"), or by a savings and loan association or savings bank which is insured by the FDIC. Bank obligations also include U.S. dollar-denominated obligations of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of the same type as domestic bank obligations. Time deposits with a maturity longer than seven days or that do not provide for payment within seven days after notice will be subject to any limitations on illiquid securities described in Part 1 of this SAI. For purposes of each Fund's investment policies with respect to bank obligations, the assets of a bank or savings institution will be deemed to include the assets of its U.S. and foreign branches.
Domestic and foreign banks are subject to extensive but different government regulation which may limit the amount and types of their loans and the interest rates that may be charged. In addition, the profitability of the banking industry is largely dependent upon the availability and cost of funds to finance lending operations and the quality of underlying bank assets. Investments in obligations of foreign branches of U.S. banks and of U.S. branches of foreign banks may subject a Fund to additional risks, including future political and economic developments, the possible imposition of withholding taxes on interest income, possible seizure or nationalization of foreign deposits, the possible establishment of exchange controls, or the adoption of other foreign governmental restrictions which might adversely affect the payment of principal and interest on such obligations. In addition, foreign branches of U.S. banks and U.S. branches of foreign banks may be subject to less stringent reserve requirements and to different accounting, auditing, reporting, and recordkeeping standards than those applicable to domestic branches of U.S. banks.
SEPARATELY TRADED INTEREST AND PRINCIPAL SECURITIES ("STRIPS") are component parts of U.S. Treasury Securities traded through the Federal Reserve Book-Entry System. While there is no limitation on the percentage of a Fund's assets that may be invested in STRIPS, the Advisor will monitor the level of such holdings to avoid the risk of impairing shareholders' redemption rights. The interest-only component of STRIPS is extremely sensitive to the rate of principal payments on the underlying obligation. The market value of the principal-only component is usually volatile in response to changes in interest rates.
In U.S. TREASURY ROLLS, a Fund sells outstanding U.S. Treasury securities and buys back on a delayed settlement basis the same U.S. Treasury securities. During the period prior to the delayed settlement date, the assets from the sale of the U.S. Treasury securities are invested in certain cash equivalent instruments. U.S. Treasury rolls entail the risk that the Fund could suffer an opportunity loss if the counterparty to the roll failed to perform its obligations on the settlement date, and if market conditions changed adversely. The Funds intend to enter into U.S. Treasury rolls only with U.S. Government securities dealers recognized by the Federal Reserve Bank or with member banks of the Federal Reserve System. The Funds will hold and maintain in a segregated account until the settlement date cash or other liquid assets in an amount equal to the forward purchase price. For financial reporting and tax purposes, the Funds propose to treat U.S. Treasury rolls as two separate transactions, one involving the purchase of a security and a separate transaction involving a sale.
COMMERCIAL PAPER is an unsecured short-term promissory note issued by businesses to finance short-term needs (including those with floating or variable interest rates, or including a frequent interval put feature). Commercial paper may include variable and floating rate instruments which are unsecured instruments that permit the indebtedness thereunder to vary. Variable rate instruments provide for periodic adjustments in the interest rate. Floating rate instruments provide for automatic adjustment of the interest rate whenever some other specified interest rate changes. Some variable and floating rate obligations are direct lending arrangements between the purchaser and the issuer and there may be no active secondary market. However, in the case of variable and floating rate obligations with a demand feature, a Fund may demand payment of principal and accrued interest at a time specified in the instrument or may resell the instrument to a third party. In the event that an issuer of a variable or floating rate obligation were to default on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and could, for this or other reasons, suffer a loss to the extent of the default.
Commercial paper may include securities issued by corporations without registration under the 1933 Act in reliance on the so-called "private placement" exemption in Section 4(2) ("Section 4(2) Paper"). Section 4(2) Paper is restricted as to disposition under the federal securities laws in that any resale must similarly be made in an exempt transaction. Section 4(2) Paper is normally resold to other institutional investors through or with the assistance of investment dealers who make a market in Section 4(2) Paper, thus providing liquidity. For purposes of each Fund's limitation on purchases of illiquid instruments described below, Section 4(2) Paper will not be considered illiquid if the Advisor has determined, in accordance with guidelines approved by the Board of Trustees, that an adequate trading market exists for such securities.
STRIPPED OBLIGATIONS
To the extent consistent with their investment objective, Funds may purchase U.S. Treasury receipts and other "stripped" securities that evidence ownership in either the future interest payments or the future principal payments on U.S. Government and other obligations. These participations, which may be issued by the U.S. Government or by private issuers, such as banks and other institutions, are issued at their "face value," and may include stripped mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage securities. Stripped securities, particularly SMBS, may exhibit greater price volatility than ordinary debt securities because of the manner in which their principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive different proportions of the interest and principal distributions from a pool of mortgage-backed obligations. A common type of SMBS will have one class receiving all of the interest, while the other class will receive all of the principal. However, in some instances, one class will receive some of the interest and most of the principal while the other class will receive most of the interest and the remainder of the principal. If the underlying obligations experience greater than anticipated prepayments of principal, the Fund may fail to fully recoup its initial investment in these securities. The market value of the class consisting entirely of principal payments generally is extremely volatile in response to changes in interest rates. The yields on a class of SMBS that receives all or most of the interest are generally higher than prevailing market yields on other mortgage-backed obligations because their cash flow patterns are more volatile and there is a greater risk that the initial investment will not be fully recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government agency or instrumentality) are considered illiquid by the Funds. Obligations issued by the U.S. Government may be considered liquid under guidelines established by Funds' Board of Trustees if they can be disposed of promptly in the ordinary course of business at a value reasonably close to that used in the calculation of net asset value per share.
MUNICIPAL SECURITIES
Municipal Securities acquired by the Funds include debt obligations issued by governmental entities to obtain funds for various public purposes, including the construction of a wide range of public facilities, the refunding of outstanding obligations, the payment of general operating expenses, and the extension of loans to public institutions and facilities. Private activity bonds that are issued by or on behalf of public authorities to finance various privately operated facilities are "Municipal Securities" if the interest paid thereon is exempt from regular federal income tax and not treated as a specific tax preference item under the federal alternative minimum tax.
The two principal classifications of Municipal Securities which may be held by the Funds are "general obligation" securities and "revenue" securities. General obligation securities are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue securities are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific revenue source such as the user of the facility being financed.
The Fund's portfolio may also include "moral obligation" securities, which are normally issued by special purpose public authorities. If the issuer of moral obligation securities is unable to meet its debt service obligations from current revenues, it may draw on a reserve fund, the restoration of which is a moral commitment but not a legal obligation of the state or municipality which created the issuer. There is no limitation on the amount of moral obligation securities that may be held by the Funds.
There are, of course, variations in the quality of Municipal Securities, both within a particular category and between categories, and the yields on Municipal Securities depend upon a variety of factors, including general market conditions, the financial condition of the issuer, general conditions of the municipal bond market, the size of a particular offering, the maturity of the obligation, and the rating of the issue. The ratings of a nationally recognized statistical rating organization ("NRSRO"), such as Moody's and S&P, represent such NRSRO's opinion as to the quality of Municipal Securities. It should be emphasized that these ratings are general and are not absolute standards of quality. Municipal Securities with the same maturity, interest rate and rating may have different yields. Municipal Securities of the same maturity and interest rate with different ratings may have the same yield.
Municipal Securities may include rated and unrated variable and floating rate tax-exempt instruments, such as variable rate demand notes. Variable rate demand notes are long-term Municipal Securities that have variable or floating interest rates and provide a Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on an applicable interest index or another published interest rate or interest rate index. Most variable rate demand notes allow a Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit a Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. Variable interest rates generally reduce changes in the market value of Municipal Securities from their original purchase prices. Accordingly, as interest rates decrease, the potential for capital appreciation is less for variable rate Municipal Securities than for fixed income obligations. The terms of these variable rate demand instruments require payment of principal and accrued interest from the issuer of the Municipal Securities, the issuer of the participation interest or a guarantor of either issuer.
Municipal Securities purchased by the Funds in some cases may be insured as to the timely payment of principal and interest. There is no guarantee, however, that the insurer will meet its obligations in the event of a default in payment by the issuer. In other cases, Municipal Securities may be backed by letters of credit or guarantees issued by domestic or foreign banks or other financial institutions which are not subject to federal deposit insurance. Adverse developments affecting the banking industry generally or a particular bank or financial institution that has provided its credit or guarantee with respect to a Municipal Security held by a Fund, including a change in the credit quality of any such bank or financial institution, could result in a loss to the Fund and adversely affect the value of its shares. Letters of credit and guarantees issued by foreign banks and financial institutions involve certain risks in addition to those of similar instruments issued by domestic banks and financial institutions.
The payment of principal and interest on most Municipal Securities purchased by the Funds will depend upon the ability of the issuers to meet their obligations. Each state, the District of Columbia, each of their political subdivisions, agencies, instrumentalities and authorities and each multi-state agency of which a state is a member is a separate "issuer" as that term is used in this SAI and the Prospectuses. The non-governmental user of facilities financed by private activity bonds is also considered to be an "issuer." An issuer's obligations under its Municipal Securities are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Code and laws, if any, which may be enacted by federal or state legislatures extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations or upon the ability of municipalities to levy taxes. The power or ability of an issuer to meet its obligations for the payment of interest on and principal of its Municipal Securities may be materially adversely affected by litigation or other conditions.
From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax exemption for interest on Municipal Securities. For example, under the Tax Reform Act of 1986, interest on certain private activity bonds must be included in an investor's federal alternative minimum taxable income, and corporate investors must include all tax-exempt interest in their federal alternative minimum taxable income. The Funds cannot, of course, predict what legislation may be proposed in the future regarding the income tax status of interest on Municipal Securities, or which proposals, if any, might be enacted. Such proposals, while pending or if enacted, might materially and adversely affect the availability of Municipal Securities for investment by the Funds and the liquidity and value of their respective portfolios. In such an event, each
Fund would re-evaluate its investment objective and policies and consider possible changes in its structure or possible dissolution.
Opinions relating to the validity of Municipal Securities and to the exemption of interest thereon from federal income tax are rendered by bond counsel to the respective issuers at the time of issuance. Neither the Funds nor the Advisor will review the proceedings relating to the issuance of Municipal Securities or the bases for such opinions.
PRIVATE ACTIVITY BONDS
The Funds may invest in "private activity bonds," the interest on which, although exempt from regular federal income tax, may constitute an item of tax preference for purposes of the federal alternative minimum tax. Private activity bonds are or have been issued to obtain funds to provide, among other things, privately operated housing facilities, pollution control facilities, convention or trade show facilities, mass transit, airport, port or parking facilities and certain local facilities for water supply, gas, electricity or sewage or solid waste disposal. Private activity bonds are also issued to privately held or publicly owned corporations in the financing of commercial or industrial facilities. State and local governments are authorized in most states to issue private activity bonds for such purposes in order to encourage corporations to locate within their communities. The principal and interest on these obligations may be payable from the general revenues of the users of such facilities.
Private activity bonds held by the Funds are in most cases revenue securities and are not payable from the unrestricted revenues of the issuer. Consequently, the credit quality of such private activity bonds is usually directly related to the credit standing of the corporate user of the facility involved.
MUNICIPAL LEASE OBLIGATIONS
Although a municipal lease obligation does not constitute a general obligation of the municipality for which the municipality's taxing power is pledged, a municipal lease obligation is ordinarily backed by the municipality's covenant to budget for, appropriate and make the payments due under the municipal lease obligation. However, certain lease obligations contain "non-appropriation" clauses which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. Although "non-appropriation" lease obligations are secured by the leased property, disposition of the property in the event of foreclosure might prove difficult. In addition, the tax treatment of such obligations in the event of non-appropriation is unclear.
Determinations concerning the liquidity and appropriate valuation of a municipal lease obligation, as with any other municipal security, are made based on all relevant factors. These factors include, among others: (1) the frequency of trades and quotes for the obligation; (2) the number of dealers willing to purchase or sell the security and the number of other potential buyers; (3) the willingness of dealers to undertake to make a market in the security; and (4) the nature of the marketplace trades, including the time needed to dispose of the security, the method of soliciting offers, and the mechanics of the transfer.
SECURITIES LOANS
The Fund may make secured loans of its portfolio securities amounting to not more than the percentage of its total assets specified in Part 1 of this SAI, thereby realizing additional income. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delay in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. As a matter of policy, securities loans are made to banks and broker-dealers pursuant to agreements requiring that loans be continuously secured by collateral in cash or short-term debt obligations at least equal at all times to the value of the securities on loan. The borrower pays to the Fund an amount equal to any dividends or interest received on securities lent. The Fund retains all or a portion of the interest received on investment of the cash collateral or receives a fee from the borrower. Although voting rights, or rights to consent, with respect to the loaned securities pass to the borrower, the Fund retains the right to call the loans at any time on reasonable notice, and it will do so in order that the securities may be voted by the Fund if the holders of such securities are asked to vote upon or consent to matters materially affecting the investment. The Fund may also call such loans in order to sell the securities involved.
INTERFUND BORROWING AND LENDING
The Fund may lend money to and borrow money from other affiliated registered open-end investment companies. The Fund may borrow through the program when the Advisor believes borrowing is appropriate and the costs are equal to or lower than the costs of bank loans. When borrowing money, the Fund is subject to the risk that the securities the Fund acquires with the borrowed money or would otherwise have sold will decline in value. When lending money, the Fund is subject to the risk that the borrower will be unwilling or unable to make timely payments of interest or principal.
FORWARD COMMITMENTS ("WHEN-ISSUED" AND "DELAYED DELIVERY" SECURITIES)
The Fund may enter into contracts to purchase securities for a fixed price at a future date beyond customary settlement time ("forward commitments" and "when-issued securities") if the Fund holds until the settlement date, in a segregated account, cash or liquid securities in an amount sufficient to meet the purchase price, or if the Fund enters into offsetting contracts for the forward sale of other securities it owns. Forward commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date. Where such purchases are made through dealers, the Fund relies on the dealer to consummate the sale. The dealer's failure to do so may result in the loss to the Fund of an advantageous yield or price. Although the Fund will generally enter into forward commitments with the intention of acquiring securities for its portfolio or for delivery pursuant to options contracts it has entered into, the Fund may dispose of a commitment prior to settlement if the Advisor deems it appropriate to do so. The Fund may realize short-term profits or losses (generally taxed at ordinary income tax rates in the hands of the shareholders) upon the sale of forward commitments.
MORTGAGE DOLLAR ROLLS
In a mortgage dollar roll, the Fund sells a mortgage-backed security and simultaneously enters into a commitment to purchase a similar security at a later date. The Fund either will be paid a fee by the counterparty upon entering into the transaction or will be entitled to purchase the similar security at a discount. As with any forward commitment, mortgage dollar rolls involve the risk that the counterparty will fail to deliver the new security on the settlement date, which may deprive the Fund of obtaining a beneficial investment. In addition, the security to be delivered in the future may turn out to be inferior to the security sold upon entering into the transaction. In addition, the transaction costs may exceed the return earned by the Fund from the transaction.
REITS
The Funds may invest in real estate investment trusts ("REITs"). Equity REITs invest directly in real property while mortgage REITs invest in mortgages on real property. REITs may be subject to certain risks associated with the direct ownership of real estate, including declines in the value of real estate, risks related to general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, and variations in rental income. Generally, increases in interest rates will decrease the value of high yielding securities and increase the costs of obtaining financing, which could decrease the value of a REIT's investments. In addition, equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of credit extended. Equity and mortgage REITs are dependent upon management skill, are not diversified and are subject to the risks of financing projects. REITs are also subject to heavy cash flow dependency, defaults by borrowers, self liquidation and the possibility of failing to qualify for tax-free pass-through of income under the Internal Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from the 1940 Act. REITs pay dividends to their shareholders based upon available funds from operations. It is quite common for these dividends to exceed a REIT's taxable earnings and profits resulting in the excess portion of such dividends being designated as a return of capital. The Funds intend to include the gross dividends from any investments in REITs in their periodic distributions to its shareholders and, accordingly, a portion of the Fund's distributions may also be designated as a return of capital.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities, including "collateralized mortgage obligations" (CMOs) and "real estate mortgage investment conduits" (REMICs), evidence ownership in a pool of mortgage loans made by certain financial institutions that may be insured or guaranteed by the U.S. government or its agencies. CMOs are obligations issued by special-purpose trusts, secured by mortgages. REMICs are entities that own mortgages and elect REMIC status under the Internal Revenue Code. Both CMOs and REMICs issue one or more classes of securities of which one (the Residual) is in the nature of equity. The Funds will not invest in the Residual class. Principal on mortgage-backed securities, CMOs and REMICs may be prepaid if the underlying mortgages are prepaid. Prepayment rates for mortgage-backed securities tend to increase as interest rates decline (effectively shortening the security's life) and decrease as interest rates rise (effectively lengthening the security's life). Because of the prepayment feature, these securities may not increase in value as much as other debt securities when interest rates fall. A Fund may be able to invest prepaid principal only at lower yields. The prepayment of such securities purchased at a premium may result in losses equal to the premium.
NON-AGENCY MORTGAGE-BACKED SECURITIES
The Fund may invest in non-investment grade mortgage-backed securities that are not guaranteed by the U.S. government or an agency. Such securities are subject to the risks described under "Lower Rated Debt Securities" and "Mortgage-Backed Securities." In addition, although the underlying mortgages provide collateral for the security, the Fund may experience losses, costs and delays in enforcing its rights if the issuer defaults or enters bankruptcy.
ASSET-BACKED SECURITIES
Asset-backed securities are interests in pools of debt securities backed by various types of loans such as credit card, auto and home equity loans. These securities involve prepayment risk, which is the possibility that the underlying debt may be refinanced or prepaid prior to maturity during periods of declining interest rates. During periods of rising interest rates, asset-backed securities have a high risk of declining in price because the declining prepayment rates effectively lengthen the expected maturity of the securities. A decline in interest rates may lead to a faster rate of repayment on asset-backed securities and, therefore, cause a Fund to earn a lower interest rate on reinvestment. In addition, the potential impact of prepayment on the price of an asset-backed security may be difficult to predict and result in greater volatility.
CUSTODY RECEIPTS AND TRUST CERTIFICATES. Custody receipts, such as Morgan Stanley TRACERs (Traded Custody Receipts), and trust certificates, such as Lehman Brothers TRAINs (Targeted Return Index Securities Trust), are derivative products which, in the aggregate, evidence direct ownership in a pool of securities. Typically, a sponsor will deposit a pool of securities with a custodian in exchange for custody receipts evidencing those securities or with a trust in exchange for trust certificates evidencing interests in the trust, the principal asset of which is those securities. The sponsor will then generally sell those custody receipts or trust certificates in negotiated transactions at varying prices that are determined at the time of sale. Each custody receipt or trust certificate evidences the individual securities in the pool and the holder of a custody receipt or trust certificate generally will have all the rights and privileges of owners of those securities. Each holder of a custody receipt or trust certificate generally will be treated as directly purchasing its pro rata share of the securities in the pool for an amount equal to the amount that such holder paid for its custody receipt or trust certificate. If a custody receipt or trust certificate is sold, a holder will be treated as having directly "disposed of its pro rata share of the securities evidenced by the custody receipt or trust certificate. Additionally, the holder of a custody receipt or trust certificate may withdraw the securities represented by the custody receipt or trust certificate subject to certain conditions. Custody receipts and trust certificates are generally subject to the same risks as those securities evidenced by the receipts or certificates which, in the case of the Fund, are corporate debt securities. Additionally, custody receipts and trust certificates may also be less liquid than the underlying securities if the sponsor fails to maintain a trading market.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. A repurchase agreement is a contract under which the Fund acquires a security for a relatively short period subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price (representing the Fund's cost plus interest). It is the Fund's present intention to enter into repurchase agreements only with commercial banks and registered broker-dealers and only with respect to obligations of the U.S. government or its agencies or instrumentalities. Repurchase agreements may also be viewed as loans made by the Fund which are collateralized by the securities subject to repurchase. The Advisor will monitor such transactions to determine that the value of the underlying securities is at least equal at all times to the total amount of the repurchase obligation, including the interest factor. If the seller defaults, the Fund could realize a loss on the sale of the underlying security to the extent that the proceeds of sale including accrued interest are less than the resale price provided in the agreement including interest. In addition, if the seller should be involved in bankruptcy or insolvency proceedings, the Fund may incur delay and costs in selling the underlying security or may suffer a loss of principal and interest if the Fund is treated as an unsecured creditor and required to return the underlying collateral to the seller's estate.
REVERSE REPURCHASE AGREEMENTS
In a reverse repurchase agreement, the Fund sells a security and agrees to repurchase the same security at a mutually agreed upon date and price. A reverse repurchase agreement may also be viewed as the borrowing of money by the Fund and, therefore, as a form of leverage. The Fund will invest the proceeds of borrowings under reverse repurchase agreements. In addition, the Fund will enter into a reverse repurchase agreement only when the interest income expected to be earned from the investment of the proceeds is greater than the interest expense of the transaction. The Fund will not invest the proceeds of a reverse repurchase agreement for a period which exceeds the duration of the reverse repurchase agreement. The Fund may not enter into reverse repurchase agreements exceeding in the aggregate one-third of the market value of its total assets, less liabilities other than the obligations created by reverse repurchase agreements. Each Fund will establish and maintain with its custodian a separate account with a segregated portfolio of securities in an amount at least equal to its purchase obligations under its reverse repurchase agreements. If interest rates rise during the term of a reverse repurchase agreement, entering into the reverse repurchase agreement may have a negative impact on a money market fund's ability to maintain a net asset value of $1.00 per share.
LINE OF CREDIT
The Fund may establish and maintain a line of credit with a major bank in order to permit borrowing on a temporary basis to meet share redemption requests in circumstances in which temporary borrowings may be preferable to liquidation of portfolio securities.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The Fund may write covered call options and covered put options on securities held in its portfolio when, in the opinion of the Advisor, such transactions are consistent with the Fund's investment goal and policies. Call options written by the Fund give the purchaser the right to buy the underlying securities from the Fund at a stated exercise price; put options give the purchaser the right to sell the underlying securities to the Fund at a stated price.
The Fund may write only covered options, which means that, so long as the Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option (or comparable securities satisfying the cover requirements of securities exchanges). In the case of put options, the Fund will hold cash and/or high-grade short-term debt obligations equal to the price to be paid if the option is exercised. In addition, the Fund will be considered to have covered a put or call option if and to the extent that it holds an option that offsets some or all of the risk of the option it has written. The Fund may write combinations of covered puts and calls on the same underlying security.
The Fund will receive a premium from writing a put or call option, which increases the Fund's return on the underlying security if the option expires unexercised or is closed out at a profit. The amount of the premium reflects, among other things, the relationship between the exercise price and the current market value of the underlying security, the volatility of the underlying security, the amount of time remaining until expiration, current interest rates, and the effect of supply and demand in the options market and in the market for the underlying security. By writing a call option, the Fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option but continues to bear the risk of a decline in the value of the underlying security. By writing a put option, the Fund assumes the risk that it may be required to purchase the underlying security for an exercise price higher than its then-current market value, resulting in a potential capital loss unless the security subsequently appreciates in value.
The Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an offsetting option. The Fund realizes a profit or loss from a closing transaction if the cost of the transaction (option premium plus transaction costs) is less or more than the premium received from writing the option. Because increases in the market price of a call option generally reflect increases in the market price of the security underlying the option, any loss resulting from a closing purchase transaction may be offset in whole or in part by unrealized appreciation of the underlying security.
If the Fund writes a call option but does not own the underlying security, and when it writes a put option, the Fund may be required to deposit cash or securities with its broker as "margin" or collateral for its obligation to buy or sell the underlying security. As the value of the underlying security varies, the Fund may have to deposit additional margin with the broker. Margin requirements are complex and are fixed by individual brokers, subject to minimum requirements currently imposed by the Federal Reserve Board and by stock exchanges and other self-regulatory organizations.
PURCHASING PUT OPTIONS. The Fund may purchase put options to protect its portfolio holdings in an underlying security against a decline in market value. Such hedge protection is provided during the life of the put option since the Fund, as holder of the put option, is able to sell the underlying security at the put exercise price regardless of any decline in the underlying security's market price. For a put option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs. By using put options in this manner, the Fund will reduce any profit it might otherwise have realized from appreciation of the underlying security by the premium paid for the put option and by transaction costs.
PURCHASING CALL OPTIONS. The Fund may purchase call options to hedge against an increase in the price of securities that the Fund wants ultimately to buy. Such hedge protection is provided during the life of the call option since the Fund, as holder of the call option, is able to buy the underlying security at the exercise price regardless of any increase in the underlying security's market price. In order for a call option to be profitable, the market price of the underlying security must rise sufficiently above the exercise price to cover the premium and transaction costs. These costs will reduce any profit the Fund might have realized had it bought the underlying security at the time it purchased the call option.
OVER-THE-COUNTER (OTC) OPTIONS. The Staff of the Division of Investment Management of the Securities and Exchange Commission (SEC) has taken the position that OTC options purchased by the Fund and assets held to cover OTC options written by the Fund are illiquid securities. Although the Staff has indicated that it is continuing to evaluate this issue, pending further developments, the Fund intends to enter into OTC options transactions only with primary dealers in U.S. government securities and, in the case of OTC options written by the Fund, only pursuant to agreements that will assure that the Fund will at all times have the right to repurchase the option written by it from the dealer at a specified formula price. The Fund will treat the amount by which such formula price exceeds the amount, if any, by which the option may be "in-the-money" as an illiquid investment. It is the present policy of the Fund not to enter into any OTC option transaction if, as a result, more than 15% (10% in some cases, refer to your Fund's Prospectus) of the Fund's net assets would be invested in (i) illiquid investments (determined under the foregoing formula) relating to OTC options written by the Fund, (ii) OTC options purchased by the Fund, (iii) securities which are not readily marketable, and (iv) repurchase agreements maturing in more than seven days.
RISK FACTORS IN OPTIONS TRANSACTIONS. The successful use of the Fund's options strategies depends on the ability of the Advisor to forecast interest rate and market movements correctly.
When it purchases an option, the Fund runs the risk that it will lose its entire investment in the option in a relatively short period of time, unless the Fund exercises the option or enters into a closing sale transaction with respect to the option during the life of the option. If the price of the underlying security does not rise (in the case of a call) or fall (in the case of a put) to an extent sufficient to cover the option premium and transaction costs, the Fund will lose part or all of its investment in the option. This contrasts with an investment by the Fund in the underlying securities, since the Fund may continue to hold its investment in those securities notwithstanding the lack of a change in price of those securities.
The effective use of options also depends on the Fund's ability to terminate option positions at times when the Advisor deems it desirable to do so. Although the Fund will take an option position only if the Advisor believes there is a liquid secondary market for the option, there is no assurance that the Fund will be able to effect closing transactions at any particular time or at an acceptable price.
If a secondary trading market in options were to become unavailable, the Fund could no longer engage in closing transactions. Lack of investor interest might adversely affect the liquidity of the market for particular options or series of options. A marketplace may discontinue trading of a particular option or options generally. In addition, a market could become temporarily unavailable if unusual events -- such as volume in excess of trading or clearing capability -- were to interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on particular types of option transactions, which may limit the Fund's ability to realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options purchased or sold by the Fund could result in losses on the options. If trading is interrupted in an underlying security, the trading of options on that security is normally halted as well. As a result, the Fund as purchaser or writer of an option will be unable to close out its positions until options trading resumes, and it may be faced with losses if trading in the security reopens at a substantially different price. In addition, the Options Clearing Corporation (OCC) or other options markets may impose exercise restrictions. If a prohibition on exercise is imposed at the time when trading in the option has also been halted, the Fund as purchaser or writer of an option will be locked into its position until one of the two restrictions has been lifted. If a prohibition on exercise remains in effect until an option owned by the Fund has expired, the Fund could lose the entire value of its option.
Special risks are presented by internationally traded options. Because of time differences between the United States and various foreign countries, and because different holidays are observed in different countries, foreign options markets may be open for trading during hours or on days when U.S. markets are closed. As a result, option premiums may not reflect the current prices of the underlying interest in the United States.
FUTURES CONTRACTS AND RELATED OPTIONS
Upon entering into futures contracts, in compliance with the SEC's requirements, cash or liquid securities, equal in value to the amount of the Fund's obligation under the contract (less any applicable margin deposits and any assets that constitute "cover" for such obligation), will be segregated with the Fund's custodian..
A futures contract sale creates an obligation by the seller to deliver the type of instrument called for in the contract in a specified delivery month for a stated price. A futures contract purchase creates an obligation by the purchaser to take delivery of the type
of instrument called for in the contract in a specified delivery month at a stated price. The specific instruments delivered or taken at the settlement date are not determined until on or near that date. The determination is made in accordance with the rules of the exchanges on which the futures contract was made. The Fund may enter into futures contracts which are traded on national or foreign futures exchanges and are standardized as to maturity date and underlying financial instrument. Futures exchanges and trading in the United States are regulated under the Commodity Exchange Act by the Commodity Futures Trading Commission (CFTC).
Although futures contracts by their terms call for actual delivery or acceptance of commodities or securities, the contracts usually are closed out before the settlement date without the making or taking of delivery. Closing out a futures contract sale is effected by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument or commodity with the same delivery date. If the price of the initial sale of the futures contract exceeds the price of the offsetting purchase, the seller is paid the difference and realizes a gain. Conversely, if the price of the offsetting purchase exceeds the price of the initial sale, the seller realizes a loss. Similarly, the closing out of a futures contract purchase is effected by the purchaser's entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, the purchaser realizes a gain, and if the purchase price exceeds the offsetting sale price, the purchaser realizes a loss.
Unlike when the Fund purchases or sells a security, no price is paid or received by the Fund upon the purchase or sale of a futures contract, although the Fund is required to deposit with its custodian in a segregated account in the name of the futures broker an amount of cash and/or U.S. government securities. This amount is known as "initial margin." The nature of initial margin in futures transactions is different from that of margin in security transactions in that futures contract margin does not involve the borrowing of funds by the Fund to finance the transactions. Rather, initial margin is in the nature of a performance bond or good faith deposit on the contract that is returned to the Fund upon termination of the futures contract, assuming all contractual obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin," to and from the broker (or the custodian) are made on a daily basis as the price of the underlying security or commodity fluctuates, making the long and short positions in the futures contract more or less valuable, a process known as "marking to market."
The Fund may elect to close some or all of its futures positions at any time prior to their expiration. The purpose of making such a move would be to reduce or eliminate the hedge position then currently held by the Fund. The Fund may close its positions by taking opposite positions which will operate to terminate the Fund's position in the futures contracts. Final determinations of variation margin are then made, additional cash is required to be paid by or released to the Fund, and the Fund realizes a loss or a gain. Such closing transactions involve additional commission costs.
INTEREST RATE FUTURES CONTRACTS. Bond prices are established in both the cash market and the futures market. In the cash market, bonds are purchased and sold with payment for the full purchase price of the bond being made in cash, generally within five business days after the trade. In the futures market, only a contract is made to purchase or sell a bond in the future for a set price on a certain date. Historically, the prices for bonds established in the futures markets have tended to move generally in the aggregate in concert with the cash market prices and have maintained fairly predictable relationships. Accordingly, the Funds may use interest rate futures contracts as a defense, or hedge, against anticipated interest rate changes. The Funds presently could accomplish a similar result to that which they hope to achieve through the use of futures contracts by selling bonds with long maturities and investing in bonds with short maturities when interest rates are expected to increase, or conversely, selling short-term bonds and investing in long-term bonds when interest rates are expected to decline. However, because of the liquidity that is often available in the futures market, the protection is more likely to be achieved, perhaps at a lower cost and without changing the rate of interest being earned by the Funds, through using futures contracts.
Interest rate futures contracts are traded in an auction environment on the floors of several exchanges -- principally, the Chicago Board of Trade, the Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would deal only in standardized contracts on recognized exchanges. Each exchange guarantees performance under contract provisions through a clearing corporation, a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial instruments including long-term United States Treasury Bonds and Notes; Government National Mortgage Association (GNMA) modified pass-through mortgage backed securities; three-month United States Treasury Bills; and ninety-day commercial paper. The Funds may trade in any interest rate futures contracts for which there exists a public market, including, without limitation, the foregoing instruments.
MUNICIPAL BOND INDEX FUTURES CONTRACTS. Municipal bond index futures contracts may act as a hedge against changes in market conditions. A municipal bond index assigns values daily to the municipal bonds included in the index based on the independent assessment of dealer-to-dealer municipal bond brokers. A municipal bond index futures contract represents a firm commitment by which two parties agree to take or make delivery of an amount equal to a specified dollar amount multiplied by the difference between the municipal bond index value on the last trading date of the contract and the price at which the futures contract is originally struck. No physical delivery of the underlying securities in the index is made.
The Chicago Board of Trade has designed a futures contract based on the Bond Buyer Municipal Bond Index. This Index is composed of 40 term revenue and general obligation bonds, and its composition is updated regularly as new bonds meeting the criteria of the Index are issued and existing bonds mature. The Index is intended to provide an accurate indicator of trends and changes in the municipal bond market. Each bond in the Index is independently priced by six dealer-to-dealer municipal bond brokers daily. The 40 prices then are averaged and multiplied by a coefficient. The coefficient is used to maintain the continuity of the Index when its composition changes. The Chicago Board of Trade, on which futures contracts based on this Index are traded, as well as other U.S. commodities exchanges, are regulated by the CFTC. Transactions on such exchange are cleared through a clearing corporation, which guarantees the performance of the parties to each contract.
OPTIONS ON FUTURES CONTRACTS. The Fund will enter into written options on futures contracts only when, in compliance with the SEC's requirements, cash or liquid securities equal in value to the commodity value (less any applicable margin deposits) have been deposited in a segregated account. The Fund may purchase and write call and put options on futures contracts it may buy or sell and enter into closing transactions with respect to such options to terminate existing positions. The Fund may use such options on futures contracts in lieu of writing options directly on the underlying securities or purchasing and selling the underlying futures contracts. Such options generally operate in the same manner as options purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate his position by selling or purchasing an offsetting option. There is no guarantee that such closing transactions can be effected.
The Fund will be required to deposit initial margin and maintenance margin with respect to put and call options on futures contracts written by it pursuant to brokers' requirements similar to those described above.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use of futures contracts by the Fund is subject to the Advisor's ability to predict correctly, movements in the direction of interest rates and other factors affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or put options on futures contracts involves less potential risk to the Fund because the maximum amount at risk is the premium paid for the options (plus transaction costs). However, there may be circumstances when the purchase of a call or put option on a futures contract would result in a loss to the Fund when the purchase or sale of a futures contract would not, such as when there is no movement in the prices of the hedged investments. The writing of an option on a futures contract involves risks similar to those risks relating to the sale of futures contracts.
There is no assurance that higher than anticipated trading activity or other unforeseen events might not, at times, render certain market clearing facilities inadequate, and thereby result in the institution, by exchanges, of special procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the Fund, the Fund may seek to close out a position. The ability to establish and close out positions will be subject to the development and maintenance of a liquid secondary market. It is not certain that this market will develop or continue to exist for a particular futures contract. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain contracts or options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of contracts or options, or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or a
clearing corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of contracts or options (or a particular class or series of contracts or options), in which event the secondary market on that exchange (or in the class or series of contracts or options) would cease to exist, although outstanding contracts or options on the exchange that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms.
USE BY TAX-EXEMPT FUNDS OF INTEREST RATE AND U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. The Funds investing in tax-exempt securities may purchase and sell futures contracts and related options on interest rate and U.S. Treasury securities when, in the opinion of the Advisor, price movements in these security futures and related options will correlate closely with price movements in the tax-exempt securities which are the subject of the hedge. Interest rate and U.S. Treasury securities futures contracts require the seller to deliver, or the purchaser to take delivery of, the type of security called for in the contract at a specified date and price. Options on interest rate and U.S. Treasury security futures contracts give the purchaser the right in return for the premium paid to assume a position in a futures contract at the specified option exercise price at any time during the period of the option.
In addition to the risks generally involved in using futures contracts, there is also a risk that price movements in interest rate and U.S. Treasury security futures contracts and related options will not correlate closely with price movements in markets for tax-exempt securities.
INDEX FUTURES CONTRACTS. An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of an index is commonly referred to as buying or purchasing a contract or holding a long position in the index. Entering into a contract to sell units of an index is commonly referred to as selling a contract or holding a short position. A unit is the current value of the index. The Fund may enter into stock index futures contracts, debt index futures contracts, or other index futures contracts appropriate to its objective(s). The Fund may also purchase and sell options on index futures contracts.
There are several risks in connection with the use by the Fund of index futures as a hedging device. One risk arises because of the imperfect correlation between movements in the prices of the index futures and movements in the prices of securities which are the subject of the hedge. The Advisor will attempt to reduce this risk by selling, to the extent possible, futures on indices the movements of which will, in its judgment, have a significant correlation with movements in the prices of the Fund's portfolio securities sought to be hedged.
Successful use of index futures by the Fund for hedging purposes is also subject to the Advisor's ability to predict correctly movements in the direction of the market. It is possible that, where the Fund has sold futures to hedge its portfolio against a decline in the market, the index on which the futures are written may advance and the value of securities held in the Fund's portfolio may decline. If this occurs, the Fund would lose money on the futures and also experience a decline in the value of its portfolio securities. However, while this could occur to a certain degree, the Advisor believes that over time the value of the Fund's portfolio will tend to move in the same direction as the market indices which are intended to correlate to the price movements of the portfolio securities sought to be hedged. It is also possible that, if the Fund has hedged against the possibility of a decline in the market adversely affecting securities held in its portfolio and securities prices increase instead, the Fund will lose part or all of the benefit of the increased values of those securities that it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient cash, it may have to sell securities to meet daily variation margin requirements.
In addition to the possibility that there may be an imperfect correlation, or no correlation at all, between movements in the index futures and the securities of the portfolio being hedged, the prices of index futures may not correlate perfectly with movements in the underlying index due to certain market distortions. First, all participants in the futures markets are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions which would distort the normal relationship between the index and futures markets. Second, margin requirements in the futures market are less onerous than margin requirements in the securities market, and as a result, the futures market may attract more speculators than the securities market. Increased participation by speculators in the futures market may also cause temporary price distortions. Due to the possibility of price distortions in the futures market and also because of the imperfect correlation between movements in the index and movements in the prices of index futures, even a correct forecast of general market trends by the Advisor may still not result in a successful hedging transaction.
OPTIONS ON INDEX FUTURES. Options on index futures are similar to options on securities except that options on index futures give the purchaser the right, in return for the premium paid, to assume a position in an index futures contract (a long position if
the option is a call and a short position if the option is a put), at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's futures margin account which represents the amount by which the market price of the index futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the index future. If an option is exercised on the last trading day prior to the expiration date of the option, the settlement will be made entirely in cash equal to the difference between the exercise price of the option and the closing level of the index on which the future is based on the expiration date. Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss of the premium paid.
OPTIONS ON INDICES. As an alternative to purchasing call and put options on index futures, the Fund may purchase call and put options on the underlying indices themselves. Such options could be used in a manner identical to the use of options on index futures. Options involving securities indices provide the holder with the right to make or receive a cash settlement upon exercise of the option based on movements in the relevant index. Such options must be listed on a national securities exchange and issued by the Options Clearing Corporation. Such options may relate to particular securities or to various stock indices, except that a Fund may not write covered options on an index.
OPTIONS ON FOREIGN STOCK INDICES. The Funds may, for the purpose of hedging its portfolio, subject to applicable securities regulations, purchase and write put and call options on foreign stock indices listed on foreign and domestic stock exchanges. A stock index fluctuates with changes in the market values of the stocks included in the index.
SWAP AGREEMENTS (SWAPS, CAPS, COLLARS AND FLOORS)
The Funds may enter into interest rate swaps, currency swaps, and other types of swap agreements such as caps, collars, and floors. In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate times a "notional principal amount," in return for payments equal to a fixed rate times the same amount, for a specified period of time. If a swap agreement provides for payments in different currencies, the parties might agree to exchange notional principal amount as well. Swaps may also depend on other prices or rates, such as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed upon level. An interest rate collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from one type of investment to another. For example, if a Fund agreed to exchange payments in dollars for payments in foreign currency, the swap agreement would tend to decrease the Fund's exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates. Caps and floors have an effect similar to buying or writing options. Depending on how they are used, swap agreements may increase or decrease the overall volatility of a Fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a small investment of cash relative to the magnitude of risks assumed. As a result, swaps can be highly volatile and may have a considerable impact on the Funds' performance. Swap agreements are subject to risks related to the counterparty's ability to perform, and may decline in value if the counterparty's creditworthiness deteriorates. The Funds may also suffer losses if they are unable to terminate outstanding swap agreements or reduce their exposure through offsetting transactions.
EQUITY SWAPS
The Fund may engage in equity swaps. Equity swaps allow the parties to the swap agreement to exchange components of return on one equity investment (e.g., a basket of equity securities or an index) for a component of return on another non-equity or equity investment, including an exchange of differential rates of return. Equity swaps may be used to invest in a market without owning or taking physical custody of securities in circumstances where direct investment may be restricted for legal reasons or is otherwise impractical. Equity swaps also may be used for other purposes, such as hedging or seeking to increase total return.
RISK FACTORS IN EQUITY SWAP TRANSACTIONS. Equity swaps are derivative instruments and their values can be very volatile. To the extent that the portfolio managers do not accurately analyze and predict the potential relative fluctuation on the components swapped with the other party, the Fund may suffer a loss. The value of some components of an equity swap (such as the
dividend on a common stock) may also be sensitive to changes in interest rates. Furthermore, during the period a swap is outstanding, the Fund may suffer a loss if the counterparty defaults. See "Taxes" for information on tax risks associated with equity swaps.
FOREIGN CURRENCY TRANSACTIONS
The Fund may engage in currency exchange transactions to protect against uncertainty in the level of future currency exchange rates.
The Fund may engage in both "transaction hedging" and "position hedging." When it engages in transaction hedging, the Fund enters into foreign currency transactions with respect to specific receivables or payables of the Fund generally arising in connection with the purchase or sale of its portfolio securities. The Fund will engage in transaction hedging when it desires to "lock in" the U.S. dollar price of a security it has agreed to purchase or sell, or the U.S. dollar equivalent of a dividend or interest payment in a foreign currency. By transaction hedging the Fund attempts to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and the applicable foreign currency during the period between the date on which the security is purchased or sold, or on which the dividend or interest payment is declared, and the date on which such payments are made or received.
The Fund may purchase or sell a foreign currency on a spot (or cash) basis at the prevailing spot rate in connection with the settlement of transactions in portfolio securities denominated in that foreign currency. The Fund may also enter into contracts to purchase or sell foreign currencies at a future date ("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes the Fund may also purchase exchange-listed and over-the-counter call and put options on foreign currency futures contracts and on foreign currencies. Over-the-counter options are considered to be illiquid by the SEC staff. A put option on a futures contract gives the Fund the right to assume a short position in the futures contract until expiration of the option. A put option on currency gives the Fund the right to sell a currency at an exercise price until the expiration of the option. A call option on a futures contract gives the Fund the right to assume a long position in the futures contract until the expiration of the option. A call option on currency gives the Fund the right to purchase a currency at the exercise price until the expiration of the option.
When it engages in position hedging, the Fund enters into foreign currency exchange transactions to protect against a decline in the values of the foreign currencies in which its portfolio securities are denominated (or an increase in the value of currency for securities which the Fund expects to purchase, when the Fund holds cash or short-term investments). In connection with position hedging, the Fund may purchase put or call options on foreign currency and foreign currency futures contracts and buy or sell forward contracts and foreign currency futures contracts. The Fund may also purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions and the value of the portfolio securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the dates the currency exchange transactions are entered into and the dates they mature.
It is impossible to forecast with precision the market value of portfolio securities at the expiration or maturity of a forward or futures contract. Accordingly, it may be necessary for the Fund to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security or securities being hedged is less than the amount of foreign currency the Fund is obligated to deliver and if a decision is made to sell the security or securities and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security or securities if the market value of such security or securities exceeds the amount of foreign currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying prices of the securities which the Fund owns or intends to purchase or sell. They simply establish a rate of exchange which one can achieve at some future point in time. Additionally, although these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency, they tend to limit any potential gain which might result from the increase in value of such currency.
CURRENCY FORWARD AND FUTURES CONTRACTS. Upon entering into such contracts, in compliance with the SEC's requirements, cash or liquid securities, equal in value to the amount of the Fund's obligation under the contract (less any applicable margin deposits and any assets that constitute "cover" for such obligation), will be segregated.
A forward currency contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract as agreed by the parties, at a price set at the time of the contract. In the case of a cancelable contract, the holder has the unilateral right to cancel the contract at maturity by paying a specified fee. The contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. A contract generally has no deposit requirement, and no commissions are charged at any stage for trades. A currency futures contract is a standardized contract for the future delivery of a specified amount of a foreign currency at a future date at a price set at the time of the contract. Currency futures contracts traded in the United States are designed and traded on exchanges regulated by the CFTC, such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain respects. For example, the maturity date of a forward contract may be any fixed number of days from the date of the contract agreed upon by the parties, rather than a predetermined date in a given month. Forward contracts may be in any amounts agreed upon by the parties rather than predetermined amounts. Also, forward contracts are traded directly between currency traders so that no intermediary is required. A forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Fund may either accept or make delivery of the currency specified in the contract, or at or prior to maturity enter into a closing transaction involving the purchase or sale of an offsetting contract. Closing transactions with respect to forward contracts are usually effected with the currency trader who is a party to the original forward contract. Closing transactions with respect to futures contracts are effected on a commodities exchange; a clearing corporation associated with the exchange assumes responsibility for closing out such contracts.
Positions in currency futures contracts may be closed out only on an exchange or board of trade which provides a secondary market in such contracts. Although the Fund intends to purchase or sell currency futures contracts only on exchanges or boards of trade where there appears to be an active secondary market, there is no assurance that a secondary market on an exchange or board of trade will exist for any particular contract or at any particular time. In such event, it may not be possible to close a futures position and, in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin.
CURRENCY OPTIONS. In general, options on currencies operate similarly to options on securities and are subject to many similar risks. Currency options are traded primarily in the over-the-counter market, although options on currencies have recently been listed on several exchanges. Options are traded not only on the currencies of individual nations, but also on the European Currency Unit (ECU). The ECU is composed of amounts of a number of currencies, and is the official medium of exchange of the European Economic Community's European Monetary System.
The Fund will only purchase or write currency options when the Advisor believes that a liquid secondary market exists for such options. There can be no assurance that a liquid secondary market will exist for a particular option at any specified time. Currency options are affected by all of those factors which influence exchange rates and investments generally. To the extent that these options are traded over the counter, they are considered to be illiquid by the SEC staff.
The value of any currency, including the U.S. dollar, may be affected by complex political and economic factors applicable to the issuing country. In addition, the exchange rates of currencies (and therefore the values of currency options) may be significantly affected, fixed, or supported directly or indirectly by government actions. Government intervention may increase risks involved in purchasing or selling currency options, since exchange rates may not be free to fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in turn reflects relative values of two currencies, the U.S. dollar and the foreign currency in question. Because currency transactions occurring in the interbank market involve substantially larger amounts than those that may be involved in the exercise of currency options, investors may be disadvantaged by having to deal in an odd lot market for the underlying currencies in connection with options at prices that are less favorable than for round lots. Foreign governmental restrictions or taxes could result in adverse changes in the cost of acquiring or disposing of currencies.
There is no systematic reporting of last sale information for currencies and there is no regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Available quotation information is
generally representative of very large round-lot transactions in the interbank market and thus may not reflect exchange rates for smaller odd-lot transactions (less than $1 million) where rates may be less favorable. The interbank market in currencies is a global, around-the-clock market. To the extent that options markets are closed while the markets for the underlying currencies remain open, significant price and rate movements may take place in the underlying markets that cannot be reflected in the options markets.
SETTLEMENT PROCEDURES. Settlement procedures relating to the Fund's investments in foreign securities and to the Fund's foreign currency exchange transactions may be more complex than settlements with respect to investments in debt or equity securities of U.S. issuers, and may involve certain risks not present in the Fund's domestic investments, including foreign currency risks and local custom and usage. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not charge a fee for currency conversion, they do realize a profit based on the difference (spread) between prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligation.
PARTICIPATION INTERESTS
The Fund may invest in municipal obligations either by purchasing them directly or by purchasing certificates of accrual or similar instruments evidencing direct ownership of interest payments or principal payments, or both, on municipal obligations, provided that, in the opinion of counsel to the initial seller of each such certificate or instrument, any discount accruing on such certificate or instrument that is purchased at a yield not greater than the coupon rate of interest on the related municipal obligations will be exempt from federal income tax to the same extent as interest on such municipal obligations. The Fund may also invest in tax-exempt obligations by purchasing from banks participation interests in all or part of specific holdings of municipal obligations. Such participations may be backed in whole or part by an irrevocable letter of credit or guarantee of the selling bank. The selling bank may receive a fee from the Fund in connection with the arrangement. The Fund will not purchase such participation interests unless it receives an opinion of counsel or a ruling of the Internal Revenue Service that interest earned by it on municipal obligations in which it holds such participation interests is exempt from federal income tax.
STAND-BY COMMITMENTS
When the Fund purchases municipal obligations, it may also acquire stand-by commitments from banks and broker-dealers with respect to such municipal obligations. A stand-by commitment is the equivalent of a put option acquired by the Fund with respect to a particular municipal obligation held in its portfolio. A stand-by commitment is a security independent of the municipal obligation to which it relates. The amount payable by a bank or dealer during the time a stand-by commitment is exercisable, absent unusual circumstances relating to a change in market value, would be substantially the same as the value of the underlying municipal obligation. A stand-by commitment might not be transferable by the Fund, although it could sell the underlying municipal obligation to a third party at any time.
The Fund expects that stand-by commitments generally will be available without the payment of direct or indirect consideration. However, if necessary and advisable, the Fund may pay for stand-by commitments either separately in cash or by paying a higher price for portfolio securities which are acquired subject to such a commitment (thus reducing the yield to maturity otherwise available for the same securities). The total amount paid in either manner for outstanding stand-by commitments held in the Fund portfolio will not exceed 10% of the value of the Fund's total assets calculated immediately after each stand-by commitment is acquired. The Fund will enter into stand-by commitments only with banks and broker-dealers that, in the judgment of the Trust's Board of Trustees, present minimal credit risks.
VARIABLE AND FLOATING RATE OBLIGATIONS
Variable rate instruments provide for periodic adjustments in the interest rate. Floating rate instruments provide for automatic adjustment of the interest rate whenever some other specified interest rate changes. Some variable and floating rate obligations are direct lending arrangements between the purchaser and the issuer and there may be no active secondary market. However, in the case of variable and floating rate obligations with a demand feature, a Fund may demand payment of principal and accrued interest at a time specified in the instrument or may resell the instrument to a third party. In the event an issuer of a variable or floating rate obligation defaulted on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and could, for this or other reasons, suffer a loss to the extent of the default. Variable or floating rate instruments issued or guaranteed by the U.S. Government or its agencies or instrumentalities are similar in form but
may have a more active secondary market. Substantial holdings of variable and floating rate instruments could reduce portfolio liquidity.
If a variable or floating rate instrument is not rated, the Fund's Advisor must determine that such instrument is comparable to rated instruments eligible for purchase by the Funds and will consider the earning power, cash flows and other liquidity ratios of the issuers and guarantors of such instruments and will continuously monitor their financial status in order to meet payment on demand. In determining average weighted portfolio maturity of each of these Funds, a variable or floating rate instrument issued or guaranteed by the U.S. Government or an agency or instrumentality thereof will be deemed to have a maturity equal to the period remaining until the obligation's next interest rate adjustment. Variable and floating rate obligations with a demand feature will be deemed to have a maturity equal to the longer of the period remaining to the next interest rate adjustment or the demand notice period.
INVERSE FLOATERS
Inverse floaters are derivative securities whose interest rates vary inversely to changes in short-term interest rates and whose values fluctuate inversely to changes in long-term interest rates. The value of certain inverse floaters will fluctuate substantially more in response to a given change in long-term rates than would a traditional debt security. These securities have investment characteristics similar to leverage, in that interest rate changes have a magnified effect on the value of inverse floaters.
RULE 144A SECURITIES
The Fund may purchase securities that have been privately placed but that are eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933, as amended (1933 Act). That Rule permits certain qualified institutional buyers, such as the Fund, to trade in privately placed securities that have not been registered for sale under the 1933 Act. The Advisor, under the supervision of the Board of Trustees, will consider whether securities purchased under Rule 144A are illiquid and thus subject to the Fund's investment restriction on illiquid securities. A determination of whether a Rule 144A security is liquid or not is a question of fact. In making this determination, the Advisor will consider the trading markets for the specific security, taking into account the unregistered nature of a Rule 144A security. In addition, the Advisor could consider the (1) frequency of trades and quotes, (2) number of dealers and potential purchasers, (3) dealer undertakings to make a market, and (4) nature of the security and of marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A securities will be monitored and, if as a result of changed conditions, it is determined by the Advisor that a Rule 144A security is no longer liquid, the Fund's holdings of illiquid securities would be reviewed to determine what, if any, steps are required to assure that the Fund does not exceed its investment limit on illiquid securities. Investing in Rule 144A securities could have the effect of increasing the amount of the Fund's assets invested in illiquid securities if qualified institutional buyers are unwilling to purchase such securities.
CURRENCY SWAPS. Currency swaps involve the exchange of rights to make or receive payments in specified currencies. Currency swaps usually involve the delivery of the entire principal value of one designated currency. Therefore, the entire principal value of a currency swap is subject to the risk that the other party to the swap will default on its contractual delivery obligations. The use of currency swaps is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. If the Advisor is incorrect in its forecast of market value and currency exchange rates, the investment performance of a Fund would be less favorable than it would have been if this investment technique were not used.
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities which may be exchanged or converted into a predetermined number of shares of the issuer's underlying common stock at the option of the holder during a specified time period. Convertible securities may take the form of convertible preferred stock, convertible bonds or debentures, units consisting of "usable" bonds and warrants or a combination of the features of several of these securities.
Convertible bonds and convertible preferred stocks generally retain the investment characteristics of fixed income securities until they have been converted but also react to movements in the underlying equity securities. The holder is entitled to receive the fixed income of a bond or the dividend preference of a preferred stock until the holder elects to exercise the conversion privilege. Usable bonds are corporate bonds that can be used in whole or in part, customarily at full face value, in lieu of cash to purchase the issuer's common stock. When owned as part of a unit along with warrants, which are options to buy the common stock, they function as convertible bonds, except that the warrants generally will expire before the bond's maturity. Convertible securities are senior to equity securities and therefore have a claim to the assets of the issuer prior to the holders of common stock in the case of liquidation. However, convertible securities are generally subordinated to similar non-convertible securities of the same issuer.
The interest income and dividends from convertible bonds and preferred stocks provide a stable stream of income with generally higher yields than common stocks, but lower than non-convertible securities of similar quality. A Fund will exchange or convert the convertible securities held in its portfolio into shares of the underlying common stock in instances in which, in the Advisor's opinion, the investment characteristics of the underlying common stock will assist the Fund in achieving its investment objective. Otherwise, the Fund will hold or trade the convertible securities. In selecting convertible securities for a Fund, the Advisor evaluates the investment characteristics of the convertible security as a fixed income instrument, and the investment potential of the underlying equity security for capital appreciation.
GUARANTEED INVESTMENT CONTRACTS
Pursuant to guaranteed investment contracts ("GICs"), which are issued by U.S. and Canadian insurance companies, a Fund makes cash contributions to a deposit fund of the insurance company's general account. The insurance company then credits to the fund payments at negotiated, floating or fixed interest rates. A GIC is a general obligation of the issuing insurance company and not a separate account. The purchase price paid for a GIC becomes part of the general assets of the insurance company, and the contract is paid from the company's general assets.
The Funds will only purchase GICs that are issued or guaranteed by insurance companies that at the time of purchase are rated at least AA by S&P or receive a similar high quality rating from a nationally recognized service which provides ratings of insurance companies. GICs are considered illiquid securities and will be subject to any limitations on such investments described in Part 1 of this SAI, unless there is an active and substantial secondary market for the particular instrument and market quotations are readily available. No Fund will invest more than 20% of its total assets in GICs.
BANK INVESTMENT CONTRACTS
Bank investment contracts ("BICs") issued by banks that meet certain quality and asset size requirements for banks are available to the Funds. Pursuant to BICs, cash contributions are made to a deposit account at the bank in exchange for payments at negotiated, floating or fixed interest rates. A BIC is a general obligation of the issuing bank. BICs are considered illiquid securities and will be subject to any limitations on such investments described in Part 1 of this SAI, unless there is an active and substantial secondary market for the particular instrument and market quotations are readily available.
LOAN PARTICIPATIONS
Loan participations are interests in loans which are administered by the lending bank or agent for a syndicate of lending banks, and sold by the lending bank or syndicate member. The Funds may only purchase interests in loan participations issued by a bank in the United States with assets exceeding $1 billion and for which the underlying loan is issued by borrowers in whose obligations the Funds may invest. Because the intermediary bank does not guarantee a loan participation in any way, a loan participation is subject to the credit risk generally associated with the underlying corporate borrower. In addition, in the event the underlying corporate borrower defaults, a Fund may be subject to delays, expenses and risks that are greater than those that would have been involved if the Fund had purchased a direct obligation (such as commercial paper) of the borrower. Under the terms of a loan participation, the purchasing Fund may be regarded as a creditor of the intermediary bank so that the Fund may also be subject to the risk that the issuing bank may become insolvent.
STRUCTURED INVESTMENTS
Structured investments are a relatively new innovation and may be designed to have various combinations of equity and fixed-income characteristics. Equity-linked securities are a form of structured investment and generally consist of a conversion privilege to a single company's common stock plus a fixed annual distribution to the holder. Equity-linked securities have some derivative characteristics because the conversion feature is linked to the price of the company's common stock. Equity-linked securities are designed to provide investors with higher quarterly income than the dividend paid per share on the common stock. However, equity-linked securities have decreased potential for capital appreciation because of limitations of the conversion feature.
Equity-linked securities include issues such as "Structured Yield Product Exchangeable for Stock" ("STRYPES"), "Trust Automatic Common Exchange Securities" ("TRACES"), "Trust Issued Mandatory Exchange Securities" ("TIMES"), "Trust Enhanced Dividend Securities" ("TRENDS") and other similar securities, including those which may be developed in the future. The issuers of the above listed examples of equity-linked securities generally purchase and hold a portfolio of stripped U.S. Treasury securities maturing on a quarterly basis through the conversion date, and a forward purchase contract with an existing shareholder of the company relating to the common stock. Quarterly distributions on equity-linked securities generally consist of
the cash received from the U.S. Treasury securities and equity-linked securities generally are not entitled to any dividends that may be declared on the common stock.
Equity-linked securities may be issued by closed-end or other forms of investment companies. To the extent that equity-linked securities are issued by investment companies, a Fund's investments in equity-linked securities are subject to the same limitations as investments in more traditional forms of investment companies.
YANKEE OBLIGATIONS
Yankee obligations are U.S. dollar-denominated instruments of foreign issuers that are either registered with the SEC or issued pursuant to Rule 144A under the 1933 Act. These obligations consist of debt securities (including preferred or preference stock of non-governmental issuers), certificates of deposit, fixed time deposits and banker's acceptances issued by foreign banks, and debt obligations of foreign governments or their subdivisions, agencies and instrumentalities, international agencies and supranational entities. Some securities issued by foreign governments or their subdivisions, agencies and instrumentalities may not be backed by the full faith and credit of the foreign government.
AMERICAN, EUROPEAN, CONTINENTAL AND GLOBAL DEPOSITARY RECEIPTS
American Depositary Receipts ("ADRs") are receipts issued in registered form by a U.S. bank or trust company evidencing ownership of underlying securities issued by a foreign issuer. European Depositary Receipts ("EDRs"), which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are receipts issued in Europe typically by non-U.S. banks or trust companies and foreign branches of U.S. banks that evidence ownership of foreign or U.S. securities. Global Depositary Receipts ("GDRs") are receipts structured similarly to EDRs and CDRs and are marketed globally. ADRs may be listed on a national securities exchange or may be traded in the over-the-counter market. EDRs and CDRs are designed for use in European exchange and over-the-counter markets. GDRs are designed for trading in non-U.S. securities markets. ADRs, EDRs, CDRs and GDRs traded in the over-the-counter market which do not have an active or substantial secondary market will be considered illiquid and therefore will be subject to the Funds' respective limitations with respect to such securities, if any. If a Fund invests in an unsponsored ADR, EDR, CDR or GDR, there may be less information available to the Fund concerning the issuer of the securities underlying the unsponsored ADR, EDR, CDR or GDR than is available for an issuer of securities underlying a sponsored ADR, EDR, CDR or GDR. ADR prices are denominated in U.S. dollars although the underlying securities are denominated in a foreign currency. Investments in ADRs, EDRs, CDRs and GDRs involve risks similar to those accompanying direct investments in foreign securities.
TEMPORARY CASH BALANCES
The Funds may hold very small temporary cash balances to efficiently manage transactional expenses. These cash balances are expected, under normal conditions, not to exceed 2% of each Fund's net assets at any time (excluding amounts used as margin and segregated assets with respect to futures transactions and collateral for securities loans and repurchase agreements). The Funds may invest these temporary cash balances in short-term debt obligations issued or guaranteed by the U.S. Government or its agencies and instrumentalities ("U.S. Government Securities"), high quality commercial paper (rated A-1 or better by S&P or P-1 or better by Moody's), certificates of deposit and time deposits of banking institutions having total assets in excess of $1 billion, and repurchase agreements collateralized by U.S. Government Securities. The Funds may also hold these investments in connection with U.S. Treasury rolls, which are not subject to the 2% limitation above.
TAXES
In this section, all discussions of taxation at the shareholder and fund levels relate to U.S. federal taxes only. Consult your tax advisor for state, local and foreign tax considerations and for information about special tax considerations that may apply to shareholders that are not natural persons or not U.S. citizens or resident aliens.
FEDERAL TAXES. Although it may be one of several series in a single trust, the Fund is treated as a separate entity for federal income tax purposes under the Internal Revenue Code of 1986, as amended (Code). The Fund has elected (or in the case of a new fund, intends to elect) to be, and intends to qualify to be treated each year as, a "regulated investment company" under Subchapter M of the Code by meeting all applicable requirements of Subchapter M, including requirements as to the nature of the Fund's gross income, the amount of its distributions (as a percentage of both its overall income and any tax-exempt income), and the composition of its portfolio assets.
To qualify as a "regulated investment company," the Fund must (a) derive at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock, securities or foreign currencies or other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to
its business of investing in such stock, securities or currencies; (b) diversify its holdings so that, at the close of each quarter of its taxable year, (i) at least 50% of the market value of its total assets consists of cash, cash items, U.S. government securities, securities of other regulated investment companies and other securities limited generally with respect to any one issuer to not more than 5% of the total assets of the Fund and not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities of any issuer, other than U.S. government securities or other regulated investment companies; or of two or more issuers which the Fund controls and which are engaged in the same, similar, or related trades or businesses; and (c) distribute with respect to each year at least 90% of its taxable net investment income, its tax-exempt interest income and the excess, if any, of net short-term capital gains over net long-term capital losses for such year. In general, for purposes of the 90% gross income requirement described in (a) above, income derived from a partnership will be treated as qualifying income only to the extent such income is attributable to items of income of the partnership which would be qualifying income if realized by the regulated investment company. However, the American Jobs Creation Act of 2004 (the "2004 Act"), provides that for taxable years of a regulated investment company beginning after October 22, 2004, 100% of the net income derived from an interest in a "qualified publicly traded partnership" (defined as a partnership (i) interests in which are traded on an established securities market or readily tradable on a secondary market or the substantial equivalent thereof and (ii) that derives less than 90% of its income from the qualifying income described in (a) above) will be treated as qualifying income. In addition, although in general the passive loss rules of the Code do not apply to regulated investment companies, such rules do not apply to a regulated investment company with respect to items attributable to an interest in a qualified publicly traded partnership. Finally, for purposes of (c) above, the term "outstanding voting securities of such issuer" will include the equity securities of a qualified publicly traded partnership. As a regulated investment company that is accorded special tax treatment, the Fund will not be subject to any federal income taxes on its net investment income and net realized capital gains that it distributes to shareholders on the form of dividends and in accordance with the timing requirements imposed by the Code. The Fund's foreign-source income, if any, may be subject to foreign withholding taxes. If the Fund were to fail to qualify as a "regulated investment company" accorded special tax treatment in any taxable year, it would incur a regular federal corporate income tax on all of its taxable income, whether or not distributed, and Fund distributions (including any distributions of net tax-exempt income and net long-term capital gains) would generally be taxable as ordinary income to the shareholders, except to the extent they were treated as "qualified dividend income," as described below. In addition, the Fund could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions before requalifying as a regulated investment company that is accorded special tax treatment.
If the Fund fails to distribute in a calendar year substantially all of its ordinary income for such year and substantially all of its capital gain net income for the one-year period ending October 31 (or later if the Fund is permitted so to elect and so elects), plus any retained amount from the prior year, the Fund will be subject to a 4% excise tax on the underdistributed amounts. A dividend paid to shareholders by the Fund in January of a year generally is deemed to have been paid by the Fund on December 31 of the preceding year, if the dividend was declared and payable to shareholders of record on a date in October, November or December of that preceding year. The Fund intends generally to make distributions sufficient to avoid imposition of the 4% excise tax.
ALTERNATIVE MINIMUM TAX. Distributions derived from interest that is exempt from regular federal income tax may subject corporate shareholders to or increase their liability under the corporate alternative minimum tax (AMT). A portion of such distributions may constitute a tax preference item for individual shareholders and may subject them to or increase their liability under the AMT.
DIVIDENDS RECEIVED DEDUCTIONS. Distributions will qualify for the corporate dividends received deduction only to the extent that dividends earned by the Fund qualify. Any such dividends may be, however, includable in adjusted current earnings for purposes of computing corporate AMT. The dividends received deduction for eligible dividends is subject to a holding period requirement.
RETURN OF CAPITAL DISTRIBUTIONS. If the Fund makes a distribution to a shareholder in excess of the Fund's current and accumulated "earning and profits" in any taxable year, the excess distribution will be treated as a return of capital to the extent of the shareholder's tax basis in his or her shares, and thereafter as capital gain. A return of capital is not taxable, but it reduces tax basis in shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition of such shares. Dividends and distributions on a Fund's shares are generally subject to federal income tax as described herein to the extent they do not exceed the Fund's realized income and gains, even though such dividends and distributions may economically represent a return of a particular shareholder's investment. Such distributions are likely to occur in respect of shares purchased at a time when a Fund's net asset value reflects gains that are either unrealized, or realized but not distributed. Such realized gains may be required to be distributed even when a Fund's net asset value also reflects unrealized losses.
FUNDS THAT INVEST IN U.S. GOVERNMENT SECURITIES. Many states grant tax-free status to dividends paid to shareholders of mutual funds from interest income earned by the Fund from direct obligations of the U.S. government. Investments in mortgage-backed securities (including GNMA, FNMA and FHLMC Securities) and repurchase agreements collateralized by U.S. government securities do not qualify as direct federal obligations in most states. Shareholders should consult with their own tax advisors about the applicability of state and local intangible property, income or other taxes to their Fund shares and distributions and redemption proceeds received from the Fund.
FUND DISTRIBUTIONS. Distributions from the Fund (other than qualified dividend income and exempt-interest dividends, as discussed below) will generally be taxable to shareholders as ordinary income to the extent derived from the Fund's investment income and net short-term gains. Distributions of long-term capital gains (that is, the excess of net gains from capital assets held for more than one year over net losses from capital assets held for not more than one year) will be taxable to shareholders as such, regardless of how long a shareholder has held shares in the Fund. In general, any distributions of net capital gains will be taxed to shareholders who are individuals at a maximum rate of 15% for taxable years beginning on or before December 31, 2008.
Distributions are taxable to shareholders even if they are paid from income or gains earned by the Fund before a shareholder's investment (and thus were included in the price of the shareholder paid). Distributions are taxable whether received in cash or in Fund shares.
QUALIFIED DIVIDEND INCOME. For taxable years beginning on or before December 31, 2008, "qualified dividend income" received by an individual will be taxed at the rates applicable to long-term capital gain. In order for some portion of the dividends received by a Fund shareholder to be qualified dividend income, the Fund must meet holding period and other requirements with respect to some portion of the dividend paying stocks in its portfolio and the shareholder must meet holding period and other requirements with respect to the Fund's shares. A dividend will not be treated as qualified dividend income (at either the Fund or shareholder level) (1) if the dividend is received with respect to any share of stock held for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or, in the case of certain preferred stock, 91 days during the 181-day period beginning 90 days before such date), (2) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property, (3) if the recipient elects to have the dividend income treated as investment income for purposes of the limitation on deductibility of investment interest, or (4) if the dividend is received from a foreign corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the United States (with the exception of dividends paid on stock of such a foreign corporation readily tradable on an established securities market in the United States) or (b) treated as a passive foreign investment company. With respect to a Fund investing in bonds, the Fund does not expect a significant portion of Fund distributions to be derived from qualified dividend income.
In general, distributions of investment income properly designated by the Fund as derived from qualified dividend income may be treated as qualified dividend income by a shareholder taxed as an individual provided the shareholder meets the holding period and other requirements described above with respect to his or her shares. If the aggregate qualified dividends received by a fund during any taxable year are 95% or more of its gross income, then 100% of the Fund's dividends (other than properly designated capital gain dividends) will be eligible to be treated as qualified dividend income. For this purpose, the only gain included in the term "gross income" is the excess of net short-term capital gain over net long-term capital loss.
DISTRIBUTIONS FROM TAX-EXEMPT FUNDS. Each tax-exempt Fund will have at least 50% of its total assets invested in tax-exempt bonds at the end of each quarter so that dividends from net interest income on tax-exempt bonds will be exempt from federal income tax when received by a shareholder (but may be taxable for federal alternative minimum tax purposes and for state and local tax purposes). The tax-exempt portion of dividends paid will be designated within 60 days after year-end based upon the ratio of net tax-exempt income to total net investment income earned during the year. That ratio may be substantially different from the ratio of net tax-exempt income to total net investment income earned during any particular portion of the year. Thus, a shareholder who holds shares for only a part of the year may be allocated more or less tax-exempt dividends than would be the case if the allocation were based on the ratio of net tax-exempt income to total net investment income actually earned while a shareholder.
Income from certain "private activity bonds" issued after August 7, 1986, is treated as a tax preference item for the AMT at the maximum rate of 28% for individuals and 20% for corporations. If the Fund invests in private activity bonds, shareholders may be subject to the AMT on that part of the distributions derived from interest income on such bonds. Interest on all tax-exempt bonds is included in corporate adjusted current earnings when computing the AMT applicable to corporations. Seventy-five percent of
the excess of adjusted current earnings over the amount of income otherwise subject to the AMT is included in a corporation's alternative minimum taxable income.
Dividends derived from any investments other than tax-exempt bonds and any distributions of short-term capital gains are generally taxable to shareholders as ordinary income. Any distributions of long-term capital gains will in general be taxable to shareholders as long-term capital gains (generally subject to a maximum 15% tax rate for shareholders who are individuals) regardless of the length of time Fund shares are held by the shareholder.
A tax-exempt Fund may at times purchase tax-exempt securities at a discount and some or all of this discount may be included in the Fund's ordinary income which will be taxable when distributed. Any market discount recognized on a tax-exempt bond purchased after April 30, 1993, with a term at time of issue of more than one year is taxable as ordinary income. A market discount bond is a bond acquired in the secondary market at a price below its "stated redemption price" (in the case of a bond with original issue discount, its "revised issue price").
Shareholders receiving social security and certain retirement benefits may be taxed on a portion of those benefits as a result of receiving tax-exempt income, including tax-exempt dividends from the Fund.
SPECIAL TAX RULES APPLICABLE TO TAX-EXEMPT FUNDS. In general, exempt-interest dividends, if any, attributable to interest received on certain private activity obligations and certain industrial development bonds will not be tax-exempt to any shareholders who are "substantial users" of the facilities financed by such obligations or bonds or who are "related persons" of such substantial users, as further defined in the Code. Income derived from the Fund's investments other than tax-exempt instruments may give rise to taxable income. The Fund's shares must be held for more than six months in order to avoid the disallowance of a capital loss on the sale of Fund shares to the extent of tax-exempt dividends paid during that period. Part or all of the interest on indebtedness, if any, incurred or continued by a shareholder to purchase or carry shares of the Fund paying exempt-interest dividends is not deductible. The portion of interest that is not deductible is equal to the total interest paid or accrued on the indebtedness, multiplied by the percentage of the Fund's total distributions (not including distributions from net long-term capital gains) paid to the shareholder that are exempt-interest dividends. Under rules used by the Internal Revenue Service to determine when borrowed funds are considered used for the purpose of purchasing or carrying particular assets, the purchase of shares may be considered to have been made with borrowed funds even though such funds are not directly traceable to the purchase of shares.
SALES OF SHARES. The sale, exchange or redemption of Fund shares may give rise to a gain or loss. In general, any gain realized upon a taxable disposition of shares generally will be treated as long-term capital gain if the shares have been held for more than one year. Otherwise the gain on the sale, exchange or redemption of Fund shares will be treated as short-term capital gain. In general, any loss realized upon a taxable disposition of shares will be treated as long-term loss if the shares have been held more than one year, and otherwise as short-term loss. However, any loss realized upon a taxable disposition of shares held for six months or less will be disallowed for federal income tax purposes to the extent of any exempt-interest dividends received on such shares. In addition, any loss (not already disallowed as provided in the preceding sentence) realized upon a taxable disposition of shares held for six months or less will be treated as long-term, rather than short-term, capital loss to the extent of any long-term capital gain distributions received by the shareholder with respect to those shares. All or a portion of any loss realized upon a taxable disposition of shares will be disallowed if other shares are purchased within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss.
Under Treasury regulations, if on a disposition of Fund shares a shareholder recognizes a loss of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder will likely have to file with the Internal Revenue Service a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all regulated investment companies. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. You are advised to consult with your tax advisor.
BACKUP WITHHOLDING. Certain distributions and redemptions may be subject to backup withholding for taxpayers who fail to furnish a correct taxpayer identification number, who have under-reported dividend or interest income, or who fail to certify to the Fund that the shareholder is a United States person and is not subject to the withholding. This number and certification may be provided by either a Form W-9 or the accompanying application. In certain instances, CFS may be notified by the Internal Revenue Service that a shareholder is subject to backup withholding. The backup withholding rate is 28% for amounts paid through 2010. The backup withholding rate will be 31% for amounts paid after December 31, 2010.
HEDGING TRANSACTIONS. If the Fund engages in hedging transactions, including hedging transactions in options, futures contracts and straddles, or other similar transactions, it will be subject to special tax rules (including constructive sale, mark-to-market, straddle, wash sale and short sale rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund's securities, convert long-term capital gains into short-term capital gains or convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. The Fund will endeavor to make any available elections pertaining to such transactions in a manner believed to be in the best interests of the Fund and its shareholders.
SECURITIES ISSUED AT A DISCOUNT. The Fund's investment in debt securities issued at a discount and certain other obligations will (and investments in securities purchased at a discount may) require the Fund to accrue and distribute income not yet received. In such cases, the Fund may be required to sell assets (possibly at a time when it is not advantageous to do so) to generate the cash necessary to distribute as dividends to its shareholders all of its income and gains and therefore to eliminate any tax liability at the Fund level.
FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING TRANSACTIONS. The Fund's transactions in foreign currencies, foreign currency-denominated debt securities, certain foreign currency options, futures contracts and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned. This may produce a difference between the Fund's book income and its taxable income possibly accelerating distributions or converting distributions of book income and gains to returns of capital for book purposes.
If more than 50% of the Fund's total assets at the end of its fiscal year are invested in stock or securities of foreign corporate issuers, the Fund may make an election permitting its shareholders to take a deduction or credit for federal income tax purposes for their pro rata portion of certain qualified foreign taxes paid by the Fund to foreign countries in respect of foreign securities the Fund has held for at least the minimum period specified in the Code. The Advisor will consider the value of the benefit to a typical shareholder, the cost to the Fund of compliance with the election, and incidental costs to shareholders in deciding whether to make the election. A shareholder's ability to claim such a foreign tax credit or deduction in respect of foreign taxes will be subject to certain limitations imposed by the Code, including a holding period requirement, as a result of which a shareholder may not get a full credit or deduction for the amount of foreign taxes so paid by the Fund. Shareholders who do not itemize on their federal income tax returns may claim a credit (but not a deduction) for such foreign taxes.
Investment by the Fund in "passive foreign investment companies" could subject the Fund to a U.S. federal income tax or other charge on the proceeds from the sale of its investment in such a company; however, this tax can be avoided by making an election to mark such investments to market annually or to treat the passive foreign investment company as a "qualified electing Fund." A "passive foreign investment company" is any foreign corporation: (i) 75 percent or more of the income of which for the taxable year is passive income, or (ii) the average percentage of the assets of which (generally by value, but by adjusted tax basis in certain cases) that produce or are held for the production of passive income is at least 50 percent. Generally, passive income for this purpose means dividends, interest (including income equivalent to interest), royalties, rents, annuities, the excess of gain over losses from certain property transactions and commodities transactions, and foreign currency gains. Passive income for this purpose does not include rents and royalties received by the foreign corporation from active business and certain income received from related persons.
NON-U.S. SHAREHOLDERS. In general, dividends (other than Capital Gain Dividends)
paid by the Fund to a shareholder that is not a "U.S. person" within the meaning
of the Code (such shareholder, a "foreign person") are subject to withholding of
U.S. federal income tax at a rate of 30% (or lower applicable treaty rate) even
if they are funded by income or gains (such as portfolio interest, short-term
capital gains, or foreign-source dividend and interest income) that, if paid to
a foreign person directly, would not be subject to withholding. However, under
the 2004 Act, effective for taxable years of the Fund beginning after December
31, 2004 and before January 1, 2008, the Fund will not be required to withhold
any amounts (i) with respect to distributions (other than distributions to a
foreign person (w) that has not provided a satisfactory statement that the
beneficial owner is not a U.S. person, (x) to the extent that the dividend is
attributable to certain interest on an obligation if the foreign person is the
issuer or is a 10% shareholder of the issuer, (y) that is within certain foreign
countries that have inadequate information exchange with the United States, or
(z) to the extent the dividend is attributable to interest paid by a person that
is a related person of the foreign person and the foreign person is a controlled
foreign corporation) from U.S.-source interest income that would not be subject
to U.S. federal income tax if earned directly by an individual foreign person,
to the extent such distributions are properly designated by the Fund, and (ii)
with respect to distributions (other than distributions to an individual foreign
person who is present in the United
States for a period or periods aggregating 183 days or more during the year of the distribution) of net short-term capital gains in excess of net long-term capital losses, to the extent such distributions are properly designated by the Fund.
If a beneficial holder who is a foreign person has a trade or business in the United States, and the dividends are effectively connected with the conduct by the beneficial holder of a trade or business in the United States, the dividend will be subject to U.S. federal net income taxation at regular income tax rates.
The 2004 Act modifies the tax treatment of distributions from the Fund that are paid to a foreign person and are attributable to gain from "U.S. real property interests" ("USRPIs"), which the Code defines to include direct holdings of U.S. real property and interests (other than solely as a creditor) in "U.S. real property holding corporations" such as REITs. The Code deems any corporation that holds (or held during the previous five-year period) USRPIs with a fair market value equal to 50% or more of the fair market value of the corporation's U.S. and foreign real property assets and other assets used or held for use in a trade or business to be a U.S. real property holding corporation; however, if any class of stock of a corporation is traded on an established securities market, stock of such class shall be treated as a USRPI only in the case of a person who holds more than 5% of such class of stock at any time during the previous five-year period. Under the 2004 Act, which is generally effective for taxable years of RICs beginning after December 31, 2004 and which applies to dividends paid or deemed paid on or before December 31, 2007, distributions to foreign persons attributable to gains from the sale or exchange of USRPIs will give rise to an obligation for those foreign persons to file a U.S. tax return and pay tax, and may well be subject to withholding under future regulations.
Under U.S. federal tax law, a beneficial holder of shares who is a foreign person is not, in general, subject to U.S. federal income tax on gains (and is not allowed a deduction for losses) realized on the sale of shares of the Fund or on Capital Gain Dividends unless (i) such gain or Capital Gain Dividend is effectively connected with the conduct of a trade or business carried on by such holder within the United States, (ii) in the case of an individual holder, the holder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale or Capital Gain Dividend and certain other conditions are met, or (iii) the shares constitute USRPIs or (effective for taxable years of the Fund beginning on September 1, 2005) the Capital Gain Dividends are paid or deemed paid on or before December 31, 2007 and are attributable to gains from the sale or exchange of USRPIs. Effective after December 31, 2004, and before January 1, 2008, if the Fund is a U.S. real property holding corporation (as described above) the Fund's shares will nevertheless not constitute USRPIs if the Fund is a "domestically controlled qualified investment entity," which is defined to include a RIC that, at all times during the shorter of the 5-year period ending on the date of the disposition or the period during which the RIC was in existence, had less than 50 percent in value of its stock held directly or indirectly by foreign persons.
ADDITIONAL TAX MATTERS CONCERNING TRUST SHARES (THIS SECTION IS APPLICABLE ONLY TO THE COLUMBIA TAX-MANAGED GROWTH FUND)
FEDERAL GIFT TAXES. An investment in Trust Shares may be a taxable gift for federal tax purposes, depending upon the option selected and other gifts that the donor and his or her spouse may make during the year.
Under the Columbia Advantage Plan, the entire amount of the gift will be a "present interest" that qualifies for the federal gift tax annual exclusion. In that case, the donor will be required to file a federal gift tax return on account of this gift only if (i) the aggregate present interest gifts by the donor to the particular beneficiary (including the gift of Trust Shares) exceed $11,000 or (ii) the donor wishes to elect gift splitting on gifts with his or her spouse for the year. The trustee will notify the beneficiary of his or her right of withdrawal promptly following any contribution under the Advantage Plan.
Under the Columbia Gift Plan, the entire amount of the gift will be a "future interest" for federal gift tax purposes, so that none of the gift will qualify for the federal gift tax annual exclusion. Consequently, the donor will have to file a federal gift tax return (IRS Form 709) reporting the entire amount of the gift, even if the gift is less than $11,000.
No federal gift tax will be payable by the donor until his or her cumulative taxable gifts (i.e., gifts other than those qualifying for the annual exclusion or otherwise exempt), including taxable gifts of other assets as well as any taxable gifts of trust shares, exceed the federal gift and estate tax exemption equivalent amount, which is $1,000,000 for gifts made after December 31, 2001, and before January 1, 2010.
Any gift of Trust Shares that does not qualify as a present interest or that exceeds the available annual exclusion amount will reduce the amount of the donor's Federal gift and estate tax exemption (if any) that would otherwise be available for future gifts for transfers at death.
The donor and his or her spouse may elect "gift-splitting" for any gift of Trust Shares (other than a gift to such spouse), meaning that the donor and his or her spouse may elect to treat the gift as having been made one-half by each of them, thus allowing a total gift of $22,000.
The donor's gift of Fund shares may also have to be reported for state gift tax purposes, if the state in which the donor resides imposes a gift tax. Many states do not impose such a tax. Some states follow the Federal rules concerning the types of transfers subject to tax and the availability of the annual exclusion.
GENERATION-SKIPPING TRANSFER TAXES
If the beneficiary of a gift of Trust Shares is a relative who is two generations or more younger than the donor, or is not a relative and is more than 37 1/2 years younger than the donor, the gift will be subject in whole or in part to the generation-skipping transfer tax (the "GST tax") unless the gift is made under the Columbia Advantage Plan and does not exceed the available annual exclusion amount. An exemption (the "GST exemption"), equal to $1.5 million in 2005, is allowed against this tax, and so long as the GST exemption has not been used by other transfers it will automatically be allocated to a gift of Trust Shares that is subject to the GST tax unless the donor elects otherwise. Such an election is made by reporting the gift on a timely filed gift tax return and paying the applicable GST tax. The GST tax is imposed at a flat rate (47% for gifts made in 2005) on the amount of the gift, and payment of the tax by the donor is treated as an additional gift for gift tax purposes.
INCOME TAXES
The Internal Revenue Service takes the position that a trust beneficiary who is given a power of withdrawal over contributions to the trust should be treated, for Federal income tax purposes, as the "owner" of the portion of the trust that was subject to the power. Accordingly, if the donor selects Columbia Advantage Trust Shares, the beneficiary will be treated as the "owner" of all of the Fund shares in the account for Federal income tax purposes, and will be required to report all of the income and capital gains earned in the trust on his or her personal Federal income tax return. The trust will not pay Federal income taxes on any of the trust's income or capital gains. The trustee will prepare and file the Federal income tax information returns that are required each year (and any state income tax returns that may be required), and will send the beneficiary a statement following each year showing the amounts (if any) that the beneficiary must report on his or her income tax returns for that year. If the beneficiary is under fourteen years of age, these amounts may be subject to Federal income taxation at the marginal rate applicable to the beneficiary's parents. The beneficiary may at any time after the creation of the trust irrevocably elect to require the trustee to pay him or her a portion of the trust's income and capital gains annually thereafter to provide funds with which to pay any resulting income taxes, which the trustee will do by redeeming Trust Shares. The amount distributed will be a fraction of the trust's ordinary income and short-term capital gains and the trust's long-term capital gains equal to the highest marginal Federal income tax rate imposed on each type of income (currently, 35% and 15%, respectively). If the beneficiary selects this option, he or she will receive those fractions of his or her trust's income and capital gains annually for the duration of the trust.
Under the Columbia Advantage Plan, the beneficiary will also be able to require the trustee to pay his or her tuition, room and board and other expense of his or her college or post-graduate education, and the trustee will raise the cash necessary to fund these distributions by redeeming Trust Shares. Any such redemption will result in the realization of capital gain or loss on the shares redeemed, which will be reportable by the beneficiary on his or her income tax returns for the year in which the shares are redeemed, as described above. Payments must be made directly to the educational institution.
If the donor selects the Columbia Gift Plan, the trust that he or she creates will be subject to Federal income tax on all income and capital gains realized by it, less a $100 annual exemption (in lieu of the personal exemption allowed to individuals). The amount of the tax will be determined under the tax rate schedule applicable to estates and trusts, which is more sharply graduated than the rate schedule for individuals, reaching the same maximum marginal rate for ordinary income or short-term capital gains (currently, 35%), but at a much lower taxable income level than would apply to an individual. It is anticipated, however, that most of the gains taxable to the trust will be long-term capital gain, on which the Federal income tax rate is currently limited to 15%. The trustee will raise the cash necessary to pay any Federal or state income taxes by redeeming Fund shares. The beneficiary will not pay Federal income taxes on any of the trust's income or capital gains, except those earned in the year when the trust terminates. The trustee will prepare and file all Federal and state income tax returns that are required each year, and will send the beneficiary an information statement for the year in which the trust terminates showing the amounts (if any) that the beneficiary must report on his or her Federal and state income tax returns for that year.
When the trust terminates, the distribution of the remaining shares held in the trust to the beneficiary will not be treated as a taxable disposition of the shares. Any Fund shares received by the beneficiary will have the same cost basis as they had in the trust at the time of termination. Any Fund shares received by the beneficiary's estate will have a basis equal to the value of the shares at the beneficiary's death (or the alternate valuation date for Federal estate tax purposes, if elected).
CONSULTATION WITH QUALIFIED ADVISOR
Due to the complexity of Federal and state gift, GST and income tax laws pertaining to all gifts in trust, prospective donors should consider consulting with their financial or tax advisor before investing in Trust Shares.
MANAGEMENT OF THE FUNDS The Advisor provides administrative and management services to the Funds. On April 1, 2003, Fleet Investment Advisors Inc., Stein Roe & Farnham Incorporated, Colonial Management Associates, Inc. and Newport Pacific Management, Inc. (NPMI), merged into Columbia Management Advisors, Inc. Each of the four merging companies was a registered investment advisor and advised various Funds in the Fund Complex. The Advisor, located at 100 Federal Street, Boston, Massachusetts 02110, is a direct wholly owned subsidiary of Columbia Management Group, Inc. (Columbia), which is an indirect wholly owned subsidiary of Bank of America Corporation. Prior to April 1, 2004, Columbia was an indirect wholly owned subsidiary of FleetBoston Financial Corporation, a U.S. financial holding company. Effective April 1, 2004, FleetBoston Financial Corporation was acquired by Bank of America Corporation. The Advisor has been an investment advisor since 1969.
In addition, immediately prior to the mergers described above and also on April 1, 2003, Newport Fund Management, Inc. (NFMI), a subsidiary of NPMI and a registered investment advisor that advised several Funds in the Fund Complex, merged into NPMI. As a result of NPMI's merger into the Advisor, the Advisor is now the Advisor to the Funds previously advised by NFMI.
TRUSTEES AND OFFICERS (THIS SECTION APPLIES TO ALL OF THE FUNDS)
The Trustees and officers serve terms of indefinite duration. The names, addresses and ages of the Trustees and officers of the Fund Complex, the year each was first elected or appointed to office, their principal business occupations during at least the last five years, the number of portfolios overseen by each Trustee and other directorships they hold are shown below.
Number of
Portfolios
Year First in Fund
Elected Complex Other
Name, Address Position or Appointed Principal Occupation(s) Overseen Directorships
and Age with Funds to Office(1) During Past Five Years by Trustee Held
------------- ---------- ------------ --------------------------------------- ---------- -----------------
DISINTERESTED TRUSTEES
Douglas A. Hacker (Age 49) Trustee 1996 Executive Vice President - Strategy of 101 Nash Finch
P.O. Box 66100 United Airlines (airline) since Company (food
Chicago, IL 60666 December, 2002 (formerly President of distributor)
UAL Loyalty Services (airline) from
September, 2001 to December, 2002;
Executive Vice President and Chief
Financial Officer of United Airlines
from July, 1999 to September, 2001;
Senior Vice President- Finance from
March, 1993 to July, 1999).
Janet Langford Kelly (Age 47) Trustee 1996 Partner, Zelle, Hofmann, Voelbel, Mason 101 None
9534 W. Gull Lake Drive & Gette LLP (law firm) since March,
Richland, MI 49083-8530 2005; Adjunct Professor of Law,
Northwestern University, since
September, 2004 (formerly Chief
Administrative Officer and Senior Vice
President, Kmart Holding Corporation
(consumer goods), from September, 2003
to March, 2004; Executive Vice
President-Corporate Development and
Administration, General Counsel and
Secretary, Kellogg Company (food
manufacturer), from September, 1999 to
August, 2003; Senior Vice President,
Secretary and General Counsel, Sara Lee
Corporation (branded, packaged,
consumer-products manufacturer) from
January, 1995 to September, 1999).
Richard W. Lowry (Age 69) Trustee 1995 Private Investor since August, 1987 103(3) None
10701 Charleston Drive (formerly Chairman and Chief Executive
Vero Beach, FL 32963 Officer, U.S. Plywood Corporation
(building products manufacturer)).
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Number of
Portfolios
Year First in Fund
Elected Complex Other
Name, Address Position or Appointed Principal Occupation(s) Overseen Directorships
and Age with Funds to Office(1) During Past Five Years by Trustee Held
------------- ---------- ------------ --------------------------------------- ---------- -----------------
DISINTERESTED TRUSTEES
Charles R. Nelson (Age 62) Trustee 1981 Professor of Economics, University of 101 None
Department of Economics Washington, since January, 1976; Ford
University of Washington and Louisa Van Voorhis Professor of
Seattle, WA 98195 Political Economy, University of
Washington, since September, 1993
(formerly Director, Institute for
Economic Research, University of
Washington from September, 2001 to
June, 2003); Adjunct Professor of
Statistics, University of Washington,
since September, 1980; Associate
Editor, Journal of Money Credit and
Banking, since September, 1993;
consultant on econometric and
statistical matters.
John J. Neuhauser (Age 62) Trustee 1985 Academic Vice President and Dean of 103(3) Saucony, Inc.
84 College Road Faculties since August, 1999, Boston (athletic
Chestnut Hill, MA 02467-3838 College (formerly Dean, Boston footwear)
College School of Management from
September, 1977 to August, 1999).
Patrick J. Simpson (Age 61) Trustee 2000 Partner, Perkins Coie L.L.P. 101 None
1120 N.W. Couch Street (law firm).
Tenth Floor
Portland, OR 97209-4128
Thomas E. Stitzel (Age 69) Trustee 1998 Business Consultant since 1999 101 None
2208 Tawny Woods Place (formerly Professor of Finance from
Boise, ID 83706 1975 to 1999, College of Business,
Boise State University); Chartered
Financial Analyst.
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Number of
Year First Portfolios in
Elected or Fund Complex
Name, Address Position Appointed to Principal Occupation(s) Overseen by
and Age with Funds Office(1) During Past Five Years Trustee Other Directorships Held
------------- ---------- ------------ --------------------------- ------------- ------------------------
DISINTERESTED TRUSTEES
Thomas C. Theobald Trustee 1996 Partner and Senior Advisor, 101 Anixter International
(Age 68) and Chicago Growth Partners (network support
8 Sound Shore Drive, Chairman (private equity investing) equipment distributor);
Suite 285 of the since September, 2004 Ventas, Inc. (real
Greenwich, CT 06830 Board (formerly Managing estate investment
Director, William Blair trust); Jones Lang
Capital Partners (private LaSalle (real estate
equity investing) from management services) and
September, 1994 to Ambac Financial Group
September, 2004). (financial guaranty
insurance)
Anne-Lee Verville Trustee 1998 Retired since 1997 101 Chairman of the Board of
(Age 59) (formerly General Manager, Directors, Enesco Group,
359 Stickney Hill Global Education Industry, Inc. (designer, importer
Road Hopkinton, IBM Corporation (computer and distributor of
NH 03229 and technology) from 1994 giftware and
to 1997). collectibles)
Richard L. Woolworth Trustee 1991 Retired since December 2003 101 Northwest Natural Gas
(Age 64) (formerly Chairman and Co. (natural gas service
100 S.W. Market Street Chief Executive Officer, provider)
#1500 The Regence Group (regional
Portland, OR 97207 health insurer); Chairman
and Chief Executive
Officer, BlueCross
BlueShield of Oregon;
Certified Public
Accountant, Arthur Young &
Company)
|
Number of
Year First Portfolios in
Elected or Fund Complex
Name, Address Position Appointed to Principal Occupation(s) Overseen by
and Age with Funds Office(1) During Past Five Years Trustee Other Directorships Held
------------- ---------- ------------ --------------------------- ------------- ------------------------
DISINTERESTED TRUSTEES
William E. Mayer(2) Trustee 1994 Partner, Park Avenue Equity 103(3) Lee Enterprises (print
(Age 65) Partners (private equity) media), WR Hambrecht +
399 Park Avenue since February, 1999 Co. (financial service
Suite 3204 (formerly Partner, provider); Reader's
New York, NY 10022 Development Capital LLC Digest (publishing);
from November, 1996 to OPENFIELD Solutions
February, 1999). (retail industry
technology provider)
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(1) In October 2003, the trustees of the Liberty Funds and Stein Roe Funds (both as defined in Part 1 of this SAI) were elected to the boards of the Columbia Funds; simultaneous with that election, Patrick J. Simpson and Richard L. Woolworth, who had been directors/trustees of the Columbia Funds were appointed to serve as trustees of the Liberty Funds and Stein Roe Funds. The date shown is the earliest date on which a trustee/director was elected or appointed to the board of a Fund in the Fund Complex.
(2) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht + Co.
(3) Messrs. Lowry, Neuhauser and Mayer also serve as directors/trustees of the All-Star Funds (as defined in Part 1 of this SAI).
Year First
Elected or
Name, Address Position Appointed to Principal Occupation(s)
and Age with Funds Office During Past Five Years
------------- ---------- ------------ -----------------------
OFFICERS
Christopher L. Wilson President 2004 Head of Mutual Funds since August, 2004 and Senior Vice President
(Age 48) of the Advisor since January, 2005; President of the Columbia
One Financial Center Funds, Liberty Funds and Stein Roe Funds since October, 2004;
Boston, MA 02111 President and Chief Executive Officer of the Nations Funds since
January, 2005; President of the Galaxy Funds since April 2005;
Director of Bank of America Global Liquidity Funds, plc since May
2005; Director of Banc of America Capital Management (Ireland),
Limited since May 2005; Senior Vice President of BACAP
Distributors LLC since January, 2005; Director of FIM Funding,
Inc. since January, 2005; Senior Vice President of Columbia Funds
Distributor, Inc. since January, 2005; Director of Columbia Funds
Services, Inc. since January, 2005 (formerly President and Chief
Executive Officer, CDC IXIS Asset Management Services, Inc. from
September, 1998 to August, 2004).
J. Kevin Connaughton Treasurer 2000 Treasurer of the Columbia Funds since October, 2003 and of the
(Age 40) Liberty Funds, Stein Roe Funds and All - Star Funds since
One Financial Center December, 2000; Vice President of the Advisor since April, 2003
Boston, MA 02111 (formerly President of the Columbia Funds, Liberty Funds and
Stein Roe Funds from February, 2004 to October, 2004; Chief
Accounting Officer and Controller of the Liberty Funds and
All-Star Funds from February, 1998 to October, 2000); Treasurer
of the Galaxy Funds since September, 2002 (formerly Treasurer
from December, 2002 to December, 2004 and President from
February, 2004 to December, 2004 of the Columbia Management
Multi-Strategy Hedge Fund, LLC; Vice President of Colonial
Management Associates, Inc. from February, 1998 to October,
2000).
Mary Joan Hoene Senior Vice 2004 Senior Vice President and Chief Compliance Officer of the
(Age 55) President and Columbia Funds, Liberty Funds, Stein Roe Funds and All-Star Funds
100 Federal Street Chief since August, 2004; Chief Compliance Officer of the Columbia
Boston, MA 02110 Compliance Management Multi-Strategy Hedge Fund, LLC since August, 2004;
Officer Chief Compliance Officer of the BACAP Alternative Multi-Strategy
Hedge Fund LLC since October, 2004 (formerly Partner, Carter,
Ledyard & Milburn LLP from January, 2001 to August, 2004;
Counsel, Carter, Ledyard & Milburn LLP from November, 1999 to
December, 2000; Vice President and Counsel, Equitable Life
Assurance Society of the United States from April, 1998 to
November, 1999).
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Year First
Elected or
Name, Address Position Appointed to Principal Occupation(s)
and Age with Funds Office During Past Five Years
------------- ---------- ------------ -----------------------
OFFICERS
Michael G. Clarke Chief 2004 Chief Accounting Officer of the Columbia Funds, Liberty Funds,
(Age 35) Accounting Stein Roe Funds and All-Star Funds since October, 2004 (formerly
One Financial Center Officer Controller of the Columbia Funds, Liberty Funds, Stein Roe Funds
Boston, MA 02111 nd All-Star Funds from May, 2004 to October, 2004; Assistant
Treasurer from June, 2002 to May, 2004; Vice President, Product
Strategy & Development of the Liberty Funds and Stein Roe Funds
from February, 2001 to June, 2002; Assistant Treasurer of the
Liberty Funds, Stein Roe Funds and the All-Star Funds from
August, 1999 to February, 2001; Audit Manager, Deloitte & Toche
LLP from May, 1997 to August, 1999).
Jeffrey R. Coleman Controller 2004 Controller of the Columbia Funds, Liberty Funds, Stein Roe Funds
(Age 35) and All-Star Funds since October, 2004 (formerly Vice President
One Financial Center of CDC IXIS Asset Management Services, Inc. and Deputy Treasurer
Boston, MA 02111 of the CDC Nvest Funds and Loomis Sayles Funds from February,
2003 to September, 2004; Assistant Vice President of CDC IXIS
Asset Management Services, Inc. and Assistant Treasurer of the
CDC Nvest Funds from August, 2000 to February, 2003; Tax Manager
of PFPC, Inc. from November, 1996 to August, 2000).
R. Scott Henderson Secretary 2004 Secretary of the Columbia Funds, Liberty Funds and Stein Roe
(Age 45) Funds since December, 2004 (formerly Of Counsel, Bingham
One Financial Center McCutchen from April, 2001 to September, 2004; Executive Director
Boston, MA 02111 and General Counsel, Massachusetts Pension Reserves Investment
Management Board from September, 1997 to March, 2001).
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Trustee Positions
As of December 31, 2004, no disinterested Trustee or any of their immediate family members owned beneficially or of record any class of securities of the Advisor, another investment advisor, sub-advisor or portfolio manager of any of the funds in the Fund Complex or any person controlling, controlled by or under common control with any such entity.
General
Messrs. Lowry, Mayer and Neuhauser are also trustees/directors of the Liberty All-Star Funds.
The Trustees serve as trustees of 101 registered investment companies managed by the Advisor for which each Trustee receives a retainer at the annual rate of $45,000 and an attendance fee of $9,500 for each regular and special joint board meeting and $1,000 for each special telephonic joint board meeting. Beginning in December, 2003, Mr. Theobald began serving as the Chairman of the Board. As the independent chairman of the board, Mr. Theobald receives a supplemental retainer at the annual rate of $100,000; the chair of the Audit Committee receives a supplemental retainer at the annual rate of $10,000; the chair of each other committee receives a supplemental retainer at the annual rate of $5,000. Members of each committee, except the Audit Committee, receive $1,500 for each committee meeting. Each Audit Committee member receives $2,000 for each Audit Committee meeting. Committee members receive $1,500 for each special committee meeting attended on a day other than a regular joint board meeting day. Two-thirds of the Trustee fees are allocated among the Funds based on each Fund's relative net assets and one-third of the fees is divided equally among the Funds.
The Advisor and/or its affiliate, Colonial Advisory Services, Inc. (CASI), has rendered investment advisory services to investment company, institutional and other clients since 1931. The Advisor currently serves as investment advisor or administrator for 133 open-end and 10 closed-end management investment company portfolios. Trustees and officers of the Trust, who are also officers of the Advisor or its affiliates, will benefit from the advisory fees, sales commissions and agency fees paid or allowed by the Trust.
The Agreement and Declaration of Trust (Declaration) of the Trust provides that the Trust will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Trust but that such indemnification will not relieve any officer or Trustee of any liability to the Trust or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. The Trust, at its expense, provides liability insurance for the benefit of its Trustees and officers.
The Trustees have the authority to convert the Funds into a master fund/feeder fund structure. Under this structure, a Fund may invest all or a portion of its investable assets in investment companies with substantially the same investment goals, policies and restrictions as the Fund. The primary reason to use the master fund/feeder fund structure is to provide a mechanism to pool, in a single master fund, investments of different investor classes, resulting in a larger portfolio, investment and administrative efficiencies and economies of scale.
MANAGEMENT AGREEMENT
Under a Management Agreement (Agreement), the Advisor has contracted to furnish each Fund with investment research and recommendations or fund management, respectively, and accounting and administrative personnel and services, and with office space, equipment and other facilities. For these services and facilities, each Fund pays a monthly fee based on the average of the daily closing value of the total net assets of each Fund for such month. Under the Agreement, any liability of the Advisor to the Trust, a Fund and/or its shareholders is limited to situations involving the Advisor's own willful misfeasance, bad faith, gross negligence or reckless disregard of its duties.
The Agreement may be terminated with respect to the Fund at any time on 60 days'
written notice by the Advisor or by the Trustees of the Trust or by a vote of a
majority of the outstanding voting securities of the Fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the Fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Advisor or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
The Advisor pays all salaries of officers of the Trust. The Trust pays all expenses not assumed by the Advisor including, but not limited to, auditing, legal, custodial, investor servicing and shareholder reporting expenses. The Trust pays the cost of printing and mailing any Prospectuses sent to shareholders. Columbia Funds Distributor, Inc. (formerly named Liberty Funds Distributor, Inc.) pays the cost of printing and distributing all other Prospectuses.
ADMINISTRATION AGREEMENT (THIS SECTION APPLIES ONLY TO CERTAIN FUNDS AND THEIR RESPECTIVE TRUSTS. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION REGARDING YOUR FUND).
Under an Administration Agreement, the Advisor, in its capacity as the Administrator to each Fund, has contracted to perform the following administrative services:
(a) providing office space, equipment and clerical personnel;
(b) arranging, if desired by the respective Trust, for its directors, officers and employees to serve as Trustees, officers or agents of each Fund;
(c) preparing and, if applicable, filing all documents required for compliance by each Fund with applicable laws and regulations;
(d) preparation of agendas and supporting documents for and minutes of meetings of Trustees, committees of Trustees and shareholders;
(e) coordinating and overseeing the activities of each Fund's other third-party service providers; and
(f) maintaining certain books and records of each Fund.
With respect to Columbia Money Market Fund (formerly named Liberty Money Market Fund) and Columbia Municipal Money Market Fund (formerly named Liberty Municipal Money Market Fund), the Administration Agreement for these Funds provides that the Advisor will monitor compliance by the Fund with Rule 2a-7 under the 1940 Act and report to the Trustees from time to time with respect thereto. The Advisor is paid a monthly fee at the annual rate of average daily net assets set forth in Part 1 of this SAI.
TRUST SERVICES AGREEMENT
Pursuant to a Trust Services Agreement, CFS provides the Columbia Tax-Managed Growth Fund's Trust Shares with trust administration services, including tax return preparation and filing, other tax and beneficiary reporting and recordkeeping. CFS's fee is described in the Prospectuses of the Columbia Tax-Managed Growth Fund.
THE PRICING AND BOOKKEEPING AGREEMENT
The Advisor is responsible for providing accounting and bookkeeping services to each Fund pursuant to a pricing and bookkeeping agreement. Under a separate agreement (Outsourcing Agreement), the Advisor has delegated those functions to State Street Bank and Trust Company (State Street). The Advisor pays fees to State Street under the Outsourcing Agreement. SEE "FUND CHARGES AND EXPENSES" IN
PART 1 OF THIS SAI FOR INFORMATION ON THESE FEES.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. The Advisor acts as investment advisor to each of the Funds. The Advisor's affiliate, CASI, advises other institutional, corporate, fiduciary and individual clients for which CASI performs various services. Various officers and Trustees of the Trust also serve as officers or Trustees of other funds and the other corporate or fiduciary clients of the Advisor. The Funds and clients advised by the Advisor or the Funds administered by the Advisor sometimes invest in securities in which the Fund also invests and sometimes engage in covered option writing programs and enter into transactions utilizing stock index options and stock index and financial futures and related options ("other instruments"). If the Fund, such other funds and such other clients desire to buy or sell the same portfolio securities, options or other instruments at about the same time, the purchases and sales are normally made as nearly as practicable on a pro rata basis in proportion to the amounts desired to be purchased or sold by each. Although in some cases these practices could have a detrimental effect on the price or volume of the securities, options or other instruments as far as the Fund is concerned, in most cases it is believed that these practices should produce better executions. It is the opinion of the Trustees that the desirability of retaining the Advisor as investment advisor to the Funds outweighs the disadvantages, if any, which might result from these practices.
POTENTIAL CONFLICTS OF INTEREST IN MANAGING MULTIPLE ACCOUNTS
Like other investment professionals with multiple clients, a portfolio manager for a Fund may face certain potential conflicts of interest in connection with managing both the Fund and other accounts at the same time. The paragraphs below describe some of these potential conflicts, which the Advisor believes are faced by investment professionals at most major financial firms. The Advisor and the Trustees of the Columbia Funds have adopted compliance policies and procedures that attempt to address certain of these potential conflicts. The management of accounts with different advisory fee rates and/or fee structures, including accounts that pay advisory fees based on account performance ("performance fee accounts"), may raise potential conflicts of interest by creating an incentive to favor higher-fee accounts. These potential conflicts may include, among others:
- The most attractive investments could be allocated to higher-fee accounts or performance fee accounts.
- The trading of higher-fee accounts could be favored as to timing and/or execution price. For example, higher-fee accounts could be permitted to sell securities earlier than other accounts when a prompt sale is desirable or to buy securities at an earlier and more opportune time.
- The trading of other accounts could be used to benefit higher-fee accounts (front- running).
- The investment management team could focus their time and efforts primarily on higher-fee accounts due to a personal stake in compensation.
Potential conflicts of interest may also arise when the portfolio managers have personal investments in other accounts that may create an incentive to favor those accounts. As a general matter and subject to limited exceptions, the Advisor's investment professionals do not have the opportunity to invest in client accounts, other than the Columbia Funds.
A potential conflict of interest may arise when a Fund and other accounts purchase or sell the same securities. On occasions when a portfolio manager considers the purchase or sale of a security to be in the best interests of a Fund as well as other accounts, the Advisor's trading desk may, to the extent permitted by applicable laws and regulations, aggregate the securities to be sold or purchased in order to obtain the best execution and lower brokerage commissions, if any. Aggregation of trades may create the potential for unfairness to a Fund or another account if one account is favored over another in allocating the securities purchased or sold - for example, by allocating a disproportionate amount of a security that is likely to increase in value to a favored account.
"Cross trades," in which one Columbia account sells a particular security to another account (potentially saving transaction costs for both accounts), may also pose a potential conflict of interest. Cross trades may be seen to involve a potential conflict of interest if, for example, one account is permitted to sell a security to another account at a higher price than an independent third party would pay. The Advisor and the Funds' Trustees have adopted compliance procedures that provide that any transactions between a Fund and another Columbia-advised account are to be made at an independent current market price, as required by law.
Another potential conflict of interest may arise based on the different investment objectives and strategies of a Fund and other accounts. For example, another account may have a shorter-term investment horizon or different investment objectives, policies or restrictions than a Fund. Depending on another account's objectives or other factors, a portfolio manager may give advice and make decisions that may differ from advice given, or the timing or nature of decisions made, with respect to a Fund. In addition, investment decisions are the product of many factors in addition to basic suitability for the particular account involved. Thus, a particular security may be bought or sold for certain accounts even though it could have been bought or sold for other accounts at the same time. More rarely, a particular security may be bought for one or more accounts managed by a portfolio manager when one or more other accounts are selling the security (including short sales). There may be circumstances when purchases or sales of portfolio securities for one or more accounts may have an adverse effect on other accounts.
A Fund's portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. As a result, the portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as might be the case if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies.
A Fund's portfolio managers may be able to select or influence the selection of the brokers and dealers that are used to execute securities transactions for the Fund. In addition to executing trades, some brokers and dealers provide portfolio managers with brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934), which may result in the payment of higher brokerage fees than might have otherwise be available. These services may be more beneficial to certain funds or accounts than to others. Although the payment of brokerage commissions is subject to the requirement that the portfolio manager determine in good faith that the commissions are reasonable in relation to the value of the brokerage and research services provided to
the fund, a portfolio manager's decision as to the selection of brokers and dealers could yield disproportionate costs and benefits among the funds and/or accounts that he or she manages.
The Advisor or an affiliate may provide more services (such as distribution or recordkeeping) for some types of funds or accounts than for others. In such cases, a portfolio manager may benefit, either directly or indirectly, by devoting disproportionate attention to the management of fund and/or accounts that provide greater overall returns to the investment manager and its affiliates.
A Fund's portfolio manager(s) may also face other potential conflicts of interest in managing the Fund, and the description above is not a complete description of every conflict that could be deemed to exist in managing both a Fund and other accounts. In addition, a Fund's portfolio manager may also manage other accounts (including their personal assets or the assets of family members) in their personal capacity. The management of these accounts may also involve certain of the potential conflicts described above. Investment personnel at the Advisor, including each Fund's portfolio manager, are subject to restrictions on engaging in personal securities transactions pursuant to Codes of Ethics adopted by the Advisor and each Fund, which contain provisions and requirements designed to identify and address certain conflicts of interest between personal investment activities and the interests of each Fund.
BROKERAGE AND RESEARCH SERVICES. Consistent with the Conduct Rules of the National Association of Securities Dealers, Inc., and subject to seeking "best execution" (as defined below) and such other policies as the Trustees may determine, the Advisor may consider sales of shares of the Funds as a factor in the selection of broker-dealers to execute securities transactions for a Fund.
The Advisor places the transactions of the Funds with broker-dealers selected by the Advisor and, if applicable, negotiates commissions. Broker-dealers may receive brokerage commissions on portfolio transactions, including the purchase and writing of options, the effecting of closing purchase and sale transactions, and the purchase and sale of underlying securities upon the exercise of options and the purchase or sale of other instruments. The Funds from time to time also execute portfolio transactions with such broker-dealers acting as principals. The Funds do not intend to deal exclusively with any particular broker-dealer or group of broker-dealers.
It is the Advisor's policy generally to seek best execution, which is to place the Funds' transactions where the Funds can be expected to obtain the most favorable combination of price and execution services in particular transactions or provided on a continuing basis by a broker-dealer, and to deal directly with a principal market maker in connection with over-the-counter transactions, except when it is believed that best execution is obtainable elsewhere. In evaluating the execution services of, including the overall reasonableness of brokerage commissions paid to, a broker-dealer, consideration is given to, among other things, the firm's general execution and operational capabilities, and to its reliability, integrity and financial condition.
Securities transactions of the Funds may be executed by broker-dealers who also provide research services (as defined below) to the Advisor and the Funds. The Advisor may use all, some or none of such research services in providing investment advisory services to each of its investment company and other clients, including the Fund. To the extent that such services are used by the Advisor, they tend to reduce the Advisor's expenses. In the Advisor's opinion, it is impossible to assign an exact dollar value for such services.
The Trustees have authorized the Advisor to cause the Funds to pay a broker-dealer which provides brokerage and research services to the Advisor an amount of commission for effecting a securities transaction, including the sale of an option or a closing purchase transaction, for the funds in excess of the amount of commission which another broker-dealer would have charged for effecting that transaction. As provided in Section 28(e) of the Securities Exchange Act of 1934, "brokerage and research services" include advice as to the value of securities, the advisability of investing in, purchasing or selling securities and the availability of securities or purchasers or sellers of securities; furnishing analyses and reports concerning issues, industries, securities, economic factors and trends and portfolio strategy and performance of accounts; and effecting securities transactions and performing functions incidental thereto (such as clearance and settlement). The Advisor must determine in good faith that such greater commission is reasonable in relation to the value of the brokerage and research services provided by the executing broker-dealer viewed in terms of that particular transaction or the Advisor's overall responsibilities to the Funds and all its other clients.
The Trustees have authorized the Advisor to utilize the services of a clearing agent with respect to all call options written by Funds that write options and to pay such clearing agent commissions of a fixed amount per share (currently 1.25 cents) on the sale of the underlying security upon the exercise of an option written by a Fund.
The Advisor may use the services of affiliated broker-dealers, when buying or selling securities for a Fund's portfolio pursuant to procedures adopted by the Trustees and 1940 Act Rule 17e-1. Under the Rule, the Advisor must ensure that commissions a Fund pays to affiliates of the Advisor on portfolio transactions are reasonable and fair compared to commissions received by other broker-dealers in connection with comparable transactions involving similar securities being bought or sold at about the same time. The Advisor will report quarterly to the Trustees on all securities transactions placed through affiliates of the Advisor so that the Trustees may consider whether such trades complied with these procedures and the Rule.
PRINCIPAL UNDERWRITER
CFD is the principal underwriter of the Trust's shares. CFD has no obligation to buy the Funds' shares, and purchases the Funds' shares only upon receipt of orders from authorized FSFs or investors.
INVESTOR SERVICING AND TRANSFER AGENT
CFS is the Trust's investor servicing agent (transfer, plan and dividend disbursing agent), for which it receives fees which are paid monthly by the Trust. The fee paid to CFS is based on number of accounts plus reimbursement for certain out-of-pocket expenses. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION ON FEES RECEIVED BY CFS. The agreement continues indefinitely but may be terminated by 90 days' notice by the Fund to CFS or generally by 6 months' notice by CFS to the Fund. The agreement limits the liability of CFS to the Fund for loss or damage incurred by the Fund to situations involving a failure of CFS to use reasonable care or to act in good faith and without negligence in performing its duties under the agreement. The Fund will indemnify CFS from, among other things, any and all claims, actions, suits, losses, costs, damages, and expenses incurred by it in connection with its acceptance of this Agreement, provided that: (i) to the extent such claims, actions, suits, losses, costs, damages, or expenses relate solely to a particular series or group of series of shares, such indemnification shall be only out of the assets of that series or group of series; (ii) this indemnification shall not apply to actions or omissions constituting negligence or misconduct of CFS or its agents or contractors, including but not limited to willful misfeasance, bad faith or gross negligence in the performance of their duties, or reckless disregard of their obligations and duties under this Agreement; and (iii) CFS shall give a Fund prompt notice and reasonable opportunity to defend against any such claim or action in its own name or in the name of CFS.
CODE OF ETHICS
The Funds, the Advisor, and CFD have adopted Codes of Ethics pursuant to the requirements of the Act. These Codes of Ethics permit personnel subject to the Codes to invest in securities, including securities that may be purchased or held by the Funds. These Codes of Ethics can be reviewed and copied at the SEC's Public Reference Room and may be obtained by calling the SEC at 1-202-942-8090. These Codes are also available on the EDGAR Database on the SEC's internet web site at http://www.sec.gov, and may also be obtained, after paying a duplicating fee, by electronic request to publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102.
ANTI-MONEY LAUNDERING COMPLIANCE
The Funds are required to comply with various anti-money laundering laws and regulations. Consequently, the Funds may request additional information from you to verify your identity. If at any time the Funds believe a shareholder may be involved in suspicious activity or if certain account information matches information on government lists of suspicious persons, the Funds may choose not to establish a new account or may be required to "freeze" a shareholder's account, halting all shareholder activity with respect to such account. The Funds also may be required to provide a governmental agency with information about transactions that have occurred in a shareholder's account or to transfer monies received to establish a new account, transfer an existing account or transfer the proceeds of an existing account to a governmental agency. In some circumstances, the law may not permit a Fund to inform the shareholder that it has taken the actions described above.
PROXY VOTING POLICIES AND FUND PROXY VOTING RECORD
The Fund has delegated to the Advisor the responsibility to vote proxies relating to portfolio securities held by the Fund. In deciding to delegate this responsibility to the Advisor, the Board of Trustees of the Trust reviewed and approved the policies and procedures adopted by the Advisor. These included the procedures that the Advisor follows when a vote presents a conflict between the interests of the Fund and its shareholders and the Advisor, its affiliates, its other clients or other persons.
The Advisor's policy is to vote all proxies for Fund securities in a manner considered by the Advisor to be in the best interest of the Fund and its shareholders without regard to any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor examines each proposal and votes against the proposal, if, in its judgment, approval or adoption of the proposal would be expected to impact adversely the current or potential market value of the issuer's securities. The Advisor also examines each proposal and votes the proxies against the proposal, if, in its judgment, the proposal would be expected to affect adversely the best interest of the Fund. The Advisor determines the best interest of the Fund in light of the potential economic return on the Fund's investment.
The Advisor addresses potential material conflicts of interest by having predetermined voting guidelines. For those proposals that require special consideration or in instances where special circumstances may require varying from the predetermined guideline, the Advisor's Proxy Committee determines the vote in the best interest of the Fund, without consideration of any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor's Proxy Committee is composed of representatives of the Advisor's equity investments, equity research, compliance, legal and fund administration functions. In addition to the responsibilities described above, the Proxy Committee has the responsibility to review, on a semi-annual basis, the Advisor's proxy voting policies to ensure consistency with internal and regulatory agency policies and to develop additional predetermined voting guidelines to assist in the review of proxy proposals.
The Proxy Committee may vary from a predetermined guideline if it determines that voting on the proposal according to the predetermined guideline would be expected to impact adversely the current or potential market value of the issuer's securities or to affect adversely the best interest of the client. References to the best interest of a client refer to the interest of the client in terms of the
potential economic return on the client's investment. In determining the vote on any proposal, the Proxy Committee does not consider any benefit other than benefits to the owner of the securities to be voted. A member of the Proxy Committee is prohibited from voting on any proposal for which he or she has a conflict of interest by reason of a direct relationship with the issuer or other party affected by a given proposal. Persons making recommendations to the Proxy Committee or its members are required to disclose to the Committee any relationship with a party making a proposal or other matter known to the person that would create a potential conflict of interest.
The Advisor has retained Institutional Shareholder Services ("ISS"), a third party vendor, to implement its proxy voting process. ISS provides proxy analysis, record keeping services and vote disclosure services.
The Advisor's proxy voting guidelines and procedures are included in this SAI as Appendix II. In accordance with SEC regulations, the fund's proxy voting record for the last twelve-month period ended June 30 has been filed with the SEC. You may obtain a copy of the fund's proxy voting record (i) at www.columbiamanagement.com; (ii) on the Securities and Exchange Commission's website at www.sec.gov and (iii) without charge, upon request, by calling 800-368-0346.
DISCLOSURE OF PORTFOLIO INFORMATION
The Trustees of the Columbia Funds have adopted policies with respect to the disclosure of the Funds' portfolio holdings by the Funds, Columbia Management, or their affiliates. These policies provide that Fund portfolio holdings information generally may not be disclosed to any party prior to (1) the day next following the posting of such information on the Funds' website at www.columbiafunds.com, (2) the day next following the filing of the information with the SEC in a required filing, or (3) for money market funds, such information is publicly available to all shareholders upon request on the fifth business day after each calendar month-end. Certain limited exceptions pursuant to the Fund's policies are described below. The Trustees shall be updated as needed regarding the Fund's compliance with the policies, including information relating to any potential conflicts of interest between the interests of Fund shareholders and those of Columbia Management and its affiliates. The Fund's policies prohibit Columbia Management and the Fund's other service providers from entering into any agreement to disclose Fund portfolio holdings information in exchange for any form of consideration. These policies apply to disclosures to all categories of persons, including, without limitation, individual investors, institutional investors, intermediaries that distribute the Fund's shares, third-party service providers, rating and ranking organizations and affiliated persons of the Fund.
PUBLIC DISCLOSURES. The Fund's portfolio holdings are currently disclosed to the public through required filings with the SEC and, for equity and fixed income funds, on the Fund's website at www.columbiafunds.com. The Fund files its portfolio holdings with the SEC for each fiscal quarter on Form N-CSR (with respect to each annual period and semi-annual period) and Form N-Q (with respect to the first and third quarters of the Fund's fiscal year). Shareholders may obtain the Fund's Forms N-CSR and N-Q filings on the SEC's website at www.sec.gov. In addition, the Fund's Forms N-CSR and N-Q filings may be reviewed and copied at the SEC's public reference room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC's website or the operation of the public reference room.
The equity and fixed income Columbia Funds also currently make portfolio information publicly available at www.columbiafunds.com, as disclosed in the following table:
FREQUENCY OF
TYPE OF FUND INFORMATION PROVIDED DISCLOSURE DATE OF WEB POSTING
------------ ----------------------- ------------ ----------------------
Equity Funds Full portfolio holdings Monthly 30 calendar days after
information. month-end.
Fixed Income Funds Full portfolio holdings Quarterly 60 calendar days after
information. quarter-end
|
The scope of the information provided relating to the Fund's portfolio that is made available on the website may change from time to time without prior notice.
For Columbia's money market funds, a complete list of a Fund's portfolio holdings shall be publicly available on a monthly basis on the fifth business date after month-end. Shareholders may request such information by writing or calling the Fund's distributor, Columbia Funds Distributor, Inc. at the address listed on the cover of this SAI.
A Fund, Columbia Management or their affiliates may include portfolio holdings information that has already been made public through a web posting or SEC filing in marketing literature and other communications to shareholders, advisors or other parties, provided that the information is disclosed no earlier than the day after the date the information is disclosed publicly.
OTHER DISCLOSURES. The Fund's policies provide that non-public disclosures of the Fund's portfolio holdings may be made if (1) the Fund has a legitimate business purpose for making such disclosure, (2) the Fund's chief executive officer authorizes such non-public disclosure of information, and (3) the party receiving the non-public information enters into a confidentiality agreement, which includes a duty not to trade on the non-public information.
The Fund periodically discloses its portfolio information on a confidential basis to various service providers that require such information in order to assist the Fund with its day-to-day business affairs. In addition to Columbia Management and its affiliates, these service providers include the Fund's custodian and sub-custodians, the Fund's independent registered public accounting firm, legal counsel, financial printers(R.R. Donnelly & Sons and Bowne & Co., Inc.), the Fund's proxy voting service provider (Alamo Direct Mail Services, Inc.), the Fund's proxy solicitor (Georgeson Shareholder Communications Inc.), rating agencies that maintain ratings on certain Columbia Funds (Fitch, Inc.) and service providers that support Columbia Management's trading systems (InvestorTool, Inc. and Thomson Financial).These service providers are required to keep such information confidential, and are prohibited from trading based on the information or otherwise using the information except as necessary in providing services to the Fund. The Fund may also disclose portfolio holdings information to broker/dealers and certain other entities related to potential transactions and management of the Fund, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information.
Certain clients of the Fund's investment adviser(s) may follow a strategy similar to that of the Fund, and have access to portfolio holdings information for their account. It is possible that such information could be used to infer portfolio holdings information relating to the Fund.
DETERMINATION OF NET ASSET VALUE
Each Fund determines net asset value (NAV) per share for each class as of the close of the New York Stock Exchange (Exchange) (generally 4:00 p.m. Eastern time) each day the Exchange is open, except that certain classes of assets, such as index futures, for which the market close occurs shortly after the close of regular trading on the Exchange will be priced at the closing time of the market on which they trade. Currently, the Exchange is closed Saturdays, Sundays and the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. Funds with portfolio securities which are primarily listed on foreign exchanges may experience trading and changes in NAV on days on which such Fund does not determine NAV due to differences in closing policies among exchanges. This may significantly affect the NAV of the Fund's redeemable securities on days when an investor cannot redeem such securities Debt securities generally are valued by a pricing service which determines valuations based upon market transactions for normal, institutional-size trading units of similar securities. However, in circumstances where such prices are not available or where the Advisor deems it appropriate to do so, an over-the-counter or exchange bid quotation is used. Securities listed on an exchange or on NASDAQ are valued at the last sale price (or the official closing price as determined by the NASDAQ system, if different, as applicable). Listed securities for which there were no sales during the day and unlisted securities generally are valued at the last quoted bid price. Options are valued at the last sale price or in the absence of a sale, the mean between the last quoted bid and offering prices. Short-term obligations with a maturity of 60 days or less are valued at amortized cost pursuant to procedures adopted by the Trustees. The values of foreign securities quoted in foreign currencies are translated into U.S. dollars at the exchange rate for that day. Portfolio positions for which market quotations are not readily available and other assets are valued at fair value as determined by the Advisor in good faith under the direction of the Trust's Board of Trustees.
Generally, trading in certain securities (such as foreign securities) is substantially completed each day at various times prior to the close of the Exchange. Trading on certain foreign securities markets may not take place on all business days in New York, and trading on some foreign securities markets takes place on days which are not business days in New York and on which the Fund's NAV is not calculated. The values of these securities used in determining the NAV are computed as of such times. Also, because of the amount of time required to collect and process trading information as to large numbers of securities issues, the values of certain securities (such as convertible bonds, U.S. government securities, and tax-exempt securities) are determined based on market quotations collected earlier in the day at the latest practicable time prior to the close of the Exchange. Occasionally, events affecting the value of such securities may occur between such times and the close of the Exchange which will not be reflected in the computation of each Fund's NAV. If events materially affecting the value of such securities occur during such period, then these securities will be valued at fair value following procedures approved by the Trust's Board of Trustees.
(The following two paragraphs are applicable only to Columbia Newport Tiger Fund (formerly named Liberty Newport Tiger Fund), Columbia Newport Greater China Fund (formerly named Liberty Newport Greater China Fund), Columbia Newport Europe Fund (formerly named Liberty Newport Europe Fund) and Columbia Newport Asia Pacific Fund (formerly named Liberty Newport Asia Pacific Fund))
Trading in securities on stock exchanges and over-the-counter markets in foreign securities markets is normally completed well before the close of the business day in New York. Trading on foreign securities markets may not take place on all business days in New York, and trading on some foreign securities markets does take place on days which are not business days in New York and on which the Fund's NAV is not calculated.
The calculation of the Fund's NAV accordingly may not take place contemporaneously with the determination of the prices of the Fund's portfolio securities used in such calculations. Events affecting the values of portfolio securities that occur between the time their prices are determined and the close of the Exchange (when the Fund's NAV is calculated) will not be reflected in the Fund's calculation of NAV unless the Advisor, acting under procedures established by the Board of Trustees of the Trust, deems that the particular event would materially affect the Fund's NAV, in which case an adjustment will be made. Assets or liabilities initially expressed in terms of foreign currencies are translated prior to the next determination of the NAV of the Fund's shares into U.S. dollars at prevailing market rates.
AMORTIZED COST FOR MONEY MARKET FUNDS (SEE "AMORTIZED COST FOR MONEY MARKET FUNDS" UNDER "INFORMATION CONCERNING THE FUND" IN PART 1 OF THE SAI OF COLUMBIA MONEY MARKET FUND (FORMERLY NAMED LIBERTY MONEY MARKET FUND) AND COLUMBIA MUNICIPAL MONEY MARKET FUND (FORMERLY NAMED LIBERTY MUNICIPAL MONEY MARKET FUND)
Money market funds generally value their portfolio securities at amortized cost according to Rule 2a-7 under the 1940 Act.
Under the amortized cost method a security is initially valued at cost and
thereafter any discount or premium from maturity value is amortized ratably to
maturity. This method assures a constant NAV but may result in a yield different
from that of the same portfolio under the market value method. The Trust's
Trustees have adopted procedures intended to stabilize a money market fund's NAV
per share at $1.00. If a money market fund's market value deviates from the
amortized cost of $1.00, and results in a material dilution to existing
shareholders, the Trust's Trustees will take corrective action that may include:
realizing gains or losses; shortening the portfolio's maturity; withholding
distributions; redeeming shares in kind; or converting to the market value
method (in which case the NAV per share may differ from $1.00). All investments
will be determined pursuant to procedures approved by the Trust's Trustees to
present minimal credit risk.
See the Statement of Assets and Liabilities in the shareholder report of the Columbia Money Market Fund (formerly named Liberty Money Market Fund) or the Columbia Municipal Money Market Fund (formerly named Liberty Municipal Money Market Fund) for a specimen price sheet showing the computation of maximum offering price per share of Class A shares.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of the Fund and tables of charges. This SAI contains additional information which may be of interest to investors.
The Fund may accept unconditional orders for shares to be executed at the public offering price based on the NAV per share next determined after the order is placed in good order. The public offering price is the NAV plus the applicable sales charge, if any. In the case of orders for purchase of shares placed through FSFs, the public offering price will be determined on the day the order is placed in good order, but only if the FSF receives the order prior to the time at which shares are valued and transmits it to the Fund before the Fund processes that day's transactions. If the FSF fails to transmit before the Fund processes that day's transactions, the customer's entitlement to that day's closing price must be settled between the customer and the FSF. If the FSF receives the order after the time at which the Fund values its shares, the price will be based on the NAV determined as of the close of the Exchange on the next day it is open. If funds for the purchase of shares are sent directly to CFS, they will be invested at the public offering price next determined after receipt in good order. Payment for shares of the fund must be in U.S. dollars; if made by check, the check must be drawn on a U.S. bank.
Investors should understand that, since the offering price of the Fund's shares is calculated to two decimal places using standard rounding methodology, the dollar amount of the sales charge paid as a percentage of the offering price and of the net amount invested for any particular purchase of fund shares may be higher or lower depending on whether downward or upward rounding was required during the calculation process.
The Fund receives the entire NAV of shares sold. For shares subject to an initial sales charge, CFD's commission is the sales charge shown in the Fund's Prospectus less any applicable FSF discount. The FSF discount is the same for all FSFs, except that CFD retains the entire sales charge on any sales made to a shareholder who does not specify a FSF on the Investment Account Application ("Application"), and except that CFD may from time to time reallow additional amounts to all or certain FSFs. CFD generally retains some or all of any asset-based sales charge (distribution fee) or contingent deferred sales charge. Such charges generally reimburse CFD for any up-front and/or ongoing commissions paid to FSFs.
Checks presented for the purchase of shares of the Fund which are returned by the purchaser's bank or checkwriting privilege checks for which there are insufficient funds in a shareholder's account to cover redemption may subject such purchaser or shareholder to a $15 service fee for each check returned. Checks must be drawn on a U.S. bank and must be payable in U.S. dollars. Travelers checks, gift checks, credit card convenience checks, credit cards, cash and ban counter (starter checks) are not accepted.
CFS acts as the shareholder's agent whenever it receives instructions to carry out a transaction on the shareholder's account. Upon receipt of instructions that shares are to be purchased for a shareholder's account, the designated FSF will receive the applicable sales commission. Shareholders may change FSFs at any time by written notice to CFS, provided the new FSF has a sales agreement with CFD.
Shares credited to an account are transferable upon written instructions in good order to CFS and may be redeemed as described under "How to Sell Shares" in the Prospectus. Certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you may send the certificates to CFS for deposit to your account.
In addition to the commissions specified in a Fund's prospectus and this SAI, CFD, or its advisory affiliates, from their own resources, may make cash payments to FSFs that agree to promote the sale of shares of funds that CFD distributes. A number of factors may be considered in determining the amount of those payments, including the FSF's sales, client assets invested in the funds and redemption rates, the quality of the FSF's relationship with CFD and/or its affiliates, and the nature of the services provided by FSFs to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the FSF's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, CFD may also pay non-cash compensation to FSFs and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for FSF educational or training events.
In addition, CFD, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of a Fund.
CFD and its affiliates anticipate that the FSFs and intermediaries that will receive the additional compensation described above include:
1st Global Capital Corp
401 Company
ABN AMRO Trust Services
ADP Retirement Services
Advest
AEGON/Transamerica
AG Edwards
American Century Services
American Express
AMG
AON Consulting
AST Trust Company
Banc of America Investment Services
BancOne
Bear Stearns
Benefit Plan Administrators
Bidwell & Company
BNY Clearing
C N A Trust
Charles Schwab
CIBC Oppenheimer
Citigroup Global Markets
CitiStreet Associates LLC
City National Bank
City of Milwaukee
Columbia Trust Company
Commonwealth Financial
Compensation & Capital
CPI Qualified Plan Consultants
Daily Access Concepts
Davenport & Company
Delaware Investments
Digital Retirement Solutions
Discover Brokerage
Dreyfus/Mellon
Edgewood Services
Edward Jones
E-Trade,
ExpertPlan
FAS Liberty Life Spectrum
Ferris Baker Watts
Fidelity
Financial Data Services
Franklin Templeton
Freeman Welwood
Gem Group
Great West Life
Hewitt Associates LLC
Huntington Bank
ING
Intermountain Health Care
Investmart, Inc.
Investment Manager Services (IMS)
Janney Montgomery Scott
JJB Hilliard Lyons
JP Morgan/American Century
Kenney Investments
Kirkpatrick Pettis Smith Polian Inc
Legg Mason Wood Walker
Liberty Life
Lincoln Financial
Lincoln Life
Linsco Private Ledger
M & T Securities
Marquette Trust Company
Mass Mutual Life
Matrix Settlement & Clearance Services (MSCS)
McDonald Investments
Merrill Lynch
MetLife
MFS
Mfund Trax
MidAtlantic Capital
Milliman USA
Morgan Keegan
Morgan Stanley Dean Witter
PFPC
Nationwide Investment Services
Neuberger Berman Mgmt
NFP Securities
NSD -NetStock Sharebuilder
NYLife Distributors
Optimum Investment Advisors
Orbitex
Pershing LLC
Phoenix Home Life
Piper Jaffray
PNC
PPI Employee Benefits
Private Bank & Trust
Prudential
Putnam Investments
Raymond James
RBC Dain Rausher
Robert W Baird
Royal Alliance
RSM McGladrey Inc.
Safeco
Scott & Stringfellow
Scudder Investments
Security Benefit
Segall Bryant Hamill
South Trust Securities
Southwest Securities
Standard Insurance
Stanton Group
State of NY Deferred Compensation Plan
Stephens, Inc.
Stifel Nicolaus & Co
Strong Capital
Sungard T Rowe Price
Trustar Retirement Services
Trustlynx/Datalynx
UBS Financial Services
USAA Investment Management
Vanguard
Wachovia
TD Waterhouse
Webster Investment Services
Wells Fargo
Wilmington Trust
PLEASE CONTACT YOUR FSF OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or eliminated at any time.
AUTOMATIC INVESTMENT PLAN. As a convenience to investors, shares of most Funds advised by the Advisor may be purchased through the Automatic Investment Plan. Electronic fund transfers for a fixed amount of at least $50 ($25 for IRA) are used to purchase a Fund's shares at the public offering price next determined after CFD receives the proceeds. If your Automatic Investment Plan purchase is by electronic funds transfer, you may request the Automatic Investment Plan purchase for any day. Further information and application forms are available from FSFs or from CFD.
AUTOMATED DOLLAR COST AVERAGING (Classes A, B, C, D, T, G and Z). The Automated Dollar Cost Averaging program allows you to exchange $100 or more on a monthly basis from any fund distributed by CFD in which you have a current balance of at least $5,000 into the same class of shares of up to five other Funds. Complete the Automated Dollar Cost Averaging section of the Application. There is no charge for exchanges made pursuant to the Automated Dollar Cost Averaging program. Sales charges may apply if exchanging from a money market fund. Exchanges will continue so long as your fund balance is sufficient to complete the transfers. Your normal rights and privileges as a shareholder remain in full force and effect. Thus you can buy any Fund, exchange between the same Class of shares of Funds by written instruction or by telephone exchange if you have so elected and withdraw amounts from any Fund, subject to the imposition of any applicable CDSC or sales charges.
Any additional payments or exchanges into your Fund will extend the time of the Automated Dollar Cost Averaging program.
An exchange is generally a capital sale transaction for federal income tax purposes.
You may terminate your program, change the amount of the exchange (subject to the $100 minimum), or change your selection of funds, by telephone or in writing; if in writing by mailing your instructions to Columbia Funds Services, Inc. (formerly named Liberty Funds Services, Inc.) (CFS) P.O. Box 8081, Boston, MA 02266-8081.
You should consult your FSF or financial advisor to determine whether or not the Automated Dollar Cost Averaging program is appropriate for you.
CFD offers several plans by which an investor may obtain reduced initial or contingent deferred sales charges. These plans may be altered or discontinued at any time. See "Programs For Reducing or Eliminating Sales Charges" below for more information.
CLASS T SHAREHOLDER SERVICES PLAN. The Trustees have approved a Shareholder
Services Plan (the "Services Plan") pursuant to which the Trusts plan to enter
into servicing agreements with institutions (including Bank of America
Corporation and its affiliates). Pursuant to these servicing agreements,
institutions render certain administrative and support services to customers who
are the beneficial owners of Class T shares of each Fund other than the Columbia
Newport Tiger Fund. Such services are provided to the institution's customers
who are the beneficial owners of Class T shares and are intended to supplement
the services provided by the Fund's administrator and transfer agent to the
shareholders of record of the Class T shares. The Services Plan provides that
each Fund will pay fees for such services at an annual rate of up to 0.50% of
the average daily net asset value of Class T shares owned beneficially by the
institution's customers. Institutions may receive up to one-half of this fee for
providing one or more of the following services to such customers: (i)
aggregating and processing purchase and redemption requests and placing net
purchase and redemption orders with CFD; (ii) processing dividend payments from
a Fund; (iii) providing sub-accounting with respect to Class T shares or the
information necessary for sub-accounting; and (iv) providing periodic mailings
to customers. Institutions may also receive up to one-half of this fee for
providing one or more of these additional services to such customers: (i)
providing customers with information as to their positions in Class T shares;
(ii) responding to customer inquiries; and (iii) providing a service to invest
the assets of customers in Class T shares.
The payments under the servicing agreements entered into as of the date of this SAI are limited to an aggregate fee of not more than 0.30% (on an annualized basis) of the average daily net asset value of the Class T shares of equity funds beneficially owned by customers of institutions and 0.15% (on an annualized basis) of the average daily net asset value of the Class T shares of bond funds beneficially owned by customers of institutions. The Funds understand that institutions may charge fees to their customers who are the beneficial owners of Class T shares in connection with their accounts with such institutions. Any such fees would be in addition to any amounts which may be received by an institution under the Services Plan. Under the terms of each servicing agreement, institutions are required to provide to their customers a schedule of any fees that they may charge in connection with customer investments in Class T shares.
Each servicing agreement with an institution ("Service Organization") relating to the Services Plan requires that, with respect to those Funds which declare dividends on a daily basis, the Service Organization agrees to waive a portion of the servicing fee payable to it under the Services Plan to the extent necessary to ensure that the fees required to be accrued with respect to the Class T shares of such Funds on any day do not exceed the income to be accrued to such Class T shares on that day.
The Class T servicing agreements are governed by the Services Plan approved by the Board of Trustees in connection with the offering of Class T shares of each Fund. Pursuant to the Services Plan, the Board of Trustees reviews, at least quarterly, a written report of the amounts paid under the servicing agreements and the purposes for which the expenditures were made. In addition, the arrangements with Service Organizations must be approved annually by a majority of the Trustees, including a majority of the trustees who are not "interested persons" of the Funds as defined in the 1940 Act and who have no direct or indirect financial interest in such arrangements (the "Disinterested Trustees").
The Board of Trustees has approved the service agreements with Service Organizations based on information provided by the Funds' service contractors that there is a reasonable likelihood that the arrangements will benefit the Funds and their shareholders by affording the Funds greater flexibility in connection with the efficient servicing of the accounts of the beneficial owners of Class T shares of the Funds. Any material amendment to the Funds' arrangements with Service Organizations must be approved by a majority of the Board of Trustees (including a majority of the Disinterested Trustees). So long as the service agreements with Service Organizations are in effect, the selection and nomination of the members of Columbia's Board of Trustees who are not "interested persons" (as defined in the 1940 Act) of the Funds will be committed to the discretion of such Disinterested Trustees.
TAX-SHELTERED RETIREMENT PLANS (Retirement Plans). CFD offers prototype tax-qualified plans, including Pension and Profit-Sharing Plans for individuals, corporations, employees and the self-employed. The minimum initial Retirement Plan investment is $25. Columbia Trust Company (CTC) is the Custodian/Trustee and Plan Sponsor of the Columbia Management prototype plans offered through CFD. In general, a $20 annual fee is charged. Detailed information concerning these Retirement Plans and copies of the Retirement Plans are available from CFD.
Participants in Retirement Plans not sponsored by CTC, not including Individual Retirement Accounts (IRAs), may be subject to an annual fee of $20 unless the Retirement Plan maintains an omnibus account with CFS. Participants in CTC sponsored prototype plans (other than IRAs) who liquidate the total value of their account may also be charged a $20 close-out processing fee payable to CFS. The close out fee applies to plans opened after September 1, 1996. The fee is in addition to any applicable CDSC. The fee will not apply if the participant uses the proceeds to open a Columbia Management IRA Rollover account in any Fund distributed by CFD, or if the Retirement Plan maintains an omnibus account.
Consultation with a competent financial advisor regarding these Retirement Plans and consideration of the suitability of Fund shares as an investment under the Employee Retirement Income Security Act of 1974 or otherwise is recommended.
TELEPHONE ADDRESS CHANGE SERVICES. By calling CFS, shareholders or their FSF of record may change an address on a recorded telephone line. Confirmations of address change will be sent to both the old and the new addresses. Telephone redemption privileges by check are suspended for 30 days after an address change is effected. Please have your account and taxpayer identification numbers available when calling.
CASH CONNECTION. Dividends and any other distributions, including Systematic Withdrawal Plan (SWP) payments, may be automatically deposited to a shareholder's bank account via electronic funds transfer. Shareholders wishing to avail themselves of this electronic transfer procedure should complete the appropriate sections of the Application.
AUTOMATIC DIVIDEND DIVERSIFICATION. The automatic dividend diversification reinvestment program (ADD) generally allows shareholders to have all distributions from a Fund automatically invested in the same class of shares of another Fund. An ADD account must be in the same name as the shareholder's existing open account with the particular Fund. Call CFS for more information at 1-800-345-6611.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
RIGHTS OF ACCUMULATION (Class A, Class B and Class T shares only) (Class T shares can only be purchased by the shareholders of Columbia Newport Tiger Fund (formerly named Liberty Newport Tiger Fund) who already own Class T shares). Reduced sales charges on Class A, B and T shares can be effected by combining a current purchase of Class A, Class B or Class T shares with prior purchases of other funds distributed by CFD. The applicable sales charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on the previous day of all funds' held by the shareholder.
CFD must be promptly notified of each purchase which entitles a shareholder to a reduced sales charge. Such reduced sales charge will be applied upon confirmation of the shareholder's holdings by CFS. A Fund may terminate or amend this Right of Accumulation.
STATEMENT OF INTENT (Class A, Class E and Class T shares only). Any person may qualify for reduced sales charges on purchases of Class A, E and T shares made within a thirteen-month period pursuant to a Statement of Intent ("Statement"). A shareholder may include, as an accumulation credit toward the completion of such Statement, the value of all fund shares held by the shareholder on the date of the Statement in Funds (except shares of any money market fund, unless such shares were acquired by exchange from Class A shares of another non-money market fund)). The value is determined at the public offering price on the date of the Statement. Purchases made through reinvestment of distributions do not count toward satisfaction of the Statement. Upon request, a Statement of Intent may be backdated to reflect purchases within 90 days.
During the term of a Statement, CFS will hold shares in escrow to secure payment of the higher sales charge applicable to Class A, E or T shares actually purchased. Dividends and capital gains will be paid on all escrowed shares and these shares will be released when the amount indicated has been purchased. A Statement does not obligate the investor to buy or a Fund to sell the amount of the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which would qualify for a further quantity discount, a retroactive price adjustment will be made at the time of expiration of the Statement. The resulting difference in offering price will purchase additional shares for the shareholder's account at the applicable offering price. As a part of this adjustment, the FSF shall return to CFD the excess commission previously paid during the thirteen-month period.
If the amount of the Statement is not purchased, the shareholder shall remit to CFD an amount equal to the difference between the sales charge paid and the sales charge that should have been paid. If the shareholder fails within twenty days after a written request to pay such difference in sales charge, CFS will redeem that number of escrowed Class A, E or T shares to equal such difference. The additional amount of FSF discount from the applicable offering price shall be remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available from your FSF, or from CFS at 1-800-345-6611.
REINSTATEMENT PRIVILEGE. Subject to the Fund's fund policy on trading of fund shares, an investor who has redeemed Class A, B, C or T shares (other than shares of the Columbia Newport Greater China Fund (formerly named Liberty Newport Greater China Fund), Columbia Global Equity Fund (formerly named Liberty Newport Global Equity Fund) and Columbia Newport Tiger Fund (formerly named Liberty Newport Tiger Fund) that were redeemed within 30 days of their acquisition by exchange from another fund) may, upon request, reinstate within one year a portion or all of the proceeds of such sale in shares of Class A of any Fund at the NAV next determined after CFS receives a written reinstatement request and payment. Investors who desire to exercise this privilege should contact their FSF or CFS. Shareholders may exercise this privilege an unlimited amount of times. Exercise of this privilege does not alter the federal income tax treatment of any capital gains realized on the prior sale of Fund shares, but to the extent any such shares were sold at a loss, some or all of the loss may be disallowed for tax purposes. Consult your tax advisor.
PRIVILEGES OF COLUMBIA EMPLOYEES OR FINANCIAL SERVICE FIRMS (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, INC. IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS). Class A shares of certain Funds may be sold at NAV to the following individuals whether currently employed or retired: Trustees of funds advised or administered by the Advisor; directors, officers and employees of the Advisor, CFD and companies affiliated with the Advisor; registered representatives and employees of FSFs (including their affiliates) that are parties to dealer agreements or other sales arrangements with CFD; and such persons' families and their beneficial accounts.
PRIVILEGES OF COLUMBIA ACORN FUNDS (FORMERLY NAMED LIBERTY ACORN FUNDS) SHAREHOLDERS. Any shareholder who owned shares of any fund of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000 (when all of the then outstanding shares of Columbia Acorn Trust were re-designated Class Z shares) and who since that time has remained a shareholder of any fund distributed by CFD, may purchase Class A shares of any fund distributed by CFD at NAV in those cases where a Columbia Fund Class Z share is not available. Qualifying shareholders will not be subject to any Class A initial sales charge or CDSC; however, they will be subject to the annual Rule 12b-1 service fee.
FEE-BASED COMPENSATION ARRANGEMENTS. Class A, Class E and Class T shares (Class T shares can only be purchased by the shareholders of Liberty Newport Tiger Fund who already own Class T shares) of certain funds may also be purchased at reduced or no sales charge by clients of dealers, brokers or registered investment advisors that have entered into agreements with CFD pursuant to which the Funds are included as investment options in programs involving fee-based compensation arrangements, and by participants in certain retirement plans.
WAIVER OF INITIAL SALES CHARGES (CLASS A AND CLASS T SHARES)
Class A share initial sales charges (but not contingent deferred sales charges) are waived for the following categories of investors:
- Galaxy Fund shareholders prior to December 1, 1995; and
- Shareholders who (i) purchased Galaxy Fund Prime A Shares at net asset value and received Class A shares in exchange for those shares during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Prime A shares were originally purchased.
Class T share sales charges are waived for the following categories of investors:
- Galaxy Fund shareholders prior to December 1, 1995;
- Shareholders who (i) purchased Galaxy Fund Retail A Shares at net asset value and received Class T shares in exchange for those shares during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Retail A shares were originally purchased; and
- Boston 1784 Fund shareholders on the date the Funds were reorganized into Galaxy Funds.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES (CDSCS) (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, INC. IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS) (Class A, B, C, D, E, matured F, G and T shares) CDSCs may be waived on redemptions in the following situations with the proper documentation:
1. Death. CDSCs may be waived on redemptions within one year following the death of (i) the sole shareholder on an individual account, (ii) a joint tenant where the surviving joint tenant is the deceased's spouse, or (iii) the beneficiary of a Uniform Gifts to Minors Act (UGMA), Uniform Transfers to Minors Act (UTMA) or other custodial account. If, upon the occurrence of one of the foregoing, the account is transferred to an account registered in the name of the deceased's estate, the CDSC will be waived on any redemption from the estate account occurring within one year after the death. If shares are not redeemed within one year of the death, they will remain subject to the applicable CDSC, when redeemed from the transferee's account. If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions occurring pursuant to a monthly, quarterly or semi-annual SWP established with CFS, to the extent the redemptions do not exceed, on an annual basis, 12% of the account's value. Otherwise, CDSCs will be charged on SWP redemptions until this requirement is met; this requirement does not apply if the SWP is set up at the time the account is established, and distributions are being reinvested. See below under "Investor Services - Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions occurring within one year after the sole shareholder on an individual account or a joint tenant on a spousal joint tenant account becomes disabled (as defined in Section 72(m)(7) of the Internal Revenue Code). To be eligible for such waiver, (i) the disability must arise AFTER the purchase of shares (ii) the disabled shareholder must have been under age 65 at the time of the initial determination of disability, and (iii) a letter from a physician must be signed under penalty of perjury stating the nature of the disability. If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring upon
dissolution of a revocable living or grantor trust following the death of
the sole trustee where (i) the grantor of the trust is the sole trustee and
the sole life beneficiary, (ii) death occurs following the purchase AND
(iii) the trust document provides for dissolution of the trust upon the
trustee's death. If the account is transferred to a new registration
(including that of a successor trustee), the applicable CDSC will be
charged upon any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions required to return excess contributions made to retirement plans or individual retirement accounts, so long as the FSF agrees to return the applicable portion of any commission paid by the Advisor.
6. Qualified Retirement Plans. CDSCs may be waived on redemptions required to make distributions from qualified retirement plans following normal retirement (as stated in the Plan document). CDSCs also will be waived on SWP redemptions made to make required minimum distributions from qualified retirement plans that have invested in Funds distributed by CFD for at least two years. CDSC is also waived for participant loans.
7. Trust Share Taxes. CDSCs will be waived on redemptions of Class E and F
shares (i) where the proceeds are used to directly pay trust taxes, and
(ii) where the proceeds are used to pay beneficiaries for the payment of
trust taxes.
The CDSC also may be waived where the FSF agrees to return all or an agreed upon portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may be sold on any day the Exchange is open, either directly to the Fund or through the shareholder's FSF. Sale proceeds generally are sent within seven days (usually on the next business day after your request is received in good form). However, for shares recently purchased by check, the Fund may delay selling or delay sending proceeds from your shares for up to 15 days in order to protect the Fund against financial losses and dilution in net asset value caused by dishonored purchase payment checks.
To sell shares directly to the Fund, send a signed letter of instruction to CFS, along with any certificates for shares to be sold. The sale price is the net asset value (less any applicable contingent deferred sales charge) next calculated after the Fund receives the request in proper form. Signatures must be guaranteed by a bank, a member firm of a national stock exchange or another eligible guarantor that participates in the Medallion Signature Guarantee Program. Stock power forms are available from FSFs, CFS and many banks. Additional documentation may be required for sales by corporations, agents, fiduciaries, surviving joint owners, individual retirement account holders and other legal entities. Call CFS for more information 1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued to receive that day's price, FSF's are responsible for furnishing all necessary documentation to CFS and may charge for this service.
SYSTEMATIC WITHDRAWAL PLAN (SWP). The shareholder may establish a SWP. A specified dollar amount, share amount or percentage of the then current net asset value of the shareholder's investment in any Fund designated by the shareholder will be paid monthly, quarterly or semi-annually to a designated payee. The amount or percentage the shareholder specifies is run against available shares and generally may not, on an annualized basis, exceed 12% of the value, as of the time the shareholder makes the election, of the shareholder's investment. Withdrawals of shares of the Fund under a SWP will be treated as redemptions of shares purchased through the reinvestment of Fund distributions, or, to the extent such shares in the shareholder's account are insufficient to cover Plan payments, as redemptions from the earliest purchased shares of such Fund in the shareholder's account. No CDSCs apply to a redemption pursuant to a SWP of 12% or less, even if, after giving effect to the redemption, the shareholder's account balance is less than the shareholder's base amount. Qualified plan participants who are required by Internal Revenue Service regulation to withdraw more than 12%, on an annual basis, of the value of their share account may do so but may be subject to a CDSC ranging from 1% to 5% of the amount withdrawn in excess of 12% annually. If a shareholder wishes to participate in a SWP, the shareholder must elect to have all of the shareholder's income dividends and other Fund distributions payable in shares of the Fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by telephone on a recorded line. However, SWP checks will be payable only to the shareholder and sent to the address of record. SWPs from retirement accounts cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in certificate form. Purchasing additional shares (other than through dividend and distribution reinvestment) while receiving SWP payments is ordinarily disadvantageous because of sales charges. For this reason, a shareholder may not maintain a plan for the accumulation of shares of the Fund (other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or loss for tax purposes, may involve the use of principal and may eventually use up all of the shares in a shareholder's account.
A Fund may terminate a shareholder's SWP if the shareholder's account balance falls below $5,000 due to any transfer or liquidation of shares other than pursuant to the SWP. SWP payments will be terminated on receiving satisfactory evidence of the death or incapacity of a shareholder. Until this evidence is received, CFS will not be liable for any payment made in accordance with the provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate in them is borne by the Fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not be able to participate in a SWP. If a shareholder's Fund shares are held in "street name," the shareholder should consult his or her FSF to determine whether he or she may participate in a SWP. The SWP on accounts held in "street name" must be made payable to the back office via the NSCC.
TELEPHONE REDEMPTIONS. All Fund shareholders and/or their FSFs are automatically
eligible to redeem up to $100,000 of the Fund's shares by calling 1-800-422-3737
toll-free any business day between 9:00 a.m. and the close of trading of the
Exchange (normally 4:00 p.m. Eastern time). Transactions received after 4:00
p.m. Eastern time will receive the next business day's closing price. Telephone
redemptions by check and ACH are limited to a total of $100,000 in a 30-day
period. Redemptions that exceed $100,000 may be accomplished by placing a wire
order trade through a broker, to a pre-existing bank account or furnishing a
signature guaranteed request. Signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another eligible guarantor that
participates in the Medallion Signature Guarantee Program. CFS will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. Telephone redemptions are not available on accounts with an address
change in the preceding 30 days and proceeds and confirmations will only be
mailed or sent to the address of record unless the redemption proceeds are being
sent to a pre-designated bank account. Shareholders and/or their FSFs will be
required to provide their name, address account and taxpayer identification
numbers. FSFs will also be required to provide their broker number. All
telephone transactions are recorded. A loss to a shareholder may result from an
unauthorized transaction reasonably believed to have been authorized. Certain
restrictions apply to retirement plan accounts.
CHECKWRITING (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, INC. ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR OF CERTAIN FUNDS) (Available only on the Class A and Z shares of certain Funds) Shares may be redeemed by check if a shareholder has previously completed an Application and Signature Card. CFS will provide checks to be drawn on Mellon Trust of New England, N.A. (the "Bank"). These checks may be made payable to the order of any person in the amount of not less than $500 ($250 for money market funds) nor more than $100,000. The shareholder will continue to earn dividends on shares until a check is presented to the Bank for payment. At such time a sufficient number of full and fractional shares will be redeemed at the next determined net asset value to cover the amount of the check. Certificate shares may not be redeemed in this manner.
Shareholders utilizing checkwriting drafts will be subject to the Bank's rules governing checking accounts. There is currently no charge to the shareholder for the use of checks., However, you may incur customary fees for services such as a stop payment request or a request for copies of a check. The shareholder should make sure that there are sufficient shares in his or her open account to cover the amount of any check drawn since the net asset value of shares will fluctuate. If insufficient shares are in the shareholder's open account, the check will be returned marked "insufficient funds" and no shares will be redeemed; the shareholder will be charged a $15 service fee for each check returned. It is not possible to determine in advance the total value of an open account because prior redemptions and possible changes in net asset value may cause the value of an open account to change. Accordingly, a check redemption should not be used to close an open account. In addition, a check redemption, like any other redemption, may give rise to taxable capital gains.
NON-CASH REDEMPTIONS. For redemptions of any single shareholder within any 90-day period exceeding the lesser of $250,000 or 1% of a Fund's net asset value, a Fund may make the payment or a portion of the payment with portfolio securities held by that Fund instead of cash, in which case the redeeming shareholder may incur brokerage and other costs in selling the securities received.
INFORMATION APPLICABLE TO CLASS G AND CLASS T SHARES
The primary difference between Class G and Class T shares lies in their sales charge structures and shareholder servicing/distribution expenses. Investments in Class T shares of the Funds are subject to a front-end sales charge. Investments in Class G shares of the Funds are subject to a back-end sales charge. This back-end sales charge declines over time and is known as a "contingent deferred
sales charge." An investor should understand that the purpose and function of the sales charge structures and shareholder servicing/distribution arrangements for both Class G and Class T shares are the same. Class T shares of a bond fund and an equity fund are currently subject to ongoing shareholder servicing fees at an annual rate of up to 0.15% and 0.30%, respectively, of the Fund's average daily net assets attributable to its Class T shares. Class G shares of a bond fund and an equity fund are currently subject to ongoing shareholder servicing and distribution fees at an annual rate of up to 0.80% and 0.95%, respectively, of the Fund's average daily net assets attributable to its Class G shares. These ongoing fees, which are higher than those charged on Class T shares, will cause Class G shares to have a higher expense ratio and pay lower dividends than Class T shares. Class G and Class T shares may only be purchased by current shareholders of Class G and Class T, respectively.
CLASS T SHARES. The public offering price for Class T shares of the Funds is the sum of the net asset value of the Class T shares purchased plus any applicable front-end sales charge as described in the applicable Prospectus. A deferred sales charge of up to 1.00% is assessed on certain redemptions of Class T shares that are purchased with no initial sales charge as part of an investment of $1,000,000 to $25,000,000. A portion of the front-end sales charge may be reallowed to broker-dealers as follows:
REALLOWANCE TO
REALLOWANCE TO DEALERS DEALERS AS A % OF
AS A % OF OFFERING PRICE OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE - BOND FUNDS PER SHARE - EQUITY FUNDS
--------------------- ------------------------ ------------------------
Less than $50,000 4.25 5.00
$50,000 but less than $100,000 3.75 3.75
$100,000 but less than $250,000 2.75 2.75
$250,000 but less than $500,000 2.00 2.00
$500,000 but less than $1,000,000 1.75 1.75
$1,000,000 and over 0.00 0.00
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The appropriate reallowance to dealers will be paid by CFD to broker-dealer organizations which have entered into agreements with CFD. The reallowance to dealers may be changed from time to time.
Certain affiliates of the Advisor may, at their own expense, provide additional compensation to broker-dealer affiliates of Columbia and to unaffiliated broker-dealers whose customers purchase significant amounts of Class T shares of the Funds. Such compensation will not represent an additional expense to the Funds or their shareholders, since it will be paid from the assets of Bank of America Corporation's affiliates.
INFORMATION APPLICABLE TO CERTAIN CLASS G SHARES RECEIVED BY FORMER GALAXY FUND RETAIL B SHAREHOLDERS IN CONNECTION WITH THE GALAXY/LIBERTY REORGANIZATION. The following table describes the CDSC schedule applicable to Class G shares received by former Galaxy Fund Retail B shareholders in exchange for Retail B Shares purchased prior to January 1, 2001:
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.00
Through second year 4.00
Through third year 3.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Longer than six years None
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Class G shares received in exchange for Galaxy Fund Retail B Shares that were purchased prior to January 1, 2001 will automatically convert to Class T shares seven years after purchase. For purposes of calculating the CDSC, all purchases are considered to be made on the first day of the month in which each purchase was made.
The following table describes the CDSC schedule applicable to Class G shareholders whose Galaxy Asset Allocation Fund and/or International Equity Fund Retail B Shares were acquired in connection with the reorganization of the Pillar Funds:
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.50
Through second year 5.00
Through third year 4.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Through the seventh year None
Longer than seven years None
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If you acquired Retail B Shares in connection with the reorganization of the Pillar Funds, your Class G shares will automatically convert to Class T shares eight years after you purchased the Pillar Fund Class B shares you held prior to the reorganization. For purposes of calculating the CDSC, all purchases are considered to be made on the first day of the month in which each purchase was made.
CLASS G SHARES PURCHASED AFTER THE GALAXY/LIBERTY REORGANIZATION. The public offering price for Class G shares of the Funds is the net asset value of the Class G shares purchased. Although investors pay no front-end sales charge on purchases of Class G shares, such shares are subject to a contingent deferred sales charge at the rates set forth in the applicable Prospectus if they are redeemed within seven years of purchase. Securities dealers, brokers, financial institutions and other industry professionals will receive commissions from CFD in connection with sales of Class G shares. These commissions may be different than the reallowances or placement fees paid to dealers in connection with sales of Class T shares. Certain affiliates of Columbia may, at their own expense, provide additional compensation to broker-dealer affiliates of Columbia and to unaffiliated broker-dealers, whose customers purchase significant amounts of Class G shares of a Fund. See "Class T Shares." The contingent deferred sales charge on Class G shares is based on the lesser of the net asset value of the shares on the redemption date or the original cost of the shares being redeemed. As a result, no sales charge is imposed on any increase in the principal value of an investor's Class G shares. In addition, a contingent deferred sales charge will not be assessed on Class G shares purchased through reinvestment of dividends or capital gains distributions.
The proceeds from the contingent deferred sales charge that an investor may pay upon redemption go to CFD, which may use such amounts to defray the expenses associated with the distribution-related services involved in selling Class G shares. Class G shares of a Fund will convert automatically to Class T shares eight years after purchase. The purpose of the conversion is to relieve a holder of Class G shares of the higher ongoing expenses charged to those shares, after enough time has passed to allow CFD to recover approximately the amount it would have received if the applicable front-end sales charge had been charged. The conversion from Class G shares to Class T shares takes place at net asset value, as a result of which an investor receives dollar-for-dollar the same value of Class T shares as he or she had of Class G shares. The conversion occurs eight years after the beginning of the calendar month in which the shares are purchased. Upon conversion, the converted shares will be relieved of the distribution and shareholder servicing fees borne by Class G shares, although they will be subject to the shareholder servicing fees borne by Class T shares.
Class G shares acquired through a reinvestment of dividends or distributions are also converted at the earlier of two dates - (i) eight years after the beginning of the calendar month in which the reinvestment occurred or (ii) the date of conversion of the most recently purchased Class G shares that were not acquired through reinvestment of dividends or distributions. For example, if an investor makes a one-time purchase of Class G shares of a Fund, and subsequently acquires additional Class G shares of the Fund only through reinvestment of dividends and/or distributions, all of such investor's Class G shares in the Fund, including those acquired through reinvestment, will convert to Class T shares of the Fund on the same date.
INFORMATION APPLICABLE TO CERTAIN CLASS B SHAREHOLDERS
Except for the following, Class B Share Contingent Deferred Sales Charges ("CDSCs") and conversion schedules are described in the Prospectuses.
The following table describes the CDSC schedule applicable to Class B shares received by Galaxy Quality Plus Bond Fund shareholders in exchange for Prime B Shares in connection with the Galaxy/Liberty reorganization.
SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.00
Through second year 4.00
Through third year 3.00
Through fourth year 3.00
|
Through fifth year 2.00 Through sixth year 1.00 Longer than six years 0.00 |
Automatic conversion to Class A shares occurs eight years after purchase.
The Class B share discount program for purchases of $250,000 or more is not applicable to Class B shares received by Galaxy Fund Prime B shareholders in connection with the reorganization of the Galaxy Fund.
INFORMATION APPLICABLE TO CERTAIN CLASS A SHAREHOLDERS:
Except as set forth in the following paragraph, Class A share CDSCs are described in the Prospectuses:
Class A shares received by former Galaxy High Quality Bond Fund shareholders in exchange for Prime A Shares in connection with the Galaxy/Liberty reorganization of that Fund are subject to a 1% CDSC upon redemption of such Class A shares if the Prime A Shares were purchased without an initial sales charge in accounts aggregating $1 million or more at the time of purchase and the Class A shares are sold within 12 months of the time of purchase of the Prime A Shares. The 12-month holding period begins on the first day of the month in which each purchase was made.
DISTRIBUTIONS
Distributions are invested in additional shares of the same Class of the Fund at net asset value unless the shareholder elects to receive cash. Regardless of the shareholder's election, distributions of $10 or less will not be paid in cash, but will be invested in additional shares of the same class of the Fund at net asset value. Undelivered distribution checks returned by the post office will be reinvested in your account. If a shareholder has elected to receive dividends and/or capital gain distributions in cash and the postal or other delivery service selected by the Transfer Agent is unable to deliver checks to the shareholder's address of record, such shareholder's distribution option will automatically be converted to having all dividend and other distributions reinvested in additional shares. No interest will accrue on amounts represented by uncashed distribution or redemption checks. Shareholders may reinvest all or a portion of a recent cash distribution without a sales charge. No charge is currently made for reinvestment.
Shares of some Funds that pay daily dividends (include Funds) will normally earn dividends starting with the date the Fund receives payment for the shares and will continue through the day before the shares are redeemed, transferred or exchanged. Shares of some Funds that pay daily dividends (exclude Funds) Columbia will be earned starting with the day after that Fund receives payments for the shares. To determine whether a particular Fund is an include or exclude fund, customers can call 1-800-345-6611.
HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for the same class of shares of the other continuously offered funds (with certain exceptions) on the basis of the NAVs per share at the time of exchange. Class T and Z shares may be exchanged for Class A shares of certain other funds. The prospectus of each Fund describes its investment goal and policies, and shareholders should obtain a prospectus and consider these goals and policies carefully before requesting an exchange Consult CFS before requesting an exchange.
If you acquire Class A shares of an international fund by exchange from any other fund, you will not be permitted to exchange those shares into another fund for 30 calendar days, although you may redeem those shares at any time. An exchange order received prior to the expiration of the 30-day period will not be honored.
By calling CFS, shareholders or their FSF of record may exchange among accounts with identical registrations, provided that the shares are held on deposit. During periods of unusual market changes or shareholder activity, shareholders may experience delays in contacting CFS by telephone to exercise the telephone exchange privilege. Because an exchange involves a redemption and reinvestment in another fund, completion of an exchange may be delayed under unusual circumstances, such as if the Fund suspends repurchases or postpones payment for the Fund shares being exchanged in accordance with federal securities law. CFS will also make exchanges upon receipt of a written exchange request and share certificates, if any. If the shareholder is a corporation, partnership, agent, or surviving joint owner, CFS may require customary additional documentation. Prospectuses of the other Funds are available from the CFD Literature Department by calling 1-800-426-3750.
A loss to a shareholder may result from an unauthorized transaction reasonably believed to have been authorized. No shareholder is obligated to use the telephone to execute transactions.
Consult your FSF or CFS. In all cases, the shares to be exchanged must be registered on the records of the Fund in the name of the shareholder desiring to exchange.
Shareholders of the other open-end funds generally may exchange their shares at NAV for the same class of shares of the Fund. Sales charges may apply for exchanges from money market funds.
An exchange is generally a capital sale transaction for federal income tax purposes. The exchange privilege may be revised, suspended or terminated at any time.
SUSPENSION OF REDEMPTIONS
A Fund may not suspend shareholders' right of redemption or postpone payment for more than seven days unless the Exchange is closed for other than customary weekends or holidays, or if permitted by the rules of the SEC during periods when trading on the Exchange is restricted or during any emergency which makes it impracticable for the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by order of the SEC for the protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Declaration disclaims shareholder liability for acts or obligations of the Fund and the Trust and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by the Fund or the Trust's Trustees. The Declaration provides for indemnification out of Fund property for all loss and expense of any shareholder held personally liable for the obligations of the Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances (which are considered remote) in which the Fund would be unable to meet its obligations and the disclaimer was inoperative.
The risk of a particular fund incurring financial loss on account of another fund of the Trust is also believed to be remote, because it would be limited to circumstances in which the disclaimer was inoperative and the other fund was unable to meet its obligations.
SHAREHOLDER MEETINGS
As described under the caption "Organization and History", the Fund will not hold annual shareholders' meetings. The Trustees may fill any vacancies in the Board of Trustees except that the Trustees may not fill a vacancy if, immediately after filling such vacancy, less than two-thirds of the Trustees then in office would have been elected to such office by the shareholders. In addition, at such times as less than a majority of the Trustees then in office have been elected to such office by the shareholders, the Trustees must call a meeting of shareholders. Trustees may be removed from office by a written consent signed by a majority of the outstanding shares of the Trust or by a vote of the holders of a majority of the outstanding shares at a meeting duly called for the purpose, which meeting shall be held upon written request of the holders of not less than 10% of the outstanding shares of the Trust. Upon written request by the holders of 1% of the outstanding shares of the Trust stating that such shareholders of the Trust, for the purpose of obtaining the signatures necessary to demand a shareholders' meeting to consider removal of a Trustee, request information regarding the Trust's shareholders, the Trust will provide appropriate materials (at the expense of the requesting shareholders). Except as otherwise disclosed in the Prospectus and this SAI, the Trustees shall continue to hold office and may appoint their successors.
At any shareholders' meetings that may be held, shareholders of all series would vote together, irrespective of series, on the election of Trustees, but each series would vote separately from the others on other matters, such as changes in the investment policies of that series or the approval of the management agreement for that series.
APPENDIX I
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S (S&P)
The following descriptions are applicable to municipal bond funds:
AAA bonds have the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.
AA bonds have a very strong capacity to pay interest and repay principal, and they differ from AAA only in small degree.
A bonds have a strong capacity to pay interest and repay principal, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.
BBB bonds are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than for bonds in the A category.
BB, B, CCC, CC and C bonds are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or large exposures to adverse conditions.
BB bonds have less near-term vulnerability to default than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating.
B bonds have a greater vulnerability to default but currently have the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating.
CCC bonds have a currently identifiable vulnerability to default, and are dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, the bonds are not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating.
CC rating typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating.
C rating typically is applied to debt subordinated to senior debt which assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued.
CI rating is reserved for income bonds on which no interest is being paid.
D bonds are in payment default. The D rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized.
Plus(+) or minus(-) ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
PROVISIONAL RATINGS. The letter "p" indicates that the rating is provisional. A provisional rating assumes the successful completion of the project being financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely completion of the project. This rating, however, although addressing credit quality subsequent to completion of the project, makes no comments on the likelihood of, or the risk of default upon failure of, such completion. The investor should exercise his own judgment with respect to such likelihood and risk.
MUNICIPAL NOTES:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating. Notes maturing beyond three years normally receive a bond rating, although the following criteria are used in making that assessment:
Amortization schedule (the larger the final maturity relative to other maturities, the more likely the issue will be rated as a note).
Source of payment (the more dependent the issue is on the market for its refinancing, the more likely it will be rated as a note).
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a demand feature. The first rating addresses the likelihood of repayment of principal and interest as due, and the second rating addresses only the demand feature. The long-term debt rating symbols are used for bonds to denote the long-term maturity, and the commercial paper rating symbols are usually used to denote the put (demand) option (for example, AAA/A-1+). Normally, demand notes receive note rating symbols combined with commercial paper symbols (for example, SP-1+/A-1+).
COMMERCIAL PAPER:
A. Issues assigned this highest rating are regarded as having the greatest capacity for timely payment. Issues in this category are further refined with the designations 1, 2, and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are designed A-1+.
CORPORATE BONDS:
The description of the applicable rating symbols and their meanings is substantially the same as the Municipal Bond ratings set forth above.
The following descriptions are applicable to equity and taxable bond funds:
AAA bonds have the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.
AA bonds differ from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.
A bonds are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.
BBB bonds exhibit adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
BB, B, CCC and CC bonds are regarded, as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB bonds are less vulnerable to non-payment than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
B bonds are more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.
CCC bonds are currently vulnerable to nonpayment, and are dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC bonds are currently highly vulnerable to nonpayment.
C ratings may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on the obligation are being continued.
D bonds are in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
Plus (+) or minus(-): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
R This symbol is attached to the rating of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk, such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
AAA bonds are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge". Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While various protective elements are likely to change, such changes as can be visualized are most unlikely to impair a fundamentally strong position of such issues.
AA bonds are judged to be of high quality by all standards. Together with Aaa bonds they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.
Those bonds in the Aa through B groups that Moody's believes possess the strongest investment attributes are designated by the symbol Aa1, A1 and Baa1.
A bonds possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment sometime in the future.
BAA bonds are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact, have speculative characteristics as well.
BA bonds are judged to have speculative elements: their future cannot be considered as well secured. Often, the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B bonds generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
CAA bonds are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
CA bonds represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C bonds are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
CONDITIONAL RATINGS. Bonds for which the security depends upon the completion of some act or the fulfillment of some condition are rated conditionally. These are bonds secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in operating experience, (c) rentals which begin when facilities are completed, or (d) payments to which some other limiting conditions attach. Parenthetical rating denotes probable credit stature upon completion of construction or elimination of basis of condition.
MUNICIPAL NOTES:
MIG 1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are accounted for, but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
Moody's may assign a separate rating to the demand feature of a variable rate demand security. Such a rating may include:
VMIG 1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are accounted for, but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
COMMERCIAL PAPER:
Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper obligations are supported by the credit of another entity or entities, Moody's, in assigning ratings to such issuers, evaluates the financial strength of the indicated affiliated corporations, commercial banks, insurance companies, foreign governments, or other entities, but only as one factor in the total rating assessment.
CORPORATE BONDS:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings is identical to that of the Municipal Bond ratings as set forth above, except for the numerical modifiers. Moody's applies numerical modifiers 1, 2, and 3 in the Aa and A classifications of its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a midrange ranking; and the modifier 3 indicates that the issuer ranks in the lower end of its generic rating category.
FITCH INC.
INVESTMENT GRADE BOND RATINGS
AAA bonds are considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and/or dividends and repay principal, which is unlikely to be affected by reasonably foreseeable events.
AA bonds are considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated `AAA'. Because bonds rated in the `AAA' and `AA' categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated `F-1+'.
A bonds are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than debt securities with higher ratings.
BBB bonds are considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest or dividends and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these securities and, therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for securities with higher ratings.
CONDITIONAL
A conditional rating is premised on the successful completion of a project or the occurrence of a specific event.
SPECULATIVE-GRADE BOND RATINGS
BB bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified, which could assist the obligor in satisfying its debt service requirements.
B bonds are considered highly speculative. While securities in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue.
CCC bonds have certain identifiable characteristics that, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment.
CC bonds are minimally protected. Default in payment of interest and/or principal seems probable over time.
C bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D bonds are in default on interest and/or principal payments. Such securities are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. 'DDD' represents the highest potential for recovery on these securities, and 'D' represents the lowest potential for recovery.
APPENDIX II
COLUMBIA MANAGEMENT ADVISORS, INC. ("CMA")
PROXY VOTING POLICIES AND PROCEDURES
ADOPTED JULY 1, 2003 AND REVISED MARCH 4, 2005
POLICY:
ALL PROXIES(1) REGARDING CLIENT SECURITIES FOR WHICH COLUMBIA MANAGEMENT ADVISORS, INC. ("CMA") HAS ASSUMED AUTHORITY TO VOTE SHALL, UNLESS CMA DETERMINES IN ACCORDANCE WITH POLICIES STATED BELOW TO ABSTAIN FROM VOTING, BE VOTED IN A MANNER CONSIDERED BY CMA TO BE IN THE BEST INTEREST OF CMA'S CLIENTS, INCLUDING THE CMG FAMILY FUNDS(2) AND THEIR SHAREHOLDERS, WITHOUT REGARD TO ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES. THE BEST INTEREST OF CLIENTS IS DEFINED FOR THIS PURPOSE AS THE INTEREST OF ENHANCING OR PROTECTING THE ECONOMIC VALUE OF CLIENT ACCOUNTS, CONSIDERED AS A GROUP RATHER THAN INDIVIDUALLY, AS CMA DETERMINES IN ITS SOLE AND ABSOLUTE DISCRETION. IN THE EVENT A CLIENT BELIEVES THAT ITS OTHER INTERESTS REQUIRE A DIFFERENT VOTE, CMA SHALL VOTE AS THE CLIENT CLEARLY INSTRUCTS, PROVIDED CMA RECEIVES SUCH INSTRUCTIONS IN TIME TO ACT ACCORDINGLY. CMA ENDEAVORS TO VOTE, IN ACCORDANCE WITH THIS POLICY, ALL PROXIES OF WHICH IT BECOMES AWARE, SUBJECT TO THE FOLLOWING EXCEPTIONS (UNLESS OTHERWISE AGREED) WHEN CMA EXPECTS TO ROUTINELY ABSTAIN FROM VOTING:
1. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE THE SECURITY HAS BEEN LOANED FROM THE CLIENT'S ACCOUNT.
2. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE CMA DEEMS THE COSTS TO THE CLIENT AND/OR THE ADMINISTRATIVE INCONVENIENCE OF VOTING THE SECURITY (E.G., SOME FOREIGN SECURITIES) OUTWEIGH THE BENEFIT OF DOING SO.
CMA SEEKS TO AVOID THE OCCURRENCE OF ACTUAL OR APPARENT MATERIAL CONFLICTS OF INTEREST IN THE PROXY VOTING PROCESS BY VOTING IN ACCORDANCE WITH PREDETERMINED VOTING GUIDELINES, AS STATED BELOW. FOR THOSE PROXY PROPOSALS THAT REQUIRE SPECIAL CONSIDERATION OR IN INSTANCES WHERE SPECIAL CIRCUMSTANCES MAY REQUIRE VARYING FROM THE PREDETERMINED GUIDELINES, THE CMG PROXY COMMITTEE WILL DETERMINE THE BEST INTEREST OF CMA'S CLIENTS AND VOTE ACCORDINGLY, WITHOUT CONSIDERATION OF ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES.
OVERVIEW:
CMA's policy is based upon its fiduciary obligation to act in its clients' best interest. Citing this obligation, the SEC has adopted rules pursuant to the Investment Advisers Act of 1940 and Investment Company Act of 1940 with respect to proxy voting.
PROCEDURE:
I. ACCOUNT POLICIES
Except as otherwise directed by the client, CMA shall vote as follows:
SEPARATELY MANAGED ACCOUNTS
CMA shall vote proxies on securities held in its separately managed accounts.
COLUMBIA TRUST COMPANY (CTC) TRUST POOLS
CMA shall vote proxies on securities held in the trust pools.
CMG FAMILY FUNDS/CMA FUND TRUST
CMA shall vote proxies on securities held in the Funds, including multi-managed and subadvised Funds.
COLUMBIA PRIVATE PORTFOLIO
CMA shall vote proxies on securities held in its separately managed accounts.
ALTERNATIVE INVESTMENT GROUP
(2) A CMG Family Fund or a Fund is a registered investment company or series of a registered investment company managed or advised by Columbia Management Advisors, Inc.
CMA's clients may invest in securities ("Alternative Investments") issued by alternative investment vehicles (i.e. hedge funds, private equity funds, and other alternative investment pools) that are structured as private limited partnerships ("LPs"), limited liability companies ("LLCs") or offshore corporations. Generally, CMA's Alternative Investment Group ("AIG") is the platform through which CMA provides advisory services relating to Alternative Investments.
The voting rights of Alternative Investments generally are rights of contract set forth in the limited liability company or limited partnership agreement, in the case of LLCs and LPs, or Memorandum and Articles of Association or By-laws, in the case of offshore corporations. Also, as privately placed securities, Alternative Investments generally are not subject to the regulatory scheme applicable to public companies. Consequently, in most cases, proxies are not solicited regarding Alternative Investment vehicles. Instead, consents may be solicited from members, limited partners or shareholders.
Because of the unique characteristics of Alternative Investments, CMA has a tailored process for voting Alternative Investment proxies and consents.
Process
AIG will vote all Alternative Investment proxies and consents in accordance with this Policy. The committee voting AIG proxies consists of AIG senior management, investment and operations professionals. Conflicts of interest are to be monitored and resolved as set forth in this Policy.
II. PROXY COMMITTEE
CMA shall establish a Proxy Committee whose standing members shall include the head of core equity, head of value, head of growth, head of income strategies, head of equity research and head of fixed income research. Each standing member may designate a senior portfolio manager or a senior analyst officer to act as a substitute in a given matter on their behalf.
The Proxy Committee's functions shall include, in part,
(a) direction of the vote on proposals where there has been a recommendation to the Committee, pursuant to Section IV.B, not to vote according to the predetermined Voting Guidelines stated in Section IV.A or on proposals which require special, individual consideration in accordance with Section IV.C;
(b) review at least annually of this Proxy Voting Policy and Procedure to ensure consistency with internal policies, client disclosures and regulatory requirements;
(c) review at least annually of existing Voting Guidelines and need for development of additional Voting Guidelines to assist in the review of proxy proposals; and
(d) development and modification of Voting Procedures, as stated in Section V, as it deems appropriate or necessary.
The Proxy Committee shall establish a charter, which shall set forth the Committee's purpose, membership and operation. The Committee's charter shall be consistent, in all material respects, with this policy and procedure.
III. CONFLICTS OF INTEREST
With Other Bank of America Businesses
Bank of America Corporation ("BAC"), the ultimate corporate parent of CMA, Bank of America, N.A. and all of their numerous affiliates owns, operates and has interests in many lines of business that may create or give rise to the appearance of a conflict of interest between BAC or its affiliates and those of Firm-advised clients. For example, the commercial and investment banking business lines may have interests with respect to issuers of voting securities that could appear to or even actually conflict with CMA's duty, in the proxy voting process, to act in the best economic interest of its clients.
Within CMA
Conflicts of interest may also arise from the business activities of CMA. For example, CMA might manage (or be seeking to manage) the assets of a benefit plan for an issuer. CMA may also be presented with an actual or apparent conflict of interest where proxies of securities issued by BAC or a CMG Family Fund, for which CMA serves as investment adviser, are to be voted for a client's account.
Management of Conflicts
CMA's policy is to always vote proxies in the best interest of its clients, as a whole, without regard to its own self-interest or that of its affiliates. BAC as well as CMA has various compliance policies and procedures in place in order to address any material conflicts of interest that might arise in this context.
1. BAC's enterprise-wide Code of Ethics specifically prohibits the flow of certain business-related information between associates on the commercial and/or investment banking side of the corporation and associates charged with trust or (as in the case of BACAP associates) non-trust fiduciary responsibilities, including investment decision-making and proxy voting.
2. In addition, BAC has adopted "Global Policies and Procedures Regarding Information Walls and Inside Information." Pursuant to these policies and procedures, "information barriers" have been established between various BAC business lines designed to prohibit the passage of certain information across those barriers.
3. Within CMA, CMA's Code of Ethics affirmatively requires that associates of CMA act in a manner whereby no actual or apparent conflict of interest may be seen as arising between the associate's interests and those of CMA's Clients.
4. By assuming his or her responsibilities pursuant to this Policy, each member of the Proxy Committee and any CMA or BAC associate advising or acting under the supervision or oversight of the Proxy Committee undertakes:
- To disclose to the chairperson of the Proxy Committee and the chairperson to the head of CMG Compliance any actual or apparent personal material conflicts of interest which he or she may have (e.g., by way of substantial ownership of securities, relationships with nominees for directorship, members of an issuer's or dissident's management or otherwise) in determining whether or how CMA shall vote proxies. In the event the chairperson of the Proxy Committee has a conflict of interest regarding a given matter, he or she shall abstain from participating in the Committee's determination of whether and/or how to vote in the matter; and
- To refrain from taking into consideration, in the decision as to whether or how CMA shall vote proxies:
- The existence of any current or prospective material business relationship between CMA, BAC or any of their affiliates, on one hand, and any party (or its affiliates) that is soliciting or is otherwise interested in the proxies to be voted, on the other hand; and/or
- Any direct, indirect or perceived influence or attempt to influence such action which the member or associate views as being inconsistent with the purpose or provisions of this Policy or the Code of Ethics of CMA or BAC.
Where a material conflict of interest is determined to have arisen in the proxy voting process that may not be adequately mitigated by voting in accordance with the predetermined Voting Guidelines, CMA's policy is to invoke one or more of the following conflict management procedures:
1. Convene the Proxy Committee for the purpose of voting the affected proxies in a manner that is free of the conflict.
2. Causing the proxies to be voted in accordance with the recommendations of a qualified, independent third party, which may include CMA's proxy voting agent.
3. In unusual cases, with the Client's consent and upon ample notice, forwarding the proxies to CMA's clients so that they may vote the proxies directly.
IV. VOTING GUIDELINES
A. THE PROXY COMMITTEE HAS ADOPTED THE FOLLOWING GUIDELINES FOR VOTING PROXIES:
1. Matters Relating to the Board of Directors/Corporate Governance
CMA generally will vote FOR:
- Proposals for the election of directors or for an increase or decrease in the number of directors, provided that no more than one-third of the Board of Directors would, presently or at any time during the previous three-year period, be from management.
However, CMA generally will WITHHOLD votes from pertinent director nominees if:
(i) the board as proposed to be constituted would have more than one-third of its members from management;
(ii) the board does not have audit, nominating, and compensation committees composed solely of directors who qualify as being regarded as "independent," i.e. having no material relationship, directly or indirectly, with the Company, as CMA's proxy voting agent may determine (subject to the Proxy Committee's contrary determination of independence or non-independence);
(iii) the nominee, as a member of the audit committee, permitted the company to incur excessive non-audit fees (as defined below regarding other business matters -- ratification of the appointment of auditors);
(iv) a director serves on more than six public company boards;
(v) the CEO serves on more than two public company boards other than the company's board.
On a CASE-BY-CASE basis, CMA may WITHHOLD votes for a director nominee who has failed to observe good corporate governance practices or, through specific corporate action or inaction (e.g. failing to implement policies for which a majority of shareholders has previously cast votes in favor), has demonstrated a disregard for the interests of shareholders.
- Proposals requesting that the board audit, compensation and/or nominating committee be composed solely of independent directors. The Audit Committee must satisfy the independence and experience requirements established by the Securities and Exchange Commission ("SEC") and the New York Stock Exchange, or appropriate local requirements for foreign securities. At least one member of the Audit Committee must qualify as a "financial expert" in accordance with SEC rules.
- Proposals to declassify a board, absent special circumstances that would indicate that shareholder interests are better served by a classified board structure.
CMA generally will vote FOR:
- Proposals to create or eliminate positions or titles for senior management. CMA generally prefers that the role of Chairman of the Board and CEO be held by different persons unless there are compelling reasons to vote AGAINST a proposal to separate these positions, such as the existence of a counter-balancing governance structure that includes at least the following elements in addition to applicable listing standards:
- Established governance standards and guidelines.
- Full board composed of not less than two-thirds "independent" directors, as defined by applicable regulatory and listing standards.
- Compensation, as well as audit and nominating (or corporate governance) committees composed entirely of independent directors.
- A designated or rotating presiding independent director appointed by and from the independent directors with the authority and responsibility to call and preside at regularly and, as necessary, specially scheduled meetings of the independent directors to be conducted, unless the participating independent directors otherwise wish, in executive session with no members of management present.
- Disclosed processes for communicating with any individual director, the presiding independent director (or, alternatively, all of the independent directors, as a group) and the entire board of directors, as a group.
- The pertinent class of the Company's voting securities has out-performed, on a three-year basis, both an appropriate peer group and benchmark index, as indicated in the performance summary table of the Company's proxy materials. This requirement shall not apply if there has been a change in the Chairman/CEO position within the three-year period.
- Proposals that grant or restore shareholder ability to remove directors with or without cause.
- Proposals to permit shareholders to elect directors to fill board vacancies.
- Proposals that encourage directors to own a minimum amount of company stock.
- Proposals to provide or to restore shareholder appraisal rights.
- Proposals to adopt cumulative voting.
- Proposals for the company to adopt confidential voting.
CMA generally will vote AGAINST:
- Proposals to classify boards, absent special circumstances indicating that shareholder interests would be better served by a classified board structure.
- Proposals that give management the ability to alter the size of the board without shareholder approval.
- Proposals that provide directors may be removed only by supermajority vote.
- Proposals to eliminate cumulative voting.
- Proposals which allow more than one vote per share in the election of directors.
- Proposals that provide that only continuing directors may elect replacements to fill board vacancies.
- Proposals that mandate a minimum amount of company stock that directors must own.
- Proposals to limit the tenure of non-management directors.
CMA will vote on a CASE-BY-CASE basis in contested elections of directors.
CMA generally will vote on a CASE-BY-CASE basis on board approved proposals relating to corporate governance. Such proposals include, but are not limited to:
- Director and officer indemnification and liability protection. CMA is opposed to entirely eliminating directors' and officers' liability for monetary damages for violating the duty of care. CMA is also opposed to expanding coverage beyond just legal expenses to acts, such as negligence, that are more serious violations of fiduciary obligation than mere carelessness. CMA supports proposals which provide such expanded coverage in cases when a director's or officer's legal defense was unsuccessful if: (i) the director was found to have acted in good faith and in a manner that he/she reasonably believed was in the best interests of the company, AND (ii) if the director's legal expenses would be covered.
- Reimbursement of proxy solicitation expenses taking into consideration whether or not CMA was in favor of the dissidents.
- Proxy contest advance notice. CMA generally will vote FOR proposals that allow shareholders to submit proposals as close to the meeting date as possible while allowing for sufficient time for Company response, SEC review, and analysis by other shareholders.
2. Compensation
CMA generally will vote FOR management sponsored compensation plans (such as bonus plans, incentive plans, stock option plans, pension and retirement benefits, stock purchase plans or thrift plans) if they are consistent with industry and country standards. However, CMA generally is opposed to compensation plans that substantially dilute ownership interest in a company, provide participants with excessive awards, or have objectionable structural features. Specifically, for equity-based plans, if the proposed number of shares authorized for option programs (excluding authorized shares for expired options) exceeds an average of 10% of the currently outstanding shares over the previous three years or an average of 3% over the previous three years for directors only, the proposal should be referred to the Proxy Committee. The Committee will then consider the circumstances surrounding the issue and vote in the best interest of CMA's clients. CMA requires that management provide substantial justification for the repricing of options.
CMA generally will vote FOR:
- Proposals requiring that executive severance arrangements be submitted for shareholder ratification.
- Proposals asking a company to expense stock options.
- Proposals to put option repricings to a shareholder vote.
- Employee stock purchase plans that have the following features: (i) the shares purchased under the plan are acquired for no less than 85% of their market value, (ii) the offering period under the plan is 27 months or less, and (iii) dilution is 10% or less.
CMA generally will vote AGAINST:
- Stock option plans that permit issuance of options with an exercise price below the stock's current market price, or that permit replacing or repricing of out-of-the money options.
- Proposals to authorize the replacement or repricing of out-of-the money options.
CMA will vote on a CASE-BY-CASE basis proposals regarding approval of specific executive severance arrangements.
3. Capitalization
CMA generally will vote FOR:
- Proposals to increase the authorized shares for stock dividends, stock splits (and reverse stock splits) or general issuance, unless proposed as an anti-takeover measure or a general issuance proposal increases the authorization by more than 30% without a clear need presented by the company. Proposals for reverse stock splits should include an overall reduction in authorization.
For companies recognizing preemptive rights for existing shareholders, CMA generally will vote FOR general issuance proposals that increase the authorized shares by more than 30%. CMA will vote on a CASE-BY-CASE basis all such proposals by companies that do not recognize preemptive rights for existing shareholders.
- Proposals for the elimination of authorized but unissued shares or retirement of those shares purchased for sinking fund or treasury stock.
- Proposals to institute/renew open market share repurchase plans in which all shareholders may participate on equal terms.
- Proposals to reduce or change the par value of common stock, provided the number of shares is also changed in order to keep the capital unchanged.
4. Mergers, Restructurings and Other Transactions
CMA will review, on a CASE-BY-CASE basis, business transactions such as mergers, acquisitions, reorganizations, liquidations, spinoffs, buyouts and sale of all or substantially all of a company's assets.
5. Anti-Takeover Measures
CMA generally will vote AGAINST proposals intended largely to avoid acquisition prior to the occurrence of an actual event or to discourage acquisition by creating a cost constraint. With respect to the following measures, CMA generally will vote as follows:
Poison Pills
- CMA votes FOR shareholder proposals that ask a company to submit its poison pill for shareholder ratification.
- CMA generally votes FOR shareholder proposals to eliminate a poison pill.
- CMA generally votes AGAINST management proposals to ratify a poison pill.
Greenmail
- CMA will vote FOR proposals to adopt anti-greenmail charter or bylaw amendments or to otherwise restrict a company's ability to make greenmail payments.
Supermajority vote
- CMA will vote AGAINST board-approved proposals to adopt anti-takeover measures such as supermajority voting provisions, issuance of blank check preferred stock, the creation of a separate class of stock with disparate voting rights and charter amendments adopting control share acquisition provisions.
Control Share Acquisition Provisions
- CMA will vote FOR proposals to opt out of control share acquisition statutes.
6. Other Business Matters
CMA generally will vote FOR:
- Proposals to approve routine business matters such as changing the company's name and procedural matters relating to the shareholder meeting such as approving the minutes of a prior meeting.
- Proposals to ratify the appointment of auditors, unless any of the following apply in which case CMA will generally vote AGAINST the proposal:
- Credible reason exists to question:
- The auditor's independence, as determined by applicable regulatory requirements.
- The accuracy or reliability of the auditor's opinion as to the company's financial position.
- Fees paid to the auditor or its affiliates for "non-audit" services were excessive, i.e., in excess of the total fees paid for "audit," "audit-related" and "tax compliance" and/or "tax return preparation" services, as disclosed in the company's proxy materials.
- Bylaw or charter changes that are of a housekeeping nature (e.g., updates or corrections).
- Proposals to approve the annual reports and accounts provided the certifications required by the Sarbanes Oxley Act of 2002 have been provided.
CMA generally will vote AGAINST:
- Proposals to eliminate the right of shareholders to act by written consent or call special meetings.
- Proposals providing management with authority to adjourn an annual or special shareholder meeting absent compelling reasons, or to adopt, amend or repeal bylaws without shareholder approval, or to vote unmarked proxies in favor of management.
- Shareholder proposals to change the date, time or location of the company's annual meeting of shareholders.
CMA will vote AGAINST:
- Authorization to transact other unidentified substantive (as opposed to procedural) business at a meeting.
CMA will vote on a CASE-BY-CASE basis:
- Proposals to change the location of the company's state of incorporation. CMA considers whether financial benefits (e.g., reduced fees or taxes) likely to accrue to the company as a result of a reincorporation or other change of domicile outweigh any accompanying material diminution of shareholder rights.
- Proposals on whether and how to vote on "bundled" or otherwise conditioned proposals, depending on the overall economic effects upon shareholders.
CMA generally will ABSTAIN from voting on shareholder proposals predominantly involving social, socio-economic, environmental, political or other similar matters on the basis that their impact on share value can rarely be anticipated with any high degree of confidence. CMA may, on a CASE-BY-CASE basis, vote:
- FOR proposals seeking inquiry and reporting with respect to, rather than cessation or affirmative implementation of, specific policies where the pertinent issue warrants separate communication to shareholders; and
- FOR or AGAINST the latter sort of proposal in light of the relative benefits and detriments (e.g. distraction, costs, other burdens) to share value which may be expected to flow from passage of the proposal.
7. Other Matters Relating to Foreign Issues
CMA generally will vote FOR:
- Most stock (scrip) dividend proposals. CMA votes AGAINST proposals that do not allow for a cash option unless management demonstrates that the cash option is harmful to shareholder value.
- Proposals to capitalize the company's reserves for bonus issues of shares or to increase the par value of shares.
- Proposals to approve control and profit transfer agreements between a parent and its subsidiaries.
- Management proposals seeking the discharge of management and supervisory board members, unless there is concern about the past actions of the company's auditors/directors and/or legal action is being taken against the board by other shareholders.
- Management proposals concerning allocation of income and the distribution of dividends, unless the dividend payout ratio has been consistently below 30 percent without adequate explanation or the payout is excessive given the company's financial position.
- Proposals for the adoption of financing plans if they are in the best economic interests of shareholders.
8. Investment Company Matters
Election of Directors:
CMA will vote on a CASE-BY-CASE basis proposals for the election of directors, considering the following factors:
- Board structure
- Attendance at board and committee meetings.
CMA will WITHHOLD votes from directors who:
- Attend less than 75 percent of the board and committee meetings without a valid excuse for the absences. Valid reasons include illness or absence due to company business. Participation via telephone is acceptable. In addition, if the director missed only one meeting or one day's meetings, votes should not be withheld even if such absence dropped the director's attendance below 75 percent.
- Ignore a shareholder proposal that is approved by a majority of shares outstanding;
- Ignore a shareholder proposal this is approved by a majority of the votes cast for two consecutive years;
- Are interested directors and sit on the audit or nominating committee; or
- Are interested directors and the full board serves as the audit or nominating committee or the company does not have one of these committees.
Proxy Contests:
CMA will vote on a CASE-BY-CASE basis proposals for proxy contests, considering the following factors:
- Past performance relative to its peers
- Market in which fund invests
- Measures taken by the board to address the pertinent issues (e.g., closed-end fund share market value discount to NAV)
- Past shareholder activism, board activity and votes on related proposals
- Strategy of the incumbents versus the dissidents
- Independence of incumbent directors; director nominees
- Experience and skills of director nominees
- Governance profile of the company
- Evidence of management entrenchment
Converting Closed-end Fund to Open-end Fund:
CMA will vote conversion proposals on a CASE-BY-CASE basis, considering the following factors:
- Past performance as a closed-end fund
- Market in which the fund invests
- Measures taken by the board to address the discount
- Past shareholder activism, board activity, and votes on related proposals.
Investment Advisory Agreements:
CMA will vote investment advisory agreements on a CASE-BY-CASE basis, considering the following factors:
- Proposed and current fee schedules
- Fund category/investment objective
- Performance benchmarks
- Share price performance as compared with peers
- Resulting fees relative to peers
- Assignments (where the adviser undergoes a change of control)
Approving New Classes or Series of Shares:
CMA will vote FOR the establishment of new classes or series of shares.
Preferred Stock Proposals:
CMA will vote on a CASE-BY-CASE basis proposals for the authorization for or increase in the preferred shares, considering the following factors:
- Stated specific financing purpose
- Possible dilution for common shares
- Whether the shares can be used for antitakover purposes
Policies Addressed by the Investment Company Act of 1940 ("1940 Act"):
CMA will vote proposals regarding adoption or changes of policies addressed by the 1940 Act on a CASE-BY-CASE basis, considering the following factors:
- Potential competitiveness
- Regulatory developments
- Current and potential returns
- Current and potential risk
CMA generally will vote FOR these amendments as long as the proposed changes do not fundamentally alter the investment focus of the fund and do comply with current SEC interpretations.
Changing a Fundamental Restriction to a Non-fundamental Restriction:
CMA will vote on a CASE-BY-CASE basis proposals to change a fundamental restriction to a nonfundamental restriction, considering the following factors:
- Fund's target investments
- Reasons given by the fund for the change
- Projected impact of the change on the portfolio
Change Fundamental Investment Objective to Non-fundamental:
CMA will vote AGAINST proposals to change a fund's investment objective from fundamental to non-fundamental unless management acknowledges meaningful limitations upon its future requested ability to change the objective
Name Change Proposals:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's name, considering the following factors:
- Political/economic changes in the target market
- Consolidation in the target market
- Current asset composition
Change in Fund's Subclassification:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's subclassification, considering the following factors:
- Potential competitiveness
- Current and potential returns
- Risk of concentration
- Consolidation in target industry
Disposition of Assets/Termination/Liquidation:
CMA will vote on a CASE-BY-CASE basis these proposals, considering the following factors:
- Strategies employed to salvage the company
- Past performance of the fund
- Terms of the liquidation
Changes to the Charter Document:
CMA will vote on a CASE-BY-CASE basis proposals to change the charter document, considering the following factors:
- The degree of change implied by the proposal
- The efficiencies that could result
- The state of incorporation; net effect on shareholder rights
- Regulatory standards and implications
CMA will vote FOR:
- Proposals allowing the Board to impose, without shareholder approval, fees payable upon redemption of fund shares, provided imposition of such fees is likely to benefit long-term fund investors (e.g., by deterring market timing activity by other fund investors)
- Proposals enabling the Board to amend, without shareholder approval, the fund's management agreement(s) with its investment adviser(s) or sub-advisers, provided the amendment is not required by applicable law (including the Investment Company Act of 1940) or interpretations thereunder to require such approval
CMA will vote AGAINST:
- Proposals enabling the Board to:
- Change, without shareholder approval the domicile of the fund
- Adopt, without shareholder approval, material amendments of the fund's declaration of trust or other organizational document
Changing the Domicile of a Fund:
CMA will vote on a CASE-BY-CASE basis proposals to reincorporate, considering the following factors:
- Regulations of both states
- Required fundamental policies of both states
- The increased flexibility available
Authorizing the Board to Hire and Terminate Subadvisors Without Shareholder Approval:
CMA will vote FOR proposals to enable the Board or Investment Adviser to hire and terminate sub-advisers, without shareholder approval, in accordance with applicable rules or exemptive orders under the Investment Company Act of 1940
Distribution Agreements:
CMA will vote these proposals on a CASE-BY-CASE basis, considering the following factors:
- Fees charged to comparably sized funds with similar objectives
- The proposed distributor's reputation and past performance
- The competitiveness of the fund in the industry
- Terms of the agreement
Master-Feeder Structure:
CMA will vote FOR the establishment of a master-feeder structure.
Mergers:
CMA will vote merger proposals on a CASE-BY-CASE basis, considering the following factors:
- Resulting fee structure
- Performance of both funds
- Continuity of management personnel
- Changes in corporate governance and their impact on shareholder rights
Shareholder Proposals to Establish Director Ownership Requirement:
CMA will generally vote AGAINST shareholder proposals that mandate a specific minimum amount of stock that directors must own in order to qualify as a director or to remain on the board. While CMA favors stockownership on the part of directors, the company should determine the appropriate ownership requirement.
Shareholder Proposals to Reimburse Shareholder for Expenses Incurred:
CMA will vote on a CASE-BY-CASE basis proposals to reimburse proxy solicitation expenses.
Shareholder Proposals to Terminate the Investment Adviser:
CMA will vote on a CASE-BY-CASE basis proposals to terminate the investment adviser, considering the following factors:
- Performance of the fund's NAV
- The fund's history of shareholder relations
- The performance of other funds under the adviser's management
9. Alternative Investment Group ("AIG") Matters
The AIG Proxy Sub-Committee generally will vote in accordance with the guidelines set forth in this policy. With respect to matters that are not addressed by the guidelines, the AIG Proxy Sub-Committee will vote each such matter on a CASE-BY-CASE basis.
B. ABILITY TO VOTE PROXIES OTHER THAN AS PROVIDED IN A ABOVE.
A Portfolio Manager, sub-adviser or other party involved with a client's account may conclude that the best interest of the firm's client, as defined above, requires that a proxy be voted in a manner that differs from the predetermined proxy Voting Guidelines stated in Section IV.A. In this situation, he or she shall request that the Proxy Committee consider voting the proxy other than according such Guidelines. If any person, group, or entity requests the Proxy Committee (or any of its members) vote a proxy other than according to the predetermined Voting Guidelines, that person shall furnish to the Proxy Committee a written explanation of the reasons for the request and a description of the person's, group's, or entity's relationship, if any, with the parties proposing and/or opposing the matter's adoption.
C. PROPOSALS REQUIRING SPECIAL CONSIDERATION
The following proposals require special, individual consideration. The Proxy Committee will determine how proxies related to all such proposals will be voted.
1. NEW PROPOSALS. For each new type of proposal that is expected to be proposed to shareholders of multiple companies, the Proxy Committee will develop a Voting Guideline which will be incorporated into this Policy.
2. ACCOUNTS ADHERING TO TAFT HARTLEY PRINCIPLES. All proposals for these accounts shall be voted according to the Taft Hartley Guidelines developed by Institutional Shareholder Services, Inc. ("ISS").
3. ACCOUNTS ADHERING TO SOCIALLY RESPONSIBLE PRINCIPLES. All proposals for these accounts shall be voted according to the Socially Responsible Guidelines developed by ISS or as specified by the client.
4. PROXIES OF INTERNATIONAL ISSUERS WHICH BLOCK SECURITIES SALES BETWEEN THE TIME A SHAREHOLDER SUBMITS A PROXY AND THE VOTE. Proposals for these securities shall be voted only on the specific instruction of the Proxy Committee and to the extent practicable in accordance with the Voting Guidelines set forth in this Policy.
5. PROXIES OF INVESTMENT COMPANY SHARES. Proposals on issues other than those specified in Section IV.A.
6. EXECUTIVE/DIRECTOR COMPENSATION. Except as provided in Section
IV.A, proposals relating to compensation of any executive or
director will be voted as recommended by ISS or as otherwise
directed by the Proxy Committee.
7. PREEMPTIVE RIGHTS. Proposals to create or eliminate shareholder preemptive rights. In evaluating these proposals the Proxy Committee will consider the size of the company and the nature of its shareholder base.
V. VOTING PROCEDURES
The Proxy Committee has developed the following procedures to aid the voting of proxies according to the Voting Guidelines set forth in Section IV above. The Proxy Committee may revise these procedures from time to time, as it deems necessary or appropriate to effect the purposes of this Policy.
- CMA shall use an independent, third-party vendor (currently Institutional Shareholder Services ("ISS")), to implement its proxy voting process as CMAs proxy voting agent. This retention is subject to CMA continuously assessing the vendor's independence from CMA and its affiliates, and the vendor's ability to perform its responsibilities (and, especially, its responsibility to vote client proxies in accordance with CMA's proxy voting guidelines) free of any actual, potential or apparent material conflicts of interests that may arise between the interests of the vendor, its affiliates, the vendor's other clients and the owners, officers or employees of any such firm, on the one hand, and CMA's clients, on the other hand. As means of performing this assessment, CMA will require various reports and notices from the vendor, as well as periodic audits of the vendor's voting record and other due diligence.
- ISS shall provide proxy analysis and record keeping services in addition to voting proxies on behalf of CMA in accordance with this Policy.
- On a daily basis CMA shall send to ISS a holdings file detailing each equity holding held in all accounts over which CMA has voting authority. Information regarding equity holdings for international portfolio shall be sent weekly.
- ISS shall receive proxy material information from Proxy Edge or the custodian bank for the account. This shall include issues to be voted upon, together with a breakdown of holdings for CMA accounts. ISS shall then reconcile information it receives from CMA with that it has received from Proxy Edge and custodian banks. Any discrepancies shall be promptly noted and resolved by ISS, with notice to CMA.
- Whenever a vote is solicited, ISS shall execute the vote according to CMA's Voting Guidelines previously delivered by CMA to ISS as set forth in Section IV.A.
- If ISS is not sure how to vote a particular proxy, then ISS will issue a request for voting instructions to CMA over a secure website. CMA personnel shall check this website regularly. The request shall be accompanied by a recommended vote. The
recommended vote shall be based upon CMA's understanding of the Voting Guidelines previously delivered to ISS. CMA shall promptly provide ISS with any amendments or modifications to the Voting Guidelines if necessary. CMA shall return a final instruction to vote to ISS, which ISS shall record with Proxy Edge or the custodian bank as our agent.
- Each time that ISS shall send CMA a request to vote the request shall be accompanied by the recommended vote determined in accordance with CMA's Voting Guidelines. ISS shall vote as indicated in the request unless the client has reserved discretion, the Proxy Committee determines that the best interest of clients requires another vote or the proposal is a matter as to which the Proxy Committee affords special, individual consideration under Section IV.C. In such situations ISS shall vote based on the direction of the client or the Proxy Committee, as the case may be. The interests of CMA's Taft Hartley or Socially Responsible clients may impact a proposal that normally should be voted in a certain way. ISS shall inform CMA of all proposals having impact on its Taft Hartley and or Socially Responsible clients. The Proxy Voting Committee shall be consulted before a vote is placed in cases where Taft Hartley or Socially Responsible issues are presented.
- ISS shall have procedures in place to ensure that a vote is cast on every security holding maintained by CMA on which a vote is solicited unless otherwise directed by the Proxy Committee. On a yearly basis, or as required by our clients CMA shall receive a report from ISS detailing CMA's voting for the previous period.
VI. AVAILABILITY OF PROXY POLICY AND VOTING RECORD
A summary disclosure regarding the provisions of this Policy is available in CMA's Form ADV. Upon receipt of a Client's request for more information, CMA will provide to the Client a copy of this Policy and/or how CMA voted proxies for the Client pursuant to this Policy for up to a one-year period.
COLUMBIA U.S. TREASURY INDEX FUND
(THE "FUND")
SERIES OF COLUMBIA FUNDS SERIES TRUST I
SUPPLEMENT TO THE FUND'S CURRENT
STATEMENT OF ADDITIONAL INFORMATION
(REPLACING SUPPLEMENTS DATED AUGUST 19, 2005, SEPTEMBER 26, 2005
AND NOVEMBER 1, 2005)
1. The name of the Trust is revised to read "Columbia Funds Series Trust I."
2. At a meeting held on September 16, 2005, shareholders of Columbia Large Company Index Fund and Columbia Small Company Index Fund (the "Funds") approved the reorganization of the Funds into Columbia Large Cap Index Fund (formerly named Nations LargeCap Index Fund) and Columbia Small Cap Index Fund (formerly named Nations SmallCap Index Fund), respectively (the "Reorganization"). The Reorganization took place on September 23, 2005. Accordingly, effective September 26, 2005, all references to the Funds in the Statement of Additional Information are removed.
3. The following sentence is added to the first paragraph on the front cover of the SAI:
The unaudited Financial Statements appearing in the Fund's September 30, 2005 Semi-Annual Report are also incorporated into this SAI by reference.
4. Columbia Funds Distributor, Inc. (the Funds' distributor) and Columbia Funds Services, Inc. (the Funds' transfer agent) changed their names to Columbia Management Distributors, Inc. (CMD) and Columbia Management Services, Inc. (CMS), respectively.
5. The first sentence in the section entitled "Organization and History" is revised to read:
The Trust is a Massachusetts business trust organized in 1987. The Fund was originally organized as a series of another Massachusetts business trust prior to its reorganization as a series of the Trust on March 27, 2006.
6. The first sentence of the fourth paragraph of the section entitled "Organization and History" is revised to read:
Effective October 13, 2003, the Trust changed its name from "Liberty-Stein Roe Funds Municipal Trust" to "Columbia Funds Trust IX." Effective September 23, 2005, the name of the trust was changed from "Columbia Funds Trust IX" to "Columbia Funds Series Trust I."
7. The last paragraph of the section entitled "Organization and History" is removed.
8. Effective November 1, 2005, the following language replaces the language currently in the section of the Statement of Additional Information entitled FUNDAMENTAL INVESTMENT POLICIES:
The Investment Company Act of 1940, as amended (1940 Act), provides that a "vote of a majority of the outstanding voting securities" means the affirmative vote of the lesser of (1) more than 50% of the outstanding shares of a Fund, or (2) 67% or more of the shares present at a meeting if more than 50% of the outstanding shares are represented at the meeting in person or by proxy. The following fundamental investment policies cannot be changed without such a vote.
Each Fund may not, as a matter of fundamental policy:
1. Underwrite any issue of securities issued by other persons within the meaning of the 1933 Act except when it might be deemed to be an underwriter either: (a) in connection with the disposition of a portfolio security; or (b) in connection with the purchase of securities directly from the issuer thereof in accordance with its investment objective. This restriction shall not limit the Portfolio's ability to invest in securities issued by other registered investment companies.
2. Purchase or sell real estate, except a Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate and it may hold and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of securities which are secured by real estate or interests therein.
3. Purchase or sell commodities, except that a Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts.
4. Purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions; and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
5. Make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
6. Borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
7. Purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that: (a) up to 25% of its total assets may be invested without regard to these limitations and (b) a Fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder, or any applicable exemptive relief.
9. The section entitled "Trustees and Trustees' Fees" is revised in its entirety to read:
TRUSTEES AND TRUSTEES' FEES
The "Columbia Fund Complex" includes all of the registered investment companies to which the Advisor and its affiliates provide investment advisory services.
The Advisor or its affiliates pay the compensation of all the officers of the funds in the Fund Complex advised by the Advisor, including Trustees who are affiliated with the Advisor. For the fiscal year ended March 31, 2005 and the calendar year ended December 31, 2005, the Trustees received the following compensation for serving as Trustees:
Aggregate
Pension or Compensation
Retirement from the Fund for Total Compensation From the
Benefits Accrued the Fiscal Year Columbia Fund Complex Paid to the
as part of Ended Trustees for the Calendar Year Ended
Trustee Fund Expenses (b) August 31, 2005 December 31, 2005(a)
------- ----------------- ----------------- -----------------------------------
Douglas A. Hacker N/A $907 $111,277
Janet Langford Kelly N/A 958 116,500
Richard W. Lowry N/A 813 142,500
William E. Mayer N/A 943 147,750
Charles R. Nelson N/A 920 111,500
John J. Neuhauser N/A 860 137,833
Patrick J. Simpson(e) N/A 848 107,500
Thomas E. Stitzel N/A 979 113,000
Thomas C. Theobald(c) N/A 1,086 205,500
Anne-Lee Verville(d) N/A 1,023 120,723
Richard L. Woolworth N/A 871 106,500
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(a) As of December 31, 2005, each Trustee other than Richard W. Lowry, John J. Neuhauser and William E. Mayer oversees 83 funds in the Fund Complex, and Messrs. Lowry, Neuhauser and Mayer each oversee 85 funds in the Fund Complex.
(b) The Fund does not currently provide pension or retirement plan benefits to the Trustees.
(c) During the fiscal year ended March 31, 2005, and the calendar year ended December 31, 2005, Mr. Theobald deferred $534 of his compensation from the Fund and $150,000 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2005, the value of Mr. Theobald's account under that plan was $320,084.
(d) During the fiscal year ended March 31, 2005, Ms. Verville deferred $242 of her compensation from the Fund pursuant to the deferred compensation plan. At December 31, 2005, the value of Ms. Verville's account under that plan was $683,935.
(e) During the fiscal year ended March 31, 2005, Mr. Simpson deferred $848 of his compensation from the Fund pursuant to the deferred compensation plan. During the calendar year ended December 31, 2005, Mr. Simpson deferred $107,500 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2005, the value of Mr. Simpson's account under that plan was $269,502.
10. The section entitled "Share Ownership" is revised in its entirety to read:
SHARE OWNERSHIP
The following table shows the dollar range of equity securities beneficially owned by each Trustee as of December 31, 2005 (i) in each Fund and (ii) in the funds in the Fund Complex.
Aggregate Dollar Range of Equity
Dollar Range of Equity Securities Owned in All Funds
Securities Owned in the Overseen by Trustee in
Name of Trustee Fund Columbia Fund Complex
--------------- ------------------------ ---------------------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker None Over $100,000
Janet Langford Kelly None Over $100,000
Richard W. Lowry None Over $100,000
Charles R. Nelson None Over $100,000
John J. Neuhauser None Over $100,000
Patrick J. Simpson None Over $100,000
Thomas E. Stitzel None $50,001-$100,000
Thomas C. Theobald None Over $100,000
Anne-Lee Verville None Over $100,000(1)
Richard L. Woolworth None Over $100,000
INTERESTED TRUSTEES
William E. Mayer None $50,001-$100,000
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11. The section entitled "Ownership of the Fund" is replaced in its entirety to read:
As of record on February 28, 2006, the officers and Trustees of the Trust as a group beneficially owned less than 1% of the then outstanding shares of the Fund.
As of record on February 28, 2006, the following shareholders of record owned 5% or more of the following classes of the Fund's outstanding shares:
CLASS A SHARES:
Citigroup Global Markets, Inc. 27.07%
333 W. 34th St.
New York, NY 10001-2402
Pershing, LLC 7.09%
P.O. Box 2052
Jersey City, NJ 07303-2052
4
|
Reliance Trust Co. 7.79% FBO Lake Shore Cryotronics 401K P.O. Box 48529 Atlanta, GA 30362-1529 CLASS B SHARES: Pershing, LLC 7.62% P.O. Box 2052 Jersey City, NJ 07303-2052 CLASS C SHARES: NFS LLC FEBO 7.66% Joel M. Livneh 46 Blake Rd. Brookline, MA 02445-4502 NFS LLC FEBO 18.21% Charles H. Rubin Living Trust Charles Rubin 39 Tee Way S. Yarmouth, MA 02664-2328 NFS LLC FEBO 6.81% John A. Bolzan Trust 327 Clinton Rd. Brookline, MA 02445-4237 NFS LLC FEBO 6.91% NFS/FMTC R/O IRA FBO Ursula M. Hoeft 1814 Illinois Rd. Northbrook, IL 60062-5417 NFS LLC FEBO 9.16% Cheryl Lariviere 369 S. Branch Parkway Springfield, MA 01118-1305 Morgan Stanley DW Inc. Cust For 9.22% Lenore Brusca |
Harborside Financial Center Plaza 3 Jersey City, NJ 07311
CLASS Z SHARES:
Bank of America NA 28.98% 411 N. Akard St. Dallas, TX 75201-3307 |
12. The first paragraph of the front cover of Part 2 of the SAI is revised in its entirety to read:
The following information applies generally to most funds advised by the Advisor. "Funds" include the series of Columbia Funds Series Trust I, Columbia Funds Institutional Trust, SteinRoe Variable Investment Trust and Liberty Variable Investment Trust (each a Trust and together, the Trusts). In certain cases, the discussion applies to some, but not all, of the Funds, and you should refer to your Fund's Prospectus and to Part 1 of this Statement of Additional Information (SAI) to determine whether the matter is applicable to your Fund. You will also be referred to Part 1 for certain data applicable to your Fund.
13. The section entitled "Trustees and Officers" in Part 2 of the SAI is revised to read:
Information regarding the Trustees and officers of the Funds together with their principal business occupations during the last five years (their titles may have varied during that period) is shown below. Unless otherwise noted, the address for each Trustee and officer is c/o Columbia Funds, Mail Stop MA5-515-11-05, One Financial Center, Boston, MA 02111.
Number of
Portfolios in
Year First Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Fund to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------------ ------------ --------------------------- ------------- ---------------------
DISINTERESTED TRUSTEES
Thomas C. Theobald Trustee and 1996 Partner and Senior Advisor, 83 Anixter International
(Born 1937) Chairman of the Chicago Growth Partners (network support
Board (private equity investing) equipment
since September, 2004; distributor);Ventas,
Managing Director, William Inc. (real estate
Blair Capital Partners investment trust);
(private equity investing) Jones Lang LaSalle
from September, 1994 to (real estate
September, 2004. management
services) and Ambac
Financial Group
(financial guaranty
insurance)
|
Number of
Portfolios in
Year First Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Fund to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------------ ------------ ----------------------------- ------------- ---------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker Trustee 1996 Executive Vice President -- 83 Nash Finch Company
(Born 1955) Strategy of United Airlines (food distributor)
(airline) since December,
2002; President of UAL
Loyalty Services (airline)
from September, 2001 to
December, 2002; Executive
Vice President and Chief
Financial Officer of United
Airlines from July, 1999 to
September, 2001.
Janet Langford Kelly Trustee 1996 Partner, Zelle, Hofmann, 83 UAL Corporation
(Born 1957) Voelbel, Mason & Gette LLP (airline)
(law firm) since March, 2005;
Adjunct Professor of Law,
Northwestern University,
since September, 2004; Chief
Administrative Officer and
Senior Vice President, Kmart
Holding Corporation (consumer
goods), from September, 2003
to March, 2004; Executive
Vice President-Corporate
Development and
Administration, General
Counsel and Secretary,
Kellogg Company (food
manufacturer), from
September, 1999 to August,
2003.
|
Number of
Portfolios in
Year First Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Fund to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------------ ------------ --------------------------- ------------- ---------------------
DISINTERESTED TRUSTEES
Richard W. Lowry Trustee 1995 Private Investor Since 85 None
(Born 1936) August, 1987 (formerly
Chairman and Chief
Executive Officer, U.S.
Plywood Corporation
(building products
manufacturer) until 1987).
Charles R. Nelson Trustee 1981 Professor of Economics, 83 None
(Born 1943) University of Washington
since January, 1976; Ford
and Louisa Van Voorhis
Professor of Political
Economy, University of
Washington, since
September, 1993; Director,
Institute for Economic
Research, University of
Washington from September,
2001 to June, 2003; Adjunct
Professor of Statistics,
University of Washington
since September, 1980;
Associate Editor, Journal
of Money Credit and Banking
since September, 1993;
consultant on econometric
and statistical matters.
John J. Neuhauser Trustee 1985 UniversityProfessor, 85 None
(Born 1942) Boston College since
November, 2005; Academic
Vice President and Dean of
Faculties, Boston College
from August, 1999 to
October, 2005.
|
Number of
Portfolios in
Year First Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Fund to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------------ ------------ --------------------------- ------------- ---------------------
DISINTERESTED TRUSTEES
Patrick J. Simpson Trustee 2000 Partner, Perkins Coie 83 None
(Born 1944) L.L.P. (law firm).
Thomas E. Stitzel Trustee 1998 Business Consultant 83 None
(Born 1936) since 1999; Chartered
Financial Analyst.
Anne-Lee Verville Trustee 1998 Retired since 1997 83 Chairman of the
(Born 1945) (formerly General Board of
Manager, Global Directors,
Education Industry, Enesco Group,Inc.
IBM (producer of
Corporation giftware
(computer and home and
and technology) from garden
1994 to 1997). decor products)
Richard L. Woolworth Trustee 1991 Retired since 83 Northwest Natural
(Born 1941) December, Gas (natural gas
2003 (formerly service provider)
Chairman
and Chief Executive
Officer, The Regence
Group Co. (regional
health insurer);
Chairman
and Chief Executive
Officer, BlueCross
BlueShield of
Oregon;
Certified Public
Accountant, Arthur
Young
& Company).
|
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Fund to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------------ ------------ --------------------------- ------------- ---------------------
INTERESTED TRUSTEE
William E. Mayer(3) Trustee 1994 Partner, Park Avenue 85 Lee Enterprises
(Born 1940) Equity Partners (private (print media), WR
equity) since February, Hambrecht + Co.
1999. (financial service
provider); Reader's
Digest (publishing);
OPENFIELD Solutions
(retail industry
technology provider)
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(1) The date shown is the earliest date on which a Trustee was elected or appointed to the board of a Fund in the Fund Complex.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public companies").
(3) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 ("the 1940 Act")) of the Columbia Funds by reason of his affiliation with WR Hambrecht + Co., a registered broker-dealer that may execute portfolio transactions for or engage in principal transactions with the Fund or other funds or clients advised by the Advisor or its affiliates.
Year First
Elected or
Appointed
Name and Year of Birth Position with Funds to Office Principal Occupation(s) During Past Five Years
---------------------- ------------------- ------------ ----------------------------------------------
OFFICERS
Christopher L. Wilson President 2004 Head of Mutual Funds since August, 2004 and
(Born 1957) Managing Director of the Advisor since
September, 2005; President and Chief Executive
Officer, CDC IXIS Asset Management Services,
Inc. (investment management) from September,
1998 to August, 2004.
James R. Bordewick, Jr. Senior Vice 2006 Associate General Counsel, Bank of America
(Born 1959) President, since April, 2005; Senior Vice President and
Secretary Associate General Counsel, MFS Investment
and Chief Legal Management (investment management) prior to
Officer April, 2005.
J. Kevin Connaughton Senior Vice 2000 Managing Director of the Advisor since
(Born 1964) President, Chief February, 1998.
Financial
Officer and
Treasurer
Mary Joan Hoene Senior Vice 2004 Senior Vice President and Chief Compliance
(Born 1949) President and Officer of various funds in the Columbia Fund
Chief Complex; Partner, Carter, Ledyard & Milburn
Compliance LLP (law firm) from January, 2001 to August,
Officer 2004.
Michael G. Clarke Chief Accounting 2004 Managing Director of the Advisor since
(Born 1969) Officer and February, 2001.
Assistant
Treasurer
Stephen T. Welsh Vice President 1996 President, Columbia Management Services, Inc.
(Born 1957) since July, 2004; Senior Vice President and
Controller, Columbia Management
Services, Inc.
prior to July, 2004.
Jeffrey R. Coleman Deputy Treasurer 2004 Group Operations Manager of the
(Born 1969) Advisor since
October, 2004; Vice President of CDC
IXIS Asset
Management Services, Inc. (investment
management) from August, 2000 to
September,
2004.
Joseph F. DiMaria Deputy Treasurer 2004 Senior Compliance Manager of the Advisor since
(Born 1968) January, 2005; Director of Trustee
Administration of the Advisor from May, 2003
to January, 2005; Senior Audit Manager,
PricewaterhouseCoopers (independent registered
public accounting firm) from July, 2000 to
April, 2003.
Ty S. Edwards Deputy Treasurer 2004 Vice President of the Advisor since 2002;
(Born 1966) Assistant Vice President and Director, State
Street Corporation (financial services) prior
to 2002.
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Year First
Elected or
Appointed
Name and Year of Birth Position with Funds to Office Principal Occupation(s) During Past Five Years
---------------------- ------------------- ------------ ----------------------------------------------
OFFICERS
Barry S. Vallan Controller 2006 Vice President-Fund Treasury of the Advisor
(Born 1969) since October, 2004; Vice President-Trustee
Reporting from April, 2002 to October, 2004;
Management Consultant, PricewaterhouseCoopers
(independent registered public accounting firm)
prior to October, 2002.
Peter T. Fariel Assistant 2006 Associate General Counsel, Bank of America
(Born 1957) Secretary since April, 2005; Partner, Goodwin Procter
LLP (law firm) prior to April, 2005.
Ryan C. Larrenaga Assistant 2005 Assistant General Counsel, Bank of America
(Born 1970) Secretary since March, 2005; Associate, Ropes & Gray
LLP (law firm) from 1998 to February, 2005.
Barry S. Finkle Assistant 2003 Senior Manager and Head of Fund Performance
(Born 1965) Treasurer of the Advisor since January, 2001.
Julian Quero Assistant 2003 Senior Compliance Manager of the Advisor since
(Born 1967) Treasurer April, 2002; Assistant Vice President of Taxes
and Distributions of the Advisor from 2001 to
April, 2002.
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Each of the Trust's Trustees and officers hold comparable positions with certain other funds of which the Advisor or its affiliates is the investment advisor or distributor and, in the case of certain of the officers, with certain affiliates of the Advisor.
The Trustees and officers serve terms of indefinite duration. Each Fund held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once every five years thereafter to elect Trustees.
14. The section entitled "Trustee Positions," a subsection of "Management of the Funds," is revised to read:
As of December 31, 2005, no disinterested Trustee or any of their immediate family members owned beneficially or of record any class of securities of the Advisor, another investment advisor, sub-advisor or portfolio manager of any of the funds in the Fund Complex or any person controlling, controlled by or under common control with any such entity.
15. The second paragraph of the section entitled "Other Disclosures," a subsection of "Disclosure of Portfolio Information," is revised in its entirety to read:
The Fund periodically discloses its portfolio information on a confidential basis to various service providers that require such information in order to assist the Fund with its day-to-day business affairs. In addition to Columbia Advisors and its affiliates, these service providers include the Fund's custodian and sub-custodians, the Fund's independent registered public accounting firm, legal counsel, financial printers (R.R. Donnelly & Sons and Bowne & Co., Inc.), the Fund's proxy solicitor and proxy voting service provider (Computershare), rating agencies that maintain ratings on certain Columbia Funds (Fitch, Inc.) and service providers that support Columbia Advisors' trading systems (InvestorTool, Inc. and Thomson Financial). These service providers are required to keep such information confidential, and are prohibited from trading based on
the information or otherwise using the information except as necessary in providing services to the Fund. The Fund may also disclose portfolio holdings information to broker/dealers and certain other entities related to potential transactions and management of the Fund, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information.
16. The section entitled "PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES" is revised in its entirety as follows:
RIGHTS OF ACCUMULATION (Columbia Class A and Class T shares, Nations Class A shares and Galaxy Retail A shares only) (Class T shares can only be purchased by the shareholders of Columbia Newport Tiger Fund (formerly named Liberty Newport Tiger Fund) who already own Class T shares). Reduced sales charges on Class A and T shares can be effected by combining a current purchase of Class A or Class T shares with prior purchases of other funds and classes distributed by CMD. The applicable sales charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on the previous day of all shares of funds for which CMD serves as distributor (Funds) held by the shareholder.
CMD must be promptly notified of each purchase with respect to which a shareholder is entitled to a reduced sales charge. Such reduced sales charge will be applied upon confirmation of the shareholder's holdings by CMS. A Fund may terminate or amend this Right of Accumulation.
STATEMENT OF INTENT (Class A, Class E and Class T shares only). Any person may qualify for reduced sales charges on purchases of Class A, E and T shares made within a thirteen-month period pursuant to a Statement of Intent ("Statement"). A shareholder may include, as an accumulation credit toward the completion of such Statement, the value of all fund shares held by the shareholder on the date of the Statement in Funds (except shares of any money market fund, unless such shares were acquired by exchange from Class A shares of another non-money market fund)). The value is determined at the public offering price on the date of the Statement. Purchases made through reinvestment of distributions do not count toward satisfaction of the Statement.
During the term of a Statement, CMS will hold shares in escrow to secure payment of the higher sales charge applicable to Class A, E or T shares actually purchased. Dividends and capital gains will be paid on all escrowed shares and these shares will be released when the amount indicated has been purchased. A Statement does not obligate the investor to buy or a Fund to sell the amount of the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which would qualify for a further quantity discount, a retroactive price adjustment will be made at the time of expiration of the Statement (provided the FSF returns to CMD the excess commission previously paid during the thirteen-month period). The resulting difference in offering price will purchase additional shares for the shareholder's account at the applicable offering price. If the amount of the Statement is not purchased, the shareholder shall remit to CMD an amount equal to the difference between the sales charge paid and the sales charge that should have been paid. If the shareholder fails within twenty days after a written request to pay such difference in
sales charge, CMS will redeem escrowed Class A, E or T shares with a value equal to such difference. The additional FSF commission will be remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available from your FSF, or from CMS at 1-800-345-6611.
NET ASSET VALUE ELIGIBILITY GUIDELINES (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, INC. IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS).
1. Employees, brokers and various relationships that are allowed to buy at NAV. Class A shares of certain Funds may be sold at (NAV) to the following individuals, whether currently employed or retired: Employees of Bank of America Corporation (and its predecessors), its affiliates and subsidiaries; Trustees of funds advised or administered by the Advisor; directors, officers and employees of the Advisor, CMD, or its successors and companies affiliated with the Advisor; Registered representatives and employees of Financial Service Firms (including their affiliates) that are parties to dealer agreements or other sales arrangements with CMD; Nations Funds' Trustees, Directors and employees of its investment sub-advisers; Broker/Dealers if purchases are in accordance with the internal policies and procedures of the employing broker/dealer and made for their own investment purposes; employees or partners of any contractual service provider to the funds
NAV eligibility for Class A purchase also applies to the families of the parties listed above and their beneficial accounts. Family members include: spouse, parent, stepparent, legal guardian, child, stepchild, father-in-law and mother-in-law.
Individuals receiving a distribution from a Bank of America trust, fiduciary, custodial or other similar account may use the proceeds of that distribution to buy Class A shares without paying a front-end sales charge, as long as the proceeds are invested in the funds within 90 days of the date of distribution.
Registered broker/dealer firms that have entered into a Nations Funds dealer agreement with BACAP Distributors, LLC may buy Class A shares without paying a front-end sales charge for their investment account only.
Banks, trust companies and thrift institutions, acting as fiduciaries.
2. Grandfathered investors. Any shareholder who owned shares of any fund of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000 (when all of the then outstanding shares of Columbia Acorn Trust were re-designated Class Z shares) and who since that time has remained a shareholder of any Fund, may purchase Class A shares of any Fund at NAV in those cases where a Columbia Fund Class Z share is not available.
Shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at (NAV) will continue to be eligible for NAV purchases into those Nations Fund accounts opened through August 19, 2005.
Galaxy Fund shareholders prior to December 1, 1995; and shareholders who
(i) purchased Galaxy Fund Prime A shares at net asset value and received
Class A
shares in exchange for those shares during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Prime A shares were originally purchased.
(For Class T shares only) Shareholders who (i) purchased Galaxy Fund Retail A shares at net asset value and received Class T shares in exchange for those shares during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Retail A shares were originally purchased; and Boston 1784 Fund shareholders on the date that those funds were reorganized into Galaxy Funds.
3. Reinstatement. Subject to the fund policy on trading of fund shares, an investor who has redeemed class A, B, C, D, G or T shares may, upon request, reinstate within 1 year a portion or all of the proceeds of such sales in shares of class A of any fund at the NAV next determined after Columbia Management Services, Inc. received a written reinstatement request and payment.
4. Retirement Plans. Class A, Class E and Class T shares (Class T shares are not currently open to new investors) of certain funds may also be purchased at reduced or no sales charge by clients of dealers, brokers or registered investment advisors that have entered into arrangements with CMD pursuant to which the funds are included as investments options in wrap fee accounts, other managed agency/asset allocation accounts or programs involving fee-based compensation arrangements, and by participants in certain retirement plans.
5. Non-U.S. Investors. Certain pension, profit-sharing or other employee benefit plans offered to non-US investors may be eligible to purchase Class A shares with no sales charge.
6. Reorganizations. At the Fund's discretion, NAV eligibility may apply to shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which the fund is a party.
7. Rights of Accumulation (ROA). The value of eligible accounts, regardless of class, maintained by you and you and your immediate family may be combined with the value of your current purchase to reach a sales discount level and to obtain the lower sales charge for your current purchase.
8. Letters of Intent (LOI). You may pay a lower sales charge when purchasing class A shares by signing a letter of intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the LOI within 13 months. If your LOI purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES (CDSCS) (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, INC. IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS) (Class A, B, C, D, E, matured F, G and T shares) CDSCs may be waived on redemptions in the following situations with the proper documentation:
1. Death. CDSCs may be waived on redemptions following the death of (i) the sole shareholder on an individual account, (ii) a joint tenant where the surviving joint tenant is the deceased's spouse, or (iii) the beneficiary of a Uniform Gifts to Minors
Act (UGMA), Uniform Transfers to Minors Act (UTMA) or other custodial account. If, upon the occurrence of one of the foregoing, the account is transferred to an account registered in the name of the deceased's estate, the CDSC will be waived on any redemption from the estate account If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions occurring pursuant to a monthly, quarterly or semi-annual SWP established with CMS, to the extent the redemptions do not exceed, on an annual basis, 12% of the account's value at the time that the SWP is established. Otherwise, CDSCs will be charged on SWP redemptions until this requirement is met. For redemptions in excess of 12% of the account's value at the time that the SWP is established, a CDSC will be charged on the SWP redemption. The 12% limit does not apply if the SWP is set up at the time the account is established, and distributions are being reinvested. See below under "How to Sell Shares - Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions occurring after the sole shareholder on an individual account or a joint tenant on a spousal joint tenant account becomes disabled (as defined in Section 72(m)(7) of the Internal Revenue Code). To be eligible for such waiver, (i) the disability must arise AFTER the purchase of shares (ii) the disabled shareholder must have been under age 65 at the time of the initial determination of disability, and (iii) a letter from a physician must be signed under penalty of perjury stating the nature of the disability. If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring upon dissolution of a revocable living or grantor trust following the death of the sole trustee where (i) the grantor of the trust is the sole trustee and the sole life beneficiary, (ii) death occurs following the purchase AND (iii) the trust document provides for dissolution of the trust upon the trustee's death. If the account is transferred to a new registration (including that of a successor trustee), the applicable CDSC will be charged upon any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions required to return excess contributions made to retirement plans or individual retirement accounts, so long as the FSF agrees to return the applicable portion of any commission paid by CMD.
6. Qualified Retirement Plans. CDSCs may be waived on CMD shares sold by employee benefit plans created according to Section 403(b) of the tax code and sponsored by a non-profit organization qualified under Section 501(c)(3) of the tax code. To qualify for the waiver, the plan must be a participant in an alliance program th at has signed an agreement with Columbia Funds or CMD.
7. Trust Share Taxes. CDSCs will be waived on redemptions of Class E and F
shares (i) where the proceeds are used to directly pay trust taxes, and
(ii) where the proceeds are used to pay beneficiaries
for the payment of trust taxes. -
8. Return of Commission. CDSCs may be waived on shares sold by intermediaries that
are part of the Columbia Funds selling group where the intermediary has entered into an agreement with Columbia Funds not to receive (or to return if received) all or any applicable portion of an upfront commission.
9. Non-U.S. Investors. CDSCs may be waived on shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors.
10. IRS Section 401 and 457. CDSCs may be waived on shares sold by certain
pension, profit-sharing or other employee benefit plans established under
Section 401 or 457 of the tax code.
11. Medical Payments. CDSCs may be waived on shares redeemed for medical payments that exceed 7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least twelve weeks.
12. Plans of Reorganization. At the Funds' discretion, CDSCs may be waived for shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which a fund is a party.
13. Charitable Giving Program. CDSCs may be waived on the sale of Class C shares sold by a non-profit organization qualified under Section 501(c)(3) of the tax code in connection with the Banc of America Capital Management Charitable Giving Program.
14. The CDSC also may be waived where the FSF agrees to return all or an agreed upon portion of the commission earned on the sale of the shares being redeemed.
INT-50/107456-0306 March 27, 2006
COLUMBIA LARGE COMPANY INDEX FUND
COLUMBIA SMALL COMPANY INDEX FUND
COLUMBIA U.S. TREASURY INDEX FUND
SERIES OF COLUMBIA FUNDS TRUST V
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 2005
This Statement of Additional Information (SAI) contains information which may be useful to investors but which is not included in the Prospectuses of Columbia Large Company Index Fund, Columbia Small Company Index Fund and Columbia U.S. Treasury Index Fund (each a Fund and collectively, the Funds). This SAI is not a prospectus and is authorized for distribution only when accompanied or preceded by a Prospectus of the Funds dated August 1, 2005. This SAI should be read together with a Prospectus of the Funds and the most recent Annual Report dated March 31, 2005 for the Funds. Investors may obtain a free copy of a Prospectus and the Annual Report from Columbia Funds Distributor, Inc. (CFD), One Financial Center, Boston, MA 02111-2621 or by calling 1-800-426-3750. The Financial Statements and Report of the Independent Registered Public Accounting Firm appearing in the Funds' March 31, 2005 Annual Report are incorporated into this SAI by reference.
Part 1 of this SAI contains specific information about the Funds. Part 2 includes information about the funds distributed by CFD generally and additional information about certain securities and investment techniques described in the Funds' Prospectuses.
TABLE OF CONTENTS
PAGE
----
PART 1
Definitions b
Organization and History b
Investment Goal and Policies b
Fundamental and Non-Fundamental Investment Policies c
Portfolio Turnover g
Fund Charges and Expenses g
Custodian of the Funds t
Independent Registered Public Accounting Firms t
PART 2
Miscellaneous Investment Practices 1
Taxes 21
Management of the Funds 28
Determination of Net Asset Value 41
How to Buy Shares 42
Special Purchase Programs/Investor Services 45
Programs for Reducing or Eliminating Sales Charges 47
How to Sell Shares 49
Distributions 53
How to Exchange Shares 53
Suspension of Redemptions 54
Shareholder Liability 54
Shareholder Meetings 54
Appendix I 55
Appendix II 60
|
SUP-39/88325-0705
PART 1
COLUMBIA LARGE COMPANY INDEX FUND
COLUMBIA SMALL COMPANY INDEX FUND
COLUMBIA U.S. TREASURY INDEX FUND
STATEMENT OF ADDITIONAL INFORMATION
AUGUST 1, 2005
DEFINITIONS
-----------
"Large Company Index Fund" or "Fund" Columbia Large Company Index Fund
"Small Company Index Fund" or "Fund" Columbia Small Company Index Fund
"U.S. Treasury Index Fund" or "Fund" Columbia U.S. Treasury Index Fund
"Predecessor Fund" or "Predecessor Funds" See below under "Organization and
History"
"Trust" Columbia Funds Trust V
"Advisor" or "Administrator" Columbia Management Advisors, Inc.,
the Funds' investment advisor and
administrator
"CFD" Columbia Funds Distributor, Inc.,
the Funds' distributor
"CFS" Columbia Funds Services, Inc, the
Funds' shareholder services and
transfer agent
|
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1986. Each Fund is an open-end, diversified management investment company that represents the entire interest in a separate series of the Trust. Each Fund is the successor to a separate series of The Galaxy Fund II, a Massachusetts business trust organized on February 22, 1990. On November 25, 2002 and December 9, 2002, the series of The Galaxy Fund II to which the Funds succeeded (the "Predecessor Funds") were reorganized as separate series of the Trust. Class Z shares of the Funds were issued in exchange for existing shares of the Predecessor Funds. The Funds currently offer Class A, B, C and Z shares, and may in the future offer other classes of shares.
The Galaxy II Large Company Index Fund, the predecessor to the Large Company Index Fund, commenced operations on October 1, 1990; the Galaxy II Small Company Index Fund, the predecessor to the Small Company Index Fund, commenced operations on October 1, 1990; and the Galaxy II U.S. Treasury Index Fund, the predecessor to the U.S. Treasury Index Fund, commenced operations on June 4, 1991.
The Trust is not required to hold annual shareholder meetings, but special meetings may be called for certain purposes. Shareholders receive one vote for each Fund share. Shares of each Fund and any other series of the Trust that may be in existence from time to time generally vote together except when required by law to vote separately by fund or by class. Shareholders owning in the aggregate ten percent of Trust shares may call meetings to consider removal of Trustees. Under certain circumstances, the Trust will provide information to assist shareholders in calling such a meeting. See Part 2 of this SAI for more information.
Effective October 13, 2003, the Trust changed its name from "Liberty Funds Trust V" to its current name. Effective October 13, 2003, the Large Company Index Fund changed its name from "Liberty Large Company Index Fund" to its current name. Effective October 13, 2003, the Small Company Index Fund changed its name from "Liberty Small Company Index Fund" to its current name. Effective October 13, 2003, the U.S. Treasury Index Fund changed its name from "Liberty U.S. Treasury Index Fund" to its current name.
It is expected that, subject to shareholder approval of the election of all current Trustees, the U.S. Treasury Index Fund will be reorganized as a series of Columbia Funds Trust IX, a Massachusetts business trust into which all of the retail Columbia funds are expected to be reorganized.
INVESTMENT GOAL AND POLICIES
The Prospectuses describe each Fund's investment goal, investment strategies and risks. Part 1 of this SAI includes additional information concerning, among other things, the investment policies of the Funds. Part 2 contains additional information about the following securities and investment techniques that may be utilized by each Fund (unless otherwise noted):
Common Stock, Preferred Stock and Warrants
Money Market Instruments
Securities Loans
Repurchase Agreements
Futures Contracts and Related Options (the Large Company Index and Small
Company Index Funds only)
Temporary Cash Balances
b
Except as indicated below under "Fundamental and Non-Fundamental Investment Policies," the Funds' investment policies are not fundamental, and the Trustees may change the policies without shareholder approval.
FUNDAMENTAL AND NON-FUNDAMENTAL INVESTMENT POLICIES
FUNDAMENTAL INVESTMENT POLICIES
In addition to each Fund's investment goal as stated in its Prospectuses, the following investment limitations are matters of fundamental policy and may not be changed with respect to a Fund without the affirmative vote of the holders of a majority of its outstanding shares. A "vote of the holders of a majority of the outstanding shares" of a particular Fund means the affirmative vote of the holders of the lesser of (a) more than 50% of the outstanding shares of such Fund, or (b) 67% or more of the shares of such Fund present at a meeting if more than 50% of the outstanding shares of such Fund are represented at the meeting in person or by proxy.
Each Fund may not:
1. Underwrite any issue of securities except to the extent that the sale of portfolio securities in accordance with the Fund's investment objective, policies and limitations may be deemed to be underwriting.
2. Purchase or sell real estate or real estate limited partnership interests, or invest in oil, gas or mineral leases, or mineral exploration or development programs, except that the Fund may invest in securities secured by real estate, mortgages or interests therein and may purchase securities issued by companies that invest or deal in any of the above.
3. Make short sales of securities or maintain a short position.
4. Purchase securities on margin, except that a Fund may obtain any short-term credits necessary for the clearance of purchases and sales of securities. For purposes of this restriction, the deposit or payment of initial or variation margin in connection with futures contracts or related options will not be deemed to be a purchase of securities on margin by the Fund.
5. Invest in commodities, except that the Large Company Index Fund and the Small Company Index Fund may invest in stock index futures.
6. Invest in companies for the purpose of exercising control or management.
7. Purchase the securities of any issuer if as a result more than 5% of the value of the Fund's total assets would be invested in the securities of such issuer, except that (a) this 5% limitation does not apply to U.S. Government securities and (b) up to 25% of the value of the Fund's total assets may be invested without regard to this 5% limitation.
8. Borrow money or issue senior securities except that the Fund may borrow from banks for temporary or emergency purposes, and not for leveraging, and then in amounts not in excess of 33-1/3% of the value of the Fund's total assets at the time of such borrowing; or mortgage, pledge or hypothecate any assets except in connection with any bank borrowing and in amounts not in excess of the lesser of the dollar amounts borrowed or 33-1/3% of the value of the Fund's total assets at the time of such borrowing. Whenever borrowings are outstanding, a Fund will not make any additional investments (including roll-overs). For purposes of this restriction, collateral arrangements with respect to (a) the purchase and sale of options on stock indexes and (b) initial and variation margin for futures contracts will not be deemed to be issuances of senior securities or to be pledges of a Fund's assets.
9. Purchase any securities that would cause 25% or more of the value of the Fund's total assets at the time of purchase to be invested in the securities of issuers conducting their principal business activities in the same industry, provided that there shall be no limit on the purchase of U.S Government securities.
10. Make loans, except that the Fund may purchase or hold debt obligations, lend portfolio securities and enter into repurchase agreements, as described herein and in the prospectuses.
11. Purchase securities of other investment companies except as they may be acquired in connection with a merger, consolidation, acquisition, reorganization or offer of exchange and except as permitted under the Investment Company Act of 1940, as amended (the "1940 Act"). Purchases made in connection with this restriction may subject shareholders to duplicate fees and expenses.
12. Purchase more than 10% of the voting securities of any one issuer, more than 10% of the securities of any class of any one issuer or more than 10% of the outstanding debt securities of any one issuer; provided that this limitation shall not apply to investments in U.S. Government securities.
13. Invest more than 5% of the value of the Fund's net assets in securities which may be illiquid because of legal or contractual restrictions on resale or securities for which there are no readily available market quotations. For purposes of this limitation, repurchase agreements with maturities greater than seven days shall be considered illiquid securities.
The U.S Treasury Index Fund's Trustees have approved, subject to shareholder approval at a shareholder meeting expected to be held in 2005, the replacement of the Fund's current fundamental investment restrictions with the following standardized fundamental investment restrictions:
PROPOSED FUNDAMENTAL RESTRICTIONS.
The Fund may not, as a matter of fundamental policy:
1. Underwrite any issue of securities issued by other persons within the meaning of the Securities Act of 1933, as amended (the "1933 Act") except when it might be deemed to be an underwriter either: (a) in connection with the disposition of a portfolio security; or (b) in connection with the purchase of securities directly from the issuer thereof in accordance with its investment objective. This restriction shall not limit the Fund's ability to invest in securities issued by other registered investment companies;
2. Purchase or sell real estate, except the Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate and it may hold and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of securities which are secured by real estate or interests therein;
3. Purchase or sell commodities, except that the Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts;
4. Purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions; and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief;
5. Make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief;
6. Borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief;
7. Purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that: (a) up to 25% of its total assets may be invested without regard to these limitations and (b) the Fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder, or any applicable exemptive relief.
NON-FUNDAMENTAL INVESTMENT POLICIES
The Large Company Index Fund and the Small Company Index Fund may not engage in futures activities for other than bona fide hedging purposes if the aggregate initial margin deposits on its non-hedging futures contracts and premiums paid on its related options exceed 5% of the fair market value of the Fund's total assets, after taking into account unrealized profits and unrealized losses on futures contracts it has entered into.
Each of the Funds will set aside with its custodian, or with a designated subcustodian, cash or liquid securities at least equal to the underlying commodity value of each long position the Fund assumes in commodity futures contracts or will take other actions consistent with regulatory requirements to avoid leverage.
Each Fund will adhere to the following conditions whenever its portfolio securities are loaned: (a) the loans will not exceed 33- 1/3% of the Fund's total assets taken at value; (b) the Fund must receive cash or equivalent securities from the borrower as collateral at least equal to 100% of the current market value of the loaned securities plus any interest and dividends accrued thereon; (c) the borrower must increase such collateral whenever the market value of the securities plus any accrued interest or dividends rises above the level of such collateral; (d) the Fund must be able to terminate the loan at any time; (e) the Fund must receive reasonable interest on the loan, as well as any dividends, interest or other distributions on the loaned securities, and any increase in market value; (f) the Fund may pay only reasonable custodian fees in connection with the loan; and (g) voting rights on the loaned securities may pass to the borrower, provided, however, that if a material event adversely affecting the investment occurs, the Board of Trustees must terminate the loan and regain the right to vote the securities.
Each of the Funds will not enter into repurchase agreements that would cause more than 5% of their respective net assets to be invested in illiquid securities.
Except as stated otherwise and except with respect to Investment Limitation No. 8, if a percentage limitation is satisfied at the time of investment, a later increase in such percentage resulting from a change in the value of a Fund's portfolio securities generally will not constitute a violation of the limitation. If the value of a Fund's holdings of illiquid securities at any time exceeds the percentage limitation applicable at the time of acquisition due to subsequent fluctuations in value or other reasons, the Board of Trustees will consider what actions, if any, are appropriate to maintain adequate liquidity. With respect to borrowings, if a Fund's asset coverage at any time falls below that required by the 1940 Act, the Fund will reduce the amount of its borrowings in the manner required by the 1940 Act to the extent necessary to satisfy the asset coverage requirement.
Total assets and net assets are determined at current value for purposes of compliance with investment restrictions and policies. All percentage limitations will apply at the time of investment and are not violated unless an excess or deficiency occurs as a result of such investment. For the purpose of the 1940 Act's diversification requirement, an issuer is the entity whose revenues support the security.
Each Fund may follow non-fundamental operating policies that are more restrictive than its fundamental investment limitations, as set forth in the Prospectuses and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the 1940 Act.
THE INDEXING APPROACH
The Funds are not managed in a traditional sense, that is, by making discretionary judgments based on analysis of economic, financial and market conditions. Instead, the Funds seek to match the investment performance of their respective market segments, as represented by their respective indexes, through the use of sophisticated computer models to determine which stocks or bonds should be purchased or sold, while keeping transaction and administrative costs to a minimum. In using sophisticated computer models to select securities, a Fund will only purchase a security that is included in its respective index at the time of such purchase. A Fund may, however, temporarily continue to hold a security that has been deleted from its respective index pending the rebalancing of the Fund's portfolio. A list of securities included, as of the date of this Statement of Additional Information, in each of the Standard & Poor's 500 Composite Stock Price Index ("S&P 500"), the Standard & Poor's SmallCap 600 Stock Price Index ("S&P SmallCap 600 Index"), and the U.S. Treasury component ("U.S. Treasury Index") of the Citigroup Bond U.S. Treasury Index is available free of charge by calling the Advisor at 1-800-426-3750, or by writing to the Advisor, c/o Columbia Funds Services, Inc. ("CFS"), P.O. Box 8081, Boston, MA 02266-8081.
While there can be no guarantee that each Fund's investment results will precisely match the results of its corresponding index, the Advisor believes that, before deduction of operating expenses, there will be a very high correlation between the returns generated by the Funds and their respective indexes. Each Fund will attempt to achieve a correlation between the performance of its portfolio and that of its respective index of at least 0.95 before deduction of operating expenses. A correlation of 1.00 would indicate perfect correlation, which would be achieved when a Fund's net asset value, including the value of its dividend and capital gains distributions, increases or decreases in exact proportion to changes in its respective index. Each Fund's ability to correlate its performance with its respective index, however, may be affected by, among other things, changes in securities markets, the manner in which Standard & Poor's or Citigroup calculates their respective indexes, and the timing of purchases and redemptions. The Advisor monitors the correlation of the performance of the Funds in relation to their indexes under the supervision of the Board of Trustees. In the unlikely event that a high correlation is not achieved, the Board of Trustees will take appropriate steps based on the reasons for the lower than expected correlation.
The Advisor believes that the indexing approach should involve less turnover, and thus lower brokerage costs, transfer taxes and operating expenses, than in more traditionally managed funds, although there is no assurance that this will be the case. Ordinarily, a Fund will buy or sell securities only to reflect changes in an index (including mergers or changes in the composition of an index) or to accommodate cash flows into and out of the Fund. The costs and other expenses incurred in securities transactions, apart from any difference between the investment results of a Fund and that of its respective index, may cause the return of a Fund to be lower than the return of its respective index. The Funds may invest in less than all of the securities included in their respective indexes, which may result in a return that does not match that of the indexes, after taking expenses into account.
LARGE COMPANY INDEX FUND
The Large Company Index Fund invests substantially all of its assets (under
normal circumstances, at least 80% of net assets plus any borrowings for
investment purposes) in the common stocks of large companies included in the S&P
500. This 80%
e
policy may be changed by the Board of Trustees without shareholder approval, although shareholders will be given at least 60 days' prior written notice of any such change.
The S&P 500 is composed of 500 common stocks, most of which are listed on the New York Stock Exchange (the "NYSE"). S&P chooses the stocks for the S&P 500 on a statistical basis. As of December 31, 2004, the stocks in the S&P 500 had an average market capitalization of approximately $22.3 billion and accounted for approximately 74% of the total market value of all U.S. common stocks. The Advisor believes that the S&P 500 is an appropriate benchmark for the Fund because it is diversified, it is familiar to many investors and it is widely accepted as a reference for common stock investments.
SMALL COMPANY INDEX FUND
The Small Company Index Fund invests substantially all of its assets (under normal circumstances, at least 80% of net assets, plus any borrowings for investment purposes) in the common stocks of small companies included in the S&P SmallCap 600 Index. This 80% policy may be changed by the Board of Trustees without shareholder approval, although shareholders will be given at least 60 days' prior written notice of any such change.
The S&P SmallCap 600 Index is comprised of 600 U.S. common stocks with small market capitalizations. Like the S&P 500, the weighting of stocks in the S&P SmallCap 600 Index is based on each stock's relative total market capitalization. As of December 31, 2004, stocks in the S&P SmallCap 600 Index accounted for about 3.45% of the total market value of all publicly traded U.S. common stocks. The average capitalization of stocks included in the S&P SmallCap 600 Index as of December 31, 2004 was approximately $870 million, although the capitalization of some companies included in the S&P SmallCap 600 Index is significantly higher.
When utilized, the portfolio optimization program is expected to provide an effective method of substantially duplicating the dividend income and capital gains produced by the S&P SmallCap 600 Index. Since the Fund does not hold every stock in the S&P SmallCap 600 Index when utilizing portfolio optimization, it is not expected to track the S&P SmallCap 600 Index with the same degree of accuracy as when it holds all 600 stocks in the Index, although the Fund will seek a correlation of at least 0.95, before deduction of operating expenses.
U.S. TREASURY INDEX FUND
The U.S. Treasury Index Fund invests substantially all of its assets (under normal circumstances, at least 80% of net assets plus any borrowings for investment purposes) in U.S. Treasury securities included in the U.S. Treasury Index. This 80% policy may be changed by the Board of Trustees without shareholder approval, although shareholders will be given at least 60 days' prior written notice of any such change.
The U.S. Treasury Index is composed of all U.S. Treasury notes and bonds with remaining maturities of at least one year and outstanding principal of at least $25 million. Securities in the Index are weighted by market value, that is, the price per bond or note multiplied by the number of bonds or notes outstanding. Citigroup updates the roster of securities represented in the U.S. Treasury Index monthly, adding new notes and bonds issued in the past month and removing those notes and bonds that no longer meet the index's criteria. The following table further describes the U.S. Treasury Index Fund as of December 31, 2004:
U.S. TREASURY
INDEX FUND
-------------
Number of Issues 29
Total Market Value $158,707,480
Minimum Maturity 03/31/2006
Maximum Maturity 02/15/2029
Weighted Average Maturity 7.61 Years
Percent of Market Value with
remaining Maturity of:
1-3 years 34%
3-7 years 22%
7-10 years 15%
10-20 years 18%
Over 20 years 10%
Cash equivalent reserve 1%
|
f
The Fund will not hold all of the issues in its index because of the costs involved. Instead, each security will be considered for inclusion in the Fund based on its contribution to the total market value, average coupon rate and average weighted maturity of the Fund and its similarity to these financial characteristics of the Fund's index.
The Fund is authorized to engage in other types of securities transactions as described elsewhere in this Statement of Additional Information. Because the Fund expects to generate income generally exempt from state and local income taxes, it will engage in such investment practices only when deemed by the Advisor to be in the best interests of the Fund's shareholders.
PORTFOLIO TURNOVER
The Advisor believes that the indexing approach should involve less turnover, and thus lower brokerage costs, transfer taxes and operating expenses, than in more traditionally managed funds, although there is no assurance that this will be the case. For more information, see the section above entitled, "The Indexing Approach."
Portfolio turnover is included in the Prospectuses under "Financial Highlights." Each Fund may sell a portfolio investment soon after its acquisition if the Advisor believes that such a disposition is consistent with the Fund's investment goal. Portfolio investments may be sold for a variety of reasons, such as a more favorable investment opportunity or other circumstances bearing on the desirability of continuing to hold such investments. A portfolio turnover rate of 100% or more is considered high, although the rate of portfolio turnover will not be a limiting factor in making portfolio decisions. High portfolio turnover may cause the Funds to realize capital gains which, if realized and distributed by the Funds, may be taxable to shareholders as ordinary income. High portfolio turnover may result in correspondingly greater brokerage commissions and other transaction costs, which will be borne directly by the Funds.
FUND CHARGES AND EXPENSES
For the services provided and expenses assumed with respect to the Funds, the Advisor is entitled to receive advisory fees, computed daily and paid monthly, at the annual rate of 0.10% of the average daily net assets of each Fund. For the period from July 1, 2003 through October 31, 2003, the Advisor waived 0.06% of the Large Company Index Fund's advisory fee. For the fiscal year ended March 31, 2004, the effective annual advisory fee rate for the Large Company Index Fund was 0.08%.
Under the US Treasury Index Fund's administration agreement, the Fund pays the Administrator a monthly fee at the annual rate of 0.30% of the average daily net assets of the Fund. The Administrator pays all operating expenses of the Fund with the exception of brokerage fees and expenses, taxes, interest, fees and expenses of Trustees who are not officers, directors or employees of the Administrator or its affiliates, and any extraordinary non-recurring expenses that may arise, including, but not limited to, litigation expenses.
Effective November 1, 2004, under the Columbia Large Company Index Fund's and Columbia Small Company Index Fund's administration agreements, each of these Funds pays the Administrator a fee at the annual rate of 0.10% of the average daily net assets of the Fund. Prior to November 1, 2004, the Columbia Large Company Index Fund and Columbia Small Company Index Fund paid fees under their administration agreements at the rates set forth in the immediately preceding paragraph.
The Administrator is responsible for providing pricing and bookkeeping services to each Fund pursuant to a pricing and bookkeeping agreement. Under a separate agreement (outsourcing agreement), the Administrator has delegated those functions to State Street Corporation (State Street). The Administrator pays fees to State Street under the outsourcing agreement.
Prior to July 1, 2002, Fleet National Bank ("FNB"), an affiliate of the Advisor, located at 100 Federal Street, Boston, MA 02110, served as the administrator and fund accountant of the Predecessor Funds and was entitled to receive administration and fund accounting fees at the aggregate annual rate of 0.30% of the average daily net assets of each of the Predecessor Funds. Prior to July 1, 2002, PFPC, Inc. ("PFPC") (formerly known as First Data Investor Services Group, Inc.), located at 4400 Computer Drive, Westborough, Massachusetts 01581-5108, served as sub-administrator of the Predecessor Funds and, prior to July 22, 2002, served as transfer and dividend disbursing agent for the Predecessor Funds. PFPC is an indirect majority-owned subsidiary of PNC Bank Corp. During the last three fiscal years, no administration fees were waived by FNB.
g
RECENT FEES PAID TO THE ADVISOR, FNB AND OTHER SERVICE PROVIDERS (dollars in
thousands)
The following tables present recent fees paid to the Advisor, FNB and other service providers by each Fund or its relevant Predecessor Fund.
Large Company Index Fund
Years ended March 31,
-----------------------
2005 2004 2003
------ ------ -----
Advisory fee $ 872 $ 778 $ 672
Advisory fee waiver N/A 151
Administration fee 1,887 2,334 2,014
Expense reimbursement by 84 77 25
Administrator/Sub-Administrator
12b-1 fees:
Service fee (Class A Shares) 46 13 (a)
Distribution fee (Class B Shares) 85 31 (a)
Service fee (Class B Shares) 28 10 (a)
Distribution fee (Class C Shares) 19 6 (a)
Service fee (Class C Shares) 6 2 (a)
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Small Company Index Fund
Years ended March 31,
------------------------
2005 2004 2003
---- ---- ----
Advisory fee $318 $262 $239
Administration fee 670 787 716
Expense reimbursement by Sub- N/A N/A 2
Administrator
12b-1 fees:
Service fee (Class A Shares) 12 2 (a)
Distribution fee (Class B Shares) 17 3 (a)
Service fee (Class B Shares) 6 1 (a)
Distribution fee (Class C Shares) 15 3 (a)
Service fee (Class C Shares) 5 1 (a)
|
U.S. Treasury Index Fund
Years ended March 31,
------------------------
2005 2004 2003
---- ---- ----
Advisory fee $166 $183 $176
Administration fee 497 548 529
Expense reimbursement by 16 18 8
Administrator/Sub-Administrator
12b-1 fees:
Service fee (Class A Shares) 7 4 (a)
Distribution fee (Class B Shares) 12 9 (a)
Service fee (Class B Shares) 4 3 (a)
Distribution fee (Class C Shares) 7 8 (a)
Distribution fee waiver (Class C
Shares) 1 2 (a)
Service fee (Class C Shares) 2 3 (a)
|
(a) Rounds to less than one.
FNB and Columbia Trust Company were paid fees for Sub-Account Services performed with respect to shares of the Funds held by defined contribution plans. Pursuant to agreements between FNB, Columbia Trust Company and PFPC, FNB and Columbia Trust Company were paid $21.00 per year for each defined contribution plan participant account. For the fiscal year ended March 31, 2005, FNB and Columbia Trust Company received $599,711 and $61,621, respectively, for Sub-Account Services.
h
BROKERAGE COMMISSIONS
For the fiscal years ended March 31, 2005, 2004 and 2003, the Funds paid brokerage commissions as shown in the table below (dollars in thousands). The Columbia U.S. Treasury Index Fund paid no brokerage commissions during the fiscal years shown.
Years ended March 31,
---------------------
LARGE COMPANY INDEX FUND 2005 2004 2003
------------------------ ---- ---- ----
Total commissions 60 27 145*
Directed transactions(a) 0 0 403
Commissions on directed transactions 0 0 **
Commissions paid to AlphaTrade, Inc. 0 0 0
% of Aggregate Commissions
% of Aggregate Dollar Amount of Brokerage
Transactions
Commissions paid to Quick & Reilly, Inc. 0 0 0
% of Aggregate Commissions
% of Aggregate Dollar Amount of Brokerage
Transactions
Commissions paid to Robertson Stephens, Inc. 0 0 0
% of Aggregate Commissions
% of Aggregate Dollar Amount of Brokerage
Transactions
Commissions paid to Fleet Securities, Inc. 0 0 0
% of Aggregate Commissions
% of Aggregate Dollar Amount of Brokerage
Transactions
|
Years ended March 31,
---------------------
SMALL COMPANY INDEX FUND 2005 2004 2003
------------------------ ---- ----- ----
Total commissions 6 9 147
Directed transactions(a) 0 1,728 0
Commissions on directed transactions 0 *** 0
Commissions paid to AlphaTrade, Inc. 0 0 0
% of Aggregate Commissions
% of Aggregate Dollar Amount of Brokerage
Transactions
Commissions paid to Quick & Reilly, Inc. 0 0 0
% of Aggregate Commissions
% of Aggregate Dollar Amount of Brokerage
Transactions
Commissions paid to Robertson Stephens, Inc. 0 0 0
% of Aggregate Commissions
% of Aggregate Dollar Amount of Brokerage
Transactions
Commissions paid to Fleet Securities, Inc. 0 0 0
% of Aggregate Commissions
% of Aggregate Dollar Amount of Brokerage
Transactions
|
(a) See "Management of the Funds - Portfolio Transactions - Brokerage and Research Services" in Part 2 of this SAI.
* For the Large Company Index Fund, the brokerage commissions paid in the fiscal year ended March 31, 2003 were higher than the brokerage commissions paid in the prior fiscal year due to an increase in portfolio turnover. The Fund's portfolio turnover reflected changes in companies included in its target index, the S&P 500.
** Rounds to less than 0.
*** Rounds to less than 1.
U.S. Government securities are generally purchased from underwriters or dealers, although certain newly issued U.S. Government securities may be purchased directly from the issuing agency or instrumentality. No brokerage commissions are typically paid on purchases and sales of U.S. Government securities.
The Trust is required to identify any securities of its "regular brokers or dealers" that the Funds have acquired during its most recent fiscal year. At March 31, 2005, Columbia Small Company Index Fund and Columbia U.S. Treasury Index Fund did not hold any securities of their regular brokers or dealers. At March 31, 2005, Columbia Large Company Index Fund held securities of its regular brokers or dealers as set forth below:
Fund Broker/Dealer Value
---- ------------- -----
Large Company Index
Merrill Lynch & Co., Inc. $4,188,400
Goldman Sachs Group, Inc. 3,915,644
Lehman Brothers Holdings, Inc. 2,071,520
Bear Stearns Companies, Inc. 899,100
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TRUSTEES AND TRUSTEES' FEES
Fund Complex consists of the following funds:
The series of Columbia Funds Trust I, the series of Columbia Funds Trust II, the series of Columbia Funds Trust III, the series of Columbia Funds Trust IV, the series of Columbia Funds Trust V, the series of Columbia Funds Trust VI, the series of Columbia Funds Trust VII, the series of Liberty Variable Investment Trust and 8 closed-end management investment company portfolios (the "Liberty Funds").
The series of Columbia Funds Trust VIII, the series of Columbia Funds Trust IX, the series of Columbia Funds Trust XI and the series of SteinRoe Variable Investment Trust (the "Stein Roe Funds").
Two closed-end management investment company portfolios named Liberty All-Star Equity Fund and Liberty All-Star Growth Fund, Inc. (the "All-Star Funds").
Columbia Management Multi-Strategy Hedge Fund, LLC.
Columbia Balanced Fund, Inc., Columbia Daily Income Company, Columbia Fixed Income Securities Fund, Inc., Columbia High Yield Fund, Inc., Columbia International Stock Fund, Inc., Columbia Oregon Municipal Bond Fund, Inc., Columbia Real Estate Equity Fund, Inc., Columbia Short Term Bond Fund, Inc., Columbia Small Cap Growth Fund, Inc., Columbia Mid Cap Growth Fund, Inc., Columbia Strategic Investor Fund, Inc., Columbia Technology Fund, Inc. and the series of CMG Fund Trust (the "Columbia Funds").
The series of The Galaxy Funds (the "Galaxy Funds").
The series of Columbia Acorn Trust and the series of Wanger Advisors Trust (the "Acorn Funds" and "WAT Funds," respectively).
j
The Advisor or its affiliates pay the compensation of all the officers of the funds in the Fund Complex advised by the Advisor, including the Trustees who are affiliated with the Advisor. For the fiscal year ended March 31, 2005 and the calendar year ended December 31, 2004, the Trustees received the following compensation for serving as Trustees:
Aggregate Aggregate
Aggregate Compensation Compensation
Pension or Compensation from the Small from the U.S. Total Compensation from
Retirement from the Large Company Index Treasury Index the Columbia Fund
Benefits Accrued Company Index Fund for the Fund for the Complex Paid to the
as Fund for the Fiscal Fiscal Year Fiscal Year Trustees for the Calendar
Part of Year ended ended ended Year Ended
Trustee Fund Expenses (b) March 31, 2005 March 31, 2005 March 31, 2005 December 31, 2004 (a)
------- ----------------- ------------------- -------------- -------------- -------------------------
Douglas A. Hacker N/A $1,965 $ 939 $ 907 135,000
Janet Langford Kelly N/A 2,228 1,053 958 148,500
Richard W. Lowry N/A 1,796 855 813 150,700
William E. Mayer N/A 2,067 985 943 166,700
Charles R. Nelson N/A 2,070 983 920 141,500
John J. Neuhauser N/A 1,892 902 860 158,284
Patrick J. Simpson N/A 1,857(e) 885(e) 848(e) 129,000
Thomas Stitzel N/A 2,132 784 979 149,000
Thomas C. Theobald(c) N/A 2,569 1,212 1,086 172,500
Anne-Lee Verville(d) N/A 2,255 1,074 1,023 157,000
Richard L. Woolworth N/A 1,813 872 871 131,000
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(a) As of December 31, 2004, the Fund Complex consisted of 127 open-end and 11 closed-end management investment company portfolios.
(b) The Fund does not currently provide pension or retirement plan benefits to the Trustees.
(c) During the fiscal year ended March 31, 2005, and the calendar year ended December 31, 2004, Mr. Theobald deferred $1,511 of his compensation from the Large Company Index Fund, $698 of his compensation from the Small Company Index Fund, $534 of his compensation from the U.S. Treasury Index Fund and $90,000 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2004, the value of Mr. Theobald's account under that plan was $157,328.
(d) During the fiscal year ended March 31, 2005, and the calendar year ended December 31, 2004, Ms. Verville deferred $676 of her compensation from the Large Company Index Fund, $312 of her compensation from the Small Company Index Fund, $242 of her compensation from the U.S. Treasury Index Fund and $55,000 of her total compensation from the Fund Complex, pursuant to the deferred compensation plan. At December 31, 2004, the value of Ms. Verville's account under that plan was $653,275.
(e) During the fiscal year ended March 31, 2005, Mr. Simpson deferred $1,857 of his compensation from the Large Company Index Fund, $885 of his compensation from the Small Company Index Fund and $848 of his compensation from the U.S. Treasury Index Fund pursuant to the deferred compensation plan. During the calendar year ended December 31, 2004, Mr. Simpson deferred $129,000 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2004, the value of Mr. Simpson's account under that plan was $143,646.
ROLE OF THE BOARD OF TRUSTEES
The Trustees of the Funds are responsible for the overall management and supervision of the Funds' affairs and for protecting the interests of the shareholders. The Trustees meet periodically throughout the year to oversee the Funds' activities, review contractual arrangements with service providers for the Funds and review the Funds' performance. The Trustees have created several committees to perform specific functions for the Funds. Mr. Theobald was elected Chairman of the Board of Trustees of the Liberty Funds, Stein Roe Funds and Columbia Funds effective December, 2003.
k
AUDIT COMMITTEE
Ms. Verville and Messrs. Hacker, Stitzel and Woolworth are members of the Audit Committee of the Board of Trustees of the Funds. The Audit Committee's functions include making recommendations to the Trustees regarding the selection and performance of the independent registered public accounting firm, and reviewing matters relative to accounting and auditing practices and procedures, accounting records, and the internal accounting controls, of the Funds and certain service providers. In the fiscal year ended March 31, 2005, the Audit Committee convened eleven times.
GOVERNANCE COMMITTEE
Messrs. Lowry, Mayer, Simpson and Theobald are members of the Governance Committee of the Board of Trustees of the Funds. The Governance Committee's functions include recommending to the Trustees nominees for independent Trustee positions and for appointments to various committees, performing periodic evaluations of the effectiveness of the Board, reviewing and recommending to the Board policies and practices to be followed in carrying out the Trustees' duties and responsibilities and reviewing and making recommendations to the Board regarding the compensation of the Trustees who are not affiliated with the Funds' investment advisors. The Governance Committee will consider candidates for Trustee recommended by shareholders. Written recommendations with supporting information should be directed to the Committee, in care of the Funds. In the fiscal year ended March 31, 2005, the Governance Committee convened six times.
ADVISORY FEES & EXPENSES COMMITTEE
Ms. Kelly and Messrs. Mayer, Nelson and Neuhauser are members of the Advisory Fees & Expenses Committee of the Board of Trustees of the Funds. The Advisory Fees & Expenses Committee's functions include reviewing and making recommendations to the Board as to contracts requiring approval of a majority of the disinterested Trustees and as to any other contracts that may be referred to the Committee by the Board. In the fiscal year ended March 31, 2005, the Advisory Fees & Expenses Committee convened eight times.
COMPLIANCE COMMITTEE
Ms. Kelly, Messrs. Nelson, Simpson and Stitzel and Ms. Verville are members of the Compliance Committee of the Board of Trustees of the Funds. Mr. Stitzel became a member of the Compliance Committee on May 8, 2005. The Compliance Committee's functions include providing oversight of the monitoring processes and controls regarding the Trust. The Committee supervises legal, regulatory and internal rules, policies, procedures and standards other than those relating to accounting matters and oversight of compliance by the Trust's investment adviser, principal underwriter and transfer agent. For the fiscal year ended March 31, 2005, the Compliance Committee convened six times.
INVESTMENT OVERSIGHT COMMITTEES
Beginning in 2004, each Trustee of the Funds also began serving on an Investment Oversight Committee ("IOC"). Each IOC is responsible for monitoring, on an ongoing basis, a select group of funds in the Fund Complex and gives particular consideration to such matters as the Funds' adherence to their investment mandates, historical performance, changes in investment processes and personnel, and proposed changes to investment objectives. Investment personnel who manage the Funds attend IOC meetings from time to time to assist each IOC in its review of the Funds. Each IOC meets four times a year. The following are members of the respective IOCs and the general categories of funds in the Fund Complex which they review:
IOC#1: Messrs. Lowry, Mayer and Neuhauser are responsible for reviewing funds in the following asset categories: Large Growth Diversified, Large Growth Concentrated, Small Growth, Outside Managed (i.e., sub-advised) and Municipal.
IOC#2: Mr. Hacker and Ms. Verville are responsible for reviewing funds in the following asset categories: Large Blend, Small Blend, Foreign Stock, Fixed Income - Multi Sector, Fixed Income - Core and Young Investor.
IOC#3: Messrs. Theobald and Stitzel and Ms. Kelly are responsible for reviewing funds in the following asset categories: Large Value, Mid Cap Value, Small Value, Asset Allocation, High Yield and Money Market.
IOC#4: Messrs. Nelson, Simpson and Woolworth are responsible for reviewing funds in the following asset categories: Large/Multi-Cap Blend, Mid Cap Growth, Small Growth, Asset Allocation, Specialty Equity and Taxable Fixed Income.
SHARE OWNERSHIP
The following table shows the dollar range of equity securities beneficially owned by each Trustee as of December 31, 2004 (i) in each Fund and (ii) in the funds in the Fund Complex.
Aggregate Dollar Range of Equity
Dollar Range of Equity Securities Owned in All Funds Overseen
Securities Owned in the by
Name of Trustee Funds Trustee in Liberty Fund Complex
--------------- ----------------------- --------------------------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker $0 Over $100,000
Janet Langford Kelly $0 Over $100,000
Richard W. Lowry $0 Over $100,000
Charles R. Nelson $0 Over $100,000
John J. Neuhauser $0 Over $100,000
Patrick J. Simpson $0 Over $100,000
Thomas E. Stitzel $0 Over $100,000
Thomas C. Theobald $0 Over $100,000
Anne-Lee Verville $0 Over $100,000
Richard L. Woolworth $0 Over $100,000
INTERESTED TRUSTEES
William E. Mayer $0 $50,001-$100,000
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PORTFOLIO MANAGERS
OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS
The following table shows the number and assets of other investment accounts (or portions of investment accounts) that the Fund's portfolio managers managed as of the Fund's fiscal year-end.
OTHER SEC-REGISTERED
OPEN-END AND CLOSED-END OTHER POOLED
FUNDS INVESTMENT VEHICLES OTHER ACCOUNTS
------------------------ ------------------------ ------------------------
Number of Number of Number of
PORTFOLIO MANAGER accounts Assets accounts Assets accounts Assets
----------------- --------- ------------ --------- ------------ --------- ------------
Vikram J. Kuriyan, PhD* 11 $6.3 billion 11 $1.0 billion 15 $1.4 billion
David Lindsay 1 $175 million None N/A 76** $948 million
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* Information for Dr. Kuriyan, who began managing the Funds after their fiscal year end, is as of June 2005.
** Includes one account with $35 million in assets which includes an advisory fee based on performance.
See "Management--Portfolio Transactions--Potential conflicts of interest in managing multiple accounts" in Part II of this SAI for information on how the Advisor addresses potential conflicts of interest resulting from an individual's management of more than one account.
OWNERSHIP OF SECURITIES
The table below shows the dollar ranges of shares of the Fund beneficially owned (as determined pursuant to Rule 16a-1(a)(2) under the Securities Exchange Act of 1934, as amended) by the portfolio managers listed above at the end of the Fund's most recent fiscal year:
DOLLAR RANGE OF EQUITY SECURITIES
PORTFOLIO MANAGER IN THE FUND(S) BENEFICIALLY OWNED
----------------- ---------------------------------
Vikram J. Kuriyan, PhD* None
David Lindsay None
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* Information for Dr. Kuriyan, who began managing the Funds after their fiscal year end, is as of June 2005.
COMPENSATION
As of the Fund's most recent fiscal year end, the portfolio managers received all of their compensation from the Advisor and its parent company, Columbia Management Group, in the form of salary, bonus, stock options and restricted stock. A portfolio manager's bonus is variable and is generally based on (1) an evaluation of the manager's investment performance and (2) the results of a peer and/or management review of such individual, which takes into account skills and attributes such as team participation, investment process, communication and professionalism. In evaluating investment performance, the Advisor generally considers the one-, three- and five-year performance of mutual funds and other accounts under the portfolio manager's oversight relative to the benchmarks and peer groups noted below, emphasizing the manager's three- and five-year performance. The Advisor may also consider the portfolio manager's performance in managing client assets in sectors and industries assigned to the manager as part of his or her investment team responsibilities, where applicable. For portfolio managers who also have group management responsibilities, another factor in their evaluation is an assessment of the group's overall investment performance.
PORTFOLIO MANAGER PERFORMANCE BENCHMARK PEER GROUP
----------------- ----------------------------- ---------------------------------------------
Vikram J. Kuriyan, PhD S&P 500 (Large Company Index) Morningstar Large Blend (Large Company Index)
and and
S&P 600 (Small Company Index) Morningstar Small Blend (Small Company Index)
David Lindsay Treasury Index Lipper General U.S. Treasury
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The size of the overall bonus pool each year is determined by Columbia Management Group and depends in part on levels of compensation generally in the investment management industry (based on market compensation data) and the Advisor's profitability for the year, which is influenced by assets under management.
OWNERSHIP OF THE FUNDS
As of record on June 30, 2005, the Trustees and officers of the Trust as a group owned less than 1% of the then outstanding shares of the Funds.
As of record on June 30, 2005, the following shareholders of record owned 5% or more of the shares of the Funds noted below:
COLUMBIA LARGE COMPANY INDEX FUND
CLASS A SHARES
Shareholder (Name And Address) Percent Of Class Total (%) ------------------------------ -------------------------- BANK OF AMERICA 17.76 FBO BRISTOL HOSPIAL SHAREHOLDER SVCS 411 N AKARD Street DALLAS, TX 75201-3307 |
n
CLASS C SHARES
Shareholder (Name And Address) Percent Of Class Total (%) ------------------------------ -------------------------- NFSC FEBO 8.04 Gary J. Gartner 2002 Irrev Trust 599 Lexington Ave. New York, NY 10022-6030 First Clearing LLC 5.05 Lowell S. Morrow IRA R/O FCC As Custodian 10700 Wheat First Drive Glen Allen, VA 23060-9243 |
CLASS Z SHARES
Shareholder (Name And Address) Percent Of Class Total (%)
------------------------------ --------------------------
AMVESCAP National Trust Company as Agent 21.69
For Fleet National Bank FBO
FleetBoston Financial Savings Plus
P.O. Box 105779
Atlanta, GA 30348-5779
Bank of America NA 19.84
Attn Joan Wray/Funds Accounting
411 N Akard Street
Dallas, TX 75201-3307
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COLUMBIA SMALL COMPANY INDEX FUND
CLASS A SHARES
Shareholder (Name And Address) Percent Of Class Total (%) ------------------------------ -------------------------- MCB Trust Services Custodian FBO 7.12 Princeton Softech Inc 700 17th Street Ste. 300 Denver, CO 80202-3531 Reliance Trust Company Custodian 6.43 FBO University Physicians Inc P.O. Box 48529 Atlanta, GA 30362-1529 Mercer Trust Company 5.14 Transmetta 401(k) Plan One Investors Way Norwood, MA 02062-1599 |
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CLASS C SHARES
Shareholder (Name And Address) Percent Of Class Total (%)
------------------------------ --------------------------
NFSC FEBO 9.87
Ministerial Fund of I Cong Church of Madison
39 Sunny Hill Drive
Madison, CT 06443-3305
NFSC FEBO 5.90
Madison Historical Society Inc.
P.O. Box 17
Madison, CT 06443-0017
Pershing LLC 5.82
P.O. Box 2052
Jersey City, NJ 07303-2052
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COLUMBIA U.S. TREASURY INDEX FUND
CLASS A SHARES
Shareholder (Name And Address) Percent Of Class Total (%)
------------------------------ --------------------------
Legg Mason Wood Walker, Inc. 16.20
P.O. Box 1476
Baltimore, MD 21203-1476
Legg Mason Wood Walker, Inc. 8.63
P.O. Box 1476
Baltimore, MD 21203-1476
Pershing LLC 6.89
P.O. Box 2052
Jersey City, NJ 07303-2052
Reliance Trust Company 6.81
FBO Lake Shore Cryotronics 401k
P.O. Box 48529
Atlanta, GA 30362-1529
Circle Trust Company 5.06
FBO Steffian Bradley Architects 401k Plan
Metro Center
1 Station Place
Stamford, CT 06902-6800
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CLASS B SHARES
Shareholder (Name And Address) Percent Of Class Total (%) ------------------------------ -------------------------- Pershing LLC 9.03 P.O. Box 2052 Jersey City, NJ 07303-2052 Columbia Trust Company IRA 5.72 Michael A. Marino 5 Stoneybrook Drive Bridgewater, MA 02324-3555 LPL Financial Services 5.64 9785 Towne Centre Drive San Diego, CA 92121-1968 |
p
CLASS C SHARES
Shareholder (Name And Address) Percent Of Class Total (%) ------------------------------ -------------------------- Legg Mason Wood Walker, Inc. 33.58 P.O. Box 1476 Baltimore, MD 21203-1476 First Clearing LLC 11.45 Lenore Brusca IRA 12 Layng Terrace Springfield, NJ 07081-2908 NFS LLC FEBO 7.52 NFS/FMTC IRA FBO Lawrence J. Mellon 708 N. Morton Ave. Morton, PA 19070-1106 Bear Stearns Securities Corp. 7.02 1 Metrotech Center North Brooklyn, NY 11201-3870 |
CLASS Z SHARES
Shareholder (Name And Address) Percent Of Class Total (%) ------------------------------ -------------------------- Bank of America NA 29.11 Attn Joan Wray/Funds Accounting 411 N. Akard Street Dallas, TX 75201-3307 |
SALES CHARGES (dollars in thousands)
COLUMBIA LARGE COMPANY INDEX FUND
Class A Shares Class A Shares Class A Shares
Year ended March 31, 2005 Year ended March 31, 2004 Year ended March 31, 2003
------------------------- ------------------------- -------------------------
Aggregate initial sales charges on
Fund share sales $71 $121 (a)
Initial sales charges retained by CFD $10 $ 18 (a)
Aggregate CDSC on Fund redemptions
retained by CFD (a) (a)
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Class B Shares Class B Shares Class B Shares
Year ended March 31, 2005 Year ended March 31, 2004 Year ended March 31, 2003
------------------------- ------------------------- -------------------------
Aggregate CDSC on Fund redemptions
retained by CFD $34 $13 (a)
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Class C Shares Class C Shares Class C Shares
Year ended March 31, 2005 Year ended March 31, 2004 Year ended March 31, 2003
------------------------- ------------------------- -------------------------
Aggregate CDSC on Fund redemptions
retained by CFD $1 (a) $0
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COLUMBIA SMALL COMPANY INDEX FUND
Class A Shares Class A Shares Class A Shares
Year ended March 31, 2005 Year ended March 31, 2004 Year ended March 31, 2003
------------------------- ------------------------- -------------------------
Aggregate initial sales charges on
Fund share sales $58 $11 (a)
Initial sales charges retained by CFD $ 9 $ 2 (a)
Aggregate CDSC on Fund redemptions
retained by CFD (a) $ 0
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Class B Shares Class B Shares Class B Shares
Year ended March 31, 2005 Year ended March 31, 2004 Year ended March 31, 2003
------------------------- ------------------------- -------------------------
Aggregate CDSC on Fund redemptions
retained by CFD $5 $1 (a)
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Class C Shares Class C Shares Class C Shares
Year ended March 31, 2005 Year ended March 31, 2004 Year ended March 31, 2003
------------------------- ------------------------- -------------------------
Aggregate CDSC on Fund redemptions
retained by CFD $1 (a) $0
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COLUMBIA U.S. TREASURY INDEX FUND
Class A Shares Class A Shares Class A Shares
Year ended March 31, 2005 Year ended March 31, 2004 Year ended March 31, 2003
------------------------- ------------------------- -------------------------
Aggregate initial sales charges on
Fund share sales $10 $37 (a)
Initial sales charges retained by CFD $ 1 $ 5 (a)
Aggregate CDSC on Fund redemptions
retained by CFD $ 0 $ 0
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Class B Shares Class B Shares Class B Shares
Year ended March 31, 2005 Year ended March 31, 2004 Year ended March 31, 2003
------------------------- ------------------------- -------------------------
Aggregate CDSC on Fund redemptions
retained by CFD $6 $6 (a)
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Class C Shares Class C Shares Class C Shares
Year ended March 31, 2005 Year ended March 31, 2004 Year ended March 31, 2003
------------------------- ------------------------- -------------------------
Aggregate CDSC on Fund redemptions
retained by CFD $1 (a) $0
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(a) Rounds to less than one.
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12B-1 PLAN, SHAREHOLDER SERVICING PLAN, CDSCS AND CONVERSION OF SHARES
The Funds offer four classes of shares: Class A, Class B, Class C and Class Z. The Funds may in the future offer other classes of shares. The Trustees have approved a 12b-1 Plan (Plan) pursuant to Rule 12b-1 under the Act. Under the Plan, the Funds pay CFD monthly a service fee at an annual rate of 0.25% of each Fund's average daily net assets attributed to Class A, B and C shares. The Funds also pay CFD monthly a distribution fee at an annual rate of 0.75% of each Fund's average daily net assets attributed to Class B and Class C shares. The Distributor has voluntarily agreed to waive a portion of the 12b-1 fees of the U.S. Treasury Index Class C shares so that these fees do not exceed 0.85% annually of the average daily net assets attributable to Class C shares. CFD may use the entire amount of such fees to defray the cost of commissions and service fees paid to financial service firms (FSFs) and for certain other purposes. Since the distribution and service fees are payable regardless of the amount of CFD's expenses, CFD may realize a profit from the fees.
The Plan authorizes any other payments by the Funds to CFD and its affiliates (including the Advisor) to the extent that such payments might be construed to be indirect financing of the distribution of Fund shares. The Trustees believe the Plan could be a significant factor in the growth and retention of the Funds' assets resulting in more advantageous expense ratios and increased investment flexibility which could benefit each class of Fund shareholders. The Plan will continue in effect from year to year so long as continuance is specifically approved at least annually by a vote of the Trustees, including the Trustees who are not interested persons of the Trust and have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan (Independent Trustees), cast in person at a meeting called for the purpose of voting on the Plan. The Plan may not be amended to increase the fee materially without approval by vote of a majority of the outstanding voting securities of the relevant class of shares and all material amendments of the Plan must be approved by the Trustees in the manner provided in the foregoing sentence. The Plan may be terminated at any time by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding voting securities of the relevant class of shares. The continuance of the Plan will only be effective if the selection and nomination of the Trustees who are not interested persons of the Trust is effected by such disinterested Trustees.
Class A shares are offered at net asset value plus varying sales charges which may include a CDSC. Class B shares are offered at net asset value and are subject to a CDSC if redeemed within a certain number of years after purchase depending on the program you purchased your shares under. Class C shares are offered at net asset value and are subject to a 1.00% CDSC on redemptions within one year after purchase. Class Z shares are offered at net asset value and are not subject to a CDSC. The CDSCs are described in the Prospectuses.
No CDSC will be imposed on shares derived from reinvestment of distributions or amounts representing capital appreciation. In determining the applicability and rate of any CDSC, it will be assumed that a redemption is made first of shares representing capital appreciation, next of shares representing reinvestment of distributions and finally of other shares held by the shareholder for the longest period of time.
A certain number of years, depending on the program you purchased your shares under, after the end of the month in which a Class B share is purchased, such share and a pro rata portion of any shares issued on the reinvestment of distributions will be automatically converted into Class A shares having an equal value, which are not subject to the distribution fee.
SALES-RELATED EXPENSES (dollars in thousands) of CFD relating to the Funds were:
LARGE COMPANY INDEX FUND
Year ended March 31, 2005
------------------------------------------------
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
Fees to FSFs $44 $131 $21
Cost of sales material relating to
the Fund (including printing and
mailing expenses) 28 5 2
Allocated travel, entertainment and
other promotional expenses
(including advertising) 17 3 1
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SMALL COMPANY INDEX FUND
Year ended March 31, 2005
------------------------------------------------
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
Fees to FSFs $12 $62 $26
Cost of sales material relating to
the Fund (including printing and
mailing expenses) 14 3 4
Allocated travel, entertainment and
other promotional expenses
(including advertising) 9 2 3
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s
U.S. TREASURY INDEX FUND
Year ended March 31, 2005
------------------------------------------------
Class A Shares Class B Shares Class C Shares
-------------- -------------- --------------
Fees to FSFs $7 $12 $7
Cost of sales material relating to
the Fund (including printing and
mailing expenses) 3 1 <1
Allocated travel, entertainment and
other promotional expenses
(including advertising) 2 <1 <1
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CUSTODIAN OF THE FUNDS
State Street Bank and Trust Company, located at 2 Avenue de Lafayette, Boston, Massachusetts 02111-2900, is the Funds' custodian. The custodian is responsible for safeguarding the Funds' cash and securities, receiving and delivering securities and collecting the Funds' interest and dividends.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
PricewaterhouseCoopers LLP, located at 125 High Street, Boston, Massachusetts 02110-1707, is the Funds' independent registered public accounting firm, providing audit and tax return review services and assistance and consultation in connection with the review of various Securities and Exchange Commission filings. The financial statements incorporated by reference in this SAI have been so incorporated, and the financial highlights included in the Prospectuses have been so included, in reliance upon the reports of PricewaterhouseCoopers LLP for the fiscal year ended March 31, 2005 and for the fiscal year ended March 31, 2004. The information for the fiscal years ended March 31, 2003, 2002, 2001 and 2000 has been derived from the Funds' financial statements which have been audited by another independent registered public accounting firm whose report expressed an unqualified opinion on those financial statements and highlights.
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INVESTMENT PORTFOLIO
March 31, 2005 Columbia Large Company Index Fund
Shares Value ($)
------- ----------
COMMON STOCKS - 99.5%
CONSUMER DISCRETIONARY - 11.4%
AUTO COMPONENTS - 0.2%
Cooper Tire & Rubber Co. 5,600 102,816
Dana Corp. 11,900 152,201
Delphi Corp. 44,600 199,808
Goodyear Tire & Rubber Co. (a) 14,000 186,900
Johnson Controls, Inc. 15,200 847,552
Visteon Corp. (a) 10,300 58,813
----------
Auto Components Total 1,548,090
AUTOMOBILES - 0.5%
Ford Motor Co. 145,600 1,649,648
General Motors Corp. 44,900 1,319,611
Harley-Davidson, Inc. 23,200 1,340,032
----------
Automobiles Total 4,309,291
DISTRIBUTORS - 0.1%
Genuine Parts Co. 13,900 604,511
----------
Distributors Total 604,511
HOTELS, RESTAURANTS & Leisure - 1.5%
Carnival Corp. 41,900 2,170,839
Darden Restaurants, Inc. 11,800 362,024
Harrah's Entertainment, Inc. 9,100 587,678
Hilton Hotels Corp. 30,600 683,910
International Game Technology, Inc. 27,400 730,484
Marriott International, Inc., Class A 16,000 1,069,760
McDonald's Corp. 101,200 3,151,368
Starbucks Corp. (a) 31,800 1,642,788
Starwood Hotels & Resorts Worldwide, Inc. 16,900 1,014,507
Wendy's International, Inc. 9,100 355,264
Yum! Brands, Inc. 23,200 1,201,992
----------
Hotels, Restaurants & Leisure Total 12,970,614
HOUSEHOLD DURABLES - 0.6%
Black & Decker Corp. 6,400 505,536
Centex Corp. 10,100 578,427
Fortune Brands, Inc. 11,500 927,245
KB Home 3,300 387,618
Leggett & Platt, Inc. 15,200 438,976
Maytag Corp. 6,300 88,011
Newell Rubbermaid, Inc. 21,900 480,486
Pulte Homes, Inc. 9,400 692,122
Snap-On, Inc. 4,600 146,234
Stanley Works 6,000 271,620
Whirlpool Corp. 5,300 358,969
----------
Household Durables Total 4,875,244
INTERNET & CATALOG RETAIL - 0.4%
eBay, Inc. (a) 96,300 3,588,138
----------
Internet & Catalog Retail Total 3,588,138
LEISURE EQUIPMENT & PRODUCTS - 0.2%
Brunswick Corp. 7,700 360,745
Eastman Kodak Co. 22,800 742,140
Hasbro, Inc. 13,300 271,985
Mattel, Inc. 33,100 706,685
----------
Leisure Equipment & Products Total 2,081,555
MEDIA - 4.0%
Clear Channel Communications, Inc. 41,900 1,444,293
Comcast Corp., Class A (a) 175,900 5,941,902
Dow Jones & Co., Inc. 5,600 209,272
Gannett Co., Inc. 20,000 1,581,600
Interpublic Group of Companies, Inc. (a) 33,600 412,608
Knight-Ridder, Inc. 6,000 403,500
McGraw-Hill Companies, Inc. 15,100 1,317,475
Meredith Corp. 3,600 168,300
New York Times Co., Class A 11,600 424,328
News Corp., Class A 229,200 3,878,064
Omnicom Group 14,800 1,310,096
Time Warner, Inc. (a) 365,600 6,416,280
Tribune Co. 23,700 944,919
Univision Communications, Inc., Class A (a) 23,200 642,408
Viacom, Inc., Class B 135,600 4,722,948
Walt Disney Co. 162,800 4,677,244
----------
Media Total 34,495,237
MULTILINE RETAIL - 1.2%
Big Lots, Inc. (a) 9,000 108,180
Dillard's, Inc., Class A 5,600 150,640
Dollar General Corp. 24,000 525,840
Family Dollar Stores, Inc. 13,300 403,788
Federated Department Stores, Inc. 13,500 859,140
J.C. Penney Co., Inc. 22,700 1,178,584
Kohl's Corp. (a) 25,900 1,337,217
May Department Stores Co. 23,200 858,864
Nordstrom, Inc. 10,000 553,800
Sears Holdings Corp. (a) 8,230 1,096,038
Target Corp. 71,200 3,561,424
----------
Multiline Retail Total 10,633,515
SPECIALTY RETAIL - 2.3%
Autonation, Inc. (a) 18,000 340,920
AutoZone, Inc. (a) 5,400 462,780
Bed Bath & Beyond, Inc. (a) 24,100 880,614
Best Buy Co., Inc. 23,700 1,280,037
Circuit City Stores, Inc. 15,200 243,960
Gap, Inc. 58,600 1,279,824
Home Depot, Inc. 174,700 6,680,528
Limited Brands 30,400 738,720
Lowe's Companies, Inc. 61,500 3,511,035
Office Depot, Inc. (a) 24,900 552,282
OfficeMax, Inc. 7,400 247,900
RadioShack Corp. 12,600 308,700
Sherwin Williams Co. 10,100 444,299
Staples, Inc. 39,400 1,238,342
Tiffany & Co. 11,600 400,432
TJX Companies, Inc. 38,300 943,329
Toys "R" Us, Inc. (a) 17,100 440,496
----------
Specialty Retail Total 19,994,198
|
14 See Accompanying Notes to Financial Statements.
March 31, 2005 Columbia Large Company Index Fund
Shares Value ($)
------- ----------
COMMON STOCKS - (CONTINUED)
CONSUMER DISCRETIONARY - (continued)
TEXTILES, APPAREL & LUXURY GOODS - 0.4%
Coach, Inc. (a) 15,200 860,776
Jones Apparel Group, Inc. 9,700 324,853
Liz Claiborne, Inc. 8,600 345,118
NIKE, Inc., Class B 18,300 1,524,573
Reebok International Ltd. 4,500 199,350
V.F. Corp. 8,000 473,120
----------
Textiles, Apparel & Luxury Goods Total 3,727,790
----------
CONSUMER DISCRETIONARY TOTAL 98,828,183
CONSUMER STAPLES - 10.3%
BEVERAGES - 2.2%
Anheuser-Busch Companies, Inc. 61,800 2,928,702
Brown-Forman Corp., Class B 7,200 394,200
Coca-Cola Co. 180,200 7,508,934
Coca-Cola Enterprises, Inc. 28,100 576,612
Molson Coors Brewing Co., Class B 6,400 493,888
Pepsi Bottling Group, Inc. 15,700 437,245
PepsiCo, Inc. 133,500 7,079,505
----------
Beverages Total 19,419,086
FOOD & Staples Retailing - 2.9%
Albertson's, Inc. 29,300 605,045
Costco Wholesale Corp. 37,600 1,661,168
CVS Corp. 31,800 1,673,316
Kroger Co. (a) 58,200 932,946
Safeway, Inc. (a) 35,600 659,668
Supervalu, Inc. 10,700 356,845
Sysco Corp. 50,700 1,815,060
Wal-Mart Stores, Inc. 269,500 13,504,645
Walgreen Co. 81,200 3,606,904
----------
Food & Staples Retailing Total 24,815,597
FOOD PRODUCTS - 1.2%
Archer-Daniels-Midland Co. 49,600 1,219,168
Campbell Soup Co. 25,900 751,618
ConAgra Foods, Inc. 41,000 1,107,820
General Mills, Inc. 29,000 1,425,350
H.J. Heinz Co. 27,800 1,024,152
Hershey Foods Corp. 17,400 1,052,004
Kellogg Co. 27,900 1,207,233
McCormick & Co., Inc. 10,800 371,844
Sara Lee Corp. 62,800 1,391,648
Wrigley (Wm.) Jr. Co. 15,600 1,022,892
----------
Food Products Total 10,573,729
HOUSEHOLD PRODUCTS - 1.9%
Clorox Co. 12,200 768,478
Colgate-Palmolive Co. 41,800 2,180,706
Kimberly-Clark Corp. 38,300 2,517,459
Procter & Gamble Co. 200,600 10,631,800
----------
Household Products Total 16,098,443
PERSONAL PRODUCTS - 0.7%
Alberto-Culver Co., Class B 6,700 320,662
Avon Products, Inc. 37,500 1,610,250
Gillette Co. 78,800 3,977,824
----------
Personal Products Total 5,908,736
TOBACCO - 1.4%
Altria Group, Inc. 164,500 10,756,655
Reynolds American, Inc. 9,300 749,487
UST, Inc. 13,100 677,270
----------
Tobacco Total 12,183,412
----------
CONSUMER STAPLES TOTAL 88,999,003
ENERGY - 8.7%
ENERGY EQUIPMENT & SERVICES - 1.2%
Baker Hughes, Inc. 26,900 1,196,781
BJ Services Co. 12,900 669,252
Halliburton Co. 40,100 1,734,325
Nabors Industries Ltd. (a) 11,300 668,282
National-Oilwell Varco, Inc. (a) 13,300 621,110
Noble Corp. (a) 10,800 607,068
Rowan Companies, Inc. (a) 8,500 254,405
Schlumberger Ltd. 46,900 3,305,512
Transocean, Inc. (a) 25,500 1,312,230
----------
Energy Equipment & Services Total 10,368,965
OIL & GAS - 7.5%
Amerada Hess Corp. 6,800 654,228
Anadarko Petroleum Corp. 18,800 1,430,680
Apache Corp. 26,000 1,591,980
Ashland, Inc. 5,300 357,591
Burlington Resources, Inc. 30,800 1,542,156
ChevronTexaco Corp. 167,400 9,761,094
ConocoPhillips 55,300 5,963,552
Devon Energy Corp. 38,100 1,819,275
El Paso Corp. 51,200 541,696
EOG Resources, Inc. 19,000 926,060
Exxon Mobil Corp. 507,900 30,270,840
Kerr-McGee Corp. 13,000 1,018,290
Kinder Morgan, Inc. 8,700 658,590
Marathon Oil Corp. 27,600 1,294,992
Occidental Petroleum Corp. 31,600 2,248,972
Sunoco, Inc. 5,500 569,360
Unocal Corp. 21,500 1,326,335
Valero Energy Corp. 20,400 1,494,708
Williams Companies, Inc. 45,400 853,974
XTO Energy, Inc. 27,566 905,268
----------
Oil & Gas Total 65,229,641
----------
ENERGY TOTAL 75,598,606
FINANCIALS - 19.7%
CAPITAL MARKETS - 2.8%
Bank of New York Co., Inc. 61,900 1,798,195
Bear Stearns Companies, Inc. 9,000 899,100
Charles Schwab Corp. 91,300 959,563
E*TRADE Financial Corp. (a) 29,500 354,000
|
See Accompanying Notes to Financial Statements. 15
March 31, 2005 Columbia Large Company Index Fund
SHARES VALUE ($)
------- -----------
COMMON STOCKS - (CONTINUED)
FINANCIALS - (CONTINUED)
CAPITAL MARKETS - (CONTINUED)
Federated Investors, Inc., Class B 7,600 215,156
Franklin Resources, Inc. 15,700 1,077,805
Goldman Sachs Group, Inc. 35,600 3,915,644
Janus Capital Group, Inc. 18,800 262,260
Lehman Brothers Holdings, Inc. 22,000 2,071,520
Mellon Financial Corp. 33,700 961,798
Merrill Lynch & Co., Inc. 74,000 4,188,400
Morgan Stanley 88,500 5,066,625
Northern Trust Corp. 16,200 703,728
State Street Corp. 26,500 1,158,580
T. Rowe Price Group, Inc. 9,800 581,924
-----------
Capital Markets Total 24,214,298
COMMERCIAL BANKS - 5.8%
AmSouth Bancorp 28,200 731,790
Bank of America Corp. (b) 322,400 14,217,840
BB&T Corp. 43,600 1,703,888
Comerica, Inc. 13,500 743,580
Compass Bancshares, Inc. 9,800 444,920
Fifth Third Bancorp 41,400 1,779,372
First Horizon National Corp. 9,800 399,742
Huntington Bancshares, Inc. 18,400 439,760
KeyCorp 32,300 1,048,135
M&T Bank Corp. 7,800 796,068
Marshall & Ilsley Corp. 16,500 688,875
National City Corp. 47,300 1,584,550
North Fork Bancorporation, Inc. 37,400 1,037,476
PNC Financial Services Group, Inc. 22,500 1,158,300
Regions Financial Corp. 37,000 1,198,800
SunTrust Banks, Inc. 27,000 1,945,890
Synovus Financial Corp. 24,700 688,142
U.S. Bancorp 147,400 4,248,068
Wachovia Corp. 126,100 6,419,751
Wells Fargo & Co. 134,900 8,067,020
Zions Bancorporation 7,100 490,042
-----------
Commercial Banks Total 49,832,009
CONSUMER FINANCE - 1.2%
American Express Co. 93,300 4,792,821
Capital One Financial Corp. 19,700 1,472,969
MBNA Corp. 101,600 2,494,280
Providian Financial Corp. (a) 23,300 399,828
SLM Corp. 34,200 1,704,528
-----------
Consumer Finance Total 10,864,426
DIVERSIFIED FINANCIAL SERVICES - 3.6%
CIT Group, Inc. 16,800 638,400
Citigroup, Inc., Class A 415,600 18,677,064
JPMorgan Chase & Co. 282,700 9,781,420
Moody's Corp. 10,900 881,374
Principal Financial Group, Inc. 23,800 916,062
-----------
Diversified Financial Services Total 30,894,320
INSURANCE - 4.1%
Ace Ltd. 22,600 932,702
Aflac, Inc. 39,900 1,486,674
Allstate Corp. 54,000 2,919,240
Ambac Financial Group, Inc. 8,600 642,850
American International Group, Inc. 207,200 11,480,952
Aon Corp. 25,200 575,568
Chubb Corp. 15,200 1,204,904
Cincinnati Financial Corp. 12,600 549,486
Hartford Financial Services Group, Inc. 23,500 1,611,160
Jefferson-Pilot Corp. 10,900 534,645
Lincoln National Corp. 13,900 627,446
Loews Corp. 12,700 933,958
Marsh & McLennan Companies, Inc. 42,100 1,280,682
MBIA, Inc. 11,200 585,536
MetLife, Inc. 58,300 2,279,530
Progressive Corp. 15,900 1,458,984
Prudential Financial, Inc. 41,700 2,393,580
SAFECO Corp. 10,100 491,971
St. Paul Travelers Companies, Inc. 53,200 1,954,036
Torchmark Corp. 8,600 448,920
UnumProvident Corp. 23,700 403,374
XL Capital Ltd., Class A 11,100 803,307
-----------
Insurance Total 35,599,505
REAL ESTATE - 0.5%
Apartment Investment & Management Co., Class A, REIT 7,600 282,720
Archstone-Smith Trust, REIT 15,900 542,349
Equity Office Properties Trust, REIT 32,100 967,173
Equity Residential Property Trust, REIT 22,500 724,725
Plum Creek Timber Co., Inc., REIT 14,600 521,220
ProLogis Trust, REIT 14,600 541,660
Simon Property Group, Inc., REIT 17,600 1,066,208
-----------
Real Estate Total 4,646,055
THRIFTS & Mortgage Finance - 1.7%
Countrywide Financial Corp. 46,200 1,499,652
Fannie Mae 77,000 4,192,650
Freddie Mac 54,700 3,457,040
Golden West Financial Corp. 22,500 1,361,250
MGIC Investment Corp. 7,700 474,859
Sovereign Bancorp, Inc. 29,800 660,368
Washington Mutual, Inc. 69,500 2,745,250
-----------
Thrifts & Mortgage Finance Total 14,391,069
-----------
FINANCIALS TOTAL 170,441,682
HEALTH CARE - 13.0%
BIOTECHNOLOGY - 1.2%
Amgen, Inc. (a) 99,600 5,797,716
Applera Corp. - Applied Biosystems Group 15,600 307,944
Biogen Idec, Inc. (a) 26,500 914,515
Chiron Corp. (a) 11,700 410,202
Genzyme Corp. (a) 19,700 1,127,628
Gilead Sciences, Inc. (a) 34,400 1,231,520
MedImmune, Inc. (a) 19,800 471,438
-----------
Biotechnology Total 10,260,963
|
16 See Accompanying Notes to Financial Statements.
March 31, 2005 Columbia Large Company Index Fund
SHARES VALUE ($)
------- -----------
COMMON STOCKS - (CONTINUED)
HEALTH CARE - (CONTINUED)
HEALTH CARE EQUIPMENT & SUPPLIES - 2.2%
Bausch & Lomb, Inc. 4,300 315,190
Baxter International, Inc. 49,300 1,675,214
Becton, Dickinson & Co. 20,100 1,174,242
Biomet, Inc. 20,100 729,630
Boston Scientific Corp. (a) 60,500 1,772,045
C.R. Bard, Inc. 8,300 565,064
Fisher Scientific International, Inc. (a) 9,300 529,356
Guidant Corp. 25,700 1,899,230
Hospira, Inc. (a) 12,400 400,148
Medtronic, Inc. 96,200 4,901,390
Millipore Corp. (a) 4,000 173,600
PerkinElmer, Inc. 10,300 212,489
St. Jude Medical, Inc. (a) 28,700 1,033,200
Stryker Corp. 29,800 1,329,378
Thermo Electron Corp. (a) 12,700 321,183
Waters Corp. (a) 9,600 343,584
Zimmer Holdings, Inc. (a) 19,600 1,525,076
-----------
Health Care Equipment & SUPPLIES TOTAL 18,900,019
HEALTH CARE PROVIDERS & SERVICES - 2.6%
Aetna, Inc. 23,400 1,753,830
AmerisourceBergen Corp. 8,800 504,152
Cardinal Health, Inc. 34,500 1,925,100
Caremark Rx, Inc. (a) 36,300 1,444,014
CIGNA Corp. 10,500 937,650
Express Scripts, Inc. (a) 6,100 531,859
HCA, Inc. 32,700 1,751,739
Health Management Associates, Inc., Class A 19,400 507,892
Humana, Inc. (a) 12,800 408,832
IMS Health, Inc. 18,400 448,776
Laboratory Corp. Of America Holdings (a) 10,700 515,740
Manor Care, Inc. 6,900 250,884
McKesson Corp. 23,500 887,125
Medco Health Solutions, Inc. (a) 21,900 1,085,583
Quest Diagnostics, Inc. 7,300 767,449
Tenet Healthcare Corp. (a) 37,200 428,916
UnitedHealth Group, Inc. 51,000 4,864,380
WellPoint, Inc. (a) 24,300 3,046,005
-----------
Health Care Providers & Services Total 22,059,926
PHARMACEUTICALS - 7.0%
Abbott Laboratories 124,000 5,780,880
Allergan, Inc. 10,500 729,435
Bristol-Myers Squibb Co. 155,400 3,956,484
Eli Lilly & Co. 90,100 4,694,210
Forest Laboratories, Inc. (a) 27,900 1,030,905
Johnson & Johnson 236,500 15,883,340
King Pharmaceuticals, Inc. (a) 19,200 159,552
Merck & Co., Inc. 175,600 5,684,172
Mylan Laboratories, Inc. 21,400 379,208
Pfizer, Inc. 593,400 15,588,618
Schering-Plough Corp. 117,300 2,128,995
Watson Pharmaceuticals, Inc. 8,700 267,351
Wyeth 106,300 4,483,734
-----------
Pharmaceuticals Total 60,766,884
-----------
HEALTH CARE TOTAL 111,987,792
INDUSTRIALS - 11.9%
AEROSPACE & DEFENSE - 2.2%
Boeing Co. 66,200 3,870,052
General Dynamics Corp. 15,900 1,702,095
Goodrich Corp. 9,600 367,584
Honeywell International, Inc. 67,700 2,519,117
L-3 Communications Holdings, Inc. 9,200 653,384
Lockheed Martin Corp. 31,900 1,947,814
Northrop Grumman Corp. 28,700 1,549,226
Raytheon Co. 36,000 1,393,200
Rockwell Collins, Inc. 14,200 675,778
United Technologies Corp. 40,700 4,137,562
-----------
Aerospace & Defense Total 18,815,812
AIR FREIGHT & LOGISTICS - 1.0%
FedEx Corp. 24,000 2,254,800
Ryder System, Inc. 5,100 212,670
United Parcel Service, Inc., Class B 89,000 6,473,860
-----------
Air Freight & Logistics Total 8,941,330
AIRLINES - 0.1%
Delta Air Lines, Inc. (a) 11,100 44,955
Southwest Airlines Co. 58,600 834,464
-----------
Airlines Total 879,419
BUILDING PRODUCTS - 0.2%
American Standard Companies, Inc. (a) 14,300 664,664
Masco Corp. 35,600 1,234,252
-----------
Building Products Total 1,898,916
COMMERCIAL SERVICES & SUPPLIES - 0.9%
Allied Waste Industries, Inc. (a) 21,600 157,896
Apollo Group, Inc., Class A (a) 13,200 977,592
Avery Dennison Corp. 8,100 501,633
Cendant Corp. 83,900 1,723,306
Cintas Corp. 11,900 491,589
Equifax, Inc. 10,700 328,383
H&R Block, Inc. 13,100 662,598
Monster Worldwide, Inc. (a) 9,600 269,280
Pitney Bowes, Inc. 18,400 830,208
R.R. Donnelley & Sons Co. 17,100 540,702
Robert Half International, Inc. 12,800 345,088
Waste Management, Inc. 45,200 1,304,020
-----------
Commercial Services & Supplies Total 8,132,295
CONSTRUCTION & ENGINEERING - 0.1%
Fluor Corp. 6,800 376,924
-----------
Construction & Engineering Total 376,924
|
See Accompanying Notes to Financial Statements. 17
March 31, 2005 Columbia Large Company Index Fund
Shares Value ($)
--------- -----------
COMMON STOCKS - (CONTINUED)
INDUSTRIALS - (CONTINUED)
ELECTRICAL EQUIPMENT - 0.5%
American Power Conversion Corp. 14,300 373,373
Cooper Industries Ltd., Class A 7,400 529,248
Emerson Electric Co. 33,400 2,168,662
Rockwell Automation, Inc. 13,900 787,296
-----------
Electrical Equipment Total 3,858,579
INDUSTRIAL CONGLOMERATES - 4.8%
3M Co. 61,400 5,261,366
General Electric Co. 843,000 30,398,580
Textron, Inc. 10,800 805,896
Tyco International Ltd. 160,100 5,411,380
-----------
Industrial Conglomerates Total 41,877,222
MACHINERY - 1.4%
Caterpillar, Inc. 27,300 2,496,312
Cummins, Inc. 3,400 239,190
Danaher Corp. 21,900 1,169,679
Deere & Co. 19,600 1,315,748
Dover Corp. 16,200 612,198
Eaton Corp. 12,200 797,880
Illinois Tool Works, Inc. 21,900 1,960,707
Ingersoll-Rand Co., Ltd., Class A 13,800 1,099,170
ITT Industries, Inc. 7,300 658,752
Navistar International Corp. (a) 5,200 189,280
Paccar, Inc. 13,800 998,982
Pall Corp. 9,900 268,488
Parker Hannifin Corp. 9,600 584,832
-----------
Machinery Total 12,391,218
ROAD & RAIL - 0.6%
Burlington Northern Santa Fe Corp. 30,100 1,623,293
CSX Corp. 17,200 716,380
Norfolk Southern Corp. 31,800 1,178,190
Union Pacific Corp. 20,800 1,449,760
-----------
Road & Rail Total 4,967,623
TRADING COMPANIES & DISTRIBUTORS - 0.1%
W.W. Grainger, Inc. 6,600 410,982
-----------
Trading Companies & Distributors Total 410,982
-----------
INDUSTRIALS TOTAL 102,550,320
INFORMATION TECHNOLOGY- 15.0%
COMMUNICATIONS EQUIPMENT - 2.4%
ADC Telecommunications, Inc. (a) 64,500 128,355
Andrew Corp. (a) 12,800 149,888
Avaya, Inc. (a) 38,200 446,176
CIENA Corp. (a) 45,500 78,260
Cisco Systems, Inc. (a) 514,100 9,197,249
Comverse Technology, Inc. (a) 15,700 395,954
Corning, Inc. (a) 112,100 1,247,673
JDS Uniphase Corp. (a) 114,900 191,883
Lucent Technologies, Inc. (a) 352,400 969,100
Motorola, Inc. 195,000 2,919,150
QUALCOMM, Inc. 130,900 4,797,485
Scientific-Atlanta, Inc. 12,100 341,462
Tellabs, Inc. (a) 36,700 267,910
-----------
Communications Equipment Total 21,130,545
COMPUTERS & PERIPHERALS - 3.8%
Apple Computer, Inc. (a) 65,000 2,708,550
Dell, Inc. (a) 195,600 7,514,952
EMC Corp. (a) 191,300 2,356,816
Gateway, Inc. (a) 23,800 95,914
Hewlett-Packard Co. 230,300 5,052,782
International Business Machines Corp. 129,900 11,870,262
Lexmark International, Inc., Class A (a) 10,100 807,697
NCR Corp. (a) 14,800 499,352
Network Appliance, Inc. (a) 29,100 804,906
QLogic Corp. (a) 7,300 295,650
Seagate Technology, Inc., Escrow Shares (a)(c) 18,766 188
Sun Microsystems, Inc. (a) 268,700 1,085,548
-----------
Computers & Peripherals Total 33,092,617
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.3%
Agilent Technologies, Inc. (a) 34,400 763,680
Jabil Circuit, Inc. (a) 14,600 416,392
Molex, Inc. 13,300 350,588
Sanmina-SCI Corp. (a) 41,600 217,152
Solectron Corp. (a) 77,200 267,884
Symbol Technologies, Inc. 19,300 279,657
Tektronix, Inc. 7,100 174,163
-----------
Electronic equipment & Instruments Total 2,469,516
INTERNET SOFTWARE & SERVICES - 0.4%
Yahoo!, Inc. (a) 103,700 3,515,430
-----------
Internet Software & Services Total 3,515,430
IT Services - 1.1%
Affiliated Computer Services, Inc., Class A (a) 10,100 537,724
Automatic Data Processing, Inc. 46,400 2,085,680
Computer Sciences Corp. (a) 15,200 696,920
Convergys Corp. (a) 11,300 168,709
Electronic Data Systems Corp. 41,200 851,604
First Data Corp. 63,800 2,507,978
Fiserv, Inc. (a) 15,400 612,920
Paychex, Inc. 28,300 928,806
Sabre Holdings Corp., Class A 10,500 229,740
SunGard Data Systems, Inc. (a) 23,000 793,500
Unisys Corp. (a) 26,800 189,208
-----------
IT Services Total 9,602,789
OFFICE ELECTRONICS - 0.1%
Xerox Corp. (a) 76,100 1,152,915
-----------
Office Electronics Total 1,152,915
|
18 See Accompanying Notes to Financial Statements.
March 31, 2005 Columbia Large Company Index Fund
Shares Value ($)
--------- -----------
COMMON STOCKS - (CONTINUED)
INFORMATION TECHNOLOGY - (CONTINUED)
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT -3.1%
Advanced Micro Devices, Inc. (a) 31,300 504,556
Altera Corp. (a) 29,600 585,488
Analog Devices, Inc. 29,600 1,069,744
Applied Materials, Inc. 132,700 2,156,375
Applied Micro Circuits Corp. (a) 24,500 80,605
Broadcom Corp., Class A (a) 23,100 691,152
Freescale Semiconductor, Inc., Class B (a) 31,900 550,275
Intel Corp. 495,300 11,505,819
KLA-Tencor Corp. 15,600 717,756
Linear Technology Corp. 24,400 934,764
LSI Logic Corp. (a) 30,600 171,054
Maxim Integrated Products, Inc. 26,000 1,062,620
Micron Technology, Inc. (a) 48,800 504,592
National Semiconductor Corp. 28,300 583,263
Novellus Systems, Inc. (a) 11,100 296,703
NVIDIA Corp. (a) 13,200 313,632
PMC-Sierra, Inc. (a) 14,300 125,840
Teradyne, Inc. 15,400 224,840
Texas Instruments, Inc. 136,900 3,489,581
Xilinx, Inc. 27,700 809,671
-----------
Semiconductors & Semiconductor Equipment Total 26,378,330
SOFTWARE - 3.8%
Adobe Systems, Inc. 19,400 1,303,098
Autodesk, Inc. 18,300 544,608
BMC Software, Inc. (a) 17,600 264,000
Citrix Systems, Inc. (a) 13,500 321,570
Computer Associates International, Inc. 42,524 1,152,400
Compuware Corp. (a) 30,800 221,760
Electronic Arts, Inc. (a) 24,500 1,268,610
Intuit, Inc. (a) 14,700 643,419
Mercury Interactive Corp. (a) 6,700 317,446
Microsoft Corp. 804,800 19,452,016
Novell, Inc. (a) 30,100 179,396
Oracle Corp. (a) 357,400 4,460,352
Parametric Technology Corp. (a) 21,500 120,185
Siebel Systems, Inc. (a) 40,900 373,417
Symantec Corp. (a) 56,400 1,203,012
VERITAS Software Corp. (a) 33,600 780,192
-----------
Software Total 32,605,481
-----------
INFORMATION TECHNOLOGY TOTAL 129,947,623
MATERIALS - 3.2%
CHEMICALS - 1.8%
Air Products & Chemicals, Inc. 18,100 1,145,549
Dow Chemical Co. 75,800 3,778,630
E.I. du Pont de Nemours & Co. 79,300 4,063,332
Eastman Chemical Co. 6,200 365,800
Ecolab, Inc. 17,600 581,680
Engelhard Corp. 9,700 291,291
Great Lakes Chemical Corp. 4,100 131,692
Hercules, Inc. (a) 8,900 128,872
International Flavors & Fragrances, Inc. 7,000 276,500
Monsanto Co. 21,200 1,367,400
PPG Industries, Inc. 13,800 986,976
Praxair, Inc. 25,700 1,230,002
Rohm and Haas Co. 15,500 744,000
Sigma-Aldrich Corp. 5,500 336,875
-----------
Chemicals Total 15,428,599
CONSTRUCTION MATERIALS - 0.1%
Vulcan Materials Co. 8,200 466,006
-----------
Construction Materials Total 466,006
CONTAINERS & PACKAGING - 0.1%
Ball Corp. 8,700 360,876
Bemis Co., Inc. 8,500 264,520
Pactiv Corp. (a) 11,800 275,530
Sealed Air Corp. (a) 6,600 342,804
Temple-Inland, Inc. 4,600 333,730
-----------
Containers & Packaging Total 1,577,460
METALS & MINING - 0.7%
Alcoa, Inc. 69,300 2,106,027
Allegheny Technologies, Inc. 7,100 171,181
Freeport-McMoRan Copper & Gold, Inc., Class B 14,200 562,462
Newmont Mining Corp. 35,300 1,491,425
Nucor Corp. 12,700 731,012
Phelps Dodge Corp. 7,700 783,321
United States Steel Corp. 9,100 462,735
-----------
Metals & Mining Total 6,308,163
PAPER & FOREST PRODUCTS - 0.5%
Georgia-Pacific Corp. 20,700 734,643
International Paper Co. 39,000 1,434,810
Louisiana-Pacific Corp. 8,800 221,232
MeadWestvaco Corp. 16,100 512,302
Weyerhaeuser Co. 19,300 1,322,050
-----------
Paper & Forest Products Total 4,225,037
-----------
MATERIALS TOTAL 28,005,265
TELECOMMUNICATION SERVICES - 3.1%
DIVERSIFIED TELECOMMUNICATION SERVICES - 2.8%
ALLTEL Corp. 24,100 1,321,885
AT&T Corp. 63,700 1,194,375
BellSouth Corp. 145,700 3,830,453
CenturyTel, Inc. 10,700 351,388
Citizens Communications Co. 26,700 345,498
Qwest Communications
International, Inc. (a) 132,900 491,730
SBC Communications, Inc. 262,800 6,225,732
Sprint Corp. 117,600 2,675,400
Verizon Communications, Inc. 220,300 7,820,650
-----------
Diversified Telecommunication Services Total 24,257,111
|
See Accompanying Notes to Financial Statements. 19
March 31, 2005 Columbia Large Company Index Fund
Shares Value ($)
--------- -----------
COMMON STOCKS - (CONTINUED)
TELECOMMUNICATION SERVICES - (continued)
WIRELESS TELECOMMUNICATION SERVICES - 0.3%
Nextel Communications, Inc., Class A (a) 89,600 2,546,432
-----------
Wireless Telecommunication Services Total 2,546,432
-----------
TELECOMMUNICATION SERVICES TOTAL 26,803,543
UTILITIES - 3.2%
ELECTRIC UTILITIES - 2.1%
Allegheny Energy, Inc. (a) 10,900 225,194
Ameren Corp. 15,500 759,655
American Electric Power Co., Inc. 30,500 1,038,830
CenterPoint Energy, Inc. 23,000 276,690
Cinergy Corp. 15,200 615,904
Consolidated Edison, Inc. 19,300 814,074
DTE Energy Co. 13,800 627,624
Edison International 25,900 899,248
Entergy Corp. 17,000 1,201,220
Exelon Corp. 52,900 2,427,581
FirstEnergy Corp. 26,200 1,099,090
FPL Group, Inc. 31,000 1,244,650
PG&E Corp. 28,700 978,670
Pinnacle West Capital Corp. 7,300 310,323
PPL Corp. 15,000 809,850
Progress Energy, Inc. 19,600 822,220
Southern Co. 59,100 1,881,153
TECO Energy, Inc. 16,400 257,152
TXU Corp. 19,100 1,520,933
Xcel Energy, Inc. 31,900 548,042
-----------
Electric Utilities Total 18,358,103
GAS UTILITIES - 0.2%
KeySpan Corp. 12,800 498,816
Nicor, Inc. 3,500 129,815
NiSource, Inc. 21,600 492,264
Peoples Energy Corp. 3,000 125,760
-----------
Gas Utilities Total 1,246,655
MULTI-UTILITIES & UNREGULATED POWER - 0.9%
AES Corp. (a) 51,600 845,208
Calpine Corp. (a) 42,500 119,000
CMS Energy Corp. (a) 17,100 222,984
Constellation Energy Group, Inc. 14,100 728,970
Dominion Resources, Inc. 27,100 2,017,053
Duke Energy Corp. 74,600 2,089,546
Dynegy, Inc., Class A (a) 26,300 102,833
Public Service Enterprise Group, Inc. 19,000 1,033,410
Sempra Energy 18,900 752,976
-----------
Multi-Utilities & Unregulated Power Total 7,911,980
-----------
UTILITIES TOTAL 27,516,738
TOTAL COMMON STOCKS
(cost of $765,935,666) 860,678,755
INVESTMENT COMPANY - 0.2%
SPDR Trust Series 1 15,800 1,863,768
-----------
TOTAL INVESTMENT COMPANY
(cost of $1,918,120) 1,863,768
|
Par ($) Value ($)
--------- -----------
SHORT-TERM OBLIGATION - 0.1%
Repurchase agreement with State
Street Bank & Trust Co., dated
03/31/05, due 04/01/05 at 2.450%,
collateralized by a U.S. Treasury
Bond maturing 08/15/22, market
value of $1,060,950 (repurchase
proceeds $1,040,078) 1,040,000 1,040,000
-----------
TOTAL SHORT-TERM OBLIGATION
(cost of $1,040,000) 1,040,000
TOTAL INVESTMENTS - 99.8%
(cost of $768,893,786)(d) 863,582,523
OTHER ASSETS & LIABILITIES, NET - 0.2% 1,357,019
NET ASSETS - 100.0% 864,939,542
|
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing security.
(b)Investments in Affiliates as of March 31, 2005:
Security Name: Bank of America Corp., effective April 1, 2004, the parent company of the Investment Advisor.
Shares as of 04/01/04: 120,812 Shares purchased: 16,300 Shares sold: (32,400) Shares acquired from merger: 49,588 Shares acquired through 2 For 1 stock split: 168,100 Shares as of 03/31/05: 322,400 Net realized gain: $ 1,006,819 Dividend income earned: $ 574,560 Value at end of period: $14,217,840 |
(c) Represents fair value as determined in good faith under procedures approved by the Board of Trustees.
(d) Cost for federal income tax purposes is $777,638,430.
ACRONYM NAME ------- ----- REIT Real Estate Investment Trust |
At March 31, 2005, the Fund held investments in the following sectors:
% OF
SECTOR NET ASSETS
------ ----------
Financials 19.7%
Information Technology 15.0
Health Care 13.0
Industrials 11.9
Consumer Discretionary 11.4
Consumer Staples 10.3
Energy 8.7
Materials 3.2
Utilities 3.2
Telecommunication Services 3.1
Investment Company 0.2
Short-Term Obligation 0.1
Other Assets & Liabilities, Net 0.2
-----
100.0%
=====
|
20 See Accompanying Notes to Financial Statements.
INVESTMENT PORTFOLIO
March 31, 2005 Columbia Small Company Index Fund
Shares Value ($)
------ ----------
COMMON STOCKS - 98.6%
CONSUMER DISCRETIONARY - 17.5%
AUTO COMPONENTS - 0.2%
Midas, Inc. (a) 10,100 230,583
Standard Motor Products, Inc. 10,200 119,340
Superior Industries International, Inc. 16,600 438,406
----------
Auto Components Total 788,329
AUTOMOBILES - 0.4%
Coachmen Industries, Inc. 10,100 137,360
Fleetwood Enterprises, Inc. (a) 37,700 327,990
Monaco Coach Corp. 20,000 323,000
Winnebago Industries, Inc. 20,600 650,960
----------
Automobiles Total 1,439,310
DISTRIBUTORS - 0.1%
Advanced Marketing Services, Inc. (a) 11,600 69,600
Building Material Holding Corp. 9,300 413,664
----------
Distributors Total 483,264
HOTELS, RESTAURANTS & Leisure - 3.9%
Argosy Gaming Co. (a) 19,100 877,072
Aztar Corp. (a) 23,600 674,016
Bally Total Fitness Holding Corp. (a) 23,100 80,388
CEC Entertainment, Inc. (a) 24,700 904,020
IHOP Corp. 13,500 643,680
Jack in the Box, Inc. (a) 24,800 920,080
Landry's Restaurants, Inc. 16,400 474,288
Lone Star Steakhouse & Saloon 13,400 387,327
Marcus Corp. 18,700 383,350
Multimedia Games, Inc. (a) 19,000 147,440
O'Charleys, Inc. (a) 14,500 315,230
P.F. Chang's China Bistro, Inc. (a) 17,600 1,052,480
Panera Bread Co. (a) 20,600 1,164,518
Papa John's International, Inc. (a) 9,600 333,312
Pinnacle Entertainment, Inc. (a) 27,100 452,570
RARE Hospitality International, Inc. (a) 23,300 719,504
Ryan's Restaurant Group, Inc. (a) 28,500 414,105
Shuffle Master, Inc. (a) 24,100 697,936
Sonic Corp. (a) 40,900 1,366,060
Steak n Shake Co. (a) 18,800 363,780
Triarc Companies, Inc. 37,200 514,476
WMS Industries, Inc. 17,800 501,248
----------
Hotels, Restaurants & Leisure Total 13,386,880
HOUSEHOLD DURABLES - 3.1%
Applica, Inc. (a) 15,200 76,912
Bassett Furniture Industries, Inc. 7,500 147,750
Champion Enterprises, Inc. (a) 49,300 463,420
Department 56, Inc. (a) 9,200 160,632
Enesco Group, Inc. (a) 9,800 65,170
Ethan Allen Interiors, Inc. 24,100 771,200
Fedders Corp. 18,300 50,874
Interface, Inc., Class A (a) 33,200 226,424
La-Z-Boy, Inc. 35,400 493,122
Libbey, Inc. 9,400 197,400
M.D.C. Holdings, Inc. 25,600 1,783,040
Meritage Corp. (a) 15,700 925,044
National Presto Industries, Inc. 3,900 157,170
NVR, Inc. (a) 3,900 3,061,500
Russ Berrie & Co., Inc. 11,500 220,225
Skyline Corp. 5,200 200,148
Standard-Pacific Corp. 23,000 1,660,370
Vialta, Inc. (a) 1 --
----------
Household Durables Total 10,660,401
INTERNET & CATALOG RETAIL - 0.2%
Insight Enterprises, Inc. (a) 33,700 591,772
J Jill Group, Inc. (a) 12,900 177,504
----------
Internet & Catalog Retail Total 769,276
LEISURE EQUIPMENT & Products - 1.5%
Action Performance Companies, Inc. 12,600 166,698
Arctic Cat, Inc. 10,800 292,248
JAKKS Pacific, Inc. (a) 17,800 382,166
K2, Inc. (a) 31,700 435,875
Meade Instruments Corp. (a) 11,400 33,174
Nautilus Group, Inc. 21,200 503,712
Polaris Industries, Inc. 29,200 2,050,716
SCP Pool Corp. 35,500 1,131,030
Sturm Ruger & Co., Inc. 16,500 114,345
----------
Leisure Equipment & Products Total 5,109,964
MEDIA - 0.6%
4Kids Entertainment, Inc. (a) 9,100 201,201
ADVO, Inc. 21,200 793,940
Arbitron, Inc. 21,200 909,480
Thomas Nelson, Inc. 8,800 208,120
----------
Media Total 2,112,741
MULTILINE RETAIL - 0.3%
Fred's, Inc. 26,800 460,156
ShopKo Stores, Inc. 20,100 446,622
----------
Multiline Retail Total 906,778
SPECIALTY RETAIL - 5.2%
Aaron Rents, Inc. 30,100 602,000
Burlington Coat Factory Warehouse Corp. 21,500 617,050
Cato Corp., Class A 14,100 454,725
Children's Place Retail Stores, Inc. (a) 14,100 673,275
Christopher & Banks Corp. 24,300 427,680
Cost Plus, Inc. (a) 14,800 397,824
Dress Barn, Inc. (a) 17,600 320,672
Electronics Boutique Holdings Corp. (a) 12,000 515,640
Finish Line, Inc., Class A 31,200 722,280
GameStop Corp., Class B (a) 34,500 769,350
Genesco, Inc. (a) 15,100 429,142
Goody's Family Clothing, Inc. 17,800 160,734
Group 1 Automotive, Inc. (a) 15,700 412,910
Guitar Center, Inc. (a) 17,200 943,076
Gymboree Corp. (a) 21,000 263,340
Hancock Fabrics, Inc. 13,000 96,720
Haverty Furniture Companies, Inc. 15,400 234,850
|
See Accompanying Notes to Financial Statements. 21
March 31, 2005 Columbia Small Company Index Fund
SHARES VALUE ($)
------ ----------
COMMON STOCKS - (CONTINUED)
CONSUMER DISCRETIONARY - (CONTINUED)
SPECIALTY RETAIL - (CONTINUED)
Hibbett Sporting Goods, Inc. (a) 15,900 477,636
Hot Topic, Inc. (a) 30,900 675,165
Jo-Ann Stores, Inc. (a) 15,500 435,395
Linens 'N Things, Inc. (a) 30,700 762,281
Men's Wearhouse, Inc. (a) 23,300 983,493
Movie Gallery, Inc. 19,200 550,656
Pep Boys-Manny Moe & Jack, Inc. 38,800 682,104
Select Comfort Corp. (a) 25,100 513,044
Sonic Automotive, Inc. 24,300 551,853
Stage Stores, Inc. (a) 12,300 472,197
Stein Mart, Inc. (a) 23,100 519,750
TBC Corp. (a) 15,100 420,686
Too, Inc. (a) 23,600 582,212
Tractor Supply Co. (a) 24,000 1,047,600
Zale Corp. (a) 34,800 1,034,256
----------
Specialty Retail Total 17,749,596
TEXTILES, APPAREL & LUXURY GOODS - 2.0%
Ashworth, Inc. (a) 9,300 105,927
Brown Shoe Co., Inc. 12,400 424,948
Fossil, Inc. (a) 38,200 990,335
Haggar Corp. 4,300 86,817
K-Swiss, Inc. 20,700 683,721
Kellwood Co. 18,800 541,252
Oshkosh B'Gosh, Inc., Class A 8,000 244,000
Oxford Industries, Inc. 10,400 380,536
Phillips-Van Heusen Corp. 20,200 538,128
Quiksilver, Inc. (a) 39,000 1,132,170
Russell Corp. 22,200 401,376
Stride Rite Corp. 24,600 327,180
Wolverine World Wide, Inc. 39,000 835,770
----------
Textiles, Apparel & Luxury Goods Total 6,692,160
----------
CONSUMER DISCRETIONARY TOTAL 60,098,699
CONSUMER STAPLES - 3.5%
FOOD & STAPLES RETAILING - 1.0%
Casey's General Stores, Inc. 34,100 612,777
Great Atlantic & Pacific Tea Co., Inc. (a) 19,200 286,080
Longs Drug Stores Corp. 22,300 763,106
Nash Finch Co. 8,600 326,714
Performance Food Group Co. (a) 31,800 880,224
United Natural Foods, Inc. (a) 25,900 741,517
----------
Food & Staples Retailing Total 3,610,418
FOOD PRODUCTS - 1.6%
American Italian Pasta Co., Inc. 12,500 342,500
Corn Products International, Inc. 51,000 1,325,490
Delta & Pine Land Co. 26,200 707,400
Flowers Foods, Inc. 26,700 753,207
Hain Celestial Group, Inc. (a) 22,600 421,264
J&J Snack Foods Corp. 5,300 248,199
Lance, Inc. 19,300 310,151
Ralcorp Holdings, Inc. (a) 20,000 947,000
Sanderson Farms, Inc. 10,400 449,384
----------
Food Products Total 5,504,595
HOUSEHOLD PRODUCTS - 0.5%
Rayovac Corp. (a) 29,000 1,206,400
WD-40 Co. 11,300 367,137
----------
Household Products Total 1,573,537
PERSONAL PRODUCTS - 0.3%
Nature's Sunshine Products, Inc. 9,200 157,964
NBTY, Inc. (a) 41,500 1,041,235
----------
Personal Products Total 1,199,199
TOBACCO - 0.1%
DIMON, Inc. 30,800 192,500
----------
Tobacco Total 192,500
----------
CONSUMER STAPLES TOTAL 12,080,249
ENERGY - 6.6%
Energy Equipment & Services - 3.0%
Atwood Oceanics, Inc. (a) 9,200 612,168
CAL Dive International, Inc. (a) 26,100 1,182,330
CARBO Ceramics, Inc. 9,800 687,470
Dril-Quip, Inc. (a) 8,100 248,994
Hydril Co. (a) 14,500 846,945
Input/Output, Inc. (a) 46,400 299,280
Lone Star Technologies, Inc. (a) 19,900 784,657
Maverick Tube Corp. (a) 29,000 942,790
Oceaneering International, Inc. (a) 17,400 652,500
Offshore Logistics, Inc. (a) 15,800 526,456
SEACOR Holdings, Inc. (a) 12,400 790,500
Tetra Technologies, Inc. (a) 15,200 432,288
Unit Corp. (a) 28,300 1,278,311
Veritas DGC, Inc. (a) 22,700 680,092
W-H Energy Services, Inc. (a) 18,900 452,277
----------
Energy Equipment & Services Total 10,417,058
OIL & GAS - 3.6%
Cabot Oil & Gas Corp., Class A 22,000 1,213,300
Cimarex Energy Co. (a) 28,300 1,103,700
Frontier Oil Corp. 18,400 667,184
Patina Oil & Gas Corp. 48,400 1,936,000
Penn Virginia Corp. 12,600 578,340
Petroleum Development Corp. (a) 11,300 425,897
Remington Oil & Gas Corp. (a) 17,000 535,840
Southwestern Energy Co. (a) 24,800 1,407,648
Spinnaker Exploration Co. (a) 20,700 735,471
St. Mary Land & Exploration Co. 19,600 980,980
Stone Energy Corp. (a) 17,200 835,404
Swift Energy Co. (a) 19,000 540,360
Vintage Petroleum, Inc. 40,800 1,283,568
----------
Oil & Gas Total 12,243,692
----------
ENERGY TOTAL 22,660,750
|
22 See Accompanying Notes to Financial Statements.
March 31, 2005 Columbia Small Company Index Fund
SHARES VALUE ($)
------ ----------
COMMON STOCKS - (CONTINUED)
FINANCIALS - 14.1%
CAPITAL MARKETS - 0.4%
Investment Technology Group, Inc. (a) 28,500 498,750
Piper Jaffray Companies, Inc. (a) 14,100 515,919
SWS Group, Inc. 10,900 174,727
----------
Capital Markets Total 1,189,396
COMMERCIAL BANKS - 5.7%
Boston Private Financial Holdings, Inc. 18,700 444,125
Chittenden Corp. 31,500 821,205
Community Bank System, Inc. 20,800 476,528
East-West Bancorp, Inc. 35,700 1,318,044
First Bancorp. Puerto Rico 26,000 1,098,500
First Midwest Bancorp, Inc. 31,100 1,010,128
First Republic Bank 15,800 511,446
Flagstar BanCorp, Inc. 31,700 619,735
Gold Banc Corp., Inc. 27,300 383,019
Hudson United BanCorp 30,500 1,075,125
Irwin Financial Corp. 15,700 361,414
Nara Bancorp, Inc. 15,800 221,990
PrivateBancorp, Inc. 12,800 402,048
Provident Bankshares Corp. 22,500 741,600
Republic Bancorp, Inc. 47,800 647,212
Riggs National Corp. 17,800 339,802
South Financial Group, Inc. 48,300 1,475,082
Southwest Bancorporation of Texas, Inc. 47,600 873,460
Sterling Bancshares, Inc. 30,700 435,940
Susquehanna Bancshares, Inc. 31,600 770,408
TrustCo Bank Corp. 50,500 580,245
UCBH Holdings, Inc. 30,900 1,232,910
Umpqua Holdings Corp. 30,300 707,505
United Bankshares, Inc. 26,700 884,838
Whitney Holding Corp. 28,500 1,268,535
Wintrust Financial Corp. 14,600 687,514
----------
Commercial Banks Total 19,388,358
CONSUMER FINANCE - 0.2%
Cash America International, Inc. 19,900 436,407
Rewards Network, Inc. (a) 14,000 58,240
World Acceptance Corp. (a) 12,900 329,208
----------
Consumer Finance Total 823,855
DIVERSIFIED FINANCIAL SERVICES - 0.1%
Financial Federal Corp. 11,800 417,366
----------
Diversified Financial Services Total 417,366
INSURANCE - 2.4%
Delphi Financial Group, Inc., Class A 20,200 868,600
Hilb Rogal & Hobbs Co. 24,400 873,520
Infinity Property & Casualty Corp. 14,000 437,640
LandAmerica Financial Group, Inc. 12,300 615,369
Philadelphia Consolidated Holding Co. (a) 13,700 1,062,161
Presidential Life Corp. 17,300 281,644
ProAssurance Corp. (a) 19,800 782,100
RLI Corp. 15,700 650,765
SCPIE Holdings, Inc. (a) 6,700 73,901
Selective Insurance Group, Inc. 19,000 878,370
Stewart Information Services Corp. 12,300 461,496
UICI 27,300 662,025
Zenith National Insurance Corp. 13,300 689,738
----------
Insurance Total 8,337,329
REAL ESTATE - 3.2%
Capital Automotive, REIT 27,400 907,488
Colonial Properties Trust 18,600 714,426
Commercial Net Lease Realty, Inc., REIT 35,300 651,285
CRT Properties, Inc. 21,200 461,736
Entertainment Properties Trust, REIT 17,000 704,310
Essex Property Trust, Inc., REIT 15,600 1,077,960
Gables Residential Trust 19,900 662,670
Glenborough Realty Trust, Inc. 21,700 414,904
Kilroy Realty Corp., REIT 19,500 797,745
Lexington Corporate Properties Trust 32,900 721,826
New Century Financial Corp. 34,500 1,615,290
Parkway Properties, Inc., REIT 9,600 448,320
Shurgard Storage Centers, Inc., Class A, REIT 31,600 1,294,968
Sovran Self Storage, Inc., REIT 10,700 424,041
----------
Real Estate Total 10,896,969
THRIFTS & MORTGAGE FINANCE - 2.1%
Anchor BanCorp Wisconsin, Inc. 14,200 399,162
BankAtlantic Bancorp, Inc., Class A 35,800 622,920
Bankunited Financial Corp. (a) 19,100 513,026
Brookline Bancorp, Inc. 41,900 624,310
Commercial Federal Corp. 26,700 738,255
Dime Community Bancshares 22,800 346,560
Downey Financial Corp. 16,100 990,633
FirstFed Financial Corp. (a) 11,200 571,312
Fremont General Corp. 48,200 1,059,918
MAF Bancorp, Inc. 21,700 901,418
Sterling Financial Corp. (a) 15,500 553,350
----------
Thrifts & Mortgage Finance Total 7,320,864
----------
FINANCIALS TOTAL 48,374,137
HEALTH CARE - 12.7%
BIOTECHNOLOGY - 0.2%
ArQule, Inc. (a) 21,200 99,852
Enzo Biochem, Inc. (a) 20,500 295,610
Regeneron Pharmaceuticals, Inc. (a) 32,500 166,075
Savient Pharmaceuticals, Inc. (a) 41,100 113,025
----------
Biotechnology Total 674,562
HEALTH CARE EQUIPMENT & SUPPLIES - 6.0%
Advanced Medical Optics, Inc. (a) 25,300 916,113
American Medical Systems Holdings, Inc. (a) 41,200 707,816
Analogic Corp. 8,600 371,950
ArthroCare Corp. (a) 16,000 456,000
|
See Accompanying Notes to Financial Statements. 23
March 31, 2005 Columbia Small Company Index Fund
SHARES VALUE ($)
------ ----------
COMMON STOCKS - (CONTINUED)
HEALTH CARE - (CONTINUED)
HEALTH CARE EQUIPMENT & SUPPLIES - (CONTINUED)
Biolase Technology, Inc. 15,700 133,450
Biosite, Inc. (a) 11,400 593,142
CONMED Corp. (a) 20,300 611,436
Cooper Companies, Inc. 29,100 2,121,390
Cyberonics, Inc. (a) 15,300 675,801
Datascope Corp. 9,200 281,336
Diagnostic Products Corp. 17,800 859,740
DJ Orthopedics, Inc. (a) 13,500 338,175
Haemonetics Corp. (a) 17,600 742,016
Hologic, Inc. (a) 14,200 452,625
ICU Medical, Inc. (a) 9,200 326,600
IDEXX Laboratories, Inc. (a) 22,900 1,240,264
Immucor, Inc. (a) 30,600 923,814
Integra LifeSciences Holdings Corp. (a) 16,700 588,174
Intermagnetics General Corp. (a) 17,400 423,516
Invacare Corp. 21,400 955,082
Kensey Nash Corp. (a) 7,700 208,516
Mentor Corp. 23,900 767,190
Merit Medical Systems, Inc. (a) 18,000 215,820
Osteotech, Inc. (a) 11,700 44,460
PolyMedica Corp. 18,800 597,088
Possis Medical, Inc. (a) 11,800 98,766
ResMed, Inc. (a) 23,300 1,314,120
Respironics, Inc. (a) 24,100 1,404,307
SurModics, Inc. (a) 11,300 360,583
Sybron Dental Specialties, Inc. (a) 27,200 976,480
Theragenics Corp. (a) 20,400 70,176
Viasys Healthcare, Inc. (a) 20,000 381,600
Vital Signs, Inc. 6,300 251,307
Wilson Greatbatch Technologies, Inc. (a) 14,500 264,480
----------
Health Care Equipment & Supplies Total 20,673,333
HEALTH CARE PROVIDERS & SERVICES - 5.4%
Accredo Health, Inc. (a) 33,200 1,474,412
Amedisys, Inc. (a) 10,400 314,600
American Healthways, Inc. (a) 22,500 742,950
AMERIGROUP Corp. (a) 34,500 1,261,320
Amsurg Corp. (a) 19,900 503,470
Centene Corp. (a) 28,200 845,718
Cerner Corp. (a) 22,200 1,165,722
Chemed Corp. 8,500 650,080
Cross Country Healthcare, Inc. (a) 17,900 300,004
Cryolife, Inc. (a) 15,100 93,469
Curative Health Services, Inc. (a) 8,800 29,920
Dendrite International, Inc. (a) 28,400 398,736
Gentiva Health Services, Inc. (a) 16,300 263,734
Hooper Holmes, Inc. 44,200 168,844
LabOne, Inc. (a) 11,700 403,416
LCA-Vision, Inc. 12,200 406,260
NDC Health Corp. 24,400 389,912
OCA, Inc. (a) 31,500 133,875
Odyssey Healthcare, Inc. (a) 23,300 274,008
Owens & Minor, Inc. 26,900 730,335
PAREXEL International Corp. (a) 17,800 418,300
Pediatrix Medical Group, Inc. (a) 15,500 1,063,145
Pharmaceutical Product
Development, Inc. (a) 35,900 1,739,355
Priority Healthcare Corp., Class B (a) 24,500 529,935
Province Healthcare Co. (a) 33,800 814,242
RehabCare Group, Inc. (a) 11,100 318,681
SFBC International, Inc. (a) 11,400 401,736
Sierra Health Services, Inc. (a) 18,100 1,155,504
Sunrise Senior Living, Inc. (a) 12,700 617,220
United Surgical Partners
International, Inc. (a) 19,600 897,092
----------
Health Care Providers & Services Total 18,505,995
PHARMACEUTICALS - 1.1%
Alpharma, Inc., Class A 31,800 391,776
Bradley Pharmaceuticals, Inc. (a) 10,100 96,556
Connetics Corp. (a) 24,400 617,076
Medicis Pharmaceutical Corp., Class A 36,900 1,106,262
MGI Pharma, Inc. (a) 48,500 1,225,595
Noven Pharmaceuticals, Inc. (a) 15,900 269,664
----------
Pharmaceuticals Total 3,706,929
----------
HEALTH CARE TOTAL 43,560,819
INDUSTRIALS - 18.5%
AEROSPACE & Defense - 2.5%
AAR Corp. (a) 21,900 297,840
Applied Signal Technology, Inc. 7,700 176,330
Armor Holdings, Inc. (a) 23,200 860,488
Ceradyne, Inc. (a) 16,600 371,342
Cubic Corp. 14,300 270,842
Curtiss-Wright Corp. 14,600 832,200
DRS Technologies, Inc. (a) 18,600 790,500
EDO Corp. 12,000 360,600
Engineered Support Systems, Inc. 18,200 974,064
Esterline Technologies Corp. (a) 17,000 587,350
GenCorp, Inc. 34,800 696,000
Kaman Corp., Class A 15,400 191,730
Mercury Computer Systems, Inc. (a) 14,300 394,394
Moog, Inc., Class A (a) 16,600 750,320
Teledyne Technologies, Inc. (a) 22,500 704,250
Triumph Group, Inc. (a) 10,800 420,552
----------
Aerospace & Defense Total 8,678,802
AIR FREIGHT & Logistics - 0.4%
EGL, Inc. (a) 31,400 715,920
Forward Air Corp. 14,600 621,668
----------
Air Freight & Logistics Total 1,337,588
AIRLINES - 0.3%
Frontier Airlines, Inc. (a) 24,200 253,616
Mesa Air Group, Inc. (a) 20,600 144,200
Skywest, Inc. 39,200 728,728
----------
Airlines Total 1,126,544
|
24 See Accompanying Notes to Financial Statements.
March 31, 2005 Columbia Small Company Index Fund
SHARES VALUE ($)
------ ----------
COMMON STOCKS - (CONTINUED)
INDUSTRIALS - (CONTINUED)
BUILDING PRODUCTS - 1.0%
Apogee Enterprises, Inc. 18,600 265,608
ElkCorp 12,900 496,134
Griffon Corp. (a) 18,100 387,521
Lennox International, Inc. 37,200 815,424
Simpson Manufacturing Co., Inc. 28,700 886,830
Universal Forest Products, Inc. 11,600 450,660
----------
Building Products Total 3,302,177
COMMERCIAL SERVICES & SUPPLIES - 3.9%
ABM Industries, Inc. 30,100 578,823
Administaff, Inc. 15,900 232,140
Angelica Corp. 6,100 170,800
Bowne & Co., Inc. 24,300 365,472
Brady Corp., Class A 30,300 980,205
CDI Corp. 10,600 234,578
Central Parking Corp. 21,400 367,652
Coinstar, Inc. (a) 17,100 362,520
Consolidated Graphics, Inc. (a) 8,600 452,360
CPI Corp. 5,300 80,030
G&K Services, Inc., Class A 14,300 576,147
Harland (John H.) Co. 18,900 649,404
Heidrick & Struggles International,
Inc. (a) 13,000 478,010
Imagistics International, Inc. (a) 11,000 384,230
Insurance Auto Auctions, Inc. (a) 7,100 197,735
Labor Ready, Inc. (a) 28,900 538,985
Mobile Mini, Inc. (a) 9,900 400,059
NCO Group, Inc. (a) 21,800 426,190
On Assignment, Inc. (a) 17,200 87,720
Pre-Paid Legal Services, Inc. 9,300 314,712
PRG-Schultz International, Inc. (a) 29,000 145,290
School Specialty, Inc. (a) 15,500 606,980
Sourcecorp, Inc. (a) 10,700 215,498
Spherion Corp. (a) 41,400 310,086
Standard Register Co. 17,800 224,280
Tetra Tech, Inc. (a) 38,400 484,608
United Stationers, Inc. (a) 22,500 1,018,125
Vertrue, Inc. (a) 6,300 223,272
Viad Corp. 15,000 403,500
Volt Information Sciences, Inc. (a) 8,000 193,200
Waste Connections, Inc. (a) 32,400 1,125,900
Watson Wyatt & Co. Holdings 22,100 601,120
----------
Commercial Services & Supplies Total 13,429,631
CONSTRUCTION & ENGINEERING - 0.7%
EMCOR Group, Inc. (a) 10,400 486,928
Insituform Technologies, Inc.,
Class A (a) 18,200 264,082
Shaw Group, Inc. (a) 43,500 948,300
URS Corp. (a) 26,700 767,625
----------
Construction & Engineering Total 2,466,935
ELECTRICAL EQUIPMENT - 1.8%
Acuity Brands, Inc. 29,400 793,800
Artesyn Technologies, Inc. (a) 26,700 232,557
Baldor Electric Co. 20,600 531,686
C&D Technologies, Inc. 17,200 172,860
Dionex Corp. (a) 13,400 730,300
MagneTek, Inc. (a) 19,400 103,402
Regal-Beloit Corp. 19,700 567,163
Roper Industries, Inc. 28,600 1,873,300
Smith (A.O.) Corp. 16,700 482,129
Vicor Corp. 20,900 218,196
Woodward Governor Co. 7,200 516,240
----------
Electrical Equipment Total 6,221,633
INDUSTRIAL CONGLOMERATES - 0.2%
Standex International Corp. 7,900 215,670
Tredegar Corp. 22,500 379,350
----------
Industrial Conglomerates Total 595,020
MACHINERY - 5.1%
Albany International Corp., Class A 21,500 663,920
Astec Industries, Inc. (a) 12,500 275,625
Barnes Group, Inc. 14,400 391,248
Briggs & Stratton Corp. 35,000 1,274,350
Clarcor, Inc. 17,400 904,104
Cuno, Inc. (a) 11,700 601,263
Gardner Denver, Inc. (a) 13,500 533,385
IDEX Corp. 34,500 1,392,075
JLG Industries, Inc. 33,800 728,390
Kaydon Corp. 19,200 602,880
Lindsay Manufacturing Co. 8,000 152,640
Lydall, Inc. (a) 10,900 120,990
Manitowoc, Inc. 20,100 811,839
Mascotech, Inc. Escrowed
Shares (a) (b) 31,800 --
Milacron, Inc. (a) 29,400 89,670
Mueller Industries, Inc. 24,900 700,935
Oshkosh Truck Corp. 24,600 2,016,954
Reliance Steel & Aluminum Co. 20,200 808,202
Robbins & Myers, Inc. 8,800 193,688
Stewart & Stevenson Services, Inc. 19,600 448,644
Thomas Industries, Inc. 10,000 396,400
Timken Co. 62,000 1,695,080
Toro Co. 14,700 1,300,950
Valmont Industries, Inc. 13,800 308,016
Wabash National Corp. 21,000 512,400
Watts Water Technologies, Inc. 19,600 639,156
Wolverine Tube, Inc. (a) 10,100 90,395
----------
Machinery Total 17,653,199
MARINE - 0.2%
Kirby Corp. (a) 16,000 672,480
----------
Marine Total 672,480
ROAD & RAIL - 1.6%
Arkansas Best Corp. 16,300 615,814
Heartland Express, Inc. 41,300 790,895
Kansas City Southern (a) 43,200 832,032
Knight Transportation, Inc. 31,900 786,973
Landstar System, Inc. (a) 41,200 1,349,300
USF Corp. 19,000 916,940
----------
Road & Rail Total 5,291,954
|
See Accompanying Notes to Financial Statements. 25
March 31, 2005 Columbia Small Company Index Fund
Shares Value ($)
------- ----------
COMMON STOCKS - (CONTINUED)
INDUSTRIALS - (CONTINUED)
TRADING COMPANIES & DISTRIBUTORS - 0.8%
Applied Industrial Technologies, Inc. 18,400 500,480
Hughes Supply, Inc. 44,900 1,335,775
Lawson Products 4,800 224,640
Watsco, Inc. 17,000 715,700
----------
Trading Companies & Distributors Total 2,776,595
----------
INDUSTRIALS TOTAL 63,552,558
INFORMATION TECHNOLOGY - 14.7%
COMMUNICATIONS EQUIPMENT - 1.1%
Audiovox Corp., Class A (a) 14,200 180,908
Bel Fuse, Inc., Class B 7,600 230,280
Belden CDT, Inc. 31,800 706,278
Black Box Corp. 11,800 441,438
Brooktrout, Inc. (a) 8,600 96,750
C-COR.net Corp. (a) 32,400 196,992
Ceva, Inc. (a) 1 8
Digi International, Inc. (a) 15,200 208,544
Harmonic, Inc. (a) 49,100 469,396
Inter-Tel, Inc. 15,800 387,100
Network Equipment Technologies,
Inc. (a) 17,000 95,710
PC-Tel, Inc. (a) 13,400 98,624
Symmetricom, Inc. (a) 31,300 347,117
Tollgrade Communications, Inc. (a) 9,300 64,170
ViaSat, Inc. (a) 16,400 306,516
----------
Communications Equipment Total 3,829,831
COMPUTERS & PERIPHERALS - 0.9%
Adaptec, Inc. (a) 75,800 363,082
Avid Technology, Inc. (a) 23,100 1,250,172
Hutchinson Technology, Inc. (a) 17,100 594,738
Pinnacle Systems, Inc. (a) 47,400 264,966
SBS Technologies, Inc. (a) 10,600 118,190
Synaptics, Inc. (a) 17,800 412,960
----------
Computers & Peripherals Total 3,004,108
ELECTRONIC EQUIPMENT & INSTRUMENTS - 4.0%
Aeroflex, Inc. (a) 50,700 473,031
Agilysys, Inc. 19,500 383,370
Anixter International, Inc. (a) 23,400 845,910
BEI Technologies, Inc. 9,000 215,730
Bell Microproducts, Inc. (a) 19,300 144,364
Benchmark Electronics, Inc. (a) 28,100 894,423
Checkpoint Systems, Inc. (a) 27,100 457,448
Cognex Corp. 29,900 743,912
Coherent, Inc. (a) 20,800 702,208
CTS Corp. 25,000 325,000
Daktronics, Inc. (a) 11,800 255,470
Electro Scientific Industries, Inc. (a) 19,300 374,227
FLIR Systems, Inc. (a) 47,100 1,427,130
Gerber Scientific, Inc. (a) 14,400 104,832
Global Imaging Systems, Inc. (a) 15,900 563,814
Itron, Inc. (a) 14,600 432,744
Keithley Instruments, Inc. 10,300 166,139
Littelfuse, Inc. (a) 15,100 432,615
Methode Electronics, Inc., Class A 24,700 299,117
MTS Systems Corp. 13,600 394,808
Park Electrochemical Corp. 12,900 261,354
Paxar Corp. (a) 25,600 546,304
Photon Dynamics, Inc. (a) 11,500 219,190
Planar Systems, Inc. (a) 10,000 90,200
RadiSys Corp. (a) 13,500 191,160
Rogers Corp. (a) 11,400 456,000
ScanSource, Inc. (a) 8,600 445,738
Technitrol, Inc. 27,500 410,300
Trimble Navigation Ltd. (a) 35,200 1,190,112
Veeco Instruments, Inc. (a) 19,000 285,950
X-Rite, Inc. 13,200 198,528
----------
Electronic Equipment & Instruments Total 13,931,128
INTERNET SOFTWARE & SERVICES - 0.8%
Digital Insight Corp. (a) 24,200 396,880
FindWhat.com (a) 18,900 195,993
j2 Global Communications, Inc. (a) 14,700 504,357
WebEx Communications, Inc. (a) 26,100 563,499
Websense, Inc. (a) 16,100 866,180
Zix Corp. (a) 20,100 75,174
----------
Internet Software & Services Total 2,602,083
IT SERVICES - 1.6%
CACI International, Inc., Class A (a) 20,300 1,121,169
Carreker Corp. (a) 15,700 88,077
CIBER, Inc. (a) 39,900 290,073
eFunds Corp. (a) 33,200 741,024
Global Payments, Inc. 24,200 1,560,658
Intrado, Inc. (a) 11,800 145,140
Mantech International Corp. (a) 16,900 389,883
MAXIMUS, Inc. 13,600 455,464
Pegasus Solutions, Inc. (a) 13,100 154,842
Startek, Inc. 8,700 146,160
Talx Corp. 14,100 256,056
----------
IT Services Total 5,348,546
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 2.7%
Actel Corp. (a) 17,100 262,998
Advanced Energy Industries, Inc. (a) 18,400 177,928
Alliance Semiconductor Corp. (a) 20,500 51,045
ATMI, Inc. (a) 21,300 533,352
Axcelis Technologies, Inc. (a) 67,900 495,670
Brooks Automation, Inc. (a) 30,600 464,508
Cohu, Inc. 14,700 234,465
Cymer, Inc. (a) 25,100 671,927
DSP Group, Inc. (a) 19,000 489,440
DuPont Photomasks, Inc. (a) 11,700 312,039
ESS Technology, Inc. (a) 23,900 125,953
Exar Corp. (a) 28,400 380,560
FEI Co. (a) 19,800 458,370
Helix Technology Corp. 17,700 273,819
Kopin Corp. (a) 47,500 145,825
Kulicke & Soffa Industries, Inc. (a) 34,900 219,521
Microsemi Corp. (a) 41,500 676,035
Pericom Semiconductor Corp. (a) 18,000 154,260
|
26 See Accompanying Notes to Financial Statements.
March 31, 2005 Columbia Small Company Index Fund
Shares Value ($)
------- ----------
COMMON STOCKS - (CONTINUED)
INFORMATION TECHNOLOGY - (CONTINUED)
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - (CONTINUED)
Photronics, Inc. (a) 22,200 401,820
Power Integrations, Inc. (a) 21,100 440,779
Rudolph Technologies, Inc. (a) 10,300 155,118
Skyworks Solutions, Inc. (a) 106,600 676,910
Standard Microsystems Corp. (a) 12,700 220,472
Supertex, Inc. (a) 8,900 162,959
Ultratech, Inc. (a) 16,200 236,520
Varian Semiconductor Equipment Associates, Inc. (a) 24,800 942,648
----------
Semiconductors & Semiconductor Equipment Total 9,364,941
SOFTWARE - 3.6%
Altiris, Inc. (a) 15,700 374,445
ANSYS, Inc. (a) 21,400 732,094
Captaris, Inc. (a) 20,600 83,430
Catapult Communications Corp. (a) 7,700 164,395
Concord Communications, Inc. (a) 12,400 125,488
EPIQ Systems, Inc. (a) 10,700 138,886
FactSet Research Systems, Inc. 26,300 868,163
FileNET Corp. (a) 28,100 640,118
Hyperion Solutions Corp. (a) 27,200 1,199,792
Internet Security Systems, Inc. (a) 29,300 536,190
JDA Software Group, Inc. (a) 19,800 277,992
Kronos, Inc. (a) 21,600 1,103,976
Manhattan Associates, Inc. (a) 20,400 415,548
MapInfo Corp. (a) 13,900 167,356
MICROS Systems, Inc. (a) 25,700 943,447
MRO Software, Inc. (a) 15,600 218,868
Napster, Inc. (a) 29,000 188,790
NYFIX, Inc. (a) 20,900 112,442
Phoenix Technologies Ltd. (a) 16,800 159,936
Progress Software Corp. (a) 24,800 650,256
Radiant Systems, Inc. (a) 16,200 158,760
Serena Software, Inc. (a) 23,800 565,488
Sonic Solutions (a) 15,300 230,265
SPSS, Inc. (a) 11,200 194,768
Take-Two Interactive Software,
Inc. (a) 31,300 1,223,830
THQ, Inc. (a) 26,700 751,338
Verity, Inc. (a) 25,700 242,865
----------
Software Total 12,468,926
----------
INFORMATION TECHNOLOGY TOTAL 50,549,563
MATERIALS - 6.3%
CHEMICALS - 1.8%
Arch Chemicals, Inc. 15,900 452,673
Cambrex Corp. 17,700 377,010
Georgia Gulf Corp. 23,100 1,062,138
H.B. Fuller Co. 19,500 565,500
Headwaters, Inc. (a) 27,200 892,704
MacDermid, Inc. 18,700 607,750
Material Sciences Corp. (a) 9,100 122,395
OM Group, Inc. (a) 19,300 587,106
Omnova Solutions, Inc. (a) 27,600 148,212
Penford Corp. 6,000 97,500
PolyOne Corp. (a) 62,300 553,224
Quaker Chemical Corp. 6,600 135,564
Schulman (A.), Inc. 20,800 362,336
Wellman, Inc. 21,700 313,782
----------
Chemicals Total 6,277,894
CONSTRUCTION MATERIALS - 0.7%
Florida Rock Industries, Inc. 25,400 1,494,028
Texas Industries, Inc. 15,100 811,625
----------
Construction Materials Total 2,305,653
CONTAINERS & PACKAGING - 0.7%
AptarGroup, Inc. 24,200 1,257,916
Caraustar Industries, Inc. (a) 19,400 250,260
Chesapeake Corp. 13,400 281,668
Myers Industries, Inc. 22,200 313,242
Rock-Tenn Co., Class A 22,700 301,910
----------
Containers & Packaging Total 2,404,996
METALS & MINING - 2.6%
Aleris International, Inc. (a) 18,400 459,080
AMCOL International Corp. 17,500 328,300
Brush Engineered Materials, Inc. (a) 13,000 247,390
Carpenter Technology Corp. 16,500 980,265
Castle (A.M.) & Co. (a) 8,800 110,880
Century Aluminum Co. (a) 18,700 565,862
Cleveland-Cliffs, Inc. 14,700 1,071,189
Commercial Metals Co. 40,100 1,358,989
Massey Energy Co. 51,700 2,070,068
Quanex Corp. 16,900 901,108
RTI International Metals, Inc. (a) 14,700 343,980
Ryerson Tull, Inc. 17,000 215,390
Steel Technologies, Inc. 8,200 196,718
----------
Metals & Mining Total 8,849,219
PAPER & FOREST PRODUCTS - 0.5%
Buckeye Technologies, Inc. (a) 22,600 244,080
Deltic Timber Corp. 8,300 324,530
Neenah Paper, Inc. 10,200 342,924
Pope & Talbot, Inc. 11,000 193,380
Schweitzer-Mauduit International,
Inc 10,300 345,565
Wausau-Mosinee Paper Corp. 35,100 496,314
Paper & Forest Products Total 1,946,793
----------
MATERIALS TOTAL 21,784,555
----------
TELECOMMUNICATION SERVICES - 0.3%
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.3%
Commonwealth Telephone
Enterprises, Inc. (a) 14,400 678,816
General Communication, Inc.,
Class A (a) 35,900 327,767
----------
Diversified Telecommunication Services Total 1,006,583
|
See Accompanying Notes to Financial Statements. 27
March 31, 2005 Columbia Small Company Index Fund
SHARES VALUE ($)
------- -----------
COMMON STOCKS - (CONTINUED)
TELECOMMUNICATION SERVICES - (CONTINUED)
WIRELESS TELECOMMUNICATION SERVICES - 0.0%
Boston Communications Group,
Inc. (a) 11,900 84,728
-----------
Wireless Telecommunication Services Total 84,728
-----------
TELECOMMUNICATION SERVICES TOTAL 1,091,311
UTILITIES - 4.4%
ELECTRIC UTILITIES - 1.2%
ALLETE, Inc. 20,200 845,370
Central Vermont Public Service Corp. 8,300 186,584
CH Energy Group, Inc. 10,700 488,990
Cleco Corp. 33,200 707,160
El Paso Electric Co. (a) 32,200 611,800
Green Mountain Power Corp. 3,500 102,550
UIL Holdings Corp. 9,300 471,045
Unisource Energy Corp. 23,300 721,601
-----------
Electric Utilities Total 4,135,100
GAS UTILITIES - 2.5%
Atmos Energy Corp. 53,900 1,455,300
Cascade Natural Gas Corp. 7,700 153,692
Laclede Group, Inc. 14,300 417,560
New Jersey Resources Corp. 18,100 787,893
Northwest Natural Gas Co. 18,800 679,996
Piedmont Natural Gas Co. 52,000 1,198,080
Southern Union Co. (a) 65,900 1,654,749
Southwest Gas Corp. 24,500 591,920
UGI Corp. 35,000 1,589,700
-----------
Gas Utilities Total 8,528,890
MULTI-UTILITIES & UNREGULATED POWER - 0.6%
Avista Corp. 32,900 575,750
Energen Corp. 24,900 1,658,340
-----------
Multi-Utilities & Unregulated Power Total 2,234,090
WATER UTILITIES - 0.1%
American States Water Co. 11,300 285,890
-----------
Water Utilities Total 285,890
-----------
UTILITIES TOTAL 15,183,970
TOTAL COMMON STOCKS
(cost of $256,577,641) 338,936,611
INVESTMENT COMPANY - 1.2%
iShares S&P SmallCap 600 Index Fund 26,100 4,145,985
-----------
TOTAL INVESTMENT COMPANY
(cost of $4,214,087) 4,145,985
|
PAR ($) VALUE ($)
------- -----------
SHORT-TERM OBLIGATION - 0.1%
Repurchase agreement with State
Street Bank & Trust Co., dated
03/31/05, due 04/01/05 at 2.450%,
collateralized by a U.S. Treasury
Bond maturing 05/15/17, market
value of $238,850 (repurchase
proceeds $230,016) 230,000 230,000
-----------
TOTAL SHORT-TERM OBLIGATION
(cost of $230,000) 230,000
TOTAL INVESTMENTS - 99.9%
(COST OF $261,021,728) (C) 343,312,596
OTHER ASSETS & LIABILITIES, NET - 0.1% 274,883
NET ASSETS - 100.0% 343,587,479
|
NOTES TO INVESTMENT PORTFOLIO:
(a) Non-income producing security.
(b) Represents fair value as determined in good faith under procedures approved by the Board of Trustees.
(c) Cost for federal income tax purposes is $264,664,924.
ACRONYM NAME ------- ---- REIT Real Estate Investment Trust |
At March 31, 2005, the Fund held investments in the following sectors:
% OF
SECTOR NET ASSETS
------ ----------
Industrials 18.5%
Consumer Discretionary 17.5
Information Technology 14.7
Financials 14.1
Health Care 12.7
Energy 6.6
Materials 6.3
Utilities 4.4
Consumer Staples 3.5
Investment Company 1.2
Telecommunication Services 0.3
Short-Term Obligation 0.1
Other Assets & Liabilities, Net 0.1
-----
100.0%
=====
|
28 See Accompanying Notes to Financial Statements.
INVESTMENT PORTFOLIO
March 31, 2005 Columbia U.S. Treasury Index Fund
PAR ($) VALUE ($)
---------- -----------
U.S. GOVERNMENT OBLIGATIONS - 98.1%
U.S. TREASURY BONDS - 30.2%
12.000% 08/15/13 4,175,000 5,210,596
7.500% 11/15/16 7,700,000 9,653,875
8.750% 05/15/17 1,330,000 1,827,556
8.875% 08/15/17 900,000 1,251,317
8.500% 02/15/20 721,000 1,003,232
7.875% 02/15/21 7,100,000 9,481,276
8.125% 08/15/21 1,150,000 1,574,781
7.250% 08/15/22 1,950,000 2,492,724
6.125% 11/15/27 8,450,000 9,876,267
5.250% 02/15/29 4,950,000 5,212,389
-----------
U.S. Treasury Bonds Total 47,584,013
U.S. TREASURY NOTES - 67.9%
2.250% 04/30/06 8,800,000 8,682,784
2.500% 05/31/06 5,500,000 5,434,258
2.750% 06/30/06 3,150,000 3,118,254
2.375% 08/15/06 5,900,000 5,801,128
6.500% 10/15/06 4,350,000 4,531,647
3.500% 11/15/06 2,650,000 2,641,719
2.250% 02/15/07 7,750,000 7,538,689
4.375% 05/15/07 6,850,000 6,926,528
3.000% 11/15/07 7,350,000 7,190,365
5.625% 05/15/08 4,515,000 4,732,108
3.125% 10/15/08 15,900,000 15,423,620
2.625% 03/15/09 1,000,000 947,500
5.500% 05/15/09 8,400,000 8,848,879
5.750% 08/15/10 3,100,000 3,326,688
5.000% 08/15/11 2,250,000 2,337,539
4.875% 02/15/12 2,000,000 2,065,234
4.000% 11/15/12 2,450,000 2,391,813
3.875% 02/15/13 10,200,000 9,845,785
4.250% 08/15/14 5,400,000 5,295,375
-----------
U.S. Treasury Notes Total 107,079,913
-----------
TOTAL U.S. GOVERNMENT
OBLIGATIONS
(cost of $153,296,285) 154,663,926
SHORT-TERM OBLIGATION - 1.2%
Repurchase agreement with State
Street Bank & Trust Co., dated
03/31/05, due 04/01/05 at 2.450%,
collateralized by a U.S. Treasury
Bond maturing 05/15/17, market
value of $1,832,550 (repurchase
proceeds $1,794,122) 1,794,000 1,794,000
-----------
TOTAL SHORT-TERM OBLIGATION
(COST OF $1,794,000) 1,794,000
TOTAL INVESTMENTS - 99.3%
(COST OF $155,090,285) (A) 156,457,926
OTHER ASSETS & LIABILITIES, NET - 0.7% 1,145,444
NET ASSETS - 100.0% 157,603,370
|
NOTES TO INVESTMENT PORTFOLIO:
(a) Cost for federal income tax purposes is $156,915,879.
See Accompanying Notes to Financial Statements. 29
STATEMENTS OF ASSETS AND LIABILITIES
March 31, 2005 Columbia Index Funds
COLUMBIA COLUMBIA
LARGE SMALL COLUMBIA
COMPANY COMPANY U.S. TREASURY
INDEX INDEX INDEX
FUND ($) FUND ($) FUND ($)
----------- ----------- -------------
ASSETS:
Unaffiliated investments, at cost 758,759,350 261,021,728 155,090,285
Affiliated investments, at cost 10,134,436 -- --
----------- ----------- -----------
Unaffiliated investments, at value 849,364,683 343,312,596 156,457,926
Affiliated investments, at value 14,217,840 -- --
----------- ----------- -----------
Total investments, at value 863,582,523 343,312,596 156,457,926
Cash 411,716 48 722
Receivable for:
Investments sold -- -- 7,455,437
Fund shares sold 1,557,932 138,150 12,673
Interest 71 16 1,886,496
Dividends 1,155,796 275,083 --
Deferred Trustees' compensation plan 5,526 4,413 3,851
Other assets 97 -- --
----------- ----------- -----------
Total assets 866,713,661 343,730,306 165,817,105
----------- ----------- -----------
LIABILITIES:
Payable for:
Investments purchased 432,358 -- 7,558,854
Fund shares repurchased 1,031,120 67,857 435,548
Distributions -- -- 151,339
Investment advisory fee 74,460 29,505 13,399
Sub-account services fee 134,083 4,032 5,045
Administration fee 74,673 28,940 40,161
Trustees' fee 54 154 1,377
Distribution and service fees 19,690 7,111 3,199
Deferred Trustees' fee 5,526 4,413 3,851
Other liabilities 2,155 815 962
----------- ----------- -----------
Total liabilities 1,774,119 142,827 8,213,735
NET ASSETS 864,939,542 343,587,479 157,603,370
----------- ----------- -----------
COMPOSITION OF NET ASSETS:
Paid-in capital 757,168,489 259,845,737 158,658,869
Undistributed (overdistributed) net investment income 3,365,980 609,077 (1,616,462)
Accumulated net realized gain (loss) on investments 9,716,336 841,797 (806,678)
Unrealized appreciation of investments 94,688,737 82,290,868 1,367,641
----------- ----------- -----------
NET ASSETS 864,939,542 343,587,479 157,603,370
|
30 See Accompanying Notes to Financial Statements.
STATEMENTS OF ASSETS AND LIABILITIES
March 31, 2005 Columbia Index Funds
COLUMBIA COLUMBIA
LARGE SMALL COLUMBIA
COMPANY COMPANY U.S. TREASURY
INDEX INDEX INDEX
FUND ($) FUND ($) FUND ($)
----------- ----------- -------------
NET ASSETS:
Class A 24,397,911 8,351,255 3,313,665
Class B 13,026,614 3,387,424 1,451,235
Class C 3,133,140 3,278,374 869,124
Class Z 824,381,877 328,570,426 151,969,346
----------- ----------- -----------
SHARES OF BENEFICIAL INTEREST OUTSTANDING:
Class A 896,186 400,361 309,223
Class B 480,444 164,481 135,434
Class C 115,283 159,018 81,104
Class Z 30,241,596 15,728,547 14,181,398
----------- ----------- -----------
CLASS A:
Net asset value per share (a) 27.22 20.86 10.72
Maximum sales charge 5.75% 5.75% 4.75%
Maximum offering price per share (b) 28.88 22.13 11.25
----------- ----------- -----------
CLASS B:
Net asset value and offering price per share (a) 27.11 20.59 10.72
----------- ----------- -----------
CLASS C:
Net asset value and offering price per share (a) 27.18 20.62 10.72
----------- ----------- -----------
CLASS Z:
Net asset value, offering and redemption
price per share 27.26 20.89 10.72
|
(a) Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge.
(b) On sales of $50,000 or more the offering price is reduced.
See Accompanying Notes to Financial Statements. 31
STATEMENTS OF OPERATIONS
For the Year Ended March 31, 2005 Columbia Index Funds
COLUMBIA COLUMBIA
LARGE SMALL COLUMBIA
COMPANY COMPANY U.S. TREASURY
INDEX INDEX INDEX
FUND ($) FUND ($) FUND ($)
----------- ----------- -------------
INVESTMENT INCOME:
Dividends 17,497,462 3,489,716 --
Dividends from affiliates 574,560 -- --
Interest 26,680 10,865 6,448,696
Foreign taxes withheld -- (1,329) --
----------- ----------- ----------
Total income 18,098,702 3,499,252 6,448,696
----------- ----------- ----------
EXPENSES:
Investment advisory fee 872,376 317,647 165,829
Sub-account services fee - Class Z 633,262 15,927 33,281
Administration fee 1,887,476 669,754 497,489
Service fee:
Class A 45,552 12,056 6,908
Class B 28,195 5,794 4,116
Class C 6,405 5,025 2,262
Distribution fee:
Class B 84,583 17,401 12,349
Class C 19,214 15,084 6,785
Trustees' fee 23,461 12,064 10,164
Non-recurring cost assumed by Investment Advisor
(See Note 8) 45,326 15,870 8,782
Other expenses 11,559 3,383 2,233
----------- ----------- ----------
Total expenses 3,657,409 1,090,005 750,198
Fees reimbursed by Administrator - Class Z shares (84,032) -- (16,051)
Fees waived by Distributor - Class C shares -- -- (1,357)
Non-recurring cost assumed by Investment Advisor
(See Note 8) (45,326) (15,870) (8,782)
----------- ----------- ----------
Net expenses 3,528,051 1,074,135 724,008
----------- ----------- ----------
NET INVESTMENT INCOME 14,570,651 2,425,117 5,724,688
----------- ----------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on unaffiliated investments 44,375,401 12,203,027 1,476,938
Net realized gain on affiliated investments 1,006,819 -- --
Net realized loss on the disposal of investments in
violation of restrictions (See Note 6) -- -- --
Net change in unrealized appreciation (depreciation)
on investments (7,003,660) 23,765,982 (8,114,835)
----------- ----------- ----------
NET GAIN (LOSS) 38,378,560 35,969,009 (6,637,897)
----------- ----------- ----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS 52,949,211 38,394,126 (913,209)
----------- ----------- ----------
|
32 See Accompanying Notes to Financial Statements.
STATEMENTS OF CHANGES IN NET ASSETS
Columbia Index Funds
COLUMBIA LARGE COLUMBIA SMALL COLUMBIA U.S.
COMPANY INDEX FUND COMPANY INDEX FUND TREASURY INDEX FUND
-------------------------- ------------------------ ------------------------
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2005 ($) 2004 ($) 2005 ($) 2004 ($) 2005 ($) 2004 ($)
------------ ------------ ----------- ----------- ----------- -----------
Increase (decrease) in net assets:
Net investment income 14,570,651 9,951,456 2,425,117 1,234,280 5,724,688 6,344,371
Net realized gain (loss) on investments 45,382,220 7,895,268 12,203,027 12,355,246 1,476,938 1,750,382
Net change in unrealized appreciation
(depreciation) of investments (7,003,660) 196,922,269 23,765,982 96,571,094 (8,114,835) (1,115,885)
Net realized loss on the disposal of
investments in violation of restrictions -- -- -- -- -- --
------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease) in net assets 52,949,211 214,768,993 38,394,126 110,160,620 (913,209) 6,978,868
------------ ------------ ----------- ----------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income:
Class A (296,387) (65,332) (19,591) (1,138) (102,626) (71,866)
Class B (74,770) (15,166) (8) -- (48,805) (42,459)
Class C (17,182) (3,150) -- -- (28,589) (39,102)
Class Z (12,685,704) (9,437,778) (1,874,718) (909,849) (6,355,186) (8,035,668)
From net realized gain on investments:
Class A (820,050) (27,596) (279,541) -- -- --
Class B (449,387) (25,207) (141,759) -- -- --
Class C (103,344) (5,235) (125,600) -- -- --
Class Z (31,154,092) (3,409,977) (16,236,933) -- -- --
------------ ------------ ----------- ----------- ----------- -----------
Total distributions (45,600,916) (12,989,441) (18,678,150) (910,987) (6,535,206) (8,189,095)
------------ ------------ ----------- ----------- ----------- -----------
SHARE TRANSACTIONS:
Class A:
Subscriptions 15,039,874 17,823,067 7,403,429 3,589,744 1,434,528 2,969,265
Distributions reinvested 1,089,996 90,168 278,729 607 92,728 65,437
Redemptions (3,881,875) (6,792,129) (1,915,936) (1,422,648) (714,542) (911,170)
------------ ------------ ----------- ----------- ----------- -----------
Net increase 12,247,995 11,121,106 5,766,222 2,167,703 812,714 2,123,532
------------ ------------ ----------- ----------- ----------- -----------
Class B:
Subscriptions 5,581,073 8,537,666 2,150,143 1,150,005 432,007 1,218,879
Distributions reinvested 445,538 35,953 133,510 -- 38,418 35,446
Redemptions (2,179,516) (734,135) (381,053) (41,528) (526,646) (342,153)
------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease) 3,847,095 7,839,484 1,902,600 1,108,477 (56,221) 912,172
------------ ------------ ----------- ----------- ----------- -----------
Class C:
Subscriptions 1,378,213 1,929,810 2,221,552 1,292,441 151,345 1,812,421
Distributions reinvested 116,805 7,979 114,399 -- 26,683 35,183
Redemptions (337,005) (300,993) (387,563) (176,592) (1,088,477) (402,597)
------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease) 1,158,013 1,636,796 1,948,388 1,115,849 (910,449) 1,445,007
------------ ------------ ----------- ----------- ----------- -----------
Class Z:
Subscriptions 159,863,680 241,564,709 24,213,368 18,204,562 20,048,883 22,283,569
Distributions reinvested 36,976,770 10,522,224 16,672,144 849,907 4,257,354 5,420,382
Redemptions (241,546,554) (199,497,682) (30,667,070) (30,942,461) (42,856,819) (31,829,600)
------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease) (44,706,104) 52,589,251 10,218,442 (11,887,992) (18,550,582) (4,125,649)
------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease) in net assets from
share transactions (27,453,001) 73,186,637 19,835,652 (7,495,963) (18,704,538) 355,062
------------ ------------ ----------- ----------- ----------- -----------
Net increase (decrease) in net assets (20,104,706) 274,966,189 39,551,628 101,753,670 (26,152,953) (855,165)
------------ ------------ ----------- ----------- ----------- -----------
NET ASSETS
Beginning of period 885,044,248 610,078,059 304,035,851 202,282,181 183,756,323 184,611,488
End of period 864,939,542 885,044,248 343,587,479 304,035,851 157,603,370 183,756,323
------------ ------------ ----------- ----------- ----------- -----------
Undistributed (overdistributed) net
investment income at end of period 3,365,980 2,446,724 609,077 332,405 (1,616,462) (2,369,270)
------------ ------------ ----------- ----------- ----------- -----------
|
See Accompanying Notes to Financial Statements. 33
STATEMENTS OF CHANGES IN NET ASSETS
Columbia Index Funds
COLUMBIA LARGE COLUMBIA SMALL COLUMBIA U.S.
COMPANY INDEX FUND COMPANY INDEX FUND TREASURY INDEX FUND
----------------------- ----------------------- -----------------------
YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31, MARCH 31,
2005 2004 2005 2004 2005 2004
---------- ---------- ---------- ---------- ---------- ----------
CHANGES IN SHARES:
Class A:
Subscriptions 553,477 720,713 363,993 193,060 132,252 268,516
Issued for distributions reinvested 39,378 3,510 13,185 34 8,561 5,918
Redemptions (142,703) (286,488) (94,228) (76,007) (66,279) (82,172)
---------- ---------- ---------- ---------- ---------- ----------
Net increase 450,152 437,735 282,950 117,087 74,534 192,262
---------- ---------- ---------- ---------- ---------- ----------
Class B:
Subscriptions 206,554 340,334 108,067 64,063 39,868 108,265
Issued for distributions reinvested 16,128 1,401 6,385 -- 3,547 3,197
Redemptions (80,421) (29,162) (19,037) (2,469) (48,761) (30,959)
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) 142,261 312,573 95,415 61,594 (5,346) 80,503
---------- ---------- ---------- ---------- ---------- ----------
Class C:
Subscriptions 50,804 74,917 110,702 74,135 13,996 161,242
Issued for distributions reinvested 4,217 310 5,468 -- 2,463 3,175
Redemptions (12,655) (11,376) (20,238) (11,121) (100,177) (36,366)
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) 42,366 63,851 95,932 63,014 (83,718) 128,051
---------- ---------- ---------- ---------- ---------- ----------
Class Z:
Subscriptions 5,867,719 9,665,124 1,194,054 1,080,260 1,845,558 2,017,456
Issued for distributions reinvested 1,334,902 409,266 788,281 47,534 393,099 487,935
Redemptions (8,869,841) (7,950,992) (1,516,713) (1,856,573 (3,949,501) (2,874,041)
---------- ---------- ---------- ---------- ---------- ----------
Net increase (decrease) (1,667,220) 2,123,398 465,622 (728,779) (1,710,844) (368,650)
---------- ---------- ---------- ---------- ---------- ----------
|
34 See Accompanying Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
March 31, 2005 Columbia Index Funds
NOTE 1. ORGANIZATION
The Columbia Fund Trust V (the "Trust") is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. Information presented in these financial statements pertains to the following diversified portfolios (individually referred to as a "Fund", collectively referred to as the "Funds"):
Columbia Large Company Index Fund
Columbia Small Company Index Fund
Columbia U.S. Treasury Index Fund
INVESTMENT GOALS
Each Fund seeks to provide investment results that, before deduction of operating expenses, match the price and yield performance of its index.
FUND SHARES
The Funds may issue an unlimited number of shares. Each Fund offers four classes of shares: Class A, Class B, Class C and Class Z. Each share class has its own sales charge and expense structure.
Class A shares are subject to a front-end sales charge based on the amount of initial investment. Class A shares purchased without an initial sales charge are subject to a 1.00% contingent deferred sales charge ("CDSC") on shares sold within eighteen months on an original purchase of $1 million to $25 million. Class B shares are subject to a maximum CDSC of 5.00% based upon the holding period after purchase. Class B shares will convert to Class A shares in a certain number of years after purchase, depending on the program under which shares were purchased. Class C shares are subject to a 1.00% CDSC on shares sold within one year after purchase. Class Z shares are offered continuously at net asset value. There are certain restrictions on the purchase of Class Z shares, as described in each Fund's prospectus.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Funds in the preparation of their financial statements.
SECURITY VALUATION
Equity securities and exchange traded funds are valued at the last sale price on the principal exchange on which they trade, except for securities traded on the NASDAQ, which are valued at the NASDAQ official close price. Unlisted securities or listed securities for which there were no sales during the day are valued at the closing bid price on such exchanges or over-the-counter markets.
Debt securities generally are valued by pricing services approved by the Funds' Board of Trustees, based upon market transactions for normal, institutional-size trading units of similar securities. The services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as broker quotes. Debt securities for which quotations are readily available are valued at an over-the-counter or exchange bid quotation.
Short-term debt obligations maturing within 60 days are valued at amortized cost, which approximates market value.
Investments for which market quotations are not readily available, or have quotations which management believes are not appropriate, are valued at fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees.
SECURITY TRANSACTIONS
Security transactions are accounted for on the trade date. Cost is determined and gains (losses) are based upon the specific identification method for both financial statement and federal income tax purposes.
REPURCHASE AGREEMENTS
Each Fund may engage in repurchase agreement transactions with institutions that the Funds' investment advisor has determined are creditworthy. Each Fund, through its custodian, receives delivery of underlying securities collateralizing a repurchase
March 31, 2005 Columbia Index Funds
agreement. Collateral is at least equal, at all times, to the value of the repurchase obligation including interest. A repurchase agreement transaction involves certain risks in the event of default or insolvency of the counterparty. These risks include possible delays or restrictions upon each Fund's ability to dispose of the underlying securities and a possible decline in the value of the underlying securities during the period while the Funds seek to assert their rights.
INCOME RECOGNITION
Interest income is recorded on the accrual basis. Premium and discount are amortized and accreted, respectively, on all debt securities. Corporate actions and dividend income are recorded on the ex-date.
The Funds estimate components of distributions from real estate investment trusts (REITs). Distributions received in excess of income are recorded as a reduction of the cost of the related investments. If the Funds no longer own the applicable securities, any distributions received in excess of income are recorded as realized gains.
DETERMINATION OF CLASS NET ASSET VALUES
Realized and unrealized gains (losses) for each fund are allocated to each class of each Fund on a daily basis, based on the relative net assets of each class, for purposes of determining the net asset value of each class. For the Columbia Large Company Index Fund and the Columbia Small Company Index Fund, all income and expenses (other than class-specific expenses, as shown on the Statements of Operations) are allocated to each class of each Fund, based on the relative net assets of each class. For the Columbia U.S. Treasury Index Fund, all income and expenses (other than class-specific expenses, as shown on the Statements of Operations) are allocated to each class of the Fund, based on the settled shares method.
FEDERAL INCOME TAX STATUS
Each Fund intends to qualify each year as a "regulated investment company" under Subchapter M of the Internal Revenue Code, as amended, and will distribute substantially all of its taxable income, if any, for its tax year, and as such will not be subject to federal income taxes. In addition, each Fund intends to distribute in each calendar year substantially all of its net investment income, capital gains and certain other amounts, if any, such that each Fund should not be subject to federal excise tax. Therefore, no federal income or excise tax provision is recorded.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on ex-date for the Columbia Large Company Index Fund and Columbia Small Company Index Fund. Net realized capital gains, if any, are distributed at least annually. Dividends from net investment income are declared daily and paid monthly for the Columbia U.S. Treasury Index Fund.
NOTE 3. FEDERAL TAX INFORMATION
The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Funds' capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations.
For the year ended March 31, 2005, permanent book and tax basis differences resulting primarily from differing treatments for REIT adjustments, market discount reclassifications, redemption based payments treated as dividend paid deduction, ROC dividend adjustment and discount premium/amortization on debt securities were identified and reclassified among the components of the Funds' net assets as follows:
Undistributed /
(Overdistributed) Accumulated
Net Investment Net Realized Paid-In
Income Gain/Loss Capital
----------------- ------------ ----------
Columbia Large
Company
Index Fund $ (543,778) $(2,505,323) $3,049,101
Columbia Small
Company
Index Fund (68,031) 68,033 (2)
Columbia U.S.
Treasury Index
Fund 1,563,326 (1,563,324) (2)
|
Net investment income and net realized gains (losses), as disclosed on the Statements of Operations, and net assets were not affected by these reclassifications.
March 31, 2005 Columbia Index Funds
The tax character of distributions paid during the years ended March 31, 2005 and March 31, 2004 was as follows:
March 31, 2005
---------------------------
Ordinary Long-term
Income* Capital Gains
----------- -------------
Columbia Large Company Index Fund $14,457,310 $31,143,606
Columbia Small Company Index Fund 2,406,445 16,271,705
Columbia U.S. Treasury Index Fund 6,535,206 --
|
March 31, 2004
--------------------------
Ordinary Long-term
Income* Capital Gains
---------- -------------
Columbia Large Company Index Fund $9,883,333 $3,106,108
Columbia Small Company Index Fund 910,987 --
Columbia U.S. Treasury Index Fund 8,189,095 --
|
* For tax purposes short-term capital gains distributions, if any, are considered ordinary income distributions.
As of March 31, 2005, the components of distributable earnings on a tax basis were as follows:
Undistributed Undistributed Net Unrealized
Ordinary Long-term Appreciation
Income Capital Gains (Depreciation)*
------------- ------------- ---------------
Columbia Large Company Index Fund $3,881,694 $17,951,539 $85,944,093
Columbia Small Company Index Fund 918,798 4,179,912 78,647,672
Columbia U.S. Treasury Index Fund 264,075 -- (457,953)
|
* The differences between book-basis and tax-basis net unrealized appreciation/depreciation are primarily due to deferral of losses from wash sales, REIT adjustments and discount accretion/ premium amortization on debt securities.
Unrealized appreciation and depreciation at March 31, 2005, based on cost of investments for federal income tax purposes, was:
Net
Unrealized
Unrealized Unrealized Appreciation
Appreciation Depreciation (Depreciation)
------------ ------------- --------------
Columbia Large Company Index Fund $222,883,265 $(136,939,172) $85,944,093
Columbia Small Company Index Fund 114,020,183 (35,372,511) 78,647,672
Columbia U.S. Treasury Index Fund 2,501,170 (2,959,123) (457,953)
|
The following capital loss carryforwards, determined as of March 31, 2005, may be available to reduce taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Internal Revenue Code:
Columbia Columbia Columbia
Year of Large Company Small Company U.S. Treasury
Expiration Index Fund Index Fund Index Fund
---------- ------------- ------------- -------------
2009 -- -- $388,326
2013 -- -- 151,924
Total 540,250
|
Under current tax rules, capital losses realized after October 31 may be deferred and treated as occurring on the first day of the following fiscal year. As of March 31, 2005, post-October capital losses of $166,054 attributed to security transactions for Columbia U.S. Treasury Index Fund were deferred to April 1, 2005.
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
INVESTMENT ADVISORY FEE
Columbia Management Advisors, Inc. ("Columbia"), an indirect wholly owned subsidiary of Bank of America Corporation ("BOA"), is the investment advisor to the Fund and receives a monthly investment advisory fee at the annual rate of 0.10% of each Fund's average daily net assets.
ADMINISTRATION FEE
Columbia provides administrative services to the Funds pursuant to an administrative services agreement. Columbia, from the administration fee it receives from the Funds, pays all expenses of the Funds, except the fees and expenses of the Trustees who are not interested persons, service and distribution fees, brokerage fees and commissions, annual sub-account fees payable with respect to shares of the Funds held by defined contribution plans, interest on borrowings, taxes, and such extraordinary, non-recurring expenses as may arise, including litigation. Effective November 1, 2004, Columbia receives a monthly administration fee for its services as administrator, based on the average daily net assets from each Fund at the following annual rates:
Annual Fee Rate
---------------
Columbia Large Company Index Fund 0.10%
Columbia Small Company Index Fund 0.10%
Columbia U.S. Treasury Index Fund 0.30%
|
March 31, 2005 Columbia Index Funds
Prior to November 1, 2004, Columbia received a monthly administration fee at an annual rate of 0.30% of each Fund's average daily net assets.
For the year ended March 31, 2005, the effective administration fee rates for Columbia Large Company Index Fund, Columbia Small Company Index Fund and Columbia U.S. Treasury Index Fund were 0.22%, 0.21% and 0.30%, respectively.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES
Columbia Funds Distributor, Inc. (the "Distributor"), an affiliate of Columbia, is the principal underwriter of the Funds. For the year ended March 31, 2005, the Distributor has retained net underwriting discounts and net CDSC fees as follows:
Front-End CDSC
Sales Charge ---------------------------
Class A Class A Class B Class C
------------ ------- ------- -------
Columbia Large
Company Index
Fund $10,384 $ 24 $33,586 $1,047
Columbia Small
Company Index
Fund 8,196 213 4,669 795
Columbia U.S.
Treasury Index
Fund 1,035 -- 5,967 1,495
|
The Funds have adopted a 12b-1 plan (the "Plan"), which requires the payment of a monthly service fee to the Distributor equal to 0.25% annually of the average daily net assets attributable to Class A, Class B and Class C shares. The Plan also requires the payment of a monthly distribution fee to the Distributor equal to 0.75% annually of the average daily net assets attributable to Class B and Class C shares. The Distributor has voluntarily agreed to waive a portion of the 12b-1 fees of the U.S. Treasury Index Class C shares so that these fees do not exceed 0.85% annually of the average daily net assets attributable to Class C shares.
The CDSC and the fees received from the Plan are used principally as repayment to the Distributor for amounts paid by the Distributor to dealers who sold such shares.
SUB-ACCOUNT SERVICES FEE
The Trust may enter into agreements with one or more entities, including affiliates of Columbia, pursuant to which such entities agree to perform certain sub-account and administrative functions ("Sub-Account Services") for a fee of $21.00 per-account with respect to Class Z shares of the Funds held by defined contribution plans. Such entities are compensated by the Funds for the Sub- Account Services. For the year ended March 31, 2005, the Administrator reimbursed sub-account service fees in the amount of $84,032 and $16,051 for Columbia Large Company Index Fund and Columbia U.S. Treasury Index Fund Class Z shares, respectively.
FEES PAID TO OFFICERS AND TRUSTEES
With the exception of one officer, all officers of the Funds are employees of Columbia or its affiliates and receive no compensation from the Funds. Effective August 23, 2004, the Board of Trustees appointed a Chief Compliance Officer to the Funds in accordance with federal securities regulations. Each Fund, along with other affiliated funds, will pay its pro-rata share of the expenses associated with the Office of the Chief Compliance Officer. Each Fund's fee for the Office of the Chief Compliance Officer will not exceed $15,000 per year.
The Funds' Trustees may participate in a deferred compensation plan which may be terminated at any time. Obligations of the plan will be paid solely out of the Funds' assets.
NOTE 5. PORTFOLIO INFORMATION
For the year ended March 31, 2005, the cost of purchases and proceeds from sales of securities, excluding short-term obligations, were as follows:
U.S Government Securities Other Investment Securities
------------------------- ---------------------------
Purchases Sales Purchases Sales
----------- ----------- ------------ ------------
Columbia Large
Company Index
Fund $ -- $ -- $104,891,344 $161,871,430
Columbia Small
Company Index
Fund -- -- 60,202,161 55,216,695
Columbia U.S.
Treasury Index
Fund 71,259,531 89,532,725 -- --
|
NOTE 6. OTHER
During the year ended March 31, 2005, Columbia Large Company Index Fund purchased shares of Fisher Scientific International, Inc. in violation of investment restrictions. The cost of the violation to the Fund was $97. The Fund is in the process of being reimbursed by Columbia.
March 31, 2005 Columbia Index Funds
NOTE 7. LINE OF CREDIT
The Funds and other affiliated funds participate in a $350,000,000 committed unsecured revolving line of credit provided by State Street Bank and Trust Company. Borrowings are used for temporary or emergency purposes to facilitate portfolio liquidity. Interest is charged to each participating fund based on its borrowings at a rate per annum equal to the Federal Funds rate plus 0.50%. In addition, a commitment fee of 0.10% per annum is accrued and apportioned among the participating funds based on their pro-rata portion of the unutilized line of credit. The commitment fee is included in "Other expenses" on the Statements of Operations.
For the year ended March 31, 2005, the Funds did not borrow under this arrangement.
NOTE 8. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES
LEGAL PROCEEDINGS
On February 9, 2005, Columbia and the Distributor (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other mutual funds management fees collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan to be developed by an independent distribution consultant, who is acceptable to the SEC staff and the Columbia Funds' independent trustees. The distribution plan must be based on a methodology developed in consultation with the Columbia Group and the Funds' independent trustees and not unacceptable to the staff of the SEC. "At this time, the distribution plan is still under development. As such, any gain to the fund or its shareholders can not currently be determined."
As a result of these matters or any adverse publicity or other developments resulting from them, there may be increased redemptions or reduced sales of fund shares, which could increase transaction costs or operating expenses, or have other adverse consequences for the funds.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005.
On January 11, 2005, a putative class action lawsuit was filed in federal district court in Massachusetts against, among others, the Trustees of the Funds and Columbia. The lawsuit alleges that defendants violated common law duties to fund shareholders as well as sections of the Investment Company Act of 1940, by failing to ensure that the Funds and other affiliated funds participated in securities class action settlements for which the funds were eligible. Specifically, plaintiffs allege that defendants failed to submit proof of claims in connection with settlements of securities class action lawsuits filed against companies in which the funds held positions.
In 2004, certain Columbia funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that
March 31, 2005 Columbia Index Funds
the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purpose. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs are expected to file a consolidated amended complaint in June 2005.
The Funds and the other defendants to these actions, including Columbia and various of its affiliates, certain other mutual funds advised by Columbia and its affiliates, and various directors of such funds, have denied these allegations and are contesting the plaintiffs' claims. These proceedings are ongoing, however, based on currently available information, Columbia believes that these lawsuits are without merit, that the likelihood they will have a material adverse impact on any fund is remote, and that the lawsuits are not likely to materially affect its ability to provide investment management services to its clients, including the Funds.
For the year ended March 31, 2005, Columbia has assumed $45,326, $15,870 and $8,782 for the Columbia Large Company Index Fund, Columbia Small Company Index Fund and Columbia U.S. Treasury Index Fund, respectively, of legal, consulting services and Trustees' fees incurred by the Funds in connection with these matters.
In connection with events described in detail above, various parties have filed suit against certain funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities. More than 300 cases including those filed against entities unaffiliated with the funds, their Boards, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America Corporation and its affiliated entities have been transferred to the Federal District Court in Maryland and consolidated in a multi-district proceeding (the "MDL"). On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has conditionally ordered its transfer to the MDL. The MDL is ongoing. Accordingly, an estimate of the financial impact of this litigation on any Fund, if any, can not currently be made.
NOTE 9. PROPOSED REORGANIZATION
On February 10, 2005, the Board of Trustees of the Funds approved a proposal to merge the Columbia Large Company Index Fund into the Nations LargeCap Index Fund. Also on that date, the Board of Trustees approved a proposal to merge the Columbia Small Company Index Fund into the Nations SmallCap Index Fund. The proposals are subject to approval by shareholders of the Funds and the satisfaction of certain other conditions. The mergers, if approved, are expected to be completed in the third quarter of 2005.
FINANCIAL HIGHLIGHTS
Columbia Large Company Index Fund
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31,
CLASS A SHARES 2005 2004 (A) 2003 (B)
-------------- ---------- ---------- ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 26.98 $ 20.44 $22.19
------- ------- ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (c) 0.43(d) 0.27 0.07
Net realized and unrealized gain (loss) on investments 1.24 6.64 (1.51)
------- ------- ------
Total from investment operations 1.67 6.91 (1.44)
------- ------- ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.38) (0.26) (0.25)
From net realized gains (1.05) (0.11) (0.06)
------- ------- ------
Total distributions declared to shareholders (1.43) (0.37) (0.31)
------- ------- ------
NET ASSET VALUE, END OF PERIOD $ 27.22 $ 26.98 $20.44
Total return (e) 6.11% 33.90%(f) (6.58)%(g)
------- ------- ------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses 0.57% 0.63% 0.65%(h)
Net investment income 1.59% 1.07% 1.13%(h)
Waiver/reimbursement -- 0.02% --
Portfolio turnover rate 12% 10% 13%
Net assets, end of period (000's) $24,398 $12,036 $ 170
------- ------- ------
|
(a) Effective October 13, 2003, the Liberty Large Company Index Fund was renamed Columbia Large Company Index Fund.
(b) Class A shares were initially offered on December 9, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Net investment income per share reflects a special dividend which amounted to $0.08 per share.
(e) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge.
(f) Had the Investment Advisor not waived or reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) Annualized.
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31,
CLASS B SHARES 2005 2004 (A) 2003 (B)
-------------- ---------- ---------- ------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 26.89 $20.35 $22.19
------- ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (c) 0.21(d) 0.09 0.03
Net realized and unrealized gain (loss) on investments 1.24 6.63 (1.56)
------- ------ ------
Total from investment operations 1.45 6.72 (1.53)
------- ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.18) (0.07) (0.25)
From net realized gains (1.05) (0.11) (0.06)
------- ------ ------
Total distributions declared to shareholders (1.23) (0.18) (0.31)
------- ------ ------
NET ASSET VALUE, END OF PERIOD $ 27.11 $26.89 $20.35
Total return (e) 5.29% 33.05%(f) (7.00)%(g)
------- ------ ------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses 1.32% 1.38% 1.40%(h)
Net investment income 0.79% 0.34% 0.50%(h)
Waiver/reimbursement -- 0.02% --
Portfolio turnover rate 12% 10% 13%
Net assets, end of period (000's) $13,027 $9,093 $ 521
------- ------ ------
|
(a) Effective October 13, 2003, the Liberty Large Company Index Fund was renamed Columbia Large Company Index Fund.
(b) Class B shares were initially offered on December 9, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Net investment income per share reflects a special dividend which amounted to $0.08 per share.
(e) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(f) Had the Investment Advisor not waived or reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) Annualized.
FINANCIAL HIGHLIGHTS
Columbia Large Company Index Fund
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31,
CLASS C SHARES 2005 2004 (A) 2003 (B)
-------------- ---------- ---------- ------------
NET ASSET VALUE, BEGINNING OF PERIOD $26.95 $20.40 $22.19
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (c) 0.22(d) 0.08 0.02
Net realized and unrealized gain (loss) on investments 1.24 6.65 (1.50)
------ ------ ------
Total from investment operations 1.46 6.73 (1.48)
------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.18) (0.07) (0.25)
From net realized gains (1.05) (0.11) (0.06)
------ ------ ------
Total distributions declared to shareholders (1.23) (0.18) (0.31)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $27.18 $26.95 $20.40
Total return (e) 5.32% 33.01%(f) (6.77)%(g)
------ ------ ------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses 1.32% 1.38% 1.40%(h)
Net investment income 0.80% 0.33% 0.37%(h)
Waiver/reimbursement -- 0.02% --
Portfolio turnover rate 12% 10% 13%
Net assets, end of period (000's) $3,133 $1,965 $ 185
------ ------ ------
|
(a) Effective October 13, 2003, the Liberty Large Company Index Fund was renamed Columbia Large Company Index Fund.
(b) Class C shares were initially offered on December 9, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Net investment income per share reflects a special dividend which amounted to $0.08 per share.
(e) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(f) Had the Investment Advisor not waived or reimbursed a portion of expenses, total return would have been reduced.
(g) Not annualized.
(h) Annualized.
YEAR ENDED MARCH 31,
---------------------------------------------------------------
CLASS Z SHARES 2005 2004 (A) 2003 (B) 2002 2001
-------------- -------- -------- -------- -------- --------
NET ASSET VALUE, BEGINNING OF PERIOD $ 27.01 $ 20.45 $ 27.55 $ 29.32 $ 42.14
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.46(c)(d) 0.32(c) 0.28(c) 0.25 0.26
Net realized and unrealized gain (loss) on investments 1.27 6.66 (7.07) (0.33) (8.85)
-------- -------- -------- -------- --------
Total from investment operations 1.73 6.98 (6.79) (0.08) (8.59)
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.43) (0.31) (0.25) (0.25) (0.26)
From net realized gains (1.05) (0.11) (0.06) (1.44) (3.97)
-------- -------- -------- -------- --------
Total distributions declared to shareholders (1.48) (0.42) (0.31) (1.69) (4.23)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 27.26 $ 27.01 $ 20.45 $ 27.55 $ 29.32
Total return (e)(f) 6.31% 34.21% (24.72)% (0.08)% (21.54)%
-------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses 0.39% 0.46% 0.51% 0.49% 0.47%
Net investment income 1.69% 1.28% 1.24% 0.88% 0.74%
Waiver/reimbursement 0.01% 0.03% --%(g) 0.01% 0.01%
Portfolio turnover rate 12% 10% 13% 8% 15%
Net assets, end of period (000's) $824,382 $861,950 $609,202 $841,016 $821,147
-------- -------- -------- -------- --------
|
(a) Effective October 13, 2003, the Liberty Large Company Index Fund was renamed Columbia Large Company Index Fund.
(b) On December 9, 2002, the Galaxy II Large Company Index Fund was renamed Liberty Large Company Index Fund, Class Z shares.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Net investment income per share reflects a special dividend which amounted to $0.08 per share.
(e) Total return at net asset value assuming all distributions reinvested.
(f) Had the Investment Advisor/Administrator not waived or reimbursed a portion of expenses, total return would have been reduced.
(g) Rounds to less than 0.01%.
FINANCIAL HIGHLIGHTS
Columbia Small Company Index Fund
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31,
CLASS A SHARES 2005 2004 (A) 2003 (B)
-------------- ---------- ---------- ------------
NET ASSET VALUE, BEGINNING OF PERIOD $19.58 $12.63 $14.19
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (c) 0.12 0.04 0.02
Net realized and unrealized gain (loss) on investments 2.32 6.94 (1.26)
------ ------ ------
Total from investment operations 2.44 6.98 (1.24)
------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.08) (0.03) (0.09)
From net realized gains (1.08) -- (0.23)
Return of capital -- -- --(d)
------ ------ ------
Total distributions declared to shareholders (1.16) (0.03) (0.32)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $20.86 $19.58 $12.63
Total return (e) 12.37% 55.26% (8.91)%(f)
------ ------ ------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses 0.57% 0.66% 0.65%(g)
Net investment income 0.58% 0.24% 0.34%(g)
Portfolio turnover rate 17% 20% 27%
Net assets, end of period (000's) $8,351 $2,299 $ 4
------ ------ ------
|
(a) Effective October 13, 2003, the Liberty Small Company Index Fund was renamed Columbia Small Company Index Fund.
(b) Class A shares were initially offered on November 25, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Rounds to less than $0.01 per share.
(e) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge.
(f) Not annualized.
(g) Annualized.
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31,
CLASS B SHARES 2005 2004 (A) 2003 (B)
-------------- ---------- ---------- ------------
NET ASSET VALUE, BEGINNING OF PERIOD $19.41 $12.60 $14.19
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss (c) (0.04) (0.09) (0.02)
Net realized and unrealized gain (loss) on investments 2.30 6.90 (1.25)
------ ------ ------
Total from investment operations 2.26 6.81 (1.27)
------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income -- -- (0.09)
From net realized gains (1.08) -- (0.23)
Return of capital -- -- --(d)
------ ------ ------
Total distributions declared to shareholders (1.08) -- (0.32)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $20.59 $19.41 $12.60
Total return (e) 11.57% 54.05% (9.15)%(f)
------ ------ ------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses 1.32% 1.41% 1.40%(g)
Net investment loss (0.19)% (0.51)% (0.40)%(g)
Portfolio turnover rate 17% 20% 27%
Net assets, end of period (000's) $3,387 $1,340 $ 94
------ ------ ------
|
(a) Effective October 13, 2003, the Liberty Small Company Index Fund was renamed Columbia Small Company Index Fund.
(b) Class B shares were initially offered on November 25, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Rounds to less than $0.01 per share.
(e) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(f) Not annualized.
(g) Annualized.
FINANCIAL HIGHLIGHTS
Columbia Small Company Index Fund
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31,
CLASS C SHARES 2005 2004 (A) 2003 (B)
-------------- ---------- ---------- ------------
NET ASSET VALUE, BEGINNING OF PERIOD $19.43 $12.62 $14.19
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss (c) (0.04) (0.09) (0.03)
Net realized and unrealized gain (loss) on investments 2.31 6.90 (1.22)
------ ------ ------
Total from investment operations 2.27 6.81 (1.25)
------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income -- -- (0.09)
From net realized gains (1.08) -- (0.23)
Return of capital -- -- --(d)
------ ------ ------
Total distributions declared to shareholders (1.08) -- (0.32)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $20.62 $19.43 $12.62
Total return (e) 11.61% 53.96% (9.01)%(f)
------ ------ ------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses 1.32% 1.41% 1.40%(g)
Net investment loss (0.18)% (0.52)% (0.70)%(g)
Portfolio turnover rate 17% 20% 27%
Net assets, end of period (000's) $3,278 $1,225 $ 1
------ ------ ------
|
(a) Effective October 13, 2003, the Liberty Small Company Index Fund was renamed Columbia Small Company Index Fund.
(b) Class C shares were initially offered on November 25, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Rounds to less than $0.01 per share.
(e) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(f) Not annualized.
(g) Annualized.
YEAR ENDED MARCH 31,
------------------------------------------------------------
CLASS Z SHARES 2005 2004 (A) 2003 (B) 2002 2001
-------------- -------- -------- -------- -------- --------
NET ASSET VALUE, BEGINNING OF PERIOD $ 19.60 $ 12.64 $ 17.36 $ 15.15 $ 17.92
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.15(c) 0.08(c) 0.07(c) 0.08 0.07
Net realized and unrealized gain (loss) on investments 2.35 6.94 (4.46) 3.04 (0.47)
-------- -------- -------- -------- --------
Total from investment operations 2.50 7.02 (4.39) 3.12 (0.40)
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.13) (0.06) (0.08) (0.11) (0.04)
From net realized gains (1.08) -- (0.23) (0.80) (2.33)
Return of capital -- -- (0.02) -- --
-------- -------- -------- -------- --------
Total distributions declared to shareholders (1.21) (0.06) (0.33) (0.91) (2.37)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 20.89 $ 19.60 $ 12.64 $ 17.36 $ 15.15
Total return (d) 12.66% 55.58% (25.47)%(e) 21.32% (2.33)%
-------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses 0.32% 0.41% 0.41% 0.41% 0.41%
Net investment income 0.78% 0.47% 0.47% 0.43% 0.48%
Waiver/reimbursement -- -- --%(f) -- --
Portfolio turnover rate 17% 20% 27% 21% 41%
Net assets, end of period (000's) $328,570 $299,171 $202,183 $291,111 $253,860
-------- -------- -------- -------- --------
|
(a) Effective October 13, 2003, the Liberty Small Company Index Fund was renamed Columbia Small Company Index Fund.
(b) On November 25, 2002, the Galaxy II Small Company Index Fund was renamed Liberty Small Company Index Fund, Class Z shares.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming all distributions reinvested.
(e) Had the Administrator not waived a portion of expenses, total return would have been reduced.
(f) Rounds to less than 0.01%.
FINANCIAL HIGHLIGHTS
Columbia U.S. Treasury Index Fund
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31,
CLASS A SHARES 2005 2004 (A) 2003 (B)
-------------- ---------- ---------- ------------
NET ASSET VALUE, BEGINNING OF PERIOD $11.18 $11.25 $11.05
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (c) 0.35 0.35 0.19
Net realized and unrealized gain (loss) on investments (0.41) 0.05 0.15
------ ------ ------
Total from investment operations (0.06) 0.40 0.34
------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.40) (0.47) (0.14)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.72 $11.18 $11.25
Total return (d) (0.48)% 3.70% 3.12%(e)
------ ------ ------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses 0.66% 0.66% 0.65%(f)
Net investment income 3.22% 3.14% 4.86%(f)
Portfolio turnover rate 44% 42% 48%
Net assets, end of period (000's) $3,314 $2,625 $ 477
------ ------ ------
|
(a) Effective October 13, 2003, the Liberty U.S. Treasury Index Fund was renamed Columbia U.S. Treasury Index Fund
(b) Class A shares were initially offered on November 25, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge.
(e) Not annualized.
(f) Annualized.
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31,
CLASS B SHARES 2005 2004 (A) 2003 (B)
-------------- ---------- ---------- ------------
NET ASSET VALUE, BEGINNING OF PERIOD $11.18 $11.25 $11.05
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (c) 0.27 0.27 0.17
Net realized and unrealized gain (loss) on investments (0.41) 0.05 0.15
------ ------ ------
Total from investment operations (0.14) 0.32 0.32
------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.32) (0.39) (0.12)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.72 $11.18 $11.25
Total return (d) (1.23)% 2.91% 2.87%(e)
------ ------ ------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses 1.41% 1.41% 1.40%(f)
Net investment income 2.48% 2.44% 4.25%(f)
Portfolio turnover rate 44% 42% 48%
Net assets, end of period (000's) $1,451 $1,574 $ 678
------ ------ ------
|
(a) Effective October 13, 2003, the Liberty U.S. Treasury Index Fund was renamed Columbia U.S. Treasury Index Fund
(b) Class B shares were initially offered on November 25, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(e) Not annualized.
(f) Annualized.
FINANCIAL HIGHLIGHTS
Columbia U.S. Treasury Index Fund
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
YEAR ENDED YEAR ENDED PERIOD ENDED
MARCH 31, MARCH 31, MARCH 31,
CLASS C SHARES 2005 2004 (A) 2003 (B)
-------------- ---------- ---------- ------------
NET ASSET VALUE, BEGINNING OF PERIOD $11.18 $11.25 $11.05
------ ------ ------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (c) 0.29 0.28 0.27
Net realized and unrealized gain (loss) on investments (0.41) 0.06 0.05
------ ------ ------
Total from investment operations (0.12) 0.34 0.32
------ ------ ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.34) (0.41) (0.12)
------ ------ ------
NET ASSET VALUE, END OF PERIOD $10.72 $11.18 $11.25
Total return (d)(e) (1.07)% 3.07% 2.92%(f)
------ ------ ------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses 1.26% 1.26% 1.25%(g)
Net investment income 2.67% 2.56% 6.87%(g)
Waiver/reimbursement 0.15% 0.15% 0.15%(g)
Portfolio turnover rate 44% 42% 48%
Net assets, end of period (000's) $ 869 $1,843 $ 414
------ ------ ------
|
(a) Effective October 13, 2003, the Liberty U.S. Treasury Index Fund was renamed Columbia U.S. Treasury Index Fund.
(b) Class C shares were initially offered on November 25, 2002. Per share data and total return reflect activity from that date.
(c) Per share data was calculated using average shares outstanding during the period.
(d) Total return at net asset value assuming all distributions reinvested and no contingent deferred sales charge.
(e) Had the Distributor not waived a portion of expenses, total return would have been reduced.
(f) Not annualized.
(g) Annualized.
YEAR ENDED MARCH 31,
-------------------------------------------------------------
CLASS Z SHARES 2005 2004 (A) 2003 (B) 2002 2001
-------------- -------- -------- -------- -------- --------
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.18 $ 11.26 $ 10.40 $ 10.66 $ 10.13
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.38(c) 0.39(c) 0.46(c) 0.51(d) 0.61
Net realized and unrealized gain (loss) on investments (0.41) 0.03 0.90 (0.19)(d) 0.53
-------- -------- -------- -------- --------
Total from investment operations (0.03) 0.42 1.36 0.32 1.14
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.43) (0.50) (0.50) (0.58) (0.61)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 10.72 $ 11.18 $ 11.26 $ 10.40 $ 10.66
Total return (e) (0.25)%(f) 3.85%(f) 13.28%(f) 3.03%(f) 11.60%
-------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses 0.42% 0.42% 0.42% 0.42% 0.42%
Net investment income 3.47% 3.49% 4.21% 4.84%(d) 5.90%
Waiver/reimbursement 0.01% 0.01% --%(g) 0.01% --
Portfolio turnover rate 44% 42% 48% 47% 53%
Net assets, end of period (000's) $151,969 $177,714 $183,042 $160,180 $163,619
-------- -------- -------- -------- --------
|
(a) Effective October 13, 2003, the Liberty U.S. Treasury Index Fund was renamed Columbia U.S. Treasury Index Fund
(b) On November 25, 2002, the Galaxy II U.S. Treasury Index Fund was renamed Liberty U.S. Treasury Index Fund, Class Z shares.
(c) Per share data was calculated using average shares outstanding during the period.
(d) The Fund adopted the provisions of the AICPA Audit Guide for Investment Companies effective April 1, 2001. The effect of the change for the year ended March 31, 2002 on the net investment income per share, net realized and unrealized gain (loss) per share and the ratio of net investment income to average net assets was $(0.07), $0.07 and (0.63)%, respectively.
(e) Total return at net asset value assuming all distributions reinvested.
(f) Had the Administrator not waived a portion of expenses, total return would have been reduced.
(g) Rounds to less than 0.01%.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Columbia Index Funds
TO THE TRUSTEES OF COLUMBIA FUNDS In our opinion, the accompanying
TRUST V AND THE SHAREHOLDERS OF statements of assets and liabilities,
COLUMBIA LARGE COMPANY INDEX FUND, including the investment portfolios and
COLUMBIA SMALL COMPANY INDEX FUND, the related statements of operations and
AND COLUMBIA U.S. TREASURY INDEX FUND of changes in net assets and the
financial highlights present fairly, in
all material respects, the financial
position of the Columbia Large Company
Index Fund, Columbia Small Company Index
Fund and Columbia U.S. Treasury Index
Fund (the "Funds") (each a series of
Columbia Funds Trust V) at March 31,
2005, and the results of its operations,
the changes in each of their net assets
and their financial highlights for the
year then ended, in conformity with
accounting principles generally accepted
in the United States of America. These
financial statements and financial
highlights (hereafter referred to as
"financial statements") are the
responsibility of the Funds' management;
our responsibility is to express an
opinion on these financial statements
based on our audits. We conducted our
audits of these financial statements in
accordance with the standards of the
Public Company Accounting Oversight
Board (United States), which require
that we plan and perform the audits to
obtain reasonable assurance about
whether the financial statements are
free of material misstatement. An audit
includes examining, on a test basis,
evidence supporting the amounts and
disclosures in the financial statements,
assessing the accounting principles used
and significant estimates made by
management, and evaluating the overall
financial statement presentation. We
believe that our audits, which included
confirmation of securities at March 31,
2005 by correspondence with the
custodian and brokers, provide a
reasonable basis for our opinion. The
financial highlights of the Funds for
periods prior to April 1, 2003 were
audited by another independent
registered public accounting firm whose
report dated May 16, 2003 expressed an
unqualified opinion on these highlights.
PricewaterhouseCoopers LLP
Boston, Massachusetts
May 20, 2005
|
UNAUDITED INFORMATION
Columbia Index Funds
FEDERAL INCOME TAX INFORMATION COLUMBIA LARGE COMPANY INDEX FUND 100.00% of the ordinary income distributed by the Fund, for the fiscal year ended March 31, 2005, qualifies for the corporate dividends received deduction. For non-corporate shareholders, 100.00% of income distributed by the Fund for the year-ended March 31, 2005, represents qualified dividend income subject to the 15% income tax rate category. For the fiscal year ended March 31, 2005, the Fund designates long-term capital gains of $47,538,474. COLUMBIA SMALL COMPANY INDEX FUND 96.10% of the ordinary income distributed by the Fund, for the fiscal year ended March 31, 2005, qualifies for the corporate dividends received deduction. For non-corporate shareholders, 100.00% of income distributed by the Fund for the year-ended March 31, 2005, represents qualified dividend income subject to the 15% income tax rate category. For the fiscal year ended March 31, 2005, the Fund designates long-term capital gains of $10,892,651. |
STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to most funds advised by the Advisor. "Funds" include the series of Columbia Funds Trust I (formerly named Liberty Funds Trust I), Columbia Funds Trust II (formerly named Liberty Funds Trust II), Columbia Funds Trust III (formerly named Liberty Funds Trust III), Columbia Funds Trust IV (formerly named Liberty Funds Trust IV), Columbia Funds Trust V (formerly named Liberty Funds Trust V), Columbia Funds Trust VI (formerly named Liberty Funds Trust VI), Columbia Funds Trust VII (formerly named Liberty Funds Trust VII), Columbia Funds Trust VIII (formerly named Liberty-Stein Roe Funds Income Trust), Columbia Funds Trust IX (formerly named Liberty-Stein Roe Funds Municipal Trust) and Columbia Funds Trust XI (formerly named Liberty-Stein Roe Funds Investment Trust) (each a Trust and together, the Trusts, also known as Fund Complex). In certain cases, the discussion applies to some, but not all, of the Funds, and you should refer to your Fund's Prospectus and to Part 1 of this Statement of Additional Information (SAI) to determine whether the matter is applicable to your Fund. You will also be referred to Part 1 for certain data applicable to your Fund.
MISCELLANEOUS INVESTMENT PRACTICES
PART 1 OF THIS SAI LISTS ON PAGE B WHICH OF THE FOLLOWING INVESTMENT PRACTICES
ARE AVAILABLE TO YOUR FUND. IF AN INVESTMENT PRACTICE IS NOT LISTED IN PART 1 OF THIS SAI, IT IS NOT APPLICABLE TO YOUR FUND.
SHORT-TERM TRADING
In seeking the Fund's investment goal, the Advisor will buy or sell portfolio securities whenever it believes it is appropriate. The Advisor's decision will not generally be influenced by how long the Fund may have owned the security. From time to time, the Fund will buy securities intending to seek short-term trading profits. A change in the securities held by the Fund is known as "portfolio turnover" and generally involves some expense to the Fund. These expenses may include brokerage commissions or dealer mark-ups and other transaction costs on both the sale of securities and the reinvestment of the proceeds in other securities. If sales of portfolio securities cause the Fund to realize net short-term capital gains, such gains will be taxable as ordinary income. As a result of the Fund's investment policies, under certain market conditions the Fund's portfolio turnover rate may be higher than that of other mutual funds. The Fund's portfolio turnover rate for a fiscal year is the ratio of the lesser of purchases or sales of portfolio securities to the monthly average of the value of portfolio securities, excluding securities whose maturities at acquisition were one year or less. The Fund's portfolio turnover rate is not a limiting factor when the Advisor considers a change in the Fund's portfolio.
SHORT SALES
A Fund's short sales are subject to special risks. A short sale involves the sale by the Fund of a security that it does not own with the hope of purchasing the same security at a later date at a lower price. In order to deliver the security to the buyer, the Fund borrows the security from a third party. The Fund is then obligated to return the security to the third party, so the Fund must purchase the security at the market price at a later point in time. If the price of the security has increased during this time, then the Fund will incur a loss equal to the increase in price of the security from the time that the short sale was entered into plus any premiums and interest paid to the third party. Therefore, short sales involve the risk that losses may be exaggerated, potentially losing more money than the actual cost of the security. Also, there is the risk that the third party to the short sale may fail to honor its contract terms, causing a loss to the Fund.
LOWER-RATED DEBT SECURITIES
Lower-rated debt securities are those rated lower than Baa by Moody's or BBB by S&P, or comparable unrated debt securities. Relative to debt securities of higher quality,
1. an economic downturn or increased interest rates may have a more significant effect on the yield, price and potential for default for lower-rated debt securities;
2. the secondary market for lower-rated debt securities may at times become less liquid or respond to adverse publicity or investor perceptions, increasing the difficulty in valuing or disposing of the bonds;
3. the Advisor's credit analysis of lower-rated debt securities may have a greater impact on the Fund's achievement of its investment goal; and
4. lower-rated debt securities may be less sensitive to interest rate changes, but are more sensitive to adverse economic developments.
In addition, certain lower-rated debt securities may not pay interest in cash on a current basis.
SMALL COMPANIES
Smaller, less well established companies may offer greater opportunities for capital appreciation than larger, better established companies, but may also involve certain special risks related to limited product lines, markets, or financial resources and dependence on a small management group. Their securities may trade less frequently, in smaller volumes, and fluctuate more sharply in value than securities of larger companies.
COMMON STOCK, PREFERRED STOCK AND WARRANTS
Common stocks are generally more volatile than other securities. Preferred stocks share some of the characteristics of both debt and equity investments and are generally preferred over common stocks with respect to dividends and in liquidation. A warrant is an instrument issued by a corporation which gives the holder the right to subscribe to a specified amount of the company's capital stock at a set price for a specified period of time.
FOREIGN SECURITIES
The Fund may invest in securities traded in markets outside the United States. Foreign investments can be affected favorably or unfavorably by changes in currency rates and in exchange control regulations. There may be less publicly available information about a foreign company than about a U.S. company, and foreign companies may not be subject to accounting, auditing and financial reporting standards comparable to those applicable to U.S. companies. Securities of some foreign companies are less liquid or more volatile than securities of U.S. companies, and foreign brokerage commissions and custodian fees may be higher than in the United States. Investments in foreign securities can involve other risks different from those affecting U.S. investments, including local political or economic developments, expropriation or nationalization of assets and imposition of withholding taxes on dividend or interest payments. Foreign securities, like other assets of the Fund, will be held by the Fund's custodian or by a sub-custodian or depository. See also "Foreign Currency Transactions" below.
The Fund may invest in certain Passive Foreign Investment Companies (PFICs) which may be subject to U.S. federal income tax on a portion of any "excess distribution" or gain (PFIC tax) related to the investment. This "excess distribution" will be allocated over the Fund's holding period for such investment. The PFIC tax is the highest ordinary income rate in effect for any period multiplied by the portion of the "excess distribution" allocated to such period, and it could be increased by an interest charge on the deemed tax deferral.
The Fund may possibly elect to include in its income its pro rata share of the ordinary earnings and net capital gain of PFICs. This election requires certain annual information from the PFICs which in many cases may be difficult to obtain. An alternative election would permit the Fund to recognize as income any appreciation (and to a limited extent, depreciation) on its holdings of PFICs as of the end of its fiscal year. See "Taxes" below.
The Fund may invest in other investment companies. Such investments will involve the payment of duplicative fees through the indirect payment of a portion of the expenses, including advisory fees, of such other investment companies.
EXCHANGE-TRADED FUNDS ("ETFS"). The Fund may invest in ETFs up to the maximum amount allowable under the 1940 Act. ETFs are shares of publicly-traded unit investment trusts, open-end funds, or depositary receipts that seek to track the performance and dividend yield of specific indexes or companies in related industries. These indexes may be either broad- based, sector or international.
ETF shareholders are generally subject to the same risks as holders of the underlying securities they are designed to track. ETFs are also subject to certain additional risks, including (1) the risk that their prices may not correlate perfectly with changes in the prices of the underlying securities they are designed to track; and (2) the risk of possible trading halts due to market conditions or other reasons, based on the policies of the exchange upon which an ETF trades. In addition, an exchange traded sector fund may be adversely affected by the performance of that specific sector or group of industries on which it is based.
The Fund would bear, along with other shareholders of an ETF, its pro rata portion of the ETF's expenses, including management fees. Accordingly, in addition to bearing their proportionate share of the Fund's expenses (i.e., management fees and operating expenses), shareholders of the Fund may also indirectly bear similar expenses of an ETF.
ZERO COUPON SECURITIES (ZEROS)
The Fund may invest in zero coupon securities, which are securities issued at a significant discount from face value and do not pay interest at intervals during the life of the security. Zero coupon securities include securities issued in certificates representing undivided interests in the interest or principal of mortgage-backed securities (interest only/principal only), which tend to be more volatile than other types of securities. The Fund will accrue and distribute income from stripped securities and certificates on a current basis and may have to sell securities to generate cash for distributions.
STEP COUPON BONDS (STEPS)
The Fund may invest in debt securities which pay interest at a series of different rates (including 0%) in accordance with a stated schedule for a series of periods. In addition to the risks associated with the credit rating of the issuers, these securities may be subject to more volatility risk than fixed rate debt securities.
TENDER OPTION BONDS
A tender option bond is a municipal security (generally held pursuant to a custodial arrangement) having a relatively long maturity and bearing interest at a fixed rate substantially higher than prevailing short-term tax-exempt rates, that has been coupled with the agreement of a third party, such as a bank, broker-dealer or other financial institution, pursuant to which such institution grants the security holders the option, at periodic intervals, to tender their securities to the institution and receive the face value thereof. As consideration for providing the option, the financial institution receives periodic fees equal to the difference between the municipal security's fixed coupon rate and the rate, as determined by a remarketing or similar agent at or near the commencement of such period, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term tax-exempt rate. The Advisor will consider on an ongoing basis the creditworthiness of the issuer of the underlying municipal securities, of any custodian, and of the third-party provider of the tender option. In certain instances and for certain tender option bonds, the option may be terminable in the event of a default in payment of principal or interest on the underlying municipal securities and for other reasons.
PAY-IN-KIND (PIK) SECURITIES
The Fund may invest in securities which pay interest either in cash or additional securities. These securities are generally high yield securities and, in addition to the other risks associated with investing in high yield securities, are subject to the risks that the interest payments which consist of additional securities are also subject to the risks of high yield securities.
MONEY MARKET INSTRUMENTS
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their subdivisions, agencies and instrumentalities. SUPRANATIONAL OBLIGATIONS are issued by supranational entities and are generally designed to promote economic improvements. CERTIFICATES OF DEPOSIT are issued against deposits in a commercial bank with a defined return and maturity. BANKER'S ACCEPTANCES are used to finance the import, export or storage of goods and are "accepted" when guaranteed at maturity by a bank. COMMERCIAL PAPER is a promissory note issued by a business to finance short-term needs (including promissory notes with floating or variable interest rates, or including a frequent interval put feature). SHORT-TERM CORPORATE OBLIGATIONS are bonds and notes (with one year or less to maturity at the time of purchase) issued by businesses to finance long-term needs. PARTICIPATION INTERESTS include the underlying securities and any related guaranty, letter of credit, or collateralization arrangement in which the Fund would be allowed to invest directly.
CERTIFICATES OF DEPOSIT are short-term negotiable instruments issued against deposits in a commercial bank with a defined return and maturity. TIME DEPOSITS are non-negotiable deposits maintained in banking institutions for specified periods of time at stated interest rates.
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their subdivisions, agencies and instrumentalities. Examples of the types of obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities (hereinafter, "U.S. Government obligations") that may be held by the Funds include, without limitation, direct obligations of the U.S. Treasury, and securities issued or guaranteed by the Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association, Federal National Mortgage Association, General Services Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks, Resolution Trust Corporation and Maritime Administration.
U.S. Treasury securities differ only in their interest rates, maturities and time of issuance: Treasury Bills have initial maturities of one year or less; Treasury Notes have initial maturities of one to ten years; and Treasury Bonds generally have initial maturities of more than ten years. Obligations of certain agencies and instrumentalities of the U.S. Government, such as those of the Government National Mortgage Association, are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Federal Home Loan Banks, are supported by the right of the issuer to borrow from the Treasury; others, such as those of the Federal National Mortgage Association, are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; still others, such as those of the Federal Home Loan Mortgage Corporation, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government would provide financial support to U.S. Government-sponsored instrumentalities if it is not obligated to do so by law. Some of these instruments may be variable or floating rate instruments.
Securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities have historically involved relatively little risk of loss of principal. However, due to fluctuations in interest rates, the market value of such securities may vary during the period a shareholder owns shares of the Fund.
BANK OBLIGATIONS include bankers' acceptances, negotiable certificates of deposit, and non-negotiable time deposits issued for a definite period of time and earning a specified return by a U.S. bank which is a member of the Federal Reserve System or is insured by the Federal Deposit Insurance Corporation ("FDIC"), or by a savings and loan association or savings bank which is insured by the FDIC. Bank obligations also include U.S. dollar-denominated obligations of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of the same type as domestic bank obligations. Time deposits with a maturity longer than seven days or that do not provide for payment within seven days after notice will be subject to any limitations on illiquid securities described in Part 1 of this SAI. For purposes of each Fund's investment policies with respect to bank obligations, the assets of a bank or savings institution will be deemed to include the assets of its U.S. and foreign branches.
Domestic and foreign banks are subject to extensive but different government regulation which may limit the amount and types of their loans and the interest rates that may be charged. In addition, the profitability of the banking industry is largely dependent upon the availability and cost of funds to finance lending operations and the quality of underlying bank assets. Investments in obligations of foreign branches of U.S. banks and of U.S. branches of foreign banks may subject a Fund to additional risks, including future political and economic developments, the possible imposition of withholding taxes on interest income, possible seizure or nationalization of foreign deposits, the possible establishment of exchange controls, or the adoption of other foreign governmental restrictions which might adversely affect the payment of principal and interest on such obligations. In addition, foreign branches of U.S. banks and U.S. branches of foreign banks may be subject to less stringent reserve requirements and to different accounting, auditing, reporting, and recordkeeping standards than those applicable to domestic branches of U.S. banks.
SEPARATELY TRADED INTEREST AND PRINCIPAL SECURITIES ("STRIPS") are component parts of U.S. Treasury Securities traded through the Federal Reserve Book-Entry System. While there is no limitation on the percentage of a Fund's assets that may be invested in STRIPS, the Advisor will monitor the level of such holdings to avoid the risk of impairing shareholders' redemption rights. The interest-only component of STRIPS is extremely sensitive to the rate of principal payments on the underlying obligation. The market value of the principal-only component is usually volatile in response to changes in interest rates.
In U.S. TREASURY ROLLS, a Fund sells outstanding U.S. Treasury securities and buys back on a delayed settlement basis the same U.S. Treasury securities. During the period prior to the delayed settlement date, the assets from the sale of the U.S. Treasury securities are invested in certain cash equivalent instruments. U.S. Treasury rolls entail the risk that the Fund could suffer an opportunity loss if the counterparty to the roll failed to perform its obligations on the settlement date, and if market conditions changed adversely. The Funds intend to enter into U.S. Treasury rolls only with U.S. Government securities dealers recognized by the Federal Reserve Bank or with member banks of the Federal Reserve System. The Funds will hold and maintain in a segregated account until the settlement date cash or other liquid assets in an amount equal to the forward purchase price. For financial reporting and tax purposes, the Funds propose to treat U.S. Treasury rolls as two separate transactions, one involving the purchase of a security and a separate transaction involving a sale.
COMMERCIAL PAPER is an unsecured short-term promissory note issued by businesses to finance short-term needs (including those with floating or variable interest rates, or including a frequent interval put feature). Commercial paper may include variable and floating rate instruments which are unsecured instruments that permit the indebtedness thereunder to vary. Variable rate instruments provide for periodic adjustments in the interest rate. Floating rate instruments provide for automatic adjustment of the interest rate whenever some other specified interest rate changes. Some variable and floating rate obligations are direct lending arrangements between the purchaser and the issuer and there may be no active secondary market. However, in the case of variable and floating rate obligations with a demand feature, a Fund may demand payment of principal and accrued interest at a time specified in the instrument or may resell the instrument to a third party. In the event that an issuer of a variable or floating rate obligation were to default on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and could, for this or other reasons, suffer a loss to the extent of the default.
Commercial paper may include securities issued by corporations without registration under the 1933 Act in reliance on the so- called "private placement" exemption in Section 4(2) ("Section 4(2) Paper"). Section 4(2) Paper is restricted as to disposition under the federal securities laws in that any resale must similarly be made in an exempt transaction. Section 4(2) Paper is normally resold to other institutional investors through or with the assistance of investment dealers who make a market in Section 4(2) Paper, thus providing liquidity. For purposes of each Fund's limitation on purchases of illiquid instruments described below, Section 4(2) Paper will not be considered illiquid if the Advisor has determined, in accordance with guidelines approved by the Board of Trustees, that an adequate trading market exists for such securities.
STRIPPED OBLIGATIONS
To the extent consistent with their investment objective, Funds may purchase U.S. Treasury receipts and other "stripped" securities that evidence ownership in either the future interest payments or the future principal payments on U.S. Government and other obligations. These participations, which may be issued by the U.S. Government or by private issuers, such as banks and other institutions, are issued at their "face value," and may include stripped mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage securities. Stripped securities, particularly SMBS, may exhibit greater price volatility than ordinary debt securities because of the manner in which their principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive different proportions of the interest and principal distributions from a pool of mortgage-backed obligations. A common type of SMBS will have one class receiving all of the interest, while the other class will receive all of the principal. However, in some instances, one class will receive some of the interest and most of the principal while the other class will receive most of the interest and the remainder of the principal. If the underlying obligations experience greater than anticipated prepayments of principal, the Fund may fail to fully recoup its initial investment in these securities. The market value of the class consisting entirely of principal payments generally is extremely volatile in response to changes in interest rates. The yields on a class of SMBS that receives all or most of the interest are generally higher than prevailing market yields on other mortgage-backed obligations because their cash flow patterns are more volatile and there is a greater risk that the initial investment will not be fully recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government agency or instrumentality) are considered illiquid by the Funds. Obligations issued by the U.S. Government may be considered liquid under guidelines established by Funds' Board of Trustees if they can be disposed of promptly in the ordinary course of business at a value reasonably close to that used in the calculation of net asset value per share.
MUNICIPAL SECURITIES
Municipal Securities acquired by the Funds include debt obligations issued by governmental entities to obtain funds for various public purposes, including the construction of a wide range of public facilities, the refunding of outstanding obligations, the payment of general operating expenses, and the extension of loans to public institutions and facilities. Private activity bonds that are issued by or on behalf of public authorities to finance various privately operated facilities are "Municipal Securities" if the interest paid thereon is exempt from regular federal income tax and not treated as a specific tax preference item under the federal alternative minimum tax.
The two principal classifications of Municipal Securities which may be held by the Funds are "general obligation" securities and "revenue" securities. General obligation securities are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue securities are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific revenue source such as the user of the facility being financed.
The Fund's portfolio may also include "moral obligation" securities, which are normally issued by special purpose public authorities. If the issuer of moral obligation securities is unable to meet its debt service obligations from current revenues, it may
draw on a reserve fund, the restoration of which is a moral commitment but not a legal obligation of the state or municipality which created the issuer. There is no limitation on the amount of moral obligation securities that may be held by the Funds.
There are, of course, variations in the quality of Municipal Securities, both within a particular category and between categories, and the yields on Municipal Securities depend upon a variety of factors, including general market conditions, the financial condition of the issuer, general conditions of the municipal bond market, the size of a particular offering, the maturity of the obligation, and the rating of the issue. The ratings of a nationally recognized statistical rating organization ("NRSRO"), such as Moody's and S&P, represent such NRSRO's opinion as to the quality of Municipal Securities. It should be emphasized that these ratings are general and are not absolute standards of quality. Municipal Securities with the same maturity, interest rate and rating may have different yields. Municipal Securities of the same maturity and interest rate with different ratings may have the same yield.
Municipal Securities may include rated and unrated variable and floating rate tax-exempt instruments, such as variable rate demand notes. Variable rate demand notes are long-term Municipal Securities that have variable or floating interest rates and provide a Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on an applicable interest index or another published interest rate or interest rate index. Most variable rate demand notes allow a Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit a Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. Variable interest rates generally reduce changes in the market value of Municipal Securities from their original purchase prices. Accordingly, as interest rates decrease, the potential for capital appreciation is less for variable rate Municipal Securities than for fixed income obligations. The terms of these variable rate demand instruments require payment of principal and accrued interest from the issuer of the Municipal Securities, the issuer of the participation interest or a guarantor of either issuer.
Municipal Securities purchased by the Funds in some cases may be insured as to the timely payment of principal and interest. There is no guarantee, however, that the insurer will meet its obligations in the event of a default in payment by the issuer. In other cases, Municipal Securities may be backed by letters of credit or guarantees issued by domestic or foreign banks or other financial institutions which are not subject to federal deposit insurance. Adverse developments affecting the banking industry generally or a particular bank or financial institution that has provided its credit or guarantee with respect to a Municipal Security held by a Fund, including a change in the credit quality of any such bank or financial institution, could result in a loss to the Fund and adversely affect the value of its shares. Letters of credit and guarantees issued by foreign banks and financial institutions involve certain risks in addition to those of similar instruments issued by domestic banks and financial institutions.
The payment of principal and interest on most Municipal Securities purchased by the Funds will depend upon the ability of the issuers to meet their obligations. Each state, the District of Columbia, each of their political subdivisions, agencies, instrumentalities and authorities and each multi-state agency of which a state is a member is a separate "issuer" as that term is used in this SAI and the Prospectuses. The non-governmental user of facilities financed by private activity bonds is also considered to be an "issuer." An issuer's obligations under its Municipal Securities are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Code and laws, if any, which may be enacted by federal or state legislatures extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations or upon the ability of municipalities to levy taxes. The power or ability of an issuer to meet its obligations for the payment of interest on and principal of its Municipal Securities may be materially adversely affected by litigation or other conditions.
From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax exemption for interest on Municipal Securities. For example, under the Tax Reform Act of 1986, interest on certain private activity bonds must be included in an investor's federal alternative minimum taxable income, and corporate investors must include all tax-exempt interest in their federal alternative minimum taxable income. The Funds cannot, of course, predict what legislation may be proposed in the future regarding the income tax status of interest on Municipal Securities, or which proposals, if any, might be enacted. Such proposals, while pending or if enacted, might materially and adversely affect the availability of Municipal Securities for investment by the Funds and the liquidity and value of their respective portfolios. In such an event, each Fund would re-evaluate its investment objective and policies and consider possible changes in its structure or possible dissolution.
Opinions relating to the validity of Municipal Securities and to the exemption of interest thereon from federal income tax are rendered by bond counsel to the respective issuers at the time of issuance. Neither the Funds nor the Advisor will review the proceedings relating to the issuance of Municipal Securities or the bases for such opinions.
PRIVATE ACTIVITY BONDS
The Funds may invest in "private activity bonds," the interest on which, although exempt from regular federal income tax, may constitute an item of tax preference for purposes of the federal alternative minimum tax. Private activity bonds are or have been issued to obtain funds to provide, among other things, privately operated housing facilities, pollution control facilities, convention or trade show facilities, mass transit, airport, port or parking facilities and certain local facilities for water supply, gas, electricity or sewage or solid waste disposal. Private activity bonds are also issued to privately held or publicly owned corporations in the financing of commercial or industrial facilities. State and local governments are authorized in most states to issue private activity bonds for such purposes in order to encourage corporations to locate within their communities. The principal and interest on these obligations may be payable from the general revenues of the users of such facilities.
Private activity bonds held by the Funds are in most cases revenue securities and are not payable from the unrestricted revenues of the issuer. Consequently, the credit quality of such private activity bonds is usually directly related to the credit standing of the corporate user of the facility involved.
MUNICIPAL LEASE OBLIGATIONS
Although a municipal lease obligation does not constitute a general obligation of the municipality for which the municipality's taxing power is pledged, a municipal lease obligation is ordinarily backed by the municipality's covenant to budget for, appropriate and make the payments due under the municipal lease obligation. However, certain lease obligations contain "non-appropriation" clauses which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. Although "non-appropriation" lease obligations are secured by the leased property, disposition of the property in the event of foreclosure might prove difficult. In addition, the tax treatment of such obligations in the event of non-appropriation is unclear.
Determinations concerning the liquidity and appropriate valuation of a municipal lease obligation, as with any other municipal security, are made based on all relevant factors. These factors include, among others: (1) the frequency of trades and quotes for the obligation; (2) the number of dealers willing to purchase or sell the security and the number of other potential buyers; (3) the willingness of dealers to undertake to make a market in the security; and (4) the nature of the marketplace trades, including the time needed to dispose of the security, the method of soliciting offers, and the mechanics of the transfer.
SECURITIES LOANS
The Fund may make secured loans of its portfolio securities amounting to not more than the percentage of its total assets specified in Part 1 of this SAI, thereby realizing additional income. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delay in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. As a matter of policy, securities loans are made to banks and broker-dealers pursuant to agreements requiring that loans be continuously secured by collateral in cash or short-term debt obligations at least equal at all times to the value of the securities on loan. The borrower pays to the Fund an amount equal to any dividends or interest received on securities lent. The Fund retains all or a portion of the interest received on investment of the cash collateral or receives a fee from the borrower. Although voting rights, or rights to consent, with respect to the loaned securities pass to the borrower, the Fund retains the right to call the loans at any time on reasonable notice, and it will do so in order that the securities may be voted by the Fund if the holders of such securities are asked to vote upon or consent to matters materially affecting the investment. The Fund may also call such loans in order to sell the securities involved.
INTERFUND BORROWING AND LENDING
The Fund may lend money to and borrow money from other affiliated registered open-end investment companies. The Fund may borrow through the program when the Advisor believes borrowing is appropriate and the costs are equal to or lower than the costs of bank loans. When borrowing money, the Fund is subject to the risk that the securities the Fund acquires with the borrowed money or would otherwise have sold will decline in value. When lending money, the Fund is subject to the risk that the borrower will be unwilling or unable to make timely payments of interest or principal.
FORWARD COMMITMENTS ("WHEN-ISSUED" AND "DELAYED DELIVERY" SECURITIES)
The Fund may enter into contracts to purchase securities for a fixed price at a future date beyond customary settlement time ("forward commitments" and "when-issued securities") if the Fund holds until the settlement date, in a segregated account, cash or liquid securities in an amount sufficient to meet the purchase price, or if the Fund enters into offsetting contracts for the forward sale of other securities it owns. Forward commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date. Where such purchases are made through dealers, the Fund relies on the dealer to consummate the sale. The dealer's failure to do so may result in the loss to the Fund of an advantageous yield or price. Although the Fund will generally enter into forward commitments with the intention of acquiring securities for its portfolio or for delivery pursuant to options contracts it has entered into, the Fund may dispose of a commitment prior to settlement if the Advisor deems it appropriate to do so. The Fund may realize short-term profits or losses (generally taxed at ordinary income tax rates in the hands of the shareholders) upon the sale of forward commitments.
MORTGAGE DOLLAR ROLLS
In a mortgage dollar roll, the Fund sells a mortgage-backed security and simultaneously enters into a commitment to purchase a similar security at a later date. The Fund either will be paid a fee by the counterparty upon entering into the transaction or will be entitled to purchase the similar security at a discount. As with any forward commitment, mortgage dollar rolls involve the risk that the counterparty will fail to deliver the new security on the settlement date, which may deprive the Fund of obtaining a beneficial investment. In addition, the security to be delivered in the future may turn out to be inferior to the security sold upon entering into the transaction. In addition, the transaction costs may exceed the return earned by the Fund from the transaction.
REITS
The Funds may invest in real estate investment trusts ("REITs"). Equity REITs invest directly in real property while mortgage REITs invest in mortgages on real property. REITs may be subject to certain risks associated with the direct ownership of real estate, including declines in the value of real estate, risks related to general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, and variations in rental income. Generally, increases in interest rates will decrease the value of high yielding securities and increase the costs of obtaining financing, which could decrease the value of a REIT's investments. In addition, equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of credit extended. Equity and mortgage REITs are dependent upon management skill, are not diversified and are subject to the risks of financing projects. REITs are also subject to heavy cash flow dependency, defaults by borrowers, self liquidation and the possibility of failing to qualify for tax- free pass-through of income under the Internal Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from the 1940 Act. REITs pay dividends to their shareholders based upon available funds from operations. It is quite common for these dividends to exceed a REIT's taxable earnings and profits resulting in the excess portion of such dividends being designated as a return of capital. The Funds intend to include the gross dividends from any investments in REITs in their periodic distributions to its shareholders and, accordingly, a portion of the Fund's distributions may also be designated as a return of capital.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities, including "collateralized mortgage obligations" (CMOs) and "real estate mortgage investment conduits" (REMICs), evidence ownership in a pool of mortgage loans made by certain financial institutions that may be insured or guaranteed by the U.S. government or its agencies. CMOs are obligations issued by special-purpose trusts, secured by mortgages. REMICs are entities that own mortgages and elect REMIC status under the Internal Revenue Code. Both CMOs and REMICs issue one or more classes of securities of which one (the Residual) is in the nature of equity. The Funds will not invest in the Residual class. Principal on mortgage-backed securities, CMOs and REMICs may be prepaid if the underlying mortgages are prepaid. Prepayment rates for mortgage-backed securities tend to increase as interest rates decline (effectively shortening the security's life) and decrease as interest rates rise (effectively lengthening the security's life). Because of the prepayment feature, these securities may not increase in value as much as other debt securities when interest rates fall. A Fund may be able to invest prepaid principal only at lower yields. The prepayment of such securities purchased at a premium may result in losses equal to the premium.
NON-AGENCY MORTGAGE-BACKED SECURITIES
The Fund may invest in non-investment grade mortgage-backed securities that are not guaranteed by the U.S. government or an agency. Such securities are subject to the risks described under "Lower Rated Debt Securities" and "Mortgage-Backed Securities." In addition, although the underlying mortgages provide collateral for the security, the Fund may experience losses, costs and delays in enforcing its rights if the issuer defaults or enters bankruptcy.
ASSET-BACKED SECURITIES
Asset-backed securities are interests in pools of debt securities backed by various types of loans such as credit card, auto and home equity loans. These securities involve prepayment risk, which is the possibility that the underlying debt may be refinanced or prepaid prior to maturity during periods of declining interest rates. During periods of rising interest rates, asset-backed securities have a high risk of declining in price because the declining prepayment rates effectively lengthen the expected maturity of the securities. A decline in interest rates may lead to a faster rate of repayment on asset-backed securities and, therefore, cause a Fund to earn a lower interest rate on reinvestment. In addition, the potential impact of prepayment on the price of an asset-backed security may be difficult to predict and result in greater volatility.
CUSTODY RECEIPTS AND TRUST CERTIFICATES.
Custody receipts, such as Morgan Stanley TRACERs (Traded Custody Receipts), and trust certificates, such as Lehman Brothers TRAINs (Targeted Return Index Securities Trust), are derivative products which, in the aggregate, evidence direct ownership in a pool of securities. Typically, a sponsor will deposit a pool of securities with a custodian in exchange for custody receipts evidencing those securities or with a trust in exchange for trust certificates evidencing interests in the trust, the principal asset of which is those securities. The sponsor will then generally sell those custody receipts or trust certificates in negotiated transactions at varying prices that are determined at the time of sale. Each custody receipt or trust certificate evidences the individual securities in the pool and the holder of a custody receipt or trust certificate generally will have all the rights and privileges of owners of those securities. Each holder of a custody receipt or trust certificate generally will be treated as directly purchasing its pro rata share of the securities in the pool for an amount equal to the amount that such holder paid for its custody receipt or trust certificate. If a custody receipt or trust certificate is sold, a holder will be treated as having directly "disposed of its pro rata share of the securities evidenced by the custody receipt or trust certificate. Additionally, the holder of a custody receipt or trust certificate may withdraw the securities represented by the custody receipt or trust certificate subject to certain conditions. Custody receipts and trust certificates are generally subject to the same risks as those securities evidenced by the receipts or certificates which, in the case of the Fund, are corporate debt securities. Additionally, custody receipts and trust certificates may also be less liquid than the underlying securities if the sponsor fails to maintain a trading market.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. A repurchase agreement is a contract under which the Fund acquires a security for a relatively short period subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price (representing the Fund's cost plus interest). It is the Fund's present intention to enter into repurchase agreements only with commercial banks and registered broker-dealers and only with respect to obligations of the U.S. government or its agencies or instrumentalities. Repurchase agreements may also be viewed as loans made by the Fund which are collateralized by the securities subject to repurchase. The Advisor will monitor such transactions to determine that the value of the underlying securities is at least equal at all times to the total amount of the repurchase obligation, including the interest factor. If the seller defaults, the Fund could realize a loss on the sale of the underlying security to the extent that the proceeds of sale including accrued interest are less than the resale price provided in the agreement including interest. In addition, if the seller should be involved in bankruptcy or insolvency proceedings, the Fund may incur delay and costs in selling the underlying security or may suffer a loss of principal and interest if the Fund is treated as an unsecured creditor and required to return the underlying collateral to the seller's estate.
REVERSE REPURCHASE AGREEMENTS
In a reverse repurchase agreement, the Fund sells a security and agrees to repurchase the same security at a mutually agreed upon date and price. A reverse repurchase agreement may also be viewed as the borrowing of money by the Fund and, therefore, as a form of leverage. The Fund will invest the proceeds of borrowings under reverse repurchase agreements. In addition, the Fund will enter into a reverse repurchase agreement only when the interest income expected to be earned from the investment of the proceeds is greater than the interest expense of the transaction. The Fund will not invest the proceeds of a reverse repurchase agreement for a period which exceeds the duration of the reverse repurchase agreement. The Fund may not enter into reverse repurchase agreements exceeding in the aggregate one-third of the market value of its total assets, less liabilities other than the obligations created by reverse repurchase agreements. Each Fund will establish and maintain with its custodian a separate account with a segregated portfolio of securities in an amount at least equal to its purchase obligations under its reverse repurchase agreements. If interest rates rise during the term of a reverse repurchase agreement, entering into the reverse repurchase agreement may have a negative impact on a money market fund's ability to maintain a net asset value of $1.00 per share.
LINE OF CREDIT
The Fund may establish and maintain a line of credit with a major bank in order to permit borrowing on a temporary basis to meet share redemption requests in circumstances in which temporary borrowings may be preferable to liquidation of portfolio securities.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The Fund may write covered call options and covered put options on securities held in its portfolio when, in the opinion of the Advisor, such transactions are consistent with the Fund's investment goal and policies. Call options written by the Fund give the purchaser the right to buy the underlying securities from the Fund at a stated exercise price; put options give the purchaser the right to sell the underlying securities to the Fund at a stated price.
The Fund may write only covered options, which means that, so long as the Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option (or comparable securities satisfying the cover requirements of securities exchanges). In the case of put options, the Fund will hold cash and/or high-grade short-term debt obligations equal to the price to be paid if the option is exercised. In addition, the Fund will be considered to have covered a put or call option if and to the extent that it holds an option that offsets some or all of the risk of the option it has written. The Fund may write combinations of covered puts and calls on the same underlying security.
The Fund will receive a premium from writing a put or call option, which increases the Fund's return on the underlying security if the option expires unexercised or is closed out at a profit. The amount of the premium reflects, among other things, the relationship between the exercise price and the current market value of the underlying security, the volatility of the underlying security, the amount of time remaining until expiration, current interest rates, and the effect of supply and demand in the options market and in the market for the underlying security. By writing a call option, the Fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option but continues to bear the risk of a decline in the value of the underlying security. By writing a put option, the Fund assumes the risk that it may be required to purchase the underlying security for an exercise price higher than its then-current market value, resulting in a potential capital loss unless the security subsequently appreciates in value.
The Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an offsetting option. The Fund realizes a profit or loss from a closing transaction if the cost of the transaction (option premium plus transaction costs) is less or more than the premium received from writing the option. Because increases in the market price of a call option generally reflect increases in the market price of the security underlying the option, any loss resulting from a closing purchase transaction may be offset in whole or in part by unrealized appreciation of the underlying security.
If the Fund writes a call option but does not own the underlying security, and when it writes a put option, the Fund may be required to deposit cash or securities with its broker as "margin" or collateral for its obligation to buy or sell the underlying security. As the value of the underlying security varies, the Fund may have to deposit additional margin with the broker. Margin requirements are complex and are fixed by individual brokers, subject to minimum requirements currently imposed by the Federal Reserve Board and by stock exchanges and other self-regulatory organizations.
PURCHASING PUT OPTIONS. The Fund may purchase put options to protect its portfolio holdings in an underlying security against a decline in market value. Such hedge protection is provided during the life of the put option since the Fund, as holder of the put option, is able to sell the underlying security at the put exercise price regardless of any decline in the underlying security's market price. For a put option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs. By using put options in this manner, the Fund will reduce any profit it might otherwise have realized from appreciation of the underlying security by the premium paid for the put option and by transaction costs.
PURCHASING CALL OPTIONS. The Fund may purchase call options to hedge against an increase in the price of securities that the Fund wants ultimately to buy. Such hedge protection is provided during the life of the call option since the Fund, as holder of the call option, is able to buy the underlying security at the exercise price regardless of any increase in the underlying security's market price. In order for a call option to be profitable, the market price of the underlying security must rise sufficiently above the exercise price to cover the premium and transaction costs. These costs will reduce any profit the Fund might have realized had it bought the underlying security at the time it purchased the call option.
OVER-THE-COUNTER (OTC) OPTIONS. The Staff of the Division of Investment Management of the Securities and Exchange Commission (SEC) has taken the position that OTC options purchased by the Fund and assets held to cover OTC options written by the Fund are illiquid securities. Although the Staff has indicated that it is continuing to evaluate this issue, pending further developments, the Fund intends to enter into OTC options transactions only with primary dealers in U.S. government securities and, in the case of OTC options written by the Fund, only pursuant to agreements that will assure that the Fund will at all times have the right to repurchase the option written by it from the dealer at a specified formula price. The Fund will treat the amount by which such formula price exceeds the amount, if any, by which the option may be "in-the-money" as an illiquid investment. It is the present policy of the Fund not to enter into any OTC option transaction if, as a result, more than 15% (10% in some cases, refer to your Fund's Prospectus) of the Fund's net assets would be invested in (i) illiquid investments (determined under the foregoing formula) relating to OTC options written by the Fund, (ii) OTC options purchased by the Fund, (iii) securities which are not readily marketable, and (iv) repurchase agreements maturing in more than seven days.
RISK FACTORS IN OPTIONS TRANSACTIONS. The successful use of the Fund's options strategies depends on the ability of the Advisor to forecast interest rate and market movements correctly.
When it purchases an option, the Fund runs the risk that it will lose its entire investment in the option in a relatively short period of time, unless the Fund exercises the option or enters into a closing sale transaction with respect to the option during the life of the option. If the price of the underlying security does not rise (in the case of a call) or fall (in the case of a put) to an extent sufficient to cover the option premium and transaction costs, the Fund will lose part or all of its investment in the option. This contrasts with an investment by the Fund in the underlying securities, since the Fund may continue to hold its investment in those securities notwithstanding the lack of a change in price of those securities.
The effective use of options also depends on the Fund's ability to terminate option positions at times when the Advisor deems it desirable to do so. Although the Fund will take an option position only if the Advisor believes there is a liquid secondary market for the option, there is no assurance that the Fund will be able to effect closing transactions at any particular time or at an acceptable price.
If a secondary trading market in options were to become unavailable, the Fund could no longer engage in closing transactions. Lack of investor interest might adversely affect the liquidity of the market for particular options or series of options. A marketplace may discontinue trading of a particular option or options generally. In addition, a market could become temporarily unavailable if unusual events -- such as volume in excess of trading or clearing capability -- were to interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on particular types of option transactions, which may limit the Fund's ability to realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options purchased or sold by the Fund could result in losses on the options. If trading is interrupted in an underlying security, the trading of options on that security is normally halted as well. As a result, the Fund as purchaser or writer of an option will be unable to close out its positions until options trading resumes, and it may be faced with losses if trading in the security reopens at a substantially different price. In addition, the Options Clearing Corporation (OCC) or other options markets may impose exercise restrictions. If a prohibition on exercise is imposed at the time when trading in the option has also been halted, the Fund as purchaser or writer of an option will be locked into its position until one of the two restrictions has been lifted. If a prohibition on exercise remains in effect until an option owned by the Fund has expired, the Fund could lose the entire value of its option.
Special risks are presented by internationally traded options. Because of time differences between the United States and various foreign countries, and because different holidays are observed in different countries, foreign options markets may be open for trading during hours or on days when U.S. markets are closed. As a result, option premiums may not reflect the current prices of the underlying interest in the United States.
FUTURES CONTRACTS AND RELATED OPTIONS
Upon entering into futures contracts, in compliance with the SEC's requirements, cash or liquid securities, equal in value to the amount of the Fund's obligation under the contract (less any applicable margin deposits and any assets that constitute "cover" for such obligation), will be segregated with the Fund's custodian.
A futures contract sale creates an obligation by the seller to deliver the type of instrument called for in the contract in a specified delivery month for a stated price. A futures contract purchase creates an obligation by the purchaser to take delivery of the type of instrument called for in the contract in a specified delivery month at a stated price. The specific instruments delivered or taken at the settlement date are not determined until on or near that date. The determination is made in accordance with the rules of the exchanges on which the futures contract was made. The Fund may enter into futures contracts which are traded on national or foreign futures exchanges and are standardized as to maturity date and underlying financial instrument. Futures exchanges and trading in the United States are regulated under the Commodity Exchange Act by the Commodity Futures Trading Commission (CFTC).
Although futures contracts by their terms call for actual delivery or acceptance of commodities or securities, the contracts usually are closed out before the settlement date without the making or taking of delivery. Closing out a futures contract sale is effected by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument or commodity with the same delivery date. If the price of the initial sale of the futures contract exceeds the price of the offsetting purchase, the seller is paid the difference and realizes a gain. Conversely, if the price of the offsetting purchase exceeds the price of the initial sale, the seller realizes a loss. Similarly, the closing out of a futures contract purchase is effected by the purchaser's entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, the purchaser realizes a gain, and if the purchase price exceeds the offsetting sale price, the purchaser realizes a loss.
Unlike when the Fund purchases or sells a security, no price is paid or received by the Fund upon the purchase or sale of a futures contract, although the Fund is required to deposit with its custodian in a segregated account in the name of the futures broker an amount of cash and/or U.S. government securities. This amount is known as "initial margin." The nature of initial margin in futures transactions is different from that of margin in security transactions in that futures contract margin does not involve the borrowing of funds by the Fund to finance the transactions. Rather, initial margin is in the nature of a performance bond or good faith deposit on the contract that is returned to the Fund upon termination of the futures contract, assuming all contractual obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin," to and from the broker (or the custodian) are made on a daily basis as the price of the underlying security or commodity fluctuates, making the long and short positions in the futures contract more or less valuable, a process known as "marking to market."
The Fund may elect to close some or all of its futures positions at any time prior to their expiration. The purpose of making such a move would be to reduce or eliminate the hedge position then currently held by the Fund. The Fund may close its positions by taking opposite positions which will operate to terminate the Fund's position in the futures contracts. Final determinations of variation margin are then made, additional cash is required to be paid by or released to the Fund, and the Fund realizes a loss or a gain. Such closing transactions involve additional commission costs.
INTEREST RATE FUTURES CONTRACTS. Bond prices are established in both the cash market and the futures market. In the cash market, bonds are purchased and sold with payment for the full purchase price of the bond being made in cash, generally within five business days after the trade. In the futures market, only a contract is made to purchase or sell a bond in the future for a set price on a certain date. Historically, the prices for bonds established in the futures markets have tended to move generally in the aggregate in concert with the cash market prices and have maintained fairly predictable relationships. Accordingly, the Funds may use interest rate futures contracts as a defense, or hedge, against anticipated interest rate changes. The Funds presently could accomplish a similar result to that which they hope to achieve through the use of futures contracts by selling bonds with long maturities and investing in bonds with short maturities when interest rates are expected to increase, or conversely, selling short-term bonds and investing in long-term bonds when interest rates are expected to decline. However, because of the liquidity that is often available in the futures market, the protection is more likely to be achieved, perhaps at a lower cost and without changing the rate of interest being earned by the Funds, through using futures contracts.
Interest rate futures contracts are traded in an auction environment on the floors of several exchanges -- principally, the Chicago Board of Trade, the Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would deal only in standardized contracts on recognized exchanges. Each exchange guarantees performance under contract provisions through a clearing corporation, a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial instruments including long-term United States Treasury Bonds and Notes; Government National Mortgage Association (GNMA) modified pass-through mortgage backed securities; three-month United States Treasury Bills; and ninety-day commercial paper. The Funds may trade in any interest rate futures contracts for which there exists a public market, including, without limitation, the foregoing instruments.
MUNICIPAL BOND INDEX FUTURES CONTRACTS. Municipal bond index futures contracts may act as a hedge against changes in market conditions. A municipal bond index assigns values daily to the municipal bonds included in the index based on the independent assessment of dealer-to-dealer municipal bond brokers. A municipal bond index futures contract represents a firm commitment by which two parties agree to take or make delivery of an amount equal to a specified dollar amount multiplied by the difference between the municipal bond index value on the last trading date of the contract and the price at which the futures contract is originally struck. No physical delivery of the underlying securities in the index is made.
The Chicago Board of Trade has designed a futures contract based on the Bond Buyer Municipal Bond Index. This Index is composed of 40 term revenue and general obligation bonds, and its composition is updated regularly as new bonds meeting the criteria of the Index are issued and existing bonds mature. The Index is intended to provide an accurate indicator of trends and changes in the municipal bond market. Each bond in the Index is independently priced by six dealer-to-dealer municipal bond brokers daily. The 40 prices then are averaged and multiplied by a coefficient. The coefficient is used to maintain the continuity of the Index when its composition changes. The Chicago Board of Trade, on which futures contracts based on this Index are traded, as well as other U.S. commodities exchanges, are regulated by the CFTC. Transactions on such exchange are cleared through a clearing corporation, which guarantees the performance of the parties to each contract.
OPTIONS ON FUTURES CONTRACTS. The Fund will enter into written options on futures contracts only when, in compliance with the SEC's requirements, cash or liquid securities equal in value to the commodity value (less any applicable margin deposits) have been deposited in a segregated account. The Fund may purchase and write call and put options on futures contracts it may buy or sell and enter into closing transactions with respect to such options to terminate existing positions. The Fund may use such options on futures contracts in lieu of writing options directly on the underlying securities or purchasing and selling the underlying futures contracts. Such options generally operate in the same manner as options purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate his position by selling or purchasing an offsetting option. There is no guarantee that such closing transactions can be effected.
The Fund will be required to deposit initial margin and maintenance margin with respect to put and call options on futures contracts written by it pursuant to brokers' requirements similar to those described above.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use of futures contracts by the Fund is subject to the Advisor's ability to predict correctly, movements in the direction of interest rates and other factors affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or put options on futures contracts involves less potential risk to the Fund because the maximum amount at risk is the premium paid for the options (plus transaction costs). However, there may be circumstances when the purchase of a call or put option on a futures contract would result in a loss to the Fund when the purchase or sale of a futures contract would not, such as when there is no movement in the prices of the hedged investments. The writing of an option on a futures contract involves risks similar to those risks relating to the sale of futures contracts.
There is no assurance that higher than anticipated trading activity or other unforeseen events might not, at times, render certain market clearing facilities inadequate, and thereby result in the institution, by exchanges, of special procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the Fund, the Fund may seek to close out a position. The ability to establish and close out positions will be subject to the development and maintenance of a liquid secondary market. It is not certain that this market will develop or continue to exist for a particular futures contract. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain contracts or options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of contracts or options, or underlying securities; (iv)
unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or a clearing corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of contracts or options (or a particular class or series of contracts or options), in which event the secondary market on that exchange (or in the class or series of contracts or options) would cease to exist, although outstanding contracts or options on the exchange that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms.
USE BY TAX-EXEMPT FUNDS OF INTEREST RATE AND U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. The Funds investing in tax-exempt securities may purchase and sell futures contracts and related options on interest rate and U.S. Treasury securities when, in the opinion of the Advisor, price movements in these security futures and related options will correlate closely with price movements in the tax-exempt securities which are the subject of the hedge. Interest rate and U.S. Treasury securities futures contracts require the seller to deliver, or the purchaser to take delivery of, the type of security called for in the contract at a specified date and price. Options on interest rate and U.S. Treasury security futures contracts give the purchaser the right in return for the premium paid to assume a position in a futures contract at the specified option exercise price at any time during the period of the option.
In addition to the risks generally involved in using futures contracts, there is also a risk that price movements in interest rate and U.S. Treasury security futures contracts and related options will not correlate closely with price movements in markets for tax-exempt securities.
INDEX FUTURES CONTRACTS. An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of an index is commonly referred to as buying or purchasing a contract or holding a long position in the index. Entering into a contract to sell units of an index is commonly referred to as selling a contract or holding a short position. A unit is the current value of the index. The Fund may enter into stock index futures contracts, debt index futures contracts, or other index futures contracts appropriate to its objective(s). The Fund may also purchase and sell options on index futures contracts.
There are several risks in connection with the use by the Fund of index futures as a hedging device. One risk arises because of the imperfect correlation between movements in the prices of the index futures and movements in the prices of securities which are the subject of the hedge. The Advisor will attempt to reduce this risk by selling, to the extent possible, futures on indices the movements of which will, in its judgment, have a significant correlation with movements in the prices of the Fund's portfolio securities sought to be hedged.
Successful use of index futures by the Fund for hedging purposes is also subject to the Advisor's ability to predict correctly movements in the direction of the market. It is possible that, where the Fund has sold futures to hedge its portfolio against a decline in the market, the index on which the futures are written may advance and the value of securities held in the Fund's portfolio may decline. If this occurs, the Fund would lose money on the futures and also experience a decline in the value of its portfolio securities. However, while this could occur to a certain degree, the Advisor believes that over time the value of the Fund's portfolio will tend to move in the same direction as the market indices which are intended to correlate to the price movements of the portfolio securities sought to be hedged. It is also possible that, if the Fund has hedged against the possibility of a decline in the market adversely affecting securities held in its portfolio and securities prices increase instead, the Fund will lose part or all of the benefit of the increased values of those securities that it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient cash, it may have to sell securities to meet daily variation margin requirements.
In addition to the possibility that there may be an imperfect correlation, or no correlation at all, between movements in the index futures and the securities of the portfolio being hedged, the prices of index futures may not correlate perfectly with movements in the underlying index due to certain market distortions. First, all participants in the futures markets are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions which would distort the normal relationship between the index and futures markets. Second, margin requirements in the futures market are less onerous than margin requirements in the securities market, and as a result, the futures market may attract more speculators than the securities market. Increased participation by speculators in the futures market may also cause temporary price distortions. Due to the possibility of price distortions in the futures market and also because of the imperfect correlation between movements in the index and movements in the prices of index futures, even a correct forecast of general market trends by the Advisor may still not result in a successful hedging transaction.
OPTIONS ON INDEX FUTURES. Options on index futures are similar to options on securities except that options on index futures give the purchaser the right, in return for the premium paid, to assume a position in an index futures contract (a long position if the option is a call and a short position if the option is a put), at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's futures margin account which represents the amount by which the market price of the index futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the index future. If an option is exercised on the last trading day prior to the expiration date of the option, the settlement will be made entirely in cash equal to the difference between the exercise price of the option and the closing level of the index on which the future is based on the expiration date. Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss of the premium paid.
OPTIONS ON INDICES. As an alternative to purchasing call and put options on index futures, the Fund may purchase call and put options on the underlying indices themselves. Such options could be used in a manner identical to the use of options on index futures. Options involving securities indices provide the holder with the right to make or receive a cash settlement upon exercise of the option based on movements in the relevant index. Such options must be listed on a national securities exchange and issued by the Options Clearing Corporation. Such options may relate to particular securities or to various stock indices, except that a Fund may not write covered options on an index.
OPTIONS ON FOREIGN STOCK INDICES. The Funds may, for the purpose of hedging its portfolio, subject to applicable securities regulations, purchase and write put and call options on foreign stock indices listed on foreign and domestic stock exchanges. A stock index fluctuates with changes in the market values of the stocks included in the index.
SWAP AGREEMENTS (SWAPS, CAPS, COLLARS AND FLOORS)
The Funds may enter into interest rate swaps, currency swaps, and other types of swap agreements such as caps, collars, and floors. In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate times a "notional principal amount," in return for payments equal to a fixed rate times the same amount, for a specified period of time. If a swap agreement provides for payments in different currencies, the parties might agree to exchange notional principal amount as well. Swaps may also depend on other prices or rates, such as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed upon level. An interest rate collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from one type of investment to another. For example, if a Fund agreed to exchange payments in dollars for payments in foreign currency, the swap agreement would tend to decrease the Fund's exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates. Caps and floors have an effect similar to buying or writing options. Depending on how they are used, swap agreements may increase or decrease the overall volatility of a Fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a small investment of cash relative to the magnitude of risks assumed. As a result, swaps can be highly volatile and may have a considerable impact on the Funds' performance. Swap agreements are subject to risks related to the counterparty's ability to perform, and may decline in value if the counterparty's creditworthiness deteriorates. The Funds may also suffer losses if they are unable to terminate outstanding swap agreements or reduce their exposure through offsetting transactions.
EQUITY SWAPS
The Fund may engage in equity swaps. Equity swaps allow the parties to the swap agreement to exchange components of return on one equity investment (e.g., a basket of equity securities or an index) for a component of return on another non-equity or equity investment, including an exchange of differential rates of return. Equity swaps may be used to invest in a market without owning or taking physical custody of securities in circumstances where direct investment may be restricted for legal reasons or is otherwise impractical. Equity swaps also may be used for other purposes, such as hedging or seeking to increase total return.
RISK FACTORS IN EQUITY SWAP TRANSACTIONS. Equity swaps are derivative instruments and their values can be very volatile. To the extent that the portfolio managers do not accurately analyze and predict the potential relative fluctuation on the components swapped with the other party, the Fund may suffer a loss. The value of some components of an equity swap (such as the dividend on a common stock) may also be sensitive to changes in interest rates. Furthermore, during the period a swap is outstanding, the Fund may suffer a loss if the counterparty defaults. See "Taxes" for information on tax risks associated with equity swaps.
FOREIGN CURRENCY TRANSACTIONS
The Fund may engage in currency exchange transactions to protect against uncertainty in the level of future currency exchange rates.
The Fund may engage in both "transaction hedging" and "position hedging." When it engages in transaction hedging, the Fund enters into foreign currency transactions with respect to specific receivables or payables of the Fund generally arising in connection with the purchase or sale of its portfolio securities. The Fund will engage in transaction hedging when it desires to "lock in" the U.S. dollar price of a security it has agreed to purchase or sell, or the U.S. dollar equivalent of a dividend or interest payment in a foreign currency. By transaction hedging the Fund attempts to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and the applicable foreign currency during the period between the date on which the security is purchased or sold, or on which the dividend or interest payment is declared, and the date on which such payments are made or received.
The Fund may purchase or sell a foreign currency on a spot (or cash) basis at the prevailing spot rate in connection with the settlement of transactions in portfolio securities denominated in that foreign currency. The Fund may also enter into contracts to purchase or sell foreign currencies at a future date ("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes the Fund may also purchase exchange-listed and over-the-counter call and put options on foreign currency futures contracts and on foreign currencies. Over-the-counter options are considered to be illiquid by the SEC staff. A put option on a futures contract gives the Fund the right to assume a short position in the futures contract until expiration of the option. A put option on currency gives the Fund the right to sell a currency at an exercise price until the expiration of the option. A call option on a futures contract gives the Fund the right to assume a long position in the futures contract until the expiration of the option. A call option on currency gives the Fund the right to purchase a currency at the exercise price until the expiration of the option.
When it engages in position hedging, the Fund enters into foreign currency exchange transactions to protect against a decline in the values of the foreign currencies in which its portfolio securities are denominated (or an increase in the value of currency for securities which the Fund expects to purchase, when the Fund holds cash or short-term investments). In connection with position hedging, the Fund may purchase put or call options on foreign currency and foreign currency futures contracts and buy or sell forward contracts and foreign currency futures contracts. The Fund may also purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions and the value of the portfolio securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the dates the currency exchange transactions are entered into and the dates they mature.
It is impossible to forecast with precision the market value of portfolio securities at the expiration or maturity of a forward or futures contract. Accordingly, it may be necessary for the Fund to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security or securities being hedged is less than the amount of foreign currency the Fund is obligated to deliver and if a decision is made to sell the security or securities and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security or securities if the market value of such security or securities exceeds the amount of foreign currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying prices of the securities which the Fund owns or intends to purchase or sell. They simply establish a rate of exchange which one can achieve at some future point in time.
Additionally, although these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency, they tend to limit any potential gain which might result from the increase in value of such currency.
CURRENCY FORWARD AND FUTURES CONTRACTS. Upon entering into such contracts, in compliance with the SEC's requirements, cash or liquid securities, equal in value to the amount of the Fund's obligation under the contract (less any applicable margin deposits and any assets that constitute "cover" for such obligation), will be segregated.
A forward currency contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract as agreed by the parties, at a price set at the time of the contract. In the case of a cancelable contract, the holder has the unilateral right to cancel the contract at maturity by paying a specified fee. The contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. A contract generally has no deposit requirement, and no commissions are charged at any stage for trades. A currency futures contract is a standardized contract for the future delivery of a specified amount of a foreign currency at a future date at a price set at the time of the contract. Currency futures contracts traded in the United States are designed and traded on exchanges regulated by the CFTC, such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain respects. For example, the maturity date of a forward contract may be any fixed number of days from the date of the contract agreed upon by the parties, rather than a predetermined date in a given month. Forward contracts may be in any amounts agreed upon by the parties rather than predetermined amounts. Also, forward contracts are traded directly between currency traders so that no intermediary is required. A forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Fund may either accept or make delivery of the currency specified in the contract, or at or prior to maturity enter into a closing transaction involving the purchase or sale of an offsetting contract. Closing transactions with respect to forward contracts are usually effected with the currency trader who is a party to the original forward contract. Closing transactions with respect to futures contracts are effected on a commodities exchange; a clearing corporation associated with the exchange assumes responsibility for closing out such contracts.
Positions in currency futures contracts may be closed out only on an exchange or board of trade which provides a secondary market in such contracts. Although the Fund intends to purchase or sell currency futures contracts only on exchanges or boards of trade where there appears to be an active secondary market, there is no assurance that a secondary market on an exchange or board of trade will exist for any particular contract or at any particular time. In such event, it may not be possible to close a futures position and, in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin.
CURRENCY OPTIONS. In general, options on currencies operate similarly to options on securities and are subject to many similar risks. Currency options are traded primarily in the over-the-counter market, although options on currencies have recently been listed on several exchanges. Options are traded not only on the currencies of individual nations, but also on the European Currency Unit (ECU). The ECU is composed of amounts of a number of currencies, and is the official medium of exchange of the European Economic Community's European Monetary System.
The Fund will only purchase or write currency options when the Advisor believes that a liquid secondary market exists for such options. There can be no assurance that a liquid secondary market will exist for a particular option at any specified time. Currency options are affected by all of those factors which influence exchange rates and investments generally. To the extent that these options are traded over the counter, they are considered to be illiquid by the SEC staff.
The value of any currency, including the U.S. dollar, may be affected by complex political and economic factors applicable to the issuing country. In addition, the exchange rates of currencies (and therefore the values of currency options) may be significantly affected, fixed, or supported directly or indirectly by government actions. Government intervention may increase risks involved in purchasing or selling currency options, since exchange rates may not be free to fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in turn reflects relative values of two currencies, the U.S. dollar and the foreign currency in question. Because currency transactions occurring in the interbank market involve substantially larger amounts than those that may be involved in the exercise of currency options, investors may be disadvantaged by having to deal in an odd lot market for the underlying currencies in connection with options at prices that are
less favorable than for round lots. Foreign governmental restrictions or taxes could result in adverse changes in the cost of acquiring or disposing of currencies.
There is no systematic reporting of last sale information for currencies and there is no regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Available quotation information is generally representative of very large round-lot transactions in the interbank market and thus may not reflect exchange rates for smaller odd-lot transactions (less than $1 million) where rates may be less favorable. The interbank market in currencies is a global, around-the-clock market. To the extent that options markets are closed while the markets for the underlying currencies remain open, significant price and rate movements may take place in the underlying markets that cannot be reflected in the options markets.
SETTLEMENT PROCEDURES. Settlement procedures relating to the Fund's investments in foreign securities and to the Fund's foreign currency exchange transactions may be more complex than settlements with respect to investments in debt or equity securities of U.S. issuers, and may involve certain risks not present in the Fund's domestic investments, including foreign currency risks and local custom and usage. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not charge a fee for currency conversion, they do realize a profit based on the difference (spread) between prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligation.
PARTICIPATION INTERESTS
The Fund may invest in municipal obligations either by purchasing them directly or by purchasing certificates of accrual or similar instruments evidencing direct ownership of interest payments or principal payments, or both, on municipal obligations, provided that, in the opinion of counsel to the initial seller of each such certificate or instrument, any discount accruing on such certificate or instrument that is purchased at a yield not greater than the coupon rate of interest on the related municipal obligations will be exempt from federal income tax to the same extent as interest on such municipal obligations. The Fund may also invest in tax- exempt obligations by purchasing from banks participation interests in all or part of specific holdings of municipal obligations. Such participations may be backed in whole or part by an irrevocable letter of credit or guarantee of the selling bank. The selling bank may receive a fee from the Fund in connection with the arrangement. The Fund will not purchase such participation interests unless it receives an opinion of counsel or a ruling of the Internal Revenue Service that interest earned by it on municipal obligations in which it holds such participation interests is exempt from federal income tax.
STAND-BY COMMITMENTS
When the Fund purchases municipal obligations, it may also acquire stand-by commitments from banks and broker-dealers with respect to such municipal obligations. A stand-by commitment is the equivalent of a put option acquired by the Fund with respect to a particular municipal obligation held in its portfolio. A stand-by commitment is a security independent of the municipal obligation to which it relates. The amount payable by a bank or dealer during the time a stand-by commitment is exercisable, absent unusual circumstances relating to a change in market value, would be substantially the same as the value of the underlying municipal obligation. A stand-by commitment might not be transferable by the Fund, although it could sell the underlying municipal obligation to a third party at any time.
The Fund expects that stand-by commitments generally will be available without the payment of direct or indirect consideration. However, if necessary and advisable, the Fund may pay for stand-by commitments either separately in cash or by paying a higher price for portfolio securities which are acquired subject to such a commitment (thus reducing the yield to maturity otherwise available for the same securities). The total amount paid in either manner for outstanding stand-by commitments held in the Fund portfolio will not exceed 10% of the value of the Fund's total assets calculated immediately after each stand-by commitment is acquired. The Fund will enter into stand-by commitments only with banks and broker-dealers that, in the judgment of the Trust's Board of Trustees, present minimal credit risks.
VARIABLE AND FLOATING RATE OBLIGATIONS
Variable rate instruments provide for periodic adjustments in the interest rate. Floating rate instruments provide for automatic adjustment of the interest rate whenever some other specified interest rate changes. Some variable and floating rate obligations are direct lending arrangements between the purchaser and the issuer and there may be no active secondary market. However,
in the case of variable and floating rate obligations with a demand feature, a Fund may demand payment of principal and accrued interest at a time specified in the instrument or may resell the instrument to a third party. In the event an issuer of a variable or floating rate obligation defaulted on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and could, for this or other reasons, suffer a loss to the extent of the default. Variable or floating rate instruments issued or guaranteed by the U.S. Government or its agencies or instrumentalities are similar in form but may have a more active secondary market. Substantial holdings of variable and floating rate instruments could reduce portfolio liquidity.
If a variable or floating rate instrument is not rated, the Fund's Advisor must determine that such instrument is comparable to rated instruments eligible for purchase by the Funds and will consider the earning power, cash flows and other liquidity ratios of the issuers and guarantors of such instruments and will continuously monitor their financial status in order to meet payment on demand. In determining average weighted portfolio maturity of each of these Funds, a variable or floating rate instrument issued or guaranteed by the U.S. Government or an agency or instrumentality thereof will be deemed to have a maturity equal to the period remaining until the obligation's next interest rate adjustment. Variable and floating rate obligations with a demand feature will be deemed to have a maturity equal to the longer of the period remaining to the next interest rate adjustment or the demand notice period.
INVERSE FLOATERS
Inverse floaters are derivative securities whose interest rates vary inversely to changes in short-term interest rates and whose values fluctuate inversely to changes in long-term interest rates. The value of certain inverse floaters will fluctuate substantially more in response to a given change in long-term rates than would a traditional debt security. These securities have investment characteristics similar to leverage, in that interest rate changes have a magnified effect on the value of inverse floaters.
RULE 144A SECURITIES
The Fund may purchase securities that have been privately placed but that are eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933, as amended (1933 Act). That Rule permits certain qualified institutional buyers, such as the Fund, to trade in privately placed securities that have not been registered for sale under the 1933 Act. The Advisor, under the supervision of the Board of Trustees, will consider whether securities purchased under Rule 144A are illiquid and thus subject to the Fund's investment restriction on illiquid securities. A determination of whether a Rule 144A security is liquid or not is a question of fact. In making this determination, the Advisor will consider the trading markets for the specific security, taking into account the unregistered nature of a Rule 144A security. In addition, the Advisor could consider the (1) frequency of trades and quotes, (2) number of dealers and potential purchasers, (3) dealer undertakings to make a market, and (4) nature of the security and of marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A securities will be monitored and, if as a result of changed conditions, it is determined by the Advisor that a Rule 144A security is no longer liquid, the Fund's holdings of illiquid securities would be reviewed to determine what, if any, steps are required to assure that the Fund does not exceed its investment limit on illiquid securities. Investing in Rule 144A securities could have the effect of increasing the amount of the Fund's assets invested in illiquid securities if qualified institutional buyers are unwilling to purchase such securities.
CURRENCY SWAPS. Currency swaps involve the exchange of rights to make or receive payments in specified currencies. Currency swaps usually involve the delivery of the entire principal value of one designated currency. Therefore, the entire principal value of a currency swap is subject to the risk that the other party to the swap will default on its contractual delivery obligations. The use of currency swaps is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. If the Advisor is incorrect in its forecast of market value and currency exchange rates, the investment performance of a Fund would be less favorable than it would have been if this investment technique were not used.
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities which may be exchanged or converted into a predetermined number of shares of the issuer's underlying common stock at the option of the holder during a specified time period. Convertible securities may take the form of convertible preferred stock, convertible bonds or debentures, units consisting of "usable" bonds and warrants or a combination of the features of several of these securities.
Convertible bonds and convertible preferred stocks generally retain the investment characteristics of fixed income securities until they have been converted but also react to movements in the underlying equity securities. The holder is entitled to receive the fixed income of a bond or the dividend preference of a preferred stock until the holder elects to exercise the conversion privilege.
Usable bonds are corporate bonds that can be used in whole or in part, customarily at full face value, in lieu of cash to purchase the issuer's common stock. When owned as part of a unit along with warrants, which are options to buy the common stock, they function as convertible bonds, except that the warrants generally will expire before the bond's maturity. Convertible securities are senior to equity securities and therefore have a claim to the assets of the issuer prior to the holders of common stock in the case of liquidation. However, convertible securities are generally subordinated to similar non-convertible securities of the same issuer. The interest income and dividends from convertible bonds and preferred stocks provide a stable stream of income with generally higher yields than common stocks, but lower than non-convertible securities of similar quality. A Fund will exchange or convert the convertible securities held in its portfolio into shares of the underlying common stock in instances in which, in the Advisor's opinion, the investment characteristics of the underlying common stock will assist the Fund in achieving its investment objective. Otherwise, the Fund will hold or trade the convertible securities. In selecting convertible securities for a Fund, the Advisor evaluates the investment characteristics of the convertible security as a fixed income instrument, and the investment potential of the underlying equity security for capital appreciation.
GUARANTEED INVESTMENT CONTRACTS
Pursuant to guaranteed investment contracts ("GICs"), which are issued by U.S. and Canadian insurance companies, a Fund makes cash contributions to a deposit fund of the insurance company's general account. The insurance company then credits to the fund payments at negotiated, floating or fixed interest rates. A GIC is a general obligation of the issuing insurance company and not a separate account. The purchase price paid for a GIC becomes part of the general assets of the insurance company, and the contract is paid from the company's general assets.
The Funds will only purchase GICs that are issued or guaranteed by insurance companies that at the time of purchase are rated at least AA by S&P or receive a similar high quality rating from a nationally recognized service which provides ratings of insurance companies. GICs are considered illiquid securities and will be subject to any limitations on such investments described in Part 1 of this SAI, unless there is an active and substantial secondary market for the particular instrument and market quotations are readily available. No Fund will invest more than 20% of its total assets in GICs.
BANK INVESTMENT CONTRACTS
Bank investment contracts ("BICs") issued by banks that meet certain quality and asset size requirements for banks are available to the Funds. Pursuant to BICs, cash contributions are made to a deposit account at the bank in exchange for payments at negotiated, floating or fixed interest rates. A BIC is a general obligation of the issuing bank. BICs are considered illiquid securities and will be subject to any limitations on such investments described in Part 1 of this SAI, unless there is an active and substantial secondary market for the particular instrument and market quotations are readily available.
LOAN PARTICIPATIONS
Loan participations are interests in loans which are administered by the lending bank or agent for a syndicate of lending banks, and sold by the lending bank or syndicate member. The Funds may only purchase interests in loan participations issued by a bank in the United States with assets exceeding $1 billion and for which the underlying loan is issued by borrowers in whose obligations the Funds may invest. Because the intermediary bank does not guarantee a loan participation in any way, a loan participation is subject to the credit risk generally associated with the underlying corporate borrower. In addition, in the event the underlying corporate borrower defaults, a Fund may be subject to delays, expenses and risks that are greater than those that would have been involved if the Fund had purchased a direct obligation (such as commercial paper) of the borrower. Under the terms of a loan participation, the purchasing Fund may be regarded as a creditor of the intermediary bank so that the Fund may also be subject to the risk that the issuing bank may become insolvent.
STRUCTURED INVESTMENTS
Structured investments are a relatively new innovation and may be designed to have various combinations of equity and fixed- income characteristics. Equity-linked securities are a form of structured investment and generally consist of a conversion privilege to a single company's common stock plus a fixed annual distribution to the holder. Equity-linked securities have some derivative characteristics because the conversion feature is linked to the price of the company's common stock. Equity-linked securities are designed to provide investors with higher quarterly income than the dividend paid per share on the common stock. However, equity-linked securities have decreased potential for capital appreciation because of limitations of the conversion feature.
Equity-linked securities include issues such as "Structured Yield Product Exchangeable for Stock" ("STRYPES"), "Trust Automatic Common Exchange Securities" ("TRACES"), "Trust Issued Mandatory Exchange Securities" ("TIMES"), "Trust Enhanced Dividend Securities" ("TRENDS") and other similar securities, including those which may be developed in the future. The issuers of the above listed examples of equity-linked securities generally purchase and hold a portfolio of stripped U.S.
Treasury securities maturing on a quarterly basis through the conversion date, and a forward purchase contract with an existing shareholder of the company relating to the common stock. Quarterly distributions on equity-linked securities generally consist of the cash received from the U.S. Treasury securities and equity-linked securities generally are not entitled to any dividends that may be declared on the common stock.
Equity-linked securities may be issued by closed-end or other forms of investment companies. To the extent that equity-linked securities are issued by investment companies, a Fund's investments in equity-linked securities are subject to the same limitations as investments in more traditional forms of investment companies.
YANKEE OBLIGATIONS
Yankee obligations are U.S. dollar-denominated instruments of foreign issuers that are either registered with the SEC or issued pursuant to Rule 144A under the 1933 Act. These obligations consist of debt securities (including preferred or preference stock of non-governmental issuers), certificates of deposit, fixed time deposits and banker's acceptances issued by foreign banks, and debt obligations of foreign governments or their subdivisions, agencies and instrumentalities, international agencies and supranational entities. Some securities issued by foreign governments or their subdivisions, agencies and instrumentalities may not be backed by the full faith and credit of the foreign government.
AMERICAN, EUROPEAN, CONTINENTAL AND GLOBAL DEPOSITARY RECEIPTS
American Depositary Receipts ("ADRs") are receipts issued in registered form by a U.S. bank or trust company evidencing ownership of underlying securities issued by a foreign issuer. European Depositary Receipts ("EDRs"), which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are receipts issued in Europe typically by non-U.S. banks or trust companies and foreign branches of U.S. banks that evidence ownership of foreign or U.S. securities. Global Depositary Receipts ("GDRs") are receipts structured similarly to EDRs and CDRs and are marketed globally. ADRs may be listed on a national securities exchange or may be traded in the over-the-counter market. EDRs and CDRs are designed for use in European exchange and over-the-counter markets. GDRs are designed for trading in non-U.S. securities markets. ADRs, EDRs, CDRs and GDRs traded in the over-the-counter market which do not have an active or substantial secondary market will be considered illiquid and therefore will be subject to the Funds' respective limitations with respect to such securities, if any. If a Fund invests in an unsponsored ADR, EDR, CDR or GDR, there may be less information available to the Fund concerning the issuer of the securities underlying the unsponsored ADR, EDR, CDR or GDR than is available for an issuer of securities underlying a sponsored ADR, EDR, CDR or GDR. ADR prices are denominated in U.S. dollars although the underlying securities are denominated in a foreign currency. Investments in ADRs, EDRs, CDRs and GDRs involve risks similar to those accompanying direct investments in foreign securities.
TEMPORARY CASH BALANCES
The Funds may hold very small temporary cash balances to efficiently manage transactional expenses. These cash balances are expected, under normal conditions, not to exceed 2% of each Fund's net assets at any time (excluding amounts used as margin and segregated assets with respect to futures transactions and collateral for securities loans and repurchase agreements). The Funds may invest these temporary cash balances in short-term debt obligations issued or guaranteed by the U.S. Government or its agencies and instrumentalities ("U.S. Government Securities"), high quality commercial paper (rated A-1 or better by S&P or P-1 or better by Moody's), certificates of deposit and time deposits of banking institutions having total assets in excess of $1 billion, and repurchase agreements collateralized by U.S. Government Securities. The Funds may also hold these investments in connection with U.S. Treasury rolls, which are not subject to the 2% limitation above.
TAXES
In this section, all discussions of taxation at the shareholder and fund levels relate to U.S. federal taxes only. Consult your tax advisor for state, local and foreign tax considerations and for information about special tax considerations that may apply to shareholders that are not natural persons or not U.S. citizens or resident aliens.
FEDERAL TAXES. Although it may be one of several series in a single trust, the Fund is treated as a separate entity for federal income tax purposes under the Internal Revenue Code of 1986, as amended (Code). The Fund has elected (or in the case of a new fund, intends to elect) to be, and intends to qualify to be treated each year as, a "regulated investment company" under Subchapter M of the Code by meeting all applicable requirements of Subchapter M, including requirements as to the nature of the Fund's gross income, the amount of its distributions (as a percentage of both its overall income and any tax-exempt income), and the composition of its portfolio assets.
To qualify as a "regulated investment company," the Fund must (a) derive at
least 90% of its gross income from dividends, interest, payments with respect to
certain securities loans, gains from the sale or other disposition of stock,
securities or foreign currencies or other income (including, but not limited to,
gains from options, futures or forward contracts) derived with respect to its
business of investing in such stock, securities or currencies; (b) diversify its
holdings so that, at the close of each quarter of its taxable year, (i) at least
50% of the market value of its total assets consists of cash, cash items, U.S.
government securities, securities of other regulated investment companies and
other securities limited generally with respect to any one issuer to not more
than 5% of the total assets of the Fund and not more than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total assets is invested in the securities of any issuer, other than U.S.
government securities or other regulated investment companies; or of two or more
issuers which the Fund controls and which are engaged in the same, similar, or
related trades or businesses; and (c) distribute with respect to each year at
least 90% of its taxable net investment income, its tax-exempt interest income
and the excess, if any, of net short-term capital gains over net long-term
capital losses for such year. In general, for purposes of the 90% gross income
requirement described in (a) above, income derived from a partnership will be
treated as qualifying income only to the extent such income is attributable to
items of income of the partnership which would be qualifying income if realized
by the regulated investment company. However, the American Jobs Creation Act of
2004 (the "2004 Act"), provides that for taxable years of a regulated investment
company beginning after October 22, 2004, 100% of the net income derived from an
interest in a "qualified publicly traded partnership" (defined as a partnership
(i) interests in which are traded on an established securities market or readily
tradable on a secondary market or the substantial equivalent thereof and (ii)
that derives less than 90% of its income from the qualifying income described in
(a) above) will be treated as qualifying income. In addition, although in
general the passive loss rules of the Code do not apply to regulated investment
companies, such rules do not apply to a regulated investment company with
respect to items attributable to an interest in a qualified publicly traded
partnership. Finally, for purposes of (c) above, the term "outstanding voting
securities of such issuer" will include the equity securities of a qualified
publicly traded partnership. As a regulated investment company that is accorded
special tax treatment, the Fund will not be subject to any federal income taxes
on its net investment income and net realized capital gains that it distributes
to shareholders on the form of dividends and in accordance with the timing
requirements imposed by the Code. The Fund's foreign-source income, if any, may
be subject to foreign withholding taxes. If the Fund were to fail to qualify as
a "regulated investment company" accorded special tax treatment in any taxable
year, it would incur a regular federal corporate income tax on all of its
taxable income, whether or not distributed, and Fund distributions (including
any distributions of net tax-exempt income and net long-term capital gains)
would generally be taxable as ordinary income to the shareholders, except to the
extent they were treated as "qualified dividend income," as described below. In
addition, the Fund could be required to recognize unrealized gains, pay
substantial taxes and interest and make substantial distributions before
requalifying as a regulated investment company that is accorded special tax
treatment.
If the Fund fails to distribute in a calendar year substantially all of its ordinary income for such year and substantially all of its capital gain net income for the one-year period ending October 31 (or later if the Fund is permitted so to elect and so elects), plus any retained amount from the prior year, the Fund will be subject to a 4% excise tax on the underdistributed amounts. A dividend paid to shareholders by the Fund in January of a year generally is deemed to have been paid by the Fund on December 31 of the preceding year, if the dividend was declared and payable to shareholders of record on a date in October, November or December of that preceding year. The Fund intends generally to make distributions sufficient to avoid imposition of the 4% excise tax.
ALTERNATIVE MINIMUM TAX. Distributions derived from interest that is exempt from regular federal income tax may subject corporate shareholders to or increase their liability under the corporate alternative minimum tax (AMT). A portion of such distributions may constitute a tax preference item for individual shareholders and may subject them to or increase their liability under the AMT.
DIVIDENDS RECEIVED DEDUCTIONS. Distributions will qualify for the corporate dividends received deduction only to the extent that dividends earned by the Fund qualify. Any such dividends may be, however, includable in adjusted current earnings for purposes of computing corporate AMT. The dividends received deduction for eligible dividends is subject to a holding period requirement.
RETURN OF CAPITAL DISTRIBUTIONS. If the Fund makes a distribution to a shareholder in excess of the Fund's current and accumulated "earning and profits" in any taxable year, the excess distribution will be treated as a return of capital to the extent of the shareholder's tax basis in his or her shares, and thereafter as capital gain. A return of capital is not taxable, but it reduces tax basis in shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition of such shares. Dividends and distributions on a Fund's shares are generally subject to federal income tax as described herein to the extent they do not exceed the Fund's realized income and gains, even though such dividends and distributions may economically represent
a return of a particular shareholder's investment. Such distributions are likely to occur in respect of shares purchased at a time when a Fund's net asset value reflects gains that are either unrealized, or realized but not distributed. Such realized gains may be required to be distributed even when a Fund's net asset value also reflects unrealized losses.
FUNDS THAT INVEST IN U.S. GOVERNMENT SECURITIES. Many states grant tax-free status to dividends paid to shareholders of mutual funds from interest income earned by the Fund from direct obligations of the U.S. government. Investments in mortgage- backed securities (including GNMA, FNMA and FHLMC Securities) and repurchase agreements collateralized by U.S. government securities do not qualify as direct federal obligations in most states. Shareholders should consult with their own tax advisors about the applicability of state and local intangible property, income or other taxes to their Fund shares and distributions and redemption proceeds received from the Fund.
FUND DISTRIBUTIONS. Distributions from the Fund (other than qualified dividend income and exempt-interest dividends, as discussed below) will generally be taxable to shareholders as ordinary income to the extent derived from the Fund's investment income and net short-term gains. Distributions of long-term capital gains (that is, the excess of net gains from capital assets held for more than one year over net losses from capital assets held for not more than one year) will be taxable to shareholders as such, regardless of how long a shareholder has held shares in the Fund. In general, any distributions of net capital gains will be taxed to shareholders who are individuals at a maximum rate of 15% for taxable years beginning on or before December 31, 2008.
Distributions are taxable to shareholders even if they are paid from income or gains earned by the Fund before a shareholder's investment (and thus were included in the price of the shareholder paid). Distributions are taxable whether received in cash or in Fund shares.
QUALIFIED DIVIDEND INCOME. For taxable years beginning on or before December 31, 2008, "qualified dividend income" received by an individual will be taxed at the rates applicable to long-term capital gain. In order for some portion of the dividends received by a Fund shareholder to be qualified dividend income, the Fund must meet holding period and other requirements with respect to some portion of the dividend paying stocks in its portfolio and the shareholder must meet holding period and other requirements with respect to the Fund's shares. A dividend will not be treated as qualified dividend income (at either the Fund or shareholder level) (1) if the dividend is received with respect to any share of stock held for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or, in the case of certain preferred stock, 91 days during the 181-day period beginning 90 days before such date), (2) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property, (3) if the recipient elects to have the dividend income treated as investment income for purposes of the limitation on deductibility of investment interest, or (4) if the dividend is received from a foreign corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the United States (with the exception of dividends paid on stock of such a foreign corporation readily tradable on an established securities market in the United States) or (b) treated as a passive foreign investment company. With respect to a Fund investing in bonds, the Fund does not expect a significant portion of Fund distributions to be derived from qualified dividend income.
In general, distributions of investment income properly designated by the Fund as derived from qualified dividend income may be treated as qualified dividend income by a shareholder taxed as an individual provided the shareholder meets the holding period and other requirements described above with respect to his or her shares. If the aggregate qualified dividends received by a fund during any taxable year are 95% or more of its gross income, then 100% of the Fund's dividends (other than properly designated capital gain dividends) will be eligible to be treated as qualified dividend income. For this purpose, the only gain included in the term "gross income" is the excess of net short-term capital gain over net long-term capital loss.
DISTRIBUTIONS FROM TAX-EXEMPT FUNDS. Each tax-exempt Fund will have at least 50% of its total assets invested in tax-exempt bonds at the end of each quarter so that dividends from net interest income on tax-exempt bonds will be exempt from federal income tax when received by a shareholder (but may be taxable for federal alternative minimum tax purposes and for state and local tax purposes). The tax-exempt portion of dividends paid will be designated within 60 days after year-end based upon the ratio of net tax-exempt income to total net investment income earned during the year. That ratio may be substantially different from the ratio of net tax-exempt income to total net investment income earned during any particular portion of the year. Thus, a shareholder who holds shares for only a part of the year may be allocated more or less tax-exempt dividends than would be the case if the allocation were based on the ratio of net tax-exempt income to total net investment income actually earned while a shareholder.
Income from certain "private activity bonds" issued after August 7, 1986, is treated as a tax preference item for the AMT at the maximum rate of 28% for individuals and 20% for corporations. If the Fund invests in private activity bonds, shareholders may be subject to the AMT on that part of the distributions derived from interest income on such bonds. Interest on all tax-exempt bonds is included in corporate adjusted current earnings when computing the AMT applicable to corporations. Seventy-five percent of the excess of adjusted current earnings over the amount of income otherwise subject to the AMT is included in a corporation's alternative minimum taxable income.
Dividends derived from any investments other than tax-exempt bonds and any distributions of short-term capital gains are generally taxable to shareholders as ordinary income. Any distributions of long-term capital gains will in general be taxable to shareholders as long-term capital gains (generally subject to a maximum 15% tax rate for shareholders who are individuals) regardless of the length of time Fund shares are held by the shareholder.
A tax-exempt Fund may at times purchase tax-exempt securities at a discount and some or all of this discount may be included in the Fund's ordinary income which will be taxable when distributed. Any market discount recognized on a tax-exempt bond purchased after April 30, 1993, with a term at time of issue of more than one year is taxable as ordinary income. A market discount bond is a bond acquired in the secondary market at a price below its "stated redemption price" (in the case of a bond with original issue discount, its "revised issue price").
Shareholders receiving social security and certain retirement benefits may be taxed on a portion of those benefits as a result of receiving tax-exempt income, including tax-exempt dividends from the Fund.
SPECIAL TAX RULES APPLICABLE TO TAX-EXEMPT FUNDS. In general, exempt-interest dividends, if any, attributable to interest received on certain private activity obligations and certain industrial development bonds will not be tax-exempt to any shareholders who are "substantial users" of the facilities financed by such obligations or bonds or who are "related persons" of such substantial users, as further defined in the Code. Income derived from the Fund's investments other than tax-exempt instruments may give rise to taxable income. The Fund's shares must be held for more than six months in order to avoid the disallowance of a capital loss on the sale of Fund shares to the extent of tax-exempt dividends paid during that period. Part or all of the interest on indebtedness, if any, incurred or continued by a shareholder to purchase or carry shares of the Fund paying exempt-interest dividends is not deductible. The portion of interest that is not deductible is equal to the total interest paid or accrued on the indebtedness, multiplied by the percentage of the Fund's total distributions (not including distributions from net long-term capital gains) paid to the shareholder that are exempt-interest dividends. Under rules used by the Internal Revenue Service to determine when borrowed funds are considered used for the purpose of purchasing or carrying particular assets, the purchase of shares may be considered to have been made with borrowed funds even though such funds are not directly traceable to the purchase of shares.
SALES OF SHARES. The sale, exchange or redemption of Fund shares may give rise to a gain or loss. In general, any gain realized upon a taxable disposition of shares generally will be treated as long-term capital gain if the shares have been held for more than one year. Otherwise the gain on the sale, exchange or redemption of Fund shares will be treated as short-term capital gain. In general, any loss realized upon a taxable disposition of shares will be treated as long-term loss if the shares have been held more than one year, and otherwise as short-term loss. However, any loss realized upon a taxable disposition of shares held for six months or less will be disallowed for federal income tax purposes to the extent of any exempt-interest dividends received on such shares. In addition, any loss (not already disallowed as provided in the preceding sentence) realized upon a taxable disposition of shares held for six months or less will be treated as long-term, rather than short-term, capital loss to the extent of any long-term capital gain distributions received by the shareholder with respect to those shares. All or a portion of any loss realized upon a taxable disposition of shares will be disallowed if other shares are purchased within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss.
Under Treasury regulations, if on a disposition of Fund shares a shareholder recognizes a loss of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder will likely have to file with the Internal Revenue Service a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all regulated investment companies. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. You are advised to consult with your tax advisor.
BACKUP WITHHOLDING. Certain distributions and redemptions may be subject to backup withholding for taxpayers who fail to furnish a correct taxpayer identification number, who have under-reported dividend or interest income, or who fail to certify to the Fund that the shareholder is a United States person and is not subject to the withholding. This number and certification may be provided by either a Form W-9 or the accompanying application. In certain instances, CFS may be notified by the Internal Revenue Service that a shareholder is subject to backup withholding. The backup withholding rate is 28% for amounts paid through 2010. The backup withholding rate will be 31% for amounts paid after December 31, 2010.
HEDGING TRANSACTIONS. If the Fund engages in hedging transactions, including hedging transactions in options, futures contracts and straddles, or other similar transactions, it will be subject to special tax rules (including constructive sale, mark-to-market, straddle, wash sale and short sale rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund's securities, convert long-term capital gains into short- term capital gains or convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. The Fund will endeavor to make any available elections pertaining to such transactions in a manner believed to be in the best interests of the Fund and its shareholders.
SECURITIES ISSUED AT A DISCOUNT. The Fund's investment in debt securities issued at a discount and certain other obligations will (and investments in securities purchased at a discount may) require the Fund to accrue and distribute income not yet received. In such cases, the Fund may be required to sell assets (possibly at a time when it is not advantageous to do so) to generate the cash necessary to distribute as dividends to its shareholders all of its income and gains and therefore to eliminate any tax liability at the Fund level.
FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING TRANSACTIONS. The Fund's transactions in foreign currencies, foreign currency-denominated debt securities, certain foreign currency options, futures contracts and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned. This may produce a difference between the Fund's book income and its taxable income possibly accelerating distributions or converting distributions of book income and gains to returns of capital for book purposes.
If more than 50% of the Fund's total assets at the end of its fiscal year are invested in stock or securities of foreign corporate issuers, the Fund may make an election permitting its shareholders to take a deduction or credit for federal income tax purposes for their pro rata portion of certain qualified foreign taxes paid by the Fund to foreign countries in respect of foreign securities the Fund has held for at least the minimum period specified in the Code. The Advisor will consider the value of the benefit to a typical shareholder, the cost to the Fund of compliance with the election, and incidental costs to shareholders in deciding whether to make the election. A shareholder's ability to claim such a foreign tax credit or deduction in respect of foreign taxes will be subject to certain limitations imposed by the Code, including a holding period requirement, as a result of which a shareholder may not get a full credit or deduction for the amount of foreign taxes so paid by the Fund. Shareholders who do not itemize on their federal income tax returns may claim a credit (but not a deduction) for such foreign taxes.
Investment by the Fund in "passive foreign investment companies" could subject the Fund to a U.S. federal income tax or other charge on the proceeds from the sale of its investment in such a company; however, this tax can be avoided by making an election to mark such investments to market annually or to treat the passive foreign investment company as a "qualified electing Fund." A "passive foreign investment company" is any foreign corporation: (i) 75 percent or more of the income of which for the taxable year is passive income, or (ii) the average percentage of the assets of which (generally by value, but by adjusted tax basis in certain cases) that produce or are held for the production of passive income is at least 50 percent. Generally, passive income for this purpose means dividends, interest (including income equivalent to interest), royalties, rents, annuities, the excess of gain over losses from certain property transactions and commodities transactions, and foreign currency gains. Passive income for this purpose does not include rents and royalties received by the foreign corporation from active business and certain income received from related persons.
NON-U.S. SHAREHOLDERS. In general, dividends (other than Capital Gain Dividends) paid by the Fund to a shareholder that is not a "U.S. person" within the meaning of the Code (such shareholder, a "foreign person") are subject to withholding of U.S. federal income tax at a rate of 30% (or lower applicable treaty rate) even if they are funded by income or gains (such as portfolio interest, short-term capital gains, or foreign-source dividend and interest income) that, if paid to a foreign person directly, would not be subject to withholding. However, under the 2004 Act, effective for taxable years of the Fund beginning after December 31, 2004 and before January 1, 2008, the Fund will not be required to withhold any amounts (i) with respect to distributions (other than distributions to a foreign person (w) that has not provided a satisfactory statement that the beneficial owner is not a U.S.
person, (x) to the extent that the dividend is attributable to certain interest on an obligation if the foreign person is the issuer or is a 10% shareholder of the issuer, (y) that is within certain foreign countries that have inadequate information exchange with the United States, or (z) to the extent the dividend is attributable to interest paid by a person that is a related person of the foreign person and the foreign person is a controlled foreign corporation) from U.S.-source interest income that would not be subject to U.S. federal income tax if earned directly by an individual foreign person, to the extent such distributions are properly designated by the Fund, and (ii) with respect to distributions (other than distributions to an individual foreign person who is present in the United States for a period or periods aggregating 183 days or more during the year of the distribution) of net short-term capital gains in excess of net long-term capital losses, to the extent such distributions are properly designated by the Fund.
If a beneficial holder who is a foreign person has a trade or business in the United States, and the dividends are effectively connected with the conduct by the beneficial holder of a trade or business in the United States, the dividend will be subject to U.S. federal net income taxation at regular income tax rates.
The 2004 Act modifies the tax treatment of distributions from the Fund that are paid to a foreign person and are attributable to gain from "U.S. real property interests" ("USRPIs"), which the Code defines to include direct holdings of U.S. real property and interests (other than solely as a creditor) in "U.S. real property holding corporations" such as REITs. The Code deems any corporation that holds (or held during the previous five-year period) USRPIs with a fair market value equal to 50% or more of the fair market value of the corporation's U.S. and foreign real property assets and other assets used or held for use in a trade or business to be a U.S. real property holding corporation; however, if any class of stock of a corporation is traded on an established securities market, stock of such class shall be treated as a USRPI only in the case of a person who holds more than 5% of such class of stock at any time during the previous five-year period. Under the 2004 Act, which is generally effective for taxable years of RICs beginning after December 31, 2004 and which applies to dividends paid or deemed paid on or before December 31, 2007, distributions to foreign persons attributable to gains from the sale or exchange of USRPIs will give rise to an obligation for those foreign persons to file a U.S. tax return and pay tax, and may well be subject to withholding under future regulations.
Under U.S. federal tax law, a beneficial holder of shares who is a foreign person is not, in general, subject to U.S. federal income tax on gains (and is not allowed a deduction for losses) realized on the sale of shares of the Fund or on Capital Gain Dividends unless (i) such gain or Capital Gain Dividend is effectively connected with the conduct of a trade or business carried on by such holder within the United States, (ii) in the case of an individual holder, the holder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale or Capital Gain Dividend and certain other conditions are met, or (iii) the shares constitute USRPIs or (effective for taxable years of the Fund beginning on September 1, 2005) the Capital Gain Dividends are paid or deemed paid on or before December 31, 2007 and are attributable to gains from the sale or exchange of USRPIs. Effective after December 31, 2004, and before January 1, 2008, if the Fund is a U.S. real property holding corporation (as described above) the Fund's shares will nevertheless not constitute USRPIs if the Fund is a "domestically controlled qualified investment entity," which is defined to include a RIC that, at all times during the shorter of the 5-year period ending on the date of the disposition or the period during which the RIC was in existence, had less than 50 percent in value of its stock held directly or indirectly by foreign persons.
ADDITIONAL TAX MATTERS CONCERNING TRUST SHARES (THIS SECTION IS APPLICABLE ONLY TO THE COLUMBIA TAX- MANAGED GROWTH FUND)
FEDERAL GIFT TAXES. An investment in Trust Shares may be a taxable gift for federal tax purposes, depending upon the option selected and other gifts that the donor and his or her spouse may make during the year.
Under the Columbia Advantage Plan, the entire amount of the gift will be a "present interest" that qualifies for the federal gift tax annual exclusion. In that case, the donor will be required to file a federal gift tax return on account of this gift only if (i) the aggregate present interest gifts by the donor to the particular beneficiary (including the gift of Trust Shares) exceed $11,000 or (ii) the donor wishes to elect gift splitting on gifts with his or her spouse for the year. The trustee will notify the beneficiary of his or her right of withdrawal promptly following any contribution under the Advantage Plan.
Under the Columbia Gift Plan, the entire amount of the gift will be a "future interest" for federal gift tax purposes, so that none of the gift will qualify for the federal gift tax annual exclusion. Consequently, the donor will have to file a federal gift tax return (IRS Form 709) reporting the entire amount of the gift, even if the gift is less than $11,000.
No federal gift tax will be payable by the donor until his or her cumulative taxable gifts (i.e., gifts other than those qualifying for the annual exclusion or otherwise exempt), including taxable gifts of other assets as well as any taxable gifts of trust shares, exceed the federal gift and estate tax exemption equivalent amount, which is $1,000,000 for gifts made after December 31, 2001, and before January 1, 2010.
Any gift of Trust Shares that does not qualify as a present interest or that exceeds the available annual exclusion amount will reduce the amount of the donor's Federal gift and estate tax exemption (if any) that would otherwise be available for future gifts for transfers at death.
The donor and his or her spouse may elect "gift-splitting" for any gift of Trust Shares (other than a gift to such spouse), meaning that the donor and his or her spouse may elect to treat the gift as having been made one-half by each of them, thus allowing a total gift of $22,000.
The donor's gift of Fund shares may also have to be reported for state gift tax purposes, if the state in which the donor resides imposes a gift tax. Many states do not impose such a tax. Some states follow the Federal rules concerning the types of transfers subject to tax and the availability of the annual exclusion.
GENERATION-SKIPPING TRANSFER TAXES
If the beneficiary of a gift of Trust Shares is a relative who is two generations or more younger than the donor, or is not a relative and is more than 37 1/2 years younger than the donor, the gift will be subject in whole or in part to the generation-skipping transfer tax (the "GST tax") unless the gift is made under the Columbia Advantage Plan and does not exceed the available annual exclusion amount. An exemption (the "GST exemption"), equal to $1.5 million in 2005, is allowed against this tax, and so long as the GST exemption has not been used by other transfers it will automatically be allocated to a gift of Trust Shares that is subject to the GST tax unless the donor elects otherwise. Such an election is made by reporting the gift on a timely filed gift tax return and paying the applicable GST tax. The GST tax is imposed at a flat rate (47% for gifts made in 2005) on the amount of the gift, and payment of the tax by the donor is treated as an additional gift for gift tax purposes.
INCOME TAXES
The Internal Revenue Service takes the position that a trust beneficiary who is given a power of withdrawal over contributions to the trust should be treated, for Federal income tax purposes, as the "owner" of the portion of the trust that was subject to the power. Accordingly, if the donor selects Columbia Advantage Trust Shares, the beneficiary will be treated as the "owner" of all of the Fund shares in the account for Federal income tax purposes, and will be required to report all of the income and capital gains earned in the trust on his or her personal Federal income tax return. The trust will not pay Federal income taxes on any of the trust's income or capital gains. The trustee will prepare and file the Federal income tax information returns that are required each year (and any state income tax returns that may be required), and will send the beneficiary a statement following each year showing the amounts (if any) that the beneficiary must report on his or her income tax returns for that year. If the beneficiary is under fourteen years of age, these amounts may be subject to Federal income taxation at the marginal rate applicable to the beneficiary's parents. The beneficiary may at any time after the creation of the trust irrevocably elect to require the trustee to pay him or her a portion of the trust's income and capital gains annually thereafter to provide funds with which to pay any resulting income taxes, which the trustee will do by redeeming Trust Shares. The amount distributed will be a fraction of the trust's ordinary income and short-term capital gains and the trust's long-term capital gains equal to the highest marginal Federal income tax rate imposed on each type of income (currently, 35% and 15%, respectively). If the beneficiary selects this option, he or she will receive those fractions of his or her trust's income and capital gains annually for the duration of the trust.
Under the Columbia Advantage Plan, the beneficiary will also be able to require the trustee to pay his or her tuition, room and board and other expense of his or her college or post-graduate education, and the trustee will raise the cash necessary to fund these distributions by redeeming Trust Shares. Any such redemption will result in the realization of capital gain or loss on the shares redeemed, which will be reportable by the beneficiary on his or her income tax returns for the year in which the shares are redeemed, as described above. Payments must be made directly to the educational institution.
If the donor selects the Columbia Gift Plan, the trust that he or she creates will be subject to Federal income tax on all income and capital gains realized by it, less a $100 annual exemption (in lieu of the personal exemption allowed to individuals). The amount of the tax will be determined under the tax rate schedule applicable to estates and trusts, which is more sharply graduated than the rate schedule for individuals, reaching the same maximum marginal rate for ordinary income or short-term capital gains (currently, 35%), but at a much lower taxable income level than would apply to an individual. It is anticipated, however, that most of the gains taxable to the trust will be long-term capital gain, on which the Federal income tax rate is
currently limited to 15%. The trustee will raise the cash necessary to pay any Federal or state income taxes by redeeming Fund shares. The beneficiary will not pay Federal income taxes on any of the trust's income or capital gains, except those earned in the year when the trust terminates. The trustee will prepare and file all Federal and state income tax returns that are required each year, and will send the beneficiary an information statement for the year in which the trust terminates showing the amounts (if any) that the beneficiary must report on his or her Federal and state income tax returns for that year.
When the trust terminates, the distribution of the remaining shares held in the trust to the beneficiary will not be treated as a taxable disposition of the shares. Any Fund shares received by the beneficiary will have the same cost basis as they had in the trust at the time of termination. Any Fund shares received by the beneficiary's estate will have a basis equal to the value of the shares at the beneficiary's death (or the alternate valuation date for Federal estate tax purposes, if elected).
CONSULTATION WITH QUALIFIED ADVISOR
Due to the complexity of Federal and state gift, GST and income tax laws pertaining to all gifts in trust, prospective donors should consider consulting with their financial or tax advisor before investing in Trust Shares.
MANAGEMENT OF THE FUNDS The Advisor provides administrative and management services to the Funds. On April 1, 2003, Fleet Investment Advisors Inc., Stein Roe & Farnham Incorporated, Colonial Management Associates, Inc. and Newport Pacific Management, Inc. (NPMI), merged into Columbia Management Advisors, Inc. Each of the four merging companies was a registered investment advisor and advised various Funds in the Fund Complex. The Advisor, located at 100 Federal Street, Boston, Massachusetts 02110, is a direct wholly owned subsidiary of Columbia Management Group, Inc. (Columbia), which is an indirect wholly owned subsidiary of Bank of America Corporation. Prior to April 1, 2004, Columbia was an indirect wholly owned subsidiary of FleetBoston Financial Corporation, a U.S. financial holding company. Effective April 1, 2004, FleetBoston Financial Corporation was acquired by Bank of America Corporation. The Advisor has been an investment advisor since 1969.
In addition, immediately prior to the mergers described above and also on April 1, 2003, Newport Fund Management, Inc. (NFMI), a subsidiary of NPMI and a registered investment advisor that advised several Funds in the Fund Complex, merged into NPMI. As a result of NPMI's merger into the Advisor, the Advisor is now the Advisor to the Funds previously advised by NFMI.
TRUSTEES AND OFFICERS (THIS SECTION APPLIES TO ALL OF THE FUNDS)
The Trustees and officers serve terms of indefinite duration. The names, addresses and ages of the Trustees and officers of the Fund Complex, the year each was first elected or appointed to office, their principal business occupations during at least the last five years, the number of portfolios overseen by each Trustee and other directorships they hold are shown below.
Number of
Portfolios
Year First in Fund
Elected or Complex Other
Name, Address Position Appointed Principal Occupation(s) Overseen Directorships
and Age with Funds to Office(1) During Past Five Years by Trustee Held
------------- ---------- ------------ --------------------------------------- ---------- ---------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker (Age 49) Trustee 1996 Executive Vice President - Strategy of 101 Nash Finch
P.O. Box 66100 United Airlines (airline) since Company (food
Chicago, IL 60666 December, 2002 (formerly President of distributor)
UAL Loyalty Services (airline) from
September, 2001 to December, 2002;
Executive Vice President and Chief
Financial Officer of United Airlines
from July, 1999 to September, 2001;
Senior Vice President- Finance from
March, 1993 to July, 1999).
Janet Langford Kelly (Age 47) Trustee 1996 Partner, Zelle, Hofmann, Voelbel, Mason 101 None
9534 W. Gull Lake Drive & Gette LLP (law firm) since March,
Richland, MI 49083-8530 2005; Adjunct Professor of Law,
Northwestern University, since
September, 2004 (formerly Chief
Administrative Officer and Senior Vice
President, Kmart Holding Corporation
(consumer goods), from September, 2003
to March, 2004; Executive Vice
President-Corporate Development and
Administration, General Counsel and
Secretary, Kellogg Company (food
manufacturer), from September, 1999 to
August, 2003; Senior Vice President,
Secretary and General Counsel, Sara Lee
Corporation (branded, packaged,
consumer-products manufacturer) from
January, 1995 to September, 1999).
Richard W. Lowry (Age 69) Trustee 1995 Private Investor since August, 1987 103(3) None
10701 Charleston Drive (formerly Chairman and Chief Executive
Vero Beach, FL 32963 Officer, U.S. Plywood Corporation
(building products manufacturer)).
|
Number of
Portfolios
Year First in Fund
Elected or Complex Other
Name, Address Position Appointed Principal Occupation(s) Overseen Directorships
and Age with Funds to Office(1) During Past Five Years by Trustee Held
------------- ---------- ------------ --------------------------------------- ---------- ---------------------
DISINTERESTED TRUSTEES
Charles R. Nelson (Age 62) Trustee 1981 Professor of Economics, University of 101 None
Department of Economics Washington, since January, 1976; Ford
University of Washington and Louisa Van Voorhis Professor of
Seattle, WA 98195 Political Economy, University of
Washington, since September, 1993
(formerly Director, Institute for
Economic Research, University of
Washington from September, 2001 to
June, 2003); Adjunct Professor of
Statistics, University of Washington,
since September, 1980; Associate
Editor, Journal of Money Credit and
Banking, since September, 1993;
consultant on econometric and
statistical matters.
John J. Neuhauser (Age 62) Trustee 1985 Academic Vice President and Dean of 103(3) Saucony, Inc.
84 College Road Faculties since August, 1999, Boston (athletic
Chestnut Hill, MA 02467-3838 College (formerly Dean, Boston College footwear)
School of Management from September,
1977 to August, 1999).
Patrick J. Simpson (Age 61) Trustee 2000 Partner, Perkins Coie L.L.P. (law 101 None
1120 N.W. Couch Street firm).
Tenth Floor
Portland, OR 97209-4128
Thomas E. Stitzel (Age 69) Trustee 1998 Business Consultant since 1999 101 None
2208 Tawny Woods Place (formerly Professor of Finance from
Boise, ID 83706 1975 to 1999, College of Business,
Boise State University); Chartered
Financial Analyst.
|
Number of
Portfolios
Year First in Fund
Elected or Complex Other
Name, Address Position Appointed Principal Occupation(s) Overseen Directorships
and Age with Funds to Office(1) During Past Five Years by Trustee Held
------------- ---------- ------------ --------------------------------------- ---------- ---------------------
DISINTERESTED TRUSTEES
Thomas C. Theobald (Age 68) Trustee 1996 Partner and Senior Advisor, Chicago 101 Anixter International
8 Sound Shore Drive, and of the Growth Partners (private equity (network support
Suite 285 Chairman investing) since September, 2004 equipment
Greenwich, CT 06830 Board (formerly Managing Director, William distributor); Ventas,
Blair Capital Partners (private equity Inc. (real estate
investing) from September, 1994 to investment trust);
September, 2004). Jones Lang LaSalle
(real estate
management services)
and Ambac Financial
Group (financial
guaranty insurance)
Anne-Lee Verville (Age 59) Trustee 1998 Retired since 1997 (formerly General 101 Chairman of the Board
359 Stickney Hill Road Manager, Global Education Industry, IBM of Directors, Enesco
Hopkinton, NH 03229 Corporation (computer and technology) Group, Inc.
from 1994 to 1997). (designer, importer
and distributor of
giftware and
collectibles)
Richard L. Woolworth (Age 64) Trustee 1991 Retired since December 2003 (formerly 101 Northwest Natural Gas
100 S.W. Market Street Chairman and Chief Executive Officer, Co. (natural gas
#1500 The Regence Group (regional health service provider)
Portland, OR 97207 insurer); Chairman and Chief Executive
Officer, BlueCross BlueShield of
Oregon; Certified Public Accountant,
Arthur Young & Company)
|
Number of
Portfolios
Year First in Fund
Elected or Complex Other
Name, Address Position Appointed Principal Occupation(s) Overseen Directorships
and Age with Funds to Office(1) During Past Five Years by Trustee Held
------------- ---------- ------------ --------------------------------------- ---------- ---------------------
INTERESTED TRUSTEE
William E. Mayer(2) (Age 65) Trustee 1994 Partner, Park Avenue Equity Partners 103(3) Lee Enterprises
399 Park Avenue (private equity) since February, 1999 (print media), WR
Suite 3204 (formerly Partner, Development Capital Hambrecht + Co.
New York, NY 10022 LLC from November, 1996 to February, (financial service
1999). provider); Reader's
Digest (publishing);
OPENFIELD Solutions
(retail industry
technology provider)
|
(1) In October 2003, the trustees of the Liberty Funds and Stein Roe Funds (both as defined in Part 1 of this SAI) were elected to the boards of the Columbia Funds; simultaneous with that election, Patrick J. Simpson and Richard L. Woolworth, who had been directors/trustees of the Columbia Funds were appointed to serve as trustees of the Liberty Funds and Stein Roe Funds. The date shown is the earliest date on which a trustee/director was elected or appointed to the board of a Fund in the Fund Complex.
(2) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht + Co.
(3) Messrs. Lowry, Neuhauser and Mayer also serve as directors/trustees of the All-Star Funds (as defined in Part 1 of this SAI).
Year First
Elected or
Name, Address Position Appointed Principal Occupation(s)
and Age with Funds to Office During Past Five Years
------------- ------------- ---------- -----------------------
OFFICERS
Christopher L. Wilson (Age 48) President 2004 Head of Mutual Funds since August, 2004 and Senior Vice President of
One Financial Center the Advisor since January, 2005; President of the Columbia Funds,
Boston, MA 02111 Liberty Funds and Stein Roe Funds since October, 2004; President and
Chief Executive Officer of the Nations Funds since January, 2005;
President of the Galaxy Funds since April 2005; Director of Bank of
America Global Liquidity Funds, plc since May 2005; Director of Banc
of America Capital Management (Ireland), Limited since May 2005;
Senior Vice President of BACAP Distributors LLC since January, 2005;
Director of FIM Funding, Inc. since January, 2005; Senior Vice
President of Columbia Funds Distributor, Inc. since January, 2005;
Director of Columbia Funds Services, Inc. since January, 2005
(formerly President and Chief Executive Officer, CDC IXIS Asset
Management Services, Inc. from September, 1998 to August, 2004).
J. Kevin Connaughton (Age 40) Treasurer 2000 Treasurer of the Columbia Funds since October, 2003 and of the Liberty
One Financial Center Funds, Stein Roe Funds and All- Star Funds since December, 2000; Vice
Boston, MA 02111 President of the Advisor since April, 2003 (formerly President of the
Columbia Funds, Liberty Funds and Stein Roe Funds from February, 2004
to October, 2004; Chief Accounting Officer and Controller of the
Liberty Funds and All-Star Funds from February, 1998 to October,
2000); Treasurer of the Galaxy Funds since September, 2002 (formerly
Treasurer from December, 2002 to December, 2004 and President from
February, 2004 to December, 2004 of the Columbia Management
Multi-Strategy Hedge Fund, LLC; Vice President of Colonial Management
Associates, Inc. from February, 1998 to October, 2000).
Mary Joan Hoene (Age 55) Senior Vice 2004 Senior Vice President and Chief Compliance Officer of the Columbia
100 Federal Street President and Funds, Liberty Funds, Stein Roe Funds and All-Star Funds since August,
Boston, MA 02110 Chief 2004; Chief Compliance Officer of the Columbia Management
Compliance Multi-Strategy Hedge Fund, LLC since August, 2004; Chief Compliance
Officer Officer of the BACAP Alternative Multi-Strategy Hedge Fund LLC since
October, 2004 (formerly Partner, Carter, Ledyard & Milburn LLP from
January, 2001 to August, 2004; Counsel, Carter, Ledyard & Milburn LLP
from November, 1999 to December, 2000; Vice President and Counsel,
Equitable Life Assurance Society of the United States from April, 1998
to November, 1999).
|
Year First
Elected or
Name, Address Position Appointed Principal Occupation(s)
and Age with Funds to Office During Past Five Years
------------- ------------- ---------- -----------------------
OFFICERS
Michael G. Clarke (Age 35) Chief 2004 Chief Accounting Officer of the Columbia Funds, Liberty Funds, Stein
One Financial Center Accounting Roe Funds and All-Star Funds since October, 2004 (formerly Controller
Boston, MA 02111 Officer of the Columbia Funds, Liberty Funds, Stein Roe Funds and All-Star
Funds from May, 2004 to October, 2004; Assistant Treasurer from June,
2002 to May, 2004; Vice President, Product Strategy & Development of
the Liberty Funds and Stein Roe Funds from February, 2001 to June,
2002; Assistant Treasurer of the Liberty Funds, Stein Roe Funds and
the All-Star Funds from August, 1999 to February, 2001; Audit Manager,
Deloitte & Toche LLP from May, 1997 to August, 1999).
Jeffrey R. Coleman (Age 35) Controller 2004 Controller of the Columbia Funds, Liberty Funds, Stein Roe Funds and
One Financial Center All-Star Funds since October, 2004 (formerly Vice President of CDC
Boston, MA 02111 IXIS Asset Management Services, Inc. and Deputy Treasurer of the CDC
Nvest Funds and Loomis Sayles Funds from February, 2003 to September,
2004; Assistant Vice President of CDC IXIS Asset Management Services,
Inc. and Assistant Treasurer of the CDC Nvest Funds from August, 2000
to February, 2003; Tax Manager of PFPC, Inc. from November, 1996 to
August, 2000).
R. Scott Henderson (Age 45) Secretary 2004 Secretary of the Columbia Funds, Liberty Funds and Stein Roe Funds
One Financial Center since December, 2004 (formerly Of Counsel, Bingham McCutchen from
Boston, MA 02111 April, 2001 to September, 2004; Executive Director and General
Counsel, Massachusetts Pension Reserves Investment Management Board
from September, 1997 to March, 2001).
|
TRUSTEE POSITIONS
As of December 31, 2004, no disinterested Trustee or any of their immediate family members owned beneficially or of record any class of securities of the Advisor, another investment advisor, sub-advisor or portfolio manager of any of the funds in the Fund Complex or any person controlling, controlled by or under common control with any such entity.
General
Messrs. Lowry, Mayer and Neuhauser are also trustees/directors of the Liberty All-Star Funds.
The Trustees serve as trustees of 101 registered investment companies managed by the Advisor for which each Trustee receives a retainer at the annual rate of $45,000 and an attendance fee of $9,500 for each regular and special joint board meeting and $1,000 for each special telephonic joint board meeting. Beginning in December, 2003, Mr. Theobald began serving as the Chairman of the Board. As the independent chairman of the board, Mr. Theobald receives a supplemental retainer at the annual rate of $100,000; the chair of the Audit Committee receives a supplemental retainer at the annual rate of $10,000; the chair of each other committee receives a supplemental retainer at the annual rate of $5,000. Members of each committee, except the Audit Committee, receive $1,500 for each committee meeting. Each Audit Committee member receives $2,000 for each Audit Committee meeting. Committee members receive $1,500 for each special committee meeting attended on a day other than a regular joint board meeting day. Two-thirds of the Trustee fees are allocated among the Funds based on each Fund's relative net assets and one-third of the fees is divided equally among the Funds.
The Advisor and/or its affiliate, Colonial Advisory Services, Inc. (CASI), has rendered investment advisory services to investment company, institutional and other clients since 1931. The Advisor currently serves as investment advisor or administrator for 133 open-end and 10 closed-end management investment company portfolios. Trustees and officers of the Trust, who are also officers of the Advisor or its affiliates, will benefit from the advisory fees, sales commissions and agency fees paid or allowed by the Trust.
The Agreement and Declaration of Trust (Declaration) of the Trust provides that the Trust will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Trust but that such indemnification will not relieve any officer or Trustee of any liability to the Trust or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. The Trust, at its expense, provides liability insurance for the benefit of its Trustees and officers.
The Trustees have the authority to convert the Funds into a master fund/feeder fund structure. Under this structure, a Fund may invest all or a portion of its investable assets in investment companies with substantially the same investment goals, policies and restrictions as the Fund. The primary reason to use the master fund/feeder fund structure is to provide a mechanism to pool, in a single master fund, investments of different investor classes, resulting in a larger portfolio, investment and administrative efficiencies and economies of scale.
MANAGEMENT AGREEMENT
Under a Management Agreement (Agreement), the Advisor has contracted to furnish each Fund with investment research and recommendations or fund management, respectively, and accounting and administrative personnel and services, and with office space, equipment and other facilities. For these services and facilities, each Fund pays a monthly fee based on the average of the daily closing value of the total net assets of each Fund for such month. Under the Agreement, any liability of the Advisor to the Trust, a Fund and/or its shareholders is limited to situations involving the Advisor's own willful misfeasance, bad faith, gross negligence or reckless disregard of its duties.
The Agreement may be terminated with respect to the Fund at any time on 60 days'
written notice by the Advisor or by the Trustees of the Trust or by a vote of a
majority of the outstanding voting securities of the Fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the Fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Advisor or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
The Advisor pays all salaries of officers of the Trust. The Trust pays all expenses not assumed by the Advisor including, but not limited to, auditing, legal, custodial, investor servicing and shareholder reporting expenses. The Trust pays the cost of printing and mailing any Prospectuses sent to shareholders. Columbia Funds Distributor, Inc. (formerly named Liberty Funds Distributor, Inc.) pays the cost of printing and distributing all other Prospectuses.
ADMINISTRATION AGREEMENT (THIS SECTION APPLIES ONLY TO CERTAIN FUNDS AND THEIR RESPECTIVE TRUSTS. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION REGARDING YOUR FUND).
Under an Administration Agreement, the Advisor, in its capacity as the Administrator to each Fund, has contracted to perform the following administrative services:
(a) providing office space, equipment and clerical personnel;
(b) arranging, if desired by the respective Trust, for its directors, officers and employees to serve as Trustees, officers or agents of each Fund;
(c) preparing and, if applicable, filing all documents required for compliance by each Fund with applicable laws and regulations;
(d) preparation of agendas and supporting documents for and minutes of meetings of Trustees, committees of Trustees and shareholders;
(e) coordinating and overseeing the activities of each Fund's other third-party service providers; and
(f) maintaining certain books and records of each Fund.
With respect to Columbia Money Market Fund (formerly named Liberty Money Market Fund) and Columbia Municipal Money Market Fund (formerly named Liberty Municipal Money Market Fund), the Administration Agreement for these Funds provides that the Advisor will monitor compliance by the Fund with Rule 2a-7 under the 1940 Act and report to the Trustees from time to time with respect thereto. The Advisor is paid a monthly fee at the annual rate of average daily net assets set forth in Part 1 of this SAI.
TRUST SERVICES AGREEMENT
Pursuant to a Trust Services Agreement, CFS provides the Columbia Tax-Managed Growth Fund's Trust Shares with trust administration services, including tax return preparation and filing, other tax and beneficiary reporting and recordkeeping. CFS's fee is described in the Prospectuses of the Columbia Tax-Managed Growth Fund.
THE PRICING AND BOOKKEEPING AGREEMENT
The Advisor is responsible for providing accounting and bookkeeping services to each Fund pursuant to a pricing and bookkeeping agreement. Under a separate agreement (Outsourcing Agreement), the Advisor has delegated those functions to State Street Bank and Trust Company (State Street). The Advisor pays fees to State Street under the Outsourcing Agreement. SEE "FUND CHARGES AND EXPENSES" IN
PART 1 OF THIS SAI FOR INFORMATION ON THESE FEES.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. The Advisor acts as investment advisor to each of the Funds. The Advisor's affiliate, CASI, advises other institutional, corporate, fiduciary and individual clients for which CASI performs various services. Various officers and Trustees of the Trust also serve as officers or Trustees of other funds and the other corporate or fiduciary clients of the Advisor. The Funds and clients advised by the Advisor or the Funds administered by the Advisor sometimes invest in securities in which the Fund also invests and sometimes engage in covered option writing programs and enter into transactions utilizing stock index options and stock index and financial futures and related options ("other instruments"). If the Fund, such other funds and such other clients desire to buy or sell the same portfolio securities, options or other instruments at about the same time, the purchases and sales are normally made as nearly as practicable on a pro rata basis in proportion to the amounts desired to be purchased or sold by each. Although in some cases these practices could have a detrimental effect on the price or volume of the securities, options or other instruments as far as the Fund is concerned, in most cases it is believed that these practices should produce better executions. It is the opinion of the Trustees that the desirability of retaining the Advisor as investment advisor to the Funds outweighs the disadvantages, if any, which might result from these practices.
POTENTIAL CONFLICTS OF INTEREST IN MANAGING MULTIPLE ACCOUNTS
Like other investment professionals with multiple clients, a portfolio manager for a Fund may face certain potential conflicts of interest in connection with managing both the Fund and other accounts at the same time. The paragraphs below describe some of these potential conflicts, which the Advisor believes are faced by investment professionals at most major financial firms. The Advisor and the Trustees of the Columbia Funds have adopted compliance policies and procedures that attempt to address certain of these potential conflicts.
The management of accounts with different advisory fee rates and/or fee structures, including accounts that pay advisory fees based on account performance ("performance fee accounts"), may raise potential conflicts of interest by creating an incentive to favor higher-fee accounts. These potential conflicts may include, among others:
- The most attractive investments could be allocated to higher-fee accounts or performance fee accounts.
- The trading of higher-fee accounts could be favored as to timing and/or execution price. For example, higher-fee accounts could be permitted to sell securities earlier than other accounts when a prompt sale is desirable or to buy securities at an earlier and more opportune time.
- The trading of other accounts could be used to benefit higher-fee accounts (front-running).
- The investment management team could focus their time and efforts primarily on higher-fee accounts due to a personal stake in compensation.
Potential conflicts of interest may also arise when the portfolio managers have personal investments in other accounts that may create an incentive to favor those accounts. As a general matter and subject to limited exceptions, the Advisor's investment professionals do not have the opportunity to invest in client accounts, other than the Columbia Funds.
A potential conflict of interest may arise when a Fund and other accounts purchase or sell the same securities. On occasions when a portfolio manager considers the purchase or sale of a security to be in the best interests of a Fund as well as other accounts, the Advisor's trading desk may, to the extent permitted by applicable laws and regulations, aggregate the securities to be sold or purchased in order to obtain the best execution and lower brokerage commissions, if any. Aggregation of trades may create the potential for unfairness to a Fund or another account if one account is favored over another in allocating the securities purchased or sold - for example, by allocating a disproportionate amount of a security that is likely to increase in value to a favored account.
"Cross trades," in which one Columbia account sells a particular security to another account (potentially saving transaction costs for both accounts), may also pose a potential conflict of interest. Cross trades may be seen to involve a potential conflict of interest if, for example, one account is permitted to sell a security to another account at a higher price than an independent third party would pay. The Advisor and the Funds' Trustees have adopted compliance procedures that provide that any transactions between a Fund and another Columbia-advised account are to be made at an independent current market price, as required by law.
Another potential conflict of interest may arise based on the different investment objectives and strategies of a Fund and other accounts. For example, another account may have a shorter-term investment horizon or different investment objectives, policies or restrictions than a Fund. Depending on another account's objectives or other factors, a portfolio manager may give advice and make decisions that may differ from advice given, or the timing or nature of decisions made, with respect to a Fund. In addition, investment decisions are the product of many factors in addition to basic suitability for the particular account involved. Thus, a particular security may be bought or sold for certain accounts even though it could have been bought or sold for other accounts at the same time. More rarely, a particular security may be bought for one or more accounts managed by a portfolio manager when one or more other accounts are selling the security (including short sales). There may be circumstances when purchases or sales of portfolio securities for one or more accounts may have an adverse effect on other accounts.
A Fund's portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. As a result, the portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as might be the case if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies.
A Fund's portfolio managers may be able to select or influence the selection of the brokers and dealers that are used to execute securities transactions for the Fund. In addition to executing trades, some brokers and dealers provide portfolio managers with brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934), which may result in the payment of higher brokerage fees than might have otherwise be available. These services may be more beneficial to certain funds or accounts than to others. Although the payment of brokerage commissions is subject to the requirement that the portfolio manager determine in good faith that the commissions are reasonable in relation to the value of the brokerage and research services provided to
the fund, a portfolio manager's decision as to the selection of brokers and dealers could yield disproportionate costs and benefits among the funds and/or accounts that he or she manages.
The Advisor or an affiliate may provide more services (such as distribution or recordkeeping) for some types of funds or accounts than for others. In such cases, a portfolio manager may benefit, either directly or indirectly, by devoting disproportionate attention to the management of fund and/or accounts that provide greater overall returns to the investment manager and its affiliates.
A Fund's portfolio manager(s) may also face other potential conflicts of interest in managing the Fund, and the description above is not a complete description of every conflict that could be deemed to exist in managing both a Fund and other accounts. In addition, a Fund's portfolio manager may also manage other accounts (including their personal assets or the assets of family members) in their personal capacity. The management of these accounts may also involve certain of the potential conflicts described above. Investment personnel at the Advisor, including each Fund's portfolio manager, are subject to restrictions on engaging in personal securities transactions pursuant to Codes of Ethics adopted by the Advisor and each Fund, which contain provisions and requirements designed to identify and address certain conflicts of interest between personal investment activities and the interests of each Fund.
BROKERAGE AND RESEARCH SERVICES. Consistent with the Conduct Rules of the National Association of Securities Dealers, Inc., and subject to seeking "best execution" (as defined below) and such other policies as the Trustees may determine, the Advisor may consider sales of shares of the Funds as a factor in the selection of broker-dealers to execute securities transactions for a Fund.
The Advisor places the transactions of the Funds with broker-dealers selected by the Advisor and, if applicable, negotiates commissions. Broker-dealers may receive brokerage commissions on portfolio transactions, including the purchase and writing of options, the effecting of closing purchase and sale transactions, and the purchase and sale of underlying securities upon the exercise of options and the purchase or sale of other instruments. The Funds from time to time also execute portfolio transactions with such broker-dealers acting as principals. The Funds do not intend to deal exclusively with any particular broker-dealer or group of broker-dealers.
It is the Advisor's policy generally to seek best execution, which is to place the Funds' transactions where the Funds can be expected to obtain the most favorable combination of price and execution services in particular transactions or provided on a continuing basis by a broker-dealer, and to deal directly with a principal market maker in connection with over-the-counter transactions, except when it is believed that best execution is obtainable elsewhere. In evaluating the execution services of, including the overall reasonableness of brokerage commissions paid to, a broker-dealer, consideration is given to, among other things, the firm's general execution and operational capabilities, and to its reliability, integrity and financial condition.
Securities transactions of the Funds may be executed by broker-dealers who also provide research services (as defined below) to the Advisor and the Funds. The Advisor may use all, some or none of such research services in providing investment advisory services to each of its investment company and other clients, including the Fund. To the extent that such services are used by the Advisor, they tend to reduce the Advisor's expenses. In the Advisor's opinion, it is impossible to assign an exact dollar value for such services.
The Trustees have authorized the Advisor to cause the Funds to pay a broker-dealer which provides brokerage and research services to the Advisor an amount of commission for effecting a securities transaction, including the sale of an option or a closing purchase transaction, for the funds in excess of the amount of commission which another broker-dealer would have charged for effecting that transaction. As provided in Section 28(e) of the Securities Exchange Act of 1934, "brokerage and research services" include advice as to the value of securities, the advisability of investing in, purchasing or selling securities and the availability of securities or purchasers or sellers of securities; furnishing analyses and reports concerning issues, industries, securities, economic factors and trends and portfolio strategy and performance of accounts; and effecting securities transactions and performing functions incidental thereto (such as clearance and settlement). The Advisor must determine in good faith that such greater commission is reasonable in relation to the value of the brokerage and research services provided by the executing broker-dealer viewed in terms of that particular transaction or the Advisor's overall responsibilities to the Funds and all its other clients.
The Trustees have authorized the Advisor to utilize the services of a clearing agent with respect to all call options written by Funds that write options and to pay such clearing agent commissions of a fixed amount per share (currently 1.25 cents) on the sale of the underlying security upon the exercise of an option written by a Fund.
The Advisor may use the services of affiliated broker-dealers, when buying or selling securities for a Fund's portfolio pursuant to procedures adopted by the Trustees and 1940 Act Rule 17e-1. Under the Rule, the Advisor must ensure that commissions a Fund pays to affiliates of the Advisor on portfolio transactions are reasonable and fair compared to commissions received by other broker-dealers in connection with comparable transactions involving similar securities being bought or sold at about the same time. The Advisor will report quarterly to the Trustees on all securities transactions placed through affiliates of the Advisor so that the Trustees may consider whether such trades complied with these procedures and the Rule.
PRINCIPAL UNDERWRITER
CFD is the principal underwriter of the Trust's shares. CFD has no obligation to buy the Funds' shares, and purchases the Funds' shares only upon receipt of orders from authorized FSFs or investors.
INVESTOR SERVICING AND TRANSFER AGENT
CFS is the Trust's investor servicing agent (transfer, plan and dividend disbursing agent), for which it receives fees which are paid monthly by the Trust. The fee paid to CFS is based on number of accounts plus reimbursement for certain out-of-pocket expenses. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION ON FEES RECEIVED BY CFS. The agreement continues indefinitely but may be terminated by 90 days' notice by the Fund to CFS or generally by 6 months' notice by CFS to the Fund. The agreement limits the liability of CFS to the Fund for loss or damage incurred by the Fund to situations involving a failure of CFS to use reasonable care or to act in good faith and without negligence in performing its duties under the agreement. The Fund will indemnify CFS from, among other things, any and all claims, actions, suits, losses, costs, damages, and expenses incurred by it in connection with its acceptance of this Agreement, provided that: (i) to the extent such claims, actions, suits, losses, costs, damages, or expenses relate solely to a particular series or group of series of shares, such indemnification shall be only out of the assets of that series or group of series; (ii) this indemnification shall not apply to actions or omissions constituting negligence or misconduct of CFS or its agents or contractors, including but not limited to willful misfeasance, bad faith or gross negligence in the performance of their duties, or reckless disregard of their obligations and duties under this Agreement; and (iii) CFS shall give a Fund prompt notice and reasonable opportunity to defend against any such claim or action in its own name or in the name of CFS.
CODE OF ETHICS
The Funds, the Advisor, and CFD have adopted Codes of Ethics pursuant to the requirements of the Act. These Codes of Ethics permit personnel subject to the Codes to invest in securities, including securities that may be purchased or held by the Funds. These Codes of Ethics can be reviewed and copied at the SEC's Public Reference Room and may be obtained by calling the SEC at 1-202-942-8090. These Codes are also available on the EDGAR Database on the SEC's internet web site at http://www.sec.gov, and may also be obtained, after paying a duplicating fee, by electronic request to publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102.
ANTI-MONEY LAUNDERING COMPLIANCE
The Funds are required to comply with various anti-money laundering laws and regulations. Consequently, the Funds may request additional information from you to verify your identity. If at any time the Funds believe a shareholder may be involved in suspicious activity or if certain account information matches information on government lists of suspicious persons, the Funds may choose not to establish a new account or may be required to "freeze" a shareholder's account, halting all shareholder activity with respect to such account. The Funds also may be required to provide a governmental agency with information about transactions that have occurred in a shareholder's account or to transfer monies received to establish a new account, transfer an existing account or transfer the proceeds of an existing account to a governmental agency. In some circumstances, the law may not permit a Fund to inform the shareholder that it has taken the actions described above.
PROXY VOTING POLICIES AND FUND PROXY VOTING RECORD
The Fund has delegated to the Advisor the responsibility to vote proxies relating to portfolio securities held by the Fund. In deciding to delegate this responsibility to the Advisor, the Board of Trustees of the Trust reviewed and approved the policies and procedures adopted by the Advisor. These included the procedures that the Advisor follows when a vote presents a conflict between the interests of the Fund and its shareholders and the Advisor, its affiliates, its other clients or other persons.
The Advisor's policy is to vote all proxies for Fund securities in a manner considered by the Advisor to be in the best interest of the Fund and its shareholders without regard to any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor examines each proposal and votes against the proposal, if, in its judgment, approval or adoption of the proposal would be expected to impact adversely the current or potential market value of the issuer's securities. The Advisor also examines each proposal and votes the proxies against the proposal, if, in its judgment, the proposal would be expected to affect adversely the best interest of the Fund. The Advisor determines the best interest of the Fund in light of the potential economic return on the Fund's investment.
The Advisor addresses potential material conflicts of interest by having predetermined voting guidelines. For those proposals that require special consideration or in instances where special circumstances may require varying from the predetermined guideline, the Advisor's Proxy Committee determines the vote in the best interest of the Fund, without consideration of any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor's Proxy Committee is composed of representatives of the Advisor's equity investments, equity research, compliance, legal and fund administration functions. In addition to the responsibilities described above, the Proxy Committee has the responsibility to review, on a semi-annual basis, the Advisor's proxy voting policies to ensure consistency with internal and regulatory agency policies and to develop additional predetermined voting guidelines to assist in the review of proxy proposals.
The Proxy Committee may vary from a predetermined guideline if it determines that voting on the proposal according to the predetermined guideline would be expected to impact adversely the current or potential market value of the issuer's securities or to affect adversely the best interest of the client. References to the best interest of a client refer to the interest of the client in terms of the potential economic return on the client's investment. In determining the vote on any proposal, the Proxy Committee does not consider any benefit other than benefits to the owner of the securities to be voted. A member of the Proxy Committee is prohibited from voting on any proposal for which he or she has a conflict of interest by reason of a direct relationship with the issuer or other party affected by a given proposal. Persons making recommendations to the Proxy Committee or its members are required to disclose to the Committee any relationship with a party making a proposal or other matter known to the person that would create a potential conflict of interest.
The Advisor has retained Institutional Shareholder Services ("ISS"), a third party vendor, to implement its proxy voting process. ISS provides proxy analysis, record keeping services and vote disclosure services.
The Advisor's proxy voting guidelines and procedures are included in this SAI as Appendix II. In accordance with SEC regulations, the fund's proxy voting record for the last twelve-month period ended June 30 has been filed with the SEC. You may obtain a copy of the fund's proxy voting record (i) at www.columbiamanagement.com; (ii) on the Securities and Exchange Commission's website at www.sec.gov and (iii) without charge, upon request, by calling 800-368-0346.
DISCLOSURE OF PORTFOLIO INFORMATION
The Trustees of the Columbia Funds have adopted policies with respect to the disclosure of the Funds' portfolio holdings by the Funds, Columbia Management, or their affiliates. These policies provide that Fund portfolio holdings information generally may not be disclosed to any party prior to (1) the day next following the posting of such information on the Funds' website at www.columbiafunds.com, (2) the day next following the filing of the information with the SEC in a required filing, or (3) for money market funds, such information is publicly available to all shareholders upon request on the fifth business day after each calendar month-end. Certain limited exceptions pursuant to the Fund's policies are described below. The Trustees shall be updated as needed regarding the Fund's compliance with the policies, including information relating to any potential conflicts of interest between the interests of Fund shareholders and those of Columbia Management and its affiliates. The Fund's policies prohibit Columbia Management and the Fund's other service providers from entering into any agreement to disclose Fund portfolio holdings information in exchange for any form of consideration. These policies apply to disclosures to all categories of persons, including, without limitation, individual investors, institutional investors, intermediaries that distribute the Fund's shares, third-party service providers, rating and ranking organizations and affiliated persons of the Fund.
PUBLIC DISCLOSURES. The Fund's portfolio holdings are currently disclosed to the public through required filings with the SEC and, for equity and fixed income funds, on the Fund's website at www.columbiafunds.com. The Fund files its portfolio holdings with the SEC for each fiscal quarter on Form N-CSR (with respect to each annual period and semi-annual period) and Form N-Q (with respect to the first and third quarters of the Fund's fiscal year). Shareholders may obtain the Fund's Forms N-CSR and N-Q filings on the SEC's website at www.sec.gov. In addition, the Fund's Forms N-CSR and N-Q filings may be reviewed and copied at the SEC's public reference room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC's website or the operation of the public reference room.
The equity and fixed income Columbia Funds also currently make portfolio information publicly available at www.columbiafunds.com, as disclosed in the following table:
FREQUENCY OF
TYPE OF FUND INFORMATION PROVIDED DISCLOSURE DATE OF WEB POSTING
------------ ----------------------- ------------ -------------------------------
Equity Funds Full portfolio holdings Monthly 30 calendar days after month-
information. end.
Fixed Income Funds Full portfolio holdings Quarterly 60 calendar days after quarter-
information. end
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The scope of the information provided relating to the Fund's portfolio that is made available on the website may change from time to time without prior notice.
For Columbia's money market funds, a complete list of a Fund's portfolio holdings shall be publicly available on a monthly basis on the fifth business date after month-end. Shareholders may request such information by writing or calling the Fund's distributor, Columbia Funds Distributor, Inc. at the address listed on the cover of this SAI.
A Fund, Columbia Management or their affiliates may include portfolio holdings information that has already been made public through a web posting or SEC filing in marketing literature and other communications to shareholders, advisors or other parties, provided that the information is disclosed no earlier than the day after the date the information is disclosed publicly.
OTHER DISCLOSURES. The Fund's policies provide that non-public disclosures of the Fund's portfolio holdings may be made if (1) the Fund has a legitimate business purpose for making such disclosure, (2) the Fund's chief executive officer authorizes such non-public disclosure of information, and (3) the party receiving the non-public information enters into a confidentiality agreement, which includes a duty not to trade on the non-public information.
The Fund periodically discloses its portfolio information on a confidential basis to various service providers that require such information in order to assist the Fund with its day-to-day business affairs. In addition to Columbia Management and its affiliates, these service providers include the Fund's custodian and sub-custodians, the Fund's independent registered public accounting firm, legal counsel, financial printers(R.R. Donnelly & Sons and Bowne & Co., Inc.), the Fund's proxy voting service provider (Alamo Direct Mail Services, Inc.), the Fund's proxy solicitor (Georgeson Shareholder Communications Inc.), rating agencies that maintain ratings on certain Columbia Funds (Fitch, Inc.) and service providers that support Columbia Management's trading systems (InvestorTool, Inc. and Thomson Financial). These service providers are required to keep such information confidential, and are prohibited from trading based on the information or otherwise using the information except as necessary in providing services to the Fund. The Fund may also disclose portfolio holdings information to broker/dealers and certain other entities related to potential transactions and management of the Fund, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information.
Certain clients of the Fund's investment adviser(s) may follow a strategy similar to that of the Fund, and have access to portfolio holdings information for their account. It is possible that such information could be used to infer portfolio holdings information relating to the Fund.
DETERMINATION OF NET ASSET VALUE
Each Fund determines net asset value (NAV) per share for each class as of the close of the New York Stock Exchange (Exchange) (generally 4:00 p.m. Eastern time) each day the Exchange is open, except that certain classes of assets, such as index futures, for which the market close occurs shortly after the close of regular trading on the Exchange will be priced at the closing time of the market on which they trade. Currently, the Exchange is closed Saturdays, Sundays and the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. Funds with portfolio securities which are primarily listed on foreign exchanges may experience trading and changes in NAV on days on which such Fund does not determine NAV due to differences in closing policies among exchanges. This may significantly affect the NAV of the Fund's redeemable securities on days when an investor cannot redeem such securities Debt securities generally are valued by a pricing service which determines valuations based upon market transactions for normal, institutional-size trading units of similar securities. However, in circumstances where such prices are not available or where the Advisor deems it appropriate to do so, an over-the-counter or exchange bid quotation is used. Securities listed on an exchange or on NASDAQ are valued at the last sale price (or the official closing price as determined by the NASDAQ system, if different, as applicable). Listed securities for which there were no sales during the day and unlisted securities generally are valued at the last quoted bid price. Options are valued at the last sale price or in the absence of a sale, the mean between the last quoted bid and offering prices. Short-term obligations with a maturity of 60 days or less are valued at amortized cost pursuant to procedures adopted by the Trustees. The values of foreign securities quoted in foreign currencies are translated into U.S. dollars at the exchange rate for that day. Portfolio positions for which market quotations are not readily available and other assets are valued at fair value as determined by the Advisor in good faith under the direction of the Trust's Board of Trustees.
Generally, trading in certain securities (such as foreign securities) is substantially completed each day at various times prior to the close of the Exchange. Trading on certain foreign securities markets may not take place on all business days in New York, and trading on some foreign securities markets takes place on days which are not business days in New York and on which the Fund's NAV is not calculated. The values of these securities used in determining the NAV are computed as of such times. Also, because of the amount of time required to collect and process trading information as to large numbers of securities issues, the values of certain securities (such as convertible bonds, U.S. government securities, and tax-exempt securities) are determined based on market quotations collected earlier in the day at the latest practicable time prior to the close of the Exchange. Occasionally, events affecting the value of such securities may occur between such times and the close of the Exchange which will not be reflected in the computation of each Fund's NAV. If events materially affecting the value of such securities occur during such period, then these securities will be valued at fair value following procedures approved by the Trust's Board of Trustees.
(The following two paragraphs are applicable only to Columbia Newport Tiger Fund (formerly named Liberty Newport Tiger Fund), Columbia Newport Greater China Fund (formerly named Liberty Newport Greater China Fund), Columbia Newport Europe Fund (formerly named Liberty Newport Europe Fund) and Columbia Newport Asia Pacific Fund (formerly named Liberty Newport Asia Pacific Fund))
Trading in securities on stock exchanges and over-the-counter markets in foreign securities markets is normally completed well before the close of the business day in New York. Trading on foreign securities markets may not take place on all business days in New York, and trading on some foreign securities markets does take place on days which are not business days in New York and on which the Fund's NAV is not calculated.
The calculation of the Fund's NAV accordingly may not take place contemporaneously with the determination of the prices of the Fund's portfolio securities used in such calculations. Events affecting the values of portfolio securities that occur between the time their prices are determined and the close of the Exchange (when the Fund's NAV is calculated) will not be reflected in the Fund's calculation of NAV unless the Advisor, acting under procedures established by the Board of Trustees of the Trust, deems that the particular event would materially affect the Fund's NAV, in which case an adjustment will be made. Assets or liabilities initially expressed in terms of foreign currencies are translated prior to the next determination of the NAV of the Fund's shares into U.S. dollars at prevailing market rates.
AMORTIZED COST FOR MONEY MARKET FUNDS (SEE "AMORTIZED COST FOR MONEY MARKET FUNDS" UNDER "INFORMATION CONCERNING THE FUND" IN PART 1 OF THE SAI OF COLUMBIA MONEY MARKET FUND (FORMERLY NAMED LIBERTY MONEY MARKET FUND) AND COLUMBIA MUNICIPAL MONEY MARKET FUND (FORMERLY NAMED LIBERTY MUNICIPAL MONEY MARKET FUND)
Money market funds generally value their portfolio securities at amortized cost according to Rule 2a-7 under the 1940 Act.
Under the amortized cost method a security is initially valued at cost and
thereafter any discount or premium from maturity value is amortized ratably to
maturity. This method assures a constant NAV but may result in a yield different
from that of the same portfolio under the market value method. The Trust's
Trustees have adopted procedures intended to stabilize a money market fund's NAV
per share at $1.00. If a money market fund's market value deviates from the
amortized cost of $1.00, and results in a material dilution to existing
shareholders, the Trust's Trustees will take corrective action that may include:
realizing gains or losses; shortening the portfolio's maturity; withholding
distributions; redeeming shares in kind; or converting to the market value
method (in which case the NAV per share may differ from $1.00). All investments
will be determined pursuant to procedures approved by the Trust's Trustees to
present minimal credit risk.
See the Statement of Assets and Liabilities in the shareholder report of the Columbia Money Market Fund (formerly named Liberty Money Market Fund) or the Columbia Municipal Money Market Fund (formerly named Liberty Municipal Money Market Fund) for a specimen price sheet showing the computation of maximum offering price per share of Class A shares.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of the Fund and tables of charges. This SAI contains additional information which may be of interest to investors.
The Fund may accept unconditional orders for shares to be executed at the public offering price based on the NAV per share next determined after the order is placed in good order. The public offering price is the NAV plus the applicable sales charge, if any. In the case of orders for purchase of shares placed through FSFs, the public offering price will be determined on the day the order is placed in good order, but only if the FSF receives the order prior to the time at which shares are valued and transmits it to the Fund before the Fund processes that day's transactions. If the FSF fails to transmit before the Fund processes that day's transactions, the customer's entitlement to that day's closing price must be settled between the customer and the FSF. If the FSF receives the order after the time at which the Fund values its shares, the price will be based on the NAV determined as of the close of the Exchange on the next day it is open. If funds for the purchase of shares are sent directly to CFS, they will be invested at the public offering price next determined after receipt in good order. Payment for shares of the fund must be in U.S. dollars; if made by check, the check must be drawn on a U.S. bank.
Investors should understand that, since the offering price of the Fund's shares is calculated to two decimal places using standard rounding methodology, the dollar amount of the sales charge paid as a percentage of the offering price and of the net amount invested for any particular purchase of fund shares may be higher or lower depending on whether downward or upward rounding was required during the calculation process.
The Fund receives the entire NAV of shares sold. For shares subject to an initial sales charge, CFD's commission is the sales charge shown in the Fund's Prospectus less any applicable FSF discount. The FSF discount is the same for all FSFs, except that CFD retains the entire sales charge on any sales made to a shareholder who does not specify a FSF on the Investment Account Application ("Application"), and except that CFD may from time to time reallow additional amounts to all or certain FSFs. CFD generally retains some or all of any asset-based sales charge (distribution fee) or contingent deferred sales charge. Such charges generally reimburse CFD for any up-front and/or ongoing commissions paid to FSFs.
Checks presented for the purchase of shares of the Fund which are returned by the purchaser's bank or checkwriting privilege checks for which there are insufficient funds in a shareholder's account to cover redemption may subject such purchaser or shareholder to a $15 service fee for each check returned. Checks must be drawn on a U.S. bank and must be payable in U.S. dollars. Travelers checks, gift checks, credit card convenience checks, credit cards, cash and ban counter (starter checks) are not accepted.
CFS acts as the shareholder's agent whenever it receives instructions to carry out a transaction on the shareholder's account. Upon receipt of instructions that shares are to be purchased for a shareholder's account, the designated FSF will receive the applicable sales commission. Shareholders may change FSFs at any time by written notice to CFS, provided the new FSF has a sales agreement with CFD.
Shares credited to an account are transferable upon written instructions in good order to CFS and may be redeemed as described under "How to Sell Shares" in the Prospectus. Certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you may send the certificates to CFS for deposit to your account.
In addition to the commissions specified in a Fund's prospectus and this SAI, CFD, or its advisory affiliates, from their own resources, may make cash payments to FSFs that agree to promote the sale of shares of funds that CFD distributes. A number of factors may be considered in determining the amount of those payments, including the FSF's sales, client assets invested in the funds and redemption rates, the quality of the FSF's relationship with CFD and/or its affiliates, and the nature of the services provided by FSFs to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the FSF's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, CFD may also pay non-cash compensation to FSFs and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for FSF educational or training events.
In addition, CFD, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of a Fund.
CFD and its affiliates anticipate that the FSFs and intermediaries that will receive the additional compensation described above include:
1st Global Capital Corp
401 Company
ABN AMRO Trust Services
ADP Retirement Services
Advest
AEGON/Transamerica
AG Edwards
American Century Services
American Express
AMG
AON Consulting
AST Trust Company
Banc of America Investment Services
BancOne
Bear Stearns
Benefit Plan Administrators
Bidwell & Company
BNY Clearing
C N A Trust
Charles Schwab
CIBC Oppenheimer
Citigroup Global Markets
CitiStreet Associates LLC
City National Bank
City of Milwaukee
Columbia
Trust Company
Commonwealth Financial
Compensation & Capital
CPI Qualified Plan Consultants
Daily Access Concepts
Davenport & Company
Delaware Investments
Digital Retirement Solutions
Discover Brokerage
Dreyfus/Mellon
Edgewood Services
Edward Jones
E-Trade,
ExpertPlan
FAS Liberty Life Spectrum
Ferris Baker Watts
Fidelity
Financial Data Services
Franklin Templeton
Freeman Welwood
Gem Group
Great West Life
Hewitt Associates LLC
Huntington Bank
ING
Intermountain Health Care
Investmart, Inc.
Investment Manager Services (IMS)
Janney Montgomery Scott
JJB Hilliard Lyons
JP Morgan/American Century
Kenney Investments
Kirkpatrick Pettis Smith Polian Inc
Legg Mason Wood Walker
Liberty Life
Lincoln Financial
Lincoln Life
Linsco Private Ledger
M & T Securities
Marquette Trust Company
Mass Mutual Life
Matrix Settlement & Clearance Services (MSCS)
McDonald Investments
Merrill Lynch
MetLife
MFS
Mfund Trax
MidAtlantic Capital
Milliman USA
Morgan Keegan
Morgan Stanley Dean Witter
PFPC
Nationwide Investment Services
Neuberger Berman Mgmt
NFP Securities
NSD -NetStock Sharebuilder
NYLife Distributors
Optimum Investment Advisors
Orbitex
Pershing LLC
Phoenix Home Life
Piper Jaffray
PNC
PPI Employee Benefits
Private Bank & Trust
Prudential
Putnam Investments
Raymond James
RBC Dain Rausher
Robert W Baird
Royal Alliance
RSM McGladrey Inc.
Safeco
Scott & Stringfellow
Scudder Investments
Security Benefit
Segall Bryant Hamill
South Trust Securities
Southwest Securities
Standard Insurance
Stanton Group
State of NY Deferred Compensation Plan
Stephens, Inc.
Stifel Nicolaus & Co
Strong Capital
Sungard T Rowe Price
Trustar Retirement Services
Trustlynx/Datalynx
UBS Financial Services
USAA Investment Management
Vanguard
Wachovia
TD Waterhouse
Webster Investment Services
Wells Fargo
Wilmington Trust
PLEASE CONTACT YOUR FSF OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or eliminated at any time.
AUTOMATIC INVESTMENT PLAN. As a convenience to investors, shares of most Funds advised by the Advisor may be purchased through the Automatic Investment Plan. Electronic fund transfers for a fixed amount of at least $50 ($25 for IRA) are used to purchase a Fund's shares at the public offering price next determined after CFD receives the proceeds. If your Automatic Investment Plan purchase is by electronic funds transfer, you may request the Automatic Investment Plan purchase for any day. Further information and application forms are available from FSFs or from CFD.
AUTOMATED DOLLAR COST AVERAGING (Classes A, B, C, D, T, G and Z). The Automated Dollar Cost Averaging program allows you to exchange $100 or more on a monthly basis from any fund distributed by CFD in which you have a current balance of at least $5,000 into the same class of shares of up to five other Funds. Complete the Automated Dollar Cost Averaging section of the Application. There is no charge for exchanges made pursuant to the Automated Dollar Cost Averaging program. Sales charges may apply if exchanging from a money market fund. Exchanges will continue so long as your fund balance is sufficient to complete the transfers. Your normal rights and privileges as a shareholder remain in full force and effect. Thus you can buy any Fund, exchange between the same Class of shares of Funds by written instruction or by telephone exchange if you have so elected and withdraw amounts from any Fund, subject to the imposition of any applicable CDSC or sales charges.
Any additional payments or exchanges into your Fund will extend the time of the Automated Dollar Cost Averaging program.
An exchange is generally a capital sale transaction for federal income tax purposes.
You may terminate your program, change the amount of the exchange (subject to the $100 minimum), or change your selection of funds, by telephone or in writing; if in writing by mailing your instructions to Columbia Funds Services, Inc. (formerly named Liberty Funds Services, Inc.) (CFS) P.O. Box 8081, Boston, MA 02266-8081.
You should consult your FSF or financial advisor to determine whether or not the Automated Dollar Cost Averaging program is appropriate for you.
CFD offers several plans by which an investor may obtain reduced initial or contingent deferred sales charges. These plans may be altered or discontinued at any time. See "Programs For Reducing or Eliminating Sales Charges" below for more information.
CLASS T SHAREHOLDER SERVICES PLAN. The Trustees have approved a Shareholder
Services Plan (the "Services Plan") pursuant to which the Trusts plan to enter
into servicing agreements with institutions (including Bank of America
Corporation and its affiliates). Pursuant to these servicing agreements,
institutions render certain administrative and support services to customers who
are the beneficial owners of Class T shares of each Fund other than the Columbia
Newport Tiger Fund. Such services are provided to the institution's customers
who are the beneficial owners of Class T shares and are intended to supplement
the services provided by the Fund's administrator and transfer agent to the
shareholders of record of the Class T shares. The Services Plan provides that
each Fund will pay fees for such services at an annual rate of up to 0.50% of
the average daily net asset value of Class T shares owned beneficially by the
institution's customers. Institutions may receive up to one-half of this fee for
providing one or more of the following services to such customers: (i)
aggregating and processing purchase and redemption requests and placing net
purchase and redemption orders with CFD; (ii) processing dividend payments from
a Fund; (iii) providing sub-accounting with respect to Class T shares or the
information necessary for sub-accounting; and (iv) providing periodic mailings
to customers. Institutions may also receive up to one-half of this fee for
providing one or more of these additional services to such customers: (i)
providing customers with information as to their positions in Class T shares;
(ii) responding to customer inquiries; and (iii) providing a service to invest
the assets of customers in Class T shares.
The payments under the servicing agreements entered into as of the date of this SAI are limited to an aggregate fee of not more than 0.30% (on an annualized basis) of the average daily net asset value of the Class T shares of equity funds beneficially owned by customers of institutions and 0.15% (on an annualized basis) of the average daily net asset value of the Class T shares of bond funds beneficially owned by customers of institutions. The Funds understand that institutions may charge fees to their customers who are the beneficial owners of Class T shares in connection with their accounts with such institutions. Any such fees would be in addition to any amounts which may be received by an institution under the Services Plan. Under the terms of each servicing agreement, institutions are required to provide to their customers a schedule of any fees that they may charge in connection with customer investments in Class T shares.
Each servicing agreement with an institution ("Service Organization") relating to the Services Plan requires that, with respect to those Funds which declare dividends on a daily basis, the Service Organization agrees to waive a portion of the servicing fee payable to it under the Services Plan to the extent necessary to ensure that the fees required to be accrued with respect to the Class T shares of such Funds on any day do not exceed the income to be accrued to such Class T shares on that day.
The Class T servicing agreements are governed by the Services Plan approved by the Board of Trustees in connection with the offering of Class T shares of each Fund. Pursuant to the Services Plan, the Board of Trustees reviews, at least quarterly, a written report of the amounts paid under the servicing agreements and the purposes for which the expenditures were made. In addition, the arrangements with Service Organizations must be approved annually by a majority of the Trustees, including a majority of the trustees who are not "interested persons" of the Funds as defined in the 1940 Act and who have no direct or indirect financial interest in such arrangements (the "Disinterested Trustees").
The Board of Trustees has approved the service agreements with Service Organizations based on information provided by the Funds' service contractors that there is a reasonable likelihood that the arrangements will benefit the Funds and their shareholders by affording the Funds greater flexibility in connection with the efficient servicing of the accounts of the beneficial owners of Class T shares of the Funds. Any material amendment to the Funds' arrangements with Service Organizations must be approved by a majority of the Board of Trustees (including a majority of the Disinterested Trustees). So long as the service agreements with Service Organizations are in effect, the selection and nomination of the members of Columbia's Board of Trustees who are not "interested persons" (as defined in the 1940 Act) of the Funds will be committed to the discretion of such Disinterested Trustees.
TAX-SHELTERED RETIREMENT PLANS (Retirement Plans). CFD offers prototype tax-qualified plans, including Pension and Profit-Sharing Plans for individuals, corporations, employees and the self-employed. The minimum initial Retirement Plan investment is $25. Columbia Trust Company (CTC) is the Custodian/Trustee and Plan Sponsor of the Columbia Management prototype plans offered through CFD. In general, a $20 annual fee is charged. Detailed information concerning these Retirement Plans and copies of the Retirement Plans are available from CFD.
Participants in Retirement Plans not sponsored by CTC, not including Individual Retirement Accounts (IRAs), may be subject to an annual fee of $20 unless the Retirement Plan maintains an omnibus account with CFS. Participants in CTC sponsored prototype plans (other than IRAs) who liquidate the total value of their account may also be charged a $20 close-out processing fee payable to CFS. The close out fee applies to plans opened after September 1, 1996. The fee is in addition to any applicable CDSC. The fee will not apply if the participant uses the proceeds to open a Columbia Management IRA Rollover account in any Fund distributed by CFD, or if the Retirement Plan maintains an omnibus account.
Consultation with a competent financial advisor regarding these Retirement Plans and consideration of the suitability of Fund shares as an investment under the Employee Retirement Income Security Act of 1974 or otherwise is recommended.
TELEPHONE ADDRESS CHANGE SERVICES. By calling CFS, shareholders or their FSF of record may change an address on a recorded telephone line. Confirmations of address change will be sent to both the old and the new addresses. Telephone redemption privileges by check are suspended for 30 days after an address change is effected. Please have your account and taxpayer identification numbers available when calling.
CASH CONNECTION. Dividends and any other distributions, including Systematic Withdrawal Plan (SWP) payments, may be automatically deposited to a shareholder's bank account via electronic funds transfer. Shareholders wishing to avail themselves of this electronic transfer procedure should complete the appropriate sections of the Application.
AUTOMATIC DIVIDEND DIVERSIFICATION. The automatic dividend diversification reinvestment program (ADD) generally allows shareholders to have all distributions from a Fund automatically invested in the same class of shares of another Fund. An ADD account must be in the same name as the shareholder's existing open account with the particular Fund. Call CFS for more information at 1-800-345-6611.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
RIGHTS OF ACCUMULATION (Class A, Class B and Class T shares only) (Class T shares can only be purchased by the shareholders of Columbia Newport Tiger Fund (formerly named Liberty Newport Tiger Fund) who already own Class T shares). Reduced sales charges on Class A, B and T shares can be effected by combining a current purchase of Class A, Class B or Class T shares with prior purchases of other funds distributed by CFD. The applicable sales charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on the previous day of all funds' held by the shareholder.
CFD must be promptly notified of each purchase which entitles a shareholder to a reduced sales charge. Such reduced sales charge will be applied upon confirmation of the shareholder's holdings by CFS. A Fund may terminate or amend this Right of Accumulation.
STATEMENT OF INTENT (Class A, Class E and Class T shares only). Any person may qualify for reduced sales charges on purchases of Class A, E and T shares made within a thirteen-month period pursuant to a Statement of Intent ("Statement"). A shareholder may include, as an accumulation credit toward the completion of such Statement, the value of all fund shares held by the shareholder on the date of the Statement in Funds (except shares of any money market fund, unless such shares were acquired by exchange from Class A shares of another non-money market fund)). The value is determined at the public offering price on the date of the Statement. Purchases made through reinvestment of distributions do not count toward satisfaction of the Statement. Upon request, a Statement of Intent may be backdated to reflect purchases within 90 days.
During the term of a Statement, CFS will hold shares in escrow to secure payment of the higher sales charge applicable to Class A, E or T shares actually purchased. Dividends and capital gains will be paid on all escrowed shares and these shares will be released when the amount indicated has been purchased. A Statement does not obligate the investor to buy or a Fund to sell the amount of the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which would qualify for a further quantity discount, a retroactive price adjustment will be made at the time of expiration of the Statement. The resulting difference in offering price will purchase additional shares for the shareholder's account at the applicable offering price. As a part of this adjustment, the FSF shall return to CFD the excess commission previously paid during the thirteen-month period.
If the amount of the Statement is not purchased, the shareholder shall remit to CFD an amount equal to the difference between the sales charge paid and the sales charge that should have been paid. If the shareholder fails within twenty days after a written request to pay such difference in sales charge, CFS will redeem that number of escrowed Class A, E or T shares to equal such difference. The additional amount of FSF discount from the applicable offering price shall be remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available from your FSF, or from CFS at 1-800-345-6611.
REINSTATEMENT PRIVILEGE. Subject to the Fund's fund policy on trading of fund shares, an investor who has redeemed Class A, B, C or T shares (other than shares of the Columbia Newport Greater China Fund (formerly named Liberty Newport Greater China Fund), Columbia Global Equity Fund (formerly named Liberty Newport Global Equity Fund) and Columbia Newport Tiger Fund (formerly named Liberty Newport Tiger Fund) that were redeemed within 30 days of their acquisition by exchange from another fund) may, upon request, reinstate within one year a portion or all of the proceeds of such sale in shares of Class A of any Fund at the NAV next determined after CFS receives a written reinstatement request and payment. Investors who desire to exercise this privilege should contact their FSF or CFS. Shareholders may exercise this privilege an unlimited amount of times. Exercise of this privilege does not alter the federal income tax treatment of any capital gains realized on the prior sale of Fund shares, but to the extent any such shares were sold at a loss, some or all of the loss may be disallowed for tax purposes. Consult your tax advisor.
PRIVILEGES OF COLUMBIA EMPLOYEES OR FINANCIAL SERVICE FIRMS (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, INC. IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS). Class A shares of certain Funds may be sold at NAV to the following individuals whether currently employed or retired: Trustees of funds advised or administered by the Advisor; directors, officers and employees of the Advisor, CFD and companies affiliated with the Advisor; registered representatives and employees of FSFs (including their affiliates) that are parties to dealer agreements or other sales arrangements with CFD; and such persons' families and their beneficial accounts.
PRIVILEGES OF COLUMBIA ACORN FUNDS (FORMERLY NAMED LIBERTY ACORN FUNDS) SHAREHOLDERS. Any shareholder who owned shares of any fund of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000 (when all of the then outstanding shares of Columbia Acorn Trust were re-designated Class Z shares) and who since that time has remained a shareholder of any fund distributed by CFD, may purchase Class A shares of any fund distributed by CFD at NAV in those cases where a Columbia Fund Class Z share is not available. Qualifying shareholders will not be subject to any Class A initial sales charge or CDSC; however, they will be subject to the annual Rule 12b-1 service fee.
FEE-BASED COMPENSATION ARRANGEMENTS. Class A, Class E and Class T shares (Class T shares can only be purchased by the shareholders of Liberty Newport Tiger Fund who already own Class T shares) of certain funds may also be purchased at reduced or no sales charge by clients of dealers, brokers or registered investment advisors that have entered into agreements with CFD pursuant to which the Funds are included as investment options in programs involving fee-based compensation arrangements, and by participants in certain retirement plans.
WAIVER OF INITIAL SALES CHARGES (CLASS A AND CLASS T SHARES)
Class A share initial sales charges (but not contingent deferred sales charges) are waived for the following categories of investors:
- Galaxy Fund shareholders prior to December 1, 1995; and
- Shareholders who (i) purchased Galaxy Fund Prime A Shares at net asset value and received Class A shares in exchange for those shares during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Prime A shares were originally purchased.
Class T share sales charges are waived for the following categories of investors:
- Galaxy Fund shareholders prior to December 1, 1995;
- Shareholders who (i) purchased Galaxy Fund Retail A Shares at net asset value and received Class T shares in exchange for those shares during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Retail A shares were originally purchased; and
- Boston 1784 Fund shareholders on the date the Funds were reorganized into Galaxy Funds.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES (CDSCS) (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, INC. IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS) (Class A, B, C, D, E, matured F, G and T shares) CDSCs may be waived on redemptions in the following situations with the proper documentation:
1. Death. CDSCs may be waived on redemptions within one year following the death of (i) the sole shareholder on an individual account, (ii) a joint tenant where the surviving joint tenant is the deceased's spouse, or (iii) the beneficiary of a Uniform Gifts to Minors Act (UGMA), Uniform Transfers to Minors Act (UTMA) or other custodial account. If, upon the occurrence of one of the foregoing, the account is transferred to an account registered in the name of the deceased's estate, the CDSC will be waived on any redemption from the estate account occurring within one year after the death. If shares are not redeemed within one year of the death, they will remain subject to the applicable CDSC, when redeemed from the transferee's account. If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions occurring pursuant to a monthly, quarterly or semi-annual SWP established with CFS, to the extent the redemptions do not exceed, on an annual basis, 12% of the account's value. Otherwise, CDSCs will be charged on SWP redemptions until this requirement is met; this requirement does not apply if the SWP is set up at the time the account is established, and distributions are being reinvested. See below under "Investor Services - Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions occurring within one year after the sole shareholder on an individual account or a joint tenant on a spousal joint tenant account becomes disabled (as defined in Section 72(m)(7) of the Internal Revenue Code). To be eligible for such waiver, (i) the disability must arise AFTER the purchase of shares (ii) the disabled shareholder must have been under age 65 at the time of the initial determination of disability, and (iii) a letter from a physician must be signed under penalty of perjury stating the nature of the disability. If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring upon
dissolution of a revocable living or grantor trust following the death of
the sole trustee where (i) the grantor of the trust is the sole trustee and
the sole life beneficiary, (ii) death occurs following the purchase AND
(iii) the trust document provides for dissolution of the trust upon the
trustee's death. If the account is transferred to a new registration
(including that of a successor trustee), the applicable CDSC will be
charged upon any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions required to return excess contributions made to retirement plans or individual retirement accounts, so long as the FSF agrees to return the applicable portion of any commission paid by the Advisor.
6. Qualified Retirement Plans. CDSCs may be waived on redemptions required to make distributions from qualified retirement plans following normal retirement (as stated in the Plan document). CDSCs also will be waived on SWP redemptions made to make required minimum distributions from qualified retirement plans that have invested in Funds distributed by CFD for at least two years. CDSC is also waived for participant loans.
7. Trust Share Taxes. CDSCs will be waived on redemptions of Class E and F
shares (i) where the proceeds are used to directly pay trust taxes, and
(ii) where the proceeds are used to pay beneficiaries for the payment of
trust taxes.
The CDSC also may be waived where the FSF agrees to return all or an agreed upon portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may be sold on any day the Exchange is open, either directly to the Fund or through the shareholder's FSF. Sale proceeds generally are sent within seven days (usually on the next business day after your request is received in good form). However, for shares recently purchased by check, the Fund may delay selling or delay sending proceeds from your shares for up to 15 days in order to protect the Fund against financial losses and dilution in net asset value caused by dishonored purchase payment checks.
To sell shares directly to the Fund, send a signed letter of instruction to CFS, along with any certificates for shares to be sold. The sale price is the net asset value (less any applicable contingent deferred sales charge) next calculated after the Fund receives the request in proper form. Signatures must be guaranteed by a bank, a member firm of a national stock exchange or another eligible guarantor that participates in the Medallion Signature Guarantee Program. Stock power forms are available from FSFs, CFS and many banks. Additional documentation may be required for sales by corporations, agents, fiduciaries, surviving joint owners, individual retirement account holders and other legal entities. Call CFS for more information 1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued to receive that day's price, FSF's are responsible for furnishing all necessary documentation to CFS and may charge for this service.
SYSTEMATIC WITHDRAWAL PLAN (SWP). The shareholder may establish a SWP. A specified dollar amount, share amount or percentage of the then current net asset value of the shareholder's investment in any Fund designated by the shareholder will be paid monthly, quarterly or semi-annually to a designated payee. The amount or percentage the shareholder specifies is run against available shares and generally may not, on an annualized basis, exceed 12% of the value, as of the time the shareholder makes the election, of the shareholder's investment. Withdrawals of shares of the Fund under a SWP will be treated as redemptions of shares purchased through the reinvestment of Fund distributions, or, to the extent such shares in the shareholder's account are insufficient to cover Plan payments, as redemptions from the earliest purchased shares of such Fund in the shareholder's account. No CDSCs apply to a redemption pursuant to a SWP of 12% or less, even if, after giving effect to the redemption, the shareholder's account balance is less than the shareholder's base amount. Qualified plan participants who are required by Internal Revenue Service regulation to withdraw more than 12%, on an annual basis, of the value of their share account may do so but may be subject to a CDSC ranging from 1% to 5% of the amount withdrawn in excess of 12% annually. If a shareholder wishes to participate in a SWP, the shareholder must elect to have all of the shareholder's income dividends and other Fund distributions payable in shares of the Fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by telephone on a recorded line. However, SWP checks will be payable only to the shareholder and sent to the address of record. SWPs from retirement accounts cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in certificate form. Purchasing additional shares (other than through dividend and distribution reinvestment) while receiving SWP payments is ordinarily disadvantageous because of sales charges. For this reason, a shareholder may not maintain a plan for the accumulation of shares of the Fund (other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or loss for tax purposes, may involve the use of principal and may eventually use up all of the shares in a shareholder's account.
A Fund may terminate a shareholder's SWP if the shareholder's account balance falls below $5,000 due to any transfer or liquidation of shares other than pursuant to the SWP. SWP payments will be terminated on receiving satisfactory evidence of the death or incapacity of a shareholder. Until this evidence is received, CFS will not be liable for any payment made in accordance with the provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate in them is borne by the Fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not be able to participate in a SWP. If a shareholder's Fund shares are held in "street name," the shareholder should consult his or her FSF to determine whether he or she may participate in a SWP. The SWP on accounts held in "street name" must be made payable to the back office via the NSCC.
TELEPHONE REDEMPTIONS. All Fund shareholders and/or their FSFs are automatically
eligible to redeem up to $100,000 of the Fund's shares by calling 1-800-422-3737
toll-free any business day between 9:00 a.m. and the close of trading of the
Exchange (normally 4:00 p.m. Eastern time). Transactions received after 4:00
p.m. Eastern time will receive the next business day's closing price. Telephone
redemptions by check and ACH are limited to a total of $100,000 in a 30-day
period. Redemptions that exceed $100,000 may be accomplished by placing a wire
order trade through a broker, to a pre-existing bank account or furnishing a
signature guaranteed request. Signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another eligible guarantor that
participates in the Medallion Signature Guarantee Program. CFS will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. Telephone redemptions are not available on accounts with an address
change in the preceding 30 days and proceeds and confirmations will only be
mailed or sent to the address of record unless the redemption proceeds are being
sent to a pre-designated bank account. Shareholders and/or their FSFs will be
required to provide their name, address account and taxpayer identification
numbers. FSFs will also be required to provide their broker number. All
telephone transactions are recorded. A loss to a shareholder may result from an
unauthorized transaction reasonably believed to have been authorized. Certain
restrictions apply to retirement plan accounts.
CHECKWRITING (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, INC. ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR OF CERTAIN FUNDS) (Available only on the Class A and Z shares of certain Funds) Shares may be redeemed by check if a shareholder has previously completed an Application and Signature Card. CFS will provide checks to be drawn on Mellon Trust of New England, N.A. (the "Bank"). These checks may be made payable to the order of any person in the amount of not less than $500 ($250 for money market funds) nor more than $100,000. The shareholder will continue to earn dividends on shares until a check is presented to the Bank for payment. At such time a sufficient number of full and fractional shares will be redeemed at the next determined net asset value to cover the amount of the check. Certificate shares may not be redeemed in this manner.
Shareholders utilizing checkwriting drafts will be subject to the Bank's rules governing checking accounts. There is currently no charge to the shareholder for the use of checks., However, you may incur customary fees for services such as a stop payment request or a request for copies of a check. The shareholder should make sure that there are sufficient shares in his or her open account to cover the amount of any check drawn since the net asset value of shares will fluctuate. If insufficient shares are in the shareholder's open account, the check will be returned marked "insufficient funds" and no shares will be redeemed; the shareholder will be charged a $15 service fee for each check returned. It is not possible to determine in advance the total value of an open account because prior redemptions and possible changes in net asset value may cause the value of an open account to change. Accordingly, a check redemption should not be used to close an open account. In addition, a check redemption, like any other redemption, may give rise to taxable capital gains.
NON-CASH REDEMPTIONS. For redemptions of any single shareholder within any 90-day period exceeding the lesser of $250,000 or 1% of a Fund's net asset value, a Fund may make the payment or a portion of the payment with portfolio securities held by that Fund instead of cash, in which case the redeeming shareholder may incur brokerage and other costs in selling the securities received.
INFORMATION APPLICABLE TO CLASS G AND CLASS T SHARES
The primary difference between Class G and Class T shares lies in their sales charge structures and shareholder servicing/distribution expenses. Investments in Class T shares of the Funds are subject to a front-end sales charge. Investments in Class G shares of the Funds are subject to a back-end sales charge. This back-end sales charge declines over time and is known as a "contingent deferred
sales charge." An investor should understand that the purpose and function of the sales charge structures and shareholder servicing/distribution arrangements for both Class G and Class T shares are the same. Class T shares of a bond fund and an equity fund are currently subject to ongoing shareholder servicing fees at an annual rate of up to 0.15% and 0.30%, respectively, of the Fund's average daily net assets attributable to its Class T shares. Class G shares of a bond fund and an equity fund are currently subject to ongoing shareholder servicing and distribution fees at an annual rate of up to 0.80% and 0.95%, respectively, of the Fund's average daily net assets attributable to its Class G shares. These ongoing fees, which are higher than those charged on Class T shares, will cause Class G shares to have a higher expense ratio and pay lower dividends than Class T shares. Class G and Class T shares may only be purchased by current shareholders of Class G and Class T, respectively.
CLASS T SHARES. The public offering price for Class T shares of the Funds is the sum of the net asset value of the Class T shares purchased plus any applicable front-end sales charge as described in the applicable Prospectus. A deferred sales charge of up to 1.00% is assessed on certain redemptions of Class T shares that are purchased with no initial sales charge as part of an investment of $1,000,000 to $25,000,000. A portion of the front-end sales charge may be reallowed to broker-dealers as follows:
REALLOWANCE TO
REALLOWANCE TO DEALERS DEALERS AS A % OF
AS A % OF OFFERING PRICE OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE - BOND FUNDS PER SHARE - EQUITY FUNDS
--------------------- ------------------------ ------------------------
Less than $50,000 4.25 5.00
$50,000 but less than $100,000 3.75 3.75
$100,000 but less than $250,000 2.75 2.75
$250,000 but less than $500,000 2.00 2.00
$500,000 but less than $1,000,000 1.75 1.75
$1,000,000 and over 0.00 0.00
|
The appropriate reallowance to dealers will be paid by CFD to broker-dealer organizations which have entered into agreements with CFD. The reallowance to dealers may be changed from time to time.
Certain affiliates of the Advisor may, at their own expense, provide additional compensation to broker-dealer affiliates of Columbia and to unaffiliated broker-dealers whose customers purchase significant amounts of Class T shares of the Funds. Such compensation will not represent an additional expense to the Funds or their shareholders, since it will be paid from the assets of Bank of America Corporation's affiliates.
INFORMATION APPLICABLE TO CERTAIN CLASS G SHARES RECEIVED BY FORMER GALAXY FUND RETAIL B SHAREHOLDERS IN CONNECTION WITH THE GALAXY/LIBERTY REORGANIZATION. The following table describes the CDSC schedule applicable to Class G shares received by former Galaxy Fund Retail B shareholders in exchange for Retail B Shares purchased prior to January 1, 2001:
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.00
Through second year 4.00
Through third year 3.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Longer than six years None
|
Class G shares received in exchange for Galaxy Fund Retail B Shares that were purchased prior to January 1, 2001 will automatically convert to Class T shares seven years after purchase. For purposes of calculating the CDSC, all purchases are considered to be made on the first day of the month in which each purchase was made.
The following table describes the CDSC schedule applicable to Class G shareholders whose Galaxy Asset Allocation Fund and/or International Equity Fund Retail B Shares were acquired in connection with the reorganization of the Pillar Funds:
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.50
Through second year 5.00
Through third year 4.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Through the seventh year None
Longer than seven years None
|
If you acquired Retail B Shares in connection with the reorganization of the Pillar Funds, your Class G shares will automatically convert to Class T shares eight years after you purchased the Pillar Fund Class B shares you held prior to the reorganization. For purposes of calculating the CDSC, all purchases are considered to be made on the first day of the month in which each purchase was made.
CLASS G SHARES PURCHASED AFTER THE GALAXY/LIBERTY REORGANIZATION. The public offering price for Class G shares of the Funds is the net asset value of the Class G shares purchased. Although investors pay no front-end sales charge on purchases of Class G shares, such shares are subject to a contingent deferred sales charge at the rates set forth in the applicable Prospectus if they are redeemed within seven years of purchase. Securities dealers, brokers, financial institutions and other industry professionals will receive commissions from CFD in connection with sales of Class G shares. These commissions may be different than the reallowances or placement fees paid to dealers in connection with sales of Class T shares. Certain affiliates of Columbia may, at their own expense, provide additional compensation to broker-dealer affiliates of Columbia and to unaffiliated broker-dealers, whose customers purchase significant amounts of Class G shares of a Fund. See "Class T Shares." The contingent deferred sales charge on Class G shares is based on the lesser of the net asset value of the shares on the redemption date or the original cost of the shares being redeemed. As a result, no sales charge is imposed on any increase in the principal value of an investor's Class G shares. In addition, a contingent deferred sales charge will not be assessed on Class G shares purchased through reinvestment of dividends or capital gains distributions.
The proceeds from the contingent deferred sales charge that an investor may pay upon redemption go to CFD, which may use such amounts to defray the expenses associated with the distribution-related services involved in selling Class G shares. Class G shares of a Fund will convert automatically to Class T shares eight years after purchase. The purpose of the conversion is to relieve a holder of Class G shares of the higher ongoing expenses charged to those shares, after enough time has passed to allow CFD to recover approximately the amount it would have received if the applicable front-end sales charge had been charged. The conversion from Class G shares to Class T shares takes place at net asset value, as a result of which an investor receives dollar-for-dollar the same value of Class T shares as he or she had of Class G shares. The conversion occurs eight years after the beginning of the calendar month in which the shares are purchased. Upon conversion, the converted shares will be relieved of the distribution and shareholder servicing fees borne by Class G shares, although they will be subject to the shareholder servicing fees borne by Class T shares.
Class G shares acquired through a reinvestment of dividends or distributions are also converted at the earlier of two dates - (i) eight years after the beginning of the calendar month in which the reinvestment occurred or (ii) the date of conversion of the most recently purchased Class G shares that were not acquired through reinvestment of dividends or distributions. For example, if an investor makes a one-time purchase of Class G shares of a Fund, and subsequently acquires additional Class G shares of the Fund only through reinvestment of dividends and/or distributions, all of such investor's Class G shares in the Fund, including those acquired through reinvestment, will convert to Class T shares of the Fund on the same date.
INFORMATION APPLICABLE TO CERTAIN CLASS B SHAREHOLDERS
Except for the following, Class B Share Contingent Deferred Sales Charges ("CDSCs") and conversion schedules are described in the Prospectuses.
The following table describes the CDSC schedule applicable to Class B shares received by Galaxy Quality Plus Bond Fund shareholders in exchange for Prime B Shares in connection with the Galaxy/Liberty reorganization.
SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.00
Through second year 4.00
Through third year 3.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Longer than six years 0.00
|
Automatic conversion to Class A shares occurs eight years after purchase.
The Class B share discount program for purchases of $250,000 or more is not applicable to Class B shares received by Galaxy Fund Prime B shareholders in connection with the reorganization of the Galaxy Fund.
INFORMATION APPLICABLE TO CERTAIN CLASS A SHAREHOLDERS:
Except as set forth in the following paragraph, Class A share CDSCs are described in the Prospectuses:
Class A shares received by former Galaxy High Quality Bond Fund shareholders in exchange for Prime A Shares in connection with the Galaxy/Liberty reorganization of that Fund are subject to a 1% CDSC upon redemption of such Class A shares if the Prime A Shares were purchased without an initial sales charge in accounts aggregating $1 million or more at the time of purchase and the Class A shares are sold within 12 months of the time of purchase of the Prime A Shares. The 12-month holding period begins on the first day of the month in which each purchase was made.
DISTRIBUTIONS
Distributions are invested in additional shares of the same Class of the Fund at net asset value unless the shareholder elects to receive cash. Regardless of the shareholder's election, distributions of $10 or less will not be paid in cash, but will be invested in additional shares of the same class of the Fund at net asset value. Undelivered distribution checks returned by the post office will be reinvested in your account. If a shareholder has elected to receive dividends and/or capital gain distributions in cash and the postal or other delivery service selected by the Transfer Agent is unable to deliver checks to the shareholder's address of record, such shareholder's distribution option will automatically be converted to having all dividend and other distributions reinvested in additional shares. No interest will accrue on amounts represented by uncashed distribution or redemption checks. Shareholders may reinvest all or a portion of a recent cash distribution without a sales charge. No charge is currently made for reinvestment.
Shares of some Funds that pay daily dividends (include Funds) will normally earn dividends starting with the date the Fund receives payment for the shares and will continue through the day before the shares are redeemed, transferred or exchanged. Shares of some Funds that pay daily dividends (exclude Funds) Columbia will be earned starting with the day after that Fund receives payments for the shares. To determine whether a particular Fund is an include or exclude fund, customers can call 1-800-345-6611.
HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for the same class of shares of the other continuously offered funds (with certain exceptions) on the basis of the NAVs per share at the time of exchange. Class T and Z shares may be exchanged for Class A shares of certain other funds. The prospectus of each Fund describes its investment goal and policies, and shareholders should obtain a prospectus and consider these goals and policies carefully before requesting an exchange Consult CFS before requesting an exchange.
If you acquire Class A shares of an international fund by exchange from any other fund, you will not be permitted to exchange those shares into another fund for 30 calendar days, although you may redeem those shares at any time. An exchange order received prior to the expiration of the 30-day period will not be honored.
By calling CFS, shareholders or their FSF of record may exchange among accounts with identical registrations, provided that the shares are held on deposit. During periods of unusual market changes or shareholder activity, shareholders may experience delays in contacting CFS by telephone to exercise the telephone exchange privilege. Because an exchange involves a redemption and reinvestment in another fund, completion of an exchange may be delayed under unusual circumstances, such as if the Fund suspends repurchases or postpones payment for the Fund shares being exchanged in accordance with federal securities law. CFS will also make exchanges upon receipt of a written exchange request and share certificates, if any. If the shareholder is a corporation, partnership, agent, or surviving joint owner, CFS may require customary additional documentation. Prospectuses of the other Funds are available from the CFD Literature Department by calling 1-800-426-3750.
A loss to a shareholder may result from an unauthorized transaction reasonably believed to have been authorized. No shareholder is obligated to use the telephone to execute transactions.
Consult your FSF or CFS. In all cases, the shares to be exchanged must be registered on the records of the Fund in the name of the shareholder desiring to exchange.
Shareholders of the other open-end funds generally may exchange their shares at NAV for the same class of shares of the Fund. Sales charges may apply for exchanges from money market funds.
An exchange is generally a capital sale transaction for federal income tax purposes. The exchange privilege may be revised, suspended or terminated at any time.
SUSPENSION OF REDEMPTIONS
A Fund may not suspend shareholders' right of redemption or postpone payment for more than seven days unless the Exchange is closed for other than customary weekends or holidays, or if permitted by the rules of the SEC during periods when trading on the Exchange is restricted or during any emergency which makes it impracticable for the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by order of the SEC for the protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Declaration disclaims shareholder liability for acts or obligations of the Fund and the Trust and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by the Fund or the Trust's Trustees. The Declaration provides for indemnification out of Fund property for all loss and expense of any shareholder held personally liable for the obligations of the Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances (which are considered remote) in which the Fund would be unable to meet its obligations and the disclaimer was inoperative.
The risk of a particular fund incurring financial loss on account of another fund of the Trust is also believed to be remote, because it would be limited to circumstances in which the disclaimer was inoperative and the other fund was unable to meet its obligations.
SHAREHOLDER MEETINGS
As described under the caption "Organization and History", the Fund will not hold annual shareholders' meetings. The Trustees may fill any vacancies in the Board of Trustees except that the Trustees may not fill a vacancy if, immediately after filling such vacancy, less than two-thirds of the Trustees then in office would have been elected to such office by the shareholders. In addition, at such times as less than a majority of the Trustees then in office have been elected to such office by the shareholders, the Trustees must call a meeting of shareholders. Trustees may be removed from office by a written consent signed by a majority of the outstanding shares of the Trust or by a vote of the holders of a majority of the outstanding shares at a meeting duly called for the purpose, which meeting shall be held upon written request of the holders of not less than 10% of the outstanding shares of the Trust. Upon written request by the holders of 1% of the outstanding shares of the Trust stating that such shareholders of the Trust, for the purpose of obtaining the signatures necessary to demand a shareholders' meeting to consider removal of a Trustee, request information regarding the Trust's shareholders, the Trust will provide appropriate materials (at the expense of the requesting shareholders). Except as otherwise disclosed in the Prospectus and this SAI, the Trustees shall continue to hold office and may appoint their successors.
At any shareholders' meetings that may be held, shareholders of all series would vote together, irrespective of series, on the election of Trustees, but each series would vote separately from the others on other matters, such as changes in the investment policies of that series or the approval of the management agreement for that series.
APPENDIX I
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S (S&P)
The following descriptions are applicable to municipal bond funds:
AAA bonds have the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.
AA bonds have a very strong capacity to pay interest and repay principal, and they differ from AAA only in small degree.
A bonds have a strong capacity to pay interest and repay principal, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.
BBB bonds are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than for bonds in the A category.
BB, B, CCC, CC and C bonds are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or large exposures to adverse conditions.
BB bonds have less near-term vulnerability to default than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating.
B bonds have a greater vulnerability to default but currently have the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating.
CCC bonds have a currently identifiable vulnerability to default, and are dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, the bonds are not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating.
CC rating typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating.
C rating typically is applied to debt subordinated to senior debt which assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued.
CI rating is reserved for income bonds on which no interest is being paid.
D bonds are in payment default. The D rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized.
Plus(+) or minus(-) ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
PROVISIONAL RATINGS. The letter "p" indicates that the rating is provisional. A provisional rating assumes the successful completion of the project being financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely completion of the project. This rating, however, although addressing credit quality subsequent to completion of the project, makes no comments on the likelihood of, or the risk of default upon failure of, such completion. The investor should exercise his own judgment with respect to such likelihood and risk.
MUNICIPAL NOTES:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating. Notes maturing beyond three years normally receive a bond rating, although the following criteria are used in making that assessment:
Amortization schedule (the larger the final maturity relative to other maturities, the more likely the issue will be rated as a note).
Source of payment (the more dependent the issue is on the market for its refinancing, the more likely it will be rated as a note).
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a demand feature. The first rating addresses the likelihood of repayment of principal and interest as due, and the second rating addresses only the demand feature. The long-term debt rating symbols are used for bonds to denote the long-term maturity, and the commercial paper rating symbols are usually used to denote the put (demand) option (for example, AAA/A-1+). Normally, demand notes receive note rating symbols combined with commercial paper symbols (for example, SP-1+/A-1+).
COMMERCIAL PAPER:
A. Issues assigned this highest rating are regarded as having the greatest capacity for timely payment. Issues in this category are further refined with the designations 1, 2, and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are designed A-1+.
CORPORATE BONDS:
The description of the applicable rating symbols and their meanings is substantially the same as the Municipal Bond ratings set forth above.
The following descriptions are applicable to equity and taxable bond funds:
AAA bonds have the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.
AA bonds differ from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.
A bonds are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.
BBB bonds exhibit adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
BB, B, CCC and CC bonds are regarded, as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB bonds are less vulnerable to non-payment than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
B bonds are more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.
CCC bonds are currently vulnerable to nonpayment, and are dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC bonds are currently highly vulnerable to nonpayment.
C ratings may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on the obligation are being continued.
D bonds are in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
R This symbol is attached to the rating of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk, such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
AAA bonds are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge". Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While various protective elements are likely to change, such changes as can be visualized are most unlikely to impair a fundamentally strong position of such issues.
AA bonds are judged to be of high quality by all standards. Together with Aaa bonds they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.
Those bonds in the Aa through B groups that Moody's believes possess the strongest investment attributes are designated by the symbol Aa1, A1 and Baa1.
A bonds possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment sometime in the future.
BAA bonds are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact, have speculative characteristics as well.
BA bonds are judged to have speculative elements: their future cannot be considered as well secured. Often, the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B bonds generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
CAA bonds are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
CA bonds represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C bonds are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
CONDITIONAL RATINGS. Bonds for which the security depends upon the completion of some act or the fulfillment of some condition are rated conditionally. These are bonds secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in operating experience, (c) rentals which begin when facilities are completed, or (d) payments to which some other limiting conditions attach. Parenthetical rating denotes probable credit stature upon completion of construction or elimination of basis of condition.
MUNICIPAL NOTES:
MIG 1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are accounted for, but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
Moody's may assign a separate rating to the demand feature of a variable rate demand security. Such a rating may include:
VMIG 1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are accounted for, but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
COMMERCIAL PAPER:
Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper obligations are supported by the credit of another entity or entities, Moody's, in assigning ratings to such issuers, evaluates the financial strength of the indicated affiliated corporations, commercial banks, insurance companies, foreign governments, or other entities, but only as one factor in the total rating assessment.
CORPORATE BONDS:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings is identical to that of the Municipal Bond ratings as set forth above, except for the numerical modifiers. Moody's applies numerical modifiers 1, 2, and 3 in the Aa and A classifications of its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a midrange ranking; and the modifier 3 indicates that the issuer ranks in the lower end of its generic rating category.
FITCH INC.
INVESTMENT GRADE BOND RATINGS
AAA bonds are considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and/or dividends and repay principal, which is unlikely to be affected by reasonably foreseeable events.
AA bonds are considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated 'AAA'. Because bonds rated in the 'AAA' and 'AA' categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated 'F-1+'.
A bonds are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than debt securities with higher ratings.
BBB bonds are considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest or dividends and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these securities and, therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for securities with higher ratings.
CONDITIONAL
A conditional rating is premised on the successful completion of a project or the occurrence of a specific event.
SPECULATIVE-GRADE BOND RATINGS
BB bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified, which could assist the obligor in satisfying its debt service requirements.
B bonds are considered highly speculative. While securities in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue.
CCC bonds have certain identifiable characteristics that, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment.
CC bonds are minimally protected. Default in payment of interest and/or principal seems probable over time.
C bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D bonds are in default on interest and/or principal payments. Such securities are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. 'DDD' represents the highest potential for recovery on these securities, and 'D' represents the lowest potential for recovery.
APPENDIX II
COLUMBIA MANAGEMENT ADVISORS, INC. ("CMA")
PROXY VOTING POLICIES AND PROCEDURES
ADOPTED JULY 1, 2003 AND REVISED MARCH 4, 2005
POLICY:
ALL PROXIES(1) REGARDING CLIENT SECURITIES FOR WHICH COLUMBIA MANAGEMENT ADVISORS, INC. ("CMA") HAS ASSUMED AUTHORITY TO VOTE SHALL, UNLESS CMA DETERMINES IN ACCORDANCE WITH POLICIES STATED BELOW TO ABSTAIN FROM VOTING, BE VOTED IN A MANNER CONSIDERED BY CMA TO BE IN THE BEST INTEREST OF CMA'S CLIENTS, INCLUDING THE CMG FAMILY FUNDS(2) AND THEIR SHAREHOLDERS, WITHOUT REGARD TO ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES. THE BEST INTEREST OF CLIENTS IS DEFINED FOR THIS PURPOSE AS THE INTEREST OF ENHANCING OR PROTECTING THE ECONOMIC VALUE OF CLIENT ACCOUNTS, CONSIDERED AS A GROUP RATHER THAN INDIVIDUALLY, AS CMA DETERMINES IN ITS SOLE AND ABSOLUTE DISCRETION. IN THE EVENT A CLIENT BELIEVES THAT ITS OTHER INTERESTS REQUIRE A DIFFERENT VOTE, CMA SHALL VOTE AS THE CLIENT CLEARLY INSTRUCTS, PROVIDED CMA RECEIVES SUCH INSTRUCTIONS IN TIME TO ACT ACCORDINGLY.
CMA ENDEAVORS TO VOTE, IN ACCORDANCE WITH THIS POLICY, ALL PROXIES OF WHICH IT BECOMES AWARE, SUBJECT TO THE FOLLOWING EXCEPTIONS (UNLESS OTHERWISE AGREED) WHEN CMA EXPECTS TO ROUTINELY ABSTAIN FROM VOTING:
1. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE THE SECURITY HAS BEEN LOANED FROM THE CLIENT'S ACCOUNT.
2. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE CMA DEEMS THE COSTS TO THE CLIENT AND/OR THE ADMINISTRATIVE INCONVENIENCE OF VOTING THE SECURITY (E.G., SOME FOREIGN SECURITIES) OUTWEIGH THE BENEFIT OF DOING SO.
CMA SEEKS TO AVOID THE OCCURRENCE OF ACTUAL OR APPARENT MATERIAL CONFLICTS OF INTEREST IN THE PROXY VOTING PROCESS BY VOTING IN ACCORDANCE WITH PREDETERMINED VOTING GUIDELINES, AS STATED BELOW. FOR THOSE PROXY PROPOSALS THAT REQUIRE SPECIAL CONSIDERATION OR IN INSTANCES WHERE SPECIAL CIRCUMSTANCES MAY REQUIRE VARYING FROM THE PREDETERMINED GUIDELINES, THE CMG PROXY COMMITTEE WILL DETERMINE THE BEST INTEREST OF CMA'S CLIENTS AND VOTE ACCORDINGLY, WITHOUT CONSIDERATION OF ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES.
OVERVIEW:
CMA's policy is based upon its fiduciary obligation to act in its clients' best interest. Citing this obligation, the SEC has adopted rules pursuant to the Investment Advisers Act of 1940 and Investment Company Act of 1940 with respect to proxy voting.
PROCEDURE:
I. ACCOUNT POLICIES
Except as otherwise directed by the client, CMA shall vote as follows:
SEPARATELY MANAGED ACCOUNTS
CMA shall vote proxies on securities held in its separately managed accounts.
COLUMBIA TRUST COMPANY (CTC) TRUST POOLS
CMA shall vote proxies on securities held in the trust pools.
CMG FAMILY FUNDS/CMA FUND TRUST
CMA shall vote proxies on securities held in the Funds, including multi-managed and subadvised Funds.
(2) A CMG Family Fund or a Fund is a registered investment company or series of a registered investment company managed or advised by Columbia Management Advisors, Inc.
COLUMBIA PRIVATE PORTFOLIO
CMA shall vote proxies on securities held in its separately managed accounts.
ALTERNATIVE INVESTMENT GROUP
CMA's clients may invest in securities ("Alternative Investments") issued by alternative investment vehicles (i.e. hedge funds, private equity funds, and other alternative investment pools) that are structured as private limited partnerships ("LPs"), limited liability companies ("LLCs") or offshore corporations. Generally, CMA's Alternative Investment Group ("AIG") is the platform through which CMA provides advisory services relating to Alternative Investments.
The voting rights of Alternative Investments generally are rights of contract set forth in the limited liability company or limited partnership agreement, in the case of LLCs and LPs, or Memorandum and Articles of Association or By-laws, in the case of offshore corporations. Also, as privately placed securities, Alternative Investments generally are not subject to the regulatory scheme applicable to public companies. Consequently, in most cases, proxies are not solicited regarding Alternative Investment vehicles. Instead, consents may be solicited from members, limited partners or shareholders.
Because of the unique characteristics of Alternative Investments, CMA has a tailored process for voting Alternative Investment proxies and consents.
Process
AIG will vote all Alternative Investment proxies and consents in accordance with this Policy. The committee voting AIG proxies consists of AIG senior management, investment and operations professionals. Conflicts of interest are to be monitored and resolved as set forth in this Policy.
II. PROXY COMMITTEE
CMA shall establish a Proxy Committee whose standing members shall include the head of core equity, head of value, head of growth, head of income strategies, head of equity research and head of fixed income research. Each standing member may designate a senior portfolio manager or a senior analyst officer to act as a substitute in a given matter on their behalf.
The Proxy Committee's functions shall include, in part,
(a) direction of the vote on proposals where there has been a recommendation to the Committee, pursuant to Section IV.B, not to vote according to the predetermined Voting Guidelines stated in Section IV.A or on proposals which require special, individual consideration in accordance with Section IV.C;
(b) review at least annually of this Proxy Voting Policy and Procedure to ensure consistency with internal policies, client disclosures and regulatory requirements;
(c) review at least annually of existing Voting Guidelines and need for development of additional Voting Guidelines to assist in the review of proxy proposals; and
(d) development and modification of Voting Procedures, as stated in Section V, as it deems appropriate or necessary.
The Proxy Committee shall establish a charter, which shall set forth the Committee's purpose, membership and operation. The Committee's charter shall be consistent, in all material respects, with this policy and procedure.
III. CONFLICTS OF INTEREST
With Other Bank of America Businesses
Bank of America Corporation ("BAC"), the ultimate corporate parent of CMA, Bank of America, N.A. and all of their numerous affiliates owns, operates and has interests in many lines of business that may create or give rise to the appearance of a conflict of interest between BAC or its affiliates and those of Firm-advised clients. For example, the commercial and investment banking business lines may have interests with respect to issuers of voting securities that could appear to or even actually conflict with CMA's duty, in the proxy voting process, to act in the best economic interest of its clients.
Within CMA
Conflicts of interest may also arise from the business activities of CMA. For example, CMA might manage (or be seeking to manage) the assets of a benefit plan for an issuer. CMA may also be presented with an actual or apparent conflict of interest where proxies of securities issued by BAC or a CMG Family Fund, for which CMA serves as investment adviser, are to be voted for a client's account.
Management of Conflicts
CMA's policy is to always vote proxies in the best interest of its clients, as a whole, without regard to its own self-interest or that of its affiliates. BAC as well as CMA has various compliance policies and procedures in place in order to address any material conflicts of interest that might arise in this context.
1. BAC's enterprise-wide Code of Ethics specifically prohibits the flow of certain business-related information between associates on the commercial and/or investment banking side of the corporation and associates charged with trust or (as in the case of BACAP associates) non-trust fiduciary responsibilities, including investment decision-making and proxy voting.
2. In addition, BAC has adopted "Global Policies and Procedures Regarding Information Walls and Inside Information." Pursuant to these policies and procedures, "information barriers" have been established between various BAC business lines designed to prohibit the passage of certain information across those barriers.
3. Within CMA, CMA's Code of Ethics affirmatively requires that associates of CMA act in a manner whereby no actual or apparent conflict of interest may be seen as arising between the associate's interests and those of CMA's Clients.
4. By assuming his or her responsibilities pursuant to this Policy, each member of the Proxy Committee and any CMA or BAC associate advising or acting under the supervision or oversight of the Proxy Committee undertakes:
- To disclose to the chairperson of the Proxy Committee and the chairperson to the head of CMG Compliance any actual or apparent personal material conflicts of interest which he or she may have (e.g., by way of substantial ownership of securities, relationships with nominees for directorship, members of an issuer's or dissident's management or otherwise) in determining whether or how CMA shall vote proxies. In the event the chairperson of the Proxy Committee has a conflict of interest regarding a given matter, he or she shall abstain from participating in the Committee's determination of whether and/or how to vote in the matter; and
- To refrain from taking into consideration, in the decision as to whether or how CMA shall vote proxies:
- The existence of any current or prospective material business relationship between CMA, BAC or any of their affiliates, on one hand, and any party (or its affiliates) that is soliciting or is otherwise interested in the proxies to be voted, on the other hand; and/or
- Any direct, indirect or perceived influence or attempt to influence such action which the member or associate views as being inconsistent with the purpose or provisions of this Policy or the Code of Ethics of CMA or BAC.
Where a material conflict of interest is determined to have arisen in the proxy voting process that may not be adequately mitigated by voting in accordance with the predetermined Voting Guidelines, CMA's policy is to invoke one or more of the following conflict management procedures:
1. Convene the Proxy Committee for the purpose of voting the affected proxies in a manner that is free of the conflict.
2. Causing the proxies to be voted in accordance with the recommendations of a qualified, independent third party, which may include CMA's proxy voting agent.
3. In unusual cases, with the Client's consent and upon ample notice, forwarding the proxies to CMA's clients so that they may vote the proxies directly.
IV. VOTING GUIDELINES
A. THE PROXY COMMITTEE HAS ADOPTED THE FOLLOWING GUIDELINES FOR VOTING PROXIES:
1. Matters Relating to the Board of Directors/Corporate Governance
CMA generally will vote FOR:
- Proposals for the election of directors or for an increase or decrease in the number of directors, provided that no more than one-third of the Board of Directors would, presently or at any time during the previous three-year period, be from management.
However, CMA generally will WITHHOLD votes from pertinent director nominees if:
(i) the board as proposed to be constituted would have more than one-third of its members from management;
(ii) the board does not have audit, nominating, and compensation committees composed solely of directors who qualify as being regarded as "independent," i.e. having no material relationship, directly or indirectly, with the Company, as CMA's proxy voting agent may determine (subject to the Proxy Committee's contrary determination of independence or non- independence);
(iii) the nominee, as a member of the audit committee, permitted the company to incur excessive non-audit fees (as defined below regarding other business matters -- ratification of the appointment of auditors);
(iv) a director serves on more than six public company boards;
(v) the CEO serves on more than two public company boards other than the company's board.
On a CASE-BY-CASE basis, CMA may WITHHOLD votes for a director nominee who has failed to observe good corporate governance practices or, through specific corporate action or inaction (e.g. failing to implement policies for which a majority of shareholders has previously cast votes in favor), has demonstrated a disregard for the interests of shareholders.
- Proposals requesting that the board audit, compensation and/or nominating committee be composed solely of independent directors. The Audit Committee must satisfy the independence and experience requirements established by the Securities and Exchange Commission ("SEC") and the New York Stock Exchange, or appropriate local requirements for foreign securities. At least one member of the Audit Committee must qualify as a "financial expert" in accordance with SEC rules.
- Proposals to declassify a board, absent special circumstances that would indicate that shareholder interests are better served by a classified board structure.
CMA generally will vote FOR:
- Proposals to create or eliminate positions or titles for senior management. CMA generally prefers that the role of Chairman of the Board and CEO be held by different persons unless there are compelling reasons to vote AGAINST a proposal to separate these positions, such as the existence of a counter-balancing governance structure that includes at least the following elements in addition to applicable listing standards:
- Established governance standards and guidelines.
- Full board composed of not less than two-thirds "independent" directors, as defined by applicable regulatory and listing standards.
- Compensation, as well as audit and nominating (or corporate governance) committees composed entirely of independent directors.
- A designated or rotating presiding independent director appointed by and from the independent directors with the authority and responsibility to call and preside at regularly and, as necessary, specially scheduled meetings of the independent directors to be conducted, unless the participating independent directors otherwise wish, in executive session with no members of management present.
- Disclosed processes for communicating with any individual director, the presiding independent director (or, alternatively, all of the independent directors, as a group) and the entire board of directors, as a group.
- The pertinent class of the Company's voting securities has out-performed, on a three-year basis, both an appropriate peer group and benchmark index, as indicated in the performance summary table of the Company's proxy materials. This requirement shall not apply if there has been a change in the Chairman/CEO position within the three-year period.
- Proposals that grant or restore shareholder ability to remove directors with or without cause.
- Proposals to permit shareholders to elect directors to fill board vacancies.
- Proposals that encourage directors to own a minimum amount of company stock.
- Proposals to provide or to restore shareholder appraisal rights.
- Proposals to adopt cumulative voting.
- Proposals for the company to adopt confidential voting.
CMA generally will vote AGAINST:
- Proposals to classify boards, absent special circumstances indicating that shareholder interests would be better served by a classified board structure.
- Proposals that give management the ability to alter the size of the board without shareholder approval.
- Proposals that provide directors may be removed only by supermajority vote.
- Proposals to eliminate cumulative voting.
- Proposals which allow more than one vote per share in the election of directors.
- Proposals that provide that only continuing directors may elect replacements to fill board vacancies.
- Proposals that mandate a minimum amount of company stock that directors must own.
- Proposals to limit the tenure of non-management directors.
CMA will vote on a CASE-BY-CASE basis in contested elections of directors.
CMA generally will vote on a CASE-BY-CASE basis on board approved proposals relating to corporate governance. Such proposals include, but are not limited to:
- Director and officer indemnification and liability protection. CMA is opposed to entirely eliminating directors' and officers' liability for monetary damages for violating the duty of care. CMA is also opposed to expanding coverage beyond just legal expenses to acts, such as negligence, that are more serious violations of fiduciary obligation than mere carelessness. CMA supports proposals which provide such expanded coverage in cases when a director's or officer's legal defense was unsuccessful if: (i) the director was found to have acted in good faith and in a manner that he/she reasonably believed was in the best interests of the company, AND (ii) if the director's legal expenses would be covered.
- Reimbursement of proxy solicitation expenses taking into consideration whether or not CMA was in favor of the dissidents.
- Proxy contest advance notice. CMA generally will vote FOR proposals that allow shareholders to submit proposals as close to the meeting date as possible while allowing for sufficient time for Company response, SEC review, and analysis by other shareholders.
2. Compensation
CMA generally will vote FOR management sponsored compensation plans (such as bonus plans, incentive plans, stock option plans, pension and retirement benefits, stock purchase plans or thrift plans) if they are consistent with industry and country standards. However, CMA generally is opposed to compensation plans that substantially dilute ownership interest in a company, provide participants with excessive awards, or have objectionable structural features. Specifically, for equity-based plans, if the proposed number of shares authorized for option programs (excluding authorized shares for expired options) exceeds an average of 10% of the currently outstanding shares over the previous three years or an average of 3% over the previous three years for directors only, the proposal should be referred to the Proxy Committee. The Committee will then consider the circumstances surrounding the issue and vote in the best interest of CMA's clients. CMA requires that management provide substantial justification for the repricing of options.
CMA generally will vote FOR:
- Proposals requiring that executive severance arrangements be submitted for shareholder ratification.
- Proposals asking a company to expense stock options.
- Proposals to put option repricings to a shareholder vote.
- Employee stock purchase plans that have the following features: (i) the shares purchased under the plan are acquired for no less than 85% of their market value, (ii) the offering period under the plan is 27 months or less, and (iii) dilution is 10% or less.
CMA generally will vote AGAINST:
- Stock option plans that permit issuance of options with an exercise price below the stock's current market price, or that permit replacing or repricing of out-of-the money options.
- Proposals to authorize the replacement or repricing of out-of-the money options.
CMA will vote on a CASE-BY-CASE basis proposals regarding approval of specific executive severance arrangements.
3. Capitalization
CMA generally will vote FOR:
- Proposals to increase the authorized shares for stock dividends, stock splits (and reverse stock splits) or general issuance, unless proposed as an anti-takeover measure or a general issuance proposal increases the authorization by more than 30% without a clear need presented by the company. Proposals for reverse stock splits should include an overall reduction in authorization.
For companies recognizing preemptive rights for existing shareholders, CMA generally will vote FOR general issuance proposals that increase the authorized shares by more than 30%. CMA will vote on a CASE-BY-CASE basis all such proposals by companies that do not recognize preemptive rights for existing shareholders.
- Proposals for the elimination of authorized but unissued shares or retirement of those shares purchased for sinking fund or treasury stock.
- Proposals to institute/renew open market share repurchase plans in which all shareholders may participate on equal terms.
- Proposals to reduce or change the par value of common stock, provided the number of shares is also changed in order to keep the capital unchanged.
4. Mergers, Restructurings and Other Transactions
CMA will review, on a CASE-BY-CASE basis, business transactions such as mergers, acquisitions, reorganizations, liquidations, spinoffs, buyouts and sale of all or substantially all of a company's assets.
5. Anti-Takeover Measures
CMA generally will vote AGAINST proposals intended largely to avoid acquisition prior to the occurrence of an actual event or to discourage acquisition by creating a cost constraint. With respect to the following measures, CMA generally will vote as follows:
Poison Pills
- CMA votes FOR shareholder proposals that ask a company to submit its poison pill for shareholder ratification.
- CMA generally votes FOR shareholder proposals to eliminate a poison pill.
- CMA generally votes AGAINST management proposals to ratify a poison pill.
Greenmail
- CMA will vote FOR proposals to adopt anti-greenmail charter or bylaw amendments or to otherwise restrict a company's ability to make greenmail payments.
Supermajority vote
- CMA will vote AGAINST board-approved proposals to adopt anti-takeover measures such as supermajority voting provisions, issuance of blank check preferred stock, the creation of a separate class of stock with disparate voting rights and charter amendments adopting control share acquisition provisions.
Control Share Acquisition Provisions
- CMA will vote FOR proposals to opt out of control share acquisition statutes.
6. Other Business Matters
CMA generally will vote FOR:
- Proposals to approve routine business matters such as changing the company's name and procedural matters relating to the shareholder meeting such as approving the minutes of a prior meeting.
- Proposals to ratify the appointment of auditors, unless any of the following apply in which case CMA will generally vote AGAINST the proposal:
- Credible reason exists to question:
- The auditor's independence, as determined by applicable regulatory requirements.
- The accuracy or reliability of the auditor's opinion as to the company's financial position.
- Fees paid to the auditor or its affiliates for "non-audit" services were excessive, i.e., in excess of the total fees paid for "audit," "audit-related" and "tax compliance" and/or "tax return preparation" services, as disclosed in the company's proxy materials.
- Bylaw or charter changes that are of a housekeeping nature (e.g., updates or corrections).
- Proposals to approve the annual reports and accounts provided the certifications required by the Sarbanes Oxley Act of 2002 have been provided.
CMA generally will vote AGAINST:
- Proposals to eliminate the right of shareholders to act by written consent or call special meetings.
- Proposals providing management with authority to adjourn an annual or special shareholder meeting absent compelling reasons, or to adopt, amend or repeal bylaws without shareholder approval, or to vote unmarked proxies in favor of management.
- Shareholder proposals to change the date, time or location of the company's annual meeting of shareholders.
CMA will vote AGAINST:
- Authorization to transact other unidentified substantive (as opposed to procedural) business at a meeting.
CMA will vote on a CASE-BY-CASE basis:
- Proposals to change the location of the company's state of incorporation. CMA considers whether financial benefits (e.g., reduced fees or taxes) likely to accrue to the company as a result of a reincorporation or other change of domicile outweigh any accompanying material diminution of shareholder rights.
- Proposals on whether and how to vote on "bundled" or otherwise conditioned proposals, depending on the overall economic effects upon shareholders.
CMA generally will ABSTAIN from voting on shareholder proposals predominantly involving social, socio-economic, environmental, political or other similar matters on the basis that their impact on share value can rarely be anticipated with any high degree of confidence. CMA may, on a CASE-BY-CASE basis, vote:
- FOR proposals seeking inquiry and reporting with respect to, rather than cessation or affirmative implementation of, specific policies where the pertinent issue warrants separate communication to shareholders; and
- FOR or AGAINST the latter sort of proposal in light of the relative benefits and detriments (e.g. distraction, costs, other burdens) to share value which may be expected to flow from passage of the proposal.
7. Other Matters Relating to Foreign Issues
CMA generally will vote FOR:
- Most stock (scrip) dividend proposals. CMA votes AGAINST proposals that do not allow for a cash option unless management demonstrates that the cash option is harmful to shareholder value.
- Proposals to capitalize the company's reserves for bonus issues of shares or to increase the par value of shares.
- Proposals to approve control and profit transfer agreements between a parent and its subsidiaries.
- Management proposals seeking the discharge of management and supervisory board members, unless there is concern about the past actions of the company's auditors/directors and/or legal action is being taken against the board by other shareholders.
- Management proposals concerning allocation of income and the distribution of dividends, unless the dividend payout ratio has been consistently below 30 percent without adequate explanation or the payout is excessive given the company's financial position.
- Proposals for the adoption of financing plans if they are in the best economic interests of shareholders.
8. Investment Company Matters
ELECTION OF DIRECTORS:
CMA will vote on a CASE-BY-CASE basis proposals for the election of directors, considering the following factors:
- Board structure
- Attendance at board and committee meetings.
CMA will WITHHOLD votes from directors who:
- Attend less than 75 percent of the board and committee meetings without a valid excuse for the absences. Valid reasons include illness or absence due to company business. Participation via telephone is acceptable. In addition, if the director missed only one meeting or one day's meetings, votes should not be withheld even if such absence dropped the director's attendance below 75 percent.
- Ignore a shareholder proposal that is approved by a majority of shares outstanding;
- Ignore a shareholder proposal this is approved by a majority of the votes cast for two consecutive years;
- Are interested directors and sit on the audit or nominating committee; or
- Are interested directors and the full board serves as the audit or nominating committee or the company does not have one of these committees.
Proxy Contests:
CMA will vote on a CASE-BY-CASE basis proposals for proxy contests, considering the following factors:
- Past performance relative to its peers
- Market in which fund invests
- Measures taken by the board to address the pertinent issues (e.g., closed-end fund share market value discount to NAV)
- Past shareholder activism, board activity and votes on related proposals
- Strategy of the incumbents versus the dissidents
- Independence of incumbent directors; director nominees
- Experience and skills of director nominees
- Governance profile of the company
- Evidence of management entrenchment
CONVERTING CLOSED-END FUND TO OPEN-END FUND:
CMA will vote conversion proposals on a CASE-BY-CASE basis, considering the following factors:
- Past performance as a closed-end fund
- Market in which the fund invests
- Measures taken by the board to address the discount
- Past shareholder activism, board activity, and votes on related proposals.
INVESTMENT ADVISORY AGREEMENTS:
CMA will vote investment advisory agreements on a CASE-BY-CASE basis, considering the following factors:
- Proposed and current fee schedules
- Fund category/investment objective
- Performance benchmarks
- Share price performance as compared with peers
- Resulting fees relative to peers
- Assignments (where the adviser undergoes a change of control)
APPROVING NEW CLASSES OR SERIES OF SHARES:
CMA will vote FOR the establishment of new classes or series of shares.
PREFERRED STOCK PROPOSALS:
CMA will vote on a CASE-BY-CASE basis proposals for the authorization for or increase in the preferred shares, considering the following factors:
- Stated specific financing purpose
- Possible dilution for common shares
- Whether the shares can be used for antitakover purposes
POLICIES ADDRESSED BY THE INVESTMENT COMPANY ACT OF 1940 ("1940 ACT"):
CMA will vote proposals regarding adoption or changes of policies addressed by the 1940 Act on a CASE-BY-CASE basis, considering the following factors:
- Potential competitiveness
- Regulatory developments
- Current and potential returns
- Current and potential risk
CMA generally will vote FOR these amendments as long as the proposed changes do not fundamentally alter the investment focus of the fund and do comply with current SEC interpretations.
CHANGING A FUNDAMENTAL RESTRICTION TO A NON-FUNDAMENTAL RESTRICTION:
CMA will vote on a CASE-BY-CASE basis proposals to change a fundamental restriction to a nonfundamental restriction, considering the following factors:
- Fund's target investments
- Reasons given by the fund for the change
- Projected impact of the change on the portfolio
CHANGE FUNDAMENTAL INVESTMENT OBJECTIVE TO NON-FUNDAMENTAL:
CMA will vote AGAINST proposals to change a fund's investment objective from fundamental to non-fundamental unless management acknowledges meaningful limitations upon its future requested ability to change the objective
NAME CHANGE PROPOSALS:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's name, considering the following factors:
- Political/economic changes in the target market
- Consolidation in the target market
- Current asset composition
CHANGE IN FUND'S SUBCLASSIFICATION:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's subclassification, considering the following factors:
- Potential competitiveness
- Current and potential returns
- Risk of concentration
- Consolidation in target industry
DISPOSITION OF ASSETS/TERMINATION/LIQUIDATION:
CMA will vote on a CASE-BY-CASE basis these proposals, considering the following factors:
- Strategies employed to salvage the company
- Past performance of the fund
- Terms of the liquidation
CHANGES TO THE CHARTER DOCUMENT:
CMA will vote on a CASE-BY-CASE basis proposals to change the charter document, considering the following factors:
- The degree of change implied by the proposal
- The efficiencies that could result
- The state of incorporation; net effect on shareholder rights
- Regulatory standards and implications
CMA will vote FOR:
- Proposals allowing the Board to impose, without shareholder approval, fees payable upon redemption of fund shares, provided imposition of such fees is likely to benefit long-term fund investors (e.g., by deterring market timing activity by other fund investors)
- Proposals enabling the Board to amend, without shareholder approval, the fund's management agreement(s) with its investment adviser(s) or sub-advisers, provided the amendment is not required by applicable law (including the Investment Company Act of 1940) or interpretations thereunder to require such approval
CMA will vote AGAINST:
- Proposals enabling the Board to:
- Change, without shareholder approval the domicile of the fund
- Adopt, without shareholder approval, material amendments of the fund's declaration of trust or other organizational document
CHANGING THE DOMICILE OF A FUND:
CMA will vote on a CASE-BY-CASE basis proposals to reincorporate, considering the following factors:
- Regulations of both states
- Required fundamental policies of both states
- The increased flexibility available
Authorizing the Board to Hire and Terminate Subadvisors Without Shareholder Approval:
CMA will vote FOR proposals to enable the Board or Investment Adviser to hire and terminate sub-advisers, without shareholder approval, in accordance with applicable rules or exemptive orders under the Investment Company Act of 1940
DISTRIBUTION AGREEMENTS:
CMA will vote these proposals on a CASE-BY-CASE basis, considering the following factors:
- Fees charged to comparably sized funds with similar objectives
- The proposed distributor's reputation and past performance
- The competitiveness of the fund in the industry
- Terms of the agreement
MASTER-FEEDER STRUCTURE:
CMA will vote FOR the establishment of a master-feeder structure.
MERGERS:
CMA will vote merger proposals on a CASE-BY-CASE basis, considering the following factors:
- Resulting fee structure
- Performance of both funds
- Continuity of management personnel
- Changes in corporate governance and their impact on shareholder rights
SHAREHOLDER PROPOSALS TO ESTABLISH DIRECTOR OWNERSHIP REQUIREMENT:
CMA will generally vote AGAINST shareholder proposals that mandate a specific minimum amount of stock that directors must own in order to qualify as a director or to remain on the board. While CMA favors stockownership on the part of directors, the company should determine the appropriate ownership requirement.
SHAREHOLDER PROPOSALS TO REIMBURSE SHAREHOLDER FOR EXPENSES INCURRED:
CMA will vote on a CASE-BY-CASE basis proposals to reimburse proxy solicitation expenses.
SHAREHOLDER PROPOSALS TO TERMINATE THE INVESTMENT ADVISER:
CMA will vote on a CASE-BY-CASE basis proposals to terminate the investment adviser, considering the following factors:
- Performance of the fund's NAV
- The fund's history of shareholder relations
- The performance of other funds under the adviser's management
9. Alternative Investment Group ("AIG") Matters
The AIG Proxy Sub-Committee generally will vote in accordance with the guidelines set forth in this policy. With respect to matters that are not addressed by the guidelines, the AIG Proxy Sub-Committee will vote each such matter on a CASE-BY-CASE basis.
B. ABILITY TO VOTE PROXIES OTHER THAN AS PROVIDED IN A ABOVE.
A Portfolio Manager, sub-adviser or other party involved with a client's account may conclude that the best interest of the firm's client, as defined above, requires that a proxy be voted in a manner that differs from the predetermined proxy Voting Guidelines stated in Section IV.A. In this situation, he or she shall request that the Proxy Committee consider voting the proxy other than according such Guidelines. If any person, group, or entity requests the Proxy Committee (or any of its members) vote a proxy other than according to the predetermined Voting Guidelines, that person shall furnish to the Proxy Committee a written explanation of the reasons for the request and a description of the person's, group's, or entity's relationship, if any, with the parties proposing and/or opposing the matter's adoption.
C. PROPOSALS REQUIRING SPECIAL CONSIDERATION
The following proposals require special, individual consideration. The Proxy Committee will determine how proxies related to all such proposals will be voted.
1. NEW PROPOSALS. For each new type of proposal that is expected to be proposed to shareholders of multiple companies, the Proxy Committee will develop a Voting Guideline which will be incorporated into this Policy.
2. ACCOUNTS ADHERING TO TAFT HARTLEY PRINCIPLES. All proposals for these accounts shall be voted according to the Taft Hartley Guidelines developed by Institutional Shareholder Services, Inc. ("ISS").
3. ACCOUNTS ADHERING TO SOCIALLY RESPONSIBLE PRINCIPLES. All proposals for these accounts shall be voted according to the Socially Responsible Guidelines developed by ISS or as specified by the client.
4. PROXIES OF INTERNATIONAL ISSUERS WHICH BLOCK SECURITIES SALES BETWEEN THE TIME A SHAREHOLDER SUBMITS A PROXY AND THE VOTE. Proposals for these securities shall be voted only on the specific instruction of the Proxy Committee and to the extent practicable in accordance with the Voting Guidelines set forth in this Policy.
5. PROXIES OF INVESTMENT COMPANY SHARES. Proposals on issues other than those specified in Section IV.A.
6. EXECUTIVE/DIRECTOR COMPENSATION. Except as provided in Section
IV.A, proposals relating to compensation of any executive or director
will be voted as recommended by ISS or as otherwise directed by the
Proxy Committee.
7. PREEMPTIVE RIGHTS. Proposals to create or eliminate shareholder preemptive rights. In evaluating these proposals the Proxy Committee will consider the size of the company and the nature of its shareholder base.
V. VOTING PROCEDURES
The Proxy Committee has developed the following procedures to aid the voting of proxies according to the Voting Guidelines set forth in Section IV above. The Proxy Committee may revise these procedures from time to time, as it deems necessary or appropriate to effect the purposes of this Policy.
- CMA shall use an independent, third-party vendor (currently Institutional Shareholder Services ("ISS")), to implement its proxy voting process as CMAs proxy voting agent. This retention is subject to CMA continuously assessing the vendor's independence from CMA and its affiliates, and the vendor's ability to perform its responsibilities (and, especially, its responsibility to vote client proxies in accordance with CMA's proxy voting guidelines) free of any actual, potential or apparent material conflicts of interests that may arise between the interests of the vendor, its affiliates, the vendor's other clients and the owners, officers or employees of any such firm, on the one hand, and CMA's clients, on the other hand. As means of performing this assessment, CMA will require various reports and notices from the vendor, as well as periodic audits of the vendor's voting record and other due diligence.
- ISS shall provide proxy analysis and record keeping services in addition to voting proxies on behalf of CMA in accordance with this Policy.
- On a daily basis CMA shall send to ISS a holdings file detailing each equity holding held in all accounts over which CMA has voting authority. Information regarding equity holdings for international portfolio shall be sent weekly.
- ISS shall receive proxy material information from Proxy Edge or the custodian bank for the account. This shall include issues to be voted upon, together with a breakdown of holdings for CMA accounts. ISS shall then reconcile information it receives from CMA with that it has received from Proxy Edge and custodian banks. Any discrepancies shall be promptly noted and resolved by ISS, with notice to CMA.
- Whenever a vote is solicited, ISS shall execute the vote according to CMA's Voting Guidelines previously delivered by CMA to ISS as set forth in Section IV.A.
- If ISS is not sure how to vote a particular proxy, then ISS will issue a request for voting instructions to CMA over a secure website. CMA personnel shall check this website regularly. The request shall be accompanied by a recommended vote. The recommended vote shall be based upon CMA's understanding of the Voting Guidelines previously delivered to ISS. CMA shall promptly provide ISS with any amendments or modifications to the Voting Guidelines if necessary. CMA shall return a final instruction to vote to ISS, which ISS shall record with Proxy Edge or the custodian bank as our agent.
- Each time that ISS shall send CMA a request to vote the request shall be accompanied by the recommended vote determined in accordance with CMA's Voting Guidelines. ISS shall vote as indicated in the request unless the client has reserved discretion, the Proxy Committee determines that the best interest of clients requires another vote or the proposal is a matter as to which the Proxy Committee affords special, individual consideration under Section IV.C. In such situations ISS shall vote based on the direction of the client or the Proxy Committee, as the case may be. The interests of CMA's Taft Hartley or Socially Responsible clients may impact a proposal that normally should be voted in a certain way. ISS shall inform CMA of all proposals having impact on its Taft Hartley and or Socially Responsible clients. The Proxy Voting Committee shall be consulted before a vote is placed in cases where Taft Hartley or Socially Responsible issues are presented.
- ISS shall have procedures in place to ensure that a vote is cast on every security holding maintained by CMA on which a vote is solicited unless otherwise directed by the Proxy Committee. On a yearly basis, or as required by our clients CMA shall receive a report from ISS detailing CMA's voting for the previous period.
VI. AVAILABILITY OF PROXY POLICY AND VOTING RECORD
A summary disclosure regarding the provisions of this Policy is available in CMA's Form ADV. Upon receipt of a Client's request for more information, CMA will provide to the Client a copy of this Policy and/or how CMA voted proxies for the Client pursuant to this Policy for up to a one- year period.
COLUMBIA CORE BOND FUND
SERIES OF COLUMBIA FUNDS SERIES TRUST I
SUPPLEMENT TO THE
STATEMENT OF ADDITIONAL INFORMATION
DATED SEPTEMBER 1, 2005
(REPLACING SUPPLEMENTS DATED OCTOBER 5, 2005, OCTOBER 7, 2005 AND NOVEMBER 1, 2005)
1. Effective October 10, 2005, Columbia Quality Plus Bond Fund changed its name to Columbia Core Bond Fund; accordingly, all references throughout the Statement of Additional Information are changed as appropriate.
2. At a meeting held on September 16, 2005, shareholders of Columbia Intermediate Government Income Fund approved the reorganization of the Columbia Intermediate Government Income Fund into Columbia Intermediate Core Bond Fund (formerly named Nations Intermediate Bond Fund) (the "Reorganization"). The Reorganization took place on October 10, 2005. Accordingly, effective October 10, 2005, all references to the Columbia Intermediate Government Income Fund in the Statement of Additional Information are removed.
3. The name of the Trust is revised to read "Columbia Funds Series Trust I."
4. The following sentence is added to the first paragraph on the front cover of the SAI:
The unaudited Financial Statements appearing in the Fund's October 31, 2005 Semi-Annual Report are also incorporated into this SAI by reference.
5. The first sentence in the section entitled "Organization and History" is revised to read:
The Trust is a Massachusetts business trust organized in 1987. The Fund was originally organized as a series of another Massachusetts business trust prior to its reorganization as a series of the Trust on March 27, 2006.
6. The last paragraph of the section entitled "Organization and History" is revised in its entirety to read:
Effective October 13, 2003, the Trust changed its name from "Liberty-Stein Roe Funds Municipal Trust" to "Columbia Funds Trust IX." Effective September 23, 2005, the name of the trust was changed from "Columbia Funds Trust IX" to "Columbia Funds Series Trust I."
7. Effective November 1, 2005, the following language replaces the language currently in the section of the Statement of Additional Information entitled FUNDAMENTAL INVESTMENT POLICIES:
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940, as amended (1940 Act), provides that a "vote of a majority of the outstanding voting securities" means the affirmative vote of the lesser of (1) more
than 50% of the outstanding shares of a Fund, or (2) 67% or more of the shares present at a meeting if more than 50% of the outstanding shares are represented at the meeting in person or by proxy. The following fundamental investment policies cannot be changed without such a vote.
Each Fund may not, as a matter of fundamental policy:
1. Underwrite any issue of securities issued by other persons within the meaning of the 1933 Act except when it might be deemed to be an underwriter either: (a) in connection with the disposition of a portfolio security; or (b) in connection with the purchase of securities directly from the issuer thereof in accordance with its investment objective. This restriction shall not limit the Portfolio's ability to invest in securities issued by other registered investment companies.
2. Purchase or sell real estate, except a Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate and it may hold and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of securities which are secured by real estate or interests therein.
3. Purchase or sell commodities, except that a Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts.
4. Purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions; and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
5. Make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
6. Borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
7. Purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that: (a) up to 25% of its total assets may be invested without regard to these limitations and (b) a Fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder, or any applicable exemptive relief.
8. The section entitled "Trustees and Trustees' Fees" is revised in its entirety to read:
TRUSTEES AND TRUSTEES' FEES
The "Columbia Fund Complex" includes all of the registered investment companies to which the Advisor and its affiliates provide investment advisory services.
The Advisor or its affiliates pay the compensation of all the officers of the funds in the Fund Complex advised by the Advisor, including Trustees who are affiliated with the Advisor. For the fiscal year ended April 30, 2005 and the calendar year ended December 31, 2005, the Trustees received the following compensation for serving as Trustees:
Aggregate
Pension or Compensation
Retirement from the Fund for Total Compensation From the
Benefits Accrued the Fiscal Year Columbia Fund Complex Paid to the
as part of Ended Trustees for the Calendar Year Ended
Trustee Fund Expenses (b) August 31, 2005 December 31, 2005(a)
------- ----------------- ----------------- -------------------------------------
Douglas A. Hacker N/A $2,062 $111,277
Janet Langford Kelly N/A 2,337 116,500
Richard W. Lowry N/A 1,876 142,500
William E. Mayer N/A 2,158 147,750
Charles R. Nelson N/A 2,149 111,500
John J. Neuhauser N/A 1,955 137,833
Patrick J. Simpson(c) N/A 1,939 107,500
Thomas E. Stitzel N/A 2,201 113,000
Thomas C. Theobald(d) N/A 2,706 205,500
Anne-Lee Verville(e) N/A 2,355 120,723
Richard L. Woolworth N/A 1,877 106,500
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(a) As of December 31, 2005, each trustee other than Richard W. Lowry, John J. Neuhauser and William E. Mayer oversees 83 funds in the Fund Complex, and Messrs. Lowry, Neuhauser and Mayer each oversee 85 funds in the Fund Complex.
(b) The Fund does not currently provide pension or retirement plan benefits to the Trustees.
(c) During the fiscal year ended April 30, 2005, and the calendar year ended December 31, 2005, Mr. Simpson deferred $1,939 of his compensation from the Fund, and $107,500 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2005, the value of Mr. Simpson's account under that plan was $269,502.
(d) During the fiscal year ended April 30, 2005, and the calendar year ended December 31, 2005, Mr. Theobald deferred $1,622 of his compensation from the Fund, and $150,000 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2005, the value of Mr. Theobald's account under that plan was $320,084.
(e) During the fiscal year ended April 30, 2005, Ms. Verville deferred $478 of her compensation from the Fund pursuant to the deferred compensation plan. At December 31, 2005, the value of Ms. Verville's account under that plan was $683,935.
9. The section entitled "Share Ownership" is revised in its entirety to read:
SHARE OWNERSHIP
The following table shows the dollar range of equity securities beneficially owned by each Trustee as of December 31, 2005 (i) in each Fund and (ii) in the funds in the Fund Complex.
Aggregate Dollar Range of Equity
Dollar Range of Equity Securities Owned in All Funds
Securities Owned in the Overseen by Trustee in
Name of Trustee Fund Columbia Fund Complex
---------------------- ----------------------- --------------------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker None Over $100,000
Janet Langford Kelly None Over $100,000
Richard W. Lowry None Over $100,000
Charles R. Nelson None Over $100,000
John J. Neuhauser None Over $100,000
Patrick J. Simpson None Over $100,000
Thomas E. Stitzel None $ 50,001-$100,000
Thomas C. Theobald None Over $100,000
Anne-Lee Verville None Over $100,000(1)
Richard L. Woolworth None Over $100,000
INTERESTED TRUSTEES
William E. Mayer None $50,001-$100,000
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(1)Includes the value of compensation payable under the deferred compensation plan for independent Trustees of the Fund Complex that is determined as if the amounts deferred had been invested, as of the date of deferral, in shares of one or more funds in the Fund Complex as specified by Ms. Verville.
10. The section entitled "Ownership of the Fund" is replaced in its entirety to read:
As of record on February 28, 2006, the officers and Trustees of the Trust as a group beneficially owned less than 1% of the then outstanding shares of the Fund.
As of record on February 28, 2006, the following shareholders of record owned 5% or more of the following classes of the Fund's outstanding shares:
PERCENT OF CLASS
SHAREHOLDER (NAME AND ADDRESS) TOTAL
------------------------------ ----------------
CLASS A SHARES:
Ameriprise Trust Company FBO 29.28%
Ameriprise TR RETIRE SERV PLANS
996 AXP Financial Center
Minneapolis, MN 55474-0009
Charles Schab & Co. Inc. Cust 12.34%
101 Montgomery St.
San Francisco, CA 94104-4122
CLASS C SHARES:
Merrill Lynch Pierce Fenner & Smith 11.05%
For the Sole Benefit of Its Customers
4800 Deer Lake Dr.
Jacksonville, FL 32246-6484
CLASS G SHARES:
NFS LLC FEBO 14.79%
Grace Baptist Church
17 West Ave.
Norwalk, CT 06854-2208
CLASS Z SHARES:
Bank of America 11.12%
401K for Legacy Fleet Trust
700 Louisiana St.
Houston, TX 77002-2700
Bank of America NA 12.51%
Bank of America 401K Plan
P.O. Box 2518
Houston TX 77252-2518
Bank of America NA 70.38%
411 N Akard St.
Dallas, TX 75201-3307
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11. The first paragraph of the front cover of Part 2 of the SAI is revised in its entity to read:
The following information applies generally to most funds advised by the Advisor. "Funds" include the series of Columbia Funds Series Trust I, Columbia Funds Institutional Trust, SteinRoe Variable Investment Trust and Liberty Variable Investment Trust (each a Trust and together, the Trusts). In certain cases, the discussion applies to some, but not all, of the Funds, and you should refer to your Fund's Prospectus and to Part 1 of this Statement of Additional Information (SAI) to determine whether the matter is applicable to your Fund. You will also be referred to Part 1 for certain data applicable to your Fund.
12. The section entitled "Trustees and Officers" in Part 2 of the SAI is revised to read:
Information regarding the Trustees and officers of the Funds together with their principal business occupations during the last five years (their titles may have varied during that period) is shown below. Unless otherwise noted, the address for each Trustee and officer is c/o Columbia Funds, Mail Stop MA5-515-11-05, One Financial Center, Boston, MA 02111.
Number of
Portfolios in
Year First Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------------- ------------ ----------------------- ------------- --------------------
DISINTERESTED TRUSTEES
Thomas C. Theobald Trustee and 1996 Partner and Senior 83 Anixter International
(Born 1937) Chairman of the Advisor, Chicago (network support
Board Growth Partners equipment
(private equity distributor); Ventas,
investing) since Inc. (real estate
September, 2004; investment trust);
Managing Director, Jones Lang LaSalle
William Blair Capital (real estate
Partners (private management services)
equity investing) and Ambac Financial
from September, 1994 Group (financial
to September, 2004. guaranty insurance)
Douglas A. Hacker Trustee 1996 Executive Vice 83 Nash Finch Company
(Born 1955) President -- Strategy (food distributor)
of United Airlines
(airline) since
December, 2002;
President of UAL
Loyalty Services
(airline) from
September, 2001 to
December, 2002;
Executive Vice
President and Chief
Financial Officer of
United Airlines from
July, 1999 to
September, 2001.
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Number of
Portfolios in
Year First Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------------- ------------ ----------------------- ------------- --------------------
Janet Langford Kelly Trustee 1996 Partner, Zelle, 83 UAL Corporation
(Born 1957) Hofmann, Voelbel, Mason (airline)
& Gette LLP (law firm)
since March, 2005;
Adjunct Professor of
Law, Northwestern
University, since
September, 2004; Chief
Administrative Officer
and Senior Vice
President, Kmart
Holding Corporation
(consumer goods), from
September, 2003 to
March, 2004; Executive
Vice
President-Corporate
Development and
Administration, General
Counsel and Secretary,
Kellogg Company (food
manufacturer), from
September, 1999 to
August, 2003.
Richard W. Lowry Trustee 1995 Private Investor 85 None
(Born 1936) since August, 1987
(formerly Chairman
and Chief Executive
Officer, U.S. Plywood
Corporation (building
products
manufacturer) until
1987).
Charles R. Nelson Trustee 1981 Professor of Economics, 83 None
(Born 1943) University of
Washington since
January, 1976; Ford and
Louisa Van Voorhis
Professor of Political
Economy, University of
Washington, since
September, 1993;
Director, Institute for
Economic Research,
University of
Washington from
September, 2001 to
June, 2003; Adjunct
Professor of
Statistics, University
of Washington since
September, 1980;
Associate Editor,
Journal of Money Credit
and Banking since
September, 1993;
consultant on
econometric and
statistical matters.
John J. Neuhauser Trustee 1985 University Professor, 85 None
(Born 1942) Boston College since
November, 2005;
Academic Vice President
and Dean of Faculties,
Boston College from
August, 1999 to
October, 2005.
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Number of
Portfolios in
Year First Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------------- ------------ ----------------------- ------------- --------------------
DISINTERESTED TRUSTEES
Patrick J. Simpson Trustee 2000 Partner, Perkins 83 None
(Born 1944) Coie L.L.P. (law
firm).
Thomas E. Stitzel Trustee 1998 Business Consultant 83 None
(Born 1936) since 1999;
Chartered Financial
Analyst.
Anne-Lee Verville Trustee 1998 Retired since 1997 83 Chairman of the
(Born 1945) (formerly General Board of
Manager, Global Directors, Enesco
Education Industry, Group,Inc.
IBM Corporation (producer of
(computer and giftware and home
technology) from and garden decor
1994 to 1997). products)
Richard L. Woolworth Trustee 1991 Retired since 83 Northwest Natural
(Born 1941) December, 2003 Gas (natural gas
(formerly Chairman service provider)
and Chief Executive
Officer, The Regence
Group Co. (regional
health insurer);
Chairman and Chief
Executive Officer,
BlueCross BlueShield
of Oregon; Certified
Public Accountant,
Arthur Young &
Company).
INTERESTED TRUSTEE
William E. Mayer(3) Trustee 1994 Partner, Park Avenue 85 Lee Enterprises
(Born 1940) Equity Partners (print media), WR
(private equity) Hambrecht + Co.
since February, 1999. (financial service
provider);
Reader's Digest
(publishing);
OPENFIELD
Solutions (retail
industry
technology
provider)
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(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public companies").
(3) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (the "1940 Act") of the Columbia Funds by reason of his affiliation with WR Hambrecht + Co., a registered broker-dealer that may execute portfolio transactions for or engage in principal transactions with the Fund or other funds or clients advised by the Advisor or its affiliates.
Year First
Elected or
Appointed
Name and Year of Birth Position with Funds to Office Principal Occupation(s) During Past Five Years
---------------------- ------------------- ---------- ----------------------------------------------
OFFICERS
Christopher L. Wilson President 2004 Head of Mutual Funds since August, 2004 and
(Born 1957) Managing Director of the Advisor since
September, 2005; President and Chief Executive
Officer, CDC IXIS Asset Management Services,
Inc. (investment management) from September,
1998 to August, 2004.
James R. Bordewick, Jr. Senior Vice 2006 Associate General Counsel, Bank of
(Born 1959) President, America since April, 2005; Senior Vice
Secretary and President and Associate General
Chief Legal Counsel, MFS Investment Management
Officer (investment management) prior to
April, 2005.
J. Kevin Connaughton Senior Vice 2000 Managing Director of the Advisor since
(Born 1964) President, Chief February, 1998.
Financial
Officer and
Treasurer
Mary Joan Hoene Senior Vice 2004 Senior Vice President and Chief
(Born 1949) President and Compliance Officer of various funds in
100 Federal Street Chief Compliance the Columbia Fund Complex; Partner,
Boston, MA 02110 Officer Carter, Ledyard & Milburn LLP (law
firm) from January, 2001 to August,
2004.
Michael G. Clarke Chief Accounting 2004 Managing Director of the Advisor since
(Born 1969) Officer and February, 2001.
Assistant
Treasurer
Stephen T. Welsh Vice President 1996 President, Columbia Management
(Born 1957) Services, Inc. since July, 2004;
Senior Vice President and Controller,
Columbia Management Services, Inc.
prior to July, 2004.
Jeffrey R. Coleman Deputy Treasurer 2004 Group Operations Manager of the
(Born 1969) Advisor since October, 2004; Vice
President of CDC IXIS Asset Management
Services, Inc. (investment management)
from August, 2000 to September, 2004.
Joseph F. DiMaria Deputy Treasurer 2004 Senior Compliance Manager of the Advisor since
(Born 1968) January, 2005; Director of Trustee
Administration of the Advisor from May, 2003 to
January, 2005; Senior Audit Manager,
PricewaterhouseCoopers (independent registered
public accounting firm) from July, 2000 to
April, 2003.
Ty S. Edwards Deputy Treasurer 2004 Vice President of the Advisor since 2002;
(Born 1966) Assistant Vice President and Director, State
Street Corporation (financial services) prior to
2002.
|
Year First
Elected or
Appointed
Name and Year of Birth Position with Funds to Office Principal Occupation(s) During Past Five Years
---------------------- ------------------- ---------- ----------------------------------------------
OFFICERS
Barry S. Vallan Controller 2006 Vice President-Fund Treasury of the
(Born 1969) Advisor since October, 2004; Vice
President-Trustee Reporting from April, 2002 to
October, 2004; Management Consultant,
PricewaterhouseCoopers (independent registered
public accounting firm) prior to October, 2002.
Peter T. Fariel Assistant Secretary 2006 Associate General Counsel, Bank of
(Born 1957) America since April, 2005; Partner,
Goodwin Procter LLP (law firm) prior to April,
2005.
Ryan C. Larrenaga Assistant Secretary 2005 Assistant General Counsel, Bank of
(Born 1970) America since March, 2005; Associate,
Ropes & Gray LLP (law firm) from 1998 to
February, 2005.
Barry S. Finkle Assistant Treasurer 2003 Senior Manager and Head of Fund
(Born 1965) Performance of the Advisor since
January, 2001.
Julian Quero Assistant Treasurer 2003 Senior Compliance Manager of the
(Born 1967) Advisor since April, 2002; Assistant
Vice President of Taxes and Distributions of
the Advisor from 2001 to April, 2002.
|
Each of the Trust's Trustees and officers hold comparable positions with certain other funds of which the Advisor or its affiliates is the investment advisor or distributor and, in the case of certain of the officers, with certain affiliates of the Advisor.
The Trustees and officers serve terms of indefinite duration. Each Fund held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once every five years thereafter to elect Trustees.
13. The section entitled "Trustee Positions," a subsection of "Management of the Funds," is revised to read:
As of December 31, 2005, no disinterested Trustee or any of their immediate family members owned beneficially or of record any class of securities of the Advisor, another investment advisor, sub-advisor or portfolio manager of any of the funds in the Fund Complex or any person controlling, controlled by or under common control with any such entity.
14. The second paragraph of the section entitled "Other Disclosures," a subsection of "Disclosure of Portfolio Information," is revised in its entirety to read:
The Fund periodically discloses its portfolio information on a confidential basis to various service providers that require such information in order to assist the Fund with its day-to-day business affairs. In addition to Columbia Advisors and its affiliates, these service providers include the Fund's custodian and sub-custodians, the Fund's independent registered public accounting firm, legal counsel, financial printers (R.R. Donnelly & Sons and Bowne & Co., Inc.), the Fund's proxy solicitor and proxy voting service provider (Computershare), rating agencies that maintain ratings on certain Columbia Funds (Fitch, Inc.) and service providers that support Columbia Advisors' trading systems (InvestorTool, Inc. and Thomson Financial). These service providers are required to keep such information confidential, and are prohibited from trading based on
the information or otherwise using the information except as necessary in providing services to the Fund. The Fund may also disclose portfolio holdings information to broker/dealers and certain other entities related to potential transactions and management of the Fund, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information.
INT-50/107570-0306 March 27, 2006
COLUMBIA INTERMEDIATE GOVERNMENT INCOME FUND
COLUMBIA QUALITY PLUS BOND FUND
SERIES OF COLUMBIA FUNDS TRUST III
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 1, 2005
This Statement of Additional Information (SAI) contains information which may be useful to investors but which is not included in the Prospectuses of Columbia Intermediate Government Income Fund and Columbia Quality Plus Bond Fund (each a Fund and collectively, the Funds). This SAI is not a prospectus and is authorized for distribution only when accompanied or preceded by a Prospectus of the relevant Fund dated September 1, 2005. This SAI should be read together with the relevant Prospectus and the most recent Annual Report dated April 30,2005. Each Fund's most recent Annual Report to shareholders is a separate document supplied with this SAI. Investors may obtain a free copy of the relevant Prospectus from Columbia Management Distributors, Inc. (CMD), One Financial Center, Boston, MA 02111-2621 or by calling 1-800-426-3750. The Financial Statements and Report of the Independent Registered Public Accounting Firm appearing in each Fund's April 30, 2005 Annual Report are incorporated into this SAI by reference.
Part 1 of this SAI contains specific information about the Funds. Part 2 includes information about the funds distributed by CMD generally and additional information about certain securities and investment techniques described in the Funds' Prospectuses.
TABLE OF CONTENTS
PAGE
----
PART 1
Definitions b
Organization and History b
Investment Goal and Policies c
Fundamental and Non-Fundamental Investment Policies c
Portfolio Turnover f
Fund Charges and Expenses g
Custodian of the Funds u
Independent Registered Public Accounting Firm of the Funds u
PART 2
Miscellaneous Investment Practices 1
Taxes 21
Management of the Funds 27
Determination of Net Asset Value 41
How to Buy Shares 42
Special Purchase Programs/Investor Services 45
Programs for Reducing or Eliminating Sales Charges 47
How to Sell Shares 50
Distributions 55
How to Exchange Shares 55
Suspension of Redemptions 56
Shareholder Liability 56
Shareholder Meetings 56
Appendix I 57
Appendix II 61
|
SUP-39/89458-0805
PART 1
COLUMBIA INTERMEDIATE GOVERNMENT INCOME FUND
COLUMBIA QUALITY PLUS BOND FUND
STATEMENT OF ADDITIONAL INFORMATION
SEPTEMBER 1, 2005
DEFINITIONS
-----------
"Trust" Columbia Funds Trust III
"Government Income Fund" or "Fund" Columbia Intermediate Government Income
Fund
"Quality Plus Bond Fund" or "Fund" Columbia Quality Plus Bond Fund
"Advisor" or "Administrator" Columbia Management Advisors, Inc., the
Funds' investment advisor and administrator
"CMD" Columbia Management Distributors, Inc.
(formerly named Columbia Funds Distributor,
Inc.), the Funds' distributor
"CMS" Columbia Management Services, Inc.
(formerly named Columbia Funds Services,
Inc.), the Funds' shareholder services and
transfer agent
|
ORGANIZATION AND HISTORY
The Trust is a Massachusetts business trust organized in 1986. Each Fund is an open-end, diversified management investment company representing the entire interest in a separate series of the Trust. Each Fund is the successor to a separate series of The Galaxy Fund, a Massachusetts business trust organized on March 31, 1986. On November 25, 2002, each series of The Galaxy Fund to which the Funds succeeded (the "Predecessor Funds") was reorganized as a separate series of the Trust. Class A shares of the Funds were issued in exchange for Prime A Shares of the Predecessor Funds, Class B shares of the Funds were issued in exchange for Prime B Shares of the Predecessor Funds, Class T shares of the Funds were issued in exchange for Retail A Shares of the Predecessor Funds, Class G shares of the Funds were issued in exchange for Retail B Shares of the Predecessor Funds and Class Z shares of the Funds were issued in exchange for Trust Shares of the Predecessor Funds.
The Galaxy Government Income Fund, the predecessor to the Government Income Fund, commenced operations on September 1, 1988, and the Galaxy Quality Plus Bond Fund, the predecessor to the Quality Plus Bond Fund, commenced operations on December 12, 1990.
The Trust is not required to hold annual shareholder meetings, but special meetings may be called for certain purposes. Shareholders receive one vote for each Fund share. Shares of each Fund and any other series of the Trust that may be in existence from time to time generally vote together except when required by law to vote separately by fund or by class. Shareholders owning in the aggregate ten percent of Trust shares may call meetings to consider removal of Trustees. Under certain circumstances, the Trust will provide information to assist shareholders in calling such a meeting. See Part 2 of this SAI for more information.
Effective April 1, 1999, the Trust changed its name from "Colonial Trust III" to "Liberty Funds Trust III." Effective October 13, 2003, the Trust changed its name from "Liberty Funds Trust III" to its current name.
Effective October 13, 2003, the Government Income Fund changed its name from "Liberty Intermediate Government Income Fund" to its current name.
Effective October 13, 2003, the Quality Plus Bond Fund changed its name from "Liberty Quality Plus Bond Fund" to its current name.
It is expected that, subject to shareholder approval of the election of all current Trustees, each Fund will be reorganized as a series of Columbia Funds Trust IX, a Massachusetts business trust into which all of the retail Columbia funds are expected to be reorganized.
b
INVESTMENT GOAL AND POLICIES
The Prospectuses describe each Fund's investment goal, investment strategies and risks. Part 1 of this SAI includes additional information concerning, among other things, the investment policies of the Funds. Part 2 contains additional information about the following securities and investment techniques that may be utilized by the Funds (unless otherwise noted):
Other Investment Companies
Money Market Instruments
Stripped Obligations
Municipal Securities
Securities Loans
Forward Commitments ("When-Issued" and "Delayed Delivery" Securities)
Mortgage Dollar Rolls
Mortgage-Backed Securities
Non-Agency Mortgage-Backed Securities
Asset-Backed Securities
Convertible Securities
Repurchase Agreements
Reverse Repurchase Agreements
Futures Contracts and Related Options
Custody Receipts and Trust Certificates
Foreign Securities
Stand-by Commitments
Variable and Floating Rate Obligations
Guaranteed Investment Contracts
Bank Investment Contracts
Except as indicated below under "Fundamental and Non-Fundamental Investment Policies," the Funds' investment policies are not fundamental, and the Trustees may change the policies without shareholder approval.
FUNDAMENTAL AND NON-FUNDAMENTAL INVESTMENT POLICIES
FUNDAMENTAL INVESTMENT POLICIES
In addition to each Fund's investment goal as stated in its Prospectuses, the following investment limitations are matters of fundamental policy and may not be changed with respect to a Fund without the affirmative vote of the holders of a majority of its outstanding shares. A "vote of the holders of a majority of the outstanding shares" of a particular Fund means the affirmative vote of the holders of the lesser of (a) more than 50% of the outstanding shares of such Fund, or (b) 67% or more of the shares of such Fund present at a meeting if more than 50% of the outstanding shares of such Fund are represented at the meeting in person or by proxy.
Each of the Funds may not:
1. Borrow money, issue senior securities or mortgage, pledge or hypothecate its assets except to the extent permitted by the Investment Company Act of 1940, as amended (the "1940 Act").
2. Make any investment inconsistent with the Fund's classification as a diversified series of an open-end investment company under the 1940 Act.
3. Concentrate its investments in the securities of one or more issuers conducting their principal business activities in the same industry (other than securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities).
4. Make loans except to the extent permitted by the 1940 Act.
5. Underwrite securities of other issuers, except insofar as the Fund technically may be deemed to be an underwriter under the Securities Act of 1933, as amended (the "1933 Act"), in connection with the purchase and sale of its portfolio securities.
6. Purchase or sell real estate, except that the Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate.
7. Purchase or sell commodities or commodity contracts except that the Fund may, to the extent consistent with its investment objective and policies, purchase and sell financial futures contracts and related options and foreign currency forward contracts, futures contracts and related options.
With respect to Investment Limitation No. 1 above, the 1940 Act permits a Fund to borrow from any bank, provided that immediately after any such borrowing, there is an asset coverage ratio of at least 300% for all borrowings of the Fund. In addition, a Fund may engage in certain securities trading practices, such as reverse repurchase agreements, that are deemed to be borrowings under the 1940 Act, provided that the Fund maintains in a segregated custodial account liquid assets equal to the repurchase price (including accrued interest). Mortgage dollar rolls and U.S. Treasury rolls entered into by a Fund that are not accounted for as financings shall not constitute borrowings.
With respect to Investment Limitation No. 2 above, the 1940 Act prohibits a diversified Fund from purchasing the securities of any one issuer if immediately after such purchase more than 5% of the value of its total assets would be invested in the securities of such issuer or the Fund would own more than 10% of the outstanding voting securities of such issuer, except that (a) up to 25% of the value of the Fund's total assets may be invested without regard to these limitations and (b) the Fund may invest in U.S. Government obligations without regard to these limitations.
With respect to Investment Limitation No. 4 above, the 1940 Act permits a Fund to lend its portfolio securities against collateral having a value equal at all times to at least 100% of the value of the securities loaned. However, no portfolio securities loan shall be made on behalf of a Fund if, as a result, the aggregate value of all securities loaned by the Fund would exceed 33-1/3% of the value of its total assets (including the value of the collateral for the loans) at the time of the loan. In addition, a Fund may engage in certain securities trading practices, such as repurchase agreements, that are deemed to be loans under the 1940 Act.
The Quality Plus Bond Fund's Trustees have approved, subject to shareholder approval at a shareholder meeting expected to be held in 2005, the replacement of the Fund's current fundamental investment restrictions with the following standardized fundamental investment restrictions (except that municipal funds will retain their current 80% policies required under Rule 35d-1 under the 1940 Act):
PROPOSED FUNDAMENTAL RESTRICTIONS
Each Fund may not, as a matter of fundamental policy:
1. Underwrite any issue of securities issued by other persons within the meaning of the 1933 Act except when it might be deemed to be an underwriter either: (a) in connection with the disposition of a portfolio security; or (b) in connection with the purchase of securities directly from the issuer thereof in accordance with its investment objective. This restriction shall not limit the Fund's ability to invest in securities issued by other registered investment companies.
2. Purchase or sell real estate, except the Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate and it may hold and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of securities which are secured by real estate or interests therein.
3. Purchase or sell commodities, except that the Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts.
4. Purchase any securities which would cause 25% or more of the value of
its total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business
activities in the same industry, provided that: (a) there is no
limitation with respect to obligations issued or guaranteed by the
U.S. Government, any state or territory of the United States, or any
of their agencies, instrumentalities or political subdivisions; and
(b) notwithstanding this limitation or any other fundamental
investment limitation, assets may be invested in the securities of one
or more management investment companies to the extent permitted by the
1940 Act, the rules and regulations thereunder and any applicable
exemptive relief.
5. Make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
6. Borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
7. Purchase securities (except securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities) of any one issuer
if, as a result, more than 5% of its total assets will be invested in
the securities of such issuer or it would own more than 10% of the
voting securities of such issuer, except that: (a) up to 25% of its
total assets may be invested without regard to these limitations and
(b) a Fund's assets may be invested in the securities of one or more
management investment companies to the extent permitted by the 1940
Act, the rules and regulations thereunder, or any applicable exemptive
relief.
NON-FUNDAMENTAL INVESTMENT POLICIES
The following investment limitations with respect to the Funds may be changed by the Board of Trustees without shareholder approval:
1. A Fund may not invest more than 15% of its net assets in illiquid securities.
2. A Fund may invest up to 35% of its total assets in securities of foreign issuers and may also invest in U.S. dollar-denominated obligations of U.S. corporations issued outside the United States.
3. A Fund may not sell securities short, maintain a short position, or purchase securities on margin, except for such short-term credits as are necessary for the clearance of transactions.
4. A Fund may not write or sell put options, call options, straddles, spreads or any combination thereof, except that a Fund may, to the extent consistent with its investment objective and policies, write covered call options and purchase and sell other options.
5. A Fund may not purchase securities of other companies for the purpose of exercising control.
6. A Fund may not purchase securities of other investment companies except as permitted by the 1940 Act.
With respect to Investment Limitation No. 6 above, the 1940 Act prohibits a Fund, subject to certain exceptions, from acquiring the securities of other investment companies if, as a result of such acquisition, (a) the Fund owns more than 3% of the total outstanding voting stock of the investment company; (b) securities issued by any one investment company represent more than 5% of the total assets of the Fund; or (c) securities (other than treasury stock) issued by all investment companies represent more than 10% of the total assets of the Fund.
Each Fund currently intends to limit its investments in securities of other investment companies so that, as determined immediately after a securities purchase is made: (a) not more than 5% of the value of its total assets will be invested in the securities of any one investment company; (b) not more than 10% of the value of its total assets will be invested in the aggregate in securities of other investment companies as a group; (c) not more than 3% of the outstanding voting stock of any one investment company will be owned by the Fund, and (d) not more than 10% of the outstanding voting stock of any one closed-end investment company will be owned in the aggregate by the Funds, other than investment portfolios of the Trust, or any other investment companies advised by the Advisor.
Each Fund may purchase restricted securities, which are any securities in which the Fund may otherwise invest pursuant to its investment objective and policies but which are subject to restrictions on resale under the federal securities laws. Certain restricted securities may be considered liquid pursuant to guidelines established by the Board of Trustees. To the extent restricted securities are deemed illiquid, each Fund will limit its purchase, together with other securities considered to be illiquid, to 15% of its net assets.
The Funds will not engage in futures transactions for speculation, but only to hedge against changes in the market values of securities which the Funds hold or intend to purchase in an effort to manage the impact to the Fund of changes in interest rates.
Each Fund expects that forward commitments, when-issued purchases and delayed settlements will not exceed 25% of the value of the Fund's total assets absent unusual market conditions. In the event a Fund's forward commitments, when-issued purchases and delayed settlements ever exceeded 25% of the value of its total assets, the Fund's liquidity and the ability of the Advisor to manage the Fund might be adversely affected. The Funds do not intend to engage in when-issued purchases, forward commitments and delayed settlements for speculative purposes, but only in furtherance of their investment objectives.
If the rating of a security held by a Fund is downgraded below investment grade, the Fund does not have to sell the security unless (i) the Advisor determines under the circumstances the security is no longer an appropriate investment for the Fund, or (ii) the security, together with any securities held by the Fund that are rated below investment grade, exceed 5% of the Fund's net assets.
e
Except as stated otherwise, if a percentage limitation is satisfied at the time of investment, a later increase in such percentage resulting from a change in the value of a Fund's portfolio securities generally will not constitute a violation of the limitation. If the value of a Fund's holdings of illiquid securities at any time exceeds the percentage limitation applicable at the time of acquisition due to subsequent fluctuations in value or other reasons, the Board of Trustees will consider what actions, if any, are appropriate to maintain adequate liquidity. With respect to borrowings, if a Fund's asset coverage at any time falls below that required by the 1940 Act, the Fund will reduce the amount of its borrowings in the manner required by the 1940 Act to the extent necessary to satisfy the asset coverage requirement.
Total assets and net assets are determined at current value for purposes of compliance with investment restrictions and policies. All percentage limitations will apply at the time of investment and are not violated unless an excess or deficiency occurs as a result of such investment. For the purpose of the 1940 Act's diversification requirement, an issuer is the entity whose revenues support the security.
Each Fund may follow non-fundamental operating policies that are more restrictive than its fundamental investment limitations, as set forth in the Prospectuses and this Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the 1940 Act.
GOVERNMENT INCOME FUND
Under normal circumstances, the Government Income Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in debt obligations issued or guaranteed by the U.S. Government or its agencies or instrumentalities and repurchase agreements backed by these obligations.
The Government Income Fund may also invest, from time to time, in municipal securities. See "Municipal Securities" in Part 2 of this SAI. The Fund may also enter into interest rate futures contracts in an effort to manage the impact to the Fund of changes in interest rates. See "Futures Contracts and Related Options" in Part 2 of this SAI. In addition, the Fund may invest in obligations issued by Canadian Provincial Governments and in debt obligations of supranational entities. The Fund may not invest more than 35% of its total assets in the securities of foreign issuers. The Fund may also invest in dollar-denominated obligations of U.S. corporations issued outside the United States. Any common stock received through the conversion of convertible debt obligations will be sold in an orderly manner as soon as possible.
QUALITY PLUS BOND FUND
The Quality Plus Bond Fund invests substantially all of its assets (under normal circumstances, at least 80% of net assets plus any borrowings for investment purposes) in investment grade debt obligations.
The Quality Plus Bond Fund may invest, from time to time, in municipal securities. See "Municipal Securities" in Part 2 of this SAI. The Fund may enter into interest rate futures contracts in an effort to manage the impact to the Fund of changes in interest rates. See "Futures Contracts and Related Options" in Part 2 of this SAI. The Fund may also invest in obligations issued by Canadian Provincial Governments and in debt obligations of supranational entities. The Fund may not invest more than 35% of its total assets in the securities of foreign issuers. The Fund may also invest in dollar-denominated obligations of U.S. corporations issued outside the United States. Any common stock received through the conversion of convertible debt obligations will be sold in an orderly manner as soon as possible.
PORTFOLIO TURNOVER
Portfolio turnover is included in the Prospectuses under "Financial Highlights." Each Fund may sell a portfolio investment soon after its acquisition if the Advisor believes that such a disposition is consistent with the Fund's investment objective. Portfolio investments may be sold for a variety of reasons, such as a more favorable investment opportunity or other circumstances bearing on the desirability of continuing to hold such investments. A portfolio turnover rate of 100% or more is considered high, although the rate of portfolio turnover will not be a limiting factor in making portfolio decisions. High portfolio turnover may cause the Funds to realize capital gains, which if realized and distributed by the Funds, may be taxable to shareholders as ordinary income. High portfolio turnover may result in correspondingly greater brokerage commissions and other transaction costs, which will be borne directly by the Funds.
f
FUND CHARGES AND EXPENSES
Each Fund's management agreement with the Advisor has been amended so that, effective February 9, 2005, each fund pays the Advisor a monthly fee based on the average daily net assets of each Fund at the following reduced annual rates:
Columbia Intermediate Government Income Fund
Average Daily Net Assets Rate ------------------------ ----- Net assets under $500 million 0.460% Net assets of $500 million but less than $1 billion 0.410% Net assets of $1 billion but less than $1.5 billion 0.380% Net assets of $1.5 billion but less than $3 billion 0.350% Net assets of $3 billion but less than $6 billion 0.340% Net assets in excess of $6 billion 0.330% |
Columbia Quality Plus Bond Fund
Average Daily Net Assets Rate ------------------------ ----- Net assets under $500 million 0.480% Net assets of $500 million but less than $1 billion 0.430% Net assets of $1 billion but less than $1.5 billion 0.400% Net assets of $1.5 billion but less than $3 billion 0.370% Net assets of $3 billion but less than $6 billion 0.360% Net assets in excess of $6 billion 0.350% |
Previously, the Advisor had, with respect to the period from November 1, 2004 to February 9, 2005, waived a portion of its fees, so that it retained fees at the rates shown above.
Prior to November 1, 2004, under each Fund's management agreement, the Fund paid the Advisor a monthly fee at the annual rate of 0.55% of the first $500 million of average daily net assets, 0.50% of the next $500 million of average daily net assets, 0.45% of the next $500 million of average daily net assets, 0.40% of the next $500 million of average daily net assets, 0.35% of average daily net assets in excess of $2 billion.
Prior to November 1, 2003, under each Fund's prior management agreement, each Fund paid the Advisor a monthly fee, at the annual rate of 0.75% of the average daily net assets of each Fund. Effective August 1, 2001, the Advisor had voluntarily agreed to waive its fees so that its actual fees would be as follows: 0.55% of the first $500 million of average daily net assets, 0.50% of the next $500 million of average daily net assets, 0.45% of the next $500 million of average daily net assets, 0.40% of the next $500 million of average daily net assets, 0.35% of average daily net assets in excess of $2 billion.
Under each Fund's administration agreement, the Fund pays the Administrator a monthly fee at the annual rate of 0.067% of the average daily net assets of the Fund.
The Advisor is responsible for providing pricing and bookkeeping services to the Funds pursuant to a pricing and bookkeeping agreement. Under a separate agreement (outsourcing agreement), the Advisor has delegated those functions to State Street Corporation (State Street). The Advisor pays fees to State Street under the outsourcing agreement.
Under its pricing and bookkeeping agreement with the Funds, the Advisor receives from each Fund an annual fee based on the average daily net assets, as follows:
Under $50 million $ 25,000 Over $50 million but less than $200 million $ 35,000 Over $200 million but less than $500 million $ 50,000 Over $500 million but less than $1 billion $ 85,000 Over $1 billion $125,000 |
The annual fees for a Fund with more than 25% in non-domestic assets will be 150% of the annual fees described above.
g
The Fund reimburses the Advisor for out-of-pocket expenses and charges, including all fees payable to third parties (other than State Street) for providing pricing data.
Effective November 1, 2003, each Fund pays a shareholders' servicing and transfer agency fee to CMS as follows:
- An annual open account fee of $34 per open account, plus the Fund's allocated share of reimbursement for the out-of-pocket expenses of CMS.
Prior to November 1, 2003, the Fund paid a shareholders' servicing and transfer agency fee to CMS as follows:
- A new account set up charge of $5.00 per account; plus
- An account maintenance fee for each open non-networked account of $14.00 per annum and for each networked account from 0 to 100,000 accounts of $11.00 per annum and each networked account over 100,000 accounts of $8.00 per annum, payable on a monthly basis, in an amount equal to 1/12 the per annum charge; plus
- An account fee for each closed account from 0 to 100,000 accounts of $14.00 per annum and each closed account over 100,000 accounts of $11.00 per annum, payable on a monthly basis, in an amount equal to 1/12 the per annum charge; plus
- The Fund's allocated shares of CMS' out-of-pocket expenses reasonably incurred by CMS in performing its duties and responsibilities pursuant to this arrangement.
Prior to November 1, 2003, there was a minimum annual fee per Fund of $5,000.
PFPC Inc. (PFPC) (formerly known as First Data Investor Services Group, Inc.), located at 4400 Computer Drive, Westborough, Massachusetts 01581-5108, served as the administrator (until July 2002) and transfer and dividend disbursing agent (until July 2002) for the Predecessor Funds. PFPC is an indirect majority-owned subsidiary of PNC Bank Corp. Prior to July 2002, no administration fees were waived by PFPC.
RECENT FEES PAID TO THE ADVISOR, PFPC AND OTHER SERVICE PROVIDERS
The following tables present recent fees paid to the Advisor, PFPC and other service providers by each Fund (since its inception) and by the relevant Predecessor Funds.
GOVERNMENT INCOME FUND
Year ended Year ended Period ended Year ended
April 30, April 30, April 30, October 31,
2005 2004 2003(a) 2002
---------- ---------- ------------ -----------
Management fee $1,893,606 $3,087,216 $1,941,338 $4,026,314
Administration fee 250,108 315,549 173,540 353,203
Pricing and bookkeeping fee 72,370 88,359 50,113 117,461
Transfer agent fee: 238,837
Class A (b) 2,427 494 N/A
Class B (b) 3,214 1,193 N/A
Class C (b) 929 228 N/A
Class G (b) 7,385 5,560 10,006
Class T (b) 57,884 29,620 78,542
Class Z (b) 290,336 69,723 57,803
Shareholder service fee (Class T) 54,259 70,533 36,031 77,041
12b-1 fees:
Service fee (Class A) 7,046 6,698 513 N/A
Service fee (Class B) 6,366 7,715 1,333 (d)
Service fee (Class C) 2,792 2,404 169 N/A
Service fee (Class G) 4,583 6,476 3,830 6,427
Distribution fee (Class A) N/A N/A N/A (c)
|
h
Distribution fee (Class B) 19,098 23,146 3,999 (d) Distribution fee (Class C) 8,376 7,237 507 N/A Distribution fee (Class G) 19,859 28,063 16,596 28,175 Fees waived by Advisor N/A 498,076 522,410 1,092,106 Fees waived by CMD (Class C) 1,675 1,442 103 N/A |
QUALITY PLUS BOND FUND
Year ended Year ended Period ended Year ended
April 30, April 30, April 30, October 31,
2005 2004 2003(a) 2002
---------- ---------- ------------ -----------
Management fee $4,449,173 $5,900,129 $3,488,076 $6,745,609
Administration fee 607,220 616,595 311,586 592,000
Pricing and bookkeeping fee 131,004 124,854 68,179 136,485
Transfer agent fee: 653,633
Class A (b) 2,383 46 4
Class B (b) 2,541 112 10
Class C (b) 547 13 N/A
Class G (b) 16,467 11,296 23,007
Class T (b) 60,740 28,039 65,333
Class Z (b) 968,018 176,306 436,768
Shareholder service fee (Class T) 48,446 59,667 29,033 55,978
12b-1 fees:
Service fee (Class A) 14,523 4,134 244 N/A
Service fee (Class B) 7,061 3,675 590 711
Service fee (Class C) 2,709 1,311 42 N/A
Service fee (Class G) 9,687 15,944 10,220 19,652
Distribution fee (Class A) N/A N/A N/A 106
Distribution fee (Class B) 21,183 11,023 1,770 2,132
Distribution fee (Class C) 8,127 3,943 124 N/A
Distribution fee (Class G) 41,978 69,092 44,285 86,940
Fees waived by Advisor N/A 1,048,676 1,038,741 1,998,536
Fees waived by CMD (Class C) 1,625 786 26 N/A
Fees waived by Transfer Agent 173 N/A N/A N/A
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(a) The Fund changed its fiscal year end from October 31 to April 30.
(b) The transfer agency fees (exclusive of the shareholder service fees incurred by Class T Shares) became a fund-level expense in 2004.
(c) Class A Shares (formerly Prime A Shares) were not offered during the period.
(d) Class B Shares (formerly Prime B Shares) were not offered during the period.
FNB, an affiliate of the former FleetBoston Financial Corporation, was paid a fee for Sub-Account Services performed with respect to Trust Shares of the Predecessor Funds held by defined contribution plans. Pursuant to an agreement between FNB and the Funds, FNB was paid $21.00 per year for each defined contribution plan participant account. For the fiscal year ended April 30, 2005, FNB received $489,311 for Sub-Account Services.
BROKERAGE COMMISSIONS
Debt securities purchased or sold by the Funds are generally traded in the over-the-counter market on a net basis (i.e., without commission) through dealers, or otherwise involve transactions directly with the issuer of an instrument. The cost of securities purchased from underwriters includes an underwriting commission or concession. The prices at which securities are purchased from and sold to dealers may include a dealer's mark-up or mark-down.
BROKERAGE COMMISSIONS (dollars in thousands)
Government Income Fund
Year ended April 30,
2005
--------------------
Total commissions $1
Directed transactions (a) 0
Commissions on directed transactions 0
Commissions Paid to Bank of America Securities 0
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Quality Plus Bond Fund
Year ended April 30,
2005
--------------------
Total commissions $4
Directed transactions 0
Commissions on directed transactions 0
Commissions Paid to Bank of America Securities 0
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There were no commissions paid on transactions by any of the Funds during the fiscal year ended April 30, 2004, the six months ended April 30, 2003 or the fiscal year ended October 31, 2002. See "Management of the Funds - Portfolio Transactions - Brokerage and research services" in Part 2 of this SAI.
The Trust is required to identify any securities of its "regular brokers or dealers" that the Funds have acquired during their most recent fiscal year. At April 30, 2005, the Government Income Fund held no securities of its regular brokers or dealers. At April 30, 2005, the Quality Plus Bond Fund held securities of its regular brokers or dealers as set forth below:
Broker/dealer Value ------------- ----------- Citigroup, Inc. $10,219,223 Wachovia Corp. 4,888,800 Goldman Sachs 4,881,864 Mellon Financial Co. 2,859,959 Deutsche Bank 2,568,166 |
TRUSTEES AND TRUSTEES' FEES
Fund Complex consists of the following funds:
The series of Columbia Funds Trust I, the series of Columbia Funds Trust II, the series of Columbia Funds Trust III, the series of Columbia Funds Trust IV, the series of Columbia Funds Trust V, the series of Columbia Funds Trust VI, the series of Columbia Funds Trust VII, the series of Liberty Variable Investment Trust and 8 closed-end management investment company portfolios (the "Liberty Funds").
The series of Columbia Funds Trust VIII, the series of Columbia Funds Trust IX, the series of Columbia Funds Trust XI and the series of SteinRoe Variable Investment Trust (the "Stein Roe Funds").
Two closed-end management investment company portfolios named Liberty All-Star Equity Fund and Liberty All-Star Growth Fund, Inc. (the "All-Star Funds").
Columbia Management Multi-Strategy Hedge Fund, LLC.
Columbia Balanced Fund, Inc., Columbia Common Stock Fund, Inc., Columbia Daily Income Company, Columbia Fixed Income Securities Fund, Inc., Columbia Growth Fund, Inc., Columbia High Yield Fund, Inc., Columbia International Stock Fund, Inc., Columbia National Municipal Bond Fund, Inc., Columbia Oregon Municipal Bond Fund, Inc., Columbia Real Estate Equity Fund,
j
Inc., Columbia Short Term Bond Fund, Inc., Columbia Small Cap Growth Fund, Inc., Columbia Mid Cap Growth Fund, Inc., Columbia Strategic Investor Fund, Inc., Columbia Technology Fund, Inc. and the series of CMG Fund Trust (the "Columbia Funds").
The series of The Galaxy Funds (the "Galaxy Funds").
The series of Columbia Acorn Trust and the series of Wanger Advisors Trust (the "Acorn Funds" and "WAT Funds," respectively).
The Advisor or its affiliates pay the compensation of all the officers of the funds in the Fund Complex advised by the Advisor, including Trustees who are affiliated with the Advisor. For the fiscal year ended April 30, 2005 and the calendar year ended December 31, 2004, the Trustees received the following compensation for serving as Trustees:
Aggregate
Compensation
from the Aggregate Total Compensation
Government Compensation from from the Fund Complex
Pension or Retirement Income Fund for the Quality Plus Paid to the Trustees for
Benefits Accrued the Fiscal Year Bond Fund for the the Calendar Year
as Part of Ended Fiscal Year Ended Ended
Trustee(a) Fund Expenses(b) April 30, 2005 April 30, 2005 December 31, 2004(a)
---------- --------------------- --------------- ----------------- ------------------------
Douglas A. Hacker N/A $1,153 $2,062 $135,000
Janet Langford Kelly N/A 1,305 2,337 148,500
Richard W. Lowry N/A 1,049 1,876 150,700
William E. Mayer N/A 1,208 2,158 166,700
Charles R. Nelson N/A 1,202 2,149 141,500
John J. Neuhauser N/A 1,094 1,955 158,284
Patrick J. Simpson (c) N/A 1,085 1,939 129,000
Thomas Stitzel N/A 1,231 2,201 149,000
Thomas C. Theobald (d) N/A 1,509 2,706 172,500
Anne-Lee Verville (e) N/A 1,317 2,355 157,000
Richard L. Woolworth N/A 1,055 1,887 131,000
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(a) As of December 31, 2004, the Fund Complex consisted of 127 open-end and 11 closed-end management investment company portfolios. Effective October 8, 2003, Patrick J. Simpson and Richard L. Woolworth, then directors/trustees of the Columbia Funds, were appointed to the board of trustees of the Liberty Funds and Stein Roe Funds. Also effective October 8, 2003, the trustees of the Liberty Funds and the Stein Roe Funds were elected as directors/trustees of the Columbia Funds. A single combined board of trustees/directors now oversees all of the Liberty Funds, Stein Roe Funds and Columbia Funds. The All-Star Funds, Columbia Management Multi-Strategy Hedge Fund, LLC, the Galaxy Funds, the Acorn Funds and the WAT Funds each have separate boards of trustees/directors.
(b) The Fund does not currently provide pension or retirement plan benefits to the Trustees.
(c) During the fiscal year ended April 30, 2005, and the calendar year ended December 31, 2004, Mr. Simpson deferred $1,085 of his compensation from the Government Income Fund, $1,939 of his compensation from the Quality Plus Bond Fund, and $129,000 from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2004, the value of Mr. Simpson's account under that plan was $143,646.
(d) During the fiscal year ended April 30, 2005, and the calendar year ended December 31, 2004, Mr. Theobald deferred $901 of his compensation from the Government Income Fund, $1,622 of his compensation from the Quality Plus Bond Fund, and $90,000 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2004, the value of Mr. Theobald's account under that plan was $157,328.
(e) During the fiscal year ended April 30, 2005, and the calendar year ended December 31, 2004, Ms. Verville deferred $277 of her compensation from the Government Income Fund, $478 of her compensation from the Quality Plus Bond Fund, and $55,000 of her total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2004, the value of Ms. Verville's account under that plan was $653,275.
k
ROLE OF THE BOARD OF TRUSTEES
The Trustees of the Funds are responsible for the overall management and supervision of the Fund's affairs and for protecting the interests of the shareholders. The Trustees meet periodically throughout the year to oversee the Fund's activities, review contractual arrangements with service providers for the Fund and review the Fund's performance. The Trustees have created several committees to perform specific functions for the Fund. Mr. Theobald was elected Chairman of the Board of Trustees of the Liberty Funds, Stein Roe Funds and Columbia Funds effective December, 2003.
AUDIT COMMITTEE
Ms. Verville and Messrs. Hacker, Stitzel and Woolworth are members of the Audit Committee of the Board of Trustees of the Funds. The Audit Committee's functions include making recommendations to the Trustees regarding the selection and performance of the independent registered public accounting firm, and reviewing matters relative to accounting and auditing practices and procedures, accounting records, and the internal accounting controls, of the Funds and certain service providers. For the fiscal year ended April 30, 2005, the Audit Committee convened ten times.
GOVERNANCE COMMITTEE
Messrs. Lowry, Mayer, Simpson and Theobald are members of the Governance Committee of the Board of Trustees of the Funds. The Governance Committee's functions include recommending to the Trustees nominees for independent Trustee positions and for appointments to various committees, performing periodic evaluations of the effectiveness of the Board, reviewing and recommending to the Board policies and practices to be followed in carrying out the Trustees' duties and responsibilities and reviewing and making recommendations to the Board regarding the compensation of the Trustees who are not affiliated with the Funds' investment advisors. The Governance Committee will consider candidates for Trustee recommended by shareholders. Written recommendations with supporting information should be directed to the Committee, in care of the relevant Fund. For the fiscal year ended April 30, 2005, the Governance Committee convened six times.
ADVISORY FEES & EXPENSES COMMITTEE
Ms. Kelly and Messrs. Mayer, Nelson and Neuhauser are members of the Advisory Fees & Expenses Committee of the Board of Trustees of the Fund. The Advisory Fees & Expenses Committee's functions include reviewing and making recommendations to the Board as to contracts requiring approval of a majority of the disinterested Trustees and as to any other contracts that may be referred to the Committee by the Board. For the fiscal year ended April 30, 2005, the Advisory Fees & Expenses Committee convened eight times.
COMPLIANCE COMMITTEE
Ms. Kelly, Messrs. Nelson, Simpson and Stitzel and Ms. Verville are members of the Compliance Committee of the Board of Trustees of the Fund. Mr. Stitzel became a member of the Compliance Committee on May 8, 2005. The Compliance Committee's functions include providing oversight of the monitoring processes and controls regarding the Trust. The Committee uses legal, regulatory and internal rules, policies, procedures and standards other than those relating to accounting matters and oversight of compliance by the Trust's investment adviser, principal underwriter and transfer agent. For the fiscal year ended April 30, 2005, the Compliance Committee convened six times.
INVESTMENT OVERSIGHT COMMITTEES
Beginning in 2004, each Trustee of the Funds also began serving on an Investment Oversight Committee ("IOC"). Each IOC is responsible for monitoring, on an ongoing basis, a select group of funds in the Fund Complex and gives particular consideration to such matters as the Funds' adherence to their investment mandates, historical performance, changes in investment processes and personnel, and proposed changes to investment objectives. Investment personnel who manage the Funds attend IOC meetings from time to time to assist each IOC in its review of the Funds. Each IOC meets four times a year. The following are members of the respective IOCs and the general categories of funds in the Fund Complex which they review:
IOC #1: Messrs. Lowry, Mayer and Neuhauser are responsible for reviewing funds in the following asset categories: Large Growth Diversified, Large Growth Concentrated, Small Growth, Outside Managed (i.e., sub-advised) and Municipal.
IOC #2: Mr. Hacker and Ms. Verville are responsible for reviewing funds in the following asset categories: Large Blend, Small Blend, Foreign Stock, Fixed Income - Multi Sector, Fixed Income - Core and Young Investor.
IOC#3: Messrs. Theobald and Stitzel and Ms. Kelly are responsible for reviewing funds in the following asset categories: Large Value, Mid Cap Value, Small Value, Asset Allocation, High Yield and Money Market.
IOC#4: Messrs. Nelson, Simpson and Woolworth are responsible for reviewing funds in the following asset categories: Large/Multi-Cap Blend, Mid Cap Growth, Small Growth, Asset Allocation, Specialty Equity and Taxable Fixed Income.
SHARE OWNERSHIP
The following table shows the dollar range of equity securities beneficially owned by each Trustee as of December 31, 2004 (i), in each Fund and (ii) in the funds in the Fund Complex.
Aggregate Dollar Range of
Dollar Range of Equity Equity Securities Owned in
Securities Owned in the All Funds Overseen by
Name of Trustee Funds Trustee in Fund Complex
--------------- ----------------------- --------------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker $0 Over $100,000
Janet Langford Kelly $0 Over $100,000
Richard W. Lowry $0 Over $100,000
Charles R. Nelson $0 Over $100,000
John J. Neuhauser $0 Over $100,000
Patrick J. Simpson $0 Over $100,000
Thomas E. Stitzel $0 Over $100,000
Thomas C. Theobald $0 Over $100,000
Anne-Lee Verville $0 Over $100,000
Richard L. Woolworth $0 Over $100,000
INTERESTED TRUSTEES
William E. Mayer $0 $50,001-$100,000
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PORTFOLIO MANAGERS
OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS
The following table shows the number and assets of other investment accounts (or portions of investment accounts) that each Fund's portfolio manager managed as of each Fund's fiscal year-end.
OTHER SEC-REGISTERED
OPEN-END AND CLOSED-END OTHER POOLED INVESTMENT
FUNDS VEHICLES OTHER ACCOUNTS
------------------------ ----------------------- ------------------------
Number of Number of Number of
PORTFOLIO MANAGER accounts Assets accounts Assets accounts Assets
------------------ --------- ------------ --------- ----------- --------- ------------
Marie M. Schofield
Government Income 5 $5.1 billion 1 $44 million 13 $161 million
Fund
Quality Plus Bond 5 $4.4 billion 1 $44 million 13 $161 million
Fund
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See "Management--Portfolio Transactions--Potential conflicts of interest in managing multiple accounts" in Part II of this SAI for information on how the Advisor addresses potential conflicts of interest resulting from an individual's management of more than one account.
OWNERSHIP OF SECURITIES
The table below shows the dollar ranges of shares of each Fund beneficially owned (as determined pursuant to Rule 16a-1(a)(2) under the Securities Exchange Act of 1934, as amended) by the portfolio manager listed above at the end of each Fund's most recent fiscal year:
DOLLAR RANGE OF EQUITY SECURITIES IN THE
PORTFOLIO MANAGER FUND(S) BENEFICIALLY OWNED
----------------- ----------------------------------------
Marie M. Schofield $50,001-$100,000 (Quality Plus Bond Fund)
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COMPENSATION
As of each Fund's most recent fiscal year end, the portfolio manager received all of her compensation from the Advisor and its parent company, Columbia Management Group, in the form of salary, bonus, stock options and restricted stock. A portfolio manager's bonus is variable and is generally based on (1) an evaluation of the manager's investment performance and (2) the results of a peer and/or management review of such individual, which takes into account skills and attributes such as team participation, investment process, communication and professionalism. In evaluating investment performance, the Advisor generally considers the one-, three- and five-year performance of mutual funds and other accounts under the portfolio manager's oversight relative to the benchmarks and peer groups noted below, emphasizing the manager's three- and five-year performance. The Advisor may also consider the portfolio manager's performance in managing client assets in sectors and industries assigned to the manager as part of his or her investment team responsibilities, where applicable. For portfolio managers who also have group management responsibilities, another factor in their evaluation is an assessment of the group's overall investment performance.
PORTFOLIO MANAGER PERFORMANCE BENCHMARK(S) PEER GROUP(S)
----------------- ------------------------------ -----------------------------
Marie M. Schofield Lehman Brothers Aggregate Bond Lipper Corporate Debt Funds A
Index (50%) Rated Category
Lehman Brothers Government (Quality Plus Bond Fund);
Credit Index (50%) Lipper Intermediate U.S.
(Quality Plus Bond Fund); Government Category
Lehman Brothers Intermediate (Government Income Fund)
Government Index (50%)
Lehman Brothers Aggregate Bond
Index (50%)
(Government Income Fund)
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The size of the overall bonus pool each year is determined by Columbia Management Group and depends in part on levels of compensation generally in the investment management industry (based on market compensation data) and the Advisor's profitability for the year, which is influenced by assets under management.
n
OWNERSHIP OF THE FUNDS
As of record on July 31, 2005, the Trustees and officers of the Trust as a group owned less than 1% of the then outstanding Class A Shares, Class B Shares, Class C Shares, Class G Shares, Class T Shares and Class Z Shares of the Funds.
As of record on July 31, 2005, the following shareholders of record owned 5% or more of the shares of the classes of the Funds noted below:
GOVERNMENT INCOME FUND
CLASS A SHARES
Shareholder (name and address) Percent of Class Total (%) ------------------------------ -------------------------- Ferris Baker Watts, Inc. 28.72 75 Arch Street, Suite 402 Akron, OH 44304-1433 MCB Trust Services, Custodian 5.38 700 17th Street, Suite 300 Denver. CO 80202-3531 NFS, LLC 5.13 78 Wheelwright Farm Cohaset, MA 02025-1542 |
CLASS C SHARES
Shareholder (name and address) Percent of Class Total (%) ------------------------------ -------------------------- UBS Financial Services, Inc. 22.67 2815 N. State Street Jackson, MS 39216-4306 UBS Financial Services, Inc. 15.08 577 N. A Sandifer Road Monticello, MS 39654-7691 UBS Financial Services, Inc. 11.23 613 S. West Street Jackson, MS 39201-5506 NFS, LLC 7.97 35 New England Produce Center Chelsea, MA 02150-1719 |
CLASS Z SHARES
Shareholder (name and address) Percent of Class Total (%) ------------------------------ -------------------------- Bank of America, NA 91.64 411 N. Akard Street Dallas, TX 75201-3307 |
o
QUALITY PLUS BOND FUND
CLASS A SHARES
Shareholder (name and address) Percent of Class Total (%) ------------------------------ -------------------------- American Express Trust Company 24.24 996 AXP Financial Center Minneapolis, MN 55474-0009 Charles Schwab & Company, Inc. 15.61 101 Montgomery Street San Francisco, CA 94104-4122 |
CLASS C SHARES
Shareholder (name and address) Percent of Class Total (%) ------------------------------ -------------------------- Merrill Lynch Pierce Fenner & Smith 8.97 4800 Deer Lake Drive East, 2nd Floor Jacksonville, FL 32246-6484 |
CLASS G SHARES
Shareholder (name and address) Percent of Class Total (%) ------------------------------ -------------------------- NFS, LLC 10.49 17 West Avenue Norwalk, CT 06854-2208 |
CLASS Z SHARES
Shareholder (name and address) Percent of Class Total (%) ------------------------------ -------------------------- Bank of America, NA 68.17 411 N. Akard Street Dallas, TX 75201-3307 Bank of America, NA 12.79 700 Louisiana Street Houston, TX 77002-2700 AMVESCAP National Trust Company 12.57 P.O. Box 105779 Atlanta, GA 30348-5779 |
SALES CHARGES
The Funds' distributor is Columbia Management Distributors, Inc. (CMD) (formerly named Columbia Funds Distributor, Inc.). Prior to July 22, 2002, PFPC Distributors served as distributor for the Predecessor Funds. PFPC Distributors, an indirect wholly owned subsidiary of PNC Financial Services Group, is a registered broker-dealer with principal offices located at 400 Bellevue Parkway, Wilmington, Delaware 19809. PFPC Distributors was entitled to the payment of a front-end sales charge on the sale of Class A Shares of the Predecessor Funds. PFPC Distributors, and/or CMD received front-end sales charges in connection with Class A Share purchases as follows:
p
CLASS A SHARES (DOLLARS IN THOUSANDS)
Quality Plus Bond Fund
Years ended
April 30, Period ended
----------- April 30, Year ended
2005 2004 2003 October 31, 2002
---- ---- ------------ ----------------
Aggregate initial sales charge
on Fund share sales $28 $36 $9 $1
Initial sales charges retained
by CMD 4 5 1 N/A
Aggregate CDSC on Fund
redemptions retained by CMD 3 0 0 N/A
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PFPC Distributors retained none of the amounts shown in the table above. Class A Shares were not offered by the Government Income Fund prior to November 25, 2002.
Government Income Fund
Years ended
April 30, Period ended
----------- April 30,
2005 2004 2003
---- ---- ------------
Aggregate initial sales charge
on Fund share sales $19 $61 $31
Initial sales charges retained
by CMD 3 8 3
Aggregate CDSC on Fund
redemptions retained by CMD 0 0 0
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PFPC Distributors was also entitled to the payment of the front-end sales charge on Class T Shares of the Predecessor Funds. PFPC Distributors and/or CMD received front-end sales charges in connection with Class T Share purchases as follows:
CLASS T SHARES (DOLLARS IN THOUSANDS)
Government Income Fund
Years ended April 30,
--------------------- Period ended Year ended
2005 2004 April 30, 2003 October 31, 2002
---- ---- -------------- ----------------
Aggregate initial sales
charges on Fund share sales $3 $6 $10 $23
Initial sales charges retained
by CMD (a) 1 (a) N/A
Aggregate CDSC on Fund
redemptions retained by CMD 0 (a) 9 N/A
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(a) Rounds to less than one.
Quality Plus Bond Fund
Years ended April 30,
--------------------- Period ended Year ended
2005 2004 April 30, 2003 October 31, 2002
---- ---- -------------- ----------------
Aggregate initial sales
charges on Fund share sales $2 $6 $25 $48
Initial sales charges retained
by CMD (a) 1 (a) N/A
Aggregate CDSC on Fund
redemptions retained by CMD 0 0 9 N/A
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(a) Rounds to less than one.
q
PFPC Distributors retained none of the amounts shown in the table above.
PFPC Distributors was also entitled to the payment of contingent deferred sales charges upon the redemption of Class B Shares of the Predecessor Funds.
PFPC Distributors and/or CMD received contingent deferred sales charges in connection with redemptions of Class B Shares as follows:
CLASS B SHARES (DOLLARS IN THOUSANDS)
Quality Plus Bond Fund
Years ended April 30,
--------------------- Period ended Year ended
2005 2004 April 30, 2003 October 31, 2002
---- ---- -------------- ----------------
Aggregate CDSC on Fund
redemptions retained by CMD $12 $3 (a) $1
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(a) Rounds to less than one.
PFPC Distributors retained none of the amounts shown in the table above. Class B Shares were not offered by the Government Income Fund prior to November 25, 2002.
Government Income Fund
Years ended April 30,
--------------------- Period ended
2005 2004 April 30, 2003
---- ---- --------------
Aggregate CDSC on Fund
redemptions retained by CMD $13 $8 (a)
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(a) Rounds to less than one.
PFPC Distributors was also entitled to the payment of contingent deferred sales charges upon the redemption of Class G Shares of the Predecessor Funds.
PFPC Distributors and/or CMD received contingent deferred sales charges in connection with redemptions of Class G Shares as follows:
CLASS G SHARES (DOLLARS IN THOUSANDS)
Government Income Fund
Years ended April 30,
--------------------- Period ended Year ended
2005 2004 April 30, 2003 October 31, 2002
---- ---- -------------- ----------------
Aggregate CDSC on Fund
redemptions retained by CMD $12 $18 $14 $13
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Quality Plus Bond Fund
Years ended April 30,
--------------------- Period ended Year ended
2005 2004 April 30, 2003 October 31, 2002
---- ---- -------------- ----------------
Aggregate CDSC on Fund
redemptions retained by CMD $2 $42 $20 $56
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PFPC Distributors retained none of the amounts shown in the table above.
r
CLASS C SHARES (DOLLARS IN THOUSANDS)
Quality Plus Bond Fund
Years ended
April 30, Period ended
----------- April 30,
2005 2004 2003
---- ---- ------------
Aggregate CDSC on Fund redemptions
retained by CMD (a) (a) $0
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(a) Rounds to less than one.
Government Income Fund
Years ended
April 30, Period ended
----------- April 30,
2005 2004 2003
---- ---- ------------
Aggregate CDSC on Fund redemptions
retained by CMD (a) $1 (a)
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(a) Rounds to less than one.
12B-1 PLAN, SHAREHOLDER SERVICING PLAN, CDSCS AND CONVERSION OF SHARES
The Government Income Fund and the Quality Plus Bond Fund offer six classes of shares: Class A, Class B, Class C, Class G, Class T and Class Z. The Funds may in the future offer other classes of shares. The Trustees have approved a 12b-1 Plan (Plan) pursuant to Rule 12b-1 under the Act. Under the Plan, the Funds pay CMD monthly a service fee at an annual rate of 0.25% of each Fund's average daily net assets attributed to Class A, B and C shares. The Funds also may pay CMD monthly a distribution fee at an annual rate of 0.75% of each Fund's average daily net assets attributed to Class B and Class C shares. As of the date of this SAI, CMD is waiving a portion of the distribution fee on Class C, so that it receives 0.60%. The Funds also may pay CMD distribution and service fees up to a maximum of 1.15% of such Fund's average daily net assets attributable to Class G shares (comprised of up to 0.65% for distribution services, up to 0.25% for shareholder liaison services and up to 0.25% for administrative support services). As of the date of this SAI, CMD intends to limit each Fund's payment under the Plan to 0.80% (on an annualized basis) of the average daily net assets of Class G shares owned of record or beneficially by customers of institutions. CMD may use the entire amount of such fees to defray the cost of commissions and service fees paid to financial service firms (FSFs) and for certain other purposes. Since the distribution and service fees are payable regardless of the amount of CMD's expenses, CMD may realize a profit from the fees. The Plan authorizes any other payments by the Funds to CMD and its affiliates (including the Advisor) to the extent that such payments might be construed to be indirect financing of the distribution of Fund shares.
The Trustees believe the Plan could be a significant factor in the growth and retention of each Fund's assets resulting in more advantageous expense ratios and increased investment flexibility that could benefit each class of Fund shareholders. The Plan will continue in effect from year to year so long as continuance is specifically approved at least annually by a vote of the Trustees, including the Trustees who are not interested persons of the Trust and have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan (Independent Trustees), cast in person at a meeting called for the purpose of voting on the Plan. The Plan may not be amended to increase the fee materially without approval by vote of a majority of the outstanding voting securities of the relevant class of shares and all material amendments of the Plan must be approved by the Trustees in the manner provided in the foregoing sentence. The Plan may be terminated at any time by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding voting securities of the relevant class of shares. The continuance of the Plan will only be effective if the selection and nomination of the Trustees of the Trust who are not interested persons of the Trust is effected by such disinterested Trustees.
Class T shares of the Funds are subject to a shareholder servicing fee pursuant to a Shareholder Servicing Plan. Under the Shareholder Servicing Plan, a Fund may enter into agreements with institutions pursuant to which an institution agrees to provide certain administrative and support services to its customers who are the beneficial owners of Class T shares. Services provided by such institutions to their customers include aggregating and processing purchase and redemption requests and placing net purchase and redemption orders. In return for providing these services, the Fund agrees to pay each institution a fee at an annual rate of up to 0.50% of the average daily net assets attributable to Class T shares owned beneficially by the institution's customers. Current service arrangements are limited to payments of 0.15% for the Funds.
s
Under the Shareholder Servicing Plan, the Trustees must review, at least quarterly, a written report of the amounts paid under the servicing agreements and the purposes for which those expenditures were made. The initial term of the Shareholder Servicing Plan is one year and it will continue in effect from year to year after its initial one-year term provided that its continuance is specifically approved at least annually by a majority of the Trustees, including a majority of the Independent Trustees who have no direct or indirect financial interest in the operation of the Shareholder Servicing Plan or in any agreement related to it. Any material amendment to the Shareholder Servicing Plan must be approved in the same manner. The Shareholder Servicing Plan is terminable at any time with respect to any Fund by a vote of a majority of the Independent Trustees. While the Shareholder Servicing Plan is in effect, only the Independent Trustees may select and nominate any future Independent Trustees.
Class A shares are offered at net asset value plus varying sales charges which may include a CDSC. Class B shares are offered at net asset value and are subject to a CDSC if redeemed within a certain number of years after purchase depending on the program you purchased your shares under. Class C shares are offered at net asset value and are subject to a 1.00% CDSC on redemptions within one year after purchase. Class G shares are offered at net asset value and are subject to a CDSC if redeemed within a certain number of years after purchase depending on when you purchased your shares that were exchanged for Class G shares. Class T shares are offered at net asset value plus varying sales charges which may include a CDSC. Class Z shares are offered at net asset value and are not subject to a CDSC. The CDSCs are described in the Prospectuses for the Funds.
No CDSC will be imposed on shares derived from reinvestment of distributions or amounts representing capital appreciation. In determining the applicability and rate of any CDSC, it will be assumed that a redemption is made first of shares representing capital appreciation, next of shares representing reinvestment of distributions and finally of other shares held by the shareholder for the longest period of time.
A certain number of years, depending on the program you purchased your shares under, after the end of the month in which a Class B share is purchased, such share and a pro rata portion of any shares issued on the reinvestment of distributions will be automatically converted into Class A shares having an equal value, which are not subject to the distribution fee.
A certain number of years, depending on when you purchased your shares that were exchanged for Class G shares, after the end of the month in which you purchased your shares that were exchanged for Class G shares, such Class G shares and a pro rata portion of any shares issued on the reinvestment of distributions will be automatically converted into Class T shares having an equal value, which are not subject to the distribution fee.
SALES-RELATED EXPENSES (dollars in thousands) of CMD relating to the Fund as of were:
Intermediate Government Income Fund
Class A Class B Class C Class G Class T
Shares Shares Shares Shares Shares
Year ended Year ended Period ended Year ended Year ended
April 30, 2005 April 30, 2005 April 30, 2005 April 30, 2005 April 30, 2005
-------------- -------------- -------------- -------------- --------------
Fees to FSFs $9 $12 $18 $ 6 $57
Allocated cost of sales material relating to
the Fund (including printing, mailing, and
promotion expenses) 2 (a) 1 (a) 2
Allocated travel, entertainment and other
promotional expenses 1 (a) 1 (a) 1
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(a) Rounds to less than one.
t
Quality Plus Bond Fund
Class A Class B Class C Class G Class T
Shares Shares Shares Shares Shares
Year ended Year ended Period ended Year ended Year ended
April 30, 2005 April 30, 2005 April 30, 2005 April 30, 2005 April 30, 2005
-------------- -------------- -------------- -------------- --------------
Fees to FSFs $17 $14 $9 $11 $51
Allocated cost of sales material relating to
the Fund (including printing, mailing, and 4 1 1 (a) 1
promotion expenses)
Allocated travel, entertainment and other 2 (a) (a) (a) 1
promotional expenses
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(a) Rounds to less than one.
CUSTODIAN OF THE FUNDS
State Street Bank & Trust Company, located at 2 Avenue de Lafayette, Boston, Massachusetts 02111-2900, is the Funds' custodian. The custodian is responsible for safeguarding the Funds' cash and securities, receiving and delivering securities and collecting the Funds' interest and dividends.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM OF THE FUNDS
PricewaterhouseCoopers LLP, located at 125 High Street, Boston, Massachusetts 02110-1707, is the Funds' independent registered public accounting firm, providing audit and tax return review services and assistance and consultation in connection with the review of various Securities and Exchange Commission filings. For periods prior to April 30, 2004, another firm served as the Funds' independent registered public accounting firm. The financial statements incorporated by reference in this SAI have been so incorporated, and the financial highlights included in the Prospectuses have been so included, in reliance upon the reports of PricewaterhouseCoopers LLP for the fiscal years ended April 30, 2005 and April 30, 2004, given on the authority of the said firm as experts in accounting and auditing. The financial statements for the period ended April 30, 2003 and for the fiscal years ended October 31, 2002, 2001 and 2000 have been derived from the Funds' financial statements which have been audited by another independent registered public accounting firm whose report expressed an unqualified opinion on those financial statements and highlights.
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STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to most funds advised by the Advisor. "Funds" include the series of Columbia Funds Trust I (formerly named Liberty Funds Trust I), Columbia Funds Trust II (formerly named Liberty Funds Trust II), Columbia Funds Trust III (formerly named Liberty Funds Trust III), Columbia Funds Trust IV (formerly named Liberty Funds Trust IV), Columbia Funds Trust V (formerly named Liberty Funds Trust V), Columbia Funds Trust VI (formerly named Liberty Funds Trust VI), Columbia Funds Trust VII (formerly named Liberty Funds Trust VII), Columbia Funds Trust VIII (formerly named Liberty-Stein Roe Funds Income Trust), Columbia Funds Trust IX (formerly named Liberty-Stein Roe Funds Municipal Trust) and Columbia Funds Trust XI (formerly named Liberty-Stein Roe Funds Investment Trust) (each a Trust and together, the Trusts, also known as Fund Complex). In certain cases, the discussion applies to some, but not all, of the Funds, and you should refer to your Fund's Prospectus and to Part 1 of this Statement of Additional Information (SAI) to determine whether the matter is applicable to your Fund. You will also be referred to Part 1 for certain data applicable to your Fund.
MISCELLANEOUS INVESTMENT PRACTICES
PART 1 OF THIS SAI LISTS ON PAGE B WHICH OF THE FOLLOWING INVESTMENT PRACTICES
ARE AVAILABLE TO YOUR FUND. IF AN INVESTMENT PRACTICE IS NOT LISTED IN PART 1 OF THIS SAI, IT IS NOT APPLICABLE TO YOUR FUND.
SHORT-TERM TRADING
In seeking the Fund's investment goal, the Advisor will buy or sell portfolio securities whenever it believes it is appropriate. The Advisor's decision will not generally be influenced by how long the Fund may have owned the security. From time to time, the Fund will buy securities intending to seek short-term trading profits. A change in the securities held by the Fund is known as "portfolio turnover" and generally involves some expense to the Fund. These expenses may include brokerage commissions or dealer mark-ups and other transaction costs on both the sale of securities and the reinvestment of the proceeds in other securities. If sales of portfolio securities cause the Fund to realize net short-term capital gains, such gains will be taxable as ordinary income. As a result of the Fund's investment policies, under certain market conditions the Fund's portfolio turnover rate may be higher than that of other mutual funds. The Fund's portfolio turnover rate for a fiscal year is the ratio of the lesser of purchases or sales of portfolio securities to the monthly average of the value of portfolio securities, excluding securities whose maturities at acquisition were one year or less. The Fund's portfolio turnover rate is not a limiting factor when the Advisor considers a change in the Fund's portfolio.
SHORT SALES
A Fund's short sales are subject to special risks. A short sale involves the sale by the Fund of a security that it does not own with the hope of purchasing the same security at a later date at a lower price. In order to deliver the security to the buyer, the Fund borrows the security from a third party. The Fund is then obligated to return the security to the third party, so the Fund must purchase the security at the market price at a later point in time. If the price of the security has increased during this time, then the Fund will incur a loss equal to the increase in price of the security from the time that the short sale was entered into plus any premiums and interest paid to the third party. Therefore, short sales involve the risk that losses may be exaggerated, potentially losing more money than the actual cost of the security. Also, there is the risk that the third party to the short sale may fail to honor its contract terms, causing a loss to the Fund.
LOWER-RATED DEBT SECURITIES
Lower-rated debt securities are those rated lower than Baa by Moody's or BBB by S&P, or comparable unrated debt securities. Relative to debt securities of higher quality,
1. an economic downturn or increased interest rates may have a more significant effect on the yield, price and potential for default for lower-rated debt securities;
2. the secondary market for lower-rated debt securities may at times become less liquid or respond to adverse publicity or investor perceptions, increasing the difficulty in valuing or disposing of the bonds;
3. the Advisor's credit analysis of lower-rated debt securities may have a greater impact on the Fund's achievement of its investment goal; and
4. lower-rated debt securities may be less sensitive to interest rate changes, but are more sensitive to adverse economic developments.
In addition, certain lower-rated debt securities may not pay interest in cash on a current basis.
SMALL COMPANIES
Smaller, less well established companies may offer greater opportunities for capital appreciation than larger, better established companies, but may also involve certain special risks related to limited product lines, markets, or financial resources and dependence on a small management group. Their securities may trade less frequently, in smaller volumes, and fluctuate more sharply in value than securities of larger companies.
COMMON STOCK, PREFERRED STOCK AND WARRANTS
Common stocks are generally more volatile than other securities. Preferred stocks share some of the characteristics of both debt and equity investments and are generally preferred over common stocks with respect to dividends and in liquidation. A warrant is an instrument issued by a corporation which gives the holder the right to subscribe to a specified amount of the company's capital stock at a set price for a specified period of time.
FOREIGN SECURITIES
The Fund may invest in securities traded in markets outside the United States. Foreign investments can be affected favorably or unfavorably by changes in currency rates and in exchange control regulations. There may be less publicly available information about a foreign company than about a U.S. company, and foreign companies may not be subject to accounting, auditing and financial reporting standards comparable to those applicable to U.S. companies. Securities of some foreign companies are less liquid or more volatile than securities of U.S. companies, and foreign brokerage commissions and custodian fees may be higher than in the United States. Investments in foreign securities can involve other risks different from those affecting U.S. investments, including local political or economic developments, expropriation or nationalization of assets and imposition of withholding taxes on dividend or interest payments. Foreign securities, like other assets of the Fund, will be held by the Fund's custodian or by a sub-custodian or depository. See also "Foreign Currency Transactions" below.
The Fund may invest in certain Passive Foreign Investment Companies (PFICs) which may be subject to U.S. federal income tax on a portion of any "excess distribution" or gain (PFIC tax) related to the investment. This "excess distribution" will be allocated over the Fund's holding period for such investment. The PFIC tax is the highest ordinary income rate in effect for any period multiplied by the portion of the "excess distribution" allocated to such period, and it could be increased by an interest charge on the deemed tax deferral.
The Fund may possibly elect to include in its income its pro rata share of the ordinary earnings and net capital gain of PFICs. This election requires certain annual information from the PFICs which in many cases may be difficult to obtain. An alternative election would permit the Fund to recognize as income any appreciation (and to a limited extent, depreciation) on its holdings of PFICs as of the end of its fiscal year. See "Taxes" below.
The Fund may invest in other investment companies. Such investments will involve the payment of duplicative fees through the indirect payment of a portion of the expenses, including advisory fees, of such other investment companies.
EXCHANGE-TRADED FUNDS ("ETFS"). The Fund may invest in ETFs up to the maximum amount allowable under the 1940 Act. ETFs are shares of publicly-traded unit investment trusts, open-end funds, or depositary receipts that seek to track the performance and dividend yield of specific indexes or companies in related industries. These indexes may be either broad-based, sector or international.
ETF shareholders are generally subject to the same risks as holders of the underlying securities they are designed to track. ETFs are also subject to certain additional risks, including (1) the risk that their prices may not correlate perfectly with changes in the prices of the underlying securities they are designed to track; and (2) the risk of possible trading halts due to market conditions or other reasons, based on the policies of the exchange upon which an ETF trades. In addition, an exchange traded sector fund may be adversely affected by the performance of that specific sector or group of industries on which it is based.
The Fund would bear, along with other shareholders of an ETF, its pro rata portion of the ETF's expenses, including management fees. Accordingly, in addition to bearing their proportionate share of the Fund's expenses (i.e., management fees and operating expenses), shareholders of the Fund may also indirectly bear similar expenses of an ETF.
ZERO COUPON SECURITIES (ZEROS)
The Fund may invest in zero coupon securities, which are securities issued at a significant discount from face value and do not pay interest at intervals during the life of the security. Zero coupon securities include securities issued in certificates representing undivided interests in the interest or principal of mortgage-backed securities (interest only/principal only), which tend to be more volatile than other types of securities. The Fund will accrue and distribute income from stripped securities and certificates on a current basis and may have to sell securities to generate cash for distributions.
STEP COUPON BONDS (STEPS)
The Fund may invest in debt securities which pay interest at a series of different rates (including 0%) in accordance with a stated schedule for a series of periods. In addition to the risks associated with the credit rating of the issuers, these securities may be subject to more volatility risk than fixed rate debt securities.
TENDER OPTION BONDS
A tender option bond is a municipal security (generally held pursuant to a custodial arrangement) having a relatively long maturity and bearing interest at a fixed rate substantially higher than prevailing short-term tax-exempt rates, that has been coupled with the agreement of a third party, such as a bank, broker-dealer or other financial institution, pursuant to which such institution grants the security holders the option, at periodic intervals, to tender their securities to the institution and receive the face value thereof. As consideration for providing the option, the financial institution receives periodic fees equal to the difference between the municipal security's fixed coupon rate and the rate, as determined by a remarketing or similar agent at or near the commencement of such period, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term tax-exempt rate. The Advisor will consider on an ongoing basis the creditworthiness of the issuer of the underlying municipal securities, of any custodian, and of the third-party provider of the tender option. In certain instances and for certain tender option bonds, the option may be terminable in the event of a default in payment of principal or interest on the underlying municipal securities and for other reasons.
PAY-IN-KIND (PIK) SECURITIES
The Fund may invest in securities which pay interest either in cash or additional securities. These securities are generally high yield securities and, in addition to the other risks associated with investing in high yield securities, are subject to the risks that the interest payments which consist of additional securities are also subject to the risks of high yield securities.
MONEY MARKET INSTRUMENTS
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their subdivisions, agencies and instrumentalities. SUPRANATIONAL OBLIGATIONS are issued by supranational entities and are generally designed to promote economic improvements. CERTIFICATES OF DEPOSIT are issued against deposits in a commercial bank with a defined return and maturity. BANKER'S ACCEPTANCES are used to finance the import, export or storage of goods and are "accepted" when guaranteed at maturity by a bank. COMMERCIAL PAPER is a promissory note issued by a business to finance short-term needs (including promissory notes with floating or variable interest rates, or including a frequent interval put feature). SHORT-TERM CORPORATE OBLIGATIONS are bonds and notes (with one year or less to maturity at the time of purchase) issued by businesses to finance long-term needs. PARTICIPATION INTERESTS include the underlying securities and any related guaranty, letter of credit, or collateralization arrangement in which the Fund would be allowed to invest directly.
CERTIFICATES OF DEPOSIT are short-term negotiable instruments issued against deposits in a commercial bank with a defined return and maturity. TIME DEPOSITS are non-negotiable deposits maintained in banking institutions for specified periods of time at stated interest rates.
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their subdivisions, agencies and instrumentalities. Examples of the types of obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities (hereinafter, "U.S. Government obligations") that may be held by the Funds include, without limitation, direct obligations of the U.S. Treasury, and securities issued or guaranteed by the Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association, Federal National Mortgage Association, General Services Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks, Resolution Trust Corporation and Maritime Administration.
U.S. Treasury securities differ only in their interest rates, maturities and time of issuance: Treasury Bills have initial maturities of
one year or less; Treasury Notes have initial maturities of one to ten years; and Treasury Bonds generally have initial maturities of more than ten years. Obligations of certain agencies and instrumentalities of the U.S. Government, such as those of the Government National Mortgage Association, are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Federal Home Loan Banks, are supported by the right of the issuer to borrow from the Treasury; others, such as those of the Federal National Mortgage Association, are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; still others, such as those of the Federal Home Loan Mortgage Corporation, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government would provide financial support to U.S. Government-sponsored instrumentalities if it is not obligated to do so by law. Some of these instruments may be variable or floating rate instruments.
Securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities have historically involved relatively little risk of loss of principal. However, due to fluctuations in interest rates, the market value of such securities may vary during the period a shareholder owns shares of the Fund.
BANK OBLIGATIONS include bankers' acceptances, negotiable certificates of deposit, and non-negotiable time deposits issued for a definite period of time and earning a specified return by a U.S. bank which is a member of the Federal Reserve System or is insured by the Federal Deposit Insurance Corporation ("FDIC"), or by a savings and loan association or savings bank which is insured by the FDIC. Bank obligations also include U.S. dollar-denominated obligations of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of the same type as domestic bank obligations. Time deposits with a maturity longer than seven days or that do not provide for payment within seven days after notice will be subject to any limitations on illiquid securities described in Part 1 of this SAI. For purposes of each Fund's investment policies with respect to bank obligations, the assets of a bank or savings institution will be deemed to include the assets of its U.S. and foreign branches.
Domestic and foreign banks are subject to extensive but different government regulation which may limit the amount and types of their loans and the interest rates that may be charged. In addition, the profitability of the banking industry is largely dependent upon the availability and cost of funds to finance lending operations and the quality of underlying bank assets. Investments in obligations of foreign branches of U.S. banks and of U.S. branches of foreign banks may subject a Fund to additional risks, including future political and economic developments, the possible imposition of withholding taxes on interest income, possible seizure or nationalization of foreign deposits, the possible establishment of exchange controls, or the adoption of other foreign governmental restrictions which might adversely affect the payment of principal and interest on such obligations. In addition, foreign branches of U.S. banks and U.S. branches of foreign banks may be subject to less stringent reserve requirements and to different accounting, auditing, reporting, and recordkeeping standards than those applicable to domestic branches of U.S. banks.
SEPARATELY TRADED INTEREST AND PRINCIPAL SECURITIES ("STRIPS") are component parts of U.S. Treasury Securities traded through the Federal Reserve Book-Entry System. While there is no limitation on the percentage of a Fund's assets that may be invested in STRIPS, the Advisor will monitor the level of such holdings to avoid the risk of impairing shareholders' redemption rights. The interest-only component of STRIPS is extremely sensitive to the rate of principal payments on the underlying obligation. The market value of the principal-only component is usually volatile in response to changes in interest rates.
In U.S. TREASURY ROLLS, a Fund sells outstanding U.S. Treasury securities and buys back on a delayed settlement basis the same U.S. Treasury securities. During the period prior to the delayed settlement date, the assets from the sale of the U.S. Treasury securities are invested in certain cash equivalent instruments. U.S. Treasury rolls entail the risk that the Fund could suffer an opportunity loss if the counterparty to the roll failed to perform its obligations on the settlement date, and if market conditions changed adversely. The Funds intend to enter into U.S. Treasury rolls only with U.S. Government securities dealers recognized by the Federal Reserve Bank or with member banks of the Federal Reserve System. The Funds will hold and maintain in a segregated account until the settlement date cash or other liquid assets in an amount equal to the forward purchase price. For financial reporting and tax purposes, the Funds propose to treat U.S. Treasury rolls as two separate transactions, one involving the purchase of a security and a separate transaction involving a sale.
COMMERCIAL PAPER is an unsecured short-term promissory note issued by businesses to finance short-term needs (including those with floating or variable interest rates, or including a frequent interval put feature). Commercial paper may include variable and floating rate instruments which are unsecured instruments that permit the indebtedness thereunder to vary. Variable rate instruments provide for periodic adjustments in the interest rate. Floating rate instruments provide for automatic adjustment of the interest rate whenever some other specified interest rate changes. Some variable and floating rate obligations are direct lending arrangements between the purchaser and the issuer and there may be no active secondary market. However, in the case of variable and floating rate obligations with a demand feature, a Fund may demand payment of principal and accrued interest at a
time specified in the instrument or may resell the instrument to a third party. In the event that an issuer of a variable or floating rate obligation were to default on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and could, for this or other reasons, suffer a loss to the extent of the default.
Commercial paper may include securities issued by corporations without registration under the 1933 Act in reliance on the so-called "private placement" exemption in Section 4(2) ("Section 4(2) Paper"). Section 4(2) Paper is restricted as to disposition under the federal securities laws in that any resale must similarly be made in an exempt transaction. Section 4(2) Paper is normally resold to other institutional investors through or with the assistance of investment dealers who make a market in Section 4(2) Paper, thus providing liquidity. For purposes of each Fund's limitation on purchases of illiquid instruments described below, Section 4(2) Paper will not be considered illiquid if the Advisor has determined, in accordance with guidelines approved by the Board of Trustees, that an adequate trading market exists for such securities.
STRIPPED OBLIGATIONS
To the extent consistent with their investment objective, Funds may purchase U.S. Treasury receipts and other "stripped" securities that evidence ownership in either the future interest payments or the future principal payments on U.S. Government and other obligations. These participations, which may be issued by the U.S. Government or by private issuers, such as banks and other institutions, are issued at their "face value," and may include stripped mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage securities. Stripped securities, particularly SMBS, may exhibit greater price volatility than ordinary debt securities because of the manner in which their principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive different proportions of the interest and principal distributions from a pool of mortgage-backed obligations. A common type of SMBS will have one class receiving all of the interest, while the other class will receive all of the principal. However, in some instances, one class will receive some of the interest and most of the principal while the other class will receive most of the interest and the remainder of the principal. If the underlying obligations experience greater than anticipated prepayments of principal, the Fund may fail to fully recoup its initial investment in these securities. The market value of the class consisting entirely of principal payments generally is extremely volatile in response to changes in interest rates. The yields on a class of SMBS that receives all or most of the interest are generally higher than prevailing market yields on other mortgage-backed obligations because their cash flow patterns are more volatile and there is a greater risk that the initial investment will not be fully recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government agency or instrumentality) are considered illiquid by the Funds. Obligations issued by the U.S. Government may be considered liquid under guidelines established by Funds' Board of Trustees if they can be disposed of promptly in the ordinary course of business at a value reasonably close to that used in the calculation of net asset value per share.
MUNICIPAL SECURITIES
Municipal Securities acquired by the Funds include debt obligations issued by governmental entities to obtain funds for various public purposes, including the construction of a wide range of public facilities, the refunding of outstanding obligations, the payment of general operating expenses, and the extension of loans to public institutions and facilities. Private activity bonds that are issued by or on behalf of public authorities to finance various privately operated facilities are "Municipal Securities" if the interest paid thereon is exempt from regular federal income tax and not treated as a specific tax preference item under the federal alternative minimum tax.
The two principal classifications of Municipal Securities which may be held by the Funds are "general obligation" securities and "revenue" securities. General obligation securities are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue securities are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific revenue source such as the user of the facility being financed.
The Fund's portfolio may also include "moral obligation" securities, which are normally issued by special purpose public authorities. If the issuer of moral obligation securities is unable to meet its debt service obligations from current revenues, it may draw on a reserve fund, the restoration of which is a moral commitment but not a legal obligation of the state or municipality which created the issuer. There is no limitation on the amount of moral obligation securities that may be held by the Funds.
There are, of course, variations in the quality of Municipal Securities, both within a particular category and between categories, and the yields on Municipal Securities depend upon a variety of factors, including general market conditions, the financial condition of the issuer, general conditions of the municipal bond market, the size of a particular offering, the maturity of the obligation, and the rating of the issue. The ratings of a nationally recognized statistical rating organization ("NRSRO"), such as Moody's and S&P, represent such NRSRO's opinion as to the quality of Municipal Securities. It should be emphasized that these
ratings are general and are not absolute standards of quality. Municipal Securities with the same maturity, interest rate and rating may have different yields. Municipal Securities of the same maturity and interest rate with different ratings may have the same yield.
Municipal Securities may include rated and unrated variable and floating rate tax-exempt instruments, such as variable rate demand notes. Variable rate demand notes are long-term Municipal Securities that have variable or floating interest rates and provide a Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on an applicable interest index or another published interest rate or interest rate index. Most variable rate demand notes allow a Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit a Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. Variable interest rates generally reduce changes in the market value of Municipal Securities from their original purchase prices. Accordingly, as interest rates decrease, the potential for capital appreciation is less for variable rate Municipal Securities than for fixed income obligations. The terms of these variable rate demand instruments require payment of principal and accrued interest from the issuer of the Municipal Securities, the issuer of the participation interest or a guarantor of either issuer.
Municipal Securities purchased by the Funds in some cases may be insured as to the timely payment of principal and interest. There is no guarantee, however, that the insurer will meet its obligations in the event of a default in payment by the issuer. In other cases, Municipal Securities may be backed by letters of credit or guarantees issued by domestic or foreign banks or other financial institutions which are not subject to federal deposit insurance. Adverse developments affecting the banking industry generally or a particular bank or financial institution that has provided its credit or guarantee with respect to a Municipal Security held by a Fund, including a change in the credit quality of any such bank or financial institution, could result in a loss to the Fund and adversely affect the value of its shares. Letters of credit and guarantees issued by foreign banks and financial institutions involve certain risks in addition to those of similar instruments issued by domestic banks and financial institutions.
The payment of principal and interest on most Municipal Securities purchased by the Funds will depend upon the ability of the issuers to meet their obligations. Each state, the District of Columbia, each of their political subdivisions, agencies, instrumentalities and authorities and each multi-state agency of which a state is a member is a separate "issuer" as that term is used in this SAI and the Prospectuses. The non-governmental user of facilities financed by private activity bonds is also considered to be an "issuer." An issuer's obligations under its Municipal Securities are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Code and laws, if any, which may be enacted by federal or state legislatures extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations or upon the ability of municipalities to levy taxes. The power or ability of an issuer to meet its obligations for the payment of interest on and principal of its Municipal Securities may be materially adversely affected by litigation or other conditions.
From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax exemption for interest on Municipal Securities. For example, under the Tax Reform Act of 1986, interest on certain private activity bonds must be included in an investor's federal alternative minimum taxable income, and corporate investors must include all tax-exempt interest in their federal alternative minimum taxable income. The Funds cannot, of course, predict what legislation may be proposed in the future regarding the income tax status of interest on Municipal Securities, or which proposals, if any, might be enacted. Such proposals, while pending or if enacted, might materially and adversely affect the availability of Municipal Securities for investment by the Funds and the liquidity and value of their respective portfolios. In such an event, each Fund would re-evaluate its investment objective and policies and consider possible changes in its structure or possible dissolution.
Opinions relating to the validity of Municipal Securities and to the exemption of interest thereon from federal income tax are rendered by bond counsel to the respective issuers at the time of issuance. Neither the Funds nor the Advisor will review the proceedings relating to the issuance of Municipal Securities or the bases for such opinions.
PRIVATE ACTIVITY BONDS
The Funds may invest in "private activity bonds," the interest on which, although exempt from regular federal income tax, may constitute an item of tax preference for purposes of the federal alternative minimum tax. Private activity bonds are or have been issued to obtain funds to provide, among other things, privately operated housing facilities, pollution control facilities, convention or trade show facilities, mass transit, airport, port or parking facilities and certain local facilities for water supply, gas, electricity or sewage or solid waste disposal. Private activity bonds are also issued to privately held or publicly owned corporations in the
financing of commercial or industrial facilities. State and local governments are authorized in most states to issue private activity bonds for such purposes in order to encourage corporations to locate within their communities. The principal and interest on these obligations may be payable from the general revenues of the users of such facilities.
Private activity bonds held by the Funds are in most cases revenue securities and are not payable from the unrestricted revenues of the issuer. Consequently, the credit quality of such private activity bonds is usually directly related to the credit standing of the corporate user of the facility involved.
MUNICIPAL LEASE OBLIGATIONS
Although a municipal lease obligation does not constitute a general obligation of the municipality for which the municipality's taxing power is pledged, a municipal lease obligation is ordinarily backed by the municipality's covenant to budget for, appropriate and make the payments due under the municipal lease obligation. However, certain lease obligations contain "non-appropriation" clauses which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. Although "non-appropriation" lease obligations are secured by the leased property, disposition of the property in the event of foreclosure might prove difficult. In addition, the tax treatment of such obligations in the event of non-appropriation is unclear.
Determinations concerning the liquidity and appropriate valuation of a municipal lease obligation, as with any other municipal security, are made based on all relevant factors. These factors include, among others: (1) the frequency of trades and quotes for the obligation; (2) the number of dealers willing to purchase or sell the security and the number of other potential buyers; (3) the willingness of dealers to undertake to make a market in the security; and (4) the nature of the marketplace trades, including the time needed to dispose of the security, the method of soliciting offers, and the mechanics of the transfer.
SECURITIES LOANS
The Fund may make secured loans of its portfolio securities amounting to not more than the percentage of its total assets specified in Part 1 of this SAI, thereby realizing additional income. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delay in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. As a matter of policy, securities loans are made to banks and broker-dealers pursuant to agreements requiring that loans be continuously secured by collateral in cash or short-term debt obligations at least equal at all times to the value of the securities on loan. The borrower pays to the Fund an amount equal to any dividends or interest received on securities lent. The Fund retains all or a portion of the interest received on investment of the cash collateral or receives a fee from the borrower. Although voting rights, or rights to consent, with respect to the loaned securities pass to the borrower, the Fund retains the right to call the loans at any time on reasonable notice, and it will do so in order that the securities may be voted by the Fund if the holders of such securities are asked to vote upon or consent to matters materially affecting the investment. The Fund may also call such loans in order to sell the securities involved.
INTERFUND BORROWING AND LENDING
The Fund may lend money to and borrow money from other affiliated registered open-end investment companies. The Fund may borrow through the program when the Advisor believes borrowing is appropriate and the costs are equal to or lower than the costs of bank loans. When borrowing money, the Fund is subject to the risk that the securities the Fund acquires with the borrowed money or would otherwise have sold will decline in value. When lending money, the Fund is subject to the risk that the borrower will be unwilling or unable to make timely payments of interest or principal.
FORWARD COMMITMENTS ("WHEN-ISSUED" AND "DELAYED DELIVERY" SECURITIES)
The Fund may enter into contracts to purchase securities for a fixed price at a future date beyond customary settlement time ("forward commitments" and "when-issued securities") if the Fund holds until the settlement date, in a segregated account, cash or liquid securities in an amount sufficient to meet the purchase price, or if the Fund enters into offsetting contracts for the forward sale of other securities it owns. Forward commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date. Where such purchases are made through dealers, the Fund relies on the dealer to consummate the sale. The dealer's failure to do so may result in the loss to the Fund of an advantageous yield or price. Although the Fund will generally enter into forward commitments with the intention of acquiring securities for its portfolio or for delivery pursuant to options contracts it has entered into, the Fund may dispose of a commitment prior to settlement if the Advisor deems it appropriate to do so. The Fund may realize short-term profits or losses (generally taxed at ordinary income tax rates in the hands of the shareholders) upon the sale of forward commitments.
MORTGAGE DOLLAR ROLLS
In a mortgage dollar roll, the Fund sells a mortgage-backed security and simultaneously enters into a commitment to purchase a similar security at a later date. The Fund either will be paid a fee by the counterparty upon entering into the transaction or will be entitled to purchase the similar security at a discount. As with any forward commitment, mortgage dollar rolls involve the risk that the counterparty will fail to deliver the new security on the settlement date, which may deprive the Fund of obtaining a beneficial investment. In addition, the security to be delivered in the future may turn out to be inferior to the security sold upon entering into the transaction. In addition, the transaction costs may exceed the return earned by the Fund from the transaction.
REITS
The Funds may invest in real estate investment trusts ("REITs"). Equity REITs invest directly in real property while mortgage REITs invest in mortgages on real property. REITs may be subject to certain risks associated with the direct ownership of real estate, including declines in the value of real estate, risks related to general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, and variations in rental income. Generally, increases in interest rates will decrease the value of high yielding securities and increase the costs of obtaining financing, which could decrease the value of a REIT's investments. In addition, equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of credit extended. Equity and mortgage REITs are dependent upon management skill, are not diversified and are subject to the risks of financing projects. REITs are also subject to heavy cash flow dependency, defaults by borrowers, self liquidation and the possibility of failing to qualify for tax-free pass-through of income under the Internal Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from the 1940 Act. REITs pay dividends to their shareholders based upon available funds from operations. It is quite common for these dividends to exceed a REIT's taxable earnings and profits resulting in the excess portion of such dividends being designated as a return of capital. The Funds intend to include the gross dividends from any investments in REITs in their periodic distributions to its shareholders and, accordingly, a portion of the Fund's distributions may also be designated as a return of capital.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities, including "collateralized mortgage obligations" (CMOs) and "real estate mortgage investment conduits" (REMICs), evidence ownership in a pool of mortgage loans made by certain financial institutions that may be insured or guaranteed by the U.S. government or its agencies. CMOs are obligations issued by special-purpose trusts, secured by mortgages. REMICs are entities that own mortgages and elect REMIC status under the Internal Revenue Code. Both CMOs and REMICs issue one or more classes of securities of which one (the Residual) is in the nature of equity. The Funds will not invest in the Residual class. Principal on mortgage-backed securities, CMOs and REMICs may be prepaid if the underlying mortgages are prepaid. Prepayment rates for mortgage-backed securities tend to increase as interest rates decline (effectively shortening the security's life) and decrease as interest rates rise (effectively lengthening the security's life). Because of the prepayment feature, these securities may not increase in value as much as other debt securities when interest rates fall. A Fund may be able to invest prepaid principal only at lower yields. The prepayment of such securities purchased at a premium may result in losses equal to the premium.
NON-AGENCY MORTGAGE-BACKED SECURITIES
The Fund may invest in non-investment grade mortgage-backed securities that are not guaranteed by the U.S. government or an agency. Such securities are subject to the risks described under "Lower Rated Debt Securities" and "Mortgage-Backed Securities." In addition, although the underlying mortgages provide collateral for the security, the Fund may experience losses, costs and delays in enforcing its rights if the issuer defaults or enters bankruptcy.
ASSET-BACKED SECURITIES
Asset-backed securities are interests in pools of debt securities backed by various types of loans such as credit card, auto and home equity loans. These securities involve prepayment risk, which is the possibility that the underlying debt may be refinanced or prepaid prior to maturity during periods of declining interest rates. During periods of rising interest rates, asset-backed securities have a high risk of declining in price because the declining prepayment rates effectively lengthen the expected maturity of the securities. A decline in interest rates may lead to a faster rate of repayment on asset-backed securities and, therefore, cause a Fund to earn a lower interest rate on reinvestment. In addition, the potential impact of prepayment on the price of an asset-backed security may be difficult to predict and result in greater volatility.
CUSTODY RECEIPTS AND TRUST CERTIFICATES. Custody receipts, such as Morgan Stanley TRACERs (Traded Custody Receipts), and trust certificates, such as Lehman Brothers TRAINs (Targeted Return Index Securities Trust), are derivative products which, in the aggregate, evidence direct ownership in a pool of securities. Typically, a sponsor will deposit a pool of securities with a custodian in exchange for custody receipts evidencing those securities or with a trust in exchange for trust certificates evidencing
interests in the trust, the principal asset of which is those securities. The sponsor will then generally sell those custody receipts or trust certificates in negotiated transactions at varying prices that are determined at the time of sale. Each custody receipt or trust certificate evidences the individual securities in the pool and the holder of a custody receipt or trust certificate generally will have all the rights and privileges of owners of those securities. Each holder of a custody receipt or trust certificate generally will be treated as directly purchasing its pro rata share of the securities in the pool for an amount equal to the amount that such holder paid for its custody receipt or trust certificate. If a custody receipt or trust certificate is sold, a holder will be treated as having directly "disposed of its pro rata share of the securities evidenced by the custody receipt or trust certificate. Additionally, the holder of a custody receipt or trust certificate may withdraw the securities represented by the custody receipt or trust certificate subject to certain conditions. Custody receipts and trust certificates are generally subject to the same risks as those securities evidenced by the receipts or certificates which, in the case of the Fund, are corporate debt securities. Additionally, custody receipts and trust certificates may also be less liquid than the underlying securities if the sponsor fails to maintain a trading market.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. A repurchase agreement is a contract under which the Fund acquires a security for a relatively short period subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price (representing the Fund's cost plus interest). It is the Fund's present intention to enter into repurchase agreements only with commercial banks and registered broker-dealers and only with respect to obligations of the U.S. government or its agencies or instrumentalities. Repurchase agreements may also be viewed as loans made by the Fund which are collateralized by the securities subject to repurchase. The Advisor will monitor such transactions to determine that the value of the underlying securities is at least equal at all times to the total amount of the repurchase obligation, including the interest factor. If the seller defaults, the Fund could realize a loss on the sale of the underlying security to the extent that the proceeds of sale including accrued interest are less than the resale price provided in the agreement including interest. In addition, if the seller should be involved in bankruptcy or insolvency proceedings, the Fund may incur delay and costs in selling the underlying security or may suffer a loss of principal and interest if the Fund is treated as an unsecured creditor and required to return the underlying collateral to the seller's estate.
REVERSE REPURCHASE AGREEMENTS
In a reverse repurchase agreement, the Fund sells a security and agrees to repurchase the same security at a mutually agreed upon date and price. A reverse repurchase agreement may also be viewed as the borrowing of money by the Fund and, therefore, as a form of leverage. The Fund will invest the proceeds of borrowings under reverse repurchase agreements. In addition, the Fund will enter into a reverse repurchase agreement only when the interest income expected to be earned from the investment of the proceeds is greater than the interest expense of the transaction. The Fund will not invest the proceeds of a reverse repurchase agreement for a period which exceeds the duration of the reverse repurchase agreement. The Fund may not enter into reverse repurchase agreements exceeding in the aggregate one-third of the market value of its total assets, less liabilities other than the obligations created by reverse repurchase agreements. Each Fund will establish and maintain with its custodian a separate account with a segregated portfolio of securities in an amount at least equal to its purchase obligations under its reverse repurchase agreements. If interest rates rise during the term of a reverse repurchase agreement, entering into the reverse repurchase agreement may have a negative impact on a money market fund's ability to maintain a net asset value of $1.00 per share.
LINE OF CREDIT
The Fund may establish and maintain a line of credit with a major bank in order to permit borrowing on a temporary basis to meet share redemption requests in circumstances in which temporary borrowings may be preferable to liquidation of portfolio securities.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The Fund may write covered call options and covered put options on securities held in its portfolio when, in the opinion of the Advisor, such transactions are consistent with the Fund's investment goal and policies. Call options written by the Fund give the purchaser the right to buy the underlying securities from the Fund at a stated exercise price; put options give the purchaser the right to sell the underlying securities to the Fund at a stated price.
The Fund may write only covered options, which means that, so long as the Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option (or comparable securities satisfying the cover requirements of securities exchanges). In the case of put options, the Fund will hold cash and/or high-grade short-term debt obligations equal to the price to be paid if the option is exercised. In addition, the Fund will be considered to have covered a put or call option if and to the
extent that it holds an option that offsets some or all of the risk of the option it has written. The Fund may write combinations of covered puts and calls on the same underlying security.
The Fund will receive a premium from writing a put or call option, which increases the Fund's return on the underlying security if the option expires unexercised or is closed out at a profit. The amount of the premium reflects, among other things, the relationship between the exercise price and the current market value of the underlying security, the volatility of the underlying security, the amount of time remaining until expiration, current interest rates, and the effect of supply and demand in the options market and in the market for the underlying security. By writing a call option, the Fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option but continues to bear the risk of a decline in the value of the underlying security. By writing a put option, the Fund assumes the risk that it may be required to purchase the underlying security for an exercise price higher than its then-current market value, resulting in a potential capital loss unless the security subsequently appreciates in value.
The Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an offsetting option. The Fund realizes a profit or loss from a closing transaction if the cost of the transaction (option premium plus transaction costs) is less or more than the premium received from writing the option. Because increases in the market price of a call option generally reflect increases in the market price of the security underlying the option, any loss resulting from a closing purchase transaction may be offset in whole or in part by unrealized appreciation of the underlying security.
If the Fund writes a call option but does not own the underlying security, and when it writes a put option, the Fund may be required to deposit cash or securities with its broker as "margin" or collateral for its obligation to buy or sell the underlying security. As the value of the underlying security varies, the Fund may have to deposit additional margin with the broker. Margin requirements are complex and are fixed by individual brokers, subject to minimum requirements currently imposed by the Federal Reserve Board and by stock exchanges and other self-regulatory organizations.
PURCHASING PUT OPTIONS. The Fund may purchase put options to protect its portfolio holdings in an underlying security against a decline in market value. Such hedge protection is provided during the life of the put option since the Fund, as holder of the put option, is able to sell the underlying security at the put exercise price regardless of any decline in the underlying security's market price. For a put option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs. By using put options in this manner, the Fund will reduce any profit it might otherwise have realized from appreciation of the underlying security by the premium paid for the put option and by transaction costs.
PURCHASING CALL OPTIONS. The Fund may purchase call options to hedge against an increase in the price of securities that the Fund wants ultimately to buy. Such hedge protection is provided during the life of the call option since the Fund, as holder of the call option, is able to buy the underlying security at the exercise price regardless of any increase in the underlying security's market price. In order for a call option to be profitable, the market price of the underlying security must rise sufficiently above the exercise price to cover the premium and transaction costs. These costs will reduce any profit the Fund might have realized had it bought the underlying security at the time it purchased the call option.
OVER-THE-COUNTER (OTC) OPTIONS. The Staff of the Division of Investment Management of the Securities and Exchange Commission (SEC) has taken the position that OTC options purchased by the Fund and assets held to cover OTC options written by the Fund are illiquid securities. Although the Staff has indicated that it is continuing to evaluate this issue, pending further developments, the Fund intends to enter into OTC options transactions only with primary dealers in U.S. government securities and, in the case of OTC options written by the Fund, only pursuant to agreements that will assure that the Fund will at all times have the right to repurchase the option written by it from the dealer at a specified formula price. The Fund will treat the amount by which such formula price exceeds the amount, if any, by which the option may be "in-the-money" as an illiquid investment. It is the present policy of the Fund not to enter into any OTC option transaction if, as a result, more than 15% (10% in some cases, refer to your Fund's Prospectus) of the Fund's net assets would be invested in (i) illiquid investments (determined under the foregoing formula) relating to OTC options written by the Fund, (ii) OTC options purchased by the Fund, (iii) securities which are not readily marketable, and (iv) repurchase agreements maturing in more than seven days.
RISK FACTORS IN OPTIONS TRANSACTIONS. The successful use of the Fund's options strategies depends on the ability of the Advisor to forecast interest rate and market movements correctly.
When it purchases an option, the Fund runs the risk that it will lose its entire investment in the option in a relatively short period of time, unless the Fund exercises the option or enters into a closing sale transaction with respect to the option during the life of the option. If the price of the underlying security does not rise (in the case of a call) or fall (in the case of a put) to an extent sufficient to cover the option premium and transaction costs, the Fund will lose part or all of its investment in the option. This contrasts with an investment by the Fund in the underlying securities, since the Fund may continue to hold its investment in those securities notwithstanding the lack of a change in price of those securities.
The effective use of options also depends on the Fund's ability to terminate option positions at times when the Advisor deems it desirable to do so. Although the Fund will take an option position only if the Advisor believes there is a liquid secondary market for the option, there is no assurance that the Fund will be able to effect closing transactions at any particular time or at an acceptable price.
If a secondary trading market in options were to become unavailable, the Fund could no longer engage in closing transactions. Lack of investor interest might adversely affect the liquidity of the market for particular options or series of options. A marketplace may discontinue trading of a particular option or options generally. In addition, a market could become temporarily unavailable if unusual events -- such as volume in excess of trading or clearing capability -- were to interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on particular types of option transactions, which may limit the Fund's ability to realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options purchased or sold by the Fund could result in losses on the options. If trading is interrupted in an underlying security, the trading of options on that security is normally halted as well. As a result, the Fund as purchaser or writer of an option will be unable to close out its positions until options trading resumes, and it may be faced with losses if trading in the security reopens at a substantially different price. In addition, the Options Clearing Corporation (OCC) or other options markets may impose exercise restrictions. If a prohibition on exercise is imposed at the time when trading in the option has also been halted, the Fund as purchaser or writer of an option will be locked into its position until one of the two restrictions has been lifted. If a prohibition on exercise remains in effect until an option owned by the Fund has expired, the Fund could lose the entire value of its option.
Special risks are presented by internationally traded options. Because of time differences between the United States and various foreign countries, and because different holidays are observed in different countries, foreign options markets may be open for trading during hours or on days when U.S. markets are closed. As a result, option premiums may not reflect the current prices of the underlying interest in the United States.
FUTURES CONTRACTS AND RELATED OPTIONS
Upon entering into futures contracts, in compliance with the SEC's requirements, cash or liquid securities, equal in value to the amount of the Fund's obligation under the contract (less any applicable margin deposits and any assets that constitute "cover" for such obligation), will be segregated with the Fund's custodian..
A futures contract sale creates an obligation by the seller to deliver the type of instrument called for in the contract in a specified delivery month for a stated price. A futures contract purchase creates an obligation by the purchaser to take delivery of the type of instrument called for in the contract in a specified delivery month at a stated price. The specific instruments delivered or taken at the settlement date are not determined until on or near that date. The determination is made in accordance with the rules of the exchanges on which the futures contract was made. The Fund may enter into futures contracts which are traded on national or foreign futures exchanges and are standardized as to maturity date and underlying financial instrument. Futures exchanges and trading in the United States are regulated under the Commodity Exchange Act by the Commodity Futures Trading Commission (CFTC).
Although futures contracts by their terms call for actual delivery or acceptance of commodities or securities, the contracts usually are closed out before the settlement date without the making or taking of delivery. Closing out a futures contract sale is effected by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument or commodity with the same delivery date. If the price of the initial sale of the futures contract exceeds the price of the offsetting purchase, the seller is paid the difference and realizes a gain. Conversely, if the price of the offsetting purchase exceeds the price of the initial sale, the seller realizes a loss. Similarly, the closing out of a futures contract purchase is effected by the purchaser's entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, the purchaser realizes a gain, and if the purchase price exceeds the offsetting sale price, the purchaser realizes a loss.
Unlike when the Fund purchases or sells a security, no price is paid or received by the Fund upon the purchase or sale of a futures contract, although the Fund is required to deposit with its custodian in a segregated account in the name of the futures broker an amount of cash and/or U.S. government securities. This amount is known as "initial margin." The nature of initial margin in futures transactions is different from that of margin in security transactions in that futures contract margin does not involve the borrowing of funds by the Fund to finance the transactions. Rather, initial margin is in the nature of a performance bond or good faith deposit on the contract that is returned to the Fund upon termination of the futures contract, assuming all contractual obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin," to and from the broker (or the custodian) are made on a daily basis as the price of the underlying security or commodity fluctuates, making the long and short positions in the futures contract more or less valuable, a process known as "marking to market."
The Fund may elect to close some or all of its futures positions at any time prior to their expiration. The purpose of making such a move would be to reduce or eliminate the hedge position then currently held by the Fund. The Fund may close its positions by taking opposite positions which will operate to terminate the Fund's position in the futures contracts. Final determinations of variation margin are then made, additional cash is required to be paid by or released to the Fund, and the Fund realizes a loss or a gain. Such closing transactions involve additional commission costs.
INTEREST RATE FUTURES CONTRACTS. Bond prices are established in both the cash market and the futures market. In the cash market, bonds are purchased and sold with payment for the full purchase price of the bond being made in cash, generally within five business days after the trade. In the futures market, only a contract is made to purchase or sell a bond in the future for a set price on a certain date. Historically, the prices for bonds established in the futures markets have tended to move generally in the aggregate in concert with the cash market prices and have maintained fairly predictable relationships. Accordingly, the Funds may use interest rate futures contracts as a defense, or hedge, against anticipated interest rate changes. The Funds presently could accomplish a similar result to that which they hope to achieve through the use of futures contracts by selling bonds with long maturities and investing in bonds with short maturities when interest rates are expected to increase, or conversely, selling short-term bonds and investing in long-term bonds when interest rates are expected to decline. However, because of the liquidity that is often available in the futures market, the protection is more likely to be achieved, perhaps at a lower cost and without changing the rate of interest being earned by the Funds, through using futures contracts.
Interest rate futures contracts are traded in an auction environment on the floors of several exchanges -- principally, the Chicago Board of Trade, the Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would deal only in standardized contracts on recognized exchanges. Each exchange guarantees performance under contract provisions through a clearing corporation, a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial instruments including long-term United States Treasury Bonds and Notes; Government National Mortgage Association (GNMA) modified pass-through mortgage backed securities; three-month United States Treasury Bills; and ninety-day commercial paper. The Funds may trade in any interest rate futures contracts for which there exists a public market, including, without limitation, the foregoing instruments.
MUNICIPAL BOND INDEX FUTURES CONTRACTS. Municipal bond index futures contracts may act as a hedge against changes in market conditions. A municipal bond index assigns values daily to the municipal bonds included in the index based on the independent assessment of dealer-to-dealer municipal bond brokers. A municipal bond index futures contract represents a firm commitment by which two parties agree to take or make delivery of an amount equal to a specified dollar amount multiplied by the difference between the municipal bond index value on the last trading date of the contract and the price at which the futures contract is originally struck. No physical delivery of the underlying securities in the index is made.
The Chicago Board of Trade has designed a futures contract based on the Bond Buyer Municipal Bond Index. This Index is composed of 40 term revenue and general obligation bonds, and its composition is updated regularly as new bonds meeting the criteria of the Index are issued and existing bonds mature. The Index is intended to provide an accurate indicator of trends and changes in the municipal bond market. Each bond in the Index is independently priced by six dealer-to-dealer municipal bond brokers daily. The 40 prices then are averaged and multiplied by a coefficient. The coefficient is used to maintain the continuity of the Index when its composition changes. The Chicago Board of Trade, on which futures contracts based on this Index are traded, as well as other U.S. commodities exchanges, are regulated by the CFTC. Transactions on such exchange are cleared through a clearing corporation, which guarantees the performance of the parties to each contract.
OPTIONS ON FUTURES CONTRACTS. The Fund will enter into written options on futures contracts only when, in compliance with the SEC's requirements, cash or liquid securities equal in value to the commodity value (less any applicable margin deposits) have been deposited in a segregated account. The Fund may purchase and write call and put options on futures contracts it may buy or sell and enter into closing transactions with respect to such options to terminate existing positions. The Fund may use such options on futures contracts in lieu of writing options directly on the underlying securities or purchasing and selling the underlying futures contracts. Such options generally operate in the same manner as options purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate his position by selling or purchasing an offsetting option. There is no guarantee that such closing transactions can be effected.
The Fund will be required to deposit initial margin and maintenance margin with respect to put and call options on futures contracts written by it pursuant to brokers' requirements similar to those described above.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use of futures contracts by the Fund is subject to the Advisor's ability to predict correctly, movements in the direction of interest rates and other factors affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or put options on futures contracts involves less potential risk to the Fund because the maximum amount at risk is the premium paid for the options (plus transaction costs). However, there may be circumstances when the purchase of a call or put option on a futures contract would result in a loss to the Fund when the purchase or sale of a futures contract would not, such as when there is no movement in the prices of the hedged investments. The writing of an option on a futures contract involves risks similar to those risks relating to the sale of futures contracts.
There is no assurance that higher than anticipated trading activity or other unforeseen events might not, at times, render certain market clearing facilities inadequate, and thereby result in the institution, by exchanges, of special procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the Fund, the Fund may seek to close out a position. The ability to establish and close out positions will be subject to the development and maintenance of a liquid secondary market. It is not certain that this market will develop or continue to exist for a particular futures contract. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain contracts or options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of contracts or options, or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or a clearing corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of contracts or options (or a particular class or series of contracts or options), in which event the secondary market on that exchange (or in the class or series of contracts or options) would cease to exist, although outstanding contracts or options on the exchange that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms.
USE BY TAX-EXEMPT FUNDS OF INTEREST RATE AND U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. The Funds investing in tax-exempt securities may purchase and sell futures contracts and related options on interest rate and U.S. Treasury securities when, in the opinion of the Advisor, price movements in these security futures and related options will correlate closely with price movements in the tax-exempt securities which are the subject of the hedge. Interest rate and U.S. Treasury securities futures contracts require the seller to deliver, or the purchaser to take delivery of, the type of security called for in the contract at a specified date and price. Options on interest rate and U.S. Treasury security futures contracts give the purchaser the right in return for the premium paid to assume a position in a futures contract at the specified option exercise price at any time during the period of the option.
In addition to the risks generally involved in using futures contracts, there is also a risk that price movements in interest rate and U.S. Treasury security futures contracts and related options will not correlate closely with price movements in markets for tax-exempt securities.
INDEX FUTURES CONTRACTS. An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of an index is commonly referred to as buying
or purchasing a contract or holding a long position in the index. Entering into a contract to sell units of an index is commonly referred to as selling a contract or holding a short position. A unit is the current value of the index. The Fund may enter into stock index futures contracts, debt index futures contracts, or other index futures contracts appropriate to its objective(s). The Fund may also purchase and sell options on index futures contracts.
There are several risks in connection with the use by the Fund of index futures as a hedging device. One risk arises because of the imperfect correlation between movements in the prices of the index futures and movements in the prices of securities which are the subject of the hedge. The Advisor will attempt to reduce this risk by selling, to the extent possible, futures on indices the movements of which will, in its judgment, have a significant correlation with movements in the prices of the Fund's portfolio securities sought to be hedged.
Successful use of index futures by the Fund for hedging purposes is also subject to the Advisor's ability to predict correctly movements in the direction of the market. It is possible that, where the Fund has sold futures to hedge its portfolio against a decline in the market, the index on which the futures are written may advance and the value of securities held in the Fund's portfolio may decline. If this occurs, the Fund would lose money on the futures and also experience a decline in the value of its portfolio securities. However, while this could occur to a certain degree, the Advisor believes that over time the value of the Fund's portfolio will tend to move in the same direction as the market indices which are intended to correlate to the price movements of the portfolio securities sought to be hedged. It is also possible that, if the Fund has hedged against the possibility of a decline in the market adversely affecting securities held in its portfolio and securities prices increase instead, the Fund will lose part or all of the benefit of the increased values of those securities that it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient cash, it may have to sell securities to meet daily variation margin requirements.
In addition to the possibility that there may be an imperfect correlation, or no correlation at all, between movements in the index futures and the securities of the portfolio being hedged, the prices of index futures may not correlate perfectly with movements in the underlying index due to certain market distortions. First, all participants in the futures markets are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions which would distort the normal relationship between the index and futures markets. Second, margin requirements in the futures market are less onerous than margin requirements in the securities market, and as a result, the futures market may attract more speculators than the securities market. Increased participation by speculators in the futures market may also cause temporary price distortions. Due to the possibility of price distortions in the futures market and also because of the imperfect correlation between movements in the index and movements in the prices of index futures, even a correct forecast of general market trends by the Advisor may still not result in a successful hedging transaction.
OPTIONS ON INDEX FUTURES. Options on index futures are similar to options on securities except that options on index futures give the purchaser the right, in return for the premium paid, to assume a position in an index futures contract (a long position if the option is a call and a short position if the option is a put), at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's futures margin account which represents the amount by which the market price of the index futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the index future. If an option is exercised on the last trading day prior to the expiration date of the option, the settlement will be made entirely in cash equal to the difference between the exercise price of the option and the closing level of the index on which the future is based on the expiration date. Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss of the premium paid.
OPTIONS ON INDICES. As an alternative to purchasing call and put options on index futures, the Fund may purchase call and put options on the underlying indices themselves. Such options could be used in a manner identical to the use of options on index futures. Options involving securities indices provide the holder with the right to make or receive a cash settlement upon exercise of the option based on movements in the relevant index. Such options must be listed on a national securities exchange and issued by the Options Clearing Corporation. Such options may relate to particular securities or to various stock indices, except that a Fund may not write covered options on an index.
OPTIONS ON FOREIGN STOCK INDICES. The Funds may, for the purpose of hedging its portfolio, subject to applicable securities regulations, purchase and write put and call options on foreign stock indices listed on foreign and domestic stock exchanges. A stock index fluctuates with changes in the market values of the stocks included in the index.
SWAP AGREEMENTS (SWAPS, CAPS, COLLARS AND FLOORS)
The Funds may enter into interest rate swaps, currency swaps, and other types of swap agreements such as caps, collars, and floors. In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate times a "notional principal amount," in return for payments equal to a fixed rate times the same amount, for a specified period of time. If a swap agreement provides for payments in different currencies, the parties might agree to exchange notional principal amount as well. Swaps may also depend on other prices or rates, such as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed upon level. An interest rate collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from one type of investment to another. For example, if a Fund agreed to exchange payments in dollars for payments in foreign currency, the swap agreement would tend to decrease the Fund's exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates. Caps and floors have an effect similar to buying or writing options. Depending on how they are used, swap agreements may increase or decrease the overall volatility of a Fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a small investment of cash relative to the magnitude of risks assumed. As a result, swaps can be highly volatile and may have a considerable impact on the Funds' performance. Swap agreements are subject to risks related to the counterparty's ability to perform, and may decline in value if the counterparty's creditworthiness deteriorates. The Funds may also suffer losses if they are unable to terminate outstanding swap agreements or reduce their exposure through offsetting transactions.
EQUITY SWAPS
The Fund may engage in equity swaps. Equity swaps allow the parties to the swap agreement to exchange components of return on one equity investment (e.g., a basket of equity securities or an index) for a component of return on another non-equity or equity investment, including an exchange of differential rates of return. Equity swaps may be used to invest in a market without owning or taking physical custody of securities in circumstances where direct investment may be restricted for legal reasons or is otherwise impractical. Equity swaps also may be used for other purposes, such as hedging or seeking to increase total return.
RISK FACTORS IN EQUITY SWAP TRANSACTIONS. Equity swaps are derivative instruments and their values can be very volatile. To the extent that the portfolio managers do not accurately analyze and predict the potential relative fluctuation on the components swapped with the other party, the Fund may suffer a loss. The value of some components of an equity swap (such as the dividend on a common stock) may also be sensitive to changes in interest rates. Furthermore, during the period a swap is outstanding, the Fund may suffer a loss if the counterparty defaults. See "Taxes" for information on tax risks associated with equity swaps.
FOREIGN CURRENCY TRANSACTIONS
The Fund may engage in currency exchange transactions to protect against uncertainty in the level of future currency exchange rates.
The Fund may engage in both "transaction hedging" and "position hedging." When it engages in transaction hedging, the Fund enters into foreign currency transactions with respect to specific receivables or payables of the Fund generally arising in connection with the purchase or sale of its portfolio securities. The Fund will engage in transaction hedging when it desires to "lock in" the U.S. dollar price of a security it has agreed to purchase or sell, or the U.S. dollar equivalent of a dividend or interest payment in a foreign currency. By transaction hedging the Fund attempts to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and the applicable foreign currency during the period between the date on which the security is purchased or sold, or on which the dividend or interest payment is declared, and the date on which such payments are made or received.
The Fund may purchase or sell a foreign currency on a spot (or cash) basis at the prevailing spot rate in connection with the settlement of transactions in portfolio securities denominated in that foreign currency. The Fund may also enter into contracts to purchase or sell foreign currencies at a future date ("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes the Fund may also purchase exchange-listed and over-the-counter call and put options on foreign currency futures contracts and on foreign currencies. Over-the-counter options are considered to be illiquid by the SEC staff. A put option on a futures contract gives the Fund the right to assume a short position in the futures contract until expiration of the option. A put option on currency gives the Fund the right to sell a currency at an exercise price until the expiration of the option. A call option on a futures contract gives the Fund the right to assume a long position in the futures contract until the expiration of the option. A call option on currency gives the Fund the right to purchase a currency at the exercise price until the expiration of the option.
When it engages in position hedging, the Fund enters into foreign currency exchange transactions to protect against a decline in the values of the foreign currencies in which its portfolio securities are denominated (or an increase in the value of currency for securities which the Fund expects to purchase, when the Fund holds cash or short-term investments). In connection with position hedging, the Fund may purchase put or call options on foreign currency and foreign currency futures contracts and buy or sell forward contracts and foreign currency futures contracts. The Fund may also purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions and the value of the portfolio securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the dates the currency exchange transactions are entered into and the dates they mature.
It is impossible to forecast with precision the market value of portfolio securities at the expiration or maturity of a forward or futures contract. Accordingly, it may be necessary for the Fund to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security or securities being hedged is less than the amount of foreign currency the Fund is obligated to deliver and if a decision is made to sell the security or securities and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security or securities if the market value of such security or securities exceeds the amount of foreign currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying prices of the securities which the Fund owns or intends to purchase or sell. They simply establish a rate of exchange which one can achieve at some future point in time. Additionally, although these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency, they tend to limit any potential gain which might result from the increase in value of such currency.
CURRENCY FORWARD AND FUTURES CONTRACTS. Upon entering into such contracts, in compliance with the SEC's requirements, cash or liquid securities, equal in value to the amount of the Fund's obligation under the contract (less any applicable margin deposits and any assets that constitute "cover" for such obligation), will be segregated.
A forward currency contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract as agreed by the parties, at a price set at the time of the contract. In the case of a cancelable contract, the holder has the unilateral right to cancel the contract at maturity by paying a specified fee. The contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. A contract generally has no deposit requirement, and no commissions are charged at any stage for trades. A currency futures contract is a standardized contract for the future delivery of a specified amount of a foreign currency at a future date at a price set at the time of the contract. Currency futures contracts traded in the United States are designed and traded on exchanges regulated by the CFTC, such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain respects. For example, the maturity date of a forward contract may be any fixed number of days from the date of the contract agreed upon by the parties, rather than a predetermined date in a given month. Forward contracts may be in any amounts agreed upon by the parties rather than predetermined amounts. Also, forward contracts are traded directly between currency traders so that no intermediary is required. A forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Fund may either accept or make delivery of the currency specified in the contract, or at or prior to maturity enter into a closing transaction involving the purchase or sale of an offsetting contract. Closing transactions with respect to forward contracts are usually effected with the currency trader who is a party to the original forward
contract. Closing transactions with respect to futures contracts are effected on a commodities exchange; a clearing corporation associated with the exchange assumes responsibility for closing out such contracts.
Positions in currency futures contracts may be closed out only on an exchange or board of trade which provides a secondary market in such contracts. Although the Fund intends to purchase or sell currency futures contracts only on exchanges or boards of trade where there appears to be an active secondary market, there is no assurance that a secondary market on an exchange or board of trade will exist for any particular contract or at any particular time. In such event, it may not be possible to close a futures position and, in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin.
CURRENCY OPTIONS. In general, options on currencies operate similarly to options on securities and are subject to many similar risks. Currency options are traded primarily in the over-the-counter market, although options on currencies have recently been listed on several exchanges. Options are traded not only on the currencies of individual nations, but also on the European Currency Unit (ECU). The ECU is composed of amounts of a number of currencies, and is the official medium of exchange of the European Economic Community's European Monetary System.
The Fund will only purchase or write currency options when the Advisor believes that a liquid secondary market exists for such options. There can be no assurance that a liquid secondary market will exist for a particular option at any specified time. Currency options are affected by all of those factors which influence exchange rates and investments generally. To the extent that these options are traded over the counter, they are considered to be illiquid by the SEC staff.
The value of any currency, including the U.S. dollar, may be affected by complex political and economic factors applicable to the issuing country. In addition, the exchange rates of currencies (and therefore the values of currency options) may be significantly affected, fixed, or supported directly or indirectly by government actions. Government intervention may increase risks involved in purchasing or selling currency options, since exchange rates may not be free to fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in turn reflects relative values of two currencies, the U.S. dollar and the foreign currency in question. Because currency transactions occurring in the interbank market involve substantially larger amounts than those that may be involved in the exercise of currency options, investors may be disadvantaged by having to deal in an odd lot market for the underlying currencies in connection with options at prices that are less favorable than for round lots. Foreign governmental restrictions or taxes could result in adverse changes in the cost of acquiring or disposing of currencies.
There is no systematic reporting of last sale information for currencies and there is no regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Available quotation information is generally representative of very large round-lot transactions in the interbank market and thus may not reflect exchange rates for smaller odd-lot transactions (less than $1 million) where rates may be less favorable. The interbank market in currencies is a global, around-the-clock market. To the extent that options markets are closed while the markets for the underlying currencies remain open, significant price and rate movements may take place in the underlying markets that cannot be reflected in the options markets.
SETTLEMENT PROCEDURES. Settlement procedures relating to the Fund's investments in foreign securities and to the Fund's foreign currency exchange transactions may be more complex than settlements with respect to investments in debt or equity securities of U.S. issuers, and may involve certain risks not present in the Fund's domestic investments, including foreign currency risks and local custom and usage. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not charge a fee for currency conversion, they do realize a profit based on the difference (spread) between prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligation.
PARTICIPATION INTERESTS
The Fund may invest in municipal obligations either by purchasing them directly or by purchasing certificates of accrual or similar instruments evidencing direct ownership of interest payments or principal payments, or both, on municipal obligations, provided that, in the opinion of counsel to the initial seller of each such certificate or instrument, any discount accruing on such certificate
or instrument that is purchased at a yield not greater than the coupon rate of interest on the related municipal obligations will be exempt from federal income tax to the same extent as interest on such municipal obligations. The Fund may also invest in tax-exempt obligations by purchasing from banks participation interests in all or part of specific holdings of municipal obligations. Such participations may be backed in whole or part by an irrevocable letter of credit or guarantee of the selling bank. The selling bank may receive a fee from the Fund in connection with the arrangement. The Fund will not purchase such participation interests unless it receives an opinion of counsel or a ruling of the Internal Revenue Service that interest earned by it on municipal obligations in which it holds such participation interests is exempt from federal income tax.
STAND-BY COMMITMENTS
When the Fund purchases municipal obligations, it may also acquire stand-by commitments from banks and broker-dealers with respect to such municipal obligations. A stand-by commitment is the equivalent of a put option acquired by the Fund with respect to a particular municipal obligation held in its portfolio. A stand-by commitment is a security independent of the municipal obligation to which it relates. The amount payable by a bank or dealer during the time a stand-by commitment is exercisable, absent unusual circumstances relating to a change in market value, would be substantially the same as the value of the underlying municipal obligation. A stand-by commitment might not be transferable by the Fund, although it could sell the underlying municipal obligation to a third party at any time.
The Fund expects that stand-by commitments generally will be available without the payment of direct or indirect consideration. However, if necessary and advisable, the Fund may pay for stand-by commitments either separately in cash or by paying a higher price for portfolio securities which are acquired subject to such a commitment (thus reducing the yield to maturity otherwise available for the same securities). The total amount paid in either manner for outstanding stand-by commitments held in the Fund portfolio will not exceed 10% of the value of the Fund's total assets calculated immediately after each stand-by commitment is acquired. The Fund will enter into stand-by commitments only with banks and broker-dealers that, in the judgment of the Trust's Board of Trustees, present minimal credit risks.
VARIABLE AND FLOATING RATE OBLIGATIONS
Variable rate instruments provide for periodic adjustments in the interest rate. Floating rate instruments provide for automatic adjustment of the interest rate whenever some other specified interest rate changes. Some variable and floating rate obligations are direct lending arrangements between the purchaser and the issuer and there may be no active secondary market. However, in the case of variable and floating rate obligations with a demand feature, a Fund may demand payment of principal and accrued interest at a time specified in the instrument or may resell the instrument to a third party. In the event an issuer of a variable or floating rate obligation defaulted on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and could, for this or other reasons, suffer a loss to the extent of the default. Variable or floating rate instruments issued or guaranteed by the U.S. Government or its agencies or instrumentalities are similar in form but may have a more active secondary market. Substantial holdings of variable and floating rate instruments could reduce portfolio liquidity.
If a variable or floating rate instrument is not rated, the Fund's Advisor must determine that such instrument is comparable to rated instruments eligible for purchase by the Funds and will consider the earning power, cash flows and other liquidity ratios of the issuers and guarantors of such instruments and will continuously monitor their financial status in order to meet payment on demand. In determining average weighted portfolio maturity of each of these Funds, a variable or floating rate instrument issued or guaranteed by the U.S. Government or an agency or instrumentality thereof will be deemed to have a maturity equal to the period remaining until the obligation's next interest rate adjustment. Variable and floating rate obligations with a demand feature will be deemed to have a maturity equal to the longer of the period remaining to the next interest rate adjustment or the demand notice period.
INVERSE FLOATERS
Inverse floaters are derivative securities whose interest rates vary inversely to changes in short-term interest rates and whose values fluctuate inversely to changes in long-term interest rates. The value of certain inverse floaters will fluctuate substantially more in response to a given change in long-term rates than would a traditional debt security. These securities have investment characteristics similar to leverage, in that interest rate changes have a magnified effect on the value of inverse floaters.
RULE 144A SECURITIES
The Fund may purchase securities that have been privately placed but that are eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933, as amended (1933 Act). That Rule permits certain qualified institutional buyers, such as the Fund, to trade in privately placed securities that have not been registered for sale under the 1933 Act. The Advisor, under the supervision of the Board of Trustees, will consider whether securities purchased under Rule 144A are illiquid and thus
subject to the Fund's investment restriction on illiquid securities. A
determination of whether a Rule 144A security is liquid or not is a question of
fact. In making this determination, the Advisor will consider the trading
markets for the specific security, taking into account the unregistered nature
of a Rule 144A security. In addition, the Advisor could consider the (1)
frequency of trades and quotes, (2) number of dealers and potential purchasers,
(3) dealer undertakings to make a market, and (4) nature of the security and of
marketplace trades (e.g., the time needed to dispose of the security, the method
of soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A
securities will be monitored and, if as a result of changed conditions, it is
determined by the Advisor that a Rule 144A security is no longer liquid, the
Fund's holdings of illiquid securities would be reviewed to determine what, if
any, steps are required to assure that the Fund does not exceed its investment
limit on illiquid securities. Investing in Rule 144A securities could have the
effect of increasing the amount of the Fund's assets invested in illiquid
securities if qualified institutional buyers are unwilling to purchase such
securities.
CURRENCY SWAPS. Currency swaps involve the exchange of rights to make or receive payments in specified currencies. Currency swaps usually involve the delivery of the entire principal value of one designated currency. Therefore, the entire principal value of a currency swap is subject to the risk that the other party to the swap will default on its contractual delivery obligations. The use of currency swaps is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. If the Advisor is incorrect in its forecast of market value and currency exchange rates, the investment performance of a Fund would be less favorable than it would have been if this investment technique were not used.
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities which may be exchanged or converted into a predetermined number of shares of the issuer's underlying common stock at the option of the holder during a specified time period. Convertible securities may take the form of convertible preferred stock, convertible bonds or debentures, units consisting of "usable" bonds and warrants or a combination of the features of several of these securities.
Convertible bonds and convertible preferred stocks generally retain the investment characteristics of fixed income securities until they have been converted but also react to movements in the underlying equity securities. The holder is entitled to receive the fixed income of a bond or the dividend preference of a preferred stock until the holder elects to exercise the conversion privilege. Usable bonds are corporate bonds that can be used in whole or in part, customarily at full face value, in lieu of cash to purchase the issuer's common stock. When owned as part of a unit along with warrants, which are options to buy the common stock, they function as convertible bonds, except that the warrants generally will expire before the bond's maturity. Convertible securities are senior to equity securities and therefore have a claim to the assets of the issuer prior to the holders of common stock in the case of liquidation. However, convertible securities are generally subordinated to similar non-convertible securities of the same issuer. The interest income and dividends from convertible bonds and preferred stocks provide a stable stream of income with generally higher yields than common stocks, but lower than non-convertible securities of similar quality. A Fund will exchange or convert the convertible securities held in its portfolio into shares of the underlying common stock in instances in which, in the Advisor's opinion, the investment characteristics of the underlying common stock will assist the Fund in achieving its investment objective. Otherwise, the Fund will hold or trade the convertible securities. In selecting convertible securities for a Fund, the Advisor evaluates the investment characteristics of the convertible security as a fixed income instrument, and the investment potential of the underlying equity security for capital appreciation.
GUARANTEED INVESTMENT CONTRACTS
Pursuant to guaranteed investment contracts ("GICs"), which are issued by U.S. and Canadian insurance companies, a Fund makes cash contributions to a deposit fund of the insurance company's general account. The insurance company then credits to the fund payments at negotiated, floating or fixed interest rates. A GIC is a general obligation of the issuing insurance company and not a separate account. The purchase price paid for a GIC becomes part of the general assets of the insurance company, and the contract is paid from the company's general assets.
The Funds will only purchase GICs that are issued or guaranteed by insurance companies that at the time of purchase are rated at least AA by S&P or receive a similar high quality rating from a nationally recognized service which provides ratings of insurance companies. GICs are considered illiquid securities and will be subject to any limitations on such investments described in Part 1 of this SAI, unless there is an active and substantial secondary market for the particular instrument and market quotations are readily available. No Fund will invest more than 20% of its total assets in GICs.
BANK INVESTMENT CONTRACTS
Bank investment contracts ("BICs") issued by banks that meet certain quality and asset size requirements for banks are available to the Funds. Pursuant to BICs, cash contributions are made to a deposit account at the bank in exchange for payments at negotiated, floating or fixed interest rates. A BIC is a general obligation of the issuing bank. BICs are considered illiquid securities
and will be subject to any limitations on such investments described in Part 1 of this SAI, unless there is an active and substantial secondary market for the particular instrument and market quotations are readily available.
LOAN PARTICIPATIONS
Loan participations are interests in loans which are administered by the lending bank or agent for a syndicate of lending banks, and sold by the lending bank or syndicate member. The Funds may only purchase interests in loan participations issued by a bank in the United States with assets exceeding $1 billion and for which the underlying loan is issued by borrowers in whose obligations the Funds may invest. Because the intermediary bank does not guarantee a loan participation in any way, a loan participation is subject to the credit risk generally associated with the underlying corporate borrower. In addition, in the event the underlying corporate borrower defaults, a Fund may be subject to delays, expenses and risks that are greater than those that would have been involved if the Fund had purchased a direct obligation (such as commercial paper) of the borrower. Under the terms of a loan participation, the purchasing Fund may be regarded as a creditor of the intermediary bank so that the Fund may also be subject to the risk that the issuing bank may become insolvent.
STRUCTURED INVESTMENTS
Structured investments are a relatively new innovation and may be designed to have various combinations of equity and fixed-income characteristics. Equity-linked securities are a form of structured investment and generally consist of a conversion privilege to a single company's common stock plus a fixed annual distribution to the holder. Equity-linked securities have some derivative characteristics because the conversion feature is linked to the price of the company's common stock. Equity-linked securities are designed to provide investors with higher quarterly income than the dividend paid per share on the common stock. However, equity-linked securities have decreased potential for capital appreciation because of limitations of the conversion feature.
Equity-linked securities include issues such as "Structured Yield Product Exchangeable for Stock" ("STRYPES"), "Trust Automatic Common Exchange Securities" ("TRACES"), "Trust Issued Mandatory Exchange Securities" ("TIMES"), "Trust Enhanced Dividend Securities" ("TRENDS") and other similar securities, including those which may be developed in the future. The issuers of the above listed examples of equity-linked securities generally purchase and hold a portfolio of stripped U.S. Treasury securities maturing on a quarterly basis through the conversion date, and a forward purchase contract with an existing shareholder of the company relating to the common stock. Quarterly distributions on equity-linked securities generally consist of the cash received from the U.S. Treasury securities and equity-linked securities generally are not entitled to any dividends that may be declared on the common stock.
Equity-linked securities may be issued by closed-end or other forms of investment companies. To the extent that equity-linked securities are issued by investment companies, a Fund's investments in equity-linked securities are subject to the same limitations as investments in more traditional forms of investment companies.
YANKEE OBLIGATIONS
Yankee obligations are U.S. dollar-denominated instruments of foreign issuers that are either registered with the SEC or issued pursuant to Rule 144A under the 1933 Act. These obligations consist of debt securities (including preferred or preference stock of non-governmental issuers), certificates of deposit, fixed time deposits and banker's acceptances issued by foreign banks, and debt obligations of foreign governments or their subdivisions, agencies and instrumentalities, international agencies and supranational entities. Some securities issued by foreign governments or their subdivisions, agencies and instrumentalities may not be backed by the full faith and credit of the foreign government.
AMERICAN, EUROPEAN, CONTINENTAL AND GLOBAL DEPOSITARY RECEIPTS
American Depositary Receipts ("ADRs") are receipts issued in registered form by a U.S. bank or trust company evidencing ownership of underlying securities issued by a foreign issuer. European Depositary Receipts ("EDRs"), which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are receipts issued in Europe typically by non-U.S. banks or trust companies and foreign branches of U.S. banks that evidence ownership of foreign or U.S. securities. Global Depositary Receipts ("GDRs") are receipts structured similarly to EDRs and CDRs and are marketed globally. ADRs may be listed on a national securities exchange or may be traded in the over-the-counter market. EDRs and CDRs are designed for use in European exchange and over-the-counter markets. GDRs are designed for trading in non-U.S. securities markets. ADRs, EDRs, CDRs and GDRs traded in the over-the-counter market which do not have an active or substantial secondary market will be considered illiquid and therefore will be subject to the Funds' respective limitations with respect to such securities, if any. If a Fund invests in an unsponsored ADR, EDR, CDR or GDR, there may be less information available to the Fund concerning the issuer of the securities underlying the unsponsored ADR, EDR, CDR or GDR than is available for an issuer of securities underlying a sponsored ADR, EDR, CDR or GDR. ADR prices are denominated in U.S. dollars although the underlying securities are
denominated in a foreign currency. Investments in ADRs, EDRs, CDRs and GDRs involve risks similar to those accompanying direct investments in foreign securities.
TEMPORARY CASH BALANCES
The Funds may hold very small temporary cash balances to efficiently manage transactional expenses. These cash balances are expected, under normal conditions, not to exceed 2% of each Fund's net assets at any time (excluding amounts used as margin and segregated assets with respect to futures transactions and collateral for securities loans and repurchase agreements). The Funds may invest these temporary cash balances in short-term debt obligations issued or guaranteed by the U.S. Government or its agencies and instrumentalities ("U.S. Government Securities"), high quality commercial paper (rated A-1 or better by S&P or P-1 or better by Moody's), certificates of deposit and time deposits of banking institutions having total assets in excess of $1 billion, and repurchase agreements collateralized by U.S. Government Securities. The Funds may also hold these investments in connection with U.S. Treasury rolls, which are not subject to the 2% limitation above.
TAXES
In this section, all discussions of taxation at the shareholder and fund levels relate to U.S. federal taxes only. Consult your tax advisor for state, local and foreign tax considerations and for information about special tax considerations that may apply to shareholders that are not natural persons or not U.S. citizens or resident aliens.
FEDERAL TAXES. Although it may be one of several series in a single trust, the Fund is treated as a separate entity for federal income tax purposes under the Internal Revenue Code of 1986, as amended (Code). The Fund has elected (or in the case of a new fund, intends to elect) to be, and intends to qualify to be treated each year as, a "regulated investment company" under Subchapter M of the Code by meeting all applicable requirements of Subchapter M, including requirements as to the nature of the Fund's gross income, the amount of its distributions (as a percentage of both its overall income and any tax-exempt income), and the composition of its portfolio assets.
To qualify as a "regulated investment company," the Fund must (a) derive at
least 90% of its gross income from dividends, interest, payments with respect to
certain securities loans, gains from the sale or other disposition of stock,
securities or foreign currencies or other income (including, but not limited to,
gains from options, futures or forward contracts) derived with respect to its
business of investing in such stock, securities or currencies; (b) diversify its
holdings so that, at the close of each quarter of its taxable year, (i) at least
50% of the market value of its total assets consists of cash, cash items, U.S.
government securities, securities of other regulated investment companies and
other securities limited generally with respect to any one issuer to not more
than 5% of the total assets of the Fund and not more than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total assets is invested in the securities of any issuer, other than U.S.
government securities or other regulated investment companies; or of two or more
issuers which the Fund controls and which are engaged in the same, similar, or
related trades or businesses; and (c) distribute with respect to each year at
least 90% of its taxable net investment income, its tax-exempt interest income
and the excess, if any, of net short-term capital gains over net long-term
capital losses for such year. In general, for purposes of the 90% gross income
requirement described in (a) above, income derived from a partnership will be
treated as qualifying income only to the extent such income is attributable to
items of income of the partnership which would be qualifying income if realized
by the regulated investment company. However, recent legislation, provides that
for taxable years of a regulated investment company beginning after October 22,
2004, 100% of the net income derived from an interest in a "qualified publicly
traded partnership" (defined as a partnership (i) interests in which are traded
on an established securities market or readily tradable on a secondary market or
the substantial equivalent thereof and (ii) that derives less than 90% of its
income from the qualifying income described in (a) above) will be treated as
qualifying income. In addition, although in general the passive loss rules of
the Code do not apply to regulated investment companies, such rules do not apply
to a regulated investment company with respect to items attributable to an
interest in a qualified publicly traded partnership. Finally, for purposes of
(c) above, the term "outstanding voting securities of such issuer" will include
the equity securities of a qualified publicly traded partnership. As a regulated
investment company that is accorded special tax treatment, the Fund will not be
subject to any federal income taxes on its net investment income and net
realized capital gains that it distributes to shareholders on the form of
dividends and in accordance with the timing requirements imposed by the Code.
The Fund's foreign-source income, if any, may be subject to foreign withholding
taxes. If the Fund were to fail to qualify as a "regulated investment company"
accorded special tax treatment in any taxable year, it would incur a regular
federal corporate income tax on all of its taxable income, whether or not
distributed, and Fund distributions (including any distributions of net
tax-exempt income and net long-term capital gains) would generally be taxable as
ordinary income to the shareholders, except to the extent they were treated as
"qualified dividend income," as described below. In addition, the Fund could be
required to recognize unrealized gains, pay substantial taxes and interest and
make substantial distributions before requalifying as a regulated investment
company that is accorded special tax treatment.
If the Fund fails to distribute in a calendar year substantially all of its ordinary income for such year and substantially all of its capital gain net income for the one-year period ending October 31 (or later if the Fund is permitted so to elect and so elects), plus any retained amount from the prior year, the Fund will be subject to a 4% excise tax on the underdistributed amounts. A dividend paid to shareholders by the Fund in January of a year generally is deemed to have been paid by the Fund on December 31 of the preceding year, if the dividend was declared and payable to shareholders of record on a date in October, November or December of that preceding year. The Fund intends generally to make distributions sufficient to avoid imposition of the 4% excise tax.
ALTERNATIVE MINIMUM TAX. Distributions derived from interest that is exempt from regular federal income tax may subject corporate shareholders to or increase their liability under the federal corporate alternative minimum tax (AMT). A portion of such distributions may constitute a tax preference item for individual shareholders and may subject them to or increase their liability under the AMT.
DIVIDENDS RECEIVED DEDUCTIONS. Distributions will qualify for the corporate dividends received deduction only to the extent that dividends earned by the Fund qualify. Any such dividends may be, however, includable in adjusted current earnings for purposes of computing corporate federal AMT. The dividends received deduction for eligible dividends is subject to a holding period requirement.
RETURN OF CAPITAL DISTRIBUTIONS. If the Fund makes a distribution to a shareholder in excess of the Fund's current and accumulated "earning and profits" in any taxable year, the excess distribution will be treated as a return of capital to the extent of the shareholder's tax basis in his or her shares, and thereafter as capital gain. A return of capital is not taxable, but it reduces tax basis in shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition of such shares. Dividends and distributions on a Fund's shares are generally subject to federal income tax as described herein to the extent they do not exceed the Fund's realized income and gains, even though such dividends and distributions may economically represent a return of a particular shareholder's investment. Such distributions are likely to occur in respect of shares purchased at a time when a Fund's net asset value reflects gains that are either unrealized, or realized but not distributed. Such realized gains may be required to be distributed even when a Fund's net asset value also reflects unrealized losses.
FUNDS THAT INVEST IN U.S. GOVERNMENT SECURITIES. Many states grant tax-free status to dividends paid to shareholders of mutual funds from interest income earned by the Fund from direct obligations of the U.S. government. Investments in mortgage-backed securities (including GNMA, FNMA and FHLMC Securities) and repurchase agreements collateralized by U.S. government securities do not qualify as direct federal obligations in most states. Shareholders should consult with their own tax advisors about the applicability of state and local intangible property, income or other taxes to their Fund shares and distributions and redemption proceeds received from the Fund.
FUND DISTRIBUTIONS. Distributions from the Fund (other than qualified dividend income and exempt-interest dividends, as discussed below) will generally be taxable to shareholders as ordinary income to the extent derived from the Fund's investment income and net short-term gains. Distributions of long-term capital gains (that is, the excess of net gains from capital assets held for more than one year over net losses from capital assets held for not more than one year) will be taxable to shareholders as such, regardless of how long a shareholder has held shares in the Fund. In general, any distributions of net capital gains will be taxed to shareholders who are individuals at a maximum rate of 15% for taxable years beginning on or before December 31, 2008.
Distributions are taxable to shareholders even if they are paid from income or gains earned by the Fund before a shareholder's investment (and thus were included in the price of the shareholder paid). Distributions are taxable whether received in cash or in Fund shares.
QUALIFIED DIVIDEND INCOME. For taxable years beginning on or before December 31, 2008, "qualified dividend income" received by an individual will be taxed at the rates applicable to long-term capital gain. In order for some portion of the dividends received by a Fund shareholder to be qualified dividend income, the Fund must meet holding period and other requirements with respect to some portion of the dividend paying stocks in its portfolio and the shareholder must meet holding period and other requirements with respect to the Fund's shares. A dividend will not be treated as qualified dividend income (at either the Fund or shareholder level) (1) if the dividend is received with respect to any share of stock held for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or, in the case of certain preferred stock, 91 days during the 181-day period beginning 90 days before such date), (2) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property, (3) if the recipient elects to have the dividend income treated as
investment income for purposes of the limitation on deductibility of investment
interest, or (4) if the dividend is received from a foreign corporation that is
(a) not eligible for the benefits of a comprehensive income tax treaty with the
United States (with the exception of dividends paid on stock of such a foreign
corporation readily tradable on an established securities market in the United
States) or (b) treated as a passive foreign investment company. With respect to
a Fund investing in bonds, the Fund does not expect a significant portion of
Fund distributions to be derived from qualified dividend income.
In general, distributions of investment income properly designated by the Fund as derived from qualified dividend income may be treated as qualified dividend income by a shareholder taxed as an individual provided the shareholder meets the holding period and other requirements described above with respect to his or her shares. If the aggregate qualified dividends received by a fund during any taxable year are 95% or more of its gross income, then 100% of the Fund's dividends (other than properly designated capital gain dividends) will be eligible to be treated as qualified dividend income. For this purpose, the only gain included in the term "gross income" is the excess of net short-term capital gain over net long-term capital loss.
DISTRIBUTIONS FROM TAX-EXEMPT FUNDS. Each tax-exempt Fund will have at least 50% of its total assets invested in tax-exempt bonds at the end of each quarter so that dividends from net interest income on tax-exempt bonds will be exempt from federal income tax when received by a shareholder (but may be taxable for federal alternative minimum tax purposes and for state and local tax purposes). The tax-exempt portion of dividends paid will be designated within 60 days after year-end based upon the ratio of net tax-exempt income to total net investment income earned during the year. That ratio may be substantially different from the ratio of net tax-exempt income to total net investment income earned during any particular portion of the year. Thus, a shareholder who holds shares for only a part of the year may be allocated more or less tax-exempt dividends than would be the case if the allocation were based on the ratio of net tax-exempt income to total net investment income actually earned while a shareholder.
Income from certain "private activity bonds" issued after August 7, 1986, is treated as a tax preference item for the AMT at the maximum rate of 28% for individuals and 20% for corporations. If the Fund invests in private activity bonds, shareholders may be subject to the AMT on that part of the distributions derived from interest income on such bonds. Interest on all tax-exempt bonds is included in corporate adjusted current earnings when computing the AMT applicable to corporations. Seventy-five percent of the excess of adjusted current earnings over the amount of income otherwise subject to the AMT is included in a corporation's alternative minimum taxable income.
Dividends derived from any investments other than tax-exempt bonds and any distributions of short-term capital gains are generally taxable to shareholders as ordinary income. Any distributions of long-term capital gains will in general be taxable to shareholders as long-term capital gains (generally subject to a maximum 15% tax rate for shareholders who are individuals) regardless of the length of time Fund shares are held by the shareholder.
A tax-exempt Fund may at times purchase tax-exempt securities at a discount and some or all of this discount may be included in the Fund's ordinary income which will be taxable when distributed. Any market discount recognized on a tax-exempt bond purchased after April 30, 1993, with a term at time of issue of more than one year is taxable as ordinary income. A market discount bond is a bond acquired in the secondary market at a price below its "stated redemption price" (in the case of a bond with original issue discount, its "revised issue price").
Shareholders receiving social security and certain retirement benefits may be taxed on a portion of those benefits as a result of receiving tax-exempt income, including tax-exempt dividends from the Fund.
SPECIAL TAX RULES APPLICABLE TO TAX-EXEMPT FUNDS. In general, exempt-interest dividends, if any, attributable to interest received on certain private activity obligations and certain industrial development bonds will not be tax-exempt to any shareholders who are "substantial users" of the facilities financed by such obligations or bonds or who are "related persons" of such substantial users, as further defined in the Code. Income derived from the Fund's investments other than tax-exempt instruments may give rise to taxable income. The Fund's shares must be held for more than six months in order to avoid the disallowance of a capital loss on the sale of Fund shares to the extent of tax-exempt dividends paid during that period. Part or all of the interest on indebtedness, if any, incurred or continued by a shareholder to purchase or carry shares of the Fund paying exempt-interest dividends is not deductible. The portion of interest that is not deductible is equal to the total interest paid or accrued on the indebtedness, multiplied by the percentage of the Fund's total distributions (not including distributions from net long-term capital gains) paid to the shareholder that are exempt-interest dividends. Under rules used by the Internal Revenue Service to determine when borrowed funds are considered used for the purpose of purchasing or carrying particular assets, the purchase of shares may be considered to have been made with borrowed funds even though such funds are not directly traceable to the purchase of shares.
SALES OF SHARES. The sale, exchange or redemption of Fund shares may give rise to a gain or loss. In general, any gain realized upon a taxable disposition of shares generally will be treated as long-term capital gain if the shares have been held for more than one year. Otherwise the gain on the sale, exchange or redemption of Fund shares will be treated as short-term capital gain. In general, any loss realized upon a taxable disposition of shares will be treated as long-term loss if the shares have been held more than one year, and otherwise as short-term loss. However, any loss realized upon a taxable disposition of shares held for six months or less will be disallowed for federal income tax purposes to the extent of any exempt-interest dividends received on such shares. In addition, any loss (not already disallowed as provided in the preceding sentence) realized upon a taxable disposition of shares held for six months or less will be treated as long-term, rather than short-term, capital loss to the extent of any long-term capital gain distributions received by the shareholder with respect to those shares. All or a portion of any loss realized upon a taxable disposition of shares will be disallowed if other shares are purchased within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss.
Under Treasury regulations, if on a disposition of Fund shares a shareholder recognizes a loss of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder will likely have to file with the Internal Revenue Service a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all regulated investment companies. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. You are advised to consult with your tax advisor.
BACKUP WITHHOLDING. Certain distributions and redemptions may be subject to backup withholding for taxpayers who fail to furnish a correct taxpayer identification number, who have under-reported dividend or interest income, or who fail to certify to the Fund that the shareholder is a United States person and is not subject to the withholding. This number and certification may be provided by either a Form W-9 or the accompanying application. In certain instances, CMS may be notified by the Internal Revenue Service that a shareholder is subject to backup withholding. The backup withholding rate is 28% for amounts paid through 2010. The backup withholding rate will be 31% for amounts paid after December 31, 2010.
HEDGING TRANSACTIONS. If the Fund engages in hedging transactions, including hedging transactions in options, futures contracts and straddles, or other similar transactions, it will be subject to special tax rules (including constructive sale, mark-to-market, straddle, wash sale and short sale rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund's securities, convert long-term capital gains into short-term capital gains or convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. The Fund will endeavor to make any available elections pertaining to such transactions in a manner believed to be in the best interests of the Fund and its shareholders.
SECURITIES ISSUED AT A DISCOUNT. The Fund's investment in debt securities issued at a discount and certain other obligations will (and investments in securities purchased at a discount may) require the Fund to accrue and distribute income not yet received. In such cases, the Fund may be required to sell assets (possibly at a time when it is not advantageous to do so) to generate the cash necessary to distribute as dividends to its shareholders all of its income and gains and therefore to eliminate any tax liability at the Fund level.
FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING TRANSACTIONS. The Fund's transactions in foreign currencies, foreign currency-denominated debt securities, certain foreign currency options, futures contracts and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned. This may produce a difference between the Fund's book income and its taxable income possibly accelerating distributions or converting distributions of book income and gains to returns of capital for book purposes.
If more than 50% of the Fund's total assets at the end of its fiscal year are invested in stock or securities of foreign corporate issuers, the Fund may make an election permitting its shareholders to take a deduction or credit for federal income tax purposes for their pro rata portion of certain qualified foreign taxes paid by the Fund to foreign countries in respect of foreign securities the Fund has held for at least the minimum period specified in the Code. The Advisor will consider the value of the benefit to a typical shareholder, the cost to the Fund of compliance with the election, and incidental costs to shareholders in deciding whether to make the election. A shareholder's ability to claim such a foreign tax credit or deduction in respect of foreign taxes will be subject to certain limitations imposed by the Code, including a holding period requirement, as a result of which a
shareholder may not get a full credit or deduction for the amount of foreign taxes so paid by the Fund. Shareholders who do not itemize on their federal income tax returns may claim a credit (but not a deduction) for such foreign taxes.
Investment by the Fund in "passive foreign investment companies" could subject the Fund to a U.S. federal income tax or other charge on the proceeds from the sale of its investment in such a company; however, this tax can be avoided by making an election to mark such investments to market annually or to treat the passive foreign investment company as a "qualified electing Fund." A "passive foreign investment company" is any foreign corporation: (i) 75 percent or more of the income of which for the taxable year is passive income, or (ii) the average percentage of the assets of which (generally by value, but by adjusted tax basis in certain cases) that produce or are held for the production of passive income is at least 50 percent. Generally, passive income for this purpose means dividends, interest (including income equivalent to interest), royalties, rents, annuities, the excess of gain over losses from certain property transactions and commodities transactions, and foreign currency gains. Passive income for this purpose does not include rents and royalties received by the foreign corporation from active business and certain income received from related persons.
NON-U.S. SHAREHOLDERS. In general, dividends (other than Capital Gain Dividends)
paid by the Fund to a shareholder that is not a "U.S. person" within the meaning
of the Code (such shareholder, a "foreign person") are subject to withholding of
U.S. federal income tax at a rate of 30% (or lower applicable treaty rate) even
if they are funded by income or gains (such as portfolio interest, short-term
capital gains, or foreign-source dividend and interest income) that, if paid to
a foreign person directly, would not be subject to withholding. However, under
the recent legislation, effective for taxable years of the Fund beginning after
December 31, 2004 and before January 1, 2008, the Fund will not be required to
withhold any amounts (i) with respect to distributions (other than distributions
to a foreign person (w) that has not provided a satisfactory statement that the
beneficial owner is not a U.S. person, (x) to the extent that the dividend is
attributable to certain interest on an obligation if the foreign person is the
issuer or is a 10% shareholder of the issuer, (y) that is within certain foreign
countries that have inadequate information exchange with the United States, or
(z) to the extent the dividend is attributable to interest paid by a person that
is a related person of the foreign person and the foreign person is a controlled
foreign corporation) from U.S.-source interest income that would not be subject
to U.S. federal income tax if earned directly by an individual foreign person,
to the extent such distributions are properly designated by the Fund, and (ii)
with respect to distributions (other than distributions to an individual foreign
person who is present in the United States for a period or periods aggregating
183 days or more during the year of the distribution) of net short-term capital
gains in excess of net long-term capital losses, to the extent such
distributions are properly designated by the Fund.
If a beneficial holder who is a foreign person has a trade or business in the United States, and the dividends are effectively connected with the conduct by the beneficial holder of a trade or business in the United States, the dividend will be subject to U.S. federal net income taxation at regular income tax rates.
Recent legislation modifies the tax treatment of distributions from the Fund that are paid to a foreign person and are attributable to gain from "U.S. real property interests" ("USRPIs"), which the Code defines to include direct holdings of U.S. real property and interests (other than solely as a creditor) in "U.S. real property holding corporations" such as REITs. The Code deems any corporation that holds (or held during the previous five-year period) USRPIs with a fair market value equal to 50% or more of the fair market value of the corporation's U.S. and foreign real property assets and other assets used or held for use in a trade or business to be a U.S. real property holding corporation; however, if any class of stock of a corporation is traded on an established securities market, stock of such class shall be treated as a USRPI only in the case of a person who holds more than 5% of such class of stock at any time during the previous five-year period. Under the legislation, which is generally effective for taxable years of RICs beginning after December 31, 2004 and which applies to dividends paid or deemed paid on or before December 31, 2007, distributions to foreign persons attributable to gains from the sale or exchange of USRPIs will give rise to an obligation for those foreign persons to file a U.S. tax return and pay tax, and may well be subject to withholding under future regulations.
Under U.S. federal tax law, a beneficial holder of shares who is a foreign person is not, in general, subject to U.S. federal income tax on gains (and is not allowed a deduction for losses) realized on the sale of shares of the Fund or on Capital Gain Dividends unless (i) such gain or Capital Gain Dividend is effectively connected with the conduct of a trade or business carried on by such holder within the United States, (ii) in the case of an individual holder, the holder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale or Capital Gain Dividend and certain other conditions are met, or (iii) the shares constitute USRPIs or (effective for taxable years of the Fund beginning on September 1, 2005) the Capital Gain Dividends are paid or deemed paid on or before December 31, 2007 and are attributable to gains from the sale or exchange of USRPIs. Effective after December 31, 2004, and before January 1, 2008, if the Fund is a U.S. real property holding corporation (as described above) the Fund's shares will nevertheless not constitute USRPIs if the Fund is a "domestically controlled qualified
investment entity," which is defined to include a RIC that, at all times during the shorter of the 5-year period ending on the date of the disposition or the period during which the RIC was in existence, had less than 50 percent in value of its stock held directly or indirectly by foreign persons.
ADDITIONAL TAX MATTERS CONCERNING TRUST SHARES (THIS SECTION IS APPLICABLE ONLY TO THE COLUMBIA TAX-MANAGED GROWTH FUND)
FEDERAL GIFT TAXES. An investment in Trust Shares may be a taxable gift for federal tax purposes, depending upon the option selected and other gifts that the donor and his or her spouse may make during the year.
Under the Columbia Advantage Plan, the entire amount of the gift will be a "present interest" that qualifies for the federal gift tax annual exclusion. In that case, the donor will be required to file a federal gift tax return on account of this gift only if (i) the aggregate present interest gifts by the donor to the particular beneficiary (including the gift of Trust Shares) exceed $11,000 or (ii) the donor wishes to elect gift splitting on gifts with his or her spouse for the year. The trustee will notify the beneficiary of his or her right of withdrawal promptly following any contribution under the Advantage Plan.
Under the Columbia Gift Plan, the entire amount of the gift will be a "future interest" for federal gift tax purposes, so that none of the gift will qualify for the federal gift tax annual exclusion. Consequently, the donor will have to file a federal gift tax return (IRS Form 709) reporting the entire amount of the gift, even if the gift is less than $11,000.
No federal gift tax will be payable by the donor until his or her cumulative taxable gifts (i.e., gifts other than those qualifying for the annual exclusion or otherwise exempt), including taxable gifts of other assets as well as any taxable gifts of trust shares, exceed the federal gift and estate tax exemption equivalent amount, which is $1,000,000 for gifts made after December 31, 2001, and before January 1, 2010.
Any gift of Trust Shares that does not qualify as a present interest or that exceeds the available annual exclusion amount will reduce the amount of the donor's Federal gift and estate tax exemption (if any) that would otherwise be available for future gifts for transfers at death.
The donor and his or her spouse may elect "gift-splitting" for any gift of Trust Shares (other than a gift to such spouse), meaning that the donor and his or her spouse may elect to treat the gift as having been made one-half by each of them, thus allowing a total gift of $22,000.
The donor's gift of Fund shares may also have to be reported for state gift tax purposes, if the state in which the donor resides imposes a gift tax. Many states do not impose such a tax. Some states follow the Federal rules concerning the types of transfers subject to tax and the availability of the annual exclusion.
GENERATION-SKIPPING TRANSFER TAXES
If the beneficiary of a gift of Trust Shares is a relative who is two generations or more younger than the donor, or is not a relative and is more than 37 1/2 years younger than the donor, the gift will be subject in whole or in part to the generation-skipping transfer tax (the "GST tax") unless the gift is made under the Columbia Advantage Plan and does not exceed the available annual exclusion amount. An exemption (the "GST exemption"), equal to $1.5 million in 2005, is allowed against this tax, and so long as the GST exemption has not been used by other transfers it will automatically be allocated to a gift of Trust Shares that is subject to the GST tax unless the donor elects otherwise. Such an election is made by reporting the gift on a timely filed gift tax return and paying the applicable GST tax. The GST tax is imposed at a flat rate (47% for gifts made in 2005) on the amount of the gift, and payment of the tax by the donor is treated as an additional gift for gift tax purposes.
INCOME TAXES
The Internal Revenue Service takes the position that a trust beneficiary who is given a power of withdrawal over contributions to the trust should be treated, for Federal income tax purposes, as the "owner" of the portion of the trust that was subject to the power. Accordingly, if the donor selects Columbia Advantage Trust Shares, the beneficiary will be treated as the "owner" of all of the Fund shares in the account for Federal income tax purposes, and will be required to report all of the income and capital gains earned in the trust on his or her personal Federal income tax return. The trust will not pay Federal income taxes on any of the trust's income or capital gains. The trustee will prepare and file the Federal income tax information returns that are required each year (and any state income tax returns that may be required), and will send the beneficiary a statement following each year showing the amounts (if any) that the beneficiary must report on his or her income tax returns for that year. If the beneficiary is under fourteen years of age, these amounts may be subject to Federal income taxation at the marginal rate applicable to the
beneficiary's parents. The beneficiary may at any time after the creation of the trust irrevocably elect to require the trustee to pay him or her a portion of the trust's income and capital gains annually thereafter to provide funds with which to pay any resulting income taxes, which the trustee will do by redeeming Trust Shares. The amount distributed will be a fraction of the trust's ordinary income and short-term capital gains and the trust's long-term capital gains equal to the highest marginal Federal income tax rate imposed on each type of income (currently, 35% and 15%, respectively). If the beneficiary selects this option, he or she will receive those fractions of his or her trust's income and capital gains annually for the duration of the trust.
Under the Columbia Advantage Plan, the beneficiary will also be able to require the trustee to pay his or her tuition, room and board and other expense of his or her college or post-graduate education, and the trustee will raise the cash necessary to fund these distributions by redeeming Trust Shares. Any such redemption will result in the realization of capital gain or loss on the shares redeemed, which will be reportable by the beneficiary on his or her income tax returns for the year in which the shares are redeemed, as described above. Payments must be made directly to the educational institution.
If the donor selects the Columbia Gift Plan, the trust that he or she creates will be subject to Federal income tax on all income and capital gains realized by it, less a $100 annual exemption (in lieu of the personal exemption allowed to individuals). The amount of the tax will be determined under the tax rate schedule applicable to estates and trusts, which is more sharply graduated than the rate schedule for individuals, reaching the same maximum marginal rate for ordinary income or short-term capital gains (currently, 35%), but at a much lower taxable income level than would apply to an individual. It is anticipated, however, that most of the gains taxable to the trust will be long-term capital gain, on which the Federal income tax rate is currently limited to 15%. The trustee will raise the cash necessary to pay any Federal or state income taxes by redeeming Fund shares. The beneficiary will not pay Federal income taxes on any of the trust's income or capital gains, except those earned in the year when the trust terminates. The trustee will prepare and file all Federal and state income tax returns that are required each year, and will send the beneficiary an information statement for the year in which the trust terminates showing the amounts (if any) that the beneficiary must report on his or her Federal and state income tax returns for that year.
When the trust terminates, the distribution of the remaining shares held in the trust to the beneficiary will not be treated as a taxable disposition of the shares. Any Fund shares received by the beneficiary will have the same cost basis as they had in the trust at the time of termination. Any Fund shares received by the beneficiary's estate will have a basis equal to the value of the shares at the beneficiary's death (or the alternate valuation date for Federal estate tax purposes, if elected).
CONSULTATION WITH QUALIFIED ADVISOR
Due to the complexity of Federal and state gift, GST and income tax laws pertaining to all gifts in trust, prospective donors should consider consulting with their financial or tax advisor before investing in Trust Shares.
MANAGEMENT OF THE FUNDS The Advisor provides administrative and management services to the Funds. On April 1, 2003, Fleet Investment Advisors Inc., Stein Roe & Farnham Incorporated, Colonial Management Associates, Inc. and Newport Pacific Management, Inc. (NPMI), merged into Columbia Management Advisors, Inc. Each of the four merging companies was a registered investment advisor and advised various Funds in the Fund Complex. The Advisor, located at 100 Federal Street, Boston, Massachusetts 02110, is a direct wholly owned subsidiary of Columbia Management Group, Inc. (Columbia), which is an indirect wholly owned subsidiary of Bank of America Corporation. Prior to April 1, 2004, Columbia was an indirect wholly owned subsidiary of FleetBoston Financial Corporation, a U.S. financial holding company. Effective April 1, 2004, FleetBoston Financial Corporation was acquired by Bank of America Corporation. The Advisor has been an investment advisor since 1969.
In addition, immediately prior to the mergers described above and also on April 1, 2003, Newport Fund Management, Inc. (NFMI), a subsidiary of NPMI and a registered investment advisor that advised several Funds in the Fund Complex, merged into NPMI. As a result of NPMI's merger into the Advisor, the Advisor is now the Advisor to the Funds previously advised by NFMI.
TRUSTEES AND OFFICERS (THIS SECTION APPLIES TO ALL OF THE FUNDS)
The Trustees and officers serve terms of indefinite duration. The names, addresses and ages of the Trustees and officers of the Fund Complex, the year each was first elected or appointed to office, their principal business occupations during at least the last five years, the number of portfolios overseen by each Trustee and other directorships they hold are shown below.
Number of
Year First Portfolios in
Elected or Fund Complex
Name, Address Position Appointed to Principal Occupation(s) Overseen Other
and Age with Funds Office(1) During Past Five Years by Trustee Directorships Held
------------- ---------- ------------ ----------------------- ------------- -------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker Trustee 1996 Executive Vice President - Strategy of 101 Nash Finch Company
(Age 49) United Airlines (airline) since (food distributor)
P.O. Box 66100 December, 2002 (formerly President of
Chicago, IL 60666 UAL Loyalty Services (airline) from
September, 2001 to December, 2002;
Executive Vice President and Chief
Financial Officer of United Airlines
from July, 1999 to September, 2001;
Senior Vice President-Finance from
March, 1993 to July, 1999).
Janet Langford Kelly Trustee 1996 Partner, Zelle, Hofmann, Voelbel, 101 None
(Age 47) Mason & Gette LLP (law firm) since
9534 W. Gull Lake Drive March, 2005; Adjunct Professor of Law,
Richland, MI 49083-8530 Northwestern University, since
September, 2004 (formerly Chief
Administrative Officer and Senior Vice
President, Kmart Holding Corporation
(consumer goods), from September, 2003
to March, 2004; Executive Vice
President-Corporate Development and
Administration, General Counsel and
Secretary, Kellogg Company (food
manufacturer), from September, 1999 to
August, 2003; Senior Vice President,
Secretary and General Counsel, Sara
Lee Corporation (branded, packaged,
consumer-products manufacturer) from
January, 1995 to September, 1999).
|
Number of
Year First Portfolios in
Elected or Fund Complex
Name, Address Position Appointed to Principal Occupation(s) Overseen Other
and Age with Funds Office(1) During Past Five Years by Trustee Directorships Held
------------- ---------- ------------ ----------------------- ------------- -------------------
DISINTERESTED TRUSTEES
Richard W. Lowry Trustee 1995 Private Investor since August, 1987 103(3) None
(Age 69) (formerly Chairman and Chief Executive
10701 Charleston Drive Officer, U.S. Plywood Corporation
Vero Beach, FL 32963 (building products manufacturer)).
Charles R. Nelson Trustee 1981 Professor of Economics, University of 101 None
(Age 62) Washington, since January, 1976; Ford
Department of Economics and Louisa Van Voorhis Professor of
University of Washington Political Economy, University of
Seattle, WA 98195 Washington, since September, 1993
(formerly Director, Institute for
Economic Research, University of
Washington from September, 2001 to
June, 2003); Adjunct Professor of
Statistics, University of Washington,
since September, 1980; Associate
Editor, Journal of Money Credit and
Banking, since September, 1993;
consultant on econometric and
statistical matters.
John J. Neuhauser Trustee 1985 Academic Vice President and Dean of 103(3) Saucony, Inc.
(Age 62) Faculties since August, 1999, Boston (athletic footwear)
84 College Road College (formerly Dean, Boston College
Chestnut Hill, School of Management from September,
MA 02467-3838 1977 to August, 1999).
Patrick J. Simpson Trustee 2000 Partner, Perkins Coie L.L.P. (law 101 None
(Age 61) firm).
1120 N.W. Couch Street
Tenth Floor
Portland, OR 97209-4128
|
Number of
Year First Portfolios in
Elected or Fund Complex
Name, Address Position Appointed to Principal Occupation(s) Overseen Other
and Age with Funds Office(1) During Past Five Years by Trustee Directorships Held
------------- ---------- ------------ ----------------------- ------------- -------------------
DISINTERESTED TRUSTEES
Thomas E. Stitzel Trustee 1998 Business Consultant since 1999 101 None
(Age 69) (formerly Professor of Finance from
2208 Tawny Woods Place 1975 to 1999, College of Business,
Boise, ID 83706 Boise State University); Chartered
Financial Analyst.
|
Number of
Portfolios
Year First in Fund
Elected or Complex
Name, Address Position Appointed to Principal Occupation(s) Overseen Other
and Age with Funds Office(1) During Past Five Years by Trustee Directorships Held
------------- ---------- ------------ ----------------------- ----------- -------------------
DISINTERESTED TRUSTEES
Thomas C. Theobald Trustee and 1996 Partner and Senior Advisor, 101 Anixter International
(Age 68) Chairman of the Chicago Growth Partners (network support
8 Sound Shore Drive, Board (private equity investing) since equipment distributor);
Suite 285 September, 2004 (formerly Ventas, Inc. (real estate
Greenwich, CT 06830 Managing Director, William Blair investment trust); Jones
Capital Partners (private equity Lang LaSalle (real estate
investing) from September, 1994 management
to September, 2004). services) and Ambac
Financial Group
(financial guaranty
insurance)
Anne-Lee Verville TRUSTEE 1998 Retired since 1997 (formerly 101 Chairman of the Board of
(Age 59) General Manager, Directors, Enesco Group,
359 Stickney Hill Road Global Education Industry, IBM Inc. (designer, importer
Hopkinton, NH 03229 Corporation (computer and and distributor of
technology) from 1994 to 1997). giftware and
collectibles)
Richard L. Woolworth Trustee 1991 Retired since December 2003 101 Northwest Natural Gas Co.
(Age 64) (formerly Chairman and Chief (natural gas service
100 S.W. Market Street Executive Officer, The Regence provider)
#1500 Group (regional health insurer);
Portland, OR 97207 Chairman and Chief Executive
Officer, BlueCross BlueShield of
Oregon; Certified Public
Accountant, Arthur Young &
Company)
|
Number of
Portfolios
Year First in Fund
Elected or Complex
Name, Address Position Appointed to Principal Occupation(s) Overseen Other
and Age with Funds Office(1) During Past Five Years by Trustee Directorships Held
------------- ---------- ------------ ----------------------- ----------- -------------------
2. Interested Trustee
William E. Mayer(2) Trustee 1994 Partner, Park Avenue Equity 103(3) Lee Enterprises (print
(Age 65) Partners (private equity) since media), WR Hambrecht +
399 Park Avenue February, 1999 (formerly Partner, Co. (financial service
Suite 3204 Development Capital LLC from provider); Reader's
New York, NY 10022 November, 1996 to February, Digest (publishing);
1999). OPENFIELD Solutions
(retail industry
technology provider)
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(1) In October 2003, the trustees of the Liberty Funds and Stein Roe Funds
(both as defined in Part 1 of this SAI) were elected to the boards of the
Columbia Funds; simultaneous with that election, Patrick J. Simpson and
Richard L. Woolworth, who had been directors/trustees of the Columbia Funds
were appointed to serve as trustees of the Liberty Funds and Stein Roe
Funds. The date shown is the earliest date on which a trustee/director was
elected or appointed to the board of a Fund in the Fund Complex. (2)Mr.
Mayer is an "interested person" (as defined in the Investment Company Act
of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht + Co.
(3)Messrs. Lowry, Neuhauser and Mayer also serve as directors/trustees of
the All-Star Funds (as defined in Part 1 of this SAI).
Year First
Elected or
Position Appointed
Name, Address and Age with Funds to Office Principal Occupation(s) During Past Five Years
--------------------- ---------- ---------- ----------------------------------------------
OFFICERS
Christopher L. Wilson President 2004 Head of Mutual Funds since August, 2004 and Senior Vice President
(Age 48) of the Advisor since January, 2005; President of the Columbia
One Financial Center Funds, Liberty Funds and Stein Roe Funds since October, 2004;
Boston, MA 02111 President and Chief Executive Officer of the Nations Funds since
January, 2005; President of the Galaxy Funds since April 2005;
Director of Bank of America Global Liquidity Funds, plc since May
2005; Director of Banc of America Capital Management (Ireland),
Limited since May 2005; Senior Vice President of BACAP Distributors
LLC since January, 2005; Director of FIM Funding, Inc. since
January, 2005; Senior Vice President of Columbia Management
Distributors, Inc. since January, 2005; Director of Columbia
Management Services, Inc. since January, 2005 (formerly President
and Chief Executive Officer, CDC IXIS Asset Management Services,
Inc. from September, 1998 to August, 2004).
J. Kevin Connaughton Treasurer 2000 Treasurer of the Columbia Funds since October, 2003 and of the
(Age 40) Liberty Funds, Stein Roe Funds and All-Star Funds since December,
One Financial Center 2000; Vice President of the Advisor since April, 2003 (formerly
Boston, MA 02111 President of the Columbia Funds, Liberty Funds and Stein Roe Funds
from February, 2004 to October, 2004; Chief Accounting Officer and
Controller of the Liberty Funds and All-Star Funds from February,
1998 to October, 2000); Treasurer of the Galaxy Funds since
September, 2002 (formerly Treasurer from December, 2002 to
December, 2004 and President from February, 2004 to December, 2004
of the Columbia Management Multi-Strategy Hedge Fund, LLC; Vice
President of Colonial Management Associates, Inc. from February,
1998 to October, 2000).
Mary Joan Hoene Senior Vice 2004 Senior Vice President and Chief Compliance Officer of the Columbia
(Age 55) President and Funds, Liberty Funds, Stein Roe Funds and All-Star Funds since
100 Federal Street Chief August, 2004; Chief Compliance Officer of the Columbia Management
Boston, MA 02110 Compliance Multi-Strategy Hedge Fund, LLC since August, 2004; Chief Compliance
Officer Officer of the BACAP Alternative Multi-Strategy Hedge Fund LLC
since October, 2004 (formerly Partner, Carter, Ledyard & Milburn
LLP from January, 2001 to August, 2004; Counsel, Carter, Ledyard &
Milburn LLP from November, 1999 to December, 2000; Vice President
and Counsel, Equitable Life Assurance Society of the United States
from April, 1998 to November, 1999).
Michael G. Clarke Chief 2004 Chief Accounting Officer of the Columbia Funds, Liberty Funds,
(Age 35) Accounting Stein Roe Funds and All-Star Funds since October, 2004 (formerly
One Financial Center Officer Controller of the Columbia Funds, Liberty Funds, Stein Roe Funds
Boston, MA 02111 and All-Star Funds from May, 2004 to October, 2004; Assistant
Treasurer from June, 2002 to May, 2004; Vice
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President, Product Strategy & Development of the Liberty Funds and
Stein Roe Funds from February, 2001 to June, 2002; Assistant
Treasurer of the Liberty Funds, Stein Roe Funds and the All-Star
Funds from August, 1999 to February, 2001; Audit Manager, Deloitte
& Toche LLP from May, 1997 to August, 1999).
Jeffrey R. Coleman Controller 2004 Controller of the Columbia Funds, Liberty Funds, Stein Roe Funds
(Age 35) and All-Star Funds since October, 2004 (formerly Vice President of
One Financial Center CDC IXIS Asset Management Services, Inc. and Deputy Treasurer of
Boston, MA 02111 the CDC Nvest Funds and Loomis Sayles Funds from February, 2003 to
September, 2004; Assistant Vice President of CDC IXIS Asset
Management Services, Inc. and Assistant Treasurer of the CDC Nvest
Funds from August, 2000 to February, 2003; Tax Manager of PFPC,
Inc. from November, 1996 to August, 2000).
R. Scott Henderson Secretary 2004 Secretary of the Columbia Funds, Liberty Funds and Stein Roe Funds
(Age 45) since December, 2004 (formerly Of Counsel, Bingham McCutchen from
One Financial Center April, 2001 to September, 2004; Executive Director and General
Boston, MA 02111 Counsel, Massachusetts Pension Reserves Investment Management Board
from September, 1997 to March, 2001).
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TRUSTEE POSITIONS
As of December 31, 2004, no disinterested Trustee or any of their immediate family members owned beneficially or of record any class of securities of the Advisor, another investment advisor, sub-advisor or portfolio manager of any of the funds in the Fund Complex or any person controlling, controlled by or under common control with any such entity.
General
Messrs. Lowry, Mayer and Neuhauser are also trustees/directors of the Liberty All-Star Funds.
The Trustees serve as trustees of 101 registered investment companies managed by the Advisor for which each Trustee receives a retainer at the annual rate of $45,000 and an attendance fee of $9,500 for each regular and special joint board meeting and $1,000 for each special telephonic joint board meeting. Beginning in December, 2003, Mr. Theobald began serving as the Chairman of the Board. As the independent chairman of the board, Mr. Theobald receives a supplemental retainer at the annual rate of of $100,000; the chair of the Audit Committee receives a supplemental retainer at the annual rate of $10,000; the chair of each other committee receives a supplemental retainer at the annual rate of $5,000. Members of each committee, except the Audit Committee, receive $1,500 for each committee meeting. Each Audit Committee member receives $2,000 for each Audit Committee meeting. Committee members receive $1,500 for each special committee meeting attended on a day other than a regular joint board meeting day. Two-thirds of the Trustee fees are allocated among the Funds based on each Fund's relative net assets and one-third of the fees is divided equally among the Funds.
The Advisor and/or its affiliate, Colonial Advisory Services, Inc. (CASI), has rendered investment advisory services to investment company, institutional and other clients since 1931. The Advisor currently serves as investment advisor or administrator for 133 open-end and 10 closed-end management investment company portfolios. Trustees and officers of the Trust, who are also officers of the Advisor or its affiliates, will benefit from the advisory fees, sales commissions and agency fees paid or allowed by the Trust.
The Agreement and Declaration of Trust (Declaration) of the Trust provides that the Trust will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Trust but that such indemnification will not relieve any officer or Trustee of any liability to the Trust or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. The Trust, at its expense, provides liability insurance for the benefit of its Trustees and officers.
The Trustees have the authority to convert the Funds into a master fund/feeder fund structure. Under this structure, a Fund may invest all or a portion of its investable assets in investment companies with substantially the same investment goals, policies and restrictions as the Fund. The primary reason to use the master fund/feeder fund structure is to provide a mechanism to pool, in a single master fund, investments of different investor classes, resulting in a larger portfolio, investment and administrative efficiencies and economies of scale.
MANAGEMENT AGREEMENT
Under a Management Agreement (Agreement), the Advisor has contracted to furnish each Fund with investment research and recommendations or fund management, respectively, and accounting and administrative personnel and services, and with office space, equipment and other facilities. For these services and facilities, each Fund pays a monthly fee based on the average of the daily closing value of the total net assets of each Fund for such month. Under the Agreement, any liability of the Advisor to the Trust, a Fund and/or its shareholders is limited to situations involving the Advisor's own willful misfeasance, bad faith, gross negligence or reckless disregard of its duties.
The Agreement may be terminated with respect to the Fund at any time on 60 days'
written notice by the Advisor or by the Trustees of the Trust or by a vote of a
majority of the outstanding voting securities of the Fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the Fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Advisor or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
The Advisor pays all salaries of officers of the Trust. The Trust pays all expenses not assumed by the Advisor including, but not limited to, auditing, legal, custodial, investor servicing and shareholder reporting expenses. The Trust pays the cost of printing and mailing any Prospectuses sent to shareholders. Columbia Management Distributors, Inc. (formerly named Columbia Funds Distributor, Inc.) pays the cost of printing and distributing all other Prospectuses.
ADMINISTRATION AGREEMENT (THIS SECTION APPLIES ONLY TO CERTAIN FUNDS AND THEIR RESPECTIVE TRUSTS. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION REGARDING YOUR FUND).
Under an Administration Agreement, the Advisor, in its capacity as the Administrator to each Fund, has contracted to perform the following administrative services:
(a) providing office space, equipment and clerical personnel;
(b) arranging, if desired by the respective Trust, for its directors, officers and employees to serve as Trustees, officers or agents of each Fund;
(c) preparing and, if applicable, filing all documents required for compliance by each Fund with applicable laws and regulations;
(d) preparation of agendas and supporting documents for and minutes of meetings of Trustees, committees of Trustees and shareholders;
(e) coordinating and overseeing the activities of each Fund's other third-party service providers; and
(f) maintaining certain books and records of each Fund.
With respect to Columbia Money Market Fund (formerly named Liberty Money Market Fund) and Columbia Municipal Money Market Fund (formerly named Liberty Municipal Money Market Fund), the Administration Agreement for these Funds provides that the Advisor will monitor compliance by the Fund with Rule 2a-7 under the 1940 Act and report to the Trustees from time to time with respect thereto. The Advisor is paid a monthly fee at the annual rate of average daily net assets set forth in Part 1 of this SAI.
TRUST SERVICES AGREEMENT
Pursuant to a Trust Services Agreement, CMS provides the Columbia Tax-Managed Growth Fund's Trust Shares with trust administration services, including tax return preparation and filing, other tax and beneficiary reporting and recordkeeping. CMS's fee is described in the Prospectuses of the Columbia Tax-Managed Growth Fund.
THE PRICING AND BOOKKEEPING AGREEMENT
The Advisor is responsible for providing accounting and bookkeeping services to each Fund pursuant to a pricing and bookkeeping agreement. Under a separate agreement (Outsourcing Agreement), the Advisor has delegated those functions to State Street Bank and Trust Company (State Street). The Advisor pays fees to State Street under the Outsourcing Agreement. SEE "FUND CHARGES AND EXPENSES" IN
PART 1 OF THIS SAI FOR INFORMATION ON THESE FEES.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. The Advisor acts as investment advisor to each of the Funds. The Advisor's affiliate, CASI, advises other institutional, corporate, fiduciary and individual clients for which CASI performs various services. Various officers and Trustees of the Trust also serve as officers or Trustees of other funds and the other corporate or fiduciary clients of the Advisor. The Funds and clients advised by the Advisor or the Funds administered by the Advisor sometimes invest in securities in which the Fund also invests and sometimes engage in covered option writing programs and enter into transactions utilizing stock index options and stock index and financial futures and related options ("other instruments"). If the Fund, such other funds and such other clients desire to buy or sell the same portfolio securities, options or other instruments at about the same time, the purchases and sales are normally made as nearly as practicable on a pro rata basis in proportion to the amounts desired to be purchased or sold by each. Although in some cases these practices could have a detrimental effect on the price or volume of the securities, options or other instruments as far as the Fund is concerned, in most cases it is believed that these practices should produce better executions. It is the opinion of the Trustees that the desirability of retaining the Advisor as investment advisor to the Funds outweighs the disadvantages, if any, which might result from these practices.
POTENTIAL CONFLICTS OF INTEREST IN MANAGING MULTIPLE ACCOUNTS
Like other investment professionals with multiple clients, a portfolio manager for a Fund may face certain potential conflicts of interest in connection with managing both the Fund and other accounts at the same time. The paragraphs below describe some of these potential conflicts, which the Advisor believes are faced by investment professionals at most major financial firms. The Advisor and the Trustees of the Columbia Funds have adopted compliance policies and procedures that attempt to address certain of these potential conflicts.
The management of accounts with different advisory fee rates and/or fee structures, including accounts that pay advisory fees based on account performance ("performance fee accounts"), may raise potential conflicts of interest by creating an incentive to favor higher-fee accounts. These potential conflicts may include, among others:
- The most attractive investments could be allocated to higher-fee accounts or performance fee accounts.
- The trading of higher-fee accounts could be favored as to timing and/or execution price. For example, higher-fee accounts could be permitted to sell securities earlier than other accounts when a prompt sale is desirable or to buy securities at an earlier and more opportune time.
- The trading of other accounts could be used to benefit higher-fee accounts (front- running).
- The investment management team could focus their time and efforts primarily on higher-fee accounts due to a personal stake in compensation.
Potential conflicts of interest may also arise when the portfolio managers have personal investments in other accounts that may create an incentive to favor those accounts. As a general matter and subject to limited exceptions, the Advisor's investment professionals do not have the opportunity to invest in client accounts, other than the Columbia Funds.
A potential conflict of interest may arise when a Fund and other accounts purchase or sell the same securities. On occasions when a portfolio manager considers the purchase or sale of a security to be in the best interests of a Fund as well as other accounts, the Advisor's trading desk may, to the extent permitted by applicable laws and regulations, aggregate the securities to be sold or purchased in order to obtain the best execution and lower brokerage commissions, if any. Aggregation of trades may create the potential for unfairness to a Fund or another account if one account is favored over another in allocating the securities purchased or sold - for example, by allocating a disproportionate amount of a security that is likely to increase in value to a favored account.
"Cross trades," in which one Columbia account sells a particular security to another account (potentially saving transaction costs for both accounts), may also pose a potential conflict of interest. Cross trades may be seen to involve a potential conflict of interest if, for example, one account is permitted to sell a security to another account at a higher price than an independent third party would pay. The Advisor and the Funds' Trustees have adopted compliance procedures that provide that any transactions between a Fund and another Columbia-advised account are to be made at an independent current market price, as required by law.
Another potential conflict of interest may arise based on the different investment objectives and strategies of a Fund and other accounts. For example, another account may have a shorter-term investment horizon or different investment objectives, policies or restrictions than a Fund. Depending on another account's objectives or other factors, a portfolio manager may give advice and make decisions that may differ from advice given, or the timing or nature of decisions made, with respect to a Fund. In addition, investment decisions are the product of many factors in addition to basic suitability for the particular account involved. Thus, a particular security may be bought or sold for certain accounts even though it could have been bought or sold for other accounts at the same time. More rarely, a particular security may be bought for one or more accounts managed by a portfolio manager when one or more other accounts are selling the security (including short sales). There may be circumstances when purchases or sales of portfolio securities for one or more accounts may have an adverse effect on other accounts.
A Fund's portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. As a result, the portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as might be the case if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies.
A Fund's portfolio managers may be able to select or influence the selection of the brokers and dealers that are used to execute securities transactions for the Fund. In addition to executing trades, some brokers and dealers provide portfolio managers with brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934), which may result in the payment of higher brokerage fees than might have otherwise be available. These services may be more beneficial to certain funds or accounts than to others. Although the payment of brokerage commissions is subject to the requirement that the portfolio manager determine in good faith that the commissions are reasonable in relation to the value of the brokerage and research services provided to the fund, a portfolio manager's decision as to the selection of brokers and dealers could yield disproportionate costs and benefits among the funds and/or accounts that he or she manages.
The Advisor or an affiliate may provide more services (such as distribution or recordkeeping) for some types of funds or accounts than for others. In such cases, a portfolio manager may benefit, either directly or indirectly, by devoting disproportionate attention to the management of fund and/or accounts that provide greater overall returns to the investment manager and its affiliates.
A Fund's portfolio manager(s) may also face other potential conflicts of interest in managing the Fund, and the description above is not a complete description of every conflict that could be deemed to exist in managing both a Fund and other accounts. In addition, a Fund's portfolio manager may also manage other accounts (including their personal assets or the assets of family members) in their personal capacity. The management of these accounts may also involve certain of the potential conflicts described above. Investment personnel
at the Advisor, including each Fund's portfolio manager, are subject to restrictions on engaging in personal securities transactions pursuant to Codes of Ethics adopted by the Advisor and each Fund, which contain provisions and requirements designed to identify and address certain conflicts of interest between personal investment activities and the interests of each Fund.
BROKERAGE AND RESEARCH SERVICES. Consistent with the Conduct Rules of the National Association of Securities Dealers, Inc., and subject to seeking "best execution" (as defined below) and such other policies as the Trustees may determine, the Advisor may consider sales of shares of the Funds as a factor in the selection of broker-dealers to execute securities transactions for a Fund.
The Advisor places the transactions of the Funds with broker-dealers selected by the Advisor and, if applicable, negotiates commissions. Broker-dealers may receive brokerage commissions on portfolio transactions, including the purchase and writing of options, the effecting of closing purchase and sale transactions, and the purchase and sale of underlying securities upon the exercise of options and the purchase or sale of other instruments. The Funds from time to time also execute portfolio transactions with such broker-dealers acting as principals. The Funds do not intend to deal exclusively with any particular broker-dealer or group of broker-dealers.
It is the Advisor's policy generally to seek best execution, which is to place the Funds' transactions where the Funds can be expected to obtain the most favorable combination of price and execution services in particular transactions or provided on a continuing basis by a broker-dealer, and to deal directly with a principal market maker in connection with over-the-counter transactions, except when it is believed that best execution is obtainable elsewhere. In evaluating the execution services of, including the overall reasonableness of brokerage commissions paid to, a broker-dealer, consideration is given to, among other things, the firm's general execution and operational capabilities, and to its reliability, integrity and financial condition.
Securities transactions of the Funds may be executed by broker-dealers who also provide research services (as defined below) to the Advisor and the Funds. The Advisor may use all, some or none of such research services in providing investment advisory services to each of its investment company and other clients, including the Fund. To the extent that such services are used by the Advisor, they tend to reduce the Advisor's expenses. In the Advisor's opinion, it is impossible to assign an exact dollar value for such services.
The Trustees have authorized the Advisor to cause the Funds to pay a broker-dealer which provides brokerage and research services to the Advisor an amount of commission for effecting a securities transaction, including the sale of an option or a closing purchase transaction, for the funds in excess of the amount of commission which another broker-dealer would have charged for effecting that transaction. As provided in Section 28(e) of the Securities Exchange Act of 1934, "brokerage and research services" include advice as to the value of securities, the advisability of investing in, purchasing or selling securities and the availability of securities or purchasers or sellers of securities; furnishing analyses and reports concerning issues, industries, securities, economic factors and trends and portfolio strategy and performance of accounts; and effecting securities transactions and performing functions incidental thereto (such as clearance and settlement). The Advisor must determine in good faith that such greater commission is reasonable in relation to the value of the brokerage and research services provided by the executing broker-dealer viewed in terms of that particular transaction or the Advisor's overall responsibilities to the Funds and all its other clients.
The Trustees have authorized the Advisor to utilize the services of a clearing agent with respect to all call options written by Funds that write options and to pay such clearing agent commissions of a fixed amount per share (currently 1.25 cents) on the sale of the underlying security upon the exercise of an option written by a Fund.
The Advisor may use the services of affiliated broker-dealers, when buying or selling securities for a Fund's portfolio pursuant to procedures adopted by the Trustees and 1940 Act Rule 17e-1. Under the Rule, the Advisor must ensure that commissions a Fund pays to affiliates of the Advisor on portfolio transactions are reasonable and fair compared to commissions received by other broker-dealers in connection with comparable transactions involving similar securities being bought or sold at about the same time. The Advisor will report quarterly to the Trustees on all securities transactions placed through affiliates of the Advisor so that the Trustees may consider whether such trades complied with these procedures and the Rule.
PRINCIPAL UNDERWRITER
CMD is the principal underwriter of the Trust's shares. CMD has no obligation to buy the Funds' shares, and purchases the Funds' shares only upon receipt of orders from authorized FSFs or investors.
INVESTOR SERVICING AND TRANSFER AGENT
CMS is the Trust's investor servicing agent (transfer, plan and dividend disbursing agent), for which it receives fees which are paid monthly by the Trust. The fee paid to CMS is based on number of accounts plus reimbursement for certain out-of-pocket expenses. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION ON FEES RECEIVED BY CMS. The agreement continues indefinitely but may be terminated by 90 days' notice by the Fund to CMS or generally by 6 months' notice by CMS to the Fund. The agreement limits the liability of CMS to the Fund for loss or damage incurred by the Fund to situations involving a failure of CMS to use reasonable care or to act in good faith and without negligence in performing its duties under the agreement. The Fund will indemnify CMS from, among other things, any and all claims, actions, suits, losses, costs, damages, and expenses incurred by it in connection with its acceptance of this Agreement, provided that: (i) to the extent such claims, actions, suits, losses, costs, damages, or expenses relate
solely to a particular series or group of series of shares, such indemnification shall be only out of the assets of that series or group of series; (ii) this indemnification shall not apply to actions or omissions constituting negligence or misconduct of CMS or its agents or contractors, including but not limited to willful misfeasance, bad faith or gross negligence in the performance of their duties, or reckless disregard of their obligations and duties under this Agreement; and (iii) CMS shall give a Fund prompt notice and reasonable opportunity to defend against any such claim or action in its own name or in the name of CMS.
CODE OF ETHICS
The Funds, the Advisor, and CMD have adopted Codes of Ethics pursuant to the requirements of the Act. These Codes of Ethics permit personnel subject to the Codes to invest in securities, including securities that may be purchased or held by the Funds. These Codes of Ethics can be reviewed and copied at the SEC's Public Reference Room and may be obtained by calling the SEC at 1-202-942-8090. These Codes are also available on the EDGAR Database on the SEC's internet web site at http://www.sec.gov, and may also be obtained, after paying a duplicating fee, by electronic request to publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102.
ANTI-MONEY LAUNDERING COMPLIANCE
The Funds are required to comply with various anti-money laundering laws and regulations. Consequently, the Funds may request additional information from you to verify your identity. If at any time the Funds believe a shareholder may be involved in suspicious activity or if certain account information matches information on government lists of suspicious persons, the Funds may choose not to establish a new account or may be required to "freeze" a shareholder's account, halting all shareholder activity with respect to such account. The Funds also may be required to provide a governmental agency with information about transactions that have occurred in a shareholder's account or to transfer monies received to establish a new account, transfer an existing account or transfer the proceeds of an existing account to a governmental agency. In some circumstances, the law may not permit a Fund to inform the shareholder that it has taken the actions described above.
PROXY VOTING POLICIES AND FUND PROXY VOTING RECORD
The Fund has delegated to the Advisor the responsibility to vote proxies relating to portfolio securities held by the Fund. In deciding to delegate this responsibility to the Advisor, the Board of Trustees of the Trust reviewed and approved the policies and procedures adopted by the Advisor. These included the procedures that the Advisor follows when a vote presents a conflict between the interests of the Fund and its shareholders and the Advisor, its affiliates, its other clients or other persons.
The Advisor's policy is to vote all proxies for Fund securities in a manner considered by the Advisor to be in the best interest of the Fund and its shareholders without regard to any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor examines each proposal and votes against the proposal, if, in its judgment, approval or adoption of the proposal would be expected to impact adversely the current or potential market value of the issuer's securities. The Advisor also examines each proposal and votes the proxies against the proposal, if, in its judgment, the proposal would be expected to affect adversely the best interest of the Fund. The Advisor determines the best interest of the Fund in light of the potential economic return on the Fund's investment.
The Advisor addresses potential material conflicts of interest by having predetermined voting guidelines. For those proposals that require special consideration or in instances where special circumstances may require varying from the predetermined guideline, the Advisor's Proxy Committee determines the vote in the best interest of the Fund, without consideration of any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor's Proxy Committee is composed of representatives of the Advisor's equity investments, equity research, compliance, legal and fund administration functions. In addition to the responsibilities described above, the Proxy Committee has the responsibility to review, on a semi-annual basis, the Advisor's proxy voting policies to ensure consistency with internal and regulatory agency policies and to develop additional predetermined voting guidelines to assist in the review of proxy proposals.
The Proxy Committee may vary from a predetermined guideline if it determines that voting on the proposal according to the predetermined guideline would be expected to impact adversely the current or potential market value of the issuer's securities or to affect adversely the best interest of the client. References to the best interest of a client refer to the interest of the client in terms of the potential economic return on the client's investment. In determining the vote on any proposal, the Proxy Committee does not consider any benefit other than benefits to the owner of the securities to be voted. A member of the Proxy Committee is prohibited from voting on any proposal for which he or she has a conflict of interest by reason of a direct relationship with the issuer or other party affected by a given proposal. Persons making recommendations to the Proxy Committee or its members are required to disclose to the Committee any relationship with a party making a proposal or other matter known to the person that would create a potential conflict of interest.
The Advisor has retained Institutional Shareholder Services ("ISS"), a third party vendor, to implement its proxy voting process. ISS provides proxy analysis, record keeping services and vote disclosure services.
The Advisor's proxy voting guidelines and procedures are included in this SAI as Appendix II. In accordance with SEC regulations, the fund's proxy voting record for the last twelve-month period ended June 30 has been filed with the SEC. You may obtain a copy of the fund's proxy voting record (i) at www.columbiamanagement.com; (ii) on the Securities and Exchange Commission's website at www.sec.gov and (iii) without charge, upon request, by calling 800-368-0346.
DISCLOSURE OF PORTFOLIO INFORMATION
The Trustees of the Columbia Funds have adopted policies with respect to the disclosure of the Funds' portfolio holdings by the Funds, Columbia Management, or their affiliates. These policies provide that Fund portfolio holdings information generally may not be disclosed to any party prior to (1) the day next following the posting of such information on the Funds' website at www.columbiafunds.com, (2) the day next following the filing of the information with the SEC in a required filing, or (3) for money market funds, such information is publicly available to all shareholders upon request on the fifth business day after each calendar month-end. Certain limited exceptions pursuant to the Fund's policies are described below. The Trustees shall be updated as needed regarding the Fund's compliance with the policies, including information relating to any potential conflicts of interest between the interests of Fund shareholders and those of Columbia Management and its affiliates. The Fund's policies prohibit Columbia Management and the Fund's other service providers from entering into any agreement to disclose Fund portfolio holdings information in exchange for any form of consideration. These policies apply to disclosures to all categories of persons, including, without limitation, individual investors, institutional investors, intermediaries that distribute the Fund's shares, third-party service providers, rating and ranking organizations and affiliated persons of the Fund.
PUBLIC DISCLOSURES. The Fund's portfolio holdings are currently disclosed to the public through required filings with the SEC and, for equity and fixed income funds, on the Fund's website at www.columbiafunds.com. The Fund files its portfolio holdings with the SEC for each fiscal quarter on Form N-CSR (with respect to each annual period and semi-annual period) and Form N-Q (with respect to the first and third quarters of the Fund's fiscal year). Shareholders may obtain the Fund's Forms N-CSR and N-Q filings on the SEC's website at www.sec.gov. In addition, the Fund's Forms N-CSR and N-Q filings may be reviewed and copied at the SEC's public reference room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC's website or the operation of the public reference room.
The equity and fixed income Columbia Funds also currently make portfolio information publicly available at www.columbiafunds.com, as disclosed in the following table:
FREQUENCY OF
TYPE OF FUND INFORMATION PROVIDED DISCLOSURE DATE OF WEB POSTING
------------ ----------------------- ------------ -------------------
Equity Funds Full portfolio holdings Monthly 30 calendar days after month-
information. end.
Fixed Income Funds Full portfolio holdings Quarterly 60 calendar days after quarter-
information. end
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The scope of the information provided relating to the Fund's portfolio that is made available on the website may change from time to time without prior notice.
For Columbia's money market funds, a complete list of a Fund's portfolio holdings shall be publicly available on a monthly basis on the fifth business date after month-end. Shareholders may request such information by writing or calling the Fund's distributor, Columbia Management Distributors, Inc. at the address listed on the cover of this SAI.
A Fund, Columbia Management or their affiliates may include portfolio holdings information that has already been made public through a web posting or SEC filing in marketing literature and other communications to shareholders, advisors or other parties, provided that the information is disclosed no earlier than the day after the date the information is disclosed publicly.
OTHER DISCLOSURES. The Fund's policies provide that non-public disclosures of the Fund's portfolio holdings may be made if (1) the Fund has a legitimate business purpose for making such disclosure, (2) the Fund's chief executive officer authorizes such non-public disclosure of information, and (3) the party receiving the non-public information enters into a confidentiality agreement, which includes a duty not to trade on the non-public information.
The Fund periodically discloses its portfolio information on a confidential basis to various service providers that require such information in order to assist the Fund with its day-to-day business affairs. In addition to Columbia Management and its affiliates, these service providers include the Fund's custodian and sub-custodians, the Fund's independent registered public accounting firm, legal counsel, financial printers (R.R. Donnelly & Sons and Bowne & Co., Inc.), the Fund's proxy voting service provider (Alamo Direct Mail Services, Inc.), the Fund's proxy solicitor (Georgeson Shareholder Communications Inc.), rating agencies that maintain ratings on certain
Columbia Funds (Fitch, Inc.) and service providers that support Columbia Management's trading systems (InvestorTool, Inc. and Thomson Financial). These service providers are required to keep such information confidential, and are prohibited from trading based on the information or otherwise using the information except as necessary in providing services to the Fund. The Fund may also disclose portfolio holdings information to broker/dealers and certain other entities related to potential transactions and management of the Fund, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information.
Certain clients of the Fund's investment adviser(s) may follow a strategy similar to that of the Fund, and have access to portfolio holdings information for their account. It is possible that such information could be used to infer portfolio holdings information relating to the Fund.
DETERMINATION OF NET ASSET VALUE
Each Fund determines net asset value (NAV) per share for each class as of the close of the New York Stock Exchange (Exchange) (generally 4:00 p.m. Eastern time) each day the Exchange is open, except that certain classes of assets, such as index futures, for which the market close occurs shortly after the close of regular trading on the Exchange will be priced at the closing time of the market on which they trade. Currently, the Exchange is closed Saturdays, Sundays and the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. Funds with portfolio securities which are primarily listed on foreign exchanges may experience trading and changes in NAV on days on which such Fund does not determine NAV due to differences in closing policies among exchanges. This may significantly affect the NAV of the Fund's redeemable securities on days when an investor cannot redeem such securities Debt securities generally are valued by a pricing service which determines valuations based upon market transactions for normal, institutional-size trading units of similar securities. However, in circumstances where such prices are not available or where the Advisor deems it appropriate to do so, an over-the-counter or exchange bid quotation is used. Securities listed on an exchange or on NASDAQ are valued at the last sale price (or the official closing price as determined by the NASDAQ system, if different, as applicable). Listed securities for which there were no sales during the day and unlisted securities generally are valued at the last quoted bid price. Options are valued at the last sale price or in the absence of a sale, the mean between the last quoted bid and offering prices. Short-term obligations with a maturity of 60 days or less are valued at amortized cost pursuant to procedures adopted by the Trustees. The values of foreign securities quoted in foreign currencies are translated into U.S. dollars at the exchange rate for that day. Portfolio positions for which market quotations are not readily available and other assets are valued at fair value as determined by the Advisor in good faith under the direction of the Trust's Board of Trustees.
Generally, trading in certain securities (such as foreign securities) is substantially completed each day at various times prior to the close of the Exchange. Trading on certain foreign securities markets may not take place on all business days in New York, and trading on some foreign securities markets takes place on days which are not business days in New York and on which the Fund's NAV is not calculated. The values of these securities used in determining the NAV are computed as of such times. Also, because of the amount of time required to collect and process trading information as to large numbers of securities issues, the values of certain securities (such as convertible bonds, U.S. government securities, and tax-exempt securities) are determined based on market quotations collected earlier in the day at the latest practicable time prior to the close of the Exchange. Occasionally, events affecting the value of such securities may occur between such times and the close of the Exchange which will not be reflected in the computation of each Fund's NAV. If events materially affecting the value of such securities occur during such period, then these securities will be valued at fair value following procedures approved by the Trust's Board of Trustees.
(The following two paragraphs are applicable only to Columbia Newport Tiger Fund (formerly named Liberty Newport Tiger Fund), Columbia Newport Greater China Fund (formerly named Liberty Newport Greater China Fund), Columbia Newport Europe Fund (formerly named Liberty Newport Europe Fund) and Columbia Newport Asia Pacific Fund (formerly named Liberty Newport Asia Pacific Fund))
Trading in securities on stock exchanges and over-the-counter markets in foreign securities markets is normally completed well before the close of the business day in New York. Trading on foreign securities markets may not take place on all business days in New York, and trading on some foreign securities markets does take place on days which are not business days in New York and on which the Fund's NAV is not calculated.
The calculation of the Fund's NAV accordingly may not take place contemporaneously with the determination of the prices of the Fund's portfolio securities used in such calculations. Events affecting the values of portfolio securities that occur between the time their prices are determined and the close of the Exchange (when the Fund's NAV is calculated) will not be reflected in the Fund's calculation of NAV unless the Advisor, acting under procedures established by the Board of Trustees of the Trust, deems that the particular event would materially affect the Fund's NAV, in which case an adjustment will be made. Assets or liabilities initially expressed in terms of foreign currencies are translated prior to the next determination of the NAV of the Fund's shares into U.S. dollars at prevailing market rates.
AMORTIZED COST FOR MONEY MARKET FUNDS (SEE "AMORTIZED COST FOR MONEY MARKET
FUNDS" UNDER "INFORMATION CONCERNING THE FUND" IN PART 1 OF THE SAI OF COLUMBIA
MONEY MARKET FUND (FORMERLY NAMED LIBERTY MONEY MARKET FUND) AND COLUMBIA
MUNICIPAL MONEY MARKET FUND (FORMERLY NAMED LIBERTY MUNICIPAL MONEY MARKET
FUND))
Money market funds generally value their portfolio securities at amortized cost according to Rule 2a-7 under the 1940 Act.
Under the amortized cost method a security is initially valued at cost and
thereafter any discount or premium from maturity value is amortized ratably to
maturity. This method assures a constant NAV but may result in a yield different
from that of the same portfolio under the market value method. The Trust's
Trustees have adopted procedures intended to stabilize a money market fund's NAV
per share at $1.00. If a money market fund's market value deviates from the
amortized cost of $1.00, and results in a material dilution to existing
shareholders, the Trust's Trustees will take corrective action that may include:
realizing gains or losses; shortening the portfolio's maturity; withholding
distributions; redeeming shares in kind; or converting to the market value
method (in which case the NAV per share may differ from $1.00). All investments
will be determined pursuant to procedures approved by the Trust's Trustees to
present minimal credit risk.
See the Statement of Assets and Liabilities in the shareholder report of the Columbia Money Market Fund (formerly named Liberty Money Market Fund) or the Columbia Municipal Money Market Fund (formerly named Liberty Municipal Money Market Fund) for a specimen price sheet showing the computation of maximum offering price per share of Class A shares.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of the Fund and tables of charges. This SAI contains additional information which may be of interest to investors.
The Fund may accept unconditional orders for shares to be executed at the public offering price based on the NAV per share next determined after the order is placed in good order. The public offering price is the NAV plus the applicable sales charge, if any. In the case of orders for purchase of shares placed through FSFs, the public offering price will be determined on the day the order is placed in good order, but only if the FSF receives the order prior to the time at which shares are valued and transmits it to the Fund before the Fund processes that day's transactions. If the FSF fails to transmit before the Fund processes that day's transactions, the customer's entitlement to that day's closing price must be settled between the customer and the FSF. If the FSF receives the order after the time at which the Fund values its shares, the price will be based on the NAV determined as of the close of the Exchange on the next day it is open. If funds for the purchase of shares are sent directly to CMS, they will be invested at the public offering price next determined after receipt in good order. Payment for shares of the fund must be in U.S. dollars; if made by check, the check must be drawn on a U.S. bank.
Investors should understand that, since the offering price of the Fund's shares is calculated to two decimal places using standard rounding methodology, the dollar amount of the sales charge paid as a percentage of the offering price and of the net amount invested for any particular purchase of fund shares may be higher or lower depending on whether downward or upward rounding was required during the calculation process.
The Fund receives the entire NAV of shares sold. For shares subject to an initial sales charge, CMD's commission is the sales charge shown in the Fund's Prospectus less any applicable FSF discount. The FSF discount is the same for all FSFs, except that CMD retains the entire sales charge on any sales made to a shareholder who does not specify a FSF on the Investment Account Application ("Application"), and except that CMD may from time to time reallow additional amounts to all or certain FSFs. CMD generally retains some or all of any asset-based sales charge (distribution fee) or contingent deferred sales charge. Such charges generally reimburse CMD for any up-front and/or ongoing commissions paid to FSFs.
Checks presented for the purchase of shares of the Fund which are returned by the purchaser's bank or checkwriting privilege checks for which there are insufficient funds in a shareholder's account to cover redemption may subject such purchaser or shareholder to a $15 service fee for each check returned. Checks must be drawn on a U.S. bank and must be payable in U.S. dollars. Travelers checks, gift checks, credit card convenience checks, credit cards, cash and ban counter (starter checks) are not accepted.
CMS acts as the shareholder's agent whenever it receives instructions to carry out a transaction on the shareholder's account. Upon receipt of instructions that shares are to be purchased for a shareholder's account, the designated FSF will receive the applicable sales commission. Shareholders may change FSFs at any time by written notice to CMS, provided the new FSF has a sales agreement with CMD.
Shares credited to an account are transferable upon written instructions in good order to CMS and may be redeemed as described under "How to Sell Shares" in the Prospectus. Certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you may send the certificates to CMS for deposit to your account.
In addition to the commissions specified in a Fund's prospectus and this SAI, CMD, or its advisory affiliates, from their own resources, may make cash payments to FSFs that agree to promote the sale of shares of funds that CMD distributes. A number of factors may be considered in determining the amount of those payments, including the FSF's sales, client assets invested in the funds and redemption
rates, the quality of the FSF's relationship with CMD and/or its affiliates, and the nature of the services provided by FSFs to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the FSF's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, CMD may also pay non-cash compensation to FSFs and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for FSF educational or training events.
In addition, CMD, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of a Fund.
CMD and its affiliates anticipate that the FSFs and intermediaries that will receive the additional compensation described above include:
1st Global Capital Corp
401 Company
ABN AMRO Trust Services
ADP Retirement Services
Advest
AEGON/Transamerica
AG Edwards
American Century Services
American Express
AMG
AON Consulting
AST Trust Company
Banc of America Investment Services
BancOne
Bear Stearns
Benefit Plan Administrators
Bidwell & Company
BNY Clearing
C N A Trust
Charles Schwab
CIBC Oppenheimer
Citigroup Global Markets
CitiStreet Associates LLC
City National Bank
City of Milwaukee
Columbia Trust Company
Commonwealth Financial
Compensation & Capital
CPI Qualified Plan Consultants
Daily Access Concepts
Davenport & Company
Delaware Investments
Digital Retirement Solutions
Discover Brokerage
Dreyfus/Mellon
Edgewood Services
Edward Jones
E-Trade,
ExpertPlan
FAS Liberty Life Spectrum
Ferris Baker Watts
Fidelity
Financial Data Services
Franklin Templeton
Freeman Welwood
Gem Group
Great West Life
Hewitt Associates LLC
Huntington Bank
ING
Intermountain Health Care
Investmart, Inc.
Investment Manager Services (IMS)
Janney Montgomery Scott
JJB Hilliard Lyons
JP Morgan/American Century
Kenney Investments
Kirkpatrick Pettis Smith Polian Inc
Legg Mason Wood Walker
Liberty Life
Lincoln Financial
Lincoln Life
Linsco Private Ledger
M & T Securities
Marquette Trust Company
Mass Mutual Life
Matrix Settlement & Clearance Services (MSCS)
McDonald Investments
Merrill Lynch
MetLife
MFS
Mfund Trax
MidAtlantic Capital
Milliman USA
Morgan Keegan
Morgan Stanley Dean Witter
PFPC
Nationwide Investment Services
Neuberger Berman Mgmt
NFP Securities
NSD - NetStock Sharebuilder
NYLife Distributors
Optimum Investment Advisors
Orbitex
Pershing LLC
Phoenix Home Life
Piper Jaffray
PNC
PPI Employee Benefits
Private Bank & Trust
Prudential
Putnam Investments
Raymond James
RBC Dain Rausher
Robert W Baird
Royal Alliance
RSM McGladrey Inc.
Safeco
Scott & Stringfellow
Scudder Investments
Security Benefit
Segall Bryant Hamill
South Trust Securities
Southwest Securities
Standard Insurance
Stanton Group
State of NY Deferred Compensation Plan
Stephens, Inc.
Stifel Nicolaus & Co
Strong Capital
Sungard T Rowe Price
Trustar Retirement Services
Trustlynx/Datalynx
UBS Financial Services
USAA Investment Management
Vanguard
Wachovia
TD Waterhouse
Webster Investment Services
Wells Fargo
Wilmington Trust
PLEASE CONTACT YOUR FSF OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or eliminated at any time.
AUTOMATIC INVESTMENT PLAN. As a convenience to investors, shares of most Funds advised by the Advisor may be purchased through the Automatic Investment Plan. Electronic fund transfers for a fixed amount of at least $50 ($25 for IRA) are used to purchase a Fund's shares at the public offering price next determined after CMD receives the proceeds. If your Automatic Investment Plan purchase is by electronic funds transfer, you may request the Automatic Investment Plan purchase for any day. Further information and application forms are available from FSFs or from CMD.
AUTOMATED DOLLAR COST AVERAGING (Classes A, B, C, D, T, G and Z). The Automated Dollar Cost Averaging program allows you to exchange $100 or more on a monthly basis from any fund distributed by CMD in which you have a current balance of at least $5,000 into the same class of shares of up to five other Funds. Complete the Automated Dollar Cost Averaging section of the Application. There is no charge for exchanges made pursuant to the Automated Dollar Cost Averaging program. Sales charges may apply if exchanging from a money market fund. Exchanges will continue so long as your fund balance is sufficient to complete the transfers. Your normal rights and privileges as a shareholder remain in full force and effect. Thus you can buy any Fund, exchange between the same Class of shares of Funds by written instruction or by telephone exchange if you have so elected and withdraw amounts from any Fund, subject to the imposition of any applicable CDSC or sales charges.
Any additional payments or exchanges into your Fund will extend the time of the Automated Dollar Cost Averaging program.
An exchange is generally a capital sale transaction for federal income tax purposes.
You may terminate your program, change the amount of the exchange (subject to the $100 minimum), or change your selection of funds, by telephone or in writing; if in writing by mailing your instructions to Columbia Management Services, Inc. (formerly named Columbia Funds Services, Inc.) (CMS) P.O. Box 8081, Boston, MA 02266-8081.
You should consult your FSF or financial advisor to determine whether or not the Automated Dollar Cost Averaging program is appropriate for you.
CMD offers several plans by which an investor may obtain reduced initial or contingent deferred sales charges. These plans may be altered or discontinued at any time. See "Programs For Reducing or Eliminating Sales Charges" below for more information.
CLASS T SHAREHOLDER SERVICES PLAN. The Trustees have approved a Shareholder Services Plan (the "Services Plan") pursuant to which the Trusts plan to enter into servicing agreements with institutions (including Bank of America Corporation and its affiliates). Pursuant to these servicing agreements, institutions render certain administrative and support services to customers who are the beneficial owners of Class T shares of each Fund other than the Columbia Newport Tiger Fund. Such services are provided to the institution's customers who are the beneficial owners of Class T shares and are intended to supplement the services provided by the Fund's administrator and transfer agent to the shareholders of record of the Class T shares. The Services Plan provides that each Fund will pay fees for such services at an annual rate of up to 0.50% of the average daily net asset value of Class T shares owned beneficially by the institution's customers. Institutions may receive up to one-half of this fee for providing one or more of the following services to such customers: (i) aggregating and processing purchase and redemption requests and placing net purchase and redemption orders with CMD; (ii)
processing dividend payments from a Fund; (iii) providing sub-accounting with
respect to Class T shares or the information necessary for sub-accounting; and
(iv) providing periodic mailings to customers. Institutions may also receive up
to one-half of this fee for providing one or more of these additional services
to such customers: (i) providing customers with information as to their
positions in Class T shares; (ii) responding to customer inquiries; and (iii)
providing a service to invest the assets of customers in Class T shares.
The payments under the servicing agreements entered into as of the date of this SAI are limited to an aggregate fee of not more than 0.30% (on an annualized basis) of the average daily net asset value of the Class T shares of equity funds beneficially owned by customers of institutions and 0.15% (on an annualized basis) of the average daily net asset value of the Class T shares of bond funds beneficially owned by customers of institutions. The Funds understand that institutions may charge fees to their customers who are the beneficial owners of Class T shares in connection with their accounts with such institutions. Any such fees would be in addition to any amounts which may be received by an institution under the Services Plan. Under the terms of each servicing agreement, institutions are required to provide to their customers a schedule of any fees that they may charge in connection with customer investments in Class T shares.
Each servicing agreement with an institution ("Service Organization") relating to the Services Plan requires that, with respect to those Funds which declare dividends on a daily basis, the Service Organization agrees to waive a portion of the servicing fee payable to it under the Services Plan to the extent necessary to ensure that the fees required to be accrued with respect to the Class T shares of such Funds on any day do not exceed the income to be accrued to such Class T shares on that day.
The Class T servicing agreements are governed by the Services Plan approved by the Board of Trustees in connection with the offering of Class T shares of each Fund. Pursuant to the Services Plan, the Board of Trustees reviews, at least quarterly, a written report of the amounts paid under the servicing agreements and the purposes for which the expenditures were made. In addition, the arrangements with Service Organizations must be approved annually by a majority of the Trustees, including a majority of the trustees who are not "interested persons" of the Funds as defined in the 1940 Act and who have no direct or indirect financial interest in such arrangements (the "Disinterested Trustees").
The Board of Trustees has approved the service agreements with Service Organizations based on information provided by the Funds' service contractors that there is a reasonable likelihood that the arrangements will benefit the Funds and their shareholders by affording the Funds greater flexibility in connection with the efficient servicing of the accounts of the beneficial owners of Class T shares of the Funds. Any material amendment to the Funds' arrangements with Service Organizations must be approved by a majority of the Board of Trustees (including a majority of the Disinterested Trustees). So long as the service agreements with Service Organizations are in effect, the selection and nomination of the members of Columbia's Board of Trustees who are not "interested persons" (as defined in the 1940 Act) of the Funds will be committed to the discretion of such Disinterested Trustees.
TAX-SHELTERED RETIREMENT PLANS (Retirement Plans). CMD offers prototype tax-qualified plans, including Pension and Profit-Sharing Plans for individuals, corporations, employees and the self-employed. The minimum initial Retirement Plan investment is $25. Columbia Trust Company (CTC) is the Custodian/Trustee and Plan Sponsor of the Columbia Management prototype plans offered through CMD. In general, a $20 annual fee is charged. Detailed information concerning these Retirement Plans and copies of the Retirement Plans are available from CMD.
Participants in Retirement Plans not sponsored by CTC, not including Individual Retirement Accounts (IRAs), may be subject to an annual fee of $20 unless the Retirement Plan maintains an omnibus account with CMS. Participants in CTC sponsored prototype plans (other than IRAs) who liquidate the total value of their account may also be charged a $20 close-out processing fee payable to CMS. The close out fee applies to plans opened after September 1, 1996. The fee is in addition to any applicable CDSC. The fee will not apply if the participant uses the proceeds to open a Columbia Management IRA Rollover account in any Fund distributed by CMD, or if the Retirement Plan maintains an omnibus account.
Consultation with a competent financial advisor regarding these Retirement Plans and consideration of the suitability of Fund shares as an investment under the Employee Retirement Income Security Act of 1974 or otherwise is recommended.
TELEPHONE ADDRESS CHANGE SERVICES. By calling CMS, shareholders or their FSF of record may change an address on a recorded telephone line. Confirmations of address change will be sent to both the old and the new addresses. Telephone redemption privileges by check are suspended for 30 days after an address change is effected. Please have your account and taxpayer identification numbers available when calling.
CASH CONNECTION. Dividends and any other distributions, including Systematic Withdrawal Plan (SWP) payments, may be automatically deposited to a shareholder's bank account via electronic funds transfer. Shareholders wishing to avail themselves of this electronic transfer procedure should complete the appropriate sections of the Application.
AUTOMATIC DIVIDEND DIVERSIFICATION. The automatic dividend diversification reinvestment program (ADD) generally allows shareholders to have all distributions from a Fund automatically invested in the same class of shares of another Fund. An ADD account must be in the same name as the shareholder's existing open account with the particular Fund. Call CMS for more information at 1-800-345-6611.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
RIGHTS OF ACCUMULATION (Columbia Class A and Class T shares, Nations Class A shares and Galaxy Retail A shares only) (Class T shares can only be purchased by the shareholders of Columbia Newport Tiger Fund (formerly named Liberty Newport Tiger Fund) who already own Class T shares). Reduced sales charges on Class A and T shares can be effected by combining a current purchase of Class A or Class T shares with prior purchases of other funds and classes distributed by CMD. The applicable sales charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on the previous day of all shares of funds for which CMD serves as distributor (Funds) held by the shareholder.
CMD must be promptly notified of each purchase with respect to which a shareholder is entitled to a reduced sales charge. Such reduced sales charge will be applied upon confirmation of the shareholder's holdings by CMS. A Fund may terminate or amend this Right of Accumulation.
STATEMENT OF INTENT (Class A, Class E and Class T shares only). Any person may qualify for reduced sales charges on purchases of Class A, E and T shares made within a thirteen-month period pursuant to a Statement of Intent ("Statement"). A shareholder may include, as an accumulation credit toward the completion of such Statement, the value of all fund shares held by the shareholder on the date of the Statement in Funds (except shares of any money market fund, unless such shares were acquired by exchange from Class A shares of another non-money market fund)). The value is determined at the public offering price on the date of the Statement. Purchases made through reinvestment of distributions do not count toward satisfaction of the Statement.
During the term of a Statement, CMS will hold shares in escrow to secure payment of the higher sales charge applicable to Class A, E or T shares actually purchased. Dividends and capital gains will be paid on all escrowed shares and these shares will be released when the amount indicated has been purchased. A Statement does not obligate the investor to buy or a Fund to sell the amount of the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which would qualify for a further quantity discount, a retroactive price adjustment will be made at the time of expiration of the Statement (provided the FSF returns to CMD the excess commission previously paid during the thirteen-month period). The resulting difference in offering price will purchase additional shares for the shareholder's account at the applicable offering price.
If the amount of the Statement is not purchased, the shareholder shall remit to CMD an amount equal to the difference between the sales charge paid and the sales charge that should have been paid. If the shareholder fails within twenty days after a written request to pay such difference in sales charge, CMS will redeem escrowed Class A, E or T shares with a value equal to such difference. The additional FSF commission will be remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available from your FSF, or from CMS at 1-800-345-6611.
NET ASSET VALUE ELIGIBILITY GUIDELINES (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, INC. IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS).
1. Employees, brokers and various relationships that are allowed to buy at NAV. Class A shares of certain Funds may be sold at (NAV) to the following individuals, whether currently employed or retired: Employees of Bank of America Corporation (and its predecessors), its affiliates and subsidiaries; Trustees of funds advised or administered by the Advisor; directors, officers and employees of the Advisor, CMD, or its successors and companies affiliated with the Advisor; Registered representatives and employees of Financial Service Firms (including their affiliates) that are parties to dealer agreements or other sales arrangements with CMD; Nations Funds' Trustees, Directors and employees of its investment sub-advisers; Broker/Dealers if purchases are in accordance with the internal policies and procedures of the employing broker/dealer and made for their own investment purposes; employees or partners of any contractual service provider to the funds
NAV eligibility for Class A purchase also applies to the families of the
parties listed above and their beneficial accounts. Family members include:
spouse, parent, stepparent, legal guardian, child,
stepchild, father-in-law and mother-in-law.
Individuals receiving a distribution from a Bank of America trust, fiduciary, custodial or other similar account may use the proceeds of that distribution to buy Class A shares without paying a front-end sales charge, as long as the proceeds are invested in the funds within 90 days of the date of distribution.
Registered broker/dealer firms that have entered into a Nations Funds dealer agreement with BACAP Distributors, LLC may buy Class A shares without paying a front-end sales charge for their investment account only.
Banks, trust companies and thrift institutions, acting as fiduciaries.
2. Grandfathered investors. Any shareholder who owned shares of any fund of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000 (when all of the then outstanding shares of Columbia Acorn Trust were re-designated Class Z shares) and who since that time has remained a shareholder of any Fund, may purchase Class A shares of any Fund at NAV in those cases where a Columbia Fund Class Z share is not available.
Shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at (NAV) will continue to be eligible for NAV purchases into those Nations Fund accounts opened through August 19, 2005.
Galaxy Fund shareholders prior to December 1, 1995; and shareholders who
(i) purchased Galaxy Fund Prime A shares at net asset value and received
Class A shares in exchange for those shares during the Galaxy/Liberty Fund
reorganization; and (ii) continue to maintain the account in which the
Prime A shares were originally purchased.
(For Class T shares only) Shareholders who (i) purchased Galaxy Fund Retail A shares at net asset value and received Class T shares in exchange for those shares during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Retail A shares were originally purchased; and Boston 1784 Fund shareholders on the date that those funds were reorganized into Galaxy Funds.
3. Reinstatement. Subject to the fund policy on trading of fund shares, an investor who has redeemed class A, B, C, D, G or T shares may, upon request, reinstate within 1 year a portion or all of the proceeds of such sales in shares of class A of any fund at the NAV next determined after Columbia Management Services, Inc. received a written reinstatement request and payment.
4. Retirement Plans. Class A, Class E and Class T shares (Class T shares are not currently open to new investors) of certain funds may also be purchased at reduced or no sales charge by clients of dealers, brokers or registered investment advisors that have entered into arrangements with CMD pursuant to which the funds are included as investments options in wrap fee accounts, other managed agency/asset allocation accounts or programs involving fee-based compensation arrangements, and by participants in certain retirement plans.
5. Non-U.S. Investors. Certain pension, profit-sharing or other employee benefit plans offered to non-US investors may be eligible to purchase Class A shares with no sales charge.
6. Reorganizations. At the Fund's discretion, NAV eligibility may apply to shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which the fund is a party.
7. Rights of Accumulation (ROA). The value of eligible accounts, regardless of class, maintained by you and you and your immediate family may be combined with the value of your current purchase to reach a sales discount level and to obtain the lower sales charge for your current purchase.
8. Letters of Intent (LOI). You may pay a lower sales charge when purchasing class A shares by signing a letter of intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the LOI within 13 months. If your LOI purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES (CDSCS) (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, INC. IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS) (Class A, B, C, D, E, matured F, G and T shares) CDSCs may be waived on redemptions in the following situations with the proper documentation:
1. Death. CDSCs may be waived on redemptions following the death of (i) the sole shareholder on an individual account, (ii) a joint tenant where the surviving joint tenant is the deceased's spouse, or (iii) the beneficiary of a Uniform Gifts to Minors Act (UGMA), Uniform Transfers to Minors Act (UTMA) or other custodial account. If, upon the occurrence of one of the foregoing, the account is transferred to an account registered in the name of the deceased's estate, the CDSC will be waived on any redemption from the estate account If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions occurring pursuant to a monthly, quarterly or semi-annual SWP established with CMS, to the extent the redemptions do not exceed, on an annual basis, 12% of the account's value at the time that the SWP is established. Otherwise, CDSCs will be charged on SWP redemptions until this requirement is met. For redemptions in excess of 12% of the account's value at the time that the SWP is established, a CDSC will be charged on the SWP redemption. The 12% limit does not apply if the SWP is set up at the time the account is established, and distributions are being reinvested. See below under "How to Sell Shares - Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions occurring after the sole shareholder on an individual account or a joint tenant on a spousal joint tenant account becomes disabled (as defined in Section 72(m)(7) of the Internal Revenue Code). To be eligible for such waiver, (i) the disability must arise AFTER the purchase of shares (ii) the disabled shareholder must have been under age 65 at the time of the initial determination of disability, and (iii) a letter from a physician must be signed under penalty of perjury stating the nature of the disability. If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring upon
dissolution of a revocable living or grantor trust following the death of
the sole trustee where (i) the grantor of the trust is the sole trustee and
the sole life beneficiary, (ii) death occurs following the purchase AND
(iii) the trust document provides for dissolution of the trust upon the
trustee's death. If the account is transferred to a new registration
(including that of a successor trustee), the applicable CDSC will be
charged upon any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions required to return excess contributions made to retirement plans or individual retirement accounts, so long as the FSF agrees to return the applicable portion of any commission paid by CMD.
6. Qualified Retirement Plans. CDSCs may be waived on CMD shares sold by employee benefit plans created according to Section 403(b) of the tax code and sponsored by a non-profit organization qualified under Section 501(c)(3) of the tax code. To qualify for the waiver, the plan must be a participant in an alliance program th at has signed an agreement with Columbia Funds or CMD.
7. Trust Share Taxes. CDSCs will be waived on redemptions of Class E and F
shares (i) where the proceeds are used to directly pay trust taxes, and
(ii) where the proceeds are used to pay beneficiaries for the payment of
trust taxes.
8. Return of Commission. CDSCs may be waived on shares sold by intermediaries that are part of the Columbia Funds selling group where the intermediary has entered into an agreement with Columbia Funds not to receive (or to return if received) all or any applicable portion of an upfront commission.
9. Non-U.S. Investors. CDSCs may be waived on shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors.
10. IRS Section 401 and 457. CDSCs may be waived on shares sold by certain
pension, profit-sharing or other employee benefit plans established under
Section 401 or 457 of the tax code.
11. Medical Payments. CDSCs may be waived on shares redeemed for medical payments that exceed
7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least twelve weeks.
12. Plans of Reorganization. At the Funds' discretion, CDSCs may be waived for shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which a fund is a party.
13. Charitable Giving Program. CDSCs may be waived on the sale of Class C or Class D shares sold by a non-profit organization qualified under Section 501(c)(3) of the tax code in connection with the Banc of America Capital Management Charitable Giving Program.
14. The CDSC also may be waived where the FSF agrees to return all or an agreed upon portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may be sold on any day the Exchange is open, either directly to the Fund or through the shareholder's FSF. Sale proceeds generally are sent within seven days (usually on the next business day after your request is received in good form). However, for shares recently purchased by check, the Fund may delay selling or delay sending proceeds from your shares for up to 15 days in order to protect the Fund against financial losses and dilution in net asset value caused by dishonored purchase payment checks.
To sell shares directly to the Fund, send a signed letter of instruction to CMS, along with any certificates for shares to be sold. The sale price is the net asset value (less any applicable contingent deferred sales charge) next calculated after the Fund receives the request in proper form. Signatures must be guaranteed by a bank, a member firm of a national stock exchange or another eligible guarantor that participates in the Medallion Signature Guarantee Program. Stock power forms are available from FSFs, CMS and many banks. Additional documentation may be required for sales by corporations, agents, fiduciaries, surviving joint owners, individual retirement account holders and other legal entities. Call CMS for more information 1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued to receive that day's price, FSF's are responsible for furnishing all necessary documentation to CMS and may charge for this service.
SYSTEMATIC WITHDRAWAL PLAN (SWP). The shareholder may establish a SWP. A specified dollar amount, share amount or percentage of the then current net asset value of the shareholder's investment in any Fund designated by the shareholder will be paid monthly, quarterly or semi-annually to a designated payee. The amount or percentage the shareholder specifies is run against available shares and generally may not, on an annualized basis, exceed 12% of the value, as of the time the shareholder makes the election, of the shareholder's investment. Withdrawalsof shares of the Fund under a SWP will be treated as redemptions of shares purchased through the reinvestment of Fund distributions, or, to the extent such shares in the shareholder's account are insufficient to cover Plan payments, as redemptions from the earliest purchased shares of such Fund in the shareholder's account. No CDSCs apply to a redemption pursuant to a SWP of 12% or less, even if, after giving effect to the redemption, the shareholder's account balance is less than the shareholder's base amount. Qualified plan participants who are required by Internal Revenue Service regulation to withdraw more than 12%, on an annual basis, of the value of their share account may do so but may be subject to a CDSC ranging from 1% to 5% of the amount withdrawn in excess of 12% annually. If a shareholder wishes to participate in a SWP, the shareholder must elect to have all of the shareholder's income dividends and other Fund distributions payable in shares of the Fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by telephone on a recorded line. However, SWP checks will be payable only to the shareholder and sent to the address of record. SWPs from retirement accounts cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in certificate form. Purchasing additional shares (other than through dividend and distribution reinvestment) while receiving SWP payments is ordinarily disadvantageous because of sales charges. For this reason, a shareholder may not maintain a plan for the accumulation of shares of the Fund (other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or loss for tax purposes, may involve the use of principal and may eventually use up all of the shares in a shareholder's account.
A Fund may terminate a shareholder's SWP if the shareholder's account balance falls below $5,000 due to any transfer or liquidation of shares other than pursuant to the SWP. SWP payments will be terminated on receiving satisfactory evidence of the death or incapacity
of a shareholder. Until this evidence is received, CMS will not be liable for any payment made in accordance with the provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate in them is borne by the Fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not be able to participate in a SWP. If a shareholder's Fund shares are held in "street name," the shareholder should consult his or her FSF to determine whether he or she may participate in a SWP. The SWP on accounts held in "street name" must be made payable to the back office via the NSCC.
TELEPHONE REDEMPTIONS. All Fund shareholders and/or their FSFs are automatically
eligible to redeem up to $100,000 of the Fund's shares by calling 1-800-422-3737
toll-free any business day between 9:00 a.m. and the close of trading of the
Exchange (normally 4:00 p.m. Eastern time). Transactions received after 4:00
p.m. Eastern time will receive the next business day's closing price. Telephone
redemptions by check and ACH are limited to a total of $100,000 in a 30-day
period. Redemptions that exceed $100,000 may be accomplished by placing a wire
order trade through a broker, to a pre-existing bank account or furnishing a
signature guaranteed request. Signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another eligible guarantor that
participates in the Medallion Signature Guarantee Program. CMS will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. Telephone redemptions are not available on accounts with an address
change in the preceding 30 days and proceeds and confirmations will only be
mailed or sent to the address of record unless the redemption proceeds are being
sent to a pre-designated bank account. Shareholders and/or their FSFs will be
required to provide their name, address account and taxpayer identification
numbers. FSFs will also be required to provide their broker number. All
telephone transactions are recorded. A loss to a shareholder may result from an
unauthorized transaction reasonably believed to have been authorized. Certain
restrictions apply to retirement plan accounts.
CHECKWRITING (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, INC. ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR OF CERTAIN FUNDS) (Available only on the Class A and Z shares of certain Funds) Shares may be redeemed by check if a shareholder has previously completed an Application and Signature Card. CMS will provide checks to be drawn on Mellon Trust of New England, N.A. (the "Bank"). These checks may be made payable to the order of any person in the amount of not less than $500 ($250 for money market funds) nor more than $100,000. The shareholder will continue to earn dividends on shares until a check is presented to the Bank for payment. At such time a sufficient number of full and fractional shares will be redeemed at the next determined net asset value to cover the amount of the check. Certificate shares may not be redeemed in this manner.
Shareholders utilizing checkwriting drafts will be subject to the Bank's rules governing checking accounts. There is currently no charge to the shareholder for the use of checks., However, you may incur customary fees for services such as a stop payment request or a request for copies of a check. The shareholder should make sure that there are sufficient shares in his or her open account to cover the amount of any check drawn since the net asset value of shares will fluctuate. If insufficient shares are in the shareholder's open account, the check will be returned marked "insufficient funds" and no shares will be redeemed; the shareholder will be charged a $15 service fee for each check returned. It is not possible to determine in advance the total value of an open account because prior redemptions and possible changes in net asset value may cause the value of an open account to change. Accordingly, a check redemption should not be used to close an open account. In addition, a check redemption, like any other redemption, may give rise to taxable capital gains.
NON-CASH REDEMPTIONS. For redemptions of any single shareholder within any 90-day period exceeding the lesser of $250,000 or 1% of a Fund's net asset value, a Fund may make the payment or a portion of the payment with portfolio securities held by that Fund instead of cash, in which case the redeeming shareholder may incur brokerage and other costs in selling the securities received.
INFORMATION APPLICABLE TO CLASS G AND CLASS T SHARES
The primary difference between Class G and Class T shares lies in their sales charge structures and shareholder servicing/distribution expenses. Investments in Class T shares of the Funds are subject to a front-end sales charge. Investments in Class G shares of the Funds are subject to a back-end sales charge. This back-end sales charge declines over time and is known as a "contingent deferred sales charge." An investor should understand that the purpose and function of the sales charge structures and shareholder servicing/distribution arrangements for both Class G and Class T shares are the same. Class T shares of a bond fund and an equity fund are currently subject to ongoing shareholder servicing fees at an annual rate of up to 0.15% and 0.30%, respectively, of the Fund's average daily net assets attributable to its Class T shares. Class G shares of a bond fund and an equity fund are currently subject to ongoing shareholder servicing and distribution fees at an annual rate of up to 0.80% and 0.95%, respectively, of the Fund's average daily net assets attributable to its Class G shares. These ongoing fees, which are higher than those charged on Class T shares, will cause Class G shares to have a higher expense ratio and pay lower dividends than Class T shares. Class G and Class T shares may only be purchased by current shareholders of Class G and Class T, respectively.
CLASS T SHARES. The public offering price for Class T shares of the Funds is the sum of the net asset value of the Class T shares purchased plus any applicable front-end sales charge as described in the applicable Prospectus. A deferred sales charge of up to 1.00% is assessed on certain redemptions of Class T shares that are purchased with no initial sales charge as part of an investment of $1,000,000 to $25,000,000. A portion of the front-end sales charge may be reallowed to broker-dealers as follows:
REALLOWANCE TO
REALLOWANCE TO DEALERS DEALERS AS A % OF
AS A % OF OFFERING PRICE OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE - BOND FUNDS PER SHARE - EQUITY FUNDS
--------------------- ------------------------ ------------------------
Less than $50,000 4.25 5.00
$50,000 but less than $100,000 3.75 3.75
$100,000 but less than $250,000 2.75 2.75
$250,000 but less than $500,000 2.00 2.00
$500,000 but less than $1,000,000 1.75 1.75
$1,000,000 and over 0.00 0.00
|
The appropriate reallowance to dealers will be paid by CMD to broker-dealer organizations which have entered into agreements with CMD. The reallowance to dealers may be changed from time to time.
Certain affiliates of the Advisor may, at their own expense, provide additional compensation to broker-dealer affiliates of Columbia and to unaffiliated broker-dealers whose customers purchase significant amounts of Class T shares of the Funds. Such compensation will not represent an additional expense to the Funds or their shareholders, since it will be paid from the assets of Bank of America Corporation's affiliates.
INFORMATION APPLICABLE TO CERTAIN CLASS G SHARES RECEIVED BY FORMER GALAXY FUND RETAIL B SHAREHOLDERS IN CONNECTION WITH THE GALAXY/LIBERTY REORGANIZATION. The following table describes the CDSC schedule applicable to Class G shares received by former Galaxy Fund Retail B shareholders in exchange for Retail B Shares purchased prior to January 1, 2001:
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.00
Through second year 4.00
Through third year 3.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Longer than six years None
|
Class G shares received in exchange for Galaxy Fund Retail B Shares that were purchased prior to January 1, 2001 will automatically convert to Class T shares seven years after purchase. For purposes of calculating the CDSC, all purchases are considered to be made on the first day of the month in which each purchase was made.
The following table describes the CDSC schedule applicable to Class G shareholders whose Galaxy Asset Allocation Fund and/or International Equity Fund Retail B Shares were acquired in connection with the reorganization of the Pillar Funds:
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.50
Through second year 5.00
Through third year 4.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Through the seventh year None
Longer than seven years None
|
If you acquired Retail B Shares in connection with the reorganization of the Pillar Funds, your Class G shares will automatically convert to Class T shares eight years after you purchased the Pillar Fund Class B shares you held prior to the reorganization. For purposes of calculating the CDSC, all purchases are considered to be made on the first day of the month in which each purchase was made.
CLASS G SHARES PURCHASED AFTER THE GALAXY/LIBERTY REORGANIZATION. The public offering price for Class G shares of the Funds is the net asset value of the Class G shares purchased. Although investors pay no front-end sales charge on purchases of Class G shares, such shares are subject to a contingent deferred sales charge at the rates set forth in the applicable Prospectus if they are redeemed within seven years of purchase. Securities dealers, brokers, financial institutions and other industry professionals will receive commissions from CMD in connection with sales of Class G shares. These commissions may be different than the reallowances or placement fees paid to dealers in connection with sales of Class T shares. Certain affiliates of Columbia may, at their own expense, provide additional compensation to broker-dealer affiliates of Columbia and to unaffiliated broker-dealers, whose customers purchase significant amounts of Class G shares of a Fund. See "Class T Shares." The contingent deferred sales charge on Class G shares is based on the lesser of the net asset value of the shares on the redemption date or the original cost of the shares being redeemed. As a result, no sales charge is imposed on any increase in the principal value of an investor's Class G shares. In addition, a contingent deferred sales charge will not be assessed on Class G shares purchased through reinvestment of dividends or capital gains distributions.
The proceeds from the contingent deferred sales charge that an investor may pay upon redemption go to CMD, which may use such amounts to defray the expenses associated with the distribution-related services involved in selling Class G shares. Class G shares of a Fund will convert automatically to Class T shares eight years after purchase. The purpose of the conversion is to relieve a holder of Class G shares of the higher ongoing expenses charged to those shares, after enough time has passed to allow CMD to recover approximately the amount it would have received if the applicable front-end sales charge had been charged. The conversion from Class G shares to Class T shares takes place at net asset value, as a result of which an investor receives dollar-for-dollar the same value of Class T shares as he or she had of Class G shares. The conversion occurs eight years after the beginning of the calendar month in which the shares are purchased. Upon conversion, the converted shares will be relieved of the distribution and shareholder servicing fees borne by Class G shares, although they will be subject to the shareholder servicing fees borne by Class T shares.
Class G shares acquired through a reinvestment of dividends or distributions are also converted at the earlier of two dates - (i) eight years after the beginning of the calendar month in which the reinvestment occurred or (ii) the date of conversion of the most recently purchased Class G shares that were not acquired through reinvestment of dividends or distributions. For example, if an investor makes a one-time purchase of Class G shares of a Fund, and subsequently acquires additional Class G shares of the Fund only through reinvestment of dividends and/or distributions, all of such investor's Class G shares in the Fund, including those acquired through reinvestment, will convert to Class T shares of the Fund on the same date.
INFORMATION APPLICABLE TO CERTAIN CLASS B SHAREHOLDERS
Except for the following, Class B Share Contingent Deferred Sales Charges ("CDSCs") and conversion schedules are described in the Prospectuses.
The following table describes the CDSC schedule applicable to Class B shares received by Galaxy Quality Plus Bond Fund shareholders in exchange for Prime B Shares in connection with the Galaxy/Liberty reorganization.
SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.00
Through second year 4.00
|
Through third year 3.00 Through fourth year 3.00 Through fifth year 2.00 Through sixth year 1.00 Longer than six years 0.00 |
Automatic conversion to Class A shares occurs eight years after purchase.
The Class B share discount program for purchases of $250,000 or more is not applicable to Class B shares received by Galaxy Fund Prime B shareholders in connection with the reorganization of the Galaxy Fund.
INFORMATION APPLICABLE TO CERTAIN CLASS A SHAREHOLDERS:
Except as set forth in the following paragraph, Class A share CDSCs are described in the Prospectuses:
Class A shares received by former Galaxy High Quality Bond Fund shareholders in exchange for Prime A Shares in connection with the Galaxy/Liberty reorganization of that Fund are subject to a 1% CDSC upon redemption of such Class A shares if the Prime A Shares were purchased without an initial sales charge in accounts aggregating $1 million or more at the time of purchase and the Class A shares are sold within 12 months of the time of purchase of the Prime A Shares. The 12-month holding period begins on the first day of the month in which each purchase was made.
DISTRIBUTIONS
Distributions are invested in additional shares of the same Class of the Fund at net asset value unless the shareholder elects to receive cash. Regardless of the shareholder's election, distributions of $10 or less will not be paid in cash, but will be invested in additional shares of the same class of the Fund at net asset value. Undelivered distribution checks returned by the post office will be reinvested in your account. If a shareholder has elected to receive dividends and/or capital gain distributions in cash and the postal or other delivery service selected by the Transfer Agent is unable to deliver checks to the shareholder's address of record, such shareholder's distribution option will automatically be converted to having all dividend and other distributions reinvested in additional shares. No interest will accrue on amounts represented by uncashed distribution or redemption checks. Shareholders may reinvest all or a portion of a recent cash distribution without a sales charge. No charge is currently made for reinvestment.
Shares of some Funds that pay daily dividends (include Funds) will normally earn dividends starting with the date the Fund receives payment for the shares and will continue through the day before the shares are redeemed, transferred or exchanged. Shares of some Funds that pay daily dividends (exclude Funds) Columbia will be earned starting with the day after that Fund receives payments for the shares. To determine whether a particular Fund is an include or exclude fund, customers can call 1-800-345-6611.
HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for the same class of shares of the other continuously offered funds (with certain exceptions) on the basis of the NAVs per share at the time of exchange. Class T and Z shares may be exchanged for Class A shares of certain other funds. The prospectus of each Fund describes its investment goal and policies, and shareholders should obtain a prospectus and consider these goals and policies carefully before requesting an exchange Consult CMS before requesting an exchange.
If you acquire Class A shares of an international fund by exchange from any other fund, you will not be permitted to exchange those shares into another fund for 30 calendar days, although you may redeem those shares at any time. An exchange order received prior to the expiration of the 30-day period will not be honored.
By calling CMS, shareholders or their FSF of record may exchange among accounts with identical registrations, provided that the shares are held on deposit. During periods of unusual market changes or shareholder activity, shareholders may experience delays in contacting CMS by telephone to exercise the telephone exchange privilege. Because an exchange involves a redemption and reinvestment in another fund, completion of an exchange may be delayed under unusual circumstances, such as if the Fund suspends repurchases or postpones payment for the Fund shares being exchanged in accordance with federal securities law. CMS will also make exchanges upon receipt of a written exchange request and share certificates, if any. If the shareholder is a corporation, partnership, agent, or surviving joint owner, CMS may require customary additional documentation. Prospectuses of the other Funds are available from the CMD Literature Department by calling 1-800-426-3750.
A loss to a shareholder may result from an unauthorized transaction reasonably believed to have been authorized. No shareholder is obligated to use the telephone to execute transactions.
Consult your FSF or CMS. In all cases, the shares to be exchanged must be registered on the records of the Fund in the name of the shareholder desiring to exchange.
Shareholders of the other open-end funds generally may exchange their shares at NAV for the same class of shares of the Fund. Sales charges may apply for exchanges from money market funds.
An exchange is generally a capital sale transaction for federal income tax purposes. The exchange privilege may be revised, suspended or terminated at any time.
SUSPENSION OF REDEMPTIONS
A Fund may not suspend shareholders' right of redemption or postpone payment for more than seven days unless the Exchange is closed for other than customary weekends or holidays, or if permitted by the rules of the SEC during periods when trading on the Exchange is restricted or during any emergency which makes it impracticable for the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by order of the SEC for the protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Declaration disclaims shareholder liability for acts or obligations of the Fund and the Trust and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by the Fund or the Trust's Trustees. The Declaration provides for indemnification out of Fund property for all loss and expense of any shareholder held personally liable for the obligations of the Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances (which are considered remote) in which the Fund would be unable to meet its obligations and the disclaimer was inoperative.
The risk of a particular fund incurring financial loss on account of another fund of the Trust is also believed to be remote, because it would be limited to circumstances in which the disclaimer was inoperative and the other fund was unable to meet its obligations.
SHAREHOLDER MEETINGS
As described under the caption "Organization and History", the Fund will not hold annual shareholders' meetings. The Trustees may fill any vacancies in the Board of Trustees except that the Trustees may not fill a vacancy if, immediately after filling such vacancy, less than two-thirds of the Trustees then in office would have been elected to such office by the shareholders. In addition, at such times as less than a majority of the Trustees then in office have been elected to such office by the shareholders, the Trustees must call a meeting of shareholders. Trustees may be removed from office by a written consent signed by a majority of the outstanding shares of the Trust or by a vote of the holders of a majority of the outstanding shares at a meeting duly called for the purpose, which meeting shall be held upon written request of the holders of not less than 10% of the outstanding shares of the Trust. Upon written request by the holders of 1% of the outstanding shares of the Trust stating that such shareholders of the Trust, for the purpose of obtaining the signatures necessary to demand a shareholders' meeting to consider removal of a Trustee, request information regarding the Trust's shareholders, the Trust will provide appropriate materials (at the expense of the requesting shareholders). Except as otherwise disclosed in the Prospectus and this SAI, the Trustees shall continue to hold office and may appoint their successors.
At any shareholders' meetings that may be held, shareholders of all series would vote together, irrespective of series, on the election of Trustees, but each series would vote separately from the others on other matters, such as changes in the investment policies of that series or the approval of the management agreement for that series.
APPENDIX I
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S (S&P)
The following descriptions are applicable to municipal bond funds:
AAA bonds have the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.
AA bonds have a very strong capacity to pay interest and repay principal, and they differ from AAA only in small degree.
A bonds have a strong capacity to pay interest and repay principal, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.
BBB bonds are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than for bonds in the A category.
BB, B, CCC, CC and C bonds are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or large exposures to adverse conditions.
BB bonds have less near-term vulnerability to default than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating.
B bonds have a greater vulnerability to default but currently have the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating.
CCC bonds have a currently identifiable vulnerability to default, and are dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, the bonds are not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating.
CC rating typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating.
C rating typically is applied to debt subordinated to senior debt which assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued.
CI rating is reserved for income bonds on which no interest is being paid.
D bonds are in payment default. The D rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized.
Plus(+) or minus(-) ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
PROVISIONAL RATINGS. The letter "p" indicates that the rating is provisional. A provisional rating assumes the successful completion of the project being financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely completion of the project. This rating, however, although addressing credit quality subsequent to completion of the project, makes no comments on the likelihood of, or the risk of default upon failure of, such completion. The investor should exercise his own judgment with respect to such likelihood and risk.
MUNICIPAL NOTES:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating. Notes maturing beyond three years normally receive a bond rating, although the following criteria are used in making that assessment:
Amortization schedule (the larger the final maturity relative to other maturities, the more likely the issue will be rated as a note).
Source of payment (the more dependent the issue is on the market for its refinancing, the more likely it will be rated as a note).
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a demand feature. The first rating addresses the likelihood of repayment of principal and interest as due, and the second rating addresses only the demand feature. The long-term debt rating symbols are used for bonds to denote the long-term maturity, and the commercial paper rating symbols are usually used to denote the put (demand) option (for example, AAA/A-1+). Normally, demand notes receive note rating symbols combined with commercial paper symbols (for example, SP-1+/A-1+).
COMMERCIAL PAPER:
A. Issues assigned this highest rating are regarded as having the greatest capacity for timely payment. Issues in this category are further refined with the designations 1, 2, and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are designed A-1+.
CORPORATE BONDS:
The description of the applicable rating symbols and their meanings is substantially the same as the Municipal Bond ratings set forth above.
The following descriptions are applicable to equity and taxable bond funds:
AAA bonds have the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.
AA bonds differ from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.
A bonds are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.
BBB bonds exhibit adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
BB, B, CCC and CC bonds are regarded, as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB bonds are less vulnerable to non-payment than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
B bonds are more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.
CCC bonds are currently vulnerable to nonpayment, and are dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC bonds are currently highly vulnerable to nonpayment.
C ratings may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on the obligation are being continued.
D bonds are in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
Plus (+) or minus(-): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
R This symbol is attached to the rating of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk, such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
AAA bonds are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge". Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While various protective elements are likely to change, such changes as can be visualized are most unlikely to impair a fundamentally strong position of such issues.
AA bonds are judged to be of high quality by all standards. Together with Aaa bonds they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.
Those bonds in the Aa through B groups that Moody's believes possess the strongest investment attributes are designated by the symbol Aa1, A1 and Baa1.
A bonds possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment sometime in the future.
BAA bonds are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact, have speculative characteristics as well.
BA bonds are judged to have speculative elements: their future cannot be considered as well secured. Often, the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B bonds generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
CAA bonds are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
CA bonds represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C bonds are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
CONDITIONAL RATINGS. Bonds for which the security depends upon the completion of some act or the fulfillment of some condition are rated conditionally. These are bonds secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in operating experience, (c) rentals which begin when facilities are completed, or (d) payments to which some other limiting conditions attach. Parenthetical rating denotes probable credit stature upon completion of construction or elimination of basis of condition.
MUNICIPAL NOTES:
MIG 1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are accounted for, but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
Moody's may assign a separate rating to the demand feature of a variable rate demand security. Such a rating may include:
VMIG 1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are accounted for, but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
COMMERCIAL PAPER:
Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality Prime-2 Higher Quality Prime-3 High Quality |
If an issuer represents to Moody's that its Commercial Paper obligations are supported by the credit of another entity or entities, Moody's, in assigning ratings to such issuers, evaluates the financial strength of the indicated affiliated corporations, commercial banks, insurance companies, foreign governments, or other entities, but only as one factor in the total rating assessment.
CORPORATE BONDS:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings is identical to that of the Municipal Bond ratings as set forth above, except for the numerical modifiers. Moody's applies numerical modifiers 1, 2, and 3 in the Aa and A classifications of its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a midrange ranking; and the modifier 3 indicates that the issuer ranks in the lower end of its generic rating category.
FITCH INC.
INVESTMENT GRADE BOND RATINGS
AAA bonds are considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and/or dividends and repay principal, which is unlikely to be affected by reasonably foreseeable events.
AA bonds are considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated 'AAA'. Because bonds rated in the 'AAA' and 'AA' categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated 'F-1+'.
A bonds are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than debt securities with higher ratings.
BBB bonds are considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest or dividends and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these securities and, therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for securities with higher ratings.
CONDITIONAL
A conditional rating is premised on the successful completion of a project or the occurrence of a specific event.
SPECULATIVE-GRADE BOND RATINGS
BB bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified, which could assist the obligor in satisfying its debt service requirements.
B bonds are considered highly speculative. While securities in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue.
CCC bonds have certain identifiable characteristics that, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment.
CC bonds are minimally protected. Default in payment of interest and/or principal seems probable over time.
C bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D bonds are in default on interest and/or principal payments. Such securities are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. 'DDD' represents the highest potential for recovery on these securities, and 'D' represents the lowest potential for recovery.
APPENDIX II
COLUMBIA MANAGEMENT ADVISORS, INC. ("CMA")
PROXY VOTING POLICIES AND PROCEDURES
ADOPTED JULY 1, 2003 AND REVISED MARCH 4, 2005
POLICY:
ALL PROXIES(1) REGARDING CLIENT SECURITIES FOR WHICH COLUMBIA MANAGEMENT ADVISORS, INC. ("CMA") HAS ASSUMED AUTHORITY TO VOTE SHALL, UNLESS CMA DETERMINES IN ACCORDANCE WITH POLICIES STATED BELOW TO ABSTAIN FROM VOTING, BE VOTED IN A MANNER CONSIDERED BY CMA TO BE IN THE BEST INTEREST OF CMA'S CLIENTS, INCLUDING THE CMG FAMILY FUNDS(2) AND THEIR SHAREHOLDERS, WITHOUT REGARD TO ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES. THE BEST INTEREST OF CLIENTS IS DEFINED FOR THIS PURPOSE AS THE INTEREST OF ENHANCING OR PROTECTING THE ECONOMIC VALUE OF CLIENT ACCOUNTS, CONSIDERED AS A GROUP RATHER THAN INDIVIDUALLY, AS CMA DETERMINES IN ITS SOLE AND ABSOLUTE DISCRETION. IN THE EVENT A CLIENT BELIEVES THAT ITS OTHER INTERESTS REQUIRE A DIFFERENT VOTE, CMA SHALL VOTE AS THE CLIENT CLEARLY INSTRUCTS, PROVIDED CMA RECEIVES SUCH INSTRUCTIONS IN TIME TO ACT ACCORDINGLY.
CMA ENDEAVORS TO VOTE, IN ACCORDANCE WITH THIS POLICY, ALL PROXIES OF WHICH IT BECOMES AWARE, SUBJECT TO THE FOLLOWING EXCEPTIONS (UNLESS OTHERWISE AGREED) WHEN CMA EXPECTS TO ROUTINELY ABSTAIN FROM VOTING:
1. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE THE SECURITY HAS BEEN LOANED FROM THE CLIENT'S ACCOUNT.
2. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE CMA DEEMS THE COSTS TO THE CLIENT AND/OR THE ADMINISTRATIVE INCONVENIENCE OF VOTING THE SECURITY (E.G., SOME FOREIGN SECURITIES) OUTWEIGH THE BENEFIT OF DOING SO.
CMA SEEKS TO AVOID THE OCCURRENCE OF ACTUAL OR APPARENT MATERIAL CONFLICTS OF INTEREST IN THE PROXY VOTING PROCESS BY VOTING IN ACCORDANCE WITH PREDETERMINED VOTING GUIDELINES, AS STATED BELOW. FOR THOSE PROXY PROPOSALS THAT REQUIRE SPECIAL CONSIDERATION OR IN INSTANCES WHERE SPECIAL CIRCUMSTANCES MAY REQUIRE VARYING FROM THE PREDETERMINED GUIDELINES, THE CMG PROXY COMMITTEE WILL DETERMINE THE BEST INTEREST OF CMA'S CLIENTS AND VOTE ACCORDINGLY, WITHOUT CONSIDERATION OF ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES.
OVERVIEW:
CMA's policy is based upon its fiduciary obligation to act in its clients' best interest. Citing this obligation, the SEC has adopted rules pursuant to the Investment Advisers Act of 1940 and Investment Company Act of 1940 with respect to proxy voting.
PROCEDURE:
I. ACCOUNT POLICIES
Except as otherwise directed by the client, CMA shall vote as follows:
SEPARATELY MANAGED ACCOUNTS
CMA shall vote proxies on securities held in its separately managed accounts.
COLUMBIA TRUST COMPANY (CTC) TRUST POOLS
CMA shall vote proxies on securities held in the trust pools.
CMG FAMILY FUNDS/CMA FUND TRUST
CMA shall vote proxies on securities held in the Funds, including multi-managed and subadvised Funds.
COLUMBIA PRIVATE PORTFOLIO
CMA shall vote proxies on securities held in its separately managed accounts.
ALTERNATIVE INVESTMENT GROUP
(2) A CMG Family Fund or a Fund is a registered investment company or series of a registered investment company managed or advised by Columbia Management Advisors, Inc.
CMA's clients may invest in securities ("Alternative Investments") issued by alternative investment vehicles (i.e. hedge funds, private equity funds, and other alternative investment pools) that are structured as private limited partnerships ("LPs"), limited liability companies ("LLCs") or offshore corporations. Generally, CMA's Alternative Investment Group ("AIG") is the platform through which CMA provides advisory services relating to Alternative Investments.
The voting rights of Alternative Investments generally are rights of contract set forth in the limited liability company or limited partnership agreement, in the case of LLCs and LPs, or Memorandum and Articles of Association or By-laws, in the case of offshore corporations. Also, as privately placed securities, Alternative Investments generally are not subject to the regulatory scheme applicable to public companies. Consequently, in most cases, proxies are not solicited regarding Alternative Investment vehicles. Instead, consents may be solicited from members, limited partners or shareholders.
Because of the unique characteristics of Alternative Investments, CMA has a tailored process for voting Alternative Investment proxies and consents.
Process
AIG will vote all Alternative Investment proxies and consents in accordance with this Policy. The committee voting AIG proxies consists of AIG senior management, investment and operations professionals. Conflicts of interest are to be monitored and resolved as set forth in this Policy.
II. PROXY COMMITTEE
CMA shall establish a Proxy Committee whose standing members shall include the head of core equity, head of value, head of growth, head of income strategies, head of equity research and head of fixed income research. Each standing member may designate a senior portfolio manager or a senior analyst officer to act as a substitute in a given matter on their behalf.
The Proxy Committee's functions shall include, in part,
(a) direction of the vote on proposals where there has been a recommendation to the Committee, pursuant to Section IV.B, not to vote according to the predetermined Voting Guidelines stated in Section IV.A or on proposals which require special, individual consideration in accordance with Section IV.C;
(b) review at least annually of this Proxy Voting Policy and Procedure to ensure consistency with internal policies, client disclosures and regulatory requirements;
(c) review at least annually of existing Voting Guidelines and need for development of additional Voting Guidelines to assist in the review of proxy proposals; and
(d) development and modification of Voting Procedures, as stated in Section V, as it deems appropriate or necessary.
The Proxy Committee shall establish a charter, which shall set forth the Committee's purpose, membership and operation. The Committee's charter shall be consistent, in all material respects, with this policy and procedure.
III. CONFLICTS OF INTEREST
With Other Bank of America Businesses
Bank of America Corporation ("BAC"), the ultimate corporate parent of CMA, Bank of America, N.A. and all of their numerous affiliates owns, operates and has interests in many lines of business that may create or give rise to the appearance of a conflict of interest between BAC or its affiliates and those of Firm-advised clients. For example, the commercial and investment banking business lines may have interests with respect to issuers of voting securities that could appear to or even actually conflict with CMA's duty, in the proxy voting process, to act in the best economic interest of its clients.
Within CMA
Conflicts of interest may also arise from the business activities of CMA. For example, CMA might manage (or be seeking to manage) the assets of a benefit plan for an issuer. CMA may also be presented with an actual or apparent conflict of interest where proxies of securities issued by BAC or a CMG Family Fund, for which CMA serves as investment adviser, are to be voted for a client's account.
Management of Conflicts
CMA's policy is to always vote proxies in the best interest of its clients, as a whole, without regard to its own self-interest or that of its affiliates. BAC as well as CMA has various compliance policies and procedures in place in order to address any material conflicts of interest that might arise in this context.
1. BAC's enterprise-wide Code of Ethics specifically prohibits the flow of certain business-related information between associates on the commercial and/or investment banking side of the corporation and associates charged with trust or (as in the case of BACAP associates) non-trust fiduciary responsibilities, including investment decision-making and proxy voting.
2. In addition, BAC has adopted "Global Policies and Procedures Regarding Information Walls and Inside Information." Pursuant to these policies and procedures, "information barriers" have been established between various BAC business lines designed to prohibit the passage of certain information across those barriers.
3. Within CMA, CMA's Code of Ethics affirmatively requires that associates of CMA act in a manner whereby no actual or apparent conflict of interest may be seen as arising between the associate's interests and those of CMA's Clients.
4. By assuming his or her responsibilities pursuant to this Policy, each member of the Proxy Committee and any CMA or BAC associate advising or acting under the supervision or oversight of the Proxy Committee undertakes:
- To disclose to the chairperson of the Proxy Committee and the chairperson to the head of CMG Compliance any actual or apparent personal material conflicts of interest which he or she may have (e.g., by way of substantial ownership of securities, relationships with nominees for directorship, members of an issuer's or dissident's management or otherwise) in determining whether or how CMA shall vote proxies. In the event the chairperson of the Proxy Committee has a conflict of interest regarding a given matter, he or she shall abstain from participating in the Committee's determination of whether and/or how to vote in the matter; and
- To refrain from taking into consideration, in the decision as to whether or how CMA shall vote proxies:
- The existence of any current or prospective material business relationship between CMA, BAC or any of their affiliates, on one hand, and any party (or its affiliates) that is soliciting or is otherwise interested in the proxies to be voted, on the other hand; and/or
- Any direct, indirect or perceived influence or attempt to influence such action which the member or associate views as being inconsistent with the purpose or provisions of this Policy or the Code of Ethics of CMA or BAC.
Where a material conflict of interest is determined to have arisen in the proxy voting process that may not be adequately mitigated by voting in accordance with the predetermined Voting Guidelines, CMA's policy is to invoke one or more of the following conflict management procedures:
1. Convene the Proxy Committee for the purpose of voting the affected proxies in a manner that is free of the conflict.
2. Causing the proxies to be voted in accordance with the recommendations of a qualified, independent third party, which may include CMA's proxy voting agent.
3. In unusual cases, with the Client's consent and upon ample notice, forwarding the proxies to CMA's clients so that they may vote the proxies directly.
IV. VOTING GUIDELINES
A. THE PROXY COMMITTEE HAS ADOPTED THE FOLLOWING GUIDELINES FOR VOTING PROXIES:
1. Matters Relating to the Board of Directors/Corporate Governance
CMA generally will vote FOR:
- Proposals for the election of directors or for an increase or decrease in the number of directors, provided that no more than one-third of the Board of Directors would, presently or at any time during the previous three-year period, be from management.
However, CMA generally will WITHHOLD votes from pertinent director nominees if:
(i) the board as proposed to be constituted would have more than one-third of its members from management;
(ii) the board does not have audit, nominating, and compensation committees composed solely of directors who qualify as being regarded as "independent," i.e. having no material relationship, directly or indirectly, with the Company, as CMA's proxy voting agent may determine (subject to the Proxy Committee's contrary determination of independence or non-independence);
(iii) the nominee, as a member of the audit committee, permitted the company to incur excessive non-audit fees (as defined below regarding other business matters -- ratification of the appointment of auditors);
(iv) a director serves on more than six public company boards;
(v) the CEO serves on more than two public company boards other than the company's board.
On a CASE-BY-CASE basis, CMA may WITHHOLD votes for a director nominee who has failed to observe good corporate governance practices or, through specific corporate action or inaction (e.g. failing to implement policies for which a majority of shareholders has previously cast votes in favor), has demonstrated a disregard for the interests of shareholders.
- Proposals requesting that the board audit, compensation and/or nominating committee be composed solely of independent directors. The Audit Committee must satisfy the independence and experience requirements established by the Securities and Exchange Commission ("SEC") and the New York Stock Exchange, or appropriate local requirements for foreign securities. At least one member of the Audit Committee must qualify as a "financial expert" in accordance with SEC rules.
- Proposals to declassify a board, absent special circumstances that would indicate that shareholder interests are better served by a classified board structure.
CMA generally will vote FOR:
- Proposals to create or eliminate positions or titles for senior management. CMA generally prefers that the role of Chairman of the Board and CEO be held by different persons unless there are compelling reasons to vote AGAINST a proposal to separate these positions, such as the existence of a counter-balancing governance structure that includes at least the following elements in addition to applicable listing standards:
- Established governance standards and guidelines.
- Full board composed of not less than two-thirds "independent" directors, as defined by applicable regulatory and listing standards.
- Compensation, as well as audit and nominating (or corporate governance) committees composed entirely of independent directors.
- A designated or rotating presiding independent director appointed by and from the independent directors with the authority and responsibility to call and preside at regularly and, as necessary, specially scheduled meetings of the independent directors to be conducted, unless the participating independent directors otherwise wish, in executive session with no members of management present.
- Disclosed processes for communicating with any individual director, the presiding independent director (or, alternatively, all of the independent directors, as a group) and the entire board of directors, as a group.
- The pertinent class of the Company's voting securities has out-performed, on a three-year basis, both an appropriate peer group and benchmark index, as indicated in the performance summary table of the Company's proxy materials. This requirement shall not apply if there has been a change in the Chairman/CEO position within the three-year period.
- Proposals that grant or restore shareholder ability to remove directors with or without cause.
- Proposals to permit shareholders to elect directors to fill board vacancies.
- Proposals that encourage directors to own a minimum amount of company stock.
- Proposals to provide or to restore shareholder appraisal rights.
- Proposals to adopt cumulative voting.
- Proposals for the company to adopt confidential voting.
CMA generally will vote AGAINST:
- Proposals to classify boards, absent special circumstances indicating that shareholder interests would be better served by a classified board structure.
- Proposals that give management the ability to alter the size of the board without shareholder approval.
- Proposals that provide directors may be removed only by supermajority vote.
- Proposals to eliminate cumulative voting.
- Proposals which allow more than one vote per share in the election of directors.
- Proposals that provide that only continuing directors may elect replacements to fill board vacancies.
- Proposals that mandate a minimum amount of company stock that directors must own.
- Proposals to limit the tenure of non-management directors.
CMA will vote on a CASE-BY-CASE basis in contested elections of directors.
CMA generally will vote on a CASE-BY-CASE basis on board approved proposals relating to corporate governance. Such proposals include, but are not limited to:
- Director and officer indemnification and liability protection. CMA is opposed to entirely eliminating directors' and officers' liability for monetary damages for violating the duty of care. CMA is also opposed to expanding coverage beyond just legal expenses to acts, such as negligence, that are more serious violations of fiduciary obligation than mere carelessness. CMA supports proposals which provide such expanded coverage in cases when a director's or officer's legal defense was unsuccessful if: (i) the director was found to have acted in good faith and in a manner that he/she reasonably believed was in the best interests of the company, AND (ii) if the director's legal expenses would be covered.
- Reimbursement of proxy solicitation expenses taking into consideration whether or not CMA was in favor of the dissidents.
- Proxy contest advance notice. CMA generally will vote FOR proposals that allow shareholders to submit proposals as close to the meeting date as possible while allowing for sufficient time for Company response, SEC review, and analysis by other shareholders.
2. Compensation
CMA generally will vote FOR management sponsored compensation plans (such as bonus plans, incentive plans, stock option plans, pension and retirement benefits, stock purchase plans or thrift plans) if they are consistent with industry and country standards. However, CMA generally is opposed to compensation plans that substantially dilute ownership interest in a company, provide participants with excessive awards, or have objectionable structural features. Specifically, for equity-based plans, if the proposed number of shares authorized for option programs (excluding authorized shares for expired options) exceeds an average of 10% of the currently outstanding shares over the previous three years or an average of 3% over the previous three years for directors only, the proposal should be referred to the Proxy Committee. The Committee will then consider the circumstances surrounding the issue and vote in the best interest of CMA's clients. CMA requires that management provide substantial justification for the repricing of options.
CMA generally will vote FOR:
- Proposals requiring that executive severance arrangements be submitted for shareholder ratification.
- Proposals asking a company to expense stock options.
- Proposals to put option repricings to a shareholder vote.
- Employee stock purchase plans that have the following features: (i) the shares purchased under the plan are acquired for no less than 85% of their market value, (ii) the offering period under the plan is 27 months or less, and (iii) dilution is 10% or less.
CMA generally will vote AGAINST:
- Stock option plans that permit issuance of options with an exercise price below the stock's current market price, or that permit replacing or repricing of out-of-the money options.
- Proposals to authorize the replacement or repricing of out-of-the money options.
CMA will vote on a CASE-BY-CASE basis proposals regarding approval of specific executive severance arrangements.
3. Capitalization
CMA generally will vote FOR:
- Proposals to increase the authorized shares for stock dividends, stock splits (and reverse stock splits) or general issuance, unless proposed as an anti-takeover measure or a general issuance proposal increases the authorization by more than 30% without a clear need presented by the company. Proposals for reverse stock splits should include an overall reduction in authorization.
For companies recognizing preemptive rights for existing shareholders, CMA generally will vote FOR general issuance proposals that increase the authorized shares by more than 30%. CMA will vote on a CASE-BY-CASE basis all such proposals by companies that do not recognize preemptive rights for existing shareholders.
- Proposals for the elimination of authorized but unissued shares or retirement of those shares purchased for sinking fund or treasury stock.
- Proposals to institute/renew open market share repurchase plans in which all shareholders may participate on equal terms.
- Proposals to reduce or change the par value of common stock, provided the number of shares is also changed in order to keep the capital unchanged.
4. Mergers, Restructurings and Other Transactions
CMA will review, on a CASE-BY-CASE basis, business transactions such as mergers, acquisitions, reorganizations, liquidations, spinoffs, buyouts and sale of all or substantially all of a company's assets.
5. Anti-Takeover Measures
CMA generally will vote AGAINST proposals intended largely to avoid acquisition prior to the occurrence of an actual event or to discourage acquisition by creating a cost constraint. With respect to the following measures, CMA generally will vote as follows:
Poison Pills
- CMA votes FOR shareholder proposals that ask a company to submit its poison pill for shareholder ratification.
- CMA generally votes FOR shareholder proposals to eliminate a poison pill.
- CMA generally votes AGAINST management proposals to ratify a poison pill.
Greenmail
- CMA will vote FOR proposals to adopt anti-greenmail charter or bylaw amendments or to otherwise restrict a company's ability to make greenmail payments.
Supermajority vote
- CMA will vote AGAINST board-approved proposals to adopt anti-takeover measures such as supermajority voting provisions, issuance of blank check preferred stock, the creation of a separate class of stock with disparate voting rights and charter amendments adopting control share acquisition provisions.
Control Share Acquisition Provisions
- CMA will vote FOR proposals to opt out of control share acquisition statutes.
6. Other Business Matters
CMA generally will vote FOR:
- Proposals to approve routine business matters such as changing the company's name and procedural matters relating to the shareholder meeting such as approving the minutes of a prior meeting.
- Proposals to ratify the appointment of auditors, unless any of the following apply in which case CMA will generally vote AGAINST the proposal:
- Credible reason exists to question:
- The auditor's independence, as determined by applicable regulatory requirements.
- The accuracy or reliability of the auditor's opinion as to the company's financial position.
- Fees paid to the auditor or its affiliates for "non-audit" services were excessive, i.e., in excess of the total fees paid for "audit," "audit-related" and "tax compliance" and/or "tax return preparation" services, as disclosed in the company's proxy materials.
- Bylaw or charter changes that are of a housekeeping nature (e.g., updates or corrections).
- Proposals to approve the annual reports and accounts provided the certifications required by the Sarbanes Oxley Act of 2002 have been provided.
CMA generally will vote AGAINST:
- Proposals to eliminate the right of shareholders to act by written consent or call special meetings.
- Proposals providing management with authority to adjourn an annual or special shareholder meeting absent compelling reasons, or to adopt, amend or repeal bylaws without shareholder approval, or to vote unmarked proxies in favor of management.
- Shareholder proposals to change the date, time or location of the company's annual meeting of shareholders.
CMA will vote AGAINST:
- Authorization to transact other unidentified substantive (as opposed to procedural) business at a meeting.
CMA will vote on a CASE-BY-CASE basis:
- Proposals to change the location of the company's state of incorporation. CMA considers whether financial benefits (e.g., reduced fees or taxes) likely to accrue to the company as a result of a reincorporation or other change of domicile outweigh any accompanying material diminution of shareholder rights.
- Proposals on whether and how to vote on "bundled" or otherwise conditioned proposals, depending on the overall economic effects upon shareholders.
CMA generally will ABSTAIN from voting on shareholder proposals predominantly involving social, socio-economic, environmental, political or other similar matters on the basis that their impact on share value can rarely be anticipated with any high degree of confidence. CMA may, on a CASE-BY-CASE basis, vote:
- FOR proposals seeking inquiry and reporting with respect to, rather than cessation or affirmative implementation of, specific policies where the pertinent issue warrants separate communication to shareholders; and
- FOR or AGAINST the latter sort of proposal in light of the relative benefits and detriments (e.g. distraction, costs, other burdens) to share value which may be expected to flow from passage of the proposal.
7. Other Matters Relating to Foreign Issues
CMA generally will vote FOR:
- Most stock (scrip) dividend proposals. CMA votes AGAINST proposals that do not allow for a cash option unless management demonstrates that the cash option is harmful to shareholder value.
- Proposals to capitalize the company's reserves for bonus issues of shares or to increase the par value of shares.
- Proposals to approve control and profit transfer agreements between a parent and its subsidiaries.
- Management proposals seeking the discharge of management and supervisory board members, unless there is concern about the past actions of the company's auditors/directors and/or legal action is being taken against the board by other shareholders.
- Management proposals concerning allocation of income and the distribution of dividends, unless the dividend payout ratio has been consistently below 30 percent without adequate explanation or the payout is excessive given the company's financial position.
- Proposals for the adoption of financing plans if they are in the best economic interests of shareholders.
8. Investment Company Matters
Election of Directors:
CMA will vote on a CASE-BY-CASE basis proposals for the election of directors, considering the following factors:
- Board structure
- Attendance at board and committee meetings.
CMA will WITHHOLD votes from directors who:
- Attend less than 75 percent of the board and committee meetings without a valid excuse for the absences. Valid reasons include illness or absence due to company business. Participation via telephone is acceptable. In addition, if the director missed only one meeting or one day's meetings, votes should not be withheld even if such absence dropped the director's attendance below 75 percent.
- Ignore a shareholder proposal that is approved by a majority of shares outstanding;
- Ignore a shareholder proposal this is approved by a majority of the votes cast for two consecutive years;
- Are interested directors and sit on the audit or nominating committee; or
- Are interested directors and the full board serves as the audit or nominating committee or the company does not have one of these committees.
Proxy Contests:
CMA will vote on a CASE-BY-CASE basis proposals for proxy contests, considering the following factors:
- Past performance relative to its peers
- Market in which fund invests
- Measures taken by the board to address the pertinent issues (e.g., closed-end fund share market value discount to NAV)
- Past shareholder activism, board activity and votes on related proposals
- Strategy of the incumbents versus the dissidents
- Independence of incumbent directors; director nominees
- Experience and skills of director nominees
- Governance profile of the company
- Evidence of management entrenchment
Converting Closed-end Fund to Open-end Fund:
CMA will vote conversion proposals on a CASE-BY-CASE basis, considering the following factors:
- Past performance as a closed-end fund
- Market in which the fund invests
- Measures taken by the board to address the discount
- Past shareholder activism, board activity, and votes on related proposals.
Investment Advisory Agreements:
CMA will vote investment advisory agreements on a CASE-BY-CASE basis, considering the following factors:
- Proposed and current fee schedules
- Fund category/investment objective
- Performance benchmarks
- Share price performance as compared with peers
- Resulting fees relative to peers
- Assignments (where the adviser undergoes a change of control)
Approving New Classes or Series of Shares:
CMA will vote FOR the establishment of new classes or series of shares.
Preferred Stock Proposals:
CMA will vote on a CASE-BY-CASE basis proposals for the authorization for or increase in the preferred shares, considering the following factors:
- Stated specific financing purpose
- Possible dilution for common shares
- Whether the shares can be used for antitakover purposes
Policies Addressed by the Investment Company Act of 1940 ("1940 Act"):
CMA will vote proposals regarding adoption or changes of policies addressed by the 1940 Act on a CASE-BY-CASE basis, considering the following factors:
- Potential competitiveness
- Regulatory developments
- Current and potential returns
- Current and potential risk
CMA generally will vote FOR these amendments as long as the proposed changes do not fundamentally alter the investment focus of the fund and do comply with current SEC interpretations.
Changing a Fundamental Restriction to a Non-fundamental Restriction:
CMA will vote on a CASE-BY-CASE basis proposals to change a fundamental restriction to a nonfundamental restriction, considering the following factors:
- Fund's target investments
- Reasons given by the fund for the change
- Projected impact of the change on the portfolio
Change Fundamental Investment Objective to Non-fundamental:
CMA will vote AGAINST proposals to change a fund's investment objective from fundamental to non-fundamental unless management acknowledges meaningful limitations upon its future requested ability to change the objective
Name Change Proposals:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's name, considering the following factors:
- Political/economic changes in the target market
- Consolidation in the target market
- Current asset composition
Change in Fund's Subclassification:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's subclassification, considering the following factors:
- Potential competitiveness
- Current and potential returns
- Risk of concentration
- Consolidation in target industry
Disposition of Assets/Termination/Liquidation:
CMA will vote on a CASE-BY-CASE basis these proposals, considering the following factors:
- Strategies employed to salvage the company
- Past performance of the fund
- Terms of the liquidation
Changes to the Charter Document:
CMA will vote on a CASE-BY-CASE basis proposals to change the charter document, considering the following factors:
- The degree of change implied by the proposal
- The efficiencies that could result
- The state of incorporation; net effect on shareholder rights
- Regulatory standards and implications
CMA will vote FOR:
- Proposals allowing the Board to impose, without shareholder approval, fees payable upon redemption of fund shares, provided imposition of such fees is likely to benefit long-term fund investors (e.g., by deterring market timing activity by other fund investors)
- Proposals enabling the Board to amend, without shareholder approval, the fund's management agreement(s) with its investment adviser(s) or sub-advisers, provided the amendment is not required by applicable law (including the Investment Company Act of 1940) or interpretations thereunder to require such approval
CMA will vote AGAINST:
- Proposals enabling the Board to:
- Change, without shareholder approval the domicile of the fund
- Adopt, without shareholder approval, material amendments of the fund's declaration of trust or other organizational document
Changing the Domicile of a Fund:
CMA will vote on a CASE-BY-CASE basis proposals to reincorporate, considering the following factors:
- Regulations of both states
- Required fundamental policies of both states
- The increased flexibility available
Authorizing the Board to Hire and Terminate Subadvisors Without Shareholder Approval:
CMA will vote FOR proposals to enable the Board or Investment Adviser to hire and terminate sub-advisers, without shareholder approval, in accordance with applicable rules or exemptive orders under the Investment Company Act of 1940
Distribution Agreements:
CMA will vote these proposals on a CASE-BY-CASE basis, considering the following factors:
- Fees charged to comparably sized funds with similar objectives
- The proposed distributor's reputation and past performance
- The competitiveness of the fund in the industry
- Terms of the agreement
Master-Feeder Structure:
CMA will vote FOR the establishment of a master-feeder structure.
Mergers:
CMA will vote merger proposals on a CASE-BY-CASE basis, considering the following factors:
- Resulting fee structure
- Performance of both funds
- Continuity of management personnel
- Changes in corporate governance and their impact on shareholder rights
Shareholder Proposals to Establish Director Ownership Requirement:
CMA will generally vote AGAINST shareholder proposals that mandate a specific minimum amount of stock that directors must own in order to qualify as a director or to remain on the board. While CMA favors stockownership on the part of directors, the company should determine the appropriate ownership requirement.
Shareholder Proposals to Reimburse Shareholder for Expenses Incurred:
CMA will vote on a CASE-BY-CASE basis proposals to reimburse proxy solicitation expenses.
Shareholder Proposals to Terminate the Investment Adviser:
CMA will vote on a CASE-BY-CASE basis proposals to terminate the investment adviser, considering the following factors:
- Performance of the fund's NAV
- The fund's history of shareholder relations
- The performance of other funds under the adviser's management
9. Alternative Investment Group ("AIG") Matters
The AIG Proxy Sub-Committee generally will vote in accordance with the guidelines set forth in this policy. With respect to matters that are not addressed by the guidelines, the AIG Proxy Sub-Committee will vote each such matter on a CASE-BY-CASE basis.
B. ABILITY TO VOTE PROXIES OTHER THAN AS PROVIDED IN A ABOVE.
A Portfolio Manager, sub-adviser or other party involved with a client's account may conclude that the best interest of the firm's client, as defined above, requires that a proxy be voted in a manner that differs from the predetermined proxy Voting Guidelines stated in Section IV.A. In this situation, he or she shall request that the Proxy Committee consider voting the proxy other than according such Guidelines. If any person, group, or entity requests the Proxy Committee (or any of its members) vote a proxy other than according to the predetermined Voting Guidelines, that person shall furnish to the Proxy Committee a written explanation of the reasons for the request and a description of the person's, group's, or entity's relationship, if any, with the parties proposing and/or opposing the matter's adoption.
C. PROPOSALS REQUIRING SPECIAL CONSIDERATION
The following proposals require special, individual consideration. The Proxy Committee will determine how proxies related to all such proposals will be voted.
1. NEW PROPOSALS. For each new type of proposal that is expected to be proposed to shareholders of multiple companies, the Proxy Committee will develop a Voting Guideline which will be incorporated into this Policy.
2.ACCOUNTS ADHERING TO TAFT HARTLEY PRINCIPLES. All proposals for these accounts shall be voted according to the Taft Hartley Guidelines developed by Institutional Shareholder Services, Inc. ("ISS").
3.ACCOUNTS ADHERING TO SOCIALLY RESPONSIBLE PRINCIPLES. All proposals for these accounts shall be voted according to the Socially Responsible Guidelines developed by ISS or as specified by the client.
4. PROXIES OF INTERNATIONAL ISSUERS WHICH BLOCK SECURITIES SALES BETWEEN THE TIME A SHAREHOLDER SUBMITS A PROXY AND THE VOTE. Proposals for these securities shall be voted only on the specific instruction of the Proxy Committee and to the extent practicable in accordance with the Voting Guidelines set forth in this Policy.
5.PROXIES OF INVESTMENT COMPANY SHARES. Proposals on issues other than those specified in Section IV.A.
6. EXECUTIVE/DIRECTOR COMPENSATION. Except as provided in Section
IV.A, proposals relating to compensation of any executive or director
will be voted as recommended by ISS or as otherwise directed by the
Proxy Committee.
7. PREEMPTIVE RIGHTS. Proposals to create or eliminate shareholder preemptive rights. In evaluating these proposals the Proxy Committee will consider the size of the company and the nature of its shareholder base.
V. VOTING PROCEDURES
The Proxy Committee has developed the following procedures to aid the voting of proxies according to the Voting Guidelines set forth in Section IV above. The Proxy Committee may revise these procedures from time to time, as it deems necessary or appropriate to effect the purposes of this Policy.
- CMA shall use an independent, third-party vendor (currently Institutional Shareholder Services ("ISS")), to implement its proxy voting process as CMAs proxy voting agent. This retention is subject to CMA continuously assessing the vendor's independence from CMA and its affiliates, and the vendor's ability to perform its responsibilities (and, especially, its responsibility to vote client proxies in accordance with CMA's proxy voting guidelines) free of any actual, potential or apparent material conflicts of interests that may arise between the
interests of the vendor, its affiliates, the vendor's other clients and the owners, officers or employees of any such firm, on the one hand, and CMA's clients, on the other hand. As means of performing this assessment, CMA will require various reports and notices from the vendor, as well as periodic audits of the vendor's voting record and other due diligence.
- ISS shall provide proxy analysis and record keeping services in addition to voting proxies on behalf of CMA in accordance with this Policy.
- On a daily basis CMA shall send to ISS a holdings file detailing each equity holding held in all accounts over which CMA has voting authority. Information regarding equity holdings for international portfolio shall be sent weekly.
- ISS shall receive proxy material information from Proxy Edge or the custodian bank for the account. This shall include issues to be voted upon, together with a breakdown of holdings for CMA accounts. ISS shall then reconcile information it receives from CMA with that it has received from Proxy Edge and custodian banks. Any discrepancies shall be promptly noted and resolved by ISS, with notice to CMA.
- Whenever a vote is solicited, ISS shall execute the vote according to CMA's Voting Guidelines previously delivered by CMA to ISS as set forth in Section IV.A.
- If ISS is not sure how to vote a particular proxy, then ISS will issue a request for voting instructions to CMA over a secure website. CMA personnel shall check this website regularly. The request shall be accompanied by a recommended vote. The recommended vote shall be based upon CMA's understanding of the Voting Guidelines previously delivered to ISS. CMA shall promptly provide ISS with any amendments or modifications to the Voting Guidelines if necessary. CMA shall return a final instruction to vote to ISS, which ISS shall record with Proxy Edge or the custodian bank as our agent.
- Each time that ISS shall send CMA a request to vote the request shall be accompanied by the recommended vote determined in accordance with CMA's Voting Guidelines. ISS shall vote as indicated in the request unless the client has reserved discretion, the Proxy Committee determines that the best interest of clients requires another vote or the proposal is a matter as to which the Proxy Committee affords special, individual consideration under Section IV.C. In such situations ISS shall vote based on the direction of the client or the Proxy Committee, as the case may be. The interests of CMA's Taft Hartley or Socially Responsible clients may impact a proposal that normally should be voted in a certain way. ISS shall inform CMA of all proposals having impact on its Taft Hartley and or Socially Responsible clients. The Proxy Voting Committee shall be consulted before a vote is placed in cases where Taft Hartley or Socially Responsible issues are presented.
- ISS shall have procedures in place to ensure that a vote is cast on every security holding maintained by CMA on which a vote is solicited unless otherwise directed by the Proxy Committee. On a yearly basis, or as required by our clients CMA shall receive a report from ISS detailing CMA's voting for the previous period.
VI. AVAILABILITY OF PROXY POLICY AND VOTING RECORD
A summary disclosure regarding the provisions of this Policy is available in CMA's Form ADV. Upon receipt of a Client's request for more information, CMA will provide to the Client a copy of this Policy and/or how CMA voted proxies for the Client pursuant to this Policy for up to a one-year period.
COLUMBIA HIGH YIELD OPPORTUNITY FUND
SERIES OF COLUMBIA FUNDS SERIES TRUST I
SUPPLEMENT TO THE FUND'S STATEMENT OF ADDITIONAL INFORMATION
DATED OCTOBER 1, 2005
(REPLACING SUPPLEMENT DATED NOVEMBER 1, 2005)
At meetings of the Fund's shareholders held September 16, 2005, shareholders of the Fund elected the Fund's current Trustees to indefinite terms and approved the adoption of new fundamental investment restrictions.
1. Douglas A. Hacker, Janet Langford Kelly, Richard W. Lowry, William E.
Mayer, Charles R. Nelson, John J. Neuhauser, Patrick J. Simpson,
Thomas E. Stitzel, Thomas C. Theobald, Anne-Lee Verville and Richard
L. Woolworth have been elected to serve as Trustees of the Fund.
2. Effective November 1, 2005, the following language replaces the language currently in the section of the Statement of Additional Information entitled FUNDAMENTAL INVESTMENT POLICIES:
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940, as amended (1940 Act), provides that a "vote of a majority of the outstanding voting securities" means the affirmative vote of the lesser of (1) more than 50% of the outstanding shares of a Fund, or (2) 67% or more of the shares present at a meeting if more than 50% of the outstanding shares are represented at the meeting in person or by proxy. The following fundamental investment policies cannot be changed without such a vote.
The Fund may not, as a matter of fundamental policy:
1. Underwrite any issue of securities issued by other persons within the meaning of the 1933 Act except when it might be deemed to be an underwriter either: (a) in connection with the disposition of a portfolio security; or (b) in connection with the purchase of securities directly from the issuer thereof in accordance with its investment objective. This restriction shall not limit the Portfolio's ability to invest in securities issued by other registered investment companies.
2. Purchase or sell real estate, except a Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate and it may hold and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of securities which are secured by real estate or interests therein.
3. Purchase or sell commodities, except that a Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts.
4. Purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions; and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
5. Make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
6. Borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
7. Purchase securities (except securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities) of any
one issuer if, as a result, more than 5% of its total assets will
be invested in the securities of such issuer or it would own more
than 10% of the voting securities of such issuer, except that:
(a) up to 25% of its total assets may be invested without regard
to these limitations and (b) a Fund's assets may be invested in
the securities of one or more management investment companies to
the extent permitted by the 1940 Act, the rules and regulations
thereunder, or any applicable exemptive relief.
2. The name of the Trust is revised to read "Columbia Funds Series Trust I."
3. The following sentence is added to the first paragraph on the front cover of the SAI:
The unaudited Financial Statements appearing in the Fund's November 30, 2005 Semi-Annual Report are also incorporated into this SAI by reference.
4. The first sentence in the section entitled "Organization and History" is revised to read:
The Trust is a Massachusetts business trust organized in 1987. The Fund was originally organized as a series of another Massachusetts business trust prior to its reorganization as a series of the Trust on March 27, 2006.
5. The last sentence of the second paragraph of the section entitled "Organization and History" is revised in its entirety to read:
Effective October 13, 2003, the Trust changed its name from
"Liberty-Stein Roe Funds Municipal Trust" to "Columbia Funds Trust
IX." Effective September 23, 2005, the name of the trust was changed
from "Columbia Funds Trust IX" to "Columbia Funds Series Trust I."
6. The last paragraph of the section entitled "Organization and History" is removed.
7. The section entitled "Trustees and Trustees' Fees" is revised in its entirety to read:
TRUSTEES AND TRUSTEES' FEES
The "Columbia Fund Complex" includes all of the registered investment companies to which the Advisor and its affiliates provide investment advisory services.
The Advisor or its affiliates pay the compensation of all the officers of the funds in the Fund Complex advised by the Advisor, including Trustees who are affiliated with the Advisor. For the fiscal year ended May 31, 2005 and the calendar year ended December 31, 2005, the Trustees received the following compensation for serving as Trustees:
PENSION OR AGGREGATE TOTAL COMPENSATION
RETIREMENT BENEFITS COMPENSATION FROM THE FROM THE FUND COMPLEX
ACCRUED AS PART OF FUND FOR THE FISCAL PAID TO THE TRUSTEES
FUND EXPENSES (a) YEAR ENDED MAY 31, 2005 FOR THE CALENDAR YEAR ENDED
Trustee DECEMBER 31, 2005(b)
Douglas A. Hacker N/A $1,685 $111,277
Janet Langford Kelly N/A 1,937 116,500
Richard W. Lowry N/A 1,544 142,500
William E. Mayer N/A 1,787 147,750
Charles R. Nelson N/A 1,792 111,500
John J. Neuhauser N/A 1,619 137,833
Patrick J. Simpson(c) N/A 1,612 107,500
Thomas E. Stitzel N/A 1,816 113,000
Thomas C. Theobald(d) N/A 2,201 205,500
Anne-Lee Verville(e) N/A 1,939 120,723
Richard L. Woolworth N/A 1,546 106,500
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(a) The Fund does not currently provide pension or retirement plan benefits to the Trustees.
(b) As of December 31, 2005, the Columbia Fund Complex consisted of 159 open-end and 11 closed-end management investment company portfolios.
(c) During the fiscal year ended May 31, 2005, and the calendar year ended December 31, 2005, Mr. Simpson deferred $1,612 of his compensation from the Fund, and $107,500 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2005, the value of Mr. Simpson's account under that plan was $269,502.
(d) During the fiscal year ended May 31, 2005 and the calendar year ended December 31, 2005, Mr. Theobald deferred $1,287 of his compensation from the Fund, and $150,000 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2005, the value of Mr. Theobald's account under that plan was $320,084.
(e) During the fiscal year ended May 31, 2005, Ms. Verville deferred $400 of her compensation from the Fund pursuant to the deferred compensation plan. At December 31, 2005, the value of Ms. Verville's account under that plan was $683,935.
8. The section entitled "Share Ownership" is revised in its entirety to read:
SHARE OWNERSHIP
The following table shows the dollar range of equity securities beneficially owned by each Trustee as of December 31, 2005 (i) in each Fund and (ii) in the funds in the Fund Complex.
Aggregate Dollar Range of
Dollar Range of Equity Equity Securities Owned in All
Securities Owned in Funds Overseen by Trustee in
Name of Trustee the Fund Columbia Fund Complex
-------------------- ---------------------- --------------------------------
Douglas A. Hacker $ 0 Over $ 100,000
Janet Langford Kelly $ 0 Over $ 100,000
Richard W. Lowry $ 0 Over $ 100,000
Charles R. Nelson $50,001-$100,000 Over $ 100,000
John J. Neuhauser $ 0 Over $ 100,000
Patrick J. Simpson $ 0 Over $ 100,000
Thomas E. Stitzel $ 0 $50,001 - $100,000
Thomas C. Theobald $ 0 Over $ 100,000
Anne-Lee Verville $ 0 Over $ 100,000(1)
Richard L. Woolworth $ 0 Over $ 100,000
Interested Trustee
William E. Mayer $ 0 $50,001 - $100,000
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(1) Includes the value of compensation payable under the deferred compensation plan for independent Trustees of the Fund Complex that is determined as if the amounts deferred had been invested, as of the date of deferral, in shares of one or more funds in the Fund Complex as specified by Ms. Verville.
9. The section entitled "Ownership of the Fund" is replaced in its entirety to read:
As of record on February 28, 2006, the officers and Trustees of the Trust as a group beneficially owned less than 1% of the then outstanding shares of the Fund.
As of record on February 28, 2006, the following shareholders of record owned 5% or more of the following classes of the Fund's outstanding shares:
CLASS B SHARES:
Citigroup Global Markets, Inc. 6.29% 333 W. 34th St. New York, NY 10001-2402 CLASS C SHARES: Citigroup Global Markets, Inc. 7.78% 333 W. 34th St. New York, NY 10001-2402 Merrill Lynch Pierce Fenner & Smith 6.80% 4800 Deer Lake Dr. Jacksonville, FL 32246-6484 |
CLASS Z SHARES:
Bank of America NA 5.82% 411 N. Akard St. Dallas, TX 75201-3307 Charles Schwab & Co. 21.72% 101 Montgomery St. San Francisco, CA 94104-4122 |
10. The first paragraph of the front cover of Part 2 of the SAI is revised in its entirety to read:
The following information applies generally to most funds advised by the Advisor. "Funds" include the series of Columbia Funds Series Trust I, Columbia Funds Institutional Trust, SteinRoe Variable Investment Trust and Liberty Variable Investment Trust (each a Trust and together, the Trusts). In certain cases, the discussion applies to some, but not all, of the Funds, and you should refer to your Fund's Prospectus and to Part 1 of this Statement of Additional Information (SAI) to determine whether the matter is applicable to your Fund. You will also be referred to Part 1 for certain data applicable to your Fund.
11. The section entitled "Trustees and Officers" in Part 2 of the SAI is revised to read:
Information regarding the Trustees and officers of the Funds together with their principal business occupations during the last five years (their titles may have varied during that period) is shown below. Unless otherwise noted, the address for each Trustee and officer is c/o Columbia Funds, Mail Stop MA5-515-11-05, One Financial Center, Boston, MA 02111.
Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Name and Year Position with Appointed Principal Occupation(s) Overseen Other Directorships
of Birth Funds to Office(1) During Past Five Years by Trustee Held(2)
-------- -------- ------------ ---------------------- ------------- -------
DISINTERESTED TRUSTEE
Thomas C. Trustee and 1996 Partner and Senior 83 Anixter International
Theobald Chairman of Advisor, Chicago Growth (network support equipment
(Born 1937) the Board Partners (private distributor); Ventas, Inc.
equity investing) since (real estate investment
September, 2004; Managing trust); Jones Lang LaSalle
Director, William Blair (real estate management
Capital Partners (private services) and Ambac
equity investing) from Financial Group
September, 1994 to (financial guaranty
September, 2004. insurance)
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Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Name and Year Position with Appointed Principal Occupation(s) Overseen Other Directorships
of Birth Funds to Office(1) During Past Five Years by Trustee Held(2)
-------- -------- ------------ ---------------------- ------------- -------
DISINTERESTED TRUSTEE
Douglas A. Trustee 1996 Executive Vice President 83 Nash Finch Company
Hacker -- Strategy of United (food distributor)
(Born 1955) Airlines (airline) since
December, 2002; President
of UAL Loyalty Services
(airline) from September,
2001 to December, 2002;
Executive Vice President
and Chief Financial
Officer of United
Airlines from July, 1999
to September, 2001.
Janet Langford Trustee 1996 Partner, Zelle, Hofmann, 83 UAL Corporation
Kelly Voelbel, Mason & Gette (airline)
(Born 1957) LLP (law firm) since
March, 2005; Adjunct
Professor of Law,
Northwestern University,
since September, 2004;
Chief Administrative
Officer and Senior Vice
President, Kmart Holding
Corporation (consumer
goods), from September,
2003 to March, 2004;
Executive Vice
President-Corporate
Development and
Administration, General
Counsel and Secretary,
Kellogg Company (food
manufacturer), from
September, 1999 to
August, 2003.
Richard W. Lowry Trustee 1995 Private Investor since 85 None
(Born 1936) August, 1987 (formerly
Chairman and Chief
Executive Officer, U.S.
Plywood Corporation
(building products
manufacturer) until 1987.)
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Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Name and Year Position with Appointed Principal Occupation(s) Overseen Other Directorships
of Birth Funds to Office(1) During Past Five Years by Trustee Held(2)
-------- -------- ------------ ---------------------- ------------- -------
DISINTERESTED TRUSTEE
Charles R. Trustee 1981 Professor of Economics, 83 None
Nelson University of Washington
(Born 1943) since January, 1976; Ford
and Louisa Van Voorhis
Professor of Political
Economy, University of
Washington, since
September, 1993;
Director, Institute for
Economic Research,
University of Washington
from September, 2001 to
June, 2003; Adjunct
Professor of Statistics,
University of Washington
since September, 1980;
Associate Editor, Journal
of Money Credit and
Banking since September,
1993; consultant on
econometric and
statistical matters.
John J. Trustee 1985 University Professor, 85 None
Neuhauser Boston College since
(Born 1942) November, 2005; Academic
Vice President and Dean
of Faculties, Boston
College from August, 1999
to October, 2005.
Patrick J. Trustee 2000 Partner, Perkins Coie 83 None
Simpson L.L.P. (law firm).
(Born 1944)
Thomas E. Trustee 1998 Business Consultant since 83 None
Stitzel 1999; Chartered Financial
(Born 1936) Analyst.
Anne-Lee Trustee 1998 Retired since 1997 83 Chairman of the Board of
Verville (formerly General Directors, Enesco
(Born 1945) Manager, Global Education Group,Inc. (producer of
Industry, IBM Corporation giftware and home and
(computer and technology) garden decor products)
from 1994 to 1997).
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Number of
Portfolios in
Year First Columbia Fund
Elected or Complex
Name and Year Position with Appointed Principal Occupation(s) Overseen Other Directorships
of Birth Funds to Office(1) During Past Five Years by Trustee Held(2)
-------- -------- ------------ ---------------------- ------------- -------
DISINTERESTED TRUSTEE
Richard L. Trustee 1991 Retired since December, 83 Northwest Natural Gas
Woolworth 2003 (formerly Chairman (natural gas service
(Born 1941) and Chief Executive provider)
Officer, The Regence
Group Co. (regional
health insurer); Chairman
and Chief Executive
Officer, BlueCross
BlueShield of Oregon;
Certified Public
Accountant, Arthur Young
& Company).
INTERESTED TRUSTEE
William E. Trustee 1994 Partner, Park Avenue 85 Lee Enterprises (print
Mayer(3) Equity Partners (private media), WR Hambrecht + Co.
(Born 1940) equity) since February, (financial service
1999. provider); Reader's Digest
(publishing); OPENFIELD
Solutions (retail industry
technology provider)
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(1) The date shown is the earliest date on which a Trustee was elected or appointed to the board of a Fund in the Columbia Fund Complex.
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public companies").
(3) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (the "1940 Act")) of the Columbia Funds by reason of his affiliation with WR Hambrecht + Co., a registered broker-dealer that may execute portfolio transactions for or engage in principal transactions with the Fund or other funds or clients advised by the Advisor or its affiliates.
Year First
Elected or
Position with Appointed
Name and Year of Birth Funds to Office Principal Occupation(s) During Past Five Years
---------------------- --------- ---------- -----------------------------------------------
OFFICERS
Christopher L. Wilson President 2004 Head of Mutual Funds since August, 2004 and
(Born 1957) Managing Director of the Advisor since September,
2005; President and Chief Executive Officer, CDC
IXIS Asset Management Services, Inc. (investment
management) from September, 1998 to August, 2004.
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Year First
Elected or
Position with Appointed
Name and Year of Birth Funds to Office Principal Occupation(s) During Past Five Years
---------------------- --------- ---------- ----------------------------------------------
OFFICERS
James R. Bordewick, Jr. Senior Vice 2006 Associate General Counsel, Bank of America since
(Born 1959) President, April, 2005; Senior Vice President and Associate
Secretary and General Counsel, MFS Investment Management
Chief Legal (investment management) prior to April, 2005.
Officer
J. Kevin Connaughton Senior Vice 2000 Managing Director of the Advisor since February,
(Born 1964) President, Chief 1998.
Financial
Officer and
Treasurer
Mary Joan Hoene Senior Vice 2004 Senior Vice President and Chief Compliance Officer
(Born 1949) President and of various funds in the Columbia Fund Complex;
Chief Compliance Partner, Carter, Ledyard & Milburn LLP (law firm)
Officer from January, 2001 to August, 2004.
Michael G. Clarke Chief Accounting 2004 Managing Director of the Advisor since February,
(Born 1969) Officer and 2001.
Assistant
Treasurer
Stephen T. Welsh Vice President 1996 President, Columbia Management Services, Inc. since
(Born 1957) July, 2004; Senior Vice President and Controller,
Columbia Management Services, Inc. prior to July,
2004.
Jeffrey R. Coleman Deputy Treasurer 2004 Group Operations Manager of the Advisor since
(Born 1969) October, 2004; Vice President of CDC IXIS Asset
Management Services, Inc. (investment management)
from August, 2000 to September, 2004.
Joseph F. DiMaria Deputy Treasurer 2004 Senior Compliance Manager of the Advisor since
(Born 1968) January, 2005; Director of Trustee Administration
of the Advisor from May, 2003 to January, 2005;
Senior Audit Manager, PricewaterhouseCoopers
(independent registered public accounting firm)
from July, 2000 to April, 2003.
Ty S. Edwards Deputy Treasurer 2004 Vice President of the Advisor since 2002; Assistant
(Born 1966) Vice President and Director, State Street
Corporation (financial services) prior to 2002.
Barry S. Vallan Controller 2006 Vice President-Fund Treasury of the Advisor since
(Born 1969) October, 2004; Vice President-Trustee Reporting
from April, 2002 to October, 2004; Management
Consultant, PricewaterhouseCoopers (independent
registered public accounting firm) prior to
October, 2002.
|
Year First
Elected or
Position with Appointed
Name and Year of Birth Funds to Office Principal Occupation(s) During Past Five Years
---------------------- --------- --------------------- ------------------------------------
OFFICERS
Peter T. Fariel Assistant 2006 Associate General Counsel, Bank of America since
(Born 1957) Secretary April, 2005; Partner, Goodwin Procter LLP (law
firm) prior to April, 2005.
Ryan C. Larrenaga Assistant 2005 Assistant General Counsel, Bank of America since
(Born 1970) Secretary March, 2005; Associate, Ropes & Gray LLP (law firm)
from 1998 to February, 2005.
Barry S. Finkle Assistant 2003 Senior Manager and Head of Fund Performance of the
(Born 1965) Treasurer Advisor since January, 2001.
Julian Quero Assistant 2003 Senior Compliance Manager of the Advisor since
(Born 1967) Treasurer April, 2002; Assistant Vice President of Taxes and
Distributions of the Advisor from 2001 to April,
2002.
|
Each of the Trust's Trustees and officers hold comparable positions with certain other funds of which the Advisor or its affiliates is the investment advisor or distributor and, in the case of certain of the officers, with certain affiliates of the Advisor.
The Trustees and officers serve terms of indefinite duration. Each Fund held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once every five years thereafter to elect Trustees.
12. The section entitled "Trustee Positions," a subsection of "Management of the Funds," is revised to read:
As of December 31, 2005, no disinterested Trustee or any of their immediate family members owned beneficially or of record any class of securities of the Advisor, another investment advisor, sub-advisor or portfolio manager of any of the funds in the Columbia Fund Complex or any person controlling, controlled by or under common control with any such entity.
13. The second paragraph of the section entitled "Other Disclosures," a subsection of "Disclosure of Portfolio Information," is revised in its entirety to read:
The Fund periodically discloses its portfolio information on a confidential basis to various service providers that require such information in order to assist the Fund with its day-to-day business affairs. In addition to Columbia Advisors and its affiliates, these service providers include the Fund's custodian and sub-custodians, the Fund's independent registered public accounting firm, legal counsel, financial printers (R.R. Donnelly & Sons and Bowne & Co., Inc.), the Fund's proxy solicitor and proxy voting service provider (Computershare), rating agencies that maintain ratings on certain Columbia Funds (Fitch, Inc.) and service providers that support Columbia Advisors' trading systems (InvestorTool, Inc. and Thomson Financial). These service providers are required to keep such information confidential, and are prohibited from trading based on the information or otherwise using the information except as necessary in providing services to the Fund. The Fund may also disclose portfolio holdings information to broker/dealers and certain other entities related to potential transactions and management of the Fund, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information.
INT-50/107459-0306 March 27, 2006
COLUMBIA HIGH YIELD OPPORTUNITY FUND
A SERIES OF COLUMBIA FUNDS TRUST I
COLUMBIA STRATEGIC INCOME FUND
A SERIES OF COLUMBIA FUNDS SERIES TRUST I
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 2005
This Statement of Additional Information ("SAI") contains information which may be useful to investors but which is not included in the Prospectuses of Columbia High Yield Opportunity Fund and Columbia Strategic Income Fund (each a "Fund" and, collectively, the "Funds"). This SAI is not a prospectus and is authorized for distribution only when accompanied or preceded by a Prospectus of the relevant Fund dated October 1, 2005. This SAI should be read together with the relevant Prospectus and the Columbia High Yield Opportunity Fund's most recent Annual Report dated May 31, 2005 and the Columbia Strategic Income Fund's, a series of Columbia Funds Trust I, the predecessor to the Columbia Strategic Income Fund (the "Predecessor Fund") most recent Annual Report dated May 31, 2005. Each Fund's most recent Annual Report to shareholders is a separate document supplied with this SAI. Investors may obtain a free copy of the relevant Prospectus and Annual Report from Columbia Management Distributors, Inc. (CMD), One Financial Center, Boston, MA 02111-2621 or by calling 1-800-426-3750. The Financial Statements and Report of the Independent Registered Public Accounting Firm appearing in each Fund's May 31, 2005 Annual Report, are incorporated into this SAI by reference.
Part 1 of this SAI contains specific information about the Funds. Part 2 includes information about the funds distributed by CMD generally and additional information about certain securities and investment techniques described in the Funds' Prospectuses.
TABLE OF CONTENTS
PAGE
----
PART 1
Definitions b
Organization and History b
Investment Goals and Policies b
Fundamental Investment Policies c
Other Investment Policies d
Portfolio Turnover d
Fund Charges and Expenses d
Custodian o
Independent Registered Public Accounting Firm o
PART 2
Miscellaneous Investment Practices 1
Taxes 22
Additional Tax Matters Concerning Trust Shares 27
Management of the Funds 28
Determination of Net Asset Value 42
How to Buy Shares 43
Special Purchase Programs/Investor Services 46
Programs for Reducing or Eliminating Sales Charges 48
How to Sell Shares 51
Distributions 55
How to Exchange Shares 56
Suspension of Redemptions 56
Shareholder Liability 56
Shareholder Meetings 56
Appendix I 58
Appendix II 63
|
PART 1
COLUMBIA HIGH YIELD OPPORTUNITY FUND
COLUMBIA STRATEGIC INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
OCTOBER 1, 2005
DEFINITIONS
"Trust I" Columbia Funds Trust I
"Series Trust I" Columbia Funds Series Trust I (formerly named
Columbia Funds Trust IX)
"High Yield Fund" Columbia High Yield Opportunity Fund
"Strategic Income Fund" Columbia Strategic Income Fund
"Advisor" Columbia Management Advisors, LLC, the Funds'
investment advisor
"CMD" Columbia Management Distributors, Inc. (formerly
named Columbia Funds Distributor, Inc.), the
Funds' distributor
"CMS" Columbia Management Services, Inc. (formerly named
Columbia Funds Services, Inc.), the Funds'
shareholder services and transfer agent
|
ORGANIZATION AND HISTORY
Trust I and Series Trust I are Massachusetts business trusts organized in 1985 and 1987, respectively. Each Fund is an open-end diversified management investment company representing the entire interest in a separate series of its respective Trust. The High Yield Fund commenced investment operations on October 21, 1971. The Strategic Income Fund commenced investment operations as a series of the Series Trust I on September 26, 2005. Prior to September 26, 2005 (the "Fund Reorganization Date"), the Strategic Income Fund was organized as a series of Columbia Funds Trust I, a Massachusetts business trust (the "Predecessor Fund") that commenced investment operations on April 21, 1977. The information provided for the Strategic Income Fund in this SAI for periods prior to the Fund Reorganization Date relates to the Predecessor Fund.
The Trust I changed its name from Colonial Trust I to Liberty Funds Trust I on April 1, 1999. Effective October 13, 2003, the Trust I changed its name from Liberty Funds Trust I to its current name. The Series Trust I changed its name from "Liberty-Stein Roe Funds Municipal Trust" to "Columbia Funds Trust IX" effective October 13, 2003. Effective September 19, 2005, the name of the Series Trust I was changed from "Columbia Funds Trust IX" to its current name.
Effective July 14, 2000, the High Yield Fund changed its name from Colonial High Yield Securities Fund to Liberty High Yield Securities Fund. Effective October 13, 2003, the High Yield Fund changed its name from Liberty High Yield Securities Fund to its current name.
Each Fund offers four classes of shares - Class A, B, C and Z shares. The Strategic Income Fund offers an additional class of shares, Class J shares.
It is expected that the High Yield Fund will be reorganized as a series of Series Trust I, into which all of the retail Columbia funds are expected to be reorganized.
INVESTMENT GOALS AND POLICIES
The Prospectuses describe the Funds' investment goals, investment strategies and risks. Part 1 of this SAI contains additional information concerning, among other things, the investment policies of the Funds. Part 2 contains additional information about the following securities and investment techniques that may be utilized by each Fund (unless otherwise noted):
Short-Term Trading
Lower-Rated Debt Securities
Small Companies
Common Stock, Preferred Stock and Warrants (High Yield Fund only)
Foreign Securities
Zero Coupon Securities (Zeros)
Step Coupon Bonds (Steps)
Pay-In-Kind (PIK) Securities
Money Market Instruments
Stripped Obligations
Municipal Securities
b
Securities Loans (Strategic Income Fund only)
Forward Commitments ("When-Issued" and "Delayed Delivery" Securities)
Mortgage Dollar Rolls
REITs (High Yield Fund only)
Mortgage-Backed Securities
Non-Agency Mortgage-Backed Securities
Asset-Backed Securities
Repurchase Agreements
Reverse Repurchase Agreements
Line of Credit
Options on Securities
Futures Contracts and Related Options (interest rate futures and
related options)
Swap Agreements (Swaps, Caps, Collars and Floors)
Equity Swaps (High Yield Fund only)
Foreign Currency Transactions
Variable and Floating Rate Obligations
Inverse Floaters
Rule 144A Securities
Convertible Securities
Loan Participations
Structured Investments
Yankee Obligations
American, European, Continental and Global Depositary Receipts
(High Yield Fund only)
Except as indicated below under "Fundamental Investment Policies", the Funds' investment policies are not fundamental, and the Trustees may change the policies without shareholder approval.
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940, as amended (the "1940 Act") provides that a
"vote of a majority of the outstanding voting securities" means the affirmative
vote of the lesser of (1) more than 50% of the outstanding shares of a Fund, or
(2) 67% or more of the shares present at a meeting if more than 50% of the
outstanding shares are represented at the meeting in person or by proxy. The
following fundamental investment policies cannot be changed without such a vote.
Each Fund may not, as a matter of fundamental policy:
1. Underwrite any issue of securities issued by other persons within the meaning of the Securities Act of 1933, as amended (the "1933 Act") except when it might be deemed to be an underwriter either: (a) in connection with the disposition of a portfolio security; or (b) in connection with the purchase of securities directly from the issuer thereof in accordance with its investment objective. This restriction shall not limit the Fund's ability to invest in securities issued by other registered investment companies;
2. Purchase or sell real estate, except a Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate and it may hold and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of securities which are secured by real estate or interests therein;
3. Purchase or sell commodities, except that a Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts;
4. Purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions; and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief;
5. Make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief;
6. Borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief; and
7. Purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that: (a) up to 25% of its total assets may be invested without regard to these limitations and (b) a Fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder, or any applicable exemptive relief.
OTHER INVESTMENT POLICIES
As non-fundamental investment policies, which may be changed without a shareholder vote, each Fund may not:
1. Purchase securities on margin, but the Fund may receive short-term credit to clear securities transactions and may make initial or maintenance margin deposits in connection with futures transactions;
2. Have a short securities position, unless the Fund owns, or owns rights (exercisable without payment) to acquire, an equal amount of such securities; and
3. Invest more than 15% of its net assets in illiquid assets.
Total assets and net assets are determined at current value for purposes of compliance with investment restrictions and policies. All percentage limitations will apply at the time of investment and are not violated unless an excess or deficiency occurs as a result of such investment. For the purpose of the 1940 Act's diversification requirement, an issuer is the entity whose revenues support the security.
In addition, the Strategic Income Fund will, so long as shares of the Fund are being offered for sale by the Fund in Japan, comply with the following standards of selection of the Japan Securities Dealers Association:
1. More than 50% of the total number of outstanding shares of stock of any one company may not be acquired on behalf of all funds managed by the Advisor;
2. Borrowing may not be made if it will result in an aggregate amount of borrowing outstanding in excess of 10% of the net assets of the Fund, except in the case of a merger, etc., when this 10% may be temporarily exceeded; and
3. The Strategic Income Fund will not invest in equity securities.
If any violation of the foregoing standards occurs, the Strategic Income Fund will, promptly after discovery of the violation, take such action as may be necessary to cause the violation to cease, which shall be the only obligation of the Fund and the only remedy in respect of the violation.
Except with respect to the Strategic Income Fund's policy on borrowing and investing in illiquid securities, if the Fund's investment limitations, policies and rating standards are adhered to at the time of purchase or utilization of assets; a subsequent change in circumstances will not be considered to result in a violation of policy.
PORTFOLIO TURNOVER
Portfolio turnover is included in the Prospectuses under "Financial Highlights." Each Fund may sell a portfolio investment soon after its acquisition if the Advisor believes that such a disposition is consistent with the Fund's investment goals. Portfolio investments may be sold for a variety of reasons, such as more favorable investment opportunity or other circumstances bearing on the desirability of continuing to hold such investments. A portfolio turnover rate of 100% or more is considered high, although the rate of portfolio turnover will not be a limiting factor in making portfolio decisions. High portfolio turnover may cause the Funds to realize capital gains which, if realized and distributed by a Fund, may be taxable to shareholders as ordinary income. High portfolio turnover may result in correspondingly greater brokerage commissions and other transaction costs, which will be borne directly by the Funds.
FUND CHARGES AND EXPENSES
Under the High Yield Fund's and Strategic Income Fund's Management Agreement, each Fund pays the Advisor a monthly fee based on the average daily net assets of the Fund at the annual rate of:
Average Daily Net Assets Rate ------------------------ ------ Net assets under $500 million 0.600% Net assets of $500 million but less than $1 billion 0.550% Net assets of $1 billion but less than $1.5 billion 0.520% Net assets in excess of $1.5 billion 0.490% |
Previously, the Advisor had, with respect to the period from November 1, 2004 to February 9, 2005, waived a portion of its fees, so that it retained fees at the rates shown above.
Prior to November 1, 2004, under the High Yield Fund's management agreement, the High Yield Fund paid the Advisor a monthly fee based on the average daily net assets of the High Yield Fund at the annual rate of 0.60% of the first $1 billion, 0.55% of the next $1 billion and 0.50% in excess of $2 billion.
Prior to November 1, 2003, under the High Yield Fund's management agreement, the High Yield Fund paid the Advisor a monthly fee based on the average daily net assets of the High Yield Fund at the annual rate of 0.60% of the first $1.5 billion and 0.55% in excess of $1.5 billion.
Prior to November 1, 2004, under the Strategic Income Fund's management agreement, the Strategic Income Fund paid the Advisor a monthly fee based on the average daily net assets of the Strategic Income Fund at the annual rate of 0.65% on the first $1 billion, 0.60% of the next $1 billion and 0.55% in excess of $2 billion.
The Advisor is responsible for providing pricing and bookkeeping services to the Funds pursuant to a pricing and bookkeeping agreement. Under a separate agreement (Outsourcing Agreement), the Advisor has delegated those functions to State Street Corporation (State Street). The Advisor pays fees to State Street under the Outsourcing Agreement.
Under its pricing and bookkeeping agreement with the Funds, the Advisor receives from each Fund a monthly fee consisting of a flat fee plus an asset-based fee, as follows:
- an annual flat fee of $10,000, paid monthly; and
- in any month that a Fund has average net assets of more than $50 million, a monthly fee equal to the average daily net assets of the Fund for that month multiplied by a fee rate that is calculated by taking into account the fees payable to State Street under the Outsourcing Agreement.
Each Fund reimburses the Advisor for all out-of-pocket expenses and charges, including fees payable to third parties (other than State Street) for providing pricing data.
Effective November 1, 2003, each Fund pays a shareholders' servicing and transfer agency fee to CMS as follows:
An annual open account fee of $34 per open account, plus the Fund's allocated share of reimbursement for the out-of-pocket expenses of CMS.
Prior to November 1, 2003, each Fund paid a shareholders' servicing and transfer agency fee to CMS as follows:
- An account fee for each open account of $4.00 per annum, payable on a monthly basis, in an amount equal to 1/12 the per annum charge; plus
- An account fee for each closed account of $1.50 per annum, payable on a monthly basis, in an amount equal to 1/12 the per annum charge; plus
- A transaction fee of $1.40 per transaction occurring in Fund accounts during any month; plus
- A monthly fee at the rate of 0.06% per annum of the average daily closing value of the total net assets of each Fund for such month; plus
- Each Fund's allocated share of CMS' out-of-pocket expenses, including fees payable to DST Systems, Inc. (DST) under a remote services agreement with DST.
e
RECENT FEES PAID TO THE ADVISOR, CMD AND CMS (DOLLARS IN THOUSANDS)
HIGH YIELD FUND
-------------------------------------------------
Year ended May 31, Five months Year ended
------------------ ended May 31, December 31,
2005 2004 2003(a) 2002
------ ------ ------------- ------------
Management fee $3,546 $4,453 $1,874 $4,397
Pricing and bookkeeping fee 201 235 124 295
Shareholder service and transfer agent fee 1,299 1,980 1,108 2,846
12b-1 fees:
Service fee (Class A) 762 911 389 894
Service fee (Class B) 582 744 301 772
Service fee (Class C) 106 135 50 124
Distribution fee (Class B) 1,745 2,231 902 2,315
Distribution fee (Class C) 317 406 151 373
Fees waived by CMD (Class C) (63) (81) (30) (75)
Fees waived by CMS -- -- (15) --
Fees and expenses waived or reimbursed by the Advisor -- (38) -- --
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STRATEGIC INCOME FUND
-------------------------------------------------
Year ended May 31, Five months Year ended
------------------ ended May 31, December 31,
2005 2004 2003(a) 2002
------ ------ ------------- ------------
Management fee $7,515 $8,539 $3,534 $8,711
Pricing and bookkeeping fee 397 418 211 553
Shareholder service and transfer agent fee 2,059 2,806 1,634 3,888
12b-1 fees:
Service fee (Class A) 1,431 1,412 557 1,339
Service fee (Class B) 922 1,095 457 1,134
Service fee (Class C) 104 105 41 94
Service fee (Class J) 542 588 261 672
Distribution fee (Class B) 2,874 3,436 1,444 3,606
Distribution fee (Class C) 325 331 130 297
Distribution fee (Class J) 788 861 383 993
Fees waived by CMD (Class C) (65) (66) (26) (59)
|
(a) The Funds changed their fiscal year end from December 31 to May 31 in 2003.
BROKERAGE COMMISSIONS (dollars in thousands)
HIGH YIELD FUND
------------------------------------------
Year ended
May 31, Five months Year ended
----------- ended May 31, December 31,
2005 2004 2003(a) 2002
---- ---- ------------- ------------
Total commissions $0 $11 $0 $0
Directed transactions (b) 0 0 0 0
Commissions on directed transactions 0 0 0 0
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STRATEGIC INCOME FUND
------------------------------------------
Year ended
May 31, Five months Year ended
----------- ended May 31, December 31,
2005 2004 2003(a) 2002
---- ---- ------------- ------------
Total commissions $0 $1 $0 $0
Directed transactions (b) 0 0 0 0
Commissions on directed transactions 0 0 0 0
|
f
(a) The Funds changed their fiscal year end from December 31 to May 31 in 2003.
(b) See "Management of the Funds - Portfolio Transactions - Brokerage and Research Services" in Part 2 of this SAI.
Each Trust is required to identify any securities of its "regular brokers or dealers" that the Funds have acquired during their most recent fiscal year. At May 31, 2005, the Funds did not hold securities of any of their regular brokers or dealers.
TRUSTEES AND TRUSTEES' FEES
The Fund Complex consists of the following funds:
The series of Columbia Funds Trust I, the series of Columbia Funds Trust II, the series of Columbia Funds Trust III, the series of Columbia Funds Trust IV, the series of Columbia Funds Trust V, the series of Columbia Funds Trust VI, the series of Columbia Funds Trust VII, the series of Liberty Variable Investment Trust and 7 closed-end management investment company portfolios (the "Liberty Funds").
The series of Columbia Funds Trust VIII, the series of Columbia Funds Series Trust I, the series of Columbia Funds Trust XI and the series of SteinRoe Variable Investment Trust (the "Stein Roe Funds").
Two closed-end management investment company portfolios named Liberty All-Star Equity Fund and Liberty All-Star Growth Fund, Inc. (the "All-Star Funds").
Columbia Management Multi-Strategy Hedge Fund, LLC.
Columbia Balanced Fund, Inc., Columbia Daily Income Company, Columbia Fixed Income Securities Fund, Inc., Columbia High Yield Fund, Inc., Columbia International Stock Fund, Inc., Columbia Oregon Municipal Bond Fund, Inc., Columbia Real Estate Equity Fund, Inc., Columbia Small Cap Growth Fund, Inc., Columbia Mid Cap Growth Fund, Inc., Columbia Strategic Investor Fund, Inc., Columbia Technology Fund, Inc. and the series of CMG Fund Trust (the "Columbia Funds").
The series of The Galaxy Funds (the "Galaxy Funds").
The series of Columbia Acorn Trust and the series of Wanger Advisors Trust (the "Acorn Funds" and "WAT Funds," respectively).
The Advisor or its affiliates pay the compensation of all the officers of the funds in the Fund Complex (as such term is defined under applicable regulations promulgated under the 1940 Act) advised by the Advisor, including Trustees who are affiliated with the Advisor. For the fiscal year ended May 31, 2005 and the calendar year ended December 31, 2004, the Trustees received the following compensation for serving as Trustees:
Aggregate
Aggregate Compensation Total Compensation from
Compensation from the from the Strategic the Fund Complex
Pension or Retirement High Yield Fund for the Income Fund for the Paid to the Trustees for
Benefits Accrued as part Fiscal Year Ended Fiscal Year Ended the Calendar Year Ended
Trustee(a) of Fund Expenses(b) May 31, 2005 May 31, 2005 December 31, 2004(a)
---------- ------------------------ ----------------------- ------------------- ------------------------
Douglas A. Hacker N/A $1,685 $2,955 $135,000
Janet Langford Kelly N/A 1,937 3,415 148,500
Richard W. Lowry N/A 1,544 2,722 150,700
William E. Mayer N/A 1,787 3,146 166,700
Charles R. Nelson N/A 1,792 3,156 141,500
John J. Neuhauser N/A 1,619 2,848 158,284
Patrick J. Simpson(c) N/A 1,612 2,839 129,000
Thomas E. Stitzel N/A 1,816 3,187 149,000
Thomas C. Theobald(d) N/A 2,201 3,864 172,500
Anne-Lee Verville(e) N/A 1,939 3,399 157,000
Richard L. Woolworth N/A 1,546 2,713 131,000
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(a) As of December 31, 2004, the Fund Complex consisted of 127 open-end and 11 closed-end management investment company portfolios.
(b) The Fund does not currently provide pension or retirement plan benefits to the Trustees.
g
(c) During the fiscal year ended May 31, 2005, and the calendar year ended December 31, 2004, Mr. Simpson deferred $1,612 and $2,839 of his compensation from the High Yield Fund and the Strategic Income Fund, respectively, and $129,000 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2004, the value of Mr. Simpson's account under that plan was $143,646.
(d) During the fiscal year ended May 31, 2005 and the calendar year ended December 31, 2004, Mr. Theobald deferred $1,287 and $2,233 of his compensation from the High Yield Fund and the Strategic Income Fund, respectively, and $90,000 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2004, the value of Mr. Theobald's account under that plan was $157,328.
(e) During the fiscal year ended May 31, 2005 and the calendar year ended December 31, 2004, Ms. Verville deferred $400 and $665 of her compensation from the High Yield Fund and the Strategic Income Fund, respectively, and $55,000 of her total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2004, the value of Ms. Verville's account under that plan was $653,275.
ROLE OF THE BOARD OF TRUSTEES
The Trustees of the Funds are responsible for the overall management and supervision of the Funds' affairs and for protecting the interests of the shareholders. The Trustees meet periodically throughout the year to oversee the Fund's activities, review contractual arrangements with service providers for the Funds and review the Funds' performance. The Trustees have created several committees to perform specific functions for the Funds.
AUDIT COMMITTEE
Ms. Verville and Messrs. Hacker, Stitzel and Woolworth are members of the Audit Committee of the Board of Trustees of the Funds. The Audit Committee's functions include making recommendations to the Trustees regarding the selection and performance of the independent registered public accounting firm, and reviewing matters relative to accounting and auditing practices and procedures, accounting records, and the internal accounting controls, of the Funds and certain service providers. For the fiscal year ended May 31, 2005, the Audit Committee convened eleven times.
GOVERNANCE COMMITTEE
Messrs. Lowry, Mayer, Simpson and Theobald are members of the Governance Committee of the Board of Trustees of the Funds. The Governance Committee's functions include recommending to the Trustees nominees for independent Trustee positions and for appointments to various committees, performing periodic evaluations of the effectiveness of the Board, reviewing and recommending to the Board policies and practices to be followed in carrying out the Trustees' duties and responsibilities and reviewing and making recommendations to the Board regarding the compensation of the Trustees who are not affiliated with the Funds' investment advisor. The Governance Committee will consider candidates for Trustee recommended by shareholders. Written recommendations with supporting information should be directed to the Committee, in care of the Funds. For the fiscal year ended May 31, 2005, the Governance Committee convened six times.
ADVISORY FEES & EXPENSES COMMITTEE
Ms. Kelly and Messrs. Mayer, Nelson and Neuhauser are members of the Advisory Fees & Expenses Committee of the Board of Trustees of the Funds. The Advisory Fees & Expenses Committee's functions include reviewing and making recommendations to the Board as to contracts requiring approval of a majority of the disinterested Trustees and as to any other contracts that may be referred to the Committee by the Board. For the fiscal year ended May 31, 2005, the Advisory Fees & Expenses Committee convened eight times.
COMPLIANCE COMMITTEE
Ms. Kelly, Messrs. Nelson, Simpson and Stitzel and Ms. Verville are members of the Compliance Committee of the Board of Trustees of the Funds. Mr. Stitzel became a member of the Compliance Committee on May 8, 2005. The Compliance Committee's functions include providing oversight of the monitoring processes and controls regarding the Trust. The Committee uses legal, regulatory and internal rules, policies, procedures and standards other than those relating to accounting matters and oversight of compliance by the Trust's investment advisor, principal underwriter and transfer agent. For the fiscal year ended May 31, 2005, the Compliance Committee convened seven times.
h
INVESTMENT OVERSIGHT COMMITTEES
Each Trustee of the Funds also serves on an Investment Oversight Committee ("IOC"). Each IOC is responsible for monitoring, on an ongoing basis, a select group of funds in the Fund Complex and gives particular consideration to such matters as the Funds' adherence to their investment mandates, historical performance, changes in investment processes and personnel, and proposed changes to investment objectives. Investment personnel who manage the Funds attend IOC meetings from time to time to assist each IOC in its review of the Funds. Each IOC meets four times a year. The following are members of the respective IOCs and the general categories of funds in the Fund Complex which they review:
IOC #1: Messrs. Lowry, Mayer and Neuhauser are responsible for reviewing funds
in the following asset categories: Large Growth Diversified, Large
Growth Concentrated, Small Growth, Outside Managed (i.e., sub-advised)
and Municipal.
IOC #2: Mr. Hacker and Ms. Verville are responsible for reviewing funds in the
following asset categories: Large Blend, Small Blend, Foreign Stock,
Fixed Income - Multi Sector, Fixed Income - Core and Young Investor.
IOC #3: Messrs. Theobald and Stitzel and Ms. Kelly are responsible for
reviewing funds in the following asset categories: Large Value, Mid
Cap Value, Small Value, Asset Allocation, High Yield and Money Market.
IOC #4: Messrs. Nelson, Simpson and Woolworth are responsible for reviewing
funds in the following asset categories: Large/Multi-Cap Blend, Mid
Cap Growth, Small Growth, Asset Allocation, Specialty Equity and
Taxable Fixed Income.
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Share Ownership
The following table shows the dollar range of equity securities beneficially owned by each Trustee as of December 31, 2004 (i) in each Fund and (ii) in the funds in the Fund Complex.
Aggregate Dollar Range
of Equity Securities
Dollar Range of Equity Dollar Range of Equity Owned in All Funds
Securities Owned in Securities Owned in the Overseen by Trustee in
Name of Trustee the High Yield Fund Strategic Income Fund Fund Complex
--------------- ---------------------- ----------------------- ----------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker $0 $0 Over $100,000
Janet Langford Kelly $0 $0 Over $100,000
Richard W. Lowry $0 $0 Over $100,000
Charles R. Nelson $50,001-$100,000 $0 Over $100,000
John J. Neuhauser $1-$10,000 $0 Over $100,000
Patrick J. Simpson $0 $0 Over $100,000
Thomas E. Stitzel $0 $0 Over $100,000
Thomas C. Theobald $0 $0 Over $100,000
Anne-Lee Verville $0 $0 Over $100,000
Richard L. Woolworth $0 $0 Over $100,000
INTERESTED TRUSTEE
William E. Mayer $0 $0 $50,001-$100,000
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PORTFOLIO MANAGERS
OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS
The following table shows the number and assets of other investment accounts (or portions of investment accounts) that the Funds' portfolio managers managed as of the Funds' fiscal year end.
HIGH YIELD FUND
OTHER SEC-REGISTERED OPEN- OTHER POOLED INVESTMENT
END AND CLOSED-END FUNDS VEHICLES OTHER ACCOUNTS
-------------------------- ------------------------ ------------------------
Number of Number of Number of
PORTFOLIO MANAGERS accounts Assets accounts Assets accounts Assets
------------------ --------- ------------ --------- ------------ --------- ------------
Kevin L. Cronk 9 $5.6 billion 8* $1.3 billion 3 $359 million
Thomas A. LaPointe 9 $5.6 billion 8* $1.3 billion 4 $359 million
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STRATEGIC INCOME FUND
OTHER SEC-REGISTERED OPEN- OTHER POOLED INVESTMENT
END AND CLOSED-END FUNDS VEHICLES OTHER ACCOUNTS
-------------------------- ------------------------ -------------------------
Number of Number of Number of
PORTFOLIO MANAGERS accounts Assets accounts Assets accounts Assets
------------------ --------- ------------ --------- ------------ --------- -------------
Kevin L. Cronk 9 $4.8 billion 8* $1.3 billion 3 $359 million
Thomas A. LaPointe 9 $4.8 billion 8* $1.3 billion 4 $359 million
Laura Ostrander 4 $600 million 0 $ 0 5 $240 thousand
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* Includes five pooled investment vehicles totaling $934 million in assets having advisory fees based on performance.
See "Other Considerations - Portfolio Transactions - Potential conflicts of interest in managing multiple accounts" in Part 2 of this SAI for information on how the Advisor addresses potential conflicts of interest resulting from an individual's management of more than one account.
OWNERSHIP OF SECURITIES
The table below shows the dollar ranges of shares of the High Yield Fund and Predecessor Fund beneficially owned (as determined pursuant to Rule 16a-1(a)(2) under the Securities Exchange Act of 1934, as amended) by the portfolio managers listed above at the end of the High Yield Fund's and Predecessor Fund's most recent fiscal year:
HIGH YIELD FUND
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND
PORTFOLIO MANAGERS BENEFICIALLY OWNED
------------------ ---------------------------------------------
Kevin L. Cronk None
Thomas A. LaPointe None
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STRATEGIC INCOME FUND
DOLLAR RANGE OF EQUITY SECURITIES IN THE FUND
PORTFOLIO MANAGERS BENEFICIALLY OWNED
------------------ ---------------------------------------------
Kevin L. Cronk None
Thomas A. LaPointe None
Laura Ostrander $10,001-$50,000
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j
COMPENSATION
As of the High Yield Fund's and Predecessor Fund's most recent fiscal year end, the portfolio managers received all of their compensation from the Advisor and its parent company, Columbia Management Group, in the form of salary, bonus, stock options and restricted stock. A portfolio manager's bonus is variable and is generally based on (1) an evaluation of the manager's investment performance and (2) the results of a peer and/or management review of such individual, which takes into account skills and attributes such as team participation, investment process, communication and professionalism. In evaluating investment performance, the Advisor generally considers the one-, three- and five-year performance of mutual funds and other accounts under the portfolio manager's oversight relative to the benchmarks and peer groups noted below, emphasizing each manager's three- and five-year performance. The Advisor may also consider a portfolio manager's performance in managing client assets in sectors and industries assigned to the manager as part of his or her investment team responsibilities, where applicable. For portfolio managers who also have group management responsibilities, another factor in their evaluation is an assessment of the group's overall investment performance.
HIGH YIELD FUND
PORTFOLIO MANAGERS PERFORMANCE BENCHMARK PEER GROUP ------------------ -------------------------- ---------------------------------- Kevin L. Cronk CS First Boston High Yield Lipper High Current Yield Category Thomas A. LaPointe CS First Boston High Yield Lipper High Current Yield Category |
STRATEGIC INCOME FUND
PORTFOLIO MANAGERS PERFORMANCE BENCHMARK PEER GROUP ------------------ ----------------------------------- ----------------------------------- Kevin L. Cronk Lehman Government/Credit Bond Index Lipper Multi Sector Income Category Thomas A. LaPointe Lehman Government/Credit Bond Index Lipper Multi Sector Income Category Laura Ostrander Lehman Government/Credit Bond Index Lipper Multi Sector Income Category |
The size of the overall bonus pool each year is determined by Columbia Management Group and depends in part on levels of compensation generally in the investment management industry (based on market compensation data) and the Advisor's profitability for the year, which is influenced by assets under management.
OWNERSHIP OF THE FUNDS
As of record on August 31, 2005, the officers and Trustees of the Trust as a group beneficially owned less than 1% of the then outstanding shares of the Funds.
As of record on August 31, 2005, the following shareholders of record owned 5% or more of one or more of each class of the Funds' then outstanding shares:
HIGH YIELD FUND
CLASS B SHARES Citigroup Global Markets, Inc. 5.38% 333 W. 34th Street New York, NY 10001-2402 CLASS C SHARES Citigroup Global Markets, Inc. 5.04% 333 W. 34th Street New York, NY 10001-2402 Merrill Lynch Pierce Fenner & Smith 6.34% 4800 Deer Lake Drive E., 2nd Floor Jacksonville, FL 32246-6484 |
k
CLASS Z SHARES Charles Schwab & Co., Inc. Custodian 20.23% 101 Montgomery St. San Francisco, CA 94104-4122 Bank of America NA 5.14% 411 N. Akard Street Dallas, TX 75201-3307 STRATEGIC INCOME FUND CLASS A SHARES Charles Schwab & Co., Inc. Custodian 5.68% 101 Montgomery St. San Francisco, CA 94104-4122 CLASS C SHARES Merrill Lynch Pierce Fenner & Smith 7.23% 800 Deer Lake Drive E., 2nd Floor Jacksonville, FL 32246-6484 CLASS J SHARES Tokai Tokyo Securities 93.10% Shinyaesu Building 7-1 Kyobashi 1-Chome Chuo-Ku Tokyo, Japan 104-0031 Mitsubishi Securities Co. LTD 6.90% Mitsubishi Building 2-5-2 Marunouchi Chiyoda-Ku Tokyo 100-0005 Japan CLASS Z SHARES Bank of America NA 94.51% 411 N. Akard Street Dallas, TX 75201-3307 |
SALES CHARGES (dollars in thousands)
HIGH YIELD FUND
Class A Shares
----------------------------------------
Year ended Five months
May 31, Year ended Year ended
----------- May 31, December 31,
2005 2004 2003(a) 2002
---- ---- ----------- ------------
Aggregate initial sales charges on Fund share sales $298 $266 $162 $645
Initial sales charges retained by CMD 18 34 15 77
Aggregate contingent deferred sales charges (CDSC) on
Fund redemptions retained by CMD 7 109 (b) 10
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Class B Shares
----------------------------------------
Year ended Five months
May 31, Year ended Year ended
----------- May 31, December 31,
2005 2004 2003(a) 2002
---- ---- ----------- ------------
Aggregate CDSC on Fund redemptions retained by CMD $656 $960 $327 $915
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Class C Shares
----------------------------------------
Year ended Five months
May 31, Year ended Year ended
----------- May 31, December 31,
2005 2004 2003(a) 2002
---- ---- ----------- ------------
Aggregate CDSC on Fund redemptions retained by CMD $10 $18 $5 $25
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STRATEGIC INCOME FUND
Class A Shares
------------------------------------------
Year ended Five months
May 31, Year ended Year ended
------------- May 31, December 31,
2005 2004 2003(a) 2002
------ ---- ----------- ------------
Aggregate initial sales charges on Fund share sales $1,074 $506 $173 $286
Initial sales charges retained by CMD 132 54 20 32
Aggregate CDSC on Fund redemptions retained by CMD 1 (b) 2 1
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Class B Shares
----------------------------------------
Year ended Five months
May 31, Year ended Year ended
----------- May 31, December 31,
2005 2004 2003(a) 2002
---- ---- ----------- ------------
Aggregate CDSC on Fund redemptions retained by CMD $900 $999 $537 $1,470
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Class C Shares
----------------------------------------
Year ended Five months
May 31, Year ended Year ended
----------- May 31, December 31,
2005 2004 2003(a) 2002
---- ---- ----------- ------------
Aggregate CDSC on Fund redemptions retained by CMD $6 $10 $3 $8
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(a) The Funds changed their fiscal year end from December 31 to May 31 in 2003.
(b) Rounds to less than one.
12B-1 PLAN, CDSCS AND CONVERSION OF SHARES
Each Fund offers four classes of shares - Class A, Class B, Class C and Class Z. The Strategic Income Fund also offers an additional class of shares - Class J shares. The Funds may in the future offer other classes of shares. The Trustees have approved a 12b-1 Plan (Plan) pursuant to Rule 12b-1 under the 1940 Act for each class except for Class Z. Under the Plan, the High Yield Fund pays CMD monthly a service fee at an annual rate of 0.25% of net assets attributed to Class A, B and C shares and the Strategic Income Fund pays CMD monthly a service fee at an annual rate of 0.15% of the Fund's net assets attributed to shares issued on or before January 1, 1993, and a service fee of 0.25% of the Fund's net assets attributed to shares issued and outstanding thereafter. Each Fund also pays CMD monthly a distribution fee at an annual rate of 0.75% of average daily net assets attributed to Class B and Class C shares and the Strategic Income Fund pays CMD monthly a distribution fee at an annual rate of 0.35% of average daily net assets attributed to Class J shares. CMD has voluntarily agreed to waive a portion of the Class C share distribution fee so that it does not exceed 0.60% annually. CMD may terminate this waiver at any time without shareholder approval. CMD may use the entire amount of such fees to defray the costs of commissions and service fees paid to financial service firms (FSFs) and for certain other purposes. Since the distribution and service fees are payable regardless of the amount of CMD's expenses, CMD may realize a profit from the fees. The Plan authorizes any other payments by the Funds to CMD and its affiliates (including the Advisor) to the extent that such payments might be construed to be indirect financing of the distribution of the Funds' shares.
The Trustees believe the Plan could be a significant factor in the growth and retention of each Fund's assets resulting in a more advantageous expense ratio and increased investment flexibility which could benefit each class of the Funds' shareholders. The Plan will continue in effect from year to year so long as continuance is specifically approved at least annually by a vote of the Trustees, including the Trustees who are not interested persons of the Trust and have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan (Independent Trustees), cast in person at a meeting called for the purpose of voting on the Plan. The Plan may not be amended to increase the fee materially without approval by vote of a majority of the outstanding voting securities of the relevant class of shares and all material amendments of the Plan must be approved by the Trustees in the manner provided in the foregoing sentence. The Plan may be terminated at any time by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding voting securities of the relevant class of shares. The continuance of the Plan will only be effective if the selection and nomination of the Trustees who are not interested persons of the Trust is effected by such disinterested Trustees.
Class A shares are offered at net asset value plus varying sales charges which may include a CDSC. Class B shares are offered at net asset value and are subject to a CDSC if redeemed within six years after purchase. Class C shares are offered at net asset value and are subject to a 1.00% CDSC on redemptions within one year after purchase. Class J shares are offered at net asset value plus varying sales charges, but not a CDSC. Class Z shares are offered at net asset value and are not subject to a CDSC. The CDSCs and initial sales charges are described in the Prospectuses.
No CDSC will be imposed on shares derived from reinvestment of distributions or on amounts representing capital appreciation. In determining the applicability and rate of any CDSC, it will be assumed that a redemption is made first of shares representing capital appreciation, next of shares representing reinvestment of distributions and finally of other shares held by the shareholder for the longest period of time.
Eight years after the end of the month in which a Class B share is purchased, such share and a pro rata portion of any shares issued on the reinvestment of distributions will be automatically converted into Class A shares having an equal value, which are not subject to the distribution fee.
SALES-RELATED EXPENSES (dollars in thousands) of CMD relating to the Class A, B and C shares of the Funds and Class J shares of the Strategic Income Fund were:
High Yield Fund
Year ended May 31, 2005
---------------------------
Class A Class B Class C
------- ------- -------
Fees to FSFs $655 $759 $373
Cost of sales material relating to the Fund
(including printing and mailing expenses) 66 16 5
Allocated travel, entertainment and other promotional expenses
(including advertising) 46 23 4
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n
Strategic Income Fund
Year ended May 31, 2005
-------------------------------------
Class A Class B Class C Class J
------- ------- ------- -------
Fees to FSFs $1,238 $1,653 $426 $1,285
Cost of sales material relating to the Fund
(including printing and mailing expenses) 168 47 25 9
Allocated travel, entertainment and other promotional expenses
(including advertising) 102 41 12 3
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CUSTODIAN
State Street Bank & Trust Company, located at 2 Avenue de Lafayette, Boston, Massachusetts 02111-2900, is the Funds' custodian. The custodian is responsible for safeguarding and controlling the Funds' cash and securities, receiving and delivering securities and collecting the Funds' interest and dividends.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP, located at 125 High Street, Boston, Massachusetts 02110-1707, is the Funds' independent registered public accounting firm, providing audit and tax return review services and assistance and consultation in connection with the review of various Securities and Exchange Commission filings. The financial statements incorporated by reference in this SAI have been so incorporated, and the financial highlights in the Prospectuses have been so included, in reliance upon the report of PricewaterhouseCoopers LLP given on the authority of said firm as experts in accounting and auditing.
o
STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to most funds advised by the Advisor. "Funds" include the series of Columbia Funds Trust I, Columbia Funds Trust II, Columbia Funds Trust III, Columbia Funds Trust IV, Columbia Funds Trust V, Columbia Funds Trust VI, Columbia Funds Trust VII, Columbia Funds Trust VIII, Columbia Funds Series Trust I (formerly named Columbia Funds Trust IX) and Columbia Funds Trust XI (each a Trust and together, the Trusts, also known as Fund Complex). In certain cases, the discussion applies to some, but not all, of the Funds, and you should refer to your Fund's Prospectus and to Part 1 of this Statement of Additional Information (SAI) to determine whether the matter is applicable to your Fund. You will also be referred to Part 1 for certain data applicable to your Fund.
MISCELLANEOUS INVESTMENT PRACTICES
PART 1 OF THIS SAI LISTS ON PAGE B WHICH OF THE FOLLOWING INVESTMENT PRACTICES
ARE AVAILABLE TO YOUR FUND. IF AN INVESTMENT PRACTICE IS NOT LISTED IN PART 1 OF THIS SAI, IT IS NOT APPLICABLE TO YOUR FUND.
SHORT-TERM TRADING
In seeking the Fund's investment goal, the Advisor will buy or sell portfolio securities whenever it believes it is appropriate. The Advisor's decision will not generally be influenced by how long the Fund may have owned the security. From time to time, the Fund will buy securities intending to seek short-term trading profits. A change in the securities held by the Fund is known as "portfolio turnover" and generally involves some expense to the Fund. These expenses may include brokerage commissions or dealer mark-ups and other transaction costs on both the sale of securities and the reinvestment of the proceeds in other securities. If sales of portfolio securities cause the Fund to realize net short-term capital gains, such gains will be taxable as ordinary income. As a result of the Fund's investment policies, under certain market conditions the Fund's portfolio turnover rate may be higher than that of other mutual funds. The Fund's portfolio turnover rate for a fiscal year is the ratio of the lesser of purchases or sales of portfolio securities to the monthly average of the value of portfolio securities, excluding securities whose maturities at acquisition were one year or less. The Fund's portfolio turnover rate is not a limiting factor when the Advisor considers a change in the Fund's portfolio.
SHORT SALES
A Fund's short sales are subject to special risks. A short sale involves the sale by the Fund of a security that it does not own with the hope of purchasing the same security at a later date at a lower price. In order to deliver the security to the buyer, the Fund borrows the security from a third party. The Fund is then obligated to return the security to the third party, so the Fund must purchase the security at the market price at a later point in time. If the price of the security has increased during this time, then the Fund will incur a loss equal to the increase in price of the security from the time that the short sale was entered into plus any premiums and interest paid to the third party. Therefore, short sales involve the risk that losses may be exaggerated, potentially losing more money than the actual cost of the security. Also, there is the risk that the third party to the short sale may fail to honor its contract terms, causing a loss to the Fund.
LOWER-RATED DEBT SECURITIES
Lower-rated debt securities are those rated lower than Baa by Moody's or BBB by S&P, or comparable unrated debt securities. Relative to debt securities of higher quality,
1. an economic downturn or increased interest rates may have a more significant effect on the yield, price and potential for default for lower-rated debt securities;
2. the secondary market for lower-rated debt securities may at times become less liquid or respond to adverse publicity or investor perceptions, increasing the difficulty in valuing or disposing of the bonds;
3. the Advisor's credit analysis of lower-rated debt securities may have a greater impact on the Fund's achievement of its investment goal; and
4. lower-rated debt securities may be less sensitive to interest rate changes, but are more sensitive to adverse economic developments.
In addition, certain lower-rated debt securities may not pay interest in cash on a current basis.
SMALL COMPANIES
Smaller, less well established companies may offer greater opportunities for capital appreciation than larger, better established companies, but may also involve certain special risks related to limited product lines, markets, or financial resources and dependence on a small management group. Their securities may trade less frequently, in smaller volumes, and fluctuate more sharply in value than securities of larger companies.
COMMON STOCK, PREFERRED STOCK AND WARRANTS
Common stocks are generally more volatile than other securities. Preferred stocks share some of the characteristics of both debt and equity investments and are generally preferred over common stocks with respect to dividends and in liquidation. A warrant is an instrument issued by a corporation which gives the holder the right to subscribe to a specified amount of the company's capital stock at a set price for a specified period of time.
FOREIGN SECURITIES
The Fund may invest in securities traded in markets outside the United States. Foreign investments can be affected favorably or unfavorably by changes in currency rates and in exchange control regulations. There may be less publicly available information about a foreign company than about a U.S. company, and foreign companies may not be subject to accounting, auditing and financial reporting standards comparable to those applicable to U.S. companies. Securities of some foreign companies are less liquid or more volatile than securities of U.S. companies, and foreign brokerage commissions and custodian fees may be higher than in the United States. Investments in foreign securities can involve other risks different from those affecting U.S. investments, including local political or economic developments, expropriation or nationalization of assets and imposition of withholding taxes on dividend or interest payments. Foreign securities, like other assets of the Fund, will be held by the Fund's custodian or by a sub-custodian or depository. See also "Foreign Currency Transactions" below.
The Fund may invest in certain Passive Foreign Investment Companies (PFICs) which may be subject to U.S. federal income tax on a portion of any "excess distribution" or gain (PFIC tax) related to the investment. This "excess distribution" will be allocated over the Fund's holding period for such investment. The PFIC tax is the highest ordinary income rate in effect for any period multiplied by the portion of the "excess distribution" allocated to such period, and it could be increased by an interest charge on the deemed tax deferral.
The Fund may possibly elect to include in its income its pro rata share of the ordinary earnings and net capital gain of PFICs. This election requires certain annual information from the PFICs which in many cases may be difficult to obtain. An alternative election would permit the Fund to recognize as income any appreciation (and to a limited extent, depreciation) on its holdings of PFICs as of the end of its fiscal year. See "Taxes" below.
The Fund may invest in other investment companies. Such investments will involve the payment of duplicative fees through the indirect payment of a portion of the expenses, including advisory fees, of such other investment companies.
EXCHANGE-TRADED FUNDS ("ETFS"). The Fund may invest in ETFs up to the maximum amount allowable under the 1940 Act. ETFs are shares of publicly-traded unit investment trusts, open-end funds, or depositary receipts that seek to track the performance and dividend yield of specific indexes or companies in related industries. These indexes may be either broad-based, sector or international.
ETF shareholders are generally subject to the same risks as holders of the underlying securities they are designed to track. ETFs are also subject to certain additional risks, including (1) the risk that their prices may not correlate perfectly with changes in the prices of the underlying securities they are designed to track; and (2) the risk of possible trading halts due to market conditions or other reasons, based on the policies of the exchange upon which an ETF trades. In addition, an exchange traded sector fund may be adversely affected by the performance of that specific sector or group of industries on which it is based.
The Fund would bear, along with other shareholders of an ETF, its pro rata portion of the ETF's expenses, including management fees. Accordingly, in addition to bearing their proportionate share of the Fund's expenses (i.e., management fees and operating expenses), shareholders of the Fund may also indirectly bear similar expenses of an ETF.
ZERO COUPON SECURITIES (ZEROS)
The Fund may invest in zero coupon securities, which are securities issued at a significant discount from face value and do not pay interest at intervals during the life of the security. Zero coupon securities include securities issued in certificates representing undivided interests in the interest or principal of mortgage-backed securities (interest only/principal only), which tend to be more volatile than other types of securities. The Fund will accrue and distribute income from stripped securities and certificates on a current basis and may have to sell securities to generate cash for distributions.
STEP COUPON BONDS (STEPS)
The Fund may invest in debt securities which pay interest at a series of different rates (including 0%) in accordance with a stated schedule for a series of periods. In addition to the risks associated with the credit rating of the issuers, these securities may be subject to more volatility risk than fixed rate debt securities.
TENDER OPTION BONDS
A tender option bond is a municipal security (generally held pursuant to a custodial arrangement) having a relatively long maturity and bearing interest at a fixed rate substantially higher than prevailing short-term tax-exempt rates, that has been coupled with the agreement of a third party, such as a bank, broker-dealer or other financial institution, pursuant to which such institution grants the security holders the option, at periodic intervals, to tender their securities to the institution and receive the face value thereof. As consideration for providing the option, the financial institution receives periodic fees equal to the difference between the municipal security's fixed coupon rate and the rate, as determined by a remarketing or similar agent at or near the commencement of such period, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term tax-exempt rate. The Advisor will consider on an ongoing basis the creditworthiness of the issuer of the underlying municipal securities, of any custodian, and of the third-party provider of the tender option. In certain instances and for certain tender option bonds, the option may be terminable in the event of a default in payment of principal or interest on the underlying municipal securities and for other reasons.
PAY-IN-KIND (PIK) SECURITIES
The Fund may invest in securities which pay interest either in cash or additional securities. These securities are generally high yield securities and, in addition to the other risks associated with investing in high yield securities, are subject to the risks that the interest payments which consist of additional securities are also subject to the risks of high yield securities.
MONEY MARKET INSTRUMENTS
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their subdivisions, agencies and instrumentalities. SUPRANATIONAL OBLIGATIONS are issued by supranational entities and are generally designed to promote economic improvements. CERTIFICATES OF DEPOSIT are issued against deposits in a commercial bank with a defined return and maturity. BANKER'S ACCEPTANCES are used to finance the import, export or storage of goods and are "accepted" when guaranteed at maturity by a bank. COMMERCIAL PAPER is a promissory note issued by a business to finance short-term needs (including promissory notes with floating or variable interest rates, or including a frequent interval put feature). SHORT-TERM CORPORATE OBLIGATIONS are bonds and notes (with one year or less to maturity at the time of purchase) issued by businesses to finance long-term needs. PARTICIPATION INTERESTS include the underlying securities and any related guaranty, letter of credit, or collateralization arrangement in which the Fund would be allowed to invest directly.
CERTIFICATES OF DEPOSIT are short-term negotiable instruments issued against deposits in a commercial bank with a defined return and maturity. TIME DEPOSITS are non-negotiable deposits maintained in banking institutions for specified periods of time at stated interest rates.
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their subdivisions, agencies and instrumentalities. Examples of the types of obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities (hereinafter, "U.S. Government obligations") that may be held by the Funds include, without limitation, direct obligations of the U.S. Treasury, and securities issued or guaranteed by the Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association, Federal National Mortgage Association, General Services Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks, Resolution Trust Corporation and Maritime Administration.
U.S. Treasury securities differ only in their interest rates, maturities and time of issuance: Treasury Bills have initial maturities of one year or less; Treasury Notes have initial maturities of one to ten years; and Treasury Bonds generally have initial maturities of more than ten years. Obligations of certain agencies and instrumentalities of the U.S. Government, such as those of the Government National Mortgage Association, are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Federal Home Loan Banks, are supported by the right of the issuer to borrow from the Treasury; others, such as those of the Federal National Mortgage Association, are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; still others, such as those of the Federal Home Loan Mortgage Corporation, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government would provide financial support to U.S. Government-sponsored instrumentalities if it is not obligated to do so by law. Some of these instruments may be variable or floating rate instruments.
Securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities have historically involved relatively little risk of loss of principal. However, due to fluctuations in interest rates, the market value of such securities may vary during the period a shareholder owns shares of the Fund.
BANK OBLIGATIONS include bankers' acceptances, negotiable certificates of deposit, and non-negotiable time deposits issued for a definite period of time and earning a specified return by a U.S. bank which is a member of the Federal Reserve System or is insured by the Federal Deposit Insurance Corporation ("FDIC"), or by a savings and loan association or savings bank which is insured by the FDIC. Bank obligations also include U.S. dollar-denominated obligations of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of the same type as domestic bank obligations. Time deposits with a maturity longer than seven days or that do not provide for payment within seven days after notice will be subject to any limitations on illiquid securities described in Part 1 of this SAI. For purposes of each Fund's investment policies with respect to bank obligations, the assets of a bank or savings institution will be deemed to include the assets of its U.S. and foreign branches.
Domestic and foreign banks are subject to extensive but different government regulation which may limit the amount and types of their loans and the interest rates that may be charged. In addition, the profitability of the banking industry is largely dependent upon the availability and cost of funds to finance lending operations and the quality of underlying bank assets.
Investments in obligations of foreign branches of U.S. banks and of U.S. branches of foreign banks may subject a Fund to additional risks, including future political and economic developments, the possible imposition of withholding taxes on interest income, possible seizure or nationalization of foreign deposits, the possible establishment of exchange controls, or the adoption of other foreign governmental restrictions which might adversely affect the payment of principal and interest on such obligations. In addition, foreign branches of U.S. banks and U.S. branches of foreign banks may be subject to less stringent reserve requirements and to different accounting, auditing, reporting, and recordkeeping standards than those applicable to domestic branches of U.S. banks.
SEPARATELY TRADED INTEREST AND PRINCIPAL SECURITIES ("STRIPS") are component parts of U.S. Treasury Securities traded through the Federal Reserve Book-Entry System. While there is no limitation on the percentage of a Fund's assets that may be invested in STRIPS, the Advisor will monitor the level of such holdings to avoid the risk of impairing shareholders' redemption rights. The interest-only component of STRIPS is extremely sensitive to the rate of principal payments on the underlying obligation. The market value of the principal-only component is usually volatile in response to changes in interest rates.
In U.S. TREASURY ROLLS, a Fund sells outstanding U.S. Treasury securities and buys back on a delayed settlement basis the same U.S. Treasury securities. During the period prior to the delayed settlement date, the assets from the sale of the U.S. Treasury securities are invested in certain cash equivalent instruments. U.S. Treasury rolls entail the risk that the Fund could suffer an opportunity loss if the counterparty to the roll failed to perform its obligations on the settlement date, and if market conditions changed adversely. The Funds intend to enter into U.S. Treasury rolls only with U.S. Government securities dealers recognized by the Federal Reserve Bank or with member banks of the Federal Reserve System. The Funds will hold and maintain in a segregated account until the settlement date cash or other liquid assets in an amount equal to the forward purchase price. For financial reporting and tax purposes, the Funds propose to treat U.S. Treasury rolls as two separate transactions, one involving the purchase of a security and a separate transaction involving a sale.
COMMERCIAL PAPER is an unsecured short-term promissory note issued by businesses to finance short-term needs (including those with floating or variable interest rates, or including a frequent interval put feature). Commercial paper may include variable and floating rate instruments which are unsecured instruments that permit the indebtedness thereunder to vary. Variable rate instruments provide for periodic adjustments in the interest rate. Floating rate instruments provide for automatic adjustment of the interest rate whenever some other specified interest rate changes. Some variable and floating rate obligations are direct lending arrangements between the purchaser and the issuer and there may be no active secondary market. However, in the case of variable and floating rate obligations with a demand feature, a Fund may demand payment of principal and accrued interest at a time specified in the instrument or may resell the instrument to a third party. In the event that an issuer of a variable or floating rate obligation were to default on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and could, for this or other reasons, suffer a loss to the extent of the default.
Commercial paper may include securities issued by corporations without registration under the 1933 Act in reliance on the so-called "private placement" exemption in Section 4(2) ("Section 4(2) Paper"). Section 4(2) Paper is restricted as to disposition under the federal securities laws in that any resale must similarly be made in an exempt transaction. Section 4(2) Paper is normally resold to other institutional investors through or with the assistance of investment dealers who make a market in Section 4(2) Paper, thus providing liquidity. For purposes of each Fund's limitation on purchases of illiquid instruments described below, Section 4(2) Paper will not be considered illiquid if the Advisor has determined, in accordance with guidelines approved by the Board of Trustees, that an adequate trading market exists for such securities.
STRIPPED OBLIGATIONS
To the extent consistent with their investment objective, Funds may purchase U.S. Treasury receipts and other "stripped" securities that evidence ownership in either the future interest payments or the future principal payments on U.S. Government and other obligations. These participations, which may be issued by the U.S. Government or by private issuers, such as banks and other institutions, are issued at their "face value," and may include stripped mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage securities. Stripped securities, particularly SMBS, may exhibit greater price volatility than ordinary debt securities because of the manner in which their principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive different proportions of the interest and principal distributions from a pool of mortgage-backed obligations. A common type of SMBS will have one class receiving all of the interest, while the other class will receive all of the principal. However, in some instances, one class will receive some of the interest and most of the principal while the other class will receive most of the interest and the remainder of the principal. If the underlying obligations experience greater than anticipated prepayments of principal, the Fund may fail to fully recoup its initial investment in these securities. The market value of the class consisting entirely of principal payments generally is extremely volatile in response to changes in interest rates. The yields on a class of SMBS that receives all or most of the interest are generally higher than prevailing market yields on other mortgage-backed obligations because their cash flow patterns are more volatile and there is a greater risk that the initial investment will not be fully recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government agency or instrumentality) are considered illiquid by the Funds. Obligations issued by the U.S. Government may be considered liquid under guidelines established by Funds' Board of Trustees if they can be disposed of promptly in the ordinary course of business at a value reasonably close to that used in the calculation of net asset value per share.
MUNICIPAL SECURITIES
Municipal Securities acquired by the Funds include debt obligations issued by governmental entities to obtain funds for various public purposes, including the construction of a wide range of public facilities, the refunding of outstanding obligations, the payment of general operating expenses, and the extension of loans to public institutions and facilities. Private activity bonds that are issued by or on behalf of public authorities to finance various privately operated facilities are "Municipal Securities" if the interest paid thereon is exempt from regular federal income tax and not treated as a specific tax preference item under the federal alternative minimum tax.
The two principal classifications of Municipal Securities which may be held by the Funds are "general obligation" securities and "revenue" securities. General obligation securities are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue securities are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific revenue source such as the user of the facility being financed.
The Fund's portfolio may also include "moral obligation" securities, which are normally issued by special purpose public authorities. If the issuer of moral obligation securities is unable to meet its debt service obligations from current revenues, it may draw on a reserve fund, the restoration of which is a moral commitment but not a legal obligation of the state or municipality which created the issuer. There is no limitation on the amount of moral obligation securities that may be held by the Funds.
There are, of course, variations in the quality of Municipal Securities, both within a particular category and between categories, and the yields on Municipal Securities depend upon a variety of factors, including general market conditions, the financial condition of the issuer, general conditions of the municipal bond market, the size of a particular offering, the maturity of the obligation, and the rating of the issue. The ratings of a nationally recognized statistical rating organization ("NRSRO"), such as Moody's and S&P, represent such NRSRO's opinion as to the quality of Municipal Securities. It should be emphasized that these ratings are general and are not absolute standards of quality. Municipal Securities with the same maturity, interest rate and rating may have different yields. Municipal Securities of the same maturity and interest rate with different ratings may have the same yield.
Municipal Securities may include rated and unrated variable and floating rate tax-exempt instruments, such as variable rate demand notes. Variable rate demand notes are long-term Municipal Securities that have variable or floating interest rates and provide a Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on an applicable interest index or another published interest rate or interest rate index. Most variable rate demand notes allow a Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit a Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. Variable interest rates generally reduce changes in the market value of Municipal Securities from their original purchase prices. Accordingly, as interest rates decrease, the potential for capital appreciation is less for variable rate Municipal Securities than for fixed income obligations. The terms of these variable rate demand instruments require payment of principal and accrued interest from the issuer of the Municipal Securities, the issuer of the participation interest or a guarantor of either issuer.
Municipal Securities purchased by the Funds in some cases may be insured as to the timely payment of principal and interest. There is no guarantee, however, that the insurer will meet its obligations in the event of a default in payment by the issuer. In other cases, Municipal Securities may be backed by letters of credit or guarantees issued by domestic or foreign banks or other financial institutions which are not subject to federal deposit insurance. Adverse developments affecting the banking industry generally or a particular bank or financial institution that has provided its credit or guarantee with respect to a Municipal Security held by a Fund, including a change in the credit quality of any such bank or financial institution, could result in a loss to the Fund and adversely affect the value of its shares. Letters of credit and guarantees issued by foreign banks and financial institutions involve certain risks in addition to those of similar instruments issued by domestic banks and financial institutions.
The payment of principal and interest on most Municipal Securities purchased by the Funds will depend upon the ability of the issuers to meet their obligations. Each state, the District of Columbia, each of their political subdivisions, agencies, instrumentalities and authorities and each multi-state agency of which a state is a member is a separate "issuer" as that term is used in this SAI and the Prospectuses. The non-governmental user of facilities financed by private activity bonds is also considered to be an "issuer." An issuer's obligations under its Municipal Securities are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Code and laws, if any, which may be enacted by federal or state legislatures extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations or upon the ability of municipalities to levy taxes. The power or ability of an issuer to meet its obligations for the payment of interest on and principal of its Municipal Securities may be materially adversely affected by litigation or other conditions.
From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax exemption for interest on Municipal Securities. For example, under the Tax Reform Act of 1986, interest on certain private activity bonds must be included in an investor's federal alternative minimum taxable income, and corporate investors must include all tax-exempt interest in their federal alternative minimum taxable income. The Funds cannot, of course, predict what legislation may be proposed in the future regarding the income tax status of interest on Municipal Securities, or which proposals, if any, might be enacted. Such proposals, while pending or if enacted, might materially and adversely affect the availability of Municipal Securities for investment by the Funds and the liquidity and value of their respective portfolios. In such an event, each Fund would re-evaluate its investment objective and policies and consider possible changes in its structure or possible dissolution.
Opinions relating to the validity of Municipal Securities and to the exemption of interest thereon from federal income tax are rendered by bond counsel to the respective issuers at the time of issuance. Neither the Funds nor the Advisor will review the proceedings relating to the issuance of Municipal Securities or the bases for such opinions.
PRIVATE ACTIVITY BONDS
The Funds may invest in "private activity bonds," the interest on which, although exempt from regular federal income tax, may constitute an item of tax preference for purposes of the federal alternative minimum tax. Private activity bonds are or have been issued to obtain funds to provide, among other things, privately operated housing facilities, pollution control facilities, convention or trade show facilities, mass transit, airport, port or parking facilities and certain local facilities for water supply, gas, electricity or sewage or solid waste disposal. Private activity bonds are also issued to privately held or publicly owned corporations in the financing of commercial or industrial facilities. State and local governments are authorized in most states to issue private activity bonds for such purposes in order to encourage corporations to locate within their communities. The principal and interest on these obligations may be payable from the general revenues of the users of such facilities.
Private activity bonds held by the Funds are in most cases revenue securities and are not payable from the unrestricted revenues of the issuer. Consequently, the credit quality of such private activity bonds is usually directly related to the credit standing of the corporate user of the facility involved.
MUNICIPAL LEASE OBLIGATIONS
Although a municipal lease obligation does not constitute a general obligation of the municipality for which the municipality's taxing power is pledged, a municipal lease obligation is ordinarily backed by the municipality's covenant to budget for, appropriate and make the payments due under the municipal lease obligation. However, certain lease obligations contain "non-appropriation" clauses which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. Although "non-appropriation" lease obligations are secured by the leased property, disposition of the property in the event of foreclosure might prove difficult. In addition, the tax treatment of such obligations in the event of non-appropriation is unclear.
Determinations concerning the liquidity and appropriate valuation of a municipal lease obligation, as with any other municipal security, are made based on all relevant factors. These factors include, among others: (1) the frequency of trades and quotes for the obligation; (2) the number of dealers willing to purchase or sell the security and the number of other potential buyers; (3) the willingness of dealers to undertake to make a market in the security; and (4) the nature of the marketplace trades, including the time needed to dispose of the security, the method of soliciting offers, and the mechanics of the transfer.
SECURITIES LOANS
The Fund may make secured loans of its portfolio securities amounting to not more than the percentage of its total assets specified in Part 1 of this SAI, thereby realizing additional income. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delay in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. As a matter of policy, securities loans are made to banks and broker-dealers pursuant to agreements requiring that loans be continuously secured by collateral in cash or short-term debt obligations at least equal at all times to the value of the securities on loan. The borrower pays to the Fund an amount equal to any dividends or interest received on securities lent. The Fund retains all or a portion of the interest received on investment of the cash collateral or receives a fee from the borrower. Although voting rights, or rights to consent, with respect to the loaned securities pass to the borrower, the Fund retains the right to call the loans at any time on reasonable notice, and it will do so in order that the securities may be voted by the Fund if the holders of such securities are asked to vote upon or consent to matters materially affecting the investment. The Fund may also call such loans in order to sell the securities involved.
INTERFUND BORROWING AND LENDING
The Fund may lend money to and borrow money from other affiliated registered open-end investment companies. The Fund may borrow through the program when the Advisor believes borrowing is appropriate and the costs are equal to or lower than the costs of bank loans. When borrowing money, the Fund is subject to the risk that the securities the Fund acquires with the borrowed money or would otherwise have sold will decline in value. When lending money, the Fund is subject to the risk that the borrower will be unwilling or unable to make timely payments of interest or principal.
FORWARD COMMITMENTS ("WHEN-ISSUED" AND "DELAYED DELIVERY" SECURITIES)
The Fund may enter into contracts to purchase securities for a fixed price at a future date beyond customary settlement time ("forward commitments" and "when-issued securities") if the Fund holds until the settlement date, in a segregated account, cash or liquid securities in an amount sufficient to meet the purchase price, or if the Fund enters into offsetting contracts for the forward sale of other securities it owns. Forward commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date. Where such purchases are made through dealers, the Fund relies on the dealer to consummate the sale. The dealer's failure to do so may result in the loss to the Fund of an advantageous yield or price. Although the Fund will generally enter into forward commitments with the intention of acquiring securities for its portfolio or for delivery pursuant to options contracts it has entered into, the Fund may dispose of a commitment prior to settlement if the Advisor deems it appropriate to do so. The Fund may realize short-term profits or losses (generally taxed at ordinary income tax rates in the hands of the shareholders) upon the sale of forward commitments.
MORTGAGE DOLLAR ROLLS
In a mortgage dollar roll, the Fund sells a mortgage-backed security and simultaneously enters into a commitment to purchase a similar security at a later date. The Fund either will be paid a fee by the counterparty upon entering into the transaction or will be entitled to purchase the similar security at a discount. As with any forward commitment, mortgage dollar rolls involve the risk that the counterparty will fail to deliver the new security on the settlement date, which may deprive the Fund of obtaining a beneficial investment. In addition, the security to be delivered in the future may turn out to be inferior to the security sold upon entering into the transaction. In addition, the transaction costs may exceed the return earned by the Fund from the transaction.
REITS
The Funds may invest in real estate investment trusts ("REITs"). Equity REITs invest directly in real property while mortgage REITs invest in mortgages on real property. REITs may be subject to certain risks associated with the direct ownership of real estate, including declines in the value of real estate, risks related to general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, and variations in rental income. Generally, increases in interest rates will decrease the value of high yielding securities and increase the costs of obtaining financing, which could decrease the value of a REIT's investments. In addition, equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of credit extended. Equity and mortgage REITs are dependent upon management skill, are not diversified and are subject to the risks of financing projects. REITs are also subject to heavy cash flow dependency, defaults by borrowers, self liquidation and the possibility of failing to qualify for tax-free pass-through of income under the Internal Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from the 1940 Act. REITs pay dividends to their shareholders based upon available funds from operations. It is quite common for these dividends to exceed a REIT's taxable earnings and profits resulting in the excess portion of such dividends being designated as a return of capital. The Funds intend to include the gross dividends from any investments in REITs in their periodic distributions to its shareholders and, accordingly, a portion of the Fund's distributions may also be designated as a return of capital.
MORTGAGE-BACKED SECURITIES
Mortgage-backed securities, including "collateralized mortgage obligations" (CMOs) and "real estate mortgage investment conduits" (REMICs), evidence ownership in a pool of mortgage loans made by certain financial institutions that may be insured or guaranteed by the U.S. government or its agencies. CMOs are obligations issued by special-purpose trusts, secured by mortgages. REMICs are entities that own mortgages and elect REMIC status under the Internal Revenue Code. Both CMOs and REMICs issue one or more classes of securities of which one (the Residual) is in the nature of equity. The Funds will not invest in the Residual class. Principal on mortgage-backed securities, CMOs and REMICs may be prepaid if the underlying mortgages are prepaid. Prepayment rates for mortgage-backed securities tend to increase as interest rates decline (effectively shortening the security's life) and decrease as interest rates rise (effectively lengthening the security's life). Because of the prepayment feature, these securities may not increase in value as much as other debt securities when interest rates fall. A Fund may be able to invest prepaid principal only at lower yields. The prepayment of such securities purchased at a premium may result in losses equal to the premium.
NON-AGENCY MORTGAGE-BACKED SECURITIES
The Fund may invest in non-investment grade mortgage-backed securities that are not guaranteed by the U.S. government or an agency. Such securities are subject to the risks described under "Lower Rated Debt Securities" and "Mortgage-Backed Securities." In addition, although the underlying mortgages provide collateral for the security, the Fund may experience losses, costs and delays in enforcing its rights if the issuer defaults or enters bankruptcy.
ASSET-BACKED SECURITIES
Asset-backed securities are interests in pools of debt securities backed by various types of loans such as credit card, auto and home equity loans. These securities involve prepayment risk, which is the possibility that the underlying debt may be refinanced or prepaid prior to maturity during periods of declining interest rates. During periods of rising interest rates, asset-backed securities have a high risk of declining in price because the declining prepayment rates effectively lengthen the expected maturity of the securities. A decline in interest rates may lead to a faster rate of repayment on asset-backed securities and, therefore, cause a Fund to earn a lower interest rate on reinvestment. In addition, the potential impact of prepayment on the price of an asset-backed security may be difficult to predict and result in greater volatility.
CUSTODY RECEIPTS AND TRUST CERTIFICATES. Custody receipts, such as Morgan Stanley TRACERs (Traded Custody Receipts), and trust certificates, such as Lehman Brothers TRAINs (Targeted Return Index Securities Trust), are derivative products which, in the aggregate, evidence direct ownership in a pool of securities. Typically, a sponsor will deposit a pool of securities with a custodian in exchange for custody receipts evidencing those securities or with a trust in exchange for trust certificates evidencing interests in the trust, the principal asset of which is those securities. The sponsor will then generally sell those custody receipts or trust certificates in negotiated transactions at varying prices that are determined at the time of sale. Each custody receipt or trust certificate evidences the individual securities in the pool and the holder of a custody receipt or trust certificate generally will have all the rights and privileges of owners of those securities. Each holder of a custody receipt or trust certificate generally will be treated as directly purchasing its pro rata share of the securities in the pool for an amount equal to the amount that such holder paid for its custody receipt or trust certificate. If a custody receipt or trust certificate is sold, a holder will be treated as having directly "disposed of its pro rata share of the securities evidenced by the custody receipt or trust certificate. Additionally, the holder of a custody receipt or trust certificate may withdraw the securities represented by the custody receipt or trust certificate subject to certain conditions. Custody receipts and trust certificates are generally subject to the same risks as those securities evidenced by the receipts or certificates which, in the case of the Fund, are corporate debt securities. Additionally, custody receipts and trust certificates may also be less liquid than the underlying securities if the sponsor fails to maintain a trading market.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. A repurchase agreement is a contract under which the Fund acquires a security for a relatively short period subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price (representing the Fund's cost plus interest). It is the Fund's present intention to enter into repurchase agreements only with commercial banks and registered broker-dealers and only with respect to obligations of the U.S. government or its agencies or instrumentalities. Repurchase agreements may also be viewed as loans made by the Fund which are collateralized by the securities subject to repurchase. The Advisor will monitor such transactions to determine that the value of the underlying securities is at least equal at all times to the total amount of the repurchase obligation, including the interest factor. If the seller defaults, the Fund could realize a loss on the sale of the underlying security to the extent that the proceeds of sale including accrued interest are less than the resale price provided in the agreement including interest. In addition, if the seller should be involved in bankruptcy or insolvency proceedings, the Fund may incur delay and costs in selling the underlying security or may suffer a loss of principal and interest if the Fund is treated as an unsecured creditor and required to return the underlying collateral to the seller's estate.
REVERSE REPURCHASE AGREEMENTS
In a reverse repurchase agreement, the Fund sells a security and agrees to repurchase the same security at a mutually agreed upon date and price. A reverse repurchase agreement may also be viewed as the borrowing of money by the Fund and, therefore, as a form of leverage. The Fund will invest the proceeds of borrowings under reverse repurchase agreements. In addition, the Fund will enter into a reverse repurchase agreement only when the interest income expected to be earned from the investment of the proceeds is greater than the interest expense of the transaction. The Fund will not invest the proceeds of a reverse repurchase agreement for a period which exceeds the duration of the reverse repurchase agreement. The Fund may not enter into reverse repurchase agreements exceeding in the aggregate one-third of the market value of its total assets, less liabilities other than the obligations created by reverse repurchase agreements. Each Fund will establish and maintain with its custodian a separate account with a segregated portfolio of securities in an amount at least equal to its purchase obligations under its reverse repurchase agreements. If interest rates rise during the term of a reverse repurchase agreement, entering into the reverse repurchase agreement may have a negative impact on a money market fund's ability to maintain a net asset value of $1.00 per share.
LINE OF CREDIT
The Fund may establish and maintain a line of credit with a major bank in order to permit borrowing on a temporary basis to meet share redemption requests in circumstances in which temporary borrowings may be preferable to liquidation of portfolio securities.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The Fund may write covered call options and covered put options on securities held in its portfolio when, in the opinion of the Advisor, such transactions are consistent with the Fund's investment goal and policies. Call options written by the Fund give the purchaser the right to buy the underlying securities from the Fund at a stated exercise price; put options give the purchaser the right to sell the underlying securities to the Fund at a stated price.
The Fund may write only covered options, which means that, so long as the Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option (or comparable securities satisfying the cover requirements of securities exchanges). In the case of put options, the Fund will hold cash and/or high-grade short-term debt obligations equal to the price to be paid if the option is exercised. In addition, the Fund will be considered to have covered a put or call option if and to the extent that it holds an option that offsets some or all of the risk of the option it has written. The Fund may write combinations of covered puts and calls on the same underlying security.
The Fund will receive a premium from writing a put or call option, which increases the Fund's return on the underlying security if the option expires unexercised or is closed out at a profit. The amount of the premium reflects, among other things, the relationship between the exercise price and the current market value of the underlying security, the volatility of the underlying security, the amount of time remaining until expiration, current interest rates, and the effect of supply and demand in the options market and in the market for the underlying security. By writing a call option, the Fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option but continues to bear the risk of a decline in the value of the underlying security. By writing a put option, the Fund assumes the risk that it may be required to purchase the underlying security for an exercise price higher than its then-current market value, resulting in a potential capital loss unless the security subsequently appreciates in value.
The Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an offsetting option. The Fund realizes a profit or loss from a closing transaction if the cost of the transaction (option premium plus transaction costs) is less or more than the premium received from writing the option. Because increases in the market price of a call option generally reflect increases in the market price of the security underlying the option, any loss resulting from a closing purchase transaction may be offset in whole or in part by unrealized appreciation of the underlying security.
If the Fund writes a call option but does not own the underlying security, and when it writes a put option, the Fund may be required to deposit cash or securities with its broker as "margin" or collateral for its obligation to buy or sell the underlying security. As the value of the underlying security varies, the Fund may have to deposit additional margin with the broker. Margin requirements are complex and are fixed by individual brokers, subject to minimum requirements currently imposed by the Federal Reserve Board and by stock exchanges and other self-regulatory organizations.
PURCHASING PUT OPTIONS. The Fund may purchase put options to protect its portfolio holdings in an underlying security against a decline in market value. Such hedge protection is provided during the life of the put option since the Fund, as holder of the put option, is able to sell the underlying security at the put exercise price regardless of any decline in the underlying security's market price. For a put option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs. By using put options in this manner, the Fund will reduce any profit it might otherwise have realized from appreciation of the underlying security by the premium paid for the put option and by transaction costs.
PURCHASING CALL OPTIONS. The Fund may purchase call options to hedge against an increase in the price of securities that the Fund wants ultimately to buy. Such hedge protection is provided during the life of the call option since the Fund, as holder of the call option, is able to buy the underlying security at the exercise price regardless of any increase in the underlying security's market price. In order for a call option to be profitable, the market price of the underlying security must rise sufficiently above the exercise price to cover the premium and transaction costs. These costs will reduce any profit the Fund might have realized had it bought the underlying security at the time it purchased the call option.
OVER-THE-COUNTER (OTC) OPTIONS. The Staff of the Division of Investment Management of the Securities and Exchange Commission (SEC) has taken the position that OTC options purchased by the Fund and assets held to cover OTC options written by the Fund are illiquid securities. Although the Staff has indicated that it is continuing to evaluate this issue, pending further developments, the Fund intends to enter into OTC options transactions only with primary dealers in U.S. government securities and, in the case of OTC options written by the Fund, only pursuant to agreements that will assure that the Fund will at all times have the right to repurchase the option written by it from the dealer at a specified formula price. The Fund will treat the amount by which such formula price exceeds the amount, if any, by which the option may be "in-the-money" as an illiquid investment. It is the present policy of the Fund not to enter into any OTC option transaction if, as a result, more than 15% (10% in some cases, refer to your Fund's Prospectus) of the Fund's net assets would be invested in (i) illiquid investments (determined under the foregoing formula) relating to OTC options written by the Fund, (ii) OTC options purchased by the Fund, (iii) securities which are not readily marketable, and (iv) repurchase agreements maturing in more than seven days.
RISK FACTORS IN OPTIONS TRANSACTIONS. The successful use of the Fund's options strategies depends on the ability of the Advisor to forecast interest rate and market movements correctly.
When it purchases an option, the Fund runs the risk that it will lose its entire investment in the option in a relatively short period of time, unless the Fund exercises the option or enters into a closing sale transaction with respect to the option during the life of the option. If the price of the underlying security does not rise (in the case of a call) or fall (in the case of a put) to an extent sufficient to cover the option premium and transaction costs, the Fund will lose part or all of its investment in the option. This contrasts with an investment by the Fund in the underlying securities, since the Fund may continue to hold its investment in those securities notwithstanding the lack of a change in price of those securities.
The effective use of options also depends on the Fund's ability to terminate option positions at times when the Advisor deems it desirable to do so. Although the Fund will take an option position only if the Advisor believes there is a liquid secondary market for the option, there is no assurance that the Fund will be able to effect closing transactions at any particular time or at an acceptable price.
If a secondary trading market in options were to become unavailable, the Fund could no longer engage in closing transactions. Lack of investor interest might adversely affect the liquidity of the market for particular options or series of options. A marketplace may discontinue trading of a particular option or options generally. In addition, a market could become temporarily unavailable if unusual events - such as volume in excess of trading or clearing capability - were to interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on particular types of option transactions, which may limit the Fund's ability to realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options purchased or sold by the Fund could result in losses on the options. If trading is interrupted in an underlying security, the trading of options on that security is normally halted as well. As a result, the Fund as purchaser or writer of an option will be unable to close out its positions until options trading resumes, and it may be faced with losses if trading in the security reopens at a substantially different price. In addition, the Options Clearing Corporation (OCC) or other options markets may impose exercise restrictions. If a prohibition on exercise is imposed at the time when trading in the option has also been halted, the Fund as purchaser or writer of an option will be locked into its position until one of the two restrictions has been lifted. If a prohibition on exercise remains in effect until an option owned by the Fund has expired, the Fund could lose the entire value of its option.
Special risks are presented by internationally traded options. Because of time differences between the United States and various foreign countries, and because different holidays are observed in different countries, foreign options markets may be open for trading during hours or on days when U.S. markets are closed. As a result, option premiums may not reflect the current prices of the underlying interest in the United States.
FUTURES CONTRACTS AND RELATED OPTIONS
Upon entering into futures contracts, in compliance with the SEC's requirements, cash or liquid securities, equal in value to the amount of the Fund's obligation under the contract (less any applicable margin deposits and any assets that constitute "cover" for such obligation), will be segregated with the Fund's custodian..
A futures contract sale creates an obligation by the seller to deliver the type of instrument called for in the contract in a specified delivery month for a stated price. A futures contract purchase creates an obligation by the purchaser to take delivery of the type of instrument called for in the contract in a specified delivery month at a stated price. The specific instruments delivered or taken at the settlement date are not determined until on or near that date. The determination is made in accordance with the rules of the exchanges on which the futures contract was made. The Fund may enter into futures contracts which are traded on national or foreign futures exchanges and are standardized as to maturity date and underlying financial instrument. Futures exchanges and trading in the United States are regulated under the Commodity Exchange Act by the Commodity Futures Trading Commission (CFTC).
Although futures contracts by their terms call for actual delivery or acceptance of commodities or securities, the contracts usually are closed out before the settlement date without the making or taking of delivery. Closing out a futures contract sale is effected by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument or commodity with the same delivery date. If the price of the initial sale of the futures contract exceeds the price of the offsetting purchase, the seller is paid the difference and realizes a gain. Conversely, if the price of the offsetting purchase exceeds the price of the initial sale, the seller realizes a loss. Similarly, the closing out of a futures contract purchase is effected by the purchaser's entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, the purchaser realizes a gain, and if the purchase price exceeds the offsetting sale price, the purchaser realizes a loss.
Unlike when the Fund purchases or sells a security, no price is paid or received by the Fund upon the purchase or sale of a futures contract, although the Fund is required to deposit with its custodian in a segregated account in the name of the futures broker an amount of cash and/or U.S. government securities. This amount is known as "initial margin." The nature of initial margin in futures transactions is different from that of margin in security transactions in that futures contract margin does not involve the borrowing of funds by the Fund to finance the transactions. Rather, initial margin is in the nature of a performance bond or good faith deposit on the contract that is returned to the Fund upon termination of the futures contract, assuming all contractual obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin," to and from the broker (or the custodian) are made on a daily basis as the price of the underlying security or commodity fluctuates, making the long and short positions in the futures contract more or less valuable, a process known as "marking to market."
The Fund may elect to close some or all of its futures positions at any time prior to their expiration. The purpose of making such a move would be to reduce or eliminate the hedge position then currently held by the Fund. The Fund may close its positions by taking opposite positions which will operate to terminate the Fund's position in the futures contracts. Final determinations of variation margin are then made, additional cash is required to be paid by or released to the Fund, and the Fund realizes a loss or a gain. Such closing transactions involve additional commission costs.
INTEREST RATE FUTURES CONTRACTS. Bond prices are established in both the cash market and the futures market. In the cash market, bonds are purchased and sold with payment for the full purchase price of the bond being made in cash, generally within five business days after the trade. In the futures market, only a contract is made to purchase or sell a bond in the future for a set price on a certain date. Historically, the prices for bonds established in the futures markets have tended to move generally in the aggregate in concert with the cash market prices and have maintained fairly predictable relationships. Accordingly, the Funds may use interest rate futures contracts as a defense, or hedge, against anticipated interest rate changes. The Funds presently could accomplish a similar result to that which they hope to achieve through the use of futures contracts by selling bonds with long maturities and investing in bonds with short maturities when interest rates are expected to increase, or conversely, selling short-term bonds and investing in long-term bonds when interest rates are expected to decline. However, because of the liquidity that is often available in the futures market, the protection is more likely to be achieved, perhaps at a lower cost and without changing the rate of interest being earned by the Funds, through using futures contracts.
Interest rate futures contracts are traded in an auction environment on the floors of several exchanges - principally, the Chicago Board of Trade, the Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would deal only in standardized contracts on recognized exchanges. Each exchange guarantees performance under contract provisions through a clearing corporation, a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial instruments including long-term United States Treasury Bonds and Notes; Government National Mortgage Association (GNMA) modified pass-through mortgage backed securities; three-month United States Treasury Bills; and ninety-day commercial paper. The Funds may trade in any interest rate futures contracts for which there exists a public market, including, without limitation, the foregoing instruments.
MUNICIPAL BOND INDEX FUTURES CONTRACTS. Municipal bond index futures contracts may act as a hedge against changes in market conditions. A municipal bond index assigns values daily to the municipal bonds included in the index based on the independent assessment of dealer-to-dealer municipal bond brokers. A municipal bond index futures contract represents a firm commitment by which two parties agree to take or make delivery of an amount equal to a specified dollar amount multiplied by the difference between the municipal bond index value on the last trading date of the contract and the price at which the futures contract is originally struck. No physical delivery of the underlying securities in the index is made.
The Chicago Board of Trade has designed a futures contract based on the Bond Buyer Municipal Bond Index. This Index is composed of 40 term revenue and general obligation bonds, and its composition is updated regularly as new bonds meeting the criteria of the Index are issued and existing bonds mature. The Index is intended to provide an accurate indicator of trends and changes in the municipal bond market. Each bond in the Index is independently priced by six dealer-to-dealer municipal bond brokers daily. The 40 prices then are averaged and multiplied by a coefficient. The coefficient is used to maintain the continuity of the Index when its composition changes. The Chicago Board of Trade, on which futures contracts based on this Index are traded, as well as other U.S. commodities exchanges, are regulated by the CFTC. Transactions on such exchange are cleared through a clearing corporation, which guarantees the performance of the parties to each contract.
OPTIONS ON FUTURES CONTRACTS. The Fund will enter into written options on futures contracts only when, in compliance with the SEC's requirements, cash or liquid securities equal in value to the commodity value (less any applicable margin deposits) have been deposited in a segregated account. The Fund may purchase and write call and put options on futures contracts it may buy or sell and enter into closing transactions with respect to such options to terminate existing positions. The Fund may use such options on futures contracts in lieu of writing options directly on the underlying securities or purchasing and selling the underlying futures contracts. Such options generally operate in the same manner as options purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate his position by selling or purchasing an offsetting option. There is no guarantee that such closing transactions can be effected.
The Fund will be required to deposit initial margin and maintenance margin with respect to put and call options on futures contracts written by it pursuant to brokers' requirements similar to those described above.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use of futures contracts by the Fund is subject to the Advisor's ability to predict correctly, movements in the direction of interest rates and other factors affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or put options on futures contracts involves less potential risk to the Fund because the maximum amount at risk is the premium paid for the options (plus transaction costs). However, there may be circumstances when the purchase of a call or put option on a futures contract would result in a loss to the Fund when the purchase or sale of a futures contract would not, such as when there is no movement in the prices of the hedged investments. The writing of an option on a futures contract involves risks similar to those risks relating to the sale of futures contracts.
There is no assurance that higher than anticipated trading activity or other unforeseen events might not, at times, render certain market clearing facilities inadequate, and thereby result in the institution, by exchanges, of special procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the Fund, the Fund may seek to close out a position. The ability to establish and close out positions will be subject to the development and maintenance of a liquid secondary market. It is not certain that this market will develop or continue to exist for a particular futures contract. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain contracts or options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of contracts or options, or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or a clearing corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of contracts or options (or a particular class or series of contracts or options), in which event the secondary market on that exchange (or in the class or series of contracts or options) would cease to exist, although outstanding contracts or options on the exchange that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms.
USE BY TAX-EXEMPT FUNDS OF INTEREST RATE AND U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. The Funds investing in tax-exempt securities may purchase and sell futures contracts and related options on interest rate and U.S. Treasury securities when, in the opinion of the Advisor, price movements in these security futures and related options will correlate closely with price movements in the tax-exempt securities which are the subject of the hedge. Interest rate and U.S. Treasury securities futures contracts require the seller to deliver, or the purchaser to take delivery of, the type of security called for in the contract at a specified date and price. Options on interest rate and U.S. Treasury security futures contracts give the purchaser the right in return for the premium paid to assume a position in a futures contract at the specified option exercise price at any time during the period of the option.
In addition to the risks generally involved in using futures contracts, there is also a risk that price movements in interest rate and U.S. Treasury security futures contracts and related options will not correlate closely with price movements in markets for tax-exempt securities.
INDEX FUTURES CONTRACTS. An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of an index is commonly referred to as buying or purchasing a contract or holding a long position in the index. Entering into a contract to sell units of an index is commonly referred to as selling a contract or holding a short position. A unit is the current value of the index. The Fund may enter into stock index futures contracts, debt index futures contracts, or other index futures contracts appropriate to its objective(s). The Fund may also purchase and sell options on index futures contracts.
There are several risks in connection with the use by the Fund of index futures as a hedging device. One risk arises because of the imperfect correlation between movements in the prices of the index futures and movements in the prices of securities which are the subject of the hedge. The Advisor will attempt to reduce this risk by selling, to the extent possible, futures on indices the movements of which will, in its judgment, have a significant correlation with movements in the prices of the Fund's portfolio securities sought to be hedged.
Successful use of index futures by the Fund for hedging purposes is also subject to the Advisor's ability to predict correctly movements in the direction of the market. It is possible that, where the Fund has sold futures to hedge its portfolio against a decline in the market, the index on which the futures are written may advance and the value of securities held in the Fund's portfolio may decline. If this occurs, the Fund would lose money on the futures and also experience a decline in the value of its portfolio securities. However, while this could occur to a certain degree, the Advisor believes that over time the value of the Fund's portfolio will tend to move in the same direction as the market indices which are intended to correlate to the price movements of the portfolio securities sought to be hedged. It is also possible that, if the Fund has hedged against the possibility of a decline in the market adversely affecting securities held in its portfolio and securities prices increase instead, the Fund will lose part or all of the benefit of the increased values of those securities that it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient cash, it may have to sell securities to meet daily variation margin requirements.
In addition to the possibility that there may be an imperfect correlation, or no correlation at all, between movements in the index futures and the securities of the portfolio being hedged, the prices of index futures may not correlate perfectly with movements in the underlying index due to certain market distortions. First, all participants in the futures markets are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions which would distort the normal relationship between the index and futures markets.
Second, margin requirements in the futures market are less onerous than margin requirements in the securities market, and as a result, the futures market may attract more speculators than the securities market. Increased participation by speculators in the futures market may also cause temporary price distortions. Due to the possibility of price distortions in the futures market and also because of the imperfect correlation between movements in the index and movements in the prices of index futures, even a correct forecast of general market trends by the Advisor may still not result in a successful hedging transaction.
OPTIONS ON INDEX FUTURES. Options on index futures are similar to options on securities except that options on index futures give the purchaser the right, in return for the premium paid, to assume a position in an index futures contract (a long position if the option is a call and a short position if the option is a put), at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's futures margin account which represents the amount by which the market price of the index futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the index future. If an option is exercised on the last trading day prior to the expiration date of the option, the settlement will be made entirely in cash equal to the difference between the exercise price of the option and the closing level of the index on which the future is based on the expiration date. Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss of the premium paid.
OPTIONS ON INDICES. As an alternative to purchasing call and put options on index futures, the Fund may purchase call and put options on the underlying indices themselves. Such options could be used in a manner identical to the use of options on index futures. Options involving securities indices provide the holder with the right to make or receive a cash settlement upon exercise of the option based on movements in the relevant index. Such options must be listed on a national securities exchange and issued by the Options Clearing Corporation. Such options may relate to particular securities or to various stock indices, except that a Fund may not write covered options on an index.
OPTIONS ON FOREIGN STOCK INDICES. The Funds may, for the purpose of hedging its portfolio, subject to applicable securities regulations, purchase and write put and call options on foreign stock indices listed on foreign and domestic stock exchanges. A stock index fluctuates with changes in the market values of the stocks included in the index.
SWAP AGREEMENTS (SWAPS, CAPS, COLLARS AND FLOORS)
The Funds may enter into interest rate swaps, currency swaps, and other types of swap agreements such as caps, collars, and floors. In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate times a "notional principal amount," in return for payments equal to a fixed rate times the same amount, for a specified period of time. If a swap agreement provides for payments in different currencies, the parties might agree to exchange notional principal amount as well. Swaps may also depend on other prices or rates, such as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed upon level. An interest rate collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from one type of investment to another. For example, if a Fund agreed to exchange payments in dollars for payments in foreign currency, the swap agreement would tend to decrease the Fund's exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates. Caps and floors have an effect similar to buying or writing options. Depending on how they are used, swap agreements may increase or decrease the overall volatility of a Fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a small investment of cash relative to the magnitude of risks assumed. As a result, swaps can be highly volatile and may have a considerable impact on the Funds' performance. Swap agreements are subject to risks related to the counterparty's ability to perform, and may decline in value if the counterparty's creditworthiness deteriorates. The Funds may also suffer losses if they are unable to terminate outstanding swap agreements or reduce their exposure through offsetting transactions.
EQUITY SWAPS
The Fund may engage in equity swaps. Equity swaps allow the parties to the swap agreement to exchange components of return on one equity investment (e.g., a basket of equity securities or an index) for a component of return on another non-equity or equity investment, including an exchange of differential rates of return. Equity swaps may be used to invest in a market without owning or taking physical custody of securities in circumstances where direct investment may be restricted for legal reasons or is otherwise impractical. Equity swaps also may be used for other purposes, such as hedging or seeking to increase total return.
RISK FACTORS IN EQUITY SWAP TRANSACTIONS. Equity swaps are derivative instruments and their values can be very volatile. To the extent that the portfolio managers do not accurately analyze and predict the potential relative fluctuation on the components swapped with the other party, the Fund may suffer a loss. The value of some components of an equity swap (such as the dividend on a common stock) may also be sensitive to changes in interest rates. Furthermore, during the period a swap is outstanding, the Fund may suffer a loss if the counterparty defaults. See "Taxes" for information on tax risks associated with equity swaps.
FOREIGN CURRENCY TRANSACTIONS
The Fund may engage in currency exchange transactions to protect against uncertainty in the level of future currency exchange rates.
The Fund may engage in both "transaction hedging" and "position hedging." When it engages in transaction hedging, the Fund enters into foreign currency transactions with respect to specific receivables or payables of the Fund generally arising in connection with the purchase or sale of its portfolio securities. The Fund will engage in transaction hedging when it desires to "lock in" the U.S. dollar price of a security it has agreed to purchase or sell, or the U.S. dollar equivalent of a dividend or interest payment in a foreign currency. By transaction hedging the Fund attempts to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and the applicable foreign currency during the period between the date on which the security is purchased or sold, or on which the dividend or interest payment is declared, and the date on which such payments are made or received.
The Fund may purchase or sell a foreign currency on a spot (or cash) basis at the prevailing spot rate in connection with the settlement of transactions in portfolio securities denominated in that foreign currency. The Fund may also enter into contracts to purchase or sell foreign currencies at a future date ("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes the Fund may also purchase exchange-listed and over-the-counter call and put options on foreign currency futures contracts and on foreign currencies. Over-the-counter options are considered to be illiquid by the SEC staff. A put option on a futures contract gives the Fund the right to assume a short position in the futures contract until expiration of the option. A put option on currency gives the Fund the right to sell a currency at an exercise price until the expiration of the option. A call option on a futures contract gives the Fund the right to assume a long position in the futures contract until the expiration of the option. A call option on currency gives the Fund the right to purchase a currency at the exercise price until the expiration of the option.
When it engages in position hedging, the Fund enters into foreign currency exchange transactions to protect against a decline in the values of the foreign currencies in which its portfolio securities are denominated (or an increase in the value of currency for securities which the Fund expects to purchase, when the Fund holds cash or short-term investments). In connection with position hedging, the Fund may purchase put or call options on foreign currency and foreign currency futures contracts and buy or sell forward contracts and foreign currency futures contracts. The Fund may also purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions and the value of the portfolio securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the dates the currency exchange transactions are entered into and the dates they mature.
It is impossible to forecast with precision the market value of portfolio securities at the expiration or maturity of a forward or futures contract. Accordingly, it may be necessary for the Fund to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security or securities being hedged is less than the amount of foreign currency the Fund is obligated to deliver and if a decision is made to sell the security or securities and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security or securities if the market value of such security or securities exceeds the amount of foreign currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying prices of the securities which the Fund owns or intends to purchase or sell. They simply establish a rate of exchange which one can achieve at some future point in time. Additionally, although these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency, they tend to limit any potential gain which might result from the increase in value of such currency.
CURRENCY FORWARD AND FUTURES CONTRACTS. Upon entering into such contracts, in compliance with the SEC's requirements, cash or liquid securities, equal in value to the amount of the Fund's obligation under the contract (less any applicable margin deposits and any assets that constitute "cover" for such obligation), will be segregated.
A forward currency contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract as agreed by the parties, at a price set at the time of the contract. In the case of a cancelable contract, the holder has the unilateral right to cancel the contract at maturity by paying a specified fee. The contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. A contract generally has no deposit requirement, and no commissions are charged at any stage for trades. A currency futures contract is a standardized contract for the future delivery of a specified amount of a foreign currency at a future date at a price set at the time of the contract. Currency futures contracts traded in the United States are designed and traded on exchanges regulated by the CFTC, such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain respects. For example, the maturity date of a forward contract may be any fixed number of days from the date of the contract agreed upon by the parties, rather than a predetermined date in a given month. Forward contracts may be in any amounts agreed upon by the parties rather than predetermined amounts. Also, forward contracts are traded directly between currency traders so that no intermediary is required. A forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Fund may either accept or make delivery of the currency specified in the contract, or at or prior to maturity enter into a closing transaction involving the purchase or sale of an offsetting contract. Closing transactions with respect to forward contracts are usually effected with the currency trader who is a party to the original forward contract. Closing transactions with respect to futures contracts are effected on a commodities exchange; a clearing corporation associated with the exchange assumes responsibility for closing out such contracts.
Positions in currency futures contracts may be closed out only on an exchange or board of trade which provides a secondary market in such contracts. Although the Fund intends to purchase or sell currency futures contracts only on exchanges or boards of trade where there appears to be an active secondary market, there is no assurance that a secondary market on an exchange or board of trade will exist for any particular contract or at any particular time. In such event, it may not be possible to close a futures position and, in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin.
CURRENCY OPTIONS. In general, options on currencies operate similarly to options on securities and are subject to many similar risks. Currency options are traded primarily in the over-the-counter market, although options on currencies have recently been listed on several exchanges. Options are traded not only on the currencies of individual nations, but also on the European Currency Unit (ECU). The ECU is composed of amounts of a number of currencies, and is the official medium of exchange of the European Economic Community's European Monetary System.
The Fund will only purchase or write currency options when the Advisor believes that a liquid secondary market exists for such options. There can be no assurance that a liquid secondary market will exist for a particular option at any specified time. Currency options are affected by all of those factors which influence exchange rates and investments generally. To the extent that these options are traded over the counter, they are considered to be illiquid by the SEC staff.
The value of any currency, including the U.S. dollar, may be affected by complex political and economic factors applicable to the issuing country. In addition, the exchange rates of currencies (and therefore the values of currency options) may be significantly affected, fixed, or supported directly or indirectly by government actions. Government intervention may increase risks involved in purchasing or selling currency options, since exchange rates may not be free to fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in turn reflects relative values of two currencies, the U.S. dollar and the foreign currency in question. Because currency transactions occurring in the interbank market involve substantially larger amounts than those that may be involved in the exercise of currency options, investors may be disadvantaged by having to deal in an odd lot market for the underlying currencies in connection with options at prices that are less favorable than for round lots. Foreign governmental restrictions or taxes could result in adverse changes in the cost of acquiring or disposing of currencies.
There is no systematic reporting of last sale information for currencies and there is no regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Available quotation information is generally representative of very large round-lot transactions in the interbank market and thus may not reflect exchange rates for smaller odd-lot transactions (less than $1 million) where rates may be less favorable. The interbank market in currencies is a global, around-the-clock market. To the extent that options markets are closed while the markets for the underlying currencies remain open, significant price and rate movements may take place in the underlying markets that cannot be reflected in the options markets.
SETTLEMENT PROCEDURES. Settlement procedures relating to the Fund's investments in foreign securities and to the Fund's foreign currency exchange transactions may be more complex than settlements with respect to investments in debt or equity securities of U.S. issuers, and may involve certain risks not present in the Fund's domestic investments, including foreign currency risks and local custom and usage. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not charge a fee for currency conversion, they do realize a profit based on the difference (spread) between prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligation.
PARTICIPATION INTERESTS
The Fund may invest in municipal obligations either by purchasing them directly or by purchasing certificates of accrual or similar instruments evidencing direct ownership of interest payments or principal payments, or both, on municipal obligations, provided that, in the opinion of counsel to the initial seller of each such certificate or instrument, any discount accruing on such certificate or instrument that is purchased at a yield not greater than the coupon rate of interest on the related municipal obligations will be exempt from federal income tax to the same extent as interest on such municipal obligations. The Fund may also invest in tax-exempt obligations by purchasing from banks participation interests in all or part of specific holdings of municipal obligations. Such participations may be backed in whole or part by an irrevocable letter of credit or guarantee of the selling bank. The selling bank may receive a fee from the Fund in connection with the arrangement. The Fund will not purchase such participation interests unless it receives an opinion of counsel or a ruling of the Internal Revenue Service that interest earned by it on municipal obligations in which it holds such participation interests is exempt from federal income tax.
STAND-BY COMMITMENTS
When the Fund purchases municipal obligations, it may also acquire stand-by commitments from banks and broker-dealers with respect to such municipal obligations. A stand-by commitment is the equivalent of a put option acquired by the Fund with respect to a particular municipal obligation held in its portfolio. A stand-by commitment is a security independent of the municipal obligation to which it relates. The amount payable by a bank or dealer during the time a stand-by commitment is exercisable, absent unusual circumstances relating to a change in market value, would be substantially the same as the value of the underlying municipal obligation. A stand-by commitment might not be transferable by the Fund, although it could sell the underlying municipal obligation to a third party at any time.
The Fund expects that stand-by commitments generally will be available without the payment of direct or indirect consideration. However, if necessary and advisable, the Fund may pay for stand-by commitments either separately in cash or by paying a higher price for portfolio securities which are acquired subject to such a commitment (thus reducing the yield to maturity otherwise available for the same securities). The total amount paid in either manner for outstanding stand-by commitments held in the Fund portfolio will not exceed 10% of the value of the Fund's total assets calculated immediately after each stand-by commitment is acquired. The Fund will enter into stand-by commitments only with banks and broker-dealers that, in the judgment of the Trust's Board of Trustees, present minimal credit risks.
VARIABLE AND FLOATING RATE OBLIGATIONS
Variable rate instruments provide for periodic adjustments in the interest rate. Floating rate instruments provide for automatic adjustment of the interest rate whenever some other specified interest rate changes. Some variable and floating rate obligations are direct lending arrangements between the purchaser and the issuer and there may be no active secondary market. However, in the case of variable and floating rate obligations with a demand feature, a Fund may demand payment of principal and accrued interest at a time specified in the instrument or may resell the instrument to a third party. In the event an issuer of a variable or floating rate obligation defaulted on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and could, for this or other reasons, suffer a loss to the extent of the default. Variable or floating rate instruments issued or guaranteed by the U.S. Government or its agencies or instrumentalities are similar in form but may have a more active secondary market. Substantial holdings of variable and floating rate instruments could reduce portfolio liquidity.
If a variable or floating rate instrument is not rated, the Fund's Advisor must determine that such instrument is comparable to rated instruments eligible for purchase by the Funds and will consider the earning power, cash flows and other liquidity ratios of the issuers and guarantors of such instruments and will continuously monitor their financial status in order to meet payment on demand. In determining average weighted portfolio maturity of each of these Funds, a variable or floating rate instrument issued or guaranteed by the U.S. Government or an agency or instrumentality thereof will be deemed to have a maturity equal to the period remaining until the obligation's next interest rate adjustment. Variable and floating rate obligations with a demand feature will be deemed to have a maturity equal to the longer of the period remaining to the next interest rate adjustment or the demand notice period.
INVERSE FLOATERS
Inverse floaters are derivative securities whose interest rates vary inversely to changes in short-term interest rates and whose values fluctuate inversely to changes in long-term interest rates. The value of certain inverse floaters will fluctuate substantially more in response to a given change in long-term rates than would a traditional debt security. These securities have investment characteristics similar to leverage, in that interest rate changes have a magnified effect on the value of inverse floaters.
RULE 144A SECURITIES
The Fund may purchase securities that have been privately placed but that are eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933, as amended (1933 Act). That Rule permits certain qualified institutional buyers, such as the Fund, to trade in privately placed securities that have not been registered for sale under the 1933 Act. The Advisor, under the supervision of the Board of Trustees, will consider whether securities purchased under Rule 144A are illiquid and thus subject to the Fund's investment restriction on illiquid securities. A determination of whether a Rule 144A security is liquid or not is a question of fact. In making this determination, the Advisor will consider the trading markets for the specific security, taking into account the unregistered nature of a Rule 144A security. In addition, the Advisor could consider the (1) frequency of trades and quotes, (2) number of dealers and potential purchasers, (3) dealer undertakings to make a market, and (4) nature of the security and of marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A securities will be monitored and, if as a result of changed conditions, it is determined by the Advisor that a Rule 144A security is no longer liquid, the Fund's holdings of illiquid securities would be reviewed to determine what, if any, steps are required to assure that the Fund does not exceed its investment limit on illiquid securities. Investing in Rule 144A securities could have the effect of increasing the amount of the Fund's assets invested in illiquid securities if qualified institutional buyers are unwilling to purchase such securities.
CURRENCY SWAPS. Currency swaps involve the exchange of rights to make or receive payments in specified currencies. Currency swaps usually involve the delivery of the entire principal value of one designated currency. Therefore, the entire principal value of a currency swap is subject to the risk that the other party to the swap will default on its contractual delivery obligations. The use of currency swaps is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. If the Advisor is incorrect in its forecast of market value and currency exchange rates, the investment performance of a Fund would be less favorable than it would have been if this investment technique were not used.
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities which may be exchanged or converted into a predetermined number of shares of the issuer's underlying common stock at the option of the holder during a specified time period. Convertible securities may take the form of convertible preferred stock, convertible bonds or debentures, units consisting of "usable" bonds and warrants or a combination of the features of several of these securities.
Convertible bonds and convertible preferred stocks generally retain the investment characteristics of fixed income securities until they have been converted but also react to movements in the underlying equity securities. The holder is entitled to receive the fixed income of a bond or the dividend preference of a preferred stock until the holder elects to exercise the conversion privilege. Usable bonds are corporate bonds that can be used in whole or in part, customarily at full face value, in lieu of cash to purchase the issuer's common stock. When owned as part of a unit along with warrants, which are options to buy the common stock, they function as convertible bonds, except that the warrants generally will expire before the bond's maturity. Convertible securities are senior to equity securities and therefore have a claim to the assets of the issuer prior to the holders of common stock in the case of liquidation. However, convertible securities are generally subordinated to similar non-convertible securities of the same issuer. The interest income and dividends from convertible bonds and preferred stocks provide a stable stream of income with generally higher yields than common stocks, but lower than non-convertible securities of similar quality. A Fund will exchange or convert the convertible securities held in its portfolio into shares of the underlying common stock in instances in which, in the Advisor's opinion, the investment characteristics of the underlying common stock will assist the Fund in achieving its investment objective. Otherwise, the Fund will hold or trade the convertible securities. In selecting convertible securities for a Fund, the Advisor evaluates the investment characteristics of the convertible security as a fixed income instrument, and the investment potential of the underlying equity security for capital appreciation.
GUARANTEED INVESTMENT CONTRACTS
Pursuant to guaranteed investment contracts ("GICs"), which are issued by U.S. and Canadian insurance companies, a Fund makes cash contributions to a deposit fund of the insurance company's general account. The insurance company then credits to the fund payments at negotiated, floating or fixed interest rates. A GIC is a general obligation of the issuing insurance company and not a separate account. The purchase price paid for a GIC becomes part of the general assets of the insurance company, and the contract is paid from the company's general assets.
The Funds will only purchase GICs that are issued or guaranteed by insurance companies that at the time of purchase are rated at least AA by S&P or receive a similar high quality rating from a nationally recognized service which provides ratings of insurance companies. GICs are considered illiquid securities and will be subject to any limitations on such investments described in Part 1 of this SAI, unless there is an active and substantial secondary market for the particular instrument and market quotations are readily available. No Fund will invest more than 20% of its total assets in GICs.
BANK INVESTMENT CONTRACTS
Bank investment contracts ("BICs") issued by banks that meet certain quality and asset size requirements for banks are available to the Funds. Pursuant to BICs, cash contributions are made to a deposit account at the bank in exchange for payments at negotiated, floating or fixed interest rates. A BIC is a general obligation of the issuing bank. BICs are considered illiquid securities and will be subject to any limitations on such investments described in Part 1 of this SAI, unless there is an active and substantial secondary market for the particular instrument and market quotations are readily available.
LOAN PARTICIPATIONS
Loan participations are interests in loans which are administered by the lending bank or agent for a syndicate of lending banks, and sold by the lending bank or syndicate member. The Funds may only purchase interests in loan participations issued by a bank in the United States with assets exceeding $1 billion and for which the underlying loan is issued by borrowers in whose obligations the Funds may invest. Because the intermediary bank does not guarantee a loan participation in any way, a loan participation is subject to the credit risk generally associated with the underlying corporate borrower. In addition, in the event the underlying corporate borrower defaults, a Fund may be subject to delays, expenses and risks that are greater than those that would have been involved if the Fund had purchased a direct obligation (such as commercial paper) of the borrower. Under the terms of a loan participation, the purchasing Fund may be regarded as a creditor of the intermediary bank so that the Fund may also be subject to the risk that the issuing bank may become insolvent.
STRUCTURED INVESTMENTS
Structured investments are a relatively new innovation and may be designed to have various combinations of equity and fixed-income characteristics. Equity-linked securities are a form of structured investment and generally consist of a conversion privilege to a single company's common stock plus a fixed annual distribution to the holder. Equity-linked securities have some derivative characteristics because the conversion feature is linked to the price of the company's common stock. Equity-linked securities are designed to provide investors with higher quarterly income than the dividend paid per share on the common stock. However, equity-linked securities have decreased potential for capital appreciation because of limitations of the conversion feature.
Equity-linked securities include issues such as "Structured Yield Product Exchangeable for Stock" ("STRYPES"), "Trust Automatic Common Exchange Securities" ("TRACES"), "Trust Issued Mandatory Exchange Securities" ("TIMES"), "Trust Enhanced Dividend Securities" ("TRENDS") and other similar securities, including those which may be developed in the future. The issuers of the above listed examples of equity-linked securities generally purchase and hold a portfolio of stripped U.S. Treasury securities maturing on a quarterly basis through the conversion date, and a forward purchase contract with an existing shareholder of the company relating to the common stock. Quarterly distributions on equity-linked securities generally consist of the cash received from the U.S. Treasury securities and equity-linked securities generally are not entitled to any dividends that may be declared on the common stock.
Equity-linked securities may be issued by closed-end or other forms of investment companies. To the extent that equity-linked securities are issued by investment companies, a Fund's investments in equity-linked securities are subject to the same limitations as investments in more traditional forms of investment companies.
YANKEE OBLIGATIONS
Yankee obligations are U.S. dollar-denominated instruments of foreign issuers that are either registered with the SEC or issued pursuant to Rule 144A under the 1933 Act. These obligations consist of debt securities (including preferred or preference stock of non-governmental issuers), certificates of deposit, fixed time deposits and banker's acceptances issued by foreign banks, and debt obligations of foreign governments or their subdivisions, agencies and instrumentalities, international agencies and supranational entities. Some securities issued by foreign governments or their subdivisions, agencies and instrumentalities may not be backed by the full faith and credit of the foreign government.
AMERICAN, EUROPEAN, CONTINENTAL AND GLOBAL DEPOSITARY RECEIPTS
American Depositary Receipts ("ADRs") are receipts issued in registered form by a U.S. bank or trust company evidencing ownership of underlying securities issued by a foreign issuer. European Depositary Receipts ("EDRs"), which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are receipts issued in Europe typically by non-U.S. banks or trust companies and foreign branches of U.S. banks that evidence ownership of foreign or U.S. securities. Global Depositary Receipts ("GDRs") are receipts structured similarly to EDRs and CDRs and are marketed globally. ADRs may be listed on a national securities exchange or may be traded in the over-the-counter market. EDRs and CDRs are designed for use in European exchange and over-the-counter markets. GDRs are designed for trading in non-U.S. securities markets. ADRs, EDRs, CDRs and GDRs traded in the over-the-counter market which do not have an active or substantial secondary market will be considered illiquid and therefore will be subject to the Funds' respective limitations with respect to such securities, if any. If a Fund invests in an unsponsored ADR, EDR, CDR or GDR, there may be less information available to the Fund concerning the issuer of the securities underlying the unsponsored ADR, EDR, CDR or GDR than is available for an issuer of securities underlying a sponsored ADR, EDR, CDR or GDR. ADR prices are denominated in U.S. dollars although the underlying securities are denominated in a foreign currency. Investments in ADRs, EDRs, CDRs and GDRs involve risks similar to those accompanying direct investments in foreign securities.
TEMPORARY CASH BALANCES
The Funds may hold very small temporary cash balances to efficiently manage transactional expenses. These cash balances are expected, under normal conditions, not to exceed 2% of each Fund's net assets at any time (excluding amounts used as margin and segregated assets with respect to futures transactions and collateral for securities loans and repurchase agreements). The Funds may invest these temporary cash balances in short-term debt obligations issued or guaranteed by the U.S. Government or its agencies and instrumentalities ("U.S. Government Securities"), high quality commercial paper (rated A-1 or better by S&P or P-1 or better by Moody's), certificates of deposit and time deposits of banking institutions having total assets in excess of $1 billion, and repurchase agreements collateralized by U.S. Government Securities. The Funds may also hold these investments in connection with U.S. Treasury rolls, which are not subject to the 2% limitation above.
TAXES
In this section, all discussions of taxation at the shareholder and fund levels relate to U.S. federal taxes only. Consult your tax advisor for state, local and foreign tax considerations and for information about special tax considerations that may apply to shareholders that are not natural persons or not U.S. citizens or resident aliens.
FEDERAL TAXES. Although it may be one of several series in a single trust, the Fund is treated as a separate entity for federal income tax purposes under the Internal Revenue Code of 1986, as amended (Code). The Fund has elected (or in the case of a new fund, intends to elect) to be, and intends to qualify to be treated each year as, a "regulated investment company" under Subchapter M of the Code by meeting all applicable requirements of Subchapter M, including requirements as to the nature of the Fund's gross income, the amount of its distributions (as a percentage of both its overall income and any tax-exempt income), and the composition of its portfolio assets.
To qualify as a "regulated investment company," the Fund must (a) derive at
least 90% of its gross income from dividends, interest, payments with respect to
certain securities loans, gains from the sale or other disposition of stock,
securities or foreign currencies or other income (including, but not limited to,
gains from options, futures or forward contracts) derived with respect to its
business of investing in such stock, securities or currencies; (b) diversify its
holdings so that, at the close of each quarter of its taxable year, (i) at least
50% of the market value of its total assets consists of cash, cash items, U.S.
government securities, securities of other regulated investment companies and
other securities limited generally with respect to any one issuer to not more
than 5% of the total assets of the Fund and not more than 10% of the outstanding
voting securities of such issuer, and (ii) not more than 25% of the value of its
total assets is invested in the securities of any issuer, other than U.S.
government securities or other regulated investment companies; or of two or more
issuers which the Fund controls and which are engaged in the same, similar, or
related trades or businesses; and (c) distribute with respect to each year at
least 90% of its taxable net investment income, its tax-exempt interest income
and the excess, if any, of net short-term capital gains over net long-term
capital losses for such year. In general, for purposes of the 90% gross income
requirement described in (a) above, income derived from a partnership will be
treated as qualifying income only to the extent such income is attributable to
items of income of the partnership which would be qualifying income if realized
by the regulated investment company. However, recent legislation, provides that
for taxable years of a regulated investment company beginning after October 22,
2004,100% of the net income derived from an interest in a "qualified publicly
traded partnership" (defined as a partnership (i) interests in which are traded
on an established securities market or readily tradable on a secondary market or
the substantial equivalent thereof and (ii) that derives less than 90% of its
income from the qualifying income described in (a) above) will be treated as
qualifying income. In addition, although in general the passive loss rules of
the Code do not apply to regulated investment companies, such rules do not apply
to a regulated investment company with respect to items attributable to an
interest in a qualified publicly traded partnership. Finally, for purposes of
(c) above, the term "outstanding voting securities of such issuer" will include
the equity securities of a qualified publicly traded partnership. As a regulated
investment company that is accorded special tax treatment, the Fund will not be
subject to any federal income taxes on its net investment income and net
realized capital gains that it distributes to shareholders on the form of
dividends and in accordance with the timing requirements imposed by the Code.
The Fund's foreign-source income, if any, may be subject to foreign withholding
taxes. If the Fund were to fail to qualify as a "regulated investment company"
accorded special tax treatment in any taxable year, it would incur a regular
federal corporate income tax on all of its taxable income, whether or not
distributed, and Fund distributions (including any distributions of net
tax-exempt income and net long-term capital gains) would generally be taxable as
ordinary income to the shareholders, except to the extent they were treated as
"qualified dividend income," as described below. In addition, the Fund could be
required to recognize unrealized gains, pay substantial taxes and interest and
make substantial distributions before requalifying as a regulated investment
company that is accorded special tax treatment.
If the Fund fails to distribute in a calendar year substantially all of its ordinary income for such year and substantially all of its capital gain net income for the one-year period ending October 31 (or later if the Fund is permitted so to elect and so elects), plus any retained amount from the prior year, the Fund will be subject to a 4% excise tax on the underdistributed amounts. A dividend paid to shareholders by the Fund in January of a year generally is deemed to have been paid by the Fund on December 31 of the preceding year, if the dividend was declared and payable to shareholders of record on a date in October, November or December of that preceding year. The Fund intends generally to make distributions sufficient to avoid imposition of the 4% excise tax.
ALTERNATIVE MINIMUM TAX. Distributions derived from interest that is exempt from regular federal income tax may subject corporate shareholders to or increase their liability under the federal corporate alternative minimum tax (AMT). A portion of such distributions may constitute a tax preference item for individual shareholders and may subject them to or increase their liability under the AMT.
DIVIDENDS RECEIVED DEDUCTIONS. Distributions will qualify for the corporate dividends received deduction only to the extent that dividends earned by the Fund qualify. Any such dividends may be, however, includable in adjusted current earnings for purposes of computing corporate federal AMT. The dividends received deduction for eligible dividends is subject to a holding period requirement.
RETURN OF CAPITAL DISTRIBUTIONS. If the Fund makes a distribution to a shareholder in excess of the Fund's current and accumulated "earning and profits" in any taxable year, the excess distribution will be treated as a return of capital to the extent of the shareholder's tax basis in his or her shares, and thereafter as capital gain. A return of capital is not taxable, but it reduces tax basis in shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition of such shares. Dividends and distributions on a Fund's shares are generally subject to federal income tax as described herein to the extent they do not exceed the Fund's realized income and gains, even though such dividends and distributions may economically represent a return of a particular shareholder's investment. Such distributions are likely to occur in respect of shares purchased at a time when a Fund's net asset value reflects gains that are either unrealized, or realized but not distributed. Such realized gains may be required to be distributed even when a Fund's net asset value also reflects unrealized losses.
FUNDS THAT INVEST IN U.S. GOVERNMENT SECURITIES. Many states grant tax-free status to dividends paid to shareholders of mutual funds from interest income earned by the Fund from direct obligations of the U.S. government. Investments in mortgage-backed securities (including GNMA, FNMA and FHLMC Securities) and repurchase agreements collateralized by U.S. government securities do not qualify as direct federal obligations in most states. Shareholders should consult with their own tax advisors about the applicability of state and local intangible property, income or other taxes to their Fund shares and distributions and redemption proceeds received from the Fund.
FUND DISTRIBUTIONS. Distributions from the Fund (other than qualified dividend income and exempt-interest dividends, as discussed below) will generally be taxable to shareholders as ordinary income to the extent derived from the Fund's investment income and net short-term gains. Distributions of long-term capital gains (that is, the excess of net gains from capital assets held for more than one year over net losses from capital assets held for not more than one year) will be taxable to shareholders as such, regardless of how long a shareholder has held shares in the Fund. In general, any distributions of net capital gains will be taxed to shareholders who are individuals at a maximum rate of 15% for taxable years beginning on or before December 31, 2008.
Distributions are taxable to shareholders even if they are paid from income or gains earned by the Fund before a shareholder's investment (and thus were included in the price of the shareholder paid). Distributions are taxable whether received in cash or in Fund shares.
QUALIFIED DIVIDEND INCOME. For taxable years beginning on or before December 31, 2008, "qualified dividend income" received by an individual will be taxed at the rates applicable to long-term capital gain. In order for some portion of the dividends received by a Fund shareholder to be qualified dividend income, the Fund must meet holding period and other requirements with respect to some portion of the dividend paying stocks in its portfolio and the shareholder must meet holding period and other requirements with respect to the Fund's shares. A dividend will not be treated as qualified dividend income (at either the Fund or shareholder level) (1) if the dividend is received with respect to any share of stock held for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or, in the case of certain preferred stock, 91 days during the 181-day period beginning 90 days before such date), (2) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with
respect to positions in substantially similar or related property, (3) if the recipient elects to have the dividend income treated as investment income for purposes of the limitation on deductibility of investment interest, or (4) if the dividend is received from a foreign corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the United States (with the exception of dividends paid on stock of such a foreign corporation readily tradable on an established securities market in the United States) or (b) treated as a passive foreign investment company. With respect to a Fund investing in bonds, the Fund does not expect a significant portion of Fund distributions to be derived from qualified dividend income.
In general, distributions of investment income properly designated by the Fund as derived from qualified dividend income may be treated as qualified dividend income by a shareholder taxed as an individual provided the shareholder meets the holding period and other requirements described above with respect to his or her shares. If the aggregate qualified dividends received by a fund during any taxable year are 95% or more of its gross income, then 100% of the Fund's dividends (other than properly designated capital gain dividends) will be eligible to be treated as qualified dividend income. For this purpose, the only gain included in the term "gross income" is the excess of net short-term capital gain over net long-term capital loss.
DISTRIBUTIONS FROM TAX-EXEMPT FUNDS. Each tax-exempt Fund will have at least 50% of its total assets invested in tax-exempt bonds at the end of each quarter so that dividends from net interest income on tax-exempt bonds will be exempt from federal income tax when received by a shareholder (but may be taxable for federal alternative minimum tax purposes and for state and local tax purposes). The tax-exempt portion of dividends paid will be designated within 60 days after year-end based upon the ratio of net tax-exempt income to total net investment income earned during the year. That ratio may be substantially different from the ratio of net tax-exempt income to total net investment income earned during any particular portion of the year. Thus, a shareholder who holds shares for only a part of the year may be allocated more or less tax-exempt dividends than would be the case if the allocation were based on the ratio of net tax-exempt income to total net investment income actually earned while a shareholder.
Income from certain "private activity bonds" issued after August 7, 1986, is treated as a tax preference item for the AMT at the maximum rate of 28% for individuals and 20% for corporations. If the Fund invests in private activity bonds, shareholders may be subject to the AMT on that part of the distributions derived from interest income on such bonds. Interest on all tax-exempt bonds is included in corporate adjusted current earnings when computing the AMT applicable to corporations. Seventy-five percent of the excess of adjusted current earnings over the amount of income otherwise subject to the AMT is included in a corporation's alternative minimum taxable income.
Dividends derived from any investments other than tax-exempt bonds and any distributions of short-term capital gains are generally taxable to shareholders as ordinary income. Any distributions of long-term capital gains will in general be taxable to shareholders as long-term capital gains (generally subject to a maximum 15% tax rate for shareholders who are individuals) regardless of the length of time Fund shares are held by the shareholder.
A tax-exempt Fund may at times purchase tax-exempt securities at a discount and some or all of this discount may be included in the Fund's ordinary income which will be taxable when distributed. Any market discount recognized on a tax-exempt bond purchased after April 30, 1993, with a term at time of issue of more than one year is taxable as ordinary income. A market discount bond is a bond acquired in the secondary market at a price below its "stated redemption price" (in the case of a bond with original issue discount, its "revised issue price").
Shareholders receiving social security and certain retirement benefits may be taxed on a portion of those benefits as a result of receiving tax-exempt income, including tax-exempt dividends from the Fund.
SPECIAL TAX RULES APPLICABLE TO TAX-EXEMPT FUNDS. In general, exempt-interest dividends, if any, attributable to interest received on certain private activity obligations and certain industrial development bonds will not be tax-exempt to any shareholders who are "substantial users" of the facilities financed by such obligations or bonds or who are "related persons" of such substantial users, as further defined in the Code. Income derived from the Fund's investments other than tax-exempt instruments may give rise to taxable income. The Fund's shares must be held for more than six months in order to avoid the disallowance of a capital loss on the sale of Fund shares to the extent of tax-exempt dividends paid during that period. Part or all of the interest on indebtedness, if any, incurred or continued by a shareholder to purchase or carry shares of the Fund paying exempt-interest dividends is not deductible. The portion of interest that is not deductible is equal to the total interest paid or accrued on the indebtedness, multiplied by the percentage of the Fund's total distributions (not including distributions from net long-term capital gains) paid to the shareholder that are exempt-interest dividends. Under rules used by the Internal Revenue Service to determine when borrowed funds are considered used for the purpose of purchasing or carrying particular assets, the
purchase of shares may be considered to have been made with borrowed funds even though such funds are not directly traceable to the purchase of shares.
SALES OF SHARES. The sale, exchange or redemption of Fund shares may give rise to a gain or loss. In general, any gain realized upon a taxable disposition of shares generally will be treated as long-term capital gain if the shares have been held for more than one year. Otherwise the gain on the sale, exchange or redemption of Fund shares will be treated as short-term capital gain. In general, any loss realized upon a taxable disposition of shares will be treated as long-term loss if the shares have been held more than one year, and otherwise as short-term loss. However, any loss realized upon a taxable disposition of shares held for six months or less will be disallowed for federal income tax purposes to the extent of any exempt-interest dividends received on such shares. In addition, any loss (not already disallowed as provided in the preceding sentence) realized upon a taxable disposition of shares held for six months or less will be treated as long-term, rather than short-term, capital loss to the extent of any long-term capital gain distributions received by the shareholder with respect to those shares. All or a portion of any loss realized upon a taxable disposition of shares will be disallowed if other shares are purchased within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss.
Under Treasury regulations, if on a disposition of Fund shares a shareholder recognizes a loss of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder will likely have to file with the Internal Revenue Service a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all regulated investment companies. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. You are advised to consult with your tax advisor.
BACKUP WITHHOLDING. Certain distributions and redemptions may be subject to backup withholding for taxpayers who fail to furnish a correct taxpayer identification number, who have under-reported dividend or interest income, or who fail to certify to the Fund that the shareholder is a United States person and is not subject to the withholding. This number and certification may be provided by either a Form W-9 or the accompanying application. In certain instances, CMS may be notified by the Internal Revenue Service that a shareholder is subject to backup withholding. The backup withholding rate is 28% for amounts paid through 2010. The backup withholding rate will be 31% for amounts paid after December 31, 2010.
HEDGING TRANSACTIONS. If the Fund engages in hedging transactions, including hedging transactions in options, futures contracts and straddles, or other similar transactions, it will be subject to special tax rules (including constructive sale, mark-to-market, straddle, wash sale and short sale rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund's securities, convert long-term capital gains into short-term capital gains or convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. The Fund will endeavor to make any available elections pertaining to such transactions in a manner believed to be in the best interests of the Fund and its shareholders.
SECURITIES ISSUED AT A DISCOUNT. The Fund's investment in debt securities issued at a discount and certain other obligations will (and investments in securities purchased at a discount may) require the Fund to accrue and distribute income not yet received. In such cases, the Fund may be required to sell assets (possibly at a time when it is not advantageous to do so) to generate the cash necessary to distribute as dividends to its shareholders all of its income and gains and therefore to eliminate any tax liability at the Fund level.
FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING TRANSACTIONS. The Fund's transactions in foreign currencies, foreign currency-denominated debt securities, certain foreign currency options, futures contracts and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned. This may produce a difference between the Fund's book income and its taxable income possibly accelerating distributions or converting distributions of book income and gains to returns of capital for book purposes.
If more than 50% of the Fund's total assets at the end of its fiscal year are invested in stock or securities of foreign corporate issuers, the Fund may make an election permitting its shareholders to take a deduction or credit for federal income tax purposes for their pro rata portion of certain qualified foreign taxes paid by the Fund to foreign countries in respect of foreign securities the Fund has held for at least the minimum period specified in the Code. The Advisor will consider the value of the benefit to a typical shareholder, the cost to the Fund of compliance with the election, and incidental costs to shareholders in deciding whether to make the election. A shareholder's ability to claim such a foreign tax credit or deduction in respect of foreign taxes will be subject to certain limitations imposed by the Code, including a holding period requirement, as a result of which a shareholder may not get a full credit or deduction for the amount of foreign taxes so paid by the Fund. Shareholders who do not itemize on their federal income tax returns may claim a credit (but not a deduction) for such foreign taxes.
Investment by the Fund in "passive foreign investment companies" could subject the Fund to a U.S. federal income tax or other charge on the proceeds from the sale of its investment in such a company; however, this tax can be avoided by making an election to mark such investments to market annually or to treat the passive foreign investment company as a "qualified electing Fund." A "passive foreign investment company" is any foreign corporation: (i) 75 percent or more of the income of which for the taxable year is passive income, or (ii) the average percentage of the assets of which (generally by value, but by adjusted tax basis in certain cases) that produce or are held for the production of passive income is at least 50 percent. Generally, passive income for this purpose means dividends, interest (including income equivalent to interest), royalties, rents, annuities, the excess of gain over losses from certain property transactions and commodities transactions, and foreign currency gains. Passive income for this purpose does not include rents and royalties received by the foreign corporation from active business and certain income received from related persons.
NON-U.S. SHAREHOLDERS. In general, dividends (other than Capital Gain Dividends)
paid by the Fund to a shareholder that is not a "U.S. person" within the meaning
of the Code (such shareholder, a "foreign person") are subject to withholding of
U.S. federal income tax at a rate of 30% (or lower applicable treaty rate) even
if they are funded by income or gains (such as portfolio interest, short-term
capital gains, or foreign-source dividend and interest income) that, if paid to
a foreign person directly, would not be subject to withholding. However, under
the recent legislation, effective for taxable years of the Fund beginning after
December 31, 2004 and before January 1, 2008, the Fund will not be required to
withhold any amounts (i) with respect to distributions (other than distributions
to a foreign person (w) that has not provided a satisfactory statement that the
beneficial owner is not a U.S. person, (x) to the extent that the dividend is
attributable to certain interest on an obligation if the foreign person is the
issuer or is a 10% shareholder of the issuer, (y) that is within certain foreign
countries that have inadequate information exchange with the United States, or
(z) to the extent the dividend is attributable to interest paid by a person that
is a related person of the foreign person and the foreign person is a controlled
foreign corporation) from U.S.-source interest income that would not be subject
to U.S. federal income tax if earned directly by an individual foreign person,
to the extent such distributions are properly designated by the Fund, and (ii)
with respect to distributions (other than distributions to an individual foreign
person who is present in the United States for a period or periods aggregating
183 days or more during the year of the distribution) of net short-term capital
gains in excess of net long-term capital losses, to the extent such
distributions are properly designated by the Fund.
If a beneficial holder who is a foreign person has a trade or business in the United States, and the dividends are effectively connected with the conduct by the beneficial holder of a trade or business in the United States, the dividend will be subject to U.S. federal net income taxation at regular income tax rates.
Recent legislation modifies the tax treatment of distributions from the Fund that are paid to a foreign person and are attributable to gain from "U.S. real property interests" ("USRPIs"), which the Code defines to include direct holdings of U.S. real property and interests (other than solely as a creditor) in "U.S. real property holding corporations" such as REITs. The Code deems any corporation that holds (or held during the previous five-year period) USRPIs with a fair market value equal to 50% or more of the fair market value of the corporation's U.S. and foreign real property assets and other assets used or held for use in a trade or business to be a U.S. real property holding corporation; however, if any class of stock of a corporation is traded on an established securities market, stock of such class shall be treated as a USRPI only in the case of a person who holds more than 5% of such class of stock at any time during the previous five-year period. Under the legislation, which is generally effective for taxable years of RICs beginning after December 31, 2004 and which applies to dividends paid or deemed paid on or before December 31, 2007, distributions to foreign persons attributable to gains from the sale or exchange of USRPIs will give rise to an obligation for those foreign persons to file a U.S. tax return and pay tax, and may well be subject to withholding under future regulations.
Under U.S. federal tax law, a beneficial holder of shares who is a foreign person is not, in general, subject to U.S. federal income tax on gains (and is not allowed a deduction for losses) realized on the sale of shares of the Fund or on Capital Gain Dividends unless (i) such gain or Capital Gain Dividend is effectively connected with the conduct of a trade or business carried on by such holder within the United States, (ii) in the case of an individual holder, the holder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale or Capital Gain Dividend and certain other conditions are met, or (iii) the shares constitute USRPIs or (effective for taxable years of the Fund beginning on September 1, 2005) the Capital Gain Dividends are paid or deemed paid on or before December 31, 2007 and are attributable to gains from the sale or exchange of USRPIs. Effective after December 31, 2004, and before January 1, 2008, if the Fund is a U.S. real property holding corporation (as described above) the Fund's shares will nevertheless not constitute USRPIs if the Fund is a "domestically controlled qualified investment entity," which is defined to include a RIC that, at all times during the shorter of the 5-year period ending on the date of the disposition or the period during which the RIC was in existence, had less than 50 percent in value of its stock held directly or indirectly by foreign persons.
ADDITIONAL TAX MATTERS CONCERNING TRUST SHARES (THIS SECTION IS APPLICABLE ONLY TO THE COLUMBIA TAX-MANAGED GROWTH FUND)
FEDERAL GIFT TAXES. An investment in Trust Shares may be a taxable gift for federal tax purposes, depending upon the option selected and other gifts that the donor and his or her spouse may make during the year.
Under the Columbia Advantage Plan, the entire amount of the gift will be a "present interest" that qualifies for the federal gift tax annual exclusion. In that case, the donor will be required to file a federal gift tax return on account of this gift only if (i) the aggregate present interest gifts by the donor to the particular beneficiary (including the gift of Trust Shares) exceed $11,000 or (ii) the donor wishes to elect gift splitting on gifts with his or her spouse for the year. The trustee will notify the beneficiary of his or her right of withdrawal promptly following any contribution under the Advantage Plan.
Under the Columbia Gift Plan, the entire amount of the gift will be a "future interest" for federal gift tax purposes, so that none of the gift will qualify for the federal gift tax annual exclusion. Consequently, the donor will have to file a federal gift tax return (IRS Form 709) reporting the entire amount of the gift, even if the gift is less than $11,000.
No federal gift tax will be payable by the donor until his or her cumulative taxable gifts (i.e., gifts other than those qualifying for the annual exclusion or otherwise exempt), including taxable gifts of other assets as well as any taxable gifts of trust shares, exceed the federal gift and estate tax exemption equivalent amount, which is $1,000,000 for gifts made after December 31, 2001, and before January 1, 2010.
Any gift of Trust Shares that does not qualify as a present interest or that exceeds the available annual exclusion amount will reduce the amount of the donor's Federal gift and estate tax exemption (if any) that would otherwise be available for future gifts for transfers at death.
The donor and his or her spouse may elect "gift-splitting" for any gift of Trust Shares (other than a gift to such spouse), meaning that the donor and his or her spouse may elect to treat the gift as having been made one-half by each of them, thus allowing a total gift of $22,000.
The donor's gift of Fund shares may also have to be reported for state gift tax purposes, if the state in which the donor resides imposes a gift tax. Many states do not impose such a tax. Some states follow the Federal rules concerning the types of transfers subject to tax and the availability of the annual exclusion.
GENERATION-SKIPPING TRANSFER TAXES
If the beneficiary of a gift of Trust Shares is a relative who is two generations or more younger than the donor, or is not a relative and is more than 37 1/2 years younger than the donor, the gift will be subject in whole or in part to the generation-skipping transfer tax (the "GST tax") unless the gift is made under the Columbia Advantage Plan and does not exceed the available annual exclusion amount. An exemption (the "GST exemption"), equal to $1.5 million in 2005, is allowed against this tax, and so long as the GST exemption has not been used by other transfers it will automatically be allocated to a gift of Trust Shares that is subject to the GST tax unless the donor elects otherwise. Such an election is made by reporting the gift on a timely filed gift tax return and paying the applicable GST tax. The GST tax is imposed at a flat rate (47% for gifts made in 2005) on the amount of the gift, and payment of the tax by the donor is treated as an additional gift for gift tax purposes.
Income Taxes
The Internal Revenue Service takes the position that a trust beneficiary who is given a power of withdrawal over contributions to the trust should be treated, for Federal income tax purposes, as the "owner" of the portion of the trust that was subject to the power. Accordingly, if the donor selects Columbia Advantage Trust Shares, the beneficiary will be treated as the "owner" of all of the Fund shares in the account for Federal income tax purposes, and will be required to report all of the income and capital gains earned in the trust on his or her personal Federal income tax return. The trust will not pay Federal income taxes on any of the trust's income or capital gains. The trustee will prepare and file the Federal income tax information returns that are required each year (and any state income tax returns that may be required), and will send the beneficiary a statement following each year showing the amounts (if any) that the beneficiary must report on his or her income tax returns for that year. If the beneficiary is under fourteen years of age, these amounts may be subject to Federal income taxation at the marginal rate applicable to the beneficiary's parents. The beneficiary may at any time after the creation of the trust irrevocably elect to require the trustee to pay him or her a portion of the trust's income and capital gains annually thereafter to provide funds with which to pay any resulting income taxes, which the trustee will do by redeeming Trust Shares. The amount distributed will be a fraction of the trust's ordinary income and short-term capital gains and the trust's long-term capital gains equal to the highest marginal Federal income tax rate imposed on each type of income (currently, 35% and 15%, respectively). If the beneficiary selects this option, he or she will receive those fractions of his or her trust's income and capital gains annually for the duration of the trust.
Under the Columbia Advantage Plan, the beneficiary will also be able to require the trustee to pay his or her tuition, room and board and other expense of his or her college or post-graduate education, and the trustee will raise the cash necessary to fund these distributions by redeeming Trust Shares. Any such redemption will result in the realization of capital gain or loss on the shares redeemed, which will be reportable by the beneficiary on his or her income tax returns for the year in which the shares are redeemed, as described above. Payments must be made directly to the educational institution.
If the donor selects the Columbia Gift Plan, the trust that he or she creates will be subject to Federal income tax on all income and capital gains realized by it, less a $100 annual exemption (in lieu of the personal exemption allowed to individuals). The amount of the tax will be determined under the tax rate schedule applicable to estates and trusts, which is more sharply graduated than the rate schedule for individuals, reaching the same maximum marginal rate for ordinary income or short-term capital gains (currently, 35%), but at a much lower taxable income level than would apply to an individual. It is anticipated, however, that most of the gains taxable to the trust will be long-term capital gain, on which the Federal income tax rate is currently limited to 15%. The trustee will raise the cash necessary to pay any Federal or state income taxes by redeeming Fund shares. The beneficiary will not pay Federal income taxes on any of the trust's income or capital gains, except those earned in the year when the trust terminates. The trustee will prepare and file all Federal and state income tax returns that are required each year, and will send the beneficiary an information statement for the year in which the trust terminates showing the amounts (if any) that the beneficiary must report on his or her Federal and state income tax returns for that year.
When the trust terminates, the distribution of the remaining shares held in the trust to the beneficiary will not be treated as a taxable disposition of the shares. Any Fund shares received by the beneficiary will have the same cost basis as they had in the trust at the time of termination. Any Fund shares received by the beneficiary's estate will have a basis equal to the value of the shares at the beneficiary's death (or the alternate valuation date for Federal estate tax purposes, if elected).
CONSULTATION WITH QUALIFIED ADVISOR
Due to the complexity of Federal and state gift, GST and income tax laws pertaining to all gifts in trust, prospective donors should consider consulting with their financial or tax advisor before investing in Trust Shares.
MANAGEMENT OF THE FUNDS Columbia Management Advisors, LLC ("Columbia Advisors" or "CMA" or the "Advisor"), located at 100 Federal Street, Boston, Massachusetts 02110 is the Advisor to the Funds. The Advisor provides administrative and management services to the Funds. Columbia Advisors is a direct, wholly owned subsidiary of Columbia Management Group, LLC ("CMG"), which in turn is a direct, wholly owned subsidiary of Bank of America, which in turn is a wholly owned banking subsidiary of Bank of America Corporation, a financial services holding company organized as a Delaware corporation. On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005 Columbia Management was the investment advisor to the Funds. As a result of the merger, Columbia Advisors is now the investment advisor to the Funds. Columbia Advisors, a registered investment advisor, has been an investment advisor since 1995.
On April 1, 2003, Fleet Investment Advisors Inc., Stein Roe & Farnham Incorporated, Colonial Management Associates, Inc. and Newport Pacific Management, Inc. (NPMI), merged into Columbia Management Advisors, Inc. Each of the four merging companies was a registered investment advisor and advised various Funds in the Fund Complex.
In addition, immediately prior to the mergers described above and also on April 1, 2003, Newport Fund Management, Inc. (NFMI), a subsidiary of NPMI and a registered investment advisor that advised several Funds in the Fund Complex, merged into NPMI. As a result of NPMI's merger into the Columbia Management, Columbia Management became the investment advisor to the Funds previously advised by NFMI.
TRUSTEES AND OFFICERS (THIS SECTION APPLIES TO ALL OF THE FUNDS)
The Trustees and officers serve terms of indefinite duration. The names, addresses and ages of the Trustees and officers of the Fund Complex, the year each was first elected or appointed to office, their principal business occupations during at least the last five years, the number of portfolios overseen by each Trustee and other directorships they hold are shown below.
Number of
Portfolios
Year First in Fund
Position Elected or Complex Other
Name, Address with Appointed to Principal Occupation(s) Overseen Directorships
and Age Funds Office(1) During Past Five Years by Trustee Held
------------- -------- ------------ ----------------------- ---------- -------------
DISINTERESTED TRUSTEES
Douglas A. Hacker (Age 49) Trustee 1996 Executive Vice President - Strategy of 90 Nash Finch
P.O. Box 66100 United Airlines (airline) since December, Company (food
Chicago, IL 60666 2002 (formerly President of UAL Loyalty distributor)
Services (airline) from September, 2001
to December, 2002; Executive Vice
President and Chief Financial Officer of
United Airlines from July, 1999 to
September, 2001; Senior Vice President-
Finance from March, 1993 to July, 1999).
Janet Langford Kelly (Age 47) Trustee 1996 Partner, Zelle, Hofmann, Voelbel, Mason & 90 None
9534 W. Gull Lake Drive Gette LLP (law firm) since March, 2005;
Richland, Ml 49083-8530 Adjunct Professor of Law, Northwestern
University, since September, 2004
(formerly Chief Administrative Officer
and Senior Vice President, Kmart Holding
Corporation (consumer goods), from
September, 2003 to March, 2004; Executive
Vice President-Corporate Development and
Administration, General Counsel and
Secretary, Kellogg Company (food
manufacturer), from September, 1999 to
August, 2003; Senior Vice President,
Secretary and General Counsel, Sara Lee
Corporation (branded, packaged, consumer-
products manufacturer) from January, 1995
to September, 1999).
|
Number of
Portfolios
Year First in Fund
Position Elected or Complex Other
Name, Address with Appointed to Principal Occupation(s) Overseen Directorships
and Age Funds Office(1) During Past Five Years by Trustee Held
------------- -------- ------------ ----------------------- ---------- -------------
DISINTERESTED TRUSTEES
Richard W. Lowry (Age 69) Trustee 1995 Private Investor since August, 1987 92(3) None
10701 Charleston Drive (formerly Chairman and Chief Executive
Vero Beach, FL 32963 Officer, U.S. Plywood Corporation
(building products manufacturer)).
Charles R. Nelson (Age 62) Trustee 1981 Professor of Economics, University of 90 None
Department of Economics Washington, since January, 1976; Ford and
University of Washington Louisa Van Voorhis Professor of Political
Seattle, WA 98195 Economy, University of Washington, since
September, 1993 (formerly Director,
Institute for Economic Research,
University of Washington from September,
2001 to June, 2003); Adjunct Professor of
Statistics, University of Washington,
since September, 1980; Associate Editor,
Journal of Money Credit and Banking,
since September, 1993; consultant on
econometric and statistical matters.
John J. Neuhauser (Age 63) Trustee 1985 Academic Vice President and Dean of 92(3) Saucony, Inc.
84 College Road Faculties since August, 1999, Boston (athletic
Chestnut Hill, College (formerly Dean, Boston College footwear)
MA 02467-3838 School of Management from September, 1977
to August, 1999).
Patrick J. Simpson (Age 61) Trustee 2000 Partner, Perkins Coie L.L.P. (law firm). 90 None
1120 N.W. Couch Street
Tenth Floor
Portland, OR 972094128
Thomas E. Stitzel (Age 69) Trustee 1998 Business Consultant since 1999 (formerly 90 None
2208 Tawny Woods Place Professor of Finance from 1975 to 1999,
Boise, ID 83706 College of Business, Boise State
University); Chartered Financial Analyst.
|
Number of
Portfolios
Year First in Fund
Position Elected or Complex Other
Name, Address with Appointed to Principal Occupation(s) Overseen Directorships
and Age Funds Office(1) During Past Five Years by Trustee Held
------------- -------- ------------ ----------------------- ---------- -------------
DISINTERESTED TRUSTEES
Thomas C. Theobald (Age 68) Trustee 1996 Partner and Senior Advisor, Chicago 90 Anixter
8 Sound Shore Drive, and Growth Partners (private equity International
Suite 285 Chairman investing) since September, 2004 (network support
Greenwich, CT 06830 of the (formerly Managing Director, William equipment
Board Blair Capital Partners (private equity distributor);
investing) from September, 1994 to Ventas, Inc.
September, 2004). (real estate
investment
trust); Jones
Lang LaSalle
(real estate
management
services) and
Ambac Financial
Group (financial
guaranty
insurance)
Anne-Lee Verville (Age 60) Trustee 1998 Retired since 1997 (formerly General 90 Chairman of the
359 Stickney Hill Road Manager, Global Education Industry, IBM Board of
Hopkinton, NH 03229 Corporation (computer and technology) Directors, Enesco
from 1994 to 1997). Group, Inc.
(designer,
importer and
distributor of
giftware and
collectibles)
Richard L. Woolworth (Age 64) Trustee 1991 Retired since December 2003 (formerly 90 Northwest Natural
100 S.W. Market Street Chairman and Chief Executive Officer, The Gas Co. (natural
#1500 Regence Group (regional health insurer); gas service
Portland, OR 97207 Chairman and Chief Executive Officer, provider)
BlueCross BlueShield of Oregon; Certified
Public Accountant, Arthur Young &
Company)
|
Number of
Portfolios
Year First in Fund
Position Elected or Complex Other
Name, Address with Appointed to Principal Occupation(s) Overseen Directorships
and Age Funds Office(1) During Past Five Years by Trustee Held
------------- -------- ------------ ----------------------- ---------- -------------
INTERESTED TRUSTEE
William E. Mayer(2) (Age 65) Trustee 1994 Partner, Park Avenue Equity Partners 92(3) Lee Enterprises
399 Park Avenue (private equity) since February, 1999 (print media), WR
Suite 3204 (formerly Partner, Development Capital Hambrecht + Co.
New York, NY 10022 LLC from November, 1996 to February, (financial
1999). service
provider);
Reader's Digest
(publishing);
OPENFIELD
Solutions (retail
industry
technology
provider)
|
(1) ln October 2003, the trustees of the Liberty Funds and Stein Roe Funds (both as defined in Part 1 of this SAI) were elected to the boards of the Columbia Funds; simultaneous with that election, Patrick J. Simpson and Richard L. Woolworth, who had been directors/trustees of the Columbia Funds were appointed to serve as trustees of the Liberty Funds and Stein Roe Funds. The date shown is the earliest date on which a trustee/director was elected or appointed to the board of a Fund in the Fund Complex.
(2) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht + Co.
(3) Messrs. Lowry, Neuhauser and Mayer also serve as directors/trustees of the All-Star Funds (as defined in Part 1 of this SAI).
Year First
Elected or
Position Appointed
Name, Address and Age with Funds to Office Principal Occupation(s) During Past Five Years
--------------------- ------------- ---------- ----------------------------------------------------------------------
OFFICERS
Christopher L. Wilson (Age 48) President 2004 Head of Mutual Funds since August, 2004 and Managing Director of the
One Financial Center Advisor since September, 2005; President of the Columbia Funds,
Boston, MA 02111 Liberty Funds and Stein Roe Funds since October, 2004; President and
Chief Executive Officer of the Nations Funds since January, 2005;
President of the Galaxy Funds since April 2005; Director of Bank of
America Global Liquidity Funds, plc since May 2005; Director of Banc
of America Capital Management (Ireland), Limited since May 2005;
Director of FIM Funding, Inc. since January, 2005; Senior Vice
President of Columbia Management Distributors, Inc. since January,
2005; Director of Columbia Management Services, Inc. since January,
2005 (formerly Senior Vice President of Columbia Management from
January, 2005 to August, 2005; Senior Vice President of BACAP
Distributors LLC from January 2005 to July 2005; President and Chief
Executive Officer, CDC IXIS Asset Management Services, Inc. from
September, 1998 to August, 2004).
J. Kevin Connaughton (Age 41) Treasurer 2000 Treasurer of the Columbia Funds since October, 2003 and of the Liberty
One Financial Center Funds, Stein Roe Funds and All-Star Funds since December, 2000;
Boston, MA 02111 Managing Director of the Advisor since September, 2005 (formerly Vice
President of Columbia Management from April, 2003 to August, 2005;
President of the Columbia Funds, Liberty Funds and Stein Roe Funds
from February, 2004 to October, 2004; Chief Accounting Officer and
Controller of the Liberty Funds and All-Star Funds from February, 1998
to October, 2000); Treasurer of the Galaxy Funds since September, 2002
(formerly Treasurer from December, 2002 to December, 2004 and
President from February, 2004 to December, 2004 of the Columbia
Management Multi-Strategy Hedge Fund, LLC; Vice President of Colonial
Management Associates, Inc. from February, 1998 to October, 2000).
Mary Joan Hoene (Age 56) Senior Vice 2004 Senior Vice President and Chief Compliance Officer of the Columbia
100 Federal Street President and Funds, Liberty Funds, Stein Roe Funds and All-Star Funds since August,
Boston, MA 02110 Chief 2004; Chief Compliance Officer of the Columbia Management
Compliance Multi-Strategy Hedge Fund, LLC since August, 2004; Chief Compliance
Officer Officer of the BACAP Alternative Multi-Strategy Hedge Fund LLC since
October, 2004 (formerly Partner, Carter, Ledyard & Milburn LLP from
January, 2001 to August, 2004; Counsel, Carter, Ledyard & Milburn LLP
from November, 1999 to December, 2000; Vice President and Counsel,
Equitable Life Assurance Society of the United States from April, 1998
to November, 1999).
|
Year First
Elected or
Position Appointed
Name, Address and Age with Funds to Office Principal Occupation(s) During Past Five Years
--------------------- ------------- ---------- ----------------------------------------------------------------------
OFFICERS
Michael G. Clarke (Age 35) Chief 2004 Chief Accounting Officer of the Columbia Funds, Liberty Funds, Stein
One Financial Center Accounting Roe Funds and All-Star Funds since October, 2004; Managing Director of
Boston, MA 02111 Officer the Advisor since September, 2005 (formerly Controller of the Columbia
Funds, Liberty Funds, Stein Roe Funds and All-Star Funds from May,
2004 to October, 2004; Assistant Treasurer from June, 2002 to May,
2004; Vice President, Product Strategy & Development of the Liberty
Funds and Stein Roe Funds from February, 2001 to June, 2002; Assistant
Treasurer of the Liberty Funds, Stein Roe Funds and the All-Star Funds
from August, 1999 to February, 2001; Audit Manager, Deloitte & Toche
LLP from May, 1997 to August, 1999).
Jeffrey R. Coleman (Age 35) Controller 2004 Controller of the Columbia Funds, Liberty Funds, Stein Roe Funds and
One Financial Center All-Star Funds since October, 2004 (formerly Vice President of CDC
Boston, MA 02111 IXIS Asset Management Services, Inc. and Deputy Treasurer of the CDC
Nvest Funds and Loomis Sayles Funds from February, 2003 to September,
2004; Assistant Vice President of CDC IXIS Asset Management Services,
Inc. and Assistant Treasurer of the CDC Nvest Funds from August, 2000
to February, 2003; Tax Manager of PFPC, Inc. from November, 1996 to
August, 2000).
R. Scott Henderson (Age 46) Secretary 2004 Secretary of the Columbia Funds, Liberty Funds and Stein Roe Funds
One Financial Center since December, 2004 (formerly Of Counsel, Bingham McCutchen from
Boston, MA 02111 April, 2001 to September, 2004; Executive Director and General
Counsel, Massachusetts Pension Reserves Investment Management Board
from September, 1997 to March, 2001).
|
Trustee Positions
As of December 31, 2004, no disinterested Trustee or any of their immediate family members owned beneficially or of record any class of securities of the Advisor, another investment advisor, sub-advisor or portfolio manager of any of the funds in the Fund Complex or any person controlling, controlled by or under common control with any such entity.
General
Messrs. Lowry, Mayer and Neuhauser are also trustees/directors of the Liberty All-Star Funds.
The Trustees serve as trustees of 90 registered investment companies managed by the Advisor for which each Trustee receives a retainer at the annual rate of $45,000 and an attendance fee of $9,500 for each regular and special joint board meeting and $1,000 for each special telephonic joint board meeting. Beginning in December, 2003, Mr. Theobald began serving as the Chairman of the Board. As the independent chairman of the board, Mr. Theobald receives a supplemental retainer at the annual rate of $100,000; the chair of the Audit Committee receives a supplemental retainer at the annual rate of $10,000; the chair of each other committee receives a supplemental retainer at the annual rate of $5,000. Members of each committee, except the Audit Committee, receive $1,500 for each committee meeting. Each Audit Committee member receives $2,000 for each Audit Committee meeting. Committee members receive $1,500 for each special committee meeting attended on a day other than a regular joint board meeting day. Two-thirds of the Trustee fees are allocated among the Funds based on each Fund's relative net assets and one-third of the fees is divided equally among the Funds.
Trustees and officers of the Trust, who are also officers of the Advisor or its affiliates, will benefit from the advisory fees, sales commissions and agency fees paid or allowed by the Trust.
The Agreement and Declaration of Trust (Declaration) of the Trust provides that the Trust will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Trust but that such indemnification will not relieve any officer or Trustee of any liability to the Trust or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. The Trust, at its expense, provides liability insurance for the benefit of its Trustees and officers.
The Trustees have the authority to convert the Funds into a master fund/feeder fund structure. Under this structure, a Fund may invest all or a portion of its investable assets in investment companies with substantially the same investment goals, policies and restrictions as the Fund. The primary reason to use the master fund/feeder fund structure is to provide a mechanism to pool, in a single master fund, investments of different investor classes, resulting in a larger portfolio, investment and administrative efficiencies and economies of scale.
MANAGEMENT AGREEMENT
Under a Management Agreement (Agreement), the Advisor has contracted to furnish each Fund with investment research and recommendations or fund management, respectively, and accounting and administrative personnel and services, and with office space, equipment and other facilities. For these services and facilities, each Fund pays a monthly fee based on the average of the daily closing value of the total net assets of each Fund for such month. Under the Agreement, any liability of the Advisor to the Trust, a Fund and/or its shareholders is limited to situations involving the Advisor's own willful misfeasance, bad faith, gross negligence or reckless disregard of its duties.
The Agreement may be terminated with respect to the Fund at any time on 60 days'
written notice by the Advisor or by the Trustees of the Trust or by a vote of a
majority of the outstanding voting securities of the Fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the Fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Advisor or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
The Advisor pays all salaries of officers of the Trust. The Trust pays all expenses not assumed by the Advisor including, but not limited to, auditing, legal, custodial, investor servicing and shareholder reporting expenses. The Trust pays the cost of printing and mailing any Prospectuses sent to shareholders. Columbia Management Distributors, Inc. (formerly named Columbia Funds Distributor, Inc.) pays the cost of printing and distributing all other Prospectuses.
ADMINISTRATION AGREEMENT (THIS SECTION APPLIES ONLY TO CERTAIN FUNDS AND THEIR RESPECTIVE TRUSTS. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION REGARDING YOUR FUND).
Under an Administration Agreement, the Advisor, in its capacity as the Administrator to each Fund, has contracted to perform the following administrative services:
(a) providing office space, equipment and clerical personnel;
(b) arranging, if desired by the respective Trust, for its directors, officers and employees to serve as Trustees, officers or agents of each Fund;
(c) preparing and, if applicable, filing all documents required for compliance by each Fund with applicable laws and regulations;
(d) preparation of agendas and supporting documents for and minutes of meetings of Trustees, committees of Trustees and shareholders;
(e) coordinating and overseeing the activities of each Fund's other third-party service providers; and
(f) maintaining certain books and records of each Fund.
With respect to Columbia Money Market Fund and Columbia Municipal Money Market Fund, the Administration Agreement for these Funds provides that the Advisor will monitor compliance by the Fund with Rule 2a-7 under the 1940 Act and report to the Trustees from time to time with respect thereto.
The Advisor is paid a monthly fee at the annual rate of average daily net assets set forth in Part 1 of this SAI.
TRUST SERVICES AGREEMENT
Pursuant to a Trust Services Agreement, CMS provides the Columbia Tax-Managed Growth Fund's Trust Shares with trust administration services, including tax return preparation and filing, other tax and beneficiary reporting and recordkeeping. CMS's fee is described in the Prospectuses of the Columbia Tax-Managed Growth Fund.
THE PRICING AND BOOKKEEPING AGREEMENT
The Advisor is responsible for providing accounting and bookkeeping services to
each Fund pursuant to a pricing and bookkeeping agreement. Under a separate
agreement (Outsourcing Agreement), the Advisor has delegated those functions to
State Street Corporation (State Street). The Advisor pays fees to State Street
under the Outsourcing Agreement. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF
THIS SAI FOR INFORMATION ON THESE FEES.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. The Advisor acts as investment advisor to each of the Funds. Various officers and Trustees of the Trust also serve as officers or Trustees of other funds and the other corporate or fiduciary clients of the Advisor. The Funds and clients advised by the Advisor or the Funds administered by the Advisor sometimes invest in securities in which the Fund also invests and sometimes engage in covered option writing programs and enter into transactions utilizing stock index options and stock index and financial futures and related options ("other instruments"). If the Fund, such other funds and such other clients desire to buy or sell the same portfolio securities, options or other instruments at about the same time, the purchases and sales are normally made as nearly as practicable on a pro rata basis in proportion to the amounts desired to be purchased or sold by each. Although in some cases these practices could have a detrimental effect on the price or volume of the securities, options or other instruments as far as the Fund is concerned, in most cases it is believed that these practices should produce better executions. It is the opinion of the Trustees that the desirability of retaining the Advisor as investment advisor to the Funds outweighs the disadvantages, if any, which might result from these practices.
POTENTIAL CONFLICTS OF INTEREST IN MANAGING MULTIPLE ACCOUNTS
Like other investment professionals with multiple clients, a portfolio manager for a Fund may face certain potential conflicts of interest in connection with managing both the Fund and other accounts at the same time. The paragraphs below describe some of these potential conflicts, which the Advisor believes are faced by investment professionals at most major financial firms. The Advisor and the Trustees of the Columbia Funds have adopted compliance policies and procedures that attempt to address certain of these potential conflicts.
The management of accounts with different advisory fee rates and/or fee structures, including accounts that pay advisory fees based on account performance ("performance fee accounts"), may raise potential conflicts of interest by creating an incentive to favor higher-fee accounts. These potential conflicts may include, among others:
- The most attractive investments could be allocated to higher-fee accounts or performance fee accounts.
- The trading of higher-fee accounts could be favored as to timing and/or execution price. For example, higher-fee accounts could be permitted to sell securities earlier than other accounts when a prompt sale is desirable or to buy securities at an earlier and more opportune time.
- The trading of other accounts could be used to benefit higher-fee accounts (front-running).
- The investment management team could focus their time and efforts primarily on higher-fee accounts due to a personal stake in compensation.
Potential conflicts of interest may also arise when the portfolio managers have personal investments in other accounts that may create an incentive to favor those accounts. As a general matter and subject to limited exceptions, the Advisor's investment professionals do not have the opportunity to invest in client accounts, other than the Columbia Funds.
A potential conflict of interest may arise when a Fund and other accounts purchase or sell the same securities. On occasions when a portfolio manager considers the purchase or sale of a security to be in the best interests of a Fund as well as other accounts, the Advisor's trading desk may, to the extent permitted by applicable laws and regulations, aggregate the securities to be sold or purchased in order to obtain the best execution and lower brokerage commissions, if any. Aggregation of trades may create the potential for unfairness to a Fund or another account if one account is favored over another in allocating the securities purchased or sold - for example, by allocating a disproportionate amount of a security that is likely to increase in value to a favored account.
"Cross trades," in which one Columbia account sells a particular security to another account (potentially saving transaction costs for both accounts), may also pose a potential conflict of interest. Cross trades may be seen to involve a potential conflict of interest if, for example, one account is permitted to sell a security to another account at a higher price than an independent third party would pay. The Advisor and the Funds' Trustees have adopted compliance procedures that provide that any transactions between a Fund and another Columbia-advised account are to be made at an independent current market price, as required by law.
Another potential conflict of interest may arise based on the different investment objectives and strategies of a Fund and other accounts. For example, another account may have a shorter-term investment horizon or different investment objectives, policies or restrictions than a Fund. Depending on another account's objectives or other factors, a portfolio manager may give advice and make decisions that may differ from advice given, or the timing or nature of decisions made, with respect to a Fund. In addition, investment decisions are the product of many factors in addition to basic suitability for the particular account involved. Thus, a particular security may be bought or sold for certain accounts even though it could have been bought or sold for other accounts at the same time. More rarely, a particular security may be bought for one or more accounts managed by a portfolio manager when one or more other accounts are selling the security (including short sales). There may be circumstances when purchases or sales of portfolio securities for one or more accounts may have an adverse effect on other accounts.
A Fund's portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. As a result, the portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as might be the case if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies.
A Fund's portfolio managers may be able to select or influence the selection of the brokers and dealers that are used to execute securities transactions for the Fund. In addition to executing trades, some brokers and dealers provide portfolio managers with brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934), which may result in the payment of higher brokerage fees than might have otherwise be available. These services may be more beneficial to certain funds or accounts than to others. Although the payment of brokerage commissions is subject to the requirement that the portfolio manager determine in good faith that the commissions are reasonable in relation to the value of the brokerage and research services provided to the fund, a portfolio manager's decision as to the selection of brokers and dealers could yield disproportionate costs and benefits among the funds and/or accounts that he or she manages.
The Advisor or an affiliate may provide more services (such as distribution or recordkeeping) for some types of funds or accounts than for others. In such cases, a portfolio manager may benefit, either directly or indirectly, by devoting disproportionate attention to the management of fund and/or accounts that provide greater overall returns to the investment manager and its affiliates.
A Fund's portfolio manager(s) may also face other potential conflicts of interest in managing the Fund, and the description above is not a complete description of every conflict that could be deemed to exist in managing both a Fund and other accounts. In addition, a Fund's portfolio manager may also manage other accounts (including their personal assets or the assets of family members) in their personal capacity. The management of these accounts may also involve certain of the potential conflicts described above. Investment personnel at the Advisor, including each Fund's portfolio manager, are subject to restrictions on engaging in personal securities transactions pursuant to Codes of Ethics adopted by the Advisor and each Fund, which contain provisions and requirements designed to identify and address certain conflicts of interest between personal investment activities and the interests of each Fund.
BROKERAGE AND RESEARCH SERVICES. Consistent with the Conduct Rules of the National Association of Securities Dealers, Inc., and subject to seeking "best execution" (as defined below) and such other policies as the Trustees may determine, the Advisor may consider sales of shares of the Funds as a factor in the selection of broker-dealers to execute securities transactions for a Fund.
The Advisor places the transactions of the Funds with broker-dealers selected by the Advisor and, if applicable, negotiates commissions. Broker-dealers may receive brokerage commissions on portfolio transactions, including the purchase and writing of options, the effecting of closing purchase and sale transactions, and the purchase and sale of underlying securities upon the exercise of options and the purchase or sale of other instruments. The Funds from time to time also execute portfolio transactions with such broker-dealers acting as principals. The Funds do not intend to deal exclusively with any particular broker-dealer or group of broker-dealers.
It is the Advisor's policy generally to seek best execution, which is to place the Funds' transactions where the Funds can be expected to obtain the most favorable combination of price and execution services in particular transactions or provided on a continuing basis by a broker-dealer, and to deal directly with a principal market maker in connection with over-the-counter transactions, except when it is believed that best execution is obtainable elsewhere. In evaluating the execution services of, including the overall reasonableness of brokerage commissions paid to, a broker-dealer, consideration is given to, among other things, the firm's general execution and operational capabilities, and to its reliability, integrity and financial condition.
Securities transactions of the Funds may be executed by broker-dealers who also provide research services (as defined below) to the Advisor and the Funds. The Advisor may use all, some or none of such research services in providing investment advisory services to each of its investment company and other clients, including the Fund. To the extent that such services are used by the Advisor, they tend to reduce the Advisor's expenses. In the Advisor's opinion, it is impossible to assign an exact dollar value for such services.
The Trustees have authorized the Advisor to cause the Funds to pay a broker-dealer which provides brokerage and research services to the Advisor an amount of commission for effecting a securities transaction, including the sale of an option or a closing purchase transaction, for the funds in excess of the amount of commission which another broker-dealer would have charged for effecting that transaction. As provided in Section 28(e) of the Securities Exchange Act of 1934, "brokerage and research services" include advice as to the value of securities, the advisability of investing in, purchasing or selling securities and the availability of securities or purchasers or sellers of securities; furnishing analyses and reports concerning issues, industries, securities, economic factors and trends and portfolio strategy and performance of accounts; and effecting securities transactions and performing functions incidental thereto (such as clearance and settlement). The Advisor must determine in good faith that such greater commission is reasonable in relation to the value of the brokerage and research services provided by the executing broker-dealer viewed in terms of that particular transaction or the Advisor's overall responsibilities to the Funds and all its other clients.
The Trustees have authorized the Advisor to utilize the services of a clearing agent with respect to all call options written by Funds that write options and to pay such clearing agent commissions of a fixed amount per share (currently 1.25 cents) on the sale of the underlying security upon the exercise of an option written by a Fund.
The Advisor may use the services of affiliated broker-dealers, when buying or selling securities for a Fund's portfolio pursuant to procedures adopted by the Trustees and 1940 Act Rule 17e-1. Under the Rule, the Advisor must ensure that commissions a Fund pays to affiliates of the Advisor on portfolio transactions are reasonable and fair compared to commissions received by other broker-dealers in connection with comparable transactions involving similar securities being bought or sold at about the same time. The Advisor will report quarterly to the Trustees on all securities transactions placed through affiliates of the Advisor so that the Trustees may consider whether such trades complied with these procedures and the Rule.
PRINCIPAL UNDERWRITER
CMD is the principal underwriter of the Trust's shares. CMD has no obligation to buy the Funds' shares, and purchases the Funds' shares only upon receipt of orders from authorized FSFs or investors.
INVESTOR SERVICING AND TRANSFER AGENT
CMS is the Trust's investor servicing agent (transfer, plan and dividend disbursing agent), for which it receives fees which are paid monthly by the Trust. The fee paid to CMS is based on number of accounts plus reimbursement for certain out-of-pocket expenses. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION ON FEES RECEIVED BY CMS. The agreement continues indefinitely but may be terminated by 90 days' notice by the Fund to CMS or generally by 6 months' notice by CMS to the Fund. The agreement limits the liability of CMS to the Fund for loss or damage incurred by the Fund to situations involving a failure of CMS to use reasonable care or to act in good faith and without negligence in performing its duties under the agreement. The Fund will indemnify CMS from, among other things, any and all claims, actions, suits, losses, costs, damages, and expenses incurred by it in connection with its acceptance of this Agreement, provided that: (i) to the extent such claims, actions, suits, losses, costs, damages, or expenses relate solely to a particular series or group of series of shares, such indemnification shall be only out of the assets of that series or group of series; (ii) this indemnification shall not apply to actions or omissions constituting negligence or misconduct of CMS or its agents or contractors, including but not limited to willful misfeasance, bad faith or gross negligence in the performance of their duties, or reckless disregard of their obligations and duties under this Agreement; and (iii) CMS shall give a Fund prompt notice and reasonable opportunity to defend against any such claim or action in its own name or in the name of CMS.
CODE OF ETHICS
The Funds, the Advisor, and CMD have adopted Codes of Ethics pursuant to the requirements of the Act. These Codes of Ethics permit personnel subject to the Codes to invest in securities, including securities that may be purchased or held by the Funds. These Codes of Ethics can be reviewed and copied at the SEC's Public Reference Room and may be obtained by calling the SEC at 1-202-942-8090. These Codes are also available on the EDGAR Database on the SEC's internet web site at http://www.sec.gov, and may also be obtained, after paying a duplicating fee, by electronic request to publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102.
ANTI-MONEY LAUNDERING COMPLIANCE
The Funds are required to comply with various anti-money laundering laws and regulations. Consequently, the Funds may request additional information from you to verify your identity. If at any time the Funds believe a shareholder may be involved in suspicious activity or if certain account information matches information on government lists of suspicious persons, the Funds may choose not to establish a new account or may be required to "freeze" a shareholder's account, halting all shareholder activity with respect to such account. The Funds also may be required to provide a governmental agency with information about transactions that have occurred in a shareholder's account or to transfer monies received to establish a new account, transfer an existing account or transfer the proceeds of an existing account to a governmental agency. In some circumstances, the law may not permit a Fund to inform the shareholder that it has taken the actions described above.
PROXY VOTING POLICIES AND FUND PROXY VOTING RECORD
The Fund has delegated to the Advisor the responsibility to vote proxies relating to portfolio securities held by the Fund. In deciding to delegate this responsibility to the Advisor, the Board of Trustees of the Trust reviewed and approved the policies and procedures adopted by the Advisor. These included the procedures that the Advisor follows when a vote presents a conflict between the interests of the Fund and its shareholders and the Advisor, its affiliates, its other clients or other persons.
The Advisor's policy is to vote all proxies for Fund securities in a manner considered by the Advisor to be in the best interest of the Fund and its shareholders without regard to any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor examines each proposal and votes against the proposal, if, in its judgment, approval or adoption of the proposal would be expected to impact adversely the current or potential market value of the issuer's securities. The Advisor also examines each proposal and votes the proxies against the proposal, if, in its judgment, the proposal would be expected to affect adversely the best interest of the Fund. The Advisor determines the best interest of the Fund in light of the potential economic return on the Fund's investment.
The Advisor addresses potential material conflicts of interest by having predetermined voting guidelines. For those proposals that require special consideration or in instances where special circumstances may require varying from the predetermined guideline, the Advisor's Proxy Committee determines the vote in the best interest of the Fund, without consideration of any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor's Proxy Committee is composed of representatives of the Advisor's equity investments, equity research, compliance, legal and fund administration functions. In addition to the responsibilities described above, the Proxy Committee has the responsibility to review, on a semi-annual basis, the Advisor's proxy voting policies to ensure consistency with internal and regulatory agency policies and to develop additional predetermined voting guidelines to assist in the review of proxy proposals.
The Proxy Committee may vary from a predetermined guideline if it determines that voting on the proposal according to the predetermined guideline would be expected to impact adversely the current or potential market value of the issuer's securities or to affect adversely the best interest of the client. References to the best interest of a client refer to the interest of the client in terms of the potential economic return on the client's investment. In determining the vote on any proposal, the Proxy Committee does not consider any benefit other than benefits to the owner of the securities to be voted. A member of the Proxy Committee is prohibited from voting on any proposal for which he or she has a conflict of interest by reason of a direct relationship with the issuer or other party affected by a given proposal. Persons making recommendations to the Proxy Committee or its members are required to disclose to the Committee any relationship with a party making a proposal or other matter known to the person that would create a potential conflict of interest.
The Advisor has retained Institutional Shareholder Services ("ISS"), a third party vendor, to implement its proxy voting process. ISS provides proxy analysis, record keeping services and vote disclosure services.
The Advisor's proxy voting guidelines and procedures are included in this SAI as Appendix II. In accordance with SEC regulations, the fund's proxy voting record for the last twelve-month period ended June 30 has been filed with the SEC. You may obtain a copy of the fund's proxy voting record (i) at www.columbiamanagement.com; (ii) on the Securities and Exchange Commission's website at www.sec.gov and (iii) without charge, upon request, by calling 800-368-0346.
DISCLOSURE OF PORTFOLIO INFORMATION
The Trustees of the Columbia Funds have adopted policies with respect to the disclosure of the Funds' portfolio holdings by the Funds, Columbia Advisors, or their affiliates. These policies provide that Fund portfolio holdings information generally may not be disclosed to any party prior to (1) the day next following the posting of such information on the Funds' website at www.columbiafunds.com, (2) the day next following the filing of the information with the SEC in a required filing, or (3) for money market funds, such information is publicly available to all shareholders upon request on the fifth business day after each calendar month-end. Certain limited exceptions pursuant to the Fund's policies are described below. The Trustees shall be updated as needed regarding the Fund's compliance with the policies, including information relating to any potential conflicts of interest between the interests of Fund shareholders and those of Columbia Advisors and its affiliates. The Fund's policies prohibit Columbia Advisors and the Fund's other service providers from entering into any agreement to disclose Fund portfolio holdings information in exchange for any form of consideration. These policies apply to disclosures to all categories of persons, including, without limitation, individual investors, institutional investors, intermediaries that distribute the Fund's shares, third-party service providers, rating and ranking organizations and affiliated persons of the Fund.
PUBLIC DISCLOSURES. The Fund's portfolio holdings are currently disclosed to the public through required filings with the SEC and, for equity and fixed income funds, on the Fund's website at www.columbiafunds.com. The Fund files its portfolio holdings with the SEC for each fiscal quarter on Form N-CSR (with respect to each annual period and semi-annual period) and Form N-Q (with respect to the first and third quarters of the Fund's fiscal year). Shareholders may obtain the Fund's Forms N-CSR and N-Q filings on the SEC's website at www.sec.gov. In addition, the Fund's Forms N-CSR and N-Q filings may be reviewed and copied at the SEC's public reference room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC's website or the operation of the public reference room.
The equity and fixed income Columbia Funds also currently make portfolio information publicly available at www.columbiafunds.com, as disclosed in the following table:
TYPE OF FUND INFORMATION PROVIDED FREQUENCY OF DISCLOSURE DATE OF WEB POSTING ------------ ------------------------------------ ----------------------- ---------------------------------- Equity Funds Full portfolio holdings information. Monthly 30 calendar days after month-end. Fixed Income Funds Full portfolio holdings information. Quarterly 60 calendar days after quarter-end |
The scope of the information provided relating to the Fund's portfolio that is made available on the website may change from time to time without prior notice.
For Columbia's money market funds, a complete list of a Fund's portfolio holdings shall be publicly available on a monthly basis on the fifth business date after month-end. Shareholders may request such information by writing or calling the Fund's distributor, Columbia Management Distributors, Inc. at the address listed on the cover of this SAI.
A Fund, Columbia Advisors or their affiliates may include portfolio holdings information that has already been made public through a web posting or SEC filing in marketing literature and other communications to shareholders, advisors or other parties, provided that the information is disclosed no earlier than the day after the date the information is disclosed publicly.
OTHER DISCLOSURES. The Fund's policies provide that non-public disclosures of the Fund's portfolio holdings may be made if (1) the Fund has a legitimate business purpose for making such disclosure, (2) the Fund's chief executive officer authorizes such non-public disclosure of information, and (3) the party receiving the non-public information enters into a confidentiality agreement, which includes a duty not to trade on the non-public information.
The Fund periodically discloses its portfolio information on a confidential basis to various service providers that require such information in order to assist the Fund with its day-to-day business affairs. In addition to Columbia Advisors and its affiliates, these service providers include the Fund's custodian and sub-custodians, the Fund's independent registered public accounting firm, legal counsel, financial printers(R.R. Donnelly & Sons and Bowne & Co., Inc.), the Fund's proxy voting service provider (Alamo Direct Mail Services, Inc.), the Fund's proxy solicitor (Georgeson Shareholder Communications Inc.), rating agencies that maintain ratings on certain Columbia Funds (Fitch, Inc.) and service providers that support Columbia Advisors' trading systems (InvestorTool, Inc. and Thomson Financial).These service providers are required to keep such information confidential, and are prohibited from trading based on the information or otherwise using the information except as necessary in providing services to the Fund. The Fund may also disclose portfolio holdings information to broker/dealers and certain other entities related to potential transactions and management of the Fund, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information.
Certain clients of the Fund's investment adviser(s) may follow a strategy similar to that of the Fund, and have access to portfolio holdings information for their account. It is possible that such information could be used to infer portfolio holdings information relating to the Fund.
DETERMINATION OF NET ASSET VALUE
Each Fund determines net asset value (NAV) per share for each class as of the close of the New York Stock Exchange (Exchange) (generally 4:00 p.m. Eastern time) each day the Exchange is open, except that certain classes of assets, such as index futures, for which the market close occurs shortly after the close of regular trading on the Exchange will be priced at the closing time of the market on which they trade. Currently, the Exchange is closed Saturdays, Sundays and the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. Funds with portfolio securities which are primarily listed on foreign exchanges may experience trading and changes in NAV on days on which such Fund does not determine NAV due to differences in closing policies among exchanges. This may significantly affect the NAV of the Fund's redeemable securities on days when an investor cannot redeem such securities Debt securities generally are valued by a pricing service which determines valuations based upon market transactions for normal, institutional-size trading units of similar securities. However, in circumstances where such prices are not available or where the Advisor deems it appropriate to do so, an over-the-counter or exchange bid quotation is used. Securities listed on an exchange or on NASDAQ are valued at the last sale price (or the official closing price as determined by the NASDAQ system, if different, as applicable). Listed securities for which there were no sales during the day and unlisted securities generally are valued at the last quoted bid price. Options are valued at the last sale price or in the absence of a sale, the mean between the last quoted bid and offering prices. Short-term obligations with a maturity of 60 days or less are valued at amortized cost pursuant to procedures adopted by the Trustees. The values of foreign securities quoted in foreign currencies are translated into U.S. dollars at the exchange rate for that day. Portfolio positions for which market quotations are not readily available and other assets are valued at fair value as determined by the Advisor in good faith under the direction of the Trust's Board of Trustees.
Generally, trading in certain securities (such as foreign securities) is substantially completed each day at various times prior to the close of the Exchange. Trading on certain foreign securities markets may not take place on all business days in New York, and trading on some foreign securities markets takes place on days which are not business days in New York and on which the Fund's NAV is not calculated. The values of these securities used in determining the NAV are computed as of such times. Also, because of the amount of time required to collect and process trading information as to large numbers of securities issues, the values of certain securities (such as convertible bonds, U.S. government securities, and tax-exempt securities) are determined based on market quotations collected earlier in the day at the latest practicable time prior to the close of the Exchange. Occasionally, events affecting the value of such securities may occur between such times and the close of the Exchange which will not be reflected in the computation of each Fund's NAV. If events materially affecting the value of such securities occur during such period, then these securities will be valued at fair value following procedures approved by the Trust's Board of Trustees.
(The following two paragraphs are applicable only to Columbia Newport Tiger Fund and Columbia Newport Greater China Fund).
Trading in securities on stock exchanges and over-the-counter markets in foreign securities markets is normally completed well before the close of the business day in New York. Trading on foreign securities markets may not take place on all business days in New York, and trading on some foreign securities markets does take place on days which are not business days in New York and on which the Fund's NAV is not calculated.
The calculation of the Fund's NAV accordingly may not take place contemporaneously with the determination of the prices of the Fund's portfolio securities used in such calculations. Events affecting the values of portfolio securities that occur between the time their prices are determined and the close of the Exchange (when the Fund's NAV is calculated) will not be reflected in the Fund's calculation of NAV unless the Advisor, acting under procedures established by the Board of Trustees of the Trust, deems that the particular event would materially affect the Fund's NAV, in which case an adjustment will be made. Assets or liabilities initially expressed in terms of foreign currencies are translated prior to the next determination of the NAV of the Fund's shares into U.S. dollars at prevailing market rates.
AMORTIZED COST FOR MONEY MARKET FUNDS (SEE "AMORTIZED COST FOR MONEY MARKET
FUNDS" UNDER "INFORMATION CONCERNING THE FUND" IN PART 1 OF THE SAI OF COLUMBIA
MONEY MARKET FUND (FORMERLY NAMED LIBERTY MONEY MARKET FUND) AND COLUMBIA
MUNICIPAL MONEY MARKET FUND (FORMERLY NAMED LIBERTY MUNICIPAL MONEY MARKET
FUND))
Money market funds generally value their portfolio securities at amortized cost according to Rule 2a-7 under the 1940 Act.
Under the amortized cost method a security is initially valued at cost and
thereafter any discount or premium from maturity value is amortized ratably to
maturity. This method assures a constant NAV but may result in a yield different
from that of the same portfolio under the market value method. The Trust's
Trustees have adopted procedures intended to stabilize a money market fund's NAV
per share at $1.00. If a money market fund's market value deviates from the
amortized cost of $1.00, and results in a material dilution to existing
shareholders, the Trust's Trustees will take corrective action that may include:
realizing gains or losses; shortening the portfolio's maturity; withholding
distributions; redeeming shares in kind; or converting to the market value
method (in which case the NAV per share may differ from $1.00). All investments
will be determined pursuant to procedures approved by the Trust's Trustees to
present minimal credit risk.
See the Statement of Assets and Liabilities in the shareholder report of the Columbia Money Market Fund (formerly named Liberty Money Market Fund) or the Columbia Municipal Money Market Fund (formerly named Liberty Municipal Money Market Fund) for a specimen price sheet showing the computation of maximum offering price per share of Class A shares.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of the Fund and tables of charges. This SAI contains additional information which may be of interest to investors.
The Fund may accept unconditional orders for shares to be executed at the public offering price based on the NAV per share next determined after the order is placed in good order. The public offering price is the NAV plus the applicable sales charge, if any. In the case of orders for purchase of shares placed through FSFs, the public offering price will be determined on the day the order is placed in good order, but only if the FSF receives the order prior to the time at which shares are valued and transmits it to the Fund before the Fund processes that day's transactions. If the FSF fails to transmit before the Fund processes that day's transactions, the customer's entitlement to that day's closing price must be settled between the customer and the FSF. If the FSF receives the order after the time at which the Fund values its shares, the price will be based on the NAV determined as of the close of the Exchange on the next day it is open. If funds for the purchase of shares are sent directly to CMS, they will be invested at the public offering price next determined after receipt in good order. Payment for shares of the fund must be in U.S. dollars; if made by check, the check must be drawn on a U.S. bank.
Investors should understand that, since the offering price of the Fund's shares is calculated to two decimal places using standard rounding methodology, the dollar amount of the sales charge paid as a percentage of the offering price and of the net amount invested for any particular purchase of fund shares may be higher or lower depending on whether downward or upward rounding was required during the calculation process.
The Fund receives the entire NAV of shares sold. For shares subject to an initial sales charge, CMD's commission is the sales charge shown in the Fund's Prospectus less any applicable FSF discount. The FSF discount is the same for all FSFs, except that CMD retains the entire sales charge on any sales made to a shareholder who does not specify a FSF on the Investment Account Application ("Application"), and except that CMD may from time to time reallow additional amounts to all or certain FSFs. CMD generally retains some or all of any asset-based sales charge (distribution fee) or contingent deferred sales charge. Such charges generally reimburse CMD for any up-front and/or ongoing commissions paid to FSFs.
Checks presented for the purchase of shares of the Fund which are returned by the purchaser's bank or checkwriting privilege checks for which there are insufficient funds in a shareholder's account to cover redemption may subject such purchaser or shareholder to a $15 service fee for each check returned. Checks must be drawn on a U.S. bank and must be payable in U.S. dollars. Travelers checks, gift checks, credit card convenience checks, credit cards, cash and ban counter (starter checks) are not accepted.
CMS acts as the shareholder's agent whenever it receives instructions to carry out a transaction on the shareholder's account. Upon receipt of instructions that shares are to be purchased for a shareholder's account, the designated FSF will receive the applicable sales commission. Shareholders may change FSFs at any time by written notice to CMS, provided the new FSF has a sales agreement with CMD.
Shares credited to an account are transferable upon written instructions in good order to CMS and may be redeemed as described under "How to Sell Shares" in the Prospectus. Certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you may send the certificates to CMS for deposit to your account.
In addition to the commissions specified in a Fund's prospectus and this SAI, CMD, or its advisory affiliates, from their own resources, may make cash payments to FSFs that agree to promote the sale of shares of funds that CMD distributes. A number of factors may be considered in determining the amount of those payments, including the FSF's sales, client assets invested in the funds and redemption rates, the quality of the FSF's relationship with CMD and/or its affiliates, and the nature of the services provided by FSFs to its clients. The payments may be made in recognition of such factors as marketing support, access to sales meetings and the FSF's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, CMD may also pay non-cash compensation to FSFs and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for FSF educational or training events.
In addition, CMD, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of a Fund.
CMD and its affiliates anticipate that the FSFs and intermediaries that will receive the additional compensation described above include:
1st Global Capital Corp
401 Company
ABN AMRO Trust Services
ADP Retirement Services
Advest
AEGON/Transamerica
AG Edwards
American Century Services
American Express
AMG
AON Consulting
AST Trust Company
Banc of America Investment Services
BancOne
Bear Stearns
Benefit Plan Administrators
Bidwell & Company
BNY Clearing
C N A Trust
Charles Schwab
CIBC Oppenheimer
Citigroup Global Markets
CitiStreet Associates LLC
City National Bank
City of Milwaukee
Columbia Trust Company
Commonwealth Financial
Compensation & Capital
CPI Qualified Plan Consultants
Daily Access Concepts
Davenport & Company
Delaware Investments
Digital Retirement Solutions
Discover Brokerage
Dreyfus/Mellon
Edgewood Services
Edward Jones
E-Trade,
ExpertPlan
FAS Liberty Life Spectrum
Ferris Baker Watts
Fidelity
Financial Data Services
Franklin Templeton
Freeman Welwood
Gem Group
Great West Life
Hewitt Associates LLC
Huntington Bank
ING
Intermountain Health Care
Investmart, Inc.
Investment Manager Services (IMS)
Janney Montgomery Scott
JJB Hilliard Lyons
JP Morgan/American Century
Kenney Investments
Kirkpatrick Pettis Smith Polian Inc
Legg Mason Wood Walker
Liberty Life
Lincoln Financial
Lincoln Life
Linsco Private Ledger
M & T Securities
Marquette Trust Company
Mass Mutual Life
Matrix Settlement & Clearance Services (MSCS)
McDonald Investments
Merrill Lynch
MetLife
MFS
Mfund Trax
MidAtlantic Capital
Milliman USA
Morgan Keegan
Morgan Stanley Dean Witter
PFPC
Nationwide Investment Services
Neuberger Berman Mgmt
NFP Securities
NSD -NetStock Sharebuilder
NYLife Distributors
Optimum Investment Advisors
Orbitex
Pershing LLC
Phoenix Home Life
Piper Jaffray
PNC
PPI Employee Benefits
Private Bank & Trust
Prudential
Putnam Investments
Raymond James
RBC Dain Rausher
Robert W Baird
Royal Alliance
RSM McGladrey Inc.
Safeco
Scott & Stringfellow
Scudder Investments
Security Benefit
Segall Bryant Hamill
South Trust Securities
Southwest Securities
Standard Insurance
Stanton Group
State of NY Deferred Compensation Plan
Stephens, Inc.
Stifel Nicolaus & Co
Strong Capital
Sungard T Rowe Price
Trustar Retirement Services
Trustlynx/Datalynx
UBS Financial Services
USAA Investment Management
Vanguard
Wachovia
TD Waterhouse
Webster Investment Services
Wells Fargo
Wilmington Trust
PLEASE CONTACT YOUR FSF OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or eliminated at any time.
AUTOMATIC INVESTMENT PLAN. As a convenience to investors, shares of most Funds advised by the Advisor may be purchased through the Automatic Investment Plan. Electronic fund transfers for a fixed amount of at least $50 ($25 for IRA) are used to purchase a Fund's shares at the public offering price next determined after CMD receives the proceeds. If your Automatic Investment Plan purchase is by electronic funds transfer, you may request the Automatic Investment Plan purchase for any day. Further information and application forms are available from FSFs or from CMD.
AUTOMATED DOLLAR COST AVERAGING (Classes A, B, C, D, T, G and Z). The Automated Dollar Cost Averaging program allows you to exchange $100 or more on a monthly basis from any fund distributed by CMD in which you have a current balance of at least $5,000 into the same class of shares of up to five other Funds. Complete the Automated Dollar Cost Averaging section of the Application. There is no charge for exchanges made pursuant to the Automated Dollar Cost Averaging program. Sales charges may apply if exchanging from a money market fund. Exchanges will continue so long as your fund balance is sufficient to complete the transfers. Your normal rights and privileges as a shareholder remain in full force and effect. Thus you can buy any Fund, exchange between the same Class of shares of Funds by written instruction or by telephone exchange if you have so elected and withdraw amounts from any Fund, subject to the imposition of any applicable CDSC or sales charges.
Any additional payments or exchanges into your Fund will extend the time of the Automated Dollar Cost Averaging program.
An exchange is generally a capital sale transaction for federal income tax purposes.
You may terminate your program, change the amount of the exchange (subject to the $100 minimum), or change your selection of funds, by telephone or in writing; if in writing by mailing your instructions to Columbia Management Services, Inc. (formerly named Columbia Funds Services, Inc.) (CMS) P.O. Box 8081, Boston, MA 02266-8081.
You should consult your FSF or financial advisor to determine whether or not the Automated Dollar Cost Averaging program is appropriate for you.
CMD offers several plans by which an investor may obtain reduced initial or contingent deferred sales charges. These plans may be altered or discontinued at any time. See "Programs For Reducing or Eliminating Sales Charges" below for more information.
CLASS T SHAREHOLDER SERVICES PLAN. The Trustees have approved a Shareholder
Services Plan (the "Services Plan") pursuant to which the Trusts plan to enter
into servicing agreements with institutions (including Bank of America
Corporation and its affiliates). Pursuant to these servicing agreements,
institutions render certain administrative and support services to customers who
are the beneficial owners of Class T shares of each Fund other than the Columbia
Newport Tiger Fund. Such services are provided to the institution's customers
who are the beneficial owners of Class T shares and are intended to supplement
the services provided by the Fund's administrator and transfer agent to the
shareholders of record of the Class T shares. The Services Plan provides that
each Fund will pay fees for such services at an annual rate of up to 0.50% of
the average daily net asset value of Class T shares owned beneficially by the
institution's customers. Institutions may receive up to one-half of this fee for
providing one or more of the following services to such customers: (i)
aggregating and processing purchase and redemption requests and placing net
purchase and redemption orders with CMD; (ii) processing dividend payments from
a Fund; (iii) providing sub-accounting with respect to Class T shares or the
information necessary for sub-accounting; and (iv) providing periodic mailings
to customers. Institutions may also receive up to one-half of this fee for
providing one or more of these additional services to such customers: (i)
providing customers with information as to their positions in Class T shares;
(ii) responding to customer inquiries; and (iii) providing a service to invest
the assets of customers in Class T shares.
The payments under the servicing agreements entered into as of the date of this SAI are limited to an aggregate fee of not more than 0.30% (on an annualized basis) of the average daily net asset value of the Class T shares of equity funds beneficially owned by customers of institutions and 0.15% (on an annualized basis) of the average daily net asset value of the Class T shares of bond funds beneficially owned by customers of institutions. The Funds understand that institutions may charge fees to their customers who are the beneficial owners of Class T shares in connection with their accounts with such institutions. Any such fees would be in addition to any amounts which may be received by an institution under the Services Plan. Under the terms of each servicing agreement, institutions are required to provide to their customers a schedule of any fees that they may charge in connection with customer investments in Class T shares.
Each servicing agreement with an institution ("Service Organization") relating to the Services Plan requires that, with respect to those Funds which declare dividends on a daily basis, the Service Organization agrees to waive a portion of THE servicing fee payable to it under the Services Plan to the extent necessary to ensure that the fees required to be accrued with respect to the Class T shares of such Funds on any day do not exceed the income to be accrued to such Class T shares on that day.
The Class T servicing agreements are governed by the Services Plan approved by the Board of Trustees in connection with the offering of Class T shares of each Fund. Pursuant to the Services Plan, the Board of Trustees reviews, at least quarterly, a written report of the amounts paid under the servicing agreements and the purposes for which the expenditures were made. In addition, the arrangements with Service Organizations must be approved annually by a majority of the Trustees, including a majority of the trustees who are not "interested persons" of the Funds as defined in the 1940 Act and who have no direct or indirect financial interest in such arrangements (the "Disinterested Trustees").
The Board of Trustees has approved the service agreements with Service Organizations based on information provided by the Funds' service contractors that there is a reasonable likelihood that the arrangements will benefit the Funds and their shareholders by affording the Funds greater flexibility in connection with the efficient servicing of the accounts of the beneficial owners of Class T shares of the Funds. Any material amendment to the Funds' arrangements with Service Organizations must be approved by a majority of the Board of Trustees (including a majority of the Disinterested Trustees). So long as the service agreements with Service Organizations are in effect, the selection and nomination of the members of Columbia's Board of Trustees who are not "interested persons" (as defined in the 1940 Act) of the Funds will be committed to the discretion of such Disinterested Trustees.
TAX-SHELTERED RETIREMENT PLANS (Retirement Plans). CMD offers prototype tax-qualified plans, including Pension and Profit-Sharing Plans for individuals, corporations, employees and the self-employed. The minimum initial Retirement Plan investment is $25. Columbia Trust Company (CTC) is the Custodian/Trustee and Plan Sponsor of the Columbia Advisor prototype plans offered through CMD. In general, a $20 annual fee is charged. Detailed information concerning these Retirement Plans and copies of the Retirement Plans are available from CMD.
Participants in Retirement Plans not sponsored by CTC, not including Individual Retirement Accounts (IRAs), may be subject to an annual fee of $20 unless the Retirement Plan maintains an omnibus account with CMS. Participants in CTC sponsored prototype plans (other than IRAs) who liquidate the total value of their account may also be charged a $20 close-out processing fee payable to CMS. The close out fee applies to plans opened after September 1, 1996. The fee is in addition to any applicable CDSC. The fee will not apply if the participant uses the proceeds to open a Columbia Advisor IRA Rollover account in any Fund distributed by CMD, or if the Retirement Plan maintains an omnibus account.
Consultation with a competent financial advisor regarding these Retirement Plans and consideration of the suitability of Fund shares as an investment under the Employee Retirement Income Security Act of 1974 or otherwise is recommended.
TELEPHONE ADDRESS CHANGE SERVICES. By calling CMS, shareholders or their FSF of record may change an address on a recorded telephone line. Confirmations of address change will be sent to both the old and the new addresses. Telephone redemption privileges by check are suspended for 30 days after an address change is effected. Please have your account and taxpayer identification numbers available when calling.
CASH CONNECTION. Dividends and any other distributions, including Systematic Withdrawal Plan (SWP) payments, may be automatically deposited to a shareholder's bank account via electronic funds transfer. Shareholders wishing to avail themselves of this electronic transfer procedure should complete the appropriate sections of the Application.
AUTOMATIC DIVIDEND DIVERSIFICATION. The automatic dividend diversification reinvestment program (ADD) generally allows shareholders to have all distributions from a Fund automatically invested in the same class of shares of another Fund. An ADD account must be in the same name as the shareholder's existing open account with the particular Fund. Call CMS for more information at 1-800-345-6611.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
RIGHTS OF ACCUMULATION (Columbia Class A and Class T shares, Nations Class A shares and Galaxy Retail A shares only) (Class T shares can only be purchased by the shareholders of Columbia Newport Tiger Fund (formerly named Liberty Newport Tiger Fund) who already own Class T shares). Reduced sales charges on Class A and T shares can be effected by combining a current purchase of Class A or Class T shares with prior purchases of other funds and classes distributed by CMD. The applicable sales charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on the previous day of all shares of funds for which CMD serves as distributor (Funds) held by the shareholder.
CMD must be promptly notified of each purchase with respect to which a shareholder is entitled to a reduced sales charge. Such reduced sales charge will be applied upon confirmation of the shareholder's holdings by CMS. A Fund may terminate or amend this Right of Accumulation.
STATEMENT OF INTENT (Class A, Class E and Class T shares only). Any person may qualify for reduced sales charges on purchases of Class A, E and T shares made within a thirteen-month period pursuant to a Statement of Intent ("Statement"). A shareholder may include, as an accumulation credit toward the completion of such Statement, the value of all fund shares held by the shareholder on the date of the Statement in Funds (except shares of any money market fund, unless such shares were acquired by exchange from Class A shares of another non-money market fund)). The value is determined at the public offering price on the date of the Statement. Purchases made through reinvestment of distributions do not count toward satisfaction of the Statement.
During the term of a Statement, CMS will hold shares in escrow to secure payment of the higher sales charge applicable to Class A, E or T shares actually purchased. Dividends and capital gains will be paid on all escrowed shares and these shares will be released when the amount indicated has been purchased. A Statement does not obligate the investor to buy or a Fund to sell the amount of the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which would qualify for a further quantity discount, a retroactive price adjustment will be made at the time of expiration of the Statement (provided the FSF returns to CMD the excess commission previously paid during the thirteen-month period). The resulting difference in offering price will purchase additional shares for the shareholder's account at the applicable offering price.
If the amount of the Statement is not purchased, the shareholder shall remit to CMD an amount equal to the difference between the sales charge paid and the sales charge that should have been paid. If the shareholder fails within twenty days after a written request to pay such difference in sales charge, CMS will redeem escrowed Class A, E or T shares with a value equal to such difference. The additional FSF commission will be remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available from your FSF, or from CMS at 1-800-345-6611.
NET ASSET VALUE ELIGIBILITY GUIDELINES (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, LLC IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS).
1. Employees, brokers and various relationships that are allowed to buy at NAV. Class A shares of certain Funds may be sold at (NAV) to the following individuals, whether currently employed or retired: Employees of Bank of America Corporation (and its predecessors), its affiliates and subsidiaries; Trustees of funds advised or administered by the Advisor; directors, officers and employees of the Advisor, CMD, or its successors and companies affiliated with the Advisor; Registered representatives and employees of Financial Service Firms (including their affiliates) that are parties to dealer agreements or other sales arrangements with CMD; Nations Funds' Trustees, Directors and employees of its investment sub-advisers; Broker/Dealers if purchases are in accordance with the internal policies and procedures of the employing broker/dealer and made for their own investment purposes; employees or partners of any contractual service provider to the funds
NAV eligibility for Class A purchase also applies to the families of the
parties listed above and their beneficial accounts. Family members include:
spouse, parent, stepparent, legal guardian, child, stepchild, father-in-law
and mother-in-law.
Individuals receiving a distribution from a Bank of America trust, fiduciary, custodial or other similar account may use the proceeds of that distribution to buy Class A shares without paying a front-end sales charge, as long as the proceeds are invested in the funds within 90 days of the date of distribution.
Registered broker/dealer firms that have entered into a Nations Funds dealer agreement with BACAP Distributors, LLC may buy Class A shares without paying a front-end sales charge for their investment account only.
Banks, trust companies and thrift institutions, acting as fiduciaries.
2. Grandfathered investors. Any shareholder who owned shares of any fund of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000 (when all of the then outstanding shares of Columbia Acorn Trust were re-designated Class Z shares) and who since that time has remained a shareholder of any Fund, may purchase Class A shares of any Fund at NAV in those cases where a Columbia Fund Class Z share is not available.
Shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at (NAV) will continue to be eligible for NAV purchases into those Nations Fund accounts opened through August 19, 2005.
Galaxy Fund shareholders prior to December 1, 1995; and shareholders who
(i) purchased Galaxy Fund Prime A shares at net asset value and received
Class A shares in exchange for those shares during the Galaxy/Liberty Fund
reorganization; and (ii) continue to maintain the account in which the
Prime A shares were originally purchased.
(For Class T shares only) Shareholders who (i) purchased Galaxy Fund Retail A shares at net asset value and received Class T shares in exchange for those shares during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Retail A shares were originally purchased; and Boston 1784 Fund shareholders on the date that those funds were reorganized into Galaxy Funds.
3. Reinstatement. Subject to the fund policy on trading of fund shares, an investor who has redeemed class A, B, C, D, G or T shares may, upon request, reinstate within 1 year a portion or all of the proceeds of such sales in shares of class A of any fund at the NAV next determined after Columbia Management Services, Inc. received a written reinstatement request and payment.
4. Retirement Plans. Class A, Class E and Class T shares (Class T shares are not currently open to new investors) of certain funds may also be purchased at reduced or no sales charge by clients of dealers, brokers or registered investment advisors that have entered into arrangements with CMD pursuant to which the funds are included as investments options in wrap fee accounts, other managed agency/asset allocation accounts or programs involving fee-based compensation arrangements, and by participants in certain retirement plans.
5. Non-U.S. Investors. Certain pension, profit-sharing or other employee benefit plans offered to non-US investors may be eligible to purchase Class A shares with no sales charge.
6. Reorganizations. At the Fund's discretion, NAV eligibility may apply to shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which the fund is a party.
7. Rights of Accumulation (ROA). The value of eligible accounts, regardless of class, maintained by you and you and your immediate family may be combined with the value of your current purchase to reach a sales discount level and to obtain the lower sales charge for your current purchase.
8. Letters of Intent (LOI). You may pay a lower sales charge when purchasing class A shares by signing a letter of intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the LOI within 13 months. If your LOI purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES (CDSCS) (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, LLC IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS) (Class A, B, C, D, E, matured F, G and T shares) CDSCs may be waived on redemptions in the following situations with the proper documentation:
1. Death. CDSCs may be waived on redemptions following the death of (i) the sole shareholder on an individual account, (ii) a joint tenant where the surviving joint tenant is the deceased's spouse, or (iii) the beneficiary of a Uniform Gifts to Minors Act (UGMA), Uniform Transfers to Minors Act (UTMA) or other custodial account. If, upon the occurrence of one of the foregoing, the account is transferred to an account registered in the name of the deceased's estate, the CDSC will be waived on any redemption from the estate account If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions occurring pursuant to a monthly, quarterly or semi-annual SWP established with CMS, to the extent the redemptions do not exceed, on an annual basis, 12% of the account's value at the time that the SWP is established. Otherwise, CDSCs will be charged on SWP redemptions until this requirement is met. For redemptions in excess of 12% of the account's value at the time that the SWP is established, a CDSC will be charged on the SWP redemption. The 12% limit does not apply if the SWP is set up at the time the account is established, and distributions are being reinvested. See below under "How to Sell Shares - Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions occurring after the sole shareholder on an individual account or a joint tenant on a spousal joint tenant account becomes disabled (as defined in Section 72(m)(7) of the Internal Revenue Code). To be eligible for such waiver, (i) the disability must arise AFTER the purchase of shares (ii) the disabled shareholder must have been under age 65 at the time of the initial determination of disability, and (iii) a letter from a physician must be signed under penalty of perjury stating the nature of the disability. If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring upon
dissolution of a revocable living or grantor trust following the death of
the sole trustee where (i) the grantor of the trust is the sole trustee and
the sole life beneficiary, (ii) death occurs following the purchase AND
(iii) the trust document provides for dissolution of the trust upon the
trustee's death. If the account is transferred to a new registration
(including that of a successor trustee), the applicable CDSC will be
charged upon any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions required to return excess contributions made to retirement plans or individual retirement accounts, so long as the FSF agrees to return the applicable portion of any commission paid by CMD.
6. Qualified Retirement Plans. CDSCs may be waived on CMD shares sold by
employee benefit plans created according to Section 403(b) of the tax code
and sponsored by a non-profit organization qualified under Section 501
(c)(3) of the tax code. To qualify for the waiver, the plan must be a
participant in an alliance program that has signed an agreement with
Columbia Funds or CMD.
7. Trust Share Taxes. CDSCs will be waived on redemptions of Class E and F
shares (i) where the proceeds are used to directly pay trust taxes, and
(ii) where the proceeds are used to pay beneficiaries for the payment of
trust taxes.
8. Return of Commission. CDSCs may be waived on shares sold by intermediaries that are part of the Columbia Funds selling group where the intermediary has entered into an agreement with Columbia Funds not to receive (or to return if received) all or any applicable portion of an upfront commission.
9. Non-U.S. Investors. CDSCs may be waived on shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors.
10. IRS Section 401 and 457. CDSCs may be waived on shares sold by certain
pension, profit-sharing or other employee benefit plans established under
Section 401 or 457 of the tax code.
11. Medical Payments. CDSCs may be waived on shares redeemed for medical payments that exceed 7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least twelve weeks.
12. Plans of Reorganization. At the Funds' discretion, CDSCs may be waived for shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which a fund is a party.
13. Charitable Giving Program. CDSCs may be waived on the sale of Class C or
Class D shares sold by a non-profit organization qualified under Section
501 (c)(3) of the tax code in connection with the Banc of America Capital
Management Charitable Giving Program.
14. The CDSC also may be waived where the FSF agrees to return all or an agreed upon portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may be sold on any day the Exchange is open, either directly to the Fund or through the shareholder's FSF. Sale proceeds generally are sent within seven days (usually on the next business day after your request is received in good form). However, for shares recently purchased by check, the Fund may delay selling or delay sending proceeds from your shares for up to 15 days in order to protect the Fund against financial losses and dilution in net asset value caused by dishonored purchase payment checks.
To sell shares directly to the Fund, send a signed letter of instruction to CMS, along with any certificates for shares to be sold. The sale price is the net asset value (less any applicable contingent deferred sales charge) next calculated after the Fund receives the request in proper form. Signatures must be guaranteed by a bank, a member firm of a national stock exchange or another eligible guarantor that participates in the Medallion Signature Guarantee Program. Stock power forms are available from FSFs, CMS and many banks. Additional documentation may be required for sales by corporations, agents, fiduciaries, surviving joint owners, individual retirement account holders and other legal entities. Call CMS for more information 1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued to receive that day's price, FSF's are responsible for furnishing all necessary documentation to CMS and may charge for this service.
SYSTEMATIC WITHDRAWAL PLAN (SWP). The shareholder may establish a SWP. A specified dollar amount, share amount or percentage of the then current net asset value of the shareholder's investment in any Fund designated by the shareholder will be paid monthly, quarterly or semi-annually to a designated payee. The amount or percentage the shareholder specifies is run against available shares and generally may not, on an annualized basis, exceed 12% of the value, as of the time the shareholder makes the election, of the shareholder's investment. Withdrawalsof shares of the Fund under a SWP will be treated as redemptions of shares purchased through the reinvestment of Fund distributions, or, to the extent such shares in the shareholder's account are insufficient to cover Plan payments, as redemptions from the earliest purchased shares of such Fund in the shareholder's account. No CDSCs apply to a redemption pursuant to a SWP of 12% or less, even if, after giving effect to the redemption, the shareholder's account balance is less than the shareholder's base amount. Qualified plan participants who are required by Internal Revenue Service regulation to withdraw more than 12%, on an annual basis, of the value of their share account may do so but may be subject to a CDSC ranging from 1 % to 5% of the amount withdrawn in excess of 12% annually. If a shareholder wishes to participate in a SWP, the shareholder must elect to have all of the shareholder's income dividends and other Fund distributions payable in shares of the Fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by telephone on a recorded line. However, SWP checks will be payable only to the shareholder and sent to the address of record. SWPs from retirement accounts cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in certificate form. Purchasing additional shares (other than through dividend and distribution reinvestment) while receiving SWP payments is ordinarily disadvantageous because of sales charges. For this reason, a shareholder may not maintain a plan for the accumulation of shares of the Fund (other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or loss for tax purposes, may involve the use of principal and may eventually use up all of the shares in a shareholder's account.
A Fund may terminate a shareholder's SWP if the shareholder's account balance falls below $5,000 due to any transfer or liquidation of shares other than pursuant to the SWP. SWP payments will be terminated on receiving satisfactory evidence of the death or incapacity of a shareholder. Until this evidence is received, CMS will not be liable for any payment made in accordance with the provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate in them is borne by the Fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not be able to participate in a SWP. If a shareholder's Fund shares are held in "street name," the shareholder should consult his or her FSF to determine whether he or she may participate in a SWP. The SWP on accounts held in "street name" must be made payable to the back office via the NSCC.
TELEPHONE REDEMPTIONS. All Fund shareholders and/or their FSFs are automatically
eligible to redeem up to $100,000 of the Fund's shares by calling 1-800-422-3737
toll-free any business day between 9:00 a.m. and the close of trading of the
Exchange (normally 4:00 p.m. Eastern time). Transactions received after 4:00
p.m. Eastern time will receive the next business day's closing price. Telephone
redemptions by check and ACH are limited to a total of $100,000 in a 30-day
period. Redemptions that exceed $100,000 may be accomplished by placing a wire
order trade through a broker, to a pre-existing bank account or furnishing a
signature guaranteed request. Signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another eligible guarantor that
participates in the Medallion Signature Guarantee Program. CMS will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. Telephone redemptions are not available on accounts with an address
change in the preceding 30 days and proceeds and confirmations will only be
mailed or sent to the address of record unless the redemption proceeds are being
sent to a pre-designated bank account. Shareholders and/or their FSFs will be
required to provide their name, address account and taxpayer identification
numbers. FSFs will also be required to provide their broker number. All
telephone transactions are recorded. A loss to a shareholder may result from an
unauthorized transaction reasonably believed to have been authorized. Certain
restrictions apply to retirement plan accounts.
CHECKWRITING (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT
ADVISORS, LLC ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR OF CERTAIN FUNDS)
(Available only on the Class A and Z shares of certain Funds)
Shares may be redeemed by check if a shareholder has previously completed an Application and Signature Card. CMS will provide checks to be drawn on Mellon Trust of New England, N.A. (the "Bank"). These checks may be made payable to the order of any person in the amount of not less than $500 ($250 for money market funds) nor more than $100,000. The shareholder will continue to earn dividends on shares until a check is presented to the Bank for payment. At such time a sufficient number of full and fractional shares will be redeemed at the next determined net asset value to cover the amount of the check. Certificate shares may not be redeemed in this manner.
Shareholders utilizing checkwriting drafts will be subject to the Bank's rules governing checking accounts. There is currently no charge to the shareholder for the use of checks., However, you may incur customary fees for services such as a stop payment request or a request for copies of a check. The shareholder should make sure that there are sufficient shares in his or her open account to cover the amount of any check drawn since the net asset value of shares will fluctuate. If insufficient shares are in the shareholder's open account, the check will be returned marked "insufficient funds" and no shares will be redeemed; the shareholder will be charged a $15 service fee for each check returned. It is not possible to determine in advance the total value of an open account because prior redemptions and possible changes in net asset value may cause the value of an open account to change. Accordingly, a check redemption should not be used to close an open account. In addition, a check redemption, like any other redemption, may give rise to taxable capital gains.
NON-CASH REDEMPTIONS. For redemptions of any single shareholder within any 90-day period exceeding the lesser of $250,000 or 1% of a Fund's net asset value, a Fund may make the payment or a portion of the payment with portfolio securities held by that Fund instead of cash, in which case the redeeming shareholder may incur brokerage and other costs in selling the securities received.
INFORMATION APPLICABLE TO CLASS G AND CLASS T SHARES
The primary difference between Class G and Class T shares lies in their sales charge structures and shareholder servicing/distribution expenses. Investments in Class T shares of the Funds are subject to a front-end sales charge. Investments in Class G shares of the Funds are subject to a back-end sales charge. This back-end sales charge declines over time and is known as a "contingent deferred sales charge." An investor should understand that the purpose and function of the sales charge structures and shareholder servicing/distribution arrangements for both Class G and Class T shares are the same. Class T shares of a bond fund and an equity fund are currently subject to ongoing shareholder servicing fees at an annual rate of up to 0.15% and 0.30%, respectively, of the Fund's average daily net assets attributable to its Class T shares. Class G shares of a bond fund and an equity fund are currently subject to ongoing shareholder servicing and distribution fees at an annual rate of up to 0.80% and 0.95%, respectively, of the Fund's average daily net assets attributable to its Class G shares. These ongoing fees, which are higher than those charged on Class T shares, will cause Class G shares to have a higher expense ratio and pay lower dividends than Class T shares. Class G and Class T shares may only be purchased by current shareholders of Class G and Class T, respectively.
CLASS T SHARES. The public offering price for Class T shares of the Funds is the sum of the net asset value of the Class T shares purchased plus any applicable front-end sales charge as described in the applicable Prospectus. A deferred sales charge of up to 1.00% is assessed on certain redemptions of Class T shares that are purchased with no initial sales charge as part of an investment of $1,000,000 to $25,000,000. A portion of the front-end sales charge may be reallowed to broker-dealers as follows:
REALLOWANCE TO
REALLOWANCE TO DEALERS DEALERS AS A % OF
AS A % OF OFFERING PRICE OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE-BOND FUNDS PER SHARE - EQUITY FUNDS
--------------------- ------------------------ ------------------------
Less than $50,000 4.25 5.00
$50,000 but less than $100,000 3.75 3.75
$100,000 but less than $250,000 2.75 2.75
$250,000 but less than $500,000 2.00 2.00
$500,000 but less than $1,000,000 1.75 1.75
$1,000,000 and over 0.00 0.00
|
The appropriate reallowance to dealers will be paid by CMD to broker-dealer organizations which have entered into agreements with CMD. The reallowance to dealers may be changed from time to time.
Certain affiliates of the Advisor may, at their own expense, provide additional compensation to broker-dealer affiliates of Columbia and to unaffiliated broker-dealers whose customers purchase significant amounts of Class T shares of the Funds. Such compensation will not represent an additional expense to the Funds or their shareholders, since it will be paid from the assets of Bank of America Corporation's affiliates.
INFORMATION APPLICABLE TO CERTAIN CLASS G SHARES RECEIVED BY FORMER GALAXY FUND RETAIL B SHAREHOLDERS IN CONNECTION WITH THE GALAXY/LIBERTY REORGANIZATION. The following table describes the CDSC schedule applicable to Class G shares received by former Galaxy Fund Retail B shareholders in exchange for Retail B Shares purchased prior to January 1, 2001:
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.00
Through second year 4.00
Through third year 3.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Longer than six years None
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Class G shares received in exchange for Galaxy Fund Retail B Shares that were purchased prior to January 1, 2001 will automatically convert to Class T shares seven years after purchase. For purposes of calculating the CDSC, all purchases are considered to be made on the first day of the month in which each purchase was made.
The following table describes the CDSC schedule applicable to Class G shareholders whose Galaxy Asset Allocation Fund and/or International Equity Fund Retail B Shares were acquired in connection with the reorganization of the Pillar Funds:
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.50
Through second year 5.00
Through third year 4.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Through the seventh year None
Longer than seven years None
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If you acquired Retail B Shares in connection with the reorganization of the Pillar Funds, your Class G shares will automatically convert to Class T shares eight years after you purchased the Pillar Fund Class B shares you held prior to the reorganization. For purposes of calculating the CDSC, all purchases are considered to be made on the first day of the month in which each purchase was made.
CLASS G SHARES PURCHASED AFTER THE GALAXY/LIBERTY REORGANIZATION. The public offering price for Class G shares of the Funds is the net asset value of the Class G shares purchased. Although investors pay no front-end sales charge on purchases of Class G shares, such shares are subject to a contingent deferred sales charge at the rates set forth in the applicable Prospectus if they are redeemed within seven years of purchase. Securities dealers, brokers, financial institutions and other industry professionals will receive commissions from CMD in connection with sales of Class G shares. These commissions may be different than the reallowances or placement fees paid to dealers in connection with sales of Class T shares. Certain affiliates of Columbia may, at their own expense, provide additional compensation to broker-dealer affiliates of Columbia and to unaffiliated broker-dealers, whose customers purchase significant amounts of Class G shares of a Fund. See "Class T Shares." The contingent deferred sales charge on Class G shares is based on the lesser of the net asset value of the shares on the redemption date or the original cost of the shares being redeemed. As a result, no sales charge is imposed on any increase in the principal value of an investor's Class G shares. In addition, a contingent deferred sales charge will not be assessed on Class G shares purchased through reinvestment of dividends or capital gains distributions.
The proceeds from the contingent deferred sales charge that an investor may pay upon redemption go to CMD, which may use such amounts to defray the expenses associated with the distribution-related services involved in selling Class G shares. Class G shares of a Fund will convert automatically to Class T shares eight years after purchase. The purpose of the conversion is to relieve a holder of Class G shares of the higher ongoing expenses charged to those shares, after enough time has passed to allow CMD to recover approximately the amount it would have received if the applicable front-end sales charge had been charged. The conversion from Class G shares to Class T shares takes place at net asset value, as a result of which an investor receives dollar-for-dollar the same value of Class T shares as he or she had of Class G shares. The conversion occurs eight years after the beginning of the calendar month in
which the shares are purchased. Upon conversion, the converted shares will be relieved of the distribution and shareholder servicing fees borne by Class G shares, although they will be subject to the shareholder servicing fees borne by Class T shares.
Class G shares acquired through a reinvestment of dividends or distributions are also converted at the earlier of two dates - (i) eight years after the beginning of the calendar month in which the reinvestment occurred or (ii) the date of conversion of the most recently purchased Class G shares that were not acquired through reinvestment of dividends or distributions. For example, if an investor makes a one-time purchase of Class G shares of a Fund, and subsequently acquires additional Class G shares of the Fund only through reinvestment of dividends and/or distributions, all of such investor's Class G shares in the Fund, including those acquired through reinvestment, will convert to Class T shares of the Fund on the same date.
INFORMATION APPLICABLE TO CERTAIN CLASS B SHAREHOLDERS
Except for the following, Class B Share Contingent Deferred Sales Charges ("CDSCs") and conversion schedules are described in the Prospectuses.
The following table describes the CDSC schedule applicable to Class B shares received by Galaxy Quality Plus Bond Fund shareholders in exchange for Prime B Shares in connection with the Galaxy/Liberty reorganization.
SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.00
Through second year 4.00
Through third year 3.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Longer than six years 0.00
|
Automatic conversion to Class A shares occurs eight years after purchase.
The Class B share discount program for purchases of $250,000 or more is not applicable to Class B shares received by Galaxy Fund Prime B shareholders in connection with the reorganization of the Galaxy Fund.
INFORMATION APPLICABLE TO CERTAIN CLASS A SHAREHOLDERS:
Except as set forth in the following paragraph, Class A share CDSCs are described in the Prospectuses:
Class A shares received by former Galaxy High Quality Bond Fund shareholders in exchange for Prime A Shares in connection with the Galaxy/Liberty reorganization of that Fund are subject to a 1% CDSC upon redemption of such Class A shares if the Prime A Shares were purchased without an initial sales charge in accounts aggregating $1 million or more at the time of purchase and the Class A shares are sold within 12 months of the time of purchase of the Prime A Shares. The 12-month holding period begins on the first day of the month in which each purchase was made.
DISTRIBUTIONS
Distributions are invested in additional shares of the same Class of the Fund at net asset value unless the shareholder elects to receive cash. Regardless of the shareholder's election, distributions of $10 or less will not be paid in cash, but will be invested in additional shares of the same class of the Fund at net asset value. Undelivered distribution checks returned by the post office will be reinvested in your account. If a shareholder has elected to receive dividends and/or capital gain distributions in cash and the postal or other delivery service selected by the Transfer Agent is unable to deliver checks to the shareholder's address of record, such shareholder's distribution option will automatically be converted to having all dividend and other distributions reinvested in additional shares. No interest will accrue on amounts represented by uncashed distribution or redemption checks. Shareholders may reinvest all or a portion of a recent cash distribution without a sales charge. No charge is currently made for reinvestment.
Shares of some Funds that pay daily dividends (include Funds) will normally earn dividends starting with the date the Fund receives payment for the shares and will continue through the day before the shares are redeemed, transferred or exchanged. Shares of some Funds that pay daily dividends (exclude Funds) Columbia will be earned starting with the day after that Fund receives payments for the shares. To determine whether a particular Fund is an include or exclude fund, customers can call 1-800-345-6611.
HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for the same class of shares of the other continuously offered funds (with certain exceptions) on the basis of the NAVs per share at the time of exchange. Class T and Z shares may be exchanged for Class A shares of certain other funds. The prospectus of each Fund describes its investment goal and policies, and shareholders should obtain a prospectus and consider these goals and policies carefully before requesting an exchange Consult CMS before requesting an exchange.
If you acquire Class A shares of an international fund by exchange from any other fund, you will not be permitted to exchange those shares into another fund for 30 calendar days, although you may redeem those shares at any time. An exchange order received prior to the expiration of the 30-day period will not be honored.
By calling CMS, shareholders or their FSF of record may exchange among accounts with identical registrations, provided that the shares are held on deposit. During periods of unusual market changes or shareholder activity, shareholders may experience delays in contacting CMS by telephone to exercise the telephone exchange privilege. Because an exchange involves a redemption and reinvestment in another fund, completion of an exchange may be delayed under unusual circumstances, such as if the Fund suspends repurchases or postpones payment for the Fund shares being exchanged in accordance with federal securities law. CMS will also make exchanges upon receipt of a written exchange request and share certificates, if any. If the shareholder is a corporation, partnership, agent, or surviving joint owner, CMS may require customary additional documentation. Prospectuses of the other Funds are available from the CMD Literature Department by calling 1-800-426-3750.
A loss to a shareholder may result from an unauthorized transaction reasonably believed to have been authorized. No shareholder is obligated to use the telephone to execute transactions.
Consult your FSF or CMS. In all cases, the shares to be exchanged must be registered on the records of the Fund in the name of the shareholder desiring to exchange.
Shareholders of the other open-end funds generally may exchange their shares at NAV for the same class of shares of the Fund. Sales charges may apply for exchanges from money market funds.
An exchange is generally a capital sale transaction for federal income tax purposes. The exchange privilege may be revised, suspended or terminated at any time.
SUSPENSION OF REDEMPTIONS
A Fund may not suspend shareholders' right of redemption or postpone payment for more than seven days unless the Exchange is closed for other than customary weekends or holidays, or if permitted by the rules of the SEC during periods when trading on the Exchange is restricted or during any emergency which makes it impracticable for the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by order of the SEC for the protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Declaration disclaims shareholder liability for acts or obligations of the Fund and the Trust and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by the Fund or the Trust's Trustees. The Declaration provides for indemnification out of Fund property for all loss and expense of any shareholder held personally liable for the obligations of the Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances (which are considered remote) in which the Fund would be unable to meet its obligations and the disclaimer was inoperative.
The risk of a particular fund incurring financial loss on account of another fund of the Trust is also believed to be remote, because it would be limited to circumstances in which the disclaimer was inoperative and the other fund was unable to meet its obligations.
SHAREHOLDER MEETINGS
The Trust is not required to hold annual shareholder meetings, but special meetings may be called for certain purposes. The Trust has voluntarily undertaken to hold a shareholder meeting at which the Board of Trustees would be elected at least every five years beginning in 2005. Each whole share (or fractional share) outstanding on the record date established in accordance with the Trust's By-Laws shall be entitled to a number of votes on any matter on which it is entitled to vote equal to the net asset value of the shares (or fractional share) in United States dollars determined at the close of business on the record date (for example, a share having a net asset value of $10.50 would be entitled to 10.5 votes).
The Trustees may fill any vacancies in the Board of Trustees except that the Trustees may not fill a vacancy if, immediately after filling such vacancy, less than two-thirds of the Trustees then in office would have been elected to such office by the shareholders. In addition, at such times as less than a majority of the Trustees then in office have been elected to such office by the shareholders, the Trustees must call a meeting of shareholders. Trustees may be removed from office by a written consent signed by a majority of the outstanding shares of the Trust or by a vote of the holders of a majority of the outstanding shares at a meeting duly called for the purpose. Except as otherwise disclosed in the Prospectus and this SAI, the Trustees shall continue to hold office and may appoint their successors.
At any shareholders' meetings that may be held, shareholders of all series would vote together, irrespective of series, on the election of Trustees, but each series would vote separately from the others on other matters, such as changes in the investment policies of that series or the approval of the management agreement for that series. Shares of each Fund and any other series of the Trust that may be in existence from time to time generally vote together except when required by law to vote separately by fund or by class.
APPENDIX I
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S (S&P)
The following descriptions are applicable to municipal bond funds:
AAA bonds have the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.
AA bonds have a very strong capacity to pay interest and repay principal, and they differ from AAA only in small degree.
A bonds have a strong capacity to pay interest and repay principal, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.
BBB bonds are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than for bonds in the A category.
BB, B, CCC, CC and C bonds are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or large exposures to adverse conditions.
BB bonds have less near-term vulnerability to default than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating.
B bonds have a greater vulnerability to default but currently have the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating.
CCC bonds have a currently identifiable vulnerability to default, and are dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, the bonds are not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating.
CC rating typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating.
C rating typically is applied to debt subordinated to senior debt which assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued.
CI rating is reserved for income bonds on which no interest is being paid.
D bonds are in payment default. The D rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized.
Plus(+) or minus(-) ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
PROVISIONAL RATINGS. The letter "p" indicates that the rating is provisional. A provisional rating assumes the successful completion of the project being financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely completion of the project. This rating, however, although addressing credit quality subsequent to completion of the project, makes no comments on the likelihood of, or the risk of default upon failure of, such completion. The investor should exercise his own judgment with respect to such likelihood and risk.
MUNICIPAL NOTES:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating. Notes maturing beyond three years normally receive a bond rating, although the following criteria are used in making that assessment:
Amortization schedule (the larger the final maturity relative to other maturities, the more likely the issue will be rated as a note).
Source of payment (the more dependent the issue is on the market for its refinancing, the more likely it will be rated as a note).
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a demand feature. The first rating addresses the likelihood of repayment of principal and interest as due, and the second rating addresses only the demand feature. The long-term debt rating symbols are used for bonds to denote the long-term maturity, and the commercial paper rating symbols are usually used to denote the put (demand) option (for example, AAA/A-1+). Normally, demand notes receive note rating symbols combined with commercial paper symbols (for example, SP-1+/A-1+).
COMMERCIAL PAPER:
A. Issues assigned this highest rating are regarded as having the greatest capacity for timely payment. Issues in this category are further refined with the designations 1, 2, and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are designed A-1+.
CORPORATE BONDS:
The description of the applicable rating symbols and their meanings is substantially the same as the Municipal Bond ratings set forth above.
The following descriptions are applicable to equity and taxable bond funds:
AAA bonds have the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.
AA bonds differ from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.
A bonds are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.
BBB bonds exhibit adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
BB, B, CCC and CC bonds are regarded, as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB bonds are less vulnerable to non-payment than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
B bonds are more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.
CCC bonds are currently vulnerable to nonpayment, and are dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC bonds are currently highly vulnerable to nonpayment.
C ratings may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on the obligation are being continued.
D bonds are in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
R This symbol is attached to the rating of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk, such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
AAA bonds are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge". Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While various protective elements are likely to change, such changes as can be visualized are most unlikely to impair a fundamentally strong position of such issues.
AA bonds are judged to be of high quality by all standards. Together with Aaa bonds they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.
Those bonds in the Aa through B groups that Moody's believes possess the strongest investment attributes are designated by the symbol Aa1, A1 and Baa1.
A bonds possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment sometime in the future.
BAA bonds are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact, have speculative characteristics as well.
BA bonds are judged to have speculative elements: their future cannot be considered as well secured. Often, the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B bonds generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
CAA bonds are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
Ca bonds represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C bonds are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
CONDITIONAL RATINGS. Bonds for which the security depends upon the completion of some act or the fulfillment of some condition are rated conditionally. These are bonds secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in operating experience, (c) rentals which begin when facilities are completed, or (d) payments to which some other limiting conditions attach. Parenthetical rating denotes probable credit stature upon completion of construction or elimination of basis of condition.
MUNICIPAL NOTES:
MIG1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are accounted for, but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
Moody's may assign a separate rating to the demand feature of a variable rate demand security. Such a rating may include:
VMIG 1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are accounted for, but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
COMMERCIAL PAPER:
Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper obligations are supported by the credit of another entity or entities, Moody's, in assigning ratings to such issuers, evaluates the financial strength of the indicated affiliated corporations, commercial banks, insurance companies, foreign governments, or other entities, but only as one factor in the total rating assessment.
CORPORATE BONDS:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings is identical to that of the Municipal Bond ratings as set forth above, except for the numerical modifiers. Moody's applies numerical modifiers 1,2, and 3 in the Aa and A classifications of its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a midrange ranking; and the modifier 3 indicates that the issuer ranks in the lower end of its generic rating category.
FITCH INC.
INVESTMENT GRADE BOND RATINGS
AAA bonds are considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and/or dividends and repay principal, which is unlikely to be affected by reasonably foreseeable events.
AA bonds are considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated 'AAA'. Because bonds rated in the 'AAA' and 'AA' categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated 'F-1+'.
A bonds are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than debt securities with higher ratings.
BBB bonds are considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest or dividends and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these securities and, therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for securities with higher ratings.
CONDITIONAL
A conditional rating is premised on the successful completion of a project or the occurrence of a specific event.
SPECULATIVE-GRADE BOND RATINGS
BB bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified, which could assist the obligor in satisfying its debt service requirements.
B bonds are considered highly speculative. While securities in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue.
CCC bonds have certain identifiable characteristics that, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment.
CC bonds are minimally protected. Default in payment of interest and/or principal seems probable over time.
C bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D bonds are in default on interest and/or principal payments. Such securities are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. 'DDD' represents the highest potential for recovery on these securities, and 'D' represents the lowest potential for recovery.
APPENDIX II
COLUMBIA MANAGEMENT ADVISORS, LLC ("CMA")
PROXY VOTING POLICIES AND PROCEDURES
ADOPTED JULY 1, 2003 AND REVISED MARCH 4, 2005
POLICY:
All proxies(1) regarding client securities for which Columbia Management Advisors, LLC ("CMA") has assumed authority to vote shall, unless CMA determines in accordance with policies stated below to abstain from voting, be voted in a manner considered by CMA to be in the best interest of CMA's clients, including the CMG Family Funds(2) and their shareholders, without regard to any resulting benefit or detriment to CMA or its affiliates. The best interest of clients is defined for this purpose as the interest of enhancing or protecting the economic value of client accounts, considered as a group rather than individually, as CMA determines in its sole and absolute discretion. In the event a client believes that its other interests require a different vote, CMA shall vote as the client clearly instructs, provided CMA receives such instructions in time to act accordingly.
CMA endeavors to vote, in accordance with this Policy, all proxies of which it becomes aware, subject to the following exceptions (unless otherwise agreed) when CMA expects to routinely abstain from voting:
1. Proxies will usually not be voted in cases where the security has been loaned from the Client's account.
2. Proxies will usually not be voted in cases where CMA deems the costs to the Client and/or the administrative inconvenience of voting the security (e.g., some foreign securities) outweigh the benefit of doing so.
CMA seeks to avoid the occurrence of actual or apparent material conflicts of interest in the proxy voting process by voting in accordance with predetermined voting guidelines, as stated below. For those proxy proposals that require special consideration or in instances where special circumstances may require varying from the predetermined guidelines, the CMG Proxy Committee will determine the best interest of CMA's clients and vote accordingly, without consideration of any resulting benefit or detriment to CMA or its affiliates.
OVERVIEW:
CMA's policy is based upon its fiduciary obligation to act in its clients' best interest. Citing this obligation, the SEC has adopted rules pursuant to the Investment Advisers Act of 1940 and Investment Company Act of 1940 with respect to proxy voting.
PROCEDURE:
I. ACCOUNT POLICIES
Except as otherwise directed by the client, CMA shall vote as follows:
SEPARATELY MANAGED ACCOUNTS
CMA shall vote proxies on securities held in its separately managed accounts.
COLUMBIA TRUST COMPANY (CTC) TRUST POOLS
CMA shall vote proxies on securities held in the trust pools.
CMG FAMILY FUNDS/CMA FUND TRUST
CMA shall vote proxies on securities held in the Funds, including multi-managed and subadvised Funds.
COLUMBIA PRIVATE PORTFOLIO
CMA shall vote proxies on securities held in its separately managed accounts.
ALTERNATIVE INVESTMENT GROUP
CMA's clients may invest in securities ("Alternative Investments") issued by alternative investment vehicles (i.e. hedge funds, private equity funds, and other alternative investment pools) that are structured as private limited partnerships ("LPs"), limited liability companies ("LLCs") or offshore corporations. Generally, CMA's Alternative Investment Group ("AIG") is the platform through which CMA provides advisory services relating to Alternative Investments.
(2) A CMG Family Fund or a Fund is a registered investment company or series of a registered investment company managed or advised by Columbia Management Advisors, LLC
The voting rights of Alternative Investments generally are rights of contract set forth in the limited liability company or limited partnership agreement, in the case of LLCs and LPs, or Memorandum and Articles of Association or By-laws, in the case of offshore corporations. Also, as privately placed securities, Alternative Investments generally are not subject to the regulatory scheme applicable to public companies. Consequently, in most cases, proxies are not solicited regarding Alternative Investment vehicles. Instead, consents may be solicited from members, limited partners or shareholders.
Because of the unique characteristics of Alternative Investments, CMA has a tailored process for voting Alternative Investment proxies and consents.
Process
AIG will vote all Alternative Investment proxies and consents in accordance with this Policy. The committee voting AIG proxies consists of AIG senior management, investment and operations professionals. Conflicts of interest are to be monitored and resolved as set forth in this Policy.
II. PROXY COMMITTEE
CMA shall establish a Proxy Committee whose standing members shall include the head of core equity, head of value, head of growth, head of income strategies, head of equity research and head of fixed income research. Each standing member may designate a senior portfolio manager or a senior analyst officer to act as a substitute in a given matter on their behalf.
The Proxy Committee's functions shall include, in part,
(a) direction of the vote on proposals where there has been a recommendation to the Committee, pursuant to Section IV.B, not to vote according to the predetermined Voting Guidelines stated in Section IV.A or on proposals which require special, individual consideration in accordance with Section IV.C;
(b) review at least annually of this Proxy Voting Policy and Procedure to ensure consistency with internal policies, client disclosures and regulatory requirements;
(c) review at least annually of existing Voting Guidelines and need for development of additional Voting Guidelines to assist in the review of proxy proposals; and
(d) development and modification of Voting Procedures, as stated in Section V, as it deems appropriate or necessary.
The Proxy Committee shall establish a charter, which shall set forth the Committee's purpose, membership and operation. The Committee's charter shall be consistent, in all material respects, with this policy and procedure.
III. CONFLICTS OF INTEREST
With Other Bank of America Businesses
Bank of America Corporation ("BAC"), the ultimate corporate parent of CMA, Bank of America, N.A. and all of their numerous affiliates owns, operates and has interests in many lines of business that may create or give rise to the appearance of a conflict of interest between BAC or its affiliates and those of Firm-advised clients. For example, the commercial and investment banking business lines may have interests with respect to issuers of voting securities that could appear to or even actually conflict with CMA's duty, in the proxy voting process, to act in the best economic interest of its clients.
Within CMA
Conflicts of interest may also arise from the business activities of CMA. For example, CMA might manage (or be seeking to manage) the assets of a benefit plan for an issuer. CMA may also be presented with an actual or apparent conflict of interest where proxies of securities issued by BAC or a CMG Family Fund, for which CMA serves as investment adviser, are to be voted for a client's account.
Management of Conflicts
CMA's policy is to always vote proxies in the best interest of its clients, as a whole, without regard to its own self-interest or that of its affiliates. BAC as well as CMA has various compliance policies and procedures in place in order to address any material conflicts of interest that might arise in this context.
1. BAC's enterprise-wide Code of Ethics specifically prohibits the flow of certain business-related information between associates on the commercial and/or investment banking side of the corporation and associates charged with trust or (as in the case of BACAP associates) non-trust fiduciary responsibilities, including investment decision-making and proxy voting.
2. In addition, BAC has adopted "Global Policies and Procedures Regarding Information Walls and Inside Information." Pursuant to these policies and procedures, "information barriers" have been established between various BAC business lines designed to prohibit the passage of certain information across those barriers.
3. Within CMA, CMA's Code of Ethics affirmatively requires that associates of CMA act in a manner whereby no actual or apparent conflict of interest may be seen as arising between the associate's interests and those of CMA's Clients.
4. By assuming his or her responsibilities pursuant to this Policy, each member of the Proxy Committee and any CMA or BAC associate advising or acting under the supervision or oversight of the Proxy Committee undertakes:
- To disclose to the chairperson of the Proxy Committee and the chairperson to the head of CMG Compliance any actual or apparent personal material conflicts of interest which he or she may have (e.g., by way of substantial ownership of securities, relationships with nominees for directorship, members of an issuer's or dissident's management or otherwise) in determining whether or how CMA shall vote proxies. In the event the chairperson of the Proxy Committee has a conflict of interest regarding a given matter, he or she shall abstain from participating in the Committee's determination of whether and/or how to vote in the matter; and
- To refrain from taking into consideration, in the decision as to whether or how CMA shall vote proxies:
- The existence of any current or prospective material business relationship between CMA, BAC or any of their affiliates, on one hand, and any party (or its affiliates) that is soliciting or is otherwise interested in the proxies to be voted, on the other hand; and/or
- Any direct, indirect or perceived influence or attempt to influence such action which the member or associate views as being inconsistent with the purpose or provisions of this Policy or the Code of Ethics of CMA or BAC.
Where a material conflict of interest is determined to have arisen in the proxy voting process that may not be adequately mitigated by voting in accordance with the predetermined Voting Guidelines, CMA's policy is to invoke one or more of the following conflict management procedures:
1. Convene the Proxy Committee for the purpose of voting the affected proxies in a manner that is free of the conflict.
2. Causing the proxies to be voted in accordance with the recommendations of a qualified, independent third party, which may include CMA's proxy voting agent.
3. In unusual cases, with the Client's consent and upon ample notice, forwarding the proxies to CMA's clients so that they may vote the proxies directly.
IV. VOTING GUIDELINES
A. THE PROXY COMMITTEE HAS ADOPTED THE FOLLOWING GUIDELINES FOR VOTING PROXIES:
1. Matters Relating to the Board of Directors/Corporate Governance
CMA generally will vote FOR:
- Proposals for the election of directors or for an increase or decrease in the number of directors, provided that no more than one-third of the Board of Directors would, presently or at any time during the previous three-year period, be from management.
However, CMA generally will WITHHOLD votes from pertinent director nominees if:
(i) the board as proposed to be constituted would have more than one-third of its members from management;
(ii) the board does not have audit, nominating, and compensation committees composed solely of directors who qualify as being regarded as "independent," i.e. having no material relationship, directly or indirectly, with the Company, as CMA's proxy voting agent may determine (subject to the Proxy Committee's contrary determination of independence or non-independence);
(iii) the nominee, as a member of the audit committee, permitted the company to incur excessive non-audit fees (as defined below regarding other business matters -- ratification of the appointment of auditors);
(iv) a director serves on more than six public company boards;
(v) the CEO serves on more than two public company boards other than the company's board.
On a CASE-BY-CASE basis, CMA may WITHHOLD votes for a director nominee who has failed to observe good corporate governance practices or, through specific corporate action or inaction (e.g. failing to implement policies for which a majority of shareholders has previously cast votes in favor), has demonstrated a disregard for the interests of shareholders.
- Proposals requesting that the board audit, compensation and/or nominating committee be composed solely of independent directors. The Audit Committee must satisfy the independence and experience requirements established by the Securities and Exchange Commission ("SEC") and the New York Stock Exchange, or appropriate local requirements for foreign securities. At least one member of the Audit Committee must qualify as a "financial expert" in accordance with SEC rules.
- Proposals to declassify a board, absent special circumstances that would indicate that shareholder interests are better served by a classified board structure.
CMA generally will vote FOR:
- Proposals to create or eliminate positions or titles for senior management. CMA generally prefers that the role of Chairman of the Board and CEO be held by different persons unless there are compelling reasons to vote AGAINST a proposal to separate these positions, such as the existence of a counter-balancing governance structure that includes at least the following elements in addition to applicable listing standards:
- Established governance standards and guidelines.
- Full board composed of not less than two-thirds "independent" directors, as defined by applicable regulatory and listing standards.
- Compensation, as well as audit and nominating (or corporate governance) committees composed entirely of independent directors.
- A designated or rotating presiding independent director appointed by and from the independent directors with the authority and responsibility to call and preside at regularly and, as necessary, specially scheduled meetings of the independent directors to be conducted, unless the participating independent directors otherwise wish, in executive session with no members of management present.
- Disclosed processes for communicating with any individual director, the presiding independent director (or, alternatively, all of the independent directors, as a group) and the entire board of directors, as a group.
- The pertinent class of the Company's voting securities has out-performed, on a three-year basis, both an appropriate peer group and benchmark index, as indicated in the performance summary table of the Company's proxy materials. This requirement shall not apply if there has been a change in the Chairman/CEO position within the three-year period.
- Proposals that grant or restore shareholder ability to remove directors with or without cause.
- Proposals to permit shareholders to elect directors to fill board vacancies.
- Proposals that encourage directors to own a minimum amount of company stock.
- Proposals to provide or to restore shareholder appraisal rights.
- Proposals to adopt cumulative voting.
- Proposals for the company to adopt confidential voting.
CMA generally will vote AGAINST:
- Proposals to classify boards, absent special circumstances indicating that shareholder interests would be better served by a classified board structure.
- Proposals that give management the ability to alter the size of the board without shareholder approval.
- Proposals that provide directors may be removed only by supermajority vote.
- Proposals to eliminate cumulative voting.
- Proposals which allow more than one vote per share in the election of directors.
- Proposals that provide that only continuing directors may elect replacements to fill board vacancies.
- Proposals that mandate a minimum amount of company stock that directors must own.
- Proposals to limit the tenure of non-management directors.
CMA will vote on a CASE-BY-CASE basis in contested elections of directors.
CMA generally will vote on a CASE-BY-CASE basis on board approved proposals relating to corporate governance. Such proposals include, but are not limited to:
- Director and officer indemnification and liability protection. CMA is opposed to entirely eliminating directors' and officers' liability for monetary damages for violating the duty of care. CMA is also opposed to expanding coverage beyond just legal expenses to acts, such as negligence, that are more serious violations of fiduciary obligation than mere carelessness. CMA supports proposals which provide such expanded coverage in cases when a director's or officer's legal defense was unsuccessful if: (i) the director was found to have acted in good faith and in a manner that he/she reasonably believed was in the best interests of the company, AND (ii) if the director's legal expenses would be covered.
- Reimbursement of proxy solicitation expenses taking into consideration whether or not CMA was in favor of the dissidents.
- Proxy contest advance notice. CMA generally will vote FOR proposals that allow shareholders to submit proposals as close to the meeting date as possible while allowing for sufficient time for Company response, SEC review, and analysis by other shareholders.
2. Compensation
CMA generally will vote FOR management sponsored compensation plans (such as bonus plans, incentive plans, stock option plans, pension and retirement benefits, stock purchase plans or thrift plans) if they are consistent with industry and country standards. However, CMA generally is opposed to compensation plans that substantially dilute ownership interest in a company, provide participants with excessive awards, or have objectionable structural features. Specifically, for equity-based plans, if the proposed number of shares authorized for option programs (excluding authorized shares for expired options) exceeds an average of 10% of the currently outstanding shares over the previous three years or an average of 3% over the previous three years for directors only, the proposal should be referred to the Proxy Committee. The Committee will then consider the circumstances surrounding the issue and vote in the best interest of CMA's clients. CMA requires that management provide substantial justification for the repricing of options.
CMA generally will vote FOR:
- Proposals requiring that executive severance arrangements be submitted for shareholder ratification.
- Proposals asking a company to expense stock options.
- Proposals to put option repricings to a shareholder vote.
- Employee stock purchase plans that have the following features: (i) the shares purchased under the plan are acquired for no less than 85% of their market value, (ii) the offering period under the plan is 27 months or less, and (iii) dilution is 10% or less.
CMA generally will vote AGAINST:
- Stock option plans that permit issuance of options with an exercise price below the stock's current market price, or that permit replacing or repricing of out-of-the money options.
- Proposals to authorize the replacement or repricing of out-of-the money options.
CMA will vote on a CASE-BY-CASE basis proposals regarding approval of specific executive severance arrangements.
3. Capitalization
CMA generally will vote FOR:
- Proposals to increase the authorized shares for stock dividends, stock splits (and reverse stock splits) or general issuance, unless proposed as an anti-takeover measure or a general issuance proposal increases the authorization by more than 30% without a clear need presented by the company. Proposals for reverse stock splits should include an overall reduction in authorization.
For companies recognizing preemptive rights for existing shareholders, CMA generally will vote FOR general issuance proposals that increase the authorized shares by more than 30%. CMA will vote on a CASE-BY-CASE basis all such proposals by companies that do not recognize preemptive rights for existing shareholders.
- Proposals for the elimination of authorized but unissued shares or retirement of those shares purchased for sinking fund or treasury stock.
- Proposals to institute/renew open market share repurchase plans in which all shareholders may participate on equal terms.
- Proposals to reduce or change the par value of common stock, provided the number of shares is also changed in order to keep the capital unchanged.
4. Mergers, Restructurings and Other Transactions
CMA will review, on a CASE-BY-CASE basis, business transactions such as mergers, acquisitions, reorganizations, liquidations, spinoffs, buyouts and sale of all or substantially all of a company's assets.
5. Anti-Takeover Measures
CMA generally will vote AGAINST proposals intended largely to avoid acquisition prior to the occurrence of an actual event or to discourage acquisition by creating a cost constraint. With respect to the following measures, CMA generally will vote as follows:
Poison Pills
- CMA votes FOR shareholder proposals that ask a company to submit its poison pill for shareholder ratification.
- CMA generally votes FOR shareholder proposals to eliminate a poison pill.
- CMA generally votes AGAINST management proposals to ratify a poison pill.
Greenmail
- CMA will vote FOR proposals to adopt anti-greenmail charter or bylaw amendments or to otherwise restrict a company's ability to make greenmail payments.
Supermajority vote
- CMA will vote AGAINST board-approved proposals to adopt anti-takeover measures such as supermajority voting provisions, issuance of blank check preferred stock, the creation of a separate class of stock with disparate voting rights and charter amendments adopting control share acquisition provisions.
Control Share Acquisition Provisions
- CMA will vote FOR proposals to opt out of control share acquisition statutes.
6. Other Business Matters
CMA generally will vote FOR:
- Proposals to approve routine business matters such as changing the company's name and procedural matters relating to the shareholder meeting such as approving the minutes of a prior meeting.
- Proposals to ratify the appointment of auditors, unless any of the following apply in which case CMA will generally vote AGAINST the proposal:
- Credible reason exists to question:
- The auditor's independence, as determined by applicable regulatory requirements.
- The accuracy or reliability of the auditor's opinion as to the company's financial position.
- Fees paid to the auditor or its affiliates for "non-audit" services were excessive, i.e., in excess of the total fees paid for "audit," "audit-related" and "tax compliance" and/or "tax return preparation" services, as disclosed in the company's proxy materials.
- Bylaw or charter changes that are of a housekeeping nature (e.g., updates or corrections).
- Proposals to approve the annual reports and accounts provided the certifications required by the Sarbanes Oxley Act of 2002 have been provided.
CMA generally will vote AGAINST:
- Proposals to eliminate the right of shareholders to act by written consent or call special meetings.
- Proposals providing management with authority to adjourn an annual or special shareholder meeting absent compelling reasons, or to adopt, amend or repeal bylaws without shareholder approval, or to vote unmarked proxies in favor of management.
- Shareholder proposals to change the date, time or location of the company's annual meeting of shareholders.
CMA will vote AGAINST:
- Authorization to transact other unidentified substantive (as opposed to procedural) business at a meeting.
CMA will vote on a CASE-BY-CASE basis:
- Proposals to change the location of the company's state of incorporation. CMA considers whether financial benefits (e.g., reduced fees or taxes) likely to accrue to the company as a result of a reincorporation or other change of domicile outweigh any accompanying material diminution of shareholder rights.
- Proposals on whether and how to vote on "bundled" or otherwise conditioned proposals, depending on the overall economic effects upon shareholders.
CMA generally will ABSTAIN from voting on shareholder proposals predominantly involving social, socio-economic, environmental, political or other similar matters on the basis that their impact on share value can rarely be anticipated with any high degree of confidence. CMA may, on a CASE-BY-CASE basis, vote:
- FOR proposals seeking inquiry and reporting with respect to, rather than cessation or affirmative implementation of, specific policies where the pertinent issue warrants separate communication to shareholders; and
- FOR or AGAINST the latter sort of proposal in light of the relative benefits and detriments (e.g. distraction, costs, other burdens) to share value which may be expected to flow from passage of the proposal.
7. Other Matters Relating to Foreign Issues
CMA generally will vote FOR:
- Most stock (scrip) dividend proposals. CMA votes AGAINST proposals that do not allow for a cash option unless management demonstrates that the cash option is harmful to shareholder value.
- Proposals to capitalize the company's reserves for bonus issues of shares or to increase the par value of shares.
- Proposals to approve control and profit transfer agreements between a parent and its subsidiaries.
- Management proposals seeking the discharge of management and supervisory board members, unless there is concern about the past actions of the company's auditors/directors and/or legal action is being taken against the board by other shareholders.
- Management proposals concerning allocation of income and the distribution of dividends, unless the dividend payout ratio has been consistently below 30 percent without adequate explanation or the payout is excessive given the company's financial position.
- Proposals for the adoption of financing plans if they are in the best economic interests of shareholders.
8. Investment Company Matters
ELECTION OF DIRECTORS:
CMA will vote on a CASE-BY-CASE basis proposals for the election of directors, considering the following factors:
- Board structure
- Attendance at board and committee meetings.
CMA will WITHHOLD votes from directors who:
- Attend less than 75 percent of the board and committee meetings without a valid excuse for the absences. Valid reasons include illness or absence due to company business. Participation via telephone is acceptable. In addition, if the director missed only one meeting or one day's meetings, votes should not be withheld even if such absence dropped the director's attendance below 75 percent.
- Ignore a shareholder proposal that is approved by a majority of shares outstanding;
- Ignore a shareholder proposal this is approved by a majority of the votes cast for two consecutive years;
- Are interested directors and sit on the audit or nominating committee; or
- Are interested directors and the full board serves as the audit or nominating committee or the company does not have one of these committees.
Proxy Contests:
CMA will vote on a CASE-BY-CASE basis proposals for proxy contests, considering the following factors:
- Past performance relative to its peers
- Market in which fund invests
- Measures taken by the board to address the pertinent issues (e.g., closed-end fund share market value discount to NAV)
- Past shareholder activism, board activity and votes on related proposals
- Strategy of the incumbents versus the dissidents
- Independence of incumbent directors; director nominees
- Experience and skills of director nominees
- Governance profile of the company
- Evidence of management entrenchment
CONVERTING CLOSED-END FUND TO OPEN-END FUND:
CMA will vote conversion proposals on a CASE-BY-CASE basis, considering the following factors:
- Past performance as a closed-end fund
- Market in which the fund invests
- Measures taken by the board to address the discount
- Past shareholder activism, board activity, and votes on related proposals.
INVESTMENT ADVISORY AGREEMENTS:
CMA will vote investment advisory agreements on a CASE-BY-CASE basis, considering the following factors:
- Proposed and current fee schedules
- Fund category/investment objective
- Performance benchmarks
- Share price performance as compared with peers
- Resulting fees relative to peers
- Assignments (where the adviser undergoes a change of control)
APPROVING NEW CLASSES OR SERIES OF SHARES:
CMA will vote FOR the establishment of new classes or series of shares.
PREFERRED STOCK PROPOSALS:
CMA will vote on a CASE-BY-CASE basis proposals for the authorization for or increase in the preferred shares, considering the following factors:
- Stated specific financing purpose
- Possible dilution for common shares
- Whether the shares can be used for antitakover purposes
POLICIES ADDRESSED BY THE INVESTMENT COMPANY ACT OF 1940 ("1940 ACT"):
CMA will vote proposals regarding adoption or changes of policies addressed by the 1940 Act on a CASE-BY-CASE basis, considering the following factors:
- Potential competitiveness
- Regulatory developments
- Current and potential returns
- Current and potential risk
CMA generally will vote FOR these amendments as long as the proposed changes do not fundamentally alter the investment focus of the fund and do comply with current SEC interpretations.
CHANGING A FUNDAMENTAL RESTRICTION TO A NON-FUNDAMENTAL RESTRICTION:
CMA will vote on a CASE-BY-CASE basis proposals to change a fundamental restriction to a nonfundamental restriction, considering the following factors:
- Fund's target investments
- Reasons given by the fund for the change
- Projected impact of the change on the portfolio
CHANGE FUNDAMENTAL INVESTMENT OBJECTIVE TO NON-FUNDAMENTAL:
CMA will vote AGAINST proposals to change a fund's investment objective from fundamental to non-fundamental unless management acknowledges meaningful limitations upon its future requested ability to change the objective
NAME CHANGE PROPOSALS:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's name, considering the following factors:
- Political/economic changes in the target market
- Consolidation in the target market
- Current asset composition
CHANGE IN FUND'S SUBCLASSIFICATION:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's subclassification, considering the following factors:
- Potential competitiveness
- Current and potential returns
- Risk of concentration
- Consolidation in target industry
DISPOSITION OF ASSETS/TERMINATION/LIQUIDATION:
CMA will vote on a CASE-BY-CASE basis these proposals, considering the following factors:
- Strategies employed to salvage the company
- Past performance of the fund
- Terms of the liquidation
CHANGES TO THE CHARTER DOCUMENT:
CMA will vote on a CASE-BY-CASE basis proposals to change the charter document, considering the following factors:
- The degree of change implied by the proposal
- The efficiencies that could result
- The state of incorporation; net effect on shareholder rights
- Regulatory standards and implications
CMA will vote FOR:
- Proposals allowing the Board to impose, without shareholder approval, fees payable upon redemption of fund shares, provided imposition of such fees is likely to benefit long-term fund investors (e.g., by deterring market timing activity by other fund investors)
- Proposals enabling the Board to amend, without shareholder approval, the fund's management agreement(s) with its investment adviser(s) or sub-advisers, provided the amendment is not required by applicable law (including the Investment Company Act of 1940) or interpretations thereunder to require such approval
CMA will vote AGAINST:
- Proposals enabling the Board to:
- Change, without shareholder approval the domicile of the fund
- Adopt, without shareholder approval, material amendments of the fund's declaration of trust or other organizational document
CHANGING THE DOMICILE OF A FUND:
CMA will vote on a CASE-BY-CASE basis proposals to reincorporate, considering the following factors:
- Regulations of both states
- Required fundamental policies of both states
- The increased flexibility available
Authorizing the Board to Hire and Terminate Subadvisors Without Shareholder Approval:
CMA will vote FOR proposals to enable the Board or Investment Adviser to hire and terminate sub-advisers, without shareholder approval, in accordance with applicable rules or exemptive orders under the Investment Company Act of 1940
DISTRIBUTION AGREEMENTS:
CMA will vote these proposals on a CASE-BY-CASE basis, considering the following factors:
- Fees charged to comparably sized funds with similar objectives
- The proposed distributor's reputation and past performance
- The competitiveness of the fund in the industry
- Terms of the agreement
MASTER-FEEDER STRUCTURE:
CMA will vote FOR the establishment of a master-feeder structure.
Mergers:
CMA will vote merger proposals on a CASE-BY-CASE basis, considering the following factors:
- Resulting fee structure
- Performance of both funds
- Continuity of management personnel
- Changes in corporate governance and their impact on shareholder rights
SHAREHOLDER PROPOSALS TO ESTABLISH DIRECTOR OWNERSHIP REQUIREMENT:
CMA will generally vote AGAINST shareholder proposals that mandate a specific minimum amount of stock that directors must own in order to qualify as a director or to remain on the board. While CMA favors stockownership on the part of directors, the company should determine the appropriate ownership requirement.
SHAREHOLDER PROPOSALS TO REIMBURSE SHAREHOLDER FOR EXPENSES INCURRED:
CMA will vote on a CASE-BY-CASE basis proposals to reimburse proxy solicitation expenses.
SHAREHOLDER PROPOSALS TO TERMINATE THE INVESTMENT ADVISER:
CMA will vote on a CASE-BY-CASE basis proposals to terminate the investment adviser, considering the following factors:
- Performance of the fund's NAV
- The fund's history of shareholder relations
- The performance of other funds under the adviser's management
9. Alternative Investment Group ("AIG") Matters
The AIG Proxy Sub-Committee generally will vote in accordance with the guidelines set forth in this policy. With respect to matters that are not addressed by the guidelines, the AIG Proxy Sub-Committee will vote each such matter on a CASE-BY-CASE basis.
B. ABILITY TO VOTE PROXIES OTHER THAN AS PROVIDED IN A ABOVE.
A Portfolio Manager, sub-adviser or other party involved with a client's account may conclude that the best interest of the firm's client, as defined above, requires that a proxy be voted in a manner that differs from the predetermined proxy Voting Guidelines stated in Section IV.A. In this situation, he or she shall request that the Proxy Committee consider voting the proxy other than according such Guidelines. If any person, group, or entity requests the Proxy Committee (or any of its members) vote a proxy other than according to the predetermined Voting Guidelines, that person shall furnish to the Proxy Committee a written explanation of the reasons for the request and a description of the person's, group's, or entity's relationship, if any, with the parties proposing and/or opposing the matter's adoption.
C. PROPOSALS REQUIRING SPECIAL CONSIDERATION
The following proposals require special, individual consideration. The Proxy Committee will determine how proxies related to all such proposals will be voted.
1. NEW PROPOSALS. For each new type of proposal that is expected to be proposed to shareholders of multiple companies, the Proxy Committee will develop a Voting Guideline which will be incorporated into this Policy.
2. ACCOUNTS ADHERING TO TAFT HARTLEY PRINCIPLES. All proposals for these accounts shall be voted according to the Taft Hartley Guidelines developed by Institutional Shareholder Services, Inc. ("ISS").
3. ACCOUNTS ADHERING TO SOCIALLY RESPONSIBLE PRINCIPLES. All proposals for these accounts shall be voted according to the Socially Responsible Guidelines developed by ISS or as specified by the client.
4. PROXIES OF INTERNATIONAL ISSUERS WHICH BLOCK SECURITIES SALES BETWEEN THE TIME A SHAREHOLDER SUBMITS A PROXY AND THE VOTE. Proposals for these securities shall be voted only on the specific instruction of the Proxy Committee and to the extent practicable in accordance with the Voting Guidelines set forth in this Policy.
5. PROXIES OF INVESTMENT COMPANY SHARES. Proposals on issues other than those specified in Section IV.A.
6. EXECUTIVE/DIRECTOR COMPENSATION. Except as provided in Section
IV.A, proposals relating to compensation of any executive or director
will be voted as recommended by ISS or as otherwise directed by the
Proxy Committee.
7. PREEMPTIVE RIGHTS. Proposals to create or eliminate shareholder preemptive rights. In evaluating these proposals the Proxy Committee will consider the size of the company and the nature of its shareholder base.
V. VOTING PROCEDURES
The Proxy Committee has developed the following procedures to aid the voting of proxies according to the Voting Guidelines set forth in Section IV above. The Proxy Committee may revise these procedures from time to time, as it deems necessary or appropriate to effect the purposes of this Policy.
- CMA shall use an independent, third-party vendor (currently Institutional Shareholder Services ("ISS")), to implement its proxy voting process as CMAs proxy voting agent. This retention is subject to CMA continuously assessing the vendor's independence from CMA and its affiliates, and the vendor's ability to perform its responsibilities (and, especially, its responsibility to vote client proxies in accordance with CMA's proxy voting guidelines) free of any actual, potential or apparent material conflicts of interests that may arise between the interests of the vendor, its affiliates, the vendor's other clients and the owners, officers or employees of any such firm, on the one hand, and CMA's clients, on the other hand. As means of performing this assessment, CMA will require various reports and notices from the vendor, as well as periodic audits of the vendor's voting record and other due diligence.
- ISS shall provide proxy analysis and record keeping services in addition to voting proxies on behalf of CMA in accordance with this Policy.
- On a daily basis CMA shall send to ISS a holdings file detailing each equity holding held in all accounts over which CMA has voting authority. Information regarding equity holdings for international portfolio shall be sent weekly.
- ISS shall receive proxy material information from Proxy Edge or the custodian bank for the account. This shall include issues to be voted upon, together with a breakdown of holdings for CMA accounts. ISS shall then reconcile information it receives from CMA with that it has received from Proxy Edge and custodian banks. Any discrepancies shall be promptly noted and resolved by ISS, with notice to CMA.
- Whenever a vote is solicited, ISS shall execute the vote according to CMA's Voting Guidelines previously delivered by CMA to ISS as set forth in Section IV.A.
- If ISS is not sure how to vote a particular proxy, then ISS will issue a request for voting instructions to CMA over a secure website. CMA personnel shall check this website regularly. The request shall be accompanied by a recommended vote. The recommended vote shall be based upon CMA's understanding of the Voting Guidelines previously delivered to ISS. CMA shall promptly provide ISS with any amendments or modifications to the Voting Guidelines if necessary. CMA shall return a final instruction to vote to ISS, which ISS shall record with Proxy Edge or the custodian bank as our agent.
- Each time that ISS shall send CMA a request to vote the request shall be accompanied by the recommended vote determined in accordance with CMA's Voting Guidelines. ISS shall vote as indicated in the request unless the client has reserved discretion, the Proxy Committee determines that the best interest of clients requires another vote or the proposal is a matter as to which the Proxy Committee affords special, individual consideration under Section IV.C. In such situations ISS shall vote based on the direction of the client or the Proxy Committee, as the case may be. The interests of CMA's Taft Hartley or Socially Responsible clients may impact a proposal that normally should be voted in a certain way. ISS shall inform CMA of all proposals having impact on its Taft Hartley and or Socially Responsible clients. The Proxy Voting Committee shall be consulted before a vote is placed in cases where Taft Hartley or Socially Responsible issues are presented.
- ISS shall have procedures in place to ensure that a vote is cast on every security holding maintained by CMA on which a vote is solicited unless otherwise directed by the Proxy Committee. On a yearly basis, or as required by our clients CMA shall receive a report from ISS detailing CMA's voting for the previous period.
VI. AVAILABILITY OF PROXY POLICY AND VOTING RECORD
A summary disclosure regarding the provisions of this Policy is available in CMA's Form ADV. Upon receipt of a Client's request for more information, CMA will provide to the Client a copy of this Policy and/or how CMA voted proxies for the Client pursuant to this Policy for up to a one-year period.
COLUMBIA SMALL CAP VALUE FUND I
SERIES OF COLUMBIA FUNDS SERIES TRUST I
SUPPLEMENT TO THE FUND'S CURRENT STATEMENT OF ADDITIONAL INFORMATION
1. The name of the Trust is revised to read "Columbia Funds Series Trust I."
2. The following sentence is added to the first paragraph on the front cover of the SAI:
The unaudited Financial Statements appearing in the Fund's December 31, 2005 Semi-Annual Report are also incorporated into this SAI by reference.
3. The first sentence in the section entitled "Organization and History" is revised to read:
The Trust is a Massachusetts business trust organized in 1987. The Fund was originally organized as a series of another Massachusetts business trust prior to its reorganization as a series of the Trust on March 27, 2006.
4. The last sentence of the second paragraph and the full text of the third paragraph of the section entitled "Organization and History" are revised in their entirety to read:
Effective October 13, 2003, the Trust changed its name from "Liberty-Stein Roe Funds Municipal Trust" to "Columbia Funds Trust IX." Effective September 23, 2005, the name of the trust was changed from "Columbia Funds Trust IX" to "Columbia Funds Series Trust I."
5. The section entitled "Trustees and Trustees' Fees" is revised in its entirety to read:
TRUSTEES AND TRUSTEES' FEES
The "Columbia Fund Complex" includes all of the registered investment companies to which the Advisor and its affiliates provide investment advisory services.
The Advisor or its affiliates pay the compensation of all the officers of the funds in the Fund Complex advised by the Advisor, including Trustees who are affiliated with the Advisor. For the fiscal year ended June 30, 2005 and the calendar year ended December 31, 2005, the Trustees received the following compensation for serving as Trustees:
Pension or Aggregate Total Compensation From
Retirement Compensation From the Fund Complex Paid To
Benefits Accrued Fund For The the Trustees For The
as Part of Fund Fiscal Year Ended Calendar Year Ended
Trustee Expenses (b) June 30, 2005 December 31, 2005 (a)
------- ---------------- ----------------- ------------------------
Douglas A. Hacker N/A 451 111,277
Janet Langford Kelly N/A 515 116,500
Richard W. Lowry N/A 418 142,500
William E. Mayer N/A 483 147,750
Charles R. Nelson N/A 475 111,500
John J. Neuhauser N/A 436 137,833
Patrick J. Simpson (c) N/A 435 107,500
Thomas Stitzel N/A 487 113,000
|
Thomas C. Theobald (d) N/A 593 205,500 Anne-Lee Verville (e) N/A 511 120,723 Richard L. Woolworth N/A 414 106,500 |
(a) As of December 31, 2005, each trustee other than Richard W. Lowry, John J. Neuhauser and William E. Mayer oversees 83 funds in the Fund Complex, and Messrs. Lowry, Neuhauser and Mayer each oversee 85 funds in the Fund Complex.
(b) The Fund does not currently provide pension or retirement plan benefits to the Trustees.
(c) During the fiscal year ended June 30, 2005 and the calendar year ended December 31, 2005, Mr. Simpson deferred $435 of his compensation from the Fund and $107,500 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2005, the value of Mr. Simpson's account under that plan was $269,502.
(d) During the fiscal year ended June 30, 2005, and the calendar year ended December 31, 2005, Mr. Theobald deferred $343 of his compensation from the Fund and $150,000 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2005, the value of Mr. Theobald's account under that plan was $320,084.
(e) During the fiscal year ended June 30, 2005, Ms. Verville deferred $99 of her compensation from the Fund pursuant to the deferred compensation plan. At December 31, 2005, the value of Ms. Verville's account under that plan was $693,935.
6. The section entitled "Share Ownership" is revised in its entirety to read:
SHARE OWNERSHIP
The following table shows the dollar range of equity securities beneficially owned by each Trustee as of December 31, 2005 (i) in each Fund and (ii) in the funds in the Fund Complex.
Aggregate Dollar Range of
Dollar Range of Equity Equity Securities Owned in All
Securities Owned in Funds Overseen by Trustee in
Name of Trustee the Fund Fund Complex
--------------- ---------------------- ------------------------------
Douglas A. Hacker $ 0 Over $ 100,000
Janet Langford Kelly $ 0 Over $ 100,000
Richard W. Lowry $ 0 Over $ 100,000
Charles R. Nelson $ 0 Over $ 100,000
John J. Neuhauser $10,001 - 50,000 Over $ 100,000
Patrick J. Simpson $ 0 Over $ 100,000
Thomas E. Stitzel $ 0 $50,001 - $100,000
Thomas C. Theobald $ 0 Over $ 100,000
Anne-Lee Verville $ 0 Over $ 100,000(1)
Richard L. Woolworth $ 0 Over $ 100,000
Interested Trustee
William E. Mayer $ 0 $50,001 - $100,000
|
(1) Includes the value of compensation payable under the deferred compensation plan for independent Trustees of the Fund Complex that is determined as if the amounts deferred had been invested, as of the date of deferral, in shares of one or more funds in the Fund Complex as specified by Ms. Verville.
7. The section entitled "Ownership of the Fund" is replaced in its entirety to read:
As of record on February 28, 2006, the officers and Trustees of the Trust as a group beneficially owned less than 1% of the then outstanding shares of the Fund.
As of record on February 28, 2006, the following shareholders of record owned 5% or more of the following classes of the Fund's outstanding shares:
CLASS A SHARES: Merrill Lynch Pierce, Fenner & Smith Inc. 5.63% 4800 Deer Lake Dr. Jacksonville, FL 32246-6484 Charles Schwab & Co., Inc. 11.10% 101 Montgomery St San Francisco, CA 94104-4122 CLASS B SHARES: Citigroup Global Markets, Inc. 5.99% 333 34th Street New York, NY 10001-2402 CLASS C SHARES: Merrill Lynch Pierce, Fenner & Smith Inc. 19.77% 4800 Deer Lake Dr. Jacksonville, FL 32246-6484 Citigroup Global Markets, Inc. 7.15% 333 34th Street New York, NY 10001-2402 CLASS Z SHARES: Bank of America 78.28% 411 N. Akard Street Dallas, TX 75201 |
8. The first paragraph of the front cover of Part 2 of the SAI is revised in its entirety to read:
The following information applies generally to most funds advised by the Advisor. "Funds" include the series of Columbia Funds Series Trust I, Columbia Funds Institutional Trust, SteinRoe Variable Investment Trust and Liberty Variable Investment Trust (each a Trust and together, the Trusts). In certain cases, the discussion applies to some, but not all, of the Funds, and you should refer to your Fund's Prospectus and to Part 1 of this Statement of Additional Information (SAI) to determine whether the matter is applicable to your Fund. You will also be referred to Part 1 for certain data applicable
to your Fund.
9. The section entitled "Trustees and Officers" in Part 2 of the SAI is revised to read:
Information regarding the Trustees and officers of the Funds together with their principal business occupations during the last five years (their titles may have varied during that period) is shown below. Unless otherwise noted, the address for each Trustee and officer is c/o Columbia Funds, Mail Stop MA5-515-11-05, One Financial Center, Boston, MA 02111.
Number of
Portfolios in
Year First Fund
Elected or Complex
Position Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ----------- ------------ ----------------------- ------------- -------------------
DISINTERESTED TRUSTEES
Thomas C. Theobald Trustee and 1996 Partner and Senior 83 Anixter
(Born 1937) Chairman of Advisor, Chicago Growth International
the Board Partners (private (network support
equity investing) since equipment
September, 2004; distributor);
Managing Director, Ventas, Inc. (real
William Blair Capital estate investment
Partners (private trust); Jones Lang
equity investing) from LaSalle (real
September, 1994 to estate management
September, 2004. services) and Ambac
Financial Group
(financial guaranty
insurance)
|
Number of
Portfolios in
Year First Fund
Elected or Complex
Position Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ----------- ------------ ----------------------- ------------- -------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker Trustee 1996 Executive Vice 83 Nash Finch Company
(Born 1955) President -- Strategy (food distributor)
of United Airlines
(airline) since
December, 2002;
President of UAL
Loyalty Services
(airline) from
September, 2001 to
December, 2002;
Executive Vice
President and Chief
Financial Officer of
United Airlines from
July, 1999 to
September, 2001.
Janet Langford Kelly Trustee 1996 Partner, Zelle, 83 UAL Corporation
(Born 1957) Hofmann, Voelbel, Mason (airline)
& Gette LLP (law firm)
since March, 2005;
Adjunct Professor of
Law, Northwestern
University, since
September, 2004; Chief
Administrative Officer
and Senior Vice
President, Kmart
Holding Corporation
(consumer goods), from
September, 2003 to
March, 2004; Executive
Vice
President-Corporate
Development and
Administration, General
Counsel and Secretary,
Kellogg Company (food
manufacturer), from
September, 1999 to
August, 2003.
|
Number of
Portfolios in
Year First Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------------- ------------ ----------------------- ------------- -------------------
DISINTERESTED TRUSTEES
Richard W. Lowry Trustee 1995 Private Investor 85 None
(Born 1936) since August, 1987
(formerly Chairman
and Chief Executive
Officer, U.S.
Plywood Corporation
(building products
manufacturer) until
1987.)
Charles R. Nelson Trustee 1981 Professor of 83 None
(Born 1943) Economics,
University of
Washington since
January, 1976; Ford
and Louisa Van
Voorhis
Professor of
Political Economy,
University of
Washington, since
September, 1993;
Director, Institute
for Economic
Research, University
of Washington from
September, 2001 to
June, 2003; Adjunct
Professor of
Statistics,
University of
Washington since
September, 1980;
Associate Editor,
Journal of Money
Credit and Banking
since September,
1993; consultant on
econometric and
statistical matters.
John J. Neuhauser Trustee 1985 University 85 None
(Born 1942) Professor, Boston
College since
November, 2005;
Academic Vice
President and Dean
of Faculties, Boston
College from August,
1999 to October,
2005.
|
Number of
Portfolios in
Year First Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------------- ------------ ----------------------- ------------- -------------------
DISINTERESTED TRUSTEES
Patrick J. Simpson Trustee 2000 Partner, Perkins 83 None
(Born 1944) Coie L.L.P. (law
firm).
Thomas E. Stitzel Trustee 1998 Business Consultant 83 None
(Born 1936) since 1999;
Chartered Financial
Analyst.
Anne-Lee Verville Trustee 1998 Retired since 1997 83 Chairman of the
(Born 1945) (formerly General Board of
Manager, Global Directors, Enesco
Education Industry, Group,Inc.
IBM Corporation (producer of
(computer and giftware and home
technology) from and garden decor
1994 to 1997). products)
Richard L. Woolworth Trustee 1991 Retired since 83 Northwest Natural
(Born 1941) December, 2003 Gas (natural gas
(formerly Chairman service provider)
and Chief Executive
Officer, The Regence
Group Co. (regional
health insurer);
Chairman and Chief
Executive Officer,
BlueCross BlueShield
of Oregon; Certified
Public Accountant,
Arthur Young &
Company).
|
Number of
Portfolios in
Year First Fund
Elected or Complex
Appointed Principal Occupation(s) Overseen Other Directorships
Name and Year of Birth Position with Funds to Office(1) During Past Five Years by Trustee Held(2)
---------------------- ------------------- ------------ ----------------------- ------------- -------------------
INTERESTED TRUSTEE
William E. Mayer(3) Trustee 1994 Partner, Park Avenue 85 Lee Enterprises
(Born 1940) Equity Partners (print media), WR
(private equity) Hambrecht + Co.
since February, 1999. (financial
service
provider);
Reader's Digest
(publishing);
OPENFIELD
Solutions (retail
industry
technology
provider)
|
(2) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., "public companies").
(3) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (the "1940 Act")) of the Columbia Funds by reason of his affiliation with WR Hambrecht + Co., a registered broker-dealer that may execute portfolio transactions for or engage in principal transactions with the Fund or other funds or clients advised by the Advisor or its affiliates.
Year First
Elected or
Appointed Principal Occupation(s) During Past
Name and Year of Birth Position with Funds to Office Five Years
---------------------- ------------------- ---------- --------------------------------------
OFFICERS
Christopher L. Wilson President 2004 Head of Mutual Funds since August,
(Born 1957) 2004 and Managing Director of the
Advisor since September, 2005;
President and Chief Executive Officer,
CDC IXIS Asset Management Services,
Inc. (investment management) from
September, 1998 to August, 2004.
James R. Bordewick, Jr. Senior Vice 2006 Associate General Counsel, Bank of
(Born 1959) President, America since April, 2005; Senior Vice
Secretary and President and Associate General
Chief Legal Counsel, MFS Investment Management
Officer (investment management) prior to
April, 2005.
J. Kevin Connaughton Senior Vice 2000 Managing Director of the Advisor since
(Born 1964) President, Chief February, 1998.
Financial
Officer and
Treasurer
Mary Joan Hoene Senior Vice 2004 Senior Vice President and Chief
(Born 1949) President and Compliance Officer of various funds in
Chief Compliance the Columbia Fund Complex; Partner,
Officer Carter, Ledyard & Milburn LLP (law
firm) from January, 2001 to August,
2004.
Michael G. Clarke Chief Accounting 2004 Managing Director of the Advisor since
(Born 1969) Officer and February, 2001.
Assistant
Treasurer
Stephen T. Welsh Vice President 1996 President, Columbia Management
(Born 1957) Services, Inc. since July, 2004;
Senior Vice President and Controller,
Columbia Management Services, Inc.
prior to July, 2004.
Jeffrey R. Coleman Deputy Treasurer 2004 Group Operations Manager of the
(Born 1969) Advisor since October, 2004; Vice
President of CDC IXIS Asset Management
Services, Inc. (investment management)
from August, 2000 to September, 2004.
Joseph F. DiMaria Deputy Treasurer 2004 Senior Compliance Manager of the
(Born 1968) Advisor since January, 2005; Director
of Trustee Administration of the
Advisor from May, 2003 to January,
2005; Senior Audit Manager,
PricewaterhouseCoopers (independent
registered public accounting firm)
from July, 2000 to April, 2003.
Ty S. Edwards Deputy Treasurer 2004 Vice President of the Advisor since
(Born 1966) 2002; Assistant Vice President and
Director, State Street Corporation
(financial services) prior to 2002.
|
Year First
Elected or
Appointed Principal Occupation(s) During Past
Name and Year of Birth Position with Funds to Office Five Years
---------------------- ------------------- ---------- --------------------------------------
OFFICERS
Barry S. Vallan Controller 2006 Vice President-Fund Treasury of the
(Born 1969) Advisor since October, 2004; Vice
President-Trustee Reporting from
April, 2002 to October, 2004;
Management Consultant,
PricewaterhouseCoopers (independent
registered public accounting firm)
prior to October, 2002.
Peter T. Fariel Assistant 2006 Associate General Counsel, Bank of
(Born 1957) Secretary America since April, 2005; Partner,
Goodwin Procter LLP (law firm) prior
to April, 2005.
Ryan C. Larrenaga Assistant 2005 Assistant General Counsel, Bank of
(Born 1970) Secretary America since March, 2005; Associate,
Ropes & Gray LLP (law firm) from 1998
to February, 2005.
Barry S. Finkle Assistant 2003 Senior Manager and Head of Fund
(Born 1965) Treasurer Performance of the Advisor since
January, 2001.
Julian Quero Assistant 2003 Senior Compliance Manager of the
(Born 1967) Treasurer Advisor since April, 2002; Assistant
Vice President of Taxes and
Distributions of the Advisor from 2001
to April, 2002.
|
Each of the Trust's Trustees and officers hold comparable positions with certain other funds of which the Advisor or its affiliates is the investment advisor or distributor and, in the case of certain of the officers, with certain affiliates of the Advisor.
The Trustees and officers serve terms of indefinite duration. Each Fund held a shareholders' meeting in 2005, and will hold a shareholders' meeting at least once every five years thereafter to elect Trustees.
10. The section entitled "Trustee Positions," a subsection of "Management of the Funds," is revised to read:
As of December 31, 2005, no disinterested Trustee or any of their immediate family members owned beneficially or of record any class of securities of the Advisor, another investment advisor, sub-advisor or portfolio manager of any of the funds in the Fund Complex or any person controlling, controlled by or under common control with any such entity.
INT-50/107569-0306 March 27, 2006
COLUMBIA SMALL CAP VALUE FUND I
A SERIES OF COLUMBIA FUNDS TRUST VI
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 1, 2005
This Statement of Additional Information (SAI) contains information which may be useful to investors but which is not included in the Prospectuses of Columbia Small Cap Value Fund I (Fund). This SAI is not a prospectus and is authorized for distribution only when accompanied or preceded by a Prospectus of the Fund dated November 1, 2005. The SAI should be read together with a Prospectus and the most recent Annual Report dated June 30, 2005. Investors may obtain a free copy of a Prospectus and Annual Report from Columbia Management Distributors, Inc.. (CMD), One Financial Center, Boston, MA 02111-2621 or by calling 1-800-426-3750. The Financial Statements and Report of the Independent Registered Public Accounting Firm appearing in the Fund's June 30, 2005 Annual Report are incorporated in this SAI by reference.
Part 1 of this SAI contains specific information about the Fund. Part 2 includes information about the funds distributed by CMD generally and additional information about certain securities and investment techniques described in the Fund's Prospectuses.
TABLE OF CONTENTS
PAGE
----
PART 1
Definitions b
Organization and History b
Investment Goal and Policies b
Fundamental Investment Policies c
Other Investment Policies c
Fund Charges and Expenses d
Custodian k
Independent Registered Public Accounting Firm k
PART 2
Miscellaneous Investment Practices 1
Taxes 21
Additional Tax Matters Concerning Trust Shares 26
Management of the Funds 28
Determination of Net Asset Value 43
How to Buy Shares 44
Special Purchase Programs/Investor Services 47
Programs for Reducing or Eliminating Sales Charges 49
How to Sell Shares 52
Distributions 57
How to Exchange Shares 57
Suspension of Redemptions 58
Shareholder Liability 58
Shareholder Meetings 58
Appendix I 59
Appendix II 64
|
SUP-39/91066-1005
PART 1
COLUMBIA SMALL CAP VALUE FUND I
STATEMENT OF ADDITIONAL INFORMATION
NOVEMBER 1, 2005
DEFINITIONS
"Trust" Columbia Funds Trust VI
"Fund" Columbia Small Cap Value Fund I (formerly named Columbia Small Cap
Value Fund)
"Advisor" Columbia Management Advisors, LLC, the Fund's investment advisor
"CMD" Columbia Management Distributors, Inc. (formerly named Columbia
Funds Distributor, Inc.), the Fund's distributor
"CMS" Columbia Management Services, Inc. (formerly named Columbia Funds
Services, Inc.), the Fund's shareholder services and transfer agent
|
ORGANIZATION AND HISTORY
The Trust was organized in 1991 as a Massachusetts business trust. The Fund is an open-end diversified management investment company, representing the entire interest in a separate portfolio of the Trust. The Fund commenced operations on July 25, 1986.
The Fund changed its name from "Colonial Small Stock Fund" to "Colonial Small-Cap Value Fund" on February 28, 1997, and from "Colonial Small-Cap Value Fund" to "Liberty Small-Cap Value Fund" on July 14, 2000. The Fund changed its name from "Liberty Small-Cap Value Fund" to "Columbia Small Cap Value Fund" on October 13, 2003. The Fund changed its name from "Columbia Small Cap Value Fund" to its current name on October 10, 2005.The Trust changed its name from "Colonial Trust VI" to "Liberty Funds Trust VI" on April 1, 1999. The Trust changed its name from "Liberty Funds Trust VI" to its current name on October 13, 2003.
It is expected that, subject to shareholder approval of the election of all current Trustees, the Fund will be reorganized as a series of Columbia Funds Series Trust I, a Massachusetts business trust into which all of the retail Columbia funds are expected to be reorganized.
INVESTMENT GOAL AND POLICIES
The Fund's Prospectuses describe the Fund's investment goal and policies. Part 1 of this SAI includes additional information concerning, among other things, the fundamental investment policies of the Fund. Part 2 contains additional information about the following securities and investment techniques that may be utilized by the Fund:
Small Companies
Foreign Securities
Short-Term Debt Instruments
Short-Term Trading
Repurchase Agreements
Futures Contracts and Related Options
Exchange-traded Funds ("ETFs")
REITs
American, European, Continental and Global Depository Receipts
Rule 144A Securities
Convertible Securities
Structured Investments
Except as indicated below under "Fundamental Investment Policies," the Fund's investment policies are not fundamental, and the Trustees may change the policies without shareholder approval.
b
FUNDAMENTAL INVESTMENT POLICIES
The Investment Company Act of 1940, as amended ("1940 Act"), provides that a "vote of a majority of the outstanding voting securities" means the affirmative vote of the lesser of (1) more than 50% of the outstanding shares of the Fund, or (2) 67% or more of the shares present at a meeting if more than 50% of the outstanding shares are represented at the meeting in person or by proxy. The following fundamental investment policies cannot be changed without such a vote.
The Fund may not, as a matter of fundamental policy:
1. Underwrite any issue of securities issued by other persons within the meaning of the Securities Act of 1933, as amended (the "1933 Act") except when it might be deemed to be an underwriter either: (a) in connection with the disposition of a portfolio security; or (b) in connection with the purchase of securities directly from the issuer thereof in accordance with its investment objective. This restriction shall not limit the Fund's ability to invest in securities issued by other registered investment companies.
2. Purchase or sell real estate, except the Fund may purchase securities of issuers which deal or invest in real estate and may purchase securities which are secured by real estate or interests in real estate and it may hold and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of securities which are secured by real estate or interests therein.
3. Purchase or sell commodities, except that the Fund may to the extent consistent with its investment objective, invest in securities of companies that purchase or sell commodities or which invest in such programs, and purchase and sell options, forward contracts, futures contracts, and options on futures contracts and enter into swap contracts and other financial transactions relating to commodities. This limitation does not apply to foreign currency transactions including without limitation forward currency contracts.
4. Purchase any securities which would cause 25% or more of the value of its total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that: (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. Government, any state or territory of the United States, or any of their agencies, instrumentalities or political subdivisions; and (b) notwithstanding this limitation or any other fundamental investment limitation, assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
5. Make loans, except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
6. Borrow money or issue senior securities except to the extent permitted by the 1940 Act, the rules and regulations thereunder and any applicable exemptive relief.
7. Purchase securities (except securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities) of any one issuer if, as a result, more than 5% of its total assets will be invested in the securities of such issuer or it would own more than 10% of the voting securities of such issuer, except that: (a) up to 25% of its total assets may be invested without regard to these limitations and (b) a Fund's assets may be invested in the securities of one or more management investment companies to the extent permitted by the 1940 Act, the rules and regulations thereunder, or any applicable exemptive relief.
OTHER INVESTMENT POLICIES
As non-fundamental investment policies, which may be changed without a shareholder vote, the Fund may not:
1. Purchase securities on margin, but it may receive short-term credit to clear securities transactions and may make initial or maintenance margin deposits in connection with futures transactions;
2. Have a short securities position, unless the Fund owns, or owns rights (exercisable without payment) to acquire, an equal amount of such securities;
3. Invest more than 15% of its net assets in illiquid assets.
Total assets and net assets are determined at current value for purposes of compliance with investment restrictions and policies. All percentage limitations will apply at the time of investment and are not violated unless an excess or deficiency occurs as a result of such investment. For the purpose of the 1940 Act's diversification requirement, an issuer is the entity whose revenues support the security.
FUND CHARGES AND EXPENSES
Under the Fund's Management Agreement, the Fund pays the Advisor a monthly fee
based on average daily net assets of the Fund, at the following annual rates:
0.450% up to $100 million, 0.425% next $100 million and 0.400% thereafter.
The Advisor provides certain pricing and bookkeeping services to the Fund. Effective November 1, 2005, the Fund entered into a Pricing and Bookkeeping Agreement with the Advisor. For services provided under the Pricing and Bookkeeping Agreement, the Fund will pay the Advisor an annual fee, payable monthly, consisting of: (i) a fixed fee plus an asset-based fee for fund accounting services ("Fund Accounting Fee"); (ii) a fixed fee for financial reporting services ("Financial Reporting Fee"); (iii) a fixed fee for fair value pricing services ("Fair Value Pricing Fee") and (iv) a fixed fee for each additional portfolio manager managing a portion of the Fund ("Multi-Manager Fee"). During any 12-month period, the aggregate Fund Accounting Fee and Financial Reporting Fee for the Fund will not exceed a specified maximum amount. The Fund will also reimburse the Advisor for its internal direct costs related to fund accounting, security valuation and monitoring, budgeting and approving fund expenses. The Advisor has delegated responsibility for certain pricing and bookkeeping functions to State Street Bank and Trust Company ("State Street"). For periods before November 1, 2005, the Fund paid the Adviser fees under a similar Pricing and Bookkeeping Agreement at different rates, based in part on the Fund's net assets, subject to a minimum amount per annum. The Fund also reimbursed the Adviser for certain out-of-pocket expenses.
CMS acts as transfer agent, dividend disbursing agent and shareholders' servicing agent for the Fund. Its address is P.O. Box 8081, Boston Massachusetts 02266-8081. Effective November 1, 2005, the Fund entered into a Transfer, Dividend Disbursing and Shareholders' Servicing Agent Agreement with CMS, under which CMS will provide transfer agency, dividend disbursing and shareholders' servicing agency services to the Fund. For these services, the Fund will pay CMS a specified amount per open account per annum, payable monthly. In addition the Fund may pay CMS the fees and expenses that CMS pays to third-party dealer firms that maintain omnibus accounts with the Fund, subject to a cap equal to a specified percentage of the Fund's net assets represented by the account. The Fund will also reimburse CMS for certain out-of-pocket expenses. CMS may also retain as additional compensation for its services revenues for fees for wire, telephone and redemption orders, IRA trustee agent fees and account transcripts due CMS from shareholders of the Fund and interest (net of bank charges) and balance credits earned with respect to balances in demand deposit accounts CMS maintains in connection with its services to the Fund. CMS has retained Boston Financial Data Services, Inc. and DST Systems, Inc. to provide certain services for the Fund.
RECENT FEES PAID TO THE ADVISOR, CMD AND CMS (dollars in thousands)
Year ended June 30
------------------------
2005 2004 2003
------ ------ ------
Management fee $5,217 $4,155 $2,869
Pricing and bookkeeping fee 173 157 138
Transfer agent fee 1,315 1,488 1,745
12b-1 fees:
Service fee (Class A) 850 596 365
Service fee (Class B) 495 523 462
Service fee (Class C) 120 80 58
Distribution fee (Class B) 1,484 1,569 1,393
Distribution fee (Class C) 359 240 174
Fees waived or reimbursed by Advisor N/A 74 154
|
BROKERAGE COMMISSIONS (dollars in thousands)
Year ended June 30
----------------------
2005 2004 2003
---- ------ ------
Total commissions $315 $2,435 $3,090
Directed transactions(a) 0 1,153 0
Commissions on directed transactions 0 2 0
Commissions paid to Bank of America Securities 0 0 N/A (b)
% of Aggregate Commissions 0 0 0
% of Aggregate Dollar Amount of Brokerage Transactions 0 0 0
Commissions paid to Fleet Institutional Trading
(a division of Fleet Securities, Inc.) 0 0 0
% of Aggregate Commissions 0 0 0
% of Aggregate Dollar Amount of Brokerage Transactions 0 0 0
|
(a) See "Management of the Funds-Portfolio Transactions-Brokerage and Research Services" in Part 2 of this SAI.
(b) Prior to the period from April 1, 2004 through June 30, 2004, this entity was not an affiliate of the Fund.
The Trust is required to identify any securities of its "regular brokers or dealers" that the Fund has acquired during its most recent fiscal year. At June 30, 2005, the Fund did not hold any securities of its regular brokers or dealers.
TRUSTEES AND TRUSTEES' FEES
The Fund Complex consists of the following funds:
The series of Columbia Funds Trust I, the series of Columbia Funds Trust II, the series of Columbia Funds Trust III, the series of Columbia Funds Trust IV, the series of Columbia Funds Trust V, the series of Columbia Funds Trust VI, the series of Columbia Funds Trust VII, the series of Liberty Variable Investment Funds Trust and 7 closed-end management investment company portfolios (the "Liberty Funds").
The series of Columbia Funds Trust VIII, the series of Columbia Funds Series Trust I, the series of Columbia Funds Trust XI, the series of SteinRoe Variable Investment Trust (the "Stein Roe Funds").
Three closed-end management investment company portfolios named Liberty All-Star Equity Fund, Liberty All-Star Growth Fund, Inc. and Liberty All-Star Mid-Cap Fund (the "All-Star Funds").
Columbia Management Multi-Strategy Hedge Fund, LLC.
Columbia Balanced Fund, Inc., Columbia Daily Income Company, Columbia Fixed Income Securities Fund, Inc., Columbia High Yield Fund, Inc., Columbia Oregon Municipal Bond Fund, Inc., Columbia Real Estate Equity Fund, Inc., Columbia Small Cap Growth Fund, Inc., Columbia Mid Cap Growth Fund, Inc., Columbia Strategic Investor Fund, Inc., Columbia Technology Fund, Inc. and the series of CMG Fund Trust (the "Columbia Funds").
The series of the Galaxy Funds (the "Galaxy Funds").
The series of Columbia Acorn Trust and the series of Wanger Advisors Trust (the "Acorn Funds" and "WAT Funds," respectively).
e
The Advisor or its affiliates pay the compensation of all the officers of the funds in the Fund Complex (as such term is defined under applicable regulations promulgated under the 1940 Act) advised by the Advisor, including Trustees who are affiliated with the Advisor. For the fiscal year ended June 30, 2005, and the calendar year ended December 31, 2004, the Trustees received the following compensation for serving as Trustees:
Aggregate Total Compensation From
Pension or Compensation From the Fund Complex Paid To
Retirement Benefits Fund For The Fiscal the Trustees For The
Accrued as Part of Year Ended Calendar Year Ended
Trustee (a) Fund Expenses (b) June 30, 2005 December 31, 2004(a)
----------- ------------------- ------------------- ------------------------
Douglas A. Hacker N/A 451 135,000
Janet Langford Kelly N/A 515 148,500
Richard W. Lowry N/A 418 150,700
William E. Mayer N/A 483 166,700
Charles R. Nelson N/A 475 141,500
John J. Neuhauser N/A 436 158,284
Patrick J. Simpson (c) N/A 435 129,000
Thomas Stitzel N/A 487 149,000
Thomas C. Theobald (d) N/A 593 172,500
Anne-Lee Verville (e) N/A 511 157,000
Richard L. Woolworth N/A 414 131,000
|
(a) As of December 31, 2004, the Fund Complex consisted of 127 open-end and 11 closed-end management investment company portfolios
(b) The Fund does not currently provide pension or retirement plan benefits to the Trustees.
(c) During the fiscal year ended June 30, 2005 and the calendar year ended December 31, 2004, Mr. Simpson deferred $435 of his compensation from the Fund and $129,000 of his total compensation from the Fund Complex pursuant to the deferred compensation plan.
(d) During the fiscal year ended June 30, 2005, and the calendar year ended December 31, 2004, Mr. Theobald deferred $343 of his compensation from the Fund and $90,000 of his total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2004, the value of Mr. Theobald's account under that plan was $55,587.
(e) During the fiscal year ended June 30, 2005, and the calendar year ended December 31, 2004, Ms. Verville deferred $99 of her compensation from the Fund, and $55,000 of her total compensation from the Fund Complex pursuant to the deferred compensation plan. At December 31, 2004, the value of Ms. Verville's account under that plan was $653,275.
Role of the Board of Trustees
The Trustees of the Funds are responsible for the overall management and supervision of the Fund's affairs and for protecting the interests of the shareholders. The Trustees meet periodically throughout the year to oversee the Fund's activities, review contractual arrangements with service providers for the Fund and review the Fund's performance. The Trustees have created several committees to perform specific functions for the Fund.
Audit Committee
Ms. Verville and Messrs. Hacker, Stitzel and Woolworth are members of the Audit Committee of the Board of Trustees of the Funds. The Audit Committee's functions include making recommendations to the Trustees regarding the selection and performance of the independent registered public accounting firm, and reviewing matters relative to accounting and auditing practices and procedures, accounting records, and the internal accounting controls, of the Funds and certain service providers. For the fiscal year ended June 30, 2005, the Audit Committee convened ten times.
f
Governance Committee
Messrs. Lowry, Mayer, Simpson and Theobald are members of the Governance Committee of the Board of Trustees of the Funds. The Governance Committee's functions include recommending to the Trustees nominees for independent Trustee positions and for appointments to various committees, performing periodic evaluations of the effectiveness of the Board, reviewing and recommending to the Board policies and practices to be followed in carrying out the Trustees' duties and responsibilities and reviewing and making recommendations to the Board regarding the compensation of the Trustees who are not affiliated with the Funds' investment advisors. The Governance Committee will consider candidates for Trustee recommended by shareholders. Written recommendations with supporting information should be directed to the Committee, in care of the Fund. For the fiscal year ended June 30, 2005, the Governance Committee convened six times.
Advisory Fees & Expenses Committee
Ms. Kelly and Messrs. Mayer, Nelson and Neuhauser are members of the Advisory Fees and Expenses Committee of the Board of Trustees of the Fund. The Advisory Fees & Expenses Committee's functions include reviewing and making recommendations to the Board as to contracts requiring approval of a majority of the disinterested Trustees and as to any other contracts that may be referred to the Committee by the Board. For the fiscal year ended June 30, 2005, the Advisory Fees & Expenses Committee convened eight times.
Compliance Committee
Ms. Kelly, Messrs. Nelson, Simpson and Stitzel and Ms. Verville are members of the Compliance Committee of the Board of Trustees of the Fund. Mr. Stitzel became a member of the Compliance Committee on May 8, 2005 The Compliance Committee's functions include providing oversight of the monitoring processes and controls regarding the Trust. The Committee uses legal, regulatory and internal rules, policies, procedures and standards other than those relating to accounting matters and oversight of compliance by the Trust's investment adviser, principal underwriter and transfer agent. For the fiscal year ended June 30, 2005, the Compliance Committee convened five times.
Investment Oversight Committees
Each Trustee of the Funds also serves on an Investment Oversight Committee ("IOC"). Each IOC is responsible for monitoring, on an ongoing basis, a select group of funds in the Fund Complex and gives particular consideration to such matters as the Funds' adherence to their investment mandates, historical performance, changes in investment processes and personnel, and proposed changes to investment objectives. Investment personnel who manage the Funds attend IOC meetings from time to time to assist each IOC in its review of the Funds. Each IOC meets four times a year. The following are members of the respective IOCs and the general categories of funds in the Fund Complex which they review:
IOC#1: Messrs. Lowry, Mayer and Neuhauser are responsible for reviewing funds in the following asset categories: Large Growth Diversified, Large Growth Concentrated, Small Growth, Outside Managed (i.e., sub-advised) and Municipal.
IOC#2: Mr. Hacker and Ms. Verville are responsible for reviewing funds in the following asset categories: Large Blend, Small Blend, Foreign Stock, Fixed Income - Multi Sector, Fixed Income - Core and Young Investor.
IOC#3: Messrs. Theobald and Stitzel and Ms. Kelly are responsible for reviewing funds in the following asset categories: Large Value, Mid Cap Value, Small Value, Asset Allocation, High Yield and Money Market.
IOC#4: Messrs. Nelson, Simpson and Woolworth are responsible for
reviewing funds in the following asset categories:
Large/Multi-Cap Blend, Mid Cap Growth, Small Growth, Asset
Allocation, Specialty Equity and Taxable Fixed Income.
g
Share Ownership
The following table shows the dollar range of equity securities
beneficially owned by each Trustee as of December 31, 2004 (i) in the Fund and
(ii) in the funds in the Fund Complex.
Aggregate Dollar Range
of Equity Securities
Dollar Range of Equity Owned in All Funds Overseen
Name of Trustee Securities Owned in The Fund by Trustee in Fund Complex
--------------- ---------------------------- ---------------------------
DISINTERESTED TRUSTEES
Douglas A. Hacker None Over $100,000
Janet Langford Kelly None Over $100,000
Richard W. Lowry None Over $100,000
Charles R. Nelson None Over $100,000
John J. Neuhauser $10,001 - 50,000 Over $100,000
Patrick J. Simpson None Over $100,000
Thomas E. Stitzel None Over $100,000
Thomas C. Theobald None Over $100,000
Anne-Lee Verville None Over $100,000
Richard L. Woolworth None Over $100,000
INTERESTED TRUSTEES
William E. Mayer None $50,001 - $100,000
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PORTFOLIO MANAGERS
OTHER ACCOUNTS MANAGED BY PORTFOLIO MANAGERS
The following table shows the number and assets of other investment accounts (or portions of investment accounts) that the Fund's portfolio manager managed as of the Fund's most recent fiscal year-end.
OTHER SEC-REGISTERED
OPEN-END AND CLOSED-END OTHER POOLED INVESTMENT
FUNDS VEHICLES OTHER ACCOUNTS
------------------------ ----------------------- -----------------------
Number of Number of Number of
PORTFOLIO MANAGER accounts Assets accounts Assets accounts Assets
----------------- --------- ------------ --------- ----------- --------- -----------
Stephen D. Barbaro 4 $390 million 1 $21 million 12 $24 million
Jeremy Javidi 4 $390 million 1 $21 million 10 $22 million
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See "Management--Portfolio Transactions--Potential conflicts of interest in managing multiple accounts" in Part II of this SAI for information on how the Advisor addresses potential conflicts of interest resulting from an individual's management of more than one account.
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OWNERSHIP OF SECURITIES
The table below shows the dollar ranges of shares of the Fund beneficially owned (as determined pursuant to Rule 16a-1(a)(2) under the Securities Exchange Act of 1934, as amended) by the portfolio manager listed above at the end of each Fund's most recent fiscal year:
DOLLAR RANGE OF EQUITY SECURITIES
PORTFOLIO MANAGER IN THE FUND(S) BENEFICIALLY OWNED
----------------- ---------------------------------
Stephen D. Barbaro None
Jeremy Javidi $10,001-$50,000
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COMPENSATION
As of each Fund's most recent fiscal year end, the portfolio manager received all of their compensation from the Advisor and its parent company, Columbia Management Group, in the form of salary, bonus, stock options and restricted stock. A portfolio manager's bonus is variable and is generally based on (1) an evaluation of the manager's investment performance and (2) the results of a peer and/or management review of such individual, which takes into account skills and attributes such as team participation, investment process, communication and professionalism. In evaluating investment performance, the Advisor generally considers the one-, three- and five-year performance of mutual funds and other accounts under the portfolio manager's oversight relative to the benchmarks and peer groups noted below, emphasizing the manager's three- and five-year performance. The Advisor may also consider the portfolio manager's performance in managing client assets in sectors and industries assigned to the manager as part of his or her investment team responsibilities, where applicable. For portfolio managers who also have group management responsibilities, another factor in their evaluation is an assessment of the group's overall investment performance.
PORTFOLIO MANAGER PERFORMANCE BENCHMARK(S) PEER GROUP(S) ----------------- ------------------------ -------------------------------- Stephen D. Barbaro Russell 2000 Value Index Morningstar Small Value Category Jeremy Javidi Russell 2000 Value Index Morningstar Small Value Category |
The size of the overall bonus pool each year is determined by Columbia Management Group and depends in part on levels of compensation generally in the investment management industry (based on market compensation data) and the Advisor's profitability for the year, which is influenced by assets under management.
OWNERSHIP OF THE FUND
As of record on September 30, 2005, the officers and Trustees of the Trust as a group owned less than 1% of the then outstanding shares of the Fund.
As of record on September 30, 2005, the following shareholders owned 5% or more of one or more of each class of the Fund's outstanding shares:
Class A Shares Charles Schwab & Co., Inc. 10.60% 101 Montgomery Street San Francisco, CA 94104-4122 New York Life Trust Company 5.16% 846 University Avenue Norwood, MA 02062-2641 |
Class B Shares Merrill Lynch Pierce Fenner & Smith 5.57% For the Sole Benefit of its Customers 4800 Deer Lake Drive East, 2nd Floor Jacksonville, FL 32246-6484 Class C Shares Merrill Lynch Pierce Fenner & Smith 19.71% For the Sole Benefit of its Customers 4800 Deer Lake Drive East, 2nd Floor Jacksonville, FL 32246-6484 Class Z Shares Bank of America NA 82.83% Attn: Joan Wray/Fund Accounting 411 N. Akard Street Dallas, TX 75201-3307 |
SALES CHARGES (dollars in thousands)
Class A Shares
Year ended June 30
--------------------
2005 2004 2003
------ ---- ----
Aggregate initial charges on Fund share sales $1,070 $564 $250
Initial sales charges retained by CMD 158 79 11
Aggregate contingent deferred sales charges (CDSCs)
on Fund redemptions retained by CMD 1 9 2
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Class B Shares
Year ended June 30
------------------
2005 2004 2003
---- ---- ----
Aggregate CDSCs on Fund redemptions retained by CMD $232 $263 $400
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Class C Shares
Year ended June 30
------------------
2005 2004 2003
---- ---- ----
Aggregate CDSCs on Fund redemptions retained by CMD $8 $4 $3
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12B-1 PLAN, CDSC AND CONVERSION OF SHARES
The Fund offers four classes of shares - Class A, Class B, Class C and Class Z. The Fund may in the future offer other classes of shares. The Trustees have approved a 12b-1 plan (Plan) pursuant to Rule 12b-1 under the 1940 Act for each of Classes A, B and C. Under the Plan, the Fund pays CMD monthly a service fee at an annual rate of 0.25% of the net assets attributed to Classes A, B and C. The Fund also pays CMD monthly a distribution fee at an annual rate of 0.75% of the average daily net assets attributed to Classes B and C. CMD may use the entire amount of such fees to defray the costs of commissions and service fees paid to financial service firms (FSFs) and for certain other purposes. Since the distribution and service fees are payable regardless of the amount of CMD's expenses, CMD may realize a profit from the fees.
The Plan authorizes any other payments by the Fund to CMD and its affiliates (including the Advisor) to the extent that such payments might be construed to be indirectly financing the distribution of Fund shares.
j
The Trustees believe the Plan could be a significant factor in the growth and retention of Fund assets resulting in a more advantageous expense ratio and increased investment flexibility that could benefit each class of Fund shareholders. The Plan will continue in effect from year to year so long as continuance is specifically approved at least annually by vote of the Trustees, including the Trustees who are not interested persons of the Trust and have no direct or indirect financial interest in the operation of the Plan or in any agreements related to the Plan (Independent Trustees), cast in person at a meeting called for the purpose of voting on the Plan. The Plan may not be amended to increase the fee materially without approval by vote of a majority of the outstanding voting securities of the relevant class of shares and all material amendments to the Plan must be approved by the Trustees in the manner provided in the foregoing sentence. The Plan may be terminated at any time by vote of a majority of the Independent Trustees or by vote of a majority of the outstanding voting securities of the relevant class of shares. The continuance of the Plan will only be effective if the selection and nomination of the Trustees of the Trust who are not interested persons of the Trust is effected by such disinterested Trustees.
Class A shares are offered at net asset value plus varying sales charges which may include a CDSC. Class B shares are offered at net asset value subject to a CDSC if redeemed within a certain number of years after purchase depending on the program you purchased your shares under. Class C shares are offered at net asset value and are subject to a 1.00% CDSC on redemptions within one year after purchase. Class Z shares are offered at net asset value and are not subject to a CDSC. The CDSCs are described in the Prospectuses for the Fund.
No CDSC will be imposed on shares derived from reinvestment of distributions or on amounts representing capital appreciation. In determining the applicability and rate of any CDSC, it will be assumed that a redemption is made first of shares representing capital appreciation, next of shares representing reinvestment of distributions and finally of other shares held by the shareholder for the longest period of time.
Eight years, after the end of the month in which a Class B share is purchased, such share and a pro rata portion of any shares issued on the reinvestment of distributions will be automatically converted into Class A shares, having an equal value, which are not subject to the distribution fee. See the prospectus for a description of the different programs.
SALES-RELATED EXPENSES (dollars in thousands) of CMD relating to the Fund were:
Year ended June 30, 2005
---------------------------
Class A Class B Class C
Shares Shares Shares
------- ------- -------
Fees to FSFs $1,152 $982 $507
Cost of sales material relating to the Fund
(including printing and mailing expenses) 175 27 29
Allocated travel, entertainment and other
promotional expenses (including advertising) 349 53 58
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CUSTODIAN
State Street Bank & Trust Company, located at 2 Avenue de Lafayette, Boston, Massachusetts, 02111-2900, is the Fund's custodian. The custodian is responsible for safeguarding and controlling the Fund's cash and securities, receiving and delivering securities and collecting the Fund's interest and dividends.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP, located at 125 High Street, Boston, Massachusetts 02110-1707, is the Fund's independent registered public accounting firm, providing audit and tax return review services and assistance and consultation in connection with the review of various Securities and Exchange Commission filings. The financial statements incorporated by reference in this SAI have been so incorporated and the financial highlights included in the Prospectuses have been so included, in reliance upon the report of PricewaterhouseCoopers LLP given on the authority of said firm as experts in accounting and auditing.
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STATEMENT OF ADDITIONAL INFORMATION
PART 2
The following information applies generally to most funds advised by the Advisor. "Funds" include the series of Columbia Funds Trust I, Columbia Funds Trust II, Columbia Funds Trust III, Columbia Funds Trust IV, Columbia Funds Trust V, Columbia Funds Trust VI, Columbia Funds Trust VII, Columbia Funds Trust VIII, Columbia Funds Series Trust I (formerly named Columbia Funds Trust IX) and Columbia Funds Trust XI (each a Trust and together, the Trusts, also known as Fund Complex). In certain cases, the discussion applies to some, but not all, of the Funds, and you should refer to your Fund's Prospectus and to Part 1 of this Statement of Additional Information (SAI) to determine whether the matter is applicable to your Fund. You will also be referred to Part 1 for certain data applicable to your Fund.
MISCELLANEOUS INVESTMENT PRACTICES
PART 1 OF THIS SAI LISTS ON PAGE B WHICH OF THE FOLLOWING INVESTMENT PRACTICES
ARE AVAILABLE TO YOUR FUND. IF AN INVESTMENT PRACTICE IS NOT LISTED IN PART 1 OF THIS SAI, IT IS NOT APPLICABLE TO YOUR FUND.
SHORT-TERM TRADING
In seeking the Fund's investment goal, the Advisor will buy or sell portfolio securities whenever it believes it is appropriate. The Advisor's decision will not generally be influenced by how long the Fund may have owned the security. From time to time, the Fund will buy securities intending to seek short-term trading profits. A change in the securities held by the Fund is known as "portfolio turnover" and generally involves some expense to the Fund. These expenses may include brokerage commissions or dealer mark-ups and other transaction costs on both the sale of securities and the reinvestment of the proceeds in other securities. If sales of portfolio securities cause the Fund to realize net short-term capital gains, such gains will be taxable as ordinary income. As a result of the Fund's investment policies, under certain market conditions the Fund's portfolio turnover rate may be higher than that of other mutual funds. The Fund's portfolio turnover rate for a fiscal year is the ratio of the lesser of purchases or sales of portfolio securities to the monthly average of the value of portfolio securities, excluding securities whose maturities at acquisition were one year or less. The Fund's portfolio turnover rate is not a limiting factor when the Advisor considers a change in the Fund's portfolio.
Short Sales
A Fund's short sales are subject to special risks. A short sale involves the sale by the Fund of a security that it does not own with the hope of purchasing the same security at a later date at a lower price. In order to deliver the security to the buyer, the Fund borrows the security from a third party. The Fund is then obligated to return the security to the third party, so the Fund must purchase the security at the market price at a later point in time. If the price of the security has increased during this time, then the Fund will incur a loss equal to the increase in price of the security from the time that the short sale was entered into plus any premiums and interest paid to the third party. Therefore, short sales involve the risk that losses may be exaggerated, potentially losing more money than the actual cost of the security. Also, there is the risk that the third party to the short sale may fail to honor its contract terms, causing a loss to the Fund.
LOWER-RATED DEBT SECURITIES
Lower-rated debt securities are those rated lower than Baa by Moody's or BBB by S&P, or comparable unrated debt securities. Relative to debt securities of higher quality,
1. an economic downturn or increased interest rates may have a more significant effect on the yield, price and potential for default for lower-rated debt securities;
2. the secondary market for lower-rated debt securities may at times become less liquid or respond to adverse publicity or investor perceptions, increasing the difficulty in valuing or disposing of the bonds;
3. the Advisor's credit analysis of lower-rated debt securities may have a greater impact on the Fund's achievement of its investment goal; and
4. lower-rated debt securities may be less sensitive to interest rate changes, but are more sensitive to adverse economic developments.
In addition, certain lower-rated debt securities may not pay interest in cash on a current basis.
SMALL COMPANIES
Smaller, less well established companies may offer greater opportunities for capital appreciation than larger, better established companies, but may also involve certain special risks related to limited product lines, markets, or financial resources and dependence on a small management group. Their securities may trade less frequently, in smaller volumes, and fluctuate more sharply in value than securities of larger companies.
COMMON STOCK, PREFERRED STOCK AND WARRANTS
Common stocks are generally more volatile than other securities. Preferred stocks share some of the characteristics of both debt and equity investments and are generally preferred over common stocks with respect to dividends and in liquidation. A warrant is an instrument issued by a corporation which gives the holder the right to subscribe to a specified amount of the company's capital stock at a set price for a specified period of time.
FOREIGN SECURITIES
The Fund may invest in securities traded in markets outside the United States. Foreign investments can be affected favorably or unfavorably by changes in currency rates and in exchange control regulations. There may be less publicly available information about a foreign company than about a U.S. company, and foreign companies may not be subject to accounting, auditing and financial reporting standards comparable to those applicable to U.S. companies. Securities of some foreign companies are less liquid or more volatile than securities of U.S. companies, and foreign brokerage commissions and custodian fees may be higher than in the United States. Investments in foreign securities can involve other risks different from those affecting U.S. investments, including local political or economic developments, expropriation or nationalization of assets and imposition of withholding taxes on dividend or interest payments. Foreign securities, like other assets of the Fund, will be held by the Fund's custodian or by a sub-custodian or depository. See also "Foreign Currency Transactions" below.
The Fund may invest in certain Passive Foreign Investment Companies (PFICs) which may be subject to U.S. federal income tax on a portion of any "excess distribution" or gain (PFIC tax) related to the investment. This "excess distribution" will be allocated over the Fund's holding period for such investment. The PFIC tax is the highest ordinary income rate in effect for any period multiplied by the portion of the "excess distribution" allocated to such period, and it could be increased by an interest charge on the deemed tax deferral.
The Fund may possibly elect to include in its income its pro rata share of the ordinary earnings and net capital gain of PFICs. This election requires certain annual information from the PFICs which in many cases may be difficult to obtain. An alternative election would permit the Fund to recognize as income any appreciation (and to a limited extent, depreciation) on its holdings of PFICs as of the end of its fiscal year. See "Taxes" below.
The Fund may invest in other investment companies. Such investments will involve the payment of duplicative fees through the indirect payment of a portion of the expenses, including advisory fees, of such other investment companies.
EXCHANGE-TRADED FUNDS ("ETFS"). The Fund may invest in ETFs up to the maximum amount allowable under the 1940 Act. ETFs are shares of publicly-traded unit investment trusts, open-end funds, or depositary receipts that seek to track the performance and dividend yield of specific indexes or companies in related industries. These indexes may be either broad-based, sector or international.
ETF shareholders are generally subject to the same risks as holders of the underlying securities they are designed to track. ETFs are also subject to certain additional risks, including (1) the risk that their prices may not correlate perfectly with changes in the prices of the underlying securities they are designed to track; and (2) the risk of possible trading halts due to market conditions or other reasons, based on the policies of the exchange upon which an ETF trades. In addition, an exchange traded sector fund may be adversely affected by the performance of that specific sector or group of industries on which it is based.
The Fund would bear, along with other shareholders of an ETF, its pro rata portion of the ETF's expenses, including management fees. Accordingly, in addition to bearing their proportionate share of the Fund's expenses (i.e., management fees and operating expenses), shareholders of the Fund may also indirectly bear similar expenses of an ETF.
ZERO COUPON SECURITIES (ZEROS)
The Fund may invest in zero coupon securities, which are securities issued at a significant discount from face value and do not pay interest at intervals during the life of the security. Zero coupon securities include securities issued in certificates representing undivided interests in the interest or principal of mortgage-backed securities (interest only/principal only), which tend to be more volatile than other types of securities. The Fund will accrue and distribute income from stripped securities and certificates on a current basis and may have to sell securities to generate cash for distributions.
STEP COUPON BONDS (STEPS)
The Fund may invest in debt securities which pay interest at a series of different rates (including 0%) in accordance with a stated schedule for a series of periods. In addition to the risks associated with the credit rating of the issuers, these securities may be subject to more volatility risk than fixed rate debt securities.
TENDER OPTION BONDS
A tender option bond is a municipal security (generally held pursuant to a custodial arrangement) having a relatively long maturity and bearing interest at a fixed rate substantially higher than prevailing short-term tax-exempt rates, that has been coupled with the agreement of a third party, such as a bank, broker-dealer or other financial institution, pursuant to which such institution grants the security holders the option, at periodic intervals, to tender their securities to the institution and receive the face value thereof. As consideration for providing the option, the financial institution receives periodic fees equal to the difference between the municipal security's fixed coupon rate and the rate, as determined by a remarketing or similar agent at or near the commencement of such period, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term tax-exempt rate. The Advisor will consider on an ongoing basis the creditworthiness of the issuer of the underlying municipal securities, of any custodian, and of the third-party provider of the tender option. In certain instances and for certain tender option bonds, the option may be terminable in the event of a default in payment of principal or interest on the underlying municipal securities and for other reasons.
PAY-IN-KIND (PIK) SECURITIES
The Fund may invest in securities which pay interest either in cash or additional securities. These securities are generally high yield securities and, in addition to the other risks associated with investing in high yield securities, are subject to the risks that the interest payments which consist of additional securities are also subject to the risks of high yield securities.
MONEY MARKET INSTRUMENTS
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their subdivisions, agencies and instrumentalities. SUPRANATIONAL OBLIGATIONS are issued by supranational entities and are generally designed to promote economic improvements. CERTIFICATES OF DEPOSIT are issued against deposits in a commercial bank with a defined return and maturity. BANKER'S ACCEPTANCES are used to finance the import, export or storage of goods and are "accepted" when guaranteed at maturity by a bank. COMMERCIAL PAPER is a promissory note issued by a business to finance short-term needs (including promissory notes with floating or variable interest rates, or including a frequent interval put feature). SHORT-TERM CORPORATE OBLIGATIONS are bonds and notes (with one year or less to maturity at the time of purchase) issued by businesses to finance long-term needs. PARTICIPATION INTERESTS include the underlying securities and any related guaranty, letter of credit, or collateralization arrangement in which the Fund would be allowed to invest directly.
CERTIFICATES OF DEPOSIT are short-term negotiable instruments issued against deposits in a commercial bank with a defined return and maturity. TIME DEPOSITS are non-negotiable deposits maintained in banking institutions for specified periods of time at stated interest rates.
GOVERNMENT OBLIGATIONS are issued by the U.S. or foreign governments, their subdivisions, agencies and instrumentalities. Examples of the types of obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities (hereinafter, "U.S. Government obligations") that may be held by the Funds include, without limitation, direct obligations of the U.S. Treasury, and securities issued or guaranteed by the Federal Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, Federal Housing Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Government National Mortgage Association, Federal National Mortgage Association, General Services Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate Credit Banks, Resolution Trust Corporation and Maritime Administration.
U.S. Treasury securities differ only in their interest rates, maturities and time of issuance: Treasury Bills have initial maturities of one year or less; Treasury Notes have initial maturities of one to ten years; and Treasury Bonds generally have initial maturities
of more than ten years. Obligations of certain agencies and instrumentalities of the U.S. Government, such as those of the Government National Mortgage Association, are supported by the full faith and credit of the U.S. Treasury; others, such as those of the Federal Home Loan Banks, are supported by the right of the issuer to borrow from the Treasury; others, such as those of the Federal National Mortgage Association, are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; still others, such as those of the Federal Home Loan Mortgage Corporation, are supported only by the credit of the instrumentality. No assurance can be given that the U.S. Government would provide financial support to U.S. Government-sponsored instrumentalities if it is not obligated to do so by law. Some of these instruments may be variable or floating rate instruments.
Securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities have historically involved relatively little risk of loss of principal. However, due to fluctuations in interest rates, the market value of such securities may vary during the period a shareholder owns shares of the Fund.
BANK OBLIGATIONS include bankers' acceptances, negotiable certificates of deposit, and non-negotiable time deposits issued for a definite period of time and earning a specified return by a U.S. bank which is a member of the Federal Reserve System or is insured by the Federal Deposit Insurance Corporation ("FDIC"), or by a savings and loan association or savings bank which is insured by the FDIC. Bank obligations also include U.S. dollar-denominated obligations of foreign branches of U.S. banks or of U.S. branches of foreign banks, all of the same type as domestic bank obligations. Time deposits with a maturity longer than seven days or that do not provide for payment within seven days after notice will be subject to any limitations on illiquid securities described in Part 1 of this SAI. For purposes of each Fund's investment policies with respect to bank obligations, the assets of a bank or savings institution will be deemed to include the assets of its U.S. and foreign branches.
Domestic and foreign banks are subject to extensive but different government regulation which may limit the amount and types of their loans and the interest rates that may be charged. In addition, the profitability of the banking industry is largely dependent upon the availability and cost of funds to finance lending operations and the quality of underlying bank assets. Investments in obligations of foreign branches of U.S. banks and of U.S. branches of foreign banks may subject a Fund to additional risks, including future political and economic developments, the possible imposition of withholding taxes on interest income, possible seizure or nationalization of foreign deposits, the possible establishment of exchange controls, or the adoption of other foreign governmental restrictions which might adversely affect the payment of principal and interest on such obligations. In addition, foreign branches of U.S. banks and U.S. branches of foreign banks may be subject to less stringent reserve requirements and to different accounting, auditing, reporting, and recordkeeping standards than those applicable to domestic branches of U.S. banks.
SEPARATELY TRADED INTEREST AND PRINCIPAL SECURITIES ("STRIPS") are component parts of U.S. Treasury Securities traded through the Federal Reserve Book-Entry System. While there is no limitation on the percentage of a Fund's assets that may be invested in STRIPS, the Advisor will monitor the level of such holdings to avoid the risk of impairing shareholders' redemption rights. The interest-only component of STRIPS is extremely sensitive to the rate of principal payments on the underlying obligation. The market value of the principal-only component is usually volatile in response to changes in interest rates.
In U.S. TREASURY ROLLS, a Fund sells outstanding U.S. Treasury securities and buys back on a delayed settlement basis the same U.S. Treasury securities. During the period prior to the delayed settlement date, the assets from the sale of the U.S. Treasury securities are invested in certain cash equivalent instruments. U.S. Treasury rolls entail the risk that the Fund could suffer an opportunity loss if the counterparty to the roll failed to perform its obligations on the settlement date, and if market conditions changed adversely. The Funds intend to enter into U.S. Treasury rolls only with U.S. Government securities dealers recognized by the Federal Reserve Bank or with member banks of the Federal Reserve System. The Funds will hold and maintain in a segregated account until the settlement date cash or other liquid assets in an amount equal to the forward purchase price. For financial reporting and tax purposes, the Funds propose to treat U.S. Treasury rolls as two separate transactions, one involving the purchase of a security and a separate transaction involving a sale.
COMMERCIAL PAPER is an unsecured short-term promissory note issued by businesses to finance short-term needs (including those with floating or variable interest rates, or including a frequent interval put feature). Commercial paper may include variable and floating rate instruments which are unsecured instruments that permit the indebtedness thereunder to vary. Variable rate instruments provide for periodic adjustments in the interest rate. Floating rate instruments provide for automatic adjustment of the interest rate whenever some other specified interest rate changes. Some variable and floating rate obligations are direct lending arrangements between the purchaser and the issuer and there may be no active secondary market. However, in the case of
variable and floating rate obligations with a demand feature, a Fund may demand payment of principal and accrued interest at a time specified in the instrument or may resell the instrument to a third party. In the event that an issuer of a variable or floating rate obligation were to default on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and could, for this or other reasons, suffer a loss to the extent of the default.
Commercial paper may include securities issued by corporations without registration under the 1933 Act in reliance on the so-called "private placement" exemption in Section 4(2) ("Section 4(2) Paper"). Section 4(2) Paper is restricted as to disposition under the federal securities laws in that any resale must similarly be made in an exempt transaction. Section 4(2) Paper is normally resold to other institutional investors through or with the assistance of investment dealers who make a market in Section 4(2) Paper, thus providing liquidity. For purposes of each Fund's limitation on purchases of illiquid instruments described below, Section 4(2) Paper will not be considered illiquid if the Advisor has determined, in accordance with guidelines approved by the Board of Trustees, that an adequate trading market exists for such securities.
STRIPPED OBLIGATIONS
To the extent consistent with their investment objective, Funds may purchase U.S. Treasury receipts and other "stripped" securities that evidence ownership in either the future interest payments or the future principal payments on U.S. Government and other obligations. These participations, which may be issued by the U.S. Government or by private issuers, such as banks and other institutions, are issued at their "face value," and may include stripped mortgage-backed securities ("SMBS"), which are derivative multi-class mortgage securities. Stripped securities, particularly SMBS, may exhibit greater price volatility than ordinary debt securities because of the manner in which their principal and interest are returned to investors.
SMBS are usually structured with two or more classes that receive different proportions of the interest and principal distributions from a pool of mortgage-backed obligations. A common type of SMBS will have one class receiving all of the interest, while the other class will receive all of the principal. However, in some instances, one class will receive some of the interest and most of the principal while the other class will receive most of the interest and the remainder of the principal. If the underlying obligations experience greater than anticipated prepayments of principal, the Fund may fail to fully recoup its initial investment in these securities. The market value of the class consisting entirely of principal payments generally is extremely volatile in response to changes in interest rates. The yields on a class of SMBS that receives all or most of the interest are generally higher than prevailing market yields on other mortgage-backed obligations because their cash flow patterns are more volatile and there is a greater risk that the initial investment will not be fully recouped. SMBS which are not issued by the U.S. Government (or a U.S. Government agency or instrumentality) are considered illiquid by the Funds. Obligations issued by the U.S. Government may be considered liquid under guidelines established by Funds' Board of Trustees if they can be disposed of promptly in the ordinary course of business at a value reasonably close to that used in the calculation of net asset value per share.
MUNICIPAL SECURITIES
Municipal Securities acquired by the Funds include debt obligations issued by governmental entities to obtain funds for various public purposes, including the construction of a wide range of public facilities, the refunding of outstanding obligations, the payment of general operating expenses, and the extension of loans to public institutions and facilities. Private activity bonds that are issued by or on behalf of public authorities to finance various privately operated facilities are "Municipal Securities" if the interest paid thereon is exempt from regular federal income tax and not treated as a specific tax preference item under the federal alternative minimum tax.
The two principal classifications of Municipal Securities which may be held by the Funds are "general obligation" securities and "revenue" securities. General obligation securities are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue securities are payable only from the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise tax or other specific revenue source such as the user of the facility being financed.
The Fund's portfolio may also include "moral obligation" securities, which are normally issued by special purpose public authorities. If the issuer of moral obligation securities is unable to meet its debt service obligations from current revenues, it may draw on a reserve fund, the restoration of which is a moral commitment but not a legal obligation of the state or municipality which created the issuer. There is no limitation on the amount of moral obligation securities that may be held by the Funds.
There are, of course, variations in the quality of Municipal Securities, both within a particular category and between categories, and the yields on Municipal Securities depend upon a variety of factors, including general market conditions, the financial
condition of the issuer, general conditions of the municipal bond market, the size of a particular offering, the maturity of the obligation, and the rating of the issue. The ratings of a nationally recognized statistical rating organization ("NRSRO"), such as Moody's and S&P, represent such NRSRO's opinion as to the quality of Municipal Securities. It should be emphasized that these ratings are general and are not absolute standards of quality. Municipal Securities with the same maturity, interest rate and rating may have different yields. Municipal Securities of the same maturity and interest rate with different ratings may have the same yield.
Municipal Securities may include rated and unrated variable and floating rate tax-exempt instruments, such as variable rate demand notes. Variable rate demand notes are long-term Municipal Securities that have variable or floating interest rates and provide a Fund with the right to tender the security for repurchase at its stated principal amount plus accrued interest. Such securities typically bear interest at a rate that is intended to cause the securities to trade at par. The interest rate may float or be adjusted at regular intervals (ranging from daily to annually), and is normally based on an applicable interest index or another published interest rate or interest rate index. Most variable rate demand notes allow a Fund to demand the repurchase of the security on not more than seven days prior notice. Other notes only permit a Fund to tender the security at the time of each interest rate adjustment or at other fixed intervals. Variable interest rates generally reduce changes in the market value of Municipal Securities from their original purchase prices. Accordingly, as interest rates decrease, the potential for capital appreciation is less for variable rate Municipal Securities than for fixed income obligations. The terms of these variable rate demand instruments require payment of principal and accrued interest from the issuer of the Municipal Securities, the issuer of the participation interest or a guarantor of either issuer.
Municipal Securities purchased by the Funds in some cases may be insured as to the timely payment of principal and interest. There is no guarantee, however, that the insurer will meet its obligations in the event of a default in payment by the issuer. In other cases, Municipal Securities may be backed by letters of credit or guarantees issued by domestic or foreign banks or other financial institutions which are not subject to federal deposit insurance. Adverse developments affecting the banking industry generally or a particular bank or financial institution that has provided its credit or guarantee with respect to a Municipal Security held by a Fund, including a change in the credit quality of any such bank or financial institution, could result in a loss to the Fund and adversely affect the value of its shares. Letters of credit and guarantees issued by foreign banks and financial institutions involve certain risks in addition to those of similar instruments issued by domestic banks and financial institutions.
The payment of principal and interest on most Municipal Securities purchased by the Funds will depend upon the ability of the issuers to meet their obligations. Each state, the District of Columbia, each of their political subdivisions, agencies, instrumentalities and authorities and each multi-state agency of which a state is a member is a separate "issuer" as that term is used in this SAI and the Prospectuses. The non-governmental user of facilities financed by private activity bonds is also considered to be an "issuer." An issuer's obligations under its Municipal Securities are subject to the provisions of bankruptcy, insolvency and other laws affecting the rights and remedies of creditors, such as the Federal Bankruptcy Code and laws, if any, which may be enacted by federal or state legislatures extending the time for payment of principal or interest, or both, or imposing other constraints upon enforcement of such obligations or upon the ability of municipalities to levy taxes. The power or ability of an issuer to meet its obligations for the payment of interest on and principal of its Municipal Securities may be materially adversely affected by litigation or other conditions.
From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax exemption for interest on Municipal Securities. For example, under the Tax Reform Act of 1986, interest on certain private activity bonds must be included in an investor's federal alternative minimum taxable income, and corporate investors must include all tax-exempt interest in their federal alternative minimum taxable income. The Funds cannot, of course, predict what legislation may be proposed in the future regarding the income tax status of interest on Municipal Securities, or which proposals, if any, might be enacted. Such proposals, while pending or if enacted, might materially and adversely affect the availability of Municipal Securities for investment by the Funds and the liquidity and value of their respective portfolios. In such an event, each Fund would re-evaluate its investment objective and policies and consider possible changes in its structure or possible dissolution.
Opinions relating to the validity of Municipal Securities and to the exemption of interest thereon from federal income tax are rendered by bond counsel to the respective issuers at the time of issuance. Neither the Funds nor the Advisor will review the proceedings relating to the issuance of Municipal Securities or the bases for such opinions.
PRIVATE ACTIVITY BONDS
The Funds may invest in "private activity bonds," the interest on which, although exempt from regular federal income tax, may constitute an item of tax preference for purposes of the federal alternative minimum tax. Private activity bonds are or have been issued to obtain funds to provide, among other things, privately operated housing facilities, pollution control facilities, convention or trade show facilities, mass transit, airport, port or parking facilities and certain local facilities for water supply, gas, electricity or sewage or solid waste disposal. Private activity bonds are also issued to privately held or publicly owned corporations in the financing of commercial or industrial facilities. State and local governments are authorized in most states to issue private activity bonds for such purposes in order to encourage corporations to locate within their communities. The principal and interest on these obligations may be payable from the general revenues of the users of such facilities.
Private activity bonds held by the Funds are in most cases revenue securities and are not payable from the unrestricted revenues of the issuer. Consequently, the credit quality of such private activity bonds is usually directly related to the credit standing of the corporate user of the facility involved.
MUNICIPAL LEASE OBLIGATIONS
Although a municipal lease obligation does not constitute a general obligation of the municipality for which the municipality's taxing power is pledged, a municipal lease obligation is ordinarily backed by the municipality's covenant to budget for, appropriate and make the payments due under the municipal lease obligation. However, certain lease obligations contain "non-appropriation" clauses which provide that the municipality has no obligation to make lease or installment purchase payments in future years unless money is appropriated for such purpose on a yearly basis. Although "non-appropriation" lease obligations are secured by the leased property, disposition of the property in the event of foreclosure might prove difficult. In addition, the tax treatment of such obligations in the event of non-appropriation is unclear.
Determinations concerning the liquidity and appropriate valuation of a municipal lease obligation, as with any other municipal security, are made based on all relevant factors. These factors include, among others: (1) the frequency of trades and quotes for the obligation; (2) the number of dealers willing to purchase or sell the security and the number of other potential buyers; (3) the willingness of dealers to undertake to make a market in the security; and (4) the nature of the marketplace trades, including the time needed to dispose of the security, the method of soliciting offers, and the mechanics of the transfer.
SECURITIES LOANS
The Fund may make secured loans of its portfolio securities amounting to not more than the percentage of its total assets specified in Part 1 of this SAI, thereby realizing additional income. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delay in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially. As a matter of policy, securities loans are made to banks and broker-dealers pursuant to agreements requiring that loans be continuously secured by collateral in cash or short-term debt obligations at least equal at all times to the value of the securities on loan. The borrower pays to the Fund an amount equal to any dividends or interest received on securities lent. The Fund retains all or a portion of the interest received on investment of the cash collateral or receives a fee from the borrower. Although voting rights, or rights to consent, with respect to the loaned securities pass to the borrower, the Fund retains the right to call the loans at any time on reasonable notice, and it will do so in order that the securities may be voted by the Fund if the holders of such securities are asked to vote upon or consent to matters materially affecting the investment. The Fund may also call such loans in order to sell the securities involved.
INTERFUND BORROWING AND LENDING
The Fund may lend money to and borrow money from other affiliated registered open-end investment companies. The Fund may borrow through the program when the Advisor believes borrowing is appropriate and the costs are equal to or lower than the costs of bank loans. When borrowing money, the Fund is subject to the risk that the securities the Fund acquires with the borrowed money or would otherwise have sold will decline in value. When lending money, the Fund is subject to the risk that the borrower will be unwilling or unable to make timely payments of interest or principal.
FORWARD COMMITMENTS ("WHEN-ISSUED" AND "DELAYED DELIVERY" SECURITIES)
The Fund may enter into contracts to purchase securities for a fixed price at a future date beyond customary settlement time ("forward commitments" and "when-issued securities") if the Fund holds until the settlement date, in a segregated account, cash or liquid securities in an amount sufficient to meet the purchase price, or if the Fund enters into offsetting contracts for the forward sale of other securities it owns. Forward commitments may be considered securities in themselves, and involve a risk of loss if the value of the security to be purchased declines prior to the settlement date. Where such purchases are made through
dealers, the Fund relies on the dealer to consummate the sale. The dealer's failure to do so may result in the loss to the Fund of an advantageous yield or price. Although the Fund will generally enter into forward commitments with the intention of acquiring securities for its portfolio or for delivery pursuant to options contracts it has entered into, the Fund may dispose of a commitment prior to settlement if the Advisor deems it appropriate to do so. The Fund may realize short-term profits or losses (generally taxed at ordinary income tax rates in the hands of the shareholders) upon the sale of forward commitments.
MORTGAGE DOLLAR ROLLS
In a mortgage dollar roll, the Fund sells a mortgage-backed security and simultaneously enters into a commitment to purchase a similar security at a later date. The Fund either will be paid a fee by the counterparty upon entering into the transaction or will be entitled to purchase the similar security at a discount. As with any forward commitment, mortgage dollar rolls involve the risk that the counterparty will fail to deliver the new security on the settlement date, which may deprive the Fund of obtaining a beneficial investment. In addition, the security to be delivered in the future may turn out to be inferior to the security sold upon entering into the transaction. In addition, the transaction costs may exceed the return earned by the Fund from the transaction.
REITS
The Funds may invest in real estate investment trusts ("REITs"). Equity REITs invest directly in real property while mortgage REITs invest in mortgages on real property. REITs may be subject to certain risks associated with the direct ownership of real estate, including declines in the value of real estate, risks related to general and local economic conditions, overbuilding and increased competition, increases in property taxes and operating expenses, and variations in rental income. Generally, increases in interest rates will decrease the value of high yielding securities and increase the costs of obtaining financing, which could decrease the value of a REIT's investments. In addition, equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of credit extended. Equity and mortgage REITs are dependent upon management skill, are not diversified and are subject to the risks of financing projects. REITs are also subject to heavy cash flow dependency, defaults by borrowers, self liquidation and the possibility of failing to qualify for tax-free pass-through of income under the Internal Revenue Code of 1986, as amended (the "Code"), and to maintain exemption from the 1940 Act. REITs pay dividends to their shareholders based upon available funds from operations. It is quite common for these dividends to exceed a REIT's taxable earnings and profits resulting in the excess portion of such dividends being designated as a return of capital. The Funds intend to include the gross dividends from any investments in REITs in their periodic distributions to its shareholders and, accordingly, a portion of the Fund's distributions may also be designated as a return of capital.
Mortgage-Backed Securities
Mortgage-backed securities, including "collateralized mortgage obligations" (CMOs) and "real estate mortgage investment conduits" (REMICs), evidence ownership in a pool of mortgage loans made by certain financial institutions that may be insured or guaranteed by the U.S. government or its agencies. CMOs are obligations issued by special-purpose trusts, secured by mortgages. REMICs are entities that own mortgages and elect REMIC status under the Internal Revenue Code. Both CMOs and REMICs issue one or more classes of securities of which one (the Residual) is in the nature of equity. The Funds will not invest in the Residual class. Principal on mortgage-backed securities, CMOs and REMICs may be prepaid if the underlying mortgages are prepaid. Prepayment rates for mortgage-backed securities tend to increase as interest rates decline (effectively shortening the security's life) and decrease as interest rates rise (effectively lengthening the security's life). Because of the prepayment feature, these securities may not increase in value as much as other debt securities when interest rates fall. A Fund may be able to invest prepaid principal only at lower yields. The prepayment of such securities purchased at a premium may result in losses equal to the premium.
NON-AGENCY MORTGAGE-BACKED SECURITIES
The Fund may invest in non-investment grade mortgage-backed securities that are not guaranteed by the U.S. government or an agency. Such securities are subject to the risks described under "Lower Rated Debt Securities" and "Mortgage-Backed Securities." In addition, although the underlying mortgages provide collateral for the security, the Fund may experience losses, costs and delays in enforcing its rights if the issuer defaults or enters bankruptcy.
Asset-Backed Securities
Asset-backed securities are interests in pools of debt securities backed by various types of loans such as credit card, auto and home equity loans. These securities involve prepayment risk, which is the possibility that the underlying debt may be refinanced or prepaid prior to maturity during periods of declining interest rates. During periods of rising interest rates, asset-backed securities have a high risk of declining in price because the declining prepayment rates effectively lengthen the
expected maturity of the securities. A decline in interest rates may lead to a faster rate of repayment on asset-backed securities and, therefore, cause a Fund to earn a lower interest rate on reinvestment. In addition, the potential impact of prepayment on the price of an asset-backed security may be difficult to predict and result in greater volatility.
CUSTODY RECEIPTS AND TRUST CERTIFICATES. Custody receipts, such as Morgan Stanley TRACERs (Traded Custody Receipts), and trust certificates, such as Lehman Brothers TRAINs (Targeted Return Index Securities Trust), are derivative products which, in the aggregate, evidence direct ownership in a pool of securities. Typically, a sponsor will deposit a pool of securities with a custodian in exchange for custody receipts evidencing those securities or with a trust in exchange for trust certificates evidencing interests in the trust, the principal asset of which is those securities. The sponsor will then generally sell those custody receipts or trust certificates in negotiated transactions at varying prices that are determined at the time of sale. Each custody receipt or trust certificate evidences the individual securities in the pool and the holder of a custody receipt or trust certificate generally will have all the rights and privileges of owners of those securities. Each holder of a custody receipt or trust certificate generally will be treated as directly purchasing its pro rata share of the securities in the pool for an amount equal to the amount that such holder paid for its custody receipt or trust certificate. If a custody receipt or trust certificate is sold, a holder will be treated as having directly "disposed of its pro rata share of the securities evidenced by the custody receipt or trust certificate. Additionally, the holder of a custody receipt or trust certificate may withdraw the securities represented by the custody receipt or trust certificate subject to certain conditions. Custody receipts and trust certificates are generally subject to the same risks as those securities evidenced by the receipts or certificates which, in the case of the Fund, are corporate debt securities. Additionally, custody receipts and trust certificates may also be less liquid than the underlying securities if the sponsor fails to maintain a trading market.
REPURCHASE AGREEMENTS
The Fund may enter into repurchase agreements. A repurchase agreement is a contract under which the Fund acquires a security for a relatively short period subject to the obligation of the seller to repurchase and the Fund to resell such security at a fixed time and price (representing the Fund's cost plus interest). It is the Fund's present intention to enter into repurchase agreements only with commercial banks and registered broker-dealers and only with respect to obligations of the U.S. government or its agencies or instrumentalities. Repurchase agreements may also be viewed as loans made by the Fund which are collateralized by the securities subject to repurchase. The Advisor will monitor such transactions to determine that the value of the underlying securities is at least equal at all times to the total amount of the repurchase obligation, including the interest factor. If the seller defaults, the Fund could realize a loss on the sale of the underlying security to the extent that the proceeds of sale including accrued interest are less than the resale price provided in the agreement including interest. In addition, if the seller should be involved in bankruptcy or insolvency proceedings, the Fund may incur delay and costs in selling the underlying security or may suffer a loss of principal and interest if the Fund is treated as an unsecured creditor and required to return the underlying collateral to the seller's estate.
REVERSE REPURCHASE AGREEMENTS
In a reverse repurchase agreement, the Fund sells a security and agrees to repurchase the same security at a mutually agreed upon date and price. A reverse repurchase agreement may also be viewed as the borrowing of money by the Fund and, therefore, as a form of leverage. The Fund will invest the proceeds of borrowings under reverse repurchase agreements. In addition, the Fund will enter into a reverse repurchase agreement only when the interest income expected to be earned from the investment of the proceeds is greater than the interest expense of the transaction. The Fund will not invest the proceeds of a reverse repurchase agreement for a period which exceeds the duration of the reverse repurchase agreement. The Fund may not enter into reverse repurchase agreements exceeding in the aggregate one-third of the market value of its total assets, less liabilities other than the obligations created by reverse repurchase agreements. Each Fund will establish and maintain with its custodian a separate account with a segregated portfolio of securities in an amount at least equal to its purchase obligations under its reverse repurchase agreements. If interest rates rise during the term of a reverse repurchase agreement, entering into the reverse repurchase agreement may have a negative impact on a money market fund's ability to maintain a net asset value of $1.00 per share.
LINE OF CREDIT
The Fund may establish and maintain a line of credit with a major bank in order to permit borrowing on a temporary basis to meet share redemption requests in circumstances in which temporary borrowings may be preferable to liquidation of portfolio securities.
OPTIONS ON SECURITIES
WRITING COVERED OPTIONS. The Fund may write covered call options and covered put options on securities held in its portfolio when, in the opinion of the Advisor, such transactions are consistent with the Fund's investment goal and policies. Call options written by the Fund give the purchaser the right to buy the underlying securities from the Fund at a stated exercise price; put options give the purchaser the right to sell the underlying securities to the Fund at a stated price.
The Fund may write only covered options, which means that, so long as the Fund is obligated as the writer of a call option, it will own the underlying securities subject to the option (or comparable securities satisfying the cover requirements of securities exchanges). In the case of put options, the Fund will hold cash and/or high-grade short-term debt obligations equal to the price to be paid if the option is exercised. In addition, the Fund will be considered to have covered a put or call option if and to the extent that it holds an option that offsets some or all of the risk of the option it has written. The Fund may write combinations of covered puts and calls on the same underlying security.
The Fund will receive a premium from writing a put or call option, which increases the Fund's return on the underlying security if the option expires unexercised or is closed out at a profit. The amount of the premium reflects, among other things, the relationship between the exercise price and the current market value of the underlying security, the volatility of the underlying security, the amount of time remaining until expiration, current interest rates, and the effect of supply and demand in the options market and in the market for the underlying security. By writing a call option, the Fund limits its opportunity to profit from any increase in the market value of the underlying security above the exercise price of the option but continues to bear the risk of a decline in the value of the underlying security. By writing a put option, the Fund assumes the risk that it may be required to purchase the underlying security for an exercise price higher than its then-current market value, resulting in a potential capital loss unless the security subsequently appreciates in value.
The Fund may terminate an option that it has written prior to its expiration by entering into a closing purchase transaction in which it purchases an offsetting option. The Fund realizes a profit or loss from a closing transaction if the cost of the transaction (option premium plus transaction costs) is less or more than the premium received from writing the option. Because increases in the market price of a call option generally reflect increases in the market price of the security underlying the option, any loss resulting from a closing purchase transaction may be offset in whole or in part by unrealized appreciation of the underlying security.
If the Fund writes a call option but does not own the underlying security, and when it writes a put option, the Fund may be required to deposit cash or securities with its broker as "margin" or collateral for its obligation to buy or sell the underlying security. As the value of the underlying security varies, the Fund may have to deposit additional margin with the broker. Margin requirements are complex and are fixed by individual brokers, subject to minimum requirements currently imposed by the Federal Reserve Board and by stock exchanges and other self-regulatory organizations.
PURCHASING PUT OPTIONS. The Fund may purchase put options to protect its portfolio holdings in an underlying security against a decline in market value. Such hedge protection is provided during the life of the put option since the Fund, as holder of the put option, is able to sell the underlying security at the put exercise price regardless of any decline in the underlying security's market price. For a put option to be profitable, the market price of the underlying security must decline sufficiently below the exercise price to cover the premium and transaction costs. By using put options in this manner, the Fund will reduce any profit it might otherwise have realized from appreciation of the underlying security by the premium paid for the put option and by transaction costs.
PURCHASING CALL OPTIONS. The Fund may purchase call options to hedge against an increase in the price of securities that the Fund wants ultimately to buy. Such hedge protection is provided during the life of the call option since the Fund, as holder of the call option, is able to buy the underlying security at the exercise price regardless of any increase in the underlying security's market price. In order for a call option to be profitable, the market price of the underlying security must rise sufficiently above the exercise price to cover the premium and transaction costs. These costs will reduce any profit the Fund might have realized had it bought the underlying security at the time it purchased the call option.
OVER-THE-COUNTER (OTC) OPTIONS. The Staff of the Division of Investment Management of the Securities and Exchange Commission (SEC) has taken the position that OTC options purchased by the Fund and assets held to cover OTC options written by the Fund are illiquid securities. Although the Staff has indicated that it is continuing to evaluate this issue, pending further developments, the Fund intends to enter into OTC options transactions only with primary dealers in U.S. government securities and, in the case of OTC options written by the Fund, only pursuant to agreements that will assure that the Fund will at all times have the right to repurchase the option written by it from the dealer at a specified formula price. The Fund will treat the amount
by which such formula price exceeds the amount, if any, by which the option may be "in-the-money" as an illiquid investment. It is the present policy of the Fund not to enter into any OTC option transaction if, as a result, more than 15% (10% in some cases, refer to your Fund's Prospectus) of the Fund's net assets would be invested in (i) illiquid investments (determined under the foregoing formula) relating to OTC options written by the Fund, (ii) OTC options purchased by the Fund, (iii) securities which are not readily marketable, and (iv) repurchase agreements maturing in more than seven days.
RISK FACTORS IN OPTIONS TRANSACTIONS. The successful use of the Fund's options strategies depends on the ability of the Advisor to forecast interest rate and market movements correctly.
When it purchases an option, the Fund runs the risk that it will lose its entire investment in the option in a relatively short period of time, unless the Fund exercises the option or enters into a closing sale transaction with respect to the option during the life of the option. If the price of the underlying security does not rise (in the case of a call) or fall (in the case of a put) to an extent sufficient to cover the option premium and transaction costs, the Fund will lose part or all of its investment in the option. This contrasts with an investment by the Fund in the underlying securities, since the Fund may continue to hold its investment in those securities notwithstanding the lack of a change in price of those securities.
The effective use of options also depends on the Fund's ability to terminate option positions at times when the Advisor deems it desirable to do so. Although the Fund will take an option position only if the Advisor believes there is a liquid secondary market for the option, there is no assurance that the Fund will be able to effect closing transactions at any particular time or at an acceptable price.
If a secondary trading market in options were to become unavailable, the Fund could no longer engage in closing transactions. Lack of investor interest might adversely affect the liquidity of the market for particular options or series of options. A marketplace may discontinue trading of a particular option or options generally. In addition, a market could become temporarily unavailable if unusual events -- such as volume in excess of trading or clearing capability -- were to interrupt normal market operations.
A marketplace may at times find it necessary to impose restrictions on particular types of option transactions, which may limit the Fund's ability to realize its profits or limit its losses.
Disruptions in the markets for the securities underlying options purchased or sold by the Fund could result in losses on the options. If trading is interrupted in an underlying security, the trading of options on that security is normally halted as well. As a result, the Fund as purchaser or writer of an option will be unable to close out its positions until options trading resumes, and it may be faced with losses if trading in the security reopens at a substantially different price. In addition, the Options Clearing Corporation (OCC) or other options markets may impose exercise restrictions. If a prohibition on exercise is imposed at the time when trading in the option has also been halted, the Fund as purchaser or writer of an option will be locked into its position until one of the two restrictions has been lifted. If a prohibition on exercise remains in effect until an option owned by the Fund has expired, the Fund could lose the entire value of its option.
Special risks are presented by internationally traded options. Because of time differences between the United States and various foreign countries, and because different holidays are observed in different countries, foreign options markets may be open for trading during hours or on days when U.S. markets are closed. As a result, option premiums may not reflect the current prices of the underlying interest in the United States.
FUTURES CONTRACTS AND RELATED OPTIONS
Upon entering into futures contracts, in compliance with the SEC's requirements, cash or liquid securities, equal in value to the amount of the Fund's obligation under the contract (less any applicable margin deposits and any assets that constitute "cover" for such obligation), will be segregated with the Fund's custodian..
A futures contract sale creates an obligation by the seller to deliver the type of instrument called for in the contract in a specified delivery month for a stated price. A futures contract purchase creates an obligation by the purchaser to take delivery of the type of instrument called for in the contract in a specified delivery month at a stated price. The specific instruments delivered or taken at the settlement date are not determined until on or near that date. The determination is made in accordance with the rules of the exchanges on which the futures contract was made. The Fund may enter into futures contracts which are traded on national or foreign futures exchanges and are standardized as to maturity date and underlying financial instrument. Futures exchanges
and trading in the United States are regulated under the Commodity Exchange Act by the Commodity Futures Trading Commission (CFTC).
Although futures contracts by their terms call for actual delivery or acceptance of commodities or securities, the contracts usually are closed out before the settlement date without the making or taking of delivery. Closing out a futures contract sale is effected by purchasing a futures contract for the same aggregate amount of the specific type of financial instrument or commodity with the same delivery date. If the price of the initial sale of the futures contract exceeds the price of the offsetting purchase, the seller is paid the difference and realizes a gain. Conversely, if the price of the offsetting purchase exceeds the price of the initial sale, the seller realizes a loss. Similarly, the closing out of a futures contract purchase is effected by the purchaser's entering into a futures contract sale. If the offsetting sale price exceeds the purchase price, the purchaser realizes a gain, and if the purchase price exceeds the offsetting sale price, the purchaser realizes a loss.
Unlike when the Fund purchases or sells a security, no price is paid or received by the Fund upon the purchase or sale of a futures contract, although the Fund is required to deposit with its custodian in a segregated account in the name of the futures broker an amount of cash and/or U.S. government securities. This amount is known as "initial margin." The nature of initial margin in futures transactions is different from that of margin in security transactions in that futures contract margin does not involve the borrowing of funds by the Fund to finance the transactions. Rather, initial margin is in the nature of a performance bond or good faith deposit on the contract that is returned to the Fund upon termination of the futures contract, assuming all contractual obligations have been satisfied. Futures contracts also involve brokerage costs.
Subsequent payments, called "variation margin," to and from the broker (or the custodian) are made on a daily basis as the price of the underlying security or commodity fluctuates, making the long and short positions in the futures contract more or less valuable, a process known as "marking to market."
The Fund may elect to close some or all of its futures positions at any time prior to their expiration. The purpose of making such a move would be to reduce or eliminate the hedge position then currently held by the Fund. The Fund may close its positions by taking opposite positions which will operate to terminate the Fund's position in the futures contracts. Final determinations of variation margin are then made, additional cash is required to be paid by or released to the Fund, and the Fund realizes a loss or a gain. Such closing transactions involve additional commission costs.
INTEREST RATE FUTURES CONTRACTS. Bond prices are established in both the cash market and the futures market. In the cash market, bonds are purchased and sold with payment for the full purchase price of the bond being made in cash, generally within five business days after the trade. In the futures market, only a contract is made to purchase or sell a bond in the future for a set price on a certain date. Historically, the prices for bonds established in the futures markets have tended to move generally in the aggregate in concert with the cash market prices and have maintained fairly predictable relationships. Accordingly, the Funds may use interest rate futures contracts as a defense, or hedge, against anticipated interest rate changes. The Funds presently could accomplish a similar result to that which they hope to achieve through the use of futures contracts by selling bonds with long maturities and investing in bonds with short maturities when interest rates are expected to increase, or conversely, selling short-term bonds and investing in long-term bonds when interest rates are expected to decline. However, because of the liquidity that is often available in the futures market, the protection is more likely to be achieved, perhaps at a lower cost and without changing the rate of interest being earned by the Funds, through using futures contracts.
Interest rate futures contracts are traded in an auction environment on the floors of several exchanges -- principally, the Chicago Board of Trade, the Chicago Mercantile Exchange and the New York Futures Exchange. The Funds would deal only in standardized contracts on recognized exchanges. Each exchange guarantees performance under contract provisions through a clearing corporation, a nonprofit organization managed by the exchange membership.
A public market now exists in futures contracts covering various financial instruments including long-term United States Treasury Bonds and Notes; Government National Mortgage Association (GNMA) modified pass-through mortgage backed securities; three-month United States Treasury Bills; and ninety-day commercial paper. The Funds may trade in any interest rate futures contracts for which there exists a public market, including, without limitation, the foregoing instruments.
MUNICIPAL BOND INDEX FUTURES CONTRACTS. Municipal bond index futures contracts may act as a hedge against changes in market conditions. A municipal bond index assigns values daily to the municipal bonds included in the index based on the independent assessment of dealer-to-dealer municipal bond brokers. A municipal bond index futures contract represents a firm
commitment by which two parties agree to take or make delivery of an amount equal to a specified dollar amount multiplied by the difference between the municipal bond index value on the last trading date of the contract and the price at which the futures contract is originally struck. No physical delivery of the underlying securities in the index is made.
The Chicago Board of Trade has designed a futures contract based on the Bond Buyer Municipal Bond Index. This Index is composed of 40 term revenue and general obligation bonds, and its composition is updated regularly as new bonds meeting the criteria of the Index are issued and existing bonds mature. The Index is intended to provide an accurate indicator of trends and changes in the municipal bond market. Each bond in the Index is independently priced by six dealer-to-dealer municipal bond brokers daily. The 40 prices then are averaged and multiplied by a coefficient. The coefficient is used to maintain the continuity of the Index when its composition changes. The Chicago Board of Trade, on which futures contracts based on this Index are traded, as well as other U.S. commodities exchanges, are regulated by the CFTC. Transactions on such exchange are cleared through a clearing corporation, which guarantees the performance of the parties to each contract.
OPTIONS ON FUTURES CONTRACTS. The Fund will enter into written options on futures contracts only when, in compliance with the SEC's requirements, cash or liquid securities equal in value to the commodity value (less any applicable margin deposits) have been deposited in a segregated account. The Fund may purchase and write call and put options on futures contracts it may buy or sell and enter into closing transactions with respect to such options to terminate existing positions. The Fund may use such options on futures contracts in lieu of writing options directly on the underlying securities or purchasing and selling the underlying futures contracts. Such options generally operate in the same manner as options purchased or written directly on the underlying investments.
As with options on securities, the holder or writer of an option may terminate his position by selling or purchasing an offsetting option. There is no guarantee that such closing transactions can be effected.
The Fund will be required to deposit initial margin and maintenance margin with respect to put and call options on futures contracts written by it pursuant to brokers' requirements similar to those described above.
RISKS OF TRANSACTIONS IN FUTURES CONTRACTS AND RELATED OPTIONS. Successful use of futures contracts by the Fund is subject to the Advisor's ability to predict correctly, movements in the direction of interest rates and other factors affecting securities markets.
Compared to the purchase or sale of futures contracts, the purchase of call or put options on futures contracts involves less potential risk to the Fund because the maximum amount at risk is the premium paid for the options (plus transaction costs). However, there may be circumstances when the purchase of a call or put option on a futures contract would result in a loss to the Fund when the purchase or sale of a futures contract would not, such as when there is no movement in the prices of the hedged investments. The writing of an option on a futures contract involves risks similar to those risks relating to the sale of futures contracts.
There is no assurance that higher than anticipated trading activity or other unforeseen events might not, at times, render certain market clearing facilities inadequate, and thereby result in the institution, by exchanges, of special procedures which may interfere with the timely execution of customer orders.
To reduce or eliminate a hedge position held by the Fund, the Fund may seek to close out a position. The ability to establish and close out positions will be subject to the development and maintenance of a liquid secondary market. It is not certain that this market will develop or continue to exist for a particular futures contract. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain contracts or options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of contracts or options, or underlying securities; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or a clearing corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of contracts or options (or a particular class or series of contracts or options), in which event the secondary market on that exchange (or in the class or series of contracts or options) would cease to exist, although outstanding contracts or options on the exchange that had been issued by a clearing corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms.
USE BY TAX-EXEMPT FUNDS OF INTEREST RATE AND U.S. TREASURY SECURITY FUTURES CONTRACTS AND OPTIONS. The Funds investing in tax-exempt securities may purchase and sell futures contracts and related options on interest rate and U.S. Treasury securities when, in the opinion of the Advisor, price movements in these security futures and related options will correlate closely with price movements in the tax-exempt securities which are the subject of the hedge. Interest rate and U.S. Treasury securities futures contracts require the seller to deliver, or the purchaser to take delivery of, the type of security called for in the contract at a specified date and price. Options on interest rate and U.S. Treasury security futures contracts give the purchaser the right in return for the premium paid to assume a position in a futures contract at the specified option exercise price at any time during the period of the option.
In addition to the risks generally involved in using futures contracts, there is also a risk that price movements in interest rate and U.S. Treasury security futures contracts and related options will not correlate closely with price movements in markets for tax-exempt securities.
INDEX FUTURES CONTRACTS. An index futures contract is a contract to buy or sell units of an index at a specified future date at a price agreed upon when the contract is made. Entering into a contract to buy units of an index is commonly referred to as buying or purchasing a contract or holding a long position in the index. Entering into a contract to sell units of an index is commonly referred to as selling a contract or holding a short position. A unit is the current value of the index. The Fund may enter into stock index futures contracts, debt index futures contracts, or other index futures contracts appropriate to its objective(s). The Fund may also purchase and sell options on index futures contracts.
There are several risks in connection with the use by the Fund of index futures as a hedging device. One risk arises because of the imperfect correlation between movements in the prices of the index futures and movements in the prices of securities which are the subject of the hedge. The Advisor will attempt to reduce this risk by selling, to the extent possible, futures on indices the movements of which will, in its judgment, have a significant correlation with movements in the prices of the Fund's portfolio securities sought to be hedged.
Successful use of index futures by the Fund for hedging purposes is also subject to the Advisor's ability to predict correctly movements in the direction of the market. It is possible that, where the Fund has sold futures to hedge its portfolio against a decline in the market, the index on which the futures are written may advance and the value of securities held in the Fund's portfolio may decline. If this occurs, the Fund would lose money on the futures and also experience a decline in the value of its portfolio securities. However, while this could occur to a certain degree, the Advisor believes that over time the value of the Fund's portfolio will tend to move in the same direction as the market indices which are intended to correlate to the price movements of the portfolio securities sought to be hedged. It is also possible that, if the Fund has hedged against the possibility of a decline in the market adversely affecting securities held in its portfolio and securities prices increase instead, the Fund will lose part or all of the benefit of the increased values of those securities that it has hedged because it will have offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient cash, it may have to sell securities to meet daily variation margin requirements.
In addition to the possibility that there may be an imperfect correlation, or no correlation at all, between movements in the index futures and the securities of the portfolio being hedged, the prices of index futures may not correlate perfectly with movements in the underlying index due to certain market distortions. First, all participants in the futures markets are subject to margin deposit and maintenance requirements. Rather than meeting additional margin deposit requirements, investors may close futures contracts through offsetting transactions which would distort the normal relationship between the index and futures markets. Second, margin requirements in the futures market are less onerous than margin requirements in the securities market, and as a result, the futures market may attract more speculators than the securities market. Increased participation by speculators in the futures market may also cause temporary price distortions. Due to the possibility of price distortions in the futures market and also because of the imperfect correlation between movements in the index and movements in the prices of index futures, even a correct forecast of general market trends by the Advisor may still not result in a successful hedging transaction.
OPTIONS ON INDEX FUTURES. Options on index futures are similar to options on securities except that options on index futures give the purchaser the right, in return for the premium paid, to assume a position in an index futures contract (a long position if the option is a call and a short position if the option is a put), at a specified exercise price at any time during the period of the option. Upon exercise of the option, the delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated balance in the writer's futures margin account which represents the amount by which the market price of the index futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the index future. If an option is exercised on the last trading day prior to the expiration
date of the option, the settlement will be made entirely in cash equal to the difference between the exercise price of the option and the closing level of the index on which the future is based on the expiration date. Purchasers of options who fail to exercise their options prior to the exercise date suffer a loss of the premium paid.
OPTIONS ON INDICES. As an alternative to purchasing call and put options on index futures, the Fund may purchase call and put options on the underlying indices themselves. Such options could be used in a manner identical to the use of options on index futures. Options involving securities indices provide the holder with the right to make or receive a cash settlement upon exercise of the option based on movements in the relevant index. Such options must be listed on a national securities exchange and issued by the Options Clearing Corporation. Such options may relate to particular securities or to various stock indices, except that a Fund may not write covered options on an index.
OPTIONS ON FOREIGN STOCK INDICES. The Funds may, for the purpose of hedging its portfolio, subject to applicable securities regulations, purchase and write put and call options on foreign stock indices listed on foreign and domestic stock exchanges. A stock index fluctuates with changes in the market values of the stocks included in the index.
SWAP AGREEMENTS (SWAPS, CAPS, COLLARS AND FLOORS)
The Funds may enter into interest rate swaps, currency swaps, and other types of swap agreements such as caps, collars, and floors. In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate times a "notional principal amount," in return for payments equal to a fixed rate times the same amount, for a specified period of time. If a swap agreement provides for payments in different currencies, the parties might agree to exchange notional principal amount as well. Swaps may also depend on other prices or rates, such as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed upon level. An interest rate collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from one type of investment to another. For example, if a Fund agreed to exchange payments in dollars for payments in foreign currency, the swap agreement would tend to decrease the Fund's exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates. Caps and floors have an effect similar to buying or writing options. Depending on how they are used, swap agreements may increase or decrease the overall volatility of a Fund's investments and its share price and yield.
Swap agreements are sophisticated hedging instruments that typically involve a small investment of cash relative to the magnitude of risks assumed. As a result, swaps can be highly volatile and may have a considerable impact on the Funds' performance. Swap agreements are subject to risks related to the counterparty's ability to perform, and may decline in value if the counterparty's creditworthiness deteriorates. The Funds may also suffer losses if they are unable to terminate outstanding swap agreements or reduce their exposure through offsetting transactions.
Equity Swaps
The Fund may engage in equity swaps. Equity swaps allow the parties to the swap agreement to exchange components of return on one equity investment (e.g., a basket of equity securities or an index) for a component of return on another non-equity or equity investment, including an exchange of differential rates of return. Equity swaps may be used to invest in a market without owning or taking physical custody of securities in circumstances where direct investment may be restricted for legal reasons or is otherwise impractical. Equity swaps also may be used for other purposes, such as hedging or seeking to increase total return.
RISK FACTORS IN EQUITY SWAP TRANSACTIONS. Equity swaps are derivative instruments and their values can be very volatile. To the extent that the portfolio managers do not accurately analyze and predict the potential relative fluctuation on the components swapped with the other party, the Fund may suffer a loss. The value of some components of an equity swap (such as the dividend on a common stock) may also be sensitive to changes in interest rates. Furthermore, during the period a swap is outstanding, the Fund may suffer a loss if the counterparty defaults. See "Taxes" for information on tax risks associated with equity swaps.
FOREIGN CURRENCY TRANSACTIONS
The Fund may engage in currency exchange transactions to protect against uncertainty in the level of future currency exchange rates.
The Fund may engage in both "transaction hedging" and "position hedging." When it engages in transaction hedging, the Fund enters into foreign currency transactions with respect to specific receivables or payables of the Fund generally arising in connection with the purchase or sale of its portfolio securities. The Fund will engage in transaction hedging when it desires to "lock in" the U.S. dollar price of a security it has agreed to purchase or sell, or the U.S. dollar equivalent of a dividend or interest payment in a foreign currency. By transaction hedging the Fund attempts to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar and the applicable foreign currency during the period between the date on which the security is purchased or sold, or on which the dividend or interest payment is declared, and the date on which such payments are made or received.
The Fund may purchase or sell a foreign currency on a spot (or cash) basis at the prevailing spot rate in connection with the settlement of transactions in portfolio securities denominated in that foreign currency. The Fund may also enter into contracts to purchase or sell foreign currencies at a future date ("forward contracts") and purchase and sell foreign currency futures contracts.
For transaction hedging purposes the Fund may also purchase exchange-listed and over-the-counter call and put options on foreign currency futures contracts and on foreign currencies. Over-the-counter options are considered to be illiquid by the SEC staff. A put option on a futures contract gives the Fund the right to assume a short position in the futures contract until expiration of the option. A put option on currency gives the Fund the right to sell a currency at an exercise price until the expiration of the option. A call option on a futures contract gives the Fund the right to assume a long position in the futures contract until the expiration of the option. A call option on currency gives the Fund the right to purchase a currency at the exercise price until the expiration of the option.
When it engages in position hedging, the Fund enters into foreign currency exchange transactions to protect against a decline in the values of the foreign currencies in which its portfolio securities are denominated (or an increase in the value of currency for securities which the Fund expects to purchase, when the Fund holds cash or short-term investments). In connection with position hedging, the Fund may purchase put or call options on foreign currency and foreign currency futures contracts and buy or sell forward contracts and foreign currency futures contracts. The Fund may also purchase or sell foreign currency on a spot basis.
The precise matching of the amounts of foreign currency exchange transactions and the value of the portfolio securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market movements in the value of those securities between the dates the currency exchange transactions are entered into and the dates they mature.
It is impossible to forecast with precision the market value of portfolio securities at the expiration or maturity of a forward or futures contract. Accordingly, it may be necessary for the Fund to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security or securities being hedged is less than the amount of foreign currency the Fund is obligated to deliver and if a decision is made to sell the security or securities and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security or securities if the market value of such security or securities exceeds the amount of foreign currency the Fund is obligated to deliver.
Transaction and position hedging do not eliminate fluctuations in the underlying prices of the securities which the Fund owns or intends to purchase or sell. They simply establish a rate of exchange which one can achieve at some future point in time. Additionally, although these techniques tend to minimize the risk of loss due to a decline in the value of the hedged currency, they tend to limit any potential gain which might result from the increase in value of such currency.
CURRENCY FORWARD AND FUTURES CONTRACTS. Upon entering into such contracts, in compliance with the SEC's requirements, cash or liquid securities, equal in value to the amount of the Fund's obligation under the contract (less any applicable margin deposits and any assets that constitute "cover" for such obligation), will be segregated.
A forward currency contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract as agreed by the parties, at a price set at the time of the contract. In the case of a
cancelable contract, the holder has the unilateral right to cancel the contract at maturity by paying a specified fee. The contracts are traded in the interbank market conducted directly between currency traders (usually large commercial banks) and their customers. A contract generally has no deposit requirement, and no commissions are charged at any stage for trades. A currency futures contract is a standardized contract for the future delivery of a specified amount of a foreign currency at a future date at a price set at the time of the contract. Currency futures contracts traded in the United States are designed and traded on exchanges regulated by the CFTC, such as the New York Mercantile Exchange.
Forward currency contracts differ from currency futures contracts in certain respects. For example, the maturity date of a forward contract may be any fixed number of days from the date of the contract agreed upon by the parties, rather than a predetermined date in a given month. Forward contracts may be in any amounts agreed upon by the parties rather than predetermined amounts. Also, forward contracts are traded directly between currency traders so that no intermediary is required. A forward contract generally requires no margin or other deposit.
At the maturity of a forward or futures contract, the Fund may either accept or make delivery of the currency specified in the contract, or at or prior to maturity enter into a closing transaction involving the purchase or sale of an offsetting contract. Closing transactions with respect to forward contracts are usually effected with the currency trader who is a party to the original forward contract. Closing transactions with respect to futures contracts are effected on a commodities exchange; a clearing corporation associated with the exchange assumes responsibility for closing out such contracts.
Positions in currency futures contracts may be closed out only on an exchange or board of trade which provides a secondary market in such contracts. Although the Fund intends to purchase or sell currency futures contracts only on exchanges or boards of trade where there appears to be an active secondary market, there is no assurance that a secondary market on an exchange or board of trade will exist for any particular contract or at any particular time. In such event, it may not be possible to close a futures position and, in the event of adverse price movements, the Fund would continue to be required to make daily cash payments of variation margin.
CURRENCY OPTIONS. In general, options on currencies operate similarly to options on securities and are subject to many similar risks. Currency options are traded primarily in the over-the-counter market, although options on currencies have recently been listed on several exchanges. Options are traded not only on the currencies of individual nations, but also on the European Currency Unit (ECU). The ECU is composed of amounts of a number of currencies, and is the official medium of exchange of the European Economic Community's European Monetary System.
The Fund will only purchase or write currency options when the Advisor believes that a liquid secondary market exists for such options. There can be no assurance that a liquid secondary market will exist for a particular option at any specified time. Currency options are affected by all of those factors which influence exchange rates and investments generally. To the extent that these options are traded over the counter, they are considered to be illiquid by the SEC staff.
The value of any currency, including the U.S. dollar, may be affected by complex political and economic factors applicable to the issuing country. In addition, the exchange rates of currencies (and therefore the values of currency options) may be significantly affected, fixed, or supported directly or indirectly by government actions. Government intervention may increase risks involved in purchasing or selling currency options, since exchange rates may not be free to fluctuate in respect to other market forces.
The value of a currency option reflects the value of an exchange rate, which in turn reflects relative values of two currencies, the U.S. dollar and the foreign currency in question. Because currency transactions occurring in the interbank market involve substantially larger amounts than those that may be involved in the exercise of currency options, investors may be disadvantaged by having to deal in an odd lot market for the underlying currencies in connection with options at prices that are less favorable than for round lots. Foreign governmental restrictions or taxes could result in adverse changes in the cost of acquiring or disposing of currencies.
There is no systematic reporting of last sale information for currencies and there is no regulatory requirement that quotations available through dealers or other market sources be firm or revised on a timely basis. Available quotation information is generally representative of very large round-lot transactions in the interbank market and thus may not reflect exchange rates for smaller odd-lot transactions (less than $1 million) where rates may be less favorable. The interbank market in currencies is a global, around-the-clock market. To the extent that options markets are closed while the markets for the underlying currencies remain open, significant price and rate movements may take place in the underlying markets that cannot be reflected in the options markets.
SETTLEMENT PROCEDURES. Settlement procedures relating to the Fund's investments in foreign securities and to the Fund's foreign currency exchange transactions may be more complex than settlements with respect to investments in debt or equity securities of U.S. issuers, and may involve certain risks not present in the Fund's domestic investments, including foreign currency risks and local custom and usage. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligations.
FOREIGN CURRENCY CONVERSION. Although foreign exchange dealers do not charge a fee for currency conversion, they do realize a profit based on the difference (spread) between prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Fund at one rate, while offering a lesser rate of exchange should the Fund desire to resell that currency to the dealer. Foreign currency transactions may also involve the risk that an entity involved in the settlement may not meet its obligation.
PARTICIPATION INTERESTS
The Fund may invest in municipal obligations either by purchasing them directly or by purchasing certificates of accrual or similar instruments evidencing direct ownership of interest payments or principal payments, or both, on municipal obligations, provided that, in the opinion of counsel to the initial seller of each such certificate or instrument, any discount accruing on such certificate or instrument that is purchased at a yield not greater than the coupon rate of interest on the related municipal obligations will be exempt from federal income tax to the same extent as interest on such municipal obligations. The Fund may also invest in tax-exempt obligations by purchasing from banks participation interests in all or part of specific holdings of municipal obligations. Such participations may be backed in whole or part by an irrevocable letter of credit or guarantee of the selling bank. The selling bank may receive a fee from the Fund in connection with the arrangement. The Fund will not purchase such participation interests unless it receives an opinion of counsel or a ruling of the Internal Revenue Service that interest earned by it on municipal obligations in which it holds such participation interests is exempt from federal income tax.
STAND-BY COMMITMENTS
When the Fund purchases municipal obligations, it may also acquire stand-by commitments from banks and broker-dealers with respect to such municipal obligations. A stand-by commitment is the equivalent of a put option acquired by the Fund with respect to a particular municipal obligation held in its portfolio. A stand-by commitment is a security independent of the municipal obligation to which it relates. The amount payable by a bank or dealer during the time a stand-by commitment is exercisable, absent unusual circumstances relating to a change in market value, would be substantially the same as the value of the underlying municipal obligation. A stand-by commitment might not be transferable by the Fund, although it could sell the underlying municipal obligation to a third party at any time.
The Fund expects that stand-by commitments generally will be available without the payment of direct or indirect consideration. However, if necessary and advisable, the Fund may pay for stand-by commitments either separately in cash or by paying a higher price for portfolio securities which are acquired subject to such a commitment (thus reducing the yield to maturity otherwise available for the same securities). The total amount paid in either manner for outstanding stand-by commitments held in the Fund portfolio will not exceed 10% of the value of the Fund's total assets calculated immediately after each stand-by commitment is acquired. The Fund will enter into stand-by commitments only with banks and broker-dealers that, in the judgment of the Trust's Board of Trustees, present minimal credit risks.
VARIABLE AND FLOATING RATE OBLIGATIONS
Variable rate instruments provide for periodic adjustments in the interest rate. Floating rate instruments provide for automatic adjustment of the interest rate whenever some other specified interest rate changes. Some variable and floating rate obligations are direct lending arrangements between the purchaser and the issuer and there may be no active secondary market. However, in the case of variable and floating rate obligations with a demand feature, a Fund may demand payment of principal and accrued interest at a time specified in the instrument or may resell the instrument to a third party. In the event an issuer of a variable or floating rate obligation defaulted on its payment obligation, a Fund might be unable to dispose of the note because of the absence of a secondary market and could, for this or other reasons, suffer a loss to the extent of the default. Variable or floating rate instruments issued or guaranteed by the U.S. Government or its agencies or instrumentalities are similar in form but may have a more active secondary market. Substantial holdings of variable and floating rate instruments could reduce portfolio liquidity.
If a variable or floating rate instrument is not rated, the Fund's Advisor must determine that such instrument is comparable to rated instruments eligible for purchase by the Funds and will consider the earning power, cash flows and other liquidity ratios of
the issuers and guarantors of such instruments and will continuously monitor their financial status in order to meet payment on demand. In determining average weighted portfolio maturity of each of these Funds, a variable or floating rate instrument issued or guaranteed by the U.S. Government or an agency or instrumentality thereof will be deemed to have a maturity equal to the period remaining until the obligation's next interest rate adjustment. Variable and floating rate obligations with a demand feature will be deemed to have a maturity equal to the longer of the period remaining to the next interest rate adjustment or the demand notice period.
INVERSE FLOATERS
Inverse floaters are derivative securities whose interest rates vary inversely to changes in short-term interest rates and whose values fluctuate inversely to changes in long-term interest rates. The value of certain inverse floaters will fluctuate substantially more in response to a given change in long-term rates than would a traditional debt security. These securities have investment characteristics similar to leverage, in that interest rate changes have a magnified effect on the value of inverse floaters.
RULE 144A SECURITIES
The Fund may purchase securities that have been privately placed but that are eligible for purchase and sale pursuant to Rule 144A under the Securities Act of 1933, as amended (1933 Act). That Rule permits certain qualified institutional buyers, such as the Fund, to trade in privately placed securities that have not been registered for sale under the 1933 Act. The Advisor, under the supervision of the Board of Trustees, will consider whether securities purchased under Rule 144A are illiquid and thus subject to the Fund's investment restriction on illiquid securities. A determination of whether a Rule 144A security is liquid or not is a question of fact. In making this determination, the Advisor will consider the trading markets for the specific security, taking into account the unregistered nature of a Rule 144A security. In addition, the Advisor could consider the (1) frequency of trades and quotes, (2) number of dealers and potential purchasers, (3) dealer undertakings to make a market, and (4) nature of the security and of marketplace trades (e.g., the time needed to dispose of the security, the method of soliciting offers, and the mechanics of transfer). The liquidity of Rule 144A securities will be monitored and, if as a result of changed conditions, it is determined by the Advisor that a Rule 144A security is no longer liquid, the Fund's holdings of illiquid securities would be reviewed to determine what, if any, steps are required to assure that the Fund does not exceed its investment limit on illiquid securities. Investing in Rule 144A securities could have the effect of increasing the amount of the Fund's assets invested in illiquid securities if qualified institutional buyers are unwilling to purchase such securities.
CURRENCY SWAPS. Currency swaps involve the exchange of rights to make or receive payments in specified currencies. Currency swaps usually involve the delivery of the entire principal value of one designated currency. Therefore, the entire principal value of a currency swap is subject to the risk that the other party to the swap will default on its contractual delivery obligations. The use of currency swaps is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. If the Advisor is incorrect in its forecast of market value and currency exchange rates, the investment performance of a Fund would be less favorable than it would have been if this investment technique were not used.
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities which may be exchanged or converted into a predetermined number of shares of the issuer's underlying common stock at the option of the holder during a specified time period. Convertible securities may take the form of convertible preferred stock, convertible bonds or debentures, units consisting of "usable" bonds and warrants or a combination of the features of several of these securities.
Convertible bonds and convertible preferred stocks generally retain the investment characteristics of fixed income securities until they have been converted but also react to movements in the underlying equity securities. The holder is entitled to receive the fixed income of a bond or the dividend preference of a preferred stock until the holder elects to exercise the conversion privilege. Usable bonds are corporate bonds that can be used in whole or in part, customarily at full face value, in lieu of cash to purchase the issuer's common stock. When owned as part of a unit along with warrants, which are options to buy the common stock, they function as convertible bonds, except that the warrants generally will expire before the bond's maturity. Convertible securities are senior to equity securities and therefore have a claim to the assets of the issuer prior to the holders of common stock in the case of liquidation. However, convertible securities are generally subordinated to similar non-convertible securities of the same issuer. The interest income and dividends from convertible bonds and preferred stocks provide a stable stream of income with generally higher yields than common stocks, but lower than non-convertible securities of similar quality. A Fund will exchange or convert the convertible securities held in its portfolio into shares of the underlying common stock in instances in which, in the Advisor's opinion, the investment characteristics of the underlying common stock will assist the Fund in achieving its investment objective.
Otherwise, the Fund will hold or trade the convertible securities. In selecting convertible securities for a Fund, the Advisor evaluates the investment characteristics of the convertible security as a fixed income instrument, and the investment potential of the underlying equity security for capital appreciation.
GUARANTEED INVESTMENT CONTRACTS
Pursuant to guaranteed investment contracts ("GICs"), which are issued by U.S. and Canadian insurance companies, a Fund makes cash contributions to a deposit fund of the insurance company's general account. The insurance company then credits to the fund payments at negotiated, floating or fixed interest rates. A GIC is a general obligation of the issuing insurance company and not a separate account. The purchase price paid for a GIC becomes part of the general assets of the insurance company, and the contract is paid from the company's general assets.
The Funds will only purchase GICs that are issued or guaranteed by insurance companies that at the time of purchase are rated at least AA by S&P or receive a similar high quality rating from a nationally recognized service which provides ratings of insurance companies. GICs are considered illiquid securities and will be subject to any limitations on such investments described in Part 1 of this SAI, unless there is an active and substantial secondary market for the particular instrument and market quotations are readily available. No Fund will invest more than 20% of its total assets in GICs.
BANK INVESTMENT CONTRACTS
Bank investment contracts ("BICs") issued by banks that meet certain quality and asset size requirements for banks are available to the Funds. Pursuant to BICs, cash contributions are made to a deposit account at the bank in exchange for payments at negotiated, floating or fixed interest rates. A BIC is a general obligation of the issuing bank. BICs are considered illiquid securities and will be subject to any limitations on such investments described in Part 1 of this SAI, unless there is an active and substantial secondary market for the particular instrument and market quotations are readily available.
LOAN PARTICIPATIONS
Loan participations are interests in loans which are administered by the lending bank or agent for a syndicate of lending banks, and sold by the lending bank or syndicate member. The Funds may only purchase interests in loan participations issued by a bank in the United States with assets exceeding $1 billion and for which the underlying loan is issued by borrowers in whose obligations the Funds may invest. Because the intermediary bank does not guarantee a loan participation in any way, a loan participation is subject to the credit risk generally associated with the underlying corporate borrower. In addition, in the event the underlying corporate borrower defaults, a Fund may be subject to delays, expenses and risks that are greater than those that would have been involved if the Fund had purchased a direct obligation (such as commercial paper) of the borrower. Under the terms of a loan participation, the purchasing Fund may be regarded as a creditor of the intermediary bank so that the Fund may also be subject to the risk that the issuing bank may become insolvent.
STRUCTURED INVESTMENTS
Structured investments are a relatively new innovation and may be designed to have various combinations of equity and fixed-income characteristics. Equity-linked securities are a form of structured investment and generally consist of a conversion privilege to a single company's common stock plus a fixed annual distribution to the holder. Equity-linked securities have some derivative characteristics because the conversion feature is linked to the price of the company's common stock. Equity-linked securities are designed to provide investors with higher quarterly income than the dividend paid per share on the common stock. However, equity-linked securities have decreased potential for capital appreciation because of limitations of the conversion feature.
Equity-linked securities include issues such as "Structured Yield Product Exchangeable for Stock" ("STRYPES"), "Trust Automatic Common Exchange Securities" ("TRACES"), "Trust Issued Mandatory Exchange Securities" ("TIMES"), "Trust Enhanced Dividend Securities" ("TRENDS") and other similar securities, including those which may be developed in the future. The issuers of the above listed examples of equity-linked securities generally purchase and hold a portfolio of stripped U.S. Treasury securities maturing on a quarterly basis through the conversion date, and a forward purchase contract with an existing shareholder of the company relating to the common stock. Quarterly distributions on equity-linked securities generally consist of the cash received from the U.S. Treasury securities and equity-linked securities generally are not entitled to any dividends that may be declared on the common stock.
Equity-linked securities may be issued by closed-end or other forms of investment companies. To the extent that equity-linked securities are issued by investment companies, a Fund's investments in equity-linked securities are subject to the same limitations as investments in more traditional forms of investment companies.
YANKEE OBLIGATIONS
Yankee obligations are U.S. dollar-denominated instruments of foreign issuers that are either registered with the SEC or issued pursuant to Rule 144A under the 1933 Act. These obligations consist of debt securities (including preferred or preference stock of non-governmental issuers), certificates of deposit, fixed time deposits and banker's acceptances issued by foreign banks, and debt obligations of foreign governments or their subdivisions, agencies and instrumentalities, international agencies and supranational entities. Some securities issued by foreign governments or their subdivisions, agencies and instrumentalities may not be backed by the full faith and credit of the foreign government.
AMERICAN, EUROPEAN, CONTINENTAL AND GLOBAL DEPOSITARY RECEIPTS
American Depositary Receipts ("ADRs") are receipts issued in registered form by a U.S. bank or trust company evidencing ownership of underlying securities issued by a foreign issuer. European Depositary Receipts ("EDRs"), which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are receipts issued in Europe typically by non-U.S. banks or trust companies and foreign branches of U.S. banks that evidence ownership of foreign or U.S. securities. Global Depositary Receipts ("GDRs") are receipts structured similarly to EDRs and CDRs and are marketed globally. ADRs may be listed on a national securities exchange or may be traded in the over-the-counter market. EDRs and CDRs are designed for use in European exchange and over-the-counter markets. GDRs are designed for trading in non-U.S. securities markets. ADRs, EDRs, CDRs and GDRs traded in the over-the-counter market which do not have an active or substantial secondary market will be considered illiquid and therefore will be subject to the Funds' respective limitations with respect to such securities, if any. If a Fund invests in an unsponsored ADR, EDR, CDR or GDR, there may be less information available to the Fund concerning the issuer of the securities underlying the unsponsored ADR, EDR, CDR or GDR than is available for an issuer of securities underlying a sponsored ADR, EDR, CDR or GDR. ADR prices are denominated in U.S. dollars although the underlying securities are denominated in a foreign currency. Investments in ADRs, EDRs, CDRs and GDRs involve risks similar to those accompanying direct investments in foreign securities.
TEMPORARY CASH BALANCES
The Funds may hold very small temporary cash balances to efficiently manage transactional expenses. These cash balances are expected, under normal conditions, not to exceed 2% of each Fund's net assets at any time (excluding amounts used as margin and segregated assets with respect to futures transactions and collateral for securities loans and repurchase agreements). The Funds may invest these temporary cash balances in short-term debt obligations issued or guaranteed by the U.S. Government or its agencies and instrumentalities ("U.S. Government Securities"), high quality commercial paper (rated A-1 or better by S&P or P-1 or better by Moody's), certificates of deposit and time deposits of banking institutions having total assets in excess of $1 billion, and repurchase agreements collateralized by U.S. Government Securities. The Funds may also hold these investments in connection with U.S. Treasury rolls, which are not subject to the 2% limitation above.
TAXES
In this section, all discussions of taxation at the shareholder and fund levels relate to U.S. federal taxes only. Consult your tax advisor for state, local and foreign tax considerations and for information about special tax considerations that may apply to shareholders that are not natural persons or not U.S. citizens or resident aliens.
FEDERAL TAXES. Although it may be one of several series in a single trust, the Fund is treated as a separate entity for federal income tax purposes under the Internal Revenue Code of 1986, as amended (Code). The Fund has elected (or in the case of a new fund, intends to elect) to be, and intends to qualify to be treated each year as, a "regulated investment company" under Subchapter M of the Code by meeting all applicable requirements of Subchapter M, including requirements as to the nature of the Fund's gross income, the amount of its distributions (as a percentage of both its overall income and any tax-exempt income), and the composition of its portfolio assets.
To qualify as a "regulated investment company," the Fund must (a) derive at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock, securities or foreign currencies or other income (including, but not limited to, gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies; (b) diversify its holdings so that, at the close of each quarter of its taxable year, (i) at least 50% of the market value of its total assets consists of cash, cash items, U.S. government securities, securities of other regulated investment companies and other securities limited generally with respect to any one issuer to not more than 5% of the total assets of the Fund and not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities of any issuer, other than U.S. government securities
or other regulated investment companies; or of two or more issuers which the
Fund controls and which are engaged in the same, similar, or related trades or
businesses; and (c) distribute with respect to each year at least 90% of its
taxable net investment income, its tax-exempt interest income and the excess, if
any, of net short-term capital gains over net long-term capital losses for such
year. In general, for purposes of the 90% gross income requirement described in
(a) above, income derived from a partnership will be treated as qualifying
income only to the extent such income is attributable to items of income of the
partnership which would be qualifying income if realized by the regulated
investment company. However, recent legislation, provides that for taxable years
of a regulated investment company beginning after October 22, 2004, 100% of the
net income derived from an interest in a "qualified publicly traded partnership"
(defined as a partnership (i) interests in which are traded on an established
securities market or readily tradable on a secondary market or the substantial
equivalent thereof and (ii) that derives less than 90% of its income from the
qualifying income described in (a) above) will be treated as qualifying income.
In addition, although in general the passive loss rules of the Code do not apply
to regulated investment companies, such rules do not apply to a regulated
investment company with respect to items attributable to an interest in a
qualified publicly traded partnership. Finally, for purposes of (c) above, the
term "outstanding voting securities of such issuer" will include the equity
securities of a qualified publicly traded partnership. As a regulated investment
company that is accorded special tax treatment, the Fund will not be subject to
any federal income taxes on its net investment income and net realized capital
gains that it distributes to shareholders on the form of dividends and in
accordance with the timing requirements imposed by the Code. The Fund's
foreign-source income, if any, may be subject to foreign withholding taxes. If
the Fund were to fail to qualify as a "regulated investment company" accorded
special tax treatment in any taxable year, it would incur a regular federal
corporate income tax on all of its taxable income, whether or not distributed,
and Fund distributions (including any distributions of net tax-exempt income and
net long-term capital gains) would generally be taxable as ordinary income to
the shareholders, except to the extent they were treated as "qualified dividend
income," as described below. In addition, the Fund could be required to
recognize unrealized gains, pay substantial taxes and interest and make
substantial distributions before requalifying as a regulated investment company
that is accorded special tax treatment.
If the Fund fails to distribute in a calendar year substantially all of its ordinary income for such year and substantially all of its capital gain net income for the one-year period ending October 31 (or later if the Fund is permitted so to elect and so elects), plus any retained amount from the prior year, the Fund will be subject to a 4% excise tax on the underdistributed amounts. A dividend paid to shareholders by the Fund in January of a year generally is deemed to have been paid by the Fund on December 31 of the preceding year, if the dividend was declared and payable to shareholders of record on a date in October, November or December of that preceding year. The Fund intends generally to make distributions sufficient to avoid imposition of the 4% excise tax.
ALTERNATIVE MINIMUM TAX. Distributions derived from interest that is exempt from regular federal income tax may subject corporate shareholders to or increase their liability under the federal corporate alternative minimum tax (AMT). A portion of such distributions may constitute a tax preference item for individual shareholders and may subject them to or increase their liability under the AMT.
DIVIDENDS RECEIVED DEDUCTIONS. Distributions will qualify for the corporate dividends received deduction only to the extent that dividends earned by the Fund qualify. Any such dividends may be, however, includable in adjusted current earnings for purposes of computing corporate federal AMT. The dividends received deduction for eligible dividends is subject to a holding period requirement.
RETURN OF CAPITAL DISTRIBUTIONS. If the Fund makes a distribution to a shareholder in excess of the Fund's current and accumulated "earning and profits" in any taxable year, the excess distribution will be treated as a return of capital to the extent of the shareholder's tax basis in his or her shares, and thereafter as capital gain. A return of capital is not taxable, but it reduces tax basis in shares, thus reducing any loss or increasing any gain on a subsequent taxable disposition of such shares. Dividends and distributions on a Fund's shares are generally subject to federal income tax as described herein to the extent they do not exceed the Fund's realized income and gains, even though such dividends and distributions may economically represent a return of a particular shareholder's investment. Such distributions are likely to occur in respect of shares purchased at a time when a Fund's net asset value reflects gains that are either unrealized, or realized but not distributed. Such realized gains may be required to be distributed even when a Fund's net asset value also reflects unrealized losses.
FUNDS THAT INVEST IN U.S. GOVERNMENT SECURITIES. Many states grant tax-free status to dividends paid to shareholders of mutual funds from interest income earned by the Fund from direct obligations of the U.S. government. Investments in mortgage-backed securities (including GNMA, FNMA and FHLMC Securities) and repurchase agreements collateralized by U.S. government securities do not qualify as direct federal obligations in most states. Shareholders should consult with their own tax
advisors about the applicability of state and local intangible property, income or other taxes to their Fund shares and distributions and redemption proceeds received from the Fund.
FUND DISTRIBUTIONS. Distributions from the Fund (other than qualified dividend income and exempt-interest dividends, as discussed below) will generally be taxable to shareholders as ordinary income to the extent derived from the Fund's investment income and net short-term gains. Distributions of long-term capital gains (that is, the excess of net gains from capital assets held for more than one year over net losses from capital assets held for not more than one year) will be taxable to shareholders as such, regardless of how long a shareholder has held shares in the Fund. In general, any distributions of net capital gains will be taxed to shareholders who are individuals at a maximum rate of 15% for taxable years beginning on or before December 31, 2008.
Distributions are taxable to shareholders even if they are paid from income or gains earned by the Fund before a shareholder's investment (and thus were included in the price of the shareholder paid). Distributions are taxable whether received in cash or in Fund shares.
QUALIFIED DIVIDEND INCOME. For taxable years beginning on or before December 31, 2008, "qualified dividend income" received by an individual will be taxed at the rates applicable to long-term capital gain. In order for some portion of the dividends received by a Fund shareholder to be qualified dividend income, the Fund must meet holding period and other requirements with respect to some portion of the dividend paying stocks in its portfolio and the shareholder must meet holding period and other requirements with respect to the Fund's shares. A dividend will not be treated as qualified dividend income (at either the Fund or shareholder level) (1) if the dividend is received with respect to any share of stock held for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or, in the case of certain preferred stock, 91 days during the 181-day period beginning 90 days before such date), (2) to the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property, (3) if the recipient elects to have the dividend income treated as investment income for purposes of the limitation on deductibility of investment interest, or (4) if the dividend is received from a foreign corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the United States (with the exception of dividends paid on stock of such a foreign corporation readily tradable on an established securities market in the United States) or (b) treated as a passive foreign investment company. With respect to a Fund investing in bonds, the Fund does not expect a significant portion of Fund distributions to be derived from qualified dividend income.
In general, distributions of investment income properly designated by the Fund as derived from qualified dividend income may be treated as qualified dividend income by a shareholder taxed as an individual provided the shareholder meets the holding period and other requirements described above with respect to his or her shares. If the aggregate qualified dividends received by a fund during any taxable year are 95% or more of its gross income, then 100% of the Fund's dividends (other than properly designated capital gain dividends) will be eligible to be treated as qualified dividend income. For this purpose, the only gain included in the term "gross income" is the excess of net short-term capital gain over net long-term capital loss.
DISTRIBUTIONS FROM TAX-EXEMPT FUNDS. Each tax-exempt Fund will have at least 50% of its total assets invested in tax-exempt bonds at the end of each quarter so that dividends from net interest income on tax-exempt bonds will be exempt from federal income tax when received by a shareholder (but may be taxable for federal alternative minimum tax purposes and for state and local tax purposes). The tax-exempt portion of dividends paid will be designated within 60 days after year-end based upon the ratio of net tax-exempt income to total net investment income earned during the year. That ratio may be substantially different from the ratio of net tax-exempt income to total net investment income earned during any particular portion of the year. Thus, a shareholder who holds shares for only a part of the year may be allocated more or less tax-exempt dividends than would be the case if the allocation were based on the ratio of net tax-exempt income to total net investment income actually earned while a shareholder.
Income from certain "private activity bonds" issued after August 7, 1986, is treated as a tax preference item for the AMT at the maximum rate of 28% for individuals and 20% for corporations. If the Fund invests in private activity bonds, shareholders may be subject to the AMT on that part of the distributions derived from interest income on such bonds. Interest on all tax-exempt bonds is included in corporate adjusted current earnings when computing the AMT applicable to corporations. Seventy-five percent of the excess of adjusted current earnings over the amount of income otherwise subject to the AMT is included in a corporation's alternative minimum taxable income.
Dividends derived from any investments other than tax-exempt bonds and any distributions of short-term capital gains are generally taxable to shareholders as ordinary income. Any distributions of long-term capital gains will in general be taxable to shareholders as long-term capital gains (generally subject to a maximum 15% tax rate for shareholders who are individuals) regardless of the length of time Fund shares are held by the shareholder.
A tax-exempt Fund may at times purchase tax-exempt securities at a discount and some or all of this discount may be included in the Fund's ordinary income which will be taxable when distributed. Any market discount recognized on a tax-exempt bond purchased after April 30, 1993, with a term at time of issue of more than one year is taxable as ordinary income. A market discount bond is a bond acquired in the secondary market at a price below its "stated redemption price" (in the case of a bond with original issue discount, its "revised issue price").
Shareholders receiving social security and certain retirement benefits may be taxed on a portion of those benefits as a result of receiving tax-exempt income, including tax-exempt dividends from the Fund.
SPECIAL TAX RULES APPLICABLE TO TAX-EXEMPT FUNDS. In general, exempt-interest dividends, if any, attributable to interest received on certain private activity obligations and certain industrial development bonds will not be tax-exempt to any shareholders who are "substantial users" of the facilities financed by such obligations or bonds or who are "related persons" of such substantial users, as further defined in the Code. Income derived from the Fund's investments other than tax-exempt instruments may give rise to taxable income. The Fund's shares must be held for more than six months in order to avoid the disallowance of a capital loss on the sale of Fund shares to the extent of tax-exempt dividends paid during that period. Part or all of the interest on indebtedness, if any, incurred or continued by a shareholder to purchase or carry shares of the Fund paying exempt-interest dividends is not deductible. The portion of interest that is not deductible is equal to the total interest paid or accrued on the indebtedness, multiplied by the percentage of the Fund's total distributions (not including distributions from net long-term capital gains) paid to the shareholder that are exempt-interest dividends. Under rules used by the Internal Revenue Service to determine when borrowed funds are considered used for the purpose of purchasing or carrying particular assets, the purchase of shares may be considered to have been made with borrowed funds even though such funds are not directly traceable to the purchase of shares.
SALES OF SHARES. The sale, exchange or redemption of Fund shares may give rise to a gain or loss. In general, any gain realized upon a taxable disposition of shares generally will be treated as long-term capital gain if the shares have been held for more than one year. Otherwise the gain on the sale, exchange or redemption of Fund shares will be treated as short-term capital gain. In general, any loss realized upon a taxable disposition of shares will be treated as long-term loss if the shares have been held more than one year, and otherwise as short-term loss. However, any loss realized upon a taxable disposition of shares held for six months or less will be disallowed for federal income tax purposes to the extent of any exempt-interest dividends received on such shares. In addition, any loss (not already disallowed as provided in the preceding sentence) realized upon a taxable disposition of shares held for six months or less will be treated as long-term, rather than short-term, capital loss to the extent of any long-term capital gain distributions received by the shareholder with respect to those shares. All or a portion of any loss realized upon a taxable disposition of shares will be disallowed if other shares are purchased within 30 days before or after the disposition. In such a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss.
Under Treasury regulations, if on a disposition of Fund shares a shareholder recognizes a loss of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder will likely have to file with the Internal Revenue Service a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but under current guidance, shareholders of a regulated investment company are not excepted. Future guidance may extend the current exception from this reporting requirement to shareholders of most or all regulated investment companies. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. You are advised to consult with your tax advisor.
BACKUP WITHHOLDING. Certain distributions and redemptions may be subject to backup withholding for taxpayers who fail to furnish a correct taxpayer identification number, who have under-reported dividend or interest income, or who fail to certify to the Fund that the shareholder is a United States person and is not subject to the withholding. This number and certification may be provided by either a Form W-9 or the accompanying application. In certain instances, CMS may be notified by the Internal Revenue Service that a shareholder is subject to backup withholding. The backup withholding rate is 28% for amounts paid through 2010. The backup withholding rate will be 31% for amounts paid after December 31, 2010.
HEDGING TRANSACTIONS. If the Fund engages in hedging transactions, including hedging transactions in options, futures contracts and straddles, or other similar transactions, it will be subject to special tax rules (including constructive sale, mark-to-market, straddle, wash sale and short sale rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund's securities, convert long-term capital gains into short-term capital gains or convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to shareholders. The Fund will endeavor to make any available elections pertaining to such transactions in a manner believed to be in the best interests of the Fund and its shareholders.
SECURITIES ISSUED AT A DISCOUNT. The Fund's investment in debt securities issued at a discount and certain other obligations will (and investments in securities purchased at a discount may) require the Fund to accrue and distribute income not yet received. In such cases, the Fund may be required to sell assets (possibly at a time when it is not advantageous to do so) to generate the cash necessary to distribute as dividends to its shareholders all of its income and gains and therefore to eliminate any tax liability at the Fund level.
FOREIGN CURRENCY-DENOMINATED SECURITIES AND RELATED HEDGING TRANSACTIONS. The Fund's transactions in foreign currencies, foreign currency-denominated debt securities, certain foreign currency options, futures contracts and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned. This may produce a difference between the Fund's book income and its taxable income possibly accelerating distributions or converting distributions of book income and gains to returns of capital for book purposes.
If more than 50% of the Fund's total assets at the end of its fiscal year are invested in stock or securities of foreign corporate issuers, the Fund may make an election permitting its shareholders to take a deduction or credit for federal income tax purposes for their pro rata portion of certain qualified foreign taxes paid by the Fund to foreign countries in respect of foreign securities the Fund has held for at least the minimum period specified in the Code. The Advisor will consider the value of the benefit to a typical shareholder, the cost to the Fund of compliance with the election, and incidental costs to shareholders in deciding whether to make the election. A shareholder's ability to claim such a foreign tax credit or deduction in respect of foreign taxes will be subject to certain limitations imposed by the Code, including a holding period requirement, as a result of which a shareholder may not get a full credit or deduction for the amount of foreign taxes so paid by the Fund. Shareholders who do not itemize on their federal income tax returns may claim a credit (but not a deduction) for such foreign taxes.
Investment by the Fund in "passive foreign investment companies" could subject the Fund to a U.S. federal income tax or other charge on the proceeds from the sale of its investment in such a company; however, this tax can be avoided by making an election to mark such investments to market annually or to treat the passive foreign investment company as a "qualified electing Fund." A "passive foreign investment company" is any foreign corporation: (i) 75 percent or more of the income of which for the taxable year is passive income, or (ii) the average percentage of the assets of which (generally by value, but by adjusted tax basis in certain cases) that produce or are held for the production of passive income is at least 50 percent. Generally, passive income for this purpose means dividends, interest (including income equivalent to interest), royalties, rents, annuities, the excess of gain over losses from certain property transactions and commodities transactions, and foreign currency gains. Passive income for this purpose does not include rents and royalties received by the foreign corporation from active business and certain income received from related persons.
NON-U.S. SHAREHOLDERS. Capital gain dividends will not be subject to withholding
of federal income tax. In general, dividends (other than Capital Gain Dividends)
paid by the Fund to a shareholder that is not a "U.S. person" within the meaning
of the Code (such shareholder, a "foreign person") are subject to withholding of
U.S. federal income tax at a rate of 30% (or lower applicable treaty rate) even
if they are funded by income or gains (such as portfolio interest, short-term
capital gains, or foreign-source dividend and interest income) that, if paid to
a foreign person directly, would not be subject to withholding. However, under
the recent legislation, effective for taxable years of the Fund beginning after
December 31, 2004 and before January 1, 2008, the Fund will not be required to
withhold any amounts (i) with respect to distributions (other than distributions
to a foreign person (w) that has not provided a satisfactory statement that the
beneficial owner is not a U.S. person, (x) to the extent that the dividend is
attributable to certain interest on an obligation if the foreign person is the
issuer or is a 10% shareholder of the issuer, (y) that is within certain foreign
countries that have inadequate information exchange with the United States, or
(z) to the extent the dividend is attributable to interest paid by a person that
is a related person of the foreign person and the foreign person is a controlled
foreign corporation) from U.S.-source interest income that would not be subject
to U.S. federal income tax if earned directly by an individual foreign person,
to the extent such distributions are properly designated by the Fund, and (ii)
with respect to distributions (other than distributions to an individual foreign
person who is present in the United States for a period or periods
aggregating 183 days or more during the year of the distribution) of net short-term capital gains in excess of net long-term capital losses, to the extent such distributions are properly designated by the Fund. The Fund has not determined whether it will make such designations.
If a beneficial holder who is a foreign person has a trade or business in the United States, and the dividends are effectively connected with the conduct by the beneficial holder of a trade or business in the United States, the dividend will be subject to U.S. federal net income taxation at regular income tax rates.
Recent legislation modifies the tax treatment of distributions from the Fund that are paid to a foreign person and are attributable to gain from "U.S. real property interests" ("USRPIs"), which the Code defines to include direct holdings of U.S. real property and interests (other than solely as a creditor) in "U.S. real property holding corporations" such as REITs. The Code deems any corporation that holds (or held during the previous five-year period) USRPIs with a fair market value equal to 50% or more of the fair market value of the corporation's U.S. and foreign real property assets and other assets used or held for use in a trade or business to be a U.S. real property holding corporation; however, if any class of stock of a corporation is traded on an established securities market, stock of such class shall be treated as a USRPI only in the case of a person who holds more than 5% of such class of stock at any time during the previous five-year period. Under the legislation, which is generally effective for taxable years of RICs beginning after December 31, 2004 and which applies to dividends paid or deemed paid on or before December 31, 2007, distributions to foreign persons attributable to gains from the sale or exchange of USRPIs will give rise to an obligation for those foreign persons to file a U.S. tax return and pay tax, and may well be subject to withholding under future regulations.
Under U.S. federal tax law, a beneficial holder of shares who is a foreign person is not, in general, subject to U.S. federal income tax on gains (and is not allowed a deduction for losses) realized on the sale of shares of the Fund or on Capital Gain Dividends unless (i) such gain or Capital Gain Dividend is effectively connected with the conduct of a trade or business carried on by such holder within the United States, (ii) in the case of an individual holder, the holder is present in the United States for a period or periods aggregating 183 days or more during the year of the sale or Capital Gain Dividend and certain other conditions are met, or (iii) the shares constitute USRPIs or (effective for taxable years of the Fund beginning on September 1, 2005) the Capital Gain Dividends are paid or deemed paid on or before December 31, 2007 and are attributable to gains from the sale or exchange of USRPIs. Effective after December 31, 2004, and before January 1, 2008, if the Fund is a U.S. real property holding corporation (as described above) the Fund's shares will nevertheless not constitute USRPIs if the Fund is a "domestically controlled qualified investment entity," which is defined to include a RIC that, at all times during the shorter of the 5-year period ending on the date of the disposition or the period during which the RIC was in existence, had less than 50 percent in value of its stock held directly or indirectly by foreign persons.
ADDITIONAL TAX MATTERS CONCERNING TRUST SHARES (THIS SECTION IS APPLICABLE ONLY TO THE COLUMBIA TAX-MANAGED GROWTH FUND)
FEDERAL GIFT TAXES. An investment in Trust Shares may be a taxable gift for federal tax purposes, depending upon the option selected and other gifts that the donor and his or her spouse may make during the year.
Under the Columbia Advantage Plan, the entire amount of the gift will be a "present interest" that qualifies for the federal gift tax annual exclusion. In that case, the donor will be required to file a federal gift tax return on account of this gift only if (i) the aggregate present interest gifts by the donor to the particular beneficiary (including the gift of Trust Shares) exceed $11,000 or (ii) the donor wishes to elect gift splitting on gifts with his or her spouse for the year. The trustee will notify the beneficiary of his or her right of withdrawal promptly following any contribution under the Advantage Plan.
Under the Columbia Gift Plan, the entire amount of the gift will be a "future interest" for federal gift tax purposes, so that none of the gift will qualify for the federal gift tax annual exclusion. Consequently, the donor will have to file a federal gift tax return (IRS Form 709) reporting the entire amount of the gift, even if the gift is less than $11,000.
No federal gift tax will be payable by the donor until his or her cumulative taxable gifts (i.e., gifts other than those qualifying for the annual exclusion or otherwise exempt), including taxable gifts of other assets as well as any taxable gifts of trust shares, exceed the federal gift and estate tax exemption equivalent amount, which is $1,000,000 for gifts made after December 31, 2001, and before January 1, 2010.
Any gift of Trust Shares that does not qualify as a present interest or that exceeds the available annual exclusion amount will reduce the amount of the donor's Federal gift and estate tax exemption (if any) that would otherwise be available for future gifts for transfers at death.
The donor and his or her spouse may elect "gift-splitting" for any gift of Trust Shares (other than a gift to such spouse), meaning that the donor and his or her spouse may elect to treat the gift as having been made one-half by each of them, thus allowing a total gift of $22,000.
The donor's gift of Fund shares may also have to be reported for state gift tax purposes, if the state in which the donor resides imposes a gift tax. Many states do not impose such a tax. Some states follow the Federal rules concerning the types of transfers subject to tax and the availability of the annual exclusion.
GENERATION-SKIPPING TRANSFER TAXES
If the beneficiary of a gift of Trust Shares is a relative who is two generations or more younger than the donor, or is not a relative and is more than 37 1/2 years younger than the donor, the gift will be subject in whole or in part to the generation-skipping transfer tax (the "GST tax") unless the gift is made under the Columbia Advantage Plan and does not exceed the available annual exclusion amount. An exemption (the "GST exemption"), equal to $1.5 million in 2005, is allowed against this tax, and so long as the GST exemption has not been used by other transfers it will automatically be allocated to a gift of Trust Shares that is subject to the GST tax unless the donor elects otherwise. Such an election is made by reporting the gift on a timely filed gift tax return and paying the applicable GST tax. The GST tax is imposed at a flat rate (47% for gifts made in 2005) on the amount of the gift, and payment of the tax by the donor is treated as an additional gift for gift tax purposes.
INCOME TAXES
The Internal Revenue Service takes the position that a trust beneficiary who is given a power of withdrawal over contributions to the trust should be treated, for Federal income tax purposes, as the "owner" of the portion of the trust that was subject to the power. Accordingly, if the donor selects Columbia Advantage Trust Shares, the beneficiary will be treated as the "owner" of all of the Fund shares in the account for Federal income tax purposes, and will be required to report all of the income and capital gains earned in the trust on his or her personal Federal income tax return. The trust will not pay Federal income taxes on any of the trust's income or capital gains. The trustee will prepare and file the Federal income tax information returns that are required each year (and any state income tax returns that may be required), and will send the beneficiary a statement following each year showing the amounts (if any) that the beneficiary must report on his or her income tax returns for that year. If the beneficiary is under fourteen years of age, these amounts may be subject to Federal income taxation at the marginal rate applicable to the beneficiary's parents. The beneficiary may at any time after the creation of the trust irrevocably elect to require the trustee to pay him or her a portion of the trust's income and capital gains annually thereafter to provide funds with which to pay any resulting income taxes, which the trustee will do by redeeming Trust Shares. The amount distributed will be a fraction of the trust's ordinary income and short-term capital gains and the trust's long-term capital gains equal to the highest marginal Federal income tax rate imposed on each type of income (currently, 35% and 15%, respectively). If the beneficiary selects this option, he or she will receive those fractions of his or her trust's income and capital gains annually for the duration of the trust.
Under the Columbia Advantage Plan, the beneficiary will also be able to require the trustee to pay his or her tuition, room and board and other expense of his or her college or post-graduate education, and the trustee will raise the cash necessary to fund these distributions by redeeming Trust Shares. Any such redemption will result in the realization of capital gain or loss on the shares redeemed, which will be reportable by the beneficiary on his or her income tax returns for the year in which the shares are redeemed, as described above. Payments must be made directly to the educational institution.
If the donor selects the Columbia Gift Plan, the trust that he or she creates will be subject to Federal income tax on all income and capital gains realized by it, less a $100 annual exemption (in lieu of the personal exemption allowed to individuals). The amount of the tax will be determined under the tax rate schedule applicable to estates and trusts, which is more sharply graduated than the rate schedule for individuals, reaching the same maximum marginal rate for ordinary income or short-term capital gains (currently, 35%), but at a much lower taxable income level than would apply to an individual. It is anticipated, however, that most of the gains taxable to the trust will be long-term capital gain, on which the Federal income tax rate is currently limited to 15%. The trustee will raise the cash necessary to pay any Federal or state income taxes by redeeming Fund shares. The beneficiary will not pay Federal income taxes on any of the trust's income or capital gains, except those earned in the year when the trust terminates. The trustee will prepare and file all Federal and state income tax returns that are required
each year, and will send the beneficiary an information statement for the year in which the trust terminates showing the amounts (if any) that the beneficiary must report on his or her Federal and state income tax returns for that year.
When the trust terminates, the distribution of the remaining shares held in the trust to the beneficiary will not be treated as a taxable disposition of the shares. Any Fund shares received by the beneficiary will have the same cost basis as they had in the trust at the time of termination. Any Fund shares received by the beneficiary's estate will have a basis equal to the value of the shares at the beneficiary's death (or the alternate valuation date for Federal estate tax purposes, if elected).
Consultation with Qualified Advisor
Due to the complexity of Federal and state gift, GST and income tax laws pertaining to all gifts in trust, prospective donors should consider consulting with their financial or tax advisor before investing in Trust Shares.
MANAGEMENT OF THE FUNDS Columbia Management Advisors, LLC ("Columbia Advisors" or "CMA" or the "Advisor"), located at 100 Federal Street, Boston, Massachusetts 02110 is the Advisor to the Funds. The Advisor provides administrative and management services to the Funds. Columbia Advisors is a direct, wholly owned subsidiary of Columbia Management Group, LLC ("CMG"), which in turn is a direct, wholly owned subsidiary of Bank of America, which in turn is a wholly owned banking subsidiary of Bank of America Corporation, a financial services holding company organized as a Delaware corporation. On September 30, 2005, Columbia Management Advisors, Inc. ("Columbia Management") merged into Columbia Advisors (which prior to September 30, 2005 had been known as Banc of America Capital Management, LLC). Before September 30, 2005 Columbia Management was the investment advisor to the Funds. As a result of the merger, Columbia Advisors is now the investment advisor to the Funds. Columbia Advisors, a registered investment advisor, has been an investment advisor since 1995.
TRUSTEES AND OFFICERS (THIS SECTION APPLIES TO ALL OF THE FUNDS)
The Trustees and officers serve terms of indefinite duration. The names, addresses and ages of the Trustees and officers of the Fund Complex, the year each was first elected or appointed to office, their principal business occupations during at least the last five years, the number of portfolios overseen by each Trustee and other directorships they hold are shown below.
Number of
Portfolios
Year First in Fund
Position Elected or Complex Other
Name, Address with Appointed Principal Occupation(s) Overseen Directorships
and Age Funds to Office(1) During Past Five Years by Trustee Held
------------- -------- ------------ ----------------------- ---------- -------------
DISINTERESTED TRUSTEES
Douglas A. Hacker (Age 49) Trustee 1996 Executive Vice President - Strategy of United 86 Nash Finch
P.O. Box 66100 Airlines (airline) since December, 2002 Company (food
Chicago, IL 60666 (formerly President of UAL Loyalty Services distributor)
(airline) from September, 2001 to December,
2002; Executive Vice President and Chief
Financial Officer of United Airlines from
July, 1999 to September, 2001; Senior Vice
President- Finance from March, 1993 to July,
1999).
Janet Langford Kelly (Age 47) Trustee 1996 Partner, Zelle, Hofmann, Voelbel, Mason & 86 None
9534 W. Gull Lake Drive Gette LLP (law firm) since March, 2005;
Richland, MI 49083-8530 Adjunct Professor of Law, Northwestern
University, since September, 2004 (formerly
Chief Administrative Officer and Senior Vice
President, Kmart Holding Corporation
(consumer goods), from September, 2003 to
March, 2004; Executive Vice
President-Corporate Development and
Administration, General Counsel and
Secretary, Kellogg Company (food
manufacturer), from September, 1999 to
August, 2003; Senior Vice President,
Secretary and General Counsel, Sara Lee
Corporation (branded, packaged,
consumer-products manufacturer) from January,
1995 to September, 1999).
|
Number of
Portfolios
Year First in Fund
Position Elected or Complex Other
Name, Address with Appointed Principal Occupation(s) Overseen Directorships
and Age Funds to Office(1) During Past Five Years by Trustee Held
------------- -------- ------------ ----------------------- ---------- -------------
DISINTERESTED TRUSTEES
Richard W. Lowry (Age 69) Trustee 1995 Private Investor since August, 1987 (formerly 89(3) None
10701 Charleston Drive Chairman and Chief Executive Officer, U.S.
Vero Beach, FL 32963 Plywood Corporation (building products
manufacturer)).
Charles R. Nelson (Age 62) Trustee 1981 Professor of Economics, University of 86 None
Department of Economics Washington, since January, 1976; Ford and
University of Washington Louisa Van Voorhis Professor of Political
Seattle, WA 98195 Economy, University of Washington, since
September, 1993 (formerly Director, Institute
for Economic Research, University of
Washington from September, 2001 to June,
2003); Adjunct Professor of Statistics,
University of Washington, since September,
1980; Associate Editor, Journal of Money
Credit and Banking, since September, 1993;
consultant on econometric and statistical
matters.
John J. Neuhauser (Age 63) Trustee 1985 Academic Vice President and Dean of Faculties 89(3) Saucony, Inc.
84 College Road since August, 1999, Boston College (formerly (athletic
Chestnut Hill, MA 02467-3838 Dean, Boston College School of Management footwear)
from September, 1977 to August, 1999).
Patrick J. Simpson (Age 61) Trustee 2000 Partner, Perkins Coie L.L.P. (law firm). 86 None
1120 N.W. Couch Street
Tenth Floor
Portland, OR 97209-4128
|
Number of
Portfolios
Year First in Fund
Position Elected or Complex Other
Name, Address with Appointed Principal Occupation(s) Overseen Directorships
and Age Funds to Office(1) During Past Five Years by Trustee Held
------------- -------- ------------ ----------------------- ---------- -------------
DISINTERESTED TRUSTEES
Thomas E. Stitzel (Age 69) Trustee 1998 Business Consultant since 1999 (formerly 86 None
2208 Tawny Woods Place Professor of Finance from 1975 to 1999,
Boise, ID 83706 College of Business, Boise State University);
Chartered Financial Analyst.
|
Number of
Portfolios
Year First in Fund
Elected or Complex
Position Appointed Principal Occupation(s) Overseen
Name, Address and Age with Funds to Office(1) During Past Five Years by Trustee Other Directorships Held
--------------------- ----------- ------------ ----------------------- ---------- ------------------------
DISINTERESTED TRUSTEES
Thomas C. Theobald (Age 68) Trustee and 1996 Partner and Senior Advisor, 86 Anixter International
8 Sound Shore Drive, Chairman of Chicago Growth Partners (network support
Suite 285 the Board (private equity investing) equipment distributor);
Greenwich, CT 06830 since September, 2004 Ventas, Inc. (real
(formerly Managing Director, estate investment
William Blair Capital Partners trust); Jones Lang
(private equity investing) LaSalle (real estate
from September, 1994 to management services) and
September, 2004). Ambac Financial Group
(financial guaranty
insurance)
Anne-Lee Verville (Age 60) TRUSTEE 1998 Retired since 1997 (formerly 86 Chairman of the Board of
359 Stickney Hill Road General Manager, Global Directors, Enesco Group,
Hopkinton, NH 03229 Education Industry, IBM Inc. (designer, importer
Corporation (computer and and distributor of
technology) from 1994 to giftware and
1997). collectibles)
Richard L. Woolworth (Age 64) Trustee 1991 Retired since December, 2003 86 Northwest Natural Gas
100 S.W. Market Street (formerly Chairman and Chief Co. (natural gas service
#1500 Executive Officer, The Regence provider)
Portland, OR 97207 Group (regional health
insurer); Chairman and Chief
Executive Officer, BlueCross
BlueShield of Oregon;
Certified Public Accountant,
Arthur Young & Company)
|
Number of
Portfolios
Year First in Fund
Elected or Complex
Position Appointed Principal Occupation(s) Overseen
Name, Address and Age with Funds to Office(1) During Past Five Years by Trustee Other Directorships Held
--------------------- ----------- ------------ ----------------------- ---------- ------------------------
Interested Trustee
William E. Mayer(2) (Age 65) Trustee 1994 Partner, Park Avenue Equity 89(3) Lee Enterprises (print
399 Park Avenue Partners (private equity) media), WR Hambrecht +
Suite 3204 since February, 1999 (formerly Co. (financial service
New York, NY 10022 Partner, Development Capital provider); Reader's
LLC from November, 1996 to Digest (publishing);
February, 1999). OPENFIELD Solutions
(retail industry
technology provider)
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(1) In October 2003, the trustees of the Liberty Funds and Stein Roe Funds (both as defined in Part 1 of this SAI) were elected to the boards of the Columbia Funds; simultaneous with that election, Patrick J. Simpson and Richard L. Woolworth, who had been directors/trustees of the Columbia Funds were appointed to serve as trustees of the Liberty Funds and Stein Roe Funds. The date shown is the earliest date on which a trustee/director was elected or appointed to the board of a Fund in the Fund Complex.
(2) Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht + Co.
(3) Messrs. Lowry, Neuhauser and Mayer also serve as directors/trustees of the All-Star Funds (as defined in Part 1 of this SAI).
Year First
Elected or
Name, Address Position Appointed Principal Occupation(s)
and Age with Funds to Office During Past Five Years
------- ----------- ---------- -----------------------
Officers
Christopher L. Wilson (Age 48) President 2004 Head of Mutual Funds since August, 2004 and Managing Director of the
One Financial Center Advisor since September, 2005; President of the Columbia Funds, Liberty
Boston, MA 02111 Funds and Stein Roe Funds since October, 2004; President and Chief
Executive Officer of the Nations Funds since January, 2005; President of
the Galaxy Funds since April, 2005; Director of Bank of America Global
Liquidity Funds, plc since May, 2005; Director of Banc of America
Capital Management (Ireland), Limited since May, 2005; Director of FIM
Funding, Inc. since January, 2005; Senior Vice President of Columbia
Management Distributors, Inc. since January, 2005; Director of Columbia
Management Services, Inc. since January, 2005 (formerly Senior Vice
President of Columbia Management from January, 2005 to August, 2005;
Senior Vice President of BACAP Distributors LLC from January, 2005 to
July, 2005; President and Chief Executive Officer, CDC IXIS Asset
Management Services, Inc. from September, 1998 to August, 2004).
J. Kevin Connaughton (Age 41) Treasurer 2000 Treasurer of the Columbia Funds since October, 2003 and of the Liberty
One Financial Center Funds, Stein Roe Funds and All-Star Funds since December, 2000;
Boston, MA 02111 Managing Director of the Advisor since September, 2005 (formerly Vice
President of Columbia Management from April, 2003 to August, 2005;
President of the Columbia Funds, Liberty Funds and Stein Roe Funds from
February, 2004 to October, 2004; Chief Accounting Officer and Controller
of the Liberty Funds and All-Star Funds from February, 1998 to October,
2000); Treasurer of the Galaxy Funds since September, 2002 (formerly
Treasurer from December, 2002 to December, 2004 and President from
February, 2004 to December, 2004 of the Columbia Management
Multi-Strategy Hedge Fund, LLC; Vice President of Colonial Management
Associates, Inc. from February, 1998 to October, 2000).
Mary Joan Hoene (Age 56) Senior Vice 2004 Senior Vice President and Chief Compliance Officer of the Columbia
100 Federal Street President Funds, Liberty Funds, Stein Roe Funds and All-Star Funds since August,
Boston, MA 02110 and Chief 2004; Chief Compliance Officer of the Columbia Management Multi-Strategy
Compliance Hedge Fund, LLC since August, 2004; Chief Compliance Officer of the
Officer BACAP Alternative Multi-Strategy Hedge Fund LLC since October, 2004
(formerly Partner, Carter, Ledyard & Milburn LLP from January, 2001 to
August, 2004; Counsel, Carter, Ledyard & Milburn LLP from November, 1999
to December, 2000; Vice President and Counsel, Equitable Life Assurance
Society of the United States from April, 1998 to November, 1999).
Michael G. Clarke (Age 35) Chief 2004 Chief Accounting Officer of the Columbia Funds, Liberty Funds, Stein Roe
Funds and All-Star Funds since
|
One Financial Center Accounting October, 2004; Managing Director of the Advisor since September, 2005
Boston, MA 02111 Officer (formerly Controller of the Columbia Funds, Liberty Funds, Stein Roe
Funds and All-Star Funds from May, 2004 to October, 2004; Assistant
Treasurer from June, 2002 to May, 2004; Vice President, Product Strategy
& Development of the Liberty Funds and Stein Roe Funds from February,
2001 to June, 2002; Assistant Treasurer of the Liberty Funds, Stein Roe
Funds and the All-Star Funds from August, 1999 to February, 2001; Audit
Manager, Deloitte & Toche LLP from May, 1997 to August, 1999).
Jeffrey R. Coleman (Age 35) Controller 2004 Controller of the Columbia Funds, Liberty Funds, Stein Roe Funds and
One Financial Center All-Star Funds since October, 2004 (formerly Vice President of CDC IXIS
Boston, MA 02111 Asset Management Services, Inc. and Deputy Treasurer of the CDC Nvest
Funds and Loomis Sayles Funds from February, 2003 to September, 2004;
Assistant Vice President of CDC IXIS Asset Management Services, Inc. and
Assistant Treasurer of the CDC Nvest Funds from August, 2000 to
February, 2003; Tax Manager of PFPC, Inc. from November, 1996 to August,
2000).
R. Scott Henderson (Age 46) Secretary 2004 Secretary of the Columbia Funds, Liberty Funds and Stein Roe Funds since
One Financial Center December, 2004 (formerly Of Counsel, Bingham McCutchen from April, 2001
Boston, MA 02111 to September, 2004; Executive Director and General Counsel,
Massachusetts Pension Reserves Investment Management Board from
September, 1997 to March, 2001).
|
Trustee Positions
As of December 31, 2004, no disinterested Trustee or any of their immediate family members owned beneficially or of record any class of securities of the Advisor, another investment advisor, sub-advisor or portfolio manager of any of the funds in the Fund Complex or any person controlling, controlled by or under common control with any such entity.
Approving the Investment Advisory Contract
In determining to approve the most recent annual extension of a Fund's management agreement, the Trustees met over the course of the year with the relevant investment advisory personnel from the Advisor and considered information provided by the Advisor relating to the education, experience and number of investment professionals and other personnel providing services under that agreement. See "Managing the Fund" in each Fund's Prospectus and "Trustees and Officers" in this SAI. The Trustees also took into account the time and attention devoted by senior management to the Funds and the other funds in the Fund Complex. The Trustees evaluated the level of skill required to manage the Funds and concluded that the human resources devoted by the Advisor to the Funds were appropriate to fulfill effectively the Advisor's duties under the agreement. The Trustees also considered the business reputation of the Advisor and its financial resources, and concluded that the Advisor would be able to meet any reasonably foreseeable obligations under the agreement.
The Trustees received information concerning the investment philosophy and investment process applied by the Advisor in managing the Funds. See "Principal Investment Strategies" and "Principal Investment Risks" in the Funds' Prospectuses. In this connection, the Trustees considered the Advisor's in-house research capabilities as well as other resources available to the Advisor's personnel, including research services available to the Advisor as a result of securities transactions effected for the Funds and other investment advisory clients. The Trustees concluded that the Advisor's investment process, research capabilities and philosophy were well suited to each Fund, given each Fund's investment goal(s) and policies.
The Trustees considered the scope of the services provided by the Advisor to the
Funds under the agreement relative to services provided by third parties to
other mutual funds. See "Fund Charges and Expenses" and "Management of the Funds
- The Management Agreement". The Trustees concluded that the scope of the
Advisor's services to the Funds was consistent with the Funds' operational
requirements, including, in addition to its investment goal, compliance with
each Fund's investment restrictions, tax and reporting requirements and related
shareholder services.
The Trustees considered the quality of the services provided by the Advisor to
the Funds. The Trustees evaluated the Advisor's record with respect to
regulatory compliance and compliance with the investment policies of each Fund.
The Trustees also evaluated the procedures of the Advisor designed to fulfill
the Advisor's fiduciary duty to the Funds with respect to possible conflicts of
interest, including the Advisor's code of ethics (regulating the personal
trading of its officers and employees) (see "Management of the Funds - Code of
Ethics"), the procedures by which the Advisor allocates trades among its various
investment advisory clients and the record of the Advisor in these matters. The
Trustees also received information concerning standards of the Advisor with
respect to the execution of portfolio transactions. See "Management of the Funds
- Portfolio Transactions."
The Trustees considered the Advisor's management of non-advisory services provided by persons other than the Advisor by reference, among other things, to each Fund's total expenses and the reputation of each Fund's other service providers. See "Your Expenses" in each Fund's Prospectus(es). The Trustees also considered information provided by third parties relating to each Fund's investment performance relative to its performance benchmark(s), relative to other similar funds managed by the Advisor and relative to funds managed similarly by other advisors. The Trustees reviewed performance over various periods, including each Fund's one, five and ten year calendar year periods and/or the life of the Fund, as applicable (See "Performance History" in the Fund's Prospectuses), as well as factors identified by the Advisor as contributing to each Fund's performance. See each Fund's most recent annual and semi-annual reports. The Trustees concluded that the scope and quality of the Advisor's services was sufficient to merit reapproval of the agreement for another year.
In reaching that conclusion, the Trustees also gave substantial consideration to the fees payable under the agreement. The Trustees reviewed information concerning fees paid to investment advisors of similarly-managed funds. The Trustees also considered the fees of the Funds as a percentage of assets at different asset levels and possible economies of scale to the Advisor. The Trustees evaluated the Advisor's profitability with respect to the Funds, concluding that such profitability appeared to be generally consistent with levels of profitability that had been determined by courts to be "not excessive." For these purposes, the Trustees took into account not only the actual dollar amount of fees paid by the Funds directly to the Advisor, but also so-called "fallout benefits" to the Advisor such as reputational value derived from serving as investment Advisor to the Funds and the research services available to the Advisor by reason of brokerage commissions generated by each Fund's turnover. In evaluating the Funds' advisory fees, the Trustees also took into account the complexity of investment management for the Funds relative to other types of funds. Based on challenges associated with less readily available market information about foreign issuers and smaller capitalization companies, limited liquidity of certain securities, and the specialization required for focused funds, the Trustees concluded that generally greater research intensity and trading acumen is required for equity funds, and for international or global funds, as compared to funds investing, respectively, in debt obligations or in U.S.
issuers. Similarly, the Trustees concluded that, generally, small capitalization equity funds and focused funds including state specific municipal funds, require greater intensity of research and trading acumen than larger capitalization or more diversified funds. See "The Fund" in each Fund's Prospectus.
Based on the foregoing, the Trustees concluded that the fees to be paid the Advisor under the advisory agreement were fair and reasonable, given the scope and quality of the services rendered by the Advisor.
General
Messrs. Lowry, Mayer and Neuhauser are also trustees/directors of the Liberty All-Star Funds.
The Trustees serve as trustees of86 registered investment companies managed by the Advisor for which each Trustee receives a retainer at the annual rate of $45,000 and an attendance fee of $9,500 for each regular and special joint board meeting and $1,000 for each special telephonic joint board meeting. Beginning in December, 2003, Mr. Theobald began serving as the Chairman of the Board. As the independent chairman of the board, Mr. Theobald receives a supplemental retainer at the annual rate of of $100,000; the chair of the Audit Committee receives a supplemental retainer at the annual rate of $10,000; the chair of each other committee receives a supplemental retainer at the annual rate of $5,000. Members of each committee, except the Audit Committee, receive $1,500 for each committee meeting. Each Audit Committee member receives $2,000 for each Audit Committee meeting. Committee members receive $1,500 for each special committee meeting attended on a day other than a regular joint board meeting day. Two-thirds of the Trustee fees are allocated among the Funds based on each Fund's relative net assets and one-third of the fees is divided equally among the Funds.
Trustees and officers of the Trust, who are also officers of the Advisor or its affiliates, will benefit from the advisory fees, sales commissions and agency fees paid or allowed by the Trust.
The Agreement and Declaration of Trust (Declaration) of the Trust provides that the Trust will indemnify its Trustees and officers against liabilities and expenses incurred in connection with litigation in which they may be involved because of their offices with the Trust but that such indemnification will not relieve any officer or Trustee of any liability to the Trust or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his or her duties. The Trust, at its expense, provides liability insurance for the benefit of its Trustees and officers.
The Trustees have the authority to convert the Funds into a master fund/feeder fund structure. Under this structure, a Fund may invest all or a portion of its investable assets in investment companies with substantially the same investment goals, policies and restrictions as the Fund. The primary reason to use the master fund/feeder fund structure is to provide a mechanism to pool, in a single master fund, investments of different investor classes, resulting in a larger portfolio, investment and administrative efficiencies and economies of scale.
MANAGEMENT AGREEMENT
Under a Management Agreement (Agreement), the Advisor has contracted to furnish each Fund with investment research and recommendations or fund management, respectively, and accounting and administrative personnel and services, and with office space, equipment and other facilities. For these services and facilities, each Fund pays a monthly fee based on the average of the daily closing value of the total net assets of each Fund for such month. Under the Agreement, any liability of the Advisor to the Trust, a Fund and/or its shareholders is limited to situations involving the Advisor's own willful misfeasance, bad faith, gross negligence or reckless disregard of its duties.
The Agreement may be terminated with respect to the Fund at any time on 60 days'
written notice by the Advisor or by the Trustees of the Trust or by a vote of a
majority of the outstanding voting securities of the Fund. The Agreement will
automatically terminate upon any assignment thereof and shall continue in effect
from year to year only so long as such continuance is approved at least annually
(i) by the Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the Fund and (ii) by vote of a majority of the Trustees who
are not interested persons (as such term is defined in the 1940 Act) of the
Advisor or the Trust, cast in person at a meeting called for the purpose of
voting on such approval.
The Advisor pays all salaries of officers of the Trust. The Trust pays all expenses not assumed by the Advisor including, but not limited to, auditing, legal, custodial, investor servicing and shareholder reporting expenses. The Trust pays the cost of printing and mailing any Prospectuses sent to shareholders. Columbia Management Distributors, Inc. (formerly named Columbia Funds Distributor, Inc.) pays the cost of printing and distributing all other Prospectuses.
ADMINISTRATION AGREEMENT (THIS SECTION APPLIES ONLY TO CERTAIN FUNDS AND THEIR RESPECTIVE TRUSTS. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION REGARDING YOUR FUND).
Under an Administration Agreement, the Advisor, in its capacity as the Administrator to each Fund, has contracted to perform the following administrative services:
(a) providing office space, equipment and clerical personnel;
(b) arranging, if desired by the respective Trust, for its directors, officers and employees to serve as Trustees, officers or agents of each Fund;
(c) preparing and, if applicable, filing all documents required for compliance by each Fund with applicable laws and regulations;
(d) preparation of agendas and supporting documents for and minutes of meetings of Trustees, committees of Trustees and shareholders;
(e) coordinating and overseeing the activities of each Fund's other third-party service providers; and
(f) maintaining certain books and records of each Fund.
With respect to Columbia Money Market Fund and Columbia Municipal Money Market Fund, the Administration Agreement for these Funds provides that the Advisor will monitor compliance by the Fund with Rule 2a-7 under the 1940 Act and report to the Trustees from time to time with respect thereto.
The Advisor is paid a monthly fee at the annual rate of average daily net assets set forth in Part 1 of this SAI.
TRUST SERVICES AGREEMENT
Pursuant to a Trust Services Agreement, CMS provides the Columbia Tax-Managed Growth Fund's Trust Shares with trust administration services, including tax return preparation and filing, other tax and beneficiary reporting and recordkeeping. CMS's fee is described in the Prospectuses of the Columbia Tax-Managed Growth Fund.
The Pricing and Bookkeeping Agreement
The Advisor is responsible for providing accounting and bookkeeping services to
each Fund pursuant to a pricing and bookkeeping agreement. Under a separate
agreement (Outsourcing Agreement), the Advisor has delegated those functions to
State Street Corporation (State Street). The Advisor pays fees to State Street
under the Outsourcing Agreement. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF
THIS SAI FOR INFORMATION ON THESE FEES.
PORTFOLIO TRANSACTIONS
INVESTMENT DECISIONS. The Advisor acts as investment advisor to each of the Funds. Various officers and Trustees of the Trust also serve as officers or Trustees of other funds and the other corporate or fiduciary clients of the Advisor. The Funds and clients advised by the Advisor or the Funds administered by the Advisor sometimes invest in securities in which the Fund also invests and sometimes engage in covered option writing programs and enter into transactions utilizing stock index options and stock index and financial futures and related options ("other instruments"). If the Fund, such other funds and such other clients desire to buy or sell the same portfolio securities, options or other instruments at about the same time, the purchases and sales are normally made as nearly as practicable on a pro rata basis in proportion to the amounts desired to be purchased or sold by each. Although in some cases these practices could have a detrimental effect on the price or volume of the securities, options or other instruments as far as the Fund is concerned, in most cases it is believed that these practices should produce better executions. It is the opinion of the Trustees that the desirability of retaining the Advisor as investment advisor to the Funds outweighs the disadvantages, if any, which might result from these practices.
POTENTIAL CONFLICTS OF INTEREST IN MANAGING MULTIPLE ACCOUNTS
Like other investment professionals with multiple clients, a portfolio manager for a Fund may face certain potential conflicts of interest in connection with managing both the Fund and other accounts at the same time. The paragraphs below describe some of these potential conflicts, which the Advisor believes are faced by investment professionals at most major financial firms. The Advisor and the Trustees of the Columbia Funds have adopted compliance policies and procedures that attempt to address certain of these potential conflicts.
The management of accounts with different advisory fee rates and/or fee structures, including accounts that pay advisory fees based on account performance ("performance fee accounts"), may raise potential conflicts of interest by creating an incentive to favor higher-fee accounts. These potential conflicts may include, among others:
- The most attractive investments could be allocated to higher-fee accounts or performance fee accounts.
- The trading of higher-fee accounts could be favored as to timing and/or execution price. For example, higher-fee accounts could be permitted to sell securities earlier than other accounts when a prompt sale is desirable or to buy securities at an earlier and more opportune time.
- The trading of other accounts could be used to benefit higher-fee accounts (front-running).
- The investment management team could focus their time and efforts primarily on higher-fee accounts due to a personal stake in compensation.
Potential conflicts of interest may also arise when the portfolio managers have personal investments in other accounts that may create an incentive to favor those accounts. As a general matter and subject to limited exceptions, the Advisor's investment professionals do not have the opportunity to invest in client accounts, other than the Columbia Funds.
A potential conflict of interest may arise when a Fund and other accounts purchase or sell the same securities. On occasions when a portfolio manager considers the purchase or sale of a security to be in the best interests of a Fund as well as other accounts, the Advisor's trading desk may, to the extent permitted by applicable laws and regulations, aggregate the securities to be sold or purchased in order to obtain the best execution and lower brokerage commissions, if any. Aggregation of trades may create the potential for unfairness to a Fund or another account if one account is favored over another in allocating the securities purchased or sold - for example, by allocating a disproportionate amount of a security that is likely to increase in value to a favored account.
"Cross trades," in which one Columbia account sells a particular security to another account (potentially saving transaction costs for both accounts), may also pose a potential conflict of interest. Cross trades may be seen to involve a potential conflict of interest if, for example, one account is permitted to sell a security to another account at a higher price than an independent third party would pay. The Advisor and the Funds' Trustees have adopted compliance procedures that provide that any transactions between a Fund and another Columbia-advised account are to be made at an independent current market price, as required by law.
Another potential conflict of interest may arise based on the different investment objectives and strategies of a Fund and other accounts. For example, another account may have a shorter-term investment horizon or different investment objectives, policies or restrictions than a Fund. Depending on another account's objectives or other factors, a portfolio manager may give advice and make decisions that may differ from advice given, or the timing or nature of decisions made, with respect to a Fund. In addition, investment decisions are the product of many factors in addition to basic suitability for the particular account involved. Thus, a particular security may be bought or sold for certain accounts even though it could have been bought or sold for other accounts at the same time. More rarely, a particular security may be bought for one or more accounts managed by a portfolio manager when one or more other accounts are selling the security (including short sales). There may be circumstances when purchases or sales of portfolio securities for one or more accounts may have an adverse effect on other accounts.
A Fund's portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. As a result, the portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as might be the case if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies.
A Fund's portfolio managers may be able to select or influence the selection of the brokers and dealers that are used to execute securities transactions for the Fund. In addition to executing trades, some brokers and dealers provide portfolio managers with brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934), which may result in the payment of higher brokerage fees than might have otherwise be available. These services may be more beneficial to certain funds or accounts than to others. Although the payment of brokerage commissions is subject to the requirement that the portfolio manager determine in good faith that the commissions are reasonable in relation to the value of the brokerage and research services provided to the fund, a portfolio manager's decision as to the selection of brokers and dealers could yield disproportionate costs and benefits among the funds and/or accounts that he or she manages.
The Advisor or an affiliate may provide more services (such as distribution or recordkeeping) for some types of funds or accounts than for others. In such cases, a portfolio manager may benefit, either directly or indirectly, by devoting disproportionate attention to the management of fund and/or accounts that provide greater overall returns to the investment manager and its affiliates.
A Fund's portfolio manager(s) may also face other potential conflicts of interest in managing the Fund, and the description above is not a complete description of every conflict that could be deemed to exist in managing both a Fund and other accounts. In addition, a Fund's portfolio manager may also manage other accounts (including their personal assets or the assets of family members) in their personal capacity. The management of these accounts may also involve certain of the potential conflicts described above. Investment personnel at the Advisor, including each Fund's portfolio manager, are subject to restrictions on engaging in personal securities transactions
pursuant to Codes of Ethics adopted by the Advisor and each Fund, which contain provisions and requirements designed to identify and address certain conflicts of interest between personal investment activities and the interests of each Fund.
BROKERAGE AND RESEARCH SERVICES. Consistent with the Conduct Rules of the National Association of Securities Dealers, Inc., and subject to seeking "best execution" (as defined below) and such other policies as the Trustees may determine, the Advisor may consider sales of shares of the Funds as a factor in the selection of broker-dealers to execute securities transactions for a Fund.
The Advisor places the transactions of the Funds with broker-dealers selected by the Advisor and, if applicable, negotiates commissions. Broker-dealers may receive brokerage commissions on portfolio transactions, including the purchase and writing of options, the effecting of closing purchase and sale transactions, and the purchase and sale of underlying securities upon the exercise of options and the purchase or sale of other instruments. The Funds from time to time also execute portfolio transactions with such broker-dealers acting as principals. The Funds do not intend to deal exclusively with any particular broker-dealer or group of broker-dealers.
It is the Advisor's policy generally to seek best execution, which is to place the Funds' transactions where the Funds can be expected to obtain the most favorable combination of price and execution services in particular transactions or provided on a continuing basis by a broker-dealer, and to deal directly with a principal market maker in connection with over-the-counter transactions, except when it is believed that best execution is obtainable elsewhere. In evaluating the execution services of, including the overall reasonableness of brokerage commissions paid to, a broker-dealer, consideration is given to, among other things, the firm's general execution and operational capabilities, and to its reliability, integrity and financial condition.
Securities transactions of the Funds may be executed by broker-dealers who also provide research services (as defined below) to the Advisor and the Funds. The Advisor may use all, some or none of such research services in providing investment advisory services to each of its investment company and other clients, including the Fund. To the extent that such services are used by the Advisor, they tend to reduce the Advisor's expenses. In the Advisor's opinion, it is impossible to assign an exact dollar value for such services.
The Trustees have authorized the Advisor to cause the Funds to pay a broker-dealer which provides brokerage and research services to the Advisor an amount of commission for effecting a securities transaction, including the sale of an option or a closing purchase transaction, for the funds in excess of the amount of commission which another broker-dealer would have charged for effecting that transaction. As provided in Section 28(e) of the Securities Exchange Act of 1934, "brokerage and research services" include advice as to the value of securities, the advisability of investing in, purchasing or selling securities and the availability of securities or purchasers or sellers of securities; furnishing analyses and reports concerning issues, industries, securities, economic factors and trends and portfolio strategy and performance of accounts; and effecting securities transactions and performing functions incidental thereto (such as clearance and settlement). The Advisor must determine in good faith that such greater commission is reasonable in relation to the value of the brokerage and research services provided by the executing broker-dealer viewed in terms of that particular transaction or the Advisor's overall responsibilities to the Funds and all its other clients.
The Trustees have authorized the Advisor to utilize the services of a clearing agent with respect to all call options written by Funds that write options and to pay such clearing agent commissions of a fixed amount per share (currently 1.25 cents) on the sale of the underlying security upon the exercise of an option written by a Fund.
The Advisor may use the services of affiliated broker-dealers, when buying or selling securities for a Fund's portfolio pursuant to procedures adopted by the Trustees and 1940 Act Rule 17e-1. Under the Rule, the Advisor must ensure that commissions a Fund pays to affiliates of the Advisor on portfolio transactions are reasonable and fair compared to commissions received by other broker-dealers in connection with comparable transactions involving similar securities being bought or sold at about the same time. The Advisor will report quarterly to the Trustees on all securities transactions placed through affiliates of the Advisor so that the Trustees may consider whether such trades complied with these procedures and the Rule.
PRINCIPAL UNDERWRITER
CMD is the principal underwriter of the Trust's shares. CMD has no obligation to buy the Funds' shares, and purchases the Funds' shares only upon receipt of orders from authorized FSFs or investors.
INVESTOR SERVICING AND TRANSFER AGENT
CMS is the Trust's investor servicing agent (transfer, plan and dividend disbursing agent), for which it receives fees which are paid monthly by the Trust. The fee paid to CMS is based on number of accounts plus reimbursement for certain out-of-pocket expenses. SEE "FUND CHARGES AND EXPENSES" IN PART 1 OF THIS SAI FOR INFORMATION ON FEES RECEIVED BY CMS. The agreement continues indefinitely but may be terminated by 90 days' notice by the Fund to CMS or generally by 6 months' notice by CMS to the Fund. The agreement limits the liability of CMS to the Fund for loss or damage incurred by the Fund to situations involving a failure of CMS to use reasonable care or to act in good faith and without negligence in performing its duties under the agreement. The Fund will indemnify CMS from, among other things, any and all claims, actions, suits, losses, costs, damages, and expenses incurred by it in connection with its acceptance of this Agreement, provided that: (i) to the extent such claims, actions, suits, losses, costs, damages, or expenses relate
solely to a particular series or group of series of shares, such indemnification shall be only out of the assets of that series or group of series; (ii) this indemnification shall not apply to actions or omissions constituting negligence or misconduct of CMS or its agents or contractors, including but not limited to willful misfeasance, bad faith or gross negligence in the performance of their duties, or reckless disregard of their obligations and duties under this Agreement; and (iii) CMS shall give a Fund prompt notice and reasonable opportunity to defend against any such claim or action in its own name or in the name of CMS.
CODE OF ETHICS
The Funds, the Advisor, and CMD have adopted Codes of Ethics pursuant to the requirements of the Act. These Codes of Ethics permit personnel subject to the Codes to invest in securities, including securities that may be purchased or held by the Funds. These Codes of Ethics can be reviewed and copied at the SEC's Public Reference Room and may be obtained by calling the SEC at 1-202-942-8090. These Codes are also available on the EDGAR Database on the SEC's internet web site at http://www.sec.gov, and may also be obtained, after paying a duplicating fee, by electronic request to publicinfo@sec.gov or by writing to the SEC's Public Reference Section, Washington, D.C. 20549-0102.
Anti-Money Laundering Compliance
The Funds are required to comply with various anti-money laundering laws and regulations. Consequently, the Funds may request additional information from you to verify your identity. If at any time the Funds believe a shareholder may be involved in suspicious activity or if certain account information matches information on government lists of suspicious persons, the Funds may choose not to establish a new account or may be required to "freeze" a shareholder's account, halting all shareholder activity with respect to such account. The Funds also may be required to provide a governmental agency with information about transactions that have occurred in a shareholder's account or to transfer monies received to establish a new account, transfer an existing account or transfer the proceeds of an existing account to a governmental agency. In some circumstances, the law may not permit a Fund to inform the shareholder that it has taken the actions described above.
Proxy Voting Policies and Fund Proxy Voting Record
THE FUND HAS DELEGATED TO THE ADVISOR THE RESPONSIBILITY TO VOTE PROXIES RELATING TO PORTFOLIO SECURITIES HELD BY THE FUND. IN DECIDING TO DELEGATE THIS RESPONSIBILITY TO THE ADVISOR, THE BOARD OF TRUSTEES OF THE TRUST REVIEWED AND APPROVED THE POLICIES AND PROCEDURES ADOPTED BY THE ADVISOR. THESE INCLUDED THE PROCEDURES THAT THE ADVISOR FOLLOWS WHEN A VOTE PRESENTS A CONFLICT BETWEEN THE INTERESTS OF THE FUND AND ITS SHAREHOLDERS AND THE ADVISOR, ITS AFFILIATES, ITS OTHER CLIENTS OR OTHER PERSONS.
THE ADVISOR'S POLICY IS TO VOTE ALL PROXIES FOR FUND SECURITIES IN A MANNER CONSIDERED BY THE ADVISOR TO BE IN THE BEST INTEREST OF THE FUND AND ITS SHAREHOLDERS WITHOUT REGARD TO ANY BENEFIT TO THE ADVISOR, ITS AFFILIATES, ITS OTHER CLIENTS OR OTHER PERSONS. THE ADVISOR EXAMINES EACH PROPOSAL AND VOTES AGAINST THE PROPOSAL, IF, IN ITS JUDGMENT, APPROVAL OR ADOPTION OF THE PROPOSAL WOULD BE EXPECTED TO IMPACT ADVERSELY THE CURRENT OR POTENTIAL MARKET VALUE OF THE ISSUER'S SECURITIES. THE ADVISOR ALSO EXAMINES EACH PROPOSAL AND VOTES THE PROXIES AGAINST THE PROPOSAL, IF, IN ITS JUDGMENT, THE PROPOSAL WOULD BE EXPECTED TO AFFECT ADVERSELY THE BEST INTEREST OF THE FUND. THE ADVISOR DETERMINES THE BEST INTEREST OF THE FUND IN LIGHT OF THE POTENTIAL ECONOMIC RETURN ON THE FUND'S INVESTMENT.
The Advisor addresses potential material conflicts of interest by having predetermined voting guidelines. For those proposals that require special consideration or in instances where special circumstances may require varying from the predetermined guideline, the Advisor's Proxy Committee determines the vote in the best interest of the Fund, without consideration of any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor's Proxy Committee is composed of representatives of the Advisor's equity investments, equity research, compliance, legal and fund administration functions. In addition to the responsibilities described above, the Proxy Committee has the responsibility to review, on a semi-annual basis, the Advisor's proxy voting policies to ensure consistency with internal and regulatory agency policies and to develop additional predetermined voting guidelines to assist in the review of proxy proposals.
THE PROXY COMMITTEE MAY VARY FROM A PREDETERMINED GUIDELINE IF IT DETERMINES THAT VOTING ON THE PROPOSAL ACCORDING TO THE PREDETERMINED GUIDELINE WOULD BE EXPECTED TO IMPACT ADVERSELY THE CURRENT OR POTENTIAL MARKET VALUE OF THE ISSUER'S SECURITIES OR TO AFFECT ADVERSELY THE BEST INTEREST OF THE CLIENT. REFERENCES TO THE BEST INTEREST OF A CLIENT REFER TO THE INTEREST OF THE CLIENT IN TERMS OF THE POTENTIAL ECONOMIC RETURN ON THE CLIENT'S INVESTMENT. IN DETERMINING THE VOTE ON ANY PROPOSAL, THE PROXY COMMITTEE DOES NOT CONSIDER ANY BENEFIT OTHER THAN BENEFITS TO THE OWNER OF THE SECURITIES TO BE VOTED. A MEMBER OF THE PROXY COMMITTEE IS PROHIBITED FROM VOTING ON ANY PROPOSAL FOR WHICH HE OR SHE HAS A CONFLICT OF INTEREST BY REASON OF A DIRECT RELATIONSHIP WITH THE ISSUER OR OTHER PARTY AFFECTED BY A GIVEN PROPOSAL. PERSONS MAKING RECOMMENDATIONS TO THE PROXY COMMITTEE OR ITS MEMBERS ARE REQUIRED TO DISCLOSE TO THE COMMITTEE ANY RELATIONSHIP WITH A PARTY MAKING A PROPOSAL OR OTHER MATTER KNOWN TO THE PERSON THAT WOULD CREATE A POTENTIAL CONFLICT OF INTEREST.
The Advisor has retained Institutional Shareholder Services ("ISS"), a third party vendor, to implement its proxy voting process. ISS provides proxy analysis, record keeping services and vote disclosure services.
The Advisor's proxy voting guidelines and procedures are included in this SAI as Appendix II. In accordance with SEC regulations, the fund's proxy voting record for the last twelve-month period ended June 30 has been filed with the SEC. You may obtain a copy of the fund's proxy voting record (i) at www.columbiamanagement.com; (ii) on the Securities and Exchange Commission's website at www.sec.gov and (iii) without charge, upon request, by calling 800-368-0346.
Disclosure of Portfolio Information
The Trustees of the Columbia Funds have adopted policies with respect to the disclosure of the Funds' portfolio holdings by the Funds, Columbia Advisors, or their affiliates. These policies provide that Fund portfolio holdings information generally may not be disclosed to any party prior to (1) the day next following the posting of such information on the Funds' website at www.columbiafunds.com, (2) the day next following the filing of the information with the SEC in a required filing, or (3) for money market funds, such information is publicly available to all shareholders upon request on the fifth business day after each calendar month-end. Certain limited exceptions pursuant to the Fund's policies are described below. The Trustees shall be updated as needed regarding the Fund's compliance with the policies, including information relating to any potential conflicts of interest between the interests of Fund shareholders and those of Columbia Advisors and its affiliates. The Fund's policies prohibit Columbia Advisors and the Fund's other service providers from entering into any agreement to disclose Fund portfolio holdings information in exchange for any form of consideration. These policies apply to disclosures to all categories of persons, including, without limitation, individual investors, institutional investors, intermediaries that distribute the Fund's shares, third-party service providers, rating and ranking organizations and affiliated persons of the Fund.
PUBLIC DISCLOSURES. The Fund's portfolio holdings are currently disclosed to the public through required filings with the SEC and, for equity and fixed income funds, on the Fund's website at www.columbiafunds.com. The Fund files its portfolio holdings with the SEC for each fiscal quarter on Form N-CSR (with respect to each annual period and semi-annual period) and Form N-Q (with respect to the first and third quarters of the Fund's fiscal year). Shareholders may obtain the Fund's Forms N-CSR and N-Q filings on the SEC's website at www.sec.gov. In addition, the Fund's Forms N-CSR and N-Q filings may be reviewed and copied at the SEC's public reference room in Washington, D.C. You may call the SEC at 1-800-SEC-0330 for information about the SEC's website or the operation of the public reference room.
The equity and fixed income Columbia Funds also currently make portfolio information publicly available at www.columbiafunds.com, as disclosed in the following table:
FREQUENCY OF
TYPE OF FUND INFORMATION PROVIDED DISCLOSURE DATE OF WEB POSTING
------------ -------------------- ---------- -------------------
Equity Funds Full portfolio holdings information. Monthly 30 calendar days after month-end.
Fixed Income Funds Full portfolio holdings information. Quarterly 60 calendar days after quarter-end
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The scope of the information provided relating to the Fund's portfolio that is made available on the website may change from time to time without prior notice.
For Columbia's money market funds, a complete list of a Fund's portfolio holdings shall be publicly available on a monthly basis on the fifth business day after month-end. Shareholders may request such information by writing or calling the Fund's distributor, Columbia Management Distributors, Inc. at the address listed on the cover of this SAI.
A Fund, Columbia Advisors or their affiliates may include portfolio holdings information that has already been made public through a web posting or SEC filing in marketing literature and other communications to shareholders, advisors or other parties, provided that the information is disclosed no earlier than the day after the date the information is disclosed publicly.
OTHER DISCLOSURES. The Fund's policies provide that non-public disclosures of the Fund's portfolio holdings may be made if (1) the Fund has a legitimate business purpose for making such disclosure, (2) the Fund's chief executive officer authorizes such non-public disclosure of information, and (3) the party receiving the non-public information enters into a confidentiality agreement, which includes a duty not to trade on the non-public information.
The Fund periodically discloses its portfolio information on a confidential basis to various service providers that require such information in order to assist the Fund with its day-to-day business affairs. In addition to Columbia Advisors and its affiliates, these service providers include the Fund's custodian and sub-custodians, the Fund's independent registered public accounting firm, legal counsel, financial printers(R.R. Donnelly & Sons and Bowne & Co., Inc.), the Fund's proxy voting service provider (Alamo Direct Mail Services, Inc.), the Fund's proxy solicitor (Georgeson Shareholder Communications Inc.), rating agencies that maintain ratings on certain Columbia Funds
(Fitch, Inc.) and service providers that support Columbia Advisors' trading systems (InvestorTool, Inc. and Thomson Financial). These service providers are required to keep such information confidential, and are prohibited from trading based on the information or otherwise using the information except as necessary in providing services to the Fund. The Fund may also disclose portfolio holdings information to broker/dealers and certain other entities related to potential transactions and management of the Fund, provided that reasonable precautions, including limitations on the scope of the portfolio holdings information disclosed, are taken to avoid any potential misuse of the disclosed information.
Certain clients of the Fund's investment adviser(s) may follow a strategy similar to that of the Fund, and have access to portfolio holdings information for their account. It is possible that such information could be used to infer portfolio holdings information relating to the Fund.
DETERMINATION OF NET ASSET VALUE
Each Fund determines net asset value (NAV) per share for each class as of the close of the New York Stock Exchange (Exchange) (generally 4:00 p.m. Eastern time) each day the Exchange is open, except that certain classes of assets, such as index futures, for which the market close occurs shortly after the close of regular trading on the Exchange will be priced at the closing time of the market on which they trade. Currently, the Exchange is closed Saturdays, Sundays and the following holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving and Christmas. Funds with portfolio securities which are primarily listed on foreign exchanges may experience trading and changes in NAV on days on which such Fund does not determine NAV due to differences in closing policies among exchanges. This may significantly affect the NAV of the Fund's redeemable securities on days when an investor cannot redeem such securities Debt securities generally are valued by a pricing service which determines valuations based upon market transactions for normal, institutional-size trading units of similar securities. However, in circumstances where such prices are not available or where the Advisor deems it appropriate to do so, an over-the-counter or exchange bid quotation is used. Securities listed on an exchange or on NASDAQ are valued at the last sale price (or the official closing price as determined by the NASDAQ system, if different, as applicable). Listed securities for which there were no sales during the day and unlisted securities generally are valued at the last quoted bid price. Options are valued at the last sale price or in the absence of a sale, the mean between the last quoted bid and offering prices. Short-term obligations with a maturity of 60 days or less are valued at amortized cost pursuant to procedures adopted by the Trustees. The values of foreign securities quoted in foreign currencies are translated into U.S. dollars at the exchange rate for that day. Portfolio positions for which market quotations are not readily available and other assets are valued at fair value as determined by the Advisor in good faith under the direction of the Trust's Board of Trustees.
Generally, trading in certain securities (such as foreign securities) is substantially completed each day at various times prior to the close of the Exchange. Trading on certain foreign securities markets may not take place on all business days in New York, and trading on some foreign securities markets takes place on days which are not business days in New York and on which the Fund's NAV is not calculated. The values of these securities used in determining the NAV are computed as of such times. Also, because of the amount of time required to collect and process trading information as to large numbers of securities issues, the values of certain securities (such as convertible bonds, U.S. government securities, and tax-exempt securities) are determined based on market quotations collected earlier in the day at the latest practicable time prior to the close of the Exchange. Occasionally, events affecting the value of such securities may occur between such times and the close of the Exchange which will not be reflected in the computation of each Fund's NAV. If events materially affecting the value of such securities occur during such period, then these securities will be valued at fair value following procedures approved by the Trust's Board of Trustees.
(The following two paragraphs are applicable only to Columbia Newport Tiger Fund and Columbia Newport Greater China Fund).
Trading in securities on stock exchanges and over-the-counter markets in foreign securities markets is normally completed well before the close of the business day in New York. Trading on foreign securities markets may not take place on all business days in New York, and trading on some foreign securities markets does take place on days which are not business days in New York and on which the Fund's NAV is not calculated.
The calculation of the Fund's NAV accordingly may not take place contemporaneously with the determination of the prices of the Fund's portfolio securities used in such calculations. Events affecting the values of portfolio securities that occur between the time their prices are determined and the close of the Exchange (when the Fund's NAV is calculated) will not be reflected in the Fund's calculation of NAV unless the Advisor, acting under procedures established by the Board of Trustees of the Trust, deems that the particular event would materially affect the Fund's NAV, in which case an adjustment will be made. Assets or liabilities initially expressed in terms of foreign currencies are translated prior to the next determination of the NAV of the Fund's shares into U.S. dollars at prevailing market rates.
AMORTIZED COST FOR MONEY MARKET FUNDS (SEE "AMORTIZED COST FOR MONEY MARKET FUNDS" UNDER "INFORMATION CONCERNING THE FUND" IN PART 1 OF THE SAI OF COLUMBIA MONEY MARKET FUND (FORMERLY NAMED LIBERTY MONEY MARKET FUND) AND COLUMBIA MUNICIPAL MONEY MARKET FUND (FORMERLY NAMED LIBERTY MUNICIPAL MONEY MARKET FUND) ) Money market funds generally value their portfolio securities at amortized cost according to Rule 2a-7 under the 1940 Act.
Under the amortized cost method a security is initially valued at cost and
thereafter any discount or premium from maturity value is amortized ratably to
maturity. This method assures a constant NAV but may result in a yield different
from that of the same portfolio under the market value method. The Trust's
Trustees have adopted procedures intended to stabilize a money market fund's NAV
per share at $1.00. If a money market fund's market value deviates from the
amortized cost of $1.00, and results in a material dilution to existing
shareholders, the Trust's Trustees will take corrective action that may include:
realizing gains or losses; shortening the portfolio's maturity; withholding
distributions; redeeming shares in kind; or converting to the market value
method (in which case the NAV per share may differ from $1.00). All investments
will be determined pursuant to procedures approved by the Trust's Trustees to
present minimal credit risk.
See the Statement of Assets and Liabilities in the shareholder report of the Columbia Money Market Fund (formerly named Liberty Money Market Fund) or the Columbia Municipal Money Market Fund (formerly named Liberty Municipal Money Market Fund) for a specimen price sheet showing the computation of maximum offering price per share of Class A shares.
HOW TO BUY SHARES
The Prospectus contains a general description of how investors may buy shares of the Fund and tables of charges. This SAI contains additional information which may be of interest to investors.
The Fund may accept unconditional orders for shares to be executed at the public offering price based on the NAV per share next determined after the order is placed in good order. The public offering price is the NAV plus the applicable sales charge, if any. In the case of orders for purchase of shares placed through FSFs, the public offering price will be determined on the day the order is placed in good order, but only if the FSF receives the order prior to the time at which shares are valued and transmits it to the Fund before the Fund processes that day's transactions. If the FSF fails to transmit before the Fund processes that day's transactions, the customer's entitlement to that day's closing price must be settled between the customer and the FSF. If the FSF receives the order after the time at which the Fund values its shares, the price will be based on the NAV determined as of the close of the Exchange on the next day it is open. If funds for the purchase of shares are sent directly to CMS, they will be invested at the public offering price next determined after receipt in good order. Payment for shares of the fund must be in U.S. dollars; if made by check, the check must be drawn on a U.S. bank.
Investors should understand that, since the offering price of the Fund's shares is calculated to two decimal places using standard rounding methodology, the dollar amount of the sales charge paid as a percentage of the offering price and of the net amount invested for any particular purchase of fund shares may be higher or lower depending on whether downward or upward rounding was required during the calculation process.
The Fund receives the entire NAV of shares sold. For shares subject to an initial sales charge, CMD's commission is the sales charge shown in the Fund's Prospectus less any applicable FSF discount. The FSF discount is the same for all FSFs, except that CMD retains the entire sales charge on any sales made to a shareholder who does not specify a FSF on the Investment Account Application ("Application"), and except that CMD may from time to time reallow additional amounts to all or certain FSFs. CMD generally retains some or all of any asset-based sales charge (distribution fee) or contingent deferred sales charge. Such charges generally reimburse CMD for any up-front and/or ongoing commissions paid to FSFs.
Checks presented for the purchase of shares of the Fund which are returned by the purchaser's bank or checkwriting privilege checks for which there are insufficient funds in a shareholder's account to cover redemption may subject such purchaser or shareholder to a $15 service fee for each check returned. Checks must be drawn on a U.S. bank and must be payable in U.S. dollars. Travelers checks, gift checks, credit card convenience checks, credit cards, cash and ban counter (starter checks) are not accepted.
CMS acts as the shareholder's agent whenever it receives instructions to carry out a transaction on the shareholder's account. Upon receipt of instructions that shares are to be purchased for a shareholder's account, the designated FSF will receive the applicable sales commission. Shareholders may change FSFs at any time by written notice to CMS, provided the new FSF has a sales agreement with CMD.
Shares credited to an account are transferable upon written instructions in good order to CMS and may be redeemed as described under "How to Sell Shares" in the Prospectus. Certificates are not available for any class of shares offered by the Fund. If you currently hold previously issued share certificates, you may send the certificates to CMS for deposit to your account.
In addition to the commissions specified in a Fund's prospectus and this SAI, CMD, or its advisory affiliates, from their own resources, may make cash payments to FSFs that agree to promote the sale of shares of funds that CMD distributes. A number of factors may be considered in determining the amount of those payments, including the FSF's sales, client assets invested in the funds and redemption rates, the quality of the FSF's relationship with CMD and/or its affiliates, and the nature of the services provided by FSFs to its clients.
The payments may be made in recognition of such factors as marketing support, access to sales meetings and the FSF's representatives, and inclusion of the Fund on focus, select or other similar lists.
Subject to applicable rules, CMD may also pay non-cash compensation to FSFs and their representatives, including: (i) occasional gifts (ii) occasional meals, or other entertainment; and/or (iii) support for FSF educational or training events.
In addition, CMD, and/or the Fund's investment advisor, transfer agent or their affiliates, may pay service, administrative or other similar fees to broker/dealers, banks, third-party administrators or other financial institutions (each commonly referred to as an "intermediary"). Those fees are generally for subaccounting, sub-transfer agency and other shareholder services associated with shareholders whose shares are held of record in omnibus or other group accounts. The rate of those fees may vary and is generally calculated on the average daily net assets of a Fund attributable to a particular intermediary.
In some circumstances, the payments discussed above may create an incentive for an intermediary or its employees or associated persons to recommend or sell shares of a Fund.
CMD and its affiliates anticipate that the FSFs and intermediaries that will receive the additional compensation described above include:
1st Global Capital Corp
401 Company
ABN AMRO Trust Services
ADP Retirement Services
Advest
AEGON/Transamerica
AG Edwards
American Century Services
American Express
AMG
AON Consulting
AST Trust Company
Banc of America Investment Services
BancOne
Bear Stearns
Benefit Plan Administrators
Bidwell & Company
BNY Clearing
C N A Trust
Charles Schwab
CIBC Oppenheimer
Citigroup Global Markets
CitiStreet Associates LLC
City National Bank
City of Milwaukee
Columbia Trust Company
Commonwealth Financial
Compensation & Capital
CPI Qualified Plan Consultants
Daily Access Concepts
Davenport & Company
Delaware Investments
Digital Retirement Solutions
Discover Brokerage
Dreyfus/Mellon
Edgewood Services
Edward Jones
E-Trade,
ExpertPlan
FAS Liberty Life Spectrum
Ferris Baker Watts
Fidelity
Financial Data Services
Franklin Templeton
Freeman Welwood
Gem Group
Great West Life
Hewitt Associates LLC
Huntington Bank
ING
Intermountain Health Care
Investmart, Inc.
Investment Manager Services (IMS)
Janney Montgomery Scott
JJB Hilliard Lyons
JP Morgan/American Century
Kenney Investments
Kirkpatrick Pettis Smith Polian Inc
Legg Mason Wood Walker
Liberty Life
Lincoln Financial
Lincoln Life
Linsco Private Ledger
M & T Securities
Marquette Trust Company
Mass Mutual Life
Matrix Settlement & Clearance Services (MSCS)
McDonald Investments
Merrill Lynch
MetLife
MFS
Mfund Trax
MidAtlantic Capital
Milliman USA
Morgan Keegan
Morgan Stanley Dean Witter
PFPC
Nationwide Investment Services
Neuberger Berman Mgmt
NFP Securities
NSD -NetStock Sharebuilder
NYLife Distributors
Optimum Investment Advisors
Orbitex
Pershing LLC
Phoenix Home Life
Piper Jaffray
PNC
PPI Employee Benefits
Private Bank & Trust
Prudential
Putnam Investments
Raymond James
RBC Dain Rausher
Robert W Baird
Royal Alliance
RSM McGladrey Inc.
Safeco
Scott & Stringfellow
Scudder Investments
Security Benefit
Segall Bryant Hamill
South Trust Securities
Southwest Securities
Standard Insurance
Stanton Group
State of NY Deferred Compensation Plan
Stephens, Inc.
Stifel Nicolaus & Co
Strong Capital
Sungard T Rowe Price
Trustar Retirement Services
Trustlynx/Datalynx
UBS Financial Services
USAA Investment Management
Vanguard
Wachovia
TD Waterhouse
Webster Investment Services
Wells Fargo
Wilmington Trust
PLEASE CONTACT YOUR FSF OR INTERMEDIARY FOR DETAILS ABOUT PAYMENTS IT MAY RECEIVE.
SPECIAL PURCHASE PROGRAMS/INVESTOR SERVICES
The following special purchase programs/investor services may be changed or eliminated at any time.
AUTOMATIC INVESTMENT PLAN. As a convenience to investors, shares of most Funds advised by the Advisor may be purchased through the Automatic Investment Plan. Electronic fund transfers for a fixed amount of at least $50 ($25 for IRA) are used to purchase a Fund's shares at the public offering price next determined after CMD receives the proceeds. If your Automatic Investment Plan purchase is by electronic funds transfer, you may request the Automatic Investment Plan purchase for any day. Further information and application forms are available from FSFs or from CMD.
AUTOMATED DOLLAR COST AVERAGING (Classes A, B, C, D, T, G and Z). The Automated Dollar Cost Averaging program allows you to exchange $100 or more on a monthly basis from any fund distributed by CMD in which you have a current balance of at least $5,000 into the same class of shares of up to five other Funds. Complete the Automated Dollar Cost Averaging section of the Application. There is no charge for exchanges made pursuant to the Automated Dollar Cost Averaging program. Sales charges may apply if exchanging from a money market fund. Exchanges will continue so long as your fund balance is sufficient to complete the transfers. Your normal rights and privileges as a shareholder remain in full force and effect. Thus you can buy any Fund, exchange between the same Class of shares of Funds by written instruction or by telephone exchange if you have so elected and withdraw amounts from any Fund, subject to the imposition of any applicable CDSC or sales charges.
Any additional payments or exchanges into your Fund will extend the time of the Automated Dollar Cost Averaging program.
An exchange is generally a capital sale transaction for federal income tax purposes.
You may terminate your program, change the amount of the exchange (subject to the $100 minimum), or change your selection of funds, by telephone or in writing; if in writing by mailing your instructions to Columbia Management Services, Inc. (formerly named Columbia Funds Services, Inc.) (CMS) P.O. Box 8081, Boston, MA 02266-8081.
You should consult your FSF or financial advisor to determine whether or not the Automated Dollar Cost Averaging program is appropriate for you.
CMD offers several plans by which an investor may obtain reduced initial or contingent deferred sales charges. These plans may be altered or discontinued at any time. See "Programs For Reducing or Eliminating Sales Charges" below for more information.
CLASS T SHAREHOLDER SERVICES PLAN. The Trustees have approved a Shareholder Services Plan (the "Services Plan") pursuant to which the Trusts plan to enter into servicing agreements with institutions (including Bank of America Corporation and its affiliates). Pursuant to these servicing agreements, institutions render certain administrative and support services to customers who are the beneficial owners of Class T shares of each Fund other than the Columbia Newport Tiger Fund. Such services are provided to the institution's customers who are the beneficial owners of Class T shares and are intended to supplement the services provided by the Fund's administrator and transfer agent to the shareholders of record of the Class T shares. The Services Plan provides that each Fund will pay fees for such services at an annual rate of up to 0.50% of the average daily net asset value of Class T shares owned beneficially by the institution's
customers. Institutions may receive up to one-half of this fee for providing one or more of the following services to such customers: (i) aggregating and processing purchase and redemption requests and placing net purchase and redemption orders with CMD; (ii) processing dividend payments from a Fund; (iii) providing sub-accounting with respect to Class T shares or the information necessary for sub-accounting; and (iv) providing periodic mailings to customers. Institutions may also receive up to one-half of this fee for providing one or more of these additional services to such customers: (i) providing customers with information as to their positions in Class T shares; (ii) responding to customer inquiries; and (iii) providing a service to invest the assets of customers in Class T shares.
The payments under the servicing agreements entered into as of the date of this SAI are limited to an aggregate fee of not more than 0.30% (on an annualized basis) of the average daily net asset value of the Class T shares of equity funds beneficially owned by customers of institutions and 0.15% (on an annualized basis) of the average daily net asset value of the Class T shares of bond funds beneficially owned by customers of institutions. The Funds understand that institutions may charge fees to their customers who are the beneficial owners of Class T shares in connection with their accounts with such institutions. Any such fees would be in addition to any amounts which may be received by an institution under the Services Plan. Under the terms of each servicing agreement, institutions are required to provide to their customers a schedule of any fees that they may charge in connection with customer investments in Class T shares.
Each servicing agreement with an institution ("Service Organization") relating to the Services Plan requires that, with respect to those Funds which declare dividends on a daily basis, the Service Organization agrees to waive a portion of the servicing fee payable to it under the Services Plan to the extent necessary to ensure that the fees required to be accrued with respect to the Class T shares of such Funds on any day do not exceed the income to be accrued to such Class T shares on that day.
The Class T servicing agreements are governed by the Services Plan approved by the Board of Trustees in connection with the offering of Class T shares of each Fund. Pursuant to the Services Plan, the Board of Trustees reviews, at least quarterly, a written report of the amounts paid under the servicing agreements and the purposes for which the expenditures were made. In addition, the arrangements with Service Organizations must be approved annually by a majority of the Trustees, including a majority of the trustees who are not "interested persons" of the Funds as defined in the 1940 Act and who have no direct or indirect financial interest in such arrangements (the "Disinterested Trustees").
The Board of Trustees has approved the service agreements with Service Organizations based on information provided by the Funds' service contractors that there is a reasonable likelihood that the arrangements will benefit the Funds and their shareholders by affording the Funds greater flexibility in connection with the efficient servicing of the accounts of the beneficial owners of Class T shares of the Funds. Any material amendment to the Funds' arrangements with Service Organizations must be approved by a majority of the Board of Trustees (including a majority of the Disinterested Trustees). So long as the service agreements with Service Organizations are in effect, the selection and nomination of the members of Columbia's Board of Trustees who are not "interested persons" (as defined in the 1940 Act) of the Funds will be committed to the discretion of such Disinterested Trustees.
TAX-SHELTERED RETIREMENT PLANS (Retirement Plans). CMD offers prototype tax-qualified plans, including Pension and Profit-Sharing Plans for individuals, corporations, employees and the self-employed. The minimum initial Retirement Plan investment is $25. Columbia Trust Company (CTC) is the Custodian/Trustee and Plan Sponsor of the Columbia Advisor prototype plans offered through CMD. In general, a $20 annual fee is charged. Detailed information concerning these Retirement Plans and copies of the Retirement Plans are available from CMD.
Participants in Retirement Plans not sponsored by CTC, not including Individual Retirement Accounts (IRAs), may be subject to an annual fee of $20 unless the Retirement Plan maintains an omnibus account with CMS. Participants in CTC sponsored prototype plans (other than IRAs) who liquidate the total value of their account may also be charged a $20 close-out processing fee payable to CMS. The close out fee applies to plans opened after September 1, 1996. The fee is in addition to any applicable CDSC. The fee will not apply if the participant uses the proceeds to open a Columbia Advisor IRA Rollover account in any Fund distributed by CMD, or if the Retirement Plan maintains an omnibus account.
Consultation with a competent financial advisor regarding these Retirement Plans and consideration of the suitability of Fund shares as an investment under the Employee Retirement Income Security Act of 1974 or otherwise is recommended.
TELEPHONE ADDRESS CHANGE SERVICES. By calling CMS, shareholders or their FSF of record may change an address on a recorded telephone line. Confirmations of address change will be sent to both the old and the new addresses. Telephone redemption privileges by check are suspended for 30 days after an address change is effected. Please have your account and taxpayer identification numbers available when calling.
CASH CONNECTION. Dividends and any other distributions, including Systematic Withdrawal Plan (SWP) payments, may be automatically deposited to a shareholder's bank account via electronic funds transfer. Shareholders wishing to avail themselves of this electronic transfer procedure should complete the appropriate sections of the Application.
AUTOMATIC DIVIDEND DIVERSIFICATION. The automatic dividend diversification reinvestment program (ADD) generally allows shareholders to have all distributions from a Fund automatically invested in the same class of shares of another Fund. An ADD account must be in the same name as the shareholder's existing open account with the particular Fund. Call CMS for more information at 1-800-345-6611.
PROGRAMS FOR REDUCING OR ELIMINATING SALES CHARGES
RIGHTS OF ACCUMULATION (Columbia Class A and Class T shares, Nations Class A shares and Galaxy Retail A shares only) (Class T shares can only be purchased by the shareholders of Columbia Newport Tiger Fund (formerly named Liberty Newport Tiger Fund) who already own Class T shares). Reduced sales charges on Class A and T shares can be effected by combining a current purchase of Class A or Class T shares with prior purchases of other funds and classes distributed by CMD. The applicable sales charge is based on the combined total of:
1. the current purchase; and
2. the value at the public offering price at the close of business on the previous day of all shares of funds for which CMD serves as distributor (Funds) held by the shareholder.
CMD must be promptly notified of each purchase with respect to which a shareholder is entitled to a reduced sales charge. Such reduced sales charge will be applied upon confirmation of the shareholder's holdings by CMS. A Fund may terminate or amend this Right of Accumulation.
STATEMENT OF INTENT (Class A, Class E and Class T shares only). Any person may qualify for reduced sales charges on purchases of Class A, E and T shares made within a thirteen-month period pursuant to a Statement of Intent ("Statement"). A shareholder may include, as an accumulation credit toward the completion of such Statement, the value of all fund shares held by the shareholder on the date of the Statement in Funds (except shares of any money market fund, unless such shares were acquired by exchange from Class A shares of another non-money market fund)). The value is determined at the public offering price on the date of the Statement. Purchases made through reinvestment of distributions do not count toward satisfaction of the Statement.
During the term of a Statement, CMS will hold shares in escrow to secure payment of the higher sales charge applicable to Class A, E or T shares actually purchased. Dividends and capital gains will be paid on all escrowed shares and these shares will be released when the amount indicated has been purchased. A Statement does not obligate the investor to buy or a Fund to sell the amount of the Statement.
If a shareholder exceeds the amount of the Statement and reaches an amount which would qualify for a further quantity discount, a retroactive price adjustment will be made at the time of expiration of the Statement (provided the FSF returns to CMD the excess commission previously paid during the thirteen-month period). The resulting difference in offering price will purchase additional shares for the shareholder's account at the applicable offering price.
If the amount of the Statement is not purchased, the shareholder shall remit to CMD an amount equal to the difference between the sales charge paid and the sales charge that should have been paid. If the shareholder fails within twenty days after a written request to pay such difference in sales charge, CMS will redeem escrowed Class A, E or T shares with a value equal to such difference. The additional FSF commission will be remitted to the shareholder's FSF of record.
Additional information about and the terms of Statements of Intent are available from your FSF, or from CMS at 1-800-345-6611.
NET ASSET VALUE ELIGIBILITY GUIDELINES (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, LLC IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS).
1. Employees, brokers and various relationships that are allowed to buy at NAV. Class A shares of certain Funds may be sold at (NAV) to the following individuals, whether currently employed or retired: Employees of Bank of America Corporation (and its predecessors), its affiliates and subsidiaries; Trustees of funds advised or administered by the Advisor; directors, officers and employees of the Advisor, CMD, or its successors and companies affiliated with the Advisor; Registered representatives and employees of Financial Service Firms (including their affiliates) that are parties to dealer agreements or other sales arrangements with CMD; Nations Funds' Trustees, Directors and employees of its investment sub-advisers; Broker/Dealers if purchases are in accordance with the internal policies and procedures of the employing broker/dealer and made for their own investment purposes; employees or partners of any contractual service provider to the funds
NAV eligibility for Class A purchase also applies to the families of the
parties listed above and their beneficial accounts. Family members include:
spouse, parent, stepparent, legal guardian, child, stepchild, father-in-law
and mother-in-law.
Individuals receiving a distribution from a Bank of America trust, fiduciary, custodial or other similar account may use the proceeds of that distribution to buy Class A shares without paying a front-end sales charge, as long as the proceeds are invested in the funds within 90 days of the date of distribution.
Registered broker/dealer firms that have entered into a Nations Funds dealer agreement with BACAP Distributors, LLC may buy Class A shares without paying a front-end sales charge for their investment account only.
Banks, trust companies and thrift institutions, acting as fiduciaries.
2. Grandfathered investors. Any shareholder who owned shares of any fund of Columbia Acorn Trust (formerly named Liberty Acorn Trust) on September 29, 2000 (when all of the then outstanding shares of Columbia Acorn Trust were re-designated Class Z shares) and who since that time has remained a shareholder of any Fund, may purchase Class A shares of any Fund at NAV in those cases where a Columbia Fund Class Z share is not available.
Shareholders of certain Funds that reorganized into the Nations Funds who were entitled to buy shares at (NAV) will continue to be eligible for NAV purchases into those Nations Fund accounts opened through August 19, 2005.
Galaxy Fund shareholders prior to December 1, 1995; and shareholders who
(i) purchased Galaxy Fund Prime A shares at net asset value and received
Class A shares in exchange for those shares during the Galaxy/Liberty Fund
reorganization; and (ii) continue to maintain the account in which the
Prime A shares were originally purchased.
(For Class T shares only) Shareholders who (i) purchased Galaxy Fund Retail A shares at net asset value and received Class T shares in exchange for those shares during the Galaxy/Liberty Fund reorganization; and (ii) continue to maintain the account in which the Retail A shares were originally purchased; and Boston 1784 Fund shareholders on the date that those funds were reorganized into Galaxy Funds.
3. Reinstatement. Subject to the fund policy on trading of fund shares, an investor who has redeemed class A, B, C, D, G or T shares may, upon request, reinstate within 1 year a portion or all of the proceeds of such sales in shares of class A of any fund at the NAV next determined after Columbia Management Services, Inc. received a written reinstatement request and payment.
4. Retirement Plans. Class A, Class E and Class T shares (Class T shares are not currently open to new investors) of certain funds may also be purchased at reduced or no sales charge by clients of dealers, brokers or registered investment advisors that have entered into arrangements with CMD pursuant to which the funds are included as investments options in wrap fee accounts, other managed agency/asset allocation accounts or programs involving fee-based compensation arrangements, and by participants in certain retirement plans.
5. Non-U.S. Investors. Certain pension, profit-sharing or other employee benefit plans offered to non-US investors may be eligible to purchase Class A shares with no sales charge.
6. Reorganizations. At the Fund's discretion, NAV eligibility may apply to shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which the fund is a party.
7. Rights of Accumulation (ROA). The value of eligible accounts, regardless of class, maintained by you and you and your immediate family may be combined with the value of your current purchase to reach a sales discount level and to obtain the lower sales charge for your current purchase.
8. Letters of Intent (LOI). You may pay a lower sales charge when purchasing class A shares by signing a letter of intent. By doing so, you would be able to pay the lower sales charge on all purchases made under the LOI within 13 months. If your LOI purchases are not completed within 13 months, you will be charged the applicable sales charge on the amount you had invested to that date.
WAIVER OF CONTINGENT DEFERRED SALES CHARGES (CDSCS) (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT ADVISORS, LLC IN ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR TO CERTAIN FUNDS) (Class A, B, C, D, E, matured F, G and T shares) CDSCs may be waived on redemptions in the following situations with the proper documentation:
1. Death. CDSCs may be waived on redemptions following the death of (i) the sole shareholder on an individual account, (ii) a joint tenant where the surviving joint tenant is the deceased's spouse, or (iii) the beneficiary of a Uniform Gifts to Minors Act (UGMA), Uniform Transfers to Minors Act (UTMA) or other custodial account. If, upon the occurrence of one of the foregoing, the account is transferred to an account registered in the name of the deceased's estate, the CDSC will be waived on any redemption from the estate account If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
2. Systematic Withdrawal Plan (SWP). CDSCs may be waived on redemptions occurring pursuant to a monthly, quarterly or semi-annual SWP established with CMS, to the extent the redemptions do not exceed, on an annual basis, 12% of the account's value at the time that the SWP is established. Otherwise, CDSCs will be charged on SWP redemptions until this requirement is met. For redemptions in excess of 12% of the account's value at the time that the SWP is established, a CDSC will be charged on the SWP redemption. The 12% limit does not apply if the SWP is set up at the time the account is established, and distributions are being reinvested. See below under "How to Sell Shares - Systematic Withdrawal Plan."
3. Disability. CDSCs may be waived on redemptions occurring after the sole shareholder on an individual account or a joint tenant on a spousal joint tenant account becomes disabled (as defined in Section 72(m)(7) of the Internal Revenue Code). To be eligible for such waiver, (i) the disability must arise AFTER the purchase of shares (ii) the disabled shareholder must have been under age 65 at the time of the initial determination of disability, and (iii) a letter from a physician must be signed under penalty of perjury stating the nature of the disability. If the account is transferred to a new registration and then a redemption is requested, the applicable CDSC will be charged.
4. Death of a trustee. CDSCs may be waived on redemptions occurring upon
dissolution of a revocable living or grantor trust following the death of
the sole trustee where (i) the grantor of the trust is the sole trustee and
the sole life beneficiary, (ii) death occurs following the purchase AND
(iii) the trust document provides for dissolution of the trust upon the
trustee's death. If the account is transferred to a new registration
(including that of a successor trustee), the applicable CDSC will be
charged upon any subsequent redemption.
5. Returns of excess contributions. CDSCs may be waived on redemptions required to return excess contributions made to retirement plans or individual retirement accounts, so long as the FSF agrees to return the applicable portion of any commission paid by CMD.
6. Qualified Retirement Plans. CDSCs may be waived on CMD shares sold by employee benefit plans created according to Section 403(b) of the tax code and sponsored by a non-profit organization qualified under Section 501(c)(3) of the tax code. To qualify for the waiver, the plan must be a participant in an alliance program that has signed an agreement with Columbia Funds or CMD.
7. Trust Share Taxes. CDSCs will be waived on redemptions of Class E and F
shares (i) where the proceeds are used to directly pay trust taxes, and
(ii) where the proceeds are used to pay beneficiaries for the payment of
trust taxes.
8. Return of Commission. CDSCs may be waived on shares sold by intermediaries that are part of the Columbia Funds selling group where the intermediary has entered into an agreement with Columbia Funds not to receive (or to return if received) all or any applicable portion of an upfront commission.
9. Non-U.S. Investors. CDSCs may be waived on shares sold by or distributions from certain pension, profit-sharing or other employee benefit plans offered to non-U.S. investors.
10. IRS Section 401 and 457. CDSCs may be waived on shares sold by certain
pension, profit-sharing or other employee benefit plans established under
Section 401 or 457 of the tax code.
11. Medical Payments. CDSCs may be waived on shares redeemed for medical payments that exceed 7.5% of income, and distributions made to pay for insurance by an individual who has separated from employment and who has received unemployment compensation under a federal or state program for at least twelve weeks.
12. Plans of Reorganization. At the Funds' discretion, CDSCs may be waived for shares issued in plans of reorganization, such as mergers, asset acquisitions and exchange offers, to which a fund is a party.
13. Charitable Giving Program. CDSCs may be waived on the sale of Class C or Class D shares sold by a non-profit organization qualified under Section 501(c)(3) of the tax code in connection with the Banc of America Capital Management Charitable Giving Program.
14. The CDSC also may be waived where the FSF agrees to return all or an agreed upon portion of the commission earned on the sale of the shares being redeemed.
HOW TO SELL SHARES
Shares may be sold on any day the Exchange is open, either directly to the Fund or through the shareholder's FSF. Sale proceeds generally are sent within seven days (usually on the next business day after your request is received in good form). However, for shares recently purchased by check, the Fund may delay selling or delay sending proceeds from your shares for up to 15 days in order to protect the Fund against financial losses and dilution in net asset value caused by dishonored purchase payment checks.
To sell shares directly to the Fund, send a signed letter of instruction to CMS, along with any certificates for shares to be sold. The sale price is the net asset value (less any applicable contingent deferred sales charge) next calculated after the Fund receives the request in proper form. Signatures must be guaranteed by a bank, a member firm of a national stock exchange or another eligible guarantor that participates in the Medallion Signature Guarantee Program. Stock power forms are available from FSFs, CMS and many banks. Additional documentation may be required for sales by corporations, agents, fiduciaries, surviving joint owners, individual retirement account holders and other legal entities. Call CMS for more information 1-800-345-6611.
FSFs must receive requests before the time at which the Fund's shares are valued to receive that day's price, FSF's are responsible for furnishing all necessary documentation to CMS and may charge for this service.
SYSTEMATIC WITHDRAWAL PLAN (SWP). The shareholder may establish a SWP. A specified dollar amount, share amount or percentage of the then current net asset value of the shareholder's investment in any Fund designated by the shareholder will be paid monthly, quarterly or semi-annually to a designated payee. The amount or percentage the shareholder specifies is run against available shares and generally may not, on an annualized basis, exceed 12% of the value, as of the time the shareholder makes the election, of the shareholder's investment. Withdrawals of shares of the Fund under a SWP will be treated as redemptions of shares purchased through the reinvestment of Fund distributions, or, to the extent such shares in the shareholder's account are insufficient to cover Plan payments, as redemptions from the earliest purchased shares of such Fund in the shareholder's account. No CDSCs apply to a redemption pursuant to a SWP of 12% or less, even if, after giving effect to the redemption, the shareholder's account balance is less than the shareholder's base amount. Qualified plan participants who are required by Internal Revenue Service regulation to withdraw more than 12%, on an annual basis, of the value of their share account may do so but may be subject to a CDSC ranging from 1% to 5% of the amount withdrawn in excess of 12% annually. If a shareholder wishes to participate in a SWP, the shareholder must elect to have all of the shareholder's income dividends and other Fund distributions payable in shares of the Fund rather than in cash.
A shareholder or a shareholder's FSF of record may establish a SWP account by telephone on a recorded line. However, SWP checks will be payable only to the shareholder and sent to the address of record. SWPs from retirement accounts cannot be established by telephone.
A shareholder may not establish a SWP if the shareholder holds shares in certificate form. Purchasing additional shares (other than through dividend and distribution reinvestment) while receiving SWP payments is ordinarily disadvantageous because of sales charges. For this reason, a shareholder may not maintain a plan for the accumulation of shares of the Fund (other than through the reinvestment of dividends) and a SWP at the same time.
SWP payments are made through share redemptions, which may result in a gain or loss for tax purposes, may involve the use of principal and may eventually use up all of the shares in a shareholder's account.
A Fund may terminate a shareholder's SWP if the shareholder's account balance falls below $5,000 due to any transfer or liquidation of shares other than pursuant to the SWP. SWP payments will be terminated on receiving satisfactory evidence of the death or incapacity of a shareholder. Until this evidence is received, CMS will not be liable for any payment made in accordance with the provisions of a SWP.
The cost of administering SWPs for the benefit of shareholders who participate in them is borne by the Fund as an expense of all shareholders.
Shareholders whose positions are held in "street name" by certain FSFs may not be able to participate in a SWP. If a shareholder's Fund shares are held in "street name," the shareholder should consult his or her FSF to determine whether he or she may participate in a SWP. The SWP on accounts held in "street name" must be made payable to the back office via the NSCC.
TELEPHONE REDEMPTIONS. All Fund shareholders and/or their FSFs are automatically
eligible to redeem up to $100,000 of the Fund's shares by calling 1-800-422-3737
toll-free any business day between 9:00 a.m. and the close of trading of the
Exchange (normally 4:00 p.m. Eastern time). Transactions received after 4:00
p.m. Eastern time will receive the next business day's closing price. Telephone
redemptions by check and ACH are limited to a total of $100,000 in a 30-day
period. Redemptions that exceed $100,000 may be accomplished by placing a wire
order trade through a broker, to a pre-existing bank account or furnishing a
signature guaranteed request. Signatures must be guaranteed by either a bank, a
member firm of a national stock exchange or another eligible guarantor that
participates in the Medallion Signature Guarantee Program. CMS will employ
reasonable procedures to confirm that instructions communicated by telephone are
genuine. Telephone redemptions are not available on accounts with an address
change in the preceding 30 days and proceeds and confirmations will only be
mailed or sent to the address of record unless the redemption proceeds are being
sent to a pre-designated bank account. Shareholders and/or their FSFs will be
required to provide their name, address account and taxpayer identification
numbers. FSFs will also be required to provide their broker number. All
telephone transactions are recorded. A loss to a shareholder may result from an
unauthorized transaction reasonably believed to have been authorized. Certain
restrictions apply to retirement plan accounts.
CHECKWRITING (IN THIS SECTION, THE "ADVISOR" REFERS TO COLUMBIA MANAGEMENT
ADVISORS, LLC ITS CAPACITY AS THE ADVISOR OR ADMINISTRATOR OF CERTAIN FUNDS)
(Available only on the Class A and Z shares of certain Funds)
Shares may be redeemed by check if a shareholder has previously completed an Application and Signature Card. CMS will provide checks to be drawn on Mellon Trust of New England, N.A. (the "Bank"). These checks may be made payable to the order of any person in the amount of not less than $500 ($250 for money market funds) nor more than $100,000. The shareholder will continue to earn dividends on shares until a check is presented to the Bank for payment. At such time a sufficient number of full and fractional shares will be redeemed at the next determined net asset value to cover the amount of the check. Certificate shares may not be redeemed in this manner.
Shareholders utilizing checkwriting drafts will be subject to the Bank's rules governing checking accounts. There is currently no charge to the shareholder for the use of checks., However, you may incur customary fees for services such as a stop payment request or a request for copies of a check. The shareholder should make sure that there are sufficient shares in his or her open account to cover the amount of any check drawn since the net asset value of shares will fluctuate. If insufficient shares are in the shareholder's open account, the check will be returned marked "insufficient funds" and no shares will be redeemed; the shareholder will be charged a $15 service fee for each check returned. It is not possible to determine in advance the total value of an open account because prior redemptions and possible changes in net asset value may cause the value of an open account to change. Accordingly, a check redemption should not be used to close an open account. In addition, a check redemption, like any other redemption, may give rise to taxable capital gains.
NON-CASH REDEMPTIONS. For redemptions of any single shareholder within any 90-day period exceeding the lesser of $250,000 or 1% of a Fund's net asset value, a Fund may make the payment or a portion of the payment with portfolio securities held by that Fund instead of cash, in which case the redeeming shareholder may incur brokerage and other costs in selling the securities received.
INFORMATION APPLICABLE TO CLASS G AND CLASS T SHARES
The primary difference between Class G and Class T shares lies in their sales charge structures and shareholder servicing/distribution expenses. Investments in Class T shares of the Funds are subject to a front-end sales charge. Investments in Class G shares of the Funds are subject to a back-end sales charge. This back-end sales charge declines over time and is known as a "contingent deferred sales charge." An investor should understand that the purpose and function of the sales charge structures and shareholder servicing/distribution arrangements for both Class G and Class T shares are the same. Class T shares of a bond fund and an equity fund are currently subject to ongoing shareholder servicing fees at an annual rate of up to 0.15% and 0.30%, respectively, of the Fund's average daily net assets attributable to its Class T shares. Class G shares of a bond fund and an equity fund are currently subject to ongoing shareholder servicing and distribution fees at an annual rate of up to 0.80% and 0.95%, respectively, of the Fund's average daily net assets attributable to its Class G shares. These ongoing fees, which are higher than those charged on Class T shares, will cause Class G shares to have a higher expense ratio and pay lower dividends than Class T shares. Class G and Class T shares may only be purchased by current shareholders of Class G and Class T, respectively.
CLASS T SHARES. The public offering price for Class T shares of the Funds is the sum of the net asset value of the Class T shares purchased plus any applicable front-end sales charge as described in the applicable Prospectus. A deferred sales charge of up to 1.00% is assessed on certain redemptions of Class T shares that are purchased with no initial sales charge as part of an investment of $1,000,000 to $25,000,000. A portion of the front-end sales charge may be reallowed to broker-dealers as follows:
REALLOWANCE TO
REALLOWANCE TO DEALERS DEALERS AS A % OF
AS A % OF OFFERING PRICE OFFERING PRICE
AMOUNT OF TRANSACTION PER SHARE - BOND FUNDS PER SHARE - EQUITY FUNDS
--------------------- ------------------------ ------------------------
Less than $50,000 4.25 5.00
$50,000 but less than $100,000 3.75 3.75
$100,000 but less than $250,000 2.75 2.75
$250,000 but less than $500,000 2.00 2.00
$500,000 but less than $1,000,000 1.75 1.75
$1,000,000 and over 0.00 0.00
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The appropriate reallowance to dealers will be paid by CMD to broker-dealer organizations which have entered into agreements with CMD. The reallowance to dealers may be changed from time to time.
Certain affiliates of the Advisor may, at their own expense, provide additional compensation to broker-dealer affiliates of Columbia and to unaffiliated broker-dealers whose customers purchase significant amounts of Class T shares of the Funds. Such compensation will not represent an additional expense to the Funds or their shareholders, since it will be paid from the assets of Bank of America Corporation's affiliates.
INFORMATION APPLICABLE TO CERTAIN CLASS G SHARES RECEIVED BY FORMER GALAXY FUND RETAIL B SHAREHOLDERS IN CONNECTION WITH THE GALAXY/LIBERTY REORGANIZATION. The following table describes the CDSC schedule applicable to Class G shares received by former Galaxy Fund Retail B shareholders in exchange for Retail B Shares purchased prior to January 1, 2001:
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.00
Through second year 4.00
Through third year 3.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Longer than six years None
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Class G shares received in exchange for Galaxy Fund Retail B Shares that were purchased prior to January 1, 2001 will automatically convert to Class T shares seven years after purchase. For purposes of calculating the CDSC, all purchases are considered to be made on the first day of the month in which each purchase was made.
The following table describes the CDSC schedule applicable to Class G shareholders whose Galaxy Asset Allocation Fund and/or International Equity Fund Retail B Shares were acquired in connection with the reorganization of the Pillar Funds:
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.50
Through second year 5.00
Through third year 4.00
Through fourth year 3.00
Through fifth year 2.00
Through sixth year 1.00
Through the seventh year None
Longer than seven years None
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If you acquired Retail B Shares in connection with the reorganization of the Pillar Funds, your Class G shares will automatically convert to Class T shares eight years after you purchased the Pillar Fund Class B shares you held prior to the reorganization. For purposes of calculating the CDSC, all purchases are considered to be made on the first day of the month in which each purchase was made.
CLASS G SHARES PURCHASED AFTER THE GALAXY/LIBERTY REORGANIZATION. The public offering price for Class G shares of the Funds is the net asset value of the Class G shares purchased. Although investors pay no front-end sales charge on purchases of Class G shares, such shares are subject to a contingent deferred sales charge at the rates set forth in the applicable Prospectus if they are redeemed within seven years of purchase. Securities dealers, brokers, financial institutions and other industry professionals will receive commissions from CMD in connection with sales of Class G shares. These commissions may be different than the reallowances or placement fees paid to dealers in connection with sales of Class T shares. Certain affiliates of Columbia may, at their own expense, provide additional compensation to broker-dealer affiliates of Columbia and to unaffiliated broker-dealers, whose customers purchase significant amounts of Class G shares of a Fund. See "Class T Shares." The contingent deferred sales charge on Class G shares is based on the lesser of the net asset value of the shares on the redemption date or the original cost of the shares being redeemed. As a result, no sales charge is imposed on any increase in the principal value of an investor's Class G shares. In addition, a contingent deferred sales charge will not be assessed on Class G shares purchased through reinvestment of dividends or capital gains distributions.
The proceeds from the contingent deferred sales charge that an investor may pay upon redemption go to CMD, which may use such amounts to defray the expenses associated with the distribution-related services involved in selling Class G shares. Class G shares of a Fund will convert automatically to Class T shares eight years after purchase. The purpose of the conversion is to relieve a holder of Class G shares of the higher ongoing expenses charged to those shares, after enough time has passed to allow CMD to recover approximately the amount it would have received if the applicable front-end sales charge had been charged. The conversion from Class G shares to Class T shares takes place at net asset value, as a result of which an investor receives dollar-for-dollar the same value of Class T shares as he or she had of Class G shares. The conversion occurs eight years after the beginning of the calendar month in which the shares are purchased. Upon conversion, the converted shares will be relieved of the distribution and shareholder servicing fees borne by Class G shares, although they will be subject to the shareholder servicing fees borne by Class T shares.
Class G shares acquired through a reinvestment of dividends or distributions are also converted at the earlier of two dates - (i) eight years after the beginning of the calendar month in which the reinvestment occurred or (ii) the date of conversion of the most recently purchased Class G shares that were not acquired through reinvestment of dividends or distributions. For example, if an investor makes a one-time purchase of Class G shares of a Fund, and subsequently acquires additional Class G shares of the Fund only through reinvestment of dividends and/or distributions, all of such investor's Class G shares in the Fund, including those acquired through reinvestment, will convert to Class T shares of the Fund on the same date.
INFORMATION APPLICABLE TO CERTAIN CLASS B SHAREHOLDERS
Except for the following, Class B Share Contingent Deferred Sales Charges ("CDSCs") and conversion schedules are described in the Prospectuses.
The following table describes the CDSC schedule applicable to Class B shares received by Galaxy Quality Plus Bond Fund shareholders in exchange for Prime B Shares in connection with the Galaxy/Liberty reorganization.
SALES CHARGES
% DEDUCTED WHEN
HOLDING PERIOD AFTER PURCHASE SHARES ARE SOLD
----------------------------- ---------------
Through first year 5.00
|
Through second year 4.00 Through third year 3.00 Through fourth year 3.00 Through fifth year 2.00 Through sixth year 1.00 Longer than six years 0.00 |
Automatic conversion to Class A shares occurs eight years after purchase.
The Class B share discount program for purchases of $250,000 or more is not applicable to Class B shares received by Galaxy Fund Prime B shareholders in connection with the reorganization of the Galaxy Fund.
INFORMATION APPLICABLE TO CERTAIN CLASS A SHAREHOLDERS:
Except as set forth in the following paragraph, Class A share CDSCs are described in the Prospectuses:
Class A shares received by former Galaxy High Quality Bond Fund shareholders in exchange for Prime A Shares in connection with the Galaxy/Liberty reorganization of that Fund are subject to a 1% CDSC upon redemption of such Class A shares if the Prime A Shares were purchased without an initial sales charge in accounts aggregating $1 million or more at the time of purchase and the Class A shares are sold within 12 months of the time of purchase of the Prime A Shares. The 12-month holding period begins on the first day of the month in which each purchase was made.
DISTRIBUTIONS
Distributions are invested in additional shares of the same Class of the Fund at net asset value unless the shareholder elects to receive cash. Regardless of the shareholder's election, distributions of $10 or less will not be paid in cash, but will be invested in additional shares of the same class of the Fund at net asset value. Undelivered distribution checks returned by the post office will be reinvested in your account. If a shareholder has elected to receive dividends and/or capital gain distributions in cash and the postal or other delivery service selected by the Transfer Agent is unable to deliver checks to the shareholder's address of record, such shareholder's distribution option will automatically be converted to having all dividend and other distributions reinvested in additional shares. No interest will accrue on amounts represented by uncashed distribution or redemption checks. Shareholders may reinvest all or a portion of a recent cash distribution without a sales charge. No charge is currently made for reinvestment.
Shares of some Funds that pay daily dividends (include Funds) will normally earn dividends starting with the date the Fund receives payment for the shares and will continue through the day before the shares are redeemed, transferred or exchanged. Shares of some Funds that pay daily dividends (exclude Funds) Columbia will be earned starting with the day after that Fund receives payments for the shares. To determine whether a particular Fund is an include or exclude fund, customers can call 1-800-345-6611.
HOW TO EXCHANGE SHARES
Shares of the Fund may be exchanged for the same class of shares of the other continuously offered funds (with certain exceptions) on the basis of the NAVs per share at the time of exchange. Class T and Z shares may be exchanged for Class A shares of certain other funds. The prospectus of each Fund describes its investment goal and policies, and shareholders should obtain a prospectus and consider these goals and policies carefully before requesting an exchange Consult CMS before requesting an exchange.
If you acquire Class A shares of an international fund by exchange from any other fund, you will not be permitted to exchange those shares into another fund for 30 calendar days, although you may redeem those shares at any time. An exchange order received prior to the expiration of the 30-day period will not be honored.
By calling CMS, shareholders or their FSF of record may exchange among accounts with identical registrations, provided that the shares are held on deposit. During periods of unusual market changes or shareholder activity, shareholders may experience delays in contacting CMS by telephone to exercise the telephone exchange privilege. Because an exchange involves a redemption and reinvestment in another fund, completion of an exchange may be delayed under unusual circumstances, such as if the Fund suspends repurchases or postpones payment for the Fund shares being exchanged in accordance with federal securities law. CMS will also make exchanges upon receipt of a written exchange request and share certificates, if any. If the shareholder is a corporation, partnership, agent, or surviving joint owner, CMS may require customary additional documentation. Prospectuses of the other Funds are available from the CMD Literature Department by calling 1-800-426-3750.
A loss to a shareholder may result from an unauthorized transaction reasonably believed to have been authorized. No shareholder is obligated to use the telephone to execute transactions.
Consult your FSF or CMS. In all cases, the shares to be exchanged must be registered on the records of the Fund in the name of the shareholder desiring to exchange.
Shareholders of the other open-end funds generally may exchange their shares at NAV for the same class of shares of the Fund. Sales charges may apply for exchanges from money market funds.
An exchange is generally a capital sale transaction for federal income tax purposes. The exchange privilege may be revised, suspended or terminated at any time.
SUSPENSION OF REDEMPTIONS
A Fund may not suspend shareholders' right of redemption or postpone payment for more than seven days unless the Exchange is closed for other than customary weekends or holidays, or if permitted by the rules of the SEC during periods when trading on the Exchange is restricted or during any emergency which makes it impracticable for the Fund to dispose of its securities or to determine fairly the value of its net assets, or during any other period permitted by order of the SEC for the protection of investors.
SHAREHOLDER LIABILITY
Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Declaration disclaims shareholder liability for acts or obligations of the Fund and the Trust and requires that notice of such disclaimer be given in each agreement, obligation, or instrument entered into or executed by the Fund or the Trust's Trustees. The Declaration provides for indemnification out of Fund property for all loss and expense of any shareholder held personally liable for the obligations of the Fund. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances (which are considered remote) in which the Fund would be unable to meet its obligations and the disclaimer was inoperative.
The risk of a particular fund incurring financial loss on account of another fund of the Trust is also believed to be remote, because it would be limited to circumstances in which the disclaimer was inoperative and the other fund was unable to meet its obligations.
SHAREHOLDER MEETINGS
The Trust is not required to hold annual shareholder meetings, but special meetings may be called for certain purposes. The Trust has voluntarily undertaken to hold a shareholder meeting at which the Board of Trustees would be elected at least every five years beginning in 2005. Each whole share (or fractional share) outstanding on the record date established in accordance with the Trust's By-Laws shall be entitled to a number of votes on any matter on which it is entitled to vote equal to the net asset value of the shares (or fractional share) in United States dollars determined at the close of business on the record date (for example, a share having a net asset value of $10.50 would be entitled to 10.5 votes).
The Trustees may fill any vacancies in the Board of Trustees except that the Trustees may not fill a vacancy if, immediately after filling such vacancy, less than two-thirds of the Trustees then in office would have been elected to such office by the shareholders. In addition, at such times as less than a majority of the Trustees then in office have been elected to such office by the shareholders, the Trustees must call a meeting of shareholders. Trustees may be removed from office by a written consent signed by a majority of the outstanding shares of the Trust or by a vote of the holders of a majority of the outstanding shares at a meeting duly called for the purpose. Except as otherwise disclosed in the Prospectus and this SAI, the Trustees shall continue to hold office and may appoint their successors.
At any shareholders' meetings that may be held, shareholders of all series would vote together, irrespective of series, on the election of Trustees, but each series would vote separately from the others on other matters, such as changes in the investment policies of that series or the approval of the management agreement for that series. Shares of each Fund and any other series of the Trust that may be in existence from time to time generally vote together except when required by law to vote separately by fund or by class.
APPENDIX I
DESCRIPTION OF BOND RATINGS
STANDARD & POOR'S (S&P)
The following descriptions are applicable to municipal bond funds:
AAA bonds have the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong.
AA bonds have a very strong capacity to pay interest and repay principal, and they differ from AAA only in small degree.
A bonds have a strong capacity to pay interest and repay principal, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories.
BBB bonds are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal than for bonds in the A category.
BB, B, CCC, CC and C bonds are regarded as having predominantly speculative characteristics with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. BB indicates the lowest degree of speculation and C the highest degree. While such debt will likely have some quality and protective characteristics, these are outweighed by large uncertainties or large exposures to adverse conditions.
BB bonds have less near-term vulnerability to default than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB- rating.
B bonds have a greater vulnerability to default but currently have the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. The B rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB- rating.
CCC bonds have a currently identifiable vulnerability to default, and are dependent upon favorable business, financial, and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, the bonds are not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt subordinated to senior debt that is assigned an actual or implied B or B- rating.
CC rating typically is applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating.
C rating typically is applied to debt subordinated to senior debt which assigned an actual or implied CCC- debt rating. The C rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued.
CI rating is reserved for income bonds on which no interest is being paid.
D bonds are in payment default. The D rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized.
Plus(+) or minus(-) ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
PROVISIONAL RATINGS. The letter "p" indicates that the rating is provisional. A provisional rating assumes the successful completion of the project being financed by the debt being rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely completion of the project. This rating, however, although addressing credit quality subsequent to completion of the project, makes no comments on the likelihood of, or the risk of default upon failure of, such completion. The investor should exercise his own judgment with respect to such likelihood and risk.
MUNICIPAL NOTES:
SP-1. Notes rated SP-1 have very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics are designated as SP-1+.
SP-2. Notes rated SP-2 have satisfactory capacity to pay principal and interest.
Notes due in three years or less normally receive a note rating. Notes maturing beyond three years normally receive a bond rating, although the following criteria are used in making that assessment:
Amortization schedule (the larger the final maturity relative to other maturities, the more likely the issue will be rated as a note).
Source of payment (the more dependent the issue is on the market for its refinancing, the more likely it will be rated as a note).
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
S&P assigns dual ratings to all long-term debt issues that have as part of their provisions a demand feature. The first rating addresses the likelihood of repayment of principal and interest as due, and the second rating addresses only the demand feature. The long-term debt rating symbols are used for bonds to denote the long-term maturity, and the commercial paper rating symbols are usually used to denote the put (demand) option (for example, AAA/A-1+). Normally, demand notes receive note rating symbols combined with commercial paper symbols (for example, SP-1+/A-1+).
COMMERCIAL PAPER:
A. Issues assigned this highest rating are regarded as having the greatest capacity for timely payment. Issues in this category are further refined with the designations 1, 2, and 3 to indicate the relative degree to safety.
A-1. This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are designed A-1+.
CORPORATE BONDS:
The description of the applicable rating symbols and their meanings is substantially the same as the Municipal Bond ratings set forth above.
The following descriptions are applicable to equity and taxable bond funds:
AAA bonds have the highest rating assigned by S&P. The obligor's capacity to meet its financial commitment on the obligation is extremely strong.
AA bonds differ from the highest rated obligations only in small degree. The obligor's capacity to meet its financial commitment on the obligation is very strong.
A bonds are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.
BBB bonds exhibit adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
BB, B, CCC and CC bonds are regarded, as having significant speculative characteristics. BB indicates the least degree of speculation and C the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
BB bonds are less vulnerable to non-payment than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
B bonds are more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.
CCC bonds are currently vulnerable to nonpayment, and are dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
CC bonds are currently highly vulnerable to nonpayment.
C ratings may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on the obligation are being continued.
D bonds are in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
Plus (+) or minus(-): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
R This symbol is attached to the rating of instruments with significant
noncredit risks. It highlights risks to principal or volatility of expected
returns which are not addressed in the credit rating. Examples include:
obligations linked or indexed to equities, currencies, or commodities;
obligations exposed to severe prepayment risk, such as interest-only or
principal-only mortgage securities; and obligations with unusually risky
interest terms, such as inverse floaters.
MOODY'S INVESTORS SERVICE, INC. (MOODY'S)
AAA bonds are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge". Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While various protective elements are likely to change, such changes as can be visualized are most unlikely to impair a fundamentally strong position of such issues.
AA bonds are judged to be of high quality by all standards. Together with Aaa bonds they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.
Those bonds in the Aa through B groups that Moody's believes possess the strongest investment attributes are designated by the symbol Aa1, A1 and Baa1.
A bonds possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present that suggest a susceptibility to impairment sometime in the future.
BAA bonds are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact, have speculative characteristics as well.
BA bonds are judged to have speculative elements: their future cannot be considered as well secured. Often, the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class.
B bonds generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
CAA bonds are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest.
CA bonds represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings.
C bonds are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing.
CONDITIONAL RATINGS. Bonds for which the security depends upon the completion of some act or the fulfillment of some condition are rated conditionally. These are bonds secured by (a) earnings of projects under construction, (b) earnings of projects unseasoned in operating experience, (c) rentals which begin when facilities are completed, or (d) payments to which some other limiting conditions attach. Parenthetical rating denotes probable credit stature upon completion of construction or elimination of basis of condition.
MUNICIPAL NOTES:
MIG 1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
MIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
MIG 3. This designation denotes favorable quality. All security elements are accounted for, but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
DEMAND FEATURE OF VARIABLE RATE DEMAND SECURITIES:
Moody's may assign a separate rating to the demand feature of a variable rate demand security. Such a rating may include:
VMIG 1. This designation denotes best quality. There is present strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing.
VMIG 2. This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group.
VMIG 3. This designation denotes favorable quality. All security elements are accounted for, but there is lacking the undeniable strength of the preceding grades. Liquidity and cash flow protection may be narrow and market access for refinancing is likely to be less well established.
COMMERCIAL PAPER:
Moody's employs the following three designations, all judged to be investment grade, to indicate the relative repayment capacity of rated issuers:
Prime-1 Highest Quality
Prime-2 Higher Quality
Prime-3 High Quality
If an issuer represents to Moody's that its Commercial Paper obligations are supported by the credit of another entity or entities, Moody's, in assigning ratings to such issuers, evaluates the financial strength of the indicated affiliated corporations, commercial banks, insurance companies, foreign governments, or other entities, but only as one factor in the total rating assessment.
CORPORATE BONDS:
The description of the applicable rating symbols (Aaa, Aa, A) and their meanings is identical to that of the Municipal Bond ratings as set forth above, except for the numerical modifiers. Moody's applies numerical modifiers 1, 2, and 3 in the Aa and A classifications of its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a midrange ranking; and the modifier 3 indicates that the issuer ranks in the lower end of its generic rating category.
FITCH INC.
INVESTMENT GRADE BOND RATINGS
AAA bonds are considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and/or dividends and repay principal, which is unlikely to be affected by reasonably foreseeable events.
AA bonds are considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated 'AAA'. Because bonds rated in the 'AAA' and 'AA' categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated 'F-1+'.
A bonds are considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than debt securities with higher ratings.
BBB bonds are considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest or dividends and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these securities and, therefore, impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for securities with higher ratings.
CONDITIONAL
A conditional rating is premised on the successful completion of a project or the occurrence of a specific event.
SPECULATIVE-GRADE BOND RATINGS
BB bonds are considered speculative. The obligor's ability to pay interest and repay principal may be affected over time by adverse economic changes. However, business and financial alternatives can be identified, which could assist the obligor in satisfying its debt service requirements.
B bonds are considered highly speculative. While securities in this class are currently meeting debt service requirements, the probability of continued timely payment of principal and interest reflects the obligor's limited margin of safety and the need for reasonable business and economic activity throughout the life of the issue.
CCC bonds have certain identifiable characteristics that, if not remedied, may lead to default. The ability to meet obligations requires an advantageous business and economic environment.
CC bonds are minimally protected. Default in payment of interest and/or principal seems probable over time.
C bonds are in imminent default in payment of interest or principal.
DDD, DD, AND D bonds are in default on interest and/or principal payments. Such securities are extremely speculative and should be valued on the basis of their ultimate recovery value in liquidation or reorganization of the obligor. 'DDD' represents the highest potential for recovery on these securities, and 'D' represents the lowest potential for recovery.
APPENDIX II
COLUMBIA MANAGEMENT ADVISORS, LLC ("CMA")
PROXY VOTING POLICIES AND PROCEDURES
ADOPTED JULY 1, 2003 AND REVISED MARCH 4, 2005
POLICY:
ALL PROXIES(1) REGARDING CLIENT SECURITIES FOR WHICH COLUMBIA MANAGEMENT ADVISORS, LLC ("CMA") HAS ASSUMED AUTHORITY TO VOTE SHALL, UNLESS CMA DETERMINES IN ACCORDANCE WITH POLICIES STATED BELOW TO ABSTAIN FROM VOTING, BE VOTED IN A MANNER CONSIDERED BY CMA TO BE IN THE BEST INTEREST OF CMA'S CLIENTS, INCLUDING THE CMG FAMILY FUNDS(2) AND THEIR SHAREHOLDERS, WITHOUT REGARD TO ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES. THE BEST INTEREST OF CLIENTS IS DEFINED FOR THIS PURPOSE AS THE INTEREST OF ENHANCING OR PROTECTING THE ECONOMIC VALUE OF CLIENT ACCOUNTS, CONSIDERED AS A GROUP RATHER THAN INDIVIDUALLY, AS CMA DETERMINES IN ITS SOLE AND ABSOLUTE DISCRETION. IN THE EVENT A CLIENT BELIEVES THAT ITS OTHER INTERESTS REQUIRE A DIFFERENT VOTE, CMA SHALL VOTE AS THE CLIENT CLEARLY INSTRUCTS, PROVIDED CMA RECEIVES SUCH INSTRUCTIONS IN TIME TO ACT ACCORDINGLY.
CMA ENDEAVORS TO VOTE, IN ACCORDANCE WITH THIS POLICY, ALL PROXIES OF WHICH IT BECOMES AWARE, SUBJECT TO THE FOLLOWING EXCEPTIONS (UNLESS OTHERWISE AGREED) WHEN CMA EXPECTS TO ROUTINELY ABSTAIN FROM VOTING:
1. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE THE SECURITY HAS BEEN LOANED FROM THE CLIENT'S ACCOUNT.
2. PROXIES WILL USUALLY NOT BE VOTED IN CASES WHERE CMA DEEMS THE COSTS TO THE CLIENT AND/OR THE ADMINISTRATIVE INCONVENIENCE OF VOTING THE SECURITY (E.G., SOME FOREIGN SECURITIES) OUTWEIGH THE BENEFIT OF DOING SO.
CMA SEEKS TO AVOID THE OCCURRENCE OF ACTUAL OR APPARENT MATERIAL CONFLICTS OF INTEREST IN THE PROXY VOTING PROCESS BY VOTING IN ACCORDANCE WITH PREDETERMINED VOTING GUIDELINES, AS STATED BELOW. FOR THOSE PROXY PROPOSALS THAT REQUIRE SPECIAL CONSIDERATION OR IN INSTANCES WHERE SPECIAL CIRCUMSTANCES MAY REQUIRE VARYING FROM THE PREDETERMINED GUIDELINES, THE CMG PROXY COMMITTEE WILL DETERMINE THE BEST INTEREST OF CMA'S CLIENTS AND VOTE ACCORDINGLY, WITHOUT CONSIDERATION OF ANY RESULTING BENEFIT OR DETRIMENT TO CMA OR ITS AFFILIATES.
OVERVIEW:
CMA's policy is based upon its fiduciary obligation to act in its clients' best interest. Citing this obligation, the SEC has adopted rules pursuant to the Investment Advisers Act of 1940 and Investment Company Act of 1940 with respect to proxy voting.
PROCEDURE:
I. ACCOUNT POLICIES
Except as otherwise directed by the client, CMA shall vote as follows:
SEPARATELY MANAGED ACCOUNTS
CMA shall vote proxies on securities held in its separately managed accounts.
COLUMBIA TRUST COMPANY (CTC) TRUST POOLS
CMA shall vote proxies on securities held in the trust pools.
CMG FAMILY FUNDS/CMA FUND TRUST
CMA shall vote proxies on securities held in the Funds, including multi-managed and subadvised Funds.
COLUMBIA PRIVATE PORTFOLIO
CMA shall vote proxies on securities held in its separately managed accounts.
ALTERNATIVE INVESTMENT GROUP
(2) A CMG Family Fund or a Fund is a registered investment company or series of a registered investment company managed or advised by Columbia Management Advisors, LLC
CMA's clients may invest in securities ("Alternative Investments") issued by alternative investment vehicles (i.e. hedge funds, private equity funds, and other alternative investment pools) that are structured as private limited partnerships ("LPs"), limited liability companies ("LLCs") or offshore corporations. Generally, CMA's Alternative Investment Group ("AIG") is the platform through which CMA provides advisory services relating to Alternative Investments.
The voting rights of Alternative Investments generally are rights of contract set forth in the limited liability company or limited partnership agreement, in the case of LLCs and LPs, or Memorandum and Articles of Association or By-laws, in the case of offshore corporations. Also, as privately placed securities, Alternative Investments generally are not subject to the regulatory scheme applicable to public companies. Consequently, in most cases, proxies are not solicited regarding Alternative Investment vehicles. Instead, consents may be solicited from members, limited partners or shareholders.
Because of the unique characteristics of Alternative Investments, CMA has a tailored process for voting Alternative Investment proxies and consents.
Process
AIG will vote all Alternative Investment proxies and consents in accordance with this Policy. The committee voting AIG proxies consists of AIG senior management, investment and operations professionals. Conflicts of interest are to be monitored and resolved as set forth in this Policy.
II. PROXY COMMITTEE
CMA shall establish a Proxy Committee whose standing members shall include the head of core equity, head of value, head of growth, head of income strategies, head of equity research and head of fixed income research. Each standing member may designate a senior portfolio manager or a senior analyst officer to act as a substitute in a given matter on their behalf.
The Proxy Committee's functions shall include, in part,
(a) direction of the vote on proposals where there has been a recommendation to the Committee, pursuant to Section IV.B, not to vote according to the predetermined Voting Guidelines stated in Section IV.A or on proposals which require special, individual consideration in accordance with Section IV.C;
(b) review at least annually of this Proxy Voting Policy and Procedure to ensure consistency with internal policies, client disclosures and regulatory requirements;
(c) review at least annually of existing Voting Guidelines and need for development of additional Voting Guidelines to assist in the review of proxy proposals; and
(d) development and modification of Voting Procedures, as stated in Section V, as it deems appropriate or necessary.
The Proxy Committee shall establish a charter, which shall set forth the Committee's purpose, membership and operation. The Committee's charter shall be consistent, in all material respects, with this policy and procedure.
III. CONFLICTS OF INTEREST
WITH OTHER BANK OF AMERICA BUSINESSES
Bank of America Corporation ("BAC"), the ultimate corporate parent of CMA, Bank of America, N.A. and all of their numerous affiliates owns, operates and has interests in many lines of business that may create or give rise to the appearance of a conflict of interest between BAC or its affiliates and those of Firm-advised clients. For example, the commercial and investment banking business lines may have interests with respect to issuers of voting securities that could appear to or even actually conflict with CMA's duty, in the proxy voting process, to act in the best economic interest of its clients.
Within CMA
Conflicts of interest may also arise from the business activities of CMA. For example, CMA might manage (or be seeking to manage) the assets of a benefit plan for an issuer. CMA may also be presented with an actual or apparent conflict of interest where proxies of securities issued by BAC or a CMG Family Fund, for which CMA serves as investment adviser, are to be voted for a client's account.
Management of Conflicts
CMA's policy is to always vote proxies in the best interest of its clients, as a whole, without regard to its own self-interest or that of its affiliates. BAC as well as CMA has various compliance policies and procedures in place in order to address any material conflicts of interest that might arise in this context.
1. BAC's enterprise-wide Code of Ethics specifically prohibits the flow of certain business-related information between associates on the commercial and/or investment banking side of the corporation and associates charged with trust or (as in the case of BACAP associates) non-trust fiduciary responsibilities, including investment decision-making and proxy voting.
2. In addition, BAC has adopted "Global Policies and Procedures Regarding Information Walls and Inside Information." Pursuant to these policies and procedures, "information barriers" have been established between various BAC business lines designed to prohibit the passage of certain information across those barriers.
3. Within CMA, CMA's Code of Ethics affirmatively requires that associates of CMA act in a manner whereby no actual or apparent conflict of interest may be seen as arising between the associate's interests and those of CMA's Clients.
4. By assuming his or her responsibilities pursuant to this Policy, each member of the Proxy Committee and any CMA or BAC associate advising or acting under the supervision or oversight of the Proxy Committee undertakes:
- To disclose to the chairperson of the Proxy Committee and the chairperson to the head of CMG Compliance any actual or apparent personal material conflicts of interest which he or she may have (e.g., by way of substantial ownership of securities, relationships with nominees for directorship, members of an issuer's or dissident's management or otherwise) in determining whether or how CMA shall vote proxies. In the event the chairperson of the Proxy Committee has a conflict of interest regarding a given matter, he or she shall abstain from participating in the Committee's determination of whether and/or how to vote in the matter; and
- To refrain from taking into consideration, in the decision as to whether or how CMA shall vote proxies:
- The existence of any current or prospective material business relationship between CMA, BAC or any of their affiliates, on one hand, and any party (or its affiliates) that is soliciting or is otherwise interested in the proxies to be voted, on the other hand; and/or
- Any direct, indirect or perceived influence or attempt to influence such action which the member or associate views as being inconsistent with the purpose or provisions of this Policy or the Code of Ethics of CMA or BAC.
Where a material conflict of interest is determined to have arisen in the proxy voting process that may not be adequately mitigated by voting in accordance with the predetermined Voting Guidelines, CMA's policy is to invoke one or more of the following conflict management procedures:
1. Convene the Proxy Committee for the purpose of voting the affected proxies in a manner that is free of the conflict.
2. Causing the proxies to be voted in accordance with the recommendations of a qualified, independent third party, which may include CMA's proxy voting agent.
3. In unusual cases, with the Client's consent and upon ample notice, forwarding the proxies to CMA's clients so that they may vote the proxies directly.
IV. VOTING GUIDELINES
A. THE PROXY COMMITTEE HAS ADOPTED THE FOLLOWING GUIDELINES FOR VOTING PROXIES:
1. Matters Relating to the Board of Directors/Corporate Governance
CMA generally will vote FOR:
- Proposals for the election of directors or for an increase or decrease in the number of directors, provided that no more than one-third of the Board of Directors would, presently or at any time during the previous three-year period, be from management.
However, CMA generally will WITHHOLD votes from pertinent director nominees if:
(i) the board as proposed to be constituted would have more than one-third of its members from management;
(ii) the board does not have audit, nominating, and compensation committees composed solely of directors who qualify as being regarded as "independent," i.e. having no material relationship, directly or indirectly, with the Company, as CMA's proxy voting agent may determine (subject to the Proxy Committee's contrary determination of independence or non-independence);
(iii) the nominee, as a member of the audit committee, permitted the company to incur excessive non-audit fees (as defined below regarding other business matters -- ratification of the appointment of auditors);
(iv) a director serves on more than six public company boards;
(v) the CEO serves on more than two public company boards other than the company's board.
On a CASE-BY-CASE basis, CMA may WITHHOLD votes for a director nominee who has failed to observe good corporate governance practices or, through specific corporate action or inaction (e.g. failing to implement policies for which a majority of shareholders has previously cast votes in favor), has demonstrated a disregard for the interests of shareholders.
- Proposals requesting that the board audit, compensation and/or nominating committee be composed solely of independent directors. The Audit Committee must satisfy the independence and experience requirements established by the Securities and Exchange Commission ("SEC") and the New York Stock Exchange, or appropriate local requirements for foreign securities. At least one member of the Audit Committee must qualify as a "financial expert" in accordance with SEC rules.
- Proposals to declassify a board, absent special circumstances that would indicate that shareholder interests are better served by a classified board structure.
CMA generally will vote FOR:
- Proposals to create or eliminate positions or titles for senior management. CMA generally prefers that the role of Chairman of the Board and CEO be held by different persons unless there are compelling reasons to vote AGAINST a proposal to separate these positions, such as the existence of a counter-balancing governance structure that includes at least the following elements in addition to applicable listing standards:
- Established governance standards and guidelines.
- Full board composed of not less than two-thirds "independent" directors, as defined by applicable regulatory and listing standards.
- Compensation, as well as audit and nominating (or corporate governance) committees composed entirely of independent directors.
- A designated or rotating presiding independent director appointed by and from the independent directors with the authority and responsibility to call and preside at regularly and, as necessary, specially scheduled meetings of the independent directors to be conducted, unless the participating independent directors otherwise wish, in executive session with no members of management present.
- Disclosed processes for communicating with any individual director, the presiding independent director (or, alternatively, all of the independent directors, as a group) and the entire board of directors, as a group.
- The pertinent class of the Company's voting securities has out-performed, on a three-year basis, both an appropriate peer group and benchmark index, as indicated in the performance summary table of the Company's proxy materials. This requirement shall not apply if there has been a change in the Chairman/CEO position within the three-year period.
- Proposals that grant or restore shareholder ability to remove directors with or without cause.
- Proposals to permit shareholders to elect directors to fill board vacancies.
- Proposals that encourage directors to own a minimum amount of company stock.
- Proposals to provide or to restore shareholder appraisal rights.
- Proposals to adopt cumulative voting.
- Proposals for the company to adopt confidential voting.
CMA generally will vote AGAINST:
- Proposals to classify boards, absent special circumstances indicating that shareholder interests would be better served by a classified board structure.
- Proposals that give management the ability to alter the size of the board without shareholder approval.
- Proposals that provide directors may be removed only by supermajority vote.
- Proposals to eliminate cumulative voting.
- Proposals which allow more than one vote per share in the election of directors.
- Proposals that provide that only continuing directors may elect replacements to fill board vacancies.
- Proposals that mandate a minimum amount of company stock that directors must own.
- Proposals to limit the tenure of non-management directors.
CMA will vote on a CASE-BY-CASE basis in contested elections of directors.
CMA generally will vote on a CASE-BY-CASE basis on board approved proposals relating to corporate governance. Such proposals include, but are not limited to:
- Director and officer indemnification and liability protection. CMA is opposed to entirely eliminating directors' and officers' liability for monetary damages for violating the duty of care. CMA is also opposed to expanding coverage beyond just legal expenses to acts, such as negligence, that are more serious violations of fiduciary obligation than mere carelessness. CMA supports proposals which provide such expanded coverage in cases when a director's or officer's legal defense was unsuccessful if: (i) the director was found to have acted in good faith and in a manner that he/she reasonably believed was in the best interests of the company, AND (ii) if the director's legal expenses would be covered.
- Reimbursement of proxy solicitation expenses taking into consideration whether or not CMA was in favor of the dissidents.
- Proxy contest advance notice. CMA generally will vote FOR proposals that allow shareholders to submit proposals as close to the meeting date as possible while allowing for sufficient time for Company response, SEC review, and analysis by other shareholders.
2. Compensation
CMA generally will vote FOR management sponsored compensation plans (such as bonus plans, incentive plans, stock option plans, pension and retirement benefits, stock purchase plans or thrift plans) if they are consistent with industry and country standards. However, CMA generally is opposed to compensation plans that substantially dilute ownership interest in a company, provide participants with excessive awards, or have objectionable structural features. Specifically, for equity-based plans, if the proposed number of shares authorized for option programs (excluding authorized shares for expired options) exceeds an average of 10% of the currently outstanding shares over the previous three years or an average of 3% over the previous three years for directors only, the proposal should be referred to the Proxy Committee. The Committee will then consider the circumstances surrounding the issue and vote in the best interest of CMA's clients. CMA requires that management provide substantial justification for the repricing of options.
CMA generally will vote FOR:
- Proposals requiring that executive severance arrangements be submitted for shareholder ratification.
- Proposals asking a company to expense stock options.
- Proposals to put option repricings to a shareholder vote.
- Employee stock purchase plans that have the following features: (i) the shares purchased under the plan are acquired for no less than 85% of their market value, (ii) the offering period under the plan is 27 months or less, and (iii) dilution is 10% or less.
CMA generally will vote AGAINST:
- Stock option plans that permit issuance of options with an exercise price below the stock's current market price, or that permit replacing or repricing of out-of-the money options.
- Proposals to authorize the replacement or repricing of out-of-the money options.
CMA will vote on a CASE-BY-CASE basis proposals regarding approval of specific executive severance arrangements.
3. Capitalization
CMA generally will vote FOR:
- Proposals to increase the authorized shares for stock dividends, stock splits (and reverse stock splits) or general issuance, unless proposed as an anti-takeover measure or a general issuance proposal increases the authorization by more than 30% without a clear need presented by the company. Proposals for reverse stock splits should include an overall reduction in authorization.
For companies recognizing preemptive rights for existing shareholders, CMA generally will vote FOR general issuance proposals that increase the authorized shares by more than 30%. CMA will vote on a CASE-BY-CASE basis all such proposals by companies that do not recognize preemptive rights for existing shareholders.
- Proposals for the elimination of authorized but unissued shares or retirement of those shares purchased for sinking fund or treasury stock.
- Proposals to institute/renew open market share repurchase plans in which all shareholders may participate on equal terms.
- Proposals to reduce or change the par value of common stock, provided the number of shares is also changed in order to keep the capital unchanged.
4. Mergers, Restructurings and Other Transactions
CMA will review, on a CASE-BY-CASE basis, business transactions such as mergers, acquisitions, reorganizations, liquidations, spinoffs, buyouts and sale of all or substantially all of a company's assets.
5. Anti-Takeover Measures
CMA generally will vote AGAINST proposals intended largely to avoid acquisition prior to the occurrence of an actual event or to discourage acquisition by creating a cost constraint. With respect to the following measures, CMA generally will vote as follows:
Poison Pills
- CMA votes FOR shareholder proposals that ask a company to submit its poison pill for shareholder ratification.
- CMA generally votes FOR shareholder proposals to eliminate a poison pill.
- CMA generally votes AGAINST management proposals to ratify a poison pill.
Greenmail
- CMA will vote FOR proposals to adopt anti-greenmail charter or bylaw amendments or to otherwise restrict a company's ability to make greenmail payments.
Supermajority vote
- CMA will vote AGAINST board-approved proposals to adopt anti-takeover measures such as supermajority voting provisions, issuance of blank check preferred stock, the creation of a separate class of stock with disparate voting rights and charter amendments adopting control share acquisition provisions.
Control Share Acquisition Provisions
- CMA will vote FOR proposals to opt out of control share acquisition statutes.
6. Other Business Matters
CMA generally will vote FOR:
- Proposals to approve routine business matters such as changing the company's name and procedural matters relating to the shareholder meeting such as approving the minutes of a prior meeting.
- Proposals to ratify the appointment of auditors, unless any of the following apply in which case CMA will generally vote AGAINST the proposal:
- Credible reason exists to question:
- The auditor's independence, as determined by applicable regulatory requirements.
- The accuracy or reliability of the auditor's opinion as to the company's financial position.
- Fees paid to the auditor or its affiliates for "non-audit" services were excessive, i.e., in excess of the total fees paid for "audit," "audit-related" and "tax compliance" and/or "tax return preparation" services, as disclosed in the company's proxy materials.
- Bylaw or charter changes that are of a housekeeping nature (e.g., updates or corrections).
- Proposals to approve the annual reports and accounts provided the certifications required by the Sarbanes Oxley Act of 2002 have been provided.
CMA generally will vote AGAINST:
- Proposals to eliminate the right of shareholders to act by written consent or call special meetings.
- Proposals providing management with authority to adjourn an annual or special shareholder meeting absent compelling reasons, or to adopt, amend or repeal bylaws without shareholder approval, or to vote unmarked proxies in favor of management.
- Shareholder proposals to change the date, time or location of the company's annual meeting of shareholders.
CMA will vote AGAINST:
- Authorization to transact other unidentified substantive (as opposed to procedural) business at a meeting.
CMA will vote on a CASE-BY-CASE basis:
- Proposals to change the location of the company's state of incorporation. CMA considers whether financial benefits (e.g., reduced fees or taxes) likely to accrue to the company as a result of a reincorporation or other change of domicile outweigh any accompanying material diminution of shareholder rights.
- Proposals on whether and how to vote on "bundled" or otherwise conditioned proposals, depending on the overall economic effects upon shareholders.
CMA generally will ABSTAIN from voting on shareholder proposals predominantly involving social, socio-economic, environmental, political or other similar matters on the basis that their impact on share value can rarely be anticipated with any high degree of confidence. CMA may, on a CASE-BY-CASE basis, vote:
- FOR proposals seeking inquiry and reporting with respect to, rather than cessation or affirmative implementation of, specific policies where the pertinent issue warrants separate communication to shareholders; and
- FOR or AGAINST the latter sort of proposal in light of the relative benefits and detriments (e.g. distraction, costs, other burdens) to share value which may be expected to flow from passage of the proposal.
7. Other Matters Relating to Foreign Issues
CMA generally will vote FOR:
- Most stock (scrip) dividend proposals. CMA votes AGAINST proposals that do not allow for a cash option unless management demonstrates that the cash option is harmful to shareholder value.
- Proposals to capitalize the company's reserves for bonus issues of shares or to increase the par value of shares.
- Proposals to approve control and profit transfer agreements between a parent and its subsidiaries.
- Management proposals seeking the discharge of management and supervisory board members, unless there is concern about the past actions of the company's auditors/directors and/or legal action is being taken against the board by other shareholders.
- Management proposals concerning allocation of income and the distribution of dividends, unless the dividend payout ratio has been consistently below 30 percent without adequate explanation or the payout is excessive given the company's financial position.
- Proposals for the adoption of financing plans if they are in the best economic interests of shareholders.
8. INVESTMENT COMPANY MATTERS
Election of Directors:
CMA will vote on a CASE-BY-CASE basis proposals for the election of directors, considering the following factors:
- Board structure
- Attendance at board and committee meetings.
CMA will WITHHOLD votes from directors who:
- Attend less than 75 percent of the board and committee meetings without a valid excuse for the absences. Valid reasons include illness or absence due to company business. Participation via telephone is acceptable. In addition, if the director missed only one meeting or one day's meetings, votes should not be withheld even if such absence dropped the director's attendance below 75 percent.
- Ignore a shareholder proposal that is approved by a majority of shares outstanding;
- Ignore a shareholder proposal this is approved by a majority of the votes cast for two consecutive years;
- Are interested directors and sit on the audit or nominating committee; or
- Are interested directors and the full board serves as the audit or nominating committee or the company does not have one of these committees.
Proxy Contests:
CMA will vote on a CASE-BY-CASE basis proposals for proxy contests, considering the following factors:
- Past performance relative to its peers
- Market in which fund invests
- Measures taken by the board to address the pertinent issues (e.g., closed-end fund share market value discount to NAV)
- Past shareholder activism, board activity and votes on related proposals
- Strategy of the incumbents versus the dissidents
- Independence of incumbent directors; director nominees
- Experience and skills of director nominees
- Governance profile of the company
- Evidence of management entrenchment
Converting Closed-end Fund to Open-end Fund:
CMA will vote conversion proposals on a CASE-BY-CASE basis, considering the following factors:
- Past performance as a closed-end fund
- Market in which the fund invests
- Measures taken by the board to address the discount
- Past shareholder activism, board activity, and votes on related proposals.
Investment Advisory Agreements:
CMA will vote investment advisory agreements on a CASE-BY-CASE basis, considering the following factors:
- Proposed and current fee schedules
- Fund category/investment objective
- Performance benchmarks
- Share price performance as compared with peers
- Resulting fees relative to peers
- Assignments (where the adviser undergoes a change of control)
Approving New Classes or Series of Shares:
CMA will vote FOR the establishment of new classes or series of shares.
Preferred Stock Proposals:
CMA will vote on a CASE-BY-CASE basis proposals for the authorization for or increase in the preferred shares, considering the following factors:
- Stated specific financing purpose
- Possible dilution for common shares
- Whether the shares can be used for antitakover purposes
Policies Addressed by the Investment Company Act of 1940 ("1940 Act"):
CMA will vote proposals regarding adoption or changes of policies addressed by the 1940 Act on a CASE-BY-CASE basis, considering the following factors:
- Potential competitiveness
- Regulatory developments
- Current and potential returns
- Current and potential risk
CMA generally will vote FOR these amendments as long as the proposed changes do not fundamentally alter the investment focus of the fund and do comply with current SEC interpretations.
Changing a Fundamental Restriction to a Non-fundamental Restriction:
CMA will vote on a CASE-BY-CASE basis proposals to change a fundamental restriction to a nonfundamental restriction, considering the following factors:
- Fund's target investments
- Reasons given by the fund for the change
- Projected impact of the change on the portfolio
Change Fundamental Investment Objective to Non-fundamental:
CMA will vote AGAINST proposals to change a fund's investment objective from fundamental to non-fundamental unless management acknowledges meaningful limitations upon its future requested ability to change the objective
Name Change Proposals:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's name, considering the following factors:
- Political/economic changes in the target market
- Consolidation in the target market
- Current asset composition
Change in Fund's Subclassification:
CMA will vote on a CASE-BY-CASE basis proposals to change a fund's subclassification, considering the following factors:
- Potential competitiveness
- Current and potential returns
- Risk of concentration
- Consolidation in target industry
Disposition of Assets/Termination/Liquidation:
CMA will vote on a CASE-BY-CASE basis these proposals, considering the following factors:
- Strategies employed to salvage the company
- Past performance of the fund
- Terms of the liquidation
Changes to the Charter Document:
CMA will vote on a CASE-BY-CASE basis proposals to change the charter document, considering the following factors:
- The degree of change implied by the proposal
- The efficiencies that could result
- The state of incorporation; net effect on shareholder rights
- Regulatory standards and implications
CMA will vote FOR:
- Proposals allowing the Board to impose, without shareholder approval, fees payable upon redemption of fund shares, provided imposition of such fees is likely to benefit long-term fund investors (e.g., by deterring market timing activity by other fund investors)
- Proposals enabling the Board to amend, without shareholder approval, the fund's management agreement(s) with its investment adviser(s) or sub-advisers, provided the amendment is not required by applicable law (including the Investment Company Act of 1940) or interpretations thereunder to require such approval
CMA will vote AGAINST:
- Proposals enabling the Board to:
- Change, without shareholder approval the domicile of the fund
- Adopt, without shareholder approval, material amendments of the fund's declaration of trust or other organizational document
Changing the Domicile of a Fund:
CMA will vote on a CASE-BY-CASE basis proposals to reincorporate, considering the following factors:
- Regulations of both states
- Required fundamental policies of both states
- The increased flexibility available
Authorizing the Board to Hire and Terminate Subadvisors Without Shareholder Approval:
CMA will vote FOR proposals to enable the Board or Investment Adviser to hire and terminate sub-advisers, without shareholder approval, in accordance with applicable rules or exemptive orders under the Investment Company Act of 1940
Distribution Agreements:
CMA will vote these proposals on a CASE-BY-CASE basis, considering the following factors:
- Fees charged to comparably sized funds with similar objectives
- The proposed distributor's reputation and past performance
- The competitiveness of the fund in the industry
- Terms of the agreement
Master-Feeder Structure:
CMA will vote FOR the establishment of a master-feeder structure.
MERGERS:
CMA will vote merger proposals on a CASE-BY-CASE basis, considering the following factors:
- Resulting fee structure
- Performance of both funds
- Continuity of management personnel
- Changes in corporate governance and their impact on shareholder rights
Shareholder Proposals to Establish Director Ownership Requirement:
CMA will generally vote AGAINST shareholder proposals that mandate a specific minimum amount of stock that directors must own in order to qualify as a director or to remain on the board. While CMA favors stockownership on the part of directors, the company should determine the appropriate ownership requirement.
Shareholder Proposals to Reimburse Shareholder for Expenses Incurred:
CMA will vote on a CASE-BY-CASE basis proposals to reimburse proxy solicitation expenses.
Shareholder Proposals to Terminate the Investment Adviser:
CMA will vote on a CASE-BY-CASE basis proposals to terminate the investment adviser, considering the following factors:
- Performance of the fund's NAV
- The fund's history of shareholder relations
- The performance of other funds under the adviser's management
9. Alternative Investment Group ("AIG") Matters
The AIG Proxy Sub-Committee generally will vote in accordance with the guidelines set forth in this policy. With respect to matters that are not addressed by the guidelines, the AIG Proxy Sub-Committee will vote each such matter on a CASE-BY-CASE basis.
B. ABILITY TO VOTE PROXIES OTHER THAN AS PROVIDED IN A ABOVE.
A Portfolio Manager, sub-adviser or other party involved with a client's account may conclude that the best interest of the firm's client, as defined above, requires that a proxy be voted in a manner that differs from the predetermined proxy Voting Guidelines stated in Section IV.A. In this situation, he or she shall request that the Proxy Committee consider voting the proxy other than according such Guidelines. If any person, group, or entity requests the Proxy Committee (or any of its members) vote a proxy other than according to the predetermined Voting Guidelines, that person shall furnish to the Proxy Committee a written explanation of the reasons for the request and a description of the person's, group's, or entity's relationship, if any, with the parties proposing and/or opposing the matter's adoption.
C. PROPOSALS REQUIRING SPECIAL CONSIDERATION
The following proposals require special, individual consideration. The Proxy Committee will determine how proxies related to all such proposals will be voted.
1. NEW PROPOSALS. For each new type of proposal that is expected to be proposed to shareholders of multiple companies, the Proxy Committee will develop a Voting Guideline which will be incorporated into this Policy.
2. ACCOUNTS ADHERING TO TAFT HARTLEY PRINCIPLES. All proposals for these accounts shall be voted according to the Taft Hartley Guidelines developed by Institutional Shareholder Services, Inc. ("ISS").
3. ACCOUNTS ADHERING TO SOCIALLY RESPONSIBLE PRINCIPLES. All proposals for these accounts shall be voted according to the Socially Responsible Guidelines developed by ISS or as specified by the client.
4. PROXIES OF INTERNATIONAL ISSUERS WHICH BLOCK SECURITIES SALES BETWEEN THE TIME A SHAREHOLDER SUBMITS A PROXY AND THE VOTE. Proposals for these securities shall be voted only on the specific instruction of the Proxy Committee and to the extent practicable in accordance with the Voting Guidelines set forth in this Policy.
5. PROXIES OF INVESTMENT COMPANY SHARES. Proposals on issues other than those specified in Section IV.A.
6. EXECUTIVE/DIRECTOR COMPENSATION. Except as provided in Section
IV.A, proposals relating to compensation of any executive or director
will be voted as recommended by ISS or as otherwise directed by the
Proxy Committee.
7. PREEMPTIVE RIGHTS. Proposals to create or eliminate shareholder preemptive rights. In evaluating these proposals the Proxy Committee will consider the size of the company and the nature of its shareholder base.
V. VOTING PROCEDURES
The Proxy Committee has developed the following procedures to aid the voting of proxies according to the Voting Guidelines set forth in Section IV above. The Proxy Committee may revise these procedures from time to time, as it deems necessary or appropriate to effect the purposes of this Policy.
- CMA shall use an independent, third-party vendor (currently Institutional Shareholder Services ("ISS")), to implement its proxy voting process as CMAs proxy voting agent. This retention is subject to CMA continuously assessing the vendor's independence from CMA and its affiliates, and the vendor's ability to perform its responsibilities (and, especially, its responsibility to vote client proxies in accordance with CMA's proxy voting guidelines) free of any actual, potential or apparent material conflicts of interests that may arise between the interests of the vendor, its affiliates, the vendor's other clients and the owners, officers or employees of any such firm, on the one hand, and CMA's clients, on the other hand. As means of performing this assessment, CMA will require various reports and notices from the vendor, as well as periodic audits of the vendor's voting record and other due diligence.
- ISS shall provide proxy analysis and record keeping services in addition to voting proxies on behalf of CMA in accordance with this Policy.
- On a daily basis CMA shall send to ISS a holdings file detailing each equity holding held in all accounts over which CMA has voting authority. Information regarding equity holdings for international portfolio shall be sent weekly.
- ISS shall receive proxy material information from Proxy Edge or the custodian bank for the account. This shall include issues to be voted upon, together with a breakdown of holdings for CMA accounts. ISS shall then reconcile information it receives from CMA with that it has received from Proxy Edge and custodian banks. Any discrepancies shall be promptly noted and resolved by ISS, with notice to CMA.
- Whenever a vote is solicited, ISS shall execute the vote according to CMA's Voting Guidelines previously delivered by CMA to ISS as set forth in Section IV.A.
- If ISS is not sure how to vote a particular proxy, then ISS will issue a request for voting instructions to CMA over a secure website. CMA personnel shall check this website regularly. The request shall be accompanied by a recommended vote. The recommended vote shall be based upon CMA's understanding of the Voting Guidelines previously delivered to ISS. CMA shall promptly provide ISS with any amendments or modifications to the Voting Guidelines if necessary. CMA shall return a final instruction to vote to ISS, which ISS shall record with Proxy Edge or the custodian bank as our agent.
- Each time that ISS shall send CMA a request to vote the request shall be accompanied by the recommended vote determined in accordance with CMA's Voting Guidelines. ISS shall vote as indicated in the request unless the client has reserved discretion, the Proxy Committee determines that the best interest of clients requires another vote or the proposal is a matter as to which the Proxy Committee affords special, individual consideration under Section IV.C. In such situations ISS shall vote based on the direction of the client or the Proxy Committee, as the case may be. The interests of CMA's Taft Hartley or Socially Responsible clients may impact a proposal that normally should be voted in a certain way. ISS shall inform CMA of all proposals having impact on its Taft Hartley and or Socially Responsible clients. The Proxy Voting Committee shall be consulted before a vote is placed in cases where Taft Hartley or Socially Responsible issues are presented.
- ISS shall have procedures in place to ensure that a vote is cast on every security holding maintained by CMA on which a vote is solicited unless otherwise directed by the Proxy Committee. On a yearly basis, or as required by our clients CMA shall receive a report from ISS detailing CMA's voting for the previous period.
VI. AVAILABILITY OF PROXY POLICY AND VOTING RECORD
A summary disclosure regarding the provisions of this Policy is available in CMA's Form ADV. Upon receipt of a Client's request for more information, CMA will provide to the Client a copy of this Policy and/or how CMA voted proxies for the Client pursuant to this Policy for up to a one-year period.
PART C OTHER INFORMATION
Item 23. Exhibits
(a)(1) Second Amended and Restated Agreement and Declaration of Trust
dated August 10, 2005.(1)
(a)(2) Amendment No. 1 to Second Amended and Restated Agreement and
Declaration of Trust dated August 10, 2005.(1)
(b) Amended and Restated By-laws of Registrant.*
(c) N/A
(d)(1) Form of Management Agreement between Registrant and Columbia
Management Advisors, LLC dated as of March __, 2006. (Columbia
Balanced Fund)*
(d)(2) Form of Management Agreement between Registrant and Columbia
Management Advisors, LLC dated as of March __, 2006. (Columbia
Conservative High Yield Fund)*
(d)(3) Form of Management Agreement between Registrant and Columbia
Management Advisors, LLC dated as of March __, 2006. (Columbia
Greater China Fund)*
(d)(4) Form of Management Agreement between Registrant and Columbia
Management Advisors, LLC dated as of March __, 2006. (Columbia
Mid Cap Growth Fund)*
(d)(5) Form of Management Agreement between Registrant and Columbia
Management Advisors, LLC dated as of March __, 2006. (Columbia
Oregon Intermediate Municipal Bond Fund)*
(d)(6) Form of Management Agreement between Registrant and Columbia
Management Advisors, LLC dated as of March __, 2006. (Columbia
Real Estate Equity Fund)*
(d)(7) Form of Management Agreement between Registrant and Columbia
Management Advisors, LLC dated as of March __, 2006. (Columbia
Small Cap Growth Fund I)*
(d)(8) Form of Management Agreement between Registrant and Columbia
Management Advisors, LLC dated as of March __, 2006. (Columbia
Strategic Investor Fund)*
|
(d)(9) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Technology
Fund)*
(d)(10) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Asset
Allocation Fund, Columbia Small Cap Core Fund, Columbia Small
Company Equity Fund, Columbia Dividend Income Fund, Columbia
Disciplined Value Fund, Columbia Common Stock Fund and Columbia
Large Cap Growth Fund)*
(d)(11) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Utilities
Fund)*
(d)(12) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Income Fund
and Columbia Intermediate Bond Fund)*
(d)(13) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia U.S.
Treasury Index Fund)*
(d)(14) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia World Equity
Fund)*
(d)(15) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Core Bond
Fund)*
(d)(16) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia High Yield
Opportunity Fund)*
(d)(17) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Small Cap
Value Fund I)*
(d)(18) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Growth Stock
Fund and Columbia Young Investor Fund)*
(d)(19) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Tax-Exempt
Insured Fund)*
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(d)(20) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Liberty
Fund)*
(d)(21) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Connecticut
Tax-Exempt Fund, Columbia Massachusetts Tax-Exempt Fund and
Columbia New York Tax-Exempt Fund)*
(d)(22) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Connecticut
Intermediate Municipal Bond Fund)*
(d)(23) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia
Massachusetts Intermediate Municipal Bond Fund)*
(d)(24) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia New Jersey
Intermediate Municipal Bond Fund)*
(d)(25) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia New York
Intermediate Municipal Bond Fund)*
(d)(26) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Rhode Island
Intermediate Municipal Bond Fund)*
(e)(1) Form of Distribution Agreement between the Registrant and Columbia
Management Distributors, Inc. dated as of March __, 2006.*
(e)(2) Form of Shareholder Servicing Plan Implementation Agreement between the
Registrant and Columbia Management Distributors, Inc. dated as
of March __, 2006.*
(f) Not Applicable.
(g) Amended and Restated Master Custodian Agreement between
Registrant and State Street Bank and Trust Company dated
September 19, 2005 - filed as Exhibit (g) in Part C, Item 23 of
Post-Effective Amendment No. 88 to the Registration Statement on
Form N-1A of Columbia Funds Trust XI (File Nos. 33-11351 and
811-4978), filed with the Commission on or about January 27,
2006, and is hereby incorporated by reference and made a part of
this Registration Statement.
|
(h)(1) Form of Administrative Agreement between the Registrant and Columbia
Management Advisors, LLC dated as of March __, 2006.*
(h)(2) Form of Pricing and Bookkeeping Agreement between the Registrant and
Columbia Management Advisors, LLC dated as of March __, 2006.*
(h)(3) Form of Transfer, Dividend Disbursing and Shareholders' Servicing Agent
Agreement between the Registrant, Columbia Management Advisors,
LLC and Columbia Management Services, Inc. dated as of March __,
2006.*
(h)(4)(i) Credit Facility with State Street Bank and Trust Company dated
July 23, 2004 - filed as exhibit (h)(7) in Part C, Item 23 of
Post-Effective Amendment No. 64 to the Registration Statement on
Form N-1A of Columbia Funds Trust II (File Nos. 2-66976 and
811-3009), filed with the Commission on or about July 29, 2004,
and is hereby incorporated by reference and made a part of this
Registration Statement.
(h)(4)(ii) Amendment Agreement No. 1 to the Credit Facility with State
Street Bank and Trust Company dated July 22, 2005 - filed as
Exhibit (h)(7)(ii) in Part C, Item 23 of Post-Effective
Amendment No. 140 to the Registration Statement on Form N-1A of
Columbia Funds Trust III (File Nos. 2-15184 and 811-881), filed
with the Commission on or about July 29, 2005, and is hereby
incorporated by reference and made part of this Registration
Statement.
(h)(4)(iii) Instrument of Adherence to the Credit Facility with State Street
Bank and Trust Company on behalf of CMG Fund Trust, on behalf of
its series CMG Core Bond Fund dated July 22, 2005 - Filed as
Exhibit (h)(7)(ii) in Part C, Item 23 of Post-Effective
Amendment No. 140 to the Registration Statement on Form N-1A of
Columbia Funds Trust III (File Nos. 2-15184 and 811-881), filed
with the Commission on or about July 29, 2005, and is hereby
incorporated by reference and made part of this Registration
Statement.
(h)(4)(iv) Instrument of Adherence to the Credit Facility with State Street
Bank and Trust Company on behalf of SteinRoe Variable Investment
Trust, dated July 22, 2005 - Filed as Exhibit (h)(7)(ii) in Part
C, Item 23 of Post-Effective Amendment No. 140 to the
Registration Statement on Form N-1A of Columbia Funds Trust III
(File Nos. 2-15184 and 811-881), filed with the Commission on or
about July 29, 2005, and is hereby incorporated by reference and
made part of this Registration Statement.
(h)(4)(v) Instrument of Adherence to the Credit Facility with State Street
Bank and Trust Company on behalf of Liberty Variable Investment
Trust, dated July 22, 2005 - filed as Exhibit (h)(7)(ii) in Part
C, Item 23 of Post-Effective
|
Amendment No. 140 to the Registration Statement on Form N-1A of
Columbia Funds Trust III (File Nos. 2-15184 and 811-881), filed
with the Commission on or about July 29, 2005, and is hereby
incorporated by reference and made part of this Registration
Statement.
(h)(4)(vi) Second Amendment Agreement, dated February 3, 2006, to the
Credit Facility with State Street Bank and Trust Company dated
July 22, 2005.*
(h)(4)(vii) Form of Third Amendment Agreement, dated March __, 2006, to the
Credit Facility with State Street Bank and Trust Company dated
July 22, 2005.*
(h)(5) Form of Columbia Tax-Managed Growth Fund (filed under former
name Liberty Tax-Managed Growth Fund) Gift Shares Trust - Filed
as Exhibit (h)(9) to Post-Effective Amendment No. 59 to the
Registration Statement on Form N-1A of Columbia Funds Trust I
(File Nos 2-41251 and 811-2214), filed with the Commission on or
about February 18, 2000, and is hereby incorporated by reference
and made part of this Registration Statement. (Columbia
Tax-Managed Growth Fund)
(h)(6) Form of Indemnification Agreement.*
(i) Opinion of Counsel of Ropes & Gray LLP. (1)
(j)(1)(i) Consent of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP) (Columbia Tax-Exempt Fund)*
(j)(1)(ii) Consent of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP) (Columbia Tax-Exempt Insured Fund)*
(j)(1)(iii) Consent of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP) (Columbia Utilities Fund)*
(j)(1)(iv) Consent of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP) - filed as Exhibit 99(j) to
Post-Effective Amendment No. 20 to the Registration Statement on
Form N-1A of Columbia Balanced Fund, Inc. (File Nos 333-41401
and 811-06338), filed with the Commission on or about December
29, 2005, and is hereby incorporated by reference and made part
of this Registration Statement. (Columbia Balanced Fund)
(j)(1)(v) Consent of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP) - filed as Exhibit 99(j) to
Post-Effective Amendment No. 21 to the Registration Statement on
Form N-1A of Columbia High Yield Fund, Inc. (File Nos 33-65478
and 811-7834), filed with the Commission on or about December
29, 2005, and is hereby
|
incorporated by reference and made part of this Registration
Statement. (Columbia High Yield Fund)
(j)(1)(vi) Consent of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP) - filed as Exhibit 99(j) to
Post-Effective Amendment No. 29 to the Registration Statement on
Form N-1A of Columbia Mid Cap Growth Fund, Inc. (File Nos
002-99207 and 811-04362), filed with the Commission on or about
December 29, 2005, and is hereby incorporated by reference and
made part of this Registration Statement. (Columbia Mid Cap
Growth Fund)
(j)(1)(vii) Consent of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP) - filed as Exhibit 99(j) to
Post-Effective Amendment No. 30 to the Registration Statement on
Form N-1A of Columbia Oregon Intermediate Municipal Bond Fund,
Inc. (File Nos 2-89785 and 811-3983), filed with the Commission
on or about December 29, 2005, and is hereby incorporated by
reference and made part of this Registration Statement.
(Columbia Oregon Intermediate Municipal Bond Fund)
(j)(1)(viii) Consent of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP) - filed as Exhibit 99(j) to
Post-Effective Amendment No. 19 to the Registration Statement on
Form N-1A of Columbia Real Estate Equity Fund, Inc. (File Nos
33-73540 and 811-8256), filed with the Commission on or about
December 29, 2005, and is hereby incorporated by reference and
made part of this Registration Statement. (Columbia Real Estate
Equity Fund)
(j)(1)(ix) Consent of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP) - filed as Exhibit 99(j) to
Post-Effective Amendment No. 17 to the Registration Statement on
Form N-1A of Columbia Small Cap Growth Fund, Inc. (File Nos
333-5863 and 811-7671), filed with the Commission on or about
December 29, 2005, and is hereby incorporated by reference and
made part of this Registration Statement. (Columbia Small Cap
Growth Fund I)
(j)(1)(x) Consent of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP) - filed as Exhibit 99(j) to
Post-Effective Amendment No. 9 to the Registration Statement on
Form N-1A of Columbia Strategic Investor Fund, Inc. (File Nos
333-47058 and 811-10161), filed with the Commission on or about
December 29, 2005, and is hereby incorporated by reference and
made part of this Registration Statement. (Columbia Strategic
Investor Fund)
(j)(1)(xi) Consent of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP) - filed as Exhibit 99(j) to
Post-Effective Amendment No. 9 to the Registration Statement on
Form N-1A of
|
Columbia Technology Fund, Inc. (File Nos 333-47048 and
811-10159), filed with the Commission on or about December 29,
2005, and is hereby incorporated by reference and made part of
this Registration Statement. (Columbia Technology Fund)
(j)(1)(xii) Consent of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP) - filed as Exhibit 99(j) to
Post-Effective Amendment No. 88 to the Registration Statement on
Form N-1A of Columbia Funds Trust XI (File Nos 33-11351 and
811-4978), filed with the Commission on or about January 27,
2006, and is hereby incorporated by reference and made part of
this Registration Statement. (Columbia Young Investor Fund,
Columbia Growth Stock Fund, Columbia Asset Allocation Fund,
Columbia Dividend Income Fund, Columbia Common Stock Fund,
Columbia Large Cap Growth Fund, Columbia Disciplined Value Fund,
Columbia Small Cap Core Fund and Columbia Small Company Equity
Fund)
(j)(1)(xiii) Consent of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP) - filed as Exhibit 99(j) to
Post-Effective Amendment No. 142 to the Registration Statement
on Form N-1A of Columbia Funds Trust III (File Nos 2-15184 and
811-881), filed with the Commission on or about January 27,
2006, and is hereby incorporated by reference and made part of
this Registration Statement. (Columbia Liberty Fund)
(j)(1)(xiv) Consent of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP) - filed as Exhibit 99(j) to
Post-Effective Amendment No. 46 to the Registration Statement on
Form N-1A of Columbia Funds Trust V (File Nos 33-12109 and
811-5030), filed with the Commission on or about February 28,
2006, and is hereby incorporated by reference and made part of
this Registration Statement. (Columbia Connecticut Intermediate
Municipal Bond Fund, Columbia Massachusetts Intermediate
Municipal Bond Fund, Columbia New Jersey Intermediate Municipal
Bond Fund, Columbia New York Municipal Bond Fund, Columbia Rhode
Island Municipal Bond Fund, Columbia Connecticut Tax-Exempt
Fund, Columbia Massachusetts Tax-Exempt Fund and Columbia New
York Tax-Exempt Fund)
(j)(1)(xv) Consent of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP) - filed as Exhibit 99(j) to
Post-Effective Amendment No. 51 to the Registration Statement on
Form N-1A of Columbia Funds Trust VIII (File Nos 33-02633 and
811-4552), filed with the Commission on or about July 29, 2005,
and is hereby incorporated by reference and made part of this
Registration Statement. (Columbia Income Fund and Columbia
Intermediate Bond Fund)
|
(j)(1)(xvi) Consent of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP) - filed as Exhibit 99(j) to
Post-Effective Amendment No. 45 to the Registration Statement on
Form N-1A of Columbia Funds Trust V (File Nos 33-12109 and
811-5030), filed with the Commission on or about July 29, 2005,
and is hereby incorporated by reference and made part of this
Registration Statement. (Columbia U.S. Treasury Index Fund)
(j)(1)(xvii) Consent of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP) - filed as Exhibit 99(j) to
Post-Effective Amendment No. 140 to the Registration Statement
on Form N-1A of Columbia Funds Trust III (File Nos 2-15184 and
811-881), filed with the Commission on or about July 29, 2005,
and is hereby incorporated by reference and made part of this
Registration Statement. (Columbia World Equity Fund)
(j)(1)(xviii) Consent of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP) - filed as Exhibit 99(j) to
Post-Effective Amendment No. 141 to the Registration Statement
on Form N-1A of Columbia Funds Trust III (File Nos 2-15184 and
811-881), filed with the Commission on or about August 26, 2005,
and is hereby incorporated by reference and made part of this
Registration Statement. (Columbia Core Bond Fund)
(j)(1)(xix) Consent of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP) - filed as Exhibit 99(j) to
Post-Effective Amendment No. 78 to the Registration Statement on
Form N-1A of Columbia Funds Trust I (File Nos 2-41251 and
811-2214), filed with the Commission on or about September 28,
2005, and is hereby incorporated by reference and made part of
this Registration Statement. (Columbia High Yield Opportunity
Fund)
(j)(1)(xx) Consent of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP) - filed as Exhibit 99(j) to
Post-Effective Amendment No. 15 to the Registration Statement on
Form N-1A of Columbia Small Cap Growth Fund, Inc. (File Nos
333-5863 and 811-7671), filed with the Commission on or about
December 29, 2005, and is hereby incorporated by reference and
made part of this Registration Statement. (Columbia Small Cap
Value Fund I)
(j)(2) Consent of Morningstar, Inc. (3)
(k) Not Applicable.
(l) Not Applicable.
|
(m) Distribution Plan between the Registrant and Columbia Management
Distributors, Inc. dated as of March 27, 2006.*
(n)(1) Multiple Class Plan pursuant to Rule 18f-3, dated July 31, 2002,
as amended January 29, 2003 and September 30, 2003 - filed as
Exhibit 99(n) to Post-Effective Amendment No. 17 to the
Registration Statement on Form N-1A of Balanced Fund, Inc. (File
Nos 33-41401 and 811-6338), filed with the Commission on or
about October 14, 2003, and is hereby incorporated by reference
and made part of this Registration Statement. (Columbia Common
Stock Fund, Columbia Real Estate Equity Fund, Columbia
Technology Fund, Columbia Balanced Fund, Columbia Oregon
Intermediate Municipal Bond Fund, Columbia High Yield
Opportunity Fund, Columbia Strategic Investor Fund, Columbia Mid
Cap Growth Fund and Columbia Dividend Fund)
(n)(2) Plan pursuant to Rule 18f-3(d), effective April 22, 1996, as
amended and restated December 12, 2001, July 26, 2002, November
1, 2003 and November 1, 2003 and February 17, 2004 filed as as
Exhibit (n) in Part C, Item 23 of Post-Effective Amendment No.
132 to the Registration Statement on Form N-1A of Columbia Funds
Trust III (File Nos. 2-15184 and 811-881), filed with the
Commission on or about February 25, 2004, and is hereby
incorporated by reference and made a part of this Registration
Statement. (Columbia Greater China Fund, Columbia Liberty Fund,
Columbia World Equity Fund, Columbia Core Bond Fund, Columbia
Tax-Exempt Insured Fund, Columbia Utilities Fund, Columbia
Connecticut Intermediate Municipal Bond Fund, Columbia
Massachusetts Intermediate Municipal Bond Fund, Columbia New
Jersey Intermediate Municipal Bond Fund, Columbia New York
Municipal Bond Fund, Columbia Rhode Island Intermediate Bond
Fund, Columbia Connecticut Tax-Exempt Fund, Columbia
Massachusetts Tax-Exempt Fund, Columbia New York Tax-Exempt
Fund, Columbia Small Cap Value Fund I and Columbia U.S. Treasury
Index Fund)
(n)(3) Plan pursuant to Rule 18f-3(d), amended and restated as of
November 1, 2003 - filed as Exhibit 99(n) to Post-Effective
Amendment No. 85 to the Registration Statement on Form N-1A of
Columbia Funds Trust XI (File Nos 33-11351 and 811-4978) filed
with the Commission on or about February 25, 2004, and is hereby
incorporated by reference and made part of this Registration
Statement. (Columbia Income Fund, Columbia Intermediate Bond
Fund, Growth Stock Fund, Young Investor Fund, Asset Allocation
Fund, Columbia Disciplined Value Fund, Columbia Small Cap Core
Fund and Columbia Small Company Equity Fund)
(o) Not Applicable.
(p)(1) Code of Ethics of the Funds as revised January 3, 2006.*
|
(p)(2) Code of Ethics of Columbia Management Advisors, LLC and Columbia
Management Distributors, Inc. dated January 1, 2006 - filed as
Exhibit (p)(2) in Part C, Item 23 of Post-Effective Amendment
No. 88 to the Registration Statement on Form N-1A of Columbia
Funds Trust XI (File Nos. 33-11351 and 811-4978), filed with the
Commission on or about January 27, 2006 and is hereby
incorporated by reference and made a part of this Registration
Statement.
|
Power of Attorney for: Douglas A. Hacker, Janet Langford Kelly, Richard W. Lowry, William E. Mayer, Charles R. Nelson, John J. Neuhauser, Patrick J. Simpson, Thomas E. Stitzel, Thomas C. Theobald, Anne-Lee Verville and Richard L. Woolworth - filed in Part C, Item 24(2) of Post-Effective Amendment No. 31 to the Registration Statement on Form N-1A of Columbia Funds Trust VI (File Nos. 33-45117 and 811-6529), filed with the Commission on or about October 27, 2005, and is hereby incorporated by reference and made a part of this Registration Statement
* Filed herewith
(1) Incorporated by reference to Post-Effective Amendment No. 40 to Form N-1A filed on or about September 16, 2005.
(2) Incorporated by reference to Post-Effective Amendment No. 21 to Form N-1A filed on or about August 30, 1996.
Item 24. Persons Controlled by or under Common Control with Registrant
None
Item 25. Indemnification
Article Five of the Bylaws of Registrant ("Article Five") provides that Registrant shall indemnify each of its trustees and officers (including persons who serve at the Registrant's request as directors, officers or trustees of another organization in which the Registrant has any interest as a shareholder, creditor or otherwise) who are not employees or officers of any investment adviser to the Registrant or any affiliated person thereof, and its chief compliance officer, regardless of whether such person is an employee or officer of any investment adviser to the Trust or any affiliated person thereof, and may indemnify each of its trustees and officers (including persons who serve at the Registrant's request as directors, officers or trustees of another organization in which the Registrant has any interest as a shareholder, creditor or otherwise) who are employees or officers of any investment adviser to the Registrant or any affiliated person thereof ("Covered Persons") under specified circumstances.
Section 17(h) of the Investment Company Act of 1940 ("1940 Act") provides that neither the Agreement and Declaration of Trust nor the By-Laws of Registrant, nor any other instrument pursuant to which Registrant is organized or administered, shall contain any provision which protects or purports to protect any trustee or officer of Registrant against any liability to Registrant or its shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office. In accordance with Section 17(h) of the 1940 Act, Article Five shall not protect any person against any liability to Registrant or its shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office. To the extent required under the 1940 Act, (i) Article Five does not protect any person against any liability to Registrant or to its shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office; (ii) in the absence of a final decision on the merits by a court or other body before whom a proceeding was brought that a Covered Person was not liable by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office, no indemnification is permitted under Article Five unless a determination that such person was not so liable is made on behalf of Registrant by (a) the vote of a majority of the trustees who are neither "interested persons" of Registrant, as defined in Section 2(a)(19) of the 1940 Act, nor parties to the proceeding ("disinterested, non-party trustees"), or (b) an independent legal counsel as expressed in a written opinion; and (iii) Registrant will not advance attorneys' fees or other expenses incurred by a Covered Person in connection with a civil or criminal action, suit or proceeding unless Registrant receives an undertaking by or on behalf of the Covered Person to repay the advance (unless it is ultimately determined that he is entitled to indemnification) and (a) the Covered Person provides security for his undertaking, or (b) Registrant is insured against losses arising by reason of any lawful advances, or (c) a majority of the disinterested, non-party trustees of Registrant or an independent legal counsel as expressed in a written opinion, determine, based on a review of readily-available facts (as opposed to a full trial-type inquiry), that there is reason to believe that the Covered Person ultimately will be found entitled to indemnification.
Any approval of indemnification pursuant to Article Five does not prevent the recovery from any Covered Person of any amount paid to such Covered Person in accordance with Article Five as indemnification if such Covered Person is subsequently adjudicated by a court of competent jurisdiction not to have acted in good faith in the reasonable belief that such Covered Person's action was in, or not opposed to, the best interests of Registrant or to have been liable to Registrant or its shareholders by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of such Covered Person's office.
Article Five also provides that its indemnification provisions are not exclusive. The Trust has also entered into Indemnification Agreements with each of its Trustees and its chief compliance officer, a copy of which has been filed as an exhibit to this
registration statement, establishing certain procedures with respect to the indemnification described above.
Item 26. Business and Other Connections of Investment Adviser
Information regarding the businesses of Columbia Management Advisors, LLC and its officers is set forth in the Prospectuses and in the Statement of Additional Information and is incorporated herein by reference. The business and other connections of the officers and directors of Columbia Management Advisors, LLC are also listed on the Form ADV of Columbia Management Advisors, LLC as currently on file with the Commission. (File No. 801-50372).
Item 27. Principal Underwriter
(a) Columbia Management Distributors, Inc. (CMD), a subsidiary of Columbia Management Advisors, LLC, is the Registrant's principal underwriter. CMD acts in such capacity for each series of Liberty Variable Investment Trust, SteinRoe Variable Investment Trust, Columbia Funds Series Trust, Columbia Funds Series Trust I, Columbia Funds Institutional Trust, Columbia Acorn Trust, Wanger Advisors Trust and Nations Separate Account Trust.
(2) (3)
(1) Position and Offices Positions and
Name and Principal with Principal Offices with
Business Address* Underwriter Registrant
------------------ -------------------- -------------
Ahmed, Yakob V.P. None
Aldi, Andrew V.P. None
Anderson, Judith V.P. None
Ash, James V.P. None
Banks, Keith Director None
Ballou, Rick Sr. V.P. None
Bartlett, John Managing Director None
Berretta, Frederick R. Director and None
President,
Institutional
Distribution
Bozek, James Sr. V.P. None
Brantley, Thomas Sr. V.P.-Tax None
Brown, Beth Sr. V.P. None
|
Claiborne, Douglas Sr. V.P. None
Climer, Quentin V.P. None
Conley, Brook V.P. None
Davis, W. Keith Sr. V.P.-Tax None
DeFao, Michael Chief Legal Officer None
Desilets, Marian V.P. None
Devaney, James Sr. V.P. None
Dolan, Kevin V.P. None
Donovan, M. Patrick Chief Compliance None
Officer
Doyle, Matthew V.P. None
Emerson, Kim P. Sr. V.P. None
Feldman, David Managing Director None
Feloney, Joseph Sr. V.P. None
Ferullo, Jeanne V.P. None
Fisher, James V.P. None
Ford, David V.P. None
Froude, Donald Director and None
President
Intermediary
Distribution
Gellman, Laura D. Conficts of Interest None
Officer
Gentile, Russell V.P. None
Goldberg, Matthew Sr. V.P. None
Gubala, Jeffrey V.P. None
Guenard, Brian V.P. None
Iudice, Jr., Philip Treasurer and None
Chief Financial
Officer
Lynch, Andrew Managing Director None
Lynn, Jerry V.P. None
|
Marcelonis, Sheila V.P. None
Martin, William W. Operational Risk None
Officer
Miller, Anthony V.P. None
Miller, Gregory M. V.P. None
Moberly, Ann R. Sr. V.P. None
Morse, Jonathan V.P. None
Mroz, Gregory S. Sr. V.P.-Tax None
Nickodemus, Paul V.P. None
Nigrosh, Diane J. V.P. None
Noack, Robert W. V.P None
Owen, Stephanie V.P. None
Penitsch, Marilyn V.P. None
Piken, Keith Sr. V.P. None
Pryor, Elizabeth A. Secretary None
Ratto, Gregory V.P. None
Reed, Christopher B. Sr. V.P. None
Ross, Gary Sr. V.P. None
Sayler, Roger Director and None
President
Scully-Power, Adam V.P. None
Seller, Gregory V.P. None
Shea, Terence V.P. None
Sideropoulos, Lou Sr. V.P. None
Studer, Eric Sr. V.P. None
Unckless, Amy L. Corporate Ombudsman None
Waldron, Thomas V.P. None
Walsh, Brian V.P. None
Wess, Valerie Sr. V.P. None
|
Wilson, Christopher Sr. V.P. President Winn, Keith Sr. V.P. None Yates, Susan V.P. None |
Item 28. Location of Accounts and Records
Person maintaining physical possession of accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the Rules thereunder include Registrant's Secretary; Registrant's investment adviser, Columbia Management Advisors, Inc.; Registrant's administrator, Columbia Management Advisors, Inc.; Registrant's principal underwriter, Columbia Management Distributors, Inc. (formerly named Columbia Funds Distributor, Inc.); Registrant's transfer and dividend disbursing agent, Columbia Management Services, Inc. (formerly named Columbia Funds Services, Inc.); and the Registrant's custodian, State Street Bank and Trust Company. The address for each person except the Registrant's investment advisor/administrator and custodian is One Financial Center, Boston, MA 02111. The Registrant's investment advisor's/administrator's address is 100 Federal Street, Boston, MA 02110. The Registrant's custodian's address is located at 2 Avenue De Lafayette, Boston, MA 02111-2900.
Item 29. Management Services
See Item 5, Part A and Item 16, Part B
Item 30. Undertakings
Not Applicable
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, Columbia Funds Institutional Trust, certifies that this amendment to the Registration Statement meets all of the requirements for effectiveness under Rule 485(b) under the Securities Act of 1933 and the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston and State of Massachusetts on the 24th day of March, 2006.
COLUBMIA FUNDS INSTITUTIONAL TRUST
By /S/ CHRISTOPHER L. WILSON ------------------------------------- Christopher L. Wilson 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 24th day of March, 2006 by the following persons in the capacities and on the date indicated.
SIGNATURES TITLE DATE ---------- ----- ---- /s/ CHRISTOPER L. WILSON President (chief March 24, 2006 ------------------------------------- executive officer) Christopher L. Wilson /s/ J. KEVIN CONNAUGHTON Treasurer March 24, 2006 ------------------------------------- (principal financial J. Kevin Connaughton officer) /s/ MICHAEL G. CLARKE Chief Accounting Officer March 24, 2006 ------------------------------------- (principal accounting Michael G. Clarke officer) |
(iii) Trustees:
* DOUGLAS A. HACKER Trustee ------------------------------------- Douglas A. Hacker * JANET LANGFORD KELLY Trustee ------------------------------------- Janet Langford Kelly * RICHARD W. LOWRY Trustee ------------------------------------- Richard W. Lowry * WILLIAM E. MAYER Trustee ------------------------------------- William E. Mayer * CHARLES R. NELSON Trustee ------------------------------------- Charles R. Nelson * JOHN J. NEUHAUSER Trustee ------------------------------------- John J. Neuhauser * PATRICK J. SIMPSON Trustee ------------------------------------- Patrick J. Simpson * THOMAS E. STITZEL Trustee ------------------------------------- Thomas E. Stitzel * THOMAS C. THEOBALD Trustee ------------------------------------- Thomas C. Theobald * ANN-LEE VERVILLE Trustee ------------------------------------- Anne-Lee Verville * RICHARD L. WOOLWORTH Trustee ------------------------------------- Richard L. Woolworth |
*By: /S/ Peter T. Fariel
--------------------------------
Peter T. Fariel
Attorney-In-Fact
March 24, 2006
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EXHIBIT INDEX
(b) Amended and Restated By-laws of Registrant.*
(d)(1) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Balanced
Fund)*
(d)(2) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Conservative
High Yield Fund)*
(d)(3) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Greater China
Fund)*
(d)(4) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Mid Cap Growth
Fund)*
(d)(5) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Oregon
Intermediate Municipal Bond Fund)*
(d)(6) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Real Estate
Equity Fund)*
(d)(7) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Small Cap
Growth Fund I)*
(d)(8) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Strategic
Investor Fund)*
(d)(9) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Technology
Fund)*
(d)(10) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Asset
Allocation Fund, Columbia Small Cap Core Fund, Columbia Small
Company Equity Fund, Columbia Dividend Income Fund, Columbia
Disciplined Value Fund, Columbia Common Stock Fund and Columbia
Large Cap Growth Fund)*
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(d)(11) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Utilities
Fund)*
(d)(12) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Income Fund
and Columbia Intermediate Bond Fund)*
(d)(13) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia U.S. Treasury
Index Fund)*
(d)(14) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia World Equity
Fund)*
(d)(15) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Core Bond
Fund)*
(d)(16) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia High Yield
Opportunity Fund)*
(d)(17) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Small Cap
Value Fund I)*
(d)(18) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Growth Stock
Fund and Columbia Young Investor Fund)*
(d)(19) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Tax-Exempt
Insured Fund)*
(d)(20) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Liberty Fund)*
(d)(21) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Connecticut
Tax-Exempt Fund, Columbia Massachusetts Tax-Exempt Fund and
Columbia New York Tax-Exempt Fund)*
(d)(22) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Connecticut
Intermediate Municipal Bond Fund)*
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(d)(23) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Massachusetts
Intermediate Municipal Bond Fund)*
(d)(24) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia New Jersey
Intermediate Municipal Bond Fund)*
(d)(25) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia New York
Intermediate Municipal Bond Fund)*
(d)(26) Form of Management Agreement between Registrant and Columbia Management
Advisors, LLC dated as of March __, 2006. (Columbia Rhode Island
Intermediate Municipal Bond Fund)*
(e)(1) Form of Distribution Agreement between the Registrant and Columbia
Management Distributors, Inc. dated as of March __, 2006.*
(e)(2) Form of Shareholder Servicing Plan Implementation Agreement between the
Registrant and Columbia Management Distributors, Inc. dated as of
March __, 2006.*
(h)(1) Form of Administrative Agreement between the Registrant and Columbia
Management Advisors, LLC dated as of March __, 2006.*
(h)(2) Form of Pricing and Bookkeeping Agreement between the Registrant and
Columbia Management Advisors, LLC dated as of March __, 2006.*
(h)(3) Form of Transfer, Dividend Disbursing and Shareholders' Servicing Agent
Agreement between the Registrant, Columbia Management Advisors,
LLC and Columbia Management Services, Inc. dated as of March __,
2006.*
(h)(4)(vi) Second Amendment Agreement, dated February 3, 2006, to the Credit
Facility with State Street Bank and Trust Company dated July 22,
2005.*
(h)(4)(vii) Form of Third Amendment Agreement, dated March __, 2006, to the
Credit Facility with State Street Bank and Trust Company dated
July 22, 2005.*
(h)(6) Form of Indemnification Agreement.*
(j)(1)(i) Consent of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP) (Columbia Tax-Exempt Fund)*
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(j)(1)(ii) Consent of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP) (Columbia Tax-Exempt Insured Fund)*
(j)(1)(iii) Consent of Independent Registered Public Accounting Firm
(PricewaterhouseCoopers LLP) (Columbia Utilities Fund)*
(m) Form of Distribution Plan between the Registrant and Columbia Management
Distributors, Inc. dated as of March __, 2006.*
(p)(1) Code of Ethics of the Funds as revised January 3, 2006.*
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Exhibit (b)
AMENDED AND RESTATED
BYLAWS
OF
COLUMBIA FUNDS SERIES TRUST I
ARTICLE 1
AGREEMENT AND DECLARATION
OF TRUST AND PRINCIPAL OFFICE
1.1 Agreement and Declaration of Trust. These Amended and Restated Bylaws shall be subject to the Second Amended and Restated Agreement and Declaration of Trust, as from time to time in effect (the "Declaration of Trust"), of Columbia Funds Series Trust I (the "Trust"), the Massachusetts business trust established by the Declaration of Trust.
1.2 Principal Office of the Trust. The principal office of the Trust shall be located in Boston, Massachusetts.
ARTICLE 2
MEETINGS OF TRUSTEES
2.1 Regular Meetings. Regular meetings of the Trustees may be held without call or notice at such places and at such times as the Trustees may from time to time determine, provided that notice of the first regular meeting following any such determination shall be given to absent Trustees.
2.2 Special Meetings. Special meetings of the Trustees may be held, at any time and at any place designated in the call of the meeting, when called by the Chairman of the Board, if any, the President, the Treasurer, any Vice President, the Secretary or the Assistant Secretary or by two or more Trustees, sufficient notice thereof being given to each Trustee by the Secretary or an Assistant Secretary or by the officer or the Trustees calling the meeting.
2.3 Notice. It shall be sufficient notice to a Trustee of a special meeting to send notice by mail or courier at least forty-eight hours or by telegram, facsimile or other electronic means at least twenty-four hours before the meeting addressed to the Trustee at his or her usual or last known business or residence address or to give notice to him or her by overnight mail, telegram, facsimile or other electronic means or delivered personally or by telephone at least twenty-four hours before the meeting. Notice of a meeting need not be given to any Trustee if a written waiver of notice, executed by him or her before or after the meeting, is filed with the records of the meeting, or to any Trustee who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him or her. Except as required by law, neither notice of a meeting nor a waiver of a notice need specify the purposes of the meeting.
2.4 Quorum. At any meeting of the Trustees a majority of the Trustees then in office shall constitute a quorum. Any meeting may be adjourned from time to time by a majority of the votes cast upon the question, whether or not a quorum is present, and the meeting may be held as adjourned without further notice to any Trustee who was present at the time of such adjournment; notice of the time and place of any adjourned session of such meeting shall, however, be given in the manner provided in Section 2.3 of these Bylaws to each Trustee who was not present at the time of such adjournment.
2.5 Action by Vote. When a quorum is present at any meeting, a majority of Trustees present may take any action, except when a larger vote is expressly required by law, by the Declaration of Trust or by these Bylaws.
2.6 Action by Writing. Except as required by law, any action required or permitted to be taken at any meeting of the Trustees may be taken without a meeting if a majority of the Trustees (or such larger proportion thereof as shall be required by any express provision of the Declaration of Trust or these Bylaws) consent to the action in writing and such written consents are filed with the records of the meetings of the Trustees. Such consent shall be treated for all purposes as a vote taken at a meeting of Trustees.
2.7 Presence through Communications Equipment. Except as required by law, the Trustees may participate in a meeting of Trustees by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time, and participation by such means shall constitute presence in person at a meeting.
ARTICLE 3
OFFICERS
3.1 Enumeration; Qualification. The officers of the Trust shall be a President, a Treasurer, a Secretary and such other officers, if any, as the Trustees from time to time may in their discretion elect. The Trust may also have such agents as the Trustees from time to time may in their discretion appoint. If a Chairman of the Board is elected, he or she shall be a Trustee and may but need not be a Shareholder; and any officer of the Trust may be but not need be a Trustee or Shareholder. Any two or more offices may be held by the same person.
3.2 Election and Tenure. The President, the Treasurer, the Secretary, the Chairman of the Board (if any) and such other officers, if any, as the Trustees may in their discretion from time to time elect shall each be elected by the Trustees to serve until his or her successor is elected or qualified, or until he or she sooner dies, resigns, is removed or becomes disqualified. Each officer, and the Chairman of the Board, if any, shall hold office and each agent shall retain authority at the pleasure of the Trustees.
3.3 Powers. Subject to the other provisions of these Bylaws, each officer shall have, in addition to the duties and powers herein and in the Declaration of Trust set forth, such duties and powers as are commonly incident to the office occupied by him or her as if the Trust were
organized as a Massachusetts business corporation and such other duties and powers as the Trustees may from time to time designate.
3.4 President and Vice Presidents. The President shall have the duties and powers specified in these Bylaws and shall have such other duties and powers as may be determined by the Trustees.
Any Vice Presidents shall have the duties and powers specified in these Bylaws and shall have such other duties and powers as shall be designated from time to time by the Trustees.
3.5 Chief Executive Officer. The Chief Executive Officer of the Trust shall be the Chairman of the Board, the President or such other officer as is designated by the Trustees and shall, subject to the control of the Trustees, have general charge and supervision of the business of the Trust and, except as the Trustees shall otherwise determine or such Chief Executive Officer shall designate, preside at all meetings of the Shareholders and of the Trustees. If no such designation is made, the President shall be the Chief Executive Officer.
3.6 Chairman of the Board. If a Chairman of the Board of Trustees is elected, he or she shall have the duties and powers specified in these Bylaws and shall have such other duties and powers as may be determined by the Trustees.
3.7 Treasurer; Assistant Treasurer. The Treasurer shall be the chief financial and accounting officer of the Trust, and shall, subject to the provisions of the Declaration of Trust and to any arrangement made by the Trustees with a custodian, investment adviser or manager, administrator or transfer, shareholder servicing or similar agent, be in charge of the valuable papers, books of account and accounting records of the Trust, and shall have such other duties and powers as may be designated from time to time by the Trustees or by the President.
Any Assistant Treasurer shall have the duties and powers specified in these Bylaws and may perform such duties of the Treasurer as the Treasurer or the Trustees may assign, and, in the absence of the Treasurer, an Assistant Treasurer may perform all of the duties of the Treasurer.
3.8 Secretary; Assistant Secretary. The Secretary or an Assistant Secretary shall record all proceedings of the Shareholders and the Trustees in books to be kept therefor, which books or a copy thereof shall be kept at the principal office of the Trust. In the absence of the Secretary and any Assistant Secretary from any meeting of the Shareholders or Trustees, a temporary secretary chosen at such meeting shall record the proceedings thereof in the aforesaid books.
Any Assistant Secretary shall have the duties and powers specified in these Bylaws and may perform such duties of the Secretary as the Secretary or the Board of Directors may assign, and, in the absence of the Secretary, an Assistant Secretary may perform all the duties of the Secretary.
3.9 Resignations and Removals. Any officer may resign at any time by written instrument signed by him or her and delivered to the President or the Secretary or to a meeting of the Trustees. Such resignation shall be effective upon receipt unless specified to be effective at some other time. The Trustees may remove any officer with or without cause. Except to the
extent expressly provided in a written agreement with the Trust, no officer resigning and no officer removed shall have any right to any compensation for any period following his or her resignation or removal, or any right to damages on account of such removal.
ARTICLE 4
COMMITTEES
4.1 Quorum; Voting. Except as provided below or as otherwise specifically provided in the resolutions constituting a Committee of the Trustees and providing for the conduct of its meetings or in the charter of such committee adopted by the Trustees, a majority of the members of any Committee of the Trustees shall constitute a quorum for the transaction of business, and any action of such a Committee may be taken at a meeting by a vote of a majority of the members present (a quorum being present) or evidenced by one or more writings signed by such a majority. Members of a Committee may participate in a meeting of such Committee by means of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other at the same time and participation by such means shall constitute presence in person at a meeting.
Except as specifically provided in the resolutions constituting a Committee of the Trustees and providing for the conduct of its meetings or in the charter of such committee adopted by the Trustees, Article 2, Section 2.3 of these Bylaws relating to special meetings of the Trustees shall govern the notice requirements for Committee meetings, provided, however, that such notice need be given only to the Trustees who are members of such Committee.
ARTICLE 5
INDEMNIFICATION
5.1 Trustees, Officers, etc. The Trust shall indemnify each of its Trustees and officers (including persons who serve at the Trust's request as directors, officers or Trustees of another organization in which the Trust has any interest as a shareholder, creditor or otherwise) who are not employees or officers of any investment adviser to the Trust or any affiliated person thereof and its chief compliance officer, regardless of whether such person is an employee or officer of any investment adviser to the Trust or any affiliated person thereof, and may indemnify each of its other Trustees and officers (including persons who serve at the Trust's request as directors, officers or Trustees of another organization in which the Trust has any interest as a shareholder, creditor or otherwise) (i.e., those who are employees or officers of any investment adviser to the Trust or any affiliated person thereof) (hereinafter referred to as a "Covered Person") against all liabilities and expenses, including but not limited to amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees reasonably incurred by any Covered Person, in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, before any court or administrative or legislative body, in which such Covered Person may be or may have been involved as a party or otherwise or with which such Covered Person may be or may have been threatened, while in office or thereafter, by reason of any alleged act or omission as a Trustee or officer or by reason of his or her being or having been
such a Covered Person except with respect to any matter as to which such Covered Person shall have been finally adjudicated in any such action, suit or other proceeding not to have acted in good faith in the reasonable belief that such Covered Person's action was in the best interests of the Trust and except that no Covered Person shall be indemnified against any liability to the Trust or its Shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office. Expenses, including counsel fees, so incurred by any such Covered Person (but excluding amounts paid in satisfaction of judgments, in compromise or as fines or penalties) shall be paid from time to time by the Trust in advance of the final disposition of any such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Covered Person to repay amounts so paid to the Trust if it is ultimately determined that indemnification of such expenses is not authorized under this Article, provided, however, that either (a) such Covered Person shall have provided appropriate security for such undertaking, (b) the Trust shall be insured against losses arising from any such advance payments or (c) either a majority of the disinterested Trustees acting on the matter (provided that a majority of the disinterested Trustees then in office act on the matter), or independent legal counsel in a written opinion, shall have determined, based upon a review of readily available facts (as opposed to a full trial type inquiry) that there is reason to believe that such Covered Person will be found entitled to indemnification under this Article. For purposes of the determination or opinion referred to in clause (c), the majority of disinterested Trustees acting on the matter or independent legal counsel, as the case may be, shall afford the Covered Person a rebuttable presumption that the Covered Person has not engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office.
5.2 Compromise Payment. As to any matter disposed of (whether by a
compromise payment, pursuant to a consent decree or otherwise) without an
adjudication by a court, or by any other body before which the proceeding was
brought, that such Covered Person has not acted in good faith in the reasonable
belief that such Covered Person's action was in the best interests of the Trust
or is liable to the Trust or its Shareholders by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of his or her office, indemnification shall be provided if (a) approved,
after notice that it involves such indemnification, by at least a majority of
the disinterested Trustees acting on the matter (provided that a majority of the
disinterested Trustees then in office act on the matter) upon a determination,
based upon a review of readily available facts (as opposed to a full trial type
inquiry) that such Covered Person has acted in good faith in the reasonable
belief that such Covered Person's action was in the best interests of the Trust
and is not liable to the Trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office, or (b) there has been obtained an
opinion in writing of independent legal counsel, based upon a review of readily
available facts (as opposed to a full trial type inquiry) to the effect that
such Covered Person appears to have acted in good faith in the reasonable belief
that such Covered Person's action was in the best interests of the Trust and
that such indemnification would not protect such Covered Person against any
liability to the Trust to which such Covered Person would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office. Any
approval pursuant to this Section shall not prevent the recovery from any
Covered Person of any amount paid to such Covered Person in accordance with this
Section as indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction not to have acted in good faith in the reasonable belief that his or her action was in the best interests of the Trust or to have been liable to the Trust or its Shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office.
5.3 Indemnification Not Exclusive. The right of indemnification hereby provided shall not be exclusive of or affect any other rights to which any such Covered Person may be entitled. As used in this Article 5, the term "Covered Person" shall include such person's heirs, executors and administrators; and a "disinterested Trustee" is a Trustee who is not an "interested person" of the Trust as defined in Section 2(a)(19) of the Investment Company Act of 1940 (or exempted from being an "interested person" by any rule, regulation or order of the Securities and Exchange Commission) and against whom none of the actions, suits or other proceedings in question or another action, suit or other proceeding on the same or similar grounds is then or has been pending. Nothing contained in this Article shall affect any rights to indemnification to which personnel of the Trust, other than Trustees and officers, and other persons may be entitled by contract or otherwise under law, nor the power of the Trust to purchase and maintain liability insurance on behalf of any such person.
ARTICLE 6
REPORTS
6.1 General. The Trustees and officers shall render reports at the time and in the manner required by the Declaration of Trust or any applicable law. Officers shall render such additional reports as they may deem desirable or as may from time to time be required by the Trustees.
ARTICLE 7
SEAL
7.1 General. The seal of the Trust shall consist of a flat-faced die with the word "Massachusetts," together with the name of the Trust and the year of its organization cut or engraved thereon, but, unless otherwise required by the Trustees, the seal shall not be necessary to be placed on, and its absence shall not impair the validity of, any document, instrument or other paper executed and delivered by or on behalf of the Trust.
ARTICLE 8
EXECUTION OF PAPERS
8.1 General. Except as the Trustees may generally or in particular cases authorize the execution thereof in some other manner, all checks, notes, drafts and other obligations and all registration statements and amendments thereto and all applications and amendments thereto to the Securities and Exchange Commission shall be signed by the Chairman of the Board, if any, the President, any Vice President, the Treasurer, any Assistant Treasurer, the Secretary, any
Assistant Secretary or any of such other officers or agents as shall be designated for that purpose by a vote of the Trustees.
ARTICLE 9
PROVISIONS RELATING TO THE
CONDUCT OF THE TRUST'S BUSINESS
9.1 Determination of Net Income and Net Asset Value Per Share. The Trustees or any officer or officers or agent or agents of the Trust designated from time to time for this purpose by the Trustees shall determine at least once daily the net income and the value of all the assets attributable to any class or series of shares of the Trust on each day on which the New York Stock Exchange is open for unrestricted trading and at such other times as the Trustees shall designate. The net income and net asset value per share of each class and each series of shares of the Trust shall be determined in accordance with the Investment Company Act of 1940 and the rules and regulations thereunder and any related procedures and/or policies of the Trust, or an officer or officers or agent or agents, as aforesaid, as adopted or authorized by the Trustees from time to time.
9.2 Voting Power. Each whole share (or fractional share) outstanding on the record date shall be entitled to a number of votes on any matter on which it is entitled to vote equal to the net asset value of the share (or fractional share) in U. S. dollars determined at the close of business on the record date (for example, a share having a net asset value of $10.50 would be entitled to 10.5 votes).
ARTICLE 10
AMENDMENTS TO THE BYLAWS
10.1 General. These Bylaws may be amended or repealed, in whole or in part, by a majority of the Trustees then in office at any meeting of the Trustees, or by written consent in lieu thereof.
ARTICLE 11
MISCELLANEOUS
11.1 Proxy Instructions Transmitted by Telephonic or Electronic Means. The placing of a Shareholder's name on a proxy pursuant to telephonic or electronically transmitted instructions obtained pursuant to procedures reasonably designed to verify that such instructions have been authorized by such Shareholder shall constitute execution of such proxy by or on behalf of such Shareholder.
Exhibit (d)(1)
FORM OF
COLUMBIA BALANCED FUND
INVESTMENT ADVISORY CONTRACT
This Agreement is made as of the __ day of March, 2006 between COLUMBIA FUNDS SERIES TRUST I (the "Trust"), on behalf of its COLUMBIA BALANCED FUND series, (the "Fund") and COLUMBIA MANAGEMENT ADVISORS, LLC (the "Adviser"). The Trust is registered as an open-end investment company pursuant to the Investment Company Act of 1940 (the "Act"). The Adviser is registered as an investment adviser pursuant to the Investment Advisers Act of 1940. This Agreement relates to services to be performed by the Adviser with respect to the Fund.
The parties agree as follows:
1. DUTIES OF ADVISER. The Adviser shall regularly provide the Fund with research, advice, and supervision with respect to investment matters and shall furnish continuously an investment program, recommend what securities shall be purchased or sold and what portion of the Fund's assets shall be held invested or uninvested, subject always to the provisions of the Act and the Fund's Articles of Incorporation and Bylaws, and amendments thereto, which amendments shall be furnished to the Adviser by the Fund. The Adviser shall take any steps necessary or appropriate to carry out its decisions in regard to the foregoing matters and the general conduct of the business of the Fund. The Adviser may take into consideration receipt of research and statistical information and other services rendered to the Fund in the allocation of commissions from portfolio brokerage business.
2. ALLOCATION OF CHARGES AND EXPENSES.
(a) The Adviser shall pay or reimburse the Fund for payments made by the Fund for all executive salaries and executive expenses, office rent of the Fund, ordinary office expenses (other than the expense of clerical services relating to the administration of the Fund), and for any other expenses that, if otherwise borne by the Fund, would cause the Fund to "be deemed to be acting as a distributor of securities of which it is the issuer, other than through an underwriter," pursuant to Rule 12b-1 under the Act. The Adviser shall provide investment advisory, statistical, and research facilities and all clerical services relating to research, statistical, and investment work with respect to the Fund.
(b) The Adviser shall not be required to pay any expenses of the Fund other than those enumerated in this Agreement. The Fund will assume all other costs, including the cost of its custodian, legal, auditing, and accounting expenses, disinterested directors' 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 shares, expenses of registering or qualifying shares for sale, transfer taxes, and all expenses of preparing the Fund's registration statement and prospectus, and the cost of printing and delivering to shareholders prospectuses and reports.
(c) At the request of the Fund, the Adviser shall pay all or a portion of the direct and indirect costs, charges and expenses of or related to the Fund's business and operations. The Adviser will submit to the Fund on a monthly basis a statement setting forth the cost, charges and expenses paid by the Adviser for the previous month. Upon receipt of the statement, the Fund shall promptly reimburse the Adviser for the costs, charges and expenses.
3. COMPENSATION OF THE ADVISER. For the services to be rendered, the facilities to be furnished, and the payments to be made by the Adviser, as provided in Sections 1 and 2 hereof, for each calendar month the Fund shall pay to the Adviser a fee computed at the annual rate of .50 of 1 percent of daily net assets. If the asset value is not required to be determined on any particular business day, then for the purposes of this Section 3, the asset value of a share as last determined shall be deemed to be the asset value of a share as of the close of business on that day. If there is no business day in any calendar month, the fee shall be computed on the basis of the asset value of a share as last determined, multiplied by the average number of shares outstanding on the last day of the month.
4. COVENANTS OF THE ADVISER. In connection with purchases or sales of portfolio securities for the account of the Fund, neither the Adviser nor any officer, director, or employee of the Adviser shall act as a principal. The Adviser covenants that it and its employees will comply with investment restrictions of the Fund's Bylaws applicable to them. If
the Adviser or any of its affiliates give any advice to clients concerning the shares of the Fund, it will act solely as investment counsel for the clients and not on behalf of the Fund.
5. LIMITATION ON LIABILITY OF ADVISER. The Adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which this agreement relates, except a loss resulting from willful malfeasance, bad faith, or gross negligence on the part of the Adviser in the performance of its duties or from reckless disregard by the Adviser of its obligations and duties under this Agreement. The federal securities laws impose liabilities under certain circumstances on persons who act in good faith, and therefore nothing herein shall in any way constitute a waiver or limitation of any rights which the Fund may have under any federal securities laws.
6. DURATION AND TERMINATION OF THIS AGREEMENT.
(a) This Agreement shall remain in force for two years from the date hereof, and it may be continued from year to year thereafter if approved annually by a vote of a majority of the Fund's shareholders or by its Board of Directors and in either case a vote of a majority of the Board of Directors who are not parties to this Agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such approval.
(b) This Agreement may be terminated at any time without the payment of any penalty by vote of the Board of Directors of the Fund, by vote of a majority of the outstanding shares of the Fund, or by the Adviser, on 60 days written notice to the other party.
(c) This Agreement shall automatically terminate if it is assigned. The Adviser shall notify the Fund of any change in the officers or directors of the Adviser within a reasonable time after the change. The terms "assignment," "vote of a majority of the outstanding voting securities", and "interested persons" shall have the meanings specified in the Act.
[The remainder of page intentionally left blank]
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the day and year first written above.
COLUMBIA FUNDS SERIES TRUST I
on behalf of its COLUMBIA BALANCED FUND series
By:
---------------------------------
Name: Christopher L. Wilson
-------------------------------
Title: President
------------------------------
|
COLUMBIA MANAGEMENT ADVISORS, LLC
By:
---------------------------------
Name: Roger Sayler
-------------------------------
Title: Managing Director
------------------------------
|
A copy of the document establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the Fund.
Exhibit (d)(2)
FORM OF
COLUMBIA CONSERVATIVE HIGH YIELD FUND
INVESTMENT ADVISORY CONTRACT
This Agreement is made as of the __ day of March, 2006 between COLUMBIA FUNDS SERIES TRUST I (the "Trust"), on behalf of its COLUMBIA CONSERVATIVE HIGH YIELD FUND series (the "Fund") and COLUMBIA MANAGEMENT ADVISORS, LLC (the "Adviser"). The Trust is registered as an open-end investment company pursuant to the Investment Company Act of 1940 (the "Act"). The Adviser is registered as an investment adviser pursuant to the Investment Advisers Act of 1940. This Agreement relates to services to be performed by the Adviser with respect to the Fund.
The parties agree as follows:
1. DUTIES OF ADVISER. The Adviser shall regularly provide the Fund with research, advice, and supervision with respect to investment matters and shall furnish continuously an investment program, recommend what securities shall be purchased or sold and what portion of the Fund's assets shall be held invested or uninvested, subject always to the provisions of the Act and the Fund's Articles of Incorporation and Bylaws, and amendments thereto, which amendments shall be furnished to the Adviser by the Fund. The Adviser shall take any steps necessary or appropriate to carry out its decisions in regard to the foregoing matters and the general conduct of the business of the Fund. The Adviser may take into consideration receipt of research and statistical information and other services rendered to the Fund in the allocation of commissions from portfolio brokerage business.
2. ALLOCATION OF CHARGES AND EXPENSES.
(a) The Adviser shall pay or reimburse the Fund for payments made by the Fund for all executive salaries and executive expenses, office rent of the Fund, ordinary office expenses (other than the expense of clerical services relating to the administration of the Fund), and for any other expenses that, if otherwise borne by the Fund, would cause the Fund to "be deemed to be acting as a distributor of securities of which it is the issuer, other than through an underwriter," pursuant to Rule 12b-1 under the Act. The Adviser shall provide investment advisory, statistical, and research facilities and all clerical services relating to research, statistical, and investment work with respect to the Fund.
(b) The Adviser shall not be required to pay any expenses of the Fund other than those enumerated in this Agreement. The Fund will assume all other costs, including the cost of its custodian, legal, auditing, and accounting expenses, disinterested directors' 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 shares, expenses of registering or qualifying shares for sale, transfer taxes, and all expenses of preparing the Fund's registration statement and prospectus, and the cost of printing and delivering to shareholders prospectuses and reports.
(c) At the request of the Fund, the Adviser shall pay all or a portion of the direct and indirect costs, charges and expenses of or related to the Fund's business and operations. The Adviser will submit to the Fund on a monthly basis a statement setting forth the cost, charges and expenses paid by the Adviser for the previous month. Upon receipt of the statement, the Fund shall promptly reimburse the Adviser for the costs, charges and expenses.
3. COMPENSATION OF THE ADVISER. For the services to be rendered, the facilities to be furnished, and the payments to be made by the Adviser, as provided in Sections 1 and 2 hereof, for each calendar month the Fund shall pay to the Adviser a fee as shown in the table below (shown in $MM):
$ 0.0 to $ 500.0 0.600% $ 500.0 to $1,000.0 0.550% $ 1,000.0 to $1,500.0 0.520% >$1,500.0 0.490% |
4. COVENANTS OF THE ADVISER. In connection with purchases or sales of portfolio securities for the account of the Fund, neither the Adviser nor any officer, director, or employee of the Adviser shall act as a principal. The Adviser covenants that it and its employees will comply with investment restrictions of the Fund's Bylaws applicable to them. If the Adviser or any of its affiliates give any advice to clients concerning the shares of the Fund, it will act solely as investment counsel for the clients and not on behalf of the Fund.
5. LIMITATION ON LIABILITY OF ADVISER. The Adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which this agreement relates, except a loss resulting from willful malfeasance, bad faith, or gross negligence on the part of the Adviser in the performance of its duties or from reckless disregard by the Adviser of its obligations and duties under this Agreement. The federal securities laws impose liabilities under certain circumstances on persons who act in good faith, and therefore nothing herein shall in any way constitute a waiver or limitation of any rights which the Fund may have under any federal securities laws.
6. DURATION AND TERMINATION OF THIS AGREEMENT.
(a) This Agreement shall remain in force for two years from the date hereof, and it may be continued from year to year thereafter if approved annually by a vote of a majority of the Fund's shareholders or by its Board of Directors and in either case a vote of a majority of the Board of Directors who are not parties to this Agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such approval.
(b) This Agreement may be terminated at any time without the payment of any penalty by vote of the Board of Directors of the Fund, by vote of a majority of the outstanding shares of the Fund, or by the Adviser, on 60 days written notice to the other party.
(c) This Agreement shall automatically terminate if it is assigned. The Adviser shall notify the Fund of any change in the officers or directors of the Adviser within a reasonable time after the change. The terms "assignment," "vote of a majority of the outstanding voting securities", and "interested persons" shall have the meanings specified in the Act.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the day and year first written above.
COLUMBIA FUNDS SERIES TRUST I, on
behalf of its COLUMBIA CONSERVATIVE
HIGH YIELD FUND series
COLUMBIA MANAGEMENT ADVISORS, LLC
A copy of the document establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the Fund.
Exhibit (d)(3)
FORM OF
COLUMBIA GREATER CHINA FUND
MANAGEMENT AGREEMENT
AGREEMENT dated as of March __, 2006, between COLUMBIA FUNDS SERIES TRUST I, a Massachusetts business trust (the "Trust"), on behalf of its COLUMBIA GREATER CHINA FUND series (the "Fund"), and COLUMBIA MANAGEMENT ADVISORS, LLC (the "Advisor").
In consideration of the promises and covenants herein, the parties agree as follows:
1. The Advisor will manage the investment of the assets of the Fund in accordance with its prospectus and statement of additional information and will perform the other services herein set forth, subject to the supervision of the Board of Trustees of the Trust. The Advisor may delegate its investment responsibilities to a sub-advisor.
2. In carrying out its investment management obligations, the Advisor shall:
(a) evaluate such economic, statistical and financial information and undertake such investment research as it shall believe advisable;
(b) purchase and sell securities and other investments for the Fund in accordance with the procedures described in its prospectus and statement of additional information; and
(c) report results to the Board of Trustees of the Trust.
3. The Advisor shall be free to render similar services to others so long as its services hereunder are not impaired thereby.
4. The Fund shall pay the Advisor monthly a fee at the annual rate as shown in the table below (shown in $MM):
$ 0.0 to $ 500.0 0.950% $ 500.0 to $1,000.0 0.950% $1,000.0 to $1,500.0 0.870% $1,500.0 to $3,000.0 0.820% $3,000.0 to $6,000.0 0.770% >$6,000.0 0.720% |
5. If the operating expenses of the Fund for any fiscal year exceed the most restrictive applicable expense limitation for any state in which shares are sold, the Advisor's fee shall be reduced by the excess but not to less than zero. Operating expenses shall not include brokerage, interest, taxes, deferred organization expenses, Rule 12b-1 distribution fees, service fees and extraordinary expenses, if any. The Advisor may waive its compensation (and bear expenses of the Fund) to the extent that expenses of the Fund exceed any expense limitation the Advisor declares to be effective.
6. This Agreement shall become effective as of the date of its execution, and
(a) unless otherwise terminated, shall continue from year to year thereafter so
long as approved annually in accordance with the 1940 Act; (b) may be terminated
without penalty on sixty days' written notice to the Advisor either by vote of
the Board of Trustees of the Trust or by vote of a majority of the outstanding
shares of the Fund; (c) shall automatically
terminate in the event of its assignment; and (d) may be terminated without penalty by the Advisor on sixty days' written notice to the Trust.
7. This Agreement may be amended in accordance with the 1940 Act.
8. For the purpose of the Agreement, the terms "vote of a majority of the outstanding shares", "affiliated person" and "assignment" shall have their respective meanings defined in the 1940 Act and exemptions and interpretations issued by the Securities and Exchange Commission under the 1940 Act.
9. In the absence of willful misfeasance, bad faith or gross negligence on the part of the Advisor, or reckless disregard of its obligations and duties hereunder, the Advisor shall not be subject to any liability to the Trust or the Fund, to any shareholder of the Trust or the Fund or to any other person, firm or organization, for any act or omission in the course of, or connected with, rendering services hereunder.
[The remainder of page intentionally left blank]
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the day and year first written above.
COLUMBIA FUNDS SERIES TRUST I
on behalf of its COLUMBIA GREATER CHINA FUND series
By:
---------------------------------
Name: Christopher L. Wilson
-------------------------------
Title: President
------------------------------
|
COLUMBIA MANAGEMENT ADVISORS, LLC
A copy of the document establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the Fund.
Exhibit (d)(4)
FORM OF
COLUMBIA MID CAP GROWTH FUND
INVESTMENT ADVISORY CONTRACT
This Agreement is made as of the __ day of March, 2006 between COLUMBIA FUNDS SERIES TRUST I (the "Trust"), on behalf of its COLUMBIA MID CAP GROWTH FUND series (the "Fund") and COLUMBIA MANAGEMENT ADVISORS, LLC (the "Adviser"). The Trust is registered as an open-end investment company pursuant to the Investment Company Act of 1940 (the "Act"). The Adviser is registered as an investment adviser pursuant to the Investment Advisers Act of 1940. This Agreement relates to services to be performed by the Adviser with respect to the Fund.
The parties agree as follows:
1. DUTIES OF ADVISER. The Adviser shall regularly provide the Fund with research, advice, and supervision with respect to investment matters and shall furnish continuously an investment program, recommend what securities shall be purchased or sold and what portion of the Fund's assets shall be held invested or uninvested, subject always to the provisions of the Act and the Fund's Articles of Incorporation and Bylaws, and amendments thereto, which amendments shall be furnished to the Adviser by the Fund. The Adviser shall take any steps necessary or appropriate to carry out its decisions in regard to the foregoing matters and the general conduct of the business of the Fund. The Adviser may take into consideration receipt of research and statistical information and other services rendered to the Fund in the allocation of commissions from portfolio brokerage business.
2. ALLOCATION OF CHARGES AND EXPENSES.
(a) The Adviser shall pay or reimburse the Fund for payments made by the Fund for all executive salaries and executive expenses, office rent of the Fund, ordinary office expenses (other than the expense of clerical services relating to the administration of the Fund), and for any other expenses that, if otherwise borne by the Fund, would cause the Fund to "be deemed to be acting as a distributor of securities of which it is the issuer, other than through an underwriter," pursuant to Rule 12b-1 under the Act. The Adviser shall provide investment advisory, statistical, and research facilities and all clerical services relating to research, statistical, and investment work with respect to the Fund.
(b) The Adviser shall not be required to pay any expenses of the Fund other than those enumerated in this Agreement. The Fund will assume all other costs, including the cost of its custodian, legal, auditing, and accounting expenses, disinterested directors' 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 shares, expenses of registering or qualifying shares for sale, transfer taxes, and all expenses of preparing the Fund's registration statement and prospectus, and the cost of printing and delivering to shareholders prospectuses and reports.
(c) At the request of the Fund, the Adviser shall pay all or a portion of the direct and indirect costs, charges and expenses of or related to the Fund's business and operations. The Adviser will submit to the Fund on a monthly basis a statement setting forth the cost, charges and expenses paid by the Adviser for the previous month. Upon receipt of the statement, the Fund shall promptly reimburse the Adviser for the costs, charges and expenses.
3. COMPENSATION OF THE ADVISER. For the services to be rendered, the facilities to be furnished, and the payments to be made by the Adviser, as provided in Sections 1 and 2 hereof, for each calendar month the Fund shall pay to the Adviser a fee based on the annual rate as shown in the table below (shown in $MM):
$ 0.0 to $ 500.0 0.820% $ 500.0 to $1,000.0 0.750% $1,000.0 to $1,500.0 0.720% >$1,500.0 0.670% |
4. COVENANTS OF THE ADVISER. In connection with purchases or sales of portfolio securities for the account of the Fund, neither the Adviser nor any officer, director, or
employee of the Adviser shall act as a principal. The Adviser covenants that it and its employees will comply with investment restrictions of the Fund's Bylaws applicable to them. If the Adviser or any of its affiliates give any advice to clients concerning the shares of the Fund, it will act solely as investment counsel for the clients and not on behalf of the Fund.
5. LIMITATION ON LIABILITY OF ADVISER. The Adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which this agreement relates, except a loss resulting from willful malfeasance, bad faith, or gross negligence on the part of the Adviser in the performance of its duties or from reckless disregard by the Adviser of its obligations and duties under this Agreement. The federal securities laws impose liabilities under certain circumstances on persons who act in good faith, and therefore nothing herein shall in any way constitute a waiver or limitation of any rights which the Fund may have under any federal securities laws.
6. DURATION AND TERMINATION OF THIS AGREEMENT.
(a) This Agreement shall remain in force for two years from the date hereof, and it may be continued from year to year thereafter if approved annually by a vote of a majority of the Fund's shareholders or by its Board of Directors and in either case a vote of a majority of the Board of Directors who are not parties to this Agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such approval.
(b) This Agreement may be terminated at any time without the payment of any penalty by vote of the Board of Directors of the Fund, by vote of a majority of the outstanding shares of the Fund, or by the Adviser, on 60 days written notice to the other party.
(c) This Agreement shall automatically terminate if it is assigned. The Adviser shall notify the Fund of any change in the officers or directors of the Adviser within a reasonable time after the change. The terms "assignment," "vote of a majority of the outstanding voting securities", and "interested persons" shall have the meanings specified in the Act.
[The remainder of page intentionally left blank]
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the day and year first written above.
COLUMBIA FUNDS SERIES TRUST I, on behalf of its
COLUMBIA MID CAP GROWTH FUND series
COLUMBIA MANAGEMENT ADVISORS, LLC
A copy of the document establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the Fund.
Exhibit (d)(5)
FORM OF
COLUMBIA OREGON INTERMEDIATE MUNICIPAL FUND
INVESTMENT ADVISORY CONTRACT
This Agreement is made as of the __ day of March, 2006 between COLUMBIA FUNDS SERIES TRUST I (the "Trust"), on behalf of its COLUMBIA OREGON INTERMEDIATE MUNICIPAL FUND series (the "Fund") and COLUMBIA MANAGEMENT ADVISORS, LLC (the "Adviser"). The Trust is registered as an open-end investment company pursuant to the Investment Company Act of 1940 (the "Act"). The Adviser is registered as an investment adviser pursuant to the Investment Advisers Act of 1940. This Agreement relates to services to be performed by the Adviser with respect to the Fund.
The parties agree as follows:
1. DUTIES OF ADVISER. The Adviser shall regularly provide the Fund with research, advice, and supervision with respect to investment matters and shall furnish continuously an investment program, recommend what securities shall be purchased or sold and what portion of the Fund's assets shall be held invested or uninvested, subject always to the provisions of the Act and the Fund's Articles of Incorporation and Bylaws, and amendments thereto, which amendments shall be furnished to the Adviser by the Fund. The Adviser shall take any steps necessary or appropriate to carry out its decisions in regard to the foregoing matters and the general conduct of the business of the Fund. The Adviser may take into consideration receipt of research and statistical information and other services rendered to the Fund in the allocation of commissions from portfolio brokerage business.
2. ALLOCATION OF CHARGES AND EXPENSES.
(a) The Adviser shall pay or reimburse the Fund for payments made by the Fund for all executive salaries and executive expenses, office rent of the Fund, ordinary office expenses (other than the expense of clerical services relating to the administration of the Fund), and for any other expenses that, if otherwise borne by the Fund, would cause the Fund to "be deemed to be acting as a distributor of securities of which it is the issuer, other than through an underwriter," pursuant to Rule 12b-1 under the Act. The Adviser shall provide investment advisory, statistical, and research facilities and all clerical services relating to research, statistical, and investment work with respect to the Fund.
(b) The Adviser shall not be required to pay any expenses of the Fund other than those enumerated in this Agreement. The Fund will assume all other costs, including the cost of its custodian, legal, auditing, and accounting expenses, disinterested directors' 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 shares, expenses of registering or qualifying shares for sale, transfer taxes, and all expenses of preparing the Fund's registration statement and prospectus, and the cost of printing and delivering to shareholders prospectuses and reports.
(c) At the request of the Fund, the Adviser shall pay all or a portion of the direct and indirect costs, charges and expenses of or related to the Fund's business and operations. The Adviser will submit to the Fund on a monthly basis a statement setting forth the cost, charges and expenses paid by the Adviser for the previous month. Upon receipt of the statement, the Fund shall promptly reimburse the Adviser for the costs, charges and expenses.
3. COMPENSATION OF THE ADVISER. For the services to be rendered, the facilities to be furnished, and the payments to be made by the Adviser, as provided in Sections 1 and 2 hereof, for each calendar month the Fund shall pay to the Adviser a fee computed at the annual rate of .50 of 1 percent of daily net assets. If the asset value is not required to be determined on any particular business day, then for the purposes of this Section 3, the asset value of a share as last determined shall be deemed to be the asset value of a share as of the close of business on that day. If there is no business day in any calendar month, the fee shall be computed on the basis of the asset value of a share as last determined, multiplied by the average number of shares outstanding on the last day of the month.
4. COVENANTS OF THE ADVISER. In connection with purchases or sales of portfolio securities for the account of the Fund, neither the Adviser nor any officer, director, or
employee of the Adviser shall act as a principal. The Adviser covenants that it and its employees will comply with investment restrictions of the Fund's Bylaws applicable to them. If the Adviser or any of its affiliates give any advice to clients concerning the shares of the Fund, it will act solely as investment counsel for the clients and not on behalf of the Fund.
5. LIMITATION ON LIABILITY OF ADVISER. The Adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which this agreement relates, except a loss resulting from willful malfeasance, bad faith, or gross negligence on the part of the Adviser in the performance of its duties or from reckless disregard by the Adviser of its obligations and duties under this Agreement. The federal securities laws impose liabilities under certain circumstances on persons who act in good faith, and therefore nothing herein shall in any way constitute a waiver or limitation of any rights which the Fund may have under any federal securities laws.
6. DURATION AND TERMINATION OF THIS AGREEMENT.
(a) This Agreement shall remain in force for two years from the date hereof, and it may be continued from year to year thereafter if approved annually by a vote of a majority of the Fund's shareholders or by its Board of Directors and in either case a vote of a majority of the Board of Directors who are not parties to this Agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such approval.
(b) This Agreement may be terminated at any time without the payment of any penalty by vote of the Board of Directors of the Fund, by vote of a majority of the outstanding shares of the Fund, or by the Adviser, on 60 days written notice to the other party.
(c) This Agreement shall automatically terminate if it is assigned. The Adviser shall notify the Fund of any change in the officers or directors of the Adviser within a reasonable time after the change. The terms "assignment," "vote of a majority of the outstanding voting securities", and "interested persons" shall have the meanings specified in the Act.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the day and year first written above.
COLUMBIA FUNDS SERIES TRUST I, on behalf of its
COLUMBIA OREGON INTERMEDIATE MUNICIPAL FUND series
COLUMBIA MANAGEMENT ADVISORS, LLC
A copy of the document establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the Fund.
Exhibit (d)(6)
FORM OF
COLUMBIA REAL ESTATE EQUITY FUND
INVESTMENT ADVISORY CONTRACT
This Agreement is made as of the __ day of March, 2006 between COLUMBIA FUNDS SERIES TRUST I (the "Trust"), on behalf of its COLUMBIA REAL ESTATE EQUITY FUND series (the "Fund"), and COLUMBIA MANAGEMENT ADVISORS, LLC (the "Adviser"). The Trust is registered as an open-end investment company pursuant to the Investment Company Act of 1940 (the "Act"). The Adviser is registered as an investment adviser pursuant to the Investment Advisers Act of 1940. This Agreement relates to services to be performed by the Adviser with respect to the Fund.
The parties agree as follows:
1. DUTIES OF ADVISER. The Adviser shall regularly provide the Fund with research, advice, and supervision with respect to investment matters and shall furnish continuously an investment program, recommend what securities shall be purchased or sold and what portion of the Fund's assets shall be held invested or uninvested, subject always to the provisions of the Act and the Fund's Articles of Incorporation and Bylaws, and amendments thereto, which amendments shall be furnished to the Adviser by the Fund. The Adviser shall take any steps necessary or appropriate to carry out its decisions in regard to the foregoing matters and the general conduct of the business of the Fund. The Adviser may take into consideration receipt of research and statistical information and other services rendered to the Fund in the allocation of commissions from portfolio brokerage business.
2. ALLOCATION OF CHARGES AND EXPENSES.
(a) The Adviser shall pay or reimburse the Fund for payments made by the Fund for all executive salaries and executive expenses, office rent of the Fund, ordinary office expenses (other than the expense of clerical services relating to the administration of the Fund), and for any other expenses that, if otherwise borne by the Fund, would cause the Fund to "be deemed to be acting as a distributor of securities of which it is the issuer, other than through an underwriter," pursuant to Rule 12b-1 under the Act. The Adviser shall provide investment advisory, statistical, and research facilities and all clerical services relating to research, statistical, and investment work with respect to the Fund.
(b) The Adviser shall not be required to pay any expenses of the Fund other than those enumerated in this Agreement. The Fund will assume all other costs, including the cost of its custodian, legal, auditing, and accounting expenses, disinterested directors' 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 shares, expenses of registering or qualifying shares for sale, transfer taxes, and all expenses of preparing the Fund's registration statement and prospectus, and the cost of printing and delivering to shareholders prospectuses and reports.
(c) At the request of the Fund, the Adviser shall pay all or a portion of the direct and indirect costs, charges and expenses of or related to the Fund's business and operations. The Adviser will submit to the Fund on a monthly basis a statement setting forth the cost, charges and expenses paid by the Adviser for the previous month. Upon receipt of the statement, the Fund shall promptly reimburse the Adviser for the costs, charges and expenses.
3. COMPENSATION OF THE ADVISER. For the services to be rendered, the facilities to be furnished, and the payments to be made by the Adviser, as provided in Sections 1 and 2 hereof, for each calendar month the Fund shall pay to the Adviser a fee computed at the annual rate of .75 of 1 percent of daily net assets. If the asset value is not required to be determined on any particular business day, then for the purposes of this Section 3, the asset value of a share as last determined shall be deemed to be the asset value of a share as of the close of business on that day. If there is no business day in any calendar month, the fee shall be computed on the basis of the asset value of a share as last determined, multiplied by the average number of shares outstanding on the last day of the month.
4. COVENANTS OF THE ADVISER. In connection with purchases or sales of portfolio securities for the account of the Fund, neither the Adviser nor any officer, director, or employee of the Adviser shall act as a principal. The Adviser covenants that it and its employees will comply with investment restrictions of the Fund's Bylaws applicable to them. If the Adviser or any of its affiliates give any advice to clients concerning the shares of the Fund, it will act solely as investment counsel for the clients and not on behalf of the Fund.
5. LIMITATION ON LIABILITY OF ADVISER. The Adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which this agreement relates, except a loss resulting from willful malfeasance, bad faith, or gross negligence on the part of the Adviser in the performance of its duties or from reckless disregard by the Adviser of its obligations and duties under this Agreement. The federal securities laws impose liabilities under certain circumstances on persons who act in good faith, and therefore nothing herein shall in any way constitute a waiver or limitation of any rights which the Fund may have under any federal securities laws.
6. DURATION AND TERMINATION OF THIS AGREEMENT.
(a) This Agreement shall remain in force for two years from the date hereof, and it may be continued from year to year thereafter if approved annually by a vote of a majority of the Fund's shareholders or by its Board of Directors and in either case a vote of a majority of the Board of Directors who are not parties to this Agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such approval.
(b) This Agreement may be terminated at any time without the payment of any penalty by vote of the Board of Directors of the Fund, by vote of a majority of the outstanding shares of the Fund, or by the Adviser, on 60 days written notice to the other party.
(c) This Agreement shall automatically terminate if it is assigned. The Adviser shall notify the Fund of any change in the officers or directors of the Adviser within a reasonable time after the change. The terms "assignment," "vote of a majority of the outstanding voting securities", and "interested persons" shall have the meanings specified in the Act.
[The remainder of page intentionally left blank]
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the day and year first written above.
COLUMBIA FUNDS SERIES TRUST I
on behalf of its COLUMBIA REAL ESTATE EQUITY FUND series
By:
---------------------------------
Name: Christopher L. Wilson
-------------------------------
Title: President
------------------------------
|
COLUMBIA MANAGEMENT ADVISORS, LLC
By:
---------------------------------
Name: Roger Sayler
-------------------------------
Title: Managing Director
------------------------------
|
A copy of the document establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the Fund.
Exhibit (d)(7)
FORM OF
COLUMBIA SMALL CAP GROWTH FUND I
INVESTMENT ADVISORY CONTRACT
This Agreement is made as of the __ day of March, 2006 between COLUMBIA FUNDS SERIES TRUST I (the "Trust"), on behalf of its COLUMBIA SMALL CAP GROWTH FUND I series (the "Fund") and COLUMBIA MANAGEMENT ADVISORS, LLC (the "Adviser"). The Trust is registered as an open-end investment company pursuant to the Investment Company Act of 1940 (the "Act"). The Adviser is registered as an investment adviser pursuant to the Investment Advisers Act of 1940. This Agreement relates to services to be performed by the Adviser with respect to the Fund.
The parties agree as follows:
1. DUTIES OF ADVISER. The Adviser shall regularly provide the Fund with research, advice, and supervision with respect to investment matters and shall furnish continuously an investment program, recommend what securities shall be purchased or sold and what portion of the Fund's assets shall be held invested or uninvested, subject always to the provisions of the Act and the Fund's Articles of Incorporation and Bylaws, and amendments thereto, which amendments shall be furnished to the Adviser by the Fund. The Adviser shall take any steps necessary or appropriate to carry out its decisions in regard to the foregoing matters and the general conduct of the business of the Fund. The Adviser may take into consideration receipt of research and statistical information and other services rendered to the Fund in the allocation of commissions from portfolio brokerage business.
2. ALLOCATION OF CHARGES AND EXPENSES.
(a) The Adviser shall pay or reimburse the Fund for payments made by the Fund for all executive salaries and executive expenses, office rent of the Fund, ordinary office expenses (other than the expense of clerical services relating to the administration of the Fund), and for any other expenses that, if otherwise borne by the Fund, would cause the Fund to "be deemed to be acting as a distributor of securities of which it is the issuer, other than through an underwriter," pursuant to Rule 12b-1 under the Act. The Adviser shall provide investment advisory, statistical, and research facilities and all clerical services relating to research, statistical, and investment work with respect to the Fund.
(b) The Adviser shall not be required to pay any expenses of the Fund other than those enumerated in this Agreement. The Fund will assume all other costs, including the cost of its custodian, legal, auditing, and accounting expenses, disinterested directors' 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 shares, expenses of registering or qualifying shares for sale, transfer taxes, and all expenses of preparing the Fund's registration statement and prospectus, and the cost of printing and delivering to shareholders prospectuses and reports.
3. COMPENSATION OF THE ADVISER. For the services to be rendered, the facilities to be furnished, and the payments to be made by the Adviser, as provided in Sections 1 and 2 hereof, for each calendar month the Fund shall pay to the Adviser a fee as shown in the table below (shown in $MM):
$ 0.0 to $ 500.0 0.870% $ 500.0 to $1,000.0 0.820% >$1,000.0 0.770% |
4. COVENANTS OF THE ADVISER. In connection with purchases or sales of portfolio securities for the account of the Fund, neither the Adviser nor any officer,
director, or employee of the Adviser shall act as a principal. The Adviser covenants that it and its employees will comply with investment restrictions of the Fund's Bylaws applicable to them. If the Adviser or any of its affiliates give any advice to clients concerning the shares of the Fund, it will act solely as investment counsel for the clients and not on behalf of the Fund.
5. LIMITATION ON LIABILITY OF ADVISER. The Adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which this agreement relates, except a loss resulting from willful malfeasance, bad faith, or gross negligence on the part of the Adviser in the performance of its duties or from reckless disregard by the Adviser of its obligations and duties under this Agreement.
6. DURATION AND TERMINATION OF THIS AGREEMENT.
(a) This Agreement shall remain in force for two years from the date hereof, and it may be continued from year to year thereafter if approved annually by a vote of a majority of the Fund's shareholders or by its Board of Directors and in either case a vote of a majority of the Board of Directors who are not parties to this Agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such approval.
(b) This Agreement may be terminated at any time without the payment of any penalty by vote of the Board of Directors of the Fund, by vote of a majority of the outstanding shares of the Fund, or by the Adviser, on 60 days written notice to the other party.
(c) This Agreement shall automatically terminate if it is assigned. The Adviser shall notify the Fund of any change in the officers or directors of the Adviser within a reasonable time after the change. The terms "assignment," "vote of a majority of the outstanding voting securities", and "interested persons" shall have the meanings specified in the Act.
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the day and year first written above.
COLUMBIA FUNDS SERIES TRUST I, on behalf of its
COLUMBIA SMALL CAP GROWTH FUND I series
COLUMBIA MANAGEMENT ADVISER, LLC
A copy of the document establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the Fund.
Exhibit (d)(8)
FORM OF
COLUMBIA STRATEGIC INVESTOR FUND
INVESTMENT ADVISORY CONTRACT
This Agreement is made as of the __ day of March, 2006 between COLUMBIA FUNDS SERIES TRUST I, on behalf of its COLUMBIA STRATEGIC INVESTOR FUND series (the "Fund") and COLUMBIA MANAGEMENT ADVISORS, LLC (the "Adviser"). The Trust is registered as an open-end investment company pursuant to the Investment Company Act of 1940 (the "Act"). The Adviser is registered as an investment adviser pursuant to the Investment Advisers Act of 1940. This Agreement relates to services to be performed by the Adviser with respect to the Fund.
The parties agree as follows:
1. Duties of Adviser. The Adviser shall regularly provide the Fund with research, advice, and supervision with respect to investment matters and shall furnish continuously an investment program, recommend what securities shall be purchased or sold and what portion of the Fund's assets shall be held invested or uninvested, subject always to the provisions of the Act and the Fund's Articles of Incorporation and Bylaws, and amendments thereto, which amendments shall be furnished to the Adviser by the Fund. The Adviser shall take any steps necessary or appropriate to carry out its decisions in regard to the foregoing matters and the general conduct of the business of the Fund. The Adviser may take into consideration receipt of research and statistical information and other services rendered to the Fund in the allocation of commissions from portfolio brokerage business.
2. Allocation of Charges and Expenses.
(a) The Adviser shall pay or reimburse the Fund for payments made by the Fund for all executive salaries and executive expenses, office rent of the Fund, ordinary office expenses (other than the expense of clerical services relating to the administration of the Fund), and for any other expenses that, if otherwise borne by the Fund, would cause the Fund to "be deemed to be acting as a distributor of securities of which it is the issuer, other than through an underwriter," pursuant to Rule 12b-1 under the Act. The Adviser shall provide investment advisory, statistical, and research facilities and all clerical services relating to research, statistical, and investment work with respect to the Fund.
(b) The Adviser shall not be required to pay any expenses of the Fund other than those enumerated in this Agreement. The Fund will assume all other costs, including the cost of its custodian, legal, auditing, and accounting expenses, disinterested directors' 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 shares, expenses of registering or qualifying shares for sale, transfer taxes, and all expenses of preparing the Fund's registration statement and prospectus, and the cost of printing and delivering to shareholders prospectuses and reports.
(c) At the request of the Fund, the Adviser shall pay all or a portion of the direct and indirect costs, charges and expenses of or related to the Fund's business and operations. The Adviser will submit to the Fund on a monthly basis a statement setting forth the cost, charges and expenses paid by the Adviser for the previous month. Upon receipt of the statement, the Fund shall promptly reimburse the Adviser for the costs, charges and expenses.
3. Compensation of the Adviser. For the services to be rendered, the facilities to be furnished, and the payments to be made by the Adviser, as provided in Sections 1 and 2 hereof, for each calendar month the Fund shall pay to the Adviser a fee computed at the annual rate of .75 of 1 percent of daily net assets. If the asset value is not required to be determined on any particular business day, then for the purposes of this Section 3, the asset value of a share as last determined shall be deemed to be the asset value of a share as of the close of business on that day. If there is no business day in any calendar month, the fee shall be computed on the basis of the asset value of a share as last determined, multiplied by the average number of shares outstanding on the last day of the month.
4. Covenants of the Adviser. In connection with purchases or sales of portfolio securities for the account of the Fund, neither the Adviser nor any officer, director, or employee of the Adviser shall act as a principal. The Adviser covenants that it and its
employees will comply with investment restrictions of the Fund's Bylaws applicable to them. If the Adviser or any of its affiliates give any advice to clients concerning the shares of the Fund, it will act solely as investment counsel for the clients and not on behalf of the Fund.
5. Limitation on Liability of Adviser. The Adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which this agreement relates, except a loss resulting from willful malfeasance, bad faith, or gross negligence on the part of the Adviser in the performance of its duties or from reckless disregard by the Adviser of its obligations and duties under this Agreement. The federal securities laws impose liabilities under certain circumstances on persons who act in good faith, and therefore nothing herein shall in any way constitute a waiver or limitation of any rights which the Fund may have under any federal securities laws.
6. Duration and Termination of this Agreement.
(a) This Agreement shall remain in force for two years from the date hereof, and it may be continued from year to year thereafter if approved annually by a vote of a majority of the Fund's shareholders or by its Board of Directors and in either case a vote of a majority of the Board of Directors who are not parties to this Agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such approval.
(b) This Agreement may be terminated at any time without the payment of any penalty by vote of the Board of Directors of the Fund, by vote of a majority of the outstanding shares of the Fund, or by the Adviser, on 60 days written notice to the other party.
(c) This Agreement shall automatically terminate if it is assigned. The Adviser shall notify the Fund of any change in the officers or directors of the Adviser within a reasonable time after the change. The terms "assignment," "vote of a majority of the outstanding voting securities", and "interested persons" shall have the meanings specified in the Act.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the day and year first written above.
COLUMBIA FUNDS SERIES TRUST I
on behalf of its COLUMBIA STRATEGIC INVESTOR FUND SERIES
COLUMBIA MANAGEMENT ADVISORS, LLC
A copy of the document establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the Fund.
Exhibit (d)(9)
FORM OF
COLUMBIA TECHNOLOGY FUND
INVESTMENT ADVISORY CONTRACT
This Agreement is made as of the __ day of March, 2006 between COLUMBIA FUNDS SERIES TRUST I (the "Trust"), on behalf of its COLUMBIA TECHNOLOGY FUND series (the "Fund") and COLUMBIA MANAGEMENT ADVISORS, LLC (the "Adviser"). The Trust is registered as an open-end investment company pursuant to the Investment Company Act of 1940 (the "Act"). The Adviser is registered as an investment adviser pursuant to the Investment Advisers Act of 1940. This Agreement relates to services to be performed by the Adviser with respect to the Fund.
The parties agree as follows:
1. Duties of Adviser. The Adviser shall regularly provide the Fund with research, advice, and supervision with respect to investment matters and shall furnish continuously an investment program, recommend what securities shall be purchased or sold and what portion of the Fund's assets shall be held invested or uninvested, subject always to the provisions of the Act and the Fund's Articles of Incorporation and Bylaws, and amendments thereto, which amendments shall be furnished to the Adviser by the Fund. The Adviser shall take any steps necessary or appropriate to carry out its decisions in regard to the foregoing matters and the general conduct of the business of the Fund. The Adviser may take into consideration receipt of research and statistical information and other services rendered to the Fund in the allocation of commissions from portfolio brokerage business.
2. Allocation of Charges and Expenses.
(a) The Adviser shall pay or reimburse the Fund for payments made by the Fund for all executive salaries and executive expenses, office rent of the Fund, ordinary office expenses (other than the expense of clerical services relating to the administration of the Fund), and for any other expenses that, if otherwise borne by the Fund, would cause the Fund to "be deemed to be acting as a distributor of securities of which it is the issuer, other than through an underwriter," pursuant to Rule 12b-1 under the Act. The Adviser shall provide investment advisory, statistical, and research facilities and all clerical services relating to research, statistical, and investment work with respect to the Fund.
(b) The Adviser shall not be required to pay any expenses of the Fund other than those enumerated in this Agreement. The Fund will assume all other costs, including the cost of its custodian, legal, auditing, and accounting expenses, disinterested directors' 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 shares, expenses of registering or qualifying shares for sale, transfer taxes, and all expenses of preparing the Fund's registration statement and prospectus, and the cost of printing and delivering to shareholders prospectuses and reports.
(c) At the request of the Fund, the Adviser shall pay all or a portion of the direct and indirect costs, charges and expenses of or related to the Fund's business and operations. The Adviser will submit to the Fund on a monthly basis a statement setting forth the cost, charges and expenses paid by the Adviser for the previous month. Upon receipt of the statement, the Fund shall promptly reimburse the Adviser for the costs, charges and expenses.
3. Compensation of the Adviser. For the services to be rendered, the facilities to be furnished, and the payments to be made by the Adviser, as provided in Sections 1 and 2 hereof, for each calendar month the Fund shall pay to the Adviser a fee as shown in the table below (shown in $MM):
$ 0.0 to $ 500.0 0.870% $ 500.0 to $1,000.0 0.820% >$1,000.0 0.770% |
4. Covenants of the Adviser. In connection with purchases or sales of portfolio securities for the account of the Fund, neither the Adviser nor any officer, director, or employee of the Adviser shall act as a principal. The Adviser covenants that it and its employees will comply with investment restrictions of the Fund's Bylaws applicable to them. If the Adviser or any of its affiliates give any advice to clients concerning the shares of the Fund, it will act solely as investment counsel for the clients and not on behalf of the Fund.
5. Limitation on Liability of Adviser. The Adviser shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the matters to which this agreement relates, except a loss resulting from willful malfeasance, bad faith, or gross negligence on the part of the Adviser in the performance of its duties or from reckless disregard by the Adviser of its obligations and duties under this Agreement. The federal securities laws impose liabilities under certain circumstances on persons who act in good faith, and therefore nothing herein shall in any way constitute a waiver or limitation of any rights which the Fund may have under any federal securities laws.
6. Duration and Termination of this Agreement.
(a) This Agreement shall remain in force for two years from the date hereof, and it may be continued from year to year thereafter if approved annually by a vote of a majority of the Fund's shareholders or by its Board of Directors and in either case a vote of a majority of the Board of Directors who are not parties to this Agreement or interested persons of any such party cast in person at a meeting called for the purpose of voting on such approval.
(b) This Agreement may be terminated at any time without the payment of any penalty by vote of the Board of Directors of the Fund, by vote of a majority of the outstanding shares of the Fund, or by the Adviser, on 60 days written notice to the other party.
(c) This Agreement shall automatically terminate if it is assigned. The Adviser shall notify the Fund of any change in the officers or directors of the Adviser within a reasonable time after the change. The terms "assignment," "vote of a majority of the outstanding voting securities", and "interested persons" shall have the meanings specified in the Act.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the day and year first written above.
COLUMBIA FUNDS SERIES TRUST I, on behalf of its
COLUMBIA TECHNOLOGY FUND series
COLUMBIA MANAGEMENT ADVISORS, LLC
A copy of the document establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the Fund.
Exhibit (d)(10)
FORM OF
COLUMBIA ASSET ALLOCATION FUND
COLUMBIA SMALL CAP CORE FUND
COLUMBIA SMALL COMPANY EQUITY FUND
COLUMBIA DIVIDEND INCOME FUND
COLUMBIA DISCIPLINED VALUE FUND
COLUMBIA COMMON STOCK FUND
COLUMBIA LARGE CAP GROWTH FUND
MANAGEMENT AGREEMENT
This Agreement is made as of the __ day of March, 2006 between COLUMBIA FUNDS SERIES TRUST I (the "Trust"), on behalf of its COLUMBIA ASSET ALLOCATION FUND, COLUMBIA SMALL CAP CORE FUND, COLUMBIA SMALL COMPANY EQUITY FUND, COLUMBIA DIVIDEND INCOME FUND, COLUMBIA DISCIPLINED VALUE FUND, COLUMBIA COMMON STOCK FUND and COLUMBIA LARGE CAP GROWTH FUND series (the "Funds") and COLUMBIA MANAGEMENT ADVISORS, LLC (the "Adviser"). The Trust is registered as an open-end investment company pursuant to the Investment Company Act of 1940 (the "Act"). The Adviser is registered as an investment adviser pursuant to the Investment Advisers Act of 1940. This Agreement relates to the services to be performed by the Adviser with respect to the Funds.
The parties agree as follows:
1. Investment Management Services. The Adviser shall manage the investment operations of the Trust and each Fund, subject to the terms of this Agreement and to the supervision and control of the Trust's Board of Trustees ("Trustees"). The Adviser agrees to perform, or arrange for the performance of, the following services with respect to each Fund:
(a) to obtain and evaluate such information relating to economies, industries, businesses, securities and commodities markets, and individual securities, commodities and indices as it may deem necessary or useful in discharging its responsibilities hereunder;
(b) to formulate and maintain a continuing investment program in a manner consistent with and subject to (i) The Trust's agreement and declaration of trust and by-laws; (ii) the Funds' investment objectives, policies, and restrictions as set forth in written documents furnished by the Trust to the Adviser; (iii) all securities, commodities, and tax laws and regulations applicable to the Funds and Trust; and (iv) any other written limits or directions furnished by the Trustees to the Adviser;
(c) unless otherwise directed by the Trustees, to determine from time to time securities, commodities, interests or other investments to be purchased, sold, retained or lent by the Funds, and to implement those decisions, including the selection of entities with or through which such purchases, sales or loans are to be effected;
(d) to use reasonable efforts to manage the Funds so that they will qualify as regulated investment companies under subchapter M of the Internal Revenue Code of 1986, as amended;
(e) to make recommendations as to the manner in which voting rights, rights to consent to Trust or Fund action, and any other rights pertaining to the Trust or the Funds shall be exercised;
(f) to make available to the Trust promptly upon request all of the Funds' records and ledgers and any reports or information reasonably requested by the Trust; and
(g) to the extent required by law, to furnish to regulatory authorities any information or reports relating to the services provided pursuant to this Agreement.
Except as otherwise instructed from time to time by the Trustees, with respect to execution of transactions for the Trust on behalf of a Fund, the Adviser shall place, or arrange for the placement of, all orders for purchases, sales, or loans with issuers, brokers, dealers or other counter parties or agents selected by the Adviser. In connection with the selection of all such parties for the placement of all such orders, the Adviser shall attempt to obtain most favorable execution and price, but may nevertheless in its sole discretion as a secondary factor, purchase and sell portfolio securities from and to brokers and dealers who provide the Adviser with statistical, research and other information, analysis, advice, and similar services. In recognition of such services or brokerage services provided by a broker or dealer, the Adviser is hereby authorized to pay such broker or dealer a commission or spread in excess of that which
might be charged by another broker or dealer for the same transaction if the the Adviser determines in good faith that the commission or spread is reasonable in relation to the value of the services so provided.
The Trust hereby authorizes any entity or person associated with the Adviser that is a member of a national securities exchange to effect any transaction on the exchange for the account of a Fund to the extent permitted by and in accordance with Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder. The Trust hereby consents to the retention by such entity or person of compensation for such transactions in accordance with Rule 11a-2-2(T)(a)(iv).
The Adviser may, where it deems to be advisable, aggregate orders for its other customers together with any securities of the same type to be sold or purchased for the Trust or one or more Funds in order to obtain best execution or lower brokerage commissions. In such event, the Adviser shall allocate the shares so purchased or sold, as well as the expenses incurred in the transaction, in a manner it considers to be equitable and fair and consistent with its fiduciary obligations to the Trust, the Funds, and the Adviser's other customers.
The Adviser shall for all purposes be deemed to be an independent contractor and not an agent of the Trust and shall, unless otherwise expressly provided or authorized, have no authority to act for or represent the Trust in any way.
2. Administrative Services. The Adviser shall supervise the business and affairs of the Trust and each Fund and shall provide such services and facilities as may be required for effective administration of the Trust and the Funds as are not provided by employees or other agents engaged by the Trust; provided that the Adviser shall not have any obligation to provide under this Agreement any such services which are the subject of a separate agreement or arrangement between the Trust and the Adviser, any affiliate of the Adviser, or any third party administrator ("Administrative Agreements").
3. Use of Affiliated Companies and Subcontractors. In connection with the services to be provided by the Adviser under this Agreement, the Adviser may, to the extent it deems appropriate, and subject to compliance with the requirements of applicable laws and regulations and upon receipt of written approval of the Trustees, make use of (i) its affiliated companies and their directors, trustees, officers, and employees and (ii) subcontractors selected by the Adviser, provided that the Adviser shall supervise and remain fully responsible for the services of all such third parties in accordance with and to the extent provided by this Agreement. All costs and expenses associated with services provided by any such third parties shall be borne by the Adviser or such parties.
4. Expenses Borne by the Trust. Except to the extent expressly assumed by the Adviser herein or under a separate agreement between the Trust and the Adviser and except to the extent required by law to be paid by the Adviser, the Adviser shall not be obligated to pay any costs or expenses incidental to the organization, operations or business of the Trust. Without limitation, such costs and expenses shall include but not be limited to:
(a) all charges of depositories, custodians and other agencies for the safekeeping and servicing of its cash, securities, and other property;
(b) all charges for equipment or services used for obtaining price quotations or for communication between the Adviser or the Trust and the custodian, transfer agent or any other agent selected by the Trust;
(c) all charges for administrative and accounting services provided to the Trust by the Adviser, or any other provider of such services;
(d) all charges for services of the Trust's independent auditors and for services to the Trust by legal counsel;
(e) all compensation of Trustees, other than those affiliated with the Adviser, all expenses incurred in connection with their services to the Trust, and all expenses of meetings of the Trustees or committees thereof;
(f) all expenses incidental to holding meetings of holders of units of interest in the Trust ("Unitholders"), including printing and of supplying each record-date Unitholder with notice and proxy solicitation material, and all other proxy solicitation expense;
(g) all expenses of printing of annual or more frequent revisions of the Trust's prospectus(es) and of supplying each then-existing Unitholder with a copy of a revised prospectus;
(h) all expenses related to preparing and transmitting certificates representing Trust shares;
(i) all expenses of bond and insurance coverage required by law or deemed advisable by the Board of Trustees;
(j) all brokers' commissions and other normal charges incident to the purchase, sale, or lending of portfolio securities;
(k) all taxes and governmental fees payable to Federal, state or other governmental agencies, domestic or foreign, including all stamp or other transfer taxes;
(l) all expenses of registering and maintaining the registration of the Trust under the Act and, to the extent no exemption is available, expenses of registering the Trust's shares under the Securities Act of 1933 (the "1933 Act"), of qualifying and maintaining qualification of the Trust and of the Trust's shares for sale under securities laws of various states or other jurisdictions and of registration and qualification of the Trust under all other laws applicable to the Trust or its business activities;
(m) all interest on indebtedness, if any, incurred by the Trust or a Fund; and
(n) all fees, dues and other expenses incurred by the Trust in connection with membership of the Trust in any trade association or other investment company organization.
5. Allocation of Expenses Borne by Trust. Any expenses borne by the Trust that are attributable solely to the organization, operation or business of a Fund shall be paid solely out of Fund assets. Any expense borne by the Trust which is not solely attributable to a Fund, nor solely to any other series of shares of the Trust, shall be apportioned in such manner as the Adviser determines is fair and appropriate, or as otherwise specified by the Board of Trustees.
6. Expenses Borne by the Adviser. The Adviser at its own expense shall furnish all executive and other personnel, office space, and office facilities required to render the investment management and administrative services set forth in this Agreement. The Adviser shall pay all expenses of establishing, maintaining, and servicing the accounts of Unitholders in each Fund. However, the Adviser shall not be required to pay or provide any credit for services provided by Trust's custodian or other agents without additional cost to the Trust.
In the event that the Adviser pays or assumes any expenses of Trust or a Fund not required to be paid or assumed by the Adviser under this Agreement, the Adviser shall not be obligated hereby to pay or assume the same or similar expense in the future; provided that nothing contained herein shall be deemed to relieve the Adviser of any obligation to the Trust or a Fund under any separate agreement or arrangement between the parties.
7. Management Fee. For the services rendered, facilities provided, and charges assumed and paid by the Adviser hereunder, the Trust shall pay to the Adviser out of the assets of each Fund fees at the annual rate for such Fund as set forth in Schedule A to this Agreement. For each Fund, the management fee shall accrue on each calendar day, and shall be payable monthly on the first business day of the next succeeding calendar month. The daily fee accrual shall be computed by multiplying the fraction of one divided by the number of days in the calendar year by the applicable annual rate of fee, and multiplying this product by the net assets of the Fund, determined in the manner established by the Board of Trustees, as of the close of business on the last preceding business day on which the Fund's net asset value was determined.
8. Retention of Sub-Adviser. Subject to obtaining the initial and periodic approvals required under Section 15 of the 1940 Act, the Adviser may retain one or more sub-advisers at the Adviser's own cost and expense for the purpose of furnishing one or more of the services described in Section 1 hereof with respect to the Trust or one or more Funds. Retention of a sub-adviser shall in no way reduce the responsibilities or obligations of the Adviser under this Agreement, and the Adviser shall be responsible to the Trust and its Funds for all acts or omissions of any sub-adviser in connection with the performance of the Adviser's duties hereunder.
9. Non-Exclusivity. The services of the Adviser to the Trust hereunder are not to be deemed exclusive and the Adviser shall be free to render similar services to others.
10. Standard of Care. Neither the Adviser, nor any of its directors, officers, stockholders, agents or employees shall be liable to the Trust or its Unitholders for any error of judgment, mistake of law, loss arising out of any investment, or any other act or omission in the performance by the Adviser of its duties under this Agreement, except for loss or liability resulting from willful misfeasance, bad faith or gross negligence on the Adviser's part or from reckless disregard by the Adviser of its obligations and duties under this Agreement.
11. Amendment. This Agreement may not be amended as to the Trust or any Fund without the affirmative votes (a) of a majority of the Board of Trustees, including a majority of those Trustees who are not "interested persons" of the Trust or of the Adviser, voting in person at a meeting called for the purpose of voting on such approval, and (b) of a "majority of the outstanding shares" of the Trust or, with respect to an amendment affecting an individual Fund, a "majority of the outstanding shares" of that Fund. The terms "interested persons" and "vote of a majority of the outstanding shares" shall be construed in accordance with their respective definitions in the Act and, with respect to the latter term, in accordance with Rule 18f-2 under the Act.
12. Effective Date and Termination. This Agreement shall become effective as to any Fund as of the effective date first written above. This Agreement may be terminated at any time, without payment of any penalty, as to any Fund by the Board of Trustees of the Trust, or by a vote of a majority of the outstanding shares of that Fund, upon at least sixty (60) days' written notice to the Adviser. This Agreement may be terminated by the Adviser at any time upon at least sixty (60) days' written notice to the Trust. This Agreement shall terminate automatically in the event of its "assignment" (as defined in the Act). Unless terminated as hereinbefore provided, this Agreement shall continue in effect with respect to any Fund until the end of the initial term applicable to that and thereafter from year to year only so long as such continuance is specifically approved with respect to that Fund at least annually (a) by a majority of those Trustees who are not interested persons of the Trust or of the Adviser, voting in person at a meeting called for the purpose of voting on such approval, and (b) by either the Board of Trustees of the Trust or by a "vote of a majority of the outstanding shares" of the Fund.
13. Ownership of Records; Interparty Reporting. All records required to be maintained and preserved by Trust pursuant to the provisions of rules or regulations of the Securities and Exchange Commission under Section 31(a) of the Act or other applicable laws or regulations which are maintained and preserved by the Adviser on behalf of the Trust and any other records the parties mutually agree shall be maintained by the Adviser on behalf of the Trust are the property of the Trust and shall be surrendered by the Adviser promptly on request by the Trust; provided that the Adviser may at its own expense make and retain copies of any such records.
The Trust shall furnish or otherwise make available to the Adviser such copies of the financial statements, proxy statements, reports, and other information relating to the business and affairs of each Unitholder in a Fund as the Adviser may, at any time or from time to time, reasonably require in order to discharge its obligations under this Agreement.
The Adviser shall prepare and furnish to the Trust as to each Fund statistical data and other information in such form and at such intervals as the Trust may reasonably request.
14. Non-Liability of Trustees and Unitholders. Any obligation of the Trust hereunder shall be binding only upon the assets of the Trust (or the applicable Fund thereof) and shall not be binding upon any Trustee, officer, employee, agent or Unitholder of the Trust. Neither the authorization of any action by the Trustees or Unitholders of the Trust nor the execution of this Agreement on behalf of the Trust shall impose any liability upon any Trustee or any Unitholder.
15. References and Headings. In this Agreement and in any such amendment, references to this Agreement and all expressions such as "herein," "hereof," and "hereunder" shall be deemed to refer to this Agreement as amended or affected by any such amendments. Headings are placed herein for convenience of reference only and shall not be taken as a part hereof or control or affect the meaning, construction or effect of this Agreement. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the day and year first written above.
COLUMBIA FUNDS SERIES TRUST I, on behalf of its
COLUMBIA ASSET ALLOCATION FUND,
COLUMBIA SMALL CAP CORE FUND,
COLUMBIA SMALL COMPANY EQUITY FUND,
COLUMBIA DIVIDEND INCOME FUND,
COLUMBIA DISCIPLINED VALUE FUND,
COLUMBIA COMMON STOCK FUND and
COLUMBIA LARGE CAP GROWTH FUND series
COLUMBIA MANAGEMENT ADVISORS, LLC
A copy of the document establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the Fund.
MANAGEMENT AGREEMENT
SCHEDULE A
Compensation pursuant to Section 7 of this Agreement shall be calculated in accordance with the following schedules applicable to average daily net assets of the Funds:
Schedule for Columbia Common Stock Fund, Columbia Disciplined Value Fund, and Columbia Dividend Income Fund
$ 0.0 to $ 500.0 0.700% $ 500.0 to $1,000.0 0.650% $1,000.0 to $1,500.0 0.600% $1,500.0 to $3,000.0 0.550% $3,000.0 to $6,000.0 0.530% >$6,000.0 0.510% |
Schedule for Columbia Asset Allocation Fund
$ 0.0 to $ 500.0 0.650% $ 500.0 to $1,000.0 0.600% $1,000.0 to $1,500.0 0.550% $1,500.0 to $3,000.0 0.500% $3,000.0 to $6,000.0 0.480% >$6,000.0 0.460% |
Schedule for Columbia Small Company Equity Fund
0.75% on first $500 million
0.70% on next $500 million
0.65% thereafter
Schedule for Small Cap Core Fund
$ 0.0 to $ 500.0 0.750% $ 500.0 to $ 1,000.0 0.700% $1,000.0 to $ 1,500.0 0.650% $1,500.0 to $ 2,000.0 0.600% >$2,000 0.550% |
Schedule for Large Cap Growth Fund
$ 0.0 to $200.0 0.700% $ 200.0 to $500.0 0.575% >$ 500.0 0.450% |
Dated as of March 27, 2006
Exhibit (d)(11)
FORM OF
COLUMBIA UTILITIES FUND
MANAGEMENT AGREEMENT
AGREEMENT dated as of March __, 2006, between COLUMBIA FUNDS SERIES TRUST I (the "Trust"), on behalf of its COLUMBIA UTILITIES FUND series (the "Fund") and COLUMBIA MANAGEMENT ADVISORS, LLC (the "Advisor"). The Trust is registered as an open-end investment company pursuant to the Investment Company Act of 1940 (the "Act"). The Advisor is registered as an investment adviser pursuant to the Investment Advisers Act of 1940. This Agreement relates to services to be performed by the Advisor with respect to the Fund.
The parties agree as follows:
1. The Advisor will manage the investment of the assets of the Fund in accordance with its prospectus and statement of additional information and will perform the other services herein set forth, subject to the supervision of the Board of Trustees of the Trust. The Advisor may delegate its investment responsibilities to a sub-advisor.
2. In carrying out its investment management obligations, the Advisor shall:
(a) evaluate such economic, statistical and financial information and undertake such investment research as it shall believe advisable;
(b) purchase and sell securities and other investments for the Fund in accordance with the procedures described in its prospectus and statement of additional information; and
(c) report results to the Board of Trustees of the Trust.
3. The Advisor shall furnish at its expense the following:
(a) office space, supplies, facilities and equipment;
(b) executive and other personnel for managing the affairs of the Fund (including preparing financial information of the Fund and reports and tax returns required to be filed with public authorities, but exclusive of those related to custodial, transfer, dividend and plan agency services, determination of net asset value and maintenance of records required by Section 31(a) of the Act, as amended, and the rules thereunder); and
(c) compensation of Trustees who are directors, officers, partners or employees of the Advisor or its affiliated persons (other than a registered investment company).
4. The Advisor shall be free to render similar services to others so long as its services hereunder are not impaired thereby.
5. The Fund shall pay the Advisor monthly a fee at the annual rate of 0.65% of the first $1 billion of the average daily net assets of the Fund and 0.60% in excess of $1 billion.
6. If the operating expenses of the Fund for any fiscal year exceed the most restrictive applicable expense limitation for any state in which shares are sold, the Advisor's fee shall be reduced by the excess but not to less than zero. Operating expenses shall not include brokerage, interest, taxes, deferred organization expenses, Rule 12b-1 distribution fees, service fees and extraordinary expenses, if any. The Advisor may waive its compensation (and bear expenses of the Fund) to the extent that expenses of the Fund exceed any expense limitation the Advisor declares to be effective.
7. This Agreement shall become effective as of the date of its execution, and
(a) unless otherwise terminated, shall continue from year to year so long as
approved annually in accordance with the Act; (b) may be terminated without
penalty on sixty days' written notice to the Advisor either by vote of the Board
of Trustees of the Trust or by vote of a majority of the outstanding shares of
the Fund; (c) shall automatically terminate in the event of its assignment; and
(d) may be terminated without penalty by the Advisor on sixty days' written
notice to the Trust.
8. This Agreement may be amended in accordance with the Act.
9. For the purpose of the Agreement, the terms "vote of a majority of the outstanding shares", "affiliated person" and "assignment" shall have their respective meanings defined in the Act and exemptions and interpretations issued by the Securities and Exchange Commission under the Act.
10. In the absence of willful misfeasance, bad faith or gross negligence on the part of the Advisor, or reckless disregard of its obligations and duties hereunder, the Advisor shall not be subject to any liability to the Trust or the Fund, to any shareholder of the Trust or the Fund or to any other person, firm or organization, for any act or omission in the course of, or connected with, rendering services hereunder.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the day and year first written above.
COLUMBIA FUNDS SERIES TRUST I, on behalf of its
COLUMBIA UTILITIES FUND series
COLUMBIA MANAGEMENT ADVISORS, LLC
A copy of the document establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the Fund.
Exhibit (d)(12)
FORM OF
COLUMBIA INCOME FUND
COLUMBIA INTERMEDIATE BOND FUND
MANAGEMENT AGREEMENT
This Agreement is made as of the __ day of March, 2006 between COLUMBIA FUNDS SERIES TRUST I (the "Trust"), on behalf of its COLUMBIA INCOME FUND and COLUMBIA INTERMEDIATE BOND FUND series (the "Funds") and COLUMBIA MANAGEMENT ADVISORS, LLC (the "Adviser"). The Trust is registered as an open-end investment company pursuant to the Investment Company Act of 1940 (the "Act"). The Adviser is registered as an investment adviser pursuant to the Investment Advisers Act of 1940. This Agreement relates to the services to be performed by the Adviser with respect to the Funds.
The parties agree as follows:
1. Investment Management Services. The Adviser shall manage the investment operations of the Trust and each Fund, subject to the terms of this Agreement and to the supervision and control of the Trust's Board of Trustees ("Trustees"). The Adviser agrees to perform, or arrange for the performance of, the following services with respect to each Fund:
(a) to obtain and evaluate such information relating to economies, industries, businesses, securities and commodities markets, and individual securities, commodities and indices as it may deem necessary or useful in discharging its responsibilities hereunder;
(b) to formulate and maintain a continuing investment program in a manner consistent with and subject to (i) the Trust's agreement and declaration of trust and by-laws; (ii) the Fund's investment objectives, policies, and restrictions as set forth in written documents furnished by the Trust to the Adviser; (iii) all securities, commodities, and tax laws and regulations applicable to the Fund and the Trust; and (iv) any other written limits or directions furnished by the Trustees to the Adviser;
(c) unless otherwise directed by the Trustees, to determine from time to time securities, commodities, interests or other investments to be purchased, sold, retained or lent by the Fund, and to implement those decisions, including the selection of entities with or through which such purchases, sales or loans are to be effected;
(d) to use reasonable efforts to manage the Fund so that it will qualify as a regulated investment company under subchapter M of the Internal Revenue Code of 1986, as amended;
(e) to make recommendations as to the manner in which voting rights, rights to consent to the Trust or Fund action, and any other rights pertaining to the Trust or the Fund shall be exercised;
(f) to make available to the Trust promptly upon request all of the Fund's records and ledgers and any reports or information reasonably requested by the Trust; and
(g) to the extent required by law, to furnish to regulatory authorities any information or reports relating to the services provided pursuant to this Agreement.
Except as otherwise instructed from time to time by the Trustees, with respect to execution of transactions for the Trust on behalf of a Fund, the Adviser shall place, or arrange for the placement of, all orders for purchases, sales, or loans with issuers, brokers, dealers or other counter parties or agents selected by the Adviser. In connection with the selection of all such parties for the placement of all such orders, the Adviser shall attempt to obtain most favorable execution and price, but may nevertheless in its sole discretion as a secondary factor, purchase and sell portfolio securities from and to brokers and dealers who provide the Adviser with statistical, research and other information, analysis, advice, and similar services. In recognition of such services or brokerage services provided by a broker or dealer, the Adviser is hereby authorized to pay such broker or dealer a commission or spread in excess of that which might be charged by another broker or dealer for the same transaction if the Adviser determines in good faith that the commission or spread is reasonable in relation to the value of the services so provided.
The Trust hereby authorizes any entity or person associated with the Adviser that is a member of a national securities exchange to effect any transaction on the exchange for the account of a Fund to the extent permitted by and in accordance with Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder. The Trust hereby consents to the retention by such entity or person of compensation for such transactions in accordance with Rule 11a-2-2(T)(a)(iv).
The Adviser may, where it deems to be advisable, aggregate orders for its other customers together with any securities of the same type to be sold or purchased for the Trust or one or
more Funds in order to obtain best execution or lower brokerage commissions. In such event, the Adviser shall allocate the shares so purchased or sold, as well as the expenses incurred in the transaction, in a manner it considers to be equitable and fair and consistent with its fiduciary obligations to the Trust, the Funds, and the Adviser's other customers. The Adviser shall for all purposes be deemed to be an independent contractor and not an agent of the Trust and shall, unless otherwise expressly provided or authorized, have no authority to act for or represent the Trust in any way.
2. Administrative Services. The Adviser shall supervise the business and affairs of the Trust and each Fund and shall provide such services and facilities as may be required for effective administration of the Trust and Funds as are not provided by employees or other agents engaged by the Trust; provided that the Adviser shall not have any obligation to provide under this Agreement any such services which are the subject of a separate agreement or arrangement between the Trust and the Adviser, any affiliate of the Adviser, or any third party administrator ("Administrative Agreements").
3. Use of Affiliated Companies and Subcontractors. In connection with the services to be provided by the Adviser under this Agreement, the Adviser may, to the extent it deems appropriate, and subject to compliance with the requirements of applicable laws and regulations and upon receipt of written approval of the Trustees, make use of (i) its affiliated companies and their directors, trustees, officers, and employees and (ii) subcontractors selected by the Adviser, provided that the Adviser shall supervise and remain fully responsible for the services of all such third parties in accordance with and to the extent provided by this Agreement. All costs and expenses associated with services provided by any such third parties shall be borne by the Adviser or such parties.
4. Expenses Borne by the Trust. Except to the extent expressly assumed by the Adviser herein or under a separate agreement between the Trust and the Adviser and except to the extent required by law to be paid by the Adviser, the Adviser shall not be obligated to pay any costs or expenses incidental to the organization, operations or business of the Trust. Without limitation, such costs and expenses shall include but not be limited to:
(a) all charges of depositories, custodians and other agencies for the safekeeping and servicing of its cash, securities, and other property;
(b) all charges for equipment or services used for obtaining price quotations or for communication between the Adviser or the Trust and the custodian, transfer agent or any other agent selected by the Trust;
(c) all charges for administrative and accounting services provided to the Trust by the Adviser, or any other provider of such services;
(d) all charges for services of the Trust's independent auditors and for services to the Trust by legal counsel;
(e) all compensation of Trustees, other than those affiliated with the Adviser, all expenses incurred in connection with their services to the Trust, and all expenses of meetings of the Trustees or committees thereof;
(f) all expenses incidental to holding meetings of holders of units of interest in the Trust ("Unitholders"), including printing and of supplying each record-date Unitholder with notice and proxy solicitation material, and all other proxy solicitation expense;
(g) all expenses of printing of annual or more frequent revisions of the Trust's prospectus(es) and of supplying each then-existing Unitholder with a copy of a revised prospectus;
(h) all expenses related to preparing and transmitting certificates representing the Trust shares;
(i) all expenses of bond and insurance coverage required by law or deemed advisable by the Board of Trustees;
(j) all brokers' commissions and other normal charges incident to the purchase, sale, or lending of portfolio securities;
(k) all taxes and governmental fees payable to Federal, state or other governmental agencies, domestic or foreign, including all stamp or other transfer taxes;
(l) all expenses of registering and maintaining the registration of the Trust under the Act and, to the extent no exemption is available, expenses of registering the Trust's shares under the Securities Act of 1933, of qualifying and maintaining qualification of the Trust and of the Trust's shares for sale under securities laws of various states or other jurisdictions and of registration and qualification of the Trust under all other laws applicable to the Trust or its business activities;
(m) all interest on indebtedness, if any, incurred by the Trust or a Fund; and
(n) all fees, dues and other expenses incurred by the Trust in connection with membership of the Trust in any trade association or other investment company organization.
5. Allocation of Expenses Borne by the Trust. Any expenses borne by the Trust that are attributable solely to the organization, operation or business of a Fund shall be paid solely out of Fund assets. Any expense borne by the Trust which is not solely attributable to a Fund, nor solely to any other series of shares of the Trust, shall be apportioned in such manner as the Adviser determines is fair and appropriate, or as otherwise specified by the Board of Trustees.
6. Expenses Borne by the Adviser. The Adviser at its own expense shall furnish all executive and other personnel, office space, and office facilities required to render the investment management and administrative services set forth in this Agreement. The Adviser shall pay all expenses of establishing, maintaining, and servicing the accounts of Unitholders in each Fund. However, the Adviser shall not be required to pay or provide any credit for services provided by the Trust's custodian or other agents without additional cost to the Trust.
In the event that the Adviser pays or assumes any expenses of the Trust or a Fund not required to be paid or assumed by the Adviser under this Agreement, the Adviser shall not be obligated hereby to pay or assume the same or similar expense in the future; provided that nothing contained herein shall be deemed to relieve the Adviser of any obligation to the Trust or a Fund under any separate agreement or arrangement between the parties.
7. Management Fee. For the services rendered, facilities provided, and charges assumed and paid by the Adviser hereunder, the Trust shall pay to the Adviser out of the assets of each Fund fees at the annual rate for such Fund as set forth in Schedule A to this Agreement. For each Fund, the management fee shall accrue on each calendar day, and shall be payable monthly on the first business day of the next succeeding calendar month. The daily fee accrual shall be computed by multiplying the fraction of one divided by the number of days in the calendar year by the applicable annual rate of fee, and multiplying this product by the net assets of the Fund, determined in the manner established by the Board of Trustees, as of the close of business on the last preceding business day on which the Fund's net asset value was determined.
8. Retention of Sub-Adviser. Subject to obtaining the initial and periodic approvals required under Section 15 of the Act, the Adviser may retain one or more sub-advisers at the Adviser's own cost and expense for the purpose of furnishing one or more of the services described in Section 1 hereof with respect to the Trust or one or more Funds. Retention of a sub-adviser shall in no way reduce the responsibilities or obligations of the Adviser under this Agreement, and the Adviser shall be responsible to the Trust and its Funds for all acts or omissions of any sub-adviser in connection with the performance of the Adviser's duties hereunder.
9. Non-Exclusivity. The services of the Adviser to the Trust hereunder are not to be deemed exclusive and the Adviser shall be free to render similar services to others.
10. Standard of Care. Neither the Adviser, nor any of its directors, officers, stockholders, agents or employees shall be liable to the Trust or its Unitholders for any error of judgment, mistake of law, loss arising out of any investment, or any other act or omission in the performance by the Adviser of its duties under this Agreement, except for loss or liability resulting from willful misfeasance, bad faith or gross negligence on the Adviser's part or from reckless disregard by the Adviser of its obligations and duties under this Agreement.
11. Amendment. This Agreement may not be amended as to the Trust or any Fund without the affirmative votes (a) of a majority of the Board of Trustees, including a majority of those Trustees who are not "interested persons" of the Trust or of the Adviser, voting in person at a meeting called for the purpose of voting on such approval, and (b) of a "majority of the outstanding shares" of the Trust or, with respect to an amendment affecting an individual Fund, a "majority of the outstanding shares" of that Fund. The terms "interested persons" and "vote of a majority of the outstanding shares" shall be construed in accordance with their respective definitions in the Act and, with respect to the latter term, in accordance with Rule 18f-2 under the Act.
12. Effective Date and Termination. This Agreement shall become effective as to any Fund as of the effective date as first written above. This Agreement may be terminated at any time, without payment of any penalty, as to any Fund by the Board of Trustees of the Trust, or by a vote of a majority of the outstanding shares of that Fund, upon at least sixty (60) days' written notice to the Adviser. This Agreement may be terminated by the Adviser at any time upon at least sixty (60) days' written notice to the Trust. This Agreement shall terminate automatically in the event of its "assignment" (as defined in the Act). Unless terminated as hereinbefore provided,
this Agreement shall continue in effect with respect to any Fund until the end of the initial term applicable to that Fund and thereafter from year to year only so long as such continuance is specifically approved with respect to that Fund at least annually (a) by a majority of those Trustees who are not interested persons of the Trust or of the Adviser, voting in person at a meeting called for the purpose of voting on such approval, and (b) by either the Board of Trustees of the Trust or by a "vote of a majority of the outstanding shares" of the Fund.
13. Ownership of Records; Interparty Reporting. All records required to be maintained and preserved by the Trust pursuant to the provisions of rules or regulations of the Securities and Exchange Commission under Section 31(a) of the Act or other applicable laws or regulations which are maintained and preserved by the Adviser on behalf of the Trust and any other records the parties mutually agree shall be maintained by the Adviser on behalf of the Trust are the property of the Trust and shall be surrendered by the Adviser promptly on request by the Trust; provided that the Adviser may at its own expense make and retain copies of any such records.
The Trust shall furnish or otherwise make available to the Adviser such copies of the financial statements, proxy statements, reports, and other information relating to the business and affairs of each Unitholder in a Fund as the Adviser may, at any time or from time to time, reasonably require in order to discharge its obligations under this Agreement.
The Adviser shall prepare and furnish to the Trust as to each Fund statistical data and other information in such form and at such intervals as the Trust may reasonably request.
14. Non-Liability of Trustees and Unitholders. Any obligation of the Trust hereunder shall be binding only upon the assets of the Trust (or the applicable Fund thereof) and shall not be binding upon any Trustee, officer, employee, agent or Unitholder of the Trust. Neither the authorization of any action by the Trustees or Unitholders of the Trust nor the execution of this Agreement on behalf of the Trust shall impose any liability upon any Trustee or any Unitholder.
15. Use of Adviser's Name. At such time as this Agreement or any extension, renewal or amendment hereof, or any similar agreement with any organization which shall have succeeded to the business of the Adviser, shall no longer be in effect, the Trust will cease to use any name derived from or otherwise connected with the Adviser or with any organization which shall have succeeded to the adviser's business as investment adviser.
16. References and Headings. In this Agreement and in any such amendment, references to this Agreement and all expressions such as "herein," "hereof," and "hereunder" shall be deemed to refer to this Agreement as amended or affected by any such amendments. Headings are placed herein for convenience of reference only and shall not be taken as a part hereof or control or affect the meaning, construction or effect of this Agreement. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original.
[The remainder of the page intentionally left blank.]
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the day and year first written above.
COLUMBIA FUNDS SERIES TRUST I, on behalf of its
COLUMBIA INCOME FUND and
COLUMBIA INTERMEDIATE BOND FUND series
COLUMBIA MANAGEMENT ADVISORS, LLC
A copy of the document establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the Fund.
MANAGEMENT AGREEMENT
SCHEDULE A
Compensation pursuant to Section 7 of this Agreement shall be calculated in accordance with the following schedules applicable to average daily net assets of the Funds:
Schedule for Columbia Income Fund (shown in $MM):
$ 0.0 to $ 500.0 0.420% $ 500.0 to $1,000.0 0.375% $1,000.0 to $1,500.0 0.370% $1,500.0 to $3,000.0 0.340% $3,000.0 to $6,000.0 0.330% >6,000.0 0.320% |
Schedule for Columbia Intermediate Bond Fund (shown in $MM):
$ 0.0 to $ 500.0 0.350% $ 500.0 to $1,000.0 0.350% $1,000.0 to $1,500.0 0.300% $1,500.0 to $3,000.0 0.290% $3,000.0 to $6,000.0 0.280% >$6,000.0 0.270% |
Dated as of March 27, 2006
Exhibit (d)(13)
FORM OF
COLUMBIA U.S. TREASURY INDEX FUND
MANAGEMENT AGREEMENT
AGREEMENT dated as of March __, 2006, between COLUMBIA FUNDS SERIES TRUST I (the "Trust"), on behalf of its COLUMBIA U.S.TREASURY INDEX FUND series (the "Fund") and COLUMBIA MANAGEMENT ADVISORS, LLC (the "Advisor"). The Trust is registered as an open-end investment company pursuant to the Investment Company Act of 1940 (the "Act"). The Advisor is registered as an investment adviser pursuant to the Investment Advisers Act of 1940. This Agreement relates to the services to be performed by the Advisor with respect to the Fund.
In consideration of the promises and covenants herein, the parties agree as follows:
1. The Advisor will manage the investment of the assets of the Fund in accordance with its prospectus and statement of additional information and will perform the other services herein set forth, subject to the supervision of the Board of Trustees of the Trust. The Advisor may delegate its investment responsibilities to a sub-advisor.
2. In carrying out its investment management obligations, the Advisor shall:
(a) evaluate such economic, statistical and financial information and undertake such investment research as it shall believe advisable;
(b) purchase and sell securities and other investments for the Fund in accordance with the procedures described in its prospectus and statement of additional information; and
(c) report results to the Board of Trustees of the Trust.
3. The Advisor shall be free to render similar services to others so long as its services hereunder are not impaired thereby.
4. The Fund shall pay the Advisor monthly a fee at the annual rate of 0.10% of the average daily net assets of the Fund.
5. The Advisor may waive its compensation (and bear expenses of the Fund) to the extent that expenses of the Fund exceed any expense limitation the Advisor declares to be effective.
6. This Agreement shall become effective as of the date of its execution, and
(a) unless otherwise terminated, shall continue from year to year so long as
approved annually in accordance with the Act; (b) may be terminated without
penalty on sixty days' written notice to the Advisor either by vote of the Board
of Trustees of the Trust or by vote of a majority of the outstanding shares of
the Fund; (c) shall automatically terminate in the event of its assignment; and
(d) may be terminated without penalty by the Advisor on sixty days' written
notice to the Trust.
7. This Agreement may be amended in accordance with the Act.
8. For the purpose of the Agreement, the terms "vote of a majority of the outstanding shares", "affiliated person" and "assignment" shall have their respective meanings defined in the Act and exemptions and interpretations issued by the Securities and Exchange Commission under the Act.
9. The Advisor shall maintain, keep current and preserve on behalf of the Fund, in the manner required by the Act, records identified by the Trust from time to time. Advisor agrees to make such records available upon request to the Trust and its auditors during regular business hours at the Advisor's offices. The Advisor further agrees that such records are the property of the Trust and will be surrendered to the Trust promptly upon request.
10. In the absence of willful misfeasance, bad faith or gross negligence on the part of the Advisor, or reckless disregard of its obligations and duties hereunder, the Advisor shall not be subject to any liability to the Trust or the Fund, to any shareholder of the Trust or the Fund or to any other person, firm or organization, for any act or omission in the course of, or connected with, rendering services hereunder.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the day and year first written above.
COLUMBIA FUNDS SERIES TRUST I, on behalf of its
COLUMBIA U.S. TREASURY INDEX FUND series
COLUMBIA MANAGEMENT ADVISORS LLC
A copy of the document establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the Fund.
Exhibit (d)(14)
FORM OF
COLUMBIA WORLD EQUITY FUND
MANAGEMENT AGREEMENT
AGREEMENT dated as of March __, 2006, between COLUMBIA FUNDS SERIES TRUST I (the "Trust"), on behalf of its COLUMBIA WORLD EQUITY FUND series (the "Fund") and COLUMBIA MANAGEMENT ADVISORS, LLC (the "Advisor"). The Trust is registered as an open-end investment company pursuant to the Investment Company Act of 1940 (the "Act"). The Advisor is registered as an investment adviser pursuant to the Investment Advisers Act of 1940. This Agreement relates to services to be performed by the Advisor with respect to the Fund.
The parties agree as follows:
1. The Advisor will manage the investment of the assets of the Fund in accordance with its prospectus and statement of additional information and will perform the other services herein set forth, subject to the supervision of the Board of Trustees of the Trust. The Advisor may delegate its investment responsibilities to a sub-advisor.
2. In carrying out its investment management obligations, the Advisor shall:
(a) evaluate such economic, statistical and financial information and undertake such investment research as it shall believe advisable;
(b) purchase and sell securities and other investments for the Fund in accordance with the procedures described in its prospectus and statement of additional information; and
(c) report results to the Board of Trustees of the Trust.
3. The Advisor shall furnish at its expense the following:
(a) office space, supplies, facilities and equipment;
(b) executive and other personnel for managing the affairs of the Fund (including preparing financial information of the Fund and reports and tax returns required to be filed with public authorities, but exclusive of those related to custodial, transfer, dividend and plan agency services, determination of net asset value and maintenance of records required by Section 31(a) of Act, as amended, and the rules thereunder; and
(c) compensation of Trustees who are directors, officers, partners or employees of the Advisor or its affiliated persons (other than a regulated investment company).
4. The Advisor shall be free to render similar services to others so long as its services hereunder are not impaired thereby.
5. The Fund shall pay the Advisor monthly a fee at the annual rate of 0.40% on the first $1 billion of the average daily net assets of the Fund and 0.35% in excess of $1 billion.
6. If the operating expenses of the Fund for any fiscal year exceed the most restrictive applicable expense limitation for any state in which shares are sold, the Advisor's fee shall be reduced by the excess but not to less than zero. Operating expenses shall not include brokerage, interest, taxes, deferred organization expenses, Rule 12b-1 distribution fees, service fees and extraordinary expenses, if any. The Advisor may waive its compensation (and bear expenses of the Fund) to the extent that expenses of the Fund exceed any expense limitation the Advisor declares to be effective.
7. This Agreement shall become effective as of the date of its execution, and
(a) unless otherwise terminated, shall continue from year to year so long as
approved annually in accordance with the Act; (b) may be terminated without
penalty on sixty days' written notice to the Advisor either by vote of the Board
of Trustees of the Trust or by vote of a majority of the outstanding shares of
the Fund; (c) shall automatically terminate in the event of its assignment; and
(d) may be terminated without penalty by the Advisor on sixty days' written
notice to the Trust.
8. This Agreement may be amended in accordance with the Act.
9. For the purpose of the Agreement, the terms "vote of a majority of the outstanding shares", "affiliated person" and "assignment" shall have their respective meanings defined in the Act and exemptions and interpretations issued by the Securities and Exchange Commission under the Act.
10. In the absence of willful misfeasance, bad faith or gross negligence on the part of the Advisor, or reckless disregard of its obligations and duties hereunder, the Advisor shall not be subject to any liability to the Trust or the Fund, to any shareholder of the Trust or the Fund or to any other person, firm or organization, for any act or omission in the course of, or connected with, rendering services hereunder.
[The remainder of page intentionally left blank]
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the day and year first written above.
COLUMBIA FUNDS SERIES TRUST I,
on behalf of its COLUMBIA WORLD EQUITY FUND series
COLUMBIA MANAGEMENT ADVISORS, LLC
A copy of the document establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the Fund.
Exhibit (d)(15)
FORM OF
COLUMBIA CORE BOND FUND
MANAGEMENT AGREEMENT
AGREEMENT dated as of March __, 2006, between COLUMBIA FUNDS SERIES TRUST I (the "Trust"), with respect to its COLUMBIA CORE BOND FUND series (the "Fund"), and COLUMBIA MANAGEMENT ADVISORS, LLC (the "Advisor").
In consideration of the promises and covenants herein, the parties agree as follows:
1. The Advisor will manage the investment of the assets of the Fund in accordance with its prospectus and statement of additional information and will perform the other services herein set forth, subject to the supervision of the Board of Trustees of the Trust. The Advisor may delegate its investment responsibilities to a sub-advisor.
2. In carrying out its investment management obligations, the Advisor shall:
(a) evaluate such economic, statistical and financial information and undertake such investment research as it shall believe advisable;
(b) purchase and sell securities and other investments for the Fund in accordance with the procedures described in its prospectus and statement of additional information; and
(c) report results to the Board of Trustees of the Trust.
3. The Advisor shall be free to render similar services to others so long as its services hereunder are not impaired thereby.
4. The Fund shall pay the Advisor monthly a fee at the annual rate as shown in the table below (shown in $MM):
$ 0.0 to $ 500.0 0.480% $ 500.0 to $1,000.0 0.430% $1,000.0 to $1,500.0 0.400% $1,500.0 to $3,000.0 0.370% $3,000.0 to $6,000.0 0.360% >$6,000.0 0.350% |
5. The Advisor may waive its compensation (and bear expenses of the Fund) to the extent that expenses of the Fund exceed any expense limitation the Advisor declares to be effective.
6. This Agreement shall become effective as of the date of its execution, and
(a) unless otherwise terminated, shall continue from year to year so long as
approved annually in accordance with the 1940 Act; (b) may be terminated without
penalty on sixty days' written notice to the Advisor either by vote of the Board
of Trustees of the Trust or by vote of a majority of the outstanding shares of
the Fund; (c) shall automatically terminate in the event of its assignment; and
(d) may be terminated without penalty by the Advisor on sixty days' written
notice to the Trust.
7. This Agreement may be amended in accordance with the 1940 Act.
8. For the purpose of the Agreement, the terms "vote of a majority of the outstanding shares", "affiliated person" and "assignment" shall have their respective meanings defined in the 1940 Act and exemptions and interpretations issued by the Securities and Exchange Commission under the 1940 Act.
9. The Advisor shall maintain, keep current and preserve on behalf of the Fund, in the manner required by the 1940 Act, records identified by the Trust from time to time. Advisor agrees to make such records available upon request to the Trust and its auditors during regular business hours at the Advisor's offices. Advisor further agrees that such records are the property of the Trust and will be surrendered to the Trust promptly upon request.
10. In the absence of willful misfeasance, bad faith or gross negligence on the part of the Advisor, or reckless disregard of its obligations and duties hereunder, the Advisor shall not be subject to any liability to the Trust or the Fund, to any shareholder of the Trust or the Fund or to any other person, firm or organization, for any act or omission in the course of, or connected with, rendering services hereunder.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the day and year first written above.
COLUMBIA FUNDS SERIES TRUST I
on behalf of its COLUMBIA CORE BOND FUND series
By:
---------------------------------
Name: Christopher L. Wilson
-------------------------------
Title: President
------------------------------
|
COLUMBIA MANAGEMENT ADVISORS, LLC
By:
---------------------------------
Name: Roger Sayler
-------------------------------
Title: Managing Director
------------------------------
|
A copy of the document establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the Fund.
Exhibit (d)(16)
FORM OF
COLUMBIA HIGH YIELD OPPORTUNITY FUND
MANAGEMENT AGREEMENT
AGREEMENT dated as of March __, 2006, between COLUMBIA FUNDS SERIES TRUST I, a
Massachusetts business trust (the "Trust"), on behalf of its COLUMBIA HIGH YIELD
OPPORTUNITY FUND series (the "Fund"), and COLUMBIA MANAGEMENT ADVISORS, LLC (the
"Advisor").
In consideration of the promises and covenants herein, the parties agree as follows:
1. The Advisor will manage the investment of the assets of the Fund in accordance with its prospectus and statement of additional information and will perform the other services herein set forth, subject to the supervision of the Board of Trustees of the Trust. The Advisor may delegate its investment responsibilities to a sub-advisor.
2. In carrying out its investment management obligations, the Advisor shall:
(a) evaluate such economic, statistical and financial information and undertake such investment research as it shall believe advisable;
(b) purchase and sell securities and other investments for the Fund in accordance with the procedures described in its prospectus and statement of additional information; and
(c) report results to the Board of Trustees of the Trust.
3. The Advisor shall furnish at its expense the following:
(a) office space, supplies, facilities and equipment;
(b) executive and other personnel for managing the affairs of the Fund
(including preparing financial information of the Fund and reports and tax
returns required to be filed with public authorities, but exclusive of
those related to custodial, transfer, dividend and plan agency services,
determination of net asset value and maintenance of records required by
Section 31(a) of the Investment Company Act of 1940, as amended, and the
rules thereunder ("1940 Act")); and
(c) compensation of Trustees who are directors, officers, partners or employees of the Advisor or its affiliated persons (other than a registered investment company).
4. The Advisor shall be free to render similar services to others so long as its services hereunder are not impaired thereby.
5. The Fund shall pay the Advisor monthly a fee at the annual rate as shown in the table below:
$ 0.0 to $ 500.0 0.600% $ 500.0 to $1,000.0 0.550% $1,000.0 to $1,500.0 0.520% >$1,500.0 0.490% |
Shown in $MM
6. If the operating expenses of the Fund for any fiscal year exceed the most restrictive applicable expense limitation for any state in which shares are sold, the Advisor's fee shall be reduced by the excess but not to less than zero. Operating expenses shall not include brokerage, interest, taxes, deferred organization expenses, Rule 12b-1 distribution fees, service fees and extraordinary expenses, if any. The Advisor may waive its compensation (and bear expenses of the Fund) to the extent that expenses of the Fund exceed any expense limitation the Advisor declares to be effective.
7. This Agreement shall become effective as of the date of its execution, and
(a) unless otherwise terminated, shall continue from year to year so long
as approved annually in accordance with the 1940 Act; (b) may be terminated
without penalty on sixty days' written notice to the Advisor either by vote
of
the Board of Trustees of the Trust or by vote of a majority of the outstanding shares of the Fund; (c) shall automatically terminate in the event of its assignment; and (d) may be terminated without penalty by the Advisor on sixty days' written notice to the Trust.
8. This Agreement may be amended in accordance with the 1940 Act.
9. For the purpose of the Agreement, the terms "vote of a majority of the outstanding shares", "affiliated person" and "assignment" shall have their respective meanings defined in the 1940 Act and exemptions and interpretations issued by the Securities and Exchange Commission under the 1940 Act.
10. In the absence of willful misfeasance, bad faith or gross negligence on the part of the Advisor, or reckless disregard of its obligations and duties hereunder, the Advisor shall not be subject to any liability to the Trust or the Fund, to any shareholder of the Trust or the Fund or to any other person, firm or organization, for any act or omission in the course of, or connected with, rendering services hereunder.
[The remainder of page intentionally left blank]
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the day and year first written above.
COLUMBIA FUNDS SERIES TRUST I
on behalf of its COLUMBIA HIGH YIELD OPPORTUNITY FUND series
By:
---------------------------------
Name: Christopher L. Wilson
-------------------------------
Title: President
------------------------------
|
COLUMBIA MANAGEMENT ADVISORS, LLC
By:
---------------------------------
Name: Roger Sayler
-------------------------------
Title: Managing Director
------------------------------
|
A copy of the document establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the Fund.
FORM OF
COLUMBIA SMALL CAP VALUE FUND I Exhibit (d) (17)
MANAGEMENT AGREEMENT
AGREEMENT dated as of March __, 2006, between COLUMBIA FUNDS SERIES TRUST I, a Massachusetts business trust ("Trust"), on behalf of its COLUMBIA SMALL CAP VALUE FUND I series (the "Fund"), and COLUMBIA MANAGEMENT ADVISORS, LLC (the "Adviser").
In consideration of the promises and covenants herein, the parties agree as follows:
1. The Adviser will manage the investment of the assets of the Fund in accordance with its prospectus and statement of additional information and will perform the other services herein set forth, subject to the supervision of the Board of Trustees of the Trust. The Adviser may delegate its investment responsibilities to a sub-advisor.
2. In carrying out its investment management obligations, the Adviser shall:
(a) evaluate such economic, statistical and financial information and
undertake such investment research as it shall believe advisable; (b)
purchase and sell securities and other investments for the Fund in
accordance with the procedures described in its prospectus and statement of
additional information; and (c) report results to the Board of Trustees of
the Trust.
3. The Adviser shall furnish at its expense the following:
(a) office space, supplies, facilities and equipment; (b) executive and other personnel for managing the affairs of the Fund (including preparing financial information of the Fund and reports and tax returns required to be filed with public authorities, but exclusive of those related to custodial, transfer, dividend and plan agency services, determination of net asset value and maintenance of records required by Section 31(a) of the Investment Company Act of 1940, as amended, and the rules thereunder ("1940 Act")); and (c) compensation of Trustees who are directors, officers, partners or employees of the Adviser or its affiliated persons (other than a registered investment company).
4. The Adviser shall be free to render similar services to others so long as its services hereunder are not impaired thereby.
5. The Fund shall pay the Adviser monthly a fee at the annual rate of 0.80% of the first $500 million of the average daily net assets of the Fund, 0.75% of the next $500 million and 0.70% in excess of $1 billion.
6. If the operating expenses of the Fund for any fiscal year exceed the most restrictive applicable expense limitation for any state in which shares are sold, the Adviser's fee shall be reduced by the excess but not to less than zero. Operating expenses shall not include brokerage, interest, taxes, deferred organization expenses, Rule 12b-1 distribution fees, service fees and extraordinary expenses, if any. The Adviser may waive its compensation (and bear expenses of the Fund) to the extent that expenses of the Fund exceed any expense limitation the Adviser declares to be effective.
7. This Agreement shall become effective as of the date of its execution, and
(a) unless otherwise terminated, shall continue from year to year
thereafter so long as approved annually in accordance with the 1940 Act;
(b) may be terminated without penalty on sixty days' written notice to the
Adviser either by vote of the Board of Trustees of the Trust or by vote of
a majority of the outstanding shares of the Fund; (c) shall automatically
terminate in the event of its assignment; and (d) may be terminated without
penalty by the Adviser on sixty days' written notice to the Trust.
8. This Agreement may be amended in accordance with the 1940 Act.
9. For the purpose of the Agreement, the terms "vote of a majority of the outstanding shares", "affiliated person" and "assignment" shall have their respective meanings defined in the 1940 Act and exemptions and
interpretations issued by the Securities and Exchange Commission under the 1940 Act.
10. In the absence of willful misfeasance, bad faith or gross negligence on the part of the Adviser, or reckless disregard of its obligations and duties hereunder, the Adviser shall not be subject to any liability to the Trust or the Fund, to any shareholder of the Trust or the Fund or to any other person, firm or organization, for any act or omission in the course of, or connected with, rendering services hereunder.
[The remainder of page intentionally left blank]
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the day and year first written above.
COLUMBIA FUNDS SERIES TRUST I
on behalf of its COLUMBIA SMALL CAP VALUE FUND I series
COLUMBIA MANAGEMENT ADVISORS, LLC
A copy of the document establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the Fund.
Exhibit (d)(18)
FORM OF
COLUMBIA GROWTH STOCK FUND
COLUMBIA YOUNG INVESTOR FUND
MANAGEMENT AGREEMENT
This Agreement is made as of the __ day of March, 2006 between COLUMBIA FUNDS SERIES TRUST I (the "Trust"), on behalf of its COLUMBIA GROWTH STOCK FUND and COLUMBIA YOUNG INVESTOR FUND series (the "Funds") and COLUMBIA MANAGEMENT ADVISORS, LLC (the "Adviser"). The Trust is registered as an open-end investment company pursuant to the Investment Company Act of 1940 (the "Act"). The Adviser is registered as an investment adviser pursuant to the Investment Advisers Act of 1940. This Agreement relates to the services to be performed by the Adviser with respect to the Funds.
The parties agree as follows:
1. Investment Management Services. The Adviser shall manage the investment operations of the Trust and each Fund, subject to the terms of this Agreement and to the supervision and control of the Trust's Board of Trustees ("Trustees"). The Adviser agrees to perform, or arrange for the performance of, the following services with respect to each Fund:
(a) to obtain and evaluate such information relating to economies, industries, businesses, securities and commodities markets, and individual securities, commodities and indices as it may deem necessary or useful in discharging its responsibilities hereunder;
(b) to formulate and maintain a continuing investment program in a manner consistent with and subject to (i) the Trust's agreement and declaration of trust and by-laws; (ii) the Fund's investment objectives, policies, and restrictions as set forth in written documents furnished by the Trust to the Adviser; (iii) all securities, commodities, and tax laws and regulations applicable to the Fund and the Trust; and (iv) any other written limits or directions furnished by the Trustees to the Adviser;
(c) unless otherwise directed by the Trustees, to determine from time to time securities, commodities, interests or other investments to be purchased, sold, retained or lent by the Fund, and to implement those decisions, including the selection of entities with or through which such purchases, sales or loans are to be effected;
(d) to use reasonable efforts to manage the Fund so that it will qualify as a regulated investment company under subchapter M of the Internal Revenue Code of 1986, as amended;
(e) to make recommendations as to the manner in which voting rights, rights to consent to Trust or Fund action, and any other rights pertaining to the Trust or the Fund shall be exercised;
(f) to make available to the Trust promptly upon request all of the Fund's records and ledgers and any reports or information reasonably requested by the Trust; and
(g) to the extent required by law, to furnish to regulatory authorities any information or reports relating to the services provided pursuant to this Agreement.
Except as otherwise instructed from time to time by the Trustees, with respect to execution of transactions for the Trust on behalf of a Fund, the Adviser shall place, or arrange for the placement of, all orders for purchases, sales, or loans with issuers, brokers, dealers or other counter parties or agents selected by the Adviser. In connection with the selection of all such parties for the placement of all such orders, the Adviser shall attempt to obtain most favorable execution and price, but may nevertheless in its sole discretion as a secondary factor, purchase and sell portfolio securities from and to brokers and dealers who provide the Adviser with statistical, research and other information, analysis, advice, and similar services. In recognition of such services or brokerage services provided by a broker or dealer, the Adviser is hereby authorized to pay such broker or dealer a commission or spread in excess of that which might be charged by another broker or dealer for the same transaction if the Adviser determines in good faith that the commission or spread is reasonable in relation to the value of the services so provided.
The Trust hereby authorizes any entity or person associated with the Adviser that is a member of a national securities exchange to effect any transaction on the exchange for the account of a
Fund to the extent permitted by and in accordance with Section 11(a) of the Securities Exchange Act of 1934 and Rule 11a2-2(T) thereunder. Trust hereby consents to the retention by such entity or person of compensation for such transactions in accordance with Rule 11a-2-2(T)(a)(iv).
The Adviser may, where it deems to be advisable, aggregate orders for its other customers together with any securities of the same type to be sold or purchased for the Trust or one or more Funds in order to obtain best execution or lower brokerage commissions. In such event, the Adviser shall allocate the shares so purchased or sold, as well as the expenses incurred in the transaction, in a manner it considers to be equitable and fair and consistent with its fiduciary obligations to the Trust, the Funds, and the Adviser's other customers. The Adviser shall for all purposes be deemed to be an independent contractor and not an agent of the Trust and shall, unless otherwise expressly provided or authorized, have no authority to act for or represent the Trust in any way.
2. Administrative Services. The Adviser shall supervise the business and affairs of the Trust and each Fund and shall provide such services and facilities as may be required for effective administration of the Trust and Funds as are not provided by employees or other agents engaged by the Trust; provided that the Adviser shall not have any obligation to provide under this Agreement any such services which are the subject of a separate agreement or arrangement between the Trust and the Adviser, any affiliate of the Adviser, or any third party administrator ("Administrative Agreements").
3. Use of Affiliated Companies and Subcontractors. In connection with the services to be provided by the Adviser under this Agreement, the Adviser may, to the extent it deems appropriate, and subject to compliance with the requirements of applicable laws and regulations and upon receipt of written approval of the Trustees, make use of (i) its affiliated companies and their directors, trustees, officers, and employees and (ii) subcontractors selected by the Adviser, provided that the Adviser shall supervise and remain fully responsible for the services of all such third parties in accordance with and to the extent provided by this Agreement. All costs and expenses associated with services provided by any such third parties shall be borne by the Adviser or such parties.
4. Expenses Borne by the Trust. Except to the extent expressly assumed by the Adviser herein or under a separate agreement between the Trust and the Adviser and except to the extent required by law to be paid by the Adviser, the Adviser shall not be obligated to pay any costs or expenses incidental to the organization, operations or business of the Trust. Without limitation, such costs and expenses shall include but not be limited to:
(a) all charges of depositories, custodians and other agencies for the safekeeping and servicing of its cash, securities, and other property;
(b) all charges for equipment or services used for obtaining price quotations or for communication between the Adviser or the Trust and the custodian, transfer agent or any other agent selected by the Trust;
(c) all charges for administrative and accounting services provided to the Trust by the Adviser, or any other provider of such services;
(d) all charges for services of the Trust's independent auditors and for services to the Trust by legal counsel;
(e) all compensation of Trustees, other than those affiliated with the Adviser, all expenses incurred in connection with their services to the Trust, and all expenses of meetings of the Trustees or committees thereof;
(f) all expenses incidental to holding meetings of holders of units of interest in the Trust ("Unitholders"), including printing and of supplying each record-date Unitholder with notice and proxy solicitation material, and all other proxy solicitation expense;
(g) all expenses of printing of annual or more frequent revisions of the Trust's prospectus(es) and of supplying each then-existing Unitholder with a copy of a revised prospectus;
(h) all expenses related to preparing and transmitting certificates representing the Trust shares;
(i) all expenses of bond and insurance coverage required by law or deemed advisable by the Board of Trustees;
(j) all brokers' commissions and other normal charges incident to the purchase, sale, or lending of portfolio securities;
(k) all taxes and governmental fees payable to Federal, state or other governmental agencies, domestic or foreign, including all stamp or other transfer taxes;
(l) all expenses of registering and maintaining the registration of the Trust under the Act and, to the extent no exemption is available, expenses of registering the Trust's shares under the Securities Act of 1933 (the "1933 Act"), of qualifying and maintaining qualification of the Trust and of the Trust's shares for sale under securities laws of various states or other
jurisdictions and of registration and qualification of the Trust under all other laws applicable to the Trust or its business activities;
(m) all interest on indebtedness, if any, incurred by the Trust or a Fund; and
(n) all fees, dues and other expenses incurred by the Trust in connection with membership of the Trust in any trade association or other investment company organization.
5. Allocation of Expenses Borne by the Trust. Any expenses borne by the Trust that are attributable solely to the organization, operation or business of a Fund shall be paid solely out of Fund assets. Any expense borne by the Trust which is not solely attributable to a Fund, nor solely to any other series of shares of the Trust, shall be apportioned in such manner as the Adviser determines is fair and appropriate, or as otherwise specified by the Board of Trustees.
6. Expenses Borne by the Adviser. The Adviser at its own expense shall furnish all executive and other personnel, office space, and office facilities required to render the investment management and administrative services set forth in this Agreement. The Adviser shall pay all expenses of establishing, maintaining, and servicing the accounts of Unitholders in each Fund. However, the Adviser shall not be required to pay or provide any credit for services provided by the Trust's custodian or other agents without additional cost to the Trust. In the event that the Adviser pays or assumes any expenses of the Trust or a Fund not required to be paid or assumed by the Adviser under this Agreement, the Adviser shall not be obligated hereby to pay or assume the same or similar expense in the future; provided that nothing contained herein shall be deemed to relieve the Adviser of any obligation to the Trust or a Fund under any separate agreement or arrangement between the parties.
7. Management Fee. For the services rendered, facilities provided, and charges assumed and paid by the Adviser hereunder, the Trust shall pay to the Adviser out of the assets of each Fund fees at the annual rate for such Fund as set forth in Schedule A to this Agreement. For each Fund, the management fee shall accrue on each calendar day, and shall be payable monthly on the first business day of the next succeeding calendar month. The daily fee accrual shall be computed by multiplying the fraction of one divided by the number of days in the calendar year by the applicable annual rate of fee, and multiplying this product by the net assets of the Fund, determined in the manner established by the Board of Trustees, as of the close of business on the last preceding business day on which the Fund's net asset value was determined.
8. Retention of Sub-Adviser. Subject to obtaining the initial and periodic approvals required under Section 15 of the Act, the Adviser may retain one or more sub-advisers at the Adviser's own cost and expense for the purpose of furnishing one or more of the services described in Section 1 hereof with respect to the Trust or one or more Funds. Retention of a sub-adviser shall in no way reduce the responsibilities or obligations of the Adviser under this Agreement, and the Adviser shall be responsible to the Trust and its Funds for all acts or omissions of any sub-adviser in connection with the performance of the Adviser's duties hereunder.
9. Non-Exclusivity. The services of the Adviser to the Trust hereunder are not to be deemed exclusive and the Adviser shall be free to render similar services to others.
10. Standard of Care. Neither The Adviser, nor any of its directors, officers, stockholders, agents or employees shall be liable to the Trust or its Unitholders for any error of judgment, mistake of law, loss arising out of any investment, or any other act or omission in the performance by the Adviser of its duties under this Agreement, except for loss or liability resulting from willful misfeasance, bad faith or gross negligence on the Adviser's part or from reckless disregard by the Adviser of its obligations and duties under this Agreement.
11. Amendment. This Agreement may not be amended as to the Trust or any Fund without the affirmative votes (a) of a majority of the Board of Trustees, including a majority of those Trustees who are not "interested persons" of the Trust or of the Adviser, voting in person at a meeting called for the purpose of voting on such approval, and (b) of a "majority of the outstanding shares" of the Trust or, with respect to an amendment affecting an individual Fund, a "majority of the outstanding shares" of that Fund. The terms "interested persons" and "vote of a majority of the outstanding shares" shall be construed in accordance with their respective definitions in the Act and, with respect to the latter term, in accordance with Rule 18f-2 under the Act.
12. Effective Date and Termination. This Agreement shall become effective as to any Fund as of the effective date as first written above. This Agreement may be terminated at any time, without payment of any penalty, as to any Fund by the Board of Trustees of the Trust, or by a vote of a
majority of the outstanding shares of that Fund, upon at least sixty (60) days' written notice to the Adviser. This Agreement may be terminated by the Adviser at any time upon at least sixty (60) days' written notice to the Trust. This Agreement shall terminate automatically in the event of its "assignment" (as defined in the Act). Unless terminated as hereinbefore provided, this Agreement shall continue in effect with respect to any Fund until the end of the initial term applicable to that Fund and thereafter from year to year only so long as such continuance is specifically approved with respect to that Fund at least annually (a) by a majority of those Trustees who are not interested persons of the Trust or of the Adviser, voting in person at a meeting called for the purpose of voting on such approval, and (b) by either the Board of Trustees of the Trust or by a "vote of a majority of the outstanding shares" of the Fund.
13. Ownership of Records; Interparty Reporting. All records required to be maintained and preserved by the Trust pursuant to the provisions of rules or regulations of the Securities and Exchange Commission under Section 31(a) of the Act or other applicable laws or regulations which are maintained and preserved by the Adviser on behalf of the Trust and any other records the parties mutually agree shall be maintained by the Adviser on behalf of the Trust are the property of the Trust and shall be surrendered by the Adviser promptly on request by the Trust; provided that the Adviser may at its own expense make and retain copies of any such records.
The Trust shall furnish or otherwise make available to the Adviser such copies of the financial statements, proxy statements, reports, and other information relating to the business and affairs of each Unitholder in a Fund as the Adviser may, at any time or from time to time, reasonably require in order to discharge its obligations under this Agreement.
The Adviser shall prepare and furnish to the Trust as to each Fund statistical data and other information in such form and at such intervals as the Trust may reasonably request.
14. Non-Liability of Trustees and Unitholders. Any obligation of the Trust hereunder shall be binding only upon the assets of the Trust (or the applicable Fund thereof) and shall not be binding upon any Trustee, officer, employee, agent or Unitholder of the Trust. Neither the authorization of any action by the Trustees or Unitholders of the Trust nor the execution of this Agreement on behalf of the Trust shall impose any liability upon any Trustee or any Unitholder.
15. Use of Adviser's Name. At such time as this Agreement or any extension, renewal or amendment hereof, or any similar agreement with any organization which shall have succeeded to the business of the Adviser, shall no longer be in effect, the Trust will cease to use any name derived from or otherwise connected with the Adviser or with any organization which shall have succeeded to the Adviser's business as investment adviser.
16. References and Headings. In this Agreement and in any such amendment, references to this Agreement and all expressions such as "herein," "hereof," and "hereunder" shall be deemed to refer to this Agreement as amended or affected by any such amendments. Headings are placed herein for convenience of reference only and shall not be taken as a part hereof or control or affect the meaning, construction or effect of this Agreement. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the day and year first written above.
COLUMBIA FUNDS SERIES TRUST I, on
behalf of its COLUMBIA GROWTH STOCK
FUND and COLUMBIA YOUNG INVESTOR FUND
series
COLUMBIA MANAGEMENT ADVISORS, LLC
A copy of the document establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the Fund.
MANAGEMENT AGREEMENT
SCHEDULE A
Compensation pursuant to Section 7 of this Agreement shall be calculated in accordance with the following schedules applicable to average daily net assets of the Funds:
Schedule for Columbia Growth Stock Fund
0.60% up to $500 million
0.55% next $500 million
0.50% next $1 billion
0.45% thereafter
Schedule for Columbia Young Investor Fund
0.60% up to $500 million
0.55% next $500 million
0.50% thereafter
Dated as of March 27, 2006
Exhibit (d)(19)
FORM OF
COLUMBIA TAX-EXEMPT FUND
COLUMBIA TAX-EXEMPT INSURED FUND
MANAGEMENT AGREEMENT
AGREEMENT dated as of March __, 2006, between COLUMBIA FUNDS SERIES TRUST I, a Massachusetts business trust (the "Trust"), on behalf of its COLUMBIA TAX-EXEMPT FUND and COLUMBIA TAX-EXEMPT INSURED FUND series (the "Funds"), and COLUMBIA MANAGEMENT ADVISORS, LLC (the "Advisor").
In consideration of the promises and covenants herein, the parties agree as follows:
1. The Advisor will manage the investment of the assets of the Funds in accordance with its prospectus and statement of additional information and will perform the other services herein set forth, subject to the supervision of the Board of Trustees of the Trust. The Advisor may delegate its investment responsibilities to a sub-advisor.
2. In carrying out its investment management obligations, the Advisor shall:
(a) evaluate such economic, statistical and financial information and undertake such investment research as it shall believe advisable;
(b) purchase and sell securities and other investments for the Funds in accordance with the procedures described in its prospectus and statement of additional information; and
(c) report results to the Board of Trustees of the Trust.
3. The Advisor shall furnish at its expense the following:
(a) office space, supplies, facilities and equipment;
(b) executive and other personnel for managing the affairs of the Funds
(including preparing financial information of the Funds and reports and tax
returns required to be filed with public authorities, but exclusive of
those related to custodial, transfer, dividend and plan agency services,
determination of net asset value and maintenance of records required by
Section 31(a) of the Investment Company Act of 1940, as amended, and the
rules thereunder ("1940 Act")); and
(c) compensation of Trustees who are directors, officers, partners or employees of the Advisor or its affiliated persons (other than a registered investment company).
4. The Advisor shall be free to render similar services to others so long as its services hereunder are not impaired thereby.
5. The Funds shall pay the Advisor monthly a fee at the annual rate as shown in the table below:
$ 0.0 to $ 500.0 0.550% $ 500.0 to $1,000.0 0.500% $1,000.0 to $1,500.0 0.470% $1,500.0 to $3,000.0 0.440% $3,000.0 to $6,000.0 0.430% >$6,000.0 0.420% |
6. If the operating expenses of the Funds for any fiscal year exceed the most restrictive applicable expense limitation for any state in which shares are sold, the Advisor's fee shall be reduced by the excess but not to less than zero. Operating expenses shall not include brokerage, interest, taxes, deferred organization expenses, Rule 12b-1 distribution fees, service fees and extraordinary expenses, if any. The Advisor may waive its compensation (and bear expenses of the Fund) to the extent that expenses of the Fund exceed any expense limitation the Advisor declares to be effective.
7. This Agreement shall become effective as of the date of its execution, and
(a) unless otherwise terminated, shall continue from year to year so long
as approved annually in accordance with the 1940 Act; (b) may be terminated
without penalty on sixty days' written notice to the Advisor either by vote
of the Board of Trustees of the Trust or by vote of a majority of the
outstanding shares of the Funds; (c) shall automatically terminate in the
event of its assignment; and (d) may be terminated without penalty by the
Advisor on
sixty days' written notice to the Trust.
8. This Agreement may be amended in accordance with the 1940 Act.
9. For the purpose of the Agreement, the terms "vote of a majority of the outstanding shares", "affiliated person" and "assignment" shall have their respective meanings defined in the 1940 Act and exemptions and interpretations issued by the Securities and Exchange Commission under the 1940 Act.
10. In the absence of willful misfeasance, bad faith or gross negligence on the part of the Advisor, or reckless disregard of its obligations and duties hereunder, the Advisor shall not be subject to any liability to the Trust or the Funds, to any shareholder of the Trust or the Funds or to any other person, firm or organization, for any act or omission in the course of, or connected with, rendering services hereunder.
[The remainder of page intentionally left blank]
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the day and year first written above.
COLUMBIA FUNDS SERIES TRUST I
on behalf of its
COLUMBIA TAX-EXEMPT FUND
COLUMBIA TAX-EXEMPT INSURED FUND series
By:
---------------------------------
Name: Christopher L. Wilson
-------------------------------
Title: President
------------------------------
|
COLUMBIA MANAGEMENT ADVISORS, LLC
By:
---------------------------------
Name: Roger Sayler
-------------------------------
Title: Managing Director
------------------------------
|
A copy of the document establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the Fund.
Exhibit (d)(20)
FORM OF
COLUMBIA LIBERTY FUND
MANAGEMENT AGREEMENT
AGREEMENT dated as of March __, 2006, between COLUMBIA FUNDS SERIES TRUST I (the "Trust"), on behalf of its COLUMBIA LIBERTY FUND series (the "Fund") and COLUMBIA MANAGEMENT ADVISORS, LLC (the "Advisor"). The Trust is registered as an open-end investment company pursuant to the Investment Company Act of 1940 (the "Act"). The Advisor is registered as an investment adviser pursuant to the Investment Advisers Act of 1940. This Agreement relates to services to be performed by the Advisor with respect to the Fund.
The parties agree as follows:
1. The Advisor will manage the investment of the assets of the Fund in accordance with its prospectus and statement of additional information and will perform the other services herein set forth, subject to the supervision of the Board of Trustees of the Trust. The Advisor may delegate its investment responsibilities to a sub-advisor.
2. In carrying out its investment management obligations, the Advisor shall:
(a) evaluate such economic, statistical and financial information and undertake such investment research as it shall believe advisable; (b) purchase and sell securities and other investments for the Fund in accordance with the procedures described in its prospectus and statement of additional information; and (c) report results to the Board of Trustees of the Trust.
3. The Advisor shall furnish at its expense the following:
(a) office space, supplies, facilities and equipment; (b) executive and other personnel for managing the affairs of the Fund (including preparing financial information of the Fund and reports and tax returns required to be filed with public authorities, but exclusive of those related to custodial, transfer, dividend and plan agency services, determination of net asset value and maintenance of records required by Section 31(a) of the Act, as amended, and the rules thereunder); and (c) compensation of Trustees who are directors, officers, partners or employees of the Advisor or its affiliated persons (other than a registered investment company).
4. The Advisor shall be free to render similar services to others so long as its services hereunder are not impaired thereby.
5. The Fund shall pay the Advisor monthly a fee at the annual rate of 0.55% of the first $1 billion of the average daily net assets of the Fund, 0.50% of the next $500 million and 0.45% in excess of $1.5 billion.
6. If the operating expenses of the Fund for any fiscal year exceed the most restrictive applicable expense limitation for any state in which shares are sold, the Advisor's fee shall be reduced by the excess but not to less than zero. Operating expenses shall not include brokerage, interest, taxes, deferred organization expenses, Rule 12b-1 distribution fees, service fees and extraordinary expenses, if any. The Advisor may waive its compensation (and bear expenses of the Fund) to the extent that expenses of the Fund exceed any expense limitation the Advisor declares to be effective.
7. This Agreement shall become effective as of the date of its execution, and
(a) unless otherwise terminated, shall continue from year to year so long as
approved annually in accordance with the Act; (b) may be terminated without
penalty on sixty days' written notice to the Advisor either by vote of the Board
of Trustees of the Trust or by vote of a majority of the outstanding shares of
the Fund; (c) shall automatically terminate in the event of its assignment; and
(d) may be terminated without penalty by the Advisor on sixty days' written
notice to the Trust.
8. This Agreement may be amended in accordance with the Act.
9. For the purpose of the Agreement, the terms "vote of a majority of the outstanding shares", "affiliated person" and "assignment" shall have their respective meanings defined in the Act and exemptions and interpretations issued by the Securities and Exchange Commission under the Act.
10. In the absence of willful misfeasance, bad faith or gross negligence on the part of the Advisor, or reckless disregard of its obligations and duties hereunder, the Advisor shall not be subject to any liability to the Trust or the Fund, to any shareholder of the Trust or the Fund or to any other person, firm or organization, for any act or omission in the course of, or connected with, rendering services hereunder.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the day and year first written above.
COLUMBIA FUNDS SERIES TRUST I, on behalf of its
COLUMBIA LIBERTY FUND series
COLUMBIA MANAGEMENT ADVISORS, LLC
A copy of the document establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the Fund.
Exhibit (d)(21)
FORM OF
COLUMBIA CALIFORNIA TAX-EXEMPT FUND
COLUMBIA CONNECTICUT TAX-EXEMPT FUND
COLUMBIA MASSACHUSETTS TAX-EXEMPT FUND
COLUMBIA NEW YORK TAX-EXEMPT FUND
MANAGEMENT AGREEMENT
AGREEMENT dated as of March __, 2006, between COLUMBIA FUNDS SERIES TRUST I, a
Massachusetts business trust (the "Trust"), with respect to its COLUMBIA
CALIFORNIA TAX-EXEMPT FUND, COLUMBIA CONNECTICUT TAX-EXEMPT FUND, COLUMBIA
MASSACHUSETTS TAX-EXEMPT FUND and COLUMBIA NEW YORK TAX-EXEMPT FUND series (the
"Funds"), and COLUMBIA MANAGEMENT ADVISORS, LLC (the "Advisor").
In consideration of the promises and covenants herein, the parties agree as follows:
1. The Advisor will manage the investment of the assets of the Funds in accordance with its prospectus and statement of additional information and will perform the other services herein set forth, subject to the supervision of the Board of Trustees of the Trust. The Advisor may delegate its investment responsibilities to a sub-advisor.
2. In carrying out its investment management obligations, the Advisor shall:
(a) evaluate such economic, statistical and financial information and undertake such investment research as it shall believe advisable;
(b) purchase and sell securities and other investments for the Funds in accordance with the procedures described in its prospectus and statement of additional information; and
(c) report results to the Board of Trustees of the Trust.
3. The Advisor shall furnish at its expense the following:
(a) office space, supplies, facilities and equipment;
(b) executive and other personnel for managing the affairs of the Funds
(including preparing financial information of the Funds and reports and tax
returns required to be filed with public authorities, but exclusive of
those related to custodial, transfer, dividend and plan agency services,
determination of net asset value and maintenance of records required by
Section 31(a) of the Investment Company Act of 1940, as amended, and the
rules thereunder ("1940 Act")); and
(c) compensation of Trustees who are directors, officers, partners or employees of the Advisor or its affiliated persons (other than a registered investment company).
4. The Advisor shall be free to render similar services to others so long as its services hereunder are not impaired thereby.
5. The Funds shall pay the Advisor monthly a fee at the annual rate of 0.50% on the first $1 billion of the Funds' combined daily net assets, 0.45% on the next $2 billion and 0.40% in excess of $3 billion.
6. If the operating expenses of the Funds for any fiscal year exceed the most restrictive applicable expense limitation for any state in which shares are sold, the Advisor's fee shall be reduced by the excess but not to less than zero. Operating expenses shall not include brokerage, interest, taxes, deferred organization expenses, Rule 12b-1 distribution fees, service fees and extraordinary expenses, if any. The Advisor may waive its compensation (and bear expenses of the Funds) to the extent that expenses of the Funds exceed any expense limitation the Advisor declares to be effective.
7. This Agreement shall become effective as of the date of its execution, and
(a) unless otherwise terminated, shall continue from year to year so long
as approved annually in accordance with the 1940 Act; (b) may be terminated
without penalty on sixty days' written notice to the Advisor either by vote
of the Board of Trustees of the Trust or by vote of a majority of the
outstanding shares of the Funds; (c) shall automatically terminate in the
event of its assignment; and (d) may be terminated without penalty by the
Advisor on sixty days' written notice to the Trust.
8. This Agreement may be amended in accordance with the 1940 Act.
9. For the purpose of the Agreement, the terms "vote of a majority of the outstanding shares", "affiliated person" and "assignment" shall have their respective meanings defined in the 1940 Act and exemptions and interpretations issued by the Securities and Exchange Commission under the 1940 Act.
10. In the absence of willful misfeasance, bad faith or gross negligence on the part of the Advisor, or reckless disregard of its obligations and duties hereunder, the Advisor shall not be subject to any liability to the Trust or the Funds, to any shareholder of the Trust or the Funds or to any other person, firm or organization, for any act or omission in the course of, or connected with, rendering services hereunder.
[The remainder of page intentionally left blank]
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the day and year first written above.
COLUMBIA FUNDS SERIES TRUST I
on behalf of its
COLUMBIA CALIFORNIA TAX-EXEMPT FUND
COLUMBIA CONNECTICUT TAX-EXEMPT FUND
COLUMBIA MASSACHUSETTS TAX-EXEMPT FUND
COLUMBIA NEW YORK TAX-EXEMPT FUND series
By:
---------------------------------
Name: Christopher L. Wilson
-------------------------------
Title: President
------------------------------
|
COLUMBIA MANAGEMENT ADVISORS, LLC
By:
---------------------------------
Name: Roger Sayler
-------------------------------
Title: Managing Director
------------------------------
|
A copy of the document establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the Funds.
Exhibit (d)(22)
FORM OF
COLUMBIA CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND
MANAGEMENT AGREEMENT
AGREEMENT dated as of March __, 2006, between COLUMBIA FUNDS SERIES TRUST I, a Massachusetts business trust (the "Trust"), on behalf of its COLUMBIA CONNECTICUT INTERMEDIATE MUNICIPAL BOND FUND series (the "Fund"), and COLUMBIA MANAGEMENT ADVISORS, LCC (the "Advisor").
In consideration of the promises and covenants herein, the parties agree as follows:
1. The Advisor will manage the investment of the assets of the Fund in accordance with its prospectus and statement of additional information and will perform the other services herein set forth, subject to the supervision of the Board of Trustees of the Trust. The Advisor may delegate its investment responsibilities to a sub-advisor.
2. In carrying out its investment management obligations, the Advisor shall:
(a) evaluate such economic, statistical and financial information and undertake such investment research as it shall believe advisable;
(b) purchase and sell securities and other investments for the Fund in accordance with the procedures described in its prospectus and statement of additional information; and
(c) report results to the Board of Trustees of the Trust.
3. The Advisor shall be free to render similar services to others so long as its services hereunder are not impaired thereby.
4. The Fund shall pay the Advisor monthly a fee at the annual rate as shown in the table below (shown in $MM):
$ 0.0 to $ 500.0 0.480% $ 500.0 to $1,000.0 0.430% $1,000.0 to $1,500.0 0.400% $1,500.0 to $3,000.0 0.370% $3,000.0 to $6,000.0 0.360% >$6,000.0 0.350% |
5. The Advisor may waive its compensation (and bear expenses of the Fund) to the extent that expenses of the Fund exceed any expense limitation the Advisor declares to be effective.
6. This Agreement shall become effective as of the date of its execution, and
(a) unless otherwise terminated, shall continue from year to year
thereafter so long as approved annually in accordance with the 1940 Act;
(b) may be terminated without penalty on sixty days' written notice to the
Advisor either by vote of the Board of Trustees of the Trust or by vote of
a majority of the outstanding shares of the Fund; (c) shall automatically
terminate in the event of its assignment; and (d) may be terminated without
penalty by the Advisor on sixty days' written notice to the Trust.
7. This Agreement may be amended in accordance with the 1940 Act.
8. For the purpose of the Agreement, the terms "vote of a majority of the outstanding shares", "affiliated person" and "assignment" shall have their respective meanings defined in the 1940 Act and exemptions and interpretations issued by the Securities and Exchange Commission under the 1940 Act.
9. The Advisor shall maintain, keep current and preserve on behalf of the Fund, in the manner required by the 1940 Act, records identified by the Trust from time to time. Advisor agrees to make such records available upon request to the Trust and its auditors during regular business hours at the Advisor's offices. Advisor further agrees that such records are the
property of the Trust and will be surrendered to the Trust promptly upon request.
10. In the absence of willful misfeasance, bad faith or gross negligence on the part of the Advisor, or reckless disregard of its obligations and duties hereunder, the Advisor shall not be subject to any liability to the Trust or the Fund, to any shareholder of the Trust or the Fund or to any other person, firm or organization, for any act or omission in the course of, or connected with, rendering services hereunder.
[The remainder of page intentionally left blank]
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the day and year first written above.
COLUMBIA FUNDS SERIES TRUST I,
on behalf of its COLUMBIA CONNECTICUT
INTERMEDIATE MUNICIPAL BOND FUND series
COLUMBIA MANAGEMENT ADVISORS, LLC
A copy of the document establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the Fund.
Exhibit (d)(23)
FORM OF
COLUMBIA MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND
MANAGEMENT AGREEMENT
AGREEMENT dated as of March __, 2006, between COLUMBIA FUNDS SERIES TRUST I, a Massachusetts business trust (the "Trust"), on behalf of its COLUMBIA MASSACHUSETTS INTERMEDIATE MUNICIPAL BOND FUND ("Fund") series, and COLUMBIA MANAGEMENT ADVISORS, LLC (the "Advisor").
In consideration of the promises and covenants herein, the parties agree as follows:
1. The Advisor will manage the investment of the assets of the Fund in accordance with its prospectus and statement of additional information and will perform the other services herein set forth, subject to the supervision of the Board of Trustees of the Trust. The Advisor may delegate its investment responsibilities to a sub-advisor.
2. In carrying out its investment management obligations, the Advisor shall:
(a) evaluate such economic, statistical and financial information and undertake such investment research as it shall believe advisable;
(b) purchase and sell securities and other investments for the Fund in accordance with the procedures described in its prospectus and statement of additional information; and
(c) report results to the Board of Trustees of the Trust.
3. The Advisor shall be free to render similar services to others so long as its services hereunder are not impaired thereby.
4. The Fund shall pay the Advisor monthly a fee at the annual rate as shown in the table below (shown in $MM):
$ 0.0 to $ 500.0 0.480% $ 500.0 to $1,000.0 0.430% $1,000.0 to $1,500.0 0.400% $1,500.0 to $3,000.0 0.370% $3,000.0 to $6,000.0 0.360% >$6,000.0 0.350% |
5. The Advisor may waive its compensation (and bear expenses of the Fund) to the extent that expenses of the Fund exceed any expense limitation the Advisor declares to be effective.
6. This Agreement shall become effective as of the date of its execution, and
(a) unless otherwise terminated, shall continue from year to year so long
as approved annually in accordance with the 1940 Act; (b) may be terminated
without penalty on sixty days' written notice to the Advisor either by vote
of the Board of Trustees of the Trust or by vote of a majority of the
outstanding shares of the Fund; (c) shall automatically terminate in the
event of its assignment; and (d) may be terminated without penalty by the
Advisor on sixty days' written notice to the Trust.
7. This Agreement may be amended in accordance with the 1940 Act.
8. For the purpose of the Agreement, the terms "vote of a majority of the outstanding shares", "affiliated person" and "assignment" shall have their respective meanings defined in the 1940 Act and exemptions and interpretations issued by the Securities and Exchange Commission under the 1940 Act.
9. The Advisor shall maintain, keep current and preserve on behalf of the
Fund, in the manner required by the 1940 Act, records identified by the Trust from time to time. Advisor agrees to make such records available upon request to the Trust and its auditors during regular business hours at the Advisor's offices. Advisor further agrees that such records are the property of the Trust and will be surrendered to the Trust promptly upon request.
10. In the absence of willful misfeasance, bad faith or gross negligence on the part of the Advisor, or reckless disregard of its obligations and duties hereunder, the Advisor shall not be subject to any liability to the Trust or the Fund, to any shareholder of the Trust or the Fund or to any other person, firm or organization, for any act or omission in the course of, or connected with, rendering services hereunder.
[The remainder of page intentionally left blank]
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the day and year first written above.
COLUMBIA FUNDS SERIES TRUST I
on behalf of its COLUMBIA MASSACHUSETTS
INTERMEDIATE MUNICIPAL BOND FUND series
COLUMBIA MANAGEMENT ADVISORS, LLC
A copy of the document establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the Fund.
Exhibit (d)(24)
FORM OF
COLUMBIA NEW JERSEY INTERMEDIATE MUNICIPAL BOND FUND
MANAGEMENT AGREEMENT
AGREEMENT dated as of March __, 2006, between COLUMBIA FUNDS SERIES TRUST I, a
Massachusetts business trust (the "Trust"), on behalf of its COLUMBIA NEW JERSEY
INTERMEDIATE MUNICIPAL BOND FUND series (the "Fund"), and COLUMBIA MANAGEMENT
ADVISORS, LLC (the "Advisor").
In consideration of the promises and covenants herein, the parties agree as follows:
1. The Advisor will manage the investment of the assets of the Fund in accordance with its prospectus and statement of additional information and will perform the other services herein set forth, subject to the supervision of the Board of Trustees of the Trust. The Advisor may delegate its investment responsibilities to a sub-advisor.
2. In carrying out its investment management obligations, the Advisor shall:
(a) evaluate such economic, statistical and financial information and undertake such investment research as it shall believe advisable;
(b) purchase and sell securities and other investments for the Fund in accordance with the procedures described in its prospectus and statement of additional information; and
(c) report results to the Board of Trustees of the Trust.
3. The Advisor shall be free to render similar services to others so long as its services hereunder are not impaired thereby.
4. The Fund shall pay the Advisor monthly a fee at the annual rate as shown in the table below (shown in $MM):
$ 0.0 to $ 500.0 0.480% $ 500.0 to $1,000.0 0.430% $1,000.0 to $1,500.0 0.400% $1,500.0 to $3,000.0 0.370% $3,000.0 to $6,000.0 0.360% >$6,000.0 0.350% |
5. The Advisor may waive its compensation (and bear expenses of the Fund) to the extent that expenses of the Fund exceed any expense limitation the Advisor declares to be effective.
6. This Agreement shall become effective as of the date of its execution, and
(a) unless otherwise terminated, shall continue from year to year so long
as approved annually in accordance with the 1940 Act; (b) may be terminated
without penalty on sixty days' written notice to the Advisor either by vote
of the Board of Trustees of the Trust or by vote of a majority of the
outstanding shares of the Fund; (c) shall automatically terminate in the
event of its assignment; and (d) may be terminated without penalty by the
Advisor on sixty days' written notice to the Trust.
7. This Agreement may be amended in accordance with the 1940 Act.
8. For the purpose of the Agreement, the terms "vote of a majority of the outstanding shares", "affiliated person" and "assignment" shall have their respective meanings defined in the 1940 Act and exemptions and interpretations issued by the Securities and Exchange Commission under the 1940 Act.
9. The Advisor shall maintain, keep current and preserve on behalf of the
Fund, in the manner required by the 1940 Act, records identified by the Trust from time to time. Advisor agrees to make such records available upon request to the Trust and its auditors during regular business hours at the Advisor's offices. Advisor further agrees that such records are the property of the Trust and will be surrendered to the Trust promptly upon request.
10. In the absence of willful misfeasance, bad faith or gross negligence on the part of the Advisor, or reckless disregard of its obligations and duties hereunder, the Advisor shall not be subject to any liability to the Trust or the Fund, to any shareholder of the Trust or the Fund or to any other person, firm or organization, for any act or omission in the course of, or connected with, rendering services hereunder.
[The remainder of page intentionally left blank]
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the day and year first written above.
COLUMBIA FUNDS SERIES TRUST I
on behalf of its COLUMBIA NEW JERSEY
INTERMEDIATE MUNICIPAL BOND FUND series
By:
---------------------------------
Name: Christopher L. Wilson
-------------------------------
Title: President
------------------------------
|
COLUMBIA MANAGEMENT ADVISORS, LLC
By:
---------------------------------
Name: Roger Sayler
-------------------------------
Title: Managing Director
------------------------------
|
A copy of the document establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the Fund.
Exhibit (d)(25)
FORM OF
COLUMBIA NEW YORK INTERMEDIATE MUNICIPAL BOND FUND
MANAGEMENT AGREEMENT
AGREEMENT dated as of March __, 2006, between COLUMBIA FUNDS SERIES TRUST I, a
Massachusetts business trust (the "Trust"), on behalf of its COLUMBIA NEW YORK
INTERMEDIATE MUNICIPAL BOND FUND series (the "Fund"), and COLUMBIA MANAGEMENT
ADVISORS, LLC (the "Advisor").
In consideration of the promises and covenants herein, the parties agree as follows:
1. The Advisor will manage the investment of the assets of the Fund in accordance with its prospectus and statement of additional information and will perform the other services herein set forth, subject to the supervision of the Board of Trustees of the Trust. The Advisor may delegate its investment responsibilities to a sub-advisor.
2. In carrying out its investment management obligations, the Advisor shall:
(a) evaluate such economic, statistical and financial information and undertake such investment research as it shall believe advisable;
(b) purchase and sell securities and other investments for the Fund in accordance with the procedures described in its prospectus and statement of additional information; and
(c) report results to the Board of Trustees of the Trust.
3. The Advisor shall be free to render similar services to others so long as its services hereunder are not impaired thereby.
4. The Fund shall pay the Advisor monthly a fee at the annual rate as shown in the table below (shown in $MM):
$ 0.0 to $ 500.0 0.480% $ 500.0 to $1,000.0 0.430% $1,000.0 to $1,500.0 0.400% $1,500.0 to $3,000.0 0.370% $3,000.0 to $6,000.0 0.360% >$6,000.0 0.350% |
5. The Advisor may waive its compensation (and bear expenses of the Fund) to the extent that expenses of the Fund exceed any expense limitation the Advisor declares to be effective.
6. This Agreement shall become effective as of the date of its execution, and
(a) unless otherwise terminated, shall continue from year to year so long
as approved annually in accordance with the 1940 Act; (b) may be terminated
without penalty on sixty days' written notice to the Advisor either by vote
of the Board of Trustees of the Trust or by vote of a majority of the
outstanding shares of the Fund; (c) shall automatically terminate in the
event of its assignment; and (d) may be terminated without penalty by the
Advisor on sixty days' written notice to the Trust.
7. This Agreement may be amended in accordance with the 1940 Act.
8. For the purpose of the Agreement, the terms "vote of a majority of the outstanding shares", "affiliated person" and "assignment" shall have their respective meanings defined in the 1940 Act and exemptions and interpretations issued by the Securities and Exchange Commission under the 1940 Act.
9. The Advisor shall maintain, keep current and preserve on behalf of the
Fund, in the manner required by the 1940 Act, records identified by the Trust from time to time. Advisor agrees to make such records available upon request to the Trust and its auditors during regular business hours at the Advisor's offices. Advisor further agrees that such records are the property of the Trust and will be surrendered to the Trust promptly upon request.
10. In the absence of willful misfeasance, bad faith or gross negligence on the part of the Advisor, or reckless disregard of its obligations and duties hereunder, the Advisor shall not be subject to any liability to the Trust or the Fund, to any shareholder of the Trust or the Fund or to any other person, firm or organization, for any act or omission in the course of, or connected with, rendering services hereunder.
[The remainder of page intentionally left blank]
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the day and year first written above.
COLUMBIA FUNDS SERIES TRUST I
on behalf of its COLUMBIA NEW YORK INTERMEDIATE MUNICIPAL BOND FUND series
By:
---------------------------------
Name: Christopher L. Wilson
-------------------------------
Title: President
------------------------------
|
COLUMBIA MANAGEMENT ADVISORS, LLC
By:
---------------------------------
Name: Roger Sayler
-------------------------------
Title: Managing Director
------------------------------
|
A copy of the document establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the Fund.
Exhibit (d)(26)
FORM OF
COLUMBIA RHODE ISLAND INTERMEDIATE MUNICIPAL BOND FUND
MANAGEMENT AGREEMENT
AGREEMENT dated as of March __, 2006, between COLUMBIA FUNDS SERIES TRUST I, a Massachusetts business trust (the "Trust"), on behalf of its COLUMBIA RHODE ISLAND INTERMEDIATE MUNICIPAL BOND FUND series (the "Fund"), and COLUMBIA MANAGEMENT ADVISORS, LCC (the "Advisor").
In consideration of the promises and covenants herein, the parties agree as follows:
1. The Advisor will manage the investment of the assets of the Fund in accordance with its prospectus and statement of additional information and will perform the other services herein set forth, subject to the supervision of the Board of Trustees of the Trust. The Advisor may delegate its investment responsibilities to a sub-advisor.
2. In carrying out its investment management obligations, the Advisor shall:
(a) evaluate such economic, statistical and financial information and undertake such investment research as it shall believe advisable;
(b) purchase and sell securities and other investments for the Fund in accordance with the procedures described in its prospectus and statement of additional information; and
(c) report results to the Board of Trustees of the Trust.
3. The Advisor shall be free to render similar services to others so long as its services hereunder are not impaired thereby.
4. The Fund shall pay the Advisor monthly a fee at the annual rate as shown in the table below (shown in $MM):
$ 0.0 to $ 500.0 0.480% $ 500.0 to $1,000.0 0.430% $1,000.0 to $1,500.0 0.400% $1,500.0 to $3,000.0 0.370% $3,000.0 to $6,000.0 0.360% >$6,000.0 0.350% |
5. The Advisor may waive its compensation (and bear expenses of the Fund) to the extent that expenses of the Fund exceed any expense limitation the Advisor declares to be effective.
6. This Agreement shall become effective as of the date of its execution, and
(a) unless otherwise terminated, shall continue from year to year so long
as approved annually in accordance with the 1940 Act; (b) may be terminated
without penalty on sixty days' written notice to the Advisor either by vote
of the Board of Trustees of the Trust or by vote of a majority of the
outstanding shares of the Fund; (c) shall automatically terminate in the
event of its assignment; and (d) may be terminated without penalty by the
Advisor on sixty days' written notice to the Trust.
7. This Agreement may be amended in accordance with the 1940 Act.
8. For the purpose of the Agreement, the terms "vote of a majority of the outstanding shares", "affiliated person" and "assignment" shall have their respective meanings defined in the 1940 Act and exemptions and interpretations issued by the Securities and Exchange Commission under the 1940 Act.
9. The Advisor shall maintain, keep current and preserve on behalf of the
Fund, in the manner required by the 1940 Act, records identified by the Trust from time to time. The Advisor agrees to make such records available upon request to the Trust and its auditors during regular business hours at the Advisor's offices. The Advisor further agrees that such records are the property of the Trust and will be surrendered to the Trust promptly upon request.
10. In the absence of willful misfeasance, bad faith or gross negligence on the part of the Advisor, or reckless disregard of its obligations and duties hereunder, the Advisor shall not be subject to any liability to the Trust or the Fund, to any shareholder of the Trust or the Fund or to any other person, firm or organization, for any act or omission in the course of, or connected with, rendering services hereunder.
[The remainder of page intentionally left blank]
IN WITNESS WHEREOF the parties have caused this Agreement to be executed as of the day and year first written above.
COLUMBIA FUNDS SERIES TRUST I
on behalf of its COLUMBIA RHODE ISLAND
INTERMEDIATE MUNICIPAL BOND FUND series
By:
---------------------------------
Name: Christopher L. Wilson
-------------------------------
Title: President
------------------------------
|
COLUMBIA MANAGEMENT ADVISORS, LLC
By:
---------------------------------
Name: Roger Sayler
-------------------------------
Title: Managing Director
------------------------------
|
A copy of the document establishing the Trust is filed with the Secretary of The Commonwealth of Massachusetts. This Agreement is executed by officers not as individuals and is not binding upon any of the Trustees, officers or shareholders of the Trust individually but only upon the assets of the Fund.
Exhibit (e)(1)
FORM OF
DISTRIBUTION AGREEMENT
COLUMBIA FUNDS
THIS AGREEMENT is made as of March __, 2006, by and between each Massachusetts business trust (each trust, hereinafter, the "Fund") listed on Schedule I on behalf of each series of each Fund that is organized as a trust listed on Schedule I (each, a "Series" and collectively, the "Series"), and Columbia Management Distributors, Inc., a Massachusetts corporation (the "Distributor"). Absent written notification to the contrary by either the Fund or the Distributor, each new investment portfolio established in the future shall automatically become a "Series" for all purposes hereunder and shares of each new class established in the future shall automatically become "Shares" for all purposes hereunder as if set forth on Schedule I.
WHEREAS, the Fund is registered with the Securities and Exchange Commission (the "SEC") as an open-end management investment company under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Fund desires to retain the Distributor as the exclusive distributor of the units of beneficial interest in all classes of shares ("Shares") of the Funds and each Series, if applicable, and the Distributor is willing to render such services; and
WHEREAS, the Distributor is registered as a broker-dealer under the Securities Exchange Act of 1934, as amended (the "1934 Act") and is a member of the National Association of Securities Dealers, Inc. (the "NASD").
NOW THEREFORE, in consideration of the promises and mutual covenants herein contained, it is agreed between the parties hereto as follows:
1. SERVICES AS DISTRIBUTOR.
1.1. The Distributor will act as agent for the distribution of Shares in accordance with any instructions of the Fund's Board of Trustees or Board of Directors, as applicable, and with the Fund's registration statement then in effect under the Securities Act of 1933, as amended (the "1933 Act"), and will transmit promptly any orders properly received by it for the purchase or redemption of Shares to the Fund or its transfer agent, or their designated agents. As used in this Agreement, the term "registration statement" shall mean any registration statement, specifically including, among other items, any then-current prospectus together with any related then-current statement of additional information, filed with the SEC with respect to Shares, and any amendments and supplements thereto which at any time shall have been filed.
1.2. The Distributor agrees to use appropriate efforts to solicit orders for the sale of Shares and will undertake such advertising and promotion, as it believes appropriate in connection with such solicitation. The Distributor agrees to offer and sell Shares at the applicable public offering price or net asset value next determined after an order is received. The Fund understands that the Distributor is and may in the future be the distributor of shares of other investment company
portfolios including portfolios having investment objectives similar to those of the Funds and each Series, if applicable. The Fund further understands that existing and future investors in the Funds and each Series, if applicable, may invest in shares of such other portfolios. The Fund agrees that the Distributor's duties to such portfolios shall not be deemed in conflict with its duties to the Fund under this paragraph 1.2.
1.3. The Distributor shall, at its own expense, finance such activities as it deems reasonable and which are primarily intended to result in the sale of Shares, including, but not limited to, advertising, compensation of underwriters, dealers and sales personnel, the printing and mailing of prospectuses to other than current shareholders, and the printing and mailing of sales literature.
1.4. The Fund shall be responsible for expenses relating to the execution of any and all documents and the furnishing of any and all information and otherwise taking, or causing to be taken, all actions that may be reasonably necessary in connection with the registration of Shares under the 1933 Act and the Fund under the 1940 Act and the qualification of Shares for sale under the so-called "blue sky" laws in such states as the Fund directs and in such states as the Distributor may recommend to the Fund which the Fund approves, and the Fund shall pay all fees and other expenses incurred in connection with such registration and qualification. The Fund shall be also responsible for the preparation, printing and distribution of prospectuses and statements of additional information to shareholders and the direct expenses of the issue of Shares.
1.5. The Distributor shall be responsible for preparing, reviewing and providing advice on all sales literature (e.g., advertisements, brochures and shareholder communications) with respect to each of the Funds and each Series, if applicable, and shall file with the NASD or the appropriate regulators all such materials as are required to be filed under applicable laws and regulations in compliance with such laws and regulations.
1.6. In connection with all matters relating to this Agreement, the Fund and the Distributor agree to comply with all applicable laws, rules and regulations, including, without limitation, all rules and regulations made or adopted pursuant to the 1933 Act, the 1934 Act, the 1940 Act, the regulations of the NASD and all other applicable federal and state laws, rules and regulations. The Distributor agrees to provide the Fund with such certifications, reports and other information as the Fund may reasonably request from time to time to assist it in complying with, and monitoring for compliance with, such laws, rules and regulations.
1.7. Whenever in their judgment such action is warranted by unusual market, economic or political conditions, or by other circumstances of any kind, the Fund's officers may decline to accept any orders for, or make any sales of, Shares until such time as those officers deem it advisable to accept such orders and to make such sales.
1.8. The Fund shall furnish from time to time, for use in connection with the sale of Shares, such information with respect to the Funds and each Series, if applicable, and Shares as the Distributor may reasonably request and the Fund warrants that such information shall be true and correct. Without limited the foregoing, the Fund shall also furnish the Distributor upon
request with: (a) audited annual and unaudited semi-annual statements of the Fund's books and accounts with respect to each Fund and each Series, if applicable, and (b) from time to time such additional information regarding the Funds' and each Series, if applicable, financial condition as the Distributor may reasonably request.
1.9. The Fund may from time to time adopt one or more distribution plans pursuant to Rule 12b-1 under the 1940 Act. As compensation for services rendered hereunder, the Distributor shall be entitled to receive from the Fund the payments set forth on Schedule II attached hereto, as the same may be amended from time to time by agreement of the parties. In addition, the Distributor shall be entitled to retain any front-end sales charge imposed upon the sale of Shares (and reallow a portion thereof) as specified in the Fund's registration statement and the Fund shall pay to the Distributor the proceeds from any contingent deferred sales charge imposed on the redemption of Shares as specified in the Fund's registration statement. The Distributor, from time to time, may assign to any third party all or any portion of amounts payable to the Distributor under this Agreement.
1.10. The Distributor shall prepare reports for the Board of Trustees or the Board of Directors, as applicable, of the Fund regarding its activities under this Agreement as from time to time shall be reasonably requested by such Board, including reports regarding the use of Rule 12b-1 payments received by the Distributor, if any.
1.11. The Distributor is authorized to enter into written agreements with banks, broker/dealers and other financial institutions (collectively, "Intermediaries"), based on such form(s) of sales support agreements as may be approved by the Board of Trustees or the Board of Directors, as applicable, from time to time. The Distributor also may enter into such agreements based on such additional forms of agreement as it deems appropriate, provided that the Distributor determines that the Fund's responsibility or liability to any person under, or on account of any acts or statements of any such selling agent under, any such sales support agreement does not exceed its responsibility or liability under the form(s) approved by the Board of Trustees or the Board of Directors, as applicable, and provided further that the Distributor determines that the overall terms of any such sales support agreement are not materially less advantageous to the Fund than the overall terms of the form(s) approved by the Board of Trustees or Board of Directors, as applicable. In entering into and performing such agreements, the Distributor shall act as principal and not as agent for the Fund or any Series. Upon the failure of any Intermediary to pay for any order for the purchase of Shares in accordance with the terms of the Fund's or any Series, if applicable, prospectus, the Fund or any Series, if applicable, shall have the right to cancel the sale of such Shares and thereupon the Distributor shall be responsible for any loss sustained as a result thereof.
2. REPRESENTATIONS; INDEMNIFICATION.
2.1. The Fund represents to the Distributor that all registration statements with respect to Shares and shareholder reports with respect to Funds or any Series, if applicable, filed by the Fund with the SEC, have been prepared in conformity with the requirements of the 1933 Act, the 1934 Act and the 1940 Act, as applicable, and rules and regulations of the SEC thereunder. The Fund further represents and warrants to the Distributor that any registration statement, when such
registration statement becomes effective, and any shareholder report, when such report is filed, will contain all statements required to be stated therein in conformity with the 1933 Act, the 1934 Act and the 1940 Act, as applicable, and the rules and regulations of the SEC; that all statements of fact contained in any such registration statement or shareholder report will be true and correct when such registration statement becomes effective, or when such shareholder report is filed; and that no registration statement, when such registration statement becomes effective, and no shareholder report, when such shareholder report is filed, will include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading to a purchaser of Shares; provided, however, that the foregoing representations and warranties shall not apply to any untrue statement of material fact or omission made in any registration statement or shareholder report in reliance upon and in conformity with any information furnished to the Fund by the Distributor or any affiliate thereof and used in preparation thereof. The Fund authorizes the Distributor and authorized banks, broker/dealers and other financial institutions to use any prospectus or statement of additional information in the form furnished from time to time in connection with the sale of Shares and represented by the Fund as being the then-current form of prospectus or then-current form of statement of additional information.
2.2. The Fund agrees to indemnify, defend and hold the Distributor, its several officers and directors, and any person who controls the Distributor within the meaning of Section 15 of the 1933 Act free and harmless from and against any and all claims, demands, liabilities and expenses (including the cost of investigating or defending such claims, demands or liabilities and any counsel fees incurred in connection therewith) which the Distributor, its officers and directors, or any such controlling person, may incur under the 1933 Act or under common law or otherwise, arising out of or based upon (a) any breach by the Fund of any provision of this Agreement, or (b) any untrue statement, or alleged untrue statement, of a material fact contained in any registration statement or shareholder report or arising out of or based upon any omission, or alleged omission, to state a material fact required to be stated in any registration statement or shareholder report or necessary to make any statement in such documents not misleading; provided, however, that the Fund's agreement to indemnify the Distributor, its officers and directors, and any such controlling person shall not be deemed to cover any claims, demands, liabilities or expenses arising out of any untrue statement or alleged untrue statement or omission or alleged omission made in any registration statement or shareholder report or in any financial or other statements in reliance upon and in conformity with any information furnished to the Fund by the Distributor or any affiliate thereof and used in the preparation thereof; and further provided that the Fund's agreement to indemnify the Distributor, its officers and directors, and any such controlling person shall not be deemed to cover any liability to the Fund or its shareholders to which the Distributor, is officers and directors, or any such controlling person would otherwise be subject by reason of willful misfeasance, bad faith or gross negligence in the performance of the Distributor's, its officer's or director's, or any such controlling person's duties, or by reason of the Distributor's, its officer's or director's, or any such controlling person's reckless disregard of its obligations and duties under this Agreement.
The Fund's agreement to indemnify the Distributor, its officers and directors, and any such controlling person, as aforesaid, is expressly conditioned upon the Fund's being notified of any action brought against the Distributor, its officers or directors, or any such controlling person,
such notification to be given in writing and to be transmitted by personal delivery, first class mail, overnight courier, facsimile or other electronic means to the address or facsimile number contained in paragraph 9 of this Agreement, or to such other addresses or facsimile numbers as the parties hereto may specify from time to time in writing and such notification to be sent to the Fund within a reasonable period of time after the summons or other first legal process shall have been served. The failure to so notify the Fund of any such action shall not relieve the Fund from any liability hereunder, which the Fund may have to the person against whom, such action is brought by reason of any such untrue or alleged untrue statement, or omission or alleged omission, except to the extent the Fund has been actually prejudiced by such delay. The Fund will be entitled to assume at its own expense the defense of any suit brought to enforce any such claim, demand or liability, but, in such case, such defense shall be conducted by counsel of good standing chosen by the Fund and approved by the Distributor, which approval shall not unreasonably be withheld. In the event the Fund elects to assume the defense of any such suit and retain counsel of good standing approved by the Distributor, the defendant or defendants in such suit shall bear the fees and expenses of any additional counsel retained by any of them; but in case the Fund does not elect to assume the defense of any such suit, or in case the Distributor reasonably does not approve of counsel chosen by the Fund, the Fund will reimburse the distributor, its officers and directors, or the controlling person or persons named as defendant or defendants in such suit, for the fees and expenses of any counsel retained by the Distributor or them.
The Fund's indemnification agreement contained in this paragraph 2.2 and the Fund's representations and warranties in this Agreement shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Distributor, its officers or directors, or any controlling person, and shall survive the delivery of any Shares. This agreement of indemnity will inure exclusively to the Distributor's benefit, to the benefit of its several officers and directors, and their respective estates, and to the benefit of the controlling persons and their successors. The Fund agrees promptly to notify the Distributor of the commencement of any litigation or proceedings against the Fund or any of its officers, Trustees, or Directors in connection with the issue and sale of any Shares.
2.3. The Distributor agrees to indemnify, defend and hold the Fund, its several officers, Trustees and Directors, and any person who controls the Fund within the meaning of Section 15 of the 1933 Act free and harmless from and against any and all claims, demands, liabilities and expenses (including the costs of investigation or defending such claims, demands or liabilities and any counsel fees incurred in connection therewith) which the Fund, its officers, Trustees or Directors or any such controlling person, may incur under the 1933 Act or under common law or otherwise, but only to the extent that such liability or expense incurred by the Fund, its officers, Trustees or Directors, or such controlling person resulting from such claims or demands, shall arise out of or be based upon (a) any untrue, or alleged untrue, statement of a material fact contained in information furnished by the Distributor or any affiliate thereof to the Fund or its counsel and used in the Fund's registration statement or shareholder reports, or any omission, or alleged omission, to state a material fact in connection with such information furnished by the Distributor or any affiliate thereof to the Fund or its counsel required to be stated in such information or necessary to make such information not misleading, (b) any untrue statement of a material fact contained in any sales literature prepared by the Distributor, or any omission to
state a material fact required to be stated therein or necessary to make such sales literature not misleading (except to the extent arising out of information furnished by the Fund to the Distributor for use therein), (c) any willful misfeasance, bad faith or gross negligence in the performance of the Distributor's obligations and duties under the Agreement or by reason of its reckless disregard thereof, or (d) any breach by the Distributor of any provision of this Agreement. The Distributor's agreement to indemnify the Fund, its officers, Trustees and Directors, and any such controlling person, as aforesaid, is expressly conditioned upon the Distributor's being notified of any action brought against the Fund, its officers, Trustees or Directors, or any such controlling person, such notification to be given in writing and to be transmitted by personal delivery, first class mail, overnight courier, facsimile or other electronic means to the address or facsimile number contained in paragraph 9 of this Agreement, or to such other addresses or facsimile numbers as the parties hereto may specify from time to time in writing and such notification to be sent to the Distributor by the person against whom such action is brought, within a reasonable period of time after the summons or other first legal process shall have been served. The failure to so notify the Distributor of any such action shall not relieve the Distributor or any affiliate thereof from any liability hereunder, which the Distributor or any affiliate thereof may have to the Fund, its officers, Trustees or Directors, or to such controlling person by reason of any such untrue or alleged untrue statement, or omission or alleged omission, or other conduct covered by this indemnity agreement, except to the extent the Distributor has been actually prejudiced by such delay. The Distributor shall have the right to control the defense of such action, with counsel of good standing of its own choosing, approved by the Board of Trustees or Board of Directors of the Fund, as applicable, which approval shall not unreasonably be withheld, if such action is based solely upon such misstatement or omission, or alleged misstatement or omission, on the Distributor's part or any affiliate thereof.
2.4. The Fund agrees to advise the Distributor as soon as reasonably practicable of the issuance by the SEC of any stop order suspending the effectiveness of the registration statement then in effect or of the initiation of any proceeding for that purpose. Thereafter, no Shares shall be offered by either the Distributor or the Fund under any of the provisions of this Agreement and no orders for the purchase or sale of Shares hereunder shall be accepted by the Fund if and so long as the effectiveness of the registration statement then in effect or any necessary amendments thereto shall be suspended under any of the provisions of the 1933 Act, or if and so long as a current prospectus, as required by Section 10(b) of the 1933 Act is not on file with the SEC; provided, however, that nothing contained in this paragraph 2.4 shall in any way restrict or have any application to or bearing upon the Fund's obligation to repurchase Shares from any shareholder in accordance with the provisions of the Fund's prospectus or Declaration of Trust.
3. CONFIDENTIALITY.
The Fund and Distributor may receive from each other information, or access to information, about the customers or about consumers generally (collectively, "Customer Information") including, but not limited to, nonpublic personal information such as a customer's name, address, telephone number, account relationships, account balances and account histories. Each of the Fund and Distributor agrees on behalf of their respective employees that all information, including Customer Information, obtained pursuant to this Agreement shall be considered confidential information. Except as permitted by law or required by order of a court
or governmental authority, or required by any self-regulatory organization, having jurisdiction over the parties, none of the parties shall disclose such confidential information to any other person or entity or use such confidential information other than to carry out the purposes of this Agreement, including its use under applicable provisions of the SEC's Regulation S-P in the ordinary course of carrying out the purposes of this Agreement.
4. ANTI-MONEY LAUNDERING PROGRAM.
The Distributor represents and warrants that it (a) has adopted an anti-money laundering compliance program ("AML Program") that satisfies the requirements of all applicable laws and regulations; and (b) will notify the Fund promptly if an inspection by the appropriate regulatory authorities of its AML Program identifies any material deficiency, and will promptly remedy any material deficiency of which it learns.
5. LIMITATIONS OF LIABILITY.
Except as provided in paragraph 2.3, the Distributor shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Fund or any Series in connection with matters to which this Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on its part in the performance of its duties or from reckless disregard of its obligations and duties under this Agreement.
6. TERM.
6.1. This Agreement shall become effective on the date of its execution and, unless sooner terminated as provided herein, shall continue in effect for a period of two (2) years from the date written above. This Agreement shall thereafter continue from year to year, provided such continuance is specifically approved at least annually by (i) the Fund's Board of Trustees or Board of Directors, as applicable, or (ii) a vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of the Fund or any Series, if applicable, provided that in either event the continuance is also approved by the majority of the Fund's Trustees or Directors, as applicable, who are not parties to this Agreement or interested persons (as defined in the 1940 Act) of any such party, by vote cast in person at a meeting called for the purpose of voting on such approval.
6.2. This Agreement is terminable with respect to a Fund or any Series, if applicable, without penalty, on not less than sixty (60) days' written notice, by the Fund's Board of Trustees or Board of Directors, as applicable, by vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of such Fund or any Series, if applicable, or by the Distributor. This Agreement will also terminate automatically in the event of its assignment (as defined in the 1940 Act). Upon termination, the obligations of the parties under this Agreement shall cease except for unfulfilled obligations and liabilities arising prior to termination and the provisions of Sections 2, 3, 5, 6.2, 7, 8 and 9.
7. LIMITED RECOURSE
A reference to each Fund and the Trustees or Directors, as applicable, of each Fund refer respectively to the Fund created by the Declaration of Trust and the Trustees or Directors as Trustees or Directors but not individually or personally. A copy of the document establishing each Fund is filed with the Secretary of the Commonwealth of Massachusetts. All parties hereto acknowledge and agree that any and all liabilities of the Fund arising, directly or indirectly, under this Agreement will be satisfied solely out of the assets of the Fund and that no Trustee, officer, director or shareholder shall be personally liable for any such liabilities. All persons dealing with any Fund or any Series, if applicable, must look solely to the property belonging to such Fund or any Series, if applicable, for the enforcement of any claims against the Fund.
8. MISCELLANEOUS.
8.1. No provision of this Agreement may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party against which an enforcement of the change, waiver, discharge or termination is sought.
8.2. This Agreement shall be governed by the laws of the Commonwealth of Massachusetts as in effect as of the date hereof and the applicable provisions of the 1940 Act. To the extent that the applicable law of the Commonwealth of Massachusetts, or any of the provisions herein, conflict with the applicable provisions of the 1940 Act, the latter shall control.
9. NOTICES.
Any notices under this Agreement shall be in writing, addressed and delivered or mailed postage paid to such address as may be designated for the receipt of such notice. Until further notice, it is agreed that the address of the Fund shall be One Financial Center, Boston, MA 02110, telefacsimile (617) 345-0919 Attention: Secretary, and that of the Distributor shall be c/o Columbia Management Services, Inc., Attn: Dealer File Department, 245 Summer St., Fl 3, Boston, MA 02110, telefacsimile (617) 742-2989.
10. COUNTERPARTS.
This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed by their officers designated below as of the day and year first above written.
EACH FUND DESIGNATED IN SCHEDULE I,
on behalf of its respective Series,
if any
COLUMBIA MANAGEMENT DISTRIBUTORS, INC.
SCHEDULE I
TRUST SERIES
----- ------
Columbia Series Trust I Columbia High Yield Municipal Fund
Columbia Managed Municipals Fund
Columbia Strategic Income Fund
Columbia Tax-Managed Growth Fund
Columbia Federal Securities Fund
Columbia Tax-Exempt Fund
Columbia California Tax-Exempt Fund
Columbia International Stock Fund
Columbia Intermediate Municipal Bond Fund
Columbia Balanced Fund
Columbia High Yield Fund
Columbia Greater China Fund
Columbia Mid Cap Growth Fund
Columbia Oregon Intermediate Municipal Bond Fund
Columbia Real Estate Equity Fund
Columbia Small Cap Growth Fund
Columbia Strategic Investor Fund
Columbia Technology Fund
Columbia Asset Allocation Fund
Columbia Common Stock Fund
Columbia Disciplined Value Fund
Columbia Dividend Income Fund
Columbia Growth Stock Fund
Columbia Large Cap Growth Fund
Columbia Liberty Fund
Columbia Small Cap Core Fund
Columbia Small Company Equity Fund
Columbia Young Investor Fund
Columbia Connecticut Intermediate Municipal Bond Fund
Columbia Massachusetts Intermediate Municipal Bond Fund
Columbia New Jersey Intermediate Municipal Bond Fund
Columbia New York Intermediate Municipal Bond Fund
Columbia Rhode Island Intermediate Municipal Bond Fund
Columbia Connecticut Tax-Exempt Fund
Columbia Massachusetts Tax-Exempt Fund
Columbia New York Tax-Exempt Fund
Columbia Tax-Exempt Insured Fund
Columbia Utilities Fund
Columbia Income Fund
Columbia Intermediate Bond Fund
Columbia U.S. Treasury Index Fund
Columbia World Equity Fund
Columbia Core Bond Fund
Columbia High Yield Opportunity Fund
Columbia Small Cap Value Fund I
|
TRUST SERIES
----- ------
Columbia Funds Institutional Trust CMG Strategic Equity Fund
CMG Small/Mid Cap Fund
CMG International Stock Fund
CMG Core Bond Fund
CMG High Yield Fund
CMG International Bond Fund
CMG Short Term Bond Fund
CMG Ultra Short Term Bond Fund
CMG Intermediate Bond Fund
CMG Core Plus Bond Fund
CMG Government Bond Fund
CMG Corporate Bond Fund
CMG Mortgage and Asset-Backed Securities Fund
CMG Small Cap Growth Fund
CMG Enhanced S&P 500 Index Fund
CMG Large Cap Value Fund
CMG Large Cap Growth Fund
CMG Mid Cap Value Fund
CMG Mid Cap Growth Fund
CMG Small Cap Value Fund
CMG Emerging Markets Equity Fund
|
SCHEDULE II
COMPENSATION
COMPENSATION TO DISTRIBUTOR. In connection with the distribution of shares of
the Funds, Distributor will be entitled to receive (i) payments pursuant to any
Distribution Plan and related agreement from time to time in effect between any
Fund and Distributor or any particular class of shares of a Fund ("12b-1 Plan"),
(ii) any CDSC applicable to the redemption of a Fund's Shares, determined in the
manner set forth in the then current prospectus and Statement of Additional
Information of that Fund, and (iii) any applicable front-end sales charges
applicable to the sale of a Fund's Shares, less any applicable dealer discount.
Approved: May 11, 2005
Exhibit (e)(2)
FORM OF
SHAREHOLDER SERVICING PLAN IMPLEMENTATION AGREEMENT
Ladies and Gentlemen:
We wish to enter into this Shareholder Servicing Plan Implementation Agreement ("Agreement") with you concerning the provision of services as set forth herein. The terms and conditions of this Agreement are as follows:
1. Provision of Services
(a) You will from time to time enter into agreements with banks, broker/dealers and other financial institutions (collectively "Intermediaries") pursuant to which the Intermediaries will agree to provide personal services to, and maintain accounts of, their clients ("Customers") who may from time to time beneficially own shares of one or more of the portfolios (collectively, the "Funds") of the undersigned trust(s) that have a Board approved shareholder servicing plan. The shares of the Funds are collectively referred to herein as "Shares."
(b) You will provide such office space and equipment, facilities and personnel (which may be any part of the space, equipment and facilities currently used in your business, or any personnel employed by you) as may be reasonably necessary or beneficial in order to provide the services contemplated hereby.
(c) You will pay to the Intermediaries, out of the Service Fee (as defined below), such amounts as may be agreed between you and the Intermediaries in return for the provision by the Intermediaries of personal services and/or the maintenance of shareholder accounts as described in Section 1(a).
(d) For all purposes of this Agreement you will be deemed to be an independent contractor, and will have no authority to act as agent for us in any other capacity, except as expressly provided herein.
2. Compensation
(a) In consideration of the services provided by you hereunder, we will pay to you a fee as set forth in Schedule II (the "Servicing Fee"). The Servicing Fee may be prospectively increased or decreased by us, in our sole discretion, at any time upon notice to you.
(b) Compensation payable under this Agreement is subject to, among other things, the National Association of Securities Dealers, Inc. ("NASD") Conduct Rules governing receipt by NASD members of service fees from registered investment companies (the "NASD Service Fee Rule"). Such compensation shall only be paid if permissible under the NASD Service Fee Rule and shall not be payable for services that are deemed to be distribution-related services, or to the extent otherwise prohibited by the NASD Service Fee Rule.
3. Reports
You agree to furnish us with such information as we may reasonably request, and will otherwise cooperate with us and our designees (including, without limitation, any auditors or legal counsel designated by us) in connection with the preparation of reports to our Board of Trustees concerning this Agreement and the monies paid or payable by us pursuant hereto, as well as any other reports or filings that may be required by law. You agree to provide us with such certifications, reports and other information as we may reasonably request from time to time to assist us in complying with, and monitoring for compliance with, such laws, rules and regulations.
4. Term
(a) This Agreement shall become effective on the date of its execution and, unless sooner terminated as provided herein, shall continue in effect from year to year with respect to a Fund, provided such continuance is specifically approved at least annually by (i) our Board of Trustees, or (ii) a vote of a majority (as defined in the Investment Company Act of 1940, as amended ("1940 Act")) of the outstanding voting securities of the Fund, provided that in either event the continuance is also approved by the majority of our Trustees who are not parties to this Agreement or interested persons (as defined in the 1940 Act) of any such party, by vote cast in person at a meeting called for the purpose of voting on such approval.
(b) This Agreement is terminable with respect to a Fund, without penalty, on not less than sixty (60) days' written notice, by our Board of Trustees, by vote of a majority (as defined in the 1940 Act) of the outstanding voting securities of such Fund, or by you. This Agreement will also terminate automatically in the event of its assignment (as defined in the 1940 Act). Upon termination, the obligations of the parties under this Agreement shall cease except for unfulfilled obligations and liabilities arising prior to termination.
5. Communications
You will send any notice to us by first class mail, postage prepaid, or by confirmed telefacsimile at: One Financial Center, Boston, MA 02110, telefacsimile (617) 345-0919 Attention: Secretary. We will send any notice to you by first class mail, postage prepaid, or by confirmed telefacsimile to you at: c/o Columbia Management Services, Inc., Attn: Dealer File Department, 245 Summer St., Fl 3, Boston, MA 02110, telefacsimile (617) 742-2989, or such other address or telefacsimile number as we may reasonably believe appropriate. A party that changes its address or telefacsimile number shall promptly notify the other party.
6. Governing Law
This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts without giving effect to conflict of laws principles. This Agreement may not be assigned by either party.
7. Actions by the Trust and its Trustees
A reference to each Trust and the Trustees of each Fund refer respectively to the Trust created by the Declaration of Trust and the Trustees as Trustees but not individually or personally. A copy of the document
establishing each Trust is filed with the Secretary of the Commonwealth of Massachusetts. All parties hereto acknowledge and agree that any and all liabilities of the Trust arising, directly or indirectly, under this Agreement will be satisfied solely out of the assets of the Trust and that no Trustee, officer or shareholder shall be personally liable for any such liabilities. All persons dealing with any Trust, must look solely to the property belonging to such Trust for the enforcement of any claims against the Trust.
8. Miscellaneous
We may amend this Agreement upon written notice to you. You will be deemed to have accepted such amendment by providing the services contemplated in this Agreement after receipt of such notice. You and we also may amend this Agreement by means of a written amendment signed by both parties.
This Agreement shall cancel and supersede any and all prior servicing agreements or similar agreements or contracts relating to the provision of similar services between you and the Funds.
[The remainder of this page intentionally left blank.]
If you agree to be legally bound by the provisions of this Agreement, please sign a copy of this letter where indicated below and promptly return it to us, at the following address: One Financial Center, Boston, MA 02110, Attention: Secretary.
Very truly yours,
EACH TRUST DESIGNATED IN SCHEDULE I,
on behalf of its respective Fund
Accepted and Agreed to:
COLUMBIA MANAGEMENT DISTRIBUTORS, INC.
SCHEDULE I
TRUST SERIES
----- ------
Columbia Series Trust I Columbia High Yield Municipal Fund
Columbia Managed Municipals Fund
Columbia Strategic Income Fund
Columbia Tax-Managed Growth Fund
Columbia Federal Securities Fund
Columbia Tax-Exempt Fund
Columbia California Tax-Exempt Fund
Columbia International Stock Fund
Columbia Intermediate Municipal Bond Fund
Columbia Balanced Fund
Columbia High Yield Fund
Columbia Greater China Fund
Columbia Mid Cap Growth Fund
Columbia Oregon Intermediate Municipal Bond Fund
Columbia Real Estate Equity Fund
Columbia Small Cap Growth Fund
Columbia Strategic Investor Fund
Columbia Technology Fund
Columbia Asset Allocation Fund
Columbia Common Stock Fund
Columbia Disciplined Value Fund
Columbia Dividend Income Fund
Columbia Growth Stock Fund
Columbia Large Cap Growth Fund
Columbia Liberty Fund
Columbia Small Cap Core Fund
Columbia Small Company Equity Fund
Columbia Young Investor Fund
Columbia Connecticut Intermediate Municipal Bond Fund
Columbia Massachusetts Intermediate Municipal Bond Fund
Columbia New Jersey Intermediate Municipal Bond Fund
Columbia New York Intermediate Municipal Bond Fund
Columbia Rhode Island Intermediate Municipal Bond Fund
Columbia Connecticut Tax-Exempt Fund
Columbia Massachusetts Tax-Exempt Fund
Columbia New York Tax-Exempt Fund
Columbia Tax-Exempt Insured Fund
Columbia Utilities Fund
Columbia Income Fund
Columbia Intermediate Bond Fund
Columbia U.S. Treasury Index Fund
Columbia World Equity Fund
Columbia Core Bond Fund
Columbia High Yield Opportunity Fund
Columbia Small Cap Value Fund I
|
TRUST SERIES
----- ------
Columbia Funds
Institutional Trust CMG Strategic Equity Fund
CMG Small/Mid Cap Fund
CMG International Stock Fund
CMG Core Bond Fund
CMG High Yield Fund
CMG International Bond Fund
CMG Short Term Bond Fund
CMG Ultra Short Term Bond Fund
CMG Intermediate Bond Fund
CMG Core Plus Bond Fund
CMG Government Bond Fund
CMG Corporate Bond Fund
CMG Mortgage and Asset-Backed Securities Fund
CMG Small Cap Growth Fund
CMG Enhanced S&P 500 Index Fund
CMG Large Cap Value Fund
CMG Large Cap Growth Fund
CMG Mid Cap Value Fund
CMG Mid Cap Growth Fund
CMG Small Cap Value Fund
CMG Emerging Markets Equity Fund
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SCHEDULE II
COMPENSATION
The Servicing Fee shall be, with respect to each Fund, 0.25% of the average daily net asset value of all Shares of such Fund, other than Shares with respect to which the Trust is paying a shareholder servicing fee directly to a third party. The Servicing Fee shall be accrued daily and paid monthly in arrears.
Exhibit (h)(1)
FORM OF
ADMINISTRATIVE AGREEMENT
This agreement (the "Agreement") is made as of March __, 2006, by and between the Massachusetts business trusts acting on behalf of their series all as listed on Schedule A hereto (as the same may from time to time be amended to add or delete one or more series of such trusts) (each such trust and corporation being hereinafter referred to as a "Trust" and each series of a Trust, if any, being hereinafter referred to as a "Fund" with respect to that Trust, but for any Trust that does not have any separate series, then any reference to the "Fund" is a reference to that Trust), and Columbia Management Advisors, LLC ("CMA"), a Delaware limited liability company.
WHEREAS, each Trust is a registered investment company and desires that CMA perform certain services for the Funds; and
WHEREAS, CMA is willing to perform such services upon the terms and subject to the conditions set forth herein.
NOW THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties hereto agree as follows:
1. Appointment. Each Trust hereby appoints CMA to act as administrator for its Funds, and CMA accepts such appointment and will perform the respective duties and functions of such offices in the manner hereinafter set forth.
2. Administrative Services. Subject to the terms of this Agreement and the supervision and control of the relevant Trust's Board of Trustees (the "Trustees"), CMA agrees to provide the services indicated for each Fund on Schedule B hereto.
3. Use of Affiliated Companies and Subcontractors. In connection with the
services to be provided by CMA under this Agreement, CMA may, to the extent it
deems appropriate, and subject to compliance with the requirements of applicable
laws and regulations and upon receipt of approval of the Trustees, make use of
(i) its affiliated companies and their directors, trustees, officers and
employees and (ii) subcontractors selected by it, provided that it shall
supervise and remain fully responsible for the services of all such third
parties in accordance with and to the extent provided in this Agreement. All
costs and expenses associated with services provided by any such third parties
shall be borne by CMA or such parties.
4. Expenses Borne By Trust. Except to the extent expressly assumed by CMA herein or under a separate agreement between a Trust and CMA and except to the extent required by law to be paid by CMA, each Trust shall pay all costs and expenses incidental to its organization, operations and business. Without limitation, such costs and expenses shall include but not be limited to:
(a) All charges of depositories, custodians and other agencies for the safekeeping and servicing of its cash, securities, and other property;
(b) All charges for equipment or services used for obtaining price quotations or for communication between CMA or the Trust and the custodian, transfer agent or any other agent selected by the Trust;
(c) All charges for investment advisory, portfolio management, transfer agency and accounting services provided to the Trust by CMA, or any other provider of such services;
(d) All charges for services of the Trust's independent auditors and for services to the Trust by legal counsel;
(e) All compensation of the Trustees, other than those affiliated with CMA, all expenses incurred in connection with their services to the Trust, and all expenses of meetings of the Trustees or committees thereof;
(f) All expenses incidental to holding meetings of shareholders, including printing and of supplying each record-date shareholder with notice and proxy solicitation material, and all other proxy solicitation expenses;
(g) All expenses of printing of annual or more frequent revisions of the Trust's Prospectus(es) and of supplying each then-existing shareholder with a copy of a revised Prospectus;
(h) All expenses related to preparing and transmitting certificates representing the Trust's shares;
(i) All expenses of bond and insurance coverage required by law or deemed advisable by the Trustees;
(j) All brokers' commissions and other normal charges incident to the purchase, sale, or lending of Fund securities;
(k) All taxes and governmental fees payable to federal, state or other governmental agencies, domestic or foreign, including all stamp or other transfer taxes;
(l) All expenses of registering and maintaining the registration of the Trust under the Investment Company Act of 1940, as amended (the "1940 Act") and, to the extent no exemption is available, expenses of registering the Trust's shares under the Securities Act of 1933, as amended, of qualifying and maintaining qualification of the Trust and of the Trust's shares for sale under securities laws of various states or other jurisdictions and of registration and qualification of the Trust under all other laws applicable to the Trust or its business activities;
(m) All interest on indebtedness, if any, incurred by the Trust or its Fund; and
(n) All fees, dues and other expenses incurred by the Trust in connection with membership of the Trust in any trade association or other investment company organization.
5. Allocation Of Expenses Borne By Trust. Any expenses borne by a Trust that are attributable solely to the organization, operation or business of a constituent Fund shall be paid solely out of such Fund's assets. Any expense borne by a Trust which is not solely attributable to a constituent Fund, nor solely to any other series of shares of the Trust, shall be apportioned in such manner as CMA determines is fair and appropriate, or as otherwise specified by the Trustees.
6. Expenses Borne By CMA. CMA at its own expense shall furnish all executive and other personnel, office space, and office facilities required to render the services set forth in this Agreement. However, CMA shall not be required to pay or provide any credit for services provided by the Trust's custodian or other agents without additional cost to the Trust.
In the event that CMA pays or assumes any expenses of a Trust or a Fund not required to be paid or assumed by CMA under this Agreement, CMA shall not be obligated hereby to pay or assume the same or similar expense in the future; provided that nothing contained herein shall be deemed to relieve CMA of any obligation to a Trust or a Fund under any separate agreement or arrangement between the parties.
7. Administration Fee. Each Trust shall pay to CMA, or to such person(s) as CMA may from time to time instruct, for services rendered and costs incurred in connection with the performance of duties hereunder, such compensation and reimbursement as may from time to time be agreed to by the Trust and CMA.
8. Non-Exclusivity. The services of CMA to the Trusts and Funds hereunder are not to be deemed exclusive and CMA shall be free to render similar services to others.
9. Standard Of Care. Neither CMA, nor any of its directors, officers or stockholders, agents or employees shall be liable to any Trust, Fund, or its shareholders for any action taken or thing done by it or its subcontractors or agents on behalf of the Trust or Fund in carrying out the terms and provisions of this Agreement if done in good faith and without gross negligence, willful misfeasance or reckless disregard of duties and obligations hereunder on the part of CMA, its subcontractors, or agents.
10. Effective Date, Amendment, And Termination. This Agreement shall become effective as to each Fund as of the effective date for Fund specified in Schedule A hereto and, unless terminated as hereinafter provided, shall remain in effect with respect to the Fund thereafter from year to year so long as such continuance is specifically approved with respect to the Fund at least annually by a majority of the Trustees who are not interested persons of the relevant Trust or CMA.
As to any Trust or Fund, this Agreement may be modified or amended from time to time by mutual agreement between CMA and the Trust and may be terminated by CMA or the Trust by at least sixty (60) days' written notice given by the terminating party to the other party. Upon termination as to a Fund, the relevant Trust shall pay to CMA such compensation as may be due under this Agreement as of the date of such termination and shall reimburse CMA for its costs, expenses, and disbursements payable under this Agreement to such date. In the event that, in connection with a termination, a successor to any of the duties or responsibilities of CMA
hereunder is designated by the Trust by written notice to CMA, upon such termination CMA shall promptly, and at the expense of the Trust or Fund with respect to which this Agreement is terminated, transfer to such successor all relevant books, records, and data established or maintained by CMA under this Agreement and shall cooperate in the transfer of such duties and responsibilities, including provision, at the expense of the Fund, for assistance from CMA personnel in the establishment of books, records, and other data by such successor.
11. Assignment. Any interest of CMA under this Agreement with respect to any Trust shall not be assigned either voluntarily or involuntarily, by operation of law or otherwise, without the prior written consent of the Trust.
12. Books And Records. CMA shall maintain, or oversee the maintenance by such other persons as may from time to time be approved by the Trustees to maintain, the books, documents, records and data required to be kept by each Trust under the 1940 Act, the laws of the Commonwealth of Massachusetts or such other authorities having jurisdiction over the Trust or Fund or as may otherwise be required for the proper operation of the business and affairs of the Trust or Fund (other than those required to be maintained by any investment adviser retained by the Trust on behalf of Fund in accordance with Section 15 of the 1940 Act).
CMA will periodically send to each Trust all books, documents, records, and data of the Trust and Funds that are no longer needed for current purposes or required to be retained as set forth herein. CMA shall have no liability for loss or destruction of said books, documents, records, or data after they are returned to the appropriate Trust.
CMA agrees that all such books, documents, records, and data which it maintains shall be maintained in accordance with Rule 31a-3 of the 1940 Act and that any such items maintained by it shall be the property of the relevant Trust. CMA further agrees to surrender promptly to a Trust any such items it maintains upon request, provided that CMA shall be permitted to retain a copy of all such items. CMA agrees to preserve all such items maintained under Rule 31a-1 for the period prescribed under Rule 31a-2 of the 1940 Act.
Each Trust shall furnish or otherwise make available to CMA such copies of the financial statements, proxy statements, reports, and other information relating to the business and affairs of its Funds as CMA may, at any time or from time to time, reasonably require in order to discharge its obligations under this Agreement.
13. Confidentiality. CMA agrees on behalf of itself and its employees to treat confidentially and as proprietary information of each Trust all records and other information relative to the Trust and its prior, present or potential shareholders and not to use such records and information for any purpose other than performance of its responsibilities and duties under this Agreement, except after prior notification to and approval in writing by the Trust, which approval shall not be unreasonably withheld and may not be withheld where CMA may be exposed to civil or criminal contempt proceedings for failure to comply, when requested to divulge such information by duly constituted authorities or when so requested by the Trust.
14. Compliance. CMA agree to comply with all applicable federal, state and local laws and regulations, codes, orders and government rules in the performance of its duties under this
Agreement. CMA agree to provide each Trust with such certifications, reports and other information as the Trust may reasonably request from time to time to assist it in complying with, and monitoring for compliance with, applicable laws, rules and regulations.
15. Miscellaneous. This Agreement shall be construed in accordance with and governed by the laws of the Commonwealth of Massachusetts.
The captions in this Agreement are included for convenience of reference only and in no way define or limit any of the provisions of this Agreement or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.
A copy of the Agreement and Declaration of Trust of the Trusts that are organized as Massachusetts business trusts, as amended or restated from time to time, is on file with the Secretary of the Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed on behalf of each of these Trusts by an officer or Trustee of the Trust in his or her capacity as an officer or Trustee of the Trust and not individually and that the obligations of or arising out of this Agreement are not binding upon any of the Trustees, officers or shareholders individually but are binding only upon the assets and property of the Trust. Furthermore, notice is given that the assets and liabilities of each series of each Trust is separate and distinct and that the obligations of or arising out of this Agreement with respect to the series of each Trust are several and not joint, and to the extent not otherwise reasonably allocated among such series by the Trustees of the Trust, shall be deemed to have been allocated in accordance with the relative net assets of such series, and CMA agrees not to proceed against any series for the obligations of another series.
[The remainder of this page intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.
COLUMBIA FUNDS SERIES TRUST I on behalf of its series listed on Schedule A
COLUMBIA FUNDS INSTITUTIONAL TRUST on behalf of its series listed on Schedule A
LIBERTY VARIABLE INVESTMENT TRUST on behalf of its series listed on Schedule A
STEINROE VARIABLE INVESTMENT TRUST on behalf of its series listed on Schedule A
COLUMBIA MANAGEMENT ADVISORS, LLC
SCHEDULE A
TRUST SERIES
----- ------
Columbia Series Trust I Columbia High Yield Municipal Fund
Columbia Managed Municipals Fund
Columbia Strategic Income Fund
Columbia Tax-Managed Growth Fund
Columbia Federal Securities Fund
Columbia Tax-Exempt Fund
Columbia California Tax-Exempt Fund
Columbia International Stock Fund
Columbia Intermediate Municipal Bond Fund
Columbia Balanced Fund
Columbia High Yield Fund
Columbia Greater China Fund
Columbia Mid Cap Growth Fund
Columbia Oregon Intermediate Municipal Bond Fund
Columbia Real Estate Equity Fund
Columbia Small Cap Growth Fund
Columbia Strategic Investor Fund
Columbia Technology Fund
Columbia Asset Allocation Fund
Columbia Common Stock Fund
Columbia Disciplined Value Fund
Columbia Dividend Income Fund
Columbia Growth Stock Fund
Columbia Large Cap Growth Fund
Columbia Liberty Fund
Columbia Small Cap Core Fund
Columbia Small Company Equity Fund
Columbia Young Investor Fund
Columbia Connecticut Intermediate Municipal Bond Fund
Columbia Massachusetts Intermediate Municipal Bond Fund
Columbia New Jersey Intermediate Municipal Bond Fund
Columbia New York Intermediate Municipal Bond Fund
Columbia Rhode Island Intermediate Municipal Bond Fund
Columbia Connecticut Tax-Exempt Fund
Columbia Massachusetts Tax-Exempt Fund
Columbia New York Tax-Exempt Fund
Columbia Tax-Exempt Insured Fund
Columbia Utilities Fund
Columbia Income Fund
Columbia Intermediate Bond Fund
Columbia U.S. Treasury Index Fund
Columbia World Equity Fund
Columbia Core Bond Fund
Columbia High Yield Opportunity Fund
Columbia Small Cap Value Fund I
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TRUST SERIES
----- ------
Columbia Funds Institutional Trust CMG Strategic Equity Fund
CMG Small/Mid Cap Fund
CMG International Stock Fund
CMG Core Bond Fund
CMG High Yield Fund
CMG International Bond Fund
CMG Short Term Bond Fund
CMG Ultra Short Term Bond Fund
CMG Intermediate Bond Fund
CMG Core Plus Bond Fund
CMG Government Bond Fund
CMG Corporate Bond Fund
CMG Mortgage and Asset-Backed Securities Fund
CMG Small Cap Growth Fund
CMG Enhanced S&P 500 Index Fund
CMG Large Cap Value Fund
CMG Large Cap Growth Fund
CMG Mid Cap Value Fund
CMG Mid Cap Growth Fund
CMG Small Cap Value Fund
CMG Emerging Markets Equity Fund
Liberty Variable Investment Trust Columbia International Fund, VS
Liberty Growth & Income Fund, VS
Colonial Strategic Income Fund, VS
Colonial Small Cap Value Fund, VS
Liberty S&P 500 Index Fund, VS
Liberty Select Value Fund, VS
SteinRoe Variable Investment Trust Liberty Money Market Fund, VS
Liberty Federal Securities Fund, VS
Liberty Asset Allocation Fund, VS
Columbia Large Cap Growth Fund, VS
Liberty Small Company Growth Fund, VS
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SCHEDULE B
Except to the extent that CMA provides such services to a Fund under an investment advisory agreement, CMA will provide the following services, as applicable, to each Fund:
Subject to the general direction and control of the Board of Trustees of the Trust, CMA will perform such administrative services as may from time to time be reasonably requested by the Trust, which include without limitation:
[LIBERTY VARIABLE INVESTMENT TRUST]
(a) providing office space, equipment and clerical personnel necessary for maintaining the organization of the Fund and for performing the administrative functions herein set forth;
(b) arranging, if desired by the Trust, for Trustees, officers and employees of CMA to serve as Trustees, officers or agents of the Fund if duly elected or appointed to such positions and subject to their individual consent and to any limitations imposed by law;
(c) preparing and, if applicable, filing all documents required for compliance by the Fund with applicable laws and regulations, including registration statements, registration fee filings, semi-annual and annual reports to shareholders, proxy statements and tax returns;
(d) preparation of agendas and supporting documents for and minutes of Trustees, committees of Trustees and shareholders;
(e) coordinating and overseeing the activities of the Fund's other third-party service providers;
(f) maintaining books and records of the Fund (exclusive of records required by Section 31(a) of the 1940 Act;
[COLUMBIA FUNDS INSTITUTIONAL TRUST]
(a) providing fund administration, including daily prospectus, investment restrictions, and 1940 Act compliance review, tax and distribution management, expense budgeting, performance reporting and statistical analysis, financial reporting and board reporting;
[COLUMBIA FUNDS SERIES TRUST I]
(a) preparation and maintenance of the Trust's registration statement with the Securities and Exchange Commission;
(b) preparation and periodic updating of the prospectus and statement of additional information for the Fund;
(c) preparation, filing with appropriate regulatory authorities, and dissemination of various reports for the Fund, including but not limited to semiannual reports to shareholders
under Section 30(d) of the 1940 Act, annual and semiannual reports on Form N-SAR, and notices pursuant to Rule 24f-2;
(d) arrangement for all meetings of shareholders, including the collection of all information required for preparation of proxy statements, the preparation and filing with appropriate regulatory agencies of such proxy statements, the supervision of solicitation of shareholders and shareholder nominees in connection therewith, tabulation (or supervision of the tabulation) of votes, response to all inquiries regarding such meetings from shareholders, the public and the media, and preparation and retention of all minutes and all other records required to be kept in connection with such meetings;
(e) maintenance and retention of all Trust charter documents and the filing of all documents required to maintain the Trust's status as a Massachusetts business trust and as a registered open-end investment company;
(f) arrangement and preparation and dissemination of all materials for meetings of the Board of Trustees and committees thereof and preparation and retention of all minutes and other records thereof;
(g) preparation and filing of the Trust's federal, state and local income tax returns and calculation of any tax required to be paid in connection therewith;
(h) calculation of all Trust and Fund expenses and arrangement for the payment thereof;
(i) calculation of and arrangement for payment of all income, capital gain, and other distributions to shareholders of the Fund;
(j) determination, after consultation with the officers of the Trust, of the jurisdictions in which shares of beneficial interest of each Fund ("Shares") shall be registered or qualified for sale, or may be sold pursuant to an exemption from such registration or qualification, and preparation and maintenance of the registration or qualification of the Shares for sale under the securities laws of each such jurisdiction;
(k) provision of the services of persons who may be appointed as officers of the Trust by the Board of Trustees (it is agreed that some person or persons may be officers of both the Trust and CMA, and that the existence of any such dual interest shall not affect the validity of this Agreement except as otherwise provided by specific provision of applicable law);
(l) preparation and, subject to approval of the Trust's chief financial officer, dissemination of the Trust's and each Fund's quarterly financial information to the Board of Trustees and preparation of such other reports relating to the business and affairs of the Trust and each Fund as the officers and Board of Trustees may from time to time reasonably request;
(m) administration of the Trust's code of ethics and periodic reporting to the Board of Trustees of Trustee and officer compliance therewith;
(n) provision of internal legal, accounting, compliance, audit, and risk management services and periodic reporting to the Board of Trustees with respect to such services;
(o) negotiation, administration and oversight of third party services to the Trust including, but not limited to, custody, tax, transfer agency, disaster recovery, audit and legal services;
(p) negotiation and arrangement for insurance desired or required of the Trust and administering all claims thereunder;
(q) response to all inquiries by regulatory agencies, the press, and the general public concerning the business and affairs of the Trust, including the oversight of all periodic inspections of the operations of the Trust and its agents by regulatory authorities and responses to subpoenas and tax levies;
(r) handling and resolution of any complaints registered with the Trust by shareholders, regulatory authorities, and the general public;
(s) monitoring legal, tax, regulatory and industry developments related to the business affairs of the Trust and communicating such developments to the officers and Board of Trustees as they may reasonably request or as the Administrator believes appropriate;
(t) administration of operating policies of the Trust and recommendation to the officers and the Board of Trustees of the Trust of modifications to such policies to facilitate the protection of shareholders or market competitiveness of the Trust and Fund and to the extent necessary to comply with new legal or regulatory requirements;
(u) responding to surveys conducted by third parties and reporting of Fund performance and other portfolio information;
(v) filing of claims, class actions involving portfolio securities, and handling administrative matters in connection with the litigation or settlement of such claims; and
(w) monitoring the tax efficiency of the Fund [this applies to COLUMBIA TAX-MANAGED GROWTH FUND only].
[STEINROE VARIABLE INVESTMENT TRUST]
(a) the provision of office space, equipment and facilities necessary in connection with the maintenance of the headquarters of the Trust;
(b) the maintenance of the corporate books and records of the Trust, other than its accounting books and records and those of its records maintained by its investment adviser, transfer agent or custodian, and making arrangements for meetings of Trustees of the Trust;
(c) preparation and filing of proxy materials and making arrangements for meetings of shareholders or beneficial owners of the Funds;
(d) preparation and filing of all required reports and all updating and other amendments to the Trust's registration statement under the 1940 Act, the Securities Act of 1933, as amended and the rules and regulations thereunder;
(e) calculation of distributions required or advisable under the Internal Revenue Code of 1986;
(f) periodic computation and reporting to the investment adviser of the Funds' compliance with diversification and other portfolio requirements of the 1940 Act and Internal Revenue Code;
(g) development and implementation of general shareholder and beneficial owner correspondence and communications relating to the Funds, including the preparation and filing of shareholder and beneficial owner reports as are required or deemed advisable;
(h) general oversight of the custodial, net asset value computation, portfolio accounting, financial statement preparation, legal, tax and accounting services performed for the Trust or the Funds by others;
(i) CMA will preserve for the Trust all records it maintains for the Trust as prescribed by the rules and regulations of the SEC in the manner and for the time periods prescribed by such rules. CMA agrees that all such records are the property and under the control of the Trust and will be made available, within five business days of any request therefor, to the Trust's Board of Trustees or auditors during regular business hours at CMA's offices. In the event of termination of this Agreement for any reason, all such records will be returned, without charge, promptly to the Trust, free from any claim or retention of rights by CMA, except that CMA may retain copies of such records; and
(j) CMA will report to the Trustees of the Trust any potential or existing
material irreconcilable conflict among the interests of shareholders
(the separate accounts of insurance companies investing in the Trust)
of which it is aware. CMA will assist the Trustees in carrying out
their responsibilities under an Order from the SEC, dated July 1,
1988, granting insurance companies and variable annuity and variable
life insurance separate accounts exemptions from the provisions of
Section 9(a), 13(a), 15(a) and 15(b) of the 1940 Act and Rules
6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Trust to be sold to and held by variable annuity
and variable life insurance separate accounts of insurance companies
affiliated and unaffiliated with each other. CMA will provide the
Trustees with all information reasonably necessary for the Trustees to
consider any issues raised.
Notwithstanding the foregoing, CMA shall not be deemed to have assumed or have any responsibility under this Agreement with respect to, and shall not be responsible for, the management of the Fund's assets or the rendering of investment advice with respect thereto, or performance of functions specifically assumed by any transfer agent or custodian of the Fund, or underwriting or distribution services.
Exhibit (h)(2)
FORM OF
PRICING AND BOOKKEEPING AGREEMENT
This agreement (the "Agreement") is made as of March __, 2006, by and between the Massachusetts business trusts acting on behalf of their series all as listed on Schedule A hereto (as the same may from time to time be amended to add or delete one or more series of such trusts) (each such trust and corporation being hereinafter referred to as a "Trust" and each series of a Trust, if any, being hereinafter referred to as a "Fund" with respect to that Trust, but for any Trust that does not have any separate series, then any reference to the "Fund" is a reference to that Trust) and Columbia Management Advisors, LLC ("CMA"), a Delaware limited liability company.
WHEREAS, each Trust is a registered investment company and desires that CMA perform certain services for the Funds; and
WHEREAS, CMA is willing to perform such services upon the terms and subject to the conditions set forth herein.
NOW THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties hereto agree as follows:
1. Appointment. Each Trust appoints CMA as its agent to perform the pricing and bookkeeping services described below for each Fund.
2. Pricing and Bookkeeping Services. Subject to the terms of this Agreement and the supervision and control of the relevant Trust's Board of Trustees (the "Trustees"), CMA agrees to provide the services indicated for each Fund on Schedule B hereto.
3. Audit, Use and Inspection. CMA shall make available on its premises during regular business hours all records of a Fund for reasonable audit, use and inspection by the Funds, its agents and any regulatory agency having authority over the Fund.
4. Compensation. For the services provided pursuant to this Agreement, the Trust on behalf of each Fund will pay to CMA, or to such person(s) as CMA may from time to time instruct, the fee set forth on Schedule C hereto.
5. Compliance. CMA shall comply with applicable provisions relating to pricing and bookkeeping as set forth in the prospectuses and statements of additional information of each Fund, applicable resolutions of the Board of Trustees of the Trust and applicable laws and rules in the provision of services under this Agreement.
6. Limitation of Liability. In the absence of willful misfeasance, bad faith or gross negligence on the part of CMA, or reckless disregard of its obligations and duties hereunder, CMA shall not be subject to any liability to any Trust or Fund, to any shareholder of any Trust or Fund or to any other person, firm or organization, for any act
or omission in the course of, or connected with, rendering services hereunder. The provisions of this Paragraph 6 shall survive any termination of this Agreement.
7. Amendments. Each Trust shall submit to CMA a reasonable time in advance of filing with the Securities and Exchange Commission copies of any changes in its Registration Statements. If a change in documents or procedures materially increases the cost to CMA of performing its obligations, CMA shall be entitled to receive such reasonable additional compensation as shall be agreed to in writing by the parties.
8. Duration and Termination. This Agreement may be changed only by a
writing executed by each party. This Agreement: (a) shall continue in effect
from year to year so long as approved annually by vote of a majority of the
Trustees, including a majority of the Trustees who are not affiliated with CMA;
(b) may be terminated at any time without penalty by sixty days' written notice
to either party; and (c) may be terminated at any time for cause by either party
if such cause remains unremedied for a reasonable period not to exceed ninety
days after receipt of written specification of such cause. If a Trust designates
a successor to any of CMA's obligations other than as a result of the
termination of this Agreement pursuant to Paragraph 8(c), CMA shall, at the
expense and direction of the Trust, transfer to the successor all relevant Fund
records maintained by CMA.
9. Use of Affiliated Companies and Subcontractors. In connection with the
services to be provided by CMA under this Agreement, CMA may, to the extent it
deems appropriate, and subject to compliance with the requirements of applicable
laws and regulations and upon receipt of approval of the Trustees, make use of
(i) its affiliated companies and their directors, trustees, officers and
employees and (ii) subcontractors selected by it, provided that it shall
supervise and remain fully responsible for the services of all such third
parties in accordance with and to the extent provided in this Agreement. All
costs and expenses associated with services provided by any such third parties
shall be borne by CMA or such parties, except to the extent specifically
provided otherwise in this Agreement.
10. Confidentiality. CMA agrees on behalf of itself and its employees to treat confidentially and as proprietary information of each Trust all records and other information relative to the Trust and its prior, present or potential shareholders and not to use such records and information for any purpose other than performance of its responsibilities and duties under this Agreement, except after prior notification to and approval in writing by the Trust, which approval shall not be unreasonably withheld and may not be withheld where CMA may be exposed to civil or criminal contempt proceedings for failure to comply, when requested to divulge such information by duly constituted authorities or when so requested by the Trust.
11. Sarbanes-Oxley Act. CMA agrees that any information that CMA provides that is necessary to complete a report or other filing that is required to be certified by certain of a Trust's officers pursuant to the Sarbanes-Oxley Act of 2002 ("Sarbox") and regulations issued and in effect from time to time under Sarbox will be true and complete when given. CMA further agrees that any written representation or
certification it provides to a Trust and/or the officers of the Trust in support of a certification by them to the Securities and Exchange Commission pursuant to Sarbox and/or any rules or regulations issued from time to time under Sarbox will be true and complete when given. The provisions of this Paragraph 11 shall survive any termination of this Agreement.
12. Compliance. CMA agree to comply with all applicable federal, state and local laws and regulations, codes, orders and government rules in the performance of its duties under this Agreement. CMA agree to provide each Trust with such certifications, reports and other information as the Trust may reasonably request from time to time to assist it in complying with, and monitoring for compliance with, applicable laws, rules and regulations.
13. Miscellaneous. This Agreement shall be construed in accordance with and governed by the laws of the Commonwealth of Massachusetts.
The captions in this Agreement are included for convenience of reference only and in no way define or limit any of the provisions of this Agreement or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.
A copy of the Agreement and Declaration of Trust of the Trusts that are organized as Massachusetts business trusts, as amended or restated from time to time, is on file with the Secretary of the Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed on behalf of each of these Trusts by an officer or Trustee of the Trust in his or her capacity as an officer or Trustee of the Trust and not individually and that the obligations of or arising out of this Agreement are not binding upon any of the Trustees, officers or shareholders individually but are binding only upon the assets and property of the Trust. Furthermore, notice is given that the assets and liabilities of each series of each Trust is separate and distinct and that the obligations of or arising out of this Agreement with respect to the series of each Trust are several and not joint, and to the extent not otherwise reasonably allocated among such series by the Trustees of the Trust, shall be deemed to have been allocated in accordance with the relative net assets of such series, and CMA agrees not to proceed against any series for the obligations of another series.
[The remainder of this page intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.
COLUMBIA FUNDS SERIES TRUST I on behalf of its series listed on Schedule A
COLUMBIA FUNDS INSTITUTIONAL TRUST on behalf of its series listed on Schedule A
LIBERTY VARIABLE INVESTMENT TRUST on behalf of its series listed on Schedule A
STEINROE VARIABLE INVESTMENT TRUST on behalf of its series listed on Schedule A
COLUMBIA MANAGEMENT ADVISORS, LLC.
SCHEDULE A
TRUST SERIES
----- ------
Columbia Series Trust I Columbia High Yield Municipal Fund
Columbia Managed Municipals Fund
Columbia Strategic Income Fund
Columbia Tax-Managed Growth Fund
Columbia Federal Securities Fund
Columbia Tax-Exempt Fund
Columbia California Tax-Exempt Fund
Columbia International Stock Fund
Columbia Intermediate Municipal Bond Fund
Columbia Balanced Fund
Columbia High Yield Fund
Columbia Greater China Fund
Columbia Mid Cap Growth Fund
Columbia Oregon Intermediate Municipal Bond Fund
Columbia Real Estate Equity Fund
Columbia Small Cap Growth Fund
Columbia Strategic Investor Fund
Columbia Technology Fund
Columbia Asset Allocation Fund
Columbia Common Stock Fund
Columbia Disciplined Value Fund
Columbia Dividend Income Fund
Columbia Growth Stock Fund
Columbia Large Cap Growth Fund
Columbia Liberty Fund
Columbia Small Cap Core Fund
Columbia Small Company Equity Fund
Columbia Young Investor Fund
Columbia Connecticut Intermediate Municipal Bond Fund
Columbia Massachusetts Intermediate Municipal Bond Fund
Columbia New Jersey Intermediate Municipal Bond Fund
Columbia New York Intermediate Municipal Bond Fund
Columbia Rhode Island Intermediate Municipal Bond Fund
Columbia Connecticut Tax-Exempt Fund
Columbia Massachusetts Tax-Exempt Fund
Columbia New York Tax-Exempt Fund
Columbia Tax-Exempt Insured Fund
Columbia Utilities Fund
Columbia Income Fund
Columbia Intermediate Bond Fund
Columbia U.S. Treasury Index Fund
Columbia World Equity Fund
Columbia Core Bond Fund
Columbia High Yield Opportunity Fund
Columbia Small Cap Value Fund I
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TRUST SERIES
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Columbia Funds Institutional Trust CMG Strategic Equity Fund
CMG Small/Mid Cap Fund
CMG International Stock Fund
CMG Core Bond Fund
CMG High Yield Fund
CMG International Bond Fund
CMG Short Term Bond Fund
CMG Ultra Short Term Bond Fund
CMG Intermediate Bond Fund
CMG Core Plus Bond Fund
CMG Government Bond Fund
CMG Corporate Bond Fund
CMG Mortgage and Asset-Backed Securities Fund
CMG Small Cap Growth Fund
CMG Enhanced S&P 500 Index Fund
CMG Large Cap Value Fund
CMG Large Cap Growth Fund
CMG Mid Cap Value Fund
CMG Mid Cap Growth Fund
CMG Small Cap Value Fund
CMG Emerging Markets Equity Fund
Liberty Variable Investment Trust Columbia International Fund, VS
Liberty Growth & Income Fund, VS
Colonial Strategic Income Fund, VS
Colonial Small Cap Value Fund, VS
Liberty S&P 500 Index Fund, VS
Liberty Select Value Fund, VS
SteinRoe Variable Investment Trust Liberty Money Market Fund, VS
Liberty Federal Securities Fund, VS
Liberty Asset Allocation Fund, VS
Columbia Large Cap Growth Fund, VS
Liberty Small Company Growth Fund, VS
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SCHEDULE B
SERVICES. CMA will provide the following services to the Trusts and Funds:
[LIBERTY VARIABLE INVESTMENT TRUST]
CMA will (i) determine and timely communicate to persons designated by the Trust the Fund's net asset values and offering prices per share; and (ii) maintain and preserve in a secure manner the accounting records of the Fund. All records are the property of the relevant Fund. CMA will provide disaster planning to minimize possible service interruption. CMA will make available on its premises during regular business hours all records of a Fund for reasonable audit, use and inspection by the Trust, its agents and any regulatory agency having authority over the Fund.
[COLUMBIA FUNDS SERIES TRUST I, STEINROE VARIABLE INVESTMENT TRUST]
For each Fund of each Trust, CMA will value all securities and other assets of the Fund, and compute the net asset value per share of such Fund, at such times and dates and in the manner and by such methodology as is specified in the then currently effective prospectus and statement of additional information for such Fund, and pursuant to such other written procedures or instructions furnished to CMA by the Trust. To the extent procedures or instructions used to value securities or other assets of a Fund under this Agreement are at any time inconsistent with any applicable law or regulation, the Trust will provide CMA with written instructions for valuing such securities or assets in a manner which the Trust represents to be consistent with applicable law and regulation.
CMA will calculate with such frequency as each Trust directs, the net income of each Fund for dividend purposes and on a per share basis. Such calculation will be at such times and dates and in such manner as the Trust instructs CMA in writing. For purposes of such calculation, CMA is not responsible for determining whether any dividend or interest accruable to the Trust is or will be actually paid, but will accrue such dividend and interest unless otherwise instructed by the Trust.
CMA will calculate gains or losses of each Fund from the sale or other disposition of assets of that Fund as the Trust directs.
At the request of a Trust, CMA will compute yields for each Fund of the Trust for such periods and using such formula as the Trust instructs.
CMA will provide each Trust, the Trust's transfer agent and such other parties as directed by the Trust with the net asset value per share, the net income per share and yields for each Fund of the Trust at such time and in such manner and format and with such frequency as the parties mutually agree.
Each Trust will furnish CMA with any and all instructions, explanations, information, specifications and documentation deemed necessary by CMA in the performance of its duties hereunder, including, without limitation, the amounts and/or written formula for calculating the amounts, and times of accrual of liabilities and expenses of each Fund. Each Trust will also at
any time and from time to time furnish CMA with bid, offer and/or market values of securities owned by the Trust if the same are not available to CMA from a pricing or similar service designated by the Trust for use by CMA to value securities or other assets. CMA is at no time required to commence or maintain any utilization of, or subscriptions to, any such service which will be the sole responsibility and expense of the Trust.
CMA will, as agent for each Trust, maintain and keep current and preserve the general ledger and other accounts, books, and financial records of the Trust relating to activities and obligations under this Agreement in accordance with the applicable provisions of Sections 31(a) of the General Rules and Regulations under the Investment Company Act of 1940, as amended (the "Rules").
All records maintained and preserved by CMA pursuant to this Agreement which each Trust is required to maintain and preserve in accordance with the Rules will be and remain the property of the Trust and will be surrendered to the Trust promptly upon request in the form in which such records have been maintained and preserved.
CMA will make available on its premises during regular business hours all records of a Trust for reasonable audit, use and inspection by the Trust, its agents and any regulatory agency having authority over the Trust.
[COLUMBIA FUNDS INSTITUTIONAL TRUST]
CMA will (i) provide fund accounting oversight of State Street Bank ("SSB") who will provide each Fund's daily fund accounting services, including the determination of timely communication to persons designated by the Fund [of] the Fund's net asset value and offering price per share; (ii) maintain and preserve in a secure manner the accounting records of the Fund; and (iii) provide disaster planning to minimize possible service interruption to the Funds. CMA will make available on its premises during regular business hours all records of the Fund for reasonable audit, use and inspection by the Fund, its agents and any regulatory agency having authority over the Fund.
SCHEDULE C
FEES. For the services provided pursuant to this Agreement, each Trust on behalf of each Fund will pay to CMA, or to such person(s) as CMA may from time to time instruct, such fees as may be agreed to by CMA and the Trust from time to time.
Each Fund also shall reimburse CMA for (i) any and all out-of-pocket expenses and charges, including fees payable to third parties, such as for pricing the Fund's portfolio securities, incurred in performance of services under this Agreement and (ii) for CMA's direct internal costs incurred in connection with providing fund accounting oversight and monitoring, budgeting and approving Fund expenses.
Exhibit (h)(3)
FORM OF
TRANSFER, DIVIDEND DISBURSING AND
SHAREHOLDERS' SERVICING AGENT AGREEMENT
This agreement (the "Agreement") is made as of March __, 2006, by and between the Massachusetts business trusts acting on behalf of their series all as listed on Schedule A hereto (as the same may from time to time be amended to add or delete one or more series of such trusts) (each such trust and corporation being hereinafter referred to as a "Trust" and each series of a Trust, if any, being hereinafter referred to as a "Fund" with respect to that Trust, but for any Trust that does not have any separate series, then any reference to the "Fund" is a reference to that Trust), Columbia Management Services, Inc., a Massachusetts corporation ("CMS"), and Columbia Management Advisors, LLC ("CMA"), a Delaware limited liability company.
WHEREAS, each Trust is a registered investment company and desires that CMS perform certain services for the Funds; and
WHEREAS, CMS is willing to perform such services upon the terms and subject to the conditions set forth herein.
NOW THEREFORE, in consideration of the mutual promises and covenants set forth herein, the parties hereto agree as follows:
1. Appointment. Each Trust hereby appoints CMS to act as Transfer Agent, Dividend Disbursing Agent and Shareholders' Servicing Agent for the Funds and as agent for the Funds' shareholders in connection with the shareholder plans described in the Prospectus (as defined below), and CMS accepts such appointments and will perform the respective duties and functions of such offices in the manner hereinafter set forth.
Notwithstanding such appointments, however, the parties hereto agree that CMA may, upon thirty (30) days prior written notice to the Trust, assume such duties and functions itself. In such event, CMA shall have all of the rights and obligations of CMS hereunder. However, whether or not CMA assumes such duties and functions, CMA guarantees the performance of CMS hereunder and shall be responsible financially and otherwise to the Trust for the performance by CMS of its obligations under this Agreement.
2. Compensation. Each Trust shall pay to CMS, or to such person(s) as CMS may from time to time instruct, for services rendered and costs incurred in connection with the performance of duties hereunder, such compensation and reimbursement as may from time to time be approved by vote of the Trustees of the Trust.
Schedule B hereto sets forth the compensation and reimbursement arrangements to be effective as of the date of this Agreement, and the treatment of all interest earned with respect to balances in the accounts maintained by CMS referred to in Sections 6, 10 and 11 of this Agreement, net of any charges imposed by the bank(s) at which CMS maintains such accounts.
3. Copies of Documents. Each Trust will furnish CMS with copies of the following documents: the Declaration of Trust of the Trust and all amendments thereto; and the Trust's
Registration Statement as in effect on the date hereof under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, and all amendments or supplements thereto hereafter filed. The Prospectus(es) and Statement(s) of Additional Information contained in such Registration Statement, as from time to time amended and supplemented, together are herein collectively referred to as the "Prospectus."
4. Share Certificates. If the Trustees of a Trust shall have resolved that all of the Trust's (or a particular Fund's) shares of beneficial interest, or all of the shares of a particular series or class of such shares, shall be issued in certificated form, CMS shall maintain a sufficient supply of blank share certificates representing such shares, in the form approved from time to time by the Trustees of the Trust. Such blank share certificates shall be properly signed, manually or by facsimile signature, by the duly authorized officers of the Trust, and shall bear the seal or facsimile thereof of the Trust; and notwithstanding the death, resignation or removal of any officer of the Trust authorized to sign such share certificates, CMS may continue to countersign certificates which bear the manual or facsimile signature of such officer until otherwise directed by the Trust.
5. Lost or Destroyed Certificates. In case of the alleged loss or destruction of any shareholder certificate, no new certificate shall be issued in lieu thereof, unless there shall first be furnished to CMS an affidavit of loss or non-receipt by the holder of shares with respect to which a certificate has been lost or destroyed, supported by an appropriate bond satisfactory to CMS and the Trust issued by a surety company satisfactory to CMS.
6. Receipt of Funds for Investment. CMS will maintain one or more accounts with its cash management bank into which it will deposit funds payable to CMS as agent for, or otherwise identified as being for the account of, the Funds or the Distributor, prior to crediting such funds to the respective accounts of the Funds and the Distributor. Thereafter, CMS will determine the amount of any such funds due a Fund (equal to the number of Fund shares sold by the Fund computed pursuant to paragraph 7 hereof, multiplied by the net asset value of a Fund share next determined after receipt of such purchase order) and the Distributor (equal to the sales charge applicable to such sale computed pursuant to paragraph 9 hereof), respectively, deposit the portion due the Distributor in its account as may from time to time be designated by the Distributor, deposit the net amount due the Fund in the Fund's account with its custodian (the "Custodian"), notify the Distributor (such notification to the Distributor to include the amount of such sales charge to be remitted by the Distributor to the dealer participating in the sale, computed pursuant to paragraph 9 hereof) and the Fund, respectively, of such deposits, such notification to be given as soon as practicable on the next business day stating the total amount deposited to said accounts during the previous business day. Such notification shall be confirmed in writing.
7. Shareholder Accounts. Upon receipt of any funds referred to in paragraph 6 hereof, CMS will compute the number of shares purchased by the shareholder according to the net asset value of Fund shares next determined after such receipt less the applicable sales charge, calculated pursuant to paragraph 9 hereof; and
(a) in the case of a new shareholder, open and maintain an open account for such shareholder in the name or names set forth in the subscription application form;
(b) if the Trustees of a Trust have resolved that all of the Trust's shares of beneficial interest, or all of the shares of a particular series or class, shall be issued in certificated form, and if specifically requested in writing by the shareholder, countersign, issue and mail, by first class mail, to the shareholder at his or her address set forth in the shareholder records of the Trust maintained by CMS a share certificate for full shares purchased.
(c) send to the shareholder a confirmation indicating the amount of full and fractional shares purchased (in the case of fractional shares, rounded to three decimal places) and the price per share; and
(d) in the case of a request to establish an accumulation plan, withdrawal plan, group plan or other plan or program being offered by the Fund's Prospectus, open and maintain such plan or program for the shareholder in accordance with the terms thereof;
all subject to any reasonable instructions which the Distributor or each Trust may give to CMS with respect to rejection of orders for shares.
8. Unpaid Checks. In the event that any check or other order for payment of money on the account of any shareholder or new investor is returned for any reason, CMS will take such steps, including imposition of a reasonable processing or handling fee on such shareholder or investor, as CMS may, in CMS's discretion, deem appropriate, or as each Trust or the Distributor may instruct CMS.
9. Sales Charge. In computing the number of shares to credit to the account of a shareholder pursuant to paragraph 7 hereof, CMS will calculate the total of the applicable Distributor and representative sales charges, commission or other amount, if any, with respect to each purchase as set forth in the Prospectus and in accordance with any notification filed with respect to combined and accumulated purchases. CMS will also determine the portion of each sales charge, commission or other amount, if any, payable by the Distributor to the dealer or other amount, payable by the Distributor to the dealer participating in the sale in accordance with such schedules as are from time to time delivered by the Distributor to CMS.
10. Dividends and Distributions. Each Trust will promptly notify CMS of the declaration of any dividends or distribution with respect to Fund shares, the amount of such dividend or distribution, the date each such dividend or distribution shall be paid, and the record date for determination of shareholders entitled to receive such dividend or distribution. As Dividend Disbursing Agent, CMS will, on or before the payment date of any such dividend or distribution, notify the Custodian of the estimated amount of cash required to pay such dividend or distribution, and each Trust agrees that on or before the mailing date of such dividend or distribution it will instruct the Custodian to make available to CMS sufficient funds therefor in the dividend and distribution account maintained by CMS with the Custodian. As Dividend Disbursing Agent, CMS will prepare and distribute to shareholders any funds to which they are entitled by reason of any dividend or distribution and, in the case of shareholders entitled to receive additional shares by reason of any such dividend or distribution, CMS will make appropriate credits to their accounts and prepare and mail to shareholders a confirmation statement and, if required, a certificate in respect of such additional shares.
11. Repurchase and Redemptions. CMS will receive and stamp with the date of receipt all certificates and requests delivered to CMS for repurchase or redemption of shares and CMS will process such repurchases as agent for the Distributor and such redemptions as agent for each Trust as follows:
(a) If such certificate or request complies with standards for repurchase or redemption approved from time to time by the Trust, CMS will, on or prior to the seventh calendar day succeeding the receipt of any such request for repurchase or redemption in good order, deposit any contingent deferred sales charge ("CDSC") due the Distributor in its account with such bank as may from time to time be designated by the Distributor and pay to the shareholder from funds deposited by the Trust from time to time in the repurchase and redemption account maintained by CMS with its cash management bank, the appropriate repurchase or redemption price, as the case may be, as set forth in the Prospectus;
(b) If such certificate or request does not comply with said standards for repurchase or redemption as approved by the Trust, CMS will promptly notify the shareholder of such fact, together with the reason therefor, and shall effect such repurchase or redemption at the price in effect at the time of receipt of documents complying with said standards, or, in the case of a repurchase, at such other time as the Distributor, as agent for the Trust, shall so direct; and
(c) CMS shall notify the Trust and the Distributor as soon as practicable on each business day of the total number of Fund shares covered by requests for repurchase or redemption which were received by CMS in proper form on the previous business day, and shall notify the Distributor of deposits to its account with respect to any CDSC, such notification to be confirmed in writing.
12. Exchanges and Transfers. Upon receipt by CMS of a request to exchange Fund shares held in a shareholder's account for shares of another Fund, CMS will verify that the exchange request is made by authorized means and will process a redemption and corresponding purchase of shares in accordance with each Trust's redemption and purchase policies and in accordance with the redemption and purchase provisions of this Agreement. Upon receipt by CMS of a request to transfer Fund shares, and receipt of a share certificate for transfer or an order for the transfer of uncertificated shares, in either case with such endorsements, instruments of assignment or evidence of succession as CMS may require and accompanied by payment of any applicable transfer taxes, and satisfaction of any conditions contained in the Trust's Declaration of Trust, By-Laws, and Prospectus, CMS will record the transfer of ownership of such shares in the appropriate records and will process the transfer in accordance with the Trust's transfer policies and will open an account for the transferee, if a new shareholder, in accordance with the provisions of this Agreement.
13. Systematic Withdrawal Plans. CMS will administer systematic withdrawal plans pursuant to the provisions of withdrawal orders duly executed by shareholders and the relevant Fund's Prospectus. Payments upon such withdrawal orders shall be made by CMS from the appropriate account maintained by the Trust with the Custodian. Prior to the payment date CMS will withdraw from a shareholder's account and present for repurchase or redemption as many shares as shall be sufficient to make such withdrawal payment pursuant to the provisions of the shareholder's withdrawal plan and the relevant Fund's Prospectus.
14. Letters of Intent and Other Plans. CMS will process such letters of intent for investing in Fund shares as are provided for in the Prospectus, and CMS will act as escrow agent pursuant to the terms of such letters of intent duly executed by shareholders. CMS will make appropriate deposits to the account of the Distributor for the adjustment of sales charges as therein provided and will currently report the same to the Distributor, it being understood, however, that computations of any adjustment of sales charge shall be the responsibility of the Distributor or the Trust. CMS will process such accumulation plans, group programs and other plans or programs for investing in shares as are provided for in the Prospectus. In connection with any such plan or program, and with withdrawal plans described in paragraph 12 hereof, CMS will act as plan agent for shareholders and in so acting shall not be the agent of the Trust.
15. Tax Returns and Reports. CMS will prepare, file with the Internal Revenue Service and any other federal, state or local governmental agency which may require such filing, and, if required, mail to shareholders such returns for reporting dividends and distributions paid by the Funds as are required to be so prepared, filed and mailed by applicable laws, rules and regulations, and CMS will withhold such sums as are required to be withheld under applicable Federal and state income tax laws, rules and regulations.
16. Record Keeping. CMS will maintain records, which at all times will be the property of the respective Trust and available for inspection by the Trust and Distributor, showing for each shareholder's account the following:
(a) Name, address and United States taxpayer identification or Social Security number, if provided (or amounts withheld with respect to dividends and distributions on shares if a taxpayer identification or Social Security number if not provided);
(b) Number of shares held and number of shares for which certificates have been issued;
(c) Historical information regarding the account of each shareholder, including dividends and distributions paid, if any, and the date and price for all transactions on a shareholder's account;
(d) Any stop or restraining order placed against a shareholder's account;
(e) Information with respect to withholdings of taxes on dividends paid to foreign accounts; and
(f) Any instruction as to letters of intent, record address, and any correspondence or instructions or privileges (such as a telephone exchange privilege), relating to the current maintenance of a shareholder's account.
In addition, CMS will keep and maintain on behalf of the respective Trust
all records which the Trust or CMS is required to keep and maintain pursuant to
any applicable statute, rule or regulation, including without limitation, Rule
31(a)-1 under the Investment Company Act of 1940, relating to the maintenance of
records in connection with the services to be provided hereunder. CMS shall be
obligated to maintain at its expense only those records necessary to
carry out its duties hereunder and the remaining records will be preserved at the Trust's expense for the periods prescribed by law.
17. Other Information Furnished. CMS will furnish to each Trust and the Distributor such other information, including shareholder lists and statistical information as may be agreed upon from time to time between CMS and the Trust. CMS shall notify each Trust of any request or demand to inspect the share records books of the Trust and will act upon the instructions of the Trust as to permitting or refusing such inspection.
18. Shareholder Inquiries. CMS will respond promptly to written correspondence from shareholders, registered representatives of broker-dealers engaged in selling Fund shares, the Trust and the Distributor relating to its duties hereunder, and such other correspondence as may from time to time be mutually agreed upon between CMS and each Trust. CMS also will respond to telephone inquiries from shareholders with respect to existing accounts.
19. Communications to Shareholders and Meetings. CMS will determine all shareholders entitled to receive, and will address and mail, all communications by a Trust to its shareholders, including quarterly and annual reports to shareholders, proxy material for meetings of shareholders and periodic communications to shareholders. CMS will receive, examine and tabulate return proxy cards for meetings of shareholders and certify the vote to the Trust.
20. Insurance. CMS will not reduce or allow to lapse any of its insurance coverage from time to time in effect, including but not limited to Errors and Omissions, Fidelity Bond and Electronic Data Processing coverage, without the prior written consent of each Trust.
21. Duty of Care and Indemnification. CMS will at all times use reasonable care and act in good faith in performing its duties hereunder. CMS will not be liable or responsible for delays or errors by reason of circumstances beyond its control, including without limitation, acts of civil or military authority, national or state emergencies, labor difficulties, fire, mechanical breakdown, flood or catastrophe, acts of God, insurrection, war, riots or failure of transportation, communication or power supply.
CMS may rely on certifications of the Secretary, any Assistant Secretary, the President, any Vice President, the Treasurer or any Assistant Treasurer of a Trust as to proceedings or facts in connection with any action taken by the shareholders or Trustees of that Trust, and upon instructions not inconsistent with this Agreement from the President, any Vice President, the Treasurer or any Assistant Treasurer of that Trust. CMS may apply to counsel for a Trust, at the Trust's expense, or its own counsel for advice whenever it deems expedient. With respect to any action taken on the basis of such certifications or instructions or in accordance with the advice of counsel for instructions or in accordance with the advice of counsel for a Trust, the Trust will indemnify and hold harmless CMS from any and all losses, claims, damages, liabilities and expenses (including reasonable counsel fees and expenses).
Each Trust will indemnify CMS against and hold CMS harmless from any and all losses, claims, damages, liabilities and expenses (including reasonable counsel fees and expenses) in respect to any claim, demand, action or suit not resulting from CMS's bad faith or negligence and arising out of, or in connection with, its duties on behalf of the Trust under this Agreement.
CMS shall also be indemnified and held harmless by each Trust against any
loss, claim, damage, liability and expenses (including reasonable counsel fees
and expenses) by reason of any act done by it in good faith and in reliance upon
any instrument or certificate for shares believed by it (a) to be genuine and
(b) to be signed, countersigned or executed by any person or persons authorized
to sign, countersign, or execute such instrument or certificate.
In any case in which a party to this Agreement may be asked to indemnify or hold harmless the other party hereto, the party seeking indemnification shall advise the other party of all pertinent facts concerning the situation giving rise to the claim or potential claim for indemnification, and each party shall use reasonable care to identify and notify the other promptly concerning any situation which presents or appears likely to present a claim for indemnification.
22. Employees. CMS is responsible for the employment, control and conduct of its agents and employees and for injury to such agents or employees or to others caused by such agents or employees. CMS assumes full responsibility for its agents and employees under applicable statutes and agrees to pay all employer taxes thereunder.
CMS shall maintain at its own expense insurance against public liability in a reasonable amount.
23. AML/CIP. CMS agrees to provide anti-money laundering services to each Trust and to operate the Trust's customer identification program, in each case in accordance with the written procedures developed by CMS and adopted or approved by the Trustees of the Trust and with applicable law and regulation.
24. Termination. This Agreement shall continue indefinitely until terminated (with respect to that Trust) by not less than ninety (90) days' written notice given by a Trust to CMS or, by six (6) months written notice given by CMS to the Trust. Upon termination hereof, the relevant Trust shall pay such compensation as may be due to CMS as of the date of such termination.
25. Successors. In the event that (i) in connection with termination of this Agreement a successor to any of CMS's duties or responsibilities hereunder is designated by a Trust by written notice to CMS, or (ii) CMA exercises its prerogative under paragraph 1 hereof to assume the duties and functions of CMS hereunder, CMS shall promptly, at the expense of the Trust (in the case of an event described in (i) above), transfer to such successor or CMA, as the case may be, a certified list of the shareholders of the Funds (with name, address and taxpayer identification or Social Security number), and historical record of the account of each shareholder and the status thereof, all other relevant books, records, correspondence and other data established or maintained by CMS under this Agreement in form reasonably acceptable to the Trust (if such form differs from the form in which CMS has maintained the same, the Trust shall pay any expenses associated with transferring the same to such form), and will cooperate in the transfer of such duties and responsibilities, including provision for assistance from CMS's personnel in the establishment of books, records and other data by such successor or CMA. CMS shall, in the case of an event described in (i) above, be entitled to reasonable compensation and reimbursement of its out-of-pocket expenses in respect of assistance provided in accordance
with the preceding sentence. Also, in the event of the termination of this Agreement, to the extent permitted by the agreements or licenses described below, CMS and CMA shall, if requested by the Trustees of the Trust, assign to any entity wholly owned, directly or indirectly, by Columbia Management Group, Inc. (or its successors) or by the Trust, or any of them, all of their rights under any existing agreements to which either of them is a party and pursuant to which either has a right to have access to data processing capability in connection with the services contemplated by this Agreement and under any licenses to use third-party software in connection with the services contemplated by this Agreement and under any licenses to use third-party software in connection therewith, and in connection with such assignment shall grant to the assignee an irrevocable right and license or sublicenses, on a non-exclusive basis, to use any software used in connection therewith and, on an exclusive basis, any proprietary rights or interest which it has under such agreements or licenses.
26. Use of Affiliated Companies and Subcontractors. In connection with the services to be provided by CMS or CMA under this Agreement, either CMS or CMA may, to the extent it deems appropriate, and subject to compliance with the requirements of applicable laws and regulations and upon receipt of approval of the Trustees, make use of (i) its affiliated companies and their directors, trustees, officers and employees and (ii) subcontractors selected by it, provided that it shall supervise and remain fully responsible for the services of all such third parties in accordance with and to the extent provided in this Agreement. All costs and expenses associated with services provided by any such third parties shall be borne by CMS, CMA or such parties, except to the extent specifically provided otherwise in this Agreement.
27. Confidentiality. Each of CMS and CMA agrees on behalf of itself and its employees to treat confidentially and as proprietary information of each Trust all records and other information relative to the Trust and its prior, present or potential shareholders and not to use such records and information for any purpose other than performance of its responsibilities and duties under this Agreement, except after prior notification to and approval in writing by the Trust, which approval shall not be unreasonably withheld and may not be withheld where CMS or CMA may be exposed to civil or criminal contempt proceedings for failure to comply, when requested to divulge such information by duly constituted authorities or when so requested by the Trust.
28. Compliance. Each of CMS and CMA agree to comply with all applicable federal, state and local laws and regulations, codes, orders and government rules in the performance of its duties under this Agreement. Each of CMS and CMA agree to provide each Trust with such certifications, reports and other information as the Trust may reasonably request from time to time to assist it in complying with, and monitoring for compliance with, applicable laws, rules and regulations.
29. Miscellaneous. This Agreement shall be construed in accordance with and governed by the laws of the Commonwealth of Massachusetts.
The captions in this Agreement are included for convenience of reference only and in no way define or limit any of the provisions of this Agreement or otherwise affect their construction or effect. This Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.
A copy of the Agreement and Declaration of Trust of the Trusts that are organized as Massachusetts business trusts, as amended or restated from time to time, is on file with the Secretary of the Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed on behalf of each of these Trusts by an officer or Trustee of the Trust in his or her capacity as an officer or Trustee of the Trust and not individually and that the obligations of or arising out of this Agreement are not binding upon any of the Trustees, officers or shareholders individually but are binding only upon the assets and property of the Trust. Furthermore, notice is given that the assets and liabilities of each series of each Trust is separate and distinct and that the obligations of or arising out of this Agreement with respect to the series of each Trust are several and not joint, and to the extent not otherwise reasonably allocated among such series by the Trustees of the Trust, shall be deemed to have been allocated in accordance with the relative net assets of such series, and CMS and CMA agree not to proceed against any series for the obligations of another series.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.
COLUMBIA FUNDS SERIES TRUST I on behalf of its series listed on Schedule A
COLUMBIA FUNDS INSTITUTIONAL TRUST on behalf of its series listed on Schedule A
LIBERTY VARIABLE INVESTMENT TRUST on behalf of its series listed on Schedule A
STEINROE VARIABLE INVESTMENT TRUST on behalf of its series listed on Schedule A
COLUMBIA MANAGEMENT SERVICES, INC.
COLUMBIA MANAGEMENT ADVISORS, LLC
SCHEDULE A
TRUST SERIES
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Columbia Series Trust I Columbia High Yield Municipal Fund
Columbia Managed Municipals Fund
Columbia Strategic Income Fund
Columbia Tax-Managed Growth Fund
Columbia Federal Securities Fund
Columbia Tax-Exempt Fund
Columbia California Tax-Exempt Fund
Columbia International Stock Fund
Columbia Intermediate Municipal Bond Fund
Columbia Balanced Fund
Columbia High Yield Fund
Columbia Greater China Fund
Columbia Mid Cap Growth Fund
Columbia Oregon Intermediate Municipal Bond Fund
Columbia Real Estate Equity Fund
Columbia Small Cap Growth Fund
Columbia Strategic Investor Fund
Columbia Technology Fund
Columbia Asset Allocation Fund
Columbia Common Stock Fund
Columbia Disciplined Value Fund
Columbia Dividend Income Fund
Columbia Growth Stock Fund
Columbia Large Cap Growth Fund
Columbia Liberty Fund
Columbia Small Cap Core Fund
Columbia Small Company Equity Fund
Columbia Young Investor Fund
Columbia Connecticut Intermediate Municipal Bond Fund
Columbia Massachusetts Intermediate Municipal Bond Fund
Columbia New Jersey Intermediate Municipal Bond Fund
Columbia New York Intermediate Municipal Bond Fund
Columbia Rhode Island Intermediate Municipal Bond Fund
Columbia Connecticut Tax-Exempt Fund
Columbia Massachusetts Tax-Exempt Fund
Columbia New York Tax-Exempt Fund
Columbia Tax-Exempt Insured Fund
Columbia Utilities Fund
Columbia Income Fund
Columbia Intermediate Bond Fund
Columbia U.S. Treasury Index Fund
Columbia World Equity Fund
Columbia Core Bond Fund
Columbia High Yield Opportunity Fund
Columbia Small Cap Value Fund I
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TRUST SERIES
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Columbia Funds Institutional Trust CMG Strategic Equity Fund
CMG Small/Mid Cap Fund
CMG International Stock Fund
CMG Core Bond Fund
CMG High Yield Fund
CMG International Bond Fund
CMG Short Term Bond Fund
CMG Ultra Short Term Bond Fund
CMG Intermediate Bond Fund
CMG Core Plus Bond Fund
CMG Government Bond Fund
CMG Corporate Bond Fund
CMG Mortgage and Asset-Backed Securities Fund
CMG Small Cap Growth Fund
CMG Enhanced S&P 500 Index Fund
CMG Large Cap Value Fund
CMG Large Cap Growth Fund
CMG Mid Cap Value Fund
CMG Mid Cap Growth Fund
CMG Small Cap Value Fund
CMG Emerging Markets Equity Fund
Liberty Variable Investment Trust Columbia International Fund, VS
Liberty Growth & Income Fund, VS
Colonial Strategic Income Fund, VS
Colonial Small Cap Value Fund, VS
Liberty S&P 500 Index Fund, VS
Liberty Select Value Fund, VS
SteinRoe Variable Investment Trust Liberty Money Market Fund, VS
Liberty Federal Securities Fund, VS
Liberty Asset Allocation Fund, VS
Columbia Large Cap Growth Fund, VS
Liberty Small Company Growth Fund, VS
|
SCHEDULE B
Payments under the Agreement to CMS shall be made in the first two weeks of the month following the month in which a service is rendered or an expense incurred.
Each Fund shall pay to CMS for the services to be provided by CMS under the Agreement an amount equal to the sum of the following:
1. A per account fee as agreed to from time to time by the Fund and CMS; PLUS
2. The Fund's Allocated Share of CMS Reimbursable Out-of-Pocket Expenses; PLUS
3. Sub-Transfer Agency Fees.
In addition, CMS shall be entitled to retain as additional compensation for its services all CMS revenues for fees for wire, telephone, and redemption orders, IRA trustee agent fees and account transcripts due CMS from shareholders of the Fund and interest (net of bank charges) earned with respect to balances in the accounts referred to in paragraph 2 of the Agreement.
All determinations hereunder shall be in accordance with generally accepted accounting principles and subject to audit by the Funds' independent accountants.
Definitions
"Allocated Share" for any month means that percentage of CMS Reimbursable Out-of-Pocket Expenses which would be allocated to a Fund for such month in accordance with the methodology described below under the heading "Methodology of Allocating CMS Reimbursable Out-of-Pocket Expenses."
"CMS Reimbursable Out-of-Pocket Expenses" means (i) out-of-pocket expenses incurred on behalf of the Funds by CMS for stationery, forms, postage and similar items and those expenses identified as "Out-of-Pocket Expenses" below and (ii) networking account fees paid to dealer firms by CMS on shareholder accounts established or maintained pursuant to the National Securities Clearing Corporation's networking system, which fees are approved by the Trustees from time to time.
"Sub-Transfer Agency Fees" means such fees and expenses paid by CMS or its affiliates to third-party dealer firms or transfer agents that maintain omnibus accounts with a Fund as agreed to from time to time by the Fund and CMS.
"Out-of-Pocket Expenses" also include, but are not limited to, the following items:
- Microfiche/microfilm production
- Magnetic media tapes and freight
- Printing costs, including certificates, envelopes, checks and stationery
- Postage bulk, pre-sort, ZIP+4, barcoding, first class direct pass through to the Trust
- Telephone and telecommunication costs, including all lease, maintenance and line costs
- Proxy solicitations, mailings and tabulations
- Daily & Distributions advice mailings
- Shipping, Certified and Overnight mail and insurance
- Year-end forms and mailings
- Duplicating services
- Courier services
- Record retention as required by the Trust, retrieval and destruction costs, including, but not limited to, exit fees charged by third party record keeping vendors
- Third party audit reviews
- Such other miscellaneous expenses reasonably incurred by CMS in performing its duties and responsibilities under this Agreement.
The Funds agree that postage and mailing expenses will be paid on the day of or prior to mailing as agreed with CMS. In addition, the Funds will promptly reimburse CMS for any other unscheduled expenses incurred by CMS whenever the Funds and CMS mutually agree that such expenses are not otherwise properly borne by CMS as part of its duties under the Agreement.
Methodology of Allocating CMS Reimbursable Out-of-Pocket Expenses
CMS Reimbursable Out-of-Pocket Expenses are allocated to the Funds as follows:
A. Identifiable Based on actual services performed and invoiced to a Fund.
B. Unidentifiable Allocation will be based on three evenly weighted factors.
- number of shareholder accounts
- number of transactions
- average assets
|
Exhibit (h)(4)(vi)
Dated as of February 3, 2006
To: The Banks party to the
Credit Agreement referred to below
c/o State Street Bank and Trust Company,
as Operations and Administrative Agent
225 Franklin Street, MAO/7
Boston, MA 02110-2804
Re: Columbia Funds Credit Facility
Ladies and Gentlemen:
Reference is hereby made to the Credit Agreement for the Columbia Funds, dated as of July 23, 2004, as amended (as so amended, the "Credit Agreement"), by and among the registered investment companies listed on the signature pages thereof (collectively, the "Entities"), the lending institutions listed on the signature pages thereof (the "Banks"), State Street Bank and Trust Company, as operations agent (the "Operations Agent") for itself and such Banks as are or may become parties thereto, and State Street Bank and Trust Company, as administrative agent (the "Administrative Agent") for itself and such Banks as are or may become parties thereto. Capitalized terms which are used herein without definition and which are defined in the Credit Agreement shall have the same meanings herein as in the Credit Agreement.
Each Borrower hereby severally represents and warrants to the Banks and the Agents as follows:
(a) each Borrower listed on Schedule A (a "Removed Borrower") has merged or reorganized its assets with or into another entity, with such other entity being the survivor of such merger or consolidation and all Obligations of each Removed Borrower have been paid in full on or prior to the date of such merger or reorganization;
(b) each Borrower listed on Schedule B has changed its name as indicated on such Schedule;
(c) Columbia Funds Trust IX has changed its name to Columbia Funds Series Trust I; and
(d) each of the Borrowers listed on Schedule C has been reorganized into a newly established series (each, an "Additional Series") of Columbia Funds Series Trust I as indicated on such Schedule in a "shell" reorganization.
In connection with the foregoing, (i) Columbia Funds Series Trust I requests that each of the Additional Series becomes a Series under the Credit Agreement and for all purposes of the Loan Documents and (ii) each Borrower requests that Schedule 2 to the Credit Agreement be replaced by the Schedule 2 attached hereto. Each of the Banks and the Agents, by their signature below hereby agree to the foregoing requests provided that:
(1) the Operations Agent shall have received a Note for the account of PNC Bank National Association in an amount equal to such Bank's Commitment Amount, or, if less, the aggregate unpaid principal amount of such Bank's Loans, from each of the Borrowers (after giving effect to this letter agreement);
(2) the Operations shall have received a Form F.R. U-1 in favor of each Bank from each of the Borrowers (after giving effect to this letter agreement); and
(3) the Operations Agent shall have received an Allocation Notice with respect to each of the Borrowers (after giving effect to this letter agreement) that has been manually signed by an authorized officer of each of the Entities.
In consideration of the agreement of the Banks and the Agents to allow each Additional Series of Columbia Funds Series Trust I to become a Series hereunder, Columbia Funds Series Trust I, on behalf of each Additional Series, hereby covenants and agrees that it shall, on or prior to February 15, 2006, deliver to the Operations Agent the following documents:
(a) a manually signed certificate from the Secretary of Columbia Funds Series Trust I in form and substance satisfactory to the Operations Agent as to the incumbency of, and bearing manual specimen signatures of, the officers of Columbia Funds Series Trust I who are authorized to execute and take actions under the Loan Documents, as to the Custodian and Investment Adviser of each Additional Series, and certifying and attaching copies of (i) the declaration of trust of Columbia Funds Series Trust I (with the designation of each Additional Series) and by-laws as then in effect, (ii) duly authorized resolutions of the Board of Trustees of Columbia Funds Series Trust I authorizing for each Additional Series the transactions contemplated hereby, and (iii) the current Prospectus for each Additional Series (or the links to the SEC's website where each such Prospectus may be located);
(b) a certificate manually signed by an authorized officer of Columbia Funds Series Trust I, on behalf of each Additional Series, to the effect set forth in clauses (b) (if applicable), (c) and (d) of Section 3.02 of the Credit Agreement, such Certificate to be in form and substance satisfactory to the Operations Agent;
(c) an Asset Coverage Ratio Certificate manually signed by an authorized officer of Columbia Funds Series Trust I, on behalf of each Additional Series;
(d) a copy of the declaration of trust of Columbia Funds Series Trust I, with all amendments, certified as of a recent date by the Secretary of State of the Commonwealth of Massachusetts;
(e) certificates dated as of a recent date that are satisfactory to the Operations Agent and reflect that Columbia Funds Series Trust I is legally existing, in good standing and qualified to engage in business in Massachusetts and in each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification; and
(f) an opinion of Ropes & Gray LLP, counsel to Columbia Funds Series Trust I, which is satisfactory to the Operations Agent in all respects.
Columbia Funds Series Trust I, on behalf of each of the Additional Series, acknowledges and agrees that the failure to deliver such documents on or before February 15, 2006 shall constitute an Event of Default with respect to Columbia Funds Series Trust I on behalf of such Additional Series.
Each of the Borrowers (including Columbia Funds Series Trust I, on behalf of each of the Additional Series) ratifies and confirms in all respects all of its obligations to the Banks under the Credit Agreement, the Notes and the other Loan Documents, as amended hereby, and hereby affirms its absolute and unconditional promise to pay to the Banks the Loans made to it and all other amounts due from it under the Credit Agreement as amended hereby.
This letter agreement is a contract under seal under the laws of the Commonwealth of Massachusetts and shall for all purposes be construed in accordance with and governed by the laws of said Commonwealth (excluding the laws applicable to conflicts or choice of law). Except as specifically amended by this letter agreement, the Credit Agreement and all other agreements and instruments executed and delivered in connection with the Credit Agreement shall remain in full force and effect. This letter agreement is limited specifically to the matters set forth herein and does not constitute directly or by implication an amendment or waiver of any other provision of the Credit Agreement or any of the other Loan Documents. This letter agreement may be executed in several counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, and all of which together shall constitute one instrument. In proving this letter agreement it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. This letter agreement shall constitute a Loan Document.
A copy of each Entity's agreement and declaration of trust is on file with the Secretary of The Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed by the Trustees and officers of such Entity as Trustees and officers, as the case may be, and not individually and that the obligations of this instrument are not binding upon any of the Trustees, officers or shareholders individually but are binding only upon the assets and property of the appropriate Entity.
[Signature page follows.]
Very truly yours,
COLUMBIA FUNDS TRUST I, on behalf of its
Series Columbia High-Yield Opportunity
Fund
By: /s/ Michael Clarke
------------------------------------
Name: Michael Clarke
Title: Chief Accounting Officer
|
COLUMBIA FUNDS TRUST II, on behalf of its Series Columbia Greater China Fund
By: /s/ Michael Clarke
------------------------------------
Name: Michael Clarke
Title: Chief Accounting Officer
|
COLUMBIA FUNDS TRUST III, on behalf of its Series Columbia World Equity Fund, Columbia Core Bond Fund and Columbia Liberty Fund
By: /s/ Michael Clarke
------------------------------------
Name: Michael Clarke
Title: Chief Accounting Officer
|
COLUMBIA FUNDS TRUST IV, on behalf of its Series Columbia Tax-Exempt Insured Fund and Columbia Utilities Fund
By: /s/ Michael Clarke
------------------------------------
Name: Michael Clarke
Title: Chief Accounting Officer
|
COLUMBIA FUNDS TRUST V, on behalf of its Series Columbia Connecticut Intermediate Municipal Bond Fund, Columbia Connecticut Tax-Exempt Fund, Columbia Massachusetts Intermediate Municipal Bond Fund, Columbia Massachusetts Tax-Exempt Fund, Columbia New Jersey Intermediate Municipal Bond Fund, Columbia New York Intermediate Municipal Bond Fund, Columbia New York Tax-Exempt Fund, Columbia
Rhode Island Intermediate Municipal Bond
Fund and Columbia US Treasury Index Fund
By: /s/ Michael Clarke
------------------------------------
Name: Michael Clarke
Title: Chief Accounting Officer
|
COLUMBIA FUNDS TRUST VI, on behalf of its Series Columbia Small Cap Value Fund I
By: /s/ Michael Clarke
------------------------------------
Name: Michael Clarke
Title: Chief Accounting Officer
|
COLUMBIA FUNDS TRUST VIII, on behalf of its Series Columbia Income Fund and Columbia Intermediate Bond Fund
By: /s/ Michael Clarke
------------------------------------
Name: Michael Clarke
Title: Chief Accounting Officer
|
COLUMBIA FUNDS TRUST XI, on behalf of its Series Columbia Asset Allocation Fund, Columbia Large Cap Growth Fund, Columbia Disciplined Value Fund, Columbia Growth Stock Fund, Columbia Common Stock Fund, Columbia Small Cap Core Fund, Columbia Small Company Equity Fund, Columbia Dividend Income Fund and Columbia Young Investor Fund
By: /s/ Michael Clarke
------------------------------------
Name: Michael Clarke
Title: Chief Accounting Officer
|
COLUMBIA BALANCED FUND, INC.
By: /s/ Michael Clarke
------------------------------------
Name: Michael Clarke
Title: Chief Accounting Officer
|
COLUMBIA CONSERVATIVE HIGH YIELD FUND
By: /s/ Michael Clarke
------------------------------------
Name: Michael Clarke
Title: Chief Accounting Officer
|
COLUMBIA OREGON INTERMEDIATE MUNICIPAL
BOND FUND
By: /s/ Michael Clarke
------------------------------------
Name: Michael Clarke
Title: Chief Accounting Officer
|
COLUMBIA REAL ESTATE EQUITY FUND, INC.
By: /s/ Michael Clarke
------------------------------------
Name: Michael Clarke
Title: Chief Accounting Officer
|
COLUMBIA SMALL CAP GROWTH FUND I
By: /s/ Michael Clarke
------------------------------------
Name: Michael Clarke
Title: Chief Accounting Officer
|
COLUMBIA MID CAP GROWTH FUND, INC.
By: /s/ Michael Clarke
------------------------------------
Name: Michael Clarke
Title: Chief Accounting Officer
|
COLUMBIA STRATEGIC INVESTOR FUND, INC.
By: /s/ Michael Clarke
------------------------------------
Name: Michael Clarke
Title: Chief Accounting Officer
|
COLUMBIA TECHNOLOGY FUND, INC.
By: /s/ Michael Clarke
------------------------------------
|
Name: Michael Clarke
Title: Chief Accounting Officer
CMG FUND TRUST, on behalf of its Series
CMG Core Bond Fund, CMG Enhanced S&P 500
Index Fund, CMG High Yield Fund, CMG
International Stock Fund, CMG Large Cap
Growth Fund, CMG Large Cap Value Fund,
CMG Mid Cap Growth Fund, CMG Mid Cap
Value Fund, CMG Short Term Bond Fund,
CMG Small Cap Fund, CMG Small Cap Growth
Fund, CMG Small Cap Value Fund, CMG
Small/Mid Cap Fund, CMG Strategic Equity
Fund, and CMG Ultra Short Term Bond Fund
By: /s/ Michael Clarke
------------------------------------
Name: Michael Clarke
Title: Chief Accounting Officer
|
LIBERTY VARIABLE INVESTMENT TRUST, on
behalf of its Series Colonial Small Cap
Value Fund, VS, Colonial Strategic
Income Fund, VS, Columbia High Yield
Fund, VS, Columbia International Fund,
VS, Liberty Growth & Income Fund, VS,
Liberty S&P 500 Index Fund, VS, Liberty
Select Value Fund, VS
By: /s/ Michael Clarke
------------------------------------
Name: Michael Clarke
Title: Chief Accounting Officer
|
STEINROE VARIABLE INVESTMENT TRUST, on
behalf of its Series Liberty Asset
Allocation Fund, VS, Liberty Federal
Securities Fund, VS, Liberty Small
Company Growth Fund, VS, and Columbia
Large Cap Growth Fund, VS
By: /s/ Michael Clarke
------------------------------------
Name: Michael Clarke
Title: Chief Accounting Officer
|
COLUMBIA FUNDS SERIES TRUST I, on behalf
of its Series Columbia California Tax
Exempt Fund, Columbia Federal Securities
Fund, Columbia High Yield Municipal
Fund, Columbia Intermediate Municipal
Bond Fund, Columbia International Stock
Fund, Columbia Strategic
Income Fund, Columbia Tax Exempt Fund,
and Columbia Tax Managed Growth Fund
By: /s/ Michael Clarke
------------------------------------
Name: Michael Clarke
Title: Chief Accounting Officer
|
ACKNOWLEDGED AND AGREED:
STATE STREET BANK AND TRUST COMPANY,
Individually, as Operations Agent and as Administrative Agent
By: /s/ Christopher Ducar
---------------------------------
Name: Christopher Ducar
Title: Assistant Vice President
|
PNC BANK, NATIONAL ASSOCIATION
By: /s/ David Seagers
---------------------------------
Name: David Seagers
Title: Vice President
|
SOCIETE GENERALE
By: /s/ Edith L. Hornick
---------------------------------
Name: Edith L. Hornick
Title: Managing Director
|
LLOYDS TSB BANK PLC, individually
and as Senior Managing Agent
By: /s/ Jason Eperon
---------------------------------
Name: Jason Eperon
Title: Assistant Vice President
By: /s/ Candi Obrentz
---------------------------------
Name: Candi Obrentz
Title: Assistant Vice President
|
BANCO BILBAO VIZCAYA ARGENTARIA S.A.
By: /s/ Giampaolo Consigllere
---------------------------------
Name: Giampaolo Consigllere
Title: Vice President
By: /s/ Hector O. Villegas
---------------------------------
Name: Hector O Villegas
Title: Vice President
|
Exhibit (h)(4)(vi)
SCHEDULE A
REMOVED BORROWERS
Columbia Tax-Managed Value Fund
Columbia Tax-Managed Growth Fund II
each a series of Columbia Funds Trust I
Columbia Intermediate Government Income Fund
Columbia Mid Cap Value Fund
each a series of Columbia Funds Trust III
Columbia Florida Intermediate Municipal Bond Fund
Columbia Large Company Index Fund
Columbia Small Company Index Fund
Columbia Pennsylvania Intermediate Municipal Bond Fund
each a series of Columbia Funds Trust V
Columbia Growth & Income Fund
a series of Columbia Funds Trust VI
Columbia Newport Tiger Fund
a series of Columbia Funds Trust VII
Columbia Managed Municipals Fund
a series of Columbia Funds Trust IX
Columbia Fixed Income Securities Fund, Inc.
Columbia Short Term Bond Fund, Inc.
Exhibit (h)(4)(vi)
SCHEDULE B
NAME CHANGES
OLD NAME NEW NAME
-------- --------
- Columbia Newport Greater China - Columbia Greater China Fund, a
Fund, a series of Columbia Funds series of Columbia Funds Trust II
Trust II
- Columbia Global Equity Fund, a - Columbia World Equity Fund, a
series of Columbia Funds Trust series of Columbia Funds Trust III
III
- Columbia Quality Plus Bond Fund, - Columbia Core Bond Fund, a series
a series of Columbia Funds Trust of Columbia Funds Trust III
III
- Columbia Small-Cap Value Fund, a - Columbia Small Cap Value Fund I, a
series of Columbia Funds Trust series of Columbia Funds Trust VI
VI
- Columbia Small Cap Fund, a - Columbia Small Cap Core Fund, a
series of Columbia Funds Trust series of Columbia Funds Trust XI
XI
- Columbia Large Cap Core Fund, a - Columbia Common Stock Fund, a
series of Columbia Funds Trust series of Columbia Funds Trust XI
XI
- Columbia High Yield Fund, Inc. - Columbia Conservative High Yield
Fund
- Columbia Oregon Municipal Bond - Columbia Oregon Intermediate
Fund, Inc. Municipal Bond Fund
- Columbia Small Cap Growth Fund, - Columbia Small Cap Growth Fund I
Inc.
|
Exhibit (h)(4)(vi)
SCHEDULE C
REORGANIZATIONS
Reorganized into the following Series of
Borrower Columbia Funds Series Trust I
-------- ----------------------------------------
- Columbia Tax-Managed Growth - Columbia Tax-Managed Growth Fund
Fund, a series of Columbia Funds
Trust I
- Columbia Strategic Income Fund, - Columbia Strategic Income Fund
a series of Columbia Funds Trust
I
- Columbia Federal Securities - Columbia Federal Securities Fund
Fund, a series of Columbia Funds
Trust III
- Columbia Tax-Exempt Fund, a - Columbia Tax-Exempt Fund
series of Columbia Funds Trust
IV
- Columbia California Tax-Exempt - Columbia California-Tax Exempt Fund
Fund, a series of Columbia Funds
Trust V
- Columbia Intermediate Tax-Exempt - Columbia Intermediate Municipal
Bond Fund, a series of Columbia Bond Fund
Funds Trust V
- Columbia International Stock - Columbia International Stock Fund
Fund, Inc.
|
Exhibit (h)(4)(vi)
SCHEDULE 2
ENTITY SERIES
------ ------
1. COLUMBIA FUNDS TRUST I, ON - Columbia High-Yield Opportunity
BEHALF OF EACH OF ITS SERIES. Fund: 5/31
Address: One Financial Center
Boston, MA 02111
Nature and Jurisdiction of
Incorporation or
Organization: Massachusetts Business
Trust
Fiscal Year End: As indicated for
each series
2. COLUMBIA FUNDS TRUST II, ON - Columbia Greater China Fund: 8/31
BEHALF OF EACH OF ITS SERIES.
Address: One Financial Center
Boston, MA 02111
Nature and Jurisdiction of
Incorporation or
Organization: Massachusetts Business
Trust
Fiscal Year End: As indicated for the
series
3. COLUMBIA FUNDS TRUST III, ON - Columbia Liberty Fund: 9/30
BEHALF OF EACH OF ITS SERIES. - Columbia World Equity Fund: 3/31
- Columbia Core Bond Fund: 4/30
Address: One Financial Center
Boston, MA 02111
Nature and Jurisdiction of
Incorporation or
Organization: Massachusetts Business
Trust
Fiscal Year End: As indicated for
each series
|
4. COLUMBIA FUNDS TRUST IV, ON - Columbia Utilities Fund: 11/30
BEHALF OF EACH OF ITS SERIES. - Columbia Tax-Exempt Insured Fund:
11/30
Address: One Financial Center
Boston, MA 02111
Nature and Jurisdiction of
Incorporation or
Organization: Massachusetts Business
Trust
Fiscal Year End: As indicated for
each series
5. COLUMBIA FUNDS TRUST V, ON - Columbia Massachusetts Tax-Exempt
BEHALF OF EACH OF ITS SERIES. Fund: 10/31
- Columbia Connecticut Tax-Exempt
Address: One Financial Center Fund: 10/31
Boston, MA 02111 - Columbia New York Tax-Exempt Fund:
10/31
Nature and Jurisdiction of - Columbia Massachusetts Intermediate
Incorporation or Municipal Bond Fund: 10/31
Organization: Massachusetts Business - Columbia US Treasury Index Fund:
Trust 3/31
- Columbia Rhode Island Intermediate
Fiscal Year End: As indicated for Municipal Bond Fund: 10/31
each series - Columbia Connecticut Intermediate
Municipal Bond Fund: 10/31
- Columbia New York Intermediate
Municipal Bond Fund: 10/31
- Columbia New Jersey Intermediate
Municipal Bond Fund: 10/31
6. COLUMBIA FUNDS TRUST VI, ON - Columbia Small Cap Value Fund I:
BEHALF OF EACH OF ITS SERIES. 6/30
Address: One Financial Center
Boston, MA 02111
Nature and Jurisdiction of
Incorporation or
Organization: Massachusetts Business
Trust
Fiscal Year End: As indicated for
each series
|
7. COLUMBIA FUNDS TRUST VIII, ON - Columbia Intermediate Bond Fund:
BEHALF OF EACH OF ITS SERIES. 3/31
- Columbia Income Fund: 3/31
Address: One Financial Center
Boston, MA 02111
Nature and Jurisdiction of
Incorporation or
Organization: Massachusetts Business
Trust
Fiscal Year End: As indicated for
each series
8. COLUMBIA FUNDS TRUST XI, ON - Columbia Large Cap Growth Fund:
BEHALF OF EACH OF ITS SERIES. 9/30
- Columbia Growth Stock Fund: 9/30
Address: One Financial Center - Columbia Young Investor Fund: 9/30
Boston, MA 02111 - Columbia Small Cap Core Fund: 9/30
- Columbia Common Stock Fund: 9/30
Nature and Jurisdiction of - Columbia Asset Allocation Fund:
Incorporation or 9/30
Organization: Massachusetts Business - Columbia Small Company Equity Fund:
Trust 9/30
- Columbia Dividend Income Fund: 9/30
Fiscal Year End: As indicated for - Columbia Disciplined Value Fund:
each series 9/30
9. COLUMBIA BALANCED FUND, INC. - None
Address: 1300 S.W. Sixth Avenue
P.O. Box 1350
Portland, Oregon 97207
Nature and Jurisdiction of
Incorporation or
Organization: Oregon Corporation
Fiscal year end: 8/31
10. COLUMBIA CONSERVATIVE HIGH YIELD - None
FUND
Address: 1300 S.W. Sixth Avenue
P.O. Box 1350
Portland, Oregon 97207
Nature and Jurisdiction of
Incorporation or
Organization: Oregon Corporation
Fiscal year end: 8/31
|
11. COLUMBIA OREGON INTERMEDIATE - None
MUNICIPAL BOND FUND
Address: 1300 S.W. Sixth Avenue
P.O. Box 1350
Portland, Oregon 97207
Nature and Jurisdiction of
Incorporation or
Organization: Oregon Corporation
Fiscal year end: 8/31
12. COLUMBIA REAL ESTATE EQUITY - None
FUND, INC.
Address: 1300 S.W. Sixth Avenue
P.O. Box 1350
Portland, Oregon 97207
Nature and Jurisdiction of
Incorporation or
Organization: Oregon Corporation
Fiscal year end: 8/31
13. COLUMBIA SMALL CAP GROWTH FUND I - None
Address: 1300 S.W. Sixth Avenue
P.O. Box 1350
Portland, Oregon 97207
Nature and Jurisdiction of
Incorporation or
Organization: Oregon Corporation
Fiscal year end: 8/31
|
14. COLUMBIA MID-CAP GROWTH FUND, - None
INC.
Address: 1300 S.W. Sixth Avenue
P.O. Box 1350
Portland, Oregon 97207
Nature and Jurisdiction of
Incorporation or
Organization: Oregon Corporation
Fiscal year end: 8/31
15. COLUMBIA STRATEGIC INVESTOR - None
FUND, INC.
Address: 1300 S.W. Sixth Avenue
P.O. Box 1350
Portland, Oregon 97207
Nature and Jurisdiction of
Incorporation or
Organization: Oregon Corporation
Fiscal year end: 8/31
16. COLUMBIA TECHNOLOGY FUND, INC. - None
Address: 1300 S.W. Sixth Avenue
P.O. Box 1350
Portland, Oregon 97207
Nature and Jurisdiction of
Incorporation or
Organization: Oregon Corporation
Fiscal year end: 8/31
|
17. CMG FUND TRUST, ON BEHALF OF - CMG Core Bond Fund: 7/31
EACH OF ITS SERIES. - CMG Enhanced S&P 500 Index Fund:
7/31
Address: 1300 S.W. Sixth Avenue - CMG High Yield Fund: 7/31
P.O. Box 1350 - CMG International Stock Fund: 7/31
Portland, Oregon 97207 - CMG Large Cap Growth Fund: 7/31
- CMG Large Cap Value Fund: 7/31
Nature and Jurisdiction of - CMG Mid Cap Growth Fund: 7/31
Incorporation or - CMG Mid Cap Value Fund: 7/31
Organization: Oregon Business Trust - CMG Short Term Bond Fund: 7/31
- CMG Small Cap Fund: 7/31
Fiscal year end: As indicated for - CMG Small Cap Growth Fund: 7/31
each series - CMG Small Cap Value Fund: 7/31
- CMG Small/Mid Cap Fund: 7/31
- CMG Strategic Equity Fund: 7/31
- CMG Ultra Short Term Bond Fund:
7/31
18. LIBERTY VARIABLE INVESTMENT - Colonial Small Cap Value Fund, VS
TRUST - Colonial Strategic Income Fund, VS
- Columbia High Yield Fund, VS
Address: One Financial Center - Columbia International Fund, VS
Boston, MA 02111 - Liberty Growth & Income Fund, VS
- Liberty S&P 500 Index Fund, VS
Nature and Jurisdiction of - Liberty Select Value Fund, VS
Incorporation or
Organization: Massachusetts Business
Trust
Fiscal Year End: 12/31
19. STEINROE VARIABLE INVESTMENT - Liberty Asset Allocation Fund, VS
TRUST - Liberty Federal Securities Fund, VS
- Liberty Small Company Growth Fund,
Address: One Financial Center VS
Boston, MA 02111 - Columbia Large Cap Growth Fund, VS
Nature and Jurisdiction of
Incorporation or
Organization: Massachusetts Business
Trust
Fiscal year end: 12/31
|
20. COLUMBIA FUNDS SERIES TRUST I - Columbia California Tax-Exempt Fund
- Columbia Federal Securities Fund
Address: One Financial Center - Columbia High Yield Municipal Fund
Boston, MA 02111 - Columbia Intermediate Municipal
Bond Fund
Nature and Jurisdiction of - Columbia International Stock Fund
Incorporation or - Columbia Strategic Income Fund
Organization: Massachusetts Business - Columbia Tax-Exempt Fund
Trust - Columbia Tax-Managed Growth Fund
Fiscal year end: 06/30
|
Exhibit (h)(4)(vii)
Form of Third Amendment Agreement
Dated as of March __, 2006
To: The Banks party to the
Credit Agreement referred to below
c/o State Street Bank and Trust Company,
as Operations and Administrative Agent
225 Franklin Street, MAO/7
Boston, MA 02110-2804
Re: Columbia Funds Credit Facility
Ladies and Gentlemen:
Reference is hereby made to the Credit Agreement for the Columbia Funds, dated as of July 23, 2004, as amended (as so amended, the "Credit Agreement"), by and among the registered investment companies listed on the signature pages thereof (collectively, the "Entities"), the lending institutions listed on the signature pages thereof (the "Banks"), State Street Bank and Trust Company, as operations agent (the "Operations Agent") for itself and such Banks as are or may become parties thereto, and State Street Bank and Trust Company, as administrative agent (the "Administrative Agent") for itself and such Banks as are or may become parties thereto. Capitalized terms which are used herein without definition and which are defined in the Credit Agreement shall have the same meanings herein as in the Credit Agreement.
Each Borrower hereby severally represents and warrants to the Banks and the Agents as follows:
(a) each Series of CMG Fund Trust listed on Schedule A attached hereto intends to reorganize its assets on or before March 27, 2006 into a newly established series (each, an "Additional Institutional Series") of Columbia Funds Institutional Trust, a Massachusetts business trust (the "Institutional Trust"), as indicated on such schedule, in a "shell" reorganization with each Additional Institutional Series being the survivor of such reorganization;
(b) each Series of Liberty Variable Investment Trust listed on Schedule B attached hereto intends to reorganize its assets on or before May 1, 2006 into a Series (each, an "Additional Variable Series") of the SteinRoe Variable Investment Trust (to be renamed Columbia Variable Investment Trust) as indicated on such schedule, with such Additional Variable Series of the SteinRoe Variable Investment Trust being the survivor of such reorganization;
(c) the SteinRoe Variable Investment Trust intends to change its name to "Columbia Variable Investment Trust" on or before April 28, 2006; and
(d) each of the Borrowers listed on Schedule C intends to reorganize its assets on or before March 27, 2006 into a newly established series (each, an "Additional Retail Series") of Columbia Funds Series Trust I as indicated on such schedule in a "shell" reorganization with each Additional Retail Series being the survivor of such reorganization.
Each Additional Institutional Series, Additional Variable Series and Additional Retail Series shall be referred to herein as a "New Series". The Institutional Trust, on behalf of each Additional Institutional Series, the SteinRoe Variable Investment Trust, on behalf of each Additional Variable Series, and the Columbia Funds Series Trust I, on behalf of each Additional Retail Series, shall be referred to herein as a "New Borrower".
In connection with the foregoing, the Borrowers hereby request that (i) the Institutional Trust be added as an Entity for all purposes of the Credit Agreement and the other Loan Documents on behalf of each of the Additional Institutional Series for all purposes and (ii) each New Series become a Series under the Credit Agreement and the other Loan Documents for all purposes. Each of the Banks and the Agents, by their signature below hereby agree to the foregoing requests, provided that:
(a) The Institutional Trust shall not be added as an Entity for all purposes of the Credit Agreement and the other Loan Documents unless and until each of the following conditions are satisfied:
(1) the Operations Agent shall have received an Instrument of Adherence to the Credit Agreement and the other Loan Documents in substantially the form of the Instrument of Adherence attached hereto as Exhibit A; and
(2) the conditions precedent in clause (b) below are satisfied with respect to at least one Additional Institutional Series.
(b) No New Series shall become a Series under the Credit Agreement and each of the other Loan Documents unless and until each of the following conditions are satisfied:
(1) with respect to any Additional Institutional Series, the conditions precedent set forth in clause (a) above have been satisfied;
(2) the Operations Agent shall have received a Note for the account of PNC Bank National Association in an amount equal to such Bank's Commitment Amount, or, if less, the aggregate unpaid principal amount of such Bank's Loans, executed on behalf of such New Series;
(3) the Operations shall have received a Form F.R. U-1 in favor of each Bank executed on behalf of such New Series;
(4) the Operations Agent shall have received an Allocation Notice with respect to each of the Borrowers (including the New Borrower) that has been manually signed by an authorized officer of each of the Entities;
(5) the Operations Agent shall have received a manually signed
certificate from the Secretary of the applicable Entity in form and
substance satisfactory to the Operations Agent as to the incumbency of, and
bearing manual specimen signatures of, the officers of such Entity who are
authorized to execute and take actions under the Loan Documents, as to the
Custodian and Investment Adviser of such New Series, and certifying and
attaching copies of (i) the declaration of trust of such Entity (with the
designation of such New Series or accompanied by duly authorized
resolutions designating such New Series) and by-laws as then in effect,
(ii) duly authorized resolutions of the Board of Trustees of such Entity
authorizing for such New Series the transactions contemplated hereby, and
(iii) the current Prospectus for such New Series (or the links to the SEC's
website where each such Prospectus may be located);
(6) the Operations Agent shall have received a certificate manually signed by an authorized officer of the applicable Entity, on behalf of such New Series, (A) to the effect set forth in clauses (b) (if applicable), (c) and (d) of Section 3.02 of the Credit Agreement, (B) representing, warranties and agreeing that the applicable Entity shall, on behalf of such New Series, comply with and be bound by all of the terms, conditions and covenants of the Credit Agreement and each of the other Loan Documents, (C) acknowledging that, with respect to such New Series, the term "Effective Date" as used in Section 4.07 of the Credit Agreement shall mean the date on which each of the conditions precedent set forth in this clause (b) are satisfied with respect to such New Series and (D) representing that, since the date on which such New Series commenced operations, there has been no material adverse change in the business, financial position, results of operation or prospects of such New Series, such Certificate to be in form and substance satisfactory to the Operations Agent;
(7) the Operations Agent shall have received an Asset Coverage Ratio Certificate manually signed by an authorized officer of the applicable Entity, on behalf of such New Series;
(8) the Operations Agent shall have received a copy of the declaration of trust of the applicable Entity, with all amendments, certified as of a recent date by the Secretary of State of the Commonwealth of Massachusetts;
(9) the Operations Agent shall have received certificates dated as of a recent date that are satisfactory to the Operations Agent and reflect that the applicable Entity is legally existing, in good standing and qualified to engage in business in Massachusetts and in each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification;
(10) the Operations Agent shall have received an opinion of Ropes & Gray LLP, counsel to the New Series, which is satisfactory to the Operations Agent in all respects; and
(11) the Operations Agent shall have received an updated Schedule 2 to the Credit Agreement that shows the addition of such New Series as a Series (and, if applicable, the Institutional Trust as an Entity) under the Credit Agreement and each of the other Loan Documents.
This letter agreement is a contract under seal under the laws of the Commonwealth of Massachusetts and shall for all purposes be construed in accordance with and governed by the laws of said Commonwealth (excluding the laws applicable to conflicts or choice of law). Except as specifically amended by this letter agreement, the Credit Agreement and all other agreements and instruments executed and delivered in connection with the Credit Agreement shall remain in full force and effect. This letter agreement is limited specifically to the matters set forth herein and does not constitute directly or by implication an amendment or waiver of any other provision of the Credit Agreement or any of the other Loan Documents. This letter agreement may be executed in several counterparts and by each party on a separate counterpart, each of which when so executed and delivered shall be an original, and all of which together shall constitute one instrument. In proving this letter agreement it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. This letter agreement shall constitute a Loan Document.
A copy of each Entity's agreement and declaration of trust is on file with the Secretary of The Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed by the Trustees and officers of such Entity as Trustees and officers, as the case may be, and not individually and that the obligations of this instrument are not binding upon any of the Trustees, officers or shareholders individually but are binding only upon the assets and property of the appropriate Entity.
[Signature page follows.]
Very truly yours,
COLUMBIA FUNDS TRUST I, on behalf of its
Series Columbia High-Yield Opportunity
Fund
COLUMBIA FUNDS TRUST II, on behalf of its Series Columbia Greater China Fund
COLUMBIA FUNDS TRUST III, on behalf of its Series Columbia World Equity Fund, Columbia Core Bond Fund and Columbia Liberty Fund
COLUMBIA FUNDS TRUST IV, on behalf of its Series Columbia Tax-Exempt Insured Fund and Columbia Utilities Fund
COLUMBIA FUNDS TRUST V, on behalf of its Series Columbia Connecticut Intermediate Municipal Bond Fund, Columbia Connecticut Tax-Exempt Fund, Columbia Massachusetts Intermediate Municipal Bond Fund, Columbia Massachusetts Tax-Exempt Fund, Columbia New Jersey Intermediate Municipal Bond Fund, Columbia New York Intermediate Municipal Bond Fund, Columbia New York Tax-Exempt Fund, Columbia Rhode Island Intermediate Municipal Bond Fund and Columbia US Treasury Index Fund
COLUMBIA FUNDS TRUST VI, on behalf of
its Series Columbia Small Cap Value Fund
I
COLUMBIA FUNDS TRUST VIII, on behalf of its Series Columbia Income Fund and Columbia Intermediate Bond Fund
COLUMBIA FUNDS TRUST XI, on behalf of its Series Columbia Asset Allocation Fund, Columbia Large Cap Growth Fund, Columbia Disciplined Value Fund, Columbia Growth Stock Fund, Columbia Common Stock Fund, Columbia Small Cap Core Fund, Columbia Small Company Equity Fund, Columbia Dividend Income Fund and Columbia Young Investor Fund
COLUMBIA BALANCED FUND, INC.
COLUMBIA CONSERVATIVE HIGH YIELD FUND
COLUMBIA OREGON INTERMEDIATE MUNICIPAL
BOND FUND
COLUMBIA REAL ESTATE EQUITY FUND, INC.
COLUMBIA SMALL CAP GROWTH FUND I
COLUMBIA MID CAP GROWTH FUND, INC.
COLUMBIA STRATEGIC INVESTOR FUND, INC.
COLUMBIA TECHNOLOGY FUND, INC.
CMG FUND TRUST, on behalf of its Series CMG Core Bond Fund, CMG Enhanced S&P 500 Index Fund, CMG High Yield Fund, CMG International Stock Fund, CMG Large Cap Growth Fund, CMG Large Cap Value Fund, CMG Mid Cap Growth Fund, CMG Mid Cap Value Fund, CMG Short Term Bond Fund, CMG Small Cap Fund, CMG Small Cap Growth Fund, CMG Small Cap Value Fund, CMG Small/Mid Cap Fund, CMG Strategic Equity Fund, and CMG Ultra Short Term Bond Fund
LIBERTY VARIABLE INVESTMENT TRUST, on
behalf of its Series Colonial Small Cap
Value Fund, VS, Colonial Strategic
Income Fund, VS, Columbia High Yield
Fund, VS, Columbia International Fund,
VS, Liberty Growth & Income Fund, VS,
Liberty S&P 500 Index Fund, VS, Liberty
Select Value Fund, VS
STEINROE VARIABLE INVESTMENT TRUST, on
behalf of its Series Liberty Asset
Allocation Fund, VS, Liberty Federal
Securities Fund, VS, Liberty Small
Company Growth Fund, VS, and Columbia
Large Cap Growth Fund, VS
COLUMBIA FUNDS SERIES TRUST I, on behalf
of its Series Columbia California Tax
Exempt Fund, Columbia Federal Securities
Fund, Columbia High Yield Municipal
Fund, Columbia Intermediate Municipal
Bond Fund, Columbia International Stock
Fund, Columbia Strategic Income Fund,
Columbia Tax Exempt Fund, and Columbia
Tax Managed Growth Fund
ACKNOWLEDGED AND AGREED:
STATE STREET BANK AND TRUST COMPANY,
Individually, as Operations Agent and
as Administrative Agent
PNC BANK, NATIONAL ASSOCIATION
SOCIETE GENERALE
LLOYDS TSB BANK PLC, individually
and as Senior Managing Agent
BANCO BILBAO VIZCAYA ARGENTARIA S.A.
Exhibit (h)(4)(vii)
SCHEDULE A
INSTITUTIONAL REORGANIZATIONS
EACH OF THE FOLLOWING SERIES OF CMG FUNDS TRUST WILL REORGANIZE ITS ASSETS INTO THE SERIES OF COLUMBIA FUNDS INSTITUTIONAL TRUST SET FORTH OPPOSITE ITS NAME.
CMG FUNDS TRUST COLUMBIA FUNDS INSTITUTIONAL TRUST
--------------- ----------------------------------
ADDITIONAL INSTITUTIONAL SERIES
- CMG Core Bond Fund - CMG Core Bond Fund
- CMG Enhanced S&P 500 Index Fund - CMG Enhanced S&P 500 Index Fund
- CMG High Yield Fund - CMG High Yield Fund
- CMG International Stock Fund - CMG International Stock Fund
- CMG Large Cap Growth Fund - CMG Large Cap Growth Fund
- CMG Large Cap Value Fund - CMG Large Cap Value Fund
- CMG Mid Cap Growth Fund - CMG Mid Cap Growth Fund
- CMG Mid Cap Value Fund - CMG Mid Cap Value Fund
- CMG Short Term Bond Fund - CMG Short Term Bond Fund
- CMG Small Cap Fund - CMG Small Cap Growth Fund*
- CMG Small Cap Growth Fund - [Removed]*
- CMG Small Cap Value Fund - CMG Small Cap Value Fund
- CMG Small/Mid Cap Fund - CMG Small/Mid Cap Fund
- CMG Strategic Equity Fund - CMG Strategic Equity Fund
- CMG Ultra Short Term Bond Fund - CMG Ultra Short Term Bond Fund
|
* Subsequent to the reorganization, CMG Small Cap Growth Fund will be merged into CMG Small Cap Fund, which will subsequently be renamed CMG Small Cap Growth Fund.
Exhibit (h)(4)(vii)
SCHEDULE B
VARIABLE REORGANIZATIONS
EACH OF THE FOLLOWING SERIES OF LIBERTY VARIABLE INVESTMENT TRUST WILL REORGANIZE ITS ASSETS INTO THE SERIES OF STEINROE VARIABLE INVESTMENT TRUST SET FORTH OPPOSITE ITS NAME.
COLUMBIA VARIABLE INVESTMENT TRUST
LIBERTY VARIABLE INVESTMENT TRUST (FORMERLY STEINROE VARIABLE INVESTMENT TRUST)
--------------------------------- ---------------------------------------------
ADDITIONAL VARIABLE SERIES
- Colonial Small Cap Value Fund, VS - Colonial Small Cap Value Fund, VS
- Colonial Strategic Income Fund, VS - Colonial Strategic Income Fund, VS
- Columbia High Yield Fund, VS*
- Columbia International Fund, VS - Columbia International Fund, VS
- Liberty Growth & Income Fund, VS - Liberty Growth & Income Fund, VS
- Liberty S&P 500 Index Fund, VS - Liberty S&P 500 Index Fund, VS
- Liberty Select Value Fund, VS - Liberty Select Value Fund, VS
EXISTING SERIES
- Liberty Asset Allocation Fund, VS
- Liberty Federal Securities Fund, VS
- Liberty Small Company Growth Fund, VS
- Columbia Large Cap Growth Fund, VS
|
* Columbia High Yield Fund, VS will be merged into Nations High Yield Bond Portfolio, a series of Nations Separate Account Trust.
Exhibit (h)(4)(vii)
SCHEDULE C
RETAIL REORGANIZATIONS
EACH OF THE FOLLOWING SERIES WILL REORGANIZE ITS ASSETS INTO THE SERIES OF COLUMBIA FUNDS SERIES TRUST I SET FORTH OPPOSITE ITS NAME.
SERIES COLUMBIA FUNDS SERIES TRUST I
------ -----------------------------
ADDITIONAL RETAIL SERIES
- Columbia High-Yield Opportunity Fund, a - Columbia High-Yield Opportunity Fund
series of Columbia Funds Trust I
- Columbia Greater China Fund, a series of - Columbia Greater China Fund
Columbia Funds Trust II
- Columbia Liberty Fund, a series of Columbia - Columbia Liberty Fund
Funds Trust III
- Columbia World Equity Fund, a series of - Columbia World Equity Fund
Columbia Funds Trust III
- Columbia Core Bond Fund, a series of Columbia - Columbia Core Bond Fund
Funds Trust III
- Columbia Utilities Fund, a series of Columbia - Columbia Utilities Fund
Funds Trust IV
- Columbia Tax-Exempt Insured Fund, a series of - Columbia Tax-Exempt Insured Fund
Columbia Funds Trust IV
- Columbia Massachusetts Tax-Exempt Fund, a - Columbia Massachusetts Tax-Exempt Fund
series of Columbia Funds Trust V
- Columbia Connecticut Tax-Exempt Fund, a - Columbia Connecticut Tax-Exempt Fund
series of Columbia Funds Trust V
- Columbia New York Tax-Exempt Fund, a series - Columbia New York Tax-Exempt Fund
of Columbia Funds Trust V
- Columbia Massachusetts Intermediate Municipal - Columbia Massachusetts Intermediate
Bond Fund, a series of Columbia Funds Trust V Municipal Bond Fund
|
- Columbia US Treasury Index Fund, a series of - Columbia US Treasury Index Fund
Columbia Funds Trust V
- Columbia Rhode Island Intermediate Municipal - Columbia Rhode Island Intermediate
Bond Fund, a series of Columbia Funds Trust V Municipal Bond Fund
- Columbia Connecticut Intermediate Municipal - Columbia Connecticut Intermediate
Bond Fund, a series of Columbia Funds Trust V Municipal Bond Fund
- Columbia New York Intermediate Municipal Bond - Columbia New York Intermediate
Fund, a series of Columbia Funds Trust V Municipal Bond Fund
- Columbia New Jersey Intermediate Municipal - Columbia New Jersey Intermediate
Bond Fund, a series of Columbia Funds Trust V Municipal Bond Fund
- Columbia Small Cap Value Fund I, a series of - Columbia Small Cap Value Fund I
Columbia Funds Trust VI
- Columbia Intermediate Bond Fund, a series of - Columbia Intermediate Bond Fund
Columbia Funds Trust VIII
- Columbia Income Fund, a series of Columbia - Columbia Income Fund
Funds Trust VIII
- Columbia Large Cap Growth Fund, a series of - Columbia Large Cap Growth Fund
Columbia Funds Trust XI
- Columbia Growth Stock Fund, a series of - Columbia Growth Stock Fund
Columbia Funds Trust XI
- Columbia Young Investor Fund, a series of - Columbia Young Investor Fund
Columbia Funds Trust XI
- Columbia Small Cap Core Fund, a series of - Columbia Small Cap Core Fund
Columbia Funds Trust XI
- Columbia Common Stock Fund, a series of - Columbia Common Stock Fund
Columbia Funds Trust XI
|
- Columbia Asset Allocation Fund, a series of - Columbia Asset Allocation Fund
Columbia Funds Trust XI
- Columbia Small Company Equity Fund, a series - Columbia Small Company Equity Fund
of Columbia Funds Trust XI
- Columbia Dividend Income Fund, a series of - Columbia Dividend Income Fund
Columbia Funds Trust XI
- Columbia Disciplined Value Fund, a series of - Columbia Disciplined Value Fund
Columbia Funds Trust XI
- Columbia Balanced Fund, Inc. - Columbia Balanced Fund
- Columbia Conservative High Yield Fund - Columbia Conservative High Yield Fund
- Columbia Oregon Intermediate Municipal Bond - Columbia Oregon Intermediate Municipal
Fund Bond Fund
- Columbia Real Estate Equity Fund, Inc. - Columbia Real Estate Equity Fund
- Columbia Small Cap Growth Fund I - Columbia Small Cap Growth Fund I
- Columbia Mid-Cap Growth Fund, Inc. - Columbia Mid-Cap Growth Fund
- Columbia Strategic Investor Fund, Inc. - Columbia Strategic Investor Fund
- Columbia Technology Fund, Inc. - Columbia Technology Fund
EXISTING SERIES
- Columbia California Tax-Exempt Fund
- Columbia Federal Securities Fund
- Columbia High Yield Municipal Fund
- Columbia Intermediate Municipal Bond
Fund
- Columbia International Stock Fund
- Columbia Strategic Income Fund
- Columbia Tax-Exempt Fund
- Columbia Tax-Managed Growth Fund
|
EXHIBIT A
FORM OF
INSTRUMENT OF ADHERENCE
Dated as of _____________
To the Banks Referred to Below
c/o State Street Bank and Trust Company,
as Operations and Administrative Agent
225 Franklin Street, MAO/7
Boston, Massachusetts 02110-2804
Ladies and Gentlemen:
Reference is hereby made to the Credit Agreement for Columbia Funds, dated as of July 23, 2004, as amended (such agreement, as in effect from time to time, the "Credit Agreement"), among each of the registered investment companies listed on the signature pages thereof (collectively, the "Entities"), the lending institutions listed on the signature pages hereof (collectively, the "Banks"), State Street Bank and Trust Company, as operations agent for itself and such other lending institutions (the "Operations Agent"), and State Street Bank and Trust Company, as administrative agent for itself and such other lending institutions (the "Administrative Agent"). Capitalized terms which are used herein without definition and which are defined in the Credit Agreement shall have the same meanings herein as in the Credit Agreement.
In reliance on each of the representations, warranties and covenants set forth herein, each of the Banks and the Agents, by its signature hereto, hereby agrees that COLUMBIA FUNDS INSTITUTIONAL TRUST (the "New Trust") shall become an Entity for all purposes of the Credit Agreement and each of the other Loan Documents as of the date hereof.
The New Trust covenants and agrees that it shall, on behalf of each of its Series, comply with and be bound by all of the terms, conditions and covenants of the Credit Agreement, as amended hereby, and each of the other Loan Documents. Without limiting the generality of the preceding sentence, the New Trust, on behalf of each of its Series, hereby promises to duly and punctually pay or cause to be paid from the assets of each of such Series the principal of and interest on all Loans made for the benefit of such Series, along with such Series' allocated share of all fees and expenses under the Loan Documents.
A copy of the New Trust's agreement and declaration of trust is on file with the Secretary of The Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed by the Trustees and officers of the New Trust as Trustees and officers, as the case may be, and not individually and that the obligations of this instrument are not binding upon any of the Trustees, officers or shareholders individually but are binding only upon the assets and property of the New Trust.
This Instrument of Adherence, upon its acceptance by the Operations Agents, shall constitute a Loan Document. Except as otherwise expressly provided by this Instrument of Adherence, all of the terms, conditions and provisions of the Credit Agreement and each of the other Loan Documents shall remain the same. It is declared and agreed by each of the parties hereto that the Credit Agreement and each of the other Loan Documents, as amended hereby, shall continue in full force and effect, and that this Instrument of Adherence and each of the Credit Agreement and the other Loan Documents shall be read and construed as one instrument. This Instrument of Adherence is intended to take effect as an instrument under seal and is governed by the laws of the Commonwealth of Massachusetts. This Instrument of Adherence may be executed in any number of counterparts, but all such counterparts shall together constitute but one instrument. In making proof of this Instrument of Adherence it shall not be necessary to produce or account for more than one counterpart signed by each party hereto by and against which enforcement hereof is sought.
Very truly yours,
COLUMBIA FUNDS INSTITUTIONAL TRUST, ON
BEHALF ITS SERIES CMG CORE BOND FUND,
CMG ENHANCED S&P 500 INDEX FUND, CMG
HIGH YIELD FUND, CMG INTERNATIONAL STOCK
FUND, CMG LARGE CAP GROWTH FUND, CMG
LARGE CAP VALUE FUND, CMG MID CAP GROWTH
FUND, CMG MID CAP VALUE FUND, CMG SHORT
TERM BOND FUND, CMG SMALL CAP FUND, CMG
SMALL CAP GROWTH FUND, CMG SMALL CAP
VALUE FUND, CMG SMALL/MID CAP FUND, CMG
STRATEGIC EQUITY FUND, AND CMG ULTRA
SHORT TERM BOND FUND
Accepted and Agreed:
STATE STREET BANK AND TRUST COMPANY,
individually, as Operations Agent
Exhibit (h)(6)
FORM OF INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "Agreement") is made as of the date set forth on the signature page by and between each of the entities listed in Schedule A hereto (a "Fund"), and the trustee of the Fund whose name is set forth on the signature page (the "Trustee").
WHEREAS, the Trustee is a trustee of the Fund, and the Fund wishes the Trustee to continue to serve in that capacity; and
WHEREAS, the organizational documents of the Fund and applicable laws provide for the Fund to indemnify the Trustee in certain cases; and
WHEREAS, to induce the Trustee to continue to provide services to the Fund as a Trustee and to provide the Trustee with contractual assurance that indemnification will be available to the Trustee, the Fund desires to provide the Trustee with protection against personal liability and delineate certain procedural aspects relating to indemnification and advancement of expenses, as more fully set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual agreements set forth herein, the parties hereby agree as set forth below. Certain capitalized terms used herein are defined in Section 7.
1. INDEMNIFICATION. The Fund shall indemnify the Trustee against any and all Expenses actually and reasonably incurred by the Trustee in any Proceeding in which the Trustee may be or may have been involved as a party or otherwise or with which the Trustee may be or may have been threatened, while in office or thereafter, by reason of any alleged act or omission as a Trustee or by reason of his or her being or having been a trustee of the Fund, except with respect to any matter as to which the Trustee shall have been finally adjudicated in a relevant Proceeding not to have acted in good faith in the reasonable belief that his or her action was in the best interests of the Fund and except that the Trustee shall not be indemnified against any liability to the Fund or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
2. ADVANCEMENT OF EXPENSES. Expenses, including reasonable counsel fees
incurred by the Trustee (but excluding amounts paid in satisfaction of
judgments, in compromise or as fines or penalties), shall be paid from time to
time by the Fund in advance of the final disposition of a Proceeding upon
receipt by the Fund of an undertaking by or on behalf of the Trustee to repay
amounts so paid to the Fund if it is ultimately determined that indemnification
of such Expenses is not authorized under this Agreement, provided, however, that
(a) the Trustee shall provide security considered in the sole discretion of the
Fund to be appropriate for such undertaking, (b) the Fund shall be insured
against losses arising from any such advance payments, or (c) either a majority
of the Independent Trustees acting on the matter (provided that a majority of
such Independent Trustees then in office act on the matter), or Independent
Counsel in a written opinion shall determine, based upon a review of readily
available facts (as opposed
to a full trial-type inquiry), that there is reason to believe the Trustee will be found entitled to indemnification under this Agreement.
3. PRESUMPTIONS. For purposes of the determination or opinion referred to
in clause (c) of Section 2 of this Agreement or clauses (x) or (y) of subsection
(h) of Section 5 of this Agreement, the Independent Trustees or Independent
Counsel, as the case may be, shall be entitled to rely upon a rebuttable
presumption that the Trustee has not engaged in willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the conduct of
the Trustee's office.
4. WITNESS EXPENSES. To the extent that the Trustee is, by reason of the Trustee's service to the Fund, a witness for any reason in any Proceeding to which such Trustee is not a party, such Trustee shall be indemnified against any and all Expenses actually and reasonably incurred by or on behalf of such Trustee in connection therewith.
5. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION AND ADVANCEMENTS. A request by the Trustee for indemnification or advancement of Expenses shall be made in writing to the Secretary of the Fund, and shall be accompanied by such relevant documentation and information as is reasonably available to the Trustee. The Secretary of the Fund shall promptly advise the Board of such request.
(a) Methods of Determination. Upon the Trustee's request for indemnification or advancement of Expenses, a determination with respect to the Trustee's entitlement thereto shall be made in a manner consistent with the terms of this Agreement. The Trustee shall cooperate with the person or persons making such determination, including without limitation providing to such persons upon reasonable advance request any documentation or information that is not privileged or otherwise protected from disclosure and is reasonably available to the Trustee and reasonably necessary to such determination. Any failure by the Trustee to cooperate with the person or persons making such determination shall extend as necessary and appropriate the period or periods described in paragraph (c) of Section 5 regarding determinations deemed to have been made. Any Expenses reasonably incurred by the Trustee in so cooperating shall be borne by the Fund, irrespective of the determination as to the Trustee's entitlement to indemnification or advancement of Expenses. Any counsel selected pursuant hereto to make the relevant determination shall be an Independent Counsel.
(b) Independent Counsel. If the determination of entitlement to indemnification or advancement of Expenses is to be made by Independent Counsel, the Independent Counsel shall be selected by the Board, and the Fund shall give written notice to the Trustee advising the Trustee of the identity of the Independent Counsel selected. The Trustee may, within five days after receipt of such written notice, deliver to the Fund a written objection to such selection. Such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirement of independence set forth in Section 7, and shall set forth with particularity the factual basis of such assertion. Promptly after the receipt of such objection, another Independent Counsel shall be selected by the Board, and the Fund shall give written notice to the Trustee advising the Trustee of the identity of the Independent Counsel selected. The Trustee may, within five days after receipt of such written notice, deliver to the Fund a written objection to such selection. Such objection may be asserted only on the ground that the
Independent Counsel so selected does not meet the requirement of independence set forth in Section 7, and shall set forth with particularity the factual basis of such assertion. The Board shall determine the merits of the objection and, in its discretion, either determine that the proposed Independent Counsel shall, despite the objection, act as such hereunder or select another Independent Counsel who shall act as such hereunder.
If within 45 days (which period shall be extended by another 45 days if the Trustee objects to the first Independent Counsel selected by the Board as provided in the previous paragraph) after submission by the Trustee of a written request for indemnification or advancement of Expenses no such Independent Counsel shall have been finally selected as provided in the previous paragraph, then either the Fund or the Trustee may petition any court of competent jurisdiction for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person so appointed shall act as Independent Counsel.
The Fund shall pay all reasonable fees and Expenses charged or incurred by Independent Counsel in connection with his or her determinations pursuant to this Agreement, and shall pay all reasonable fees and Expenses of the Trustee incurred incident to the procedures described in this paragraph (b), regardless of the manner in which such Independent Counsel was selected or appointed.
(c) Failure to Make Timely Determination. Subject to paragraph (a) of
Section 5, if the person or persons empowered or selected to determine whether
the Trustee is entitled to indemnification or advancement of Expenses (other
than determinations that are made or to be made by a court) shall not have made
such determination within 150 days after receipt by the Fund of the request
therefor, the requisite determination of entitlement to indemnification or
advancement of Expenses shall be deemed to have been made, and the Trustee shall
be entitled to such indemnification or advancement, absent (i) an intentional
misstatement by the Trustee of a material fact, or an intentional omission of a
material fact necessary to make the Trustee's statement not materially
misleading, in connection with the request for indemnification or advancement of
Expenses, (ii) a prohibition of such indemnification or advancement under
applicable law or the Fund's Agreement and Declaration of Trust or By-Laws, or
(iii) a requirement under the Investment Company Act of 1940, as amended, for
insurance or security; provided, however, that the Fund, in its sole discretion,
may extend such period for a reasonable period of time, not to exceed an
additional 60 days, if the person or persons making the determination in good
faith require such additional time to obtain or evaluate documentation or
information relating thereto.
(d) Payment Upon Determination of Entitlement. If a determination is made pursuant to Section 1 or 2 (or is deemed to be made pursuant to paragraph (c) of this Section 5 and, in the case of advancement of Expenses, the other conditions are satisfied) that the Trustee is entitled to indemnification or advancement of Expenses, payment of any indemnification amounts or advancements owing to the Trustee shall be made within 30 days after such determination (and, in the case of advancements of Expenses, within 30 days after submission of supporting information, including the required undertaking and evidence of any required security). If such payment is not made when due, the Trustee shall be entitled to an adjudication in an appropriate court of The Commonwealth of Massachusetts, or in any other court of competent jurisdiction, of
the Trustee's entitlement to such indemnification or advancement. The Trustee shall commence any proceeding seeking such adjudication within one year following the date on which he or she first has the right to commence such proceeding pursuant to this paragraph (d). In any such proceeding, the Fund shall be bound by the determination that the Trustee is entitled to indemnification or advancement, absent (i) an intentional misstatement by the Trustee of a material fact, or an intentional omission of a material fact necessary to make his or her statement not materially misleading, in connection with the request for indemnification or advancements, (ii) a prohibition of such indemnification or advancement under applicable law, or (iii) a requirement under the Investment Company Act of 1940, as amended, for insurance or security.
(e) Appeal of Adverse Determination. If a determination is made that the Trustee is not entitled to indemnification or advancement, the Trustee shall be entitled to an adjudication of such matter in an appropriate court of The Commonwealth of Massachusetts or in any other court of competent jurisdiction. Alternatively, the Trustee, at his or her option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the rules of the American Arbitration Association. The Trustee shall commence such proceeding or arbitration within one year following the date on which the adverse determination is made. Any such judicial proceeding or arbitration shall be conducted in all respects as a de novo trial or arbitration on the merits, and the Trustee shall not be prejudiced by reason of such prior adverse determination.
(f) Expenses of Appeal. If the Trustee seeks arbitration or a judicial adjudication to determine or enforce his or her rights under, or to recover damages for breach of, the indemnification or Expense advancement provisions of this Agreement, the Trustee shall be entitled to recover from the Fund, and shall be indemnified by the Fund against, any and all Expenses actually and reasonably incurred by the Trustee in such arbitration or judicial adjudication, but only if the Trustee prevails therein. If it shall be determined in such arbitration or judicial adjudication that the Trustee is entitled to receive part but not all of the indemnification or advancement of Expenses sought, the expenses incurred by the Trustee in connection with such arbitration or judicial adjudication shall be appropriately prorated.
(g) Validity of Agreement. In any arbitration or judicial proceeding commenced pursuant to this Section 5, the Fund shall be precluded from asserting that the procedures and presumptions set forth in this Agreement are not valid, binding and enforceable against the Fund, and shall stipulate in any such court or before any such arbitrator that the Fund is bound by all the provisions of this Agreement.
(h) Lack of Adjudication. Notwithstanding any provision herein to the contrary, as to any matter disposed of (whether by a compromise payment, pursuant to a consent decree or otherwise) without an adjudication by a court, or by any other body before which the Proceeding was brought, that the Trustee either (a) did not act in good faith in the reasonable belief that the Trustee's action was in the best interests of the Fund or (b) is liable by reason of the Trustee's willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the Trustee's office, indemnification shall be provided if (x) approved as in the best interest of the Fund, after notice that it involves such indemnification, by at least a majority of the Independent Trustees acting on the matter (provided that a majority of such Independent Trustees then in office act on the matter), upon a determination, based upon a review of readily available facts (as opposed to a full trial-type inquiry) that the Trustee acted in good faith in the
reasonable belief that the Trustee's action was in the best interests of the Fund and that such indemnification would not protect the Trustee against any liability to which the Trustee would otherwise be subject by reason of the Trustee's willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the Trustee's office, or (y) there has been obtained an opinion in writing of Independent Counsel, based upon a review of readily available facts (as opposed to a full trial-type inquiry), to the effect that the Trustee appears to have acted in good faith in the reasonable belief that the Trustee's action was in the best interests of the Fund and that such indemnification would not protect the Trustee against any liability to which the Trustee would otherwise be subject by reason of the Trustee's willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the Trustee's office.
6. GENERAL PROVISIONS.
(a) Non-Exclusive Rights. The provisions for indemnification of, and advancement of Expenses to, the Trustee set forth in this Agreement shall not be deemed exclusive of any other rights to which the Trustee may otherwise be entitled, including any other rights to be indemnified, or have Expenses advanced, by the Fund. The Fund shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable hereunder if and to the extent that the Trustee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise, if such payment is not recoverable from the Trustee.
(b) Continuation of Provisions. This Agreement shall be binding upon all successors of the Fund, including without limitation any transferee of all or substantially all assets of the Fund and any successor by merger, consolidation or operation of law, and shall inure to the benefit of the Trustee's spouse, heirs, assigns, devisees, executors, administrators and legal representatives. The provisions of this Agreement shall continue until the later of (1) ten years after the Trustee has ceased to provide any service to the Fund, and (2) the final termination of all Proceedings in respect of which the Trustee has asserted, is entitled to assert, or has been granted rights of indemnification or advancement of Expenses hereunder and of any proceeding commenced by the Trustee pursuant to Section 5 relating thereto. No amendment of the Agreement and Declaration of Trust or By-Laws of the Fund shall limit or eliminate the right of the Trustee to indemnification and advancement of Expenses set forth in this Agreement.
(c) Selection of Counsel. The Fund shall be entitled to assume the defense of any Proceeding for which the Trustee seeks indemnification or advancement of Expenses under this Agreement. Notwithstanding the foregoing, however, counsel selected by the Trustee shall conduct the defense of the Trustee to the extent reasonably determined by such counsel to be necessary to protect the interests of the Trustee, and the Fund shall indemnify the Trustee for the Expenses of such defense to the extent otherwise permitted under this Agreement, if (1) the Trustee reasonably determines that there may be a conflict in the Proceeding between the positions of the Trustee and the positions of the Fund or of other parties to the Proceeding that are indemnified by the Fund and not represented by separate counsel, or the Trustee otherwise reasonably concludes that representation of both the Trustee and the Fund or any such other parties by the same counsel would not be appropriate, or (2) the Proceeding involves the Trustee, but neither the Fund nor any such other party who is indemnified by the Fund, and the Trustee reasonably withholds consent to being represented by counsel selected by the Fund. If the Fund
shall not have elected to assume the defense of any such Proceeding for the Trustee within thirty days after receiving written notice thereof from the Trustee, the Fund shall be deemed to have waived any right it might otherwise have to assume such defense.
(d) Subrogation. In the event of any payment by the Fund pursuant to this Agreement, the Fund shall be subrogated to the extent of such payment to all of the rights of recovery of the Trustee, who shall, upon reasonable written request by the Fund and at the Fund's expense, execute all such documents and take all such reasonable actions as are necessary to enable the Fund to enforce such rights. Nothing in this Agreement shall be deemed (1) to diminish or otherwise restrict the right of the Fund or the Trustee to proceed or collect against any insurers or (2) to give such insurers any rights against the Fund under or with respect to this Agreement, including without limitation any right to be subrogated to the Trustee's rights hereunder, unless otherwise expressly agreed to by the Fund in writing, and the obligation of such insurers to the Fund and the Trustee shall not be deemed to be reduced or impaired in any respect by virtue of the provisions of this Agreement.
(e) Notice of Proceedings. The Trustee shall promptly notify the Fund in writing upon being served with any summons, citation, subpoena, complaint, indictment, information or other document relating to any Proceeding which may be subject to indemnification or advancement of Expenses pursuant to this Agreement, but no delay in providing such notice shall in any way limit or affect the Trustee's rights or the Fund's obligations under this Agreement, except to the extent the Fund can establish that it was materially harmed thereby.
(f) Notices. All notices, requests, demands and other communications to a party pursuant to this Agreement shall be in writing, addressed to such party at the address specified on the signature page of this Agreement (or such other address as may have been furnished by such party by notice in accordance with this paragraph), and shall be deemed to have been duly given when delivered personally (with a written receipt by the addressee) or two days after being sent (1) by certified or registered mail, postage prepaid, return receipt requested, or (2) by nationally recognized overnight courier service.
(g) Severability. If any provision of this Agreement shall be held to be
invalid, illegal or unenforceable, in whole or in part, for any reason
whatsoever, (1) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each portion of any
Section of this Agreement containing any provision that is not itself invalid,
illegal or unenforceable) shall not in any way be affected or impaired thereby,
and (2) to the fullest extent possible, the remaining provisions of this
Agreement shall be construed so as to give effect to the intent manifested by
the provision held invalid, illegal or unenforceable.
(h) Modification and Waiver. This Agreement supersedes any existing or prior agreement between the Fund and the Trustee pertaining to the subject matter of indemnification, advancement of expenses and insurance, other than the Fund's Agreement and Declaration of Trust, By-Laws and the terms of any liability insurance policies, which shall not be modified or amended by this Agreement. No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both parties or their respective successors or legal representatives; provided, however, that any supplements, modifications or amendments to the Agreement and Declaration of Trust, By-Laws or the terms of any liability insurance policies
shall be deemed not to constitute supplements, modifications or amendments to this Agreement. Any waiver by either party of any breach by the other party of any provision contained in this Agreement to be performed by the other party must be in writing and signed by the waiving party or such party's successor or legal representative, and no such waiver shall be deemed a waiver of similar or other provisions at the same or any prior or subsequent time.
(i) Headings. The headings of the Sections of this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement.
(j) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be an original, and all of which when taken together shall constitute one agreement.
(k) Applicable Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of The Commonwealth of Massachusetts without reference to principles of conflict of laws. The Fund and the Trustee submit to the jurisdiction of all state and federal courts sitting in The Commonwealth of Massachusetts.
(l) WAIVER OF RIGHT TO JURY TRIAL. BY EXECUTING THIS AGREEMENT, THE PARTIES KNOWINGLY AND WILLINGLY WAIVE ANY RIGHT THEY HAVE UNDER APPLICABLE LAW TO A TRIAL BY JURY IN ANY DISPUTE ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE ISSUES RAISED BY THAT DISPUTE.
7. DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings:
(a) "Board" means the board of trustees of the Fund.
(b) "Expenses" shall include without limitation all judgments, penalties, fines, amounts paid or to be paid in settlement, ERISA excise taxes, liabilities, losses, interest, expenses of investigation, attorneys' fees, retainers, court costs, transcript costs, fees of experts and witnesses, expenses of preparing for and attending depositions and other proceedings, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other costs, disbursements or expenses of the type customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, or acting as a witness in a Proceeding.
(c) "Final adjudication" or "judgment" shall mean a final adjudication by court order or judgment of the court or other body before which a matter is pending, from which no further right of appeal or review exists.
(d) "Independent Counsel" shall mean a law firm, or a member of a law firm, that is experienced in matters of investment company law and neither at the time of designation is, nor in the five years immediately preceding such designation was, retained to represent (A) the Fund or the Trustee in any matter material to either, or (B) any other party to the Proceeding giving rise to a claim for indemnification or advancements hereunder. Notwithstanding the foregoing,
however, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Fund or the Trustee in an action to determine the Trustee's rights pursuant to this Agreement, regardless of when the Trustee's act or failure to act occurred.
(e) "Independent Trustee" shall mean a trustee of the Trust who is neither an "interested person" of the Fund as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended, nor a party to the Proceeding with respect to which indemnification or advances are sought nor a party to any other Proceeding based on the same or similar grounds which is then or has been pending.
(f) The term "Proceeding" shall include without limitation any threatened, pending or completed claim, demand, threat, discovery request, request for testimony or information, action, suit, arbitration, alternative dispute mechanism, investigation, hearing or other proceeding, including any appeal from any of the foregoing, whether civil, criminal, administrative or investigative.
(g) The Trustee's "service to the Fund" shall include without limitation the Trustee's status or service as a trustee or officer of the Fund and his or her service at the request of the Fund as a trustee, director or officer of another organization in which the Fund has any interest as a shareholder, creditor or otherwise.
8. MISCELLANEOUS. A copy of the Agreement and Declaration of Trust of the Fund, as amended or restated from time to time, is on file with the Secretary of the Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed on behalf of the Fund by an officer or Trustee of the Fund in his or her capacity as an officer or Trustee of the Fund and not individually and that the obligations of or arising out of this Agreement are not binding upon any of the Trustees, officers or shareholders individually but are binding only upon the assets and property of the Fund. Furthermore, notice is given that the assets and liabilities of each series of the Fund are separate and distinct and that the obligations of or arising out of this Agreement with respect to the series of the Fund are several and not joint, and to the extent not otherwise reasonably allocated among such series by the Trustees of the Fund, shall be deemed to have been allocated in accordance with the relative net assets of such series, and the Trustee agrees not to proceed against any series for the obligations of another series.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date set forth below.
Dated: ___________________________
Each of the entities set forth on Schedule A hereto
Address for notices:
c/o Columbia Management Group
One Financial Center
Boston, MA 02111
Schedule A
COLUMBIA FUNDS
COLONIAL CALIFORNIA INSURED MUNICIPAL FUND
COLONIAL HIGH INCOME MUNICIPAL TRUST
COLONIAL INSURED MUNICIPAL FUND
COLONIAL INTERMARKET INCOME TRUST I
COLONIAL INTERMEDIATE HIGH INCOME FUND
COLONIAL INVESTMENT GRADE MUNICIPAL TRUST
COLONIAL MUNICIPAL INCOME TRUST
COLUMBIA FUNDS TRUST I
COLUMBIA FUNDS TRUST II
COLUMBIA FUNDS TRUST III
COLUMBIA FUNDS TRUST IV
COLUMBIA FUNDS TRUST V
COLUMBIA FUNDS TRUST VI
COLUMBIA FUNDS TRUST VIII
COLUMBIA FUNDS TRUST XI
COLUMBIA FUNDS SERIES TRUST I
LIBERTY VARIABLE INVESTMENT TRUST
STEINROE VARIABLE INVESTMENT TRUST
CMG FUND TRUST
COLUMBIA FUNDS INSTITUTIONAL TRUST
COLUMBIA BALANCED FUND, INC.
COLUMBIA HIGH YIELD FUND, INC.
COLUMBIA NATIONAL MUNICIPAL BOND FUND, INC.
COLUMBIA OREGON MUNICIPAL BOND FUND, INC.
COLUMBIA REAL ESTATE EQUITY FUND, INC.
COLUMBIA SMALL CAP GROWTH FUND, INC.
COLUMBIA MID CAP GROWTH FUND, INC.
COLUMBIA STRATEGIC INVESTOR FUND, INC.
COLUMBIA TECHNOLOGY FUND, INC.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in this Registration Statement on Form N-1A of our report dated January 24, 2006, relating to the financial statements and financial highlights which appears in the November 30, 2005 Annual Report to Shareholders of Columbia Tax-Exempt Fund, which are also incorporated by reference into the Registration Statement. We also consent to the references to us under the headings "Financial Highlights" and "Independent Registered Public Accounting Firm" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Boston, Massachusetts March 22, 2006 |
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in this Registration Statement on Form N-1A of our report dated January 24, 2006, relating to the financial statements and financial highlights which appears in the November 30, 2005 Annual Report to Shareholders of Columbia Tax-Exempt Insured Fund, which are also incorporated by reference into the Registration Statement. We also consent to the references to us under the headings "Financial Highlights" and "Independent Registered Public Accounting Firm" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Boston, Massachusetts March 22, 2006 |
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in this Registration Statement on Form N-1A of our report dated January 24, 2006, relating to the financial statements and financial highlights which appears in the November 30, 2005 Annual Report to Shareholders of Columbia Utilities Fund, which are also incorporated by reference into the Registration Statement. We also consent to the references to us under the headings "Financial Highlights" and "Independent Registered Public Accounting Firm of the Fund" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Boston, Massachusetts March 22, 2006 |
Exhibit (m)
FORM OF
DISTRIBUTION PLAN
This Distribution Plan (the "Plan") relating to the shares (collectively, the "Shares") of the legal entities listed on Exhibits I through IV hereto (individually a "Trust" and collectively, the "Trusts"), on behalf of each series thereof listed on the applicable exhibit (each a "Fund"), has been adopted by the trustees or directors of the applicable Trust (the "Trustees") in conformity with Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act"). The terms and conditions of this Plan shall apply with respect to each Trust on behalf of each Fund.
Section 1. The Trust, on behalf of each Fund that is a series thereof, will pay to Columbia Funds Distributor, Inc., a Massachusetts corporation ("CFDI"), or to such other person as may from time to time be engaged and appointed to act as the distributor of its Shares (each such person, including CFDI, a "Distributor"), a fee (the "Distribution Fee") at the aggregate annual rate not to exceed the percentage of the Fund's average daily net assets attributable to such Shares set forth for such Fund on the applicable exhibit, as compensation for services rendered in connection with the sale of such Shares by the Distributor and related expenses incurred by the Distributor. Subject to such limit and subject to the provisions of Section 6 hereof, the Distribution Fee shall be as approved from time to time by (a) the Trustees and (b) the Disinterested Trustees (as defined below). The Distribution Fee shall be accrued daily and paid monthly or at such other intervals as the Trustees shall determine.
Each distribution agreement shall provide that the Distributor that is a party to such agreement will receive its Allocable Portion of the fee specified in such agreement. Unless and until a person other than CFDI shall serve as a distributor of the Shares of any the Trust, CFDI's "Allocable Portion" of the total Distribution Fee payable in respect of such Shares shall be 100%, and thereafter each Distributor's Allocable Portion of the total Distribution Fee payable in respect of Shares of any Fund shall be the portion of the Distribution Fee attributable to (i) outstanding Shares of the Fund sold by the Distributor ("Commission Shares"), plus (ii) Shares of the Fund issued in connection with the exchange of Commission Shares of another Fund and/or Shares of the Fund issued in reinvestment of dividends or capital gain distributions in respect of Commission Shares of another Fund, plus (iii) Shares of the Fund issued in reinvestment of dividends or capital gain distributions in respect of Commission Shares of the Fund; provided that the mechanics of attributing the portion of the Distribution Fee for a Fund to particular Shares for purposes of calculating a Distributor's Allocable Portion shall be as agreed by the Trust and the Distributor in light of systems capabilities for tracking the aging, exchange, and reinvestment experience of Shares sold by the Distributor.
A Distributor will be deemed to have fully earned its Allocable Portion of the Distribution Fee payable in respect of Shares of the Trust upon the sale of the Commission Shares of the Trust taken into account in determining such Distributor's Allocable Portion of such Distribution Fee.
The Distribution Fee shall be payable to the relevant Distributor or, with respect to such portion of the Distribution Fee as the Distributor may from time to time instruct, to the person or persons to whom such Distributor may from time to time instruct the Trust to make payments.
Section 2. Payments made to a Distributor pursuant to Section 1 may be used by the Distributor for any purpose, including (but not limited to) to compensate or reimburse the Distributor and any banks, broker/dealers or other financial institutions that have entered agreements with the Distributor in conformity with Section 8 ("Selling Agents") for distribution or sales support services rendered, and related expenses incurred, for or on behalf of the Fund. The Distributor may pay all or any portion of the Distribution Fee to any Selling Agents (including, but not limited to, any affiliate of the Distributor) as commissions, asset-based sales charges or other compensation with respect to the sale of the Shares, and may retain all or any portion of the Distribution Fee as compensation for the Distributor's services as agent for the distribution of Shares. All payments under this Distribution Plan are intended to qualify as "asset-based sales charges" as defined in Rule 2830 of the Conduct Rules of the National Association of Securities Dealers, Inc. (or any successor provision) as in effect from time to time. Notwithstanding anything herein to the contrary, no Fund or class of shares shall make any payments under the Plan that exceed the maximum amounts payable under applicable Conduct Rules of the National Association of Securities Dealers, Inc.
Joint distribution or sales support financing with respect to a Fund (which financing may also involve other investment portfolios or companies that are affiliated persons of the Fund, or affiliated persons of the Distributor) shall be permitted in accordance with applicable regulations of the Securities and Exchange Commission as in effect from time to time.
For each Fund class, the shareholders of which have approved (or may be deemed to have approved because the plan was adopted before any public offering of such Fund's Shares or the sale of such Shares to persons that are not affiliated persons of the Fund or affiliated persons of such persons) a distribution or servicing plan under Rule 12b-1 under the 1940 Act providing for the payments in excess of the annual rate at which Distribution Fees are paid hereunder, to the extent any payments made by such Fund pursuant to a Shareholder Servicing Plan and/or Servicing Agreement are deemed to be payments for activity primarily intended to result in the sale of Shares, such payments shall be deemed to have been approved pursuant to this Plan.
Section 3. Any officer designated by the Trust is authorized to execute and deliver, in the name of and on behalf of the Trust, a written agreement with a Distributor in such a form as may be approved by the Trustees from time to time. Such agreement shall authorize the Distributor to enter into written agreements with Selling Agents, based on such form(s) of sales support agreements as may be approved by the Board of Trustees from time to time and on such additional forms of agreement as the Distributor deems appropriate, provided that the Distributor determines that the Trust's responsibility or liability to any person under, or on account of any acts or statements of any such Selling Agent under, any such sales support agreement does not exceed its responsibility or liability under the form(s) approved by the Board of Trustees, and provided further that the Distributor determines that the overall terms of any such sales support
agreement are not materially less advantageous to the Trust than the overall terms of the form(s) approved by the Board of Trustees.
Section 4. Any person authorized to direct the disposition of monies paid or payable by the Trust pursuant to this Plan or any related agreement shall provide to the Trustees of the Trust, and the Trustees shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made.
Section 5. This Plan shall continue in effect with respect to any class of Shares of a Fund for a period of more than one year only so long as such continuance is specifically approved at least annually by votes of the majority of the Trustees and a majority of the Disinterested Trustees, cast in person at a meeting called for the purpose of voting on this Plan.
Section 6. This Plan may not be amended to increase materially the amount to be spent with respect to any class of Shares of a Fund for distribution hereunder without approval by a vote of at least a majority of the outstanding Shares of such class, and all material amendments of this Plan shall be approved in the manner provided for continuation of this Plan in Section 5.
Section 7. This Plan is terminable at any time with respect to any class of Shares of any Fund by vote of a majority of the Disinterested Trustees, or by vote of a majority of the outstanding Shares of such class.
Section 8. All agreements with any person relating to implementation of this Plan shall be in writing, and any agreement related to this Plan shall provide:
A. That such agreement may be terminated with respect to any class of Shares of a Fund at any time, without payment of any penalty, by vote of a majority of the Disinterested Trustees or by vote of a majority of the outstanding Shares of such class, on not more than 60 days' written notice to any other party to the agreement; and
B. That such agreement shall terminate automatically in the event of its assignment.
Section 9. The Trust will preserve copies of this Plan, and any agreement or written report regarding this Plan presented to the Board of Trustees for a period of not less than six years.
Section 10. As used in this Plan, (a) the term "Disinterested Trustees" shall mean those Trustees who are not interested persons of the Trust, and have no direct or indirect financial interest in the operation of this Plan or any agreements related to it, and (b) the terms "assignment" and "interested person" shall have the respective meanings specified in the Act and the rules and regulations thereunder, and the term "majority of the outstanding Shares of the Fund" shall mean the lesser of the 67% or the 50% voting requirements specified in clauses (A) and (B), respectively, of the third sentence of Section 2(a)(42) of the Act, all subject to such exemptions as may be granted by the Securities and Exchange Commission.
Section 11. This Plan is adopted by the Trustees as Trustees of the Trust, and not individually, and the obligations of the Trust hereunder are not those of the Trustees, officers, representatives or agents of the Trust individually, but in such capacities, and are not binding upon any of the Trustees, shareholders, officers, representatives or agents of the Trust personally, but bind only the assets of the Trust, and all persons dealing with a Trust or Fund must look solely to the Trust property belonging to such Fund for the enforcement of any claims against the Trust.
Approved: May 11, 2005 (revised to reflect Fund reorganizations as of March 27, 2006)
EXHIBIT I
I. LIST OF FUNDS
Trust Series
----- ------
Columbia Funds Series Trust I Columbia High Yield Opportunity Fund
Columbia Strategic Income Fund
Columbia Tax-Managed Growth Fund
Columbia Greater China Fund
Columbia Liberty Fund
Columbia Federal Securities Fund
Columbia World Equity Fund
Columbia Core Bond Fund
Columbia Tax-Exempt Fund
Columbia Tax-Exempt Insured Fund
Columbia Utilities Fund
Columbia Massachusetts Tax-Exempt Fund
Columbia Connecticut Tax-Exempt Fund
Columbia California Tax-Exempt Fund
Columbia New York Tax-Exempt Fund
Columbia Massachusetts Intermediate Municipal Bond Fund
Columbia Connecticut Intermediate Municipal Bond Fund
Columbia New Jersey Intermediate Municipal Bond Fund
Columbia New York Intermediate Municipal Bond Fund
Columbia Rhode Island Intermediate Municipal Bond Fund
Columbia U.S. Treasury Index Fund
Columbia Small Cap Value Fund I
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II. FEES
Fees are payable as follows with respect to the Funds listed above.
A. PLANS APPLYING TO CLASS A, B, C AND G SHARES
Except as indicated below, each Fund having Class A, B or C shares shall pay a distribution fee at the annual rate of 0.75% of the average daily net assets of its Class B and C shares.
Each Fund having Class G shares may pay distribution fees up to a maximum of 0.65% of the Fund's average daily net assets attributable to Class G shares.
COLUMBIA INTERMEDIATE MUNICIPAL BOND FUND pays an annual distribution fee not exceeding 0.10% of the average daily net assets of its Class A shares and not exceeding 0.60% of the average daily net assets of its Class B and C shares.
B. PLANS APPLYING TO OTHER CLASSES OF SHARES
COLUMBIA TAX-MANAGED GROWTH FUND:
CLASS E SHARES. Class E shares pay a distribution fee at the annual rate of 0.10% of the average daily net assets of the Class.
CLASS F SHARES. Class F shares pay a distribution fee at the annual rate of 0.75% of the average daily net assets of the Class.
COLUMBIA STRATEGIC INCOME FUND:
CLASS J SHARES. Class J shares pay a distribution fee at the annual rate of 0.35% of the average daily net assets of the Class for Columbia Strategic Income Fund.
EXHIBIT II
I. LIST OF FUNDS
Trust Series
----- ------
Columbia Funds Series Trust I Columbia Income Fund
Columbia Intermediate Bond Fund
Columbia Managed Municipals Fund
Columbia High Yield Municipal Fund
Columbia Growth Stock Fund
Columbia Young Investor Fund
Columbia Asset Allocation Fund
Columbia Dividend Income Fund
Columbia Large Cap Growth Fund
Columbia Disciplined Value Fund
Columbia Small Cap Core Fund
Columbia Small Company Equity Fund
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II. FEES
Fees are payable as follows with respect to the Funds listed above.
Each Fund having Class A, B or C shares (other than Columbia Income Fund, Columbia High Yield Municipal Fund and Columbia Managed Municipals Fund) shall pay a distribution fee at the annual rate of 0.10% of the average daily net assets of its Class A shares and 0.75% of the average daily net assets of its Class B and C shares.
Columbia High Yield Municipal Fund Class A, B and C shares shall pay a distribution fee at the annual rate of 0.75% of the average daily net assets of its Class B and C shares.
Columbia Managed Municipals Fund Class A, B and C shares shall pay a distribution fee at the annual rate of 0.75% of the average daily net assets of its Class B and C shares.
Each Fund having Class G shares may pay distribution fees up to a maximum of 0.65% of the Fund's average daily net assets attributable to Class G shares.
Columbia Intermediate Bond Fund Class R shares shall pay a distribution fee at the annual rate of 0.50% of the average daily net assets of its Class R shares.
EXHIBIT III
I. LIST OF FUNDS
Trust Series
----- ------
Liberty Variable Investment Trust Columbia International Fund, Variable Series
Liberty Growth & Income Fund, Variable Series
Colonial Strategic Income Fund, Variable Series
Colonial Small Cap Value Fund, Variable Series
Liberty S&P 500 Index Fund, Variable Series
Liberty Select Value Fund, Variable Series
SteinRoe Variable Investment Trust Stein Roe Small Company Growth Fund, Variable Series
Class B Shares
Stein Roe Growth Stock Fund, Variable Series
Class B Shares
Stein Roe Balanced Fund, Variable Series
Class B Shares
Stein Roe Mortgage Securities Fund, Variable Series
Class B Shares
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II. FEES
Fees are payable as follows with respect to the Funds listed above.
Each Fund listed above in this Exhibit III shall pay a distribution fee at the annual rate of up to 0.25% of its net assets in respect of its Class B shares.
EXHIBIT IV
I. LIST OF FUNDS
Trust Series
----- ------
Columbia Funds Series Trust I Columbia Common Stock Fund
Columbia International Stock Fund
Columbia Mid Cap Growth Fund
Columbia Small Cap Growth Fund
Columbia Real Estate Equity Fund
Columbia Technology Fund
Columbia Strategic Investor Fund
Columbia Balanced Fund
(each of the preceding eight Funds, an "equity fund")
Columbia Oregon Intermediate Municipal Bond Fund
Columbia High Yield Fund
(each of the preceding two Funds, a "bond fund")
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II. FEES
Fees are payable as follows with respect to the Funds listed above.
CLASS A:
For all Funds except the International Stock Fund:
0.10% distribution fee
CLASS A:
For the International Stock Fund:
0.00% distribution fee
CLASS B:
0.75% distribution fee
CLASS C:
0.75% distribution fee
CLASS D:
0.75% distribution fee
CLASS G:
For each of the equity funds listed on this Exhibit IV:
0.45% distribution fee
For each of the bond funds listed on this Exhibit IV:
0.40% distribution fee
CLASS R:
0.50% distribution fee
.
.
.
COLUMBIA FUNDS
CODE OF ETHICS
BOARD APPROVAL RECEIVED December 2005
VERSION EFFECTIVE DATE January 3, 2006
DATE LAST REVIEWED January 3, 2006
APPLICABLE AUTHORITY Section 17(j) of the 1940 Act;
Rule 17j-1 under the 1940 Act
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OVERVIEW AND STATEMENT
Section 17(j) of the 1940 Act makes it unlawful for any affiliated person of or principal underwriter for a registered investment company, or any affiliated person of an investment adviser of or principal underwriter for an investment company, to engage in any act, practice or course of business in connection with the purchase or sale, directly or indirectly, by such person of any security held or to be acquired by such investment company in contravention of such rules as the SEC may adopt to prevent any such acts, practices and courses of business as are fraudulent, deceptive or manipulative. Section 17(j) is intended to permit the SEC to create guidelines to prohibit persons affiliated with investment companies and their investment advisers and principal underwriters from engaging in securities transactions for their personal accounts when such transactions are likely to conflict with the investment programs of such investment companies. In response to Section 17(j), the SEC adopted Rule 17j-1 under the 1940 Act. Rule 17j-1 (1) prescribes an anti-fraud standard for affiliated persons of investment companies, their investment advisers and principal underwriters, (2) requires investment companies, their investment advisers and principal underwriters to adopt codes of ethics applicable to certain affiliated persons known as "access persons," subject to certain exceptions and (3) requires "access persons" to report to the investment company all transactions in securities of which they are the beneficial owners, subject to certain exceptions.
The Code of Ethics (the "Code") set forth below shall apply to each Fund advised by BAC whose Board specifically adopts the Code with respect to such Fund. A person who is an "access person" of the Fund and an "access person" of the Adviser (including any Subadviser) or principal underwriter of the Fund is only required to report under and otherwise comply with the Adviser's, Subadviser's or principal underwriter's Rule 17j-1 code of ethics, provided that such code has been adopted pursuant to and in compliance with Rule 17j-1 and that the Board of the Fund has also approved such code pursuant to Rule 17j-1. Such persons, however, are still subject to the principles and prohibitions contained in Section A of the Fund's Code.
FUND LEVEL POLICIES AND PROCEDURES
A. Legal Requirements.
Rule 17j-1(b) under the 1940 Act makes it unlawful for any officer or Board member of a Fund (as well as other persons who are "Access Persons"(1)), in connection with the purchase or sale, directly or indirectly, by such person of a security "held or to be acquired"(2) by the Fund:
1. To employ any device, scheme or artifice to defraud the Fund;
2. To make any untrue statement of a material fact to the Fund or omit to state a material fact necessary in order to make the statements made to the Fund, in light of the circumstances under which they are made, not misleading;
3. To engage in any act, practice or course of business that operates or would operate as a fraud or deceit on the Fund; or
4. To engage in any manipulative practice with respect to the Fund.
The policies, restrictions and procedures included in this Code are designed to prevent violations of these prohibitions. (See Rule 17j-1(b).)
In addition, the Investment Company Institute (the "ICI") has suggested that investment companies adopt additional measures to obviate conflicts, prevent and detect abusive practices and preserve the confidence of investors. The policies, restrictions and procedures included in this Code are intended to substantially conform to the additional measures suggested by the ICI.
B. Fund Policies.
It is the policy of the Fund that no Access Person of the Fund shall engage in any act, practice or course of conduct that would violate the provisions of Rule 17j-1(b) set forth above. In this regard, each Access Person has a duty at all times to place the interests of Fund shareholders first and is required to conduct all personal securities transactions consistent with the letter and spirit of this Code and in such a manner as to avoid any actual or potential conflicts of interest or any abuse of the Access Person's position of trust and responsibility. It is a fundamental standard that Access Persons should not take inappropriate advantage of their positions. (See Report of Advisory Group on Personal Investing, May 9, 1994).
C. Restrictions.
1. No Access Person shall purchase or sell, directly or indirectly, any "Covered Security"(3) where he or she has, or by reason of such transaction acquires or disposes of, any direct or indirect "Beneficial Ownership"(4) and where he or she knows or should have known, at the time of such purchase or sale, that the Covered Security:
(a) is being considered for purchase or sale by the Fund; or
(b) is being purchased or sold by the Fund.
2. All Investment Personnel must obtain approval from the Senior Compliance Manager before directly or indirectly acquiring Beneficial Ownership in any securities in an "Initial Public Offering"(5) or in a "Limited Offering."(6)
3. This Code sets forth additional requirements and restrictions that "Investment Personnel"(7) must comply with under this Code. To review such requirements and restrictions, please refer to Section H of this Code.
4. The restrictions set forth in Section C.1. shall not apply to:
(a) purchases or sales of any Covered Securities that are not eligible for purchase or sale by the Fund;
(b) purchases or sales over which the Access Person has no direct or indirect influence or control (i.e., non-volitional trades);
(c) purchases which are part of an "Automatic Investment Plan"(8);
(d) purchases which are 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 the issuer, and sales of such rights;
(e) sales which are effected pursuant to a tender offer or similar transaction involving an offer to acquire all or a significant portion of a class of securities; or
(f) purchases or sales in an investment advisory account of the Access Person (either or alone or with others) over which the investment adviser for the account exercises investment discretion if the Access Person did not have knowledge of the transaction before it was executed.
1. In addition, the restrictions set forth in Section C.1. shall not apply to purchases or sales which are only remotely potentially harmful to the Fund, as determined by the Senior Compliance Manager, because they would be very unlikely to affect a highly institutional market. Any request to purchase or sell securities which are only remotely potentially harmful to the Fund must be made in writing. Similarly, the related approval or denial of such a request will be provided in writing.
D. Procedures.
1. In order to provide the Fund with information to enable it to determine with reasonable assurance whether the provisions of Rule 17j-1(b) are being
observed by its Access Persons, each Access Person shall file the following reports with the Fund, unless the Access Person is exempt as described above in the introduction or under Section D.1.(d) from reporting:
(A) INITIAL HOLDINGS REPORT
Except in the case of Independent Board Members as provided in Section D(1) below, each Access Person of the Fund shall submit a report in the form attached hereto as Appendix A to the Senior Compliance Manager showing all holdings in Covered Securities in which the Access Person had any direct or indirect Beneficial Ownership and all accounts maintained at brokers, dealers, and/or banks where securities are held (or accounts where securities could have been held) for the direct or indirect benefit of the Access Person as of the date the person became an Access Person. Such report shall be filed not later than 10 days after the person becomes an Access Person. Information in the initial report must be current as of a date no more than 45 days prior to the date the person became an Access Person. In lieu of providing such a report, an Access Person may provide account statements to the Senior Compliance Manager. (See Rule 17j-1(d)(1)(i)).
(B) QUARTERLY TRANSACTION REPORT
Except in the case of Independent Board Members as provided in Section D(1) below, each Access Person of the Fund shall submit a report in the form attached hereto as Appendix B to the Senior Compliance Manager showing all transactions effected during the quarter in Covered Securities in which the person had any direct or indirect Beneficial Ownership and all accounts established at brokers, dealers, and/or banks that held any securities during the quarter for the direct or indirect benefit of the Access Person. Such report shall be filed not later than 30 days after the end of each calendar quarter. In lieu of providing such a report, an Access Person may arrange for broker trade confirmations and account statements to be provided directly to the Senior Compliance Manager. (See Rule 17j-1(d)(1)(ii)).
(C) ANNUAL HOLDINGS REPORT
Except in the case of Independent Board Members as provided in Section D(1) below, each Access Person of the Fund shall submit a report in the form attached hereto as Appendix C to the Senior Compliance Manager showing all holdings of Covered Securities in which the Access Person had direct or indirect Beneficial Ownership and all accounts maintained at brokers, dealers, and/or banks where securities are held (or accounts where securities could have been held) for the direct or indirect benefit of the Access Person as of the calendar year end. Information in the annual report must be current as of a date no more than 45 days before the report is submitted to the Fund. Such report shall be filed not later than 30 days after the end of each calendar year.
In lieu of providing such a report, an Access Person may provide account statements to the Senior Compliance Manager. (See Rule 17j-1(d)(1)(iii)).
(D) EXCEPTIONS FROM REPORTING REQUIREMENTS
(i) A person need not make a report that would otherwise be required by Section D with respect to transactions effected for, and Covered Securities held in, any account over which the person has no direct or indirect influence or control.
(ii) Each Fund Board member who is an Independent Board Member
and who would be required to make a report solely by reason
of being a Fund Board member, need not make an initial
holdings report or annual holdings report as would otherwise
be required by Section D.1.(a) or D.1.(c) above. An
Independent Board Member is also exempt from the requirement
to submit a quarterly transaction report as required by
Section D.1.(b), but only if during the applicable calendar
quarter there has not occurred any transaction by the
Independent Board Member in a Covered Security where the
Independent Board Member knew or, in the ordinary course of
fulfilling the Independent Board Member's official duties as
an Independent Board Member, should have known that during
the 15-day period immediately before or after the date of
the Independent Board Member's transaction in the Covered
Security, the Fund purchased or sold the Covered Security,
or the Fund or its Adviser considered purchasing or selling
the Covered Security.
(iii) An Access Person need not make a quarterly transaction report under Section D.1.(b) with respect to transactions effected pursuant to an Automatic Investment Plan (unless such transaction would override or otherwise depart from any pre-set schedule or allocation). (See Rule 17j-1(d)(2)).
2. Every Access Person of the Fund shall provide an annual certification in the form of Appendix D to the Senior Compliance Manager. This requirement applies to all Fund Board members, including those who are Independent Board Members.
3. The Board shall appoint the Senior Compliance Manager to be responsible for administering this Code. In addition, an appropriate management or compliance person shall be responsible for reviewing the reports of the Senior Compliance Manager submitted pursuant to this Code. (See Rule 17j-1(d)(3)).
4. The Senior Compliance Manager shall notify each Access Person of the Fund who may be required to make reports pursuant to this Code that such person is subject to reporting requirements and shall deliver a copy of this Code to each such person. Any amendments to this Code shall be similarly furnished to each person to whom this Code is applicable. (Rule 17j-1(d)(4)).
5. The Senior Compliance Manager shall report to the Board at the next regularly scheduled Board meeting:
(a) apparent violations of the requirements stated herein; and
(b) any transaction that the Senior Compliance Manager believes, while in technical compliance with the requirements stated herein, nonetheless may evidence a violation of this Code.
6. Each year the Senior Compliance Manager, on behalf of the Fund, must furnish to the Board, and the Board must consider, a written "annual issues and certification report" that:
(a) describes any issues arising under the Code or associated procedures, or the code of ethics and associated procedures of the Adviser, any Subadviser or principal underwriter of the Fund since the last report to the Board, including, but not limited to, information about material violations of such Code/codes or procedures and sanctions imposed in response to such violations; and
(b) certifies that the Fund, its Adviser (including any Subadviser) and principal underwriter, as applicable, have adopted procedures reasonably necessary to prevent Access Persons from violating the Code. (See Rule 17j-1(c)(2)).
7. The Board shall consider reports made to it hereunder and shall determine whether the policies established in Sections A and B of this Code have been violated, and what sanctions, if any, should be imposed. The Board shall review the operation of this Code at least once a year, and shall make and approve such changes to the Code as it deems necessary. (See Rule 17j-1(c)).
8. The Fund will maintain, at its principal place of business, and make the following records available to the SEC or any representative of the SEC at any time and from time to time for reasonable periodic, special or other examination:
(a) a copy of each code of ethics for the Fund that is in effect, or at any time within the past five years was in effect, in an easily accessible place;
(b) a record of any violation of the code of ethics, and of any action taken as a result of the violation, in an easily accessible place for at least five years after the end of the fiscal year in which the violation occurs;
(c) a copy of each report made under Section D.1. of this Code by an Access Person, including any information provided in lieu of these reports, for at least five years after the end of the fiscal year in which the report is made or the information is provided, the first two years in an easily accessible place;
(d) a record of all persons, currently or within the past five years, who are or were required to submit reports under Section D.1. of this Code, or who are or were responsible for reviewing those reports, in an easily accessible place;
(e) a copy of each report required under Section D.6. of this Code for at least five years after the end of the fiscal year in which it is made, the first two years in an easily accessible place; and
(f) a record of any decision, and the reasons supporting the decision, to approve the acquisition by Investment Personnel of securities under Part A, paragraph 1 below, for at least five years after the end of the fiscal year in which the approval is granted. (See Rule 17j-1(f)).
E. Adoption and Approval of Codes of Ethics.
The Board, including a majority of the Independent Board Members, shall approve the Code of the Fund, the code of ethics of each Adviser, Subadviser and principal underwriter of the Fund upon the initial engagement of any of them, and any material changes to these codes no later than six months after the adoption of the material change. (See Rule 17j-1(c)(1)).
F. Insider Trading and Conflicts of Interest.
The Board has adopted a policy statement on insider trading and conflicts of interests (the "Policy Statement"), a copy of which is attached hereto as Appendix E. All Access Persons are required by this Code to read and familiarize themselves with their responsibilities under the Policy Statement.
G. Sanctions.
The Board may impose such sanctions as it deems appropriate for violations of this Code.
H. Investment Personnel.
In addition to the requirements and restrictions contained in Sections A-G of this Code,
Investment Personnel are also subject to the following requirements and restrictions:
1. Any profits realized by Investment Personnel from "Short-term Trading"(9) of a Covered Security shall be disgorged to the Fund or Funds holding such Covered Security at the time of such Short-term Trading.
2. Investment Personnel are prohibited from receiving any gift or item valued at more than $100 per donor per year from any person or entity that does business with or on behalf of the Fund.
3. Investment Personnel are prohibited from serving on the board of directors of a company whose stock is publicly traded, absent prior authorization from the Senior Compliance Manager based upon a determination that the board service would be consistent with the interests of the Fund and its shareholders.
4. Investment Personnel are required to provide copies of all brokerage statements and confirmations to the Senior Compliance Manager. All Investment Personnel shall disclose all personal securities holdings upon commencement of employment with the Fund and annually thereafter.
COORDINATION WITH OVERVIEW AND IMPLEMENTATION STATEMENT
This policy and procedures statement should be read and interpreted in conjunction with the Overview and Implementation of Compliance Policies and Procedures statement at the beginning of this compliance manual.
(2) A security "held or to be acquired" by the Fund means any "Covered Security" (defined below) which, within the most recent 15 days: (i) is or has been held by the Fund; or (ii) is being or has been considered by the Fund or its Adviser for purchase by the Fund; and any option to purchase or sell, and any security convertible into or exchangeable for, a "Covered Security."
(3) A "Covered Security" (or "Covered Securities") means a security as defined in section 2(a)(36) of
the 1940 Act, other than (i) direct obligations of the Government of the United States; (ii) bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; and (iii) shares issued by open-end investment companies.
(4) A person will be treated as the "Beneficial Owner" of a security under this policy only if he or she has a direct or indirect pecuniary interest in the security, as interpreted by reference to Rule 16a-1(a)(2) under the 1934 Act.
(1) A direct pecuniary interest is the opportunity, directly or indirectly, to profit, or to share the profit, from the transaction.
(2) An indirect pecuniary interest is any nondirect financial interest, but is specifically defined in Rule 16a-1 of the 1934 Act to include securities held by members of the person's immediate family sharing the same household; securities held by a partnership of which the person is a general partner; securities held by a trust of which the person is a trustee and has both investment control and a pecuniary interest, the settlor if the person can revoke the trust, or a beneficiary if the person has or shares investment control with the trustee; and equity securities which may be acquired upon exercise of an option or other right, or through conversion.
For interpretive guidance on whether a person has a direct or indirect pecuniary interest in a transaction, the person should consult the Senior Compliance Manager. A report shall not be construed as an admission by the person making the report that he or she has any direct or indirect beneficial ownership in the security.
(5) In this Code, "Initial Public Offering" shall mean an offering of securities registered under the 1933 Act, the issuer of which, immediately before the registration, was not subject to the reporting requirements of Sections 13 or 15(d) of the 1934 Act.
(6) In this Code, "Limited Offering" shall mean an offering that is exempt from registration under the 1933 Act pursuant to Section 4(2) or Section 4(6) of, or Rule 504, Rule 505 or Rule 506 under, the 1933 Act.
(7) "Investment Personnel" includes any employee of the Fund or its Adviser (or of any company in a control relationship to the Fund or its Adviser) who, in connection with his or her regular functions or duties, makes or participates in making recommendations regarding the purchase or sale of securities by the Fund. Investment Personnel also includes any natural person who controls the Fund or its Adviser and who obtains information concerning recommendations made to the Fund regarding the purchase or sale of securities by the Fund.
(8) An "Automatic Investment Plan" means a program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation. An Automatic Investment Plan includes a dividend reinvestment plan.
(9) For purposes of this Code, "Short-term Trading" is defined as a purchase and sale, or sale and purchase, of the same (or equivalent) securities which both occur within any 60-day period.
This policy is the property of the Funds and must not be provided to any external party without express prior consent from the CCO or the appropriate BAC legal or compliance unit.
APPENDIX A
[NAME OF FUND COMPLEX]
Initial Holdings Report*
Pursuant to Section D.1.a of the Code of Ethics
To the Senior Compliance Manager:
I have reported below** all holdings of "Covered Securities" in which I had any direct or indirect "Beneficial Ownership" and all accounts maintained at brokers, dealers, and/or banks that held any securities directly or indirectly for my benefit on _____________ ____, 200__, the day I became an "Access Person." I understand that I am required to report my own holdings and accounts, and holdings and accounts of: (a) immediate family members who live with me, (b) partnerships of which I am a general partner, (c) trusts of which I am a trustee if I have investment control and either I have a pecuniary interest or an immediate family member is a beneficiary (whether or not they live with me), (d) revocable trusts of which I am a settlor, and (e) trusts of which I am a beneficiary if I have any investment control.
"COVERED SECURITIES" (direct or indirect "Beneficial Ownership")
Number of Shares (equity security) or
Title of Security Principal Amount (debt security)
----------------- -------------------------------------
|
SECURITY ACCOUNTS (holding securities for my direct or indirect benefit)
Broker, Dealer or Bank Name Name(s) on Account --------------------------- ------------------ |
This report may exclude holdings and accounts as to which I had no direct or indirect influence or control, and is not an admission that I have or had any direct or indirect "Beneficial Ownership" in the holdings and accounts listed above.
* PLEASE COMPLETE AND SUBMIT THIS FORM NO LATER THAN 10 DAYS AFTER YOU BECAME AN "ACCESS PERSON".
** YOU MAY ATTACH ACCOUNT STATEMENTS INSTEAD OF LISTING HOLDINGS AND SECURITY ACCOUNTS.
APPENDIX B
[NAME OF FUND COMPLEX]
Quarterly Transaction Report*
Pursuant to Section D.1.b of the Code of Ethics
To the Senior Compliance Manager:
I have reported below** all transactions effected in "Covered Securities" in which I had any direct or indirect "Beneficial Ownership" and all accounts established at brokers, dealers, and/or banks that held any securities directly or indirectly for my benefit during the calendar quarter ended ____________ ____, 200___. I understand that I am required to report my own transactions and accounts, and transactions and accounts of: (a) immediate family members who live with me, (b) partnerships of which I am a general partner, (c) trusts of which I am a trustee if I have investment control and either I have a pecuniary interest or an immediate family member is a beneficiary (whether or not they live with me), (d) revocable trusts of which I am a settlor, and (e) trusts of which I am a beneficiary if I have any investment control.
"COVERED SECURITIES" (direct or indirect "Beneficial Ownership")
Number of Shares Interest Rate Nature of Broker, Ticker
(equity security) or and Maturity Transaction Price of Dealer Symbol or
Title of Date of Principal Amount Date (if (Purchase, Covered or Bank CUSIP
Security Transaction (debt security) applicable) Sale Other) Security Name Number
-------- ----------- -------------------- ------------- ----------- -------- ------- ---------
|
SECURITY ACCOUNTS (holding securities for my direct or indirect benefit)
Date Account Was
Broker, Dealer or Bank Name Name(s) on Account Established
--------------------------- ------------------ ----------------
|
This report may exclude transactions and accounts as to which I had no direct or indirect influence or control, and is not an admission that I have or had any direct or indirect "Beneficial Ownership" in the securities and accounts listed above.
* PLEASE COMPLETE AND SUBMIT THIS FORM NO LATER THAN 10 DAYS AFTER THE END OF EACH CALENDAR QUARTER.
** YOU MAY ATTACH ACCOUNT STATEMENTS INSTEAD OF LISTING TRANSACTIONS AND SECURITY ACCOUNTS.
APPENDIX C
[NAME OF FUND COMPLEX]
December 31, 200_ Annual Holdings Report*
Pursuant to Section D.1.c of the Code of Ethics
To the Senior Compliance Manager:
I have reported below** all holdings of "Covered Securities" in which I had any direct or indirect "Beneficial Ownership" and all accounts maintained at brokers, dealers, and/or banks that held any securities directly or indirectly for my benefit on December 31, 200_. I understand that I am required to report my own holdings and accounts, and holdings and accounts of: (a) immediate family members who live with me, (b) partnerships of which I am a general partner, (c) trusts of which I am a trustee if I have investment control and either I have a pecuniary interest or an immediate family member is a beneficary (whether or not they live with me), (d) revocable trusts of which I am a settlor, and (e) trusts of which I am a beneficiary if I have any investment control.
"COVERED SECURITIES" (direct or indirect "Beneficial Ownership")
Number of Shares (equity security)
Title of Security or Principal Amount (debt security) Ticker Symbol or CUSIP Number
----------------- ----------------------------------- -----------------------------
|
SECURITY ACCOUNTS (holding securities for my direct or indirect benefit)
Broker, Dealer or Bank Name Name(s) on Account --------------------------- ------------------ |
This report may exclude holdings and accounts as to which I had no direct or indirect influence or control, and is not an admission that I have or had any direct or indirect "Beneficial Ownership" in the holdings and accounts listed above.
* PLEASE COMPLETE AND SUBMIT THIS FORM NO LATER THAN 30 DAYS AFTER THE END OF EACH CALENDAR YEAR.
** YOU MAY ATTACH ACCOUNT STATEMENTS INSTEAD OF LISTING HOLDINGS AND ACCOUNTS.
APPENDIX D
[NAME OF FUND COMPLEX]
Annual Certification of Compliance
for the Calendar Year Ended December 31, 200_.
Pursuant to Section D.2 of the Code of Ethics
To the Senior Compliance Manager:
I hereby certify that, during the calendar year specified above, I have complied with the requirements of the Code of Ethics and have disclosed or reported all accounts, holdings and personal securities transactions, if any, that I am required to disclose or report pursuant to the requirements of the Code of Ethics. I have read and understand the Code of Ethics and recognize that I am subject thereto.
APPENDIX E
POLICY STATEMENT ON INSIDER TRADING
A. Introduction.
The Fund seeks to foster a reputation for integrity and professionalism. That reputation is a vital business asset. The confidence and trust placed in us by investors in the Fund is something we should value and endeavor to protect. To further that goal, this Policy Statement implements procedures to deter the misuse of material, nonpublic information in securities transactions.
Trading securities while in possession of material, nonpublic information or improperly communicating that information to others may expose you to stringent penalties. Criminal sanctions may include a fine of up to $1,000,000 and/or ten years imprisonment. The SEC can recover the profits gained or losses avoided through the violative trading, impose a penalty of up to three times the illicit windfall and issue an order permanently barring you from the securities industry. Finally, you may be sued by investors seeking to recover damages for insider trading violations.
Regardless of whether a government inquiry occurs, the Fund views seriously any violation of this Policy Statement. Such violations constitute grounds for disciplinary sanctions, including dismissal.
B. Scope of the Policy Statement.
This Policy Statement is drafted broadly; it will be applied and interpreted in a similar manner. This Policy Statement applies to securities trading and information handling by Access Persons, as defined in the Fund's Code of Ethics.
The law of insider trading is unsettled; an individual legitimately may be uncertain about the application of the Policy Statement in a particular circumstance. Often, a single question can forestall disciplinary action or complex legal problems. You should direct any questions relating to the Policy Statement to the Senior Compliance Manager. You also must notify the Senior Compliance Manager immediately if you have any reason to believe that a violation of the Policy Statement has occurred or is about to occur.
C. Policy Statement.
No person to whom this Policy Statement applies may trade, either personally or on behalf of others, while in possession of material, nonpublic information; nor may the Fund's Access Persons communicate material, nonpublic information to others in violation of the law. This section reviews principles important to the Policy Statement.
1. What is Material Information?
Information is "Material" when there is a substantial likelihood that a reasonable investor would consider it important in making his or her investment decisions. Generally, this is information disclosure of which will have a substantial effect on the price of a company's securities. No simple "bright line" test exists to determine when information is material; assessments of materiality involve a highly fact-specific inquiry. For this reason, you should direct any questions about whether information is material to the Senior Compliance Manager.
Material information often relates to a company's results and operations including, for example, dividend changes, earnings results, changes in previously released earnings estimates, significant merger or acquisition proposals or agreements, major litigation, liquidation problems, and extraordinary management developments.
Material information also may relate to the market for a company's securities. Information about a significant order to purchase or sell securities may, in some contexts, be deemed material. Similarly, prepublication information regarding reports in the financial press also may be deemed material. For example, the Supreme Court upheld the criminal convictions of insider trading defendants who capitalized on prepublication information about the Wall Street Journal's "Heard on the Street" column.
2. What is Nonpublic Information?
Information is "Public" when it has been disseminated broadly to investors in the marketplace. Tangible evidence of such dissemination is the best indication that the information is public. For example, information is public after it has become available to the general public through a public filing with the SEC or other government agency, the Dow Jones "tape" or the Wall Street Journal or some other publication of general circulation, and after sufficient time has passed so that the information has been disseminated widely.
3. Identifying Inside Information
Before executing any trade for yourself or others, including the Fund, you must determine whether you have access to material, nonpublic information. If you think that you might have access to material, nonpublic information, you should take the following steps:
(i) Report the information and proposed trade immediately to the Senior Compliance Manager.
(ii) Do not purchase or sell the securities on behalf of yourself or others, including the Fund.
(iii) Do not communicate the information inside or outside the Fund, other than to the Senior Compliance Manager.
(iv) After the Senior Compliance Manager has reviewed the issue, the Fund will determine whether the information is material and nonpublic and, if so, what action the Fund should take.
You should consult with the Senior Compliance Manager before taking any action. This degree of caution will protect you and the Fund.
4. Contact with Public Companies
The Fund's contacts with public companies represent an important part of our research efforts. The Fund may make investment decisions on the basis of the Fund's conclusions formed through such contacts and analysis of publicly-available information. Difficult legal issues arise, however, when, in the course of these contacts, a Fund employee or other person subject to this Policy Statement becomes aware of material, nonpublic information. This could happen, for example, if a company's Chief Financial Officer prematurely disclosed quarterly results to an analyst or an investor relations representative makes a selective disclosure of adverse news to a handful of investors. In such situations, the Fund must make a judgment as to its further conduct. To protect yourself and the Fund, you should contact the Senior Compliance Manager immediately if you believe that you may have received material, nonpublic information.
5. Tender Offers
Tender offers represent a particular concern in the law of insider trading for two reasons. First, tender offer activity often produces extraordinary gyrations in the price of the target company's securities. Trading during this time period is more likely to attract regulatory attention (and produces a disproportionate percentage of insider trading cases). Second, the SEC has adopted a rule that expressly forbids trading and "tipping" while in possession of material, nonpublic information regarding a tender offer received from the tender offeror, the target company or anyone acting on behalf of either. Fund employees and others subject to this Policy Statement should exercise particular caution any time they become aware of nonpublic information relating to a tender offer.